1.

Exemption from taxation

a. meaning of exemption from taxation

Greenfield v. Meer, 77 Phil 394 (1946)

Nature of the case:

This an appeal from the decision of the court of First Instance of manila which dismisses the
complaint of the plaintiff and appellant to recover the sum of P9,008.14 paid as income tax for the
year 1939 under protest, by reason of defendant having disallowed a deduction of P67,307.80
alleged by plaintiff to be losses in his trade or business; and to reclaim, in the event the first cause
of action is dismissed, the sum of P475 collected by defendant from plaintiff illegally according
to the latter, because the former has erroneously the tax on personal and additional exemptions.

Facts of the Case:

Plaintiff has been continuously engaged in the embroidery business located at 385 Cristobal, City
of Manila and carried on under his name. However, he started to engage in buying and selling
mining stocks and securities for his own exclusive account and not for the account of orders.
Nonetheless, he had no established place of business for the purchase and sale of mining stocks
and securities and he was never a member of any stock exchange.

The plaintiff filed an income tax return for the calendar year 1939 showing that the made a net
profit amounting to P52,449.29 on embroidery business and P17,850 on dividends from various
corporations and that from the purchase and sale of mining stocks and securities he made a profit
of P10,741.30 and incurred in the amount of P78,049.10 thereby sustaining a net loss of
P67,307.80.

For that same taxable year, he was assessed deficiency income tax on the ground that results of his
stock transactions pursuant to BIRs allegations should be declared not in the income tax return
but as Gains and Losses from Sales or Exchanges of Capital Assets, real or personal. The loss was
disallowed and thus a deficiency income tax was computed at the graduated rate of income tax the
entire net income as per office audit, without first deducting therefrom the amount of personal and
additional exemptions to which the plaintiff is entitled but allowed said plaintiff a deduction from
the assessed tax the amount of P50 corresponding to the exemption of P3,500.

Issue of the case:

Whether under the present law, the personal and additional exemptions granted by section 23 of
the same Act, should be considered as a credit or be deducted from the net income, or whether it
is tax on such exemptions that should be deducted from the tax on the total net income.

Held: Personal and Additional Exemptions should be deducted from the net income to determine
the net income subject to income tax.

The mere fact the phrase "in the nature of a deduction" found in section 7 of the old law was
omitted in section 23 of the new or National Internal Revenue Code did not and could not effect
any change in the law. It is evident that said phrase was added or inserted in said section 7 only
out of extreme caution, because, even without it, the exemption would have to be deducted from
the gross income in order to determine the net income subject to tax. Had the provision in the old
law been drafted in exactly the same term as that of said section 23, the same construction should
have been adopted. Because "Exemption is an immunity or privilege; it is freedom from a charge
or burden to which others are subjected." (Florar v. Sherifan, 137 Ind., 28; 36 N. E., 365, 369.) If
the amounts of personal and additional exemptions fixed in section 23 are exempt from taxation,
they should not be included as part of the net income, which is taxable. There is nothing in said
section 23 to justify the contention that the tax on personal exemptions (which are exempt from
taxation) should first be fixed, and deducted from the tax on the net income.

PLDT v. City of Davao, 363 SCRA 522 (2001)

Doctrine: When exemption is claimed, it must be shown indubitably to exist. At the outset, every
presumption is against it. A well-founded doubt is fatal to the claim. It is only when the terms of
the concession are too explicit to admit fairly of any other construction that the proposition can be
supported

Tax Involved: Franchise tax

Nature of the case

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure of
the resolution, dated June 23, 2000, of the Regional Trial Court, Branch 13, Davao City, affirming
the tax assessment of petitioner and the denial of its claim for tax refund by the City Treasurer of
Davao.

Facts of the Case

PLDT applied for a Mayors Permit to operate its Davao Metro Exchange but the City Government
of Davao withheld action on the application pending payment by petitioner of the local franchise
tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999. PLDT protested the
assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the
year 1997 and the first to the third quarters of 1998. Petitioner contended that it was exempt from
the payment of franchise tax based on an opinion of the Bureau of Local Government Finance
(BLGF), dated June 2, 1998.

Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable
by LGUs under Sections 137 and 143 (sic), respectively, of the LGC, upon the effectivity of RA
7925 on March 16, 1995. However, PLDT shall be liable to pay the franchise and business taxes
on its gross receipts realized from January 1, 1992 up to March 15, 1995, during which period
PLDT was not enjoying the most favored clause proviso of RA 7025 (sic).

However, their request for refund was denied citing the legal opinion of the City Legal Officer of
Davao and Art. 10, 1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No. 519,
Series of 1992, which provides: Notwithstanding any exemption granted by any law or other
special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-
five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the income or receipts realized within the territorial jurisdiction of Davao City.
The trial court denied petitioners appeal and affirmed the City Treasurers decision. It ruled that the
LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local
government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of
tax exemption to them.

Issue

Whether after the withdrawal of its exemption by virtue of 137 of the LGC, petitioner has again
become entitled to exemption from local franchise tax by virtue of RA 71295. NO

Held: the Trial court decision was affirmed.

In Asiatic Petroleum Co. v. Llanes, it was held that:

. . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to
be odious to the law. He who claims an exemption must be able to point to some positive provision
of law creating the right. . . As was said by the Supreme Court of Tennessee in Memphis vs. U. &
P. Bank (91 Tenn., 546, 550), The right of taxation is inherent in the State. It is a prerogative
essential to the perpetuity of the government; and he who claims an exemption from the common
burden must justify his claim by the clearest grant of organic or statute law. Other utterances
equally or more emphatic come readily to hand from the highest authority. In Ohio Life Ins. and
Trust Co. vs. Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of taxation
will not be held to have been surrendered, unless the intention to surrender is manifested by words
too plain to be mistaken. In the case of the Delaware Railroad Tax (18 Wallace, 206, 226), the
Supreme Court of the United States said that the surrender, when claimed, must be shown by clear,
unambiguous language, which will admit of no reasonable construction consistent with the
reservation of the power. If a doubt arises as to the intent of the legislature, that doubt must be
solved in favor of the State. In Erie Railway Company vs. Commonwealth of Pennsylvania (21
Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions, observed that a State cannot strip
itself of the most essential power of taxation by doubtful words. It cannot, by ambiguous language,
be deprived of this highest attribute of sovereignty. In Tennessee vs. Whitworth (117 U. S., 129,
136), it was said: In all cases of this kind the question is as to the intent of the legislature, the
presumption always being against any surrender of the taxing power. In Farrington vs. Tennessee
and County of Shelby (95 U. S., 679, 686), Mr. Justice Swayne said: . . . When exemption is
claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A
well-founded doubt is fatal to the claim. It is only when the terms of the concession are too explicit
to admit fairly of any other construction that the proposition can be supported.

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even if it is granted, the exemption must
be interpreted in strictissimi jurisagainst the taxpayer and liberally in favor of the taxing authority.

The fact is that the term exemption in 23 is too general. A cardinal rule in statutory construction is
that legislative intent must be ascertained from a consideration of the statute as a whole and not
merely of a particular provision. For, taken in the abstract, a word or phrase might easily convey
a meaning which is different from the one actually intended. A general provision may actually
have a limited application if read together with other provisions.[13] Hence, a consideration of the
law itself in its entirety and the proceedings of both Houses of Congress is in order.[14]

There is nothing in the language of 23 nor in the proceedings of both the House of Representatives
and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax
exemptions to all telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.

In sum, it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate
as a blanket tax exemption to all telecommunications entities. Applying the rule of strict
construction of laws granting tax exemptions and the rule that doubts should be resolved in favor
of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold
that 23 of R.A. No. 7925 cannot be considered as having amended petitioners franchise so as to
entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that
petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period
covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid
by it for the period covering the first to the third quarter of 1998.

PLDT v. City of Davao, G.R. 143867, March 25, 2003

Nature of the case

This is a reconsideration of the previously ruled petition for review on certiorari affirming the trial
courts decision holding PLDT liable to franchise tax under the LGC.

Facts of the case

PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was
paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA 7082. The exemption
from all taxes on this franchise or earnings thereof was subsequently withdrawn by RA 7160
(LGC), which at the same time gave local government units the power to tax businesses enjoying
a franchise on the basis of income received or earned by them within their territorial jurisdiction.
The LGC took effect on January 1, 1992.

The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides:
Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a
tax on businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%)
of the gross annual receipts for the preceding calendar year based on the income receipts realized
within the territorial jurisdiction of Davao City.

Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe)
and Smart Information Technologies, Inc. (Smart) franchises which contained in leiu of all taxes
provisos.

In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23
of which provides that any advantage, favor, privilege, exemption, or immunity granted under
existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and unconditionally to the
grantees of such franchises. The law took effect on March 16, 1995.

In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange,
it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT
challenged the power of the city government to collect the local franchise tax and demanded a
refund of what had been paid as a local franchise tax for the year 1997 and for the first to the third
quarters of 1998.

Issue
Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from
payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.

Held: the MR is DENIED with finality.

The term exemption in 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption
from certain regulations and requirements imposed by the National Telecommunications
Commission (NTC). For instance, R.A. No. 7925, 17 provides: The Commission shall exempt any
specific telecommunications service from its rate or tariff regulations if the service has sufficient
competition to ensure fair and reasonable rates or tariffs. Another exemption granted by the law in
line with its policy of deregulation is the exemption from the requirement of securing permits from
the NTC every time a telecommunications company imports equipment.

The in lieu of all taxes provision in the franchises of Globe and Smart, which are relatively new
entrants in the telecommunications industry, cannot thus be deemed applicable to PLDT, which
had virtual monopoly in the telephone service in the country for a long time, without defeating the
very policy of leveling the playing field of which PLDT speaks.

It is a privilege to which the rule that tax exemptions must be interpreted strictly against the
taxpayer and in favor of the taxing authority applies. Along with the police power and eminent
domain, taxation is one of the three necessary attributes of sovereignty. Consequently, statutes in
derogation of sovereignty, such as those containing exemption from taxation, should be strictly
construed in favor of the state. A state cannot be stripped of this most essential power by doubtful
words and of this highest attribute of sovereignty by ambiguous language.[17]

Indeed, both in their nature and in their effect there is no difference between tax exemption and
tax exclusion. Exemption is an immunity or privilege; it is freedom from a charge or burden to
which others are subjected.[18] Exclusion, on the other hand, is the removal of otherwise taxable
items from the reach of taxation, e.g., exclusions from gross income and allowable deductions.[19]
Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi
juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.
To construe otherwise the in lieu of all taxes provision invoked is to be inconsistent with the theory
that R.A. No. 7925, 23 grants tax exemption because of a similar grant to Globe and Smart.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of
language too plain to be mistaken.[24] They cannot be extended by mere implication or inference.
Thus, it was held in Home Insurance & Trust Co. v. Tennessee[25] that a law giving a corporation
all the powers, rights reservations, restrictions, and liabilities of another company does not give an
exemption from taxation which the latter may possess. In Rochester R. Co. v. Rochester,[26] the
U.S. Supreme Court, after reviewing cases involving the effect of the transfer to one company of
the powers and privileges of another in conferring a tax exemption possessed by the latter, held
that a statute authorizing or directing the grant or transfer of the privileges of a corporation which
enjoys immunity from taxation or regulation should not be interpreted as including that immunity.

i. compared with tax remission, condonation

Juan Luna Subd. V. M. Sarmiento, 91 Phil 371 (1952)

Nature of the case

This is an appeal by the City Treasure of the City of Manila from the judgment ordering it to pay
the plaintiff the amount of P2,210.52 without interest.

Facts of the case

Juan Luna Subdivision is a local corporation which issued a check to the City Treasurer of Manila
for amount to be applied to its land tax for the second semester of 1941. The records of the City
Treasurer do not show what was done with the check (It appears that it was deposited with the
Philippine National Bank [PNB]). After liberation (WWII), the City Treasurer refused to refund
the corporations deposit or apply it to such future taxes as might be found due, while the Philippine
Trust Co (to which the check was presented) was unwilling to reverse its debit entry against Juan
Luna Subd. Said amount is also subject of another disagreement between the corporation and the
City Treasure, with the corporation claiming that the whole amount of the check for the taxes for
the last semester of 1941 have been remitted by Commonwealth Act 703 (1945).

Issue
Whether the provision allowing the remission covers taxes paid before the enactment of
Commonwealth Act 703, or taxes which were still unpaid.

Held: The judgment is affirmed with modification of the amount of refund.

Section 1 of Commonwealth Act 703, which was approved on November 1, 1945, provides:
All land taxes and penalties due and payable for the years nineteen hundred and forty-two nineteen
hundred and forty-three nineteen hundred and forty-four and fifty per cent of the tax due for
nineteen hundred and forty-five, are hereby remitted. The land taxes and penalties due and payable
for the second semester of the year nineteen hundred and forty-one shall also be remitted the if the
remaining fifty per cent corresponding to the year nineteen hundred and forty-five shall been paid
on or before December thirty-first, nineteen hundred and forty-five.

There is no ambiguity in the language of the law. It says "taxes and penalties due and payable,"
the literal meaning of which taxes owned or owing. (See Webster's New International Dictionary)
Note that the provision speaks of penalties, and note that penalties accrue only when taxes are not
paid on time. The word "remit" underlined by the appellant does not help its theory, for to remit
to desist or refrain from exacting, inflicting, or enforcing something as well as to restore what has
already been taken. (Webster's New International Dictionary.)

It is said that the plaintiff's check was in the nature of deposit, held trust by the City Treasurer, and
that for this reason, plaintiff's taxes are to be regarded as still due and payable. This argument is
well taken but only to the extent of P1,868.92. The amount of P341.60 as early as February 20,
1942, had been applied to the second half of plaintiff's 1941 tax and become part of the general
funds of the city treasury. From that date that tax was legally and actually paid and settled.

The appealed judgment should, therefore, be modified so that the defendant City Treasurer shall
refund to the plaintiff the sum of P1,868.92 instead P2,210.52, without costs. It is so ordered.

Surigao Corp. Min. v. Collector, 9 SCRA 728 (1963)

Nature of the case

This is a petition to review the decision of the Court of Tax Appeals in Manila Civil Case No. 4770
dismissing for lack of merit the action of the Surigao Consolidated Mining Company for the refund
of the total amount of P17,051.14 allegedly representing overpayment of ad valorem tax for the
fourth quarter of 1941.chanroblesvirtualawlibrarychanrobles virtual law library.

Facts of the case

Surigao Consolidated is a mining concessionaire operating in Mainit, Surigao but had its principal
office in Iloilo. During the outbreak of WWII, it lost contact with its mines and never received the
production reports for the fourth quarter of 1941. In order to avoid incurring any tax penalty, said
company, on January 19, 1942, deposited a check amount of P27,000.00 payable to and "indorsed
in favor of the City Treasurer (of Iloilo) in payment of the ad valorem taxes (approximate
adjustment to be made when circumstances allow it) for the fourth quarter of 1941."

After the war, Commonwealth Act No. 722 was enacted, which provided for the filing of returns
for minerals removed during the last quarter of 1941 up to December 31, 1945 and the payment of
ad valorem tax on said minerals to February 28, 1946.

Surigao consolidated filed the returns applying the deposit it had made and further amended such
returns until it came out that there was a refundable amount of 17k more or less. It claimed this
refund but the CIR denied its request. However, upon the enactment of Republic Act No. 1125
creating the Court of Tax Appeals, the case was remanded to the latter court for proper disposition.
After hearing, the Court of Tax Appeals, on July 16, 1958, finding that the amount sought to be
refunded been lawfully collected, rendered its decision denying the claim for refund.

Issue
Whether Surigao consolidated is entitled to a refund.

Held: No.
Section 1 (d) clearly refers to the condonation of unpaid taxes only. The condonation of a tax
liability is equivalent and is in the nature of a tax exemption. Being so, it should be sustained only
when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those
terms.

It is the universal rule that he who claims an exemption from his share of the common burden of
taxation must justify his claim by showing that the Legislature intended to exempt him by words
too plain to be mistaken. (Statutory Construction by Francisco, citing Government of P. I. vs.
Monte de Piedad, 25 Phil. 42.)

The application of a statute creating an exemption from taxation to taxes already assessed depends
upon whether it is retrospective in its operation. Such a statute has no retrospective operation,
unless by the terms thereof it clearly appears to be the intention of the legislature that the exemption
shall relate back to taxes which have already become fixed, as a statute which releases a person or
corporation from a burden common to the whole community should be strictly construed
(Louisville Water Co., vs. Hamilton, 81 Ky., 517, . . . cited in 6 American and English Ann. Cases,
p. 438).

The company failed to show any portion of the law that explicitly provides for a refund of those
taxpayers who had paid their taxes on the items. Even assuming arguendo that the provisions of
RA 81 authorizes the refund of taxes already paid by the company, the latter would not still be
entitled to the refund sought for. The companys evidence of the alleged loss in transit merely
consisted of testimony of witnesses who did not have personal knowledge of the circumstances
which gave rise to the loss. Such evidence cannot, of course, be considered sufficient to establish
that the minerals were in fact lost.

ii. tax amnesty

Commissioner v. CA and ROH Auto, 240 SCRA 368 (1995)

Nature of the case

This is a petition for review of the decision of the CA affirming decision of the CTA in reversing
the decision of the CIR to deny the request of the ROH Auto to cancel its assessment on the ground
of the tax amnesty promulgated by the president during the period when the President of the
Republic still wielded legislative powers.

Facts of the Case

EO41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended
to include estate and donor's taxes and taxes on business, for the taxable years1981 to 1985.
Availing itself of the amnesty, R.O.H. Auto Products filed, tax amnesty return and paid the
amnesty taxes due. Prior to this availment, CIR assessed the ROH deficiency income and business
taxes in an aggregate amount of P1,410,157.71. ROH wrote back to state that since it had been
able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and
withdrawn. The request was denied by the Commissioner on the ground that Revenue
Memorandum Order No. 4-87, dated 09February 1987, implementing Executive Order No. 41,
had construed the amnesty coverage to include only assessments issued by the Bureau of Internal
Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments
theretofore made.
Issue
Whether Revenue Memorandum Order No. 4-87, dated 09 February 1987, implementing
Executive Order No. 41, as issued by the CIR is in conformity with the latter law.

Held: No it does not conform with EO 41. The decision of the CA and CTA is affirmed in toto.
Relative to the two other issued raised by the Commissioner, we need only quote from Executive
Order No. 41 itself; thus:

Sec. 6. Immunities and Privileges. Upon full compliance with the conditions of the tax amnesty
and the rules and regulations issued pursuant to this Executive order, the taxpayer shall enjoy the
following immunities and privileges:

a) The taxpayer shall be relieved of any income tax liability on any untaxed income from
January 1, 1981 to December 31, 1985, including increments thereto and penalties on
account of the non-payment of the said tax. Civil, criminal or administrative liability arising
from the non-payment of the said tax, which are actionable under the National Internal
Revenue Code, as amended, are likewise deemed extinguished.
b) The taxpayer's tax amnesty declaration shall not be admissible in evidence in all
proceedings before judicial, quasi-judicial or administrative bodies, in which he is a
defendant or respondent, and the same shall not be examined, inquired or looked into by
any person, government official, bureau or office.
c) The books of account and other records of the taxpayer for the period from January 1, 1981
to December 31, 1985 shall not be examined for income tax purposes: Provided, That the
Commissioner of Internal Revenue may authorize in writing the examination of the said
books of accounts and other records to verify the validity or correctness of a claim for grant
of any tax refund, tax credit (other than refund on credit of withheld taxes on wages), tax
incentives, and/or exemptions under existing laws.

There is no pretension that the tax amnesty returns and due payments made by the taxpayer did
not conform with the conditions expressed in the amnesty order.

People v. Castaneda, 165 SCRA 327 (1988)

DOCTRINE: A tax amnesty, much like to a tax exemption, is never favored nor presumed in law
and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed
strictly against the taxpayer and liberally in favor of the taxing authority.

Nature of the case

This is a Petition for certiorari and mandamus, the People seek the annulment of the Orders of
respondent Judge quashing criminal informations against the accused upon the grounds that: (a)
accused Francisco Valencia was entitled to tax amnesty under Presidential Decree No. 370; and
(b) that the dismissal of the criminal cases against accused Valencia inured to the benefit of his co-
accused Vicente Lee Teng and Priscilla Castillo de Cura, and denying the People's Motion for
Reconsideration of said Orders.

Facts of the Case

Sometime in 1971, 2 informants submitted sworn information under Republic Act No. 2338 ("An
Act to Provide for Reward to Informers of Violations of the Internal Revenue and Customs Laws"
to the BIR concerning alleged violations of provisions of the Internal Revenue Code committed
by the private respondents. Following an investigation and examination by the BIR, the State
Prosecutor filed with the CFI of Pampanga several informations against private respondents.
Respondents were charged with various violations of the NIRC including possession of counterfeit
internal revenue labels (170, par 2, NIRC), possession of liquors and spirits whose specific taxes
have not been paid (174, (c)), and finally, manufacture of alcoholic products without paying the
privilege tax therefor (178 in rel. 182 and 208, NIRC)

After arraignment, accused Valencia filed a Motion to Quash upon the grounds that the
informations had been filed without conducting the necessary preliminary investigation and that
he was entitled to the benefits of the tax amnesty provided by P.D. No. 370. The State Prosecutor
opposed saying that the lack of a preliminary investigation is not grounds for quashal. The
prosecutor further argued that the accused Valencia was not entitled to avail himself of the benefits
of P.D. No. 370 since his tax cases were the subject of valid information submitted under R.A. No.
2338 as of 31 December 1973. The trial court judge granted the Motion to Quash. Reconsideration
by the People denied. The co-accused also filed Motions to Quash on the theory that the dismissal
of the action as to Valencia inured to their benefit. Such motions were also granted by the
respondent judge. Petitioner people now file a petition for certiorari and mandamus seeking the
annulment of the order granting quashal.

Issue
Whether the accused Valencia, Lee Teng and de Cura are entitled to the benefits available under
P.D. No. 370.

Held: No. they are not entitled to the amnesty.

The first point that should be made in respect of P.D. No. 370 is that compliance with all the
requirements of availment of tax amnesty under P.D. No. 370 would have the effect of condoning
not just income tax liabilities but also "all internal revenue taxes including the increments or
penalties on account of non-payment as well as all civil, criminal or administrative liabilities, under
the Internal Revenue Code, the Revised Penal Code, the Anti-Graft and Corrupt Practices Act, the
Revised Administrative Code, the Civil Service Laws and Regulations, laws and regulations on
Immigration and Deportation, or any other applicable law or proclamation." Thus, entitlement to
benefits of P.D. No. 370 would have the effect of condoning or extinguishing the liabilities
consequent upon possession of false and counterfeit internal revenue labels; the manufacture of
alcoholic products subject to specific tax without having paid the annual privilege tax therefor, and
the possession, custody and control of locally manufactured articles subject to specific tax on
which the taxes had not been paid in accordance with law, in other words, the criminal liabilities
sought to be imposed upon the accused respondents by the several informations quoted above.

It should be underscored, secondly, that to be entitled to the extinction of liability provided by P.D.
No. 370, the claimant must have voluntarily disclosed his previously untaxed income or wealth
and paid the required fifteen percent (15%) tax on such previously untaxed income or wealth
imposed by P.D. No.370.6 Where the disclosure of such previously untaxed income or wealth was
not voluntary but rather the accompaniment or result of tax cases or tax assessments already
pending as of 31 December 1973, the claimant is not entitled to the benefits of P.D. No. 370.
Section 1 (a) (4) of P.D. No. 370, expressly excluded from the coverage of P.D. No. 370: "tax
cases which are the subject of a valid information under R.A. No. 2338 as of December 31, 1973."
7 In the instant case, the violations of the National Internal Revenue Code with which the
respondent accused were charged, had already been discovered by the BIR when P.D. No. 370
took effect on 9 January 1974, by reason of the sworn information or affidavit-complaints filed by
informers with the BIR under Republic Act No. 2338 prior to 31 December 1973.

At the time he paid the special fifteen percent (15%) tax under P.D. No. 370, accused Francisco
Valencia had in fact already been subjected by the BIR to extensive investigation such that the
criminal charges against him could not be condoned under the provisions of the amnesty statute.
Further, acceptance by the BIR agents of accused Valencia's application for tax amnesty and
payment of the fifteen percent (15%) special tax was no more than a ministerial duty on the part
of such agents. Accused Valencia does not pretend that the BIR had actually ruled that he was
entitled to the benefits of the tax amnesty statute. In any case, even assuming, though only
arguendo, that the BIR had so ruled, there is the long familiar rule that "erroneous application and
enforcement of the law by public officers do not block, subsequent correct application of the statute
and that the government is never estopped by mistake or error on the part of its agent." 9 which
finds application in the case at bar. Still further, a tax amnesty, much like to a tax exemption, is
never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of
a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing
authority.10 Valencia's payment of the special fifteen percent (15%) tax must be regarded as
legally ineffective.

Pascual v. CIR, 166 SCRA 560 (1988)

Nature of the case

This is a petition for review of the decision of the CTA affirming CIRs decision subjecting the
sellers of the property to corporate income tax in view of their unregistered partnership.

Facts of the Case

The petitioners bought and sold a total of 5 lots. Of these 5, 2 were sold in 1968 to Marenir
Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes
and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in
the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970.
The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the
tax amnesties granted in the said years.

In 1979, they were assessed to pay corporate income tax by the CIR on the ground that they have
formed an unregistered partnership to be taxed as a corporation and the amnesty they have availed
relieved them of individual liability but not on the liability as an unregistered partnership. On
Appeal to CTA, it affirmed the CIR decision. Hence this petition.

Issue
Whether there formed an unregistered partnership to be taxed as a corporation in the buying and
selling of 5 parcels of land despite the availment of the amnesty by the petitioners.

Held: No unregistered partnership was formed. The tax amnesty availed by the petitioners in the
payment of the Capital Gains Tax should be upheld.

The sharing of returns does not in itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property. There must be a clear intent to
form a partnership, the existence of a juridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no
adequate basis to support the proposition that they thereby formed an unregistered partnership.
The two isolated transactions whereby they purchased properties and sold the same a few years
thereafter did not thereby make them partners. They shared in the gross profits as co- owners and
paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have
been formed, since there is no such existing unregistered partnership with a distinct personality
nor with assets that can be held liable for said deficiency corporate income tax, then petitioners
can be held individually liable as partners for this unpaid obligation of the partnership p. 7
However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax liability arising therefrom.