1.

Commissioner of Internal Revenue v Court of Appeals

RULING: Yes.

Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E.O.) No. 273
in 1988, provides that:

"Section 99. Persons liable. - Any person who, in the course of trade or business, sells,
barters or exchanges goods, renders services, or engages in similar transactions and any
person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 100 to 102 of this Code."[9]

Congress enacted Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other
sections, Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National Internal
Revenue Code of 1997, took effect. The amended law provides that:

"SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 and
108 of this Code.

"The value-added tax is an indirect tax and the amount of tax may be shifted or passed on
to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No.7716.

"The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a nonstock, nonprofit
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity.聽Jjj uris

"The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
rendered in the course of trade or business."

Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-
profit, organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax
on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods
or property, and on the performance of services, even in the absence of profit attributable thereto. The term
"in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is profit-oriented.

The definition of the term "in the course of trade or business" incorporated in the present law applies to
all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person
who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable
to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government
entity is liable to pay VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997[10] defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the
supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or project." [11]
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98[12] emphasizing
that a domestic corporation that provided technical, research, management and technical assistance to its
affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of
realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized
without any intention of realizing profit, any income or profit generated by the entity in the conduct of its
activities was subject to income tax.lex

Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long as the entity provides service for a
fee, remuneration or consideration, then the service rendered is subject to VAT.

At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely
implied therefrom.[13] In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the
transactions exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions.

2. COMMISSIONER OF INTERNAL REVENUE vs. DE LA SALLE UNIVERSITY, INC.

Ruling:
The income, revenues and assets of non-stock, non-profit educational institutions proved to have been
used actually, directly and exclusively for educational purposes are exempt from duties and taxes.

DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution, which reads:

(3) 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.
Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall
be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to
such exemptions subject to the limitations provided by law including restrictions on dividends and
provisions for reinvestment.

The constitutional provision refers to two kinds of educational institutions: (1) non-stock, non-profit
educational institutions and (2) proprietary educational institutions. DLSU falls under the first category.
Even the Commissioner admits the status of DLSU as a non-stock, non-profit educational institution. While
DLSU's claim for tax exemption arises from and is based on the Constitution, the Constitution, in the same
provision, also imposes certain conditions to avail of the exemption.

There is a marked distinction between the treatment of non-stock, non-profit educational institutions and
proprietary educational institutions. The tax exemption granted to non-stock, non-profit educational
institutions is conditioned only on the actual, direct and exclusive use of their revenues and assets for
educational purposes. While tax exemptions may also be granted to proprietary educational institutions,
these exemptions may be subject to limitations imposed by Congress.

The Court significantly laid down the requisites for availing the tax exemption under Article XIV, Section 4
(3), namely: (1) the taxpayer falls under the classification non-stock, non-profit educational institution;
and (2) the income it seeks to be exempted from taxation is used actually, directly and exclusively for
educational purposes.

The tax exemption was seen as beneficial to students who may otherwise be charged unreasonable tuition
fees if not for the tax exemption extended to all revenues and assets of non-stock, non-profit educational
institutions. A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require
that the revenues and income must have also been sourced from educational activities or activities related
to the purposes of an educational institution. The phrase all revenues is unqualified by any reference to the
source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively
for educational purposes, then said revenues and income shall be exempt from taxes and duties.

The Court finds it helpful to discuss at this point the taxation of revenues versus the taxation of assets.

Revenues consist of the amounts earned by a person or entity from the conduct of business operations. It
may refer to the sale of goods, rendition of services, or the return of an investment. Revenue is a component
of the tax base in income tax, VAT, and local business tax (LBT).

Assets, on the other hand, are the tangible and intangible properties owned by a person or entity. It may
refer to real estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of goods,
or any property from which the person or entity may derive income or use to generate the same. In
Philippine taxation, the fair market value of real property is a component of the tax base in real property tax
(RPT). Also, the landed cost of imported goods is a component of the tax base in VAT on importation and
tariff duties.

Thus, 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 LBT. 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 RPT.

To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from
which the entity shall be exempted from shall depend on whether the item is an item of revenue or asset.

The crucial point of inquiry is on the use of the assets or on the use of the revenues. These are two
things that must be viewed and treated separately. But so long as the assets or revenues are used actually,
directly and exclusively for educational purposes, they are exempt from duties and taxes.

The tax exemption granted by the

Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.

While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by
Section 27 (Rates of Income Tax on Domestic Corporations).

To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational
institutions shall not be taxed on income received by them as such.

Section 27 (B), on the other hand, states that "[p]roprietary educational institutions ... which are nonprofit
shall pay a tax of ten percent (10%) on their taxable income .. . Provided, that if the gross income from
unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by
such educational institutions ... [the regular corporate income tax of 30%] shall be imposed on the entire
taxable income ... "

By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of
10% corporate income tax. The reduced rate is applicable only if: (1) the proprietary educational institution
is nonprofit and (2) its gross income from unrelated trade, business or activity does not exceed 50% of its
total gross income.

Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to non-stock,
non-profit educational institutions.

Thus, we declare the last paragraph of Section 30 of the Tax Code without force and effect for being
contrary to the Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit
educational institutions used actually, directly and exclusively for educational purpose. We make this
declaration in the exercise of and consistent with our duty to uphold the primacy of the Constitution.

Finally, we stress that our holding here pertains only to non-stock, non-profit educational institutions and
does not cover the other exempt organizations under Section 30 of the Tax Code.

For all these reasons, we hold that the income and revenues of DLSU proven to have been used actually,
directly and exclusively for educational purposes are exempt from duties and taxes.

(ISSUE REGARDING VALIDITY OF LOA)

ISSUE: Whether or not the entire assessment should be voided because of the defective LOA.

RULING: The LOA issued to DLSU is not entirely void. The assessment for taxable year
2003 is valid.

A LOA is the authority given to the appropriate revenue officer to examine the books of account and other
accounting records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities
and for the purpose of collecting the correct amount of tax, in accordance with Section 5 of the Tax Code,
which gives the CIR the power to obtain information, to summon/examine, and take testimony of persons.
The LOA commences the audit process and informs the taxpayer that it is under audit for possible deficiency
tax assessment.

The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads:

3. A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year. The
practice of issuing [LO As] covering audit of unverified prior years is hereby prohibited. If the audit of
a taxpayer shall include more than one taxable period, the other periods or years shall be specifically
indicated in the [LOA].

What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior years.
RMO 43-90 does not say that a LOA which contains unverified prior years is void. It merely prescribes that
if the audit includes more than one taxable period, the other periods or years must be specified. The
provision read as a whole requires that if a taxpayer is audited for more than one taxable year, the BIR
must specify each taxable year or taxable period on separate LOAs.

Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the
taxpayer of the extent of the audit and the scope of the revenue officer's authority. Without this rule, a
revenue officer can unduly burden the taxpayer by demanding random accounting records from random
unverified years, which may include documents from as far back as ten years in cases of fraud audit.
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years.
The LOA does not strictly comply with RMO 43-90 because it includes unverified prior years. This does not
mean, however, that the entire LOA is void.

As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is
specified in the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily,
the assessments for taxable years 2001 and 2002 are void for having been unspecified on separate LOAs
as required under RMO No. 43-90.

3. Accenture vs. CIR

Ruling
Ruling: No. Accenture is not entitled to a refund or an issuance of a Tax Credit Certificate (TCC)
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which allows the
refund of unutilized input VAT earned from zero rated or effectively zero-rated sales.
The meat of Accenture’s argument is that nowhere does Section 108(B) of the 1997 Tax Code
state that services, to be zero-rated, should be rendered to clients doing business outside the
Philippines, the requirement introduced by R.A. 9337. Required by Section 108(B), prior to the
amendment, is that the consideration for the services rendered be in foreign currency and in
accordance with the rules of the Bangko Sentral ng Pilipinas (BSP). Since Accenture has complied
with all the conditions imposed in Section 108(B), it is entitled to the refund prayed for.
As held by the Supreme Court, the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B) of the Tax Code. The
SC upheld the position of the CTA en banc that, because Section 108(B) of the 1997 Tax Code is
a verbatim copy of Section 102(b) of the 1977 Tax Code, any interpretation of the latter holds true
for the former.
Accenture has failed to establish that the recipients of its services do business outside the
Philippines. In the CTA’s opinion, however, the documents (e.g. Official Receipts, Intercompany
Payment Requests, Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and
Bank Statements) presented by Accenture merely substantiate the existence of the sales, receipt
of foreign currency payments, and inward remittance of the proceeds of these sales duly accounted
for in accordance with BSP rules. Petitioner presented no evidence whatsoever that these clients
were doing business outside the Philippines.
The evidence presented by Accenture may have established that its clients are foreign. This fact
does not automatically mean, however, that these clients were doing business outside the
Philippines. After all, the Tax Code itself has provisions for a foreign corporation engaged in
business within the Philippines and vice versa. To come within the purview of Section 108(B) (2),
it is not enough that the recipient of the service be proven to be a foreign corporation; rather, it must
be specifically proven to be a nonresident foreign corporation.
A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of
that claim. Tax refunds, like tax exemptions, are construed strictly against the taxpayer
 4. C.I.R v. Melchor Javier and CTA

Ruling: No.

Under the then Section 72 of the Tax Code (now Section 248 of the 1988 National Internal Revenue Code),
a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from him or of the
deficiency tax in case payment has been made on the basis of the return filed before the discovery of the
falsity or fraud.

We are persuaded considerably by the private respondent's contention that there is no fraud in the
filing of the return and agree fully with the Court of Tax Appeals' interpretation of Javier's notation on his
income tax return filed on March 15, 1978 thus: "Taxpayer was the recipient of some money from abroad
which he presumed to be a gift but turned out to be an error and is now subject of litigation that it was an
"error or mistake of fact or law" not constituting fraud, that such notation was practically an invitation for
investigation and that Javier had literally "laid his cards on the table."

In the case at bar, there was no actual and intentional fraud through willful and deliberate
misleading of the government agency concerned, the Bureau of Internal Revenue, headed by the herein
petitioner. The government was not induced to give up some legal right and place itself at a disadvantage
so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal
anything. Error or mistake of law is not fraud. The petitioner's zealousness to collect taxes from the
unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this
case is not justified by the extant facts. Javier may be guilty of swindling charges, perhaps even for greed
by spending most of the money he received, but the records lack a clear showing of fraud committed
because he did not conceal the fact that he had received an amount of money although it was a "subject of
litigation." As ruled by respondent Court of Tax Appeals, the 50% surcharge imposed as fraud penalty by
the petitioner against the private respondent in the deficiency assessment should be deleted.

WHEREFORE, the petition is DENIED and the decision appealed from the Court of Tax Appeals
is AFFIRMED. No costs.

5. CIR vs. Baier Nickel

Held:
YES. Pursuant to Sec 25 of NIRC, non-resident aliens, whether or not engaged in trade or business, are
subject to the Philippine income taxation on their income received from all sources in the Philippines. In
determining the meaning of “source”, the Court resorted to origin of Act 2833 (the first Philippine income
tax law), the US Revenue Law of 1916, as amended in 1917.
US SC has said that income may be derived from three possible sources only: (1) capital and/or (2)
labor; and/or (3) the sale of capital assets. If the income is from labor, the place where the labor is
done should be decisive; if it is done in this country, the income should be from “sources within the United
States.” If the income is from capital, the place where the capital is employed should be decisive; if it is
employed in this country, the income should be from “sources within the United States.” If the income is
from the sale of capital assets, the place where the sale is made should be likewise decisive. “Source” is
not a place, it is an activity or property. As such, it has a situs or location, and if that situs or location is
within the United States the resulting income is taxable to nonresident aliens and foreign corporations.

The important factor therefore which determines the source of income of personal services is not the
residence of the payor, or the place where the contract for service is entered into, or the place of
payment, but the place where the services were actually rendered.
The Court reiterates the rule that "source of income" relates to the property, activity or service that
produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the
place where the labor or service was performed that determines the source of the income. There is
therefore no merit in petitioner’s interpretation which equates source of income in labor or personal
service with the residence of the payor or the place of payment of the income.

The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi
juris against the taxpayer. To those therefore, who claim a refund rest the burden of proving that the
transaction subjected to tax is actually exempt from taxation.
In the instant case, respondent failed to give substantial evidence to prove that she performed the
incoming producing service in Germany, which would have entitled her to a tax exemption for income
from sources outside the Philippines. Petition granted.

- In case mangutana ngano wa niya na prove:

In the instant case, the appointment letter of respondent as agent of JUBANITEX stipulated that
the activity or the service which would entitle her to 10% commission income, are "sales actually
concluded and collected through [her] efforts." What she presented as evidence to prove that she
performed income producing activities abroad, were copies of documents she allegedly faxed to
JUBANITEX and bearing instructions as to the sizes of, or designs and fabrics to be used in the
finished products as well as samples of sales orders purportedly relayed to her by clients. However,
these documents do not show whether the instructions or orders faxed ripened into
concluded or collected sales in Germany. At the very least, these pieces of evidence show that
while respondent was in Germany, she sent instructions/orders to JUBANITEX. As to whether these
instructions/orders gave rise to consummated sales and whether these sales were truly concluded in
Germany, respondent presented no such evidence. Neither did she establish reasonable connection
between the orders/instructions faxed and the reported monthly sales purported to have transpired in
Germany.

6. CIR VS BANK OF COMMERCE

HELD:

SC reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the 5% of gross
receipts tax would result in double taxation.

-In CIR v. Solid bank Corporation, SC said that the two taxes, subject of this litigation, are different from
each other. The basis of their imposition may be the same, but their natures are different.

-NO DOUBLE TAXATION

Double taxation means taxing the same property twice when it should be taxed only once; that is, "xxx
taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious when the
taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation,"
the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing
authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind
or character.
 First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is the
passive income generated in the form of interest on deposits and yield on deposit substitutes, while the
subject matter of the GRT is the privilege of engaging in the business of banking.

A tax based on receipts is a tax on business rather than on the property; hence, it is an excise rather than
a property tax. It is not an income tax, unlike the FWT. In fact, we have already held that one can be
taxed for engaging in business and further taxed differently for the income derived therefrom. Akin to our
ruling in Velilla v. Posadas, these two taxes are entirely distinct and are assessed under different
provisions.

Second, although both taxes are national in scope because they are imposed by the same taxing
authority – the national government under the Tax Code – and operate within the same
Philippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are
different. The FWT is deducted and withheld as soon as the income is earned, and is paid after every
calendar quarter in which it is earned. On the other hand, the GRT is neither deducted nor withheld, but is
paid only after every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not subject to withholding. In short, there is no double
taxation, because there is no taxing twice, by the same taxing authority, within the same jurisdiction, for
the same purpose, in different taxing periods, some of the property in the territory. Subjecting interest
income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.

7. COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES)

Held: YES.

No doubt, as a PEZA-registered enterprise within a special economic zone, respondent is entitled

to the fiscal incentives and benefits provided for in either PD 66 or EO 226. It shall, moreover, enjoy
all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227and 7844.

Petitioner enjoys preferential tax treatment. It is not subject to internal revenue laws and
regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue tax
from which petitioner as an entity is exempt. Although the transactions involving such tax are not
exempt, petitioner as a VAT-registered person, however, is entitled to their credits.

Should the input taxes result from zero-rated or effectively zero-rated transactions or from the
acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer
or credited against other internal revenue taxes.

Zero-rated transactions generally refer to the export sale of goods and supply of services. The seller
of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.

Effectively zero-rated transactions refer to the sale of goods or supply of services to persons or entities
whose exemption under special laws or international agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate The seller who charges zero output tax on such
transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
 Applying the destination principle to the exportation of goods, automatic zero rating is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller
internationally competitive by allowing the refund or credit of input taxes that are attributable to export
sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly and
legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.

In both instances of zero rating, there is total relief for the purchaser from the burden of the tax. But in
an exemption there is only partial relief, because the purchaser is not allowed any tax refund of or credit for
input taxes paid.

An exempt transaction involves goods or services which, by their nature, are specifically listed in and
expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or
not -- of the party to the transaction. Indeed, such transaction is not subject to the VAT, but the seller is not
allowed any tax refund of or credit for any input taxes paid.

An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code,
a special law or an international agreement to which the Philippines is a signatory, and by virtue of which
its taxable transactions become exempt from the VAT. Such party is also not subject to the VAT, but may
be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT
taxpayer.

Therefore, if a special law merely exempts a party as a seller from its direct liability for payment of the
VAT, but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by
its VAT-registered suppliers, the purchase transaction is not exempt. Applying this principle to the case at
bar, the purchase transactions entered into by respondent are not VAT-exempt.

Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly
made to bear, as added cost to such sales, the equivalent VAT on its purchases.

Special laws expressly grant preferential tax treatment to business establishments registered and
operating within an ecozone, which by law is considered as a separate customs territory. As such,
respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto.
It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter
of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its
sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-
rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered
and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input
VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit.

8. CIR vs THE ESTATE OF BENIGNO P. TODA, JR.

HELD:
Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other
hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities.[23]
 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.[24]
All these factors are present in the instant case. It is significant to note that as early as 4 May 1989,
prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40
million from RMI,[25] and not from Altonaga. That P40 million was debited by RMI and reflected in its trial
balance[26] as other inv. Cibeles Bldg. Also, as of 31 July 1989, another P40 million was debited and
reflected in RMIs trial balance as other inv. Cibeles Bldg. This would show that the real buyer of the
properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a close business associate and
one of the many trusted corporate executives of Toda. This information was revealed by Mr. Boy Prieto,
the assistant accountant of CIC and an old timer in the company. [27] But Mr. Prieto did not testify on this
matter, hence, that information remains to be hearsay and is thus inadmissible in evidence. It was not
verified either, since the letter-request for investigation of Altonaga was unserved, [28] Altonaga having left
for the United States of America in January 1990. Nevertheless, that Altonaga was a mere conduit finds
support in the admission of respondent Estate that the sale to him was part of the tax planning scheme of
CIC. That admission is borne by the records.

Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner [sic]
cannot be faulted for wanting to reduce the tax from 35% to 5%.[29] [Underscoring supplied].

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.
Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence
justly reposed, resulting in the damage to another, or by which an undue and unconscionable
advantage is taken of another.[30]
Here, 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, a
sham, and without business purpose and economic substance. Doubtless, the execution of the two sales
was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.
In a nutshell, 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. [31]
Generally, a sale or exchange of assets will have an income tax incidence only when it is
consummated.[32] The incidence of taxation depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not finally to be determined solely by the
means employed to transfer legal title. Rather, 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.[33]
 To allow a taxpayer to deny tax liability on the ground that the sale was made through another and
distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax
laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. [34] The two sale
transactions should be treated as a single direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended
(now 27 (A) of the Tax Reform Act of 1997), which stated as follows:

Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby imposed
upon the taxable net income received during each taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, and partnerships, no matter how created or
organized but not including general professional partnerships, in accordance with the following:

Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred
thousand pesos; and

Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand
pesos.

CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual
capital gains tax provided for in Section 34 (h) of the NIRC of 1986[35] (now 6% under Section 24 (D) (1) of
the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the deficiency income tax issued
by the BIR must be upheld.
Has the period of
assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read:

Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the
case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at
any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance
of in the civil or criminal action for collection thereof .

Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3)
failure to file a return, the period within which to assess tax is ten years from discovery of the fraud,
falsification or omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion of
the BIR on the tax consequence of the two sale transactions. [36] Thus, the BIR was amply informed of the
transactions even prior to the execution of the necessary documents to effect the transfer. Subsequently,
the two sales were openly made with the execution of public documents and the declaration of taxes for
1989. However, these circumstances do not negate the existence of fraud. As earlier discussed those two
transactions were tainted with fraud. And even assuming arguendo that there was no fraud, we find that
the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or actual amount
gained from the sale of the Cibeles property. Obviously, such was done with intent to evade or reduce tax
liability.
As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years
from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was
claimed to have been discovered only on 8 March 1991.[37] The assessment for the 1989 deficiency income
tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment for deficiency
income tax was well within the prescriptive period.
Is respondent Estate liable
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
A corporation has a juridical personality distinct and separate from the persons owning or composing
it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities
of a corporation and vice versa. There are, however, certain instances in which personal liability may arise.
It has been held in a number of cases that personal liability of a corporate director, trustee, or officer along,
albeit not necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence
in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its
stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate action. [38]
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly
and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987,
1988, and 1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:

g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities or
obligations, contingent or otherwise, for taxes, sums of money or insurance claims other than those
reported in its audited financial statement as of December 31, 1989, attached hereto as Annex B and
made a part hereof. The business of Cibeles has at all times been conducted in full compliance with all
applicable laws, rules and regulations. SELLER undertakes and agrees to hold the BUYER and
Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987, 1988 and
1989.[39][Underscoring Supplied].

When the late Toda undertook and agreed to hold the BUYER and Cibeles free from any all
income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989, he thereby voluntarily held
himself personally liable therefor. Respondent estate cannot, therefore, deny liability for CICs deficiency
income tax for the year 1989 by invoking the separate corporate personality of CIC, since its obligation
arose from Todas contractual undertaking, as contained in the Deed of Sale of Shares of Stock.

9. FORT BONIFACIO DEVELOPMENT CORPORATION v. COMMISSIONER OF INTERNAL

REVENUE

RULING

The petition is GRANTED. The CIR is ordered to REFUND or, in the alternative, ISSUE A TAX CREDIT
CERTIFICATE to petitioner.
NOTE: the issues have been resolved by the SC en banc before and the decision have reached finality
(decided in two separate cases in 2009 and 2013). Hence, the court applied stare decisis.

SUB ISSUES

1. NO. On its face, nothing in Sec. 105 of the old NIRC prohibits the inclusion of real properties in the
beginning inventory of goods for purposes of determining the transitional input tax credit. When real
properties were finally made subject to VAT under RA 7716 (amending Sec. 100,of the NIRC to include
real properties held primarily for sale as subject to VAT), no amendment was made to Sec. 105.

By limiting the definition of goods to “improvements” in RR 7-95, the BIR contravened the definition of
“goods” in the old NIRC and the definition provided in the RR itself.

2. NO. Prior payment of taxes is NOT necessary before a taxpayer can avail of the 8% transitional input tax
credit. This has long been settled by jurisprudence. Sec. 105 of the NIRC only requires the taxpayer to file
a beginning inventory before the BIR as a requirement. To require such when the law does not would
amount to judicial legislation.

A transitional input tax credit is not a tax refund per se but a tax credit. Prior payment of taxes is not required
to avail of it since tax credit is not synonymous to tax refund. The latter is the money that a taxpayer overpaid
and is returned by the tax authority. Tax credit is an amount subtracted directly from one’s total tax liability.

Hence, petitioner can avail of the tax credit despite the fact that it acquired the BGC property in a tax-free
transaction.

3. NO. Sec. 4.105-1 of RR 7-95 is struck down for being in conflict with the law. Sec. 105 provides that the
beginning inventory of “goods” for the valuation of the tax credit. In a business sense, goods refers to the
product of VAT registered persons, which in the case of real estate dealers it the real estate itself. Sec.
4.100-1 of RR 7-95 itself includes real properties primarily held for sale as “goods or properties”. By limiting
the definition of goods to “improvements”

4. YES. The BIR had no power to limit the meaning of the term “goods”. An administrative regulation cannot
contravene the law on which it is based.

10. COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE AIRLINES, INC.

Ruling:

(1) No
(2) No

A domestic corporation must pay whichever is the higher of: (1) the income tax under Section 27(A) of the
NIRC of 1997, as amended, computed by applying the tax rate therein to the taxable income of the
corporation; or (2) the MCIT under Section 27(E), also of the same Code, equivalent to 2% of the gross
income of the corporation.

Such rule can only be applied to respondent only as to the extent allowed by the provisions of its franchise.

Relevant thereto, PD 1590, the franchise of respondent provides that:

During the lifetime of the franchise of respondent, its taxation shall be strictly governed by two fundamental
rules, to wit: (1) respondent shall pay the Government either the basic corporate income tax or franchise
tax, whichever is lower; and (2) the tax paid by respondent, under either of these alternatives, shall be in
lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real
property tax.

Parenthetically, the basic corporate income tax of respondent shall be based on its annual net taxable
income, computed in accordance with the NIRC of 1997, as amended. PD 1590 also explicitly authorizes
respondent, in the computation of its basic corporate income tax, to: (1) depreciate its assets twice as fast
the normal rate of depreciation;19 and (2) carry over deduction from taxable income any net loss incurred
in any year up to five years following the year of such loss.20

The franchise tax, on the other hand, shall be 2% of the gross revenues derived by respondent from all
sources, whether transport or nontransport operations. However, with respect to international air-transport
service, the franchise tax shall only be imposed on the gross passenger, mail, and freight revenues of
respondent from its outgoing flights.21

Accordingly, considering the foregoing precepts, this Court had the opportunity to finally settle this matter
and categorically enunciated in Commissioner of Internal Revenue v. Philippine Airlines, Inc., 22 that
respondent cannot be subjected to MCIT for the following reasons:

- First, Section 13(a) of [PD] 1590 refers to "basic corporate income tax." In Commissioner of Internal
Revenue v. Philippine Airlines, Inc.,23 the Court already settled that the "basic corporate income
tax, "under Section 13(a) of [PD] 1590, relates to the general rate of 35%(reduced to 32% by the
year 2000) as stipulated in Section 27(A) of the NIRC of 1997.

- Second, Section 13(a) of Presidential Decree No. 1590 further provides that the basic corporate
income tax of PAL shall be based on its annual net taxable income. --- there is an apparent
distinction under the NIRC of 1997 between taxable income, which is the basis for basic corporate
income tax under Section 27(A); and gross income, which is the basis for the MCIT under Section
27(E). The two terms have their respective technical meanings, and cannot be used
interchangeably.

Taxable income is defined under Section 31 of the NIRC of 1997as the pertinent items of gross income
specified in the said Code, less the deductions and/or personal and additional exemptions, if any,
authorized for such types of income by the same Code or other special laws.

The gross income, referred to in Section 31, is described in Section32 of the NIRC of 1997 as income from
whatever source, including compensation for services; the conduct of trade or business or the exercise of
profession; dealings in property; interests; rents; royalties; dividends; annuities; prizes and winnings;
pensions; and a partner’s distributive share in the net income of a general professional partnership..

- Third, even if the basic corporate income tax and the MCIT are both income taxes under Section
27 of the NIRC of 1997, and one is paid in place of the other, the two are distinct and separate
taxes.

Section 13 of [PD] 1590 gives PAL the option to pay basic corporate income tax or franchise tax, whichever
is lower; and the tax so paid shall be in lieu of all other taxes, except real property tax. The income tax on
the passive income of PAL falls within the category of "all other taxes" from which PAL is exempted, and
which, if already collected, should be refunded to PAL.

The Court herein treats MCIT in much the same way. Although both are income taxes, the MCIT is different
from the basic corporate income tax, not just in the rates, but also in the bases for their computation. Not
being covered by Section 13(a) of [PD] 1590,which makes PAL liable only for basic corporate income tax,
then MCIT is included in "all other taxes" from which PAL is exempted.
 - Fourth, the evident intent of Section 13 of [PD] 1520 (sic) is to extend to PAL tax concessions not
ordinarily available to other domestic corporations. Section 13 of [PD] 1520 (sic) permits PAL to
pay whichever is lower of the basic corporate income tax or the franchise tax; and the tax so paid
shall be in lieu of all other taxes, except only real property tax. Hence, under its franchise, PAL is
to pay the least amount of tax possible.

Section 13 of [PD] 1520 (sic) is not unusual. A public utility is granted special tax treatment (including tax
exceptions/exemptions) under its franchise, as an inducement for the acceptance of the franchise and the
rendition of public service by the said public utility. In this case, in addition to being a public utility providing
air-transport service, PAL is also the official flag carrier of the country.

- Fifth, the CIR posits that PAL may not invoke in the instant case the "in lieu of all other taxes" clause
in Section 13 of [PD] No. 1520 (sic),if it did not pay anything at all as basic corporate income tax or
franchise tax. As a result, PAL should be made liable for "other taxes" such as MCIT. This line of
reasoning has been dubbed as the Substitution Theory"

Substitution Theory of the CIR is untenable

A careful reading of Section 13 rebuts the argument of the CIR that the "in lieu of all other taxes "proviso is
a mere incentive that applies only when PAL actually pays something.

It is clear that PD 1590 intended to give respondent the option to avail itself of Subsection (a) or (b) as
consideration for its franchise. Either option excludes the payment of other taxes and dues imposed or
collected by the national or the local government. PAL has the option to choose the alternative that results
in lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option.

PD 1590 recognized the situation in which taxable income may result in a negative amount and thus
translate into a zero tax liability.

Notably, PAL was owned and operated by the government at the time the franchise was last amended. It
can reasonably be contemplated that PD 1590 sought to assist the finances of the government corporation
in the form of lower taxes. When respondent operates at a loss(as in the instant case), no taxes are due;
in this instances, it has a lower tax liability than that provided by Subsection (b).

The fallacy of the CIR’s argument is evident from the fact that the payment of a measly sum of one peso
would suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not.
There is no substantial distinction between a zero tax and a one-peso tax liability. (Emphasis theirs)

Based on the same ratiocination, the Court finds the Substitution Theory unacceptable in the present
Petition.

The CIR alludes as well to Republic Act No. 9337, for reasons similar to those behind the Substitution
Theory. Section 22 of Republic Act No. 9337, more popularly known as the Expanded Value Added Tax(E-
VAT) Law, abolished the franchise tax imposed by the charters of particularly identified public utilities,
including [PD] 1590 of PAL. PAL may no longer exercise its options or alternatives under Section 13 of [PD]
1590, and is now liable for both corporate income tax and the 12% VAT on its sale of services. The CIR
alleges that Republic Act No. 9337reveals the intention of the Legislature to make PAL share the tax burden
of other domestic corporations.

The CIR seems to lose sight of the fact that the Petition at bar involves the liability of PAL for MCIT for the
fiscal year ending 31March 2001. Republic Act No. 9337, which took effect on 1 July 2005, cannot be
applied retroactively and any amendment introduced by said statute affecting the taxation of PAL is
immaterial in the present case.

- And sixth, [PD] 1590 explicitly allows PAL, in computing its basic corporate income tax, to carry
over as deduction any net loss incurred in any year, up to five years following the year of such loss.
Therefore, [PD] 1590 does not only consider the possibility that, at the end of a taxable period, PAL
shall end up with zero annual net taxable income (when its deductions exactly equal its gross
income), as what happened in the case at bar, but also the likelihood that PAL shall incur net loss
(when its deductions exceed its gross income). If PAL is subjected to MCIT, the provision in [PD]
1590 on net loss carry-over will be rendered nugatory. Net loss carry-over is material only in
computing the annual net taxable income to be used as basis for the basic corporate income tax of
PAL; but PAL will never be able to avail itself of the basic corporate income tax option when it is in
a net loss position, because it will always then be compelled to pay the necessarily higher MCIT.

Between [PD] 1520 (sic), on one hand, which is a special law specifically governing the franchise of PAL,
issued on 11 June 1978; and the NIRC of 1997, on the other, which is a general law on national internal
revenue taxes, that took effect on 1 January 1998, the former prevails. x x x x

The MCIT was a new tax introduced by Republic Act No.8424. Under the doctrine of strict interpretation,
the burden is upon the CIR to primarily prove that the new MCIT provisions of the NIRC of 1997, clearly,
expressly, and unambiguously extend and apply to PAL, despite the latter’s existing tax exemption. To do
this, the CIR must convince the Court that the MCIT is a basic corporate income tax, and is not covered by
the "in lieu of all other taxes" clause of [PD] 1590. Since the CIR failed in this regard, the Court is left with
no choice but to consider the MCIT as one of "all other taxes," from which PAL is exempt under the explicit
provisions of its charter. (Emphasis supplied)

Based on the foregoing pronouncements, it is clear that respondent is exempt from the MCIT imposed
under Section 27(E) of the NIRC of 1997, as amended. Thus, respondent cannot be held liable for the
assessed deficiency MCIT of P326,778,723.35 for fiscal year ending 31 March 2000.

11. H. TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL REVENUE

Held: No.

As to the loss in the auction sale as deduction:

Court agrees with the CTA En Banc that because this case involved assessments relating to
transactions incurred by Tambunting prior to the effectivity of Republic Act No. 8424 (National Internal
Revenue Code of 1997, or NIRC of 1997), the provisions governing the propriety of the deductions was
Presidential Decree 1158 (NIRC of 1977), which provides:
(2) By corporation. — In the case of a corporation, all losses actually sustained and charged off
within the taxable year and not compensated for by insurance or otherwise.
(3) Proof of loss. — In the case of a non-resident alien individual or foreign corporation, the losses
deductible are those actually sustained during the year incurred in business or trade conducted within the
Philippines, and losses actually sustained during the year in transactions entered into for profit in the
Philippines although not connected with their business or trade, when such losses are not compensated
for by insurance or otherwise.
The rule that tax deductions, being in the nature of tax exemptions, are to be construed in
strictissimi juris against the taxpayer is well settled. So when a taxpayer claims a deduction, he must point
to some specific provision of the statute in which that deduction is authorized and must be able to prove
that he is entitled to the deduction which the law allows. An item of expenditure, therefore, must fall squarely
within the language of the law in order to be deductible. A mere averment that the taxpayer has incurred a
loss does not automatically warrant a deduction from its gross income.
 As the CTA En Banc held, Tambunting did not properly prove that it had incurred losses. The
subasta books it presented were not the proper evidence of such losses from the auctions because they
did not reflect the true amounts of the proceeds of the auctions due to certain items having been left unsold
after the auctions. The rematado books did not also prove the amounts of capital because the figures
reflected therein were only the amounts given to the pawnees. It is interesting to note, too, that the amounts
received by the pawnees were not the actual values of the pawned articles but were only fractions of the
real values.

AS to the business expenses (security and janitorial expenses, management and professional fees, and its
rental expense):
The requisites for the deductibility of ordinary and necessary trade or business expenses, like those paid
for security and janitorial services, management and professional fees, and rental expenses, are that:
(a) the expenses must be ordinary and necessary;
(b) they must have been paid or incurred during the taxable year;
(c) they must have been paid or incurred in carrying on the trade or business of the taxpayer; and
(d) they must be supported by receipts, records or other pertinent papers

. The proper substantiation requirement for an expense to be allowed is the official receipt or
invoice. While the rental payments were subjected to the applicable expanded withholding taxes, such
returns are not the documents required by law to substantiate the rental expense. Petitioner should have
submitted official receipts to support its claim. Petitioner’s management and professional fees were
disallowed as these were supported merely by cash vouchers, where in fact it should have been supported
by official receipts of the service providers. Deductions for income tax purposes partake of the nature of tax
exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that
he is entitled to the deduction claimed.Tambunting did not discharge its burden of substantiating its claim
for deductions due to the inadequacy of its documentary support of its claim. Its reliance on withholding tax
returns, cash vouchers, lessor’s certifications, and the contracts of lease was futile because such
documents had scant probative value

As to the claim for deductions due to losses from fire and theft:
the documents it had submitted to support the claim, namely: (a) the certification from the Bureau of Fire
Protection in Malolos; (b) the certification from the Police Station in Malolos; (c) the accounting entry for the
losses; and (d) the list of properties lost, were not enough.

What were required were for Tambunting to submit the sworn declaration of loss mandated by Revenue
Regulations 12-77. Its failure to do so was prejudicial to the claim because the sworn declaration of loss
was necessary to forewarn the BIR that it had suffered a loss whose extent it would be claiming as a
deduction of its tax liability, and thus enable the BIR to conduct its own investigation of the incident leading
to the loss. Indeed, the documents Tambunting submitted to the BIR could not serve the purpose of their
submission without the sworn declaration of loss.

12. JAIME N. SORIANO, MICHAEL VERNON M. GUERRERO, MARY ANN L. REYES, MARAH SHARYN
M. DE CASTRO and CRIS P. TENORIO vs. SECRETARY OF FINANCE and the COMMISSIONER OF
INTERNAL REVENUE

HELD:

I.

Whether the increased personal and additional exemptions provided by R.A. 9504 should be applied to the
entire taxable year 2008 or prorated, considering that the law took effect only on 6 July 2008
The personal and additional exemptions established by R.A. 9504 should be applied to the entire taxable year 2008.

Umali is applicable.

Umali v. Estanislao supports this Comi's stance that R.A. 9504 should be applied on a full-year basis for the entire
taxable year 2008. In Umali, Congress enacted R.A. 7167 amending the 1977 National Internal Revenue Code (NIRC).
The amounts of basic personal and additional exemptions given to individual income taxpayers were adjusted to the
poverty threshold level. R.A. 7167 came into law on 30 January 1992. Controversy arose when the Commission of
Internal Revenue (CIR) promulgated RR 1-92 stating that the regulation shall take effect on compensation income
earned beginning 1 January 1992. The issue posed was whether the increased personal and additional exemptions
could be applied to compensation income earned or received during calendar year 1991, given that R.A. 7167 came into
law only on 30 January 1992, when taxable year 1991 had already closed.

This Court 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.

We now arrive at this important point: 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.

There is, of course, nothing to prevent Congress from again adopting a policy that prorates the effectivity of basic
personal and additional exemptions. This policy, however, must be explicitly provided for by law - to amend the prevailing
law, which provides for full-year treatment. As already pointed out, R.A. 9504 is totally silent on the matter. This silence
cannot be presumed by the BIR as providing for a half-year application of the new exemption levels. Such presumption
is unjust, as incomes do not remain the same from month to month, especially for the MWEs.

Therefore, there is no legal basis for the BIR to reintroduce the prorating of the new personal and additional exemptions.
In so doing, respondents overstepped the bounds of their rule-making power. It is an established rule that administrative
regulations are valid only when these are consistent with the law. Respondents cannot amend, by mere regulation, the
laws they administer. To do so would violate the principle of non-delegability of legislative powers.

The prorated application of the new set of personal and additional exemptions for the year 2008, which was introduced
by respondents, cannot even be justified under the exception to the canon of non-delegability; that is, when Congress
makes a delegation to the executive branch. The delegation would fail the two accepted tests for a valid delegation of
legislative power; the completeness test and the sufficient standard test. The first test requires the law to be complete in
all its terms and conditions, such that the only thing the delegate will have to do is to enforce it. The sufficient standard
test requires adequate guidelines or limitations in the law that map out the boundaries of the delegate's authority and
canalize the delegation.

In this case, respondents went beyond enforcement of the law, given the absence of a provision in R.A. 9504 mandating
the prorated application of the new amounts of personal and additional exemptions for 2008. Further, even assuming
that the law intended a prorated application, there are no parameters set forth in R.A. 9504 that would delimit the
legislative power surrendered by Congress to the delegate. In contrast, Section 23(d) of the 1939 Tax Code authorized
not only the prorating of the exemptions in case of change of status of the taxpayer, but also authorized the Secretary
of Finance to prescribe the corresponding rules and regulations.

II.
Whether an MWE is exempt for the entire taxable year 2008 or from 6 July 2008 only

The MWE is exempt for the entire taxable year 2008.

As in the case of the adjusted personal and additional exemptions, the MWE exemption should apply to the entire taxable
year 2008, and not only from 6 July 2008 onwards. We see no reason why Umali cannot be made applicable to the
MWE exemption, which is undoubtedly a piece of social legislation. It was intended to alleviate the plight of the working
class, especially the low-income earners. In concrete terms, the exemption translates to a ₱34 per day benefit, as pointed
out by Senator Escudero in his sponsorship speech.50

As it stands, the calendar year 2008 remained as one taxable year for an individual taxpayer. Therefore, RR 10-2008
cannot declare the income earned by a minimum wage earner from 1 January 2008 to 5 July 2008 to be taxable and
those earned by him for the rest of that year to be tax-exempt. To do so would be to contradict the NIRC and
jurisprudence, as taxable income would then cease to be determined on a yearly basis.

III.

Whether Sections 1 and 3 of RR 10-2008 are consistent with the law in

declaring that an MWE who receives other benefits in excess of the

statutory limit of ₱30,000 is no longer entitled to the exemption provided

by R.A. 9504, is consistent with the law.

Sections 1 and 3 of RR 10-2008 add a requirement not found in the law by effectively declaring that an MWE who
receives other benefits in excess of the statutory limit of ₱30,000 is no longer entitled to the exemption provided by R.A.
9504.

Nowhere in the above provisions of R.A. 9504 would one find the qualifications prescribed by the assailed provisions of
RR 10-2008. The provisions of the law are clear and precise; they leave no room for interpretation - they do not provide
or require any other qualification as to who are MWEs.

To be exempt, one must be an MWE, a term that is clearly defined. Section 22(HH) says he/she must be one who is
paid the statutory minimum wage if he/she works in the private sector, or not more than the statutory minimum wage in
the non-agricultural sector where he/she is assigned, if he/she is a government employee. Thus, one is either an MWE
or he/she is not. Simply put, MWE is the status acquired upon passing the litmus test - whether one receives wages not
exceeding the prescribed minimum wage.

CONCLUSION

The foregoing considered, we find that respondents committed grave abuse of discretion in promulgating Sections 1 and
3 of RR 10-2008, insofar as they provide for (a) the prorated application of the personal and additional exemptions for
taxable year 2008 and for the period of applicability of the MWE exemption for taxable year 2008 to begin only on 6 July
2008; and (b) the disqualification of MWEs who earn purely compensation income, whether in the private or public sector,
from the privilege of availing themselves of the MWE exemption in case they receive compensation-related benefits
exceeding the statutory ceiling of ₱30,000.

WHEREFORE, the Court resolves to

(a) GRANT the Petitions for Certiorari, Prohibition, and Mandamus; and

(b) DECLARE NULL and VOID the following provisions of Revenue Regulations No. 10-2008:
(i) Sections 1 and 3, insofar as they disqualify MWEs who earn purely compensation income from the privilege of the
MWE exemption in case they receive bonuses and other compensation-related benefits exceeding the statutory ceiling
of ₱30,000;

(ii) Section 3 insofar as it provides for the prorated application of the personal and additional exemptions under R.A.
9504 for taxable year 2008, and for the period of applicability of the MWE exemption to begin only on 6 July 2008.

(c) DIRECT respondents Secretary of Finance and Commissioner of Internal Revenue to grant a refund, or allow the
application of the refund by way of withholding tax adjustments, or allow a claim for tax credits by (i) all individual
taxpayers whose incomes for taxable year 2008 were the subject of the prorated increase in personal and additional tax
exemption; and (ii) all MWEs whose minimum wage incomes were subjected to tax for their receipt of the 13th month
pay and other bonuses and benefits exceeding the threshold amount under Section 32(B)(7)(e) of the 1997 Tax Code.

13. Obillos vs CIR, G.R. No. L-68118, October 29, 1985

HELD:
No. The Court holds that it is an error to consider the petitioners as having formed a partnership.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should
be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple.
To consider them as partners would obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not
feasible to build their residences on the lots because of the high cost of construction, then they had no
choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental
to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later.

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.

In the instant case, what the Commissioner should have investigated was whether the father
donated the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We
are not prejudging this matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are
cancelled. No costs.

14. REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF PUBLIC WORKS

AND HIGHWAYS, vs. ARLENE R. SORIANO

Ruling:

1. ) NO, the imposition of interest in this case is unwarranted in view of the fact that as evidenced by the
acknowledgment receipt signed by the Branch Clerk of Court, petitioner was able to deposit with the trial
court the amount representing the zonal value of the property before its taking. As often ruled by the
Court, the award of interest is imposed in the nature of damages for delay in payment which, in effect,
makes the obligation on the part of the government one of forbearance to ensure prompt payment of the
value of the land and limit the opportunity loss of the owner. However, when there is no delay in the
payment of just compensation, the court has not hesitated in deleting the imposition of interest thereon for
the same is justified only in cases where delay has been sufficiently established.

2. ) CONTENTION IS PARTLY MERITORIOUS

A. ) With respect to the capital gains tax, the court finds merit in petitioner’s posture that pursuant to
Sections 24(D) and 56(A)(3) of the 1997 National Internal Revenue Code (NIRC), capital gains tax due on
the sale of real property is a liability for the account of the seller, to wit:

Section 24. Income Tax Rates–

xxxx

(D) Capital Gains from Sale of Real Property. –

(1) In General. – The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on
the gross selling price or current fair market value as determined in accordance with Section 6(E) of this
Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from
the sale, exchange, or other disposition of real property located in the Philippines, classified as capital
assets, including pacto de retro sales and other forms of conditional sales, by individuals, including
estates and trusts: Provided, That the tax liability, if any, on gains from sales or other disposition of real
property to the government or any of its political subdivisions or agencies or to government-owned or
controlled corporations shall be determined either under Section 24(A)or under this Subsection, at the
option of the taxpayer.

xxxx

Section 56. Payment and Assessment of Income Tax for Individuals and Corporations. – (A) Payment of
Tax –

(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c),
24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed
by the person liable thereto: Provided, That if the seller submits proof of his intention to avail himself of
the benefit of exemption of capital gains under existing special laws, no such payments shall be required :
Provided, further, That in case of failure to qualify for exemption under such special laws and
implementing rules and regulations, the tax due on the gains realized from the original transaction shall
immediately become due and payable, subject to the penalties prescribed under applicable provisions of
this Code: Provided, finally, That if the seller, having paid the tax, submits such proof of intent within six
(6) months from the registration of the document transferring the real property, he shall be entitled to a
refund of such tax upon verification of his compliance with the requirements for such exemption.

Thus, it has been held that since capital gains is a tax on passive income, it is the seller, not the buyer,
who generally would shoulder the tax. Accordingly, the BIR, in its BIR Ruling No. 476-2013, dated
December 18, 2013, constituted the DPWH as a withholding agent to withhold the six percent (6%) final
withholding tax in the expropriation of real property for infrastructure projects. As far as the government is
concerned, therefore, the capital gains tax remains a liability of the seller since it is a tax on the seller's
gain from the sale of the real estate.
B. ) As to the documentary stamp tax, however, the Court finds inconsistent petitioner’s denial of liability
to the same. While petitioner cites Section 196 of the 1997 NIRC as its basis in saying that the
documentary stamp tax is the liability of the seller, a perusal of the provision cited does not explicitly
impute the obligation to pay the documentary stamp tax on the seller. In fact, according to the BIR, all the
parties to a transaction are primarily liable for the documentary stamp tax, as provided by Section 2 of
BIR Revenue Regulations No. 9-2000, which reads:

SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the Tax. –

(a) In General. - The documentary stamp taxes under Title VII of the Code is a tax on certain
transactions.It is imposed against "the person making, signing, issuing, accepting, or transferring" the
document or facility evidencing the aforesaid transactions. Thus, in general, it may be imposed on the
transaction itself or upon the document underlying such act. Any of the parties thereto shall be liable for
the full amount of the tax due: Provided, however, that as between themselves, the said parties may
agree on who shall be liable or how they may share on the cost of the tax.

(b) Exception. - Whenever one of the parties to the taxable transaction is exempt from the tax imposed
under Title VII of the Code, the other party thereto who is not exempt shall be the one directly liable for
the tax.

As a general rule, therefore, any of the parties to a transaction shall be liable for the full amount of the
documentary stamp tax due, unless they agree among themselves on who shall be liable for the same.

In this case, there is no agreement as to the party liable for the documentary stamp tax due on the sale of
the land to be expropriated. But while petitioner rejects any liability for the same, the Court must take note
of petitioner’s Citizen’s Charter, which functions as a guide for the procedure to be taken by the DPWH in
acquiring real property through expropriation under RA 8974. The Citizen’s Charter, issued by petitioner
DPWH itself on December 4,2013, explicitly provides that the documentary stamp tax, transfer tax, and
registration fee due on the transfer of the title of land in the name of the Republic shall be shouldered by
the implementing agency of the DPWH, while the capital gains tax shall be paid by the affected property
owner. Thus, while there is no specific agreement between petitioner and respondent, petitioner's
issuance of the Citizen's Charter serves as its notice to the public as to the procedure it shall generally
take in cases of expropriation under RA 8974. Accordingly, it will be rather unjust for the Court to blindly
accede to petitioner's vague rejection of liability in the face of its issuance of the Citizen's Charter, which
contains a clear and unequivocal assumption of accountability for the documentary stamp tax. Had
petitioner provided the Court with more convincing basis, apart from a mere citation of an indefinite
provision of the 1997 NIRC, showing that it should be respondent-seller who shall be liable for the
documentary stamp tax due on the sale of the subject property, its rejection of the payment of the same
could have been sustained.

Respondent Arlene R. Soriano is ORDERED to pay for the capital gains tax due on the transfer of the
expropriated property, while the documentary stamp tax, transfer tax, and registration fee shall be for the
account of petitioner.
 15. MA. ISABEL T. SANTOS, represented by ANTONIO P. SANTOS vs. SERVIER PHILIPPINES,
INC. and NATIONAL LABOR RELATIONS COMMISSION

Ruling:
Yes. Section 32 (B) (6) (a) of the New National Internal Revenue Code (NIRC) provides for the
exclusion of retirement benefits from gross income, thus:
(6) Retirement Benefits, Pensions, Gratuities, etc. –
a) Retirement benefits received under Republic Act 7641 and those received by officials and
employees of private firms, whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer: Provided, That the retiring official or employee has been
in the service of the same employer for at least ten (10) years and is not less than fifty (50) years
of age at the time of his retirement: Provided further, That the benefits granted under this
subparagraph shall be availed of by an official or employee only once. x x x.
Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened
to prove the concurrence of the following elements: (1) a reasonable private benefit plan is maintained by
the employer; (2) the retiring official or employee has been in the service of the same employer for at least
ten (10) years; (3) the retiring official or employee is not less than fifty (50) years of age at the time of his
retirement; and (4) the benefit had been availed of only once.
Petitioner was qualified for disability retirement. At the time of such retirement, petitioner was only
41 years of age; and had been in the service for more or less eight (8) years. As such, the above provision
is not applicable for failure to comply with the age and length of service requirements. Therefore,
respondent cannot be faulted for deducting from petitioner’s total retirement benefits for taxation purposes.

16. Tambunting Pawnshop, Inc. v. CIR

RULING:

NO, since the imposition of VAT on pawnshops, which are non-bank financial intermediaries, was
deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year 1999.

Court discusses the history of VAT on Non-bank Financial Intermediaries when it cited the case of First
Planters Pawnshop, Inc. v. Commissioner of Internal Revenue (2008):

 Before E-VAT Law (1994) – Pawnshops were treated as lending investors subject to
lending investor’s tax
 E-VAT Law (1994) – 10% VAT imposed on banks and non-bank financial intermediaries
and financial institutions under Section 102 of the Tax Code of 1977
 RA 8241 (1997), amending E-VAT Law – moved the effectivity of 10% VAT on banks and
non-bank financial intermediaries to January 1, 1998
 R.A. No. 8424 (1997) or the Tax Reform Act of 1997 – likewise imposed a 10% VAT under
Section 108 but the levy, collection and assessment thereof were again deferred until
December 31, 1999
 RA 8761 (2000) – again deferred the levy, collection and assessment of the 10% VAT until
December 31, 2000
 RA 9010 (2001) – further deferred the levy, collection and assessment of the 10% VAT
until December 31, 2002; hence, the levy, collection and assessment of the 10% VAT was
 finally pushed through beginning January 1, 2003
 In CIR v. Lhuiller (2003) – pawnshops were then treated as VAT-able enterprises under
the general classification of "sale or exchange of services" under Section 108 (A) of the
Tax Code of 1997
 Upon the passage of RA 9238 (2004) – pawnshops were finally classified as as Other Non-
bank Financial Intermediaries which are made SPECIFICALLY EXEMPTED from VAT

17. NIPPON EXPRESS, CORP vs. CIR

RULING:

Records reveal that the CTA in Division in C.T.A. Case No. 6464 merely focused on the compliance with
the substantiation requirements, which particularly ruled that the evidence submitted by petitioner to prove
its zero-rated sales were insufficient so as to entitle it to the issuance of a TCC. The same findings were
adopted and affirmed in toto by the CTA En Banc in the assailed 20 August 2008 Decision. 20

While it is true that the substantiation requirements in establishing a refund claim is a valid issue, the
Court finds it imperative to first and foremost determine whether or not the CTA properly acquired
jurisdiction over petitioner’s claim covering taxable year 2000, taking into consideration the timeliness of
the filing of its judicial claim pursuant to Section 112 of the NIRC of 1997, as amended, and consistent
with the pronouncements made in the San Roquecase. Clearly, the claim of petitioner for the TCC can
proceed only upon compliance with the aforesaid jurisdictional requirement.

Relevant to the foregoing, Section 7 of R.A. No. 1125,21 which was thereafter amended by R.A. No.
9282,22 clearly defined the appellate jurisdiction of the CTA, to wit:

Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review
by appeal, as herein provided.

(1) Decisions of the Commissioner of Internal Revenue in cases involvingdisputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of
Internal Revenue;

The timeliness in the administrative and judicial claims can be found in Section 112 of the NIRC of 1997,
as amended, which reads:

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales.– Any VATregistered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax: x x x.

xxxx

(D)25 Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the application
filed in accordance with Subsections (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twentyday period, appeal the decision orthe unacted claim with the Court of Tax Appeals.

To repeat, a claim for tax refund or credit, like a claim for tax refund exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the
120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity
of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December
2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day
periods as mandatory and jurisdictional.27 (Emphasis supplied)

The same disposition was declared in, and Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenue,28 which, for emphasis, further provided a Summary of Rules on Prescriptive Periods Involving
VAT as a guide for all parties concerned, to wit:

(Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue ):

We summarize the rules on the determination of the prescriptive period for filing a tax refund or credit of
unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows:

(1) An administrative claim must be filed with the CIR within two years after the close of the taxable
quarter when the zero-rated or effectively zero-rated sales were made.

(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit certificate.
The 120-day period may extend beyond the two-year period from the filing of the administrative
claim if the claim is filed in the later part of the twoyear period. If the 120-day period expires without
any decision from the CIR, then the administrative claim may be considered to be denied by
inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision
denying the administrative claim or from the expiration of the 120-day period without any action
from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on
10 December 2003 up to its reversal by this Court in Aichi on October 6, 2010, as an exception to
the mandatory and jurisdictional 120+30 day periods.29 (Emphasis supplied) Certainly, it is evident
from the foregoing jurisprudential pronouncements that a taxpayer-claimant only had a limited
period of thirty (30) days from the expiration of the one hundred twenty (120)-day period of inaction
of the Commissioner of Internal Revenue (CIR) to file its judicial claim with the CTA, with the
exception of claims made during the effectivity of Bureau of Internal Revenue (BIR) Ruling No. DA-
489-03 (from 10 December 2003 to 5 October 2010). 30 Failure to do so, the judicial claim shall
prescribe or be considered as filed out of time.

Applying the foregoing discussion to the present case, although it appears that petitioner has indeed
complied with the required two-year period within which to file a refund/tax credit claim with the BIR
(OSSACDOF in this case) by filing all its administrative claims on 24 September 2001 (within the period
from the close of the taxable quarters for the year 2000, when the sales were made), this Court finds that
petitioner’s corresponding judicial claim was filed beyond the 30-day period, detailed hereunder as follows:
 Taxable year 2000 Filing date of the Last day of the Last day of the 30- Filing date of the
(close of taxable administrative 120-day period day period to Petition for Review
quarters) claim (within the 2- under Section judicially appeal
year period) 112(D) from the said inaction
date of submission
of complete
documents in
support of its
application
1st Quarter (31
March 2000) 2nd
Quarter (30 June
2000) 3rd Quarter 24 September
22 January 200231 21 February 2002 24 April 2002
(30 September 2001
2000) 4th Quarter
(31 December
2000)

Finally for academic discussion, as regards the substantiation requirements, it is worthy to mention that in
Kepco Philippines Corporation v. Commissioner of Internal Revenue, 38 the High Court ruled that under the
law, a VAT invoice is necessary for every sale, barter or exchange of goods or properties while a VAT
official receipt properly pertains to ever; lease of goods or properties, and every sale, barter or exchange
of services. In other words, the VAT invoice is the seller's best proof of the sale of the goods or services to
the buyer while the VAT receipt is the buyer's best evidence of the payment of goods or services received
from the seller. Thus, the High Court concluded that VAT invoice and VAT receipt should not be confused
as referring to one and the same thing. Certainly, neither does the law intend the two to be used
interchangeably.

All told, the CTA has no jurisdiction over petitioner's judicial appeal considering that its Petition for Review
was filed beyond the mandatory 30-day period pursuant to Section 112(D )39 of the NIRC of 1997, as
amended, and consistent with the ruling in the San Roque case. Consequently, petitioner's instant claim
for refund must be denied.

WHEREFORE, the claim for refund is by prescription BARRED. Accordingly, the petition for review filed
before the Court of Tax Appeals docketed as CT A Case No. 6464 is DISMISSED for lack of jurisdiction
and the issue on substantiation requirements rendered MOOT and ACADEMIC. This petition is, for such
reason, DISMISSED.

SO ORDERED.

18. Medicard Philippines, Inc. Vs. Commissioner of Internal Revenue

Ruling:

1. Yes, because the absence of an LOA violated MEDICARD’s right to due process.
An LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of account and other
accounting records of a taxpayer for the purpose of collecting the correct amount of tax.[25] An
LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns
is a power that statutorily belongs only to the CIR himself or his duly authorized representatives.
 Section 6 of the NIRC clearly provides as follows:

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional

Requirements for Tax Administration and Enforcement. –

(A) Examination of Return and Determination of Tax Due. – After a return has been
filed as required under the provisions of this Code, the Commissioner or his duly
authorized representative may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however, That failure to file a return
shall not prevent the Commissioner from authorizing the examination of any taxpayer.

x x x x (Emphasis and underlining ours)

Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his
duly authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily
be undertaken. The circumstances contemplated under Section 6 where the taxpayer may be
assessed through best-evidence obtainable, inventory-taking, or surveillance among others has
nothing to do with the LOA. These are simply methods of examining the taxpayer in order to arrive
at the correct amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized
representatives, other tax agents may not validly conduct any of these kinds of examinations
without prior authority.

2. No, the amounts earmarked and
eventually paid by MEDICARD to
the medical service
providers do not
form part of gross receipts for VAT
purposes.
Since an HMO like MEDICARD is primarily engaged in arranging for coverage or designated
managed care services that are needed by plan holders/members for fixed prepaid membership
fees and for a specified period of time, then MEDICARD is principally engaged in the sale of
services. Its VAT base and corresponding liability is, thus, determined under Section 108(A)[32] of
the Tax Code, as amended by Republic Act No. 9337.

It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base
under the N1RC does not contain any specific definition.[36] Therefore, absent a statutory
definition, this Court has construed the term gross receipts in its plain and ordinary meaning, that
is, gross receipts is understood as comprising the entire receipts without any deduction.[37]
Congress, under Section 108, could have simply left the term gross receipts similarly undefined
and its interpretation subjected to ordinary acceptation. Instead of doing so, Congress limited the
scope of the term gross receipts for VAT purposes only to the amount that the taxpayer received
for the services it performed or to the amount it received as advance payment for the services it
will render in the future for another person.

In the proceedings below, the nature of MEDICARD’s business and the extent of the services it
rendered are not seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary
between the purchaser of healthcare services (its members) and the healthcare providers (the
doctors, hospitals and clinics) for a fee. By enrolling membership with MEDICARD, its members
will be able to avail of the pre-arranged medical services from its accredited healthcare providers
without the necessary protocol of posting cash bonds or deposits prior to being attended to or
admitted to hospitals or clinics, especially during emergencies, at any given time. Apart from this,
MEDICARD may also directly provide medical, hospital and laboratory services, which depends
upon its member’s choice.

Thus, in the course of its business as such, MEDICARD members can either avail of medical
 services from MEDICARD’s accredited healthcare providers or directly from MEDICARD. In the
former, MEDICARD members obviously knew that beyond the agreement to pre-arrange the
healthcare needs of its members, MEDICARD would not actually be providing the actual healthcare
service. Thus, based on industry practice, MEDICARD informs its would-be member beforehand
that 80% of the amount would be earmarked for medical utilization and only the remaining 20%
comprises its service fee. In the latter case, MEDICARD’s sale of hs services is exempt from VAT
under Section 109(G).

For this Court to subject the entire amount of MEDICARD’s gross receipts without exclusion, the
authority should have been reasonably founded from the language of the statute. That language is
wanting in this case. In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the details that
Congress may not have the opportunity or competence to provide. The regulations these authorities
issue are relied upon by taxpayer, who are certain that these will be followed by the courts. Courts,
however, will not uphold these authorities’ interpretations when clearly absurd, erroneous or
improper.[42] The CIR’s interpretation of gross receipts in the present case is patently
erroneous for lack of both textual and non-textual support.

WHEREFORE, in consideration of the foregoing disquisitions, the petition is hereby GRANTED.