Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 170389

October 20, 2010

COMMISSION OF INTERNAL REVENUE, Petitioner,

vs.
AQUAFRESH SEAFOODS, INC., Respondent.
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari,1 under Rule 45 of the Rules of Court, seeking to set aside the November 9, 2005 Decision2 of the
Court of Tax Appeals (CTA) En Banc in CTA-E.B. No. 77. The CTA En Banc affirmed the December 22, 2004 Decision of the CTA First Division.
The facts of the case are as follows:
On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, including improvements thereon, located at
Barrio Banica, Roxas City, for the consideration of Three Million One Hundred Thousand Pesos (Php 3,100, 000.00). Said properties were covered
under Transfer Certificate of Titles Nos. T-21799 and T-21804.
Respondent then filed a Capital Gains Tax Return/Application for Certification Authorizing Registration and paid the amount of Php186,000.00,
representing the Capital Gains Tax (CGT) and the amount of Php46,500.00, representing the Documentary Stamp Tax (DST) due from the said sale.
Subsequently, Revenue District Officer Gil G. Tabanda issued Certificate Authorizing Registration No. 1071477.
The Bureau of Internal Revenue (BIR), however, received a report that the lots sold were undervalued for taxation purposes. This prompted the Special
Investigation Division (SID) of the BIR to conduct an occular inspection over the properties. After the investigation, the SID concluded that the subject
properties were commercial with a zonal value of Php2,000.00 per square meter.
On September 15, 2000, Regional Director Leonardo Q. Sacamos (Director Sacamos) of the Revenue Region Iloilo City sent two Assessment Notices
apprising respondent of CGT and DST defencies in the sum of Php1,372,171.46 and Php356,267.62, respectively. Director Sacamos relied on the findings
of the SID that the subject properties were commercial with a zonal valuation of Php2,000.00 per square meter.
On October 1, 2000, respondent sent a letter protesting the assessments made by Director Sacamos. On December 1, 2000, Director Sacamos denied
respondent's protest for lack of legal basis. Respondent appealed, but the same was denied with finality on February 13, 2002.
On March 19, 2002, respondent filed a petition for review3 before the CTA seeking the reversal of the denial of its protest. The main thrust of
respondent's petition was that the subject properties were located in Barrio Banica, Roxas, where the pre-defined zonal value was Php650.00 per square
meter based on the "Revised Zonal Values of Real Properties in the City of Roxas under Revenue District Office No. 72 Roxas City" (1995 Revised Zonal
Values of Real Properties). Respondent asserted that the subject properties were classified as "RR" or residential and not commercial. Respondent
argued that since there was already a pre-defined zonal value for properties located in Barrio Banica, the BIR officials had no business re-classifying the
subject properties to commercial.
On December 22, 2004, the CTA promulgated a Decision4 ruling in favor of respondent, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, respondent's assessments for deficiency capital against tax and documentary stamp taxes are hereby CANCELLED and
SET ASIDE. x x x
SO ORDERED.5
Ruling in favor of respondent, the CTA opined that that the existing Revised Zonal Values in the City of Roxas should prevail for purposes of determining
respondent's tax liabilities, thus:
While respondent is given the authority to determine the fair market value of the subject properties for the purpose of computing internal revenue taxes,
such authority is not without restriction or limitation. The first sentence of Section 6(E) sets the limitation or condition in the exercise of
such power by requiring respondent to consult with competent appraisers both from private and public sectors. As there was no reevaluation and no revision of the zonal values of the subject properties in Roxas City at the time of the sale, respondent cannot unilaterally determine the
zonal values of the subject properties by invoking his powers of obtaining information and making assessments under Sections 5 and 6 of the NIRC. The
existing Revised Zonal Values of Real Properties in the City of Roxas shall prevail for the purpose of determining the proper tax
liabilities of petitioner.6
Petitioner Commissioner of Internal Revenue filed a Motion for Reconsideration, which was, however, denied by the CTA in a Resolution7 dated April 4,
2005.

Petitioner then appealed to the CTA En Banc.

In a Decision dated November 9, 2005, the CTA En Banc dismissed petitioner's appeal, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition for Review is DISMISSED for lack of merit.
SO ORDERED.8
The CTA En Banc ruled that the 1995 Revised Zonal Values of Real Properties should prevail. Said court relied on Section 6 (E) of the National Internal
Revenue Code (NIRC) which requires consultation from appraisers, from both the public and private sectors, in fixing the zonal valuation of properties.
The CTA En Banc held that petitioner failed to prove any amendment effected on the 1995 Revised Zonal Values of Real Properties at the time of the sale
of the subject properties.
Hence, herein petition, with petitioner raising the following issues for this Court's resolution, to wit:
I.
WHETHER OR NOT THE REQUIREMENT OF CONSULTATION WITH COMPETENT APPRAISERS BOTH FROM THE PRIVATE AND PUBLIC
SECTORS IN DETERMINING THE FAIR MARKET VALUE OF THE SUBJECT LOTS IS APPLICABLE IN THE CASE AT BAR.
II.
WHETHER OR NOT THE COURT OF TAX APPEALS EN BANC COMMITTED GRAVE ERROR IN APPLYING THE FAIR MARKET VALUE BASED ON
THE ZONAL VALUATION OF A RESIDENTIAL LAND AS TAX BASE IN THE COMPUTATION OF CAPITAL GAINS TAX AND DOCUMENTARY
STAMP TAX DEFICIENCIES OF RESPONDENT.9
The petition is not meritorious. The issues being interrelated, this Court shall discuss the same in seriatim.
Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%) percent is imposed on the gains presumed to have been realized in the sale, exchange or
disposition of lands and/or buildings which are not actively used in the business of a corporation and which are treated as capital assets based on the
gross selling price or fair market value as determined in accordance with Section 6(E) of the NIRC, whichever is higher.
On the other hand, under Section 196 of the NIRC, DST is based on the consideration contracted to be paid or on its fair market value determined in
accordance with Section 6(E) of the NIRC, whichever is higher.
Thus, in determining the value of CGT and DST arising from the sale of a property, the power of the CIR to assess is subject to Section 6(E) of the NIRC,
which provides:
Section 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. xxxx
(E) Authority of the Commissioner to Prescribe Real Property Values The Commissioner is hereby authorized to divide the Philippines into different
zones or area and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market
value of real properties located in each zone or area. For purposes of computing internal revenue tax, the value of the property shall be, whichever is
higher of:
(1) the fair market value as determined by the Commissioner; or
(2) the fair market value as shown in the schedule of values of the Provincial and City Assessors.
While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the law is clear that the same has to be done upon
consultation with competent appraisers both from the public and private sectors. It is undisputed that at the time of the sale of the subject properties
found in Barrio Banica, Roxas City, the same were classified as "RR," or residential, based on the 1995 Revised Zonal Value of Real Properties.
Petitioner, thus, cannot unilaterally change the zonal valuation of such properties to "commercial" without first conducting a re-evaluation of the zonal
values as mandated under Section 6(E) of the NIRC.
Petitioner argues, however, that the requirement of consultation with competent appraisers is mandatory only when it is prescribing real property values
that is when a formulation or change is made in the schedule of zonal values. Petitioner also contends that what it did in the instant case was not to
prescribe the zonal value, but merely classify the same as commercial and apply the corresponding zonal value for such classification based on the
existing schedule of zonal values in Roxas City.10
We disagree.
To this Court's mind, petitioner's act of re-classifying the subject properties from residential to commercial cannot be done without first complying with
the procedures prescribed by law. It bears to stress that ALL the properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal

Values of Real Properties. Thus, petitioner's act of classifying the subject properties involves a re-classification and revision of the prescribed zonal
values.
In addition, Revenue Memorandum No. 58-69 provides for the procedures on the establishment of the zonal values of real properties, viz.:
(1) The submission or review by the Revenue District Offices Sub-Technical Committee of the schedule of recommended zonal values to the
TCRPV;
(2) The evaluation by TCRPV of the submitted schedule of recommended zonal values of real properties;
(3) Except in cases of correction or adjustment, the TCRPV finalizes the schedule and submits the same to the Executive Committee on Real
Property Valuation (ECRPV);
(3) Upon approval of the schedule of zonal values by the ECRPV, the same is embodied in a Department Order for implementation and signed
by the Secretary of Finance. Thereafter, the schedule takes effect (15) days after its publication in the Official Gazette or in any newspaper of
general circulation.
Petitioner failed to prove that it had complied with Revenue Memorandum No. 58-69 and that a revision of the 1995 Revised Zonal Values of Real
Properties was made prior to the sale of the subject properties. Thus, notwithstanding petitioner's disagreement to the classification of the subject
properties, the same must be followed for purposes of computing the CGT and DST. It bears stressing, and as observed by the CTA En Banc, that the
1995 Revised Zonal Values of Real Properties was drafted by petitioner, BIR personnel, representatives from the Department of Finance, National Tax
Research Center, Institute of Philippine Real Estate Appraisers and Philippine Association of Realtors Board, which duly satisfied the requirement of
consultation with public and private appraisers.11
Petitioner contends, nevertheless, that its act of classifying the subject properties based on actual use was in accordance with guidelines number 1-b and
2 as set forth in "Certain Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO 72 Roxas City" (Zonal Valuation Guidelines).12
Section 1 (b) of the Zonal Valuation Guidelines reads:
1. No zonal value has been prescribed for a particular classification of real property.
Where in the approved schedule of zonal values for a particular barangay xxxx
b) No zonal value has been prescribed for a particular classification of real property in one barangay, the zonal value prescribed for the same
classification of real property located in an adjacent barangay of similar conditions shall be used.
Section 1 (b) does not apply to the case at bar for the simple reason that said proviso operates only when "no zonal valuation has been prescribed." The
properties located in Barrio Banica, Roxas City were already subject to a zonal valuation, a fact which even petitioner has admitted in its petition, thus:
It must be noted that under the schedule of zonal values, Barangay Banica, where the subject lots are situated, has a single classification only that of a
residential area. Accordingly, it has a prescribed zonal value of Php650.00 per square meter.13
Petitioner, however, also relies on Section 2 (a) of the Zonal Valuation Guidelines, to justify its action. Said section states:
2. Predominant Use of Property.
a) All real properties, regardless of actual use, located in a street/barangay zone, the use of which are predominantly commercial shall be classified as
"Commercial" for purposes of zonal valuation.
In BIR Ruling No. 041-2001, issued on September 18, 2001, the BIR tackled the application of a provision which is identical to Section 2 (a) of the Zonal
Valuation Guidelines. BIR Ruling No. 041-2001 involved a request by the Iglesia Ni Cristo that the re-computation of CGT and DST based on the
predominant use of the real properties located at Mindanao Avenue, Quezon City, be set aside. In said case, the Iglesia ni Cristo paid the CGT and DST
based on the zonal value of residential lots in Quezon City. The Revenue District Officer, however, ordered a re-computation of the CGT and DST based
on the ground that the real property is located in a predominantly commercial area and must be classified as commercial for purposes of zonal valuation.
The BIR ruled in favor of Iglesia ni Cristo stating that "Certain Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO No. 38,
applying the predominant use of property as the basis for the computation of the Capital Gains and Documentary Stamp Taxes, shall apply only when
the real property is located in an area or zone where the properties are not yet classified and their respective zonal valuation are
not yet determined." The pertinent portion of BIR Ruling No. 041-2001 reads:
In reply, please be informed that this Office finds your request meritorious. The number 2 guideline laid down in Certain Guidelines in the
implementation of Zonal valuation of Real Properties for RDO No. 38- North Quezon City xxx does not apply to this case.
Number 2 of the CERTAIN GUIDELINES IN THE IMPLEMENTATION OF ZONAL VALUATION OF REAL PROPERTIES FOR RD NO. 38 NORTH
QUEZON CITY" provides:

"2. PREDOMINANT USE OF PROPERTY:

ALL REAL PROPERTIES REGARDLESS OF ACTUAL USE, LOCATED IN A STREET/BARANGAY ZONE, THE USE OF WHICH ARE
PREDOMINANTLY COMMERCIAL SHALL BE CLASSIFIED AS 'COMMERICIAL'FOR PURPOSES OF ZONAL VALUATION."
It is the considered opinion of this Office that the guideline applies when the real property is located in an area or zone where the
properties are not yet classified and their respective zonal valuation are not yet determined.
In the instant case, however, the classification and valuation of the properties located in Mindanao Avenue, Bagong Bantay, have
already been determined. Under Department of Finance Order No. 6-2000, the properties along Mindanao Avenue had already been classified as
residential and commercial. The zonal valuation thereof had already been determined. x x x Therefore, the Revenue District Officer of RDO No.
38 has no discretion to determine the classification or valuation of the properties located in the pertinent area. The computation of the
capital gains and documentary stamp taxes shall be based on the zonal of residential properties located at Mindanao Avenue, Bago Bantay, Quezon
City.141avvphil
Based on the foregoing, this Court need not belabour on the applicability of Section 2 (a), as the BIR itself has already ruled that the same shall apply
only when the real property is located in an area or zone where the properties are not yet classified and their respective zonal valuation are not yet
determined. As mentioned earlier, the subject properties were already part of the 1995 Revised Zonal Value of Real Properties which classified the same
as residential with a zonal value of Php650.00 per square meter; thus, Section 2 (a) clearly has no application.
This Court agrees with the observation of the CTA that "zonal valuation was established with the objective of having an efficient tax administration by
minimizing the use of discretion in the determination of the tax based on the part of the administrator on one hand and the taxpayer on the other
hand."15 Zonal value is determined for the purpose of establishing a more realistic basis for real property valuation. Since internal revenue taxes, such as
CGT and DST, are assessed on the basis of valuation, the zonal valuation existing at the time of the sale should be taken into account.16
If petitioner feels that the properties in Barrio Banica should also be classified as commercial, then petitioner should work for its revision in accordance
with Revenue Memorandum Order No. 58-69. The burden was on petitioner to prove that the classification and zonal valuation in Barrio Banica have
been revised in accordance with the prevailing memorandum. In the absence of proof to the contrary, the 1995 Revised Zonal Values of Real Properties
must be followed.
Lastly, this Court takes note of the wording of Section 2 (b) of the Zonal Valuation Guidelines, to wit:
2. Predominant Use of Property.
b) The predominant use of other classification of properties located in a street/barangay zone, regardless of actual use shall be considered for
purposes of zonal valuation.
Based thereon, this Court rules that even assuming arguendo that the subject properties were used for commercial purposes, the same remains to be
residential for zonal value purposes. It appears that actual use is not considered for zonal valuation, but the predominant use of other classification of
properties located in the zone. Again, it is undisputed that the entire Barrio Banica has been classified as residential.
WHEREFORE, premises considered, the petition is denied. The November 9, 2005 Decision of the Court of Tax Appeals En Banc, in CTA-E.B. No. 77,
is hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO*
Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

MARIA LOURDES P.A. SERENO**

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

THIRD DIVISION

COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 177279

Petitioner,
Present:

CARPIO MORALES, J.,

- versus -

Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

HON. RAUL M. GONZALEZ, Secretary of Justice, L.

M. CAMUS ENGINEERING CORPORATION
(represented by LUIS M. CAMUS and LINO D.
MENDOZA),

Promulgated:

Respondents.
October 13, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision1[1] dated October 31,
2006 and Resolution2[2] dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 93387 which affirmed the Resolution3[3] dated December 13,
2005 of respondent Secretary of Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of the National Internal Revenue Code of 1997 (NIRC).

The facts as culled from the records:

Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue (petitioner)
Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora
supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue
taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and
1999.4[4] The audit and investigation against LMCEC was precipitated by the information provided by an informer that LMCEC had substantial
underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, a
criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC (I.S.
No. 00-956 of the Office of the City Prosecutor of Quezon City).5[5]

Based on data obtained from an informer and various clients of LMCEC,6[6] it was discovered that LMCEC filed fraudulent tax returns with
substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the company of total deficiency taxes
amounting to P430,958,005.90 (income tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71) covering the said period. The Preliminary
Assessment Notice (PAN) was received by LMCEC on February 22, 2001.7[7]

LMCECs alleged underdeclared income was summarized by petitioner as follows:

Year

Income

Income

Percentage of
ndeclared

1997
1998
1999

Per ITR

Per Investigation

96,638,540.00
86,793,913.00
88,287,792.00

283,412,140.84
236,863,236.81
251,507,903.13

ncome
186,733,600.84
150,069,323.81
163,220,111.13

Underdeclaration

U
I

193.30%
172.90%
184.90%8[8]

In view of the above findings, assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC through
personal service on October 1, 2002.9[9] Since the company and its representatives refused to receive the said notices and demand letter, the revenue
officers resorted to constructive service10[10] in accordance with Section 3, Revenue Regulations (RR) No. 12-9911[11].

On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr., referred to the Secretary of Justice for preliminary
investigation its complaint against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities as President and
Comptroller, respectively. The case was docketed as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue officers who conducted the tax
fraud investigation, it was alleged that despite the receipt of the final assessment notice and formal demand letter on October 1, 2002, LMCEC failed and
refused to pay the deficiency tax assessment in the total amount of P630,164,631.61, inclusive of increments, which had become final and executory as a
result of the said taxpayers failure to file a protest thereon within the thirty (30)-day reglementary period.12[12]

Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be held liable whatsoever for the alleged tax deficiency
which had become due and demandable. Considering that the complaint and its annexes all showed that the suit is a simple civil action for collection and
not a tax evasion case, the Department of Justice (DOJ) is not the proper forum for BIRs complaint. They also assail as invalid the assessment notices
which bear no serial numbers and should be shown to have been validly served by an Affidavit of Constructive Service executed and sworn to by the
revenue officers who served the same. As stated in LMCECs letter-protest dated December 12, 2002 addressed to Revenue District Officer (RDO)
Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already undergone a series of routine examinations for the years 1997, 1998 and
1999; under the NIRC, only one examination of the books of accounts is allowed per taxable year.13[13]

LMCEC further averred that it had availed of the Bureaus Tax Amnesty Programs (Economic Recovery Assistance Payment [ERAP] Program
and the Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was terminated and closed under Letter of
Termination14[14] dated June 1, 1999 issued by petitioner and signed by the Chief of the Assessment Division.15[15] LMCEC claimed it made
payments of income tax, VAT and expanded withholding tax (EWT), as follows:
TAXABLE

AMOUNT OF TAXES

YEAR
1997

Termination Letter Under Letter of

Authority No. 174600 Dated November 4,
1998

1998

ERAP Program pursuant

1999

to RR #2-99
VAP Program pursuant

PAID
EWT - P
VAT
IT
WC
VAT

IT
VAT

6,000.00
540,605.02
3,000.00
38,404.55
61,635.40
878,495.28
1,324,317.0016[16]

to RR #8-2001

LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate officers concerning the taxable years
1997 to 1999. With the grant of immunity from audit from the companys availment of ERAP and VAP, which have a feature of a tax amnesty, the element
of fraud is negated the moment the Bureau accepts the offer of compromise or payment of taxes by the taxpayer. The act of the revenue officers in finding
justification under Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were not able to open the books of the
company for the second time, after the routine examination, issuance of termination letter and the availment of ERAP and VAP. LMCEC thus maintained
that unless there is a prior determination of fraud supported by documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs
without first terminating those previously issued. It emphasized the fact that the BIR officers who filed and signed the Affidavit-Complaint in this case

were the same ones who appeared as complainants in an earlier case filed against Camus for his alleged failure to obey summons in violation of Section 5
punishable under Section 266 of the NIRC of 1997 (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City). After preliminary investigation,
said case was dismissed for lack of probable cause in a Resolution issued by the Investigating Prosecutor on May 2, 2001.17[17]

LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by petitioner for having no basis in fact and law. However,
until now the said protest remains unresolved. As to the alleged informant who purportedly supplied the confidential information, LMCEC believes that
such person is fictitious and his true identity and personality could not be produced. Hence, this case is another form of harassment against the company
as what had been found by the Office of the City Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both have something to do
with the audit/examination of LMCEC for taxable years 1997, 1998 and 1999 pursuant to LA No. 00009361.18[18]

In the Joint Reply-Affidavit executed by the Bureaus revenue officers, petitioner disagreed with the contention of LMCEC that the complaint
filed is not criminal in nature, pointing out that LMCEC and its officers Camus and Mendoza were being charged for the criminal offenses defined and
penalized under Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This finds support in Section 205 of the
same Code which provides for administrative (distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to enforce
collection of taxes. Both remedies may be pursued either independently or simultaneously. In this case, the BIR decided to simultaneously pursue both
remedies and thus aside from this criminal action, the Bureau also initiated administrative proceedings against LMCEC.19[19]

On the lack of control number in the assessment notice, petitioner explained that such is a mere office requirement in the Assessment Service
for the purpose of internal control and monitoring; hence, the unnumbered assessment notices should not be interpreted as irregular or anomalous.
Petitioner stressed that LMCEC already lost its right to file a protest letter after the lapse of the thirty (30)-day reglementary period. LMCECs protestletter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No. 40, Cubao, Quezon City was actually filed only on December 16, 2002, which was
disregarded by the petitioner for being filed out of time. Even assuming for the sake of argument that the assessment notices were invalid, petitioner
contended that such could not affect the present criminal action,20[20] citing the ruling in the landmark case of Ungab v. Cusi, Jr.21[21]

As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment Division, Revenue Region No. 7, Quezon City, petitioner
pointed out that LMCEC failed to mention that the undated Certification issued by RDO Pablo C. Cabreros, Jr. of RD No. 40, Cubao, Quezon City stated
that the report of the 1997 Internal Revenue taxes of LMCEC had already been submitted for review and approval of higher authorities. LMCEC also
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. Petitioner
explained that 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 petitioner.22[22]

Petitioner further asserted that LMCECs claim that it was granted immunity from audit when it availed of the VAP and ERAP programs is
misleading. LMCEC failed to state that its availment of ERAP under RR No. 2-99 is not a grant of absolute immunity from audit and investigation, aside
from the fact that said program was only for income tax and did not cover VAT and withholding tax for the taxable year 1998. As for LMCECS availment
of VAP in 1999 under RR No. 8-2001 dated August 1, 2001 as amended by RR No. 10-2001 dated September 3, 2001, the company failed to state that it
covers only income tax and VAT, and did not include withholding tax. However, LMCEC is not actually entitled to the benefits of VAP under Section 1 (1.1

and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC, estoppel clearly does not lie against the BIR as this involved the exercise
of an inherent power by the government to collect taxes.23[23]

Petitioner also pointed out that LMCECs assertion correlating this case with I.S. No. 00-956 is misleading because said case involves another
violation and offense (Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure of LMCEC to submit or present its books of
accounts and other accounting records for examination despite the issuance of subpoena duces tecum against Camus in his capacity as President of
LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still on
appeal and pending resolution by the DOJ. The determination of probable cause in said case is confined to the issue of whether there was already a
violation of the NIRC by Camus in not complying with the subpoena duces tecum issued by the BIR.24[24]

Petitioner contended that precisely the reason for the issuance to the TFD of LA No. 00009361 by the Commissioner is because the latter agreed
with the findings of the investigating revenue officers that fraud exists in this case. In the conduct of their investigation, the revenue officers observed the
proper procedure under Revenue Memorandum Order (RMO) No. 49-2000 wherein it is required that before the issuance of a Letter of Authority against a
particular taxpayer, a preliminary investigation should first be conducted to determine if a prima facie case for tax fraud exists. As to the allegedly unresolved
protest filed on April 20, 2001 by LMCEC over the PAN, this has been disregarded by the Bureau for being pro forma and having been filed beyond the 15-day
reglementary period. A subsequent letter dated April 20, 2001 was filed with the TFD and signed by a certain Juan Ventigan. However, this was disregarded
and considered a mere scrap of paper since the said signatory had not shown any prior authorization to represent LMCEC. Even assuming said protest letter
was validly filed on behalf of the company, the issuance of a Formal Demand Letter and Assessment Notice through constructive service on October 1, 2002
is deemed an implied denial of the said protest. Lastly, the details regarding the informer being confidential, such information is entitled to some degree of
protection, including the identity of the informant against LMCEC.25[25]

In their Joint Rejoinder-Affidavit,26[26] Camus and Mendoza reiterated their argument that the identity of the alleged informant is crucial to
determine if he/she is qualified under Section 282 of the NIRC. Moreover, there was no assessment that has already become final, the validity of its
issuance and service has been put in issue being anomalous, irregular and oppressive. It is contended that for criminal prosecution to proceed before
assessment, there must be a prima facie showing of a willful attempt to evade taxes. As to LMCECs availment of the VAP and ERAP programs, the
certificate of immunity from audit issued to it by the BIR is plain and simple, but petitioner is now saying it has the right to renege with impunity from its
undertaking. Though petitioner deems LMCEC not qualified to avail of the benefits of VAP, it must be noted that if it is true that at the time the
petitioner filed I.S. No. 00-956 sometime in January 2001 it had already in its custody that Confidential Information No. 29-2000 dated July 7, 2000,
these revenue officers could have rightly filed the instant case and would not resort to filing said criminal complaint for refusal to comply with a
subpoena duces tecum.

On September 22, 2003, the Chief State Prosecutor issued a Resolution27[27] finding no sufficient evidence to establish probable cause
against respondents LMCEC, Camus and Mendoza. It was held that since the payments were made by LMCEC under ERAP and VAP pursuant to the
provisions of RR Nos. 2-99 and 8-2001 which were offered to taxpayers by the BIR itself, the latter is now in estoppel to insist on the criminal
prosecution of the respondent taxpayer. The voluntary payments made thereunder are in the nature of a tax amnesty. The unnumbered assessment
notices were found highly irregular and thus their validity is suspect; if the amounts indicated therein were collected, it is uncertain how these will be
accounted for and if it would go to the coffers of the government or elsewhere. On the required prior determination of fraud, the Chief State Prosecutor
declared that the Office of the City Prosecutor in I.S. No. 00-956 has already squarely ruled that (1) there was no prior determination of fraud, (2) there
was indiscriminate issuance of LAs, and (3) the complaint was more of harassment. In view of such findings, any ensuing LA is thus defective and
allowing the collection on the assailed assessment notices would already be in the context of a fishing expedition or witch-hunting. Consequently, there is
nothing to speak of regarding the finality of assessment notices in the aggregate amount of P630,164,631.61.

Petitioner filed a motion for reconsideration which was denied by the Chief State Prosecutor.28[28]

Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for review under Resolution dated December 13,
2005.29[29]

The Secretary of Justice found that petitioners claim that there is yet no finality as to LMCECs payment of its 1997 taxes since the audit report
was still pending review by higher authorities, is unsubstantiated and misplaced. It was noted that the Termination Letter issued by the Commissioner
on June 1, 1999 is explicit that the matter is considered closed. As for taxable year 1998, respondent Secretary stated that the record shows that LMCEC
paid VAT and withholding tax in the amount of P61,635.40 and P38,404.55, respectively. This eventually gave rise to the issuance of a certificate of
immunity from audit for 1998 by the Office of the Commissioner of Internal Revenue. For taxable year 1999, respondent Secretary found that pursuant
to earlier LA No. 38633 dated July 4, 2000, LMCECs 1999 tax liabilities were still pending investigation for which reason LMCEC assailed the
subsequent issuance of LA No. 00009361 dated August 25, 2000 calling for a similar investigation of its alleged 1999 tax deficiencies when no final
determination has yet been arrived on the earlier LA No. 38633.30[30]

On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the existence of the following circumstances indicating
fraud in the settlement of LMCECs tax liabilities: (1) there must be intentional and substantial understatement of tax liability by the taxpayer; (2) there
must be intentional and substantial overstatement of deductions or exemptions; and (3) recurrence of the foregoing circumstances. First, petitioner
miserably failed to explain why the assessment notices were unnumbered; second, the claim that the tax fraud investigation was precipitated by an
alleged informant has not been corroborated nor was it clearly established, hence there is no other conclusion but that the Bureau engaged in a fishing
expedition; and furthermore, petitioners course of action is contrary to Section 235 of the NIRC allowing only once in a given taxable year such
examination and inspection of the taxpayers books of accounts and other accounting records. There was no convincing proof presented by petitioner to
show that the case of LMCEC falls under the exceptions provided in Section 235. Respondent Secretary duly considered the issuance of Certificate of
Immunity from Audit and Letter of Termination dated June 1, 1999 issued to LMCEC.31[31]

Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the Secretary of Justice found petitioner to have engaged in forum
shopping in view of the fact that while there is still pending an appeal from the Resolution of the City Prosecutor of Quezon City in said case, petitioner
hurriedly filed the instant case, which not only involved the same parties but also similar substantial issues (the joint complaint-affidavit also alleged the
issuance of LA No. 00009361 dated August 25, 2000). Clearly, the evidence of litis pendentia is present. Finally, respondent Secretary noted that if
indeed LMCEC committed fraud in the settlement of its tax liabilities, then at the outset, it should have been discovered by the agents of petitioner, and
consequently petitioner should not have issued the Letter of Termination and the Certificate of Immunity From Audit. Petitioner thus should have been
more circumspect in the issuance of said documents.32[32]

Its motion for reconsideration having been denied, petitioner challenged the ruling of respondent Secretary via a certiorari petition in the CA.

On October 31, 2006, the CA rendered the assailed decision33[33] denying the petition and concurred with the findings and conclusions of
respondent Secretary. Petitioners motion for reconsideration was likewise denied by the appellate court.34[34] It appears that entry of judgment was

issued by the CA stating that its October 31, 2006 Decision attained finality on March 25, 2007.35[35] However, the said entry of judgment was set
aside upon manifestation by the petitioner that it has filed a petition for review before this Court subsequent to its receipt of the Resolution dated March
6, 2007 denying petitioners motion for reconsideration on March 20, 2007.36[36]

The petition is anchored on the following grounds:

I.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by
dismissing the complaint based on grounds which are not even elements of the offenses charged.
II.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by
dismissing petitioners evidence, contrary to law.
III.
The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by
inquiring into the validity of a Final Assessment Notice which has become final, executory and demandable pursuant to Section 228
of the Tax Code of 1997 for failure of private respondent to file a protest against the same.37[37]

The core issue to be resolved is 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).

Petitioner filed the criminal complaint against the private respondents for violation of the following provisions of the NIRC, as amended:
SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully attempts in any manner to evade or defeat
any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction
thereof, be punished by a fine of not less than Thirty thousand pesos (P30,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the conviction
or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and
Refund Excess Taxes Withheld on Compensation. Any person required under this Code or by rules and regulations promulgated
thereunder to pay any tax, make a return, keep any record, or supply any correct and accurate information, who willfully fails to
pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit
taxes withheld, or refund excess taxes withheld on compensations at the time or times required by law or rules and regulations shall,
in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

x x x x (Emphasis supplied.)

Respondent Secretary concurred with the Chief State Prosecutors conclusion that there is insufficient evidence to establish probable cause to
charge private respondents under the above provisions, based on the following findings: (1) the tax deficiencies of LMCEC for taxable years 1997, 1998
and 1999 have all been settled or terminated, as in fact LMCEC was issued a Certificate of Immunity and Letter of Termination, and availed of the ERAP
and VAP programs; (2) there was no prior determination of the existence of fraud; (3) the assessment notices are unnumbered, hence irregular and
suspect; (4) the books of accounts and other accounting records may be subject to audit examination only once in a given taxable year and there is no
proof that the case falls under the exceptions provided in Section 235 of the NIRC; and (5) petitioner committed forum shopping when it filed the instant
case even as the earlier criminal complaint (I.S. No. 00-956) dismissed by the City Prosecutor of Quezon City was still pending appeal.

Petitioner argues that with the finality of the assessment due to failure of the private respondents to challenge the same in accordance with
Section 228 of the NIRC, respondent Secretary has no jurisdiction and authority to inquire into its validity. Respondent taxpayer is thereby allowed to do
indirectly what it cannot do directly to raise a collateral attack on the assessment when even a direct challenge of the same is legally barred. The rationale
for dismissing the complaint on the ground of lack of control number in the assessment notice likewise betrays a lack of awareness of tax laws and
jurisprudence, such circumstance not being an element of the offense. Worse, the final, conclusive and undisputable evidence detailing a crime under our
taxation laws is swept under the rug so easily on mere conspiracy theories imputed on persons who are not even the subject of the complaint.

We grant the petition.

There is no dispute that prior to the filing of the complaint with the DOJ, the report on the tax fraud investigation conducted on LMCEC
disclosed that it made substantial underdeclarations in its income tax returns for 1997, 1998 and 1999. Pursuant to RR No. 12-99,38[38] a PAN was sent
to and received by LMCEC on February 22, 2001 wherein it was notified of the proposed assessment of deficiency taxes amounting to P430,958,005.90
(income tax - P318,606,380.19 and VAT - P112,351,625.71) covering taxable years 1997, 1998 and 1999.39[39] In response to said PAN, LMCEC sent a
letter-protest to the TFD, which denied the same on April 12, 2001 for lack of legal and factual basis and also for having been filed beyond the 15-day
reglementary period.40[40]

As mentioned in the PAN, the revenue officers were not given the opportunity to examine LMCECs books of accounts and other accounting
records because its officers failed to comply with the subpoena duces tecum earlier issued, to verify its alleged underdeclarations of income reported by
the Bureaus informant under Section 282 of the NIRC. Hence, a criminal complaint was filed by the Bureau against private respondents for violation of
Section 266 which provides:
SEC. 266. Failure to Obey Summons. Any person who, being duly summoned to appear to testify, or to appear and produce
books of accounts, records, memoranda, or other papers, or to furnish information as required under the pertinent provisions of this
Code, neglects to appear or to produce such books of accounts, records, memoranda, or other papers, or to furnish such information,
shall, upon conviction, be punished by a fine of not less than Five thousand pesos (P5,000) but not more than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year but not more than two (2) years.
It is clear that I.S. No. 00-956 involves a separate offense and hence litis pendentia is not present considering that the outcome of I.S. No. 00956 is not determinative of the issue as to whether probable cause exists to charge the private respondents with the crimes of attempt to evade or defeat
tax and willful failure to supply correct and accurate information and pay tax defined and penalized under Sections 254 and 255, respectively. For the
crime of tax evasion in particular, compliance by the taxpayer with such subpoena, if any had been issued, is irrelevant. As we held in Ungab v. Cusi,
Jr.,41[41] [t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a] fraudulent [return] with intent to evade and defeat x x x
the tax. Thus, respondent Secretary erred in holding that petitioner committed forum shopping when it filed the present criminal complaint during the
pendency of its appeal from the City Prosecutors dismissal of I.S. No. 00-956 involving the act of disobedience to the summons in the course of the
preliminary investigation on LMCECs correct tax liabilities for taxable years 1997, 1998 and 1999.

In the Details of Discrepancies attached as Annex B of the PAN,42[42] private respondents were already notified that inasmuch as the
revenue officers were not given the opportunity to examine LMCECs books of accounts, accounting records and other documents, said revenue officers
gathered information from third parties. Such procedure is authorized under Section 5 of the NIRC, which provides:
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. In
ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any
person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is
authorized:

(A) To examine any book, paper, record or other data which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and
instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information
such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names,
addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters
of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships, and their
members;
(C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person
having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business
of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time
and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; x x x
x x x x (Emphasis supplied.)
Private respondents assertions regarding the qualifications of the informer of the Bureau deserve scant consideration. We have held that the
lack of consent of the taxpayer under investigation does not imply that the BIR obtained the information from third parties illegally or that the
information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the
documents.43[43] In the same vein, herein private respondents cannot be allowed to escape criminal prosecution under Sections 254 and 255 of the
NIRC by mere imputation of a fictitious or disqualified informant under Section 282 simply because other than disclosure of the official registry number
of the third party informer, the Bureau insisted on maintaining the confidentiality of the identity and personal circumstances of said informer.

Subsequently, petitioner sent to LMCEC by constructive service allowed under Section 3 of RR No. 12-99, assessment notice and formal
demand informing the said taxpayer of the law and the facts on which the assessment is made, as required by Section 228 of the NIRC. Respondent
Secretary, however, fully concurred with private respondents contention that the assessment notices were invalid for being unnumbered and the tax
liabilities therein stated have already been settled and/or terminated.

We do not agree.

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within the
prescribed period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due
course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the
notice of assessment shall be void.44[44]

As it is, the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which
should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter of demand and the notice of assessment shall
be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory
requirement under Section 228 of the NIRC.

Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue
regulation reads:

3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice shall be
issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the
taxpayers 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 same shall
be sent to the taxpayer only by registered mail or by personal delivery. x x x.45[45] (Emphasis supplied.)

The Formal Letter of Demand dated August 7, 2002 contains not only a detailed computation of LMCECs tax deficiencies but also details of
the specified discrepancies, explaining the legal and factual bases of the assessment. It also reiterated that in the absence of accounting records and other
documents necessary for the proper determination of the companys internal revenue tax liabilities, the investigating revenue officers resorted to the Best
Evidence Obtainable as provided in Section 6(B) of the NIRC (third party information) and in accordance with the procedure laid down in RMC No. 232000 dated November 27, 2000. Annex A of the Formal Letter of Demand thus stated:
Thus, to verify the validity of the information previously provided by the informant, the assigned revenue officers resorted to
third party information. Pursuant to Section 5(B) of the NIRC of 1997, access letters requesting for information and the submission
of certain documents (i.e., Certificate of Income Tax Withheld at Source and/or Alphabetical List showing the income payments
made to L.M. Camus Engineering Corporation for the taxable years 1997 to 1999) were sent to the various clients of the subject
corporation, including but not limited to the following:
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained therein, the substantial underdeclaration as defined
under Section 248(B) of the NIRC of 1997 by your corporation of its income had been confirmed.
xxx
x46[46] (Emphasis supplied.)

In the same letter, Assistant Commissioner Percival T. Salazar informed private respondents that the estimated tax liabilities arising from
LMCECs underdeclaration amounted to P186,773,600.84 in 1997, P150,069,323.81 in 1998 and P163,220,111.13 in 1999. These figures confirmed that
the non-declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30% income47[47] declared in its return is considered
a substantial underdeclaration of income, which constituted prima facie evidence of false or fraudulent return under Section 248(B)48[48] of the
NIRC, as amended.49[49]

On the alleged settlement of the assessed tax deficiencies by private respondents, respondent Secretary found the latters claim as meritorious
on the basis of the Certificate of Immunity From Audit issued on December 6, 1999 pursuant to RR No. 2-99 and Letter of Termination dated June 1,
1999 issued by Revenue Region No. 7 Chief of Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified that the certificate of immunity
from audit covered only income tax for the year 1997 and does not include VAT and withholding taxes, while the Letter of Termination involved tax
liabilities for taxable year 1997 (EWT, VAT and income taxes) but which was submitted for review of higher authorities as per the Certification of RD No.
40 District Officer Pablo C. Cabreros, Jr.50[50] For 1999, private respondents supposedly availed of the VAP pursuant to RR No. 8-2001.

RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that considering the scarcity of financial and human resources as
well as the time constraints within which the Bureau has to clean the Bureaus backlog of unaudited tax returns in order to keep updated and be focused
with the most current accounts in preparation for the full implementation of a computerized tax administration, the said revenue regulation 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 named as Economic Recovery Assistance Payment
(ERAP) Program granted immunity from audit and investigation of income tax, VAT and percentage tax returns for 1998. It expressly excluded
withholding tax returns (whether for income, VAT, or percentage tax purposes). Since such immunity from audit and investigation does not preclude the
collection of revenues generated from audit and enforcement activities, it follows that the Bureau is likewise not barred from collecting any tax deficiency
discovered as a result of tax fraud investigations. Respondent Secretarys opinion that RR No. 2-99 contains the feature of a tax amnesty is thus
misplaced.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected
tax from tax evaders without having to go through the tedious process of a tax case.51[51] Even assuming arguendo that the issuance of RR No. 2-99 is
in the nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by
statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing
authority.52[52]

For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as amended by RR No. 10-2001, through payment supposedly
made in October 29, 2001 before the said program ended on October 31, 2001, did not amount to settlement of its assessed tax deficiencies for the period
1997 to 1999, nor immunity from prosecution for filing fraudulent return and attempt to evade or defeat tax. As correctly asserted by petitioner, from the
express terms of the aforesaid revenue regulations, LMCEC is not qualified to avail of the VAP granting taxpayers the privilege of last priority in the
audit and investigation of all internal revenue taxes for the taxable year 2000 and all prior years under certain conditions, considering that first, it was
issued a PAN on February 19, 2001, and second, it was the subject of investigation as a result of verified information filed by a Tax Informer under
Section 282 of the NIRC duly recorded in the BIR Official Registry as Confidential Information (CI) No. 29-200053[53] even prior to the issuance of the
PAN.

Section 1 of RR No. 8-2001 provides:

SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes for
the above specified period/s who, due to inadvertence or otherwise, erroneously paid his internal revenue tax liabilities or failed to
file tax return/pay taxes may avail of the Voluntary Assessment Program (VAP), except those falling under any of the
following instances:
1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), or Collection Letter
issued on or before July 31, 2001; or
1.2 Persons under investigation as a result of verified information filed by a Tax Informer under Section
282 of the Tax Code of 1997, duly processed and recorded in the BIR Official Registry Book on or before July 31,
2001;
1.3 Tax fraud cases already filed and pending in courts for adjudication; and
x x x x (Emphasis supplied.)

Moreover, private respondents cannot invoke LMCECs availment of VAP to foreclose any subsequent audit of its account books and other
accounting records in view of the strong finding of underdeclaration in LMCECs payment of correct income tax liability by more than 30% as supported

by the written report of the TFD detailing the facts and the law on which such finding is based, pursuant to the tax fraud investigation authorized by
petitioner under LA No. 00009361. This conclusion finds support in Section 2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:
SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who has availed of the VAP shall not
be audited except upon authorization and approval of the Commissioner of Internal Revenue when there is strong evidence or
finding of understatement in the payment of taxpayers correct tax liability by more than thirty percent (30%) as supported by a
written report of the appropriate office detailing the facts and the law on which such finding is based: Provided, however, that any
VAP payment should be allowed as tax credit against the deficiency tax due, if any, in case the concerned taxpayer has been
subjected to tax audit.
xxxx

Given the explicit conditions for the grant of immunity from audit under RR No. 2-99, RR No. 8-2001 and RR No. 10-2001, we hold that
respondent Secretary gravely erred in declaring that petitioner is now estopped from assessing any tax deficiency against LMCEC after issuance of the
aforementioned documents of immunity from audit/investigation and settlement of tax liabilities. It is axiomatic that the State can never be in estoppel,
and this is particularly true in matters involving taxation. The errors of certain administrative officers should never be allowed to jeopardize the
governments financial position.54[54]

Respondent Secretarys other ground for assailing the course of action taken by petitioner in proceeding with the audit and investigation of
LMCEC -- the alleged violation of the general rule in Section 235 of the NIRC allowing the examination and inspection of taxpayers books of accounts
and other accounting records only once in a taxable year -- is likewise untenable. As correctly pointed out by petitioner, the discovery of substantial
underdeclarations of income by LMCEC for taxable years 1997, 1998 and 1999 upon verified information provided by an informer under Section 282 of
the NIRC, as well as the necessity of obtaining information from third parties to ascertain the correctness of the return filed or evaluation of tax
compliance in collecting taxes (as a result of the disobedience to the summons issued by the Bureau against the private respondents), are circumstances
warranting exception from the general rule in Section 235.55[55]

As already stated, the substantial underdeclared income in the returns filed by LMCEC for 1997, 1998 and 1999 in amounts equivalent to more
than 30% (the computation in the final assessment notice showed underdeclarations of almost 200%) constitutes prima facie evidence of fraudulent
return under Section 248(B) of the NIRC. Prior to the issuance of the preliminary and final notices of assessment, the revenue officers conducted a
preliminary investigation on the information and documents showing substantial understatement of LMCECs tax liabilities which were provided by the
Informer, following the procedure under RMO No. 15-95.56[56] Based on the prima facie finding of the existence of fraud, petitioner issued LA No.
00009361 for the TFD to conduct a formal fraud investigation of LMCEC.57[57] Consequently, respondent Secretarys ruling that the filing of criminal
complaint for violation of Sections 254 and 255 of the NIRC cannot prosper because of lack of prior determination of the existence of fraud, is bereft of
factual basis and contradicted by the evidence on record.

Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.58[58] We have held that a taxpayers failure to file a petition for review with the Court of Tax Appeals within the
statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or
validity of the assessment and prescription of the Governments right to assess.59[59] Indeed, any objection against the assessment should have been
pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal revenue taxes.60[60]

Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were duly served on LMCEC on October 1,
2002. Private respondents did not file a motion for reconsideration of the said assessment notice and formal demand; neither did they appeal to the
Court of Tax Appeals. Section 228 of the NIRC61[61] provides the remedy to dispute a tax assessment within a certain period of time. It states that an
assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment by the taxpayer. No such
administrative protest was filed by private respondents seeking reconsideration of the August 7, 2002 assessment notice and formal letter of demand. Private
respondents cannot belatedly assail the said assessment, which they allowed to lapse into finality, by raising issues as to its validity and correctness during the
preliminary investigation after the BIR has referred the matter for prosecution under Sections 254 and 255 of the NIRC.

As we held in Marcos II v. Court of Appeals62[62]:

It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the
subject estate, but the Bureau of Internal Revenue, whose determinations and assessments are presumed correct and made in good
faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid
and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify
the judicial affirmance of said assessment. x x x.
Moreover, these objections to the assessments should have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as
described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of
action taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in the scheme
of a well-ordered society. The subject tax assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a lost
appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of
government. (Emphasis supplied.)

The determination of probable cause is part of the discretion granted to the investigating prosecutor and ultimately, the Secretary of Justice.
However, this Court and the CA possess the power to review findings of prosecutors in preliminary investigations. Although policy considerations call for
the widest latitude of deference to the prosecutors findings, courts should never shirk from exercising their power, when the circumstances warrant, to
determine whether the prosecutors findings are supported by the facts, or by the law. In so doing, courts do not act as prosecutors but as organs of the
judiciary, exercising their mandate under the Constitution, relevant statutes, and remedial rules to settle cases and controversies.63[63] Clearly, the
power of the Secretary of Justice to review does not preclude this Court and the CA from intervening and exercising our own powers of review with
respect to the DOJs findings, such as in the exceptional case in which grave abuse of discretion is committed, as when a clear sufficiency or insufficiency
of evidence to support a finding of probable cause is ignored.64[64]
WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and Resolution dated March 6, 2007 of the Court of
Appeals in CA-G.R. SP No. 93387 are hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby DIRECTED to order the Chief State
Prosecutor to file before the Regional Trial Court of Quezon City, National Capital Judicial Region, the corresponding Information against L. M. Camus
Engineering Corporation, represented by its President Luis M. Camus and Comptroller Lino D. Mendoza, for Violation of Sections 254 and 255 of the
National Internal Revenue Code of 1997.
No costs.
SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

ARTURO D. BRION

LUCAS P. BERSAMIN

Associate Justice

Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

THIRD DIVISION

COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 180066

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
- versus -

VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
PHILIPPINE AIRLINES, INC.,
Respondent.

_____________________

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, seeking the reversal and setting aside of
the Decision65[1] dated 9 August 2007 and Resolution66[2] dated 11 October 2007 of the Court of Tax Appeals (CTA) en banc in CTA E.B. No. 246. The
CTA en banc affirmed the Decision67[3] dated 31 July 2006 of the CTA Second Division in C.T.A. Case No. 7010, ordering the cancellation and
withdrawal of Preliminary Assessment Notice (PAN) No. INC FY-3-31-01-000094 dated 3 September 2003 and Formal Letter of Demand dated 12
January 2004, issued by the Bureau of Internal Revenue (BIR) against respondent Philippine Airlines, Inc. (PAL), for the payment of Minimum
Corporate Income Tax (MCIT) in the amount of P272,421,886.58.

There is no dispute as to the antecedent facts of this case.

PAL is a domestic corporation organized under the corporate laws of the Republic of the Philippines; declared the national flag carrier of the
country; and the grantee under Presidential Decree No. 159068[4] of a franchise to establish, operate, and maintain transport services for the carriage of
passengers, mail, and property by air, in and between any and all points and places throughout the Philippines, and between the Philippines and other
countries.69[5]

For its fiscal year ending 31 March 2001 (FY 2000-2001), PAL allegedly incurred zero taxable income,70[6] which left it with unapplied
creditable withholding tax71[7] in the amount of P2,334,377.95. PAL did not pay any MCIT for the period.

In a letter dated 12 July 2002, addressed to petitioner Commissioner of Internal Revenue (CIR), PAL requested for the refund of its unapplied
creditable withholding tax for FY 2000-2001. PAL attached to its letter the following: (1) Schedule of Creditable Tax Withheld at Source for FY 20002001; (2) Certificates of Creditable Taxes Withheld; and (3) Audited Financial Statements.

Acting on the aforementioned letter of PAL, the Large Taxpayers Audit and Investigation Division 1 (LTAID 1) of the BIR Large Taxpayers
Service (LTS), issued on 16 August 2002, Tax Verification Notice No. 00201448, authorizing Revenue Officer Jacinto Cueto, Jr. (Cueto) to verify the
supporting documents and pertinent records relative to the claim of PAL for refund of its unapplied creditable withholding tax for FY 2000-20001. In a
letter dated 19 August 2003, LTAID 1 Chief Armit S. Linsangan invited PAL to an informal conference at the BIR National Office in Diliman, Quezon

City, on 27 August 2003, at 10:00 a.m., to discuss the results of the investigation conducted by Revenue Officer Cueto, supervised by Revenue Officer
Madelyn T. Sacluti.

BIR officers and PAL representatives attended the scheduled informal conference, during which the former relayed to the latter that the BIR
was denying the claim for refund of PAL and, instead, was assessing PAL for deficiency MCIT for FY 2000-2001. The PAL representatives argued that
PAL was not liable for MCIT under its franchise. The BIR officers then informed the PAL representatives that the matter would be referred to the BIR
Legal Service for opinion.

The LTAID 1 issued, on 3 September 2003, PAN No. INC FY-3-31-01-000094, which was received by PAL on 23 October 2003. LTAID 1
assessed PAL for P262,474,732.54, representing deficiency MCIT for FY 2000-2001, plus interest and compromise penalty, computed as follows:

Sales/Revenues from Operation

Less: Cost of Services
Gross Income from Operation
Add: Non-operating income
Total Gross Income for MCIT purposes
Rate of Tax
Tax Due
Add: 20% interest (8-16-00 to 10-31-03)
Compromise Penalty
Total Amount Due

P 38,798,721,685.00
30,316,679,013.00
8,482,042,672.00
465,111,368.00
9,947,154,040.0072[8]
2%
178,943,080.80
83,506,651.74
25,000.00
P 262,474,732.5473[9]

PAL protested PAN No. INC FY-3-31-01-000094 through a letter dated 4 November 2003 to the BIR LTS.

On 12 January 2004, the LTAID 1 sent PAL a Formal Letter of Demand for deficiency MCIT for FY 2000-2001 in the amount of
P271,421,88658, based on the following calculation:

Sales/Revenues from Operation

Less: Cost of Services
Direct Costs Less: Non-deductible
interest expense
Gross Income from Operation
Add: Non-operating Income
Total Gross Income for MCIT purposes
MCIT tax due
Interest 20% per annum 7/16/01 to 02/15/04
Compromise Penalty
Total MCIT due and demandable

P 38,798,721,685.00
P 30,749,761,017.00
433,082,004.00

30,316,679,013.00
P 8,482,042,672.00
465,111,368.00
P 9,947,154,040.00
P 178,943,080.80
92,453,805.78
25,000.00
P 271,421,886.5874[10]

PAL received the foregoing Formal Letter of Demand on 12 February 2004, prompting it to file with the BIR LTS a formal written protest
dated 13 February 2004.

The BIR LTS rendered on 7 May 2004 its Final Decision on Disputed Assessment, which was received by PAL on 26 May 2004. Invoking
Revenue Memorandum Circular (RMC) No. 66-2003, the BIR LTS denied with finality the protest of PAL and reiterated the request that PAL
immediately pay its deficiency MCIT for FY 2000-2001, inclusive of penalties incident to delinquency.

PAL filed a Petition for Review with the CTA, which was docketed as C.T.A. Case No. 7010 and raffled to the CTA Second Division. The CTA
Second Division promulgated its Decision on 31 July 2006, ruling in favor of PAL. The dispositive portion of the judgment of the CTA Second Division
reads:

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment
Notice No. INC FY-3-31-01-000094 and Formal Letter of Demand for the payment of deficiency Minimum Corporate Income Tax in
the amount of P272,421,886.58 are hereby CANCELLED and WITHDRAWN.75[11]

In a Resolution dated 2 January 2007, the CTA Second Division denied the Motion for Reconsideration of the CIR.

It was then the turn of the CIR to file a Petition for Review with the CTA en banc, docketed as C.T.A. E.B. No. 246. The CTA en banc found that
the cited legal provisions and jurisprudence are teeming with life with respect to the grant of tax exemption too vivid to pass unnoticed, and that the
Court in Division correctly ruled in favor of the respondent [PAL] granting its petition for the cancellation of Assessment Notice No. INC FY-3-31-01000094 and Formal Letter of Demand for the deficiency MCIT in the amount of P272,421,886.58.76[12] Consequently, the CTA en banc denied the
Petition of the CIR for lack of merit. The CTA en banc likewise denied the Motion for Reconsideration of the CIR in a Resolution dated 11 October 2007.

Hence, the CIR comes before this Court via the instant Petition for Review on Certiorari, based on the grounds stated hereunder:

THE COURT OF TAX APPEALS ERRED ON A QUESTION OF LAW IN ITS ASSAILED DECISION BECAUSE:
(1)
[PAL] CLEARLY OPTED TO BE COVERED BY THE INCOME TAX PROVISION OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997 (NIRC OF 1997). (sic) AS AMENDED; HENCE, IT IS COVERED BY THE MCIT PROVISION OF THE
SAME CODE.
(2)
THE MCIT DOES NOT BELONG TO THE CATEGORY OF OTHER TAXES WHICH WOULD ENABLE RESPONDENT TO
AVAIL ITSELF OF THE IN LIEU (sic) OF ALL OTHER TAXES CLAUSE UNDER SECTION 13 OF P.D. NO. 1590 (CHARTER).
(3)

THE MCIT PROVISION OF THE NIRC OF 1997 IS NOT AN AMENDMENT OF [PALS] CHARTER.

(4)
PAL IS NOT ONLY GIVEN THE PRIVILEGE TO CHOOSE BETWEEN WHAT WILL GIVE IT THE BENEFIT OF A
LOWER TAX, BUT ALSO THE RESPONSIBILITY OF PAYING ITS SHARE OF THE TAX BURDEN, AS IS EVIDENT IN SECTION
22 OF RA NO. 9337.
(5)
A CLAIM FOR EXEMPTION FROM TAXATION IS NEVER PRESUMED; [PAL] IS LIABLE FOR THE DEFICIENCY
MCIT.77[13]

There is only one vital issue that the Court must resolve in the Petition at bar, i.e., whether PAL is liable for deficiency MCIT for FY 2000-2001.

The Court answers in the negative.

Presidential Decree No. 1590, the franchise of PAL, contains provisions specifically governing the taxation of said corporation, to wit:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax:
(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance
with the provisions of the National Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without
distinction as to transport or nontransport operations; provided, that with respect to international air-transport service, only the
gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.
The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties,
registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or
collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not
limited to the following:
1. All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel, and oil, whether
refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are directly due from or imposable upon the
purchaser or the seller, producer, manufacturer, or importer of said petroleum products but are billed or passed on to the grantee
either as part of the price or cost thereof or by mutual agreement or other arrangement; provided, that all such purchases by, sales or
deliveries of aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and nontransport operations and other
activities incidental thereto;
2. All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the grantee of
aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies, aviation gas, fuel, and oil,
whether refined or in crude form and other articles, supplies, or materials; provided, that such articles or supplies or materials are
imported for the use of the grantee in its transport and nontransport operations and other activities incidental thereto and are not
locally available in reasonable quantity, quality, or price;
3. All taxes on lease rentals, interest, fees, and other charges payable to lessors, whether foreign or domestic, of aircraft,
engines, equipment, machinery, spare parts, and other property rented, leased, or chartered by the grantee where the payment of
such taxes is assumed by the grantee;
4. All taxes on interest, fees, and other charges on foreign loans obtained and other obligations incurred by the grantee
where the payment of such taxes is assumed by the grantee;
5. All taxes, fees, and other charges on the registration, licensing, acquisition, and transfer of aircraft, equipment, motor
vehicles, and all other personal and real property of the grantee; and
6. The corporate development tax under Presidential Decree No. 1158-A.
The grantee, shall, however, pay the tax on its real property in conformity with existing law.
For purposes of computing the basic corporate income tax as provided herein, the grantee is authorized:
(a) To depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation; and
(b) To carry over as a deduction from taxable income any net loss incurred in any year up to five years following the
year of such loss.
Section 14. The grantee shall pay either the franchise tax or the basic corporate income tax on quarterly basis to the
Commissioner of Internal Revenue. Within sixty (60) days after the end of each of the first three quarters of the taxable calendar or

fiscal year, the quarterly franchise or income-tax return shall be filed and payment of either the franchise or income tax shall be
made by the grantee.
A final or an adjustment return covering the operation of the grantee for the preceding calendar or fiscal year shall be filed
on or before the fifteenth day of the fourth month following the close of the calendar or fiscal year. The amount of the final franchise
or income tax to be paid by the grantee shall be the balance of the total franchise or income tax shown in the final or adjustment
return after deducting therefrom the total quarterly franchise or income taxes already paid during the preceding first three quarters
of the same taxable year.
Any excess of the total quarterly payments over the actual annual franchise of income tax due as shown in the final or
adjustment franchise or income-tax return shall either be refunded to the grantee or credited against the grantee's quarterly
franchise or income-tax liability for the succeeding taxable year or years at the option of the grantee.
The term "gross revenues" is herein defined as the total gross income earned by the grantee from; (a) transport,
nontransport, and other services; (b) earnings realized from investments in money-market placements, bank deposits, investments
in shares of stock and other securities, and other investments; (c) total gains net of total losses realized from the disposition of assets
and foreign-exchange transactions; and (d) gross income from other sources. (Emphases ours.)

According to the afore-quoted provisions, the taxation of PAL, during the lifetime of its franchise, shall be governed by two fundamental rules,
particularly: (1) PAL shall pay the Government either basic corporate income tax or franchise tax, whichever is lower; and (2) the tax paid by PAL, under
either of these alternatives, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real property
tax.

The basic corporate income tax of PAL shall be based on its annual net taxable income, computed in accordance with the National Internal
Revenue Code (NIRC). Presidential Decree No. 1590 also explicitly authorizes PAL, in the computation of its basic corporate income tax, to (1) depreciate
its assets twice as fast the normal rate of depreciation;78[14] and (2) carry over as a deduction from taxable income any net loss incurred in any year up
to five years following the year of such loss.79[15]

Franchise tax, on the other hand, shall be two per cent (2%) of the gross revenues derived by PAL from all sources, whether transport or
nontransport operations. However, with respect to international air-transport service, the franchise tax shall only be imposed on the gross passenger,
mail, and freight revenues of PAL from its outgoing flights.

In its income tax return for FY 2000-2001, filed with the BIR, PAL reported no net taxable income for the period, resulting in zero basic
corporate income tax, which would necessarily be lower than any franchise tax due from PAL for the same period.

The CIR, though, assessed PAL for MCIT for FY 2000-2001. It is the position of the CIR that the MCIT is income tax for which PAL is liable.
The CIR reasons that Section 13(a) of Presidential Decree No. 1590 provides that the corporate income tax of PAL shall be computed in accordance with
the NIRC. And, since the NIRC of 1997 imposes MCIT, and PAL has not applied for relief from the said tax, then PAL is subject to the same.

The Court is not persuaded. The arguments of the CIR are contrary to the plain meaning and obvious intent of Presidential Decree No. 1590,
the franchise of PAL.

Income tax on domestic corporations is covered by Section 27 of the NIRC of 1997,80[16] pertinent provisions of which are reproduced below
for easy reference:

SEC. 27. Rates of Income Tax on Domestic Corporations.

(A) In General Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is hereby
imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22(B) of this Code and taxable under this Title as a corporation, organized in, or existing under the
laws of the Philippines: Provided, That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective
January 1, 1999, the rate shall be thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirtytwo percent (32%).
xxxx
(E) Minimum Corporate Income Tax on Domestic Corporations.
(1) Imposition of Tax. A minimum corporate income tax of two percent (2%) of the gross income as of the end of the
taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year
immediately following the year in which such corporation commenced its business operations, when the minimum income tax is
greater than the tax computed under Subsection (A) of this Section for the taxable year.

Hence, a domestic corporation must pay whichever is higher of: (1) the income tax under Section 27(A) of the NIRC of 1997, computed by
applying the tax rate therein to the taxable income of the corporation; or (2) the MCIT under Section 27(E), also of the NIRC of 1997, equivalent to 2% of
the gross income of the corporation. Although this may be the general rule in determining the income tax due from a domestic corporation under the
NIRC of 1997, it can only be applied to PAL to the extent allowed by the provisions in the franchise of PAL specifically governing its taxation.

After a conscientious study of Section 13 of Presidential Decree No. 1590, in relation to Sections 27(A) and 27(E) of the NIRC of 1997, the
Court, like the CTA en banc and Second Division, concludes that PAL cannot be subjected to MCIT for FY 2000-2001.
First, Section 13(a) of Presidential Decree No. 1590 refers to basic corporate income tax.

In Commissioner of Internal Revenue v.

Philippine Airlines, Inc.,81[17] the Court already settled that the basic corporate income tax, under Section 13(a) of Presidential Decree No. 1590, relates
to the general rate of 35% (reduced to 32% by the year 2000) as stipulated in Section 27(A) of the NIRC of 1997.

Section 13(a) of Presidential Decree No. 1590 requires that the basic corporate income tax be computed in accordance with the NIRC. This
means that PAL shall compute its basic corporate income tax using the rate and basis prescribed by the NIRC of 1997 for the said tax. There is nothing in
Section 13(a) of Presidential Decree No. 1590 to support the contention of the CIR that PAL is subject to the entire Title II of the NIRC of 1997, entitled
Tax on Income.

Second, Section 13(a) of Presidential Decree No. 1590 further provides that the basic corporate income tax of PAL shall be based on its annual
net taxable income. This is consistent with Section 27(A) of the NIRC of 1997, which provides that the rate of basic corporate income tax, which is
32% beginning 1 January 2000, shall be imposed on the taxable income of the domestic corporation.

Taxable income is defined under Section 31 of the NIRC of 1997 as the pertinent items of gross income specified in the said Code,
less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by the same Code or
other special laws. The gross income, referred to in Section 31, is described in Section 32 of the NIRC of 1997 as income from whatever source,
including compensation for services; the conduct of trade or business or the exercise of profession; dealings in property; interests; rents; royalties;
dividends; annuities; prizes and winnings; pensions; and a partners distributive share in the net income of a general professional partnership.

Pursuant to the NIRC of 1997, the taxable income of a domestic corporation may be arrived at by subtracting from gross income deductions
authorized, not just by the NIRC of 1997,82[18] but also by special laws. Presidential Decree No. 1590 may be considered as one of such special laws
authorizing PAL, in computing its annual net taxable income, on which its basic corporate income tax shall be based, to deduct from its gross income the
following: (1) depreciation of assets at twice the normal rate; and (2) net loss carry-over up to five years following the year of such loss.

In comparison, the 2% MCIT under Section 27(E) of the NIRC of 1997 shall be based on the gross income of the domestic corporation. The
Court notes that gross income, as the basis for MCIT, is given a special definition under Section 27(E)(4) of the NIRC of 1997, different from the general
one under Section 34 of the same Code.

According to the last paragraph of Section 27(E)(4) of the NIRC of 1997, gross income of a domestic corporation engaged in the sale of service
means gross receipts, less sales returns, allowances, discounts and cost of services. Cost of services refers to all direct costs and
expenses necessarily incurred to provide the services required by the customers and clients including (a) salaries and employee benefits of personnel,
consultants, and specialists directly rendering the service; and (b) cost of facilities directly utilized in providing the service, such as depreciation or rental
of equipment used and cost of supplies.83[19] Noticeably, inclusions in and exclusions/deductions from gross income for MCIT purposes are limited to
those directly arising from the conduct of the taxpayers business. It is, thus, more limited than the gross income used in the computation of basic
corporate income tax.

In light of the foregoing, there is an apparent distinction under the NIRC of 1997 between taxable income, which is the basis for basic
corporate income tax under Section 27(A); and gross income, which is the basis for the MCIT under Section 27(E). The two terms have their respective
technical meanings, and cannot be used interchangeably. The same reasons prevent this Court from declaring that the basic corporate income tax, for
which PAL is liable under Section 13(a) of Presidential Decree No. 1590, also covers MCIT under Section 27(E) of the NIRC of 1997, since the basis for
the first is the annual net taxable income, while the basis for the second is gross income.
Third, even if the basic corporate income tax and the MCIT are both income taxes under Section 27 of the NIRC of 1997, and one is paid in
place of the other, the two are distinct and separate taxes.

The Court again cites Commissioner of Internal Revenue v. Philippine Airlines, Inc.,84[20] wherein it held that income tax on the passive
income85[21] of a domestic corporation, under Section 27(D) of the NIRC of 1997, is different from the basic corporate income tax on the taxable income

of a domestic corporation, imposed by Section 27(A), also of the NIRC of 1997. Section 13 of Presidential Decree No. 1590 gives PAL the option to pay
basic corporate income tax or franchise tax, whichever is lower; and the tax so paid shall be in lieu of all other taxes, except real property tax. The income
tax on the passive income of PAL falls within the category of all other taxes from which PAL is exempted, and which, if already collected, should be
refunded to PAL.

The Court herein treats MCIT in much the same way. Although both are income taxes, the MCIT is different from the basic corporate income
tax, not just in the rates, but also in the bases for their computation. Not being covered by Section 13(a) of Presidential Decree No. 1590, which makes
PAL liable only for basic corporate income tax, then MCIT is included in all other taxes from which PAL is exempted.

That, under general circumstances, the MCIT is paid in place of the basic corporate income tax, when the former is higher than the latter, does
not mean that these two income taxes are one and the same. The said taxes are merely paid in the alternative, giving the Government the opportunity to
collect the higher amount between the two. The situation is not much different from Section 13 of Presidential Decree No. 1590, which reversely allows
PAL to pay, whichever is lower of the basic corporate income tax or the franchise tax. It does not make the basic corporate income tax indistinguishable
from the franchise tax.

Given the fundamental differences between the basic corporate income tax and the MCIT, presented in the preceding discussion, it is not
baseless for this Court to rule that, pursuant to the franchise of PAL, said corporation is subject to the first tax, yet exempted from the second.

Fourth, the evident intent of Section 13 of Presidential Decree No. 1520 is to extend to PAL tax concessions not ordinarily available to other
domestic corporations. Section 13 of Presidential Decree No. 1520 permits PAL to pay whichever is lower of the basic corporate income tax or the
franchise tax; and the tax so paid shall be in lieu of all other taxes, except only real property tax. Hence, under its franchise, PAL is to pay the least
amount of tax possible.

Section 13 of Presidential Decree No. 1520 is not unusual. A public utility is granted special tax treatment (including tax
exceptions/exemptions) under its franchise, as an inducement for the acceptance of the franchise and the rendition of public service by the said public
utility.86[22] In this case, in addition to being a public utility providing air-transport service, PAL is also the official flag carrier of the country.

The imposition of MCIT on PAL, as the CIR insists, would result in a situation that contravenes the objective of Section 13 of Presidential
Decree No. 1590. In effect, PAL would not just have two, but three tax alternatives, namely, the basic corporate income tax, MCIT, or franchise tax. More
troublesome is the fact that, as between the basic corporate income tax and the MCIT, PAL shall be made to pay whichever is higher, irrefragably, in
violation of the avowed intention of Section 13 of Presidential Decree No. 1590 to make PAL pay for the lower amount of tax.

Fifth, the CIR posits that PAL may not invoke in the instant case the in lieu of all other taxes clause in Section 13 of Presidential Decree No.
1520, if it did not pay anything at all as basic corporate income tax or franchise tax. As a result, PAL should be made liable for other taxes such as MCIT.

This line of reasoning has been dubbed as the Substitution Theory, and this is not the first time the CIR raised the same. The Court already rejected the
Substitution Theory in Commissioner of Internal Revenue v. Philippine Airlines, Inc.,87[23] to wit:

Substitution Theory
of the CIR Untenable
A careful reading of Section 13 rebuts the argument of the CIR that the in lieu of all other taxes proviso is
a mere incentive that applies only when PAL actually pays something. It is clear that PD 1590 intended to give
respondent the option to avail itself of Subsection (a) or (b) as consideration for its franchise. Either option excludes the payment of
other taxes and dues imposed or collected by the national or the local government. PAL has the option to choose the alternative that
results in lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.
Under Subsection (a), the basis for the tax rate is respondents annual net taxable income, which (as earlier discussed) is
computed by subtracting allowable deductions and exemptions from gross income. By basing the tax rate on the annual net taxable
income, PD 1590 necessarily recognized the situation in which taxable income may result in a negative amount and thus translate
into a zero tax liability.
Notably, PAL was owned and operated by the government at the time the franchise was last amended. It can reasonably be
contemplated that PD 1590 sought to assist the finances of the government corporation in the form of lower taxes. When respondent
operates at a loss (as in the instant case), no taxes are due; in this instances, it has a lower tax liability than that provided by
Subsection (b).
The fallacy of the CIRs argument is evident from the fact that the payment of a measly sum of one peso
would suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not. There is
no substantial distinction between a zero tax and a one-peso tax liability. (Emphasis ours.)

Based on the same ratiocination, the Court finds the Substitution Theory unacceptable in the present Petition.

The CIR alludes as well to Republic Act No. 9337, for reasons similar to those behind the Substitution Theory. Section 22 of Republic Act No.
9337, more popularly known as the Expanded Value Added Tax (E-VAT) Law, abolished the franchise tax imposed by the charters of particularly
identified public utilities, including Presidential Decree No. 1590 of PAL. PAL may no longer exercise its options or alternatives under Section 13 of
Presidential Decree No. 1590, and is now liable for both corporate income tax and the 12% VAT on its sale of services. The CIR alleges that Republic Act
No. 9337 reveals the intention of the Legislature to make PAL share the tax burden of other domestic corporations.

The CIR seems to lose sight of the fact that the Petition at bar involves the liability of PAL for MCIT for the fiscal year ending 31 March 2001.
Republic Act No. 9337, which took effect on 1 July 2005, cannot be applied retroactively88[24] and any amendment introduced by said statute
affecting the taxation of PAL is immaterial in the present case.
And sixth, Presidential Decree No. 1590 explicitly allows PAL, in computing its basic corporate income tax, to carry over as deduction any net
loss incurred in any year, up to five years following the year of such loss. Therefore, Presidential Decree No. 1590 does not only consider the possibility
that, at the end of a taxable period, PAL shall end up with zero annual net taxable income (when its deductions exactly equal its gross income), as
what happened in the case at bar, but also the likelihood that PAL shall incur net loss (when its deductions exceed its gross income). If PAL is subjected
to MCIT, the provision in Presidential Decree No. 1590 on net loss carry-over will be rendered nugatory. Net loss carry-over is material only in
computing the annual net taxable income to be used as basis for the basic corporate income tax of PAL; but PAL will never be able to avail itself of the
basic corporate income tax option when it is in a net loss position, because it will always then be compelled to pay the necessarily higher MCIT.

Consequently, the insistence of the CIR to subject PAL to MCIT cannot be done without contravening Presidential Decree No. 1520.

Between Presidential Decree No. 1520, on one hand, which is a special law specifically governing the franchise of PAL, issued on 11 June 1978;
and the NIRC of 1997, on the other, which is a general law on national internal revenue taxes, that took effect on 1 January 1998, the former prevails. The
rule is that on a specific matter, the special law shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former. In
addition, where there are two statutes, the earlier special and the later general the terms of the general broad enough to include the matter provided for
in the special the fact that one is special and the other is general creates a presumption that the special is to be considered as remaining an exception to
the general, one as a general law of the land, the other as the law of a particular case. It is a canon of statutory construction that a later statute, general in
its terms and not expressly repealing a prior special statute, will ordinarily not affect the special provisions of such earlier statute.89[25]

Neither can it be said that the NIRC of 1997 repealed or amended Presidential Decree No. 1590.

While Section 16 of Presidential Decree No. 1590 provides that the franchise is granted to PAL with the understanding that it shall be subject
to amendment, alteration, or repeal by competent authority when the public interest so requires, Section 24 of the same Decree also states that the
franchise or any portion thereof may only be modified, amended, or repealed expressly by a special law or decree that shall specifically modify,
amend, or repeal said franchise or any portion thereof. No such special law or decree exists herein.

The CIR cannot rely on Section 7(B) of Republic Act No. 8424, which amended the NIRC in 1997 and reads as follows:

Section 7. Repealing Clauses.

xxxx
(B) The provisions of the National Internal Revenue Code, as amended, and all other laws, including charters of
government-owned or controlled corporations, decrees, orders, or regulations or parts thereof, that are inconsistent with
this Act are hereby repealed or amended accordingly.

The CIR reasons that PAL was a government-owned and controlled corporation when Presidential Decree No. 1590, its franchise or charter, was issued
in 1978. Since PAL was still operating under the very same charter when Republic Act No. 8424 took effect in 1998, then the latter can repeal or amend
the former by virtue of Section 7(B).

The Court disagrees.

A brief recount of the history of PAL is in order. PAL was established as a private corporation under the general law of the Republic of the
Philippines in February 1941. In November 1977, the government, through the Government Service Insurance System (GSIS), acquired the majority
shares in PAL. PAL was privatized in January 1992 when the local consortium PR Holdings acquired a 67% stake therein.90[26]

It is true that when Presidential Decree No. 1590 was issued on 11 June 1978, PAL was then a government-owned and controlled corporation;
but when Republic Act No. 8424, amending the NIRC, took effect on 1 January 1998, PAL was already a private corporation for six years. The
repealing clause under Section 7(B) of Republic Act No. 8424 simply refers to charters of government-owned and controlled corporations, which would
simply and plainly mean corporations under the ownership and control of the government at the time of effectivity of said statute. It is already a
stretch for the Court to read into said provision charters, issued to what were then government-owned and controlled corporations that are now private,
but still operating under the same charters.

That the Legislature chose not to amend or repeal Presidential Decree No. 1590, even after PAL was privatized, reveals the intent of the
Legislature to let PAL continue enjoying, as a private corporation, the very same rights and privileges under the terms and conditions stated in said
charter. From the moment PAL was privatized, it had to be treated as a private corporation, and its charter became that of a private corporation. It would
be completely illogical to say that PAL is a private corporation still operating under a charter of a government-owned and controlled corporation.

The alternative argument of the CIR that the imposition of the MCIT is pursuant to the amendment of the NIRC, and not of Presidential
Decree No. 1590 is just as specious. As has already been settled by this Court, the basic corporate income tax under Section 13(a) of Presidential Decree
No. 1590 relates to the general tax rate under Section 27(A) of the NIRC of 1997, which is 32% by the year 2000, imposed on taxable income. Thus, only
provisions of the NIRC of 1997 necessary for the computation of the basic corporate income tax apply to PAL. And even though Republic Act No. 8424
amended the NIRC by introducing the MCIT, in what is now Section 27(E) of the said Code, this amendment is actually irrelevant and should not affect
the taxation of PAL, since the MCIT is clearly distinct from the basic corporate income tax referred to in Section 13(a) of Presidential Decree No. 1590,
and from which PAL is consequently exempt under the in lieu of all other taxes clause of its charter.

The CIR calls the attention of the Court to RMC No. 66-2003, on Clarifying the Taxability of Philippine Airlines (PAL) for Income Tax
Purposes As Well As Other Franchise Grantees Similarly Situated. According to RMC No. 66-2003:

Section 27(E) of the Code, as implemented by Revenue Regulations No. 9-98, provides that MCIT of two percent (2%) of
the gross income as of the end of the taxable year (whether calendar or fiscal year, depending on the accounting period employed) is
imposed upon any domestic corporation beginning the 4th taxable year immediately following the taxable year in which such
corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable
income or whenever the amount of MCIT is greater than the normal income tax due from such corporation.
With the advent of such provision beginning January 1, 1998, it is certain that domestic corporations subject to normal
income tax as well as those choose to be subject thereto, such as PAL, are bound to pay income tax regardless of whether they are
operating at a profit or loss.
Thus, in case of operating loss, PAL may either opt to subject itself to minimum corporate income tax or to the 2%
franchise tax, whichever is lower. On the other hand, if PAL is operating at a profit, the income tax liability shall be the lower amount
between:
(1) normal income tax or MCIT whichever is higher; and
(2) 2% franchise tax.

The CIR attempts to sway this Court to adopt RMC No. 66-2003 since the [c]onstruction by an executive branch of government of a particular
law although not binding upon the courts must be given weight as the construction comes from the branch of the government called upon to implement
the law.91[27]

But the Court is unconvinced.

It is significant to note that RMC No. 66-2003 was issued only on 14 October 2003, more than two years after FY 2000-2001 of PAL ended on
31 March 2001. This violates the well-entrenched principle that statutes, including administrative rules and regulations, operate prospectively only,
unless the legislative intent to the contrary is manifest by express terms or by necessary implication.92[28]

Moreover, despite the claims of the CIR that RMC No. 66-2003 is just a clarificatory and internal issuance, the Court observes that RMC No.
66-2003 does more than just clarify a previous regulation and goes beyond mere internal administration. It effectively increases the tax burden of PAL
and other taxpayers who are similarly situated, making them liable for a tax for which they were not liable before. Therefore, RMC No. 66-2003 cannot
be given effect without previous notice or publication to those who will be affected thereby. In Commissioner of Internal Revenue v. Court of
Appeals,93[29] the Court ratiocinated that:

It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When,
upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or
render least cumbersome the implementation of the law but substantially adds to or increases the burden of those
governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter
to be duly informed, before that new issuance is given the force and effect of law.
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the
circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or
merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place
"Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands
and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally
manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of
the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured
cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would
have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium
More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now
disputed RMC 37-93 had to be issued. In so doing, the BIR not simply interpreted the law; verily, it legislated under its
quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
"RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations "It has been observed that one of the problem
areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due
notice to the tax paying public. Unless there is due notice, due compliance therewith may not be
reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal
infirmity in the light of the constitutional provision on 'due process of law' and the essence of the Civil Code
provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution;
Art. 2, New Civil Code).

"In order that there shall be a just enforcement of rules and regulations, in conformity with the
basic element of due process, the following procedures are hereby prescribed for the drafting,
issuance and implementation of the said Revenue Tax Issuances:
"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum
Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal
revenue tax rules and regulations.
"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances
shall not begin to be operative until after due notice thereof may be fairly presumed.
"Due notice of the said issuances may be fairly presumed only after the following procedures have
been taken:
"xxx xxx xxx "(5). Strict compliance with the foregoing procedures is enjoined.13
Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the
above requirements before giving effect to its questioned circular. (Emphases ours.)

The Court, however, stops short of ruling on the validity of RMC No. 66-2003, for it is not among the issues raised in the instant Petition. It
only wishes to stress the requirement of prior notice to PAL before RMC No. 66-2003 could have become effective. Only after RMC No. 66-2003 was
issued on 14 October 2003 could PAL have been given notice of said circular, and only following such notice to PAL would RMC No. 66-2003 have taken
effect. Given this sequence, it is not possible to say that RMC No. 66-2003 was already in effect and should have been strictly complied with by PAL for
its fiscal year which ended on 31 March 2001.

Even conceding that the construction of a statute by the CIR is to be given great weight, the courts, which include the CTA, are not bound
thereby if such construction is erroneous or is clearly shown to be in conflict with the governing statute or the Constitution or other laws. "It is the role of
the Judiciary to refine and, when necessary, correct constitutional (and/or statutory) interpretation, in the context of the interactions of the three
branches of the government."94[30]

It is furthermore the rule of long standing that this Court will not set aside lightly the conclusions reached by

the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has, accordingly, developed an expertise
on the subject, unless there has been an abuse or improvident exercise of authority.95[31] In the Petition at bar, the CTA en banc and in division both
adjudged that PAL is not liable for MCIT under Presidential Decree No. 1590, and this Court has no sufficient basis to reverse them.

As to the assertions of the CIR that exemption from tax is not presumed, and the one claiming it must be able to show that it indubitably exists,
the Court recalls its pronouncements in Commissioner of Internal Revenue v. Court of Appeals96[32]:

We disagree. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without first
applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously both illogical and
impractical to determine who are exempted without first determining who are covered by the aforesaid provision.
The Commissioner should have determined first if private respondent was covered by Section 205, applying the rule of strict
interpretation of laws imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption therefrom.
The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws that (a) statute will not be
construed as imposing a tax unless it does so clearly, expressly, and unambiguously. x x x (A) tax cannot be imposed without clear
and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by
implication. Parenthetically, in answering the question of who is subject to tax statutes, it is basic that in case of
doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or
citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and
clearly import. (Emphases ours.)

For two decades following the grant of its franchise by Presidential Decree No. 1590 in 1978, PAL was only being held liable for the basic
corporate income tax or franchise tax, whichever was lower; and its payment of either tax was in lieu of all other taxes, except real property tax, in
accordance with the plain language of Section 13 of the charter of PAL. Therefore, the exemption of PAL from all other taxes was not just a presumption,
but a previously established, accepted, and respected fact, even for the BIR.

The MCIT was a new tax introduced by Republic Act No. 8424. Under the doctrine of strict interpretation, the burden is upon the CIR to
primarily prove that the new MCIT provisions of the NIRC of 1997, clearly, expressly, and unambiguously extend and apply to PAL, despite the latters
existing tax exemption. To do this, the CIR must convince the Court that the MCIT is a basic corporate income tax,97[33] and is not covered by the in lieu
of all other taxes clause of Presidential Decree No. 1590. Since the CIR failed in this regard, the Court is left with no choice but to consider the MCIT as
one of all other taxes, from which PAL is exempt under the explicit provisions of its charter.
Not being liable for MCIT in FY 2000-2001, it necessarily follows that PAL need not apply for relief from said tax as the CIR maintains.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED, and the Decision dated 9 August 2007 and
Resolution dated 11 October 2007 of the Court of Tax Appeals en banc in CTA E.B. No. 246 is hereby AFFIRMED. No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

SOUTH AFRICAN AIRWAYS,

G.R. No. 180356

Petitioner,
Present:

CORONA, J., Chairperson,

- versus -

VELASCO, JR.,
LEONARDO-DE CASTRO,*

PERALTA, and
MENDOZA, JJ.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

Promulgated:
February 16, 2010

x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the July 19, 2007 Decision98[1] and October 30, 2007
Resolution99[2] of the Court of Tax Appeals (CTA) En Banc in CTA E.B. Case No. 210, entitled South African Airways v. Commissioner of Internal
Revenue. The assailed decision affirmed the Decision dated May 10, 2006100[3] and Resolution dated August 11, 2006101[4] rendered by the CTA First
Division.

The Facts

Petitioner South African Airways is a foreign corporation organized and existing under and by virtue of the laws of the Republic of South
Africa. Its principal office is located at Airways Park, Jones Road, Johannesburg International Airport, South Africa. In the Philippines, it is an internal

air carrier having no landing rights in the country. Petitioner has a general sales agent in the Philippines, Aerotel Limited Corporation (Aerotel). Aerotel
sells passage documents for compensation or commission for petitioners off-line flights for the carriage of passengers and cargo between ports or points
outside the territorial jurisdiction of the Philippines. Petitioner is not registered with the Securities and Exchange Commission as a corporation, branch
office, or partnership. It is not licensed to do business in the Philippines.

For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns for its off-line flights, summarized as follows:

2.5% Gross

For Passenger

Sub-total
For Cargo

Sub-total
TOTAL

Period
1st Quarter

Date Filed
May 30, 2000

2nd Quarter

August 29, 2000

424,046.95

3rd Quarter

November 29, 2000

422,466.00

4th Quarter

April 16, 2000

PhP

PhP
PhP

Phil. Billings
222,531.25

453,182.91
1,522,227.11
81,531.00

1st Quarter

May 30, 2000

2nd Quarter

August 29, 2000

50,169.65

3rd Quarter

November 29, 2000

36,383.74

4th Quarter

April 16, 2000

PhP

37,454.88
205,539.27
1,727,766.38

Thereafter, on February 5, 2003, petitioner filed with the Bureau of Internal Revenue, Revenue District Office No. 47, a claim for the refund of
the amount of PhP 1,727,766.38 as erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such claim was unheeded. Thus,
on April 14, 2003, petitioner filed a Petition for Review with the CTA for the refund of the abovementioned amount. The case was docketed as CTA Case
No. 6656.

On May 10, 2006, the CTA First Division issued a Decision denying the petition for lack of merit. The CTA ruled that petitioner is a resident
foreign corporation engaged in trade or business in the Philippines. It further ruled that petitioner was not liable to pay tax on its GPB under Section
28(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997. The CTA, however, stated that petitioner is liable to pay a tax of 32% on its income
derived from the sales of passage documents in the Philippines. On this ground, the CTA denied petitioners claim for a refund.

Petitioners Motion for Reconsideration of the above decision was denied by the CTA First Division in a Resolution dated August 11, 2006.

Thus, petitioner filed a Petition for Review before the CTA En Banc, reiterating its claim for a refund of its tax payment on its GPB. This was
denied by the CTA in its assailed decision. A subsequent Motion for Reconsideration by petitioner was also denied in the assailed resolution of the CTA
En Banc.

Hence, petitioner went to us.

The Issues

Whether or not petitioner, as an off-line international carrier selling passage documents through an independent sales
agent in the Philippines, is engaged in trade or business in the Philippines subject to the 32% income tax imposed by Section 28
(A)(1) of the 1997 NIRC.
Whether or not the income derived by petitioner from the sale of passage documents covering petitioners off-line flights is
Philippine-source income subject to Philippine income tax.
Whether or not petitioner is entitled to a refund or a tax credit of erroneously paid tax on Gross Philippine Billings for the
taxable year 2000 in the amount of P1,727,766.38.102[5]

The Courts Ruling

This petition must be denied.

Petitioner Is Subject to Income Tax

at the Rate of 32% of Its Taxable Income

Preliminarily, we emphasize that petitioner is claiming that it is exempted from being taxed for its sale of passage documents in the
Philippines. Petitioner, however, failed to sufficiently prove such contention.

In Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation,103[6] we held, Since an action for a tax refund partakes of
the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against the
claimant who must discharge such burden convincingly.

Petitioner has failed to overcome such burden.

In essence, petitioner calls upon this Court to determine the legal implication of the amendment to Sec. 28(A)(3)(a) of the 1997 NIRC defining
GPB. It is petitioners contention that, with the new definition of GPB, it is no longer liable under Sec. 28(A)(3)(a). Further, petitioner argues that because
the 2 1/2% tax on GPB is inapplicable to it, it is thereby excluded from the imposition of any income tax.

Sec. 28(b)(2) of the 1939 NIRC provided:

(2) Resident Corporations. A corporation organized, authorized, or existing under the laws of a foreign country, engaged
in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income
received in the preceding taxable year from all sources within the Philippines: Provided, however, that international carriers shall
pay a tax of two and one-half percent on their gross Philippine billings.

This provision was later amended by Sec. 24(B)(2) of the 1977 NIRC, which defined GPB as follows:

Gross Philippine billings include gross revenue realized from uplifts anywhere in the world by any international carrier doing
business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail, provided the cargo or
mail originates from the Philippines.

In the 1986 and 1993 NIRCs, the definition of GPB was further changed to read:

Gross Philippine Billings means gross revenue realized from uplifts of passengers anywhere in the world and excess baggage, cargo
and mail originating from the Philippines, covered by passage documents sold in the Philippines.

Essentially, prior to the 1997 NIRC, GPB referred to revenues from uplifts anywhere in the world, provided that the passage documents were
sold in the Philippines. Legislature departed from such concept in the 1997 NIRC where GPB is now defined under Sec. 28(A)(3)(a):

Gross Philippine Billings refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo
and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the
place of payment of the ticket or passage document.

Now, it is the place of sale that is irrelevant; as long as the uplifts of passengers and cargo occur to or from the Philippines, income is included
in GPB.

As correctly pointed out by petitioner, inasmuch as it does not maintain flights to or from the Philippines, it is not taxable under Sec.
28(A)(3)(a) of the 1997 NIRC. This much was also found by the CTA. But petitioner further posits the view that due to the non-applicability of Sec.
28(A)(3)(a) to it, it is precluded from paying any other income tax for its sale of passage documents in the Philippines.

Such position is untenable.

In Commissioner of Internal Revenue v. British Overseas Airways Corporation (British Overseas Airways),104[7] which was decided under
similar factual circumstances, this Court ruled that off-line air carriers having general sales agents in the Philippines are engaged in or doing business in
the Philippines and that their income from sales of passage documents here is income from within the Philippines. Thus, in that case, we held the off-line
air carrier liable for the 32% tax on its taxable income.

Petitioner argues, however, that because British Overseas Airways was decided under the 1939 NIRC, it does not apply to the instant case,
which must be decided under the 1997 NIRC. Petitioner alleges that the 1939 NIRC taxes resident foreign corporations, such as itself, on all income from
sources within the Philippines. Petitioners interpretation of Sec. 28(A)(3)(a) of the 1997 NIRC is that, since it is an international carrier that does not
maintain flights to or from the Philippines, thereby having no GPB as defined, it is exempt from paying any income tax at all. In other words, the
existence of Sec. 28(A)(3)(a) according to petitioner precludes the application of Sec. 28(A)(1) to it.

Its argument has no merit.

First, the difference cited by petitioner between the 1939 and 1997 NIRCs with regard to the taxation of off-line air carriers is more apparent
than real.

We point out that Sec. 28(A)(3)(a) of the 1997 NIRC does not, in any categorical term, exempt all international air carriers from the coverage
of Sec. 28(A)(1) of the 1997 NIRC. Certainly, had legislatures intentions been to completely exclude all international air carriers from the application of
the general rule under Sec. 28(A)(1), it would have used the appropriate language to do so; but the legislature did not. Thus, the logical interpretation of
such provisions is that, if Sec. 28(A)(3)(a) is applicable to a taxpayer, then the general rule under Sec. 28(A)(1) would not apply. If, however, Sec.
28(A)(3)(a) does not apply, a resident foreign corporation, whether an international air carrier or not, would be liable for the tax under Sec. 28(A)(1).

Clearly, no difference exists between British Overseas Airways and the instant case, wherein petitioner claims that the former case does not
apply. Thus, British Overseas Airways applies to the instant case. The findings therein that an off-line air carrier is doing business in the Philippines and
that income from the sale of passage documents here is Philippine-source income must be upheld.

Petitioner further reiterates its argument that the intention of Congress in amending the definition of GPB is to exempt off-line air carriers
from income tax by citing the pronouncements made by Senator Juan Ponce Enrile during the deliberations on the provisions of the 1997 NIRC. Such
pronouncements, however, are not controlling on this Court. We said in Espino v. Cleofe:105[8]

A cardinal rule in the interpretation of statutes is that the meaning and intention of the law-making body must be sought,
first of all, in the words of the statute itself, read and considered in their natural, ordinary, commonly-accepted and most obvious
significations, according to good and approved usage and without resorting to forced or subtle construction. Courts, therefore, as a
rule, cannot presume that the law-making body does not know the meaning of words and rules of grammar. Consequently, the
grammatical reading of a statute must be presumed to yield its correct sense. x x x It is also a well-settled doctrine in this
jurisdiction that statements made by individual members of Congress in the consideration of a bill do not
necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law.
(Emphasis supplied.)

Moreover, an examination of the subject provisions of the law would show that petitioners interpretation of those provisions is erroneous.

Sec. 28(A)(1) and (A)(3)(a) provides:

SEC. 28. Rates of Income Tax on Foreign Corporations. -

(A) Tax on Resident Foreign Corporations. (1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or existing under the laws
of any foreign country, engaged in trade or business within the Philippines, shall be subject to an income tax equivalent to thirty-five
percent (35%) of the taxable income derived in the preceding taxable year from all sources within the Philippines: provided, That
effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirtythree percent (33%), and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
xxxx
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two and one-half
percent (2 1/2%) on its Gross Philippine Billings as defined hereunder:
(a) International Air Carrier. Gross Philippine Billings refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided, That
tickets revalidated, exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if
the passenger boards a plane in a port or point in the Philippines: Provided, further, That for a flight which originates
from the Philippines, but transshipment of passenger takes place at any port outside the Philippines on another airline,
only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine Billings.

Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32% tax on all income from sources within the
Philippines. Sec. 28(A)(3) is an exception to this general rule.

An exception is defined as that which would otherwise be included in the provision from which it is excepted. It is a clause which exempts
something from the operation of a statue by express words.106[9] Further, an exception need not be introduced by the words except or unless. An
exception will be construed as such if it removes something from the operation of a provision of law.107[10]

In the instant case, the general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from within the
Philippines, except for resident foreign corporations that are international carriers that derive income from carriage of persons, excess baggage, cargo
and mail originating from the Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings. Petitioner, being an international carrier with
no flights originating from the Philippines, does not fall under the exception. As such, petitioner must fall under the general rule. This principle is
embodied in the Latin maxim, exception firmat regulam in casibus non exceptis, which means, a thing not being excepted must be regarded as coming
within the purview of the general rule.108[11]

To reiterate, the correct interpretation of the above provisions is that, if an international air carrier maintains flights to and from the
Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine Billings, while international air carriers that do not have flights to and from the
Philippines but nonetheless earn income from other activities in the country will be taxed at the rate of 32% of such income.

As to the denial of petitioners claim for refund, the CTA denied the claim on the basis that petitioner is liable for income tax under Sec.
28(A)(1) of the 1997 NIRC. Thus, petitioner raises the issue of whether the existence of such liability would preclude their claim for a refund of tax paid
on the basis of Sec. 28(A)(3)(a). In answer to petitioners motion for reconsideration, the CTA First Division ruled in its Resolution dated August 11,
2006, thus:

On the fourth argument, petitioner avers that a deficiency tax assessment does not, in any way, disqualify a taxpayer from
claiming a tax refund since a refund claim can proceed independently of a tax assessment and that the assessment cannot be offset
by its claim for refund.
Petitioners argument is erroneous. Petitioner premises its argument on the existence of an assessment. In the assailed
Decision, this Court did not, in any way, assess petitioner of any deficiency corporate income tax. The power to make assessments
against taxpayers is lodged with the respondent. For an assessment to be made, respondent must observe the formalities provided in
Revenue Regulations No. 12-99. This Court merely pointed out that petitioner is liable for the regular corporate income tax by virtue
of Section 28(A)(3) of the Tax Code. Thus, there is no assessment to speak of.109[12]

Precisely, petitioner questions the offsetting of its payment of the tax under Sec. 28(A)(3)(a) with their liability under Sec. 28(A)(1),
considering that there has not yet been any assessment of their obligation under the latter provision. Petitioner argues that such offsetting is in the
nature of legal compensation, which cannot be applied under the circumstances present in this case.

Article 1279 of the Civil Code contains the elements of legal compensation, to wit:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

And we ruled in Philex Mining Corporation v. Commissioner of Internal Revenue,110[13] thus:

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a

material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, we categorically held that taxes cannot be
subject to set-off or compensation, thus:
We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, which
reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot
be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Verily, petitioners argument is correct that the offsetting of its tax refund with its alleged tax deficiency is unavailing under Art. 1279 of the
Civil Code.

Commissioner of Internal Revenue v. Court of Tax Appeals,111[14] however, granted the offsetting of a tax refund with a tax deficiency in this
wise:
Further, it is also worth noting that the Court of Tax Appeals erred in denying petitioners supplemental motion for
reconsideration alleging bringing to said courts attention the existence of the deficiency income and business tax assessment against
Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of respondent
bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an
absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same time be liable
for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when the claim of
Citytrust was filed, provides that (w)hen an assessment is made in case of any list, statement, or return, which in the opinion of the
Commissioner of Internal Revenue was false or fraudulent or contained any understatement or undervaluation, no tax collected
under such assessment shall be recovered by any suits unless it is proved that the said list, statement, or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply to statements or returns
made or to be made in good faith regarding annual depreciation of oil or gas wells and mines.
Moreover, to grant the refund without determination of the proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits. If the deficiency assessment should subsequently be upheld, the Government will be forced to
institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive
period of ten years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily
require and entail additional efforts and expenses on the part of the Government, impose a burden on and a drain of government
funds, and impede or delay the collection of much-needed revenue for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary and legally
appropriate that the issue of the deficiency tax assessment against Citytrust be resolved jointly with its claim for tax refund, to
determine once and for all in a single proceeding the true and correct amount of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, it would be only just and fair that the taxpayer and the
Government alike be given equal opportunities to avail of remedies under the law to defeat each others claim and to determine all
matters of dispute between them in one single case. It is important to note that in determining whether or not petitioner is entitled
to the refund of the amount paid, it would [be] necessary to determine how much the Government is entitled to collect as taxes. This
would necessarily include the determination of the correct liability of the taxpayer and, certainly, a determination of this case would
constitute res judicata on both parties as to all the matters subject thereof or necessarily involved therein. (Emphasis supplied.)

Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72, Chapter XI of the 1997 NIRC. The above pronouncements are, therefore, still
applicable today.

Here, petitioners similar tax refund claim assumes that the tax return that it filed was correct. Given, however, the finding of the CTA that
petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is
now put in doubt. As such, we cannot grant the prayer for a refund.

Be that as it may, this Court is unable to affirm the assailed decision and resolution of the CTA En Banc on the outright denial of petitioners
claim for a refund. Even though petitioner is not entitled to a refund due to the question on the propriety of petitioners tax return subject of the instant
controversy, it would not be proper to deny such claim without making a determination of petitioners liability under Sec. 28(A)(1).

It must be remembered that the tax under Sec. 28(A)(3)(a) is based on GPB, while Sec. 28(A)(1) is based on taxable income, that is, gross
income less deductions and exemptions, if any. It cannot be assumed that petitioners liabilities under the two provisions would be the same. There is a
need to make a determination of petitioners liability under Sec. 28(A)(1) to establish whether a tax refund is forthcoming or that a tax deficiency exists.
The assailed decision fails to mention having computed for the tax due under Sec. 28(A)(1) and the records are bereft of any evidence sufficient to
establish petitioners taxable income. There is a necessity to receive evidence to establish such amount vis--vis the claim for refund. It is only after such
amount is established that a tax refund or deficiency may be correctly pronounced.

WHEREFORE, the assailed July 19, 2007 Decision and October 30, 2007 Resolution of the CTA En Banc in CTA E.B. Case No. 210 are SET
ASIDE. The instant case is REMANDED to the CTA En Banc for further proceedings and appropriate action, more particularly, the reception of
evidence for both parties and the corresponding disposition of CTA E.B. Case No. 210 not otherwise inconsistent with our judgment in this Decision.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Associate Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA

Associate Justice

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.

RENATO C. CORONA
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice