Delpher Trades Corporation vs IAC and Hydro Pipes Philippines

1974 – Delfin Pacheco and his sister, Pelagia Pacheco, were owners of a real estate (Malinta Estate) in the municipality of
Polo (now Valenzuela), Province of Bulacan (now Metro Manila). In the same year, they leased it to Construction
Components International Inc. with the right to first refusal. The lessee assigned this to Hydro Pipes.

1976 – a deed of exchange was executed between the siblings and Delpher Trades Corporation where the former conveyed
to the latter the leased property for 2,500 shares of stock of Delpher with a total value of P1.5 M. It must be noted that
Delpher is a family corporation organized by the children of Pelagia and Benjamin Hernandez and spouses Delfin and Pilar
Angeles. Petitioner asserted that because the land was transferred to the corporation owned by the Pacheco family, there
was really no transfer of ownership.

On the ground that Hyrdo was not given the option to buy it first, it instituted an action before CFI-Bulacan which favored
Hydro. This was affirmed by IAC.

Issue: whether or not Delpher Trades Corporation was merely an alter-ego or conduit of the Pacheco co-owners.

Held: Yes, it was merely an alter ego.

As testified by Eduardo Neria, a CPA and son-in-law of late Pelagia, the corporation was a family corporation organized by
the children of Pelagia and her spouse, and spouses Delfin and Pilar who owned the leased property in common in order to
perpetuate their control over the property through the corporation and to avoid taxes.

It must be noted in this case that the Pachecos owned 2,500 no par shares of stocks, making them major stockholders of the
corporation, hence controlling it. In effect, the corporation is a business conduit of the Pachecos. The effects of this are that
they would have continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation. The
property is not subject also to taxes on succession as the corporation does not die.
Pansacola vs CIR

On April 13, 1998, petitioner filed his income tax return for 1997 that reflected an overpayment of P5,950. He claimed a
refund of such amount which was based on the increased tax exemptions provided in NIRC which took effect on January 1,
1998. This was denied by BIR and on appeal to CTA, was also denied due to lack of merit. Upon appeal to CA, it was also
denied. It ruled that the NIRC took effect on January 1, 1998, thus the increased exemptions were effective only to cover
taxable year 1998 and cannot be applied retroactively.

Issue: whether or not the exemptions under Section 35 of the NIRC, which took effect on January 1, 1998, be availed of for
the taxable year 1997.

Held: No, it cannot be availed of.

SEC. 24. Income Tax Rates. – (A) Rates of Income Tax on Individual Citizen … (1) An income tax is hereby imposed: (a) On
the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B),17 (C),18 and
(D)19 of this Section, derived for each taxable year from all sources within and without the Philippines by every individual
citizen of the Philippines residing therein;

As provided in Section 24 (A) (1) (a) in relation to Sections 31 and 22 (P) and Sections 43, 45 and 79 (H) of the NIRC, the
income subject to income tax is the taxpayer’s income as derived and computed during the calendar year, his taxable year.

From these provisions, what the law should consider for the purpose of determining the tax due from an individual taxpayer is
his status and qualified dependents at the close of the taxable year and not at the time the return is filed and the tax due
thereon is paid. Now comes Section 35 (C) of the NIRC which allows a taxpayer to still claim the corresponding full amount
of exemption for a taxable year, e.g. if he marries; have additional dependents; he, his spouse, or any of his dependents die;
and if any of his dependents marry, turn 21 years old; or become gainfully employed. It is as if the changes in his or his
dependents’ status took place at the close of the taxable year (which is the end of calendar year).

Consequently, his correct taxable income and his corresponding allowable deductions e.g. personal and additional
deductions, if any, had already been determined as of the end of the calendar year.

Hence, the income tax due from the petitioner was determined at the end of 1997, the taxable year in question, and he
cannot avail of the additional and personal exemptions of NIRC which only took effect on January 1, 1998.
ERICSSON TELECOMMUNICATIONS, INC., petitioner, vs. CITY OF PASIG, represented by its City Mayor, Hon.
Vicente P. Eusebio, et al.*, respondents

Ericsson, petitioner, a corporation with principal office in Pasig City, is engaged in the design, engineering, and marketing of
telecommunication facilities/system, was assessed deficiency income taxes for year 1998-1999 and 2000-2001 by the City of
Pasig. Respondent denied petitioner’s protest; hence, it filed a petition for review before RTC which ruled in petitioner’s favor.
On appeal, CA reversed RTC on the ground of mere technicality (i.e. signor of certification against forum shopping not
shown to have been authorized by the Board of Directors).

It must be noted that the City of Pasig computed the income taxes of petitioner based on the latter’s gross revenue.

Issue no. 1: whether or not CA had jurisdiction over the appeal.

Held no. 1: No, it did not as the case involved pure questions of law. There is a question of law when the doubt or difference
is on what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference is
on the truth or falsity of the facts alleged. For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. There is no dispute as to the veracity of the facts
involved in the present case. While there is an issue as to the correct amount of local business tax to be paid by petitioner, its
determination will not involve a look into petitioner's audited financial statements or documents, as these are not disputed.

Issue no. 2: whether or not respondent’s assessment based on the gross revenue was correct.

Held no. 2: No, it was not.

Sec 143 of NIRC states that contractors can be taxed by municipality based on its gross receipts for the preceding calendar
year.

Respondent assessed deficiency local business taxes on petitioner based on the latter's gross revenue as reported in its
financial statements, arguing that gross receipts is synonymous with gross earnings/revenue. Under Sec 131 of LGC, "Gross
Sales or Receipts" include the total amount of money or its equivalent representing the contract price, compensation or
service fee, including the amount charged or materials supplied with the services and the deposits or advance payments.
Thus, actual and constructive receipt of the consideration is considered as included in gross receipts.

Whereas, gross revenue covers money or its equivalent actually or constructively received, including the value of services
rendered or articles sold, exchanged or leased, the payment of which is yet to be receive. Gross revenue includes
receivables.

In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable period
although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting,
where income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the
amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines
when to include the amount in gross income.

The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed
double taxation – taxing of the same person twice by the same jurisdiction for the same thing
State Land Investment vs Corp vs CIR

Facts:

State Land Investment Corporation, petitioner, is a corporation duly organized and existing under the laws of the Republic of
the Philippines. It is a real estate developer engaged in the development and marketing of low, medium and high cost
subdivision projects in the cities of Manila, Pasay and Quezon; and in Cavite and Bulacan. When it filed its income tax return
for 1997, it was shown that petitioner has excess credit amounting to Php 13M. Subsequently, when it filed its income tax
return for 1998, it credited its income tax against the excess credit but it still had Php 9M left. Hence, it filed a claim for refund
from CIR. As CIR did not act on its claim, it filed a petition for review before CTA which denied the claim. It reasoned that the
petitioner manifested its intention to carry over the 9M for its 1999 income tax when it marked with “x” the statement "to be
carried as tax credit next year" in its 1998 income tax return. This was sustained by CA upon appeal.

Issue: whether or not the claim for the refund of Php 9 M excess credit from 1997 should be allowed.

Held: Yes, it should be allowed.

Sec 69 provides that in case of excess tax, the taxpayer may be refunded the excess amount paid and that the refundable
amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable year.

Section 69 clearly provides that a taxable corporation is entitled to a tax refund when the sum of the quarterly income taxes it
paid during a taxable year exceeds its total income tax due also for that year. Consequently, the refundable amount that is
shown on its final adjustment return may be credited, at its option, against its quarterly income tax liabilities for the next
taxable year. Excess income taxes paid in a year that could not be applied to taxes due the following year may be refunded
the next year. Thus, if the excess income taxes paid in a given taxable year have not been entirely used by a taxable
corporation against its quarterly income tax liabilities for the next taxable year, the unused amount of the excess may still be
refunded, provided that the claim for such a refund is made within two years after payment of the tax. This is what SIC did – it
credited its 1997 excess tax to its 1998 income tax; and as it still had 9M excess and fully knowing that it cannot be applied in
1999 (because it is not the year after the time it incurred the excess), it filed for a tax refund.