C. PEREZ RUBIO vs.

COLLECTOR OF INTERNAL REVENUE

G.R. No. 30855, January 20, 1930

Facts:

Four new cases involving an identical question (WON stock dividends are taxable) were
initiated in the Court of First Instance of Manila. All of them had to do with the receipt by
four individuals of stock dividends from the Luzon Stevedoring Co., Inc., and with the
levy on these stock dividends by the Collector of Internal Revenue of the corresponding
income tax. The decisions in the lower court naturally respected the decisions of this
court, and so gave judgments in favor of the respective plaintiffs. On appeal, the
submission of the four cases was suspended, awaiting the pronoucements of the United
States Supreme Court in the Warner, Barners & Co., and Menzi cases. The higher court
having spoken in those cases, the instant case and its companion cases are ready for
decision.

Issue: WON the stock dividends can be subjected to income tax.

Ruling:

YES. It cannot be gainsaid that the Philippine Islands in its tax status is closely akin to
the status of Australia and of a state in the American Union. Proceeding within the
confines of express and general authority, the Philippine Legislature deemed it wise to
classify stock dividends as income.

Whatever the true quality of stock dividends may be, the local Legislature has made its
own definition of income, and has included in that definition stock dividends. The
Legislature had that right. It is the sole judge of the propriety of taxation and of the
subjects of taxation. The legislative classification should be respected. For the purposes
of the law, there is no sound basis for distinguishing stock dividends from cash
dividends.

The Menzi case is exactly the Rubio case. The pleadings, the facts, and the applicable
legal provisions are identical. If Menzi was subject to the tax, Rubio and others similarly
situated must likewise be subject to the tax.
Commissioner vs. British Overseas Airways Corp.
GR L-65773-74, 30 April 1987

Facts: British Overseas Airways Corp. (BOAC) is a 100% British Government-owned

corporation engaged in international airline business and is a member of the Interline Air
Transport Association, and thus, it operates air transportation service and sells
transportation tickets over the routes of the other airline members. From 1959 to 1972,
BOAC had no landing rights for traffic purposes in the Philippines and thus did not carry
passengers and/or cargo to or from the Philippines but maintained a general sales
agent in the Philippines --Warner Barnes & Co. Ltd., and later, Qantas Airwayus --
which was responsible for selling BOAC tickets covering passengers and cargoes. The
Commissioner of Internal Revenue assessed deficiency income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines for air
transportation, while having no landing rights in the Philippines, constitute income of
BOAC from Philippine sources, and accordingly, taxable.

Held:

YES. The source of an income is the property, activity or service that produced
the income. For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the
Philippines. Herein, the sale of tickets in the Philippines is the activity that produced
the income. The tickets exchanged hands here and payments for fares were also made
here in Philippine currency. The situs of the source of payments is the Philippines. The
flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine Government. In consideration of such protection,
the flow of wealth should share the burden of supporting the government. PD 68, in
relation to PD 1355, ensures that international airlines are taxed on their income from
Philippine sources. The 2 1/2 %tax on gross billings is an income tax. If it had been
intended as an excise or percentage tax, it would have been placed under Title V of the
Tax Code covering taxes on business.
COMMISSIONER OF INTERNAL REVENUE vs. CITYTRUST INVESTMENT PHILS.,
INC. and ASIANBANK CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE

Facts:

In G.R. No. 139786, Citytrust, respondent, is a domestic corporation engaged in quasi-

banking activities. In 1994, Citytrust reported the amount of P110, 788,542.30 as its
total gross receipts and paid the amount of P5, 539,427.11 corresponding to its 5%
GRT. Meanwhile, on January 30, 1996, the CTA, in Asian Bank Corporation v.
Commissioner of Internal Revenue (ASIAN BANK case), ruled that the basis in
computing the 5% GRT is the gross receipts minus the 20% FWT. In other words, the
20% FWT on a bank’s passive income does not form part of the taxable gross receipts.

On July 19, 1996, Citytrust, inspired by the above-mentioned CTA ruling, filed with the
Commissioner a written claim for the tax refund or credit in the amount ofP326, 007.01.
It alleged that its reported total gross receipts included the 20% FWT on its passive
income amounting to P32, 600,701.25. Thus, it sought to be reimbursed of the 5% GRT
it paid on the portion of 20% FWT or the amount of P326, 007.01. On the same date,
Citytrust filed a petition for review with the CTA, which eventually granted its claim. On
appeal by the Commissioner, the Court of Appeals affirmed the CTA Decision, citing as
main bases Commissioner of Internal Revenue v. Tours Specialist Inc. and
Commissioner of Internal Revenue v. Manila Jockey Club holding that monies or
receipts that do not redound to the benefit of the taxpayer are not part of its gross
receipts.

In G.R. No. 140857, for the taxable quarters ending June 30, 1994 to June 30, 1996,
Asianbank filed and remitted to the Bureau of Internal Revenue (BIR) the 5% GRT on its
total gross receipts. On the strength of the January 30, 1996 CTA Decision in the
ASIAN BANK case, Asianbank filed with the Commissioner a claim for refund of the
overpaid GRT amounting to P2,022,485.78. To toll the running of the two-year
prescriptive period for filing of claims, Asianbank also filed a petition for review with the
CTA. On February 3, 1999, the CTA allowed refund in the reduced amount of P1,
345,743.01, the amount proven by Asianbank. Unsatisfied, the Commissioner filed with
the Court of Appeals a petition for review. On November 22, 1999, the Court of Appeals
reversed the CTA Decision and ruled in favor of the Commissioner stating that: “It is
true that Revenue Regulation No. 12-80 provides that the gross receipts tax on banks
and other financial institutions should be based on all items of income actually received.
Actual receipt here is used in opposition to mere accrual. Accrued income refers to
income already earned but not yet received.

Issue: WON the twenty percent (20%) final withholding tax (FWT) on a bank’s passive
income form part of the taxable gross receipts.

Ruling:
YES. The issue of whether the 20% FWT on a bank’s interest income forms part of the
taxable gross receipts for the purpose of computing the 5% GRT is no longer novel. As
commonly understood, the term “gross receipts” means the entire receipts without
any deduction. Deducting any amount from the gross receipts changes the result, and
the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a
law that mandates a tax on gross receipts, unless the law itself makes an exception.

Actual receipt of interest income is not limited to physical receipt. Actual receipt may
either be physical receipt or constructive receipt. When the depositary bank withholds
the final tax to pay the tax liability of the lending bank, there is prior to the withholding a
constructive receipt by the lending bank of the amount withheld. From the amount
constructively received by the lending bank, the depositary bank deducts the final
withholding tax and remits it to the government for the account of the lending bank.
Thus, the interest income actually received by the lending bank, both physically and
constructively, is the net interest plus the amount withheld as final tax.

NOTE: There is no double taxation because The GRT is a percentage tax under Title V
of the Tax Code ([Section 121], Other Percentage Taxes), while the FWT is an income
tax under Title II of the Code (Tax on Income). The two concepts are different from each
other. This Court defined that a percentage tax is a national tax measured by a certain
percentage of the gross selling price or gross value in money of goods sold, bartered or
imported; or of the gross receipts or earnings derived by any person engaged in the
sale of services. It is not subject to withholding. An income tax, on the other hand, is a
national tax imposed on the net or the gross income realized in a taxable year. It is
subject to withholding. Thus, there can be no double taxation here as the Tax Code
imposes two different kinds of taxes.
BLAS GUTIERREZ, and MARIA MORALES vs. CIR
G.R. Nos. L-9738 and L-9771 May 31, 1957

FACTS:

1. Maria Morales, married to Gutierrez(spouses), was the owner of an agricultural land.

The U.S. Gov(pursuant to Military Bases Agreement) wanted to expropriate the land of
Morales to expand the Clark Field Air Base.

2. The Republic was the plaintiff, and deposited a sum of Php 152k to be able to take
immediate possession. The spouses wanted consequential damages but instead settled
with a compromise agreement. In the compromise agreement, the parties agreed to
keep the value of Php 2,500 per hectare, except to some particular lot which would be
at Php 3,000 per hectare.

3. In an assessment notice, CIR demanded payment of Php 8k for deficiency of income

tax for the year 1950.

4. The spouses contend that the expropriation was not taxable because it is not "income
derived from sale, dealing or disposition of property" as defined in Sec. 29 of the Tax
Code. The spouses further contend that they did not realize any profit in the said
transaction. CIR did not agree.

5. The spouses appealed to the CTA. The Solicitor General, in representation of the
respondent Collector of Internal Revenue, filed an answer that the profit realized by
petitioners from the sale of the land in question was subject to income tax, that the full
compensation received by petitioners should be included in the income received in
1950, same having been paid in 1950 by the Government. CTA favored SolGen but
disregarded the penalty charged.

6. Both parties appealed to the SC.

ISSUES:

1. Whether or not that for income tax purposes, the expropriation should be deemed as
income from sale and any profit derived therefrom is subject to income taxes capital
gain?

2. Whether or not there was profit or gain to be taxed?

HELD: Yes to both. CTA decision affirmed. It is subject to income tax.

RATIO 1: It is to be remembered that said property was acquired by the Government

through condemnation proceedings and appellants' stand is, therefore, that same
cannot be considered as sale as said acquisition was by force, there being practically
no meeting of the minds between the parties. U.S jurisprudence has held that the
transfer of property through condemnation proceedings is a sale or exchange within the
meaning of section 117 (a) of the 1936 Revenue Act and profit from the transaction
constitutes capital gain" "The taking of property by condemnation and the, payment of
just compensation therefore is a "sale" or "exchange" within the meaning of section 117
(a) of the Revenue Act of 1936, and profits from that transaction is capital gain.

SEC. 29. GROSS INCOME. — (a) General definition. — "Gross income" includes gains,
profits, and income derived from salaries, wages, or compensation for personal service
of whatever kind and in whatever form paid, or from professions, vocations, trades,
businesses, commerce, sales or dealings in property, whether real or personal, growing
out of ownership or use of or interest in such property; also from interests, rents,
dividends, securities, or the transactions of any business carried on for gain or profit, or
gains, profits, and income derived from any source whatsoever.

SEC. 37. INCOME FROM SOURCES WITHIN THE PHILIPPINES.

—
(a) Gross income from sources within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:
xxxxxxxxx
(5) SALE OF REAL PROPERTY. — Gains, profits, and income from the sale of real
property located in the Philippines;
xxxxxxxxx
It appears then that the acquisition by the Government of private properties
through the exercise of the power of eminent domain, said properties being
JUSTLY compensated, is embraced within the meaning of the term "sale"
"disposition of property", and the proceeds from said transaction clearly fall
within the definition of gross income laid down by Section 29 of the Tax Code of
the Philippines.

RATIO 2: As to appellant taxpayers' proposition that the profit, derived by them from the
expropriation of their property is merely nominal and not subject to income tax, We find
Section 35 of the Tax Code illuminating. Said section reads as follows:

SEC. 35. DETERMINATION OF GAIN OR LOSS FROM THE SALE OR OTHER

DISPOSITION OF PROPERTY. —The gain derived or loss sustained from the sale or
other disposition of property, real or personal, or mixed, shall be determined in
accordance with the following schedule:
(a) xxx xxx xxx
(b) In the case of property acquired on or after March first, nineteen hundred and
thirteen, the cost thereof if such property was acquired by purchase or the fair market
price or value as of the date of the acquisition if the same was acquired by gratuitous
title.
xxxxxxxxx

The records show that the property in question was adjudicated to Maria Morales by
order of the Court of First Instance of Pampanga on March 23, 1929, and in accordance
with the aforequoted section of the National Internal Revenue Code, only the fair market
price or value of the property as of the date of the acquisition thereof should be
considered in determining the gain or loss sustained by the property owner when the
property was disposed, without taking into account the purchasing power of the
currency used in the transaction. The records placed the value of the said property at
the time of its acquisition by appellant Maria Morales P28,291.73 and it is a fact that
same was compensated with P94,305.75 when it was expropriated. The resulting
difference is surely a capital gain and should be correspondingly taxed.
COMMISSIONER OF INTERNAL REVENUE vs. TeaM (PHILIPPINES) OPERATIONS
CORPORATION [Formerly MIRANT (PHILIPPINES) OPERATIONS CORPORATION]

G.R. No. 188016, January 14, 2015

Facts: The respondent filed its annual income tax return (ITR) for calendar years 2002
and 2003 on April 15, 2003 and April 15, 2004, respectively, reflecting overpaid income
taxes or excess creditable withholding taxes in the amounts of ₱6,232,003.00 and
₱10,134,410.00 for taxable years 2002 and 2003, respectively. It indicated in the ITRs
its option for the refund of the tax overpayments for calendar years 2002 and 2003.

On March 22, 2005, the respondent filed an administrative claim for refund or issuance
of tax credit certificate with the Bureau of Internal Revenue (BIR) in the total amount of
₱16,366,413.00, representing the overpaid income tax or the excess creditable
withholding tax of the respondent for calendar years 2002 and 2003.

Due to the inaction of the BIR and in order to toll the running of the two-year prescriptive
period for claiming a refund under Section 229 of the National Internal Revenue Code
(NIRC) of 1997, the respondent filed a petition for review in the Court of Tax Appeals
(CTA) on April 14, 2005.

Issue: (1) WON the respondent has complied with the requirements for refund of
creditable withholding tax.

(2)WON it is required to submit its quarterly income tax return to prove its claim

Ruling:

1.YES. The requirements for entitlement of a corporate taxpayer for a refund or the
issuance of tax credit certificate involving excess withholding taxes are as follows:

1. That the claim for refund was filed within the two-year reglementary period
pursuant to Section 22918 of the NIRC;

2. When it is shown on the ITR that the income payment received is being
declared part of the taxpayer’s gross income; and

3. When the fact of withholding is established by a copy of the withholding tax

statement, duly issued by the payor to the payee, showing the amount paidand
income tax withheld from that amount.

We do not expound anymore on the first requirement because even the petitioner does
not contest that the respondent filed its administrative and judicial claim for refund within
the statutory period.With regard to the second requirement, it is fundamental that the
findings of fact by the CTA in Divisionare not to be disturbed without any showing of
grave abuse of discretion considering that the members of the Division are in the best
position to analyze the documents presented by the parties.19 Consequently, we adopt
the findings of the CTA in Division, which the CTA En Banc cited, as follows. With
respect to the third requirement, the respondent proved that it had met the requirement
by presenting the 10 certificates of creditable taxes withheld at source. The petitioner
did not challenge the respondent’s compliance with the requirement.

2. NO. We are likewise unmoved by the assertion of the petitioner that the respondent
should have submitted the quarterly returns of the respondent to show that it did not
carry-over the excess withholding tax to the succeeding quarter. When the respondent
was able to establish prima facie its right to the refund by testimonial and object
evidence, the petitioner should have presented rebuttal evidence to shift the burden of
evidence back to the respondent. Indeed, the petitioner ought to have its own copies of
the respondent’s quarterly returns on file, on the basis of which it could rebut the
respondent's claim that it did not carry over its unutilized and excess creditable
withholding taxes for the immediately succeeding quarters. The BIR's failure to present
such vital document during the trial in order to bolster the petitioner's contention against
the respondent's claim for the tax refund was fatal.
COMMISSIONER OF INTERNAL REVENUE vs. TeaM (PHILIPPINES) OPERATIONS
CORPORATION [Formerly MIRANT (PHILIPPINES) OPERATIONS CORPORATION]

G.R. No. 185728, October 16, 2013

Facts: Respondent filed with the Bureau of Internal Revenue (BIR) its original Annual
Income Tax Return (ITR) for the calendar year ended December 31, 2002 declaring
zero taxable income and unutilized tax credits of ₱23,108,689.00. In its ITR for the year
2002, respondent indicated its option to refund its alleged excess creditable withholding
tax when it marked "X" the box corresponding to the option "To be refunded" under line
30 of said ITR. As the two-year prescriptive period for the filing of a judicial claim under
Section 229 of the National Internal Revenue Code (NIRC) of 1997 was about to lapse
without action on the part of petitioner, respondent elevated its case before the Court in
Division by way of Petition for Review on April 27, 2004.

Issue: WON the respondent has complied with the requirements for refund of creditable
withholding tax.

Ruling:

YES. We affirm the ruling of the CTA En Banc that respondent has complied with the
requirements for refund of creditable withholding taxes and is therefore entitled to the
₱23,053,919.22 claim for refund or issuance of tax credit certificate.

A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply
with the following requisites:

1) The claim must be filed with the CIR within the two-year period from the date of
payment of the tax;

2) It must be shown on the return of the recipient that the income received was declared
as part of the gross income; and

3) The fact of withholding is established by a copy of a statement duly issued by the

payor to the payee showing the amount paid and the amount of tax withheld.

There is no dispute that respondent has complied with the first requirement when it filed
its administrative claim for tax refund on March 17, 2004 and thereafter filed a petition
for review with the CTA on April 27, 2004 or within two years from April 15, 2003, the
date of filing of its Annual Income Tax Return.14 Respondent was also able to prove the
second requirement by showing in its ITR that the income upon which the creditable
withholding taxes were paid was declared as part of its gross income for the taxable
year 2002.
As to the third condition, both the CTA First Division and the CTA En Banc ruled that
respondent has sufficiently established the fact of withholding by presenting the
Certificates of Creditable Tax Withheld at Source issued by MPagC and MSC for the
year 2002. We find no cogent reason to deviate from these findings.
ATTY. OLIVER O. LOZANO vs. SPEAKER PROSPERO C.NOGRALES
G.R. No. 187883, June 16, 2009

LOUIS BAROK C. BIRAOGO vs. SPEAKER PROSPERO C.NOGRALES

G.R. No. 187910

Facts:

The two petitions, filed by their respective petitioners in their capacities as concerned
citizens and taxpayers, prayed for the nullification of House Resolution No. 1109 entitled
A Resolution Calling upon the Members of Congress to Convene for the Purpose of
Considering Proposals to Amend or Revise the Constitution, Upon a Three-fourths Vote
of All the Members of Congress.

Issue: WON the petitioners have the legal standing to sue (locus standi).

Held:

NO. Generally, a party will be allowed to litigate only when he can demonstrate that (1)
he has personally suffered some actual or threatened injury because of the allegedly
illegal conduct of the government; (2) the injury is fairly traceable to the challenged
action; and (3) the injury is likely to be redressed by the remedy being sought. In the
cases at bar, petitioners have not shown the elemental injury in fact that would endow
them with the standing to sue. Locus standi requires a personal stake in the outcome of
a controversy for significant reasons. It assures adverseness and sharpens the
presentation of issues for the illumination of the Court in resolving difficult constitutional
questions.

Neither can the lack of locus standi be cured by the claim of petitioners that they are
instituting the cases at bar as taxpayers and concerned citizens. A taxpayers suit
requires that the act complained of directly involves the illegal disbursement of
public funds derived from taxation. It is undisputed that there has been no allocation
or disbursement of public funds in this case as of yet.
REPUBLIC OF THE PHILIPPINES vs. PEDRO B. PATANAO
G.R. No. L-22356, July 21, 1967

Facts:

It is alleged that defendant was the holder of an ordinary timber license with concession
at Esperanza, Agusan, and as such was engaged in the business of producing logs and
lumber for sale during the years 1951-1955. In an examination conducted by the Bureau
of Internal Revenue on defendant's income and expenses for 1951-1955, it was
ascertained that the sum of P79,892.75, representing deficiency; income taxes and
additional residence taxes for the aforesaid years, is due from defendant. The
defendant herein has been accused in Criminal Cases Nos. 2089 and 2090 of this Court
for not filing his income tax returns and for non-payment of income taxes for the years
1953 and 1954. In both cases, he was acquitted.

Issue: WON the dismissal of the criminal actions for failure to file income tax returns
and for non-payment of income taxes bars the recovery of civil liability for taxes.

Held:

NO. In applying the principle underlying the civil liability of an offender under the Penal
Code to a case involving the collection of taxes, the court a quo fell into error. Civil
liability to pay taxes arises from the fact, for instance, that one has engaged himself in
business, and not because of any criminal act committed by him. The criminal liability
arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the
factual premises and foundation principles of the two cases is one of the reasons for not
imposing civil indemnity on the criminal infractor of the income tax law.

Considering that the Government cannot seek satisfaction of the taxpayer's civil liability
in a criminal proceeding under the tax law or, otherwise stated, since the said civil
liability is not deemed included in the criminal action, acquittal of the taxpayer in the
criminal proceeding does not necessarily entail exoneration from his liability to pay the
taxes. It is error to hold, as the lower court has held, that the judgment in the criminal
cases Nos. 2089 and 2090 bars the action in the present case. The acquittal in the
said criminal cases cannot operate to discharge defendant appellee from the duty
of paying the taxes which the law requires to be paid, since that duty is imposed
by statute prior to and independently of any attempts by the taxpayer to evade
payment. Said obligation is not a consequence of the felonious acts charged in the
criminal proceeding, nor is it a mere civil liability arising from crime that could be wiped
out by the judicial declaration of non-existence of the criminal acts charged.
BRITISH TRADERS' INSURANCE CO., LTD vs. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. L-20501, April 30, 1965

Facts:

Petitioner, a Hongkong corporation engaged in business in the Philippines, entered into

worldwide reinsurance treaties with various foreign insurance companies whereby they
agreed to cede a portion of the premiums in insurance they had originally underwritten
in consideration for assumption by the reinsurers of liability on an equivalent portion of
the risks originally insured. Petitioner failed to include the insurance premiums ceded in
1954 and 1955 in its gross income and failed to withhold thereon upon ceding. Thus, it
was assessed by Commissioner of Internal Revenue for deficiency taxes.

Issue: WON the insurance premiums ceded to non-resident foreign insurance

companies pursuant to treaties negotiated and executed abroad are taxable.

Held:

YES. Section 24 of the Tax Code taxes foreign corporations on their income from
sources within the Philippines. The word "sources" has been interpreted to mean
activity, property or service out of which the income rose. Accordingly, taxability
of a foreign corporation's income depends upon the locus of the activity, property
or service giving rise thereto. The reinsurance premiums in question were income to
petitioner's foreign reinsurers from the reinsurance transactions or activities, which, as
mentioned above, were performed in the Philippines. Perforce, the situs of the source of
the reinsurance premiums is the Philippines, within the taxing provision of Section 24.
Stated otherwise, the flow of wealth proceeded from, and occurred within, Philippine
territory, enjoying therein the protection accorded by our Government. Such flow of
wealth should, in consideration for the protection, share the burden of supporting the
Government.

The reinsurance treaties between petitioner and its foreign reinsurers were indeed
negotiated and signed abroad. The place of contract, however, is not a sole criterion
that conclusively determines the situs of the reinsurance premiums: For, otherwise, it
would be relatively easy for foreign corporations to celebrate a contract abroad, for
instance in Mexico, where there appears to be no income tax, and thus evade payment
of tax on income flowing to them from the Philippines.

Neither should the place of business of the foreign reinsurers be made the norm for
applying Section 24 of the Tax Code. For the income tax law does not require as a
condition sine qua non the conduct of business in the Philippines in order that foreign
corporations may thereunder be taxed on their income. It is sufficient that such income
is derived from an activity within the Philippines. Place of activity, not place of business,
is controlling.
ESSO STANDARD V CIR

Facts:
 Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959,
as part of its ordinary and necessary business expenses, the amount it had
spent for drilling and exploration of its petroleum concessions.
 This claim was disallowed by the Commissioner of Internal Revenue (CIR)
on the ground that the expenses should be capitalized and might be
written off as a loss only when a "dry hole" should result.
 Esso then filed an amended return where it asked for the refund of
P323,279.00 by reason of its abandonment as dry holes of several of its oil
wells. Also claimed as ordinary and necessary expenses in the same
return was the amount of P340,822.04, representing margin fees it had paid
to the Central Bank on its profit remittances to its New York head office.

 On August 5, 1964, the CIR granted a tax credit of P221,033.00 only,

disallowing the claimed deduction for the margin fees paid on the ground
that the margin fees paid to the Central Bank could not be considered taxes or
allowed as deductible business expenses.

Issues:
(1) WON the margin fees are taxes.

(2) WON not the margin fees are necessary and ordinary business expenses.

RULING:

(1) No. A tax is levied to provide revenue for government operations, while the proceeds
of the margin fee are applied to strengthen our country's international reserves. The
margin fee was imposed by the State in the exercise of its police power and not the
power of taxation.

(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is
appropriate and helpful in the development of the taxpayer's business. It is 'ordinary'
when it connotes a payment which is normal in relation to the business of the taxpayer
and the surrounding circumstances. Since the margin fees in question were incurred for
the remittance of funds to Esso's Head Office in New York, which is a separate and
distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it
can never be said therefore that the margin fees were appropriate and helpful in the
development of Esso's business in the Philippines exclusively or were incurred for
purposes proper to the conduct of the affairs of Esso's branch in the Philippines
exclusively or for the purpose of realizing a profit or of minimizing a loss in the
Philippines exclusively. If at all, the margin fees were incurred for purposes proper to
the conduct of the corporate affairs of Esso in New York, but certainly not in the
Philippines.
DAVID NITAFAN V CIR

FACTS:
 Judge David Nitafan and several other judges of the Manila Regional Trial Court
seek to prohibit the Commissioner of Internal Revenue (CIR) from making
any deduction of withholding taxes from their salaries or compensation for
such would tantamount to a diminution of their salary, which is
unconstitutional.
 Earlier however, or on June 7, 1987, the Court en banc had already reaffirmed
the directive of the Chief Justice which directs the continued withholding of taxes
of the justices and the judges of the judiciary – but the SC decided to rule on this
case nonetheless to settle the issue once and for all.

ISSUE: WON the members of the judiciary are exempt from the payment of income tax.

RULING: No. The clear intent of the framers of the Constitution, based on their
deliberations, was NOT to exempt justices and judges from general taxation. Members
of the judiciary, just like members of the other branches of the government, are subject
to income taxation. What is provided for by the constitution is that salaries of judges
may not be decreased during their continuance in office. They have a fix salary which
may not be subject to the whims and caprices of congress. But the salaries of the
judges shall be subject to the general income tax as well as other members of the
judiciary.
TAGANITO MINING V CIR

FACTS:

 Taganito filed with respondent CIR, a claim for credit/refund of input VAT
paid on its domestic purchases of taxable goods and services and
importation of goods
 On April 17, 2008, as respondent CIR had not yet issued a final decision on
the administrative claim, Taganito filed a judicial claim before the CTA
Division with the intention of tolling the running of the two-year period to
judicially claim a tax credit/refund under Section 229 of the National
Internal Revenue Code of 1997 (NIRC).

 In light of the ruling in CIR v. Aichi Forging Company of Asia, Inc.7 (Aichi), the
CTA En Banc on the other hand,held that in accordance with Section 112(C) of
the NIRC, it was incumbent upon the taxpayer to give the CIR a period of
120 days to either partially or fully deny the claim; and it was only upon the
denial of the claim or after the expiration of the 120-day period without
action, that the taxayer could seek judicial recourse.

 Taganito concedes that the issue on the prescriptive periods for filing of tax
credit/refund of unutilized input tax has been finally put to rest in the Court’s En
Banc decision in the consolidated cases of Commission of Internal Revenue vs.
San Roque Power Corporation (G.R. No. 187485), Taganito Mining Corporation
vs. Commissioner of Internal Revenue (G.R. No. 196113), and Philex Mining
Corporation vs. Commissioner of Internal Revenue (G.R. No. 197156).

 Taganito, in accordance with the said decision, now argues that since it filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03, but before the
adoption of the Aichi doctrine, it can invoke the said BIR ruling which
provided that the “taxpayer-claimant need not wait for the lapse of the 120-
day period before it could seek judicial relief with the CTA by way of
Petition for Review.”

ISSUE: WON Taganito prematurely filed its case before the CTA.

RUING: NO. Judicial claim timely filed

Upholding the ruling in Aichi, CIR v San Roque held that the 120+30 day period
prescribed under Section 112(D) is mandatory and jurisdictional. The jurisdiction of the
CTA over decisions or inaction of the CIR is only appellate in nature and, thus,
necessarily requires the prior filing of an administrative case before the CIR under
Section 112. The CTA can only acquire jurisdiction over a case after the CIR has
rendered its decision, or after the lapse of the period for the CIR to act, in which case
such inaction is considered a denial. A petition filed prior to the lapse of the 120-day
period prescribed under said Section would be premature for violating the doctrine on
the exhaustion of administrative remedies.

There is, however, an exception to the mandatory and jurisdictional nature of the
120+30 day period. The Court in San Roque noted that BIR Ruling No. DA-489-03,
dated December 10, 2003, expressly stated that the "taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA by
way of Petition for Review." This BIR Ruling was recognized as a general interpretative
rule issued by the CIR under Section 4 of the NIRC and, thus, applicable to all
taxpayers. Since the CIR has exclusive and original jurisdiction to interpret tax laws, it
was held that taxpayers acting in good faith should not be made to suffer for adhering to
such interpretations. Section 246 of the Tax Code, in consonance with equitable
estoppel, expressly provides that a reversal of a BIR regulation or ruling cannot
adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling
prior to its reversal. Hence, taxpayers can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on December 10, 2003 up to its reversal by this Court in Aichi on
October 6, 2010, where it was held that the 120+30 day period was mandatory and
jurisdictional.

Accordingly, the general rule is that the 120+30 day period is mandatory and
jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998, up to the
present. As an exception, judicial claims filed from December 10, 2003 to October 6,
2010 need not wait for the exhaustion of the 120-day period.
CIR V AICHI FORGING COMPANY OF ASIA

Facts:

 Respondent filed a claim of refund/credit of input vat in relation to its zero-

rated sales from July 1, 2002 to September 30, 2002. The CTA 2nd Division
partially granted respondent’s claim for refund/credit.
 Petitioner filed a Motion for Partial Reconsideration, insisting that the
administrative and the judicial claims were filed beyond the two-year period
to claim a tax refund/credit provided for under the NIRC. He reasoned that
since the year 2004 was a leap year, the filing of the claim for tax
refund/credit on September 30, 2004 was beyond the two-year period,
which expired on September 29, 2004. He cited as basis Article 13 of the Civil
Code, which provides that when the law speaks of a year, it is equivalent to 365
days. In addition, petitioner argued that the simultaneous filing of the
administrative and the judicial claims contravenes Sections 112 and 229 of the
NIRC. According to the petitioner, a prior filing of an administrative claim is a
“condition precedent” before a judicial claim can be filed.

Issues:
1. Whether or not the claim for refund was filed within the prescribed period
2. Whether or not the simultaneous filing of the administrative and the judicial
claims contravenes Section 229 of the NIRC, which requires the prior filing of an
administrative claim, and violates the doctrine of exhaustion of administrative
remedies

RULING:
1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation (G.R. No. 172129, September 12, 2008), the two-year period should be
reckoned from the close of the taxable quarter when the sales were made.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No.

162155, August 28, 2007, 531 SCRA 436), we said that as between the Civil Code,
which provides that a year is equivalent to 365 days, and the Administrative Code of
1987, which states that a year is composed of 12 calendar months, it is the latter that
must prevail being the more recent law, following the legal maxim, Lex posteriori
derogat priori.

Thus, applying this to the present case, the two-year period to file a claim for tax
refund/credit for the period July 1, 2002 to September 30, 2002 expired on September
30, 2004. Hence, respondent’s administrative claim was timely filed.

2. Yes. We find the filing of the judicial claim with the CTA premature.
Section 112(D) of the NIRC clearly provides that the CIR has “120 days, from the date
of the submission of the complete documents in support of the application [for tax
refund/credit],” within which to grant or deny the claim. In case of full or partial denial by
the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to
act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.

Subsection (A) of Section 112 of the NIRC states that “any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales.”
The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or
refund” refers to applications for refund/credit filed with the CIR and not to appeals
made to the CTA.
PBCom V CIR

FACTS:

 Petitioner is a domestic corporation duly licensed as a banking institution. For the

taxable years 1996 and1997,
 petitioner offered its Special/Super Savings Deposit Account (SSDA) to its
depositors.
 On 10 January 2000,the Commissioner of Internal Revenue (respondent) sent
petitioner a Final Assessment Notice assessing deficiency documentary
tax stamp (DST) based on the outstanding balances of its SSDA
 Petitioner claims that the SSDA is in the nature of a regular savings
account. Petitioner maintains that the tax assessments are erroneous
because Section 180 of the 1977 NIRC does not include deposits evidenced
by a passbook among the enumeration of instruments subject to DST.
Petitioner also argues that even on the assumption that a passbook
evidencing the SSDA is a certificate of deposit, no DST will be imposed
because only negotiable certificates of deposits are subject to tax under
Section 180 of the 1977 NIRC.
 Respondent avers that under Section 180 of the 1977 NIRC, certificates of
deposits deriving interest are subject to the payment of DST. Petitioner’s
passbook evidencing its SSDA is considered a certificate of deposit, and being
very similar to a time deposit account, it should be subject to the payment of
DST. Respondent further argues thatSection 180 of the 1977 NIRC categorically
states that certificates of deposit deriving interest are subject to DSTwithout
limiting the enumeration to negotiable certificates of deposit.The CTA held that a
passbook representing an interest-earning deposit account issued by a bank
qualifies as a certificate of deposit drawing interest

ISSUE: WON petitioner’s product called Special/Super Savings Account is subject to

DST under Section 180 ofthe 1977 NIRC.

RULING: Yes. Documentary stamp tax is a tax on documents, instruments, loan

agreements, and papers evidencing the acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto. A DST is actually an excise tax because it
is imposed on the transaction rather than on the document. A DST is also levied on the
exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments.
Hence, in imposing the DST, the Court considers not only the document but also the
nature and character of the transaction.Section 180 of the 1977 NIRC imposes a DST of
P0.30 on each P200 of the face value of any certificate of deposit drawing interest. As
correctly observed by the CTA, a certificate of deposit is a written acknowledgment by a
bank of the receipt of a sum of money on deposit which the bank promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby
the relation of debtor or creditor between the bank andthe depositor is created.
POTENCIANA EVANGELISTA V PEOPLE

Facts:

 Tanduay Distillery, Inc, filed with the Bureau of Internal Revenue (BIR) an
application for tax credits for allegedly erroneous payments of ad valorem
taxes (taxes based on value of property).
 Tanduay claimed that a previous BIR ruling only made Tanduay liable to pay
specific taxes and not ad valorem taxes. Thus, Tanduay requested the BIR to
check and verify whether Tanduay previously paid ad valorem taxes.
 After making necessary verification, a certification was issued, stating that
Tanduay was a rectifier not liable ad valorem tax with a recommendation
that the application for tax credit be given due course.
 Sometime thereafter, BIR received a complaint, alleging that the grant of tax
credit was irregular and anomalous. Due to this, petitioner, along with three
other officers of BIR, was charged before the Sandiganbayan for violation of the
NIRC and RA 3019. They were convicted, except for one officer, of crimes
pursuant to said violations.
 In a consolidated petition for review, the two officers were acquitted, except for
Evangelista, who was found guilty of gross negligence in the exercise of his duty;
thus, this Motion for Reconsideration.

Issue: WON the act of certifying that Tanduay is entitled to tax refund is violation of
Section 268(4) of the National Internal Revenue Code

Ruling: no. While petitioner was grossly negligent in her duties for which she could be
held liable under R.A. No. 3019 (e), petitioner may not be held liable for violation of
Section 268(4) of the National Internal Revenue Code inasmuch as it has not been
proven that there was an actual agreement between her and her co-accused to grant
unwarranted tax credits to Tanduay. What is punished in said Sec. 268(4) is the act of
conspiring and colluding to defraud the government of revenues. It is well entrenched in
our jurisprudence that conspiracy must be shown to exist as clearly and as convincingly
as the commission of the offense itself. Absent any act or circumstance from which may
be logically inferred the existence of a common design among the accused to commit
the crime, the theory of conspiracy remains a speculation not a fact. Significantly, in the
separate appeal of petitioners two other co-accused to this Court, entitled Pareo vs.
Sandiganbayan and the People of the Philippines, 256 SCRA 242 [1996], the Court
ruled that the acts of petitioners and that of Evangelista may be considered concerted
only because they performed interrelated functions but there is no actual proof that
conspiracy existed between the parties.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION V EXECUTIVE
SECRETARY

FACTS:

 CREBA assails the imposition of the minimum corporate income tax (MCIT) as
being violative of the due process clause as it levies income tax even if there is
no realized gain.
 They also question the creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets stating that
(1) they ignore the different treatment of ordinary assets and capital assets;
(2) the use of gross selling price or fair market value as basis for the CWT and
the collection of tax on a per transaction basis (and not on the net income at the
end of the year) are inconsistent with the tax on ordinary real properties;
(3) the government collects income tax even when the net income has not yet
been determined; and
(4) the CWT is being levied upon real estate enterprises but not on other
enterprises, more particularly those in the manufacturing sector.

ISSUE: WON the impositions of the MCIT on domestic corporations and CWT on
income from sales of real properties classified as ordinary assets unconstitutional.

RULING: NO. MCIT does not tax capital but only taxes income as shown by the fact
that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of
its goods, i.e., the cost of goods and other direct expenses from gross sales. Besides,
there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th
year of operations; (2) the law allows the carry forward of any excess MCIT paid over
the normal income tax; and (3) the Secretary of Finance can suspend the imposition of
MCIT in justifiable instances.

The regulations on CWT did not shift the tax base of a real estate business’ income tax
from net income to GSP or FMV of the property sold since the taxes withheld are in the
nature of advance tax payments and they are thus just installments on the annual tax
which may be due at the end of the taxable year. As such the tax base for the sale of
real property classified as ordinary assets remains to be the net taxable income and the
use of the GSP or FMV is because these are the only factors reasonably known to the
buyer in connection with the performance of the duties as a withholding agent.
Neither is there violation of equal protection even if the CWT is levied only on the real
industry as the real estate industry is, by itself, a class on its own and can be validly
treated different from other businesses.