TAX 2 DIGESTS Lorenzo v.

Posadas Thomas Hanley died in 1922 in Zamboanga leaving a will w/c provided that: o Any money left be given to nephew Matthew o All real estate shall not be sold or disposed of 1 years after his death! "t shall be managed by the e#ec$tors! The proceeds shall be given to nephew Matthew in "reland to be $sed only for the ed$cation of Hanley%s brother&s children and their descendants! o 1 years after Thomas% death' his property be given to Matthew to be disposed of in the way he thin(s most advantageo$s "n 192)' the *+" appointed an administrator' Moore' event$ally replaced by ,oren-o .after Moore resigned/! *"0 assessed the estate inheritance ta#es from the time of Thomas% death incl$ding penalties for deli1$ency in payment .22(3/! *"0 filed a motion before the *+" praying that the ,oren-o be ordered to pay the said amo$nt! The motion was granted! ,oren-o paid $nder protest and as(ed for a ref$nd! *"0 ref$sed to ref$nd! ": (a) When does the inheritance tax accrue and hen !ust it "e satis#ied$ %P&' DEAT( Lorenzo asserts that article 657 of the Civil Code (the rights to the succession of a person are transmitted from the moment of his death) operates only in so far as forced heirs are concerned. H456760' there is no distinction between different classes of heirs! The Administrative *ode imposes the ta# $pon the transmission of property of a decedent' made effective by his death! An e#cise or privilege ta# imposed on the right to s$cceed to' receive' or ta(e property by or $nder a will or the intestacy law' or deed' grant' or gift to become operative at or after death! The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had e#ec$ted and delivered to them a deed for the same before his death! 8ince Thomas Hanley died on May 29' 1922' the inheritance ta# accr$ed as of the date! However' it does not follow that the obligation to pay the ta# arose as of the date! The time for the payment on inheritance ta# is fi#ed by the 0evised Administrative *ode w/c provides that the payment m$st be made before entrance into possession of the property of the fideicommissary or cest$i 1$e tr$st! Th$s' the ta# sho$ld have been paid before the delivery of the properties to Moore as tr$stee in 192)!

(") Shou)d the inheritance tax "e co!*uted on the "asis o# the va)ue o# the estate at the ti!e o# the testator+s death, or on its va)ue ten -ears )ater$ AT T(E TI.E &/ DEAT( laintiff contends that the estate of !homas "anley could not legally pass to #atthe$ until after the e%piration of &' years from the death of the testator in &()) and the inheritance ta% should *e *ased on the value of the estate in &(+). :pon the death of the decedent' s$ccession ta(es place and the right of the estate to ta# vests instantly! The ta# sho$ld be meas$red by the val$e of the estate as it stood at the time of the decedent&s death' regardless of any s$bse1$ent contingency val$e of any s$bse1$ent increase or decrease in val$e' or the postponement of the act$al possession or en;oyment of the estate by the beneficiary! (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to trustees? NO , trustee- no dou*t- is entitled to receive a fair compensation for his services. "o$ever- it does not follo$ that the compensation due him may la$fully *e deducted in arriving at the net value of the estate su*.ect to ta%. /irst- !here is no statute re0uiring trustees1 commissions to *e deducted in determining the net value of the estate su*.ect to inheritance ta%. 2econd- though a testamentary trust has *een created- the testator intended that the duties of his e%ecutors and trustees should *e separated. (d) What law governs the case at bar? hould the provisions of !ct No" #$%$ favorable to the tax&pa'er be given retroactive effect? NO !he la$ at the time $as section &533 of the 4evised ,dministrative Codeas amended *y ,ct 5o. +'+&- $hich too6 effect on #arch (- &()). 7nheritance ta%ation is governed *y the statute in force at the time of the death of the decedent . , statute should *e considered as prospective in its operation- $hether it enacts- amends- or repeals an inheritance ta%unless the language of the statute clearly demands or e%presses that it shall have a retroactive effect. 0I1 v /isher 5alter <! 8tevenson was born in the 2hilippines of =ritish parents' married in Manila to another =ritish s$b;ect' =eatrice! He died in 19>1 in *alifornia where he and his wife moved to! "n his will' he instit$ted =eatrice as his sole heiress to certain real and personal properties' among which are 21 ' shares of stoc(s in Mindanao Mother ,ode Mines .Mines/! "an M$rray 8tatt .8tatt/' the appointed ancillary administrator of his estate filed an estate and inheritance ta# ret$rn! He made a preliminary ret$rn to sec$re the waiver of the *"0 on the inheritance of the Mines shares of stoc(!

TA? 2 @ M4AT604 B C! 8anche- A2 12

"n 19>2' =eatrice assigned all her rights and interests in the estate to the spo$ses +isher! 8tatt filed an amended estate and inheritance ta# ret$rn claiming ADD"T"4AA, 6?6M2T"4A8' one of which is the estate and inheritance ta# on the Mines% shares of stoc( p$rs$ant to a reci*rocit- proviso in the A"0*' hence' warranting a ref$nd from what he initially paid! The collector denied the claim! He then filed in the *+" of Manila for the said amo$nt! *+" r$led that .a/ the E share of =eatrice sho$ld be ded$cted from the net estate of 5alter' .b/ the intangible personal property belonging to the estate of 5alter is e#empt from inheritance ta# p$rs$ant to the reciprocity proviso in A"0*! ": 5/A the estate can avail itself of the reciprocity proviso in the A"0* granting e#emption from the payment of ta#es for the Mines shares of stoc( 0: Ao! 0eciprocity m$st be total! "f any of the two states collects or imposes or does not e#empt any transfer' death' legacy or s$ccession ta# of any character' the reciprocity does not wor(! "n the 2hilippines' $pon the death of any citi-en or resident' or nonFresident with properties' there are imposed $pon his estate' both an estate and an inheritance ta#! =$t' $nder the laws of *alifornia' on)- inheritance tax is imposed! Also' altho$gh the +ederal "nternal 0even$e *ode imposes an estate ta#' it does not grant e#emption on the basis of reciprocity! Th$s' a +ilipino citi-en shall always be at a disadvantage! This is not what the legislators intended! 2 8C7/7C,LL9: 2ection&)) of the NI() provides that 5o ta% shall *e collected under this !itle in respect of intangi*le personal property o (a) if the decedent at the time of his death $as a resident of a foreign country $hich at the time of his death did not impose a transfer of ta% or death ta% of any character in respect of intangi*le personal property of citizens of the hilippines not residing in that foreign country- or o (*) if the la$s of the foreign country of $hich the decedent $as a resident at the time of his death allo$ a similar e%emption from transfer ta%es or death ta%es of every character in respect of intangi*le personal property o$ned *y citizens of the hilippines not residing in that foreign country.; <n the other hand- 2ection &+=5& of the )alifornia Inheritance *ax +aw provides that intangi*le personal property is e%empt from ta% if the decedent

at the time of his death $as a resident of a territory or another 2tate of the >nited 2tates or of a foreign state or country $hich then imposed a legacysuccession- or death ta% in respect to intangi*le personal property of its o$n residents- *ut either:. (a) ?id not impose a legacy- succession- or death ta% of any character in respect to intangi*le personal property of residents of this 2tate- or (*) "ad in its la$s a reciprocal provision under $hich intangi*le personal property of a non@ resident $as e%empt from legacysuccession- or death ta%es of every character if the !erritory or other 2tate of the >nited 2tates or foreign state or country in $hich the nonresident resided allo$ed a similar e%emption in respect to intangi*le personal property of residents of the !erritory or 2tate of the >nited 2tates or foreign state or country of residence of the decedent.; 0I1 v 0a!*os 1ueda Maria *erdeira was a 8panish national by reason of her marriage to a 8panish national! 8he resided in Tangier' Morocco $ntil she died! 8he left some intangible properties in the 2hilippines! The *ommissioner of "nternal 0even$e .*"0/ then held the administrator of her estate' *ampos 0$eda' to be liable for deficiency estate and inheritance ta#es after the transfer of Maria%s intangible properties in the 2hilippines! *ampos 0$eda co$ntered this by saying that 8ection 122 .now sec 1 )/ of the A"0* provided for reciprocity @ and that in the laws of Tangier' Morocco' ;the transfers *y reason of death of mova*le properties- corporeal or incorporeal- including furniture and personal effects as $ell as of securities- *ondsshares- ...- $ere not su*.ect- on that date and in said zone- to the payment of any death ta%- $hatever might have *een the nationality of the deceased or his heirs and legatees.; Th$s' *ampos 0$eda claimed an e#emption in the amo$nt that the *"0 was claiming as a deficiency! The *"0 on the other hand claimed that the reciprocity cla$se co$ld not apply since Tangier Morocco is not a Gforeign co$ntryH as re1$ired in sec 122!

TA? 2 @ M4AT604 B C! 8anche- A2 12

": 5/A Tangier' Morocco is a G+oreign co$ntryH within the meaning of section 122 .now sec 1 )/ of the A"0* 0: C68' Tangier is a Gforeign co$ntryH The e#pression Iforeign co$ntryI' $sed in the last proviso of 8ection 122 of the Aational "nternal 0even$e *ode' refers to a government of that foreign power which' altho$gh not an international person in the sense of international law' does not impose transfer or death ta#es $pon intangible personal properties! "t is' therefore' not necessary that Tangier sho$ld have been recogni-ed by o$r <overnment order to entitle the petitioner to the e#emption benefits of the proviso of 8ection 122 of o$r Ta#! *ode! *o$rt also cited previo$s cases: o *"0 v! De ,ara: 8tate of *alifornia was considered a G+oreign co$ntryH within the meaning of sec 122! o Jiene v! *"0: ,iechtenstein was considered a Gforeign co$ntryH within the meaning of sec 122! "n this case' it was stated that while :8 decisions held that intangible personal property in the 2hilippines belonging to a nonF resident foreigner' who died o$tside of this co$ntry is s$b;ect to the estate ta#' the congress' in incl$ding sec 122 in the A"0* clearly provided for an e#emption .reciprocity/ @ and this e#emption m$st be honored!

2a*anta v Posadas +ather =ra$lio 2ineda died witho$t any ascendants or descendants leaving a will in which he instit$ted his sister "rene 2ineda as his sole heiress! D$ring his lifetime +ather =ra$lio donated some of his property to the si# plaintifffs' his relatives' severally' with the condition that some of them wo$ld pay him a certain amo$nt of rice' and others of money every year' and with the e#press provision that fail$re to f$lfill this condition wo$ld revo(e the donations ipso facto! The donations contained another cla$se that they wo$ld ta(e effect $pon acceptance! They were accepted d$ring +ather =ra$lio&s lifetime by every one of the donees! *"0 then imposed $pon the K plaintiffs separate inheritance ta#es on the property donated to them in accordance with 8ection 1>LK of the Administrative *ode' as amended' which states that G6very transmission by virt$e of inheritance' devise' be1$est' gift mortis causa or advance in anticipation of inheritance' devise' or be1$est of real property located in the 2hilippine "slands and real rights in s$ch propertyH

The K plaintiffs paid the inheritance ta# $nder protest and s$bse1$ently filed a separate civil action against the *"0! The trial co$rt in deciding these si# cases' held that the donations to the si# plaintiffs made by the deceased +ather =ra$lio 2ineda are donations inter vivos' and therefore' not s$b;ect to the inheritance ta#' and ordered the *"0 to ret$rn to each of the plaintiffs the s$ms paid by the latter! ": 5/n the donation made by +ather =ra$lio was in fact a donation mortis ca$sa' and th$s ta#able! 0: A4' the donation was inter vivos! "t was th$s not ta#able! Donations were inter vivos considering that not only was it stated as s$ch in the instr$ments in which they appeared' b$t they were also made in the nat$re of a donation inter vivos! "n donations mortis ca$sa' it is the donor%s death that determines the ac1$isition of' or the right to' the property' and that it is revocable at the will of the donor! "n donations inter vivos' as in the present case' the donees ac1$ired the right to the property while the donor was still alive' s$b;ect only to their acceptance and the condition that they pay the donor rice and/or money! The nat$re of these donations is not affected by the fact that they were s$b;ect to the condition of payment since it was imposed as a resol$tory condition' and in this sense' it is necessarily implies that the right came into e#istence first' otherwise there wo$ld be nothing to resolve $pon the nonf$lfillment of the condition imposed! "f the donor&s life is mentioned in connection with this condition' it is only fi# the donor&s death as the end of the term within which the condition m$st be f$lfilled' and A4T beca$se s$ch death of the donor is the ca$se which determines the birth of the right to the donation! The property donated passed to the ownership of the donees from the acceptance of the donations' and these co$ld not be revo(ed e#cept $pon the nonf$lfillment of the condition imposed' or for other ca$ses prescribed by the law' b$t not by mere will of the donor! .However' considering that these donations had onero$s conditions' they are not donations to the f$ll e#tent! 0ather' they are partly contract$al and partly donations! They are donations inter vivos only insofar as they e#ceed to the inc$mbrance imposed!/ 5either can these donations *e considered as an advance on inheritance or legacy- since they $ere not heirs or legatees of their predecessor in interest upon his death (2ec. &53' of the ,dministrative Code). 5either can it *e said that they o*tained this

TA? 2 @ M4AT604 B C! 8anche- A2 12

inheritance or legacy *y virtue of a document $hich does not contain the re0uisites of a $ill (2ec. 6&= of the Code of Civil ocedure). Aesides- if the donations made *y the plaintiffs are- as the appellants contended- mortis causa- then they must *e governed *y the la$ on testate succession (art. 6)' of the Civil Code). 7n such a case- the documents in $hich these donations appear- *eing instruments $hich do not contain the re0uisites of a $ill- are not valid to transmit the property to the donees (2ec. 6&=- Code of Civil rocedure.) !hen the defendants are not .ustified in collecting from the donees the inheritance ta%- on property $hich has not *een legally transferred to them- and in $hich they ac0uired no right. ?issenting <pinion *y Bustice 2treet: Bustice 2treet strongly *elieved that the present case involved advances in anticipation of inheritance considering that the donees $ere entitled to receive an inheritance if no $ill had *een made *y the decedent. "e *elieved that $hat transpired in the present case is an attempt *y the donor to evade the payment of ta%es *y disposing of the *ul6 of his property *efore his death.

Tuason v Posadas "n 1922' 6speran-a T$ason *h$a;ap made a donation inter vivos of certain property to Mariano T$ason! "n 192L' she made another donation inter vivos' this time to Alfredo T$ason! 8he died L years after leaving a will be1$eathing 2>' 2> to Mariano T$ason after the ;$dicial administrati# paid the prescribed inheritance ta# on these two be1$ests! *onse1$ently' 2osadas collected the s$ms of 2L' M 9!9K and 2K' K>L!K) from both the petitioners as inheritance ta# $pon the gifts inter vivos made to them against their opposition and protest! They filed their protest and the ;$dgment was that the defendant m$st ret$rn the amo$nt claimed by the plaintiff! 2osadas appealed and arg$ed that the collection of these amo$nts as inheritance ta# is a$thori-ed by the law! ": 5/n 2osadas was correct in collecting inheritance ta# 0: C68! 8ection 1>LK of the Administrative *ode provides that every transmission by virt$e of inheritance' devise' be1$est' gift mortis ca$sa' or advance in anticipation of inheritance' devise' or be1$est shall be s$b;ect to ta#! 8ection 1>) then provides that after ded$ctions have been made' there shall be added to the res$lting amo$nt the val$e of a)) 3i#ts or advances !ade "- the *redecessor to an- o# those ho,

a#ter his death, sha)) *rove to "e his heirs, devisees, )e3atees, or donees mortis causa. 5hen the law say all gifts' it do$btless refers to gifts inter vivos' and not mortis causa! =oth the letter and the spirit of the law leave no room for any other interpretation! The lang$age refers to donation that too( effect before the donor&s death' and not to mortis causa donations' which can only be made with the formalities of a will' and can only ta(e effect after the donor&s death! "n this case' it appears that the T$a-ons' after the death of 6sperean-a' were fo$nd to be legatees $nder her will! Th$s' the donation inter vivos she had made to them in 1922 and 192L' m$st be added to the net amo$nt that is to be ta#ed! I# the donee inter vivos as #ound to "e )e3atees, heirs, devisees &1 donees !ortis causa o# the decedent, then the- ou)d have to *a- the inheritance tax. The reason #or this is "ecause the donation inter vivos is dee!ed to "e a trans#er in antici*ation o# inheritance4death, !eanin3 that it is a sche!e to evade *a-!ent o# taxes.

Dizon v Posadas Di-on was assessed to pay 22(3 as inheritance ta# from the properties he received from his father prior to his father%s death thro$gh a deed of gift inter vivos! Di-on alleged that the ta# was illegally collected beca$se he received the property prior to the death of his father' thro$gh a deed of gift inter vivos which was d$ly accepted and registered before the death of his father ma(ing the property not an inheritance! He f$rther states that he was not trying to evade the inheritance ta# that is imposed on heirs when his father donated all his properties to him! Th$s' no inheritance ta# $nder Act Ao! 2K 1 .*hapter ) of the Administrative *ode/' being the inheritance ta# stat$te' sho$ld be imposed $pon the said properties! The *o$rt' however' r$led in favor of 2osadas' hence' this appeal! ":5/A the inheritance ta# was correctly imposed $pon the properties transferred thro$gh donation inter vivos 0: C68! 8ection 1>) of the Administrative *ode states that after ded$ctions have been made' there shall be added to the res$lting amo$nt the val$e of all gifts or advances made by the predecessor

TA? 2 @ M4AT604 B C! 8anche- A2 12

to any of those who' after his death' shall prove to be his heirs' devises' legatees' or donees mortis causa "n this case facts conveyance was made by the donor five days before his death and accepted by the donee one day before the donor&s death! 4bvio$sly' this was fra$d$lently made for the p$rpose of evading the inheritance ta#! As to Di-on%s contention that the he is not an heir beca$se there is no property to inherit anymore beca$se he already received the properties of the father thro$gh a donation inter vivos' 8* said that even if they don%t (now w/n the father left a will' Di-on sho$ld A4T be deprived of his share of the inheritance beca$se the *ivil *ode confers $pon him the stat$s of a forced heir! Th$s' an advance made by the decedent to Di-on is s$b;ect to ta#! As to Di-on%s contention that 8ection 1>) is $nconstit$tional in ta#ing gifts or donations beca$se the act wo$ld then embrace two s$b;ects' the *o$rt states that: 5hen the law says all gifts' it do$btless refers to gifts inter vivos' and not mortis causa! =oth the letter and the spirit of the law leave no room for any other interpretation! 8$ch' clearly' is the tenor of the lang$age which refers to donations that too( effect before the donor&s death' and not to mortis causa donations' which can only be made with the formalities of a will' and can only ta(e effect after the donor&s death! The )a *resu!es that such 3i#ts have "een !ade in anciti*ation o# inheritance in order to E5ADE tax. Thus, to *revent this, the- are added to the resu)tin3 a!ount. I

donations inter vivos! "f it does' it is n$ll and void as it violates $niformity of ta#ation! ": 5/n donations inter vivos is incl$ded in 8ec! 1>) of the Administrative *ode 0: Ao! The gifts referred to in section 1>) of the 0evised Administration *ode are' obvio$sly' those donations inter vivos that ta(e effect immediately or d$ring the lifetime of the donor b$t are made in consideration or in contemplation of death! <ifts inter vivos' the transmission of which is A4T MAD6 "A *4AT6M2,AT"4A 4+ TH6 D4A40&8 D6ATH sho$ld not be $nderstood as incl$ded within the said legal provision for the reason that it wo$ld amo$nt to imposing a direct ta# on property and not on the transmission! This act does not come within the scope of the provisions contained in Article ?" of *hapter ) of the Administrative *ode which deals e#pressly with the ta# on inheritances' legacies and other ac1$isitions mortis causa.

5ida) de 1oces v Posadas 6speran-a T$a-on by p$blic doc$ment donated parcels of land sit$ated in Manila to plaintiffs 7idal de 0oces' etc! with their respective h$sbands' accepted them in the same p$blic doc$ments' which were d$ly recorded in the registry of deeds! The plaintiffs too( possession of the said lands' received the fr$its and obtained T*Ts! The donor then died w/o any forced heir and in her will' she be1$eathed to each of the donees the s$m of 2>' ! After the estate had been distrib$ted among the instit$ted legatees and before delivery of their respective shares' the *"0 r$led that the donees sho$ld pay inheritance ta#! They th$s paid $nder protest' contending that Art 1>) of the 0evised Administrative *ode .after ded$ctions have been made' there shall be added to the res$lting amo$nt the val$e of all gifts / advances made by the predecessor to any of those who after his death prove to be heirs' devisees' legatees or donees mortis ca$sa/ does A4T incl$de

0I1 v 0A and Pa6onar 2edro 2a;onar' a member of the 2hilippine 8co$t d$ring 55"" was a part of the infamo$s Death March by reason of which he s$ffered shoc( and became insane! His sister Nosefina became the g$ardian over his person' while his property was placed $nder the g$ardianship of the 2A= by the 0T* of D$mag$ete! After his death' 2A= filed an acco$nting of his property $nder g$ardianship val$ed at LM in 8pecial 2roceedings! However' 2A= did A4T file and estate ta# ret$rn' instead it advised his heirs to e#ec$te an e#tra;$dicial settlement and to pay ta#es on the estate! 2$rs$ant to ="0%s assessment' the estate of 2edro paid ta#es in the amo$nt of 2(! Nosefina then filed a petition w/ 0T* of D$mag$ete for the iss$ance in her favor of letters of administration of the estate of her brother! 0T* appointed Nosefina as reg$lar administratri# of 2edro%s estate! The ="0 then made a 2nd amendment for deficiency estate ta#' w/c Nosefina paid $nder protest! 5itho$t waiting for her protest to be resolved by the ="0' Nosefina then filed a petition for review w/ the *TA praying for the ref$nd of 1!>M 40 the alternative M) ( as erroneo$sly paid estate ta#!

TA? 2 @ M4AT604 B C! 8anche- A2 12

*TA ordered *"0 to ref$nd Nosefina the amo$nt of 2>2(' representing erroneo$sly paid estate ta#! Among the ded$ctions from the gross estate allowed by *TA were the a!ounts o# 789 re*resentin3 notaria) #ee #or Extra6udicia) Sett)e!ent pl$s att-:s #ees #or 3uardianshi* *roceedin3s. ": 5/A the notarial fee and atty%s fees paid for the 6N 8ettlement may be allowed as ded$ctions fro the gross estate of decedent in order to arrive at the val$e of the net estate! 0: C68' they are allowed ded$ctions! ATTC%s +668: :nder American N$rispr$dence' e#penses inc$rred in the 6N 8ettlement of the estate sho$ld be allowed as ded$ction from the gross estate! GThere is not re1$irement of formal administration! "t is s$fficient that the e#pense be a A6*688A0C contrib$tion toward the settlement to the case!H Atty%s fees in order to be ded$ctible from the gross estate m$st be essential and related to the settlement of estate! "n this case' the atty%s fees paid for g$ardianship proceeding was necessary for the distrib$tion of the property of the late 2edro 2a;onar to his rightf$l heirs! Th$s' it was ded$ctible! Aecessary e#penses of administration are s$ch e#penses as are entailed for the preservation and prod$ctivity of the estate and for it%s management for the p$rposes of li1$idation' payment of debts and distrib$tion of the resid$e among the persons entitled! A4TA0"A, +668: Altho$gh ta# code specifies G;$dicial e#penses of the testamentary or intestate proceedings'H there is no reason why e#penses inc$rred in the administration and settlement of an estate in 6N proceedings sho$ld not be allowed! However' ded$ction is limited to s$ch administration e#penses as are act$ally and necessarily inc$rred in the collection of the assets of the estate' payment of debts' and distrib$tion of the remainder among those entitled thereto! 8$ch e#penses may incl$de e#ec$tor%s or administrator%s fees' atty%s fees' co$rt fees and charges' appraiser%s fees' cler( hire' costs of preserving and distrib$ting the estate and storing or maintaining it' bro(erage fees or commissions for selling or disposing of the estate! "t is clear that the 6N settlement was for the p$rpose of payment of ta#es and the distrib$tion of the estate to the heirs! The e#ec$tion of 6N settlement necessitated the notari-ation of the same! Th$s the K ( for notarial fee for the 6N 8ettlement sho$ld be allowed as a ded$ction from the gross estate! Budicial e%penses are e%penses for administration. ,dministration e%penses are deducti*le from the gross estate. 8%penses must *e essential to the proper settlement of the estate.

Testate Estate o# the )ate /e)ix de Guz!an v de Guz!an;0ari))o +eli# <$-man died and was s$rvived by eight children! 4ne of the properties he left was a residential ho$se located in the poblacion! "n conformity with his last will' that ho$se and the lot on which it stands were ad;$dicated to his eight children' each being given a oneFeighth proindiviso. The administrator s$bmitted fo$r acco$nting reports for the period from N$ne 1K' 19K) to 8eptember' 19K9! Three of the heirs *rispina de <$-mansF*arillo Honorata de <$-manFMendiola and Arsenio de <$-man interposed ob;ections to the administrator&s disb$rsements in the total s$m of 21L'K1 !)M! ": 5/n e#penses inc$rred by the administrator are ded$ctible 0: C68! (Deducti")e) <. Ex*enses #or the renovation and i!*rove!ent o# the #a!i)- residence O 21 'L99!>9! These e#penses consisted of disb$rsements for the repair of the terrace and interior of the family home' the renovation of the bathroom' and the constr$ction of a fence! The probate co$rt allowed those e#penses beca$se an administrator has the d$ty to Imaintain in tenantable repair the ho$ses and other str$ct$res and fences belonging to the estate' and deliver the same in s$ch repair to the heirs or devisesI when directed to do so by the co$rt .8ec! 2' 0$le M)' 0$les of *o$rt/! ('on;deducti")e) 2. ,xpenses incurred b' +ibrada de -u.man as occupant of the famil' residence without pa'ing rent / These were 26084AA, e#penses of ,ibrada de <$-man' in$ring to her benefit! Those e#penses' not being reasonable administration e#penses inc$rred by the administrator' sho$ld not be charged against the income of the estate! ,ibrada de <$-man' as an heir' is entitled to share in the net income of the estate! 8he occ$pied the ho$se witho$t paying rent! 8he sho$ld $se her income for her living e#penses while occ$pying the family residence! The STE'&G1AP(I0 '&TES, 1EP1ESE'TATI&' EXPE'SES and EXPE'SES D%1I'G T(E 0ELE=1ATI&' &/ T(E <ST DEAT( A''I5E1SA1> &/ T(E DE0EASED shou)d "e disa))o ed. They have no connection ith the care, !ana3e!ent and sett)e!ent o# the decedent+s estate .Aicolas vs! Aicolas KL 2hil LL2/!

TA? 2 @ M4AT604 B C! 8anche- A2 12

The other ex*enses, na!e)-, P<?.@8 #or the )a -er+s su"sistence and P<AA as the cost o# the 3i#t to the *h-sician ho attended to the testator durin3 his )ast s are a))o a")e ex*enses. (Deducti")e) A. Irrigation fee was properly allowed as a legitimate e#pense of administration!

Dizon in his ca*acit- as Ad!inistrator o# the deceased /ernandez v 0I1 N$stice Arsenio Di-on and petitioner Atty! Di-on were appointed as 8pecial and Assistant 8pecial Administrator' respectively' of the 6state of Nose +ernande-! N$stice Di-on a$thori-ed Atty! <on-ales to sign and file the re1$ired estate ta# ret$rn! Atty! <on-ales filed the estate ta# ret$rn with the ="0 0egional 4ffice of 8an 2ablo *ity' showing a A", estate ta# liability (no ta% lia*ility@ in this case- *ecause the deductions e%ceed the gross estate)! Ten days after' the ="0 0egional Director iss$ed *ertifications stating that the ta#es d$e on the transfer of real and personal properties of Nose had been f$lly paid and said properties may be transferred to his heirs! N$stice Di-on died th$s the probate co$rt appointed petitioner as the administrator of the 6state! Atty! Di-on re1$ested the probate co$rt%s a$thority to sell several properties of the 6state to pay its creditors! H456760' ="0 iss$ed a notice demanding the payment of 2KK(3 deficiency estate ta#! Atty! <on-ales moved for a reconsideration of the Assessment b$t the *"0 denied the re1$est and reiterated the 6state%s liability! A petition for 0eview was filed with the *TA! ": 5/n deficiency estate ta# m$st be imposed against the 6state 0: Ao! *laims e#isting at time of death sho$ld be allowed as ded$ctions to the gross estate! 6ven in the :nited 8tates' there is some disp$te as to whether the ded$ctible amo$nt for a claim against the estate is fi#ed as of the decedent&s death which is the general r$le' or the same sho$ld be ad;$sted to reflect postFdeath developments' s$ch as where a settlement between the parties res$lts in the red$ction of the amo$nt act$ally paid! 4n one hand' the :!8! co$rt r$led that the appropriate ded$ction is the Ival$eI that the claim had at the date of the decedent&s death! 4n the other hand' the "nternal 0even$e 8ervice ."08/ opines that postFdeath settlement sho$ld be ta(en into consideration and the

claim sho$ld be allowed as a ded$ction only to the e#tent of the amo$nt act$ally paid! 8* agreed w/ dateFofFdeath val$ation r$le! +irst' there is no law' nor any legislative intent in o$r ta# laws' which disregards the dateFofFdeath val$ation principle and partic$larly provides that *ost;death deve)o*!ents !ust "e considered in deter!inin3 the net va)ue o# the estate ! "t bears emphasis that ta# b$rdens are not to be imposed' nor pres$med to be imposed' beyond what the stat$te e#pressly and clearly imports' ta# stat$tes being constr$ed strictissimi ;$ris against the government! Any do$bt on whether a person' article or activity is ta#able is generally resolved against ta#ation! 8econd! 8$ch constr$ction finds relevance and consistency in o$r 0$les on 8pecial 2roceedings wherein the term IclaimsI re1$ired to be presented against a decedent&s estate is generally constr$ed to mean debts or demands of a pec$niary nat$re which co$ld have been enforced against the deceased in his lifetime' or liability contracted by the deceased before his death ! Therefore' the c)ai!s existin3 at the ti!e o# death are significant to' and sho$ld be made the basis of' the determination of allowable ded$ctions!

Gov o# the Phi)s v Pa!intuan +lorentino 2amint$an filed an income ta# ret$rn for the year 1919 and paid an amo$nt on the basis of said ret$rn! 5hen +lorentino died in 192>' intestate proceedings were instit$ted where the co$rt appointed commissioners for the appraisal of the val$e of the property left by +lorentino! The co$rt then ordered the delivery to the heirs of their respective shares of the inheritance after paying the corresponding inheritance ta#es which were d$ly paid! D$ring the pendency of the intestate proceedings' the administrator Nose 0amire- filed income ta# ret$rns for the estate of the deceased corresponding to the years 192> and 192K! The intestate proceedings were then closed in 192K! "n 1929' s$bse1$ent to the distrib$tion of +lorentino%s estate' the 3overn!ent discovered that /)orentino had not *aid PA72 as additiona) inco!e #or <?<? on account o# the sa)e o# his house' from which he reali-ed an income of 211' which was not incl$ded in his income ta# ret$rn filed in 1919! The government demanded payment of the income ta# b$t the heirs ref$sed to pay! The lower co$rt r$led that the government was barred from collecting the income ta# d$e to its fail$re to file its claim with the committee on claims and appraisals!

TA? 2 @ M4AT604 B C! 8anche- A2 12

": 5/n the gov can still collect the income ta# despite its fail$re to file its claim with the committee on claims and appraisals 0: Ces! A claim for ta#es and assessments whether assessed before or after the death of the decedent' are not re1$ired to be presented to the committee! (eirs are )ia")e #or the de#icienc- inco!e taxes, in *ro*ortion to their share in the inheritance. The administration proceedings of the late +lorentino having been closed' and his estate distrib$ted among his heirs' the heirs are responsible for the payment of the income ta# here in 1$estion! The claims for income ta#es need not be filed with the committee on claims and appraisals appointed in the co$rse of testate proceedings and may be collected even after the distrib$tion of the decedent%s estate among his heirs' who shall be liable therefor in proportion to their share in the inheritance!

0I1 v Pineda Atanasio 2ineda died and was s$rvived by his wife +elicisima .the appointed administratri#/ and 1> children! 6state proceedings were instit$ted in the *+" of Manila! The estate was divided among and awarded to the heirs and the proceedings terminated on N$ne M' 19)M! After the estate proceedings' the ="0 investigated the income ta# liability of the estate for the years 19)>' 19)K' 19)9 and 19)M and it fo$nd that the corresponding income ta# ret$rns were not filed! The *"0 fo$nd the estate liable for Deficiency "ncome Ta# (DIT/' Additional residence ta# for 19)> (A1T :AB), and 0eal 6state dealer&s ta# for the )th 1tr of 19)K and the whole year of 19)9 (1EDT :A7;:AC) ! Man$el' the eldest child' contested the assessment! 8$bse1$ently' he appealed to the *TA alleging that he was appealing Ionly that proportionate part or portion pertaining to him as one of the heirs!I *TA held that Man$el was liable for payment corresponding to his share of s$ch ta#es! 4n the other hand' *"0 insisted that Man$el sho$ld be liable for the payment of A,, the ta#es fo$nd by the Ta# *o$rt to be d$e from the estate instead of only for the amo$nt of ta#es corresponding to his share in the estate! Man$el opposed the proposition on the gro$nd that as an heir he is liable for $npaid income ta# d$e the estate only $p to the e#tent

of and in proportion to any share he received' relying on on Covernment of the hilippine 7slands v. amintuan. & ": 5/n Man$el can be re1$ired to pay the +:,, amo$nt of the ta# assessed by the ="0! 0: C68' he can be re1$ired to pay the f$ll amo$nt! 2ineda is liable for the assessment as .1/ AA H6"0 and as .2/ A H4,D60FT0AA8+6066 of property belonging to the estate/ta#payer! o As an (EI1D As an heir he is individ$ally answerable for the part of the ta# proportionate to the share he received from the inheritance! His liability' however' cannot e#ceed the amo$nt of his share! o As a H4,D60 4+ 204260TC belonging to the estate: 2ineda is liable for the ta# $p to the amo$nt of the property in his possession! The reason is that the Govern!ent has a )ien on the 22'> ! received by him from the estate as his share in the inheritance' for $npaid income ta#es for which said estate is liable' p$rs$ant to the last paragraph of 8ection L1> of the Ta# *ode!2 Therefore' the <overnment has T54 5AC8 of collecting the ta# in 1$estion: o 4ne' by 3oin3 a#ter ALL the heirs and collecting from each one of them the amo$nt of the ta# proportionate to the inheritance received! This remedy was adopted in Covernment of the hilippine 7slands v. amintuan! "n said case' the <overnment filed an action a3ainst a)) the heirs for the collection of the ta#! This action rests on the concept that hereditary property consists only of that part which remains after the settlement of all lawf$l claims against the estate' for the settlement of which the entire estate is first liable! The reason #or #i)in3 a suit is to achieve there"- t o resu)tsD #irst, *a-!ent o# the taxE and second, ad6ust!ent o# the shares o# each heir in the distri"uted estate as lessened b' the tax.

The 8* held that Iafter the partition of an estate' heirs and distrib$tees are liable individ$ally for the payment of all lawf$l o$tstanding claims against the estate in proportion to the amo$nt or val$e of the property they have respectively received from the estate!I 2 "f any person' corporation' partnership' ;ointFacco$nt . cuenta en participacion/' association' or ins$rance company liable to pay the income ta#' neglects or ref$ses to pay the same after demand' the amo$nt shall be a lien in favor of the <overnment of the 2hilippines from the time when the assessment was made by the *ommissioner of "nternal 0even$e $ntil paid with interest' penalties' and costs that may accr$e in addition thereto $pon all property and rights to property belonging to the ta#payer: ! ! !

TA? 2 @ M4AT604 B C! 8anche- A2 12

Another remedy is "- su"6ectin3 said *ro*ert- o# the estate hich is in the hands o# an heir or trans#eree to the *a-!ent o# the tax due, the estate! This second remedy is the very aven$e the <overnment too( in this case to collect the ta#! The ="0 sho$ld be given the necessary discretion to avail itself of the most e#peditio$s way to collect the ta# as may be envisioned in the PL1>' beca$se ta#es are the lifeblood of government and their prompt and certain availability is an imperio$s need! And as aforeFstated in this case the s$it see(s to achieve only one ob;ective: payment of the ta#! The ad;$stment of the respective shares d$e to the heirs from the inheritance' as lessened by the ta#' is left to await the s$it for contrib$tion by the heir from whom the <overnment recovered said ta#! o

0I1 v Gonza)es Matias C$say died leaving his two children as his heirs' Nose Q ,ilia! Nose was appointed administrator who filed with ="0 an estate and inheritance ta# ret$rn declaring personal Q real properties of their father b$t the ret$rn did not mention any heir! 4n Nan$ary 2>' 19>>' ="0 demanded payment of assessed estate and inheritance ta#es .appro# 2L ( in total/! Nose re1$ested for an e#tension of time within which to pay the ta#' which the *"0 denied! D$ring the pendency of the said proceedings in "loilo and after reinvestigation' ="0 reassessed the estate and inheritance ta# liability and iss$ed a reassessment of ta#es in a total of 2K9(! ,ilia disp$ted the legality of the 19>M assessment alleging that the right to ma(e the same has prescribed since more than > years had elapsed since the filing of estate and inheritance ta# ret$rn on May 11' 19)9! *TA r$led in favor of ,ilia! *"0 appealed to the 8* alleging that the right to assess the ta#es in 1$estion has not been lost by prescription since the ret$rn which did not name the heirs cannot be considered tr$e and complete ret$rn to start the r$nning of the period of limitations of > years $nder 8ec LL1 of Ta# *ode and p$rs$ant to 8ec LL2 he has 1 years within which to ma(e the assessment co$nted from the discovery on 8eptember 2)' 19>L of the identity of the heirs! ": 5/n the right of the *"0 to assess the estate and inheritance ta#es in 1$estion has prescribed F A4 5/n the ret$rn filed by Nose s$fficient to commence the r$nning of the prescriptive period to assess said ta#es @ A4 0: When tax return is considered su##icient

A ret$rn need not be complete in all partic$lars! "t is s$fficient if it complies s$bstantially with law! There is s$bstantial compliance .1/ when the ret$rn is made in good faith Q is not false or fra$d$lentR .2/ when it covers the entire period involvedR .L/ when it contains information as to the vario$s items of income' ded$ctions and credits with s$ch definiteness as to permit the comp$tation and assessment of the ta#! "n this case' the estate and inheritance tax #i)ed "- Fose as su"stantia))- de#ectiveD "t was incomplete! @ "t declared only 9L parcels of land and leaving o$t 92 others! This was a h$ge $nderdeclaration! Moreover' the ret$rn mentioned no heir! Th$s' no inheritance ta# co$ld be assessed! As a matter of law' on the basis of ret$rn' there wo$ld be no occasion for the imposition of estate and inheritance ta#es' 5hen there is no heir' the estate is escheated to the 8tate! The state does not ta# itself! The de#icient return did not start the runnin3 o# the *eriod o# )i!itations =6*A:86 the ret$rn was made on the wrong form! The ta#payer failed to observe the law .8ec LL2/ w/c grants the *"0 1 years .starting from date the fra$d was discovered/ within which to bring action for ta# collection' applies! He is obligated to ma(e a ret$rn or amend one already filed based on his own (nowledge Q information obtained thro$gh testimony or otherwise' Q s$bse1$ently to assess ta#es d$e!

<n #4 filed *y Lilia: Lilia insists that since she administers only &D+ of the estate of her father- she should not *e lia*le for the $hole ta%. ,nd she suggests that the intestate estate of #atias 9usay should *e lia*le for the said ta%es- &D+ to *e paid *y Lilia and )D+ to *e paid *y /lorencia ($ife of deceased Bose). 4uling of the Court: 8state and inheritance ta%es are satisfied from the estate and are to *e paid *y the e%ecutor or administrator. Ehere there are ) or more e%ecutors- all of them are severally lia*le for the payment of the estate ta%. !he inheritance ta%- although charged against the account of each *eneficiary- should *e paid *y the e%ecutor or administrator. /ailure to pay the estate and the inheritance ta%es *efore distri*ution of the estate $ould su*.ect the e%ecutor or administrator to criminal lia*ility. 7t is immaterial that Lilia administers only &D+ of the estate F $ill receive as her share only said portion- for her right to the estate comes after ta%es. ,s an administratri%- she is lia*le for the entire estate ta%. ,s an heir- she is lia*le for the entire inheritance ta% although her lia*ility $ould not e%ceed the amount of her share in the estate.

TA? 2 @ M4AT604 B C! 8anche- A2 12

D&'&1:S TAX Tan3 (o v. 0I1 ,i 8eng <iap' his wife Tang Ho and their 1L children were stoc(holders of two close family corporations! ="0 e#aminers made an e#amination of the boo(s of the two corporations and fo$nd that each of ,i 8eng <iap%s children had a total investment there of appro#imately 2KL(3 in shares iss$ed to them by their father .who was the manager and controlling stoc(holder of the two corporations/ *"0 regarded these transfers as $ndeclared gifts made in the respective years' and assessed against ,i 8eng <iap and his children donor&s and donee&s ta#es d$e to delayed payment .29K(3/! They th$s paid the s$m of 2>L(3 representing the amo$nt of the basic ta#es' and p$t $p a s$rety bond to g$arantee payment of the balance demanded! 8ometime later' they re1$ested the *"0 for a revision of their ta# assessments' and s$bmitted donor&s and donee&s gift ta# ret$rns showing that the children received gifts inter vivos and proper n$ptias! o each child received *y $ay of gift inter vivos- every year from &(+( to &(5' (e%cept in &(37 and &(3=) 3-''' in cashG o each of the eight children $ho married during the period aforesaid- $ere given an additional )'-''' as do$ry or gift propter nuptiasG o unmarried children received roughly an e0uivalent amount in &(3(- also *y $ay of gifts inter vivos- so that the total donations made to each and every child- as of &(5'- stood at 6+-&('. The- contended that since the cash donated ca!e #ro! the con6u3a) #unds, the- are "e considered as donations "- =&T(

TA? 2 @ M4AT604 B C! 8anche- A2 12

s*ouses, #or hich t o se*arate TAX exe!*tions !a- "e c)ai!ed in each instance, one #or each s*ouse. ": 5/n the donations made by ,i 8eng <iap to his children from the con;$gal property sho$ld be ta#ed against h$sband and wife 0: Ao! A donation of property belonging to the con;$gal partnership' made d$ring its e#istence' by the h$sband alone in favor of the common children' is ta#able to him e#cl$sively as sole donor! To be a donation by *oth spouses' ta#able to both' the wife m$st ex*ress)- ;oin the h$sband in ma(ing the gift! Her participation cannot be implied! TH:8' in this case' 4A,C 4A6 e#emption or ded$ction can be claimed for every s$ch gift' and not two' as claimed by petitioners! 8pec$lation on the Tang Ho case: 5hy were they insisting that the dowry was made in cashS Does the law say that for a dowry to be considered as e#emption' it has to be in cashS Ao! The reason why they were insisting that it was made in cash and then this cash was $sed to b$y stoc( so that it can fall within the time period that the dowry sho$ld be given Gbefore celebration or within 1 year thereafter!H

Gi""s v. 0I1 Allison and 6sther <ibbs e#ec$ted doc$ments entitled GDeed of 8ale and Declaration of Tr$stH whereby they transferred >L' ,epanto *onsolidated Mines shares of stoc( to their > children' in consideration of the s$m of 22K' 229!9 to be paid Gon or before December 19> !H The instit$ted tr$stee was Allison%s brother' +inley <ibb! 8po$ses <ibb sent a letter to the *"0 as(ing for a r$ling on whether or not gift ta#es sho$ld be paid! *"0 initially assessed the spo$ses a donee gift ta# of 29> on each of the beneficiaries or a total of abo$t 29> ! These assessments were based $pon the D"++606A*6 between said mar(et val$e of the shares of stoc( and the stip$lated consideration for transfer thereof! 8$bse1$ently' *"0 revised the assessment by "A*06A8"A< them! The spo$ses paid within the period fi#ed by law b$t 84:<HT a ref$nd! Their demand was denied! Tr$stee +inley <ibb appealed to the 8ecretary of +inance and instit$ted a civil s$it in the *+" for recovery of the amo$nt! 8po$ses <ibb again e#ec$ted 1 additional and separate tr$sts containing the same stip$lations and conditions! These additional deeds of tr$st impelled *"0 to assess donor gift ta#es! *"0 held that the gift ta#es are available on the +:,, MA0J6T 7A,:6 of all the shares of stoc( th$s placed in tr$st O instead of $pon

the difference between said mar(et val$e and the stip$lated considerations! *TA agreed! ": 5/n *TA was correct in r$ling that the gift ta#es on the transfer of the shares of stoc( sho$ld be based on the f$ll mar(et val$e of shares of stoc( .A4T diff between mar(et val$e and stip$lated consideration/ 0: C68' *TA was correct' ta# sho$ld be based on f$ll M7! *TA was correct in finding that the agreements made by the parties were mere devises to avoid and evade the *a-!ent of the corresponding gift ta#es: o "f the tr$stors were earnestly concerned in providing ample f$nds to ass$re the s$pport' maintenance' care' health' higher ed$cation and travel of their children and the la$nching of their career after they had become of age' the tr$stors wo$ld not have really meant to re1$ire them to pay the consideration stip$lated in the tr$st agreements! o "f the intent was really that the stip$lated interest be paid' the tr$stee co$ld have a$thori-ed the tr$stors to sell' mortgage' hypothecate or otherwise dispose of the stoc(s to raise the necessary f$nds! o The compromise agreements were made with (nowledge of the fact that the *"0 was already investigating whether the stip$lated consideration was real or fictitio$s! There being no real consideration for the transfer' gift ta#es sho$ld be based on the f$ll mar(et val$e of the shares of stoc( at the time of the respective transfer' and not merely on the difference between the said mar(et val$e and the consideration stip$lated in the tr$st agreements!

PI1&5A'& vs. 0I1 6nrico 2irovano was the father *arla 2irovano! De la 0ama 8teamship *o! ins$red the life of said 6nrico 2irovano .then its 2resident and <eneral Manager/ with vario$s 2hilippine and American ins$rance companies for 1M' designating itself as the beneficiary! 6nrico 2irovano died d$ring the 5orld 5ar ""! The =4D of De la 0ama 8teamship *o! adopted a resol$tion granting the proceeds e#pected to be collected on 6nrico%s life ins$rance policies w/c was 2) ( for e1$al division among his ) minor children' to be convertible into )( shares of stoc( .1( shares / child ! The *ompany received the total s$m of 2K)LJ as proceeds of the said life ins$rance policies obtained from American ins$rers!

TA? 2 @ M4AT604 B C! 8anche- A2 12

The =4D modified their resol$tion by reno$ncing all its rights title' and interest to the said amo$nt of 2K)L( in favor of the minor children of the deceased' s$b;ect to the e#press condition that said amo$nt sho$ld be retained by the *ompany in the nature o# a )oan to it' drawing interest at the rate of >T per ann$m' and payable to the 2irovano children after the *ompany shall have first settled its bonded indebtedness of >M! This resol$tion was allowed by the children%s g$ardian! =4D again modified their resol$tion by providing that the *ompany shall pay the proceeds of said life ins$rance policies to the heirs after the *ompany shall have settled in f$ll the balance of its present remaining bonded indebtedness' b$t the ann$al interests accr$ing on the principal shall be paid to the heirs of 2irovano whenever the *ompany is in a position to meet said obligation! The mother of the children A**62T6D this resol$tion with a 2:=,"* D4*:M6AT! The 8H of the *ompany ratified the resol$tions with certain c)ari#-in3 !odi#ications that the payment of the donation shall not *e effected $ntil s$ch time as the *ompany shall have first d$ly li1$idated its present bonded indebtedness .2L!2M/ with the Aat%l Dev%t *ompany and that any and all ta#es' legal fees' and e#penses in any way connected with the above transaction shall be chargeable and ded$cted from the proceeds of the life ins$rance policies! H456760' the ma;ority stoc(holders of the *ompany voted to revo(e the donation! As a conse1$ence of this revocation and ref$sal of the *ompany to pay the balance of the donation amo$nting to 2>K)J despite demands' the 2"047AA48 bro$ght an action for the recovery of said amo$nt! The 0T* ordered that the donation was valid! Th$s' the *"0 assessed the amo$nt of 2K J as donees& gift ta# against each of the heir' and a donor&s gift ta# in the total amo$nt of 2L)J assessed against De la 0ama 8teamship *o!' which the latter paid! The 2"047AA48 contested *"0%s assessment and imposition of the donees& gift ta#es and donor&s gift ta# and also made a claim for ref$nd of the donor&s gift ta# so collected! ": 5/n the 20"7AA48 are obliged to pay donees& gift ta#es as well as the imposition of s$rcharge and interest on the amo$nt of donees& gift ta#es 0: C68! A donation made by the corporation to the heirs of a deceased officer out o# 3ratitude for the officer&s past services is considered a donation and is s$b;ect to donee&s gift ta#! Art! 92K of the *iv*ode states that G5hen a person gives to another a thing !!! on acco$nt of the latter&s merits or of the services

rendered *y him to the donor' provided they do not constit$te a demandable debt' !!!' there is also a donation!H The #act that his services contri"uted in a )ar3e !easure to the success o# the co!*an- did not 3ive rise to a recovera")e de"t, and the conve-ances !ade "- the co!*an- to his heirs re!ain a 3i#t or donation! ALS&, the val$e of s$ch services which do not constit$te a recoverable debt is A4T ded$ctible from the donation! The actua) consideration #or the cession o# the *o)icies as the 0o!*an-+s 3ratitude to Pirovano! <ratit$de has no economic val$e and is not IconsiderationI in the sense that the word is $sed $nder the Ta# *ode! &T(E1SD 8ec111 U$here property is transferred for less than ade0uate consideration- amt e%ceeding consideration deemed a gift VW is A4T applicable/! 5hether rem$neratory or simple' the conveyance remained a gift! The definition of *4A8"D60AT"4A is Ganything that is bargained for by the promisor and given by the promisee in e#change for the promiseH 2irovano&s s$ccessf$l activities as officer of the De la 0ama 8teamship *o! cannot be deemed s$ch consideration for the gift to his heirs' since the services were rendered long before the *ompany ceded the val$e of the life policies to said heirsR cession and services were not the res$lt of one bargain or of a m$t$al e#change of promises! A s$bse1$ent promise to pay for past services is a nudum pactum i!e!' one that is $nenforceable in view of the common law r$le that consideration m$st consist in a legal benefit to the promisee or some legal detriment to the promisor!

SPS. Gesto*a vs. 0A ad .ercedes Dan)a3 Diego and *atalina Danlag were owners of K parcels of $nregistered lands! They e#ec$ted @ deeds o# donation !ortis causa in favor of Mercedes DanlagF2ilapil covering ) parcels! All deeds contained the reservation of rights of donors to amend / revo(e the donation d$ring their lifetime AAD to sell' mortgage / enc$mber the properties if necessary! Diego w/ the consent of *atalina then e#ec$ted a deed o# donation inter vivos covering the aforementioned lots pl$s 2 other parcels again in favor of respondent Mercedes! This contained two conditions

TA? 2 @ M4AT604 B C! 8anche- A2 12

.1/ that Danlag spo$ses shall contin$e to en;oy the fr$its of land d$ring their lifetime o .2/ the donee cannot sell or dispose of the land d$ring the lifetime of the said spo$ses w/o their consent! The Danlags sold parcels L and ) to petitioners <estopa and e#ec$ted a deed of revocation recovering K parcels of land s$b;ect to deed of donation inter vivos! Mecedes filed with 0T* against the <estopas and the Danlags for 1$ieting of title over the parcels of land! 8he alleged that she was an illegitimate da$ghter of Diego Danlag% that she lived and rendered incalc$lable beneficial services to Diego and his mother Ma$ra' when she was still alive! "n recognition of her services' Diego e#ec$ted Deed of Donation conveying to her K parcels of land! 8he accepted the donation in the same instr$ment' openly and p$blicly e#ercised rights of ownership over the donated properties' and ca$sed the transfer of the ta# declarations in her name! Thro$gh the machination' intimidation and $nd$e infl$ence' Diego pers$aded the h$sband of Mercedes' 6$lalio 2ilapil to b$y 2 of the K parcels covered by the deed of donation! The inter vivos donation was co$pled with conditions she complied with! 8he alleges she had not been g$ilty of any act of ingratit$de and that the revocation had no legal basis! <estopas and Danlags opposed by saying that the deed of donation was n$ll and void beca$se it was obtained by Mercedes thro$gh machination and $nd$e infl$ence! 6ven ass$ming it was validly e#ec$ted' the intention was for the donation to ta(e effect $pon death of donor! +$rther' the donation was void for it left the donor Diego w/o any property at all! ID W4n the donation was inter vivos or mortis ca$sa @ inter vivos 5/n the revocation was valid @ A4' it was not! 0: The donation is "AT60 7"748! 0evocation was not proper! .r$ling in favor of Mercedes/ *r$cial in resolving whether the donation was inter vivos or mortis ca$sa is the determination of whether the donor intended to transfer ownership over the properties $pon the e#ec$tion of the deed! "n ascertaining the intention of the donor' all the deed%s provisions m$st be read together: o "08T' the granting cla$se shows that Diego donated the properties o$t of love and affection for Mercedes! This is a mar( of a donation inter vivos! o 86*4AD' the reservation of lifetime $s$fr$ct indicates that the donor intended to transfer the na(ed ownership of the properties! As correctly posed by the *A' what was o

the need for s$ch reservation if the donor and his spo$se remained the owners of the propertiesS o TH"0D' the donor reserved s$fficient properties for his maintenance w/ his standing in society' indicating that the donor intended to part w/ K parcels! o ,astly the donee accepted the donation! Ale;andro vs! <eralde-: An acce*tance c)ause is a mar( that the donation is inter vivos! Acceptance is a re1$irement for donations inter vivos! Donations mortis ca$sa' being in a form of a will' are not re1$ired to be accepted by the donees d$ring the donor%s lifetime! TH:8' the right to dispose the properties belonged to Mercedes! Diego%s right to give consent was merely intended to protect his $s$fr$ct$ary interests! The limitation on the right to sell d$ring the donor%s lifetime implied that ownership had passed to the donees and donation was effective d$ring the donor%s lifetime! *irc$mstances show that the intention of the donor was to transfer ownership to Mercedes! 2rior to the donation inter vivos' the Danlag spo$ses already e#ec$ted L donations mortis ca$sa! The Danlag spo$ses were aware of the difference between the two donations! "f they did not intend to donate inter vivos' they wo$ld not again donate the fo$r lots already donated mortis ca$sa! Was the revocation va)id$ A valid donation' once accepted' becomes irrevocable' 6?*62T on acco$nt of inofficio$sness' fail$re by donee to comply with charges imposed in donation' or ingratit$de! The Danlag spo$ses did A4T invo(e any of these! +inally' the records do not show that the donorFspo$ses instit$ted any action to revo(e the donation in accordance w/ Art! 9K9! The revocation has no legal effect!

A001A v. 0I1 D$ring the 19M9 national elections' petitioners' who are partners A**0A law firm contrib$ted abo$t 2MM2(3 each to the campaign f$nds of 8enator Angara' then r$nning for the 8enate! ="0 assessed each of the petitioners donors ta# for their contrib$tions! 2etitioners 1$estioned the assessment thro$gh a letter to the ="0! They claimed that political or electoral contrib$tions are A4T considered gifts $nder the A"0* and that' therefore' they are not liable for donor%s ta#! The claim for e#emption was denied by the *ommissioner!

TA? 2 @ M4AT604 B C! 8anche- A2 12

": 5/n political contrib$tions can be considered a donation and w/n petitioners are liable for Donor%s ta# 0: C68' political contrib$tions A06 donations and petitioners A06 liable for donor%s ta#! A donation has the #o))o in3 e)e!entsD o (a) the reduction o# the *atri!on- o# the donorE o (") the increase in the *atri!on- o# the doneeE and, o (c) the intent to do an act o# )i"era)it- 4 ani!us donandi The *resent case #a))s sGuare)- ithin the de#inition o# a donation! 2etitioners' each contrib$ted to the campaign f$nds of 8enator 6dgardo Angara' witho$t any material consideration! All three elements of a donation are present! The patrimony of the fo$r petitioners were red$ced by 2MM2(3' while 8enator 6dgardo Angara%s patrimony correspondingly increased! There as intent to do an act o# )i"era)it- 4 ani!us donandi as *resent since each o# the *etitioners 3ave their contri"utions ithout an- consideration. 2/ 2etitioners% attempt is strained! The #act that *etitioners i)) so!eho in the #uture "ene#it #ro! the e)ection o# the candidate to ho! the- contri"ute, in no a- a!ounts to a va)ua")e !ateria) consideration so as to re!ove *o)itica) contri"utions #ro! the *urvie o# a donation. 8enator Angara was $nder no obligation to benefit the petitioners! The proper performance of his d$ties as a legislator is his obligation as an elected p$blic servant of the +ilipino people and not a consideration for the political contrib$tions he received! "n fact' as a p$blic servant' he may even be called to enact laws that are contrary to the interests of his benefactors' for the benefit of the greater good! In #ine, the *ur*ose #or hich the su!s o# !one- ere 3iven, hich as to #und the ca!*ai3n o# Senator An3ara in his "id #or a senatoria) seat, cannot "e considered as a !ateria) consideration so as to ne3ate a donation. +inally' this *o$rt ta(es note of the fact that s$bse1$ent to the donations involved in this case' *ongress approved 0ep$blic Act Ao! 91KK on Aovember 2>' 1991' providing in 8ection 1L thereof that political/electoral contrib$tions' d$ly reported to the *ommission on 6lections' are A4T s$b;ect to the payment of any gift ta#! This all the more shows that the political contrib$tions herein made are s$b;ect to the payment of gift ta#es' since the

same were made 20"40 to the e#empting legislation' and 0ep$blic Act Ao! 91KK provides no retroactive effect on this point!

TA? 2 @ M4AT604 B C! 8anche- A2 12

5AT 0o!!issioner o# Interna) 1evenue v. .irant Pa3"i)ao 0or*oration Mits$bishi M2* A2* M2*' formerly 8o$thern 6nergy X$e-on' "nc!' is a domestic firm engaged in the generation of power which it sells to the Aational 2ower *orporation .A2*/! +or the constr$ction of the electrical and mechanical e1$ipment portion of its 2agbilao' X$e-on plant' M2* sec$red the services of Mits$bishi *orporation .Mits$bishi/ of Napan! :nder 0!A! KL9>' A2* is e#empt from all ta#es .which covers both direct and indirect ta#es/! "n the light of the A2*&s ta# e#empt stat$s' M2*' on the belief that its sale of power generation services to A2* is -eroFrated for 7AT p$rposes' filed an Application for 6ffective Zero 0ating! *"0 iss$ed a r$ling stating that the s$pply of electricity by M2* to the A2* shall be s$b;ect to -ero percent . T/ 7AT! *onsistent with its belief to be -eroFrated' M2* opted not to pay the 7AT component of the progress billings from Mits$bishi for the period covering April 199L to 8eptember 199K F for the 6 Q M 61$ipment 6rection 2ortion of M2*&s contract with Mits$bishi! This prompted Mits$bishi to advance the 7AT component as this serves as its o$tp$t 7AT which is essential for the determination of its 7AT payment! M2*' while awaiting approval of its application' filed its 1$arterly 7AT ret$rn for the second 1$arter of 199M where it reflected an inp$t 7AT of 21)MM3' as s$pported by an 40! M2* filed an administrative claim for ref$nd of $n$tili-ed inp$t 7AT! ="0 failed to act on its claim for ref$nd! M2* went to the *TA via a petition for review to forestall the r$nning of the twoFyear prescriptive period! ="0 asserted that M2*&s claim for ref$nd *AAA4T be granted since M2*&s sale of electricity to A2* is A4T -eroFrated for its fail$re to sec$re an approved application for -eroFrating!

!he C!, granted # C1s claim for input H,! refund or credit for h &'-766-(+(.3=. !he C, rendered its assailed decision modifying that of the C!, decision *y granting most of # C1s claims for ta% refund or credit for &36-76'-5'(.3=. ": 5/n M2* is entitled to the ref$nd of its inp$t 7AT payments made from 199L to 199K 0: Ces' b$t only to the e#tent of 21 M3' given that claim has prescribed! Prescri*tion. M2&s claim for ref$nd / ta# credit for the creditable inp$t 7AT was filed beyond the period provided by law for s$ch claim! 8ec! 112.A/ of the A"0* provides that any 7ATFregistered person' whose sales are -eroFrated may apply for the iss$ance of ta# credit 5"TH"A 2 C6A08 after the close of the ta#able 1$arter when the sales were made! M2* filed a ref$nd in Dec 1999 when it sho$ld have filed in 8ept 199M .since the close of the 1$arter was 8ept 199K/! 0redita")e in*ut 5AT is an indirect ta# which can be shifted or passed on to the b$yer' transferee' or lessee of the goods' properties' or services of the ta#payer! The fact that the s$bse1$ent sale or transaction involves a whollyFta# e#empt client' res$lting in a -eroFrated or effectively -eroFrated transaction' does A4T' standing alone' deprive the ta#payer of its right to a ref$nd for any $n$tili-ed creditable inp$t 7AT' albeit the erroneo$s' illegal' or wrongf$l payment angle does not enter the e1$ation! (istor- o# 5AT. The law that originally imposed the 7AT in the co$ntry' as well as the s$bse1$ent amendments of that law' has been drawn from the ta# credit method .practiced in 6$rope/! "f at the end of a ta#able 1$arter the o$tp$t ta#es charged by a seller are 6X:A, to the inp$t ta#es passed on by the s$ppliers' no payment is re1$ired! H456760' when o$tp$t ta#es 6?*66D inp$t ta#es' the e#cess has to be paid! 4n the other hand' if the inp$t ta#es 6?*66D the o$tp$t ta#es' the e#cess shall be *A00"6D 4760 T4 TH6 s$cceeding 1$arter/s! 8ho$ld the inp$t ta#es res$lt from -eroFrated or effectively -eroFrated transactions or from the ac1$isition of capital goods' any 6?*688 over the o$tp$t ta#es shall be ref$nded to the ta#payer / credited against other internal reven$e ta#es! 2ero;rated transactions generally refer to the e#port sale of goods and s$pply of services! The ta# rate is set at -ero! 5hen applied to the ta# base' s$ch rate obvio$sly res$lts in no ta# chargeable against the p$rchaser! The seller of s$ch transactions charges no o$tp$t ta#' b$t can claim a ref$nd of or a ta# credit certificate for the 7AT previo$sly charged by s$ppliers! &T(E1SD

TA? 2 @ M4AT604 B C! 8anche- A2 12

="0 and other ta# agencies have a d$ty to treat claims for ref$nds and ta# credits with proper attention and $rgency! Had 0D4 Ao! K and' later' the ="0 proper acted' instead of sitting' on M2*&s $nderlying application for effective -ero rating' the matter of addressing M2*&s right' or lac( of it' to ta# credit or ref$nd co$ld have pla$sibly been addressed at their level and perchance freed the ta#payer and the government from the rigors of a tedio$s litigation! The official receipt proves payment by M2* of its creditable inp$t 7AT relative to its p$rchases from Mits$bishi! ="0 is precl$ded from re1$iring additional evidence to prove that inp$t ta# had indeed paid or' in fine' that the ta#payer is indeed entitled to a ta# ref$nd or credit for inp$t 7AT' we agree with the *A&s above disposition! As the *o$rt distinctly notes' the law considers a d$lyFe#ec$ted 7AT invoice or 40 referred to in the above provision as s$fficient evidence to s$pport a claim for inp$t ta# credit!

0I1 v. Phi) (ea)th 0are Providers, Inc. The 2hilippine Health *are 2roviders .2H*2"/' a health care organi-ation for sic( and disabled persons enrolled in a health care plan' wrote ="0 in1$iring whether the services it provides are e#empt from the payment of the 7AT! ="0 iss$ed a r$ling' confirmed by the ="0 0egional Director' stating that 2H*2" was e#empt from the 7AT coverage! ="0 then sent 2H*2" 2 notices for deficiency in its payment of the 7AT and doc$mentary stamp ta#es .D8T/ f 222)M3 for ta#able years 199K and 1999! 2H*2" protested' b$t ="0 did not ta(e any action' so 2H*2" filed with the *TA a petition for review! *TA ordered 2H*2" to pay a red$ced deficiency 7AT and declared the ="0 r$ling void' saying that 2H*2" is a service contractor su"6ect to 5AT since it does not act$ally render medical service b$t merely acts as a cond$it between the members and petitioner&s accredited and recogni-ed hospitals and clinics! However' after a caref$l review of the facts of the case' the *TA resolved to grant petitioner&s IMotion for 2artial 0econsiderationH relying on 8ec!2)K of the 1999 Ta# code which provides that in the absence of showing of bad faith' the retroactive revocation of the ="0 0$ling will be pre;$dicial to 2H*2"! Accordingly' the 7AT assessment iss$ed against 2H*2" for the ta#able years 199K and 1999 was 5"THD0A5A and 86T A8"D6! ": 1! 5/n 2H*2"&s services are s$b;ect to 7AT 0: C68! H456760' beca$se of the 7AT r$ling e#empting 2H*2" from 7AT' it cannot be retroactively revo(ed and therefore' 2H*2" is still

e#empt! 1/ 8ection 1 2 of the A"0* as amended provides that there shall be levied a 7AT e1$ivalent to 12T of gross receipts derived from the sa)e or exchan3e o# servicesV The phrase Isale or e#change of serviceI means the performance of all (inds of services in the 2hilippines for consideration! 8ection 1 L of the same *ode specifies the e#empt transactions from the provision' which incl$des medical' dental' hospital and veterinary services e#cept those rendered by professionals! "t can be seen from 2H*2"%s letter to ="0 that its services that it is not actua))- renderin3 !edica) service "ut !ere)- actin3 as a conduit "et een the !e!"ers and their accredited and reco3nized hos*ita)s and c)inics. Th$s' it does A4T fall $nder 7ATFe#empt transactions! 2/ 8ection 2)K of the 1999 Ta# *ode' as amended' provides that r$lings' circ$lars' r$les and reg$lations prom$lgated by the *"0 have no retroactive application if to apply them wo$ld pre;$dice the ta#payer! The e#ceptions to this r$le are: o .1/ where the ta#payer deliberately misstates or omits material facts from his ret$rn or in any doc$ment re1$ired of him by the ="0 o .2/ where the facts s$bse1$ently gathered by the ="0 are materially different from the facts on which the r$ling is based' or o .L/ where the ta#payer acted in bad faith! 2H*2" did not fall $nder any of these e#ceptions! 2H*2"&s fail$re to refer to itself as a health maintenance organi-ation is not an indication of bad faith or a deliberate attempt to ma(e false representations! The term Ihealth maintenance organi-ationI was first recorded in the 2hilippine stat$te boo(s only $pon the passage of IThe Aational Health "ns$rance Act of 199>I which defines a Ihealth maintenance orgI as one of the classes of a Ihealth care provider!I Th$s' the 7AT 0$ling was iss$ed in 2H*2"&s favor' and the term Ihealth maintenance organi-ationI was yet $n(nown or had no significance for ta#ation p$rposes! 2H*2" therefore' believed in good faith that it was 7AT e#empt for the ta#able years 199K and 1999 on the basis of the 7AT 0$ling! *"0 is precl$ded from adopting a position contrary to one previo$sly ta(en where in;$stice wo$ld res$lt to the ta#payer!

0I1 v Acesite (Phi)i**ines) (ote) 0or*oration

TA? 2 @ M4AT604 B C! 8anche- A2 12

Acesite is the owner and operator of the Holiday "nn Manila 2avilion Hotel! "t leases a portion of the hotel%s premises to the 2A<*40 for casino operations! "t also caters food and beverages to 2A<*40%s casino patrons thro$gh the hotel%s resta$rant o$tlets! +rom 199K to 1999' Acesite inc$rred 7AT amo$nting to 2L M3 from its rental income and sale of food and beverages to 2A<*40 d$ring said period! Acesite tried to shift the said ta#es to 2A<*40 by incorporating it in the amo$nt assessed to 2A<*40 b$t the latter ref$sed to pay the ta#es on acco$nt of its ta# e#empt stat$s! Th$s' 2A<*40 paid the amo$nt d$e to Acesite min$s the 2L M3 7AT while Acesite paid the 7AT to the *"0! However' Acesite belatedly arrived at the concl$sion that its transaction with 2A<*40 was s$b;ect to -ero rate as it was rendered to a ta#Fe#empt entity! "n 199M' Acesite filed an administrative claim for ref$nd with the *"0 b$t *"0 failed to resolve the same' so the case was elevated to the *TA! ": 5/n the T 7AT rate .$nder then 8ec 1 M .=/.L/ of the A"0*/ applies to Acesite 0: Ces! 2D 1MK9 w/c created 2A<*40 granted it an e#emption from paying ta#es! A close scr$tiny of the provisions of the said law gives 2A<*40 a blan(et e#emption to ta#es with no distinction on whether the ta#es are direct or indirect! The law even grants ta# e#empt stat$s to persons dealing with 2A<*40 in casino operations! The $nmista(able concl$sion is that 2A<*40 is not liable for the 2L M3 7AT and neither is Acesite as Acesite is effectively s$b;ect to -ero percent rate $nder the A"0*! =y e#tending the e#emption to entities or individ$als dealing with 2A<*40' the legislat$re clearly granted e#emption also from indirect ta#es! "t m$st be noted that the indirect ta# of 7AT' as in the instant case' can be shifted or passed to the b$yer' transferee' or lessee of the goods' properties' or services s$b;ect to 7AT! Th$s' by e#tending the ta# e#emption to entities or individ$als dealing with 2A<*40 in casino operations' it is e#empting 2A<*40 from being liable to indirect ta#es! The A"0* provides that transactions s$b;ect to T 7AT incl$de services rendered to persons whose e#emption $nder special laws or international agreements s$b;ects the s$pply of s$ch services to T rate! &T(E1SD 7t is true that H,! can either *e incorporated in the value of the goodsproperties- or services sold or leased- in $hich case it is computed as &D&& of such value- or charged as an additional &'I to the value.

Herily- the seller or lessor has the option to follo$ either $ay in charging its clients and customer. 7n the instant case- ,cesite follo$ed the latter method- that ischarging an additional &'I of the gross sales and rentals. Ae that as it may- the use of either method- and in particular- the first method- does not denigrate the fact that ,CC<4 is e%empt from an indirect ta%- li6e H,!.

0I1 v. =%1.EISTE1 A'D WAI' S0A'DI'A5IA' 0&'T1A0T&1 .I'DA'A&, I'0. A #orei3n consortiu! composed of =58*FDenmar(' Mits$i 6ngineering and 8hipb$ilding' ,td!' and Mits$i and *o!' ,td! entered into a contract with AA24*40 for the operation and maintenance of 2 power barges! =58*FDenmar(' the coordination manager' established =58*F Mindanao .domestic corp doing b$siness in Davao/ which s$bcontracted the act$al operation and maintenance of AA24*40%s two power barges! AA24*40 paid capacity and energy fees to the *onsorti$m in a mi#t$re of c$rrencies .Mar(' Cen' and 2eso/! !he freely converti*le non@ eso component is deposited directly to the ConsortiumJs *an6 accounts in ?enmar6 and Bapan- $hile the eso@denominated component is deposited in a separate and special designated *an6 account in the hilippines. 4n the other hand' the *onsorti$m paid =58*FMindanao in foreign c$rrency inwardly remitted to the 2hilippines thro$gh the ban(ing system! "n order to ascertain the ta# implications of the above transactions' =58*FMindanao so$ght a r$ling from the ="0' w/c responded with a 0$ling declaring that if =58*FMin chose to register as a 7AT person and the consideration for its services is paid for in acceptable foreign c$rrency and acco$nted for in accordance with the r$les and reg$lations of the =82' the aforesaid services shall be s$b;ect to 7AT at -eroFrate! =85*FMindanao chose to register as a 7AT ta#payer! "n conformity with 00 >F9K allowing -eroFrated 7AT for services other than processing' man$fact$ring and repac(ing of goods' it s$b;ected its sale of services to the *onsorti$m to the 1 T 7AT and paid the amo$nt of 2KM3 as its o$tp$t ta# liability for the year 199K! "t then filed a claim for the iss$ance of a ta# credit certificate with the ="0' believing that it erroneo$sly paid the o$tp$t 7AT for 199K d$e to its availment of the 7ol$ntary Assessment 2rogram .7A2/ of the ="0! *TA ordered ="0 to iss$e a ta# credit certificate for the 2KM3 in favor of =8*5FMindanao! This was affirmed by the *A!

TA? 2 @ M4AT604 B C! 8anche- A2 12

": 5/n =58*FMindanao is entitled to the ref$nd of 2K'99)'K>9!K9 as erroneo$sly paid o$tp$t 7AT for the year 199K 0: Ces' they are entitled to ref$nd! Their services A06 act$ally still s$b;ect to 1 T 7AT =:T they are not liable for s$ch given their reliance on ="0 0$lings! An essential condition for 1$alification to -eroFrating $nder 8ection 1 2.b/.2/ of 11 B;?7 is that services other than processing' man$fact$ring' or repac(ing of goods m$st be performed for persons doing b$siness 4:T8"D6 the 2hilippines! "n this case' the payerFrecipient of =58*FMindanao%s services is the *onsorti$m which is a ;ointFvent$re doing b$siness in the 2hilippines! 5hile the *onsorti$m%s principal members are nonFresident foreign corporations' the *onsorti$m itself is doing b$siness in the 2hilippines! This is shown clearly in ="0 0$ling Ao! 2LF9> which states that the contract between the *onsorti$m and AA24*40 is for a 1>Fyear term! *onsidering this length of time' the *onsorti$m%s operation and maintenance of AA24*40%s power barges cannot be classified as a single or isolated transaction! The *onsorti$m does not fall $nder 8ection 1 2.b/.2/ which re1$ires that the recipient of the services m$st be a person doing b$siness o$tside the 2hilippines! Therefore' =58*FMin%s services to the *onsorti$m' not being s$pplied to a person doing b$siness o$tside the 2hilippines' cannot legally 1$alify for T 7AT! The *o$rt recogni-es the r$le that the 7AT system generally follows the Idestination principleI .e#ports are -eroFrated whereas imports are ta#ed/! However' as the *o$rt stated in American 6#press' there is an e#ception to this r$le' which is the T 7AT on services en$merated in 8ection 1 2 and performed in the 2hilippines! To be e#empt from the destination principle $nder 8ection 1 2.b/.1/ and .2/' the services m$st be .a/ performed in the 2hilippinesR .b/ for a person doin3 "usiness outside the Phi)i**ines R and .c/ paid in acceptable foreign c$rrency acco$nted for in accordance with =82 r$les! "n contrast' this case involves a recipient of services @ the *onsorti$m @ which is doing b$siness in the 2hilippines! Aevertheless' in see(ing a ref$nd of its e#cess o$tp$t ta#' respondent relied on 7AT 0$lings insofar as they held that the services being rendered by =58*M" is s$b;ect to 7AT at -ero percent . T/! =58*%s reliance on these ="0 r$lings binds ="0! ="0%s revocation *AAA4T be given retroactive effect since it will pre;$dice the ta#payer' w/c is prohibited by 8ec 2)K of the A"0*! *hanging respondent%s stat$s will deprive respondent of a ref$nd of a s$bstantial amo$nt representing e#cess o$tp$t ta#!

0I1 v. .a3sa-sa- Lines AD* decided to sell its Aational Marine *orporation .AM*/ shares and > of its ships' w/c were offered for p$blic bidding! Among the stip$lated terms and conditions for the p$blic a$ction was that the winning bidder was to pay Ia 7AT of 1 T on the val$e of the vessels!H Magsaysay ,ines offered to b$y the shares and the vessels for 21KMM! The bid was made by Magsaysay ,ines' p$rportedly for a new company still to be formed composed of itself' =aliwag Aavigation' "nc!' and +"M ,imited of the Marden <ro$p based in Hong(ong .collectively' private respondents/ The bid was approved by the *ommittee on 2rivati-ation' and a Aotice of Award was iss$ed to Magsaysay ,ines! 2rivate respondents thro$gh co$nsel then received a 7AT 0$ling from the ="0' holding that the sale of the vessels was s$b;ect to the 1 T 7AT! They filed a motion for reconsideration b$t their motion was denied so they elevated the case to the *TA! !he 5?C dre$ on the Letter of Credit to pay for the H,!- and the amount of &5-&)'-'''.'' in ta%es $as paid on &6 #arch &(=(. *TA r$led that the sale of a vessel was an Iisolated transaction'I not done in the ordinary co$rse of AD*%s b$siness' and was th$s not s$b;ect to 7AT' which $nder 8ection 99 of the Ta# *ode' was applied only to sales in the co$rse of trade or b$siness! ": 5/A the sale is s$b;ect to 7AT 0: Ao' sale is A4T s$b;ect to 7AT! Any sale' barter or e#change of goods or services not in the co$rse of trade or b$siness is not s$b;ect to 7AT! mperial v! *"0: The term Icarr-in3 on "usinessH does not mean the performance of a single disconnected act' b$t means cond$cting' prosec$ting and contin$ing b$siness by performing progressively all the acts normally incident thereof! Th$s' it connotes 06<:,A0"TC of activity! "n the instant case' the sale was an isolated transaction! The sale which was invol$ntary and made p$rs$ant to the declared policy of <overnment for privati-ation co$ld no longer be repeated or carried on with reg$larity! "t sho$ld be emphasi-ed that the normal 7ATFregistered activity of AD* is leasing personal property! This finding is confirmed by the 0evised *harter of the AD* which bears no indication that the AD* was created for the primary p$rpose of selling real property!

TA? 2 @ M4AT604 B C! 8anche- A2 12

Th$s' the sale of the vessels was not in the ordinary co$rse of trade or b$siness of AD* so it sho$ld not be s$b;ect to 7AT!

0I1 v. SE9IS%I 86J"8:" N:8H" is a domestic corporation with principal office located in the 8pecial 6#port 2rocessing Zone in ,ag$na! "t is principally engaged in the b$siness of man$fact$ring' importing' e#porting' b$ying' selling wholesale s$ch goods as strapping bands and other pac(aging materials! Having registered with the ="0 as a 7AT ta#payer' 8e(is$i filed its 1$arterly ret$rns with the ="0' in the amo$nt of 2)M paid by it in connection with its domestic p$rchase of capital goods and services! 8aid inp$t ta#es remained $n$tili-ed since 8e(is$i has not engaged in any b$siness activity or transaction for which it may be liable for o$tp$t ta# and for which said inp$t ta#es may be credited! 8e(is$i then filed with the 4neF8topF8hop "nterFAgency Ta# *redit and D$ty Drawbac( *enter of the Department of +inance .*6AT60FD4+/ two separate applications for ta# credit/ref$nd of 7AT inp$t ta#es paid! *"0 denied this' b$t *TA r$led that 8e(is$i was entitled to ref$nd! ": 5/n 86J"8:" is entitled to the ref$nd/ta# credit certificate as alleged $n$tili-ed inp$t ta#es paid on domestic p$rchase of capital goods and services 0: Ces' it is entitled to ref$nd =$siness enterprises registered with the 2hilippine 6#port Zone A$thority .26ZA/ may choose between two fiscal incentive schemes: o .1/ to pay a >T preferential ta# rate on its gross income and th$s be e#empt from all other ta#esR or o .b/ to en;oy an income ta# holiday' in which case it is not e#empt from applicable national reven$e ta#es incl$ding the val$eFadded ta# .7AT/! "f the entity avails itself of the >T preferential ta# rate $nder the first scheme' it is e#empt from all ta#es' incl$ding the 7ATR :nder the second' it is e#empt from income ta#es for a n$mber of years' b$t not from other national internal reven$e ta#es li(e the 7AT! A per$sal of the pleadings and s$pporting doc$ments indicates that 8e(is$i availed itself of the income ta# holiday .second/! =y doing so' it became s$b;ect to 7AT! "t correctly registered as a 7AT ta#payer' beca$se its transactions were not 7ATFe#empt! Aotwithstanding the fact that its p$rchases sho$ld have been -eroF rated' 8e(is$i was able to prove that it had paid inp$t ta#es in the amo$nt of 2)M' as s$bstantially s$pported by invoices and 40s!

5hile an eco-one is within the 2hilippines' it is deemed a separate c$stoms territory! 8ales by s$ppliers from o$tside the borders of the eco-one to this separate c$stoms territory are deemed as e#ports and treated as e#port sales! 8ince 1 T of 8e(is$i&s prod$cts are e#ported' all its transactions are deemed e#port sales and are th$s 7AT -eroFrated! 8e(is$i has no o$tp$t ta# with which it co$ld offset its paid inp$t ta#! 8ince the s$b;ect inp$t ta# it paid for its domestic p$rchases of capital goods and services remained $n$tili-ed' it can claim a ref$nd for the inp$t 7AT previo$sly charged by its s$ppliers!

A=A9ADA vs Er!ita (Se*t <, 288B) 8everal actions were filed by different petitioners assailing the validity of 0!A! Ao! 9LL9 .increasing 7AT to 12T/ for being $nconstit$tional' as it violates Art K' 8ection 2M' w/c provides that G !he rule of ta%ation shall *e uniform and e0uita*le. !he Congress shall evolve a progressive system of ta%ation. "n partic$lar' 8H6,,' etc! assailed 2ection =' amending 8ection 11 .=/ of the A"0*' i!*osin3 a C8I )i!it on the a!ount o# in*ut tax to "e credited a3ainst the out*ut tax , ma(ing it 06<0688"76 and $nconstit$tional! S*eci#ic *rovisionD "f at the end of any ta#able 1$arter the o$tp$t ta# e#ceeds the inp$t ta#' the e#cess shall be paid by the 7ATFregistered person! "f the inp$t ta# e#ceeds the o$tp$t ta#' the e#cess shall be carried over to the s$cceeding 1$arter or 1$arters: 2047"D6D that the in*ut tax inc)usive o# in*ut 5AT carried over #ro! the *revious Guarter that !a- "e credited in everGuarter sha)) not exceed C8I o# the out*ut 5AT : 2047"D6D' H456760' THAT any inp$t ta# attrib$table to -eroFrated sales by a 7ATFregistered person may at his option be ref$nded or credited against other internal reven$e ta#es! ! ! ": 5/n 0A 9LL9 is $nconstit$tional for violating $niformity' e1$itability and progressiveness of ta#ation @ Ao' it is 7A,"D! TAX IS %'I/&1.. :niformity in ta#ation means that all ta#able articles or (inds of property of the same class shall be ta#ed at the same rate! The r$le of $niform ta#ation does not deprive *ongress of the power to classify s$b;ects of ta#ation' and only demands $niformity within the partic$lar class! "n this case' the ta# law is $niform beca$se: o 1/ it provides a standard rate of T or 1 T .or 12T/ on all goods and servicesR

TA? 2 @ M4AT604 B C! 8anche- A2 12

/ it does not ma(e any distinction as to the type of ind$stry or trade that will bear the 9 T limitation on the creditable inp$t ta#' >Fyear amorti-ation of inp$t ta# paid on p$rchase of capital goods or the >T final withholding ta# by the government! TAX IS EJ%ITA=LE. .Ta#es sho$ld e1$ally b$rden all individ$als or entities in similar economic circ$mstances!/ The law is e1$ipped with a threshold margin! The 7AT rate of T or 1 T .or 12T/ does not apply to sales of goods or services with gross ann$al sales or receipts not e#ceeding 21!>M! Also' basic marine and agric$lt$ral food prod$cts in their original state are still A4T s$b;ect to the ta#' th$s ens$ring that prices at the grassroots level will remain accessible! Altho$gh the law o$ts a premi$m on b$sinesses with low profit margins' and $nd$ly favors those with high profit margins' *ongress e1$ali-ed the b$rden the law by li(ewise imposing a LT percentage ta# on 7ATFe#empt persons $nder 8ection 1 9.v/' i.e.' transactions with gross ann$al sales and/or receipts not e#ceeding 21!> Million! This acts as an e1$ali-er beca$se in effect' bigger b$sinesses that 1$alify for 7AT coverage and 7ATFe#empt ta#payers stand on e1$alF footing! Moreover' *ongress provided $nder mitigating meas$res to ease' as well as spread o$t' the b$rden of ta#ation' which wo$ld otherwise rest largely on the cons$mers: o 6#cise ta#es on petrole$m prod$cts and nat$ral gas were red$ced! 2ercentage ta# on domestic carriers was removed! 2ower prod$cers are now e#empt from paying franchise ta#! o "ncome ta# rates of corporations' in order to distrib$te the b$rden of ta#ation' were increased o Domestic' foreign' and nonFresident corporations are now s$b;ect to a L>T income ta# rate' from a previo$s L2T! o "ntercorporate dividends of nonFresident foreign corporations are still s$b;ect to 1>T final withholding ta# b$t the ta# credit allowed on the corporation%s domicile was increased to 2 T! o 2A<*40 is not e#empt from income ta#es anymore! o 6ven the sale by an artist of his wor(s or services performed for the prod$ction of s$ch wor(s was not spared! &n the I'P%T TAX LI.ITY (IT& ata -un3 i!*t) 2etitioner .8hell/ ass$mes that the inp$t ta# e#ceeds 9 T of the o$tp$t ta#' and therefore' the inp$t ta# in e#cess of 9 T remains $ncredited! However' to the e#tent that the inp$t ta# is less than 9 T of the o$tp$t ta#' then 1 T of s$ch inp$t ta# is still creditable! o

More importantly' the e#cess inp$t ta#' if any' is retained in a b$siness%s boo(s of acco$nts and remains creditable in the s$cceeding 1$arter/s! This is e#plicitly allowed by 8ection 11 .=/' which provides that Gif the inp$t ta# e#ceeds the o$tp$t ta#' the e#cess shall be carried over to the s$cceeding 1$arter or 1$arters!H "n addition' 8ection 112.=/ allows a 7ATFregistered person to apply for the iss$ance of a ta# credit certificate or ref$nd for any $n$sed inp$t ta#es' to the e#tent that s$ch inp$t ta#es have not been applied against the o$tp$t ta#es! 8$ch $n$sed inp$t ta# may be $sed in payment of his other internal reven$e ta#es! The nonFapplication of the $n$tili-ed inp$t ta# in a given 1$arter is not ad infinit$m' as petitioners e#aggeratedly contend! 4n the other hand' it appears that petitioner <arcia failed to comprehend the operation of the 9 T limitation on the inp$t ta#! According to petitioner' the limitation on the creditable inp$t ta# in effect allows 7ATFregistered establishments to retain a portion of the ta#es they collect' which violates the principle that ta# collection and reven$e sho$ld be for p$blic p$rposes and e#pendit$res! As earlier stated' the in*ut tax is the tax *aid "- a *erson, *assed on to hi! "- the se))er, hen he "u-s 3oods. &ut*ut tax !ean hi)e is the tax due to the *erson hen he se))s 3oods! "n comp$ting the 7AT payable' three possible scenarios may arise: o "f o$tp$t ta# Z inp$t ta# Z no payment o "f o$tp$t ta# [ inp$t ta# Z person liable for e#cess' to be paid to ="0 o "f inp$t ta# [ o$tp$t ta# Z e#cess shall be carried over to the s$cceeding 1$arter or 1$arters! o "+ inp$t ta# res$lts from -eroFrated or effectively -eroF rated transactions' any e#cess over the o$tp$t ta#es shall be 06+:AD6D to the ta#payer / credited against other internal reven$e ta#es' at the ta#payer%s option! 8ection M of 0!A! Ao! 9LL9 however' imposed a 9 T limitation on the inp$t ta#! Th$s' a person can credit his inp$t ta# only $p to the e#tent of 9 T of the o$tp$t ta#! There is no retention o# an- tax co))ection "ecause the tax*a-er has a)read- *revious)- *aid the in*ut tax to a se))er, and the se))er i)) su"seGuent)- re!it such in*ut tax to the =I1. The party directly liable for the payment of the ta# is the seller! 5hat only needs to be done is for the person/ta#payer to apply or credit these inp$t ta#es' as evidenced by receipts' against his o$tp$t ta#es! TAX IS 1EG1ESSI5E, =%T IT IS '&T I'5ALID. Ta#ation is 204<0688"76 when its rate goes $p depending on the reso$rces of the person affected! The 0onstitution does not rea))*rohi"it the i!*osition o# indirect taxes, )iKe the 5AT. What it

TA? 2 @ M4AT604 B C! 8anche- A2 12

si!*)- *rovides is that 0on3ress sha)) Hevo)ve a *ro3ressive s-ste! o# taxation.H YA4T6 the distinction made by the co$rt: 5AT F A ta# on spending or cons$mption! "t is levied on the sale' barter' e#change or lease of goods or properties and services! =eing an indirect ta# on e#pendit$re' the seller of goods or services may pass on the amo$nt of ta# paid to the b$yer' with the seller acting merely as a ta# collector! The b$rden of 7AT is intended to fall on the immediate b$yers and $ltimately' the endFcons$mers! Direct tax is a ta# for which a ta#payer is directly liable on the transaction or b$siness it engages in' witho$t transferring the b$rden to someone else! 6#amples are individ$al and corporate income ta#es' transfer ta#es' and residence ta#es! A=A9ADA v. Er!ita (&ct <L, 288B) This case is abo$t the 0esol$tion of the Motion for 0econsideration filed by herein petitioners based on the decision rendered by the co$rt on 8ept! 1' 2 >' $pholding the constit$tionality of 0A 9LL9 or the 7AT 0eform Act! 0elevant iss$es are as follows: 1! M0 of 6sc$dero' et al!: 5/A there was grave ab$se of discretion amo$nting to lac( or e#cess of ;$risdiction on the part of the =icameral *ommittee when the GAo 2assF4n 2rovisionsH for the sale of petrole$m prod$cts and power generation services were deleted! 2! M0 of =ataan <overnor <arcia' Nr!: 5/A the 7AT law is $nconstit$tional for being arbitrary' oppressive and ine1$itable beca$se it b$rdens the cons$mers beca$se of the price increase! L! M0 of Association of 2ilipinas 8hell Dealers: W4' the 0ourt erred in u*ho)din3 the constitutiona)it- o# Section <<8(A)(2) and Section <<8(=) o# the 'I10 as a!ended "- the E5AT La i!*osin3 )i!itations on the a!ount o# in*ut 5AT that !a"e c)ai!ed as a credit a3ainst the out*ut 5ATE Section <<A(0) o# the 'I10 as a!ended "- the E5AT La , reGuirin3 the 3overn!ent or an- o# its instru!enta)ities to ithho)d a BI #ina) ithho)din3 tax on their 3ross *a-!ents on *urchases o# 3oods and services R for finding that the 67AT ,aw is not arbitrary' oppressive and confiscatory as to amo$nt a deprivation of property witho$t d$e process of lawR that it did not violate the e1$al protection cla$se! 0: M0s are D6A"6D! T04 is lifted!

6sc$dero' et al! arg$es that the bicameral committee sho$ld not have to$ched on the GAo 2assF4n 2rovisionsH since both the 8enate and the Ho$se of 0epresentatives were in agreement that s$ch provision sho$ld be passed where no 7AT =$rden shall be passed to the endF cons$mer and instead will be sho$ldered by the sellers! (&WE5E1, the de)etion o# the M'o Pass;&n ProvisionN !ade the *resent 5AT )a !ore in consonance ith the ver- nature o# 5AT hich is a tax on s*endin3 or consu!*tion, thus, the "urden thereo# is u)ti!ate)- "orne "- the end;consu!er. As to the contention that the right to credit inp$t ta# has already evolved into a vested right' the *o$rt finds that the ri3ht to credit the sa!e is a !ere creation o# )a . 2rior to the enactment of m$ltiFstage sales ta#ation' the sales ta#es paid at every level of distrib$tion are not recoverable from the ta#es payable! 5ith the advent of 64 29L imposing a 1 T m$ltiFstage ta# on all sales' it was only then that the crediting of the inp$t ta# paid on p$rchase or importation of goods and services by 7ATFregistered persons against the o$tp$t ta# was established! This contin$ed with the 6#panded 7AT ,aw .0!A! Ao! 991K/' and The Ta# 0eform Act of 1999 .0!A! Ao! M)2)/! The ri3ht to credit in*ut tax as a3ainst the out*ut tax is c)ear)a *rivi)e3e created "- )a , a *rivi)e3e that a)so the )a can )i!it. It shou)d "e stressed that a *erson has no vested ri3ht in statutor- *rivi)e3es. The impact of the 9 T limitation on the creditable inp$t ta# will $ltimately depend on how one manages and operates its b$siness! Mar(et forces' strategy and ac$men will dictate their moves! 5ith or witho$t these 7AT provisions' an entreprene$r who does not have the (en to adapt to economic variables will s$rely perish in the competition! The arg$ments posed are within the realm of b$siness' and the sol$tion lies also in b$siness!

0I1 v. Toshi"a In#or!ation EGui*!ent (Phi)s.), Inc. Toshiba is a domestic corporation with the primary p$rpose of engaging in the b$siness of man$fact$ring and e#porting of electrical and mechanical machinery and goods relating to information technology' comp$ter hardware and software! "n 199>' Toshiba registered w/ 2hilippine 6conomic Zone A$thority .26ZA/ as an 6co-one 6#port 6nterprise! Toshiba also registered with the ="0 as a 7AT ta#payer! Toshiba filed its 7AT ret$rns for the year 199K reporting its inp$t 7AT and alleging that its inp$t 7AT was from its p$rchases of capital goods and services which remained $n$tili-ed since it had not yet engaged in any b$siness activity for which it may be liable for o$tp$t 7AT!

TA? 2 @ M4AT604 B C! 8anche- A2 12

*onse1$ently' Toshiba filed with the 4neF8top 8hop "nterFAgency Ta# *redit and D$ty Drawbac( center of the Department of +inance applications for ta# credit/ref$nd of its $n$tili-ed inp$t 7AT! Toshiba also filed a petition for review with the *TA to toll the r$nning of the twoFyear prescriptive period for ;$dicially claiming a ta# credit/ref$nd! *TA ordered the *"0 to ref$nd or to iss$e a ta# credit certificate to Toshiba! *"0 opposed on the gro$nd that since Toshiba is registered with 26ZA as an 6co-one 6#port 6nterprise' its b$siness is not s$b;ect to 7AT p$rs$ant to 8ection 1 9 of the Ta# *ode! 8ince Toshiba%s b$siness is not s$b;ect to 7AT' the capital goods and services it p$rchased are considered not $sed in 7AT ta#able b$siness and therefore' it is not entitled to ref$nd of inp$t ta#es on s$ch capital goods! ": 5/n Toshiba is entitled to the ta# credit/ref$nd of its inp$t 7AT on its p$rchases of capital goods and services 0: Ces' Toshiba is entitled to ta# credit/ref$nd of its inp$t 7AT on its p$rchases of capital goods and services! An 6co-one enterprise is a 7ATFe#empt entity! 8ales of goods' properties' and services by persons from the *$stoms Territory to 6co-one enterprise shall be s$b;ect to 7AT at -ero percent . T/! 26ZAFregistered enterprises' which wo$ld necessarily be located within 6co-ones' are 7ATFe#empt entities beca$se of 8ection M of 0A 991K which establishes the fiction that 6co-ones are foreign territory! The national territory of the 2hilippines o$tside of the proclaimed borders of the 6co-one are referred to as *$stoms Territory! The provision provides that 26ZA shall manage and operate the 6co-ones as a separate c$stoms territory' th$s creating the fiction that the 6co-one is a foreign territory! The 2hilippine 7AT system adheres to the *ross =order Doctrine' according to which' no 7AT shall be imposed to form part of the cost of goods destined for cons$mption o$tside of the territorial board of the ta#ing a$thority! 8ales of goods' properties' and services by a 7ATFregistered s$pplier from the *$stoms Territory to an 6co-one enterprise shall be treated as ex*ort sa)es. "f s$ch sales are made by a 7ATFregistered s$pplier' they shall be s$b;ect to 7AT at T! "n -eroFrated transactions' the 7ATFregistered s$pplier shall not pass on any o$tp$t 7AT to the 6co-one enterprise' and at the same time' shall be entitled to claim ta# credit/ref$nd of its inp$t 7AT attrib$table to s$ch sales! ZeroFrating of e#port sales primarily intends to benefit the e#port .i!e!' the s$pplier from *$stoms territory/' who is directly and legally liable for 7AT! Meanwhile' sales to an 6co-one enterprise made a by a nonF

7AT or $nregistered s$pplier wo$ld only be e#empt from 7AT and the s$pplier shall not be able to claim credit/ref$nd of its inp$t 7AT! 6ven conceding' however' that Toshiba as a 26ZAFregistered enterprise' is a 7ATFe#empt entity that co$ld not have engaged in a 7ATFta#able b$siness' given the partic$lar circ$mstances' Toshi"a is entit)ed to a credit4re#und o# its in*ut vat. The sales made to Toshiba' for which it is claiming a ref$nd or credit of its $n$tili-ed inp$t vat' were made in 199K $nder the o)d ru)e that the ta#Fstat$s of 6co-one enterprises wo$ld depend $pon the ta# incentives it chooses to avail of' either the >T preferential ta# or the income ta# holiday $nder the 4mnib$s "nvestments *ode where the entity will only be e#empt from income ta# b$t not from 7AT! 8ince Toshiba chose to avail of the income ta# holiday' it was therefore s$b;ect to the 1 T 7AT! Therefore Toshiba%s transactions in 199K being s$b;ect to 7AT' is entitled to a credit/ref$nd of the $n$tili-ed inp$t 7AT it inc$rred which it wasn%t able to apply against its o$tp$t ta#es! !he transaction from a supplier in a customs territory to !oshi*a*eing a 8K,@registered enterprise- $as considered an effectively H,! zero@rated transaction. "o$ever- the sales made *y !oshi*a to a foreign country $ere considered e%port sales. !hus- they $ere considered to *e automatically H,! zero@rated transactions. Civen that in the case of !oshi*a- !oshi*a $as Auyer & and not the 2eller- then it should not have claimed for an input ta% credit since theoretically- there $as no input H,! on !oshi*aJs part. "o$ever- the !oshi*a case happened prior to 4#C 73@(( $here 8K,@registered enterprises availed of income ta% holidays and so !oshi*a $as su*.ect to H,!. !hus- there $as an assumption that the seller passed on H,! to !oshi*a and so- !oshi*a should *e allo$ed to claim for an input ta% credit. ,s regards the fact that !oshi*a $as as6ing for an input ta% credit on capital goods- the ruling in that case is no longer applica*le as input ta% credit for capital goods under 4, (++7 are governed *y ne$ rules. 7n this case- the Court also made a pronouncement that a H,!@ registered supplier from the customs territory to an 8cozone enterprise shall *e treated as e%port sales- $hile sales to an 8C<K<58 enterprise made *y a 5<5@H,! or unregistered supplier $ould only *e e%empt from H,! and the supplier shall not *e a*le to claim creditDrefund for his input H,!.

0I1 v Sea3ate

TA? 2 @ M4AT604 B C! 8anche- A2 12

8eagate is a resident foreign corporation d$ly registered with the 86* to do b$siness in the 2hilippines' with principal office address at the 8pecial 6conomic Zone in *eb$! "t is also registered with the 2hilippine 6#port Zone A$thority .26ZA/ to engage in the man$fact$re of recording components primarily $sed in comp$ters for e#port! +$rthermore' it is a 7ATFregistered entity w/c filed 7AT ret$rns for the period of April 199M to L N$ne 1999! 8$bse1$ently' an administrative claim for re#und o# 5AT in*ut taxes in the amo$nt of 22M'LK9'22K!LM with s$pporting doc$ments .incl$sive of the 212'2K9'9M1! ) 7AT inp$t ta#es s$b;ect of this 2etition for 0eview/' was filed! *"0 did not act $pon this so 8eagate elevated the case to *TA! *TA granted the claim for ref$nd b$t the 0A modified it in the red$ced amo$nt of 212M' w/c represented the $n$tili-ed b$t s$bstantiated inp$t 7AT paid on capital goods p$rchased for the period covering April 1' 199M to N$ne L ' 1999! This was beca$se 8eagate had availed itself only of the fiscal incentives $nder 64 22K and A4T of those $nder both 2D KK and 8ection 2) of 0A 991K! 4espondent $as- therefore- considered e%empt only from the payment of income ta% $hen it opted for the income tax holida' in lieu of the 5I preferential ta% on gross income earned. ,s a H,!@registered entity- though- it $as still su*.ect to the payment of other national internal revenue ta%es- li6e the H,!. ": 5/n 8eagate is entitled to the ref$nd or iss$ance of Ta# *redit *ertificate in the amo$nt of 212'122'922!KK representing alleged $n$tili-ed inp$t 7AT paid on capital goods p$rchased for the period April 1' 199M to N$ne L ' 1999 0: >ES, Sea3ate is entit)ed to re#und. TH606 "8 Pre#erentia) Tax Treat!ent %nder the #o))o in3 S*ecia) La sD o 2D KKF law creating 26ZA o 64 22KF 4mnib$s "nvestments *odeI of 19M9 o 0A 9229F =ases *onversion and Development Act of 1992 o 0A 991KF 7AT ,aw o 0A 9M))F 6#port Development Act of 199)R o 2D 1M>LF law re1$iring deposits of d$ties $pon the opening of letters of credit to cover imports 8eagate is one of the b$siness entities registered in and operating from the 86Z in *eb$! These entities are e#empt from all internal reven$e ta#es and the implementing r$les relevant thereto' incl$ding the 7AT! Altho$gh e#port sales are not deemed e#empt transactions' they are nonetheless -eroFrated' beca$se the eco-one within which it is

registered is managed and operated by the 26ZA as a separate customs territor' ! This means that in s$ch -one is created the legal fiction of foreign territory! :nder the cross&border principle of the 7AT system being enforced by the ="0' no 7AT shall be imposed to form part of the cost of goods destined for cons$mption o$tside of the territorial border of the ta#ing a$thority! "f e#ports of goods and services from the 2hilippines to a foreign co$ntry are free of the 7AT' then the same r$le holds for s$ch e#ports from the national territory FF e#cept specifically declared areas FF to an eco-one! TH:8' sales made by a 7ATFregistered person in the c$stoms territory to a 26ZAFregistered entity are considered ex*orts to a #orei3n countr*onversely' sales by a 26ZAFregistered entity to a 7ATFregistered person in the c$stoms territory are deemed i!*orts #ro! a #orei3n countr-! An eco-one' even tho$gh a geographical territory of the 2hilippines' is however regarded in law as foreign soil! This legal fiction is necessary to give meaningf$l effect to the policies of the special law creating the -one! There is a difference between Z604F0AT6D T0AA8A*T"4A8 and 6?6M2T / 6++6*T"76 Z604F0AT6D T0AA8A*T"4A8 2ero;rated "t is auto!atic zero;ratin3! 0efers to the ex*ort sa)e of goods and s$pply of services! Exe!*t "t is e##ective zero ratin3. 0efers to the sale of goods or s$pply of services to *ersons or entities whose e#emption $nder special laws or "nt%l agreements to which the 2hilippines is a signatory effectively s$b;ects s$ch transactions to a -ero rate! "ntended to benefit the *urchaser who' not being directly and legally liable for the payment of the 7AT' will $ltimately bear the b$rden of the ta# shifted by the s$ppliers!

"ntended to be en;oyed by the se))er who is directly and legally liable for the 7AT' ma(ing s$ch seller internationally competitive by allowing the ref$nd or credit of inp$t ta#es that are attrib$table to ex*ort sa)es!

TA? 2 @ M4AT604 B C! 8anche- A2 12

There is tota) re)ie# for the p$rchaser from the b$rden of the ta# since he does not have inp$t 7AT and in effect' beca$se 7AT is at T' it does not have o$tp$t 7AT!

There is *artia) re)ie# beca$se the p$rchaser is not allowed any ta# ref$nd of or credit for inp$t ta#es paid!

Di##erentiate zero;rated #ro! effectivel' zero;rated transactions according to eagate ir pointed out that0 the difference between a$tomatic -eroFrated transactions from effectively -eroFrated transactions is that with auto!atic zero;rated transactions ' yo$ only have to )ooK at the Tax 0ode provisions to (now which transactions are a$tomatic -eroFrated! However' with EXE.PTI&'S 4 e##ective zero;rated transactions ' yo$ have to )ooK at other )a sR th$s' for effective -eroFrated transactions' there is a need to get a prior confirmation or prior approval from the ="0 that the transaction is effectively -eroFrated! A4T6 however that 0even$e 0eg$lations of )F2 9 does not provide anymore that there sho$ld be an approval before a transaction that is effectively 7AT -eroFrated to become effectively 7AT -eroFrated' which co$ld be a legal basis why there is no need for prior confirmation! Aut 2ir does not agree since there is yet no amendment in the !a% Code. Exe!*t Transaction F involves goods or services which' by their nat$re' are specifically listed in and e#pressly e#empted from the 7AT $nder the Ta# *ode' witho$t regard to the ta# stat$s of the party .7ATFe#empt or not/ to the transaction. @ s$ch transaction is not s$b;ect to the 7AT' b$t the seller is not allowed any ta# ref$nd of or credit for any inp$t ta#es paid! Exe!*t PartF a person or entity granted 7AT e#emption $nder the Ta# *ode' a special law or an international agreement to which the 2hilippines is a signatory' and by virt$e of which its ta#able transactions become e#empt from the 7AT! F 8$ch party is also not s$b;ect to the 7AT' b$t may be allowed a ta# ref$nd of or credit for inp$t ta#es paid' depending on its registration as a 7AT or nonF7AT ta#payer! 5hile the lia*ility is imposed on one person' the *urden may be passed on to another! Therefore' if a special law merely e#empts a party as a seller from its direct liability for payment of the 7AT' b$t does not relieve the same party as a p$rchaser from its indirect b$rden of the 7AT shifted to it by its 7ATFregistered s$ppliers' the p$rchase transaction is not e#empt! Applying this principle to the case at bar' the p$rchase transactions entered into by respondent are not 7ATFe#empt!

O*1,( 0 2pecial la$s may certainly e%empt transactions from the H,!. "o$ever- the !a% Code provides that those falling under ? 66 are not. !he purchase transactions it entered into are- therefore- not H,!@e%empt. !hese are su*.ect to the H,!G respondent is re0uired to register. 7ts sales transactions- ho$ever- $ill either *e zero@rated or ta%ed at the standard rate of &' percent- depending again on the application of the destination principle (>nder this principle- goods and services are ta%ed only in the country $here these are consumed. !hus- e%ports are zero@rated- *ut imports are ta%ed). When 5AT 1ate is at 8I or at <8I TF if 8eagate enters into s$ch sales transactions with a p$rchaser .$s$ally in a abroad/ for $se or cons$mption 4:T8"D6 the 2hilippines 1 TF if 8eagate entered into with a p$rchaser for $se or cons$mption "A the 2hilippines' :A,688 the p$rchaser is e#empt from the indirect b$rden of the 7AT' in which case it shall also be -eroFrated! 8ince the p$rchases of respondent are not e#empt from the 7AT' the rate to be applied is -ero! The Tax Exe!*tions are =road and Ex*ress Applying the special laws en$merated above' respondent as an entity is e#empt from internal reven$e laws and reg$lations! This e#emption covers *oth direct and indirect ta#es' stemming from the very nat$re of the 7AT as a ta# on cons$mption' for which the direct lia*ility is imposed on one person b$t the indirect *urden is passed on to another! 0espondent' as an e#empt entity' can neither be directly charged for the 7AT on its sales nor indirectly made to bear' as added cost to s$ch sales' the e1$ivalent 7AT on its p$rchases! >*i le% non distinguit- nec nos distinguere de*emus! 5here the law does not disting$ish' we o$ght not to disting$ish! Tax 1e#und or 0redit is in &rder Having determined that respondent%s p$rchase transactions are s$b;ect to a -ero 7AT rate' the ta# ref$nd or credit is in order! As correctly held by both the *A and the Ta# *o$rt' respondent had chosen the fiscal incentives in E& 227 over those in 0A 991K and 2D KK! "t opted for the income ta# holiday regime instead of the > percent preferential ta% regime. Therefore' respondent can be considered e#empt' not from the 7AT' b$t only from the payment of income ta# for a certain n$mber of years' depending on its registration as a pioneer or a nonFpioneer enterprise!

TA? 2 @ M4AT604 B C! 8anche- A2 12

Su!!arTo s$mmari-e' special laws e#pressly grant preferential ta# treatment to b$siness establishments registered and operating within an eco-one' which by law is considered as a separate customs territory ! As s$ch' respondent is e#empt from all internal reven$e ta#es' incl$ding the 7AT' and reg$lations pertaining thereto! "t has opted for the income ta# holiday regime' instead of the > percent preferential ta% regime. As a matter of law and proced$re' its registration stat$s entitling it to s$ch ta# holiday can no longer be 1$estioned! "ts sales transactions intended for e#port may not be e#empt' b$t li(e its p$rchase transactions' they are -eroFrated! Ao prior application for the effective -ero rating of its transactions is necessary! =eing 7ATFregistered and having satisfactorily complied with all the re1$isites for claiming a ta# ref$nd of or credit for the inp$t 7AT paid on capital goods p$rchased' respondent is entitled to s$ch 7AT ref$nd or credit! A!erican Ex*ress v. 0I1 2etitioner Ame#F2hil is a 2hilippine branch of American 6#press "nternational' "nc!' a corporation d$ly organi-ed $nder Delaware' :8 laws! "t is a servicing $nit of American 6#press "nternational' "nc! O HJ branch' engaged primarily to facilitate the collection of Ame# HJ&s receivables from Ame# cardholders residing or sit$ated in the 2hilippines' as well as the payment of Ame# HJ to American 6#press accredited service establishments and merchants in the 2hilippines! Ame#F2hil made a re1$est in writing to ="0 for 1$alification as a -ero rated 7AT enterprise! ="0 iss$ed a 7AT 0$ling declaring that as a 7AT registered entity whose service is paid for in acceptable foreign c$rrency which is remitted inwardly to the 2hilippines and acco$nted for in accordance with the r$les and reg$lations of the *entral =an( of the 2hilippines' Ame#F2hil%s service income is a$tomatically zero rated effective Nan$ary 1' 19MM! +or this' there is no need to file an application for -eroFrate! +or the ta#able year 199M' petitioner allegedly generated and recorded reven$es in the total amo$nt of 2M1( which were paid for in HJ in foreign c$rrency inwardly remitted to the 2hilippines and acco$nted for in accordance with the r$les and reg$lations of the =82! Ame#F2hil asserts that said reven$es 1$alify as -eroFrated p$rs$ant Ta# *ode as confirmed in the 7AT 0$ling! +or the same period' Ame#F2hil allegedly paid inp$t 7AT amo$nting to 2L!9M3 on its domestic p$rchases of ta#able goods/services! 2etitioner nonetheless claims that its o$tp$t 7AT liability for the period amo$nted only to 2)( thereby leaving an $n$tili-ed inp$t 7AT of 2LM averred to be directly attrib$table to its -eroFrated sales!

2etitioner contends that the inp$t 7AT payments in 199M were paid in the co$rse of its trade or b$siness! +$rther' the $napplied inp$t 7AT payments s$b;ect of this case had not been carried over to the s$cceeding first 1$arter of 1999! ID 5/A Ame#F2hil is entitled to a ref$nd of 2L'9K9'>K1! K allegedly representing unuti)ized in*ut 5AT *a-!ents on domestic p$rchases of ta#able goods/services which are directly attrib$table to -eroFrated sales for the period Nan$ary 1 to December L1' 199M 1D C68! 2etitioner&s claim for ref$nd is hereby 2A0T"A,,C <0AAT6D! 0espondent *"0 is 40D606D to 06+:AD to petitioner the s$m of 2L'9K9'LLK!99 representing $n$tili-ed inp$t 7AT payments for the period Nan$ary 1 to December L1' 199M! The on$s .b$rden/ of ta#ation $nder o$r 7AT system is in the co$ntry where the goods' property or services are destined and cons$med! This is the reason why $nder o$r 7AT ,aw' goods' property or services destined to be cons$med in the 2hilippines are s$b;ect to the 1 T 7AT whereas e#ports are -eroFrated! Ame#%s transactions were considered -eroFrated beca$se they were services that were paid for in an acceptable foreign c$rrency Q acco$nted for in accordance w/ the r$les Q reg$lations of the =82 since its transactions were paid in HJ foreign c$rrency which was inwardly remitted to the 2hilippines Q acco$nted for in accordance w/ the r$les of =82! The governing law in the case at bar is 8ection 112.A/Uthen 8ection 1 K.a/W in relation to 8ection 1 M.=/.2/ of the Ta# *ode! L "n conformity with this law' to "e entit)ed to a re#und or tax credit o# in*ut 5AT *a-!ents direct)- attri"uta")e to zero;rated or e##ective)- zero; rated sa)es, the #o))o in3 reGuisites !ust "e co!*)ied ithD 1/ there m$st be -eroFrated or effectively -eroFrated salesR 2/ that inp$t ta#es were inc$rred or paidR L/ that s$ch inp$t 7AT payments are directly attrib$table to -eroFrated sales or effectively -eroFrated salesR )/ that the inp$t 7AT payments were not applied against any o$tp$t 7AT liabilityR and >/ that the claim for ref$nd was filed within the twoFyear prescriptive period!

86*! 112! 0ef$nds or Ta# *redits of "np$t Ta#! O .A/ Zero rated or 6ffectively ZeroFrated 8ales! O Any 7AT registered person' whose sales are -eroF rated or effectively -eroFrated may' within two .2/ years after the close of the ta#able 1$arter when the sales were made' apply for the iss$ance of a ta# credit certificate or ref$nd of creditable inp$t ta# d$e or paid attrib$table to s$ch sales' e#cept transitional inp$t ta#' to the e#tent that s$ch inp$t ta# has not been applied against o$tp$t ta#: 2rovided' however' That in the case of -eroFrated sales $nder 8ection 1 K.A/.2/.a/.1/' .2/ and .=/ and 8ection 1 M.=/.1/ and .2/' the acceptable foreign c$rrency e#change proceeds thereof had been d$ly acco$nted for in accordance with the r$les and reg$lations of the =ang(o 8entral ng 2ilipinas .=82/!

TA? 2 @ M4AT604 B C! 8anche- A2 12

26T"T"4A60 in this case f$lfilled all the re1$irements' e#cept the L rd .not all of the inp$t 7AT payments were attrib$table to the -eroFrated sales/' hence the partial grant! &st re0uirement: etitioner1s sales of services 0ualify as zero@rated sales. 7t is a H,! registered entity and its sales of services to ,#8L "M falls under 2ection &'=(A)()) of the !a% Code. /urther- petitioner1s service fee earnings amounting to =&6 $ere paid for in accepta*le foreign currency (>2 dollars) and accounted for in accordance $ith the rules and regulations of the A2 as evidenced *y the various tele% advices and demand deposit statementsand certification from A 7 /ore% Corporation. )ndre0uisite: etitioner su*mitted various suppliers1 invoices and <4s $hich are valid documents in accordance $ith 2ections &&+ and )+7 of the !a% Code. /rom said documents- petitioner esta*lished that it paid an input H,! in the sum of +-(7)-')5.&5 on its domestic purchases of ta%a*le goodsDservices for the year &((=. +rd re0uisite: 5ot all of the su*stantiated input H,! payments of +-(7)-')5.&5 $ere directly attri*uta*le to petitioner1s zero@rated sales. /or the year &((=- petitioner had ta%a*le sales in the amount of 36-==&.=' $ith the corresponding output H,! of 3-6==.&= 7ndu*ita*lyonly the input H,! of +-(67-++6.(7- arrived at *y deducting the output H,! of 3-6==.&= from the su*stantiated input H,! of +-(7)-')5.&5can *e directly attri*uted to petitioner1s zero@rated sales for the su*.ect period. 3thre0uirement: etitioner offered in evidence its 0uarterly H,! return for the first 0uarter of &((( to prove that the su*.ect claim $as not applied or carried over to the said 0uarter. Last re0uirement: Counting the t$o@year prescriptive period from the date of filing of petitioner1s &((= first 0uarterly H,! returns on ,pril )'&((=- *oth the administrative (filed on ,pril &=- )''') and .udicial (filed on ,pril &(- )''') claims for refund $ere filed $ithin the t$o@year period as mandated *y la$.

0I1 v. 0A and 0o!!on ea)th .ana3e!ent and Services 0or*oration

*ommonwealth Management and 8ervices *orporation .*4MA860*4/' is a 2hil corp w/c is an affiliate of 2H",AM,"+6 organi-ed by the latter to perform collection' cons$ltative and other technical services' incl$ding f$nctioning as an internal a$ditor' of 2hilamlife and its other affiliates! ="0 iss$ed an assessment to private respondent *4MA860*4 for deficiency 7AT amo$nting to 2L>1(3 for ta#able year 19MM! *4MA860*4 filed with the ="0' a letterFprotest ob;ecting to the latter&s

finding of deficiency 7AT' b$t the *"0 sent a collection letter to *4MA860*4 demanding payment of the deficiency 7AT! Th$s *4MA860*4 file with the *TA a petition for review wherein they averred that it was A4T engaged in the b$siness of providing services to 2hilamlife and its affiliates! *4MA860*4 was established to ens$re operational orderliness and administrative efficiency of 2hilamlife and its affiliates' and A4T in the sale of services! *4MA860*4 stressed that it was not profitFmotivated' th$s not engaged in b$siness! Th$s' it is not liable to pay 7AT! ": 5/n *4MA860*4 was engaged in the sale of services' and th$s liable to pay 7AT thereon 0: C68' *4MA860*4 is liable to pay 7AT .reversing *A%s decision and reinstating the decision of the Ta# Appeal in favor of the *ommissioner/ *"0 avers that to Iengage in b$sinessI and to Iengage in the sale of servicesI are two different things! 8* agreed w/ *"0 in saying that the services rendered by *4MA860*4 to 2hilamlife and its affiliates' for a fee or consideration' are s$b;ect to 7AT! 7AT is a ta# on the val$e added by the performance of the service! "t is immaterial whether profit is derived from rendering the service! 8ec 99 of the A"0* provides that any person who' in the co$rse of trade or b$siness' sells' barters or e#changes goods' renders services' or engages in similar transactions and any person who imports goods shall be s$b;ect to the 7AT imposed in 8ections 1 to 1 2 of this *ode!I *4MA860*4 contends that the term Iin the co$rse of trade or b$sinessI re1$ires that the Ib$sinessI is carried on with a view to profit or livelihood! "t avers that the activities of the entity m$st be profitF oriented! *4MA860*4 s$bmits that it is not motivated by profit' as defined by its primary p$rpose in the articles of incorporation' stating that it is operating Ionly on reimb$rsementFofFcost basis' witho$t any profit!I H456760' the 67AT ,aw clarifies that even a nonFstoc(' nonFprofit' organi-ation or government entity' is liable to pay 7AT on the sale of goods or services! 7AT is a ta# on transactions' imposed at every stage of the distrib$tion process on the sale' barter' e#change of goods or property' and on the performance of services' even in the absence of profit attrib$table thereto! The term Iin the co$rse of trade or b$sinessI re1$ires the reg$lar cond$ct or p$rs$it of a commercial or an economic activity' regardless of whether or not the entity is profitForiented! The definition of the term Iin the co$rse of trade or b$sinessI incorporated in the present law applies to all transactions even to

TA? 2 @ M4AT604 B C! 8anche- A2 12

those made prior to its enactment! 6#ec$tive 4rder Ao! 29L stated that any person who' in the co$rse of trade or b$siness' sells' barters or e#changes goods and services' was already liable to pay 7AT! The present law merely stresses that even a nonstoc(' nonprofit organi-ation or government entity is liable to pay 7AT for the sale of goods and services! 8ection 1 M of the A"0* defines the phrase Isale of servicesI as the Iperformance of all (inds of services for others for a fee' rem$neration or consideration!I "t incl$des Ithe s$pply of technical advice' assistance or services rendered in connection with technical management or administration of any scientific' ind$strial or commercial $nderta(ing or pro;ect!I "t is immaterial whether the primary p$rpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimb$rsementFonFcost basis only' witho$t reali-ing profit' for p$rposes of determining liability for 7AT on services rendered! As long as the entity provides service for a fee' rem$neration or consideration' then the service rendered is s$b;ect to 7AT!

TA? 2 @ M4AT604 B C! 8anche- A2 12

0I1 v S. Pri!eho)din3s Inc. 8M 2rime and +irst Asia are both engaged in the b$siness of operating cinema ho$ses' among others! ="0 sent them both preliminary assessment notices for 7AT deficiency on cinema tic(et sales! =oth protested' b$t ="0 denied their protests' arg$ing that the )ist o# enu!erated services under Sec. <8L o# the 'I10 is not exhaustive "ecause it covers a)) sa)es o# services ! Also' the deficiency assessments were based on 0even$e Memorand$m *irc$lar Ao! 2MF2 1! *TA r$led that the activity of showing cinematographic films was A4T s$b;ect to 7AT' and sho$ld instead be s$b;ect to an am$sement ta#! *TA en banc affirmed this' saying that section 1 M of the A"0* act$ally sets forth an e#ha$stive en$meration of what services are intended to be s$b;ect to 7AT' w/c does A4T incl$de the showing films and motion pict$res! ": 5/n the gross receipts derived from admission tic(ets by cinema/theater operators or proprietors are s$b;ect to 7AT 0: A4' it is not s$b;ect to 7AT! The en$meration of services s$b;ect to 7AT $nder 8ec! 1 M of the A"0* is not e#ha$stive! "t is $p to the co$rt to determine if showing of films and motion pict$res fall $nder the phrase Gsimilar servicesH of 8ec! 1 M by ascertaining the intent of the legislat$re! =ased on vario$s amendments to the 7AT coverage' none pertain to cinema/theater operators or proprietors! "n fact' the activity of showing films and motion pict$res has always been considered as a form of entertainment s$b;ect to a!use!ent tax! At present' on)- )essors or distri"utors o# cine!ato3ra*hic #i)!s are su"6ect to 5AT' hi)e *ersons su"6ect to a!use!ent tax are exe!*t #ro! the covera3e o# 5AT! "t is therefore clear that the legislat$re never intended to s$b;ect this (ind of activity to 7AT! To ho)d other ise ou)d i!*ose an unreasona")e "urden on cine!a4theater houses o*erators or *ro*rietors, ho ou)d "e *a-in3 an additiona) <8I 5AT on to* o# the @8I a!use!ent tax i!*osed "- Sec. <A8 o# the Loca) Gov:t. 0ode, or a tota) o# A8I tax! 8$ch imposition wo$ld res$lt in in;$stice' as persons ta#ed $nder the A"0* of 1999 wo$ld be in a better position than those ta#ed $nder the ,<* of 1991! The repeal of the ,ocal Ta# *ode by the ,<* of 1991 is not a legal basis for the imposition of 7AT on the gross receipts of cinema/theater operators or proprietors derived from admission tic(ets! The removal

of the prohibition $nder the ,ocal Ta# *ode did not grant nor restore to the national government the power to impose am$sement ta# on cinema/theater operators or proprietors! Aeither did it e#pand the coverage of 7AT! 8ince the imposition of a ta# is a b$rden on the ta#payer' it cannot be pres$med nor can it be e#tended by implication! As it is' the power to impose am$sement ta# on cinema/theater operators or proprietors remains with the local government! *onsidering that there is no provision of law imposing 7AT on the gross receipts of cinema/theater operators or proprietors derived from admission tic(ets' 0M* Ao! 2MF2 1 which imposes 7AT on the gross receipts from admission to cinema ho$ses is therefore invalid! The r$le on ta# e#emptions sho$ld be constr$ed strictly against the ta#payer does not apply in this case! 8M 2rimeholdings and +irst Asia need not prove that they are e#empted from the coverage of 7AT! 8$ch r$le pres$pposes that the ta#payer is c)ear)- su"6ect to the ta# being levied against him! The reason is obvio$s: it is both illogical and impractical to determine who are e#empted witho$t first determining who are covered by the provision! Th$s' $nless a stat$te imposes a ta# clearly' e#pressly and $nambig$o$sly' what applies is the e1$ally wellFsettled r$le that the imposition of a tax cannot "e *resu!ed. "n fact' in case of do$bt' ta# laws m$st be constr$ed strictly against the government and in favor of the ta#payer!

Ta!"untin3 Pa nsho* Inc v 0I1 *"0 assessed Tamb$nting pawnshop for deficiency 7al$eFAdded Ta# for the ta#able year 1999! Tamb$nting was ordered by the ="0 to pay 2LM3 representing deficiency 7AT! Tamb$nting alleged that it is A4T liable for ta# beca$se a pawnshop is not en$merated as one of those engaged in Isale or e#change of servicesI in 8ection 1 M of the A"0*! The nat$re of the b$siness of pawnshops does not fall $nder IserviceI as defined $nder the ,egal Thesa$r$s of 5illiam *! =$rton .accommodate' administer to' advance' afford' aid' assist' attend' be of $se' care for' come to the aid of' commodere' comply' confer a benefit' contrib$te to' cooperate' deservire' discharge one&s d$ty' do a service' do one&s bidding' fill an office' forward' f$rnish aid' f$rnish assistance' give help' lend' aid' minister to' promote' render help' servire' s$bmit' s$ccor' s$pply aid' ta(e care of' tend' wait on' wor( for/ ": 5/n 2awnshops are s$b;ect to 7AT p$rs$ant to 8ection 1 M .A/ of A"0*! Pa nsho*s are not under <8L o# the 'I10 "ut are s*eci#ica))c)assi#ied as Mother 'on;"anK /inancia) Inter!ediariesN "- 1A ?2@L.

TA? 2 @ M4AT604 B C! 8anche- A2 12

 2rior to the passage of the 67AT ,aw in 199)' pawnshops were treated as lending investors s$b;ect to lending investor&s ta#! 8$bse1$ently' pawnshops were then treated as 7ATFable enterprises $nder the general classification of Isale or e#change of servicesI $nder 8ection 1 M .A/ of the Ta# *ode of 1999' as amended! +inally' 1.A. 'o. ?2@L O hich as *assed in 288AP c)assi#ied *a nsho*s as &ther 'on;"anK /inancia) Inter!ediaries. At the time of the disp$ted assessment' that is' for the year 2 ' pawnshops were not s$b;ect to 1 T 7AT $nder the general provision on Isale or e#change of servicesI as defined $nder 8ection 1 M .A/ of the Ta# *ode of 1999' which states: I&sale or e#change of services& means the performance of all (inds of services in the 2hilippines for others for a fee' rem$neration or consideration ! ! ! !I "nstead' d$e to the specific nat$re of its b$siness' pawnshops were then s$b;ect to 1 T 7AT $nder the category of nonFban( financial intermediaries! The *o$rt finds that *a nsho*s shou)d have "een treated as non; "anK #inancia) inter!ediaries #ro! the ver- "e3innin3 ' s$b;ect to the appropriate ta#es provided by law' th$s @ o :nder the A"0* of 1999' pawnshops sho$ld have been levied the >T percentage tax on gross receipts imposed on ban2 and non&ban2 financial intermediaries $nder .now/ 8ection 121 of the Ta# *ode of 1999 o 5ith the imposition of the 7AT $nder the 67AT ,aw' pawnshops sho$ld have been s$b;ected to the 1 T 7AT imposed on ban(s and nonFban( financial intermediaries and financial instit$tions $nder .now/ 8ection 1 M of the Ta# *ode of 1999 o However' thro$gh the years' vario$s laws effectively de#erred the levy' collection' and assessment of 1 T 7AT on services rendered by ban(s' nonFban( financial intermediaries' finance companies' and other financial intermediaries not performing 1$asiFban(ing f$nctions from 199) to December L1' 2 2R o 5ith no f$rther deferments given by law' the levy' collection and assessment of the 1 T 7AT on ban(s' nonFban( financial intermediaries' finance companies' and other financial intermediaries not performing 1$asiFban(ing f$nctions were finally made effective beginning Fanuar- <, 288@E o 288AD +inally' with the enactment of 0!A! Ao! 92LM in 2 )' the services of ban(s' nonFban( financial intermediaries' finance companies' and other financial intermediaries not performing 1$asiFban(ing f$nctions were specifically e#empted from 7AT' and the T to >T percentage ta# on gross receipts on other nonF ban( financial intermediaries was reimposed $nder 8ection 122 of the Ta# *ode of 1999!

*oming now to the iss$e at hand F 8ince petitioner is a nonFban( financial intermediary: o /or the tax -ears <??7;2882 it is act$ally s$b;ect to 1 T 7AT! H456760' with the levy' assessment and collection of 7AT from nonFban( financial intermediaries being specifically de#erred "- )a then petitioner is '&T )ia")e for 7AT d$ring these ta# years! o Startin3 Fanuar- <, 288@ petitioner is LIA=LE for 1 T 7AT for said ta# year with the f$ll implementation of the 7AT system on nonFban( financial intermediaries starting this date! o =e3innin3 288A u* to the *resent, "- virtue o# 1.A. 'o. ?2@L, petitioner is A4 longer liable for 7AT b$t it is s$b;ect to percentage ta# on gross receipts from T to >T' as the case may be! /ort =oni#acio Dev 0or* v 0I1 =3roundD The first 7AT law' 64 29L .4,D A"0*/' accommodated potential b$rdens for newly liable 7ATFregistered persons thro$gh providing GTransitional "np$t Ta# *reditH .T"T*/! Then' 0A 991K too( effect' which amended the 4,D A"0* and incl$ded sales of real property in the coverage of 7AT! 0A M)2) .A"0*/ was enacted and amended the Transitory 2rovisions! "t also incl$ded the concept of G2res$mptive "np$t Ta# *reditH +ort =onifacio Development *orporation .+=D*/ ac1$ired from the Aational <overnment a vast tract of land now (nown as +ort =onifacio <lobal *ity! =eca$se the law then was prior to 0A 991K' no 7AT was paid! However' at the effectivity of 0A 991K' +=D* became a 7ATF 0egistered person' liable for 7AT and entitled for transactional inp$t ta# credit! +=D* e#ec$ted 2 contracts to sell over lands in <lobal *ity in favor of .etro Paci#ic 0or*oration. "t paid 7AT b$t $tili-ed its transitional inp$t ta# credit' which offset each other! :pon +=D* as(ing the ="0 whether the offsetting was valid' ="0 recommended that their claim T"T* was correct! However' ="0 s$bse1$ently iss$ed an Assessment where it disallowed the $se of T"T* on the basis of a 1evenue 1e3u)ation C;?B .limit $se of MT transitional inp$t ta# to boo( val$e of improvements onl'/! ="0 now claims ta# deficiency! *TA r$led in favor of the *"0! *A affirmed the decision b$t removed the penalties and s$rcharges! +=D* filed 2 petitions to

TA? 2 @ M4AT604 B C! 8anche- A2 12

the 8*' both claiming T"T*! =oth were consolidated in this decision! ": 5/A 8ection 1 > of the 4ld A"0* restricts the application by 0eal 6state Dealers of the Transitional "np$t Ta# only to improvements on the real property belonging to their beginning inventory 0: Ao! The restriction is invalid! The +=D* is allowed to credit its transitional inp$t ta# on the sale! "n the 4,D A"0*' only goods where covered by the 7AT! 0eal properties were only incl$ded by an amendment of 0A 991K! =$t when it was amended' there was no differential treatment in transitional inp$t ta# for goods or real properties! "n addition' the definition of G0eal 2ropertyH is being primarily $sed for sale to c$stomers or held for lease in the ordinary co$rse of b$siness! Th$s' the real property is treated the same way as goods! The issuance o# 11 C;?B as erroneous ! There is no logic to limit the provision only to improvements! The very idea r$ns co$nter to what the ta# credit see(s to accomplish! As <44D8 in the b$siness sense' refers to the prod$ct that the 7ATFregistered person offers for sale the p$blic' real estate dealers treat real properties as their goods! The p$rpose behind the transitional inp$t ta# credit is not confined to the transition from sales to 7AT! As proof' *ongress has reenacted the transitional inp$t ta# both in the 4,D A"0* and the A65 A"0*! The transitional aspect of the transitional inp$t ta# pertains to the event that the ta#payer starts to become 7ATF registered! As being covered by the 7AT does not merely ta(e place by operation of law' it re1$ires the act of a person to be covered by 7AT! +or e#ample' A *erson can "e )ia")e #or 5AT i# he decides to start a "usiness. Thus, transitiona) tax in*ut credit is avai)a")e, hether under the &LD 'I10 or 'EW 'I10, to a ne )-;5AT re3istered *erson. The transitiona) in*ut tax is avai)a")e, re3ard)ess hether the *urchase o# the 3oods, !ateria)s and su**)ies in the "e3innin3 inventor- as su"6ected to 5AT or not. To limit its availability to goods s$b;ected to 7AT' wo$ld be abs$rd! =eca$se some goods ac1$ired are not s$b;ect to 7AT' b$t still liable for ta# li(e capital gains ta#' donors ta# and estate ta#! "t wo$ld render the p$rpose of the law $seless! It is a**arent that the transitiona) in*ut tax credit o*erates to "ene#it ne )- 5AT;re3istered *ersons, hether or not the- *revious)- *aid taxes in the acGuisition o# their "e3innin3 inventor- o# 3oods, !ateria)s and su**)ies. D$ring that period of transition from nonF7AT to 7AT stat$s' the transitional inp$t ta# credit serves to a))eviate the impact of the

7AT on the ta#payer! At the very beginning' the 7ATFregistered ta#payer is obliged to remit a significant portion of the income it derived from its sales as o$tp$t 7AT! The transitional inp$t ta# credit mitigates this initial dimin$tion of the ta#payer%s income by affording the opport$nity to offset the losses inc$rred thro$gh the remittance of the o$tp$t 7AT at a stage when the person is yet $nable to credit inp$t 7AT payments! Altho$gh the *"0 has the power to redefine the concept of Ggoods' it pertains to more technical matters! "t cannot go as far as to amend the provision' as it incl$de goods and real property in the co$rse of b$siness! Th$s' in case of conflict between a stat$e and an administrative order' the stat$e shall prevail Fustice Antonio 0ar*io dissentD The transitional inp$t ta# credit applies only when ta#es where paid on the properties in the beginning inventory' b$t this wo$ld constit$te a new re1$isite to the application of transitional inp$t ta# credit and wo$ld re1$ire the ta#payer additional proof of payment of ta#es! He also arg$es that the word Gpres$mptiveH ass$mes the payment of ta#' th$s re1$iring prior payment of ta#es! The law necessarily comes into e#istence only after the introd$ction of 7AT! However' pres$mptive inp$t ta# credit is incl$ded in the 4,D A"0* b$t was never integrated $ntil the A65 A"0* too( effect' which is more than a decade! Th$s' the old meaning is not anymore attached to the word! 4nly those goods on which inp$t 7AT was paid co$ld form the basis of inp$t ta# credit! "o$ever- this *rings a*out the again a*surd situation $here goods not su*.ect to H,! are ac0uired *ut lia*le for other ta% (estate D donor D capital gains). As a last point' the prohibition of $sing val$e of real properties in the beginning inventory in 00 9F9> has already been repealed by 00 KF99!

/ort =oni#acio Dev 0or* v 0I1 (.1) 1A CC<7 too( effect on Nan$ary 1' 199K! "t amended 8ection 1 of the 4ld A"0* by imposing for the first time 7AT on sale of real properties! The provisions of 8ection 1 > of the A"0* remain intact despite the enactment of 0A 991K! 8ection 1 > however was amended with the passage of the Aew A"0* "n the April 2' 2 9 Decision so$ght to be reconsidered' the *o$rt str$c( down 8ection )!1 >F1 of 11 C;?B for being in conflict with the law! "t held that the *"0 had no power to limit the meaning and coverage of the term IgoodsI in 8ection 1 > of the 4ld A"0* to only apply to "M20476M6AT8 on real property belonging to the beginning inventory! ": 5/n 00 9F9> is valid' given that @ 1/ 8ec 1 of the 4ld A"0* as amended by 0A991K' co$ld not have s$pplied the distinction between the treatment of real properties or

TA? 2 @ M4AT604 B C! 8anche- A2 12

real estate dealers' and the treatment of transactions involving other commercial goods' as said distinction is fo$nd in section 1 > and' s$bse1$ently' reven$e reg$lations no! 9F9> which defines the inp$t ta# creditable to a real estate dealer who becomes s$b;ect to vat for the first time! 2) 8ection )!1 >!1 and paragraph .a/ .iii/ of the transitory provisions of reven$e reg$lations no! 9F9> validly limits the MT transitional inp$t ta# to the improvements on real properties! A law m$st not be read in tr$ncated partsR its provisions m$st be read in relation to the whole law! The term Igoods or propertiesI by the $nambig$o$s terms of 8ection 1 incl$des Ireal properties held primarily for sale to cost$mers or held for lease in the ordinary co$rse of b$siness!I Having been defined in 8ection 1 of the A"0*' the term IgoodsI as $sed in 8ection 1 > of the same code co$ld not have a different meaning! :nder 8ection 1 >' the beginning inventory of IgoodsI forms part of the val$ation of the transitional inp$t ta# credit! <oods' as commonly $nderstood in the b$siness sense' refers to the prod$ct which the 7ATFregistered person offers for sale to the p$blic! 5ith respect to real estate dealers' it is the real properties themselves which constit$te their Igoods!I 8$ch real properties are the operating assets of the real estate dealer! 8ection )!1 >F1 of 00 9F9> restricted the definition of IgoodsI' when it stated that in the case of real estate dealers' the basis of the pres$mptive inp$t ta# shall be the improvements' s$ch as b$ildings' roads' drainage systems' and other similar str$ct$res' constr$cted on or after the effectivity of 64 29L .Nan$ary 1' 19MM/! As mandated by Article 9 of the *ivil *ode an administrative r$le or reg$lation cannot contravene the law on which it is based! 00 9F9> is inconsistent with 8ection 1 > insofar as the definition of the term IgoodsI is concerned! This is a )e3is)ative act "e-ond the authorit- o# the 0I1 and the Secretar- o# /inance. 00 9F9>' insofar as it restricts the definition of IgoodsI as basis of transitional inp$t ta# credit $nder 8ection 1 > is a n$llity! 0I1 v PAL

2A, filed w/ the ="0 a claim for ref$nd of the 4*T it alleged to have erroneo$sly paid in 2 1! This was based on its franchise' 8ec 1L of 2D 1>9 ' w/c granted it: o 1/ the option to pay either the basic corporate income ta# on its ann$al net ta#able income or the 2T percent franchise ta# on its gross reven$es' whichever was lowerR and o 2/ the e#emption from all other ta#es' d$ties' royalties' registration' license and other fees and charges imposed by any m$nicipal' city' provincial or national a$thority or government agency' now or in the f$t$re' e#cept only real property ta#! Also invo(ing a ="0 0$ling in 199)' 2A, maintained that' other than being liable for basic corporate income ta# or the franchise ta#' whichever was lower' 2A, was e#empted from A,, 4TH60 TA?68' incl$ding the 4*T by virt$e of the Gin lie$ of all ta#esH cla$se in 8ection 1L of 2D1>9 ! ="0 failed to act on the re1$est for ref$nd of 2A,' so 2A, filed a petition for review before the *TA! *TA ordered ="0 to ref$nd 2A, the 1 T 4*T errone$sly collected! .However *TA held that o$t of the total amo$nt of 2129( respondent so$ght to ref$nd' only 212K( was s$pported / doc$ments/ ": 5/n *TA was correct in holding that ="0 sho$ld ref$nd 2A, for 1 T 4*T 0: Ces' *TA was correct! The lang$age $sed in 8ection 1L of 2D 1>9 ' granting 2A, ta# e#emption' is clearly allFincl$sive! The basic corporate income ta# or franchise ta# paid by respondent shall be Gin lie$ of all other ta#es' d$ties' royalties' registration' license' and other fees and charges of any (ind' nat$re' or description imposed' levied' established' assessed or collected by any m$nicipal' city' provincial' or national a$thority or government agency' now or in the f$t$re # # #'H e#cept only real property ta#!

+rom Nan to Dec 2 1' 2,DT collected from 2A, the said 1 T 4verseas *omm$nication Ta#) on the amo$nt paid by 2A, for overseas telephone calls it made thro$gh 2,DT!

4*T F imposed by 8ection 12 of the A"0*' w/c shall be collected $pon every overseas dispatch or message transmitted from the 2hils by telephone or other comm$nication e1$ipment!

TA? 2 @ M4AT604 B C! 8anche- A2 12

The disc$ssion in the previo$s 2A, case> on Ggross incomeH is immaterial to the case at bar! 4*T is not even an income ta#! "t is a b$siness ta#' which the government imposes on the gross ann$al sales of operators of comm$nication e1$ipment sending overseas dispatches' messages or conversations from the 2hilippines! According to 8ection 12 of the A"0*' the person paying for the services rendered shall pay the 4*T to the person rendering the service .2,DT/R the latter' in t$rn' shall remit the amo$nt to the ="0! "f this *o$rt deems that final ta# on interest income @ which is also an income ta#' b$t distinct from basic corporate income ta# @ is incl$ded among Gall other ta#esH from which respondent is e#empt' then with all the more reason sho$ld the *o$rt consider 4*T' which is altogether a different type of ta#' as also covered by the said e#emption! =I1 a)so ar3ues that PAL cannot avai) itse)# o# the "ene#it o# the Min )ieu o# a)) other taxesN *roviso in PD<B?8 hen it !ade no actua) *a-!ent o# either the "asic cor*orate inco!e tax or the #ranchise tax. ="0 made the same averment in the 2A, case' which the *o$rt re;ected! "t is clear that 2D 1>9 intended to give 2A, the option to avail itself of 8$bsection .a/ or .b/ as consideration for its franchise! 2A, has the option to choose the alternative that res$lts in lower ta#es! "t is A4T the fact of ta# payment that e#empts it' b$t the 6?60*"86 of its option! :nder 8$bsection .a/' the basis for the ta# rate is 2A,%s ann$al net ta#able income' which .as earlier disc$ssed/ is comp$ted by s$btracting allowable ded$ctions and e#emptions from gross income!

=y basing the ta# rate on the ann$al net ta#able income' 2D 1>9 necessarily recogni-ed the sit$ation in which ta#able income may res$lt in a negative amo$nt and th$s translate into a -ero ta# liability! The fallacy of the *"0%s arg$ment is evident from the fact that the payment of a measly s$m of one peso wo$ld s$ffice to e#empt 2A, from other ta#es' whereas a -ero liability arising from its losses wo$ld not! There is no s$bstantial distinction between a -ero ta# and a oneF peso ta# liability! Th$s' by merely e#ercising its option to pay for basic corporate income ta# @ even if it had -ero liability for the same d$e to its net loss position in 2 1 @ 2A, was already e#empted from all other ta#es' incl$ding the 4*T!

/IT'ESS => DESIG' v 0I1 /actsD "n 2 )' *"0 assessed +itness by Design' "nc! .+D"/ for deficiency ta#es ."ncome Ta#' 7AT' Doc$mentary 8tamp Ta#/ of 21 M for 199>! +D" protested on the gro$nd that it was iss$ed beyond the LFyear prescriptive period $nder 8ection 2 L of the A"0*! +D" also claimed that since it was incorporated only in 199>' there was no basis to ass$me that it had already earned income for that year! *"0 alleged that its right to assess had not prescribed! +D"%s 199> "T0 filed in 199K was fra$d$lent for its deliberate fail$re to declare its tr$e sales! +D" declared that it was on its preFoperation stage and had not declared its income! "nvestigation disclosed that it was operating/doing b$siness and had sales operations for 199> of 29M which it failed to report in its 199> "T0! ,i(ewise' +D" failed to file a 7AT 0et$rn! Hence' the corresponding ta#es may be assessed at any time within 1 years after the discovery of s$ch omission or fra$d p$rs$ant to 8ection 222.a/ of the A"0*! ="0 filed a criminal complaint before the D4N against the officers and acco$ntant of +D" for violation of the A"0*! D$ring the preliminary hearing' +D"%s former boo((eeper attested that a former colleag$e' ,eonardo 8ablan' illegally too( c$stody of +D"%s acco$nting records' invoices' and receipts and t$rned them over to the ="0! *TA denied +D"%s Motion for "ss$ance of 8$bpoenas and disallowed the s$bmission by +D" of written interrogatories to 8ablan since he was not a party to the case and that the testimony' doc$ments' and admissions so$ght were not relevant! +D"%s M0 was denied! Hence' a petition for certiorari was filed against *TA! IssueD 5/A the ="0 can obtain doc$ments witho$t the ta#payer%s consent! F C68 (e)dD 5H606+406' in light of the foregoing dis1$isition' the petition is D"8M"886D!

="0 li(ewise opposed the claim for ref$nd of 2A, based on the arg$ment that the latter was not e#empted from final withholding ta# on interest income' beca$se said ta# sho$ld be deemed part of the basic corporate income ta#' which respondent had opted to pay! This *o$rt was $nconvinced by ="0%s arg$ment' ratiocinating that Gbasic corporate income ta#'H $nder 8ection 1L.a/ of 2residential Decree Ao! 1>9 ' relates to the general rate of L>T .red$ced to L2T by the year 2 / imposed on ta#able income by 8ection 29.A/ of the A"0*! Altho$gh the definition of Ggross incomeH is broad eno$gh to incl$de all passive incomes' the passive incomes already s$b;ected to different rates of final ta# to be withheld at so$rce shall no longer be incl$ded in the comp$tation of gross income' which shall be $sed in the determination of ta#able income! The interest income of respondent is already s$b;ect to final withholding ta# of 2 T' and no longer to the basic corporate income ta# of L>T! Having established that final ta# on interest income is not part of the basic corporate income ta#' then the former is considered as among Gall other ta#esH from which respondent is e#empted $nder 8ection 1L of 2residential Decree Ao! 1>9 !

TA? 2 @ M4AT604 B C! 8anche- A2 12

1ationa)eD +D" imp$gns the manner in which the doc$ments in 1$estion reached the ="0' 8ablan having allegedly s$bmitted them to the ="0 witho$t +D"%s consent! +D"%s lac( of consent does not' however' imply that the ="0 obtained them illegally or that the information received is false or malicio$s! Aor does the lac( of consent precl$de the ="0 from assessing deficiency ta#es on +D" based on the doc$ments! Th$s 8ection > of the A"0* provides: "n ascertaining the correctness of any ret$rn' or in ma(ing a ret$rn when none has been made' or in determining the liability of any person for any internal reven$e ta#' or in collecting any s$ch liability' or in eval$ating ta# compliance' the *ommissioner is a$thori-ed: .A/ To e#amine any boo(' paper' record or other data which may be relevant or material to s$ch 1$eryR .=/ To obtain on a reg$lar basis from any person other than the person whose internal reven$e ta# liability is s$b;ect to a$dit or investigationVany information s$ch as' b$t not limited to' costs and vol$me of prod$ction' receipts or sales and gross incomes of ta#payers' and the names' addresses' and financial statements of corporations' m$t$al f$nd companies' ins$rance companies' regional operating head1$arters of m$ltinational companies' ;oint acco$nts' associations' ;oint vent$res or consortia and registered partnerships and their membersR .*/ To s$mmon the person liable for ta# or re1$ired to file a ret$rn' or any officer or employee of s$ch person' or any person having possession' c$stody' or care of the boo(s of acco$nts and other acco$nting records containing entries relating to the b$siness of the person liable for ta#' or any other person' to appear before the *ommissioner or his d$ly a$thori-ed representatives at a time and place specified in the s$mmons and to prod$ce s$ch boo(s' papers' records' or other data' and to give testimonyR .D/ To ta(e s$ch testimony of the person concerned' $nder oath' as may be relevant or material to s$ch in1$iryR ??? Th$s' the law allows ="0 to access all relevant or material records and data in the person of the ta#payer' and the ="0 can accept doc$ments which cannot be admitted in a ;$dicial proceeding where the 0$les of *o$rt are strictly observed! To re1$ire the consent of the ta#payer wo$ld defeat the intent of the law to help the ="0 assess and collect the correct amo$nt of ta#es!

The iss$ance of s$bpoena d$ces tec$m for the prod$ction of the doc$ments re1$ested by the +D" @ which doc$ments +D" claims to be cr$cial to its defense @ is $nnecessary in view of the *TA order for *"0 to certify and forward to it all the records of the case! "f the order has not been complied with' the *TA can enforce it by citing *"0 for indirect contempt!

Y4ther iss$e pointed o$t by the *o$rt: 8ablan was not a party to the case and the testimonies' doc$ments' and admissions so$ght by +D" were not relevant to the iss$e before the *TA! The only iss$es which s$rfaced d$ring the preliminary hearing before were whether *"0%s iss$ance of assessment against +D" had prescribed and whether +D"%s ta# ret$rn was fra$d$lent! =esides' the s$bpoenas and answers to the written interrogatories wo$ld violate 0A 2LLM as implemented by +inance Department 4rder )KFKK! =oni#acio S- Po v 0TA =onifacia is the widow of the late Mr! 2o =ien 8ing who died in 19M ! "n ta#able year 19K)F1992' he was the sole proprietor of 8ilver *$p 5ine factory in *eb$! He was engaged in the b$siness of man$fact$re and sale of compo$nd li1$ors' $sing alcohol and other ingredients as raw materials! 8ilver *$p was alleged to have committed ta# evasion amo$nting to millions of pesos so 8ecretary of +inance ordered +inanceF="0FA=" Team to cond$ct an investigation! A letter and a s$bpoena d$ces tec$m were iss$ed against 8ilver *$p re1$esting prod$ction of boo(s and acco$nting doc$ments! 2o =ien 8ing' however' did not comply with this! This prompted the team to enter the factory bodega! They sei-ed different brands of alcohol prod$cts' a total of 1'>>> cases! 4n basis of the team%s investigation' *"0 assessed 2o =ien 8ing deficiency income ta# amo$nting to 212!9M! /act o*tained from the decision : The former employees of the factory testified on the fra$d$lent practices of 2o =ien 8ing! The factory personnel manager testified that false entries were entered in the official register boo(! The assistant factory s$perintendent also testified that when the store(eeper is not aro$nd' illegal operations happen! :nta#ed alcohol is bro$ght from *eb$ Alcohol plant into the compo$nd of 8ilver *$p! 5hen the store(eeper ret$rns' he sees nothing beca$se the $nta#ed alcohol is bro$ght directly to a secret t$nnel within the bodega itself! =onifacia protested the was done b$t yielded the same fail$re to present the boo(s of were iss$ed by *"0 b$t =onifacia IssueD deficiency assessments! A reinvestigation res$lts in view of the ta#payer%s insistent acco$nts! 5arrants of distraint and levy deemed it only as a denial of her protest!

TA? 2 @ M4AT604 B C! 8anche- A2 12

5hether or not the assessments have valid and legal basesS Ces! (e)dD .Hence' *TA and *"0 have not committed errors' *TA decision is affirmed!/ 1atioD 1! =est Evidence &"taina")e is applicable in this case! 8ettled is the r$le that fact$al findings of *TA are binding $pon 8* and can be dist$rbed on appeal only if s$ch finding is not s$pported by s$bstantial evidence! The A"0* also gives the *"0 the power to assess the proper ta# based on best evidence obtainable when .1/ a person fails to file a re1$ired ret$rn or other doc$ments at the proper time or .2/ he files a false or fra$d$lent ret$rn! 0$le on G=est 6vidence 4btainableH applies when ta# report re1$ired by law for assessment is not available or when ta# report is incomplete or fra$d$lent! The tax #i3ures arrived at "- 0I1 is not ar"itrar-. 4n the basis of the 1$antity of wines sei-ed d$ring the raid and sworn statements of former employees' it was ascertained that 8ilver *$p $tili-ed and cons$med in the man$fact$re of compo$nded li1$ors and other prod$cts 2 ( dr$ms of alcohol as raw materials M1'2MM'9M9 proof liters of alcohol! Also' s$rcharges for fail$re to s$bmit ret$rns or for rendering false ret$rns and "nterest on deficiency were also imposed! =urden o# *roo# is on tax *a-er. "t is inc$mbent $pon the ta# payer appealing to the ta# co$rt to prove what is the correct and ;$st liability thro$gh a f$ll disclos$re of all pertinent data in his possession! This is the only way he co$ld prove that the ta# assessment is wrong! Also' the fra$d$lent acts detailed in the decision had not been satisfactorily reb$tted by petitioner! This' =onifacia m$st co$nteract thro$gh s$bstantial evidence!

2!

The Teodoros .petitioners/ were legitimate children and heirs of the deceased spo$ses Marta and Toribio Teodoro who died intestate! The heirs separately filed estate and inheritance ta# ret$rns for the estates of the spo$ses with the ="0! The ="0 then iss$ed deficiency estate and inheritance ta# assessments for both estates! .ro$ghly 21M each/ The heirs as(ed for reconsideration as the assessment was allegedly contrary to law and not s$pported by s$fficient evidence! "n 199)' the *ommissioner filed a !otion #or a))o ance o# c)ai! a3ainst the estates, and #or an order o# *a-!ent o# taxes before the T*' praying that petitioner be ordered to pay the ="0 the s$m of 2KM3 pl$s s$rcharges and interest! T* r$led in favor of the *ommissioner and directed payment of estate and inheritance ta#es! 2etitioners now contend that the T* acted w/ <AD in directing the order of payment' given d$e to the pendency of their motion for reconsideration of the deficiency assessments iss$ed by the *ommissioner' and that the ta# assessments were not yet final and e#ec$tory! They contended that the absence of a decision on the disp$ted assessments was a bar against collection of ta#es! They also insist that their act of filing an estate and inheritance ta# ret$rn of a previo$sly $nta#ed wealth of the estates entitles said estates to ta# amnesty $nder 2!D! Ao! 2L' as amended by 2!D! K9! ": 5/n the assessment is final' e#ec$tory' and demandable. 0: Ces "n petitioners% M0 of the assessments' they re1$ested the commissioner for a period of L days from 4ctober 9' 1992 within which to s$bmit a position paper that wo$ld embody their gro$nds for reconsideration! However' no position paper was ever filed! 8$ch fail$re to file a position paper may be constr$ed as abandonment of their re1$est for reconsideration! "t too( the *ommissioner a period of more than 1 yr and > months' from 4ctober 9' 1992 to March 1)' 199)' before finally instit$ting the action for collection! :nder the circ$mstances of the case' the act of the *ommissioner in filing an action for allowance of the claim for estate and inheritance ta#es' may be considered as an o$tright denial of petitioners& re1$est for reconsideration! +rom the date of receipt of the copy of the *ommissioner&s letter for collection of estate and inheritance ta#es against the estates of the late Teodoro spo$ses' petitioners m$st contest or disp$te the same and' $pon a denial thereof' the petitioners have a period of L days

L!

0I1 v =eni*a-o .see bloc( digests for the rest/

0&LLE0TI&' &/ 0ASES W(E1E T(E ASSESS.E'T IS /I'AL A'D %'APPEALA=LE Da-rit v 0ruz

TA? 2 @ M4AT604 B C! 8anche- A2 12

within which to appeal the case to the *TA' which they failed to avail of ! Ta# assessment made by ta# e#aminers are pres$med correct and made in good faith! A ta#payer has to prove otherwise! +ail$re of the ta#payers to appeal to the *o$rt of Ta# Appeals in d$e time made the assessments final' e#ec$tory and demandable! 4TH608: 34 5#, as amended b' 34 $6 is not applicable to the situation of petitioners" , reading of ? )+ reveals that in order to avail of ta% amnesty- it is re0uired- among others- that there should *e a voluntary disclosure of a previously unta%ed income. 7n this case- the petitioners $ere already issued an assessment *y the C74. 7n addition theretosaid income must have *een earned or realized prior to &(7) and the ta% return must *e filed on or *efore #arch +&- &(7+. Considering that .?. 5o. )+ $as issued on <cto*er &6- &(7)- the court rules that the said decree em*races only those income declared in pursuance thereof $ithin the ta%a*le year &(7). !he time frame cannot *e stretched to include declarations made prior to the issuance of the said decree or those made outside of the time frame as envisioned in the said decree. !hus- the estates of the !eodoro spouses $hich have *een declared separately sometime in the &(6'1s are clearly outside the coverage of the ta% amnesty provision. .arcos II v 0A +ollowing the death of former 2resident Marcos in 19M9' a 8pecial Ta# A$dit Team was created to cond$ct investigations and e#amination of ta# liabilities of the late president' his family' associates and cronies! The investigation disclosed that the Marcoses failed to file a: o .1/ written notice of death of the decedent o .2/ estate ta# ret$rn and 2 income ta# ret$rns for the years 19M2 to 19MK' all in violation of the Ta# *ode! *riminal *harges were filed against Mrs! Marcos for violation of 8ecs! M2' ML and M)' A"0*! The *"0 thereby ca$sed the preparation of estate ta# ret$rn for the estate of the late president' the income ret$rns of the Marcos spo$ses for 19M> and 19MK' and the income ta# ret$rns of petitioner Marcos "" for 19M2 to 19M>! ="0 iss$ed deficiency estate ta# assessment and the corresponding deficiency income ta# assessments! *opies of said assessments were served personally and constr$ctively $pon Mrs! Marcos at her last (nown address thro$gh her careta(er! ,i(ewise' copies of the deficiency assessments against Marcos "" were personally and constr$ctively served at his last (nown address! +ormal assessment notices were served $pon Mrs! Marcos c/o petitioner at his office in the Ho$se of 0epresentatives' as well as a notice to ta#payer to attend a conference f$rnished thro$gh her co$nsel!

The deficiency ta# assessments were A4T administratively protested by the Marcoses w/in L days from service thereof! 8$bse1$ently' the *ommissioner iss$ed a total of L notices to levy on real property against certain parcels of land and other real property owned by the Marcoses! *opies of the aforesaid notices were served $pon the Marcoses and their co$nsel of record! Aotices of sale at p$blic a$ction were d$ly posted at the Tacloban *ity Hall and the p$blic a$ction for the sale of 11 parcels of land too( place thereafter! There being no bidder' the lots were declared #or#eited in favor of the <overnment! 2etitioner filed a petition to ann$l the notices of levy and en;oin ="0 from proceeding w/ the a$ction! ": 5/n the proper assessment and collection was made by ="0 0: Ces' ="0%s actions were proper! The enforcement and collection of estate ta# is e#ec$tive in character and the tas( is specifically ascribed to the ="0! The approval of the co$rt' sitting in probate' or as a settlement trib$nal over the deceased is A4T a mandatory re1$irement in the collection of estate ta#es! "t cannot' therefore' be arg$ed that the Ta# =$rea$ erred in the proceeding w/ the levying and sale of the properties allegedly owned by the late 2resident on the gro$nd that it was re1$ired to see( first the probate co$rt%s sanction! There is nothing in the Ta# *ode and in the pertinent remedial laws that implies the necessity of the probate or estate settlement co$rt%s approval of the 8tate%s claim for estate ta#es' before the same can be enforced and collected! 4n the contrary' $nder 8ec! M9 .now' 8ec! 9) of A"0*/' it is the *ro"ate court w/c is P1&(I=ITED #ro! authorizin3 the de)ivero# an- o# the distri"utive share to interested *arties %'LESS there is a certi#ication "- the 0I1 that estate taxes have "een *aid. "f there is any iss$e as to the validity of the ="0%s decision to assess the estate ta#es' this sho$ld have been p$rs$ed thro$gh the proper administrative and ;$dicial processes provided $nder 8ec! 229 .now' 8ec! 22M of A"0*/ A*art #ro! #ai)in3 to #i)e the reGuired estate tax return 4in the ti!e reGuired #or #i)in3 the sa!e, *etitioner and other .arcos heirs never Guestioned the assess!ents served u*on the!, a))o in3 the sa!e to )a*se into #ina)it-, and *ro!*tin3 the =I1 to co))ect said taxes "- )ev-in3 u*on the *ro*erties )e#t "- the )ate Pres. .arcos The Aotices of ,evy $pon real property were iss$ed w/in the prescriptive period and in accordance w/ 8ec! 22L .now' 8ec! 222 of A"0*/ of the Ta# *ode! The deficiency ta# assessment' having become final' e#ec$tory and demandable' the same can now be collected thro$gh the s$mmary remedy of distraint and levy!

TA? 2 @ M4AT604 B C! 8anche- A2 12

0egarding the services of notices of assessments' the *o$rt fo$nd that there was s$fficient constr$ctive and/or personal service thereof! The s$b;ect ta# assessments having become final' e#ec$tory and enforceable' the same can no longer be contested by means of disg$ised protest!

.a!"u)ao Lu!"er v 1P Agent Aestor =an-$ela of the ="0 e#amined the boo(s of petitioner Mamb$lao ,$mber! "n his report' he stated that in Fanuar- <?A?' petitioner was assessed by the =$rea$ of +orestry .=4+/ for forest charges b$t hasn%t paid s$ch! 4n Au3ust <?BL' *"0 sent a letter to Mamb$lao informing them of the $npaid forest charges and demanding that s$ch be settled within 1 days from receipt of the letter! Mamb$lao re1$ested for a reinvestigation and was given 2 days .19>9 letter/ to s$bmit res$lts of verification of payments! "t was warned that nonFcompliance wo$ld be deemed abandonment of the re1$est for reFinvestigation! Mamb$lao failed to comply with the demand! 4n Au3ust <?7<' *"0 filed a collection in the *+" of Manila! *+" ad;$dged Mamb$lao )ia")e for the $npaid forest charges! *A affirmed! Mamb$lao assails decision of the *A' contending that the period to file a collection s$it has already lapsed th$s *"0 is barred by prescription! "t contends that period sho$ld be rec(oned from the Nan$ary 19)9 when it was assessed by the =4+! ": 5/n action has prescribed 0: Ao! Action to file collection case has A4T 2068*0"=6D! A"0* 8ec LL2 provides that ta# may be collected by distraint / levy 40 by a proceeding in co$rt 4A,C if beg$n (<) ithin B -ears a#ter the assess!ent o# the tax, or (2) *rior to the ex*iration o# an*eriod #or co))ection a3reed u*on in ritin3 "- the 0I1 and tax*a-er =E/&1E ex*iration o# such B;-ear *eriod ! TH:8' >Fyear period sho$ld be comp$ted from the A$g$st 19>M letter of the ="0! +orest charges are internal reven$e ta#es and the sole power and d$ty to collect the same is lodged with the ="0 and not w/ the =$rea$ of +orestry! The comp$tation and/or assessment of forest charges made by the =$rea$ of +orestry may or may A4T be adopted by the *"0 and s$ch comp$tation made by the =$rea$ of +orestry is A4T appealable to the *o$rt of *TA!

Therefore' for the p$rpose of comp$ting the >Fyear period within which to file a complaint for collection' the demand or even the assessment made by the =$rea$ of +orestry is immaterial! The ="0 ,etter in A$g$st 19>M and case filed in A$g$st 19K1 was well within the >Fyear period to instit$te case! Also' 3iven that .a!"u)ao did '&T a**ea) assess!ent to the 0TA ithin @8 da-s #ro! recei*t o# the )etter (<?B? Q as *rescri"ed "- 1A <<2B), the assess!ent "eca!e #ina) and executor-. "n a s$it for collection of internal reven$e ta#es' where the assessment has already become final and e#ec$tory' the action to collect is a(in to an action to enforce a ;$dgment! Ao in1$iry can be made therein as to the merits of the original case or the ;$stness of the ;$dgment relied $pon! 2etitioner is th$s already precl$ded from raising the defense of prescription! Where the tax*a-er did not contest the de#icienc- inco!e tax assessed a3ainst hi!, the sa!e "eca!e #ina) and *ro*er)co))ecti")e "- !eans o# an ordinar- court action. The ta#payer cannot disp$te an assessment which is being enforced by ;$dicial action' He sho$ld have disp$ted it before it was bro$ght to co$rt!

1P v Li! Tian Ten3 Sons R 0o, Inc. ,im Tian Teng 8ons Q *o!' "nc!' a domestic corporation with principal office in *eb$ *ity' engaged in 19>1 and 19>2' among others' in the e#portation of copra! ,im Tian then filed its income ta# ret$rn for 19>2 based on accr$ed income and e#penses! "ts ret$rn showed a loss of 2>K'1 9!9M! *"0 assessed ,im Tian of deficiency income ta# and > T s$rcharge thereon amo$nting to 2>' L9! and demanded payment thereof not later than +ebr$ary 1>' 19>9! ,im Tian re1$ested reinvestigation of its income ta# liability! *"0 did A4T reply b$t instead referred the case to the 8ol<en for collection by ;$dicial action! 8ol<en demanded from ,im Tian payment w/in > days' stating that otherwise ;$dicial action wo$ld be instit$ted witho$t f$rther notice! ,im Tian th$s wrote *"0 and 8ol<en' reiterating its re1$est for reinvestigation! "t re1$ested that it be allowed to present its e#planation together w/ s$pporting papers relative to its income ta# liability! Dep$ty *ollector of *"0 informed the ta#payer that its re1$est for reinvestigation wo$ld be granted provided it e#ec$ted within 1 days a 5A"760 of the stat$te of limitations as re1$ired in <eneral *irc$lar 7F 2>M dated A$g$st 2 ' 19>9! The Dep$ty *ollector e#tended the period

TA? 2 @ M4AT604 B C! 8anche- A2 12

within which to e#ec$te and file with him the waiver of the stat$te of limitations to December L1' 19>9' b$t advised that if no waiver is forthcoming on or before said date' ;$dicial action for collection wo$ld be instit$ted witho$t f$rther notice! H456760' ,im Tian failed to file a waiver! *"0 th$s instit$ted M months after an action in the *+" of *eb$ for the collection of deficiency income ta#! *+" declared the *"0&s assessment as valid' final and e#ec$tory' condemning ,im Tian to pay *"0 w/ interest at 1T monthly $ntil f$lly paid! "/0: W4n )o er court has 6urisdiction to entertain the case 3iven that 0I1 has '&T -et issued its #ina) decision on reGuest #or reinvesti3ation F Ces! Aowhere in the Ta# *ode is the *"0 re1$ired to r$le first on a ta#payer&s re1$est for reinvestigation before he can go to co$rt for the p$rpose of collecting the ta# assessed! 4n the contrary' 8ection L > of the same *ode withholds from all co$rts' e#cept the *TA $nder 8ection 11 of 0ep$blic Act 112>' the a$thority to restrain the collection of any national internalFreven$e ta#' fee or charge' thereby indicating the legislative policy to allow the *"0 m$ch latit$de in the speedy and prompt collection of ta#es! The reason is obvio$s! "t is $pon ta#ation that the government chiefly relies to obtain the means the carry on its operations' Section << o# 1e*u")ic Act <<2B states in part: Ao appeal ta(en to the *o$rt of Ta# Appeals from the decision of the *ollector of "nternal 0even$e !!! shall s$spend the payment' levy' distraint' and/or sale of any property of the ta#payer for the satisfaction of his ta# liability as provided by e#isting law 6?*62T if it may ;eopardi-e interest of the gov and/or ta#payer! 2/ W4n court erred in considerin3 as #ina) and executor- the assess!ent contained in the )etter o# the 0I1 dated Fanuar- <7, <?BC. @ Ao' co$rt was correct in considering assessment final and e#ec$tory! "n this case' ,im Tian received said assessment on Nan$ary L ' 19>9 and on the following day re1$ested reinvestigation of its ta# liability! The *"0 however did A4T reply to the re1$est for reinvestigation! "nstead' he referred the case to the 8olicitor <eneral for collection of the ta#! The lower co$rt interpreted this action of the *ollector of "nternal 0even$e as a denial of defendant&s re1$est for reinvestigation! "nstead of appealing to the Ta# *o$rt' however' ,im Tian reiterated its re1$est for reinvestigation! 6ven if we do not co$nt the period from 4ctober M' 19>9 .the date when ta#payer received notice of the denial of its re1$est for reinvestigation/ to December L1' 19>9 .the deadline for the s$bmission of the written waiver of the stat$te of limitations/ in

rec(oning the L Fday period within which the ta#payer may appeal to the *TA' said period had long lapsed when the *"0 filed the complaint in this case on 8eptember 2' 19>M! Ta#payer%s fail$re to appeal to the *TA in d$e time made the assessment in 1$estion final' e#ec$tory and demandable! And when the action was instit$ted on 8eptember 2' 19>M to enforce the deficiency assessment in 1$estion' it was already barred from disp$ting the correctness of the assessment or invo(ing any defense that wo$ld reopen the 1$estion of his ta# liability on merits! 4therwise' the period of L days for appeal to the *o$rt of Ta# Appeals wo$ld ma(e little sense! O*1,( 0 7ndications that ta%payer1s income ta% is fraudulent: /irstlyta%payer1s *eginning inventory for &(5) did not state the truth in considering the copra outturn as copra on hand- for on ?ecem*er +&&(5& such copra $as not any more in ta%payer1s *odega. 7t $as in transit to a foreign port. ,nd the ta%payer no longer o$ned the copra. ,s a matter of fact- it already received payment for the same. 2econdly- *y o*serving regularly its o$n system of accountingta%payer had no choice *ut to account the copra outturn as accrued income. !his it did not do. /or such deviation- $e see no other purpose than to lessen- if not o*literate as in fact it did- its income ta% lia*ility per its return. !he lo$er court therefore did not err in imposing the 5'I surcharge.

=asa v 1e*u")ic "n a demand letter dated A$g$st L1' 19K9' the *"0 assessed against A$g$sto =asa deficiency income ta#es for 19>9F19K totaling 21K(! The deficiencies were based on ta#payer%s fail$re to report in f$ll his capital gains on sales of land! This omission or $nderdeclaration of income ;$stified the imposition of > T s$rcharge! Ta#payer did not contest the assessment in Ta# *o$rt! The *ommissioner%s letter decision on the case was dated December K' 199)! 4A the ass$mption that the assessment has become final and incontestable' the *ommissioner on 8ept! L' 199> s$ed the ta#payer in *+" Manila for collection of said amo$nt! T* affirmed the assessment and ordered =asa to pay 21K(! pl$s >T s$rcharge and 1T monthly interest from A$g! L1 19K9FA$g! L1' 199 ! "nstead of appealing to 8* directly $nder 0A >)) ' in relation to 0$les )1 and )> of the 0$les of *o$rt' since no fact$al iss$es are involved' =asa tried to appeal to *A! He did not perfect his appeal within the reglementary period! T* dismissed it! =asa filed a special civil action of certiorari assailing trial co$rt%s decision!

TA? 2 @ M4AT604 B C! 8anche- A2 12

": 5/n the decision *+" Manila .not the Ta# *o$rt/ in an income ta# case is reviewable by Appellate *o$rt or by 8*! 0: Ao! The T* within its ;$risdiction in rendering its decision and dismissing =asa%s appeal! "f =asa wanted to contest the assessments' he sho$ld have appealed to the Ta# *o$rt! Aot having done so' he co$ld not contest the same in the *+"! The iss$e of prescription raised by him is baseless! The assessments were predicated on the fact that his income ta# ret$rns' if not fra$d$lent' were false beca$se he $nderdeclared his income! "n s$ch a case' the deficiency assessments may be made within 1 years after the discovery of the falsity or omission! The co$rt action sho$ld be instit$ted ithin B -ears a#ter the assess!ent b$t this period is s$spended d$ring the time that the *ommission is prohibited from instit$ting a co$rt action! 8<%s memorand$m: =asa%s re1$est for reinvestigation tolled the prescriptive period of > years within which the co$rt action may be bro$ght .*"0 vs! *apitol 8$bdivision/! Moreover' the iss$e of prescription sho$ld have been raised in the ta# co$rt! >a"es v /)o6o Doroteo Cabes' was for sometime an e#cl$sive dealer of prod$cts of the "nternational Harvester Macleod' "nc!' received on May 1' 19K2' a )etter #ro! the 0I1 dated .arch 2C, <?72' demanding payment of 21>(3 as commercial bro(er&s fi#ed and percentage ta#es pl$s s$rcharges and the s$m of 22'>L as compromise penalty alledgely d$e from Cabes for the years 19>KF19K ! 4n May 11' 19K2' Cabes' thro$gh his co$nsel' filed with the *"0 a letter protesting the assessment of the said ta#es and penalties on the gro$nd that his agreements w/ "nternational Harvester were of p$rchase and sale' and A4T of agency' hence he claimed he was not able to pay s$ch (ind of ta#es! Cabes re1$ested for reinvestigation and review of the case by the appellate division of the ="0 and that appeal be held in abeyance pending resol$tion of a similar case .*onstantino/! *"0 D6A"6D the re1$est for reinvestigation for fail$re to s$bmit evidence to offset findings of the 4ffice! *"0 however said that the ad!inistrative a**ea) i)) "e he)d in a"e-ance *endin3 the reso)ution o# the issues in the 0onstantino case. Cabes then filed a ta# waiver on 4ctober 2 ' 19K2' e#tending the period of prescription to December L1' 19K9! Cabes died and no estate proceedings were instit$ted for the settlement of his estate! After Cabes& death' 8* rendered a r$ling in the *onstantino case in favor of the *"0!

After > yrs' the heirs of the Cabes received a letter from *"0 re1$esting that they Iwaive anew the 8tat$te of ,imitationsI and f$rther confirming the previo$s $nderstanding that the final resol$tion of the protest of the deceased Doroteo Cabes was Ibeing held in abeyance $ntil the 8$preme *o$rt renders its decision on a similar case involving the same fact$al and legal iss$es bro$ght to it on appealI .referring to the *onstantino ItestI case/! Cabes filed a revised waiver f$rther e#tending the period of prescription to December L1 199 ! After' no word was received by Cabes heirs d$ring the interim of more than L yrs' b$t on Nan$ary 2 ' 1991' they received the s$mmons and a copy of the complaint filed by the *ommissioner in the *+" see(ing to collect ta#es! ": 5/A *+" can lawf$lly ac1$ire ;$risdiction over a contested assessment made by the *"0 against Cabes w/c has not yet become final' e#ec$tory and incontestable' and which assessment is being contested in the *TA and still pending consideration 0: Ao' *+" had no ;$risdiction and sho$ld have dismissed the case! Decision is A4T yet final' e#ec$tory and incontestable! *"0 contends that Cabes received the *ommissioner&s letter dated A$g$st L' 19K2' denying the latter&s protest against the said assessment on 8eptember 1M' 19K2 and +A",6D to appeal therefrom within the L Fday period contemplated $nder 8ection 11' of 0ep$blic Act 112>! H456760' the period for appeal to this *o$rt sho$ld A4T be co$nted from 8eptember 1M' 19K2! "n a letter of N$ly 29' 19K9' *"0 informed Cabes that a resol$tion of their protest was being held in abeyance $ntil the 8$preme *o$rt renders a decision on a similar case Iinvolving the same fact$al and legal iss$esI! As a matter of fact' in an earlier letter dated 8eptember 2K' 19K2' *"0 also informed Cabes& co$nsel that Iadministrative appeal for and in behalf of their clients will be held in abeyance pending resol$tion of the iss$es on a similar case which was appealed by yo$ to the *o$rt of Ta# AppealsI! "t is th$s clear in these letters that *"0 reconsidered the finality of his decision of A$g$st L' 19K2' ass$ming arg$endo that the letter had a tenor of finality! The records show that a warrant of distraint and levy was iss$ed on 4ctober 2' 199 ! Had this been served on Doroteo Cabes' it wo$ld have been e1$ivalent to a final decision! There is, ho ever, nothin3 to sho that it as ever served on >a"es! 'either is there an-thin3 in the record to sho that a #or!a) decision o# denia) as !ade a#ter 0I1+s )etter o# Fu)- 2C, <?7C. :nder the circ$mstances of this case' what may be considered as final decision or assessment of the *ommissioner is the filing of the

TA? 2 @ M4AT604 B C! 8anche- A2 12

complaint for collection in the respondent *o$rt of +irst "nstance of *agayan' the s$mmons of which was served on petitioners on Nan$ary 2 ' 1991! TH:8' the appeal with the *TA was filed on time .w/in the L day prescriptive period/! *+" only ac1$ired ;$risdiction after assessment by *"0 becomes final and e#ec$tory!

"n 19>M' the Dep$ty *"0 sent a letter of demand w/ enclosed income ta# assessment! 2atanao ref$sed' failed and neglected to pay the said ta#es! "n 19K2' a complaint for collection was filed! 2atanao filed a MTD alleging: o 0es ;$dicata' since 2atanao was ac1$itted in criminal cases' w/c were prosec$tions for fail$re to file "T0 for nonF payment of ta#es o 2rescription 0T* held that the action for collection was barred by prior ;$dgment' since the acc$sed was ac1$itted in the criminal case! ": 5/n the ac1$ittal in the criminal cases involving the fail$re to file ret$rn and pay ta# bars the instit$tion of the civil case for collection! 0: A4' ac1$ittal in the criminal case is not a bar to the instit$tion of the civil case! :nder the 2enal *ode the civil liability is inc$rred by reason of the offender&s criminal act! The criminal liability gives birth to the civil obligation s$ch that generally' if one is not criminally liable $nder the 2enal *ode' he cannot become civilly liable there$nder! The sit$ation $nder the income ta# law is the e#act opposite! *ivil liability to pay ta#es arises from the fact' for instance' that one has engaged himself in b$siness' and A4T beca$se of any criminal act committed by him! The criminal liability arises $pon fail$re of the debtor to satisfy his civil obligation! The incongr$ity of the fact$al premises and fo$ndation principles of the two cases is one of the reasons for A4T imposing civil indemnity on the criminal infractor of the income ta# law! Also' while section 9L A"0* has provided the imposition of the penalty of imprisonment or fine' or both' for ref$sal or neglect to pay income ta# or to ma(e a ret$rn thereof' it failed to provide the collection of said ta# in criminal proceedings! The only civil remedies provided' for the collection of income ta#' are distraint or ;$dicial action' which remedies are generally e#cl$sive in the absence of a contrary intent from the legislator! *onsidering that the <overnment cannot see( satisfaction of the ta#payer&s civil liability in a criminal proceeding $nder the ta# law or' otherwise stated' since the said civil liability is A4T deemed incl$ded in the criminal action' ac1$ittal of the ta#payer in the criminal proceeding

01I.I'AL A0TI&' 1e*u")ic v Patanao 2atanao was engaged in the prod$ction and sale of logs and l$mber! He was assessed deficiency income ta# and additional residence ta#es from 19>1 to 19>>!

TA? 2 @ M4AT604 B C! 8anche- A2 12

does A4T necessarily entail e#oneration from his liability to pay the ta#es! The ac1$ittal in the said criminal cases cannot operate to discharge defendant from the d$ty of paying the ta#es which the law re1$ires to be paid' since that d$ty is imposed by stat$te prior to and independently of any attempts by the ta#payer to evade payment! 8aid obligation is not a conse1$ence of the felonio$s acts charged in the criminal proceeding' nor is it a mere civil liability arising from crime that co$ld be wiped o$t by the ;$dicial declaration of nonF e#istence of the criminal acts charged!

%n3a" v 0usi "n N$ly' 199)' ="0 e#amined the income ta# ret$rns filed by :ngab' for the calendar year ending December L1' 199L! ="0 discovered that :ngab failed to report his income derived from sales of banana saplings! ="0 District 0even$e 4fficer sent a IAotice of Ta#payerI to :ngab informing him that there is d$e from him the amo$nt of 21 )(' representing income' b$siness ta# and forest charges for the year 199L and inviting him to an informal conference where he may present his ob;ections! :ngab wrote the ="0 District 0even$e 4fficer protesting the assessment' claiming that he was only a dealer/ agent on commission basis in the banana sapling b$siness and that his income' as reported in his income ta# ret$rns for the said year' was acc$rately stated! ="0 6#aminer' however' was f$lly convinced that :ngab had filed a fra$d$lent income ta# ret$rn so that he s$bmitted a I+ra$d 0eferral 0eport'I to the Ta# +ra$d :nit of the ="0! After e#amining the records of the case' the 8pecial "nvestigation Division of the ="0 fo$nd s$fficient proof that :ngab is g$ilty of ta# evasion for the ta#able year 199L and recommended his prosec$tion! *"0 approved the prosec$tion! Thereafter' the 8tate 2rosec$tor cond$cted a preliminary investigation of the case' and finding probable ca$se' filed K informations against the petitioner with *+": o 1/ filing a fra$d$lent income ta# ret$rn o 2/ engaging in b$siness as prod$cer of saplings w/o first paying the ann$al fi#ed/privilege ta# o L/ fail$re to render a tr$e and complete ret$rn on the gross 1$arterly sales' receipts and earnings in his b$siness as prod$cer of banana saplings and to pay the percentage ta# d$e thereon'

:ngab filed a motion to 1$ash the informations alleging that the trial co$rt has no ;$risdiction to ta(e cogni-ance of the cases in view of his pending protest against the assessment made by the ="0 6#aminer! T* denied the motion! :ngab now claims that the filing of the informations was precipitate and premat$re since the *"0 has not yet resolved his protests against the assessment of the 0even$e District 4fficerR and that he was denied reco$rse to the *o$rt of Ta# Appeals! ": 5/n an assessment of the deficiency ta# d$e is necessary before the ta#payer can be prosec$ted criminally for the charges 0: A4' an assessment of a deficiency is A4T necessary to a criminal prosec$tion for willf$l attempt to defeat and evade the income ta#! 5hat is involved here is not the collection of ta#es where the assessment of the *"0 may be reviewed by the *TA' b$t a cri!ina) *rosecution #or vio)ations o# the 'I10 hich is ithin the co3nizance o# 0/I. 5hile there can be no civil action to enforce collection before the assessment proced$res provided in the *ode have been followed' there is no re1$irement for the precise comp$tation and assessment of the ta# before there can be a criminal prosec$tion $nder the *ode! The crime is complete when the violator has' as in this case' (nowingly and willf$lly filed fra$d$lent ret$rns with intent to evade and defeat a part or all of the ta#! The perpetration of the crime is gro$nded $pon (nowledge on the part of the ta#payer that he has made an inacc$rate ret$rn' and the government&s fail$re to discover the error and promptly to assess has no connections with the commission of the crime! TH:8' an assessment of a deficiency is A4T necessary to a criminal prosec$tion for willf$l attempt to defeat and evade the income ta#! A petition for reconsideration of an assessment may affect the s$spension of the prescriptive period for the collection of ta#es' b$t A4T the prescriptive period of a criminal action for violation of law! 4bvio$sly' the protest of the :ngab against the assessment of the District 0even$e 4fficer cannot stop his prosec$tion for violation of the A"0*!

0I1 v PAS0&1 1ea)t- and Dev 0or*

TA? 2 @ M4AT604 B C! 8anche- A2 12

="0 *ommissioner Nose 4ng a$thori-ed 0even$e 4fficers X$e' 6storco and 8avillano to e#amine the boo(s of acco$nts and other acco$nting records of 2ascor 0ealty' w/c res$lted to the recommendation of an iss$ance of assessments! "n 199>' *"0 filed a complaint against the president and treas$rer of 2ascor alleging evasion of ta#es before the D4N! 2ascor filed an :rgent 0e1$est for 0econsideration/0einvestigation disp$ting the said ta# assessment! 20D* then received a s$bpoena from the D4N with regard to the complaint on March 2L' 199>! *"0 denied the M0 of the said assessment! 2ascor elevated the denial to *TA on petition for review! *"0 filed a motion to dismiss on the gro$nd that *TA had no ;$risdiction over the s$b;ect matter since there was no formal assessment iss$ed against 20D*! *TA denied the motion to dismiss and ordered the *"0 to file an answer within L days from receipt of the notice b$t the *"0 did not comply' nor did they file an M0! "nstead' *"0 filed a petition in the *A alleging that the *TA acted with <ADA,6N! *"0 arg$es that the criminal action is not yet an assessment' based on 8ec 2 > and 22L of the A"0* w/c provides that remedies for the collection of ta# may either be civil or criminal and that in case of fail$re to file a ret$rn' a ta# may be assessed 40 a proceeding in co$rt may be beg$n witho$t an assessment! 2ascor arg$es that the ;ointFaffidavit filed by the *"0 for criminal action already constit$tes an assessment! "t arg$es that an assessment is A4T an action or proceeding for the collection of ta#es b$t a mere notice of and demand for payment of ta#es d$e! ": 1/ 5/A the criminal complaint for ta# evasion can be constr$ed as an assessment @ A4 2/ 5/n assessment is necessary before criminal charges for ta# evasion may be instit$ted! F A4 0: 1/ The cri!ina) co!*)aint #or tax evasion is '&T an assess!ent. An assessment is a notice to the ta#payer containing the amo$nt of ta#es d$e and a demand to pay s$ch ta#es within a specific period! "t is deemed made only when the *"0 releases the mail and sends s$ch notice to the petitioner! The ;ointFaffidavit for the criminal action *AAA4T be considered an assessment since: o "t contained A4 D6MAAD for payment o There was A4 specified period of payment

"t is addressed to the 8ecretary of N$stice and A4T the ta#payer .2ascor/ o "ts p$rpose is merely to s$pport / s$bstantiate the criminal complaint and A4T notify the payer of the ta# d$e 8ince there was A4 assessment iss$ed yet' no reconsideration / reinvestigation may be as(ed from the *"0! 2/ 8ec222 of the A"0* provides that when a false/fra$d$lent ret$rn is filed' an action in co$rt may be commenced 5"TH4:T an assessment! 8ec 2 > f$rther provides that civil and criminal actions may be p$rs$ed sim$ltaneo$sly by the *"0! TH:8' *"0 is given discretion to either iss$e an assessment 40 file a criminal complaint or do both! A criminal charge may be s$pported by only prima facie showing of fail$re to file ret$rn! This fact A66D A4T be proven by an assessment! The iss$ance of an assessment is D"++606AT from the filing of a complaint! =efore an assessment is iss$ed' there is' by practice' a preF assessment notice sent to the ta#payer' who is given a chance to s$bmit position papers and doc$ments to prove that the assessment is $nwarranted! "f the commissioner is $nsatisfied' an assessment signed by him or her is then sent to the ta#payer informing the latter specifically and clearly that an assessment has been made against him or her! "n contrast' the criminal charge need not go thro$gh all these! The criminal charge is filed directly with the D4N! Thereafter' the ta#payer is notified that a criminal case had been filed against him' not that the commissioner has iss$ed an assessment! "t m$st be stressed that a criminal complaint is instit$ted not to demand payment' b$t to penali-e the ta#payer for violation of the Ta# *ode! o

Ada!son v 0A ,$cas Adamson as 2resident of Adamson Management *orporation .AM*/ sold common shares of stoc( to A2A* Holding ,imited .A2A*/ and paid the capital gains ta# for the transaction! 8$bse1$ently' AM* sold to A2A* 2hilippines' "nc! common shares of stoc( and paid the capital gains ta# therefor! *"0 7in-onsF*hato iss$ed a GAotice of Ta#payerH to AM*' Adamson' Therese Adamson .AM* treas$rer/' and 8ara de ,os 0eyes .AM* secretary/' informing them of deficiencies on their payment of capital gains ta# and 7AT!

TA? 2 @ M4AT604 B C! 8anche- A2 12

*"0 filed w/ the D4N an Affidavit of *omplaint against AM* and Adamson et al! for violation of the A"0*! After preliminary investigation' the state prosec$tor fo$nd probable ca$se! AM* and Adamson et al! then filed a letter re1$est for reF investigation with the *ommissioner! =efore the *"0 co$ld act on their letterFre1$est' AM*' and Adamson et al! filed a petition for review with the *TA' assailing the *"0%s finding of ta# evasion against them! *"0 moved to dismiss the petition' on the gro$nd that it was premat$re' as she had not yet iss$ed a formal assessment of the ta# liability of Adamson et al! "n 199)' Adamson' et al! were charged in a criminal case before the 0T* Ma(ati! T* r$led that it did A4T have ;$risdiction over the criminal case beca$se the complaints for ta# evasion filed by the *ommissioner sho$ld be regarded as a decision of the *ommissioner regarding the ta# liabilities of Adamson et al! th$s appealable to the *TA! "t f$rther held that the said cases cannot proceed independently of the assessment case pending before the *TA' which has ;$risdiction to determine the civil and criminal ta# liability of Adamson et al! *TA denied the motion to dismiss filed by the *ommissioner and considered the criminal complaint filed by the *ommissioner with the D4N as an implied formal assessment' and the filing of the criminal informations with the 0T* as a denial of Adamson et al!%s protest regarding the ta# deficiency! *"0 filed a petition for review with the *A assailing the trial co$rt%s dismissal of the criminal cases! The *A reversed the trial co$rt%s decision and reinstated the criminal complaints! The *A r$led that in a criminal prosec$tion for ta# evasion' assessment of ta# deficiency is not re1$ired beca$se the offense of ta# evasion is complete or cons$mmated when the offender has (nowingly and willf$lly filed a fra$d$lent ret$rn with intent to evade the ta#! "/ 0: 1/ W4n 0I1:s reco!!endation )etter to D&F can "e considered as a #or!a) assess!ent o# Ada!son et a).:s tax )ia"i)itAo' the letter is A4T an assessment! An assessment is a written notice and demand made by the ="0 on the ta#payer for the settlement of a d$e ta# liability that is there definitely set and fi#ed! "t is a written comm$nication containing a comp$tation by a reven$e officer of the ta# liability of a ta#payer and giving him an opport$nity to contest or disprove the ="0 e#aminer%s findings is not an assessment since it is yet indefinite!

"n this case' the recommendation letter is A4T an assessment! "t served merely as the prima facie basis for filing criminal informations that the ta#payers had violated the Ta# *ode! 2/ W4n the cri!ina) co!*)aints a3ainst Ada!son et a). "the D&F are *re!ature #or )acK o# a #or!a) assess!ent Ao! 5hen fra$d$lent ta# ret$rns are involved' a proceeding in co$rt after the collection of s$ch ta# may be beg$n witho$t assessment! Here' Adamson et al! had already filed the capital gains ta# ret$rn and the 7AT ret$rns' and paid the ta#es they have declared d$e therefrom! :pon investigation of the e#aminers of the ="0' there was a preliminary finding of gross discrepancy in the comp$tation of the capital gains ta#es' and that 7AT had not been paid! The gross disparity in the ta#es d$e and the amo$nts act$ally declared by Adamson' AM*' etc! constit$tes badges of fra$d! L/ W4n the 0TA has 6urisdiction to taKe co3nizance o# "oth the civi) and cri!ina) as*ects o# the tax )ia"i)it- o# Ada!son et a). Ao! *TA can only entertain an appeal from a final decision or assessment of the *ommissioner' or in cases where the *ommissioner has not acted within the period prescribed by the A"0*! "n the cases at bar' the *ommissioner has not iss$ed an assessment of the ta# liability of private respondents!

P1ES01IPTI&' &/ G&5:S 1IG(T T& ASSESS A'D 0&LLE0T 0I1 v Goodrich Phi)s <oodrich 2hils!' "nc! is an AmericanFowned and controlled corporation engaged in the man$fact$ring of tires and r$bber prod$cts! 2$rs$ant to a *entral =an( re1$irement' =+ <oodrich developed a r$bber plantation! "t p$rchased from the 2hil gov certain parcels of land in =asilan .as allowed by the 2$blic ,and Act and 2arity Amendment to the 19L> *onstit$tion/! H456760' $pon the e#piration of the 2arity Amendment more than a decade later' the ownership rights of Americans over p$blic

TA? 2 @ M4AT604 B C! 8anche- A2 12

agric$lt$ral lands' incl$ding the right to dispose or sell their real estate' wo$ld be lost! TH:8' =+ <oodrich sold its =asilan ,andholdings to 8iltown 0ealty! 8iltown then leased the parcels of land to =+ <oodrich for 2> years! ="0 then assessed =+ <oodrich for deficiency income ta#' which the latter paid! ,ater on' ="0 assessed =+ <oodrich for deficiency donor%s ta#' in relation to the previo$sly mentioned sale of its =asilan landholdings to 8iltown! ="0 claimed that the consideration for the sale was ins$fficient' so it considered the difference between the fair mar(et val$e and the act$al p$rchase price as a ta#able donation! <oodrich contested this assessment! "nstead' it received another assessment w/c increased the amo$nt demanded for the alleged deficiency donor%s ta#' s$rcharge' interest and compromise penalty! <oodrich appealed the correctness and the legality of these last two assessments to the *TA' 1$estioning the legality of the assessments! ": 1/ W4n the 0I1:s ri3ht to assess de#icienc- donor:s tax had *rescri"ed C68' *"0%s right to assess the deficiency had already prescribed! 8ec LL1 of the A"0 provides that .e#cept as provided in the s$cceeding section/ internalFreven$e ta#es shall be assessed ithin #ive -ears a#ter the return as #i)ed' and no proceeding in co$rt witho$t assessment for the collection of s$ch ta#es shall be beg$n after e#piration of s$ch periodVa ret$rn filed before the last day prescribed by law for the filing thereof shall be considered as filed on s$ch last day: rovided' That this limitation shall not apply to cases already investigated prior to the approval of this *ode! "nvolved in this petition is the income of the petitioner for the year <?CA, the returns #or 4c ere reG:d to "e #i)ed on or "e#ore A*ri) <B, <?CB! The ret$rns for the year 199) were d$ly filed and paid on N$ne 21' 199)' and ac(nowledged by a ,etter of *onfirmation! Th$s' the s$bse1$ent assessment of 4ct 1 ' 19M modified' by that of March 1K' 19M1' was made =6C4AD TH6 260"4D e#pressly set by Art LL1! The law on prescription' being a remedial meas$re' sho$ld be liberally constr$ed in order to afford s$ch protection! As a corollary' the e#ceptions to the law on prescription sho$ld be strictly constr$ed!

However' the *"0 contended that there is /a)sit- in the return' th$s' the ordinary period of limitation $pon assessment and collection does not apply! 8ection 1> of the A"0*' provides that when there is reason to believe that any s$ch report is false' incomplete' or erroneo$s' the *"0 shall assess the proper ta# on the best evidence obtainable! *learly' 8ection 1> does not provide an e#ception to the stat$te of limitations on the iss$ance of an assessment' by allowing the initial assessment to be made on the basis of the best evidence available! 2/ 5/n there was a false ret$rn' w/c e#tends the prescriptive period A4' there was no false ret$rn! 8ection LL2 of the A"0*' en$merates the e#ceptions to the period of prescription' one of w/c incl$des the case of a false or fra$d$lent ret$rn with intent to evade a ta# or of a fail$re to file a ret$rn! "n this case' collection of ta# may be beg$n w/o assessment anytime w/in 1 yrs from discovery of fra$d! *"0 insists that <oodrich committed falsity when it sold the property for a price less than the +M7! H456760' this fact alone did not constit$te a false ret$rn! A false return contains ron3 in#or!ation due to !istaKe, care)essness or i3norance. "t is possible that real property may be sold for less than ade1$ate consideration for a *ona fide b$siness p$rpose! "n the present case' <oodrich was compelled to sell the property even at a price less than its mar(et val$e' beca$se it wo$ld have lost all ownership rights over it $pon the e#piration of the parity amendment! "t was only attempting to M"A"M"Z6 "T8 ,48868! At the same time' it was able to lease the property for 2> years' renewable for another 2>! This can be regarded as another consideration on the price! The fact that the sale transaction may have partly res$lted in a donation does A4T change the fact that private respondent already reported its income for 199) by filing an income ta# ret$rn! ="0 was negligent in not iss$ing an assessment w/in the >Fyear period!

=asi)an Estates v 0I1 *"0 assessed =asilan 6states deficiencyincome ta# and 2>T s$rcharge on $nreasonable acc$m$lated profit .8ec 2>' Ta# *ode/! 4n nonFpayment of the assessed amo$nt' a warrant of distraint and levy was iss$ed b$t the same was not e#ec$ted beca$se =asilan 6states' "nc! s$cceeded in getting an 4rder to hold e#ec$tion and maintain constr$ctive embargo instead!

TA? 2 @ M4AT604 B C! 8anche- A2 12

=asilan 6states' "nc! filed with *TA a petition for review of the *ommissioner&s assessment' alleging prescription of the period for assessment and collection! *TA held that there was no prescription! =asilan claims that it never received notice of assessment or if it did' it received the notice beyond the prescriptive period! ": 5/n the *ommissioner&s right to collect deficiency income ta# prescribedS A4' it did not! There is no disp$te that the assessment for deficiency ta# was made on +ebr$ary 2K' 19>9! *irc$mstances in this case point to official performance of d$ty / 06<:,A0"TC which m$st necessarily prevail over =asilan&s contrary interpretation: o 4n the right side of the notice is also stamped I+eb! 2K' 19>9I O denoting the date of release' according to ="0 practice! o The *ommissioner himself in his letter answering petitioner&s re1$est to lift' the warrant of distraint and levy' asserts that notice had been sent to petitioner! o "n the letter of the 0egional Director forwarding the case to the *hief of the "nvestigation Division which the latter received on March 1 ' 19>9' notice of assessment was said to have been sent to petitioner! o 8$bse1$ently' the *hief of the "nvestigation Division indorsed on March 1M' 19>9 the case to the *hief of the ,aw Division! There it was alleged that notice was already sent to petitioner on +ebr$ary 2K' 19>9! 6ven granting that notice had been received by =asilan late' as alleged' $nder 8ection LL1 of the Ta# *ode re1$iring > years within which to assess deficiency ta#es' the assess!ent is dee!ed !ade hen notice to this e##ect is re)eased, !ai)ed or sent "- the 0o))ector to the tax*a-er and it is not reGuired that the notice "e received "- the tax*a-er ithin the a#ore!entioned B;-ear *eriod.

Tu*az v %)e* 8tate 2rosec$tor Molon filed w/ the MT* an information against 2etronilla T$pa- and her late h$sband Nose T$pa- as corporate officers of 6l 4ro 6ngravers *orp' for nonFpayment of deficiency corporate income ta#es for year 1999! MT* dismissed the case for lac( of ;$risdiction! 9 months later' Monlon filed w/ the 0T* 2 informations against the acc$sed and her late h$sband for the same alleged nonpayment of

deficiency corp income! *ase 1 was raffled to N$dge :lep .=ranch 1 >/ while *ase 2 was raffled to N$dge 8olano .=ranch MK/! Acc$sed filed w/ 0T* =ranch MK .*ase 2/ a motion to dismiss /1$ash the information since it was e#actly the same as the information against the acc$sed pending before 0T* =ranch 1 >! This was denied! "n the meantime' Nose T$pa- died to 2etronilla T$pa- filed w/ the 0T* =ranch 1 > a 26T"T"4A +40 06"A768T"<AT"4A' w/c N$dge :lep granted! 0T* s$bse1$ently arraigned 2etronilla! 2 years later' N$dge :lep iss$ed an order directing the prosec$tion to withdraw the information in *ase 2' after discovering that said information was identical to the one filed with his branch! Th$s' 8tate 2rosec$tor Agcaoili filed a motion to withdraw information in *ase 1! N$dge :lep granted the motion for withdrawal of the information and dismissed the case! 2rosec$tor Agcaoili filed with =ranch 1 > a motion to reinstate information' stating that the motion to withdraw information was made thro$gh palpable mista(e' and was the res$lt of e#c$sable neglect! 0einstatement was granted! T$pa- filed a motion for reconsideration' w/c was denied! T$pacontends that: o a/ the period of assessment has prescribed' applying the L year prescriptive period o b/ offense has prescribed since the complaint for preliminary investigation was filed w/ the D4N only on N$ne 19M9 and the offense was committed in April 19M when she filed the income ta# ret$rn for the year 19M9 ": 5/n the period of assessment had prescribed and w/n the offense had prescribed 0: A4! The *eriod o# assess!ent has '&T *rescri"ed. The shortened period of L years to prescribe $nder =!2! =lg! 9 is not applicable to petitioner! The said law specifically states that the shortened period of three years shall apply to assessments and collections of internal reven$e ta#es beginning ta#able year 19M)! Assessments made after April >' 19M) are governed by the >Fyear period if the ta#es assessed cover ta#able years prior to Nan! 1' 19M)! The deficiency income ta# $nder consideration is for ta#able year 1999 so the period of assessment is still > years' $nder the old law! Art 22 of the 02* does A4T apply beca$se provisions on the period of assessment are A4T penal in nat$re! A)so, the o##ense has not *rescri"ed. 2etitioner was charged with fail$re to pay deficiency income ta# after repeated demands by the ta#ing a$thority! =y its nat$re' the violation co$ld only be committed A+T60 service of notice and demand for

TA? 2 @ M4AT604 B C! 8anche- A2 12

payment of the deficiency ta#es $pon the ta#payer! Hence' it cannot be said that the offense has been committed as early as 19M ' $pon filing of the income ta# ret$rn! This is so beca$se prior to the finality of the assessment' the ta#payer has A4T committed any violation for nonpayment of the ta#! The offense was committed only after the finality of the assessment co$pled with ta#payer%s willf$l ref$sal to pay the ta#es within the allotted period! "n this case' when the notice of assessment was iss$ed on N$ly 1K' 19M)' the ta#payer still had L days from receipt thereof to protest or 1$estion the assessment! 4therwise' the assessment wo$ld become final and $nappealable! As he did not protest' the assessment became final and $nappealable on A$g 1K' 19M)! 0onseGuent)-, hen the co!*)aint #or *re)i!inar- investi3ation as #i)ed ith the D&F on Fune L, <?L?, the cri!ina) action as instituted ithin the B -ear *rescri*tive *eriod. A4T6: TH6 >FC0 260"4D T4 *4,,6*T =6<"A8 T4 T4,, +04M TH6 +"AA,"TC 4+ A88688M6AT' A4T +04M TH6 +","A< 4+ TH6 "T0! &n dou")e 6eo*ard- !he reinstatement of the information $ould e%pose her to dou*le .eopardy. ,n accused is placed in dou*le .eopardy if he is again tried for an offense for $hich he has *een convictedac0uitted or in another manner in $hich the indictment against him $as dismissed $ithout his consent. 7n the instant case- there $as a valid complaint filed against petitioner to $hich she pleaded not guilty. !he court dismissed the case at the instance of the prosecution- $ithout as6ing for accused@petitionerJs consent. !his consent cannot *e implied or presumed. 2uch consent must *e e%pressed as to have no dou*t as to the accusedJs conformity. ,s petitionerJs consent $as not e%pressly given- the dismissal of the case must *e regarded as final and $ith pre.udice to the re@filing of the case. Conse0uently- the trial court committed grave a*use of discretion in reinstating the information against petitioner in violation of her constitutionally protected right against dou*le .eopardy.

'ava v 0I1 4n 1> May 19>1' <on-alo 2! Aava filed his income ta# ret$rn for the year 19> ' and' on the same date' he was assessed by the *"0 in the s$m of 2)(3 based solely on said ret$rn! Aava paid oneFhalf of the ta# d$e' leaving a balance of 22(3! 8$bse1$ently' Aava offered his bac(pay certificate to pay said balance' b$t the *"0 ref$sed the offer! He re1$ested the *"0 to hold in abeyance the collection of said balance $ntil the 1$estion of whether or not he was entitled to

pay the same o$t of his bac(pay shall have been decided' b$t this was also re;ected by the *"0 in a reply letter! This re;ection was followed by two more letters or notices demanding payment of the balance thereof' the last of which was dated 22 +ebr$ary 19>>! After investigation of Aava&s 19> income ta# ret$rn' the *"0 iss$ed a deficiency income ta# assessment notice re1$iring Aava to pay not later than L April 19>> the s$m of 29(3' incl$ded the balance of 22')91! ' still $npaid $nder the original assessment' pl$s a > T s$rcharge! 8everal notices of this revised assessment are alleged to have been iss$ed to the ta#payer' b$t Aava claims to have learned of it for the first time on 19 December 19>K' more than five years since the original ta# ret$rn was filed' and testified to that effect in the *TA! *TA r$led that the right of the *"0 to collect had not yet prescribed and only red$ced the amo$nt d$e from Aava! Aava appealed to the 8*! ": 5/n the enforcement of the ta# assessment has prescribed! 0: C68' the ta# assessment had prescribed! The *TA' in ma(ing its decision' relied solely on the d$plicate copy of the deficiency income ta# notice fo$nd in the ="0 office file of Aava! 4n the corresponding blan( space for the date of iss$e' the d$plicate copy was typed GL/L />>!H Aava denied having received the original copy of the said notice! *"0 failed to reb$t this with competent evidence and witnesses! Th$s' contrary to *TA%s finding' the *"0 $tterly failed to prove by s$bstantial evidence that the assessment notice dated L March 19>> and other s$pposed written demand letters / notices s$bse1$ent thereto were in fact iss$ed / sent to the ta#payer! The pres$mption that a letter d$ly directed and mailed was received in the reg$lar co$rse of mail cannot be applied to the case at bar! +or the pres$mption to apply 1/ the letter m$st be properly addressed with postage prepaid' and .b/ it m$st be mailed! A4A6 of these re1$irements were shown' so there is A4 valid and effective iss$ance or release of said deficiency income ta# assessment notice dated L March 19>> and of the other demand letters or notices s$bse1$ent to it .latest of which was p$rportedly sent on 2> A$g$st 19>K/! TH:8' these dates cannot be rec(oned with in comp$ting the period of prescription within which a co$rt action to collect the same may be bro$ght!

TA? 2 @ M4AT604 B C! 8anche- A2 12

"t being $ndisp$ted that an original assessment of Aava&s 19> income ta# ret$rn was made on 1> May 19>1' and no valid and effective notice of the reFassessment having been made against the petitioner after that date .1> May 19>1/' it is evident that the period $nder 8ection LL1 of the Ta# *ode within which to ma(e a reF assessment e#pired on 1> May 19>K! Mere notations made witho$t the ta#payer&s intervention' notice' or control' witho$t ade1$ate s$pporting evidence' cannot s$fficeR otherwise' the ta#payer wo$ld be at the mercy of the reven$e offices' witho$t ade1$ate protection or defense!

was d$ly received by Aielson in accordance w/ its own admission! :nder 8ection 9 of 0A 112>' the assessment is appealable to the *TA w/in L DAC8 from receipt of the letter! The ta#payer&s fail$re to appeal in d$e time' as in the case at bar' ma(es the assessment in 1$estion final' e#ec$tory and demandable! Th$s' Aielson is now barred from disp$ting the correctness of the assessment or from invo(ing any defense that wo$ld reopen the 1$estion of its liability on the merits!

1P v 0A ="0 sent a demand letter to Aielson Q *o on N$ly 1K' 19>> .1 st ,6TT60/ for deficiency ta#es .ad valorem' ann$al occ$pation fees' residence ta# and s$rcharges/! The letter was sent thro$gh ordinary mail! The original letter was A4T ret$rned to the ="0! ="0 reiterated its demand thro$gh TH066 letters' one of w/c was dated 8ept 19' 19>K .2nd letter/! Aielson did A4T heed the demand so ="0 filed a complaint for collection w/ the *+"! *ase was dismissed for fail$re to serve s$mmons! The case was s$bse1$ently refiled! Aielson claims that the assessment did A4T become final since it did not receive the same! ="0 claims that since the assessment was sent thro$gh ordinary mail and it was never ret$rned to ="0' it m$st be considered to have been received by Aielson $pon the e#piration of > days after mailing! ": 5/n the assessment was properly served $pon Aielson and became final 0: C68' the assessment was properly served and became final! 5hile it is correct that a mailed letter is deemed received by the addressee in the ordinary co$rse of mail' stilt this is merely a disp$table pres$mption' s$b;ect to controversion' and a direct denial of the receipt thereof shifts the b$rden $pon the party favored by the pres$mption to prove that the mailed letter was indeed received by the addressee! 8ince the ="0 had not add$ced proof that Aielson had in fact received the 1st demand letter' it cannot be ass$med that Aeilson received the said letter! H456760' records show that ="0 sent a followF$p letter dated 8ept 19' 19>K reiterating its demand for the payment of ta#es as originally demanded in the 1st letter! The 2nd letter is considered a A4T"*6 4+ A88688M6AT in itself' w/c

0I1 v Western Paci#ic 0or* 4n March 2' 19>9' the respondent 5estern 2acific *orporation' was assessed for 2L'9L1! ' as deficiency income ta# for the year 19>L! This assessment was bro$ght abo$t by the disallowance of certain amo$nts in 5estern&s ret$rn for 19>L of e#pense items' and bad debts! The assessment was received by respondent on the same date .March 2' 19>9/! TH066 days later' *"0 wrote 5estern a letter of demand for the payment of the amo$nt' incl$ding therein a brea(down of said assessment! Almost +4:0 months after' 5estern' thro$gh an a$diting firm' re1$ested for nonFassessment! "t calims that the period for ma(ing the assessment had prescribed! *"0 denied the re1$est on N$ly L ' 19>9 and reiterated its demand for payment of the amo$nt w/in L DAC8 from receipt! After a n$mber of comm$nications between the parties' *"0 made a final demand for payment on 4ct 2M' 19>9! 5estern' on Dec 1M' 19>9' filed w/ the *TA a petition for review of the assessment! "t arg$ed that the period for ma(ing the assessment had already prescribed! *TA rendered ;$dgment absolving 5estern from the assessment! H456760' it r$led o$t prescription' stating that March 2' 19>9' was the last day of the > year period within which to ma(e the assessment! Altho$gh the last day was "A +A*T +eb 2M' 19>9' this was a 8at$rday! Th$s' the official act' in this case' the ma(ing and iss$ance of an assessment' co$ld be done the A6?T 8:**66D"A< =:8"A688 DAC' w/c was March 2' a Monday! This was p$rs$ant to the 0evised Admin *ode and 0A 1MM ! 4n appeal' *"0 contended that the *TA erred in ta(ing cogni-ance of the case' given that it lac(ed ;$risdiction! ": 5/n the period for ma(ing and iss$ing the assessment has prescribed 0: A4' the period has not yet prescribed!

TA? 2 @ M4AT604 B C! 8anche- A2 12

0A 1MM ' as implemented by 64 2>' ordains that all b$rea$s and offices of gov shall hold office only ) days a wee( or from Mon to +ri! 8at and 8$n are considered p$blic holidays! Th$s' where the last day for iss$ing a ta# assessment falls on a 8at' it may be validly iss$ed the following b$siness day' a Monday! As to the PETITI&' /&1 1E5IEW /ILED 4 0TAD The assessment sho$ld be maintained beca$se when the petition for review was bro$ght to the *TA' the co$rt no longer had ;$risdiction to entertain the same! TH6 A88688M6AT HAD ,4A< =6*4M6 +"AA,! A petition for review sho$ld be presented' within the reglementary period' as provided for in 8ection 11' 0ep$blic Act Ao! 112>' which is L DAC8 from 06*6"2T of assessment! The L Fday period is ;$risdictional! "n this case' more than L days had already lapsed from the time 5estern was assessed to when it formally assailed the assessment! 5estern was ordered to pay the assessment!

1P v .ars!an Dev Marsman Dev was a timber licensee with concessions in *amarines Aorte! An investigation was cond$cted on the b$siness operation and activities of the corporation leading to the discovery that certain ta#es were d$e .from/ it on logs prod$ced from its concession! L assessments were made by the ="0: o 1st: 4ct 19>L: 21L(3 for forest charges and s$rcharge for the years 19)>F)9

2nd: 8ept 19>): 2)>(3 was demanded from the defendant corporation representing sales ta# and s$rcharges o Lrd: Aov 19>): 2) 3 representing s$rcharges Marsman ac(nowledged the assessments thro$gh a letter' where it re1$ested that it be f$rnished w/ an itemi-ed statement of the ta#es' and gave notice of its intention to 1$estion the validity and the legality of the assessments! ="0 told Marsman that it m$st' within 1 DAC8' comply w/ the re1$irements for re1$ests for reinvestigation and ree#amination of ta# assessments!K Marsman as(ed for an e#emption from this re1$irements' which was denied by the ="0! ="0 then reiterated that Marsman had > days to comply otherwise assessment shall become final! Marsman failed to act on this! +inal ta# notices were sent to Marsman on April 19>K! A warrant of distraint and levy was iss$ed L months later! ="0 filed a case with the *+" of Manila which ordered Marsman to pay the total assessed amo$nt of 2>L'1LL! Hence this appeal! ": 5/n the ="0%s right to assess and collect ta#es from 19)>F19>9 had prescribed 0: A4' ="0%s right to assess and collect ta#es from 19)>F19>9 had not yet prescribed! Marsman contends that *"0 had only > years within which to assess the percentage and forest charges herein involved! +or the filing of a ret$rn to be rec(oned as the starting point of the period to ma(e an assessment' s$ch ret$rn m$st have been s$bstantially complete! There was no showing that Marsman indeed filed a ret$rn' and even if it did' the alleged ret$rn was incomplete! Th$s' in case of a false or fra$d$lent ret$rn' the period to ma(e an assessment is 1 C6A08! Assessment was made w/in the 1 C6A0 period! As to the *rescri*tion o# the ri3ht to co))ect on the 2 nd assess!ent Amendedcomplaints are deemed filed only on the date of its admissionR when it comes to s$bstantive matters s$ch as prescription' the admission retroacts to the day it was act$ally filed' which in this case was A$g 19>9' 8T",, w/in the > year period to collect! As to the *rescri*tion o# the suit a3ainst .ar!san:s )iGuidator o

5riting $nder oath specifying gro$nds relied on and other necessary docs

TA? 2 @ M4AT604 B C! 8anche- A2 12

8ection 99 of the *orporation ,aw provides for a threeFyear period for the contin$ation of the corporate e#istence of the corporation for p$rposes of li1$idation! H456760' there is nothing in the said provision which bars an action for the recovery of the debts of the corporation against the li1$idator' after the lapse of the said threeFyear period! The <overnment became a creditor of Marsman even before the dissol$tion by the li1$idation of its assets! =y virt$e of his being li1$idator' =$rgess became T0:8T66 of the assets of Marsman for its creditors' w/c already incl$ded the government!

*o$nting from the date of amendment of the ret$rn .19>>/ to the date of assessment .19>M/' it can be seen that *"0%s power to assess the ta# liability is 5"TH"A > C6A08! To hold otherwise wo$ld pave the way for ta#payer to evade the payment of ta#es simply reporting in their original ret$rn heavy losses and amending the same more than > years later when the *ommissioner has lost his a$thority to assess the proper ta# there $nder! The ob;ect of the ta# code is to impose ta#es for the needs of the government' not to enhance ta# avoidance to its pre;$dice!

0I1 v Phoenix Assurance 2hoeni# Ass$rance *o is a =ritish ins$rance corporation licensed to do b$siness in the 2hilippines! "t is engaged in worldwide reins$rance with vario$s foreign ins$rance companies! "t agreed to cede a portion of premi$ms received on original ins$rances $nderwritten by its head office' s$bsidiaries' and branch offices thro$gho$t the world' in consideration for ass$mption by the foreign ins$rance companies of an e1$ivalent portion of the liability from s$ch original ins$rances! 2hoeni# filed its income ta# ret$rns from 19>2 to >)' ma(ing amendments .19>>/ to the originals .19>L' >)' >>/! 4n May K'19>M' *"0 assessed 2hoeni# withholding ta# and on A$g 1' 19>M' deficiency income ta# for the years 19>2 and 19>)! The deficiency income ta# res$lted from the disallowance by the *"0 to fi# head office e#penses allocable to its b$siness in the 2hils at >T of gross 2hil income! *"0 insisted that the ded$ction is >T net of 2hil income! 2hoeni# protested and *"0 denied it! *TA said that the right of the *"0 to assess deficiency ta#es had already prescribed! ": 5/n prescription had set in against the *"0 0: A4! 2eriod given by the Ta# *ode for the *"0 to assess income ta# is > C6A08 from the filing of the income ta# ret$rn! *TA r$led that the original ret$rn was a complete one containing info on vario$s items of income and ded$ction from w/c the *"0 determines the ta# liability of 2hoeni#! TH"8 "8 504A<! The *"0 co$ld not have made a correct assessment of 2hoeni#%s ta# liability based on the original ret$rn! The deficiency assessment was based on the amended ret$rn which is 8:=8TAAT"A,,C D"++606AT from the original ret$rn! TH:8' the right to iss$e the assessment m$st be co$nted from the filing of the AM6AD6D income ta# ret$rn!

=utuan Sa !i)) v 0TA =$t$an sold logs to Napanese firms at prices +4= 7essel Magallanes! +4= prices incl$ded costs of loading' wharfage stevedoring and other costs in the 2hilippinesR that the 1$ality' 1$antity and meas$rement specifications of the logs were certified by the =$rea$ of +orestry! +reight was paid by the Napanese b$yers via a ,etter of *redit! :pon investigation by the ="0' it was ascertained that no sales ta# ret$rn was filed by =$t$an' and neither did it pay the corresponding ta# on the sales! =$t$an was assessed for 2) (3 for sales ta#' penalty and compromise penalty on its sales of logs' later on red$ced to 2LM(3 after reinvestigation! ,* $pheld the legality and correctness of the assessment since the sales were domestic and th$s s$b;ect to o$r ta# made w/in the 1 year period prescribed by law' since the company +A",6D to file its sales ret$rns from 19>1F19>L' the omission of w/c was only discovered on 8ept 29' 19>9! ": 5/n the sale was s$b;ect to sales ta# @ C68 5/n assessments were made w/in the prescriptive periodF C68 0: >ES, sa)e as su"6ect to sa)es tax! =$t$an contends that the disp$ted sales were cons$mmated in Napan' and' therefore' not s$b;ect to the ta#ing ;$risdiction of o$r <overnment! The contentions of petitioner are devoid of merit! "t is clear that said e#port sales had been cons$mmated in the 2hilippines and were' accordingly' s$b;ect to sales ta# therein!I >ES, assess!ents ere !ade 4in *rescri*tive *eriod. An income ta# ret$rn cannot be considered as a ret$rn for compensating ta# for p$rposes of comp$ting the period of prescription $nder 8ection LL1 .>Fyear period to ma(e an assessment/ of the Ta# *ode!

TA? 2 @ M4AT604 B C! 8anche- A2 12

The ta#payer m$st file a ret$rn for the partic$lar ta# re1$ired by law in order to avail himself of the benefits of 8ection LL1! "f he does not file a ret$rn' an assessment may be made within 1 years from and after the omission to file a ret$rn $nder 8ec LL2a! "n this case' the omission to file sales ret$rn for the years 19>1 to 19>L were discovered in 8ept 19' 19>9' still w/in the 1 Fyear period! Th$s' the assessment and collection of ta# has A4T C6T prescribed!

corresponding ret$rns beca$se of the phrase in its answer: Gpetitioner had failed to declare its correct ta#able receipts d$ring the years in 1$estion!H H456760' the phrase ne#t following is: GHence' the assessment and collection of said ta#es are a$thori-ed $nder the provisions of section LL2 of the Aational "nternal 0even$e *ode!I "n short' the <overnment relied $pon the Ifail$re to file a ret$rnI' referred to in said section LL2' not to mere inacc$racies in the ret$rn filed' which fall $nder section LL1!

Ta)i3a!an Lu!"er v 0I1 Taligaman ,$mber' a domestic corporation is engaged in the b$siness of c$tting logs in its concessions and converting said logs into l$mber' as well as b$ying logs from other concessionaires! :pon e#amination of the boo(s of acco$nt of the <race 2ar( branch' an agent of the ="0 recommended' on December 2L' 19>L' an assessment of 21L)(3 as deficiency sales ta# on the sales made in said branch for the years 19)M to 19>2! :pon ree#amination of said boo(s of acco$nt' the agent recommended a red$ction of the assessment to 29L(3' pl$s 2>T s$rcharge! After a reinvestigation' the amo$nt was f$rther red$ced to 2KK(3! Meanwhile' another internal reven$e agent e#amined the records of the =$t$an *ity branch and as a conse1$ence' the s$m of 29M(3 was assessed as deficiency sales ta#' s$rcharge and penalties d$e on the sales made in said branch for the period from 19)M to 19>L! :pon reinvestigation' the assessment was red$ced to 2L9(3! :pon ref$sal of the *"0 to reconsider or modify either assessment' Taligaman bro$ght the matter for review to the *TA' w/c red$ced the amt to abo$t 2MK(3! ": 5/n the right of the ="0 to collect deficiency ta#es for 19)M and 19)9 is already barred by prescription 0: 8ince prescription is one of the affirmative defenses set $p by Taligaman herein' it was inc$mbent $pon Taligaman' if it wanted to avail itself of the benefits of section LL1 .>Fyear period to prescribe/' to prove that it had s$bmitted said ret$rns! H456760' it failed to do so' and it m$st be concl$ded that no s$ch ret$rns had been filed and that the <overnment had 1 years within which to ma(e the corresponding assessments' based on 8ecLL2 a .false / fra$d$lent ret$rn w/ intent to evade ta# or fail$re to file a ret$rn/! Taligaman contends that the gov had admitted impliedly that Taligaman had declared its receipts' tho$gh not correctly' th$s relieving Taligaman of the b$rden of proving that it had filed the

Tan Guan v 'a")e This case involves 2 assessments that Tan <$an is challenging: Tan <$an and one <on-alo 2ad$a were the cashier and the president of one "mperial' involved in the man$fact$ring of cigarettes! &n the #irst assess!ent: "mperial ac1$ired bobbins of cigarette paper from one Mab$hay *igarette +actory .MK bobbins/ and 8eng Jee Q *o! .L /! 4n N$ly L ' 19>1' "mperial then told the ="0 that they delivered L bobbins s$bse1$ently to one Mari(ina *igarette +actory! *"0 however fo$nd that the s$bse1$ent sale to Mari(ina was fictitio$s hence' they demanded specific ta#es on the 1$antity of cigarettes that M"<HT be prod$ced from the L bobbins of paper ac1$ired by "mperial on Nan$ary 21' 19>L! 4n +eb 19>L' 2ad$a then gave his intention to appeal the assessment! However when it reached the conference' nobody appeared on behalf of "mperial leading for the *"0 to iss$e a warrant of distraint which was left $nserved for 2ad$a had no property to be distrained! 4n 4ctober 19>9' a criminal action for violation of the Ta# *ode was filed b$t was s$bse1$ently dismissed for prescription! Thereafter' on March 19>M' *ommissioner then demanded from Tan <$an .this time it was against Tan <$an' after 2ad$a/ for the payment of the assessed specific ta#es of 92' )> and a second assessment for specific ta#es of 12M'M ! &n the second assess!ent: 4n December >' 19> ' Man$fact$ring *o! as(ed permission from the *"0 to sell bobbins of cigarette paper to "mperial! 4n N$ly 2L' 19>2' a representative of "mperial claims that they never received the bobbins that was s$pposed to be sold by Man$fact$ring *o! However' Man$fact$ring *o! so$ght reconsideration for the assessment of specific ta#es and even presented testimony and doc$mentary evidence to prove delivery of the goods to "mperial! 4n

TA? 2 @ M4AT604 B C! 8anche- A2 12

March 2 ' 19>M' *"0 then assessed "mperial 12M'M as specific ta#es on the cigarettes that "mperial *4:,D HA76 man$fact$red o$t of those M bobbins of cigarette paper! *"0 then filed a civil action on May 9' 19>M against Tan <$an! Tan <$an then' who co$ld not be located initially' filed an appeal on the distraint of his properties claiming prescription of action! ": 5/n the action had prescribed 0: Ao' the action did not prescribe! Tan <$an is claiming that first' the initial 92') assessment was made on Nan$ary 21' 19>L while the second action was filed on May 9' 19>M or beyond the prescriptive period of > years! However' in spite of what Tan <$an was claiming' the prescriptive action was "AT600:2T6D' firstly on +ebr$ary 19>L when 2ad$a .on the first assessment/ appealed the disp$ted assessment of 92') ! 4n the second assessment' there was no > years yet as the first assessment was done on May 19>L' while the second one was May 9 19>M' clearly no > years yet! Moreover' the prescriptive period of five .>/ years applies only when a ret$rn is filed! However' in the case of a false or fra$d$lent ret$rn with intent to evade ta# or of a fail$re to file a ret$rn' the ta# may be assessed' or a proceeding in co$rt for the collection of s$ch ta# may be beg$n witho$t assessment' at any time within ten years after the discovery of the falsity' fra$d' or omission! 8ince in this case' there was no ret$rn' the 1 year prescriptive period hasn%t lapsed yet\ ADDITI&'AL '&TESD The prescriptive period may be interr$pted by a 06X:68T +40 06"A768T"<AT"4A w/c is grantedR and if on the basis of s$ch reinvestigation' another assessment is made' the prescriptive period shall be co$nted from the new assessment! H456760' a mere re1$est for reinvestigation will A4T s$spend the prescriptive period if not reconsidered/acted $pon!

*TA and 8* both held that the assessment was made beyond the >Fyear period and th$s had no binding force and effect! ": 5/n the assessment was done beyond the prescriptive period 0: C68! "n this case' the applicable provision is A4T 8ec LL2a b$t 8ec LL1! 8ec LL2 sho$ld apply when there is fra$d / falsity on the ret$rn with intent to evade payment of ta#! There is no evidence presented by the *"0 in this case as to any fra$d/falsity on the ret$rn w/ intent to avoid payment! +ra$d is a 1$estion of fact' circ$mstances m$st be proven and alleged! "n this case' the assessment iss$ed on +eb 21' 19K1' received by Ayala on March 22' 19K1' was made =6C4AD the > year period prescribed $nder 8ecLL1 .Ayala co$ld file its income ta# on or before Nan 19>K th$s' assessment m$st be made A4T later than Nan 19K1/! Th$s' it was no longer binding on Ayala 8ec$rities!

0I1 v A-a)a Securities 0or* Ayala 8ec$rities *orp filed its "T0 w/ the *"0 for the fiscal year w/c ended on 8ept L ' 19>>! Attached to its "T0 was the a$dited financial statements showing a s$rpl$s of 22M3! "ncome ta# d$e on the ret$rn was d$ly paid w/in the period prescribed by law! *"0 then advised Ayala for the assessment of 29>M( $npaid ta# on its acc$m$lated s$rpl$s! Ayala protested ate assessment and so$ght reconsideration given that the acc$m$lation was 1/ for a bona fide b$siness p$rpose and not to avoid imposition of ta#' and 2/ assessment was iss$ed beyond > yrs!

Phi) Fourna)ists v 0I1 2N" filed its Ann$al "ncome Ta# 0et$rn for the calendar year which ended on December L1' 199) Au3ust <8, <??B; 0even$e District Ao! LL of ="0 iss$ed ,etter of A$thority to 2 of its officers to e#amine 2N"%s boo( of acco$nts and acco$nting records for internal reven$e ta#es for period Nan$ary 1' 199) to December L1' 2 ) 2N" was told that there were deficiency ta#es' incl$sive of s$rcharges' interest and compromise penalty Au3ust 2?, <??CF 0even$e District 4fficer Naime *oncepcion invited 2N" to send a representative to an informal conference on 8eptember 1>' 1999 for an opport$nity to ob;ect and present doc$mentary evidence relative to the proposed assessment Se*t 22, <??CF 2N"%s comptroller e#ec$ted a MWaiver o# Statute o# Li!itation under 'I10N .The doc$ment Iwaived the r$nning of the prescriptive period provided by 8ections 22L and 22) and other relevant provisions of the A"0* and consentUedW to the assessment and collection of ta#es which may be fo$nd d$e after the e#amination at any time after the lapse of the period of limitations fi#ed by said 8ections 22L and 22) and other relevant provisions of the A"0*' $ntil the completion of the investigationI/ &ct B, <??LF Assessment Division of the ="0 iss$ed Pre; Assess!ent 'otices which informed 2N" of the res$lts of the investigation finding that petitioner had deficiency ta#es .21LK'9>2') M!99/

TA? 2 @ M4AT604 B C! 8anche- A2 12

Dec ?, <??LF="0 iss$ed Assess!ent4De!and 'o. @@;<; 888CBC;?A .ar <7, <???F a Pre)i!inar- 0o))ection Letter was sent by Dep$ty *ommissioner 0omeo 8! 2anganiban to the 2N" to pay the assessment within ten .1 / days from receipt of the letter 'ove!"er <8, <???F +inal Aotice =efore 8ei-$re was iss$ed by the same dep$ty commissioner giving the 2N" ten .1 / days from receipt to pay .received by 2N" on Aov 2)' 1999/ 'ov 27, <???F 2N" as(ed ="0 for a clarification how it became liable for ta# deficiency and sent a follow $p letter asserting that its record did not show receipt of Assess!ent4De!and 'o. @@; <;888CBC;?A .ar 2L, 2888F 2N" received Warrant o# Distraint and Lev .a- <2, 2888F 2N" filed a 2etition for 0eview with the *TA! 4ne of its gro$nds was that the assessment' having been made beyond the LFyear prescriptive period was n$ll and void 0TA ru)ed that the assess!ents ere issued "e-ond the @ -ear *rescri*tive *eriod and that the Waiver o# Statute o# Li!itations nu)) and void .$nlimited for not containing e#piry date' failed to state the date of acceptance by the ="0 and 2N" was not f$rnished a copyF all contrary to 0M4 2 F9 / 0A reversed the 0TA and r$led in favor of 2N"! ": 1/ 5/n there was a valid waiver of the stat$te of limitations 0: A4! Th$s' assessment was iss$ed =6C4AD the prescriptive period! The waiver of the stat$te of limitations is not a waiver of the right to invo(e the defense of prescription as erroneo$sly held by the *o$rt of Appeals! "t is an agreement between the ta#payer and the ="0 that the period to iss$e an assessment and collect the ta#es d$e is e#tended to a date certain! The waiver does A4T mean that the ta#payer relin1$ishes the right to invo(e prescription $ne1$ivocally partic$larly where the lang$age of the doc$ment is e1$ivocal! +or the p$rpose of safeg$arding ta#payers from any $nreasonable e#amination' investigation or assessment' o$r ta# law provides a stat$te of limitations in the collection of ta#es! Th$s' the law on prescription' being a remedial meas$re' sho$ld be liberally constr$ed in order to afford s$ch protection! As a corollary' the e#ceptions to the law on prescription sho$ld perforce be strictly constr$ed! 0M4 Ao! 2 F9 implements the provisions of A"0* relating to the period of prescription! The waiver m$st be in the form

identified! The phrase Ib$t not after ]]]]]]]]] 19]]]I sho$ld be filled $p! This indicates the e#piry date of the period agreed $pon to assess/collect the ta# after the reg$lar threeFyear period of prescription! The *eriod a3reed u*on sha)) constitute the ti!e ithin hich to e##ect the assess!ent4co))ection o# the tax in addition to the ordinar- *rescri*tive *eriod. 5aiver m$st be signed by the Aational 4ffice *ommissioner for ta#es more than 21M' or the 0egional District 4fficer for ta#es still pending and period to assess is abo$t to prescribe' regardless of amo$nt! T(E WAI5E1 WAS I'5ALID /&1 T(E /&LL&WI'G 1EAS&'SD o "t does not conform with the provisions of 0M4 Ao! 2 F9 ! "t did not specify a definite agreed date between the ="0 and petitioner' within which the former may assess and collect reven$e ta#es! Th$s' petitioner%s waiver became $nlimited in time' violating 8ection 222.b/ of the A"0*! o defective from the government side beca$se it was signed only by a reven$e district officer' not the *ommissioner' as mandated by the A"0* and 0M4 Ao! 2 F9 o 2N" was not f$rnished a copy of the waiver!

1P v Li! de >u 0ita ,im de C$ filed her yearly income ta# ret$rns from 19)M thro$gh 19>L! ="0 assessed the ta#es d$e on each ret$rn' and 0ita paid them accordingly! 4n N$ly 19' 19>K the =$rea$ iss$ed to 0ita deficiency income ta# assessments for the years 19)> to 19>L in the total amo$nt of 222')> !> ! 8he protested the assessments and re1$ested a reinvestigation! 4n A$g$st L ' 19>K she signed a IwaiverI of the stat$te of limitations $nder the Ta# *ode as condition to the reinvestigation re1$ested! "n the waiver' 0ita consented to A88688M6AT AAD * 4,,6*T"4A if not made later than Dec 19>M!

TA? 2 @ M4AT604 B C! 8anche- A2 12

6ven after reinvestigation' 0ita failed in her contentions and was assessed > T s$rcharge! :pon 0ita&s fail$re to pay' an action for collection was filed against her in the *+" of *otabato on May 11' 19>9! ,ower co$rt dismissed the case on the gro$nd that right to collect had already prescribed p$rs$ant to the waiver! "/0: 1/ W4n )o er court as correct in ru)in3 that the de#icienc- inco!e taxes #or <?AL, <?A? and <?B7 ere '&T co))ected on ti!e C68' lower co$rt was correct! Deficiency ta#es were A4T collected on time! Altho$gh 0ep$blic alleged that the ret$rns were false and fra$d$lent .prescribing 1 yrs instead of >/' it +A",6D to establish s$ch allegation! "n fact' every time 0ita filed her ret$rns' and every time there was a recomp$tation by the =$rea$' she 2A"D the amo$nts d$e! 6ven the =$rea$ itself appears none too s$re as to the real amts of net income for those years! "t is A4T eno$gh that fra$d is alleged as it m$st be d$ly established! Hence' the 1 yr period for fra$d cases cannot be availed of! Also' the ta# years 19)M to 19> cannot be deemed incl$ded in the Iwaiver of the stat$te of limitations! Altho$gh 8ecLL2 waiver provides fro an e#emption to the code' s$ch A<606M6AT m$st be made =6+406' and A4T A+T60 the e#piration of the original period! "t prevents prescription from attaching and does A4T operate to a$thori-e e#tension once prescription has attached! Th$s' the amo$nts were not collected on time! 2/ W4n L0 as correct in dis!issin3 the case "ecause the ri3ht to co))ect had *rescri"ed a)read- *ursuant to aiver A4' ,* was incorrect on this point! Assessment and collection are 2 dif processes! 8ecLL1 gives gov > years from filing of ret$rn within w/c to assess ta#es d$e! 8ecLL2b allows e#tension of this agreement by 50"TT6A A<066M6AT between ta#payer and *"0! 4n the other hand' par!c! is concerned w/ collection of ta#es after assessment' regardless of whether made d$ring >yrs or :24A e#tension! Hence' collection can be affected w/in > yrs 40 the agreed $pon e#tension between ta#payer and commissioner! Th$s' Gassessment and collection if made not later than Dec 19>MH sho$ld be deemed to refer merely to the right to assess and A4T to

collect' for it that were so' agreement wo$ld ,"M"T instead of e#tend the right to collect! 1P v (eirs o# 0esar Fa)andoni "sabel ,edesma died intestate leaving real properties and personal properties consisting of shares of stoc( in vario$s domestic corporations! 8he left as heirs her h$sband and L children! 4n Aovember 19' 19)M' *esar Nalandoni' one of the children' filed an estate and inheritance ta# ret$rn! 4n the basis of this ret$rn' ="0 made an assessment calling for payment of estate and inheritance ta#es' stating that the assessment was Ito be considered partial pending investigation of the ret$rn!I These s$ms were paid by *esar Nalandoni! A second assessment was made on Nan$ary 29' 19>L by ="0 showing that there was d$e from the estate deficiency estate and inheritance ta#es' respectively' for which reason a demand was made on =ernardino Nalandoni stating therein that the same was still Ito be considered partial pending f$rther investigation of the ret$rn!H These amo$nts were paid by =ernardino Nalandoni! ="0 then cond$cted another investigation and this time it fo$nd .1/ that the mar(et val$e of the lands reported in the ret$rn filed by *esar Nalandoni was $nderdeclaredR .2/ that seven s$gar lands in TalisayF 8ilay were omitted from the ret$rn the same having a mar(et val$e of 21 '2 ! R and .L/ the shares of stoc( owned by the deceased in the 7ictorias Milling *ompany' HawaiianF2hilippine *ompany and *entral A-$carera de la *arlota' were $nderdeclared! As s$ch' the heirs were re1$ired to pay deficiency estate and inheritance ta#es' respectively' incl$ding accr$ed interests' with the warning that fail$re on their part to pay the same wo$ld s$b;ect them to the payment of s$rcharge' interest' and penalty for late payment of the ta#! =! Nalandoni wrote a letter to *"0 setting $p the de#ense o# *rescri*tion in the sense that the deficiency in the estate and inheritance ta#es payment of which was re1$ired therein can no longer be collected since !ore than #ive -ears had a)read- e)a*sed #ro! the #i)in3 o# the return invo(ing in his favor 8ection LL1 of A"0*! *"0 retorted claiming that the stand of co$nsel cannot be entertained for the reason that' it appearing that the estate and inheritance ta# ret$rn which was filed by the administrator or by the heirs contained omissions which amo$nt to fra$d indicative of an intention to evade payment of the proper ta# d$e the government' the

TA? 2 @ M4AT604 B C! 8anche- A2 12

ta#es then being collected co$ld still be demanded within 1 years from the discovery of the falsity or omission! T* ordered Nalandonis to pay the amo$nt! ": 5/n there was fra$d w/c wo$ld ma(e the assessment valid and the prescriptive period 1 years 0: A4' There was no fra$d and the assessment was filed =6C4AD the prescriptive period! As to the su3ar)ands: *ertainly if there is any mista(e in the val$ation made by Nalandoni the same can only be considered as honest mista(e' or one based on e#c$sable inadvertence' he being not an e#pert in appraising real estate! 4f the 9 lots' L were act$ally incl$ded in the ret$rn! The L lots were the most val$able with total val$e of MK(! Total val$e of 9 lots was 9 (! There was reason therefore to believe that the omission was d$e merely to inadvertence! The deficiency assessment' moreover' was made by the *"0 more than five years from the filing of the ret$rn' and e#perience shows that s$ch an intervening period is s$fficiently long to warrant an increase in val$e of real estate which is precisely what was fo$nd by the *"0 with regard to the lands in 1$estion! "t is certainly an error to imp$te fra$d based on an honest difference of opinion! As to the shares: The fact that the val$e given in the ret$rns did not tally with the boo( val$e appearing in the corporate boo(s is not in itself indicative of fra$d especially when we ta(e into consideration the circ$mstance that said boo( val$e only became (nown several months after the death of the deceased! Moreover' it is a (nown fact that stoc( sec$rities fre1$ently fl$ct$ate in val$e and a mere difference of opinion in relation thereto cannot serve as proper basis for assessing an intention to defra$d the government!

": 5/n the ded$ctions sho$ld be allowed to absolve Tan from assessed deficiency liability 0: Ao' ded$ctions sho$ld A4T be allowed! *"0%s findings that the facts constit$ting fra$d proven by the *TA were A4T reb$tted by the ta#payer! Tan did A4T present evidence to disprove findings' considering that the investigation was made 20"40 to the >Fyear period to preserve and (eep receipts! +or fail$re to overcome the b$rden' Tan cannot claim the e#penses as ded$ction from gross income! Also' since the ta# ret$rn was fra$d$lent d$e to fictitio$s e#penses' the *"0 had 1 yrs to assess! *"0 did A4T lose its right to iss$e the assessment on 19>9' which is 5"TH"A 1 years from 19>)' when the fra$d was discovered!

Tan Guan v 0I1 Tan <$an and 8ia ,in' *hinese nationals' organi-ed and registered the 2hil 8$rpl$s *ompany' a general partnership! Tan filed an income ta# ret$rn declaring ded$ctions for service of engine' freight and steam hoist! Acting $pon a confidential report' that the company posted fictitio$s e#penses in its boo(s to avoid ta#es' ="0 investigated the boo(s of the partnership and discovered e#penses A4T covered by receipts' names of payees erased and payees who did not report s$ms in 1$estion in their income ta#! Th$s' ="0 disallowed e#pense ded$ctions in 19)M! They were treated as the income of individ$al partners and ="0 assessed them deficiency income ta#es

Aznar v 0TA The late Matias A-nar filed his income ta# ret$rns of 19)>F19)9! The *"0' having his do$bts on the veracity of the reported income of one who is obvio$sly wealthy' ca$sed ="0 6#aminer Honorio <$errero to ascertain the ta#payer&s .Matias A-nar/ tr$e income for said years by $sing the net worth and e#pendit$res method of ta# investigation! "t was discovered that from 19)K to 19>1' his net worth had increased every year' m$ch more than the income reported! The findings clearly indicated that the ta#payer did not declare correctly the income reported in his income ta# ret$rns for those years! *"0 notified the ta#payer of the assessed ta# delin1$ency! Ta#payer re1$ested a reinvestigation which was granted! After the reinvestigation' another deficiency assessment to the red$ced amo$nt s$perseded the previo$s assessment and notice thereof was received by A-nar in 19>>! "n +eb 19>L' *"0 thro$gh the *ity Treas$rer of *eb$' placed the properties of A-nar $nder distraint and levy to sec$re payment of the deficiency income ta# in 1$estion! A-nar arg$es that A"0* 8ec! LL1 applies in this case! 8ection LL1 provides for five years limitation $pon assessment and collection from the filing of the ret$rns! He arg$es that since the 19)K income ta# ret$rn co$ld be pres$med filed before March 1' 19)9 and the notice of final and last assessment was received by the ta#payer on March 2' 19>>' a period of abo$t M years had elapsed' and the five year period provided by law had already e#pired!

TA? 2 @ M4AT604 B C! 8anche- A2 12

*"0 asserted that the 1 Fyear period sho$ld apply since this involved a false and fra$d$lent ret$rn! *"0 and *TA fo$nd that the very Is$bstantial $nder declarations of income for si# consec$tive years elo1$ently demonstrate the falsity or fra$d$lence of the income ta# ret$rns with an intent to evade the payment of ta#!I ": 1/ 5/n the right of the *"0 to assess deficiency income ta#es for the years 19)KF19)M had already prescribed at the time the assessment was made on Aovember 2M' 19>2 2/ 5/A the lower co$rt erred in imposing the fra$d penalty .s$rcharge of > T/! @ Ces! 0: 1/ >ES, 0I1 sti)) had the ri3ht to assess de#icienc- inco!e taxes. 1i3ht had '&T *rescri"ed. "n the three different cases of .a/ false ret$rn' .b/ fra$d$lent ret$rn with intent to evade ta#' .c/ fail$re to file a ret$rn' the ta# may be assessed' or a proceeding in co$rt for the collection of s$ch ta# may be beg$n witho$t assessment' at any time within ten years after the discovery of .a/ falsity' .2/ fra$d' .L/ omission! 4$r stand that the law sho$ld be interpreted to mean a separation of the three different sit$ations of false ret$rn' fra$d$lent ret$rn with intent to evade ta#' and fail$re to file a ret$rn is strengthened immeas$rably by the last portion of the provision which segregates the sit$ations into three different classes' namely falsity' fra$d and omission! That there is a difference between Gfalse ret$rnH and Gfra$d$lent ret$rnH cannot be denied! 5hile the first merely implies deviation from the tr$th' whether intentional or not' the second implies intentional or deceitf$l entry with intent to evade he ta#es d$e! The ordinary period of prescription of five years within which to assess ta# liabilities $nder 8ec! LL1 of the A"0* sho$ld be applicable to normal circ$mstances' b$t whenever the government is placed at a disadvantage so as to prevent is lawf$l agents from proper assessment of ta# liabilities d$e to false ret$rns' fra$d$lent ret$rn intended to evade payment of ta#' or fail$re to file ret$rns' the period of ten year provided for in 8ec! LL2 .a/ A"0*' from the time of the discovery of the falsity' fra$d or omission even seems to be inade1$ate and sho$ld be the one enforced! There being $ndo$btedly #a)se ta# ret$rns in this case' 8ec! LL2 .a/ of the A"0* sho$ld apply and that the period of ten years within which to assess petitioner%s ta# liability had not e#pired at the time said assessment was made! 2/ >ES, L0 shou)d 'ot have i!*osed #raud *ena)t-. +ra$d cannot be pres$med b$t m$st be proven! +ra$d$lent intent co$ld not be ded$ced from mista(es however fre1$ent they may be' especially if s$ch mista(es emanate from erroneo$s entries or erroneo$s classification of items in acco$nting methods $tili-ed for determination of ta# liabilities!

Matias A-nar $ndo$btedly filed his income ta# ret$rns for Ithe years 19)K to 19>1 and those ta# ret$rns were prepared for him by his acco$ntant and employees! "t also appears that petitioner in his lifetime and d$ring the investigation of his ta# liabilities cooperated readily with the ="0 and there is no indication in the record of any act of bad faith committed by him! The lower co$rt&s concl$sion regarding the e#istence of fra$d$lent intent to evade payment of ta#es was based merely on a pres$mption and not on evidence establishing a willf$l filing of false and fra$d$lent ret$rns so as to warrant the imposition of the fra$d penalty! The fra$d contemplated by law is act$al and not constr$ctive! "t m$st be intentional fra$d' consisting of deception willf$lly and deliberately done or resorted to in order to ind$ce another to give $p some legal right! Aegligence' whether slight or gross' is not e1$ivalent to the fra$d with intent to evade the ta# contemplated by the law! Th$s' a mere mista(e cannot be considered as fra$d$lent intent' and if both petitioner and *"0 committed mista(es in ma(ing entries in the ret$rns and in the assessment' respectively' $nder the inventory method of determining ta# liability' it wo$ld be $nfair to treat the mista(es of the petitioner as tainted with fra$d and those of the respondent as made in good faith! S >asD 2o 7 guess in this case- petitioner $as lia*le of /,L28 return- *ut there $as 5< fraudN 0I1 v A-a)a Securities 0or* An assessment made on 21 +ebr$ary 19K1 by the *"0 against the Ayala 8ec$rities *orporation .and received by the latter on 22 March 19K1/ for accu!u)ated *ro#it s$rpl$s for the fiscal year ending 19>>! *TA reversed the assessment of the 2>T s$rta# and interest in the amo$nt of 29>M'KM9! )' and thereby cancelled and declared of no force and effect the assessment of the *"0! 8* affirmed *TA decision and r$led that the assessment was made A+T60 the e#piration of the said >Fyear prescriptive period and was of no binding force and effect! The *ommissioner moved for reconsideration' contending that the assessment to be filed w/in >Fyears only refers to ta#es which have their basis the re1$irement of law to "e re*orted in a return. Ao law re1$ires ta#payers to file ret$rns of their acc$m$lated profits' as opposed to' for e#ample' income ta#es!

TA? 2 @ M4AT604 B C! 8anche- A2 12

": 5/n ="0 is mandated to ma(e an assessment w/in > years from the filing of the ta#payer of his ret$rn w/ regard to s$rta#es on $nreasonably acc$m$lated profits 0: Ao' it does not! The provisions of sections LL1 and LL2 of the Aational "nternal 0even$e *ode for prescriptive periods of > and 1 years after the filing of the ret$rn do not apply to the ta# on the ta#payer%s $nreasonably acc$m$lated s$rpl$s $nder section 2> of the Ta# *ode since no ret$rn is re1$ired to be filed by law or by reg$lation on s$ch $nd$ly acc$m$lated s$rpl$s on earnings! The 2>T s$rta# is not s$b;ect to any stat$tory prescriptive period! A ta# imposed $pon $nreasonable acc$m$lation of s$rpl$s is in the nat$re of a penalty! "t wo$ld A4T be proper for the law to compel a corporation to report improper acc$m$lation of s$rpl$s! 8ection LL1 applies to assessment of A"0* ta#es 5H"*H 06X:"068 TH6 +","A< 4+ 06T:0A8! To start the r$nning of the >Fyear period' the ret$rn m$st be one 06X:"06D for the partic$lar ta#! Th$s' filing of income ta# ret$rn does A4T start the r$nning of prescriptive period for assessment of 8A,68 TA? .=$t$an 8awmill' "nc! v! *o$rt of Ta# Appeals/ Ao ret$rn co$ld have been filed' and the law co$ld not possibly re1$ire' for obvio$s reasons' the filing of a ret$rn covering $nreasonable acc$m$lation of corporate s$rpl$s profits! "t is well settled limitations $pon the right of the government to assess and collect ta#es will not be pres$med in the absence of clear legislation to the contrary! "n the absence of e#press stat$tory provision' the right of the government to assess $npaid ta#es is imprescriptible! 8ince there is no e#press stat$tory provision limiting the right of the *ommissioner of "nternal 0even$e to assess the ta# on $nreasonable acc$m$lation of s$rpl$s provided in 8ection 2> of the 0even$e *ode' said tax !a- "e assessed at an- ti!e. The $nderlying p$rpose of the additional ta# in 1$estion on a corporation%s improperly acc$m$lated profits or s$rpl$s is to avoid the sit$ation where a corporation $nd$ly retains its s$rpl$s earnings instead of declaring and paying dividends to its shareholders or members who wo$ld then have to pay the income ta# d$e on s$ch dividends received by them! Ayala 8ec$rities *orporation is a mere holding company of its shareholders thro$gh its mother company' a registered coF partnership then set $p by the individ$al shareholders belonging to the same family! 8aid prima facie evidence and pres$mption set $p by the Ta# *ode is applied witho$t having been ade1$ately reb$tted by the corporation! The *orporation falls $nder 0even$e 0eg$lation 2' implementing the provisions of the income ta# law which provides on

holding and investment companies that GA corporation having practically no activities e#cept holding property' and collecting the income therefrom or investing therein shall be considered a holding company within the meaning of section 2>!H .8ection 2 / Gua3ua E)ectric Li3ht P)ant v 0I1 <$ag$a 6lectric ,ight 2lant *o is a grantee of m$nicipal franchise by the m$nicipal co$ncil of <$ag$a! <$ag$a reali-ed and reported a gross income in the s$m of 21M3 and paid thereon a franchise ta# comp$ted at >T in accordance w/ the A"0*! =elieving that it sho$ld pay franchise ta# at the lower rates provided for in its franchises instead of >T fi#ed by 8ection 2>9 of the Ta# *ode' it filed a claim for re#und for allegedly overpaid franchise ta#! *"0 denied ref$nd of franchise ta# corresponding to the period prior to the fo$rth 1$arter of 19>1 on the gro$nd that the right to its ref$nd had prescribed! He however granted ref$nd of 21K(3! Aot satisfied' <$ag$a appealed to *TA! *TA dismissed appeal $pon motion of *"0 on the gro$nd that the same was instit$ted beyond the L Fdays' period provided for in 8ection 11 of 0ep$blic Act 112>! *"0 assessed against <$ag$a 6lectric deficiency franchise ta# and later iss$ed a revised assessment eliminating deficiency ta# for the period prior to Nan$ary 1' 19>K' as recommended! ": 5/n the government is precl$ded from recovering the amo$nt ref$nded to it on gro$nds of prescription and fail$re to set $p as co$nterclaim in the *TA case 0: C68' gov can no longer recover the amo$nt ref$nded to it! *"0 see(s recover of the amo$nt of 21K(3 alledly erroneo$sly ref$nded to <$ag$a 6lectric! "t represents the diff between the ta# comp$ted at >T p$rs$ant to Ta# *ode and 1T or 2T $nder its franchises from 8ept 19>1 to Aov 19>K! "f <$ag$a were re1$ired to pay the 21K(3 "A ADD"T"4A to the 219(3' it wo$ld be paying T5"*6 the same deficiency ta# for the period from Nan to Aov 19>K! Moreoever' *"0 revised his first deficiency ta# assessment by eliminating the deficiency ta# for the period from Nan 19>K beca$se the right to assess the same had prescribed! =y insisting on the payment of the 21K(3' he is in fact tr-in3 to co))ect the sa!e de#icienc- tax, the ri3ht to assess the sa!e he #ound to have "een )ost "- *rescri*tion.

TA? 2 @ M4AT604 B C! 8anche- A2 12

Also' it is wrong for *"0 to say that right to assess and collect is governed by *ivil *ode .K years/! 5hat governs is the Ta# *ode .special law sho$ld prevail over general law/! The constit$tionality of collecting franchise ta# at the rate of >T of the gross receipts as provided for in the Ta# *ode instead of at the lower rates fi#ed by the franchise granted $nder Act KK9' has already been settled in several cases! <$ag$a 6lectric' whose franchises were similarly granted $nder Act KK9' being similarly sit$ated as the ta#payersFfranchise holders in those cases already decided by :s' shall li(ewise be s$b;ect to the >T rate imposed in 8ection 2>9 of the Ta# *ode!

6ven ass$ming that claims for ta#es have to be filed within the time prescribed in 8ection 2' 0$le MK of the 0$les of *o$rt' the claim in 1$estion may be filed even A+T60 the e#piration of the time originally fi#ed! "n this case' gov filed its claim A+T60 the e#piration of the time allowed b$t =6+406 the distrib$tion of the estate! The claim 8H4:,D be allowed' considering the claim is made for the people at large!

5era v /ernandez "ntestate estate of Tongoy was assessed deficiency income ta#es from 19KL to 19K) incl$sive of >T s$rcharge' 1T monthly interest and compromise penalties! The administrator opposed on the gro$nd that the claim was barred for being filed beyond the period prescribed in the 04*' 0$le MK .in settlement of estate' ta#es sho$ld be filed in administration proceedings as claims against the estate as a reg$lar money debt/! ": 5/n 0$le MK of 04* .state of nonFclaims/ bars the claim of gov for $npaid ta#es' even if period is still w/in the time in the A"0* 0: A4! *laim is A4T barred and gov can still collect w/in the prescriptive period! Ta#es are of an entirely different character from the claims .money claims against the decedent/ en$merated in the stat$te! :nder the familiar r$le of stat$tory constr$ction of e%pressio unius est e%clusio alterius- the mention of one thing implies the e#cl$sion of another thing not mentioned! The reason for the more liberal treatment of claims for ta#es against a decedent&s estate in the form of e#ception from the application of the stat$te of nonFclaims is that taxes are the )i#e")ood o# the Govern!ent and their *ro!*t and certain avai)a"i)it- are i!*erious need. "n fact' claims for ta#es may be collected even A+T60 the distrib$tion of the decedent%s estate among heirs who shall be liable in proportion to their share of inheritance! 2ayment of income ta# shall be a lien in favor of the gov from the time the assessment was made by the *ir $ntil paid w/ interests' penalties' etc! Th$s' =6+406 inheritance has passed to heirs' $npaid ta#es may be collected witho$t having been presented $nder the 0$le MK of the 04*!

1P v Li!caco ,imcaco is engaged in the importation of cigarettes and' being s$ch' owed the government reven$e ta#es! To g$arantee their payment' the private respondents .,imcaco as the principal' 7isayan as the s$rety/ e#ec$ted two "mporter%s bonds worth 2L' ! :pon arrival of their new shipment of cigarettes on Fu)<B, <?A7' the principal was assessed a ta# of 2K' ' which they paid O21' in cash and 2>' in chec(! The cigarettes were released into their c$stody! The chec( was s$bse1$ently dishonored for lac( of f$nds! 4n Fune <C, <?AL, the *"0 wrote ,imcaco and demanded from him deficiency ta# d$e on the cigarettes' b$t it remained $npaid despite repeated demands! They instead resorted to 7isayan 8$rety for f$lfillment! 7isayan 8$rety re1$ested for the complaint which wo$ld be initiated against both 7isayan and ,imcaco be temporarily s$spended! *"0 filed a complaint praying for forfeit$re of the importer%s bonds and payment of the deficiency ta# pl$s interest! Defendants' however' interposed the defense of prescription and 1$estioned the validity of the assessment! ": 5/n there was prescription in the case! 0: A4' there was no prescription! =eing a complaint for ta#es previo$sly paid' compliance with 8ec! L K of the A"0* m$st first be ade1$ately performed! A ta#payer m$st first file a claim for ref$nd or ta# credit with the *"0 first before maintaining a s$it for recovery of ta# alleged to be illegally or erroneo$sly assessed or collected! "t is a condition precedent' fail$re to do so will s$b;ect the claim to dismissal for lac( of ca$se of action! Ao evidence was shown to prove that 7isayan complied with s$ch a condition! The co$nterclaim sho$ld have been dismissed! <overnment%s action has not prescribed! The collection of ta#es sho$ld be done within > years after assessment! The assessment

TA? 2 @ M4AT604 B C! 8anche- A2 12

was act$ally on Fune <C, <?AL' the day when the de!and )etter as sent to ,imcaco and 7isayan' not on the day they were originally s$pposed to pay for the ta#es! To assess means to impose a ta#' to charge with a ta#' to declare a ta# to be payable' to apportion a ta# to be paid and contrib$ted' to fi# a rate' to fi# or settle a s$m to be paid by way of ta#' to set or charge a certain s$m to each ta#payer' and to settle or determine or fi# the amo$nt of ta# to be paid! The right to collect the deficient ta# of 2>' only accr$ed after the dishonor! N$dicial action having been instit$ted on +ebr$ary 1M' 19>L' the five year period had not yet lapsed! 6ven ass$ming that the earlier date is the date of assessment' there wo$ld still be no prescription beca$se the prescription was interr$pted when GV there is written ac(nowledgement of the debt by the debtor!H Moreover' it is not a collection of ta#es b$t of the bonds' which is an action separate and distinct from an action to collect ta#es .this is an action $pon a written contract' w/c m$st be bro$ght w/in 1 yrs from the time the right of action accr$es/!

1P v 1et 4n +ebr$ary 2L' 19)9' Damian 0et filed with the ="0 his "ncome Ta# 0et$rn for the year 19)M' where he made it appear that his net income was only 22(3 with no income ta# liability at all! The ="0 fo$nd o$t later that the ret$rn was fra$d$lent since 0et&s income' derived from his sales of office s$pplies to different provincial government offices' totaled 29)(3! The ="0 assessed him deficiency income ta# for 19)M' incl$sive of the > T s$rcharge for rendering a false and/or fra$d$lent ret$rn! 0et failed to file his "ncome Ta# ret$rn for 19)9' notwithstanding the fact that he earned a net income of 21> (3' also from sale of office s$pplies! His income' as assessed for ta# p$rposes' showed a deficiency ta# for 19)9! *"0 demanded from 0et the payment of the above s$ms' b$t he failed and/or ref$sed to pay said amo$nts! 4n Nan$ary 2 ' 19>1' the *ollector iss$ed income ta# assessment notices to 0et' $rging him to pay the s$ms mentioned' b$t with the same res$lt! :pon recommendation of the *ollector' 0et was prosec$ted for a violation of 8ections )>UaW' >1UdW and 92' of the A!"!0!*! penali-ed $nder 8ec! 9L' thereof .*rim! *ases Aos! 19 L9' and 19 LM! He pleaded g$ilty to the two .2/ cases and was sentenced to pay a fine of 2L ! in each!

After his conviction' the 0ep$blic filed the present complaint for the recovery of 0et&s deficiency ta#es in the total s$m of 21 L(3 pl$s >T s$rcharge and 1T monthly interest! "nstead of answering' he presented a Motion to Dismiss on +ebr$ary M' 19>M' claiming that the Ica$se of action had already prescribedI! *+" held that the fiveFyear period fi#ed by law for the filing of s$it for the collection of income ta# having already e#pired' the plaintiff has no ca$se of action against the defendant and the motion to dismiss sho$ld be and is hereby granted' and the case is dismissed witho$t prono$ncement as to costs! ": 5/n right of ="0 to collect income ta#es had already prescribed 0: C68' ca$se of action has already prescribed! 8ection LL2 of the 0even$e *ode does A4T apply to income ta#es if the collection of said ta#es will be made by s$mmary proceedings' beca$se this is provided for by 8ection >1 .d/R b$t if the collection of income ta#es is to be effected by co$rt action' then section LL2 will be the controlling provision! The gov contends that granting the applicability of 8ec LL2' it has 1 yrs from discovery of fra$d' falsity or omission within w/c to file the action! :nder this section' the *"0 is given 2 alternatives: o Assess ta# 5"TH"A 1 C08 from discovery of falsity' fra$d' omission o +ile an action in co$rt for the collection of ta# 5"TH4:T A88688M6AT also 5"TH"A 1 C08 from discovery of falsity' fra$d' omission "n this case' the assessment has been made and this fact has ta(en it o$t of the realm of 8ec LL2 .a/ and placed it $nder 8ec LL2 .c/ w/c provides that payment m$st be made w/in > C6A0 prescriptive period! The *"0 made the assessment on Nan$ary 2 ' <?B< and had $p to Nan$ary 2 ' <?B7 to file the necessary action! "t was on)- on Se*te!"er B, <?BC' that an action was filed in *o$rt for the collection of alleged deficiency income ta# @ far beyond the >Fyear period! Gov as '&T *rohi"ited #ro! co))ectin3 de#iciencinco!e tax durin3 *endenc- o# cri!ina) cases ! The present complaint against 0et is A4T for the recovery of civil liability arising from the offense of falsificationR it is for the collection of deficiency income ta#! The criminal actions are entirely separate and distinct from the present civil s$it! There is nothing in the law which wo$ld

TA? 2 @ M4AT604 B C! 8anche- A2 12

have stopped *"0 from filing this civil s$it sim$ltaneo$sly with or d$ring the pendency of the criminal cases! It is a)so averred that the *eriod o# *rescri*tion #or the co))ection o# tax as sus*ended "ecause o# the ritten extra6udicia) de!and !ade "- the 0I1. (&WE5E1, the only agreement that co$ld have s$spended the r$nning of the prescriptive period was a $ritten agreement between 8olano and the *ollector' entered before the e#piration of the five .>/ year prescriptive period' e#tending the period of limitations prescribed by law! "n the instant case' there is no s$ch written agreement!

,ssadourian $as a nonresident alien not engaged in trade or *usiness in the hilippines- $hich means that he $as $ithin the purvie$ of 2ection 5+ (*) of the then 5ational 7nternal 4evenue Code $hich re0uires any person or corporation in control of his earnings as such nonresident alien to $ithhold )'I from such annual or periodical gains- profits and income as ta%. Eith regard to the payment of Bai@,lai to ,ssadourian- it $as held that it $as not merely for the purchase price of certain inchoate or contingent interest *elonging to him- *ut it $as considered income $here $ithholding ta% is mandatory. !his is due to the fact that ,ssadourian- in consideration of the sum of O)''-'''.''ac6no$ledged full payment of all his claim for percentages earned *y the Bai@,lai 2tadium for the years &(3' to &(35- and to *e earned during the years &(36 to &(5'. 2ince Bai@,lai made payment directly to ,ssadourian- there is no dou*t that the former is lia*le for $ithholding ta%. ayment made *y 2en. #adrigal $as really payment made on *ehalf of Bai ,lai.

1P v 1azon Haig Assado$rian .an 6gyptian national/ was hired as general manager of Nai Alai! He event$ally left the 2hils for the :8A after sec$ring a ta# clearance! He never ret$rned to the 2hils! Nai Alai thro$gh its 72 Nose 0a-on entered into a contract w/ Assado$rain .Ass/ where Nai Alai wo$ld pay Ass 22 ( as f$ll payment of all his claim for percentages earned by the Nai Alai from 19) F19)>' as well as those to be earned from 19)KF19> .for his services as general manager/! The same were by Nai Alai by telegraphic transfer and later by 8en! Madrigal' a stoc(holder! "n 19)9' the ="0 discovered the fail$re to file a withholding ta# ret$rn! Th$s' in 19>2' it wrote a letter to Nai Alai demanding payment of ta#es w/c Nail Alai sho$ld have withheld on the 22 ( payment in accordance w/ the Ta# *ode enclosing assessment notices! :pon fail$re to pay' *"0 commenced a collection s$it in 19>L! ": 5/n action for collection had prescribed 0: A4' action to collect had not yet prescribed! +or its omission / fail$re to file a withholding ta# ret$rn' the applicable provision of the then Ta# *ode is that Ga proceeding in co$rt for collection may be filed 5"TH4:T A88688M6AT any time w/in 1 yrs from discovery of omission!H "n this case' omission was discovered in <?A? d$ring the investigation of the ="0 e#aminer! The ;$dicial s$it was intitiated in <?B@ impleading Nai Alai! Th$s' on)- A -ears had e)a*sed #ro! the ti!e o# discover- o# the o!ission to #i)e a return from filing a ;$dicial s$it! Action to collect had A4T prescribed! &T(E1SD

1P v Ace"edo A notice of assessment was iss$ed on 8eptember 2)' 19)9 to +eli# Acebedo in the amo$nt of 2>'9K2!ML! He as(ed for a reinvestigation on 4ctober 11' 19)9! There is no evidence that this re1$est was considered or acted $pon! "n fact' on 4ctober 2L' 19> the then *"0 iss$ed a warrant of distraint and levy for the f$ll amo$nt of the assessment' b$t there was no follow $p of this warrant! Acebedo again re1$ested for a reinvestigation of his ta# liability on 4ctober K' 19>1! Aothing came of this re1$est either! Acebedo%s lawyers then wrote the *"0 informing him that the boo(s of their client were ready at their office for e#amination! The reply was dated more than a year later' or on 4ctober )' 19>>' when the *ollector bestirred himself for the first time in connection with the reinvestigation so$ght' and re1$ired that the defendants specify his ob;ections to the assessment and e#ec$te Ithe enclosed forms for waiver' of the stat$te of limitations!I The last part of the letter was a warning that $nless the waiver Iwas accomplished and s$bmitted within 1 days the collection of the deficiency ta#es wo$ld be enforced by means of the remedies provided for by law! *"0 filed a complaint on December 29' 19K1!

TA? 2 @ M4AT604 B C! 8anche- A2 12

After Acebedo filed his answer b$t before trial started' he !oved to dis!iss on the 3round o# *rescri*tion. T* dismissed the complaint' saying that a mere re1$est for reinvestigation or reconsideration of an assessment does A4T have the effect of s$ch s$spension! This is an appeal by the plaintiff from the order of dismissal! "/0: 1/ W4n the assess!ent "e3un *rior to the ex*iration o# the *eriod a3reed u*on in ritin3 "- the 0I1 and "e#ore the ex*iration o# the B;-ear *eriod A4' the Gwaiver of stat$te of limitationsH was ineffective beca$se it was e#ec$ted =6C4AD the >Fyear limitation .in 19>9/! 2/ W4n the *eriod o# *rescri*tion as sus*ended "Ace"edo:s reGuests #or reinvesti3ation 4 reconsideration o# tax assess!ent A4! A mere re1$est for reinvestigation / recon D468 A4T give an effect of s$spension! 4therwise' there wo$ld be no point to the legal re1ment that e#tension of the original period be agreed $pon in writing! H456760' there are cases when ta#payer may be prevented from setting $p prescription even if he has waived it in writing as when by his repeated re1$ests / positive acts' the gov has been pers$aded to postpone collections to ma(e him feel that the demand was A4T $nreasonable / that no harassment / in;$stice is meant! 5hen a ta#payer as(s for a reinvestigation of the ta# assessment iss$ed to him and s$ch reinvestigation is made' on the basis of which the <overnment ma(es another assessment' the fiveFyear period with which an action for collection may be commenced sho$ld be co$nted from this last assessment! "n this case' the delay in collection co$ld not be attrib$ted to Acebedo at all! (is reGuests in #act had "een unheeded unti) then, and there as nothin3 to i!*ede en#orce!ent o# the tax )ia"i)it- "- an- o# the !eans *rovided "- )a . =- &cto"er A, <?BB, !ore than #ive -ears had e)a*sed since assess!ent in Guestion as !ade, and hence *rescri*tion had a)read- set in, ma(ing s$bse1$ent events in connection with the said assessment entirely immaterial! 6ven the written waiver of the stat$te signed by the defendant on December 19' 19>9' which was the only evidence presented ' co$ld no longer revive the right of action' for $nder the law s$ch waiver m$st be e#ec$ted within the original fiveFyear period within which s$it co$ld

Nan$ary 1>' 19M2 and Aovember 2 ' 19M1: *arnation filed its *orporation Ann$al "ncome Ta# 0et$rn and its Man$fact$rers/2rod$cers 2ercentage Ta# 0et$rn respectively for the 1$arter ending 8eptember L ' 19M1! "n 19M9' *arnation' thro$gh its 8enior 7ice 2resident' signed three separate I5A"7608 of the 8tat$te of ,imitations :nder the Aational "nternal 0even$e *odeI wherein it waived the r$nning of the prescriptive period provided for in provisions of the A"0* and consents to the assessment and collection of the ta#es which may be fo$nd d$e after reinvestigation and reconsideration at anytime before or after the lapse of the period of limitations fi#ed the provisions of the A"0*' b$t not after .1L April 19M9 for the earlierFe#ec$ted waiver' or N$ne 1)' 19M9 for the later waiver' or N$ly L ' 19M9 for the s$bse1$ent waiver' as the case may be/! However' the ta#payer does not waive any prescription already accr$ed in its favor! The aivers ere not si3ned "- the =I1 0o!!issioner or ano# his a3ents. *arnation received ="0&s letter of demand as(ing the said corporation to pay deficiency income ta#' deficiency sales ta# and deficiency sales ta# on $ndeclared sales' all for the year 19M1! This demand letter was accompanied by L assessment Aotices! *arnation disp$ted the assessments and re1$ested a reconsideration and reinvestigation thereof! *"0 contends that the waivers signed by *arnation were valid altho$gh not signed by the ="0 *ommissioner beca$se: o .a/ when the ="0 agents/e#aminers e#tended the period to a$dit and investigate *arnation&s ta# ret$rns' the ="0 gave its implied consent to s$ch waiversR o .b/ the signat$re of the *ommissioner is a mere formality and the lac( of it does not vitiate binding effect of the waiversR and o .c/ that a waiver is not a contract b$t a $nilateral act of reno$ncing one%s right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver *TA held that assessment Aotices are A:,, AAD 74"D for having been iss$ed beyond the fiveFyear prescriptive period provided by law! ": 5/n the L waivers signed *arnation are valid and binding as to toll the r$nning of the prescriptive period for assessment and not bar the <overnment from iss$ing s$b;ect deficiency ta# assessmentsS 0: A4' the waivers are A4T valid! The prescriptive period is A4T s$spended! 8ec! 2 L of the Aational "nternal 0even$e *ode' the law then applicable provides that G6#cept as provided in the s$cceeding section'

0I1 v 0A

TA? 2 @ M4AT604 B C! 8anche- A2 12

internal reven$e ta#es shall be assessed within five 'ears after the ret$rn was filed' and no proceeding in co$rt witho$t assessment for the collection of s$ch ta#es shall be beg$n after the e#piration of s$ch period! +or the p$rpose of this section' a ret$rn filed before the last day prescribed by law for the filing thereof shall be considered as filed on s$ch last day: 2rovided' That this limitation shall not apply to cases already investigated prior to the approval of this *ode!H *arnation%s income <?L< with income and sales ta#es co$ld have been validly assessed only $ntil Nan$ary 1)' 19M9 and Aovember 19' 19MK' respectively! "n other words the assessments by the *"0 sho$ld be passed from: Nan$ary 1>' 19M2 $p to Nan$ary 12 19M9 only Aovember 2 ' 19M1 $p to Aovember 19' 19MK only

However' *arnation%s income and sales ta#es were assessed only on N$ly
29' 19M9' beyond the fiveFyear prescriptive period! A,84' 8ection L19 of the Ta# code is clear and e#plicit that the waiver of the fiveFyear prescriptive period m$st be in ritin3 and si3ned "- "oth the =I1 0o!!issioner and the tax*a-er. Here' the three waivers signed by *arnation do A4T bear the written consent of the ="0 *ommissioner as re1$ired by law! These I$aiversI to *e invalid and $ithout any *inding effect on petitioner .*arnation/ for the reason that there was no consent by the *"0! Aeither implied consent can be pres$med nor can it be contended that the waiver re1$ired $nder 8ec! L19 of the Ta# *ode is one which is $nilateral nor can it be said that conc$rrence to s$ch an agreements a mere formality beca$se it is the very signat$res of both the *ommissioner of "nternal 0even$e and the ta#payer which give birth to s$ch a valid agreement! 1P v Lo*ez ="0 made an assessment on =enito ,ope- res$lting in a deficiency income ta# of 2)>(! ,ope- moved for a reconsideration of the assessment! ="0 event$ally complied and red$ced the amo$nt! After that' ,ope- manifested that he will settle the obligation by the end of the month! However' he pleaded for another reinvestigation! ="0 against granted the re1$est and lessened the deficiency amo$nt to 2>(! Aotwithstanding the red$ction' ,ope- again re1$ested for a L rd reinvestigation! ="0 agreed on the re1$est provided that ,ope- waives the stat$e of limitations!

,ope- co$ntered that the ="0 sho$ld then finish the investigation by Dec L1' 19>9 or else the case wo$ld prescribe! "gnoring the deadline set by ,ope-' ="0 iss$ed the assessment on March 2L' 19K ! D$e to nonFpayment of ta# several times' a collection s$it was filed against ,ope-! ,ope- moved to dismiss the case on the gro$nd of prescription! The *+" granted the motion and dismissed the case! ": 5/n the deadline set by ,ope- .Dec L1' 19>9/ wo$ld be binding and operative! 0: A4' the deadline is A4T binding and operative! The >Fyear prescriptive period within which the <ov%t may s$e to collect ta# is to be co$nted from the last revised assessment d$e to ta#payer%s re1$est for reinvestigation and the time employed in the reinvestigation sho$ld be ded$cted from the total period of limitation! "n this case' the >Fyear limitation has not yet elapsed! "f the period from the time of first reinvestigation $p to the time of filing of the collection complaint .) years L months K days/ is ded$cted from the total period of limitation period .K years 2 months and 1> days/' the total prescriptive wo$ld still be less than > years .1 year L months and K days/! The deadline set by the ta#payer' which technically red$ces the prescriptive period against the <ov%t' cannot be binding as it wor(s to the detriment of the state' which diminishes the opport$nities of collecting ta#es d$e to the <ov%t! =$t even if the date was binding' the period wo$ld still be less than > years d$e to ded$ctions ca$sed by reinvestigation! The proper remedy of the ta#payer was to appeal the r$ling to the *TA' not re1$est for another reinvestigation! The fail$re to appeal to the *TA constit$tes a waiver of the defenses and estops the ta#payer from raising ob;ections thereafter! !he Court too6 note of the e%traordinary reduction of the deficiency ta% from )356 to )'6- $hich evidences carelessness of the A74 in ma6ing grossly e%cessive assessments. 7t also o*served the A74Js toleration repeated re0uest for reinvestigation. 7rregularities of this 6ind provo6e suspicion over the competency and honesty of 4evenue <fficials. 7t is e%pected that immediate and drastic steps to stop such practices shall *e e%ercised promptly.

1P v 9er R 0o!*an ="0 e#amined and a$dited Jer%s ret$rns and boo(s of acco$nts and iss$ed assessment for deficiency income ta# form 19)9 to 19> d$e and payable on dates indicated in the accompanying notice e of assessment!

TA? 2 @ M4AT604 B C! 8anche- A2 12

The assessments from 19)M to 19> carried a s$rcharge of > T $nder 8ec 92 of the Ta# *ode for filing of fra$d$lent ret$rns! ="0 demanded payment together w/ Jer ref$sed to pay and set $p defense of prescription of *"0%s right to collect! *+" dismissed the claim for collection of deficiency ta#es for 19)9 b$t ordered Jer to pay deficiency ta#es from 19)M to 19> ! 0ep$blic filed a motion for recon contending that *"0%s right did A4T prescribe beca$se ta#payer%s income ta# ret$rn was fra$d$lent' in w/c case prescription sets in 1 C08 from DAT6 of discovery of fra$d! Motion was denied! "/0: 1/ W4n 0I1:s ri3ht to assess de#icienc- inco!e tax #or <?AC a)read- *rescri"ed C68' assessment for 19)9 was iss$ed > C6A08' L M4ATH8 AAD 1L DAC8 from date ret$rn was filed! 0ep$blic did A4T allege fra$d nor present evidence to prove it! 8ince 19)9 assessment had become final and e#ec$tory' Jer can no longer raise defenses w/c go into merits of assessment li(e prescription of *"0%s right to assess ta#! 2/ W4n #i)in3 o# *etition #or revie "- 9er in 0TA sus*ended the runnin3 o# the *rescri*tive *eriod to co))ect de#icienc- inco!e #ro! <?AL to <?B8 C68' filing of petition for review s$spended r$nning of prescriptive period! :nder 8ection LLL of the Ta# *ode' the r$nning of the prescriptive period to collect the ta# shall be s$spended for the period d$ring which the *ommissioner of "nternal 0even$e is prohibited from beginning a distraint and levy or instit$ting a proceeding in co$rt' and for si#ty days thereafter! +rom March 1' 19>K when Jer Q *o!' ,td! filed a petition for review in the *TA' the *"0 was prevented' from filing an ordinary action in the *o$rt of +irst "nstance to collect the ta#! =esides' to do so wo$ld be to violate the ;$dicial policy of avoiding m$ltiplicity of s$its and the r$le on lis pendens! A,84' note: s$rcharge and interest shall accr$e from the time the ta# became d$e Z th$s' DAT6 4+ A88688M6AT as shown in assessment notice .not date of complaint/

1P v Arache "n 19>M' 0ep$blic filed an action against Noseph Arache .principal/ and <lobe Ass$rance *o .s$rety/ for the forfeit$re of the s$rety bond

e#ec$ted to them to sec$re payment for the s$m of 222(3 representing Arache%s income ta# for 19)K and s$rcharge pl$s interest! Arache interposed the defense of prescription and alleged that he was compelled against his will to e#ec$te the s$rety bond so$ght to be forfeited' beca$se ="0 ref$sed to iss$e him a ta# clearance w/c he needed to ma(e a b$siness trip abroad! <lobe li(ewise adopted the same defenses as that of its coF defendant' Arache! *o$rt r$led in favor of 0ep$blic' ordering Arache and <lobe to pay *"0 solidarily w/ interest! ": 5/n Arache may validly invo(e prescription 0: A4' the defense of prescription cannot be invo(ed! A ta#payer may be prevented from setting $p the defense of prescription even if he has no previo$sly waived it in writing as when by his repeated re1$ests or positive acts' the <overnment has been' for good reasons' pers$aded to postpone collection to ma(e him feel that the demand was not $nreasonable or that no harassment or in;$stice is meant by the <overnment! And when s$ch sit$ation comes to pass there are a$thorities that hold' based on weighty reasons' that s$ch an attit$de or behavior sho$ld not be co$ntenanced if only to protect the interest of the <overnment! "n this case' the delay in the collection of his 19)K ta# liability was d$e to Arache%s own repeated re1$ests for reinvestigation and similarly repeated re1$ests for e#tension of time to pay! Arcache admitted in writing his ta# obligation and promised to pay the same' not once b$t several times even after the date when O according to him O the government&s right to collect had already prescribed! "n fact' he not only made s$ch repeated promise to settle his acco$nt b$t he act$ally made two partial payments' the first of 22' and the last 21' ! Moreover' it is to be noted that the present action was filed for the forfeit$re of the bond in satisfaction of the ta# obligation! Th$s' the action is for the enforcement of a written contract$al obligation' for which the prescriptive period is ten years O which in this case had not yet elapsed when the action was filed! "t is already settled in this connection that the giving of a bond as a condition of an e#tension of time for the payment of income ta#' even after the collection of the ta# as s$ch was barred by the stat$te of limitations' does not precl$de recovery on the bond! LEA1'I'GD The ta#payer may be 68T4226D from claiming prescription when he as(s for a reinvestigation of the ta# assessment iss$ed to him and s$ch reinvestigation is made!

TA? 2 @ M4AT604 B C! 8anche- A2 12

Phi) 'ationa) &i) 0o v 0A Tirso 8avellano s$bmitted a sworn statement to the ="0 informing them that 2A= failed to withold 1>T final ta# on interest earnings and/or yields from the money placements of 2A4* with the said ban(' in violation of 2D19L1' w/c withdrew all ta# e#emptions of governmentFowned and controlled corporations! ="0 re1$ested 2A4* to settle its liability for ta#es on the interests earned by its money placements with 2A= and which 2A= did not withhold! 2A4* proposed to ="0 compromise its ta# liability' by settingFoff its ta# liability against a claim for ta# ref$nd/credit of the AA24*40! then pending with the ="0 .2LL>(3/! The amo$nt of the claim for ta# ref$nd/credit was s$pposedly a receivable acco$nt of 2A4* from AA24*40! 4n &ct L, <?L7' ="0 sent a demand letter to 2A=' as withholding agent' for the payment of the final ta# on the interest earnings and/or yields from 2A4*&s money placements with the ban(! 4n the same date' the ="0 also mailed a letter to 2A4* informing it of the demand letter sent to 2A=! After several negotiations between ="0 and 2A4*' they agreed to a compromise regarding the ta# liability of 2A4*! 8avellano was paid by the ="0 a ta# e1$al to1>T of the amo$nt in the compromise agreement! ": 5/n the right of ="0 to assess and collect the income ta# had already prescribed 0: Ao' ="0&s right had A4T yet prescribed! 8ections 2KM and 2K9.c/ of the A"0* of 1999' as amended' sho$ld be read in con;$nction with one another: o 8ection 2KM re1$ires that assessment be made within three years from the last day prescribed by law for the filing of the ret$rn! o 8ection 2K9.c/' on the other hand' provides that when an assessment is iss$ed within the prescribed period provided in 8ection 2KM' the ="0 has three years' co$nted from the date of the assessment' to collect the ta# assessed either by distraint' levy or co$rt action! Therefore' hen an assess!ent is ti!e)- issued in accordance ith Section 27L, the =I1 is 3iven another three;-ear *eriod,

under Section 27?(c), ithin hich to co))ect the tax assessed, recKoned #ro! the date o# the assess!ent. "n the case of 2A=' an assessment was iss$ed against it by the ="0 on &cto"er L, <?L7' so that the ="0 had $ntil &cto"er C, <?L? to enforce it and to collect the ta# assessed! The #i)in3, ho ever, "Save))ano o# his A!ended Petition #or 1evie "e#ore the 0TA on Fu)- 2, <?LL a)read- constituted a 6udicia) action #or co))ection o# the tax assessed hich sto*s the runnin3 o# the three;-ear *rescri*tive *eriod #or co))ection thereo#. A ;$dicial action for the collection of a ta# may be initiated by the filing of a complaint with the proper reg$lar trial co$rtR or where the assessment is appealed to the *TA' by filing an answer to the ta#payer&s petition for review wherein payment of the ta# is prayed for! The present case is $ni1$e' however' beca$se the 2etition for 0eview was filed by 8avellano' the informer' against the ="0' 2A4*' and 2A=! The ="0' the collecting government agencyR 2A4*' the ta#payerR and 2A=' the withholding agent' initially fo$nd themselves on the same side! 8avellano' in his Amended 2etition for 0eview w/ the *TA prayed for .1/ the *TA to direct the ="0 *ommissioner to enforce and collect the ta#' and .2/ 2A= and/or 2A4* to pay the ta# @ !aKin3 the said 0TA 0aseC a co))ection case! "t is immaterial that the Amended 2etition for 0eview was filed by the informer 8avellano and A4T the ta#payerR and that the prayer for the enforcement of the ta# assessment and payment of the ta# was also made by the informer' not the ="0! This sho$ld not affect the nat$re of the case as a ;$dicial action for collection! 5hat is controlling here is the fact that the ="0 *ommissioner cannot file a ;$dicial action in any other co$rt for the collection of the ta# beca$se s$ch a case wo$ld necessarily involve the same parties and involve the same iss$es already being litigated before the *TA in the said case! The three; -ear *rescri*tive *eriod #or co))ection o# the tax sha)) co!!ence to run on)- a#ter the *ro!u)3ation o# the decision o# this 0ourt in hich the issues o# the *resent case are reso)ved ith #ina)it-. "n case the *TA grants the 2etition and the prayer therein' as what has happened in the present case' the $ltimate res$lt wo$ld be the collection of the ta# assessed! *onse1$ently' $pon the filing of the Amended 2etition for 0eview by private respondent 8avellano' ;$dicial action for collection of the ta# had been initiated and the r$nning of the prescriptive period for collection of the said ta# was terminated! 8$pposing that the said *TA *ase is not a collection case which stops the r$nning of the prescriptive period for the collection of the ta#' the said *TA case' at the very least' s$spends the r$nning of the said

CTA Case No. 4249

TA? 2 @ M4AT604 B C! 8anche- A2 12

prescriptive period! :nder 8ection 291 of the A"0* of 1999' as amended' the runnin3 o# the *rescri*tive *eriod to co))ect de#icienc- taxes sha)) "e sus*ended #or the *eriod durin3 hich the =I1 0o!!issioner is *rohi"ited #ro! "e3innin3 a distraint or )ev- or institutin3 a *roceedin3 in court, and #or 78 da-s therea#ter. The pendency of the present case before the *TA' the *o$rt of Appeals and the 8* legally prevents the ="0 *ommissioner from instit$ting an action for collection of the same ta# liabilities assessed against 2A4* and 2A= in the *TA or the reg$lar trial co$rts! To r$le otherwise wo$ld be to violate the ;$dicial policy of avoiding m$ltiplicity of s$its and the r$le on lis pendens! 5hether the filing of the Amended 2etition for 0eview by 8avellano entirely stops or merely s$spends the r$nning of the prescriptive period for collection of the ta#' it had been premat$re for the ="0 *ommissioner to iss$e a writ of garnishment against 2A= and for the *entral =an( of the 2hilippines to debit the acco$nt of 2A= p$rs$ant to the said writ' beca$se the case was by then' pending review by the *o$rt of Appeals! However' since the 8* fo$nd that the compromise agreement is witho$t force and effect' it ordered the enforcement of the assessment against 2A=! Any iss$e or controversy arising from the premat$re garnishment of 2A=&s acco$nt and collection of the ta# by the ="0 became moot and academic!

*an proced$ral r$les be rela#ed to give d$e co$rse to the petitionS A4' not in this case! 2etition is denied against +6=T*! 1ationa)eD +irst' it is wellFsettled that the co$rts cannot consider evidence which has not been formally offered! 2arties are re1$ired to inform the co$rts of the p$rpose of introd$cing their respective e#hibits to assist the latter in r$ling on their admissibility in case an ob;ection thereto is made! 5itho$t a formal offer of evidence' co$rts are constrained to ta(e no notice of the evidence even if it has been mar(ed and identified! Aeedless to say' the fail$re of petitioner to ma(e a formal offer of evidence was detrimental to its ca$se! This case does not fall within the e#ception in 4^ate v! *o$rt of Appeals where the *o$rt rela#ed the foregoing r$le and allowed evidence' not formally offered' to be considered on condition that: .1/ evidence m$st have been identified by testimony d$ly recorded and .2/ it m$st have been incorporated in the records of the case! "n this case' IVUpetitioner%sW d$ly mar(ed and identified e#hibits UwereW not incorporated in the records!!! They are nowhere to be fo$nd!I A ta# ref$nd is in the nat$re of a ta# e#emption which m$st be constr$ed strictissimi ;$ris against the ta#payer! To stress' the ta#payer m$st present convincing evidence to s$bstantiate a claim for ref$nd! 5itho$t any doc$mentary evidence on record' petitioner failed to discharge the b$rden of proving its right to a ta# credit/ta# ref$nd! Therefore' the *TA and *A correctly denied its claim! 8econd' if no appeal or motion for reconsideration is filed on time' the ;$dgment or final order of the co$rt becomes final and e#ec$tory! Here' the records of the case confirm that petitioner%s motion for reconsideration in the *TA was filed o$t of time! 2etitioner received its notice and a copy of the *TA decision on A$g$st )' 199M!1> :nder the r$les' it had fifteen days .or $ntil A$g$st 19' 199M/ to move for reconsideration! =y the time it filed its motion for reconsideration on A$g$st 2K' 199M' the decision of the *TA had already attained finality! As a final ;$dgment' it had by then already laid the iss$es to rest and the appellate co$rts co$ld no longer review it! 0I1 v Phi) G)o"a) 0o!! 2hilippine <lobal *omm$nication was assessed for deficiency ta#es in April 199)! 4n May 199)' they filed 2 letters of protest re1$esting for the cancellation of the ta# assessment for lac( of fact$al and legal basis! "n 2 2' respondents received a decision from the *"0 denying the protest! 0espondents appealed the *TA and r$led that the right to collect on the 199) ta# assessment has prescribed! ISS%ED 5/A the action to collect has prescribed! (>ES)

=PI v 0I1 (288B) /ar East =anK R Trust 0o v 0I1 +6=T* filed with the =$rea$ of "nternal 0even$e an application for a ta# credit/ta# ref$nd of alleged e#cess payments of its gross receipts ta#! +6=T* claimed it had overpaid its gross receipt ta# for the Lrd and )th 1$arters of 199) and the entire 199> amo$nting to 21)'M1K'L9L! 8ince no action was ta(en by the *"0 on its claim' petitioner filed a case in the *TA on 4ctober 1M' 199K to comply with the 2Fyear reglementary period and avoid the prescription of its action! 4n N$ly L ' 199M' the *TA rendered a decision denying the claim for lac( of evidence! "t appears that petitioner failed to file its formal offer of evidence in the *TA' constraining the ta# co$rt to r$le in favor of the *"0! 4n A$g$st 2K' 199M' 22 days after its receipt of the decision' petitioner filed a motion for reconsideration! The *TA denied the motion for being filed o$t of time and for lac( of merit! Aggrieved' petitioner elevated the case to the *A! *A fo$nd the petition devoid of merit! 6vent$ally' it dismissed the petition and affirmed the *TA decision in toto! 2etitioner%s motion for reconsideration was also denied! Th$s' this petition! IssueD

TA? 2 @ M4AT604 B C! 8anche- A2 12

1ATI&D 8ection 2K9.c/ provides that any internal reven$e ta# which has been assessed within the period of limitation aboveFprescribed may be collected by distraint or levy or by a proceeding in co$rt within three years following the assessment of the ta#! The assessment' in this case' was pres$mably iss$ed on 1) April 199) since the respondent did not disp$te the *"0%s claim! Therefore' the ="0 had $ntil 1L April 1999! The earliest attempt of the ="0 to collect the ta# d$e based on this assessment was when it filed its Answer in *TA *ase Ao! K>KM on 9 Nan$ary 2 L! 1eason #or Prescri*tive PeriodD :nder the former law' the right of the <overnment to collect the ta# does not prescribe! However' in fairness to the ta#payer' the <overnment sho$ld be estopped from collecting the ta# where it failed to ma(e the necessary investigation and assessment within > years after the filing of the ret$rn and where it failed to collect the ta# within > years from the date of assessment thereof! N$st as the government is interested in the stability of its collections' so also are the ta#payers entitled to an ass$rance that they will not be s$b;ected to f$rther investigation for ta# p$rposes after the e#piration of a reasonable period of time! 2rescription in the assessment and in the collection of ta#es is provided by the ,egislat$re for the benefit of both the <overnment and the ta#payerR for the <overnment for the p$rpose of e#pediting the collection of ta#es' so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the pre;$dice of the interests of the <overnment' which needs ta#es to r$n itR and for the ta#payer so that within a reasonable time after filing his ret$rn' he may (now the amo$nt of the assessment he is re1$ired to pay' whether or not s$ch assessment is well fo$nded and reasonable so that he may either pay the amo$nt of the assessment or contest its validity in co$rt! 5itho$t s$ch legal defense ta#payers wo$ld f$rthermore be $nder obligation to always (eep their boo(s and (eep them open for inspection s$b;ect to harassment by $nscr$p$lo$s ta# agents! Sus*ension o# Prescri*tive PeriodD 8ection 22) provides that the prescriptive period is s$spended when the ta#payer re1$ests for a reinvestigation! This e#ception does not apply to this case since the respondent never re1$ested for a reinvestigation! More importantly' the *"0 co$ld not have cond$cted a reinvestigation where' as admitted by the *"0 in its 2etition' the respondent ref$sed to s$bmit any new evidence! 1eGuest #or reconsideration FF refers to a plea for a reF eval$ation of an assessment on the basis of e#isting records ithout need o# additiona) evidence ! "t may involve both a 1$estion of fact or of law or both!

1eGuest #or reinvesti3ation Orefers to a plea for reF eval$ation of an assessment on the basis of ne )-; discovered evidence or additiona) evidence that a ta#payer intends to present in the investigation! "t may also involve a 1$estion of fact or law or both! .00 12FM>/ :ndo$btedly' a reinvestigation' which entails the reception and eval$ation of additional evidence' will ta(e more time than a reconsideration of a ta# assessment' which will be limited to the evidence already at handR this ;$stifies why the former can s$spend the r$nning of the stat$te of limitations on collection of the assessed ta#' while the latter cannot! "n the present case' the separate letters of protest dated K May 199) and 2L May 199) are re1$ests for reconsideration! The *"0%s allegation that there was a re1$est for reinvestigation is inconceivable since respondent consistently and categorically ref$sed to s$bmit new evidence and cooperate in any reinvestigation proceedings! The distinction between a re1$est for reconsideration and a re1$est for reinvestigation is significant! "t bears repetition that a re1$est for reconsideration' $nli(e a re1$est for reinvestigation' cannot s$spend the stat$te of limitations on the collection of an assessed ta#! "f both types of protest can effectively interr$pt the r$nning of the stat$te of limitations' an erroneo$s assessment may never prescribe! "f the ta#payer fails to file a protest' then the erroneo$s assessment wo$ld become final and $nappealable!29 4n the other hand' if the ta#payer does file the protest on a patently erroneo$s assessment' the stat$te of limitations wo$ld a$tomatically be s$spended and the ta# thereon may be collected long after it was assessed! The government also $rges that partial payment is Iac(nowledgement of the ta# obligationI' hence a Iwaiver on the defense of prescription!I =$t partial payment wo$ld not prevent the government from s$ing the ta#payer! =eca$se' by s$ch act of payment' the government is not thereby Ipers$aded to postpone collection to ma(e him feel that the demand was not $nreasonable or that no harassment or in;$stice is meant!I '&TED 2rior to the iss$ance of 0even$e 0eg$lations Ao! 12FM>' which disting$ishes a re1$est for reconsideration and a re1$est for reinvestigation' there have been cases wherein these two terms were $sed interchangeably! =$t $pon closer e#amination' these cases all involved a reinvestigation that was re1$ested by the ta#payer and granted by the ="0! =PI v 0I1 (288L) 'ove!"er 27, <?L7: *"0 iss$ed to the petitioner a preFassessment notice .2AA/! 'ove!"er 2?, <?L7: =2" sent in a letter re1$ested for the details of the amo$nts alleged as 19M2F19MK deficiency ta#es mentioned in the

TA? 2 @ M4AT604 B C! 8anche- A2 12

2AA A*ri) C, <?L?: *"0 iss$ed to the petitioner' assessment/demand notices for deficiency withholding ta# at so$rce .8wap Transactions/ and D8T involving the amo$nts of 219 '9>2'MK !M2 and 22)'>M9'19)!KL' for the years 19M2 to 19MK! A*ri) 28, <?L?D =2" filed a protest on the demand/assessment notices! May M' 19M9' petitioner filed a s$pplemental protest! .arch <2, <??@D =2" re1$ested for an opport$nity to present or s$bmit additional doc$mentation on the 8wap Transactions with the then *entral =an( Attached to the letter dated N$ne 19' 199)' in connection with the reinvestigation of the abovementioned assessment' petitioner s$bmitted to the ="0' 8wap *ontracts with the *entral =an(! =PI executed Waivers o# the Statutes o# Li!itations, the )ast o# hich as e##ective unti) Dec. @<, <??A. Au3ust ?, 2882D *"0 iss$ed a final decision on petitioner%s protest ordering the withdrawal and cancellation of the deficiency withholding ta# assessment in the amo$nt of 219 '9>2'MK !M2 and considered the same as closed and terminated! 4n the other hand' the deficiency D8T assessment in the amo$nt of 22)'>M9'19)!KL was reiterated and the petitioner was ordered to pay the said amo$nt within thirty .L / days from receipt of s$ch order! 2etitioner received a copy of the said decision on Nan$ary 1>' 2 L! Thereafter' Nan$ary 2)' 2 L' petitioner filed a 2etition for 0eview before in *o$rt! Au3ust @<, 288A: the *o$rt rendered a Decision denying the petitioner%s 2etition for 0eview' and =2" was ordered to pay the corresponding ta# d$es! Se*te!"er 2<, 288A' =2" filed a Motion for 0econsideration which was again denied for lac( of merit! .arch ?, 288B: =2" filed with the *o$rt 6n =anc a Motion for 6#tension of Time to +ile 2etition for 0eview praying for an e#tension of fifteen .1>/ days from March 1 ' 2 > or $ntil March 2>' 2 >! 2etitioner%s motion was granted! .arch 2L, 288B' .March 2> was <ood +riday/' petitioner filed the instant 2etition for 0eview' arg$ing that the co$rt overloo(ed the significance of the waiver made by parties valid $ntil Dec! L1' 2 ) and that the co$rt erred in holding that the collection for ta# deficiency has not yet prescribed! *TA r$led that =2"%s protest and s$pplemental protest sho$ld be considered re1$ests for reinvestigation which tolled the prescriptive period provided by law to collect a ta# deficiency by distraint' levy' or co$rt proceeding! "t f$rther held that =2"%s cabled instr$ctions to its foreign correspondent ban( to remit a specific s$m in dollars to the +ederal 0eserve =an(' the same to be credited to the acco$nt of the *entral =an(' are in the nat$re of a telegraphic transfer s$b;ect to D8T $nder 8ection 19> of the Ta# *ode! "n its 2etition for 0eview dated 2) Aovember 2 K' =2" arg$es that the government%s right to collect the D8T had already prescribed beca$se the *ommissioner of "nternal 0even$e .*"0/ failed to iss$e any reply granting =2"%s re1$est for reinvestigation manifested in the protest letters dated 2 April and M May 19M9! "t was only thro$gh the 9 A$g$st 2 2 Decision ordering =2" to pay deficiency D8T' or after the lapse of more than thirteen .1L/ years' that the *"0 acted on the re1$est for reinvestigation' warranting the concl$sion that prescription had already set in! The 4ffice of the 8olicitor <eneral .48</

filed a *omment dated 1 N$ne 2 9' on behalf of the *"0' asserting that the prescriptive period was tolled by the protest letters filed by =2" which were granted and acted $pon by the *"0! 8$ch action was allegedly comm$nicated to =2" as' in fact' the latter s$bmitted additional doc$ments pertaining to its 85A2 transactions in s$pport of its re1$est for reinvestigation! Th$s' it was only $pon =2"%s receipt on 1L Nan$ary 2 L of the 9 A$g$st 2 2 Decision that the period to collect commenced to r$n again! The 48< cites the case of Collector of 7nternal 4evenue v. 2uyoc Consolidated #ining Company- et al..2uyoc case/ in s$pport of its arg$ment that =2" is already estopped from raising the defense of prescription in view of its repeated re1$ests for reinvestigation which allegedly ind$ced the *"0 to delay the collection of the assessed ta#! "n its 0eply dated L A$g$st 2 9' =2" arg$es against the application of the 2uyoc case on two points: first- it never ind$ced the *"0 to postpone ta# collectionR second- its re1$est for reinvestigation was not categorically acted $pon by the *"0 within the threeFyear collection period after assessment! =2" maintains that it did not receive any comm$nication from the *"0 in reply to its protest letters! IssueD 5hether the collection of the deficiency D8T is barred by prescription and whether =2" is liable for D8T on its 85A2 loan transactions! (e)dD 5H606+406' the petition is <0AAT6D! The Decision of the *o$rt of Ta# Appeals dated 1> A$g$st 2 K and its 0esol$tion dated > 4ctober 2 K' are hereby 0676086D and 86T A8"D6! Ao prono$ncement as to costs! 1ationa)eD Section @<L o# the Tax 0ode o# <?CC provides: eriod of limitation upon assessment and collection.P 6#cept as provided in the s$cceeding section' internal reven$e ta#es shall be assessed within five years after the ret$rn was filed' and no proceeding in co$rt witho$t assessment for the collection of s$ch ta#es shall be beg$n after the e#piration of s$ch period! +or the p$rposes of this section' a ret$rn filed before the last day prescribed by law for the filing thereof shall be considered as filed on s$ch last day: rovided- That this limitation shall not apply to cases already investigated prior to the approval of this *ode! The stat$te of limitations on assessment and collection of national internal reven$e ta#es was shortened from five .>/ years to three .L/ years by =atas 2ambansa =lg! 9 ! Th$s' the *"0 has three .L/ years from the date of act$al filing of the ta# ret$rn to assess a national internal reven$e ta# or to commence co$rt proceedings for the collection thereof witho$t an assessment! 5hen it validly iss$es an assessment within the three .L/Fyear period' it has another three .L/ years within which to collect the ta# d$e by distraint' levy' or co$rt proceeding! The assessment of the ta# is deemed

TA? 2 @ M4AT604 B C! 8anche- A2 12

made and the three .L/Fyear period for collection of the assessed ta# begins to r$n on the date the assessment notice had been released' mailed or sent to the ta#payer! As applied to the present case' the *"0 had three .L/ years from the time he iss$ed assessment notices to =2" on 9 April 19M9 or $ntil K April 1992 within which to collect the deficiency D8T! However' it was only on 9 A$g$st 2 2 that the *"0 ordered =2" to pay the deficiency! "n order to determine whether the prescriptive period for collecting the ta# deficiency was effectively tolled by =2"%s filing of the protest letters dated 2 April and M May 19M9 as claimed by the *"0' we need to e#amine 8ection L2 of the Ta# *ode of 1999' which states: 8ec! L2 ! 2uspension of running of statute.P The r$nning of the stat$te of limitations provided in 8ections L1M or L19 on the ma(ing of assessment and the beginning of distraint or levy or a proceeding in co$rt for collection' in respect of any deficiency' shall be s$spended for the period d$ring which the *ommissioner is prohibited from ma(ing the assessment or beginning distraint or levy or a proceeding in co$rt and for si#ty days thereafterR hen the tax*a-er reGuests #or a re;investi3ation hich is 3ranted "- the 0o!!issionerE when the ta#payer cannot be located in the address given by him in the ret$rn filed $pon which a ta# is being assessed or collected: rovided- That if the ta#payer informs the *ommissioner of any change in address' the r$nning of the stat$te of limitations will not be s$spendedR when the warrant of distraint and levy is d$ly served $pon the ta#payer' his a$thori-ed representative' or a member of his ho$sehold with s$fficient discretion' and no property co$ld be locatedR and when the ta#payer is o$t of the 2hilippines! There is nothing in the records of this case which indicates' e#pressly or impliedly' that the *"0 had granted the re1$est for reinvestigation filed by =2"! 5hat is reflected in the records is the piercing silence and inaction of the *"0 on the re1$est for reinvestigation' as he considered =2"%s letters of protest to be! "n fact' it was only in his comment to the present petition that the *"0' thro$gh the 48<' arg$ed for the first time that he had granted the re1$est for reinvestigation! His consistent stance invo(ing the Eyeth 2uaco case' as reflected in the records' is that the prescriptive period was tolled by =2"%s re1$est for reinvestigation' witho$t any assertion that the same had been granted or at least acted $pon! "n the Eyeth 2uaco case' private respondent 5yeth 8$aco ,aboratories' "nc! sent letters see(ing the reinvestigation or reconsideration of the deficiency ta# assessments iss$ed by the ="0! The records of the case showed that as a res$lt of these protest letters' the ="0 Man$fact$ring A$dit Division cond$cted a review and reinvestigation of the assessments! The records f$rther showed that the company' thr$ its finance manager' comm$nicated its inability to settle the ta# deficiency assessment and admitted that it (new of the ongoing review and consideration of its

protest! As differentiated from the Eyeth 2uaco case' however' there is no evidence in this case that the *"0 act$ally cond$cted a reinvestigation $pon the re1$est of =2" or that the latter was made aware of the action ta(en on its re1$est! Hence' there is no basis for the ta# co$rt%s r$ling that the filing of the re1$est for reinvestigation tolled the r$nning of the prescriptive period for collecting the ta# deficiency! Aeither did the waiver of the stat$te of limitations signed by =2" s$pposedly effective $ntil L1 December 199) s$spend the prescriptive period! The *"0 himself contends that the waiver is void as it shows no date of acceptance in violation of 0M4 Ao! 2 F9 ! At any rate' the records of this case do not disclose any effort on the part of the =$rea$ of "nternal 0even$e to collect the deficiency ta# after the e#piration of the waiver $ntil eight .M/ years thereafter when it finally iss$ed a decision on the protest! 5e also find the 2uyoc case inapplicable! "n that case' several re1$ests for reinvestigation and reconsideration were filed by 8$yoc *onsolidated Mining *ompany p$rporting to 1$estion the correctness of ta# assessments against it! As a res$lt' the *ollector of "nternal 0even$e refrained from collecting the ta# by distraint' levy or co$rt proceeding in order to give the company every opport$nity to prove its claim! The *ollector also cond$cted several reinvestigations which event$ally led to a red$ced assessment! The company' however' filed a petition with the *TA claiming that the right of the government to collect the ta# had already prescribed! 5hen the case reached this *o$rt' we r$led that 8$yoc co$ld not set $p the defense of prescription since' by its own action' the government was ind$ced to delay the collection of ta#es to ma(e the company feel that the demand was not $nreasonable or that no harassment or in;$stice was meant by the government! "n this case' =2"%s letters of protest and s$bmission of additional doc$ments pertaining to its 85A2 transactions' which were never even acted $pon' m$ch less granted' cannot be said to have pers$aded the *"0 to postpone the collection of the deficiency D8T! The inordinate delay of the *"0 in acting $pon and resolving the re1$est for reinvestigation filed by =2" and in collecting the D8T allegedly d$e from the latter had res$lted in the prescription of the government%s right to collect the deficiency! As this *o$rt declared in 4epu*lic of the hilippines v. ,*laza: The law prescribing a limitation of actions for the collection of the income ta# is beneficial both to the <overnment and to its citi-ensR to the <overnment beca$se ta# officers wo$ld be obliged to act promptly in the

TA? 2 @ M4AT604 B C! 8anche- A2 12

ma(ing of assessment' and to citi-ens beca$se after the lapse of the period of prescription citi-ens wo$ld have a feeling of sec$rity against $nscr$p$lo$s ta# agents who will always find an e#c$se to inspect the boo(s of ta#payers' not to determine the latter%s real liability' b$t to ta(e advantage of every opport$nity to molest peacef$l' lawFabiding citi-ens! 5itho$t s$ch a legal defense ta#payers wo$ld f$rthermore be $nder obligation to always (eep their boo(s and (eep them open for inspection s$b;ect to harassment by $nscr$p$lo$s ta# agents! The law on prescription being a remedial meas$re sho$ld be interpreted in a way cond$cive to bringing abo$t the beneficent p$rpose of affording protection to the ta#payer within the contemplation of the *ommission which recommend the approval of the law! <iven the prescription of the government%s claim' we no longer deem it necessary to pass $pon the validity of the assessment 0I1 v 0a*ito) Su"division "n this case *apitol 8$bdivision' "nc! is a corporation engaged in the p$rchase sane and barter of $rban estates and their improvement into residential lots for resale to the p$blic! *apitol filed their income ta# ret$rns promptly and paid the ta#es however when an investigation was made they were fo$nd liable for ta# deficiency! 8o they were sent income ta# assessment notices on A*ri) L, <?B@. 4n .a- @8, <?B@ *apitol then re1$ested for the brea(down of the amo$nts reflected so that they co$ld be able to determine where the deficiencies came from! 4n N$ly 1' 19>> *"0 then reiterated its re1$est for the payment of the ta#es! 4n &cto"er <B, <?BB *"0 then tried to e#plain the disallowed ta#es e#plaining that they were really e#penses an they re1$ested for reinvestigation! 4n Se*t. 2, <?B? after reinvestigation the e#aminer in a memo reiterated the demand for the ta#es and affirmed the prior assessment and demanded again for the deficiency! 4n 8eptember 1K' 19>9 petitioner invo(ed the defense of prescription! *TA rendered a decision saying that the right of the co$rt had already prescribed beca$se $nder the ta# code any remedy for collection s$ch as levy or distraint prescribes after > years from the date of assessment and since assessment was made on April M' 19>L it had already prescribed! IssueD 5on the right to collect already prescribed @ Aot yet! 1atioD The 8* held in this case that the right to collect had not yet been lost! Altho$gh there is no 1$estion that the period began on April M' 19>L when the assessment was made it was interr$pted several times by the respondent! +irst when it as(ed for an itemi-ed information! Altho$gh it did not specifically $se the words Greview or reinvestigationH one can see from

the re1$est itself had the effect of 1$estioning/assailing the correctness of the assessment! Then again the period was interr$pted when it re1$ested for reinvestigation th$s the period was tolled gain and it was only 8ept! 2' 19>9 when the reinvestigation was denied the period began again and when the ta#payer%s case was filed with the *TA on December 2M' 19>9 and the *"0 answered .tantamo$nt to a ;$dicial action/ it was well within the prescription period! April M' 19>L @ December 2M'19>9 Z K years' M months' 21 days Less (all the interr$ptions)D May L ' 19>L .clarification/ @ N$ne 21' 19>> . denied the petition/ Z 2 years 21 days Z There was left a period of ) years and M months well within the prescription period! Li!, Sr v 0A 2etitioner spo$ses 6milio 6! ,im' 8r! and Antonia 8$n ,im' with b$siness address at Ao! LLK A$eva 8treet' Manila' were engaged in the dealership of vario$s ho$sehold appliances They filed income ta# ret$rns for the years 19>M and 19>9! a raid was cond$cted at their b$siness address by the A="! A similar raid was made on petitioners& premises at 111 12th 8treet' X$e-on *ity! 8ei-ed by the ="0 from the ,im co$ple were b$siness and acco$nting records which served as bases for an investigation! ="0 informed petitioners that reven$e e#aminers had been a$thori-ed to e#amine their boo(s of acco$nt! The 19>M and 19>9 ta# ret$rns were fo$nd false and fra$d$lent! ,im as(ed for reinvestigation b$t was denied! 4n 4ctober 1 ' 19K9' the ="0 rendered a final decision holding that there was no ca$se for reversal of the assessment against the ,im co$ple! 2etitioners were re1$ired to pay deficiency income ta#es for 19>M and 19>9 amo$nting to 21'2L9'19 !>> incl$sive of interest' s$rcharges and compromise penalty for late payment! The final notice and demand for payment was served on petitioners thro$gh their da$ghterFinFlaw on N$ly L' 19KM! 8till there was no paymentR th$s' fo$r .)/ separate criminal informations were filed against petitioners for violation of 8ections )> and >1 in relation to 8ection 9L of the Aational "nternal 0even$e *ode! Trial ens$ed! The decisions of the co$rt were! "n *riminal *ases Aos! 19M9 and 19MM: 5H606+406' in view of the foregoing considerations' the *o$rt finds the acc$sed 6milio 6! ,im' 8r! and Antonia 8$n ,im g$ilty of a violation of 8ection >1 penali-ed $nder 8ection 9L of the Aational "nternal 0even$e *ode and each is hereby sentenced in each case to pay a fine of 22' ! and to pay the government p$rs$ant to 2residential Ao! K9 the amo$nts of 2>M '>MM!9> and 2K>K'K 1!M as deficiency income ta#es for the years 19>M and 19>9' respectively' and the costs of the proceedings! "n *riminal *ases Aos! 199 and 1991: 5H606+406' in view of the foregoing considerations' the *o$rt finds the

TA? 2 @ M4AT604 B C! 8anche- A2 12

acc$sed 6milio 6! ,im' 8r! and Antonia 8$n ,im g$ilty of a violation of 8ection )> in relation to 8ection LL2 of the Aational "nternal 0even$e *ode as amended' penali-ed $nder 8ection 9L of the same *ode and hereby sentences each to pay a fine of 2)' ! in each case and the costs of the proceedings! 4n 8eptember 2K' 1999' petitioners moved for a reconsideration of the decision dated 8eptember 1' 1999! 4n April )' 199M' the *o$rt of Appeals prom$lgated a resol$tion as follows: 5H606+406' p$rs$ant to Article M9 of the 0evised 2enal *ode' by the death of appellant 6milio 6! ,im' 8r! his criminal liability is totally e#ting$ished b$t his co$nsel is hereby re1$ired to inform the *o$rt as to who are the heirs of the deceased following which the caption sho$ld be modified so as to reflect the civil aspect and s$bstit$tion of the heirs' as defendants! "n all other respects' the decision of this *o$rt prom$lgated 8eptember 1' 1999' stands! Hence the present petition for review by certiorari! "ss$e: 1/ 5/A the period to file the criminal cases against ,im has prescribed! A4! 2/ 5/A the payment of deficiency ta#es co$ld be incl$ded in the criminal cases! Ao! L/ 5/A the pec$niary liability of 6milio ,im is e#ting$ished beca$se of his death! Ces! Held/0atio: 1/ 2etitioners maintain that the fiveFyear period of limitation $nder 8ection L>) sho$ld be rec(oned from April 9' 19K>' the date of the original assessment while the <overnment insists that it sho$ld be co$nted from N$ly L' 19KM when the final notice and demand was served on petitioners& da$ghterFinFlaw! "nasm$ch as the final notice and demand for payment of the deficiency ta#es was served on petitioners on N$ly L' 19KM' it was only then that the ca$se of action on the part of the ="0 accr$ed! This is so beca$se prior to the receipt of the letterFassessment' no violation has yet been committed by the ta#payers! The offense was committed only after receipt was co$pled with the wilf$l ref$sal to pay the ta#es d$e within the alloted period! The two criminal informations' having been filed on N$ne 2L' 199 ' are wellFwithin the fiveFyear prescriptive period and are not timeFbarred! 5ith regard to *riminal *ases Aos! 199 and 1991 which dealt with petitioners& filing of fra$d$lent consolidated income ta# ret$rns with intent to evade the assessment decreed by law' petitioners contend that the said crimes have li(ewise prescribed! They advance the view that the fiveFyear period sho$ld be co$nted from the date of discovery of the alleged fra$d which' at the latest' sho$ld have been 4ctober 1>' 19K)' the date stated by

the Appellate *o$rt in its resol$tion of April )' 199M as the date the fra$d$lent nat$re of the ret$rns was $nearthed! 4n behalf of the <overnment' the 8olicitor <eneral co$nters that the crime of filing false ret$rns can be considered IdiscoveredI only after the manner of commission' and the nat$re and e#tent of the fra$d have been definitely ascertained! "t was only on 4ctober 1 ' 19K9 when the ="0 rendered its final decision holding that there was no gro$nd for the reversal of the assessment and therefore re1$ired the petitioners to pay 21'2L9'19 !>> in deficiency ta#es that the ta# infractions were discovered! Aot only that! The 8olicitor <eneral stresses that 8ection L>) spea(s not only of discovery of the fra$d b$t also instit$tion of ;$dicial proceedings! Aote the con;$nctive word IandI between the phrases Ithe discovery thereofI and Ithe instit$tion of ;$dicial proceedings for its investigation and proceedings!I "n other words' in addition to the fact of discovery' there m$st be a ;$dicial proceeding for the investigation and p$nishment of the ta# offense before the fiveFyear limiting period begins to r$n! "t was on 8eptember 1' 19K9 that the offenses s$b;ect of *riminal *ases Aos! 199 and 1991 were indorsed to the +iscal&s 4ffice for preliminary investigation! "nasm$ch as a preliminary investigation is a proceeding for investigation and p$nishment of a crime' it was only on 8eptember 1' 19K9 that the prescriptive period commenced! 2/ The petition' however' is impressed with merit insofar as it assails the incl$sion in the ;$dgment of the payment of deficiency ta#es in *riminal *ases Aos! 19MMF19M9! The trial co$rt had absol$tely no ;$risdiction in sentencing the ,im co$ple to indemnify the <overnment for the ta#es $npaid! The lower co$rt erred in applying 2residential Decree Ao! K9' partic$larly 8ection L1K thereof' which provides that I;$dgment in the criminal case shall not only impose the penalty b$t shall order payment of the ta#es s$b;ect of the criminal caseI' beca$se that decree too( effect only on Nan$ary 1' 199L whereas the criminal cases s$b;ect of this appeal were instit$ted on N$ne 2L' 199 ! 8ave in the two specific instances' 2residential Decree Ao! K9 has no retroactive application! ."n the case of 2eople v! Tierra' reiterated 2eople v! Arna$lt/ !!! 5hile 8ection 9L of the Aational "nternal 0even$e *ode provides for the imposition of the penalty for ref$sal or neglect to pay income ta# or to ma(e a ret$rn thereof' by imprisonment or fine' or both' it fails to provide for the collection of said ta# in criminal proceedings! As well contended by co$nsel for appellant' *hapters " and "" of Title "? of the Aational "nternal 0even$e *ode provides only for civil remedies for the collection of the income ta#' and $nder 8ection L1K' the civil remedy is either by distraint of goods' chattels' etc!' or by ;$dicial action! "t is a commonly accepted principle of law that the method prescribed by stat$te for the collection of ta#es is generally e#cl$sive' and $nless a contrary intent be gathered from the stat$te' it sho$ld be followed strictly! :nder the cited Tierra and Arna$lt cases' it is clear that criminal conviction for a violation of any penal provision in the Ta# *ode does not amo$nt at

TA? 2 @ M4AT604 B C! 8anche- A2 12

the same time to a decision for the payment of the $npaid ta#es inasm$ch as there is no specific provision in the Ta# *ode to that effect! L/ *onsidering that $nder 8ection L1K of the Ta# *ode prior to its amendment the trial co$ld not order the payment of the $npaid ta#es as part of the sentence' the 1$estion of whether or not the s$pervening death of petitioner 6milio 6! ,im' 8r! has e#ting$ished his ta# liability need not concern $s! However' with regard to the pec$niary penalty of fine imposed on the deceased ,im' this is necessarily e#ting$ished by his death in accordance with 8ection M9 of the 0evised 2enal *ode!

TAXPA>E1:S 1E.EDIES 1e#unds 5da de A3uina)do v 0I1 ,eopoldo Ag$inaldo and his wife Andrea received cash dividends worth 21 ( from Ag$inaldo =rothers' "nc! They did A4T declare said dividends in their ;oint "T0' b$t declared 2>( of said dividends in their "T0 for 19>L and paid corresponding ta#! A year after' ="0 reFe#amined the 19>2 Q19>L "T0s of the spo$ses and discovered the nonFdeclaration! ="0 read;$sted the "T0s' increasing the declared income' w/c res$lted in deficiency income ta# in 19>2 and overpayment of ta# in 19>L! The e#amination report recommended that the overpayment for 19>L of 21(3 be credited against the deficiency ta# for 19>2! "n 4ct 19>9' *"0 assessed Ag$inaldo for deficiency income ta# for 19>2' witho$t crediting the overpayment in 19>L! Ag$inaldo protested the assessment' and re1$ested that the overpayment for 19>L be credited! The re1$est was denied! He as(ed for a reconsideration b$t the *"0 said that the 21'K cannot be credited against the ta# for 19>2 since the claim for ta# credit was filed beyond the 2Fyear period provided for in PL 9 of the A"0*! After the h$sband%s death' the wife Andrea appealed to the *TA! The *TA dismissed the appeal for lac( of ca$se of action! ": 5/n petitioner is entitled to ta# credit for 19>L p$rs$ant to PL 9 of the Ta# *ode! 0: Ao' petitioner is not entitled to ta# credit! 2etitioner contends that 8ec L 9 does A4T re1$ire the filing of a claim w/in 2 years from payment of the ta# before credit sho$ld be given! 8ection L 9 of the Ta# *ode *,60A,C re1$ires the filing by the ta#payer of the written claim for credit / ref$nd 5"TH"A 2 yrs after the payment of ta#' before the *"0 can e#ercise his a$thority to grant credit/ ref$nd! 8$ch re1ment is the condition precedent and nonFcompliance 206*,:D68 *"0 from e#ercising the a$thority given!

TA? 2 @ M4AT604 B C! 8anche- A2 12

"n this case' the Ag$inaldos paid the income ta# on Au3ust <A, <?BA altho$gh the ad;$stment too( place on A$g$st 29' 19>>! Ta# credit was filed in FA' <?BL' so clearly' more than two years have elapsed .rec(oned from both dates/' beyond the period stated in PL 9!

Gi""s v 0I1 (/e" <?78) Allison and 6sther <ibbs protested the 19> deficiency income ta# assessment iss$ed against them by the *"0' on the gro$nd that said deficiency assessment was based on a disallowance of bad debts and losses claimed in their income ta# ret$rn for 19> ! *"0 re;ected <ibbs& protest and reiterated his demand! <ibbs however paid the deficiency and at the same time demanding the immediate ref$nd of the amo$nt paid! *"0 denied the re1$est for ref$nd' and re1$ired <ibbs to pay the amo$nts of 21!>( and 22( as s$rcharge' interest' and compromise penalty! Aotice of said denial was received by <ibbs on 'ove!"er <A, <?B7. 4n Se*te!"er 2C, <?BC F <ibbs filed with *TA a petition for review and ref$nd' with a motion for s$spension of collection of penalties! *"0 filed a motion to dismiss' on the gro$nd that the petition was filed beyond the L Fday period provided $nder 8ection 11' in relation to 8ection 9' of 0A Ao! 112>' which motion' was opposed by <ibbs! *TA dismissed the petition saying they no longer had ;$risdiction beca$se <ibbs filed the appeal 1 months after the receipt' clearly beyond the L Fday period set by law! <ibbs arg$ed that 8ection L K of the 0even$e *ode provides that ;$dicial proceedings may be instit$ted for recovery of an internal reven$e ta# within two years from the date of payment! C!, said this $as *efore 4,&&)5 $as enacted. ": 5/n the appeal of <ibbs was made within the stat$tory period 0: A4' the appeal was A4T made w/in the stat$tory period! 1A 'o. <<2B provides that *TA has appellate ;$risdiction to review decisions of the *"0 in cases involving disp$ted assessments' ref$nds of internal reven$e ta#es' fees or other charges' penalties imposed in relation thereto b$t filing m$st be within L days after receipt of s$ch r$ling! SE0. @87 o# the Tax 0ode provides that for 0ecovery of ta# erroneo$sly or illegally collected' the s$it shall be beg$n within 2 years from the date of payment of the ta# or penalty! 1A 'o. <<2B $as intended to cope $ith a situation $here the ta%payer- upon receipt of a decision or ruling of the C74- elects to

appeal to the C!, instead of paying the ta%! +or this reason' the latter part of said 8ection 11 0A 112>' provides that no s$ch appeal $ould suspend the payment of the ta# demanded by the <overnment' $nless for special reasons' the *TA wo$ld deem it fit to restrain said collection! Section @87 o# the Tax 0ode' on the other hand' contemplates of a case wherein the ta#payer paid the ta%' whether $nder protest or not' and later on decides to go to co$rt for its recovery! T(%S, here *a-!ent has a)read- "een !ade and the tax*a-er is !ere)- asKin3 #or its re#und, he !ust #irst #i)e ith the 0I1 a c)ai! #or re#und WIT(I' 2 >EA1S #ro! ti!e o# *a-!ent "e#ore taKin3 the !atter to the 0TA' as re1$ired by 8ection L K of the A"0*! A**ea)s #ro! decisions o# 0I1 to 0TA !ust ALWA>S "e *er#ected ithin @8 da-s a#ter the recei*t o# the decision that is "ein3 a**ea)ed, as re1$ired by 8ection 11 of 0A Ao! 112>! I# the 0I1 taKes ti!e in decidin3 the c)ai!, and the *eriod o# t o -ears is a"out to end, the suit or *roceedin3 !ust "e started in the 0TA "e#ore the end o# the 2;-ear *eriod ithout a aitin3 the decision o# the 0o))ector. This is so beca$se of the positive re1$irement of 8ection L K and the doctrine that delay of the *ollector in rendering decision does not e#tend the peremptory period fi#ed by the stat$te! TH606 is no conflict and the 2 laws m$st be reconciled! "n this case' <ibbs filed the appeal M406 THAA 1 M4ATH8 after receipt of the *"0%s notice of denial! Th$s' it was beyond the L Fday period!

0ir v Pa)anca 4n N$ly 19> ' 2alanca donated several stoc(s in ,a Tondena to his son! H456760' he failed to file a ret$rn on the donations on time! Th$s *"0 assessed him deficiency ta#es .ta# 3 s$rcharge 3 "nterest/' which he in t$rn paid on N$ne 19>> .1st assessment/! 4n March <?B7' 2alanca filed an "ncome Ta# 0et$rn! 4n Aovember 19>K he filed an amended ta# ret$rn and a c)ai! #or the re#und o# over*aid taxes (< st)! The claimed overpayment was d$e to a fail$re to ded$ct from his "T0 a ded$ction on the interest paid on the gift ta# stated earlier! He claimed that the interest fell $nder then section L of A"0* which a$thori-es the ded$ction from gross income of interest paid within the ta#able year on inde"tedness. ="0 denied ref$nd! After several appeals' all were denied!

TA? 2 @ M4AT604 B C! 8anche- A2 12

Meanwhile' *"0 considered the donation of stoc(s to his son to be a transfer in contemplation of death! He was then assessed the s$m of 2191(3 as estate and inheritance ta#es .2nd assessment/! =A86D on this 2nd assessment' 2alanca again AM6AD6D his original ret$rn' as(ing for another ded$ction of 2K (3 representing estate 3 inheritance ta#es! TH:8' 2alanca was as(ing for a ref$nd of 22 (3 .diff between 1st and 2nd assessment/! 5"TH4:T 5A"T"A< +40 ="0%s decision' 2alanca filed a petition for review / *TA! *TA granted the claim for ref$nd and r$led in favor of 2alanca! *"0 appealed to 8*! "/0: 1/ W4n the interest *aid on de)inGuent estate and inheritance taxes is DED%0TI=LE #ro! 3ross inco!e C68' interest paid is ded$ctible from gross income! *iting *"0 v! 2rieto: :nder the law' for interest to be ded$ctible' it m$st be shown that there be an indebtedness' that there sho$ld be interest $pon it' and that what is claimed as an interest ded$ction sho$ld have been paid or accr$ed within the year! "n this case' what was so$ght to be ded$cted was interest paid as a conse1$ence of the ,AT6 2ACM6AT of estate and inheritance ta#es' and the same was paid w/in the year it was so$ght to be ded$cted! 8$ch interest was made $pon indebtedness and was th$s ded$ctable! 2/ 5/A action for ref$nd .2nd/ has prescribed for violating the L day period re1$irement A4' the claim for ref$nd had A4T yet prescribed! There was only 1 transaction .transfer of shares of stoc(/ w/c became the TA?A=,6 676AT! H456760' since 2 assessments were made by the ="0' the +"08T being the donee:s 3i#t tax' and the 86*4AD as estate tax' there were 2 claims for ref$nd as well! TH:8' the L Fday period did A4T even commence to r$n in this incident beca$se the 1st assessment was abandoned and a s$bse1$ent assessment was iss$ed to 2alanca! The 2nd assessment was li(ewise for a different liability! *onsidering that it is the interest paid on the 2 nd assessment .estate and inheritance ta#/ that 2alanca is claiming ref$nd for' then the L Fday period sho$ld be comp$ted from the receipt of the #ina) denia) by the =$rea$ of "nternal 0even$e of the said claim Denial: 19>9\ Also' the claim at bar refers to the alleged overpayment by 2alanca of his 19>> income ta#! "nasm$ch as the said acco$nt was paid by him by installment' then the comp$tation of the 2Fyear prescriptive period' $nder 8ection L K of the Aational "nternal 0even$e *ode'

sho$ld be from the date of the last installment .which was on A$g 1)' 19>K!/ Gi""s v 0I1 ('ov <?7B) 4n +eb 19>K' *"0 iss$ed against +inley <ibbs a deficiency income ta# assessment notice! 1 month after' Allison <ibbs' signing as attorney in fact for her brother' ac(nowledged receipt of the above assessment notice and notified the *"0 that +inley <ibbs was then living in *alifornia and that the latter was notified by him of the said deficiency assessment! "n the same letter' Allison <ibbs 1$estioned the disallowance of certain items which gave rise to the deficiency assessment and re1$ested for a correction of it! *"0 denied the re1$est on A$g$st 19K>! Having deemed the denial as the Gfinal decisionH of the *"0' Allison <ibbs wrote on 4ctober 19>K the *"0 saying they are paying the assessed amo$nt as a sign of good faith' b$t reiterated that the assessment is contrary to law! She a)so de!anded re#und o# the *a-!ent. "n a letter in 4ct 19>K' *"0 denied petitioner%s claim for ref$nd! 8$ch denial was admittedly received by the office of Allison <ibbs on A47 19>K! "n 8ept 19>M' Allison' signing as co$nsel for +inley' wrote another letter addressed to *"0 to reiterate the demand for ref$nd! ,etter also said that the denial letter in 4ct 19>K was A4T a r$ling on +inley%s claim for ref$nd! 4n 4ct 19>M' petitioners filed with the *TA a G2etitioner for 0eview and 0ef$nd of "ncome Ta# with Motion for 8$spension of *ollection of Additional Ta#es'H alleging mainly the claims for ref$nds and ta# credits in the letter! *TA dismissed the case on the gro$nd of lac( of ;$risdiction given that the petition for review was filed =6C4AD L days from date of receipt of *"0%s decision! "/0: 1/ W4n Gi""s: c)ai!s have a)read- *rescri"ed C68' <ibbs% claims HA76 already prescribed 2etitioners contend that the claims had A4T yet prescribed beca$se there was no evidence that they received a copy of the letter in 4ct 19>K D6AC"A< their claim for ref$nd' and the letter itself is A4T a denial of their claim for ref$nd! H456760' it is has been proven that Allison is not a mere attyFinF fact b$t co$nsel of <ibbs' and th$s' receipt she sho$ld have immediately filed an appeal $pon denial! Also' the claim that the letter of 4ct 2K 19>K was A4T a denial of the claim for ref$nd was $nmeritorio$s! The letter clearly states that

TA? 2 @ M4AT604 B C! 8anche- A2 12

Gfor reasons stated in o$r letter dated A$g 2M 19>K' TH"8 4++"*6 has A4 N:8T"+"A=,6 =A8"8 to grant yo$r re1$est!H 2/ W4n ithho)din3 tax credits a!ount to *a-!ent #or the *ur*ose o# deter!inin3 the 2;-ear *eriod *rovided in Sec @87 o# the 'I10 C68' w/holding ta# credits Z payment\ 2 year period shall be co$nted from the DAT6 TH6 5"TH4,D"A< TA? "8 D:6! A ta#payer' resident or nonFresident' who contrib$tes to the withholding ta# system' does so not really to deposit an amo$nt to the *"0 b$t to perform and e#ting$ish his ta# obligation for the year concerned! "n other words' he is paying his ta# liabilities for that year! *onse1$ently' a ta#payer whose income is withheld at the so$rce will be deemed to have paid his ta# liability when the same falls d$e at the end of the ta# year! TH:8' it is when the ta# liability falls d$e' that the 2Fyear prescriptive period $nder 8ection L K of the 0even$e *ode starts to r$n with respect to payments effected thro$gh the withholding ta# system! "t is of no conse1$ence whatever that a claim for ref$nd or credit against the amo$nt withheld at the so$rce may have been presented and may have remained $nresolved since! Ta#payer who has paid the ta#' whether $nder protest or not' and who is claiming a ref$nd of the same' m$st file a claim for ref$nd with the *"0 within 2 years from the date of his payment of the ta# .8ec L K' A"0*/ He m$st then appeal to the *TA w/in L DAC8 from receipt of the *"0%s decision denying claim for ref$nd .8ec 11' 0A 112>/ "f' however' the *ollector ta(es time in deciding the claim' and the period of two years is abo$t to end' the s$it or proceeding m$st be started in the *TA =6+406 the end of the 2Fyear period 5"TH4:T awaiting the decision of the *ollector! This is so beca$se of the positive re1$irement of 8ection L K and the doctrine that delay of the *ollector in rendering decision does not e#tend the peremptory period fi#ed by the stat$te!

0I1 v S eene "nternational *l$b of "loilo' "nc! .the *l$b/ is a nonFprofit' nonFstoc( corporation organi-ed to promote athletic and social relations among its members! "n consonance with its p$rpose' the cl$b' d$ring its lifespan from 19)9 to 19>1' maintained and operated a cl$bho$se with a bar'

wherein li1$or and light refreshments were sold e#cl$sively to its members and their g$est with a light overprice to cover operational e#penses! The *l$b never paid fi#ed or percentage ta#es as operator of a bar d$ring its brief lifespan! "n 19> ' *"0 addressed and demanded from the *l$b payment of the s$m of 21'9M9! 1 as fi#ed and percentage ta# and s$rcharge as operator of a bar for the period covering A$g$st 19)9 to 8eptember 19> ! "n 19>1' N! A! 8weeney' then president of the *l$b' wrote the *ity Treas$rer of "loilo' protesting the aforementioned assessment against the *l$b and as(ing that it be withdrawn for the reason that the *l$b was a private one and not organi-ed for profit so it sho$ld not be held liable for the ta#es so$ght to be collected! This protest remained $nanswered for abo$t 1 months! "n the meantime' the *l$b was dissolved sometime in 8ept 19>1! "n Nan 19>2' *"0 denied 8weeney%s re1$est for withdrawal! ="0 demanded from 8weeney payment of 2L(3 representing fi#ed and percentage ta#es and s$rcharge' as operator of a bar for A$g 19>9 to A$g 19>1! Altho$gh no payment was made' ="0 did A4T ta(e positive steps to enforce collection! H456760' on A$g$st 1>' 19>L and 4ctober 1>' 19>L' the *"0 $rged the *ity +iscal of "loilo to prosec$te criminally the past presidents of the *l$b for violation of sections 1M2' 1ML and 191 of the ta# *ode! 4n the same date' the *l$b so$ght a ref$nd for the amo$nts paid $nder protest! Aot having received any reply from the *"0 regarding said claim for ref$nd' the *l$b filed a 26T"T4A +40 067"65 w/ the *TA! ": 5/n *TA has ;$risdiction @ C68 5/n the *l$b is liable for the ta#! A4' the cl$b is not liable! 0: The *"0 contends that the *TA has no ;$risdiction to order the ref$nd of the ta#es involved beca$se' first' said amo$nts had been paid by respondents in the e#traF;$dicial settlement of the case against them .!he e%tra.udicial settlement refers to the act of the respondents in paying the assessed ta% lia*ilities. !he C74 also contends that this act of paying is in the form of a compromise $herein the C74 $ill $ithdra$ the information if they pay their lia*ilities. /' and second' respondents had no ca$se of action in as m$ch as the petitioner has not yet r$led $pon the respondents re1$ests for ref$nd! As to *"0%s first contention' the *"0 had not entered into a compromise as to the payment of the ta#es whose ref$nd is now being

TA? 2 @ M4AT604 B C! 8anche- A2 12

so$ght! The *ompromise entered into by respondents was only in regard to the payment of 2> ! by each of them in order to avoid criminal prosec$tion which might affect their standing as b$sinessmen in their comm$nity! "n fact $pon payment of said 2> ! by each of them' the *ity +iscal desisted from contin$ing the prosec$tion! =$t that was entirely apart from and independent of the payment of the ta#es which' as already' was made $nder protests and on the same day' a petition demanding ref$nd was filed with the same co$rt! As to *"0%s second contention' ta#payers need not wait for the action of the *"0 on the re1$est for ref$nd before ta(ing the matter to co$rt! The law does not re1$ire the ta#payer to wait for the *"0%s action on its re1$est for ref$nd beca$se the ta#payer only has two years after the payment of the ta#es from which to claim the ref$nd! "f he files beyond two years' then he can no longer claim! A,84' the cl$b cannot be liable for payment of fi#ed and percentage ta#es beca$se it was not engaged in the b$siness of selling li1$or! "ts bar dispensed li1$or only to members' their families and their g$est! "t is tr$e that for a time it made a little profit in s$ch sale' that is to say' the little overprice p$t on the li1$or dispensed' pres$mably intended to cover e#penses in the maintenance of the bar' e#ceeded said e#penses b$t said profits never went to the members of the *l$b b$t were $sed in the operation of the *l$b' which as a matter of fact inc$rred a loss' so that it may not be said that the operation of the bar and in dispensing li1$or to its members or families and their g$est the "nternational *l$b of "loilo' "nc! was engaged in b$siness and that it was organi-ed for profit!

0I1 v ToK-o Shi**in3 0o. To(yo 8hipping *o! ,td .To(yo 8hipping/ is a foreign corporation represented in the 2hilippines by 8oriamont 8teamship Agencies' "ncorporated .8oriamont/! "t owns and operates tramper vessel M/7 <ardenia! AA8:T0A chartered M/7 <ardenia to load tons of raw s$gar in the 2hilippines! Mr! ,ising' the operations s$pervisor of 8oriamont paid the re1$ired income and common carrier&s ta#es based on the e#pected gross receipts of the vessel! :pon arriving' however' at <$imaras 2ort of "loilo' the vessel fo$nd no s$gar for loading! 4n Nan$ary 1 ' 19M1' AA8:T0A and 8oriamont m$t$ally agreed to have the vessel sail for Napan witho$t any cargo!

4n March 2L' 19M1' To(yo 8hipping so$ght to ref$nd the prepaid income and common carrier%s ta# alleging that no sale was reali-ed from its agreement with Aas$tra! *"0 failed to act on the matter! Th$s To(yo 8hipping filed a petition for review with the *TA on May 1)' 19M1! *TA r$led in favor of To(yo 8hipping! "t fo$nd that the chartered vessel sailed o$t of the 2hilippine port with absol$tely no cargo laden on board as cleared and certified by the *$stoms a$thorities! "t also fo$nd that the Appellate Division of the ="0 and the e#aminer who e#amined this case has already recommended the approval of To(yo 8hipping%s claim for ref$nd! ": 5/n To(yo 8hipping is entitled to ref$nd 0: C68' To(yo is entitled to a ref$nd! .after 1> years ref$nd was delayed/ 2$rs$ant to this 8ection 2).b/ .2/ M' a resident foreign corporation engaged in the transport of cargo is liable for ta#es depending on the amo$nt of income it derives from so$rces within the 2hilippines! Th$s' before s$ch a ta# liability can be enforced the ta#payer m$st be shown to have earned income so$rced from the 2hilippines! The *TA held that s$fficient evidence has been add$ced by To(yo 8hipping to prove that it derived no receipt from its charter agreement with AA8:T0A! This finding of fact show that M/7 I<ardeniaI arrived in "loilo on Nan$ary 1 ' 19M1 b$t fo$nd no raw s$gar to load and ret$rned to Napan witho$t any cargo laden on board! This claim is s$pported by the *learance 7essel to a +oreign 2ort iss$ed by the District *ollector of *$stoms and the *ertification by the 4fficerFinF*harge' 6#port Division of the =$rea$ of *$stoms "loilo! Doc$ments iss$ed by the *$stoms officer en;oy the pres$mption of reg$larity! *"0 did not present evidence to co$nter this pres$mption! 0ecords also show the inconsistent stand of the *"0! "t did not withdraw its opposition to the petition for review even when its co$nsel manifested that the ="0

A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or usiness within the !hilippines, shall e taxa le as pro"ided in su section #a$ of this section upon the total net inco%e deri"ed in the preceding taxa le year fro% all sources within the !hilippines& Provided, however, That international carriers shall pay a tax of two and one-half per cent #2 '(2)$ on their gross !hilippine illings& *+ross !hilippine ,illings* include gross re"enue realized fro% uplifts anywhere in the world y any international carrier doing usiness in the !hilippines of passage docu%ents sold therein, whether for passenger, excess aggage or %ail, pro"ided the cargo or %ail originates fro% the !hilippines. The gross re"enue realized fro% the said cargo or %ail include the gross freight charge up to final destination. +ross re"enue fro% chartered flights originating fro% the !hilippines shall li-ewise for% part of *+ross !hilippine ,illings* regardless of the place or pay%ent of the passage docu%ents . . . . .

TA? 2 @ M4AT604 B C! 8anche- A2 12

e#aminer and the appellate division of the ="0 have both recommended the approval of To(yo 8hipping%s claim for ref$nd! 6vidence s$pports the *TA%s decision regarding the propriety of ta# ref$nd d$e to To(yo 8hipping! +air deal is e#pected by o$r ta#payers from the ="0 and the d$ty demands that ="0 sho$ld ref$nd witho$t any $nreasonable delay what it has erroneo$sly collected! 4n the iss$e that To(yo did A4T present its charter agreement w/ AA8:T0A' it pres$pposes witho$t any basis that the charter agreement is pre;$dicial evidence against To(yo! "t will show that To(yo earned a charter fee with or witho$t transporting its s$pposed cargo from "loilo to Napan! *"0 did not present evidence to s$pport this allegation! Moreover' the charter agreement co$ld have been presented by *"0 itself thr$ the proper $se of a s$bpoena d$ces tec$m!

Phi) =anK o# 0o!! v 0I1 The 2hilippine =an( of *omm$nications .2=*om/' a commercial ban(ing corporation d$ly organi-ed $nder 2hilippine laws' filed its 1$arterly income ta# ret$rns for the 1st and 2nd 1$arters of 19M>' reported profits' and paid the total income ta# of 2>M33! The ta#es d$e were settled by applying 2=*om%s ta# credit memos and accordingly' the ="0 iss$ed Ta# Debit Memo for 2LM and 21!KM' respectively! 8$bse1$ently' however' 2=*om s$ffered losses so that when it filed its Ann$al "ncome Ta# 0et$rns for the yearFended 19M>' it declared a net loss of 22>M' thereby showing no income ta# liability! +or the s$cceeding year' 19MK' 2=*om li(ewise reported a net loss of 21)!1M' and th$s declared no ta# payable for the year! =$t d$ring these two years' 2=*om earned rental income from leased properties! The lessees withheld and remitted to the ="0 withholding creditable ta#es! 4n 9 A$g$st 19M9' 2=*om re1$ested the *"0' among others' for a ta# credit of 2>M representing the overpayment of ta#es in the 1st and 2nd 1$arters of 19M>! Thereafter' on 2> N$ly 19MM' 2=*om filed a claim for ref$nd of creditable ta#es withheld by their lessees from property rentals! 2ending the investigation of the *"0' 2=*om instit$ted a 2etition for 0eview before the *TA! *TA dismissed this for lac( of meritR and th$s denied 2=*om%s claim for ref$nd/ta# credit of overpaid income ta# on the gro$nd that it was filed =6C4AD the 2Fyear reglementary period provided for by law!

2=*om%s claim for 2nd ref$nd was li(ewise denied on the ass$mption that it was a$tomatically credited by 2=*om against its ta# payment in the s$cceeding year! "/0: 1/ W4n P=0o! is correct in sa-in3 that the /I1ST 1E/%'D as #i)ed on ti!e A4' 2=*om was incorrect! 2=*om relied on 0M* 9FM> w/c says that the prescriptive period is 1 and A4T 2 yrs! The iss$ance is administrative and it *AAA4T contravene the A"0* w/c is a stat$te! Altho$gh administrative iss$ances are accorded great respect' s$ch interpretation is A4T concl$sive and will be ignored if fo$nd to be erroneo$s! Also' 8tate cannot be p$t in estoppel by mista(es of its agents! There are no vested rights to spea( of respecting a wrong interpretation! Also' nonFretroactivity of r$lings of *"0 is A4T applicable in this case beca$se the n$llity of the 0M* was declared by the *4:0T8 and A4T the *"0! The 2Fyear prescriptive period sho$ld be comp$ted from the time of filing the Ad;$stment 0et$rn .when the ref$nd is ascertained/ and final payment of the ta# for the year! 2/ W4n the 0A as correct in den-in3 the *)ea #or tax re#und or tax credits on the 3round o# *rescri*tion, des*ite *etitioner+s 3ood #aith re)iance on 1.0 'o. C;LB, chan3in3 the *rescri*tive *eriod o# 2 -ears to <8 -rs C68' *A was correct! Ta# ref$nd sho$ld be denied on gro$nd of prescription! 5ith respect to corporate ta#payers' in case of overpayment of 1$arterly income ta#es' there is a need to specify whether the ta#payer intends to avail of a ta# ref$nd or a ta# credit' th$s @ G8ec! K9 of the 1999 A"0* .now' 8ec! 9K of the 1999 A"0*/ provides that any e#cess of the total 1$arterly payments over the act$al income ta# comp$ted in the ad;$stment or final corporate income ta# ret$rn' shall either .a/ be ref$nded to the corporation' or .b/ may be credited against the estimated 1$arterly income ta# liabilities for the 1$arters of the s$cceeding ta#able year! The *orporation m$st signify in its ann$al corporate ad;$stment ret$rn .by mar(ing the option bo# provided in the ="0 form/ its intention' whether to re1$est for a ref$nd or claim for an a$tomatic ta# credit for the s$cceeding ta#able year! To ease the administration of ta# collection' these remedies are in the alternative' and the choice of one precl$des the other!

TA? 2 @ M4AT604 B C! 8anche- A2 12

2=*om opted to apply for a$tomatic ta# credit! This was the basis $sed .visFaFvis the fact that the 19M9 ann$al corporate ta# ret$rn was not offered by the petitioner as evidence/ by the *TA in concl$ding that 2=*om had indeed availed of and applied the a$tomatic ta# credit to the s$cceeding year' hence it can no longer as( for ref$nd' as to UsicW the two remedies of ref$nd and ta# credit are alternative! 8ince 2=*om opted for an a$tomatic ta# credit in accordance with 8ection K9 of the 1999 A"0*' as specified in its 19MK +inal Ad;$sted "ncome Ta# 0et$rn' s$ch a finding of fact m$st be respected by the 8$preme *o$rt! This' especially' in light that the 19M9 ann$al corporate ta# ret$rn of 2=*om was not offered as evidence to controvert said fact!

0I1 v 0A =2"' a ban(' acted as li1$idator for 2aramo$nt Acceptance *orporation d$ring dissol$tion on March L1' 19MK! 2aramo$nt filed its *orporate "ncome Ta# 0et$rn .*"T0/ for calendar year of 19M>! 2aramo$nt paid a total of 21!23M! After ded$cting 2aramo$nt%s total 1$arterly income ta# payments of 21!23M from its income ta# of 21!13M' the ret$rn showed a ref$ndable amo$nt of 2K>(! The appropriate bo# in the ret$rn was mar(ed with a cross .#/ indicating GTo be ref$ndedH the amo$nt of 2K>(! The following day or April 1>' =2" filed and instant petition with *TA to toll the r$nning of the prescriptive period for filing a claim for ref$nd of overpaid income ta#es! The 1$estion was whether the 2Fyear prescriptive period for filing a ref$nd sho$ld be co$nted from April 2' when the *"T0 was act$ally filed .$nder 8ec! 2L of A"0*' where it%s provided that the period m$st be co$nted from the day of payment of ta#/ or from April 1> .$nder 8ec! 9 b/ where the final ad;$stment ret$rn co$ld still be filed witho$t inc$rring any penalties! *TA rendered a decision stating that period commenced from April 1>' 19MK' the last day for filing the corporate income ta# ret$rn' and' since the claim for ref$nd was filed on April 1)' 19MM and the action was bro$ght on April 1>' 19MM' it held that prescription had not set in! *TA ordered *"0 to ref$nd 2aramo$nt! *A affirmed the decision! ": 5/n the prescriptive period sho$ld commence when the *orporate "ncome Ta# 0et$rn is act$ally filed .8ec! 2L /' or from April 1> where final ad;$stment co$ld be filed w/o inc$rring penalties! 0: 2rescriptive period sho$ld commence from the filing the Ad;$stment 0et$rn or Ann$al "ncome Ta# 0et$rn and +inal 2ayment of "ncome Ta#! 260"4D in this case had already prescribed and no ref$nd can be

made! "n *"0 v! TM? 8ales' 8* held that the filing of a 1$arterly income ta# ret$rn and payment of 1$arterly income ta# sho$ld only be considered mere installments of the ann$al ta# d$e! These 1$arterly ta# payments which are comp$ted based on the c$m$lative fig$res of gross receipts and ded$ctions in order to arrive at a net ta#able income' sho$ld be treated as advances or portions of the ann$al income ta# d$e' to be ad;$sted at the end of the calendar or fiscal year! This is reinforced by 8ec! M9 Unow 8ec! K9W which provides for the filing of ad;$stment ret$rns and final payment of income ta#! *onse1$ently' the 2Fyear prescriptive period provided in 8ection 2L sho$ld be comp$ted from the time of filing the Ad;$stment 0et$rn or Ann$al "ncome Ta# 0et$rn and +inal 2ayment of "ncome Ta#! This is so beca$se at that point' it can already be determined whether there has been an overpayment by the ta#payer! Moreover $nder 8ec )9a' payment is made at the time ret$rn is filed! "n the case at bar' 2aramo$nt filed its corporate ann$al income ta# ret$rn on April 2' 19MK! However' =2"' as li1$idator of 2aramo$nt' filed a written claim for ref$nd only on April 1)' 19MM and a petition for ref$nd only on April 1>' 19MM! =oth claim and action for ref$nd were barred by prescription!

0I1 v Phi)a!)i#e 2hilamlife paid to the ="0 its first 1$arterly corporate income ta# for 19ML amo$nting to 2L!2M3! 4n A$g$st 29' 19ML' it paid 2L (3 for the 8econd X$arter of 19ML! +or the Third X$arter of 19ML' it declared a net ta#able income of 22M3 and ta# d$e of 29 M(3! After crediting the amo$nt of 2LM3 it declared a ref$ndable amo$nt of 2L!1M3! +or its +o$rth and final 1$arter ending December L1' 2hilamlife s$ffered a loss and thereby had no income ta# liability! "n the ret$rn for that 1$arter' it declared a ref$nd of 2L!9M representing the first and second 1$arterly payments! "n 19M)' private respondent again s$ffered a loss and declared no income ta# liability! However' it applied as ta# credit for 19M)' the amo$nt of 2L!9M representing its 19M2 and 19ML overpaid income ta#es and the amo$nt of 22> 'MK9! as withholding ta# on rental income for 19M)! 4n 8eptember 2K' 19M)' 2hilamlife filed a claim for its 19M2 income ta# ref$nd of 21LL' M)! !

TA? 2 @ M4AT604 B C! 8anche- A2 12

4n Aovember 22' 19M)' it filed a petition for review with the *TA with respect to its 19M2 claim for ref$nd of 21LL' M)! ! 4n December 1K' 19M>' it filed another claim for ref$nd with the *"0 appellate division! 4n Nan$ary 2' 19MK' 2hilamlife filed a petition for review w/ the *TA regarding its 19ML and 19M) claims for ref$nd! *TA ordered the ref$nd to the 2hilamlife for the first and second 1$arters of 19ML! *A affirmed the decision' hence this appeal! ": 5here corporate ta#payer remits/pays to the ="0 ta# withheld on income for the first 1$arter b$t whose b$siness operations act$ally res$lted in a loss for that year' sho$ld not the r$nning of the prescriptive period commence from the remittance/payment at the end of the first 1$arter of the ta# withheld instead of from the filing of the +inal Ad;$stment 0et$rnS 0: A4' prescriptive period sho$ld commence from the time of filing of final ad;$stment ret$rn! 8ection 292 .now 8ection 2L / stip$lates that the twoF year prescriptive period to claim ref$nds sho$ld be co$nted from date of payment of the ta# so$ght to be ref$nded! Altho$gh 1$arterly ta#es d$e are re1$ired to be paid within K days from the close of each 1$arter' the fact that the amo$nt shall be ded$cted from the ta# d$e for the s$cceeding 1$arter shows that unti) a #ina) ad6ust!ent return sha)) have "een #i)ed, the taxes *aid in the *recedin3 Guarters are !ere)- *artia) taxes due #ro! a cor*oration. Aeither amo$nt can serve as the final fig$re to 1$antity what is d$e the government nor what sho$ld be ref$nded to the corporation! This interpretation may be gleaned from the last paragraph of 8ection K9 of the Ta# *ode which provides that the ref$ndable amo$nt' in case a ref$nd is d$e a corporation' is that amo$nt which is shown on its final ad;$stment ret$rn and not on its 1$arterly ret$rns! Therefore' when private respondent paid 2L'2)K'1)1! on May L ' 19ML' it wo$ld not have been able to ascertain on that date' that the said amo$nt was ref$ndable! The same applies with cogency to the payment of 2L9K'M9)! on A$g$st 29' 19ML! *learly' the prescriptive period of two years sho$ld commence to r$n only from the time that the ref$nd is ascertained' which can only be determined after a final ad;$stment ret$rn is accomplished! "n the present case' the claim for ref$nd and petition for review were made within the twoFyear reglementary period!

2hilamlife being a corporation' 8ection 292 .now 8ection 2L / cannot serve as the sole basis for determining the twoFyear prescriptive period for ref$nds! As we have earlier said in the TM? 8ales case' 8ections KM' K9' and 9 on X$arterly *orporate "ncome Ta# 2ayment and 8ection L21 sho$ld be considered in con;$nction with it! Moreover' even if the twoFyear period had already lapsed' the same is not ;$risdictional and may be s$spended for reasons of e1$ity and other special circ$mstances!

A001A v 0A A**0A "nvestments' a domestic corp engaged in real estate and mgmt cons$ltancy' filed its ann$al corp income ta# ret$rn! "n the ret$rn' it declared as creditable all ta#es withheld at so$rce by vario$s witholding agents' amo$nting to 2M2(! The withholding agents had already paid and remitted the amo$nts to ="0' way ahead of A**0A"n%s filing of its ret$rn! A**0A"n filed a claim for ref$nd inasm$ch as it had no ta# liability against which to credit the amo$nts withheld! *TA denied the claim on the gro$nd that the 2Fyear prescriptive period had already lapsed' based on the case of <ibbs r$ling w/c stated that Ga ta#payer whose income is withheld at so$rce will be deemed to have paid his ta# liability when the same falls d$e at the end of the ta# year!H TH:8' w/ the withholding agents paying ta#es 5AC AH6AD of A**0A"n' it%s now too late for A**0A"n to claim for a ref$nd' since it is deemed to have GpaidH a long time ago already! ": 5/n A**0A"A is barred from recovering the M2( overpaid ta#es 0: Ao' A**0A"A is A4T barred from recovering! The prescriptive period did A4T r$n when the ta#es were paid! 8ec 2L of the old A"0* provides that no s$it or proceeding shall begin after the e#piration of two years from the date of payment of the ta% or penalty regardless of any s$pervening ca$se that may arise after payment! The lower co$rt was wrong in considering Gthe end of the ta# yearH as the proper rec(oning date based on <ibbs' beca$se A**0A"n is A4T claming a ref$nd for overpaid witholding ta#es' per se! "A8T6AD' it is as(ing for the recovery of M2(' ref$ndable or creditable amo$nt determined $pon the petitioner corp%s filing of its +"AA, ADN:8TM6AT TA? 06T:0A on / before April 1> 19M2! TH:8' there is the need to file a ret$rn first before a claim for ref$nd can prosper inasm$ch as the respondent *ommissioner by his own r$les and reg$lations mandates that the corporate ta#payer opting to as( for a ref$nd m$st show in its final ad;$stment ret$rn the

TA? 2 @ M4AT604 B C! 8anche- A2 12

income it received from all so$rces and the amo$nt of withholding ta#es remitted by its withholding agents to the =$rea$ of "nternal 0even$e! The petitioner corporation filed its final ad;$stment ret$rn for its 19M1 ta#able year on April 1>' 19M2' w/c was 5"TH"A the period!

Phi)ex .inin3 v 0I1 2hilam entered into a Mining ,icense Agreement w/ Ministry of Aat 0eso$rces .now D6A0/! +rom the period N$ly 1' 19M to December L1' 19M1, Phi)a! *urchased from several oil companies' refined and man$fact$red mineral oils' motor f$els' and diesel f$el oi)s! The s*eci#ic taxes passed on to the petitioner amo$nted to 22')92'K99!22! 4n 4ctober 19M2' *ursuant to 1.A. <A@B' petitioner filed a c)ai! #or re#und with the *"0 for 2K2L'1K9!L ' representing the 2>T of the specific ta#es paid on their $se of refined and man$fact$red mineral oils' motor f$els and diesel f$el oils! 2ending *"0 action' on Aovember 19M2' the petitioner filed a case for ta# ref$nd with the *TA! The petitioner so$ght ;$dgment ordering the *"0 to pay as ref$nd the amo$nt of 2K2L'1K9!L ' with 2 T interest per ann$m' pl$s the costs of s$it! 4n A$g$st )' 199)' the 0TA rendered its decision' 1$oted at the o$tset' 3rantin3 the tax re#und' b$t on)- to the e#tent of P<7,CAC.@7 .only 2 T of the specific ta#es deemed paid $nder 0!A! 1)L>/! 2etitioner see(s a higher ta# base .specific ta#es actually paid/ for the ref$nd it see(s! ": 5/A *A erred in basing the ta# ref$nd on the 2 T specific ta#es deemed paid $nder 0A 1)L> .ta#es deemed paid/ instead of the increased rates imposed by 8ec 1)2 and 1)> .ta#es actually paid/ 0: A4' co$rt&s decision was proper! 1i3ht to re#und under 1.A. <A@B 0A 1)L> .An Act to 2rovide Means for "ncreasing the Highway 8pecial +$nd/ states that mining and l$mber companies seldom $se national highways! 8ince the gasoline and f$el p$rchased by mining and l$mber companies are $sed within their own compo$nds and roads' and they do not benefit directly from the +$nd' the government granted to these companies a 2>T partial ref$nd of specific ta#es paid on p$rchases of man$fact$red diesel and f$el oils! Ta# ref$nd $nder 0!A! 1)L> is comp$ted on the basis of the specific ta# deemed paid and A4T on the increased rates act$ally paid $nder 1999 A"0*!

8ince the partial ref$nd a$thori-ed $nder 8ection >' 0!A! 1)L>' is in the nat$re of a ta# e#emption' it m$st be constr$ed strictissimi .uris against the grantee! The s$bse1$ent codification of ta# laws $nder the A"0* 8ec 1>L and 1>K mandated increase rates of specific ta#es on oils' f$les' etc! Altho$gh 2H",6? paid the ta#es on their oil and f$el based on the increased rates' the latter law did A4T specifically provide for a ref$nd based on the increased rates! Also' claims for ref$nd w/c were not filed w/ *"0 and those that prescribed m$st be deemed e#cl$ded for being o$tside the ambit of legislative enactment!

0I1 v P'= 2hilippine Aational =an( .2A=/ iss$ed to ="0 2A= *ashier%s *hec( Ao! 1 9)L> for 21M ' ' ! ' representing 2A=%s advance income ta# payment for the ban(%s 1991 operations! The ="0 ac(nowledged receipt of the amo$nt by iss$ing a payment order and receipt! 2A= re1$ested the iss$ance of a ta# credit certificate .T**/ to be $tili-ed against f$t$re ta# obligations of the ban(! +or the first and second 1$arters of 1991' 2A= also paid additional ta#es! =y the end of 1991' 2A=%s ann$al income ta# liabilityres$lted to a credit balance in its favor in the amo$nt of PC@,2?L,L?2.78. &n Fu)- 2L, <??C' 2A= wrote then ="0 *ommissioner 7in-onsF *hato' to inform her abo$t the above developments and to reiterate its re1$est for the iss$ance of a T**' this time for the G$n$tili-ed balance of its advance payment made in 1991 amo$nting to 29L'29M'M92!K H! *"0 denied the re1$est ! 2A= filed a petition for review w/ *TA! *TA denied the claim on the gro$nd that it had already prescribed .beyond the 2Fyear prescriptive period/! 2A= filed a petition for review with the *o$rt of Appeals .*A/! The *A reversed the *TA considering the Gspecial circ$mstanceH that the ta# credit 2A= has been see(ing is to be so$rced not from any ta# erroneo$sly or illegally collected b$t from advance income ta# payment vol$ntarily made in response to then 2resident A1$ino%s call to generate more reven$es for the government! ": 5/n 2A=%s claim for ref$nd/ credit was timeFbarred 0: A4' it was not! "A TH"8 *A86' 2A= so$ght the application of amo$nts advanced to the ="0 to f$t$re ann$al income ta# liabilities' in view of its inability to carryFover the remaining amo$nt of s$ch advance payment to the fo$r

TA? 2 @ M4AT604 B C! 8anche- A2 12

.)/ s$cceeding ta#able years' not having inc$rred income ta# liability d$ring that period! "t wo$ld be improper to treat the same as erroneo$s' wrongf$l or illegal payment of ta# within the meaning of 8ection 2L of the Ta# *ode' since it ou)d "e ineGuita")e to strict)- i!*ose the t o (2);-ear *rescri*tive *eriod as to )e3a))- "ar an- reGuest #or such tax credit certi#icate considerin3 the s*ecia) circu!stances under hich the advance inco!e tax *a-!ent as !ade and the unex*ected event .fo$r years of b$siness losses/ hich *revented such a**)ication or carr- over ! The mandate of 0ev! 0eg! Ao! 1 F99 is hardly of any application to 2A=%s advance payment which' needless to stress' are not G1$arterly paymentsH reflected in the ad;$sted final ret$rn' b$t a l$mp s$m payment to cover f$t$re ta# obligations! Aeither can s$ch advance l$mp s$m payment be considered overpaid income ta# for a given ta#able year' so that the carrying forward of any e#cess or overpaid income ta# for a given ta#able year is limited to the s$cceeding ta#able year only! Li!itin3 the ri3ht to carr-;over the "a)ance o# res*ondent:s advance *a-!ent on)- to the i!!ediate)succeedin3 taxa")e -ear ou)d "e un#air and i!*ro*er considerin3 that' at the time payment was made' =I1 as *ut on due notice o# P'=:s intention to a**)- the entire a!ount to its #uture tax o")i3ations! The s$spension of the two .2/Fyear prescriptive period is warranted not solely by the ob;ective or p$rpose p$rs$ant to which 2A= made the advance income ta# payment in 1991! 0ecords show that the =I1:s ver- o n conduct )ed P'= to "e)ieve a)) a)on3 that its ori3ina) intention to a**)- the advance *a-!ent to its #uture inco!e tax o")i3ations i)) "e res*ected "- the =I1. An availment of ta# credit for reasons other than erroneo$s / wrongf$l collection of ta#es may have a different prescriptive period! A=86AT any provision in the Ta# *ode / special laws' period Z 1 years $nder Art 11)) of the **!

Phi)a! Asset .3!t v 0I1 75 , 5>!2"8LL: hilam $anted to claim for refund on unutilized ta% credits (Case &) and unapplied credita*le $ithholding ta% (Case )) . "<E8H84- this $as denied *y C!,. 1st case: 2hilam Asset Management' "nc! .2hilam/ is a domestic corporation which acts as the investment manager of both 2hilippine +$nd' "nc! .2+"/ and 2hilam =ond +$nd' "nc! .2=+"/' which are openFend investment companies!

=oth 2+" and 2=+" agreed to pay 2hilam by way of compensation for its services and facilities' a monthly management fee from which 2+" and 2=+" withhold an amo$nt e1$ivalent to a >T creditable ta#! "n April 199M' 2hilam filed its income ta# ret$rn for the ta#able year 1999 representing a net loss of appro#imately 22!KM! 2hilam failed to $tili-e the creditable ta# on professional fees withheld by 2+" and 2=+" so it filed a claim for ref$nd with the ="0 representing $n$tili-ed e#cess ta# credits! ="0 did not act on the claim for ref$nd hence in Aovember 1999' 2hilam filed a petition for review with the *TA! "n 2 2' The 0TA denied the c)ai! #or re#und! 2nd case: "n April 1999' 2hilam filed its income ta# ret$rn for the ta#able year 199M declaring a net loss of appro#imately 21!>M! 2hilam had an $napplied creditable withholding ta# which had been previo$sly withheld in that year by 2+" and 2=+"! 2hilam li(ewise declared in its 1999 ta# ret$rn an amo$nt representing its prior e#cess credits for ta#able year 199M! "n the s$cceeding year' 2hilam had a ta# d$e appro#imately in the amo$nt of 2M J and a creditable withholding ta# appro#imately in the amo$nt of 291>J! "n 2 ' 2hilam filed for a claim for ref$nd with respect to the $napplied creditable withholding ta#! ="0 did not act on the claim for ref$nd hence 2hilam filed a petition for review before the *TA in 2 ! The 0TA denied the c)ai! #or re#und. 0$ling of *A for claim of ref$nd for both cases: *A denied the claim for ref$nd of 2hilam%s e#cess creditable ta#es withheld for the years 1999 and 199M' r$ling that 2hilam did not indicate its option to have the amo$nts either ref$nded or carried over and applied to the s$cceeding year! The *A also r$led that to re1$est for either a ref$nd or a credit of income ta# paid' a corporation m$st signify its intention by mar(ing the corresponding option bo# on its ann$al corporate ad;$stment ret$rn' and fail$re to do so wo$ld res$lt in the a$tomatic carryFover of any e#cess ta# credit for the prior year! ": 5/n 2hilam is entitled to a ref$nd of its creditable ta#es withheld for ta#able years 1999 and 199M 0: 2hilam is entitled to a ta# ref$nd of its 1999 e#cess ta# credits' while it is not entitled to a ta# ref$nd which corresponds to its 199M e#cess ta# credits! 0atio for allowing a ta# ref$nd of 2hilam%s 1999 e#cess ta# credits 8ection 9K of the Ta# *ode offers two options to a ta#able corporation whose total 1$arterly income ta# payments in a given ta#able year e#ceeds its total income ta# d$e!

TA? 2 @ M4AT604 B C! 8anche- A2 12

These options are .1/ filing for a ta# ref$nd or .2/ availing of a ta# credit! The first option is relatively simple: any ta# on income that is paid in e#cess of the amo$nt d$e the government may be ref$nded' provided that a ta#payer properly applies for the ref$nd! The second option wor(s by applying the ref$ndable amo$nt' as shown on the +inal Ad;$stment 0et$rn .+A0/ of a given ta#able year' against the estimated 1$arterly income ta# liabilities of the s$cceeding ta#able year! These two options $nder 8ection 9K are alternative in nat$re @ the choice of one precl$des the other! +ail$re to signify one%s intention in the +A0 does not mean o$tright barring of a valid re1$est for a ref$nd' sho$ld one still choose this option later on! 0e1$iring that the income ta# ret$rn or the +A0 of the s$cceeding year be presented to the ="0 in re1$esting a ta# ref$nd has no "asis in law and ;$rispr$dence: 1! 8ection 9K does not mandate it! The law merely re1$ires the filing of the +A0 for the preceding FF not the s$cceeding FF ta#able year! 2! Moreover' there is no a$tomatic grant of a ta# ref$nd! 6#ercising the option for a ta# ref$nd or a ta# credit does not ipso facto confer $pon a ta#payer the right to an immediate availment of the choice made! Aeither does it impose a d$ty on the government to allow ta# collection to be at the sole control of a ta#payer! L! Moreover' the ="0 o$ght to have on file its own copies of petitioner%s +A0 for the s$cceeding year' on the basis of which it co$ld reb$t the assertion that there was a s$bse1$ent credit of the e#cess income ta# payments for the previo$s year! "ts fail$re to present this vital doc$ment to s$pport its contention against the grant of a ta# ref$nd to petitioner is certainly fatal! )! +$rthermore' the Ta# *ode allows the ref$nd of ta#es to a ta#payer that claims it in writing within two years after payment of the ta#es erroneo$sly received by the ="0! Despite the fail$re of 2hilam to ma(e the appropriate mar(ing in the ="0 form' the filing of its written claim effectively serves as an e#pression of its choice to re1$est a ta# ref$nd' instead of a ta# credit! "n the present case' altho$gh petitioner did not mar( the ref$nd bo# in its 1999 +A0' neither did it perform any act indicating that it chose a ta# credit! 4n the contrary' it filed in 199M a claim for ref$nd of its e#cess ta#es withheld in 1999! :nder these circ$mstances' 2hilam is entitled to a ta# ref$nd of its 1999 e#cess ta# credits! 0atio for disallowing a ta# ref$nd of 2hilam%s 199M e#cess ta# credits As to the second case' 8ection 9K also applies! The carryFover option $nder 8ection 9K is permissive! 4nce chosen' the carryFover option shall be considered irrevocable for that ta#able period' and no

application for a ta# ref$nd or iss$ance of a ta# credit certificate shall then be allowed! The s$bse1$ent acts of 2hilam reveal that it has effectively chosen the carryFover option: 1! +irst' the fact that it filled o$t the portion G2rior Cear%s 6#cess *reditsH in its 1999 +A0 means that it categorically availed itself of the carryFover option! "f an application for a ta# ref$nd has been FF or will be FF filed' then that portion of the ="0 form sho$ld necessarily be blan(' even if the +A0 of the previo$s ta#able year already shows an overpayment in ta#es! 2! 8econd' the res$lting red$ndancy in the claim of 2hilam for a ref$nd of its 199M e#cess ta# credits cannot be co$ntenanced! "t cannot be allowed to avail itself of a ta# ref$nd and a ta# credit at the same time for the same e#cess income ta#es paid! L! Third' the GfirstFin firstFo$tH .+"+4/ principle en$nciated by the *TA does not apply! The amo$nt to be applied against the appro#imately 2M J income ta# d$e in the 199M +A0 of 2hilam may be ta(en from its e#cess credits in 1999 or from those withheld in 199M or from both! 5hichever of these the amo$nt will be ta(en from will not ma(e a difference! 5hether the +"+4 principle is applied or not' 8ection 9K remains clear and $ne1$ivocal! 4nce the carryFover option is ta(en' act$ally or constr$ctively' it becomes irrevocable! 2hilam has chosen that option for its 199M creditable withholding ta#es! Th$s' it is no longer entitled to a ta# ref$nd of the amo$nt corresponding to its 199M e#cess ta# credit! Aonetheless' the amo$nt will not be forfeited in the government%s favor' beca$se it may be claimed by petitioner as ta# credits in the s$cceeding ta#able years!

/E=T0 v 0I1 +6=T* is the tr$stee of vario$s retirement plans established by several companies for its employees! As tr$stee of the retirement plans' petitioner was a$thori-ed to hold' manage' invest and reinvest the assets of these plans! "t invested the retirement f$nds in vario$s money mar(et placements' ban( deposits' deposit s$bstit$te instr$ments and government sec$rities! These investments necessarily earned interest income! 2etitioner%s claim for ref$nd centers on the ta# withheld by the vario$s withholding agents' and paid to the *"0 for the fo$r .)/ 1$arters of <??@' amo$nting to 2K' )9'991!ML! 4n fo$r dates' 12 May 199L' 1K A$g$st 199L' L1 Nan$ary 199)' and 29 April 199)' petitioner filed its written claim for ref$nd with the ="0' alleging that the employees% tr$sts are e#empted by specific mandate of law from income ta#ation! Aonetheless' the claims were denied!

TA? 2 @ M4AT604 B C! 8anche- A2 12

Meanwhile' the petitioner already had a pending petition before the *TA' apparently involving the same legal iss$e b$t a previo$s ta#able period! Hoping to comply with the 2Fyear period within which to file an action for ref$nd $nder 8ection 2L of the Ta# *ode' petitioner filed a .otion to Ad!it Su**)e!enta) Petition in the said pending case! The *TA denied the motion' claiming that it wo$ld f$rther delay the proceedings! Aonetheless' the *TA advised that petitioner co$ld instead file a separate petition for review for the ref$nd of the withholding ta#es paid in 199L! 2etitioner followed the *TA%s advice' and on 4ctober 9' 199>' it filed another petition for review with the *TA! This was again denied d$e to prescription and for failing to s$bmit s$ch necessary doc$mentary proof of transactions' s$ch as confirmation receipts and p$rchase orders! "ts M0 and/or Motion Aew Trial were also denied! The *A affirmed the *TA%s r$ling! Issues4(e)dD Did the lower co$rts erred in dismissing +6=T*%s petition on a mere technicalityS A4\ 2etition denied! 1atioD 1! rocedural error of /8A!C 8ec! K of 0$le )L provides that the petition for review m$st be accompanied by Icertified tr$e copies of s$ch material portions of the record referred to in the petition and other s$pporting papersI! :nder 8ection 9' 0$le )L' the fail$re to attach s$ch doc$ments which sho$ld accompany the petition is s$fficient gro$nd for the dismissal of the petition! The *A wo$ld have no way to ascertain the veracity of the s$bmissions $nless the certified tr$e copies of s$ch portions of the record referred to in the petition be attached! The records are an essential re1$isite for the determination of prima facie basis for giving d$e co$rse to the petition! The confirmation receipts and p$rchase orders wo$ld ordinarily show the fact of p$rchase of treas$ry bills or money mar(et placements by the vario$s f$nds! They represent the best evidence on the participation of the f$nds! 5hat has to be established tho$gh' as a matter of evidence' is that the amo$nt so$ght to be ref$nded to petitioner act$ally corresponds to the ta# withheld on the interest income earned from the e#empt employees% tr$sts! The need to be determinate on this point especially that petitioner earns interest income not only from its investments of employees% tr$sts' b$t on a whole range of acco$nts which do not en;oy the same broad e#emption as employees% tr$sts! +or these certifications to hold val$e' there is partic$lar need for them to segregate s$ch ta#es withheld from the interest income of employees% tr$sts' and those withheld from other income so$rces! 4therwise' these certifications are ineffect$al to establish the present claim for ref$nd! +6=T* failed to s$bmit doc$mentary proof of transactions!

2! 7t is a fact that 7ncome from 8mployeeJs trust are e%empted from income ta%- therefore- 2ection )+' of the 574C applies. 0A )919' 0A M)2) and 8ection K .=/ of the A"0* granted e#emption from income ta# to employees% tr$sts! =$t +6=T* did pay the income ta# when it was withheld' therefore 8$ch ta#es were erroneo$sly assessed or collected' giving rise to the application of 8ection 2L ! 86*! 2L ! !!!!In an- case, no such suit or *roceedin3 sha)) "e "e3un a#ter the ex*iration o# t o -ears #ro! the date o# *a-!ent o# the tax or *ena)t- re3ard)ess o# ansu*ervenin3 cause that !a- arise a#ter *a-!ent... L! Ehen should the )@year prescriptive period *e rec6onedN /8A!C s$bmits that it sho$ld be rec(oned from the date of its filing of the Su**)e!enta) Petition on 2L A*ri) <??B ' not from the filing of its new petition for review after the 8$pplemental 2etition was denied! 6ven granting that this sho$ld be the case' s$ch arg$ment wo$ld still precl$de the ref$nd of ta#es wrongf$lly paid from Nan$ary to 29 April 199L' the two .2/Fyear prescriptive period for those ta#es paid then having already become operative! )! Could the )@year prescriptive period for the refund *e deemed tolled *y the filing of the 2upplemental etitionN '&T "n this case' there is no do$bt that the *TA has ;$risdiction over actions see(ing the ref$nd of income ta#es erroneo$sly paid! =$t it sho$ld be borne in mind that petitioner initially so$ght to bring its claim for ref$nd for the ta#es paid in 199L thro$gh a s$pplemental petition in another case pending before the *TA' and not thro$gh an original action! The admission of s$pplemental pleadings remains in the so$nd discretion of the co$rt! "t is only $pon the admission by the co$rt of the s$pplemental complaint that it may be deem to a$gment the original complaint! :ntil s$ch time' the co$rt ac1$ires no ;$risdiction over s$ch new claims as may be raised in the s$pplemental complaint! "n this case' the *TA ref$sed to admit the s$pplemental petition' th$s it cannot even be deemed as having been filed! The *TA only ac1$ired ;$risdiction over the claim for ref$nd for ta#es paid by petitioner in 199L only $pon the filing of the new 2etition for 0eview on 9 4ctober 199>!

Pi)i*inas She)) v 0I1 2etitioner 2ilipinas 8hell 2etrole$m *orporation .282*/ is the 2hilippine s$bsidiary of the international petrole$m giant 8hell' and is engaged in the importation' refining and sale of petrole$m prod$cts in the co$ntry! 0ASE < Q va)idit- o# trans#er o# T00s

TA? 2 @ M4AT604 B C! 8anche- A2 12

+rom 19MM to 1999' 282* paid part of its e#cise ta# liabilities with Ta# *redit *ertificates .T**s/ which it ac1$ired thro$gh the Department of +inance .D4+/ 4ne 8top 8hop "nterFAgency Ta# *redit and D$ty Drawbac( *enter .*enter/ from other =4"Fregistered companies! ="0 accepted the T** payments and iss$ed a ta# debit memoranda .TDM/ ! A*ri) 22 <??L ; However' despite s$ch payment' ="0 assess 282* for alleged deficiency e#cise ta# liabilities of 2h21!9M for the ta#able years 1992 and 199) to 1999' incl$sive of delin1$ency s$rcharges and interest! ="0 said that 282* is not a Gua)i#ied trans#eree o# the T00s it ac1$ired from other =4"Fregistered companies! 282* protested the collection letter' b$t the protest was denied! 282* filed its motion for reconsideration! *"0 did not reply! 282* filed a petition for review before the *TA *TA held that *a-!ent "- the that res*ondent:s atte!*t to *ena)ties #ro! PSP0 ithout due *rocess! Th$s' it held that appealed to the *A! use o# T00s as )e3a) and va)id ' and co))ect a))e3ed de)inGuent taxes and an assess!ent constitutes denia) o# the April 22 assessment was invalid! *"0

U4n March L ' 2 )' 0!A!92M2 was prom$lgated amending 0A 112>' e#panding the ;$risdiction of the *TA and enlarging its membership! "t became effective on April 2L' 2 ) after its d$e p$blication! Th$s' *TA *A86 2 was heard and decided by a *TA Division!W *TA Division held that respondent failed to prove with convincing evidence that the T**s transferred to 282* were fra$d$lently iss$ed as respondentJs finding of alleged fraud $as merely speculative. *"0 and the *enter did not present proof that 282* acted fra$d$lently! They merely based their concl$sions on the a$dited financial statements of the transferors which did not clearly show the act$al e#port sales of transactions from which the T**s were iss$ed! The *enter erroneo$sly based its findings of fra$d on two possibilities: either the transferor did not declare its e#port sales or $nderdeclare them' witho$t specifying identifying or proving the fra$d$lent acts! The *TA Division concl$ded that the T00s trans#erred to PSP0 ere not #raudu)ent)- issued. The *TA Division said that the 'ove!"er assess!ent as not *rec)uded "- the 0ASE < as the )atter concerned the va)idit- o# the trans#er o# the T00s, hi)e 0ASE 2 invo)ved a))e3ed #raudu)ent *rocure!ent and trans#er o# the T00s. *TA 6n =anc r$led' among other things' that =I1:s assess!ent did not *rescri"e considerin3 that no *a-!ent tooK e##ect as the su"6ect T00s ere cance)ed u*on *ost audit. *onse1$ently' the filing of the ta# ret$rn sans payment d$e to the cancellation of the T**s res$lted in the falsity and/or omission in the filing of the ta# ret$rn which p$t them in the ambit of the applicability of the 1 Fyear prescriptive period from the discovery of falsity' fra$d' or omission! The *TA 6n =anc also applied ,znar v. Court of !a% ,ppeals ' where this *o$rt held that witho$t proof that the ta#payer participated in the fra$d' the > T fra$d s$rcharge is not imposed' b$t the 2>T late payment and the 2 T interest per ann$m are applicable! (e)dD The *TA 8n Aanc Decision is hereby 0676086D and 86T A8"D6' and *TA Decision in *A86 1 disallowing the April 22' 2 9 assessment is hereby 06"A8TAT6D! Issue41u)in3D Y"mportant "ss$e 1! W&' the 0TA 3rave)- erred in orderin3 *etitioner PSP0 to *aP2LB,C77,?LC.88, as a))e3ed de#icienc- excise taxes, #or the taxa")e -ears, <??2 and <??A to <??CD C68

0ASE 2 Q #raudu)ent trans#er o# T00s

2ending appeal of *ase 1' the *enter sent letters to 282* re1$iring the latter to s$bmit copies of pertinent sales invoices and delivery receipts covering a/ sale transactions with the T** assignors/transferors p$rportedly in connection with an ongoing *ost audit andR b/ 282* "nd$strial +$el 4il ."+4/ deliveries to 8pinte# "nternational' "nc! 282* replied saying that the re1$ired s$bmission of these doc$ments had no legal basis' for the applicable r$les and reg$lations on the matter only re1$ire that both the assignor and assignee of T**s be =4"Fregistered entities! The *enter ignored this defense and informed 282* of the cance))ation o# the #irst "atch o# T00s transferred to 282* and the TDM covering 282*%s $se of these T**s as well as the corresponding T** assignments! 282*%s M0 was ignored! 'ove!"er 22, <??? ; 282* received the 'ove!"er <B, <??? assess!ent )etter from respondent for e#cise ta# deficiencies' s$rcharges' and interest "ased on the #irst "atch o# cance))ed T00s and TD. covering 282*%s $se of the T**s! 282* protested the assessment letter' b$t the protest was denied by the ="0' constraining it to file another *etition #or revie "e#ore the 0TA

TA? 2 @ M4AT604 B C! 8anche- A2 12

2.

.8ee definition of ta# credit and T** below9/

*TA 6n =anc is incorrect! 5e cannot s$bscribe to the *TA 8n Aanc%s holding that the s$spensive condition s$spends the effectivity of the T**s as payment $ntil after the postFa$dit! This strains the very nat$re of a T**! A T** is an $nderta(ing by the government thro$gh the ="0 or D4+' ac(nowledging that a ta#payer is entitled to a certain amo$nt of ta# credit from either an overpayment of income ta#es' a direct benefit granted by law or other so$rces and instances granted by law s$ch as on specific $n$sed inp$t ta#es and e#cise ta#es on certain goods! As s$ch' ta# credit is transferable in accordance with pertinent laws' r$les' and reg$lations! The effectivity and validity of the T** do not depend on the o$tcome of a postF a$dit! The s$bse1$ent postFa$dit cannot void the T**s and allow the respondent to declare that $tili-ing canceled T**s res$lts in nonpayment on the part of 282*! 4atio: "f we are to s$stain the appellate ta# co$rt' it wo$ld be abs$rd to ma(e the effectivity of the payment of a T** dependent on a postFa$dit since there is no contemplation of the sit$ation wherein there is no postF a$dit! Does the payment made become effective if no postFa$dit is cond$ctedS 4r does the soFcalled s$spensive condition still apply as no law' r$le' or reg$lation specifies a period when a postFa$dit sho$ld or co$ld be cond$cted with a prescriptive periodS *learly' a ta# payment thro$gh a T** cannot be both effective when made and dependent on a f$t$re event for its effectivity! 4$r system of laws and proced$res abhors ambig$ity! Moreover' if the T**s are considered to be s$b;ect to postFa$dit as a s$spensive condition' the very p$rpose of the T** wo$ld be defeated as there wo$ld be no g$arantee that the T** wo$ld be honored by the government as payment for ta#es! Ao investor wo$ld ta(e the ris( of $tili-ing T**s if these were s$b;ect to a postFa$dit that may invalidate them' witho$t prescribed gro$nds or limits as to the e#ercise of said postF a$dit! T** is an $nderta(ing by the government thro$gh the ="0 or D4+' ac(nowledging that a ta#payer is entitled to a certain amo$nt of ta# credit
9 Tax credits were granted under ./ 220 as incenti"es to encourage in"est%ents in certain usinesses. A tax credit generally refers to an amount that may be subtracted directly from ones total tax liability. 1t is an 2allowance against the tax itself3 or 2a deduction fro% what is owed3 y a taxpayer to the go"ern%ent. A TCC is a certification, duly issued to the taxpayer na%ed therein, y the Co%%issioner or his duly authorized representati"e, reduced in a ,14 Accounta le 5or% in accordance with the prescri ed for%alities, ac-nowledging that the grantee-taxpayer na%ed therein is legally entitled a tax credit, the %oney "alue of which may be used in payment or in satisfaction of any of his internal revenue tax liability #except those excluded$, or may be converted as a cash refund , or %ay otherwise e disposed of in the %anner and in accordance with the li%itations, if any, as %ay e prescri ed y the pro"isions of these 4egulations.

from either an overpayment of income ta#es' a direct benefit granted by law or other so$rces and instances granted by law s$ch as on specific $n$sed inp$t ta#es and e#cise ta#es on certain goods! As s$ch' ta# credit is transferable in accordance with pertinent laws' r$les' and reg$lations! Y4ther iss$es: L! W&' the 0TA a**ea)s 3rave)- erred in i!*osin3 surchar3es and interests on the a))e3ed de#iciencexcise tax o# *etitioner PSP0D C68 Ass$ming that fra$d attended the proc$rement of the s$b;ect T**s' it cannot pre;$dice 282*%s rights as earlier e#plained since 282* has not been shown or proven to have participated in the perpetration of the fra$d$lent acts' nor is it shown that 282* committed fra$d in the transfer and $tili-ation of the s$b;ect T**s! 5hile the *enter has a$thority to cancel the T**%s' it m$st bear in mind the nat$re of the T**%s immediate effectiveness and validity for which cancellation may only be e#ercised before a transferred T** has been f$lly $tili-ed or canceled by the ="0 after d$e application of the available ta# credit to the internal reven$e ta# liabilities of an innocent transferee for val$e' $nless of co$rse the claimant or transferee was involved in the perpetration of the fra$d in the T**%s iss$ance' transfer' or $tili-ation! The $tili-ation of the T** will not shield a g$ilty party from the conse1$ences of the fra$d committed! 5hile we agree with respondent that the 8tate in the performance of governmental f$nction is not estopped by the neglect or omission of its agents' and nowhere is this tr$er than in the field of ta#ation' this principle cannot be applied to wor( in;$stice against an innocent party! "n the case at bar' 282*%s rights as an innocent transferee for val$e m$st be protected! Therefore' the remedy for respondent is to go after the claimant companies who allegedly perpetrated the fra$d .was the s$b;ect of a criminal prosec$tion before the 8andiganbayan!/ )! W&' the assess!ent dated <B 'ove!"er <??? is void considerin3 that it #ai)ed to co!*)- ith the statutor- as e)) as re3u)ator- reGuire!ents in the issuance o# assess!ents : C68

B. 0espondent merely relied on the findings of the *enter which did not give 282* ample opport$nity to air its side! 5hile 282* indeed protested the formal assessment' s$ch does not denigrate the fact that it was deprived of stat$tory and proced$ral d$e process to contest the assessment before it was iss$ed!

TA? 2 @ M4AT604 B C! 8anche- A2 12

5hat is applicable is 00 12F99 1 ' which s$perseded 00 12FM>' p$rs$ant to 8ec! 2)) in relation to 8ec! 2)> of the A"0* implementing 8ecs! K' 9' 2 )' 22M' 2)9' 2)M' and 2)9 on the assessment of national internal reven$e ta#es' fees' and charges! The proced$res delineated in the said stat$tory provisos and 00 12F99 were not followed by respondent' depriving 282* of d$e process in contesting the formal assessment levied against it! 0espondent ignored 00 12F99 and did not iss$e 282* a notice for informal conference and a preliminary assessment notice' as re1$ired! 282*%s Aovember )' 1999 motion for reconsideration of the p$rported *enter findings and cancellation of the s$b;ect T**s and the TDM was not even acted $pon! 282* was merely informed that it is liable for the amo$nt of e#cise ta#es it declared in its e#cise ta# ret$rns for 1992 and 199) to 1999 covered by the s$b;ect T**s via the formal letter of demand and assessment notice! +or being formally defective' the Aovember 1>' 1999 formal letter of demand and assessment notice is void!

10

!aragraph 6.'.4 of 7ec. 6, 44 '2-99 pertinently pro"ides& 6.'.4 5or%al 8etter of 9e%and and Assess%ent Notice.::The for%al letter of de%and and assess%ent notice shall e issued y the Co%%issioner or his duly authorized representati"e. The letter of de%and calling for pay%ent of the taxpayer;s deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based , otherwise, the formal letter of demand and assessment notice shall be void. The sa%e shall e sent to the taxpayer only y registered %ail or y personal deli"ery. x x x #.%phasis supplied.$

TA? 2 @ M4AT604 B C! 8anche- A2 12