TAX 1 CASES TAB LE OF CONTENTS CONTENTS Title of the Case
City Bank vs CA, 280 SCRA 459 CIR vs Wyeth Laboratories, 202 SCRA 125 Marcos vs CA, 273 SCRA 47 CIR vs Hartex, L-136075, March 3, 2005 Alh Alha ambra vs Colle llector, tor, 105 Phil 1337 Estate of Maria Lim Vda. de Uy vs Uy, 50 OG 5261 Collector vs Benipayo, 4 SCRA 182 Behn Meyer vs CIR, 27 Phil 647 Perez vs CTA, GR L-10507, May 30, 1948 Collector vs Bohol LTO, GR L-13099 and GR L-13642, April 29, 1960 Santos vs Nable, 2 SCRA 21 Republic vs Albert, GR 12996 Republic vs Mla. Port Svc, GR 18208, November 27, 1964 Republic vs Lopez, 2 SCRA 566 Commissioner vs Avelino, GR L-14847, September 19, 1961 Olsen vs Rafferty, 32 Phil 530 US vs Molina, 29 Phil 119 An Anderson vs Colle llector, tor, 66 Phil 205 Lim Hoa Ting vs Central Bank, 104 Phil 573 Castro vs Hechanova, L-23635, August 15, 1966 Floreza vs Ongpin, GR 81356, February 26, 1990 Republic vs Patanao, L-22317, July 21, 1967 Collector vs Batangas, 102 Phil 822 Commissioner vs Malayan Insurance. 21 SCRA 544 Tanada vs Tuvera, 146 SCRA 446 CONWI vs CTA, 213 SCRA 83 CIR vs CA, GR L-108576, January 20, 1990 Zialcita, 190 SCRA 850 CIR vs CA, 203 SCRA 1991 CIR vs Mitsubishi. GR 54908, January 22, 1990 CIR vs CTA, 203 SCRA 72 CIR vs P&G, 204 SCRA 377 CIR vs Wander, 160 SCRA 570 Pareno vs Sandigan, 256 SCRA 242 PRC vs CA, 256 SCRA 667 Basilan Estates vs Commissioner, GR L-22492, September 5, 1967 Umali vs Estanislao, 209 SCRA 446 Calasanz vs CIR, 144 SCRA 644 NDC vs CIR, 151 SCRA 473 Lim vs CA, 190 SCRA 616 PICOP vs CA, 250 SCRAW 434 BA vs CA, 234 SCRA 302 CIR vs P&G, 204 SCRA 377 Ropali vs NLRC, 296 SCRA 309 Citibank vs CA, 280 SCRA 459 CIR vs Lucio Tan, GR 119322, June 4, 1996 Republic vs De Guzman, 5 SCRA 990 Ungad vs Cusi, 97 SCRA 877 Commissioner vs Phoenix, L-19127, May 20, 1965 RP vs CA, 149 SCRA 351
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Not found Not found Not found 17 18 19 20 21-22 23 24 25-26 27 Not found 28-29 Not found 30 31 Not found 32 33 34 35 36 37 38 39 Repeated (P. 30) Not found 41 42 43 44 45 46
Commissioner vs Western Pacific, L-18804, May 27, 1965 Citibank vs CA, L-107434, October 10, 1997 CIR vs Philam, 244 SCRA 446 Palanca vs Commissioner, L-16661, January 31, 1962 RP vs CA, L-38540, April 30, 1987 Ad Advertis rtisin ing g vs CIR, IR, GR 59758, December 26, 1984 Calo vs Magno, GR L-18399, October 28, 1961 CIR vs NLRC, GR 74965, November 9, 1944 HSBC vs Rafferty, 39 Phil 145 Torres vs Collector, GR 48602, February 26, 1943 CIR vs Hizon, GR 130430, December 13, 1999 Republic vs Lim Tian Teng, GR 21731, March 31, 1966 Yabes vs Flojo, 15 SCRA 278 CIR vs Gonzales, L-19495, November 11, 1966 MIA vs CIR, GR L-12174, April 26, 1962 RP vs China Lak, 103 Phil 1149, L-10609, May 23, 1958 PP vs Rubio, 57 Phil 886 ONA vs Commissioner, L-19342, May 5, 1972 Pascual vs Commissioner, 166 SCRA 560 Tan vs Del Rosario, 237 SCRA 324 Garrison vs CA., 187 SCRA 525 Marubeni vs CIR, 177 SCRA 500 CIR vs BOAC, 149 SCRA 395 CIR vs CA, GR 124043, October 14, 1998 Pascual vs Secretary of Public Works, 110 Phil 381 Gonzales vs Marcos, 65 SCRA 624 Dumlao vs COMELEC, 95 SCRA 392 CIR vs American Airlines, 180 SCRA 274 CIR vs Air India, 157 SCRA 648 CIR vs JAL, 202 SCRA 450 Bank of America vs CA, 234 SCRA 302 NV Amstaredam vs CIR, 162 SCRA 489 CIR vs CA, 298 SCRA 83 Ab Abra vs Aquino ino, 162 SCRA 106 Madrigal vs Rafferty, 38 Phil 414 Commissioner vs Tours Specialist, 183 SCRA 402 Fisher vs Trinidad, 43 Phil 973 Request of Atty Zialcita, 190 SCRA 850 CIR vs Javier, 199 SCRA 824 ESSO vs CIR, 175 SCRA 149 CIR vs CA, 250 SCRA 434 CIR vs P&G, 160 SCRA 560 CIR vs Pascor, 309 SCRA 402 Collector vs Yuseco, L-12518, October 28, 1961 Gaston vs Republic Planter’s Bank, 158 SCRA 622 Paseo Realty vs CA, 440 SCRA 235 CIR vs Central Luzon, 456 SCRA 414 CIR vs CA, 208 SCRA 72 CIR vs CA, 257 SCRA 200 PICOP vs CA, 250 SCRA 454 RP vs Nielson, 149 SCRA 351 Phil Journalist vs CA, 447 SCRA 214 Estate of Diez vs CIR, 421 SCRA 266
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47 48 49 50-51 52 53-54 55 56-57 58 Not found 60 61-62 63 64 65 66 Not found 67 68 69 70 71 72 73 74 75 76 Not found 78-79 80 81 82 Repeated (P. 73) 83 84 85 86-87 88 89 91 92-93 94 95 96 97 98 99 Not found 100 101 102 103 104
Commissioner vs Western Pacific, L-18804, May 27, 1965 Citibank vs CA, L-107434, October 10, 1997 CIR vs Philam, 244 SCRA 446 Palanca vs Commissioner, L-16661, January 31, 1962 RP vs CA, L-38540, April 30, 1987 Ad Advertis rtisin ing g vs CIR, IR, GR 59758, December 26, 1984 Calo vs Magno, GR L-18399, October 28, 1961 CIR vs NLRC, GR 74965, November 9, 1944 HSBC vs Rafferty, 39 Phil 145 Torres vs Collector, GR 48602, February 26, 1943 CIR vs Hizon, GR 130430, December 13, 1999 Republic vs Lim Tian Teng, GR 21731, March 31, 1966 Yabes vs Flojo, 15 SCRA 278 CIR vs Gonzales, L-19495, November 11, 1966 MIA vs CIR, GR L-12174, April 26, 1962 RP vs China Lak, 103 Phil 1149, L-10609, May 23, 1958 PP vs Rubio, 57 Phil 886 ONA vs Commissioner, L-19342, May 5, 1972 Pascual vs Commissioner, 166 SCRA 560 Tan vs Del Rosario, 237 SCRA 324 Garrison vs CA., 187 SCRA 525 Marubeni vs CIR, 177 SCRA 500 CIR vs BOAC, 149 SCRA 395 CIR vs CA, GR 124043, October 14, 1998 Pascual vs Secretary of Public Works, 110 Phil 381 Gonzales vs Marcos, 65 SCRA 624 Dumlao vs COMELEC, 95 SCRA 392 CIR vs American Airlines, 180 SCRA 274 CIR vs Air India, 157 SCRA 648 CIR vs JAL, 202 SCRA 450 Bank of America vs CA, 234 SCRA 302 NV Amstaredam vs CIR, 162 SCRA 489 CIR vs CA, 298 SCRA 83 Ab Abra vs Aquino ino, 162 SCRA 106 Madrigal vs Rafferty, 38 Phil 414 Commissioner vs Tours Specialist, 183 SCRA 402 Fisher vs Trinidad, 43 Phil 973 Request of Atty Zialcita, 190 SCRA 850 CIR vs Javier, 199 SCRA 824 ESSO vs CIR, 175 SCRA 149 CIR vs CA, 250 SCRA 434 CIR vs P&G, 160 SCRA 560 CIR vs Pascor, 309 SCRA 402 Collector vs Yuseco, L-12518, October 28, 1961 Gaston vs Republic Planter’s Bank, 158 SCRA 622 Paseo Realty vs CA, 440 SCRA 235 CIR vs Central Luzon, 456 SCRA 414 CIR vs CA, 208 SCRA 72 CIR vs CA, 257 SCRA 200 PICOP vs CA, 250 SCRA 454 RP vs Nielson, 149 SCRA 351 Phil Journalist vs CA, 447 SCRA 214 Estate of Diez vs CIR, 421 SCRA 266
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47 48 49 50-51 52 53-54 55 56-57 58 Not found 60 61-62 63 64 65 66 Not found 67 68 69 70 71 72 73 74 75 76 Not found 78-79 80 81 82 Repeated (P. 73) 83 84 85 86-87 88 89 91 92-93 94 95 96 97 98 99 Not found 100 101 102 103 104
RP vs Lion Tian Teng, 16 SCRA 583 RP vs Hizon, 420 SCRA 574 Ungab vs Cusi, 97 SCRA 877 CIR vs Gonzales, 18 SCRA 757 Citibank vs CA, 28 SCRA 457 RP vs De Guzman, 5 SCRA 191 CIR vs Lucio Tan, 257 SCRA 201 Castro vs CIR, L-12174, April 26, 1962 People vs Balagtas, L-10210, July 29, 1959
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105-106 107 108 109 110 111 112 113 Not found
City Trust Banking vs. CA GR 92591, 30 Apr il 1991 Facts:
Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the taxeson rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980, Citibank field its corporate income tax returns for the year and ended December 31,1979 showing a net loss of P74,854,916.00 and its tax credits totaled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year‘s operation resulted in a loss. The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax creditsalthough a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979. For the year ended December 31, 1980, Citibank‘s corporate income tax returns, filed on April 15, 1981,showed a net loss P77,071,790.00 for income tax purposes. Its available tax credit at the end of 1980amounting to P11,532,855.00 was not utilized or applied. The said available tax credits did not includethe amounts withheld by Citibank‘s tenants from rental payment sin 1980 but the rental payments forthat year were declared as part of its gross income included in its annual income tax returns. On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56and P298,829.29, respectively or a total of P568,989.85; and on October 12, 1981 filed a petition forreview with the Court of Tax Appeals concerning subject claim for tax refund. On August 30, 1981, the CTA adjudged Citibank‘s entitlement to thetax refund sought for, representing the 5% tax withheld and paid on Citibank‘s rental income for 1979 and 1980. The Court of Tax Appeals,rejected Respondent CIR‘s argument that the claim was not seasonably filed. Not satisfied the Commissioner appealed to the Court of Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax in Citibank‘s rental income for the years 1979 and 1980 is REVERSED. Motion for Reconsideration of the petitioner bank wasdenied. Issue:
Whether or not income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer‘s final adjusted returns. Ruling:
In several cases, we have already ruled that income taxesremitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer‘s final adjusted returns, not on such periodic or quarterly basis. When applied to taxpayers filing income taxreturns on a quarterly basis, the date ofpayment mentioned in Sec. 230 must be deemed to be qualifiedby Sec. 68 and 69 of the present. Tax Code. It may be observed that although quarterly taxes due arerequired to be paid within 60 days from the close of each quarter, the fact that the amount shall bededucted from the tax due for the succeeding quarter shows that until a final adjustment return shallhave been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation.Neither amount can serve as the final figure to quantify what is due the government nor what should berefunded to be corporation. This interpretation may be gleaned from the last paragraph of Sec. 69 of theTax Code which provides that the refundable amount, in case arefund is due a corporation, is thatamount which is shown on its finaladjustment return and not on its quarterly returns.
1
CIR vs WYETH SUACO LA BORATORIES, INC 202 SCRA 125 Facts:
On December 19, 1974, Wyeth Suaco received notice ofassessment from the BIR for its failure toremit withholding tax at source for the 4th quarter of 1973 on accrued royalties, remuneration fortechnical services paid abroad and cash dividends, including the deduction of non-deductible rawmaterials from its reports. The company, thru its tax consultant, SVG & co., sent BIR two letters dated January 17, 1975 and February 8, 1975 protesting theassessment and requesting their cancellationor withdrawal on the ground that said assessments lacked factual or legal basis. Also, there were lettersfrom the company to the BIR to such effect. On September 12, 1975, the CIR offered to compromise butonly resulted to a slight reduction of the tax as per the acting Commissioner’s decision on December 10,1979. On January 18, 1980, Wyeth Suaco filed petition for review with the CTA, praying that CIR beenjoined from enforcing the assessments by reason of prescription and that assessments be declarednull and void for lack of legal and factual basis. The CTA decided against the CIR holding that while theassessments for the deficiency taxes were made within the five-year period of limitation, the right of CIRto collect the same has already prescribed, in accordance with Sec. 319(c) of the NIRC. Issue:
Whether or not the right of CIR to collect has already prescribed Ruling:
No. CTA is wrong. The letters of Wyeth Suaco interrupted the running of the five-year perspectiveperiod to collect the deficiency taxes. Settled is the rule that the prescriptive period provided by law tomake a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requestsfor reinvestigation or reconsideration of the assessment. Wyeth Suaco admitted that it was seekingreconsideration of the tax assessments as shown in a letter of its president and General Manager.Further, although the protest letters prepared by SGV & Co. did not categorically state or use the wordsreinvestigationand reconsideration, the same are to be treated as letters of reinvestigation andreconsideration. As to Wyeth Suaco’s argument that withholding tax at source should only be remitted to the BIR oncethe incomes subject to withholdingtax at source have actually been paid, the SC cited the lifeblooddoctrine, the express provision of the law which requires the filing of monthly return and payment of taxes withheld at source within 10 days after the end of each month. Further, the company uses accrualmethod of accounting and therefore the effect of transactions and other events on assetsand liabilities are recognized and reported in the time periods to which they relate rather than onlywhen cash is received or paid.
2
MARCOS II vs. CA 273 SCRA 47, GR No. 120880, June 5, 1997 Facts:
Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR after it failed to file estate tax returns. However the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated. Petitioner also pointed out that applying Memorandum Circular No. 38-68, the BIR's Notices of Levy on the Marcos properties were issued beyond the allowed period, and are therefore null and void. Issue:
Whether or not the contentions of Bongbong Marcos are correct Ruling:
No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased's estate is not a mandatory requirement in the collection of estate taxes. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax. On the issue of prescription, the omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as under Sec.223 of the NIRC, in case of failure to file a return, the tax may be assessed at anytime within 10 years after the omission, and any tax so assessed may be collected by levy upon real property within 3 years (now 5 years) following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is no reason why the BIR cannot continue with the collection of the said tax.
3
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC G.R. No. 136975. March 31, 2005 Facts:
Hantex Trading Co is a company organized under the Philippines. It is engaged in thesale of plastic products, it imports synthetic resin and other chemicals for themanufacture of its products. For this purpose, it is required to file an Import Entry andInternal Revenue Declaration (Consumption Entry) with the Bureau of Customs underSection 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. VicenteAmoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence andInvestigation Bureau (EIIB), received confidential information that the respondent hadimported synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57. Thus, Hantex receive a subpoena to present its books of accountwhich it failed to do. The bureau cannot find any original copies of the productsHantex imported since the originals were eaten by termites. Thus, the Bureau reliedon the certified copies of the respondent’s Profit and Loss Statement for 1987 and1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that Hantexhave tax deficiency and is ordered to pay, per investigation of the Bureau. The CAruled that the income and sales tax deficiency assessments issued by the petitionerwere unlawful and baseless since the copies of the import entries relied upon incomputing the deficiency tax of the respondent were not duly authenticated by thepublic officer charged with their custody, nor verified under oath by the EIIB and theBIR investigator. Issue:
Whether or not the final assessment of the petitioner against the respondent fordeficiency income tax and sales tax for the latter’s 1987 importation of resins andcalcium bicarbonate is based on competent evidence and the law Ruling:
No. Section 16 of the NIRC of 1977, as amended, provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additionalrequirements for tax administration and enforcement. Among such powers are thoseprovided in paragraph (b), which provides that “Failure to submit required returns,statements, reports and other documents. – When a report required by law as a basisfor the assessment of any national internal revenue tax shall not be forthcomingwithin the time fixed by law or regulation or when there is reason to believe that anysuch report is false, incomplete or erroneous, the Commissioner shall assess theproper tax on the best evidence obtainable.” This provision applies when theCommissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayer’sfailure to file one, or to amend a return already filed in the BIR. The “best evidence”envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate andaccounting records of the taxpayer who is the subject of the assessment process, theaccounting records of other taxpayers engaged in the same line of business,including their gross profit and net profit sales. Such evidence also includes data,record, paper, document or any evidence gathered by internal revenue officers fromother taxpayers who had personal transactions or from whom the subject taxpayerreceived any income; and record, data, document and information secured fromgovernment offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the bestevidence obtainable under Section 16 of the 1977 NIRC, as amended, does notinclude mere photocopies of records/documents. The petitioner, in making apreliminary and final tax deficiency assessment against a taxpayer, cannot anchorthe said assessment on mere machine copies of records/documents. Merephotocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or businesstaxes against a taxpayer.
4
Al ham br a vs Col lec to r o f Cust om s 102 SCRA 1337 Facts:
Alhambra is a corporation engaged in manufacturing tobaccos. It contends that the salaries of its officersKuenzle and Streiff, who are nonresident and are being paid P6,000.00,were reasonable and deductible as ordinary business expense as well as their commissions and director’s fees. Issue:
Whether or not the salaries, commissions and director’s fees of Kuenzle and Streiff are deductible as ordinary expense Ruling:
Qualified yes,considering the nature of the work of Kuenzle and Streiff, being president and vice-president of the company, respectively, their salaries are deductible as ordinary expense of the company. However, the commissions and director’s fees are not deductible because there is no evidence of any particular service rendered by them so as to warrant payment of commissions and with regards to director’s fee, it is quite inconceivable to accept that they are being paid P10,000.00 for a mere visit in their company in the Philippines. Director’s fees are more often a percentage of annual sales of the company.
5
INTESTATE ESTATE OF MARIA LIM VDA. DE UY. JOSE L. UY vs . PACITA UY, JESUS UY, and JOSEFINA UY G.R. No. L-15386 – Apri l 29, 1961 Facts:
Petitioners and respondents, including the Republic as intervernor, had a dispute concerning war profit estate and inheritance taxes which started when Jose L. Uy was appointed as administrator of the estate of Maria Lim De Uy in a probate proceeding. The Courts of First Instance took cognizance of the case and later remanded it to the Court of Tax Appeals upon motion by the intervenor (the Republic). Issue:
Whether or not the Court of First Instance has jurisdiction over the case Ruling:
Partly yes.The main "action", to which the intervention is said to be ancillary is the proceeding (not "action") for the settlement of the estate of the deceased Maria Lim Vda. deUy. Despite the order appealed from, this special proceeding will continue as such under the jurisdiction of the probate court. The nature of such special proceeding will not be altered. However, the issue on the nature of the sales or transfers made by Maria Lim Vda.deUy in favor of her children, and on the obligation to pay the taxes claimed by the government, will be taken out of this proceeding and submitted to the Court of Tax Appeals, for determination pursuant to Republic Act No. 1125. It is not true that said claims do not involve a disputed assessment. The complaint in intervention, and its amendments, as well as the proof of debts attached thereto, partake of the nature of assessments. Appellants herein have denied the obligation to pay the amounts therein claimed to be due as taxes. Hence, the controversy refers to disputed assessments of internal revenue taxes and a special tax the enforcement and collection of which are entrusted by law to the Commissioner of Internal Revenue. Pursuant to sections 7 and 22 of Republic Act No. 1125, the Court of Tax Appeals shall have exclusive appellate jurisdiction to review on appeal the decision of said officer thereon. It is urged by appellants, in support of their second assignment of error, (a) that "estate and inheritance taxes are based on the fact of transmission" of property of the deceased "and receipt" thereof by his heir or legatee, which, appellants claim, cannot possibly take place when the property in question is subject to a claim of ownership adverse to the deceased; and (b) that "the question whether or not there was a transfer of property, when denied by alleged recipient, is a question of ownership". Precisely, for these reasons, the probate court has no jurisdiction to settle the issue between the parties herein in this special proceeding for the settlement of the estate of the deceased. Upon the other hand, since the determination of the question whether the deceased had really or fictitiously transferred properties to her children, and whether or not the transfer had been made in contemplation of death, as provided in section 88(B) of the Tax Code, are merely incidental to the issue on the validity or legality of the disputed assessments, which is within the jurisdiction of the Court of Tax Appeals, it follows that the latter — not the court of first instance, not even as a regular court — is, likewise, competent to hear and decide said questions concerning the nature of the transfers aforementioned.
6
Collector vs. Benipayo GR L-13656, 31 January 1962 Facts:
Alberto Benipayo is the owner of the Lucena Theater in Lucena, Quezon. In 1953, the internal revenue agent investigated Benipayo’s tax liability for the period of August 1952 to September 1953. The examiner recommended a deficiency tax assessment in the sum of P11,193.45 inclusive of 25% surcharge plus a suggested compromise penalty of P900.00 based on the conclusion that Benipayo sold 2 tax-free 20c ticletsfraudulently in order to avoid payment of amusement tax prescribed by Section 260 of the Tax Code (based on a reverse ratio of adult to children; 3:1 in 1949 to 1951, and 1:3 for period in question; and average attendance for the past years). Benipayo protested, claiming that the findings of the examiners are mere presumptions and conclusions, devoid of findings of fact of alleged fraudulent practices by him. Issue:
Whether there is evidence in the record to show Benipayo committed the alleged act to cheat or defraud the Government Ruling:
No. An assessment fixes and determines the tax liability of a taxpayer. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment, being a mere presumption, cannot be made to rest on another presumption, no matter how reasonable or logical such may be; i.e. that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951, and July 1955. There are no substantial facts to support the assessment in question. Neither was there any proof of the fraud allegedly committed. Fraud is a serious charge, and to be sustained, it must also be supported by clear and convincing proof.
7
BEHN, MEYER & CO. (LTD.) vs W. T. NOLTING, Collector of Internal Revenue G.R. No. 10620 – Novem ber 8, 1916 Facts:
Behn, Meyer & Co. (Behn)was engaged in the business, among other things, of buying and selling copra, hemp, and other native products of the Islands, and in such business, it advanced money for the future delivery of copra, hemp, and took as security for the future delivery of such copra or hemp so contracted for a mortgage on the land upon which said copra or hemp was produced, and charging a discount on the future deliveries of said copra or hemp, which was compensation for the money so advanced. The Collector of Internal Revenue (CIR) demanded that Behnobtain a license as a real-estate broker and pay the sum of five hundred eighty pesos (P580) therefor, covering the years 1906 to 1912, inclusive, and the penalty for delinquency. Issue:
Whether or not the transactions or business which Behn was engaged in, as disclosed by the agreement, constituted real-estate broker as defined by section 144 paragraph 2 of Act No. 1189 Ruling:
No. The contract which Behn made with their customers was for the purchase of agricultural products; that the payments were made in advance; that to secure the delivery of said products or a return of the money so paid in advance the plaintiff took a mortgage upon the land upon which the products were to be produced; that the taking of said mortgage was a mere incident to the business of the plaintiff in buying and selling agricultural products, and was not a business in itself. The business of the plaintiff was not a business "for themselves or for others, to negotiate the purchase or sale of lands, buildings, or interest therein, or to negotiate loans secured by lands, buildings, or interest therein, or to tent real estate for others, or to collect rents thereon," but the business was to purchase and sell agricultural products, and that the tasking of said mortgages was a mere incident of their principal business. It could hardly be held that a man who is engaged in the hardware and plumbing business, for example, who took a mortgage upon a residence in which he had placed extensive plumbing and sanitary apparatus, in order to secure the price of his labor and material, was engaged "as a real-estate broker." It may be said that a man's business, or the business of a corporation, is that which busies or occupies his time, attention, or labor, as his principal concern or occupation. (Territory vs. Harris, 19 Pac. Rep, 286.) Many persons make an occasional loan of money, secured by a mortgage, in the due course of their business. That fact, however, will not constitute such a person a real-estate broker.
8
Perez vs CTA GR L-10507 – May 30, 1958 Facts:
Petitioner was assessed by the Collector with deficiency tax due to its increase in net worth. In making the deficiency assessments, the Collector employed what is known as the "net worth" technique and started by determining the opening net worth of petitioner at the start of the year 1947 which he fixed at P936.72. The Court of Tax Appeals declared the "net worth" method of determining understated income to have been validly and properly applied; found that the consistent underdeclaration of income, unexplained acquisition of properties, and the fact of petitioner's having claimed fictitious losses evidenced fraudulent intent, and ordered him to pay deficiency income taxes and surcharges in the sum of P241,547.77. Issue:
(1) Whether the Collector of Internal Revenue is empowered by law toinvestigate appellant's (petitioner) income tax returns for 1947, 1948, and1949 and to enforce collection of the alleged deficiency income taxes for saidyears by summary proceedings of distraint and levy more than three yearsafter the income tax returns covering them were filed (2) Whether the use ofthe "net worth" method by the respondent in computing appellant's netincome is valid Ruling:
(1) No. Reiteratirg a long line of decisions to the effect that thethree-year prescriptive period under section 51 (d) of the National InternalRevenue Code constituted a limitation to the right of the government to enforce the collection of income taxes by summary proceedings of distraintand levy, though, it could proceed to recover the taxes due by the institutionof the corresponding civil action. Nevertheless, the appealof the taxpayer vested jurisdiction on the Court of Tax Appeals to reviewand determine his tax liability for the aforesaid period. (2) Yes. This method of proving unreported income, according to the Court of TaxAppeals, is based upon the general theory that money and other assets inexcess of liabilities of a taxpayer (after an accurate and proper adjustment ofnondeductible items) not accounted for by his income tax returns, leads tothe inference that part of his income has not been reported (p. 6, B.T.A. 189).There is no question that the application of the "net worth" method ofdetermining the taxable income of a taxpayer has been an accepted practice. In fine, we hold: That section 38 of our National Internal Revenue Code authorizes the application of the Net Worth Method in this jurisdiction (Baiter, Fraud Under Fed.Tax Law, sec. 224; Vol. 2, 1951 CCH 386. Oil, Byer Net Worth Technique for Determining Income, supra: Holland vs. U.S., supra; Estate of Bartley, 22 U.S.Tax Ct. lep. 1230; Hurley, 22 U. S. Tax Ct. Rep. 1264; S B.T.A. 169). That no civil cases, the Government need not prove the specific source of income (this is reasonable on the basic assumption that most assets are derived from a taxable source and that when this is not true the taxpayer is in a position to explain the discrepancy, {see Holland case, supra); That the determination of the tax deficiency by the Government has prima facie validity and the burden rests upon the taxpayer to overcome this presumption and to show to the satisfaction of the Tax Court that the determination was not correct (Archer vs. Commissioner, supra; Thomas vs. Commissioner, supra; Laughinghouse vs. Commissioner, sutra: William Lias, 24 T.C. No. 23,May 26, 1955, Virginia Law Review, 41 p. 7; Halle, 7 T.C. 245, aff'd 175 F. 2d 500, 339 U.S. 949; Byer, "Net Worth Technique for Determining Income"). And finally, that no sufficient grounds exist to warrant a reversal of the findings of fraud of the lower court as being "clearly erroneous"; on the contrary, we find them supported by reason.
9
CIR vs Boho l Land Transportation Co. GR L-13099 – April 28, 1960 Facts:
The Bohol Land Transportation Co. is a domestic corporation engaged in the land transportation business with main office at Tagbilaran, Bohol. The following deficiency assessments were issued against, it on August 4 and 5 1953: for 1945 the deficiency income tax assess P15,275.31; for 1946, P15,768.20; for 1947, P11,732.90; for 1948, P20,711.09; for 1949, 18,728.21; for 1950, P30,155.09, and for 1951, P30,189.00. The company filed with the Court of Tax Appeals an urgent motion for mandatory injunction. At the hearing on the injunction, the Collector admitted that pursuant to several decisions of the Supreme Court he has no authority to collect by summary methods the income taxes assessed against the company for the years 1945 to 1950, inclusive, it appearing that the warrant of distraint and levy and the warrant of garnishment were issued beyond the period of three years from the time the income tax returns were filed. The Collector of Internal Revenue is appealing from that portion of the decision which holds that the right of the Government to assess and collect by judicial action the income taxes for the years 1945 to 1947, inclusive, has already prescribedbecause Sections 331 and 332 of the National Internal Revenue Code apply to internal revenue taxes in general and not to income taxes the collection of which is specifically provided for under a different title of the same Code, particularly Title II which refers exclusively to income tax, the Collector concludes that the right of the Government to assess and collect income taxes by judicial action has no definite period of limitation and so the deficiency income taxes for 1945, 1946 and 1947 which the Government is seeking to collect has not as yet prescribed. Issue:
Whether or not the right of the government to collect has already prescribed Ruling:
Yes. Section 51 (d) of the National Internal Revenue Code, which refers to the collection of income tax, by judicial action is concerned the prescriptive period therein mentioned being merely applicable to collection by summary methods, as interpreted by this Court. Considering this void in the law applicable to income tax, and bearing in mind that, Section 331 of the Code which provides for the limitation upon assessment and collection by judicial action comes under Title IX, Chapter II, which refers to "CIVIL", REMEDIES FOR COLLECTION OF TAXES", we may conclude that the provisions of said Section 331 are general in character which may be considered suppletory with regard to matter not covered by the title covering income tax. In other words, Title 11 of the Code is a special provision which governs exclusively all matters pertaining to income tax, whereas Title IX, Chapter II, is a general provision which governs all internal revenue taxes in general, which cannot apply insofar as it may conflict with the provisions of Title II as to which the latter shall prevail, but that in the absence of any provision in said Title, III relative to the period and method of collection of the tax, the provisions of Title 1X, Chapter II, may be deemed to be suppletory in, character. Hence, in our opinion, the Court of Tax Appeals did not err in holding that the right of the Government to collect the deficiency income taxes for the years 1945, 1946 and 1947 has already prescribed under Section 331 of the National Internal Revenue Code. HOWEVER, the proceeding for review instituted by the company is equivalent to a judicial action within the purview of Section 332 (c) of the Tax Code. Indeed, had the company not taken the matter to the Court of Tax Appeals, the Collector would have reasonably taken a similar action for, as it should be noted, he has already taken the preliminary step, which is the collection by distraint and levy, to insure the effective collection of the tax assessed against the company. And when the company appealed the Collector's decision, the Collector was placed in the alternative of sustaining his decision, which is tantamount to a judicial action. As the Court of Tax Appeals well observed, "The objective in both cases is the same — the validity and correctness of the determination and collection of the tax." Indeed, the action of the Collector cannot be taken in any other light. It is a judicial action pure and simple.
10
Ricardo Santos vs Mariano Noble GR L-12073 – May 3, 1961 Facts:
Collector of Internal Revenue issued against Ricardo S. Santos, as owner and operator of the Ace Theatre located in San Juan, Rizal, a deficiency assessment of P3,234.26, plus a compromise penalty of P850.00, or a total of P4,084.26. In a letter dated December 10, 1948 appellant requested a reinvestigation of the matter, alleging that the report of Agent Cosare "may have overlooked all the receipts paid by him on the amusement tax basing all from his gross receipts." The reinvestigation was made but the result was that appellee issued an amended assessment dated July 28, 1949 for the slightly bigger total sum of P4,242.04. So, petitioner again asked for another investigation since his books during the original investigation was not presented as the Bureau of Internal Revenue failed to return his books, hence, petitioner failed to show his allegation of inaccuracy in the deficiency assessment. The lower court decided in favor of the government considering that the burden of proof to show that there is inaccuracy concerning deficiency assessment lies with the taxpayer and having failed to prove such inaccuracy, the judgment should properly be against the latter. Issue:
Whether or not the petitioner’s failure to prove the inaccuracy of the deficiency assessment due to BIR’s failure to return the books to him should result to the finality of the deficiency assessment Ruling:
No. It is true — as appellee says in his brief — that a taxpayer who contests the correctness of an assessment has the burden of proving his contention. This, appellant was willing to do but, as already stated, he was deprived of the best means of doing it with the loss of his books. His only error, perhaps, was in not producing secondary evidence of their contents during the hearing before the Conference Staff. In view of the circumstances disclosed by the record, we believe that, in equity, appellant should be given a last opportunity to prove — even with secondary evidence — his contention that, in some respects, the assessment against him is incorrect.
11
Republic v s Albert GR L-12996 – December 28, 1961 Facts:
This is an appeal taken by Antonio Albert from the decision of the Court of First Instance of Manila sentencing him to pay the Republic of the Philippines the sum of P6,889.00 as deficiency income tax for the year 1951, with 5% surcharge, and 1% monthly interest thereon from October 16, 1953 until full payment, plus costs.After due trial, the lower court tendered the appealed decision on the ground principally that appellant was already estopped from questioning the assessment which had become final and executory because he did not appeal therefrom to the Court of Tax Appeals. Issue:
Whether or not Albert was indeed estopped from questioning the deficiency considering that he did not appeal the same to the Court of Tax Appeals Ruling:
Yes. The facts involved in the present case are very similar to, if not on all fours with those involved in the case of Republic of the Philippines vs. Enrique Magalona, Jr., et al., G.R. No. L-15802, promulgated on September 30, 1960, where we held that upon the facts before the Court, the income tax assessment in question therein was a final assessment of the income tax liability of the Magalonas for the calendar year 1950; that they had 30 days to dispute said assessment by appealing to the Court of Tax Appeals in accordance with the provisions of Section 11, Republic Act No. 1125; that having failed to do so, the assessment became final, executory and demandable. In the present case, therefore, after receiving the denial of his protest (Exhibit D) against the deficiency tax assessment made against him, appellant should have appealed therefrom within 30 days from June 21, 1955, his failure to do so having caused said assessment to become final, executory and demandable. Therefore, when on February 4, 1957 the action for collection was commenced, appellant was already barred from invoking any defense that would reopen the question of his tax liability on the merits.
12
Republic of th e Philippines vs. The Manila Port Service GR L-18208 – November 27, 1964 Facts:
The Manila Port Service as a subsidiary of the Manila Railroad Company, entered on February 29, 1956 into a management contract with the Bureau of Customs wherein it was granted the exclusive right or privilege to receive, handle, care for and deliver all merchandise, imported or exported, passing over the Philippine government wharves and piers in the Port of Manila, and to charge and collect the arrastrecharge. The Commissioner of Internal Revenue on June 10, 1957, sent to the respondent an assessment letter demanding payment of the amount of P138,909.93 as fixed tax for 1956 and 1957 and percentage tax on its gross receipts for the period from August 24, 1956 to February 28, 1957, plus the additional amount of P300.00 as compromise penalty allowed in extrajudicial settlement of violations of penal provisions of the National internal Revenue Code. On July 17, 1957, the Manila Port Service wrote the Commissioner of Internal Revenue denying its liability for the taxes in question on the ground that its mother company, the Manila Railroad Company, is exempt therefrom. Noting that the Manila Port Service had no intention of paying the taxes assessed against it notwithstanding the fact that the assessment had already become final and executory, the Commissioner of Internal Revenue commenced the present action on November 22, 1960 before the Court of First Instance of Manila.After trial, the court a quo rendered decision dismissing the complaint on the ground that the assessment of the taxes which plaintiff seeks to recover is erroneous, even if such assessment had become final and executory in view of defendant's failure to appeal within the reglementary period. In due time, plaintiff has appealed. Issue:
Whether or not the dismissal of the complaint was proper Ruling:
No. Under Section 7 of Republic Act No. 1125, the Court of Tax Appeals is given exclusive appellate jurisdiction to review by appeal decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, or other matters arising under the National Internal Revenue Code. And pursuant to Section 11 of the same Act, any person or entity adversely affected by the decision of the Commissioner of Internal Revenue shall appeal to the same court within 30 days after the receipt thereof, and if the assessment of the Commissioner, or his decision thereon, is not appealed to the Court of Tax Appeals within the aforesaid period, such assessment becomes final, demandable and executory. Here the assessment has already become final precisely because appellee has failed to appeal as required by law thereby making indisputable the decision of the Commissioner of Internal Revenue. Thus, the original assessment of the taxes in question was contained in a letter sent to the Manila Port Service on June 10, 1957 which was refuted by said entity on July 17, 1957. On February 10, 1958, the Commissioner reiterated his previous assessment and demand. On July 9, 1958, the Manila Railroad Company appealed the assessment to the Secretary of Finance who in turn referred it to the Commissioner for comment. And on February 13, 1959, the Commissioner wrote the Manila Railroad Company reiterating once more his decision and demanding payment of the taxes within 10 days from receipt with the warning that if payment is not made within the aforesaid period judicial action would immediately be taken. However, neither the Manila Port Service, nor the Manila Railroad Company, took any step to appeal to the Court of Tax Appeals as required by law. It is evident that the assessment has already become final and, therefore, it can no longer be disputed in the present case.
13
Republic v. Lopez G.R. No. L-18007 – March 30, 1963 Facts:
Lopez filed his ITR and was assessed by the BIR demanding payment of P200k. Lopez requested for reconsideration which resulted in a reduction of the assessment to P20k. Without settling his liability, Lopez askedfor another reinvestigation. BIR assessed an additional P6k deficiency income tax. Again, Lopez did not pay andask for another reinvestigation. BIR acceded to his request provided he executed a waiver of statute of limitations.Lopez executed an unconditional waiver imposing a deadline (Dec 1957) within which the government should finishits reinvestigation. BIR ignored the deadline imposed and instead issued an assessment on March 1960. Due to non-payment, BIR filed a collection suit before the CFI. Lopez filed a motion to dismiss on the ground of prescription. CFIgranted the motion to dismiss. Issue:
Whether or not the deadline is binding and operative, and ultimately,whether or not the action to collect has already prescribed Ruling:
No. The action has not yet prescribed since under the NIRC the government has 5-year prescriptiveperiod within which it may sue to collect an assessed tax to be counted from the last revised assessmentresulting from the reinvestigation AND the time employed in reinvestigation should be deducted from the total period of limitation. Regarding the December 1957 deadline, SC seriously doubts that the CIR could validlyagree to reduce the prescriptive period to less than what was granted by law to the detriment of the State, since itdiminishes the opportunities of collecting taxes due to the Republic.
14
Commissioner vs Avelino GR L-14847 – September 19, 1961 Facts:
The petitioner made an assessment of P22,123.55 on respondent. This was made on the networth method, which was based upon an investment in the sum of P60,000 made by Enrique Avelino in the National Livestock Produce Corporation, organized in June 1947. He having filed no income tax return for such year, said amount was considered as his unreported income therefor. Upon the other hand, Enrique Avelino maintained that said sum of P60,000 had been lent to him by a naturalized Filipino, named SeverinoSayque, who returned to China in 1948 or 1949 and has not been heard from since then. Issue:
Whether or not such defense of respondent has been sufficiently established Ruling:
No.In the present case, the prima facie correctness of the assessment in question is bolstered up by the undisputed fact that Enrique Avelino had invested P60,000 in the National Livestock Produce Corporation in 1947. It was, therefore, incumbent upon him to establish that said sum had been merely borrowed by him. His evidence thereon is, however, far from satisfactory. Another reason relied upon by the Court of Tax Appeals in reversing the decision of the Commissioner of Internal Revenue is that, in making the questioned assessment, the latter had failed to establish either the opening net worth of Enrique Avelino in 1947 or the source of the income in question (P60,000.00). However, Avelino's net worth at the beginning of 1947 was nil, for it is an undisputed fact that he then had no money or property of any kind whatsoever. Besides, we have already ruled that: “In civil cases, as the one at bar, it has been held that the application of the net worth method does not require identification of the sources of the alleged unreported income and that the determination of the tax deficiency by the government is prima facie correct. (Eugenio Perez v. CIR, G.R. No. L-10507, May 30, 1958.)”
15
Olsen vs. Rafferty Facts:
Walter E. Olsen & Co is a manufacturer and exporter of cigars composed of tobacco grown in the Philippine Islands. Olsen applied to the Collector of Internal Revenue for a certificate covering the origin of a certain consignment of cigars presented to the Collector. The cigars were duly packed according to the regulations. Plaintiff produced the statement required by the rules of the BIR. The Collector refused and still refuses to issue a certificate covering the origin of the cigars on the ground, not that the material composing the cigars was not the product of the Philippine Islands, but that the cigars in question did not conform to a certain regulation relating to the exportation. On the refusal of the Collector of Internal Revenue to issue the certificate prayed for, application was made to the Insular Collector of Customs. The application was refused on the ground that the certificate of the Collector of Internal Revenue covering the origin of the cigars had not been issued and presented with the application as required by the customs regulations. Plaintiff Olsen thus filed a petition for mandamus under that claim that such refusal to grant the certificate was arbitrary, illegal and void. A demurrer was filed on the ground that "the facts stated do not entitle Olsen to the relief since it does not appear that respondents failed or refused to perform any duty incumbent upon either of said officers. Issue:
1. WON there rests on the Collector of Internal Revenue and the Insular Collector of Customs a duty the performance of which the courts will enforce by Mandamus 2. WON Executive Order No. 41 and the regulations of the Insular Collector of Customs and the Collector of Internal Revenue may be considered as laws within the meaning of the section of the Code of Civil Procedure authorizing the issuance of writs ofmandamus Ruling:
1. No. Our Code of Civil Procedure authorizes the issuance of a writ of mandamus in two classes of cases only, "(a) where an official unlawfully neglects the performance of an act which the law specially enjoins as a duty resulting from his office," and "(b) where he unlawfully excluded the plaintiff from the use and enjoyment of a right to which he is entitled and from which he is unlawfully precluded by such official." Olsen failed to show that it was entitled to the benefits of either of these provisions. No statute requires either the Insular Collector of Customs or the Collector of Internal Revenue to issue a certificate of origin of the materials composing any class of cigars, or of any other Philippine product for that matter. The custom of issuing certificates of origin of Philippine products about to be exported to the United States is based on no statute of the United States or of the Philippine Islands. 2. No. Executive Order No. 41 confers nolegal rights on anyone. It requires the adoption by the Insular Collector of Customs and the Collector of Internal Revenue of such rules and regulations as will insure that the Government of the United States will not be defrauded by a Philippine exporter who, by manufactured evidence or otherwise, may attempt to introduce into the United States free of duty articles which are not the product of the Philippine Islands and which do not fall within the provisions of the Tariff Act of 1913. While it protects the United States against fraud, it does not confer a legal right, a right on which an action in a court of law may be predicated, or one which may be enforced against the officials charged with the formulation of the required evidence by any process known to the law. It is nothing more or less than a command from a superior to an inferior. It is administrative in their nature and do not pass beyond the limits of the department to which they are directed or in which they are published, and, therefore, create no rights in third persons.
16
Castro vs Hechanova L-23635 – August 15, 1966 Facts:
Petitioner, whose request for reconsideration of the travel assignment order was denied by both the respondents Commissioner of Internal Revenue and Secretary of Finance, contends, among other things, that his assignment from "field" to "desk" work without the corresponding appointment to the latter position, amounts to removal without just cause; and that, if he were to be given another assignment at all, it should properly be as Regional Director of Quezon City, which would actually be a promotion for him. For their part, respondents allege that the assignment was merely temporary and was effected pursuant to Section 12 of the National Internal Revenue Code; that such temporary transfer of petitioner (whose position as Regional Director carries Wapco Range 53) to discharge the functions of Revenue Operations head with Wapco Range 57) in the central office is actually a promotion in rank, because the latter position has higher duties classification under the Wapco rating. Thus, the temporary designation is not violative of the Constitution or of the Civil Service Law and rules. Issue:
Whether or not the travel assignment order in question, issued pursuant to Section 12 of the National Internal Revenue Code and in the lawful exercise of respondents' administrative authority, amounts to removal without just cause Ruling:
No. Under the law, respondents, as the administrative heads of the Bureau of Internal Revenue, not only have administrative supervision and control over the same, but are also specifically empowered to assign revenue personnel to other duties, thus: SEC. 12.Assignment of Internal Revenue agents and other employees to other duties. — The Collector of Internal Revenue may, with the approval of the Secretary of Finance, assign internal revenue agents and other officers and employees of the Bureau of Internal Revenue without change in their official character or salary to such special duties connected with the administration of the revenue laws as the best interest of the service may require. (National Internal Revenue Code.) Petitioner, however, contends that for the exercise of the foregoing authority to be valid, the assignment of personnel should involve the performance of some "special duties" and should not result in any change in the official character of their positions and salaries. In assailing the validity of the travel assignment order in question, petitioner claims that being a regional director, to discharge the functions of Revenue Operations-head cannot be considered as performance of a special duty. The term "special duties" mentioned in the law, evidently is here being equated by the petitioner with work requiring the use of some special talent or knowledge. It may be pointed out, however, that the title of Section 12 of the Revenue Law mentions the assignment of revenue employees to "other duties", and the body thereof refers to "such special duties connected with the administration of the revenue law." To our mind, the "special duties" mentioned in the law refer not to a "special" or extraordinary or different undertaking, but to functions or work other than, or not related to, those regularly discharged by the employee concerned. In other words, to the employee reassigned or detailed to another post, the performance of work other than those he was regularly doing, constitutes the doing of "special duties", which supports the view that the designation is not permanent but merely temporary. And, there is nothing wrong, legally or personnel-wise, in the aforequoted provision, giving to the office administrator or supervisor, the authority to formulate personnel program designed to improve the service and to carry out the same, utilizing approved techniques or methods in personnel management, to the end that the abilities of the employees may be harnessed to promote optimum public service. Of course, it must be realized that the exercise of this authority may be abused or carried out to serve some other purposes, as so charged in this case. But, as it was once said, "the possibility of abuse is not an argument against the concession of power, as there is no power that is not susceptible of abuse."
17
Floreza vs Ongpin GR 81356 – Febru ary 26, 1990 Facts:
Petitioner Reynoso B. Floreza joined the government service in May, 1955 as a clerk (action attorney) in the Administrative Division of the Department of Finance. In December, 1959, he transferred to the Bureau of Internal Revenue (BIR) where he was appointed Senior Revenue Examiner. In recognition of his competence and perseverance, he received regular promotions in the BIR over the years.Two years later or on October 6, 1982, Floreza was given a regular appointment as Revenue Service Chief. On April 4, 1986, pursuant to the reorganization program, BIR Commissioner Bienvenido A. Tan, Jr. issued a memorandum exhorting all Revenue Service Chiefs and their Assistants, and all Revenue Regional Directors and their Assistants to "tender their resignations to give the authorities concerned the widest latitude in effecting a reorganization of the Bureau." Petitioner refused to tender his resignation.On April 28, 1986, Commissioner Tan issued Travel Assignment Order No. 11-86 assigning Floreza to the Office of the Commissioner as Consultant due to "the exigencies of the service."Feeling that he had been placed in a "freezer" and having been confidentially advised that he would be removed from the position of Revenue Service Chief (Legal) as he was not among those recommended for reappointment,Floreza filed in the Court of Appeals on June 4, 1987 a petition for prohibition with prayer for a writ of preliminary injunction which was denied. Issue:
Whether or not Floreza was denied security of tenure Ruling:
Yes. A careful reading of Section 59 of Executive Order No. 127 shows that it is a device intended to overcome the lapse of the power to reorganize under the interim or "Freedom Constitution" with the effectivity of the 1987 Constitution. Thus, an incumbent retained in a hold-over capacity is not yet formally terminated in his government employment. At the same time, he has lost his right to security of tenure because if he is not reappointed when his former item is filled, then he is deemed separated. The same paragraph, however, mandates that separation under Executive Order No. 127 should follow the provisions of Article III of the interim Constitution and the procedure under Executive Order No. 17. This means that separation or replacement of officers or employees should be "only for justifiable reasons" or for any of the grounds enumerated in Section 3 of the latter executive order. None of these justifiable reasons or grounds exists in this case of Floreza. As stated in the decision of the Civil Service Commission, there is no controversion of the fact that Floreza's 32 (now 34) years of service are unblemished by any administrative or disciplinary complaint. There is no showing that his competence or integrity was ever in question. He went up gradually in the ladder of promotions at the BIR under different Commissioners throughout those 32 years. The only reasons he can find for his non- reappointment are the sworn statements he filed as Chief of the BIR Legal Office with the Tanodbayan regarding a multi-billion peso tax case involving multinational gas companies with which the Secretary and Commissioner were earlier connected before their appointments to top government positions. The number of the item to which Floreza was appointed belongs to the Policy and Planning Service. However, from the time he was appointed Revenue Service Chief, he served as head of the Legal Service. Under the authority given to the Commissioner, he switches the Service Chiefs from one service to another in the best interests of their agency especially in order to maximize BIR collections. Moreover, the appointments extended to heads of services at the time were as "Revenue Service Chiefs" with no indication of what particular service they were going to administer. Moreover, Floreza's assignment as consultant in the Office of the Commissioner was undertaken through the usual issuance of a travel assignment order as dictated by the "exigencies of the service." Floreza's movement may not be considered as a transfer within the contemplation of Section 27(c) of Presidential Decree No. 807 (Civil Service Decree) for it was more of the detail under Section 24(f) than a transfer. Had it been a transfer, Floreza would have been issued an appointment as consultant. Floreza continued holding the position of Revenue Service Chief until Commissioner Tan went to the President for the appointments of Jaime M. Masa as Assistant Commissioner for the Legal Service and Rizalina S. Magalona as Assistant Commissioner for the Planning and Research Service on March 7, 1988. 35 Since both the Planning and Policy (or Research) Service and the Legal Service were given new Chiefs, Floreza was in effect terminated in his employment even as he was offered a demotion in rank to replace it. It should be emphasized that by that time, the 1987 Constitution had long been in full force and effect.
18
Rep. vs Patanao L-22317 – July 21, 1967 Facts:
In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Pedro B. Patanao, it is alleged that defendant was the holder of an ordinary timber license with concession at Esperanza, Agusan, and as such was engaged in the business of producing logs and lumber for sale during the years 1951-1955; that defendant failed to file income tax returns for 1953 and 1954, and although he filed income tax returns for 1951, 1952 and 1955, the same were false and fraudulent because he did not report substantial income earned by him from his business; that in an examination conducted by the Bureau of Internal Revenue on defendant's income and expenses for 1951-1955, it was ascertained that the sum of P79,892.75, representing deficiency. Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by prior judgment, defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same court, which were prosecutions for failure to file income tax returns and for non-payment of income taxes; and (2) that the action has prescribed. Issue:
1. Whether or not the action is barred by prior judgment in criminal cases nos. 2089 and 2090 2. Whether or not the action has prescribed Ruling:
1. No. The two cases are circumscribed by factual premises which are diametrically opposed to each other, and are founded on entirely different philosophies. Under the Penal Code, the civil liability is incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, of course, is found in the fact that while section 73 of the National Internal Revenue Code has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it failed to provide the collection of said tax in criminal proceedings. The only civil remedies provided, for the collection of income tax, in Chapters I and II, Title IX of the Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial action, which remedies are generally exclusive in the absence of a contrary intent from the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs. Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal proceeding under the tax law or, otherwise stated, since the said civil liability is not deemed included in the criminal action, acquittal of the taxpayer in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. It is error to hold, as the lower court has held, that the judgment in the criminal cases Nos. 2089 and 2090 bars the action in the present case. The acquittal in the said criminal cases cannot operate to discharge defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. (Castro vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962). 2. No. Regarding prescription of action, the lower court held that the cause of action on the deficiency income tax and residence tax for 1951 is barred because appellee's income tax return for 1951 was assessed by the Bureau of Internal Revenue only on February 14, 1958, or beyond the five year period of limitation for assessment as provided in section 331 of the National Internal Revenue Code. Appellant contends that the applicable law is section 332 (a) of the same Code under which a proceeding in court for the collection of the tax may be commenced without assessment at any time within 10 years from the discovery of the falsity, fraud or omission. The complaint filed on December 7, 1962, alleges that the fraud in the appellee's income tax return for 1951, was discovered on February 14, 1958. By filing a motion to dismiss, appellee hypothetically admitted this allegation as all the other averments in the complaint were so admitted. Hence, section 332 (a) and not section 331 of the National Internal Revenue Code should determine whether or not the cause of action of deficiency income tax and residence tax for 1951 has prescribed. Applying the provision of section 332 (a), the appellant's action instituted in court on December 7, 1962 has not prescribed. 19
Collector v s B atangasTranspo and L aguna-Tayabas bus 102 Phil 822 Facts:
This case is an appeal of the CTA decision which reversed the assessment and decision of the Collector of Internal Revenue (CIR) assessing and demanding from respondents BatangasTranspo and Laguna Busthe amount of Php54,143.54 which represent deficiency income tax and compromise for the year 1946-1949. Pending then appeal to the CTA, the assessment was increased to P148,890.14Respondent bus companies are 2 distinct and separate corporations, engaged in the business of landtransportation by means of motor busses and operating distinct and separate lines. During the war, the two companies lost their respective businesses. Post-war, they were able to acquire56 auto busses from the US Army which they divided equally.Two years later, Martin Olsen resigned as manager and Joseph Benedict was appointed as Manager of both companies by their respective Board of Directors. According to Benedict, the purpose of the jointmanagement called “Joint Emergency Operation” was to economize in overhead expenses. At the end of each calendar year, all gross receipts and expenses of both companies are determined and the net profitwere divided 50-50 then transferred to the book of accounts of each company, and each company prepares its own income tax return from their 50% share.The CIR theorizes that the 2 companies pooled their resources in the establishment of the JointEmergency Operation thereby forming a joint venture. He believes that a corporation exists, distinct fromthe 2 respondent companies.The CTA held that the Joint Emergency Operation is not a corporation within the contemplation of the NIRC, much less a partnership, association or insurance company, and therefore was not subject toincome tax separately and independently of respondent companies. Issue:
Whether or not the two transportation companies involved are liable to the payment of income tax as acorporation on the theory that the joint emergency operation organized and operated by them is a corporation within the meaning of Sec 84 of the Revised Internal Revenue Code Ruling:
Yes. although no legal personality may have been created by the Joint EmergencyOperation, nevertheless said joint venture or joint management operated the businessaffairs of the 2 companies as though they constituted a single entity, company orpartnership, thereby obtaining substantial economy and profits in the operation. The Court ruled on this issue by citing the case ofEufemia Evangelista, et. al v. CIR – agency case. This involved the 3 sisters who borrowed from their father money which they invested inland and then improved upon and later sold. The sisters also hired their brother to oversee the buy-and-sell of land. Contrary to their claim that said operation was merely a co-ownership, theCourt ruled that considering the facts and circumstances surrounding the said case, the 3 sistershad purpose to engage in real estate transactions for monetary gain and then divide the profitsamong themselves, making them co-partners. When the Tax Code included “partnerships”among the entities subject to the tax on corporations, it must refer to organizations which arenot necessarily partnerships in the technical sense of the term, and that furthermore, said lawdefined the term "corporation" as including partnerships no matter how created or organized. Further, from the standpoint of income tax law, the procedure and practice of the 2 buscompanies in determining the net income of each was arbitrary and unwarranted. After all, the 2companies operates in 2 different lines, in different provinces or territories, with differentequipment and personnel it cannot possibly be true and correct to say that the end of each year,the gross receipts and income in the gross expenses of two companies are exactly the same for purposes of the payment of income tax.Thus, the Court held that the Joint Emergency Operation or sole management or joint venture inthis case falls under the provisions of section 84 (b) of the Internal Revenue Code, andconsequently, it is liable to income tax provided for in section 24 of the same code.* But they were exempted from paying 25% surcharge for failure to file a tax return, because of their honest belief (based on advice of their attorneys and accountants) that they are not requiredto do so.
20
Commission er of Internal Revenue vs Malayan Insurance 21 SCRA 544 Facts:
Malayan Insurance Company, Inc. (hereafter referred to as MALAYAN), a domestic corporation which has reinsurance contract with Orion Insurance Company, Ltd. of London (hereafter referred to as ORION) a non-resident foreign corporation, without previous authorization, filed the latter's income tax return for 1958 and paid the tax due thereon, in the sum of P958.00. Finding later that ORION had commissioned another domestic entity, Filipinas Compañia de Seguros (to be referred hereafter as FILIPINAS) to file the income tax return on its behalf, and that the said agent paid the sum of P778.00 as corresponding income tax for the same year (1958), MALAYAN requested the Commissioner of Internal Revenue for the refund of the P958.00 it had paid. When no action was taken thereon, MALAYAN filed a petition in the Court of Tax Appeals for the same purpose. In its answer, the Commissioner of Internal Revenue alleged, inter alia, that in 1958, MALAYAN had ceded to ORION reinsurance premiums covering risks located in the Philippines amounting to P64,327.36; that this amount is subject to withholding tax in the sum of P15,416.96; that demand for payment of the withholding tax was made upon petitioner on February 16, 1962; and that even if petitioner is to be credited with the sum of P958.00 there would still be due from the latter the sum of P14,458.96. Respondent, therefore, asked the Court that the petition be dismissed and petitioner be ordered to pay P14,458.96, with the penalties incident to late payment. The Tax Court decided for MALAYAN and ordered the refund of the sum of P958.00 it had erroneously paid as income tax of ORION for 1958. And for the reason that FILIPINAS is the duly authorized representative of ORION, CIR's counterclaim for P15,416.96 was dismissed without prejudice. Issue:
1. Whether or not MALAYAN should be refunded the sum of P958.00 it had erroneously paid as income tax of ORION 2. Whether or not, by reason of FILIPINAS being the duly authorized representative of ORION, MALAYAN is absolved of its legal duty over the withholding taxes Ruling:
1. Yes. MALAYAN made an erroneous payment of income tax since it was FILIPINAS who was the duly authorized representative to file ORION’s income tax and to which FILIPINAS did file and pay for. 2. No. The cause of action of the Commissioner against MALAYAN is not for collection of income tax, but for the enforcement of the withholding provision of Section 53 of the Tax Code — the compliance with which obligation is imposed on the withholding agent, not upon the taxpayer. Whether or not the taxpayer, ORION, has a duly authorized representative in this country is, consequently, beside the point. There is no showing that any of the reinsurance premiums ceded by MALAYAN to ORION ever passed to the hands of FILIPINAS, the representative of ORION. There is no evidence here that MALAYAN withheld a certain percentage of the reinsurance premiums transmitted to ORION and that it (MALAYAN) had filed a return thereon, as required by Section 53 (c) of the Tax Code. What is actually material is whether that obligation of the withholding agent is affected by the payment by FILIPINAS of the income tax of ORION for 1958. The payment by FILIPINAS of the alleged tax on the incomes of ORION did not relieve the withholding agent of its legal duty. Firstly, the filing of the tax return and payment of the amount of P778.00 as income tax cannot be considered in this case as final. Not only is there no proof that the return made by FlLIPINAS for ORION included the reinsurance premiums ceded by MALAYAN, but the great difference between the amount paid and that which should have been withheld and transmitted to the Philippine Government, to take care of the taxes that may be due on that income (P15,416.96), is sufficient to put one in expectancy of further proceedings on that return. In fact, an investigation of the tax return filed by FILIPINAS was already conducted, and in April, 1962, the examiners recommended the assessment against the taxpayer of deficiency income tax in the sum of P6,442.00 (p. 67, B.I.R. Record). In the second place, this is as appropriate an instance as any for the operation of the provision of Section 53 (b). Because, in the event the taxpayer is finally found liable for deficiency tax on its incomes from the Philippines in 1958, the Government would have no way of collecting what is still due from said taxpayer, which is a foreign corporation not engaged in trade or business and without office or place of business in the Philippines. FILIPINAS cannot be considered 21
the authorized agent through which any deficiency tax against ORION may be collectible. As specified from the letter of appointment of FILIPINAS, hereinbefore quoted, the filing of the tax return by the agent, which was therein authorized, would not even bind the principal to pay the tax based thereon. The right to appeal or claim for refund is also withheld from the agent. In the circumstances, the importance of the withholding under Section 53 is clearly underscored.
22
Tanada vs Tuvera 146 SCRA 446 Facts:
Petitioner is Invoking the people's right to be informed on matters of public concern, a right recognized in Section 6, Article IV of the 1973 Philippine Constitution, as well as the principle that laws to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated, petitioners seek a writ of mandamus to compel respondent public officials to publish, and/or cause the publication in the Official Gazette of various presidential decrees, letters of instructions, general orders, proclamations, executive orders, letter of implementation and administrative orders. Issue:
Whether or not publication of the law is a requirement for its effectivity Ruling:
Yes. The clear object of the publication is to give the general public adequate notice of the various laws which are to regulate their actions and conduct as citizens. Without such notice and publication, there would be no basis for the application of the maxim "ignorantialegis non excusat." It would be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of which he had no notice whatsoever, not even a constructive one.
23
CONWI vs CTA 213 SCRA 83 Facts:
Petitioners are employees of Procter and Gamble (Philippine Manufacturing Corporation, subsidiary of Procter & Gamble, a foreign corporation).During the years 1970 and 1971, petitioners were assigned to other subsidiaries of Procter & Gamble outside the Philippines, for which petitioners were paid US dollars as compensation. Petitioners filed their ITRs for 1970 and 1971, computing tax due by applying the dollar-to-peso conversion based on the floating rate under BIR Ruling No. 70-027. In 1973, petitioners filed amened ITRs for 1970 and 1971, this time using the par value of the peso as basis. This resulted in the alleged overpayments, refund and/or tax credit, for which claims for refund were filed. CTA held that the proper conversion rate for the purpose of reporting and paying the Philippine income tax on the dollar earnings of petitioners are the rates prescribed under Revenue Memorandum Circulars Nos. 7-71 and 41-71. The refund claims were denied. Issue:
Whether or not petitioners' dollar earnings are receipts derived from foreign exchange transactions Ruling:
No. For the proper resolution of income tax cases, income may be defined as an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be thought of as flow of the fruits of one's labor. Petitioners are correct as to their claim that their dollar earnings are not receipts derived from foreign exchange transactions. For a foreign exchange transaction is simply that — a transaction in foreign exchange, foreign exchange being "the conversion of an amount of money or currency of one country into an equivalent amount of money or currency of another." When petitioners were assigned to the foreign subsidiaries of Procter & Gamble, they were earning in their assigned nation's currency and were ALSO spending in said currency. There was no conversion, therefore, from one currency to another. The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter & Gamble. It was a definite amount of money which came to them within a specified period of time of two years as payment for their services.
24
CIR vs CA and A. Soriano Corp. GR L-108576 Facts:
Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who are all nonresident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued. In 1945, ANSCOR's authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value. Don Andres' increased his subscription to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and Andres, Jr., as their initial investments in ANSCOR. Both sons are foreigners. From 1947-1963, ANSCOR declared stock dividends. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doña Carmen Soriano, as her conjugal share. The other half formed part of his estate. A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. Stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each.On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November 1968, the Board further increased ANSCOR's capital stock to P75M. About a year later, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate. As stated in the Board Resolutions, ANSCOR's business purpose for both redemptions of stocks is to partially retire said stocks as treasury shares in order to reduce the company's foreign exchange remittances in case cash dividends are declared. In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code for the year 1968 and the second quarter of 1969 based on the transactions of exchange and redemption of stocks. Issue:
Whether or not ANSCOR's redemption of stocks from its stockholder as well as the exchange of common with preferred shares can be considered as "essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable. Ruling:
YES. Stock dividends, strictly speaking, represent capital and do not constitute income to its recipient. So that the mere issuance thereof is not yet subject to income tax as they are nothing but an "enrichment through increase in value of capital investment." The exception provides that the redemption or cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to the extent it represents profits". The exception was designed to prevent the issuance and cancellation or redemption of stock dividends, which is fundamentally not taxable, from being made use of as a device for the actual distribution of cash dividends, which is taxable. Simply put, depending on the circumstances, the proceeds of redemption of stock dividends are essentially distribution of cash dividends, which when paid becomes the absolute property of the stockholder. Thereafter, the latter becomes the exclusive owner thereof and can exercise the freedom of choice. Having realized gain from that redemption, the income earner cannot escape income tax. For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalent to a distribution of taxable dividends." Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock 89 in exchange for property, whether or not the acquired stock is cancelled, retired or held in the treasury. Essentially, the corporation gets back some of its stock, distributes cash or property to the shareholder in payment for the stock, and continues in business as before. In the case, ANSCOR redeemed shares twice. But where did the shares redeemed come from? If its source is the original capital subscriptions upon establishment of the corporation or from initial capital investment in an existing enterprise, its redemption to the concurrent value of acquisition may not invite the application of Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere return of capital. 25
On the contrary, if the redeemed shares are from stock dividend declarations other than as initial capital investment, the proceeds of the redemption is additional wealth, for it is not merely a return of capital but a gain thereon. It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. At the time of the last redemption, the original common shares owned by the estate were only 25,247.5 This means that from the total of 108,000 shares redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. In the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate property, in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine. With respect to the third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. The time alone that lapsed from the issuance to the redemption is not a sufficient indicator to determine taxability. It is a must to consider the factual circumstances as to the manner of both the issuance and the redemption. The issuance of stock dividends and its subsequent redemption must be separate, distinct, and not related, for the redemption to be considered a legitimate tax scheme. Redemption cannot be used as a cloak to distribute corporate earnings. ANSCOR invoked two reasons to justify the redemptions — (1) the alleged "filipinization" program and (2) the reduction of foreign exchange remittances in case cash dividends are declared. The Court is not concerned with the wisdom of these purposes but on their relevance to the whole transaction which can be inferred from the outcome thereof. It is the "net effect rather than the motives and plans of the taxpayer or his corporation". The test of taxability under the exempting clause, when it provides "such time and manner" as would make the redemption "essentially equivalent to the distribution of a taxable dividend", is whether the redemption resulted into a flow of wealth. If no wealth is realized from the redemption, there may not be a dividend equivalence treatment. The test of taxability under the exempting clause of Section 83(b) is, whether income was realized through the redemption of stock dividends. The redemption converts into money the stock dividends which become a realized profit or gain and consequently, the stockholder's separate property. Profits derived from the capital invested cannot escape income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption. Otherwise, to rule that the said proceeds are exempt from income tax when the redemption is supported by legitimate business reasons would defeat the very purpose of imposing tax on income. The issuance and the redemption of stocks are two different transactions. Although the existence of legitimate corporate purposes may justify a corporation's acquisition of its own shares under Section 41 of the Corporation Code, such purposes cannot excuse the stockholder from the effects of taxation arising from the redemption. Even if the said purposes support the redemption and justify the issuance of stock dividends, the same has no bearing whatsoever on the imposition of the tax herein assessed because the proceeds of the redemption are deemed taxable dividends since it was shown that income was generated therefrom. The proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As "taxable dividend" under Section 83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 120 of the 1939 Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross income". As income, it is subject to income tax which is required to be withheld at source.
26
RE: REQUEST OF ATTY. BERNARDO ZIALCITA, 190 SCRA 851 (TAX)
Since terminal leave is applied for by an officer or employee who has already severed his connection with his employer ans who is no longer working, then it follows that TERMINAL LEAVE PAY, which is the cash value of his accumulated leave credits, should not be treated as compensation for services rendered at that time. It cannot be viewed as salary for purposes which would reduce it. There can be no "commutation of salary" when a government retiree applies for terminal leave because he is not receiving it as salary. what applies for is a commutation of leave credits. It is an accumulation of credits intended for old age or separation from the service. Hence, Section 286 of the Revised Administrative Code is not applicable. It cannot be construed as limiting the basis of the computation of terminal pay to monthly salary only.
27
CIR vs Mitsubish i GR 54908 – January 22, 1990 Facts:
The records reflect that on April 17, 1970, Atlas Consolidated Mining and Development Corporation(hereinafter, Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal Corporation(Mitsubishi, for brevity), a Japanese corporation licensed to engage in business in the Philippines,for purposes of the projected expansion of the productive capacity of the former's mines in Toledo,Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of $20,000,000.00, United States currency, for the installation of a new concentrator for copperproduction. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced fromsaid machine for a period of fifteen (15) years. It was contemplated that $9,000,000.00 of saidloan was to be used for the purchase of the concentrator machinery from Japan. Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank for short)obviously for purposes of its obligation under said contract. Its loan application was approved onMay 26, 1970 in the sum of ¥4,320,000,000.00, at about the same time as the approval of its loanfor ¥2,880,000,000.00 from a consortium of Japanese banks. The total amount of both loans isequivalent to $20,000,000.00 in United States currency at the then prevailing exchange rate. Therecords in the Bureau of Internal Revenue show that the approval of the loan by Eximbank toMitsubishi was subject to the condition that Mitsubishi would use the amount as a loan to Atlas andas a consideration for importing copper concentrates from Atlas, and that Mitsubishi had to payback the total amount of loan by September 30, 1981. Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by theformer to the latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15%tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) andSection 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree No.131, and duly remitted to the Government. On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of P1,971,595.01 be applied against their existing and future tax liabilities. Parenthetically, it waslater noted by respondent Court of Tax Appeals in its decision that on August 27, 1976, Mitsubishiexecuted a waiver and disclaimer of its interest in the claimfor tax credit in favor of Atlas. Issues:
1. Whether or not the interest income from the loans extended to Atlas by Mitsubishi isexcludible from gross income taxation pursuant to Section 29 b) (7) (A) of the tax code and,therefore, exempt from withholding tax. 2. Whether or not Mitsubishi is a mere conduit of Eximbank which will then be considered asthe creditor whose investments in the Philippines on loans are exempt from taxes under thecode. Ruling:
The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferentialreference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in thecontract of loan and Atlas as the seller of the copper concentrates. From the categorical languageused in the document, one prestation was in consideration of the other. The specific terms and thereciprocal nature of their obligations make it implausible, if not vacuous to give credit to thecavalier assertion that Mitsubishi was a mere agent in said transaction. The contract between Eximbank and Mitsubishi is entirely different. It is complete in itself, doesnot appear to be suppletory or collateral to another contract and is, therefore, not to be distorted by other considerations aliunde. The application for the loan was approved on May 20, 1970, ormore than a month after the contract between Mitsubishi and Atlas was entered into on April 17,1970. It is true that under the contract of loan with Eximbank, Mitsubishi agreed to use the amountas a loan to and in consideration for importing copper concentrates from Atlas, but all that thisproves is the justification for the loan as represented by Mitsubishi, a standard banking practice forevaluating the prospects of due repayment. There is nothing wrong with such stipulation as theparties in a contract are free to agree on such lawful terms and conditions as they see fit. Limitingthe disbursement of the amount borrowed to a certain person or to a certain purpose is notunusual, especially in the case of Eximbank which, aside from protecting its financial exposure,must see to it that the same are in line with the provisions and objectives of its charter.Respondents postulate that Mitsubishi had to be a conduit because Eximbank's charter prevents itfrom making loans except to Japanese individuals and corporations. We are not impressed. The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to Eximbank,assuming the truth thereof, is too tenuous and conjectural to support the proposition thatMitsubishi is a mere conduit. Furthermore, the remittance of the interest payments may also belogically viewed as an arrangement in paying Mitsubishi's obligation to Eximbank. Whateverarrangement was agreed upon by Eximbank and Mitsubishi as to the manner or procedure for thepayment of the latter's obligation is their own concern. It should also be noted that Eximbank'sloan to Mitsubishi imposes interest at the rate of 75% per annum, while Mitsubishis contract 28
withAtlas merely states that the "interest on the amount of the loan shall be the actual cost beginningfrom and including other dates of releases against loan." It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that lawsgranting exemption from tax are construed strictissimi juris against the taxpayer and liberally infavor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption soclaimed, which onus petitioners have failed to discharge.
29
CIR vs P&G 204 SCRA 377 Facts:
Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends remitted was only 15%. Issue:
Whether or not P&G Philippines is entitled to the refund or tax credit Ruling:
YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15%ONLY IF he country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. However, such tax credit for “taxes deemed paid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points which represents the difference between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid in the Philippines” applicable against the US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements were met. Since the US Congress desires to avoid or reduce double taxation of the same income stream, it allows a tax credit of both (i) the Philippine dividend tax actually withheld, and (ii) the tax credit for the Philippine corporate income tax actually paid by P&G Philippines but “deemed paid” by P&G USA. Moreover, under the Philippines-United States Convention “With Respect to Taxes on Income,” the Philippines, by treaty commitment, reduced the regular rate of dividend tax to a maximum of 20% of he gross amount of dividends paid to US parent corporations, and established a treaty obligation on the part of the United States that it “shall allow” to a US parent corporation receiving dividends from its Philippine subsidiary “a [tax] credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine [subsidiary]. Note:
The NIRC does not require that the US tax law deem the parent corporation to have paid the 20 percentage points of dividend tax waived by the Philippines. It only requires that the US “shall allow” P&G-USA a “deemed paid” tax credit in an amount equivalent to the 20 percentage points waived by the Philippines. Section 24(b)(1) does not create a tax exemption nor does it provide a tax credit; it is a provision which specifies when a particular (reduced) tax rate is legally applicable. Section 24(b)(1) of the NIRC seeks to promote the in-flow of foreign equity investment in the Philippines by reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the investor. The foreign investor, however, would not benefit from the reduction of the Philippine dividend tax rate unless its home country gives it some relief from double taxation by allowing the investor additional tax credits which would be applicable against the tax payable to such home country. Accordingly Section 24(b)(1) of the NIRC requires the home or domiciliary country to give the investor corporation a “deemed paid” tax credit at least equal in amount to the 20 percentage points of dividend tax foregone by the Philippines, in the assumption that a positive incentive effect would thereby be felt by the investor.
30
CIR vs Wander G.R. NO. L-68275 – Ap ril 15, 1988 Facts:
Private respondents Wander Philippines, Inc. (wander) is a domestic corporation organized under Philippine laws. It is whollyowned subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for business in the Philippines. Wander filed it'switholding tax return for 1975 and 1976 and remitted to its parent company Glaro dividends from which 35% withholding tax was withheld and paid to the BIR. In 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for reimbursement, contending that it is liable only to 15% withholding tax in accordance with sec. 24 (b) (1) of the Tax code, as amended by PD nos. 369 and 778, and not on the basis of 35% which was withheld ad paid to and collected by the government. petitioner failed to act on the said claim for refund, hence Wander filed a petition with Court of Tax Appeals who in turn ordered to grant a refund and/or tax credit. CIR's petition for reconsideration was denied hence the instant petition to the Supreme Court. Issue:
Whether or not Wander is entitled to the preferential rate of 15% withholding tax on dividends declared and to remitted to its parent corporation Ruling:
Yes. Section 24 (b) (1) of the Tax code, as amended by PD 369 and 778, the law involved in this case, reads: “Sec. 1. The first paragraph of subsection (b) of section 24 of the NIRC, as amended is hereby further amended to read as follows: (b) Tax on foreign corporations - (1) Non resident corporation -- A foreign corporation not engaged in trade or business in the Philippines, including a foreign life insurance company not engaged in life insurance business in the Philippines, shall pay a tax equal to 35% of the gross income received during its taxable year from all sources within the Philippines, as interest (except interest on a foreign loans which shall be subject to 15% tax), dividends, premiums, annuities, compensation, remuneration for technical services or otherwise emolument, or other fixed determinable annual, periodical ot casual gains, profits and income, and capital gains: xxx Provided, still further that on dividends received from a domestic corporation liable to tax under this chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in sec 53 (d) of this code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporation and the tax (15%) dividends as provided in this section: xxx." From the above-quoted provision, the dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corpoorations and the tax (15%) on dividends. While it may be true that claims for refund construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax on the dividends received by Glaro from the Philippines should be considered as a full satisfaction if the given condition. For, as aptly stated by respondent Court, to deny private respondent the privilege to withhold only 15% tax provided for under PD No. 369 amending section 24 (b) (1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations interest here and discourage them for investing capital in our country.
31
Philippine Refining Corp vs CA 256 SCRA 667 Facts:
Philippine Refining Corp (PRC) was assessed deficiency tax payments for the year 1985 in the amount of around 1.8M. This figure was computed based on the disallowance of the claim of bad debts by PRC. PRC duly protested the assessment claiming that under the law, bad debts and interest expense are allowable deductions. When the BIR subsequently garnished some of PRC’s properties, the latter considered the protest as being denied and filed an appeal to the CTA which set aside the disallowance of the interest expense and modified the disallowance of the bad debts by allowing 3 accounts to be claimed as deductions. However, 13 supposed “bad debts” were disallowed as the CTA claimed that these were not substantiated and did not satisfy the jurisprudential requirement of “worthlessness of a debt” The CA denied the petition for review. Issue:
Whether or not the CA was correct in disallowing the 13 accounts as bad debts Ruling:
YES. Both the CTA and CA relied on the case of Collector vs. Goodrich International, which laid down the requisites for “worthlessness of a debt” to wit: In said case, we held that for debts to be considered as "worthless," and thereby qualify as "bad debts" making them deductible, the taxpayer should show that: (1) (2) (3) (4)
there is a valid and subsisting debt; the debt must be actually ascertained to be worthless and uncollectible during the taxable year; the debt must be charged off during the taxable year; and the debt must arise from the business or trade of the taxpayer. Additionally, before a debt can be considered worthless, the taxpayer must also show that it is indeed uncollectible even in the future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the debts, viz.: (1) (2) (3) (4)
sending of statement of accounts; sending of collection letters; giving the account to a lawyer for collection; and filing a collection case in court.
PRC only used the testimony of its accountant Ms. Masagana in order to prove that these accounts were bad debts. This was considered by all 3 courts to be self-serving. The SC said that PRC failed to exercise due diligence in order to ascertain that these debts were uncollectible. In fact, PRC did not even show the demand letters they allegedly gave to some of their debtors.
32
Basil an Estates vs CIR GR L-22492 – September 5, 1967 Facts:
Basilan Estates, Inc. claimed deductions for the depreciation of its assets on the basis of their acquisition cost. As of January 1, 1950 it changed the depreciable value of said assets by increasing it to conform with the increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from gross income the value of depreciation computed on the reappraised value. CIR disallowed the deductions claimed by petitioner, consequently assessing the latter of deficiency income taxes. Issue:
Whether or not the depreciation shall be determined on the acquisition cost rather than the reappraised value of the assets Ruling:
Yes. The following tax law provision allows a deduction from gross income for depreciation but limits the recovery to the capital invested in the asset being depreciated: (1) In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer . . . no further allowance shall be made. . . . The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law [Gutierrez v. Collector of Internal Revenue, L-19537, May 20, 1965]. Depreciation is the gradual diminution in the useful value of tangible property resulting from wear and tear and normal obsolescense. It commences with the acquisition of the property and its owner is not bound to see his property gradually waste, without making provision out of earnings for its replacement. The recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a depreciation allowance. For then what the taxpayer would recover will be, not only the acquisition cost, but also some profit. Recovery in due time thru depreciation of investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for depreciation.
33
Umali vs Estanislao 209 SCRA 446 Facts:
Congress enacted Republic Act 7167 amending the NIRC (adjusting the basic and additional exemptions allowable to individuals for income tax purposes to the poverty threshold level). The said Act was signed and approved by the President on 19 December 1991 and published on 14 January 1992 in "Malaya" a newspaper of general circulation. On 26 December 1991, the CIR promulgated Revenue Regulations No. 1-92 stating that the regulations shall take effect on compensation income from January 1, 1992. Petitioners filed a petition for mandamus to compel the CIR to implement RA 7167 in regard to income earned or received in 1991, and prohibition to enjoin the CIR from implementing the revenue regulation. Issue:
Assuming that Rep. Act 7167 took effect on 30 January 1992 (15 days after its publication in “Malaya”), whether or not the said law nonetheless covers or applies to compensation income earned or received during calendar year 1991. Ruling:
Yes. The Court is of the considered view that Rep. Act 7167 should cover or extend to compensation income earned or received during calendar year 1991. Sec. 29, par. [L], Item No. 4 of the National Internal Revenue Code, as amended, provides: Upon the recommendation of the Secretary of Finance, the President shall automatically adjust not more often than once every three years, the personal and additional exemptions taking into account, among others, the movement in consumer price indices, levels of minimum wages, and bare subsistence levels. The exemptions were last adjusted in 1986. The president could have adjusted it in 1989 but did not do so. The poverty threshold level refers to the level at the time Rep. Act 7167 was enacted by Congress. The Act is a social legislation intended to alleviate in part the present economic plight of the lower income taxpayers. Rep. Act 7167 says that the increased personal exemptions shall be available after the law shall have become effective. These exemptions are available upon the filing of personal income tax returns, done not later than the 15th day of April after the end of a calendar year. Thus, under Rep. Act 7167, which became effective, on 30 January 1992, the increased exemptions are literally available on or before 15 April 1992 [though not before 30 January 1992]. But these increased exemptions can be available on 15 April 1992 only in respect of compensation income earned or received during the calendar year 1991. The personal exemptions as increased by Rep. Act 7167 are not available in respect of compensation income received during the 1990 calendar year; the tax due in respect of said income had already accrued, and been presumably paid (The law does not state retroactive application). The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available as to compensation income received during 1992 because it would in effect postpone the availability of the increased exemptions to 1 January-15 April 1993. The implementing regulations collide with Section 3 of Rep. Act 7167 which states that the statute "shall take effect upon its approval”. The revenue regulation should take effect on compensation income earned or received from 1 January 1991. Since this decision is promulgated after 15 April 1992, those taxpayers who have already paid are entitled to refunds or credits.
34
Calasanz vs CIR 144 SCRA 664 Facts:
Ursula Calasanz inherited from her father an agricultural land. Improvements were introduced to make such land saleable and later in it was sold to the public at a profit. The Revenue examiner adjudged Ursula and her spouse as engaged in business as real estate dealers and required them to pay the real estate dealer’s tax. Issue:
Whether or not the gains realized from the sale of the lots are taxable in full as ordinary income or capital gains taxable at capital gain rates Ruling:
They are taxable as ordinary income. The activities of Calasanz are indistinguishable from those invariably employed by one engaged in the business of selling real estate. One strong factor is the business element of development which is very much in evidence. They did not sell the land in the condition in which they acquired it. Inherited land which an heir subdivides and makes improvements several times higher than the original cost of the land is not a capital asset but an ordinary asses. Thus, in the course of selling the subdivided lots, they engaged in the real estate business and accordingly the gains from the sale of the lots are ordinary income taxable in full.
35
NDC vs CIR 151 SCRA 473 Facts:
The National Development Co. (NDC) entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in cash and through irrevocable letters of credit. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the shipbilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax in the total amount of P5,115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of distraint and levy after negotiations failed. Issue:
Whether the NDC is liable for deficiency tax Ruling:
Yes. The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of the Tax Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of the government and so should be liable for its omission.
36
Lim vs CA 190 SCRA 616 Facts:
Spouses Lim were engaged in the dealership of various household appliances. The NBI conducted a raid on Oct. 5, 1959 on their Business Address: No. 336 Nueva Street, Manila and 111-12th Street, Quezon City.Seized from the Lim couple were business and accounting records which served as bases for an investigation undertaken by the BIR. On Sept. 30, 1964, Senior Revenue Examiner Raphael S. Daet submitted a memorandum that the income tax returns filed by the spouses Lim for 1958 and 1959 were false or fraudulent. The assessment should be: P835, 127. Acting Commissioner Benjamin M. Tabios informed the couple that there deficiency income taxes are P922, 913.04. On April 10, 1965, spouses requested an re-investigation.BIR expressed willingness on the following conditions: 1.) written waiver of the defense of prescription under the statute of limitations; 2.) depositing ½ of the assessment and securing the other ½ with a surety bond. Spouses Lim refused to comply with the conditions and reiterated his request. BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple. The final notice and demand for payment was served through their daughter in law on July 3, 1968 for the amount of P1,237,190.55 including interest, surcharges and penalty for late payment. BIR referred the matter to the Manila’s Fiscal’s Office for investigation and prosecution.RTC Manila found petitioners guilty Issues:
1. WON the offenses prescribe after 5 years (Lim) or10 years (government’s position) 2. WON the prescriptive period commenced to runfrom 1965 date of 1stassessment or discovery(accdg to Lim spouses) or from final notice on 1968(government) 3. WON the RTC had jurisdiction over the tax collection case 4. WON the death of Emilio S. Lim, Sr. extinguished his civil liabilities Ruling:
1. 5 years – but the government instituted the case within the prescriptive period 2. Commenced from the date of the final notice.In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute. They receive strict construction in favor of the Government and limitations in such cases will not be presumed in the absence of clear legislation. 3. No, because the criminal case was instituted on June 23, 1970 and PD 69 which mandates RTC to order payment of the taxes took effect only on Jan. 1, 1973. It has no retroactive application.The law applicable was SECTION 316 which does not sanction such imposition. 4. Yes. The liability of Emilio S. Lim, Sr. is extinguished by his death in accordancewith SECTION 89 of the RPC; but the fine imposed in the 4 criminal cases is affirmed in the case of petitioner Antonia Sun Lim in accordance with NIRC SECTION 73.
37
PICOP vs CA 250 SCRA 434 Facts:
On various years (1969, 1972 and 1977), Picop obtained loans from foreign creditors in order to finance the purchase of machinery and equipment needed for its operations. In its 1977 Income Tax Return, Picop claimed interest payments made in 1977, amounting to P42,840,131.00, on these loans as a deduction from its 1977 gross income. The CIR disallowed this deduction upon the ground that, because the loans had been incurred for the purchase of machinery and equipment, the interest payments on those loans should have been capitalized instead and claimed as a depreciation deduction taking into account the adjusted basis of the machinery and equipment (original acquisition cost plus interest charges) over the useful life of such assets. Both the CTA and the Court of Appeals sustained the position of Picop and held that the interest deduction claimed by Picop was proper and allowable. In the instant Petition, the CIR insists on its original position. Issue:
Whether Picop is entitled to deductions against income of interest payments on loans for the purchase of machinery and equipment Ruling:
YES. Interest payments on loans incurred by a taxpayer (whether BOI-registered or not) are allowed by the NIRC as deductions against the taxpayer'sgross income. The basis is 1977 Tax Code Sec. 30 (b). Thus, the general rule is that interest expenses are deductible against gross income and this certainly includes interest paid under loans incurred in connection with the carrying on of the business of the taxpayer. In the instant case, the CIR does not dispute that the interest payments were made by Picop on loans incurred in connection with the carrying on of the registered operations of Picop, i.e., the financing of the purchase of machinery and equipment actually used in the registered operations of Picop. Neither does the CIR deny that such interest payments were legally due and demandable under the terms of such loans, and in fact paid by Picop during the tax year 1977. The contention of CIR does not spring of the 1977 Tax Code but from Revenue Regulations 2 Sec. 79. However, the Court said that the term “interest” here should be construed as the so-called "theoretical interest," that is to say, interest "calculated" or computed (and not incurred or paid) for the purpose of determining the "opportunity cost" of investing funds in a given business. Such "theoretical" or imputed interest does not arise from a legally demandable interest-bearing obligation incurred by the taxpayer who however wishes to find out, e.g., whether he would have been better off by lending out his funds and earning interest rather than investing such funds in his business.
38
Commissioner vs BA 149 SCRA 395 Facts:
British Overseas Airways Corp. (BOAC) is a 100% Britis Government-owned corporation engaged ininternational airline business and is a member of the Interline Air Transport Association, and thus, it operatesair transportation service and sells transportation tickets over the routes of the other airline members. From1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carrypassengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines --Warner Barnes & Co. Ltd., and later, Qantas Airwayus -- which was responsible for selling BOAC ticketscovering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxesagainst BOAC. Issue:
Whether the revenue derived by BOAC from ticket sales in the Philippines for air transportation, whilehaving no landing rights in the Philippines, constitute income of BOAC from Philippine sources, andaccordingly, taxable Ruling:
Yes. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived fromactivity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced theincome. The tickets exchanged hands here and payments for fares were also made here in Philippine currency.The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine Government. In considerationof such protection, the flow of wealth should share the burden of supporting the government. PD 68, inrelation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it wouldhave been placed under Title V of the Tax Code covering taxes on business.
39
CIR vs P&G (repeated) Ropali vs NLRC (lacking)
40
Citibank vs CA 280 SCRA 459 Facts:
Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980, Citibank field its corporate income tax returns for the year and ended December 31, 1979 showing a net loss of P74,854,916.00 and its tax credits totaled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year’s operation resulted in a loss. The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979. For the year ended December 31, 1980, Citibank’s corporate income tax returns, filed on April 15, 1981, showed a net loss P77,071,790.00 for income tax purposes. Its available tax credit at the end of 1980 amounting to P11,532,855.00 was not utilized or applied. The said available tax credits did not include the amounts withheld by Citibank’s tenants from rental payment sin 1980 but the rental payments for that year were declared as part of its gross income included in its annual income tax returns. On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56 and P298,829.29, respectively or a total of P568,989.85; and on October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund. On August 30, 1981, the CTA adjudged Citibank’s entitlement to the tax refund sought for, representing the 5% tax withheld and paid on Citibank’s rental income for 1979 and 1980. The Court of Tax Appeals, rejected Respondent CIR’s argument that the claim was not seasonably filed. Not satisfied the Commissioner appealed to the Court of Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax in Citibank’s rental income for the years 1979 and 1980 is REVERSED. Motion for Reconsideration of the petitioner bank was denied. Hence, this petition. Issue:
Whether or not income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer’s final adjusted returns Ruling:
Yes. In several cases, we have already ruled that income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer’s final adjusted returns, not on such periodic or quarterly basis. When applied to taxpayers filing income tax returns on a quarterly basis, the date of payment mentioned in Sec. 230 must be deemed to be qualified by Sec. 68 and 69 of the present. Tax Code. It may be observed that although quarterly taxes due are required to be paid within 60 days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to be corporation. This interpretation may be gleaned from the last paragraph of Sec. 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns.
41
CIR vs Lucio Tan GR 119322 Facts:
The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for reconsideration of the assessments. Later, the CIR filed a complaint with the Department of Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of taxes, alleging among others the fraudulent scheme of making simulated sales to fictitious buyers declaring lower wholesale prices, as allegedly shown by the great disparity on the declared wholesale prices registered in the "Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such documents when requested by the court were not however presented by the BIR, prompting the trial court to grant the prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity must be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary mandatory injuction issued by the trial court. Issue:
Whose contention is correct? Ruling:
In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution. Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the case at bar.
42
Rep. vs. De Guzman 5 SCRA 990 Facts:
In 1946, Limaco& De Guzman Co. was engaged in the importation of cigarettes. Toguarantee payment of revenue taxes, the company and the Visayan Surety and Insurance Corp. as surety, executed 2 importer bonds. On 27 June 1946, thecompany filed with the Bureau of Customs entry papers covering shipment of 2million “Spud” cigarettes it had imported from New York. the specific tax due thereonamounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid theBureau of Customs the tax with P1000 in cash and P5,000 in a PNB Check on 15 July1946. The cigarettes were released to the company but the check bounced. On 17 June 1948, the Collector of Internal Revenue demanded the payment of thedeficiency specific tax. The amount remained unpaid. On 15 April 1951, the companyrequested that action be deferred as it intends to settle the matter amicably with theBIR. The Republic filed a complaint for the forfeiture of the bonds, and the paymentof the sum of P5,000 plus interest. The company invoked the defense of estoppel andprescription has the action prescribed on the ground that the assessment was madein beyond 5 years from July 15 1946. Issue:
Whether or not the power of assessment prescribed Ruling:
No. Theassessment in question has not yet prescribed. It was not issued on July 14, 1946, buton June 17, 1948. When the Collector of Internal Revenue received information fromthe Bureau of Customs that the said sum of P5,000.00 was not paid (for lack of funds), he immediately issued a letter dated June 17, 1948 addressed to thedefendant assessing and demanding from the latter the payment of the saidP5,000.00. It was then that the unpaid specific tax of P5,000.00 was deemed to havebeen assessed. When the tax was paid in cash and in check on July 15, 1946, theCollector had a right to rely, as it, in fact, relied that said payment fully settled thespecific taxes due on the imported cigarettes. The cigarettes would not have beenreleased, had Collector been aware that the payment did not fully settle the saidspecific taxes. It can not be said that July 15, 1946 (the date of payment) was thedate of assessment from which the period of collection should start. July 15, 1946was simply the date of tender of payment. The right to collect the amount of P5,000.00 began only after the P5,000.00 — rubber check was dishonored. Theaction to assess and collect the unpaid tax commenced anew on June 14, 1948, whena letter of demand for the amount of said rubber-check had been sent to thedefendant. This letter should be deemed to be an assessment because it declaredand fixed a tax to be payable against the party liable thereto, and demanded thesettlement thereof. Judicial action having been instituted on February 18, 1953, thefive-year period for collection had not then elapsed. Even assuming that July 15, 1946 is the date of assessment, still the action to collectis not barred by the statute of limitations, because the statute was suspended whenthe rubber-check was dishonored and demand letters were sent by thecommissioner. The defendant likewise wrote two letters to the Solicitor General onApril 15, and 25, 1951, respectively, requesting for the deferment of the judicialaction to be taken by the latter towards the collection of the obligation, so that theformer could make representations with the Collector to settle the matter amicably. This being the case, the prescriptive period to effect the collection of the tax whichallegedly commenced on July 15, 1946, was interrupted. "The prescription of actionsis interrupted when they are filed before the court, when there is any writtenextrajudicial demand by the creditors and when there is any written acknowledgment of the debt by the debtor " (Art. 1155, New Civil Code). "Taxpayers seeking to recoveroverpayment in income could not claim that collection by Commissioner was barredby limitations where procedure carried out which result in postponement of collectionwas that requested by taxpayers". Having acknowledged the debt in writing in April1951, and the complaint was filed in 1953, prescription had not set in. The full timefor the prescription must be reckoned from the cessation of the interruption (Saguciov. Bulos, G.R. Nos. L-17608-09, July 31, 1962, and cases cited therein). Had it notbeen for the filing of the complaint in 1953, the interruption would have ceased inApril 1956.
43
Ungab vs Cusi 97 SCRA 877 Facts:
The BIR filed six criminal charges against QuiricoUngab, a banana saplings producer, for allegedly evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash on the ground that (1) the information are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2)that the trial court has no jurisdiction to take cognizance of the case in view of his pending protest against the assessment made by the BIR examiner. The trial court denied the motion prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the information filed. Issue:
Whether or not the contention that the criminal prosecution is premature since the CIR has not yet resolved the protest against the tax assessment is tenable Ruling:
No. The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime.
44
Commissioner vs Phoenix L-19127 Facts:
Phoenix assurance is a foreign insurance corporation organized under the laws of Great Britain, licensed to do business in the Philippines. Through its head office in London, it entered into worldwide reinsurance treaties with various foreign insurance companies. It agreed to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices around the world, in consideration for assumption by the foreign insurance companies of equivalent portion of the liability form such original insurances. Pursuant to such treaties, the company ceded portions of its premiums it earned from its underwriting business in the Philippines, upon which assessed withholding tax. The company thereafter amended its tax returns (1950-1954) excluding reinsurance premium and items of deduction attributable to such premium. The Commissioner assessed deficiency income tax against the company. Issue:
Whether the Commissioner is justified in the assessment of deficiency tax Ruling:
Yes. The changes and alteration embodied in the amended tax return consisted of the exclusion of reinsurance premium received from domestic insurance companies by the company’s head office, reinsurance premium ceded to foreign insurers not doing business in the Philippines and various items of deductions attributable to such excluded reinsurance premiums, thereby substantially modifying the original return. As amended return is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. The right of the Commissioner to assess the deficiency tax on the amended return has not prescribed. To hold otherwise would pave the way for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper tax there under. The object of the tax code is to impose taxes for the needs of the government, not to enhance tax avoidance to its prejudice.
45
REPUBLIC vs. CA, and NIELSON & CO.,INC. 149 SCRA 351 Facts:
The petitioner sought the review on certiorari of the decision of the respondent Court of Appeals reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952. Petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be considered to have been received by the private respondent. According to petitioner, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the expiration of five (5) days after mailing. As the letter of demand dated 16 July 1955 was actually mailed to private respondent, there arises the presumption that the letter was received by private respondent in the absence of evidence to the contrary. More so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16 July 1955. Issue:
1. Whether or not the notice of assessment or demand was properly served to the respondent 2. Whether the receipt by the respondent of the succeeding follow-up demand notices be construed as receipt of the original demand Ruling:
1. No. As correctly observed by the respondent court in its appealed decision, while the contention of petitioner is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, still this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be assumed that private respondent received said letter. 2. Yes. Records show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission. And consequently, under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.
46
CIR vs Western Pacific L-18804 – May 27, 1965 Facts:
On March 2, 1959, respondent Western Pacific Corp was assessed deficiency income tax for the year 1953. The assessment was brought about by the disallowance listed in respondent‘s return as bad debts. The assessment was received by respondent on the same date (March 2, 1959). On March 5, 1959, CIR wrote a demand letter with the final breakdown of the assessment. However, on June 29, 1959, Western Pacific Corp requested for non-assessment, claiming that the claim had prescribed and that said items should be considered as allowable deductions. On July 30, 1959, CIR denied the request and demanded payment of the same within 30 days from receipt of demand. Respondent corporation, on September 19, 1959, requested that it be allowed until September 25 to submit its formal objections to the assessment. The formal objections submitted by Western Pacific were identical to its former objections and as such, CIR denied the request. The CIR, then, sent on October 28, 1959 a letter demanding payment within 10 days. On appeal, CA absolved the respondent from the assessment however it ruled out that the assessment letter dated March 2, 1959 was within 5-year prescriptive period. Issue:
WON the assessment had prescribed Ruling:
No. February 28, 1959 fell on a Saturday. Pursuant to Republic Act No. 1880, as, implemented by Executive Order No. 25, effective July 1, 1959, all bureaus and offices of the government, except schools, court, hospitals and health clinics, hold office only five days a week or from Monday to Friday. Saturday and Sunday, are constituted public holidays or days of exemption from labor or work as far as government offices, including that of respondent Commissioner, are concerned. The offices and bureaus concerned are officially closed on those days. So that on February 28, 1959 and March 1, 1959, which were Saturday and Sunday, respectively, the office of respondent was officially closed. And where the last day for doing an act required by law falls on a holiday, the act may be done on the next succeeding business day. (Section 31, Revised Administrative Code.) Similarly, in computing any period of time prescribed by statute, the day of the act after which the designated period of time begins to run is not included. But the last day of the period so computed is to be included, unless it is a Sunday or a legal holiday, in which event the time shall run until the end of the next day which is neither a Sunday or a holiday (Section 1, Rule 28, Rules of Court). Consequently, since February 28, 1959 was a Saturday and the next day, March 1, 1959, a Sunday, respondent had until the next succeeding business day, March 2, 1959, Monday, within which to issue the deficiency assessment. The assessment in question having been issued on March 2, 1959, it was, therefore, seasonably made. However, contrary to the ruling of the CTA, the assessment made by the Commissioner should be maintained, for the simple reason that when the petition for review was brought to the CTA by the respondent corporation, the said Court no longer had jurisdiction to entertain the same. The assessment had long become final. A petition for review should be presented, within the reglementary period, as provided for in Section 11, Republic Act No. 1125, which is "thirty (30) days from receipt of the assessment." The thirty (30) day period is jurisdictional. The assessment was received by the respondent corporation on March 2, 1959. It was only on June 29, 1959, when said corporation formally assailed the assessment, on the grounds of prescription in making the assessment and the impropriety of the disallowance of the listed deductions. From March 3 to June 29, 1959, manifestly more than thirty (30) days had lapsed and the assessment became final, executory and demandable.
47
Citibank vs CA GR 107434 – October 10, 1997 Facts:
Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the following taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulations No. 13-78, as amended). On April 15, 1980, Citibank filed its corporate income tax returns for the year ended December 31, 1979 (Exh. "E:), showing a net loss of P74,854,916.00 and its tax credits totalled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year's operation resulted in a loss. (Exh.& "E-1 & E-2"). The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979 (Exhs. "E-3" & "E-4"). On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56 and P298,829, respectively, or a total of P568,989.85; and on October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning subject claim for tax refund. The CTA adjudged Citibank to be entitled of the tax refund but the CA reversed said decision of the CTA. Issue:
Whether or not the lessor is entitled to a refund of such withheld amount after it is determined that the lessor was not, in fact, liable for any income tax at all because its annual operation resulted in a net loss as shown in its income tax return filed at the end of the taxable year Ruling:
Yes. In several cases, we have already ruled that income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer's final adjusted returns, nor on such periodic or quarterly basis. Petitioner's lessees withheld and remitted to the BIR the amounts now claimed as tax refunds. That they were withheld and remitted pursuant to Rev. Reg. No. 13-78 does not derogate from the fact that they were merely partial payments of probable taxes. Like the corporate quarterly income tax, creditable withholding taxes are subject to adjustment upon determination of the correct income tax liability after the filing of the corporate income tax return, as at the end of the taxable year. The taxes thus withheld and remitted are provisional in nature. We repeat: five per cent of the rental income withheld and remitted to the BIR pursuant to Rev. Reg. No. 13-78 is, unlike the withholding of final taxes on passive incomes, a creditable withholding tax; that is, creditable against income tax liability if any, for that taxable year.
48
CIR vs Phi lam 204 SCRA 446 Facts:
On May 30, 1983, Philamlife paid its 1983 1st Quarter income tax of P3,246,141. On August 29, 1983, it paid P396,874 for the 2nd Quarter and also paid P708,464 for the3rd Quarter. In the 4th Quarter however, it suffered loss and thereby had no income tax liability. It therefore declared refund of the 1st and 2nd Quarter payments. In 198r, Philamlife suffered loss again and applied for tax credit of its overpaid taxes in 1983 and 1982. ON December 16, 1985, it filed another claim for refund with the CIR’s appellate division for an amended and increased amount. On January 2, 1986, it filed petition for review with the CTA. CIR claims that the running of the prescriptive period commences from the remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the Final Adjustment Return. In such a case, Philamlife is not entitled for refund. Issue:
Whether or not the reckoning date of the two-year prescriptive period provided in Section 230 of the NIRC for the recovery of tax erroneously or illegally collected commences from the remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the Final Adjustment Return Ruling:
No. CIR is wrong. The prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 19, 1986. The record shows that the claim for refund was field on December 10, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year reglementary period. Even if the two-year prescriptive period had already lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances.
49
Palanca vs CIR GR L-16661 – January 31, 1962 Facts:
On July 1950, Don Carlos Palanca, Sr., donated to his son Carlos Jr., shares of stock in La Tondeña, Inc. amounting to 12,500 shares. Carlos Jr. failed to file a return on the donation within the statutory period so Carlos Jr. was assessed P97,691.23 (gift tax), P24,442.81 (25% surcharge), P47,868.70 (interest), which he paid on June 22, 1955. On March 1,1956, Carlos Jr. filed with BIR his ITR for 1955 claiming a deduction for interest of P9,706.45 and reporting a taxable income of P65,982.12. He was assessed P21,052.01 as income tax. On November 1956, Carlos Jr. filed an amended return for 1955, claiming an additional deduction of P47,868.70 (allegedly the interest paid on the donee’s gift tax based on Sec.30(b)(1) of the Tax Code) so taxable income is P18,113.42 (not P65,982.12) and tax due thereon in sum of P3,167.00. He claimed for a refund of P17,885.01 (P21,052.01 P3,167.00)– BIR denied. Carlos Jr. reiterated claim for refund, BIR denied The BIR considered the donation by Carlos Sr. as a transfer in contemplation of death so Carlos Jr. was assessed P191,591.62 as estate and inheritance taxes. Carlos paid P17,002.74 on June 22, 1955 as gift tax (includes interest and surcharge) which was applied to his estate andinheritance tax liability. Petitioner paid P60,581.80 as interest for delinquency. On August 1958, Carlos Jr. filed again an amended ITR for 1955 claiming the following: As interest deductions: P9,706.45 (as in the original ITR) + P60,581.80 (interest on the estate and inheritance taxes); Net Taxable income: P5,400.32; Income tax due: P428.00; claimed a refund of P20,624.01 (P21,052.01 – P428) Even before BIR ruled on his claim, Carlos Jr. filed petition for review before CTA. The CTA ruled that BIR should refund Carlos P20,624.01. Issue:
WON there is a difference between “indebtedness” and “taxes” to determine the deductible interest Ruling:
NO. The CIR seeks the reversal of the Court of Tax Appeal's ruling on the aforementioned petition for review. Specifically, he takes issue with the said court's determination that the amount paid by respondent Palanca for interest on his delinquent estate and inheritance tax is deductible from the gross income for that year under Section 30 (b) (1) of the Revenue Code. CIR urges that a tax is not an indebtedness. He adopts the view that "debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. A debt is a sum of money due upon contract express or implied or one which is evidenced by a judgment. Taxes are imposts levied by government for its support or some special purpose which the government has recognized." In view of the distinction, then, the Commissioner submits that the deductibility of "interest on indebtedness" from a person's income tax under Section 30(b) (1) cannot extend to "interest on taxes." While "taxes" and "debts" are distinguishable legal concepts, in certain cases as in the suit at bar, on account of their nature, the distinction becomes inconsequential. The term "debt" is properlyused in a comprehensive sense as embracing not merely money due by contract, but whatever one is bound to render to another, either for contract or the requirements of the law. (Camden vs. Fink Coule and Coke Co., 61 ALR 584). Where statutes impose a personal liability for a tax, the tax becomes at least in a broad sense, a debt. In our jurisdiction, the rule is settled that although taxes already due have not, strictly speaking, the same concept as debts, they are, however obligations that may be considered as such. (Sambrano vs. Court of Tax Appeals, G.R. no. L-8652, March 30, 1957). In a more recent case Commissioner of Internal Revenue vs. Prieto, G.R. No. L-13912, September 30, 1960, we explicitly announced that while the distinction between "taxes" and "debts" was recognized in this jurisdiction, the variance in their legal conception does not extend to the interests paid on them, at least insofar as Section 30 (b) (1) of the National Internal Revenue Code is concerned. Thus, under the law, for interest to be deductible, it must be shown that there be an indebtedness, that there should be interest upon it, and that what is claimed as an interest deduction should have been paid or accrued within the year. It is here conceded that the interest paid by respondent was in consequence of the late payment of her donor's tax, and the same was paid within the year it is sought to be deducted. In both this and the Prieto case, the taxpayer sought the allowance as deductible items from the gross income of the amounts paid by them as interests on delinquent tax liabilities. Of course, what was involved in the cited case was the donor's tax while the 50
present suit pertains to interest paid on the estate and inheritance tax. This difference, however, submits no appreciable consequence to the rationale of this Court's previous determination that interests on taxes should be considered as interests on indebtedness within themeaning of Section 30(b) (1) of the Tax Code. The interpretation we have placed upon the said section was predicated on the congressional intent, not on the nature of the tax for which the interest was paid.
51
REPUBLIC vs. CA, and NIELSON & CO.,INC. L-38540 149 SCRA 351 Facts:
The petitioner sought the review on certiorari of the decision of the respondent Court of Appeals reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952. Petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be considered to have been received by the private respondent. According to petitioner, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the expiration of five (5) days after mailing. As the letter of demand dated 16 July 1955 was actually mailed to private respondent, there arises the presumption that the letter was received by private respondent in the absence of evidence to the contrary. More so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16 July 1955. Issue:
1. Whether or not the notice of assessment or demand properly served to the respondent 2. Whether or not the receipt by the respondent of the succeeding follow-up demand notices be construed as receipt of the original demand Ruling:
1. No. As correctly observed by the respondent court in its appealed decision, while the contention of petitioner is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, still this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be assumed that private respondent received said letter. 2. Yes. Records show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission. And consequently, under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.
52
Ad ver ti si ng vs CA GR 59758 – December 26, 1984 Facts:
In the instant case, Advertising Associates alleged that it sold in 1949 its advertisingagency business to Philippine Advertising Counsellors, that its business is limited to the making,construction and installation of billboards and electric signs and making and printing of posters,signs, handbills, etc. (101 tsn). It contends that it is a media company, not an advertisingcompany, It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realtydealer's tax for leasing billboards and electric signs and 3% contractor's tax for repairing electricsigns. The billboards and electric signs manufactured by it are either sold or leased, As already stated,the Commissioner of Internal Revenue subjected to 3% contractor's tax its rental income frombillboards and electric signs. The Commissioner required Advertising Associates to payP297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of incorporation providethat its primary purpose is to engage in general advertising business. Its income tax returnsindicate that its business was advertising.Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated theassessments in his letters of July 12 and September 16,1974 (p. 3, Rollo). The taxpayer requested the cancellation of the assessments in its letters of September 13 andNovember 21, 1974 (p. 3, Rollo). Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing twowarrants of distraint, directing the collection enforcement division to levy on the taxpayer'spersonal properties as would be sufficient to satisfy the deficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served upon the taxpayer on April 18 and May 25, 1978.More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 inanswer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint(Annex C of Petition, pp. 31-32, Rollo). He justified the assessments by stating that the rental income of Advertising Associates frombillboards and neon signs constituted fees or compensation for its advertising services. Herequested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand;otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter withthis paragraph: This constitutes our final decision on the matter. If you are not agreeable, you mayappeal to the Court of Tax Appeals within 30 days from receipt of this letter.Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, itfiled its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined theenforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from thedecision of May 23, 1979, the petition for review was filed out of time. It was dismissed. Thetaxpayer appealed to this Court. Issues:
1. Whether the collection of the tax had already prescribed 2. Whether the petition for review was filed within the reglementary period Ruling:
1. No. Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax Code,Presidential Decree No. 1158, effective on June 3, 1977, provides that the tax may be collected bydistraint or levy or by a judicial proceeding begun 'within five years after the assessment of thetax".The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency assessments herein. The warrants of distraint were served upon it on April 18 and may 25,1978 or within five years after the assessment of the tax. Obviously, the warrants were issued to interrupt the five-year prescriptive period. Its enforcement was not implemented because of the pending protests of the taxpayer and its requests for withdrawal of the warrants which were eventually resolved in Commissioner Plana's letter of May 23, 1979.It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint to interrupt the running of the statute of limitations. He gave the taxpayer ample opportunity to contest the assessments but at the same time safeguarded the Government's interest by means of the warrants of distraint. 2. Yes. The reviewable decision is thatcontained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint.No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows,embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No.1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation inSt. Stephen's Association and St. Stephen's Chinese Girl's Schoolvs. Collector of Internal Revenue,104 Phil. 314, 317-318. The directive is in consonance 53
with this Court's dictum that the Commissioner should alwaysindicate to the taxpayer in clear and unequivocal language what constitutes his finaldetermination of the disputed assessment. That procedure is demanded by the pressing need forfair play, regularity and orderliness in administrative action.
54
Calo vs Magno GR L-18399 – Octob er 28, 1961 Facts:
Marcos M. Calo filed the petition for injunction and damages to restrain and prevent respondent Francisco Magno, Acting Treasurer of Butuan City, from enforcing an order of distraint and levy issued by respondent on petitioner's properties for the collection of real property taxes in the sum of P797.91. It is alleged in the petition that respondent had no authority to collect the taxes or to issue the order, because respondent's appointment and/or designation as acting city treasurer is contrary to the provisions of Republic Act No. 523, otherwise known as the Charter of the City of Butuan, and therefore null and void. Petitioner also asks that respondent's appointment be declared invalid. The CFI of Agusan denied the injunction for the reason the Commonwealth Act No. 588, the President may appoint in case of a “vacancy in the position”. On appeal, the CA certified the case to the Supreme Court as on involving purely question of law. Issue:
Whether or notthe appointment of Magno is appropriate Ruling:
Yes. The designation of Battad to the Department of Finance created a vacancy in the office of city treasurer of Butuan, which vacancy may be filled permanently or temporarily, by the President under Comm. Act 588. There being a vacancy in said office, it may not be considered as a mere absence or inability of the incumbent to act where the next ranking officer may perform the duties of the absent officer. In the case of Rodriguez vs. Del Rosario, 49 O.G., p. 5427, Oct. 30, 1953, we held that the temporary designation of the Mayor of Cebu as technical assistant in Malacañang had the effect of depriving the incumbent mayor of his position as mayor, which said incumbent mayor could accept or reject; but that when he thereafter demanded back his position as city mayor, this act of his amounted to his renunciation of his position as technical assistant in which he could not be compelled to stay. These acts of his therefore did not amount to a renunciation by him of his position as mayor. Conversely, in the case at the bar, as the previous incumbent Battad was designated to the department of finance with the approval of the President and the President thereafter appointed respondent Magno as the acting city treasurer of Butuan, who thereafter took oath of office without any express objection on the part of former City Treasurer Battad, the former incumbent was deemed to have accepted the designation and thus abandoned the position of city treasurer. So that when the President appointed the respondent Magno as acting city treasurer of Butuan the position of said treasurer had become vacant by the renunciation of the position by former treasurer Battad. There was, therefore, a vacancy in the office of the city treasurer of Butuan when Battad was designated to the Department of Finance by action of the secretary of finance and of the President. Battad was not merely absent or sick or unable to act for any other reason within the meaning of Sec. 18 of the Charter of the City of Butuan, and the provision of said Charter authorizing the officer next in charge in the department to perform the duties of the previous incumbent is not applicable. The action may be dismissed also on the ground that no action lies to enjoin the collection of a tax.
55
CIR vs NLRC GR 74965 Facts:
On January 12, 1984 the Commissioner of the Internal Revenue sent two letters of demand to the respondent Maritime Company of the Philippines for deficiency common carrier's tax, fixed tax, 6% Commercial Broker's tax, documentary stamp tax, income tax and withholding taxes in the total amount of P17,284,882.45. However, since this was not paid, the CIR placed under constructive distraintsix barges owned by Maritime Company of the Philippines. Four of the barges placed under constructive distraint were levied upon execution by respondent deputy sheriff of Manila on July 20, 1985 to satisfy a judgment for unpaid wages and other benefits of employees of respondent Maritime Company of the Philippines.The four barges were sold by respondent deputy sheriff at a public auction on August 12, 1985. On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale and to enjoin the sheriff from disposing of the proceeds of the sale or, in the alternative, to remit them to the Bureau of Internal Revenue so that the amount could be applied to the payment of private respondent Maritime Company's tax liabilities. The labor arbiter denied petitioner’s motion. The NLRC affirmed the LA’s denial of petitioner’s motion. Issue:
Whether or not the prior constructive distraint is superior to a later levy of personal properties by judgment to pay unpaid wages Ruling:
Yes. The National Internal Revenue Code provides for the collection of delinquent taxes by any of the following remedies: (a) distraint of personal property or levy of real property of the delinquent taxpayer; and (b) civil or criminal action. With respect to the four barges in question, petitioner resorted to constructive distraint pursuant to § 303 (now § 206) of the NLRC. This provisions states: “Constructive distraint of the property of a taxpayer . — To safeguard the interest of the Government, the Commissioner of Internal Revenue may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or intends to leave the Philippines, or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct the proceedings, for collecting the tax due or which may be due from him. The constructive distraint of personal property shall be effected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever without the express authority of the Commissioner of Internal Revenue. In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and in the presence of two witnesses leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint.” Ac Accordin rding gly, ly, wh what we we sa said in a pr prior ior ca case up upholdin lding g th the va valid lidity ity of of dis distr tra aint int of of two two of of the the six six barge rges (M (MCP No Nos. 1 an and 4), 4), fu fully lly applies in this case: “It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of the Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of the Internal Revenue, long before the writ of the execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MPC-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor 56
only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.” In addition, we have held that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer.
57
HSBC vs Rafferty 39 SCRA 145 Facts:
Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from thefirm of Pujalte& Co. which the latter assigned to it after it was unable to pay alarge sum of money it then owed to HSBC.The firm of Pujalte& Co. is engaged in the business of timber, and it wasshown that prior to the assignment of the railroad ties to HSBC it owed to theBIR forest charges, one of the taxes enumerated in the NIRC, amounting toP8328.93. It executed a bond of P2000 to secure the payment of the forestcharges and was allowed to remove the timber from the public forests.More than a year later, when some of the timber were already made intorailroad ties and transferred to third parties like HSBC, the Collector institutedcollection proceedings againsPujalte. To enforce collection, the CIR wentafter thee property of Pujalte& Co. including that which were already in thepossession of HSBC, who at the time it acquired the property had no noticeof the lien nor of the delinquent tax due from Pujalte. Issue:
Whether or not the CIR can still enforce the lien Ruling:
No, the lien does not follow the property subject to the tax into the handsof a third party when at the time of transfer, no demand for payment had beenmade and when the purchaser then had no notice of the existence of the lien.Under the general rule of the Civil law, possession of movables is notnecessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property even in the hands of a bonafide purchaser without notice. Under the law of taxation however, the tax liendoes not establish itself upon property which has been transferred to aninnocent purchaser prior to demand. A demand is necessary to create andbring the lien into operation.Furthermore, in order that the lien may follow the property into the hands of athird party, it is essential that the latter should have notice, either actual or constructive. The reason behind this is the benevolence of our Constitutionwhich prohibits the taking of property without due process of law. The policyof the law is against upholding secret liens and charges against property of Innocent purchasers or encumbrances for value. At the time HSBC acquiredthe property there was nothing to show that Pujalte& Co. were deliquent taxpayers nor were there any public records that may be consulted to protect itfrom loss by reason of the existence of a secret lien.Minor issue on the right of HSBC to recover interest from the undueenforcement of the lien: The reckoning date for the computation of interestshould be the date when the taxpayer lost the income from the funds bypayment under protest. In this case, it is not from the filing of the complaint for collection but on the date HSBC was deprived of the property.
58
Torres vs Collector (lacking)
59
CIR vs Hizon GR No. 130430 130430 – December 13, 1999 Facts:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment covering the fiscal year 19811982. Respondent not having contested the assessment, petitioner BIR, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, the respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the RTC to collect the tax deficiency. Hizon moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by Sec. 221 of the NIRC, and (2) that the action had already prescribed. Over petitioner's objection, the trial court granted the motion and dismissed the complaint. BIR on the other hand contends that respondent's request for reinvestigation of her tax deficiency assessment on November 1992 effectively suspended the running of the period of prescription. Issue:
Whether or not the action has prescribed Ruling:
Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under Sec. 223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable.
60
RP vs Lim L ianTeng ianTeng Sons L-21731 – March 31, 1966 Facts:
Lim Tian Teng Sons & Co., Inc. (LTT), a domestic corporation with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation exportation of copra. Lim Tian Tian then filed filed its its income income tax return for for 1952 based on accrued income and expenses. Its return return showed a loss of P56,109.98. CIR assessed assessed Lim Tian Tian of defici deficiency ency income income tax and 50% surcharge thereon am amounti ounting ng to P5,037.00 and demanded payment thereof not later than February 15, 1957. Lim Tian requested reinvestigation of its income tax liability. CIR did NOT reply but instead referred the case to the SolGen for collection by judicial action. SolGen demanded from Lim Tian paym payment ent w/in 5 days, stati stating ng that otherwise judicial action action would would be instituted instituted wit withou houtt further further notice. Lim Tian Tian thus wrote CIR CIR and SolGen, reiterating its request for reinvestigation. It requested that it be allowed to present its explanation together w/ supporting papers relative to its income tax liability. Deputy Collector of CIR informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a WAIVER of the statute of limitations as required in General Circular V-258 dated August 20, 1957. The Deputy Collector extended the period within which to execute and file with him the waiver of the statute of limitations to December 31, 1957, but advised that if no waiver is forthcoming on or before said date, judicial action for collection would be instituted without further notice. HOWEVER, Lim Tian failed to file a waiver. CIR thus instituted 8 months after an action in the CFI of Cebu for the collection of deficiency income tax. CFI declared the CIR's assessment as valid, final and executory, condemning Lim Tian to pay CIR w/ interest at 1% monthly until fully paid. Issues:
1. WON lower court has jurisdiction to entertain the case given that CIR has NOT yet issued its final decision on request for reinvestigation 2. WON court erred in considering as final and executory the assessment contained in the letter of the CIR dated January 16, 1957. 3. WON the assessment was correct Ruling:
1. Yes. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withholds from all courts, except the CTA under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government chiefly relies to obtain the means the carry on its operations, Section 11 of Republic Act 1125 states in part: No appeal taken to the Court of Tax Ap Appeals fro from the the decisio ision n of the the Colle llector tor of Inte Intern rna al Revenue ... ... shall suspend the the payment, lev levy, distr istra aint, int, and/or /or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law EXCEPT if it may jeopardize interest of the gov and/or taxpayer. 2. No. In this case, Lim Tian received said assessment on January 30, 1957 and on the following day requested reinvestigation of its tax liability. The CIR however did NOT reply to the request for reinvestigation. Instead, he referred the case to the Solicitor General for collection of the tax. The lower court interpreted this action of the Collector of Internal Revenue as a denial of defendant's request for reinvestigation.Instead of appealing to the Tax Court, however, Lim Tian reiterated its request for reinvestigation.Even if we do not count the period from October 8, 1957 (the date when taxpayer received notice of the denial of its request for reinvestigation) to December 31, 1957 (the deadline for the submission of the written waiver of the statute of limitations) in reckoning the 30-day period within which the taxpayer may appeal to the CTA, said period had long lapsed when the CIR filed the complaint in this case on September 2, 1958.Taxpayer’s failure to appeal to the CTA in due time made the assessment in question final, executory and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on merits. Otherwise, the period of 30 days for appeal to the Court of Tax Appeals would make little sense. 3. Yes. From what appeared in the 1952 return the accounting method used by LTT was the accrual method of accounting. As As such the the copra outtu tturn in the the amount of of P9 P95K should have been tre treated ted as accrued inc income of 19 1951 ins instea tead of sto stoc ck on hand of 1952. There if every indication that the 1952 income was fraudulent. That the beginning inventory for 1952 61
considered the copra outturn on hand but as of Dec 31 1951 it was not in its bodega anymore. It was in transit to a foreign port and they no longer owned the copra as it was already paid for. They did not follow their own system of accounting. This deviation was made to lessen its tax liability. Therefore the surcharge of 50% was correct.
62
Yabes vs Flojo 15 SCRA 278 Facts:
DoroteoYabes of Calamaniugan Cagayan, who was for sometime an exclusive dealer of products of the International Harvester Macleod, Inc., received on or about May 1, 1962, a letter from the Commissioner of Internal Revenue dated March 27, 1962, demanding payment of the amount of P15,976.81, as commercial broker's fixed and percentage taxes plus surcharges and the sum of P2,530 as compromise penalty alledgely due from Yabes for the years 1956-1960. On May 11, 1962, DoroteoYabes, through his counsel, filed with the Commissioner's Office his letter dated May 10, 1962, protesting the assessment of commercial broker's fixed and percentage taxes plus penalties against him on the ground that his agreements with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence he claimed he was not able to pay such kind of taxes. DoroteoYabes died on March 13, 1963 and no estate proceedings were instituted for the settlement of his estate. Hence, an action was brought against the heir of Yabes. Thereafter, no word was received by the petitioners or their lawyers during the interim of more than three (3) years, but on January 20, 1971, petitioners as heirs of the deceased DoroteoYabes received the summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the Court of First Instance of Cagayan which seeks to collect from the petitioners the sum of P 15,976.82, as deficiency commercial broker's fixed and percentage taxes, including surcharges and interest thereon, due from their predecessor-in-interest, DoroteoYabes, by reason of the latter's income derived from transactions as dealer of the products of the International Harvester Macleod, Inc. Taking the complaint as the final decision of the Commissioner on the disputed assessment against the deceased taxpayer DoroteoYabes, petitioners filed on February 12, 1971, a petition for review of said disputed assessment with the Court of Tax Appeals; 18 later on the same day, February 12, 1971, petitioners filed their answer to the complaint of the Commissioner before the Court of First Instance of Cagayan; 19 and alleged therein, by way of special defense, that the Court of Tax Appeals has exclusive jurisdiction of the action and that there is another action of the same nature between the parties relating to the same assessment pending before the Court of Tax Appeals. On the other hand, the Commissioner filed a motion to dismiss dated March 24, 1971, with the Court of Tax Appeals in CTA Case No. 2216, and subsequently filed a memorandum in support of said motion to dismiss, on the ground that the assessment against DoroteoYabes had already become final, executory and incontestable, and the Court of Tax Appeals had no jurisdiction over the case. Issue:
Whether or not the Court of First Instance correctly denied petitioner’s motion to dismiss Ruling:
No. There is no reason for Us to disagree from or reverse the Court of Tax Appeals' conclusion that under the circumstances of this case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the respondent Court of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals in CTA Case No. 2216 was filed on time. 36 The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code. For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the complaint filed in Civil Case No. II-7.
63
CIR vs Gonzales GR L-19495 Facts:
In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result – there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and so the CIR’s right to make an assessment has already prescribed in 1958. Issue:
Whether or not Gonzales is correct Ruling:
No. It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation on the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered that the taxpayer omitted to file a return. As such, the five year prescriptive period to make an assessment (NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN, without prejudice to her right to ask reimbursement from Jose’s estate (Jose already died).
64
Castro v s CIR GR L-12174 Facts:
Petitioner-appellant Maria B. Castro asks for partial reconsideration of the decision of this court dated April 26, 1962, contending that the one percent (1%) monthly interest on the war profits tax due from her should be limited to a total of thirty-six per centum (36%). This contention is made to rest on the provisions of the Internal Revenue Code on Income Tax, Section 51 (e), as amended by Republic Act No. 2343 (approved on June 29, 1959), to the effect that: "SEC. 51 (e).Additions to the tax in case of nonpayment.— (1) Tax shown on the return. — Where the amount determined by the taxpayer as the tax imposed by this Title or any installment thereof, or any part of such amount or installment, is not paid on or before the date prescribed for its payment, there shall be collected as a part of the tax, interest upon such unpaid amount at the rate of one per centum a month from the date prescribed for its payment until it is paid: Provided, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding." Issue:
Whether or not Castro is correct Ruling:
No. Assuming, without deciding, that this particular section is applicable to war profits taxes, we agree with the Solicitor General that there is no legal ground for applying retroactively to the delinquencies of the petitioner under the War Profits Tax Law (and which accrued since September 23, 1950, when the corresponding tax assessment was issued) the terms of a law (R.A. 2343) enacted almost nine (9) years later. It is elementary that laws are presumed to operate only prospectively, and have no retroactive effect in the absence of clear provision to the purpose. As it stood in 1950, Section 51 (e) of the Revenue Code provided for monthly interest without limitation of the number of months:jgc:chanrobles.com.ph "SEC. 51 (e).Surcharge and interest in case of delinquency. — To any sum or sums due and unpaid after the dates prescribed in subsections (b), (c) and (d) for the payment of the same, there shall be added the sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum a month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons." Petitioner contends that the imposition of interest amounts to a penalty, and that laws imposing lighter penalties are given retrospective effect. We disagree with the basic assumption, and hold that the imposition of 1% monthly interest is but a just compensation to the state for the delay in paying the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752; Ross v. U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed.[2d] 488). The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory.
65
Republic vs Ching Lak GR L-10609 Facts:
On March 31, 1954, the defendant-appellee was charged with havingviolated Section 5 (b) in connection with Section 8 of Republic Act No. 55.After his arrest, he was arraigned, duly assisted by his attorney, and entered the plea of not guilty. Thereafter he filed a motion to quash the information on the ground that the criminal action or liability charged therein had been extinguished by prescription, and the court, after proper hearing, sustained the motion. Issue:
Whether or not petitioner’s cause of action has been barred by prescription Ruling:
Yes, the accused herein was charged with an offense against a law administered by the Collector of Internal Revenue, for it clearly appears from the provisions of Republic Act No. 55, especially from Sec. 9 thereof, that the execution of all its provisions was entrusted to the Collector of Internal Revenue; and in accordance with Sec. 1 of Act 3585 which amended Act 3326, all offenses against any law or part of law administered by the Collector of Internal Revenue shall prescribe after five years. Acts 3226 and 3585 were not repealed by Act otherwise known as the Revised Penal Code; their provisions remained intact and in full force. It follows that Article 90 of the Revised Penal Code providing for the prescription of crimes would not apply to prescription of violations of special laws or part of laws administered by the Bureau of Internal Revenue.
66
Ona vs CIR L-19342 Facts:
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A civil case was instituted for the settlement of her state, in which Oña was appointed administrator and later on the guardian of the three heirs who were still minors when the project for partition was approved. This shows that the heirs have undivided ½ interest in 10 parcels of land, 6 houses and money from the War Damage Commission. Although the project of partition was approved by the Court, no attempt was made to divide the properties and they remained under the management of Oña who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners’ properties and investments gradually increased. Petitioners returned for income tax purposes their shares in the net income but they did not actually receive their shares because this left with Oña who invested them. Based on these facts, CIR decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners asked for reconsideration, which was denied hence this petition for review from CTA’s decision. Issues:
Whether or not there was a co-ownership or an unregistered partnership Ruling:
Yes. For tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly, he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed, for the purpose, for tax purposes, at least, an unregistered partnership is formed.
67
Pascual vs CIR 166 SCRA 560 Facts:
On June 22, 1965, petitioners bought two (2)parcels of land from Santiago Bernardino, et al.and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioner sin 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioner realized a net profit in the sale made in 1968 in the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 .Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b)and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code; that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax. Issue:
Whether petitioners formed an unregistered partnership subject to corporate income tax(partnership vs. co-ownership) Ruling:
No. Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) 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; The sharing of returns does not in itself establish a partnership whether or not thepersons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property. In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes. And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable asp artners for this unpaid obligation of the partnership.
68
Tan vs Del Rosario 237 SCRA 324 Facts:
Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and different treatment in the professionals which petitioners assail as unconstitutional for being isolative of the equal protection clause in the constitution. Issue:
Whether or not the petition is meritorious Ruling:
No. uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it is germane to the purpose of the law. It is not limited to existing only and must apply equally to all members of the same class. The legislative intent is to increasingly shift the income tax system towards the scheduled approach in taxation of individual taxpayers and maintain the present global treatment on taxable corporations. This classification is neither arbitrary nor inappropriate.
69
Garrison vs CA 187 SCRA 585 Facts:
Petitioners, John Garrison, Frank Robertson, Robert Cathey, James Robertson, Felicitas de Guzman and Edward McGurk (PETITIONERS) are US Citizens who entered the country through the Philippine Immigration Act of 1940 and are employed in the US Naval Base in Olongapo City. They earn no Philippine source income and it is also their intention to return to the US as soon as their employment has ended.The BIR sent notices to Petitioners stating that they did not file their Income Tax Returns (ITR) for 1969. The BIR claimed that they were resident aliens and required them to file their returns.Under then then Internal Revenue Code resident aliens may be taxed regardless of whether the gross income was derived from Philippine sources.Petitioners refused stating that they were not resident aliens but only special temporary visitors. Hence, they were not required to file ITRs. They also claimed exemption by virtue of the RP-US Military Bases Agreement. Under Military Bases Agreement, a “national of the United States serving in or employed in the Philippines in connection with construction, maintenance, operation or defense of the bases and reside in the Philippines by reason only of such employment” is only liable for tax on Philippine sources of income.The Court of Appeals held that the Bases Agreement “speaks of exemption from the payment of income tax, not from the filing of the income tax returns . . .” Issue:
1. Whether or not Petitioners can be considered resident aliens 2. Whether or not Petitioners are exempt from income tax under the RP-US Military Bases Agreement 3. Whether or not Petitioners must still file ITR notwithstanding the exemption. Ruling:
1. Yes, Revenue Regulations No. 2 Section 5 provides: “An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of income tax.” Whether or not an alian is a transient or not is further determined by his: “intentions with regards to the length and nature of his stay. A mere floating intention indefinite as to time, to return to another country is not sufficient to constitute him as transient. If he lives in the Philippines and has no definite intention as to his stay, he is a resident.” The Section 5 further provides that if the alien is in the Philippines for a definite purpose which by its nature may be promptly accomplished, he is considered a transient. However, if an extended stay is necessary for him to accomplsh his purpose, he is considered a resident, “though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned.” 2. Yes, Notwithstanding the fact that the Petitioners are resident aliens who are generally taxable, their class is nonetheless exempt from paying taxes on income derived from their employment in the naval base by virtue of the RP-US Military bases agreement. The Bases Agreement identifies the persons NOT “liable to pay income tax in the Philippines except in regard to income derived from Philippine sources or sources other than the US sources.” They are the persons in whom concur the following requisites, to wit: 1) 2) 3) 4)
nationals of the United States serving in or employed in the Philippines; their service or employment is "in connection with construction,maintenance, operation or defense of the bases; they reside in the Philippines by reason only of such employment; and their income is derived exclusively from “U.S. Sources.”
3. Yes, even though the petitioners are exempt from paying taxes from their employment in the Naval Base, they must nevertheless file an ITR. The Supreme Court held that the filing of an ITR and the payment of taxes are two distinct obligations. While income derived from employment connected with the Naval Base is exempt, income from Philippine Sources is not. The requirement of filing an ITR is so that the BIR can determine whether or not the US National should be taxed. “The duty rests on the U.S. nationals concerned to invoke and prima facie establish their tax-exempt status. It cannot simply be presumed that they earned no income from any other sources than their employment in the American bases and are therefore totally exempt from income tax.”
70
Marubeni v s CIR 177 SCRA 500 Facts:
Petitioner Marubeni s a foreign corporation duly organized under the existing laws of Japan and duly licensed to engage in business under Philippine laws. Marubeni of Japan has equity investments in Atlantic Gulf & Pacific Co. of Manila. AG&P declared and directly remitted the cash dividends to Marubeni’s head office in Tokyo net of the final dividend tax and withholding profit remittance tax. Thereafter, Marubeni, through SGV, sought a ruling from the BIR on whether or not the dividends it received from AG&P are effectively connected with its business in the Philippines as to be considered branch profits subject to profit remittance tax. The Acting Commissioner ruled that the dividends received by Marubeni are not income from the business activity in which it is engaged. Thus, the dividend if remitted abroad are not considered branch profits subject to profit remittance tax. Pursuant to such ruling, petitioner filed a claim for refund for the profit tax remittance erroneously paid on the dividends remitted by AG&P. Respondent Commissioner denied the claim. It ruled that since Marubeni is a non resident corporation not engaged in trade or business in the Philippines it shall be subject to tax on income earned from Philippine sources at the rate of 35% of its gross income. On the other hand, Marubeni contends that, following the principal-agent relationship theory, Marubeni Japan is a resident foreign corporation subject only to final tax on dividends received from a domestic corporation. Issue:
Whether or not Marubeni Japan is a resident foreign corporation Ruling:
No. The general rule is a foreign corporation is the same juridical entity as its branch office in the Philippines . The rule is based on the premise that the business of the foreign corporation is conducted through its branch office, following the principal-agent relationship theory. It is understood that the branch becomes its agent. However, when the foreign corporation transacts business in the Philippines independently of its branch, the principal-agent relationship is set aside. The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer is the foreign corporation, not the branch or the resident foreign corporation. Thus, the alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Japan which is considered as a separate and distinct income taxpayer from the branch in the Philippines.
71
CIR vs British A irways Corporation 149 SCRA 395 Facts:
British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association, and thus, it operates air transportation services and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. Issue:
Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute income of BOAC from Philippine sources, and accordingly taxable Ruling:
Yes, the source of an income is the property, activity, or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payment for fares were also made here in the Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2% tax on gross billings is an income tax. If it had been intended as an excise tax or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business.
72
CIR vs CA and YMCA GR 124043 Facts:
The main question in this case is: “is the income derived from rentals of real property owned by Young Men’s Christian Association of the Philippines (YMCA) – established as “a welfare, educational and charitable non-profit corporation” – subject to income tax under the NIRC and the Constitution? In 1980, YMCA earned an income of P676,829 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators and P44k form parking fees. Issue:
Whether or not the rental income of the YMCA taxable Ruling:
Yes. The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Sec. 27 of the NIRC; court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. The said provision mandates that the income of exempt organizations (such as YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Private respondent is exempt from the payment of property tax, but nit income tax on rentals from its property.
73
Pascual vs Secretary of Public Works 110 SCRA 381 Facts:
Governor WenceslaoPascual of Rizal instituted this action for declaratory relief, with injunction, upon the ground that RA No. 920, which apropriates funds for public works particularly for the construction and improvement of Pasig feeder road terminals. Some of the feeder roads, however, as alleged and as contained in the tracings attached to the petition, were nothing but projected and planned subdivision roads, not yet constructed within the Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not connect any government property or any important premises to the main highway. The respondents' contention is that there is public purpose because people living in the subdivision will directly be benefitted from the construction of the roads, and the government also gains from the donation of the land supposed to be occupied by the streets, made by its owner to the government. Issue:
Whether or not the incidental gains by the public be considered "public purpose" for the purpose of justifying an expenditure of the government Ruling:
No. It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.
74
Gonzales vs Marcos 65 SCRA 624 Facts:
The petitioner questioned the validity of EO No. 30 creating the Cultural Center of the Philippines, having as its estate the real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming in the future. It was likewise alleged that the Board of Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development Corporation as well as $3.5 million received from President Johnson of the United States in the concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. The petition was denied by the trial court arguing that with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from those of the general public. Issue:
Whether or not a taxpayer the capacity to question the validity of the issuance in this case Ruling:
No. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was that absence of the "requisite pecuniary or monetary interest." The stand of the lower court finds support in judicial precedents. This is not to retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be entertained." The lower court thus did not err in so viewing the situation.
75
Dumlao vs COMELEC 95 SCRA 392 Facts:
Patricio Dumlao was the former governor of Nueva Vizcaya. He has already retired from his office and he has been receiving retirement benefits therefrom. In 1980, he filed for reelection to the same office. Meanwhile, Batas PambansaBlg. 52 was enacted. This law provides, among others, that retirees from public office like Dumlao are disqualified to run for office. Dumlao assailed the law averring that it is class legislation hence unconstitutional. In general, Dumlao invoked equal protection in the eye of the law. His petition was joined by Atty. Romeo Igot and Alfredo Salapantan, Jr. These two however have different issues. The suits of Igot and Salapantan are more of a taxpayer’s suit assailing the other provisions of BP 52 regarding the term of office of the elected officials, the length of the campaign, and the provision which bars persons charged for crimes from running for public office as well as the provision that provides that the mere filing of complaints against them after preliminary investigation would already disqualify them from office. Issue:
Whether or not Dumlao, Igot, and Salapantan have a cause of action. Ruling:
No. The SC pointed out the procedural lapses of this case for this case should have never been merged. Dumlao’s issue is different from Igot’s. They have separate issues. Further, this case does not meet all the requisites so that it’d be eligible for judicial review. There are standards that have to be followed in the exercise of the function of judicial review, namely: (1) the existence of an appropriate case; (2) an interest personal and substantial by the party raising the constitutional question; (3) the plea that the function be exercised at the earliest opportunity; and (4) the necessity that the constitutional question be passed upon in order to decide the case. In this case, only the 3rd requisite was met. The SC ruled however that the provision barring persons charged for crimes may not run for public office and that the filing of complaints against them and after preliminary investigation would already disqualify them from office as null and void. The assertion that BP 52 is contrary to the safeguard of equal protection is neither well taken. The constitutional guarantee of equal protection of the laws is subject to rational classification. If the groupings are based on reasonable and real differentiations, one class can be treated and regulated differently from another class. For purposes of public service, employees 65 years of age, have been validly classified differently from younger employees. Employees attaining that age are subject to compulsory retirement, while those of younger ages are not so compulsorily retirable. In respect of election to provincial, city, or municipal positions, to require that candidates should not be more than 65 years of age at the time they assume office, if applicable to everyone, might or might not be a reasonable classification although, as the Solicitor General has intimated, a good policy of the law should be to promote the emergence of younger blood in our political elective echelons. On the other hand, it might be that persons more than 65 years old may also be good elective local officials. Retirement from government service may or may not be a reasonable disqualification for elective local officials. For one thing, there can also be retirees from government service at ages, say below 65. It may neither be reasonable to disqualify retirees, aged 65, for a 65-year old retiree could be a good local official just like one, aged 65, who is not a retiree. But, in the case of a 65-year old elective local official (Dumalo), who has retired from a provincial, city or municipal office, there is reason to disqualify him from running for the same office from which he had retired, as provided for in the challenged provision.
76
CIR vs American Airli nes (not found)
77
CIR vs Air India 157 SCRA 648 Facts:
The private respondent Air India is a foreign corporation organized under the laws of India. It is not licensed to do business in the Philippines as an international carrier. Air India's status in the Philippines is that of an off-line international carrier not engaged in the business of air transportation in the Philippines. Commissioner of Internal Revenue held the private respondent liable for the payment of P142,471.68.The amount represents the 2.5% income tax on the private respondent's gross Philippine billings for the said fiscal year pursuant to Section 24 (b) (2) of the National Internal Revenue Code, as amended, inclusive of the 50%surcharge and interest for willful neglect to file a return as provided under Section 72 of the same code. Issue:
Whether or not the revenue derived by an international air carrier from sales of tickets in the Philippines for air transportation, while having no landing rights in the country, constitutes income of the said international air carrier from Philippine sources and, accordingly, taxable under Section 24 (b) (2) of the National Internal Revenue Code Ruling:
Yes, the source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. The revenue derived by the private respondent Air India from the sales of airplane tickets through its agent Philippine Air Lines, Inc., here in the Philippines, must be considered taxable income. As correctly assessed by the petitioner, such income is subject to a 2.5% tax pursuant to Presidential Decree No. 1355, amending Section 24 (b) (2) of the tax code. The total Philippine billings of the private respondent for the taxable year in question amounts to P2,968,156.00. 2.5% of this amount or P74,203.90 constitutes the income tax due from the private respondent.The 50% surcharge or fraud penalty provided in Section 72 of the National Internal Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand, the same Section provides that if the failure to file the required tax return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the taxpayer. There being no cogent basis to find willful neglect to file the required tax return on the part of the private respondent, the 50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects the private respondent to a 25% penalty pursuant to Section 72. INTEREST As for the interest which the private respondent is liable to pay, We find the 42% interest assessed by the petitioner to be in order. At the time the tax liability of the private respondent accrued, Section 51 (d) of the tax code, before it was amended by Presidential Decree No. 1705 12 prescribed an interest rate of 4% per annum, provided that the maximum amount that could be collected as interest on the tax deficiency will not exceed the amount corresponding to a period of three years. Thus, the maximum interest rate then was 42%. DEFICIENCY Section 51 (e) (2) shows that this interest is in addition to the interest provided in Section 51 (d). This view can be gleaned from the use of the phrase "Where a deficiency, or any interest assessed in connection therewith under paragraph (d) of this section" in Section 51 (e) (2). The additional interest is to be computed upon the entire amount of the tax liability (previous interest included) which remains unpaid. This is manifested by the use of the phrase "there shall be collected upon the unpaid amount as part of the tax" in Section 51 (e) (2). However, the same Section provides that the maximum amount that may be collected as interest cannot exceed the amount corresponding to a period of three years. In this case, the maximum rate would be 60%. SURCHARGE An examination of Section 51 (e) (3) reveals that this surcharge is imposed for the late payment of the unpaid tax deficiency and/or unpaid interest assessed in connection therewith, in addition to all other charges. This is confirmed by the use of the words "there shall be collected in addition to the interest prescribed herein [referring to the entire Section 51 (e)] and in paragraph (d) above [referring to Section 51 (d)]." The additional surcharge is computed on the amount of tax unpaid, exclusive of all other impositions. This is confirmed by the phrase "ten per centum of the amount of tax unpaid." The failure to pay the tax deficiency within the required period of time upon demand is penalized by this additional surcharge. Upon such failure to pay, the surcharge is automatically due; its imposition is mandatory.Under the aforementioned provisions of the tax code, the private respondent became liable to pay the additional interest provided in Section 51 (e) (2) and the 10% surcharge provided in Section 51 (e) (3) thirty days after February 20, 1981, the date when the Commissioner of Internal Revenue sought the payment of the deficiency. 78
More than three years have passed since and yet the account remains unsettled. Thus, the additional interest and surcharge can be imposed on the private respondent as asserted by the petitioner. Presidential Decree No. 1705 took effect on August 1, 1980. It was, therefore, the law in effect when the additional interest and surcharge could be legally imposed on the private respondent. The three-year or 60% maximum interest provided in Section 51 (e) (2) calls for application. It is computed against the total amount unpaid by the private respondent.
79
CIR vs JAL Facts:
JAL is a foreign corporation engaged in the business of International air carriage. Since mid-July of 1957, JAL had maintained an office at the Filipinas Hotel, Roxas Boulevard Manila. The said office did not sell tickets but was merely for the promotion of the company. On July 17 1957, JAL constituted PAL as its agent in the Philippines. PAL sold tickets for and in behalf of JAL. On June 1972, JAL then received deficiency income tax assessments notices and a demand letter from petitioner for years 1959 through 1963. JAL protested against said assessments alleging that as a non-resident foreign corporation, it as taxable only on income from Philippines sources as determined by section 37 of the Tax Code, there being no income on said years, JAL is not liable for taxes. Issue:
WON proceeds from sales of JAL tickets sold in the Philippines are taxable as income from sources within the Philippines Ruling:
Yes, Citing the case of CIR v BOAC, the court reiterated that the source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. The absence of flight operations to and from the Philippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the source, and the source of the income is that activity which produced the income. In this case, as JAL constitutes PAL as its agent, the sales of JAL tickets made by PAL is taxable.
80
Bank of America vs CA 234 SCRA 302 Facts:
Bank of America is a foreign corporation licensed to engage in business in the Philippines through a branch in Makati.Bank of America paid 15% branch profit remittance tax amounting to PhP7.5M from its REGULAR UNIT OPERATIONS and another 405K PhP from its FOREIGN CURRENCY DEPOSIT OPERATIONS. The tax was based on net profits after income tax without deducting the amount corresponding to the 15% tax.Bank of America thereafter filed a claim for refund with the BIR for the portion the corresponds with the 15% branch profit remittance tax. BOA’s claim: “BIR should tax us based on the profits actually remitted (45M), and NOT on the amount before profit remittance tax (53M)... The basis should be the amount actually remitted abroad.”CIR contends otherwise and holds that in computing the 15% remittance tax, the tax should be inclusive of the sum deemed remitted. Issue:
Whether or not the branch profit remittance tax should be baseon the amount actually remitted Ruling:
Yes, it should be based on the amount actually committed, NOT what was applied for.There is nothing in Section 24which indicates that the 15% tax/branch profit remittance is on the total amount of profit; where the law does NOT qualify that the tax is imposed and collected at source, the qualification should not be read into law.Rationale of 15%: To equalize/ share the burden of income taxation with foreign corporations.
81
NV Amstrerdam vs CIR 162 SCRA 489 Facts:
Both vessels of petitioner N.V. Reederij “Amsterdam” called on Philippine ports to load cargoes for foreign destinations.The freight fees for these transactions were paid in abroad. In these two transactions, petition Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income tax has been paid by “Amsterdam” on the freight receipts.As a result, Commissioner of Internal Revenue filed the corresponding income tax returns for the petitioner. Commissioner assessed petitioner for deficiency of income tax, as a non-resident foreign corporation NOT engaged in trade or business.On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of the aforementioned vessels and paid the tax in pursuant to their supposed classification.On the same date, petitioner Royal Interocean Lines, as the husbanding agent of “Amsterdam”, filed a written protest against the abovementioned assessment made by the respondent Commissioner. The protest was denied.On appeal, CTA modified the assessment by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal to the SC. Issue:
Whether or not N.V. Reederij “Amsterdam” should be taxed as a foreign corporation not engaged in trade or business in the Philippines Ruling:
No, Petitioner is a foreign corporation not authorized or licensed to do business in the Philippines. It does not have a branch in the Philippines, and it only made two calls in Philippine ports, one in 1963 and the other in 1964.In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation does not amount to engaging in trade or business in the Philippines for income tax purposes.A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines. It is permitted to claim deductions from gross income but only to the extent connected with income earned in the Philippines. On the other hand, foreign corporations not doing business in the Philippines are taxable on income from all sources within the Philippines. The tax is 30% (now 35% for non-resident foreign corp which is also known as foreign corp not engaged in trade or business) of such gross income. (*take note that in a resident foreign corp, what is being taxed is the taxable income, which is with deductions, as compared to a non-resident foreign corp which the tax base is gross income). Petiioner “Amsterdam” is a non-resident foreign corporation, organized and existing under the laws of the Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines.
82
Ab ra Val ley Col leg e vs Aquino 162 SCRA 106 Facts:
Abra Valley College, an educational corporation and institution of higherlearning duly incorporated with the SEC filed a complaint to annul and declarevoid the “Notice of Seizure” and the “Notice of Sale” of its lot and building locatedatBangued, Abra, for nonpayment of real estate taxes and penalties. PaternoMillare filed through counsel a motion to dismiss the complaint. The provincialfiscal filed a memorandum for the government wherein they opined hat based onthe evidence, the laws applicable, court decisions and jurisprudence, the schoolbuilding and the school lot used for educational purposes of the Abra ValleyCollege are exempted from payment of taxes. Nonetheless, the trial courtdisagreed because of the use of the second floor by the Director of the said schoolfor residential purpose. He thus ruled for the government and rendered theassailed decision. Issue:
Whether or not the lot and building in question are used exclusively foreducational purposes Ruling:
NO. It must be stressed that while the court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educationalpurposes” as provided for in the Article VI, Section 22, Paragraph 3 of the 1935Philippine Constitution, reasonable emphasis has always been made thatexemption extends to facilities which are incidental to and reasonably necessaryfor the accomplishment of the main purpose. Otherwise stated, the use of theschool building or lot for commercial purposes is neither contemplated by law, norby jurisprudence. Thus, while the use of the second floor of the main building inthe case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to themain or primary purpose – educational, the lease of the first floor thereof to theNorthern Marketing Corporation cannot by any stretch of the imagination beconsidered incidental to the purposes of education.Under the 1935 Constitution, the trial court correctly arrived at theconclusion that the school building as well as the lot where it is built, should betaxed, not because the second floor of the same is being used by the director andhis family for residential purposes, but because the first floor thereof is being usedfor commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be return to the schoolinvolved.
83
Madrigal vs Rafferty 38 Phil 414 Facts:
Vicente Madrigal and Susana Paterno were legally married prior to January 1, 1914, contracted under the provisions of law concerning conjugal partnerships. In 1915, Madrigal filed a sworn declaration with the CIR showing that his total net income for the year 1914 was P296,302.73. Subsequently Madrigal submitted the claim that the said P296,302.73 did not represent his income for the year 1914, but was in fact the income of the conjugal partnership existing between himself and his wife Susana Paterno, and that in computing and assessing the additional income tax provided by the Act of Congress of October 3, 1913, the income declared by Vicente Madrigal should be divided into two equal parts, one-half to be considered the income of Vicente Madrigal and the other half of Susana Paterno. After payment under protest, and after the protest of Madrigal had been decided adversely by the CIR, action was begun by Madrigal and his wife Paterno in the CFI of Manila against Collector of Internal Revenue and the Deputy Collector of Internal Revenue. CFI decided against Madrigal and Paterno. Appellees contend that the taxes imposed by the Income Tax Law are as the name implies taxes upon income tax and not upon capital and property; that the fact that Madrigal was a married man, and his marriage contracted under the provisions governing the conjugal partnership, has no bearing on income considered as income, and that the distinction must be drawn between the ordinary form of commercial partnership and the conjugal partnership of spouses resulting from the relation of marriage. Issue:
Whether or not the additional income tax should be divided into two equal parts because of the conjugal partnership Ruling:
No. Income as contrasted with capital or property is to be the test. The essential difference between capital and income is that capital is a fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called an income. Capital is wealth, while income is the service of wealth. Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of her husband Vicente Madrigal during the life of the conjugal partnership. She has an interest in the ultimate property rights and in the ultimate ownership of property acquired as income after such income has become capital. Susana Paterno has no absolute right to one-half the income of the conjugal partnership. Not being seized of a separate estate, Susana Paterno cannot make a separate return in order to receive the benefit of the exemption which would arise by reason of the additional tax. As she has no estate and income, actually and legally vested in her and entirely distinct from her husband's property, the income cannot properly be considered the separate income of the wife for the purposes of the additional tax. Moreover, the Income Tax Law does not look on the spouses as individual partners in an ordinary partnership. The husband and wife are only entitled to the exemption of P8,000 specifically granted by the law. The higher schedules of the additional tax directed at the incomes of the wealthy may not be partially defeated by reliance on provisions in our Civil Code dealing with the conjugal partnership and having no application to the Income Tax Law. The aims and purposes of the Income Tax Law must be given effect.
84
Commission er vs Tours Specialist 183 SCRA 402 Facts:
The Commissioner of Internal Revenue filed a petition to review on certiorari to the CTA decision which ruled that the money entrusted to private respondent Tours Specialist (TS), earmarked and paid for hotel room charges of tourists, travellers and/or foreign travel agencies do not form part of its gross receipt subject to 3% independent contractor’s tax. Tours Specialist derived income from its activities and services as a travel agency, which included booking tourists in local hotels. To supply such service, TS and its counterpart tourist agencies abroad have agreed to offer a package fee for the tourists (payment of hotel room accommodations, food and other personal expenses). By arrangement, the foreign tour agency entrusts to TS the fund for hotel room accommodation, which in turn paid by the latter to the local hotel when billed. Despite this arrangement, CIR assessed private respondent for deficiency 3% contractor’s tax as independent contractor including the entrusted hotel room charges in its gross receipts from services for years 1974-1976 plus compromise penalty. During crossexamination, TS General Manager stated that the payment through them “is only an act of accommodation on (its) part” and “the agent abroad instead of sending several telexes and saving on bank charges they take the option to send the money to (TS) to be held in trust to be endorsed to the hotel.”’ Nevertheless, CIR caused the issuance of a warrant of distraint and levy, and had TS’ bank deposits garnished. Issue:
WON amounts received by a local tourist and travel agency included in a package fee from tourists or foreign tour agencies, intended or earmarked for hotel accommodations form part of gross receipts subject to 3% contractor’s tax Ruling:
No. Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that there must be a law or regulation which would exempt such monies or receipts within the meaning of gross receipts under the Tax Code. Parenthetically, the room charges entrusted by the foreign travel agencies to the private respondents do not form part of its gross receipts within the definition of the Tax Code. The said receipts never belonged to the private respondent. The private respondent never benefited from their payment to the local hotels. This arrangement was only to accommodate the foreign travel agencies.
85
Fisher vs Trinidad 43 Phil 973 Facts:
No. Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s benefit; and it is not necessary that there must be a law or regulation which would exempt such monies or receipts within the meaning of gross receipts under the Tax Code. Parenthetically, the room charges entrusted by the foreign travel agencies to the private respondents do not form part of its gross receipts within the definition of the Tax Code. The said receipts never belonged to the private respondent. The private respondent never benefited from their payment to the local hotels. This arrangement was only to accommodate the foreign travel agencies. Issue:
Whether or not the stock dividend was an income and therefore taxabl Ruling:
No. Generally speaking, stock dividends represent undistributed increase in the capital of corporations or firms, joint stock companies, etc., etc., for a particular period. The inventory of the property of the corporation for particular period shows an increase in its capital, so that the stock theretofore issued does not show the real value of the stockholder's interest, and additional stock is issued showing the increase in the actual capital, or property, or assets of the corporation. In the case of Gray vs. Darlington (82 U.S., 653), the US Supreme Court held that mere advance in value does not constitute the "income" specified in the revenue law as "income" of the owner for the year in which the sale of the property was made. Such advance constitutes and can be treated merely as an increase of capital. In the case of Towne vs. Eisner, income was defined in an income tax law to mean cash or its equivalent, unless it is otherwise specified. It does not mean unrealized increments in the value of the property. A stock dividend really takes nothing from the property of the corporation, and adds nothing to the interests of the shareholders. Its property is not diminished and their interest are not increased. The proportional interest of each shareholder remains the same. In short, the corporation is no poorer and the stockholder is no richer then they were before. In the case of Doyle vs. Mitchell Bros. Co. (247 U.S., 179), Mr. Justice Pitney, said that the term "income" in its natural and obvious sense, imports something distinct from principal or capital and conveying the idea of gain or increase arising from corporate activity. In the case of Eisner vs. Macomber (252 U.S., 189), income was defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets. When a corporation or company issues "stock dividends" it shows that the company's accumulated profits have been capitalized, instead of distributed to the stockholders or retained as surplus available for distribution, in money or in kind, should opportunity offer. The essential and controlling fact is that the stockholder has received nothing out of the company's assets for his separate use and benefit; on the contrary, every dollar of his original investment, together with whatever accretions and accumulations resulting from employment of his money and that of the other stockholders in the business of the company, still remains the property of the company, and subject to business risks which may result in wiping out of the entire investment. The stockholder by virtue of the stock dividend has in fact received nothing that answers the definition of an "income." The stockholder who receives a stock dividend has received nothing but a representation of his increased interest in the capital of the corporation. There has been no separation or segregation of his interest. All the property or capital of the corporation still belongs to the corporation. There has been no separation of the interest of the stockholder from the general capital of the corporation. The stockholder, by virtue of the stock dividend, has no separate or individual control over the interest represented thereby, further than he had before the stock dividend was issued. He cannot use it for the reason that it is still the property of the corporation and not the property of the individual holder of stock dividend. A certificate of stock represented by the stock dividend is simply a statement of his proportional interest or participation in the capital of the corporation. The receipt of a stock dividend in no way increases the money received of a stockholder nor his cash account at the close of the year. It simply shows that there has been an increase in the amount of the capital of the corporation during the particular period, which may be due to an increased business or to a natural increase of the value of the capital due to business, economic, or other reasons. We believe that the Legislature, when it provided for an "income tax," intended to tax only the "income" of corporations, firms or individuals, as that term is generally used in its common acceptation; that is that the income means money received, coming to a person or corporation for services, interest, or profit from investments. We do not believe that the Legislature intended that a mere increase in the value of the capital or assets of a corporation, firm, or individual, should be taxed as "income." A stock dividend, still being the property of the corporation and not the stockholder, may be reached by an execution against the corporation, and sold as a part of the property of the corporation. In such a case, if all the property of the corporation is sold, then the stockholder certainly could not be charged with having received an income by virtue of the issuance of the stock dividend. Until the dividend is declared and paid, the corporate profits still belong to the corporation, not to the stockholders, and are liable for corporate indebtedness. The rule is well established that cash dividend, whether large or small, are regarded as "income" and all stock dividends, as capital or assets If the ownership of the property represented by a stock dividend is still in the corporation and not in the holder of such stock, then it is difficult to understand how it can be regarded as income to 86
the stockholder and not as a part of the capital or assets of the corporation. If the holder of the stock dividend is required to pay an income tax on the same, the result would be that he has paid a tax upon an income which he never received. Such a conclusion is absolutely contradictory to the idea of an income. As stock dividends are not "income," the same cannot be considered taxes under that provision of Act No. 2833. For all of the foregoing reasons, SC held that the judgment of the lower court should be REVOKED.
87
Request of Attorney Zialcita
Since terminal leave is applied for by an officer or employee who has already severed his connection with his employer ans who is no longer working, then it follows that TERMINAL LEAVE PAY, which is the cash value of his accumulated leave credits, should not be treated as compensation for services rendered at that time. It cannot be viewed as salary for purposes which would reduce it. There can be no "commutation of salary" when a government retiree applies for terminal leave because he is not receiving it as salary. what applies for is a commutation of leave credits. It is an accumulation of credits intended for old age or separation from the service. Hence, Section 286 of the Revised Administrative Code is not applicable. It cannot be construed as limiting the basis of the computation of terminal pay to monthly salary only.
88
Commission er vs Javier 199 SCRA 824 Facts:
In 1977, Victoria Javier received a $1 Million remittance in her bank account from her sister abroad, Dolores Ventosa. Melchor Javier, Jr., the husband of Victoria immediately withdrew the said amount and then appropriated it for himself. Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaint against the Javiers for estafa. Apparently, Ventosa only sent $1,000.00 to her sister Victoria but due to a clerical error in Mellon Bank, what was sent was the $1 Million. Meanwhile, Javier filed his income tax return. In his return, heplace a footnote which states: Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation. The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liability amounting to P4.8 Million. The CIR also imposed a 50% penalty against Javier as the CIR deemed Javier’s return as a fraudulent return. Issue:
Whether or not Javier is liable to pay the 50% penalty Ruling:
No. It is true that a fraudulent return shall cause the imposition of a 50% penalty upon a taxpayer filing such fraudulent return. However, in this case, although Javier may be guilty of estafa due to misappropriating money that does not belong to him, as far as his tax return is concerned, there can be no fraud. There is no fraud in the filing of the return. Javier’s notation on his income tax return can be considered as a mere mistake of fact or law but not fraud. Such notation was practically an invitation for investigation and that Javier had literally “laid his cards on the table.” The government was never defrauded because by such notation, Javier opened himself for investigation. It must be noted that the fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.
89
PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES vs JUDGE MAXIMO ASUNCION 250 SCRA 434 Facts:
Police Chief Inspector Napoleon B. Pascua applied for a search warrant before Regional Trial Court (RTC) of Quezon City, that the Paper Industries Corporation of the Philippines located at Bislig, Surigao De Sur is in possession or has in its control high powered firearms, ammunitions, explosives, which are the subject of the offense. Issue:
Whether the Search Warrant is Valid Ruling:
No, petition for Certiorari and prohibition is hereby granted and Search Warrant No. 799 accordingly declared null and void, TRO permanent.There is a question of fact when the doubt arises as to the truth or falsity of the alleged facts.
90
Esso vs CIR 175 SCRA 149 Facts:
In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office. On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense. However, Esso’s appeal was denied. Issues:
1. Whether or not the margin fees are taxes 2. Whether or not the margin fees are necessary and ordinary business expenses Ruling:
1. No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. 2. No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct of the corporate affairs of Esso in New York, but certainly not in the Philippines.
91
CIR vs CA and A. Soriano Corp. GR L-108576 Facts:
Don Andres Soriano, a citizen and resident of the United States, formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00 capitalization divided into 10,000 common shares at a par value of P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who are all nonresident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000 shares originally issued. In 1945, ANSCOR's authorized capital stock was increased to P2,500,000.00 divided into 25,000 common shares with the same par value. Don Andres' increased his subscription to 14,963 common shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose and Andres, Jr., as their initial investments in ANSCOR. Both sons are foreigners. From 1947-1963, ANSCOR declared stock dividends. On December 30, 1964 Don Andres died. As of that date, the records revealed that he has a total shareholdings of 185,154 shares. Correspondingly, one-half of that shareholdings or 92,577 shares were transferred to his wife, Doña Carmen Soriano, as her conjugal share. The other half formed part of his estate. A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966 further increased it to P30M. Stock dividends worth 46,290 and 46,287 shares were respectively received by the Don Andres estate and Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and 138,864 common shares each. On June 30, 1968, pursuant to a Board Resolution, ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November 1968, the Board further increased ANSCOR's capital stock to P75M. About a year later, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate. As stated in the Board Resolutions, ANSCOR's business purpose for both redemptions of stocks is to partially retire said stocks as treasury shares in order to reduce the company's foreign exchange remittances in case cash dividends are declared. In 1973, after examining ANSCOR's books of account and records, Revenue examiners issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the 1939 Revenue Code for the year 1968 and the second quarter of 1969 based on the transactions of exchange and redemption of stocks. Issue:
Whether or not ANSCOR's redemption of stocks from its stockholder as well as the exchange of common with preferred shares can be considered as "essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable. Ruling:
YES. Stock dividends, strictly speaking, represent capital and do not constitute income to its recipient. So that the mere issuance thereof is not yet subject to income tax as they are nothing but an "enrichment through increase in value of capital investment." The exception provides that the redemption or cancellation of stock dividends, depending on the "time" and "manner" it was made, is essentially equivalent to a distribution of taxable dividends," making the proceeds thereof "taxable income" "to the extent it represents profits". The exception was designed to prevent the issuance and cancellation or redemption of stock dividends, which is fundamentally not taxable, from being made use of as a device for the actual distribution of cash dividends, which is taxable. Simply put, depending on the circumstances, the proceeds of redemption of stock dividends are essentially distribution of cash dividends, which when paid becomes the absolute property of the stockholder. Thereafter, the latter becomes the exclusive owner thereof and can exercise the freedom of choice. Having realized gain from that redemption, the income earner cannot escape income tax. For the exempting clause of Section, 83(b) to apply, it is indispensable that: (a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalent to a distribution of taxable dividends." Redemption is repurchase, a reacquisition of stock by a corporation which issued the stock 89 in exchange for property, whether or not the acquired stock is cancelled, retired or held in the treasury. Essentially, the corporation gets back some of its stock, distributes cash or property to the shareholder in payment for the stock, and continues in business as before. In the case, ANSCOR redeemed shares twice. But where did the shares redeemed come from? If its source is the original capital subscriptions upon establishment of the corporation or from initial capital investment in an existing enterprise, its redemption to the concurrent value of acquisition may not invite the application of Sec. 83(b) under the 1939 Tax Code, as it is not income but a mere return of capital. 92
On the contrary, if the redeemed shares are from stock dividend declarations other than as initial capital investment, the proceeds of the redemption is additional wealth, for it is not merely a return of capital but a gain thereon. It is not the stock dividends but the proceeds of its redemption that may be deemed as taxable dividends. At the time of the last redemption, the original common shares owned by the estate were only 25,247.5 This means that from the total of 108,000 shares redeemed from the estate, the balance of 82,752.5 (108,000 less 25,247.5) must have come from stock dividends. In the absence of evidence to the contrary, the Tax Code presumes that every distribution of corporate property, in whole or in part, is made out of corporate profits such as stock dividends. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine. With respect to the third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 years earlier. The time alone that lapsed from the issuance to the redemption is not a sufficient indicator to determine taxability. It is a must to consider the factual circumstances as to the manner of both the issuance and the redemption. The issuance of stock dividends and its subsequent redemption must be separate, distinct, and not related, for the redemption to be considered a legitimate tax scheme. Redemption cannot be used as a cloak to distribute corporate earnings. ANSCOR invoked two reasons to justify the redemptions — (1) the alleged "filipinization" program and (2) the reduction of foreign exchange remittances in case cash dividends are declared. The Court is not concerned with the wisdom of these purposes but on their relevance to the whole transaction which can be inferred from the outcome thereof. It is the "net effect rather than the motives and plans of the taxpayer or his corporation". The test of taxability under the exempting clause, when it provides "such time and manner" as would make the redemption "essentially equivalent to the distribution of a taxable dividend", is whether the redemption resulted into a flow of wealth. If no wealth is realized from the redemption, there may not be a dividend equivalence treatment. The test of taxability under the exempting clause of Section 83(b) is, whether income was realized through the redemption of stock dividends. The redemption converts into money the stock dividends which become a realized profit or gain and consequently, the stockholder's separate property. Profits derived from the capital invested cannot escape income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption. Otherwise, to rule that the said proceeds are exempt from income tax when the redemption is supported by legitimate business reasons would defeat the very purpose of imposing tax on income. The issuance and the redemption of stocks are two different transactions. Although the existence of legitimate corporate purposes may justify a corporation's acquisition of its own shares under Section 41 of the Corporation Code, such purposes cannot excuse the stockholder from the effects of taxation arising from the redemption. Even if the said purposes support the redemption and justify the issuance of stock dividends, the same has no bearing whatsoever on the imposition of the tax herein assessed because the proceeds of the redemption are deemed taxable dividends since it was shown that income was generated therefrom. The proceeds thereof are essentially considered equivalent to a distribution of taxable dividends. As "taxable dividend" under Section 83(b), it is part of the "entire income" subject to tax under Section 22 in relation to Section 21 120 of the 1939 Code. Moreover, under Section 29(a) of said Code, dividends are included in "gross income". As income, it is subject to income tax which is required to be withheld at source.
93
CIR vs Proctor and Gamble 160 SCRA 560 Facts:
Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends remitted was only 15%. Issue:
Whether or not P&G Philippines is entitled to the refund or tax credit Ruling:
YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15%ONLY IF he country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. However, such tax credit for “taxes deemed paid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points which represents the difference between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid in the Philippines” applicable against the US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements were met.
94
CIR vs Pascor 309 SCRA 402 Facts:
The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. On March 1, 1995, Commissioner filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint. In a letter dated, May 17, 1995, the Commissioner denied private respondent’s request for reconsideration (reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the CTA on a petition for review. The Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction inasmuch as no formal assessment was issued against private respondent was denied by CTA and ordered the Commissioner to file an answer but did not instead filed a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of the revenue officers and the endorsement of said report as assessment which may be appealed to he CTA. The CA sustained the CTA decision and dismissed the petition. Issue:
1. Whether or not the criminal complaint for tax evasion can be construed as an assessment 2. Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted Ruling:
1. No. The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment. An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. The revenue officer’s affidavit merely contained a computation of respondent’s tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue an assessment. 2. No. An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both.
95
CIR vs Yus eco L-12518 Facts:
It was found out that for two years, Yuseco failed to file his income taxreturns. This prompted the tax authorities to assess and hold Yusecoliable for the deficiency in payment. Yuseco asked for a report on how the amount was derived but this request was denied. He asked for reconsideration which was also denied. This prompted BIR to ask still for payment. Yuseco then filed a petition for prohibition with the CTA, which the latter granted and now is being questioned by the Commissioner. Issue:
Whether or not the CTA have original jurisdiction to issue writs of prohibition and injunction from an appealed case Ruling:
Nowhere does the law expressly vest in the Court of Tax Appeals original jurisdiction to issue writs of prohibition and injunction independently of, and apart from, an appealed case. The writ of prohibition or injunction that it may issue under the provisions of section 11, Republic Act No. 1125, to suspend the collection of taxes, is merely ancillary to and in furtherance of its appellate jurisdiction in the cases mentioned in section 7 of the Act. The power to issue the writ exists only in cases appealed to it.
96
Gaston vs Republic Planter’s Bank 158 SCRA 622 Facts:
Petitioners are sugar producers and planters and millers filed a MANDAMUS to implement the privatization of Republic Planters Bank, and for the transfer of the shares in the government bank to sugar producers and planters. (because they are allegedly the true beneficial owners of the bank since they pay P1.00 per picul of sugar from the proceeds of sugar producers as STABILIZATION FEES) The shares are currently held by Philsucom / Sugar Regulatory Admin. The Solgen countered that the stabilization fees are considered government funds and that the transfer of shares to from Philsucom to the sugar producers would be irregular. Issue:
1. What is the nature of the P1.00 stabilization fees collected from sugar producers? 2. Are they funds held in trust for them, or are they public funds? 3. Are the shares in the bank (paid using these fees) owned by the government Philsucom or privately by the different sugar planters from whom such fees were collected? Ruling:
PUBLIC FUNDS. While it is true that the collected fees were used to buy shares in RPB, it did not collect said fees for the account of sugar producers. The stabilization fees were charged on sugar produced and milled which ACCRUED TO PHILSUCOM, under PD 338. The fees collected ARE IN THE NATURE OF A TAX., which is within the power of the state to impose FOR THE PROMOTION OF THE SUGAR INDUSTRY. They constitute sugar liens. The collections accrue to a SPECIAL FUNDS. It is levied not purely for taxation, but for regulation, to provide means TO STABILIZE THE SUGAR INDUSTRY. The levy is primarily an exercise of police powers. The fact that the State has taken money pursuant to law is sufficient to constitute them as STATE FUNDS, even though held for a special purpose. Having been levied for a special purpose, the revenues are treated as a special fund, administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance will be transferred to the general funds of gov’t. It is a special fund since the funds are deposited in PNB, not in the National Treasury. The sugar planters are NOT BENEFICIAL OWNERS. The money is collected from them only because they it is also they who are to be benefited from the expenditure of funds derived from it. The investing of the funds in RPB is not alien to the purpose since the Bank is a commodity bank for sugar, conceived for the sugar industry’ growth and development. Revenues derived from taxes cannot be used purely for private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the ENTIRE SUGAR INDUSTRY, and all its components, stabilization of domestic and foreign markets, since the sugar industry is of vital importance to the country’s economy and national interest.
97
Paseo Realty v s CA 440 SCRA 235 Facts:
Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two parcels of land at Paseo de Roxas in Makati City. On April 16, 1990, petitioner filed its Income Tax Return for the calendaryear1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, anincome tax due thereon in the amount of P27,653.00, prior year‘s excess credit of P146,026.00, and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.In a resolution dated October 21, 1993 Respondent Courtreconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that it hasoverlooked the fact that the petitioner‘s 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00 subject of petitioner‘s claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990. Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10,1994.Petitioner filed a Petition for Review dated April 3, 1994with the Courtof Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representingcreditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990income tax liability, the appellate court held that petitioner is not entitled to a refund because it had alreadyelected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed, against itsincome tax liability for 1990. The appellate court elucidated on the reason for its dismissal of petitioner‘s claim for refund. Issue:
Whether or not the alleged excess taxes paid by a corporation during a taxable year should be refunded orcredited against its tax liabilities for the succeeding year Ruling:
No. The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside theconclusionreached by an agency such as the CTA which is, by the very nature of its functions, dedicated exclusively to thestudy and consideration of tax problems and has necessarily developed an expertise on the subject, unless therehas been an abuse or improvident exercise of its authority. This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the Commissioner of Internal Revenue‘s motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based, as it is, on the pertinent laws asapplied to the facts. Petitioner‘s 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excesscredit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply astax credit for the succeeding taxable year.According to petitioner, it successively utilized this amount when it obtained refunds in CTA Case No. 4439 andCTA Case No. 4528 and applied its1990 tax liability, leaving a balance of P54,104.00, the amount subject of theinstant claim for refund. The confusion as to petitioner‘s entitlement to a refund could altogether have beenavoided had it presented its tax return for 1990. Such return would have shown whether petitioner actuallyapplied its 1989 tax credit of P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989subject of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return, or at least, whether petitioner‘s tax credit of P172,477.00 was applied to its approved refunds as it claims. As clearly shown from the above-quoted provisions, in case the corporation isentitled to a refund of theexcess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return maybe credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year.The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeedingtaxable year only. Taxation is a destructive power which interferes with the personal and property rights of thepeople and takes from them a portion of their property for the support of the government. And since taxes arewhat we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions fromtaxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer andliberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearlyshown and be based on language in the law too plain to be mistaken. Else wise stated, taxation is the rule,exemption therefrom is the exception.
98
CIR vs Central Luzon Drug Corp 456 SCRA 414 Facts:
This is a petition for review under Rule 45 of Rules of Court seeking the nullificationof CA decision granting respondent’s claim for tax equal to the amount of the 20% that itextended to senior citizens on the latter’s purchases pursuant to Senior Citizens Act.Respondent deducted the total amount of Php219,778 from its gross income for thetaxable year 1995 whereby respondent did not pay tax for that year reporting a net loss of Php20,963 in its corporate income tax. In 1996, claiming that the Php219,778 should beapplied as a tax credit, respondent claimed for refund in the amount of Php150, 193. Issue:
Whether or not the 20% discount granted by the respondent to qualified senior citizens may be claimed as tax credit or as deduction from gross sales Ruling:
“Tax credit” is explicitly provided for in Sec4 of RA 7432. The discount given toSenior citizens is a tax credit, not a deduction from the gross sales of the establishmentconcerned. The tax credit that is contemplated under this Act is a form of justcompensation, not a remedy for taxes that were erroneously or illegally assessed andcollected. In the same vein, prior payment of any tax liability is a pre-condition before ataxable entity can benefit from tax credit. The credit may be availed of upon payment, ifany. Where there is no tax liability or where a private establishment reports a net loss forthe period, the tax credit can be availed of and carried over to the next taxable year.
99
CIR vs CA 257 SCRA 200 Facts:
The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for reconsideration of the assessments. Later, the CIR filed a complaint with the Department of Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of taxes, alleging among others the fraudulent scheme of making simulated sales to fictitious buyers declaring lower wholesale prices, as allegedly shown by the great disparity on the declared wholesale prices registered in the "Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such documents when requested by the court were not however presented by the BIR, prompting the trial court to grant the prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity must be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary mandatory injuction issued by the trial court. Issue:
Whether or not the writ of preliminary injunction should be lifted Ruling:
No. In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution. Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the case at bar.
100
PICOP vs CA 250 SCRA 434 Facts:
On various years (1969, 1972 and 1977), Picop obtained loans from foreign creditors in order to finance the purchase of machinery and equipment needed for its operations. In its 1977 Income Tax Return, Picop claimed interest payments made in 1977, amounting to P42,840,131.00, on these loans as a deduction from its 1977 gross income. The CIR disallowed this deduction upon the ground that, because the loans had been incurred for the purchase of machinery and equipment, the interest payments on those loans should have been capitalized instead and claimed as a depreciation deduction taking into account the adjusted basis of the machinery and equipment (original acquisition cost plus interest charges) over the useful life of such assets. Both the CTA and the Court of Appeals sustained the position of Picop and held that the interest deduction claimed by Picop was proper and allowable. In the instant Petition, the CIR insists on its original position. Issue:
Whether Picop is entitled to deductions against income of interest payments on loans for the purchase of machinery and equipment Ruling:
YES. Interest payments on loans incurred by a taxpayer (whether BOI-registered or not) are allowed by the NIRC as deductions against the taxpayer'sgross income. The basis is 1977 Tax Code Sec. 30 (b). Thus, the general rule is that interest expenses are deductible against gross income and this certainly includes interest paid under loans incurred in connection with the carrying on of the business of the taxpayer. In the instant case, the CIR does not dispute that the interest payments were made by Picop on loans incurred in connection with the carrying on of the registered operations of Picop, i.e., the financing of the purchase of machinery and equipment actually used in the registered operations of Picop. Neither does the CIR deny that such interest payments were legally due and demandable under the terms of such loans, and in fact paid by Picop during the tax year 1977. The contention of CIR does not spring of the 1977 Tax Code but from Revenue Regulations 2 Sec. 79. However, the Court said that the term “interest” here should be construed as the so-called "theoretical interest," that is to say, interest "calculated" or computed (and not incurred or paid) for the purpose of determining the "opportunity cost" of investing funds in a given business. Such "theoretical" or imputed interest does not arise from a legally demandable interest-bearing obligation incurred by the taxpayer who however wishes to find out, e.g., whether he would have been better off by lending out his funds and earning interest rather than investing such funds in his business.
101
REPUBLIC vs. CA, and NIELSON & CO.,INC. 149 SCRA 351 Facts:
The petitioner sought the review on certiorari of the decision of the respondent Court of Appeals reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952. Petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be considered to have been received by the private respondent. According to petitioner, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the expiration of five (5) days after mailing. As the letter of demand dated 16 July 1955 was actually mailed to private respondent, there arises the presumption that the letter was received by private respondent in the absence of evidence to the contrary. More so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16 July 1955. Issue:
1. Whether or not the notice of assessment or demand was properly served to the respondent 2. Whether the receipt by the respondent of the succeeding follow-up demand notices be construed as receipt of the original demand Ruling:
1. No. As correctly observed by the respondent court in its appealed decision, while the contention of petitioner is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, still this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be assumed that private respondent received said letter. 2. Yes. Records show that petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission. And consequently, under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.
102
Philippine Journalist vs CA 447 SCRA 214 Facts:
The Revenue District Office of the BIR issued a letter of authority forthe examination of petitioner Philippine Journalists books of accounts. From theexamination, the petitioner was told that there were deficiency taxes, inclusiveof surcharges, interest and compromise penalty. Then, petitioner, through itsComptroller, Lorenza Tolentino, executed a waiver of statute of limitationspursuant to Sec.223 and Sec.224 and consented to the assessment andcollection of taxes which may be found due after the examination at any timeafter the lapse of the period of limitations fixed by said Sections 223 and 224and other relevant provisions of the NIRC, until the completion of theinvestigation.Petitioner had a deficiency of P136,952,408.97. On October 5, 1998, theAssessment Division of the BIR issued Pre-Assessment Notices which informedpetitioner of the results of the investigation. A Final Notice Before Seizure wassent to the petitioner but the latter merely questioned the amount of thedeficiency and how the same was arrived.A Warrant of Distraint/Levy was received by petitioner for the deficiency.Petitioner filed a Petition for Review with the CTA, contending that noassessment was received by him; that the warrant of distraint/levy was issuedprematurely; and that the assessment was made beyond the 3-year period.Regarding the assessment, the CTA ruled that the assessment was sufficientlyproven by the receipts of the Post Master. As to the premature distraint/levy andthe assessment made beyond the 3-year period, the CTA ruled in favor of thepetitioner. The waiver of statute of limitations by the petitioner was invalidwhich resulted in the lapse of the 3 year period for assessment. Consequently,the petition was granted, declaring the order for payment of deficiency tax nulland void. The CIR filed a motion for reconsideration but the same was denied.Undaunted, the CIR filed an appeal with the CA. The CA reversed the ruling of the CTA, stating that the waiver of limitations was valid and that the assessmentnotices was final and executory. Hence, this appeal. Issue:
Whether or not the waiver of limitations was invalid, making theassessment beyond the 3 year period Ruling:
Yes, the court ruled that the waiver of limitation was invalid, makingthe assessment beyond the allowable period of 3 years. The waiver of thestatute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreementbetween the taxpayer and the BIR that the period to issue an assessment andcollect the taxes due is extended to a date certain. The waiver does not meanthat the taxpayer relinquishes the right to invoke prescription unequivocallyparticularly where the language of the document is equivocal. For the purposeof safeguarding taxpayers from any unreasonable examination, investigation orassessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should beliberally construed in order to afford such protection. As a corollary, theexceptions to the law on prescription should perforce be strictly construed.
103
Estate of Diez vs CIR 421 SCRA 266 Facts:
During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedent’s tax liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent “c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedent’s deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIR’s claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIR’s service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedent’s death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable. Issues:
1. Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate 2. Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable Ruling:
1. No. Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedent’s death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment. 2. No. The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondent’s claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.
104
RP vs Lim L ianTeng Sons L-21731 – March 31, 1966 Facts:
Lim Tian Teng Sons & Co., Inc. (LTT), a domestic corporation with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. Lim Tian then filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P56,109.98. CIR assessed Lim Tian of deficiency income tax and 50% surcharge thereon amounting to P5,037.00 and demanded payment thereof not later than February 15, 1957. Lim Tian requested reinvestigation of its income tax liability. CIR did NOT reply but instead referred the case to the SolGen for collection by judicial action. SolGen demanded from Lim Tian payment w/in 5 days, stating that otherwise judicial action would be instituted without further notice. Lim Tian thus wrote CIR and SolGen, reiterating its request for reinvestigation. It requested that it be allowed to present its explanation together w/ supporting papers relative to its income tax liability. Deputy Collector of CIR informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a WAIVER of the statute of limitations as required in General Circular V-258 dated August 20, 1957. The Deputy Collector extended the period within which to execute and file with him the waiver of the statute of limitations to December 31, 1957, but advised that if no waiver is forthcoming on or before said date, judicial action for collection would be instituted without further notice. HOWEVER, Lim Tian failed to file a waiver. CIR thus instituted 8 months after an action in the CFI of Cebu for the collection of deficiency income tax. CFI declared the CIR's assessment as valid, final and executory, condemning Lim Tian to pay CIR w/ interest at 1% monthly until fully paid. Issues:
1. WON lower court has jurisdiction to entertain the case given that CIR has NOT yet issued its final decision on request for reinvestigation 2. WON court erred in considering as final and executory the assessment contained in the letter of the CIR dated January 16, 1957. 3. WON the assessment was correct Ruling:
4. Yes. Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withholds from all courts, except the CTA under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government chiefly relies to obtain the means the carry on its operations, Section 11 of Republic Act 1125 states in part: No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue ... shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law EXCEPT if it may jeopardize interest of the gov and/or taxpayer. 5. No. In this case, Lim Tian received said assessment on January 30, 1957 and on the following day requested reinvestigation of its tax liability. The CIR however did NOT reply to the request for reinvestigation. Instead, he referred the case to the Solicitor General for collection of the tax. The lower court interpreted this action of the Collector of Internal Revenue as a denial of defendant's request for reinvestigation.Instead of appealing to the Tax Court, however, Lim Tian reiterated its request for reinvestigation.Even if we do not count the period from October 8, 1957 (the date when taxpayer received notice of the denial of its request for reinvestigation) to December 31, 1957 (the deadline for the submission of the written waiver of the statute of limitations) in reckoning the 30-day period within which the taxpayer may appeal to the CTA, said period had long lapsed when the CIR filed the complaint in this case on September 2, 1958.Taxpayer’s failure to appeal to the CTA in due time made the assessment in question final, executory and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on merits. Otherwise, the period of 30 days for appeal to the Court of Tax Appeals would make little sense. 6. Yes. From what appeared in the 1952 return the accounting method used by LTT was the accrual method of accounting. As such the copra outturn in the amount of P95K should have been treated as accrued income of 1951 instead of stock on hand of 1952. There if every indication that the 1952 income was fraudulent. That the beginning inventory for 1952 105
considered the copra outturn on hand but as of Dec 31 1951 it was not in its bodega anymore. It was in transit to a foreign port and they no longer owned the copra as it was already paid for. They did not follow their own system of accounting. This deviation was made to lessen its tax liability. Therefore the surcharge of 50% was correct.
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CIR vs Hizon GR No. 130430 – December 13, 1999 Facts:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment covering the fiscal year 19811982. Respondent not having contested the assessment, petitioner BIR, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, the respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the RTC to collect the tax deficiency. Hizon moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by Sec. 221 of the NIRC, and (2) that the action had already prescribed. Over petitioner's objection, the trial court granted the motion and dismissed the complaint. BIR on the other hand contends that respondent's request for reinvestigation of her tax deficiency assessment on November 1992 effectively suspended the running of the period of prescription. Issue:
Whether or not the action has prescribed Ruling:
Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under Sec. 223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable.
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Ungab vs Cusi 97 SCRA 877 Facts:
The BIR filed six criminal charges against QuiricoUngab, a banana saplings producer, for allegedly evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash on the ground that (1) the information are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2)that the trial court has no jurisdiction to take cognizance of the case in view of his pending protest against the assessment made by the BIR examiner. The trial court denied the motion prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the information filed. Issue:
Whether or not the contention that the criminal prosecution is premature since the CIR has not yet resolved the protest against the tax assessment is tenable Ruling:
No. The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime.
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CIR vs Gonzales GR L-19495 Facts:
In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result – there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and so the CIR’s right to make an assessment has already prescribed in 1958. Issue:
Whether or not Gonzales is correct Ruling:
No. It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation on the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered that the taxpayer omitted to file a return. As such, the five year prescriptive period to make an assessment (NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN, without prejudice to her right to ask reimbursement from Jose’s estate (Jose already died).
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City Trust Banking vs. CA GR 92591, 30 Apr il 1991 Facts:
Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the taxeson rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980, Citibank field its corporate income tax returns for the year and ended December 31,1979 showing a net loss of P74,854,916.00 and its tax credits totaled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year‘s operation resulted in a loss. The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax creditsalthough a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979. For the year ended December 31, 1980, Citibank‘s corporate income tax returns, filed on April 15, 1981,showed a net loss P77,071,790.00 for income tax purposes. Its available tax credit at the end of 1980amounting to P11,532,855.00 was not utilized or applied. The said available tax credits did not includethe amounts withheld by Citibank‘s tenants from rental payment sin 1980 but the rental payments forthat year were declared as part of its gross income included in its annual income tax returns. On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts of P270,160.56and P298,829.29, respectively or a total of P568,989.85; and on October 12, 1981 filed a petition forreview with the Court of Tax Appeals concerning subject claim for tax refund. On August 30, 1981, the CTA adjudged Citibank‘s entitlement to thetax refund sought for, representing the 5% tax withheld and paid on Citibank‘s rental income for 1979 and 1980. The Court of Tax Appeals,rejected Respondent CIR‘s argument that the claim was not seasonably filed. Not satisfied the Commissioner appealed to the Court of Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax refund/credit in the amount of P569,989.85, representing the 5% withheld tax in Citibank‘s rental income for the years 1979 and 1980 is REVERSED. Motion for Reconsideration of the petitioner bank wasdenied. Issue:
Whether or not income taxes remitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer‘s final adjusted returns. Ruling:
In several cases, we have already ruled that income taxesremitted partially on a periodic or quarterly basis should be credited or refunded to the taxpayer on the basis of the taxpayer‘s final adjusted returns, not on such periodic or quarterly basis. When applied to taxpayers filing income taxreturns on a quarterly basis, the date ofpayment mentioned in Sec. 230 must be deemed to be qualifiedby Sec. 68 and 69 of the present. Tax Code. It may be observed that although quarterly taxes due arerequired to be paid within 60 days from the close of each quarter, the fact that the amount shall bededucted from the tax due for the succeeding quarter shows that until a final adjustment return shallhave been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation.Neither amount can serve as the final figure to quantify what is due the government nor what should berefunded to be corporation. This interpretation may be gleaned from the last paragraph of Sec. 69 of theTax Code which provides that the refundable amount, in case arefund is due a corporation, is thatamount which is shown on its finaladjustment return and not on its quarterly returns.
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Rep. vs. De Guzman 5 SCRA 990 Facts:
In 1946, Limaco& De Guzman Co. was engaged in the importation of cigarettes. Toguarantee payment of revenue taxes, the company and the Visayan Surety and Insurance Corp. as surety, executed 2 importer bonds. On 27 June 1946, thecompany filed with the Bureau of Customs entry papers covering shipment of 2million “Spud” cigarettes it had imported from New York. the specific tax due thereonamounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid theBureau of Customs the tax with P1000 in cash and P5,000 in a PNB Check on 15 July1946. The cigarettes were released to the company but the check bounced. On 17 June 1948, the Collector of Internal Revenue demanded the payment of thedeficiency specific tax. The amount remained unpaid. On 15 April 1951, the companyrequested that action be deferred as it intends to settle the matter amicably with theBIR. The Republic filed a complaint for the forfeiture of the bonds, and the paymentof the sum of P5,000 plus interest. The company invoked the defense of estoppel andprescription has the action prescribed on the ground that the assessment was madein beyond 5 years from July 15 1946. Issue:
Whether or not the power of assessment prescribed Ruling:
No. Theassessment in question has not yet prescribed. It was not issued on July 14, 1946, buton June 17, 1948. When the Collector of Internal Revenue received information fromthe Bureau of Customs that the said sum of P5,000.00 was not paid (for lack of funds), he immediately issued a letter dated June 17, 1948 addressed to thedefendant assessing and demanding from the latter the payment of the saidP5,000.00. It was then that the unpaid specific tax of P5,000.00 was deemed to havebeen assessed. When the tax was paid in cash and in check on July 15, 1946, theCollector had a right to rely, as it, in fact, relied that said payment fully settled thespecific taxes due on the imported cigarettes. The cigarettes would not have beenreleased, had Collector been aware that the payment did not fully settle the saidspecific taxes. It can not be said that July 15, 1946 (the date of payment) was thedate of assessment from which the period of collection should start. July 15, 1946was simply the date of tender of payment. The right to collect the amount of P5,000.00 began only after the P5,000.00 — rubber check was dishonored. Theaction to assess and collect the unpaid tax commenced anew on June 14, 1948, whena letter of demand for the amount of said rubber-check had been sent to thedefendant. This letter should be deemed to be an assessment because it declaredand fixed a tax to be payable against the party liable thereto, and demanded thesettlement thereof. Judicial action having been instituted on February 18, 1953, thefive-year period for collection had not then elapsed. Even assuming that July 15, 1946 is the date of assessment, still the action to collectis not barred by the statute of limitations, because the statute was suspended whenthe rubber-check was dishonored and demand letters were sent by thecommissioner. The defendant likewise wrote two letters to the Solicitor General onApril 15, and 25, 1951, respectively, requesting for the deferment of the judicialaction to be taken by the latter towards the collection of the obligation, so that theformer could make representations with the Collector to settle the matter amicably. This being the case, the prescriptive period to effect the collection of the tax whichallegedly commenced on July 15, 1946, was interrupted. "The prescription of actionsis interrupted when they are filed before the court, when there is any writtenextrajudicial demand by the creditors and when there is any written acknowledgment of the debt by the debtor " (Art. 1155, New Civil Code). "Taxpayers seeking to recoveroverpayment in income could not claim that collection by Commissioner was barredby limitations where procedure carried out which result in postponement of collectionwas that requested by taxpayers". Having acknowledged the debt in writing in April1951, and the complaint was filed in 1953, prescription had not set in. The full timefor the prescription must be reckoned from the cessation of the interruption (Saguciov. Bulos, G.R. Nos. L-17608-09, July 31, 1962, and cases cited therein). Had it notbeen for the filing of the complaint in 1953, the interruption would have ceased inApril 1956.
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CIR vs Lucio Tan GR 119322 Facts:
The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for reconsideration of the assessments. Later, the CIR filed a complaint with the Department of Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of taxes, alleging among others the fraudulent scheme of making simulated sales to fictitious buyers declaring lower wholesale prices, as allegedly shown by the great disparity on the declared wholesale prices registered in the "Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such documents when requested by the court were not however presented by the BIR, prompting the trial court to grant the prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity must be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary mandatory injuction issued by the trial court. Issue:
Whose contention is correct? Ruling:
In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution. Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the case at bar.
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