ArellanoLawSchool

SchoolYear20132014
SecondSemester

Taxation2:CaseDigest
Table of Content

ESTATETAX....................................................................................3
KNOWLTONVS.MOORE.................................................................................4
PABLO LORENZO, AS TRUSTEE OF THE ESTATE OF THOMAS HANLEY VS.
JUAN POSADAS, JR., COLLECTOR OF INTERNAL REVENUE.............................7
ANGELA M. BUTTE V. MANUEL UY AND SONS, INC.,......................................12
SOCIAL SECURITY SYSTEM, VS. CANDELARIA D. DAVAC, ET AL.,..................16
YAMKALIMV.THEINSULARCOLLECTOROFCUSTOMS................................20
LUISW.DISONVS.JUANPOSADAS,JR.,COLLECTOROFINTERNALREVENUE. 22
UNITEDSTATESV.WELLS............................................................................ 24
MORGANV.COMMISSIONER.........................................................................26
BPIVPOSADAS............................................................................................... 28
TAGARAOVGARCIA.................................................................................... 30
TESTATEESTATEOFTHELATEFELIXJ.DEGUZMANVDEGUZMAN.............................32
CIRVPALANCA,JR.......................................................................................... 34
DONORSTAX................................................................................38
ABELLOVCIR................................................................................................ 39
VALUEADDEDTAX(VAT).................................................................42
CIRVSMPRIMEHOLDINGS...............................................................................43
PANASONICVCIR......................................................................................... 46
INTELTECHNOLOGYPHILS.INC.VCIR..........................................................49
SANROQUEPOWERCORP.VCIR...................................................................54
SEAOILVS.AUTOCORP................................................................................. 58
SOUTHERNPHILIPPINESPOWERCORPVS.CIR...............................................60
PAGCORVBIR.............................................................................................. 62

ESTATETAX

ataximposedupontheprivilegeofindividualstotransferpropertiesoccasioned
bydeath.

KNOWLTONVS.MOORE
178U.S.41May14,1900

Facts

The plaintiffs in error were the executors of the will of Edwin F. Knowlton, of Brooklyn,
New York. The defendant in error was the United States Collector of Internal Revenue for
the First Collection District for the New York.

Mr. Knowlton died at Brooklyn in October, 1898, and his will was duly proved. Under
the portion of the Act of Congress of June 13, 1898, which is printed at length in a note to
the opinion of the Court in this case, the United States Collector of Internal Revenue
demanded (of the executors) a return showing the amount of the personal estate of the
deceased and the legatees and distributees thereof. This return the executors made under
protest, asserting that the Act of June 13 was unconstitutional. This return showed that the
personal estate amounted to over two and a half millions of dollars, and that there were
several legacies, ranging from under $10,000 each to over $1,500,000. The collector
levied the tax on the legacies and distributive shares, but, for the purpose of fixing
the rate of the tax, considered the whole of the personal estate of the deceased as
fixing the rate for each, and not the amount coming to each individual legatee under
the will.

As the rates under the statute were progressive from a low rate on legacies amounting to
$10,000 to a high rate on those exceeding $1,000,000, this decision greatly increased the
aggregate amount of the taxation.

Demand having been made by the collector for payment, payment was made under
protest, and, after the Commissioner of Internal Revenue had refused to refund any of it,
the executors commenced suit to recover the amount so paid.

Issue

The executors protested on the grounds:

(1) that the provisions of the act were unconstitutional;

(2) that legacies amounting to less than $10,000, were not subject to any tax or duty;

(3) that a legacy of $100,000, taxed at the rate of $2.25 per $100, was only subject to the
rate of $1.12 1/2.

Ruling

(1) That the statute clearly imposes the duty on the particular legacies or distributive
shares, and not on the whole personal estate

(2) That it makes the rate of the tax depend upon the character of the links connecting
those taking with the deceased, being primarily determined by the classifications, and
progressively increased according to the amount of the legacies or shares.

(3) That the court below erred in denying all relief, and that it should have held the
5

plaintiffs entitled to recover so much of the tax as resulted from taxing legacies not
exceeding ten thousand dollars, and from increasing the tax rate with reference to the
whole amount of the personal estate of the deceased from which the legacies or
distributive shares were derived.

--------

Death duties were established by the Roman and ancient law, and, by the modern laws of
France, Germany, and other continental countries, England and her colonies, and an
examination of all shows that tax laws of this nature rest, in their essence, upon the
principle that death is the generating source from which the particular taxing power
takes its being, and that it is the power to transmit or the transmission from the dead to
the living on which such taxes are more immediately vested.
When a particular construction of a statute will occasion great inconvenience or produce
inequality and injustice, that view is not to be favored if another and more reasonable
interpretation is present in the statute.
The provision in Section 8 of Article I of the Constitution that "all duties, imports and
excises shall be uniform throughout the United States" refers purely to a geographical
uniformity, and is synonymous with the expression "to operate generally throughout the
United States."

PABLO LORENZO, AS TRUSTEE OF THE ESTATE OF THOMAS

HANLEY VS. JUAN POSADAS, JR., COLLECTOR OF INTERNAL
REVENUE
G.R. No. L-43082

June 18, 1937

---------------------------------------------------------------

Facts

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of
Thomas Hanley, deceased, brought this action in the Court of First Instance of
Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal
Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance
tax on the estate of the deceased, and for the collection of interest thereon at the rate of 6
per cent per annum, computed from September 15, 1932, the date when the aforesaid tax
was paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be
interest due on the tax in question and which was not included in the original assessment.
From the decision of the Court of First Instance of Zamboanga dismissing both the
plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga,
leaving a will and considerable amount of real and personal properties. On June 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate
were begun in the Court of First Instance of Zamboanga. The will was admitted to
probate.
The Court of First Instance of Zamboanga considered it proper for the best interests of
their estate to appoint a trustee to administer the real properties which, under the will,
were to pass to Matthew Hanley.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal
7

Revenue, alleging that the estate left by the deceased at the time of his death consisted of
realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of
P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which,
together with the penalties for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the
tax, amounted to P2,052.74.
The plaintiff paid said amount under protest, notifying the defendant at the same time that
unless the amount was promptly refunded suit would be brought for its recovery. The
defendant overruled the plaintiff's protest and refused to refund the said amount
exhausted, plaintiff went to court with the result herein above indicated.

The following are the principal questions to be decided by this court in this appeal:

(a) When does the inheritance tax accrue and when must it be satisfied?
The accrual of the inheritance tax is distinct from the obligation to pay the same. Section
1536 as amended, of the Administrative Code, imposes the tax upon "every transmission
by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of
inheritance, devise, or bequest." The tax therefore is upon transmission or the transfer or
devolution of property of a decedent, made effective by his death. It is in reality an excise
or privilege tax imposed on the right to succeed to, receive, or take property by or under a
will or the intestacy law, or deed, grant, or gift to become operative at or after death.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow
that the obligation to pay the tax arose as of the date. The time for the payment on
inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as
amended by Act No. 3031, in relation to section 1543 of the same Code.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(b) In other cases, within the six months subsequent to the death of the
predecessor; but if judicial testamentary or intestate proceedings shall be
instituted prior to the expiration of said period, the payment shall be
8

made by the executor or administrator before delivering to each

beneficiary his share.
Under the subsection, the tax should have been paid before the delivery of the properties
in question to P. J. M. Moore as trustee on March 10, 1924.

(b) Should the inheritance tax be computed on the basis of the value of the estate at
the time of the testator's death, or on its value ten years later?
Whatever may be the rule in other jurisdictions, we hold that a transmission by
inheritance is taxable at the time of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary, and
the tax measured by the value of the property transmitted at that time regardless of its
appreciation or depreciation.

(c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for his services 1. But from
this it does not follow that the compensation due him may lawfully be deducted in
arriving at the net value of the estate subject to tax. There is no statute in the Philippines
which requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax. Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated.

(d) What law governs the case at bar? Should the provisions of Act No. 3606
favorable to the tax-payer be given retroactive effect?
It is well-settled that inheritance taxation is governed by the statute in force at the time of
the death of the decedent. The taxpayer can not foresee and ought not to be required to
1Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047
9

guess the outcome of pending measures. Of course, a tax statute may be made retroactive
in its operation. Liability for taxes under retroactive legislation has been "one of the
incidents of social life."2 But legislative intent that a tax statute should operate
retroactively should be perfectly clear. Act No. 3606 itself contains no provisions
indicating legislative intent to give it retroactive effect. No such effect can be given the
statute by this court.

(e) Has there been delinquency in the payment of the inheritance tax? If so, should
the additional interest claimed by the defendant in his appeal be paid by the estate?
There is no doubt that the testator intended to create a trust. He
ordered in his will that certain of his properties be kept together
undisposed during a fixed period, for a stated purpose. The probate
court certainly exercised sound judgment in appointment a trustee to
carry into effect the provisions of the will.
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him.
The mere fact that the estate of the deceased was placed in trust did not remove it from
the operation of our inheritance tax laws or exempt it from the payment of the inheritance
tax. The corresponding inheritance tax should have been paid on or before March 10,
1924, to escape the penalties of the laws. This is so for the reason already stated that the
delivery of the estate to the trustee was in esse delivery of the same estate to the cestui
que trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui
que trust. When Moore accepted the trust and took possesson of the trust estate he
thereby admitted that the estate belonged not to him but to his cestui que trust3. He did
not acquire any beneficial interest in the estate. He took such legal estate only as the
proper execution of the trust required and, his estate ceased upon the fulfillment of the
testator's wishes. The estate then vested absolutely in the beneficiary.
It results that the estate which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and surcharge provided
2Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.
3Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63
10

by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became
trustee. The interest due should be computed from that date and it is error on the part of
the defendant to compute it one month later. The provisions cases is mandatory, and
neither the Collector of Internal Revenue or this court may remit or decrease such
interest, no matter how heavily it may burden the taxpayer.
The judgment of the lower court is accordingly modified, with costs against the
plaintiff in both instances. So ordered.

11

ANGELA M. BUTTE v. MANUEL UY and SONS, INC.,

GR No. L-15499

February 28, 1962

---------------------------------------------------------------

Facts

Appeal from a decision of the Court of First instance of Manila dismissing the action for
legal redemption filed by plaintiff-appellant.

It appears that Jose V. Ramirez, during his lifetime, was a co-owner of a house and lot
located at Sta. Cruz, Manila, issued in the name of the following co-owners: Marie
Garnier Vda. de Ramirez, 1/6; Jose V. Ramirez, 1/6; Jose E. Ramirez, 1/6; Rita de
Ramirez, 1/6; and Jose Ma. Ramirez, 1/6.
On October 20, 1951, Jose V. Ramirez died. Subsequently, Special Proceeding No. 15026
was instituted to settle his estate, that included the one-sixth (1/6) undivided share in the
aforementioned property. And although his last will and testament, wherein he
bequeathed his estate to his children and grandchildren and one-third (1/3) of the free
portion to Mrs. Angela M. Butte, hereinafter referred to as plaintiff-appellant, has been
admitted to probate, the estate proceedings are still pending up to the present on account
of the claims of creditors which exceed the assets of the deceased. The Bank of the
Philippine Islands was appointed judicial administrator.
Meanwhile, on December 9, 1958, Mrs. Marie Garnier Vda. de Ramirez, one of the coowners of the late Jose V. Ramirez in the Sta. Cruz property, sold her undivided 1/6 share
to Manuel Uy & Sons, Inc. defendant-appellant herein, for the sum of P500,000.00. After
the execution by her attorney-in-fact, Mrs. Elsa R. Chambers, of an affidavit to the effect
that formal notices of the sale had been sent to all possible redemptioners, the deed of
sale was duly registered and Transfer Certificate of Title No. 52789 was cancelled in lieu
12

of which a new one was issued in the name of the vendee and the other-co-owners.
On January 15, 1959, Mrs. Angela M. Butte, thru Atty. Resplandor Sobretodo, sent a
letter and a Philippine National Bank cashier's check in the amount of P500,000.00 to
Manuel Uy & Sons, Inc. offering to redeem the 1/6 share sold by Mrs. Marie Garnier
Vda. de Ramirez. This tender having been refused, plaintiff on the same day consigned
the amount in court and filed the corresponding action for legal redemption. Without
prejudice to the determination by the court of the reasonable and fair market value of the
property sold which she alleged to be grossly excessive, plaintiff prayed for conveyance
of the property, and for actual, moral and exemplary damages.
After the filing by defendant of its answer containing a counterclaim, and plaintiff's reply
thereto, trial was held, after which the court rendered decision on May 13, 1959,
dismissing plaintiff's complaint on the grounds that she has no right to redeem the
property and that, if ever she had any, she exercised the same beyond the statutory 30-day
period for legal redemptions provided by the Civil Code. The counterclaim of defendant
for damages was likewise dismissed for not being sufficiently established. Both parties
appealed directly to this Court.

Based on the foregoing facts, the main issues posed in this appeal are:

(1) whether or not plaintiff-appellant, having been bequeathed 1/3 of the free
portion of the estate of Jose V. Ramirez, can exercise the right of legal redemption
over the 1/6 share sold by Mrs. Marie Garnier Vda. de Ramirez despite the presence
of the judicial administrator and pending the final distribution of her share in the
testate proceedings;

The appellant Angela M. Butte is entitled to exercise the right of legal redemption is
clear. As testamentary heir of the estate of J.V. Ramirez, she and her co-heirs acquired an
interest in the undivided one-sixth (1/6) share owned by her predecessor (causante) in the
Santa Cruz property, from the moment of the death of the aforesaid co-owner, J.V.
13

Ramirez. By law, the rights to the succession of a deceased persons are transmitted to his
heirs from the moment of his death, and the right of succession includes all property
rights and obligations that survive the decedent.
As co-owners of the property, the heirs of Jose V. Ramirez, or any one of them, became
personally vested with right of legal redemption as soon as Mrs. Garnier sold her own
pro-indiviso interest to Uy & Sons.

(2) Whether or not she exercised the right of legal redemption within the period
prescribed by law.
The right of appellant Angela M. Butte to make the redemption being established, the
next point of inquiry is whether she had made or tendered the redemption price within the
30 days from notices as prescribed by law. This period, be it noted, is peremptory,
because the policy of the law is not to leave the purchaser's title in uncertainty beyond the
established 30-day period. In considering whether or not the offer to redeem was timely,
we think that the notice given by the vendee (buyer) should not be taken into account.
The notice which became operative is that given by Mrs. Chambers, in her capacity as
attorney-in-fact of the vendor Marie Garnier Vda. de Ramirez. Under date of December
11, 1958, she wrote the Administrator Bank of the Philippine Islands that her principal's
one-sixth (1/6) share in the Sta. Cruz property had been sold to Manuel Uy & Sons, Inc.
for P500,000.00. The Bank received this notice on December 15, 1958, and on the same
day endorsed it to Mrs. Butte, care of Delgado, Flores and Macapagal (her attorneys),
who received the same on December 16, 1958. Mrs. Butte tendered redemption and upon
the vendee's refusal, judicially consigned the price of P500,000.00 on January 15, 1959.
The latter date was the last one of the thirty days allowed by the Code for the redemption,
counted by excluding December 16, 1958 and including January 15, 1959, pursuant to
Article 13 of the Civil Code. Therefore, the redemption was made in due time.
The date of receipt of the vendor's notice by the Administrator Bank (December 15) can
not be counted as determining the start of thirty days; for the Administrator of the estate
was not a proper redemptioner, since, as previously shown, the right to redeem the share

14

of Marie Garnier did not form part of the estate of Jose V. Ramirez.

15

SOCIAL SECURITY SYSTEM, vs. CANDELARIA D. DAVAC, ET

AL.,
G.R. No. L-21642

July 30, 1966

---------------------------------------------------------------------Facts
This is an appeal from the resolution of the Social Security Commission declaring
respondent Candelaria Davac as the person entitled to receive the death benefits payable
for the death of Petronilo Davac.

The facts of the case as found by the Social Security Commission, briefly are: The late
Petronilo Davac, a former employee of Lianga Bay Logging Co., Inc. became a member
of the Social Security System (SSS for short) on September 1, 1957. As such member, he
designated respondent Candelaria Davac as his beneficiary and indicated his relationship
to her as that of "wife". He died on April 5, 1959 and, thereupon, each of the respondents
(Candelaria Davac and Lourdes Tuplano) filed their claims for death benefit with the
SSS. It appears from their respective claims and the documents submitted in support
thereof, that the deceased contracted two marriages, the first, with claimant Lourdes
Tuplano on August 29, 1946, who bore him a child, Romeo Davac, and the second, with
Candelaria Davac on January 18, 1949, with whom he had a minor daughter Elizabeth
Davac. Due to their conflicting claims, the processing thereof was held in abeyance,
whereupon the SSS filed this petition praying that respondents be required to interpose
and litigate between themselves their conflicting claims over the death benefits in
question.
On February 25, 1963, the Social Security Commission issued the resolution referred to
above, Not satisfied with the said resolution, respondent Lourdes Tuplano brought to us
the present appeal.

Issue

16

The only question to be determined herein is whether or not the Social Security
Commission acted correctly in declaring respondent Candelaria Davac as the person
entitled to receive the death benefits in question.

Ruling
Section 13, Republic Act No. 1161, as amended by Republic Act No. 1792, in force at the
time Petronilo Davac's death on April 5, 1959, provides:
1. SEC. 13. Upon the covered employee's death or total and permanent disability
under such conditions as the Commission may define, before becoming eligible
for retirement and if either such death or disability is not compensable under the
Workmen's Compensation Act, he or, in case of his death, his beneficiaries, as
recorded by his employer shall be entitled to the following benefit: ... . (emphasis
supplied.)
Under this provision, the beneficiary "as recorded" by the employee's employer is the one
entitled to the death benefits.

-------------------------------------------------

Appellant contends that the designation herein made in the person of the second and,
therefore, bigamous wife is null and void, because

(1) it contravenes the provisions of the Civil Code;

As to the first point, appellant argues that a beneficiary under the Social Security System
partakes of the nature of a beneficiary in life insurance policy and, therefore, the same
qualifications and disqualifications should be applied.
Without deciding whether the naming of a beneficiary of the benefits accruing from
membership in the Social Security System is a donation, or that it creates a situation

17

analogous to the relation of an insured and the beneficiary under a life insurance policy, it
is enough, for the purpose of the instant case, to state that the disqualification mentioned
in Article 7394 is not applicable to herein appellee Candelaria Davac because she was not
guilty of concubinage, there being no proof that she had knowledge of the previous
marriage of her husband Petronilo.

and (2) It deprives the lawful wife of her share in the conjugal property as well as of
her own and her child's legitime in the inheritance.
Regarding the second point raised by appellant, the benefits accruing from membership
in the Social Security System do not form part of the properties of the conjugal
partnership of the covered member. They are disbursed from a public special fund created
by Congress in pursuance to the declared policy of the Republic "to develop, establish
gradually and perfect a social security system which ... shall provide protection against
the hazards of disability, sickness, old age and death."
Additionally, Section 21 of the Social Security Act, as amended by Republic Act 1792,
provides:
SEC. 21. Government Guarantee. The benefits prescribed in this Act shall not
be diminished and to guarantee said benefits the Government of the Republic of
the Philippines accepts general responsibility for the solvency of the System.
From the foregoing provisions, it appears that the benefit receivable under the Act is in
the nature of a special privilege or an arrangement secured by the law, pursuant to the
policy of the State to provide social security to the workingmen. The amounts that may
thus be received cannot be considered as property earned by the member during his
lifetime. His contribution to the fund, it may be noted, constitutes only an insignificant
portion thereof. Then, the benefits are specifically declared not transferable, and
exempted from tax legal processes, and lien. Furthermore, in the settlement of claims
thereunder the procedure to be observed is governed not by the general provisions of law,
4ART. 739. The following donations shall be void: (1) Those made
between persons who were guilty of adultery or concubinage at the
time of the donation;
18

but by rules and regulations promulgated by the Commission. Thus, if the money is
payable to the estate of a deceased member, it is the Commission, not the probate or
regular court that determines the person or persons to whom it is payable.
If there is a named beneficiary and the designation is not invalid (as it is not so in this
case), it is not the heirs of the employee who are entitled to receive the benefits (unless
they are the designated beneficiaries themselves). It is only when there is no designated
beneficiaries or when the designation is void, that the laws of succession are applicable.
And we have already held that the Social Security Act is not a law of succession.
Wherefore, in view of the foregoing considerations, the resolution of the Social Security
Commission appealed from is hereby affirmed, with costs against the appellant.

19

YAMKALIMv.THEINSULARCOLLECTOROFCUSTOMS
------------------------------------------------------------------------------------Facts:YamKaLim,apersonofChineseraiseanddescent,arrivedattheportofManila
from the port of Hongkong and sought admission into the Philippine Islands, as the
legitimateminorsonofYamLongSai,aresidentChinesemerchant.Apparentlyhisentry
tothePhilippineislandswasdeniedbytheboardonthegroundthattheydidnotbelieved
himtobethesonofYamLongSai.DuenoticewasgivenofsaiddecisiontoYamLong
Sai,aswellastohisrepresentative,WilliamTraceyPage,whowereinformedthatthey
hadtwodaysinwhichtoappealtotheInsularCollectorofCustoms.Noappealwas
made.SubsequentlyawritofhabeascorpuswasfiledtoproducethebodyofYamkalim.
withouthavingfirstdecidedwhethertheCollectorofCustomshadabusedhisauthority,
thelowercourtproceededtohearevidenceuponthequestionwhetherornotthesaid
YamKaLimwasthelegitimateminorsonofYamLongSai.Afterhearingtheevidence
andtakingintoconsiderationthelawsofChina,withoutanyproofastowhattheywere,
thelowercourtdecidedthatthesaidYamKaLimwasthelegitimatesonofthesaidYam
LongSaiandorderedhimtobereleasedfromthecustodyoftheCollectorofCustoms
andthathebepermittedtoenterthePhilippineIslandsandthatthesaidbondtheretofore
givenbecanceled.
Issue:WONcourterredintakingjudicialnoticeofthelawsofChinarelativetomarriage
andchildlegitimacy,whichdifferfromthoseinforceinthePhilippineIslands.
Held:Yes.itisquiteclearthatthelowercourtcommittedanerrorintakingjudicial
noticeofwhatthelawsofmarriageinChinaare.Thestatutesofothercountriesmustbe
pleadedandprovedthesameasanyotherfact.Intheabsenceofsuchpleadingandproof
thelawsofaforeignstatewillbepresumedtobethesameasourown.
Therewasampleproofintherecordtoshow,oratleasttoconvincetheboardofspecial
inquiry,thatsaidYamKaLimwasnotthelegitimateminorsonofthesaidYamLong
Sai.

20

Thepetitioner,nothavingexhaustedtheremediesofferedtohimbytheexecutive
departmentoftheGovernment,hadnorighttoappealtothecourts.
Fortheforegoingreasonsthejudgmentofthelowercourtisherebyrevokedanditis
herebyorderedthattherecordbereturnedtothelowercourt,withdirectionthatanorder
beissuedreturningtheplaintifftothecustodyoftheInsularCollectorofCustoms,tothe
endthathemaybedeportedinaccordancewithorderofthesaidCollectorofCustoms.
Andwithoutanyfindingastocosts,itissoordered.

21

LUISW.DISONVS.JUANPOSADAS,JR.,COLLECTOROFINTERNAL
REVENUE
---------------------------------------------------------------------Facts:
DonFelixDison,beforehisdeath,madeagiftintervivosinfavorofplaintiffLuisDison.
LuiswasthelegitimateandonlychildofFelix.TheCollectorofInternalRevenue,Juan
PosadasJr.taxedhim.Luisfiledfortherecoveryofaninheritancetaxinthesumof
P2,808.73paidunderprotest.Heallegedinhiscomplaintthatthetaxisillegalbecausehe
receivedthepropertyfromhisfatherbeforehisdeathbyadeedofgiftintervivoswhich
wasdulyacceptedandregisteredbeforethedeathofhisfather.Hecontendsthathe
receivedandheldthepropertybyaconsummatedgiftandthatActNo.2601beingthe
inheritancetaxstatute,doesnottaxgifts.

Issue:
WhetherornotDisonshouldpayinheritancetax.

Held:
Yes.Disonshouldpaytax.Section1540oftheAdministrativeCodeisapplicable.It
statesthat:
AdditionofGiftsandAdvancesAftertheaforementioneddeductionshavebeenmade,
thereshallbeaddedtotheresultingamountthevalueofallgifts/advancesmadebythe
predecessortoanyofthose,who,afterhisdeath,shallprovetobehisheirs,devisees,
legateesordoneesmortiscausa.

22

ThatDisonoccupiesthestatusofheirtohisdeceasedfathercannotbequestioned.The
conveyanceisdeemedtobeanadvancementupontheinheritancewhichthedonee,asthe
soleandforcedheirofthedonor,wouldbeentitledtoreceiveuponthedeathofthe
donor.ThetaxhasbeenproperlyassessedbytheCIR.
AsregardsAct2601,itisnotapplicablesincetheActdoesnotmakeanyreferencetoa
taxongifts.

23

UNITEDSTATESV.WELLS
283U.S.102(1931)

LawsApplicable:
LessonsApplicable:donationincontemplationofdeath
FACTS:

Asearlyastheyear1901,JohnW.Wells,aresidentofMenominee,Michigan,
beganthemakingofadvancementsofmoneyandotherpropertytohis
children.In1918,1919,January1,1921,January26,1921,hetransferredstocks
tohischildren.

May1919:hewenttoahospitalinChicagofortreatmentofasthmaandremained
therefor11days

April,1920:hehadulcerativecolitis(inflamedlargeintestine)

June,1920:physiciansinCaliforniafoundhimtohavecanceroftheintestines

September14,1920:physicianstoldhimhecanbeabsolutelycuredifheis
careful

September22,1920:hewasdischargedandisinexcellentcondition

January14,1921:medicalexaminationshowedhisulcerativecolitis90%normal

April,1921:hehadarecurrenceandwasadvisedforoperationbecausehemight
havecancer

June,1921:reenteredhospitalinChicagoashisviralinfectionfailedtoyieldto
treatment

August17,1921:hediedattheageof73survivedbyhiswifeand5children.
TheCommissionerofInternalRevenueassessedadditionalestatetaxes,uponthe
ground

24

thatcertaintransfersbythedecedentWITHIN2yearspriortohisdeath,weremadein
contemplationofdeathandshouldbeincludedinthetaxableestate.The
additionalestatetaxforthetransferin1919,January1,1921,January26,1921waspaid
bytheexecutorsandclaimforrefundwasfiledbutrejected.

CourtofClaims:Favoredtheexecutorssinceimmediateandmovingcauseofthe
transferswasthecarryingoutofapolicy,longfollowedbydecedentindealing
withhischildrenofmakingliberalgiftstothemduringhislifetime

TheyfiledaCourtgrantedawritofcertiorari

ISSUE:W/Nitwasadonationincontemplationofdeath
HELD:NO.Judgmentaffirmed.

Thebestevidenceofthestateofthedecedent'shealthatthetimethetransfers
weremadeisthestatementofhisdoctor.

Thebestevidenceofthedecedent'sstateofmindatthattimeandthereasons
actuatinghiminmakingthetransfersarethestatementsandexpressionsofthe
decedenthimself,supportedassuchstatementsarebyallthecircumstances
concerningthetransfers.

Deathmustbe"contemplated"thatis,themotivewhichinducesthetransfer
mustbeofthesortwhichleadstotestamentarydisposition.Thenaturaland
reasonableinferencewhichmaybedrawnfromthefactthatbutashortperiod
intervenesbetweenthetransferanddeathisrecognizedbythestatutoryprovision
creatingapresumptioninthecaseofgiftsWITHIN2yearspriortodeath.BUT
thispresumption,bythestatutebeforeus,isexpresslystatedtobearebuttable.

Itiscontemplationofdeath,notnecessarilycontemplationofimminentdeath,to
whichthestatuterefers.Thewords"incontemplationofdeath"meanthatthe
thoughtofdeathistheimpellingcauseofthetransfer,and,whilethebeliefinthe
imminenceofdeathmayaffordconvincingevidence,thestatuteisnottobe
limited,anditspurposethwarted,byaruleofconstructionwhich,inplaceof
25

contemplationofdeath,makesthefinalcriteriontobeanapprehensionthatdeath
isnearathand.

26

MORGANV.COMMISSIONER
309U.S.78(1940)

LawsApplicable:
LessonsApplicable:generalpowerofappointment
FACTS:

MorganistheexecutorofElizabethS.Morgan,whowasthedoneeof2powers
ofappointmentoverpropertyheldin2trustscreatedbyherfatherbywillandby
deed.Thepropertyremaininginthetrustees'handsforElizabethS.Morganwas
given,atherdeath,totheappointeeorappointeesnamedinherwill,withgifts
overincaseshefailedtoappoint.Underbothtrusts,ifinthejudgmentofthe
trustees,propertygoingtoanybeneficiarywouldbedissipatedforanyreason,or
improvidentlyhandled,thetrusteesweretowithholdanypartofsuchproperty,
withdirectionsfordisposition,insuchevent,ofwhatwaswithheld.Thedecedent
appointedinfavorofherhusband.

TheCommissionerruledthatthevalueoftheappointedpropertyshouldbe
includedinthegrossestate,anddeterminedataxdeficiency.TheBoardofTax
Appealsapprovedhisaction.TheCircuitCourtofAppealsaffirmedtheBoard's
decision.

ISSUE:W/Nitwasthetrusthadageneralpowerofappointment
HELD:YES.Judgmentaffirmed.

generalpowerofappointmentdoneemayappointtoanyone,includinghisown
estateorhiscreditors,thushavingasfulldominionoverthepropertyasifhe
ownedit

27

specialpowerofappointmentdoneemayappointonlyamongstarestrictedor
designatedclassofpersonsotherthanhimself.

Theimportantconsiderationisthebreadthofthecontrolthedecedentcould
exerciseovertheproperty,whateverthenatureorextentoftheappointee's
interest.

oinasmuchasthetrusteeshadanunfettereddiscretiontowithholdprincipalorincome
fromanybeneficiary,theycouldexercisetheirdiscretionasrespectsanyappointeeofthe
decedent

28

BPIvPosadas
GRNo.L34583;October22,1931[56Phil215]
VillaReal,J.:

FACTS:
BPIwasassignedastheadministratoroftheestateofthelateAdolpheOscarSchuetze
whodiedinthePhilippines,isaGermancitizenandmarriedtoRosarioGelanoVda.de
Schuetze,Filipina,oflegalageandcurrentlyresidinginGermany.
SchuetzebeforemarryingRosario,acquiredalifeinsurancefromSunLifeAssurance
CompanyofCanadaandcontinuedtopayforitaftertheirmarriage.Theinsurancepolicy
namedtheestateofSchuetzeasthebeneficiary.
Also,beforehisdeath,SchuetzeexecutedawillwhereinRosariowasnamedashis
universalheir.
BPIrenderedanaccountingofalltheassetsofSchuetze,includingthesaidinsurance
policywhereintheyreceivedtheamountofP20,150,representingtheproceedsofthe
saidpolicy.BPIdeliveredittoRosario.
HoweverCIR(CollectionofTaxRevenue)imposedandinheritancetaxuponthe
transmissionoftheproceedsofthepolicyandBPI,astheadministratoroftheestateof
Schuetze,underprotestpaidthesaidtax(P1,209).
Issue:
WhetherthelifeinsurancepolicyofSchuetzeissubjecttotax.
29

Held:
Thecourtheldthatiftheproceedsofthelifeinsurancepolicytakenoutbythedecedent
andmadepayabletohisestateweredeliveredtoBPIforadministrationanddistribution,
theywerenotintransitbutweremoreorlesspermanentlylocatedinthePhilippine
Islands,accordingtotheforegoingrules.Ifthisbeso,halfoftheproceedswhichis
communityproperty,belongstotheestateofthedeceasedandissubjecttothe
inheritancetax,inaccordancewiththelegalprovisionquotedabove,irrespectiveof
whetherornotthelateAdolpheOscarSchuetzewasdomiciledinthePhilippineIslands
atthetimeofhisdeath.
Thecourtalsoheldthat:(1)Thattheproceedsofalifeinsurancepolicypayabletothe
insured'sestate,onwhichthepremiumswerepaidbytheconjugalpartnership,constitute
communityproperty,andbelongonehalftothehusbandandtheotherhalftothewife,
exclusively;(2)thatifthepremiumswerepaidpartlywithparaphernalandpartly
conjugalfunds,theproceedsarelikewiseinlikeproportionparaphernalinpartand
conjugalinpart;and(3)thattheproceedsofalifeinsurancepolicypayabletothe
insured'sestateasthebeneficiary,ifdeliveredtothetestamentaryadministratorofthe
formeraspartoftheassetsofsaidestateunderprobateadministration,aresubjecttothe
inheritancetaxaccordingtothelawonthematter,iftheybelongtotheassured
exclusively,anditisimmaterialthattheinsuredwasdomiciledintheseislandsor
outside.
Wherefore,CIRwasorderedtoreturnofthetaxcollectedtoBPI.

30

TAGARAOvGARCIA
GRNo.L40064December4,1934
Diaz,J.:

FACTS:
VidalSaraviaownsalandinOccidentalNegroswithanareaof31hectares,3aresand
65centares.VidalsolditthroughapactoderetrosaletobrothersMarcosGarcia
(respondent)andVenturaGarciaonJuly20,1900.Wholaterbecametheabsolute
ownersofthesaidland.
Whentheyboughttheland,Marcoswasstillsingle.ThenafterMarcosgotmarriedtohis
firstwifeandhad3children,hereincorespondents:Margarita,RosarioandCaralina
(deceased)representedbyDoloresRufino.Later,marriedagaintohissecondwifePaula
Tabifranca.
Venturawasalsomarriedandhad2children,ClaroandMerced.Mercedgotmarriedto
Rafaelandhad3children,hereinpetitioners:Resurrection,SerafinandBuenaventura.
DuringthelifetimeofMerced,MarcoshadbeendeliveringtoherandClarotheshares
fromtheproductsharvestedfromthelandcoownedbytheirfather(deceased).
However,uponherdeaththedeliveryhaveceasedandMarcosclaimedthepropertyas
hisownwithouttheknowledgeoftherespondents.
RespondentsfoundoutthatthepropertyhavebeentransferredtoMarcosandtheywere
unabletoreceivetheirshareoftheproperty.Henceacomplaintforrecoverywasfiled,
andthecourtruledtherecoveryofthesharesofthepetitionerandtheannulmentofthe
salehavingbeenpermeatedbyfraud.

31

Issue:
Whetherpetitionersrightoverthepropertystillexist.
Held:
Courtheldthatthesalewasvoid,howeverResurrectioncouldnolongerentitledto
acquirethelandhavingsleptonherrightovertheproperty.Sinceuponknowledgeofthe
fraudcommitted,sheallowed10yearstopass,whichripenedthepossessionandright
overthepropertybyMarcos.

32

TestateEstateoftheLateFelixJ.DeGuzmanvDeGuzman
GRNo.L29276May18,1978[83SCRA256]
Aquino,J.:

FACTS:
Thedecedent,FelixDeGuzman,estateconsistedofahouseandlotwhichwas
subdividedtohiseightchildren:Victorino,Severino,Librada,Margarita,Josefina,
Honorata,ArsenioandCrispina.
Victorinowasassignedbythecourtastheadministratoroftheestate,andintheexercise
ofhispowerasadministratorspenttheassetsoftheestateforreconstructingand
remodelingthehouseofthedecedent,whichwasorderedtostopbythecourtsincehe
wasnotgiventheauthoritytodoso.Thecourthoweverallowedtheexpensesincurredby
Victorinosinceitwasforthecare,managementandsettlementoftheestate.
However,respondentcontendedthesaiddecisionbythecourt.Hencethepetition.
Issue:
Whetherornottheprobatecourterredinapprovingtheuseoftheincomeoftheestateto
defraytheexpenses.
Held:
Thecourtheldthattheprobatecourterredinapprovingthewholeaccountingand
renderedanordermodifyingthatthesumof(a)P1,603.11asthelivingexpensesof
LibradadeGuzman.(b)P100forstenographicnotes,(c)P26.25asrepresentation

33

expenses,and(d)P268.65asexpensesforthecelebrationofthefirstanniversaryofthe
decedent'sdeatharedisallowedintheadministrator'saccounts.

34

CIRvPalanca,Jr.
GRNo.L16626October29,1966[18SCRA496]
REGALA,J.:

FACTS:
ThelateDonCarlosPalanca,Sr.,donatedtohissonCarlosPalanca,Jr.sharesofstockin
LaTondena,Inc.amountingto12,500shares.However,Carlosfailedtofileareturnon
thedonationwithinForfailuretofileareturnonthedonationwithinthestatutoryperiod,
thepetitionerwasassessedthesumsofP97,691.23,P24,442.81andP47,868.70asgift
tax,25%surchargeandinterest,respectively,whichhepaidonJune22,1955.
OnMarch1,1956,thepetitionerfiledwiththeBureauofInternalRevenuehisincome
taxreturnforthecalendaryear1955,claiming,amongothers,adeductionforinterest
amountingtoP9,706.45andreportingataxableincomeofP65,982.12.
Subsequently,onNovember10,1956,thepetitionerfiledanamendedreturnforthe
calendaryear1955,claimingthereinanadditionaldeductionintheamountofP47,868.70
representinginterestpaidonthedonee'sgifttax,therebyreportingataxablenetincome
ofP18,113.42andataxduethereoninthesumofP3,167.00.Theclaimfordeduction
wasbasedontheprovisionsofSection30(b)(1)oftheTaxCode,whichauthorizesthe
deductionfromgrossincomeofinterestpaidwithinthetaxableyearonindebtedness.A
claimfortherefundofallegedoverpaidincometaxesfortheyear1955amountingto
P17,885.01,whichisthedifferencebetweentheamountofP21,052.01hepaidasincome
taxesunderhisoriginalreturnandofP3,167.00,wasfiledtogetherwiththisamended
return.InacommunicationdatedJune20,1957,therespondent(BIR)deniedtheclaim
forrefund.

35

ThenafterBIRconsideredthetransferofthe12,500sharesofstockofLaTondenaInc.
tobeatransferincontemplationofdeathandassessedthepetitionerthesumof
P191,591.62asestateandinheritancetaxesonthetransferofthesaidstock.
CarlospaidtheamountofP17,002.74onJune22,1955asgifttax,includingtheinterest
andsurchargeappliedtohisestateandinheritancetaxliability.Thenafterpaidatotalof
P60,581.80asinterestfordelinquency.Respondentagainfiledforarefund,butsaid
requestwasdeniedbythepetitioner.
CTAhoweverruledinfavoroftherespondent,whichthepetitionercontendedthatthe
petitionersclaimforrefundhavealreadyprescribed.
Hencetheissue.
ISSUE:
Whetherornotrespondentmayclaimforataxrefund.
Whetherornotthetransferofthestockwasincontemplationofdeath.
HELD:
Thecourtheldontheissueofprescription:Therewereactuallytwoclaimsforrefund
filedbythehereinrespondent,CarlosPalanca,Jr.,anentthecaseatbar.Thefirstonewas
onNovember10,1956,whenhefiledaclaimforrefundontheinterestpaidbyhimon
thedonee'sgifttaxofP17,885.10,asoriginallydemandedbytheBureauofInternal
Revenue.ThesecondonewastheonefiledbyhimonAugust12,1958,whichwasa
claimforrefundontheinterestpaidbyhimontheestateandinheritancetaxassessedby
thesameBureauintheamountofP20,624.01.Actually,thissecondassessmentbythe
BureauwasforthesametransactionasthatforwhichtheyassessedrespondentPalanca
theabovedonee'sgifttax.TheBureau,however,onfurtherconsideration,decidedthat
36

thedonationofthestocksinquestionwasmadeincontemplationofdeath,andhence,
shouldbeassessedasaninheritance.Thusthesecondassessment.Thefirstclaimwas
deniedbythepetitionerforthefirsttimeonJune20,1957.Thereafter,thesaiddenial
wastwicereiterated,onOctober14,1957andNovember7,1957,uponrespondent
Palanca'spleaforthereconsiderationoftherulingofJune20,1957.Thesecondclaim
wasfiledwiththeCourtofTaxAppealsonAugust13,1958,orevenbeforethesamehad
beendeniedbythepetitioner.RespondentPalanca'ssecondclaimwasdeniedbythelatter
onJuly24,1959.

ThepetitionercontendsthatunderSection11ofRepublicAct1124, thehereinclaimant's
claimforrefundhasprescribedsincethesamewasfiledoutsidethethirtydayperiod
providedfortherein.Accordingtothepetitioner,thesaidprescriptiveperiodcommenced
torunonOctober14,1947whenthedenialbytheBureauofInternalRevenueofthe
respondentPalanca'sclaimforrefund,underhisletterofNovember10,1956,became
final.ConsideringthatthecasewasfiledwiththeCourtofTaxAppealsonlyonAugust
13,1958,thenitisurgedthatthesamehadprescribed.
Thepetitioneralsoinvokesprescription,atleastwithrespecttothesumofP17,112.21,

underSection306oftheTaxCode.
Therefore,thepetitionercontends,theamountspaidbyclaimantPalancaunderhis
withheldtaxandunderReceiptNo.677395datedMay11,1956maynolongerbe
refundedsincetheclaimthereforwasfiledincourtonlyonAugust13,1958,orbeyond
twoyearsoftheirpayment.
Wefindthepetitioner'scontentiononprescriptionuntenable.
Inthefirstplace,the30dayperiodunderSection11ofRepublicAct1125didnoteven
commencetoruninthisincident.Itshouldberecalledthatwhilethehereinpetitioner
originallyassessedtherespondentclaimantforallegedgifttaxliabilities,thesaid
assessmentwassubsequentlyabandonedandinitslieu,anewonewaspreparedand
servedontherespondenttaxpayer.Inthisnewassessment,thepetitionerchargedthe
37

saidrespondentwithanentirelynewliabilityandforasubstantiallydifferentamount
fromthefirst.Whileinitiallythepetitionerassessedtherespondentfordonee'sgifttaxin
theamountofP170,002.74,inthesubsequentassessmentthelatterwasaskedtopay
P191,591.62fordelinquentestateandinheritancetax.Consideringthatitistheinterest
paidonthislatterassessedestateandinheritancetaxthatrespondentPalancaisclaiming
refundfor,thenthethirtydayperiodundertheabovementionedsectionofRepublicAct
1125shouldbecomputedfromthereceiptofthefinaldenialbytheBureauofInternal
Revenueofthesaidclaim.Ashasearlierbeenrecited,respondentPalanca'sclaiminthis
incidentwasfiledwiththeCourtofTaxAppealsevenbeforeithadbeendeniedbythe
hereinpetitionerortheBureauofInternalRevenue.Thecasewasfiledwiththesaid
courtonAugust13,1958whilethepetitionerdeniedtheclaimsubjectofthesaidcase
onlyonJuly24,1959.
Inthesecondplace,theclaimatbarreferstotheallegedoverpaymentbyrespondent
Palancaofhis1955incometax.Inasmuchasthesaidaccountwaspaidbyhimby
installment,thenthecomputationofthetwoyearprescriptiveperiod,underSection306
oftheNationalInternalRevenueCode,shouldbefromthedateofthelastinstallment.
(AntonioPrieto,etal.vs.CollectorofInternalRevenue,G.R.No.L11976,August29,
1961)RespondentPalancapaidthelastinstallmentonhis1955incometaxaccounton
August14,1956.Hisclaimforrefundoftheallegedoverpaymentonitwasfiledwiththe
courtonAugust13,1958.Itwas,therefore,stilltimelyinstituted.
WHEREFORE,thedecisionappealedfromisaffirmedinfull,withoutpronouncementon
costs.

38

DONORSTAX
isataxlevied,assessed,collectedandpaiduponthetransferbyanyperson(whetheran
individualorcorporation),residentornonresident,ofthepropertybygift,computedas
providedinSection99oftheNIRC

39

AbellovCIR
GRNo.120721February23,2005
Azcuna,J.:

FACTS:
PetitionerscontributedtothecampaignfundofSenatorEdgardoAngara,whowas
runningforaSenateposition.BIRassessedanddeemedthatthecontributionswere
donationsandthustaxedtheeachpetitionerstheamountofP263,032.66fortheir
contributiontothesaidcampaignfund.
Petitionersclaimedotherwiseandstatedthatthesaidcontributionsarenotconsidered
giftsundertheNIRC,hencetheyarenotliablefordonorstax.
ISSUE:
Whetherornotcontributionstoacampaignfundisfallsunderthedefinitionofagifttax
andthussubjecttodonorstax.
HELD:
ThecourtheldthatundertheNIRC,Sec.91.ImpositionofTax.(a)Thereshallbelevied,
assessed,collected,andpaiduponthetransferbyanyperson,resident,ornonresident,of
thepropertybygift,atax,computedasprovidedinSection92.(b)Thetaxshallapply
whetherthetransferisintrustorotherwise,whetherthegiftisdirectorindirect,and
whetherthepropertyisrealorpersonal,tangibleorintangible.
Andpursuanttotheabovequotedprovisionsoflaw,thetransferofpropertybygift,

40

whetherthetransferisintrustorotherwise,whetherthegiftisdirectorindirect,and
whetherthepropertyisrealorpersonal,tangibleorintangible,issubjecttodonorsor
gifttax.
Agiftisgenerallydefinedasavoluntarytransferofpropertybyonetoanotherwithout
anyconsiderationorcompensationtherefor(28C.J.620;Santosvs.Robledo,28Phil.
250).
Intheinstantcase,thecontributionsarevoluntarytransfersofpropertyintheformof
moneyfromprivaterespondentstoSen.Angara,withoutconsiderationstherefor.Hence,
theysquarelyfallunderthedefinitionofdonationorgift.
AscorrectlypointedoutbytheSolicitorGeneral:
ThefactthatthecontributionsweregiventobeusedascampaignfundsofSen.Angara
doesnotaffectthecharacterofthefundtransfersasdonationorgift.Therewasthereby
noretentionofcontroloverthedispositionofthecontributions.Therewassimplyan
indicationofthepurposeforwhichtheyweretobeused.Foraslongasthecontributions
wereusedforthepurposeforwhichtheywereintended,Sen.Angarahadcompleteand
absolutepowertodisposeofthecontributions.Hewasfullyentitledtotheeconomic
benefitsofthecontributions.
Section91oftheTaxCodeisveryclear.Adonorsorgifttaxisimposedonthetransfer
ofpropertybygift.
TheBureauofInternalRevenueissuedRulingNo.344onJuly20,1988,whichreads:
PoliticalContributions.Forinternalrevenuepurposes,politicalcontributionsinthe
Philippinesareconsideredtaxablegiftratherthantaxableincome.Thisisso,becausea
politicalcontributionisindubitablynotintendedbythegiverorcontributorasareturnof
valueormadebecauseofanyintenttorepayanotherwhatishisdue,butbestowedonly
becauseofmotivesofphilanthropyorcharity.Hispurposeistogiveandtobolsterthe
morals,thewinningchanceofthecandidateand/orhisparty,andnottoemployorbuy.
41

Ontheotherhand,therecipientdoneedoesnotregardhimselfasexchanginghisservices
orhisproductforthemoneycontributed.Butmoreimportantlyhereceivesfinancial
advantagesgratuitously.
InthelightoftheaboveBIRRuling,itisclearthatthepoliticalcontributionsofthe
privaterespondentstoSen.EdgardoAngaraaretaxablegifts.Thevaguenessofthelaw
astowhatcomprisethegiftsubjecttotaxwasmadeconcretebytheabovequotedBIR
ruling.Hence,thereisnodoubtthatpoliticalcontributionsaretaxablegifts.

42

ValueAddedTax(VAT)

isanindirecttaxthatmaybeshiftedorpassedonbythesellertothebuyer,transfereeor
lesseeofthegoods,propertiesorservices.

43

CIRvSMPrimeHoldings
G.R. No. 183505

February 26, 2010

----------------------------------------------------FACTS:

Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under the
laws of the Republic of the Philippines. Both are engaged in the business of operating
cinema houses, among others.
The Bureau of Internal Revenue (BIR) sent SM Prime and First Asia a Preliminary
Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema ticket sales.

On July 1, 2005, SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and
7272 with CTA Case No. 7079 on the grounds that the issues raised therein are identical
and that SM Prime is a majority shareholder of First Asia. The motion was granted.
Upon submission of the parties respective memoranda, the consolidated cases were
submitted for decision on the sole issue of whether gross receipts derived from admission
tickets by cinema/theater operators or proprietors are subject to VAT.
The First Division of the CTA rendered a Decision granting the Petition for Review. It
ruled that the activity of showing cinematographic films is not a service covered by VAT
under the National Internal Revenue Code (NIRC) of 1997, as amended, but an activity
subject to amusement tax under RA 7160, otherwise known as the Local Government
Code (LGC) of 1991. The CTA First Division also held that the House of Representatives
resolved that there should only be one business tax applicable to theaters and movie
houses, which is the 30% amusement tax imposed by cities and provinces under the LGC
of 1991 and that the national government should be precluded from imposing its own
business tax in addition to that already imposed and collected by local government units.

44

Thus, the CIR appealed to the CTA En Banc. The case was docketed as CTA EB No. 244.
The CTA En Banc however denied the Petition for Review and dismissed as well
petitioners Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive
enumeration of what services are intended to be subject to VAT. And since the showing or
exhibition of motion pictures, films or movies by cinema operators or proprietors is not
among the enumerated activities contemplated in the phrase "sale or exchange of
services," then gross receipts derived by cinema/ theater operators or proprietors from
admission tickets in showing motion pictures, film or movie are not subject to VAT.
ISSUE:
Whether the gross receipts derived by operators or proprietors of cinema/theater houses
from admission tickets are subject to VAT.
RULING:
The enumeration of services subject to VAT under Section 108 of the NIRC is not
exhaustive
Among those included in the enumeration is the "lease of motion picture films, films,
tapes and discs." This, however, is not the same as the showing or exhibition of motion
pictures or films.
Since the activity of showing motion pictures, films or movies by cinema/ theater
operators or proprietors is not included in the enumeration, it is incumbent upon the court
to the determine whether such activity falls under the phrase "similar services." The
intent of the legislature must therefore be ascertained.
At present, only lessors or distributors of cinematographic films are subject to VAT.

45

While persons subject to amusement tax under the NIRC of 1997 are exempt from the
coverage of VAT.
The Local Tax Code, in transferring the power to tax gross receipts derived by
cinema/theater operators or proprietor from admission tickets to the local government,
did not intend to treat cinema/theater houses as a separate class. No distinction must,
therefore, be made between the places of amusement taxed by the national government
and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses
operators or proprietors, who would be paying an additional 10% VAT on top of the 30%
amusement tax imposed by Section 140 of the LGC of 1991, or a total of 40% tax.
As it is, the power to impose amusement tax on cinema/theater operators or proprietors
remains with the local government.
WHEREFORE, the Petition is hereby DENIED.

46

PANASONICvCIR
GRNo.178090February8,2010

FACTS:
Petitioner Panasonic Communications Imaging Corporation of the Philippines
(Panasonic) produces and exports plain paper copiers and their sub-assemblies, parts, and
components. It is also a registered value-added tax (VAT) enterprise.
Panasonic generated export sales amounting a total of US$24,678,964.93. Believing that
these export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the 1997
National Internal Revenue Code as amended by Republic Act (R.A.) 8424 (1997 NIRC),
Panasonic paid input VAT for a total of P9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained unutilized or unapplied, Panasonic filed
with the Bureau of Internal Revenue (BIR) applications for refund or tax credit of what it
paid. When the BIR did not act on the same, Panasonic filed on December 16, 1999 a
petition for review with the CTA, averring the inaction of the respondent Commissioner
of Internal Revenue (CIR) on its applications.
After trial or on August 22, 2006 the CTAs First Division rendered judgment, denying
the petition for lack of merit. The First Division said that, while petitioner Panasonics
export sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC,
the same did not qualify for zero-rating because the word "zero-rated" was not printed
on Panasonics export invoices. This omission, said the First Division, violates the
invoicing requirements of Section 4.108-1 of Revenue Regulations (RR) 7-95.
ISSUE:
Whether or not the CTA en banc correctly denied petitioner Panasonics claim for refund

47

of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not
state on their faces that its sales were "zero-rated."
RULING:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for
the efficient enforcement of the tax code and of course its amendments. The requirement
is reasonable and is in accord with the efficient collection of VAT from the covered sales
of goods and services. As aptly explained by the CTA First Division, the appearance of
the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers
from falsely claiming input VAT from their purchases when no VAT was actually paid. If,
absent such word, a successful claim for input VAT is made, the government would be
refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.
Petitioner Panasonics citation of Intel Technology Philippines, Inc. v. Commissioner of
Internal Revenue is misplaced. In that case, the CIR denied the claim for tax refund
on the ground of the taxpayers failure to indicate on its invoices the "BIR authority
to print." But Sec. 4.108-1 required only the following to be reflected on the invoice:
1. The name, taxpayers identification number (TIN) and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. The invoice value or consideration.

48

This Court held that, since the "BIR authority to print" is not one of the items required to
be indicated on the invoices or receipts, the BIR erred in denying the claim for refund.
Here, however, the ground for denial of petitioner Panasonics claim for tax refundthe
absence of the word "zero-rated" on its invoicesis one which is specifically and
precisely included in the above enumeration. Consequently, the BIR correctly denied
Panasonics claim for tax refund.
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. Besides, statutes that grant tax exemptions are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. Tax refunds in relation to the VAT are in the nature of such exemptions. The
general rule is that claimants of tax refunds bear the burden of proving the factual basis of
their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the
government.
WHEREFORE, the petition is DENIED for lack of merit.

49

INTELTECHNOLOGYPHILS.INC.vCIR
GR No. 166732

April 27, 2007

--------------------------------------------------------Facts:
IntelTech is a domesticcorporation engagedprimarily inthe business ofdesigning,
developing, manufacturing and exporting advanced and large scale integrated circuit
components.
RegisteredwiththeBIRasVATentityandregisteredwithPEZA

AsaVATregisteredentity,IntelfileitsmonthlyVATdeclarationsandquarterlyVAT
return
Duringthe2ndQuarterof1998,Inteldeclaredzeroratedexportsalesof2.5MnandVAT
inputtaxesfromdomesticpurchasesofgoodsandservicesof11.7M
Zerorated export sales were paid in acceptable foreign currency and were inwardly
remitted
On1999,aclaimfortaxrefund/creditofVATinputtaxeswasfiledbyIntel.
Priortothelapseof2yearprescriptiveperiodandduetoinactionbytheCIR,apetition
forreviewwasfiledwiththeCTAandprayedfortheissuanceofataxcreditcertificate
amountingto11.7M
FortheperiodcoveringApril01,1998toJune30,1998,havinggeneratedzerorated
salesandpaidVATinputtaxesinthecourseofitstradeorbusiness,whichVATinput

50

taxesareattributabletothezeroratedsalesandhavenotbeenappliedtoanyVAToutput
taxliabilityforsaidperiodoranysucceedingquarterorquartersnorhasbeenissuedany
taxcreditcertificate,itfollowsthatitisentitledtotheissuanceofataxcreditcertificate
forVATinputtaxesintheamountofPhP11,770,181.70
CTAdecision:deniedtheclaimfortaxrefundorissuanceofataxcreditcertificatesince
theexportinvoicesofferedasevidencecouldnotbeconsideredascompetentevidenceto
proveitszeroratedsalesofgoodsforVATpurposesandforrefundorissuanceofatax
creditcertificatebecausenoBIRauthoritytoprintsaidinvoiceswasindicated
A petition for review was filed before the CA, arguing that the info
(sellers TIN, statement that seller is VAT-registered) required to be
printed in the invoice or receipt do not apply to its export sales since
no input VAT may be claimed and that the absence of BIR authority to
print its TIN-V in some of the invoices is not fatal to its claim for refund
or issuance of a tax credit certificate as to invalidate the documents
used to prove its export sales
CA decision: since Intel issued invoices with the BIRs authority to
print, it must be concluded that these invoices were not registered as
they did not comply with the invoicing requirements under Section
113, and the requirements for issuance of receipts or sales or
commercial invoices under Section 237. Thus, an unregistered receipt
could not be used as supporting document for input tax
Issue:W/N Intel is not entitled to a tax refund/credit for failure to comply with the
invoicingrequirements?
Ruling:

51

Ataxpayerengagedinzeroratedoreffectivelyzeroratedtransactionsmayapplyfora
refundorissuanceofataxcreditcertificateforinputtaxespaidattributabletosuchsales
uponcomplyingwiththefollowingrequisites:
(1)thetaxpayeris engagedin sales which arezerorated (like exportsales)or
effectivelyzerorated;
(2)thetaxpayerisVATregistered;
(3)theclaimmustbefiledwithintwoyearsafterthecloseofthetaxablequarter
whensuchsalesweremade;
(4)thecreditableinputtaxdueorpaidmustbeattributabletosuchsales,exceptthe
transitionalinputtax,totheextentthatsuchinputtaxhasnotbeenappliedagainst
theoutputtax;and
(5) in case of zerorated sales under Section 106(A)(2)(a)(1) and (2), Section
106(B),andSection108(B)(1)and(2),theacceptableforeigncurrencyexchange
proceedsthereofhadbeendulyaccountedforinaccordancewithBSPrulesand
regulations.
The document evidence submitted by Intel such assummary of export sales, sales
invoices,officialreceipts,airwaybillsandexportdeclarations,provethatitisengagedin
the"saleandactualshipmentofgoodsfromthePhilippinestoaforeigncountry."Hence,
Intelisconsideredengagedinexportsales(azeroratedtransaction)ifmadebyaVAT
registeredentity
The certification of inward remittances attests to the fact of payment "in acceptable
foreigncurrencyoritsequivalentingoodsorservices,andaccountedforinaccordance
withtherulesandregulationsoftheBSP
52

Therefore,Intelsevidence,juxtaposedwiththerequirementsofSections106(A)(2)(a)
(1)and112(A)oftheTaxCode,asenumeratedearlier,sufficientlyestablishthatitis
entitledtoaclaimforrefundorissuanceofataxcreditcertificateforcreditableinput
taxes.
WhileentitiesengagedinbusinessarerequiredtosecurefromtheBIRanauthorityto
print receipts or invoices and to issue duly registered receipts or invoices, it is not
required that the BIR authority to print be reflected or indicated therein. Only the
followingitemsarerequiredtobeindicatedinthereceiptsorinvoices:
a. astatementthatthesellerisaVATregisteredentityfollowedbyitsTINV;
b. thetotalamountwhichthepurchaserpaysorisobligatedtopaytotheseller
c.
d.
e.
f.

withtheindicationthatsuchamountincludesthevalueaddedtax;
dateofthetransaction;quantityofmerchandise;
unitcost;
descriptionofmerchandiseornatureofservice;
thename,businessstyle,ifany,andaddressofthepurchaser,customerorclient
inthecaseofsales,receiptortransfersintheamountofP100.00ormore,or
regardlessoftheamount,wherethesaleortransferismadebyapersonliable
toVATtoanotherpersonalsoliabletoVAT,orwherethereceiptisissuedto

coverpaymentmadeasrentals,commissions,compensationsorfees;and
g. theTINofthepurchaserwherethepurchaserisaVATregisteredperson.
While the pertinent provisions of the Tax Code and the rules and regulations
implementingthemrequireentitiesengagedinbusinesstosecureaBIRauthoritytoprint
invoicesorreceiptsandtoissuedulyregisteredinvoicesorreceipts,itisnotspecifically
requiredthattheBIRauthoritytoprintbereflectedorindicatedtherein.Indeed,whatis
importantwithrespecttotheBIRauthoritytoprintisthatithasbeensecuredorobtained
bythetaxpayer,andthatinvoicesorreceiptsaredulyregistered.
Intel,asaVATregisteredentity,isengagedinexportsalesofadvancedandlargescale
ICsand,assuch,underSection106(A)(2)(a)(1)oftheTaxCode,itssalesortransactions
53

aresubjecttoVATat0%rate.Further,subjecttotherequirementsstatedinSection
112(A),itisentitledtoclaimrefundorissuanceofataxcreditcertificateforinputVAT
taxesattributabletoitsexportsales.AstheCourthadtheoccasiontoexplainsinceno
outputVATwasimposedonthezeroratedexportsales,whatthegovernmentreimburses
orrefundstotheclaimantistheinputVATpaidthus,thenecessityfortheinputVAT
paidtobesubstantiatedbypurchaseinvoicesorofficialreceipts.Thesesalesinvoicesor
receiptsissuedbythesupplierarenecessarytosubstantiatetheactualamountorquality
ofgoodssoldandtheirsellingprice,and,takencollectively,arethebestmeanstoprove
theinputVATpaymentsoftheclaimant
Inaclaimforrefundorissuanceofataxcreditcertificateattributabletozeroratedsales,
whatistobecloselyscrutinizedisthedocumentarysubstantiationoftheinputVATpaid,
asmaybeprovenbyotherexportdocuments,ratherthanthesupportingdocumentsfor
thezeroratedexportsales.Andsincepetitionerhasestablishedbysufficientevidence
thatitisentitledtoarefundorissuanceofataxcreditcertificate,inaccordancewiththe
requirementsofSections106(A)(2)(a)(1)and112(A)oftheTaxCode,thenitsclaim
shouldnotbedenied,notwithstandingitsfailuretostateontheinvoicestheBIRauthority
toprintandtheTINV.
TheincentivesofferedtoPEZAenterprises,amongwhicharetaxexemptionsandtax
credits,ultimatelyredoundtothebenefitofthenationaleconomy,enticingastheydo
moreenterprisestoinvestanddobusinesswithinthezones,thuscreatingmore
employmentopportunitiesandinfusingmoredynamismtothevibrantinterplayofmarket
forces.

54

SANROQUEPOWERCORP.vCIR
GRNo.180345November25,2009

FACTS:

SanRoquedidnotmakeanycommercialsaleofelectricitytoNationalPower
Corporation(NPC)duringtheperiodinquestionasSanRoquewasstillconstructingits
powerplant.However,duringthesameperiod,andwhilethepowerplantwasbeing
tested,SanRoqueproducedandtransferredelectricitytoNPCinexchangeforP42.5
million.

SanRoquefiledaclaimforrefundwiththeBureauofInternalRevenue(BIR).
TheBIRfailedtoactonSanRoquesclaimforrefund,whichpromptedSanRoqueto
fileapetitionforreviewwiththeCourtofTaxAppeals(CTA).
TheCTAsSecondDivisionrenderedadecisiondenyingSanRoquesclaimfortax
refundorcredit.AccordingtotheSecondDivision,SanRoquedidnotmakeanyzero
ratedoreffectivelyzeroratedsalesforthetaxableyear2002;hence,SanRoquesclaim
mustbedenied.TheCTAEnBanceventuallyreiteratedtherulingoftheSecond
DivisionthatSanRoquesclaimbasedonSection112(A)oftheNIRCshouldbedenied
sinceitdidnotpresentanyrecordsofanyzeroratedoreffectivelyzerorated
transactions.
ISSUE:
WhetherornotSanRoquemayclaimataxrefundorcreditforcreditableinputtax
attributabletozeroratedoreffectivelyzeroratedsalespursuanttoSection112(A)of

55

theNIRCorforinputtaxespaidoncapitalgoodsasprovidedunderSection112(B)of
theNIRC.
HELD:
TheSupremeCourtfoundSanRoquespetitionmeritoriousandreversedtheCTA.
Itlaidouttherequirementsforclaimingataxrefundorcredit:
ToclaimrefundortaxcreditunderSection112(A),petitionermustcomplywiththe
followingcriteria:
(1)thetaxpayerisVATregistered;
(2)thetaxpayerisengagedinzeroratedoreffectivelyzeroratedsales;
(3)theinputtaxesaredueorpaid;
(4)theinputtaxesarenottransitionalinputtaxes;
(5)theinputtaxeshavenotbeenappliedagainstoutputtaxesduringandinthe
succeedingquarters;
(6)theinputtaxesclaimedareattributabletozeroratedoreffectivelyzeroratedsales;

(7)forzeroratedsalesunderSection106(A)(2)(1)and(2);106(B);and108(B)(1)and
(2),theacceptableforeigncurrencyexchangeproceedshavebeendulyaccountedforin
accordancewithBSPrulesandregulations;

56

(8)wheretherearebothzeroratedoreffectivelyzeroratedsalesandtaxableorexempt
sales,andtheinputtaxescannotbedirectlyandentirelyattributabletoanyofthesesales,
theinputtaxesshallbeproportionatelyallocatedonthebasisofsalesvolume;and

(9)theclaimisfiledwithintwoyearsafterthecloseofthetaxablequarterwhensuch
salesweremade.

TheSupremeCourtnotedthattheissuepertainstocompliancewiththesixth
requirement,i.e.,whethertheinputVATclaimedareattributabletozeroratedor
effectivelyzeroratedsales:
Themaindisputeinthiscaseiswhetherornotpetitionersclaimcompliedwiththesixth
requirementtheexistenceofzeroratedoreffectivelyzeroratedsales,towhich
creditableinputtaxesmaybeattributed.TheCTAinDivisionandenbancdenied
petitionersclaimsolelyonthisground.Thetaxcourtsbasedthisconclusiononthe
auditedreport,markedasExhibitJ2,statingthatpetitionermadenosaleofelectricity
toNPCin2002.Moreover,theaffidavitofEchevarria(ExhibitL),petitionersVice
PresidentandDirectorforFinance,containedanadmissionthatnocommercialsaleof
electricityhadbeenmadeinfavorofNPCin2002sincetheprojectwasstillunder
constructionatthattime.
TheSupremeCourtruledthattherewasasaleofelectricitybySanRoquetoNPCin
2002:
...uponcloserexaminationoftherecords,itappearsthaton2002,petitionercarriedout
asaleofelectricitytoNPC.Thefourthquarterreturnfortheyear2002,which
petitionerfiled,reportedazeroratedsaleintheamountofP42,500,000.00.Inthe
AffidavitofEchevarriadated9February2005(ExhibitL),which

57

wasuncontrovertedbyrespondent,theaffiantstatedthatalthoughnocommercialsale
wasmadein2002,petitionerproducedandtransferredelectricitytoNPCduringthe
testingperiodinexchangefortheamountofP42,500,000.00...
TheSupremeCourtnotedthatwhilethesalewasnotacommercialsale,itwasadeemed
saletransaction:
TheCourtisnotunmindfulofthefactthatthetransactiondescribedhereinabovewasnot
acommercialsale.IngrantingthetaxbenefittoVATregisteredzeroratedoreffectively
zeroratedtaxpayers,Section112(A)oftheNIRCdoesnotlimitthedefinitionofsale
tocommercialtransactionsinthenormalcourseofbusiness.Conspicuously,Section
106(B)oftheNIRC,whichdealswiththeimpositionoftheVAT,doesnotlimittheterm
saletocommercialsales,ratheritextendsthetermtotransactionsthataredeemed
sale...
Aftercarefullyexaminingthisprovision,thisCourtfindsitanequitableconstructionof
thelawthatwhenthetermsaleismadetoincludecertaintransactionsforthepurpose
ofimposingatax,thesesametransactionsshouldbeincludedinthetermsalewhen
consideringtheavailabilityofanexemptionortaxbenefitfromthesamerevenue
measures.Itisundisputedthatduringthefourthquarterof2002,petitionertransferred
toNPCalltheelectricitythatwasproducedduringthetrialperiod.Thefactthatitwas
nottransferredthroughacommercialsaleorinthenormalcourseofbusinessdoesnot
deflectfromthefactthatsuchtransactionisdeemedasasaleunderthelaw.
Withitsfindingthatthepetitionismeritorious.theSupremeCourtordertheBIRto
refund,orinthealternative,toissueataxcreditcertificatetoSanRoqueintheamountof
P246,131,610.40,representingunutilizedinputVATfortheperiod1January2002to31
December2002.

58

SEAOILVS.AUTOCORP
Facts:
SeaoilpurchasedoneunitofExcavatorfromAutocorp.Theoriginalcostoftheunitwas
P2,500,000.00butwasincreasedtoP3,112,519.94becauseitwaspaidin12monthly
installmentsuptoSeptember30,1995.Itwasagreedthatdespitedeliveryofthe
excavator,ownershipthereofwastoremainwithAutocorpuntiltheobligationisfully
settled.Inthislight,Seaoilscontractor,RomeoValera,issued12postdatedchecks.
However,AutocorprefusedtoacceptthechecksbecausetheywerenotunderSeaoils
name.Hence,Yu,onbehalfofSeaoil,signedandissued12postdatedchecksfor
P259,376.62eachwithAutocorpaspayee.Therelationshipstartedtoturnsourwhenthe
firstcheckbounced.However,itwasremediedwhenSeaoilreplaceditwithagood
check.Thesecondchecklikewisewasalsogoodwhenpresentedforpayment.However,
theremaining10checkswerenothonoredbythebanksinceSeaoilrequestedthat
paymentbestopped.Itwasdownhillfromthereon.
Despiterepeateddemands,SeaoilrefusedtopaytheremainingbalanceofP2,593,766.20.
Hence,onJanuary24,1995,Autocorpfiledacomplaintforrecoveryofpersonalproperty
withdamagesandreplevinintheRegionalTrialCourtofPasig.Thetrialcourtruledfor
Autocorp.Seaoil,ontheotherhand,allegesthatthetransactionisnotassimpleas
describedabove.ItclaimsthatSeaoilandAutocorpwereonlyutilizedasconduitsto
settletheobligationofoneforeignentitynamedUnilineAsiainfavorofanotherforeign
entity,Focus.Allegedly,UnilinecharteredMVAsiaProperty(sic)intheamountof
$315,711.71fromitsownerFocus.Unilinewasnotabletosettlethesaidamount.Hence,
Uniline,throughRodriguez,proposedtosettletheobligationthroughconveyanceof
vehiclesandheavyequipment.SeaoilclaimsthattherealtransactionisthatUniline,
throughRodriguez,owedmoneytoFocus.Inlieuofpayment,Unilineinsteadagreedto
conveytheexcavatortoFocus.ThiswastobepaidbychecksissuedbySeaoilbutwhich

59

inturnweretobefundedbychecksissuedbyUniline.RTCruledthatthetransaction
betweenAutocorpandSeaoilwasasimplecontractofsalepayableininstallments.
SeaoilfiledaPetitionforReviewbeforetheCA.InitsassailedDecision,theCA
dismissedthepetitionandaffirmedtheRTCsDecisionintoto.
Issue:WONthevehiclesalesinvoiceisthebestevidenceofthetransaction.
Ruling:
Yes.Theparoleevidenceruleforbidsanyadditionto,orcontradictionof,thetermsofa
writtenagreementbytestimonyorotherevidencepurportingtoshowthatdifferentterms
wereagreeduponbytheparties,varyingthepurportofthewrittencontract.TheVehicle
SalesInvoiceisthebestevidenceofthetransaction.Asalesinvoiceisacommercial
document.Commercialdocumentsorpapersarethoseusedbymerchantsorbusinessmen
topromoteorfacilitatetradeorcredittransactions.Businessforms,e.g.,orderslip,
deliverychargeinvoiceandthelike,arecommonlyrecognizedinordinarycommercial
transactionsasvalidbetweenthepartiesand,attheveryleast,theyserveasan
acknowledgmentthatabusinesstransactionhasinfacttranspired.Thesedocumentsare
notmerescrapsofpaperbereftofprobativevalue,butvitalpiecesofevidenceof
commercialtransactions.Theyarewrittenmemorialsofthedetailsoftheconsummation
ofcontracts.Thetermsofthesubjectsalesinvoiceareclear.TheyshowthatAutocorp
soldtoSeaoiloneunitRobex200LCExcavatorpaidforbychecksissuedbyoneRomeo
Valera.Thisdoesnot,however,changethefactthatSeaoilPetroleumCorporation,as
representedbyYu,isthecustomerorbuyer.Themomentapartyaffixeshisorher
signaturethereon,heorsheisboundbyallthetermsstipulatedthereinandissubjectto
allthelegalobligationsthatmayarisefromtheirbreach.

60

SOUTHERNPHILIPPINESPOWERCORPVS.CIR
Facts:
SouthernPhilippinesPowerCorporation(SPP)appliedwiththeBIRforzeroratingofits
transactionsunderSection108(B)(3)oftheNIRC.TheBIRapprovedtheapplicationfor
taxableyears1999and2000.OnJune20,2000SPPfiledaclaimwithrespondent
CommissionerofInternalRevenue(CIR)foraP5,083,371.57taxcreditorrefundfor
1999.OnJuly13,2001SPPfiledasecondclaimofP6,221,078.44intaxcreditorrefund
for2000.TheamountsrepresentedunutilizedinputVATattributabletoSPPszerorated
saleofelectricitytoNPC.OnSeptember29,2001,beforethelapseofthetwoyear
prescriptiveperiodforsuchactions,SPPfiledwiththeCourtofTaxAppeals(CTA)
SecondDivisionapetitionforreviewcoveringitsclaimsforrefundortaxcredit.The
petitionclaimedonlytheaggregateamountofP8,636,126.75whichcoveredthelasttwo
quartersof1999andthefourquartersin2000.
InhisCommentonthepetition,theCIRmaintainedthatSPPisnotentitledtotaxcredit
orrefundsince:
(a)theBIRwasstillexaminingSPPsclaimsforthesame;
(b)SPPfailedtosubstantiateitspaymentofinputVAT;
(c)itsrighttoclaimrefundalreadyprescribed,and
(d)SPPhasnotshowncompliancewithSection204(c)inrelationtoSection229ofthe
NIRCasamendedandRevenueRegulation(RR)587asamendedbyRR388.Second
DivisiondeniedSPPsclaims,holdingthatitszeroratedofficialreceiptsdidnot
correspondtothequarterlyVATreturns,bearingadifferenceofP800,107,956.61.
ThosereceiptsonlysupporttheamountofP118,945,643.88.Further,thesereceiptsdo
notbearthewords"zerorated"inviolationofRR795.Onappeal,theCTAEnBanc
affirmedtheSecondDivisionsdecision.TheCTAEnBancrejectedSPPscontention
thatitssalesinvoicesreflectedthewords"zerorated,"pointingoutthatitisonthe

61

officialreceiptsthatthelawrequirestheprintingofsuchwords.Moreover,SPPdidnot
reportinthecorrespondingquarterlyVATreturnthesalessubjectofitszerorated
receipts.
Issue:Whetherornotthewordzeroratedmustbereflectedontheofficialreceiptsfor
thepetitionertobeentitledtoataxcreditofunutilizedVATinputonitszerorated
transactions
Ruling:No.NIRCSection110(A.1)providesthattheinputtaxsubjectoftaxrefundisto
beevidencedbyaVATinvoice"or"officialreceiptissuedinaccordancewithSection
113.Section113doesnotdistinguishbetweenaninvoiceandareceiptwhenusedas
evidenceofazeroratedtransaction.Section237oftheNIRCalsomakesnodistinction
betweenreceiptsandinvoicesasevidenceofacommercialtransaction.TheCourtheldin
SeaoilPetroleumCorporationv.AutocorpGroupthatbusinessformslikesalesinvoices
arerecognizedinthecommercialworldasvalidbetweenthepartiesandserveas
memorialsoftheirbusinesstransactions.Andsuchdocumentshaveprobativevalue.
Section4.108.1ofRR795requirestheprintingofthewords"zerorated"onlyon
invoices,notonofficialreceipts.TheCourtfindsthatSPPfailedtoindicateitszerorated
salesinitsVATreturns.Butthisisnotsufficientreasontodenyititsclaimfortaxcredit
orrefundwhenthereareotherdocumentsfromwhichtheCTAcandeterminethe
veracityofSPPsclaim.Ofcourse,suchfailureifpartakingofacriminalactunder
Section255oftheNIRCcouldwarrantthecriminalprosecutionoftheresponsibleperson
orpersons.Buttheomissiondoesnotfurnishgroundfortheoutrightdenialoftheclaim
fortaxcreditorrefundifsuchclaimisinfactjustified.

62

PAGCORvBIR
GRno.172087March15,2011
PERALTA,J.:

FACTS:
PAGCORwascreatedpursuanttoPresidentialDecree(P.D.)No.1067AonJanuary1,
1977.Simultaneoustoitscreation,P.D.No.1067B(supplementingP.D.No.1067A)
wasissuedexemptingPAGCORfromthepaymentofanytypeoftax,exceptafranchise
taxoffivepercent(5%)ofthegrossrevenue.Thereafter,onJune2,1978,P.D.No.1399
wasissuedexpandingthescopeofPAGCOR'sexemption.
PAGCOR'staxexemptionwasremovedinJune1984throughP.D.No.1931,butitwas
laterrestoredbyLetterofInstructionNo.1430,whichwasissuedinSeptember1984.
OnJanuary1,1998,R.A.No.8424,otherwiseknownastheNationalInternalRevenue
Codeof1997,tookeffect.Section27(c)ofR.A.No.8424providesthatgovernment
ownedandcontrolledcorporations(GOCCs)shallpaycorporateincometax,except
petitionerPAGCOR,theGovernmentServiceandInsuranceCorporation,theSocial
SecuritySystem,thePhilippineHealthInsuranceCorporation,andthePhilippineCharity
SweepstakesOffice
WiththeenactmentofR.A.No.9337onMay24,2005,certainsectionsoftheNational
InternalRevenueCodeof1997wereamended.Theparticularamendmentthatisatissue
inthiscaseisSection1ofR.A.No.9337,whichamendedSection27(c)oftheNational
InternalRevenueCodeof1997byexcludingPAGCORfromtheenumerationofGOCCs
thatareexemptfrompaymentofcorporateincometax.

63

Hence,respondentBIRissuedRevenueRegulations(RR)No.162005,specifically
identifyingPAGCORasoneofthefranchiseessubjectto10%VATimposedunder
Section108oftheNationalInternalRevenueCodeof1997,asamendedbyR.A.No.
9337.
ISSUE:
1. WhetherornotPAGCORisstillexemptfromcorporateincometaxandVATwiththe
enactmentofR.A.No.9337.
2. WhetherornotPAGCORsexclusionviolatedofitsConstitutionalrights.
3. WhetherornotPAGCORissubjecttoVAT.
HELD:
TheCourtheldthatunderSection1ofR.A.No.9337,amendingSection27(c)ofthe
NationalInternalRevenueCodeof1977,petitionerisnolongerexemptfromcorporate
incometaxasithasbeeneffectivelyomittedfromthelistofGOCCsthatareexempt
fromit.Petitionerarguesthatsuchomissionisunconstitutional,asitisviolativeofits
righttoequalprotectionofthelawsunderSection1,ArticleIIIoftheConstitution:
Sec.1.Nopersonshallbedeprivedoflife,liberty,orpropertywithoutdueprocessof
law,norshallanypersonbedeniedtheequalprotectionofthelaws.
InCityofManilav.Laguio,Jr.,thisCourtexpoundedthemeaningandscopeofequal
protection,thus:
Equalprotectionrequiresthatallpersonsorthingssimilarlysituatedshouldbetreated
alike,bothastorightsconferredandresponsibilitiesimposed.Similarsubjects,inother
words,shouldnotbetreateddifferently,soastogiveunduefavortosomeandunjustly
discriminateagainstothers.Theguaranteemeansthatnopersonorclassofpersonsshall
bedeniedthesameprotectionoflawswhichisenjoyedbyotherpersonsorotherclasses
64

inlikecircumstances.The"equalprotectionofthelawsisapledgeoftheprotectionof
equallaws."Itlimitsgovernmentaldiscrimination.Theequalprotectionclauseextendsto
artificialpersonsbutonlyinsofarastheirpropertyisconcerned.
Inlinewiththis,aperusalofthelegislativerecordsoftheBicameralConferenceMeeting
oftheCommitteeonWaysonMeansdatedOctober27,1997wouldshowthatthe
exemptionofPAGCORfromthepaymentofcorporateincometaxwasduetothe
acquiescenceoftheCommitteeonWaysonMeanstotherequestofPAGCORthatitbe
exemptfromsuchtax.
Taxationistheruleandexemptionistheexception.Theburdenofproofrestsuponthe
partyclaimingexemptiontoprovethatitis,infact,coveredbytheexemptionso
claimed.Asarule,taxexemptionsareconstruedstronglyagainstthe
claimant.Exemptionsmustbeshowntoexistclearlyandcategorically,andsupportedby
clearlegalprovision.
Inthiscase,PAGCORfailedtoprovethatitisstillexemptfromthepaymentof
corporateincometax,consideringthatSection1ofR.A.No.9337amendedSection27
(c)oftheNationalInternalRevenueCodeof1997byomittingPAGCORfromthe
exemption.Thelegislativeintent,asshownbythediscussionsintheBicameral
ConferenceMeeting,istorequirePAGCORtopaycorporateincometax;hence,the
omissionorremovalofPAGCORfromexemptionfromthepaymentofcorporateincome
tax.Itisabasicpreceptofstatutoryconstructionthattheexpressmentionofoneperson,
thing,act,orconsequenceexcludesallothersasexpressedinthefamiliarmaxim
expressiouniusestexclusioalterius5.Thus,theexpressmentionoftheGOCCsexempted
frompaymentofcorporateincometaxexcludesallothers.Notbeingexcepted,petitioner
PAGCORmustberegardedascomingwithinthepurviewofthegeneralrulethat

5expressiouniusestexclusioalterius[toexpressonethingistoexcludeanother]:Animplied
exclusionargumentlieswheneverthereisreasontobelievethatifthelegislaturehadmeanttoincludea
particularthingwithintheambitofitslegislation,itwouldhavereferredtothatthingexpressly.Becauseof
thisexpectationthelegislaturesfailuretomentionthethingbecomesgroundforinferringthatitwas
deliberatelyincluded.Althoughthereisnoexpressexclusion,exclusionisimplied.~RuthSullivan

65

GOCCsshallpaycorporateincometax,expressedinthemaxim:exceptiofirmatregulam
incasibusnonexceptis.
PAGCORcannotfindsupportintheequalprotectionclauseoftheConstitution,asthe
legislativerecordsoftheBicameralConferenceMeetingdatedOctober27,1997,ofthe
CommitteeonWaysandMeans,showthatPAGCORsexemptionfrompaymentof
corporateincometax,asprovidedinSection27(c)ofR.A.No.8424,ortheNational
InternalRevenueCodeof1997,wasnotmadepursuanttoavalidclassificationbasedon
substantialdistinctionsandtheotherrequirementsofareasonableclassificationby
legislativebodies,sothatthelawmayoperateonlyonsome,andnotall,without
violatingtheequalprotectionclause.Thelegislativerecordsshowthatthebasisofthe
grantofexemptiontoPAGCORfromcorporateincometaxwasPAGCORsownrequest
tobeexempted.
SECONDISSUE:
PetitionerfurthercontendsthatSection1(c)ofR.A.No.9337isnullandvoidab
initioforviolatingthenonimpairmentclauseoftheConstitution.Petitioneraversthat
lawsformpartof,andisreadinto,thecontractevenwithoutthepartiesexpresslysaying
so.Petitionerstatesthattheprivateparties/investorstransactingwithitconsideredthetax
exemptions,whichinuretotheirbenefit,asthemainconsiderationandinducementfor
theirdecisiontotransact/investwithit.Petitionerarguesthatthewithdrawalofits
exemptionfromcorporateincometaxbyR.A.No.9337hastheeffectofchangingthe
mainconsiderationandinducementforthetransactionsofprivatepartieswithit;thus,the
amendatoryprovisionisviolativeofthenonimpairmentclauseoftheConstitution.
Petitionerscontentionlacksmerit.
ThenonimpairmentclauseiscontainedinSection10,ArticleIIIoftheConstitution,
whichprovidesthatnolawimpairingtheobligationofcontractsshallbepassed.The
nonimpairmentclauseislimitedinapplicationtolawsthatderogatefromprioractsor

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contractsbyenlarging,abridgingorinanymannerchangingtheintentionofthe
parties.Thereisimpairmentifasubsequentlawchangesthetermsofacontract
betweentheparties,imposesnewconditions,dispenseswiththoseagreeduponor
withdrawsremediesfortheenforcementoftherightsoftheparties.
Asregardsfranchises,Section11,ArticleXIIoftheConstitutionprovidesthatno
franchiseorrightshallbegrantedexceptundertheconditionthatitshallbesubjectto
amendment,alteration,orrepealbytheCongresswhenthecommongoodsorequires.
Inthiscase,PAGCORwasgrantedafranchisetooperateandmaintaingamblingcasinos,
clubsandotherrecreationoramusementplaces,sports,gamingpools,i.e.,basketball,
football,lotteries,etc.,whetheronlandorsea,withintheterritorialjurisdictionofthe
RepublicofthePhilippines.UnderSection11,ArticleXIIoftheConstitution,
PAGCORsfranchiseissubjecttoamendment,alterationorrepealbyCongresssuchas
theamendmentunderSection1ofR.A.No.9377.Hence,theprovisioninSection1of
R.A.No.9337,amendingSection27(c)ofR.A.No.8424bywithdrawingtheexemption
ofPAGCORfromcorporateincometax,whichmayaffectanybenefitstoPAGCORs
transactionswithprivateparties,isnotviolativeofthenonimpairmentclauseofthe
Constitution.
THIRDISSUE:
AnentthevalidityofRRNo.162005,theCourtholdsthattheprovisionsubjecting
PAGCORto10%VATisinvalidforbeingcontrarytoR.A.No.9337.NowhereinR.A.
No.9337isitprovidedthatpetitionercanbesubjectedtoVAT.R.A.No.9337isclear
onlyastotheremovalofpetitioner'sexemptionfromthepaymentofcorporateincome
tax,whichwasalreadyaddressedabovebythisCourt.
PetitionerisexemptfromthepaymentofVAT,becausePAGCORscharter,P.D.No.
1869,isaspeciallawthatgrantspetitionerexemptionfromtaxes.

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Moreover,theexemptionofPAGCORfromVATissupportedbySection6ofR.A.No.
9337,whichretainedSection108(B)(3)ofR.A.No.8424.
Aspointedoutbypetitioner,althoughR.A.No.9337introducedamendmentstoSection
108ofR.A.No.8424byimposingVATonotherservicesnotpreviouslycovered,itdid
notamendtheportionofSection108(B)(3)thatsubjectstozeropercentrateservices
performedbyVATregisteredpersonstopersonsorentitieswhoseexemptionunder
speciallawsorinternationalagreementstowhichthePhilippinesisasignatory
effectivelysubjectsthesupplyofsuchservicesto0%rate.
Petitioner'sexemptionfromVATunderSection108(B)(3)ofR.A.No.8424hasbeen
thoroughlyandextensivelydiscussedinCommissionerofInternalRevenuev.Acesite
(Philippines)HotelCorporation.AcesitewastheownerandoperatoroftheHolidayInn
ManilaPavilionHotel.ItleasedaportionofthehotelspremisestoPAGCOR.Itincurred
VATamountingtoP30,152,892.02fromitsrentalincomeandsaleoffoodandbeverages
toPAGCORfromJanuary1996toApril1997.Acesitetriedtoshiftthesaidtaxesto
PAGCORbyincorporatingitintheamountassessedtoPAGCOR.However,PAGCOR
refusedtopaythetaxesbecauseofitstaxexemptstatus.PAGCORpaidonlytheamount
duetoAcesiteminusVATinthesumofP30,152,892.02.AcesitepaidVATinthe
amountofP30,152,892.02totheCommissionerofInternalRevenue,fearingthelegal
consequencesofitsnonpayment.InMay1998,Acesitesoughttherefundoftheamount
itpaidasVATonthegroundthatitstransactionwithPAGCORwassubjecttozerorate
asitwasrenderedtoataxexemptentity.TheCourtruledthatPAGCORandAcesite
werebothexemptfrompayingVAT,thus:
xxxx
PAGCORisexemptfrompaymentofindirecttaxes
ItisundisputedthatP.D.1869,thechartercreatingPAGCOR,grantsthelatteran
exemptionfromthepaymentoftaxes.Section13ofP.D.1869.

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ThecourtheldthattheaboveprovisosclearlygivesPAGCORablanketexemptionto
taxeswithnodistinctiononwhetherthetaxesaredirectorindirect.Weareonewiththe
CArulingthatPAGCORisalsoexemptfromindirecttaxes,likeVAT,asfollows:
Undertheaboveprovision[Section13(2)(b)ofP.D.1869],theterm"Corporation"or
operatorreferstoPAGCOR.AlthoughthelawdoesnotspecificallymentionPAGCOR's
exemptionfromindirecttaxes,PAGCORisundoubtedlyexemptfromsuchtaxesbecause
thelawexemptsfromtaxespersonsorentitiescontractingwithPAGCORincasino
operations.Although,differentlyworded,theprovisionclearlyexemptsPAGCORfrom
indirecttaxes.Infact,itgoesonestepfurtherbygrantingtaxexemptstatustopersons
dealingwithPAGCORincasinooperations.Theunmistakableconclusionisthat
PAGCORisnotliablefortheP30,152,892.02VATandneitherisAcesiteasthelatteris
effectivelysubjecttozeropercentrateunderSec.108B(3),R.A.8424.
Indeed,byextendingtheexemptiontoentitiesorindividualsdealingwithPAGCOR,the
legislatureclearlygrantedexemptionalsofromindirecttaxes.Itmustbenotedthatthe
indirecttaxofVAT,asintheinstantcase,canbeshiftedorpassedtothebuyer,
transferee,orlesseeofthegoods,properties,orservicessubjecttoVAT.Thus,by
extendingthetaxexemptiontoentitiesorindividualsdealingwithPAGCORin
casinooperations,itisexemptingPAGCORfrombeingliabletoindirecttaxes.
ThemannerofchargingVATdoesnotmakePAGCORliabletosaidtax.
ItistruethatVATcaneitherbeincorporatedinthevalueofthegoods,properties,or
servicessoldorleased,inwhichcaseitiscomputedas1/11ofsuchvalue,orchargedas
anadditional10%tothevalue.Verily,thesellerorlessorhastheoptiontofolloweither
wayinchargingitsclientsandcustomer.Intheinstantcase,Acesitefollowedthelatter
method,thatis,charginganadditional10%ofthegrosssalesandrentals.Bethatasit
may,theuseofeithermethod,andinparticular,thefirstmethod,doesnotdenigratethe
factthatPAGCORisexemptfromanindirecttax,likeVAT.

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VATexemptionextendstoAcesite
Thus,whileitwasproperforPAGCORnottopaythe10%VATchargedbyAcesite,the
latterisnotliableforthepaymentofitasitisexemptinthisparticulartransactionby
operationoflawtopaytheindirecttax.SuchexemptionfallswithintheformerSection
102(b)(3)ofthe1977TaxCode,asamended(nowSec.108[b][3]ofR.A.8424),
whichprovides:
Section102.Valueaddedtaxonsaleofservices.(a)RateandbaseoftaxThereshall
belevied,assessedandcollected,avalueaddedtaxequivalentto10%ofgrossreceipts
derivedbyanypersonengagedinthesaleofservicesxxx;Provided,thatthefollowing
servicesperformedinthePhilippinesbyVATregisteredpersonsshallbesubjectto0%.
xxxx
(3)Servicesrenderedtopersonsorentitieswhoseexemptionunderspeciallawsor
internationalagreementstowhichthePhilippinesisasignatoryeffectivelysubjectsthe
supplyofsuchservicestozero(0%)rate(emphasissupplied).
TherationalefortheexemptionfromindirecttaxesprovidedforinP.D.1869andthe
extensionofsuchexemptiontoentitiesorindividualsdealingwithPAGCORincasino
operationsarebestelucidatedfromthe1987caseofCommissionerofInternal
Revenuev.JohnGotamco&Sons,Inc.,wheretheabsolutetaxexemptionoftheWorld
HealthOrganization(WHO)uponaninternationalagreementwasupheld.Weheldin
saidcasethattheexemptionofcontracteeWHOshouldbeimplementedtomeanthatthe
entityorpersonexemptisthecontractoritselfwhoconstructedthebuildingownedby
contracteeWHO,andsuchdoesnotviolatetherulethattaxexemptionsarepersonal
becausethemanifestintentionoftheagreementistoexemptthecontractorsothatno
contractor'staxmaybeshiftedtothecontracteeWHO.Thus,theprovisoinP.D.1869,
extendingtheexemptiontoentitiesorindividualsdealingwithPAGCORincasino
operations,isclearlytoproscribeanyindirecttax,likeVAT,thatmaybeshiftedto
PAGCOR.40
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AlthoughthebasisoftheexemptionofPAGCORandAcesitefromVATinthecaseof
TheCommissionerofInternalRevenuev.Acesite(Philippines)HotelCorporationwas
Section102(b)ofthe1977TaxCode,asamended,whichsectionwasretainedasSection
108(B)(3)inR.A.No.8424,41itisstillapplicabletothiscase,sincetheprovisionrelied
uponhasbeenretainedinR.A.No.9337.421avvphi1
Itissettledrulethatincaseofdiscrepancybetweenthebasiclawandaruleorregulation
issuedtoimplementsaidlaw,thebasiclawprevails,becausethesaidruleorregulation
cannotgobeyondthetermsandprovisionsofthebasiclaw.43RRNo.162005,therefore,
cannotgobeyondtheprovisionsofR.A.No.9337.SincePAGCORisexemptfromVAT
underR.A.No.9337,theBIRexceededitsauthorityinsubjectingPAGCORto10%
VATunderRRNo.162005;hence,thesaidregulatoryprovisionisherebynullified.
WHEREFORE,thepetitionisPARTLYGRANTED.Section1ofRepublicActNo.
9337,amendingSection27(c)oftheNationalInternalRevenueCodeof1997,by
excludingpetitionerPhilippineAmusementandGamingCorporationfromthe
enumerationofgovernmentownedandcontrolledcorporationsexemptedfromcorporate
incometaxisvalidandconstitutional,whileBIRRevenueRegulationsNo.162005
insofarasitsubjectsPAGCORto10%VATisnullandvoidforbeingcontrarytothe
NationalInternalRevenueCodeof1997,asamendedbyRepublicActNo.9337.
Nocosts.
SOORDERED.

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