To be exempt from income taxes, Section 30 (E) of the NIRC requires that a
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: De La Salle University, Inc.
SUMMARY: In 2004, the BIR issued a Letter of Authority to DLSU to examine its
books of accounts and accounting records. It assessed it for deficiency income tax on
rental earnings from restaurants/canteens and bookstores; VAT on business income;
and documentary stamp tax on loans and lease contracts. DLSU protested the
assessment, relying on Art. XIV Sec. 4(3) of the Constitution which provides that
“All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties...” The CIR argued that DLSU’s rental income is taxable regardless
of how such income is derived, used, or disposed of, based on Sec. 30 (H) of the Tax
Code. The issue is whether DLSU’s income and revenues proved to have been
actually, directly, and exclusively used for educational purposes are exempt from
duties and taxes. The Court held that the Tax Code does not qualify the
constitutionally-granted exemption to NSNP educational institutions, and it is
conditioned only on the actual, direct and exclusive use of their assets, revenues and
income for educational purposes.
DOCTRINE: When a non-stock, non-profit educational institution proves that it
uses its revenues actually, directly, and exclusively for educational purposes, it shall
be exempted from income tax, VAT, and local business tax. On the other hand, when
it also shows that it uses its assets in the form of real property for educational
purposes, it shall be exempted from real property tax.
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: St. Luke’s Medical Center Inc.
SUMMARY:
St. Luke’s is a hospital organized as a non-stock and non-profit corporation. BIR
assessed St. Luke’s deficiency taxes amounting to P76, 063,116.06 comprised of
deficiency income tax, value-added tax, withholding tax on compensation and
expanded withholding tax. The BIR reduced the amount to P63, 935, 351.57 during
trial in the First Division of CTA. St. Luke’s filed an administrative protest with the
BIR against the deficiency tax assessments. BIR argued that Section 27 (B) of the
NIRC, which imposes a 10% preferential tax rate on the income proprietary non-
profit hospitals should be applicable to St. Luke’s.
Issue: W/N St. Luke’s is liable for deficiency income tax on 1998 under Section 27
(B) of the NIRC which imposes a preferential tax rate of 10% on the income of
proprietary non-profit hospitals? Yes. The Court finds that St. Luke’s is a corporation
that is not “operated exclusively” for charitable or social welfare purposes insofar as
its revenues from paying patients are concerned.
DOCTRINE:
charitable institution must be "organized and operated exclusively" for charitable
purposes. Likewise, to be exempt from income taxes, Section 30 (G) of the NIRC
requires that the institution be "operated exclusively" for social welfare.
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: CA, and YMCA
SUMMARY: YMCA is a non-stock, non-profit institution. It earned income by
leasing a portion of its premises to restaurant and canteen operators. It also earned
income from parking fees collected from non-members. CIR issued an assessment
stating that YMCA had deficiency income tax. YMCA protested and filed with the
CTA. CTA ruled in favor of YMCA. CIR appealed to CA. CA eventually ruled in
favor of YMCA. CIR filed a petition for review in the SC. CIR argued that YMCA is
not exempt from income taxes, as found in Sec. 27 of NIRC. (fact #7 for the law)
YMCA argued that they are exempt since their activities are not conducted for profit
and as provided in Constitution.
The issue is WON the rental income of YMCA is taxable and not exempt. SC ruled
that YES it is taxable and not exempted from income tax.
As Sec. 27 provides, income of the exempt organizations, such as YMCA, from any
of their real properties, be subject to the taxed imposed by NIRC. In the Constitution,
tax exemption covers property only.
DOCTRINE:
The income of exempt organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax imposed by the same Code.
The law does not make a distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or disposed of.
For the YMCA to be granted the exemption it claims under the aforecited
provision (Art. XIV Sec. 4 (3) of the Constitution.), it must prove with
substantial evidence that:
a. it falls under the classification non-stock, non-profit educational
institution; and
b. the income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes.
PETITIONER: Eusebio Villanueva, et. al.
RESPONDENTS: City of Iloilo
SUMMARY: Eusebio Villanueva and Remedios S. Villanueva are owners of five
tenement houses, aggregately containing 43 apartments. The municipal board of
Iloilo City enacted Ordinance 11, “An Ordinance Imposing Municipal License Tax
on Persons Engaged in the Business of Operating Tenement Houses”. Eusebio
Villanueva has been paying real estate taxes on his property. However, by virtue of
the ordinance in question, the City collected from spouses Villanueva, for the years
1960-1964, the sum of P5,824.30 and from the other appellants the sum of
P1,317.00. Thus, Villanueva et. al. filed a complaint against the City of Iloilo,
praying that Ordinance 11 be declared "invalid” for constituting double taxation.
Villanueva et.al contents is that they are doubly taxed because they are paying the
real estate taxes and the tenement tax imposed by the ordinance in question.
The issue is WON Ordinance 11 is illegal for imposing double taxation. The SC said
that while it is true that they are taxable as real estate dealers (income tax) and still
taxable under the ordinance, the argument against double taxation may not be
invoked. The same tax may be imposed by the national government as well as by the
local government. There is nothing inherently obnoxious in the exaction of license
fees or taxes with respect to the same occupation, calling or activity by both the State
and a political subdivision thereof. It is a well-settled rule that a license tax may be
levied upon a business or occupation although the land or property used in
connection therewith is subject to property tax. In order to constitute double taxation
in the objectionable or prohibited sense the same property must be taxed twice when
it should be taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of tax. It has been shown that a
real estate tax and the tenement tax imposed by the ordinance, although imposed by
the same taxing authority, are not of the same kind or character. At all events, there
is no constitutional prohibition against double taxation in the Philippines. It is
something not favored, but is permissible, provided some other constitutional
requirement is not thereby violated, such as the requirement that taxes must be
uniform.
DOCTRINE: In order to constitute double taxation in the objectionable or
prohibited sense the same property must be taxed twice when it should be taxed
but once; both taxes must be imposed on the same property or subject-matter,
for the same purpose, by the same State, Government, or taxing authority,
within the same jurisdiction or taxing district, during the same taxing period,
and they must be the same kind or character of tax.
PETITIONER: Republic Bank
RESPONDENTS: CTA and CIR
SUMMARY: Republic Bank was assessed a 1% monthly bank reserve deficiency on
1969 and 1970 with 25% surcharge. Both assessments were requested to be
reconsidered but both were denied. Republic Bank contends that Sec. 249 of the Tax
Code is no longer enforceable, because Sec. 126 of Act 1459 (the alleged basis for
the imposition of the 1% reserve deficiency tax) was repealed by Sec. 90 of the
General Banking Act and by Secs. 100 and 101 of RA 265. Hence, 2 separate petrevs
were filed with CTA contesting the assessments. These were consolidated and the
CTA dismissed the petition and upheld the validity of the assessments. Unsatisfied,
Republic Bank filed a petrev with SC.
The issue to resolved relevant to the class is w/n there was double taxation to which
the court held no, since one was a penalty, the other a tax.
DOCTRINE: The Court has upheld the validity of double taxation. The payment of
1/10 of 1% for incurring reserve deficiencies is a penalty as the primary purpose
involved is regulation, while the payment of 1% for the same violation is a tax for
the generation of revenue which is the primary purpose in this instance.
PETITIONER: Province of Bulacan, Roberto Pagdanganan (Provincial Governor),
Florence Chavez (Provincial Treasurer), and Manuel Siayngco (Provincial Legal
Advise)
RESPONDENTS: Court of Appeals and Republic Cement Corporation
SUMMARY:
The province of Bulacan, based on its ordinance, issued an assessment against
Republic Cement Corporation amounting to P 2,524,692.13. The assessment was for
taxes on the extraction of quarry resources on several of its private land. Republic
Corporation then contested the assessment claiming that it was issued without
authority. The issue is whether the province can levy taxes on quarry resources
extracted from private lands.
The SC held that a province has no authority to impose taxes on stones, sand, gravel,
earth and other quarry resources extracted on private land. It is clearly apparent that
the National Internal Revenue Code levies a tax on all quarry resources, regardless of
origin, whether extracted from public or private land. Section 131 of the LGC
prohibits the imposition of excise taxes on articles enumerated under the NIRC.
DOCTRINE:
A province may not ordinarily impose taxes on stones, sand, gravel, earth and other
quarry resources, as the same are already taxed under the NIRC.
PETITIONER: Swedish Match Philippines, Inc.
RESPONDENTS: Treasurer of the City of Manila
SUMMARY:
Swedish Match paid business taxes based on Sec. 14 and Sec. 21 of Manila Revenue
Code. After, it filed for Refund of business taxes paid under Sec. 21 on the ground of
double taxation. RTC and CTA dismissed Petition for Refund.
The SC ruled that payment of tax under Sec. 21 constitutes double taxation in view
of tax paid under Sec. 14. Six requisites were satisfied.
There is indeed double taxation if respondent is subjected to the taxes under both
Sections 14 and 21 of Manila Revenue Code, since these are being imposed:
 1. on the same 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
of Manila 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 the same 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
Swedish Match gets a refund.
DOCTRINE:
Double taxation means taxing the same property twice when it should be taxed only
once; that is, "taxing the same person twice by the same jurisdiction for the same
thing."
Petitioners: DELPHER TRADES CORPORATION (Delphin)and DELPHIN
PACHECO
Respondents: IAC and HYDRO PIPES PHILIPPINES, INC (Hydro)
Summary:
Delfin Pacheco and Pelagia Pacheco, were the owners of 27,169 square meters of
real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo.
Said co-owners leased to Construction Components International Inc. the same
property and providing that during the existence or after the term of this lease the
lessor should he decide to sell the property leased shall first offer the same to the
lessee. Lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. A
deed of exchange was executed between lessors Delfin and Pelagia Pacheco and
defendant Delpher Trades Corporation whereby the former conveyed to the latter the
leased property together with another parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant
corporation with a total value of P1,500,000.00. Hydro Pipes Philippines, Inc., filed
an amended complaint for reconveyance of Lot. Our issue is Whether or not the
series of transactions that have happened in the case involves a strategy to escape
taxes? YES. In effect, the Delpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to invest their properties and change the nature
of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time save on
inheritance taxes.
Doctrine:
The records do not point to anything wrong or objectionable about this “estate
planning” scheme resorted to by the Pachecos. The legal right of a taxpayer to
decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means of which the law permits, cannot be doubted. What
they did was merely change the form of their ownership form unincorporated to
incorporated, to take control of their properties and save on inheritance taxes.
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: The Estate of Benigno Toda JR. Represented by Special CO-
Administrators Lorna Kapunan And Maria Luz Bautista
SUMMARY:
On 2 March 1989, CIC (Cibeles Insurance Corporation) authorized Benigno P. Toda,
Jr., President and owner of 99.991% of its issued and outstanding capital stock, to
sell the Cibeles Building and the 2 parcels of land on which the building stands for
an amount of not less than P90 million. Toda purportedly sold the property for P100
million to Rafael Altonaga, who, in turn, sold the same property on the same day to
Royal Match Inc. (RMI) for P200 million. For the sale of the property to RMI,
Altonaga paid P10 million in capital gains tax. Toda then died. On 29 March 1994,
the Bureau of Internal Revenue (BIR) sent an assessment notice and demand letter to
the CIC for deficiency income tax for the year 1989. On 27 January 1995, the Estate
of Benigno P. Toda, Jr., received a Notice of Assessment dated 9 January 1995 from
the CIR for deficiency income tax for the year 1989 in the amount
of P79,099,999.22,. The Estate thereafter filed a letter of protest. The CTA held that
the CIR failed to prove that CIC committed fraud to deprive the government of the
taxes due it. The CA affirmed the decision of the CTA, reasoning that the CTA,
being more advantageously situated and having the necessary expertise in matters of
taxation, is better situated to determine the correctness, propriety, and legality of the
income tax assessments assailed by the Toda Estate.
The Issue in this case is WoN the schemes by Toda and CIC amounted to Tax
Evasion. The court ruled YES.
The execution of the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability. 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. Altonagas 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.
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. the
intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the
mitigation of tax liabilities than for legitimate business purposes constitutes one of
tax evasion.
DOCTRINE: Tax evasion connotes the integration of three factors: (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; and (3) a course of action or failure of
action which is unlawful.
The transaction must be viewed as a whole, and each step from the
commencement of negotiations to the consummation of the sale is relevant. A
sale by one person cannot be transformed for tax purposes into a sale by
another by using the latter as a conduit through which to pass title. To permit
the true nature of the transaction to be disguised by mere formalisms, which
exist solely to alter tax liabilities, would seriously impair the effective
administration of the tax policies of Congress.
PETITIONERS: Smart Communications, Inc.
RESPONDENTS: City of Davao, represented by Rodrigo Du30 and Sangguniang
Panlunsod of Davao City.
SUMMARY: Smart filed an action for declaratory relief from paying taxes in Davao
City because the latter’s tax code imposed a tax on businesses enjoying a franchise.
It argued that the issuance of its franchise shows the clear legislative intent to exempt
it from LGC provisions. That LGC provisions can only apply to exemptions already
existing at the time of its effectivity. It also argued that City of Davao’s imposition of
franchise tax would constitute a violation of the constitutional provision against
impairment of contracts. The RTC and SC the denied the petition. The SC said that
despite Smart’s franchise was enacted before the Local Government Code and the
prospective application of the latter’s provision, the “in lieu of all taxes” phrase was
ambigious and did not exempt it from local taxes. In addition, there was no express
provision in R.A. 7294 (its franchise charter) that it was exempt from local taxes.
*Insert doctrine here* The in lieu of taxes clause in Smart’s franchise refers only to
taxes, other than income tax, imposed under the National Internal Revenue Code.
The in lieu of taxes clause DOES NOT apply to local taxes. SC also said that Smart
merely enjoys a tax exclusion, not a tax exemption. A tax exemption means that the
taxpayer does not pay any tax at all. However, as previously held by the Court, both
in their nature and effect, there is no essential difference between a tax exemption
and a tax exclusion. Hence the doctrine that tax exemptions are construed strictly
against the taxpayer applies equally to tax exemptions. Without express provision
providing for exemption, the Court must rule against Smart.
DOCTRINE: The SC ruled that tax exemptions can only be given force when
the grant is clear and categorical. The surrender of the power to tax, when
claimed, must be clearly shown in a language that will admit of no reasonable
construction consistent with the reservation of the power. If the intention of the
legislature is open to doubt, then the intention of the legislature must be resolved in
favor of the State.
PETITIONER: National Development Company
RESPONDENTS: Commissioner of Internal Revenue
SUMMARY: NDC entered into contracts in Tokyo with several Japanese
shipbuilding companies for construction of 12 ocean-going vessels. Purchase price
will come from proceeds of bonds issued by Central Bank. NDC remitted to the
shipbuilders US$4,006,580.70 as interest on the balance of the purchase price. No
tax was withheld. Commissioner held that NDC is liable on such tax for
PP5,115,234.74. Negotiations failed. BIR served NDC a warrant of distraint and levy
to enforce collection. CTA sustained BIR decision. The main issue in this case is
WON the interest payments were obligations of the RP and that promissory
notes of the NDC were government securities exempt from taxation under Sec.
29(b)[4] (check footnote 2nd page) of the Tax Code. The Court held that there
was no basis for such claim. The law invoked by the petitioner as authorizing the
issuance of securities is R.A. No. 1407, which in fact is silent on this matter. C.A.
No. 182 as amended by C.A. No. 311 does carry such authorization but, like R.A.
No. 1407, does not exempt from taxes the interests on such securities. Also incorrect
for NDC to assert that RP cannot collect taxes on interest remitted because of the
undertaking by the Secretary of Finance on the promissory notes. There is nothing in
the undertaking exempting interests from taxes. Tax exemptions cannot be merely
implied but must be categorically and unmistakably expressed. Any doubt
concerning this question must be resolved in favor of the taxing power.
DOCTRINE: Tax exemptions cannot be merely implied but must be
categorically and unmistakably expressed. Any doubt concerning this question
must be resolved in favor of the taxing power.
DEAUTCHE VS. CIR
PETITIONER: Commissioner on Internal Revenue
RESPONDENT: Pilipinas Shell Corporation
SUMMARY: Shell filed a claim for refund for excise taxes it paid on sales of gas
and fuel oils to various international carriers. The SC initially denied the claims so
Pilipinas Shell filed this MR. So the issue now is whether or not Shell is entitled to
refund for payment of the excise taxes? Yes. The Court held that the respondent, as
the statutory taxpayer who is directly liable to pay the excise tax on its petroleum
products, is entitled to a refund or credit of the excise taxes it paid for petroleum
products sold to international carriers, the latter having been granted exemption from
the payment of said excise tax under Sec. 135 (a) of the NIRC.
PETITIONER: Philippine Airlines, Inc.
RESPONDENTS: Commissioner of Internal Revenue
SUMMARY:
Caltex sold liters of imported Jet A-1 fuel to PAL. Caltex filed with BIR its Excise
Tax Returns for Petroleum Products. PAL received from Caltex a Billing Invoice for
the purchased fuel reflecting the related excise taxes on the transaction. PAL sought
a refund of the excise taxes passed on to it by Caltex. It hinged its tax refund claim
on its franchise (PD 1590) which conferred upon it certain tax exemption privileges
on its purchase and/or importation of aviation gas, fuel and oil, including those
which are passed on to it by the seller and/or importer thereof. CTA denied PAL's
petition on the ground that only a statutory taxpayer (Caltex) may seek a refund of
the excise taxes it paid. Also, PAL's claim for refund should be denied because LOI
1483 already withdrew the tax exemption privileges previously granted to it.
SC held that PAL has legal personality to file a claim for refund of the passed on
excise taxes because PAL’s franchise grants it an exemption from both direct and
indirect. (See doctrine). Also, LOI 1483 was meant to divest PAL from the its tax
exemption for domestic sales not sales based on imported goods. What PAL
purchased from CALTEX are "things imported.” Hence, PAL is still allowed to
claim a tax refund.
DOCTRINE:
franchise provides an exemption from both direct or indirect taxes
 a claimant is entitled to a tax refund even if it only bears the economic
burden of the applicable tax
franchise provides an exemption from direct taxes
 statutory taxpayer is regarded as the proper party to file the refund claim
cir vs. tobacco
PETITIONER: Ernesto M. Macariag
RESPONDENTS: HON. CATALINO MACARAIG, JR., in his capacity as
Executive Secretary, Office of the President; HON. VICENTE R. JAYME, in his
capacity as Secretary of the Department of Finance; HON. SALVADOR MISON, in
his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG, in his
capacity as Commissioner of Internal Revenue; NATIONAL POWER
CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.)
Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and
Petrophil Corporation
SUMMARY: RA 358 and RA 6395 granted NPC tax and duty exemption privileges.
However, Presidential Decree No. 1931 withdrew all tax exemption privileges
granted in favor of government-owned or controlled corporations including their
subsidiaries. However, said law empowered the President and/or the then Minister of
Finance, upon recommendation of the FIRB to restore, partially or totally, the
exemption withdrawn, or otherwise revise the scope and coverage of any applicable
tax and duty. In line with this, the FIRB issued Resolutions exempting NPC from
paying its taxes. For the sales of petroleum products delivered to NPC during the
period from October, 1984 to April, 1985, NPC was billed a total of P522,016,77.34
including both duties and taxes, the specific tax component being valued at
P58,020,110.79. since FIRB issued resolutions exempting NPC from paying its
taxes, NPC applied with the BIR for a "refund of Specific Taxes paid on petroleum
products in the total amount of P58,020,110.79. As a result of the favorable action
taken by the BIR in the refund of the P58.0 million tax credit assigned to Caltex, the
NPC reiterated its request for the release of the balance of its pending refunds of
taxes paid, however this was denied. The BIR ruled that NPC's tax free privilege to
buy petroleum products covered only the period from June 11, 1984 up to June 30,
1985. It further declared that, despite FIRB No. 1-86, NPC had already lost its tax
and duty exemptions because it only enjoys special privilege for taxes for which it is
directly liable. This ruling, in effect, denied the P410 Million tax refund application
of NPC. While NPC’s tax exemption is being clarified, petitioner, as member of the
Philippine Senate introduced P.S. Res. No. 227, which aims to conduct an inquiry in
aid of legislation in line with the reported tax manipulations and evasions by oil
companies, totaling to 1.5 Billion. ISSUE: Whether or not the respondent NPC has
ceased to enjoy indirect tax and duty exemption with the enactment of P.D. No. 938
on May 27, 1976 which amended P.D. No. 380, issued on January 11, 1974. - NO
The use of the phrase "all forms" of taxes demonstrate the intention of the law to
give NPC all the tax exemptions it has been enjoying before. The rationale for this
exemption is that being non-profit the NPC "shall devote all its returns from its
capital investment as well as excess revenues from its operation, for expansion. It is
evident from the provision of P.D. No. 938 that its purpose is to maintain the tax
exemption of NPC from all formsof taxes including indirect taxes as provided for
under R.A. No. 6895 and P.D. No. 380 if it is to attain its goals.
DOCTRINE: The use of the phrase "all forms" of taxes demonstrate the intention of
the law to give NPC all the tax exemptions it has been enjoying before. The rationale
for this exemption is that being non-profit the NPC "shall devote all its returns from
its capital investment as well as excess revenues from its operation, for expansion.
*Fiscal Incentives Review Board (FIRB)
* Facts heavy huhu
PETITIONER: PHILIPPINE BANK OF COMMUNICATIONS
RESPONDENTS: COMMISSIONER OF INTERNAL REVENUE, COURT OF
TAX APPEALS and COURT OF APPEALS
SUMMARY: PBCom filed its quarterly income tax returns for the first and second
quarters of 1985, reported profits, and paid the total income tax of around
P5,016,954. The taxes due were settled by applying PBCom's tax credit memos.
Subsequently, however, PBCom suffered losses so that when it filed its Annual
Income Tax Returns for the year-ended December 31, 1986, it reported a net loss of
around P14M and thus declared no tax payable for the year. But during these two
years (1985 and 1986), PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes for both 1986
and 1986 (about P200k for each of those years). PBCom then requested the CIR,
among others, for a tax credit of P5,016,954 representing the overpayment of taxes
in the first and second quarters of 1985. 3yrs later, PBCom filed a claim for refund
of creditable taxes withheld by their lessees from property rentals in 1985 and 1986
(the P200k+ each). Pending CIR’s investigation, PBCom instituted a Petition for
Review before the CTA. CTA denied the request for a tax refund or credit given that
it was filed beyond the 2-year reglementary period provided for by law. The
petitioner's claim for refund in 1986 was likewise denied on the assumption that it
was automatically credited by PBCom against its tax payment in the succeeding
year. PBCom argued that its claims for refund and tax credits are not yet barred by
prescription relying on the applicability of RMC 7-85, which 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.
The main issue here is WON the tax refund should be denied on the ground of
prescription, despite PBCom’s reliance on RMC No. 7-85, changing the
prescriptive period of 2 years to 10 years? NO. The relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive
period set by law. Moreover, the non-retroactivity of rulings by the CIR is not
applicable in this case because the nullity of RMC No. 7-85 was declared by
respondent courts and not by the CIR. Lastly, a claim for refund is in the nature of a
claim for exemption and should be construed in strictissimi juris against the
taxpayer.
DOCTRINE:
When the ruling, circular, or rules and regulations was nullified by a court (and
not by the CIR), then the retroactivity rule does not apply. Such as in this case,
wherein the SC declared that a taxpayer cannot rely on a RMC which extended the
period to claim a refund beyond the period given by law and which was subsequently
declared invalid by the lower courts.
PETITIONER: Emilio Y. Hilado
RESPONDENTS: Collector of Internal Revenue & Court of Tax Appeals
SUMMARY: The Secretary of Finance through the Collector of Internal Revenue
issued General Circular No V-123 which allowed the deduction from the income tax
return of unpaid claims on war losses in the year the last installment was received
together with the notice of further payment upon appropriation by the US Congress.
On this basis, Hilado deducted P12,837.65 from his income tax return for 1951.
Subsequently thereto, the Secretary of Finance through the Collector of Internal
Revenue issued General Circular No V-139 which revoked GC V-123 and added
that deductions from war losses should be claimed in the year these were sustained.
Accordingly, Hilado’s claimed deduction was disallowed and he was assessed for
deficiency income tax which he is now appealing.
DOCTRINE: General Circular No. V-123, having been issued on a wrong
construction of the law, cannot give rise to a vested right that can be invoked by a
taxpayer. A vested right cannot spring from a wrong interpretation.
The Secretary of Finance is vested with authority to revoke, repeal or abrogate the
acts or previous rulings of his predecessors in office because the construction of a
statute by those who administer it is not binding on their successors if thereafter the
latter become satisfied that a different construction should be given.
PETITIONER: Philex Mining Corporation
RESPONDENTS: Commissioner of Internal Revenue, Court of Appeals, and The
Court of Tax Appeals
SUMMARY:
BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th
quarter of 1991 as well as the 1st and 2nd quarter of 1992. Philex protested the
demand for payment of the tax liabilities stating that it has pending claims for VAT
input credit/refund for the taxes it paid for the years 1989 to 1991. Therefore, these
claims for tax credit/refund should be applied against the tax liabilities. According to
BIR, since the pending claims have not yet been determined with certainty, it follows
that no legal compensation can take place. Issue: Whether legal compensation can
properly take place between the VAT input credit/refund and the excise tax liabilities
of Philex Mining Corp? NO.
DOCTRINE:
Taxes cannot be subject to compensation for the simple reason that the government
and the taxpayer are not creditors and debtors of each other. There is a material
distinction between a tax and debt.
PETITIONER: COMMISSIONER OF INTERNAL REVENUE,
RESPONDENTS: TOLEDO POWER COMPANY
SUMMARY:
TPC is engaged in the business of power generation and sells electricity to NPC,
CEBECO, ACMDC and AFC. In 2003, it claimed for a refund unutilized input
Value Added Tax (VAT) for the taxable year 2002. CTA only partially granted the
claim for refund because while NPC is exempt from the payment of all taxes and
VAT, when it comes to CEBECO, ACMDC and AFC, no refund may be granted
since TPC failed to prove during trial that it was already a power generation
company as contemplated in EPIRA during the taxable years of 2002. In fact the
COC of TPC was only granted in 2005. Assuming that a refund was proper in this,
the court said “we allowed offsetting of taxes in a tax refund case because there was
an existing deficiency income and business tax assessment against the taxpayer...to
award such refund despite the existence of that deficiency assessment is an absurdity
and a polarity in conceptual effects and that to grant the refund without
determination of the proper assessment and the tax due would inevitably result in
multiplicity of proceedings or suits.”

DOCTRINE:
“As a rule, taxes cannot be subject to compensation because the government and the
taxpayer are not creditors and debtors of each other. However, we are aware that in
several cases, we have allowed the determination of a taxpayer's liability in a refund
case, thereby allowing the offsetting of taxes.”

PETITIONER: Land Bank

RESPONDENTS: Eduardo Cacayuran

SUMMARY:
The Sangguniang Bayan of the Municipality of Agoo, La Union passed 2 resolutions
authorizing the Mayor to obtain loans from Land Bank in order to fund the
implementation of the redevelopment of the Agoo Public Plaza. Assignments
involving a portion of the plaza, a portion of the internal revenue allotment (IRA)
and monthly income of the proposed project were made in favor of Land Bank as
additional security.

Cacayuran and other residents objected to the proposed project. Cacayuran, invoking
his right as a taxpayer, then filed a complaint assailing the validity of the resolutions
and loans obtained.

The SC held that Cacayuran indeed has standing to sue as a taxpayer. The resolutions
are valid since the LGC required that the obligations entered into by the mayor must
be pursuant to an ordinance and not merely resolutions. Further, the loans were ultra
vires since the plaza, as property of public dominion, cannot be used as collateral.

DOCTRINE:
Requisites of a taxpayer suit:
1. public funds derived from taxation are disbursed by a political subdivision
or instrumentality and in doing so, a law is violated or some irregularity is
committed; and
2. the petitioner is directly affected by the alleged act