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10. G.R. No. 185023 August 24, 2011 CITY OF PASIG vs.

REPUBLIC OF THE PHILIPPINES Facts: Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land, with a total area of 18.4891 hectares, situated in Pasig City. Portions of the properties are leased to different business establishments. In 1986, the registered owner of MPLDC, Jose Y. Campos voluntarily surrendered MPLDC to the Republic of the Philippines as an ill-gotten wealth. On 30 September 2002, the Pasig City Assessors Office sent MPLDC 2 notices of real property tax delinquency for 1979 to 2001. Independent Realty Corporation thru its President, Jalandoni and Treasurer Razon claimed that tax for 1979 to 1986 had been paid, and that MPLDC is exempt from tax beginning 1987. However, the Pasig City Treasurer insisted that the properties were not exempt from tax. The Pasig City Assessors Office sent MPLDC a notice of final demand for payment of tax. MPLDC paid partial payment under protest. The City of Pasig levied the property. Therefore, PCGG filed with the RTC an amended petition for certiorari, prohibition and mandamus against Pasig City The RTC granted the petition for certiorari, prohibition and mandamus. The RTC ordered the assessment, levy, and public auction sale be annulled and set aside and prohibited further assessment of real property tax and collection thereof. Pasig City appealed to the CA and ruled that no grave abuse of discretion on the part of Pasig City when it issued the challenged tax assessment, for it is well settled that the test of exemptions from taxation is the use of the property for purposes mentioned in the Constitution. PCGG filed a motion for reconsideration where the CA ruled in the affirmative reversing its prior rulling. Issues: Pasig City raises as issues that the lower courts erred in granting PCGGs petition for certiorari, prohibition and mandamus and in ordering Pasig City to assess and collect real property tax from the lessees of the properties. Held: The petition is partly meritorious. As correctly found by the RTC and the Court of Appeals, the Republic of the Philippines owns the properties. The Republic of the Philippines is the presumptive owner of the properties for taxation purposes. Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the Philippines are exempt from real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." Thus, the portions of the properties not leased to taxable entities are exempt from real estate tax while the portions of the properties leased to taxable entities are subject to real estate tax. The law imposes the liability to pay real estate tax on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the real estate tax as part of the rent to the lessees. Pasig City is DIRECTED to issue to respondent new real property tax assessments covering only the portions of the properties actually leased to taxable entities, and only for the period of such leases. Interests and penalties on such new real property tax assessment shall accrue only after receipt of such new assessment by respondent. 11. G.R. No. 177279 October 13, 2010 COMMISSIONER OF INTERNAL REVENUE vs. HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING CORPORATION (represented by LUIS M. CAMUS and LINO D. MENDOZA) Facts: The BIR National Office conducted a fraud investigation for all internal revenue taxes to determine the tax liabilities of L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999 due to the information provided by an informer that it had substantial underdeclared income for the said period. LMCEC failed to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, hence, a criminal complaint was instituted by the BIR for violation of Section 266 of

the NIRC against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities as President and Comptroller, respectively. Camus and Mendoza assail the validity of the complaint and further aver that the company had already undergone a series of routine examinations for the years 1997, 1998 and 1999 for under the NIRC, only one examination of the books of accounts is allowed per taxable year. The Chief State Prosecutor, the Secretary of Justice and the Court of Appeals dismissed the complaint instituted by the BIR. Hence, this petition was filed before the Supreme Court. Issue: whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax) of the Tax Code. Held: The Supreme Court ruled in favor of the BIR. LMCEC cannot claim as excuse from the reopening of its books of accounts the previous investigations and examinations. Under Section 235 (a), an exception was provided in the rule on once a year audit examination in case of fraud, irregularity or mistakes, as determined by the Commissioner. The distinction between a Regular Audit Examination and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district offices of the Bureaus Regional Offices, the authority emanating from the Regional Director, while the latter is conducted by the TFD of the National Office only when instances of fraud had been determined by the BIR in this case, the non-declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30% income declared in its return is considered a substantial underdeclaration of income, which constituted prima facie evidence of false or fraudulent return under Section248(B) of the NIRC, as amended. Further, RR No. 2-99 was issued providing for last priority in audit and investigation of tax returns to accomplish the said objective without, however, compromising the revenue collection that would have been generated from audit and enforcement activities. The program Economic Recovery Assistance Payment (ERAP) Program granted immunity from audit and investigation of income tax, VAT and percentage tax returns for 1998. Since such immunity from audit and investigation does not preclude the collection of revenues generated from audit and enforcement activities, it follows that the BIR is likewise not barred from collecting any tax efficiency discovered as a result of tax fraud investigations.

12. G.R. No. 179800 REPUBLIC OF THE PHILIPPINES represented by CIR vs. PHILIPPINE AIRLINES, INC. (PAL) Facts: PAL is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is engaged in the air transportation business. To meet the exigencies of its daily business operations, PAL availed the communication services of PLDT for January 1, 2002 to December 31, 2002. PAL allegedly paid PLDT the 10% Overseas Communications Tax in the amount of P134,431.95 on its overseas telephone calls. On February 24, 2004, PAL filed for refund in the amount of P134,431.95 representing the total amount of 10% OCT citing as legal bases Section 13 of Presidential Decree (P.D.) No. 15904 and BIR Ruling No. 97-94 dated April 13, 1994. Respondent PAL argued that since it incurred negative taxable income for fiscal years 2002 and 2003 and opted for zero basic corporate income tax, which was lower than the 2% franchise tax, respondent PAL had complied with the "in lieu of all other taxes" clause. Thus, it was no longer liable for 10% OCT thus entitled for refund. CIR disagreed. Therefore, PAL appealed to CTA. The CTA pointed out that since respondent PAL chose the first option, even if it incurred negative taxable income and consequently did not pay any income tax, it could still avail itself of the exemption, and could not be held liable for the 10% OCT. The operative act, in order for it to avail itself of exemption from all other taxes under the "in lieu of all other taxes" clause of its

Charter, is actual exercise by respondent PAL of the option to avail itself either of the basic corporate income tax or the 2% franchise tax, and no actual payment is required. Issue: Whether or not respondent is exempt from the payment of the 10% OCT under its franchise and therefore entitle for refund. Held: There was no need for the actual payment of tax, either the basic corporate income tax or the 2% franchise tax, before respondent PAL could avail itself of the in lieu of all other taxes provision under its Charter. In the present case, Presidential Decree 1590 granted respondent Philippine Airlines (PAL) an option to pay the lower of two alternatives: (a) "the basic corporate income tax based on PALs annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code" or (b) "a franchise tax of 2% of gross revenues." Availment of either of these 2 alternatives shall exempt the airline from the payment of "all other taxes," including the 20% final withholding tax on bank deposits. PAL has the option to choose the alternative that results to lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.

13. G.R. No. 185023 August 24, 2011 CITY OF PASIG vs. REPUBLIC OF THE PHILIPPINES Facts: Mid-Pasig Land Development Corporation (MPLDC) owned two parcels of land, with a total area of 18.4891 hectares, situated in Pasig City. Portions of the properties are leased to different business establishments. In 1986, the registered owner of MPLDC, Jose Y. Campos voluntarily surrendered MPLDC to the Republic of the Philippines as an ill-gotten wealth. On 30 September 2002, the Pasig City Assessors Office sent MPLDC 2 notices of real property tax delinquency for 1979 to 2001. Independent Realty Corporation thru its President, Jalandoni and Treasurer Razon claimed that tax for 1979 to 1986 had been paid, and that MPLDC is exempt from tax beginning 1987. However, the Pasig City Treasurer insisted that the properties were not exempt from tax. The Pasig City Assessors Office sent MPLDC a notice of final demand for payment of tax. MPLDC paid partial payment under protest. The City of Pasig levied the property. Therefore, PCGG filed with the RTC an amended petition for certiorari, prohibition and mandamus against Pasig City The RTC granted the petition for certiorari, prohibition and mandamus. The RTC ordered the assessment, levy, and public auction sale be annulled and set aside and prohibited further assessment of real property tax and collection thereof. Pasig City appealed to the CA and ruled that no grave abuse of discretion on the part of Pasig City when it issued the challenged tax assessment, for it is well settled that the test of exemptions from taxation is the use of the property for purposes mentioned in the Constitution. PCGG filed a motion for reconsideration where the CA ruled in the affirmative reversing its prior rulling. Issues: Pasig City raises as issues that the lower courts erred in granting PCGGs petition for certiorari, prohibition and mandamus and in ordering Pasig City to assess and collect real property tax from the lessees of the properties. Held:

The petition is partly meritorious. As correctly found by the RTC and the Court of Appeals, the Republic of the Philippines owns the properties. The Republic of the Philippines is the presumptive owner of the properties for taxation purposes. Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the Philippines are exempt from real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." Thus, the portions of the properties not leased to taxable entities are exempt from real estate tax while the portions of the properties leased to taxable entities are subject to real estate tax. The law imposes the liability to pay real estate tax on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the real estate tax as part of the rent to the lessees. Pasig City is DIRECTED to issue to respondent new real property tax assessments covering only the portions of the properties actually leased to taxable entities, and only for the period of such leases. Interests and penalties on such new real property tax assessment shall accrue only after receipt of such new assessment by respondent. 14. G.R. No. 177279 October 13, 2010 COMMISSIONER OF INTERNAL REVENUE vs. HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING CORPORATION (represented by LUIS M. CAMUS and LINO D. MENDOZA) Facts: The BIR National Office conducted a fraud investigation for all internal revenue taxes to determine the tax liabilities of L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999 due to the information provided by an informer that it had substantial underdeclared income for the said period. LMCEC failed to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, hence, a criminal complaint was instituted by the BIR for violation of Section 266 of the NIRC against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities as President and Comptroller, respectively. Camus and Mendoza assail the validity of the complaint and further aver that the company had already undergone a series of routine examinations for the years 1997, 1998 and 1999 for under the NIRC, only one examination of the books of accounts is allowed per taxable year. The Chief State Prosecutor, the Secretary of Justice and the Court of Appeals dismissed the complaint instituted by the BIR. Hence, this petition was filed before the Supreme Court. Issue: whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax) of the Tax Code. Held: The Supreme Court ruled in favor of the BIR. LMCEC cannot claim as excuse from the reopening of its books of accounts the previous investigations and examinations. Under Section 235 (a), an exception was provided in the rule on once a year audit examination in case of fraud, irregularity or mistakes, as determined by the Commissioner. The distinction between a Regular Audit Examination and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district offices of the Bureaus Regional Offices, the authority emanating from the Regional Director, while the latter is conducted by the TFD of the National Office only when instances of fraud had been determined by the BIR in this case, the non-declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30% income declared in its return is considered a substantial underdeclaration of income, which constituted prima facie evidence of false or fraudulent return under Section248(B) of the NIRC, as amended. Further, RR No. 2-99 was issued providing for last priority in audit and investigation of tax returns to accomplish the said objective without, however, compromising the revenue collection that would have been generated from audit and enforcement activities. The program Economic Recovery Assistance Payment (ERAP) Program granted immunity from audit and investigation of income tax, VAT and percentage tax

returns for 1998. Since such immunity from audit and investigation does not preclude the collection of revenues generated from audit and enforcement activities, it follows that the BIR is likewise not barred from collecting any tax efficiency discovered as a result of tax fraud investigations.

15. G.R. No. 179800 REPUBLIC OF THE PHILIPPINES represented by CIR vs. PHILIPPINE AIRLINES, INC. (PAL) Facts: PAL is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is engaged in the air transportation business. To meet the exigencies of its daily business operations, PAL availed the communication services of PLDT for January 1, 2002 to December 31, 2002. PAL allegedly paid PLDT the 10% Overseas Communications Tax in the amount of P134,431.95 on its overseas telephone calls. On February 24, 2004, PAL filed for refund in the amount of P134,431.95 representing the total amount of 10% OCT citing as legal bases Section 13 of Presidential Decree (P.D.) No. 15904 and BIR Ruling No. 97-94 dated April 13, 1994. Respondent PAL argued that since it incurred negative taxable income for fiscal years 2002 and 2003 and opted for zero basic corporate income tax, which was lower than the 2% franchise tax, respondent PAL had complied with the "in lieu of all other taxes" clause. Thus, it was no longer liable for 10% OCT thus entitled for refund. CIR disagreed. Therefore, PAL appealed to CTA. The CTA pointed out that since respondent PAL chose the first option, even if it incurred negative taxable income and consequently did not pay any income tax, it could still avail itself of the exemption, and could not be held liable for the 10% OCT. The operative act, in order for it to avail itself of exemption from all other taxes under the "in lieu of all other taxes" clause of its Charter, is actual exercise by respondent PAL of the option to avail itself either of the basic corporate income tax or the 2% franchise tax, and no actual payment is required. Issue: Whether or not respondent is exempt from the payment of the 10% OCT under its franchise and therefore entitle for refund. Held: There was no need for the actual payment of tax, either the basic corporate income tax or the 2% franchise tax, before respondent PAL could avail itself of the in lieu of all other taxes provision under its Charter. In the present case, Presidential Decree 1590 granted respondent Philippine Airlines (PAL) an option to pay the lower of two alternatives: (a) "the basic corporate income tax based on PALs annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code" or (b) "a franchise tax of 2% of gross revenues." Availment of either of these 2 alternatives shall exempt the airline from the payment of "all other taxes," including the 20% final withholding tax on bank deposits. PAL has the option to choose the alternative that results to lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.

16. G.R. No. 162175 June 28, 2010 MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE Facts:

Petitioner, a non-stock and non-profit corporation, was organized for the purpose of holding title to and administering Employees Trust Fund of Victorias Milling Company, Inc. employees. Petitioner, as trustee, claims that the income earned by the Employees Trust Fund is tax exempt under Section 53(b) of NIRC. Petitioner invested part of the trust fund to purchase a lot in Madrigal Business Park through VMC who was also a partly owner of the lot and was registered as owner. Petitioner later was in need of funds to pay the retirement and pension benefits of VMC employees. Hence, VMC negotiated the sale to Metrobank but the consummation of the sale was withheld and paid it to BIR. Petitioner claims that it is a co-owner of the MBP lot as trustee of the Employees Trust Fund and thus it is exempt from income tax and should be refunded to them the part of the withheld tax but the CIR disagreed. Hence, petitioner file a petition to the CTA where it was denied and later been denied also by the CA in a petition for review a subsequent motion for reconsideration. Issues: Whether or not the petitioner is exempt from income tax and entitled to refund. Held: Yes, petitioner is entitled to a refund of withholding taxes paid on interest income from direct loans made by the Employees' Trust Fund since such interest income is exempt from tax. Petitioner has the personality to claim tax refunds due the Employees' Trust Fund. Since petitioner has proven that the income from the sale of the MBP lot came from an investment by the Employees' Trust Fund, petitioner, as trustee of the Employees Trust Fund, is entitled to claim the tax refund which was erroneously paid in the sale of the MBP lot. 17. NATIONAL POWER CORPORATION vs. PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO FACTS: The Province of Quezon assessed Mirant Pagbilao Corporation for unpaid real property taxes in the amount of P1.5 Billion for the machineries located in its power plant in Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer Agreement (entitled Energy Conversion Agreement) with Mirant, was furnished a copy of the tax assessment. Napocor (not Mirant) protested the assessment before the Local Board of Assessment Appeals claiming entitlement to the tax exemptions provided under Section234 of the LGC which states: Section 234. Exemptions from Real Property Tax. Assuming that it cannot claim the above tax exemptions, Napocor argued that it is entitled to certain tax privileges, 1. The lower assessment level of 10% under Section 218(d) of the LGC for government-owned and controlled corporations engaged in the generation and transmission of electric power, instead of the 80%assessment level for commercial properties imposed in the assessment letter; and 2. An allowance for depreciation of the subject machineries under Section 225 of the LGC. ISSUES: Whether or not NAPOCOR is entitled to claimed tax exemptions with due regard to BOT agreement. HELD: Napocor is not entitled to any of these claimed tax exemptions and privileges on the basis primarily of the defective protest filed by the Napocor. We found that Napocor did not file a valid protest against the realty tax assessment because it did not possess the requisite legal standing. When a taxpayer fails to question the assessment before the LBAA, the assessment becomes final, executory, and demandable, precluding the taxpayer from questioning the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits. A person legally burdened with the obligation to pay for the tax imposed on the property has the legal interest in the property and the personality to protest the tax assessment.

We disproved Napocors claim of control and supervision under the second argument after reading the full terms of the BOT Agreement, which, contrary to Napocors claims, granted Mirant substantial power in the control and supervision of the power plants construction and operation. Napocor could still not successfully claim exemption under Section 234 (c) of the LGC because to be entitled to the exemption under that provision, there must be actual, direct, and exclusive use of machineries. Napocor failed to satisfy these requirements.

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