CIR v. Botelho Shipping Corp. | G.R. Nos. L-21633-34 | June 29, 1967 | CONCEPCION, C.J.

SUMMARY:
Botelho Shipping Corp. entered into a contract of sale with the Reparation Commission of the
Philippines for the purchase of a vessel. General Shipping Cor. did the same, entering into a separate
contract for the purchase of another vessel. Both contracts are governed by RA 1789. However, while
Botelho and General Shipping were about to register the vessel, the Bureau of Customs placed them
under custody and refused to release them unless the compensating taxes were paid. They filed with
the CTA petitions for review. While it was pending RA 3079 amended RA 1789. It contains a provision
which states that buyers of reparation goods are exempt from paying compensating tax. CTA ruled in
favor of the companies. Hence this appeal by the CIR and COC. SC held that they were exempt from
paying the tax, as the law was clear and explicit.

TOPIC: Legislative grant of exemptions

FACTS
 On August 30, 1960, governed by RA 1789, the Reparations Commission of the Philippines entered
into "Contracts of Conditional Purchase and Sale of Reparations Goods”.
o The Committee sold to Botelho Shipping Corp, vessel "M/S Maria Rosello," at P6,798,888.88
o The Committee sold to General Shipping Co., vessel "M/S General Lim" at P6,951,666.66.
(SOLD VESSELS TO R)
 Delivered in Japan to its respective buyers, acting on behalf of the Commission, the vessels, upon
their departure from Tokyo, on the maiden trip thereof to the Philippines, were issued, by the
Philippine Vice-Consul in said city, provisional certificates of Philippine registry in the name of the
Commission, so that the vessels could proceed to the Philippines and secure therein the respective
final registration document.
 Upon arrival at the port of Manila, the Buyer filed the corresponding applications for registration
of the vessels, but, the Bureau of Customs placed the same under custody and refused to give due
course to said applications, unless the sums of P483,433 and P494,824 be paid as compensating
tax.
 The Commissioner of Customs refused to reconsider the stand taken by his office.
 Buyers filed with CTA their respective petitions for review with urgent motion for suspension of
the collection of said tax.
 CTA granted the motion, upon the sum of a P500,000.00 bond by each one of the Buyers.
 On June 17, 1961, while these cases were pending trial in said Court, Republic Act No. 3079
amended Republic Act No. 1789 — the Original Reparations Act, under which the aforementioned
contracts with the Buyers had been executed — by exempting buyers of reparations goods
acquired from the Commission, from liability for the compensating tax. (SO EXEMPTED FROM
COMPENSATING TAX)
 Invoking the provisions of this section 20, the Buyers applied for the renovation of their utilizations
contracts with the Commission, which granted the application, and, then, filed with CTA, their
supplemental petitions for review.
 CTA rendered the appealed decision and declared said Buyers exempt from the compensating tax.
 Hence this appeal by the CIR and COC to the SC. They argue:
o Tax exemption must be clear and explicit.
o There is no express provision for the retroactivity of the exemption, established by
Republic Act No. 3079, from the compensating tax
 o The favorable provisions cannot include the exemption from compensating tax
o Congress could not have intended any retroactive exemption, considering that the result
thereof would be prejudicial to the Government.
ISSUE + RULING
1. WON the tax exemption can be applied retroactively – YES
 The inherent weakness of the last ground becomes manifest when we consider that, if true,
there could be no tax exemption of any kind whatsoever, even if Congress should wish to create
one, because every such exemption implies a waiver of the right to collect what otherwise
would be due to the Government, and, in this sense, is prejudicial thereto. (NO EXEMPTIONS
POSSIBLE IF PREJUDICE TO GOVT IS THE ISSUE COZ LAGING PREJUDICE)
 Tax exemptions may and do exist, such as the one prescribed in section 14 of Republic Act No.
1789, as amended by Republic Act No. 3079, which is "clear and explicit," thus, meeting the
first ground of appellant's contention.
 No tax exemption — like any other legal exemption or exception — is given without any
reason therefor. Its avowed purpose is some public benefit or interest, which the law-making
body considers sufficient to offset the monetary loss entitled in the grant of the exemption.
 Sec 20 of RA No. 3079 exacts a valuable consideration for the retroactivity of its favorable
provisions, namely, the voluntary assumption, by the end-user who bought reparations goods
prior to June 17, 1961 of "all the new obligations provided for in" said Act. (MAY
CONSIDERATION NAMAN FOR RETROACTIVITY)
 There is no constitutional injunction against granting tax exemptions to particular persons. It
is not unusual to grant legislative franchises to specific individuals or entities, conferring tax
exemptions thereto.
 Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not
particular persons, but persons belonging to a particular class. Indeed, appellants do not assail
the constitutionality of said section 14, insofar as it grants exemptions to end-users
who, after the approval of RA No. 3079, on June 17, 1961, purchased reparations goods
procured by the Commission.
 From the viewpoint of Constitutional Law, especially the equal protection clause, there is no
difference between the grant of exemption to said end-users, and the extension of the grant to
those whose contracts of purchase and sale mere made before said date, under RA No. 1789.
 RA No. 3079 does not explicitly declare that those who purchased reparations goods prior to
June 17, 1961, are exempt from the compensating tax.
o It does not say so, because they do not really enjoy such exemption, unless they
comply with the proviso in Section 20 of said Act, by applying for the renovation of
their respective utilization contracts, "in order to avail of any provision of the
Amendatory Act which is more favorable" to the applicant.
o It was intended to give such buyers the opportunity to be treated "in like manner and
to the same extent as an end-user filing his application after this approval of this
Amendatory Act." (INTENT TO GIVE RETROACTIVE EFFECT IF THEY COMPLY)
 Like the "most-favored-nation-clause" in international agreements, the aforementioned section
20 thus seeks, not to discriminate or to create an exemption or exception, but to abolish the
discrimination, exemption or exception that would otherwise result, in favor of the end-user
who bought after June 17, 1961 and against one who bought prior thereto.
 Philippine Ace Lines, Inc. v. Commissioner of Internal Revenue: To deny exemption from
compensating tax to one whose utilization contract has been renovated, while granting the
exemption to one who files an application for acquisition of reparations goods after the
 approval of the new law, would be contrary to the express mandate of the new law, that they
both be subject to the same privileges in like manner and to the same extent.

DISPOSITION: Wherefore, the appealed decision of the Court of Tax Appeals is hereby affirmed in
toto, without any pronouncement as to costs.

CIR v CA, CTA, GCL Retirement Plan | G.R. No. 95022 | March 23, 1992 | MELENCIO-
HERRERA , J.

Petitioner/s: COMMISSIONER OF INTERNAL REVENUE, petitioner

Respondent/s: THE HON. COURT OF APPEALS, THE COURT OF TAX APPEALS, GCL RETIREMENT PLAN,
represented by its Trustee-Director, respondents

SUMMARY: GCL Retirement Plan is an employees trust plan to provide retirement benefits, etc. It was
exempt from income tax by CIR. PD 1959 deleted several provisions that previously granted the
exemption so income tax was withheld from GCL. GCL filed a claim for refund which was denied. CTA
and CA however, granted the refund.

TOPIC: Legislative Grant of exemption

FACTS:
 GCL Retirement Plan is an employee's trust maintained by the employer, GCL Inc., to provide
retirement, pension, disability and death benefits to its employees
◦ approved and qualified as exempt from income tax by CIR in accordance with RA 4917 “An
Act Providing that Retirement Benefits of Employees of Private Firms shall not be subject to
Attachment, Levy, Execution, or any Tax whatsoever”
 1984 – GCL made investments and earned interest income from w/c 15% final witholding tax was
imposed by PD 1959
 Jan 15 1985 – GCL filed claim for refund of P1.3K withheld by Anscor Capital and Investment Corp
and P2K by Commercial Bank of Manila
 Feb 12 1985 – filed a second claim for refund of the amount of P7.9K withheld by Anscor
◦ IN BOTH: disagreed with the collection of the 15% final withholding tax from interest income
as it is an entity fully exempt from income tax [Sec.56(b) of the Tax Code inre: RA 4917]
 Refund request denied → CTA ruled in favor of GCL
◦ employees trusts are exempt from the 15% final withholding tax on interest income
 CA: UPHELD CTA Decision

ISSUE + RULING:
W/N exempt from income tax? YES
History of income tax exemptions
 June 22 1957 - RA 1983, amending Sec. 56(b) of the NIRC: employees trusts were exempt from
income tax
◦ (b) Exception. — The tax imposed by this Title shall not apply to employees' trust which forms
a part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some
or all of his employees (1) if contributions are made to trust by such employer, or employees,
 June 3 1977 - PD 1156: provided for the withholding from the interest on bank deposits at the
source of a tax of fifteen per cent (15%) of said interest
◦ (c) Withholding tax on interest on bank deposits. - … no withholding of tax shall be made if the
 aggregate amount of the interest on all deposit accounts maintained by a depositor alone or
together with another in any one bank at any time during the taxable period does not exceed
three hundred fifty pesos a year or eighty-seven pesos and fifty centavos per quarter.
xxx
(3) Depositors enjoying tax exemption privileges or preferential tax treatment. — In all cases where the
depositor is tax-exempt or is enjoying preferential income tax treatment under existing laws, the
withholding tax imposed in this paragraph shall be refunded or credited as the case may be upon
submission to the Commissioner of Internal Revenue of proof that the said depositor is a tax-exempt entity
or enjoys a preferential income tax treatment.
 Sep 17 1980 – carried over the provisions to PD 1739.
◦ also subjected interest from bank deposits and yield from deposit substitutes to a final tax of
twenty per cent (20%)
 ABOLISHED IN PD 1959: the exemption from withholding tax on interest on bank deposits
previously extended by PD No. 1739 if the recipient (individual or corporation) of the interest
income is exempt from income taxation, and the imposition of the preferential tax rates if the
recipient of the income is enjoying preferential income tax treatment, were both abolished by
PD No. 1959
 CIR ARG: deletion of the exempting provisions made employees trust cease to be exempt, subject
now to final withholding tax
 GCL ARG: tax exemption status of employees trusts applies to all kinds of taxes, including final
withholding tax on interest income → Derived from Sec. 56(b) and not from Sec. 21(d) or 24(cc)
of the Tax Code (the amendments in PD 1959) [see notes]
 it is significant to note that the GCL Plan was qualified as exempt from income tax by the
Commissioner of Internal Revenue in accordance with Rep. Act No. 4917 approved on 17 June
1967
◦ Sec. 1. Any provision of law to the contrary notwithstanding, the retirement benefits received
by officials and employees of private firms, whether individual or corporate, in accordance
with a reasonable private benefit plan maintained by the employer shall be exempt from all
taxes
 [See 1st bullet point above] → The tax-exemption privilege of employees' trusts, as distinguished
from any other kind of property held in trust, springs from the foregoing provision. It is
unambiguous. Manifest therefrom is that the tax law has singled out employees' trusts for tax
exemption.
◦ RATIO: Provide economic assistance to employees upon occurrence of certain contingencies
(ex. Old age retirement, death, sickness, disability. It is an independent and additional source
of protection for the working group. What is more, it is established for their exclusive benefit
and for no other purpose.
 Establishment of such private Plans is for the benefit of laborers and employees
◦ It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust.
Otherwise, taxation of those earnings would result in a diminution accumulated income and
reduce whatever the trust beneficiaries would receive out of the trust fund. This would run
afoul of the very intendment of the law.
 Deletion of provisions in PD 1959 of tax exemptions cannot extend to employees trusts
◦ PD = General law; cannot repeal by implication a specific provision granting exemption
 A subsequent statute, general in character as to its terms and application, is not to be construed
as repealing a special or specific enactment, unless the legislative purpose to do so is
manifested. This is so even if the provisions of the latter are sufficiently comprehensive to
 include what was set forth in the special act/ (Villegas v Subido)
 Income Tax under Title II of the Tax Code also explicitly excepts employees trusts from taxes.
 The application of the withholdings system to interest on bank deposits or yield from deposit
substitutes is essentially to maximize and expedite the collection of income taxes by requiring its
payment at the source. If an employees' trust like the GCL enjoys a tax-exempt status from
income, we see no logic in withholding a certain percentage of that income which it is not
supposed to pay in the first place.

DISPOSITION: CA DECISION UPHELD

NOTES:

 Sec. 2. Section 21(d) of this Code, as amended, is hereby further amended to read as follows:

(d) On interest from bank deposits and yield or any other monetary benefit from deposit substitutes
and from trust fund and similar arrangements. — Interest from Philippine Currency Bank deposits
and yield or any other monetary benefit from deposit substitutes and from trust fund and similar
arrangements whether received by citizens of the Philippines, or by resident alien individuals, shall
be subject to a 15% final tax to be collected and paid as provided in Sections 53 and 54 of this Code.

 Sec. 3. Section 24(cc) of this Code, as amended, is hereby further amended to read as follows:

(cc) Rates of tax on interest from deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements. — Interest on Philippine Currency Bank
deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and
similar arrangements received by domestic or resident foreign corporations shall be subject to a
15% final tax to be collected and paid as provided in Section 53 and 54 of this Code

CIR v. GUERRERO | GR L-20942 | September 22, 1967 | Fernando, J.

Petitioner: Commissioner of Internal Revenue

Respondent: A.D. Guerrero

Summary: An American citizen wanted to claim refund from paying specific tax on aviation oil by virtue
of an Ordinance that granted US citizens the privilege to operate public utilities in the same manner as
Filipino. Thus they are also entitled to the same exemption from taxation. SC said that the Ordinance
did not grant this privilege. The text is clear and going beyond would grant an exemption that was not
intended.

FACTS:

1. The toll in the destruction of property and the loss of lives was heavy during WWII. Liberation was
hailed by all, but the problems faced by the legitimate government were awesome in their
immensity.
2. The Philippine treasury was bankrupt and her economy prostrate. There were no dollar-earning
export crops to speak of; commercial operations were paralyzed; and her industries were unable to
produce with mills, factories and plants either destroyed or their machineries obsolete or
dismantled.

3. Thus aid from the US was necessary. But terms were proposed for such aid and one such term was
that the disposition, exploitation, development and utilization of the PH’s natural resources (like
 minerals, timber, coal petroleum etc) and the operation of public utilities, shall, if open to any
person, be open to citizens of the United States and to all forms of business enterprises owned or
controlled directly or indirectly, by United States citizens. (Bleeding us dry even then. Tsk2x)
4. The Constitution being in the way, both the exploitation of natural resources and the operation of
public utilities having been reserved for Filipinos, there was a need for an amendment. Thus the
Ordinance was enacted.
5. Under the Ordinance, US citizens and all forms of businesses, enterprises owned or controlled
directly by them had the privilege to operate public utilities "in the same manner as to, and under
the same conditions imposed upon, citizens of the Philippines or corporations or associations
owned or controlled by citizens of the Philippines.”
6. Paul Gunn, was an American national who in his lifetime, was engaged in the air transportation
business.
a. His estate is claiming refund of 50% of specific tax paid on aviation oil. The estate claims to
be entitled to such refund by virtue of the Ordinance granting US citizens the same rights
and privileges as that of Filipinos operating public utilities including privileges in taxation.
(Sec. 142 of NIRC)
7. CIR denied the claim. CTA reversed. (CTA GRANTED DAFUQ)

ISSUES + RATIO:

1. W/N Sec 142 of the National Internal Revenue Code allowing Filipinos a refund of 50% of the
specific tax paid on aviation oil, could be availed of by citizens of the United States in view of the
privilege under the Ordinance – NO

 The rule applied with undeviating rigidity in the Philippines is that for a tax exemption to exist,
it must be so categorically declared in words that admit of no doubt. No such language may be
found in the Ordinance. (MUST BE CLEAR)
 DOCTRINE: Exemption from taxation is not favored, and that exemptions in tax statutes are
never presumed. Tax exemptions are construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
o From Justice Moreland: Even though the complaint in this regard were well founded, it
would have little bearing on the result of the litigation when we take into consideration
the universal rule that he who claims an exemption from his share of the common
burden of taxation must justify his claim by showing that the Legislature intended to
exempt him by words too plain to be mistaken.
o From Justice Street: Exemptions from taxation are highly disfavored, so much so that
they may almost be said to be odious to the law. He who claims an exemption must be
able to point to some positive provision of law creating the right. It cannot be allowed to
exist upon a vague implication….
 The Court ruled that there was no tax exemption granted by law. What it requires is the
recognition of rights only. The law is clear that tax refund may not be availed of by aliens in the
absence of showing that their country grants similar exemption to Filipino citizens.
(RECIPROCITY DAPAT)
o Thus, the case was remanded to the court a quo to give opportunity to estate to
provide evidence to show its claim for refund.
 Such being the case, it would be a plain departure from the terms of the Ordinance to predicate
a tax exemption where none was intended.
  Its terms are clear. Standing alone, without any franchise to supply that omission, it affords no
warrant for the claim here made. While good faith, no less than adherence to the categorical
wording of the Ordinance, requires that all the rights and privileges thus granted to Americans
and business enterprises owned and controlled by them be respected, anything further would
not be warranted.
 If the parties intended to extend such a right to US citizens, then the Ordinance would have
said so. But it did not.
 Also, the Ordinance being of a limited duration, it should not be given an interpretation that
would trench further on the plain constitutional mandate to limit the operation of public utilities
to Filipino hands.
 What is transitory in character then should not be given an interpretation at war with the plain
and explicit command of what is to continue far into the future, unless there be some other
principle of acknowledged primacy that compels the contrary.

DISPOSITION: CTA reversed

PHIL ACETYLENE v CIR | GR No. L-19707 | August 17, 1967 | Castro, J.

Petitioner: Philippine Acetylene Co., Inc.

Respondents: Commissioner of Internal Revenue & Court of Tax Appeals

The Petitioner was engaged in the sale of oxygen and acetylene. It sought relief from the
assessment of deficiency sales taxes, which were imposed pursuant to sales made to the
National Power Corporation and The Voice of America, both of which were exempt from
taxation.

The Court ruled that a sales tax is actually imposed on manufacturers and producers of goods
and articles. It did not matter that the burden could be passed on to another entity. As such,
it was held that petitioner was liable for the deficiency taxes and that the burden of the tax
(being part of the sale price) may be levied on tax-exempt entities. It also struck down a BIR
circular which went beyond tax exemptions found in an agreement between the Philippines
and the US. The Court reiterated that a tax exemption must be strictly construed. It will not
be held to be conferred unless the terms under which it is granted clearly and distinctly show
that such was the intention of the parties. Therefore, the BIR regulation was void in so far as
it gave the exemption expansive construction.
 Topic: Legislative Exemption

FACTS

1. Petitioner is corporation engaged in the manufacture & sale of oxygen & acetylene gases.
2. Between June 2, 1953 to June 30, 1958, it made various sales to National Power Corporation
(agency of PH Govt) and to the Voice of America (agency of US Govt)
a. Napocor sales- 145,866.70php
b. VOA sales- 1,683php
3. CIR assessed against and demanded from the petitioner, payment of 12,910.60php1 as
deficiency sales tax & surcharge pursuant to the following provisions of the National Internal
Revenue Code:
Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed and
collected once only on every original sale, barter, exchange, and similar transaction either
for nominal or valuable considerations, intended to transfer ownership of, or title to, the
articles not enumerated in sections one hundred and eighty-four and one hundred and
eighty-five a tax equivalent to seven per centum of the gross selling price or gross value
in money of the articles so sold, bartered exchanged, or transferred, such tax to be paid
by the manufacturer or producer: . . . .

1 Petitioner's liability was computed as follows:

Sales to NPC P145,866.70

Sales to VOA P 558.00

Total sales subject to tax P146,424.70

7% sales tax due thereon P 10,249.73

Add 25% surcharge P 2,562.41

Total amount due and collectible P 12,812.16

 Sec. 183. Payment of percentage taxes.—(a) In general.—It shall be the duty of every
person conducting business on which a percentage tax is imposed under this Title, to
make a true and complete return of the amount of his, her, or its gross monthly sales,
receipts or earnings, or gross value of output actually removed from the factory or mill
warehouse and within twenty days after the end of each month, pay the tax due
thereon: Provided, That any person retiring from a business subject to the percentage tax
shall notify the nearest internal revenue officer thereof, file his return or declaration and
pay the tax due thereon within twenty days after closing his business.

If the percentage tax on any business is not paid within the time specified above, the
amount of the tax shall be increased by twenty-five per centum, the increment to be a
part of the tax.

4. Petitioner denied liability on the ground that both Napocor and VOA are exempt from taxation.
(LOL EXEMPT BUYER SO DAPAT NO TAX DAW SIYA)
5. Appealed to CTA—CTA ruled that the tax on the sale of goods in sec 186 is a tax on the
manufacturer, not on the buyer so Phil Acetylene cannot claim exemption from payment of
sales tax because its buyer (Napocor) is exempt.
a. But with regard VOA, it held that goods purchased by the US Govt are exempt from
payment of ales tax under the agreement of the PH and US Govts, provided that the
purchases are supported by certificates of exemption. (EXEMPT US COZ OF AGREEMENT
DAW)
b. since purchases amounting to only P558, out of a total of P1,683, were not covered by
certificates of exemption, only the sales in the sum of P558 were subject to the payment
of tax.
i. Accordingly, the assessment was revised and the petitioner's liability was
reduced from P12,910.60, as assessed by the respondent commission, to
P12,812.16
6. Petitioner appealed to SC, that it is not liable for the payment of tax on the sales it made to
Napocor & VOA.

ISSUE

2. W/N the levy on the sales tax to Napocor & VOA is permissible– YES.
(or W/N Phil Acetylene is exempt—NO.)

 The tax imposed by section 186 of the National Internal Revenue Code is a tax on the
manufacturer or producer and not a tax on the purchaser except probably in a very remote and
inconsequential sense.
o Accordingly its levy on the sales made to tax-exempt entities like the Napocor is
permissible.
 The sales to the VOA are subject to the payment of percentage taxes under section 186 of the
Code. Only sales made "for exclusive use in the construction, maintenance, operation or
 defense of the bases," in a word, only sales to the quartermaster, are exempt under Article V2
of the General Circular No. V-43 (which was issued purportedly to implement the Agreement
between the Republic of the Philippines and the United States of America Concerning Military
Bases), from taxation.
 Sales of goods to any other party even if it be an agency of the United States, such as the VOA,
or even to the quartermaster but for a different purpose, are not free from the payment of the
tax. (SO NOT USED EXCLUSIVELY FOR BASES HERE)
 Philippine Acetylene is thus liable for P12,910.60
o Sales to Napocor P145,866.70
o Sales to VOA P 1,683.00
o Total sales subject to tax P147,549.70
o 7% sales tax due thereon P 10,328.48
o Add 25% surcharge P 2,582.12
o Total amount due and collectible P 12,910.60
 It may indeed be that the economic burden of the tax finally falls on the purchaser; when it
does the tax becomes a part of the price which the purchaser must pay.
 It does not matter that an additional amount is billed as tax to the purchaser. The method of
listing the price and the tax separately and defining taxable gross receipts as the amount received
less the amount of the tax added, merely avoids payment by the seller of a tax on the amount
of the tax.
 The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay
the seller more for the goods because of the seller's obligation, but that is all and the amount
added because of the tax is paid to get the goods and for nothing else.
 But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the
burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales
tax is a tax on the purchaser

FINAL RULING:

Accordingly, the decision a quo is modified by ordering the petitioner to pay to the respondent
Commission the amount of P12,910.60 as sales tax and surcharge, with costs against the petitioner.

Sea-Land Service v. CA | G.R. No. 122605 | 30 April 2001 | Pardo, J.

2 ARTICLE V. — Exemption from Customs and Other Duties

No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or goods,
including food stores and clothing, for exclusive use in the construction, maintenance, operation or defense of the bases,
consigned to, or destined for, the United States authorities and certified by them to be for such purposes.
3 Goods purchased locally by U.S. civilian agencies directly from manufacturers, producers or importers shall be exempt from

the sales tax.

Topic: Legislative grant of exemption
Plaintiff: Sea-Land Service, Inc.
Defendant: Court of Appeals and Commissioner of Internal Revenue

Summary:
Sea-Land is an American shipping company doing business in the Philippines. It entered into a contract with
the US government to transport military goods of US military personnel assigned to Subic. It paid income tax in 1984,
but filed a claim for refund.
Claim for refund is denied. The RP-US Military Bases Agreement only exempts from payment of Philippine
income tax those corporations (organized under the laws of the US) in respect of any profit derived under a contract
made with the Government of the US in connection with the construction, maintenance, operation and defense of
the bases. Shipment of goods is not included in the term “construction, maintenance, operation and defense of the
bases.”

Facts:
 Sea-Land = American international shipping company licensed by the SEC to do business in the
Philippines
 Sea-Land entered into a contract with the US Government to transport military household goods
and effects of US military personnel assigned to the Subic Naval Base.
 Income for 1984: P58,006,207.54
 Sea-Land filed with the BIR the corresponding Income Tax Return (ITR) and paid the income tax
due thereon of 1.5% as required in Sec. 25(a)(2) of the NIRC in relation to Art. 9 of the RP-US
Tax Treaty (amounting to P870,093.12)
 Sea-Land filed with the BIR a written claim for refund, claiming that it paid the income tax by
mistake.
 But before the Commissioner of Internal Revenue could act upon the claim, Sea-Land filed a
petition for review with the CTA to judicially pursue its claim for refund and to stop the running
of the 2-year prescriptive period under the NIRC.
 CTA denied the claim for refund.
 CA affirmed CTA.

Issue/s + Ruling:
W/N the income that Sea-Land derived from services in transporting the household goods and
effects of U. S. military personnel falls within the tax exemption provided in Art. XII, par. 4 of the RP-US
Military Bases Agreement. NO.
 RP-US Military Bases Agreement provides:
- No national of the United States, or corporation organized under the laws of the United
States, resident in the United States, shall be liable to pay income tax in the Philippines
in respect of any profits derived under a contract made in the United States with the
government of the United States in connection with the construction, maintenance,
operation and defense of the bases, or any tax in the nature of a license in respect of
any service or work for the United States in connection with the construction,
maintenance, operation and defense of the bases.
 Is Sea-Land exempted from the payment of income tax on its revenue earned from the transport
or shipment of household goods and effects of US personnel assigned at Subic Naval Base?
  Laws granting exemption from tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power.
- Taxation is the rule and exemption is the exception.
- The law does not look with favor on tax exemptions and that he who would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to
be misinterpreted.
 It is obvious that the transport or shipment of household goods and effects of U. S. military
personnel is not included in the term construction, maintenance, operation and defense of the
bases. Neither could the performance of this service to the U. S. government be interpreted as
directly related to the defense and security of the Philippine territories.
 The avowed purpose of tax exemption is some public benefit or interest, which the lawmaking
body considers sufficient to offset the monetary loss entailed in the grant of the exemption.
- CAB: The hauling or transport of household goods and personal effects of U. S. military
personnel would not directly contribute to the defense and security of the Philippines.

Final Ruling:
Petition DENIED.

Philippine Ports Authority vs. City of Iloilo | G.R. No. 109791 | July 14, 2003 | Azcuna, J

Petitioner: PHILIPPINE PORTS AUTHORITY

Respondent: CITY OF ILOILO

SUMMARY: The City of Iloilo sued PPA for the latter to pay real property taxes and business
taxes. Trial court ruled in favor of the city. Upon review, PPA raised a new opinion: it
classified its ports and the warehouse therein as properties of public dominion; it also
claimed that it was not engaging in business. The Court held that the exemption of public
property from taxation does not extend to improvements made thereon by homesteaders or
occupants at their own expense and that income or profit generated by an entity, even of a
corporation organized without any intention of realizing profit in the conduct of its activities,
is subject to tax.

TOPIC: Exemption of Government Agencies

FACTS:

 Respondent City of Iloilo filed an action for the “recovery of sum of money” against petitioner
Philippine Ports Authority (PPA) for real property taxes as well as business taxes, computed
from the last quarter of 1984 up to fourth quarter of 1988.
o alleged that the PPA is engaged in the business of arrastre and stevedoring services
and the leasing of real estate for which it should be obligated to pay business taxes
 o alleged that PPA is the declared and registered owner of a warehouse which is used in
the operation of its business and is also thereby subject to real property taxes.
 Petitioner’s counsel did not present evidence and instead filed a memorandum.
 The trial court decided in favor of the City of Iloilo and ordered PPA to pay real property tax
from the last quarter of 1984 up to December 1986 and business tax from the last quarter of
1984 up to December 1988.
 In this review, PPA contends that
o The lower court decreed a property of public dominion (port facility) as subject to realty
taxes just because the mentioned property is being administered by what it perceived to
be a taxable government corporation
o The lower court declared that petitioner PPA is subject to “business taxes” for leasing to
private persons or entities real estate without considering that petitioner PPA is not
engaged in “business.”

ISSUE + RULING:

The Court notes that petitioner changed its theory on appeal. As a rule, a party who deliberately
adopts a certain theory upon which the case is tried and decided by the lower court will not be
permitted to change theory on appeal.

It now contests the taxability of its warehouse.

PPA: since “ports constructed by the State” are considered under the Civil Code as properties of public
dominion, its warehouse, which it insists to be part of its port, should be not taxable.

It now contests that it is not liable for business tax.

PPA: it allowed port users to occupy certain premises within the port area only to ensure order and
convenience in discharging its governmental functions. It hence claimed that it is not engaged in
business, as the act of leasing out its property was not motivated by profit, but by its duty to manage
and control port operations.

W/N the warehouse is exempt from tax – NO!

 Held: The exemption of public property from taxation does not extend to improvements made
thereon by homesteaders or occupants at their own expense.
 What is being taxed in the present case is petitioner’s warehouse, which, although located
within the port, is distinct from the port itself.
 The warehouse in the case at bar may not be held as part of the port, considering its separable
nature as an improvement upon the port, and the fact that it is not open for use by everyone
and freely accessible to the public.
 The Court upholds the taxability of the warehouse in the instant case, it being a mere
improvement built on an alleged property of public dominion, assuming petitioner’s port to
be so. (UNG WH TINATAX, NOT THE PORT ITSELF)

W/N PPA’s exemption from real property taxes was withdrawn – YES!

 History:
 o (1974) Real Property Tax Code – exempt
o (1975) PPA Charter – exempt
o (1984) P.D. 1931 – not exempt (exemption may be restored but PPA did not avail)
o (1986) E.O. 39 – exemption restored starting December 1986

W/N PPA is an agency or instrumentality of the Government exempt from local taxes following the
ruling in Basco vs. PAGCOR – NO!

 The said decision did not absolutely prohibit local governments from taxing government
instrumentalities.
 Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be subject to tax.
 The trial court correctly pointed out that if indeed petitioner were not subject to local taxation,
petitioner’s charter would not have specifically provided for its exemption from the payment of
real property tax.

W/N PPA is liable for business taxes – YES!

 HELD: Income or profit generated by an entity, even of a corporation organized without any
intention of realizing profit in the conduct of its activities, is subject to tax.
 The PPA leases out its premises to private persons for “convenience” and not necessarily as
part of its governmental function of administering port operations. Tt leased out its building
to ten private entities from which it regularly earned substantial income. (NOT GOVT
FUNCTION, WAS LEASING TO PRIVATE ENTITIES, EARNED INCOME)

DISPOSITION:

Petition DENIED. Decision AFFIRMED.

Phil. Fisheries Development Authority | G.R. No. 169836 | July 31, 2007 | Ynares-Santiago, J

Petitioner/s: PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY,

Respondent/s: COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF FINANCE and the CITY
OF ILOILO

SUMMARY: The City of Iloilo assed the Iloilo Fishing Port Complex for property taxes, and upon its failure to pay, the
property was seized and sold at a public auction. Held: the IFCP is an instrumentality, not a GOCC. While
instrumentalities are exempt from taxation, the exemption does not apply to the portions of the IFPC
which the Authority leased to private entities. Since the IFCP and the land on which it was built were part
of the public domain, the propoerty cannot be sold through a public sale.

Topic: exemption of government agency

FACTS:
 PD 977 was issued by Pres. Marcos on Aug. 1976 creating the Phil. Fisheries Dev’t Authority
(Authority) and placing it under the direct control of the Sec. of Natural Resources.
 EO 772 attached the agency to the Ministry of Natural Resources
 In Oct. 1981, the Ministry of Public Works and Highways reclaimed a 21-hectare parcel of land in
Tanza, Iloilo and constructed thereon the Iloilo Fishing Port Complex. Said port was turned over
to the Authority upon its completion, pursuant to PD 977. Notwithstanding said turnover, title to
the land and buildings of the port remained with the Republic.
 Portions of the IFPC were leased by the Authority to private firms engaged in the fishing
business.
 In May 1988, the City of Iloilo assessed the IFPC for real property taxes, which remained unpaid
for a year. The City of Iloilo then called for a public auction. (levied the port)
 RTC denied the Authority’s claim for exemption so the case elevated to the Dept. of Finance.
 The DOF ruled that the Authority is liable to pay real property taxes to the City of Iloilo because
it enjoys the beneficial use of the IFPC. The DOF added, however, that in satisfying the amount
of the unpaid real property taxes, the property that is owned by the Authority shall be auctioned,
and not the IFPC, which is a property of the Republic.
 Petition filed with the OP, but was dismissed. On appeal, the CA affirmed the decision of the OP.
 Hence, this petition. (so essentially di granted ung exemption)

ISSUE + RULING:
(SUBJECT TO RPT FOR LEASED AREAS BUT CAN’T LEVY THE PORT COZ PUBLIC DOMINION)
 WON the Authority liable to pay real property tax to the City of Iloilo — YES
o The Court has previously ruled that the Authority is not a GOCC but an instrumentality
of the national government which is generally exempt from payment of real property
tax. However, said exemption does not apply to the portions of the IFPC which the
Authority leased to private entities. With respect to these properties, the Authority is
liable to pay real property tax. (INSTRUMENTALITY SO EXEMPT  BUT PORTIONS
LEASED TO PRIVATE ENTITIES TAXABLE)
▪ (STATED LATER) when an instrumentality of the national government grants to
a taxable person the beneficial use of a real property owned by the Republic,
said instrumentality becomes liable to pay real property tax.
 WON the IFPC may be sold at a public auction to satisfy the tax delinquency — NO
o To answer this question, the distinction between a GOCC and an instrumentality must be
explored further.
o The Court cited MIAA v. CA where it was held that a GOCC must be “organized as a stock
or non-stock corporation” and MIAA is neither of the two.
▪ stock corporation — one whose capital stock is divided into shares and authorized
to distribute to the holders of such shares dividends.
▪ non-stock corporation — one where no part of its income is distributable as
dividends to its members, trustees or officers.
o On the basis of the MIAA case, the Authority should be classified as an instrumentality
of the national government which generally exempt from payment of real property tax,
except those portions which have been leased to private entities.
 ▪ The Authority has a capital stock but it is not divided into shares of stocks. It’s not
a stock corporation.
▪ Neither it is a non-stock corporation because it has no members.
o National government instrumentality — an agency of the national government, not
integrated within the department framework, vested with special functions or jurisdiction
by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter.
▪ While instrumentalities are exempt from taxation, the Court ruled in MIAA v. CA
that when an instrumentality of the national government grants to a taxable
person the beneficial use of a real property owned by the Republic, said
instrumentality becomes liable to pay real property tax.
▪ The Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the
property, the beneficial use of which were vested in private entities.
o When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. Any
doubt whether a person, article or activity is taxable is resolved against taxation. This
rule applies with greater force when local governments seek to tax national government
instrumentalities. (taxation < taxable)
▪ Thus, the real property tax assessments issued by the City of Iloilo should be
upheld only with respect to the portions leased to private persons.
▪ In case the Authority fails to pay the real property taxes due thereon, said
portions cannot be sold at public auction to satisfy the tax delinquency.
▪ The Court cited Chavez v. PEA where it was held that reclaimed lands form part
of the public domain and hence cannot be subject of sale, public or private.
▪ In the same vein, the port built by the State in the Iloilo fishing complex is a
property of the public dominion4 and cannot therefore be sold at public auction.
▪ The reclaimed land on which the IFPC is built cannot be the object of a private
or public sale without Congressional authorization.
▪ Whether there are improvements in the fishing port complex that should not be
construed to be embraced within the term "port," involves evidentiary matters
that cannot be addressed in the present case.
▪ As for now, considering that the Authority is a national government
instrumentality, any doubt on whether the entire IFPC may be levied upon to
satisfy the tax delinquency should be resolved against the City of Iloilo.
▪
The City of Iloilo has to satisfy the tax delinquency through means other than
the sale at public auction of the IFPC.
DISPOSITION: CA Decision: SET ASIDE.

4 ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth.
 People v Castaneda | G.R. No. L-46881 | September 15, 1988 | Feliciano, J.

Petitioners: People of the Philippines

Respondents: HON. MARIANO CASTAÑEDA, JR., JUDGE OF THE COURT OF FIRST INSTANCE OF

PAMPANGA, BRANCH III, VICENTE LEE TENG, PRISCILLA CASTILLO VDA. DE CURA AND FRANCISCO
VALENCIA,

SUMMARY: The accused in this case were being charged with violations of the National Internal Revenue
Code in that they possessed liquor that was subject to a special tax that was not paid at all. They filed a
motion to quash on the ground that the accused were allegedly entitled to a tax amnesty under PD 370.
Said motion to quash was granted by the lower court. The People of the Philippines now appeal said order.
SC rules that the accused were not entitled to the tax amnesty since their alleged compliance with the
requirement of said tax amnesty under PD 370 were done after the BIR had started their investigation
and that said compliance was not done in the voluntary manner as was mandated by PD 370 and that
even if they did comply or were granted the amnesty by the BIR officials there was enough doubt
regarding the validity of the entitlement since a tax amnesty, much like a tax exemption, is never favored
nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must
be construed strictly against the taxpayer and liberally in favor of the taxing authority.

FACTS:

 In 1971, 2 informants submitted sworn information concerning violations of the Internal Revenue
Code against respondents
 BIR conducted investigations and applied for search warrants. Criminal informations were then filed
against the accused alleging among other things, that the accused have in their possession false
and counterfeit internal revenue labels purporting to be regular labels of Tanduay Distillery Inc,
that the accused possessed 33 boxes of 24 bottles of Aneja Rum, 9 boxes of Tanduay Rum, 20
boxes of Ginebra Gin, etc which were subject to specific tax which have not been paid.
o Further investigation yielded 6 more criminal informations for further violations of the
internal revenue code (so basta fake internal revenue labels + boxes of alcohol with
specific tax not paid)
 Accused Valencia’s motion to quash was granted by respondent Judge.
o Said motion to quash was granted in the belief that the accused was entitled to a tax
amnesty under PD 370 since he allegedly complied with the requirements under the law
to be entitled to avail of the benefits.
 Remaining accused also filed Motions to Quash upon the common ground that the dismissal in
favor of Valencia inured to their benefit.
 People of the Philippines opposed said motion to quash on the ground that the accused were not
entitled to the benefits of Tax Amnesty under PD 370 and assuming that they were, said
amnesty was personal to accused to Valencia
 Respondent Judge granted the remaining accused’s Motions to Quash
 People of the Philippines appeals the said order of the judge granting the motion to quash of
 accused.
ISSUES + RULING:

Substantive issue 1: Whether or not the accused Valencia, Lee Teng and de Cura are entitled to the
benefits available under P.D. No. 370? Not entitled

 Compliance with all the requirements of availment of tax amnesty under PD 370 would have the
effect of condoning not just income tax liabilities but also all internal revenue taxes.
 Thus, entitlement to benefits of PD 370 would have the effect of condoning or extinguishing the
liabilities consequent upon possession of false and counterfeit internal revenue labels
o Such as the manufacture of alcoholic products subject to specific tax without having paid
the annual privilege tax therefor, and the possession of locally manufactured articles
subject to specific tax on which the taxes had not been paid in accordance with law
o Such is the present case in the criminal liabilities sought to be imposed upon the accused
 To be entitled to the extinction of liability provided by PD 370, the claimant must have voluntarily
disclosed his previously untaxed income or wealth and paid the required 15% tax on such
previously untaxed income or wealth imposed by P.D. No. 370. (REQUISITE)
o Where the disclosure of such previously untaxed income or wealth was not voluntary
but rather the accompaniment or result of tax cases or tax assessments already pending
as of 31 December 1973, the claimant is not entitled to the benefits of PD 370.
o PD 370, expressly excluded from the coverage of the tax amnesty
 tax cases which are the subject of a valid information under RA 2338 as of
December 31, 1973.
 Instant case, the violations of the NIR Code with which the accused were charged,
had already been discovered by the BIR when PD 370 took effect on 9 January
1974, by reason of the sworn information and affidavit-complaints filed by
informers with the BIR prior to 31 December 1973.
 2 affidavit-complaints had already matured into 2 criminal informations in court – by 31 December
1973 (SO IF INFORMATIONS BY DEC 31 1973, NOT GRANTED  CAB: INFORMATIONS BY THEN
SO DI NA SIYA KASAMA BY THIS PALANG)
o Even assuming accused Valencia was otherwise entitled to the benefits of PD 370, none
of the informations filed against him could have been condoned under the express
provisions of the tax amnesty statute

Substantive Issue 2: Whether or not the People of the Philippines were estopped from questioning the
accused’s entitlement to benefit from the tax amnesty? No, they’re not estopped (UNDER
INVESTIGATION NA SIYA BY THE TIME HE PAID)

 Accused Valencia argued that the People were estopped from questioning his entitlement to the
benefits of the tax amnesty
o considering that agents of the BIR had already accepted his application for tax amnesty
and his payment of the required 15% special tax
 SC: contention does not persuade.
o At the time he paid the special 15% tax under PD 370, accused Valencia had in fact
already been subjected by the BIR to extensive investigation
 such that the criminal charges against him could not be condoned under the
provisions of the amnesty statute.
 o Acceptance by the BIR agents of accused Valencia's application for tax amnesty and
payment of 15% special tax was no more than a ministerial duty, said agents cannot
have been said to have ruled on his entitlement.
o Even assuming that the BIR had so ruled, there is the long familiar rule that
 erroneous application and enforcement of the law by public officers do not
block subsequent correct application of the statute and that the government is
never estopped by mistake or error on the part of its agent
o A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a tax exemption must be
construed strictly against the taxpayer and liberally in favor of the taxing authority.
 Hence, Valencia's payment of the special 15% tax must be regarded as legally
ineffective.

Whether or not the dismissal by the respondent court of the criminal informations against accused
Valencia, inured to the benefit of Valencia's co–accused? Didn’t inure to their benefit (PERSONAL
DEFENSE)

 Since Valencia was not legally entitled to the benefits of PD 370 and that the dismissal of the
criminal information as against him was serious error on the part of the respondent Judge,
o Not necessary to deal with this second issue.
 There was in fact nothing that could have inured to the benefit of Valencia's co-accused.
 Nonetheless, that for the accused to enjoy the benefits of the tax amnesty statute here involved,
o They must show that they have individually complied with and come within the terms of
that statute
o The fact that conspiracy had been alleged in each of the informations certainly could not
result in an automatic exemption of Lee Teng and Priscilla Castillo de Cura from
compliance with the requirements of the tax amnesty statute.
 Even assuming that accused Francisco Valencia was (and he was not) legally entitled to the benefits
of PD 370,
o the defense of amnesty which (hypothetically) became available to Valencia was
personal to him.
o The allegation of conspiracy made in the several criminal informations here involved, did
not have the effect of making a defense available to one co-conspirator automatically
available to the other coconspirators.
 The defense of the tax amnesty under PD 370 is, like insanity, a personal defense;
o that defense relates to the circumstances of a particular accused and not to the
character of the acts charged in the criminal information.
 The statute makes the defense of extinguishment of liability available only under very specific
circumstances and on the basis of reciprocity
o the claimant must disclose his previously untaxed income or wealth and surrender to
the Government 15% of such income or wealth.
o Only then would the claimant's liability be extinguished.
 Lee Teng and Priscilla Castillo de Cura never pretended that they had complied
with the requirements of PD 370.
SC Conclusion

 SC concludes that the Judge's error is so gross and palpable as to amount to arbitrary and capricious
 action and to grave abuse of discretion.
 Those orders effectively prevented the People from prosecuting and presenting evidence against
the accused-respondents; they denied the People its day in court.
 It is well-settled that a purely capricious dismissal of an information as herein involved deprives the
State of fair opportunity to prosecute and convict. It denies the prosecution its day in court.
 Accordingly, it is a dismissal without due process and, therefore, null and void.
 A dismissal invalid for lack of a fundamental requisite, such as due process, will not constitute a
proper basis for the claim of double jeopardy.

DISPOSITION: WHEREFORE, the Orders of respondent Judge dated 15 July 1974, 18 November 1974, 31
March 1976 and 17 February 1977 are hereby SET ASIDE. Respondent Judge no longer being with the
Judiciary, the branch of the Regional Trial Court of Pampanga seized of Criminal Cases Nos. 439 and 440,
and 538-543 inclusive, against the surviving respondent accused, is hereby ORDERED to proceed with
the trial of these criminal cases. Costs against private respondents.

CIR v. Marubeni Corporation | G.R. No. 137377 | December 18, 2001 | Puno, J.

Petitioner/s: CIR
Respondent/s: Marubeni Corporation

SUMMARY: Marubeni Corporation entered into 2 contracts with the NDC and PhilPhos respectively. The CIR had assessed
the corporation for deficiencies on 4 different taxes (Income, Branch Profit Remittance, Contractor’s and
Commercial Broker’s tax). As a defense, Marubeni claims it was granted amnesty by EO No. 41 and EO No
64. Petitioner argued that Marubeni’s case fell under the exceptions in Sec. 4(B), since it had a pending case
in the CTA. The Court ruled that Marubeni did not fall under any of the exceptions and had properly availed
of the tax amnesty. It also held that the exception in Sec. 4(b) regarding pending cases looks at the
enactment of the EO as point of reference. Since the EO was enacted on August 2, 1986 and the case wa
filed a month later on September 26, 1986, there was no pending case at the time the EO was enacted
However, as to the contractor’s tax deficiency, the Court held that there was already a pending case when
EO No. 64 was enacted on November 17, 1986 and that the tax amnesty must be strictly construed agains
the one claiming it. Despite not being granted amnesty, the same contractor’s tax was done outside the
country and therefore was not taxable based on the situs of the taxation.
TOPIC: Tax amnesty

FACTS:
 Marubeni Corporation entered into 2 contracts in the Philippines which were completed in 1984
o With NDC – Construction and installation of a wharf/port complex at the Leyte
Industrial Development Estate in Isabel, Leyte.
o With Philippine Phosphate Fertilizer Corporation (Philphos) – construction of an
ammonia storage complex also at the Leyte Industrial Development Estate.
 In 1985, the Commissioner of Internal Revenue sought to examine the books of accounts of
respondent corporation and it found undeclared income from the two aforementioned
contracts.
 On March, 1986, the CIR examiners recommended an assessment for deficiency income, branch
profit remittance, contractors and commercial brokers taxes.
  On August 1986, respondent corporation received another letter assessing them of deficiency
taxes inclusive of surcharge and interest:
o Income tax – 290,583,972
o Branch Profit Remittance Tax – 83,036,965
o Contractor’s Tax – 85,563, 625
o Commercial Broker’s tax – 3,600,535.68
 The failure to report the income tax was penalized with a 50% surcharge while the failure to
pay on time was penalized with a 25% surcharge.
 [TAX AMNESTY] On August 2, 1986, EO 41 declaring a one-time amnesty covering unpaid income
for years 1981 to 1985 was issued. (CONTRACT IN 1984) (AUG 2. 1986 EFFECTIVE)
o The requirements in order to avail of the tax amnesty were as follows:
 Sworn statement declaring net worth as of December 31, 1985
 File a certified true copy of his statement declaring his net worth as of Dec. 31, 1985
with BIR
 File a return and pay a tax equivalent to 10% of the increase in net worth from Dec.
31, 1980 to Dec. 31, 1985.
 Respondent filed its tax amnesty return, paying 2.9M equivalent to 10% of its net worth.
(COMPLIED WITH REQUISITES)
 On November 4 1986, The Tax amnesty was extended pursuant to EO No. 54.
 On November 17, 1986, EO No. 64 expanded the tax amnesty by including estate and donor’s
tax, including immunities and privileges. Those who filed their amnesty return under EO No. 41
could avail of the benefits under the new EO by filing an amended return and paying an
additional 5% increase on the increase in networth to cover business, estate and donors tax.
 On December 17, 1986, the tax amnesty was once again extended to January 31, 1987.
 Respondent filed it’s supplemental tax amnesty return and paid an additional 1.5M as the 5%
of the increase of net worth. (COMPLIED ULIT)
 Respondent filed with the CTA a review questioning the deficiencies assessed to it and claiming
that it had availed of the tax amensty
 10 years after the case was filed, CTA held that Marubeni had availed of the tax amnesty under
EO 41 and 64 and therefore may not be assessed for the same.
 CA affirmed.

ISSUE + RULING:

WON Respondent Marubeni had properly availed of the tax amnesty and did not have to pay the
assessed income and branch profit remittance taxes? YES
 There are 3 types of taxes involved:
o Income Tax
o Branch profit remittance tax; and
o Contractor’s tax.
 The taxes are covered by the amnesties granted by EO 41 and 64.
 Petitioner claims that respondent is DISQUALIFIED from availing of the said amnesties because
the latter falls under the exception in Section 4(b) of EO No. 41 whichreads:
o Exceptions: The following taxpayers may not avail themselves of the amnesty herein
granted:
 (b) Those with income tax cases already filed in Court as of the effectivity
hereof
  Petitioner that when it filed for an income tax amnesty, the CTA case was already pending
therefore falling under the exception.
 COURT: The point of reference as to when a case is pending is the date of effectivity of EO No.
41. Regardless of the time when the taxpayer filed for his income tax amnesty. (DI DAW ISSUE
TIME OF FILING FOR AMNESTY)
 In the present case, the filing of the income tax cases in court were made after the date of
effectivity of such EO.
o EO No. 41 took effect August 1986 while the case was filed with the CTA on September
26, 1986.
o Respondent did not fall under the exceptions provided in Sec. 4.
 The same ruling applies to the Branch Remittance tax as it was imposed under Title II of the
income tax and is still a tax on income to which respondent wag granted amnesty.

WON Respondent was granted tax amnesty for their contractors tax? NO
 Respondent availed of its tax amnesty for contractor’s tax under EO No. 64 (The later on).
Contractor’s tax is defined and imposed as a tax on business.
o EO No. 64 did not prove exceptions for business, estate and donor taxes but rather in its
sec. 8 provided that the provisions of the old EO which are not contrary to EO No. 64 shall
be remain in full force and effect.
 Petitioner claims that since EO No. 64 was enacted on November 17, 1986 and the case was filed
with the CTA on September 26, 1986, that respondent is not excepted from such contractor’s tax.
o Respondent, on the other hand makes reference to the exceptions under Sec. 4 of EO
No. 41 provides for exceptions from tax amnesty coverage for INCOME TAX.
 The Court ruled in favor of respondent since THE GENERAL RULE IS AMENDATORY ACTS
OPERATE PROSPECTIVELY AND IT MAY NOT BE GIVEN RETROACTIVE EFFECT unless so provided
or by necessary implication and no vested right or obligations of contract are impaired.
 [IMPT] Moreover, the Court discussed the purpose behind tax amnesties
o “Tax amnesty is a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
tax law. It partakes of an absolute forgiveness of waiver by the government of its right
to collect what is due it and to give tax evaders who wish to relent a chance to start
with a clean slate.
o A tax amnesty, much like a tax exemption, is never favored nor presumed in law. If
granted, the terms of amnesty, like that of a tax exemption, must be strictly construed
against the tax payer and liberally in favor of the taxing authority for the right of
taxation is inherent in government. The State cannot strip itself of the most essential
power of taxation by doubtful words.”
 This said, the vagueness of Sec. 4(b) brought about by the amendatory EO shall be construed
strictly against the taxpayer. (NOTHING ABOUT RETROACT)
 Since at the time EO No. 64 was enacted a case was already filed and pending in court,
respondent was disqualified from availing of the business tax amnesty. (NO AMNESTY FOR
BUSINESS TAX)

(From 40_LACSON Digest) WON Marubeni is liable for contractor’s tax? No

1. Marubeni argues that assuming that it did not validly avail of the amnesty under the EOs, it is
still not liable for the deficiency contractor’s tax because the income from the projects came
from the Offshore Portion of the contracts. (Note: The 2 contracts, were divided into 2 parts.
 The Onshore and Offshore Portion). All materials and equipment in the contract under the
Offshore Portion were manufactured and completed in Japan, not in the PH, and are therefore
not subject to PH taxes.
2. CIR argues that since the two agreements are turn-key, they call for the supply of both materials
and services to the client, they are contracts for a piece of work and are indivisible. The situs of
the two projects is in the Philippines, and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the Philippines.
3. The SC held that Marubeni was able to sufficiently prove that not all of its work was performed
in the Philippines and that some of them were completed in Japan (and in fact subcontracted) in
accordance with the provisions of the contracts. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under the Japanese Yen Portion I
were made and completed in Japan. These services were rendered outside Philippines’ taxing
jurisdiction and are therefore not subject to contractor’s tax.

DISPOSITION: Petition Denied, CA affirmed. Respondent not liable for contractor’s tax since the pieces
of work were done “offshore”

Philippines Banking Corp. v CIR | GR 170574 | Jan. 30, 2009 | J. Carpio

Petitioner: Philippine Banking Corp.
Respondent: CIR
Summary:
Philippine Banking Corporation offered a banking product called SSDA for taxable years 1996 and 1997
which according to the CIR, were similar to time deposits and thus subject to Documentary Stamp Tax
(DST). The bank contested this, arguing that SSDA’s are more similar to regular savings account and are
not like time deposits, thus they should not be subject to DST. The Court held that SSDA’s were in fact
subject to DST. However, RA 9480 lapsed into law during the pendency of the case before the Court.
Said law grants an amnesty for al national internal revenue taxes for the taxable year 2005 and prior
years. Since the bank validly availed of the tax amnesty program, it is considered immune for the
payment of such taxes.
Topic: Tax Amnesty
Facts:
1. Philippine Banking Corporation was a bank that offered a bank product called SSDA
(Special/Super Deposit Account).
a. The SSDA is a form of savings deposit evidenced by a passbook and earning a higher
interest rate than a regular savings account.
2. A minimum deposit and maintaining balance of P50,000 must be made.
3. The CIR assessed a deficiency Documentary Stamp Tax (DST) on the SSDA products of Philippine
Banking Corp for taxable years 1996 and 1997.
a. The CIR is claiming that under Sec. 180 of the 1977 NIRC, a DST is due on “certificates of
deposit bearing interest and others not payable on sight or demand” among other things.
b. For the CIR, SSDA’s are like time deposits which would make it fall under such “certificates
of deposits bearing interest” requiring the payment of DST. (PARANG TIME DEPOSIT DAW
SO DST APPLIES)
3. The bank argued that the SSDA does not fall under Sec. 180 of the 1977 NIRC because it is just like
a regular savings account, which also does not fall under said provision.
 a. They both have the common features of being evidenced by a passbook, depositors can
make deposits or withdrawals anytime without penalty, and both can have an Automatic
Transfer Agreement with the depositors’ current or checking account.
b. Their only difference is that SSDA’s require a greater balance to be maintained to be able to
acquire higher interest rates than regular accounts.
c. SSDA’s cannot be construed as a “certificate of deposit” subject to DST under Sec. 180
because such refers to time deposits.
4. The CTA held in favor of the CIR thus this appeal to the SC.
5. On May 24, 2007 however, during the pendency of the case before the SC, RA 9480 lapsed into
law which provided a tax amnesty covering all national internal revenue taxes for the taxable
year 2005 and prior years.
6. Pursuant to said law, Metrobank (which eventually acquired and absorbed Philippine Banking
Corp) availed of this tax amnesty. (AVAILED OF AMNESTY  WHICH WAS JUST PASSED)
Issue with Holding:
WON they should be made to pay the deficiencies? NO.
1. A Tax Amnesty is a general pardon or the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violation of a tax law.
a. It partakes of an absolute waiver by the government of its right to collect what is due it
and to give tax evaders who wish to relent a chance to start with a clean slate.
b. Just like a tax exemption, it is never presumed in law and it must be strictly construed
against the taxpayer and liberally in favor of the taxing authority.
2. RA 9480 lapsed into law at the time this case was being decided.
a. Coverage: Said law covers all national internal revenue taxes for the taxable year 2005 and
prior years.
b. Privilege: One of the immunities and privileges of those who availed of the tax amnesty was
that the tax payer shall be immune from the payment of taxes, as well as civil criminal or
admin penalties under the NIRC of 1997 arising from the failure to pay such taxes for taxable
year 2005, and prior years.
c. Exceptions: The following are not covered by the amnesty:
i. Withholding agents with respect to their withholding tax liabilities;
ii. Those with pending cases falling under the jurisdiction of the Presidential Commission
on Good Government;
iii. Those with pending cases involving unexplained or unlawfully acquired wealth or
under the Anti-Graft and Corrupt Practices Act;
iv. Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;
v. Those with pending criminal cases for tax evasion and other criminal offenses under
Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and
the felonies of frauds, illegal exactions and transactions, and malversation of public
funds and property under Chapters III and IV of Title VII of the Revised Penal Code;
and
vi. Tax cases subject of final and executory judgment by the courts.
d. Method of Availment: the ff requirements need to be complied with to be able to avail of
the tax amnesty:
i. Notice of Availment
ii. SALN as of Dec, 31, 2005;
iii. Tax Amnesty Return
 3. DST is one of the taxes covered by the Tax Amnesty Program, and Metrobank was able to
comply with all such requirements and is now deemed immune from the payment of taxes for
taxable year 2005 and prior years.
a. The case has also not yet become final and executory when Metrobank availed of the tax
amnesty, thus taking them out of the exceptions under Sec. 8 of said law.

DISPOSITIVE PORTION
WHEREFORE, we GRANT the petition, and SET ASIDE the Court of Tax Appeals Decision dated 23
November 2005 in CTA EB No. 63 solely in view of petitioners availment of the Tax Amnesty Program.

CIR v. ARIETE | G.R. No. 164152 | January 21, 2010 | Carpio, J.

Petitioner: Commissioner of Internal Revenue

Respondent: Julieta Ariete

SUMMARY: Mercado filed an information against Ariete alleging that the latter didn’t pay income tax for
the years 1993-96. The Revenue Officer investigated Ariete’s tax history and found that she
had no records and that she admitted not having filed her ITR. Ariete filed her 1993-96 ITR
under the VAP (a program for those who inadvertently failed to file ITRs), but the Revenue
Officer recommended that she be assessed delinquency income taxes so she was assessed a
deficiency of P191,463.04. Ariete filed a protest). The Court ruled that since the VAP’s
provisions say that the information must be recorded in the BIR’s Official Registry Book
before Ariete may be excluded from the VAP’s coverage, and that the CIR failed to do so,
then Ariete is not excluded from the VAP.

TOPIC: Voluntary Amnesty Program

FACTS:

 George Mercado filed an Affidavit with the Special Investigation Division (SID), Revenue Region
No. 19 in Davao City.
o The affidavit attested that Ariete earned substantial income in 1994, 1995, and 1996
without paying income tax.
 The Revenue District Office of Davao del Norte revealed that Ariete had no records of income tax
returns (ITRs) for the years 1993 to 1996.
 The Revenue Officer, in a report, also stated that Ariete admitted her non-filing of ITRs.
 December 02, 1997: Ariete filed her ITRs for the years 1993, 1994, 1995, and 1996 under Revenue
Memo. Order (RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise
known as the Voluntary Assessment Program (VAP). (TRIED TO FILE ITRs UNDER VAP)
 October 14, 1998: Revenue Officer submitted a Memo to the SID Chief, recommending that
respondent be assessed with deficiency income taxes for the years 1993 to 1996.
 July 228, 1998: Regional Director issued a Letter of Authority to investigate Ariete for tax purposes
covering the years 1993-1996.
 On 22 January 1999, four assessment notices were issued against respondent. The total deficiency
income taxes, inclusive of interests and surcharges amounted to P191,463.04. (SHE GOT
 ASSESSED THO)
 After the BIR’s denial of her Assessment Protest, and offer for a Compromise Settlement, Ariete
filed a petition for review with the CTA, denying with finality the request for reinvestigation and
disapproving her availment of the VAP. She also contested the issuance of the four assessment
notices. (SHE PROTESTS THE ASSESSMENT, SAYS SHE APPLIED FOR VAP BUT WAS DISAPPROVED)
 CTA:
o CTA discovered that Ariete’s case was not duly recorded in the Official Registry Book of
the BIR before she availed of the VAP.
o The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the requirements before
a person may be excluded from the coverage of the VAP are:

a. The person(s) must be under investigation by the Tax Fraud Division and/or the
regional Special Investigation Division;

b. The investigation must be as a result of a verified information filed by an

informer under Section 281 of the NIRC, as amended; and

c. The investigation must be duly registered in the Official Registry Book of the
Bureau before the date of availment under the VAP.

o The CTA ruled that the conjunctive word and is used; therefore, all of the above
requisites must be present before a person may be excluded from the coverage of the
VAP.
o The CTA also stated that the rationale behind the VAP is to give taxpayers a final
opportunity to come up with a clean slate before they will be dealt with strictly for not
paying their correct taxes.
o The CTA ruled that even if respondent violated the National Internal Revenue Code (Tax
Code), she was given the chance to rectify her fault and be absolved of criminal and civil
liabilities incident to her non-filing of income tax by virtue of the VAP.
 Hence, respondent has no more liabilities after paying the corresponding taxes
due.
 The CTA found the four assessments issued against respondent to be erroneous
and ordered that the same be cancelled

 CA:
o Affirmed the findings of CTA.
o The CA explained that it is clear from the wordings of RMO No. 59-97 that the recording
in the Official Registry Book of the BIR is a mandatory requirement before a taxpayer-
applicant under the VAP may be excluded from its coverage as this requirement was
preceded by the word and.

ISSUES + RULING:

1. W/N Ariete can rightfully availed of the VAP. YES.

o The CIR, in implementing the VAP, issued RMO No. 59-97 to give erring taxpayers a final
opportunity to come up with a clean slate. Any person liable to pay income tax on
business and compensation income, value-added tax and other percentage taxes under
 Titles II, IV and V, respectively, of the Tax Code for the taxable years 1993 to 1996, who
due to inadvertence or otherwise, has not filed the required tax return may avail of the
benefits under the VAP.
o Subsequently, CIR released three RMOs, enumerating the persons or cases that are
excluded from the coverage of the VAP. In all of these, it is provided that, those excluded
are:

“Persons under investigation as a result of verified information filed by an informer

under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry
Book of the Bureau before the date of availment under the VAP;”

o Based on the three RMOs (Nos. 59-97, 60-97, and 63-97), it is clear that CIR was consistent
in using the word “and,” and has even underscored the word in RMO No. 63-97.
o It is sufficiently clear that for a person to be excluded from the coverage of the VAP, the
verified information must not only be filed under Section 281 of the Tax Code, it must
also be duly recorded in the Official Registry Book of the BIR before the date of
availment under the VAP.
o This interpretation of Item 3.4 of RMO Nos. 59-97, 60-97, and 63-97 is further bolstered
by the fact that on 12 October 2005, the BIR issued Revenue Regulations (RR) No. 18-2005
and reiterated the same provision in the implementation of the Enhanced Voluntary
Assessment Program (EVAP).
o When a tax provision speaks unequivocally, it is not the province of a Court to scan its
wisdom or its policy. The more correct course of dealing with a question of construction
is to take the words to mean exactly what they say. Where a provision of law expressly
limits its application to certain transactions, it cannot be extended to other transactions
by interpretation.
o In this case, even though Ariete was already under investigation at the time she applied
for the VAP (since a Mission Order was already issued by the SID Chief to an intelligence
officer to monitor her activities), neither the verified information nor the investigation
was recorded in the Official Registry Book of the BIR.
o Petitioners failure to effect compliance with the requirement of recording the verified
information or investigation in the Official Registry Book of the BIR means that
respondent, even if under investigation, can avail of the benefits of the
VAP. Consequently, respondent is relieved from any criminal or civil liability incident to
the non-filing of a return

Disposition: Petition for Review  DENIED.

 CIR v Estate of Benigno P. Toda | GR No. 147188 | September 14, 2004 | Davide Jr., CJ.

Petitioners: Commissioner of Internal Revenue

Respondents: The Estate of Benigno P. Toda, Jr., represented by Special Co-administrators Lorna
Kapunan and Mario Luza Bautista

Summary: A sale of a building was allegedly consummated between Cibeles Insurance Corporation and
Altonaga, and later Altonaga and Royal Match Inc. Because of this sale, CIC only paid 5% individual gains
tax instead of 35% corporate income tax (It was Altonaga that paid 5% individual gains tax). The CTA and
CA ruled in favor of CIC, holding that CIR did not adduce proof that CIC committed fraud, and that the
same was merely tax avoidance, but the Supreme Court held that the sale that took place was meant to
defraud the government, the real buyer being RMI and not Altonaga, therefore it was actually tax
evasion.

Topic: Tax Avoidance v Tax Evasion

FACTS

1. Notice of Assessment sent to Cibeles Insurance Corporation (CIC) by the CIR for deficiency
income tax arising from an alleged simulated sale of the Cibeles Building in Makati.
2. CIC authorized Benigno Toda, president and owner of 99.991% of its issued and outstanding
capital stock, to sell the building and the land for an amount not less than P90 million.
3. Toda puportedly sold the property for P100 million to Rafael Altonaga, who in turn sold the
same proeprty to Royal Match Inc. (RMI) for P200 million. (TODA SOLD TO ALTONAGA FOR
p100M  THEN SOLD IT TO RMI FOR p200M)
4. For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10
million.
5. CIC filed its corporate annual tax income return for 1989, declaring its gain from the sale of real
property in t he amount of P75,728.021. After crediting withholding taxes of P254,497.00, it
paid P26,341,207 for its net taxable income of P75,987,725.
6. Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million. He later died 3
years later.
7. The BIR sent an assessment notice and demand letter to CIC for deficiency income tax for the
year 1989 in the amount of P79,099,999.22.
8. The new CIC asked for reconsideration, asserting that the assessment should be directed against
the old CIC, because the new CIC is owned by an entirely different set of stockholders, and
Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax
liabilities for the years 1987-1989.  SO WENT AFTER TODA ESTATE
9. The Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and
Mario Luza Bautista, received a Notice of Assessment from the CIR for deficiency income tax for
the year 1989 in the amount of P79,099,999.22.
10. The Estate filed a letter of protest, which was dismissed by the CIR, stating that a fraudulent
scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by
 covering up the additional gain of P100 million, which resulted in the change in the income
structure of the proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of 35%.
11. The Estate filed a petition for review with the CTA.
12. (CTA IFO ESTATE) The CTA held that the Commissioner failed to prove that CIC committed
fraud to deprive the government of the taxes due it. It ruled that even assuming that a pre-
conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion. There being no proof of fraudulent transaction, the applicable period for the BIR to
assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three years after the
last day prescribed by law for the filing of the return. Thus, the governments right to assess CIC
prescribed on 15 April 1993.
13. The CA affirmed the decision of the CTA.

ISSUES

WON this is a case of tax evasion, so as to make CIC liable to pay the assessed deficiency tax — YES

1. Tax avoidance is the tax saving device within the means sanctioned by law. This method
should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other
hand, is a scheme used outside of those lawful means and when availed of, it usually subjects
the taxpayer to further or additional civil or criminal liabilities.
2. Factors of tax evasion:
1) The end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
2) An accompanying state of mind which is described as being evil, in bad faith, willfull, or
deliberate and not accidental;
3) A course of action or failure of action which is unlawful
3. All these factors are present in the instant case:
a. As early as May 1989, prior to the puported sale of the Cibeles building by CIC to
Altonaga, CIC received P40 million from RMI, as reflected in the latter’s trial balance.
Also as of July 1989, another P40 million was debited and reflected in RMI’s balance as
“other inv. Cibeles Bldg”. This would show that the real buyer of the properties was
RMI, and not the intermediary Altonaga.
b. The investigation conducted by the BIR disclosed that Altonaga was a close business
associate and one of the many trusted corporate executives of Toda. This information
was revealed by Mr. Boy Prieto, the assistant accountant of CIC and an old timer in the
company. (Prieto didn’t testify, thus the information is inadmissible in evidence)
c. Nevertheless, that Altonaga was a mere conduit finds support in the admission of
respondent Estate that the sale to him was part of the tax planning scheme of CIC to
reduce the tax from 35% to 5%.(LOL UMAMIN)
d. The scheme resorted to by CIC in making it appear that there were two sales of the
subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be
considered a legitimate tax planning. Such scheme is tainted with fraud.
4. It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be
paid especially that the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax.
a. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on
the same day was to create a tax shelter. Altonaga never controlled the property and
 did not enjoy the normal benefits and burdens of ownership. The sale to him was
merely a tax ploy, a sham, and without business purpose and economic substance.
5. To allow a taxpayer to deny tax liability on the ground that the sale was made through
another and distinct entity when it is proved that the latter was merely a conduit is to
sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded
for income tax purposes. The two sale transactions should be treated as a single direct sale by
CIC to RMI.
6. CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5%
individual capital gains tax provided for in Section 34 (h) of the NIRC of 1986 (now 6% under
Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the
deficiency income tax issued by the BIR must be upheld.

[Other issues]:

WON period of assessment had prescribed — NO

1. In cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file
a return, the period within which to assess tax is ten years from discovery of the fraud,
falsification or omission, as the case may be.
2. The prescriptive period to assess the correct taxes in case of false returns is ten years from the
discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was
claimed to have been discovered only on 8 March 1991. The assessment for the 1989 deficiency
income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment
for deficiency income tax was well within the prescriptive period.

WON respondent estate is liable for the deficiency income tax of CIC — YES

1. A corporation has a juridical personality distinct and separate from the persons owning or
composing it. Thus, the owners or stockholders of a corporation may not generally be made to
answer for the liabilities of a corporation and vice versa.
2. There are, however, certain instances in which personal liability may arise. It has been held in a
number of cases that personal liability of a corporate director, trustee, or officer along, albeit
not necessarily, with the corporation may validly attach when:
a. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the
corporation, its stockholders, or other persons;
b. He consents to the issuance of watered down stocks or, having knowledge thereof, does
not forthwith file with the corporate secretary his written objection thereto;
c. He agrees to hold himself personally and solidarily liable with the corporation; or
d. He is made, by specific provision of law, to personally answer for his corporate action.
3. When the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily held
himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987-1989.
4. He thereby voluntarily held himself personally liable therefor. Respondent estate cannot,
therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the
separate corporate personality of CIC, since its obligation arose from Todas contractual
undertaking
DISPOSITION: Petition GRANTED. Estate of Toda is liable to pay deficiency income tax.
ASTURIAS SUGAR v. COMMISSIONER OF CUSTOMS AND CTA | G.R. NO. L-19337 | SEPTEMBER 30, 2969
| CASTRO J.

PETITIONERS: Asturias Sugar Central, Inc.

RESPONDENTS: Commissioner of Customs and Court of Tax Appeals

SUMMARY: Asturias made two importations, only a fraction of each however were exported before the
expiration of one year period as required by law. The total remaining 86k bags were exported within 3
years, thus the petitioner requested the Commissioner of Customs to extend the Re-exportation and
Special Import Tax Bond but was denied. The Customs required petitioner to pay custom duties and tax
dues which were paid under protest. Petitioner then demanded refund of what it paid which was denied
by the Collector of Customs. The Commissioner and CTA affirmed it. SC affirmed decision.

TOPIC: BIR Revenue Regulations – What is the force and effect of RRs?

FACTS:

 Petitioner Asturias made two importations of jute bags (1st: 44,800 jute bags; 2nd: 75,200 jute
bags).
o Would be exempt from customs duties/special import tax upon re-exportation w/in 1
year
o Only 8,647 of the 1st importation were exported within one year. While only 25,000 of the
2nd importation were exported within one year. The remaining 86,353 bags were
exported after the expiration of the one-year period but within three years from their
importation. (FAILED TO EXPORT W/IN 1 YEAR  SO TAX ASSESSED
 Petitioner, through its agent (Theo. H. Davies & Co., Far East, Ltd.), requested the Commissioner
of Customs for a week's extension of Re-exportation and Special Import Tax Bond which was to
expire the next day reasoning that: (a) typhoons and severe floods; (b) picketing of the Central
railroad line from November 6 to December 21, 1957 by certain union elements in the employ of
the Philippine Railway Company, which hampered normal operations; and (c) delay in the arrival
of the vessel aboard which the petitioner was to ship its sugar which was then ready for loading.
Commissioner denied the request.
 The collector of Customs required petitioner to pay P28,629.42 as customs duties and special
import tax due thereon. Petitioner paid under protest.
 Petitioner, through a letter, demanded the refund of the amount it had paid, on the ground that
its request for extension of the period of one year was filed on time, and that its failure to export
the jute bags within the required one-year period was due to delay in the arrival of the vessel on
which they were to be loaded and to the picketing of the Central railroad line. Alternatively, the
petitioner asked for refund of the same amount in the form of a drawback under section 106(b)
in relation to section 105(x) of the Tariff and Customs Code.
 Collector of Customs of Iloilo rendered judgment on January 21, 1960 denying the claim for
refund.
 Commission of Customs and CTA affirmed the decision.
ISSUE + RULING:

 WON the Commissioner of Customs is vested, under the Philippine Tariff Act of 1909, the then
applicable law, with discretion to extend the period of one year provided for in section 235 of
the Act – YES
o Rule: Where the court of last resort has not previously interpreted the statute, the rule
is that courts will give consideration to construction by administrative or executive
departments of the State.
o The administrative orders in question appear to be in consonance with the intention of
the legislature to limit the period within which to export imported containers to one
year, without extension, from the date of importation.
 Otherwise, in enacting the Tariff and Customs Code to supersede the Philippine
Tariff Act of 1909, Congress would have amended section 23 of the latter law so
as to overrule the long-standing view of the Commissioner of Customs that the
one-year period therein mentioned is not extendible.
o The correctness of the interpretation given a statute by the agency charged with
administering its provision is indicated where it appears that Congress, with full
knowledge of the agency's interpretation, has made significant additions to the statute
without amending it to depart from the agency's view.
o Considering that the Bureau of Customs is the office charged with implementing and
enforcing the provisions of our Tariff and Customs Code, the construction of the office
charged with implementing and enforcing the provisions of a statute should be given
controlling weight.
o On the issue above: Section 23 of the Philippine Tariff Act Of 1909 and the superseding
sec. 105(x) of the Tariff and Customs Code, fixed a one year period within which the
containers therein mentioned must be exported, however it is silent as to whether the
said period may be extended.
o Thus the Bureau of Customs Issued Administrative Orders 389 and 66 to provided for
how it shall apply the law, and, more specifically, to make officially known its policy to
consider the one-year period mentioned in the law as non-extendible and mandatory.
 Petitioner claims: that granting that Customs Administrative Order 389 is valid and binding, yet
"jute bags" cannot be included in the phrase "cylinders and other containers" mentioned
therein—SC disagrees.
o The enumeration following the word "containers" in the said statutes serves merely to
give examples of containers and not to specify the particular kinds thereof.
o There is no reason to suppose that the customs authorities had intended, in Customs
Administrative Order 389 to circumscribe the scope of the word "container," any more
than the statures sought to be implemented actually intended to do.
 Petitioner claims entitlement to a drawback of the duties it had paid, by virtue of section 106
(b)6 of the Tariff and Customs Code—SC disagrees.

5 SEC. 23. That containers, such as casks, large metal, glass, or other receptacles which are, in the opinion of the collector of customs, of such a
character as to be readily identifiable may be delivered to the importer thereof upon identification and the giving of a bond with sureties
satisfactory to the collector of customs in an amount equal to double the estimated duties thereon, conditioned for the exportation thereof or
payment of the corresponding duties thereon within one year from the date of importation, under such rules and regulations as the Insular
Collector of Customs shall provide.
6
SEC. 106. Drawbacks: ...
b. On Articles Made from Imported Materials or Similar Domestic Materials and Wastes Thereof. — Upon the exportation of articles manufactured
or produced in the Philippines, including the packing, covering, putting up, marking or labeling thereof, either in whole or in part of imported
materials, or from similar domestic materials of equal quantity and productive manufacturing quality and value, such question to be determined
by the Collector of Customs, there shall be allowed a drawback equal in amount to the duties paid on the imported materials so used, or where
  The provisions invoked by the petitioner offer two options to an importer. (1) under sec. 105
(x), gives him the privilege of importing, free from import duties, the containers mentioned
therein as long as he exports them within one year from the date of acceptance of the import
entry, which period as shown above, is not extendible. (2) presented by sec. 106 (b),
contemplates a case where import duties are first paid, subject to refund to the extent of 99%
of the amount paid, provided the articles mentioned therein are exported within three years
from importation.
o Where an importer cannot provide such assurance, then the Government, under sec.
106(b) of said Code, would require payment of the corresponding duties first. Under
section 105(x) full exemption is granted to an importer who justifies the grant of
exemption by exporting within one-year. The petitioner, having opted to take
advantage of the provisions of section 105(x), may not, after having failed to comply
with the conditions imposed thereby, avoid the consequences of such failure by
being allowed a drawback under section 106(b) of the same Act without having
complied with the conditions of the latter section.
 For it is not to be supposed that the legislature had intended to defeat compliance with the
terms of section 105(x) thru a refuge under the provisions of section 106(b). A construction
should be avoided which affords an opportunity to defeat compliance with the terms of a
statute. Rather courts should proceed on the theory that parts of a statute may be
harmonized and reconciled with each other.
o A construction of a statute which creates an inconsistency should be avoided when
a reasonable interpretation can be adopted which will not do violence to the plain
words of the act and will carry out the intention of Congress.
 Rule in this case: In the construction of statutes, the courts start with the assumption that
the legislature intended to enact an effective law, and the legislature is not to be presumed
to have done a vain thing in the enactment of a statute. Hence, it is a general principle,
embodied in the maxim, "ut res magis valeat quam pereat," that the courts should, if
reasonably possible to do so without violence to the spirit and language of an act, so interpret
the statute to give it efficient operation and effect as a whole. An interpretation should, if
possible, be avoided under which a statute or provision being construed is defeated, or as
otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or
rendered insignificant, meaningless, inoperative, or nugatory.

ACCORDINGLY, the judgment of the Court of Tax Appeals of November 20, 1961 is affirmed, at petitioner's
cost.

similar domestic materials are used, to the duties paid on the equivalent imported similar materials, less one per cent thereof: Provided, That the
exportation shall be made within three years after the importation of the foreign material used or constituting the basis for drawback
BPI Leasing Corp v. CA, CTA and CIR | G.R. No. 127624 | November 18, 2003 | AZCUNA, J.

Petitioner: BPI LEASING CORPORATION

Respondents: THE HONORABLE COURT OF APPEALS, COURT OF TAX APPEAL AND COMMISSIONER OF
INTERNAL REVENUE

SUMMARY: In 1986, BLC paid CIR P1.1M representing 4% contractor’s percentage tax based on gross
rentals from equipment leasing. In Nov 1986, CIR issued RR 19-86; sec 6.2 provided that which said that
all leasing companies registered under RA 5980, such as BLC, were subject to gross receipt tax of 5%-
3%-1%. BLC filed a claim for refund. CTA denied its claim and its subsequent MR. CA denied its appeal.
Hence this petition for review on certiorari. Main issue is WON RR 19-86 should be prospective in
application. Court held YES. There is an express provision stating that it shall take effect on January 1,
1987, and that it shall be applicable to all leases written on or after the said date. Being clear on its
prospective application, it must be given its literal meaning and applied without further interpretation.

TOPIC: Force and effect of BIR Revenue Regulation

FACTS:
 BLC is a corporation engaged in the business of leasing properties. In 1986, BLC paid CIR
P1,139,041.49 representing 4% contractor’s percentage tax imposed by Sec 205 of the
National Internal Revenue Code (NIRC), based on its gross rentals from equipment leasing for
1986 amounting to P27,783,725.42.
 On Nov 10, 1986, CIR issued Revenue Regulation 19-86. Sec 6.2 provided that finance and
leasing companies registered under RA 5980 shall be subject to gross receipt tax of 5%-3%-1%
on actual income earned.
o Companies registered under RA 5980, such as BLC, are not liable for contractor’s
percentage tax under Sec 205 but are subject to gross receipts tax under Sec 260 (now
Sec122) of the NIRC.
o CIR re-computed its tax liabilities under the gross receipts tax and arrived at
P361,924.44.
 On April 11, 1988, BLC filed a claim for refund with CIR for P777,117.05, representing difference
between P1,139,041.49 it paid as contractors percentage tax and P361,924.44 it should have
paid for gross receipts tax.
 CTA
o Petitioner filed a petition for review with the CTA.
o RULING: CTA dismissed the petition and denied BLCs claim of refund. Revenue
Regulation 19-86, as amended, may only be applied prospectively such that it only
covers all leases written on or after January 1, 1987, as stated under Section 7 of said
revenue regulation.
o BLC filed an MR  DENIED
 CA
o BLC appealed the case to the CA  DENIED
 Hence this petition for review on certiorari.

ISSUES +RULING
1. WON the petition should be dismissed outright for failure to comply with Supreme Court Circular 28-
91, now incorporated as Section 2 of Rule 42 of the Rules of Court – YES
  Certification was executed by counsel who has not been shown to have specific authority to sign
same for BLC.
 BA Savings Bank v. Sia: Certificate of non-forum shopping may be signed, for and on behalf of a
corporation, by a specifically authorized lawyer who has personal knowledge of the facts required
to be disclosed in such document. Lawyer must be specifically authorized in order validly to sign
the certification.
 Corporations have no powers except those expressly conferred upon them by the Corporation
Code and those that are implied by or are incidental to its existence. There must be a resolution
issued by the board of directors that specifically authorizes him to institute the petition and
execute the certification, for it is only then that his actions can be legally binding upon BLC.
 The argument of substantial compliance deserves no merit.
 Digital Microwave Corporation vs. CA: The reason the certification against forum shopping is
required to be accomplished by petitioner himself is that only the petitioner himself has actual
knowledge of whether or not he has initiated similar actions or proceedings in other courts or
tribunals.

WON the Revenue Regulation 19-86 is legislative rather than interpretative in character – YES
 Administrative issuances may be distinguished according to their nature and substance:
o Legislative rule - Matter of subordinate legislation, designed to implement a primary
legislation by providing the details thereof.
o Interpretative rule - Provide guidelines to law which administrative agency is in charge of
enforcing.
 Sec 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant to Sec 277 of
the NIRC. Sec 277 (now Section 244) is an express grant of authority to Secretary of Finance to
promulgate all needful rules and regulations for the effective enforcement of the provisions of
the NIRC. (LEGISLATIVE RULE)
 Paper Industries Corporation of the Philippines v. CA: Application of Sec 277 calls for exercise of
quasi-legislative or rule-making authority. Revenue Regulation 19-86 was issued pursuant to rule-
making power of the Secretary of Finance, thus making it legislative, and not interpretative.
 BLC further posits that, assuming the revenue regulation is legislative in nature, it is invalid for
want of due process as no prior notice, publication and public hearing attended the issuance
thereof.
o CIR v. Michel J. Lhuillier Pawnshop, Inc.: When an administrative rule goes beyond merely
providing for means that can facilitate or render less cumbersome implementation of
law and substantially increases burden of those governed, it behooves agency to accord
at least to those directly affected a chance to be heard and, thereafter, to be duly
informed, before issuance is given force and effect of law. (ONLY NEEDED IT INCREASE
BURDEN DAW)
o Court invalidated the revenue memoranda concerned because same increased the tax
liabilities of the affected taxpayers without affording them due process.
o In this case, Revenue Regulation 19-86 would be beneficial to the taxpayers as they are
subjected to lesser taxes. Petitioner, in fact, is invoking Revenue Regulation 19-86 as
very basis of its claim for refund. If it were invalid, then petitioner all the more has no
right to a refund.

WON Revenue Regulation 19-86 should be prospective in application – YES

  Statutes, including administrative rules and regulations, operate prospectively only, unless
legislative intent to contrary is manifest by express terms or by necessary implication.
 There is an express provision stating that it shall take effect on January 1, 1987, and that it shall
be applicable to all leases written on or after the said date. Being clear on its prospective
application, it must be given its literal meaning and applied without further interpretation.
Thus, BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease
rentals it received prior to January 1, 1987.
 Tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation
of sovereign authority and are to be strictly construed against the person or entity claiming the
exemption.
o The burden of proof is upon him who claims the exemption and he must be able to justify
his claim by the clearest grant under Constitutional or statutory law, and he cannot be
permitted to rely upon vague implications.

DISPOSITION: WHEREFORE, the petition for review is hereby DENIED, and the assailed decision and
resolution of the Court of Appeals are AFFIRMED. No pronouncement as to costs.

COMMISSIONER OF INTERNAL REVENUE vs. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS
GR No. L-66653 | June 19, 1986| Paras, J.
Topic: Non-retroactivity of BIR Rulings
Summary: Borroughs branch office in manila, paid remittance tax based on its net profit instead of the actual amount
remitted to its parent company abroad. Court ruled that the law is clear and subsequent BIR rulings to the date of
remittance, cannot be given retroactive effect.
Doctrine:
Sec. 327 of NIRC Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and
regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where
the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA,
108 SCRA 151-152)

Facts:
1. Burroughs Limited is a foreign corporation authorized to engage in trade or business in the
Philippines through a branch office in Manila.
2. March 1979: Branch office applied with the Central Bank for authority to remit to its parent
company abroad, branch profit of P7,647,058.00.
a. It paid the 15% profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its
head office the net amount of P6,499,999.30
3. Claiming that the 15% profit remittance tax should have been computed on the basis of the
amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax
(P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund
or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit
remittance tax
4. On February 24, 1981, private respondent filed with CTA, a petition for review of CIR’s
computation.
5. This was denied. Hence, the present petition.
Ruling: Affirmed.
Issues w/ Holding:
1. WON the tax base upon which the 15% branch profit remittance tax shall be imposed under the
provisions of section 24(b) of the Tax Code, as amended, is the amount applied for remittance
on the profit actually remitted after deducting the 15% profit remittance tax.
a. Yes. The law is clear.
i. National Revenue Code, Sec. 24 (b) (2) (ii) reads:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch
to its head office shall be subject to a tax of fifteen per cent (15 %) ...
b. BIR ruling dated January 21, 1980 interpreted the provision to mean that the tax base
upon which the 15% branch profit remittance tax shall be imposed is the profit actually
remitted abroad and not on the total branch profits out of which the remittance is to
be made.
c. Petitioner contends that respondent is no longer entitled to a refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the
BIR ruling of January 21, 1980
i. What is applicable in the case at bar is still the Revenue Ruling of January 21,
1980 because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82
dated March 17, 1982 cannot be given retroactive effect in the light of Section
327 of the National Internal Revenue Code. (DI BA RETROACTIVE PARIN SI JAN
21 1980 RULING? Lol)  Is it coz NOT PREJUDICIAL?
ii. Borroughs will undoubtedly be prejudiced by applying said ruling retroactively
and it does not fall among any of the enumerated exceptions in the said law.
CIR vs PHCP Inc.| G.R. No. 168129 | April 24, 2007 | Sandoval Gutierrez, J

Petitioner/s: COMMISSIONER OF INTERNAL REVENUE

Respondent/s: Philippine Health Care Providers, Inc

SUMMARY: Vat Ruling No. 231-88 Generally, the NIRC has no retroactive application except when:

1. where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him
by the Bureau of Internal Revenue;

2. where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on
which the ruling is based, or

3. where the taxpayer acted in bad faith.

The Court held that Philhealth acted in good faith. The term health maintenance organization was first recorded in the Philippine
statute books in 1995. It is apparent that when VAT Ruling No. 231-88 was issued in Philhealth's favor, the term health
maintenance organization was unknown and had no significance for taxation purposes. Philhealth, therefore, believed in good
faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88. The rule is that the BIR
rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer

TOPIC: Non Retroactivity of Rulings

FACTS:
● On June 8, 1988, (On 1987?) petitioner CIR, through the VAT Review Committee of the Bureau of Internal
Revenue (BIR), issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical services, is
exempt from the VAT coverage.
● Later confirmed by Regional Director Osmundo G. Umali of Revenue Region No. 8 in a letter dated April
22, 1994.,
● When RA 8424 or the new Tax Code was implemented, it adopted the provisions of VAT and E-VAT.
● On 1999, the BIR sent Philhealth an assessment notice for deficiency VAT and documentary stamp taxes
for taxable years 1996 and 1997.
● After CIR did not act on it, Philhealth filed a petition for review with the CTA. The CTA withdrew the VAT
assessment. The CIR then filed an appeal with the CA which was denied.

ISSUE + RULING:

(1) Is Philhealth subject to Vat and (2) whether non retroactivity of rulings applies to Philhealth?

(1) YES. Section 103 of the NIRC exempts taxpayers engaged in the performance of medical, dental,
hospital, and veterinary services from VAT.

But, in Philhealth's letter requesting of its VAT-exempt status, it was held that it showed
Philhealth provides medical service only between their members and their accredited hospitals, that it
only provides for the provision of pre-need health care services, it contracts the services of medical
practitioners and establishments for their members in the delivery of health services.

Thus, Philhealth does not fall under the exemptions provided in Section 103, but merely arranges for
such, making Philhealth not VAT-exempt.

(2) YES. SC: “However, We are in accord with the view of PHILHEALTH that it is entitled to the benefit of
non-retroactivity of rulings guaranteed under Section 246 of the Tax Code, in the absence of showing of bad faith
on its part. Section 246 of the Tax Code provides”

Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated
by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, x x x.

Clearly, undue prejudice will be caused to petitioner if the revocation of VAT Ruling No. 231-88 will be
retroactively applied to its case. VAT Ruling No. 231-88 issued by no less than the CIR itself has confirmed
petitioners entitlement to VAT exemption under Section 103 of the Tax Code. In saying so, respondent has
actually broadened the scope of medical services to include the case of the petitioner. This VAT ruling was even
confirmed subsequently by Regional Director Ormundo G. Umali in his letter dated April 22, 1994 (Exhibit
M). Exhibit P, which served as basis for the issuance of the said VAT ruling in favor of the petitioner sufficiently
described the business of petitioner and there is no way BIR could be misled by the said representation as to the
real nature of petitioners business. Such being the case, this court is convinced that petitioners reliance on the
said ruling is premised on good faith. The facts of the case do not show that petitioner deliberately committed
mistakes or omitted material facts when it obtained the said ruling from the Bureau of Internal Revenue. Thus,
in the absence of such proof, this court upholds the application of Section 246 of the Tax Code. Consequently,
the pronouncement made by the BIR in VAT Ruling No. 231-88 as to the VAT exemption of petitioner should be
upheld

Generally, the NIRC has no retroactive application except when:

1. where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue;

2. where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from
the facts on which the ruling is based, or

3. where the taxpayer acted in bad faith.

The Court held that Philhealth acted in good faith. The term health maintenance organization was first recorded in
the Philippine statute books in 1995. It is apparent that when VAT Ruling No. 231-88 was issued in Philhealth's
favor, the term health maintenance organization was unknown and had no significance for taxation
purposes. Philhealth, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and
1997 on the basis of VAT Ruling No. 231-88. The rule is that the BIR rulings have no retroactive effect where a
grossly unfair deal would result to the prejudice of the taxpayer

PHILIPPINE BANK OF COMMUNICATIONS v CIR

GR No. 112024 | Jan 28, 1999 | Quisumbing, J.

Petitioner: Philippine Bank of Communications

Respondent: Commissioner of Internal Revenue

SUMMARY: PBCom requested for a refund of taxes, but CTA denied on the basis that the 2 year
reglementary period had prescribed. The rule states that the taxpayer may file a claim for refund or
credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before
any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from
the time of filing the Adjustment Return and final payment of the tax for the year. Petitioners argued
that BIR in RMC No. 7-85, changed the period from 2 to 10 years, and therefore they cannot be
prejudiced by subsequent BIR rejection, as this was applied retroactively. The Court ruled that when
the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of
two years to ten years on claims of excess quarterly income tax payments, such circular created a
clear inconsistency with the provision of Sec. 230 of 1977 NIRC.

TOPIC: BIR Issuances, BIR Rulings, Exceptions

FACTS:

 Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation

duly organized under Philippine laws, filed its quarterly income tax returns for the first and
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00.
o The taxes due were settled by applying PBComs tax credit memos and accordingly, the
Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85
for P3,401,701.00 and P1, 615,253.00, respectively.
 1985: PBCom suffered losses so that when it filed its Annual Income Tax Returns, it declared a
net loss of P25,317,228.00, thereby showing no income tax liability
o For the succeeding year (1986), petitioner likewise reported a net loss of P14,129,602
and thus declared no tax payable for the year.
 But during these two years, PBCom earned rental income from leased properties.
o The lessees withheld and remitted to the BIR withholding creditable taxes
of P282,795.50 in 1985 and P234,077.69 in 1986.
 Petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit
of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
 Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by
their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
 CTA denied the request for the tax refund for 1985, on the ground that it was filed beyond the
two-year reglementary period provided for by law.
o It likewise denied the refund of 1986, on the assumption that it was automatically
credited by PBCom against its tax payment in the succeeding year.
 Petitioner filed a Motion for Reconsideration of the CTAs decision but the same was denied due
course for lack of merit.
 CA affirmed CTA rulings

 Petitioner argues that its claims for refund and tax credits are not yet barred by prescription
relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985.

o Issue raised by petitioner is whether taxpayer PBCom -- which relied in good faith on the
formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a
petition for review asking for the refund/tax credit of its 1985-86 excess quarterly
income tax payments -- can be prejudiced by the subsequent BIR rejection, applied
retroactively, of its assurances in RMC No. 7-85 that the prescriptive period for the
refund/tax credit of excess quarterly income tax payments is not two years but ten

ISSUE:

1. Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the
ground of prescription, despite petitioners reliance on RMC No. 7-85, changing the prescriptive period
of two years to ten years? NO.
  The circular7 states that overpaid income taxes are not covered by the two-year prescriptive
period under the tax Code and that taxpayers may claim refund or tax credits for the excess
quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code.
 There is no need to file petitions for review in the Court of Tax Appeals in order to preserve the
right to claim refund or tax credit within the two-year period.
o Actions hereon by the Bureau are immediate after only a cursory pre-audit of the
income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal
Revenue excess income tax paid under the provisions of Section 86 of the Tax Code
within 10 years from the date of payment considering that it is an obligation created by
law (Article 1144 of the Civil Code).
 Petitioner argues that the government is barred from asserting a position contrary to its
declared circular if it would result to injustice to taxpayers.
o Petitioner claims that rulings or circulars promulgated by the Commissioner of Internal
Revenue have no retroactive effect if it would be prejudicial to taxpayers.
o Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly
provides for this rule as follows:
 Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or reversal
of any of the rules and regulations promulgated in accordance with the

7REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE
FINAL ADJUSTMENT RETURN

TO: All Internal Revenue Officers and Others Concerned

Sections 85 and 86 of the National Internal Revenue Code provide:

xxxxxxxxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide:

xxxxxxxxx

It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income
tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with Sections 292 and 295
of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the
corporation to claim the refund or tax credit.

It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and
295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for
automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from
overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976,
containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist
mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this
procedure was adopted to facilitate immediate action on cases like this.
 preceding section or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayers except in the
following cases:
 a) where the taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by the Bureau of
Internal Revenue;
 b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based;
 c) where the taxpayer acted in bad faith.
 Contrary to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not
warranted as it disregards the two-year prescriptive period set by law.
o Claims for refund or tax credit should be exercised within the time fixed by law because
the BIR being an administrative body enforced to collect taxes, its functions should not
be unduly delayed or hampered by incidental matters.
 (Because tax is the lifeblood of the nation and its purpose is to generate funds
for the state)
 Sec. 2298, NIRC of 1997 provides for the prescriptive period for filing a court proceeding for the
recovery of tax erroneously or illegally collected.
 The rule states that the taxpayer may file a claim for refund or credit with the CIR, within 2 years
after payment of tax, before any suit in CTA is commenced.
o The two-year prescriptive period provided, should be computed from the time of filing
the Adjustment Return and final payment of the tax for the year.

 When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977
NIRC.
o In so doing, the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
 Revenue memorandum-circulars are considered administrative rulings
 It is widely accepted that the interpretation placed upon a statute by the executive officers,
whose duty is to enforce it, is entitled to great respect by the courts.

 8Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of
the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been erroneously paid.
 o Nevertheless, such interpretation is not conclusive and will be ignored if judicially
found to be erroneous.
o Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply and implement
 Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or
errors of its officials or agents.

RULING

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner