Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional Director,
Revenue Region No. 14, Bureau of Internal Revenue, petitioners,

vs.

HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental, Branch V, and
FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D. TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the Government
of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for deficiency income
taxes for the years 1963 and 1964 of the decedent in the total amount of P3,254.80, inclusive 5%
surcharge, 1% monthly interest and compromise penalties, and the second, dated October 7, 1969,
denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The claim
represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in
the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-29-1-11061-21-
63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim (Annex B, Petition, pp. 21-
22, Rollo). The Administrator opposed the motion solely on the ground that the claim was barred under
Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp. 23-24,
Rollo). Finding the opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed the
motion for allowance of claim filed by herein petitioner, Regional Director of the Bureau of Internal
Revenue, in an order dated July 29, 1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a

1
motion for reconsideration was filed, of the order of July 29, 1969, but was denied in an Order dated
October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against the estate
of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule 86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the government was already barred
under Section 5, Rule 86 of the Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New Rule
of Court, bars claim of the government for unpaid taxes, still within the period of limitation prescribed in
Section 331 and 332 of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:

All claims for money against the decedent, arising from contracts, express or implied, whether the same
be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the
decedent, and judgment for money against the decedent, must be filed within the time limited in they
notice; otherwise they are barred forever, except that they may be set forth as counter claims in any
action that the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by the deceased in his
lifetime, the debtor may set forth may answer the claims he has against the decedents, instead of
presenting them independently to the court has herein provided, and mutual claims may be set off
against each other in such action; and in final judgment is rendered in favored of the decedent, the
amount to determined shall be considered the true balance against the estate, as though the claim has
been presented directly before the court in the administration proceedings. Claims not yet due, or
contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from the
claims expressly enumerated therein, such as: "all claims for money against the decedent arising from
contract, express or implied, whether the same be due, not due or contingent, all claim for funeral
expenses and expenses for the last sickness of the decedent and judgment for money against the
decedent." Under the familiar rule of statutory construction of expressio unius est exclusio alterius, the

2
mention of one thing implies the exclusion of another thing not mentioned. Thus, if a statute
enumerates the things upon which it is to operate, everything else must necessarily, and by implication
be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-23081,
December 30, 1969, it was held that the assessment, collection and recovery of taxes, as well as the
matter of prescription thereof are governed by the provisions of the National Internal revenue Code,
particularly Sections 331 and 332 thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng
and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29,
1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of
Court may reasonably be presumed to have been also in the mind of the Court as not affecting the
aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on claims
in the ordinary course of administration. In the exercise of its control over the administrator, the court
may direct the payment of such taxes upon motion showing that the taxes have been assessed against
the estate." The abolition of the Committee on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other claims mentioned in the Rule should be
filed before the Court. Claims for taxes may be collected even after the distribution of the decedent's
estate among his heirs who shall be liable therefor in proportion of their share in the inheritance.
(Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of
the Government and their prompt and certain availability are imperious need. (Commissioner of Internal
Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA 105). Upon taxation depends the
Government ability to serve the people for whose benefit taxes are collected. To safeguard such
interest, neglect or omission of government officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people, in the same manner as private persons may be made
to suffer individually on account of his own negligence, the presumption being that they take good care
of their personal affairs. This should not hold true to government officials with respect to matters not of
their own personal concern. This is the philosophy behind the government's exception, as a general rule,
from the operation of the principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977,
79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of
Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480,
April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of
Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs.
Philippine Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs.
Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even

3
after the distribution of the estate of the decedent among his heirs (Government of the Philippines vs.
Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner of Internal
Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last paragraph of
Section 315 of the Tax Code payment of income tax shall be a lien in favor of the Government of the
Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid
with interests, penalties, etc. By virtue of such lien, this court held that the property of the estate
already in the hands of an heir or transferee may be subject to the payment of the tax due the estate. A
fortiori before the inheritance has passed to the heirs, the unpaid taxes due the decedent may be
collected, even without its having been presented under Section 2 of Rule 86 of the Rules of Court. It
may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in the case above cited, the
income taxes sought to be collected were due from the estate, for the three years 1946, 1947 and 1948
following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2,
Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the time
originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited which
reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the preceding section, the
court shall state the time for the filing of claims against the estate, which shall not be more than twelve
(12) nor less than six (6) months after the date of the first publication of the notice. However, at any
time before an order of distribution is entered, on application of a creditor who has failed to file his
claim within the time previously limited the court may, for cause shown and on such terms as are
equitable, allow such claim to be flied within a time not exceeding one (1) month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of
Payment of Taxes) which, though filed after the expiration of the time previously limited but before an
order of the distribution is entered, should have been granted by the respondent court, in the absence
of any valid ground, as none was shown, justifying denial of the motion, specially considering that it was
for allowance Of claim for taxes due from the estate, which in effect represents a claim of the people at
large, the only reason given for the denial that the claim was filed out of the previously limited period,
sustaining thereby private respondents' contention, erroneously as has been demonstrated.

WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in the total
amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax Code is a final

4
one and the respondent estate's sole defense of prescription has been herein overruled, the Motion for
Allowance of Claim is herein granted and respondent estate is ordered to pay and discharge the same,
subject only to the limitation of the interest collectible thereon as provided by the Tax Code. No
pronouncement as to costs.

SO ORDERED.

5
Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On
the other hand, such collection should be made in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its
income tax returns. The corollary issue is whether or not the appeal of the private respondent from the
decision of the Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in
the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1 On January
18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received
on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to

6
receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case
proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes,
who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR
was not taking any action on the protest and it was only then that he accepted the warrant of distraint
and levy earlier sought to be served.5 Sixteen days later, on April 23, 1965, Algue filed a petition for
review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the
appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true that
as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders
hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes
the said request deemed rejected." 10 But there is a special circumstance in the case at bar that
prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the warrant
of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner.
It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the
tax authorities. During the intervening period, the warrant was premature and could therefore not be
served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the said protest and the warrant was
finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the form of promotional fees. These were
collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development
Company.

7
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to
be personal holding company income 12 but later conformed to the decision of the respondent court
rejecting this assertion.13 In fact, as the said court found, the amount was earned through the joint
efforts of the persons among whom it was distributed It has been established that the Philippine Sugar
Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable
Oil Investment Corporation, inducing other persons to invest in it.14 Ultimately, after its incorporation
largely through the promotion of the said persons, this new corporation purchased the PSEDC
properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon.17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of the
same family in control of Algue. It is argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough substantiation of such payments. In short,
the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in
one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were
to be closed, each payee made an accounting of all of the fees received by him or her, to make up the
total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was
understandable, however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties. This finding of the respondent court is in accord with the following provision of the Tax Code:

8
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions
—

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other compensation
for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The test of deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for service.
This test and deductibility in the case of compensation payments is whether they are reasonable and
are, in fact, payments purely for service. This test and its practical application may be further stated and
illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock.
This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the
excessive payment correspond or bear a close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid wholly for services rendered, but the
excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30
O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were
they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of
the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent

9
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing authorities, every person who is able to
must contribute his share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time
with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed
deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.

SO ORDERED.

10
FIRST DIVISION

COMMISSIONER OF INTERNAL G.R. No. 134062

REVENUE,

Petitioner, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

- v e r s u s - CORONA,

AZCUNA and

GARCIA, JJ.

BANK OF THE PHILIPPINE

ISLANDS,

Respondent. Promulgated:

11
April 17, 2007

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

DECISION

CORONA, J.:

This is a petition for review on certiorari[1] of a decision[2] of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision[3] and resolution[4] of the
Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case No.
4715.

12
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands (BPIs) deficiency percentage and documentary stamp taxes for
the year 1986 in the total amount of P129,488,656.63:

1986 Deficiency Percentage Tax

Deficiency percentage tax P 7, 270,892.88

Add: 25% surcharge 1,817,723.22

20% interest from 1-21-87 to

10-28-88 3,215,825.03

Compromise penalty 15,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13

1986 Deficiency Documentary Stamp Tax

13
Deficiency percentage tax P93,723,372.40

Add: 25% surcharge 23,430,843.10

Compromise penalty 15,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.[5]

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as shown
above. Said assessment has been based on return (filed by you) (as verified) (made by this Office)
(pending investigation) (after investigation). You are requested to pay the above amount to this Office
or to our Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx[6]

In a letter dated December 10, 1988, BPI, through counsel, replied as follows:

1. Your deficiency assessments are no assessments at all. The taxpayer is not informed, even in the
vaguest terms, why it is being assessed a deficiency. The very purpose of a deficiency assessment is to
inform taxpayer why he has incurred a deficiency so that he can make an intelligent decision on whether
to pay or to protest the assessment. This is all the more so when the assessment involves astronomical
amounts, as in this case.

14
We therefore request that the examiner concerned be required to state, even in the briefest form, why
he believes the taxpayer has a deficiency documentary and percentage taxes, and as to the percentage
tax, it is important that the taxpayer be informed also as to what particular percentage tax the
assessment refers to.

2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise forged
between your office and the Bankers Association of the Philippines [BAP] on this issue and of BPIs
submission of its computations under this compromise. There is therefore no basis whatsoever for this
assessment, assuming it is on the subject of the BAP compromise. On the other hand, if it relates to
documentary stamp tax on some other issue, we should like to be informed about what those issues
are.

3. As to the alleged deficiency percentage tax, we are completely at a loss on how such assessment may
be protested since your letter does not even tell the taxpayer what particular percentage tax is involved
and how your examiner arrived at the deficiency. As soon as this is explained and clarified in a proper
letter of assessment, we shall inform you of the taxpayers decision on whether to pay or protest the
assessment.[7]

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

15
although in all respects, your letter failed to qualify as a protest under Revenue Regulations No. 12-85
and therefore not deserving of any rejoinder by this office as no valid issue was raised against the
validity of our assessment still we obliged to explain the basis of the assessments.

xxx xxx xxx

this constitutes the final decision of this office on the matter.[8]

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991
letter.[9] This was denied in a letter dated December 12, 1991, received by BPI on January 21, 1992.[10]

On February 18, 1992, BPI filed a petition for review in the CTA.[11] In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become final
and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the National
Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125.[12] It denied
reconsideration in a resolution dated May 27, 1996.[13]

On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the CTA[14]
for a decision on the merits.[15] It ruled that the October 28, 1988 notices were not valid assessments
because they did not inform the taxpayer of the legal and factual bases therefor. It declared that the
proper assessments were those contained in the May 8, 1991 letter which provided the reasons for the

16
claimed deficiencies.[16] Thus, it held that BPI filed the petition for review in the CTA on time.[17] The
CIR elevated the case to this Court.

This petition raises the following issues:

1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and

2) whether or not BPI was liable for the said taxes.

The former Section 270[18] (now renumbered as Section 228) of the NIRC stated:

Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be
prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the
taxpayer fails to respond, the [CIR] shall issue an assessment based on his findings.

xxx xxx xxx (emphasis supplied)

17
WERE THE OCTOBER 28, 1988

NOTICES VALID ASSESSMENTS?

The first issue for our resolution is whether or not the October 28, 1988 notices[19] were valid
assessments. If they were not, as held by the CA, then the correct assessments were in the May 8, 1991
letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by BPI on
January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February 18, 1992
would be well within the 30-day period provided by law.[20]

The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid assessments.
He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which was designed for the
precise purpose of notifying taxpayers of the assessed amounts due and demanding payment
thereof.[21] He contends that there was no law or jurisprudence then that required notices to state the
reasons for assessing deficiency tax liabilities.[22]

BPI counters that due process demanded that the facts, data and law upon which the assessments were
based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section 228),
specifically provides that:

[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.

18
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
process requires even under the former Section 270.

BPIs contention has no merit. The present Section 228 of the NIRC provides:

Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however,
That a preassessment notice shall not be required in the following cases:

xxx xxx xxx

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.

xxx xxx xxx (emphasis supplied)

19
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of the
deficiency taxes were made. He merely notified BPI of his findings, consisting only of the computation of
the tax liabilities and a demand for payment thereof within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to
its amendment by RA 8424 (also known as the Tax Reform Act of 1997).[23] In CIR v. Reyes,[24] we held
that:

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment
of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply
relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424, otherwise known
as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIR's findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise,
the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During
those dates, RA 8424 was already in effect. The notice required under the old law was no longer
sufficient under the new law.[25] (emphasis supplied; italics in the original)

20
Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to notify or inform the taxpayer of his findings. Nothing in the old law
required a written statement to the taxpayer of the law and facts on which the assessments were based.
The Court cannot read into the law what obviously was not intended by Congress. That would be judicial
legislation, nothing less.

Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
period.[26] Everything considered, there was no doubt the October 28, 1988 notices sufficiently met the
requirements of a valid assessment under the old law and jurisprudence.

The sentence

[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void

was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted
sentence.[27] The fact that the amendment was necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning.[28]

21
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by RA
8424 was an innovation and could not be reasonably inferred from the old law.[29] Clearly, the
legislature intended to insert a new provision regarding the form and substance of assessments issued
by the CIR.[30]

In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:

xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of the
legal and factual basis of the formers decision to charge the latter for deficiency documentary stamp
and gross receipts taxes.[31]

In other words, the CAs theory was that BPI was deprived of due process when the CIR failed to inform it
in writing of the factual and legal bases of the assessments even if these were not called for under the
old law.

We disagree.

Indeed, the underlying reason for the law was the basic constitutional requirement that no person shall
be deprived of his property without due process of law.[32] We note, however, what the CTA had to say:

22
xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity to
discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI] ignored)
but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh] out the
issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel honestly tell this
Court that they did not know anything about the assessments?

Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]
contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager of
the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which contain
his analysis regarding the findings of the [CIRs] examiner, Mr. San Pedro and that the same worksheets
were presented to Mr. Carlos Tan, Comptroller of [BPI].

xxx xxx xxx

From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature and
basis of the assessments, and was given all the opportunity to contest the same but ignored it despite
the notice conspicuously written on the assessments which states that "this ASSESSMENT becomes final
and unappealable if not protested within 30 days after receipt." Counsel resorted to dilatory tactics and
dangerously played with time. Unfortunately, such strategy proved fatal to the cause of his client.[33]

The CA never disputed these findings of fact by the CTA:

23
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated exclusively to
the consideration of tax problems, has necessarily developed an expertise on the subject, and its
conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.
Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there
is a showing of gross error or abuse on the part of the [CTA].[34]

Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision:[35]

Sec. 270. Protesting of assessment.

xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by the implementing regulations within
thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and
unappealable.

24
If the protest is denied in whole or in part, the individual, association or corporation adversely affected
by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt of the said
decision; otherwise, the decision shall become final, executory and demandable.

IMPLICATIONS OF A

VALID ASSESSMENT

Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the
same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not qualify
as a protest since the letter itself stated that [a]s soon as this is explained and clarified in a proper letter
of assessment, we shall inform you of the taxpayers decision on whether to pay or protest the
assessment.[36] Hence, by its own declaration, BPI did not regard this letter as a protest against the
assessments. As a matter of fact, BPI never deemed this a protest since it did not even consider the
October 28, 1988 notices as valid or proper assessments.

The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period
provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA
correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from disputing the
correctness of the assessments or invoking any defense that would reopen the question of its liability on

25
the merits.[37] Not only that. There arose a presumption of correctness when BPI failed to protest the
assessments:

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the
duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers
will not be disturbed. All presumptions are in favor of the correctness of tax assessments.[38]

Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to
have failed to appeal the CIRs final decision regarding the disputed assessments within the 30-day
period provided by law. The CIR, in his May 8, 1991 response, stated that it was his final decision on the
matter. BPI therefore had 30 days from the time it received the decision on June 27, 1991 to appeal but
it did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February
18, 1992, way beyond the reglementary period. BPI must now suffer the repercussions of its omission.
We have already declared that:

the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his action
on an assessment questioned by a taxpayer constitutes his final determination on the disputed
assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the basis of his
statement indubitably showing that the Commissioner's communicated action is his final decision on the
contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at
the opportune time. Without needless difficulty, the taxpayer would be able to determine when his
right to appeal to the tax court accrues.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment and, consequently, the collection of the amount
demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the

26
[CIR], this would encourage his office to conduct a careful and thorough study of every questioned
assessment and render a correct and definite decision thereon in the first instance. This would also
deter the [CIR] from unfairly making the taxpayer grope in the dark and speculate as to which action
constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet
a pressing need for fair play, regularity, and orderliness in administrative action.[39] (emphasis supplied)

Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the subject
tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve a considerable
amount of money. Be that as it may, we cannot legally presume the existence of something which was
never there. The state will be deprived of the taxes validly due it and the public will suffer if taxpayers
will not be held liable for the proper taxes assessed against them:

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of
the people.[40]

WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of Appeals in CA-
G.R. SP No. 41025 is REVERSED and SET ASIDE.

SO ORDERED.

27
Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.

Office of the Solicitor General for petitioner.

Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance
of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The estate was
divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B.
Pineda's share amounted to about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding
income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue
filed said returns for the estate on the basis of information and data obtained from the aforesaid estate
proceedings and issued an assessment for the following:

1. Deficiency income tax

1945 P135.83

28
1946 436.95

1947 1,206.91 P1,779.69

Add: 5% surcharge 88.98

1% monthly interest from November 30, 1953 to April 15, 1957 720.77

Compromise for late filing 80.00

Compromise for late payment 40.00

Total amount due

P2,707.44

===========

2. Additional residence tax for 1945 P14.50

===========

3. Real Estate dealer's tax for the fourth quarter of 1946 and the whole year of 1947
P207.50

===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the
Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining
to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for
1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on October 19, 1953; and
the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For
taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on
October 19, 1953, more than five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further
appropriate proceedings.1

In the Tax Court, the parties submitted the case for decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for
the payment corresponding to his share of the following taxes:

29
Deficiency income tax

1945 P135.83

1946 436.95

Real estate dealer's fixed tax 4th quarter of 1946 and whole year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda
liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total
amount of P760.28 instead of only for the amount of taxes corresponding to his share in the
estate.1awphîl.nèt

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income
tax due the estate only up to the extent of and in proportion to any share he received. He relies on
Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition of an
estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have respectively received
from the estate."

We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed.

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the
share he received from the inheritance.3 His liability, however, cannot exceed the amount of his share.4

As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
property in his possession. The reason is that the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for unpaid income taxes4a for which said estate is
liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance

company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount
shall be a lien in favor of the Government of the Philippines from the time when the assessment was
made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that may
accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . .

30
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e.,
the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda
will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper share of each
heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance received.
This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In said case, the
Government filed an action against all the heirs for the collection of the tax. This action rests on the
concept that hereditary property consists only of that part which remains after the settlement of all
lawful claims against the estate, for the settlement of which the entire estate is first liable.6 The reason
why in case suit is filed against all the heirs the tax due from the estate is levied proportionately against
them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This
second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of
Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself
of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax
Code above quoted, because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective shares due to the heirs from the
inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the
Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and
real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur.

31
FIRST DIVISION

[G.R. No. 124043. October 14, 1998]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS
and YOUNG MENS CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.

DECISION

PANGANIBAN, J.:

Is the income derived from rentals of real property owned by the Young Mens Christian Association of
the Philippines, Inc. (YMCA) established as a welfare, educational and charitable non-profit corporation -
- subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution?

The Case

This is the main question raised before us in this petition for review on certiorari challenging two
Resolutions issued by the Court of Appeals[1] on September 28, 1995[2] and February 29, 1996[3] in CA-
GR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the
YMCA to claim tax exemption on the latters income from the lease of its real property.

The Facts

The Facts are undisputed.[4] Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion
of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from
parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR)
issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional

32
fees and deficiency withholding tax on wages. Private respondent formally protested the assessment
and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied
the claims of YMCA.

Contesting the denial of its protest, the YMCA filed a petition for review at the Court if Tax Appeals (CTA)
on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:

xxx [T]he leasing of private respondents facilities to small shop owners, to restaurant and canteen
operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for
the accomplishment of the objectives of the [private respondents]. It appears from the testimonies of
the witnesses for the [private respondent] particularly Mr. James C. Delote, former accountant of YMCA,
that these facilities were leased to members and that they have to service the needs of its members and
their guests. The Rentals were minimal as for example, the barbershop was only charged P300 per
month. He also testified that there was actually no lot devoted for parking space but the parking was
done at the sides of the building. The parking was primarily for members with stickers on the
windshields of their cars and they charged P.50 for non-members. The rentals and parking fees were just
enough to cover the costs of operation and maintenance only. The earning[s] from these rentals and
parking charges including those from lodging and other charges for the use of the recreational facilities
constitute [the] bulk of its income which [is] channeled to support its many activities and attainment of
its objectives. As pointed out earlier, the membership dues are very insufficient to support its program.
We find it reasonably necessary therefore for [private respondent] to make [the] most out [of] its
existing facilities to earn some income. It would have been different if under the circumstances, [private
respondent] will purchase a lot and convert it to a parking lot to cater to the needs of the general public
for a fee, or construct a building and lease it out to the highest bidder or at the market rate for
commercial purposes, or should it invest its funds in the buy and sell of properties, real or personal.
Under these circumstances, we could conclude that the activities are already profit oriented, not
incidental and reasonably necessary to the pursuit of the objectives of the association and therefore,
will fall under the last paragraph of section 27 of the Tax Code and any income derived therefrom shall
be taxable.

Considering our findings that [private respondent] was not engaged in the business of operating or
contracting [a] parking lot, we find no legal basis also for the imposition of [a] deficiency fixed tax and [a]
contractors tax in the amount[s] of P353.15 and P3,129.73, respectively.

xxxxxxxxx

WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed for lack of
merit:

33
1980 Deficiency Fixed Tax P353,15;

1980 Deficiency Contractors Tax P3,129.23;

1980 Deficiency Income Tax P372,578.20.

While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding Tax P1,798.93;

1980 Deficiency Withholding Tax on Wages P33,058.82

plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but not to exceed
three (3) years pursuant to Section 51 (e)(2) & (3) of the National Internal Revenue Code effective as of
1984.[5]

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its Decision of
February 16, 1994, the CA[6] initially decided in favor of the CIR and disposed of the appeal in the
following manner:

Following the ruling in the afore-cited cases of Province of Abra vs. Hernando and Abra Valley College
Inc. vs. Aquino, the ruling of the respondent Court of Tax Appeals that the leasing of petitioners (herein
respondent) facilities to small shop owners, to restaurant and canteen operators and the operation of
the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the
objectives of the petitioners,' and the income derived therefrom are tax exempt, must be reversed.

WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed the assessment for:

1980 Deficiency Income Tax P 353.15

1980 Deficiency Contractors Tax P 3,129.23, &

34
1980 Deficiency Income Tax P372,578.20,

but the same is AFFIRMED in all other respect.[7]

Aggrieved, the YMCA asked for reconsideration based on the following grounds:

The findings of facts of the Public Respondent Court of Tax Appeals being supported by substantial
evidence [are] final and conclusive.

II

The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from the income on
rentals of small shops and parking fees [are] in accord with the applicable law and jurisprudence.[8]

Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and
promulgated on September 28, 1995 its first assailed Resolution which, in part, reads:

The Court cannot depart from the CTAs findings of fact, as they are supported by evidence beyond what
is considered as substantial.

xxxxxxxxx

The second ground raised is that the respondent CTA did not err in saying that the rental from small
shops and parking fees do not result in the loss of the exemption. Not even the petitioner would hazard
the suggestion that YMCA is designed for profit. Consequently, the little income from small shops and
parking fees help[s] to keep its head above the water, so to speak, and allow it to continue with its
laudable work.

35
The Court, therefore, finds the second ground of the motion to be meritorious and in accord with law
and jurisprudence.

WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTAs decision is AFFIRMED in
toto.[9]

The internal revenue commissioners own Motion for Reconsideration was denied by Respondent Court
in its second assailed Resolution of February 29, 1996. Hence, this petition for review under Rule 45 of
the Rules of Court.[10]

The Issues

Before us, petitioner imputes to the Court of Appeals the following errors:

In holding that it had departed from the findings of fact of Respondent Court of Tax Appeals when it
rendered its Decision dated February 16, 1994; and

II

In affirming the conclusion of Respondent Court of Tax Appeals that the income of private respondent
from rentals of small shops and parking fees [is] exempt from taxation.[11]

This Courts Ruling

The Petition is meritorious.

First Issue:

Factual Findings of the CTA

36
Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of the
CTA. On the other hand, petitioner argues that the CA merely reversed the ruling of the CTA that the
leasing of private respondents facilities to small shop owners, to restaurant and canteen operators and
the operation of parking lots are reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the private respondent and that the income derived therefrom are
tax exempt.[12] Petitioner insists that what the appellate court reversed was the legal conclusion, not
the factual finding, of the CTA.[13] The commissioner has a point.

Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial
evidence, will not be disturbed on appeal unless it is shown that the said court committed gross error in
the appreciation of facts.[14] In the present case, this Court finds that the February 16, 1994 Decision of
the CA did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA
and ruled on the issue raised by the CIR: Whether or not the collection or earnings of rental income
from the lease of certain premises and income earned from parking fees shall fall under the last
paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended.[15]

Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed
it was expected to. That it did so in a manner different from that of the CTA did not necessarily imply a
reversal of factual findings.

The distinction between a question of law and a question of fact is clear-cut. It has been held that
[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or
falsehood of alleged facts.[16] In the present case, the CA did not doubt, much less change, the facts
narrated by the CTA. It merely applied the law to the facts. That its interpretation or conclusion is
different from that of the CTA is not irregular or abnormal.

Second Issue:

Is the Rental Income of the YMCA Taxable?

We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax?
At the outset, we set forth the relevant provision of the NIRC:

37
SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be taxed under
this Title in respect to income received by them as such --

xxxxxxxxx

(g) Civic league or organization not organized for profit but operated exclusively for the promotion of
social welfare;

(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes,
no part of the net income of which inures to the benefit of any private stockholder or member;

xxxxxxxxx

Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character
of the foregoing organization from any of their properties, real or personal, or from any of their
activities conducted for profit, regardless of the disposition made of such income, shall be subject to the
tax imposed under this Code. (as amended by Pres. Decree No. 1457)

Petitioners argues that while the income received by the organizations enumerated in Section 27 (now
Section 26) of the NIRC is, as a rule, exempted from the payment of tax in respect to income received by
them as such, the exemption does not apply to income derived xxx from any if their properties, real or
personal, or from any of their activities conducted for profit, regardless, of the disposition made of such
income xxx.

Petitioner adds that rented income derived by a tax-exempt organization from the lease of its
properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income [is]
exclusively used for the accomplishment of its objectives.[17] We agree with the commissioner.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict
interpretation in construing tax exemptions.[18] Furthermore, a claim of statutory exemption from
taxation should be manifest and unmistakable from the language of the law on which it is based. Thus,
the claimed exemption must expressly be granted in a statute stated in a language too clear to be
mistaken.[19]

38
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of
the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to the
imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the
rent income f the YMCA from its rental property,[20] the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted attempt at construction.

It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be
applied.[21] Parenthetically, a consideration of the question of construction must not even begin,
particularly when such question is on whether to apply a strict construction or a literal one on statutes
that grant tax exemptions to religious, charitable and educational propert[ies] or institutions.[22]

The last paragraph of Section 27, the YMCA argues, should be subject to the qualification that the
income from the properties must arise from activities conducted for profit before it may be considered
taxable.[23] This argument is erroneous. As previously stated, a reading of said paragraph ineludibly
shows that the income from any property of exempt organizations, as well as that arising from any
activity it conducts for profit, is taxable. The phrase any of their activities conducted for profit does not
qualify the word properties. This makes income from the property of the organization taxable,
regardless of how that income is used -- whether for profit or for lofty non-profit purposes.

Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when
it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting
out its real property, on the solitary but unconvincing ground that the said income is not collected for
profit but is merely incidental to its operation. The law does not make a distinction. The rental income is
taxable regardless of whence such income is derived and how it used or disposed of. Where the law
does not distinguish, neither should we.

Constitutional Provisions

on Taxation

Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI,
Section 28 of par. 3 of the 1987 Constitution,[24] exempts charitable institutions from the payment not
only of property taxes but also of income tax from any source.[25] In support of its novel theory, it
compares the use of the words charitable institutions, actually and directly in the 1973 and the 1987
Constitutions, on the hand; and in Article VI Section 22, par. 3 of the 1935 Constitution, on the other
hand.[26]

39
Private respondent enunciates three points. First, the present provision is divisible into two categories:
(1) [c]haritable institutions, churches and parsonages or convents appurtenant thereto, mosques and
non-profit cemeteries, the incomes of which are, from whatever source, all tax-exempt;[27] and (2) [a]ll
lands, buildings and improvements actually and directly used for religious, charitable or educational
purposes, which are exempt only from property taxes.[28] Second, Lladoc v. Commissioner of Internal
Revenue,[29] which limited the exemption only to the payment of property taxes, referred to the
provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987
Constitutions.[30] Third, the phrase actually, directly and exclusively used for religious, charitable or
educational purposes refers not only to all lands, buildings and improvements, but also to the above-
quoted first category which includes charitable institutions like the private respondent.[31]

The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of
the Constitution reveal their intent which, in turn, may have guided the people in ratifying the
Charter.[32] Such intent must be effectuated.

Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member
of this Court, stressed during the Concom debates that xxx what is exempted is not the institution itself
xxx; those exempted from real estate taxes are lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes.[33] Father Joaquin G. Bernas, an
eminent authority on the Constitution and also a member of the Concom, adhered to the same view
that the exemption created by said provision pertained only to property taxes.[34]

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that [t]he tax exemption covers
property taxes only."[35] Indeed, the income tax exemption claimed by private respondent finds no
basis in Article VI, Section 28, par. 3 of the Constitution.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter,[36] claiming that the YMCA
is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly
and exclusively for educational purposes so it is exempt from taxes on its properties and income.[37] We
reiterate that private respondent is exempt from the payment of property tax, but not income tax on
the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the payment of income tax.

As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the
YMCA to be granted the exemption it claims under the aforecited provision, it must prove with
substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution;
and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for

40
educational purposes. However, the Court notes that not a scintilla of evidence was submitted by
private respondent to prove that it met the said requisites.

Is the YMCA an educational institution within the purview of Article XIV, Section 4, par.3 of the
Constitution? We rule that it is not. The term educational institution or institution of learning has
acquired a well-known technical meaning, of which the members of the Constitutional Commission are
deemed cognizant.[38] Under the Education Act of 1982, such term refers to schools.[39] The school
system is synonymous with formal education,[40] which refers to the hierarchically structured and
chronological graded learnings organized and provided by the formal school system and for which
certification is required in order for the learner to progress through the grades or move to the higher
levels.[41] The Court has examined the Amended Articles of Incorporation[42] and By-Laws[43] of the
YMCA, but found nothing in them that even hints that it is a school or an educational institution.[44]

Furthermore, under the Education Act of 1982, even non-formal education is understood to be school-
based and private auspices such as foundations and civic-spirited organizations are ruled out.[45] It is
settled that the term educational institution, when used in laws granting tax exemptions, refers to a xxx
school seminary, college or educational establishment xxx.[46] Therefore, the private respondent
cannot be deemed one of the educational institutions covered by the constitutional provision under
consideration.

xxx Words used in the Constitution are to be taken in their ordinary acceptation. While in its broadest
and best sense education embraces all forms and phrases of instruction, improvement and development
of mind and body, and as well of religious and moral sentiments, yet in the common understanding and
application it means a place where systematic instruction in any or all of the useful branches of learning
is given by methods common to schools and institutions of learning. That we conceive to be the true
intent and scope of the term [educational institutions,] as used in the Constitution.[47]

Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court
also notes that the former did not submit proof of the proportionate amount of the subject income that
was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA
by-laws, which formed part of the evidence submitted, is patently insufficient, since the same merely
signified that [t]he net income derived from the rentals of the commercial buildings shall be apportioned
to the Federation and Member Associations as the National Board may decide.[48] In sum, we find no
basis for granting the YMCA exemption from income tax under the constitutional provision invoked

Cases Cited by Private

Respondent Inapplicable

41
The cases[49] relied on by private respondent do not support its cause. YMCA of Manila v. Collector of
Internal Revenue[50] and Abra Valley College, Inc. v. Aquino[51] are not applicable, because the
controversy in both cases involved exemption from the payment of property tax, not income tax.
Hospital de San Juan de Dios, Inc. v. Pasay City[52] is not in point either, because it involves a claim for
exemption from the payment of regulatory fees, specifically electrical inspection fees, imposed by an
ordinance of Pasay City -- an issue not at all related to that involved in a claimed exemption from the
payment if income taxes imposed on property leases. In Jesus Sacred Heart College v. Com. Of Internal
Revenue,[53] the party therein, which claimed an exemption from the payment of income tax, was an
educational institution which submitted substantial evidence that the income subject of the controversy
had been devoted or used solely for educational purposes. On the other hand, the private respondent in
the present case had not given any proof that it is an educational institution, or that of its rent income is
actually, directly and exclusively used for educational purposes.

Epilogue

In deliberating on this petition, the Court expresses its sympathy with private respondent. It appreciates
the nobility its cause. However, the Courts power and function are limited merely to applying the law
fairly and objectively. It cannot change the law or bend it to suit its sympathies and appreciations.
Otherwise, it would be overspilling its role and invading the realm of legislation.

We concede that private respondent deserves the help and the encouragement of the government. It
needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that, given
its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That
prerogative belongs to the political departments of government. Indeed, some of the member of the
Court may even believe in the wisdom and prudence of granting more tax exemptions to private
respondent. But such belief, however well-meaning and sincere, cannot bestow upon the Court the
power to change or amend the law.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28,
1995 and February 29, 1996 are hereby dated February 16, 1995 is REVERSED and SET ASIDE. The
Decision of the Court of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the
income tax. No pronouncement as to costs.

SO ORDERED.

42
Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.

COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS, respondents.

The Solicitor General for petitioner.

Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:

The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein the
Court of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a refund to
herein private respondent Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14,
representing its overpaid income taxes for 1984 and 1985, but denied its claim for the alleged
refundable amount reflected in its 1983 income tax return on the ground of prescription.1 That
judgment of the tax court was affirmed by respondent Court of Appeals in its judgment in CA-G.R. SP

No. 26839.2 The case was then elevated to us in the present petition for review on certiorari wherein
the latter judgment is impugned and sought to be nullified and/or set aside.

43
It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim for
refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the
alleged aggregate of the excess of its carried-over total quarterly payments over the actual income tax
due, plus carried-over withholding tax payments on government securities and rental income, as
computed in its final income tax return for the calendar year ending December 31, 1985.3

Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period,
Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming
the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total amount of
P19,971,745.00.4

In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed

with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the
National Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28,
1986.5

On February 20, 1991, the case was submitted for decision based solely on the pleadings and evidence
submitted by herein private respondent Citytrust. Herein petitioner could not present any evidence by
reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of the
case, as well as the investigation report thereon, to the Solicitor General.6

However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion
praying for the suspension of the proceedings in the said case on the ground that the claim of Citytrust
for tax refund in the amount of P19,971,745.00 was already being processed by the Tax Credit/Refund
Division of the BIR, and that said bureau was only awaiting the submission by Citytrust of the required
confirmation receipts which would show whether or not the aforestated amount was actually paid and
remitted to the BIR.7

Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired
jurisdiction over the case, it could no longer be divested of the same; and, further, that the proceedings
therein could not be suspended by the mere fact that the claim for refund was being administratively
processed, especially where the case had already been submitted for decision.

44
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y-3
adduced in the case, which clearly showed that there was an overpayment of income taxes and for
which a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive proof
of and an admission by herein petitioner that there had been an overpayment of income taxes.8

The tax court denied the motion to suspend proceedings on the ground that the case had already been
submitted for decision since February 20, 1991.9

Thereafter, said court rendered its decision in the case, the decretal portion of which declares:

WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for the overpaid taxes
incurred in 1984 and 1985. The refundable amount as shown in its 1983 income tax return is hereby
denied on the ground of prescription. Respondent is hereby ordered to grant a refund to petitioner
Citytrust Banking Corp. in the amount of P13,314,506.14 representing the overpaid income taxes for
1984 and 1985, recomputed as follows:

1984 Income tax due P 4,715,533.00

Less: 1984 Quarterly payments P 16,214,599.00*

1984 Tax Credits —

W/T on int. on gov't. sec. 1,921,245.37*

W/T on rental inc. 26,604.30* 18,162,448.67

——————— ———————

Tax Overpayment (13,446,915.67)

Less: FCDU payable 150,252.00

———————

Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P—0—

Less: W/T on rentals 36,716.47*

———————

Tax Overpayment (36,716.47)*

Less: FCDU payable 18,874.00

45
———————

Amount Refundable for 1985 P (17,842.47)

* Note:

These credits are smaller than the claimed amount because only the above figures are well supported by
the various exhibits presented during the hearing.

No pronouncement as to costs.

SO ORDERED.10

The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of
withholding has been established by the statements and certificates of withholding taxes accomplished
by herein private respondent's withholding agents, the authenticity of which were neither disputed nor
controverted by herein petitioner; (2) no evidence was presented which could effectively dispute the
correctness of the income tax return filed by herein respondent corporation and other material facts
stated therein; (3) no deficiency assessment was issued by herein petitioner; and (4) there was an audit
report submitted by the BIR Assessment Branch, recommending the refund of overpaid taxes for the
years concerned (Exhibits Y to Y-3), which enjoys the presumption of regularity in the performance of
official duty.11

A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole
ground that the statements and certificates of taxes allegedly withheld are not conclusive evidence of
actual payment and remittance of the taxes withheld to the BIR.12 A supplemental motion for
reconsideration was thereafter filed, wherein it was contended for the first time that herein private
respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-
office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only
lately that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes covered by Demand/Assessment Notice No. FAS-1-
84-003291-003296.13

Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust.14 Thereafter, the Court of Tax Appeals issued a resolution denying both motions
for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation

46
6-85, only requires that the claim for tax credit or refund must show that the income received was
declared as part of the gross income, and that the fact of withholding was duly established. Moreover,
with regard to the argument raised in the supplemental motion for reconsideration anent the deficiency
tax assessment against herein petitioner, the tax court ruled that since that matter was not raised in the
pleadings, the same cannot be considered, invoking therefor the salutary purpose of the omnibus
motion rule which is to obviate multiplicity of motions and to discourage dilatory pleadings.15

As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of
Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax
Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court
erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private
respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's
findings of deficiency income and business tax liabilities against private respondent for the year 1984
bars such payment.16

After a careful review of the records, we find that under the peculiar circumstances of this case, the
ends of substantial justice and public interest would be better subserved by the remand of this case to
the Court of Tax Appeals for further proceedings.

It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal
Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its counsel, the Solicitor General, due to the
unavailability of the necessary records which were not transmitted by the Refund Audit Division of the
BIR to said counsel, as well as the investigation report made by the Banks/Financing and Insurance
Division of the said bureau/ despite repeated requests.17 It was under such a predicament and in
deference to the tax court that ultimately, said records being still unavailable, herein petitioner's
counsel was constrained to submit the case for decision on February 20, 1991 without presenting any
evidence.

For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court
of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the Court of Tax
Appeals which provides that the Commissioner of Internal Revenue and the Commissioner of Customs
shall certify and forward to the Court of Tax Appeals, within ten days after filing his answer, all the
records of the case in his possession, with the pages duly numbered, and if the records are in separate
folders, then the folders shall also be numbered.

The aforestated impassé came about due to the fact that, despite the filing of the aforementioned
initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the BIR

47
still continued to act administratively on the claim for refund previously filed therein, instead of
forwarding the records of the case to the Court of Tax Appeals as ordered.18

It is a long and firmly settled rule of law that the Government is not bound by the errors committed by
its agents.19 In the performance of its governmental functions, the State cannot be estopped by the
neglect of its agent and officers. Although the Government may generally be estopped through the
affirmative acts of public officers acting within their authority, their neglect or omission of public duties
as exemplified in this case will not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation.20 It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents.21 The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position,22 especially in the
case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be
prejudiced just because of bureaucratic lethargy.

Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's supplemental
motion for reconsideration alleging bringing to said court's attention the existence of the deficiency
income and business tax assessment against Citytrust. The fact of such deficiency assessment is
intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax
refund for the same year. To award such refund despite the existence of that deficiency assessment is
an absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund
and at the same time be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to
and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by
itself and without unquestionable evidence, cannot be the basis for the grant of the refund.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list,
statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such assessment
shall be recovered by any suits unless it is proved that the said list, statement, or return was not false
nor fraudulent and did not contain any understatement or undervaluation; but this provision shall not
apply to statements or returns made or to be made in good faith regarding annual depreciation of oil or
gas wells and mines."

48
Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently
be upheld, the Government will be forced to institute anew a proceeding for the recovery of
erroneously refunded taxes which recourse must be filed within the prescriptive period of ten years
after discovery of the falsity, fraud or omission in the false or fraudulent return involved.23 This would
necessarily require and entail additional efforts and expenses on the part of the Government, impose a
burden on and a drain of government funds, and impede or delay the collection of much-needed
revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary
and legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved
jointly with its claim for tax refund, to determine once and for all in a single proceeding the true and
correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair that
the taxpayer and the Government alike be given equal opportunities to avail of remedies under the law
to defeat each other's claim and to determine all matters of dispute between them in one single case. It
is important to note that in determining whether or not petitioner is entitled to the refund of the
amount paid, it would necessary to determine how much the Government is entitled to collect as taxes.
This would necessarily include the determination of the correct liability of the taxpayer and, certainly, a
determination of this case would constitute res judicata on both parties as to all the matters subject
thereof or necessarily involved therein.

The Court cannot end this adjudication without observing that what caused the Government to lose its
case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom, and not
to syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General found himself
once again gives substance to the public perception and suspicion that it is another proverbial tip in the
iceberg of venality in a government bureau which is pejoratively rated over the years. What is so
distressing, aside from the financial losses to the Government, is the erosion of trust in a vital institution
wherein the reputations of so many honest and dedicated workers are besmirched by the acts or
omissions of a few. Hence, the liberal view we have here taken pro hac vice, which may give some
degree of assurance that this Court will unhesitatingly react to any bane in the government service, with
a replication of such response being likewise expected by the people from the executive authorities.

WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE
and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and appropriate
action, more particularly, the reception of evidence for petitioner and the corresponding disposition of
CTA Case No. 4099 not otherwise inconsistent with our adjudgment herein.

49
SO ORDERED.

50
FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF
INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents.

DECISION

TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and
unfair, suffering the basic and oftly implored requisites of due process of law. Specifically, the petition
assails the Decision[1] of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where
the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments and estate tax
assessment, are already final and (u)nappealable -and- the subsequent levy of real properties is a tax
remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal
Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as
Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other
tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the petition for certiorari
with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the
Republic of the Philippines, the matter of the settlement of his estate, and its dues to the government in
estate taxes, are still unresolved, the latter issue being now before this Court for resolution. Specifically,
petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions the actuations of the
respondent Commissioner of Internal Revenue in assessing, and collecting through the summary remedy
of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his
father, despite the pendency of the proceedings on probate of the will of the late president, which is
docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.

51
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with
an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993,
seeking to -

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993,
issued by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with
the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision[2] on November 29,
1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner and
the estate of the deceased President Marcos have already become final and unappealable, and may thus
be enforced by the summary remedy of levying upon the properties of the late President, as was done
by the respondent Commissioner of Internal Revenue.

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the petition for Certiorari
with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:

A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX REMEDIES RESORTED
TO BY THE GOVERNMENT ARE NOT AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL
PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS
PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER
COURTS AND ADMINISTRATIVE AGENCIES.

52
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT SINCE THE TAX
ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY BECOME FINAL AND UNAPPEALABLE,
THERE WAS NO NEED TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION.
INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER,
PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS,
RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING
GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period provided in the Revenue
Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's ownership or interests in
several properties (both personal and real) make the total value of his estate, and the consequent estate
tax due, incapable of exact pecuniary determination at this time. Thus, respondents assessment of the
estate tax and their issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was never notified, much less served with
copies of the Notices of Levy, contrary to the mandate of Section 213 of the NIRC. As such, petitioner
was never given an opportunity to contest the Notices in violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT MANIFESTLY ERRED IN
RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE
NIRC NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY
INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD
OF COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.

The facts as found by the appellate court are undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of
the tax liabilities and obligations of the late president, as well as that of his family, associates and
"cronies". Said audit team concluded its investigation with a Memorandum dated July 26, 1991. The
investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an

53
estate tax returns [sic], as well as several income tax returns covering the years 1982 to 1986, -all in
violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of
Quezon City for violations of Sections 82, 83 and 84 (has penalized under Sections 253 and 254 in
relation to Section 252- a & b) of the National Internal Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax
Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the years
1985 to 1986, and the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II for the years
1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no. FAC-2-89-91-
002464 (against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00
Pesos); (2) Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax
assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts
of P149,551.70 and P184,009,737.40 representing deficiency income tax for the years 1985 and 1986);
(3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against
petitioner Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30
Pesos; and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and income tax
assessments were all personally and constructively served on August 26, 1991 and September 12, 1991
upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last known address at No. 204
Ortega St., San Juan, M.M. (Annexes 'D' and 'E' of the Petition). Likewise, copies of the deficiency tax
assessments issued against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his last known
address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1' of the
Petition). Thereafter, Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos
c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City. Moreover, a
notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs
of the late president, within 30 days from service of said assessments.

54
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against
certain parcels of land owned by the Marcoses - to satisfy the alleged estate tax and deficiency income
taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying
the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing
tax remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code
(NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner)
calling the attention of the BIR and requesting that they be duly notified of any action taken by the BIR
affecting the interest of their client Ferdinand 'Bongbong Marcos II, as well as the interest of the late
president - copies of the aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra
and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban
City. The public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There
being no bidder, the lots were declared forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for certiorari and
prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ
of preliminary injunction."

It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government. Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved."[3]

Whether or not the proper avenues of assessment and collection of the said tax obligations were taken
by the respondent Bureau is now the subject of the Court's inquiry.

55
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure for
the enforcement of taxes due upon the estate of the deceased. The case of Domingo vs. Garlitos[4] is
specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of
indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the
claimant to present a claim before the probate court so that said court may order the administrator to
pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any other
means.

Petitioner goes further, submitting that the probate court is not precluded from denying a request by
the government for the immediate payment of taxes, and should order the payment of the same only
within the period fixed by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate of
Echarri (67 Phil 502), where it was held that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal Revenue (52 Phil 803),
relied upon by the petitioner-appellant is good authority on the proposition that the court having
control over the administration proceedings has jurisdiction to entertain the claim presented by the
government for taxes due and to order the administrator to pay the tax should it find that the
assessment was proper, and that the tax was legal, due and collectible. And the rule laid down in that
case must be understood in relation to the case of Collector of Customs vs. Haygood, supra., as to the
procedure to be followed in a given case by the government to effectuate the collection of the tax.
Categorically stated, where during the pendency of judicial administration over the estate of a deceased
person a claim for taxes is presented by the government, the court has the authority to order payment
by the administrator; but, in the same way that it has authority to order payment or satisfaction, it also
has the negative authority to deny the same. While there are cases where courts are required to
perform certain duties mandatory and ministerial in character, the function of the court in a case of the
present character is not one of them; and here, the court cannot be an organism endowed with latitude
of judgment in one direction, and converted into a mere mechanical contrivance in another direction."

On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes is
paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the same.
According to the respondent, claims for payment of estate and income taxes due and assessed after the
death of the decedent need not be presented in the form of a claim against the estate. These can and
should be paid immediately. The probate court is not the government agency to decide whether an
estate is liable for payment of estate of income taxes. Well-settled is the rule that the probate court is a
court with special and limited jurisdiction.

56
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with impunity
by the very parties invoking its authority.

In testament to this, it has been held that it is within the jurisdiction of the probate court to approve the
sale of properties of a deceased person by his prospective heirs before final adjudication;[5] to
determine who are the heirs of the decedent;[6] the recognition of a natural child;[7] the status of a
woman claiming to be the legal wife of the decedent;[8] the legality of disinheritance of an heir by the
testator;[9] and to pass upon the validity of a waiver of hereditary rights.[10]

The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the decedent,
estate tax deficiencies, without the cognition and authority of the court sitting in probate over the
supposed will of the deceased.

The nature of the process of estate tax collection has been described as follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve the administration of a
decedent's estate, although it may be viewed as an incident to the complete settlement of an estate,
and, under some statutes, it is made the duty of the probate court to make the amount of the
inheritance tax a part of the final decree of distribution of the estate. It is not against the property of
decedent, nor is it a claim against the estate as such, but it is against the interest or property right which
the heir, legatee, devisee, etc., has in the property formerly held by decedent. Further, under some
statutes, it has been held that it is not a suit or controversy between the parties, nor is it an adversary
proceeding between the state and the person who owes the tax on the inheritance. However, under
other statutes it has been held that the hearing and determination of the cash value of the assets and
the determination of the tax are adversary proceedings. The proceeding has been held to be necessarily
a proceeding in rem.[11]

In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as
the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of the
National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal Revenue shall
comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and
the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of
judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said

57
Bureau shall also give effect to and administer the supervisory and police power conferred to it by this
Code or other laws."

Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment of claims for taxes
charged against the estate of the decedent. Such taxes, we said, were exempted from the application of
the statute of non-claims, and this is justified by the necessity of government funding, immortalized in
the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae - taxes are
the sinews of the state.

"Taxes assessed against the estate of a deceased person, after administration is opened, need not be
submitted to the committee on claims in the ordinary course of administration. In the exercise of its
control over the administrator, the court may direct the payment of such taxes upon motion showing
that the taxes have been assessed against the estate."

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of
the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the
heirs even after the distribution of the properties of the decedent. They are exempted from the
application of the statute of non-claims. The heirs shall be liable therefor, in proportion to their share in
the inheritance."[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by going after all the heirs
and collecting from each one of them the amount of the tax proportionate to the inheritance received.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement
tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot
therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties
allegedly owned by the late President, on the ground that it was required to seek first the probate
court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessity of the probate or estate settlement court's approval of the state's claim for estate taxes,
before the same can be enforced and collected.

58
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not
to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive
share to any party interested in the estate, unless it is shown a Certification by the Commissioner of
Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the assessment and collection of the estate tax.

If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have
been pursued through the proper administrative and judicial avenues provided for by law.

Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment
based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by implementing regulations within (30)
days from receipt of the assessment; otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely affected
by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of said decision; otherwise, the decision shall become final, executory and demandable. (As
inserted by P.D. 1773)"

Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing the
same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.

Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken by
the Government, collection thereof may have been done in violation of the law. Thus, the manner and
method in which the latter is enforced may be questioned separately, and irrespective of the finality of

59
the former, because the Government does not have the unbridled discretion to enforce collection
without regard to the clear provision of law."[14]

Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing Sections
318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the Marcos properties,
were issued beyond the allowed period, and are therefore null and void:

"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in satisfaction of
said assessments were still issued by respondents well beyond the period mandated in Revenue
Memorandum Circular No. 38-68. These Notices of Levy were issued only on 22 February 1993 and 20
May 1993 when at least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal property were first issued by
respondents, the latter should have complied with Revenue Memorandum Circular No. 38-68 and issued
these Notices of Levy not earlier than three (3) months nor later than six (6) months from 12 September
1991. In accordance with the Circular, respondents only had until 12 March 1992 (the last day of the
sixth month) within which to issue these Notices of Levy. The Notices of Levy, having been issued
beyond the period allowed by law, are thus void and of no effect."[15]

We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive period
and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having
already become final, executory, and demandable, the same can now be collected through the summary
remedy of distraint or levy pursuant to Section 205 of the NIRC.

The applicable provision in regard to the prescriptive period for the assessment and collection of tax
deficiency in this instance is Article 223 of the NIRC, which pertinently provides:

"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.- (a) In the case of
a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at
any time within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a
fraud assessment which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.

xxx

60
(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed,
may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax.

xxx

The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment
made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to
file a return, the tax may be assessed at any time within ten years after the omission, and any tax so
assessed may be collected by levy upon real property within three years following the assessment of the
tax. Since the estate tax assessment had become final and unappealable by the petitioner's default as
regards protesting the validity of the said assessment, there is now no reason why the BIR cannot
continue with the collection of the said tax. Any objection against the assessment should have been
pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal
revenue taxes.

Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his estate,
and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are
premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034
and 0141, which were filed by the government to question the ownership and interests of the late
President in real and personal properties located within and outside the Philippines. Petitioner,
however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes
upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan.
Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact
that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.

Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of
P23,292,607,638.00, stating that this amount deviates from the findings of the Department of Justice's
Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear evidence of the
uncertainty on the part of the Government as to the total value of the estate of the late President.

This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had
already become final and unappealable.

61
It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue[16] whose determinations and
assessments are presumed correct and made in good faith.[17] The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon
the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error
in the assessment will justify the judicial affirmance of said assessment.[18] In this instance, petitioner
has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise
to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged.
But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.

Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of
Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the pretext
of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of a well-ordered society. The
subject tax assessments having become final, executory and enforceable, the same can no longer be
contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a
lost appeal or remedy.[19] This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.

On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after considering the facts
and circumstances, as well as evidences, that there was sufficient, constructive and/or actual notice of
assessments, levy and sale, sent to herein petitioner Ferdinand "Bongbong" Marcos as well as to his
mother Mrs. Imelda Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker of Mrs. Marcos at
the latter's last known address, on August 26, 1991 and September 12, 1991, as well as the notices of
assessment personally given to the caretaker of petitioner also at his last known address on September
12, 1991 - the subsequent notices given thereafter could no longer be ignored as they were sent at a
time when petitioner was already here in the Philippines, and at a place where said notices would surely
be called to petitioner's attention, and received by responsible persons of sufficient age and discretion.

62
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos c/o the petitioner,
at his office, House of Representatives, Batasan Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp.
207-210, Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8, 1992
inviting Mrs. Marcos to a conference relative to her tax liabilities, was furnished the counsel of Mrs.
Marcos - Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were also served
upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra
and Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices, petitioner
never lifted a finger to protest the assessments, (upon which the Levy and sale of properties were
based), nor appealed the same to the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that
petitioner continuously ignored said Notices despite several opportunities given him to file a protest and
to thereafter appeal to the Court of Tax Appeals, - the tax assessments subject of this case, upon which
the levy and sale of properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari."[20]

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.

We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent
taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the
deceased. In the same vein, in the matter of income tax delinquency of the late president and his
spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices of levy in satisfaction
of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of the NIRC,
which pertinently states:

"xxx

...Levy shall be effected by writing upon said certificate a description of the property upon which levy is
made. At the same time, written notice of the levy shall be mailed to or served upon the Register of
Deeds of the province or city where the property is located and upon the delinquent taxpayer, or if he
be absent from the Philippines, to his agent or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the property in question.

xxx"

63
The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale
were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself
on April 12, 1993 at his office at the Batasang Pambansa.[21] We cannot therefore, countenance
petitioner's insistence that he was denied due process. Where there was an opportunity to raise
objections to government action, and such opportunity was disregarded, for no justifiable reason, the
party claiming oppression then becomes the oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the
very structure of established authority.

IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court of
Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.

SO ORDERED.

64
Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-22074 April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.

THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Josue H. Gustilo and Ramirez and Ortigas for petitioner.

Office of the Solicitor General and Attorney V.G. Saldajena for respondents.

BENGZON, J.P., J.:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on
various dates, with foreign insurance companies not doing business in the Philippines namely: Imperio
Compañia de Seguros, La Union y El Fenix Español, Overseas Assurance Corp., Ltd., Socieded Anonima de
Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss
Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to
cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in
the Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of
the risks insured. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and
by the foreign reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company,
which was signed by both parties in Switzerland.

The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that
of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was required
to keep a register in Manila where the risks ceded to the foreign reinsurers where entered, and entry
therein was binding upon the reinsurers. A proportionate amount of taxes on insurance premiums not

65
recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers
further agreed, in consideration for managing or administering their affairs in the Philippines, to
compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums.
Conflicts and/or differences between the parties under the reinsurance contracts were to be arbitrated
in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their contract
shall be construed by the laws of the Philippines.

Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign
reinsurers the following premiums:

1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71

1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them.
Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed against
Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:

1953

Gross premium per investigation . . . . . . . . . . P768,580.00

Withholding tax due thereon at 24% . . . . . . . . P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00

Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . . 100.00

TOTAL AMOUNT DUE & COLLECTIBLE . . . .

P230,673.00

==========

1954

Gross premium per investigation . . . . . . . . . . P780.880.68

Withholding tax due thereon at 24% . . . . . . . . P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00

Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . . 100.00

66
TOTAL AMOUNT DUE & COLLECTIBLE . . . .

P234,364.00

==========

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded
to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest
was denied and it appealed to the Court of Tax Appeals.

On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:

IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the respective sums of P202,192.00 and
P173,153.00 or the total sum of P375,345.00 as withholding income taxes for the years 1953 and 1954,
plus the statutory delinquency penalties thereon. With costs against petitioner.

Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to the
foreign reinsurers.

Petitioner maintain that the reinsurance premiums in question did not constitute income from sources
within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor
did they have office here.

The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original insurances in
the Philippines were performed in the Philippines. The liability of the foreign reinsurers commenced
simultaneously with the liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine
Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign reinsurers. Entries made in
such register bound the foreign resinsurers, localizing in the Philippines the actual cession of the risks
and premiums and assumption of the reinsurance undertaking by the foreign reinsurers. Taxes on
premiums imposed by Section 259 of the Tax Code for the privilege of doing insurance business in the
Philippines were payable by the foreign reinsurers when the same were not recoverable from the
original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of
the ceded premiums, in consideration for administration and management by the latter of the affairs of
the former in the Philippines in regard to their reinsurance activities here. Disputes and differences
between the parties were subject to arbitration in the City of Manila. All the reinsurance contracts,
except that with Swiss Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the
Philippines and later signed by the foreign reinsurers abroad. Although the contract between Philippine

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Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both parties in Switzerland, the same
specifically provided that its provision shall be construed according to the laws of the Philippines,
thereby manifesting a clear intention of the parties to subject themselves to Philippine law.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to
the income. 1 The reinsurance premiums were income created from the undertaking of the foreign
reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original
insurances. Such undertaking, as explained above, took place in the Philippines. These insurance
premiums, therefore, came from sources within the Philippines and, hence, are subject to corporate
income tax.

The foreign insurers' place of business should not be confused with their place of activity. Business
should not be continuity and progression of transactions 2 while activity may consist of only a single
transaction. An activity may occur outside the place of business. Section 24 of the Tax Code does not
require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It
suffices that the activity creating the income is performed or done in the Philippines. What is controlling,
therefore, is not the place of business but the place of activity that created an income.

Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is not
an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein should be
treated as income from sources within the Philippines but it does not require that other kinds of income
should not be considered likewise.1äwphï1.ñët

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary
burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which come within the State's
territory, and facilities and protection which a government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the government and the recipient
foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums
and reinsurers should share the burden of maintaining the state.

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of
Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question
relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner may
free if from the payment of surcharges or penalties imposed for failure to pay the corresponding

68
withholding tax, but it certainly would not exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the mistakes or errors of its agents.3

In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax Code,
suffice it to state that this question has already been answered in the affirmative in Alexander Howden
& Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.

Finally, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any
amount to its foreign insurers in 1953 and 1954, no withholding tax was due.

The pertinent section of the Tax Code States:

Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations subject to
taxation under this Title not engaged in trade or business within the Philippines and not having any
office or place of business therein, there shall be deducted and withheld at the source in the same
manner and upon the same items as is provided in Section fifty-three a tax equal to twenty-four per
centum thereof, and such tax shall be returned and paid in the same manner and subject to the same
conditions as provided in that section.

The applicable portion of Section 53 provides:

(b) Nonresident aliens. — All persons, corporations and general copartnerships (compañias colectivas),
in what ever capacity acting, including lessees or mortgagors of real or personal property, trustees
acting in any trust capacity, executors, administrators, receivers, conservators, fiduciaries, employers,
and all officers and employees of the Government of the Philippines having the control, receipt, custody,
disposal, or payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and
income of any nonresident alien individual, not engaged in trade or business within the Philippines and
not having any office or place of business therein, shall (except in the case provided for in subsection [a]
of this section) deduct and withhold from such annual or periodical gains, profits, and income a tax
equal to twelve per centum thereof: Provided That no deductions or withholding shall be required in the
case of dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or
business within the Philippines or has an office or place of business therein, and (2) more than eighty-
five per centum of the gross income of such corporation for the three-year period ending with the close
of its taxable year preceding the declaration of such dividends (or for such part of such period as the
corporation has been in existence)was derived from sources within the Philippines as determined under

69
the provisions of section thirty-seven: Provided, further, That the Collector of Internal Revenue may
authorize such tax to be deducted and withheld from the interest upon any securities the owners of
which are not known to the withholding agent.

The above-quoted provisions allow no deduction from the income therein enumerated in determining
the amount to be withheld. According, in computing the withholding tax due on the reinsurance
premium in question, no deduction shall be recognized.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00, or a
total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there
shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided that the maximum amount that may be
collected as interest shall not exceed the amount corresponding to a period of three (3) years. With
costs againsts petitioner.

70
Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-57767 January 31, 1984

ALBERTO S. SUNIO and ILOCOS COMMERCIAL CORPORATION, petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION, NEMESIO VALENTON, SANTOS DEL ROSARIO, VICENTE
TAPUCOL, ANDRES SOLIS, CRESCENCIO SOLLER, CECILIO LABUNI, SOTERO L. TUMANG, in his capacity as
Asst. Regional Director for Arbitration, Regional Office No. 1, Ministry of Labor & Employment, and
AMBROSIO B. SISON, in his capacity as Acting Regional Sheriff, Regional Office No. 1, Ministry of Labor &
Employment, respondents.

Yolanda Bustamante for petitioners.

The Solicitor General for respondent NLRC.

Benjamin F. Baterina for private respondents,

MELENCIO-HERRERA, J.:

In this special civil action for certiorari and Prohibition with Preliminary Injunction, petitioners Alberto
Sunio and Ilocos Commercial Corporation seek to set aside the Resolution of March 24, 1981 of the
National Labor Relations Commission (NLRC), which affirmed the Decision of the Assistant Regional
Director, dated November 5, 1979, in NLRC Case No. RB-1-1228-78, directing petitioners and Cabugao
Ice Plant Incorporated to reinstate private respondents to their former position without loss of seniority
and privileges and to pay them backwages from February 1, 1978 to the date of their actual
reinstatement.

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The controversy arose from the following antecedents:

On July 30,1973, EM Ramos & Company, Inc. (EMRACO for brevity) and Cabugao Ice Plant, Inc. (CIPI for
short), sister corporations, sold an ice plant to Rizal Development and Finance Corporation RDFC with a
mortgage on the same properties constituted by the latter in favor of the former to secure the payment
of the balance of the purchase price. 1

By virtue of that sale, EMRACO-CIPI terminated the services of all their employees including private
respondents herein, and paid them their separation pay. RDFC hired its own own employees and
operated the plant.

On November 28, 1973, RDFC sold the ice plant to petitioner Ilocos Commercial Corporation ICC headed
by its President and General Manager, petitioner Alberto S. Sunio. Petitioners also hired their own
employees as private respondents were no longer in the plant. The sale was subject to the mortgage in
favor of EMRACO-CIPI. Both RDFC-ICC failed to pay the balance of the purchase price, as a consequence
of which, EMRACO-CIPI instituted extrajudicial foreclosure proceedings. The properties were sold at
public auction on August 30, 1974, the highest bidders being EMRACO CIPI. On the same date, said
companies obtained an ex-parte Writ of Possession from the Court of First Instance of Ilocos Sur in Civil
Case No. 3026-V.

On the same date, August 30, 1974, EMRACO-CIPI sold the ice plant to Nilo Villanueva, suspect to the
right of redemption of RDFC. Nilo Villanueva then re-hired private respondents.

On August 27, 1975, RDFC redeemed the ice plant. Because of the gate to Nilo Villanueva, EMRACO-CIPI
were unable to turn over possession to RDFC and/or petitioners, prompting the latter to file a complaint
for recovery of possession against EMRACO-CIPI with the then Court of First Instance of Ilocos Sur (Civil
Case No. 81-KC). Nilo Villanueva intervened

Said Court ordered the issuance of a Writ of Preliminary Mandatory Injunction placing RDFC in
possession of the ice plant. EMPRACO-CIPI and Villanueva appealed to the Court of Appeals (CA-GR No.
05880- SP which upheld the questionee, Order. A Petition for certiorari with this Court (L-46376)
assailing that Resolution was denied for lack of merit or January 6, 1978.

On February 1, 1978, RDFC and petitioners finally obtains possession of the ice plant by virtue of the
Mandatory Injunction previously issued, which ordered defendant "particularly Nilo C. Villanueva and

72
his agents representatives, or any person found in the premises to vacate and surrender the property in
litigation." 2 Petitioners did not re-employ private respondents.

Private respondents filed complaints against petitioners for illegal dismissal with the Regional Office,
Ministry of Labor & Employment, San Fernando, La Union.

On November 5, 1979, the Assistant Regional Director rendered a decision the decretal portion of which
reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, respondents Cabugao Ice Plant, Inc., Ilocos Commercial
Corporation and/or Alberto Sunio, are hereby directed to reinstate the complainants to their former
positions without loss of seniority privileges and to pay their backwages from February 1, 1978 to the
date when they are actually reinstated

Petitioners appealed to the NLRC, which affirmed the Regional Director's decision and dismissed the
appeal for lack of merit on March 24, 1981 reasoning that when RDFC took possession of the property
and private respondents were terminated in 1973, the latter already had a vested right to their security
of tenure, and when they were rehired those rights continued. 3

Petitioners are now before us assailing the Asst. Regional Director's Decision, dated November 5, 1979,
the Resolution of the NLRC, Second Division, dated March 24, 1981, as well as the Writ of Execution
issued pursuant thereto dated July 14, 1981, for P156,720.80 representing backwages. They raise as
lone issue:

That respondent National Labor Relations Commission and/or Asst. Regional Director Sotero Tumang
acted in excess of jurisdiction and/or with grave abuse of discretion amounting to lack of jurisdiction in
rendering the decision and the resolution in NLRC Case No. RB-1-1228-78, and in ordering the execution
of said decision

We issued a Temporary Restraining Order to maintain the status quo, resolved to give due course to the
Petition, and required the parties to submit their respective Briefs. Only petitioners have complied.

Did public respondents' act with grave abuse of on amounting to lack of jurisdiction in ordering the
reinstatement of private respondents and the payment of their backwages?

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Petitioners deny any employer-employee relationship with private respondents arguing that no privity
of contract exists between them, the latter being the employees of Nilo Villanueva who re-hired them
when he took over the operation of the ice plant from CIPI; that private respondents should go after
Nilo Villanueva for whatever rights they may be entitled to, or the CIPI which is still existing, that no
succession of rights and obligations took place between Villanueva and petitioners as the transfer of
possession was a consequence of the exercise of the right of redemption; that the amount of backwages
was determined without petitioners being given a chance to be heard and that granting that
respondents are entitled to the reliefs adjudged, such award cannot be enforced against petitioner
Sunio, who was impleaded in the complaint as the General Manager of ICC.

Public respondent, in its Comment, countered that the sale of a business of 'a going concern does not
ipso facto terminate employer-employee relations when the successor-employer continues the business
operation of the predecessor-employer in an essentially unchanged manner. Private respondents argue
that the change of management or ownership of a business entity is not one of the just causes for the
termination of services of employees under Article 283 of the Labor Code, as amended. Both
respondents additionally claim that petitioner Sunio, as the General Manager of ICC and owner of one
half (1/2) of its interest, is personally liable for his malicious act of illegally dismissing private
respondents, for no ground exists to justify their termination.

We sustain petitioners.

It is true that the sale of a business of a going concern does not ipso facto terminate the employer-
employee relations insofar as the successor-employer is concerned, and that change of ownership or
management of an establishment or company is not one of the just causes provided by law for
termination of employment. The situation here, however, was not one of simple change of ownership.
Of note is the fact that when, on July 30, 1973, EMRACO-CIPI sold the plant to RDFC, CIPI had terminated
the services of its employees, including herein private respondents, giving them their separation pay
which they had accepted. When RDFC took over ownership and management, therefore, it hired its own
employees, not the private respondents, who were no longer there. RDFC subsequently sold the
property to petitioners on November 28, 1973. But by reason of their failure to pay the balance of the
purchase price, EMRACO-CIPI foreclosed on the mortgage over the ice plant; the property was sold at
public auction to EMRACO-CIPI as the highest bidders, and they eventually re-possessed the plant on
August 30, 1974. During all the period that RDFC and petitioners were operating the plant from July 30,
1973 to August 30, 1974, they had their own employees. CIPI-EMRACO then sold the plant, also on
August 30, 1974, to Nilo Villanueva, subject to RDFC's right of redemption. Nilo Villanueva then rehired
private respondents as employees of the plant, also in 1974.

In 1975, RDFC redeemed the property and demanded possession but EMRACO-CIPI and Nilo Villanueva
resisted so that petitioners were compelled to sue for recovery of possession, obtaining it, however,
only in 1978.

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Under those circumstances, it cannot be justifiably said that the plant together with its staff and
personnel moved from one ownership to another. No succession of employment rights and obligations
can be said to have taken place between EMRACO-CIPI-Nilo Villanueva, on the one hand, and petitioners
on the other. Petitioners eventually acquired possession by virtue of the exercise of their right of
redemption and of a Mandatory Injunction in their favor which ordered Nilo Villanueva and "any person
found in the premises" to vacate. What is more, when EMRACO-CIPI sold the ice plant to RDFC in 1973,
private respondents' employment was terminated by EMRACO-CIPI and they were given their
separation pay, which they accepted. During the thirteen months, therefore, that RDFC and petitioners
were in possession and operating the plant up to August, 1974, they hired their own employees, not the
private respondents. In fact, it may even be said that private respondents had slept on their rights when
they failed to contest such termination at the time of sale, if they believed they had rights to protect.
Further, Nilo Villanueva rehired private respondents in August, 1974, subject to a resolutory condition.
That condition having arisen, the rights of private respondents who claim under him mast be deemed to
have also ceased.

Private respondents can neither successfully invoke security of tenure in their favor. Their tenure should
not be reckoned from 1967 because they were already terminated in 1973. Private respondents were
only rehired in 1974 by Nilo Villanueva. Petitioners took over by judicial process in 1978 so that private
respondents had actually only four years of rehired employment with Nilo Villanueva, during all of which
period, petitioners fought hard against Nilo Villanueva to recover possession of the plant. Insofar as
petitioners are concerned therefore, there was no tenurial security to speak of that would entitle
private respondents to reinstatement and backwages. We come now to the personal liability of
petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for
the payment of the backwages of private respondents. This is reversible error. The Assistant Regional
Director's Decision failed to disclose the reason why he was made personally liable. Respondents,
however, alleged as grounds thereof, his being the owner of one-half (1/2) interest of said corporation,
and his alleged arbitrary dismissal of private respondents. Petitioner Sunio was impleaded in the
Complaint his capacity as General Manager of petitioner corporation. where appears to be no evidence
on record that he acted maliciously or in bad faith in terminating the services of private respondents. His
act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it may be related. 4 Mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate personality. 5
Petitioner Sunio, therefore, should not have been made personally answerable for the payment of
private respondents' back salaries.

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WHEREFORE, the assailed Decision and Resolution, dated November 5, 1979 and March 24, 1981,
respectively, and the consequent Writ of Execution are hereby SET ASIDE and the Temporary Restraining
Order heretofore issued by this Court hereby made permanent. Public respondents are hereby ordered
to return to petitioners the latter's levied properties in their possession. No costs.

SO ORDERED.

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