2010 TAX CASES

CASE TITLE FACTS OF THE CASE ISSUE/S RULING

1.Fishwealth Canning Whether or not the filing of a motion NO. A Motion for Reconsideration of the
Corporation Vs. Commissioner for reconsideration tolls the running of denial of the administrative protest does
Of Internal Revenue (G.R. No. the 30-day period to appeal to the not toll the 30-day period to appeal to
179343; January 21, 2010) Court of Tax Appeals the Court of Tax Appeals.

(Macanang, Domer)
2.Panasonic Communications Whether or not Panasonic qualifies for The petition is DENIED. NO.
Imaging Corporation Of The zero-rated sales and can refund its
PhilippinesVs.Commissioner of unutilized input VAT VAT is a tax on consumption, an indirect
Internal Revenue(G.R No. tax that the provider of goods or
178090 February 8, 2010) services may pass on to his customers.
Under the VAT method of taxation,
(Guim, Amiel) which is invoice-based, an entity can
subtract from the VAT charged on its
sales or outputs the VAT it paid on its
purchases, inputs and imports. Under
the 1997 NIRC, if at the end of a
taxable quarter the seller charges
output taxes equal to the input taxes
that his suppliers passed on to him, no
payment is required of him. It is when
his output taxes exceed his input taxes
that he has to pay the excess to the
BIR. If the input taxes exceed the
output taxes, however, the excess
payment shall be carried over to the
succeeding quarter or quarters. Should
the input taxes result from zero-rated or
effectively zero-rated transactions or
from the acquisition of capital goods,
any excess over the output taxes shall
instead be refunded to the taxpayer.

1
 2010 TAX CASES
3.South African Airways Vs. Petitioner South African Airways is a
Commissioner Of Internal foreign corporation organized and
Revenue existing under and by virtue of the
G.R NO. 180356; FEBRUARY laws of the Republic of South Africa.
16, 2010 Its principal office is located at Airways
Park, Jones Road, Johannesburg
International Airport, South Africa. In
(Balubal, Eden) the Philippines, it is an internal air
carrier having no landing rights in the
country. Petitioner has a general sales
agent in the Philippines, Aerotel
Limited Corporation (Aerotel). Aerotel
sells passage documents for
compensation or commission for
petitioners off-line flights for the
carriage of passengers and cargo
between ports or points outside the
territorial jurisdiction of the Philippines.
Petitioner is not registered with the
Securities and Exchange Commission
as a corporation, branch office, or
partnership. It is not licensed to do
Under RMC 42-2003, failure to comply
with invoicing requirements will result in
the disallowance of his claim for refund.
Since Section 4.108-1 of RR 7-95 is
effective then, it should comply with
word zero-rated for zero-rated sales
covered by its receipts or invoices. It
also became part of 1997 NIRC on
November 1, 2005 not diminishing the
binding force of the prior enactment.
The requirement is reasonable and in
accord with efficient collection of VAT
preventing false claims and helps
Whether or not petitioner’s sourced In the instant case, the general rule is
within the Philippines and is to be that resident foreign corporations shall
taxed at 32% of the Gross Billings be liable for a 32% income tax on their
income from within the Philippines,
except for resident foreign corporations
that are international carriers that derive
income from carriage of persons,
excess baggage, cargo and mail
originating from the Philippines which
shall be taxed at 2 1/2% of their Gross
Philippine Billings. To reiterate, the
correct interpretation of the provisions is
that, if an international air carrier
maintains flights to and from the
Philippines, it shall be taxed at the rate
of 2 1/2% of its Gross Philippine
Billings, while international air carriers
that do not have flights to and from the
Philippines but nonetheless earn
income from other activities in the
country will be taxed at the rate of 32%
of such income.
2
 2010 TAX CASES
business in the Philippines.
For the taxable year 2000, petitioner
filed separate quarterly and annual
income tax returns for its off-line
flights in the rate of 32% of it’s GPB.
However, he filed with the BIR for
claim for refund contending that it’s
income should be taxed at the rate of
2 ½ % of it’s GPB.
4.TFS Incorporated Vs. Petitioner TFS, Incorporated is a duly Whether Or Not Petitioner Is Subject The Court cited the case of First
Commission Of Internal organized domestic corporation To The 10% VAT. Planters Pawnshop Inc. v. CIR; “Since
Revenue engaged in the pawnshop business. petitioner is a non-bank financial
GR. NO. 166829 APRIL 19, On January 15, 2002, petitioner intermediary, it is subject to 10% VAT
2010 received a Preliminary Assessment for the tax years 1996 to 2002;
Notice (PAN) for deficiency value however, with the levy, assessment and
added tax (VAT), expanded collection of VAT from non-bank
(Balubal, Eden) withholding tax (EWT) and financial intermediaries being
compromise penalty for the taxable specifically deferred by law, then
year 1998. Insisting that there was no petitioner is not liable for VAT during
basis for the issuance of PAN, these tax years”.
petitioner through a letter requested
the Bureau of Internal Revenue (BIR) Petitioner is not liable for VAT for the
to withdraw and set aside the year 1998. Consequently, the VAT
assessments. Respondent deficiency assessment issued by the
Commissioner of Internal Revenue BIR against petitioner has no legal
(CIR) informed petitioner that a Final basis and must therefore be cancelled.
Assessment Notice (FAN) was issued In the same vein, the imposition of
on January 25, 2002, and that surcharge and interest must be deleted.
petitioner had until February 22, 2002
within which to file a protest letter. On
February 20, 2002, petitioner
protested the Final Assessment Notice
(FAN). There being no action taken by
the CIR, petitioner filed a Petition for
Review] with the CTA.
3
 2010 TAX CASES
During trial, petitioner offered to
compromise and to settle the
assessment for deficiency EWT with
the BIR. Hence, on September 24,
2003, it filed a Manifestation and
Motion withdrawing its appeal on the
deficiency EWT, leaving only the issue
of VAT on pawnshops to be threshed
out. Since no opposition was made by
the CIR to the Motion, the same was
granted by the CTA.
5.Miguel J. Osorio Pension Petitioner is a non-stock and nonprofit
Foundation, Inc. vs. CA and corporation – it was organized for the
CIR(GR 162175 June 28, purpose of holding title to and
2010) administering the employees trust or
retirement funds (Employees Trust
( Abella, Khat) Fund) established for the benefit of
the employees of Victoria’s Milling
Company Inc. (VMC). Petitioner as
trustee claims that the income earned
by the employees Trust Fund is tax
exempt under Sec. 53(b) (now Sec.
60 (b) of the NIRC.
Petitioner as trustee of the employees
fund invested part of said fund to
purchase a lot in Madrigal Business
Park (MBP) located in Muntinlupa.
Since petitioner needed funds to pay
the retirement and pension benefits of
VMC employees and to reimburse
advances made by VMC, petitioner’s
board of trustees authorized the sale
Whether or not petitioner is entitled to
claim a refund for the income tax paid
on the sale of its co-owned MBP lot in
its capacity as trustee of the
Employees Trust Fund.
4
The court ruled that, the tax-exempt
character of petitioner’s Employees
Trust Fund is not an issue in this case
because the tax-exempt character of
the Employees Trust Fund has long
been settled. It is also settled that
petitioner exist for the purpose of
holding title to and administering the tax
exempt Employees Trust Fund which
was established for the benefit of
VMC’s employees. As such, petitioner
has the personality to claim tax refunds
due to the Employees Trust Fund.
As to the proof of co-ownership of the
MBP lot, the law expressly allows a co-
owner (1st co-owner) of a parcel of land
to register his proportionate share in the
name of his co-owner (2nd co-owner) in
whose name the entire land is
registered. The 2nd co-owner serves as
a legal trustee of the 1st co-owner
 2010 TAX CASES
of its share in the MBP lot.
VMC eventually sold the MBP lot to
Metrobank and as withholding agent;
Metrobank paid the amount of PHP 6,
125, 625.00 as withholding tax on the
sale of the real property.
Petitioner claims that it is a co-owner
of the MBP lot as trustee of the
Employees Trust Fund. Further, it
contends that the Employees Trust
Fund is exempt from income tax.
Since petitioner as trustee purchased
49.59% of the MBP lot using funds of
the Trust Fund, it asserts that their
49.59% share in the income tax
paid amounting to PHP 3, 037, 697.40
rounded off to PHP 3, 037, 500 should
be refunded. It maintained that the tax
exemption of the Trust Fund rendered
the payment of income tax as illegal or
erroneous – which resulted in filing a
claim for tax refund.
As action, the BIR stated that under
Sec 26 of the Tax Code, petitioner is
not exempt from tax on its income
from the sale of real property. The BIR
asked petitioner to submit documents
to prove its co-ownership of the MBP
lot and its exemption from tax.
Petitioner in reply said that the
applicable provision granting its claim
for tax exemption is not Sec. 26 but
5
insofar as the proportionate share of the
1st co-owner is concerned. The 1st co-
owner remains the owner of his
proportionate share and not the 2nd co-
owner in whose name the entire land is
registered, as provided in Art. 1452 of
the NCC.
The income from the trust fund
investments is therefore exempt from
the payment of income tax and
consequently from the payment of the
creditable withholding tax on the sale of
their real property. Thus, the Employees
Trust Fund owns 49.59% of the MBP
lot.
Since petitioner has proven that the
income from the sale of the MBP lot
came from an investment by the
Employees Trust Fund, petitioner as
trustee is entitled to claim the tax refund
of PHP 3, 037, 500.00 – which was
erroneously paid in the sale of the MBP
lot.
 2010 TAX CASES
Sec. 53 (b) of the Tax Code and that
its co-ownership of the MBP lot is
evidenced by Board Resolution #s 92-
34 and 96-46 and the MOA among
petitioner, VMC and its subsidiaries.

Since the BIR failed to act on

petitioner’s claim, it was elevated to
CIR - again no action was taken
hence, a petition for tax refund before
the CTA was filed.

The CTA ruled that Sec. 53 (b) of the

Tax Code talks about exemption from
income tax on the income or earnings
of the Employees trust Fund. Also,
that the petitioner is not the pension
trust itself but is a separate and
distinct entity whose function is to
administer the pension plan for some
VMC employees.

As to the co-ownership of the lot, the

CTA ruled that the evidences are self-
serving and cannot themselves prove
the co-ownership of the petitioner of
the MBP lot. Further, petitioner failed
to present any evidence to prove that
the money used to purchase the MBP
lot came from the Employees Trust
Fund. Thus, petitioner is estopped
from claiming a tax exemption.

When the claim was filed before the

CA, the CA agreed that the pieces of
6
 2010 TAX CASES
documentary evidence submitted are
largely self-serving and can be
contrived easily and that the
documents failed to show that the
funds used to purchase the MBP lot
came from the Employees Trust Fund.
Hence this petition.
6.Lepanto Consolidated Mining Whether or not a mining corporation is The Court ruled in affirmative. Sand and
Company Vs Hon. Mauricio B. liable for taxes imposed by a province gravel taxes may be imposed even on
Ambanloc, in his capacity as for the extraction of sand and gravel non-commercial extractions. Since
the Provincial Treasurer of from areas covered by its mining Section 138 of the Local Government
Benguet (G.R. No. 180639 lease with the national government Code (Republic Act 7160) authorized
June 29, 2010) and used exclusively in its mining provinces to impose a tax on the
operations. extraction of sand and gravel from
(Maramag, Jocelyn) public lands, without distinguishing
between personal and commercial
uses, then the tax should be deemed to
cover extractions for both purposes.

The provincial revenue code provides

that the subject tax had to be paid prior
to the issuance of the permit to extract
sand and gravel. Its Article D, Section 2,
enumerates four kinds of permits:
commercial, industrial, special, and
gratuitous. Special permits covered only
personal use of the extracted materials
and did not allow the permitees to sell
materials coming from his concession.
Among applicants for permits, however,
only gratuitous permits were exempt
from the sand and gravel tax. It follows
that persons who applied for special
permits needed to pay the tax, even
though they did not extract materials for
7
 2010 TAX CASES
commercial purposes. Thus, the tax
needed to be paid regardless of the
applicability of the administrative and
reportorial requirements of that revenue
code.

Lepanto’s extraction and use of mineral

deposits bears the consent of the
national government, in line with the
principle that exploration of natural
resources can only be done under the
control and supervision of the State.
The contract makes no mention of any
exemption from securing government
permits.

An exemption from the requirements of

the provincial government should have
a clear basis, whether in law, ordinance,
or even from the contract itself.
Unfortunately for Lepanto, it failed to
show its entitlement to such exemption.
7.Commissioner Of Internal Eastern filed with the CIR a written Whether or not the rule in Section Yes. The question of the applicability of
Revenue, Petitioner, Vs. application for refund or credit of 104(A) of the Tax Code on the Section 104(A) of the Tax Code was
Eastern Telecommunications unapplied input taxes it paid on the apportionment of tax credits can already raised but the tax court did not
Philippines, Inc., Respondent. imported equipment purchased during be applied in appreciating Eastern’s rule on it. This failure should not be
(G.R. No. 163835 July 1995 and 1996 amounting claim for tax refund, considering that taken against the CIR.
7, 2010) toP22,013,134.00. To toll the the matter was raised by the CIR only
running of the two-year when he sought reconsideration of The mere declaration of exempt sales
(Ferrer, Elena Marie) prescriptive period under the same the CTA ruling in the VAT returns, whether based on
provision, Eastern filed an appeal with Section 103 of the Tax Code or some
the CTA. The CTA found that Eastern other special law, should have
has a valid claim for the prompted for the application of Section
refund/credit of the unapplied input 104 (A) of the Tax Code to Eastern’s
taxes, declaring it entitled to a tax claim. The general rule is that appeals
8
 2010 TAX CASES
refund of P16,229,100.00.The CIR can only raise questions of law or fact
filed a motion for reconsideration of that (a) were raised in the court below,
the CTA’s decision. Subsequently, it and (b)are within the issues framed by
filed a supplemental motion for the parties therein (People v.
reconsideration. The CTA denied Echegaray, G.R. No. 117472). An issue
the CIR’s motion for which was neither averred in the
reconsideration. pleadings nor raised during trial in the
court below cannot be raised for the
The CIR then elevated the case to the first time on appeal.
CA, who affirmed the CTA ruling
and likewise denied the The rule against raising new issues on
subsequent motion for appeal is not without exceptions; it is a
reconsideration. Hence, the present procedural rule that the Court may relax
petition. The CIR posits that, applying when compelling reasons so
Section 104(A) of the Tax Code on warrant or when justice requires it.
apportionment of tax credits, Eastern What constitutes good and sufficient
is entitled to a tax refund of only a cause that would merit suspension of
portion of the amount claimed. Since the rules is discretionary upon the
the VAT returns clearly reflected courts (CIR v. Mirant Pagbilao
income from exempt sales, the CIR Corporation, G.R. No.159593). Another
asserts that this constitutes as an exception is when the question involves
admission on Eastern’s part that it matters of public importance. “Taxes
engaged in transactions not subject to are the lifeblood of the
VAT. government.” For this reason, the
right of taxation cannot easily be
Hence, the proportionate allocation of surrendered; statutes granting tax
the tax credit to VAT and non-VAT exemptions are considered as a
transactions provided in Section derogation of the sovereign
104(A)of the Tax Code should apply. authority and are strictly construed
Eastern objects to the arguments against the person or entity
raised in the petition, alleging that claiming the exemption. Claims for tax
these have not been raised in the refunds, when based on statutes
Answer filed by the CIR before the granting tax exemption or tax refund,
CTA and was only raised. In fact, partake of the nature of an exemption;
theCIR only raised the applicability of thus, the rule of strict interpretation
9
 2010 TAX CASES
Section 104(A) of the Tax Code in his
supplemental motion for
reconsideration of the CTA’s ruling.
Eastern claims that for the CIR to
raise such an issue now would
constitute a violation of its right to due
process; following settled rules of
procedure and fair play, the CIR
should not be allowed at the appeal
level to change his theory of the case.
Eastern further argues that there is no
evidence on record that would
evidently show that respondent is also
engaged in other transactions that are
not subject to VAT.
8.CIR vs Smart Respondent Smart Communication
Communications Inc.(G.R. Nos. Inc, is a corporation organized and
179045-46; August 25, 2010) existing under Philippine Law. It is an
enterprise duly registered with the
(Taguinod, Jelyne) Board of Investments. On May 25,
2001, respondent entered into three
agreements for Programming and
Consultancy Services with Prism
Transactive, a non-resident
corporation duly organized and
existing under the laws of Malaysia.
Under the agreements, Prism was to
against the taxpayer-claimant
similarly applies (CIR v. Fortune
Tobacco Corporation, G.R. Nos.
167274-75)
The taxpayer is charged with the heavy
burden of proving that he has complied
with and satisfied all the statutory and
administrative requirements to be
entitled to the tax refund. This burden
cannot be offset by the non-
observance of procedural
technicalities by the government’s tax
agents when the non-observance of
the remedial measure addressing it
does not in any manner prejudice
the taxpayer’s due process rights.
Lapses in the literal observance of a
rule of procedure maybe overlooked
when they have not prejudiced the
adverse party and especially when they
are more consistent with upholding
settled principles in taxation.
Whether or not the respondent has Yes. Under Sec. 204 (c) and 229 of
the right to file the claim for refund. NIRC. The person entitled to claim a tax
is the taxpayer. However, in case the
taxpayer does not file a claim for
refund, the withholding agent may file
the claim. In CIR vs Procter and
Gamble Philippines Manufacturing
Corp., a withholding agent was
considered a proper party to file a claim
for refund of withheld taxes of its foreign
parent company.
10
 2010 TAX CASES
provide programming and consultancy
services for installation and
implementation of Smart Money and
Mobile Banking Service Sim
Applications and private Text Platform.
On June 25, 2001, Prism billed the
respondent in the amount of US $
547,822.45. thinking that these
payments constitute royalties,
respondent withheld the amount of
US$136,955.61 representing the 25%
royalty tax under the RP-Malaysia Tax
Treaty. On September 25, 2001,
respondent filed its monthly
remittance return of final income taxes
withheld for the month of August 2001.
On September 24, 2003 or within the
2-year period to claim a refund,
respondent filed with the BIR, through
the International Tax Affairs Division
an Administrative claim for refund of
the amount P7,008,840.43. Due the
failure of the CIR to act on the claim
for refund, respondent filed a petition
for review with the CTA. Respondent
claimed that it is entitled to a refund
because the payments made to Prism
are not royalties but business profits,
pursuant to the definition of royalties
under the RP-MalaysiaTax Treaty.
Respondent further avered that since
under Art. 7 of the RP-Malayasia Tax
Treaty, business profits are taxable in
11
The petitioner submits that the ruling
applies only when the withholding agent
and the taxpayer are related parties, the
court do not agree. Although such
relationship between taxpayer and
withholding agent is a factor, there is
nothing in the decision to suggest that
such relationship is required or that lack
of such relationship deprives the
withholding agent of the right to file a
claim for refund.
Rather, what is clear in the decision is
that a withholding agent has the legal
right to file a claim for refund: 2
reasons-
(1) he is a taxpayer, as he is personally
liable for the withholding tax as well as
for deficiency assessments, surcharges
and penalties should the amount of the
withheld taxes be finally found to be
less than the amount that should have
been withheld under law;
(2) as an agent of the taxpayer, his
authority to file the necessary income
tax return and to remit the tax withheld
to the government impliedly includes
the authority to file a claim for refund
and to bring an action for recovery of
such claim.
It is however significant to add that
while the withholding agent has the
right to recover the taxes erroneously or
 2010 TAX CASES
Philippines only if attributable to a
permanent establishment in the
Philippines the payments made to
Prism, a Malaysian company with no
permanent establishment in the
Philippines should not be taxed.
On December 1, 2003, petitioner filed
its answer arguing that respondent, as
withholding agent, is not a party-in-
interest to file the claim for refund, and
that assuming for the sake of
argument that it is the proper party,
there is no showing that the payments
made to Prism constitute profits.
The CTA upheld the respondent’s right
to file the claim for refund. However,
as to the claim for refund, it found out
that respondent is entitled only to a
partial refund. Although it agreed that
the payments for the CM and Sim
Application agreement are business
profits, and therefore not subject to tax
under the RP-Malaysia Tax Treaty, the
second division found the payments
for the SDM agreement a royalty
subject to withholding tax. Both parties
moved for partial reconsideration
which was denied. Both parties
appealed to CTA en Banc, the
decision of the second division was
affirmed.
Petitioner sought for reconsideration,
illegally collected, he nevertheless has
the obligation to remit the same to the
principal taxpayer. As an agent of the
taxpayer, it is his duty to return what he
has recovered, otherwise, he would be
unjustly enriching himself at the
expense of the principal taxpayer from
whom the taxes were withheld and from
whom he derives his legal right to file a
claim for refund.
Whether or not the payments made to It is a Business Profit. Under the RP-
Prism constitute business profits or Malaysia Tax Treaty, the term royalties
royalties. is defined as payment of any kind
received as consideration for :
(1) use of, or the right to use any
patent, trademark, design or model,
plan, secret formula or process, any
copyright of literary, artistic or scientific
work, or the use of or the right to use,
industrial, commercial or scientific
equipment or for information concerning
industrial, commercial or scientific
experience;
(2) the use of or the right to use
cinematograph films, or tapes for radio
or television broadcasting, these are
taxed at the rate of 25% of the gross
amount.
The business profits of an enterprise of
a contracting state is taxable only in
that state through a permanent
establishment. The term permanent
establishment is defined as a fixed
place of business, an enterprise of a
12
 2010 TAX CASES
denied. Hence this petition. It
contends that the cases relied upon
by the CTA in upholding the
respondent’s right to claim the refund
are inapplicable since the withholding
agents therein are wholly owned
subsidiaries of the principal taxpayer,
unlike in the instant case, the
withholding agent and taxpayer are
unrelated entities.
It further claims that since respondent
did not file the claim on behalf of
Prism, it has no legal standing to claim
the refund assuming that respondent
is the proper party, petitioner contends
that it is still not entitled to any refund
because the payments made to prism
are taxable as royalties having been
made in consideration for the use of
programs owned by Prism.
Respondent on the other hand
maintains that it is the proper party to
file a claim for refund as it has the
statutory and primary responsibility
and liability to withhold and remit the
taxes to the BIR. It points out that
under the withholding tax system, the
agent-payor becomes a payee by
fiction of law because the law makes
the agent personally liable for the tax
arising from the breach of its duty to
withhold. Thus, the fact that
respondent is not in any way related
to Prism is immaterial. Moreover,
13
contracting state if it carries on
supervisory activities in that other state
for more than 6 months in connection
with a construction, installation or
assembly project which is being
undertaken in that other state. In the
instant case, it was established that
Prism does not have a permanent
establishment in the Philippines, hence,
business profits derived from Prisms
dealings with respondent are not
taxable. The question whether the
payments made to Prism are business
profits and not royalties. It was clear in
the provision in the agreement. Prism
has intellectual property right over the
SDM program but not over the CM &
Sim application programs as the
proprietary rights of these program
belong to respondent. In other words,
out of the payments made to Prism,
only the payment for the SDM program
is not a royalty subject to a 25%
withholding tax. A refund of the
erroneously withheld royalties taxes for
the payments pertaining to the CM and
Sim application the government has no
right to retain what does not belong to
it.
The petition is denied.
 2010 TAX CASES
respondent asserts that the payments
made to Prism do not fall under the
definition of royalties since the
agreements are for programming and
consultancy services only.
9.United Airlines, Inc., Petitioner used to be an online carrier
Petitioner, Vs.Commissioner Of but ceased operating cargo flights
internal Revenue, Respondent. from the Philippines starting 2001. It is
(G.R. No. 178788. September now an offline international air carrier
29, 2010) but has a general sales agent in the
Philippines which sells passage
(Ferrer, Elena Marie) documents for its off-line flights for
carriage of passengers and cargo. It
filed a claim for refund on the Gross
Philippine Billings (GPB) tax it paid.
The CTA ruled that Petitioner was not
liable for the GBP but was liable to
pay 32% tax on its net income derived
from the sales of passage documents
in the Philippines.
Petitioner elevated the case to the
CTA En Banc which affirmed the
decision of the First Division.
Whether or not the petitioner is No. The petition has no merit.
entitled to a refund of the amount of
₱5,028,813.23 it paid as income tax Under Section 72 of the NIRC, the CTA
on its passenger revenues in 1999.
14
can make a valid finding that petitioner
made erroneous deductions on its
gross cargo revenue; that because of
the erroneous deductions, petitioner
reported a lower cargo revenue and
paid a lower income tax thereon; and
that petitioner's underpayment of the
income tax on cargo revenue is even
higher than the income tax it paid on
passenger revenue subject of the claim
for refund, such that the refund cannot
be granted.
The grant of a refund is founded on the
assumption that the tax return is valid,
that is, the facts stated therein are true
and correct. The deficiency
assessment, although not yet final,
created a doubt as to and constitutes a
challenge against the truth and
accuracy of the facts stated in said
return which, by itself and without
unquestionable evidence, cannot be the
basis for the grant of the refund.
Moreover, to grant the refund without
determination of the proper assessment
and the tax due would inevitably result
2010 TAX CASES
in multiplicity of proceedings or suits. If
the deficiency assessment should
subsequently be upheld, the
Government will be forced to institute
anew a proceeding for the recovery of
erroneously refunded taxes which
recourse must be filed within the
prescriptive period of ten years after
discovery of the falsity, fraud or
omission in the false or fraudulent
return involved.

This would necessarily require and

entail additional efforts and expenses
on the part of the Government, impose
a burden on and a drain of government
funds, and impede or delay the
collection of much-needed revenue for
governmental operations.
Here, the subject of claim for tax refund
is the tax paid on passenger revenue
for taxable year 1999 at the time when
petitioner was still operating cargo
flights originating from the Philippines
although it had ceased passenger flight
operations. The CTA found that
petitioner had underpaid its GPB tax for
1999 because petitioner had made
deductions from its gross cargo
revenues in the income tax return it filed
for the taxable year 1999, the amount of
underpayment even greater than the
refund sought for erroneously paid GPB
tax on passenger revenues for the
same taxable period. Hence, the CTA
15

10.Commissioner of Internal
Revenue vs Aichi Forging
Company of Asia, Inc., (GR No.
184823, October 6, 2010)
(Azurin, Jastise)
2010 TAX CASES
On September 30, 2004, Aichi Forging
filed a claim for refund/credit of input
VAT attributable to its zero-rated sales
for the period July 1, 2002 to
September 30, 2002 with the CIR
through the DOF One-Stop Shop. On
the same day, Aichi Forging filed a
Petition for Review with the CTA for
the same action. The BIR disputed the
claim and alleged that the same was
filed beyond the two-year period given
that 2004 was a leap year and thus
the claim should have been filed on
September 29, 2004. The CIR also
raised issues related to the reckoning
of the 2-year period and the
simultaneous filing of the
ruled petitioner is not entitled to a tax
refund.
We must emphasize that tax refunds,
like tax exemptions, are construed
strictly against the taxpayer and liberally
in favor of the taxing authority. In any
event, petitioner has not discharged its
burden of proof in establishing the
factual basis for its claim for a refund
and we find no reason to disturb the
ruling of the CTA. It has been a long-
standing policy and practice of the
Court to respect the conclusions of
quasi-judicial agencies such as the
CTA, a highly specialized body
specifically created for the purpose of
reviewing tax cases.
Whether or not the Petitioner’s NO. The right to claim the refund must
administrative claim filed out of time be reckoned from the “close of the
taxable quarter when the sales were
made” – in this case September 30,
2004. The Court added that the rules
under Sections 204 (C) and 229 as
cross-referred to Section 114 do not
apply as they only cover erroneous
payments or illegal collections of taxes
which is not the case for refund of
unutilized input VAT. Thus, the claim
was filed on time even if 2004 was a
leap year since the sanctioned method
of counting is the number of months.
Whether or not the filing of the judicial YES. Section 112 mandates that the
claim was premature taxpayer filing the refund must either
wait for the decision of the CIR or the
16
 2010 TAX CASES
administrative and judicial claims.
11.H. Tambunting Pawnshop, Petitioner, H.Tambunting Pawnshop,
Inc vs. CIR (GR No. 172394 Inc. (petitioner), a domestic
October 13, 2010) corporation duly licensed to engage in
the pawnshop business received an
(Abella, Khat) assessment notice from BIR
demanding payment of deficiency VAT
and compromise penalty for taxable
year 2000 in the amounts of PHP 5,
212, 404.52 and PHP 25, 000.00,
respectively. Petitioner disclaiming its
liability protested the assessment with
the respondent CIR, arguing that a
pawnshop business was not subject to
VAT and compromise penalty.
Due to the inaction of CIR to the
protest, petitioner elevated the case
with the CTA – the petition was
lapse of the 120-day period provided
therein before filing its judicial claim.
Failure to observe this rule is fatal to a
claim. Thus, Section 112 (A) was
interpreted to refer only to claims filed
with the CIR and not appeals to the CTA
given that the word used is
“application”.
Finally, the Court said that applying the
2-year period even to judicial claims
would render nugatory Section 112 (D)
which already provides for a specific
period to appeal to the CTA --- i.e., (a)
within 30 days after a decision within
the 120-day period and (b) upon expiry
of the 120-day without a decision.
Whether or not a pawnshop operator The court ruled petitioner’s main
is liable for VAT and the compromise argument that pawnshops are not within
penalty. the concept of all services and similar
services as provided in Section 108(A)
of the NIRC and that the enumeration
under Section 108(A) of the NIRC of
services subject to VAT is exclusive has
merit.Moreover, it is settled that for
purposes of determining their tax
liability, pawnshops are treated as non-
bank financial intermediaries.
Accordingly, the consecutive
deferments of the effectivity date of the
application of VAT on non-bank financial
intermediaries like pawnshops resulted
in their non-liability for VAT during the
affected taxable years. Thus, the VAT
17
 2010 TAX CASES
partially granted by the deletion of the deficiency assessment and the
compromise penalty but petitioner was surcharge served on the petitioner by
ordered to pay the taxes due plus BIR lacked legal basis and must be
surcharge and delinquency interest. canceled and petitioner is entitled to
refund of any amount paid pursuant to
Aggrieved by the decision of the CTA, the settlement agreement
petitioner filed a motion for partial corresponding to taxable year 2000
reconsideration with the CTA Second only.
Division, submitted a written
manifestation attaching a copy of BIR
tax payment deposit slip and the
corresponding schedule evidencing its
payment for the years from 2000 to
2002 pursuant to a settlement
agreement with BIR allowing petitioner
to pay 25% of its VAT due – but the
same was denied.

An appeal to the CTA en Banc was

filed thereafter but still, the same was
denied. Hence, this petition.
12.Commissioner Of Internal Whether LMCEC and its corporate The court grant the petition. There is no
Revenue Vs. Hon. Raul M. officers may be prosecuted for dispute that prior to the filing of the
Gonzalez, Secretary Of Justice, violation of Sections 254 (Attempt to complaint with the DOJ, the report on
L. M. Camus Engineering Evade or Defeat Tax) and 255 (Willful the tax fraud investigation conducted on
Corporation (Represented By Failure to Supply Correct and LMCEC disclosed that it made
Luis M. Camus And Lino D. Accurate Information and Pay Tax) substantial under declarations in its
Mendoza) (G.R. No. 177279 income tax returns for 1997, 1998 and
October 13, 2010) 1999. Pursuant to RR No. 12-99, a PAN
was sent to and received by LMCEC on
February 22, 2001 wherein it was
(Balubal, Eden) notified of the proposed assessment of
deficiency taxes amounting to
P430,958,005.90 (income tax -
P318,606,380.19 and VAT -
18
2010 TAX CASES
P112,351,625.71) covering taxable
years 1997, 1998 and 1999. In
response to said PAN, LMCEC sent a
letter-protest to the TFD, which denied
the same on April 12, 2001 for lack of
legal and factual basis and also for
having been filed beyond the 15-day
reglementary period.

As mentioned in the PAN, the revenue

officers were not given the opportunity
to examine LMCECs books of accounts
and other accounting records because
its officers failed to comply with the
subpoena duces tecum earlier issued,
to verify its alleged under declarations
of income reported by the Bureaus
informant under Section 282 of the
NIRC.

Respondent Secretary concurred with

the Chief State Prosecutors conclusion
that there is insufficient evidence to
establish probable cause to charge
private respondents under the above
provisions, based on the following
findings: (
1) the tax deficiencies of LMCEC for
taxable years 1997, 1998 and 1999
have all been settled or terminated, as
in fact LMCEC was issued a Certificate
of Immunity and Letter of Termination,
and availed of the ERAP and VAP
programs;
(2) there was no prior determination of
19
 2010 TAX CASES
the existence of fraud;
(3) the assessment notices are
unnumbered, hence irregular and
suspect;
(4) the books of accounts and other
accounting records may be subject to
audit examination only once in a given
taxable year and there is no proof that
the case falls under the exceptions
provided in Section 235 of the NIRC;
and
(5) petitioner committed forum shopping
when it filed the instant case even as
the earlier criminal complaint (I.S. No.
00-956) dismissed.
13.Commission of Internal Whether the existing Revised Zonal The Revised Zonal Values of Real
RevenueVs.Aquafresh Values of Real Properties in the City Properties in the City of Roxas must be
Seafoods, Inc.,(G.R. No. of Roxas or The fair market value as followed for purposes of computing the
170389 October 20, 2010) determined by BIR will be used as CGT and DST. It is undisputed that at
basis for the capital gains tax and the time of the sale of the subject
(Guim, Amiel) Documentary tax properties found in Barrio Banica,
Roxas City, the same were classified as
“RR,” or residential, based on the 1995
Revised Zonal Value of Real Properties.
CIR, thus, cannot unilaterally change
the zonal valuation of such properties to
“commercial” without first conducting a
re-evaluation of the zonal values as
mandated under Section 6(E) of the
NIRC.

Zonal value is determined for the

purpose of establishing a more realistic
basis for real property valuation. Since
internal revenue taxes, such as CGT
20

14.Commissioner Of Internal
Revenue Vs. Hambrecht &
Quist Philippines, Inc.- (GR
NO. 169225, November 17,
2010)
(Taguinod, Jelyn)
2010 TAX CASES
In a letter dated February 15, 1993,
respondent informed the BIR of its
change of business address.
On November 4, 1993, respondent
received a tracer-letter or follow up
letter dated October 11, 1993
demanding for payment of alleged
deficiency income and expanded
withholding taxes for taxable year
1989. On December 3, 1993,
respondent filed its protest letter
against the alleged deficiency tax
assessments for 1989.
On November 7, 2001, nearly eight (8)
years later, respondents external
auditors received a letter from herein
petitioner Commissioner of Internal
Revenue dated October 20, 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 has
allegedly filed beyond the 30 day
reglementary period prescribed in
then section 229 of the National
Internal Revenue Code
Respondent filed petition for review
and DST, are assessed on the basis of
valuation, the zonal valuation existing at
the time of the sale should be taken into
account.
Whether or not the Court of Tax The jurisdiction of the CTA is governed
Appeals has jurisdiction to rule that by section 7 of Republic Act No. 1125,
the governments right to collect the as amended, and the term other
tax has prescribed. matters referred to by the CIR in its
argument can be found in number (1) of
the aforementioned provision, to wit:
Section 7. Jurisdiction. - The Court of
Tax Appeals shall exercise exclusive
appellate jurisdiction to review by
appeal, as herein provided:
1. Decisions of the Commissioner 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 as part of law administered by
the Bureau of Internal Revenue.
The appellate jurisdiction of the CTA is
not limited to cases which involve
decisions of the CIR on matters relating
to assessments or refunds. The CTA
law clearly bestows jurisdiction to the
CTA even on “other matters arising
under the National Internal Revenue
Code”. Thus, the issue of whether the
right of the CIR to collect has
prescribed, collection being one of the
21
 2010 TAX CASES
before the Court of Tax Appeals to
appeal the final decision of the
Commissioner of Internal Revenue
denying its protest against the
deficiency income and withholding tax
assessments issued for taxable year
1989. The original division held that
the subject assessment notice sent by
registered mail on January 8, 1993 to
respondents former place of business
was valid and binding since
respondent only gave formal notice of
its change of address on February 18,
1993 thus, the assessment had
become final and unappealable for
failure of respondent to file a protest
within the 30 day period provided by
law However, the CTA held that the
CIR failed to collect the assessed
taxes within the prescriptive period'
The assessment against Hambrecht &
Quist had become final and
unappelable since there was a failure
to protest the same within the 30-day
period provided by law. However, the
CTA held that the BIR failed to collect
within the prescribed time and thus
ordered the cancellation of the
assessment notice. The CIR disputed
the jurisdiction of the CTA arguing that
since the assessment had become
final and unappealable, the taxpayer
can no longer dispute the correctness
of the assessment even before the
22
Whether or not the period to collect
the assessment has prescribed.
duties of the BIR, is considered covered
by the term “other matters”. The fact
that assessment has become final for
failure to protest only means that the
validity or correctness of the
assessment may no longer be
questioned on appeal. However, this
issue is entirely distinct from the issue
of whether the right to collect has in fact
prescribed.
In connection therewith, the NIRC also
states that the collection of taxes is one
of the duties of the BIR. Thus, from the
foregoing, the issue of prescription of
the BIR’s right to collect taxes may be
considered as covered by the term
“other matters” over which the CTA has
appellate jurisdiction.
Yes, it already prescribed.
Section 224 of the 1986 NIRC provides
that: Suspension of running of statute.
The running of the statute of limitations
provided in Sections 203 and 223 on
the making of assessment and the
beginning of distraint or levy or a
proceeding in court for collection, in
respect of any deficiency, shall be
suspended for the period during which
the Commissioner is prohibited from
making the assessment or beginning
distraint or levy or a proceeding in court
and for sixty days thereafter; when the
taxpayer requests for a re-investigation
 2010 TAX CASES
CTA. which is granted by the Commissioner;
when the taxpayer cannot be located in
the address given by him in the return
filed upon which a tax is being
assessed or collected:

Provided, That, if the taxpayer informs

the Commissioner of any change in
address, the statute will not be
suspended; when the warrant of
distraint and levy is duly served upon
the taxpayer, his authorized
representative, or a member of his
household with sufficient discretion, and
no property could be located; and when
the taxpayer is out of the Philippines.
(Emphasis supplied.)

The plain and unambiguous wording of

the said provision dictates that two
requisites must concur before the
period to enforce collection may be
suspended: (a) that the taxpayer
requests for reinvestigation, and (b) that
petitioner grants such request

Consequently, the mere filing of a

protest letter which is not granted does
not operate to suspend the running of
the period to collect taxes. In the case
at bar, the records show that
respondent filed a request for
reinvestigation on December 3, 1993,
however, there is no indication that
petitioner acted upon respondents
23
2010 TAX CASES
protest.

As the CTA Original Division in C.T.A.

Case No. 6362 succinctly pointed out in
its Decision, to wit:

It is evident that the respondent did not

conduct a reinvestigation, the protest
having been dismissed on the ground
that the assessment has become final
and executory. There is nothing in the
record that would show what action was
taken in connection with the protest of
the petitioner. In fact, petitioner did not
hear anything from the respondent nor
received any communication from the
respondent relative to its protest, not
until eight years later when the final
decision of the Commissioner was
issued (TSN, March 7, 2002, p. 24). In
other words, the request for
reinvestigation was not granted. x x x.
[10] (Emphasis supplied.)

Since the CIR failed to disprove the

aforementioned findings of fact of the
CTA which are borne by substantial
evidence on record, this Court is
constrained to uphold them as binding
and true. The Court ruled that the right
to collect has indeed prescribed since
there was no proof that the request for
reinvestigation was in fact
granted/acted upon by the CIR. Thus,
the period to collect was never
24

15.Philippines Fisheries
Development
Authority(PFDA)VS.Central
Board of Assessment Appeals,
Local Board of Assessment
Appeals of Lucena City, City of
Lucena, Lucena City Assessor
and Lucena City Treasurer
(G.R. No. 178030; December 15,
2010)
(Taguinod, Jelyn)
2010 TAX CASES
Lucena Fishing Port Complex is one
of the fishery infrastructure projects
undertaken by the National
Government under the Nationwide
Fishing Port Package. It is located at
Lucena City, was constructed on a
reclaimed land. The PFDA was
created by virtue of P.D. 977 as
amended by TO 772, with functions
and powers to manage, operate and
develop the Navotas Fishing Port
Complex and such other fishing port
complexes that may be established by
the authority. Pursuant thereto,
Petitioner-Appellant PFDA took over
the management and operation of
LFPC in February 1992.On October
26, 1999, in a letter addressed to
PFDA, the City Government of Lucena
demanded payment of realty taxes on
the LFPC property for the period from
1993 to 1999 which was received by
PFDA on November 24, 1999. bOn
October 17, 2000, another demand
letter was sent this time covering the
period 1993 to 2000.
On December 18, 2000 Petitioner-
Appellant filed its appeal before the
local Board of Assessment Appeals of
Lucena City, which was dismissed for
lack of merit. MR was filed which was
denied. PFDA appealed to the Central
Board of Assessment Appeals, the
suspended.
Whether or not PFDA is liable for the No.In a case of PFDA vs. CA, a 2007
real property tax assessed on the case, the court resolved that PFDA is
Lucena Fishing Port Complex an instrumentality of the government
and is thus exempt from the payment of
real property tax.
The Authority is not a GOCC but an
instrumentality of the government. The
Authority has a capital stock but it is not
divided into shares of stocks. Also, it
has no Stockholders or voting shares.
Hence, it is not a stock corporation.
Neither is it a non-stock corporation
because it has no members. The
Authority is actually a national
government instrumentality which is
defined as an agency of the national
government, not integrated within the
department framework, vested with
special functions or jurisdiction by law,
endowed with some if not all corporate
powers administering special funds,
and enjoying operational autonomy
usually through a charter. When the law
vests in a government instrumentality
corporate powers, the instrumentality is
organized as a stock or non-stock
corporation, it remains a government
instrumentality exercising not only
governmental but also corporate
powers.
Confirmed in a subsequent PFDA case-
Navotas Fishing Port Complex
25
 2010 TAX CASES
same was dismissed for lack of merit.
The CBAA ruled that: ownership of
LFPC has been handed over to the
pFDA, as provided for under Sec. 11
of PD 977 as amended and declared
under the MC 199 case (Mactan Cebu
International Airport Authority V.
Marcos) PD 977 provided for the
exemption from income tax under par.
2 Sec 10 thereof “the Authority shall
be exempted from the payment of
income tax. Nothing was said however
about its exemption from payment of
real property tax: PFDA has no basis
in claiming real property exemption on
its Fishing Port Complexes. Reading
Sec. 40 of PD 464 and Sec. 234 of RA
7160 however, provided such ground:
LFPC is owned by the RP, PFDA is
only tasked to manage, operate and
develop the same. Hence, LFPC is
exempted from payment of realty tax.
The ownership of LFPC as passed by
the RP to PFDA is bourne by Direct
evidence PD 977 as amended.
Therefore Petitioner-Appellant’s claim
is untenable
Similarly the court holds that PFDA is a
government instrumentality, the PFDA is
exempt from real property tax imposed
on the LFPC, except those portions
which are leased to private persons or
entities.
The exercise of the taxing power of
LGU is subject to the limitations
enumerated in Section 133 of the LGC:
LGU has no power to tax
instrumentalities of the National
Government like the PFDA. Thus,
PFDA is not liable to pay real property
tax assessed by the office of the City
Treasurer of Lucena City on the LFPC,
except those portions which are leased
to private persons or entities.
Besides LFPC is a property of public
dominion intended for public use and is
therefore exempt from real property tax
under Section 234 (a) of the LGC.

PFDA moved for reconsideration,

denied. Appealed to CTA, denied. CTA
Ruling: PFDA is a GOCC and is
therefore subject to the real property
tax imposed by the local government.
Pursuant to Sec. 232 in relation to
Sec. 193 and 234 of the CGC.
26
 2010 TAX CASES
Furthermore, the CTA ruled that PFDA
failed to prove that sit is exempt from
real property tax pursuant to Sec. 234
of LGC. Hence this petition for review.

16.Asiaworld Properties Phil. Petitioner is a domestic Corp. Whether the exercise of the option to Section 76 of the NIRC of 1997 it states
Corp. vs. CIR, G.R. No. engaged in the business of real carry-over the excess income tax that once the option to carry over and
171766; July 29 estate development. For CY ending credit, which shall be applied against apply the excess quarterly income tax
Dec. 31, 2001 it filed its annual the tax due in the succeeding taxable against income tax due for the taxable
Income Tax Return on April 5, 2002 year, prohibits a claim for refund in the quarters of the succeeding taxable
(Tayawa, Ma. Esperanza) and declared a corporate income subsequent taxable years for the years has been made, such option shall
taxod 1.2M but with refundable unused portion of the excess tax be considered irrevocable for that
amount of 6.4M . In its 2001 ITR it credits carried over. taxable period and no application for
states that the amount of 7.4M cash refund or issuance of a tax credit
representing prior years excess certificate shall be allowed.
credits was net of year 1999 excess
creditable withholding tax to be
refunded in the amount of 18M.
Petitioner also indicated in its ITR its
option to carry over as tax credit next
year the overpayment. Hence they
filed with RDO request to refund the
amount of 18.4M allegedly
representing partial excess creditable
tax withheld for the year 2001,
therefore they are entitled to refund
and maintained their claim that the
option to carry over and apply the
excess quarterly income taxable in the
succeeding years is irrevocable only
for the next taxable period when the
excess payment was carried over.
Before the RDO could act on
27
 2010 TAX CASES
petitioners claim, they filed a Petition
for Review with CTA to toll the running
of the prescriptive period. The CTA
denied the petition for lack of merit.
Filed a Motion for Reconsideration but
it was denied. Appealed to CA but CA
affirmed the decision
17.Chevron Phils. Inc. vs Yes, it is within the limits of the police
Bases Conversion Whether or not the act of CDC in power if the State when it imposed
Development imposing royalty fees be considered royalty fees. In distinguishing tax and
G.R. No. 173863 Sept. 15,2010 as valid exercise of the police power regulation as a form of police power, the
determining factor is the purpose of the
(Ma. Esperanza Tayawa) implemented measure. It the purpose is
primarily to raise revenue then it will be
deemed a tax even though the measure
results in some form of regulation. On
the other hand, police power of the
State even though incidentally, revenue
is generated. In this case it held that the
subject royalty fees form part of the
regulatory framework to ensure free
flow or movement of petroleum fuel to
and from the CSEZ. The fact that the
respondents have the exclusive right to
distribute and market petroleum
products within CSEZ pursuant to its
joint venture agreement with SBMA and
CSBTI does not diminish the regulatory
purpose of the royalty fee for the fuel
products supplied by petitioner to its
client at the CSEZ. Respondent submit
that the increased administrative costs
were triggered by the security risks that
have recently emerged, such as terrorist
strikes. The need for regulation is more
28
2010 TAX CASES
evident in the light of the 9/11 tragedy
considering that what is being moved
from one location to another are highly
combustible fuel products that cause
loss of lives and damage to properties.

29