PHILIPPINE AIRLINES VS CIR refund claim.
refund claim. The payment of the excise  The statutory taxpayer can transfer to its customers
SUMMARY: PAL, after purchasing imported fuel from Caltex,
filed for refund of excise taxes on the fuel. CIR opposed,
arguing mainly that Caltex, as the seller of the fuel, was the
statutory taxpayer entitled to claim for a refund or tax credit
and not the buyer PAL. Court held in PAL’s favor. PAL can claim
for a refund or credit of the excise taxes even if it is not the
statutory taxpayer. Though generally indirect taxes like excise
taxes are paid by the seller (although the purchaser bears the
burden of the tax in the form of the added cost in the purchase
price), the purchaser may claim for a refund/credit if it is
exempted from paying both direct and indirect taxes. Being
exempted from both direct and indirect taxes by its charter,
PAL is also exempted from absorbing indirect tax. Thus, PAL is
endowed with legal standing to file for a refund/credit
notwithstanding the fact that it is not the statutory taxpayer.
PAL may be reimbursed the part of the purchase price which
corresponded to the excise tax. Also, the LOI allegedly
withdrawing PAL’s exemptions only refer to exemptions on
domestic products and not on imported fuel.
NATURE: Petition for review on certiorari
FACTS:
Caltex sold 804,370 liters of imported Jet A-1 fuel to PAL for
the its domestic operations. Consequently, Caltex filed with the
BIR its Excise Tax Returns for Petroleum Products, declaring
P2,975,892.90 as excise taxes due thereon.
PAL received from Caltex an Aviation Billing Invoice for the
purchased aviation fuel reflecting the amount of related excise
taxes on the transaction. This was confirmed by Caltex in a
Certification where it indicated that the excise taxes it paid on
the imported petroleum products amounted to P2,952,037.90,
the excise tax payment was passed on by it to PAL, and Caltex
did not file any claim for the refund of the excise tax with the
BIR.
PAL, through a letter-request addressed to the Commissioner
of Internal Revenue (CIR), sought a refund of the excise taxes
passed on to it by Caltex. It hinged its tax refund claim on its
operating franchise (Presidential Decree No. 15907) which
conferred upon it certain tax exemption privileges on its
purchase and/or importation of aviation gas, fuel and oil,
including those which are passed on to it by the seller
and/or importer thereof. Due to the CIR’s inaction, PAL filed a
Petition for Review with the CTA.
CTA Second Division, and eventually the CTA En Banc on
appeal, denied PAL’s petition on the grounds that:
1. Only Caltex may seek a refund of the excise taxes it
paid (Silkair Singapore Pte. Ltd. v. CIR).
a. It was Caltex, the statutory taxpayer, which
had the personality to file the subject
taxes, being in the nature of indirect taxes,
remained to be the direct liability of Caltex.
While the tax burden may have been
shifted to PAL, the liability passed on to it
should not be treated as a tax but a part of
the purchase price which PAL had to pay to
obtain the goods.
2. PAL’s claim for refund should be denied altogether on
account of LOI 1483 which already withdrew the tax
exemption privileges previously granted to PAL on its
purchase of domestic petroleum products, of which
the transaction between PAL and Caltex was
characterized.
ISSUE: Does PAL have the legal personality to file a claim for
refund of the passed on excise taxes? YES.
CIR’s position: PAL has no personality to file the subject tax
refund claim because it is not the statutory taxpayer. As basis, it
relies on the Silkair ruling which enunciates that the proper
party to question, or to seek a refund of an indirect tax, is the
statutory taxpayer, or the person on whom the tax is imposed by
law and who paid the same, even if the burden to pay such was
shifted to another.
PAL’s position: Silkair doctrine is inapplicable, asserting
that PAL has the legal personality to file the subject tax
refund claim on account of its tax exemption privileges
under its legislative franchise which covers both direct
and indirect taxes. In support thereof, it cites the case
of Maceda v. Macaraig, Jr.
Court agrees with PAL. Under Sec. 129 of the NIRC, excise
taxes are imposed on 2 kinds of goods, namely:
(a) goods manufactured or produced in the Philippines for
domestic sales or consumption or for any other disposition;
and
(b) things imported.
For (a), Sec. 130 states that the taxpayer obligated to file the
return and pay the excise taxes due thereon is the
manufacturer/producer. On the other hand, with respect to (b),
Sec. 131 states that the taxpayer obligated to file the return
and pay the excise taxes due thereon is the owner or importer,
unless the imported articles are exempt from excise taxes and
the person found to be in possession of the same is other than
those legally entitled to such tax exemption.
While the NIRC mandates the foregoing persons to pay the
applicable excise taxes directly to the government, they may,
however, shift the economic burden of such payments to
someone else – usually the purchaser of the goods – since
excise taxes are considered as a kind of indirect tax.
 Indirect taxes are those which are demanded from
one person with the expectation and intention that he
can shift the economic burden to someone else.
the value of the excise taxes it paid or would be liable
to pay to the government by treating it as part of the
cost of the goods and tacking it on to the selling price.
This shifting process, “passing on,” is largely a
contractual affair between the parties.
 Even if the purchaser effectively pays the value of the
tax, the manufacturer/producer (for domestic goods)
or the owner or importer (for imported goods) are
still regarded as the statutory taxpayers under the
law. The purchaser does not really pay the tax; rather,
he only pays the seller more for the goods because of
the latter’s obligation to the government as the
statutory taxpayer.
Section 204(c) of the NIRC states that it is the statutory
taxpayer which has the legal personality to file a claim for
refund. Accordingly, in cases involving excise tax exemptions
on petroleum products under Section 135, the Court has
consistently held that it is the statutory taxpayer who is
entitled to claim a tax refund based thereon and not the party
who merely bears its economic burden.
 In the Silkair case, Silkair Singapore filed a claim for
tax refund based on Sec. 135(b) of the NIRC as well as
Article 4(2) of the Air Transport Agreement between
the Philippines and Singapore.
 The Court denied Silkair Singapore’s refund claim
since the tax exemptions under both provisions were
conferred on the statutory taxpayer, and not the party
who merely bears its economic burden. It was the
Petron Corporation (the statutory taxpayer) which
was entitled to invoke the applicable tax exemptions
and not Silkair Singapore which merely shouldered
the economic burden of the tax.
 As explained in Silkair: The proper party to
question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is
imposed by law and who paid the same even if he
shifts the burden thereof to another. Section
130(A)(2) of the NIRC provides that “unless
otherwise specifically allowed, the return shall be
filed and the excise tax paid by the manufacturer or
producer before removal of domestic products from
place of production.” Thus, Petron Corporation, not
Silkair, is the statutory taxpayer which is entitled to
claim a refund based on Section 135 of the NIRC of
1997 and the Air Transport Agreement between RP
and Singapore. Even if Petron Corporation passed on
to Silkair the burden of the tax, the additional amount
billed to Silkair for jet fuel is not a tax but part of the
price which Silkair had to pay as a purchaser.
However, the abovementioned rule should not apply to
instances where the law clearly grants the party to which
the economic burden of the tax is shifted an exemption
from both direct and indirect taxes. In which case, the
latter must be allowed to claim a tax refund even if it is not
considered as the statutory taxpayer under the law. This is
the peculiar circumstance which differentiates the Maceda case
from Silkair.
 In Maceda, the Court upheld the NPC’s claim for a tax
refund since its own charter specifically granted it an
exemption from both direct and indirect taxes:
 “The oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker
fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is
expected to be passed on through the channels of
commerce to the user or consumer of the goods
sold. Because, however, the NPC has been
exempted from both direct and indirect taxation,
the NPC must be held exempted from absorbing
the economic burden of indirect taxation. This
means, on the one hand, that the oil companies which
wish to sell to NPC absorb all or part of the economic
burden of the taxes previously paid to BIR, which they
could shift to NPC if NPC did not enjoy exemption
from indirect taxes. This means also, on the other
hand, that the NPC may refuse to pay the part of the
"normal" purchase price of bunker fuel oil which
represents all or part of the taxes previously paid by
the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies —
because to do so may be more convenient and
ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from
overseas — NPC is entitled to be reimbursed by
the BIR for that part of the buying price of NPC
which verifiably represents the tax already paid
by the oil company-vendor to the BIR.”
 The Court discussed the Maceda ruling in Silkair.
Silkair Singapore invoked the Maceda case to support
its claim for tax credit or refund, because in the
Maceda case, the Court held in favor of the tax
credit/refund by virtue of NPC’s exemption from
indirect taxes.
o However, the court held that the correct
lesson of Maceda is that an exemption
from "all taxes" excludes indirect
taxes, unless the exempting statute, like
NPC’s charter, is so couched as to
include indirect tax from the exemption.
The exemption granted under Section
135(b) of the NIRC of 1997 and Article 4(2)
of the Air Transport Agreement between
RP and Singapore cannot, without a clear
showing of legislative intent, be construed
as including indirect taxes. Statutes
granting tax exemptions must be
construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing
authority, and if an exemption is found to
exist, it must not be enlarged by
construction.
Based on these cases, the propriety of a tax refund claim is
hinged on the kind of exemption which forms its basis. If
the law confers an exemption from both direct or indirect
taxes, a claimant is entitled to a tax refund even if it only
bears the economic burden of the applicable tax. On the
other hand, if the exemption conferred only applies to direct
taxes, then the statutory taxpayer is regarded as the proper
party to file the refund claim.
In this case, PAL’s franchise1 grants it an exemption from
1 SEC. 13. In consideration of the franchise and rights
hereby granted, the grantee [PAL] shall pay to the
Philippine Government during the life of this franchise
whichever of subsections (a) and (b) hereunder will
result in a lower tax:
(a) The basic corporate income tax based on the
grantee's annual net taxable income computed in
accordance with the provisions of the National
Internal Revenue Code; or
(b) A franchise tax of 2% of the gross revenues
derived by the grantee from all sources, without
distinction as to transport or nontransport operations;
provided, that with respect to international air-
transport service, only the gross passenger, mail, and
freight revenues from its outgoing flights shall be
subject to this tax.
The tax paid by the grantee under either of the above
alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and
charges of any kind, nature, or description, imposed,
levied, established, assessed, or collected by any
municipal, city, provincial, or national authority or
government agency, now or in the future, including
but not limited to the following:
1. All taxes, duties, charges, royalties, or fees due on
local purchases by the grantee of aviation gas, fuel,
and oil, whether refined or in crude form, and whether
such taxes, duties, charges, royalties, or fees
are directly due from or imposable upon the
purchaser or the seller, producer, manufacturer,
or importer of said petroleum products but
are billed or passed on the grantee either as part
both direct and indirect taxes on its purchase of petroleum
products. In view of PAL’s payment of either the basic
corporate income tax or franchise tax, whichever is lower, PAL
is exempt from paying: (a) taxes directly due from or
imposable upon it as the purchaser of the subject petroleum
products; and (b) the cost of the taxes billed or passed on to it
by the seller, producer, manufacturer, or importer of the said
products either as part of the purchase price or by mutual
agreement or other arrangement. Therefore, given the
foregoing direct and indirect tax exemptions under its
franchise, PAL is endowed with the legal standing to file
the subject tax refund claim, notwithstanding the fact that
it is not the statutory taxpayer as contemplated by law.
ISSUE: Is the sale of imported aviation fuel by Caltex to PAL
covered by LOI 1483 which withdrew the tax exemption
privileges of PAL on its purchases of domestic petroleum
products for use in its domestic operations? NO.
LOI 1483 amended PAL’s franchise by withdrawing the tax
exemption privilege granted to PAL on its purchase of domestic
petroleum products for use in its domestic operations. It
pertinently provides: xxx the tax-exemption privilege
granted to PAL on its purchase of domestic petroleum
products for use in its domestic operations is hereby
withdrawn.
On this score, the CIR contends that the purchase of the aviation
fuel imported by Caltex is a “purchase of domestic petroleum
products” because the same was not purchased abroad by PAL.
of the price or cost thereof or by mutual
agreement or other arrangement; provided, that all
such purchases by, sales or deliveries of aviation gas,
fuel, and oil to the grantee shall be for exclusive use
in its transport and nontransport operations and other
activities incidental thereto;
2. All taxes, including compensating taxes, duties,
charges, royalties, or fees due on all importations by
the grantee of aircraft, engines, equipment,
machinery, spare parts, accessories, commissary and
catering supplies, aviation gas, fuel, and oil,
whether refined or in crude form and other articles,
supplies, or materials; provided, that such articles or
supplies or materials are imported for the use of the
grantee in its transport and transport operations
and other activities incidental thereto and are not
locally available in reasonable quantity, quality, or
price; xxx
The Court disagrees.
Based on Sec. 13 of PAL’s franchise, PAL’s tax exemption
privileges on all taxes on aviation gas, fuel and oil may be
classified into 3 kinds:
(a) all taxes due on PAL’s local purchase of aviation gas, fuel
and oil;
(b) all taxes directly due from or imposable upon the purchaser
or the seller, producer, manufacturer, or importer of aviation
gas, fuel and oil but are billed or passed on to PAL; and
(c) all taxes due on all importations by PAL of aviation gas, fuel,
and oil.
Viewed within the context of excise taxes, it may be observed
that the first kind of tax privilege would be irrelevant to PAL
since it is not liable for excise taxes on locally
manufactured/produced goods for domestic sale or other
disposition; based on Section 130 of the NIRC, it is the
manufacturer or producer, i.e., the local refinery, which is
regarded as the statutory taxpayer of the excise taxes due on
the same.
On the contrary, when the economic burden of the applicable
excise taxes is passed on to PAL, it may assert 2 tax exemptions
under the second kind of tax privilege namely, PAL’s
exemptions on (a) passed on excise tax costs due from the
seller, manufacturer/producer in case of locally manufactured/
produced goods for domestic sale (first tax exemption under
the second kind of tax privilege); and
(b) passed on excise tax costs due from the importer in case of
imported aviation gas, fuel and oil (second tax exemption
under the second kind of tax privilege).
The second kind of tax privilege should, in turn, be
distinguished from the third kind of tax privilege which
applies when PAL itself acts as the importer of the
foregoing petroleum products. PAL here is not merely
regarded as the party to whom the economic burden of the
excise taxes is shifted to but rather, it stands as the
statutory taxpayer directly liable to the government for
the same.
In view of the foregoing, the Court observes that the phrase
“purchase of domestic petroleum products for use in its
domestic operations” – which characterizes the tax privilege
LOI 1483 withdrew – refers only to PAL’s tax exemptions on
passed on excise tax costs due from the seller,
manufacturer/producer of locally manufactured/ produced
goods for domestic sale and does not, in any way, pertain to
any of PAL’s tax privileges concerning imported goods, may
it be:
(a) PAL’s tax exemption on excise tax costs which are merely
passed on to it by the importer when it buys imported goods
from the latter (the second tax exemption under the second
kind of tax privilege); or
(b) PAL’s tax exemption on its direct excise tax liability when it and the Central Bank promptly transferred to the petitioner’s
imports the goods itself (the third kind of tax privilege). Both account in the Philippines the corresponding amount in
textual and contextual analyses lead to this conclusion: Philippine pesos. In 1988, respondent CIR ordered an
investigation to be made on BPI’s sale of foreign currency. As a
(1) Examining its phraseology, the word “domestic,” which result thereof, the CIR issued a pre-assessment notice
means “of or relating to one’s own country”43 or “an article of informing BPI that in accordance with Section 195 (now
domestic manufacture,” clearly pertains to goods Section 182) of the NIRC, BPI was liable for documentary
manufactured or produced in the Philippines for domestic stamp tax at the rate of P 0.30 per P Total tax liability was
sales or consumption or for any other disposition as opposed assessed at P 200.00 on all foreign exchange sold to the Central
to things imported. In other words, by sheer divergence of Bank. 3,016,316.06, which consists of a documentary stamp tax
meaning, the term “domestic petroleum products” could not liability of P2,412,812.85, a 25% surcharge of P 603,203.21,
refer to goods which are imported. and a compromise penalty of P 300.00.
(2) Examining its context, certain “whereas clauses” in LOI
Issue: Whether or not the transactions covered is a bill of
1483 disclose that it intended to divest PAL from the tax
exchange liable for DST.
privilege tackled in a Department of Finance Ruling: its tax
exemption on aviation gas, fuel and oil which are manufactured
or produced in the Philippines for domestic sales. Held: Yes. A definition of a “bill of exchange” is provided by
Consequently, if LOI 1483 was intended to withdraw the Section 39 of Regulations No. 26, the rules governing
foregoing tax exemption, then the term “purchase of domestic documentary taxes promulgated by the Bureau of Internal
petroleum products for use in its domestic operations” as Revenue (BIR) in 1924:
used in LOI 1483 could only refer to “goods manufactured or
produced in the Philippines for domestic sales or
consumption or for any other disposition,” and not to “things
Sec. 39. Definition of “bill of exchange”. The term bill of
imported.” In this respect, it cannot be gainsaid that PAL’s tax
exchange denotes checks, drafts, and all other kinds of orders
exemption privileges concerning imported goods remain
for the payment of money, payable at sight, or on demand or
beyond the scope of LOI 1483 and thus, continue to
after a specific period after sight or from a stated date.
subsist.
In this case, records disclose that Caltex imported aviation
fuel from abroad and merely re-sold the same to PAL, Section 126 of The Negotiable Instruments Law (Act No. 2031)
tacking the amount of excise taxes it paid or would be reiterates that it is an “order for the payment of money” and
liable to pay to the government on to the purchase price. specifies the particular requisites that make it negotiable.
Evidently, the said petroleum products are in the nature of
“things imported” and thus, beyond the coverage of LOI
1483 as previously discussed. As such, considering the
Sec. 126. Bill of exchange defined. – A bill of exchange is an
subsistence of PAL’s tax exemption privileges over the
unconditional order in writing addressed by one person to
imported goods subject of this case, PAL is allowed to claim a
another, signed by the person giving it, requiring the person to
tax refund on the excise taxes imposed and due thereon.
whom it is addressed to pay on demand or at fixed or
determinable future time a sum certain in money to order or to
DISPOSITION: Petition granted. CTA annulled and set aside.
bearer.
Commissioner of Internal Revenue ordered to refund or issue a
tax credit certificate in favor of Philippine Airlines, Inc. in the
amount of P2,952,037.90.
Section 129 of the same law classifies bills of exchange as
BANK OF THE PHILIPPINES VS CIR inland and foreign, the distinction is laid down by where the
bills are drawn and paid. Thus, a “foreign bill of exchange” may
be drawn outside the Philippines, payable outside the
Facts: From 28 February 1986 to 8 October 1986, petitioner Philippines, or both drawn and payable outside of the
Bank of the Philippine Islands (BPI) sold to the Central Bank of Philippines.
the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars
for P 1,608,541,900.00. BPI instructed, by cable, its
correspondent bank in New York to transfer U.S. dollars
Sec. 129. Inland and foreign bills of exchange. — An inland
deposited in BPI’s account therein to the Federal Reserve Bank
bill of exchange is a bill which is, or on its face purports to be,
in New York for credit to the Central Bank’s account therein.
both drawn and payable within the Philippines. Any other bill
Thereafter, the Federal Reserve Bank sent to the Central Bank
is a foreign bill.
confirmation that such funds had been credited to its account
A bill of exchange and a letter of credit may differ as to their
negotiability, and as to who owns the funds used for the
payment at the time payment is made. However, in both bills of
exchange and letters of credit, a person orders another to pay
money to a third person.
Section 195 (now Section 182) of the NIRC covers foreign bills
of exchange, letters of credit, and orders of payment for money,
drawn in Philippines, but payable outside the Philippines.
From this enumeration, two common elements need to be
present: (1) drawing the instrument or ordering a drawee,
within the Philippines; and (2) ordering that drawee to pay
another person a specified amount of money outside the
Philippines. What is being taxed is the facility that allows a
party to draw the draft or make the order to pay within the
Philippines and have the payment made in another country.
CBK POWER CO. LTD. VS CIR
FACTS:
CBK Power is a limited partnership duly organized and existing
under the laws of the Philippines, and primarily engaged in the
development and operation of hydro electric power generating
plants in Laguna.
In February 2001, CBK Power borrowed money from
Industrial Bank of Japan, Fortis-Netherlands, Raiffesen Bank,
Fortis-Belgium, and Mizuho Bank for which it remitted interest
payments from May 2001 to May 2003. It allegedly withheld
final taxes from said payments based on the following rates:
(a) fifteen percent (15%) for Fortis-Belgium, Fortis-
Netherlands, and Raiffesen Bank; and (b) twenty percent
(20%) for Industrial Bank of Japan and Mizuho Bank.
However, according to CBK Power, under the relevant tax
treaties between the Philippines and the respective countries
in which each of the banks is a resident, the interest income
derived by the aforementioned banks are subject only to a
preferential tax rate of 10%
Accordingly, on April 14, 2003, CBK Power filed a claim for
refund of its excess final withholding taxes allegedly
erroneously withheld and collected.
Due to CIR’s inaction, CBK Power appealed to CTA Division.
The latter partially granted the refund. One of the refunds was
disallowed because of failure on the part of CBK Power to
obtain an ITAD ruling with respect to its transactions with
Fortis-Netherlands. CTA En Banc affirmed said decision.
ISSUE:
Whether or not the BIR may add a requirement– prior
application for an ITAD ruling – that is not found in the income
tax treaties signed by the Philippines before a taxpayer can
avail of preferential tax rates under said treaties.
HELD:
NO. The Court held that the obligation to comply with a tax
treaty must take precedence over the objective of RMO No. 1-
2000. Bearing in mind the rationale of tax treaties, the period
of application for the availment of tax treaty relief as required
by RMO No. 1-2000 should not operate to divest entitlement to
the relief as it would constitute a violation of the duty required
by good faith in complying with a tax treaty. The denial of the
availment of tax relief for the failure of a taxpayer to apply
within the prescribed period under the administrative
issuance would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should merely
operate to confirm the entitlement of the taxpayer to the relief.
Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly discourages
foreign investors. While the consequences sought to be
prevented by RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other system
management processes, e.g., the imposition of a fine or penalty.
But we cannot totally deprive those who are entitled to the
benefit of a treaty for failure to strictly comply with an
administrative issuance requiring prior application for tax
treaty relief.
CIR VS NEGASE PHIL.CORP
CIR VS ALPHA RIGGING & MOVING SYSTEM
PREMIUM LEISURE CORP VS CIR
STATEMENT OF THE CASE
This is a Petition for Review1 filed on November 28, 2014 by
Premium Leisure Corp. (formerly: Sinophil Corporation) to
seek the refund or the issuance of tax credit certificate (TCC) in
the amount of P6,522,000.00, allegedly representing capital
gains tax erroneously remitted by petitioner arising from its
receipt of real property by way of liquidating dividend from
Belle Bay City Corporation (BBCC).
STATEMENT OF FACTS
Petitioner Premium Leisure Corp. is a domestic corporation
duly organized and existing under and by virtue of the laws of
the Philippines, with principal address at 5th Floor, Two E-
Com Center, Mall of Asia Complex, CBP-1A, Pasay City. It is
primarily established to invest in, purchase, or otherwise
acquire and own, hold, use, develop, lease, sell, assign, transfer,
mortgage, pledge, exchange, operate, or otherwise dispose of
all properties of every kind, nature and description. Previously,
petitioner did business under the name of Sinophil Corporation
until the Securities and Exchange Commission (SEC) approved
the amendment of its Articles of Incorporation, changing its
name to Premium Leisure Corp. on September 5, 2014.2
Respondent is the duly appointed Commissioner of the Bureau
of Internal Revenue (BIR) empowered to perform the duties of
his office, including, among others, to act on and approve
claims for refund or tax credit as provided by law. He holds
office at the BIR National Office Building, Agham Road, Diliman,
Quezon City.
Petitioner is the registered holder of 74,027,418 shares of the
capital stock of BBCC.3 On January 27, 2005, the Securities and
Exchange Commission approved BBCC’s Amended Articles of
Incorporation4, wherein Article IV thereof was amended to
shorten the term of BBCC’s existence only until January 31,
2004.
Pursuant to BBCC’s letter dated June 27, 2006, requesting
confirmation from the BIR of its opinion as regards certain tax
implications in relation to the transfer of its lots to its
stockholders as liquidating dividends, the BIR issued BIR
Ruling DA-316-20075 on May 29, 2007 declaring that the
transfer by BBCC of the reclaimed lots to its stockholders as
liquidating dividends is not subject to income tax, creditable
withholding tax, and documentary stamp tax; and that the
receipt of reclaimed lots as liquidating dividends by the
stockholder is a taxable income or a deductible loss, as the case
may be.
On November 12, 2012, BBCC executed a Deed of
Conveyance6 in favor of petitioner, transferring a parcel of land
with an area of 4,348 square meters, more or less, located in
Aseana Business Park, Roxas Blvd. Paranaque City and is duly
covered by Transfer Certificate of Title (TCT) No. 169887, as
liquidating dividends.
On November 16, 2012, petitioner filed before the BIR its
Withholding Tax Remittance Return7 and Documentary Stamp
Tax Declaration/ Return8 without having remitted or paid any
corresponding withholding tax or documentary stamp tax.
In its 2012 Annual Income Tax Return9, petitioner reported the
fact of its receipt of liquidating dividends from BBCC by
recognizing a net liquidating gain of P33,324,175.00 as part of
its “Other Taxable Income not Subjected to Final Tax,” thus,
subjecting said liquidating gains to the thirty percent (30%)
regular corporate income tax.
On November 28, 2012, petitioner filed its Capital Gains Tax
Return10 with the Land Bank of the Philippines (LBP), Baclaran
Branch and paid under protest11 the amount of P6,522,000.00
allegedly representing capital gains tax arising from its receipt
of real property by way of liquidating dividends from BBCC.
On April 8, 2014, petitioner filed an application for refund
and/or issuance of TCC, through a Letter12 dated March 28,
2014, to recover the capital gains tax previously remitted in
the amount of P6,522,000.00 in relation to the conveyance of
real properties by BBCC to petitioner by way of liquidating
dividends.
There being no action taken by respondent on petitioner’s
administrative claim for refund or issuance of TCC, petitioner
filed the present Petition for Review before this Court on
November 28, 2014.
Respondent filed his Answer (with Motion to Dismiss)13,
through registered mail on February 23, 2015 and received by
the Court on March 5, 2015, interposing as Special and
Affirmative Defenses: that petitioner claims that as a condition
precedent for the imposition of such tax (6% capital gains tax),
it is required that there must be a closed and completed
transaction in which the transferor corporation has the
potential to realize income; that capital gains tax is a final tax
assessed on the presumed gain derived by Belle Bay City
Corporation (‘BBCC’) from the disposition of their parcel of
land located at Barangay Tambo, Aseana Business Park,
Paranaque City, in exchange of common shares of stock owned
by petitioner; that it is not essential that a gain must be
realized first before a Corporation may be held liable under
Section 27 (D)(5) of the National Internal Revenue Code since
gain is presumed from the disposition of their real property
considered as capital asset; that petitioner claims under
paragraph 8 of the Petition that on May 29, 2007 the
Commissioner of Internal Revenue (CIR) issued BIR Ruling DA-
316-07 to address the query of BBCC which provides that,
BBCC’s transfer of real properties by way of liquidating
dividends to its stockholders is not considered as a sale of such
assets for tax purposes. Consequently, the same will not give
rise to any liability for payment of income tax, withholding tax
and documentary stamp tax since BBCC, as a corporation
undergoing the process of liquidation, will not realize any
taxable gain or loss during such process. However, any
liquidating gain that may be realized by its stockholders, which
represents the difference between the fair market value of the
properties received and the and the cost basis of their
investment in BBCC, shall be treated as a gain from the sale or
exchange of shares which is subject only to regular income tax;
that on December 5, 2011 the CIR issued BIR Ruling No. 479-
2011 in response to Aguierre Pawnshop Inc.’s request for
confirmatory ruling on the tax implications of distributing
remaining assets of the corporation to its stockholders by way
of liquidating dividends; that BIR Ruling DA-316-07 secured by
BBCC on May 29, 2007, having the same set of facts and issues
interrelated to Aguierre Pawnshop Inc.’s request for
confirmatory ruling, was deemed reversed and set aside
through the issuance of BIR Ruling No. 479-2011 on December
5, 2011; that the nature of this Petition consist of claim for
refund and/or issuance of tax credit certificates to recover
capital gains tax erroneously remitted. Petitioner remitted the
capital gains tax on November 28, 2012, almost one year after
BIR Ruling No. 479-2011 was issued, wherein respondent
Commissioner held liable the liquidating corporation for
income tax on its transfer of properties to its shareholder and
on its receipt of the surrendered shares from the shareholder.
Hence, this Petition must fail as there was no erroneous
remittance or payment was made; that under Article 1487 of
the Civil Code and Section 2 of Revenue Regulations No. 13-85,
the seller who was conclusively presumed to have realized
capital gains from every sale or exchange or other disposition
of real property classified as capital asset is the one obliged to
pay the capital gains tax, based on its obligation to transfer title
over the property to the seller; that BBCC as seller is the one
liable for the payment of the corresponding capital gains tax;
that BBCC should be the proper party who should file the claim
for refund in this case and not the buyer as herein petitioner;
that petitioner’s claim for refund is still subject to investigation
by the Bureau of Internal Revenue; and that petitioner failed to
demonstrate that the tax, which is the subject of this case, was
erroneously or illegally collected.
Petitioner filed its Reply14 on March 9, 2015. In the
Resolution15 dated April 20, 2015, the Court held that the
interests of justice would be more adequately served if trial
would ensue and both parties are given the opportunity to
present evidence to back up their respective claims. Hence,
respondent’s Motion to Dismiss was denied.
The Pre-Trial Conference16 was set on June 9, 2015. Petitioner
filed its Pre-Trial Brief17 on June 4, 2015; while respondent’s
Pre-Trial Brief18 was filed through registered mail on June 5,
2015 and received by the Court on June 18, 2015. The parties
filed their Joint Stipulation of Facts and Issues19 on June 18,
2015. The Pre-Trial Order20 was issued on August 7, 2015.
Petitioner filed its Formal Offer of Evidence21 on September 29,
2015, offering Exhibits “P-1”, “P-1-a”, “P-2”, “P-3”, “P-4”, “P-4-
a”, “P-5”, “P-6”, “P-6-a”, “P-6-b”, “P-7”, “P-8”, “P-9”, “P-10”, “P-
10-a”, “P-11”, “P-11-a”, “P-12”, “P-12-a”, “P-12-b”, “P-13”, “P-
14”, “P-14-a”, “P-15”, “P-15-a”, “P-16”, and “P-16-a”, as its
documentary evidence. Respondent, however, failed to file his
comment to petitioner’s Formal Offer of Evidence.22
In the Resolution23 dated November 16, 2015, the Court
admitted Exhibits “P-1”, “P-1-a”, “P-2”, “P-3”, “P-4”, “P-4-a”, “P-
5”, “P-6”, “P-6-a”, “P-6-b”, “P-7”, “P-8”, “P-9”, “P-10”, “P-10-a”,
“P-11”, “P-11-a”, “P-12”, “P-12-a”, “P-12-b”, “P-13”, “P-14”, “P-
14-a”, “P-15”, “P-15-a”, “P-16”, and “P-16-a”. Respondent
manifested that he would not present evidence since no report
of investigation was submitted to him by the BIR examiners. 24
Petitioner filed its Memorandum25 on March 15, 2016; while
the Memorandum for Respondent26 was filed through
registered mail on March 9, 2016 and received by the Court on
March 18, 2016. The case was declared submitted for decision
on March 29, 2016.27
ISSUES
The parties submitted the following issues28 for this Court’s
disposition:
1. Whether or not the transfer of real property by BBCC to
petitioner, by way of liquidating dividends, is subject to the six
percent (6%) final withholding capital gains tax prescribed
under Section 27(d)(5) of the Tax Code;
2. Whether or not petitioner is entitled to a refund and/or
issuance of TCC to recover the 6% final withholding capital
gains tax it had erroneously remitted to the BIR pursuant to
Sections 204(C) and 229 of the Tax Code; and
3. Whether or not petitioner has legal capacity to sue.
RULING OF THE COURT
The Court shall determine first the timeliness of the filing of
this Petition for Review.
Section 204(C) of the National Internal Revenue Code (NIRC)
of 1997, as amended, provides:
“SEC. 204. Authority of the Commissioner to Compromise, Abate
and Refund or Credit Taxes. - The Commissioner may -
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use
and refund their value upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of
the tax or penalty: Provided, however, that a return filed
showing an overpayment shall be considered as a written
claim for credit or refund.” (Emphasis supplied)
In this regard, Section 229 of the NIRC of 1997, as amended,
states:
“SEC. 229. Recovery of Tax Erroneously or 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 excessively or in
any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after
the expiration of two (2) years from the date of payment of
the tax or penalty regardless of any supervening cause
that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to
have been erroneously paid.” (Emphasis supplied)
Section 229 governs exclusively all kinds of refund or credit of
internal revenue taxes erroneously or illegally imposed or
collected pursuant to the Tax Code.29 Consequently, Section
204(C) applies to administrative claims filed with the BIR,
while Section 229 refers to judicial actions for the recovery of
the tax. However, the settled rule is that both the claim for
refund with the BIR and the subsequent appeal to this Court
must be filed within the two (2)-year period from the date of
payment of the tax, regardless of any supervening cause that
may arise after payment. Therefore, the date of payment of the
tax is important for purposes of counting the two-year
prescriptive period.30
A review of the records reveals that petitioner paid the amount
of P6,522,000.00 representing capital gains tax31 from its
receipt of real property by way of liquidating dividends from
BBCC on November 28, 2012. From the said date, petitioner
had two (2) years or until November 28, 2014 within which to
file its administrative and judicial claims for refund. Petitioner
filed its administrative claim for refund and/or issuance of
TCC32 on April 8, 2014 and its judicial claim33 on November 28,
2014. Thus, both the administrative and the judicial claims
were filed within the two-year prescriptive period.
Petitioner, as withholding agent of BBCC, may file a claim
for refund and/or issuance of TCC.
Petitioner contends that, as a withholding agent of both BBCC
and the BIR and as the actual party who paid the subject tax, it
has the legal capacity to file the instant application for
refund.34 Respondent counters that BBCC is the proper party
who should file the claim for refund and not petitioner who
does not have the necessary qualification to appear in this case
or does not have the character or representation it claims. 35
The Court agrees with petitioner.
In the case of Commissioner of Internal Revenue vs. Smart
Communication, Inc.36, the Supreme Court held that a
withholding agent may file a claim for refund, to wit:
“Withholding agent may file a claim for refund
Sections 204(C) and 229 of the National Internal Revenue Code
(NIRC) provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate,
and Refund or Credit Taxes. - The Commissioner may -
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of
internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use
and refund their value upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the
tax or penalty: Provided, however, That a return filed showing
an overpayment shall be considered as a written claim for
credit or refund.
xxx xxx xxx
Sec. 229. Recovery of Tax Erroneously or 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 excessively or in
any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax
or penalty regardless of any supervening cause that may arise
after payment: Provided, however, That the Commissioner
may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment
was made, such payment appears clearly to have been
erroneously paid. (Emphasis supplied)
Pursuant to the foregoing, the person entitled to claim a
tax refund is the taxpayer. However, in case the taxpayer
does not file a claim for refund, the withholding agent may
file the claim.
In Commissioner of Internal Revenue v. Procter & Gamble
Philippine Manufacturing Corporation, a withholding agent was
considered a proper party to file a claim for refund of the
withheld taxes of its foreign parent company. Pertinent
portions of the Decision read:
The term ‘taxpayer’ is defined in our NIRC as referring to ‘any
person subject to tax imposed by the Tide [on Tax on Income].’
It thus becomes important to note that under Section 53(c) of
the NIRC, the withholding agent who is ‘required to deduct and
withhold any tax’ is made ‘personally liable for such tax’ and
indeed is indemnified against any claims and demands which
the stockholder might wish to make in questioning the amount
of payments effected by the withholding agent in accordance
with the provisions of the NIRC. The withholding agent, P&G-
Phil., is directly and independently liable for the correct
amount of the tax that should be withheld from the dividend
remittances. The withholding agent is, moreover, subject to
and liable for deficiency assessments, surcharges and penalties
should the amount of the tax withheld be finally found to be
less than the amount that should have been withheld under
law.
A ‘person liable for tax’ has been held to be a ‘person subject to
tax’ and properly considered a ‘taxpayer.’ The terms ‘liable for
tax’ and ‘subject to tax’ both connote legal obligation or duty to
pay a tax. It is very difficult, indeed conceptually impossible, to
consider a person who is statutorily made ‘liable for tax’ as not
‘subject to tax.’ By any reasonable standard, such a person
should be regarded as a party in interest, or as a person
having sufficient legal interest, to bring a suit for refund of
taxes he believes were illegally collected from him.”
(Emphasis supplied)
Moreover, in the case of The Philippine Guaranty Co., Inc. vs. The
Commissioner of Internal Revenue, et al37, the Supreme Court
discussed the responsibility of withholding agent as the agent
of both the Government and the taxpayer, as follows:
“The law sets no condition for the personal liability of the
withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances.
In effect, the responsibility for the collection of the tax as well
as the payment thereof is concentrated upon the person over
whom the Government has jurisdiction. Thus, the withholding
agent is constituted the agent of both the Government and the
taxpayer. With respect to the collection and/or withholding of
the tax, he is the Government's agent. In regard to the filing of
the necessary income tax return and the payment of the tax to
the Government, he is the agent of the taxpayer. The
withholding agent, therefore, is no ordinary government agent
especially because under Section 53 (c) he is held personally
liable for the tax he is duty bound to withhold; whereas, the
Commissioner of Internal Revenue and his deputies are not
made liable by law.”
In the case of Honda Cars Philippines, Inc. vs. Honda Cars
Technical Specialist and Supervisors Union38, the High Tribunal
recognized the right of the withholding agent to file a claim
against an illegal and erroneous collection of tax, to wit:
“Moreover, the NIRC only holds the withholding agent
personally liable for the tax arising from the breach of his legal
duty to withhold, as distinguished from his duty to pay tax.
Under Section 79 (B) of the NIRC, if the tax required to be
deducted and withheld is not collected from the employer, the
employer shall not be relieved from liability for any penalty or
addition to the unwithheld tax.
Thus, if the BIR illegally or erroneously collected tax, the
recourse of the taxpayer, and in proper cases, the withholding
agent, is against the BIR, and not against the withholding
agent. The union's cause of action for the refund or non-
withholding of tax is against the taxing authority, and not
against the employer. xxx"
Petitioner, as a withholding agent is a party in interest, or as a
person having sufficient legal interest to bring a suit for
issuance of TCC or refund of illegally or erroneously collected
taxes, because it is considered a “taxpayer” under the NIRC
since it is personally liable for the withholding tax and
deficiency assessments, surcharges and penalties should the
amount of the tax withheld be finally found to be less than the
amount that should have been withheld under law; and as an
agent of the taxpayer, its authority to file the necessary returns
and to remit the tax withheld to the government necessarily
includes the authority to file a claim for refund and/or issuance
of TCC and to bring an action for recovery of such claim.
The Court shall now proceed to discuss whether petitioner is
entitled to the issuance of TCC or refund of its capital gains tax
which entails the determination of whether the transfer of real
property by BBCC to petitioner, by way of liquidating
dividends, is considered sale and therefore subject to the 6%
final withholding capital gains tax prescribed under Section
27(d)(5) of the Tax Code.
Mere distribution of liquidating dividends on account of
the dissolution of a corporation is not to be treated as sale
for purposes of the imposition of capital gains tax.
Petitioner asserts that it is entitled to a tax refund or issuance
of TCC in the amount of P6,522,000.00, representing capital
gains tax erroneously remitted by petitioner arising from its
receipt of real property by way of liquidating dividends since
the conveyance of real property by BBCC in favor of petitioner
may not be considered as a taxable sale or exchange of
properties.39
Respondent, on the other hand, argues that capital gains tax is
a final tax assessed on the presumed gain derived by BBCC
from the disposition of its parcel of land in exchange for
common shares of stock owned by petitioner. He claims that it
is not essential that a gain must be realized first before a
corporation may be held liable under Section 27(D)(5) of the
Tax Code since gain is presumed from the disposition of its real
property considered as capital asset.40
The Court finds respondent’s arguments to be without merit.
The authority to impose capital gains tax is found in Section
24(D) of the NIRC of 1997, as amended, quoted as follows:
“SEC. 24. Income Tax Rates. -
xxx xxx xxx
(D) Capital Gains from Sale of Real Property. -
(1) In General. - The provisions of Section 39(B)
notwithstanding, a final tax of six percent (6%) based on the
gross selling price or current fair market value as determined
in accordance with Section 6(E) of this Code, whichever is
higher, is hereby imposed upon capital gains presumed to have
been realized from the sale, exchange, or other disposition
of real property located in the Philippines, classified as capital
assets, including pacto de retro sales and other forms of
conditional sales, by individuals, including estates and
trusts: Provided, That the tax liability, if any, on gains from
sales or other dispositions of real property to the government
or any of its political subdivisions or agencies or to
government-owned or controlled corporations shall be
determined either under Section 24(A) or under this
Subsection, at the option of the taxpayer.” (Emphasis supplied)
Capital gains tax is a tax on the gain from the sale of the
taxpayer's property forming part of capital assets.41 It implies
that in order to be liable for payment of capital gains tax, one
has to profit or gain from the sale, exchange or disposition of
the real property. In other words, in the absence of income
from or the absence of sale, disposition or conveyance of real
property, the imposition of capital gains tax does not arise.42
A contract of sale is defined under Article 1458 of the Civil
Code, as follows:
“Art. 1458. By the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.”
Accordingly, for a contract to be valid, it must have three
essential elements: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and
(3) cause of the obligation which is established.43
In the case of Oranbo Realty Corporation vs. The Commissioner
of Internal Revenue44, this Court ruled that the conveyance of
real property as a result of a valid dissolution was without any
consideration, as follows:
“There is no question that the Deed of Conveyance was issued
in favor of petitioner by Noma Development Corporation as
liquidating dividend being the sole stockholder of the
latter. The conveyance of real property was effected without
any consideration since it was done in pursuance to a valid
dissolution of Noma Development Corporation and not by
sale.”
It must be emphasized that the subject real property was
distributed in the form of liquidating dividend as a
consequence of BBCC’s dissolution as clearly stated in the Deed
of Conveyance45 executed by BBCC as assignor and petitioner
as assignee, to wit:
BIR Ruling No. 479-2011 is not a general interpretative
rule applicable to all taxpayers including petitioner; BIR
Ruling No. 479-2011 was issued by the BIR in response to
Aguirre Pawnshop Company, Inc.’s request for
confirmation.
Respondent contends that BIR Ruling DA-316-2007 secured by
BBCC on May 29, 2007, having the same set of facts and issues
interrelated to Aguirre Pawnshop Company, Inc.’s request for
confirmatory ruling, was deemed reversed and set aside
through the issuance of BIR Ruling No. 479-2011 on December
5, 2011.51
Respondent’s contention lacks legal basis.
It must be noted that a BIR ruling contains the official written
interpretative opinion of the Commissioner of Internal
Revenue addressed to a particular taxpayer regarding his
taxability over certain matters.52 Hence, a BTR Ruling could be
invoked only by the taxpayer who sought the same.
In the case of Commissioner of Internal Revenue vs. Filinvest
Development Corporation53, the Supreme Court held that BIR
Ruling No. 116-98 could be invoked only by ASB Development
Corporation, the taxpayer who sought the same, as follows:
“Applying the aforesaid provisions to the case at bench, we find
that the instructional letters as well as the journal and cash
vouchers evidencing the advances FDC extended to its affiliates
in 1996 and 1997 qualified as loan agreements upon which
documentary stamp taxes may be imposed. In keeping with the
caveat attendant to every BIR Ruling to the effect that it is
valid only if the facts claimed by the taxpayer are correct,
we find that the CA reversibly erred in utilizing BIR Ruling
No. 116-98, dated 30 July 1998 which, strictly speaking,
could be invoked only by ASB Development Corporation,
the taxpayer who sought the same. In said ruling, the CIR
opined that documents like those evidencing the advances FDC
extended to its affiliates are not subject to documentary stamp
tax xxx
xxx xxx xxx
In its appeal before the CA, the CIR argued that the foregoing
ruling was later modified in BIR Ruling No. 108-99 dated 15
July 1999, which opined that inter-office memos evidencing
lendings or borrowings extended by a corporation to its
affiliates are akin to promissory notes, hence, subject to
documentary stamp taxes. In brushing aside the foregoing
argument, however, the CA applied Section 246 of the 1993
NIRC from which proceeds the settled principle that rulings,
circulars, rules and regulations promulgated by the BIR have
no retroactive application if to so apply them would be
prejudicial to the taxpayers. Admittedly, this rule does not
apply: (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of
him by the Bureau of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based;
or (c) where the taxpayer acted in bad faith. Not being the
taxpayer who, in the first instance, sought a ruling from
the CIR, however, FDC cannot invoke the foregoing
principle on non-retroactivity of BIR rulings.” (Emphases
supplied)
It must be stressed that BIR Ruling No. 479-2011 was issued by
the BIR in response to a particular taxpayer, Aguirre Pawnshop
Company, Inc.’s request for confirmation. Hence, BIR Ruling
No. 479-2011 cannot be considered a general interpretative
rule which can be applied to all taxpayers including petitioner.
In the case of Team Energy Corporation (formerly Mirant
Pagbilao Corporation) vs. Commissioner of Internal Revenue54,
the Supreme Court ruled that BIR Ruling No. DA-489-03 is a
general interpretative rule because it is a response to a query
made, not by a particular taxpayer, but by a government
agency tasked with processing tax refunds and credits, as
follows:
“Thus, the only issue is whether BIR Ruling No. DA-48903 is a
general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule
because it is a response to a query made, not by a
particular taxpayer, but by a government agency tasked
with processing tax refunds and credits, that is, the One
Stop Shop Inter-Agency Tax Credit and Drawback Center of
the Department of Finance. This government agency is also
the addressee, or the entity responded to, in BIR Ruling No.
DA-489-03. Thus, while this government agency mentions in
its query to the Commissioner the administrative claim of Lazi
Bay Resources Development, Inc., the agency was, in fact,
asking the Commissioner what to do in cases like the tax claim
of Lazi Bay Resources Development, Inc., where the taxpayer
did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general
interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on
6 October 2010, where this Court held that the 120-130
day periods are mandatory and jurisdictional.” (Emphases
supplied)
Considering that BIR Ruling No. 479-2011 was issued as a
response to a query made by a particular taxpayer, Aguirre
Pawnshop Company, Inc., the same cannot be considered a
general interpretative rule that can be applied to all taxpayers
including petitioner.
It is worthy to note that the BIR has issued BIR Ruling DA-316-
2007 to specifically address BBCC’s request for confirmation
regarding the tax implications of its transfer of real property in
favor of its stockholders including petitioner.
Furthermore, respondent is precluded from adopting a
position contrary to one previously taken where injustice
would result to the taxpayer, as held by the Supreme Court in
the case of Commissioner of Internal Revenue vs. Philippine
Health Care Providers, Inc.55, to wit:
“It is thus apparent that when VAT Ruling No. 231-88 was
issued in respondent's favor, the term ‘health maintenance
organization’ was yet unknown or had no significance for
taxation purposes. Respondent, therefore, believed in good
faith that it was VAT exempt for the taxable years 1996 and
1997 on the basis of VAT Ruling No. 231-88.
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this
Court held that under Section 246 of the 1997 Tax Code, the
Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken
where injustice would result to the taxpayer. Hence, where
an assessment for deficiency withholding income taxes was
made, three years after a new BIR Circular reversed a previous
one upon which the taxpayer had relied upon, such an
assessment was prejudicial to the taxpayer. To rule otherwise,
opined the Court, would be contrary to the tenets of good faith,
equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN
Broadcasting Corp. in the later cases of Commissioner of Internal
Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v.
Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.) Inc., and Commissioner of
Internal Revenue v. Court of Appeals. The rule is that the BIR
rulings have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet
Corporation, wherein the taxpayer was entitled to tax refunds
or credits based on the BIR’s own issuances but later was
suddenly saddled with deficiency taxes due to its subsequent
ruling changing the category of the taxpayer's transactions for
the purpose of paying its VAT, this Court ruled that applying
such ruling retroactively would be prejudicial to the taxpayer.”
It must be recalled that BIR Ruling DA-316-2007 declared the
transfer by BBCC of the reclaimed lots to its stockholders as
liquidating dividends as not subject to income tax, creditable
withholding tax, and documentary stamp tax. On the other
hand, BIR Ruling No. 479-2011 denied Aguirre Pawnshop
Company, Inc.’s request for confirmation as to the non-
taxability of the transfer of properties as liquidating dividend
to its shareholder, Marmitz, Inc., for lack of legal basis under
the NIRC of 1997, as amended. Undoubtedly, the application of
BIR Ruling No. 479-2011 would be prejudicial to petitioner
who believed that BBCC’s transfer is not subject to capital
gains tax.
As explained by the Supreme Court in the case of Commissioner
of Internal Revenue vs. Fortune Tobacco Corporation56:
“The rule in the interpretation of tax laws is that a statute will
not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed
without clear and express words for that purpose. Accordingly,
the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws
and the provisions of a taxing act are not to be extended by
implication. In answering the question of who is subject to tax
statutes, it is basic that in case of doubt, such statutes are to be
construed most strongly against the government and in favor
of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the
tax laws.”
WHEREFORE, premises considered, the Petition for Review
is GRANTED. Accordingly, respondent is ORDERED TO
REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor
of petitioner in the amount of P6,522,000.00, representing
erroneously paid capital gains tax from its receipt of real
property by way of liquidating dividends from BBCC.
SO ORDERED.
SOLID-ONE MILLS PHIL VS CIR
PETRON CORP VS CIR
Facts:
A corporation engaged in the production of petroleum
products, Petron
Pursuant to Deeds of
Assignment executed in its favor, Petron acquired Tax Credit
Certificates (TCCs) from, among others, the following BOI-
registered entities, namely, Diamond Knitting Corporation,
Filstar Textile Industrial Corporation, Alliance Thread Co., Inc.,
Fiber Tech. Corporation, Jantex
Phils., Inc. and Master Colour System Corporation... the TCCs
were subject to the following conditions, to... wit:
The assignments of the TCCs were duly approved by the
Department of Finance One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center (the Center), a tax credit window
created under Administrative Order No. 226
Issued DOF Tax Debit Memos (DOF-TDMs) by the Center,
Petron, as assignee of said TCCs, utilized the same to pay its
excise tax liabilities for the... years 1993 to 1997.
Upon Petron's surrender of the DOF-TDMs, TCCs and Deeds of
Assignment, the corresponding Authorities to Accept Payment
of Excise Taxes (ATAPETs) were further issued by the BIR
Collection Program Division.
Petron received a collection letter dated April 22, 1998 from
the BIR Revenue District Office of South Makati, Metro Manila,
demanding payment of the total amount of P1,107,542,547.08
in unpaid taxes, surcharges and interests for the years 1993 to
1997.
Petron received a collection letter dated April 22, 1998 from
the BIR Revenue District Office of South Makati, Metro Manila,
demanding payment of the total amount of P1,107,542,547.08
in unpaid taxes, surcharges and interests for the years 1993 to
1997
With the denial of its letters of protest to the foregoing
collection letter, Petron perfected an appeal which was
docketed as C.T.A. Case No. 5657 before the CTA.
With the denial of its letters of protest to the foregoing
collection letter
Upholding Petron's argument to the effect, among other
matters, that its... status as a BOI-registered enterprise and its
transactions with the original grantees qualified it to be a
transferee of the subject TCCs,... The collection of the alleged
delinquent excise taxes
CANCELLED
Accordingly,... Respondents are ENJOINED from collecting the
said amount of taxes against the petitioner.
On October 24, 1999, the Center cancelled TCCs... of the same
TCCs... acquired and used by Petron on the ground that they
were fraudulently procured and transferred.
As a consequence of the cancellation, respondent issued an
Assessment dated November 15, 1999 (the
Assessment), directing Petron to pay deficiency excise taxes
In view of respondent's inaction on the protest it filed to
question the factual and legal bases of the Assessment,... Petron
filed the July 7, 2000 petition for review which was docketed
before the CTA... the invalidation of the cancellation of the TCCs
as well as the withdrawal of the
Assessment... respondent filed its... answer,... Contending that...
the TCCs were cancelled on the strength of the Center's
findings... that they were fraudulently obtained and transferred
to Petron upon fictitious supply agreements with the
grantees... respondent sought the dismissal of the petition,... At
the pre-trial conference conducted in the case, the parties
submitted a Joint Stipulation of Facts and Issues... the CTA
Second Division went on to render the August 23, 2006... Ruling:
decision,[31] denying Petron's petition
Post-audit
ORDERED TO PAY... deficiency excise taxes
(T)he TCCs are immediately valid and effective after their
Petron elevated the matter via the petition for review issuance.
docketed... before the CTA En Banc
The foregoing guidelines cannot be clearer on the validity and
CTA En Banc rendered the herein assailed decision, affirming... effectivity of the TCC to pay or settle tax liabilities of the
decision of the CTA Second Division grantee or transferee, as they do not make the effectivity and
validity of the TCC dependent on the outcome of a post-audit.
The Center's finding of fraud in the procurement of the TCCs by In fact, if we are to... sustain the appellate tax court, it would be
the grantees rendered the same worthless, even in the hands of absurd to make the effectivity of the payment of a TCC
an assignee like Petron dependent on a post-audit since there is no contemplation of
the situation wherein there is no post-audit.
The evidence adduced in the case which showed
misrepresentation in the levels of fuel oil use by the grantees Clearly, a tax payment through a TCC cannot be both effective
and the non-delivery of petroleum products by Petron also when made and dependent on a future... event for its
indicate that fraud also attended the transfer of the TCCs; effectivity. Our system of laws and procedures abhors
ambiguity.
The Center acted within its mandate in declaring TCCs
fraudulently issued and transferred; Moreover, if the TCCs are considered to be subject to post-
audit as a suspensive condition, the very purpose of the TCC
Aggrieved, Petron filed the petition for review on certiorari would be defeated as there would be no guarantee that the TCC
would be honored by the government as payment for taxes. No
Petron argues that, having been issued pursuant to
investor would take the risk of... utilizing TCCs if these were
Administrative Order No. 226 in relation to Executive Order
subject to a post-audit that may invalidate them, without
No. 226, the subject TCCs were immediately effective and could
prescribed grounds or limits as to the exercise of said post-
be readily used by the grantees and/or their... transferees.
audit.
Petron maintains that respondent failed to prove the fraud
The inescapable conclusion is that the TCCs are not subject to
which purportedly attended the procurement of the subject
post-audit as a suspensive condition, and are thus valid and
TCCs.
effective from their issuance.
Petron correctly argues that the CTA En Banc reversibly erred
Not being privy to the issuance of the subject TCCs and having
in holding that the result of the post-audit conducted by the
already used them in paying its own tax liabilities, Petron also
Center partook the nature of a suspensive condition for the
correctly points out that it cannot be prejudiced by the fraud
validity of the subject TCCs... and the use thereof as payment of
which supposedly attended the issuance of the same.
its tax liabilities or duties.
More so, when it is borne in mind... that, as ground for the
TCCs were, consequently, valid upon their issuance in favor of
cancellation of said TCCs, fraud was not adequately established
the... original grantees which had the right to use them in
by respondent with clear and convincing evidence showing
payment of their tax liabilities and/or transfer them in favor of
that the grantees had not, indeed, manufactured and exported
assignees like Petron which could, in turn, utilize them as
at the volumes which served as bases for the grant of the
payment of its own tax liabilities.
subject
Issues:
TCCs.
SUBSEQUENT CANCELLATION BY THE DOF CENTER OF THE
While the CTA is not governed strictly by technical rules of
TAX CREDIT CERTIFICATES PREVIOUSLY USED TO PAY
evidence on the principle that rules of procedure are not ends
PETRON'S TAX LIABILITIES HAD THE EFFECT OF NON-
in themselves but are primarily intended as tools in the
PAYMENT OF PETRON'S EXCISE
administration of justice,... respondent's presentation of
evidence to... prove the fraud which attended the issuance of
TAXES
the subject TCCs is not a mere procedural technicality which
may be disregarded considering that it is the very basis for the
THERE WAS NO FRAUD IN THE TRANSFER OF THE SUBJECT
claim that Petron's payment of its excise tax liabilities had been
TAX CREDIT CERTIFICATES.
avoided.
THE TAX CREDIT CERTIFICATES WERE FRAUDULENTLY
TRANSFERRED FROM THE GRANTEES TO PETRON
It cannot be over-emphasized... that fraud is a question of
fact[47] which cannot be presumed and must be proven by
clear and convincing evidence[48] by the party alleging the
same.
Without even presenting the documents which served as bases
for the issuance of... the subject TCCs from 1994 to 1997,
respondent miserably failed in discharging his evidentiary
burden with the presentation of the Center's cancellation
memoranda to which were simply annexed some of the
grantees' original registration documents[49] and... their
Financial Statements for an average of two years.
For a party charged with the burden of proving the same,
respondent did not even come close to establishing the fraud
which purportedly attended both the issuance of the subject
TCCs and the transfer thereof in favor of Petron.
hat respondent's reliance of the Center's... cancellation
memoranda was misplaced and misguided is evident from the
following admissions in the parties' June 22, 2001 Joint
Stipulation of Facts and Issues
Having proven the valuable consideration for the grantees'
transfer of the TCCs in its favor, it also bears pointing out that
Petron has more than amply proved its good faith by
complying with the procedures laid down for the transfer and
use thereof.
Petron had every right to rely on the validity of the subject
TCCs, the Center's approval of the deeds of assignment the
grantees executed over the same and the BIR's acceptance of
its use thereof in payment of its excise taxes.
Petron was not shown to have had a hand in or knowledge of
the fraud which purportedly attended the issuance of the...
same TCCs.
As a transferee in good faith and for value, Petron cannot,
therefore, be said to have incurred any liability insofar as the
transfers of the subject TCCs are concerned.
respondent had no legal basis to once again assess the excise
taxes Petron already paid with the use of the TCCs assigned in
its favor... another is entered invalidating respondent's
Assessment of... petitioner's deficiency excise taxes for the
years 1995 to 1997 for lack of legal bases
LUDO VS LUYM CORP VS CIR
GENERAL FOODS INC VS CIR
Facts:
Respondent corporation General Foods (Phils), which is
engaged in the manufacture of “Tang”, “Calumet” and “Kool-
Aid”, filed its income tax return for the fiscal year ending
February 1985 and claimed as deduction, among other
business expenses, P9,461,246 for media advertising for
“Tang”.
The Commissioner disallowed 50% of the deduction claimed
and assessed deficiency income taxes of P2,635,141.42 against
General Foods, prompting the latter to file an MR which was
denied.
General Foods later on filed a petition for review at CA, which
reversed and set aside an earlier decision by CTA dismissing
the company’s appeal.
Issue:
W/N the subject media advertising expense for “Tang” was
ordinary and necessary expense fully deductible under the
NIRC
Held:
No. Tax exemptions must be construed in stricissimi juris
against the taxpayer and liberally in favor of the taxing
authority, and he who claims an exemption must be able to
justify his claim by the clearest grant of organic or statute law.
Deductions for income taxes partake of the nature of tax
exemptions; hence, if tax exemptions are strictly construed,
then deductions must also be strictly construed.
To be deductible from gross income, the subject advertising
expense must comply with the following requisites: (a) the
expense must be ordinary and necessary; (b) it must have been
paid or incurred during the taxable year; (c) it must have been
paid or incurred in carrying on the trade or business of the
taxpayer; and (d) it must be supported by receipts, records or
other pertinent papers.
While the subject advertising expense was paid or incurred
within the corresponding taxable year and was incurred in
carrying on a trade or business, hence necessary, the
parties’ views conflict as to whether or not it was ordinary. To
be deductible, an advertising expense should not only be
necessary but also ordinary.
The Commissioner maintains that the subject advertising
expense was not ordinary on the ground that it failed the two
conditions set by U.S. jurisprudence: first, “reasonableness” of
the amount incurred and second, the amount incurred must
not be a capital outlay to create “goodwill” for the product
and/or private respondent’s business. Otherwise, the expense
must be considered a capital expenditure to be spread out over
a reasonable time.
There is yet to be a clear-cut criteria or fixed test for
determining the reasonableness of an advertising expense.
There being no hard and fast rule on the matter, the right to a
deduction depends on a number of factors such as but not
limited to: the type and size of business in which the taxpayer
is engaged; the volume and amount of its net earnings; the
nature of the expenditure itself; the intention of the taxpayer
and the general economic conditions. It is the interplay of
these, among other factors and properly weighed, that will
yield a proper evaluation.
The Court finds the subject expense for the advertisement of a
single product to be inordinately large. Therefore, even if it is
necessary, it cannot be considered an ordinary expense
deductible under then Section 29 (a) (1) (A) of the NIRC.
Advertising is generally of two kinds: (1) advertising to
stimulate the current sale of merchandise or use of services
and (2) advertising designed to stimulate the future sale of
merchandise or use of services. The second type involves
expenditures incurred, in whole or in part, to create or
maintain some form of goodwill for the taxpayer’s trade or
business or for the industry or profession of which the
taxpayer is a member. If the expenditures are for the
advertising of the first kind, then, except as to the question of
the reasonableness of amount, there is no doubt such
expenditures are deductible as business expenses. If, however,
the expenditures are for advertising of the second kind, then
normally they should be spread out over a reasonable period
of time.
The company’s media advertising expense for the promotion of
a single product is doubtlessly unreasonable considering it
comprises almost one-half of the company’s entire claim for
marketing expenses for that year under review. Petition
granted, judgment reversed and set aside.
ARMCO-MARSTEEL ALLOY CORP VS CIR
CIR VS ST. LUKE’S MEDICAL CENTER
Facts:
St. Luke’s Medical Center, Inc. (St. Luke’s) is a
hospital organized as a non-stock and non-profit
corporation. St. Luke’s accepts both paying and non-paying
patients. The BIR assessed St. Luke’s deficiency taxes for 1998
comprised of deficiency income tax, value-added tax, and
withholding tax. The BIR claimed that St. Luke’s should be
liable for income tax at a preferential rate of 10% as provided
for by Section 27(B). Further, the BIR claimed that St. Luke’s
was actually operating for profit in 1998 because only 13% of
its revenues came from charitable purposes. Moreover, the
hospital’s board of trustees, officers and employees directly
benefit from its profits and assets.
On the other hand, St. Luke’s maintained that it is a
non-stock and non-profit institution for charitable and social
welfare purposes exempt from income tax under Section 30(E)
and (G) of the NIRC. It argued that the making of profit per se
does not destroy its income tax exemption.
Issue:
The sole issue is whether St. Luke’s is liable for
deficiency income tax in 1998 under Section 27(B) of the NIRC,
which imposes a preferential tax rate of 10^ on the income of
proprietary non-profit hospitals.
Ruling:
Section 27(B) of the NIRC does not remove the income
tax exemption of proprietary non-profit hospitals under
Section 30(E) and (G). Section 27(B) on one hand, and Section
30(E) and (G) on the other hand, can be construed together
without the removal of such tax exemption.
Section 27(B) of the NIRC imposes a 10%
preferential tax rate on the income of (1) proprietary non-
profit educational institutions and (2) proprietary non-
profit hospitals. The only qualifications for hospitals are that
they must be proprietary and non-profit. “Proprietary”
means private, following the definition of a “proprietary
educational institution” as
“any private school maintained and administered by privat
e individuals or groups” with a government permit. “Non-
profit” means no net income or asset accrues to or benefits
any member or specific person, with all the net income or
asset devoted to the institution’s purposes and all its activities
conducted not for profit.
“Non-profit” does not necessarily
mean “charitable.” In Collector of Internal Revenue v. Club
Filipino Inc. de Cebu, this Court considered as non-profit a
sports club organized for recreation and entertainment of its
stockholders and members. The club was primarily funded by
membership fees and dues. If it had profits, they were used for
overhead expenses and improving its golf course. The club was
non-profit because of its purpose
and there was no evidence that it was engaged in a profit-
making enterprise.
The sports club in Club Filipino Inc. de Cebu may be
non-profit, but it was not charitable.
The Court defined “charity” in Lung Center of the
Philippines v.
Quezon City as “a gift, to be applied consistently with
existing laws, for the benefit of an indefinite number of
persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to
establish themselves in life or [by] otherwise lessening
the burden of government.” However, despite its being a tax
exempt institution, any income such institution earns from
activities conducted for profit is taxable, as expressly provided
in the last paragraph of Sec. 30.
To be a charitable institution, however, an
organization must meet the
substantive test of charity in Lung Center. The issue in Lu
ng Center concerns exemption from real property tax and not
income tax. However, it provides for the test of charity in our
jurisdiction. Charity is essentially a gift to an indefinite number
of persons which lessens the burden of
government. In other words, charitable institutions provi
de for free goods and services to the public which would
otherwise fall on the shoulders of government. Thus, as a
matter of efficiency, the government forgoes taxes
which should have been spent to address public needs, be
cause certain private entities already assume a part of the
burden. This is the rationale for
the tax exemption of charitable institutions. The loss of tax
es by the government is compensated by its relief from doing
public works which would have been funded by appropriations
from the Treasury
The Constitution exempts charitable
institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes.
However, the way Congress crafted Section 30(E) of the NIRC
is materially different from Section 28(3), Article VI of the
Constitution.
Section 30(E) of the NIRC defines the corporation or
association that is exempt from income tax. On the other hand,
Section 28(3), Article VI of the Constitution does not define a
charitable institution, but requires that the institution
“actually, directly and exclusively” use the property for a
charitable purpose.
To be exempt from real property taxes, Section
28(3), Article VI of the Constitution requires that a charitable
institution use the property “actually, directly and exclusively”
for charitable purposes.
To be exempt from income taxes, Section 30(E) of
the NIRC
requires that a charitable institution must be “organized an
d operated exclusively” for charitable purposes. Likewise, to
be exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be “operated exclusively” for social
welfare.
However, the last paragraph of Section 30 of the
NIRC qualifies the words “organized and operated exclusively”
by providing that:
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character of the
foregoing organizations from any of
their properties, real or personal, or from any of their act
ivities
conducted for profit regardless of the disposition made
of such income, shall be subject to tax imposed under this
Code.
In short, the last paragraph of Section 30 provides
that if a tax exempt charitable institution conducts “any”
activity for profit, such activity is not
tax exempt even as its not-for-profit
activities remain tax exempt.
Thus, even if the charitable institution must be
“organized and operated exclusively” for charitable purposes,
it is nevertheless allowed to engage in “activities conducted for
profit” without losing its tax exempt status for its not-for-profit
activities. The only consequence is that the
“income of whatever kind and character”
of a charitable institution
“from any of its activities conducted for profit, regardless
of the disposition made of such income, shall be subject to
tax.” Prior to the introduction of Section 27(B), the tax rate on
such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of
Section 27(B), the tax rate is now 10%.
The Court finds that St. Luke’s is a corporation that
is not “operated exclusively” for charitable or social welfare
purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also
on the clear and plain text of Section 30(E) and (G). Section
30(E) and (G) of the NIRC requires that an institution be
“operated exclusively” for charitable or social welfare purposes
to be completely exempt from income tax. An institution
under Section 30(E) or (G) does not lose its tax exemption
if it earns income from its for-profit activities. Such income
from for-profit activities, under the last paragraph of Section
30, is merely subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate
pursuant to Section 27(B).
St. Luke’s fails to meet the requirements under
Section 30(E) and (G) of the NIRC to be completely tax exempt
from all its income. However, it remains a proprietary non-
profit hospital under Section 27(B) of the NIRC as long as it
does not distribute any of its profits to its members and such
profits are reinvested pursuant to its corporate purposes. St.
Luke’s, as a proprietary non-profit hospital, is entitled to the
preferential tax rate of 10% on its net income from its for-
profit activities.
St. Luke’s is therefore liable for deficiency income
tax in 1998 under Section 27(B) of the NIRC. However, St.
Luke’s has good reasons to rely on the letter dated 6 June 1990
by the BIR, which opined that St. Luke’s is “a corporation for
purely charitable and social welfare purposes” and thus
exempt from income tax.
In Michael J. Lhuillier, Inc. v. Commissioner of
Internal Revenue, the Court said that “good faith and honest
belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement
the tax law, are sufficient justification to delete the imposition
of surcharges and interest.”
WHEREFORE, St. Luke’s Medical Center, Inc. is ORDERED
TO PAY the deficiency income tax in 1998 based on
the 10% preferential income tax rate under Section 27(8) of
the National Internal Revenue Code. However, it is not liable
for surcharges
and interest on such deficiency income tax under Sections
248 and 249 of
the National Internal Revenue Code. All other parts of
the Decision and Resolution of the Court of Tax Appeals are
AFFIRMED.
SOUTH AFRICAN AIRWAYS VS CIR
Lessons Applicable: Taxes can be offset if intimately related,
unless exempted assumed within the purview of general rule,
liabilities and tax credit must first be determined before offset necessity for the CTA to receive evidence and establish the
can take place correct amount before a refund can be granted.

Laws Applicable: CIR VS GCL RETIREMENT PLAN

Facts:

 South African Airways, a foreign corporation with no

license to do business in the Philippines, sells passage
documents for off-line flights through Aerotel Limited,
general sales agent in the Philippines
 Feb 5, 2003: Petitioner filed a claim for refund
erroneously paid tax on Gross Philippine Billing (GPB) for
the year 2010.
 CTA: denied - petitioner is a resident foreign corp.
engaged in trade or business in the Philippines and
therefore is NOT liable to pay tax on GPB under the Sec.
28 (A) (3) (a) of the 1997 NIRC but cannot be allowed
refund because liable for the 32% income tax from its
sales of passage documents.
 This is upheld by the CTA and CTA En Banc
Issue:
1. W/N petitioner is engaged in trade or business in the
Philippines is subject to 32% income tax.
2. W/N petitioner is entitled to refund

HELD: CTA En Banc decision is set side

1. Yes. Since it does not maintain flights to or from the

Philippines, it is not taxable under Sec. 28(A)(3)(a) of the 1997
NIRC. This much was also found by the CTA. But petitioner
further posits the view that due to the non-applicability of Sec.
28(A)(3)(a) to it, it is precluded from paying any other income
tax for its sale of passage documents in the Philippines. But,
Sec. 28 (A)(1) of the 1997 NIRC does not exempt all
international air carriers from the coverage of Sec. 28 (A) (1) of
the 1997 NIRC being a general rule. Petitioner, being an
international carrier with no flights originating from the
Philippines, does not fall under the exception. As such,
petitioner must fall under the general rule. This principle is
embodied in the Latin maxim, exception firmat regulam in
casibus non exceptis, which means, a thing not being excepted
must be regarded as coming within the purview of the general
rule.

2. Underterminable. Although offsetting of tax refund with tax

deficiency is unavailing under Art. 1279 of the Civil Code, in
CIR v. CTA it granted when deficiency assessment is intimately
related and inextricably intertwined with the right to claim for
a tax refund. Sec. 72 Chapter XI of 1997 NIRC is not applicable
where petitioner's tax refund claim assumes that the tax return
that it filed were correct because petitioner is liable under Sec.
28 (A)(1), the correctness is now put in doubt and refund
cannot be granted. It cannot be assumed that the liabilities for
two different provisions would be the same. There is a