Tax II (Final)

1
Tax II for Atty. Bello by Jason Arteche
BIR Ruling 071-00 Dec. 18, 2000

Facts
Sonia De Vera wants to collect her 10% professional fee (reward) granted under Sec. 282 of the 1997
Tax Code based on the fines to be collected from the Catholic Educational Association of the
Philippines (non-stock, non-profit educational institutions) for allegedly failing to comply with the
registration requirements imposed under the Tax Code.
The BIR has already ruled that CEAP is exempt from taxes under Sec. 21(a) to (f) and therefore also
exempt from BIR-registration requirements. Sonia opined that CEAP might still be liable for such
other taxes under Sec. 21 (g) and for the BIR to effectively collect such taxes; the BIR needs the
books of accounts and accounting recordings. The BIR must then penalize CEAP for failing to
observe the book keeping regulations and Sonia is entitled to the 10% reward.
Issue
Whether or not Sonia is entitled to the 10% professional fee.
Held
Sonia isnt entitled
Any person, except an internal revenue official or employees, or other public official or employee, or
his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn
information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery of
frauds upon the internal revenue laws and violations thereof, thereby resulting in the recovery of
revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any
fine or penalty,
To be qualified for the professional fee, the claimant must have been able to furnish the BIR sworn
and definite information not in the BIRs possession, something Sonia failed to provide.
Further, as to how the BIR can monitor the activities of CEAP so as to collect the proper taxes under
Sec. 21 (g) like withholding taxes, the BIR requires CEAP to file an annual information return relating
to their activities. The annual information return is sufficient for BIR to determine if the proper taxes
are paid.
A BIR ruling can never be the basis of granting an informers reward.
Feel free to use and share this digest with anyone who needs it
Dont ask me anymore, Ill just say Yes
Meralco Securities Corp. vs. Savellano

Facts
The late Juan G. Maniago (substituted in these proceedings by his wife and children) submitted to
petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco Securities
Corporation for tax evasion for having paid income tax only on 25 % of the dividends it received from
the Manila Electric Co. for the years 1962-1966, thereby allegedly shortchanging the government of
income tax due from 75% of the said dividends.
Petitioner Commissioner of Internal Revenue investigated the denunciation after which he found and
held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the
dividends it received from the Manila Electric Co. The Commissioner informed Maniago of his
findings and ruling and therefore denied Maniago's claim for informer's reward on a non-existent
deficiency.
Maniago filed a petition for mandamus to compel the Commissioner to impose the alleged deficiency
tax assessment on the Meralco Securities Corporation and to award to him the corresponding
informer's reward.
Issue
Whether or not mandamus avails to compel the Commissioner to impose the alleged deficiency tax
assessment on the Meralco Securities Corporation.
Held
Mandamus doesnt lie.
Since the office of the Commissioner of Internal Revenue is charged with the administration of
revenue laws, which is the primary responsibility of the executive branch of the government,
mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found
by him to be due or proper for that would be tantamount to a usurpation of executive functions.
Thus, the Commissioner who is specifically charged by law with the task of enforcing and
implementing the tax laws and the collection of taxes had after a mature and thorough study rendered
his decision or ruling that no tax is due or collectible, and his decision is sustained by the Secretary,
now Minister of Finance (whose act is that of the President unless reprobated), such decision or ruling
is a valid exercise of discretion in the performance of official duty and cannot be controlled much less
reversed by mandamus. A contrary view, whereby any stranger or informer would be allowed to usurp
and control the official functions of the Commissioner of Internal Revenue would create disorder and
confusion, if not chaos and total disruption of the operations of the government.
Considering then that respondent judge may not order by mandamus the Commissioner to issue the
assessment against Meralco Securities Corporation when no such assessment has been found to be
due, no deficiency taxes may therefore be assessed and collected against the said corporation. Since
no taxes are to be collected, no informer's reward is due to private respondents as the informer's heirs.
Informer's reward is contingent upon the payment and collection of unpaid or deficiency taxes. An
informer is entitled by way of reward only to a percentage of the taxes actually assessed and collected.
Since no assessment, much less any collection, has been made in the instant case, respondent judge's
writ for the Commissioner to pay respondents 25% informer's reward is gross error and without
factual nor legal basis.
Fitness by Design, Inc. vs. CIR

Facts
The Commissioner on Internal Revenue assessed Fitness by Design, Inc. for deficiency income taxes
for the tax year 1995. Petitioner protested the assessment on the ground that it was issued beyond the
three-year prescriptive period under Section 203 of the Tax Code. Respondent issued a warrant of
distraint and/or levy against petitioner drawing petitioner to file a Petition for Review before the
Court of Tax Appeals (CTA) before which it reiterated its defense of prescription.
At the preliminary hearing on the issue of prescription before the CTA, Petitioners former
bookkeeper attested that a former colleague certified public accountant Leonardo Sablan (Sablan)
illegally took custody of petitioners accounting records, invoices, and official receipts and turned
them over to the BIR.
Petitioner requested for the issuance of a subpoena ad testificandum to Sablan and of subpoena duces
tecum to the chief of the National Investigation Division of the BIR for the production of the Affidavit
of the Informer bearing on the assessment in question. In a related move, petitioner submitted written
interrogatories addressed to Sablan and to Henry Sarmiento and Marinella German, revenue officers
of the National Investigation Division of the BIR.
The CTA denied petitioners Motion for Issuance of Subpoenas and disallowed the submission by
petitioner of written interrogatories to Sablan and the revenue officers. The CTA found that to require
Sablan to testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12 of
Finance Department Order No. 46-66, proscribing the revelation of identities of informers of
violations of internal revenue laws, except when the information is proven to be malicious or false.
Issue
Whether or not the CTA committed grave abuse of discretion in not issuing the subpoenas requested.
Held
The CTA didnt commit grave abuse of discretion
The fact that Sablan was not a party to the case aside, the testimonies, documents, and admissions
sought by petitioner are not indeed relevant to the issue before the CTA. For in requesting the
issuance of the subpoenas and the submission of written interrogatories, petitioner sought to establish
that its accounting records and related documents, invoices, and receipts that were the bases of the
assessment against it were illegally obtained. The only issues, however, which surfaced during the
preliminary hearing before the CTA, were whether respondents issuance of assessment against
petitioner had prescribed and whether petitioners tax return was false or fraudulent.
Besides, as the CTA held, the subpoenas and answers to the written interrogatories would violate
Section 2 of Republic Act No. 2338 as implemented by Section 12 of Finance Department Order No.
46-66.
Petitioner claims, however, that it only intended to elicit information on the whereabouts of the
documents it needs in order to refute the assessment, and not to disclose the identity of the informer.
Petitioners position does not persuade. The interrogatories addressed to Sablan and the revenue
officers show that they were intended to confirm petitioners belief that Sablan was the informer.
CIR vs. Aquafresh Seafoods, Inc.

Facts
Respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, including
improvements thereon, located at Barrio Banica, Roxas City. Respondent then paid the Capital Gains
Tax (CGT) and Documentary Stamp Tax (DST) due from the said sale. Subsequently, Revenue
District Officer Tabanda issued Certificate Authorizing Registration.
The BIR investigated and concluded that the subject properties were commercial with a zonal value of
Php2,000.00 per square meter. The BIR sent two Assessment Notices apprising respondent of CGT
and DST deficiencies. The BIR relied on the findings that the subject properties were commercial
with a zonal valuation of Php2,000.00 per square meter. Respondent sent a letter protesting the
assessments made by Director Sacamos but said protest was denied.
Respondent filed a petition for review before the CTA seeking the reversal of the denial of its protest.
The main thrust of respondent's petition was that the subject properties were located in Barrio Banica,
Roxas, where the pre-defined zonal value was Php650.00 per square meter based on the "Revised
Zonal Values of Real Properties in the City of Roxas under Revenue District Office No. 72 Roxas
City" (1995 Revised Zonal Values of Real Properties). Respondent asserted that the subject properties
were classified as "RR" or residential and not commercial. Respondent argued that since there was
already a pre-defined zonal value for properties located in Barrio Banica, the BIR officials had no
business re-classifying the subject properties to commercial.
Issue
Whether or not the BIR validly re-classified the land from residential to commercial.
Held
The BIR erred.
Petitioner's act of re-classifying the subject properties from residential to commercial cannot be done
without first complying with the procedures prescribed by law. It bears to stress that ALL the
properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values of
Real Properties. Thus, petitioner's act of classifying the subject properties involves a re-classification
and revision of the prescribed zonal values. Revenue Memorandum No. 58-69 provides for the
procedures on the establishment of the zonal values of real properties. Petitioner failed to prove that it
had complied with Revenue Memorandum No. 58-69 and that a revision of the 1995 Revised Zonal
Values of Real Properties was made prior to the sale of the subject properties. Thus, notwithstanding
petitioner's disagreement to the classification of the subject properties, the same must be followed for
purposes of computing the CGT and DST.
Petitioner contends, nevertheless, that its act of classifying the subject properties based on actual use
was in accordance with guidelines number 1-b and 2 as set forth in "Certain Guidelines in the
Implementation of Zonal Valuation of Real Properties for RDO 72 Roxas City" (Zonal Valuation
Guidelines).
Section 1 (b) does not apply to the case at bar for the simple reason that said proviso operates only
when "no zonal valuation has been prescribed." The properties located in Barrio Banica, Roxas City
were already subject to a zonal valuation. Also, this Court need not belabor on the applicability of
Section 2 (a), as the BIR itself has already ruled that the same shall apply only when the real property
is located in an area or zone where the properties are not yet classified and their respective zonal
valuation are not yet determined. The subject properties were already part of the 1995 Revised Zonal
Value of Real Properties that classified the same as residential with a zonal value of Php650.00 per
square meter.
CIR vs. Pascor Realty and Dev. Corp.
Facts
It appears that by virtue of Letter of Authority, then BIR Commissioner Jose U. Ong authorized
Revenue Officers to examine the books of accounts and other accounting records of Pascor Realty and
Development Corporation (PRDC). The said examination resulted in a recommendation for the
issuance of an assessment.
Later, the Commissioner of Internal Revenue filed a criminal complaint before the Department of
Justice against the PRDC alleging evasion of taxes. PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability on the ground that no
formal assessment has as yet been issued by the Commissioner.. The CIR denied the urgent request
for reconsideration/reinvestigation of the private respondents.
Issue
Whether or not the revenue officers Affidavit-Report, which was attached to the criminal Complaint
filed with the Department of Justice, constitutes an assessment that could be questioned before the
Court of Tax Appeals.
Held
Not an assessment.
Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific
definition or form of an assessment. However, the NIRC defines the specific functions and effects of
an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert
the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.
An assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming
from the BIR containing a computation of the tax liability can be deemed assessments. An assessment
must be sent to and received by a taxpayer, and must demand payment of the taxes described therein
within a specific period.
The issuance of an assessment is vital in determining the period of limitation regarding its proper
issuance and the period within which to protest it. The NIRC provides that internal revenue taxes must
be assessed within three years from the last day within which to file the return. A period of ten years
in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Said
assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer
must be certain that a specific document constitutes an assessment.
In the present case, the revenue officers Affidavit merely contained a computation of respondents tax
liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice
secretary, not to the taxpayers. It was not meant to be a notice of the tax due and a demand to the
private respondents for payment thereof.
What private respondents received was a notice from the DOJ that a criminal case for tax evasion had
been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment.
Fort Bonifacio Dev. Corp. vs. CIR

Facts
Petitioner sold to Metro Pacific Corporation 2 parcels of land within Global City. To pay the amount
due to the BIR, petitioner made (a) cash payments and (b) utilized part of its total
transitional/presumptive input tax credit to the 2 lots sold and (c) regular input tax credit on purchases
of goods and services.
The BIR however disallowed the claimed presumptive input tax on land inventory. Petitioner received
an undated later from the BIR on March 5, 1998 disallowing the presumptive input tax credit claimed
and directing Petitioner to pay VAT equivalent to the disallowed presumptive input tax claimed and
penalties subject to audit verification.
Petitioner requested from the BIR in a letter dated March 11, 1998 and received March 16, 1998 for
the issuance of the required assessment notice. The BIR sent the assessment notice dated May 4, 1998
and received June 4, 1998. On July 2, 1998, Petitioner filed a request for reconsideration but the BIR
denied on the ground that the same was barred because it was filed more than 30 days from March 5,
1998.
Issue
Whether or not Petitioner is barred by the statute of limitations from protesting the assessment.
Held
Petitioner isnt barred.
An assessment is a written notice and demand made by the BIR on the taxpayer to settle due tax
liability that is there definitely set and fixed. Respondents undated letter unerringly reveals that
Petitioners tax liability was not yet definite and final considering that the same was still subject to
audit verification. Nor was a payment demanded from Petitioner within a prescribed period.
Not all documents coming from the BIR containing a computation of the tax liability can be deemed
assessments. An assessment must be sent to and received by a taxpayer, and must demand payment of
the taxes described therein within a specific period. The taxpayer must be certain that a specific
document constitutes an assessment. Otherwise, confusion would arise regarding the period within
which to make an assessment or to protest the same, or whether interest and penalty may accrue
thereon.
Further glaring is the fact that the Petitioner requested for an assessment notice that the BIR indulged,
showing that even the BIR didnt consider the undated letter petitioner received March 5, 1998 as an
assessment notice.
The assessment notice isnt a mere formal paper. The Tax Code requires that such assessment may be
protested administratively within 30 days from receipt thereof otherwise said assessment becomes
final and unappealable.
Here, its the letter dated May 4, 1998 that comes within the assessment contemplated in the Tax
Code. Petitioner received this letter on June 4, 1998 and its only from this date that the 30 day period
runs. In other words, Petitioners filing of a request for reconsideration on July 2, 1998 is timely and
said assessment hasnt become final.
Republic vs. CA
Facts
In a demand letter, the Commissioner of Internal Revenue assessed private respondent deficiency
taxes. Petitioner reiterated its demand upon private respondent for payment of said amount, per letters
dated 24 April 1956, 19 September 1956 and 9 February 1960. Private respondent did not contest the
assessment in the Court of Tax Appeals. On the theory that the assessment had become final and
executory, petitioner filed a complaint for collection of the said amount against private respondent
with the Court of First Instance of Manila. However, for failure to serve summons upon private
respondent, the complaint was dismissed, without prejudice. On motion, the order of dismissal was set
aside, at the same time giving petitioner sixty (60) days within which to serve summons upon private
respondent.
For failure anew to serve summons, the Court of First Instance of Manila dismissed without prejudice.
The complaint against private respondent for collection of the same tax was refilled
The Court of First Instance of Manila ordered private respondent Nielson & Co., Inc. to pay the
Government ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late
payment.
Issue
Whether or not there was proper notice of assessment.
Held
There was proper notice of assessment.
While the contention of petitioner is correct that a mailed letter is deemed received by the addressee in
the ordinary course of mail, still this is merely a disputable presumption, subject to controversion, and
a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee.
Since petitioner has not adduced proof that private respondent had in fact received the demand letter
of 16 July 1955, it cannot be assumed that private respondent received said letter. Records, however,
show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating
its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955.
This follow-up letter is considered a notice of assessment in itself that was duly received by private
respondent in accordance with its own admission.
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals
within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the
case at bar, makes the assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment or from invoking any
defense that would reopen the question of its liability on the merits.
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already
become final and executory, the action to collect is akin to an action to enforce a judgment. No
inquiry can be made therein as to the merits of the original case or the justness of the judgment relied
upon. ...
Sy Po vs. CTA
Facts
Petitioner is the widow of the late Mr. Po Bien Sing. The deceased Po Bien Sing was the sole
proprietor of Silver Cup Wine Factory. He was engaged in the business of manufacture and sale of
compounded liquors, using alcohol and other ingredients as raw materials.
On the basis of a denunciation against Silver Cup allegedly "for tax evasion amounting to millions of
pesos" an investigation was conducted and a subpoena duces tecum were issued against Silver Cup
requesting production of the accounting records and other related documents for the examination of
the team. Mr. Po Bien Sing did not produce his books of accounts as requested This prompted the
team with the assistance of the PC Company, Cebu City, to enter the factory bodega of Silver Cup and
seized different brands. On the basis of the team's report of investigation, the respondent
Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax.
Petitioner protested the deficiency assessments.
Issue
Whether or not the assessments have valid and legal bases.
Held
Are valid and legal.
The law is specific and clear. The rule on the "best evidence obtainable" applies when a tax report
required by law for the purpose of assessment is not available or when the tax report is incomplete or
fraudulent.
In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present
their books of accounts for examination for the taxable years involved left the Commissioner of
Internal Revenue no other legal option except to resort to the power conferred upon him under Section
16 of the Tax Code.
The tax figures arrived at by the Commissioner of Internal Revenue are by no means arbitrary.
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the
duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in favour of the correctness of tax assessments.
On the whole, we find that the fraudulent acts detailed in the decision under review had not been
satisfactorily rebutted by the petitioner. There are indeed clear indications on the part of the taxpayer
to deprive the Government of the taxes due.
CIR vs. Benipayo

Facts
Respondent is the owner and operator of the Lucena Theater. Internal Revenue Agent De Guia
investigated respondent's amusement tax liability in connection with the operation of said theater. De
Guia submitted his report to the effect that respondent had disproportionately issued tax-free 20centavo children's tickets. His finding was that during the years 1949 to 1951 the average ratio of
adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering the
theater, one child was also admitted, while during the period in question, the proportion is reversed three children to one adult. From this he concluded that respondent must have fraudulently sold two
tax-free 20-centavo tickets, in order to avoid payment of the amusement tax.
Examiner de Guia recommended a deficiency amusement tax assessment against respondent.
Petitioner issued a deficiency amusement tax assessment against respondent, demanding from the
latter payment within thirty days from receipt thereof. Respondent filed the corresponding protest
with the Bureau of Internal Revenue.
After due hearing, the BIR Conference Staff submitted to petitioner Collector of Internal Revenue its
finding that the "meager reports of these field men (Examiner de Guia and the Provincial Revenue
Agent of Quezon) are mere presumptions and conclusions, devoid of findings of the fact of the
alleged fraudulent practices of the herein taxpayer".
Issue
Whether or not there is sufficient evidence in the record showing that respondent, during the period
under review, sold and issued to his adult customers two tax-free 20-centavo children's tickets, instead
of one 40-centavo ticket for each adult customer; to cheat or defraud the Government.
Held
No sufficient evidence.
An assessment fixes and determines the tax liability of a taxpayer. As soon as it is served, an
obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded.
Hence, assessments should not be based on mere presumptions no matter how reasonable or logical
said presumptions may be. Assuming arguendo that the average ratio of adults and children
patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the
inference that the same conditions existed during the years in question (1952 and 1953). The fact that
almost the same ratio existed during the month of July, 1955 does not provide a sufficient inference
on the conditions in 1952 and 1953. . .
In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The
presumption of correctness of assessment being a mere presumption cannot be made to rest on another
presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in
1949 to 1951 and July 1955. In the case under consideration there are no substantial facts to support
the assessment in question. ...
Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof
which, in the present case, is lacking.
10
Chemical Industries of the Phil, Inc. vs. CIR

Facts
Petitioner received an assessment from Respondent brought about by the disallowance of interest
expense and bank charges which petitioner claimed as deductions from its income. The deductions
were disallowed because the proceeds of the loans were allegedly applied to the acquisition of
investments in stock of affiliated companies.
Petitioner challenged the assessment but the Respondent denied the same.
Issue
Whether or not the assessment is correct.
Held
After an exhaustive and painstaking scrutiny of the evidence. We are constrained to uphold the
deficiency income tax assessment but in a substantially reduced amount.
Loans obtained by petitioner were primarily applied to investments.
The increase in investment account was basically due to the effected spin-off of the manufacturing
operations. With the increase in investments, there was a corresponding decrease in property, plant
and equipment of the petitioner. Further, the proceeds of the loans were mostly used to pay currently
maturing obligations.
Respondents allegation therefore was based on mere presumptions. Assessments shouldnt be based
on presumptions no matter how logical the presumptions might be. Such assessment must be based on
actual facts.
Loans dont have any economic substance except to evade paying the tax due
Bereft of any basis
Loans of petitioner in which the property of its affiliates are collaterals are in reality the loans of
affiliates.
The civil code allows 3rd persons to offer their own property as collateral for the obligations of others.
Loans from affiliates are sham transactions and should be treated as advance capitalization and
interest payments as dividend payments.
The Tax Code Sec. 30(b)(3) disallows the interest payment as deductions, because certain affiliates
(i.e. Polyphosphates) are considered as related taxpayers. This deduction was properly disallowed.
11
Sony Philippines, Inc. vs. CIR

Facts
Petitioner received a Letter of Authority No. 000019734 issued by then BIR Commissioner Beethoven
Rualo authorizing Revenue Officers A. Aluquin, M.A. Perez, G.L. Samoy, T. Villamor, S. Villarin &
A. See to be supervised by Group Head G. Urot of Special Team created pursuant to RSO 673-98, to
examine its books of accounts and other accounting records for all internal revenue taxes for the
period 1997 and unverified prior years.
Petitioner received a preliminary assessment notice for the proposed assessments for 1997 deficiency
taxes and penalties. Petitioner protested the aforesaid proposed assessments to no avail.
Issue
Whether or not the assessment is valid.
Held
The revenue examiners went beyond the authority conferred to them by the LOA and therefore the
assessment is void.
Pursuant to RAMO 2-95, a LOA authorizes the designated Revenue Officer to examine a taxpayers
books and records related to his internal revenue tax liabilities for a particular period. Here, the letter
of authority authorized the examiners to examine petitioners books of accounts and other accounting
records for the period 1997 & unverified prior years. However, the respondents basis for the
deficiency for the year 1997 was the year 1998.
Records disclose that petitioner is adopting a fiscal year ending March 31. The period specified in the
letter of authority was for the year 1997 and prior years. If we harmonized the two, it follows that the
examination should have been limited to the fiscal year ended March 31 , 1997 and prior years. But
since petitioner commenced its business operations only on October 1, 1997, it would render the letter
of authority invalid because there was no business operation yet. Neither could we construe that the
period referred in the letter of authority covered the fiscal year ended March 31, 1998 and prior years.
As discussed, the period covered by the subject letter of authority was 1997 and prior years which was
legibly typed-written thereon.
At most, the revenue examiners were authorized to examine transactions of petitioner for the period
October 1997 to December 1997. Clearly then, the revenue examiners acted without authority in
arriving at the deficiency VAT assessment. Thus, the same should be considered without force and
effect. A deficiency assessment issued without a valid authority is a nullity.
12
Republic vs. Lim TIan Teng Sons & Co

Facts
Lim Tian Teng Sons & Co., Inc. filed its income tax return based on accrued income and expenses.
In the audit and examination of taxpayer's income tax return, the Collector of Internal Revenue
assessed a deficiency income tax and demanded payment.
Lim Tian Teng Sons & Co., Inc. requested reinvestigation of its income tax liability. The Collector of
Internal Revenue did not reply; instead, he referred the case to the Solicitor General for collection by
judicial action. The Solicitor General demanded from Lim Tian Teng Sons & Co., Inc. the payment,
stating that otherwise judicial action would be instituted without further notice.
Lim Tian Teng Sons & Co., Inc. reiterated its request for reinvestigation. The Collection of Internal
Revenue informed the taxpayer that its request for reinvestigation would be granted provided it
executed within ten days a waiver of the statute of limitations. As Lim Tian Teng Sons & Co., Inc.
failed to file a waiver of the statute of limitations, the Collector of Internal Revenue instituted an
action in the Court of First Instance of Cebu for the collection of deficiency income tax.
Issue
Whether or not the lower court has no jurisdiction to entertain this case on the ground that the
Collector of Internal Revenue has not yet issued his final decision on its requests for reinvestigation.
Held
The lower court has jurisdiction
The taxpayer's stand is that final decision of the Collector of Internal Revenue on the disputed
assessment is a condition precedent to the filing of an action in the Court of First Instance for the
collection of a tax. This argument has no merit.
The Collector of Internal Revenue is authorized to collect delinquent internal revenue taxes either by
distraint and levy or by judicial action or both simultaneously. The only requisite before he can collect
the tax is that he must first assess the same within the time fixed by law. And in the case of a false or
fraudulent return with intent to evade the tax or of a failure to file a return, a proceeding in court for
the collection of such tax may be begun without assessment.
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's
request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. The
legislative policy is to allow the Collector of Internal Revenue much latitude in the speedy and prompt
collection of taxes. Republic Act 1125 creating the Court of Appeals allows the taxpayer to dispute the
correctness legality of an assessment both in the purely administrative level and in said court, but it
does not stop the Collector of Internal Revenue from collecting the tax except when enjoined by said
Court of Tax Appeals.1
In fact, there was a final and executory assessment when the CIR referred the matter to the Solicitor
General for collection. The taxpayer shouldve filed a petition for review with the CTA from that
moment.2
Section 11 of Republic Act 1125 states in part:
No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue ...
shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law: Provided, however, That when in the
opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of
Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of
1 Obiter dictum
2 Atty. Bellos opinion
13
the proceeding may suspend the said collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the amount with the Court.
14
San Juan vs. Vasquez

Facts
The Collector of Internal Revenue wrote the petitioner informing him that the latter is given a period
of grace to pay the deficiency taxes without penalty, or to submit evidence to show that the
assessments of the respondent Commissioner are incorrect.
In accordance with the said letter, the petitioner sent a communication to the Collector of Internal
Revenue explaining why the assessments of income tax and deficiency income tax were not due and
owing from the Respondent. Nothing was heard from the Collector of Internal Revenue on the matter
except when the Collector brought the action for collection in the Court of First Instance of Manila
against petitioner Eduardo San Juan.
The defendant contested the assessments and moved to dismiss the action on the ground that the court
had no jurisdiction to take cognizance of the action because the matter involved a disputed
assessment, the jurisdiction of which fell upon the Court of Tax Appeals; and that there is a pending
action in the Court of Tax Appeals, involving the same disputed assessment.
Issue
Whether or not the CFI has jurisdiction to try the case.
Held
The CFI has no jurisdiction.
Petitioner reiterates before this Court the grounds relied upon by him in his motion to dismiss. In
support of his claim that the lower court has no jurisdiction to try and decide the instant case because
it involves a disputed assessment, he cites the provisions of Section 7 of Republic Act No. 1125 and
the decision of this Court in the case of Blaquera v. Rodriguez, Et Al., L-10935, prom.
The complaint is for the recovery of income taxes and deficiency tax and the petitioner herein in his
answer questions the legality and correctness of said assessment. Respondent Collector refused to
correct the assessment, claiming the same to be in accordance with law. The claim is without
foundation in law or in fact. The Collector may not overlook the fact that the assessment had been
disputed as the objections to the assessment had been made at the opportune time. He may not ignore
the positive dispute against the assessment by immediately bringing an action to collect, thus
depriving the taxpayer of his right to appeal the disputed assessment. As the legality and correctness
of the assessment is in dispute, the following provisions of Section 7 of Republic Act No. 1125 apply
to the case:
"SEC. 7. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein
provided
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;
It is our considered opinion that the determination of the correctness or incorrectness of a tax
assessment to which the taxpayer is not agreeable falls within the jurisdiction of the Court of Tax
Appeals and not of the Court of First Instance, for under the aforequoted provision of law, the Court
of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector
of Internal Revenue in cases involving disputed assessments and other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue."
15
Yabes vs. Flojo

Facts
Doroteo Yabes received a letter from the Commissioner of Internal Revenue dated March 27, 1962
demanding payment as compromise penalty allegedly due from Yabes. Doroteo Yabes filed with the
Commissioner's Office his letter protesting the assessment.
Doroteo Yabes, requested for the reinvestigation, or review of the case by the appellate division of the
Bureau of Internal Revenue; Yabes also requested that the appeal be held in abeyance pending final
decision of the Case of Cirilo D. Constantino; in reply, the Commissioner informed Doroteo Yabes on
September 18, 1962 that the latter's request for reinvestigation was denied but later the Commissioner
wrote a letter advising Doroteo Yabes that "the administrative appeal ... will be held in abeyance
pending the resolution of the issues in a similar case (obviously referring to the aforesaid Constantino
case)";
Later, the Court of Tax Appeals decided the Constantino "test" case. 3 Later, Doroteo Yabes received a
letter from the Commissioner further confirming the previous understanding that the final resolution
of the protest of the deceased Doroteo Yabes was "being held in abeyance until the Supreme Court
renders its decision on a similar case involving the same factual and legal issues brought to it on
appeal" (referring to the Constantino "test" case);
On January 20, 1971, petitioners received the summons and a copy of the complaint filed by the
Commissioner on December 4, 1970 with the Court of First Instance that seeks to collect from the
petitioners deficiency taxes. Taking the complaint as the final decision of the Commissioner on the
disputed assessment against the deceased taxpayer Doroteo Yabes, petitioners filed on February 12,
1971, a petition for review of said disputed assessment with the Court of Tax Appeals.
Issue
Whether or not the letter dated March 27, 1962 received from the CIR has become final, executory,
and incontestable after Doroteo Yabes had received the Commissioner's letter denying the latter's
protest against the said assessment and subsequent failure to appeal therefrom within the 30-day
period
Held
The letter hasnt become final, executory, and incontestable.
The period for appeal should not be counted from September 18, 1962. Respondent informed
petitioners that a resolution of their protest was being held in abeyance until the Supreme Court
renders a decision on a similar case "involving the same factual and legal issues". It is thus clear in
that respondent reconsidered the finality of his decision assuming arguendo that the letter had a tenor
of finality.
The records show that a warrant of distraint and levy was issued on October 2, 1970. Had this been
served on Doroteo Yabes, it would have been equivalent to a final decision, ... There is, however,
nothing to show that it was ever served on Yabes. Neither is there anything in the record to show that
a formal decision of denial was made.
Under the circumstances of this case, what may be considered as final decision or assessment of the
Commissioner is the filing of the complaint for collection in the respondent Court of First Instance,
the summons of which was served on petitioners on January 20, 1971, and that therefore the appeal
with the Court of Tax Appeals in CTA Case was filed on time. The respondent Court of First Instance
of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the
assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the
contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the
3 Was appealed to the Supreme Court.
16
Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner
is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case.
Petitioners received the summons in Civil Case of the respondent Court of First Instance of Cagayan
on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case, on
February 12, 1971, well within the thirty-day prescriptive period. The Court of Tax Appeals has
exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue
in cases involving disputed assessments and other matters arising under the National Internal Revenue
Code.
For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed
the complaint filed in Civil Case.4
4 The CIR shouldve waited until the 30-day period had prescribed.
17
CIR vs. Pascor Realty and Dev. Corp.

Facts
It appears that by virtue of Letter of Authority, then BIR Commissioner Jose U. Ong authorized
Revenue Officers to examine the books of accounts and other accounting records of Pascor Realty and
Development Corporation (PRDC). The said examination resulted in a recommendation for the
issuance of an assessment.
Later, the Commissioner of Internal Revenue filed a criminal complaint before the Department of
Justice against the PRDC alleging evasion of taxes. PRDC, et. al. filed an Urgent Request for
Reconsideration/Reinvestigation disputing the tax assessment and tax liability on the ground that no
formal assessment has as yet been issued by the Commissioner.. The CIR denied the urgent request
for reconsideration/reinvestigation of the private respondents.
Issue
Whether or not an assessment must precede the filing of a criminal complaint.
Held
Assessment not necessary to precede the filing of a criminal complaint.
The NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of
failure to file a return such as this case, proceedings in court may be commenced without an
assessment. Furthermore the same Code clearly mandates that the civil and criminal aspects of the
case may be pursued simultaneously.
In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal Complaints for being
premature, since his protest to the CTA had not yet been resolved. The Court held that such protests
could not stop or suspend the criminal action that was independent of the resolution of the protest in
the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do
both.
Section 222 of the NIRC states that an assessment is not necessary before a criminal charge can be
filed. This is the general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, a prima facie showing of failure to file a required return need only support the
criminal charge. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer
is then given a chance to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to
the taxpayer informing the latter specifically and clearly that an assessment has been made against
him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against
him, not that the commissioner has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax
Code.
18
Republic vs. Patanao

Facts
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro
B. Patanao, it is alleged that defendant failed to file income tax returns, and although he filed income
tax returns for certain years, the same were false and fraudulent because he did not report substantial
income earned by him from his business; that in an examination conducted by the Bureau of Internal
Revenue on defendant's income and expenses, it was ascertained deficiency income taxes and
additional residence taxes for the aforesaid years, is due from defendant; that plaintiff sent a letter of
demand with enclosed income tax assessment to the defendant requiring him to pay the said amount;
that notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes;
and that the assessment for the payment of the taxes in question has become final, executory and
demandable, because it was not contested before the Court of Tax Appeals.
Defendant moved to dismiss the complaint on two grounds, namely:
1. That the action is barred by prior judgment, defendant having been acquitted in criminal cases
of the same court, which were prosecutions for failure to file income tax returns and for nonpayment of income taxes; and that
2. The action has prescribed.
Issue
Whether or not the action to collect the tax due is barred by prior judgment in the criminal cases.
Held
Not barred by prior judgment.
In applying the principle underlying the civil liability of an offender under the Penal Code to a case
involving the collection of taxes, the court a quo fell into error.
Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated
differently, the criminal liability gives birth to the civil obligation such that generally, if one is not
criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation
under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for
instance, that one has engaged himself in business, and not because of any criminal act committed by
him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The
incongruity of the factual premises and foundation principles of the two cases is one of the reasons for
not imposing civil indemnity on the criminal infractor of the income tax law.
Another reason, of course, is found in the fact that while section 73 of the National Internal Revenue
Code has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or
neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in
criminal proceedings.
The only civil remedies provided, for the collection of income tax, are distraint of goods, chattels, etc.
or by judicial action, which remedies are generally exclusive in the absence of a contrary intent from
the legislator. Considering that the Government cannot seek satisfaction of the taxpayer's civil liability
in a criminal proceeding under the tax law or, otherwise stated, since the said civil liability is not
deemed included in the criminal action, acquittal of the taxpayer in the criminal proceeding does not
necessarily entail exoneration from his liability to pay the taxes. It is error to hold, as the lower court
has held, that the judgment in the criminal cases bars the action in the present case. The acquittal in
the said criminal cases cannot operate to discharge defendant appellee from the duty of paying the
taxes that the law requires to be paid, since that duty is imposed by statute prior to and independently
of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.
19
Ungab vs. Cusi

Facts
BIR Examiner Ben Garcia examined the income tax returns filed by the herein petitioner, Quirico P.
Ungab. In the course of his examination, he discovered that the petitioner failed to report his income
derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City
sent a "Notice of Taxpayer" to the petitioner informing him that there is due from him (petitioner) the
amount representing income, business tax and forest charges and inviting petitioner to an informal
conference where the petitioner, duly assisted by counsel, may present his objections to the findings
of the BIR Examiner.
Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting the
assessment and that his income, as reported in his income tax returns for the said year, was accurately
stated. BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a
fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Bureau of Internal
Revenue.
Thereafter, State Prosecutor Jesus Acebes conducted a preliminary investigation of the case, and
finding probable cause, filed six (6) informations against the petitioner with the Court of First
Instance of Davao City concerning violations of the Tax Code.
Issue
Whether or not that the filing of the informations was precipitate and premature since the
Commissioner of Internal Revenue has not yet resolved his protests against the assessment
Held
An assessment isnt necessary before a criminal action can proceed.
The contention is without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals,
but a criminal prosecution for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to enforce collection before
the assessment procedures provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a criminal prosecution under the
Code.
The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary
before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete
when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to
evade and defeat a part or all of the tax.
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat
and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no connections with the
commission of the crime.
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a
criminal action for violation of law. Obviously, the protest of the petitioner against the assessment of
the District Revenue Officer cannot stop his prosecution for violation of the National Internal
Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion
to quash filed by the petitioner.
20
Churchill vs. Rafferty

Facts
The judgment appealed from in this case perpetually restrains and prohibits the defendant and his
deputies from collecting and enforcing against the plaintiffs and their property the annual tax
mentioned and described in subsection (b) of section 100 of Act No. 2339, effective July 1, 1914, and
from destroying or removing any sign, signboard, or billboard, the property of the plaintiffs, for the
sole reason that such sign, signboard, or billboard is, or may be, offensive to the sight; and decrees the
cancellation of the bond given by the plaintiffs to secure the issuance of the preliminary injunction
granted soon after the commencement of this action.
Issue
Whether or not injunction lies to stop the collection of taxes.
Held
The mere fact that a tax is illegal, or that the law, by virtue of which it is imposed, is unconstitutional,
does not authorize a court of equity to restrain its collection by injunction
21
CIR vs. Cebu Portland Cement Co.

Facts
The Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company
the amount representing overpayments of ad valorem taxes on cement produced and sold by it.
Respondent moved for a writ of execution to enforce the said judgment. The petitioner opposed the
motion on the ground that the private respondent had an outstanding sales tax liability to which the
judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on
the sales taxes.
The Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the private
respondent was still being questioned and therefore could not be set-off against the refund.
Issue
Whether or not the assessment can be enforced despite being still contested.
Held
The assessment can be enforced.
The argument that the assessment cannot as yet be enforced because it is still being contested loses
sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment
of taxes could be postponed by simply questioning their validity, the machinery of the state would
grind to a halt and all government functions would be paralyzed. That is the reason why, save for the
exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No court shall have authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
which he will later have the right to distrain for payment of its sales tax liability is in our view an idle
ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
22
Sec. 11 RA 1125 as amended by RA 9282

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs,
the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the
Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA
within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period
fixed by law for action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided for
under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the
receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of
the period fixed by law to act thereon. A Division of the CTA shall hear the appeal: Provided,
however, That with respect to decisions or rulings of the Central Board of Assessment Appeals and the
Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a
petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules
of Civil Procedure with the CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7
shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division
of the CTA may file a motion for reconsideration of new trial before the same Division of the CTA
within fifteens (15) days from notice thereof: Provide, however, That in criminal cases, the general
rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the
Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the
Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case
may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the
opinion of the Court the collection by the aforementioned government agencies may jeopardize the
interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the
said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond
for not more than double the amount with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the
Government may directly file the said cases with the CTA covering amounts within its exclusive and
original jurisdiction.
23
BIR Ruling 111-99 July 22 1999

Facts
This refers to your letter dated 20 January 1999 appealing for the grant of general amnesty to all
Barangays in the City of Manila in connection with the penalties imposed on delayed remittance of
withholding tax payments by the said Barangays.
Issue
Whether or not the BIR can grant the amnesty prayed for.
Held
The BIR has no such power.
In reply, please be advised that much to our regret, this Office is not empowered to grant a general
amnesty in respect of any tax liability incurred by a particular class of taxpayers. Only Congress
possesses this authority under its plenary power. However, pursuant to Section 204 (B) of the Tax
Code of 1997, the Commissioner may abate or cancel a tax liability on a case-to-case basis, taking
into account the presence of the statutory basis therefor, i.e., (a) when the tax or any portion thereof
appears to be unjustly or excessively assessed; or (b) when the administration and collection costs
involved do not justify the collection of the amount due. This means that any application for
abatement of any tax liability, such as the penalties requested for by the concerned barangays in the
City of Manila, would have to be appreciated on the merit of each individual case.
As it is, this Office has already made official records or case dockets of certain liabilities incurred by
the affected barangays. Thus, the cancellation of any of said cases, if merited, would require that a
particular application be directed thereto by the affected barangay, citing the justifications relied upon.
We therefore advise that the concerned barangays act accordingly with the assurance that this Office
shall give preferential action to any application filed.
24
BIR Ruling 059-01 December 20 2001

Facts
This refers to your letter dated May 16, 2000 requesting, on behalf of your client, Mitsubishi
Corporation, Japan (MC-Japan) for a ruling confirming your opinion that the assignment of
subscription to one hundred eighty eight million (188,000.00) common shares in Manila Water
Company, Inc. (MWC) by Ben MWSS Holdings, Ltd. (BMHL) to MC-Japan is not subject to
documentary stamp tax (DST).
No DST was paid on the assignment of subscription following BIR Ruling No. 173-89 where it was
held that the assignment of the right to subscribe is exempt from the payment of DST under Section
176 of the National Internal Revenue Code (NIRC) of 1977.
Issue
Whether or not the assignment of subscription where BMHL has assigned to MC-Japan all its rights
and interests in the 188,000,000 common shares it previously subscribed from MWC is equivalent to
an assignment of shares.
Held
The assignment is equivalent to an assignment of shares.
The subsequent assignment of BMHL of its subscription of the 188,000,000 common shares in MWC
is equivalent to an assignment of shares of stock subject to DST under Section 176 of the NIRC of
1977.
The decision of the SC in the case of Commissioner of Internal Revenue vs. Construction Resources
of Asia forms part of the law of the land under Article 8 of the Civil Code of the Philippines. Thus,
following the cardinal rule that laws shall have no retroactive effect unless the contrary is provided
(Article 4, Civil Code), the SC decision will apply to transactions executed after such decision has
become final. This will include the subject transaction of your client. The SC decision takes
precedence over rulings issued by administrative agencies such as BIR Ruling No. 173-89.
However, since your client relied on the said ruling, the increments accruing from the non-payment of
DST is hereby abated pursuant to Section 204 (B) of the NIRC of 1997 as implemented by Revenue
Regulations (RR) No. 13-2001 provided that the basic DST liability under Section 176 is paid within
thirty (30) days from receipt of this ruling. For this purpose, your client is hereby enjoined to comply
with the procedural requirements of RR 13-2001.
25
CIR vs. Javier Jr.

Facts
Victoria L. Javier, the wife of the petitioner (private respondent herein), received from the Prudential
Bank and Trust Company the amount of US$999,973.70 remitted by her sister, Mrs. Dolores Ventosa,
through some banks in the United States, among which is Mellon Bank, N.A.
Mellon Bank, N.A. filed a complaint against the petitioner (private respondent herein), his wife and
other defendants, claiming that its remittance of US$1,000,000.00 was a clerical error and should
have been US$1,000.00 only, and praying that the excess amount of US$999,000.00 be returned on
the ground that the defendants are trustees of an implied trust.
The petitioner (private respondent herein) filed his Income Tax Return for the taxable year 1977
showing a gross income of P53,053.38 and a net income of P48,053.88 and stating in the footnote of
the return that "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 petitioner (private respondent herein) received a letter from the acting Commissioner of Internal
Revenue together with income assessment notices for the years 1976 and 1977, demanding that
petitioner (private respondent herein) pay deficiency assessments for the years 1976 and 1977
respectively. . . .
The petitioner (private respondent herein) wrote the Bureau of Internal Revenue that he was paying
the deficiency income assessment for the year 1976 but denying that he had any undeclared income
for the year 1977 and requested that the assessment for 1977 be made to await final court decision on
the case filed against him for filing an allegedly fraudulent return. . . .
The petitioner (private respondent herein) received from Commissioner of Internal Revenue a letter
that "the amount of Mellon Bank's erroneous remittance which you were able to dispose, is definitely
taxable." . . .
Issue
Whether or not petitioner is guilty of fraud.
Held
Petitioner isnt guilty of fraud.
Under the then Section 72 of the Tax Code (now Section 248 of the 1988 National Internal Revenue
Code), a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from
him or of the deficiency tax in case payment has been made on the basis of the return filed before the
discovery of the falsity or fraud.
We are persuaded considerably by the private respondent's contention that there is no fraud in the
filing of the return and agree fully with the Court of Tax Appeals' interpretation of Javier's notation on
his income tax return filed on March 15, 1978 thus not constituting fraud, that such notation was
practically an invitation for investigation and that Javier had literally "laid his cards on the table."
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. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the
tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding
the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent.
In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading
of the government agency concerned, the Bureau of Internal Revenue, headed by the herein petitioner.
The government was not induced to give up some legal right and place itself at a disadvantage so as to
prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal
26
anything. Error or mistake of law is not fraud. The petitioner's zealousness to collect taxes from the
unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty
in this case is not justified by the extant facts. Javier may be guilty of swindling charges, perhaps even
for greed by spending most of the money he received, but the records lack a clear showing of fraud
committed because he did not conceal the fact that he had received an amount of money although it
was a "subject of litigation." As ruled by respondent Court of Tax Appeals, the 50% surcharge
imposed as fraud penalty by the petitioner against the private respondent in the deficiency assessment
should be deleted.
27
CIR vs. Japan Air Lines

Facts
Respondent Japan Air Lines, Inc. (hereinafter referred to as JAL for brevity), is a foreign corporation
engaged in the business of international air carriage. JAL did not have planes that lifted or landed
passengers and cargo in the Philippines as it had not been granted then by the Civil Aeronautics Board
(CAB) a certificate of public convenience and necessity to operate here. However, JAL had
maintained an office at the Filipinas Hotel, Roxas Boulevard, Manila. Said office did not sell tickets
but was maintained merely for the promotion of the company's public relations and to hand out
brochures, literature and other information playing up the attractions of Japan as a tourist spot and the
services enjoyed in JAL planes.
JAL constituted the Philippine Air Lines (PAL), as its general sales agent in the Philippines. As an
agent, PAL, among other things, sold for and in behalf of JAL, plane tickets and reservations for cargo
spaces which were used by the passengers or customers on the facilities of JAL.
JAL received deficiency income tax assessment notices and a demand letter from petitioner
Commissioner of Internal Revenue (hereinafter referred to as Commissioner for brevity), for a total
amount inclusive of 50% surcharge and interest.
JAL protested said assessments but the Commissioner denied JAL's request for cancellation of the
assessment.
Issue
Whether or not JAL is guilty of fraud.
Held
JAL isnt guilty.
Having established the tax liability of respondent JAL, the only thing left to determine is the propriety
of the 50% surcharge imposed by petitioner. It appears that this must be answered in the negative.
Nowhere in the records of the case can be found that JAL deliberately failed to file its income tax
returns for the years covered by the assessment. There was not even an attempt by petitioner to prove
the same or justify the imposition of the 50% surcharge. All that petitioner did was to cite the
provision of law upon which the surcharge was based without explaining why it was applicable to
respondent's case. Such cannot be countenanced for mere allegations are definitely not acceptable.
The willful neglect to file the required tax return or the fraudulent intent to evade the payment of
taxes, considering that the same is accompanied by legal consequences, cannot be presumed.
The fraud contemplated by law is actual and 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. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the
tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of evading
the tax. This was not proven to be so in the case of JAL as it believed in good faith that it doesnt need
to file the tax return for it had no taxable income then. The element of fraud is lacking. At most, only
negligence may be imputed to JAL for not ascertaining the dispensability of filing the tax returns. As
such, JAL may be subjected only to the 25% surcharge prescribed by the law.
28
PICOP vs. CIR

Facts
PICOP enjoys a 100% exemption from all taxes, except income tax. The 100% tax exemption expired
on Dec. 31, 1972 and beginning January 1, 1973, its exemption stood at 75%. PICOP requested the
Board of Industries to extend the 100% exemption for 3 years. The request was granted and so PICOP
stopped paying percentage taxes. NEDA later on denied the extension causing PICOP to being paying
the 25% percentage taxes due. The NEDA later reversed itself and approved the extension. PICOP
requested that the extension be made retroactive. The NEDA referred the request to the BIR and the
latter stated that payment of percentage taxes is mandatory and the exemption cant be extended. The
BIR recommended an assessment against PICOP that was later issued for deficiency taxes.
Issue
Whether or not petitioner is liable to pay the 25% surcharge for late payment of sales taxes
Held
Petitioner isnt liable to pay.
Indeed, as truly and correctly preferred by petitioner, it was only relying with honesty and in utmost
good faith upon the information of the BOI that it had approved its 100% sales tax exemption, which
prompted it not to pay the 25% of the 7% sales tax due for the 4th quarter of 1973 and the 1st and 2nd
quarters of 1974.
Consequently, where a tax-payer failed to pay its taxes due to and on account of the fact that it based
its actions upon reliance to certain official; facts or rulings, the 25% penalty or surcharge is not
imposable upon said taxpayer as it was only acting in complete honesty and good faith when it did not
pay said sales tax.
29
CIR vs. Pilipinas Shell Petroleum Corp.

Facts
On certain years during the period 1988 to 1997, respondent paid certain excise tax liabilities using
tax credit certificates (TCCs) assigned and transferred to it by entities that, like itself, are registered
with the BOI. The TCC transfers to, and utilization thereof by, respondent were all approved by the
appropriate government agencies,
Respondent's acceptance of TCC transfers and utilization of the same in payment of taxes, were never
subjected to any question, challenge or dispute. Later, the DOF/Center wrote respondent a letter
stating that the TDMs enumerated in the list attached thereto, as well as the corresponding TCCs and
TCC transfers had been cancelled by the DOF/Center. Respondent received an assessment letter from
petitioner for deficiency excise taxes, surcharge and interest based on the first batch lists of cancelled
TDMs issued against respondent's TCCs.
Issue
Whether or not respondent is liable to pay the 50% fraud surcharge.
Held
Not liable to pay 50% surcharge, only the 25% surcharge.
However, with regard to the imposition of a 50% fraud surcharge, We agree with respondent that
that the same should not be imposed. There is no direct proof introduced by the petitioner in this case
to the effect that respondent committed fraud. No 50% fraud is applicable in the absence of proof of
fraud on the part of taxpayer, notwithstanding the applicability of the ten (10) -year prescriptive
periods from discovery of the fraud, falsity or omission.
Respondent was negligent in obtaining the TCCs involved considering that it failed to investigate the
validity of the TCCs in the face of express provisions in each certificate that the same is subject to
post-audit and that under the liability clause, both the transferor and transferee (respondent) of such
certificate are jointly and severally liable for any fraudulent act or violation of the pertinent laws,
rules and regulations relating to the transfer of such certificate.
Hence, there is no direct proof introduced in this case linking the respondent to any fraud. Therefore,
what is applicable in the case at bar is the 25% late payment surcharge, not the 50% fraud surcharge.
Both the 25% surcharge and the 20% interest per annum imposed cannot be waived. The same are
meant to compensate the Government for the inability to use the taxes during the time such taxes
remain unpaid
As such, the Court En Bane finds no compelling reason to waive the late payment surcharge and
interest in this case considering that respondent took the TCCs at its own risk.
30
BIR Ruling 002-95

Facts
This refers to your letter dated May 8, 1992 stating that due to the demolition of the YMCA of the
Philippines buildings and facilities, your main source of income and from which you derived your
salaries has been totally lost; and that the proposed new building is still under negotiation with your
present developer which up to now is still uncertain.
Based on the foregoing, you now request that you be exempted from the payment of penalty on the
remittance of your monthly withholding tax and the expanded withholding tax because your resource
has been depleted.
Issue
Whether or not YMCA can be exempted from the penalty.
Held
YMCA cant be exempted.
In reply, please be informed that Section 74 of the Tax Code is explicit that the taxes deducted and
withheld by the employer/withholding agent on wages of the employees shall only be held as special
fund in trust for the Government until the same are paid to the collecting officers. Such being the case,
pursuant to Sections 251 and 254 in relation to Section 73(a), all of the Tax code
For failure to collect, or account for and remit taxes withheld, the imposition of the penalties
prescribed therein is mandatory, as shown from their language and context, and therefore, cannot be
waived
31
BIR Ruling 048-99

Facts
This refers to your letter dated March 9, 1998 which was indorsed with this Office by the Regional
Director, Revenue Region No. 8, Makati City in a letter dated March 30, 1998, wherein you requested
for a confirmatory ruling/opinion regarding the proper BIR Revenue District Office (RDO) to which
documentary stamp tax (DST) accruing on the deed of sale/conveyance of real property is payable.
It is represented that sometime in December, 1997, Augusto Cruz, as vendor and a resident of
Marikina City, and New Ventures Realty Corporation (NVRC), as vendee corporation whose principal
place of business is situated at 7901 Makati Ave., Makati City, executed a Deed of Absolute Sale
covering a parcel of land located in Marikina City; that pursuant to the said deed, capital gains tax,
documentary stamp tax and registration fees shall be for the account of the vendee; that on January
15, 1998, vendee effected payment of the DST (inclusive of surcharges) to the PNB-Makati Avenue
Branch, one of vendee's authorized agent banks (AAB); that the capital gains tax (CGT) was paid in
RDO No. 45 Marikina, the RDO which has jurisdiction over the residence of the seller, Augusto
Cruz; that a revenue examiner at RDO No. 45 Marikina, however, insisted that the DST due on
said sale transaction should have been paid also in RDO No. 45 Marikina pursuant to Revenue
Memorandum Order (RMO) No. 17-97, and is now charging surcharges accruing allegedly for paying
at a wrong venue despite NVRC's position that the DST due on said sale has been properly paid in
RDO No. 50 South Makati.
Issue
Whether or not New Ventures Realty is liable to pay the penalty.
Held
Not liable to pay the penalty.
On the other hand, the documentary stamp tax payment made by the vendee at RDO No. 50
Makati City relative to the above-mentioned sale transaction although made at a wrong venue should
not, however, be subjected to the corresponding penalty provided for under then Section 248 (a)(2) of
the Tax Code, as amended [now Section 248 (A)(2) of the Tax Code of 1997] as correctly stated by
Regional Director Antonio I. Ortega that RMO No. 17-97 dated April 1, 1997 was at the time of the
said payment by the vendee still on its experimental stage and had not yet been widely disseminated
so as to inform the tax-paying public about the repeal of the previous BIR Rulings to the effect that
the documentary stamp tax being an excise tax may be paid at the place where the payor resides,
whether he be the vendor or the vendee.
32
BIR Ruling 205-99

Facts
This refers to your letter dated August 20, 1999 requesting reconsideration of BIR Ruling No. 122-99
dated August 11, 1999 relative to your request for a waiver of the surcharges and interest on your
deficiency taxes under Sections 248(a)(1) and (3) and 249, both of the Tax Code, as amended (also
Section 248(A)(1) and (3) and 249, both of the Tax Code of 1997)
You further represented that General Vehicle Parts Manufacturing and Rebuilding Center, Inc.
("Genmarc") suffered seriously in the last Asian Devaluation Crisis; that your sales in both 1997 and
1998 were in very, very low level; that said sales were not even enough to sustain your expenses and
overhead; that to avoid further losses and considering that the economy will not recover in a very
short time the shareholders of Genmarc decided to reduce its operations, personnel and conduct public
auction sales of its inventories and other assets in November 1998; that the public auction sales were
not the right move though, but at least the company generated the cash needed to pay the personnel
you laid off and due creditors; that since you knew in advance that you had no other source of funds
to pay your income tax liabilities, on August 10, 1998 you submitted your Tax Credit Certificates
(TCCs) for revalidation much earlier than its due date so that the same can be used to fulfill your
obligation to pay your taxes on time; that you have exerted efforts to follow up the release of your
TCCs, by letters, phone calls and personal visits to this Office to collect the revalidated TCCs; and
that the revalidated TCCs were only released to you in May 1999.
Issue
Whether or not there is sufficient reason for waiving the surcharges and interest on deficiency taxes.
Held
There is sufficient reason.
Your actions show that there was no intention whatsoever on your part of not filing and paying your
income tax liability on time. On the contrary, you displayed your zeal in fulfilling your duty under the
law despite Genmarc's financial predicament.
In view of the justifiable circumstance surrounding your case your request for waiver of the payment
of surcharge and penalty is hereby granted but not the payment of interest imposed under Section 249
of the Tax Code of 1997. The proper tax and interest shall be paid within ten (10) days from receipt of
this latter. This modifies BIR Ruling No. 122-99 dated August 11, 1999 in so far as it subjects you to
payment of surcharges and penalty. cd
33
BIR Ruling 078-98

Facts
This refers to your letter dated May 14, 1997 requesting for waiver of the penalty on the late
remittance of your withholding taxes which was due last May 13, 1997 considering that you were not
properly notified about this new payment system of the Bureau and that the Bureau personnel as well
cannot respond to your inquiries and clarificatory questions about the said new payment system.
It is represented that when your representative went to the Revenue District Office West Atrium in
Makati City on May 13, 1997 to remit your withholding taxes, he was advised to pay thru the
Enrollment Form he received in connection with the new payment system of the Bureau; that when
you read the instructions written in the Bank Enrollment Form, it was stated therein that the tax
payments may be done thru a bank debit or a Manager's check payable to the bank; that confusion
arose when you purchased a Manager's Check from your bank to pay the withholding taxes due and
the collecting bank (which to your understanding is the Development Bank of the Philippines) did not
accept the check and again advised you to proceed to West Atrium for further instructions; that you
have not yet settled the said withholding taxes amounting to P107,246.65 because you do not really
know what to do because you are being asked to pay also the penalty of 25% and a compromise
penalty of P15,000.00 which if computed, totals to P41,811.66 plus the principal of P149,058.31; that
the said amount is quite a sum for you and that you are really unaware of the new payment system due
to lack of information campaign; that even the Bureau employees could not respond to inquiries and
clarifications you need regarding this new payment system due to inconsistency of implementation, an
example of which is the type of payment, whether tax debit, cash or Manager's check.
Issue
Whether or not there is sufficient reason to justify waiving the penalty.
Held
The penalty shall be waived.
In reply, please be informed that the questioned Revenue Memorandum Order No. 19-97 was
approved last April 22, 1997, the effectivity clause of which states that the said Order shall take effect
immediately. Consequently, we conducted public hearings to properly guide the taxpayers on how to
go about it but it is just unfortunate that you were not aware nor were you especially notified about it
because we do not notify each taxpayer individually of our public hearings. At any rate, considering
that you were really settling your withholding taxes on May 13, 1997 (in fact you already purchased a
Manager's check from your bank to pay the said withholding taxes) except that there were lots of
confusion in the implementation of the said Order during that time which prevented you from settling
the same on time, we hereby grant your request for waiver of penalties and surcharges. We hope,
however, that by this time, you are already well informed about this new payment system and if you
still have any further question, please feel free to write or call us again.
34
Cagayan Electric vs. CIR

Facts
This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax
amounting in addition to franchise tax. The petitioner holds a legislative franchise under which its
payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of all taxes and
assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby
expressly exempted.
Republic Act No. 5431 amended the Tax Code making franchise companies subject to income tax in
addition to franchise tax. By reason of RA 5431, the Commissioner of Internal Revenue required
petitioner to pay deficiency income taxes.
However, in petitioner's case, its franchise was amended by Republic Act No. 6020 which reenacted
the tax exemption in its original charter or neutralized the modification made by Republic Act No.
5431 more than a year before.
Issue
Whether or not petitioner is liable to pay interest.
Held
Petitioner isnt liable.
Republic Act No. 5431 had the effect of withdrawing petitioner's exemption from income tax.
However, said exemption was restored by Republic Act No. 6020. Hence, the petitioner is liable only
for the income tax during the interregnum between RA 5431 and RA 6020.
However, it cannot be denied that the said 1969 assessment 5 appears to be highly controversial. The
Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to
pay income tax because of the tax exemption in its franchise.
For this reason, it should be liable only for tax proper and should not be held liable for the surcharge
and interest.
5 Made after the exemption was removed.

35
Republic vs. Heras

Facts
Antonio Heras filed his income tax return. Upon audit and examination of the return, the Bureau of
Internal Revenue found as due and collectible from said taxpayer the sum of P13,962.00. The
corresponding demand therefor was made. The taxpayer paid the tax said to be due by means of
negotiable certificates of indebtedness and cash.
The Revenue office notified the taxpayer that payment of income taxes with indorsed negotiable
backpay certificates is not allowed, and thus required that the tax supposedly unsettled be paid. And
when another demand for payment remained unheeded, the Republic of the Philippines instituted an
action against taxpayer Antonio Heras for collection of the alleged deficiency income tax.
Issue
Whether or not Heras is liable to pay the interest.
Held
Liable to pay the interest.
The question now is should appellee be held liable also for surcharge and interest on the unpaid tax?
The answer is in the affirmative.
For once, informed of the basis of the demand by the Commissioner in this case, of the existence
of the BIR circular disallowing acceptance of backpay certificates for settlement of the tax obligations
of assignees or subsequent holders thereof the refusal of the taxpayer to pay the demanded tax
cannot be considered as made in good faith that would relieve him of liability for payment of
surcharges and interests.
It may even be mentioned that, in the present case, appellees act of tendering payment, with backpay
certificates, of the deficiency tax is an acknowledgment that the said tax is really due and demandable.
There having been, as we hereby affirm, an invalid payment of appellees tax liability, which
constituted no payment at all, the collection of surcharges and interests thereon from said taxpayer
becomes mandatory on the Commissioner of Internal Revenue and the courts.
It may not be amiss to state further that, the interests collectible here is not punitive in nature, an
appellee would like to impress, but compensatory, it is compensation to the state for the delay in the
payment of tax. It is the charge for the use by the taxpayer of funds that rightfully should have been in
the government coffers and utilized for the ends thereof.
36
CIR vs. Lianga Bay Logging Co.

Facts
Within its forest concession, Lianga has also been operating a sawmill, and in connection therewith
posted a bond in the amount of P25,000.00 with the Collector of Internal Revenue to guarantee
payment of such forest charges as may be due from it. Forest officers have been assigned to Lianga's
concession. They prepared monthly reports setting forth inter alia the quantity of logs cut and
removed within a certain period and the computation of the forest charges due thereon. It was on the
basis of these reports that forest charges were paid by Lianga to the Bureau of Internal Revenue.
Some two years later, the Commissioner of Internal Revenue wrote to Lianga, demanding payment
representing a 25% surcharge on the theory that it had removed forest products from its cutting area
without the auxiliary invoices required, being covered only by "commercial tables" (prepared by the
forest officers assigned to Lianga, supra).
The Commissioner also required payment of P300 as compromise if Lianga wished "to settle
extrajudicially the violation" in question. Lianga asked the Commissioner to reconsider his
assessment and demand. When the Commissioner refused to change his stand, Lianga appealed to the
Issue
Whether or not there is basis for imposing the compromise penalty.
Held
No basis.
As to the "compromise penalty" of P300.00 also sought to be imposed, there is no basis therefor, and,
as the Court of Tax Appeals finally declares, "the imposition of the same without the conformity of
the taxpayer is illegal and unauthorized.
37
Atlas Consolidated Mining vs. CIR

Facts
Petitioner (Atlas-Itochu Consortium) is a consortium between Atlas Consolidated Mining and
Development Corporation (ACMDC). It was organized for the limited purpose of submitting a bid to
the Department of Transportation and Communication (DOTC).
ACMDC and ACMDC Ventures, Inc., executed a Deed of Assignment whereby the former assigned
all its rights, interests, obligations and responsibilities to the latter for the development of Mactan
(Cebu) International Airport. The DOTC and Atlas-Itochu Consortium entered into a Form of
Agreement. Under the said agreement, the former accepted the bid of the latter for the execution and
completion of works and the remedying of any defects of the Mactan (Cebu) International Airport
Development Project.
Petitioner filed an application for tax refund of its excess VAT payments arising from the 6%
withholding VAT on government project (DOTC). In response to petitioner's application for tax
refund, respondent, issued Letter of Authority authorizing his representative to examine the books of
accounts and other accounting records of the petitioner for value-added tax purposes -claim for
refund. Instead of a favorable response from the BIR, petitioner received assessment notices together
with the corresponding demand letters for: (a) non-filing of monthly VAT Declarations, quarterly VAT
Returns and quarterly VAT Summaries; and (b) deficiency VAT.
Issue
Whether or not the compromise penalty is valid.
Held
Compromise penalty isnt valid.
Because of the evident violation committed by the petitioner with regards to the reportorial
requirement, involving non-filing of monthly VAT declarations, non-filing of quarterly VAT returns
and non-filing of quarterly VAT summary, respondent imposed a corresponding compromise penalty
for each violation. However, we cannot sustain the said compromise penalties. The penalties provided
by law shall only be imposed upon conviction, which fact is wanting in the present case.
Moreover, as facts would demonstrate, there is no showing that petitioner voluntarily entered into a
compromise with the respondent. It even set up the defense that it has complied with the
requirements, which, of course is belied by the documentary evidence available. It has been judicially
held that compromise penalties being an imposition based upon mutual agreement or consent by
petitioner, cannot be compulsorily imposed to those who do not agree to its imposition. It can be
inferred from the foregoing pronouncement that the imposition of the compromise penalty against a
taxpayer presupposes consent on the part of both parties in the absence of which the compromise
penalty is not binding nor cannot be mandatorily enforced.
In the case at bar, it is evident that petitioner did not concur with the compromise penalty imposed by
the respondent. Necessarily, this court cannot compel petitioner to pay the compromise penalty
against its will.
However, it must be noted that in situations like this, respondent is not left without a remedy.
Violation of the reportorial requirements prescribed by law carries with it criminal sanctions. The
compromise penalty incident to the violation is suggested merely in lieu of criminal prosecution.
38
Rohm Apollo Semiconductor Phil vs. CIR

Facts
Petitioner started its commercial operations on September 1, 2001 , as shown in the "Notice of
Approval of SCO No. 2002-0 14" issued by PEZA on June 20, 2002 (Exhibit "F"). However, prior to
said date, or on about June 2000, petitioner contracted the services of Shimizu, petitioner made initial
payments on July 7, 2000 and August 3, 2000 in the respective amounts of P198,551 ,884.28 and
P132,367,923.58 [both inclusive of 10% VAT and net of 1% withholding tax] (Exhibit "]"to "L '').
Believing that the aforesaid payments qualify as capital goods purchases, petitioner filed an
application for tax credit/refund of the input VAT payments corresponding thereto in the sum of
P30,359,615.40 (Exhibit "Y''). Again, on August 29, 200 I, petitioner sent another letter to the BIR
informing the latter that it was submitting the necessary documents relative to its refund claim
(Exhibit "Z''). Since respondent had not acted on its claim and the two-year prescriptive period for
filing a judicial claim was about to lapse, petitioner instituted the present appeal on September 11 ,
2002.
Issue
Whether or not the amended returns are admissible in evidence.
Held
Inadmissible as evidence.
The Motion to Admit Supplemental Exhibits (To Support Motion for Reconsideration) that the
petitioner subsequently submitted and the Monthly and Quarterly VAT Returns for taxable year 2003
and Amended Monthly and Quarterly VAT Returns for the period January to August 2004, which
petitioner attached, to support its claim that its alleged excess input VAT were not carried-over to the
succeeding quarters are indeed inadmissible in evidence. The said returns and supplemental exhibits,
aside from the fact that they were not original documents and although the words "certified true
copies" appeared on the face of the documents, the person who certified the same was not presented in
court, those returns were not presented during the trial and were not formally offered in evidence,
hence, are mere scraps of paper.
The First Division has correctly ruled on this issue in this wise:
Petitioner may have submitted its amended VAT returns for the period January to August 2004 to
disclose that no part of the claimed excess input VAT of P30,456,239.64 was carried-over, still, said
documents cannot be given any credence.
First, petitioner did not submit the original VAT returns thereof to prove that indeed it did not carry
over the subject amount as it insisted.
Second, if the amount was carried over, the original documents would show how much was actually
utilized and applied against petitioner's output VAT liability for the period.
Third, the amendment of said returns was only made long after this case has been decided. Therefore,
the very purpose of the amendment was to support petitioner's allegation in its Motion for
Reconsideration that the subject claim was not carried over to the succeeding taxable quarter.
We cannot countenance this act of petitioner. Although petitioner is allowed by law to amend its
returns, it is Our considered Opinion that the amendment so allowed does not extend as to give
support to petitioner's allegations in its pleadings which are clearly contradictory to the existing
evidence on record.
39
BPI vs. CIR

Facts
Respondent issued a pre-assessment notice. Petitioner requested for the details of the amounts alleged
as deficiency taxes mentioned in the pre-assessment notice. Respondent issued petitioner
assessment/demand notices for deficiency withholding tax at source and documentary stamp tax
(DST).
Petitioner protested the demand/ assessment notices and filed as well a supplemental protest.
Respondent issued a final decision on petitioner's protest ordering the withdrawal and cancellation of
the deficiency withholding tax assessment and considered the same as closed and terminated. On the
other hand, the deficiency DST assessment was reiterated and the petitioner was ordered to pay the
said amount. Petitioner received a copy of the said decision. Thereafter, petitioner filed the instant
petition.
Issue
Whether or not the Petitioner was denied due process.
Held
No denial of due process.
Anent the first issue, petitioner contends that respondent's penchant for procedural shortcuts - by not
disclosing to the petitioner, the nature, details and basis of the assessment and skirting the issuance of
the notice for an informal conference as required by Revenue Regulation No. 12-85, violated its right
to due process and fair play.
The petitioner claims that the non-observance of the sections of Revenue Regulations No. 12-85
violated its right to due process.
We do not agree.
Petitioner admitted that it received the pre-assessment notice on November 26, 1986 for deficiency
income and business taxes covering the years 1982 to 1986. Petitioner, in a letter dated November 29,
1986, protested the said preliminary assessment notice and requested for a reconsideration or
reinvestigation thereof. On April 7, 1989, respondent issued assessment/demand notices for deficiency
withholding tax at source and deficiency documentary stamp tax. It cannot be denied that on April 20,
1989, petitioner flied its protest to the demand/ assessment notices and on May 8, 1989, it flied a
supplemental protest. Respondent took cognizance of said protests when in his decision dated August
9, 2002, he cancelled and withdrew the assessment for deficiency withholding taxes.
It is noteworthy that petitioner is not arguing that its right to due process was violated as regards the
said deficiency assessment for withholding taxes. It would be tantamount to admitting that Sections 1,
2, 3 and 5 of Revenue Regulations No. 12-85 were not disregarded where the assessment for
deficiency withholding taxes is concerned. But petitioner cannot claim denial of due process nor
allege procedural defects with respect to the subject deficiency documentary stamp tax assessment
and not with regard to the deficiency withholding tax assessment that was cancelled.
It must be pointed out that both the deficiency withholding tax and documentary stamp tax
assessments were contained in only one assessment notice and both assessments were the subject of
petitioner's protests. In other words, both assessments underwent the same procedural process.
Apparently, petitioner's arguments are bereft of merits.
Moreover, we are not persuaded by petitioner's argument that respondent's failure to issue notice for
an informal conference invalidates the assessments. Revenue Regulations No. 12-85 does not provide
so nor does Section 319 of the Tax Code that it implements.
40
Pier 8 Arrastre and Stevedoring Services vs. CIR

Facts
This is an appeal by Pier 8 Arrastre and Stevedoring Services, Inc. from the denial of its protest
against a deficiency assessment for income and business taxes for tax year 1978
Petitioner protested the assessment on February 21, 1984. Respondent denied the protest. Hence, this
petition for review was filed.
Respondent points to a letter sent by the Assistant Revenue District Officer wherein after informing
petitioner of the pending investigation, the Assistant Revenue Examiner requested petitioner to come
to the office to verify the details of a proposed assessment, and present its objections thereto, further
stating that failure to do so will be interpreted as a waiver of such privilege and the tax assessment
would then be finalized without any further notice to petitioner. Although petitioner indicated its
desire to present its side relative to the proposed assessment, respondent claims the petitioner did
nothing more. Hence, in accordance with the terms of the notice, such inaction was considered a
waiver of its privilege to present evidence concomitantly resulting in an implied admission of the
correctness of the assessment.
Issue
Whether or not petitioner is estopped from assailing the assessment and is barred from presenting
evidence to dispute the same because of the petitioners failure to present evidence during the preassessment level.
Held
Petitioner isnt estopped.
The failure of the taxpayer to respond to the pre-assessment notice shall entitle the Commissioner of
Internal Revenue to issue an assessment based on his findings. However, the taxpayer is still allowed
to file a protest against the final assessment issued by filing a request for reconsideration or
reinvestigation and in case of an adverse decision by the Commissioner on said protest, petitioner has
a further remedy of appeal to this court.
Nowhere is it stated that failure of the taxpayer to appear and/or to present its evidence during the preassessment level, or even during the protest period, would mean a waiver of its right to present any
evidence to dispute said assessment. Thus in the 10-day preliminary letter there is no admonition of
waiver like that found in the June 2, 1980 letter. Neither is such failure equivalent to an implied
admission of the correctness of the tax assessment. Even in an appeal to this court, there is only a
presumption of the correctness of said assessment that is exactly overcome by the introduction of
evidence by the taxpayer-petitioner
It is only by the failure of the taxpayer to file an administrative protest upon receipt of the final
assessment or to appeal the denial of the protest made within the periods laid down by law would the
assessment become final, unappealable and executory thereby negating its right to present evidence
precisely because the right to dispute the assessment has prescribed and the court can no longer
acquire jurisdiction over the same.
41
CIR vs. Menguito

Facts
Dominador Menguito is engaged in the restaurant and/or cafeteria business. During the same years, he
also operated a branch at Club John Hay, Baguio City carrying the business name of Copper Kettle
Cafeteria Specialist. Subsequently, BIR Baguio received information that respondent has undeclared
income from Texas Instruments and Club John Hay, prompting the BIR to conduct another
investigation. The Assessment Division of the said office informed the Spouses Menguito that they
have under declared sales. This was followed by a Preliminary Ten (10) Day Letter informing
respondent that in the investigation, it was found out that there is still due from him deficiency income
and percentage tax.
The assessment notices subject of the instant petition were issued. Ms. Jeanne Menguito protested
these.
In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria Specialist (CKCS) being a
sole proprietorship owned by the Spouses, and Copper Kettle Catering Services, Inc. (CKCS, Inc.)
being a corporation with whom Texas Instruments and Club John Hay entered into a contract,
Petitioner [respondent] submitted to BIR Baguio a photocopy of the SEC Registration of Copper
Kettle Catering Services, Inc. on March 23, 1999. BIR Baguio wrote a letter to Spouses Menguito,
informing the latter that a reinvestigation or reconsideration cannot be given due course by the mere
submission of an uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the
assessment issued is still valid and enforceable.
Respondent filed the present case, praying for the cancellation and withdrawal of the deficiency
income tax and percentage tax assessments.
Issue
Whether or not petitioner issued and mailed a post-reporting notice and a pre-assessment notice; and
whether respondent actually received them.
Held
Doesnt matter because he received a formal notice of assessment.
There is no doubt that petitioner failed to prove that it served on respondent a post-reporting notice
and a pre-assessment notice. Exhibit 11 of petitioner is a mere photocopy of a July 28, 1997 letter it
sent to respondent, informing him of the initial outcome of the investigation into his sales, and the
release of a preliminary assessment upon completion of the investigation, with notice for the latter to
file any objection within five days from receipt of the letter. Exhibit 13 of petitioner is also a mere
photocopy of an August 11, 1997 Preliminary Ten (10) Day Letter to respondent, informing him that
he had been found to be liable for deficiency income and percentage tax and inviting him to submit a
written objection to the proposed assessment within 10 days from receipt of notice. But nowhere on
the face of said documents can be found evidence that these were sent to and received by respondent.
Nor is there separate evidence, such as a registry receipt of the notices or a certification from the
Bureau of Posts, that petitioner actually mailed said notices.
However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the
requirements under Revenue Regulation No. 12-85, the same cannot detract from the fact that formal
assessments were issued to and actually received by respondents in accordance with Section 228 of
the National Internal Revenue Code.
It should be emphasized that the stringent requirement that an assessment notice be satisfactorily
proven to have been issued and released or, if receipt thereof is denied, that said assessment notice
have been served on the taxpayer, applies only to formal assessments, but not to post-reporting notices
or pre-assessment notices.
42
The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains
not only a computation of tax liabilities but also a demand for payment within a prescribed period,
thereby signaling the time when penalties and interests begin to accrue against the taxpayer and
enabling the latter to determine his remedies therefor. Due process requires that it must be served on
and received by the taxpayer.
A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment
notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the
BIR against a taxpayer and invites the latter to an informal conference or clarificatory meeting.
Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment
thereof.
Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is
properly served a formal assessment notice. In the case of respondent, he received a formal
assessment notice as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis
thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA.
43
CIR vs. Metro Star Superama

Facts
The Regional Director of Revenue Region No. 10, Legazpi City, issued Letter of Authority to
examine respondents books of accounts and other accounting records for income tax and other
internal revenue taxes for the taxable year 1999. Revenue District Officer issued a Preliminary 15-day
Letter, which petitioner received. The said letter stated that a post audit review was held and it was
ascertained that there was deficiency value-added and withholding taxes due from petitioner.
Petitioner received a Formal Letter of Demand assessing petitioner for deficiency value-added and
withholding taxes for the taxable year 1999. Subsequently, Revenue District Office sent a copy of the
Final Notice of Seizure, which petitioner received, giving the latter last opportunity to settle its
deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall
be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection. Petitioner received a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003
demanding payment of deficiency value-added tax and withholding tax payment in the amount of
P292,874.16.
Issue
Whether or not the requirements of due process are satisfied if only the FAN stating the computation
of tax liabilities and a demand to pay within the prescribed period was sent to the taxpayer.
Held
Due process isnt satisfied.
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is
liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law
upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement.
To proceed heedlessly with tax collection without first establishing a valid assessment is evidently
violates the cardinal principle in administrative investigations - that taxpayers should be able to
present their case and adduce supporting evidence.
The sending of a PAN to taxpayer to inform him of the assessment made is but part of the due
process requirement in the issuance of a deficiency tax assessment, the absence of which renders
nugatory any assessment made by the tax authorities. The use of the word shall in subsection 3.1.2
describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process
reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Stars right to due process. Thus,
for its failure to send the PAN stating the facts and the law on which the assessment was made as
required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
The case of CIR v. Menguito cited by the CIR in support of its argument that only the non-service of
the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein
was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229
of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed
in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made. Otherwise, the assessment itself would be invalid. The regulation then, on the other
hand, simply provided that a notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.
44
CIR vs. Reyes

Facts
Maria C. Tancinco (or decedent) died, leaving a lot and an old house thereon (or subject property).
On the basis of a sworn information-for-reward), Revenue District Office conducted an investigation
on the decedents estate (or estate). It issued Letter of Authority for the regular investigation of the
estate tax case.
The BIR issued a preliminary assessment notice against the estate. The heirs of the decedent (or
heirs) received a final estate tax assessment notice and a demand letter. A certain Felix M. Sumbillo
(or Sumbillo) protested the assessment [o]n behalf of the heirs.
The heirs proposed a compromise settlement. The BIR refused and as the estate failed to pay its tax
liability within the deadline, the BIR planned to have the subject property sold at public auction.
Reyes filed a protest. Without acting on [Reyess] protest and offer, [the CIR] proceeded with the
auction sale. Consequently, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or
CTA).
Issue
Whether or not the assessment is void for failure to inform the petitioner of the law and the facts on
which the assessment is made.
Held
Assessment is void.
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIRs findings was changed to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise,
the assessment itself would be invalid.
To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and
the facts on which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by respondent on March
14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the
law.
Section 228 can be applied retroactively. Moreover, RA 8424 does not state, either expressly or by
necessary implication, that pending actions are excepted from the operation of Section 228, or that
applying it to pending proceedings would impair vested rights.
In the instant case, respondent has not been informed of the basis of the estate tax liability. The
haphazard shot at slapping an assessment, supposedly based on estate taxations general provisions
that are expected known by the taxpayer, is utter chicanery. Even a cursory review of the preliminary
assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to mention the
insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and
the letter. This Court cannot countenance an assessment based on estimates that appear to have been
arbitrarily or capriciously arrived at.
45
CIR vs. Enron Subic Power Corp.

Facts
Enron filed its annual income tax return for the year 1996. It indicated a net loss. Subsequently, the
Bureau of Internal Revenue, through a preliminary five-day letter, informed it of a proposed
assessment of an alleged deficiency income tax. Enron disputed the proposed deficiency assessment
in its first protest letter. Enron received from the CIR a formal assessment notice requiring it to pay
the alleged deficiency income tax for the taxable year 1996. Enron protested this deficiency tax
assessment. Due to the non-resolution of its protest within the 180-day period, Enron filed a petition
for review in the Court of Tax Appeals (CTA).
Issue
Whether or not the assessment is void for failure to inform the petitioner of the law and the facts on
which the assessment is made.
Held
Assessment is void.
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due thereon. The CIR in the issuance of the Final
Assessment Notice did not provide Enron with the written bases of the law and facts on which the
subject assessment is based. [The CIR] did not bother to explain how it arrived at such an assessment.
More so, it failed to mention the specific provision of the Tax Code or rules and regulations that were
not complied with by Enron.
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enrons representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter
and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and
factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws
and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. The requirement for issuing a preliminary or final notice, as the
case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR issued an
advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by
law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency
tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. The alleged factual bases in the
advice, preliminary letter and audit working papers did not suffice. There was no going around the
mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal
letter of demand accompanying the assessment notice.
46
Australasia Cylinder Corp. vs. CIR

Facts
The Revenue District Office, examined petitioners books of accounts after which, petitioner was
issued deficiency assessment for income tax that it promptly paid.
The examination docket was forwarded to the Regional Assessment Division of the respondent's
Revenue Region No. 7 for review and clearance by the Regional Assessment Division which instead
issued the subject final assessment notice and demand letter to petitioner for alleged income tax
deficiency for 1995.
Petitioner protested the assessment thereafter transmitted the necessary documents. Allegedly
included in said transmittal letter were the relevant supporting documents to bolster its arguments in
overturning the assessment rendered.
Claiming inaction by the respondent on the protest, petitioner filed the instant petition
Issue
Whether or not the assessment notice is void for failure to inform the petitioner of the law and the
facts on which the assessment is made.
Held
Assessment is void.
Respondent posits that although the Tax Code, as amended, specifically requires that the taxpayer be
informed in writing of the law and the facts on which the assessment is made, the same article does
not specifically require that the law and the facts on which the assessment was made be embodied in
the assessment notice itself. We agree.
In whatever manner and form the assessment notice is written, as long as the taxpayer is informed on
how the assessment was arrived at, then the requirement of said law is sufficiently met.
Respondent thus asserts that the demand letter attached to the assessment notice contains the
necessary information on how the assessment came about.
We beg to differ. The demand letter was devoid of factual as well as legal bases that would enlighten
anyone, this court included, on how and why the assessment was reached. The computation made by
the respondent lacked any support and did not state the basis either in fact or in law for the
disallowances made. Neither did the assessment notice nor the demand letter explain why the total tax
credits ofP776,671.36 was not recognized by the respondent.
It must be pointed out that disallowances made by the respondent appeared to be valid and proper. In
fact, petitioner did not controvert the same. It willingly paid the tax due Nonetheless, whatever
explanations respondent's witnesses have relative to the subject assessment is inconsequential. The
crucial point is the act of informing petitioner in writing on why were such disallowances made or
why were petitioner's tax credits disallowed resulting to the subject assessment. Both the assessment
notice and demand letter gave petitioner no inkling on how the assessment was arrived at, which is in
direct violation of Section 228 of the Tax Code, as amended.
47
Abbot Laboratories vs. CIR

Facts
Records reveal that Petitioner filed its Corporate Annual Income Tax Return on March 15, 1995 for
the fiscal year 1994 reflecting an income tax due. On March 23, 1998, Petitioner received from
Respondent an Assessment Notice demanding payment for alleged deficiency income tax liabilities
for 1994.
On April 22, 1998, Petitioner filed its protest with the Bureau of Internal Revenue contesting the said
assessment. After several attempts to clarify the matter with the Respondent Bureau, the protest
allegedly remained unresolved, thus prompting the Petitioner to elevate its grievance to this Court via
Petition for Review to forestall the finality of the disputed assessment.
Issue
Whether or not the assessment is void for failing to state the law and facts on which its based.
Held
Assessment is void.
In his Answer, Respondent insists that the details in the assessment notice substantially complied with
the provisions of Section 228 of the 1997 Tax Code in so far as informing the taxpayer of the law and
the facts upon which the assessment is made.
While the sufficiency of the assessment notice insofar as compliance with Section 228 may be the
subject of a debate, one thing stands out, and that is the fact that Respondent's counsel miserably
failed to support the conclusion of the Commissioner and that of her revenue examiner embodied in
the assessment notice, in this Court.
If Respondent had only exerted diligent efforts to apprise this Court as to how the deficiency
assessment came about by means of testimonial or documentary evidence, then we could have
liberally applied the provisions of Section 228 in favor of Respondent. However, Respondent was not
only remiss in defending his case, his lack of interest and concern was evident in his failure to submit
a Formal Offer of Evidence and Memorandum.
During the hearings held in this Court, the witnesses for Respondent all failed to attend. They did not
even bother to respond to the Subpoena Ad Testificandum and Subpoena Duces Tecum issued by this
Court. Lastly and most importantly, the Respondent did not even submit the BIR records to support
the assessment issued to Petitioner.
This Court is well-aware of the presumption of the correctness and validity of an assessment but this
presumption holds true only if such assessment is based on actual facts. The presumption of the
correctness of an assessment being a mere presumption cannot be made to rest on another
presumption.
In studying this case, the Court had no facts to rely upon, hence we had no basis upon which to refer
to in studying this case save that of vague reference to royalties not allowable under Articles of the
RP-US Tax Treaty. Unfortunately, the records of the instant case clearly show that the assessment did
not pass this test as the Respondent apparently expected this Court to conduct its own investigation in
its behalf.
48
PNZ Marketing vs. CIR

Facts
On April 8, 1998, Petitioner received formal assessment notice and Demand letter from herein
Respondent stating therein Petitioner's alleged deficiency income tax liability for the year 1994. As
admitted, the alleged deficiency income tax assessment issued against the Petitioner arose from the
adjustments to Petitioner's income tax return.
Petitioner duly filed with the Bureau of Internal Revenue (BIR) an administrative protest letter.
Petitioner filed with the BIR a supplemental protest letter, reiterating its disagreement to the subject
income tax assessment. As the Respondent on the aforesaid protest letters undertook no action,
petitioner filed an appeal with this Court in order to toll the running of the prescriptive period.
Issue
Whether or not the Petitioner was informed of the law and facts on which the assessment is based.
Held
Petitioner was sufficiently informed.
A perusal of the records indicates a successful attempt on Respondent's part to comply with the rules.
The assessment notice, while vague at first glance is subsequently cured by the demand letter that
shows the legal and factual basis relied upon by the Respondent in issuing the assessment. The
demand letter, as thus worded contains the reasons why a deficiency income tax assessment was
issued against the Petitioner. It reflects some notable disallowance on the business expense of the
Petitioner for reasons such as the following:
1. Interest income has no supporting document pursuant to Section 29;
2. That the income is unrecorded which is factua.; and
3. That there is discrepancy in the declared salary expense as provided in Revenue Regulations
No. 4-93.
To our mind, these explanations are sufficient compliance with the requirements of Section 228 of the
Tax Code.
49
Sevilla vs. CIR

Facts
Petitioners sold a total of 50,000 shares of East Esteban Realty Corporation owned by them to
Seaboard Eastern Insurance Corporation, Jose Hahh & Company, et al. After the payment of capital
gains taxes due, the BIR issued certifications to each of the petitioners. The said certification was
issued for registration purposes. Respondent ordered petitioners "to shed light on the tax evasion case
filed against [them] relative to the under declaration of capital gains and the consequential nonpayment of the capital gains tax due on [the] sale.
Petitioners objected to allegations that they evaded taxes on account of the sale of the East Esteban
Realty Corporation shares in 1993. Subsequently, the BIR requested petitioners to appear in an
informal conference. Then BIR Commissioner informed petitioners that "[f]or insufficiency of
evidence, this Office has decided not to pursue any further your 1993 internal revenue tax cases
subject matter of our preliminary notices.
Later, petitioners each received assessment notices together with the corresponding demand letters.
The assessment notices alleged deficiencies in capital gains taxes. Petitioners protested the
assessments. Petitioners received a decision denying their causing the instant petition
Issue
Whether or not the requirement that the petitioner be informed of the legal and factual basis of the
assessment has been complied with.
Held
The requirement has been complied with.
The respondent though may not have provided the specific provisions of the National Internal
Revenue Code or other internal revenue laws as bases for the assessments but by indicating the kind
of tax petitioners were liable was a substantial compliance with the requirements of Section 228 of the
NIRC of 1997. In a fair play point of view the petitioners were after all, not left in confusion and
grasping in the dark for explanations of the assessment. This is easily discernible from petitioner's
protest letter.
While we concede that the mere filing of a protest letter does not automatically mean that the
requirement of Section 228 has not been violated, if the taxpayer is able to intelligently argue its case
and elucidate the reasons for the assessment, as in this case, then it cannot contradict itself by
asserting that it was not informed of the law and facts on which the assessment was made.
Besides, petitioners stipulated that on August 10, 1999, the Tax Fraud Division received a letter dated
August 9, 1999, wherein petitioners rebutted the May 5, 1999 reply of said Division. Further, it is our
considered opinion that the phrase "in writing" under Section 228 does not exclusively mean written
words. 'Writings" consist of letters, words, or numbers, or their equivalent, set down by handwriting,
typewriting, printing, photostating, photographing, magnetic impulse, mechanical or electronic
recording, or other form of data compilation.
Indubitably, figures are also "writings" and if the numerical presentation is understandable enough,
then there is no reason why we should automatically reject the same as adequate compliance with the
law. Parenthetically, in whatever form and manner, as long as the taxpayer is informed of how the
assessment was arrived at, then Section 228 has not been violated. And if petitioner had already been
informed during the preliminary stage of the bases for the assessment, then it could not insist that it
was not informed of the law and the facts on which the assessment was based
50
FMF Development Corp. vs. CIR

Facts
Petitioner filed its Corporate Annual Income Tax Return for the year ended December 31, 1995,
showing a loss ofP3,348,932.00. On October 6, 1998, respondent, through the BIR's Assessment
Division, issued against the petitioner deficiency income tax and withholding tax pre-assessment
notices for the year 1995.
Petitioner filed its protest against the said income tax pre-assessment notice coupled with a request for
reconsideration or reinvestigation. Petitioner received respondent's letter providing clarifications and
requesting petitioner to settle its alleged tax liabilities as covered by Assessment Notice. Respondent
further advised petitioner that "(t)his case will be forwarded to the Collection Division upon failure to
pay within prescribed period and a proper judicial action will be filed in order to protect the interest of
the government."
Petitioner considered the said letter to be respondent's denial of petitioner's protest letter. Hence,
petitioner filed the instant Petition for Review.
Issue
Whether or not the Petitioner was sufficiently informed of the factual and legal basis for the
assessment.
Held
Petitioner argues that the subject assessment is invalid because it merely provides for the expenses
and disallowance with plain notations, such as "not necessary", "unsupported", "unaccounted" or "no
EWT", without any statement whatsoever as to particular acts that petitioner committed or omitted
that would justify the disallowance of the expenses or the imposition of the incremental penalties.
Moreover, petitioner contends that while the assessment notice provides for certain Tax Code
provisions, there are no further explanation as to how those provisions were violated or whether or not
petitioner failed to comply with those provisions. Accordingly, petitioner concludes that the
assessment should be considered null and void for its failure to comply with the mandate of Section
228 of the Tax Code and Revenue Regulations No. 12-99.
Respondent, however, insists that the words "not necessary", "unsupported" and "unaccounted"
followed by the specific provision of the Tax Code violated is sufficient to inform the petitioner of the
factual and legal basis of the assessment issued.
We agree with the respondent.
Opposed to petitioner's arguments that the words "unnecessary", "unsupported" and "unaccounted"
followed by the specific provision of the Tax Code violated, such as Section 28 for unaccounted
income and Section 29 for unnecessary or unsupported expenses, do not meet the requisites of the
above-quoted provisions, they are actually sufficient to inform the petitioner of the factual and legal
bases of the assessment issued. Said notations were likewise indicated in the income tax demand letter
which was attached to the deficiency income tax assessment notice. This is particularly true where,
prior to the issuance of the same, several informal conferences were held to afford the taxpayer the
opportunity to present his side and be informed of the basis of the deficiency assessment. These lead
to the logical conclusion that the petitioner had prior knowledge of the cause of disallowances and/or
unaccounted income. As correctly pointed out by respondent, the intrinsic validity of the assessment
notice should be given more weight rather than its form or extrinsic features.
51
Subic Power Corp vs. CIR

Facts
Petitioner filed its Annual Income Tax Return (ITR) for the taxable year 1994. Later, petitioner
received from respondent, two (2) Final Assessment Notices covering the taxable year 1994, which
alleged that petitioner had deficiency taxes due to the Government. The respondent disallowed certain
deductions from its gross income. Petitioner filed with respondent its protest letter. As of March 12,
2000, which is the one hundred eightieth (180th) day from the date petitioner filed its protest letter,
respondent had not yet acted on the protest. Consequently, petitioner filed the instant petition.
Issue
assessment.
Held
Petitioner alleges that the assessments are void for failure on the part of the respondent to provide the
written bases of the law and facts on which they were made.
As early as the proposed assessment, petitioner was already informed of the 5% deficiency tax and
that in arriving at the proposed deficiency 5% tax assessment, the examiner proposed to disallow as
deductions from petitioner's gross income certain expenses. In its protest to the proposed assessment,
petitioner was able to comprehensively contest the proposed assessment based on factual and legal
grounds. This alone belied petitioner's statement that it was not informed on how the 5% deficiency
tax assessment was arrived at. If there was no sufficient basis for said disallowed expenses then it
could not have counter-argued in detail why said expenses should be allowed. Thus, having
knowledge of the very nature of the disallowed expenses, we find no merit in petitioner's claim that it
was not informed of the law and the facts on which the said assessment was made.
As regards the deficiency expanded withholding tax assessment, we likewise find that the requirement
of Section 228 had been sufficiently met. A mere glance on the said notice would enable the petitioner
to determine that it was being assessed for failure to withhold 1% tax on its payments to contractors,
5% tax on interest on foreign loans and 5% tax on professional fees paid.
The respondent may not have provided the specific provisions of law as bases for the assessment but
the law and/or regulation has a specific provision for the taxes mentioned. Indicating the kind of taxes
petitioner should have withheld was enough. After all, petitioner was not left in confusion and
grasping in the dark for explanations thereof.
If the taxpayer is able to intelligently argue its case and elucidate the reasons for the assessment, as in
this case, then it cannot contradict itself by asserting that it was not informed of the law and facts on
which the assessment was made. In whatever form and manner, as long as the taxpayer is informed of
how the assessment was arrived at, then Section 228 has not been violated.
In the case at bar, the final assessment notice was not accompanied by any demand letter or other
explanatory letter. However, petitioner was able to conclude that the assessment for deficiency 5%
withholding tax on interest on foreign loans was cancelled thereby reducing the assessed amount for
deficiency withholding tax to P67,585, 175.00.In other words, petitioner was aware on how the
assessment was computed or arrived at. It was not left to speculate on how the assessment was
computed and why was it made liable for such deficiency.
52
Phil. Mining Service Corp. vs. CIR

Facts
The BIR sent a letter to petitioner informing the latter that a report of investigation on its income and
business tax returns has been submitted to Revenue District Officer for appropriate action. Attached
thereto were the report of investigation and the memorandum of Revenue Officer recommending,
among others, the issuance of an assessment notice for alleged deficiency taxes.
The petitioner received Pre-Assessment Notices assessing petitioner deficiency taxes. Petitioner
received from the respondent's office various assessment assessing petitioner for alleged deficiency
income tax, value added tax, and excise tax. The various assessment notices merely contained the
amounts of alleged deficiency income tax, value added tax and excise tax petitioner was being
assessed of without any showing as to how said amounts were arrived at or computed.
Later, petitioner filed with the BIR a protest letter against the alleged deficiency income tax, valueadded tax and excise tax assessments and requested that the same be withdrawn and cancelled.
Subsequently, Revenue Officer modified his findings as to the amount of alleged liability of petitioner
but reiterated his recommendation for the issuance of an assessment notice. Respondent failed to act
on the case or resolve the protest and supplemental protest filed by petitioner within the period of one
hundred eighty (180) days. Hence, Petitioner filed the instant Petition for Review.
Issue
assessment.
Held
It is undisputed that the BIR sent a letter to the petitioner informing the latter that a report of
investigation on its income and business tax returns had been submitted for appropriate action.
Attached thereto were the report of investigation and the memorandum of Revenue Officer
recommending, among others, the issuance of an assessment notice for the alleged deficiency taxes.
The attached investigation report of Revenue Officer contained the detailed findings made by the
latter, the facts and the law on which the recommended assessments were based. The recommended
assessments were basically the same amounts that were finally assessed against petitioner. They
differed only because of the period covered for the imposition of interest charges.
Moreover, in its protest petitioner was able to effectively contest the subject assessments and submit
documents to support its claim that the assessments were erroneous. Indeed, at the time the
assessments were issued, petitioner knew very well the law and the facts on which they were based.
Since the requirement under Section 228 of the 1997 Tax Code that the "taxpayer shall be informed in
writing of the law and the facts on which the assessment is based" has been sufficiently met, it follows
then that the assessments dated April 6, 1998 were not null and void.
53
Oceanic Wireless Network vs. CIR

Facts
Petitioner filed its 1995 Corporation Annual Income Tax Return. Petitioner received Letter of
Authority issued by Revenue District Officer authorizing Revenue to examine petitioner's books of
accounts and other accounting records for all internal revenue taxes for the period January to
December 1995.
A preliminary report of tax assessment was issued informing petitioner of the result of the
investigation of all its internal revenue tax liabilities for the calendar year 1995. Petitioner was also
requested to attend an informal conference to discuss the result of the revenue officer's investigation.
Petitioner received another pre-assessment notice with Details of Discrepancies. Consequently,
petitioner filed its request for an office conference with the Bureau of Internal Revenue (BIR).
However, inasmuch as the authority of respondent to assess was about to prescribe, respondent issued
final assessment notices, demand letters and details discrepancies that petitioner received on the same
date, covering the following deficiency income tax and penalties for late payment of quarterly income
taxes.
Petitioner filed its protest requesting for the reconsideration of the aforementioned final assessments.
Later, petitioner filed the instant Petition for Review.
Issue
assessment.
Held
Petitioner was able to protest the assessments intelligently, thereby implying that it had actual
knowledge of the factual and legal bases of the assessments. The fact that petitioner was furnished the
computation and brief explanation of the how the assessment for deficiency quarterly income tax was
arrived at, the requirement under Section 228 of the 1997 Tax Code is deemed complied with.
Petitioner was notified of the specific provision of law on which the assessment was based. This is
evident in the Details of Discrepancies wherein Sections 75 and 76 (of the 1997 Tax Code) were
written.
Likewise, petitioner's witness Ms. Sombilon admitted that the basis of the assessment was due to
disallowed sum of the years digit method of depreciation used in computing its quarterly income tax
as against the straight-line method of depreciation used in its financial statement. And even if
petitioner was not furnished of the detailed computation of the deficiency quarterly income tax, the
same was discussed with petitioner during the informal conference. The allegation that petitioner
failed to receive copy of the detailed computation of the penalties for the quarterly income tax
assessment (Exhibit 8) carries little consideration by the court. It is sufficient that petitioner was
informed of the reason why the said assessment was issued.
Clearly, petitioner was informed of the factual and legal bases on which the assessment for deficiency
quarterly income tax was based. Therefore, the assessment for deficiency quarterly income tax is not
null and void.
54
H. Tambunting Pawnshop vs. CIR

Facts
Respondent issued assessment notices against petitioner for deficiency income and percentage taxes
for the taxable year 1997. The petitioner duly received the assessment notices. Later, petitioner filed
its administrative protest. For failure on the respondents part to act upon the protest within the 180day period prescribed by law, petitioner filed the instant petition for review
Issue
Whether or not the assessment has already become final due to petitioners failure to submit the
pertinent documents in support of its protest, within the 60-day period prescribed under Sec. 228 of
the NIRC.
Held
Assessment hasnt become final
Respondent claims that petitioner failed to submit the supporting documents within 60 days from that
date of filing of its provided and thus the assessments have become final by operation of law.
Its not up to respondent to determine whether or not all the relevant documents have been submitted.
Relevant supporting documents mentioned in the law refers to such documents that the taxpayer feels
would be necessary to support his protest and not what the respondent commissioner feels should be
submitted, otherwise, petitioner taxpayer would always be at the mercy of the BIR that may require
production of such documents which taxpayer couldnt produce.
Clearly, since its the taxpayer-petitioner that protested the assessment, then, it should be the petitioner
that would determine the relevant documents to support its protest.
Petitioner filed a protest on the pre-assessment notice. Petitioner was required to submit documents to
support its protest. Petitioner was informed that its request for reinvestigation was granted. It was then
required to submit supporting documents to refute the pre-assessment notice. However, petitioner
allegedly still failed to submit the supporting documents. Thus, a final assessment notice was issued.
Petitioner filed a protest alleging that no further documents need be submitted to support its protest
since copies of the documents to support the losses and expenses it claimed as deduction were already
submitted to the BIR. And it was admitted by respondents witness that petitioner submitted the
documents the examiner required.
55
CIR vs. First Express Pawnshop.

Facts
Petitioner issued assessment notices against First Express Pawnshop Company, Inc. (respondent).
Respondent received the assessment notices on 3 January 2002. On 1 February 2002, respondent filed
its written protest on the above assessments. Since petitioner did not act on the protest during the 180day period, respondent filed a petition before the CTA on 28 August 2002.
Respondent contended that petitioner did not consider the supporting documents on the interest
expenses and donations that resulted in the deficiency income tax.
Issue
Whether or not respondent was able to submit relevant supporting documents.
Held
Respondent was able to submit the relevant supporting documents.
In this case, respondent received the tax assessment on 3 January 2002 and it had until 2 February
2002 to submit its protest. On 1 February 2002, respondent submitted its protest and attached the GIS
and Balance Sheet as of 31 December 1998.
Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant
supporting documents. Respondent, having submitted the supporting documents together with its
protest, did not present additional documents anymore.
Petitioner requested respondent to present proof of payment of DST on subscription Respondent
stated that it could not produce any proof of DST payment because it was not required to pay DST
under the law considering that the deposit on subscription was an advance made by its stockholders
for future subscription, and no stock certificates were issued.
Since respondent has not allegedly submitted any relevant supporting documents, petitioner now
claims that the assessment has become final, executory and demandable, hence, unappealable.
We reject petitioners view that the assessment has become final and unappealable. It cannot be said
that respondent failed to submit relevant supporting documents that would render the assessment final
because when respondent submitted its protest, respondent attached the GIS and Balance Sheet.
Further, petitioner cannot insist on the submission of proof of DST payment because such document
does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit
on subscription.
The term relevant supporting documents should be understood as those documents necessary to
support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only
inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting
documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may
require the production of documents that a taxpayer cannot submit.
56
Dayrit vs. Cruz

Facts
Petitioners are the legitimate children and heirs of the deceased spouses Marta J. Teodoro who died
intestate and Don Toribio Teodoro who died testate. Thereafter, the heirs of the deceased filed separate
estate and inheritance tax returns for the estates of the late spouses with the Bureau of Internal
Revenue.
In the meantime, Cecilia Teodoro-Dayrit, one of the petitioners herein, filed testate and intestate
proceedings for the settlement of the decedents estates. Petitioner was appointed administratrix of the
estate of Dona Marta and letters testamentary was issued in her favor as executrix of the estate of Don
Toribio.
Respondent Commissioner of Internal Revenue issued deficiency estate and inheritance tax
assessments against the estate. Petitioner Dayrit received the aforementioned notice of deficiency
assessments. In a letter dated October 7, 1972, petitioners asked for a reconsideration of the said
assessments alleging that the same are contrary to law and not supported by sufficient evidence. In the
same letter, petitioners requested a period of thirty (30) days within which to submit their position
paper in support of their claim.
Issue
Whether or not the assessment has already become final.
Held
The assessment has already become final for failing to file the position paper.
Anent petitioners' claim that the tax assessments against the estates of the Teodoro spouses are not yet
final, the court finds the claim untenable. In petitioners' motion for reconsideration of the
aforementioned assessments, petitioners requested for a period of thirty (30) days from October 7,
1972 within which to submit a position paper that would embody their grounds for reconsideration.
However, no position paper was ever filed. Such failure to file a position paper may be construed as
abandonment of the petitioners' request for reconsideration.
The court notes that it took the respondent Commissioner a period of more than one (1) year and five
(5) months, before finally instituting the action for collection. Under the circumstances of the case, the
act of the Commissioner in filing an action for allowance of the claim for estate and inheritance taxes
may be considered as an outright denial of petitioners' request for reconsideration.
From the date of receipt of the copy of the Commissioner's letter for collection of estate and
inheritance taxes against the estates of the late Teodoro spouses, petitioners must contest or dispute
the same and, upon a denial thereof, the petitioners have a period of thirty (30) days within which to
appeal the case to the Court of Tax Appeals. This they failed to avail of.
Tax assessments made by tax examiners are presumed correct and made in good faith. A taxpayer has
to prove otherwise. Failure of the petitioners to appeal to the Court of Tax Appeals in due time made
the assessments in question, final, executory and demandable.
57
CIR vs. Villa

Facts
In this case, the parties submitted voluntarily to the jurisdiction of the Court of Tax Appeals, adduced
their evidence thereat. Thereafter, they submitted their cause for decision. At no stage of the
proceedings have they raised the issue of jurisdiction.
Leonardo S. Villa, a doctor of medicine, and his wife filed joint income tax returns. Subsequently, the
Bureau of Internal Revenue determined the income of the Villa spouses by the use of networth
method and accordingly issued assessments for deficiency income and residence tax. Dr. Villa
received the assessments. Without contesting the said assessments in the Bureau of Internal Revenue,
he filed a petition for review in the Court of Tax Appeals.
The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits and rendered
judgment
Issue
Whether or not the CTA had jurisdiction over the case.
Held
The CTA had no jurisdiction.
Sec. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal as herein provided
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;
Sec. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a
decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board
of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such
decision or ruling.
The word "decisions" quoted above, has been interpreted to mean the decisions of the Commissioner
of Internal Revenue on the protest of the taxpayer against the assessments. Definitely, said word does
not signify the assessment itself.
Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same
because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals
only upon receipt of the decision of the Collector on the disputed assessment, . . .
Note that the law uses the word "decisions", not "assessments", further indicating the legislative
intention to subject to judicial review the decision of the Commissioner on the protest against an
assessment but not the assessment itself. Since in the instant case the taxpayer appealed the
assessment of the Commissioner of Internal Revenue without previously contesting the same, the
appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal. For,
as stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal Revenue on
disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take cognizance
only of such matters as are clearly within its jurisdiction.
58
Lascona Land Co. Inc. vs. CIR

Facts
On March 27, 1998, the Commissioner issued Assessment Notice against Petitioner for alleged
deficiency income tax, surcharge, interest and compromise penalty resulting from the disallowance of
certain items claimed by Petitioner as deductions from its gross income. Petitioner received a copy of
the said assessment on April 1,1998 and protested the same on April 20, 1998.
Through a letter dated March 3, 1999 and received by Petitioner on March 12, 1999, Respondent
informed Petitioner that while they agree with the arguments advanced in the latter's letter of protest,
they cannot give due course to its request to cancel or set aside the assessment notice since the case
was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of
Section 228 of the Tax Reform Act of 1997. This, according to Respondent, rendered the assessment
notice final, executory and demandable. On April 12, 1999, the instant Petition for Review was filed.
Issue
Whether or not the assessment has become final, executory and demandable because of the failure of
Petitioner to appeal to this Court within thirty (30) days from the lapse of the one hundred eighty-day
period mentioned in Section 228 of the Tax Reform Act of 1997.
Held
Assessment isnt final
The wordings of Section 228 of the Tax Code clearly provide that it is only the decision not appealed
by the taxpayer that becomes final, executory and demandable.
Verily, in cases of inaction, Section 228 of the Tax Code merely gave the taxpayer an option:
First, he may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the
one hundred eighty ( 180) day period provided for under the said section, or
Second, he may wait until the Commissioner decides on his protest before he elevates his
case.
This Court believes that the taxpayer was given this option so that in case his protest is not acted upon
within the 180-day period, he may be able to seek immediate relief and need not wait for an indefinite
period of time for the Commissioner to decide. But if he chooses to wait for a positive action on the
part of the Commissioner, then the same could not result in the assessment becoming final, executory
and demandable.
We agree with Petitioner that to adopt the interpretation of Respondent will not only sanction
inefficiency, but will likewise condone the Bureau's inaction. This is especially true in the instant case
when despite the fact that Respondent found Petitioner's arguments to be in order, the assessment will
become final, executory and demandable for Petitioner's failure to appeal before Us within the thirty
(30) day period.
59
RCBC vs CIR
Facts
Petitioner Rizal Commercial Banking Corporation received a Formal Letter of Demand from the
respondent Commissioner of Internal Revenue for its tax liabilities particularly for Gross Onshore Tax
and
Documentary
Stamp
Tax.
Petitioner
filed
a
protest
letter/request
for
reconsideration/reinvestigation. As the protest was not acted upon by the respondent, petitioner filed
on April 30, 2002 a petition for review with the CTA for the cancellation of the assessments.
The petition for review was dismissed because it was filed beyond the 30-day period following the
lapse of 180 days from petitioners submission of documents in support of its protest. Petitioner did
not file a motion for reconsideration or an appeal to the CTA En Banc from the dismissal of its
petition for review. Consequently, the Resolution became final and executory. Thereafter, respondent
sent a Demand Letter to petitioner for the payment of the deficiency tax assessments.
Later, petitioner filed a Petition for Relief from Judgment on the ground of excusable negligence of its
counsels secretary who allegedly misfiled and lost the September 10, 2003 Resolution. The CTA
denied the petition for relief from judgment
Issue
Whether or not after appealing to the CTA after the 180 day period, the taxpayer can still file another
appeal to the CTA once the BIR decides on the protest.
Held
Taxpayers options are mutually exclusive, one bars the other.
The jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or
rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or
inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction
to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling,
or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act
on the disputed assessments.
In case the Commissioner failed to act on the disputed assessment within the 180-day period from
date of submission of documents, a taxpayer can either:
1. File a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or
2. Await the final decision of the Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such
decision.
However, these options are mutually exclusive, and resort to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from
date of submission of documents. Thus, petitioner opted to file a petition for review before the Court
of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than
30 days after the lapse of the 180-day period. Consequently, the Court of Tax Appeals for late filing
dismissed it. Petitioner did not file a motion for reconsideration or make an appeal; hence, the
disputed assessment became final, demandable and executory.
Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the
Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver
cannot be countenanced. After availing the first option, i.e., filing a petition for review that was
however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the
60
final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext
that there is yet no final decision on the disputed assessment because of the Commissioner's inaction.
61
Avon Products vs. CIR

Facts
Respondent assessed petitioner and at the same time demanded payment for alleged deficiency
expanded withholding tax (EWT) and alleged deficiency final withholding tax. Later, petitioner
received another demand letter and another Assessment Notice, demanding payment for alleged
deficiency value-added tax (VAT). Petitioner filed its protest-letter with the respondent
Respondent informed the petitioner that its request for reinvestigation and reconsideration had been
granted. Consequently, respondent conducted a reinvestigation of the deficiency income, value-added
tax, expanded withholding tax and final withholding tax assessments. Respondent cancelled the
deficiency final withholding tax assessment and reduced the tax due in a letter dated June 3, 1999.
The respondent demanded the settlement of the deficiency tax assessments within fifteen (15) days
from petitioner's receipt of said letter.
Petitioner filed the present Petition for Review with this Court.
Issue
Whether or not Respondent's letter dated June 3, 1999 is the decision of Respondent on the protested
assessments appealable to this Honorable Court.
Held
The letter dated June 3, 1999 is the respondents final decision.
Petitioner argues that respondent's letter dated June 3, 1999 is the decision of the respondent on the
protested assessments appealable to this Honorable Court. Respondent clearly and expressly stated in
its letter to the petitioner dated June 3, 1999 that it will take the necessary action to enforce collection
by summary remedies as provided by law, without further notice to the petitioner. Such unequivocal
statement of the respondent in said letter, further making reference to the reinvestigation it conducted,
constitutes the "final decision" of the respondent on the disputed assessments, which is thus
appealable to this Honorable Court. ETHSAI
The Court agrees with the petitioner that respondent's letter dated June 3, 1999 (Exhibit K) is the
decision of the respondent referred to in the last paragraph of Section 228 that is appealable to this
Court. The letter particularly referred to petitioner's requests for reinvestigation dated January 9, 1998,
January 13, 1998 and February 16, 1998. It also made a demand for the settlement of the reduced
deficiency tax liabilities of the petitioner within fifteen (15) days from receipt thereof as well as its
enforcement thru summary remedies without any further notice (Exhibit K-1). The tenor of the letter
clearly conveys that it is the final decision of the respondent concerning petitioner's protested
assessments.
62
CIR vs. Ayala Securities Corp.

Facts
Respondent Ayala Securities Corporation, a domestic corporation organized and existing under the
laws of the Philippines, filed its income tax returns with the office of the petitioner. Attached to its
income tax return was the audited financial statements of the respondent corporation showing a
surplus. The income tax due on the return of the respondent corporation was duly paid for within the
time prescribed by law.
Later, petitioner advised the respondent corporation of the assessment of P758.687.04 on its
accumulated surplus. The respondent corporation, on the other hand, protested against the assessment
on its retained and accumulated surplus in a letter dated April 19, 1961.
Petitioner wrote respondent corporation's auditing and accounting firm with the "advise that your
request for reconsideration will be the subject matter of further reinvestigation and a thorough
analysis of the issues involved conditioned, however, upon the execution of your client of the
enclosed form for waiver of the defense of prescription". However, respondent corporation did not
execute the requested waiver of the statute of limitations, considering its claim that the assessment in
question had already prescribed.
Later, respondent corporation received a letter from the petitioner dated February 18, 1963, calling the
attention of the respondent corporation to its outstanding and unpaid tax in the amount of P708,687.04
and thereby requesting for the payment of the said amount within five (5) days from receipt of the
said letter. Believing the aforesaid letter to be a denial of its protest, the herein respondent corporation
filed with the Court of Tax Appeals a Petition for Review of the assessment.
Issue
Whether or not the CTA had jurisdiction.
Held
CTA had jurisdiction
The letter of February 18, 1963, in the view of the Court, is tantamount to a denial of the
reconsideration or protest of the respondent corporation on the assessment made by the petitioner,
considering that the said letter is in itself a reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already made, and for the immediate payment of the
sum of P758, 687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961.
This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the
disputed assessment in view of the continued refusal of the respondent corporation to execute the
waiver of the period of limitation upon the assessment in question. This being so, the said letter
amounts to a decision on a disputed or protested assessment and, therefore, the court a quo did not err
in taking cognizance of this case.
63
Surigao Electric Co. vs. CTA

Facts
Petitioner Surigao Electric Co., Inc., grantee of a legislative electric franchise, received a warrant of
distraint and levy to enforce the collection from "Mainit Electric" of a deficiency franchise tax plus
surcharge. In a letter to the Commissioner of Internal Revenue, the petitioner contested this warrant,
stating that it did not have a franchise in Mainit, Surigao.
Thereafter the Commissioner advised the petitioner to take up the matter with the General Auditing
Office, enclosing a copy of the 4th Indorsement of the Auditor General. Subsequently, in a letter to the
Auditor General dated August 2, 1962, the petitioner asked for reconsideration of the assessment. An
exchange of correspondence between the petitioner, on the one hand, and the Commissioner and the
Auditor General, on the other, ensued, all on the matter of the petitioner's liability for deficiency
franchise tax.
The controversy culminated in a revised assessment dated April 29, 1963 (received by the petitioner
on May 8, 1963) representing the petitioner's deficiency franchise-tax and surcharges. The petitioner
then requested a recomputation of the revised assessment in a letter to the Commissioner dated June 6,
1963 (sent by registered mail on June 7, 1963). The Commissioner, however, in a letter dated June 28,
1963 (received by the petitioner on July 16, 1963), denied the request for recomputation.
On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax court dismissed the
appeal on the ground that the appeal was filed beyond the thirty-day period of appeal.
Issue
Whether or not the petitioner's appeal to the Court of Tax Appeals was time-barred.
Held
The CTA had no jursidiction.
The parties disagree on which letter of the Commissioner embodies the decision or ruling appealable
to the tax court.
A close reading of the numerous letters exchanged between the petitioner and the Commissioner
clearly discloses that the letter of demand issued by the Commissioner on April 29, 1963 and received
by the petitioner on May 8, 1963 constitutes the definite determination of the petitioner's deficiency
franchise tax liability or the decision on the disputed assessment and, therefore, the decision
appealable to the tax court.
This letter of April 29, 1963 was in response to the communications of the petitioner, particularly the
letter of August 2, 1962 wherein it assailed the 4th Indorsement's data and the letter of April 24, 1963
wherein it again questioned the assessment and requested for a recomputation. Thus, as early as
August 2, 1962, the petitioner already disputed the assessment made by the Commissioner.
Moreover, the letter of demand dated April 29, 1963 unquestionably constitutes the final action taken
by the Commissioner on the petitioner's several requests for reconsideration and recomputation. In
this letter, the Commissioner not only in effect demanded that the petitioner pay the amount but also
gave warning that in the event it failed to pay, the said Commissioner would be constrained to enforce
the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically,
the statement regarding the resort to legal remedies, unmistakably indicates the final nature of the
determination made by the Commissioner of the petitioner's deficiency franchise tax liability.
To sustain the petitioner's contention that the Commissioner's letter of June 28, 1963 denying its
request for further amendment of the revised assessment constitutes the ruling appealable to the tax
court and that the thirty-day period should, therefore, be counted from July 16, 1963, the day it
received the June 28, 1963 letter, would, in effect, leave solely to the petitioner's will the
64
determination of the commencement of the statutory thirty-day period, and place the petitioner and
for that matter, any taxpayer in a position, to delay at will and on convenience the finality of a tax
assessment.
The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be
counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8,
1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter of
June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse of
thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for
reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner
sent its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced to
run again on July 16, 1963. The petitioner filed its petition for review with the tax court on August 1,
1963 after the lapse of an additional sixteen days. The petition for review having been filed beyond
the thirty-day period, we rule that the Court of Tax Appeals correctly dismissed the same.
65
CIR vs. Union Shipping Corp.

Facts
Petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein
private respondent Union Shipping Corporation deficiency income taxes. Private respondent protested
the assessment.
Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on
November 25, 1976. In a letter dated November 27, 1976, private respondent reiterated its request for
reinvestigation of the assessment and for the reconsideration of the summary collection thru the
Warrant of Distraint and Levy.
Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant
of Distraint and Levy, filed a collection suit against private respondent. Summons in the said
collection case was issued to private respondent on December 28, 1978. On January 10, 1979, private
respondent filed with respondent court its Petition for Review of the petitioner's assessment of its
deficiency income taxes.
Issue
Whether or not the Court of Tax Appeals has jurisdiction over this case
Held
CTA has jurisdiction.
The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the
finality of an assessment because it is the most drastic action of all media of enforcing the collection
of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment.
Among others, petitioner contends that the warrant of distraint and levy was issued after respondent
corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's
final decision in the disputed assessments.
This Court had already laid down the dictum that the Commissioner should always indicate to the
taxpayer in clear and unequivocal language what constitutes his final determination of the disputed
assessment.
There appears to be no dispute that petitioner did not rule on private respondent's motion for
reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to
which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he
categorically stated that he denies private respondent's motion for reconsideration and that his action
constitutes his final determination on the disputed assessment, private respondent without needless
difficulty would have been able to determine when his right to appeal accrues and the resulting
confusion would have been avoided.
Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final
action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it
was only when private respondent received the summons on the civil suit for collection of deficiency
income on December 28, 1978 that the period to appeal commenced to run. The request for
reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed
a civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent
filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well
within the thirty day period to appeal.
66
Republic vs Lim Tian Teng Sons

Facts
Lim Tian Teng Sons & Co., Inc. filed its income tax return based on accrued income and expenses.
In the audit and examination of taxpayer's income tax return, the Collector of Internal Revenue
assessed a deficiency income tax and demanded payment.
Lim Tian Teng Sons & Co., Inc. requested reinvestigation of its income tax liability. The Collector of
Internal Revenue did not reply; instead, he referred the case to the Solicitor General for collection by
judicial action. The Solicitor General demanded from Lim Tian Teng Sons & Co., Inc. the payment,
stating that otherwise judicial action would be instituted without further notice.
Lim Tian Teng Sons & Co., Inc. reiterated its request for reinvestigation. The Collection of Internal
Revenue informed the taxpayer that its request for reinvestigation would be granted provided it
executed within ten days a waiver of the statute of limitations. As Lim Tian Teng Sons & Co., Inc.
failed to file a waiver of the statute of limitations, the Collector of Internal Revenue instituted an
action in the Court of First Instance of Cebu for the collection of deficiency income tax.
Issue
Whether or not the lower court has no jurisdiction to entertain this case on the ground that the
Collector of Internal Revenue has not yet issued his final decision on its requests for reinvestigation.
Held
The lower court has jurisdiction
The taxpayer's stand is that final decision of the Collector of Internal Revenue on the disputed
assessment is a condition precedent to the filing of an action in the Court of First Instance for the
collection of a tax. This argument has no merit.
The Collector of Internal Revenue is authorized to collect delinquent internal revenue taxes either by
distraint and levy or by judicial action or both simultaneously. The only requisite before he can collect
the tax is that he must first assess the same within the time fixed by law. And in the case of a false or
fraudulent return with intent to evade the tax or of a failure to file a return, a proceeding in court for
the collection of such tax may be begun without assessment.
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's
request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. The
legislative policy is to allow the Collector of Internal Revenue much latitude in the speedy and prompt
collection of taxes. Republic Act 1125 creating the Court of Appeals allows the taxpayer to dispute the
correctness legality of an assessment both in the purely administrative level and in said court, but it
does not stop the Collector of Internal Revenue from collecting the tax except when enjoined by said
Court of Tax Appeals.6
In fact, there was a final and executory assessment when the CIR referred the matter to the Solicitor
General for collection. The taxpayer shouldve filed a petition for review with the CTA from that
moment.7
Section 11 of Republic Act 1125 states in part:
No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue ...
shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the
opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of
Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of
6 Obiter dictum
7 Atty. Bellos opinion
67
the proceeding may suspend the said collection and require the taxpayer either to deposit the amount
claimed or to file a surety bond for not more than double the amount with the Court.
68
Central Cement Corporation vs. CIR

Facts
Petitioner received a letter from the Bureau of Internal Revenue ("BIR") informing it of a proposed
(tentative) assessment for alleged deficiency income tax.
Petitioner seasonably responded to respondent's letter by disputing the proposed assessment. There
was no reply to petitioner's letter instead, another letter from the BIR was received by petitioner.
Petitioner expressed vehement objections to the proposed assessment and requested that it be
reviewed, reconsidered and thereafter withdrawn. Instead of a reply thereto, petitioner received from
the BIR a final assessment notice for alleged deficiency income tax and expanded withholding tax.
Petitioner seasonably lodged a protest with the respondent Commissioner of Internal Revenue. While
awaiting resolution of the protest, an undated Warrant of Levy on Real Property and an undated
Warrant of Distraint of Personal Property were served on petitioner. Petitioner assailed the issuance of
the warrants and sought their recall in a letter filed with respondent on the ground that the warrants
are null and void for having been issued prematurely and in violation of the taxpayer's right to due
process, the protest filed not having been acted upon by respondent. The warrants were not recalled
by respondent despite the petitioner's insistence and the foregoing contentions. In view thereof,
petitioner filed with this Court the instant petition for review with urgent motion for injunction.
Issue
Whether or not the CTA has jurisdiction.
Held
Petitioner is estopped from questioning the CTAs jurisdiction.
The contention of respondent is that this Court has not acquired jurisdiction to act on this petition. He
claims there is no decision yet on petitioner's protest. His issuance of the warrants of distraint, levy
and garnishment allegedly does not constitute a decision on the protest that is appealable to the Court
of Tax Appeals.
However, the matter of jurisdiction was neither raised by respondent in his "Answer" nor in the trial
on the merits of this case. In fact, respondent through counsels actively participated in the proceedings
before this Court that ran for over two years without being heard to question the Court's jurisdiction.
It was only when the case was submitted for decision that respondent raised for the first time in its
memorandum that this Court is without jurisdiction.
In the subsequent proceedings before this Court that lasted for over a couple of years and where
respondent actively participated, the question of jurisdiction was never raised. By its own acts,
respondents at the very least recognized this court's jurisdiction over the case and voluntarily
submitted to its authority. It is therefore estopped from assailing this court's jurisdiction over the case.
Accordingly, it cannot be allowed now to deny this court's jurisdiction, for do so would be to make a
mockery of the law and judicial process.
69
CIR vs. Algue

Facts
On January 14, 1965, the private respondent received a letter from the petitioner assessing it for
delinquency income taxes. On January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in the office of the petitioner. On
March 12, 1965, a warrant of distraint and levy was presented to the private respondent whose Atty.
Guevara initially refused to accept on the ground of pending protest.
On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served. On April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals.
Issue
Whether or not the appeal of the private respondent from the decision of the Collector of Internal
Revenue was made on time and in accordance with law.
Held
The appeal was timely made.
The above chronology shows that the petition was filed seasonably. It is true that as a rule the warrant
of distraint and levy is "proof of the finality of the assessment" and renders hopeless a request for
reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed
rejected." But there is a special circumstance in the case at bar that prevents application of this
accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the warrant
of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and could
therefore not be served.
The protest filed by private respondent was not pro forma and was based on strong legal
considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz., January 14, 1965.
The period started running again only on April 7, 1965, when the private respondent was definitely
informed of the implied rejection of the said protest and the warrant was finally served on it. Hence,
when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been
consumed.
70
Avertising Associates vs. CA

Facts
This case is about the liability of Advertising Associates, lnc. for contractor's percentage tax on its
rental income from the lease of neon signs and billboards imposed by section 191 of the Tax Code (as
amended by Republic Acts Nos. 1612 and 6110) on business agents and independent contractors.
Advertising Associates contested the assessments in its 'letters of June 25, and March 7, 1974. The
Commissioner reiterated the assessments in his letters of July 12 and September 16,1974. The
taxpayer requested the cancellation of the assessments in its letters of September 13 and November
21, 1974. Inexplicably, for about four years there was no movement in the case. Then, on March 31,
1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint,
directing the collection enforcement division to levy on the taxpayer's personal properties as would be
sufficient to satisfy the deficiency taxes.
More than a year later, Acting Commissioner Efren I. Plana wrote a letter in answer to the requests of
the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint.
He requested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand;
otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter with this
paragraph:
This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax
Appeals within 30 days from receipt of this letter.
Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed
its petition for review. The Tax Court did not resolve the case on the merits. It ruled that the warrants
of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed
from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The
taxpayer appealed to this Court.
Issue
Whether or not the appeal was filed out of time.
Held
We hold that the petition for review was filed on time.
The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the
warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its
tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic
Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court.
The directive is in consonance with this Court's dictum that the Commissioner should always indicate
to the taxpayer in clear and unequivocal language what constitutes his final determination of the
disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and
orderliness in administrative action.
71
St. Stephens Assocation vs. CIR

Facts
Petitioner St. Stephen's Association turned over the amount of P9,252.48 to the St. Stephen's Chinese
Girls School, and the transfer of funds was entered in the ledger and cash book of the School as a
"donation" from the Association. Having come across the book entry in a routine inspection of the
books of the School, an examiner of the Bureau of Internal Revenue reported the donation to the
Collector and thereafter, the Collector of Internal Revenue sent petitioners his Assessment Notice
demanding the payment of donor's and donee's gift taxes on the donation in question.
Petitioners wrote the Collector a letter requesting the cancellation and withdrawal of the assessment
notice in question on the ground that the amount was erroneously entered by the bookkeeper as a
donation from the Association to the School. Petitioners received a letter denying the request and
insisting that the assessment in question be paid. Petitioners filed their reply to the Collector's letter
rebutting the arguments of the Collector in support of the assessment, and asking for its
reconsideration. Petitioners received the letter of the Collector again denying their request that the
assessment in question be cancelled and withdrawn, and stating in its last paragraph that:
This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax
Appeals within the same period, in accordance with the provisions of Republic Act No. 1125.
Within thirty days from the receipt of the above letter, petitioners filed a petition for review with the
respondent Court of Tax Appeals. The CTA dismissed the petition reasoning it was filed out of time.
Issue
Whether or not the appeal was filed out of time
Held
Appeal was timely filed
Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same
because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals
only upon receipt of the decision of the Collector on the disputed assessment. The period for appeal to
the respondent court in this case must, therefore, be computed from the time petitioners received the
decision of the respondent Collector of Internal Revenue on the disputed assessment, and not from the
time they received said assessment.
The next question now is: which is the decision of the Collector on the disputed assessment his
letter of April 6, 1955, received by petitioners on April 21, 1955, denying their first request for the
withdrawal and cancellation of the assessment; or his letter of July 11, 1955, received by petitioners
on July 25, 1955, denying their second request that the assessment be cancelled and withdrawn, and
stating that:
This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax
Appeals within the same period, in accordance with the provision of Republic Act No. 1125.
From the above-quoted statement appearing in his letter of July 11, 1955, it is evident that the
respondent Collector himself considered said letter as his final decision in the case. Prior to his letterdecision of July 11, 1955, then, the Collector must have held the matter under advisement and
considered his preceding rulings as merely tentative in character, pending his final determination and
resolution of the merits of the arguments of fact and law submitted by petitioners in support of their
requests for the cancellation and withdrawal of the assessment.
This must have been for this reason that, throughout the proceedings in the respondent Collector never
claimed that petitioners' appeal was filed out of time, and it was the Tax Court that motu proprio
dismissed the petition because it believed it was not filed within the period provided by Republic Act
No. 1125.
72
Respondents assert that the Collector of Internal Revenue can not enlarge or extend the period for
appeal under section 11 of Republic Act No. 1125. This is not, however, a case where the respondent
Collector had enlarged or extended the period for appeal to the respondent Court; this is simply a case
where the Collector did not reach a final decision on the matter pending before him until July 11,
1955, when he released his letter-decision of the same date.
73
Roman Catholic Archbishop of Cebu vs. Collector

Facts
The records show that petitioner, in behalf of the Roman Catholic Church of Cebu, filed an income
tax return and claimed deduction for depreciation.
Respondent totally disallowed the deductions for depreciation, thereby determining against petitioner,
income tax liabilities. Petitioner requested for the reconsideration of the determinations which
requests were denied by respondent in a letter wherein he demanded payment. Later, petitioner
requested for another reconsideration of the denial and the cancellation of the assessments.
Respondent denied this request for reconsideration and demanded payment. Again, petitioner
requested for the reconsideration and cancellation of the assessments which request was denied with a
demand:
for the last time ... to pay the total sum in order that no drastic action may be taken by this office on
the matter."
Respondent issued a warrant of distraint and levy against the properties of the Roman Catholic
Church of D. Jakosalem St., Cebu City, to satisfy the deficiency income tax and surcharge due.
Petitioner paid under protest the total amount and filed before this Court his petition for review.
Issue
Whether or not the petition was filed out of time.
Held
Petition was filed out of time.
Nevertheless, we find the dismissal of petitioner's appeal to be substantially correct, for the reason
that said appeal was not taken within the thirty (30) day period prescribed by section 11 of Republic
Act No. 1125. The petitioner has submitted not less than three (3) motions of requests for the
reconsideration of his Tax Assessments. The first he submitted to the Regional Director, and it was
denied on July 18, 1957; the second was on August 18, 1957, addressed to the Collector of Internal
Revenue, and was denied by the latter on November 5, 1957, in a letter received by petitioner on
November 21, 1957; and the third request was made on November 23, 1957, and again denied on
January 20, 1958, modified to petitioner on February 1, 1958.
All motions for reconsideration were premised on the same grounds, deduction of the depreciation of
the buildings in question. The appeal to the Tax Court was filed only on February 19, 1958.
By these successive motions for reconsideration, the petitioner managed to delay the review of his
case by the Tax Court for nearly two years. The decision by the Collector of Internal Revenue dated
November 5, 1957, denying the second request for reconsideration of the assessment, was certainly
reviewable by the Court of Tax Appeals. Hence, the 30-day appeal period should be counted from
November 21, 1957, when the taxpayer received copy of the Collector's ruling. The running of the
period was not interrupted by the filing of the third request for reconsideration, because the latter did
not advance new grounds not previously alleged, and was, therefore, merely pro forma. Therefore,
petitioner's petition for review should have been lodged with the Tax Court not later than December
21, 1957, but it was actually filed only on February 1, 1958.
74
Pantranco vs. Blaquera

Facts
The Collector originally assessed and demanded from petitioner documentary stamp tax. Petitioner
requested a reinvestigation of respondent's original assessment and demand. Respondent, denied this
request and urged petitioner to pay a reduced amount in a letter dated September 16, 1954. Petitioner
sought a reconsideration of the modified assessment adopting as its own the arguments of appellant
presented before the Supreme Court in the aforesaid case of Interprovincial Autobus Co., Inc. vs.
Meer (Collector of Internal Revenue). In this letter of petitioner, which respondent received on
December 3, 1954, it also reiterated its request that the case be held in abeyance pending the
termination of the Interprovincial Autobus Co. case.
In the meantime, the City Treasurer of Dagupan demanded from petitioner payment of the amount.
Petitioner followed-up its request but respondent finding that petitioner has not yet paid the
assessment in question again demanded payment making no reference to petitioner's past request.
Petitioner called the attention of respondent, to petitioner's letters requesting that the assessment be
reconsidered and that the case be held in abeyance pending decision of the case of Interprovincial
Autobus Co. Respondent. In a letter which petitioner received on June 11, 1955, respondent denied
the former's request. Thereafter, the present petition for review was filed on July 2, 1955.
Issue
Whether or not the petition was filed out of time.
Held
Petition was filed out of time.
Pantranco filed here this petition for review (or appeal), insisting on two points:
1. The 30-day period should start from June 11, 1955, when it received the letter of the Collector
denying its motion to reconsider;
2. Supposing the period began on November 20, 1954, the ten days spent by the attorneys in
consulting with their client whether to appeal or not to appeal to the Tax Court, should be
deducted from the computation.
We find these grounds to be untenable. The letter of September 16, 1954 is the decision of the
Collector which the taxpayer had to contest within thirty days; otherwise, it would have become final
and unappealable to the Court of Tax Appeals, or to any other court. It was a definite determination of
Pantranco's tax accountability. Pantranco could ask for reconsideration, of course; if successful, well
and good. If unsuccessful, it must appeal within thirty days, discounting the time within which its
petition to reconsider had been pending. This computation is nothing unusual: it is the ordinary way
the timeliness of appeals is determined.
As to the ten-day period "for consultation", we discover no authority in support thereof. Counsel for
Pantranco had all the time from November 20, 1954 to June 1955 within which to seek advice.
Indeed, it was unnecessary to consult: an attorney is ipso facto authorized to appeal for his client.
The appellant-petitioner urges liberality in the computation of the period, to enable it to have its day
in court. It is, however, apparent that the period of thirty days is jurisdictional and non-extensible.
Anyway, even if the courts had discretion in the matter, the appellant failed to show any valid
defenses against this assessment. In fact, it pleaded for time expecting to bolster its position with the
forthcoming decision by this Court in the case of Inter-Provincial Autobus Co. Inc. Yet that case ruled
in a manner not favorable to petitioner.
75
Basa vs. Republic

Facts
The Commissioner of Internal Revenue assessed against Augusto Basa deficiency income taxes. As
may be noted, the deficiencies were based on the taxpayer's failure to report in full his capital gains on
the sales of land.
The taxpayer did not contest the assessments in the Tax Court. The Commissioner's letter-decision on
the case was dated December 6, 1974. On the assumption that the assessments had become final and
incontestable, the Commissioner sued the taxpayer in the Manila Court of First Instance for the
collection of said amount.
The trial court affirmed the assessments and ordered Basa to pay. Instead of appealing to this Court
directly under Republic Act No. 5440, in relation to Rules 41 and 45 of the Rules of Court, since no
factual issues are involved, Basa tried to appeal to the Court of Appeals. He did not perfect his appeal
within the reglementary period. The trial court dismissed it in its order dated October 1, 1976.
Issue
Whether or not the decision of the Court of First Instance of Manila (not the Tax Court) in an income
tax case is reviewable by the Appellate Court or by this Court.
Held
Supreme Court
We hold that the petition is devoid of merit. The trial court acted within its jurisdiction in rendering its
decision and dismissing Basa's appeal. He should have appealed to this Court. His failure to do so
rendered the decision final and executory. He has no cause of action for certiorari.
The decision is correct. If he wanted to contest the assessments, he should have appealed to the Tax
Court. Not having done so, he could not contest the same in the Court of First Instance.
The issue of prescription raised by him is baseless. The assessments were predicated on the fact that
his income tax returns, if not fraudulent, were false because he underdeclared his income. In such a
case, the deficiency assessments may be made within ten years after the discovery of the falsity or
omission. The court action should be instituted within five years after the assessment but this period is
suspended during the time that the Commission is prohibited from instituting a court action
As explained in the Solicitor General's memorandum, Basa's requests for reinvestigation tolled the
prescriptive period of five years within which court action may be brought. Moreover, the issue of
prescription should have been raised in the Tax Court.
76
Mambulao Lumber Co. vs. CIR

Facts
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6,
Bicol Region, Naga City, conducted an examination of the books of accounts of herein petitioner
Mambulao lumber Company for the purpose of determining said taxpayer's forest charges and
percentage tax liabilities.
Agent Banzuela submitted his report wherein it was stated among others that:
The Bureau of Forestry then demanded for the payment of said forest charges. However, the subject taxpayer,
for one reason or the other, contested this assessment until this case reached the hands of the Secretary of
Agriculture and Natural Resources, the undersigned cannot therefore include in his assessment this amount in
question, hence, due course is given, recommending that this bureau take proper action regarding this case.
Consequently, the Acting Commissioner of Internal Revenue addressed a letter to petitioner, the
pertinent portion of which reads:
In view thereof there is due from you the amount of P33,595.26 as deficiency sales tax, forest charges and
surcharges,
Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the City Treasurer of Manila or
this office within ten (10) days from receipt hereof so that this case may be closed.
Petitioner requested for a reinvestigation of its tax liability. Subsequently, respondent Commissioner
of Internal Revenue give petitioner a period of twenty (20) days from receipt thereof to submit the
results of its verification of payments with a warning that failure to comply therewith would be
construed as an abandonment of the request for reinvestigation. For failure of petitioner to comply
with the above letter-request and/or to pay its tax liability despite demands for the payment thereof,
respondent Commissioner of Internal Revenue filed. a complaint for collection.
Issue
Whether or not petitioner can still raise the defense of prescription.
Held
Petitioner is barred from doing so.
It is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax liability.
In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of twenty (20) days
from receipt thereof to submit the results of its verification of payments and failure to comply
therewith would be construed as abandonment of the request for reinvestigation. Petitioner failed to
comply with this requirement. Neither did it appeal to the Court of Tax Appeals within thirty (30) days
from receipt of the letter dated July 8, 1959 thus making the assessment final and executory.
Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in question
final, executory and demandable. And when the action was instituted on September 2, 1958 to enforce
the deficiency assessment in question, it was already barred from disputing the correctness of the
assessment or invoking any defense that would reopen the question of its tax liability. Otherwise, the
period of thirty days for appeal to the Court of Tax Appeals would make little sense.
In a proceeding like this the taxpayer's defenses are similar to those of the defendant in a case for the
enforcement of a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court. No
inquiry can be made therein as to the merits of the original case or the justness of the judgment relied
upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in
the party offering the record with respect to the proceedings. The taxpayer may raise only the
questions whether or not the Collector of Internal Revenue had jurisdiction to do the particular act,
and whether any fraud was committed in the doing of the act. Petitioner is thus already precluded
from raising the defense of prescription.
77
Where the taxpayer did not contest the deficiency income tax assessed against him, the same became
final and properly collectible by means of an ordinary court action. The taxpayer cannot dispute an
assessment which is being enforced by judicial action, He should have disputed it before it was
brought to court.
78
CIR vs. Central Azucarera Don Pedro

Facts
Respondent filed an application with the Board of Industries for tax exemption privileges under Rep.
Act No. 3127 in connection with its importations of machineries, spare parts and other equipment to
be used in its central.
As the different shipments arrived from abroad, one after another, they were withdrawn from customs
upon payment of the corresponding customs duties, special import tax, compensating tax and
miscellaneous charges.. The Central did, however, advise the Commissioner of Internal Revenue of its
pending tax exemption application, saying that it would submit the certificate of tax exemption as
soon as its application was granted. The application was approved by the Board of Industries and the
corresponding certificate of tax exemption was issued.
The Central informed the Commissioner of Internal Revenue of the approval of its application for tax
exemption and claimed a tax credit which it had paid as compensating tax. The Commissioner
informed the Central that he was allowing a reduced tax credit on the ground that the claim for tax
credit with respect thereto was filed only on July 22, 1965, or more than two (2) years after it was
paid, and therefore under Sec. 309 of the Tax Code the right to recover the same had already
prescribed.
Issue
Whether the right to recover has already prescribed.
Held
The right to recover hasnt prescribed.
In connection with the claim for tax credit filed by the respondent Central, the basis thereof is the tax
exemption granted by the Board of Industries. Before the application for such exemption was
approved there was absolutely no basis for the Central to file a claim with the Commissioner or to
commence a suit in court.
The petitioner suggests that the respondent could have refused to pay the tax in question if only to
forestall the running of the two-year prescriptive period while its application for tax exemption with
the Board of Industries was still pending. The suggestion is not only unrealistic because non-payment
of the tax would prevent the release of the goods from customs custody, but altogether unjustified
since the tax was due and payable and its collection was neither illegal or erroneous. As a matter of
fact the petitioner admits that "under Bureau of Internal Revenue policy, one who has merely filed
with the Board of Industries an application for tax exemption privileges, which is still being processed
but not yet approved by said board, is not allowed to withdraw the importation covered by said
application from customs custody without the pre-payment of the compensating tax thereon.
The law provides that the granting of a tax exemption to an applicant engaged in a basic industry
retroacts to the date of the filing of application for exemption. If it is the grant of exemption by the
Board of Industries that gives rise to the right to file a claim for tax credit or tax refund with the
Commissioner of Internal Revenue, what is the period within which the claim should be filed and
when does it begin to run?
When the tax sought to be refunded is illegally or erroneously collected, the period of prescription
starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period
commences to run from the date of occurrence of the supervening cause which gave rise to the right
of refund.
Considering that in the present case the supervening cause from which the right to the tax credit
applied for arose was the issuance of the certificate of tax exemption by the Board of Industries on
October 5, 1965 and the Central filed its claim for tax credit with the Commissioner of Internal
79
Revenue on the following November 3, or well within the two-year period, it is clear that the said
claim had not yet prescribed.
80
Bermejo vs. Collector

Facts
Acting by Santiago M. Bermejo to recover the sums which he has paid the Collector of Internal
Revenue for taxes.
On June 25, 1946, said officer determined, and so informed Bermejo, that for sales of nipa shingles
and charcoal, the latter owed the Government the sum of P1,083.75. He objected to the assessment,
contending mainly that the products were agricultural, and as such, free from taxation; but after the
exchange of some correspondence he at last proposed to pay the tax by installments, without prejudice
to whatever action he may take on the matter. His request was granted. After paying the first
installment, he sued for recovery.
The defendant made answer maintaining the validity of the assessment and levy. But before the trial,
he submitted a motion for dismissal of the complaint on the ground that the plaintiff had not complied
with the provisions of section 306 of the Internal Revenue Law, inasmuch as said plaintiff had not
before suing, filed a claim with the collector for the refund of the amount he had delivered. The court
postponed decision on the motion and heard the case.
Issue
Whether or not Petitioner complied with Sec. 306 (mentioned below)
Held
Petitioner failed to comply.
Refuting the first ground of dismissal, he argues that section 306 has been substantially complied
with, because previous to the institution of this proceeding, there were letters sent to the collector
protesting against the tax. Section 306 reads as follows:
SEC. 306. Recovery of tax erroneously of illegally collected. - No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Collector of Internal Revenue.
The law clearly stipulates that after paying the tax, the citizen must submit a claim for refund before
resorting to the courts. The idea probably is, first, to afford the collector an opportunity to correct the
action of subordinate officers; and second, to notify the Government that such taxes have been
questioned, and the notice should then be borne in mind in estimating the revenue available for
expenditure. Previous objections to the tax may not take place of that claim for refund, because there
may be reason to believe that, in paying, the tax payer has finally come to realize the validity of
assessment. Anyway, strict compliance with the conditions imposed for the return of revenue collected
is a doctrine consistently applied here and in the United States.
81
Andrea Vda. De Aguinaldo vs. CIR

Facts
Leopoldo R. Aguinaldo and his wife received in 1952 cash dividends from Aguinaldo Brothers, Inc.
The spouses did not declare said dividends in their joint income tax return for 1952, but declared
P5,000.00 thereof in their income tax return for 1953.
In 1955 agents of the Bureau of Internal Revenue re-examined the 1952 and 1953 joint income tax
returns of Leopoldo R. Aguinaldo and his wife and discovered the same. The result was a deficiency
income tax of P3,840.00 for 1952 and an overpayment of tax in the amount of P1,600.00 for 1953.
The examination report stated that it was a "mere adjustment of 1952 and 1953 returns", and
recommended that the overpayment for 1953 in the amount of P1,600.00 be credited against the
deficiency tax for 1952. The Collector of Internal Revenue assessed against Leopoldo R. Aguinaldo
the amount of P3,840.00 as deficiency income tax for 1952, without crediting in his favor the
overpayment in 1953.
Aguinaldo protested against the assessment, and requested that the overpayment for 1953 be credited
in favor of the taxpayer. The request was denied and the taxpayer asked for reconsideration. Finally,
the Commissioner of Internal Revenue informed him that the amount of P1,600.00 cannot be credited
against the tax for 1952 inasmuch as the claim for tax credit was filed beyond the two-year period
provided for in Section 309 of the National Internal Revenue Code.
Issue
Whether or not petitioner is entitled to tax credit for the year 1953 pursuant to Section 309 of the Tax
Code.
Held
No longer entitled because the claim has already lapsed
Petitioner contends that Section 309 does not require the filing of a claim within two years from the
payment of the tax before tax credit could be given.
On the other hand, respondent Commissioner maintains that the authority of the Commissioner of
Internal Revenue under Section 309 can only be exercised if a claim for credit is made in writing and
filed with him within two years from the payment of the tax.
Section 309 of the Tax Code states:
SEC. 309. Authority of Collector to make compromises and refund taxes.The Collector of Internal Revenue
may compromise any civil or other cases arising under this Code or other law or part of law administered by
the Bureau of Internal Revenue, may credit or refund taxes erroneously or illegally received, or penalties
imposed without authority, and may remit before payment any tax that appears to be unjustly assessed or
excessive
He shall refund the value of internal-revenue stamps when the same are returned in good condition by the
purchaser, and may, in his discretion, redeem or exchange unused stamps that have been rendered unfit for use,
and may refund their value upon proof of destruction.
The authority of the Collector of Internal Revenue to credit or refund taxes or penalties under this section can
only be exercised if the claim for credit or refund is made in writing and filed with him within two years after
the payment of the tax or penalty.
The third paragraph of Section 309, aforequoted, clearly requires the filing by the taxpayer of a
written claim for credit or refund within two years after payment of the tax, before the Commissioner
of Internal Revenue can exercise his authority to grant the credit or refund. Such requirement is
therefore a condition precedent and non-compliance therewith precludes the Commissioner of Internal
Revenue from exercising the authority thereunder given.
82
As noted, the Aguinaldos paid the income tax for 1953 on August 14, 1954 although the adjustment
took place on August 29, 1955. From both dates to January 13, 1958, when the claim for tax credit
was filed, more than two years have elapsed. Evidently, petitioner's claim for tax credit was filed
beyond the period stated in Section 309.
83
Chemical Industries of the Phil Inc. vs. CIR

Facts
An Agreement was executed by and among Petitioner Chemical Industries of the Philippines, Inc.
(CIP) and the Tanco Group. In said Agreement, Petitioner agreed to sell in favor of the Tanco Group,
shares of stocks owned and held by it in LMG Chemicals Corporation (LMG).
The Tanco Group acquired and purchased, individually and severally, from herein Petitioner the first
tranche of CIP shares (the "Initial CIP Shares"), consisting of LMG shares through a cross sale in the
PSE. Petitioner then paid the transaction tax due thereon.
Pursuant to the cross sale, the Tanco Group was issued the following stock certificates by LMG
Chemicals Corporation. Petitioner asserts that certain conditions occurred prompting it to exercise the
option to rescind/revoke. As a consequence thereof, the stocks subject of the cross sale were indorsed
back to Petitioner and the purchase price therefor was allegedly returned to the Tanco Group.
It is the position of the Petitioner that inasmuch as the cross sale was rescinded/revoked, the stock
transaction tax paid on said sale of the first tranche of CIP shares should be refunded. Petitioner
requested for a ruling from the Bureau of Internal Revenue for the refund of the transaction tax
amounting. No ruling having been issued, the instant petition was filed.
Petitioner claims that considering that the "purchase closing" contemplated by the parties could not be
effected, the cross sale was not consummated. There being no sale to speak of, the basis for the
transaction tax no longer existed.
Issue
Whether or not Petitioner is entitled to the refund of stock transaction tax on the sale of the first
tranche of CIP shares.
Held
Not entitled.
Petitioner alleged that a letter-claim for refund was filed with the Bureau of Internal Revenue.
However, it is glaringly obvious that said document is not a letter-claim for refund but a letter
requesting for a ruling for the refund of the tax allegedly paid by the Petitioner. Moreover, the same
was addressed to the Deputy Commissioner contrary to the mandate of the law which led Us to
believe that Petitioner really intended to request for a ruling from the Deputy Commissioner. In short,
the letter alluded to as the request claim for refund is not the written claim required by law before a
judicial claim may be had in the Court of Tax Appeals.
Even granting for the sake of argument that a written claim was filed with the Commissioner, still
Petitioner failed to comply with the requirement that the tax subject of the claim must be alleged to
have been erroneously or illegally assessed or collected.
In the case at bar, it was never alleged that at the time the stock transaction tax was paid by the
Petitioner, no such tax was due and payable. In other words, there was no allegation that payment
therefor was erroneous. The cross sale was a consummated transaction whereby a transaction tax was
due and payable. And indeed, Petitioner paid the transaction tax.
84
Manila Electric Co. vs CIR

Facts
Petitioner obtained a loan in the amount of US$120,000,000.00 from Norddeutsche Landesbank
Gironzentrale, Singapore Branch and with lNG Barings as the Arranger. Petitioner's loan with
Norddeutsche Landesbank Gironzentrale, Singapore Branch was later restructured with lNG Barings
again as the Arranger. Later, petitioner executed another loan agreement with Norddeutsche
Landesbank Gironzentrale, Singapore Branch, for a loan facility in the amount US$100,000,000.00,
with Citicorp International Limited as Agent. Pursuant to the loan agreements, petitioner paid/remitted
to the Bureau of InternalRevenue (BIR) the corresponding ten percent (10%) final withholding tax on
its interest payments to Norddeutsche Landesbank Gironzentrale, Singapore Branch.
Later, petitioner discovered that Norddeutsche Landesbank Gironzentrale, Singapore Branch, is a
foreign government-owned financing institution of Germany. Thus, it filed with the respondent a
request for a BIR ruling as to the tax exempt status of Norddeutsche Landesbank Gironzentrale,
Singapore Branch. While waiting for the BIR ruling, petitioner continued to pay/remit ten percent
(10%) final withholding tax on its interest payments to Norddeutsche Landesbank Gironzentrale,
Singapore Branch.
Later, the BIR issued Ruling and declared therein that interest payments made to Norddeutsche
Landesbank Gironzentrale, Singapore Branch is tax exempt from the ten percent (10%) final
withholding tax since it is a financing institution owned and controlled by the foreign government of
Germany.
Consequently, petitioner filed with the respondent its claim for refund or issuance of a tax credit
certificate, representing the erroneously paid or overpaid final withholding tax on interest payments
made to Norddeutsche Landesbank Gironzentrale, Singapore Branch. Petitioner received from
respondent the letter denying its claim for refund.
Issue
Whether or not petitioner is entitled to refund.
Held
Petitioner isnt entitled to refund for taxes beyond the 2-year prescriptive period.
Under the above-quoted provisions, it is clear that the claim for refund must be filed,or the suit or
proceeding therefor must be commenced in court, within two (2) years from date of payment of the
tax or penalty regardless of any supervening cause. Non-compliance with this condition precedent
bars the taxpayer from recovering the erroneously paid tax.
Petitioner however argues that its claim has not yet prescribed considering that the prescriptive period
should commence to run only from the time that the refund is ascertained. In its case, only on October
7, 2003, when BIR Ruling No. DA-342-2003 declaring Norddeutsche Landesbank Gironzentrale to be
exempt from Philippine income tax, was received by petitioner.
We do not agree with the petitioner.
The Philippine American Life Insurance Co. decision is not applicable in the present case. It must be
noted that the tax involved in the cited case was income tax wherein the petitioner therein was
required to file quarterly and final adjustment return. It follows that the prescriptive period within
which to file its claim for refund or issuance of a tax credit certificate was reckoned on the date
petitioner therein filed its final adjustment return.
In the case at bench the reckoning period within which petitioner should file its claim for refund or
issuance of tax credit certificate is the date when petitioner should file its monthly remittance
return/final income tax withheld. Petitioner, as the withholding agent/payor, must deduct and withhold
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tax at the time an income payment is paid or payable, whichever comes first, or the income payment
is accrued or recorded as an expense or asset, which is applicable, in its books. Such taxes deducted
and withheld shall be paid upon the filing of monthly remittance tax returns with the Bureau of
Internal Revenue within the prescribed period.
This Court cannot disregard the provisions requiring the claim for refund or issuance of a tax credit
certificate within two (2) years from date of payment. We do not agree with petitioner that the twoyear period, is not jurisdictional and may be suspended for reasons of equity and other special
circumstances.
As correctly argued by the respondent, there is no basis that the subject exemption was provided and
ascertained only through BIR Ruling No. DA-342-2003 since said BIR Ruling is not the operative act
from which an entitlement to refund is determined.
Simply put, there is no requirement in the law that petitioner must request first for a ruling from the
BIR for exemption before it can file a claim for refund in cases of erroneous payment or overpayment
of taxes. The 1997 National Internal Revenue Code provides for the exemption as well as the period
within which to file a claim for refund of erroneously paid taxes and not the BIR Ruling which merely
echoes whatever is provided by the law. Now therefore, considering the date of filing of returns and
payment of taxes and the date when petitioner administratively filed its claim with the respondent and
the date when it judicially filed the instant case before this Court, petitioner's claim for the refund of
taxes beyond the 2-year period already prescribed.
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CIR vs. Central Azucarera Don Pedro

Facts
Respondent filed an application with the Board of Industries for tax exemption privileges under Rep.
Act No. 3127 in connection with its importations of machineries, spare parts and other equipment to
be used in its central.
As the different shipments arrived from abroad, one after another, they were withdrawn from customs
upon payment of the corresponding customs duties, special import tax, compensating tax and
miscellaneous charges.. The Central did, however, advise the Commissioner of Internal Revenue of its
pending tax exemption application, saying that it would submit the certificate of tax exemption as
soon as its application was granted. The application was approved by the Board of Industries and the
corresponding certificate of tax exemption was issued.
The Central informed the Commissioner of Internal Revenue of the approval of its application for tax
exemption and claimed a tax credit which it had paid as compensating tax. The Commissioner
informed the Central that he was allowing a reduced tax credit on the ground that the claim for tax
credit with respect thereto was filed only on July 22, 1965, or more than two (2) years after it was
paid, and therefore under Sec. 309 of the Tax Code the right to recover the same had already
prescribed.
Issue
Whether the right to recover has already prescribed.
Held
The right to recover hasnt prescribed.
In connection with the claim for tax credit filed by the respondent Central, the basis thereof is the tax
exemption granted by the Board of Industries. Before the application for such exemption was
approved there was absolutely no basis for the Central to file a claim with the Commissioner or to
commence a suit in court.
The petitioner suggests that the respondent could have refused to pay the tax in question if only to
forestall the running of the two-year prescriptive period while its application for tax exemption with
the Board of Industries was still pending. The suggestion is not only unrealistic because non-payment
of the tax would prevent the release of the goods from customs custody, but altogether unjustified
since the tax was due and payable and its collection was neither illegal or erroneous. As a matter of
fact the petitioner admits that "under Bureau of Internal Revenue policy, one who has merely filed
with the Board of Industries an application for tax exemption privileges, which is still being processed
but not yet approved by said board, is not allowed to withdraw the importation covered by said
application from customs custody without the pre-payment of the compensating tax thereon.
The law provides that the granting of a tax exemption to an applicant engaged in a basic industry
retroacts to the date of the filing of application for exemption. If it is the grant of exemption by the
Board of Industries that gives rise to the right to file a claim for tax credit or tax refund with the
Commissioner of Internal Revenue, what is the period within which the claim should be filed and
when does it begin to run?
When the tax sought to be refunded is illegally or erroneously collected, the period of prescription
starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period
commences to run from the date of occurrence of the supervening cause which gave rise to the right
of refund.
Considering that in the present case the supervening cause from which the right to the tax credit
applied for arose was the issuance of the certificate of tax exemption by the Board of Industries on
October 5, 1965 and the Central filed its claim for tax credit with the Commissioner of Internal
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Revenue on the following November 3, or well within the two-year period, it is clear that the said
claim had not yet prescribed.
88
CIR vs. Cebu Portland Cement

Facts
The Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company
the amount representing overpayments of ad valorem taxes on cement produced and sold by it.
Respondent moved for a writ of execution to enforce the said judgment. The petitioner opposed the
motion on the ground that the private respondent had an outstanding sales tax liability to which the
judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on
the sales taxes.
The Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the private
respondent was still being questioned and therefore could not be set-off against the refund.
Issue
Whether or not the assessment can be enforced despite being still contested.
Held
The assessment can be enforced.
The argument that the assessment cannot as yet be enforced because it is still being contested loses
sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment
of taxes could be postponed by simply questioning their validity, the machinery of the state would
grind to a halt and all government functions would be paralyzed. That is the reason why, save for the
exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No court shall have authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
which he will later have the right to distrain for payment of its sales tax liability is in our view an idle
ritual. We hold that the respondent Court of Tax Appeals erred in ordering such a charade.
89
BPI Securities Corp. vs. CIR

Facts
Petitioner filed with BPI-Makati, Main Branch, its first quarterly income tax return for 1997,
reflecting a taxable income of P18,039,318.92, for which petitioner paid income tax in the amount of
P6,313,761.62. On August 29, 1997, petitioner filed with the same bank its second quarterly income
tax return for 1997. The return showed a taxable income of P18,711,223.46 as of the end of the
second quarter, with an income tax due of P6,548,928.21. Since petitioner had already paid P6,313,
761.62 during the first quarter, it paid only the balance of P235,166.59.
On November 28, 1997, petitioner filed its third quarterly income tax return for 1997,this time
declaring a loss of P1,762,555.36 for the quarter. For the first three quarters of the year, however,
petitioner had already earned a total taxable income of P16,948,668.10, with the tax due thereon
amounting to P5,932,033.84. On April 15, 1998, petitioner filed its Annual Income Tax Return for the
year ended December 31, 1997, reflecting a taxable income in the amount ofP17,569,560.00. The tax
due for the year amounted to P6,149,346.00. As mentioned earlier, petitioner had already paid a total
of P6,548,929.00 when it filed its first and second quarterly income tax returns. Thus, for the taxable
year 1997, petitioner had overpaid income tax of P399,582.21, which petitioner opted to apply as tax
credit for the next taxable year 1998.
On April 15, 1999, petitioner filed its Annual Income Tax Return for the year ended December 31,
1998, declaring a net loss of P14,045,413.00 and nil tax liability. Unable to utilize its prior year's
excess credit, petitioner again indicated in the return its intention to carry over the same to the next
taxable year.
On April 14, 2000, petitioner filed its Annual Income Tax Return for the calendar year ended
December 31, 1999, showing a net loss of P2,641,424.00 and nil tax liability. As stated in the return,
petitioner intended to refund its prior year's excess credit. Petitioner filed with the Bureau of Internal
Revenue (BIR), a written claim for refund. On even date, petitioner filed this petition for review in
order to toll the running of the two-year reglementary period provided under Section 230 of the Tax
Code, as amended.
Issue
Whether or not the alleged deficiency taxes of petitioner can be used to set-off petitioners claim for
refund.
Held
Cant be set-off.
With reference to the memorandum-report of Revenue Officer Isidore Guzman which was offered in
evidence by respondent to prove that the claim for refund of petitioner was investigated and which
instead found the latter liable for deficiency taxes, this court rules that the said report "cannot serve as
an obstacle to the grant of the instant claim for refund because petitioner's alleged tax deficiencies for
the taxable year 1997 is not the issue presented before Us in this petition for review."
Moreover, it appears that the memorandum-report has not yet ripened into a formal assessment duly
approved by the Regional Director or by the Commissioner of Internal Revenue. Thus, the same can
proceed independently of the claim for refund and its merits or demerits may be determined in
separate proceedings as provided for in the Tax Code.
The principle that taxes are not subject to set-off or legal compensation must govern, especially in this
case where the taxes and the taxpayer's claim are not fully liquidated, due and demandable. This Court
finds no merit in this theory of the respondent, if we can call it that, as we cannot look into the merits
of the pre-assessment notice issued to the petitioner unless such notice matures into a final
assessment. To do otherwise is tantamount to treading into grounds where this court has no
jurisdiction."
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In this case, no assessment, whether tentative or final, has been issued to petitioner. Consequently, we
do not find any reason to deviate from the above rulings. Thus, the argument of the respondent that
petitioner's claim must be denied on the basis of the findings and recommendation in the
memorandum issued by the Revenue Officer does not deserve consideration.
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FNCB Finance vs. CIR

Facts
For taxable year ended December 31, 1981, petitioner's annual corporate income tax return which was
filed on April 5, 1982 showed a refundable amount of P6,810,254.09. An amended return was
subsequently filed on November 12, 1982 to show its true income and deductions including creditable
income taxes for the taxable year in question. The total amount refundable as adjusted is
P2,583,901.28. On April 8, 1983, petitioner through SGV and Company filed with the Bureau of
Internal Revenue a claim for tax credit in the amount of P2,583,901.28. When respondent failed to
resolve petitioner's request for tax credit, the instant petition for review was filed on January 5, 1984
in order to interrupt the two-year period from the date of payment of the tax within which to judicially
claim for tax credit.
The report submitted by the revenue examiner showed that after investigation, petitioner has incurred
on income tax deficiency for the year 1981. Of the alleged creditable income taxes withheld for 1981
amounting to P2,583,901.28, the amount of P2,449,827.93 has been applied against the deficiency
income tax due after investigation. In addition, the amount of P134,073.35 was found to pertain to a
prior year and was not approved.
Issue
Whether or not petitioner is entitled to a tax credit of P2,583,901.28 representing excess creditable
income taxes for taxable year 1981.
Held
As to the set-off made by respondent, the same is illegal.
It is significant to note that in the investigation of petitioner's claim for tax credit, there was instead
found due from petitioner alleged deficiency income tax which respondent automatically set-off
against the amount claimed as excess creditable income tax. The result was that petitioner has no
longer any excess creditable income tax but a deficiency tax due.
The act of respondent smacks of whim or caprice. There was arbitrary disallowance of deductible
expenses to create a deficiency tax. No chance was even accorded to petitioner to rebut the findings.
The element of due process was sorely lacking.
An assessment fixes and determines the tax liability of a taxpayer. Without an assessment, there is no
debt from taxpayer, and there is no obligation on his part that can be enforced in an action.
Accordingly, respondent cannot be allowed to apply the tax credit claimed against the alleged
deficiency tax when no assessment has been made. In like manner that a taxpayer cannot refuse to pay
a tax on the ground that the government owes him an amount equal to or greater than the tax being
collected, the government cannot automatically set-off alleged deficiency tax against a claim for tax
credit.
Premises considered, We do not believe that respondent can be allowed to arbitrarily set-off alleged
deficiency tax against petitioner's claim for tax credit. To allow the same is fraught with danger and
place claimants of refund and/or tax credit at the mercy of taxing authorities.
92
Philex Mining Corp vs. CIR

Facts
Petitioner as a domestic mining corporation had entered into a Mining License Agreement with the
then Ministry of Natural Resources (now the Department of Environment and Natural Resources).
Petitioner purchased from several oil companies, refined and manufactured mineral oils, motor fuels,
and diesel fuel oils. The specific taxes passed on to the petitioner amounted to P2,492,677.22.
Pursuant to Republic Act No. 1435, petitioner filed a claim for refund with the Commissioner of
Internal Revenue (CIR) for P623,169.30, representing the twenty-five (25%) percent of the specific
taxes paid.
Pending CIR action, the petitioner filed a case for tax refund with the Court of Tax Appeals (CTA).
The petitioner sought judgment ordering the CIR to pay as refund the amount of P623,169.30, with
twenty (20%) percent interest per annum, plus the costs of suit.
Issue
Whether or not the government is liable to pay 20% interest per annum
Held
Not liable
As to the 20% interest per annum prayed by the petitioner, we reiterate our pronouncement in Rio
Tuba, where no interest was awarded although the claim for refund was granted. As aptly stated by
the CTA, viz.:
x x x [T]he rule is that no interest on refund of tax can be awarded unless authorized by law or the collection
of the tax was attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due
consideration where there is room for two opinions, however much it may be believed that an erroneous
conclusion was reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions.
None of the exceptions are present in the case at bar. Respondents decision denying petitioners claim for
refund was based on an honest interpretation of law. We, therefore see no reason why petitioner should be
entitled to the payment of interest. (citations omitted)
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Francia vs. IAC

Facts
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it.
Later, a portion of Francia's property was expropriated by the Republic of the Philippines.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, his property was
sold at public auction in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the
highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for
Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated
at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.
Issue
Whether or not Fancia can set off the amount owing from the government due to the expropriation
with the real property taxes due the government.
Held
No set-off is allowed.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation.
He claims that the government owed him P4,116.00 when a portion of his land was expropriated on
October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15,
1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their
own right are reciprocally debtors and creditors of each other, are extinguished.
This principal contention of the petitioner has no merit. We have consistently ruled that there can be
no off-setting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under
the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of
the contract or transaction sued on.
The general rule based on grounds of public policy is well-settled that no set-off admissible against
demands for taxes levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and party but grow out
of duty to, and are the positive acts of the government to the making and enforcing of which, the
personal consent of individual taxpayers is not required.
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We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.
Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of
the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off."
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BIR Ruling No. 415-93

This refers to your request for confirmation and/or issuance of guidelines for the automatic offsetting
of claims for VAT input tax by mining companies against their excise tax liabilities.
I reply, I regret to inform you that the same cannot be granted for lack of legal basis. Any claim for tax
credit or refund of alleged excess input tax by a VAT registered taxpayer pursuant to Sections 104 and
106 both of the Tax Code, as amended by E.O. 273, shall be subject to verification by this Office
pursuant to existing rules and regulations. Accordingly, until after the amount claimed as input taxes
attributable to goods exported, or on sales which are zero-rated or effectively zero-rated or input tax
paid on capital goods imported or locally purchased, to the extent that such input taxes have not been
applied against output taxes, have been finally determined to be legally due to the taxpayer, and a tax
credit certificate issued therefor, no automatic offsetting of the amount claimed as input tax against
the tax liability of the taxpayer can be allowed.
However, a Tax Credit Certificate duly issued by this Office shall, upon proper application, be
allowed to be used in payment of excise and other tax liabilities of taxpayers, like the mining
companies.
96
Rodriguez vs. Blaquera

Facts
Section 292 of Commonwealth Act No. 466, as amended by Republic Act No. 84, imposes upon
holders of firearms the duty to pay an initial license fee of P15 and an annual fee of P10 for each
firearm. However, the annual fee is reduced to P5.00 for each firearms, in the case of "bona fide and
active members of duly organized gun clubs and accredited by the Provost Marshal General" (now
Chief of the Philippines Constabulary). Under date of January 3, 1953, the Commissioner of Internal
Revenue caused to be published General Circular No. V-148 that clarifies the statutes implementation
with respect to the specific gun models covered.
Contending that this ruling is not warranted by the aforesaid statute, plaintiff, as manager of the
Philippines Rifle and Pistol Association, Inc., which is said to be a gun club duly accredited by the
Provost Marshal General, some of whose members have allegedly paid under protest the regular
annual fee of P10 and demanded from the Collector of Internal Revenue the reimbursement of the
sum of P5.00 to no avail, instituted this action in the Court of First Instance of Manila on December
19, 1955, for the nullification of the aforementioned circular and the fund of the amounts thus
collected in excess of the annual fee of P5.00 which is claimed to be the only sum due from them.
Issue
Whether or not the case is within the CTAs jurisdiction.
Held
The case is within the CTAs jurisdiction.
Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but
merely an attempt to nullify General Circular No. V-148, which does not adjudicate or settle any
controversy, and that, accordingly, this case is not within the jurisdiction of the Court of Tax Appeals.
We find no merit in this pretense.
General Circular No. V-148 directs the officers charged with the collection of taxes and license fees to
adhere strictly to the interpretation given by the defendant to the statutory provision above mentioned
as set forth in the circular. The same incorporates, therefore, a decision of the Collector of Internal
Revenue on the manner of enforcement of said statute, the administration of which is entrusted by law
to the Bureau of Internal Revenue. As such, it comes within the purview of Republic Act No. 1125,
section 7 of which provides that the Court of Tax Appeals "shall exercise exclusive appellate
jurisdiction to review by appeal . . . decisions of the Collector of Internal Revenue in . . . matters
arising under the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue."
Besides, it is plain from plaintiff's original complaint that one of its main purposes was to secure an
order for the refund of the sums collected in excess of the amount he claims to be due by way of
annual fee from gun club members, regardless of the class of firearms they have. Although the prayer
for reimbursement has been eliminated from his amended complaint, it is only too obvious that the
nullification of General Circular No. V-148 is merely a step preparatory to a claim for refund.
97
Phil Journalist vs. CIR

Facts
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended
December 31, 1994. The BIR issued a letter of authority to examine petitioners books of account and
other accounting records for internal revenue taxes for the period January 1, 1994 to December 31,
1994. From the examination, the petitioner was told that there were deficiency taxes, inclusive of
surcharges, interest and compromise penalty.
The petitioner executed a "Waiver of the Statute of Limitation Under the National Internal Revenue
Code (NIRC)". The document "waive[d] the running of the prescriptive period provided by Sections
223 and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment and
collection of taxes which may be found due after the examination at any time after the lapse of the
period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC,
until the completion of the investigation.
Later, the BIR issued an assessment notice to petitioner. Petitioner contested that the assessment had
no factual and legal basis. Later, a Warrant of Distraint and/or Levy was received by the petitioner.
Petitioner then filed a petition for review with the CTA.
Issue
Whether or not the CTA has jurisdiction over the case involving the legality of the warrant of distraint
and/or levy and the waiver.
Held
CTA has jurisdiction.
The first assigned error relates to the jurisdiction of the CTA over the issues in this case.
The Court of Appeals ruled that only decisions of the BIR denying a request for reconsideration or
reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for
reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and
unappealable. The petitioner now argues that the case was brought to the CTA because the warrant of
distraint or levy was illegally issued and that no assessment was issued because it was based on an
invalid waiver of the statutes of limitations.
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. Jurisdiction also
covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal
Revenue. The law gives the CTA the jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected.
This is not the first case where the CTA validly ruled on issues that did not relate directly to a disputed
assessment or a claim for refund. In Pantoja v. David, we upheld the jurisdiction of the CTA to act on
a petition to invalidate and annul the distraint orders of the Commissioner of Internal Revenue. Also,
in Commissioner of Internal Revenue v. Court of Appeals, the decision of the CTA declaring several
waivers executed by the taxpayer as null and void, thus invalidating the assessments issued by the
BIR, was upheld by this Court.
98
CIR vs. Leal

Facts
The Commissioner of Internal Revenue, petitioner, issued Revenue Memorandum Order (RMO) No.
15-91 imposing 5% lending investors tax on pawnshops based on their gross income and requiring all
investigating units of the Bureau of Internal Revenue (BIR) to investigate and assess the lending
investors tax due from them.
The issuance of RMO No. 15-91 was an offshoot of petitioners evaluation that the nature of
pawnshop business is akin to that of lending investors. Subsequently, petitioner issued Revenue
Memorandum Circular (RMC) No. 43-91 subjecting the pawn ticket to the documentary stamp tax as
prescribed in Title VII of the Tax Code.
Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of
Josefinas Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and
RMC No. 43-91 but the same was denied with finality by petitioner in its BIR Ruling No. 221-91.
Consequently, respondent filed with the Regional Trial Court (RTC) a petition for prohibition seeking
to prohibit petitioner from implementing the revenue orders.
Issue
Whether or not the RTC had jurisdiction over the case.
Held
RTC had no jurisdiction, shouldve been filed with the CTA.
While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be
stressed that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to
the Court of Tax Appeals, not to the RTC.
The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops. This is clear from
petitioners RMO No. 15-91. Such revenue orders were issued pursuant to petitioner's powers under
Section 245 of the Tax Code, which provides for the Secretary of Finances authority to promulgate
rules and regulations and the power of the Commissioner of Internal Revenue to make rulings or
opinions in connection with the implementation of the provisions of internal revenue laws, including
ruling on the classification of articles of sales and similar purposes..
Here, as earlier mentioned, respondent Josefina Leal, being a pawnshop owner, is assailing the
revenue orders imposing 5% lending investors tax on pawnshops issued by petitioner. Clearly then,
she should have filed her petition with the Court of Tax Appeals, not the RTC. Indeed, the Court of
Appeals erred in holding that the RTC order should have been challenged before this Court.
99
Asia Intl Auctioneers Inc. vs. Parayno

Facts
Congress enacted Republic Act (R.A.) No. 7227 creating the Subic Special Economic Zone (SSEZ)
and extending a number of economic or tax incentives therein. Later, the CIR issued Revenue
Memorandum Circular (RMC) No. 31-2003 setting the "Uniform Guidelines on the Taxation of
Imported Motor Vehicles through the Subic Free Port Zone and Other Freeport Zones that are Sold at
Public Auction."
Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors Corporation are
corporations organized under Philippine laws with principal place of business within the SSEZ. They
are engaged in the importation of mainly secondhand or used motor vehicles and heavy transportation
or construction equipment which they sell to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo City, praying for the nullification of RMC
No. 31-2003 for being unconstitutional and an ultra vires act.
Issue
Whether or not the trial court has jurisdiction over the case.
Held
Trial court has no jurisdiction.
Petitioners contend that jurisdiction over the case at bar properly pertains to the regular courts as this
is "an action to declare as unconstitutional, void and against the provisions of [R.A. No.] 7227" the
RMCs issued by the CIR. They explain that they "do not challenge the rate, structure or figures of the
imposed taxes, rather they challenge the authority of the respondent Commissioner to impose and
collect the said taxes." They claim that the challenge on the authority of the CIR to issue the RMCs
does not fall within the jurisdiction of the Court of Tax Appeals (CTA).
Petitioners arguments do not sway.
RMCs are considered administrative rulings which are issued from time to time by the CIR.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are actually
rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public auction within the
SSEZ to implement Section 12 of R.A. No. 7227 which provides that "exportation or removal of
goods from the territory of the [SSEZ] to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines." They were issued pursuant to the power of the CIR under Section 4 of the National
Internal Revenue Code.
Rodriguez vs. Blaquera and CIR vs. Leal re-affirmed.
100
British American Tobacco vs. Camacho8

Facts
RA 8240, entitled "An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and
For Other Purposes," took effect on January 1, 1997. In the same year, Congress passed RA 8424 or
The Tax Reform Act of 1997, re-codifying the NIRC. Section 142 was renumbered as Section 145 of
the NIRC.
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97,
then Revenue Regulations No. 9-2003, then Revenue Memorandum Order No. 6-2003, and lastly
Revenue Regulations No. 22-2003.
Thus, petitioner filed before the Regional Trial Court (RTC) of Makati, a petition for injunction with
prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction.
Said petition sought to enjoin the implementation of Section 145 of the NIRC, Revenue Regulations
Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they
discriminate against new brands of cigarettes, in violation of the equal protection and uniformity
provisions of the Constitution.
Issue
Whether or not the RTC had jurisdiction.
Held
Petitioner, therefore, properly filed the subject case before the RTC.
Before going into the substantive issues of this case, we must first address the matter of jurisdiction,
in light of Fortune Tobaccos contention that petitioner should have brought its petition before the
Court of Tax Appeals rather than the regional trial court.
The law confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases
where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts.
The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality
of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and
regulations. In fact, the RTC limited the resolution of the subject case to the issue of the
constitutionality of the assailed provisions. The determination of whether the assailed law and its
implementing rules and regulations contravene the Constitution is within the jurisdiction of regular
courts. The Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance, or regulation
in the courts, including the regional trial courts.
8 Distinguished from CIR vs. Leal: British Tobacco challenges the constitutionality of a
law. CIR vs. Leal challenges the constitutionality of a BIR ruling.
101
Basilan Estates vs. CIR

Facts
A Philippine corporation engaged in the coconut industry, Basilan Estates, Inc., with principal offices
in Basilan City, filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of
P8,028. On February 26, 1959, the Commissioner of Internal Revenue assessed Basilan Estates, Inc.,
a deficiency income tax for 1953 and 25% surtax on unreasonably accumulated profits as of 1953.
Because of its refusal to waive the period of prescription, the corporation's request for reinvestigation
was not given due course, and on December 2, 1960, notice was served the corporation that the
warrant of distraint and levy would be executed.
On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax Appeals a petition for
review of the Commissioner's assessment, alleging, among others, prescription of the period for
assessment and collection.
Issue
Whether or not the period to assess has already prescribed.
Held
Not yet prescribed.
There is no dispute that the assessment of the deficiency tax was made on February 26, 1959; but the
petitioner claims that it never received notice of such assessment or if it did, it received the notice
beyond the five-year prescriptive period. To show prescription, the annotation on the notice "No
accompanying letter 11/25/" is advanced as indicative of the fact that receipt of the notice was after
March 24, 1959, the last date of the five-year period within which to assess deficiency tax, since the
original returns were filed on March 24, 1954.
Although the evidence is not clear on this point, We cannot accept this interpretation of the petitioner,
considering the presence of circumstances that lead Us to presume regularity in the performance of
official functions.
The notice of assessment shows the assessment to have been made on February 26, 1959, well within
the five-year period. On the right side of the notice is also stamped "Feb. 26, 1959" denoting the
date of release, according to Bureau of Internal Revenue practice. The Commissioner himself in his
letter answering petitioner's request to lift, the warrant of distraint and levy, asserts that notice had
been sent to petitioner. In the letter of the Regional Director forwarding the case to the Chief of the
Investigation Division which the latter received on March 10, 1959, notice of assessment was said to
have been sent to petitioner.
Subsequently, the Chief of the Investigation Division indorsed on March 18, 1959 the case to the
Chief of the Law Division. There it was alleged that notice was already sent to petitioner on February
26, 1959. These circumstances pointing to official performance of duty must necessarily prevail over
petitioner's contrary interpretation. Besides, even granting that notice had been received by the
petitioner late, as alleged, under Section 331 of the Tax Code requiring five years within which to
assess deficiency taxes,9 the assessment is deemed made when notice to this effect is released, mailed
or sent by the Collector to the taxpayer and it is not required that the notice be received by the
taxpayer within the aforementioned five-year period.
9 Now 3 years
102
CIR vs. Phoenix Assurance Co.

Facts
Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great
Britain, is licensed to do business in the Philippines with head office in London. Through its head
office, it entered in London into worldwide reinsurance treaties with various foreign insurance
companies. It agree to cede a portion of premiums received on original insurances underwritten by its
head office, subsidiaries, and branch offices throughout the world, in consideration for assumption by
the foreign insurance companies of an equivalent portion of the liability from such original
insurances.
Pursuant to such reinsurance treaties, Phoenix Assurance Co., Ltd., ceded portions of the premiums it
earned from its underwriting business in the Philippines
On April 1, 1951, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1950,
claiming therein, among others, a deduction. The Commissioner of Internal Revenue disallowed such
claim for deduction and subsequently assessed against Phoenix Assurance Co., Ltd. deficiency income
tax.
On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1952,
declaring therein a deduction. On August 30, 1955 it amended its income tax return for 1952. The
Commissioner of Internal Revenue disallowed the claimed deduction for head office expenses and
assessed a deficiency tax.
On April 30, 1954, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1953 and
claimed therein a deduction. On August 30, 1955 it amended its 1953 income tax return. At the same
time, it requested a refund as overpaid income tax for 1953. To avoid the prescriptive period provided
for in Section 306 of the Tax Code, it filed a petition for review on April 11, 1956 in the Court of Tax
Appeals praying for such refund. After verification of the amended income tax return the
Commissioner of Internal Revenue disallowed the deduction representing head office expenses
allocable to Philippine business thereby reducing the refundable amount.
On April 29, 1955, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1954
claiming therein, among others, a deduction.
On August 1, 1958 the Bureau of Internal Revenue released an assessment for deficiency income tax
for the years 1952 and 1954 against Phoenix Assurance Co., Ltd.
The assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix
Assurance Co., Ltd. Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for
withholding tax and deficiency income tax. However, the Commissioner of Internal Revenue denied
such protest. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals.
Issue
Whether or not the counting of the period begins from the original or amended return.
Held
Counting begins from the amended return.
We come to the issue of prescription.
Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on April 1, 1953 and amended said
return on August 30, 1955. On July 24, 1958, after examination of the amended return, the
Commissioner of Internal Revenue assessed deficiency income tax. The Court of Tax Appeals found
the right of the Commissioner of Internal Revenue barred by prescription, the same having been
exercised more than five years from the date the original return was filed. On the other hand, the
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Commissioner of Internal Revenue insists that his right to issue the assessment has not prescribed
inasmuch as the same was availed of before the 5-year period provided for in Section 331 of the Tax
Code expired, counting the running of the period from August 30, 1955, the date when the amended
return was filed.
The question is: Should the running of the prescriptive period commence from the filing of the
original or amended return?
The changes and alterations embodied in the amended income tax return consisted of the exclusion of
reinsurance premiums received from domestic insurance companies by Phoenix Assurance Co., Ltd.'s
London head office, reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines and various items of deduction attributable to such excluded reinsurance premiums
thereby substantially modifying the original return. Furthermore, although the deduction for head
office expenses allocable to Philippine business, whose disallowance gave rise to the deficiency tax,
was claimed also in the original return, the Commissioner could not have possibly determined a
deficiency tax thereunder because Phoenix Assurance Co., Ltd. declared a loss of P199,583.93 therein
which would have more than offset such disallowance of P15,826.35.
Considering that the deficiency assessment was based on the amended return which, as aforestated, is
substantially different from the original return, the period of limitation of the right to issue the same
should be counted from the filing of the amended income tax return. From August 30, 1955, when the
amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five
years elapsed. The right of the Commissioner to assess the deficiency tax on such amended return has
not prescribed.
To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for
taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and
amending the same more than five years later when the Commissioner of Internal Revenue has lost
his authority to assess the proper tax thereunder. The object of the Tax Code is to impose taxes for the
needs of the Government, not to enhance tax avoidance to its prejudice.
104
Butuan Sawmill vs. CTA

Facts
During the period from January 31, 1951 to June 8, 1953, petitioner sold logs to Japanese firms.
Upon investigation by the Bureau of Internal Revenue, it was ascertained that no sales tax return was
filed by the petitioner and neither did it pay the corresponding tax on the sales. Respondent, on
August 27, 1958, determined against petitioner sales tax, surcharge and compromise penalty on its
sales of logs from January 1951 to June 1953.
Issue
Whether or not the filing of the income tax returns is substantial compliance with the requirement of
filing a sales tax return.
Held
No substantial compliance
Petitioner avers that the filing of its income tax returns, wherein the proceeds of the disputed sales
were declared, is substantial compliance with the requirement of filing a sales tax return, and, if there
should be deemed a return filed, Section 331, and not Section 332(a), of the Tax Code providing for a
five-year prescriptive period10 within which to make an assessment and collection of the tax in
question from the time the return was deemed filed, should be applied to the case at bar. Since
petitioner filed its income tax returns for the years 1951, 1952 and 1953, and the assessment was
made in 1957 only, it further contends that the assessment of the sales tax corresponding to the years
1951 and 1952 has already prescribed for having been made outside the five-year period prescribed in
Section 331 of the Tax Code and should, therefore, be deducted from the assessment of the deficiency
sales tax made by respondent.
The above contention has already been raised and rejected as not meritorious in a previous case
decided by this Court. Thus, we held that an income tax return cannot be considered as a return for
compensating tax for purposes of computing the period of prescription under Section 331 of the Tax
Code, and that the taxpayer must file a return for the particular tax required by law in order to avail
himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an
assessment may be made within the time stated in Section 332(a) of the same Code
It being undisputed that petitioner failed to file a return for the disputed sales corresponding to the
years 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that
under Section 332(a) of the Tax Code assessment thereof may be made within ten (10) years from and
after the discovery of the omission to file the return, it is evident that the lower court correctly held
that the assessment and collection of the sales tax in question has not yet prescribed.
10 Now 3-years
105
CIR vs. Primetown Prop Group Inc.

Facts
Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in
1997. Because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent
paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales
to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax refund or
tax credit.
Respondents claim was not acted upon. Thus, it filed a petition for review in the Court of Tax
Appeals (CTA) on 14 April 2000. The CTA dismissed the petition as it was filed beyond the two-year
prescriptive period for filing a judicial claim for tax refund or tax credit.
The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to
claim a refund or credit commenced on that date.
The tax court applied Article 13 of the Civil Code which states:
Art. 13. When the law speaks of years, months, days or nights, it shall be understood that years are of three
hundred sixty-five days each; months, of thirty days; days, of twenty-four hours, and nights from sunset to
sunrise.
If the months are designated by their name, they shall be computed by the number of days which they
respectively have.
In computing a period, the first day shall be excluded, and the last included.
Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the
filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year,
respondent's petition, which was filed 731 days after respondent filed its final adjusted return, was
filed beyond the reglementary period.
Issue
Whether or not the claim for refund was filed within the prescriptive period.
Held
Filed within the period.
The conclusion of the CA that respondent filed its petition for review in the CTA within the two-year
prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is not.
The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted
return. But how should the two-year prescriptive period be computed?
As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is
understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson, we ruled that a
year is equivalent to 365 days regardless of whether it is a regular year or a leap year. However, in
1987, the Administrative Code of 1987 was enacted.
Sec. 31. Legal Periods. Year shall be understood to be twelve calendar months; month of thirty days,
unless it refers to a specific calendar month in which case it shall be computed according to the number of days
the specific month contains; day, to a day of twenty-four hours and; night from sunrise to sunset.
A calendar month is a month designated in the calendar without regard to the number of days it may
contain. It is the period of time running from the beginning of a certain numbered day up to, but not
including, the corresponding numbered day of the next month, and if there is not a sufficient number
of days in the next month, then up to and including the last day of that month. To illustrate, one
106
calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one
calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008.
Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year.
Under the Administrative Code of 1987, however, a year is composed of 12 calendar months.
Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There
obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil
Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII,
Book I of the Administrative Code of 1987, being the more recent law, governs the computation of
legal periods.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, we
therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24 th
calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
107
Taligaman Lumber Co. Inc. vs. CIR

Facts
Upon examination of the books of account of the petitioners Grace Park branch, an agent of the
Bureau of Internal Revenue recommended, on December 23, 1953, an assessment as deficiency sales
tax on the sales made in said branch for the years 1948 to 1952. 11
Upon refusal of the Collector of Internal Revenue reconsider or modify either assessment, petitioner
brought the matter for review to the Court of Tax Appeal.
This appeal by petitioner assails the decision of the CTA upon the ground that the right of the
Government to collect deficiency taxes for the years 1948 and 1949 is already barred by the statute of
limitations;
Issue
Whether or not the right to collect the deficiency sales tax for 1948 and 1949 has already prescribed.
Held
Not yet prescribed.
Petitioner alleges to the right of the Government to collect deficiency sales for the years 1948 and
1949 had already prescribed for, pursuant to section 331 of the Revised Internal Revenue Law.
Respondent, in turn, maintains that this case falls under action 332 (a) of the Internal Revenue code,
reading: .
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud, or omission.
Petitioner objects to the application of this section 332(a) upon the ground that there is no affirmative
evidence that it had not filed the corresponding returns for the years 1948-1949.
Thus the issue boils down to which of the two parties had the burden of proving such failure to file
said returns. It is, however, clear that since prescription is one of the affirmative defenses set up by
petitioner herein, it was incumbent upon the latter, if it wanted to avail itself of the benefits of section
331, to prove that it had submitted said returns, and that, having failed to do so, the conclusion must
be that no such returns had been filed and that the Government had ten (10) years within which to
make the corresponding assessments, as it did in this case.
It is urged that in alleging, in its amended answer to the amended petition filed with the Court of Tax
Appeals, that "petitioner had failed to declare its correct taxable receipts during the years in question",
the Government had admitted impliedly that petitioner had declared its receipts, though not correctly,
thus relieving petitioner of the burden of proving that it had filed the corresponding returns. That the
conclusion thus drawn from the above quoted averment is unwarranted becomes patent when we
consider that petitioner omitted the clause following said allegation, namely: "hence, the assessment
and collection of said taxes are authorized under the provisions of section 332 of the National Internal
Revenue Code." In short, the Government relied upon the "failure to file a return", referred to in said
section 332, not to mere inaccuracies in the return filed, which fall under section 331.
11 This is the earliest assessment made, but numerous other assessments followed.
108
Aznar vs. CTA

Facts
It is established that the late Matias H. Aznar who died on May 18, 1958, predecessor in interest of
herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the
cash and disbursement basis.
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of
one obviously wealthy, investigated. The assets and liabilities of the taxpayer were ascertained and it
was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net
worth was very much more than the income reported during said years. The findings clearly indicated
that the taxpayer did not declare correctly the income reported in his income tax returns for the
aforesaid years.
Based on the above findings, respondent Commissioner, in his letter dated November 28, 1952,
notified the taxpayer of the assessed tax delinquency.
Issue
Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income taxes
of the late Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the
assessment was made on November 28, 1952.
Held
Not yet prescribed.
Petitioner argues that Sec. 332, providing for 10 years prescriptive period, of the NIRC does not apply
because the taxpayer did not file false and fraudulent returns with intent to evade tax.
Petitioner argues its the 5-year prescriptive period from filing of the return that should apply. While
respondent Commissioner of Internal Revenue insists contrariwise, with respondent Court of Tax
Appeals concluding that the very "substantial under declarations of income for six consecutive years
eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the
payment of tax."
We believe that the proper and reasonable interpretation of said provision should be that in the three
different cases of:
1. False return,
2. Fraudulent return with intent to evade tax,
3. Failure to file a return
The tax may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the:
1. Falsity,
2. Fraud,
3. Omission.
Our stand that the law should be interpreted to mean a separation of the three different situations of
false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened
immeasurably by the last portion of the provision (Sec. 332) which segregates the situations into three
different classes, namely "falsity", "fraud" and "omission". That there is a difference between "false
return" and "fraudulent return" cannot be denied. While the first merely implies deviation from the
truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade
the taxes due.
109
The ordinary period of prescription of 5 years 12 within which to assess tax liabilities under Sec. 331 of
the NIRC should be applicable to normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false
returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten
years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or
omission should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years
within which to assess petitioner's tax liability had not expired at the time said assessment was made.
12 Now 3-years
110
CIR vs. BF Goodrich Phil Inc.

Facts
Private respondent purchased from the Philippine government certain parcels of land located in
Tumajubong, Basilan, and there developed a rubber plantation. Later, the justice secretary rendered an
opinion stating that, upon the expiration of the Parity Amendment, the ownership rights of Americans
over public agricultural lands, including the right to dispose or sell their real estate, would be lost. On
the basis of this Opinion, private respondent sold to Siltown Realty Philippines, Inc. on January 21,
1974, its Basilan landholding for P500,000 payable in installments. In accord with the terms of the
sale, Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent for a period
of 25 years, with an extension of another 25 years at the latters option.
Based on the BIRs Letter of Authority No. 10115 dated April 14, 1975, the books and accounts of
private respondent were examined for the purpose of determining its tax liability for taxable year
1974. The examination resulted in the April 23, 1975 assessment of private respondent for deficiency
income tax in the amount of P6,005.35, which it duly paid.
Later, the BIR issued against private respondent on October 10, 1980, an assessment for deficiency in
donors tax, in relation to the previously mentioned sale of its Basilan landholdings to Siltown.
Apparently, the BIR deemed the consideration for the sale insufficient, and the difference between the
fair market value and the actual purchase price a taxable donation. Private respondent contested this
assessment and received another assessment increasing the amount demanded.
Private respondent appealed the correctness and the legality of these last two assessments to the CTA.
Issue
Whether or not the right to collect the taxes has already prescribed.
Held
It is clear that the October 16, 1980 and the March 1981 assessments were issued by the BIR beyond
the five-year statute of limitations. The Court has thoroughly studied the records of this case and
found no basis to disregard the five-year period of prescription.
Nor is petitioners claim of falsity sufficient to take the questioned assessments out of the ambit of
the statute of limitations.
Petitioner insists that private respondent committed falsity when it sold the property for a price
lesser than its declared fair market value. This fact alone did not constitute a false return which
contains wrong information due to mistake, carelessness or ignorance. It is possible that real property
may be sold for less than adequate consideration for a bona fide business purpose; in such event, the
sale remains an arms length transaction. In the present case, the private respondent was compelled
to sell the property even at a price less than its market value, because it would have lost all ownership
rights over it upon the expiration of the parity amendment. In other words, private respondent was
attempting to minimize its losses. At the same time, it was able to lease the property for 25 years,
renewable for another 25. This can be regarded as another consideration on the price.
Furthermore, the fact that private respondent sold its real property for a price less than its declared fair
market value did not by itself justify a finding of false return. Indeed, private respondent declared the
sale in its 1974 return submitted to the BIR. Within the five-year prescriptive period, the BIR could
have issued the questioned assessment, because the declared fair market value of said property was of
public record. This it did not do, however, during all those five years. Moreover, the BIR failed to
prove that respondent's 1974 return had been filed fraudulently. Equally. significant was its failure to
prove respondent's intent to evade the payment of the correct amount of tax.
Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently with
intent to evade the payment of the correct amount of tax. The tax return filed by private respondent to
111
report its income for the year 1974 was sufficient compliance with the legal requirement to file a
return.
Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with
the intent to evade tax, or that it had failed to file a return at all, the period for assessments has
obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot
prejudice taxpayers, considering that the prescriptive period was precisely intended to give them
peace of mind.
112
Republic vs. Acebedo

Facts
This is a suit for collection of deficiency income tax for the year 1948. The corresponding notice of
assessment was issued on September 24, 1949. The complaint was filed on December 27, 1961.
After the defendant filed his answer but before trial started he moved to dismiss on the ground of
prescription. The court received evidence on the motion, and on September 1, 1962 issued an order
finding the same meritorious and hence dismissing the complaint. The case is before us on appeal by
the plaintiff from the order of dismissal.
Issue
Whether or not the right to collect has already prescribed.
Held
The action has already prescribed.
The present suit was not begun within five years after the assessment of the tax, which was in 1949.
Was it, however, begun prior to the expiration of any period for collection agreed upon in writing by
the Commissioner of Internal Revenue and the defendant before the expiration of such five-year
period? The only evidence of such written agreement, in the form of a "waiver of the statute of
limitations" signed by the defendant, dated December 17, 1959. But this waiver was ineffective
because it was executed beyond the original five-year limitation.
The plaintiff contends that the period of prescription was suspended by the defendant's various
requests for reinvestigation or reconsideration of the tax assessment. The trial court rejected this
contention, saying that a mere request for reinvestigation or reconsideration of an assessment does not
have the effect of such suspension. The ruling is logical, otherwise there would be no point to the
legal requirement that the extension of the original period be agreed upon in writing.
To be sure, this legal provision, according to some, decisions of this Court, does not rule out a
situation where the taxpayer may be in estoppel to claim prescription.
There are cases however where a taxpayer may be prevented from setting up the defense of
prescription even if he has not previously waived it in writing as when by his repeated requests or
positive acts the Government has been, for good reasons, persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Government.
Likewise, when a taxpayer asks for a reinvestigation of the tax assessment issued to him and such
reinvestigation is made, on the basis of which the Government makes another assessment, the fiveyear period with which an action for collection may be commenced should be counted from this last
assessment.
In the case at bar, the defendant, after receiving the assessment notice of September 24, 1949, asked
for a reinvestigation thereof on October 11, 1949. There is no evidence that this request was
considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a
warrant of distraint and levy for the full amount of the assessment, but there was no follow up of this
warrant. Consequently, the request for reinvestigation did not suspend the running of the period for
filing an action for collection.
The next communication of record is a letter signed for the defendant by one Troadio Concha and
dated October 6, 1951, again requesting a reinvestigation of his tax liability. Nothing came of this
request either. Then on February 9, 1954, the defendant's lawyers wrote the Collector of Internal
Revenue informing him that the books of their client were ready at their office for examination. The
reply was dated more than a year later, or on October 4, 1955, when the Collector bestirred himself
for the first time in connection with the reinvestigation sought, and required that the defendants
113
specify his objections to the assessment and execute "the enclosed forms for waiver, of the statute of
limitations." The last part of the letter was a warning that unless the waiver "was accomplished and
submitted within 10 days the collection of the deficiency taxes would be enforced by means of the
remedies provided for by law."
It will be noted that up to October 4, 1955 the delay in collection could not be attributed to the
defendant at all. His requests in fact had been unheeded until then, and there was nothing to impede
enforcement of the tax liability by any of the means provided by law. By October 4, 1955, more than
five years had elapsed since assessment in question was made, and hence prescription had already set
in, making subsequent events in connection with the said assessment entirely immaterial. Even the
written waiver of the statute signed by the defendant on December 17, 1959 could no longer revive
the right of action, for under the law such waiver must be executed within the original five-year
period within which suit could be commenced.
114
CIR vs. CA
Facts
On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax
Return for taxable year ending September 30, 1981; and its Manufacturers/Producers Percentage Tax
Return for the quarter ending September 30, 1981.
On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation signed three separate "waivers
of the Statute of Limitations Under the National Internal Revenue Code" wherein it:
. . . waives the running of the prescriptive period provided for in sections 318 and 319 and other related
provisions of the National Internal Revenue Code and consents to the assessment and collection of the taxes
which may be found due after reinvestigation and reconsideration at anytime before or after the lapse of the
period of limitations fixed by said sections 318 and 319 and other relevant provisions of the National Internal
Revenue Code, but not after (13 April 1987 for the earlier-executed waiver, or June 14, 1987 for the later
waiver, or July 30, 1987 for the subsequent waiver, as the case may be). However, the taxpayer (petitioner
herein) does not waive any prescription already accrued in its favor.
The waivers were not signed by the BIR Commissioner or any of his agents. On August 5, 1987,
Carnation received BIR's letter of demand dated July 29, 1987 asking the said corporation to pay
deficiency income tax, deficiency sales tax and deficiency sales tax on undeclared sales, all for the
year 1981. This demand letter was accompanied by assessment Notices.
In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a
reconsideration and reinvestigation thereof. These protests were denied by the BIR Commissioner in a
letter dated March 15, 1988.
Issue
Whether or not the three (3) waivers signed by the private respondent are valid and binding as to toll
the running of the prescriptive period for assessment and not bar the Government from issuing subject
deficiency tax assessments.
Held
The waivers arent valid and binding as to toll the running of the prescriptive period.
The decision of the Court of Appeals affirming what the Court of Tax Appeals decided, established
that subject assessments of July 29, 1987 were issued outside the statutory prescriptive period.
Carnation filed its annual income tax and percentage tax returns for the fiscal year ending September
30, 1981 on January 15, 1982 and November 20, 1981, respectively.
Private respondent's 1981 income and sales taxes could have been validly assessed only until January
14, 1987 and November 19, 1986, respectively. However, Carnation's income and sales taxes were
assessed only on July 29, 1987, beyond the five-year prescriptive period.
Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not
signed by the BIR Commissioner because:
1. When the BIR agents/examiners extended the period to audit and investigate Carnation's tax
returns, the BIR gave its implied consent to such waivers;
2. The signature of the Commissioner is a mere formality and the lack of it does not vitiate
binding effect of the waivers; and
3. That a waiver is not a contract but a unilateral act of renouncing ones right to avail of the
defense of prescription and remains binding in accordance with the terms and conditions set
forth in the waiver.
Petitioner's submission is inaccurate. The same tax code is clear on the matter. The Court of Appeals
itself also passed upon the validity of the waivers executed by Carnation, observing thus:
We cannot go along with the petitioner's theory. Section 319 of the Tax code earlier quoted is clear and explicit
that the waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner
and the taxpayer.
115
Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner
as required by law. We agree with the CTA in holding "these "waivers" to be invalid and without any
binding effect on petitioner (Carnation) for the reason that there was no consent by the respondent
(Commissioner of Internal Revenue)."
For sure, no such written agreement concerning the said three waivers exists between the petitioner
and private respondent Carnation.
116
Philippine Journalists, Inc. vs. CIR

Facts
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended
December 31, 1994. The BIR investigated petitioner and found petitioner liable for deficiency taxes,
inclusive of surcharges, interest and compromise penalty.
The petitioner executed on September 22, 1997 a "Waiver of the Statute of Limitation Under the
National Internal Revenue Code (NIRC)". The document "waive[d] the running of the prescriptive
period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed]
to the assessment and collection of taxes which may be found due after the examination at any time
after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant
provisions of the NIRC, until the completion of the investigation.
Later, the BIR issued an assessment notice dated December 9, 1998 to petitioner. Petitioner contested
that the assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint and/or
Levy was received by the petitioner. Petitioner then filed a petition for review with the CTA.
Issue
Whether or not the right to assess has already prescribed.
Held
The waiver document is incomplete and defective and thus the three-year prescriptive period was not
tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand
issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the
same manner, Warrant of Distraint and/or Levy which petitioner received on March 28, 2000 is also
null and void for having been issued pursuant to an invalid assessment.
The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO
No. 20-90) on the requisites of a valid waiver of the statute of limitations. 13 RMO No. 20-90
implements the provisions of the NIRC relating to the period of prescription for the assessment and
collection of taxes. A cursory reading of the Order supports petitioners argument that the RMO must
be strictly followed.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers right to security against prolonged and unscrupulous investigations and must therefore be
carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to
invoke the defense of prescription. It is an agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is extended to a date certain. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should perforce be strictly
construed.
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners comptroller on
September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO
No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the
former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time,
violating Section 222(b) of the NIRC.
The waiver is also defective from the government side because it was signed only by a revenue
district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is
not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to
extend the period to a date certain. The conformity of the BIR must be made by either the
Commissioner or the Revenue District Officer.
13 See case for requisites.
117
The other defect noted in this case is the date of acceptance which makes it difficult to fix with
certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period.
Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 2090, the waiver must be executed in three copies with the second copy for the taxpayer. When the
petitioners comptroller signed the waiver on September 22, 1997, it was not yet complete and final
because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only
after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the
taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of
the acceptance by the BIR and the perfection of the agreement.
118
CIR vs. Kudos Metal

Facts
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR)
for the taxable year 1998.
Pursuant to a Letter of Authority, the Bureau of Internal Revenue (BIR) served upon respondent three
Notices of Presentation of Records. A review and audit of respondents records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a Waiver of the
Defense of Prescription, which was notarized on January 22, 2002, received by the BIR as early as
January 31, 2002.
This was followed by a second Waiver of Defense of Prescription, executed by Pasco on February
18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003.
On August 25, 2003, the 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, dated September 26, 2003 which was received by respondent on November 12,
2003.
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.
On June 22, 2004, the BIR rendered a final Decision on the matter, demanding immediate payment.
Issue
Whether or not the right to assess has prescribed.
Held
The waiver didnt extend the period within which the assessment can be made.
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.
We do not agree.
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. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001
lay down the procedure for the proper execution of the waiver, to wit:
A perusal of the waivers executed by respondents accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver
in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies
of the waivers.
119
Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioners claim that respondent is now estopped from claiming prescription
since by executing the waivers, it was the one which asked for additional time to submit the required
documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, the doctrine of estoppel
prevented the taxpayer from raising the defense of prescription against the efforts of the government
to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied as
an exception to the statute of limitations on collection of taxes and not on the assessment of taxes, as
the BIR was able to make an assessment within the prescribed period. More important, there was a
finding that the taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes.
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.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify
whether a notarized written authority was given by the respondent to its accountant, and to indicate
the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in
the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a
waiver of the statute of limitations, being a derogation of the taxpayers right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed.
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be
taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments
beyond the three-year period because with or without the required documents, the CIR has the power
to make assessments based on the best evidence obtainable.
120
Continental Micronesia Inc.-Phil Branch vs. CIR

Facts
Petitioner is a Philippine branch of a non-resident foreign corporation incorporated in the State of
Delaware, U.S.A., engaged in the operation of air transportation in international traffic.
An invitation for informal conference was sent to petitioner by the BIR requesting it to submit
whatever documentary evidence in its possession that may support any objection against proposed
assessments for taxable months of January 1995 onwards. Petitioner expressed its willingness to settle
the deficiency gross Philippine billings and common carrier's tax but would protest the remaining
deficiency taxes upon receipt of the assessment notice.
On May 5, 1998, petitioner paid the deficiency gross Philippine billings and common carrier's tax. On
September 10, 1998, the BIR issued a Preliminary Assessment Notice (PAN) for the remaining
deficiency taxes. Petitioner received this on October 8, 1998 and filed a request for reinvestigation on
October 15, 1998 that the BIR granted in a letter dated November 9, 1998.
Eventually, on December 10, 1999, another PAN was issued. Petitioner was still held to be liable for
deficiency expanded withholding tax and withholding tax on compensation. Shortly thereafter,
respondent issued Assessment Notices on December 29, 1999 covering the aforementioned
deficiency taxes. Petitioner received this on January 5, 2000 together with their corresponding
demand letters.
On February 4, 2000, petitioner filed its administrative protest on the above assessments seeking the
cancellation and withdrawal thereof due to prescription and lack of factual and legal bases.
Issue
Whether or not the right to collect the taxes has prescribed.
Held
The taxes for the months of January 1995 to September 1995 are time-barred but not the later ones.
Based on the law, rules and regulations and jurisprudence, the counting of the prescriptive period is
reckoned from the last day required by law for the filing of a monthly remittance return.
Applying now the rule on prescription, the final assessment notice should be issued on the respective
last days to assess. Inasmuch as the assessment notices for both deficiency withholding tax on
compensation and expanded withholding tax were issued only on December 29, 1999, it would appear
that both subject deficiency assessments are time barred.
However, since petitioner requested for a reinvestigation on October 15, 1998, and which request
respondent granted in a letter dated November 9, 1998, the running of the three-year period to assess
was suspended pursuant to the Section 223 of the Code.
Settled is the rule that when the taxpayer requests for a reinvestigation of an assessment which is
granted by respondent, the running of the period to assess under Section 203 and 222 is suspended.
While We have noted that the request for reinvestigation which was granted by the respondent in the
case at bar was on the Preliminary Assessment Notice and not on the Final Assessment Notice or
Assessment Notice, still, Section 223 applies. Section 223 of the Code makes no distinction as to
whether the request for reinvestigation of an assessment against the taxpayer is on a preliminary
assessment notice or final assessment notice.
Thus, for as long as the request for the respondent grants reinvestigation, the running of statute of
limitations to issue an assessment under Section 203 and 223 is suspended. As interpreted by the
Supreme Court in several cases, requests for investigation that had the effect of suspending the period
121
of limitation refers to reinvestigation of a prior assessment paving the way for a new or revised
assessment. Such period spent reinvestigating is deducted from the total period prescribed by law.
The period spent for reinvestigation should be deducted from the three-year period to issue another
assessment.
122
Republic vs. Ablaza

Facts
The record discloses that on October 3, 1951, the Collector of Internal Revenue assessed income
taxes for the years 1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee Luis
G. Ablaza. On October 14, 1951, the accountants for Ablaza requested a reinvestigation of Ablaza's
tax liability. The petition for reinvestigation was granted.
On March 10, 1954, the accountants for Ablaza sent a letter to the examiner of accounts and
collections of the Bureau of Internal Revenue, stating:
In this connection, we wish to state that this case is presently under reinvestigation as per our request dated
October 16, 1951, and your letter to us dated October 17, 1951, and that said tax liability being only a tentative
assessment, we are not as yet advised of the results of the requested reinvestigation.
In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the
detailed computation of the alleged tax liability as soon as the reinvestigation is terminated to enable us to
prove the veracity of the taxpayer's side of the case, and if it is found out that said assessment is proper and in
order, we assure you of our assistance in the speedy disposition of this case.
On February 11, 1957, after the reinvestigation, the Collector of Internal Revenue made a final
assessment of the income taxes of Ablaza. Ablaza protested the assessments, on the ground that the
income taxes are no longer collectible for the reason that they have already prescribed.
The Government claims that the prescriptive period has not fully run at the time of the assessment, in
view especially of the letter of the accountants of Ablaza, dated March 10, 1954, pertinent provisions
of which are quoted above.
Issue
Whether or not the Governments right to collect the tax has already prescribed.
Held
The right has already prescribed.
It is of course true on October 14, 1951, Ablaza's accountants requested a reinvestigation of the
assessment of the income taxes against him, the period of prescription of action to collect the taxes
was suspended. The provision of law on prescription was adopted in our statute books upon
recommendation of the tax commissioner of the Philippines which declares:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to
the taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax
within 5 years from the date of assessment thereof.
The question in the case at bar boils down to the interpretation of the letter dated March 10, 1954. If
said letter be interpreted as a request for further investigation or a new investigation, different and
distinct from the investigation demanded or prayed for in Ablaza's first letter, then the period of
prescription would continue to be suspended thereby. but if the letter in question does not ask for
another investigation, the result would be just the opposite. In our opinion the letter in question dated
March 10, 1954 does not ask for another investigation. Its first paragraph quoted above shows that the
reinvestigation then being conducted was by virtue of its request of October 16, 1951. All that the
letter asks is that the taxpayer be furnished a copy of the computation.
The request may be explained in this manner: As the reinvestigation was allowed on October 3, 1951
and on October 16, 1951, the taxpayer supposed or expected that at the time, March, 1954, the
reinvestigation was about to be finished and he wanted a copy of the re-assessment in order to be
prepared to admit or contest it. Nowhere does the letter imply a demand or request for a
reinvestigation already requested and, therefore, the said letter may not be interpreted to authorize or
justify the continuance of the suspension of the period of limitations.
123
Palanca vs. CIR

Facts
Gliceria Diluangco died and testate proceedings were filed for her estate's settlement and distribution.
Upon discovering that the executor failed to file the return required by law, the Commissioner of
Internal Revenue required him to do so and on March 27, 1951 he filed the requested estate and
inheritance tax return. The estate was tentatively assessed estate and inheritance taxes. Atty. Manuel
V. San Jose, executor of the estate and counsel for the heirs of the deceased, requested reconsideration
of the imposition of the 25%, which the Commissioner denied. Subsequently, Atty. San Jose again
requested reconsideration of the imposition of the same surcharge.
An assessment notice was issued on August 18, 1952 calling for payment of deficiency taxes. Atty.
San Jose requested a reinvestigation of this assessment.
On June 23, 1955, the Commissioner of Internal Revenue issued a warrant of distraint and levy for
the satisfaction of the deficiency, estate and inheritance taxes However, the warrant of distraint and
levy was not executed because the executor of the estate asked for a reinvestigation of the case. This
request was granted.
Later, the heirs, thru counsel raised the defense of prescription alleging that the right of the
Government to collect by summary method the estate and inheritance taxes in question had already
prescribed. The answer of the Commissioner was that the right of the Government to collect has not
as yet prescribed and that steps would be taken to sell the properties left by the deceased.
Issue
Held
The right hasnt prescribed.
All that is required to start the running of the period of limitation prescribed is to distraint or levy, or
institute a proceeding in court, within 5 years after the assessment on the tax. A judicial action for the
collection of a tax is begun by the filing of a complaint with the proper court of first instance, or
where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's
petition for review wherein payment of the tax is prayed for. And the summary remedy of distraint
and levy is begun by the issuance of a warrant of distraint and levy. This has been the practice long
observed in the Bureau of Internal Revenue, and this practice had been taken cognizance of by this
Court in a number of cases, wherein it held that the right of the Commissioner of Internal Revenue to
collect by summary method has the effect of stopping the running of prescription once a warrant of
distraint and levy is issued.
The issuance of the warrant of distraint and levy begins the summary remedy of distraint and levy and
it is not necessary that it be actually executed to be made effective.
Here it is admitted that the estate and inheritance taxes in question were finally assessed on August
18, 1952, and the warrant of distraint and levy was issued within the 5-year period from the time the
return was filed. It is also admitted that the warrant of distraint and levy was issued by respondent on
June 23, 1955, but that said warrant has not been fully executed in view of the request of counsel for
petitioners.
We, therefore, hold that the right of the Government to collect the estate and inheritance taxes in
question has not yet prescribed because the warrant of distraint and levy for their collection was
begun within the 5-year period prescribed by law from the date of the assessment of said taxes.
The record shows that the warrant was not actually executed or carried out with the seizure and sale of
any property of the deceased, not because of any voluntary desistance on the part of respondent, but
124
because of the many requests for postponement, reinvestigation, revaluation, or other matters which
had the effect of delaying or postponing the execution of said warrant. Were it not for said requests for
postponement or revaluation, the warrant would have been fully executed well within the period
prescribed by law. Indeed, if by acceding to the request for postponement of a taxpayer the period of
prescription would be allowed to run even if there is no voluntary desistance on the part of the tax
collector, we would not only countenance the commission of an injustice but would place the
collection of the tax at the mercy or caprice of the taxpayer to the prejudice of the Government. Such
a theory certainly cannot be entertained.
125
Republic vs. Ker & Co

Facts
Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the years 1947, 1948, 1949
and 1950. It amended its income tax returns for 1948 and 1949 on May 11, 1949 and June 30, 1950,
respectively.
In 1953 the Bureau of Internal Revenue examined and audited Ker & Co., Ltd.'s returns and books of
accounts and subsequently issued assessments on July 25, 1953 and February 16, 1953 for deficiency
income tax. Final assessments were made on January 5, 1954.
On March 1, 1956 Ker & Co., Ltd. filed with the Court of Tax Appeals a petition for review with
preliminary injunction. No preliminary injunction was issued, for said court dismissed the appeal for
having been instituted beyond the 30-day period provided for in Section 11 of Republic Act 1125. We
affirmed the order of dismissal.
On March 15, 1962, the Bureau of Internal Revenue demanded payment of the aforesaid assessments.
Ker & Co., Ltd. refused to pay and set up the defense of prescription of the Commissioner's right to
collect the tax. Subsequently, the Republic of the Philippines filed on March 27, 1962 a complaint
with the Court of First Instance of Manila seeking collection of the aforesaid deficiency income tax.
Issue
Whether or not the right to collect the tax by judicial collection has prescribed.
Held
The right hasnt prescribed.
Ker & Co., Ltd. impresses upon Us that since the Republic of the Philippines filed the complaint for
the collection of the deficiency income tax for the years 1948, 1949 and 1950 only on March 27,
1962, or nine years, one month and eleven days from February 16, 1953, the date the tax was
assessed, the right to collect the same has prescribed.
The Republic of the Philippines however contends that the running of the prescriptive period was
interrupted by the filing of the taxpayer's petition for review in the Court of Tax Appeals on March 1,
1956.
If the period during which the case was pending in the Court of Tax Appeals and in the Supreme
Court were not counted in reckoning the prescriptive period, less than five years would have elapsed,
hence, the right to collect the tax has not prescribed.
The taxpayer counters that the filing of the petition for review in the Court of Tax Appeals could not
have stopped the running of the prescriptive period to collect because said court did not have
jurisdiction over the case, the appeal having been interposed beyond the 30-day period. Precisely, it
adds, the Tax Court dismissed the appeal for lack of jurisdiction and said dismissal was affirmed by
the Supreme Court.
Did the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court have
the effect of legally preventing the Commissioner of Internal Revenue from instituting an action in the
Court of First Instance for the collection of the tax? Our view is that it did.
From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals
until the termination of its appeal in the Supreme Court, the Commissioner of Internal Revenue was
prevented, as recognized in this Court's ruling in Ledesma, et al. v. Court of Tax Appeals, from filing
an ordinary action in the Court of First Instance to collect the tax. Besides, to do so would be to
violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens.
126
It would be interesting to note that when the Commissioner of Internal Revenue issued the final
deficiency assessments on January 5, 1954, he had already lost, by prescription, the right to collect the
tax (except that for 1950) by the summary method of warrant of distraint and levy. Ker & Co., Ltd.
immediately thereafter requested suspension of the collection of the tax without penalty incident to
late payment pending the filing of a memorandum in support of its views. As requested, no tax was
collected. On May 22, 1954 the projected memorandum was filed, but as of that date the
Commissioner's right to collect by warrant of distraint and levy the deficiency tax for 1950 had
already prescribed. So much so, that on March 1, 1956 when Ker & Co., Ltd. filed a petition for
review in the Court of Tax Appeals, the Commissioner of Internal Revenue had but one remedy left to
collect the tax, that is, by judicial action. However, as stated, an independent ordinary action in the
Court of First Instance was not available to the Commissioner pursuant to Our ruling in Ledesma, et
al. v. Court of Tax Appeals, supra, in view of the pendency of the taxpayer's petition for review in the
By the time the Supreme Court affirmed the order of dismissal of the Court of Tax Appeals, more than
five years had elapsed since the final assessments were made on January 5, 1954.
Thus, did the taxpayer produce the effect of temporarily staying the hands of the Commissioner of
Internal Revenue simply through a choice of remedy. And, if We were to sustain the taxpayer's stand,
We would be encouraging taxpayers to delay the payment of taxes in the hope of ultimately avoiding
the same.
127
Republic vs. Hizon

Facts
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment
covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner, on
January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for
reasons not known, it did not proceed to dispose of the attached properties.
On November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency
assessment. The BIR denied the request. On January 1, 1997, it filed a case with the Regional Trial
Court to collect the tax deficiency.
Respondent moved to dismiss the case.
Issue
Held
We hold that petitioners contention that the action in this case had not prescribed when filed has no
merit. Our holding, however, is without prejudice to the disposition of the properties covered by the
warrants of distraint and levy which petitioner served on respondent, as such would be a mere
continuation of the summary remedy it had timely begun. Although considerable time has passed
since then, the enforcement of tax collection through summary proceedings may be carried out
beyond the statutory period considering that such remedy was seasonably availed of.
Petitioner argues that respondents request for reinvestigation of her tax deficiency assessment on
November 3, 1992 effectively suspended the running of the period of prescription such that the
government could still file a case for tax collection.
The contention has no merit. A request for reconsideration must be made within 30 days from the
taxpayers receipt of the tax deficiency assessment, otherwise the assessment becomes final,
unappealable and, therefore, demandable. Her request for reconsideration was filed late since she
made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the
running of the prescriptive period. Although the Commissioner acted on her request by eventually
denying it, this is of no moment and does not detract from the fact that the assessment had long
become demandable.
Nonetheless, it is contended that the running of the prescriptive period was suspended when the BIR
timely served the warrants of distraint and levy on respondent on January 12, 1989. Because of the
suspension, it is argued that the BIR could still avail of the remedy of filing a case in court for
collection of the tax deficiency, as the BIR in fact did on January 1, 1997.
Petitioners reliance on the Courts ruling in Advertising Associates Inc. v. Court of Appeals is
misplaced. What the Court stated in those cases is that the timely service of a warrant of distraint or
levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of
the attached properties might well take time to accomplish, extending even after the lapse of the
statutory period for collection. In those cases, the BIR did not file any collection case but merely
relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of
this fact was not lost on the Court. Thus, in Advertising Associates, it was held: It should be noted
that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the
warrants of distraint and levy to interrupt the running of the statute of limitations.
Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the
warrants of distraint and levy were served on respondent on January 12, 1989 and then when
respondent made her request for reinvestigation of the tax deficiency assessment on November 3,
1992, the three-year prescriptive period must have commenced running again sometime after the
service of the warrants of distraint and levy. Petitioner, however, does not state when or why this took
128
place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner raised this
point before the lower court apparently as an alternative theory, which, however, is untenable.
129
CIR vs. Wyeth Suaco Laboratories

Facts
Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic
corporation engaged in the manufacture and sale of assorted pharmaceutical and nutritional products.
There was an investigation and examination of the books of accounts of Wyeth Suaco. The
investigation resulted in a deficiency sales tax. Consequently, the Bureau of Internal Revenue assessed
Wyeth Suaco in two (2) notices dated December 16, 1974 and December 17, 1974. These assessment
notices were both received by Wyeth Suaco on December 19, 1974.
Thereafter, Wyeth Suaco sent the Bureau of Intemal Revenue two (2) letters dated January 17, 1975
and February 8, 1975, protesting the assessments and requesting their cancellation or withdrawal on
the ground that said assessments lacked factual or legal basis.
On December 10, 1979, petitioner rendered a decision reducing the assessment of the withholding tax
at source. However, the amount of deficiency sales tax remained the same.
Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980,
praying that petitioner be enjoined from enforcing the assessments by reason of prescription and that
the assessments be declared null and void for lack of legal and factual basis.
On February 7, 1980, petitioner issued a warrant of distrain of personal property and warrant of levy
of real property again private respondent to enforce collection of the deficiency taxes. These were
served on private respondent on March 12, 1980. However, collection of the deficiency taxes by
virtue of warrants of distraint and levy was enjoined by respondent court upon motion of Wyeth
Suaco in a resolution dated May 22, 1980.
Issue
Whether or not petitioner's right to collect deficiency withholding tax at source and sales tax liabilities
from private respondent is barred by prescription.
Held
The right to collect the tax hasnt prescribed yet.
The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period
provided by law to mak a collection by distraint or levy or by a proceeding in court has not yet
prescribed. Although he admits that more than five (5) years have already lapsed from the time the
assessment notices were received by private respondent on December 19, 1974 up to the time the
warrants of distraint and levy were served on March 12, 1980, he avers that the running of the
prescriptive period was stayed or interrupted when Wyeth Suaco protested the assessments.
Petitioner argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January
17, 1975 and February 8, 1975, requesting for withdrawal and cancellation of the assessments were
actually requests for reinvestigation or reconsideration, which could interrupt the running of the fiveyear prescriptive period.
Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor
reconsideration of th assessments. What it requested was the cancellation and with drawal of the
assessments for lack of legal and factual basis. Thus, its protest letters dated January 17, 1975 and
February 8, 1975 did not suspend or interrupt the running of the five-year prescriptive period.
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy
or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment and starts to run again when said request is denied.
130
After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was
seeking reconsideration of the tax assessments.
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not
categorically state or use the words "reinvestigation" and "reconsideration," the same are to be treated
as letters of reinvestigation and reconsideration. By virtue of these letters, the Bureau of Internal
Revenue reviewed the assessment made.
These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the
deficiency taxes. The Bureau of Internal Revenue, after having reviewed the record of Wyeth Suaco,
in accordance with its request for reinvestigation, rendered a final assessment. This final assessment
was dated December 10, 1979 and received by private respondent on January 2, 1980. It was only
upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to
run again.
Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco
on December 19, 1974. However, when Wyeth Suaco protested the assessments and sought its
reconsideration in two (2) letters received by the Bureau of Internal Revenue on January 20 and
February 10, 1975, the prescriptive period was interrupted. This period started to run again when the
Bureau of Internal Revenue served the final assessment to Wyeth Suaco on January 2, 1980. Since the
warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only about four
(4) months of the five-year prescriptive period was used.
131
BPI vs. CIR

Facts
On two separate occasions, BPI sold United States (US) $500,000.00 to the Central Bank of the
Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989 the
Bureau of Internal Revenue (BIR) issued Assessment, which BPI received on 20 October 1989,
finding petitioner BPI liable for deficiency DST on its aforementioned sales of foreign bills of
exchange to the Central Bank.
Petitioner BPI protested the Assessment. Petitioner BPI did not receive any immediate reply to its
protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy
against petitioner BPI, which petitioner received 23 October 1992, for the assessed deficiency DST
for taxable year 1985. Then again, petitioner BPI did not hear from the BIR until 11 September 1997,
when it received a letter denying its request for reconsideration.
Petitioner BPI proceeded to file a Petition for Review with the CTA. Petitioner BPI raised the defense
of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed
amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment
but she waited for seven years and nine months to deny the protest.
Issue
Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged
deficiency DST for taxable year 1985 had prescribed.
Held
Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the
deficiency DST in Assessment had already prescribed
The efforts of respondent Commissioner to collect on Assessment were already barred by
prescription.
In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment,
only on the prescription of the period to collect the deficiency DST following its Assessment.
Counting the three-year prescriptive period from 20 October 1989, then the BIR only had until 19
October 1992 within which to collect the assessed deficiency DST.
The earliest attempt of the BIR to collect on Assessment was its issuance and service of a Warrant of
Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992,
previous to the expiration of the period for collection on 19 October 1992, the same was served on
petitioner BPI only on 23 October 1992. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on
the taxpayer.
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was
already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19
October 1992, then what more of the BIRs subsequent letters and demands for payment?
There is no valid ground for the suspension of the running of the prescriptive period for collection of
the assessed DST.
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the
collection of the deficiency DST per Assessment. Without a valid waiver, the statute of limitations on
collection by the BIR of the deficiency DST could not have been suspended.
This Court gives credence to the argument of petitioner BPI that there is a distinction between a
request for reconsideration and a request for reinvestigation.
132
The protest letter of petitioner BPI did not specifically request for either a reconsideration or
reinvestigation but the protest letter of petitioner BPI was in the nature of a request for
reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of the Tax
Code of 1977, as amended, on the suspension of the running of the statute of limitations should not
apply.
Even if, for the sake of argument, this Court glosses over the distinction between a request for
reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a
request for reinvestigation, the filing thereof could not have suspended at once the running of the
statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the
prescriptive periods for assessment and collection.
Conclusion
The statute of limitations on collection may only be interrupted or suspended by:
1. A valid waiver executed and
2. The existence of the circumstances enumerated in Section 224 of the same Code, which
include a request for reinvestigation granted by the BIR Commissioner.
3. Even when the request for reconsideration or reinvestigation is not accompanied by a valid
waiver or there is no request for reinvestigation that had been granted by the BIR
Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the
defense of prescription of the statute of limitations on collection when, by his own repeated
requests or positive acts, the Government had been, for good reasons, persuaded to postpone
collection to make the taxpayer feel that the demand is not unreasonable or that no harassment
or injustice is meant by the Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that
1. The statute of limitations for collection of the deficiency DST in issued against petitioner BPI,
had already expired; and
2. None of the conditions and requirements for exception from the statute of limitations on
collection exists herein:
a. Petitioner BPI did not execute any waiver of the prescriptive period on collection;
b. The protest filed by petitioner BPI was a request for reconsideration, not a request for
reinvestigation that was granted by respondent BIR Commissioner which could have
suspended the prescriptive period for;
c. Petitioner BPI, other than filing a request for reconsideration of Assessment did not
make repeated requests or performed positive acts that could have persuaded the
respondent BIR Commissioner to delay collection, and that would have prevented or
estopped petitioner BPI from setting up the defense of prescription against collection
of the tax assessed, as required in the Suyoc case.
133
CIR vs. Hambrecht

Facts
On November 4, 1993, respondent received a letter dated October 11, 1993 issued by the BIR
demanding for payment of alleged deficiency income and expanded withholding taxes for the taxable
year 1989. On December 3, 1993, respondent filed its protest letter.
On November 7, 2001, respondent received a letter from herein petitioner dated October 27, 2001.
The letter advised the respondent that petitioner had rendered a final decision denying its protest on
the ground that the protest against the disputed tax assessment was allegedly filed beyond the 30-day
reglementary period prescribed in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review before the Court of Tax Appeals.
On September 24, 2004, the assailed Decision in the instant petition was rendered, holding that
although the subject assessment notice sent by registered mail to herein respondent's former place of
business has become final and unappealable for failure to protest the same within the period provided
by law, nevertheless, the right of respondent Commissioner of Internal Revenue in said case to collect
the assessed taxes has already prescribed. Correspondingly, Assessment Notice was cancelled and
withdrawn.
Issue
Whether or not the right to collect the tax has prescribed.
Held
A request for reconsideration or reinvestigation filed by a taxpayer, that has not been seasonably filed,
does not interrupt the prescriptive period to collect taxes appropriately assessed.
In the instant case, the assessment issued against herein respondent, HQPI was final and unappealable
because its motion for reconsideration/reinvestigation was filed out of time. This being so, petitioner
should have instituted collection proceedings within the three-year period from assessment as
prescribed by Section 223 (c) of the NIRC, either by distraint or levy, or by judicial action.
Apparently, petitioner did not initiate collection proceedings within the period provided by law to
enforce Assessment Notice and herein respondent had the legal right to assail the same when it filed
CTA Case.
Correspondingly, the Original Division of this Court appropriately possessed the jurisdiction to act on
said case because the officers of the Bureau of Internal Revenue should not be allowed to benefit from
their neglect in collecting taxes from herein respondent within the reglementary period.
134
Collector vs. Sweeney

Facts
This is a claim for refund of the amounts representing fixed and percentage taxes supposedly due
from the International Club of Iloilo, Inc. (hereinafter referred to as the "Club") , as operator of a bar,
which were allegedly collected illegally.
Respondent Collector of Internal Revenue addressed and demanded from the Club payment of fixed
and percentage tax and surcharge as operator of a bar.
The club protested the aforementioned assessment and asked that it can be withdrawn for the reason
that the Club was a private one, not organized for profit, which like the Manila Polo Club should not
be held liable for the taxes sought to be collected. This protest remained unanswered for about ten
months. Although no payment was made, respondent did not take positive steps to enforce collection
of the alleged tax deficiency. However, the BIR urged the City Fiscal of Iloilo to prosecute criminally
the past presidents of the Club for violation of the tax Code. In view of the instructions of respondent,
the City Fiscal conducted a preliminary investigation of the case. However, the projected information
against petitioners were withdrawn as they paid under protests to the City Treasurer of Iloilo their
alleged tax liabilities.
Petitioners filed their written claim for refund with respondent of the aforesaid amounts paid by them
under protests. Not having received any reply from respondent regarding said claim for refund,
petitioners for review which was received by the Court on August 27, 1955.
Issue
Whether or not the Court has jurisdiction to order the refund of the amounts paid by petitioners
herein.
Held
The court has jurisdiction.
As to the propriety of taking the case to the Court of tax Appeals before respondents received any
advice as to the action taken, if any, on their petition for refund, this question has already been ruled
upon by Us to the effect that taxpayers need not wait for the action of the Collector of Internal
Revenue on the request for refund before taking the matter to court.
Nowhere and in no wise does the law imply that the Collector of Internal Revenue must act upon the
claim or that the Taxpayer shall not go to court before he is notified of the Collectors' action. Having
filed his claim and the Collector of Internal Revenue having had ample time to study it, the claimant
may, indeed should, within the statutory period of the two years proceed with his suit without waiting
for the Collector's decision. . . .
The taxpayer's failure to comply with the requirement regarding the institution of the action or
proceeding in court within 2 years after the payment of the taxes bars him from the recovery of the
same, irrespective of whether a claim for the refund of such taxes filed with the Collector or Internal
Revenue is still pending action of the latter.
135
Gibbs vs. CIR

Facts
Petitioners protested the deficiency income tax assessment issued against them by the respondent
Collector of Internal Revenue. On August 28, 1956, respondent Collector rejected petitioners' protest
and reiterated his demand. On October 3, 1956, petitioners sent a check to respondent Collector as
payment of said deficiency assessment, at the same time demanding the immediate refund of the
amount paid.
On October 26, 1956, respondent Collector denied the request for refund which petitioners received
on November 14, 1956. On September 27, 1957, petitioners filed with respondent Court a petition
for review and refund, with a motion for suspension of collection of penalties. Respondent Collector
filed a motion to dismiss, on the ground that the petition was filed beyond the 30-day period provided
under Section 11, in relation to Section 7, of Republic Act No. 1125, which motion, was opposed by
petitioners.
Issue
Whether or not petitioners' appeal (petition for review and refund) from the decision of respondent
Collector of Internal Revenue, was filed with respondent Court of Tax Appeals within the statutory
period.
Held
The appeal wasnt filed within the statutory period.
Petitioners, however, contend that although their appeal was filed beyond said 30-day period,
respondent court still had jurisdiction over the same, by virtue of the provision of Section 306 of the
National Internal Revenue Code.
An explanation on the matter is required. A taxpayer who has paid the tax, whether under protest or
not, and who is claiming a refund of the same, must comply with the requirements of both sections,
that is:
1. He must file a claim for refund with the Collector of Internal Revenue within 2 years from the
date of his payment of the tax, and
2. Appeal to the Court of Tax Appeals within 30 days from receipt of the Collector's decision or
ruling denying his claim for refund.
If, however, the Collector takes time in deciding the claim, and the period of two years is about to
end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year
period without awaiting the decision of the Collector. This is so because of the positive requirement of
Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the
peremptory period fixed by the statute.
In the case of a taxpayer who has not yet paid the tax and who is protesting the assessment made by
the Collector of Internal Revenue, he must file his appeal with the Court of Tax Appeals within 30
days from his receipt of the Collector's assessment, as required by said Section 11 of Republic Act No.
1125. Otherwise, his failure to comply with said statutory requirement would bar his appeal and
deprive the Court of Tax Appeals of its jurisdiction to entertain or determine the same.
It is not disputed that petitioners received on November 14, 1956, notice of respondent Collector's
decision denying their request for a refund of the deficiency assessment paid by them. They had 30
days from said date within which to file their appeal (petition for review and refund) with respondent
court. However, they filed said appeal more than ten (10) months thereafter, much beyond the
aforementioned 30-day period within which to file the same. Consequently, respondent court had
acquired no jurisdiction to entertain said appeal and the dismissal of the same was proper.
136
CIR vs. CA
Facts
Paramount Acceptance Corporation (Paramount for brevity) filed its Corporate Annual Income Tax
Return, for calendar year ending December 31, 1985, declaring a Net Income. The income tax due
thereon is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax.
After deducting Paramount's total quarterly income tax payments from its income tax of
P1,153,681.00, the return, filed April 2, 1986, showed a refundable amount of P65,259.00. The
appropriate box in the return was marked with a cross (x) indicating "To be refunded" the amount of
P65,29,00.
In April 14, 1988, petitioner BPI, as liquidator of Paramount filed a letter dated April 12, 1988
reiterating its claim for refund of P65,259.00 as overpaid income tax for the calendar year 1985. The
following day or on April 15, 1988. BPI filed the instant petition with this Court in order to toll the
running of the prescriptive period for filing a claim for refund of overpaid income taxes.
Issue
Whether or not the two-year period of prescription for filing a claim for refund, as provided in 230
of the National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate
income tax return was actually filed or from April l5, 1986 when, according to 70(b) of the NIRC,
the final adjustment return could still be filed without incurring any penalty.
Held
April 2 1986.
Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that the twoyear prescriptive period should be computed from April 2, 1984, when the final adjustment return was
actually filed, because that is the time of payment of the tax, within the meaning of 230 of the NIRC.
We agree.
In the contest of 230, which provides for a two-year period of prescription counted "from the date of
payment of the tax" for actions for refund of corporate income tax, the two-year period should be
computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This
is so because at that point, it can already be determined whether there has been an overpayment by the
taxpayer. Moreover, under 49(a) of the NIRC, payment is made at the time the return is filed.
In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However,
private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14,
1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus
barred by prescription.
137
ACCRA Investments Corp. vs. CA

Facts
The petitioner corporation is a domestic corporation engaged in the business of real estate investment
and management consultancy.
On April 15, 1982, the petitioner corporation filed with the Bureau of Internal Revenue its annual
corporate income tax return for the calendar year ending December 31, 1981 reporting a net loss. In
the said return, the petitioner corporation declared as creditable all taxes withheld at source by various
withholding agents. The withholding agents paid and remitted the amounts representing taxes on
rental, commission and consultancy income of the petitioner corporation to the Bureau of Internal
Revenue from February to December 1981.
Later, the petitioner corporation filed a claim for refund on December 29, 1983 with the
Commissioner inasmuch as it had no tax liability against which to credit the amounts withheld.
Pending action of the respondent Commissioner on its claim for refund, the petitioner corporation, on
April 13, 1984, filed a petition for review with the respondent Court of Tax Appeals (CTA) asking for
the refund of the amounts withheld as overpaid income taxes.
Issue
Whether or not the 2-year prescriptive period should be reckoned from April 15, 1982 or February to
December 1981.
Held
2-year prescriptive period should be counted from April 15, 1982.
Crucial in our resolution of the instant case is the interpretation of the phraseology "from the date of
payment of the tax" in the context of Section 230 (formerly sec. 292) of the National Internal Revenue
Code of 1986, as amended.
There are two alternative reckoning dates, i.e., (1) the end of the tax year; and (2) when the tax
liability falls due. In the instant case, it is undisputed that the petitioner corporation's withholding
agents had paid the corresponding taxes withheld at source to the Bureau of Internal Revenue from
February to December 1981. In having applied the first alternative date - "the end of the tax year" in
order to determine whether or not the petitioner corporation's claim for refund had been seasonably
filed, the respondent appellate court failed to appreciate properly the attending circumstances of this
case.
The petitioner corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking
for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon
the petitioner corporation's filing of the its final adjustment tax return on or before 15 April 1982
when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this
case for it spells the difference between being barred by prescription and entitlement to a refund.
There is the need to file a return first before a claim for refund can prosper inasmuch as the
respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer
opting to ask for a refund must show in its final adjustment return the income it received from all
sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of
Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year
on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal
Revenue v. Asia Australia Express, Ltd. (G. R. No. 85956), we ruled that the two-year prescriptive
period within which to claim a refund commences to run, at the earliest, on the date of the filing of the
adjusted final tax return.
Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
138
respondent Commissioner who failed to take any action thereon and considering further that the nonresolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its
claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent
appellate court manifestly committed a reversible error in affirming the holding of the tax court that
ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return
is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its
tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.
139
CIR vs. TMX Sales

Facts
Private respondent TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return for
the first quarter of 1981, declaring an income of P571,174.31, and consequently paying an income tax
thereon on May 15, 1981. During the subsequent quarters, however, TMX Sales, Inc. suffered losses
so that when it filed on April 15, 1982 its Annual Income Tax Return for the year ended December
31, 1981, it declared a net loss of P6,156,525.00.
Thereafter, on July 9, 1982, TMX Sales, filed with the Bureau of Internal Revenue a claim for refund
representing overpaid income tax.
This claim was not acted upon by the Commissioner of Internal Revenue. On March 14, 1984, TMX
Sales, Inc. filed a petition for review before the Court of Tax Appeals against the Commissioner of
Internal Revenue,.
In his answer, the Commissioner of Internal Revenue averred that "granting, without admitting, the
amount in question is refundable, the petitioner (TMX Sales, Inc.) is already barred from claiming the
same considering that more than two (2) years had already elapsed between the payment (May 15,
1981) and the filing of the claim in Court (March 14, 1984).
Issue
Whether or not the 2-year period should be counted from the filing of the quarterly income tax return
or the final adjusted income tax return.
Held
The period should be counted from the final adjusted income tax return.
Petitioner contends that the basis in computing the two-year period of prescription should be May 15,
1981, the date when the quarterly income tax was paid and not April 15, 1982, when the Final
Adjustment Return for the year ended December 31, 1981 was filed.
Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a refund of a
tax erroneously or illegally paid, counted from the time the tax was paid. But a literal application of
this provision in the case at bar which involves quarterly income tax payments may lead to absurdity
and inconvenience.
In the case at bar, the amount of P247,010.00 claimed by private respondent TMX Sales, Inc. based
on its Adjustment Return required in Section 87 (now Section 69), is equivalent to the tax paid during
the first quarter. A literal application of Section 292 (now Section 230) would thus pose no problem as
the two-year prescriptive period reckoned from the time the quarterly income tax was paid can be
easily determined. However, if the quarter in which the overpayment is made, cannot be ascertained,
then a literal application of Section 292 (Section 230) would lead to absurdity and inconvenience.
If Section 292 (now Section 230) is literally applied, what then is the reckoning date in computing the
two-year prescriptive period? Will it be the 1st quarter when the taxpayer paid P12,500.00 or the 3rd
quarter when the taxpayer also paid P12,500.00? Obviously, the most reasonable and logical
application of the law would be to compute the two-year prescriptive period at the time of filing the
Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the
taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax.
It is only when the Adjustment Return covering the whole year is filed that the taxpayer would know
whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.
Therefore, the filing of quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered
140
mere installments of the annual tax due. These quarterly tax payments which are computed based on
the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income,
should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. Consequently, the two-year prescriptive period provided in Section 292 (now
Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or
Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this Court held
that when a tax is paid in installments, the prescriptive period of two years provided in Section 306
(Section 292) of the National internal Revenue Code should be counted from the date of the final
payment. This ruling is reiterated in Commission of Internal Revenue v. Carlos Palanca (18 SCRA
496 [1966]), wherein this Court stated that where the tax account was paid on installment, the
computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code,
should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982,
TMX Sales, Inc. is not yet barred by prescription.
141
CIR vs. Primetown

Facts
Primetown Property Group, Inc., applied for the refund or credit of income tax respondent paid in
1997. Because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent
paid its quarterly corporate income tax and remitted creditable withholding tax from real estate sales
to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax refund or
tax credit.
Respondents claim was not acted upon. Thus, it filed a petition for review in the Court of Tax
Appeals (CTA) on 14 April 2000. The CTA dismissed the petition as it was filed beyond the two-year
prescriptive period for filing a judicial claim for tax refund or tax credit.
The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to
claim a refund or credit commenced on that date.
The tax court applied Article 13 of the Civil Code which states:
Art. 13. When the law speaks of years, months, days or nights, it shall be understood that years are of three
hundred sixty-five days each; months, of thirty days; days, of twenty-four hours, and nights from sunset to
sunrise.
If the months are designated by their name, they shall be computed by the number of days which they
respectively have.
In computing a period, the first day shall be excluded, and the last included.
Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for the
filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year,
respondent's petition, which was filed 731 days after respondent filed its final adjusted return, was
filed beyond the reglementary period.
Issue
Whether or not the claim for refund was filed within the prescriptive period.
Held
Filed within the period.
The conclusion of the CA that respondent filed its petition for review in the CTA within the two-year
prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is not.
The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted
return. But how should the two-year prescriptive period be computed?
As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is
understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson, we ruled that a
year is equivalent to 365 days regardless of whether it is a regular year or a leap year. However, in
1987, the Administrative Code of 1987 was enacted.
Sec. 31. Legal Periods. Year shall be understood to be twelve calendar months; month of thirty days,
unless it refers to a specific calendar month in which case it shall be computed according to the number of days
the specific month contains; day, to a day of twenty-four hours and; night from sunrise to sunset.
A calendar month is a month designated in the calendar without regard to the number of days it may
contain. It is the period of time running from the beginning of a certain numbered day up to, but not
including, the corresponding numbered day of the next month, and if there is not a sufficient number
of days in the next month, then up to and including the last day of that month. To illustrate, one
142
calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one
calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008.
Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year.
Under the Administrative Code of 1987, however, a year is composed of 12 calendar months.
Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There
obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil
Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII,
Book I of the Administrative Code of 1987, being the more recent law, governs the computation of
legal periods.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, we
therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24 th
calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
143
Lim vs. CA
Facts
Petitioners were engaged in the dealership of various household appliances. They filed income tax
returns for the years 1958 and 1959.
On October 5, 1959, a raid was conducted at their business address by the National Bureau of
Investigation by virtue of a search warrant. A similar raid was made on petitioners' premises. Seized
from the Lim couple were business and accounting records which served as bases for an investigation
undertaken by the Bureau of Internal Revenue (BIR).
On March 15, 1967, petitioners protested the assessment and requested for a reinvestigation.
On October 10, 1967, the BIR rendered a final decision holding that there was no cause for reversal of
the assessment against the Lim couple. Petitioners were required to pay deficiency income taxes for
1958 and 1959. The final notice and demand for payment was served on petitioners through their
daughter-in-law on July 3, 1968.
Still, no payment was forthcoming from the delinquent taxpayers. Accordingly on September 1, 1969,
the matter was referred by the BIR to the Manila Fiscal's Office for investigation and prosecution. On
June 23, 1970, four (4) separate criminal informations were filed against petitioners for violation of
Sections 45 and 51 in relation to Section 73 of the National Internal Revenue Code.
Issue
Whether or not the right to prosecute the crimes have already prescribed.
Held
The right to prosecute hasnt prescribed yet.
Preliminarily, it must be made clear that what we are dealing here are criminal prosecutions for filing
fraudulent income tax returns and for refusing to pay deficiency taxes.
Refusal to pay deficiency taxes
However, petitioners maintain that the five-year period of limitation should be reckoned from April 7,
1965, the date of the original assessment while the Government insists that it should be counted from
July 3, 1968 when the final notice and demand was served on petitioner.
Inasmuch as the final notice and demand for payment of the deficiency taxes was served on
petitioners on July 3, 1968, it was only then that the cause of action on the part of the BIR accrued.
This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by
the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay
the taxes due within the alloted period. The two criminal informations, having been filed on June 23,
1970, are well-within the five-year prescriptive period and are not time-barred.
Fraudulent income tax returns
Petitioners contend that the said crimes have likewise prescribed. They advance the view that the fiveyear period should be counted from the date of discovery of the alleged fraud which, at the latest,
should have been October 15, 1964, the date as the date the fraudulent nature of the returns was
unearthed.
On behalf of the Government, the Solicitor General counters that the crime of filing false returns can
be considered "discovered" only after the manner of commission, and the nature and extent of the
fraud have been definitely ascertained. It was only on October 10, 1967 when the BIR rendered its
144
final decision holding that there was no ground for the reversal of the assessment and therefore
required the petitioners to pay deficiency taxes that the tax infractions were discovered.
Not only that. The Solicitor General stresses that Section 354 speaks not only of discovery of the
fraud but also institution of judicial proceedings. In other words, in addition to the fact of discovery,
there must be a judicial proceeding for the investigation and punishment of the tax offense before the
five-year limiting period begins to run. Inasmuch as a preliminary investigation is a proceeding for
investigation and punishment of a crime, it was only on September 1, 1969 that the prescriptive
period commenced.
Unless amended by the legislature, Section 354 stays in the Tax Code as it was written during the days
of the Commonwealth. And as it is, must be applied regardless of its apparent one-sidedness in favor
of the Government. In criminal cases, statutes of limitations are acts of grace, a surrendering by the
sovereign of its right to prosecute. They receive a strict construction in favor of the Government and
limitations in such cases will not be presumed in the absence of clear legislation.
Judgement includes payment of deficiency taxes
The petition, however, is impressed with merit insofar as it assails the inclusion in the judgment of the
payment of deficiency taxes. The lower court erred in applying Presidential Decree No. 69,
particularly Section 316 thereof, which provides that "judgment in the criminal case shall not only
impose the penalty but shall order payment of the taxes subject of the criminal case", because that
decree took effect only on January 1, 1973 whereas the criminal cases subject of this appeal were
instituted on June 23, 1970. Save in the two specific instances, Presidential Decree No. 69 has no
retroactive application.
Conclusion
In resume we therefore rule:
1. Criminal Cases Nos. 1788-1789 and 1790-1791, having been instituted by the Government on
June 23, 1970, are not time-barred pursuant to Section 354 of the National Internal Revenue
Code;
2. The then Court of First Instance of Manila, Branch 6 is devoid of jurisdiction to direct the
collection and payment of the unpaid deficiency taxes in Criminal Case Nos. 1788-1789
because prior to the amendment introduced by Presidential Decree No. 69, such imposition
was not sanctioned under Section 316;
3. The fine imposed in the four (4) aforementioned criminal cases is hereby affirmed in the case
of petitioner Antonia Sun Lim in accordance with the provision of Section 73 of the Tax
Code. The fine is deemed extinguished in the ease of the deceased petitioner Emilio E. Lim,
Sr. pursuant to Section 89 of the Revised Penal Code.
145
CIR vs. Leal

Facts
The Commissioner of Internal Revenue, petitioner, issued Revenue Memorandum Order (RMO) No.
15-91 imposing 5% lending investors tax on pawnshops based on their gross income and requiring all
investigating units of the Bureau of Internal Revenue (BIR) to investigate and assess the lending
investors tax due from them.
The issuance of RMO No. 15-91 was an offshoot of petitioners evaluation that the nature of
pawnshop business is akin to that of lending investors. Subsequently, petitioner issued Revenue
Memorandum Circular (RMC) No. 43-91 subjecting the pawn ticket to the documentary stamp tax as
prescribed in Title VII of the Tax Code.
Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of
Josefinas Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and
RMC No. 43-91 but the same was denied with finality by petitioner in its BIR Ruling No. 221-91.
Consequently, respondent filed with the Regional Trial Court (RTC) a petition for prohibition seeking
to prohibit petitioner from implementing the revenue orders.
Issue
Whether or not the RTC had jurisdiction over the case.
Held
RTC had no jurisdiction, shouldve been filed with the CTA.
While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be
stressed that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to
the Court of Tax Appeals, not to the RTC.
The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops. This is clear from
petitioners RMO No. 15-91. Such revenue orders were issued pursuant to petitioner's powers under
Section 245 of the Tax Code, which provides for the Secretary of Finances authority to promulgate
rules and regulations and the power of the Commissioner of Internal Revenue to make rulings or
opinions in connection with the implementation of the provisions of internal revenue laws, including
ruling on the classification of articles of sales and similar purposes..
Here, as earlier mentioned, respondent Josefina Leal, being a pawnshop owner, is assailing the
revenue orders imposing 5% lending investors tax on pawnshops issued by petitioner. Clearly then,
she should have filed her petition with the Court of Tax Appeals, not the RTC. Indeed, the Court of
Appeals erred in holding that the RTC order should have been challenged before this Court.
146
CIR vs. Burroughs Ltd

Facts
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the
Philippines .
Sometime in March 1979, respondent applied with the Central Bank for authority to remit to its parent
company abroad, branch profit. Thus, on March 14, 1979, it paid the 15% branch profit remittance
tax, and remitted to its head office the amount.
Claiming that the 15% profit remittance tax should have been computed on the basis of the amount
actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00),
private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the
amount of P172,058.90 representing alleged overpaid branch profit remittance tax.
Issue
Whether or not the BIR circular dated March 17, 1982 should retroactively apply to the instant case.
Held
No. The BIR Ruling dated January 21, 1980 applies.
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of
Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the
tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually
remitted abroad and not on the total branch profits out of which the remittance is to be made.
Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular
No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980.
Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the
Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch
profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March
17, 1982 cannot be given retroactive effect.
The prejudice that would result to private respondent Burroughs Limited by a retroactive application
of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial
amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly,
Burroughs Limited does not fall under any of them.
147
PBCom vs. CIR

Facts
Petitioner filed its quarterly income tax returns for the first and second quarters of 1985, reported
profits, and paid the total income tax.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns
for the year-ended December 31, 1985, it declared a net loss, thereby showing no income tax liability.
For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss, and
thus declared no tax payable for the year.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a
tax credit representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes.
Issue
Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the
ground of prescription, despite petitioners reliance on RMC No. 7-85, changing the prescriptive
period of two years to ten years.
Held
The claim for refund is already barred.
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on
the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular
states that overpaid income taxes are not covered by the two-year prescriptive period under the tax
Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the
BIR within ten (10) years.
Petitioner argues that the government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs.
Court of Tax Appeals petitioner claims that rulings or circulars promulgated by the Commissioner of
Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers.
After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary
to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as
it disregards the two-year prescriptive period set by law.
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive
period of two years to ten years on claims of excess quarterly income tax payments, such circular
created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did
not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.
Fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued
by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in
harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence,
his interpretation could not be given weight for to do so would, in effect, amend the statute.
There are no vested rights to speak of respecting a wrong construction of the law by the administrative
officials and such wrong interpretation could not place the Government in estoppel to correct or
overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal
Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by
respondent courts and not by the Commissioner of Internal Revenue.
148
ABS-CBN vs. CTA14

Facts
During the period pertinent to this case, petitioner corporation was engaged in the business of
telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or
business within the Philippines. for which petitioner paid rentals after withholding income tax of 30%
of one-half of the film rentals.
On April 12, 1961, in implementation of the aforequoted provision (sec. 24(b)), the Commissioner of
Internal Revenue issued General Circular No. V-334. Pursuant to the foregoing, petitioner dutifully
withheld and turned over to the Bureau of Internal Revenue the amount of 30% of one-half of the film
rentals paid by it to foreign corporations not engaged in trade or business within the Philippines.
On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax
rate from 30 % to 35 % and revising the tax basis from "such amount" referring to rents, etc. to "gross
income."
On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum
Circular No. 4-71, revoking General Circular No. V-334, and holding that the latter was "erroneous
for lack of legal basis," because "the tax therein prescribed should be based on gross income without
deduction whatever,"
On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against
petitioner a letter of assessment and demand, to pay deficiency withholding income tax on the
remitted film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in the
total amount of P525,897.06 computed as follows:
Issue
Whether or not respondent can apply General Circular No. 4-71 retroactively and issue a deficiency
assessment against petitioner for deficiency withholding income tax for the years 1965, 1966, 1967
and 1968.
Held
General Circular No. 4-71 cant apply.
The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is beyond
question. It was issued only in 1971, or three years after 1968, the last year that petitioner had
withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to pay
deficiency withholding income tax was also made three years after 1968 for a period of time
commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign
corporations because it had already remitted all film rentals and no longer had any control over them
when the new Circular was issued.
Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present case
in that General Circular No. V-334 is a nullity because in effect, it changed the law on the matter.
Were the "gross income" base clear from Sec. 24 (b) of te Tax Code, perhaps, the ratiocination of the
Tax Court could be upheld. It should be noted, however, that said Section was not too plain and
simple to understand. The fact that the issuance of the General Circular in question was rendered
necessary leads to no other conclusion than that it was not easy of comprehension and could be
subjected to different interpretations.
14 Distinguished from the PBCom case:Here, the law wasnt clear here, in PBCom,
the law was clear
2. Here, the CIR revoked the earlier ruling, in PBCom, it was the courts.
149
It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of
Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35%
of the "gross income."
This Court is not unaware of the well-entrenched principle that the Government is never estopped
from collecting taxes because of mistakes or errors on the part of its
agents. But, like other principles of law, this also admits of exceptions in the interest of justice and
fairplay. The Commissioner of Collector is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom, or where there has been a misrepresentation
to the taxpayer.
150
Lorenzo vs. Posadas

Doctrine
When does the inheritance tax accrue and when must it be satisfied?
The estate tax accrues upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. See NIRC for period when it must be satisfied.
Should the inheritance tax be computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later?
A transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of the estate by the
beneficiary, and the tax measured by the value of the property transmitted at that time
regardless of its appreciation or depreciation.
In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees?
But from this it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax.
What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer
be given retroactive effect?
It is well-settled that inheritance taxation is governed by the statute in force at the time of the
death of the decedent
Beam vs. Yatco
Doctrine
How is a resident alien taxed?
A resident alien is taxed on a worldwide basis. Residence is synonymous with domicile in Tax
law.
CIR vs. Campos Rueda
Doctrine
How is a non-resident alien taxed?
A non-resident alien is taxed only on that part of his entire gross estate thats situated in the
Philippines. (But see NIRC sec. 104 for certain intangible property)
151
Dizon vs. CTA

Doctrine
Deductible amount of claim is valued as of the death of decedent irrespective of post-death
developments. Thus where the claims are reduced or condoned through compromise agreements
entered into by the estate with its creditors resulting in the reduction of the amount actually paid postdeath, the deductible claim would still be valued as of the date of death.
152
CIR vs. Duberstein

Facts
Duberstein case
An individual taxpayer gave to a business corporation, upon request, the names of potential
customers. The information proved valuable, and the corporation reciprocated by giving Duberstein a
Cadillac automobile, charging the cost thereof as a business expense on its own corporate income tax
return. The Tax Court concluded that the car was not a "gift" excludable from income under 22(b)
(3) of the Internal Revenue Code of 1939.
Stanton case
Upon resigning as comptroller of a church corporation and as president of its wholly owned
subsidiary created to manage its extensive real estate holdings, was given "a gratuity" of $20,000 "in
appreciation of" his past services. The Commissioner assessed an income tax deficiency against him
for failure to include this amount in his gross income. Stanton paid the deficiency and sued in a
Federal District Court for a refund. The trial judge, sitting without a jury, made the simple finding that
the payment was a "gift," and entered judgment for Stanton. The Court of Appeals reversed.
Issue
Whether or not the car was a gift || Whether or not the $20,000 was a gift.
Held
The car isnt a gift || No finding
The conclusion whether a transfer amounts to a "gift" is one that must be reached in consideration of
all the factors. Determination in each individual case as to whether the transaction in question was a
"gift" must be based ultimately on the totality of the facts in the case.
A gift in the statutory sense, on the other hand, proceeds from a detached and disinterested
generosity; out of affection, respect, admiration, and charity or like impulses. And, in this regard, the
most critical consideration, as the Court was agreed in the leading case here, is the transferor's
"intention."
What controls is the intention with which payment, however voluntary, has been made.
153
Pirovano vs. CIR

Doctrine
When conveyance of property is motivated by a sense of gratitute, or out of pure liberaility, and not
additional compensation for past services renderd, the transfer is a gift subject to donors tax.
Thus, the renunciation by a company of the proceeds of a life insurance policy in favor of the heirs of
a deceased officer out of gratitute for his past services is a gift subject to donors tax.
154
BIR Ruling 98-97

Facts
Read Rite is a domestic corporation engaged in the manufacturing and export business. It has existing
long term Lease Contracts with Option to Purchase over two parcels of land with improvements
(Leased Properties) with Philippine American Life Insurance Company (Philamlife) and with PERF
RealtyCorporation (PERF).
Philamlife and PERF have a prospective buyer who is willing to buy the Leased Properties including
Read Rite's existing leasehold rights and option to purchase. Philamlife and PERF, on the one hand,
and Read Rite, on the other, are prepared to enter into an agreement wherein Read Rite will consent
and agree to the pre-termination of the Lease Contracts and cancel the options to purchase stipulated
therein for a certain consideration.
When the Leased Properties are released from Read Rite's leasehold rights and options to purchase,
Philamlife and PERF will sell the Leased Properties to the buyer.
Issue
Whether or not the agreement to terminate the lease contracts and option to purchase is subject to
VAT.
Held
Hence, your opinion that the pre-termination of the lease and the cancellation of the options to
purchase is not subject to VAT is hereby confirmed.
With regard to the value added tax, Section 99 of the Tax Code provides:
Sec. 99. Persons Liable. Any person who, in the ordinary course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be liable to
the value-added tax (VAT) imposed in Sections 100 to 102 of this Code.
Moreover, in BIR Ruling No. 31-83 dated March 1, 198, this Office has ruled that an option to buy, in
the hands of a taxpayer who does not deal in options, is a capital asset and the sale thereof gives rise
to a capital gain.
Since Read Rite does not deal in leasehold rights and options in its ordinary course of trade or
business, the pre-termination of the leases and cancellation of the options to purchase will not be
made in the ordinary course of trade or business of Read Rite.
155
BIR Ruling 18-05

Facts
RRMC-2-2002 was issued covering the taxability of condominium corporations, particularly their
liability for payment of income tax and VAT on the sale of service.
Issue
Whether or not condominium membership dues, fees, and assessments are subject to VAT.
Held
Not subject to VAT.
Unlike COMARSECO15, the collection of dues, fees, and assessments do constitute the payment of
fees for services rendered. Condominium corporations clearly collect fluids in trust for unit owners,
members, and occupants, to be disbursed maintenance and utilities expenses. The COMARSECO
ruling is not squarely applicable to Condominium Corporations because said case does not involve a
Condominium Corporation, and the factual circumstances are different from COMARSECO, an
affiliate of a life insurance company. In the case of Condominium Corporations, the owners
themselves, and not the condominium developers organize these. They are not affiliates of any
corporations.
Secondly, COMARSECO was organized by the latter to perform collection, consultation and other
technical services, including functioning as internal auditor of the life insurance company. As
discussed above, condominium corporations are organized for limited purposes, which essentially are:
to hold title to the common areas, to manage the project and to such other purposes as may be
necessary, incidental or convenient to the accomplishment of said purposes.
Thirdly, COMARSECO is a domestic corporation organized under the Corporation Code. While
Condominium Corporations are registered with the SEC, the Condominium Act, primarily governs
particularly on the matter relating to its organization, formation, management, dissolution and denial
of appraisal rights from its stockholders. These statutory limitations are important factors in
determining whether or not Condominium Corporations, "in the course of trade or business", render
services to their unit members, which they manage and act as trustee for.
In several rulings, this Office has recognized that the activities undertaken by condominium
corporations and homeowners associations for which they collect dues, fees, and assessments from
their unit owners and members do not give rise to a sale of service.
15 A Supreme Court case

156
VAT Ruling 444-88

You are planning to establish a company consumer store where basic commodities shall be sold at
cost and that your projected sales per year shall be approximately P2.5 million. You want to know
whether your sales can be zero-rated considering that as a seller at cost, there would be no valueadded to the goods.
In reply, please be informed that your proposed sale transactions cannot qualify for zero rating since
they do not meet the conditions set under Section 100(a) of the Tax Code as amended by E.O. 273.
Instead, your activity, in spite of the absence of profit and value-added to the goods, can be classified
as one to be undertaken by persons liable to VAT under Section 99 of the Tax Code as amended, to
wit:
"Any person, who in the course of trade or business sells, barters or exchanges goods, renders services or
engaged in similar transactions and any person who imports good shall be subject to value-added tax"
Moreover, your projected sale of P2.5 million is a strong basis for subjecting your sales transactions to
VAT.
157
VAT Ruling 207-90

This refers to your letter No. 89-337, dated May 16, 1990, requesting for a reconsideration of our VAT
RULING NO. 087-90, dated April 5, 1990, holding that your client, RCA GLOBAL
COMMUNICATIONS, INC. (PHIL. BRANCH), is subject to 10% value added tax vis-a-vis its sale
of technical services to Philippine Global Communication (PHILCOM).
VAT may be levied provided the sale of service is made in the course of business; that, your client's
sale of technical services is made only to one person, i.e., sale to Philcom; that, since the same is only
one and isolated transaction, the same may not be constituted a sale made in the course of business;
that, Section 2(j) of the VAT Revenue Regulations No. 5-87 defines "sale of service" as the
performance of all kinds of services for others for a fee, which means, to be taxable as a business act,
services must be made to more than one person since the word "others" pertains to several
persons/contractees rather than to only one person.
Please be informed that Section 99, NIRC, provides:
"Any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or
engaged in similar transactions . . . shall be subject to value added tax (VAT) imposed in Sections 100 and 102
of this Code."
Whether or not a person is engaged in business is determined by his intent for doing an act or series of
acts. An initial or single act may be constituted done in the course of business if the same is done with
the intent of carrying on a business. "However, there may be a business without any sequence of acts,
for if an isolated transaction, which if repealed would be a transaction in a business is proved to have
been undertaken with the intent that it should be the first of several transactions, that is, with intent of
carrying on a business, then it is a first transaction in an existing business.
For example, where a person makes all necessary preparations to carry on the business of a wholesale
liquor dealer, and holds himself out and solicits trade as such, and makes one sale without a license,
intending to continue the business, he is engaged in, or carrying on, the business within the meaning
of the statute regulating the business." Your client has been engaged in communications business at
the time it contracted with PHILCOM. There is no necessity to prove your client's intent in selling
technical services to PHILCOM. It is more than apparent your client sold its services while engaging
in worldwide communications business. That its transaction with PHILCOM was isolated may not,
however, detract from the fact that the same was entered into because it was, as it is presently, its line
of business.
158
BIR Ruling 10-98

Facts
This refers to your letter requesting for a ruling as to whether or not TIPCO-BATAAN GROUP,
INCORPORATED, which provides technical, research, management and personnel assistance to its
affiliates on a reimbursement-of-cost basis is exempt from income tax and value-added tax under the
Tax Code, as amended.
It is represented that TIPCO-BATAAN GROUP INCORPORATED is a domestic corporation duly
organized and existing under Philippine laws with principal office in Makati City; that it was
organized in July 1996 and that it does not derive any profit from its operations.
Issue
Whether or not TIPCO-BATAAN GROUP is subject to VAT.
Held
Subject to VAT.
Likewise, under Section 4.99-2 of Revenue Regulations No. 7-95, as amended by Revenue
Regulations No. 6-97, implementing Republic Act No. 8241, an Act Amending Republic Act No.
7716, otherwise known as the Expanded Value-Added Tax Law, which provides:
"SEC. 4.99-1. Persons liable. Any person who, in the course of his trade or business, sells, barters,
exchanges or leases goods or properties, or renders services, and any person who imports goods shall be liable
to VAT imposed in Section 100 to 102 of the Code."
Under Section 4.102-1 of the same Rev. Regs. No. 7-95, the phrase sale or exchange of services
shall likewise include, among others, the supply of technical service, assistance or services rendered
in connection with technical management or administration of any scientific, industrial or commercial
undertaking, project or scheme.
Thus, as an entity that renders services to its affiliated companies and receives payments for such
assistance, although on a reimbursement-of-cost basis, it is subject to VAT on such services rendered.
159
CIR vs. Commonwealth

Facts
Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation
duly organized and existing under the laws of the Philippines. It is an affiliate of Philippine American
Life Insurance Co. (Philamlife), organized by the letter to perform collection, consultative and other
technical services, including functioning as an internal auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for
taxable year 1988. COMASERCO's annual corporate income tax return ending December 31, 1988
indicated a net loss in its operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's
finding of deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a
collection letter to COMASERCO demanding payment of the deficiency VAT.
Issue
Whether or not COMASERCO was engaged in the sale of services, and thus liable to pay VAT
thereon.
Held
Liable to pay VAT.
Petitioner avers that to "engage in business" and to "engage in the sale of services" are two different
things. Petitioner maintains that the services rendered by COMASERCO to Philamlife and its
affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is derived from rendering the service.
We agree with the Commissioner.
COMASERCO contends that the term "in the course of trade or business" requires that the "business"
is carried on with a view to profit or livelihood. It avers that the activities of the entity must be profitoriented. COMASERCO submits that it is not motivated by profit, as defined by its primary purpose
in the articles of incorporation, stating that it is operating "only on reimbursement-of-cost basis,
without any profit." Private respondent argues that profit motive is material in ascertaining who to tax
for purposes of determining liability for VAT.
We disagree.
Contrary to COMASERCO's contention, even a non-stock, non-profit, organization or government
entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at
every stage of the distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The term "in the course of
trade or business" requires the regular conduct or pursuit of a commercial or an economic activity
regardless of whether or not the entity is profit-oriented.
Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or consideration." It includes
"the supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking or project."
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on services rendered. As long as the
160
entity provides service for a fee, remuneration or consideration, then the service rendered is subject to
VAT.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the
services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out
by the Commissioner, the performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT.
161
VAT Ruling 26-97

This refers to your letter requesting for confirmation of your opinion that charges/billings made by
your company to its subsidiaries for their use of utilities, common facilities and services purely at cost
and without any profit and being merely reimbursements are not subject to the value added tax.
It is represented that in few of your locations, two or more subsidiaries share the same building with
your company, San Miguel Corporation (SMC); that this may be covered by lease agreement with
SMC as the only nominal party-lessee; that rentals may be paid by SMC alone to the lessor and then
charged the other co-lessees an amount equivalent to the proportionate shares of each lessee and
without profit or mark-up; that similarly various expenses such as security, building maintenance, and
utilities are first paid by the SMC to the service providers and then bills the subsidiaries actually
availing of the services the allocated expenses at cost; that the amount charged are mere
reimbursement of the expenses incurred by SMC for and in behalf of the subsidiaries; that no profit is
made nor is there any intention on the part of SMC to make profit from the transactions.
Furthermore, it is represented that in the above transactions, SMC does not sell, barter, exchange, nor
lease any good or property neither does it render any service to the subsidiaries.
In reply, please be informed that under Section 99 of the Tax Code as amended, which provides for
the coverage of the value added tax, only "person who in the course of trade or business, sells, barters,
exchanges, leases goods or properties or renders services, and any person who imports goods shall be
subject to the value added tax." Accordingly, since SMC does not sell, barter, exchange, nor lease any
good or property and neither does it render any service to the subsidiaries, the above transactions are
not subject to the value added tax.
162
Tourist Trade and Travel vs. CIR

Facts
Petitioner is domestic corporation duly organized and existing under and by virtue of the laws of the
Philippines. The Articles of Incorporation of petitioner indicate that its primary purpose is "to engage
and carry on the business of tourism and travel, to undertake and promote the development of tourist
attractions and operate and maintain essential facilities for tourist and travelers like resorts, hotels,
restaurants and other tourist services; to operate boats to transport tourists and other persons in
connection with or to carry out the aforementioned purpose."
In line with this purpose, petitioner leased from the City of Manila in 1971 a parcel of land upon
which a shopping complex was built now known as Harrison Plaza. This lease contract entitled
petitioner to a leasehold right over the property for a period of twenty (20) years.
On June 7, 1991, petitioner received two notices of assessment issued by respondent demanding
payment of alleged unpaid income and value-added taxes for the year 1988
Issue
Whether or not petitioner is liable for the payment of unpaid income and VAT for 1998.
Held
Petitioner isnt liable.
The last part of the assessment issued by respondent is for unpaid value-added taxes for 1988.
Respondent observed that petitioner charges its lessees for electricity, air-conditioning, water,
common facilities and janitorial services based on the floor area occupied by each tenant and it is his
contention that such service income must be subjected to the value-added tax.
Petitioner maintains that the payments by its lessees are mere reimbursements for whatever advances
it had made for the payment of electric, water, and telephone bills and for the janitorial services
provided. In affect, petitioner insists that they are not the ones directly providing for these services
thus they cannot be made liable for value-added taxes.
We agree with the petitioner.
All electric, water, telephone as well as expenses for the maintenance of common facilities and
janitorial and security services were all paid by the petitioner and the lessees are made to reimburse
these advances made in accordance with the lease agreements. For instance, the whole Harrison Plaza
complex has only one electric meter in the name of the petitioner, hence initially it is the petitioner
who pays for all the electric bills and since all the tenants have sub-meters, their share in the payment
shall be determined by their own individual consumption as reflected in such sub-meters.
It is not the petitioner who directly supplies electricity, water and similar other goods to the lessees,
neither does it render security and janitorial services. What petitioner does is to pay PLDT, Meralco,
MWSS and similar other establishments for the services that they render and the goods that they
supply for the whole Harrison Plaza Complex. Therefore, reimbursements sought from the tenants for
advances made by petitioner are not subject to value-added tax.
163
BIR Ruling 113-98

Facts
This refers to your letter requesting confirmation of your opinion that the sale of a microwave
backbone transmission network by Liberty Broadcasting Network, Inc. (Liberty), being an isolated
transaction, is not subject to VAT.
It is represented that Liberty holds a congressional franchise to provide the public with wireless radio
communication services and to operate radio communication stations nationwide. That you are not
engaged in the sale of goods or merchandise, nor are you deriving any rental income from any of your
properties, whether real or personal
You now intend to sell to another wireless communications carrier your microwave backbone
transmission network that is comprised of various microwave equipment, cables, antennae, etc.
Issue
Whether or not the sale is subject to VAT.
Held
Not subject to VAT.
Your intended sale of your microwave backbone transmission network to another wireless
communications carrier is not in the course of your trade or business of selling telecommunication
services. Neither is it incidental thereto since the same does not necessarily follow the primary
function of selling telecommunication services.
Accordingly, since the sale of the microwave backbone transmission network is just an isolated
transaction, said sale is not subject to VAT. Moreover, the subject sale shall not result in any input tax
credit to the buyer.
164
Magsaysay Lines vs. CIR

Facts
NDC contracted with the Philippine Dockyard Corporation the construction of five (5) vessels. They
were then leased on a bareboat basis to Luzon Stevedoring Company. These vessels were
subsequently transferred and leased, on a bareboat basis, to the National Marine Corporation (NMC).
In line with the privatization efforts of the government, the NDC offered for sale as one lot and by
public bidding all of its shares of stock in NMC and five (5) NDC-owned "Kloeckner" vessels
operated by NMC.
The bidding was held. Petitioner Magsaysay Lines, Inc, offered to buy all of NDC's shares in NMC
and the 5 vessels. NDC informed petitioner Magsaysay Lines, Inc. that its bid was approved.
Petitioner requested respondent to issue a ruling on the applicability of the VAT on the sale of assets
by NDC.
Petitioners received VAT Ruling stating the sale is subject to VAT. Petitioners moved for a
reconsideration but the VAT was still paid. Petitioners filed herein "Appeal and Petition for Refund"
praying for the reversal of VAT Ruling and the refund of VAT payment.
Issue
Whether or not the sale by NDC of its vessels to petitioners is subject to VAT
Held
The sale isnt subject to VAT.
The phrase "Course of business" or "doing business" connotes regularity of activity. In the instant
case, the sale was an isolated transaction. The sale that was involuntary and made pursuant to the
declared policy of Government for privatization could no longer be repeated or carried on with
regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal
property.
Respondent would want to impress this Court that since NDC is VAT-registered on its sale of services,
its transactions incident to its normal VAT-registered activity of leasing out personal property is
subject to VAT. This ruling actually stretches the law when it concluded that because a person is VATregistered and is subject to VAT on its normal VAT-registered activity, that all its other activities would
also be subject to VAT.
In the particular case of NDC, while it is VAT-registered and its normal VAT-registered activity of
leasing out personal property is subject to VAT, it does not follow that its other activities, not specified
in the law, are likewise subject to VAT.
To be subject to VAT, the sale must be "in the course of trade or business."
Respondent admitted that even if the sale is not in the course of trade or business still petitioners are
subject to VAT as the transaction involving the sales of NDC's vessels are incidental to its normal
trade of leasing said vessels. The word "incidental" means depending upon or appertaining to
something else as primary; something necessary, appertaining to, or depending upon another that is
termed the principal.
It must be remembered that the sale of NDC's vessels was pursuant to the government's privatization
program beyond the control of NDC. The sale of the vessels as such are not necessary to carry out
NDC's primary function of leasing personal properties. The act of selling capital assets does not
necessarily follow the act of leasing these assets. The sales transaction was an isolated case. An
isolated transaction does not thus warrant the imposition thereon of business taxes.
165
Lapanday Foods Corp. vs. CIR

Facts
Petitioner received a formal assessment notice for alleged deficiency VAT resulting from the interest
income it derived from inter-company loans to affiliates as form of financial assistance in the course
of its trade and business.
Issue
Whether or not the interest on loans extended to its affiliates is subject to VAT.
Held
The interest is subject to VAT.
Any person who, in the course of his trade or business, sells, barters, and exchanges or leases goods or
properties, or renders services shall be liable to VAT. Petitioner is engaged in managing, promoting,
administering or assisting in any business or activity of corporations, partnerships, associations,
individual or firm. When petitioner extended loans to its affiliates, it provided assistance to
corporations, and thus performed services incidental to its business.
Further, the loan assistance, being incidental to its business, is deemed a transaction in the course of
trade and business means the regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto. Incidental means depending upon or appertaining to
something else primary; something necessary appertaining to, or depending upon another, which is
termed the principal; something incidental to the main purpose.
Considering the foregoing, we hold that the income generated by petitioner from the loans granted to
its affiliates is subject to VAT.
In addition, if the income from the main business activity is subject to VAT, the incidental income
shall also be subject to VAT, provided there is no particular provision applicable to the specific
transaction. Considering the petitioners income from its management services is subject to VAT, it
necessarily follows then that the interest from loan that is an incidental income, is also subject to VAT.
Petitioner further contends that it doesnt profit from lending to its affiliates. However, whether or not
petitioner has realized profit or not is insignificant, as long as the petitioner has provided financial
assistance or services for a fee, remuneration or consideration, such service rendered is subject to
VAT.
166
BIR Ruling 24-2005

Facts
This refers to your letter stating that your client, Pilipinas Shell Petroleum Corporation (PSPC) is
engaged in the business of processing, treating and refining petroleum for the purpose of producing
marketable products and by-products and subsequently selling the same; that among the petroleum
products that PSPC markets and sells is LPG. On the other hand, Shell Gas LPG Philippines, Inc.
(SGLPI), a wholly owned subsidiary of PSPC, is also a engaged in the business of trading,
distributing and marketing LPG.
That in order to streamline operations and achieve optimum efficiency and economy in the
management of the operations of PSPC's LPG business, PSPC has deemed it necessary to assign its
LPG business, including its fixed assets and inventory, to SGLPI in exchange for shares of stock of
the latter pursuant to a tax-free exchange. The spin-off of PSPC's LPG business is an integral part of a
reorganization of the LPG business of Shell companies worldwide.
In connection therewith, you now request confirmation of your opinion that the assignment by PSPC
of the Fixed Assets and Inventory of its LPG business to SGLPI in exchange for shares of stock of the
latter pursuant to a tax-free exchange transaction under Section 40(C)(2) of the NIRC, and pursuant to
a reorganization of Shell's LPG business worldwide, is not subject to value-added tax (VAT).
Issue
Whether or not the assignment of the Fixed Assets and inventory to SGLPI in exchange for shares is
subject to VAT.
Held
Not subject to VAT.
In the instant case, the transfer by PSPC of the Fixed Assets of its LPG business to its wholly-owned
subsidiary, SGLPI, in exchange for the latter's shares of stock and in accordance with the
reorganization of the LPG business of PSPC, does not constitute a sale or exchange that is subject to
VAT but either a mere change in the form of ownership. The transaction merely involves a change in
the nature of the ownership of properties from unincorporated to incorporated. Ownership over the
properties remains the same.
It is to be noted that the underlying assumption of tax-free exchange provisions generally is that the
new property received is substantially a continuation of the old investment still unliquidated. In other
words, the said transaction does not constitute a sale or exchange of property in the course of trade or
business. Hence, the conveyance of assets, property and equipment used in business but not field for
sale in the ordinary course of trade or business is not subject to VAT. The phrase "in the course of
trade or business" connotes regularity of activity.
In the instant case, the transfer by PSPC of the Fixed Assets of its LPG business to SGLPI in
exchange for the latter's shares of stock pursuant to a tax-free exchange transaction is by reason of a
reorganization, a transaction which is not done with regularity and would no longer be repeated. The
assignment of the Fixed Assets is not undertaken in the course of PSPC's regular conduct of trade or
business or in pursuit of a commercial or an economic activity, nor is it incidental thereto. The Fixed
Assets are not held by PSPC for sale or for lease in the ordinary course of trade or business.
Furthermore, the Fixed Assets do not constitute PSPC's stock-in-trade or inventory.
Consequently, the assignment of the Fixed Assets is not subject to VAT. However, the assignment by
PSPC of the Inventory of its LPG business to SGLPI, although the same does not occur in the regular
conduct by PSPC of its trade or business and is likewise a transaction which is not done with
regularity and would no longer be repeated is nevertheless subject to VAT pursuant to the above-cited
Revenue Regulations No. 16-2005.
167
VAT Ruling 204-90

This refers to your letter requesting that discounts granted by your company to Ice Cream Parlors be
allowed as deductions from the gross selling price for VAT purposes. As mentioned in your letter, your
company grants discounts to Ice Cream Houses in the form of rebates for meeting a pre-set monthly
quota. Such rebates are only determined at the end of the month.
In reply, please be informed that your request cannot be granted inasmuch as Sec. 6 of Revenue
Regulations No. 5-87 explicitly states that "discounts conditioned upon the subsequent happening of
an event or fulfillment of certain conditions, such as prompt payment or attainment of sales goals,
shall not be allowed as deductions."
Only discounts granted and determined at the time of sale that are indicated in the invoice are allowed
as deductions from the gross selling price.
168
Lhuillier vs. CIR

Facts
Petitioner is engaged in the pawnshop business. Petitioner received a notice from the Revenue
District, informing the petitioner that after investigation of the latters income, VAT and other internal
revenue taxes for the taxable year 1999, it was ascertained that there is still due from him the amount
of P1,678,299.59 representing deficiency income and VAT, including interest.
Petitioner informed the Revenue District Officer that he is willing to seat down and talk with the latter
regarding the deficiency on income tax but he is not agreeable to the findings with regard to the
deficiency VAT. The Regional Director of the Bureau of Internal Revenue simultaneously issued to
petitioner the subject Formal Letter of Demand and Assessment Notice for deficiency VAT in the
amount of P1,480,371.51, inclusive of 20% interest up to July 15, 2002, for the taxable year 1999.
Issue
Whether or not pawnshops are subject to VAT.
Held
Pawnshops are subject to VAT.
From the plain language of the law, the sale or exchange of services is subject to VAT and the phrase
"sale or exchange of services" encompasses the performance of all kinds of services for others for a
fee, remuneration or consideration. The enumeration is not exclusive, which means that other persons
performing services for a fee, remuneration or consideration, who are not expressly mentioned in the
enumeration, are also subject to VAT. The enumeration of persons performing services for a fee,
remuneration or consideration, such as construction and service contractors, stock, real estate,
commercial, customs and immigration brokers, etc., is merely to give examples of businesses
performing services for a fee, remuneration or consideration that are subject to VAT.
Section 108(A) [formerly Section 102(a)] does not limit its application to those enumerated therein
because the law speaks of "all kinds of services". To limit its application to the enumeration would
contradict the very clear meaning of the phrase "all kinds of services".
In addition, the phrase "including" should be construed merely as an enlargement and not of
limitation. Hence, the terms "includes" and "including" do not exclude items otherwise within the
scope of the defined term
In the case at bar, the law is not only specific in its intent but also in its wording that "all kinds of
services" should be subject to VAT. Thus, pawnshops, like the other businesses enumerated in the law
that are engaged in the sale of services, are subject to VAT. Judicial notice may be taken of the fact
that the principal activity of pawnshops is lending money at interest on the security of personal
property. The act of lending money at interest constitutes the performance of a service for a fee,
remuneration or consideration for such service.
Lastly, Section 109 [formerly Section 103] of the Tax Code, as amended, enumerates the transactions
that are exempt from VAT. Pawnshop transactions are not among the exempt transactions under the
said section. Neither are there any express provisions of law exempting pawnshops from VAT. Since
the transactions of pawnshops are not among those enumerated in Section 109 or any other express
provision of law as VAT-exempt, it follows that the same are subject to VAT under Section 108(A).
169
BIR Ruling 195-89

Facts
This refers to your letter requesting a ruling whether the term "gross receipts" for purposes of
applying the contractor's tax covers both cash payments actually received and receivables, or whether
it is only limited to cash actually received.
Held
In reply, please be informed that gleaned from the last paragraph of then Section 170 (q) of the Tax
Code reading:
"the term "gross receipts" means all amounts received by the prime or principal contractor as the total contract
price, undiminished by any amount paid to the subcontractor under a subcontract arrangement."
The term "gross receipts" for purposes of applying the 4% contractor's tax shall refer only to cash
actually received and shall not include receivables not yet received.
170
Mindanao II Geothermal Partnership vs. CIR, GR 193301, March 11, 2013

Doctrine
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction. However, it does not
follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability.
Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction in the course of
trade or business includes transactions incidental thereto.
Mindanao IIs business is to convert the steam supplied to it by PNOC-EDC into electricity and to
deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a
Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of
Mindanao IIs business that should be liable for VAT.
171
VAT Ruling 111-88

In reply, please be informed that the basis of the 10% value added tax prescribed in Section 102 of the
Tax Code, as amended by Executive Order 273, is the gross receipts of the person rendering service.
Hence, in the hypothetical case presented in your aforesaid letter, the value added tax is computed on
the total composition of your billings i.e., due to employees, due the government, depreciation of
equipment (billed to clients), supplies, and administrative overhead.
172
Vat Ruling 205-90

This refers to your letter seeking clarification on issues regarding the value-added tax (VAT). As
represented, your company enters into contracts with your affiliates for services such as legal and
corporate secretarial works, accounting, personnel and others. The managed company shoulders the
expenses incurred in connection with the above-mentioned services and pays an agreed management
fee out of the profits of the company.
Therefore, if the managed company has no profit, your company does not receive any fee. You are
now inquiring if the following payments for services are subject to VAT:
1. Management fee;
2. Expenses in connection with the services rendered; and
3. Reimbursement by the managed company of the salary and fringe benefits (SSS, Medicare,
pension/retirement) paid to the Chief Operating Officer assigned to the managed company,
the latter being an employee of your company.
In reply, please be informed that Sec. 2(m) of Revenue Regulations No. 5-87 defines "gross receipts"
as the total amount of money or its equivalent representing the contract price, compensation or service
fee, including the amount charged for materials supplied with the service and deposits or advance
payments actually or constructively received during the taxable year. Since this definition includes all
the payments mentioned in your query, said payments are subject to the 10% VAT.
173
CIR vs. Tours Specialists, Inc.

Facts
Petitioner (Tours Specialists, Inc.) had derived income from its activities as a travel agency by
servicing the needs of foreign tourists and travelers and Filipino "Balikbayans" during their stay in
this country. Some of the services extended to the tourists consist of booking said tourists and
travelers in local hotels for their lodging and board needs; transporting these foreign tourists from the
airport to their respective hotels, and from the latter to the airport upon their departure from the
Philippines, transporting them from their hotels to various embarkation points for local tours, visits
and excursions; securing permits for them to visit places of interest; and arranging their cultural
entertainment, shopping and recreational activities.
In order to ably supply these services to the foreign tourists, petitioner and its correspondent
counterpart tourist agencies abroad have agreed to offer a package fee for the tourists. Although the
fee to be paid by said tourists is quoted by the petitioner, the payments of the hotel room
accommodations, food and other personal expenses of said tourists, as a rule, are paid directly either
by tourists themselves, or by their foreign travel agencies to the local hotels and restaurants or shops,
as the case may be.
It is also the case that some tour agencies abroad request the local tour agencies, such as the petitioner
in the case, that the hotel room charges, in some specific cases, be paid through them. By this
arrangement, the foreign tour agency entrusts to the petitioner Tours Specialists, Inc., the fund for
hotel room accommodation, which in turn is paid by petitioner tour agency to the local hotel when
billed. The procedure observed is that the billing hotel sends the bill to the petitioner. The local hotel
identifies the individual tourist, or the particular groups of tourists by code name or group designation
and also the duration of their stay for purposes of payment. Upon receipt of the bill, the petitioner then
pays the local hotel with the funds entrusted to it by the foreign tour correspondent agency.
Despite this arrangement, respondent Commissioner of Internal Revenue assessed petitioner for
deficiency 3% contractor's tax as independent contractor by including the entrusted hotel room
charges in its gross receipts from services. Consequently, petitioner received from respondent the 3%
deficiency independent contractor's tax assessment.
Petitioner formally protested the assessment made by respondent on the ground that the money
received and entrusted to it by the tourists, earmarked to pay hotel room charges, were not considered
and have never been considered by it as part of its taxable gross receipts for purposes of computing
and paying its contractors tax.
Issue
Whether or not the hotel room charges held in trust for foreign tourists and travelers and/or
correspondent foreign travel agencies and paid to local host hotels form part of the taxable gross
receipts for purposes of the 3% contractor's tax.
Held
Dont form part of the gross receipts for purposes of the 3% contractors taxes.
Petitioner's assertion that the hotel room charges entrusted to the private respondent were part of the
package fee paid by foreign tourists to the respondent is not correct. The evidence is clear to the effect
that the amounts entrusted to the private respondent were exclusively for payment of hotel room
charges of foreign tourists entrusted to it by foreign travel agencies.
Further, theres evidence to proving the amounts earmarked for hotel room charges. Since the BIR
examiners could not have manufactured the above figures representing "advances for hotel room
accommodations," these payments must have certainly been taken from the records of petitioner, such
as the invoices, hotel bills, official receipts and other pertinent documents.
174
As demonstrated by jurisprudence, gross receipts subject to tax under the Tax Code do not include
monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the
taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt
such monies and receipts within the meaning of gross receipts under the Tax Code.
Parenthetically, the room charges entrusted by the foreign travel agencies to the private respondent do
not form part of its gross receipts within the definition of the Tax Code. The said receipts never
belonged to the private respondent. The private respondent never benefited from their payment to the
local hotels. As stated earlier, this arrangement was only to accommodate the foreign travel agencies.
175
VAT Ruling 283-88

This refers to your letter dated March 4, 1988 stating that your service billing as a customs broker
covers the following:
1. Advances for expenses payable to government entities and/or government-controlled
corporations.
2. Advances for trucking, transportation, petty, representations and other miscellaneous
expenses related to shipping.
3. Brokerage fee.
It is represented that items #1 and #2 above are mere advances that are subject to reimbursement and
therefore not covered by VAT. You now request confirmation of your opinion that amounts advanced
for and on behalf of your clients are not subject to the 10% value-added tax; and that only brokerage
fee is subject to VAT.
In reply, we hereby confirm your opinion that in the aforesaid transactions the brokerage fee is subject
to VAT; whereas advances indicated under # 1 and # 2 are exempt from VAT provided that:
1. You issue a VAT invoice/receipt corresponding to the amount of brokerage fee;
2. The advances are billed separately and a non-VAT receipt is issued to your client for the total
amount advanced;
3. Each person or entity who directly renders service to your client for whom you advanced the
payment, shall issue a receipt/invoice in the name of your client.
4. For liquidation purposes, you may attach the original copy of all invoices/receipts issued in
the name of your client to your non-VAT receipt reflecting the total amount being reimbursed
to you.
176
VAT Ruling 87-88

This refers to your letter dated March 22, 1988 requesting information on the applicability of the
value-added tax on the following businesses:
1. Review classes for nursing, CGFNS, nutrition and midwifery;
2. Recruitment services; and
3. General merchant.
In reply, please be informed that all of the above-mentioned activities are subject to VAT pursuant to
Sections 100 and 102 of the Tax Code, as amended by E. O. No. 273. For tax credit purposes, the
input taxes for the purchase of goods for use as supplies in connection with trade or business or as
materials in the sale of services can be claimed against your output law.
In the computation of the VAT on recruitment services, the basis of the tax is the amount of placement
fee which will not include reimbursement of expenses which shall be limited to fees for passport/visa,
medical examination, clearances and inoculation provided that these expenses are supported by
receipts issued by the supplying company or government agency in the name of the applicant. On the
other hand, the agency is required to pay the 10% VAT on the entire amount of placement fee if the
abovementioned reimbursable expenses are supported by receipts issued in the name of the agency.
177
CIR vs. Seagate Tech.

Facts
1. [Respondent] is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines, with principal office address at the
new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to
perform the duties of his office, including, among others, the duty to act and approve claims
for refund or tax credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been
issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to
engage in the manufacture of recording components primarily used in computers for export.
Such registration was made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration
Certification No. 97-083-000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this
Petition for Review), was filed on 4 October 1999 with Revenue District Office No. 83,
Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondents] claim
for VAT refund.
The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by
the [petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way
of Petition for Review in order to toll the running of the two-year prescriptive period.
Issue
Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount
of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the
period April 1, 1998 to June 30, 1999
Held
Respondent is entitled to refund.
Zero-Rated and Effectively Zero-Rated Transactions
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that
results from either one of them is not.
Applying the destination principle to the exportation of goods, automatic zero rating is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller
internationally competitive by allowing the refund or credit of input taxes that are attributable to
export sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being
directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax
shifted by the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax. But in
an exemption there is only partial relief, because the purchaser is not allowed any tax refund of or
credit for input taxes paid.
178
CIR vs. American Express Intl.

Facts
Respondent is a Philippine branch of American Express International, Inc., a corporation duly
organized and existing under and by virtue of the laws of the State of Delaware, U.S.A. It is a
servicing unit of American Express International, Inc. - Hongkong Branch (Amex-HK) and is engaged
primarily to facilitate the collections of Amex-HK receivables from card members situated in the
Philippines and payment to service establishments in the Philippines.
Amex Philippines registered itself with the Bureau of Internal Revenue (BIR) as a value-added tax
(VAT) taxpayer. For the period January 1, 1997 to December 31, 1997, [respondent] filed with the
BIR its quarterly VAT returns.
Later, respondent filed with the BIR a letter-request for the refund of its 1997 excess input taxes after
deducting from its total input VAT paid its applied output VAT liabilities only for the third and fourth
quarters of 1997.
Issue
Whether or not the Court of Appeals committed reversible error in holding that respondent is entitled
to the refund of the amount of P3,352,406.59 allegedly representing excess input VAT for the year
1997.
Held
Respondent is entitled to refund.
As a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT
law itself provides for a clear exception, under which the supply of service shall be zero-rated when
the following requirements are met:
1. The service is performed in the Philippines;
2. The service falls under any of the categories provided in Section 102(b) of the Tax Code; and
3. It is paid for in acceptable foreign currency that is accounted for in accordance with the
regulations of the Bangko Sentral ng Pilipinas.
Respondent is a VAT-registered person that facilitates the collection and payment of receivables
belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category as "processing, manufacturing or
repacking of goods" and should, therefore, be zero-rated.
Service has been defined as "the art of doing something useful for a person or company for a fee" or
"useful labor or work rendered or to be rendered by one person to another." For facilitating in the
Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign
client, and getting paid for it in duly accounted acceptable foreign currency, respondent renders
service falling under the category of zero rating. Pursuant to the Tax Code, a VAT of zero percent
should, therefore, be levied upon the supply of that service.
In the present case, respondents role in the consumer credit process described above primarily
consists of gathering the bills and credit card drafts of different service establishments located in the
Philippines and forwarding them to the ROCs outside the country. Servicing the bill is not the same as
billing. For the former type of service alone, respondent already gets paid.
Services Subject to Zero VAT

179
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach
of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of
service with the consumption of its output abroad. In the present case, the facilitation of the collection
of receivables is different from the utilization or consumption of the outcome of such service. While
the facilitation is done in the Philippines, the consumption is not. Respondent renders assistance to its
foreign clients -- the ROCs outside the country -- by receiving the bills of service establishments
located here in the country and forwarding them to the ROCs abroad. The consumption contemplated
by law, contrary to petitioners administrative interpretation, does not imply that the service be done
abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term
means the performance or "successful completion of a contractual duty, usually resulting in the
performers release from any past or future liability x x x." The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client the drafts and bills it has
gathered from service establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined end of a course" when
determining the service "location or position x x x for legal purposes." Respondents facilitation
service has no physical existence, yet takes place upon rendition, and therefore upon consumption, in
the Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT at
the rate of 10 percent.
Respondents Services Exempt from the Destination Principle
However, the law clearly provides for an exception to the destination principle; that is, for a zero
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [BSP]." Thus, for the
supply of service to be zero-rated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of
the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with
BSP rules and regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent.
Its facilitation service is performed in the Philippines. It falls under the second category found in
Section 102(b) of the Tax Code, because it is a service other than "processing, manufacturing or
repacking of goods" as mentioned in the provision. Undisputed is the fact that such service meets the
statutory condition that it be paid in acceptable foreign currency duly accounted for in accordance
with BSP rules. Thus, it should be zero-rated.
180
CIR vs. Burmeister & Wain

Facts
Respondent is a domestic corporation. It is represented that a foreign consortium composed of
Burmeister and Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and
Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power
Corporation (NAPOCOR) for the operation and maintenance of [NAPOCORs] two power barges.
The Consortium appointed BWSC-Denmark as its coordination manager.
BWSC-Denmark established [respondent] which subcontracted the actual operation and maintenance
of NAPOCORs two power barges as well as the performance of other duties and acts which
necessarily have to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen,
and Peso). The freely convertible non-Peso component is deposited directly to the Consortiums bank
accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate
and special designated bank account in the Philippines. On the other hand, the Consortium pays
[respondent] in foreign currency inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from
the BIR which responded with BIR Ruling declaring therein that if [respondent] chooses to register as
a VAT person and the consideration for its services is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the
aforesaid services shall be subject to VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. Later, respondent allegedly misinterpreted a
Revenue Regulation and subjected its sale of services to the Consortium to the 10% VAT. Later,
[respondent] was able to secure VAT Ruling which reconfirmed BIR Ruling insofar as it held that the
services being rendered by BWSCMI is subject to VAT at zero percent (0%).
On the strength of the aforementioned rulings, [respondent], filed a claim for the issuance of a tax
credit certificate.
Issue
Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the
year 1996.
Held
Respondent is entitled to refund but only because it relied on a prior BIR ruling declaring it subject to
0% VAT, otherwise it would still be liable for VAT.
In insisting that its services should be zero-rated, respondent claims that it complied with the
requirements of the Tax Code for zero rating under the second paragraph of Section 102(b).
Respondent asserts that:
1. The payment of its service fees was in acceptable foreign currency,
2. There was inward remittance of the foreign currency into the Philippines, and
3. Accounting of such remittance was in accordance with BSP rules.
Respondent is mistaken.
The Tax Code under Sec. 102(b)(2) requires:
1. The service is performed in the Philippines by VAT-registered persons
2. That the services be other than processing, manufacturing or repacking of goods and
3. That payment for such services be in acceptable foreign currency accounted for in accordance
with BSP rules.
181
4. Another essential condition for qualification to zero-rating is that the recipient of such
services is doing business outside the Philippines.
The services covered are in the nature of export sales since the payer-recipient of services is doing
business outside the Philippines.
In this case, the payer-recipient of respondents services is the Consortium which is a joint-venture
doing business in the Philippines. While the Consortiums principal members are non-resident
foreign corporations, the Consortium itself is doing business in the Philippines.
Considering this length of time, the Consortiums operation and maintenance of NAPOCORs power
barges cannot be classified as a single or isolated transaction. The Consortium does not fall under
Section 102(b)(2) which requires that the recipient of the services must be a person doing business
outside the Philippines. Therefore, respondents services to the Consortium, not being supplied to a
person doing business outside the Philippines, cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCORs power barges
in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in
foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign
currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme
does not entitle respondent to 0% VAT. An essential condition for entitlement to 0% VAT under
Section 102(b)(1) and (2) is that the recipient of the services is a person doing business outside the
Philippines. In this case, the recipient of the services is the Consortium, which is doing business not
outside, but within the Philippines because it has a 15-year contract to operate and maintain
NAPOCORs two 100-megawatt power barges in Mindanao.
The Court recognizes the rule that the VAT system generally follows the destination principle
(exports are zero-rated whereas imports are taxed). However, as the Court stated in American Express,
there is an exception to this rule. This exception refers to the 0% VAT on services enumerated in
Section 102 and performed in the Philippines. For services covered by Section 102(b)(1) and (2), the
recipient of the services must be a person doing business outside the Philippines.
Thus, to be exempt from the destination principle under Section 102(b)(1) and (2), the services must
be
1. Performed in the Philippines;
2. For a person doing business outside the Philippines; and
3. Paid in acceptable foreign currency accounted for in accordance with BSP rules.
182
BIR Ruling 176-94

This refers to your letter requesting for a confirmation of your opinion that your export sales, paid for
in acceptable foreign currency and accounted for in accordance with the Rules and Regulations of the
Bangko Sentral Ng Pilipinas (BSP) will qualify as zero-rated sales even if the proceeds thereof are not
converted into Philippine currency.
In reply, please be informed that under BSP Circular No. 1389 issued on April 13, 1993, pertinent
portions of which are quoted hereunder as follows:
"Sec. 20. Disposition of Export Proceeds. Foreign exchange receipts, acquisitions or earnings of residents from
exports may, at the option of said exporter, be sold for pesos to AABs or outside the banking system, retained, or
deposited in foreign currency accounts, whether in the Philippines or abroad and may be used freely for any
purpose.
xxx
the exporters are given the option to sell their foreign currency earnings to the Authorized Agent Banks (AABs)
or to deposit the same in foreign currency accounts in banks located within or outside the Philippines.
Accordingly, your opinion that export sales paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the
proceeds thereof are not converted to Philippine pesos is hereby confirmed.
183
VAT Ruling 47-00

This refers to your letter in behalf of your client, CARGILL PHILIPPINES, INC., requesting for a
confirmation of your opinion that for purposes of applying for refund of input taxes attributable to
export sales, it is not necessary for the exporter to prove the inward remittance and conversion to
Philippine pesos of its export sales.
In reply, please be informed that Section 106(A)(2)(a)(1) of the National Internal Revenue Code of
1997 provides:
(2) [Zero-rated Sales]
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
"(a) Export Sales. The term 'export sales' means: "
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods
so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);"
The term "and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP) is implemented by BSP Circular No. 1389 dated April 13, 1993 the pertinent portion of which provides:
"Sec. 20. Disposition of Export Proceeds. Foreign exchange receipts, acquisitions or earnings of residents
from exports may, at the option of said exporter, be sold for pesos to AABs or outside the banking system,
retained, or deposited in foreign currency accounts, whether in the Philippines or abroad and may be used
freely for any purpose."
Accordingly, your opinion that export sales paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the
proceeds thereof are not converted to Philippine pesos is hereby confirmed.
184
Philippine Acetylene Co. vs. CIR

Facts
The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. It
made various sales of its products to the National Power Corporation, an agency of the Philippine
Government, and to the Voice of America an agency of the United States Government. The respondent
Commission of Internal Revenue assessed against, and demanded from, the petitioner payment of
deficiency sales tax and surcharge, pursuant to the following-provisions of the National Internal
Revenue Code (Percentage taxes).
The petitioner denied liability for the payment of the tax on the ground that both the NPC and the
VOA are exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure
one, appealed to the Court of Tax Appeals.
Issue
Whether or not petitioner is exempt from tax.
Held
We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax
on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and
inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is
permissible.
The NPC enjoys tax exemption by virtue of an act of Congress.
It is contended that the immunity thus given to the NPC would be impaired by the imposition of a tax
on sales made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately
shifted by the latter to the former.
It is argued that a sales tax is ultimately passed on to the purchaser, and that, so far as the purchaser is
an entity like the NPC which is exempt from the payment of "all taxes, except real property tax," the
tax cannot be collected from sales.
It may indeed be that the incidence of the tax ultimately settles on the purchaser, but it is not for that
reason alone that one may validly argue that it is a tax on the purchaser. The exemption granted to the
NPC may be likened to the immunity of the Federal Government from state taxation and vice versa in
the federal system of government of the United States. If a claim of exemption from sales tax based
on state immunity cannot command assent, much less can a claim resting on statutory grant.
It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the
tax becomes a part of the price which the purchaser must pay. It does not matter that an additional
amount is billed as tax to the purchaser. The method of listing the price and the tax separately and
defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids
payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the
purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the
seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and
for nothing else.
But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of
the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on
the purchaser.
185
PNP Multi-Purpose Cooperative vs. CIR

Facts
The petitioner, Philippine National Police Multi-Purpose Cooperative, Inc. is a cooperative composed
solely of government employees.
Petitioner purchased various merchandise from different suppliers. It alleged that the various suppliers
included in their sales price the ten per cent (10%) VAT.
Petitioner filed before the respondent, Commissioner of Internal Revenue, a written application for
refund of the amount representing the VAT claiming that it is not subject to any government tax under
the internal revenue laws and other tax laws. Respondent denied the claim for refund.
Issue
Whether or not petitioner is entitled to a refund.
Held
This Court cannot order the refund of input VAT in favor of the petitioner under the circumstances.
There is no question that petitioner is a cooperative under the category stated in Article 61 of the
Cooperative Code which reads as follows:
"Art. 61. Tax Treatment of Cooperative Duly registered cooperatives under this Code which do not transact
any business with nonmembers or the general public shall not be subject to any government taxes or fees
imposed under the internal revenue laws and other tax laws. . .
Assuming that the petitioner is VAT-exempt (Sec. 103), its exemption is limited only to those for
which it is directly liable. Hence, it will be exempt from income tax, documentary stamp tax, customs
duties and even VAT output tax. In other words, petitioner is not liable for VAT output tax on sales
made to its members but is liable for VAT input tax passed on to it by its suppliers.
The tax exemption from "any government taxes or fees imposed under the internal revenue laws and
other laws" does not include indirect taxes such as VAT and sales tax passed on by the seller to the
buyer. For a taxpayer to be exempt from indirect taxes, there should be a clear intention on the part
of the Legislature to grant such exemption. The exempting law should categorically or specifically
provide for exemption from indirect taxes.
Respondent is correct in saying that the persons liable for the VAT are not the buyers or purchasers but
the sellers or importers of goods and those performing services for a fee. Being the buyer or
purchaser, petitioner has no legal standing to claim for the refund of the input taxes it paid on its
purchases.
186
CIR vs. John Gotamco

Facts
As an international organization, it enjoys privileges and immunities which are defined more
specifically in the Host Agreement entered into between the Republic of the Philippines and the said
Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the
Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect
taxes. It is understood, however, that the Organization will not claim exemption from taxes which are,
in fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the other United
Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the
Republic of the Philippines. Article VIII of the agreement referred to the Host Agreement which
granted the Organization exemption from all direct and indirect taxes.
In inviting bids for the construction of the building, the WHO informed the bidders that the building
to be constructed belonged to an international organization with diplomatic status and thus exempt
from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into
account and should not include items for such taxes, licenses and other payments to Government
agencies."
The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for
short).
Later, WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating
that "as the 3% contractor's tax is an indirect tax on the assets and income of the Organization, the
gross receipts derived by contractors from their contracts with the WHO for the construction of its
new building, are exempt from tax in accordance with . . . the Host Agreement." Subsequently,
however, the Commissioner of Internal Revenue reversed his opinion and stated that "as the 3%
contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the
contractor, the same is not covered by . . . the Host Agreement."
The Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment
representing the 3% contractor's tax on the gross receipts it received from the WHO in the
construction of the latter's building.
Issue
Whether or not respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under
Section 191 of the National Internal Revenue Code on the gross receipts it realized from the
construction of the World Health Organization office building in Manila.
Held
Respondent shouldnt pay.
We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the
respondent court:
In context, direct taxes are those that are demanded from the very person who, it is intended or desired, should
pay them; while indirect taxes are those that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone else. The contractor's tax is of course payable
by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax
because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect
tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its
burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor
and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization.
187
Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner
of Internal Revenue, et al., the 3% contractor's tax fans directly on Gotamco and cannot be shifted to
the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this case,
since the Host Agreement specifically exempts the WHO from "indirect taxes."
We agree.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes
which, although not imposed upon or paid by the Organization directly, form part of the price paid or
to be paid by it.
The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the construction of the WHO office building. The 3%
contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On
the Organization, as the payment thereof or its inclusion in the bid price would have meant an
increase in the construction cost of the building.
188
Maceda vs. Macaraig

Doctrine
When the history of statutes clearly indicates the grant of indirect tax exemption (confirming NPCs
exemption from direct and indirect taxes following an examination of the evolution of NPCs charter).
189
CIR vs. Mirant Pagbilao

Facts
MPC, is a domestic firm engaged in the generation of power which it sells to the National Power
Corporation (NPC). Under Republic Act No. 6395, NPC is exempt from all taxes. In Maceda v.
Macaraig, the Court construed the exemption as covering both direct and indirect taxes.
In the light of the NPCs tax exempt status, MPC, on the belief that its sale of power generation
services to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code, zero-rated for VAT purposes, filed an
Application for Effective Zero Rating. The Commissioner of Internal Revenue issued VAT Ruling,
stating that the supply of electricity by MPC to the NPC, shall be subject to the zero percent (0%)
VAT.
Consistent with its belief to be zero-rated, MPC opted not to pay the VAT component of the progress
billings from Mitsubishi (Provides services related to power-generation) for the period covering April
1993 to September 1996for the E & M Equipment Erection Portion of MPCs contract with
Mitsubishi. This prompted Mitsubishi to advance the VAT component as this serves as its output VAT
which is essential for the determination of its VAT payment. Apparently, it was only on April 14,
1998 that MPC paid Mitsubishi the VAT component for the progress billings from April 1993 to
September 1996.
MPC filed its quarterly VAT return for the second quarter of 1998 where it reflected an input VAT.
MPC filed on December 20, 1999 an administrative claim for refund of unutilized input VAT. Since
the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of
the two-year prescriptive period under Sec. 229 of the National Internal Revenue Code (NIRC), MPC
went to the CTA.
Issue
Whether or not respondent [MPC] is entitled to the refund of its input VAT payments made from 1993
to 1996
Held
Claim for refund or tax credit filed out of time
Claim for refund
The claim for refund or tax credit for the creditable input VAT payment made by MPC was filed
beyond the period provided by law for such claim.
Unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must
be claimed within two years reckoned from the close of the taxable quarter when the relevant sales
were made pertaining to the input VAT regardless of whether said tax was paid or not.
As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112(A), [P]rescriptive
period commences from the close of the taxable quarter when the sales were made and not from the
time the input VAT was paid nor from the time the official receipt was issued.
Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said
taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT.
The reckoning frame would always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid.
Be that as it may, and given that the last creditable input VAT due for the period covering the progress
billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for
unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after
190
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund
or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which,
for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for
the filing of a claim therefor.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment
of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions
apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
191
CIR vs. Aichi

Doctrine
In this case, the administrative and the judicial claims for VAT refund were simultaneously filed on
September 30, 2004 (last day of the 2-year period). Obviously, respondent did not wait for the
decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing of the
judicial claim with the CTA premature.
The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund"
refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the
NIRC, which already provides for a specific period within which a taxpayer should appeal the
decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two
scenarios:
1. When a decision is issued by the CIR before the lapse of the 120-day period; and
2. When no decision is made after the 120-day period. In both instances, the taxpayer has 30
days within which to file an appeal with the CTA.
As we see it then, the 120-day period is crucial in filing an appeal with the CTA.
192
CIR vs. San Roque Power Corp.

Doctrine
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner, San Roque filed a Petition for Review with the CTA. From this we gather that San
Roque did not wait for the 120-day period to lapse before filing its judicial claim.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roques application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional.
San Roques failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void.
As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA
within 30 days from receipt of the Commissioners decision, or if the Commissioner does not act on
the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days
from the expiration of the 120-day period.
193
Mactan Cebu Internationa Airport vs. Marcos

Doctrine
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised
by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to
direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of
the power may be subject to such guidelines and limitations as the Congress may provide which,
however, must be consistent with the basic policy of local autonomy.
Manila Electric vs. Province of Laguna
Doctrine
Prefatorily, it might be well to recall that local governments do not have the inherent power to tax
except to the extent that such power might be delegated to them either by the basic law or by statute.
Presently, under Article X of the 1987 Constitution, a general delegation of that power has been given
in favor of local government units. Thus:
Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective
mechanisms of recall, initiative, and referendum, allocate among the different local government units their
powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal,
term, salaries, powers and functions, and duties of local officials, and all other matters relating to the
organization and operation of the local units.
x x x
xxx
xxx
Sec. 5. Each local government shall have the power to create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the
tax power must be deemed to exist although Congress may provide statutory limitations and
guidelines.
The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the constitutional
objective obviously is to ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that:
1. The taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions;
2. Each local government unit will have its fair share of available resources;
3. The resources of the national government will not be unduly disturbed; and
4. Local taxation will be fair, uniform, and just.
194
Pepsi Cola Bottling vs. Municipality of Tanauan

Facts
Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary
injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic
Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void.
Both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax
rates imposed therein are practically the same.
Ordinance No. 23 levies and collects "from soft drinks producers and manufacturers a tai of onesixteenth (1/16) of a centavo for every bottle of soft drink corked.
On the other hand, Municipal Ordinance No. 27 levies and collects "on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01)
on each gallon (128 fluid ounces, U.S.) of volume capacity.
Issue
Whether or not the tax is unjust and unreasonable.
Held
The tax isnt unjust and unreasonable.
The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks,
produced or manufactured, or an equivalent of 1- centavos per case, cannot be considered unjust and
unfair. An increase in the tax alone would not support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much discretion in determining the reates of
imposable taxes. This is in line with the constutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973).
Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance
as unreasonable. Reluctance should not deter compliance with an ordinance such as Ordinance No. 27
if the purpose of the law to further strengthen local autonomy were to be realized.
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series
of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, appears not to
affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not
only municipal license taxes upon persons engaged in any business or occupation but also to levy for
public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within
the second power of a municipality.
195
Ormoc Sugar vs. Municipal Board of Ormoc

Facts
The Municipal Board of Ormoc City passed an Ordinance imposing "on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax. Ormoc
Sugar Company, Inc. paid the tax but under protest.
Issue
Whether or not the Board has the power to pass the ordinance.
Held
The Board has the power.
The grant of the power to tax to chartered cities under Section 2 of the Local Autonomy Act is
sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject only
to the limitation that the tax so levied is for "public purposes, just and uniform."
It cannot be said that the ordinance suffers from a constitutional or statutory infirmity as claimed in
the first alleged error. Nor is petitioner-appellant any more successful in its claim in the second
assigned error that the ordinance suffers from the taint of illegality, it being in restraint of trade.
In the absence of a clear and specific showing that there was a transgression of a constitutional
provision or repugnancy to a controlling statute, an objection of such a generalized character deserves
but scant sympathy from this Court. Considering the indubitable policy expressly set forth in the
Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more
no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid.
196
Cases without digest

1. People vs. Kintanar
2. People vs. Judy Anne Santos
3. CIR vs. Isabela Cultural Corp.
4. BIR Ruling 81-98
5. BIR Ruling 10-03
6. BIR Ruling 013-2005
7. BIR Ruling DA-279-2006
11. Asiatic Integrated Corp. vs. Alikpala
12. Matalin Coconut Co. vs. Municipal Council of Malabang
13. Province of Bulacan vs. CA
14. Phil. Petroleum Corp. vs. Municipality of Pilila
15. San Miguel Corp. vs. Municipal Council of Mandaue
16. Standard Vacuum Oil vs. Antigua
17. Ali Nam vs. City of Manila
18. Figueras vs. CA
19. Tuzon vs. CA
20. Reyes vs. CA
21. Drilon vs. Lim
22. Hagonoy Market Vendor vs. Municipality of Hagonoy
23. California Mfg. vs. City of Las Pinas

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