CIR v. ALGUE INC.

FACTS:
Algue Inc. is a domestic corporation engaged in engineering, construction and other allied
activities. Respondent received a letter from CIR assessing it for delinquency income taxes for
the years 1958 and 1959.
Algue filed a letter of protest or request for reconsideration. However, a warrant of distraint and
levy was presented to the private respondent through its counsel, who refused to receive it on the
ground of the pending protest.
Since the protest was not found on the records, a file copy from the corporation was produced
and given to BIR Agent Reyes, who deferred service of the warrant
Respondent’s counsel, Atty. Guevara was informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be
served
Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals
CIR’s contentions:

 the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense
 payments are fictitious because most of the payees are members of the same family in
control of Algue and that there is not enough substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
ISSUE:
WON the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed
by Algue as legitimate business expenses in its income tax return
RULING:
NO, the CIR was not correct.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. Such collection should be made in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which
is the promotion of the common good may be achieved.
The burden is on the taxpayer to prove the validity of the claimed deduction. In the present case,
however, the Supreme Court found that the private respondent has proved that the payment of
the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an experimental enterprise and involve
themselves in a new business requiring millions of pesos.

LOZADA v. COMELEC
FACTS:
Lozada together with Igot filed a petition for mandamus compelling the COMELEC to hold
an election to fill the vacancies in the Interim Batasang Pambansa (IBP). They anchor their
contention on Sec 5 (2), Art 8 of the 1973 Constitution which provides: “In case a vacancy arises
in the Batasang Pambansa eighteen months or more before a regular election, the Commission
on Election shall call a special election to be held within sixty (60) days after the vacancy occurs
to elect the Member to serve the unexpired term.” Petitioner Lozada claims that he is a taxpayer
and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who
desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges
that, as a tax payer, he has standing to petition by mandamus the calling of a special election as
mandated by the 1973 Constitution. COMELEC opposes the petition alleging, substantially, that
1) petitioners lack standing to file the instant petition for they are not the proper parties to institute
the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article
VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

ISSUE:
WON the petitioners as taxpayers lack standing to file the instant petition
RULING:
As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged
that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to
call a special election, as is allegedly its ministerial duty under the constitutional provision above
cited, and therefore, involves no expenditure of public funds. It is only when an act complained
of, which may include a legislative enactment or statute, involves the illegal expenditure of public
money that the so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that
entails expenditure of public funds which may be illegal because it would be spent for a purpose
— that of calling a special election — which, as will be shown, has no authority either in the
Constitution or a statute.

CITY ASSESSOR OF CEBU v. ASSOCIATION OF BENEVOLA DE CEBU

FACTS:
Respondent, Association of Benevola de Cebu Inc is a non-stock, non-profit organization
and is the owner of the Chong Hua Hospital in Cebu City. Respondent constructed the CHH
Medical Arts which is the questioned property in this case. Petitioner assessed the CHH Medical
Arts building as “commercial” at the assessment level of 35% for commercial buildings and not at
the 10% special assessment currently imposed on CHH and its other separate buildings.
Respondent filed a petition for reconsideration, asserting that the Medical Arts building is part of
CHH and should be imposed with the same special assessment of 10%.
 Petitioner argued that the Medical Arts building is situated about 100 meters away from
CHH and based on actual inspection, it was ascertained that it is not part of the CHH building
which was actually used as a commercial clinic/room spaces for renting out to physicians and
thus classified as commercial. Petitioner concluded that the building is for commercial purposes
and thus its proper classification is commercial.
Respondent contended that the building is actually, directly, and exclusively part of CHH
and should have a special assessment level of 10%. Respondent asserted that the Medical Arts
building is similarly situated as the buildings of CHH, housing its Dietary and Records
Departments which are also separate from the main building of CHH and are also imposed the
10% special assessment. Respondent also argued that although not actually indispensable, the
Medical Arts building is nonetheless incidental and reasonably necessary to CHH’s operations.
ISSUE:
WON the CHH Medical Arts building be assessed at 35% for commercial buildings
RULING:
No. The CHH Medical Arts building is an integral part of Chong Hua Hospital and is definitely
incidental to and reasonably necessary for the operations of CHH. Hence, should be under the
same special assessment of 10%.
First, the medical arts building is an integral part of CHH because as tertiary hospitals like
CHH, it is required by law to have a pool of physicians who comprises the required medical
departments in various medical fields. In this case, the medical arts building is rented out only to
those accredited by CHH. They are the consultants of the hospital and the ones who can treat
CHH’s patients confined in it. This fact alone takes away the medical arts building from being
categorized as commercial.
Second, the building is definitely incidental to and reasonably necessary for the operations
of CHH. The operation of the hospital is not only for confinement and surgical operations but it
also includes diagnosis, treatment and follow-up consultations. Patients go to the accredited
doctors of CHH which have their clinics in the Medical arts building. Thus, the Medical arts building
plays a key role and provides critical support to the operations of CHH.
Finally, the charging of rentals for the offices used by the accredited physicians cannot be
equated to a commercial venture because it is a practical necessity. The rentals is (1) to recoup
the investment cost of the building, (2) to cover the rentals for the lot CHHMAC is built on, and (3)
to maintain the CHHMAC building and its facilities and if there is indeed any net income from the
lease income of the medical arts building, such will be used for respondent’s other charitable
projets.

SORIANO v. Secretary of Finance

FACTS:
On 19 May 2008, the Senate filed its Senate Committee Report No. 53 on Senate Bill No. (S.B.)
2293. On 21 May 2008, former President Gloria M. Arroyo certified the passage of the bill as
urgent through a letter addressed to then Senate President Manuel Villar. On the same day, the
bill was passed on second reading IN the Senate and, on 27 May 2008, on third reading. The
following day, 28 May 2008, the Senate sent S.B. 2293 to the House of Representatives for the
latter's concurrence.
On 17 June 2008, R.A. 9504 entitled "An Act Amending Sections 22, 24, 34, 35, 51, and 79 of
Republic Act No. 8424, as Amended, Otherwise Known as the National Internal Revenue Code
of 1997," was approved and signed into law by President Arroyo
The following are the salient features of the new law:It increased the basic personal exemption
from P20,000 for a single individual, P25,000 for the head of the family, and P32,000 for a married
individual to P50,000 for each individual.It increased the additional exemption for each dependent
not exceeding four from P8,000 to P25,000.It raised the Optional Standard Deduction (OSD) for
individual taxpayers from 10% of gross income to 40% of the gross receipts or gross sales.It
introduced the OSD to corporate taxpayers at no more than 40% of their gross income.It granted
MWEs exemption from payment of income tax on their minimum wage, holiday pay, overtime pay,
night shift differential pay and hazard pay
Accordingly, R.A. 9504 was published in the Manila Bulletin and Malaya on 21 June 2008. On 6
July 2008, the end of the 15-day period, the law took effect.
Petitioners Jaime N. Soriano et al. primarily assail Section 3 of RR 10-2008 providing for the
prorated application of the personal and additional exemptions for taxable year 2008 to begin only
effective 6 July 2008 for being contrary to Section 4 of Republic Act No. 9504.[2]Petitioners argue
that the prorated application of the personal and additional exemptions under RR 10-2008 is not
"the legislative intendment in this jurisdiction." They stress that Congress has always maintained
a policy of "full taxable year treatment" as regards the application of tax exemption laws. They
allege further that R.A. 9504 did not provide for a prorated application of the new set of personal
and additional exemptions.
Then Senator Manuel Roxas, as principal author of R.A. 9504, also argues for a full taxable year
treatment of the income tax benefits of the new law. He relies on what he says is clear legislative
intent. In his "Explanatory Note of Senate Bill No. 103," he stresses "the very spirit of enacting the
subject tax exemption law
Petitioner Trade Union Congress of the Philippine contends that the provisions of R.A. 9504
provide for the application of the tax exemption for the full calendar year 2008. It also espouses
the interpretation that R.A. 9504 provides for the unqualified tax exemption of the income of MWEs
regardless of the other benefits they receive.[14] In conclusion, it says that RR 10-2008, which is
only an implementing rule, amends the original intent of R.A. 9504, which is the substantive law,
and is thus null and void.
Petitioners Senator Francis Joseph Escudero, the Tax Management Association of the
Philippines, Inc., and Ernesto Ebro allege that R.A. 9504 unconditionally grants MWEs (minimum
wage earners) exemption from income tax on their taxable income, as wel1 as increased personal
and additional exemptions for other individual taxpayers, for the whole year 2008. They note that
the assailed RR 10-2008 restricts the start of the exemptions to 6 July 2008 and provides that
those MWEs who received "other benefits" in excess of P30,000 are not exempt from income
taxation. Petitioners believe this RR is a "patent nullity" and therefore void.
The Office of the Solicitor General (OSG) filed a Consolidated Comment and took the position
that the application of R.A. 9504 was intended to be prospective, and not retroactive. This was
supposedly the general rule under the rules of statutory construction: law will only be applied
retroactively if it clearly provides for retroactivity, which is not provided in this instance
The OSG further argues that the legislative intent of non-retroactivity was effectively confirmed
by the "Conforme" of Senator Escudero, Chairperson of the Senate Committee on Ways and
Means, on the draft revenue regulation that became RR 10-2008.
ISSUE:
WON the increased personal and additional exemptions provided by R.A. 9504 should be applied
to the entire taxable year 2008 or prorated, considering that R.A. 9504 took effect only on 6 July
2008 and WON a MWE is exempt for the entire taxable year 2008 or from 6 July 2008 only
RULING:
The policy of full taxable year treatment is established, not by the amendments introduced by R.A.
9504, but by the provisions of the 1997 Tax Code, which adopted the policy from as early as
1969.
SC ruled in the affirmative, considering that the increased exemptions were already available on
or before 15 April 1992, the date for the filing of individual income tax returns. Further, the law
itself provided that the new set of personal and additional exemptions would be immediately
available upon its effectivity. While R.A. 7167 had not yet become effective during calendar year
1991, the Court found that it was a piece of social legislation that was in part intended to alleviate
the economic plight of the lower-income taxpayers. For that purpose, the new law provided for
adjustments "to the poverty threshold level" prevailing at the time of the enactment of the law
The Court is of the considered view that Rep. Act 7167 should cover or extend to compensation
income earned or received during calendar year 1991
In sum, R.A. 9504, like R.A. 7167 in Umali, was a piece of social legislation clearly intended to
afford immediate tax relief to individual taxpayers, particularly low-income compensation earners.
Indeed, if R.A. 9504 was to take effect beginning taxable year 2009 or half of the year 2008 only,
then the intent of Congress to address the increase in the cost of living in 2008 would have been
negated.
The NIRC is clear on these matters. The taxable income of an individual taxpayer shall be
computed on the basis of the calendar year.[30] The taxpayer is required to fi1e an income tax
return on the 15th of April of each year covering income of the preceding taxable year.[31] The
tax due thereon shall be paid at the time the return is filed
In the present case, the increased exemptions were already available much earlier than the
required time of filing of the return on 15 April 2009. R.A. 9504 came into law on 6 July 2008,
more than nine months before the deadline for the filing of the income tax return for taxable year
2008. Hence, individual taxpayers were entitled to claim the increased amounts for the entire year
2008. This was true despite the fact that incomes were already earned or received prior to the
law's effectivity on 6 July 2008.
SC finds the facts of this case to be substantially identical to those of Umali. First, both cases
involve an amendment to the prevailing tax code. The present petitions call for the interpretation
of the effective date of the increase in personal and additional exemptions. Otherwise stated, the
present case deals with an amendment (R.A. 9504) to the prevailing tax code (R.A. 8424 or the
1997 Tax Code). Like the present case, Umali involved an amendment to the then prevailing tax
code - it interpreted the effective date of R.A. 7167, an amendment to the 1977 NIRC, which also
increased personal and additional exemptions. Second, the amending law in both cases reflects
an intent to make the new set of personal and additional exemptions immediately available after
the effectivity of the law. As already pointed out, in Umali, R.A. 7167 involved social legislation
intended to adjust personal and additional exemptions. The adjustment was made in keeping with
the poverty threshold level prevailing at the time. Third, both cases involve social legislation
intended to cure a social evil - R.A. 7167 was meant to adjust personal and additional exemptions
in relation to the poverty threshold level, while R.A. 9504 was geared towards addressing the
impact of the global increase in the price of goods. Fourth, in both cases, it was clear that the
intent of the legislature was to hasten the enactment of the law to make its beneficial relief
immediately available.

CIR v. BAIER-NICKEL
FACTS:
Petitioner, CIR appealed the decision of the CA
ISSUE:
RULING:

CIR v. PILIPINAS SHELL

FACTS:
Respondent is engaged in the business of processing, treating and refining petroleum for the
purpose of producing marketable products and the subsequent sale thereof. Respondent filed
several formal claims with the Large Taxpayers Audit & Investigation Division II of the BIR on the
following dates:

 On July 2002 for refund or tax credit in the total amount of P28,064,925.15,
representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to
various international carriers during the period October to December 2001.
 On October 2002, a similar claim for refund or tax credit was filed by respondent with the
BIR covering the period January to March 2002 in the amount of P41,614,827.99.
 On July 2003, a formal claim for refund or tax credit in the amount of P30,652,890.55
covering deliveries from April to June 2002.
No action was taken by petitioner on respondent’s claim, so respondent filed petitions for review
before the CTA on September and December 2003. CTA First Division ruled that respondent is
entitled to the refund of excise taxes in the reduced amount of P95,014,283.00. The CTA First
Division relied its decision on a previous ruling rendered by the CTA En Banc, where the CA also
granted respondent’s claim for refund on the basis of excise tax exemption for petroleum products
sold to international carriers of foreign registry for their use or consumption outside the
Philippines.
On appeal, CTA En Bank upheld the ruling of the First Divison. The MR was likewise denied.
Hence, this petition.
Respondent claims it is entitled to a tax refund because those petroleum products sold to the
international carriers are not subject to excise tax, hence the excise taxes it paid upon withdrawal
of those products were erroneously or illegally collected and should not have been paid in the first
place. Since the excises tax exemption attached to the petroleum products themselves, the
manufacturer or producer is under no duty to pay the excise tax thereon.

ISSUE:
WON respondent as manufacturer or producer of petroleum products is exempt from the payment
of excise tax of petroleum products it sold to international carriers.
RULING:
No. CTA’s decision is reversed and set aside. The claims for tax refund or credit filed by
respondent are DENIED for lack of basis.
Excise taxes, as the term is used in the NIRC, refer to taxes applicable to certain specified goods
or articles manufactured or produces in the Philippines for domestic sales or consumption or for
any other disposition and to things imported into the Philippines. These taxes are imposed in
addition to the VAT. As to petroleum products, Sec 148 provides that excise taxes attach to the
following refined and manufactures mineral oils and motor fuels as soon as they are in existence.
Beginning Jan 1, 1999, excise taxes levied on locally manufactured petroleum products and
indigenous petroleum are required to be paid before their removal from the place of production.
However, Sec. 135 provides: “Petroleum Products Sold to International Carriers and Exempt
Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax: (a)
International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, that the petroleum products sold to these international carriers shall be
stored in a bonded storage tank and may be disposed of only in accordance with the rules and
regulations to be prescribed by the Secretary of Finance, upon recommendation of the
Commissioner; xxx
Under Chapter II “Exemption or Conditional Tax-Free Removal of Certain Goods” of Title VI,
Sections 133, 137, 138, 139 and 140 cover conditional tax-free removal of specified goods or
articles, whereas Section 134 and 135 provide for tax exemptions. While the exemption found in
Sec 134 makes reference to the nature and quality of the goods manufactured (domestic
denatured alcohol) without regard to the tax treatment of a specified article (petroleum products)
in relation to its buyer or consumer. Respondent’s failure to make this important distinction
apparently led it to mistakenly assume that the tax exemption under Sec. 135(a) “attaches to the
goods themselves” such that the excise tax should not have been paid in the first place.
On July 1996, petitioner issued Revenue Regulations 8-96 (Excise Taxation on Petroleum
Products) which provides: Sec. 4 Time and Manner of Payment of Excise Tax on Petroleum
Products, Non-Metallic Minerals and Indigenous Petroleum. – I. Petroleum Products. xxx (a) On
locally manufactured or produced in the Philippines shall be paid by the manufacturer, producer,
owner or person having possession of the same, and such tax shall be paid within fifteen (15)
days from the date of removal from the place of production. Thus, if an airline company purchased
jet fuel from an unregistered supplier who could not present proof of payment of specific tax, the
company is liable to pay the specific tax on the date of purchase. Since the excise tax must be
paid upon withdrawal from the place of production, respondent cannot anchor its claim for refund
on the theory that the excise taxes due thereon should not have been collected of paid in the first
place. Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally collected. An
“erroneous or illegal tax” is defined as one levied without statutory authority, or upon property not
subject to taxation or by some officer having no authority to levy the tax, or one which is some
other similar respect illegal.
Respondent’s locally manufactured petroleum products are clearly subject to excise tax under
Sec. 148. Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC.
Respondent’s claim is premised on what it determined as a tax exemption “attaching to the goods
themselves” which must be based on a statute granting tax exemption or “the results of legislative
grace.” Such a claim is to be construed strictly against the taxpayer, meaning it cannot be made
to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable
as the claim for refund partakes of the nature of an exemption, the claimant must show that he
clearly falls under the exempting statute.
The exemption form excise tax payment on petroleum products under Sec. 135 (a) is conferred
on international carriers who purchased the same for their use or consumption outside the
Philippines. The only condition set by law is for these petroleum products to be stored in a bonded
storage tank and may be disposed of only in accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner.
The language of Sec. 135 indicates that the tax exemption mentioned therein is conferred on
specified buyers or consumers of the excisable articles or goods. Unlike Sec. 134 which explicitly
exempted the article or goods itself without due regard to the tax status of the buyer or purchaser,
Sec. 135 exempts from excise tax petroleum products which were sold to international carriers
and other tax-exempt agencies and entities.
Because an excise tax is a tax on the manufacturer and not on the purchaser, and there being no
express grant under the NIRC of exemption from payment of excise tax to local manufacturers of
petroleum products sold to international carriers and absent any provision in the Code authorizing
the refund or crediting of such excise taxes paid, the Court holds that Sec. 135 (a) should be
construed as prohibiting the shifting of the burden of the excise tax to the international carriers
who buys petroleum products from the local manufacturers. Said provision thus merely allows
international carriers to purchase petroleum products without the excise tax component as an
added cost in the price fixed by the manufacturers or distributors/sellers. Consequently, the oil
companies which sold such petroleum products to international carriers are not entitled to a refund
of excise taxes previously paid on the goods.

CIR v. SMART COMMUNICATIONS

FACTS:
ISSUE:
RULING: