- payments are fictitious because most of the payees are
PHIL. GUARANTY CO., INC. v. CIR
GR No. L-22074, April 30, 1965
13 SCRA 775
FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic
insurance company, entered into reinsurance
contracts with foreign insurance companies not doing business
in the country, thereby ceding to foreign
reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines. The premiums
paid by such companies were excluded by the petitioner from its
gross income when it file its income tax returns
for 1953 and 1954. Furthermore, it did not withhold or pay tax on
them. Consequently, the CIR assessed against
the petitioner withholding taxes on the ceded reinsurance
premiums to which the latter protested the
assessment on the ground that the premiums are not subject to
tax for the premiums did not constitute income
from sources within the Philippines because the foreign
reinsurers did not engage in business in the Philippines,
and CIR's previous rulings did not require insurance companies
to withhold income tax due from foreign
companies.
ISSUE: Are insurance companies not required to withhold tax on
reinsurance premiums ceded to foreign
insurance companies, which deprives the government from
collecting the tax due from them?
HELD: No. The power to tax is an attribute of sovereignty. It is a
power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a
means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps
of civil servants to serve, public improvement
designed for the enjoyment of the citizenry and those which
come within the State's territory, and facilities and
protection which a government is supposed to provide.
Considering that the reinsurance premiums in question
were afforded protection by the government and the recipient
foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the
state.
The petitioner's defense of reliance of good faith on rulings of
the CIR requiring no withholding of tax due on
reinsurance premiums may free the taxpayer from the payment
of surcharges or penalties imposed for failure to
pay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay such
withholding tax. The Government is not estopped from collecting
taxes by the mistakes or errors of its agents.
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988
Facts:
· Algue Inc. is a domestic corp engaged in engineering,
construction and other allied activities
· On Jan. 14, 1965, the corp received a letter from the CIR
regarding its delinquency income taxes from 1958-1959, amtg
to P83,183.85
· A letter of protest or reconsideration was filed by Algue Inc on
Jan 18
· On March 12, a warrant of distraint and levy was presented to
Algue Inc. thru its counsel, Atty. Guevara, 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 corp was produced and given to BIR Agent Reyes, who
deferred service of the warrant
· On April 7, 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
· On April 23, Algue filed a petition for review of the decision of
the CIR with the Court of Tax Appeals
· CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary
business expense
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: W/N the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by Algue as
legitimate business expenses in its income tax returns
Ruling:
· Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance, made in accordance
with law.
· RA 1125: the appeal may be made within thirty days after
receipt of the decision or ruling challenged
· During the intervening period, the warrant was premature and
could therefore not be served.
· Originally, CIR claimed that the 75K promotional fees to be
personal holding company income, but later on conformed to the
decision of CTA
· There is no dispute that the payees duly reported their
respective shares of the fees in their income tax returns and paid
the corresponding taxes thereon. CTA also found, after
examining the evidence, that no distribution of dividends was
involved
· CIR suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction
· Algue Inc. was a family corporation where strict business
procedures were not applied and immediate issuance of receipts
was not required. at the end of the year, when the books were
to be closed, each payee made an accounting of all of the fees
received by him or her, to make up the total of P75,000.00. This
arrangement was understandable in view of the close
relationship among the persons in the family corporation
· The amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate
Development Co. to Algue Inc. was P125K. After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the
total commission. This was a reasonable proportion, considering
that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties.
· Sec. 30 of the Tax Code: allowed deductions in the net income
– Expenses - All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered xxx
· the burden is on the taxpayer to prove the validity of the claimed
deduction
· In this case, Algue Inc. 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.
· Taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power
to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing
authorities, every person who is able to must contribute his
share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance
their moral and material values
· Taxation must be exercised reasonably and in accordance with
the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor
Algue Inc.’s appeal from the decision of the CIR was filed on
time with the CTA in accordance with Rep. Act No. 1125. And
we also find that the claimed deduction by Algue Inc. was
permitted under the Internal Revenue Code and should
therefore not have been disallowed by the CIR
ASSOCIATION OF SMALL LANDOWNERS V. SECRETARY
OF DAR
Note: The relevance of this case with regard to tax is the
matter regarding the excercise of the power of taxation
as an implement of police power and the power of
eminent domain.
FACTS: These are consolidated cases involving common
legal questions including serious challenges to the
constitutionality of R.A. No. 6657 also known as the
"Comprehensive Agrarian Reform Law of 1988"
In G.R. No. 79777, the petitioners are questioning the
P.D No. 27 and E.O Nos. 228 and 229 on the grounds
inter alia of separation of powers, due process, equal
protection and the constitutional limitation that no
private property shall be taken for public use without
just compensation.
In G.R. No. 79310, the petitioners in this case claim that
the power to provide for a Comprehensive Agrarian
Reform Program as decreed by the Constitution belongs
to the Congress and not to the President, the also allege
that Proclamation No. 131 and E.O No. 229 should be
annulled for violation of the constitutional provisions on
just compensation, due process and equal protection.
They contended that the taking must be simultaneous
with payment of just compensation which such
payment is not contemplated in Section 5 of the E.O No.
229.
In G.R. No. 79744, the petitioner argues that E.O Nos.
228 and 229 were invalidly issued by the President and
that the said executive orders violate the constitutional
provision that no private property shall be taken
without due process or just compensation which was
denied to the petitioners.
In G.R. No 78742 the petitioners claim that they cannot
eject their tenants and so are unable to enjoy their right
of retention because the Department of Agrarian
Reform has so far not issued the implementing rules of
the decree. They therefore ask the Honorable Court for
a writ of mandamus to compel the respondents to issue
the said rules.
ISSUE: WON the case involves the excercise of Police
Power or Power of Eminent Domain
HELD: Power of Eminent Domain. There are traditional
distinctions between the police power and the power of
eminent domain that logically preclude the application
of both powers at the same time on the same subject.
Recent trends, however, would indicate not a
polarization but a mingling of the police power and the
power of eminent domain, with the latter being used
as an implement of the former like the power of
taxation. The employment of the taxing power to
achieve a police purpose has long been accepted.
CIR v. Central Luzon Drug Corporation
Facts:
Respondents operated six drugstores under the business
name Mercury Drug. From January to December 1996
respondent granted 20% sales discount to qualified
senior citizens on their purchases of medicines pursuant
to RA 7432 for a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual Income Tax
Return for taxable year 1996 declaring therein net losses.
On Jan. 16, 1998 respondent filed with petitioner a claim
for tax refund/credit of ₱ 904,769.00 allegedly arising
from the 20% sales discount. Unable to obtain
affirmative response from petitioner, respondent
elevated its claim to the Court of Tax Appeals. The court
dismissed the same but upon reconsideration, the latter
reversed its earlier ruling and ordered petitioner to issue
a Tax Credit Certificate in favor of respondent citing CA
GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp.
vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively
with illegally collected or erroneously paid taxes but that
there are other situations which may warrant a tax
credit/refund.
CA affirmed Court of Tax Appeal's decision reasoning that
RA 7432 required neither a tax liability nor a payment of
taxes by private establishments prior to the availment of
a tax credit. Moreover, such credit is not tantamount to
an unintended benefit from the law, but rather a just
compensation for the taking of private property for
public use.
Issue:
Whether or not respondent, despite incurring a net loss,
may still claim the 20% sales discount as a tax credit.
Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior
citizens the privilege of obtaining a 20% discount on their
purchase of medicine from any private establishment in
the country. The latter may then claim the cost of the
discount as a tax credit. Such credit can be claimed even
if the establishment operates at a loss.
A tax credit generally refers to an amount that is
“subtracted directly from one’s total tax liability.” It is
an “allowance against the tax itself” or “a deduction
from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax
concepts. One of these is tax deduction – which is
subtraction “from income for tax purposes,” or an
amount that is “allowed by law to reduce income prior to
the application of the tax rate to compute the amount of
tax which is due.” In other words, whereas a tax credit
reduces the tax due, tax deduction reduces the income
subject to tax in order to arrive at the taxable income.
A tax credit is used to reduce directly the tax that is due,
there ought to be a tax liability before the tax credit can
be applied. Without that liability, any tax credit
application will be useless. There will be no reason for
deducting the latter when there is, to begin with, no
existing obligation to the government. However, as will
be presented shortly, the existence of a tax credit or its
grant by law is not the same as the availment or use of
such credit. While the grant is mandatory, the availment
or use is not. If a net loss is reported by, and no other
taxes are currently due from, a business establishment,
there will obviously be no tax liability against which any
tax credit can be applied. For the establishment to
choose the immediate availment of a tax credit will be
premature and impracticable.
However, RA 9257 now specifically provides that all
covered establishments may claim the senior citizens'
discount as tax deduction.
Contrary to the provision in RA 7432 where the senior
citizens' discount granted by all covered establishments
can be claimed as tax credit, RA 9257 now specifically
provides that this discount should be treated as tax
deduction.
With the effectivity of RA 9257 on 21 March 2004, there
is now a new tax treatment for senior citizens' discount
granted by all covered establishments. This discount
should be considered as a deductible expense from gross
income and no longer as tax credit.
The present case, however, covers the taxable year 1997
and is thus governed by the old law, RA 7432.
PB Com V. CIR (1999)
G.R. No. 112024 January 28, 1999
FACTS:
Petitioner PBCom reported on its annual Income
Tax Return for the year 1985 and 1986 a net loss
of P 25, 317, 228 and P 14, 129 602 respectively.
But during both year, PBCom's lessees withheld
creditable taxes of P 282 795.50 in 1985 and P
234, 077.69 in 1986.
August 7, 1987: PBCom requested a tax credit for
the overpayment of taxes in the 1st and 2nd
quarters.
July 25, 1988: PBCom filed a claim for refund of
creditable taxes withheld by lessees.
Pending the investigation, it filed a Petition for
Review before the CTA who denied its request for
filing beyond the 2-year reglementary period
provided by Sec. 292 and 295 of the NIRC and the
claim for 1986 was denied based on the
assumption that it was automatically credited for
the succeeding year as shown in its 1986 adjusted
final corporate annual tax return.
PBCom filed a Motion for Reconsideration and then
a Petition for Review with the CA which affirmed
the CTA's decision.
It raised the matter to the SC where it argues that
it relief on Rev. Memorandum Circular No. 285
issued April 1, 1985 that provides that the
prescriptive period for overpayment is NOT 2 years
but 10 years under Art. 114 of the Civil Code
ISSUE:
1. W/N PBCom can rely on RMC No. 785 changing
the prescriptive period from 2 to 10 years
2. W/N PBCom can be assumed to assail of tax
crediting
HELD: petition is DENIED
1. No.
Taxes are the lifeblood of the nation. Due process
of law under the Constitution does not require
judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that
the government chiefly relies to obtain the means
to carry on its operations and it is of utmost
importance that the modes adopted to enforce the
collection of taxes levied should be summary and
interfered with as little as possible.
From the same perspective, 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.
Sec. 230 of the National Internal Revenue Code
(NIRC) of 1977 (now Sec. 229, NIRC of 1997)
provides for the prescriptive period for filing a court
proceeding with the CIR for the recovery of tax
erroneously or illegally collected within 2 years
after payment of tax (computed from the time of
filing the Adjustment Return and final payment of
the tax for the year), before any suit in CTA is
commenced.
Through the issuance of RMC 7-85, the BIR did
NOT simply interpret the law but legislated
guidelines contrary to the statute passed by
Congress
RMCs are considered administrative ruling in the
same of more specific and less specific and less
general interpretations of tax laws issued by the
CIR. It is entitled great respect by the courts.
Nevertheless, such interpretation is not conclusive
and will be ignored if judicially found to be
erroneous.
Art. 8 of the Civil Code 26 recognizes judicial
decisions, applying or interpreting statutes as part
of the legal system of the country. But
administrative decisions do not enjoy that level of
recognition.
Fundamental is the rule that the State cannot be
put in estoppel by the mistakes or errors of its
officials or agents
Non-retroactivity of rulings by the Commissioner of
Internal Revenue is not applicable in this case
because the nullity of RMC No. 7-85 was declared
by respondent courts and not by the Commissioner
of Internal Revenue
Claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi
juris against the taxpayer.
2. Yes.
Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997
NIRC) provides that any excess of the total
quarterly payments over the actual income tax
computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to
the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the
quarters of the succeeding taxable year.
Remedies are in the alternative, and the choice of
one precludes the other.
Since credit is opted, can no longer refund.
CASE DIGEST: DOUBLE TAXATION
NURSERY CARE CORPORATION, ET AL, vs.
ACEVEDO, G.R. No. 180651, July 30, 2014
FACTS OF THE CASE:
The CITY OF MANILA assessed and collected
taxes from the individual petitioners pursuant to
Section 15 (Tax on Wholesalers, Distributors, or
Dealers) and Section 17 (Tax on Retailers) of the
Revenue Code of Manila. At the same time, the
CITY OF MANILA imposed additional taxes upon the
petitioners pursuant to Section 21 of the Revenue
Code of Manila, as amended, as a condition for the
renewal of their respective business licenses for
the year 1999.
SECTION 21 OF THE REVENUE CODE OF MANILA
stated: Section 21.Tax on Business Subject to the
Excise, Value-Added or Percentage Taxes under the
NIRC - On any of the following businesses and
articles of commerce subject to the excise, VALUE-
ADDED OR PERCENTAGE TAXES under the National
Internal Revenue Code,hereinafter referred to as
NIRC, as amended, a tax of FIFTY PERCENT (50%)
OF ONE PERCENT (1%) per annum on the gross
sales or receipts of the preceding calendar year is
hereby imposed: A) On person who sells goods and
services in the course of trade or businesses;
PROVIDED, that all registered businesses in the City
of Manila already paying the aforementioned tax
shall be exempted from payment thereof.
To comply with the City of Manila’s
assessment of taxes under Section 21, the
PETITIONERS paid under protest the following
amounts corresponding to the first quarter of 1999,
to wit: (a) Nursery Care Corporation ₱595,190.25;
(b) Shoemart Incorporated ₱3,283,520.14;(c) Star
Appliance Center ₱236,084.03; (d) H & B, Inc.
₱1,271,118.74; (e) Supplies Station, Inc.
₱239,501.25; (f) Hardware Work Shop,
Inc. ₱609,953.24. By letter dated March 1, 1999,
the PETITIONERS formally requested the Office of
the City Treasurer for the tax credit or refund of
the local business taxes paid under protest.
However, then City Treasurer Anthony
Acevedo(Acevedo) denied the request.
On April 8, 1999, the PETITIONERS, sought
the reconsideration of the denial of their request.
Still, the
CITY TREASURER did not reconsider. In the
meanwhile, Liberty Toledo succeeded Acevedo as
the City Treasurer of Manila. PETITIONERS filed
their respective petitions for certiorari in the
Regional Trial Court (RTC) in Manila.
RTC held that it perceives NO INSTANCE OF
THE CONSTITUTIONALLY PROSCRIBED DOUBLE
TAXATION
, in the strict, narrow or obnoxious sense, imposed
upon the petitioners under Section 15 and 17, on
the one hand, and under Section 21, on the other,
of the questioned Ordinance. The tax imposed
under Section 15 and 17,
as against that imposed under Section 21, are
levied against different tax objects or subject
matter. The tax under
Section 15 is imposed upon wholesalers,
distributors or dealers, while that under
Section17 is imposed upon retailers. In short, taxes
imposed under Section 15 and 17 is a tax on the
business of wholesalers, distributors, dealers and
retailers. On the other hand, the tax imposed upon
herein petitioners under Section 21 is
not a tax against the business of the petitioners (as
wholesalers, distributors, dealers or retailers) but is
rather a tax against consumers or end-users of the
articles sold by petitioners. CA affirmed the
decision of the RTC.
ISSUE:
Whether or not the collection of taxes
under Section 21 of Ordinance No. 7794, as
amended, constitutes double taxation.
RULING:
There is DOUBLE TAXATION when the same
taxpayer is taxed twice when he should be taxed
only once for the
same purpose by the same taxing authority within
the same jurisdiction during the same taxing period
, and the taxes are of the same kind or character.
DOUBLE TAXATION is obnoxious.
Using the aforementioned test, the COURT
finds that there is INDEED DOUBLE TAXATION
IF RESPONDENT IS SUBJECTED TO THE
TAXESUNDER BOTH SECTIONS 14 AND 21 OF TAX
ORDINANCE NO. 7794
, since these are being imposed:
(1) on thesame subject matter - the
privilege of doing business in the City of Manila;
 (2) for the same purpose – to make persons
conducting business within the City ofManila
contribute to city revenues;
(3) by the same taxing authority – petitioner
City of Manila;
(4) within the same taxing jurisdiction
- within the territorial jurisdiction of the City of
Manila;
(5) for thesame taxing periods – per
calendar year; and
(6) of the same kind or character - a local
business tax imposed on gross sales or receipts of
the business.
Based on the foregoing reasons,
PETITIONER should not have been subjected to
taxes under Section 21 of the Manila Revenue Code
for the fourth quarter of 2001, considering that
it had already been paying local business tax under
Section 14 of the same ordinance.
to the Secretary of Finance in regard to the
occurrence of either of two events using the GDP
as a benchmark necessarily and inherently required
extended analysis and evaluation, as well as policy
making.
Petitioners also reiterate their argument that the
input tax is a property right. Petitioners also
contend that even if the right to credit the input VAT
is merely a statutory privilege, it has already
evolved into a vested right that the State cannot
remove.
ISSUE: Whether input tax is a property right
Ruling: No, the Court reiterates that input tax is not
a property right and a VAT-registered person’s
entitlement to the creditable input tax is a mere
statutory privilege. The right to credit input tax is a
mere creation of law

Accordingly, respondent’s assessment under both

Sections 14 and 21 had no basis. PETITIONER is
indeed liable to pay business taxes to the City of
Manila; nevertheless, considering that the
FORMER has already paid these taxes under
Section 14 of the Manila Revenue Code, it is
exempt from the same payments under Section 21
of the same code. Hence, payments made under
Section 21 must be refunded in favor of petitioner.
It is undisputed that PETITIONER paid business
taxes based on Sections 14 and 21 for the fourth
quarter of 2001 in the total amount of
₱470,932.21. Therefore, it is ENTITLED TO A
REFUND OF ₱164,552.04
corresponding to the payment under Section 21 of
the Manila Revenue Code.

In fine, the IMPOSITION OF THE TAX UNDER

SECTION 21 OF THE REVENUE CODE OF MANILA
constituted double taxation, and the taxes
collected pursuant thereto must be refunded.

ABAKADA v. ERMITA
FACTS: Escudero questions the validity of RA
9377 and claims that it grossly violates the
constitutional imperative on exclusive origination of
revenue bills under Section 24 of Article VI of the
Constitution when the Senate introduced
amendments not connected to VAT
Petitioners also reiterate that the stand-by authority
to the Executive to increase the VAT rate,
especially on account of the recommendatory
power granted to the Secretary of Finance,
constitutes undue delegation of legislative power.
They submit that the recommendatory power given