BONIFACIA SY PO, petitioner, liability of the taxpayer for 1964 to 1971 amounted

vs. to P5,593,003.68 (Exh. E, petition, p. 10, CTA rec.)

HONORABLE COURT OF TAX APPEALS AND
HONORABLE COMMISSIONER OF INTERNAL The law is specific and clear. The rule on the "best
REVENUE, respondents. evidence obtainable" applies when a tax report required
by law for the purpose of assessment is not available or
FACTS when the tax report is incomplete or fraudulent.

SARMIENTO, J.:
The Silver Cup Factory was allegedly committed tax
evasion amounting to millions of pesos". The then
Secretary of Finance directed the Finance-BIR--NBI team
constituted under to conduct the corresponding
investigation.
In the instant case, the persistent failure of the late Po
Bien Sing and the herein petitioner to present their books
of accounts for examination for the taxable years involved
left the Commissioner of Internal Revenue no other legal
option except to resort to the power conferred upon him
under Section 16 of the Tax Code. G.R. No. 81446 August
18, 1988

Mr. Po Bien Sing did not produce his books of accounts

as requested. This prompted the team with the assistance
of the PC Company, Cebu City, to enter the factory bodega
of Silver Cup and seized different brands, consisting of
1,555 cases of alcohol products. On the basis of the
team's report of investigation, the Commissioner of
Internal Revenue assessed Mr. Po Bien Sing deficiency
income tax for 1966 to 1970 in the amount of P7,154,685.16
and for deficiency specific tax for January 2,1964 to
January 19, 1972 in the amount of P5,595,003.68.

Sy-Po protested the deficiency assessments through

letters which protests were referred for reinvestigation.
The corresponding report recommended the reiteration of
the assessments in view of the taxpayer's persistent
failure to present the books of accounts for examination
compelling CIR to issue warrants of distraint and levy. The
warrants were admittedly received by Sy Po on which she
deemed CIRs decision denying her protest on the subject
assessments.

ISSUE

WON THE SEIZED BOTTLE OF WINES DURING THE RAID

AND THE SWORN STATEMENTS OF FORMER
EMPLOYEES OF THE PETITIONER ARE VALID EVIDENCE
TO USE AGAINST THE PETITIONER.

HELD

YES. The court held that the persistent failure of the late
Po Bien Sing and the herein petitioner to present their
books of accounts for examination for the taxable years
involved left the Commissioner of Internal Revenue no
other legal option except to resort to the power conferred
upon him under Section 16 of the Tax Code.

The Court affirmed the CTA ruling which provides that

On the basis of the quantity of bottles of wines

seized during the raid and the sworn statements
of former employees Messrs. Nelson S. Po and
Alfonso Po, by the investigating team in Cebu City
it was ascertained that the Silver Cup for the
years 1964 to 1970, inclusive, utilized and
consumed in the manufacture of compounded
liquours and other products 20,105 drums of
alcohol as raw materials 81,288,787 proof liters of
alcohol. As determined, the total specific tax
G.R. No. 119761 August 29, 1996 thereby have them covered by RA 7654. Specifically, the new
law would have its amendatory provisions applied to locally
COMMISSIONER OF INTERNAL REVENUE, petitioner, manufactured cigarettes which at the time of its effectivity were
vs. not so classified as bearing foreign brands. Prior to the
HON. COURT OF APPEALS, HON. COURT OF TAX issuance of the questioned circular, "Hope Luxury," "Premium
APPEALS and FORTUNE TOBACCO More," and "Champion" cigarettes were in the category of
CORPORATION, respondents. locally manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax.
FACTS
Hence, without RMC 37-93, the enactment of RA 7654, would
have had no new tax rate consequence on private
VITUG, J.: respondent's products. Evidently, in order to place "Hope
Luxury," "Premium More," and "Champion" cigarettes within
The CIR order Deputy Minister of PCGG to classify the scope of the amendatory law and subject them to an
'Champion,' 'Hope,' and 'More' as foreign brands since they increased tax rate, the now disputed RMC 37-93 had to be
were listed in the World Tobacco Directory as belonging to issued. In so doing, the BIR not simply intrepreted the law;
foreign companies. However, Fortune Tobacco changed the verily, it legislated under its quasi-legislative authority. The due
names of 'Hope' to 'Hope Luxury' and 'More' to observance of the requirements of notice, of hearing, and of
'Premium More,' thereby removing the said brands from the publication should not have been then ignored.
foreign brand category. Ad Valorem taxes were imposed on
these brands.

Republic Act ("RA") No. 7654 was enacted and thereafter,

RMC was issued. Under the RMC 37-93, the test for imposition
of the 55% ad valorem tax on cigarettes is that the locally
manufactured cigarettes bear a foreign brand regardless of
whether or not the right to use or title to the foreign brand was
sold or transferred by its owner to the local manufacturer. The
brand must be originally owned by a foreign manufacturer or
producer. If ownership of the cigarette brand is, however, not
definitely determinable, the listing of brands manufactured in
foreign countries appearing in the current World Tobacco
Directory shall govern.

Since there is no showing who among the manufacturers of the

cigarettes bearing the said brands are the real owner/s thereof,
then it follows that the same shall be considered foreign brand
for purposes of determining the ad valorem tax pursuant to
Section 142 of the National Internal Revenue Code. The CTA
upheld the position of Fortune Tobacco and adjudged that
reclassifying the brands of cigarettes being manufactured by
Fortune Tobacco Corporation as locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad
valorem tax on cigarettes is found to be defective, invalid and
unenforceable, such that when R.A. No. 7654 took effect on
July 3, 1993, the brands in question were not currently
classified and taxed at 55% pursuant to Section 1142(c)(1) of
the Tax Code and were therefore still classified as other locally
manufactured cigarettes and taxed at 45% or 20% as the case
may be.

ISSUE

WON THE RMC 37-93 IS AN INTERPRERATIVE RULING

AND THEREFORE NO NOTICE, OF HEARING, AND OF
PUBLICATION ARE REQUIRE OF ITS EFFECTIVITY

HELD

NO. The court held that the RMC 37-93, particularly

considering the circumstances under which it has been issued,
convinced the court that the circular cannot be viewed simply
as a corrective measure) or merely as construing Section
142(c)(1) of the NIRC, as amended, but has, in fact and most
importantly, been made in order to place "Hope Luxury,"
"Premium More" and "Champion" within the classification of
locally manufactured cigarettes bearing foreign brands and to
G.R. No. L-66653 June 19, 1986 Bureau of Internal Revenue are materially different from the
facts on which the ruling is based, or (c) where the taxpayer
COMMISSIONER OF INTERNAL REVENUE, petitioner, acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108
vs. SCRA 151-152)
BURROUGHS LIMITED AND THE COURT OF TAX
APPEALS, respondents. The prejudice that would result to private respondent
Burroughs Limited by a retroactive application of Memorandum
FACTS Circular No. 8-82 is beyond question for it would be deprived of
the substantial amount of P172,058.90. And, insofar as the
enumerated exceptions are concerned, admittedly, Burroughs
PARAS, J.: Limited does not fall under any of them.

Burroughs Limited is a foreign corporation authorized to

engage in trade or business in the Philippines. Said branch
office applied with the Central Bank for authority to remit to its
parent company abroad, branch profit amounting to
P7,647,058.00. It paid the 15% branch profit remittance tax,
pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office
the amount of P6,499,999.30.

Claiming that the 15% profit remittance tax should have been
computed on the basis of the amount actually remitted
(P6,499,999.30) and not on the amount before profit
remittance tax (P7,647,058.00), private respondent filed on
December 24, 1980, a written claim for the refund or tax credit
of the amount of P172,058.90 representing alleged overpaid
branch profit remittance tax.

Petitioner the instant petition with the prayers as herein earlier

stated upon the sole issue of whether the tax base upon which
the 15% branch profit remittance tax shall be imposed under
the provisions of section 24(b) of the Tax Code, as amended,
is the amount applied for remittance on the profit actually
remitted after deducting the 15% profit remittance tax. Stated
differently is private respondent Burroughs Limited legally
entitled to a refund of the aforementioned amount of
P172,058.90.

ISSUE

WON THE BURROUGHS LIMITED IS NOT ENTITLED TO

TAX CREDIT ON THE GROUND THAT MEMORANDUM
CIRCULAR NO. 8-82 DATED MARCH 17, 1982 HAD
REVOKED AND/OR REPEALED THE BIR RULING OF
JANUARY 21, 1980.

HELD

NO. The court held that what is applicable in the case at bar is
still the Revenue Ruling of January 21, 1980 because private
respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum
Circular No. 8-82 dated March 17, 1982 cannot be given
retroactive effect in the light of Section 327 of the National
Internal Revenue Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation,

modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any
of the rulings or circulars promulgated by the Commissioner
shag not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayer
except in the following cases (a) where the taxpayer
deliberately misstates or omits material facts from his return or
in any document required of him by the Bureau of Internal
Revenue; (b) where the facts subsequently gathered by the
[G.R. No.L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E.
SEGGERMAN, Petitioners, v.
HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity
as Commissioner of Internal Revenue, ARTURO LOGRONIO,
RODOLFO DELEON, GAVINO VELASQUEZ, MIMIR DELLOSA,
NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and
JOHN DOE, Respondents.
FACTS
In this case, Commissioner of Internal Revenue through letter,
requested Judge Ruiz to issue search warrant against
petitioners for violation sec. 46 a of the National Revenue
Code in relation to all other pertinent provisions thereof.
Respondent De Leon and Logronio went to the the court of the
said judge and brought them the following papers respondent
Veras aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De
Leon; an affidavit of respondent Logronio subscribed before
respondent De Leon; a deposition in printed form of
respondent Logronio already accomplished and signed by him
but not yet subscribed; and a search warrant already
accomplished but still unsigned by respondent Judge.
It appears that the Judge by means of a note, he instructed his
Deputy Clerk of Court to take the depositions of respondents
De Leon and Logronio. After the session had adjourned,
respondent Judge was informed that the depositions had
already been taken. The stenographer, upon request of
respondent Judge, read to him her stenographic notes; and
thereafter, respondent Judge asked respondent Logronio to
take the oath and warned him that if his deposition was found
to be false and without legal basis, he could be charged for
perjury. Judge Ruiz signed de Leons application for search
warrant and Logronios deposition, Search Warrant No. 2-M-70
was then sign by respondent Judge and accordingly issued.
The BIR agents served the search warrant petitioners at the
offices of corporation on Ayala Avenue, Makati, Rizal.
Petitioners lawyers protested the search on the ground that no
formal complaint or transcript of testimony was attached to the
warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents. The corporation file a
petition with the CFI praying that the search warrant be
quashed, dissolved or recalled and the search warrant should
be declared null and void.
ISSUE
WHETHER OR NOT THE CORPORATION IS ENTITLED TO
THE PROTECTION AGAINST REASONABLE SEARCH AND
SEIZURES ON THE GROUND THAT IT IS GUARANTEED
BY OUR CONSTITUTION
HELD
YES. The court held that In Stonehill, Et. Al. v. Diokno, Et Al., supra,
this Court impliedly recognized the right of a corporation to object
against unreasonable searches and seizures, thus: "As regards the
first group, we hold that petitioners herein have no cause of action to
assail the legality of the contested warrants and of the seizures made
in pursuance thereof, for the simple reason that said corporations have
their respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of shares of
stock or the interest of each of them in said corporations, whatever, the
offices they hold therein may be. Indeed, it is well settled that the
legality of a seizure can be contested only by the party whose rights
have been impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third
parties.
"Although, for the reasons above stated, we are of the opinion that an
officer of a corporation which is charged with a violation of a statute of
the state of its creation, or of an act of Congress passed in the
exercise of its constitutional powers, cannot refuse to produce the
books and papers of such corporation, we do not wish to be
understood as holding that a corporation is not entitled to immunity,
under the 4th Amendment, against unreasonable searches and
seizures. A corporation is, after all, but an association of individuals
under an assumed name and with a distinct legal entity. In organizing
itself as a collective body it waives no constitutional immunities
appropriate to such body. Its property cannot be taken without
compensation. It can only be proceeded against by due process of law,
and is protected, under the 14th Amendment, against unlawful
discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was
thought that a different rule applied to a corporation, the ground that it
was not privileged from producing its books and papers. But the rights
of a corporation against unlawful search and seizure are to be
protected even if the same result might have been achieved in a lawful
way." (Silverthorne Lumber Company, Et. Al. v. United States of
America, 251 U.S. 385, 64 L. ed. 319.)
G.R. No. L-52306 October 12, 1981
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision of the
Court of Tax Appeals in C.T.A. Case No. 2809, dated
November 29, 1979, which affirmed the assessment by the
Commissioner of Internal Revenue, dated April 16, 1971, of a
deficiency withholding income tax against petitioner, ABS-CBN
Broadcasting Corporation, for the years 1965, 1966, 1967 and
1968 in the respective amounts of P75,895.24, P99,239.18,
P128,502.00 and P222, 260.64, or a total of P525,897.06.
During the period pertinent to this case, petitioner corporation
was engaged in the business of telecasting local as well as
foreign films acquired from foreign corporations not engaged in
trade or business within the Philippines. for which petitioner
paid rentals after withholding income tax of 30%of one-half of
the film rentals.
In so far as the income tax on non-resident corporations is
concerned, section 24 (b) of the National Internal Revenue
Code, as amended by Republic Act No. 2343 dated June 20,
1959, used to provide:
(b) Tax on foreign corporations.(1) Non-
resident corporations. There shall be
levied, collected, and paid for each taxable
year, in lieu of the tax imposed by the
preceding paragraph, upon the amount
received by every foreign corporation not
engaged in trade or business within the
Philippines, from an sources within the
Philippines, as interest, dividends, rents,
salaries, wages, premiums, annuities,
compensations, remunerations, emoluments,
or other fixed or determinable annual or
periodical gains, profits, and income, a tax
equal to thirty per centum of such amount.
(Emphasis supplied)
On April 12, 1961, in implementation of the aforequoted
provision, the Commissioner of Internal Revenue issued
General Circular No. V-334 reading thus:
In connection with Section 24 (b) of Tax
Code, the amendment introduced by
Republic Act No. 2343, under which an
income tax equal to 30% is levied upon the
amount received by every foreign
corporation not engaged in trade or business
within the Philippines from all sources within
this country as interest, dividends, rents,
salaries, wages, premiums, annuities,
compensations, remunerations, emoluments,
or other fixed or determinable annual or
periodical gains, profits, and income, it has
been determined that the tax is still imposed
on income derived from capital, or labor, or
both combined, in accordance with the basic
principle of income taxation (Sec. 39, Income
Tax Regulations), and that a mere return of
capital or investment is not income (Par.
5,06, 1 Mertens Law of Federal 'Taxation).
Since according to the findings of the Special
Team who inquired into business of the non-
resident foreign film distributors, the
distribution or exhibition right on a film is
invariably acquired for a consideration, either
for a lump sum or a percentage of the film
rentals, whether from a parent company or
an independent outside producer, apart of
the receipts of a non-resident foreign film
distributor derived from said film represents,
therefore, a return of investment.
xxx xxx xxx
4. The local distributor should withhold 30%
of one-half of the film rentals paid to the non-
resident foreign film distributor and pay the
same to this office in accordance with law
unless the non- resident foreign film
distributor makes a prior settlement of its
income tax liability. (Emphasis ours).
Pursuant to the foregoing, petitioner dutifully withheld and
turned over to the Bureau of Internal Revenue the amount of
30% of one-half of the film rentals paid by it to foreign
corporations not engaged in trade or business within the
Philippines. The last year that petitioner withheld taxes
pursuant to the foregoing Circular was in 1968.
On June 27, 1968, Republic Act No. 5431 amended Section 24
(b) of the Tax Code increasing the tax rate from 30 % to 35 %
and revising the tax basis from "such amount" referring to
rents, etc. to "gross income," as follows:
(b) Tax on foreign corporations.(1) Non-
resident corporations.A foreign corporation
not engaged in trade or business in the
Philippines including a foreign life insurance
company not engaged in the life insurance
business in the Philippines shall pay a tax
equal to thirty-five per cent of the gross
income received during each taxable year
from all sources within the Philippines, as
interests, dividends, rents, royalties, salaries,
wages, premiums, annuities, compensations,
remunerations for technical services or
otherwise, emoluments or other fixed or
determinable annual, periodical or casual
gains, profits, and income, and capital
gains, Provided however, That premiums
shah not include reinsurance premiums.
(Emphasis supplied)
On February 8, 1971, the Commissioner of Internal Revenue
issued Revenue Memorandum Circular No. 4-71, revoking
General Circular No. V-334, and holding that the latter was
"erroneous for lack of legal basis," because "the tax therein
prescribed should be based on gross income without deduction
whatever," thus:
After a restudy and analysis of Section 24 (b)
of the National Internal Revenue Code, as
 amended by Republic Act No. 5431, and
assessed
guided by the interpretation given by tax
authorities to a similar provision in the
Balance 84,101.00
Internal Revenue Code of the United States,
on which the aforementioned provision of our
Add: 11/2%mo. int. fr. 4-16- 15,138.18
Tax Code was patterned, this Office has
67 to 4-116-70
come to the conclusion that the tax therein
prescribed should be based on gross income
Total amount due & P99,239.18
without t deduction whatever. Consequently,
collectible
the ruling in General Circular No. V-334,
dated April 12, 1961, allowing the deduction
of the proportionate cost of production or 1967
exhibition of motion picture films from the
rental income of non- resident foreign
corporations, is erroneous for lack of legal Total amount remitted P601,160.65
basis.
Withholding tax due 180,348.00
In view thereof, General Circular No. V-334, thereon
dated April 12, 1961, is hereby revoked and
henceforth, local films distributors and Less: Amount already 71,448.00
exhibitors shall deduct and withhold 35% of assessed
the entire amount payable by them to non-
resident foreign corporations, as film rental Balance 108,900.00
or royalty, or whatever such payment may be
denominated, without any deduction Add: 1/2% mo. int. fr. 4- 19,602.00
whatever, pursuant to Section 24 (b), and 16-68 to 4-16-71
pay the withheld taxes in accordance with
Section 54 of the Tax Code, as amended. Total amount due & P128,502.00
collectible
All rulings inconsistent with this Circular is
likewise revoked. (Emphasis ours)
1968

On the basis of this new Circular, respondent Commissioner of

Internal Revenue issued against petitioner a letter of Total amount remitted P881,816.92
assessment and demand dated April 15, 1971, but allegedly
released by it and received by petitioner on April 12, 1971, Withholding tax due 291,283.00
requiring them to pay deficiency withholding income tax on the thereon
remitted film rentals for the years 1965 through 1968 and film
royalty as of the end of 1968 in the total amount of Less: Amount already 92,886.00
P525,897.06 computed as follows: assessed

1965 Balance P198,447.00

Add: 1/2% mo. int. fr. 4-16- 23,813.64

Total amount remitted P 511,059.48 69 to 4-29-71

Withholding tax due thereon 153,318.00 Total amount due & P222,260.44 1

collectible
Less: Amount already 89,000.00
assessed
On May 5, 1971, petitioner requested for a reconsideration and
Balance P64,318.00 withdrawal of the assessment. However, without acting
thereon, respondent, on April 6, 1976, issued a warrant of
Add: 1/2% mo. int. fr. 4-16-66 11,577.24 distraint and levy over petitioner's personal as well as real
to 4-16-69 properties. The petitioner then filed its Petition for Review with
the Court of Tax Appeals whose Decision, dated November 29,
Total amount due & collectible P 75,895.24 1979, is, in turn, the subject of this review. The Tax Court held:

For the reasons given, the Court finds the

1966 assessment issued by respondent on April
16, 1971 against petitioner in the amounts of
P75,895.24, P 99,239.18, P128,502.00 and
Total amount remitted P373,492.24 P222,260.64 or a total of P525,897.06 as
deficiency withholding income tax for the
Withholding tax due thereon 112,048.00 years 1965, 1966, 1967 and 1968,
respectively, in accordance with law. As
Less: Amount already 27,947.00 prayed for, the petition for review filed in this
case is dismissed, and petitioner ABS-CBN
 Broadcasting Corporation is hereby ordered
to pay the sum of P525,897.06 to
respondent Commissioner of Internal
Revenue as deficiency withholding income
tax for the taxable years 1965 thru 1968,
plus the surcharge and interest which have
accrued thereon incident to delinquency
pursuant to Section 51 (e) of the National
Internal Revenue Code, as amended.
WHEREFORE, the decision appealed from
is hereby affirmed at petitioner's cost.
SO ORDERED. 2 condition or deny; and where the statute imposes a tax equal
The issues raised are two-fold:
I. Whether or not respondent can apply
General Circular No. 4-71 retroactively and
issue a deficiency assessment against
petitioner in the amount of P 525,897.06 as
deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968.
II. Whether or not the right of the
Commissioner of Internal Revenue to assess
the deficiency withholding income tax for the
year 196,5 has prescribed. 3
Upon the facts and circumstances of the case, review is
warranted.
In point is Sec. 338-A (now Sec. 327) of the Tax Code. As
inserted by Republic Act No. 6110 on August 9, 1969, it
provides:
Sec. 338-A. Non-retroactivity of rulings.
Any revocation, modification, or reversal of
and of the rules and regulations promulgated
in accordance with the preceding section or
any of the rulings or circulars promulgated by
the Commissioner of Internal Revenue shall
not be given retroactive application if the
relocation, modification, or reversal will be
prejudicial to the taxpayers, except in the
following cases: (a) where the taxpayer
deliberately mis-states or omits material
facts from his return or any document
required of him by the Bureau of Internal
Revenue: (b) where the facts subsequently
gathered by the Bureau of Internal Revenue
are materially different from the facts on
which the ruling is based; or (c) where the
taxpayer acted in bad faith. (italics for
emphasis)
It is clear from the foregoing that rulings or circulars
promulgated by the Commissioner of Internal Revenue have
no retroactive application where to so apply them would be
prejudicial to taxpayers. The prejudice to petitioner of the
retroactive application of Memorandum Circular No. 4-71 is
beyond question. It was issued only in 1971, or three years
after 1968, the last year that petitioner had withheld taxes
under General Circular No. V-334. The assessment and
demand on petitioner to pay deficiency withholding income tax
was also made three years after 1968 for a period of time
commencing in 1965. Petitioner was no longer in a position to
withhold taxes due from foreign corporations because it had
already remitted all film rentals and no longer had any control
over them when the new Circular was issued. And in so far as
the enumerated exceptions are concerned, admittedly,
petitioner does not fall under any of them.
Respondent claims, however, that the provision on non-
retroactivity is inapplicable in the present case in that General
Circular No. V-334 is a nullity because in effect, it changed the
law on the matter. The Court of Tax Appeals sustained this
position holding that: "Deductions are wholly and exclusively
within the power of Congress or the law-making body to grant,
to a specified rate or percentage of the gross or entire amount
received by the taxpayer, the authority of some administrative
officials to modify or change, much less reduce, the basis or
measure of the tax should not be read into law." Therefore,
4
the Tax Court concluded, petitioner did not acquire any vested
right thereunder as the same was a nullity.
The rationale behind General Circular No. V-334 was clearly
stated therein, however: "It ha(d) been determined that the tax
is still imposed on income derived from capital, or labor, or
both combined, in accordance with the basic principle of
income taxation ...and that a mere return of capital or
investment is not income ... ." "A part of the receipts of a non-
resident foreign film distributor derived from said film
represents, therefore, a return of investment." The Circular
thus fixed the return of capital at 50% to simplify the
administrative chore of determining the portion of the rentals
covering the return of capital."5
Were the "gross income" base clear from Sec. 24 (b), perhaps,
the ratiocination of the Tax Court could be upheld. It should be
noted, however, that said Section was not too plain and simple
to understand. The fact that the issuance of the General
Circular in question was rendered necessary leads to no other
conclusion than that it was not easy of comprehension and
could be subjected to different interpretations.
In fact, Republic Act No. 2343, dated June 20, 1959, supra,
which was the basis of General Circular No. V-334, was just
one in a series of enactments regarding Sec. 24 (b) of the Tax
Code. Republic Act No. 3825 came next on June 22, 1963
without changing the basis but merely adding a proviso (in bold
letters).
(b) Tax on foreign corporation.(1) Non-
resident corporations. There shall be
levied, collected and paid for each taxable
year, in lieu of the tax imposed by the
preceding paragraph, upon the amount
received by every foreign corporation not
engaged in trade or business within the
Philippines, from all sources within the
Philippines, as interest, dividends, rents,
salaries, wages, premiums annuities,
compensations, remunerations, emoluments,
or other fixed or determinable annual or
periodical gains, profits, and income, a tax
equal to thirty per centum of such amount:
PROVIDED, HOWEVER, THAT PREMIUMS
SHALL NOT INCLUDE REINSURANCE
PREMIUMS. (double emphasis ours).
Republic Act No. 3841, dated likewise on June 22, 1963, SO ORDERED.
followed after, omitting the proviso and inserting some words
(also in bold letters).

(b) Tax on foreign corporations.(1) Non-

resident corporations.There shall be
levied, collected and paid for each taxable
year, in lieu of the tax imposed by the
preceding paragraph, upon the amount
received by every foreign corporation not
engaged in trade or business within the
Philippines, from all sources within the
Philippines, as interest, dividends, rents,
salaries, wages, premiums, annuities,
compensations, remunerations, emoluments,
or other fixed or determinable annual or
periodical OR CASUAL gains, profits and
income, AND CAPITAL GAINS, a tax equal
to thirty per centum of such
amount. (double emphasis supplied)
6

The principle of legislative approval of administrative

interpretation by re-enactment clearly obtains in this case. It
provides that "the re-enactment of a statute substantially
unchanged is persuasive indication of the adoption by
Congress of a prior executive construction. Note should be
7

taken of the fact that this case involves not a mere opinion of
the Commissioner or ruling rendered on a mere query, but a
Circular formally issued to "all internal revenue officials" by the
then Commissioner of Internal Revenue.

It was only on June 27, 1968 under Republic Act No.

5431, supra, which became the basis of Revenue
Memorandum Circular No. 4-71, that Sec. 24 (b) was amended
to refer specifically to 35% of the "gross income."

This Court is not unaware of the well-entrenched principle that

the Government is never estopped from collecting taxes
because of mistakes or errors on the part of its
agents. In fact, utmost caution should be taken in this
8

regard. But, like other principles of law, this also admits of

9

exceptions in the interest of justice and fairplay. The insertion

of Sec. 338-A into the National Internal Revenue Code, as held
in the case of Tuason, Jr. vs. Lingad, is indicative of
10

legislative intention to support the principle of good faith. In

fact, in the United States, from where Sec. 24 (b) was
patterned, it has been held that the Commissioner of Collector
is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom, or 11

where there has been a misrepresentation to the taxpayer. 12

We have also noted that in its Decision, the Court of Tax

Appeals further required the petitioner to pay interest and
surcharge as provided for in Sec. 51 (e) of the Tax Code in
addition to the deficiency withholding tax of P 525,897.06. This
additional requirement is much less called for because the
petitioner relied in good faith and religiously complied with no
less than a Circular issued "to all internal revenue officials" by
the highest official of the Bureau of Internal Revenue and
approved by the then Secretary of Finance. 13

With the foregoing conclusions arrived at, resolution of the

issue of prescription becomes unnecessary.

WHEREFORE, the judgment of the Court of Tax Appeals is

hereby reversed, and the questioned assessment set aside.
No costs.