Taxation II Case Digest I. Remedies PHOENIX v.

COMMISIONER (14 SCRA 52) Facts: Phoenix, British insurance company licensed to do business in the Philippines, entered into reinsurance treaties with various foreign insurance companies agreeing to cede portion of its premiums originally underwritten by its entities in consideration of the assumption of equivalent portion of liability by the reinsurers. Later on Phoenix filed its return reporting losses in 1952. in 1955 it filed an amended return. After examination of the amended return, Commissioner in 1958 assessed deficiency income tax. CTA found the Commissioner barred by prescription having been exercised more than five years from the date original return was filed. Commissioner insists it is within the prescriptive period reckoned from the filing of amended return. Issue: From when should the reckoning commence? Held: From the time of filing of the emended return. Considering that the deficiency assessment was based on the amended return which is substantially dirrefent from the original return, the period of limitation of the right to issue the same should be counted from the filing of the emended income tax return. Thus the right of the Commissioner to issue the assessment has not lapsed. To hold otherwise would be paving the way for the taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same more than five years later when the commissioner has lost its authority to assess the property tax hereunder. The object of the TAX CODE is to impose taxes for the needs of the government, not to enhance TAX AVOIDANCE to its prejudice.

BASILAN v. COMMISSIONER (21 SCRA 17) Facts: Basilan estate inc., a corporation engaged in coconut industry filed an income tax return and paid income tax on 1954 for period 1953. upon examination however the Commissioner assessed Basilan estates for eficiency estate tax and surcharge. On non-payment a warrant of distraint and levy was issued but not executed when the deputy commissioner ordered the District Director to hold execution and maintain construction embargo instead. Because of its refusal to execute waiver of prescription , Basilans request for reinvestigation was not given due course. Notice was served that the warrant would be executed. Basilan filed petition for review with CTA alleging prescription of the period of assessment and collection considering that the assessment was made on February 26, 1959 but Basilan claims it never received the same or if it did it was received beyond the five-year period. To prove it the notice had an annotation stating no accompanying letter 11/25/ indicative that the notice was after March 24, 1959, the last date of the five year period within which to assess deficiency tax, since the original returns were filed on March 24, 1954. \ Issue: Was the assessment made within the prescriptive period? Held: Yes. Under Sec. 331 of the Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed made when the notice to his effect is released, mailed or sent by the collector of internal revenueto the taxpayer and it is not required that the notice be received y the taxpayer within the aforementioned 5-year period.

YABES v. COMMISSIONER (150 SCRA 278) Facts: The taxpayer receives a notice of collection while waiting for the decision of his protest. He then filed an appeal with the CTA contending his protest has been denied because he did not receive a decision but receive a notice of collection. Simultaneously, the BIR filed before the CFI an ordinary civil action for the collection of sum of money. When the judge of the CFI, was about to conduct the hearing of the case, the taxpayer filed an injunction with the SC to prohibit the judge of the CFI contending that a single cause of action is pending in two courts, one in the CTA and another in CFI. Issue: Whether or not the action of the tax payer is the right remedy. Held: Injunction was granted prohibiting the Judge of the CFI and requiring the Judge to transfer the records to the CTA saying that the remedy made by the taxpayer was the correct remedy. UNION SHIPPING LINES v. COMMISSIONER Facts: The taxpayer was waiting for the decision of his protest. But instead, he received a notice of collection. Immediately, he filed a Motion for Reconsideration and Clarification asking whether his protest has been denied. The BIR did not reply or answer but instead filed an Ordinary Civil Action before the CFI. When the taxpayer received summons, he did not answer but instead filed an Appeal before the CTA. Issue: Whether or not the remedy of Appeal was the correct remedy and Whether or not it was filed on time. Held: Yes. The remedy of appeal is the correct remedy and the appeal was filed on time. The reckoning period within which to file an appeal is the time the taxpayer received the summons.

BPI-Family Savings Bank vs. CA Facts: BPI claims for a tax refund of P112,491. As appearing in its 1989 ITR, BPI has a total of P297,492 refundable taxes. BPI declared in its 1989 ITR that it would apply the excess withholding tax as a tax credit for the year 1990. Subsequently, however, BPI claimed for a tax refund since in the year 1990 it suffered losses, thus, could not have applied said amount as tax credit. The CIR and CTA denied this on the ground that BPI failed to show its 1990 ITR which would show that the amount claimed was not applied as a tax credit. Issue: Whether or not BPI is entitled to a tax refund. Held: Affirmative. Evidence shows that petitioner suffered a net loss in 1990, thus, it could not have applied the amount claimed as tax credits.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness. COMMISSIONEROF INTERNAL REVENUE V.TMXSALES, INC.(205SCRA 184) Facts: TMX sales, inc., a domestic corporation, filed on 15 May 1981 a quarterly income tax return for the first quarter of 1981 and paid the corresponding income tax thereon. During the subsequent quarters, it suffered losses so that when it filed its Annual Income Tax Return for the year that ended on 31 December 1981, it declared a net loss. It thereafter filed a claim for refund, which was no acted upon by the Commissioner of Internal Revenue. On 14 March 1984, TMX Sales, Inc. filed a petition for review with the Court of Tax Appeals to order the CIR to refund the amount overpaid as income tax. The CIR raised the defense of prescription against TMX Sales,Inc.,stating that more than two years had already elapsed since TMX paid the contended income tax and the filing of the claim in court. Issue Does the two-year prescriptive period to claim a refund of erroneously collected tax provided for in Section 230 of the National Internal Revenue Code commence to run from the date the quarterly income tax was paid, or from the date of filing of the Final Adjustment Return (final payment)? Held: The most reasonable and logical application of the law would be to compute the two-years prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. Notes: The filing of quarterly income tax returns required in Section 68 the Tax Code and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere instalments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar year or fiscal year. This is reinforced by Section 69 which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive provided in Section 230 of the Tax Code should be computed from the time of the filing of the Adjustment Return or Annual Income Tax Return and final payment of income tax. II. Local Taxation

BULACAN v. CA (299 SCRA 442) Facts: The then governor, Obet Pagdanganan together with his provincial council passed an ordinance imposing tax on quarrying under the provision of Sect. 138 of the LGC. The problem is that the ordinance applies to all entities quarrying in the province. One of the taxpayers, Republic Cement obliged to pay the tax, argued that under Sect. 138 of the LGC, the tax on quarrying on which the province may be allowed shall only be with regard to quarrying private land, and not only that but under Sect. 133(H), there is a prohibition to impose excise tax and tax on quarrying under the IRC is an excise tax. Held: Whether or not the contention is meritorious.

The tax on quarrying allowed to provincial governments shall only be with regard to lands which are public lands, and since this is a private tax on quarrying refers to a lot without any distinction. Hence, if the LGC made a qualification as to the kind of land (where it says it should be public land), by implication, it should refer to private land under 151 (although the law did not distinguish); and since it is a tax by the national government, it should be collected by the BIR (not the LGU), and also the SC agreed that it is an excise tax where LGUs are prohibited from collecting; thus, the SC declared the tax ordinance null and void for being contrary to law. PALMA DEVT CORP v. MALANGAS ZAMBOANGA DEL SUR (113 SCRA 572) Facts: Municipal council passed a tax ordinance entitled police surveillance fee which provide that all motor vehicle passing through a particular street in the town proper of Malangas which will lead to the pier or wharf will pay a certain sum of money whether it is camote, copra, palay,or rice. One of trihe owners of the motor vehicle is Palma Devt Corp. carrying copra, banana and coconut to be loaded in a ship docked at pier of Malangas. The lawyer of petitioner assailed the validity of the ordinance stating that it is a clear violation of Section 133(E). Issue: Whether or not the ordinance is valid authorizing the LGU to collect the referred fee. Held: It is not the title of the ordinance which is controlling but it is the essence of the substance of the tax ordinance. The tax ordinance clearly violated Section 133(E), therefore, the SC had no option but to declare the tax ordinance null and void for being in violation of the law.

FIRST HOLDING CO. v. BATANGAS CITY (300 SCRA 661) Facts: This revealed to the public the existence of 2 very big oil pipelines coming form Batangas City with a distance of more than 100km, one going to Pandacan Oil Depot and the other one is going to Brgy. Bicutan, Taguig. The Batangas City council deemed it necessary to impose a tax on the gross receipt of the 1st holding company for the operation of the oil pipeline, but the operator argued that the oil pipeline is not a common carrier. Issue: Weather or not the pipeline is a common carrier. Whether or not Batangay City is allowed to imposed percentage tax on common carriers. Held: The SC reasoned out like in the case of Pajunar v. Comm (328SCRA666), saying that we have copied the code of carrier law form the US where the definition of a common carrithe pipeline er is one habitually carrying not only individuals or passengers but also goods or commodities, and since the oil pipelines is habitually carrying petroleum products which is a commodity, we rule this as a common carrier which is under Sect 133(J), LGU is prohibited from imposing tax on common carriers, and not only that but under Sect170 of he LGC, the law is very explicit, that ALL LGUs are prohibited to impose percentage tax on common carriers. With that, the tax ordinance passed was declared null and void for being contrary to law. BATUAN CITY v. LTO (322 SCRA 805) Facts:

This is a question on the delegated authority over the franchising of tricycle operation ot LGUs re: within the City of Butuan granting the franchise through its local LTFRB and the registration of tricycles by the the LTO.

Issue: Which function was delegated to the LGU? The LTO registering motor vehicles or the LTFRB granting franchise and regulation of common carriers? Held: Under 133(L), the function of the LTO is prohibited, and therefore what may be delegated to the LGU is the function of LTFRB. NAIA v. PARANAQUE (JULY 2006) Facts Paranaque tried to impose tax on the real properties of the NAIA claiming that the entity is , however H: SC ruled in favor of the airport. Paranaque being a LGU cant impose tax on a government instrumentality. Airport owned by the government is not an agency, it being an instrumentality. Q: May the government tax itself it the taxing power is the local government? A: NO. The local government cannot impose tax on the national government, and with more reason that it cannot impose a tax with equal LGU CEBU v. MACTAN (261 SCRA 667) Facts: MCIAA was created by virtue of RA 6958. Since the time of its creator, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with sec. 14 of its charter. On October 11, 1994 however The treasurer of Cebu city demanded payments for realty taxes on several parcels of lands belonging to the petitioners. MCIAA objected to such demand for payment as baseless and unjustified, claiming in its favour Sec. 14 of R.A. 6958 which exempt it from payment of realty taxes. Respondent refuse to cancel MCIAAs tax account, insisting that it is the GOCCs whose tax exemption privilege has been withdrawn by virtue of Sec 193 and 234 of the LGC. Issue: is the contention meritorious? Held: No. Sec 193 LGC prescribe the general rule that they are withdrawn upon the effectivity of the code except those granted to local water districts, cooperative duly registered under R.A. 6938, non-stock, nonprofit hospitals and educational institutions, and unless otherwise provided in the LGC the latter provision called only refer to Sec 234 which enumerate the properties exempt from real property tax but the last paragraph of sec 234 further qualifies the retention of the exemption. Only to those enumerated therein. Thus, for petitioner to be exempt must show that the parcels of land in question any of those enumerated in 234.

LRT v. CITY OF MANILA (342 SCRA 692) Facts: The Manila City Government Government tried to collect real property tax of LRT but the management contends that the City is not empowered to impose real estate tax of the same since they are used exclusively for public use.

Issue: Is the contention of the LRT Management correct? Held: No, it ruled that it is not used exclusively for public use since every time a person wants to use the LRT he has to pay. BASCO v. PAGCOR (197 SCRA 52) Basco v. Pagcor Facts: PAGCOR was created and given a franchise under PD 1067. Petitioner filed a petition on the grounds that the PAGCOR Charter is contrary to morals, public policy and order, and because it constitutes a waiver of the right of Manila City government's right to impose taxes and license fees, which is recognized by law. They assail Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." Issue: Whether or not PAGCOR Charter is violative of the autonomy of the local government? Held: No, it is not violative of the law. Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government.

CAGAYAN DE ORO ELECTRIC CO. v. MISAMIS OCCIDENTAL (181 SCRA 38) Facts: Cagayan de Oro Electric Cooperative was granted a franchise by the national government, by virtue of an ordinance the province tried to collect a business or franchise tax on the said cooperative. The cooperative objected with that the LGU is not empowered to collect said tax in lieu of the taxes paid by the same with the national government. Issue: Whether or not the is the position of the cooperative is meritorious Held: In the franchise or the republic act, there are only two (2) kinds of franchise,one is a franchise which provide for a condition that this tax (referring to the franchise tax) shall be in lieu of all othertaxes, and the other franchise is the one which do not provide for such provision; the province or the city can impose local franchise tax if the franchise belong to the second example. PLDT v. DAVAO (363 SCRA 750) Facts: The franchise holders of Smart and Globe are claiming exemptions from the local franchise tax because they are saying that they are holding a franchise which says that it is a franchise enacted by the house of

Congress in 1995 which carries with it an exemption form local franchise tax. H: By the very explicit provision of 193, the removal of exemptions granted by different statutes and also by SC decisions applies only to statutes and decided by the SC on or before Jan. 1, 1992, because 193 says upon effectivity of this law. For exemptions covered by 193 therefore, Smart and Globe are authorized to claim exemptions because the statue (RA 7082) was enacted on 1995. Issue: Whether the relief demanded is meritorious. Held: By the very explicit provision of 193, the removal of exemptions granted by different statutes and also by SC decisions applies only to statutes and decided by the SC on or before Jan. 1, 1992, because 193 says upon effectivity of this law. For exemptions covered by 193 therefore, Smart and Globe are authorized to claim exemptions because the statue (RA 7082) was enacted on 1995. PBA v. QUEZON CITY (137 SCRA 358) Facts: The city government enacted a tax ordinance trying to collect amusement tax including amusement tax on the PBA (inAraneta, Cubao); but PBA and no, we are already paying amusement tax to the national government through the BIR because of 125 of the IRC Held: QC government can no longer collect on the ground that it is already being collected by the national government and secondly, in the enumerations of amusement under Section 140, you will never see professional basketball. Most of all, it is the intention of the author that it is only the national government. ILO-ILO BOTTLERS v. ILO-ILO CITY (164 SCRA 607) Facts: Ilo-ilo Bottlers was already paying a business tax on manufacturing under 143(A) to the city government by virtue of a tax ordinance. Later on, they are obliged to pay by virtue of another tax ordinance imposing business tax on wholesaling. Naturally, Ilo-ilo Bottlers argued, how could it be, if you manufacture, it necessary follows that you sell the commodity so, with the payment of the business tax onmanufacturing, it carries with it the business of wholesaling. Held: NO, you have to determine the marketing system of the company. If wholesaling is also being done in the place of manufacture, the business tax on wholesaling should no longer be paid it should only be the business tax on manufacturing. But if the marketing system of the company provides that wholesaling shall be done in a separate place (maybe several kilometers away), the manufacturer must still pay the business tax on wholesale because now it could be argued that they have the separate business of wholesaling. SHELL v. CEBUCOT, CAMARINES SUR (105 PHIL 1063) Facts: The petroleum products were purchased at the motor vehicle traversing the neighboring towns of Cebucot like Bason, Dimalaon, all towns in Camarines Norte. The contract of sale was negotiated and perfected in different municipalities where the motor vehicle of Shell was traveling. Issue: Whether or not Cebucot can impose tax on the contract of sales

Held: Although the oil depot was located in Cebucot, the said municipality cannot impose tax on that because the contract of sale was negotiated and perfected in the different nearby towns of Camarines.

PHIL MATCHES v. CEBU (81 SCRA 99) Facts: Phil Matches were produced in Nagtahan, Manila. In Cebu city, there was a warehouse where the matches were stored. Many of the customers, by way of wholesale in the warehouse in Cebu City, they came from different towns of the Visayan Region. May the business tax ordinance of Cebu be imposed on those transactions even if the buyers did not come from the territorial jurisdiction of Cebu? Issue: Whether or not the Cebu allowed to collect the business tax. Held: Since in this case the contract booked and paid, meaning, it was negotiated perfected and consummated in the warehouse where it was located in Cebu City, the Cebu City government has the right to collect business tax.

Iloilo Bottlers v. City of Iloilo (Territorial) Facts: The City of Iloilo implemented a tax ordinance imposing an excise tax on the privilege of distributing, bottling or manufacturing softdrinks within its territorial jurisdiction. Iloilo Bottlers formerly complied with this tax ordinance but it stopped paying when it transferred its plant to Pavia, Iloilo which is outside Iloilo City. The defendant, Iloilo City, demanded payment from the plaintiff. Plaintiff paid under protest so as not to disrupt its business operations. Issue: Whether or not Iloilo Bottlers was liable under the tax ordinance Held: Yes; plaintiff bottled and manufactured outside Iloilo City but it distributed within the citys territory. Excise taxes can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority. The situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. here is no question that after it transferred its plant to Pavia, Iloilo, Iloilo Bottlers no longer manufactured and bottled its softdrinks within Iloilo City. Thus it can only be taxed if it could be considered to distribute softdrinks in Iloilo City. For tax purposes, there are 2 types of marketing systems: a. 1st system all sales are made and entered into in the main office; no warehouse sales; no separate stores maintained for selling. b. 2nd system sales are entered into at stores or warehouses maintained by the company. Those following the 1st system are not considered engaged in the separate business of selling or dealing in their products, the distribution process merely an incident or a necessary consequence of the primary business. In other words, the Court recognizes that the right to manufacture implies the right to sell. Plaintiff was found to be under the 2nd system. It must be considered to be engaged in the separate business of selling. Plaintiffs fleet of delivery trucks did not merely deliver goods already sold but also served as rolling stores. Route salesmen sold goods independently from the main store. Phil Petroleum Corporation vs. Mun of Pililia, Rizal GR 90776 June 3, 1991 / 198 SCRA 82

Facts: Petitioner, Philippine Petroleum Corporation (PPC) owns and maintains an oil refinery conducting business within the municipality of Pililia, Rizal. P.D. 231 or the local tax code of 1973 provide for the Municipality of impose taxes on business any article of commerce. Thereafter, Provincial Circular 26-73 was issued directing all provincial, City and municipal treasurers to refrain from collecting any local imposed in petroleum products. In 1974, P.D. 426 amended certain provisions of P.D. 231. The municipality of Pililia, through Municipal Tax ordinance 1, S-1974, imposed tax on business. In the RTC, respondent received a favorable decision, directing herein petitioner to pay the tax and fees impose unto it. Petitioner contended that Provincial Arcular 26-73 suspended the effectively of local tax ordinances of the local tax code. Issue: Whether or not Provincial Circular No. 26-73 supersedes the provisions of P.D. 231 as amended by P.D. 426? Held: The court ruled in the negative, stating that in case of discrepancy between the basic law and on implementing rule or regulation, the former prevails. P.D. 426, amending the local tax code repealed P.C. No. 26-73 and 26-A73 where section 19 of which stated the municipality may impose taxes on business manufacturers importers or producers of any article of commerce of whatever kind or nature Thus, the order of the lower court was affirmed by SC with certain modification. In the case at bar, the provisions of the local tax code of 1974 supersedes P.C. 26-73, likewise upholding the constitutional right granted to local autonomy to imposed taxes.

Cesar P Valera LLB-III Abra Valley Colleges Bangued, Abra 11 Jul 2012