Commissioner of Internal Revenue vs.

Pascor Realty and

Development Corporation, 309 SCRA 402, G.R. No. 128315. June 29,
1999
Panganiban, J.
Facts:
Pascor Realty and Development Corporation (PRDC) was found out to be
liable for a total of P10.5 million tax deficiency for the years 1986 and 1987. In
March 1995, the Commissioner of Internal Revenue (CIR) filed a criminal
complaint against PRDC with the Department of Justice. Attached to the
criminal complaint was a joint affidavit executed by the tax examiners.
PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC
averred that the affidavit attached to the criminal complaint is tantamount to a
formal assessment notice (FAN) hence can be subjected to protest; that there
is a simultaneous assessment and filing of criminal case; that the same is
contrary to due process because it is its theory that an assessment should
come first before a criminal case of tax evasion should be filed. The CIR then
filed a motion to dismiss (MTD) on the ground that the CTA has no jurisdiction
over the case because the CIR has not yet issued a FAN against PRDC; that
the affidavit attached to the complaint is not a FAN; that since there is no FAN,
there cannot be a valid subject of a protest.
The CTA however denied the MTD. It ruled that the joint affidavit attached to
the complaint submitted to the DOJ constitutes an assessment; that an
assessment is defined as simply the statement of the details and the amount
of tax due from a taxpayer; that therefore, the joint affidavit which contains a
computation of the tax liability of PRDC is in effect an assessment which can
be the subject of a protest. This ruling was affirmed by the Court of Appeals.
Issues:
(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.
Held:
No. An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time when
penalties and protests begin to accrue against the taxpayer. To enable the
taxpayer to determine his remedies thereon, due process requires that it must
be served on and received by the taxpayer. Accordingly, an affidavit, which
was executed by revenue officers stating the tax liabilities of a taxpayer and
attached to a criminal complaint for tax evasion, cannot be deemed an
assessment that can be questioned before the CTA. Further, such affidavit
was not issued to the taxpayer, it was submitted as an attachment to the DOJ.
1|Ms. Nolaida Aguirre
It must also be noted that not every document coming from the Bureau of
Internal Revenue which provides a computation of the tax liability of a
taxpayer can be considered as an assessment. An assessment is deemed
made only when the CIR releases, mails or sends such notice to the taxpayer.
Anent the issue of the filing of the criminal complaint, Section 222 of the
National Internal Revenue Code specifically states that in cases where a false
or fraudulent return is submitted or in cases of failure to file a return such as
this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the NIRC clearly mandates that the civil and
criminal aspects of the case may be pursued simultaneously.
CASE SYLLABI:
Courts; Taxation; National Internal Revenue Code; Section 203 of the
NIRC provides that internal revenue taxes must be assessed within three
years from the last day within which to file the return.—The issuance of
an assessment is vital in determining the period of limitation regarding its
proper issuance and the period within which to protest it. Section 203 of the
NIRC provides that internal revenue taxes must be assessed within three
years from the last day within which to file the return. Section 222, on the
other hand, specifies a period of ten years in case a fraudulent return with
intent to evade was submitted or in case of failure to file a return. Also,
Section 228 of the same law states that said assessment may be protested
only within thirty days from receipt thereof. Necessarily, the taxpayer must be
certain that a specific document constitutes an assessment. Otherwise,
confusion would arise regarding the period within which to make an
assessment or to protest the same, or whether interest and penalty may
accrue thereon.
Same; Same; Same; Assessment is deemed made only when the
collector of internal revenue releases, mails or sends such notice to the
taxpayer.—It should also be stressed that the said document is a notice duly
sent to the taxpayer. Indeed, an assessment is deemed made only when the
collector of internal revenue releases, mails or sends such notice to the
taxpayer. In the present case, the revenue officers’ Affidavit merely contained
a computation of respondents’ tax liability. It did not state a demand or a
period for payment. Worse, it was addressed to the justice secretary, not to
the taxpayers.
Same; Same; Same; Section 222 of the NIRC specifically states that in
cases of failure to file a return, proceedings in court may be commenced
without an assessment.—Private respondents maintain that the filing of a
criminal complaint must be preceded by an assessment. This is incorrect,
because Section 222 of the NIRC specifically states that in cases where a
false or fraudulent return is submitted or in cases of failure to file a return such
as this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil
2|Ms. Nolaida Aguirre
and criminal aspects of the case may be pursued simultaneously. In Ungab v.
Cusi, petitioner therein sought the dismissal of the criminal Complaints for
being premature, since his protest to the CTA had not yet been resolved. The
Court held that such protests could not stop or suspend the criminal action
which was independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue 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.
Same; Same; Same; Section 222 states that an assessment is not
necessary before a criminal charge can be filed.—Private respondents
insist that Section 222 should be read in relation to Section 255 of the NIRC,
which penalizes failure to file a return. They add that a tax assessment should
precede a criminal indictment. We disagree. To reiterate, said Section 222
states that an assessment is not necessary before a criminal charge can be
filed. This is the general rule. Private respondents failed to show that they are
entitled to an exception. Moreover, the criminal charge need only be
supported by a prima facie showing of failure to file a required return. This fact
need not be proven by an assessment.
Same; Same; Same; A criminal complaint is instituted not to demand
payment, but to penalize the taxpayer for violation of the Tax Code.—The
issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-
assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him
or her is then sent to the taxpayer informing the latter specifically and clearly
that an assessment has been made against him or her. In contrast, the
criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case
had been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
Sy Po vs. Court of Tax Appeals, 164 SCRA 524, No. L-81446. August
18, 1988
Sarmeinto, J.
Facts:
Po Bien Sing was the sole proprietor of Silver Cup Wine Factory engaged in
the manufacture and sale of compounded liquors. On the basis of a
denunciation against Silver Cup allegedly “for tax evasion amounting to
millions of pesos,” an investigation was conducted by the BIR. A subpoena
duces tecum was issued against Silver Cup requesting the production of
accounting records and other related documents. Po Bien Sing did not
produce the said documents so the BIR investigation team entered the factory
3|Ms. Nolaida Aguirre
and seized the different brands of alcohol products inside. On the basis of the
investigation teams’ report, Silver Cup was assessed deficiency income tax of
P5,596,003.68 which Po Bien Sing protested. However, since he still did not
present the documents requested, the assessment remained. BIR then
issued warrants of distraint and levy. In short, the protests were denied so Po
Bien Sing (represented by his wife because he was already dead) brought the
case to the Supreme Court.
Issue:
Whether or not the assessment is valid and has legal basis.
Held:
Yes. The Supreme Court ruled that the assessment was valid. One of the
powers of the Commissioner of Internal Revenue under the NIRC is to make
an assessment with the available information in case the taxpayer makes a
fraudulent return or does not make a return at all. This basically speaks of the
principle of “best evidence obtainable.” In this case, the failure of Po Bien
Sing to produce the required documents left the Commissioner with no choice
but to exercise the said power. The assessment was not arbitrary as alleged
by So Bien Sing because it was based on the number bottles of wines seized
during the raid and sworn statements of the employees.
Tax assessments by tax examiners are presumed correct and made in good
faith. The burden to prove otherwise is on the taxpayer. In the absence of
proof of any irregularities in the performance of duties, an assessment duly
made by a BIR examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of the tax.
Furthermore, the taxpayer should not only prove that the tax assessment is
wrong. He must also prove what is the correct and just liability by a full and
fair disclosure of all pertinent data in is possession. Otherwise, the tax court
proceedings would settle nothing and the whole process may be repeated
again if the taxpayer does not like the subsequent assessment.
CASE SYLLABI:
Same; Same; Rule on the “best evidence obtainable,” when
applicable.—The law is specific and clear. The rule on the “best evidence
obtainable” applies when a tax report required by law for the purpose of
assessment is not available or when the tax report is incomplete or fraudulent.
Same; Same; The failure of the taxpayers to present their books of
accounts for examination for taxable years compelled the Commissioner
of Internal Revenue to resort to the power conferred on him under the
Tax Code.—In the instant case, the persistent failure of the late Po Bien Sing
and the herein petitioner to present their books of accounts for examination for
the taxable years involved left the Commissioner of Internal Revenue no other

4|Ms. Nolaida Aguirre

legal option except to resort to the power conferred upon him under Section
16 of the Tax Code.
Same; Same; Tax assessments; Presumption in favor of the correctness
of tax assessments.—Tax assessments by tax examiners are presumed
correct and made in good faith. The taxpayer has the duty to prove otherwise.
In the absence of proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue examiner and
approved by his superior officers will not be disturbed. All presumptions are in
favor of the correctness of tax assessments.
Same; Same; Same; Fraudulent acts attributed to the taxpayer had not
been satisfactorily rebutted.—On the whole, we find that the fraudulent acts
detailed in the decision under review had not been satisfactorily rebutted by
the petitioner. There are indeed clear indications on the part of the taxpayer to
deprive the Goverment of the taxes due.
Fitness by Design, Inc. vs. Commissioner of Internal Revenue, 569
SCRA 788, G.R. No. 177982. October 17, 2008
Carpio-Morales, J.
Facts:
Commissioner on Internal Revenue (respondent) assessed Fitness by Design,
Inc. (petitioner) for deficiency income taxes for the tax year 1995. Petitioner
protested and filed a Petition for Review with Motion to Suspend Collection of
Income Tax, before the Court of Tax Appeals and raised prescription as a
defense. A preliminary hearing on the issue of prescription was conducted
during which petitioner’s former bookkeeper attested that certified public
accountant Leonardo Sablan – illegally took custody of petitioner’s accounting
records, invoices, and official receipts and turned them over to the BIR.
Petitioner requested for the issuance of subpoena ad testificandum to Sablan
for the hearing and of subpoena duces tecum to the BIR for the production of
the Affidavit of the Informer bearing on the assessment in question. In addition,
petitioner submitted written interrogatories addressed to Sablan. The CTA
denied petitioner’s motion for Issuance of Subpoenas and disallowed the
submission by petitioner of written interrogatories to Sablan. The CTA found
that to require Sablan to testify would violate Section 2 of Republic Act No.
2338, as implemented by Section 12 of Finance Department Order No. 46-66,
proscribing the revelation of identities of informers of violations of internal
revenue laws, except when the information is proven to be malicious or false.
Petitioner filed a rule 65.
Issue:
Whether or not the of petitioner’s accounting records, invoices, and official
receipts were obtained by the BIR illegally?
Held:
5|Ms. Nolaida Aguirre
No. Petitioner impugns the manner in which the documents in question
reached the BIR, Sablan having allegedly submitted them to the BIR without
its (petitioner’s) consent. Petitioner’s lack of consent does not, however, imply
that the BIR obtained them illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR from assessing
deficiency taxes on petitioner based on the documents.
The law thus allows the BIR access to all relevant or material records and
data in the person of the taxpayer, and the BIR can accept documents which
cannot be admitted in a judicial proceeding where the Rules of Court are
strictly observed.33 To require the consent of the taxpayer would defeat the
intent of the law to help the BIR assess and collect the correct amount of
taxes.
Petitioner’s invocation of the rights of an accused in a criminal prosecution to
cross examine the witness against him and to have compulsory process
issued to secure the attendance of witnesses and the production of other
evidence in his behalf does not lie. CTA Case No. 7160 is not a criminal
prosecution, and even granting that it is related to I.S. No. 2005-203, the
respondents in the latter proceeding are the officers and accountant of
petitioner-corporation, not petitioner. From the complaint and supporting
affidavits in I.S. No. 2005-203, Sablan does not even appear to be a witness
against the respondents therein.
CASE SYLLABI:
Taxation; In ascertaining the correctness of any return, or in making a
return when none has been made, or in determining the liability of any
person for any internal revenue tax, or in collecting any such liability, or
in evaluating tax compliance, the Commissioner is authorized.—
Petitioner impugns the manner in which the documents in question reached
the BIR, Sablan having allegedly submitted them to the BIR without its
(petitioner’s) consent. Petitioner’s lack of consent does not, however, imply
that the BIR obtained them illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR from assessing
deficiency taxes on petitioner based on the documents. Thus Section 5 of the
Tax Code provides: In ascertaining the correctness of any return, or in making
a return when none has been made, or in determining the liability of any
person for any internal revenue tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is authorized.
Same; The law thus allows the Bureau of Internal Revenue (BIR) access
to all relevant or material records and data in the person of the taxpayer,
and the Bureau of Internal Revenue (BIR) can accept documents which
cannot be admitted in a judicial proceeding where the Rules of Court are
strictly observed.—The law thus allows the BIR access to all relevant or
material records and data in the person of the taxpayer, and the BIR can
accept documents which cannot be admitted in a judicial proceeding where
6|Ms. Nolaida Aguirre
the Rules of Court are strictly observed. To require the consent of the
taxpayer would defeat the intent of the law to help the BIR assess and collect
the correct amount of taxes.
A. PERIOD TO ASSESS DEFICIENCY TAX
Republic of the Phils. vs. Ablaza, 108 Phil. 1105, No. L-14519 July 26,
1960
Labrador, J.

Facts:
The Collector of Internal Revenue assessed income taxes for the years 1945,
1946, 1947 and 1948 on the income tax returns of defendant-appellee to a
total P5,254.70.Respondent requested a reinvestigation of tax liability which
was granted by the Collector of Internal Revenue. Final assessment was fixed
at P2,066.56. Respondent protested the assessment contending that the
income taxes are no longer collectible for the reason that they have already
prescribed. As the Collector did not agree to the alleged claim of prescription,
action was instituted for the recovery of the amount assessed. The Court of
First Instance upheld the contention of Ablaza that the action to collect the
said income taxes had prescribed. Thus this appeal.
Issue:
Whether or not the letter in question (Exhibit L) is a letter asking for another
investigation that would warrant the suspension of the prescriptive period.
Held:
Judgment of the lower court dismissing the action is affirmed. The law
prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not
to determine the latter's real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. Without such legal
defense taxpayers would furthermore be under obligation to always keep their
books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted liberally in a way conducive to bringing about the
beneficial purpose of affording protection to the taxpayers

CASE SYLLABI:

7|Ms. Nolaida Aguirre

INCOME TAX, COLLECTION, LIMITATION OF ACTIONS, PURPOSE;
BENEFICIAL BOTH TO GOVERNMENT AND CITIZENS.—The law
prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens, to the government
because tax officers would be obliged to act properly in the making' of
assessments and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not
to determine the latter's real liability but to take advantage of every opportunity
to molest peaceful law abiding citizens. Without such a legal defense
taxpayers would furthermore be under obligation to always keep their books
and keep them open for inspection subject to harassment by unscrupulous tax
agents.
ID.; ID.; ID.; REMEDIAL MEASURE; INTERPRETATION.—The law of
prescription being a remedial measure should be interpreted in a way
conducive to bringing about the beneficent purpose of affording protection to
the taxpayer within the contemplation of the Commission which recommend
the approval of the law.
Commissioner of Internal Revenue vs. Primetown Property Group,
Inc., 531 SCRA 436, G.R. No. 162155. August 28, 2007
Corona, J.
Facts:
Gilbert Yap, Vice Chair of Primetown applied on March 11, 1999 for a refund
or credit of income tax which Primetown paid in 1997. He claimed that they
are entitled for a refund because they suffered losses that year due to the
increase of cost of labor and materials, etc. However, despite the losses, they
still paid their quarterly income tax and remitted creditable withholding tax
from real estate sales to BIR. Hence, they were claiming for a refund. On May
13, 1999, revenue officer Elizabeth Santos required Primetown to submit
additional documents to which Primetown complied with. However, its claim
was not acted upon which prompted it to file a petition for review in CTA on
April 14, 2000. CTA dismissed the petition as it was filed beyonf the 2-year
prescriptive period for filing a judicial claim for tax refund according to Sec 229
of NIRC. According to CTA, the two-year period is equivalent to 730 days
pursuant to Art 13 of NCC. Since Primetown filed its final adjustment return on
April 14, 1998 and that year 2000 was a leap year, the petition was filed 731
days after Primetown filed its final adjusted return. Hence, beyond the
reglementary period. Primetown appealed to CA. CA reversed the decision of
CTA. Hence, this appeal.
Issues:
(1) How should the two-year prescriptive period be computed?

8|Ms. Nolaida Aguirre

 (2) Whether or not the claim for tax refund was filed within the two-year
period?
Held:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter—the
computation of legal periods. Under the Civil Code, a year is equivalent to 365
days whether it be a regular year or a leap year. Under the Administrative
Code of 1987, however, a year is composed of 12 calendar months. Needless
to state, under the Administrative Code of 1987, the number of days is
irrelevant.
There obviously exists a manifest incompatibility in the manner of computing
legal periods under the Civil Code and the Administrative Code of 1987. For
this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative
Code of 1987, being the more recent law, governs the computation of legal
periods. Lex posteriori derogat priori.
We therefore hold that respondent’s petition (filed on April 14, 2000) was filed
on the last day of the 24th calendar month from the day respondent filed its
final adjusted return. Hence, it was filed within the reglementary period.
CASE SYLLABI:
Taxation; Prescription; The rule is that the two-year prescriptive period
is reckoned from the filing of the final adjusted return; A year is
equivalent to 365 days regardless of whether it is a regular year of a leap
year.—The rule is that the two-year prescriptive period is reckoned from the
filing of the final adjusted return. But how should the two-year prescriptive
period be computed? As already quoted, Article 13 of the Civil Code provides
that when the law speaks of a year, it is understood to be equivalent to 365
days. In National Marketing Corporation v. Tecson, 29 SCRA 70 (1969), we
ruled that a year is equivalent to 365 days regardless of whether it is a regular
year or a leap year.
Same; Words and Phrases; Calendar Month; A calendar month is a
month designated in the calendar without regard to the number of days
it may contain.—A calendar month is “a month designated in the calendar
without regard to the number of days it may contain.” It is the “period of time
running from the beginning of a certain numbered day up to, but not including,
the corresponding numbered day of the next month, and if there is not a
sufficient number of days in the next month, then up to and including the last
day of that month.” To illustrate, one calendar month from December 31, 2007
will be from January 1, 2008 to January 31, 2008; one calendar month from
January 31, 2008 will be from February 1, 2008 until February 29, 2008.
Statutory Construction; Statutes; Repeals; A repealing clause like Sec.
27, Book VII of the Administrative Code of 1987 is not an express
repealing clause because it fails to identify or designate the laws to be
9|Ms. Nolaida Aguirre
abolished; An implied repeal must have been clearly and unmistakably
intended by the legislature.—A repealing clause like Sec. 27, Book VII of
the Administrative Code of 1987 is not an express repealing clause because it
fails to identify or designate the laws to be abolished. Thus, the provision
above only impliedly repealed all laws inconsistent with the Administrative
Code of 1987. Implied repeals, however, are not favored. An implied repeal
must have been clearly and unmistakably intended by the legislature. The test
is whether the subsequent law encompasses entirely the subject matter of the
former law and they cannot be logically or reasonably reconciled.
Same; Same; Same; Court holds that Section 31, Chapter VIII, Book I of
the Administrative Code of 1987, being the more recent law, governs the
computation of legal periods.—Both Article 13 of the Civil Code and Section
31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same
subject matter—the computation of legal periods. Under the Civil Code, a year
is equivalent to 365 days whether it be a regular year or a leap year. Under
the Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant. There obviously exists a manifest incompatibility
in the manner of computing legal periods under the Civil Code and the
Administrative Code of 1987. For this reason, we hold that Section 31,
Chapter VIII, Book I of the Administrative Code of 1987, being the more recent
law, governs the computation of legal periods. Lex posteriori derogat priori.

Commissioner of Internal Revenue vs. Ayala Securities Corporation,

101 SCRA 231, No. L-29485. November 21, 1980
Teehankee, J.
Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated
surplus so Ayala was charged with 25% surtax by the Commissioner of
internal Revenue. The CTA (Court of Tax Appeals) reversed the
Commissioner’s decision and held that the assessment made against
Ayala was beyond the 5-yr prescriptive period as provided in section 331 of
the National Internal Revenue Code. Commissioner now files a motion for
reconsideration of this decision. Ayala invokes the defense of prescription
against the right of the Commissioner to assess the surtax.
Issue:
Whether or not the right to assess and collect the 25% surtax has
prescribed after five years.
Held:
No. There is no such time limit on the right of the Commissioner to assess
the 25% surtax since there is no express statutory provision limiting such
10 | M s . N o l a i d a A g u i r r e
right or providing for its prescription. Hence, the collection of surtax is
imprescriptible. The underlying purpose of the surtax is to avoid a situation
where the corporation unduly retains its surplus earnings instead of
declaring and paying dividends to its shareholders. SC reverses the ruling
of the CTA.
Notes: “Although petitioner filed an income tax return, no return was filed
covering its surplus profits which were improperly accumulated. In fact, no
return could have been filed, and the law could not possibily require, for
obvious reasons, the filing of a return covering unreasonable accumulation of
corporate surplus profits. A tax imposed upon unreasonable accumulation
of surplus is in the nature of a penalty. (Helvering v. National Grocery Co.,
304 U.S. 282). It would not be proper for the law to compel a corporation to
report improper accumulation of surplus. Accordingly, Section 331 limiting the
right to assess internal revenue taxes within five years from the date the return
was filed or was due does not apply.
“It will be noted that Section 332 has reference to national internal revenue
taxes which require the filing of returns. This is implied from the provision that
the ten-year period for assessment specified therein treats of the filing of a
false or fraudulent return or of a failure to file a return. There can be no
failure or omission to file a return where no return is required to be filed
by law or by regulations. It is, therefore, our opinion that the ten-year
period for making an assessment under Section 332 does not apply to
internal revenue taxes which do not require the filing of a return.
“It is well settled limitations upon the right of the government to assess and
collect taxes will not be presumed in the absence of clear legislation to the
contrary. The existence of a time limit beyond which the government may
recover unpaid taxes is purely dependent upon some express statutory
provision, (51 Am. Jur. 867; 10 Mertens Law on Federal Income Taxation, par.
57. 02.). It follows that in the absence of express statutory provision, the
right of the government to assess unpaid taxes is imprescriptible. Since
there is no express statutory provision limiting the right of the
Commissioner of Internal Revenue to assess the tax on unreasonable
accumulation of surplus provided in Section 25 of the Revenue Code,
said tax may be assessed at any time.”

CASE SYLLABI:
Taxation; Prescription; Collection of surtax on excess profits does not
prescribe there being no law providing a prescriptive period therefor.—
The Court is persuaded by the fundamental principle invoked by petitioner that
limitations upon the right of the government to assess and collect taxes will
not be presumed in the absence of clear legislation to the contrary and that
where the government has not by express statutory provision provided a
limitation upon its right to assess unpaid taxes, such right is imprescriptible.
11 | M s . N o l a i d a A g u i r r e
Same; Same.—The Court, therefore, reconsiders its ruling in its decision
under reconsideration that the right to assess and collect the assessment in
question had prescribed after five years, and instead rules that there is no
such time limit on the right of the Commissioner of Internal Revenue to assess
the 25% tax on unreasonably accumulated surplus provided in section 25 of
the Tax Code, since there is no express statutory provision limiting such right
or providing for its prescription. The underlying purpose of the additional tax in
question a corporation’s improperly accumulated profits or surplus is as set
forth in the text of section 25 of the Tax Code itself to avoid the situation
where a corporation unduly retains its surplus earnings instead of declaring
and paying dividends to its shareholders or members who would then have to
pay the income tax due on such dividends received by them. The record
amply shows that respondent corporation is a mere holding company of its
shareholders through its mother company, a registered co-partnership then
set up by the individual shareholders belonging to the same family and that
the prima facie evidence and presumption set up by the Tax Code, therefore,
applied without having been adequately rebutted by the respondent
corporation.
Butuan Sawmill, Inc. vs. Court of Tax Appeals, et al., 16 SCRA 277, No.
L-20601. February 28, 1966.
Reyes, J.B.L., J.
Facts:
During the period from January 31, 1951 to June 8, 1953, it sold logs to
Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases
FOB Vessel, Nasipit, also in Agusan); that the FOB prices included costs of
loading, wharfage stevedoring and other costs in the Philippines; that the
quality, quantity and measurement specifications of the logs were certified fry
the Bureau of Forestry that the freight was paid by the Japanese buyers; and
the payments of the logs were effected by means of irrevocable letters of
credit in favor of petitioner and payable through the Philippine National Bank
or any other bank named by it.
Upon investigation by the Bureau of Internal Revenue, it was ascertained that
no sales tax return was filed by the petitioner and neither did it pay the
corresponding tax on the sales. . On the basis of agent Antonio Mole’s report
dated September 17, 1957, respondent, on August 27, 1958, determined
against petitioner the sum of P40,004.01 representing sales tax, surcharge
and compromise penalty on its sales [tax, surcharge and compromise penalty
on its sales] of logs from January 1951 to June 1953 pursuant to Sections 183,
186 and 209 of the National Internal Revenue Code . And in consequence of a
reinvestigation, respondent, on November 6, 1958, amended the amount of
the previous assessment to P38,917.74. Subsequent requests for
reconsideration of the amended assessment having been denied, petitioner
filed the instant petition for review on November 7, 1960.
12 | M s . N o l a i d a A g u i r r e
Issues:
(1) Whether or not petitioner herein is liable to pay the 5% sales tax as then
prescribed by Section 186 of the Tax Code on its sales of logs to the
Japanese buyers; and
(2) Whether or not the assessment thereof was made within the
prescriptive period provided by law therefor.
Held:
(1) Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc.
vs. Collector of Internal Revenue, G.R. No. L-13186 (January 28, 1961),
Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz.
517) and Western Mindanao Lumber Development Co., Inc. vs. Court of
Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that
said export sales had been consummated in the Philippines and were,
accordingly, subject to sales tax therein.” (Taligaman Lumber Co., Inc.
vs. Collector of Internal Revenue, G.R. No. L-15716, March 31, 1962).

With respect to petitioner’s contention that there are proofs to rebut the
prima facie finding and circumstances that the disputed sales were
consummated here in the Philippines, we find that the allegation is not
borne out by the law or the evidence.
(2) An income tax return cannot be considered as a return for
compensating tax for purposes of computing the period of prescription
under Section 331 of the Tax Code, and that the taxpayer must file a
return for the particular tax required by law in order to avail himself of
the benefits of Section 331 of the Tax Code; otherwise, if he does not
file a return, an assessment may be made within tho time stated in
Section 332 (a) of the same Code (Bisaya Land Transportation Co., Inc.
vs. Collector of Internal Revenue & Collector of Internal Revenue vs.
Bisaya Land Transportation Co., Inc., G.R. Nos. L-12100 & L-11812,
May 29, 1959). The principle enunciated in this last cited case is
applicable by analogy to the case at bar.

It being undisputed that petitioner failed to file a return for the disputed
sales corresponding to the years 1951, 1952 and 1953, and this
omission was discovered only on September 17, 1957, and that under
Section 332 (a) of the Tax Code assessment thereof may be made
within ten (10) years from and after the discovery of the omission to file
the return, it is evident that the lower court correctly held that the
assessment and collection of the sales tax in question has not yet
prescribed.

CASE SYLLABI:

13 | M s . N o l a i d a A g u i r r e
Taxation; Sales tax; Sale of logs “F.O.B., Agusan”.—Petitioner sold logs to
Japanese firms at prices FOB Agusan. The FOB feature of the sales indicated
that the parties intended the title to pass to the buyer upon delivery of the logs
in Agusan on board the vessels that took the goods to Japan. The sales being
domestic or local, they are subject to sales tax under Section 186 of the Tax
Code, as amended.
Same; Title to goods deliverable to order of seller or his agent may pass
upon delivery to the carrier.—The specification in the bill of lading that the
goods are deliverable to the order of the seller or his agent does not
necessarily negative the passing of title to the goods upon delivery to the
carrier. (Art. 1503, New Civil Code).
Same; Prescription; Income tax return is not deemed a return for sales
tax purposes.—For purposes of computing the period of prescription under
Section 331 of the Tax Code, an income tax return cannot be considered as a
return for compensating tax or sales tax purposes. The taxpayer must file a
return for the particular tax required by law in order to avail himself of the
benefits of the law. If he does not file such a return, an assessment may be
made within ten (10) years from and after the discovery of the omission to file
the return. (Section 332[a] of the Tax Code; Cf. Bisaya Land Transportation
Co., Inc. vs. Collector of Internal Revenue and Collector of Internal Revenue
vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-12100 & L-11812, May
29, 1959.)
Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd.,
14 SCRA 52, No. L-19727. May 20, 1965
Bengzon, J.P., J.
Facts:
Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under
the laws of Great Britain, is licensed to do business in the Philippines with
head office in London. Through its head office, it entered in London into
worldwide reinsurance treaties with various foreign insurance companies. It
agree to cede a portion of premiums received on original insurances
underwritten by its head office, subsidiaries, and branch offices throughout the
world, in consideration for assumption by the foreign insurance companies of
an equivalent portion of the liability from such original insurances.
On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on
income tax for the years 1952 and 1954 against Phoenix Assurance Co, Ltd.
The assessment resulted from the disallowance of a portion of the deduction
claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to
its business in the Philippines fixed by the Commissioner at 5% of the net
Philippine income instead of 5% of the gross Philippine income as claimed in
the returns.

14 | M s . N o l a i d a A g u i r r e
Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for
withholding tax and deficiency income tax. However, the Commissioner of
Internal Revenue denied such protest. Subsequently, Phoenix Assurance Co.,
Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14,
1962, the Court of Tax Appeals allowed in full the decision claimed by Phoenix
Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve;
determined the allowable head office expenses allocable to Philippine
business to be 5% of the net income in the Philippines; declared the right of
the Commissioner of Internal Revenue to assess deficiency income tax for
1952 to have prescribed; absolved Phoenix Assurance Co., Ltd. from payment
of the statutory penalties for non-filing of withholding tax return.
Issues:
(1) Whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines pursuant to reinsurance contracts executed
abroad are subject to withholding tax;
(2) Whether or not the right of the Commissioner of Internal Revenue to
assess deficiency income tax for the year 1952 against Phoenix Assurance
Co., Ltd. has prescribed;
Held:
The question of whether or not reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines pursuant to contracts
executed abroad are income from sources within the Philippines subject to
withholding tax under Sections 53 and 54 of the Tax Code has already been
resolved in the affirmative in British Traders’ Insurance Co., Ltd. v.
Commissioner of Internal Revenue, L-20501, April 30, 1965.1
Notes:
The question is: Should the running of the prescriptive period commence
from the filing of the original or amended return?
‘xxx the deficiency income tax in question could not possibly be determined, or
assessed, on the basis of the original return filed on April 1, 1953, for
considering that the declared loss amounted to P199,583.93, the mere
disallowance of part of the head office expenses could not possibly result in
said loss being completely wiped out and Phoenix being liable to deficiency
tax. Not until the amended return was filed on August 30, 1955 could the
Commissioner assess the deficiency income tax in question.”
Accordingly, he would wish to press for the counting of the prescriptive period
from the filing of the amended return.
Considering that the deficiency assessment was based on the amended
return which, as aforestated, 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. From August 30, 1955, when the
15 | M s . N o l a i d a A g u i r r e
amended return was filed, to July 24, 1958, when the deficiency assessment
was issued, less than five years elapsed. The right of the Commissioner to
assess the deficiency tax on such amended return has not prescribed.
CASE SYLLABI:
Taxation; Income tax; Reinsurance premiums subject to withholding
tax.—Reinsurance premiums ceded to foreign reinsurers not doing business
in the Philippines pursuant to reinsurance contracts executed abroad are
income from sources within the Philippines subject to withholding tax under
Sections 53 and 54 of the Tax Code.
Same; Same; Period of prescription to assess deficiency income tax
commences from filing of amended return.—Where the deficiency
assessment is based on the amended return, which is substantially different
from the original return, the period of prescription of the right to issue the
same should be counted from the filing of the amended, not the original
income tax return.
Same; Same; Taxpayer may claim lesser deduction than allowed by
law.—For income tax purposes a taxpayer is free to deduct from its gross
income a lesser amount, or not to claim any deduction at all. What is
prohibited by the income tax law is to claim a deduction beyond the amount
authorized therein.
Same; Same; Items of income not belonging to Philippines excluded in
determining expenses allocable to Philippines.—Since the items of income
not belonging to its Philippine business’ are not taxable to its Philippine branch,
they should be excluded in determining the head expenses allocable to a
Philpine branch of a foreign corporation.
Same; Same; Interest on taxes unpaid due to Commissioner’s opinion
imposed only from failure to comply with court’s final judgment.—Where
the taxpayer’s failure to pay the withholding tax was due to the
Commissioner’s opinion that no withholding tax was due, the taxpayer can be
held liable for the payment; of statutory penalties only upon its failure to
comply with the Court’s final judgment.

Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757, No. L-

19495. November 24, 1966
Bengzon, J.P., J.
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
16 | M s . N o l a i d a A g u i r r e
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 the state and inheritance tax return file by Jose Yusay
was defective and hence the right of the CIR to make an assessment has not
prescribe.
Held:
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).
CASE SYLLABI:
Taxation; Evidence of fraud.—Fraud is a question of fact. The
circumstances constituting it must be alleged and proved in the Court of Tax
Appeals. And the finding of said court as to its existence or nonexistence is
final unless clearly shown to be erroneous. (Gutierrez vs. Court of Tax
Appeals, 101 Phil. 713). As the court 'a quo found that no fraud was alleged
and proven therein, the Commissioner's assertion that the return was
fraudulent cannot be entertained.
Same; When tax return is considered sufficient.—A return need not be
complete in all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and
is not false or fraudulent; (2) when it covers the entire period involved; and (3)
when it contains information as to the various items of income, deductions and
credits with such definiteness as to permit the computation and assessment of
the tax. (Mertens, Jr., 10 Law of Federal Income Taxation, 1958 ed., Sec.
57.13).
17 | M s . N o l a i d a A g u i r r e
Same; Sufficiency of estate and inheritance tax return.— An estate and
inheritance tax return was substantially defective when it was incomplete; it
declared only ninety-three parcels of land, representing about 400 hectares,
and left out ninety-two parcels covering 503 hectares and said huge
underdeclaration could not have been the result 01 an oversight or mistake.
Moreover, the return mentioned no heir. Thus, no inheritance tax could be
assessed. As a matter of law, on the basis of the return, there would be no
occasion for the imposition of estate and inheritance taxes. When there is no
heir, the estate is escheated to the State. The State does not tax itself.
Same; Sufficient tax return; Prescription.—Where the return was made on
the wrong form, it was held that the filing thereof did not start the running of
the period of limitations, and where the return was very deficient, there was no
return at all as required in Section 93 of the Tax Code. If the taxpayer failed to
observe the law, Section 332 of the Tax Code, which grants the
Commissioner of Internal Revenue ten years period within which to bring an
action "f or tax collection, applies. Section 94 of the Tax Code obligates him to
make a return or amend one already filed based on his own knowledge and
information obtained through testimony or otherwise, and subsequently to
assess thereon the taxes due. The running of the period of limitations under
Section 332(a) of the Tax Code should be reckoned "from the date the "fraud
was discovered.
Republic vs. Ret, 4 SCRA 783, No. L-13754. March 31, 1962
Paredes, J.
Facts:
On February 23, 1949, Damian Ret filed with the Bureau of Internal Revenue
his Income Tax Return for the year 1948, where he made it appear that his net
income was only P2,252.53 with no income tax liability at all. The BIR found
out later that the return was fraudulent since Ret's income, derived from his
sales of office supplies to different provincial government offices, totaled
P94,198.76. Defendant Ret failed to file his Income Tax return for 1949,
notwithstanding the fact that he earned a net income of P150,447.32, also
from sale of office supplies. The BIR assessed him P34,907.33 and
P68,338.40 as deficiency income tax, inclusive of the 50% surcharge for
rendering a false and/or fraudulent return for the 1948 and 1949 respectively.
On January 13, 1951, the Collector of Internal Revenue demanded from Ret
the payment of the above sums, but he failed and/or refused to pay said
amounts. Upon recommendation of the Collector, Ret was prosecuted for a
violation of Sections 45[a], 51 [d] and 72, of the N.I.R.C. penalized under Sec.
73, thereof
After his conviction, on September 21, 1957, the Republic filed the present
complaint for the recovery of Ret's deficiency taxes in the total sum of
P103,245.73, plus 5% surcharge and 1% monthly interest. Instead of
18 | M s . N o l a i d a A g u i r r e
answering, he presented a Motion to Dismiss on February 8, 1958, claiming
that the "cause of action had already prescribed".
Issue:
Whether or not appellant's right to collect the income taxes due from appellee
through judicial action has already prescribed.
Held:
The answer is in the affirmative. After going over the law and jurisprudence
pertinent to the issues raised, the Court have come to the conclusion that the
cause of action has already prescribed.
Section 332 of the Tax Code provides: "the running of the statutory limitation
xxx shall be suspended for the period during which the Collector of Internal
Revenue is prohibited from making the assessment, or beginning distraint or
levy or a proceeding in court, and for sixty days thereafter". As heretofore
stated, the plaintiff-appellant was not prohibited by any order of the court or by
any law from commencing or filing a proceeding in court. In the instant case,
there is no such written agreement, and there was nothing to agree about.
The letter of demand by the Collector on January 13, 1951, was made prior to
the issuance of the assessment notice to the defendant-appellee, made on
January 20, 1951, from which date, the 5-year period was to be counted, The
letter of demand could not suspend something that started to run only on
January 20, 1951.
CASE SYLLABI
Taxation; Income taxes; Prescription of judicial action; Section 332 of
Tax Code not applicable if collection of income taxes will be made by
summary proceedings.—Section 332 of the Tax Code does not apply in the
collection of income by summary proceedings. But when the collection of
income taxes is to be effected by court action, said provision is controlling.
Same; Same; Same; Alternatives of Collector under Section 332(a) of
Tax Code; Effect of assessment against taxpayer.—Under Section 332 (a)
of the Tax Code, the Collector is given two alternatives: (1) to assess the tax
within 10 years from the discovery of the falsity, fraud or omission, or (2) to file
an action in court for the collection of such tax without assessment also within
10 years from the discovery of the falsity, fraud or omission. An assessment
against the taxpayer takes the case out of the realms of the provisions of the
said section and places it under the mandate of section 332(c).
Same; Same; Same; Theory of prescriptibility supported by Sections 331,
332 and 393 of Tax Code.—Sections 331, 332, and 333 of the Tax Code
support the theory of prescriptibility of a judicial action to collect income tax.
To hold otherwise would render said provisions idle and useless.
Same; Same; Section 1, Rule 107, Rules of Court not applicable if
complaint is not for recovery of civil liability arising from criminal
19 | M s . N o l a i d a A g u i r r e
offense.—Where the complaint against the taxpayer is not for the recovery of
civil liability arising from the offense of falsification, but for the collection of
deficiency income tax, the provisions of Section 1, Rule 107, Rules of Court,
that "after a criminal action has been commenced, no civil action arising from
the same offense can be prosecuted" will not apply.
Bank of the Philippine Islands vs. Commissioner of Internal Revenue,
473 SCRA 205, G.R. No. 139736. October 17, 2005
Chico-Nazario, J.
Facts:
Petitioner BPI is a commercial banking corporation organized and existing
under the laws of the Philippines. On two separate occasions, particularly on
06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to
the Central Bank of the Philippines (Central Bank), for the total sales amount
of US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued
assessment notice finding petitioner BPI liable for deficiency DST on its afore-
mentioned sales of foreign bills of exchange to the Central Bank. Petitioner
BPI received the Assessment, together with the attached Assessment Notice,
on 20 October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated
16 November 1989, and filed with the BIR on 17 November 1989. Petitioner
BPI did not receive any immediate reply to its protest letter. However, on 15
October 1992, the BIR issued a Warrant of Distraint and/or Levy against BPI
only on 23 October 1992
Then again, petitioner BPI did not hear from the BIR until 11 September 1997,
when its counsel received a letter, dated 13 August 1997, signed by then BIR
Commissioner Liwayway Vinzons-Chato, denying its “request for
reconsideration,”.
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded
to file a Petition for Review with the CTA on 10 October 1997
Petitioner BPI raised in its Petition for Review before the CTA, in addition to
the arguments presented in its protest letter, dated 16 November 1989, the
defense of prescription of the right of respondent BIR Commissioner to
enforce collection of the assessed amount. It alleged that respondent BIR
Commissioner only had three years to collect on Assessment No. FAS-5-85-
89-002054, but she waited for seven years and nine months to deny the
protest.
The CTA held that the statute of limitations for respondent BIR Commissioner
to collect on the Assessment had not yet prescribed. In resolving the issue of
prescription, the CTA reasoned that—

20 | M s . N o l a i d a A g u i r r e
 In the case of Commissioner of Internal Revenue vs. Wyeth
Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991,
202 SCRA 125, the Supreme Court laid to rest the first issue. It
categorically ruled that a “protest” is to be treated as request for
reinvestigation or reconsideration and a mere request for
reexamination or reinvestigation tolls the prescriptive period of the
Commissioner to collect on an assessment. . .
The CA affirmed the decision of the CTA. Hence, the instant case.
Issues:
1. Whether or not the right of respondent BIR Commissioner to collect
from petitioner BPI the alleged deficiency DST for taxable year 1985
had prescribed; and
2. Whether or not a request for reconsideration tolls the prescriptive period
of the CIR to collect on an assessment;
Held:
There is no valid ground for suspending the running of the prescriptive period
for collection of the deficiency DST assessed against petitioner BPI.
Anent the question of prescription, this Court disagrees in the Decisions of the
CTA and the Court of Appeals, and herein determines the statute of limitations
on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054
had already prescribed.
The statute of limitations on assessment and collection of taxes is for the
protection of the taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The protest filed by petitioner BPI did not constitute a request for
reinvestigation, granted by the respondent BIR Commissioner, which could
have suspended the running of the statute of limitations on collection of the
assessed deficiency DST under Section 224 of the Tax Code of 1977, as
amended.
The Tax Code of 1977, as amended, also recognizes instances when the
running of the statute of limitations on the assessment and collection of
national internal revenue taxes could be suspended, even in the absence of a
waiver,
Of particular importance to the present case is one of the circumstances
enumerated in Section 224 of the Tax Code of 1977, as amended, wherein
the running of the statute of limitations on assessment and collection of taxes
is considered suspended “when the taxpayer requests for a reinvestigation
which is granted by the Commissioner.”

21 | M s . N o l a i d a A g u i r r e
This Court gives credence to the argument of petitioner BPI that there is a
distinction between a request for reconsideration and a request for
reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27
November 1985 by the Secretary of Finance, upon the recommendation of the
BIR Commissioner, governs the procedure for protesting an assessment and
distinguishes between the two types of protest, as follows—
(a)Request for reconsideration.—refers to a plea for a
reevaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a
question of fact or of law or both.
(b)Request for reinvestigation.—refers to a plea for
reevaluation of an assessment on the basis of newly-discovered
or additional evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or law or
both.
It bears to emphasize that under Section 224 of the Tax Code of 1977, as
amended, the running of the prescriptive period for collection of taxes can only
be suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend the running of the
statute of limitations on collection of the assessed tax, while the latter cannot.
Add Notes as Emphasized by Atty. Lock:
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing
to remit withholding taxes on royalties and dividend declarations, as well as,
for deficiency sales tax. The BIR issued two assessments, dated 16
December 1974 and 17 December 1974, both received by taxpayer Wyeth
Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax
consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975
and 08 February 1975, protesting the assessments and requesting their
cancellation or withdrawal on the ground that said assessments lacked factual
or legal basis. On 12 September 1975, the BIR Commissioner advised
taxpayer Wyeth Suaco to avail itself of the compromise settlement being
offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested
its conformity to paying a compromise amount, but subject to certain
conditions; though, apparently, the said compromise amount was never paid.
On 10 December 1979, the BIR Commissioner rendered a decision reducing
the assessment for deficiency withholding tax against taxpayer Wyeth Suaco,
but maintaining the assessment for deficiency sales tax. It was at this point
when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the
BIR from enforcing the assessments by reason of prescription. Although the
CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court
22 | M s . N o l a i d a A g u i r r e
when the case was brought before it on appeal. According to the decision of
this Court—
“Settled is the rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the assessment. . .
...
Although the protest letters prepared by SGV & Co. in behalf of private
respondent did not categorically state or use the words “reinvestigation” and
“reconsideration,” the same are to be treated as letters of reinvestigation and
reconsideration…
These letters of Wyeth Suaco interrupted the running of the five-year
prescriptive period to collect the deficiency taxes. The Bureau of Internal
Revenue, after having reviewed the re cords of Wyeth Suaco, in accordance
with its request for rein vestigation, rendered a final assessment… It was only
upon receipt by Wyeth Suaco of this final assessment that the five-year
prescriptive period started to run again.”
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is
directed at the statement made therein that, “settled is the rule that the
prescriptive period provided by law to make a collection by distraint or levy or
by a proceeding in court is interrupted once a taxpayer requests for
reinvestigation or reconsideration of the assessment.” It would seem that both
petitioner BPI and respondent BIR Commissioner, as well as, the CTA and
Court of Appeals, take the statement to mean that the filing alone of the
request for reconsideration or reinvestigation can already interrupt or suspend
the running of the prescriptive period on collection. This Court therefore takes
this opportunity to clarify and qualify this statement made in the Wyeth Suaco
case. While it is true that, by itself, such statement would appear to be a
generalization of the exceptions to the statute of limitations on collection, it is
best interpreted in consideration of the particular facts of the Wyeth Suaco
case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because
there are substantial differences in the factual backgrounds of the two cases.
The Suyoc case refers to a situation where there were repeated requests or
positive acts performed by the taxpayer that convinced the BIR to delay
collection of the assessed tax. This Court pronounced therein that the
repeated requests or positive acts of the taxpayer prevented or estopped it
from setting up the defense of prescription against the Government when the
latter attempted to collect the assessed tax. In the Wyeth Suaco case,
taxpayer Wyeth Suaco filed a request for reinvestigation, which was
apparently granted by the BIR and, consequently, the prescriptive period was
indeed suspended as provided under Section 224 of the Tax Code of 1977, as
amended.

23 | M s . N o l a i d a A g u i r r e
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies
specific circumstances when the statute of limitations on assessment and
collection may be interrupted or suspended, among which is a request for
reinvestigation that is granted by the BIR Commissioner. The act of filing a
request for reinvestigation alone does not suspend the period; such request
must be granted. The grant need not be express, but may be implied from the
acts of the BIR Commissioner or authorized BIR officials in response to the
request for reinvestigation.
This Court found in the Wyeth Suaco case that the BIR actually conducted a
reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco,
which resulted in the reduction of the assessment originally issued against it.
Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was
granted, as written by its Finance Manager in a letter dated 01 July 1975,
addressed to the Chief of the Tax Accounts Division, wherein he admitted that,
“[a]s we understand, the matter is now undergoing review and consideration
by your Manufacturing Audit Division…” The statute of limitations on collection,
then, started to run only upon the issuance and release of the reduced
assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive
period for collection is interrupted or suspended when the taxpayer files a
request for reinvestiga-tion, provided that, as clarified and qualified herein,
such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the
Wyeth Suaco case. It also now rules that the said case is not applicable to the
Petition at bar because of the distinct facts involved herein. As already
heretofore determined by this Court, the protest filed by petitioner BPI was a
request for reconsideration, which merely required a review of existing
evidence and the legal basis for the assessment. Respondent BIR
Commissioner did not require, neither did petitioner BPI offer, additional
evidence on the matter. After petitioner BPI filed its request for reconsideration,
there was no other communication between it and respondent BIR
Commissioner or any of the authorized representatives of the latter. There
was no showing that petitioner BPI was informed or aware that its request for
reconsideration was granted or acted upon by the BIR.
CASE SYLLABI:
Taxation; Distraint; Levy; The Bureau of Internal Revenue (BIR) has
three years, counted from the date of actual filing of the return or from
the last date prescribed by law for the filing of such return, whichever
comes later, to assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment.—The BIR
has three years, counted from the date of actual filing of the return or from the
last date prescribed by law for the filing of such return, whichever comes later,
to assess a national internal revenue tax or to begin a court proceeding for the
24 | M s . N o l a i d a A g u i r r e
collection thereof without an assessment. In case of a false or fraudulent
return with intent to evade tax or the failure to file any return at all, the
prescriptive period for assessment of the tax due shall be 10 years from
discovery by the BIR of the falsity, fraud, or omission. When the BIR validly
issues an assessment, within either the three-year or ten-year period,
whichever is appropriate, then the BIR has another three years after the
assessment within which to collect the national internal revenue tax due
thereon by distraint, levy, and/or court proceeding. The assessment of the tax
is deemed made and the three-year period for collection of the assessed tax
begins to run on the date the assessment notice had been released, mailed or
sent by the BIR to the taxpayer.
Same; Same; Same; Statute of Limitations; Statutes; Under Section
223(c) of the Tax Code of 1977, as amended, it is not essential that the
Warrant of Distraint and/or Levy be fully executed so that it can suspend
the running of the statute of limitations on the collection of the tax.—
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential
that the Warrant of Distraint and/or Levy be fully executed so that it can
suspend the running of the statute of limitations on the collection of the tax. It
is enough that the proceedings have validly began or commenced and that
their execution has not been suspended by reason of the voluntary desistance
of the respondent BIR Commissioner. Existing jurisprudence establishes that
distraint and levy proceedings are validly begun or commenced by the
issuance of the Warrant and service thereof on the taxpayer. It is only logical
to require that the Warrant of Distraint and/or Levy be, at the very least,
served upon the taxpayer in order to suspend the running of the prescriptive
period for collection of an assessed tax, because it may only be upon the
service of the Warrant that the taxpayer is informed of the denial by the BIR of
any pending protest of the said taxpayer, and the resolute intention of the BIR
to collect the tax assessed.
Same; Same; Same; Same; Though the statute of limitations on
assessment and collection of national internal revenue taxes benefits
both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation.—Though
the statute of limitations on assessment and collection of national internal
revenue taxes benefits both the Government and the taxpayer, it principally
intends to afford protection to the taxpayer against unreasonable investigation.
The indefinite extension of the period for assessment is unreasonable
because it deprives the said taxpayer of the assurance that he will no longer
be subjected to further investigation for taxes after the expiration of a
reasonable period of time.
Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended,
identifies specifically in Sections 223 and 224 the circumstances when
the prescriptive periods for assessing and collecting taxes could be
suspended or interrupted.—In order to provide even better protection to the
25 | M s . N o l a i d a A g u i r r e
taxpayer against unreasonable investigation, the Tax Code of 1977, as
amended, identifies specifically in Sections 223 and 224 thereof the
circumstances when the prescriptive periods for assessing and collecting
taxes could be suspended or interrupted.
Same; Same; Same; Same; Same; Paragraphs (b) and (d) of Section 223
of the Tax Code of 1977, as amended, the prescriptive periods for
assessment and collection of national internal revenue taxes,
respectively, could be waived by agreement.—According to paragraphs (b)
and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive
periods for assessment and collection of national internal revenue taxes,
respectively, could be waived by agreement, to wit—SEC. 223. Exceptions as
to period of limitation of assessment and collection of taxes.—x x x (b) If
before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner and the taxpayer have agreed
in writing to its assessment after such time the tax may be assessed within the
period agreed upon. The period so agreed upon may be extended by
subsequent written agreement made before the expiration of the period
previously agreed upon. . . . (d) Any internal revenue tax which has been
assessed within the period agreed upon as provided in paragraph (b)
hereinabove may be collected by distraint or levy or by a proceeding in court
within the period agreed upon in writing before the expiration of the three-year
period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.
The agreements so described in the afore-quoted provisions are often referred
to as waivers of the statute of limitations. The waiver of the statute of
limitations, whether on assessment or collection, should not be construed as a
waiver of the right to invoke the defense of prescription but, rather, an
agreement between the taxpayer and the BIR to extend the period to a date
certain, within which the latter could still assess or collect taxes due. The
waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally.
Same; Same; Same; Same; Same; RMO No. 20-90 mandates that the
procedure for execution of the waiver shall be strictly followed, and any
revenue official who fails to comply therewith resulting in the
prescription of the right to assess and collect shall be administratively
dealt with.—A valid waiver of the statute of limitations under paragraphs (b)
and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in
writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before
the expiration of the ordinary prescriptive periods for assessment and
collection; and (4) for a definite period beyond the ordinary prescriptive
periods for assessment and collection. The period agreed upon can still be
extended by subsequent written agreement, provided that it is executed prior
to the expiration of the first period agreed upon. The BIR had issued Revenue
Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even
more detailed procedure for the proper execution of such a waiver. RMO No.
26 | M s . N o l a i d a A g u i r r e
20-90 mandates that the procedure for execution of the waiver shall be strictly
followed, and any revenue official who fails to comply therewith resulting in the
prescription of the right to assess and collect shall be administratively dealt
with.
Same; Same; Same; Same; The Supreme Court had consistently ruled in
a number of cases that a request for reconsideration or reinvestigation
by the taxpayer, without a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax Code and
implementing rules, will not suspend the running thereof.—This Court
had consistently ruled in a number of cases that a request for reconsideration
or reinvestigation by the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, as required by the Tax Code
and implementing rules, will not suspend the running thereof.
Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended,
also recognizes instances when the running of the statute of limitations
on the assessment and collection of national internal revenue taxes
could be suspended, even in the absence of a waiver.— The Tax Code of
1977, as amended, also recognizes instances when the running of the statute
of limitations on the assessment and collection of national internal revenue
taxes could be suspended, even in the absence of a waiver, under Section
224 thereof, which reads—SEC. 224. Suspension of running of statute.—The
running of the statute of limitation provided in Section[s] 203 and 223 on the
making of assessment and the beginning of distraint or levy or a proceeding in
court for collection, in respect of any deficiency, shall be suspended for the
period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a reinvestigation which is
granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or
collected: Provided, That, if the taxpayer informs the Commissioner of any
change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the taxpayer
is out of the Philippines.
Same; Same; Same; Same; Same; Under Section 224 of the Tax Code of
1977, as amended, the running of the prescriptive period for collection of
taxes can only be suspended by a request for reinvestigation, not a
request for reconsideration.—With the issuance of RR No. 12-85 on 27
November 1985 providing the above-quoted distinctions between a request for
reconsideration and a request for reinvestigation, the two types of protest can
no longer be used interchangeably and their differences so lightly brushed
aside. It bears to emphasize that under Section 224 of the Tax Code of 1977,
as amended, the running of the prescriptive period for collection of taxes can
27 | M s . N o l a i d a A g u i r r e
only be suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend the running of the
statute of limitations on collection of the assessed tax, while the latter cannot.
Same; Same; Same; Same; That the BIR Commissioner must first grant
the request for reinvestigation as a requirement for suspension of the
statute of limitations is even supported by existing jurisprudence.—That
the BIR Commissioner must first grant the request for reinvestigation as a
requirement for suspension of the statute of limitations is even supported by
existing jurisprudence. In the case of Republic of the Philippines v. Gancayco,
taxpayer Gancayco requested for a thorough reinvestigation of the
assessment against him and placed at the disposal of the Collector of Internal
Revenue all the evidences he had for such purpose; yet, the Collector ignored
the request, and the records and documents were not at all examined.
Considering the given facts, this Court pronounced that—. . . The act of
requesting a reinvestigation alone does not suspend the period. The request
should first be granted, in order to effect suspension. (Collector vs. Suyoc
Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector
gave appellee until April 1, 1949, within which to submit his evidence, which
the latter did one day before. There were no impediments on the part of the
Collector to file the collection case from April 1, 1949. . . .
Same; Same; Same; Same; The burden of proof that the taxpayer’s
request for reinvestigation had been actually granted shall be on
respondent BIR Commissioner.—The burden of proof that the taxpayer’s
request for reinvestigation had been actually granted shall be on respondent
BIR Commissioner. The grant may be expressed in communications with the
taxpayer or implied from the actions of the respondent BIR Commissioner or
his authorized BIR representatives in response to the request for
reinvestigation.
Same; Same; Same; Same; The Supreme Court expressly conceded that
a mere request for reconsideration or reinvestigation of an assessment
may not suspend the running of the statute of limitations. It affirmed the
need for a waiver of the prescriptive period in order to effect suspension
thereof.—As had been previously discussed herein, the statute of limitations
on assessment and collection of national internal revenue taxes may be
suspended if the taxpayer executes a valid waiver thereof, as provided in
paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended;
and in specific instances enumerated in Section 224 of the same Code, which
include a request for reinvestigation granted by the BIR Commissioner.
Outside of these statutory provisions, however, this Court also recognized one
other exception to the statute of limitations on collection of taxes in the case of
Collector of Internal Revenue v. Suyoc Consolidated Mining Co. x x x In the
28 | M s . N o l a i d a A g u i r r e
Suyoc case, this Court expressly conceded that a mere request for
reconsideration or reinvestigation of an assessment may not suspend the
running of the statute of limitations. It affirmed the need for a waiver of the
prescriptive period in order to effect suspension thereof. However, even
without such waiver, the taxpayer may be estopped from raising the defense
of prescription because by his repeated requests or positive acts, he had
induced Government authorities to delay collection of the assessed tax.
Same; Same; Same; Same; The repeated requests or positive acts of the
taxpayer prevented or estopped it from setting up the defense of
prescription against the Government when the latter attempted to collect
the assessed tax.—The Wyeth Suaco case cannot be in conflict with the
Suyoc case because there are substantial differences in the factual
backgrounds of the two cases. The Suyoc case refers to a situation where
there were repeated requests or positive acts performed by the taxpayer that
convinced the BIR to delay collection of the assessed tax. This Court
pronounced therein that the repeated requests or positive acts of the taxpayer
prevented or estopped it from setting up the defense of prescription against
the Government when the latter attempted to collect the assessed tax. In the
Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation,
which was apparently granted by the BIR and, consequently, the prescriptive
period was indeed suspended as provided under Section 224 of the Tax Code
of 1977, as amended.
Continental Micronesia, Inc., vs. CIR, CTA Case No. 6191, March 22,
2006
Casanova, J.
Facts:
The Petitioner is a non-resident foreign corporation. On December 12, 1996
petitioner received a Letter of Authority to examine the petitioner’s books of
accounts and other accounting records for all internal revenue taxes.
On March 17, 1998, an invitation for informal conference was sent to petitioner
requesting it to submit whatever documentary evidence in its possession that
may support any objection against the proposed assessment. On March 27,
1998, a conference with the representative of petitioner was held. Petitioner
expressed its willingness to settle the deficiency gross Philippine billings and
common carrier’s tax but would protest the remaining deficiency taxes upon
receipt of the notice of assessment.
On May 15, 1998, an assessment notice of deficiency withholding tax on
compensation and deficiency expanded withholding tax was issues against
the petitioner. Instead of attending another conference, the petitioner opted to
file its objection on the assessment and thus, it resulted to the reinvestigation
of the case.

29 | M s . N o l a i d a A g u i r r e
After the reinvestigation a PAN was issued, and on December 29, 1999
assessment notices and demand letters were sent to the petitioner. These
letters were received on January 5, 2000. On February 4, 2000, petitioner filed
its administrative protest seeking the cancellation and withdrawal thereof due
to prescription and lack of legal bases.
Issue:
Whether or not the assessments are barred by prescription
Held:
The answer is in the negative. In as much as the assessment notices for both
deficiency withholding tax on compensation and expanded withholding tax
were isssues on December 29, 1999, it would appear that both subject
deficiency assessments are time barred. However, since petitioner requested
for reinvestigation on October 15, 1998, and which was granted by respondent
in November 9, 1998, the running of the three-year period to assess was
suspended pursuant to Section 223 of the Tax Code.
Settled is the rule that when a taxpayer requests for a reinvestigation of an
assessment which was granted by respondent, the running of the period to
assess under Section 203 and 222 is suspended.

Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447

SCRA 214, G.R. No. 162852. December 16, 2004
Ynares-Santiago, J.
Facts:
In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax
return for the year 1994. In 1995, a tax audit was conducted by the Bureau
of Internal Revenue (BIR) where it was found that PJI was liable for a tax
deficiency. In September 1997, PJI asked that it be allowed to present its
evidence to dispute the finding. In the same month, the Comptroller of PJI
(Lorenza Tolentino) executed a waiver of the statute of limitations whereby
PJI agreed waived the running of the prescriptive period of the
government’s right to make an assessment. Said right was set to expire on
April 17, 1998 but due to the additional evidence that PJI sought to present,
the government needed more time.
And so a reinvestigation took place which yielded the same result – PJI is
liable for tax deficiencies. In December 1998, a formal assessment notice
(FAN) was sent via registered mail to PJI. Subsequently, a warrant for
distraint/levy was issued against the assets of PJI.
PJI filed a protest which eventually reached the Court of Tax Appeals. PJI
averred that the waiver executed by Tolentino was incomplete; that no
acceptance date was indicated to show that the waiver was accepted by
30 | M s . N o l a i d a A g u i r r e
BIR; that no copy was furnished PJI; that the waiver was an unlimited
waiver because it did not indicate as to how long the extension of the
prescriptive period should last. As such, there was no valid waiver of the
statute of limitations which in turn make the FAN issued in December 1998
void.
The Commissioner of Internal Revenue (CIR) argued that the placing of the
acceptance date is merely a formal requirement and not vital to the validity
of the waiver; that there is no need to furnish PJI a copy of the waiver
because in the first place, it was PJI, through its representative, who was
making the waiver so it should know about it; and that there is no need to
place a specific date as to how long the prescriptive period should be
extended because PJI was waiving the prescriptive period and was not
asking to extend it.
The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of
Appeals reversed the CTA as it ruled in favor of the CIR.
Issues:
1. Whether or notthat the assessment having been made beyond the 3-
year prescriptive period is null and void; and
2. Whether or not the CTA gravely erred when it ruled that failure to
comply with the provisions of Revenue Memorandum Order (RMO) No.
20-90 is merely a formal defect that does not invalidate the waiver of the
statute of limitations
Held:
The answers are in the Negative. The requirement to place the acceptance
date is not merely formal. The waiver of the statute of limitations is not a
unilateral act by the taxpayer. The BIR has to accept it hence the need for
a BIR representative to affix his signature and the date of acceptance.
There is also therefore a need to furnish a copy to the taxpayer for the
latter to be apprised that his waiver has been accepted. It must be noted
that the waiver is an agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is extended to a
date certain and not to waive the right to invoke the defense of prescription.
The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from
any unreasonable examination, investigation or assessment, our tax law
provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in
order to afford such protection.
CASE SYLLABI:
Same; Same; A waiver of the statute of limitations under the NIRC, to a
certain extent, is a derogation of the taxpayers’ right to security against
31 | M s . N o l a i d a A g u i r r e
prolonged and unscrupulous investigations and must therefore be
carefully and strictly construed; The law on prescription, being a
remedial measure, should be liberally construed in order to afford such
protection.—A waiver of the statute of limitations under the NIRC, to a certain
extent, is a derogation of the taxpayers’ right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed. The waiver of the statute 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 agreement between the taxpayer and the BIR that the period to issue
an assessment and collect the taxes due is extended to a date certain. The
waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally particularly where the language of the document is
equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.
Commissioner of Internal Revenue vs. Kudos Metal Corporation , 620
SCRA 232, G.R. No. 178087. May 5, 2010
Del Castillo, J.
Facts:
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual
Income Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of
Internal Revenue (BIR) served upon respondent three Notices of Presentation
of Records. Respondent failed to comply with these notices, hence, the BIR
issued a Subpoena Duces Tecum dated September 21, 2006, receipt of which
was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter
dated October 20, 2000.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant,
executed a Waiver of the Defense of Prescription, which was notarized on
January 22, 2002, received by the BIR Enforcement Service on January 31,
2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted
by the Assistant Commissioner of the Enforcement Service, Percival T.
Salazar (Salazar). This was followed by a second Waiver of Defense of
Prescription5 executed by Pasco on February 18, 2003, notarized on
February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003 and accepted by Assistant Commissioner Salazar.
A Preliminary Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand with

32 | M s . N o l a i d a A g u i r r e
Assess-ment Notices for taxable year 1998, dated September 26, 2003 which
was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its “Protest on Various Tax
Assessments” on December 3, 2003 and its “Legal Arguments and
Documents in Support of Protests against Various Assessments” on February
2, 2004.
Believing that the government’s right to assess taxes had prescribed,
respondent filed on August 27, 2004 a Petition for Review7 with the CTA. On
October 4, 2005, the CTA Second Division issued a Resolution canceling the
assessment notices issued against respondent for having been issued beyond
the prescriptive period. CTA en banc affirmed the decision of the CTA Second
Division. Hence, the present petition.
Issue:
Whether or not the government’s right to assess unpaid taxes of respondent
has prescribed
Held:
The Government is barred by prescription. The waivers executed by
respondent’s accountant did not extend the period within which the
assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the
three-year prescriptive period, but claims that the period was extended by the
two waivers executed by respondent’s accountant.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the
three-year period and are void.
In this case, the assessments were issued beyond the prescribed period. Also,
there is no showing that respondent made any request to persuade the BIR to
postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a
detailed procedure for the proper execution of the waiver, which the BIR must
strictly follow.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself
issued. As stated earlier, the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant, and to indicate the
date of acceptance and the receipt by the respondent of the waivers. Having
caused the defects in the waivers, the BIR must bear the consequence. It
cannot shift the blame to the taxpayer. To stress, a waiver of the statute of
limitations, being a derogation of the taxpayer’s right to security against
33 | M s . N o l a i d a A g u i r r e
prolonged and unscrupulous investigations, must be carefully and strictly
construed.
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use
this as an excuse for issuing the assessments beyond the three-year period
because with or without the required documents, the CIR has the power to
make assessments based on the best evidence obtainable.
CASE SYLLABUS
Civil Law; Doctrine of Estoppel; The doctrine of estoppel is predicated
on, and has its origin in equity which, broadly defined, is justice
according to natural law and right. As such, the doctrine of estoppel
cannot give validity to an act that is prohibited by law or one that is
against public policy.—The doctrine of estoppel cannot be applied in this
case as an exception to the statute of limitations on the assessment of taxes
considering that there is a detailed procedure for the proper execution of the
waiver, which the BIR must strictly follow. As we have often said, the doctrine
of estoppel is predicated on, and has its origin in, equity which, broadly
defined, is justice according to natural law and right. As such, the doctrine of
estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy. It should be resorted to solely as a means of preventing
injustice and should not be permitted to defeat the administration of the law, or
to accomplish a wrong or secure an undue advantage, or to extend beyond
them requirements of the transactions in which they originate. Simply put, the
doctrine of estoppel must be sparingly applied.

Rizal Commercial Banking Corporation vs. Commissioner of Internal

Revenue, 657 SCRA 70, G.R. No. 170257. September 7, 2011
Mendoza, J.
Facts:
On August 15, 1996, RCBC received Letter of Authority to examine the books
of accounts and other accounting records for all internal revenue taxes from
January 1, 1994 to December 31, 1995.4
On January 23, 1997, RCBC executed two Waivers of the Defense of
Prescription Under the Statute of Limitations of the National Internal Revenue
Code covering the internal revenue taxes due for the years 1994 and 1995,
effectively extending the period of the Bureau of Internal Revenue (BIR) to
assess up to December 31, 2000.
On January 27, 2000, RCBC received a Formal Letter of Demand together
with Assessment Notices from the BIR. Disagreeing with the said deficiency
tax assessment, RCBC filed a protest on February 24, 2000 and later

34 | M s . N o l a i d a A g u i r r e
submitted the relevant documentary evidence to support it. A reinvestigation
followed based on the newly submitted documentary evidence.
On December 6, 2000, RCBC received another Formal Letter of Demand with
Assessment Notices dated October 20, 2000, following the reinvestigation it
requested, which drastically reduced the original amount of deficiency
taxes .On the same day, RCBC paid the following deficiency taxes as
assessed by the BIR. RCBC, however, refused to pay the following
assessments for deficiency onshore tax and documentary stamp tax
RCBC argued that the waivers of the Statute of Limitations which it executed
on January 23, 1997 were not valid because the same were not signed or
conformed to by the respondent CIR as required under Section 222(b) of the
Tax Code. The CTA en banc denied the petition for lack of merit ruling that
RCBC was estopped from questioning the validity of the waivers.
While awaiting the decision of this Court, RCBC filed its Manifestation dated
July 22, 2009, informing the Court that this petition, relative to the DST
deficiency assessment, had been rendered moot and academic by its
payment of the tax deficiencies on Documentary Stamp Tax (DST) on Special
Savings Account (SSA) for taxable years 1994 and 1995 after the BIR
approved its applications for tax abatement.
Issue:
Whether petitioner, by paying the other tax assessment covered by the
waivers of the statute of limitations, is rendered estopped from questioning the
validity of the said waivers with respect to the assessment of deficiency
onshore tax.
Held:
Petitioner is estopped from questioning the validity of the waivers. Under
Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule
that “an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying
thereon.” A party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to prevent fraud
and falsehood.
Estoppel is clearly applicable to the case at bench. RCBC, through its partial
payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of those
waivers. Had petitioner truly believed that the waivers were invalid and that
the assessments were issued beyond the prescriptive period, then it should
not have paid the reduced amount of taxes in the revised assessment.
RCBC’s subsequent action effectively belies its insistence that the waivers are
invalid. The records show that on December 6, 2000, upon receipt of the
revised assessment, RCBC immediately made payment on the uncontested
taxes. Thus, RCBC is estopped from questioning the validity of the waivers.
35 | M s . N o l a i d a A g u i r r e
To hold otherwise and allow a party to gainsay its own act or deny rights
which it had previously recognized would run counter to the principle of equity
which this institution holds dear.
CASE SYLLABI:
Estoppel; A party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to prevent
fraud and falsehood.—Under Article 1431 of the Civil Code, the doctrine of
estoppel is anchored on the rule that “an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.” A party is precluded from
denying his own acts, admissions or representations to the prejudice of the
other party in order to prevent fraud and falsehood.
Taxation; Withholding Tax System; The withholding agent is liable only
insofar as he failed to perform his duty to withhold the tax and remit the
same to the government—the liability for the tax, however, remains with the
taxpayer because the gain was realized and received by him; The taxpayer
shares the responsibility of making certain that the tax is properly withheld by
the withholding agent, so as to avoid any penalty that may arise from the non-
payment of the withholding tax due.—Based on the foregoing, the liability of
the withholding agent is independent from that of the taxpayer. The former
cannot be made liable for the tax due because it is the latter who earned the
income subject to withholding tax. The withholding agent is liable only insofar
as he failed to perform his duty to withhold the tax and remit the same to the
government. The liability for the tax, however, remains with the taxpayer
because the gain was realized and received by him. While the payor-borrower
can be held accountable for its negligence in performing its duty to withhold
the amount of tax due on the transaction, RCBC, as the taxpayer and the one
which earned income on the transaction, remains liable for the payment of tax
as the taxpayer shares the responsibility of making certain that the tax is
properly withheld by the withholding agent, so as to avoid any penalty that
may arise from the non-payment of the withholding tax due. RCBC cannot
evade its liability for FCDU Onshore Tax by shifting the blame on the payor-
borrower as the withholding agent.

Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23,
1974
Esguerra, J.
Facts:
The late Matias H. Aznar who died on May 18, 1958, predecessor in interest
of herein petitioner, during his lifetime as a resident of Cebu City, filed his
income tax returns on the cash and disbursement basis from1945 TO 1951.
The Commissioner of Internal Revenue having his doubts on the veracity of
36 | M s . N o l a i d a A g u i r r e
the reported income of one obviously wealthy,caused B.I.R. Examiner Honorio
Guerrero to ascertain the taxpayer's true income for said years by using the
net worth and expenditures method of tax investigation. The assets and
liabilities of the taxpayer during the above-mentioned years were ascertained
and it was discovered that from 1946 to 1951, his net worth had increased
every year, which increases in net worth was very much more than the income
reported during said years.
Based on the above findings the BIR notified the taxpayer (Matias H. Aznar) of
the assessed tax delinquency. The taxpayer requested a reinvestigation which
was granted for the purpose of verifying the merits of the various objections of
the taxpayer to the deficiency income tax assessment of November 28, 1952.
The notice of final and last assessment was receive by the petitioner on March
2, 1955. Petitioner contends that 8 years had elapsed and the five year period
provided by law.
Issue:

Whether or not the right of the Commissioner of Internal Revenue to assess

deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947,
and 1948 had already prescribed at the time the assessment was made on
November 28, 1952.

Held:

The CIR is not barred. The ordinary period of prescription of 5 years within
which to assess tax liabilities under Sec. 331 of the NIRC should be applicable
to normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities due to false returns, fraudulent return intended to evade payment of
tax or failure to file returns, the period of ten years provided for in Sec. 332 (a)
NIRC, from the time of the discovery of the falsity, fraud or omission even
seems to be inadequate and should be the one enforced.

There being undoubtedly false tax returns in this case, the Court affirm the
conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the
NIRC should apply and that the period of ten years within which to assess
petitioner's tax liability had not expired at the time said assessment was made.

CASE SYLLABI:

Taxation; Income Tax; Assessments; Prescription; Proceeding for

collection of deficiency taxes based on false return, fraudulent return or
failure to file a return prescribes in ten years.—In the three different cases
of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to
file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud, or omission.

37 | M s . N o l a i d a A g u i r r e
Same; Same; Words and phrases; Distinction between false return and
fraudulent return explained.—Our stand that the law should be
interpreted to mean a separation of the three different situations of false
return, fraudulent return with intent to evade tax, and failure to file a
return is strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely—
“falsity”, “fraud” and “omission”. That there is a difference between “false
return” and “fraudulent return” cannot be denied. While the first merely implies
deviation from the truth, whether intentional or not, the second implies
intentional or deceitful entry with intent to evade the taxes due.
Same; Same; Assessments; Prescription; Ten year period of
prescription applies where the government is prevented from making
proper assessments.—The ordinary period of prescription of 5 years within
which to assess tax liabilities under Sec. 331 of the NIRC should be applicable
to normal circumstances, but whether the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities due to false returns, fraudulent returns intended to evade payment of
tax or failure to file returns, the period of ten years provided for in Sec. 332 (a)
NIRC, from the time of the discovery of the falsity, fraud or omission even
seems to be inadequate and should be the one enforced.
Republic vs. Ker & Company, Ltd., 18 SCRA 207, No. L-21609.
September 29, 1966
Bengzon, J.
Facts:

Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the
years 1947, 1948, 1949 and 1950. In 1953 the Bureau of Internal Revenue
examined and audited Ker & Co., Ltd.'s returns and books of accounts and
subsequently issued notices of assessment.
On March 15, 1962, the Bureau of Internal Revenue demanded payment of
the aforesaid assessments together with a surcharge of 5% for late payment
and interest at the rate of 1% monthly. Ker & Co., Ltd. refused to pay, instead
in its letters dated March 28, 1962 and April 10, 1962 it set up the defense of
prescription of the Commissioner's right to collect the tax. Subsequently, the
Republic of the Philippines filed on March 27, 1962 a complaint with the Court
of First Instance of Manila seeking collection of the aforesaid deficiency
income tax for the years 1947, 1948, 1949 and 1950. The complaint did not
allege fraud in the filing of any of the income tax returns for the years involved,
nor did it pray for the payment of the corresponding 50% surcharge, but it
prayed for the payment of 5% surcharge for late payment and interest of 1%
per month without however specifying from what date interest started to
accrue.
On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido, Andrada, Perez
& Associates, moved for the dismissal of the complaint on the ground that the
38 | M s . N o l a i d a A g u i r r e
court did not acquire jurisdiction over the person of the defendant and that
plaintiff's cause of action has prescribed. This motion was denied and
defendant filed a motion for reconsideration. Resolution on said motion,
however, was deferred until trial of the case on the merits.
The CFI dismisses the claim for the collection of deficiency income taxes for
1947, but orders defendant taxpayer to pay the deficiency income taxes for
1948, 1949 and 1950.
On February 20, 1963 the Republic of the Philippines filed a motion for
reconsideration contending that the right of the Commissioner of Internal
Revenue to collect the deficiency assessment for 1947 has not prescribed by
a lapse of merely five years and three months, because the taxpayer's income
tax return was fraudulent in which case prescription sets in ten years from
October 31, 1951, the date of discovery of the fraud, pursuant to Section 332
(a) of the Tax Codes and that the payment of delinquency interest of 1% per
month should commence from the date it fell due as indicated in the
assessment notices instead of on the date the complaint was filed.
On March 6, 1963 Ker & Co., Ltd. also filed a motion for reconsideration
reiterating its assertion that the Court of First Instance did not acquire
jurisdiction over its person, and maintaining that since the complaint was filed
nine years, one month and eleven days after the deficiency assessments for
1948, 1949 and 1950 were made and since the filing of its petition for review
in the Court of Tax Appeals did not stop the running of the period of limitations,
the right of the Commissioner of Internal Revenue to collect the tax in question
has prescribed.
Issue:
1. Whether or not right of the Commissioner of Internal Revenue to assess
deficiency income tax for the year 1947 prescribe; and
2. Whether or not taxpayer's income tax return for 1947 was fraudulent.
3. Whether or not the filing of a petition for review by the taxpayer in the
Court of Tax Appeals suspend the running of the statute of limitations to
collect the deficiency income for the years 1948, 1949 and 1950

Held:
On the first and second issues- the Court resolves the issues in the negative.
The Court resolved the issue without touching upon fraudulence of the return.
The reason is that the complaint alleged no fraud, nor did the plaintiff present
evidence to prove fraud.
This contention suffers from a flaw in that it fails to consider the well-settled
principle that fraud is a question of fact6 which must be alleged and
proved.Fraud is a serious charge and, to be sustained, it must be supported
by clear and convincing proof.Accordingly, fraud should have been alleged

39 | M s . N o l a i d a A g u i r r e
and proved in the lower court. On these premises the Supreme Court
therefore sustain the ruling of the lower court upon the point of prescription.
In this case however, Ker & Co., Ltd. raised the defense of prescription in the
proceedings below and the Republic of the Philippines, instead of questioning
the right of the defendant to raise such defense, litigated on it and submitted
the issue for resolution of the court. By its actuation, the Republic of the
Philippines should be considered to have waived its right to object to the
setting up of such defense.
On the third issue the pendency of the taxpayer’s appeal toll the running of the
prescriptive period. The running of the prescriptive period to collect the tax
shall be suspended for the period during which the Commissioner of Internal
Revenue is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter.
From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the
Court of Tax Appeals contesting the legality of the assessments in question,
until the termination of its appeal in the Supreme Court, the Commissioner of
Internal Revenue was prevented. Besides, to do so would be to violate the
judicial policy of avoiding multiplicity of suits and the rule on lis pendens.
Thus, did the taxpayer produce the effect of temporarily staying the hands of
the Commissioner of Internal Revenue simply through a choice of remedy.
And, if the Court were to sustain the taxpayer's stand, We would be
encouraging taxpayers to delay the payment of taxes in the hope of ultimately
avoiding the same. Under the circumstances, the Commissioner of Internal
Revenue was in effect prohibited from collecting the tax in question. This
being so, the provisions of Section 333 of the Tax Code will apply.
CASE SYLLABI:
Taxation; Deficiency income tax; Prescription of actions; Degree of
proof required to establish fraud.—Fraud is a question of fact (Gutierrez vs.
Court of Tax Appeals, 101 Phil. 713) which must be alleged and proved
(Section 12, Rule 15 [now Section 5, Rule 8], Rules of Court). It is a serious
charge and, to be sustained, it must be supported by clear and convincing
proof (Collector of Internal Revenue vs. Benipayo, L-13656, January 31, 1962).
In the instant case the filing by the taxpayer of a false return was neither
alleged in the complaint nor proved in court. Hence, the lower court correctly
resolved the issue of prescription without touching upon fraudulence of the
return.
Same; Failure to object to the setting up of defense of prescription.—The
assessment for deficiency income tax for 1947 has become final and
executory, and, therefore, defendant may not anymore raise defenses which
go into the merits of the assessment, i.e., prescription of the Commissioner's
right to assess the tax. (Republic of the Philippines vs. Albert, L-12996,
December 28, 1961; Republic of the Philippines vs. Lim Tian Teng Sons ,&
40 | M s . N o l a i d a A g u i r r e
Co., Inc., L-21731, March 31, 1966). However, defendant raised the defense
of prescription in the proceedings below, and the Republic of the Philippines,
instead of questioning the right of the defendant to raise such defense,
litigated on it and submitted the issue for resolution of the court. By its
actuation, the government should be considered to have waived its right to
object to the setting up of such defense.
Same; Suspension of prescriptive period; Effect of pendency of
appeal.—Under Section 333 of the Tax Code the running of the prescriptive
period to collect deficiency taxes shall be suspended for the period during
which the Commissioner of Internal Revenue is prohibited from beginning a
distraint and levy or instituting a proceeding in court, and for sixty days
thereafter. In the case at bar, the pendency of the taxpayer's appeal in the
Court of Tax Appeals and in the Supreme Court had the effect of temporarily
staying the hands of the said Commissioner. If the taxpayer's stand that the
pendency of the appeal did not stop the running of the period because the
Court of Tax Appeals did not have jurisdiction over the case is upheld,
taxpayers would be encouraged to delay the payment of taxes in the hope of
ultimately avoiding the same. Under the circumstances, the running of the
prescriptive period was suspended.
Collector of Internal Revenue vs. Suyoc Consolidated Mining
Company, et al., 104 Phil. 819, No. L-11527. November 25, 1958
Bautista Angelo, J.

Facts:

Due to the chaos caused by World War II, Congress extended the filing of
income tax returns for the year 1941. The extension was up to December 31,
1945. However, Suyoc Consolidated Mining Company (SCMC) due to lost
records requested the Commissioner of Internal Revenue (CIR) for further
extension. The same was granted and SCMC was allowed to file its return
until February 15, 1946. On February 12, 1946, SCMC filed a tentative income
tax return. On November 28, 1946, SCMC filed a second final return. In
February 1947, the CIR made an assessment notifying SCMC that is liable for
P33k in taxes. The CIR gave SCMC 3 months to pay but the latter failed to
make payment.

What followed was a series of negotiations as SCMC repeatedly asked for

reconsideration and reinvestigation. Due to SCMC’s requests, the CIR had to
revise the assessment several times. Eventually in July 1955, the CIR made a
final assessment notice (FAN) notifying SCMC that it is liable for P24k in taxes.
This time, SCMC questioned the validity of the assessment as it now alleged
that it was issued beyond the 5 year prescriptive period. The issue reached
the Court of Tax Appeals (CTA) which ruled that the assessment issued is
void because in the first place, when SCMC requested for a reinvestigation,
there was no agreement as to the extension of the prescriptive period; that a
mere request for reinvestigation does not automatically suspend the running
41 | M s . N o l a i d a A g u i r r e
of the prescriptive period. The CTA ruled that the FAN issued in 1955 was
already way beyond the 5 year prescriptive period.

Issue:

Whether or not the right of the BIR has prescribed

Held:

This is one case where a taxpayer is barred from setting up the defense of
prescription even though there was not a written agreement. It is true that
when a request for reinvestigation is made by the taxpayer, the same does not
toll the running of the prescriptive period unless there is a written agreement
between the CIR and the taxpayer. However, in this case, due to the repeated
requests of SCMC which were acted upon by the government for good
reasons the government was persuaded to delay the final assessment. The
applicable principle is fundamental and unquestioned. ‘He who prevents a
thing from being done may not avail himself of the nonperformance which he
has himself occasioned, for the law says to him in effect “this is your own act,
and therefore you are not damnified.” The tax could have been collected, but
the government withheld action at the specific request of SCMC. SCMC is
now estopped and should not be permitted to raise the defense of the Statute
of Limitations.

CASE SYLLABI:

Income Tax; Collection; Period of Limitation; Reexamina-tion or

Reinvestigation of Assessment does not Suspend Period of Limitation;
Exceptions.—A mere request for re-examination or reinvestigation of
assessment may not suspend the running of the period of limitation for in such
a case there is need of a written agreement to extend the period between the
Collector and the taxpayer. There are cases, however, where a taxpayer may
be prevented from setting up the defense of prescription even if he has not
previously waived it in writing as when by his repeated requests or positive
acts the Government has been, for good reasons, per-suaded to postpone
collection to make himself feel that the demand was not unreasonable or that
no harassment or in-justice is meant by the Government. And when such
situa-tion comes to pass there are authorities that hold, based on weighty
reasons, that such an attitude or behavior should not be countenanced if only
to protect the interest of the Government.
Id.; Id.; Id.; Government’s Action Withheld at Taxpayer’s Request;
Estoppel.—He who prevents a thing from being done may not avail himself of
the non-performance which he has himself occasioned, for the law says to him
in effect “this is your own act and therefore you are not damnified.” (R.H.
Stearns Co. vs. U.S. 78 L Ed. 6647). Or, as was aptly said, “The tax could
have been collected, but the government withheld action at the specific
request of the plaintiff. The plaintiff is now estopped and should not be

42 | M s . N o l a i d a A g u i r r e
permitted to raise the defense of the statute of limitations.” (Newpoint Co. vs.
U.S. (Dc-wis), 34 Off. Supp. 588.)
Commissioner of Internal Revenue vs. Philippine Global
Communication, Inc., 506 SCRA 427, G.R. No. 167146. October 31,
2006
Chico-Nazario, J.

Facts:

The Commissioner of Internal Revenue (CIR) issued Letter of Authority No.

0002307, authorizing the appropriate Bureau of Internal Revenue (BIR)
officials to examine the books of account and other accounting records of
respondent, in connection with the investigation of respondent’s 1990 income
tax liability. On April 22 1994, respondent received a Formal Assessment
Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for
deficiency income tax in the total amount of P118,271,672.00
On May 6, 1994 and May 23, 1994 respondent, through its counsels
filed two separate letters of protest. In both letters, respondent requested for
the cancellation of the tax assessment, which they alleged was invalid for lack
of factual and legal basis.
On 16 October 2002, more than eight years after the assessment was
presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law
Offices received from the CIR a Final Decision dated 8 October 2002 denying
the respondent’s protest against Assessment Notice No. 000688-80-7333,
and affirming the said assessment in toto
The CTA ruled on the primary issue of prescription and found it unnecessary
to decide the issues on the validity and propriety of the assessment. It
decided that the protest letters filed by the respondent cannot constitute a
request for reinvestigation, hence, they cannot toll the running of the
prescriptive period to collect the assessed deficiency income tax.
Thereafter, the CIR filed a Petition for Review with the CTA en banc,
questioning the aforesaid Decision and Resolution. In its en banc Decision,
the CTA affirmed the Decision and Resolution in CTA
Issue:
Whether or not CIR’s right to collect respondent’s alleged deficiency income
tax is barred by prescription under Section 269(c) of the Tax Code of 1977
Held:
The three-year period for collection of the assessed tax began to run on the
date the assessment notice had been released, mailed or sent by the BIR.

43 | M s . N o l a i d a A g u i r r e
The assessment, in this case, was presumably issued on 14 April 1994 since
the respondent did not dispute the CIR’s claim. Therefore, the BIR had
until 13 April 1997. However, as there was no Warrant of Distraint and/or
Levy served on the respondents nor any judicial proceedings initiated by the
BIR, the earliest attempt of the BIR to collect the tax due based on this
assessment was when it filed its Answer in CTA Case No. 6568 on 9 January
2003, which was several years beyond the three-year prescriptive
period. Thus, the CIR is now prescribed from collecting the assessed tax.
CASE SYLLABI:

Taxation; Prescription; The law increased the prescriptive period to

assess or to begin a court proceeding for the collection without an
assessment to ten years when a false or fraudulent return was filed with
the intent of evading the tax or when no return was filed at all.—The law
prescribed a period of three years from the date the return was actually filed or
from the last date prescribed by law for the filing of such return, whichever
came later, within which the BIR may assess a national internal revenue tax.
However, the law increased the prescriptive period to assess or to begin a
court proceeding for the collection without an assessment to ten years when a
false or fraudulent return was filed with the intent of evading the tax or when
no return was filed at all. In such cases, the ten-year period began to run only
from the date of discovery by the BIR of the falsity, fraud or omission.
Same; Same; The law provided another three years after the assessment
for the collection of the tax due thereon through the administrative
process of distraint and/or levy or through judicial proceedings—the
three year period for collection of the assessed tax began to run on the date
the assessment notice had been released, mailed or sent by the BIR.—If the
BIR issued this assessment within the threeyear period or the ten-year period,
whichever was applicable, the law provided another three years after the
assessment for the collection of the tax due thereon through the administrative
process of distraint and/or levy or through judicial proceedings. The three-year
period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.
Same; Same; The provisions on prescription in the assessment and
collection of national internal revenue taxes became law upon the
recommendation of the tax commissioner of the Philippines.—The
provisions on prescription in the assessment and collection of national internal
revenue taxes became law upon the recommendation of the tax commissioner
of the Philippines. The report submitted by the tax commission clearly states
that these provisions on prescription should be enacted to benefit and protect
taxpayers.
Same; Statute of Limitations; The statute of limitations on the collection
of taxes should benefit both the Government and the taxpayers.—In a
44 | M s . N o l a i d a A g u i r r e
number of cases, this Court has also clarified that the statute of limitations on
the collection of taxes should benefit both the Government and the taxpayers.
In these cases, the Court further illustrated the harmful effects that the delay in
the assessment and collection of taxes inflicts upon taxpayers. In Collector of
Internal Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 819
(1958), Justice Montemayor, in his dissenting opinion, identified the potential
loss to the taxpayer if the assessment and collection of taxes are not promptly
made.
Same; Same; The statute of limitations of actions for the collection of
taxes is justified by the need to protect law-abiding citizens from
possible harassment.—In Republic of the Philippines v. Ablaza, 108 Phil.
1105 (1960), this Court emphatically explained that the statute of limitations of
actions for the collection of taxes is justified by the need to protect law-abiding
citizens from possible harassment.
Same; Same; Though the statute of limitations for the collection of taxes
benefits both the Government and the taxpayer, it principally intends to
afford protection to the taxpayer against unreasonable investigation.—In
the recent case Bank of the Philippine Islands v. Commissioner of Internal
Revenue, 473 SCRA 205 (2005), this Court, in confirming these earlier rulings,
pronounced that: Though the statute of limitations on assessment and
collection of national internal revenue taxes benefits both the Government and
the taxpayer, it principally intends to afford protection to the taxpayer against
unreasonable investigation. The indefinite extension of the period for
assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes
after the expiration of a reasonable period of time.
Same; Same; Prescription; The law on prescription should be liberally
construed in order to protect taxpayers and that, as a corollary, the
exceptions to the law on prescription should be strictly con-strued.—In
Commissioner of Internal Revenue v. B.F. Goodrich, 303 SCRA 546 (1999),
this Court affirmed that the law on prescription should be liberally construed in
order to protect taxpayers and that, as a corollary, the exceptions to the law
on prescription should be strictly construed.
Same; Same; Same; Section 271 of the 1997 Tax Code provides
instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes could be
suspended even in the absence of waiver.—The Tax Code of 1977, as
amended, provides instances when the running of the statute of limitations on
the assessment and collection of national internal revenue taxes could be
suspended, even in the absence of a waiver, under Section 271 thereof which
reads: Section 224. Suspension of running of statute.—The running of the
statute of limitation provided in Sections 268 and 269 on the making of
assessments and the beginning of distraint or levy or a proceeding in court for
collection in respect of any deficiency, shall be suspended for the period
45 | M s . N o l a i d a A g u i r r e
during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a reinvestigation which is granted
by the Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or
collected x x x.
Same; Same; Same; Revenue Regulations No. 12-85, the Procedure
Governing Administrative Protests of Assessment of the Bureau of
Internal Revenue, defines two types of protest, the request for
reconsideration and the request for reinvestigation.—Revenue
Regulations No. 12-85, the Procedure Governing Administrative Protests of
Assessment of the Bureau of Internal Revenue, issued on 27 November 1985,
defines the two types of protest, the request for reconsideration and the
request for reinvestigation, and distinguishes one from the other in this
manner: x x x
Same; Same; Same; The main difference between the two types of
protests lies in the records or evidence to be examined by internal
revenue officers, whether there are existing records or newly discovered
or additional evidence; A request for reinvestigation, and not a request
for reconsideration, interrupts the running of the statute of limitations on
the collection of the assessed tax.—The main difference between these two
types of protests lies in the records or evidence to be examined by internal
revenue officers, whether these are existing records or newly discovered or
additional evidence. A re-evaluation of existing records which results from a
request for reconsideration does not toll the running of the prescription period
for the collection of an assessed tax. Section 271 distinctly limits the
suspension of the running of the statute of limitations to instances when
reinvestigation is requested by a taxpayer and is granted by the CIR. The
Court provided a clear-cut rationale in the case of Bank of the Philippine
Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005),
explaining why a request for reinvestigation, and not a request for
reconsideration, interrupts the running of the statute of limitations on the
collection of the assessed tax.
B. REQUISITES OF A VALID ASSESSMENT
Collector of Internal Revenue vs. Benipayo, 4 SCRA 182, No. L-13656.
January 31, 1962
Dizon, J.
Facts:
Respondent is the owner and operator of the Lucena Theater located in the
municipality of Lucena, Quezon. On October 3, 1953 Internal Revenue Agent
Romeo de Guia investigated respondent's amusement tax liability in
connection with the operation of said theater during the period from August,
46 | M s . N o l a i d a A g u i r r e
1952 to September, 1953. His finding was that during the years 1949 to 1951
the average ratio of adults and children patronizing the Lucena Theater was 3
to 1, i.e., for every three adults entering the theater, one child was also
admitted, while during the period in question. the proportion was reversed—
three children to one adult. From this he concluded that respondent must have
fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of
the amusement tax prescribed in Section 260 of the National Internal Revenue
Code.
On July 14, 1954. petitioner issued a deficiency amusement tax assessment
against respondent, demanding from the latter the payment of the total sum of
P12,152.93 within thirty days from receipt thereof. On August 16, 1954,
respondent filed the corresponding protest with the Conference Staff of the
Bureau of Internal Revenue.
Issue:
Whether or not there is sufficient evidence in the record showing that
respondent, during the period under review, sold and issued to his adult
customers two tax-free 20-centavo children's tickets, instead of one 40-
centavo ticket for each adult customer; to cheat or defraud the Government.
Held:
The assessment has no factual bases. Assessments should not be based on
mere presumptions no matter how reasonable or logical said presumptions
may be. Assuming arguendo that the average ratio of adults and children
patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does
not give rise to the inference that the same conditions existed during the years
in question (1952 and 1953). The fact that almost the same ratio existed
during the month of July, 1955 does not provide a sufficient inference on the
conditions in 1952 and 1953. x x x
"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 that the
circumstances in 1952 and 1953 are presumed to be the same as those
existing in 1949 to 1951 and July 1955. In the case under consideration there
are no substantial facts to support the assessment in question. x x x."
Fraud is a serious charge and, to be sustained, it must be supported by clear
and convincing proof which, in the present case, is 'lacking.
CASE SYLLABUS:
Taxation; Amusement taxes; Fraud should be supported by clear and
convincing proof.—To sustain the defective assessment against respondent
would amount to a finding that he had, for a considerable period of time,
cheated and defrauded the government by selling to each adult patron two
children's tax-free tickets instead of one ticket subject to the amusement tax
47 | M s . N o l a i d a A g u i r r e
provided for in Section 260 of the National Internal Revenue Code. Fraud is a
serious charge and, to be sustained, must be supported by clear and
convincing proof which, in this case, is lacking.
Commissioner of Internal Revenue vs. Enron Subic Power
Corporation, 576 SCRA 212, G.R. No. 166387. January 19, 2009
Corona, J.
Facts:
Enron, a domestic corporation registered with the Subic Bay Metropolitan
Authority as a freeport enterprise, filed its annual income tax return for the
year 1996 on April 12, 1997.
On May 26, 1999, Enron received from the CIR a formal assessment notice6
requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the
taxable year 1996. Enron protested this deficiency tax assessment.
Due to the non-resolution of its protest within the 180-day period, Enron filed a
petition for review in the Court of Tax Appeals (CTA). It argued that the
deficiency tax assessment disregarded the provisions of Section 228 of the
National Internal Revenue Code (NIRC), as amended,8 and Section 3.1.4 of
Revenue Regulations (RR) No. 12-999 by not providing the legal and factual
bases of the assessment. Enron likewise questioned the substantive validity of
the assessment.
Issue:
Whether or not the notice of assessment complied with the requirements of
NIRC and RR No. 12-99
Held:
The CIR did not complied with requirements laid down by NIRC and RR No.
12-99. The advice of tax deficiency, given by the CIR to an employee of Enron,
as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the assessment.
These steps were mere perfunctory discharges of the CIR’s duties in correctly
assessing a taxpayer. The requirement for issuing a preliminary or final notice,
as the case may be, informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of what such notice
must contain. Just because the CIR issued an advice, a preliminary letter
during the pre-assessment stage and a final notice, in the order required by
law, does not necessarily mean that Enron was informed of the law and facts
on which the deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated
in the formal letter of demand and assessment notice. Thus, such cannot be
presumed. Otherwise, the express provisions of Article 228 of the NIRC and
RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the
48 | M s . N o l a i d a A g u i r r e
advice, preliminary letter and “audit working papers” did not suffice. There was
no going around the mandate of the law that the legal and factual bases of the
assessment be stated in writing in the formal letter of demand accompanying
the assessment notice.
“Verily, taxes are the lifeblood of the Government and so should be collected
without unnecessary hindrance. However, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for the
Government itself.”
CASE SYLLABI:
Taxation; A taxpayer must be informed in writing of the legal and factual
bases of the tax assessment made against him.—It is clear from the
foregoing that a taxpayer must be informed in writing of the legal and factual
bases of the tax assessment made against him. The use of the word “shall” in
these legal provisions indicates the mandatory nature of the requirements laid
down therein. We note the CTA’s findings: In [this] case, [the CIR] merely
issued a formal assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due thereon. The Revenue
Officers of the [the CIR] in the issuance of the Final Assessment Notice did
not provide Enron with the written bases of the law and facts on which the
subject assessment is based. [The CIR] did not bother to explain how it
arrived at such an assessment. Moreso, he failed to mention the specific
provision of the Tax Code or rules and regulations which were not complied
with by Enron.
Same; The advice of tax deficiency, given by the Commissioner of
Internal Revenue (CIR) to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory
notice in writing of the legal and factual bases of the assessment.—The
advice of tax deficiency, given by the CIR to an employee of Enron, as well as
the preliminary five-day letter, were not valid substitutes for the mandatory
notice in writing of the legal and factual bases of the assessment. These steps
were mere perfunctory discharges of the CIR’s duties in correctly assessing a
taxpayer. The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment
is markedly different from the requirement of what such notice must contain.
Just because the CIR issued an advice, a preliminary letter during the pre-
assessment stage and a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.
Same; Tax Assessment; The law requires that the legal and factual
bases of the assessment be stated in the formal letter of demand and
assessment notice.—The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and assessment notice.
Thus, such cannot be presumed. Otherwise, the express provisions of Article
49 | M s . N o l a i d a A g u i r r e
228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged
“factual bases” in the advice, preliminary letter and “audit working papers” did
not suffice. There was no going around the mandate of the law that the legal
and factual bases of the assessment be stated in writing in the formal letter of
demand accompanying the assessment notice.
Same; Same; In view of the absence of a fair opportunity for Enron to be
informed of the legal and factual bases of the assessment against it, the
assessment in question was void.—We note that the old law merely
required that the taxpayer be notified of the assessment made by the CIR.
This was changed in 1998 and the taxpayer must now be informed not only of
the law but also of the facts on which the assessment is made. Such
amendment is in keeping with the constitutional principle that no person shall
be deprived of property without due process. In view of the absence of a fair
opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. We reiterate our
ruling in Reyes v. Almanzor, et al., 196 SCRA 322 (1991): Verily, taxes are the
lifeblood of the Government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law
as any arbitrariness will negate the very reason for the Government itself.
Commissioner of Internal Revenue vs. Reyes, 480 SCRA 382, G.R. No.
159694. January 27, 2006
Panganiban, CJ.
Facts:
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In
1997, a tax audit was conducted on the estate. Meanwhile, the National
Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the
estate was issued a final assessment notice (FAN) demanding the estate to
pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s
liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one
of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR)
nevertheless issued a warrant of distraint and/or levy. Reyes again protested
the warrant but in March 1999, she offered a compromise and was willing to
pay P1 million in taxes. Her offer was denied. She continued to work on
another compromise but was eventually denied. The case reached the Court
of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes
received a favorable judgment.
Issue:
Whether or not the formal assessment notice is valid.
Held:
No. The NIRC of 1997 was already in effect when the FAN was issued. Under
Section 228 of the NIRC, taxpayers shall be informed in writing of the law and
50 | M s . N o l a i d a A g u i r r e
the facts on which the assessment is made: otherwise, the assessment shall
be void. In the case at bar, the FAN merely stated the amount of liability to be
shouldered by the estate and the law upon which such liability is based.
However, the estate was not informed in writing of the facts on which the
assessment of estate taxes had been made. The estate was merely informed
of the findings of the CIR. Section 228 of the NIRC being remedial in nature
can be applied retroactively even though the tax investigation was conducted
prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of
a compromise, any proceeding emanating from the invalid FAN is void
including the issuance of the warrant of distraint and/or levy.
CASE SYLLABI:
Taxation; Assessment; Taxpayers shall be informed in writing of the law
and the facts on which the assessment is made, otherwise, the
assessment shall be void.—The second paragraph of Section 228 of the
Tax Code is clear and mandatory. It provides as follows: “Sec. 228.
Protesting of Assessment.—x x x x x x x x x “The taxpayers shall be
informed in writing of the law and the facts on which the assessment is made:
otherwise, the assessment shall be void.”
Same; Same; The old requirement of merely notifying the taxpayer of the
CIR’s findings was changed in 1998 to informing the taxpayer of not only
the law but also of the facts on which an assessment would be made.—
RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR’s
findings was changed in 1998 to informing the taxpayer of not only the law,
but also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
Same; Same; Statutes; Statutory Construction; Statutes that are
remedial, or that do not create new or take away vested rights, do not fall
under the general rule against the retroactive operation of statutes; RA
8424 does not state, either expressly or by necessary implication, that
pending actions are excepted from the operation of Section 228, or that
applying it to pending proceedings would impair vested rights.—The
general rule is that statutes are prospective. However, statutes that are
remedial, or that do not create new or take away vested rights, do not fall
under the general rule against the retroactive operation of statutes. Clearly,
Section 228 provides for the procedure in case an assessment is protested.
The provision does not create new or take away vested rights. In both
instances, it can surely be applied retroactively. Moreover, RA 8424 does not
state, either expressly or by necessary implication, that pending actions are
excepted from the operation of Section 228, or that applying it to pending
proceedings would impair vested rights.
Same; Same; Same; Same; A tax regulation is promulgated by the
finance secretary to implement the provisions of the Tax Code; The
51 | M s . N o l a i d a A g u i r r e
absence of the regulation does not automatically mean that the law itself
would become inoperative.—The non-retroactive application of Revenue
Regulation (RR) No. 12-99 is of no moment, considering that it merely
implements the law. A tax regulation is promulgated by the finance secretary
to implement the provisions of the Tax Code. While it is desirable for the
government authority or administrative agency to have one immediately
issued after a law is passed, the absence of the regulation does not
automatically mean that the law itself would become inoperative.
Same; Same; Same; Same; An administrative rule interpretive of a
statute and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of
the statute.—An administrative rule interpretive of a statute, and not
declarative of certain rights and corresponding obligations, is given retroactive
effect as of the date of the effectivity of the statute. RR 12-99 is one such rule.
Being interpretive of the provisions of the Tax Code, even if it was issued only
on September 6, 1999, this regulation was to retroact to January 1, 1998—a
date prior to the issuance of the preliminary assessment notice and demand
letter.
Same; Same; Same; Same; In case of discrepancy between the law as
amended and its implementing but old regulation, the former necessarily
prevails; Between Section 228 of the Tax Code and the pertinent
provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law.—Section 228 has replaced Section 229.
The provision on protesting an assessment has been amended. Furthermore,
in case of discrepancy between the law as amended and its implementing but
old regulation, the former necessarily prevails. Thus, between Section 228 of
the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand
because it cannot go beyond the provision of the law. The law must still be
followed, even though the existing tax regulation at that time provided for a
different procedure. The regulation then simply provided that notice be sent to
the respondent in the form prescribed, and that no consequence would ensue
for failure to comply with that form.
Same; Same; To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal
principle in administrative investigations: that taxpayers should be able
to present their case and adduce supporting evidence.—The law imposes
a substantive, not merely a formal, requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is evidently violative
of the cardinal principle in administrative investigations: that taxpayers should
be able to present their case and adduce supporting evidence. In the instant
case, respondent has not been informed of the basis of the estate tax liability.
Without complying with the unequivocal mandate of first informing the
taxpayer of the government’s claim, there can be no deprivation of property,
because no effective protest can be made. The haphazard shot at slapping an
52 | M s . N o l a i d a A g u i r r e
assessment, supposedly based on estate taxation’s general provisions that
are expected to be known by the taxpayer, is utter chicanery.
Same; Same; Although taxes are the lifeblood of the government, their
assessment and collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself.—
Even a cursory review of the preliminary assessment notice, as well as the
demand letter sent, reveals the lack of basis for—not to mention the
insufficiency of—the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or
capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection “should be made in accordance with law as
any arbitrariness will negate the very reason for government itself.”
Same; Same; Failure to comply with Section 228 does not only render
the assessment void, but also finds no validation in any provision in the
Tax Code.—Tax laws are civil in nature. Under our Civil Code, acts executed
against the mandatory provisions of law are void, except when the law itself
authorizes the validity of those acts. Failure to comply with Section 228 does
not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax
officials, as they are expected to be vigilant and law-abiding.
A Brown Co., Inc., vs Commissioner of Internal Revenue, CTA Case
No. 6357, June 7, 2004
Acosta, J.
Facts:
In November 1998, the Bureau of Internal Revenue, through one of its
Revenue District Office conducted a tax investigation on the books of
accounts of A. Brown Co., Inc. (ABCI) for the period of 1997. The examiner
found that ABCI is liable for a tax deficiency amounting to P4.5 million.
On January 4, 2001, the Commissioner of Internal Revenue (CIR) issued a
Preliminary Assessment Notice against ABCI advising the latter that it is
liable to pay an amount more than P132 million for tax deficiencies. The
said notice was however sent to ABCI’s former business address even
though the CIR has been informed of ABCI’s change of address. ABCI was
only able to receive said letter on January 15, 2001. On January 19, 2001,
the CIR issued another set of Assessments with Formal Demand against
ABCI. Thereafter, ABCI filed a protest.
Issue:
Whether or not ABCI was deprived of procedural due process.
Held:

53 | M s . N o l a i d a A g u i r r e
The CIR violated Section 228 of the National Internal Revenue Code as
well as Revenue Regulations 12-85 and 12-99 and Revenue Memorandum
Order 37-94.
Among the violations committed by the CIR are:
Demanding a tax deficiency not reflective of the tax investigation
conducted. Here, the investigation found ABCI liable for P4.5 million yet
the CIR is demanding P132 million plus.
No valid service of the pre-assessment notice because the Pre-
assessment notice were sent to the wrong address. The notice should
have been delivered by registered mail or personally to ABCI, and ABCI or
its representative should receive personally.
Assuming arguendo that there was a valid service of the notice, ABCI was
deprived its right to present its side of the case. ABCI finally received the
notice on January 15, 2001. Thereafter, ABCI should have 15 days to file a
reply yet on January 19, 2001, the CIR immediately made an Assessment
with Formal Demand.
These lapses rendered the subject assessments null and void. Taxation is
indeed indispensable but nevertheless, the prescribed procedure pursuant
thereto should be complied with. . If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been
observed.
Commissioner of Internal Revenue vs. Menguito, 565 SCRA 461, G.R.
No. 167560. September 17, 2008
Austria-Martinez, J.
Facts:
Dominador Menguito and his wife are the owners of Copper Kettle Catering
Services, Inc. (CKCSI). They also operate several restaurant branches in the
Philippines. One such branch was the Copper Kettle Cafeteria Specialist
(CKCS) in Club John Hay, Baguio City. The branch was registered as a sole
proprietorship. In September 1997, a formal assessment notice (FAN) was
issued against the spouses and they were adjudged to pay P34 million in
deficiency taxes for the years 1991 to 1993. The Bureau of Internal Revenue
found that in order for CKCS to operate in Club John Hay, a contract was
entered into by CKCSI and Club John Hay; hence, CKCS and CKCSI are one
and the same.
Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the
assessment notice. She asked for more time to sort the issue. Later, when
Menguito eventually filed a protest, he denied, through his witness (Ma.
Therese Nalda, CKCS employee), receiving the FAN; that the FAN was
54 | M s . N o l a i d a A g u i r r e
addressed to the wrong person because it was addressed to CKCSI not
CKCS. He presented as evidence a photocopy of the articles of incorporation
(AOI) of CKCSI.
On the other hand, the Commissioner of Internal Revenue (CIR) presented
proof of the due mailing of the FAN. It however was not able to prove that it
issued a pre-assessment notice (PAN) or a post-assessment notice.
Issue:
Whether or not respondent was denied due process for failure of petitioner to
validly serve respondent with the post-reporting and pre-assessment notices
as required by law
HELD:
The assessment notices are valid. More importantly, Menguito and his wife
are in estoppel because they already acknowledged the receipt of the FAN
through the letter sent by Mrs. Menguito to the BIR. They cannot later on deny
the receipt of the FAN. Worse, it should be Menguito who should be directly
denying the receipt and not through an employee (Nalda) who was not even
an employee of the spouses when the FAN was issued and received in 1997.
It was only in 1998 that Nalda was employed by CKCS. Since Menguito did
not legally deny the receipt of the FAN, the presumption that he actually
received it still subsists. Further, based on the records, Menguito, in the
stipulation of facts, acknowledged the receipt of the FAN.
Anent the issue of the non-issuance of the PAN, the same is not vital to due
process. The Supreme Court
afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue
and the Court of Tax Appeals, as described earlier, and cannot be raised now
via Petition for Certiorari, under the pretext of grave abuse of discretion. The
course of action taken by the petitioner reflects his disregard or even
repugnance of the established institutions for governance in the scheme of a
well-ordered society. The subject tax assessments having become final,
executory and enforceable, the same can no longer be contested by means of
a disguised protest. In the main, Certiorari may not be used as a substitute for
a lost appeal or remedy. This judicial policy becomes more pronounced in
view of the absence of sufficient attack against the actuations of government.
Due Process; Equity; Where there was an opportunity to raise objections
to government action, and such opportunity was disregarded, for no
justifiable reason, the party claiming oppression then becomes the
oppressor of the orderly functions of the government; He who comes to
court must come with clean hands, otherwise he not only taints his
name, but ridicules the very structure of established authority.—The
foregoing notwithstanding, the record shows that notices of warrants of
distraint and levy of sale were furnished the counsel of petitioner on April 7,
1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his
55 | M s . N o l a i d a A g u i r r e
office at the Batasang Pambansa. We cannot therefore, countenance
petitioner’s insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity
was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who comes
to court must come with clean hands. Otherwise, he not only taints his name,
but ridicules the very structure of established authority.
Prulife of UK Insurance Corporation vs Commissioner of Internal
Revenue, CTA Case No. 6774, September 11, 2007
Castañeda, J.
Facts:
Herein petitioner is a successor-in-interest of Allstate Life Insurance Company
of the PH Inc. (Allstate), a duly registered corporation. Respondent issued
Assessment/Demand Notices addressed to Allstate finding to be liable of the
amount P 5, 756,316.21 which serves as the premium and documentary
stamp taxes and compromise penalties. On 21 February 2003, petitioner
seasonably protested the Assessment/Demand Notices and attached
documents in support of its protests. Petitioner wrote a letter to the BIR District
officer relative to the re-investigation of the case. The re-investigation has not
been terminated as of 19 September 2003.
Issue:
Whether or not the petitioner failed to submit relevant supporting documents
relative to the premium tax within 60 days from the filing of the protest on 21
February 2003, and if som whether such failure is in violation of Section 228 of
the 1997 Tax Code so as to render the Assessment Notices and demand
letters all dated 24 January 2003, final, executor and demandable.
Held:
Upon reviewing the assessment notices for the deficiency premium tax and
documentary stamp tax, the court finds the same to be factual and legally
supported. The assessment/demand notices showed detailed computations
and applicable provisions of the NIRC arriving at the amount of the deficiency
taxes. The figures used in the computation
The same, however, cannot be said about the compromise penalties imposed
by respondent. The Court has no jurisdiction to compel a taxpayer to pay the
compromise penalty because by its very nature, it implies a mutual agreement
between the parties in respect to the thing or subject matter which is so
compromised, and the choice of paying or not paying it distinctly belongs to
the taxpayer. Absent any showing that petitioner consented to the
compromise penalty, its imposition should be deleted. The imposition of the
compromise penalty without the conformity of the taxpayer is illegal and
unauthorized. Considering that respondent had not shown that petitioner
56 | M s . N o l a i d a A g u i r r e
conformed to the imposition of the compromise penalty, the compromise
penalty is deleted.
Notwithstanding petitioner's lack of relevant documents in support of its
protest insofar as the premium tax assessment is concerned, that assessment
did not attain finality as respondent argued. The only effect of petitioner's lack
of supporting documents submitted is that it lost its chance of further
contesting the premium tax assessment.
"xxx [T]he finality of the assessment, as worded in the provision
of law, simply means that where the taxpayer decides to forego
with its opportunity to present the documents in support of
its claim within sixty {60) days from the filing of its protest, it
merely lost its chance to further contest the assessment.
Effectively, its non-compliance with the submission of the
necessary documents would either mean that the petitioner
no longer wishes to further submit any document for the
reason that its protest letter filed was more than enough to
support its claim, or that the petitioner failed to comply thus
it can no longer give justification with regard to its
objections as to the correctness of the assessment notices.
Nonetheless, the necessity of the submission of the supporting
documents lies on the petitioner. It cannot be left to the discretion
of the respondent for in doing so would leave the petitioner's case
at the mercy of the whims of the respondent. In other words, it is
for the petitioner to decide whether or not supporting documents
are necessary to support its protest, for it is in the best position,
being the affected party to the assessment, to determine which
documents are necessary and essential to garner a favorable
decision from the respondent." (Emphasis supplied)
ABN-AMRO Savings Bank Corp. vs Commissioner of Internal Revenue,
CTA Case Np. 7089, September 10, 2008
Acosta, P.J.
Facts:
Petitioner is a domestic corporation duly registered with SEC and duly
authorized by the BSP to engage in commercial banking. On 30 December
2003, respondent sent to petitioner a FAN, assessing petitioner deficiency
documentary stamp tax for the taxable year 1999 in the amount of P167,
886,906.79, inclusive of penalties.
Respondent claims that petitioner failed to pay the DST due on reverse
repurchase agreements with the BSP and that the said agreements are
considered as “deposit substitutes” hence taxable pursuant to then Sec. 180
of 1997 Tax Code.
57 | M s . N o l a i d a A g u i r r e
On January 28, 2004, Petitioner filed its protest letter pursuant to Sec. 228 of
the 1997 Tax Code. Due to the alleged failure of the respondent to act on the
said protest, petitioner filed on 25 October 2004 a petition for review praying
for the cancellation of the aforesaid deficiency documentary stamp tax
assessment.
Issue:
Whether or not petitioner is liable to pay the deficiency documentary stamp tax
assessment for taxable year 1999.
Held:
The CTA dismissed the case for lack of jurisdiction. The Court of Tax Appeals
is a court of special jurisdiction and as such it can take cognizance only of
such matters as are clearly within its jurisdiction. Its jurisdiction may only be
invoked in the particular instances enumerated in Section 7 of Republic Act
No. 1125 as amended by Section 7 of Republic Act No. 9282. The Court's
exclusive appellate jurisdiction to review by appeal inaction by the
Commissioner of Internal Revenue in cases involving disputed assessment is
conferred under Section 7(a)(2) of Republic Act No. 9282. As an added
requirement, Section 11 of the same law provides that "any party adversely
affected by inaction of the Commissioner of Internal Revenue may appeal with
the CTA within thirty (30) days after the expiration of the period fixed by law."
The Supreme Court emphasized that the requirement to file a Petition for
Review with the Court of Tax Appeals within 30 days is jurisdictional and
failure to comply therewith would bar the appeal and deprive the said Court of
its jurisdiction to entertain and determine the correctness of the assessment.
Such period is not merely directory but mandatory and it is beyond the power
of the courts to extend the same.
The case at bar reveals that the petitioner filed its letter protest on January 28,
2004, therefore, it has sixty (60) days, until March 28, 2004, within which to
submit the relevant supporting documents. Records of the case, however, is
bereft of proof that petitioner had submitted the relevant documents on or
before March 28, 2004, 
therefore, applying the pronouncement in the
Oceanic case, the 180-day period shall be reckoned from the filing of the
protest on January 28, 2004, which ends on July 26, 2004.
In the RCBC case, the Supreme Court held that in case the Commissioner
failed to act on the disputed assessment within the 180-day period, a taxpayer
can either: 1) file a petition for review with the Court of Tax Appeals within 30
days after the expiration of the 180-day period; or 2) await the final decision of
the Commissioner on the disputed assessments and appeal such final
decision to the Court of Tax Appeals within 30 days after receipt of a copy of
such decision. However, these options are mutually exclusive, and resort to
one bars the application of the other.

58 | M s . N o l a i d a A g u i r r e
 Commission of Internal Revenue vs. First Express Pawnshop
Company, Inc., 589 SCRA 253, G.R. Nos. 172045-46, June 16, 2009
Carpio, J.
Facts:
CIR issued assessment notices against Respondent for deficiency income
tax, VAT and documentary stamp tax on deposit on subscription and on
pawn tickets. Respondent filed its written protest on the assessments.
When CIR did not act on the protest during the 180-day period, respondent
filed a petition before the CTA.

Issue:
Has Respondent’s right to dispute the assessment in the CTA prescribed?
Held:
NO. The assessment against Respondent has not become final and
unappealable. It cannot be said that respondent failed to submit relevant
supporting documents that would render the assessment final because
when respondent submitted its protest, respondent attached all the
documents it felt were necessary to support its claim. Further, CIR cannot
insist on the submission of proof of DST payment because such document
does not exist as respondent claims that it is not liable to pay, and has not
paid, the DST on the deposit on subscription.
The term "relevant supporting documents" are those documents necessary
to support the legal basis in disputing a tax assessment as determined by
the taxpayer. The BIR can only inform the taxpayer to submit additional
documents and cannot demand what type of supporting documents should
be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which
may require the production of documents that a taxpayer cannot submit.
Since the taxpayer is deemed to have submitted all supporting documents
at the time of filing of its protest, the 180-day period likewise started to run
on that same date.
CASE SYLLABI:
Same; Same; Section 228 states that if the protest is not acted upon
within 180 days from submission of documents, the taxpayer
adversely affected by the inaction may appeal to the Court of Tax
Appeals (CTA) within 30 days from the lapse of the 180-day period.—
Section 228 states that if the protest is not acted upon within 180 days
from submission of documents, the taxpayer adversely affected by the
inaction may appeal to the CTA within 30 days from the lapse of the 180-
day period. Respondent, having submitted its supporting documents on the
same day the protest was filed, had until 31 July 2002 to wait for
59 | M s . N o l a i d a A g u i r r e
petitioner’s reply to its protest. On 28 August 2002 or within 30 days after
the lapse of the 180-day period counted from the filing of the protest as the
supporting documents were simultaneously filed, respondent filed a
petition before the CTA.
A. COMMISSIONER OF INTERNAL REVENUE RENDERS A
DECISION ON THE DISPUTES ASSESSMENT
Oceanic Wireless Network, Inc. vs. Commissioner of Internal Revenue,
477 SCRA 205, G.R. No. 148380. December 9, 2005.
Azcuna, J.
Facts:
Petitioner Oceanic Wireless Network, Inc. challenges the authority of the
Chief of the Accounts Receivable and Billing Division of the Bureau of
Internal Revenue (BIR) National Office to decide and/or act with finality on
behalf of the Commissioner of Internal Revenue (CIR) on protests against
disputed tax deficiency assessments.
On March 17, 1988, petitioner received from the Bureau of Internal
Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the
total amount of P8,644,998.71. Petitioner filed its protest against the tax
assessments and requested a reconsideration or cancellation of the same
in a letter to the BIR Commissioner dated April 12, 1988.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts
Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax
assessments while denying petitioner’s request for reinvestigation in a
letter dated January 24, 1991,
Said letter likewise requested petitioner to pay the total amount
of P8,644,998.71 within ten (10) days from receipt thereof, otherwise the
case shall be referred to the Collection Enforcement Division of the BIR
National Office for the issuance of a warrant of distraint and levy without
further notice.
Upon petitioner’s failure to pay the subject tax assessments within the
prescribed period, the Assistant Commissioner for Collection, acting for the
Commissioner of Internal Revenue, issued the corresponding warrants of
distraint and/or levy and garnishment. These were served on petitioner on
October 10, 1991 and October 17, 1991, respectively.
On November 8, 1991, petitioner filed a Petition for Review with the Court
of Tax Appeals (CTA) to contest the issuance of the warrants to enforce
the collection of the tax assessments. This was docketed as CTA Case No.
4668.
The CTA dismissed the petition for lack of jurisdiction in a decision dated
September 16, 1994, declaring that said petition was filed beyond the thirty
60 | M s . N o l a i d a A g u i r r e
(30)-day period reckoned from the time when the demand letter of January
24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division
was presumably received by petitioner.
Petitioner filed a Motion for Reconsideration arguing that the demand letter
of January 24, 1991 cannot be considered as the final decision of the
Commissioner of Internal Revenue on its protest because the same was
signed by a mere subordinate and not by the Commissioner himself.
With the denial of its motion for reconsideration, petitioner consequently
filed a Petition for Review with the Court of Appeals .The Court of Appeals
denied the petition in a decision dated October 31, 2000.
Issue:
Whether or not a demand letter for tax deficiency assessments issued and
signed by a subordinate officer who was acting in behalf of the
Commissioner of Internal Revenue, is deemed final and executory and
subject to an appeal to the Court of Tax Appeals.
Held:
In this case, the letter of demand dated January 24, 1991, unquestionably
constitutes the final action taken by the Bureau of Internal Revenue on
petitioner’s request for reconsideration when it reiterated the tax deficiency
assessments due from petitioner, and requested its payment. Failure to do so
would result in the “issuance of a warrant of distraint and levy to enforce its
collection without further notice.”In addition, the letter contained a notation
indicating that petitioner’s request for reconsideration had been denied for lack
of supporting documents.
The demand letter indeed attained finality despite the fact that it was issued
and signed by the Chief of the Accounts Receivable and Billing Division
instead of the BIR Commissioner.
The tax or any deficiency tax so assessed shall be paid upon notice and
demand from the Commissioner or from his duly authorized
representative. . . .” Thus, the authority to make tax assessments may be
delegated to subordinate officers. Said assessment has the same force and
effect as that issued by the Commissioner himself, if not reviewed or revised
by the latter such as in this case.
CASE SYLLABI:
Taxation; A demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested assessment.—A
demand letter for payment of delinquent taxes may be considered a decision
on a disputed or protested assessment. The determination on whether or not
a demand letter is final is conditioned upon the language used or the tenor of
the letter being sent to the taxpayer.

61 | M s . N o l a i d a A g u i r r e
Same; The Commissioner of Internal Revenue should always indicate to
the taxpayer in clear and unequivocal language what constitutes his
final determination of the disputed assessment.—We laid down the rule
that the Commissioner of Internal Revenue should always indicate to the
taxpayer in clear and unequivocal language what constitutes his final
determination of the disputed assessment, thus: . . . we deem it appropriate to
state that the Commissioner of Internal Revenue should always indicate to the
taxpayer in clear and unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes his final determination on
the disputed assessment, as contemplated by Sections 7 and 11 of Republic
Act No. 1125, as amended. On the basis of his statement indubitably showing
that the Commissioner’s communicated action is his final decision on the
contested assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless difficulty, the
taxpayer would be able to determine when his right to appeal to the tax court
accrues.
B. REMEDY OF THE TAXPAYER
Lascona Land Co. Inc. vs. Commission of Internal Revenue, 667
SCRA 455, G.R. No. 171251. March 5, 2012
Peralta, J.
Facts:
On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued
Assessment Notice No. 0000047-93-407against Lascona Land Co., Inc.
(Lascona) informing the latter of its alleged deficiency income tax for the year
1993 in the amount of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied
by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of
Internal Revenue, Revenue Region No. 8, Makati City, in his
Letter[dated March 3, 1999. Said letter denied the protest for the reason that
the case was not appealed to the CTA after the lapsed of 180 days from day
of filing the said protests.
On April 12, 1999, Lascona appealed the decision before the CTA and was
docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional
Director erred in ruling that the failure to appeal to the CTA within thirty (30)
days from the lapse of the 180-day period rendered the assessment final and
executory.
The CIR, however, maintained that Lascona's failure to timely file an appeal
with the CTA after the lapse of the 180-day reglementary period provided
under Section 228 of the National Internal Revenue Code (NIRC) resulted to
the finality of the assessment. On January 4, 2000, the CTA, in its
Decision,nullified the subject assessment.

62 | M s . N o l a i d a A g u i r r e
On March 3, 2000, the CTA denied the CIR's motion for reconsideration for
lack of merit.The CIR filed an appeal before the CA. The Court of Appeals
granted the CIR's petition and set aside the Decision dated January 4, 2000 of
the CTA and its Resolution dated March 3, 2000. It further declared that the
subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as
final, executory and demandable.
Issue:
Whether the subject assessment has become final, executory and
demandable due to the failure of petitioner to file an appeal before the CTA
within thirty (30) days from the lapse of the One Hundred Eighty (180)-day
period pursuant to Section 228 of the NIRC.
Held:
The Court decided in favor of Lascona. In RCBC v. CIR,the Court has held
that in case the Commissioner failed to act on the disputed assessment within
the 180-day period from date of submission of documents, a taxpayer can
either: (1) file a petition for review with the Court of Tax Appeals within 30
days after the expiration of the 180-day period; or (2) await the final decision
of the Commissioner on the disputed assessments and appeal such final
decision to the Court of Tax Appeals within 30 days after receipt of a copy of
such decision.
Therefore, as in Section 228, when the law provided for the remedy to appeal
the inaction of the CIR, it did not intend to limit it to a single remedy of filing of
an appeal after the lapse of the 180-day prescribed period. Precisely, when a
taxpayer protested an assessment, he naturally expects the CIR to decide
either positively or negatively. A taxpayer cannot be prejudiced if he chooses
to wait for the final decision of the CIR on the protested assessment. More so,
because the law and jurisprudence have always contemplated a scenario
where the CIR will decide on the protested assessment.
Accordingly, considering that Lascona opted to await the final decision of the
Commissioner on the protested assessment, it then has the right to appeal
such final decision to the Court by filing a petition for review within thirty days
after receipt of a copy of such decision or ruling, even after the expiration of
the 180-day period fixed by law for the Commissioner of Internal Revenue to
act on the disputed assessments. Thus, Lascona, when it filed an appeal
on April 12, 1999 before the CTA, after its receipt of the Letterdated March 3,
1999 on March 12, 1999, the appeal was timely made as it was filed within 30
days after receipt of the copy of the decision.
Finally, the CIR should be reminded that taxpayers cannot be left in quandary
by its inaction on the protested assessment. It is imperative that the taxpayers
are informed of its action in order that the taxpayer should then at least be
able to take recourse to the tax court at the opportune time.
CASE SYLLABI:
63 | M s . N o l a i d a A g u i r r e
Taxation; Taxpayer’s Remedies; Remedies of a taxpayer in case the
Commissioner of Internal Revenue fails to act on the disputed
assessment within the 180-day period from date of submission of
documents.—In RCBC v. CIR, 522 SCRA 144 (2007), the Court has held that
in case the Commissioner failed to act on the disputed assessment within the
180-day period from date of submission of documents, a taxpayer can either:
(1) file a petition for review with the Court of Tax Appeals within 30 days after
the expiration of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to
the Court of Tax Appeals within 30 days after receipt of a copy of such
decision.
Same; Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance.—Taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. On
the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved. Thus, even as we concede the
inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with
the prescribed procedure.
Rizal Commercial Banking Corporation vs. Commissioner of Internal
Revenue, 522 SCRA 144, G.R. No. 168498. April 24, 2007
Ynares-Santiago, J.
Facts:
For resolution is petitioner’s Motion for Reconsideration of on the
Decisiondated June 16, 2006 affirming the Decision of the Court of Tax
Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the
Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004
and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition
for Relief from Judgment and Motion for Reconsideration, respectively.
Petitioner reiterates its claim that its former counsel’s failure to file petition for
review with the Court of Tax Appeals within the period set by Section 228 of
the National Internal Revenue Code of 1997 (NIRC) was excusable.
Petitioner maintains that its counsel’s neglect in not filing the petition for
review within the reglementary period was excusable. It alleges that the
counsel’s secretary misplaced the Resolution hence the counsel was not
aware of its issuance and that it had become final and executory.
Issue:

64 | M s . N o l a i d a A g u i r r e
Whether or not the inadvertence of the petitioner’s counsel is excusable and
thus, the petition to cancel the assessment against the petitioner should be
given due course.
Held:
Relief cannot be granted on the flimsy excuse that the failure to appeal was
due to the neglect of petitioner’s counsel. Otherwise, all that a losing party
would do to salvage his case would be to invoke neglect or mistake of his
counsel as a ground for reversing or setting aside the adverse judgment,
thereby putting no end to litigation.
If indeed there was negligence, this is obviously on the part of petitioner’s own
counsel whose prudence in handling the case fell short of that required under
the circumstances. He was well aware of the motion filed by the respondent
for the Court to resolve first the issue of this Court’s jurisdiction on July 15,
2003, that a hearing was conducted thereon on August 15, 2003 where both
counsels were present and at said hearing the motion was submitted for
resolution. Petitioner’s counsel apparently did not show enthusiasm in the
case he was handling as he should have been vigilant of the outcome of said
motion and be prepared for the necessary action to take whatever the
outcome may have been. Such kind of negligence cannot support petitioner’s
claim for relief from judgment.
In the instant case, the Commissioner failed to act on the disputed
assessment within 180 days from date of submission of documents. Thus,
petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was
filed more than 30 days after the lapse of the 180-day period. Consequently,
it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not
file a motion for reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory.
Based on the foregoing, petitioner cannot now claim that the disputed
assessment is not yet final as it remained unacted upon by the Commissioner;
that it can still await the final decision of the Commissioner and thereafter
appeal the same to the Court of Tax Appeals. This legal maneuver cannot be
countenanced. After availing the first option, i.e., filing a petition for review
which was however filed out of time, petitioner cannot successfully resort to
the second option, i.e., awaiting the final decision of the Commissioner and
appealing the same to the Court of Tax Appeals, on the pretext that there is
yet no final decision on the disputed assessment because of the
Commissioner’s inaction.
CASE SYLLABI:
Same; Same; Same; The jurisdiction of the Court of Tax Appeals has
been expanded to include not only decisions or rulings but inaction as
well of the Commissioner of Internal Revenue.—It is clear that the
65 | M s . N o l a i d a A g u i r r e
jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal
Revenue. The decisions, rulings or inaction of the Commissioner are
necessary in order to vest the Court of Tax Appeals with jurisdiction to
entertain the appeal, provided it is filed within 30 days after the receipt of such
decision or ruling, or within 30 days after the expiration of the 180-day period
fixed by law for the Commissioner to act on the disputed assessments. This
30-day period within which to file an appeal is jurisdictional and failure to
comply therewith would bar the appeal and deprive the Court of Tax Appeals
of its jurisdiction to entertain and determine the correctness of the
assessments. Such period is not merely directory but mandatory and it is
beyond the power of the courts to extend the same.
Same; Same; Same; Tax Remedies; In case the Commissioner fails to
act on the disputed assessment within the 180-day period from date of
submission of documents, a taxpayer can either: 1) file a petition for
review with the Court of Tax Appeals within 30 days after the expiration
of the 180-day period; or 2) await the final decision of the Commissioner
on the disputed assessments and appeal such final decision to the
Court of Tax Appeals within 30 days after receipt of a copy of such
decision.—In case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission of documents,
a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals
within 30 days after the expiration of the 180-day period; or 2) await the final
decision of the Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after receipt of a
copy of such decision. However, these options are mutually exclusive, and
resort to one bars the application of the other.
Same; Same; Same; Same; After availing the first option, i.e., filing a
petition for review which was however filed out of time, a taxpayer
cannot successfully resort to the second option, i.e., awaiting the final
decision of the Commissioner and appealing the same to the Court of
Tax Appeals, on the pretext that there is yet no final decision on the
disputed assessment because of the Commissioner’s inaction.—Based
on the foregoing, petitioner cannot now claim that the disputed assessment is
not yet final as it remained unacted upon by the Commissioner; that it can still
await the final decision of the Commissioner and thereafter appeal the same
to the Court of Tax Appeals. This legal maneuver cannot be countenanced.
After availing the first option, i.e., filing a petition for review which was
however filed out of time, petitioner cannot successfully resort to the second
option, i.e., awaiting the final decision of the Commissioner and appealing the
same to the Court of Tax Appeals, on the pretext that there is yet no final
decision on the disputed assessment because of the Commissioner’s inaction.
Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No.
L-23912. March 15, 1968
66 | M s . N o l a i d a A g u i r r e
 Fernando, J.
Facts:
In CTA Case No. 669, respondent Jose Concepcion, as ancillary administrator
of the estate of Mary H. MitchellRoberts, and respondent Jack F. Mitchell-
Roberts, husband of the deceased, sought a refund of the sum of P1,181.33
and P2,616.10 representing estate and inheritance taxes on 50 shares of
stock of Edward J. Nell Company issued in the names of both spouses "as
joint tenants with full rights of survivorship and not as tenants in common."
The above assessment was made by petitioner Commissioner of Internal
Revenue on the ground that there was a transmission to the husband of one-
half share thereof upon the death of the wife, the above shares being conjugal
property. Respondents maintained on the other hand that there was no
transmission of property since under English law, ownership of all property
acquired during the marriage vests in the husband. Moreover, the shares of
stock were issued to the spouses "as joint tenants with full rights of
survivorship and not as tenants in common." Not being agreeable to the
theory entertained by petitioner Commissioner of Internal Revenue,
respondents, in a previous case, CTA Case No. 168, appealed such a
decision under Republic Act No. 1125. The Court of Tax Appeals, however,
dismissed such an appeal as the petition for review because it was filed
beyond the reglementary period of 30 days. That decision rendered on April
29, 1957, became final.
Issue:
Whether a taxpayer who had lost his right to dispute the validity of an
assessment, the period for appealing to the Court of Tax Appeals having
expired, as found by such Court in a previous case in a decision now final,
and who thereafter paid under protest could then, relying on Section 306 of
the National Internal Revenue Code sue for recovery on the ground of its
illegality?
Held:
No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was
reaffirmed categorically in this language: "Taxpayer's failure to appeal to the
Court of Tax Appeals 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 the merits.
Otherwise, the period of thirty days for appeal to the Court of Tax Appeals
would make little sense." Once the matter has reached the stage of finality in
view of the failure to appeal, it logically follows, in the appropriate language of
Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could
no longer be reopened through the expedient of an appeal from the denial of
petitioner's request for cancellation of the warrant of distraint and levy."
67 | M s . N o l a i d a A g u i r r e
In the same way then that the expedient of an appeal from a denial of a tax
request for cancellation of warrant of distraint and levy cannot be utilized for
the purpose of testing the legality of an assessment, which had become
conclusive and binding on the taxpayer, there being no appeal, the procedure
set forth in Section 306 of the National Internal Revenue Code is not available
to revive the right to contest the validity of an assessment once the same had
been irretrievably lost not only by the failure to appeal but likewise by the
lapse of the reglementary period within which to appeal could have been
taken. Clearly then, the liability of respondent Concepcion as an ancillary
administrator of the estate of the deceased wife and of respondent Mitchell-
Roberts as the husband for the amount of P1, 181.33 as estate tax and
P2,616.10 as inheritance tax was beyond question. Having paid the same,
respondents are clearly devoid of any legal right to sue for recovery.
CASE SYLLABUS:
Taxation; Recovery of tax illegally collected, denied where taxpayer had
failed to appeal in due time.—Where a taxpayer seeking a refund of estate
and inheritance taxes whose request is denied and whose appeal to the Court
of Tax Appeals was dismissed for being filed out of time, sues anew to
recover such taxes, already paid under protest, his action is devoid of merit.
For in the same way that the expedient of an appeal from a denial of a tax
request for cancellation of warrant of distraint and levy cannot be utilized to
test the legality of an assessment which had become conclusive and binding
on the taxpayer, so is section 360 of the Tax Code not available to revive the
right to contest the validity of an assessment which had become final for
failure to appeal the same on time.
Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447
SCRA 214, G.R. No. 162852. December 16, 2004
---------------SUPRA---------------
Under the case of Phil. Journalist, Inc. vs. CIR, wherein the taxpayer failed
to file protest and appeal to CTA on time, since the waiver is held to be invalid,
therefore the assessment is invalid; hence, further the rule that the defenses
are waived which include the validity of the assessment and prescription
will not apply. Here, you can still raise the defense of prescription.
Fishwealth Canning Corporation vs. Commissioner of Internal
Revenue, 610 SCRA 524, G.R. No. 179343. January 21, 2010
Carpio- Morales, J.
Facts:
The Commissioner of Internal Revenue (respondent), by Letter of Authority
dated May 16, 2000,ordered the examination of the internal revenue taxes for
the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The
investigation disclosed that petitioner was liable in the amount

68 | M s . N o l a i d a A g u i r r e
of P2,395,826.88 representing income tax, value added tax (VAT), withholding
tax deficiencies and other miscellaneous deficiencies. Petitioner eventually
settled these obligations onAugust 30, 2000.

On August 25, 2000, respondent reinvestigated petitioner’s books of

accounts and other records of internal revenue taxes covering the same
period for the purpose of which it issued a subpoena duces tecum requiring
petitioner to submit its records and books of accounts. Petitioner requested
the cancellation of the subpoena on the ground that the same set of
documents had previously been examined.

Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice

of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable
year 1999,which assessment petitioner contested by letter of September 23,
2003.

Respondent thereafter issued a Final Decision on Disputed Assessment dated

August 2, 2005, which petitioner received on August 4, 2005, denying its letter
of protest, and requesting the immediate payment thereof, “inclusive of
penalties incident to delinquency.” Respondent added that if petitioner
disagreed, it may appeal to the Court of Tax Appeals (CTA) “within thirty (30)
days from date of receipt hereof, otherwise our said deficiency income and
value-added taxes assessments shall become final, executory, and
demandable.”Instead of appealing to the CTA, petitioner filed, on September 1,
2005, a Letter of Reconsideration dated August 31, 2005.

Petitioner filed a Motion for Reconsideration which was denied.The Resolution

denying its motion for reconsideration was received by petitioner on October
31, 2006.

On November 21, 2006, petitioner filed a petition for review before the CTA En
Bancwhich, by Decision of July 5, 2007, held that the petition before the First
Division, as well as that before it, was filed out of time.

Issue:

Whether or not CTA En Banc erred in holding that the petition it filed before
the CTA First Division as well as that filed before it (CTA En Banc) was filed
out of time.

Held:

The Court dismissed the petition. In the case at bar, petitioner’s administrative
protest was denied by Final Decision on Disputed Assessment dated August 2,
2005 issued by respondent and which petitioner received on August 4,
2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner
had 30 days to appeal respondent’s denial of its protest to the CTA.

Since petitioner received the denial of its administrative protest on August 4,

2005, it had until September 3, 2005 to file a petition for review before the
69 | M s . N o l a i d a A g u i r r e
CTA Division. It filed one, however, on October 20, 2005, hence, it was filed
out of time. For a motion for reconsideration of the denial of the administrative
protest does not toll the 30-day period to appeal to the CTA.

CASE SYLLABUS:

Taxation; Administrative Protest; Motion for Reconsideration; A motion

for reconsideration of the denial of the administrative protest does not
toll the 30-day period to appeal to the Court of Tax Appeals (CTA).—In
the case at bar, petitioner’s administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by
respondent and which petitioner received on August 4, 2005. Under the
above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to
appeal respondent’s denial of its protest to the CTA. Since petitioner received
the denial of its administrative protest on August 4, 2005, it had until
September 3, 2005 to file a petition for review before the CTA Division. It filed
one, however, on October 20, 2005, hence, it was filed out of time. For a
motion for reconsideration of the denial of the administrative protest does not
toll the 30-day period to appeal to the CTA.
Allied Banking Corporation vs. Commissioner of Internal Revenue,
611 SCRA 692, G.R. No. 175097. February 5, 2010
Del Castillo, J.
The key to effective communication is clarity.

The Commissioner of Internal Revenue (CIR) as well as his duly

authorized representative must indicate clearly and unequivocally to the
taxpayer whether an action constitutes a final determination on a disputed
assessment. Words must be carefully chosen in order to avoid any
confusion that could adversely affect the rights and interest of the taxpayer.

Facts:

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary
Assessment Notice (PAN) to petitioner Allied Banking Corporation for
deficiency Documentary Stamp Tax (DST) in the amount of P12,050,595.60
and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry
issue for the taxable year 2001. Petitioner received the PAN on May 18,
2004 and filed a protest against it on May 27, 2004.

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment
Notices to petitioner. Petitioner received the Formal Letter of Demand with
Assessment Notices on August 30, 2004.

On September 29, 2004, petitioner filed a Petition for Review with the CTA
which was raffled to its First Division and docketed as CTA Case No. 7062.

70 | M s . N o l a i d a A g u i r r e
On December 7, 2004, respondent CIR filed his Answer. On July 28, 2005,
he filed a Motion to Dismiss on the ground that petitioner failed to file an
administrative protest on the Formal Letter of Demand with Assessment
Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.

On October 12, 2005, the First Division of the CTA rendered a

Resolution granting respondent’s Motion to Dismiss. On February 22, 2006,
petitioner appealed the dismissal to the CTA En Banc. The case was
docketed as CTA EB No. 167. Finding no reversible error in the Resolutions
dated October 12, 2005 and February 1, 2006 of the CTA First Division, the
CTA En Banc denied the Petition for Review ]as well as petitioner’s Motion for
Reconsideration.

The CTA En Banc declared that it is absolutely necessary for the taxpayer to
file an administrative protest in order for the CTA to acquire jurisdiction. It
emphasized that an administrative protest is an integral part of the remedies
given to a taxpayer in challenging the legality or validity of an assessment.

Issue:

Whether the Formal Letter of Demand dated July 16, 2004 can be construed
as a final decision of the CIR appealable to the CTA under RA 9282.
Held:
Section 7 of RA 9282 expressly provides that the CTA exercises exclusive
appellate jurisdiction to review by appeal decisions of the CIR in cases
involving disputed assessments. The CTA, being a court of special jurisdiction,
can take cognizance only of matters that are clearly within its jurisdiction.
The word “decisions” in the above quoted provision of RA 9282 has been
interpreted to mean the decisions of the CIR on the protest of the taxpayer
against the assessments. Corollary thereto, Section 228 of the National
Internal Revenue Code (NIRC) provides for the procedure for protesting an
assessment.
In the instant case, petitioner timely filed a protest after receiving the PAN. In
response thereto, the BIR issued a Formal Letter of Demand with Assessment
Notices. Pursuant to Section 228 of the NIRC, the proper recourse of
petitioner was to dispute the assessments by filing an administrative protest
within 30 days from receipt thereof. Petitioner, however, did not protest the
final assessment notices. Instead, it filed a Petition for Review with the
CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for
Review by the CTA was proper.
However, In this case, records show that petitioner disputed the PAN but not
the Formal Letter of Demand with Assessment Notices. Nevertheless, we
cannot blame petitioner for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of
the demand letter indicate that it is the final decision of the respondent on the
71 | M s . N o l a i d a A g u i r r e
matter. We have time and again reminded the CIR to indicate, in a clear and
unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer concerned
to determine when his or her right to appeal to the tax court accrues. Viewed
in the light of the foregoing, respondent is now estopped from claiming that he
did not intend the Formal Letter of Demand with Assessment Notices to be a
final decision.
The Formal Letter of Demand with Assessment Notices which was not
administratively protested by the petitioner can be considered a final decision
of the CIR appealable to the CTA because the words used, specifically the
words “final decision” and “appeal”, taken together led petitioner to believe
that the Formal Letter of Demand with Assessment Notices was in fact the
final decision of the CIR on the letter-protest it filed and that the available
remedy was to appeal the same to the CTA.
CASE SYLLABI:
Taxation; Assessment; Tax Protest; Pursuant to Section 228 of the
National Internal Revenue Code (NIRC), the proper recourse of
petitioners was to dispute the assessment by filing an administrative
protest within 30 days from receipt thereof.—In the instant case, petitioner
timely filed a protest after receiving the PAN. In response thereto, the BIR
issued a Formal Letter of Demand with Assessment Notices. Pursuant to
Section 228 of the NIRC, the proper recourse of petitioner was to dispute the
assessments by filing an administrative protest within 30 days from receipt
thereof. Petitioner, however, did not protest the final assessment notices.
Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply
the rules, the dismissal of the Petition for Review by the CTA was proper.
Same; Same; Same; Instant case is an exception to the rule on
exhaustion of administrative remedies.—A careful reading of the Formal
Letter of Demand with Assessment Notices leads us to agree with petitioner
that the instant case is an exception to the rule on exhaustion of administrative
remedies, i.e., estoppel on the part of the administrative agency concerned.
Same; Same; Same; Court have time and again reminded the
Commissioner of Internal Revenue (CIR) to indicate in a clear and
unequivocal language whether his action on a disputed assessment
constitute his final determination thereon in order for the taxpayer
concerned to determined when his or her right to appeal to tax count
accrues.—In this case, records show that petitioner disputed the PAN but not
the Formal Letter of Demand with Assessment Notices. Nevertheless, we
cannot blame petitioner for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of
the demand letter indicate that it is the final decision of the respondent on the
matter. We have time and again reminded the CIR to indicate, in a clear and
unequivocal language, whether his action on a disputed assessment
72 | M s . N o l a i d a A g u i r r e
constitutes his final determination thereon in order for the taxpayer concerned
to determine when his or her right to appeal to the tax court accrues. Viewed
in the light of the foregoing, respondent is now estopped from claiming that he
did not intend the Formal Letter of Demand with Assessment Notices to be a
final decision.
Same; Same; Same; It is the Formal Letter of Demand and Assessment
Notice that must be administratively protested or disputed within 30
days and not the Preliminary Assessment Notice (PAN).—We are not
disregarding the rules of procedure under Section 228 of the NIRC, as
implemented by Section 3 of BIR Revenue Regulations No. 12-99. It is the
Formal Letter of Demand and Assessment Notice that must be
administratively protested or disputed within 30 days, and not the PAN.
Neither are we deviating from our pronouncement in St. Stephen’s Chinese
Girl’s School v. Collector of Internal Revenue, 104 Phil. 314 (1958) that the
counting of the 30 days within which to institute an appeal in the CTA
commences from the date of receipt of the decision of the CIR on the disputed
assessment, not from the date the assessment was issued.
Republic vs. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584, No. L-
21731. March 31, 1966
Bengzon J.P., J.
Facts:
Lim Tian Teng Sons & Co., a domestic corporation with principal office in
Cebu City, engaged in 1951 and 1952, among others, in the exportation of
copra. The copra was weighted before shipment in the port of departure and
upon arrival in the port of destination. The weight before shipment was called
copra outturn. To allow for loss in weight due to shrinkage said exporter
collected only 95% of the amount appearing in the letter of credit covering
every copra outturn. The 5% balance remained outstanding until final
liquidation and adjustment.
On March 30, 1953 Lim Tian Teng Sons & Co. filed its income tax return for
1952 based on accrued income and expenses. Its return showed a loss of
P55, 109.98. It took up as part of the beginning inventory for 1952 the copra
outturn shipped in 1951 in the sum of P95,500.00 already partially collected,
as part of its outstanding stock as of December 31, 1951.
In the audit and examination of taxpayer’s 1952 income tax return, the CIR
eliminated the P95,500.00 outturn from the beginning inventory for 1952 and
considered it as accrued income for 1951. This increased taxpayer’s 1952 net
taxable income. Accordingly, in a letter dated January 16, 1957 received by
Lim Tian. On January 30, 1957, the CIR assessed a deficiency income tax of
P10,074.00 and 50% surcharge them amounting to 5,037.00 and demanded
payment thereof not later than February 15, 1954.

73 | M s . N o l a i d a A g u i r r e
On January 31, 1957 Lim Tian requested for reinvestigation of its 1952
income tax liability. The CIR did not reply; instead he referred the case to the
solicitor general for collection by judicial action.
On September 20, 1957 the solicitor general demanded from Lim Tian the
payment of P15,111.50 within five days, stating that otherwise judicial action
would be instituted without further notice.
Thereupon, the Deputy Collector of Internal Revenue, by his letter dated
October 15, 1957 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 him Tian failed to file a waiver of the statute of limitations, the
collector of I.R. instituted 8 months after, or on September 2, 1958 an action in
the CFI for the collection of deficiency income tax. The CFI rendered decision
ordering the defendant to pay the plaintiff as the assessment is valid.
Both parties appealed, raising only question of law.
Issue:
Whether or not the Commissioner is required to rule first on the taxpayer’s
request for reinvestigation before he can go to court for collecting the tax
assessed.
Held:
Nowhere in the Tax Code is the Collector of Internal Revenue 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 Court of Tax Appeals 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 Collector of Internal Revenue 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,
and it is of the utmost importance that the modes adopted to enforce collection
of taxes levied should be summary and interfered with as little as possible. No
government could exist if all litigants were permitted to delay the collection of
its taxes.
When the commissioner did not reply to the tax payer’s request for
reinvestigation/reconsideration and instead referred the case to the solicitor
general for judicial collection, this was indicative of his decision against
reinvestigation.
CASE SYLLABI:

Same; Decision on request for reinvestigation is not a condition

precedent to the filing of action for collection of tax already assessed.—
Nowhere in the Tax Code is the Collector of Internal Revenue required to rule

74 | M s . N o l a i d a A g u i r r e
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 Court of Tax Appeals 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 Collector of Internal Revenue much latitude in the speedy
and prompt collection of taxes.
Same; Remedy of taxpayer who desires to contest assessment before
and after the creation of Tax Court.—Before the creation of the Court of Tax
Appeals the remedy of a taxpayer who desired to contest an assessment
issued by the Collector of Internal Revenue was to pay the tax and bring an
action in the ordinary courts for its recovery pursuant to Section 306 of the Tax
Code. (Sarasola vs. Trinidad, 40 Phil. 252; Alhambra Cigar & Cigarette
Manufacturing Co. vs. Collector of Internal Revenue, L-12026, May 29, 1959).
Collection or payment of the tax was not made to wait until after the Collector
of Internal Revenue has resolved all issues raised by the taxpayer against an
assessment. Republic Act 1125 creating the Court of Tax Appeals allows the
taxpayer to dispute the correctness or legality of an assessment both in the
purely administrative level and in said court, but it does not stop or prohibit the
Collector of Internal Revenue from collecting the tax through any of the means
provided for in Section 316 of the Tax Code, except when enjoined by said
Court of Tax Appeals.
Advertising Associates, Inc. vs. Court of Appeals, 133 SCRA 765, No.
L-59758. December 26, 1984
Aquino, J.
Facts:

This case is about the liability of Advertising Associates, lnc. for P382,700.16
as 3% contractor's percentage tax on its rental income from the lease of neon
signs and billboards imposed by section 191 of the Tax Code (as amended by
Republic Acts Nos. 1612 and 6110) on business agents and independent
contractors. Parenthetically, it may be noted that Presidential Decree No. 69,
effective November 24, 1972, added paragraph 17 to section 191 by taxing
lessors of personal property.

The Commissioner required Advertising Associates to pay P297,927.06 and

P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively,
including 25% 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 provide that its primary purpose is to
engage in general advertising business. Advertising Associates contested the
assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes)

75 | M s . N o l a i d a A g u i r r e
and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the
assessments in his letters of July 12 and September 16,1974.
The taxpayer requested the cancellation of the assessments in its letters of
September 13 and November 21, 1974 . 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 two warrants of
distraint, directing the collection enforcement division to levy on the taxpayer's
personal properties as would be sufficient to satisfy the deficiency taxes. 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 in answer to the requests of the taxpayer for the
cancellation of the assessments and the withdrawal of the warrants of distraint.
Such letter constitutes the decision on the matter. That if the taxpayer does
not agree, he may appeal to the CTA within 30 days from the receipt of the
letter.
Advertising Associates received that letter on June 18, 1979. Nineteen days
later or on July 7, it filed its petition for review. In its resolution of August 28,
1979, the Tax Court enjoined the enforcement 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 the decision of May 23, 1979, the petition for review
was filed out of time. It was dismissed. The taxpayer appealed to this Court.
Issue:
Whether or not the petition for review was filed on time.
Held:
The Court held that the petition for review was filed on time. The reviewable
decision is that contained 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 in St. Stephen's Association and St. Stephen's Chinese Girl's School
vs. Collector of Internal Revenue, 104 Phil. 314, 317-318.
CASE SYLLABI:
Taxation; Appeals; The reviewable decision of the B.I.R. Commissioner
is that letter where he clearly directed the taxpayer to appeal to the Tax
Court, and not the warrants of distraint and levy.—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
76 | M s . N o l a i d a A g u i r r e
No. 1125. The Commissioner said so. He even directed the taxpayer to
appeal it to the Tax Court. That was the same situation in St. Stephen’s
Association and St. Stephen’s Chinese Girl’s School vs. Collector of Internal
Revenue, 104 Phil. 314, 317-318.
Same; Same; Same.—The directive is in consonance with this Court’s dictum
that the Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the disputed
assessment. That procedure is demanded by the pressing need for fair play,
regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs.
Court of Tax Appeals, L-25289, June 28, 1974, 57 SCRA 523).
Commissioner of lnternal Revenue vs. Algue, Inc., 158 SCRA 9, No. L-
28896. February 17, 1988
Cruz, J.
Facts:
On January 14, 1965, the private respondent, a domestic corporation engaged
in engineering, construction and other allied activities, received a letter from
the petitioner assessing it in the total amount of P83,183.85 as delinquency
income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied
a letter of protest or request for reconsideration, which letter was stamp
received on the same day in the office of the petitioner. 2 On March 12, 1965,
a warrant of distraint and levy was presented to the private respondent,
through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the dockets of the
case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the
warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR
was not taking any action on the protest and it was only then that he accepted
the warrant of distraint and levy earlier sought to be served. 5Sixteen days
later, on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.
Issue:

Whether or not the appeal of the private respondent from the decision of the
Collector of Internal Revenue was made on time and in accordance with law.

Held:

The above chronology shows that the petition was filed seasonably. According
to Rep. Act No. 1125, the appeal may be made within thirty days after receipt
of the decision or ruling challenged. It is true that as a rule the warrant of
distraint and levy is "proof of the finality of the assessment" and renders
hopeless a request for reconsideration," being "tantamount to an outright
denial thereof and makes the said request deemed rejected." But there is a

77 | M s . N o l a i d a A g u i r r e
special circumstance in the case at bar that prevents application of this
accepted doctrine.

The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of the petitioner.
It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if
at all, considered by the tax authorities. During the intervening period, the
warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," the protest filed by private
respondent was not pro forma and was based on strong legal considerations.
It thus had the effect of suspending on January 18, 1965, when it was filed,
the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on
April 7, 1965, when the private respondent was definitely informed of the
implied rejection of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

CASE SYLLABI:
Same; Appeal; Appeal from a decision of the Commissioner of Internal
Revenue with the Court of Tax Appeals is 30 days from receipt thereof.—
The above chronology shows that the petition was filed seasonably. According
to Rep. Act No. 1125, the appeal may be made within thirty days after receipt
of the decision or ruling challenged.
Same; Warrant of distraint and levy; Rule that the warrant of distraint
and levy is proof of the finality of the assessment; Exception is where
there is a letter of protest after receipt of notice of assessment.—It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the
assessment" and "renders hopeless a request for reconsideration," being
"tantamount to an outright denial thereof and makes the said request deemed
rejected." But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine. The proven fact is that four days after the
private respondent received the petitioner's notice of assessment, it filed its
letter of protest. This was apparently not taken into account before the warrant
of distraint and levy was issued; indeed, such protest could not be located in
the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy
of the protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be
served.
Same; Same; Same; Same; Protest filed, not pro forma, and was based
on strong legal considerations; Case at bar.—As the Court of Tax Appeals
correctly noted, the protest filed by private respondent was not pro forma and
78 | M s . N o l a i d a A g u i r r e
was based on strong legal considerations. It thus had the effect of suspending
on January 18, 1965, when it was filed, the reglementary period which started
on the date the assessment was received, viz., January 14, 1965. The period
started running again only on April 7, 1965, when the private respondent was
definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965,
only 20 days of the reglementary period had been consumed.
Yabes vs. Flojo, 115 SCRA 278, No. L-46954. July 20, 1982
Concepcion, JR., J.

Facts:

In May 1962, Doroteo Yabes received an assessment notice from the

Commissioner of Internal Revenue (CIR) demanding him to pay P15k in taxes.
Doroteo filed a protest within the prescribed period. The protest was initially
denied in September 1962 however, a few days after the denial, the CIR
advised Doroteo to execute a waiver of the statute of limitations (SOL) and to
allow the CIR to hold in abeyance the ruling of his case until a similar case
(Cirilo Constantino Case) which involves exactly the same issue would be
decided by the Court of Tax Appeals (CTA). Doroteo complied but while
waiting for the CTA to decide that case, Doroteo died. The CTA finally decided
the Constantino Case but the same was appealed to the Supreme Court (SC).
And so the CIR asked the successors-in-interest of Doroteo, Elpidio and
Severino Yabes, to execute another waiver while waiting for the SC decision.
The waiver was duly executed and it extended the period of prescription within
which the CIR may collect the assessed tax to December 31, 1970.

The Constantino Case was decided by the SC in February 1970. On

December 4, 1970, before the lapse of the extended period (12/31/70), the
CIR filed a tax collection suit against the estate of Doroteo Yabes with the
Court of First Instance (CFI) of Cagayan. Elpidio et al received the summons
on January 20, 1971. Elpidio et al then filed an appeal with the CTA on
February 12, 1971. At the same time, Elpidio et al filed a motion to dismiss
(MTD) the collection suit with CFI Cagayan on the ground that the filing of the
collection suit is a denial by the CIR of the protest; that such denial is
appealable to the CTA; that CFI Cagayan therefore has no jurisdiction over
the case. However, Judge Napoleon Flojo of CFI Cagayan denied the MTD.

Issue:

Whether or not respondent Court of First Instance can lawfully acquire

jurisdiction over a contested assessment made by the Commissioner of
Internal Revenue against the deceased taxpayer Doroteo Yabes, which has
not yet become final, executory and incontestable, and which assessment is
being contested by petitioners in the Court of Tax Appeals, Case No. 2216,
and still pending consideration.
79 | M s . N o l a i d a A g u i r r e
Held:

The jurisdiction of the CFI is wanting in this case. 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. Absent
jurisdiction over the case, it would be improper for the Court of First Instance
of Cagayan to take cognizance over the case and act upon interlocutory
matters of the case, as well.

The dismissal of the complaint, however, is not sufficient. The ends of justice
would best be served by considering the complaint filed in Civil Case No. II-7
not only as a final notice of assessment but also as a counterclaim in CTA
Case No. 2216, in order to avoid mutiplicity of suits, as well as to expedite the
settlement of the controversy between the parties. After all, the two cases
involve the same parties, the same subject matter, and the same issue, which
is the liability of the heirs of the deceased Doroteo Yabes for commercial
broker's fixed and percentage taxes due from the said deceased.
AQUINO, J., concurring:
In 1970, the Government sued the heirs of Doroteo Yabes (he died in 1963),
namely, his widow, Nicolasa, and his three children named, Elpidio, Severina
and Julita, for the recovery of the sum of P15,976.82 as commercial broker's
fixed and percentage taxes for the period from 1956 to 1960 (Civil Case No. II-
7 of the CFI of Cagayan).
The suit, which was brought to stop the running of the prescriptive period, was
filed on the theory that the tax assessment was uncontested. If contested, it
should have been filed in the Court of Tax Appeals.
Ordinarily, such an action is not maintainable against the heirs because the
remedy for asserting money claims against the deceased is to file a claim in

80 | M s . N o l a i d a A g u i r r e
the administration proceeding for the settlement of his estate, as indicated in
Rule 86 of the Rules of Court.
However, the estate of the deceased is not under administration and his heirs
had settled it extrajudicially. Hence, Solicitor General Felix Q. Antonio and his
assistants deemed it proper to sue directly the decedent's heirs.
The taxes in question were assessed during the taxpayer's lifetime. The
prescriptive period was extended and the enforcement of the taxes was held
in abeyance by the Commissioner of Internal Revenue upon agreement with
the Yabes heirs to await the outcome of a test case, the Constantino case,
regarding the same kind of tax liability which was pending in this Court. After
the Constantino case was decided in the Government's favor (Commissioner
of Internal Revenue vs. Constantino, L-25926, February 27, 1970, 31 SCRA
779), the State filed the aforementioned collection case, Civil Case No. II-7.
The Yabes heirs considered the filing of the collection suit as the
Commissioner's decision which they could contest in the Tax Court (a view
which was later sustained by the Tax Court). Hence, on February 12, 1971,
the Yabes heirs filed a petition for review with the Tax Court. They contended
that Doroteo Yabes was not a commercial broker. They asked for the
cancellation of the tax assessment (CTA Case No. 2216).
Respondent judge erred in setting Civil Case No. II-7 for trial. In my opinion,
Civil Case No. II-7 should be transferred to the Tax Court. No rule allows the
transfer to the Tax Court of a tax case pending in the Court of First Instance
and vice-versa.
But under the peculiar situation in this case, the pragmatic, expedient and
sensible thing to do is to transfer Civil Case No. II-7 to the Tax Court and to
consider it as a counterclaim to CTA Case No. 2216. The two cases involve
the same parties, the same subject-matter and the same issue: the liability of
the Yabes heirs for the commercial broker's fixed and percentage taxes
allegedly due from Doroteo Yabes.
That may be a novel and unprecedented solution but we have to be practical
and should avoid duplicity of suits. Since it now appears that the Government
erroneously assumed in filing Civil Case No. II-7 in the Court of First Instance
that the tax assessment is uncontested when actually it is contested, then that
case should be consolidated with the case in the Tax Court which is the
proper forum for deciding contested tax assessments.
DE CASTRO, J., dissenting:
I vote to dismiss the complaint filed in the CFI, as well or to set aside all the
questioned orders of said Court.

CASE SYLLABI:

81 | M s . N o l a i d a A g u i r r e
Taxation; Action; The filing by the Bureau of Internal Revenue of an
action for collection of deficiency taxes allegedly due from the taxpayer
can be considered as the final decision or assessment of the
Commissioner of Internal Revenue.—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.
Same; Same; Jurisdiction; The Court of First Instance can acquire
jurisdiction over a claim for collection of deficiency taxes only after the
assessment made by the Commissioner of Internal Revenue has become
final and unappealable; not where there is still and pending Court of Tax
Appeals case.—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 had 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.
Same; Jurisdiction; Where a court has no jurisdiction dismissal of action,
not a mere suspension of proceedings, must be made.—The
recommendation of the Solicitor General that the lower court hold in abeyance
any action or proceeding in Civil Case No. II-7 until after the Court of Tax
Appeals shall have finally decided CTA Case No. 2216, is untenable since the
lower court has no jurisdiction over the case. Jurisdiction over an action
includes jurisdiction over all interlocutory matters incidental to the case and
deemed necessary to preserve the subject matter of the suit or protect
interests of the parties. Absent jurisdiction over the case, it would be improper
for the Court of First Instance of Cagayan to take cognizance over the case
and act upon interlocutory matters of the case, as well.
Commissioner of Internal Revenue vs. Union Shipping Corp., 185
SCRA 547(1990), G.R. No. 66160. May 21, 1990
Paras, J.

82 | M s . N o l a i d a A g u i r r e
Facts:
The CIR assessed Yee Fong Hong, Ltd the total sum of P583, 155.22, as
deficiency income taxes due for the years 1971 and 1972. Respondent Yee
protested the assessment.
November 25, 1976 – the CIR, without ruling on the protest by Yee, issued a
Warrant of Distraint and Levy, which was served on private respondent's
counsel.
November 27, 1976 – Yee reiterated its request for the reinvestigation of the
assessment. However the CIR, again, without acting on the request for
reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed
a collection suit before the CFI.
January 10, 1976 – Respondent filed its Petition for Review of the petitioner's
assessment of its deficiency income taxes in the Court of Tax Appeals.
According to the petitioner, the Court of Tax Appeals has no jurisdiction over
this case. It claims that the warrant of distraint and levy is proof of the finality
of an assessment and is tantamount to an outright denial of a motion for
reconsideration of an assessment. Among others, petitioner contends that the
warrant was issued after the respondent filed a request for reconsideration of
subject assessment, thus constituting petitioner's final decision in the disputed
assessments. Therefore, the period to appeal to the CTA commenced from
the receipt of the warrant on November 25, 1976 so that on January 10, 1976
when respondent corporation sought redress, it has long become final and
executory.
Issue:
Whether or not the CTA has jurisdiction over the case
Held.
The CTA has jurisdiction over the case. There is no dispute that petitioner did
not rule on private respondent's motion for reconsideration but left private
respondent in the dark as to which action of the Commissioner is the decision
appealable to the CTA. Had he categorically stated that he denies private
respondent's motion for reconsideration and that his action constitutes his final
determination on the disputed assessment, private respondent without
needless difficulty would have been able to determine when his right to appeal
accrues and the resulting confusion would have been avoided. Under the
circumstances, the CIR, not having clearly signified his final action on the
disputed assessment, legally the period to appeal has not commenced to run.
CASE SYLLABI:
Taxation; Appeal; The Commissioner of Internal Revenue must state
whether his action on questioned assessment is final. It cannot be
implied from mere issuance of warrant of distraint and levy.—There
83 | M s . N o l a i d a A g u i r r e
appears to be no dispute that petitioner did not rule on private respondent’s
motion for reconsideration but contrary to the above ruling of this Court, left
private respondent in the dark as to which action of the Commissioner is the
decision appealable to the Court of Tax Appeals. Had he categorically stated
that he denies private respondent’s motion for reconsideration and that his
action constitutes his final determination on the disputed assessment, private
respondent without needless difficulty would have been able to determine
when his right to appeal accrues and the resulting confusion would have been
avoided.
Same; Same; Same.—Under the circumstances, the Commissioner of
Internal Revenue, not having clearly signified his final action on the disputed
assessment, legally the period to appeal has not commenced to run. Thus, it
was only when private respondent received the summons on the civil suit for
collection of deficiency income on December 28, 1978 that the period to
appeal commenced to run.
Same; Same; Filing of collection suit may be considered a final denial of
request for reconsideration of tax assessment.—The request for
reinvestigation and reconsideration was in effect considered denied by
petitioner when the latter filed a civil suit for collection of deficiency income. So
that on January 10, 1979 when private respondent filed the appeal with the
Court of Tax Appeals, it consumed a total of only thirteen (13) days well within
the thirty day period to appeal pursuant to Section 11 of R.A. 1125.
Commissioner of Internal Revenue vs. Isabela Cultural Corporation,
361 SCRA 71, G.R. No. 135210. July 11, 2001
Panganiban, J.
Facts:
In an investigation conducted in the 1986 books of account of Isabela, it
preliminarily incurred a tax deficiency of P9,985,392.15, inclusive of
increments. Upon protest by Isabela’s counsel, the said preliminary
assessment was reduced to the amount of P325,869.44.

On February 23, 1990, Isabela received from CIR an assessment letter

demanding payment of the amounts of P333,196.86 and P4,897.79 as
deficiency income tax and expanded withholding tax inclusive of surcharge
and interest, respectively, for the taxable period from January 1, 1986 to
December 31, 1986. Isabela then filed a letter to CIR asking for
reconsideration on the subject assessment. It even attached certain
documents supporting its protest.
On February 9, 1995, Isabela received from CIR a Final Notice Before
Seizure. In said letter, CIR demanded payment of the subject assessment

84 | M s . N o l a i d a A g u i r r e
within ten (10) days from receipt thereof. Otherwise, failure on its part would
constrain CIR to collect the subject assessment through summary remedies.
Isabela considered said final notice of seizure as [petitioner’s] final decision.
Hence, the instant petition for review filed with this Court on March 9, 1995.
The CTA having rendered judgment dismissing the petition, Isabela filed the
instant petition anchored on the argument that CIR’s issuance of the Final
Notice Before Seizure constitutes its decision on Isabela’s request for
reinvestigation, which Isabela may appeal to the CTA. CA reversed CTA’s
decision.
CIR: Final Notice was a mere reiteration of the delinquent taxpayer’s
obligation to pay the taxes due. It was supposedly a mere demand that
should not have been mistaken for a decision on a protested
assessment. Such decision, the commissioner contends, must unequivocably
indicate that it is the resolution of the taxpayer’s request for reconsideration
and must likewise state the reason therefor.
Isabela: Final Notice Before Seizure should be considered as a denial of its
request for reconsideration of the disputed assessment. The Notice should be
deemed as petitioner’s last act, since failure to comply with it would lead to the
distraint and levy of respondent’s properties, as indicated therein.
Issue:
Whether or not the Final Notice Before Seizure dated February 9, 1995 signed
by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC
constitutes the final decision of the CIR appealable to the CTA.
Held:
No. In the normal course, the revenue district officer sends the taxpayer a
notice of delinquent taxes, indicating the period covered, the amount due
including interest, and the reason for the delinquency. If the taxpayer
disagrees with or wishes to protest the assessment, it sends a letter to the BIR
indicating its protest, stating the reasons therefore, and submitting such proof
as may be necessary. That letter is considered as the taxpayer’s request for
reconsideration of the delinquent assessment. After the request is filed and
received by the BIR, the assessment becomes a disputed assessment on
which it must render a decision. That decision is appealable to the Court of
Tax Appeals for review.
Prior to the decision on a disputed assessment, there may still be exchanges
between the commissioner of internal revenue (CIR) and the taxpayer. The
former may ask clarificatory questions or require the latter to submit additional
evidence. However, the CIR’s position regarding the disputed assessment
must be indicated in the final decision. It is this decision that is properly
appealable to the CTA for review.

85 | M s . N o l a i d a A g u i r r e
In the light of the above facts, the Final Notice Before Seizure cannot but be
considered as the commissioner’s decision disposing of the request for
reconsideration filed by respondent, who received no other response to its
request. Not only was the Notice the only response received; its content and
tenor supported the theory that it was the CIR’s final act regarding the request
for reconsideration. The very title expressly indicated that it was a final notice
prior to seizure of property. The letter itself clearly stated that respondent was
being given “this LAST OPPORTUNITY” to pay; otherwise, its properties
would be subjected to distraint and levy.
Furthermore, Section 228 of the National Internal Revenue Code states that a
delinquent taxpayer may nevertheless directly appeal a disputed assessment,
if its request for reconsideration remains unacted upon 180 days after
submission thereof.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have become final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise the decision shall become
final, executory and demandable.”
In this case, the said period of 180 days had already lapsed when Isabela filed
its request for reconsideration on March 23, 1990, without any action on the
part of the CIR.
In the instant case, the second notice received by Isabela verily indicated its
nature – that it was final. Unequivocably, therefore, it was tantamount to a
rejection of the request for reconsideration.
CASE SYLLABI:
Taxation; National Internal Revenue Code (NIRC); The Final Notice
Before Seizure cannot but be considered as the commisioner’s decision
disposing of the request for reconsideration.—In the light of the above
facts, the Final Notice Before Seizure cannot but be considered as the
commissioner’s decision disposing of the request for reconsideration filed by
respondent, who received no other response to its request. Not only was the
Notice the only response received; its content and tenor supported the theory
86 | M s . N o l a i d a A g u i r r e
that it was the CIR’s final act regarding the request for reconsideration. The
very title expressly indicated that it was a final notice prior to seizure of
property. The letter itself clearly stated that respondent was being given “this
LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to
distraint and levy.
Same; Same; A delinquent taxpayer may nevertheless directly appeal a
disputed assessment, if its request for reconsideration remains unacted
upon 180 days after submission thereof.—Section 228 of the National
Internal Revenue Code states that a delinquent taxpayer may nevertheless
directly appeal a disputed assessment, if its request for reconsideration
remains unacted upon 180 days after submission thereof, x x x In this case,
the said period of 180 days had already lapsed when respondent filed its
request for reconsideration on March 23, 1990, without any action on the part
of the CIR.
Same; Same; A final demand letter for payment of delinquent taxes may
be considered a decision on a disputed or protested assessment.—
Jurisprudence dictates that a final demand letter for payment of delinquent
taxes may be considered a decision on a disputed or protested assessment.
C. NON-RETROACTIVITY OF RULINGS (SEC.246, NIRC)
Commissioner of Internal Revenue vs. Philippine Health Care
Providers, Inc., 522 SCRA 131, G.R. No. 168129. April 24, 2007
Sandoval-Gutierrez, J.
Facts:
On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.)
No. 273, amending the National Internal Revenue Code of 1977 (Presidential
Decree No. 1158) by imposing Value-Added Tax (VAT) on the sale of goods
and services. This E.O. took effect on January 1, 1988.
Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent
wrote the Commissioner of Internal Revenue (CIR), petitioner, inquiring
whether the services it provides to the participants in its health care program
are exempt from the payment of the VAT.
On June 8, 1988, petitioner CIR, issued VAT Ruling No. 231-88 stating that
respondent, as a provider of medical services, is exempt from the VAT
coverage. This Ruling was subsequently confirmed by Regional Director
Osmundo G. Umali of Revenue Region No. 8 in a letter dated April 22, 1994.
On January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT
Law) took effect, amending further the National Internal Revenue Code of
1977. Then on January 1, 1998, R.A. No. 8424 (National Internal Revenue
Code of 1997) became effective. This new Tax Code substantially adopted
and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on
E-VAT.
87 | M s . N o l a i d a A g u i r r e
In the interim, on October 1, 1999, the BIR sent respondent a Preliminary
Assessment Notice for deficiency in its payment of the VAT and documentary
stamp taxes (DST) for taxable years 1996 and 1997. On October 20, 1999,
respondent filed a protest with the BIR.
On January 27, 2000, petitioner CIR sent respondent a letter demanding
payment of "deficiency VAT" in the amount of P100,505,030.26 and DST in
the amount of P124,196,610.92, or a total of P224,702,641.18 for taxable
years 1996 and 1997. Attached to the demand letter were four (4) assessment
notices. On February 23, 2000, respondent filed another protest questioning
the assessment notices.
Petitioner CIR did not take any action on respondent's protests. Hence, on
September 21, 2000, respondent filed with the Court of Tax Appeals (CTA) a
petition for review, docketed as CTA Case No. 6166.
Issue:
Whether VAT Ruling No. 231-88 exempting respondent from payment of VAT
has retroactive application
Held:
We agree with both the Tax Court and the Court of Appeals that respondent
acted in good faith. In Civil Service Commission v. Maala, we described good
faith as "that state of mind denoting honesty of intention and freedom from
knowledge of circumstances which ought to put the holder upon inquiry; an
honest intention to abstain from taking any unconscientious advantage of
another, even through technicalities of law, together with absence of all
information, notice, or benefit or belief of facts which render transaction
unconscientious."
According to the Court of Appeals, respondent's failure to describe itself as a
"health maintenance organization," which is subject to VAT, is not tantamount
to bad faith. We note that the term "health maintenance organization" was first
recorded in the Philippine statute books only upon the passage of "The
National Health Insurance Act of 1995" (Republic Act No. 7875).
It is thus apparent that when VAT Ruling No. 231-88 was issued in
respondent's favor, the term "health maintenance organization" was yet
unknown or had no significance for taxation purposes. Respondent, therefore,
believed in good faith that it was VAT exempt for the taxable years 1996 and
1997 on the basis of VAT Ruling No. 231-88.
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals,this Court held that
under Section 246 of the 1997 Tax Code, the Commissioner of Internal
Revenue is precluded from adopting a position contrary to one
previously taken where injustice would result to the taxpayer. Hence,
where an assessment for deficiency withholding income taxes was made,
three years after a new BIR Circular reversed a previous one upon which the
88 | M s . N o l a i d a A g u i r r e
taxpayer had relied upon, such an assessment was prejudicial to the taxpayer.
To rule otherwise, opined the Court, would be contrary to the tenets of good
faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting
Corp. in the later cases ofCommissioner of Internal Revenue v. Borroughs,
Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg.
Corp.Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.)
Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is
that the BIR rulings have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer, as in this case.
CASE SYLLABI:
Same; Same; Same; Administrative Law; Rulings, circulars, rules and
regulations promulgated by the Commissioner of Internal Revenue have
no retroactive application if to apply them would prejudice the taxpayer;
Exceptions. —Relative to the second issue, Section 246 of the 1997 Tax
Code, as amended, provides that rulings, circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue have no retroactive
application if to apply them would prejudice the taxpayer. The exceptions to
this rule are: (1) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the Bureau of
Internal Revenue; (2) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which the ruling is
based, or (3) where the taxpayer acted in bad faith.

Same; Same; Same; Same; The Commissioner of Internal Revenue is

precluded from adopting a position contrary to one previously taken
where injustice would result to the taxpayer; The rule is that the BIR
rulings have no retroactive effect where a grossly unfair deal would
result to the prejudice of the taxpayer.—In ABS-CBN Broadcasting Corp. v.
Court of Tax Appeals, 108 SCRA 142 (1981), this Court held that under
Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is
precluded from adopting a position contrary to one previously taken where
injustice would result to the taxpayer. Hence, where an assessment for
deficiency withholding income taxes was made, three years after a new BIR
Circular reversed a previous one upon which the taxpayer had relied upon,
such an assessment was prejudicial to the taxpayer. To rule otherwise, opined
the Court, would be contrary to the tenets of good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting
Corp. in the later cases of Commissioner of Internal Revenue v. Borroughs,
Ltd., 142 SCRA 324 (1986), Commissioner of Internal Revenue v. Mega Gen.
Mdsg. Corp., 166 SCRA 166 (1988), Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.), Inc., 249 SCRA 401 (1995), and
Commissioner of Internal Revenue v. Court of Appeals, 267 SCRA 557 (1997).

89 | M s . N o l a i d a A g u i r r e
The rule is that the BIR rulings have no retroactive effect where a grossly
unfair deal would result to the prejudice of the taxpayer, as in this case.
Commissioner of Internal Revenue vs. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., 512 SCRA 124, G.R. No.
153205. January 22, 2007
Carpio, J.
Facts:
Respondent is a domestic corporation duly organized and existing under and
by virtue of the laws of the Philippines with principal address located at
Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City.
It is represented that a foreign consortium composed of Burmeister and Wain
Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and
Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the
National Power Corporation (NAPOCOR) for the operation and maintenance
of [NAPOCOR’s] two power barges. The Consortium appointed BWSC-
Denmark as its coordination manager.
BWSC-Denmark established [respondent] which subcontracted the actual
operation and maintenance of NAPOCOR’s two power barges as well as the
performance of other duties and acts which necessarily have to be done in the
Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of
currencies (Mark, Yen, and Peso). The freely convertible non-Peso
component is deposited directly to the Consortium’s bank accounts in
Denmark and Japan, while the Peso-denominated component is deposited in
a separate and special designated bank account in the Philippines. On the
other hand, the Consortium pays [respondent] in foreign currency inwardly
remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions,
[respondent] sought a ruling from the BIR which responded with BIR Ruling
No. 023-95 dated February 14, 1995, declaring therein that if [respondent]
chooses to register as a VAT person and the consideration for its services is
paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid
services shall be subject to VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the
Certificate of Registration bearing RDO Control No. 95-113-007556 was
issued in favor of [respondent] by the Revenue District Office No. 113 of
Davao City.
For the year 1996, [respondent] seasonably filed its quarterly Value-Added
Tax Returns reflecting, among others, a total zero-rated sales of
P147,317,189.62 with VAT input taxes of P3,361,174.14.
90 | M s . N o l a i d a A g u i r r e
On December 29, 1997, [respondent] availed of the Voluntary Assessment
Program (VAP) of the BIR. It allegedly misinterpreted Revenue Regulations
No. 5-96 dated February 20, 1996 to be applicable to its case.
On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99
from the VAT Review Committee which reconfirmed BIR Ruling No. 023-95
"insofar as it held that the services being rendered by BWSCMI is subject to
VAT at zero percent (0%)."
On the strength of the aforementioned rulings, [respondent] on April 22,1999,
filed a claim for the issuance of a tax credit certificate with Revenue District No.
113 of the BIR. [Respondent] believed that it erroneously paid the output VAT
for 1996 due to its availment of the Voluntary Assessment Program (VAP) of
the BIR.4
On 27 December 1999, respondent filed a petition for review with the CTA in
order to toll the running of the two-year prescriptive period under the Tax
Code.
CTA RULING:
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit
certificate for P6,994,659.67 in favor of respondent. The CTA’s ruling stated:
[Respondent’s] sale of services to the Consortium [was] paid for in acceptable
foreign currency inwardly remitted to the Philippines and accounted for in
accordance with the rules and regulations of Bangko Sentral ng Pilipinas.
These were established by various BPI Credit Memos showing remittances in
Danish Kroner (DKK) and US dollars (US$) as payments for the specific
invoices billed by [respondent] to the consortium. These remittances were
further certified by the Branch Manager x x x of BPI-Davao Lanang Branch to
represent payments for sub-contract fees that came from Den Danske
Aktieselskab Bank-Denmark for the account of [respondent]. Clearly,
[respondent’s] sale of services to the Consortium is subject to VAT at 0%
pursuant to Section 108(B)(2) of the Tax Code.
x x x Considering the principle of solutio indebiti which requires the return of
what has been delivered by mistake, the [petitioner] is obligated to issue the
tax credit certificate prayed for by [respondent]. x x x
CA RULING:
In affirming the CTA, the Court of Appeals rejected petitioner’s view that since
respondent’s services are not destined for consumption abroad, they are not
of the same nature as project studies, information services, engineering and
architectural designs, and other similar services mentioned in Section 4.102-
2(b)(2) of Revenue Regulations No. 5-96 as subject to 0% VAT. Thus,
according to petitioner, respondent’s services cannot legally qualify for 0%
VAT but are subject to the regular 10% VAT.
91 | M s . N o l a i d a A g u i r r e
Issue:
Whether respondent is entitled to the refund of P6,994,659.67 as erroneously
paid output VAT for the year 1996.
Held:
The petition is denied. At the outset, the Court declares that the denial of the
instant petition is not on the ground that respondent’s services are subject to 0%
VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation
of BIR Ruling No. 023-95 and VAT Ruling No. 003-99,which held that
respondent’s services are subject to 0% VAT and which respondent invoked
in applying for refund of the output VAT.
Nevertheless, in seeking a refund of its excess output tax, respondent
relied on VAT Ruling No. 003-99, which reconfirmed BIR Ruling No. 023-
95 “insofar as it held that the services being rendered by BWSCMI is subject
to VAT at zero percent (0%).” Respondent’s reliance on these BIR rulings
binds petitioner.
Petitioner’s filing of his Answer before the CTA challenging respondent’s
claim for refund effectively serves as a revocation of VAT Ruling No. 003-99
and BIR Ruling No. 023-95. However, such revocation cannot be given
retroactive effect since it will prejudice respondent. Changing respondent’s
status will deprive respondent of a refund of a substantial amount representing
excess output tax. Section 246 of the Tax Code provides that any revocation
of a ruling by the Commissioner of Internal Revenue shall not be given
retroactive application if the revocation will prejudice the taxpayer. Further,
there is no showing of the existence of any of the exceptions enumerated in
Section 246 of the Tax Code for the retroactive application of such revocation.
CASE SYLLABUS:

Same; Same; A taxpayer’s reliance on Bureau of Internal Revenue (BIR)

rulings binds the Commissioner of Internal Revenue; The BIR
Commissioner’s filing of his Answer before the Court of Tax Appeals
challenging a taxpayer’s claim for refund effectively serves as a
revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95, but such
revocation cannot be given retroactive effect since it will prejudice the
taxpayer; Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given
retroactive application if the revocation will prejudice the taxpayer.—In
seeking a refund of its excess output tax, respondent relied on VAT Ruling No.
003-99, which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the
services being rendered by BWSCMI is subject to VAT at zero percent (0%).”
Respondent’s reliance on these BIR rulings binds petitioner. Petitioner’s filing
of his Answer before the CTA challenging respondent’s claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling
No. 023-95. However, such revocation cannot be given retroactive effect since
92 | M s . N o l a i d a A g u i r r e
it will prejudice respondent. Changing respondent’s status will deprive
respondent of a refund of a substantial amount representing excess output tax.
Section 246 of the Tax Code provides that any revocation of a ruling by the
Commissioner of Internal Revenue shall not be given retroactive application if
the revocation will prejudice the taxpayer. Further, there is no showing of the
existence of any of the exceptions enumerated in Section 246 of the Tax Code
for the retroactive application of such revocation.

Philippine Bank of Communications vs. Commissioner of Internal

Revenue, 302 SCRA 24, G.R. No. 112024. January 28, 1999

Quisumbing, J.
Facts:
Petitioner, Philippine Bank of Communications (PBCom), a commercial
banking corporation duly organized under Philippine laws, filed its quarterly
income tax returns for the first and second quarters of 1985, reported profits,
and paid the total income tax of P5,016,954.00. The taxes due were settled by
applying PBCom's tax credit memos and accordingly, the Bureau of Internal
Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for
P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its
Annual Income Tax Returns for the year-ended December 31, 1986, the
petitioner likewise reported a net loss of P14,129,602.00, and thus declared
no tax payable for the year.
But during these two years, PBCom earned rental income from leased
properties. The lessees withheld and remitted to the BIR withholding
creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal
Revenue, among others, for a tax credit of P5,016,954.00 representing the
overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable
taxes withheld by their lessees from property rentals in 1985 for P282,795.50
and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal
Revenue, petitioner instituted a Petition for Review on November 18, 1988
before the Court of Tax Appeals (CTA).
Issue:
Whether or not the Court of Appeals erred in denying the plea for tax refund or
tax credits on the ground of prescription, despite petitioner's reliance on RMC
No. 7-85, changing the prescriptive period of two years to ten years?
Held:

93 | M s . N o l a i d a A g u i r r e
The relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary
purpose is to generate funds for the State to finance the needs of the citizenry
and to advance the common weal. 13 Due process of law under the
Constitution does not require judicial proceedings in tax cases. This must
necessarily be so because it is upon taxation that the government chiefly
relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an administrative
body enforced to collect taxes, its functions should not be unduly delayed or
hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec.
229, NIRC of 1997) provides for the prescriptive period for filing a court
proceeding for the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. — No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or
of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceedings shall begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment; Provided however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
(Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the
Commissioner of Internal Revenue, within two (2) years after payment of tax,
before any suit in CTA is commenced. The two-year prescriptive period
provided, should be computed from the time of filing the Adjustment Return
and final payment of the tax for the year.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
94 | M s . N o l a i d a A g u i r r e
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. Thus, courts
will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with the law they seek to apply and
implement.
Further, fundamental is the rule that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. As pointed out by the respondent
courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative interpretation which is not in harmony
with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a
statute. Hence, his interpretation could not be given weight for to do so would,
in effect, amend the statute.
Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any
excess of the total quarterly payments over the actual income tax computed in
the adjustment or final corporate income tax return, shall either(a) be refunded
to the corporation, or (b) may be credited against the estimated quarterly
income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by
marking the option box provided in the BIR form) its intention, whether to
request for a refund or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection, these remedies are
in the alternative, and the choice of one precludes the other.
CASE SYLLABUS:
Same; Same; Same; Same; Same; Statutory Construction; A
memorandum circular of a bureau head could not operate to vest a
taxpayer with a shield against judicial action, for there are no vested
rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place
the Government in estoppel to correct or overrule the same; The non-
retroactivity of rulings by the Commissioner of Internal Revenue is not
applicable where the nullity of a Revenue Memorandum Circular was
declared by courts and not by the Commissioner of Internal Revenue.—
Article 8 of the Civil Code recognizes judicial decisions, applying or
interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a taxpayer
with a shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and
such wrong interpretation could not place the Government in estoppel to
correct or overrule the same. Moreover, the non-retroactivity of rulings by the
95 | M s . N o l a i d a A g u i r r e
Commissioner of Internal Revenue is not applicable in this case because the
nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it must be noted that, as
repeatedly held by this Court, a claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against the taxpayer.
Commissioner of lnternal Revenue vs. Court of Appeals, 267 SCRA
557, G.R. No. 117982. February 6, 1997
Bellosillo, J.
Facts:
Alhambra Industries, Inc, is a domestic corporation engaged in the
manufacture and sale of cigar and cigarette products. On May 7, 1991,
Private respondent received a letter (26 of April,1991) from the CIR assessing
its deficiency Ad Valorem Tax (AVT) in the total amount of (P488,396.62),
inclusive of increments, on the removals of cigarette products from place of
production during (November 2, 1990 to January 22, 1991).Alhambra filed a
protest but the same was denied. CIR requested payment of the revised
amount of P520, 835.39. Without waiting for CIR’s reply to its reconsideration.
Alhambra filed a petition for review with CTA. Meanwhile, CIR denied the
request for reconsideration. Alhambra then paid the disputed AVT in the sum
of P520,835.29 under protest. CTA, in its jurisdiction, ordered CIR to refund to
Alhambra the amount erroneously paid, explaining that the subject deficiency
excise tax assessment resulted from Alhambra’s use of the computation
mandated by BIR Ruling 017-473-88 dated October 4, 1998 as basis for
computing the 15% AVT. BIR Ruling 017-91 revoked BIR Ruling 473-88 for
being violative of Sec. 142 of the Tax Code; it included back the VAT to the
gross selling price in determining the tax base for computing the AVT on
cigarettes.
Issue:
Whether or not private respondent’s reliance on a void BIR ruling conferred
upon the latter a vested right to apply the same in the computation of its AVT
and claim for tax refund?
Held:
The present dispute arose from the discrepancy in the taxable base on which
the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR
Ruling 473-88 dated October 4, 1988 which EXCLUDED the VAT from the tax
base in computing the 15% excise tax due; and (2) BIR Ruling 017-91 dated
Feb 11, 1991 which INCLUDED back the Vat in computing the tax base for
purposes of the 15% AVT.
The question as to correct computation of the excise tax on cigarettes in the
case at bar has been sufficiently addressed by BIR Ruling 017-91 which
revoked BIR Ruling 473-88.
96 | M s . N o l a i d a A g u i r r e
It is to be noted that Section 127 (b) of the Tax Code as amended applies in
general to domestic products and excludes the value added tax in the
determination of the gross selling price, which is the tax base for purposes of
the imposition of AVT. On the other hand, the last par., of Sec 142 of the
same code which includes the VAT in the computation of the AVT refers
specifically to cigar and cigarettes only. It does not include/apply to any other
articles or goods subject to the AVT. Accordingly, Sec. 142 must perforce
prevail over SEC 127 (B) which is a general provision of law insofar as the
imposition of AVT on cigar and cigarettes is concerned,
Moreover, the phrase unless otherwise provided in Sec 127(b) purports of
exceptions to the general rule contained therein, such as that of Sec 142, last
paragraph therof which explicitly provides that in the case of cigarettes, the tax
base for purposes of the AVT shall include, the VAT.
Private respondent did not question the correctness of the above BIR ruling. In
fact, upon knowledge of the effectivity of BIR Ruling No. 017-91, private
respondent immediately implemented the method of computation mandated
therein by restoring the VAT in computing the tax base for purposes of the 15 %
AVT.
However, well-entrenched is the rule that rulings and circulars, rules and
regulations promulgated by the Commissioner of Internal Revenue would
have no retroactive application if to so apply them would be prejudicial to the
taxpayers.
The applicable law is Sec. 246 of the Tax Code which provides -
Sec. 246. Non-retroactivity of rulings.- Any revocation,
modification, or reversal of any rules and regulations
promulgated in accordance with the preceding section or any
of the rulings or circulars promulgated by the Commissioner of
Internal Revenue shall not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the
taxpayers except in the following cases: a) where the taxpayer
deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue;
b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which
the ruling is based; or c) where the taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the retroactive
application of the revocation as it would be assessed deficiency excise tax.
What is left to be resolved is petitioner’s claim that private respondent falls
under the third exception in Sec. 246, i.e., that the taxpayer has acted in bad
faith.
Bad faith imports a dishonest purpose or some moral obliquity and conscious
doing of wrong. It partakes of the nature of fraud; a breach of a known duty
97 | M s . N o l a i d a A g u i r r e
through some motive of interest or ill will. We find no convincing evidence
that private respondent’s implementation of the computation mandated by BIR
Ruling 473-88 was ill-motivated or attended with a dishonest purpose. To the
contrary, as a sign of good faith, private respondent immediately reverted to
the computation mandated by BIR Ruling 017-91 upon knowledge of its
issuance on 11 February 1991.
As regards petitioner's argument that private respondent should have made
consultations with it before private respondent used the computation
mandated by BIR Ruling 473-88, suffice it to state that the aforesaid BIR
Ruling was clear and categorical thus leaving no room for interpretation. The
failure of private respondent to consult petitioner does not imply bad faith on
the part of the former.
Admittedly the government is not estopped from collecting taxes legally due
because of mistakes or errors of its agents. But like other principles of law,
this admits of exceptions in the interest of justice and fair play, as where
injustice will result to the taxpayer.
Concurring opinion of Justice Vitug:
I concur in the ponencia written by my esteemed colleague, Mr. Justice Josue
N. Bellosillo. I only would like to stress that the 1988 opinion of the
Commissioner of Internal Revenue cannot be considered void, considering
that it evinces what the former commissioner must have felt to be a real
inconsistency between Section 127 and Section 142 of the Tax Code. The
non-retroactivity proscription under Section 246 of the Tax Code can thus
aptly apply. I reserve my vote, however, in a situation where, as the Solicitor
General so points out, the revoked ruling is patently null and void in which
case it could possibly be disregarded as being inexistent from the very
beginning.
CASE SYLLABI:

Taxation; Rulings and circulars, rules and regulations promulgated by

the Commissioner of lnternal Revenue would have no retroactive
application if to so apply them would be prejudicial to the taxpayers.—
However, well-entrenched is the rule that rulings and circulars, rules and
regulations promulgated by the Commissioner of Internal Revenue would
have no retroactive application if to so apply them would be prejudicial to the
taxpayers.
Same; Words and Phrases; Bad faith imports a dishonest purpose or
some moral obliquity and conscious doing of wrong—it partakes of the
nature of fraud, a breach of a known duty through some motive of interest or ill
will.—Bad faith imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. lt partakes of the nature of fraud; a breach of a
known duty through some motive of interest or ill will. We find no convincing
98 | M s . N o l a i d a A g u i r r e
evidence that private respondent’s implementation of the computation
mandated by BIR Ruling 473–88 was ill-motivated or attended with a
dishonest purpose. To the contrary, as a sign of good faith, private respondent
immediately reverted to the computation mandated by BIR Ruling 017–91
upon knowledge of its issuance on 11 February 1991.
Same; The failure of a taxpayer to consult the Bureau of Internal
Revenue before using a computation mandated by a BIR Ruling which
was clear and categorical, thus leaving no room for interpretation, does
not imply bad faith on the part of the former.—As regards petitioner’s
argument that private respondent should have made consultations with it
before private respondent used the computation mandated by BIR Ruling
473–88, suffice it to state that the aforesaid BIR Ruling was clear and
categorical thus leaving no room for interpretation. The failure of private
respondent to consult petitioner does not imply bad faith on the part of the
former.

Same; Estoppel; While the government is not estopped from collecting

taxes legally due because of mistakes or errors of its agents, this admits
of exceptions in the interest of justice and fair play, as where injustice
will result to the taxpayer.—Admittedly the government is not estopped from
collecting taxes legally due because of mistakes or errors of its agents. But
like other principles of law, this admits of exceptions in the interest of justice
and fair play, as where injustice will result to the taxpayer.
Commissioner of Internal Revenue vs. Filinvest Development
Corporation , 654 SCRA 56, G.R. No. 163653 & G.R. No. 167689, July
19, 2011
Perez, J.

Facts:

The owner of 80% of the outstanding shares of respondent Filinvest Alabang,

Inc. (FAI), respondent Filinvest Development Corporation (FDC) is a holding
company which also owned 67.42% of the outstanding shares of Filinvest
Land, Inc. (FLI). FDC and FAI entered into a Deed of Exchange with FLI
whereby the former both transferred in favor of the latter parcels of land
appraised at P4,306,777,000.00. In exchange for said parcels which were
intended to facilitate development of medium-rise residential and commercial
buildings, 463,094,301 shares of stock of FLI were issued to FDC and FAI.

Later, FLI requested a ruling from the BIR to the effect that no gain or loss
should be recognized in the aforesaid transfer of real properties. Acting on
the request, the BIR issued Ruling No. S-34-046-97 dated 3 February 1997,
finding that the exchange is among those contemplated under Section 34 (c)
(2) of the old NIRC (Now Section 40, NIRC) which provides that “(n)o gain or
loss shall be recognized if property is transferred to a corporation by a person
99 | M s . N o l a i d a A g u i r r e
in exchange for a stock in such corporation of which as a result of such
exchange said person, alone or together with others, not exceeding four (4)
persons, gains control of said corporation." With the BIR’s reiteration of the
foregoing ruling upon the request for clarification filed by FLI, the latter,
together with FDC and FAI, complied with all the requirements imposed in the
ruling.

On various dates during the years 1996 and 1997, in the meantime, FDC also
extended advances in favor of its affiliates, namely, FAI, FLI, Davao Sugar
Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI). Duly evidenced
by instructional letters as well as cash and journal vouchers, said cash
advances amounted to P2,557,213,942.60 in 1996 and P3,360,889,677.48 in
1997. FDC also entered into a Shareholders’ Agreement with Reco Herrera
PTE Ltd. (RHPL) for the formation of a Singapore-based joint venture
company called Filinvest Asia Corporation (FAC), tasked to develop and
manage FDC’s 50% ownership of its PBCom Office Tower Project (the
Project). With their equity participation in FAC respectively pegged at 60%
and 40% in the Shareholders’ Agreement, FDC subscribed to P500.7 million
worth of shares in said joint venture company to RHPL’s subscription worth
P433.8 million. Having paid its subscription by executing a Deed of
Assignment transferring to FAC a portion of its rights and interest in the
Project worth P500.7 million, FDC eventually reported a net loss of
P190,695,061.00 in its Annual Income Tax Return for the taxable year 1996.

Then, FDC received from the BIR a Formal Notice of Demand to pay
deficiency income and documentary stamp taxes, plus interests and
compromise penalties, covered by the following Assessment Notices, viz.: (a)
Assessment Notice for deficiency income taxes in the sum of
P150,074,066.27 for 1996; (b) Assessment Notice for deficiency documentary
stamp taxes in the sum of P10,425,487.06 for 1996; (c) Assessment Notice for
deficiency income taxes in the sum of P5,716,927.03 for 1997; and (d)
Assessment for deficiency documentary stamp taxes in the sum of
P5,796,699.40 for 1997. The foregoing deficiency taxes were assessed on
the taxable gain supposedly realized by FDC from the Deed of Exchange it
executed with FAI and FLI, on the dilution resulting from the Shareholders’
Agreement FDC executed with RHPL as well as the “arm’s-length” interest
rate and documentary stamp taxes imposable on the advances FDC extended
to its affiliates.

FAI similarly received from the BIR a Formal Letter of Demand for deficiency
income taxes in the sum of P1,477,494,638.23 for the year 1997. Covered by
Assessment Notice, said deficiency tax was also assessed on the taxable gain
purportedly realized by FAI from the Deed of Exchange it executed with FDC
and FLI. Within the reglementary period of thirty (30) days from notice of the
assessment, both FDC and FAI filed their respective requests for
100 | M s . N o l a i d a A g u i r r e
reconsideration/protest, on the ground that the deficiency income and
documentary stamp taxes assessed by the BIR were bereft of factual and
legal basis. Having submitted the relevant supporting documents pursuant to
the 31 January 2000 directive from the BIR Appellate Division, FDC and FAI
filed a letter requesting an early resolution of their request for
reconsideration/protest on the ground that the 180 days prescribed for the
resolution thereof under Section 228 of the NIRC was going to expire on 20
September 2000.

In view of the failure of petitioner CIR to resolve their request for

reconsideration/protest within the aforesaid period, FDC and FAI filed a
petition for review with the CTA. The petition alleged, among other matters,
that as previously opined in BIR Ruling No. S-34-046-97, no taxable gain
should have been assessed from the subject Deed of Exchange since FDC
and FAI collectively gained further control of FLI as a consequence of the
exchange; that correlative to the CIR's lack of authority to impute theoretical
interests on the cash advances FDC extended in favor of its affiliates, the rule
is settled that interests cannot be demanded in the absence of a stipulation to
the effect; that not being promissory notes or certificates of obligations, the
instructional letters as well as the cash and journal vouchers evidencing said
cash advances were not subject to documentary stamp taxes; and, that no
income tax may be imposed on the prospective gain from the supposed
appreciation of FDC's shareholdings in FAC. As a consequence, FDC and
FAC both prayed that the subject assessments for deficiency income and
documentary stamp taxes for the years 1996 and 1997 be cancelled and
annulled.

CTA decision - went on to render the decision dated 10 September 2002

which, with the exception of the deficiency income tax on the interest income
FDC supposedly realized from the advances it extended in favor of its
affiliates, cancelled the rest of deficiency income and documentary stamp
taxes assessed against FDC and FAI for the years 1996 and 1997. However
[FDC] is ordered to pay the amount of P5,691,972.03 as deficiency income tax
for taxable year 1997. In addition, FDC is also ordered to pay 20%
delinquency interest computed from February 16, 2000 until full payment
thereof pursuant to Section 249 (c) (3) of the Tax Code.

Dissatisfied with the foregoing decision, FDC filed petition for review -- Calling
attention to the fact that the cash advances it extended to its affiliates were
interest-free in the absence of the express stipulation on interest required
under Article 1956 of the Civil Code, FDC questioned the imposition of an
arm's-length interest rate thereon on the ground, among others, that the CIR's
authority under Section 43 of the NIRC: (a) does not include the power to
impute imaginary interest on said transactions; (b) is directed only against
controlled taxpayers and not against mother or holding corporations; and, (c)

101 | M s . N o l a i d a A g u i r r e
can only be invoked in cases of understatement of taxable net income or
evident tax evasion.

CA – upheld FDC’s position and reversed and set aside CTA deicision.
Issue No. 1:
Whether or not the advances extended by FDC to its affiliates are subject to
income tax and also subject to interest.

Held:

Yes. Section 43 [now Section 50] of the 1993 National Internal Revenue
Code (NIRC) provides that. “(i)n case of two or more organizations, trades or
businesses (whether or not incorporated and whether or not organized in the
Philippines) owned or controlled directly or indirectly by the same interests,
the Commissioner of Internal Revenue [(CIR)] is authorized to distribute,
apportion or allocate gross income or deductions between or among such
organization, trade of business, if he determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes
or clearly to reflect the income of any such organization, trade or business,”
Section 179 of Revenue Regulations No. 2 provides in part that “(i)n
determining the true net income of a controlled taxpayer, the [CIR] is not
restricted to the case of improper accounting, to the case of a fraudulent,
colorable, or sham transaction, or to the case of a device designed to reduce
of avoid tax by shifting or distorting income or deductions. The authority to
determine true net income extends to any case in which either by
inadvertence or design the taxable net income in whole or in part, of a
controlled taxpayer, is other than it would have been had the taxpayer in the
conduct of his affairs been an uncontrolled taxpayer dealing at arm’s length
with another uncontrolled taxpayer.” Despite the broad parameters provided,
however, the CIR’s power of distribution, apportionment or allocation of gross
income and deductions under the NIRC and Revenue Regulations No. 2 do
not include the power to impute “theoretical interests” to the taxpayer’s
transactions. Pursuant to Section 28 [now Section 32] of the NIRC, the term
“gross income” is understood to mean all income from whatever source
derived, including, but not limited to certain items. While it has been held that
the phrase “from whatever source derived” indicates a legislative policy to
include all income not expressly exempted within the class of taxable income
under Philippine laws, the term “income” has been variously interpreted to
mean “cash received or its equivalent,” the amount of money coming to a
person within a specific time” or something distinct from principal or capital.”
Otherwise stated, there must be proof of the actual or, at the very least,
probable receipt or realization by the controlled taxpayer of the item of gross
income sought to be distributed, apportioned or allocated by the CIR. In this
case, there is no evidence of actual or possible showing that the advances
taxpayer extended to its affiliates had resulted to interests subsequently
assessed by the CIR. Even if the Court were to accord credulity to the CIR’s
assertion that taxpayer had deducted substantial interest expense from its
gross income, there would still be no factual basis for the imputation of
102 | M s . N o l a i d a A g u i r r e
theoretical interests on the subject advances and assess deficiency income
taxes thereon. Further, pursuant to Article 1959 of the Civil Code of the
Philippines, no interest shall be due unless it has been expressly stipulated in
writing.

Issue No. 2:

Whether or not FDC is subject to documentary stamp tax.

Held:

Yes. Loan agreements and promissory notes are taxed under Section 180 of
the 1993 National Internal Revenue Code (NIRC) [they are now taxed under
Section 179 as “evidence of indebtedness]. When read in conjunction with
Section 173 of the NIRC, Section 180 concededly applies to “[a]ll loan
agreements, whether made or signed in the Philippines, or abroad when the
obligation or right arises from Philippine sources or the property or object of
the contract is located or used in the Philippines.” Section 3 (b) of Revenue
Regulations No. 9-94 provides in part that the term “loan agreement” shall
include “credit facilities, which may be evidenced by credit memo, advice or
drawings.” Section 6 of the same revenue regulations further provides that
“[i]n cases where no formal agreements or promissory notes have been
executed to cover credit facilities, the documentary stamp tax shall be based
on the amount of drawings or availment of the facilities, which may be
evidenced by credit/debit memo, advice or drawings by any form of check or
withdrawal slip…” Applying the foregoing to the case, the instructional letters
as well as the journal and cash vouchers evidencing the advances taxpayer
extended to its affiliates in 1996 and 1997 qualified as loan agreements upon
which documentary stamp taxes may be imposed.

CASE SYLLABI:
Same; Rulings, circulars, rules and regulations promulgated by the
Bureau of Internal Revenue (BIR) have no retroactive application if to so
apply them would be prejudicial to the taxpayers; Exceptions to the
rule.—In its appeal before the CA, the CIR argued that the foregoing ruling
was later modified in BIR Ruling No. 108-99 dated 15 July 1999, which opined
that inter-office memos evidencing lendings or borrowings extended by a
corporation to its affiliates are akin to promissory notes, hence, subject to
documentary stamp taxes. In brushing aside the foregoing argument, however,
the CA applied Section 246 of the 1993 NIRC from which proceeds the settled
principle that rulings, circulars, rules and regulations promulgated by the BIR
have no retroactive application if to so apply them would be prejudicial to the
taxpayers. Admittedly, this rule does not apply: (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue; (b) where the
facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or (c) where the taxpayer
103 | M s . N o l a i d a A g u i r r e
acted in bad faith. Not being the taxpayer who, in the first instance, sought a
ruling from the CIR, however, FDC cannot invoke the foregoing principle on
non-retroactivity of BIR rulings.

Commissioner of Internal Revenue vs. San Roque Power Corporation,

690 SCRA 336, G.R. No. 187485. February 12, 2013

Carpio, J.
Consolidated Digest:
The primary issue in the three (3) consolidated cases involving San
Roque Power, Taganito Mining and Philex Mining decided last February
12, 2013 revolves around the proper period for filing the judicial claim for
refund or credit of creditable input tax. Under Section 112(A) and 112(C) of
the Tax Code, a taxpayer whose sales are zero-rated or effectively zero-rated
can file his administrative claim for refund or credit at anytime within two (2)
years after the taxable quarter when the sales were made and, after full or
partial denial of the claim or failure of the Commissioner to act on his
application within 120 days from submission of the same, he may, within 30
days from receipt of the decision denying the claim or after the expiration of
the 120-day period, file his judicial claim with the CTA.
These cases all involved the timely filing by the taxpayers of their
administrative claims with the Commissioner of Internal Revenue. However,
San Roque and Taganito both prematurely filed their judicial claims without
waiting for the 120-day period (for the Commissioner to act on their
administrative claims) to lapse, whereas Philex was a case of late filing since
it did not file its judicial claim until after 426 days beyond the 120 + 30 day
periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio,
denied tax refund or credit to San Roque and Philex, but granted the same to
Taganito.
The majority denied refund to San Roque on the basis, among others, that the
waiting period for filing a judicial claim is mandatory and jurisdictional and has
been in the Tax Code for more than 15 years before San Roque filed its
judicial claim in April 10, 2003 (barely 13 days after it filed its administrative
claim). The majority, however, granted refund to Taganito who, although like
San Roque filed its judicial claim without waiting for the 120-day period to
lapse, was deemed to have filed its judicial claim on time since it was filed on
February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03 on
December 10, 2003 (which states that the taxpayer need not wait for the 120-
day period to lapse before it could seek judicial relief with the CTA) but before
the October 6, 2010 Supreme Court (SC) decision in Commissioner of Internal
Revenue v. Aichi Forging Company of Asia (reinstating the 120+30 day
periods as mandatory and jurisdictional). The majority held that since the
Commissioner has exclusive and original jurisdiction to interpret tax laws
under Section 4 of the Tax Code, a taxpayer should not be prejudiced by an
104 | M s . N o l a i d a A g u i r r e
erroneous interpretation by the Commissioner and, under Section 246, a
reversal of a BIR ruling cannot adversely prejudice a taxpayer like Taganito
who in good faith relied on it prior to its reversal.
In denying Philex’s judicial claim for refund filed on October 17, 2007, the
majority ruled that the inaction of the Commissioner during the 120-day period
is a “deemed denial” and Philex’s failure to file an appeal within 30 days from
the expiration of the 120-day period rendered the “deemed denial” decision of
the Commissioner final and inappealable.
In his dissenting opinion, J. Velasco, joined by J. Mendoza and J. Perlas-
Bernabe, suggested that the doctrine applicable to a claim for refund depends
on the operative case and the prevailing rulings and practices at the time of
filing the claim. In San Roque, since both the administrative and judicial claims
were filed during the effectivity of RR 7-95 (which still applied the 2-year
prescriptive period to judicial claims), San Roque can claim good faith reliance
on RR 7-95 and the then prevailing practices of the BIR and CTA to believe
that the 120 + 30-day periods are dispensable so long as both administrative
and judicial claims are filed within the 2-year period. In denying refund to
Taganito, however, the dissenter pointed out that Taganito cannot claim
reliance in good faith on RR 7-95 since it filed its judicial claim after November
1, 2005 when RR 16-2005 took effect and superseded RR 7-95 (including BIR
Ruling No. DA-489-03 relied upon by the majority in granting refund to
Taganito and which this dissenter believed was a mere application of RR 7-
95), deleting the reference therein to the 2-year period for filing judicial claims.
Philex, on the other hand, filed its claim belatedly under both the superseded
RR 7-95 and the effective RR 16-2005. This dissenter thus voted to grant
refund to San Roque, but to deny it to Taganito and Philex.
In his separate dissenting opinion, CJ Sereno, concurred with J. Velasco’s
dissent in San Roque and Philex but disagreed with the latter’s stand in
Taganito since, at the time Taganito filed its administrative and judicial claims
for refund, the 2-year prescriptive period remained the unreversed
interpretation of the court. Thus, Taganito cannot be faulted for relying on
court interpretations even with the existence of RR 16-2005, and for preferring
to abide by court interpretations over mere administrative issuances as the
latter’s validity is still subject to judicial determination. This dissenter believed
that the mandatory and jurisdictional nature of the 120+30 day periods was
only definitely and categorically declared by the SC in Aichi on October 6,
2010 and should only be applied prospectively from that time, and that
previous regard to the 120+30-day periods is an exceptional circumstance
which warrants procedural liberality to taxpayers who relied on such
interpretations.
In his separate dissenting opinion, J. Leonen, joined by J. del Castillo,
disagreed that SC interpretations of the law take effect only prospectively,
since the SC’s duty is to construe and not to make law, and its interpretation
became part of the law from the date it was originally passed. This dissenter
105 | M s . N o l a i d a A g u i r r e
further reminds us that an “erroneous application of the law by public officers
does not preclude a subsequent correct application of the statute, and the
Government is never estopped by mistake or error on the part of its agents.”
Accordingly, while the Commissioner is given power and authority to interpret
tax laws, it cannot legislate guidelines contrary to the law it is tasked to
implement. Hence its interpretation is not conclusive and will be ignored if
judicially found to be erroneous. And while concededly any reversal of any
BIR ruling cannot adversely prejudice a taxpayer who in good faith relied on it
prior to its reversal, if it is patently clear that the ruling is contrary to the text
itself, there can be no reliance in good faith. Further, that it is the duty of the
lawyers of private parties to best discern the acceptable interpretation of legal
text and, in doing so, they take the risk that the SC will rule otherwise,
especially if the text of the law – as in this case – is very clear. This dissenter
thus voted to deny refund to all three taxpayers.
(http://lexoterica.wordpress.com/2013/03/06/dissension-in-the-court-february-
2013/)

CASE SYLLABI:
Civil Law; Human Relations; It is hornbook doctrine that a person
committing a void act contrary to a mandatory provision of law cannot
claim or acquire any right from his void act. A right cannot spring in
favor of a person from his own void or illegal act.―It is hornbook doctrine
that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in
favor of a person from his own void or illegal act. This doctrine is repeated in
Article 2254 of the Civil Code, which states, “No vested or acquired right can
arise from acts or omissions which are against the law or which infringe upon
the rights of others.” For violating a mandatory provision of law in filing its
petition with the CTA, San Roque cannot claim any right arising from such
void petition. Thus, San Roque’s petition with the CTA is a mere scrap of
paper.
Same; A reversal of a Bureau of Internal Revenue (BIR) regulation or
ruling cannot adversely prejudice a taxpayer who in good faith relied on
the BIR regulation or ruling prior to its reversal.— Since the Commissioner
has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in
good faith should not be made to suffer for adhering to general interpretative
rules of the Commissioner interpreting tax laws, should such interpretation
later turn out to be erroneous and be reversed by the Commissioner or this
Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal
of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its reversal.
Same; Statutory Construction; Taxpayers should not be prejudiced by
an erroneous interpretation by the Commissioner, particularly on a
106 | M s . N o l a i d a A g u i r r e
difficult question of law.—Taxpayers should not be prejudiced by an
erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is
proof that the reckoning of the prescriptive periods for input VAT tax refund or
credit is a difficult question of law. The abandonment of the Atlas doctrine did
not result in Atlas, or other taxpayers similarly situated, being made to return
the tax refund or credit they received or could have received under Atlas prior
to its abandonment. This Court is applying Mirant and Aichi prospectively.
Absent fraud, bad faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like the reversal of a
specific BIR ruling under Section 246, should also apply prospectively.
Same; Judgments; Court of Tax Appeals decisions do not constitute
precedents, and do not bind the Supreme Court or the public.—There is
also the claim that there are numerous CTA decisions allegedly supporting the
argument that the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year prescriptive period.
Suffice it to state that CTA decisions do not constitute precedents, and do not
bind this Court or the public. That is why CTA decisions are appealable to this
Court, which may affirm, reverse or modify the CTA decisions as the facts and
the law may warrant. Only decisions of this Court constitute binding
precedents, forming part of the Philippine legal system.
Sereno, C.J., Separate Dissenting Opinion:
Same; View that it is violative of the right to procedural due process of
taxpayers when the Court itself allowed the taxpayers to believe that
they were observing the proper procedural periods and, in a sudden
jurisprudential turn, deprived them of the relief provided for and earlier
relied on by the taxpayers.—We find it violative of the right to procedural
due process of taxpayers when the Court itself allowed the taxpayers to
believe that they were observing the proper procedural periods and, in a
sudden jurisprudential turn, deprived them of the relief provided for and earlier
relied on by the taxpayers. It is with this reason and in the interest of
substantial justice that the strict application of the 120+<30 day period should
be applied prospectively to claims for refund or credit of excess input VAT. To
apply these rules retroactively would be tantamount to punishing the public for
merely following interpretations of the law that have the imprimatur of this
Court. To do so creates a tear in the public order and sow more distrust in
public institutions. We would be fostering uncertainty in the minds of the public,
especially in the business community, if we cannot guarantee our own
obedience to these rules.
Velasco, J., Dissenting Opinion:
Same; Same; View that the Supreme Court should not turn a blind eye to
the subordinate legislations issued by the Secretary of Finance (and
RMCs issued by the CIR) and the various decisions of this Court as well
107 | M s . N o l a i d a A g u i r r e
as the then prevailing practices of the Bureau of Internal Revenue and
the Court of Tax Appeals suggesting that the taxpayers can dispense
with the 120 and 30 day-periods in filing their judicial claim for
refund/credit of input Value-Added Tax (VAT) so long as both the
administrative and judicial claims are filed within two (2) years from the
close of the relevant taxable quarter.—The Court should not turn a blind
eye to the subordinate legislations issued by the Secretary of Finance (and
RMCs issued by the CIR) and the various decisions of this Court as well as
the then prevailing practices of the BIR and the CTA suggesting that the
taxpayers can dispense with the 120 and 30 day-periods in filing their judicial
claim for refund/credit of input VAT so long as both the administrative and
judicial claims are filed within two (2) years from the close of the relevant
taxable quarter. I humbly submit that in deciding claims for refund/credit of
input VAT, the following guideposts should be observed: (1) For judicial claims
for refund/credit of input VAT filed from January 1, 1996 (effectivity of RR 7-95)
up to October 31, 2005 (prior to effectivity of RR 16-2005), the Court may treat
the filing of the judicial claim within the 120 day (or 60-day, for judicial claims
filed before January 1, 1998), or beyond the 120+30 day-period (or 60+30
day-period) as permissible provided that both the administrative and judicial
claims are filed within two (2) years from the close of the relevant taxable
quarter. Thus, the 120 and 30-day periods under Sec. 112 may be considered
merely discretionary and may be dispensed with. (2) For judicial claims filed
from November 1, 2005 (date of effectivity of RR 16-2005), the prescriptive
period under Sec. 112(C) is mandatory and jurisdictional. Hence, judicial
claims for refund/credit of input VAT must be filed within a mandatory and
jurisdictional period of thirty (30) days after the taxpayer’s receipt of the CIR’s
decision denying the claim, or within thirty (30) days after the CIR’s inaction
for a period of 120 days from the submission of the complete documents
supporting the claim. The judicial claim may be filed even beyond the 2-year
threshold in Sec. 112(A) as long as the administrative claim is filed within said
2-year period. (3) RR 16-2005, as fortified by our ruling in Aichi, must be
applied PROSPECTIVELY in the same way that the ruling in Atlas and Mirant
must be applied prospectively.
Same; Statutory Construction; View that the Supreme Court has
previously held that “in declaring a law or executive action null and void,
or, by extension, no longer without force and effect, undue harshness
and resulting unfairness must be avoided.”—This Court, I maintain, is
duty-bound to sustain and give due credit to the taxpayers’ bona fide reliance
on RR Nos. 7-95 and 14-2005, RMC Nos. 42-03 and 49-03, along with
guidance provided by the then prevailing practices of the BIR and the CTA,
prior to their modification by RR 16-2005. Such prospective application of the
latter revenue regulation comports with the simplest notions of what is fair and
just––the precepts of due process. The Court has previously held that “in
declaring a law or executive action null and void, or, by extension, no longer
without force and effect, undue harshness and resulting unfairness must be
108 | M s . N o l a i d a A g u i r r e
avoided.” Such pronouncement can be applied to a change in the
implementing rules of the law. The reliance on the previous rules, in particular
RR Nos. 7-95 and 14-2005, along with RMC Nos. 42-03 and 49-03, and the
guidance provided by the then prevailing practices of the BIR and the CTA,
most certainly have had irreversible consequences that cannot just be ignored;
the past cannot always be erased by a new judicial declaration.
Leonen, J., Separate Opinion:
Courts; Supreme Court; View that the Supreme Court does not make law.
Its duty is to construe: i.e., declare authoritatively the meaning of
existing text.—I am however unable to agree with the conclusion that the
interpretation we have just put on these provisions take effect only when we
pronounce them. Thus, in the view of the ponencia, that it is to be applied
“prospectively.” My disagreement stems from the idea that we do not make
law. Ours is a duty to construe: i.e., declare authoritatively the meaning of
existing text. I can grant that words are naturally open textured and do have
their own degrees of ambiguity. This can be based on their intrinsic text,
language structure, context, and the interpreter’s standpoint.

Statutory Construction; Statutes; View that an “erroneous application

and enforcement of the law by public officers do not preclude a
subsequent correct application of the statute, and the Government is
never estopped by mistake or error on the part of its agents”;
Accordingly, while the Bureau of Internal Revenue (BIR) Commissioner
is given the power and authority to interpret tax laws pursuant to
Section 4 of the National Internal Revenue Code (NIRC), it cannot
legislate guidelines contrary to the law it is tasked to implement.—
Settled is the principle that an “erroneous application and enforcement of the
law by public officers do not preclude a subsequent correct application of the
statute, and the Government is never estopped by mistake or error on the part
of its agents.” Accordingly, while the BIR Commissioner is given the power
and authority to interpret tax laws pursuant to Section 4 of the NIRC, it cannot
legislate guidelines contrary to the law it is tasked to implement. Hence, its
interpretation is not conclusive and will be ignored if judicially found to be
erroneous. Concededly, under Section 246 of the NIRC, “[a]ny revocation,
modification or reversal of any BIR ruling or circular shall not be given
retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers.” However, if it is patently clear that the ruling is
contrary to the text of the law, there can be no reliance in good faith by the
practitioners.

Commissioner of Internal Revenue vs. San Roque Power Corporation,

707 SCRA 66, G.R. No. 187485. October 8, 2013

Carpio, J.
-----------------------supra-----------------------
109 | M s . N o l a i d a A g u i r r e
Nature of the Case: This Resolution resolves the Motion for Reconsideration
and the Supplemental Motion for Reconsideration filed by San Roque Power
Corporation (San Roque) in G.R. No. 187485, the Comment to the Motion for
Reconsideration filed by the Commissioner of Internal Revenue (CIR) in G.R.
No. 187485, the Motion for Reconsideration filed by the CIR in G.R. No.
196113, and the Comment to the Motion for Reconsideration filed by Taganito
Mining Corporation (Taganito) in G.R. No. 196113.
San Roque prays that the rule established in our 12 February 2013 Decision
be given only a prospective effect, arguing that “the manner by which the
Bureau of Internal Revenue (BIR) and the Court of Tax Appeals (CTA)
actually treated the 120 + 30 day periods constitutes an operative factthe
effects and consequences of which cannot be erased or undone.”
The CIR, on the other hand, asserts that Taganito Mining Corporation’s
(Taganito) judicial claim for tax credit or refund was prematurely filed before
the CTA and should be disallowed because BIR Ruling No. DA-489-03 was
issued by a Deputy Commissioner, not by the Commissioner of Internal
Revenue.
Final resolution: Motions are Denied
CASE SYLLABI:
Statutes; The general rule is that a void law or administrative act cannot
be the source of legal rights or duties.―The general rule is that a void law
or administrative act cannot be the source of legal rights or duties. Article 7 of
the Civil Code enunciates this general rule, as well as its exception: “Laws are
repealed only by subsequent ones, and their violation or non-observance shall
not be excused by disuse, or custom or practice to the contrary. When the
courts declared a law to be inconsistent with the Constitution, the former shall
be void and the latter shall govern. Administrative or executive acts, orders
and regulations shall be valid only when they are not contrary to the laws or
the Constitution.” The doctrine of operative fact is an exception to the general
rule, such that a judicial declaration of invalidity may not necessarily obliterate
all the effects and consequences of a void act prior to such declaration.
Same; Operative Fact Doctrine; For the operative fact doctrine to apply,
there must be a “legislative or executive measure,” meaning a law or
executive issuance, that is invalidated by the court.―Clearly, for the
operative fact doctrine to apply, there must be a “legislative or executive
measure,” meaning a law or executive issuance, that is invalidated by the
court. From the passage of such law or promulgation of such executive
issuance until its invalidation by the court, the effects of the law or executive
issuance, when relied upon by the public in good faith, may have to be
recognized as valid. In the present case, however, there is no such law or
executive issuance that has been invalidated by the Court except BIR Ruling
No. DA-489-03. To justify the application of the doctrine of operative fact as an
exemption, San Roque asserts that “the BIR and the CTA in actual practice
110 | M s . N o l a i d a A g u i r r e
did not observe and did not require refund seekers to comply with the 120+30
day periods.” This is glaring error because an administrative practice is neither
a law nor an executive issuance. Moreover, in the present case, there is even
no such administrative practice by the BIR as claimed by San Roque.
Taxation; Operative Fact Doctrine; Under Section 246 of the Tax Code,
taxpayers may rely upon a rule or ruling issued by the Commissioner
from the time the rule or ruling is issued up to its reversal by the
Commissioner or the Supreme Court.―Under Section 246, taxpayers may
rely upon a rule or ruling issued by the Commissioner from the time the rule or
ruling is issued up to its reversal by the Commissioner or this Court. The
reversal is not given retroactive effect. This, in essence, is the doctrine of
operative fact. There must, however, be a rule or ruling issued by the
Commissioner that is relied upon by the taxpayer in good faith. A mere
administrative practice, not formalized into a rule or ruling, will not suffice
because such a mere administrative practice may not be uniformly and
consistently applied. An administrative practice, if not formalized as a rule or
ruling, will not be known to the general public and can be availed of only by
those with informal contacts with the government agency.
VELASCO, JR., J., Dissenting Opinion:
Same; Statutory Construction; View that the interpretation of the
Secretary of Finance, as embodied in revenue regulations, prevails over
rulings issued by the Commissioner of Internal Revenue (CIR), who is
only empowered, at most, “to recommend the promulgation of rules and
regulations by the Secretary of Finance.”―Section 4 of the 1997 NIRC
provides that the CIR has the “power to interpret the provisions of the [1997
Tax] Code x x x subject to the review by the Secretary of Finance.” Ergo, the
interpretation of the Secretary of Finance, as embodied in revenue regulations,
prevails over rulings issued by the CIR, who is only empowered, at most, “to
recommend the promulgation of rules and regulations by the Secretary of
Finance.”
LEONEN, J., Concurring and Dissenting Opinion:
Same; Statutory Construction; View that a construction placed upon the
law by the Commissioner, even if it has been followed for years, if found
to be contrary to law, must be abandoned.―A construction placed upon
the law by the Commissioner, even if it has been followed for years, if found to
be contrary to law, must be abandoned. To say that such interpretation
established by the administrative agency has effect would be to say that this
Court has the power to control or suspend the effectivity of laws. We cannot
hold ourselves hostage to an erroneous interpretation. To say that equity
should be considered because it has been relied upon by taxpayers would
mean to underestimate or, worse, make the ordinary beneficiaries of the use
of our taxes invisible. We cannot use equity only to favor large taxpayers.

111 | M s . N o l a i d a A g u i r r e
Same; Statutory Construction; View that under Section 4 of the 1997 Tax
Code, the power to interpret the provisions of the Code and other tax
laws is under the exclusive and original jurisdiction of the
Commissioner of Internal Revenue, subject to review by the Secretary of
Finance. Pursuant to Section 7 of the Tax Code, the Commissioner of
Internal Revenue may delegate his or her powers to a subordinate
official except, among others, the power to issue rulings of first
impression or to reverse, revoke or modify any existing ruling of the
Bureau of Internal Revenue.―Under Section 4 of the 1997 Tax Code, the
power to interpret the provisions of the Code and other tax laws is under the
exclusive and original jurisdiction of the Commissioner of Internal Revenue,
subject to review by the Secretary of Finance. Pursuant to Section 7 of the
Tax Code, the Commissioner of Internal Revenue may delegate his or her
powers to a subordinate official except, among others, the power to issue
rulings of first impression or to reverse, revoke or modify any existing ruling of
the Bureau of Internal Revenue. The Bureau of Internal Revenue Ruling No.
DA-489-03 is a ruling of first impression, declaring for the first time in written
form the permissive nature of the 120-day period stated in Section 112(C).

112 | M s . N o l a i d a A g u i r r e
 REMEDIES AVAILABLE TO THE GOVERNMENT

A. PRESCRIPTIVE PERIOD TO COLLECT

Republic vs. Hizon, 320 SCRA 574, G.R. No. 130430. December 13,
1999
Mendoza, J
Facts:
On July 18, 1986, the BIR issued to respondent Salud V. Hizon a
deficiency income tax assessment of P1,113,359.68 covering the fiscal
year 1981-1982. Respondent not having contested the assessment,
petitioner, 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, or on November 3, 1992, 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 Regional Trial Court, Branch 44, San
Fernando, Pampanga to collect the tax deficiency. The complaint was
signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and
verified by Amancio Saga, the Bureau's Regional Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the
complaint was not filed upon authority of the BIR Commissioner as
required by §221 2 of the National Internal Revenue Code, and (2) that the
action had already prescribed. Over petitioner's objection, the trial court,
on August 28, 1997, granted the motion and dismissed the complaint.
Hence, this petition.
Issues:
1. Whether or not the institution of the civil case for collection of taxes
was without the approval of the commissioner in violation of section
221 of the National Internal Revenue Code; and
2. Whether or not the action for collection of taxes filed against
respondent had already been barred by the statute of limitations.
Held: #1
Revenue Administrative Order No. 10-95 specifically authorizes the
Litigation and Prosecution Section of the Legal Division of regional district
offices to institute the necessary civil and criminal actions for tax collection.
As the complaint filed in this case was signed by the BIR's Chief of Legal

113 | M s . N o l a i d a A g u i r r e
Division for Region 4 and verified by the Regional Director, there was,
therefore, compliance with the law.

As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec.
7 of the present Code authorizes the BIR Commissioner to delegate the
powers vested in him under the pertinent provisions of the Code to any
subordinate official with the rank equivalent to a division chief or higher,
except the following:

(a) The power to recommend the promulgation of rules and

regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse,

revoke or modify any existing ruling of the Bureau;

(c) The power to compromise or abate under §204 (A) and (B) of
this Code, any tax deficiency:Provided, however, that assessment
issued by the Regional Offices involving basic deficiency taxes of
five hundred thousand pesos (P500,000.00) or less, and minor
criminal violations as may be determined by rules and regulations
to be promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner, discovered by regional
and district officials, may be compromised by a regional
evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, heads of
the Legal, Assessment and Collection Divisions and the Revenue
District Officer having jurisdiction over the taxpayer, as members;
and

(d) The power to assign or reassign internal revenue officers to

establishments where articles subject to excise tax are produced
or kept.

None of the exceptions relates to the Commissioner's power to approve

the filing of tax collection cases.

Held: #2
The contention of the petitioner has no merit. Sec. 229 of the Code
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. She
explained that she was constrained to ask for a reconsideration in order to
avoid the harassment of BIR collectors. In all likelihood, she must have
been referring to the distraint and levy of her properties by petitioner's
114 | M s . N o l a i d a A g u i r r e
agents which took place on January 12, 1989. Even assuming that she first
learned of the deficiency assessment on this date, her request for
reconsideration was nonetheless filed late since she made it more than 30
days thereafter. Hence, her request for reconsideration did not suspend
the running of the prescriptive period provided under §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.
Petitioner's reliance on the Court's ruling in Advertising Associates
Inc. v. Court of Appeals is misplaced. What the Court stated in that case
and, indeed, in the earlier case of Palanca v. Commissioner of Internal
Revenue, is that the timely service of a warrant of distraint or levy
suspends the running of the period to collect the tax deficiency in the
sense that the disposition of the attached properties might well take time to
accomplish, extending even after the lapse of the statutory period for
collection. In those cases, the BIR did not file any collection case but
merely relied on the summary remedy of distraint and levy to collect the tax
deficiency. The importance of this fact was not lost on the Court. Thus, in
Advertising Associates, it was held: 16 "It should be noted that the
Commissioner did not institute any judicial proceeding to collect the tax. He
relied on the warrants of distraint and levy to interrupt the running of the
statute of limitations.
For the foregoing reasons, we hold that petitioner's contention that the
action in this case had not prescribed when filed has no merit. Our holding,
however, is without prejudice to the disposition of the properties covered
by the warrants of distraint and levy which petitioner served on respondent,
as such would be a mere continuation of the summary remedy it had timely
begun. Although considerable time has passed since then, as held in
Advertising Associates Inc. v. Court of Appeals and Palanca
v. Commissioner of Internal Revenue, the enforcement of tax collection
through summary proceedings may be carried out beyond the statutory
period considering that such remedy was seasonably availed of.
CASE SYLLABI:
Same; Same; 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; Respondent’s request for reconsideration did not suspend
the running of the prescriptive period provided under §223(c).—Sec. 229
of the Code 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
115 | M s . N o l a i d a A g u i r r e
stating when she received the notice of tax assessment. She explained that
she was constrained to ask for a reconsideration in order to avoid the
harassment of BIR collectors. In all likelihood, she must have been referring to
the distraint and levy of her properties by petitioner’s agents which took place
on January 12, 1989. Even assuming that she first learned of the deficiency
assessment on this date, her request for reconsideration was nonetheless
filed late since she made it more than 30 days thereafter. Hence, her request
for reconsideration did not suspend the running of the prescriptive period
provided under §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.
Same; Same; The timely service of a warrant of distraint or levy
suspends the running of the period to collect the tax deficiency.—
Petitioner’s reliance on the Court’s ruling in Advertising Associates, Inc. v.
Court of Appeals is misplaced. What the Court stated in that case and, indeed,
in the earlier case of Palanca v. Commissioner of Internal Revenue, is that the
timely service of a warrant of distraint or levy suspends the running of the
period to collect the tax deficiency in the sense that the disposition of the
attached properties might well take time to accomplish, extending even after
the lapse of the statutory period for collection. In those cases, the BIR did not
file any collection case but merely relied on the summary remedy of distraint
and levy to collect the tax deficiency. The importance of this fact was not lost
on the Court. Thus, in Advertising Associates, it was held: “It should be noted
that the Commissioner did not institute any judicial proceeding to collect the
tax. He relied on the warrants of distraint and levy to interrupt the running of
the statute of limitations.”
Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines,
Inc., 635 SCRA 162, G.R. No. 169225. November 17, 2010
Leonardo- De Castro, J.
Facts:
In a letter dated February 15, 1993, respondent informed the Bureau of
Internal Revenue (BIR), through its West-Makati District Office of its change of
business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas,
Makati City to the 22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la
Costa Streets, Makati City. Said letter was duly received by the BIR-West
Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter or follow-up letter
dated October 11, 1993 issued by the Accounts Receivable/Billing Division of
the BIR’s National Office and signed by then Assistant Chief Mr. Manuel B.
Mina, demanding for payment of alleged deficiency income and expanded
withholding taxes for the taxable year 1989 amounting to P2,936,560.87.

116 | M s . N o l a i d a A g u i r r e
On December 3, 1993, respondent, through its external auditors, filed with the
same Accounts Receivable/Billing Division of the BIR’s National Office, its
protest letter against the alleged deficiency tax assessments for 1989 as
indicated in the said tracer letter dated October 11, 1993.
On November 7, 2001, nearly eight (8) years later, respondent’s external
auditors received a letter from herein petitioner Commissioner of Internal
Revenue dated October 27, 2001. The letter advised the respondent that
petitioner had rendered a final decision denying its protest on the ground that
the protest against the disputed tax assessment was allegedly filed beyond
the 30-day reglementary period prescribed in then Section 229 of the National
Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review docketed as
CTA Case No. 6362 before the then Court of Tax Appeals, pursuant to
Section 7 of Republic Act No. 1125, otherwise known as an ‘Act Creating the
Court of Tax Appeals’ and Section 228 of the NIRC, to appeal the final
decision of the Commissioner of Internal Revenue denying its protest against
the deficiency income and withholding tax assessments issued for taxable
year 1989.
In a Decision dated September 24, 2004, the CTA Original Division held that
the subject assessment notice sent by registered mail on January 8, 1993 to
respondent’s former place of business was valid and binding since respondent
only gave formal notice of its change of address on February 18, 1993. Thus,
the assessment had become final and unappealable for failure of respondent
to file a protest within the 30-day period provided by law. However, the CTA (a)
held that the CIR failed to collect the assessed taxes within the prescriptive
period; and (b) directed the cancellation and withdrawal of Assessment Notice
No. 001543-89-5668. Petitioner’s Motion for Reconsideration and
Supplemental Motion for Reconsideration of said Decision filed on October 14,
2004 and November 22, 2004, respectively, were denied for lack of merit.
The CIR filed a Petition for Review with the CTA En Banc but this was denied
in a Decision dated August 12, 2005
Issue:
Whether or not the period to collect the assessment has prescribed
Held:
Based on the facts of this case, we find that the CIR’s contention is without
basis. The pertinent provision of the 1986 NIRC is Section 224, to wit:

Section 224. Suspension of running of statute. – The running of

the statute of limitations provided in Sections 203 and 223 on the
making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Commissioner
117 | M s . N o l a i d a A g u i r r e
 is prohibited from making the assessment or beginning distraint
or levy or a proceeding in court and for sixty days thereafter;
when the taxpayer requests for a re-investigation which is
granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which
a tax is being assessed or collected: Provided, That, if the
taxpayer informs the Commissioner of any change in address, the
statute will not be suspended; when the warrant of distraint and
levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient
discretion, and no property could be located; and when the
taxpayer is out of the Philippines. (Emphasis supplied.)

The plain and unambiguous wording of the said provision dictates that two
requisites must concur before the period to enforce collection may be
suspended: (a) that the taxpayer requests for reinvestigation, and (b) that
petitioner grants such request.

The above section is plainly worded. In order to suspend the

running of the prescriptive periods for assessment and
collection, the request for reinvestigation must be granted by
the CIR.(Emphasis supplied.)

Consequently, the mere filing of a protest letter which is not granted does not
operate to suspend the running of the period to collect taxes. In the case at
bar, the records show that respondent filed a request for reinvestigation on
December 3, 1993, however, there is no indication that petitioner acted upon
respondent’s protest. As the CTA Original Division in C.T.A. Case No. 6362
succinctly pointed out in its Decision, to wit:

It is evident that the respondent did not conduct a reinvestigation,

the protest having been dismissed on the ground that the
assessment has become final and executory. There is nothing in
the record that would show what action was taken in connection
with the protest of the petitioner. In fact, petitioner did not hear
anything from the respondent nor received any communication
from the respondent relative to its protest, not until eight years
later when the final decision of the Commissioner was issued
(TSN, March 7, 2002, p. 24). In other words, the request for
reinvestigation was not granted. x x x.(Emphasis supplied.)

Since the CIR failed to disprove the aforementioned findings of fact of the CTA
which are borne by substantial evidence on record, this Court is constrained to
uphold them as binding and true. This is in consonance with our oft-cited
ruling that instructs this Court to not lightly set aside the conclusions reached
by the CTA, which, by the very nature of its functions, is dedicated exclusively
to the resolution of tax problems and has accordingly developed an expertise
on the subject unless there has been an abuse or improvident exercise of
authority.[11]
118 | M s . N o l a i d a A g u i r r e
Indeed, it is contradictory for the CIR to argue that respondent’s December 3,
1993 protest which contained a request for reinvestigation was filed beyond
the reglementary period but still claim that the same request for reinvestigation
was implicitly granted by virtue of its October 27, 2001 letter. We find no
cogent reason to reverse the CTA when it ruled that the prescriptive period for
the CIR’s right to collect was not suspended under the circumstances of this
case.

CASE SYLLABI:

Court of Tax Appeals; Jurisdiction; The appellate jurisdiction of the

Court of Tax Appeals (CTA) is not limited to cases which involve
decisions of the Commissioner of Internal Revenue (CIR) on matters
relating to assessments or refunds.—The assailed CTA En Banc Decision
was correct in declaring that there was nothing in the foregoing provision upon
which petitioner’s theory with regard to the parameters of the term “other
matters” can be supported or even deduced. What is rather clearly apparent,
however, is that the term “other matters” is limited only by the qualifying
phrase that follows it. Thus, on the strength of such observation, we have
previously ruled that the appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the CIR on matters relating to assessments
or refunds. The second part of the provision covers other cases that arise out
of the National Internal Revenue Code (NIRC) or related laws administered by
the Bureau of Internal Revenue (BIR).
Same; Same; Under Section 3, 1986 National Internal Revenue Code
(NIRC), the issue of prescription of the Bureau of Internal Revenue’s
(BIR’s) right to collect taxes may be considered as covered by the term
“other matters” over which the Court of Tax Appeals (CTA) has appellate
jurisdiction.—The issue of prescription of the BIR’s right to collect taxes may
be considered as covered by the term “other matters” over which the CTA has
appellate jurisdiction.
Same; Same; The phraseology of Section 7, number (1), denotes an
intent to view the Court of Tax Appeals’ (CTA’s) jurisdiction over
disputed assessments and over “other matters” arising under the
National Internal Revenue Code (NIRC) or other laws administered by the
Bureau of Internal Revenue (BIR) as separate and independent of each
other.—The phraseology of Section 7, number (1), denotes an intent to view
the CTA’s jurisdiction over disputed assessments and over “other matters”
arising under the NIRC or other laws administered by the BIR as separate and
independent of each other. This runs counter to petitioner’s theory that the
latter is qualified by the status of the former, i.e., an “other matter” must not be
a final and unappealable tax assessment or, alternatively, must be a disputed
assessment.

119 | M s . N o l a i d a A g u i r r e
Same; Same; The mere existence of an adverse decision, ruling or
inaction along with the timely filing of an appeal operates to validate the
exercise of jurisdiction by the Court of Tax Appeals (CTA).—The first
paragraph of Section 11 of Republic Act No. 1125, as amended by Republic
Act No. 9282, belies petitioner’s assertion as the provision is explicit that, for
as long as a party is adversely affected by any decision, ruling or inaction of
petitioner, said party may file an appeal with the CTA within 30 days from
receipt of such decision or ruling. The wording of the provision does not take
into account the CIR’s restrictive interpretation as it clearly provides that the
mere existence of an adverse decision, ruling or inaction along with the timely
filing of an appeal operates to validate the exercise of jurisdiction by the CTA.
Taxation; Assessment; Prescription; The validity of the assessment
itself is a separate and distinct issue from the issue of whether the right
of the Commissioner of Internal Revenue (CIR) to collect the validly
assessed tax has prescribed.—The fact that an assessment has become
final for failure of the taxpayer to file a protest within the time allowed only
means that the validity or correctness of the assessment may no longer be
questioned on appeal. However, the validity of the assessment itself is a
separate and distinct issue from the issue of whether the right of the CIR to
collect the validly assessed tax has prescribed. This issue of prescription,
being a matter provided for by the NIRC, is well within the jurisdiction of the
CTA to decide.
Same; Same; Same; Requisites before the Period to Enforce Collection
may be Suspended.—The plain and unambiguous wording of the said
provision dictates that two requisites must concur before the period to enforce
collection may be suspended: (a) that the taxpayer requests for reinvestigation,
and (b) that petitioner grants such request.
B. ADMINISTRATIVE REMEDIES/ SUMMARY REMEDIES
Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174.
April 26, 1962
Reyes, J.B.L., J.
Facts:
On September 23, 1950 the respondent demanded from the petitioner
Maria B. Castro the payment of the total amount of P3,593,950.78 as war
profits tax.
In the course of the summary methods employed by the respondent to
enforce the collection of the war profits tax liability of petitioner, the
respondent also distrained and advertised for sale the properties of the
Marvel Building Corporation in which the petitioner had a substantial
interest. To counter-act the move, the said corporation through counsel
filed on November 31, 1950, Civil Case No. 12555 in the Court of First
Instance of Manila wherein it sought to enjoin the respondent Collector of
120 | M s . N o l a i d a A g u i r r e
Internal Revenue from selling at public auction its various properties
described in the complaint. While the corporation was able to secure the
injunction from the lower court, the same was dissolved by the Supreme
Court in its decision in G.R. No. L-5081, Marvel Building Corporation v.
Saturnino David, promulgated on February 24, 1954. Petitioner Maria B.
Castro was declared therein as the sole and exclusive owner of all shares
of stock of the Marvel Building Corporation and all the other partners are
her dummies.
In the meantime, petitioner filed on December 10, 1951, Civil Case No.
15316 with the Court of First Instance of Manila against the respondent
Collector of Internal Revenue for the recovery of the properties advertised
for sale on November 22 and 27, 1950 which for lack of bidders were
forfeited to the Government. However, before the case could be tried on
the merits before said Court, the Court of Tax Appeals was created by
Republic Act No. 1125 and pursuant to Section 22 thereof, the record of
the case was remanded for final disposition to this Court. This last
mentioned case is now pending hearing before this Court.
To satisfy, fully the amount of the war profits tax assessed against petitioner,
the respondent on September 29, 1954, caused to be advertised for sale at
public auction for November 2, 1954, other real properties of petitioner
situated in Manila. The properties were seized, distrained and levied upon
from petitioner "in satisfaction of internal revenue taxes and penalties
amounting to P4,539,556.26, computed as of April 30, 1954" due from her in
favor of the Republic of the Philippines. For lack of bidders at the time of the
scheduled sale on November 2, 1954, the properties in question were forfeited
to the Government under Section 328 of the National Internal Revenue Code
for the total amount of P3,547,892.41 which was allegedly the balance of
petitioner's tax liability as of that date.
Before the expiration of the one-year period provided for in Section 328 of the
National Internal Revenue Code within which petitioner may redeem the real
properties forfeited in favor of the Government in the sale at public auction
held on November 2, 1954, the petitioner filed with this Court on September
30, 1955, a petition for the annulment of said sale and forfeiture on the ground
that her properties were advertised for sale on tax claim of the Government far
in excess of the alleged war profits tax, surcharges and penalties fixed by
respondent. The Court, in a resolution dated October 31, 1955, declared the
auction sale of November 2, 1954 as well as the resulting forfeiture, null and
void and of no legal force and effect because of the admitted discrepancy in
the amount of tax stated in the notice of sale for which the properties were
auctioned and the actual amount of tax assessed and demanded.
The said resolution being without prejudice to such action and proceedings a
respondent may take in accordance with law. To stop the sale, petitioner filed
a petition for injunction with this Court on November 22, 1955 requesting that
respondent be enjoined from proceeding with the resale of her properties
121 | M s . N o l a i d a A g u i r r e
scheduled on December 12, 1955; that the said properties be released to her;
and that she be declared not liable for the war profits tax assessed and
demanded of her. After due hearing of this petition and the opposition thereto,
this Court, in a resolution dated December 10, 1955, denied the injunction and
held in abeyance the determination of other questions until after the case shall
have been heard on the merits. The properties were therefore advertised for
sale on December 12, 1955 to answer for a war profits tax liability of petitioner
to the Republic of the Philippines for the alleged amount of P3,594,307.51
computed as of that date. For lack of bidders, the same were forfeited to the
Government.
After due hearing and reception of evidence, the Tax Court annulled the last
tax sale of December, 1955, covering the found Manila buildings, on account
of irregularities in the notices of sale; but for the rest, it found against petitioner
and assessed her tax of P 1, 360, 514.66.
Issues:
(c) That even if appellant were subject to the tax liability declared by the court
below, such liability was totally extinguished by the levy and forfeiture of
certain properties of hers; and
(d) That appellant's acquittal in the criminal case instituted against her for
violation of the War Profits Tax Law is a bar to the collection of the taxes
assessed, and specially of the 50% surcharge.
Held:
(c) The third main ground of appeal is predicated on the acquittal of
petitioner in case No. 4976 of the Court of First Instance of Manila, wherein
she was criminally prosecuted for failure to render a true and accurate
return of the war profits tax due from her, with intent to evade payment of
the tax. She contends (Assignments of Error II to IV) that the acquittal
should operate as a bar to the imposition of the tax and specially the 50%
surcharge provided by section 6 of the War Profits law (R.A. No. 55),
invoking the ruling in Coffey v. U.S., 29 L. Ed. 436.
With regard to the tax proper, the state correctly points out in its brief that
the acquittal in the criminal case could not operate to discharge petitioner
from the duty to pay the tax, since that duty is imposed by statute prior to
and independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability
derived from crime that would be wiped out by the judicial declaration that
the criminal acts charged did not exist.
As to the 50% surcharge, the very United States Supreme Court that
rendered the Coffey decision has subsequently pointed out that additions
of this kind to the main tax are not penalties but civil administrative
sanctions, provided primarily as a safeguard for the protection of the state
122 | M s . N o l a i d a A g u i r r e
revenue and to reimburse the government for the heavy expense of
investigation and the loss resulting from the taxpayer's fraud (Helvering vs.
Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S. 317 U.S. 492). This is
made plain by the fact that such surcharges are enforceable, like the
primary tax itself, by distraint or civil suit, and that they are provided in a
section of R.A. No. 55 (section 5) that is separate and distinct from that
providing for criminal prosecution (section 7). We conclude that the
defense of jeopardy and estoppel by reason of the petitioner's acquittal is
untenable and without merit. Whether or not there was fraud committed by
the taxpayer justifying the imposition of the surcharge is an issue of fact to
be inferred from the evidence and surrounding circumstances; and the
finding of its existence by the Tax Court is conclusive upon us. (Gutierrez v.
Collector, G.R. No. L-9771, May 31, 1951 ; Perez vs. Collector, supra).

(d) The fourth main ground adduced on behalf of the petitioner (Errors II and
XlV) is that the sale and forfeiture to the government (due to lack of bidders) of
the properties of petitioner in Manila, Balintawak, Pasay, Makati, Tarlac,
Tagaytay and Caloocan which had been levied upon by the respondent
Collector of Internal Revenue and advertised for sale in 1950 and 1954,
constitutes a full discharge of petitioner's tax liabilities. In so arguing, she
relies on the provisions of paragraph 1 of Section 328 of the Internal Revenue
Code, reading as follows: .

SEC. 328. Forfeiture to Government for Want of Bidder. - In case there

is no bidder for real property exposed for sale as herein above provided
or if the highest bid is for an amount insufficient to pay the taxes,
penalties, and costs, the provincial or city treasurer shall declare the
property forfeited to the Government in satisfaction of the claim in
question and within two days thereafter shall make a return of his
proceedings and the forfeiture, which shall be spread upon the records
of his office,

and appellant contends that in the provision to the effect that in the absence of
bidders, the property is to be "forfeited to the Government in satisfaction of the
claim in question", the term "satisfaction" signifies nothing but full discharge of
the taxes, penalties, and costs claimed by the state. Carried to its logical
conclusion, this theory would permit a clever taxpayer, who is able to conceal
most or the more valuable part of his property from the revenue officers, to
escape payment of his tax liability by sacrificing an insignificant portion of his
holdings; and we can not agree that in providing that the forfeiture of the
taxpayer's distrained or levied property, for lack of adequate bids, should
operate in satisfaction of the total tax claims even beyond the value of the
property forfeited. That the satisfaction prescribed in section 328 of the
Revenue Code was intended to mean only a discharge pro tanto is confirmed
by the provisions of section 330 of the Revenue Code to the effect that
"remedy by distraint of personal property and levy on realty may be repeated if
necessary until the full amount due including all expenses, is collected". This
section makes no distinction between forfeitures to the Government and sales

123 | M s . N o l a i d a A g u i r r e
to third persons, and we are satisfied that no distinction was intended and that
none is warranted.

Nor do we see that the petitioner has any ground for complaining that the
properties forfeited were undervalued (Error XV). The relation between
assessed value and market price being variable, it is not a matter of notice.
However, the Court of Tax Appeals appraised the forfeited properties at
double their assessed evaluation, and thereby credited her with a part
payment on account of her tax liability in the amount of P1,716,880.00. There
is no adequate evidence that they were worth more, petitioner's own estimates
of value being obviously unreliable, due to her direct interest in the matter
under investigation. Since the burden of proof lay evidently on the taxpayer,
she is not in a position to complain in this regard.

CASE SYLLABUS:
Same; Same; Forfeiture of taxpayer's property under paragraph 1, of
Section 328, Tax Code .—The provision in parsgraph 1, of Section 328 of the
Tax Code that in the absence of bidders the taxpayer's property is to be
"forfeited to the Government in satisfaction of the claim in question", does not
operate in satisfaction of the total tax claims even beyond the value of the
property forfeited, but was intended to mean only a discharge pro tanto of the
tax liabilities. This is confirmed by the provisions of section 330 of the
Revenue Code to the effect that "remedy by distraint of personal property and
levy on realty may be repeated if necessary until the full amount due, including
all expenses, is collected." This section makes no distinction between
forfeitures to the Government and sales to third persons.
Republic vs. Enriquez, 166 SCRA 608, No. L-78391. October 21, 1988
Padilla, J.
Facts:
On 28 January 1985, the petitioner, through the Commissioner of Internal
Revenue, served a Warrant of Distraint of Personal Property on the Maritime
Company of the. Philippines to satisfy various deficiency taxes of said
company in the total amount of P17,284,882.45, pursuant to unappealed and
final tax assessments. On 4 October 1985, the corresponding Notice of
Seizure of Personal Property, a copy of which was received by a
respresentative of the Maritime Company of the Philippines, was issued by the
Commissioner of Internal Revenue. 3 Among the properties seized were six (6)
barges, Barge MCP-1 to Barge MCP-6.

On 11 June 1986, respondent sheriff levied on two (2) barges of the Maritime
Company of the Philippines, pursuant to a writ of execution issued on 19
February 1986 by the Regional Trial Court of Manila, Branch 31, in Civil Case
No. 85-30134, entitled "Genstar Container Corporation vs. Maritime Company
of the Philippines", in favor of the plaintiff therein. Respondent sheriff
scheduled a public auction sale, of the levied barges on 23 June 1986. The
124 | M s . N o l a i d a A g u i r r e
barges, particularly Barge MCP-1 and Barge MCP-4, were among the
aforementioned properties distrained and seized by petitioner, through the
Commissioner of Internal Revenue.

On 18 June 1986, the Commissioner of Internal Revenue wrote respondent

sheriff informing the latter that Barge MCP-1 and Barge MCP-4 were no
longer owned by the Maritime Company of the Philippines as said barges had
been distrained and seized by the Bureau of Internal Revenue in satisfaction
of various deficiency taxes of Maritime Company of the Philippines, thereby
registering its adverse claim over said barges.

On 23 June 1986, respondent deputy sheriff sold at public auction the two (2)
barges, MCP-1 and MCP-4, and issued the corresponding sheriffs certificate
of sale on the same date to the highest bidder which was the levying creditor.
On 24 July 1986, petitioner filed before the Court of Appeals the
aforementioned petition for prohibition with preliminary injunction, alleging that
respondent sheriff, Ramon G. Enriquez, acted in excess of his authority or
with grave abuse of discretion when he levied on execution and subsequently
auctioned the abovesaid two (2) barges which were the subject of a warrant of
distraint and notice of seizure by the Commissioner of Internal Revenue.
Petitioner prayed that respondent be ordered to desist and refrain from further
proceedings in connection with the execution and that respondent's notice of
levy be declared null and void.

In its decision, dated 30 April 1987, the Court of Appeals dismissed the
petition after finding that "(H)e appears to have acted in accordance with law
and in keeping with his duties. There is no perceived abuse of authority or
grave abuse of discretion." Hence, this appeal.

Issue:

Whether or not the writ of execution issued by the RTC is more superior than
the BIR’s warrant of distraint and notice of seizure of personal property.

Held:

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. 5 Besides, the
distraint on the subject properties of Maritime Company of the Philippines as
well as the notice of their seizure were made by petitioner, through the
Commissioner of Internal Revenue, long before the writ of 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,
MCP-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 only, and the purchaser in an auction
125 | M s . N o l a i d a A g u i r r e
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.

CASE SYLLABI:

Taxation; Tax liens; Claim of the government predicated on a tax lien is

superior to the claim of a private litigant based on a judgment.—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.
Same; Same; Execution of judgment; Power of the court in execution of
judgments extends only to properties belonging to the judgment debtor;
The sheriff is not authorized to attach or levy on property not belonging
to the judgment debtor.—Besides, the distraint on the subject properties of
Maritime Company of the Philippines as well as the notice of their seizure
were made by petitioner, through the Commissioner of Internal Revenue, long
before the writ of 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, MCP-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 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.
Commissioner of Internal Revenue vs. NLRC, 238 SCRA 42, G.R. No.
74965. November 9, 1994
Mendoza, J.
Facts:
On January 12, 1984, the CIR demanded payment from private respondent
Maritime Company of the Philippines of deficiency common carrier’s tax,
fixed tax, 6% commercial broker’s tax, documentary stamp tax, income tax
and withholding tax totalling P17,284,882.45. The assessment became
final and executory, and with private respondent’s failure to pay the tax
liabilities, the CIR issued warrants of distraint of personal property and levy
of real property which were duly served on January 23, 1985. On April 16,
1985, a “receipt of goods, articles and things” was executed covering,
among others, 6 barges as proof of constructive distraint of property but
the same was not signed by any representative of private respondent
because of the refusal of the persons actually in possession of the barges

126 | M s . N o l a i d a A g u i r r e
It appeared that 4 of the barges constructively distrained were also levied
upon by a deputy sheriff of Manila on July 20, 1985 and sold at public
auction to satisfy a judgment for unpaid wages and other benefits of
employees of private respondent.
Issue:
Who has the better right- the BIR, or the workers?
Held:

This case arose out of the same facts involved in Republic v. Enriquez, in
which we sustained the validity of the distraint of the six barges, which
included the four involved in this case, against the levy on execution made by
another deputy sheriff of Manila in another case filed against Maritime
Company. Two barges (MCP-1 and MCP-4) were the subject of a levy in the
case. There we found that the "Receipt for Goods, Articles and Things Seized
under Authority of the National Internal Revenue Code" covering the six
barges had been duly executed, with the Headquarters, First Coast Guard
District, Farola Compound Binondo, Manila acknowledging receipt of several
barges, vehicles and two (2) bodegas of spare parts belonging to Maritime
Company of the Philippines.

Accordingly, what we said in the prior case in upholding the validity of distraint
of two of the six barges (MCP Nos. 1 and 4), fully 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 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.

Nor is there any merit in the contention of the NLRC that taxes are absolutely
preferred claims only with respect to movable or immovable properties on
which they are due and that since the taxes sought to be collected in this case
are not due on the barges in question the government's claim cannot prevail

127 | M s . N o l a i d a A g u i r r e
over the claims of employees of the Maritime Company of the Philippines
which, pursuant to Art. 110 of the Labor Code, "enjoy first preference."

In addition, we have held that Art. 110 of the Labor Code applies only in case
of bankruptcy or judicial liquidation of the employer. This is clear from the text
of the law. This case does not involve the liquidation of the employer's
business.

CASE SYLLABI:

Taxation; National Internal Revenue Code; Remedies for collection of

delinquent taxes.—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.
Same; Same; Constructive Distraint.—With respect to the four barges in
question, petitioner resorted to constructive distraint pursuant to § 303 (now §
206) of the NIRC. This provision 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.
Same; Same; Same; 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.—Accordingly, what we said in the prior case in
upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4),
fully 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 Maritime Company
of the Philippines as well as the notice of their seizure were made by petitioner,
through the Commissioner of Internal Revenue, long before the writ of
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, MCP-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 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.

128 | M s . N o l a i d a A g u i r r e
Same; Same; NLRC; No merit in the contention of the NLRC that taxes
are absolutely preferred claims only with respect to movable or
immovable properties on which they are due.—Nor is there any merit in
the contention of the NLRC that taxes are absolutely preferred claims only
with respect to movable or immovable properties on which they are due and
that since the taxes sought to be collected in this case are not due on the
barges in question the government’s claim cannot prevail over the claims of
employees of the Maritime Company of the Philippines which, pursuant to Art.
110 of the Labor Code, “enjoy first preference.”
Labor Law; Money Claims; Worker’s Preference; Civil Law; Preference of
Credits; Article 110 of the Labor Code does not purport to create a lien in
favor of workers or employees for unpaid wages either upon all of the
properties or upon any particular property owned by their employer.—
Article 110 of the Labor Code does not purport to create a lien in favor of
workers or employees for unpaid wages either upon all of the properties or
upon any particular property owned by their employer. Claims for unpaid
wages do not therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil Code, except to
the extent that such claims for unpaid wages are already covered by Article
2241, number 6; “claims for laborers’ wages, on the goods manufactured or
the work done;” or by Article 2242, number 3: “claims of laborers and other
workers engaged in the construction, reconstruction or repair of buildings,
canals and other works, upon said buildings, canals or other works.” To the
extent that claims for unpaid wages fall outside the scope of Article 2241,
number 6 and 2242, number 3, they would come within the ambit of the
category of ordinary preferred credits under Article 2244.
Same; Same; Same; Same; Same; Article 110 of the Labor Code applies
only in case of bankruptcy or judicial liquidation of the employer.—In
addition, we have held that Art. 110 of the Labor Code applies only in case of
bankruptcy or judicial liquidation of the employer. This is clear from the text of
the law: ART. 110. Worker preference in case of bankruptcy.—In the event of
bankruptcy or liquidation of an employer’s business, his workers shall enjoy
first preference as regards wages due them for services rendered during the
period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full before other
creditors may establish any claims to a share in the assets of the employer.
Hongkong & Shanghai Banking Corporation vs. Rafferty., 39 Phil., 145,
No. 13188. November 15, 1918
Malcolm, J.
Facts:
Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from the
firm of Pujalte & Co. which the latter assigned to it after it was unable to
pay a large sum of money it then owed to HSBC.
129 | M s . N o l a i d a A g u i r r e
The firm of Pujalte & Co. is engaged in the business of timber, and it was
shown that prior to the assignment of the railroad ties to HSBC it owed to
thevBIR 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 forest charges and was allowed to remove the timber from the public
forests.
More than a year later, when some of the timber were already made into
railroad ties and transferred to third parties like HSBC, the Collector
instituted collection proceedings agains Pujalte. To enforce collection, the
CIR went after thee property of Pujalte & Co. including that which were
already in the possession of HSBC, who at the time it acquired the
property had no notice of the lien nor of the delinquent tax due from Pujalte.
Issue:
Whether or not the CIR can still enforce the lien.
Held:
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 not
necessary 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 lien does not establish itself upon property which has been transferred
to an innocent purchaser prior to demand. A demand is necessary to
create and bring the lien into operation.
Furthermore, in order that the lien may follow the property into the hands of
third party, it is essential that the latter should have notice, either actual
or constructive. The reason behind this is the benevolence of
our Constitution which prohibits the taking of property without due process
of law. The policy of the law is against upholding secret liens and charges
against property of innocent purchasers or encumbrances for value. At
the time HSBC acquired the property there was nothing to show that
Pujalte & Co. were delinquent taxpayers nor were there any public records
that may be consulted to protect it from loss by reason of the existence of
a secret lien.
Minor issue on the right of HSBC to recover interest from the undue
enforcement of the lien: The reckoning date for the computation of interest
should be the date when the taxpayer lost the income from the funds by
payment 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.

130 | M s . N o l a i d a A g u i r r e
 Street, J., dissenting and concurring:

The lien created by law for the enforcement of the tax on land is expressly
declared to be enforcible against the property in the hands of any person,
whether the delinquent or any subsequent owner. (See sec. 364,
Administrative Code, 1917; section 2497, id., for city of Manila.) On the other
hand, that section of the Internal Revenue Law which declared a lien for
internal-revenue taxes merely says that such lien shall be superior to all other
charges or liens. (Sec. 1588, Administrative Code, 1917.) From this it can be
fairly, though not, I think, conclusively argued that the lien for the enforcement
of internal revenue taxes was not intended to be effective against subsequent
owners. Acceding to the force of this argument, I should perhaps have yielded
my own views and expressed my conformity with the decision upon this as
upon other points involved in the case. Nevertheless I cannot refrain from
expressing my regret that the court should have reached the conclusion it has
announced with respect to the lien declared in section 1588 of the Code, and
it is my opinion that the lien created in this section has the same effect and
range as the lien which is created in support of the land tax.

The obvious effect of the decision on the point in question is to destroy the
practical utility of the lien created by section 1588; because so long as the
property subject to the tax is in the hands of the person primarily liable for the
tax, it can be seized by the Collector of Internal Revenue under process of
distraint and thus subjected to the payment of the tax (section 1690,
Administrative Code, 1916). No lien is therefore necessary to enable the
government to take the property and enforce its rights as against him. It is only
when the property passes into the hands of some other person than the one
primarily liable that the existence of a lien becomes of any importance.

It is inherent in the nature of a lien, as a real obligation fixed on the property,

that it should remain as a burden thereon regardless of mutations in the
ownership; and a lien, like this, created by express provision of law and made
superior to all other charges and liens, necessarily continues to subsist
regardless of whether the subsequent owner or purchaser of the property has
notice of the lien or not. I am not convinced by the citation of the American
authorities, referred to in the opinion of the Court, and I think that the
deductions drawn by the Court from those cases is unwarranted. It is well
known that mere equitable liens, as recognized in American jurisprudence, are
not enforcible against purchasers without notice; but this doctrine I consider to
be inapplicable to a statutory lien, such as is involved in this case.

The possibility of the existence of some hidden lien like this was recognized
by the Hongkong & Shanghai Bank at the time it bought these rails, for the
very contract of transfer, or assignment, by which it acquired the property
contains a provision whereby Pujalte & Company warranted that, at the date
of the transfer, the rails were the absolute property of that company and were
"free and clear of any liens, charges, and encumbrances," and warranted the
title against all lawful claims of all persons whomsoever. It is obvious that

131 | M s . N o l a i d a A g u i r r e
Pujalte & Company would be liable upon this warranty, if the lien should be
enforced; and I think this the simplest solution that can be made of the case.

I am, therefore, constrained to express my disagreement with the conclusion

of the court with respect to the liability of the rails in question for the tax upon
them; and I think that the trial court committed no error in refusing a refund of
the amount thereof (P316.43). Upon other points I concur.

CASE SYLLABI:
1.TAXATION; NATURE.—Taxation is an attribute of sovereignty. The power
to tax is the strongest of all the powers of government. If approximate equality
in taxation is to be attained, all property subject to a tax must respond, or
there is resultant inequality. To prevent such a lamentable situation, the law
ordains that the claim of the State upon the property of the tax debtor shall be
superior to that of any other creditor.
2.ID. ; TAX LIENS ; LIEN DEFINED.—A lien in its modern acceptation is
understood to denote a legal claim or charge on property, either real or
personal, as security for the payment of some debt or obligation. Its meaning
is more extensive than the jus retentionis (derecho de retención) of the civil
law.
3.ID.; ID.; INTERNAL REVENUE LAW.—The internal revenue tax constitutes
a paramount lien either on the property upon which the tax is imposed or on
any other property used in any business or occupation upon which the tax is
imposed.
4.ID. ; ID. ; REQUISITES.—The tax lien does not establish itself upon
property which has been transferred to innocent purchasers prior to demand.
5.ID.; ID.; ID.—In order that the lien may follow the property into the hands of
a third party, it is further essential that the latter should have notice, either
actual or constructive.
6.ID.; ID.; ID.; REAL ESTATE OR SPECIAL ASSESSMENT TAXES.—In the
case of real estate or special assessment taxation a man cannot get rid of his
liability to a tax by buying without notice. (City of Seattle vs. Kelleher [1904],
195 U. S., 351.)
7.ID.; ID.; ID.; PERSONAL PROPERTY TAXES.—In the case of personal
property taxes, where the vendee has no knowledge of the taxes on
personality existing at the time of purchase, or had no means of knowing from
the public records that such taxes had accrued, the lien does not attach.
8.ID.; ID.; FACTS.—Because, on the date the plaintiff purchased the personal
property, no demand had been made for the tax, and because the plaintiff had
no notice of the tax, there is no valid subsisting lien upon the property—and
the plaintiff is not liable to pay the tax.
132 | M s . N o l a i d a A g u i r r e
 C. JUDICIAL REMEDIES
Mambulao Lumber Company vs. Republic, 132 SCRA 1, No. L-37061.
September 5, 1984
Cuevas, J.
Facts:

Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue,

Regional District No. 6, Bicol Region, Naga City, conducted an examination of
the books of accounts of herein petitioner Mambulao Lumber Company for the
purpose of determining said taxpayer's forest charges and percentage tax
liabilities.

After the examination of the booka of accounts of the petitioner, Mambulao

Lumber Company and exchanges of correspondence with the Acting
Commissioner of Internal Revenue the petitioner was assessed and
demanded to pay the amount of P 33,595.26 as deficiency sales tax, forest
charges and surcharges.

The aforesaid letter was acknowledged to have been received by petitioner on

September 19, 1958. On October 18, 1958, petitioner requested for a
reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959,
respondent Commissioner of Internal Revenue give petitioner a period of
twenty (20) days from receipt thereof to submit the results of its verification of
payments with a warning that failure to comply therewith would be construed
as an abandonment of the request for reinvestigation.

For failure of petitioner to comply with the above letter-request and/or to pay
its tax liability despite demands for the payment thereof, respondent
Commissioner of Internal Revenue filed a complaint for collection in the Court
of First Instance of Manila on August 25, 1961.

The Court of First Instance rendered a judgment in favor of the CIR and
ordered the petitioner to pay P 15, 739.80 representing its tax liability.

From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that
portion of the trial court's decision ordering it to pay the amount of P15,443.55
representing forest charges and surcharges due for the year 1949.

As herein earlier stated, the then Court of Appeals affirmed the decision of the
trial court. Petitioner filed a motion for reconsideration which was denied by
the said court in its Resolution dated June 7, 1973. Hence, the instant appeal.

Issue:

Whether or not the right of plaintiff (respondent herein) to file a judicial action
for the collection of the amount of P15, 443.55 as forest charges and
surcharges due from the petitioner Mambulao Lumber Company for the year
1949 has already prescribed.
133 | M s . N o l a i d a A g u i r r e
Held:

It has not prescribed. In the case at bar, the commencement of the five-year
period should be counted from August 29, 1958, the date of the letter of
demand of the Acting Commissioner of Internal Revenue to petitioner
Mambulao Lumber Company. It is this demand or assessment that is
appealable to the Court of Tax Appeals. The complaint for collection was filed
in the Court of First Instance of Manila on August 25, 1961, very much within
the five-year period prescribed by Section 332 € of the Tax Code.
Consequently, the right of the Commissioner of Internal Revenue to collect the
forest charges and surcharges in the amount of P15,443.55 has not
prescribed.

Furthermore, it is not disputed that on October 18, 1958, petitioner requested

for a reinvestigation of its tax liability. In reply thereto, respondent in a letter
dated July 8, 1959, gave petitioner a period of twenty (20) days from receipt
thereof to submit the results of its verification of payments and failure to
comply therewith would be construed as abandonment of the request for
reinvestigation. Petitioner failed to comply with this requirement. Neither did it
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the
letter dated July 8, 1959, as prescribed under Section 11 of Republic Act No.
1125, thus making the assessment final and 134xecutor.

Taxpayer’s failure to appeal to the Court of Tax Appeals in due

time made the assessment in question final, 134 xecutor 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 its tax
liability. Otherwise, the period of thirty days for appeal to the
Court of Tax Appeals would make little sense.

In a proceeding like this the taxpayer’s defenses are similar to

those of the defendant in a case for the enforcement of a
judgment by judicial action under Section 6 of Rule 39 of the
Rules of Court. No inquiry can be made therein as to the merits of
the original case or the justness of the judgment relied upon,
other than by evidence of want of jurisdiction, of collusion
between the parties, or of fraud in the party offering the record
with respect to the proceedings. As held by this Court in Insular
Government vs. Nico the taxpayer may raise only the questions
whether or not the Collector of Internal Revenue had jurisdiction
to do the particular act, and whether any fraud was committed in
the doing of the act. In that case, Doroteo Nico was fined by the
Collector of Internal Revenue for violation of sub-paragraphs (d),
€ and (g) of Section 28 as well as Sections 36, 101 and 107 of
Act 1189. Under Section 54 of the same Act, the taxpayer was
given the right to appeal from the decision of the Collector of
Internal Revenue to the Court of First Instance within a period of

134 | M s . N o l a i d a A g u i r r e
 ten days from notice of imposition of the fine. Nico did not appeal,
neither did he pay the fine. Pursuant to Section 33 of the Act, the
Collector of Internal Revenue filed an action in the Court of First
Instance to enforce his decision and collect the fine. The decision
of the Collector of Internal Revenue having become final, this
Court, on appeal, allowed no further inquiry into the merits of the
same.

In a suit for collection of internal revenue taxes, as in this case, where the
assessment has already become final and 135xecutor, the action to collect is
akin to an action to enforce a judgment. No inquiry can be made therein as to
the merits of the original case or the justness of the judgment relied upon.
Petitioner is thus already precluded from raising the defense of prescription.

Where the taxpayer did not contest the deficiency income tax
assessed against him, the same became final and properly
collectible by means of an ordinary court action. The taxpayer
cannot dispute an assessment which is being enforced by judicial
action, He should have disputed it before it was brought to court.

CASE SYLLABI:
Same; Failure of taxpayer to appeal to the C.T.A., a B.I.R. assessment
makes said assessment final and executory.—Furthermore, it is not
disputed that on October 18, 1958, petitioner requested for a reinvestigation of
its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave
petitioner a period of twenty (20) days from receipt thereof to submit the
results of its verification of payments and failure to comply therewith would be
construed as abandonment of the request for reinvestigation. Petitioner failed
to comply with this requirement. Neither did it appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the letter dated July 8, 1959, as
prescribed under Section 11 of Republic Act No. 1125, thus making the
assessment final and executory.
Same; After B.I.R. assessment becomes final, and collection suit is filed
in court, there can no longer be any inquiry on merits of original case.
Defenses available only those jurisdictional nature or on fraud.—In a
proceeding like this the taxpayer’s defenses are similar to those of the
defendant in a case for the enforcement of a judgment by judicial action under
Section 6 of Rule 39 of the Rules of Court. No inquiry can be made therein as
to the merits of the original case or the justness of the judgment relied upon,
other than by evidence of want of jurisdiction, of collusion between the parties,
or of fraud in the party offering the record with respect to the proceedings. As
held by this Court in Insular Government vs. Nico the taxpayer may raise only
the questions whether or not the Collector of Internal Revenue had jurisdiction
to do the particular act, and whether any fraud was committed in the doing of
the act.
AQUINO, J., concurring:
135 | M s . N o l a i d a A g u i r r e
Taxation; Jurisdiction; The C.T.A. has jurisdiction over disputed
assessments and the ordinary courts over non-disputed ones.—The Tax
Court has jurisdiction over disputed assessments (Sec. 7[1], Republic Act No.
1125). If the assessment is not disputed, an ordinary action for the collection
of the tax may be filed by the Commissioner (Republic vs. Ledesma, 125 Phil.
856, 862-863; Republic vs. Medrano, 109 Phil. 762; Fernandez Hermanos, Inc.
vs. Commissioner of Internal Revenue, L-21551, September 30, 1969, 29
SCRA 552, 567).
Same; Appeal; Appeal from a decision of the trial court in a tax case is
directly to the Supreme Court.—Any decision of the trial court, sustaining an
undisputed assessment, would be appealable to the Supreme Court, in
accordance with Rule 42, now Republic Act No. 5440, or as provided in
section 25 of the Interim Rules.

Fernandez Hermanos, Inc, vs. Commissioner of Internal Revenue, 29

SCRA 552, No. L-21551, No. L-21557, No. L-24972 No. L-24978,
September 30, 1969.
Teehankee, J.

Nature of the Case: These four appears involve two decisions of the Court
of Tax Appeals determining the taxpayer's income tax liability for the years
1950 to 1954 and for the year 1957. Both the taxpayer and the Commissioner
of Internal Revenue, as petitioner and respondent in the cases a quo
respectively, appealed from the Tax Court's decisions, insofar as their
respective contentions on particular tax items were therein resolved against
them. Since the issues raised are interrelated, the Court resolves the four
appeals in this joint decision.

Facts:

Cases L-21551 and L-21557

The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized

for the principal purpose of engaging in business as an "investment company"
with main office at Manila. Upon verification of the taxpayer's income tax
returns for the period in question, the Commissioner of Internal Revenue
assessed against the taxpayer the sums of P13,414.00, P119,613.00,
P11,698.00, P6,887.00 and P14,451.00 as alleged deficiency income taxes
for the years 1950, 1951, 1952, 1953 and 1954, respectively. Said
assessments were the result of alleged discrepancies found upon the
examination and verification of the taxpayer's income tax returns for the said
years.
The Tax Courtmodified the deficiency assessments accordingly, found the
total deficiency income taxes due from the taxpayer for the years under review

136 | M s . N o l a i d a A g u i r r e
to amount to P123,436.00 instead of P166,063.00 as originally assessed by
the Commissioner, and rendered the following judgment:
WHEREFORE, the decision appealed from is hereby modified,
and petitioner is ordered to pay the sum of P123,436.00 within 30
days from the date this decision becomes final. If the said amount,
or any part thereof, is not paid within said period, there shall be
added to the unpaid amount as surcharge of 5%, plus interest as
provided in Section 51 of the National Internal Revenue Code, as
amended. With costs against petitioner.

Both parties have appealed from the respective adverse rulings against them
in the Tax Court's decision. One of the main issues that were raise is
whether or not the government's right to collect the deficiency income
taxes in question has already prescribed.

Held:

It has not prescribed. On the second issue of prescription, the taxpayer's

contention that the Commissioner's action to recover its tax liability should be
deemed to have prescribed for failure on the part of the Commissioner to file a
complaint for collection against it in an appropriate civil action, as
contradistinguished from the answer filed by the Commissioner to its petition
for review of the questioned assessments in the case a quo has long been
rejected by this Court. This Court has consistently held that "a judicial action
for the collection of a tax is begun by the filing of a complaint with the
proper court of first instance, or where the assessment is appealed to
the Court of Tax Appeals, by filing an answer to the taxpayer's petition
for review wherein payment of the tax is prayed for." This is but logical for
where the taxpayer avails of the right to appeal the tax assessment to the
Court of Tax Appeals, the said Court is vested with the authority to pronounce
judgment as to the taxpayer's liability to the exclusion of any other court. In the
present case, regardless of whether the assessments were made on February
24 and 27, 1956, as claimed by the Commissioner, or on December 27, 1955
as claimed by the taxpayer, the government's right to collect the taxes due has
clearly not prescribed, as the taxpayer's appeal or petition for review was filed
with the Tax Court on May 4, 1960, with the Commissioner filing on May 20,
1960 his Answer with a prayer for payment of the taxes due, long before the
expiration of the five-year period to effect collection by judicial action counted
from the date of assessment.;

CASE SYLLABUS:
Same; Prescription; Five-year 'period to effect collection by judicial
action; When period of prescription is counted.—A judicial action for the
collection of a tax is begun by the filing of a complaint with the proper court of
first instance, or where the assessment is appealed to the Court of Tax
Appeals, by filing an answer to the taxpayer's petition for review wherein
payment of the tax is prayed for. This is but logical for where the taxpayer
137 | M s . N o l a i d a A g u i r r e
avails of the right to appeal the .tax assessment to the Court of Tax Appeals,
the said Court is vested with the authority to pronounce judgment as to the
taxpayer's liability to the exclusion of any other court.
Philippine National Oil Company vs. Court of Appeals, 457 SCRA 32,
G.R. No. 109976. April 26, 2005
Chico-Nazario, J.
Facts:

Private respondent Savellano informed the BIR that PNB had failed to
withhold the 15% final tax on interest earnings and/or yields from the money
placements of PNOC with the said bank, in violation of Presidential Decree
(P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew
all tax exemptions of government-owned and controlled corporations.

In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability
for taxes on the interests earned by its money placements with PNB and
which PNB did not withhold. PNOC proposed to set-off its tax liability against a
claim for tax refund/credit of the National Power Corporation (NAPOCOR),
then pending with the BIR, in the amount ofP335,259,450.21. The amount of
the claim for tax refund/credit was supposedly a receivable account of PNOC
from NAPOCOR.

On 09 June 1987, PNOC made another offer to the BIR to settle its tax
liability. This time, however, PNOC proposed a compromise by
paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax,
in accordance with the provisions of Executive Order (E.O.) No. 44.

Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987,

accepted the compromise. The BIR received a total tax payment on the
interest earnings and/or yields from PNOC's money placements with PNB in
the amount of P93,955,479.12.

Private respondent Savellano, through four installments, was paid the

informer's reward in the total amount ofP14,093,321.89, representing 15% of
the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He
received the last installment on 01 December 1987.

On 07 January 1988, private respondent Savellano, through his legal counsel,

wrote the BIR to demand payment of the balance of his informer's reward.

BIR Commissioner Tan replied through a letter, dated 08 March 1988, that
private respondent Savellano was already fully paid the informer's reward
equivalent to 15% of the amount of tax actually collected by the BIR pursuant
to its compromise agreement with PNOC. BIR Commissioner Tan further
explained that the compromise was in accordance with the provisions of E.O.
No. 44, Revenue Memorandum Order (RMO) No. 39-86, and RMO No. 4-87.

138 | M s . N o l a i d a A g u i r r e
Private respondent Savellano submitted another letter, dated 24 March 1988,
to BIR Commissioner Tan, seeking reconsideration of his decision to
compromise the tax liability of PNOC. In the same letter, private respondent
Savellano questioned the legality of the compromise agreement entered into
by the BIR and PNOC and claimed that the tax liability should have been
collected in full.

On 08 April 1988, while the aforesaid Motion for Reconsideration was still
pending with the BIR, private respondent Savellano filed a Petition for
Review ad cautelam with the CTA, docketed as CTA Case No. 4249. He
claimed therein that BIR Commissioner Tan acted "with grave abuse of
discretion and/or whimsical exercise of jurisdiction" in entering into a
compromise agreement that resulted in "a gross and unconscionable
diminution" of his reward. Private respondent Savellano prayed for the
enforcement and collection of the total tax assessment against taxpayer
PNOC and/or withholding agent PNB; and the payment to him by the BIR
Commissioner of the 15% informer's reward on the total tax collected. 18 He
would later amend his Petition to implead PNOC and PNB as necessary and
indispensable parties since they were parties to the compromise agreement. 19

In his Answer filed with the CTA, BIR Commissioner Tan asserted that the
Petition stated no cause of action against him, and that private respondent
Savellano was already paid the informer's reward due him.

PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA
lacked jurisdiction to decide the case. In its Resolution, dated 28 November
1988, the CTA denied the Motions to Dismiss since the question of lack of
jurisdiction and/or cause of action do not appear to be indubitable.

After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed
their respective Answers to the amended Petition. PNOC averred, among
other things, that (1) it had no privity with private respondent Savellano; (2) the
BIR Commissioner's discretionary act in entering into the compromise
agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO
No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against it. On
the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the
case; and (2) the BIR Commissioner's decision to accept the compromise was
discretionary on his part and, therefore, cannot be reviewed or interfered with
by the courts. PNOC and PNB later filed their amended Answer invoking an
opinion of the Commission on Audit (COA) disallowing the payment by the
BIR of informer's reward to private respondent Savellano.

The CTA, thereafter, ordered the parties to submit their evidence, to be

followed by their respective Memoranda.

On 23 November 1990, private respondent Savellano, filed a Manifestation

with Motion for Suspension of Proceedings, claiming that his pending Motion
for Reconsideration with the BIR Commissioner may soon be resolved. Both
PNOC and PNB opposed the said Motion.

139 | M s . N o l a i d a A g u i r r e
On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR
assessment, dated 16 January 1991, for deficiency withholding tax in the sum
of P294,958,450.73. PNB alleged that its appeal to the DOJ was sanctioned
under P.D. No. 242, which provided for the administrative settlement of
disputes between government offices, agencies, and instrumentalities,
including government-owned and controlled corporations.
Three days later, on 14 June 1991, PNB filed a Motion to Suspend
Proceedings before the CTA since it had a pending appeal before the DOJ.
On 20 September 1991, private respondent Savellano filed another Omnibus
Motion calling the attention of the CTA to the fact that the BIR already issued,
on 12 August 1991, a warrant of garnishment addressed to the Central Bank
Governor and against PNB. In compliance with the said warrant, the Central
Bank issued, on 23 August 1991, a debit advice against the demand deposit
account of PNB with the Central Bank for the amount ofP294,958,450.73, with
a corresponding transfer of the same amount to the demand deposit-in-trust of
BIR with the Central Bank. Since the assessment had already been enforced,
PNB's Motion to Suspend Proceedings became moot and academic. Private
respondent Savellano, thus, moved for the denial of PNB's Motion to Suspend
Proceedings and for an order requiring BIR to deposit with the CTA the
amount of P44,243,767.00 as his informer's reward, representing 15% of the
deficiency withholding tax collected.

The CTA, on 28 May 1992, rendered its decision, wherein it upheld its
jurisdiction and disposed of the case as follows:

WHEREFORE, judgment is rendered declaring the COMPROMISE

AGREEMENT between the Bureau of Internal Revenue, on the one
hand, and the Philippine National Oil Company and Philippine National
Bank, on the other, as WITHOUT FORCE AND EFFECT;

The Commissioner of Internal Revenue is hereby ordered to ENFORCE

the ASSESSMENT of January 16, 1991 against Philippine National
Bank which has become final and unappealable by collecting from
Philippine National Bank the deficiency withholding tax, plus interest
totalling (sic) P294,958,450.73;

Petitioner may be paid, upon collection of the deficiency withholding tax,

the balance of his entitlement to informer's reward based on fifteen
percent (15%) of the deficiency withholding total tax collected in this
case or P44,243.767.00 subject to existing rules and regulations
governing payment of reward to informers.

PNOC and PNB filed separate appeals with the Court of Appeals seeking the
reversal of the CTA decision, In both cases, the Court of Appeals affirmed the
decision of the CTA. Hence, the present petition.
Issue:
140 | M s . N o l a i d a A g u i r r e
Whether or not the CTA has a jurisdiction over the case considering that the
petition for review was filed neither filed by the taxpayer nor the CIR but by an
informer seeking the collection of the balance of the informers reward.
Held:

The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of
Republic Act No. 1125. Having established that the BIR demand letter, dated
16 January 1991, did not constitute a new assessment, then, there could be
no basis for PNB's claim that any dispute arising from the new assessment
should only be between BIR and PNB.

Still proceeding from the argument that there was a new dispute between PNB
and BIR, PNB sought the suspension of the proceedings in CTA Case
No. 4249, after it contested the deficiency withholding tax assessment against
it and the demand for payment thereof before the DOJ, pursuant to P.D. No.
242. The CTA, however, correctly sustained its jurisdiction and continued the
proceedings in CTA Case No. 4249; and, in effect, rejected DOJ's claim of
jurisdiction to administratively settle or adjudicate BIR's assessment against
PNB.

The CTA assumed jurisdiction over the Petition for Review filed by private
respondent Savellano based on the following provision of Rep. Act No. 1125,
the Act creating the Court of Tax Appeals:

SECTION 7. Jurisdiction. – The Court of Tax Appeals shall

exercise exclusive appellate jurisdiction to review by appeal, as herein
provided -

(1) Decisions of the Collector of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue; . . . (Underscoring ours.)

In his Petition before the CTA, private respondent Savellano requested a

review of the decisions of then BIR Commissioner Tan to enter into a
compromise agreement with PNOC and to reject his claim for additional
informer's reward. He submitted before the CTA questions of law involving
the interpretation and application of (1) E.O. No. 44, and its implementing
rules and regulations, which authorized the BIR Commissioner to compromise
delinquent accounts and disputed assessments pending as of 31 December
1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977
(NIRC of 1977), as amended, which granted to the informer a reward
equivalent to 15% of the actual amount recovered or collected by the
BIR.54 These should undoubtedly be considered as matters arising from the
NIRC and other laws being administered by the BIR, thus, appealable to the
CTA under Section 7(1) of Rep. Act No. 1125.

141 | M s . N o l a i d a A g u i r r e
Sustained herein is the contention of private respondent Savellano that P.D.
No. 242 is a general law that deals with administrative settlement or
adjudication of disputes, claims and controversies between or among
government offices, agencies and instrumentalities, including government-
owned or controlled corporations. Its coverage is broad and sweeping,
encompassing all disputes, claims and controversies.

Following the rule on statutory construction involving a general and a special

law previously discussed, then P.D. No. 242 should not affect Rep. Act No.
1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction of
the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and
controversies, falling under Section 7 of Rep. Act No. 1125, even though
solely among government offices, agencies, and instrumentalities, including
government-owned and controlled corporations, remain in the exclusive
appellate jurisdiction of the CTA. Such a construction resolves the alleged
inconsistency or conflict between the two statutes, and the fact that P.D. No.
242 is the more recent law is no longer significant.

Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep.
Act No. 1125, the present dispute would still not be covered by P.D. No.
242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims
and controversies solely between or among departments, bureaus, offices,
agencies, and instrumentalities of the National Government, including
constitutional offices or agencies, as well as government-owned and
controlled corporations, shall be administratively settled or adjudicated. While
the BIR is obviously a government bureau, and both PNOC and PNB are
government-owned and controlled corporations, respondent Savellano is a
private citizen. His standing in the controversy could not be lightly brushed
aside. It was private respondent Savellano who gave the BIR the information
that resulted in the investigation of PNOC and PNB; who requested the BIR
Commissioner to reconsider the compromise agreement in question; and who
initiated CTA Case No. 4249 by filing a Petition for Review.

Add Notes:

The defense of prescription was never raised by petitioners PNOC and

PNB, and should be considered waived.

In the case of PNB, an assessment was issued against it by the BIR on 08

October 1986, so that the BIR had until 07 October 1989 to enforce it and to
collect the tax assessed. The filing, however, by private respondent Savellano
of his Amended Petition for Review before the CTA on 02 July 1988 already
constituted a judicial action for collection of the tax assessed which stops the
running of the three-year prescriptive period for collection thereof.

A judicial action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court; or where the assessment is
appealed to the CTA, by filing an answer to the taxpayer's petition for review
wherein payment of the tax is prayed for.106
142 | M s . N o l a i d a A g u i r r e
The present case is unique, however, because the Petition for Review was
filed by private respondent Savellano, the informer, against the BIR, PNOC,
and PNB. The BIR, the collecting government agency; PNOC, the taxpayer;
and PNB, the withholding agent, initially found themselves on the same side.

Private respondent Savellano, in his Amended Petition for Review in CTA

Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to
enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax – making
CTA Case No. 4249 a collection case. That the Amended Petition for Review
was filed by the informer and not the taxpayer; and that the prayer for the
enforcement of the tax assessment and payment of the tax was also made by
the informer, not the BIR, should not affect the nature of the case as a judicial
action for collection. In case the CTA grants the Petition and the prayer
therein, as what has happened in the present case, the ultimate result would
be the collection of the tax assessed. Consequently, upon the filing of the
Amended Petition for Review by private respondent Savellano, judicial action
for collection of the tax had been initiated and the running of the prescriptive
period for collection of the said tax was terminated.

Supposing that CTA Case No. 4249 is not a collection case which stops the
running of the prescriptive period for the collection of the tax, CTA Case No.
4249, at the very least, suspends the running of the said prescriptive
period. Under Section 271 of the NIRC of 1977, as amended, the running of
the prescriptive period to collect deficiency taxes shall be suspended for the
period during which the BIR Commissioner is prohibited from beginning a
distraint or levy or instituting a proceeding in court, and for 60 days
thereafter. Just as in the cases of Republic v. Ker & Co.,
109
Ltd. and Protector's Services, Inc. v. Court of Appeals, this Court declares
herein that the pendency of the present case before the CTA, the Court of
Appeals and this Court, legally prevents the BIR Commissioner from instituting
an action for collection of the same tax liabilities assessed against PNOC and
PNB in the CTA or the regular trial courts. To rule otherwise would be to
violate the judicial policy of avoiding multiplicity of suits and the rule on lis
pendens.

Once again, that CTA Case No. 4249 was initiated by private respondent
Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the
withholding agent, would not prevent the suspension of the running of the
prescriptive period for collection of the tax. What is controlling herein is the
fact that the BIR Commissioner cannot file a judicial action in any other court
for the collection of the tax because such a case would necessarily involve the
same parties and involve the same issues already being litigated before the
CTA in CTA Case No. 4249. The three-year prescriptive period for collection
of the tax shall commence to run only after the promulgation of the decision of
this Court in which the issues of the present case are resolved with finality.

CASE SYLLABI:
Same; Same; Prescription; A judicial action for the collection of a tax
may be initiated by the filing of a complaint with the proper regular trial
143 | M s . N o l a i d a A g u i r r e
court, or where the assessment is appealed to the CTA, by filing an
answer to the taxpayer’s petition for review wherein payment of the tax
is prayed for; The present case is unique because the Petition for
Review was filed by a tax informer against the BIR, PNOC, and PNB—the
BIR (the collecting government agency), PNOC (the taxpayer), and PNB (the
withholding agent) initially found themselves on the same side.—In the case of
PNB, an assessment was issued against it by the BIR on 08 October 1986, so
that the BIR had until 07 October 1989 to enforce it and to collect the tax
assessed. The filing, however, by private respondent Savellano of his
Amended Petition for Review before the CTA on 02 July 1988 already
constituted a judicial action for collection of the tax assessed which stops the
running of the three-year prescriptive period for collection thereof. A judicial
action for the collection of a tax may be initiated by the filing of a complaint
with the proper regular trial court; or where the assessment is appealed to the
CTA, by filing an answer to the taxpayer’s petition for review wherein payment
of the tax is prayed for. The present case is unique, however, because the
Petition for Review was filed by private respondent Savellano, the informer,
against the BIR, PNOC, and PNB. The BIR, the collecting government agency;
PNOC, the taxpayer; and PNB, the withholding agent, initially found
themselves on the same side.
Same; Same; Same; Under Section 271 of the NIRC of 1977, as amended,
the running of the prescriptive period to collect deficiency taxes shall be
suspended for the period during which the BIR Commissioner is
prohibited from beginning a distraint or levy or instituting a proceeding
in court, and for 60 days thereafter.—Supposing that CTA Case No. 4249 is
not a collection case which stops the running of the prescriptive period for the
collection of the tax, CTA Case No. 4249, at the very least, suspends the
running of the said prescriptive period. Under Section 271 of the NIRC of 1977,
as amended, the running of the prescriptive period to collect deficiency taxes
shall be suspended for the period during which the BIR Commissioner is
prohibited from beginning a distraint or levy or instituting a proceeding in court,
and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd.
and Protector’s Services, Inc. v. Court of Appeals, this Court declares herein
that the pendency of the present case before the CTA, the Court of Appeals
and this Court, legally prevents the BIR Commissioner from instituting an
action for collection of the same tax liabilities assessed against PNOC and
PNB in the CTA or the regular trial courts. To rule otherwise would be to
violate the judicial policy of avoiding multiplicity of suits and the rule on lis
pendens.
Same; Same; Same; Under Section 271 of the NIRC of 1977, as amended,
the running of the prescriptive period to collect deficiency taxes shall be
suspended for the period during which the BIR Commissioner is
prohibited from beginning a distraint or levy or instituting a proceeding
in court, and for 60 days thereafter.—Supposing that CTA Case No. 4249 is
not a collection case which stops the running of the prescriptive period for the
144 | M s . N o l a i d a A g u i r r e
collection of the tax, CTA Case No. 4249, at the very least, suspends the
running of the said prescriptive period. Under Section 271 of the NIRC of 1977,
as amended, the running of the prescriptive period to collect deficiency taxes
shall be suspended for the period during which the BIR Commissioner is
prohibited from beginning a distraint or levy or instituting a proceeding in court,
and for 60 days thereafter. Just as in the cases of Republic v. Ker & Co., Ltd.
and Protector’s Services, Inc. v. Court of Appeals, this Court declares herein
that the pendency of the present case before the CTA, the Court of Appeals
and this Court, legally prevents the BIR Commissioner from instituting an
action for collection of the same tax liabilities assessed against PNOC and
PNB in the CTA or the regular trial courts. To rule otherwise would be to
violate the judicial policy of avoiding multiplicity of suits and the rule on lis
pendens.
Same; Same; Same; The three-year prescriptive period for collection of
the tax shall commence to run only after the promulgation of the
decision of the Supreme Court in which the issues of the present case
are resolved with finality.—That CTA Case No. 4249 was initiated by private
respondent Savellano, the informer, instead of PNOC, the taxpayer, or PNB,
the withholding agent, would not prevent the suspension of the running of the
prescriptive period for collection of the tax. What is controlling herein is the
fact that the BIR Commissioner cannot file a judicial action in any other court
for the collection of the tax because such a case would necessarily involve the
same parties and involve the same issues already being litigated before the
CTA in CTA Case No. 4249. The three-year prescriptive period for collection
of the tax shall commence to run only after the promulgation of the decision of
this Court in which the issues of the present case are resolved with finality.
Same; Same; Same; Whether the filing of the Amended Petition for
Review by private respondent Savellano entirely stops or merely
suspends the running of the prescriptive period for collection of the tax,
it had been premature for the BIR Commissioner to issue a writ of
garnishment against PNB on 12 August 1991 and for the Central Bank of
the Philippines to debit the account of PNB on 02 September 1992
pursuant to the said writ, because the case was by then, pending review
by the Court of Appeals.—Whether the filing of the Amended Petition for
Review by private respondent Savellano entirely stops or merely suspends the
running of the prescriptive period for collection of the tax, it had been
premature for the BIR Commissioner to issue a writ of garnishment against
PNB on 12 August 1991 and for the Central Bank of the Philippines to debit
the account of PNB on 02 September 1992 pursuant to the said writ, because
the case was by then, pending review by the Court of Appeals. However,
since this Court already finds that the compromise agreement is without force
and effect and hereby orders the enforcement of the assessment against PNB,
then, any issue or controversy arising from the premature garnishment of
PNB’s account and collection of the tax by the BIR has become moot and
academic at this point.
145 | M s . N o l a i d a A g u i r r e
146 | M s . N o l a i d a A g u i r r e
 SATUTORY OFFENSES AND PENALTIES

A. CIVIL PENALTIES/ SURCHARGE/ INTEREST

Bank of the Philippine Islands vs. Commissioner of Internal

Revenue, 496 SCRA 601, G.R. No. 137002. July 27, 2006
Chico-Nazario, J.
Facts:

From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine

Islands (BPI) sold to the Central Bank of the Philippines (now Bangko Sentral
ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed, by cable, its
correspondent bank in New York to transfer U.S. dollars deposited in BPI's
account therein to the Federal Reserve Bank in New York for credit to the
Central Bank's account therein. Thereafter, the Federal Reserve Bank sent to
the Central Bank confirmation that such funds had been credited to its account
and the Central Bank promptly transferred to the petitioner's account in the
Philippines the corresponding amount in Philippine pesos.3

During the period starting 11 June 1985 until 9 March 1987, the Central Bank
enjoyed tax exemption privileges pursuant to Resolution No. 35-85 dated 3
May 1985 of the Fiscal Incentive Review Board. However, in 1985,
Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions
of the National Internal Revenue Code was enacted. This law amended
Section 222 (now 173) of the National Internal Revenue Code (NIRC), by
adding the foregoing:

[W]henever one party to the taxable document enjoys exemption from

the tax herein imposed, the other party thereto who is not exempt shall
be the one directly liable for the tax.

In 1988, respondent CIR ordered an investigation to be made on BPI's sale of

foreign currency. As a result thereof, the CIR issued a pre-assessment notice
informing BPI that in accordance with Section 195 (now Section 182)4 of the
NIRC, BPI was liable for documentary stamp tax at the rate of P0.30
per P200.00 on all foreign exchange sold to the Central Bank. Total tax liability
was assessed at P3,016,316.06, which consists of a documentary stamp tax
liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a
compromise penalty ofP300.00.5

BPI disputed the findings contained in the pre-assessment notice.

Nevertheless, the CIR issued Assessment No. FAS-5-86-88-003022, dated 30
September 1988, which BPI received on 11 October 1988. BPI formally
protested the assessment, but the protest was denied. On 10 July 1990, BPI
received the final notice and demand for payment of its 1986 assessment for

147 | M s . N o l a i d a A g u i r r e
deficiency documentary stamp tax in the amount of P3,016,316.06.
Consequently, a petition for review was filed with the CTA on 9 August 1990.
Issues:

WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY

ERRED IN HOLDING THAT SALES OF FOREIGN EXCHANGE (SPOT
CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF
EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX
UNDER SECTION 182 OF THE TAX CODE

II

WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY

ERRED IN AFFIRMING THE IMPOSITION OF A DELINQUENCY
INTEREST OF 20% ON THE REVISED DEFICIENCY STAMP
ASSESSMENT DESPITE A REDUCTION THEREOF BY THE COUR T
OF TAX APPEALS WHICH ERRED IN ITS ORIGINAL ASSESSMENT
Held:
I
The first issue raised by the petitioner is whether BPI is liable for documentary
stamp taxes in connection with its sale of foreign exchange to the Central
Bank in 1986 under Section 195 (now Section 182) of the NIRC.

To determine what is being taxed under this section, a discussion on the

nature of the acts covered by Section 195 (now Section 182) of the NIRC is
indispensable. This section imposes a documentary stamp tax on (1) foreign
bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise,
for the payment of money issued by express or steamship companies or by
any person or persons. This enumeration is further limited by the qualification
that they should be drawn in the Philippines and payable outside of the
Philippines.

In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal
Reserve Bank in New York a sum of money, which is to be credited to the
account of the Central Bank. These are the same acts described under
Section 51 of Regulations No. 26, interpreting the documentary stamp tax
provision in the Administrative Code of 1917, which is substantially identical to
Section 195 (now Section 182) of the NIRC. These acts performed by BPI
incidental to its sale of foreign exchange to the Central Bank are included
among those taxed under Section 195 (now Section 182) of the NIRC.

Section 195 (now Section 182) of the NIRC covers foreign bills of exchange,
letters of credit, and orders of payment for money, drawn in Philippines, but
payable outside the Philippines. From this enumeration, two common

148 | M s . N o l a i d a A g u i r r e
elements need to be present: (1) drawing the instrument or ordering a drawee,
within the Philippines; and (2) ordering that drawee to pay another person a
specified amount of money outside the Philippines. What is being taxed is the
facility that allows a party to draw the draft or make the order to pay within the
Philippines and have the payment made in another country.

A perusal of the facts contained in the record in this case shows that BPI,
while in the Philippines, ordered its correspondent bank by cable to make a
payment, and that payment is to be made to the Federal Reserve Bank in
New York. Thus, BPI made use of the aforementioned facility. As a result, BPI
need not have sent a representative to New York, nor did the Federal Reserve
Bank have to go to the Philippines to collect the funds which were to be
credited to the Central Bank's account with them. The transaction was made
at the shortest time possible and at the greatest convenience to the parties.
The tax was laid upon this privilege or facility used by the parties in their
transactions, transactions which they may effect through our courts, and which
are regulated and protected by our government.

II

The second issue is whether the delinquency interest of 20% per annum, as
provided under Section 249(c)(3) of the NIRC, is applicable in this case.

In the case of Philippine Refining Company v. Court of Appeals,19 this Court

categorically ruled that even if an assessment was later reduced by the courts,
a delinquency interest should still be imposed from the time demand was
made by the CIR.

As correctly pointed out by the Solicitor General, the deficiency tax

assessment in this case, which was the subject of the demand letter of
respondent Commissioner dated April 11, 1989, should have been paid
within thirty (30) days from receipt thereof. By reason of petitioner's
default thereon, the delinquency penalties of 25% surcharge and
interest of 20% accrued from April 11, 1989. The fact that petitioner
appealed the assessment to the CTA and that the same was modified
does not relieve petitioner of the penalties incident to delinquency. The
reduced amount of P237,381.25 is but a part of the original assessment
of P1,892,584.00.

This doctrine is consistent with the earlier decisions of this Court justifying the
imposition of additional charges and interests incident to delinquency by
explaining that the nature of additional charges is compensatory and not a
penalty.

Based on established doctrine, these charges incident to delinquency are

compensatory in nature and are imposed for the taxpayers' use of the funds at
the time when the State should have control of said funds. Collecting such
charges is mandatory. Therefore, the Decision of the Court of Appeals
imposing a 20% delinquency interest over the assessment reduced by the
CTA was justified and in accordance with Section 249(c)(3) of the NIRC.
149 | M s . N o l a i d a A g u i r r e
 CASE SYLLABI:

Taxation; Interests; Even if an assessment is later reduced by the courts,

a delinquency interest should still be imposed from the time demand
was made by the Commissioner of Internal Revenue; The intention of the
law is precisely to discourage delay in the payment of taxes due to the
State and, in this sense, the surcharge and interest charged are not
penal but compensatory in nature—they are compensation to the State for
the delay in payment, or for the concomitant use of the funds by the taxpayer
beyond the date he is supposed to have paid them to the State.—In the case
of Philippine Refining Company v. Court of Appeals, 256 SCRA 667 (1996),
this Court categorically ruled that even if an assessment was later reduced by
the courts, a delinquency interest should still be imposed from the time
demand was made by the CIR. As correctly pointed out by the Solicitor
General, the deficiency tax assessment in this case, which was the subject of
the demand letter of respondent Commissioner dated April 11, 1989, should
have been paid within thirty (30) days from receipt thereof. By reason of
petitioner’s default thereon, the delinquency penalties of 25% surcharge and
interest of 20% accrued from April 11, 1989. The fact that petitioner appealed
the assessment to the CTA and that the same was modified does not relieve
petitioner of the penalties incident to delinquency. The reduced amount of
P237,381.25 is but a part of the original assessment of P1,892,584.00. This
doctrine is consistent with the earlier decisions of this Court justifying the
imposition of additional charges and interests incident to delinquency by
explaining that the nature of additional charges is compensatory and not a
penalty. The above legal provision makes no distinctions nor does it establish
exceptions. It directs the collection of the surcharge and interest at the stated
rate upon any sum or sums due and unpaid after the dates prescribed in
subsections (b), (c), and (d) of the Act for the payment of the amounts due.
The provision therefore is mandatory in case of delinquency. This is justified
because the intention of the law is precisely to discourage delay in the
payment of taxes due to the State and, in this sense, the surcharge and
interest charged are not penal but compensatory in nature—they are
compensation to the State for the delay in payment, or for the concomitant use
of the funds by the taxpayer beyond the date he is supposed to have paid
them to the State.

Same; Collecting charges incident to tax delinquency is mandatory.—

Based on established doctrine, these charges incident to delinquency are
compensatory in nature and are imposed for the taxpayers’ use of the funds at
the time when the State should have control of said funds. Collecting such
charges is mandatory. Therefore, the Decision of the Court of Appeals
imposing a 20% delinquency interest over the assessment reduced by the
CTA was justified and in accordance with Section 249(c)(3) of the NIRC.

Republic Cement Corp. vs. Commissioner of Internal Revenue, CTA

Case No. 7144, August 2, 2011, Amended Decision

Cotangco-Manalastas, J.

150 | M s . N o l a i d a A g u i r r e
Facts:

Petitioner’s Motion for Partial Reconsideration

Petitioner claims that it duly filed proper returns for remittance of withholding
VAT on payments for services rendered to non-residents, hence, the three-
year prescriptive period applies.

Petitioner asserts that respondent has until January 25, 2003 to assess the
deficiency withholding VAT for taxable year 1999, which is three years from
the date of filing of the VAT return on January 25, 2000; and that respondent's
Assessment Notice for the said deficiency tax dated February

18, 2004, which it received on March 3, 2004, is beyond the three-year

prescriptive period for the assessment and collection of taxes.

Petitioner further avers that the six (6) waivers it had executed were invalid as
the same did not comply with Revenue Memorandum Order (RMO) No. 20-90,
and Revenue Delegation Authority Order No. (RDAO) 3-2003; hence, the said
waivers did not have the effect of extending the three-year prescriptive period
and the right of the government to assess the deficiency withholding VAT for
taxable year 1999 is already barred by the statute of limitations.

Petitioner alleges that: (a) certain payments to non-residents, such as Elex

Engineers, BMH Claudius Engineers, Mr. Jadgmann and Krupp Polysius were
made prior to 1999, hence, said transactions should not have been included in
the subject deficiency withholding VAT assessment for taxable year 1999; (b)
certain payments made to non-residents in 1999, such as Krupp Po/ysius,
were established to have been made to domestic corporations and/or resident
individuals, and/or payments for purchase of materials and not services,
hence, not subject to deficiency withholding VAT for taxable year 1999; (c) the
findings of this Court that journal vouchers, which were presented by petitioner,
are self-serving is erroneous because, in the first place, it was respondent
who assessed petitioner based solely on the same journal vouchers without
verifying or examining any other pertinent evidence; and (d) as the
assessments were based solely on the journal vouchers, which had no
indication that the entries therein were payments made to non-residents or
payments made in 1999, and which were not corroborated by any other
evidence, therefore, the assessment is invalid for it has no factual and legal
bases.


Finally, petitioner avers that the imposition of 25% surcharge has no legal
basis since petitioner is not subject to deficiency withholding VAT; and that the
deficiency interest should be computed from the time the tax is required to be
paid, which is January 25, 2000, until the time provided for its payment under
the Final Demand and Assessment Notice, which is January 31, 2005 (not
until full payment), while the delinquency interest should be computed from

151 | M s . N o l a i d a A g u i r r e
the day after the due date appearing in the Final Demand and Assessment
Notice, which is February 1, 2005 until the amount is fully paid because the
imposition of the deficiency interest at the same time that the delinquency
interest is imposed amounts to double imposition of interest penalty.

Respondent's Motion for Partial Reconsideration

On the other hand, in respondent's Motion for Partial Reconsideration, she

insisted that petitioner is liable for the amount of P30, 429,409.29 and
P6,137.82, respectively, representing deficiency creditable withholding on
VAT and withholding tax on compensation.

Respondent argues that the investigation conducted by its revenue officers

disclosed that certain payments of services to non-resident foreign
corporations were not subjected to Creditable Withholding on VAT and that
petitioner failed to submit proof, hence, the assessment was sustained
pursuant to Section 114(C) of the NIRC of 1997 and Section 4.102 of
Revenue Regulations No. 7-95; that a comparison of withholding tax due per
Alphalist against the remittance per tax Returns resulted to a discrepancy of
P2,564.68, hence, the assessed deficiency withholding tax on compensation
of P6,137.82 must be sustained; and that failure of petitioner to file a return for
the taxes assessed merits the sanction of a Compromise Penalty in lieu of
instituting a criminal action pursuant to Revenue Memorandum Order No. 1-
90 in relation to RMO No. 26-86.

COURT’S RULING:

Court partially grants petitioner’s partial motion for reconsideration and denies
the respondent’s partial motion for reconsideration.

1. AS TO CIVIL LIABILITY

As previously stated, petitioner failed to overcome the presumption of

the correctness of the assessment; therefore, it is liable to pay the
disputed deficiency tax. In view of this, the imposition of 25% surcharge
is proper in accordance with Section 248(A) of the NIRC of 1997, which
provides:

"SEC. 248. Civil Penalties.- (A) There shall be imposed, in

addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following
cases:

(1) Failure to file any return and pay the tax due thereon as
required under the provisions of this Code or rules and
regulations on the date prescribed; or

152 | M s . N o l a i d a A g u i r r e
 (2) Unless otherwise authorized by the Commissioner, filing
a return with an internal revenue officer other than those
with whom the return is required to be filed; or

(3) Failure to pay the deficiency tax within the time

prescribed for its payment in the notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown
on any return required to be filed under the provisions of
this Code or rules and regulations, or the full amount of tax
due for which no return is required to be filed, on or before
the date prescribed for its payment."

The law is very clear. The imposition of surcharge is mandatory. This is

justified because the intention of the law is precisely to discourage delay in the
payment of taxes due to the State.The delay in the payment of the deficiency
tax within the time prescribed for its payment in the notice of assessment
justifies the imposition of a 25% surcharge, pursuant to Section 248(A)(3) of
the Tax Code.6 Even the alleged good faith of the taxpayer in failing to pay
the tax upon advice of counsel is not sufficient justification for seeking
exemption from the payment of surcharge.

I t is basic principle that "surcharg e" is an overcharge or exaction imposed by

law as an addition to the main tax required to be paid. It is not really a penalty
as used in criminal law but a civil administrative sanction provided primarily as
a safeguard for the protection of the State revenue and to reimburse the
government for the expenses in investigating and the loss resulting from the
taxpayer's fraud. In other words, the imposition of a surcharge is not penal but
compensatory in nature - they are compensation to the State for the delay in
payment, or for the concomitant use of the funds by the taxpayer beyond the
date he is supposed to have paid them to the State.

A comparison of Section 249(6) and 2LJ0(C)(3) of the NIRC reveals that the
deficiency interest on any deficiency tax is assessed "from the date prescribed
for its payment until the full payment thereof" while the delinquency interest,
which is imposed for ruilure to pay a deficiency tax, is assessed starting "on
the due date appearing in the notice and demand of theCommissioner until
the amount is fully paid': Clearly, the law itself allows the imposition of these
two kinds or interests simultaneously, and therefore, there is no double
imposition of interest penalty. Hence, petitioner's assertion that the 20%
deficiency interest should be computed from January 25, 2000 until January
31, 2005 and not until full payment is contrary to the very language of the
NIRC.

ACOSTA, J. Dissenting Opinion

153 | M s . N o l a i d a A g u i r r e
It is not the intent of the law to impose such undue interest on any unpaid tax
due to the
Government. The imposition of at least 40% interest per annum on any unpaid
tax is grossly excessive and unjust. The imposition of deficiency interest and
delinquency interest simultaneously for a given period of time and which will
translate to at least 40% interest per annum on any unpaid tax, being grossly
excessive and unconscionable, may partake the nature of an imposition that is
penal, rather than compensatory.

The 20% deficiency interest runs only from the date prescribed for the
payment of the unpaid or deficiency tax until the date of payment prescribed
by the FAN issued by CIR. After which, delinquency interest (on the deficiency
tax, deficiency interest and surcharge) is imposed on taxpayer in addition to
the basic deficiency tax, deficiency interest and surcharge, until final payment
of the total amount is made.

Philippine Refining Company vs. Court of Appeals, 256 SCRA 667,

G.R. No. 118794. May 8, 1996

Regalado, J.

Facts:

This is an appeal by certiorari from the decision of respondent Court of

Appeals 1 affirming the decision of the Court of Tax Appeals which disallowed
petitioner's claim for deduction as bad debts of several accounts in the total
sum of P395,324.27, and imposing a 25% surcharge and 20% annual
delinquency interest on the alleged deficiency income tax liability of petitioner.

Petitioner argues that the imposition of the 25% surcharge and the 20%
delinquency interest due to delay in its payment of the tax assessed is
improper and unwarranted, considering that the assessment of the
Commissioner was modified by the CTA and the decision of said court has not
yet become final and executory.

Issue:

Whether or not the imposition of the 25% surcharge and the 20% delinquency
interest due to delay in its payment of the tax assessed is improper and
unwarranted.

Held:

The Court vehemently rejects the absurd thesis of petitioner that despite the
supervening delay in the tax payment, nothing is lost on the part of the
Government because in the event that these debts are collected, the same will
be returned as taxes to it in the year of the recovery. This is an irresponsible
statement which deliberately ignores the fact that while the Government may
eventually recover revenues under that hypothesis, the delay caused by the
154 | M s . N o l a i d a A g u i r r e
non-payment of taxes under such a contingency will obviously have a
disastrous effect on the revenue collections necessary for governmental
operations during the period concerned.

Regarding the 25% surcharge penalty, Section 248 of the Tax Code provides:

Sec. 248. Civil Penalties. — (a) There shall be imposed, in

addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following
cases:

xxx xxx xxx

(3) Failure to pay the tax within the time prescribed for its
payment.

With respect to the penalty of 20% interest, the relevant provision is found in
Section 249 of the same Code, as follows:

Sec. 249. Interest. — (a) In general. — There shall be assessed

and collected on any unpaid amount of tax, interest at the rate of
twenty percent (20%) per annum, or such higher rate as may be
prescribed by regulations, from the date prescribed for payment
until the amount is fully paid.

xxx xxx xxx

(c) Delinquency interest. — In case of failure pay:

(1) The amount of the tax due on any return required to be

filed, or

(2) The amount of the tax due for which no return is required, or

(3) A deficiency tax, or any surcharge or interest thereon, on the

due date appearing in the notice and demand of the
Commissioner,

there shall be assessed and collected, on the unpaid amount,

interest at the rate prescribed in paragraph (a) hereof until the
amount is fully paid, which interest shall form part of the tax.
(emphasis supplied)

xxx xxx xxx

As correctly pointed out by the Solicitor General, the deficiency tax

assessment in this case, which was the subject of the demand letter of
respondent Commissioner dated April 11,1989, should have been paid within
thirty (30) days from receipt thereof. By reason of petitioner's default thereon,
the delinquency penalties of 25% surcharge and interest of 20% accrued from
155 | M s . N o l a i d a A g u i r r e
April 11, 1989. The fact that petitioner appealed the assessment to the
CTA and that the same was modified does not relieve petitioner of the
penalties incident to delinquency. The reduced amount of P237,381.25 is
but a part of the original assessment of P1,892,584.00.

Our attention has also been called to two of our previous rulings and these we
set out here for the benefit of petitioner and whosoever may be minded to take
the same stance it has adopted in this case. Tax laws imposing penalties
for delinquencies, so we have long held, are intended to hasten tax
payments by punishing evasions or neglect of duty in respect thereof. If
penalties could be condoned for flimsy reasons, the law imposing
penalties for delinquencies would be rendered nugatory, and the
maintenance of the Government and its multifarious activities will be
adversely affected. 11

We have likewise explained that it is mandatory to collect penalty and interest

at the stated rate in case of delinquency. The intention of the law is to
discourage delay in the payment of taxes due the Government and, in this
sense, the penalty and interest are not penal but compensatory for the
concomitant use of the funds by the taxpayer beyond the date when he is
supposed to have paid them to the Government. 12 Unquestionably, petitioner
chose to turn a deaf ear to these injunctions.

CASE SYLLABI:

Same; Same; The fact that a taxpayer appealed the assessment to the
CTA and that the same was modified does not relieve it of the penalties
incident to delinquency.—As correctly pointed out by the Solicitor General,
the deficiency tax assessment in this case, which was the subject of the
demand letter of respondent Commissioner dated April 11, 1989, should have
been paid within thirty (30) days from receipt thereof. By reason of petitioner’s
default thereon, the delinquency penalties of 25% surcharge and interest of 20%
accrued from April 11, 1989. The fact that petitioner appealed the assessment
to the CTA and that the same was modified does not relieve petitioner of the
penalties incident to delinquency. The reduced amount of P237,381.25 is but
a part of the original assessment of P1,892,584.00.
Same; Same; Tax laws imposing penalties for delinquencies are
intended to hasten tax payments by punishing evasions or neglect of
duty in respect thereof.—Our attention has also been called to two of our
previous rulings and these we set out here for the benefit of petitioner and
whosoever may be minded to take the same stance it has adopted in this case.
Tax laws imposing penalties for delinquencies, so we have long held, are
intended to hasten tax payments by punishing evasions or neglect of duty in
respect thereof. If penalties could be condoned for flimsy reasons, the law
imposing penalties for delinquencies would be rendered nugatory, and the
maintenance of the Government and its multifarious activities will be adversely
affected.
156 | M s . N o l a i d a A g u i r r e
Same; Same; It is mandatory to collect penalty and interest at the stated
rate in case of delinquency.—We have likewise explained that it is
mandatory to collect penalty and interest at the stated rate in case of
delinquency. The intention of the law is to discourage delay in the payment of
taxes due the Government and, in this sense, the penalty and interest are not
penal but compensatory for the concomitant use of the funds by the taxpayer
beyond the date when he is supposed to have paid them to the Government.
Unquestionably, petitioner chose to turn a deaf ear to these injunctions.
Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal
Revenue, 501 SCRA 450, G.R. No. 166786. September 11, 2006
Ynares-Santiago, J.
Facts:
The gist of the motion for reconsideration is that before an exercise of a
taxable privilege may be subject to DST, it is indispensable that the
transaction must be embodied in and evidenced by a document. Since a
pawn ticket as defined in Presidential Decree (P.D.) No. 114 or the Pawnshop
Regulation Act is merely the pawnbrokers’ receipt for a pawn and not a
security nor a printed evidence of indebtedness, it cannot be considered as
among the documents subject to DST. In the alternative, petitioner contends
that should the Court rule otherwise, it cannot be made to pay surcharges and
interest because it acted in good faith and the confusion as to whether it is
liable to pay DST is partly attributable to the divergent rulings of the Bureau of
Internal Revenue (BIR) on the matter.
Issue:
Whether or not surcharge and interest penalties shall be impost?
Held:

The law is clear and needs no further interpretation. No law on legal

hermeneutics could change the fact that the entries contained in a pawnshop
ticket spell out a contract of pledge and that the exercise of the privilege to
conclude such a contract is taxable under Section 195 of the NIRC. The
rationale for the issuance of and the spirit that gave rise to the Pawnshop
Regulation Act cannot justify an interpretation that obviously supplies an
exemption which is simply and clearly not found in the law. Nothing in P.D.
No. 114 exempts pawnshops or pawnshop tickets from DST. There is no
ambiguity in the provisions thereof; any vagueness arises only from the
circuitous construction invoked by petitioner. If then President Ferdinand E.
Marcos intended to exempt pawnshops or pawnshop tickets from DST, he
would have expressly so provided for said exemption in P.D. No. 114. Since
no such exemption appear in the decree, the only logical conclusion is that no

157 | M s . N o l a i d a A g u i r r e
such exemption is intended and that pawnshops or pawnshop tickets are
subject to DST.

Significantly, the Court notes that rural banks and their borrowers and
mortgagors are exempt from documentary stamp tax on instruments relating
to loans. Under P.D. No. 122, the exemption is up to the amount of
P5,000.00 loan and charges are collectible only on the amount in excess of
P5,000.00. This provision was adopted by R.A. No. 7353, the Rural Banks
Act of 1992 but the threshold amount was increased to P50,000.00, and
documentary tax is levied only on any amount in excess of P50,000.00, if
there is any.

Nevertheless, all is not lost for petitioner. The settled rule is that good faith
and honest belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest.
In Connell Bros. Co. (Phil.) v. Collector of Internal Revenue, it was held that:

We are convinced that appellant, in preparing its sales invoices

as it did, was not guilty of an intentional violation of the law. It did
not delay filing the returns for the sales taxes corresponding to
the period in question, let alone did so purposely. The delay was
in the payment of the deficiency, which arose from a mistaken
understanding of the regulations laid down by appellee. The
ensuing controversy was, in our opinion, generated in good faith
and should furnish no justification for the imposition of a penalty.

CASE SYLLABUS:

Taxation; Good Faith; The settled rule is that good faith and honest
belief that one is subject to tax on the basis of previous interpretation of
government agencies tasked to implement the tax law, are sufficient
justification to delete the imposition of surcharges and interest.—The
settled rule is that good faith and honest belief that one is not subject to tax on
the basis of previous interpretation of government agencies tasked to
implement the tax law, are sufficient justification to delete the imposition of
surcharges and interest. In Connell Bros. Co. (Phil.) v. Collector of Internal
Revenue, 9 SCRA 735 (1963), it was held that: We are convinced that
appellant, in preparing its sales invoices as it did, was not guilty of an
intentional violation of the law. It did not delay filing the returns for the sales
taxes corresponding to the period in question, let alone did so purposely. The
delay was in the payment of the deficiency, which arose from a mistaken
understanding of the regulations laid down by appellee. The ensuing
controversy was, in our opinion, generated in good faith and should furnish no

158 | M s . N o l a i d a A g u i r r e
justification for the imposition of a penalty. WHEREFORE, modified by
eliminating the surcharge of 25% imposed upon appellant, the judgment
appealed from is affirmed, without costs.
Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23,
1974
Esguerra, J.
---------------SUPRA---------------
Dispositive portion:

As could be readily seen from the above rationalization of the lower court, no
distinction has been made between false returns (due to mistake,
carelessness or ignorance) and fraudulent returns (with intent to evade taxes).
The lower court based its conclusion on the petitioner's alleged fraudulent
intent to evade taxes on the substantial difference between the amounts of net
income on the face of the returns as filed by him in the years 1946 to 1951
and the net income as determined by the inventory method utilized by both
respondents for the same years. The lower court based its conclusion on a
presumption that fraud can be deduced from the very substantial disparity of
incomes as reported and determined by the inventory method and on the
similarity of consecutive disparities for six years. Such a basis for determining
the existence of fraud (intent to evade payment of tax) suffers from an
inherent flaw when applied to this case. It is very apparent here that the
respondent Commissioner of Internal Revenue, when the inventory method
was resorted to in the first assessment, concluded that the correct tax liability
of Mr. Aznar amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After
a reinvestigation the same respondent, in another assessment dated February
16, 1955, concluded that the tax liability should be reduced to P381,096.07.
This is a crystal-clear, indication that even the respondent Commissioner of
Internal Revenue with the use of the inventory method can commit a glaring
mistake in the assessment of petitioner's tax liability. When the respondent
Court of Tax Appeals reviewed this case on appeal, it concluded that
petitioner's tax liability should be only P227,788.64. The lower court in three
instances (elimination of two buildings in the list of petitioner's assets
beginning December 31, 1949, because they were destroyed by fire;
elimination of expenses for construction in petitioner's assets as duplication of
increased value in buildings, and elimination of value of house and lot in
petitioner's assets because said property was only given as collateral)
supported petitioner's stand on the wrong inclusions in his lists of assets made
by the respondent Commissioner of Internal Revenue, resulting in the very
substantial reduction of petitioner's tax liability by the lower court. The
foregoing shows that it was not only Mr. Matias H. Aznar who committed
mistakes in his report of his income but also the respondent Commissioner of
Internal Revenue who committed mistakes in his use of the inventory method
to determine the petitioner's tax liability. The mistakes committed by the
Commissioner of Internal Revenue which also involve very substantial

159 | M s . N o l a i d a A g u i r r e
amounts were also repeated yearly, and yet we cannot presume therefrom the
existence of any taint of official fraud.

From the above exposition of facts, we cannot but emphatically reiterate the
well established doctrine that fraud cannot be presumed but must be proven.
As a corollary thereto, we can also state that fraudulent intent could not be
deduced from mistakes however frequent they may be, especially if such
mistakes emanate from erroneous entries or erroneous classification of items
in accounting methods utilized for determination of tax liabilities The
predecessor of the petitioner undoubtedly filed his income tax returns for "the
years 1946 to 1951 and those tax returns were prepared for him by his
accountant and employees. It also appears that petitioner in his lifetime and
during the investigation of his tax liabilities cooperated readily with the B.I.R.
and there is no indication in the record of any act of bad faith committed by
him.

The loThe lower court's conclusion regarding the existence of fraudulent

intent to evade payment of taxes was based merely on a presumption
and not on evidence establishing a willful filing of false and fraudulent
returns so as to warrant the imposition of the fraud penalty. 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.
Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by the law. It must amount to
intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as
fraudulent intent, and if both petitioner and respondent Commissioner of
Internal Revenue committed mistakes in making entries in the returns
and in the assessment, respectively, under the inventory method of
determining tax liability, it would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of the respondent as made in
good faith.

The Lower court's conclusion regarding the existence of fraudulent

intent to evade payment of taxes was based merely on a presumption
and not on evidence establishing a willful filing of false and fraudulent
returns so as to warrant the imposition of the fraud penalty. 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.
Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by the law. It must amount to
intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as
fraudulent intent, and if both petitioner and respondent Commissioner of
Internal Revenue committed mistakes in making entries in the returns
and in the assessment, respectively, under the inventory method of
determining tax liability, it would be unfair to treat the mistakes of the

160 | M s . N o l a i d a A g u i r r e
petitioner as tainted with fraud and those of the respondent as made in
good faith.

We conclude that the 50% surcharge as fraud penalty authorized under

Section 72 of the Tax Code should not be imposed, but eliminated from the
income tax deficiency for each year from 1946 to 1951, inclusive.

CASE SYLLABUS:
Same; Same; Penalties; Actual fraud, not constructive fraud, is subject
to 50% surcharge as penalty.—The lower court’s conclusion regarding the
existence of fraudulent intent to evade payment of taxes was based merely on
a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. 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. Negligence, whether slight
or gross, is not equivalent to the fraud with intent to evade the tax
contemplated by law. It must amount to intentional wrong-doing with the sole
object of avoiding the tax.
Commission of Internal Revenue vs. Javier, Jr., 199 SCRA 824, G.R.
No. 78953. July 31, 1991
Sarmiento, J.
Facts:

On or about June 3, 1977, Victoria L. Javier, the wife of the petitioner (private
respondent herein), received from the Prudential Bank and Trust Company in
Pasay City the amount of US$999,973.70 remitted by her sister, Mrs. Dolores
Ventosa, through some banks in the United States, among which is Mellon
Bank, N.A.

On or about June 29, 1977, Mellon Bank, N.A. filed a complaint with the Court
of First Instance of Rizal (now Regional Trial Court), (docketed as Civil Case
No. 26899), against the petitioner (private respondent herein), his wife and
other defendants, claiming that its remittance of US$1,000,000.00 was a
clerical error and should have been US$1,000.00 only, and praying that the
excess amount of US$999,000.00 be returned on the ground that the
defendants are trustees of an implied trust for the benefit of Mellon Bank with
the clear, immediate, and continuing duty to return the said amount from the
moment it was received.

November 5, 1977, the City Fiscal of Pasay City filed an Information with the
then Circuit Criminal Court (docketed as CCC-VII-3369-P.C.) charging the
petitioner (private respondent herein) and his wife with the crime of estafa,
alleging that they misappropriated, misapplied, and converted to their own
personal use and benefit the amount of US$999,000.00 which they received

161 | M s . N o l a i d a A g u i r r e
under an implied trust for the benefit of Mellon Bank and as a result of the
mistake in the remittance by the latter.

On March 15, 1978, the petitioner (private respondent herein) filed his Income
Tax Return for the taxable year 1977 showing a gross income of P53,053.38
and a net income of P48,053.88 and stating in the footnote of the return that
"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."

Petitioner (private respondent herein) received a letter from the acting

Commissioner of Internal Revenue dated November 14, 1980, together with
income assessment notices for the years 1976 and 1977, demanding that
petitioner (private respondent herein) pay on or before December 15, 1980 the
amount of P1,615.96 and P9,287,297.51 as deficiency assessments for the
years 1976 and 1977 respectively. . . .

Petitioner (private respondent herein) wrote the Bureau of Internal Revenue

that he was paying the deficiency income assessment for the year 1976 but
denying that he had any undeclared income for the year 1977 and requested
that the assessment for 1977 be made to await final court decision on the
case filed against him for filing an allegedly fraudulent return. . . .

Petitioner (private respondent herein) received from Acting Commissioner of

Internal Revenue Romulo Villa a letter dated October 8, 1981 stating in reply
to his December 15, 1980 letter-protest that "the amount of Mellon Bank's
erroneous remittance which you were able to dispose, is definitely
taxable." . . . 5

The Commissioner also imposed a 50% fraud penalty against Javier.

Disagreeing, Javier filed an appeal 6 before the respondent Court of Tax

Appeals on December 10, 1981.

Issue:

Whether or not a taxpayer who merely states as a footnote in his income tax
return that a sum of money that he erroneously received and already spent is
the subject of a pending litigation and there did not declare it as income is
liable to pay the 50% penalty for filing a fraudulent return.

Held:

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

162 | M s . N o l a i d a A g u i r r e
We are persuaded considerably by the private respondent's contention that
there is no fraud in the filing of the return and agree fully with the Court of Tax
Appeals' interpretation of Javier's notation on his income tax return filed on
March 15, 1978 thus: "Taxpayer was the recipient of some money from
abroad which he presumed to be a gift but turned out to be an error and is
now subject of litigation that it was an "error or mistake of fact or law" not
constituting fraud, that such notation was practically an invitation for
investigation and that Javier had literally "laid his cards on the table." 13

In Aznar v. Court of Tax Appeals, 14 fraud in relation to the filing of income tax
return was discussed in this manner:

. . . 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. Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade the tax contemplated
by law. It must amount to intentional wrong-doing with the sole
object of avoiding the tax. It necessarily follows that a mere
mistake cannot be considered as fraudulent intent, and if both
petitioner and respondent Commissioner of Internal Revenue
committed mistakes in making entries in the returns and in the
assessment, respectively, under the inventory method of
determining tax liability, it would be unfair to treat the mistakes of
the petitioner as tainted with fraud and those of the respondent as
made in good faith.

Fraud is never imputed and the courts never sustain findings of fraud upon
circumstances which, at most, create only suspicion and the mere
understatement of a tax is not itself proof of fraud for the purpose of tax
evasion.

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

CASE SYLLABI:

163 | M s . N o l a i d a A g u i r r e
Taxation; Court persuaded that there is no fraud in the filing of the
return and agrees fully with the Court of Tax Appeals’ interpretation of
Javier’s notation on his income tax return filed on March 15, 1978.—We
are persuaded considerably by the private respondent’s contention that there
is no fraud in the filing of the return and agree fully with the Court of Tax
Appeals’ interpretation of Javier’s notation on his income tax return filed on
March 15, 1978 thus: “Taxpayer was the recipient of some money from
abroad which he presumed to be a gift but turned out to be an error and is
now subject of litigation;” that it was an “error or mistake of fact or law” not
constituting fraud, that such notation was practically an invitation for
investigation and that Javier had literally “laid his cards on the table.”
Same; Same; Fraud in relation to the filing of income tax return
discussed in Aznar vs. Court of Appeals.—In Aznar v. Court of Appeals,
fraud in relation to the filing of income tax return, was discussed in this
manner: xxx 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.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to
evade the tax contemplated by law. It must amount to intentional wrong-doing
with the sole object of avoiding the tax. It necessarily follows that a mere
mistake cannot be considered as fraudulent intent, and if both petitioner and
respondent Commissioner of Internal Revenue committed mistakes in making
entries in the returns and in the assessment, respectively, under the inventory
method of determining tax liability, it would be unfair to treat the mistakes of
the petitioner as tainted with fraud and those of the respondent as made in
good faith.
Same; Same; Same; Courts never sustain findings of fraud upon
circumstances which create only suspicion and the mere
understatement of a tax is not itself proof of fraud for the purpose of tax
evasion.—Fraud is never imputed and the courts never sustain findings of
fraud upon circumstances which, at most, create only suspicion and the mere
understatement of a tax is not itself proof of fraud for the purpose of tax
evasion.
Same; Same; Same; Same; There was no actual and intentional fraud
through willful and deliberate misleading of the Bureau of Internal
Revenue, case at bar; Error or mistake of law is not fraud.—In the case at
bar, there was no actual and intentional fraud through willful and deliberate
misleading of the government agency concerned, the Bureau of Internal
Revenue, headed by the herein petitioner. The government was not induced
to give up some legal right and place itself at a disadvantage so as to prevent
its lawful agents from proper assessment of tax liabilities because Javier did
not conceal anything. Error or mistake of law is not fraud. The petitioner’s
zealousness to collect taxes from the unearned windfall to Javier is highly

164 | M s . N o l a i d a A g u i r r e
commendable. Unfortunately, the imposition of the fraud penalty in this case is
not justified by the extant facts.
B. CRIMES/ OFFENSES/ PENALTIES/ FORFEITURE
Ungab vs. Cusi, Jr., 97 SCRA 877, Nos. L-41919-24. May 30, 1980
Concepcion, JR., J.
Facts:
In July, 1974, BIR Examiner Ben Garcia examined the income tax returns
filed by the herein petitioner, Quirico P. Ungab, for the calendar year
ending December 31, 1973. In the course of his examination, he
discovered that the petitioner failed to report his income derived from sales
of banana saplings. As a result, the BIR District Revenue Officer at Davao
City sent a "Notice of Taxpayer" to the petitioner informing him that there is
due from him (petitioner) the amount of P104,980.81, representing income,
business tax and forest charges for the year 1973 and inviting petitioner t o
an informal conference where the petitioner, duly assisted by counsel, may
present his objections to the findings of the BIR Examiner. 1 Upon receipt
of the notice, the petitioner wrote the BIR District Revenue Officer
protesting the assessment, claiming that he was only a dealer or agent on
commission basis in the banana sapling business and that his income, as
reported in his income tax returns for the said year, was accurately stated.
BIR Examiner Ben Garcia, however, was fully convinced that the petitioner
had filed a fraudulent income tax return so that he submitted a "Fraud
Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue.
After examining the records of the case, the Special Investigation Division
of the Bureau of Internal Revenue found sufficient proof that the herein
petitioner is guilty of tax evasion for the taxable year 1973 and
recommended his prosecution:

(1) For having filed a false or fraudulent income tax return for
1973 with intent to evade his just taxes due the government
under Section 45 in relation to Section 72 of the National Internal
Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in 1973
and 1974, or a total of unpaid fixed taxes of P100.00 plus
penalties of 175.00 or a total of P175.00, in accordance with
Section 183 of the National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of

banana poles or saplings, on the total sales of P129,580.35 to the
Davao Fruit Corporation, depriving thereby the government of its
due revenue in the amount of P15,872.59, inclusive of
surcharge.

165 | M s . N o l a i d a A g u i r r e
In a second indorsement to the Chief of the Prosecution Division, dated
December 12, 1974, the Commissioner of Internal Revenue approved the
prosecution of the petitioner.

Thereafter, State Prosecutor Jesus Acebes who had been designated to

assist all Provincial and City Fiscals throughout the Philippines in the
investigation and prosecution, if the evidence warrants, of all violations of the
National Internal Revenue Code, as amended, and other related laws, in
Administrative Order No. 116 dated December 5, 1974, and to whom the case
was assigned, conducted a preliminary investigation of the case, and finding
probable cause, filed six (6) informations against the petitioner with the Court
of First Instance of Davao City.

On September 16, 1975, the petitioner filed a motion to quash the

informations upon the grounds that: (1) the informations are null and void for
want of authority on the part of the State Prosecutor to initiate and prosecute
the said cases; and (2) the trial court has no jurisdiction to take cognizance of
the above-entitled cases in view of his pending protest against the
assessment made by the BIR Examiner. 10 However, the trial court denied the
motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant
recourse. As prayed for, a temporary restraining order was issued by the
Court, ordering the respondent Judge from further proceeding with the trial
and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965
of the Court of First Instance of Davao, all entitled: "People of the Philippines,
plaintiff, versus Quirico Ungab, accused."

Issue:
Whether or not the filing of the criminal complaints against the petitioner
were premature since the Commissioner of Internal Revenue has not yet
resolved his protests against the assessment of the Revenue District
Officer; and that he was denied recourse to the Court of Tax Appeals.
Held:

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.

The contention is made, and is here rejected, that an assessment

of the deficiency tax due is necessary before the taxpayer can be
prosecuted criminally for the charges preferred. The crime is
complete when the violator has, as in this case, knowingly and

166 | M s . N o l a i d a A g u i r r e
 willfully filed fraudulent returns with intent to evade and defeat a
part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal

prosecution for willful attempt to defeat and evade the income tax.
A crime is complete when the violator has knowingly and willfuly
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. 15

Besides, it has been ruled that a petition for reconsideration of an assessment

may affect the suspension of the prescriptive period for the collection of taxes,
but not the prescriptive period of a criminal action for violation of
law.16 Obviously, the protest of the petitioner against the assessment of the
District Revenue Officer cannot stop his prosecution for violation of the
National Internal Revenue Code. Accordingly, the respondent Judge did not
abuse his discretion in denying the motion to quash filed by the petitioner.

CASE SYLLABI:

Criminal Procedure; Taxation; National Internal Revenue Code;

Preliminary investigation; Authority of State Prosecutor to investigate
and prosecute violations of the National Internal Revenue Code
independently of the City Fiscal; Case at bar.—The respondent State
Prosecutor, although believing that he can proceed independently of the City
Fiscal in the investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he started the preliminary
investigation of these cases, and the City Fiscal, after being shown
Administrative Order No. 116, dated December 5, 1974, designating the said
State Prosecutor to assist all Provincial and City fiscals throughout the
Philippines in the investigation and prosecution of all violations of the National
Internal Revenue Code, as amended, and other related laws, graciously
allowed the respondent State Prosecutor to conduct the investigation of said
cases, and in fact, said investigation was conducted in the office of the City
Fiscal.
Same; Same; Same; Jurisdiction of the Court of First Instance over
criminal prosecution for violations of the National Internal Revenue
Code; Computation and assessment of deficiency taxes is not a pre-
requisite for criminal prosecution under the Code.—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 recognizance 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
167 | M s . N o l a i d a A g u i r r e
and assessment of the tax before there can be a criminal prosecution under
the Code.
Same; Same; Same; Prescription; Petition for reconsideration of
assessment of deficiency taxes suspends the prescriptive period for the
collection of taxes, not the prescriptive period of a criminal action for
violation of law.—Besides, it has been ruled that a petition for
reconsideration of an assessment may affect the suspension of the
prescriptive period for the collection of taxes, but not the prescriptive period of
a criminal action for violation of law. Obviously, the protest of the petitioner
against the assessment of the District Revenue Officer cannot stop his
prosecution for violation of the National Internal Revenue Code. Accordingly,
the respondent Judge did not abuse his discretion in denying the motion to
quash filed by the petitioner.
Commissioner of Internal Revenue vs. Court of Appeals, 257 SCRA
200, G.R. No. 119322. June 4, 1996

Kapunan, J.

Facts:

On June 1, 1993, the President issued a Memorandum creating a Task Force

to investigate the tax liabilities of manufacturers engaged in tax evasion
scheme, such as selling products through dummy marketing corporations to
avoid payment of correct internal revenue tax, to collect from them any tax
liabilities discovered from such investigation, and to file the necessary criminal
actions against those who may have violated the tax code. The task force was
composed of the Commissioner of Internal Revenue as Chairman, a
representative of the Department of Justice and a representative of the
Executive Secretary.

On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue

Memorandum Circular No. 37-93 reclassifying best selling cigarettes bearing
the brands "Hope," "More," and "Champion" as cigarettes of foreign brands
subject to a higher rate of tax.

On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune)

questioned the validity of the reclassification of said brands of cigarettes as
violative of its right to due process and equal protection of law. Parenthetically,
on September 8, 1993, the Court of Tax Appeals by resolution ruled that the
reclassification made by the Commissioner "is of doubtful legality" and
enjoined its enforcement.

In a letter of August 13, 1993 which was received by Fortune on August 24,
1993, the Commissioner assessed against Fortune the total amount of
P7,685,942,221.66 representing deficiency income, ad valorem and value-
added tax for the year 1992 with the request that the said amount be paid

168 | M s . N o l a i d a A g u i r r e
within thirty (30) days upon receipt thereof. 4 Fortune on September 17, 1993
moved for reconsideration of the assessments.

On September 7, 1993, the Commissioner of Internal Revenue filed a

complaint with the Department of Justice against 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 income tax, ad valorem tax and value-added
tax for the year 1992. The complaint alleged

, among others, that:

In the said income tax return, the taxpayer declared a net taxable
income of P183,613,408.00 and an income tax due of
P64,264,693.00. Based mainly on documentary evidence
submitted by the taxpayer itself, these declarations are false and
fraudulent because the correct taxable income of the corporation
for the said year is P1,282,959,399.25.

This underdeclaration which resulted in the evasion of the amount

of P723,773,759.79 as deficiency income tax for the year 1992 is
a violation of Section 45 of the Tax Code, penalized under
Section 253 in relation to Sections 252(b) and (d) and 253
thereof, thus: . . .

xxx xxx xxx

Fortune Tobacco Corporation, through its Vice-President for

Finance, Roxas Chua, likewise filed value-added tax returns for
the 1st, 2nd, 3rd and 4th quarters of 1992 with the Rev. District
Office of Marikina, Metro Manila, declaring therein gross taxable
sales, as follows:

1st Qtr. P 2,924,418,055.00

2nd Qtr. 2,980,335,235.00

3rd Qtr. 2,839,519,325.00

4th Qtr. 2,992,386,005.00

However, contrary to what have been reported in the said value-

added tax returns, and based on documentary evidence obtained
from the taxpayer, the total actual taxable sales of the corporation
for the year 1992 amounted to P16,158,575,035.00 instead of
P11,929,322,334.52 as declared by the corporation in the said
VAT returns.

These fraudulent underdeclarations which resulted in the evasion

of value-added taxes in the aggregate amount of
169 | M s . N o l a i d a A g u i r r e
 P1,169,688,645.63 for the entire year 1992 are violations of
Section 110 in relation to Section 100 of the Tax Code, which are
likewise penalized under the aforequoted Section 253, in relation
to Section 252, thereof. Sections 110 and 100 provide:

xxx xxx xxx

Furthermore, based on the corporation's VAT returns, the

corporation reported its taxable sales for 1992 in the amount of
P11,736,658,580. This declaration is likewise false and fraudulent
because, based on the daily manufacturer's sworn statements
submitted to the BIR by the taxpayer, its total taxable sales during
the year 1992 is P16,686,372,295.00. As a result thereof, the
corporation was able to evade the payment of ad valorem taxes
in the aggregate amount of P5,792,479,816.24 in violation of
Section 127 in relation to Section 142, as amended by R.A. 6956,
penalized under the aforequoted Section 253, in relation to
Section 252, all of the Tax Code. Sections 127 and 142, as
amended by R.A. 6956, are quoted as follows: . . .

The complaint docketed as I.S. No. 93-508, was referred to the Department of
Justice Task Force on revenue cases which found sufficient basis to further
investigate the allegations that Fortune, through fraudulent means, evaded
payment of income tax, ad valorem tax, and value-added tax for the year 1992
thus, depriving the government of revenues in the amount of Seven and One-
half (P7.5) Billion Pesos.

On December 20, 1993, the panel of prosecutors issued an Omnibus

Order 11 denying private respondents' motion for reconsideration, motion for
suspension of investigation, motion to inhibit the State Prosecutors, and
motion to require submission by the BIR of certain documents to further
support private respondents' motion to dismiss.

On January 4, 1994, private respondents filed a petition for certiorari and

prohibition with prayer for preliminary injunction with the Regional Trial Court,
Branch 88, Quezon City, docketed as Q-94-18790, praying that the complaint
of the Commissioner of Internal Revenue and the orders of the prosecutors in
I.S. No. 93-508 be dismissed or set aside, alternatively, the proceedings on
the preliminary investigation be suspended pending final determination by the
Commissioner of Fortune's motion for reconsideration/ reinvestigation of the
August 13, 1993 assessment of the taxes due. 12

On January 17, 1994, petitioners filed a motion to dismiss the petition 13 on the
grounds that (a) the trial court is bereft of jurisdiction to enjoin a criminal
prosecution under preliminary investigation; (b) a criminal prosecution for tax
fraud can proceed independently of criminal or administrative action; (c) there
is no prejudicial question to justify suspension of the preliminary investigation;
(d) private respondents' rights to due process was not violated; and (e)
selective prosecution is not a valid defense in this jurisdiction.

170 | M s . N o l a i d a A g u i r r e
On January 19, 1994, at the hearing of the incident for the issuance of a writ
of preliminary injunction in the petition, private respondents offered in
evidence their verified petition for certiorari and prohibition and its annexes.
Petitioners responded by praying that their motion to dismiss the petition
for certiorari and prohibition be considered as their opposition to private
respondents' application for the issuance of a writ of preliminary injunction.

On January 25, 1994, the trial court issued an order granting the prayer for the
issuance of a preliminary injunction. 14 The trial court rationalized its order in
this wise:

a) It is private respondents' claim that the ad valorem tax for the

year 1992 was levied, assessed and collected by the BIR under
Section 142(c) of the Tax Code on the basis of the
"manufacturer's registered wholesale price" duly approved by the
BIR. Fortune's taxable sales for 1992 was in the amount of
P11,736,658,580.00.

b) On the other hand, it is petitioners' contention that Fortune's

declaration was false and fraudulent because, based on its daily
manufacturer's sworn statements submitted to the BIR, its taxable
sales in 1992 were P16,686,372,295.00, as a result of which,
Fortune was able to evade the payment of ad valorem tax in the
aggregate amount of P5,792,479,816.24.

c) At the hearing for preliminary investigation, the "Daily

Manufacturer's Sworn Statements" which, according to
petitioners, were submitted to the BIR by private respondents and
made the basis of petitioner Commissioner's complaint that the
total taxable sales of Fortune in 1992 amounted to P16,686,372,
295.00 were not produced as part of the evidence for petitioners.
In fact, private respondents had filed a motion to require petitioner
Commissioner to submit the aforesaid daily manufacturer's sworn
statements before the DOJ panel of prosecutors to show that
Fortune's actual taxable sales totaled P16,686,373,295.00, but
the motion was denied.

d) There is nothing on record in the preliminary investigation

before the panel of investigators which supports the allegation
that Fortune made a fraudulent declaration of its 1992 taxable
sales.

e) Since, as alleged by private respondents, the ad valorem tax

for the year 1992 should be based on the "manufacturer's
registered wholesale price" while, as claimed by petitioners, the
ad valorem taxes should be based on the wholesale price at
which the manufacturer sold the cigarettes, which is a legal issue
as admitted by a BIR lawyer during the hearing for preliminary
injunction, the correct interpretation of the law involved, which is
Section 142(c) of the Tax Code, constitutes a prejudicial question
171 | M s . N o l a i d a A g u i r r e
 which must first be resolved before criminal proceedings for tax
evasion may be pursued. In other words, the BIR must first make
a final determination, which it has not, of Fortune's tax liability
relative to its 1992 ad valorem, value-added and income taxes
before the taxpayer can be made liable for tax evasion.

f) There was a precipitate issuance by the panel of prosecutors of

subpoenas to private respondents, on the very day following the
filing of the complaint with the DOJ consisting of about 600
pages, and the precipitate denial by the panel of prosecutors,
after a recess of about twenty (20) minutes, of private
respondents' motion to dismiss, consisting of one hundred and
thirty five (135) pages.

g) Private respondents had been especially targeted by the

government for prosecution. Prior to the filing of the complaint in
I.S. No. 93-508, petitioner Commissioner issued Revenue
Memorandum Circular No. 37-93 reclassifying Fortune's best
selling cigarettes, namely "Hope," "More," and "Champion" as
cigarettes bearing a foreign brand, thereby imposing upon them a
higher rate of tax that would price them out of the market.

h) While in petitioner Commissioner's letter of August 13, 1993,

she gave Fortune a period of thirty (30) days from receipt thereof
within which to pay the alleged tax deficiency assessments, she
filed the criminal complaint for tax evasion before the period
lapsed.

i) Based on the foregoing, the criminal complaint against private

respondents was filed prematurely and in violation of their
constitutional right to equal protection of the laws.

On February 7, 1994, the trial court issued an order denying petitioners'

motion to dismiss private respondents' petition seeking to stay preliminary
investigation in I.S. 93-508, ruling that the issue of whether Sec. 127(b) of the
National Tax Revenue Code should be the basis of private respondents' tax
liability as contended by the Bureau of Internal Revenue, or whether it is
Section 142(c) of the same Code that applies, as argued by herein private
respondents, should first be settled before any complaint for fraudulent tax
evasion can be initiated.

On March 7, 1994, petitioners filed a petition for certiorari and prohibition with
prayer for preliminary injunction before this Court. However, the petition was
referred to the Court of Appeals for disposition by virtue of its original
concurrent jurisdiction over the petition.

On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599

rendered a decision denying the petition. The Court of Appeals ruled that the
trial court committed no grave abuse of discretion in ordering the issuance of
writs of preliminary injunction and in denying petitioners' motion to dismiss.
172 | M s . N o l a i d a A g u i r r e
Their motion for reconsideration having been denied by respondent
appellate court on February 23, 1995.

Issue:

Whether or not the prosecution of private respondent be enjoined pending

the determination of the latter’s tax liability.

Held:

The Court ruled in the affirmative. It is the opinion of both the trial court
and respondent Court of Appeals, that before Fortune and the other private
respondents could be prosecuted for tax evasion under Sections 253 and
255 of the Tax Code, the fact that the deficiency income, ad valorem and
value-added taxes were due from Fortune for the year 1992 should first be
established. Fortune received form the Commissioner of Internal Revenue
the deficiency assessment notices in the total amount of
P7,685,942,221.06 on August 24, 1993. However, under Section 229 of
the Tax Code, the taxpayer has the right to move for reconsideration of the
assessment issued by the Commissioner of Internal Revenue within thirty
(30) days from receipt of the assessment; and if the motion for
reconsideration is denied, it may appeal to the Court of Appeals within
thirty (30) days from receipt of the Commissioner's decision. Here, Fortune
received the Commissioner's assessment notice dated August 13, 1993 on
August 24, 1993 asking for the payment of the deficiency taxes. Within
thirty (30) days from receipt thereof, Fortune moved for reconsideration.
The Commissioner has not resolved the request for reconsideration up to
the present.

We share with the view of both the trial court and court of Appeals that
before the tax liabilities of Fortune are first finally determined, it cannot be
correctly asserted that private respondents have wilfully attempted to
evade or defeat the taxes sought to be collected from Fortune. In plain
words, before one is prosecuted for wilful attempt to evade or defeat any
tax under Sections 253 and 255 of the Tax code, the fact that a tax is due
must first be proved.

Suppose the Commissioner eventually resolves Fortune's motion for

reconsideration of the assessments by pronouncing that the taxpayer is not
liable for any deficiency assessment, then, the criminal complaints filed
against private respondents will have no leg to stand on.

In view of the foregoing reasons, we cannot subscribe to the petitioners'

thesis citing Ungad v. Cusi, 27 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.

173 | M s . N o l a i d a A g u i r r e
Reading Ungad 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.:28 "The crime is complete when the violator has
knowingly and wilfully filed a fraudulent return with intent to evade and
defeat apart or all of the tax." In plain words, for criminal prosecution to
proceed before assessment, there must be a prima facieshowing of a wilful
attempt to evade taxes. There was a wilful attempt to evade tax
in Ungad 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 Ungad and the case at bar.

This brings us to the erroneous disquisition that private respondents'

recourse to the trial court by way of special civil action of certiorari and
prohibition was improper because: a) the proceedings before the state
prosecutors (preliminary injunction) were far from terminated -- private
respondents were merely subpoenaed and asked to submit counter
affidavits, matters that they should have appealed to the Secretary of
Justice; b) it is only after the submission of private respondents' counter
affidavits that the prosecutors will determine whether or not there is
enough evidence to file in court criminal charges for fraudulent tax evasion
against private respondents; and c) the proper procedure is to allow the
prosecutors to conduct and finish the preliminary investigation and to
render a resolution, after which the aggrieved party can appeal the
resolution to the Secretary of Justice.

As a general rule, criminal prosecutions cannot be enjoined. However, there

are recognized exceptions which, as summarized in Brocka v. Enrile 29 are:

a. To afford adequate protection to the constitutional rights of the

accused (Hernandez vs. Albano, et al., L-19272, January 25,
1967, 19 SCRA 95);

b. When necessary for the orderly administration of justice or to

avoid oppression or multiplicity of actions (Dimayuga, et al. vs.
Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun vs.
Labang, et al., L-38383, May 27, 1981, 104 SCRA 607);

c. When there is a prejudicial question which is sub judice (De

Leon vs. Mabanag, 70 Phil 202);

d. When the acts of the officer are without or in excess of

authority (Planas vs. Gil, 67 Phil 62);

174 | M s . N o l a i d a A g u i r r e
 e. Where the prosecution is under an invalid law, ordinance or
regulation (Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs.
Trinidad, 47 Phil. 385, 389);

f. When double jeopardy is clearly apparent (Sangalang vs.

People and Alvendia, 109 Phil. 1140);

g. Where the court had no jurisdiction over the offense (Lopez vs.
City Judge, L-25795, October 29, 1966, 18 SCRA 616);

h. Where it is a case of persecution rather than prosecution

(Rustia vs. Ocampo, CA-G.R. No. 4760, March 25, 1960);

i. Where the charges are manifestly false and motivated by the

lust for vengeance (Recto vs. Castelo, 18 L.J. [1953], cited in
Rano vs. Alvenia, CA-G.R. No. 30720-R, October 8,
1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984,
128 SCRA 577); and

j. When there is clearly no prima facie case against the accused

and a motion to quash on that ground has been denied (Salonga
vs. Pane, et al., L-59524, February 18, 1985, 134 SCRA 438).

Contrary to petitioners' submission, preliminary investigation may be

enjoined where exceptional circumstances so warrant. In Hernandez
v. Albano 30 and Fortun v. Labang, 31 injunction was issued to enjoin a
preliminary investigation. In the case at bar, private respondents filed a
motion to dismiss the complaint against them before the prosecution and
alternatively, to suspend the preliminary investigation on the grounds cited
hereinbefore, one of which is that the complaint of the Commissioner is not
supported by any evidence to serve as adequate basis for the issuance of
the subpoena to them and put them to their defense.

Indeed, the purpose of a preliminary injunction is to secure the innocent

against hasty, malicious and oppressive prosecution and to protect him
from an open and public accusation of crime, from the trouble, expense
and anxiety of a public trial and also to protect the state from useless and
expensive trials.

BELLOSILLO, J., concurring and dissenting:

I am in full accord with the conclusion of the majority that the trial court
committed no grave abuse of discretion in issuing the assailed injunctive writs.
But I am constrained to dissent insofar as it finds that there was "selective
prosecution" in charging private respondents.

Let me first touch on "selective prosecution." There is no showing that

petitioner Commissioner of Internal Revenue is not going after others who
may be suspected of being big tax evaders and that only private respondents
are being prosecuted, or even merely investigated, for tax evasion. As pointed
175 | M s . N o l a i d a A g u i r r e
out by the Solicitor General, assuming ex hypothesi that other corporate
manufacturers are guilty of using similar schemes for tax evasion, the proper
remedy is not the dismissal of the complaints against private respondents, but
the prosecution of other similar evaders. In this regard, in the absence of
willful or malicious prosecution, or so-called "selective prosecution," the choice
on whom to prosecute ahead of the others belongs legitimately, and rightly so,
to the public prosecutors.

But, I share the view of the majority that the trial court did not commit grave
abuse of discretion amounting to lack of jurisdiction. At once it must be
pointed out that the trial court merely issued writs of preliminary injunction.
However to grant the prayer of herein petitioners would effectively dismiss the
petition for certiorari and prohibition filed by private respondents with the trial
court even before the issues in the main case could be joined, which seems to
me to be a procedural lapse since the main case is already being resolved
when the only issue before the Court is the propriety of the ancillary or
provisional remedy.

The trial court granted the writs of preliminary injunction upon finding, after
hearing for the purpose, that private respondents sufficiently established that
"they are entitled to certain constitutional rights and that these rights have
been violated," 1 and that they have complied with the requirements of Sec. 3,
Rule 58, Rules of Court. 2 In support of its conclusion, the trial court
enumerated its reasons: first, inspite of the motion of respondent Fortune
Tobacco Corporation, petitioner Commissioner of Internal Revenue failed to
present the "daily manufacturer's sworn statements submitted to the BIR by
the taxpayer," supposedly stating that the total taxable sales of respondent
Corporation for the year 1992 is P16,686,372,295.00, which is the basis of
petitioner Commissioner's allegation that private respondents failed to pay the
correct taxes since it declared in its VAT returns that its total taxable sales in
1992 was only P11,736,658.580.00; second, the proper application of Sec.
142, par. (c), of the National Internal Revenue Code is a prejudicial question
which must first be resolved by the Court of Tax Appeals to determine whether
a tax liability which is an essential element of tax evasion exists before
criminal proceedings may be pursued; third, from the evidence submitted, it
appears that the Bureau of Internal Revenue has not yet made a final
determination of the tax liability of private respondents with respect to its ad
valorem, value added and income taxes for 1992; and, fourth, the precipitate
issuance by the prosecutors of subpoenas to private respondents one (1) day
after the filing of the complaint, consisting of about 600 pages, inclusive of the
14-page complaint, 17-page joint affidavit of eight (8) revenue officers and the
annexes attached thereto, and their hasty denial of private respondents' 135-
page motion to dismiss, after a recess of only about 20 minutes, show that
private respondents' constitutional rights may have been violated.

These circumstances as well as the other traces of discrimination mentioned

by the trial court, i.e., the announcement by the PCGG that it would take over
the various corporations associated with respondent Lucio C. Tan; the
creation of the Task Force on Revenue Cases among the functions of which is

176 | M s . N o l a i d a A g u i r r e
to "[i]nvestigate the tax liabilities of manufacturers that engage in well-known
tax evasion schemes, such as selling products through dummy marketing
companies to evade the payment of the correct internal revenue taxes," the
very charge against respondent Tan; the reclassification of respondent
corporation's best selling cigarettes as foreign brands thereby imposing upon
them a higher tax rate that would price them out of the market without notice
and hearing; the singling out of private respondents as subjects of a complaint
for tax evasion when other cigarette manufacturers have been using the same
basis private respondents are using in paying ad valorem, value added and
income taxes; and, the failure of petitioner Commissioner to wait for the
expiration of the 30-day period she herself gave to private respondents to pay
the supposed tax deficiencies before the filing of the complaint, obviously
impelled the trial court to issue the writ of preliminary injunction. Practically the
same grounds were found by the trial court when it provisionally restrained the
investigation of the two (2) other complaints, i.e., tax evasion complaints for
FYs 1990 and 1991.

On the basis of the findings of the trial court, it indeed appears that private
respondents' constitutional rights to due process of law and equal protection of
the laws may have been for the moment set aside, if not outright violated. The
trial court was convinced that the tell-tale signs of malice and partiality were
indications that the constitutional rights of private respondents may not have
been afforded adequate protection. Accordingly I see no manifest abuse,
much less grave, on the part of the trial court in issuing the injunctive writs.
Thus it is my opinion that the trial court did not commit grave abuse of
discretion in granting the assailed writs.

Well entrenched is the rule that the issuance of the writ of preliminary
injunction as an ancillary or preventive remedy to secure the rights of a party
in a pending case rests upon the sound discretion of the court hearing it. The
exercise of sound judicial discretion by the trial court in injunctive matters
should not be interfered with except in case of manifest abuse, 3 which is not
true in the case before us. Equally well settled is that under Sec. 7, Rule 58,
Rules of Court, 4 a wide latitude is given to the trial court. 5 This is because the
conflicting claims in an application for a provisional writ more often than not
involves a factual determination which is not the function of this Court, or even
respondent appellate court. Thus in the case at bar the ascertainment of the
actual tax liability, if any, based on the evidence already presented and still to
be presented, is more within the competence of the trial court before which the
parties have raised the very same issue in the main case. The truth or falsity
of the divergent statements that there was deliberate haste in issuing the
subpoenas and in denying private respondents' motion to dismiss may be
confirmed not by this Court but by the trial court during that hearing on the
merits.

In fine, no grave abuse of discretion can be attributed to a judge or body in the

issuance of a writ of preliminary injunction where a party was not deprived of
its day in court as it was heard and had exhaustively presented all its
arguments and defenses. 6 It is undisputed that in the case before us

177 | M s . N o l a i d a A g u i r r e
petitioners and private respondents were given sufficient time and opportunity
to present their respective pieces of evidence as well as arguments in support
of their positions.

Consequently, I concur with the finding of the majority that the trial court
committed no grave abuse of discretion. As respondent appellate court said,
"[g]rave abuse of discretion as a ground for issuance of writs of certiorari and
prohibition implies capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, or where the power is exercised in an
arbitrary or despotic manner by reason of passion, prejudice or personal
hostility amounting to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined, or to act at all in contemplation of law. 7 For such
writs to lie there must be capricious, arbitrary and whimsical exercise of
power, the very antithesis of the judicial prerogative in accordance with
centuries of both civil and common law traditions." 8 The trial court, to my
mind, is not guilty of any of these. Thus I accord respect to the exercise of the
trial court's sound judicial discretion and hold that the same should not be
interfered with.

To permanently enjoin the trial court from proceeding in any manner in Civil
Case No. Q-94-19790 and allow the preliminary investigation of the
complaints docketed as I.S. Nos. 93-508, 93-17942 and 93-584 with the
Department of Justice to resume until their final conclusion and
completion would go against the prevailing rule that courts should avoid
issuing a writ or preliminary injunction which would in effect dispose of the
main case without trial. 9 Due process considerations dictate that the assailed
injunctive writs are not judgments on the merits but merely orders for the grant
of a provisional and ancillary remedy to preserve the status quo until the
merits of the case can be heard. The hearing on the application for issuance
of a writ of preliminary injunction is separate and distinct from the trial on the
merits of the main case. The quantum of evidence required for one is different
from that for the other, so that it does not necessarily follow that if the court
grants and issues the temporary writ applied for the same court will now have
to rule in favor of the petition for prohibition and ipso facto make the
provisional injunction permanent.

If grave abuse of discretion attended the issuance of the writ of preliminary

injunction, then by all means nullify the abusive act -- but only that. The main
case should be allowed to proceed according to due process. The trial court
should receive the evidence from the contending parties, weigh and evaluate
the same and then make its findings. Clearly, the dismissal of the main case
as a result of a mere incident relative to the issuance of an ancillary writ is
procedurally awkward and violates due process, as it deprives private
respondents of their right to present their case in court and support it with its
evidence.

In resolving the fundamental issue at hand, i.e., whether the trial court
committed grave abuse of discretion in issuing the subject writs of preliminary
injunction, we cannot avoid balancing on the scales the power of the State to

178 | M s . N o l a i d a A g u i r r e
tax and its inherent right to prosecute perceived transgressors of the law on
one side, and the constitutional rights of a citizen to due process of law and
the equal protection of the laws on the other. Obviously the scales must tilt in
favor of the individual, for a citizen's right is amply protected by the Bill of
Rights of the Constitution. Thus while "taxes are the lifeblood of the
government," the power to tax has its limits, inspite of all its plenitude. Hence
in Commissioner of Internal Revenue v. Algue, Inc., 10 we said --

Taxes are the lifeblood of the government and so should be

collected without unnecessary hindrance. On the other hand,
such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good,
may be achieved.

xxx xxx xxx

It is said that taxes are what we pay for civilized society. Without
taxes, the government would be paralyzed for the lack of the
motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard-earned income
to taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for
its part is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by
those in the seat of power.

But even as we concede the inevitability and indispensability of

taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then came to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate . . . that the law has not been
observed.

In the instant case, it seems that due to the overzealousness in collecting

taxes from private respondents and to some accident of immediate
overwhelming interest which distressingly impassions and distorts judgment,
the State has unwittingly ignored the citizens' constitutional rights. Thus even
the rule that injunction will not lie to prevent a criminal prosecution has
admitted exceptions, which we enumerated in Brocka v. Enrile 11 and
in Ocampo IV v.Ombudsman 12 -- (a) to afford adequate protection to the
constitutional rights of the accused; (b) when necessary for the orderly

179 | M s . N o l a i d a A g u i r r e
administration of justice or to avoid oppression or multiplicity of actions; (c)
when there is a prejudicial question which is sub-judice; (d) when the acts of
the officer are without or in excess of authority; (e) where the prosecution is
under an invalid law, ordinance or regulation; (f) when double jeopardy is
clearly apparent; (g) when the court has no jurisdiction over the offense; (h)
where it is a case of persecution rather than prosecution; (i) where the
charges are manifestly false and motivated by lust for vengeance; (j) when
there is clearly no prima facie case against the accused and a motion to
quash on that ground has been denied; and, (k) to prevent a threatened
unlawful arrest.

Finally, courts indeed should not hesitate to invoke the constitutional

guarantees to give adequate protection to the citizens when faced with the
enormous powers of the State, even when what is in issue are only provisional
remedies, as in the case at hand. In days of great pressure, it is alluring to
take short cuts by borrowing dictatorial techniques. But when we do, we set in
motion an arbitrary or subversive influence by our own design which destroys
us from within. Let not the present case dangerously sway towards that trend.

For all the foregoing, I vote to dismiss the instant petition for lack of merit, and
to order the trial court to proceed with Civil Case No. Q-94-19790 with
reasonable dispatch.

PADILLA, J., dissenting:

Because of what I humbly perceive to be the crippling, chilling and fatal effects
of the majority opinion on the power of the state to investigate fraudulent tax
evasion in the country, I am constrained to dissent, as vigorously as I can,
from the majority opinion.

THE ISSUE

The main issue in this petition for review on certiorari is whether or not there
are valid grounds to stop or stay the preliminary investigation of complaints
filed by the Bureau of Internal Revenue (BIR) with the Department of Justice
(DOJ) Revenue Cases Task Force against private respondents for alleged
fraudulent tax evasion for the years 1990, 1991 and 1992. Stated differently,
the issue is: did respondent trial court commit grave abuse of discretion
amounting to lack or excess of jurisdiction in stopping the subject preliminary
investigation?

THE CASE AND THE FACTS

On 7 September 1993, petitioner Commissioner of Internal Revenue filed a

complaint with the DOJ against private respondents Fortune Tobacco
Corporation (hereinafter referred to simply as "Fortune"), its corporate officers,
nine (9) other corporations, and their respective corporate officers, for alleged
fraudulent tax evasion for the year 1992.

180 | M s . N o l a i d a A g u i r r e
The complaint, docketed as I.S. No. 93-508, was referred to the DOJ Task
Force on Revenue Cases which found sufficient grounds to further investigate
the allegation that Fortune fraudulently evaded payment of income, value-
added and ad valorem taxes for the year 1992 thus depriving the Government
of revenue allegedly in excess of seven and one-half (7 1/2) billion pesos.

The fraudulent scheme allegedly adopted and employed by private

respondents, is described by the BIR as follows:

In order to evade payment of said taxes, [Fortune] made fictitious

and simulated sales of its cigarette products to non-existent
individuals and to entities incorporated and existing only for the
purpose of such fictitious sales by declaring registered wholesale
prices with the BIR lower than [Fortune's] actual wholesale prices
which are required for determination of [Fortune's] correct ad
valorem, income and value-added tax liabilities. These "ghost
wholesale buyers" then ostensibly sold the product to consumers
and other wholesalers/retailers at higher wholesale prices
determined by [Fortune]. The tax returns and manufacturer's
sworn statements filed by [Fortune] as aforesaid declare the
fictitious sales it made to the conduit corporations and non-
existent individual buyers as its gross sales. 1

Based on the initial evaluation of the DOJ Task Force, private respondents
were subpoenaed and required to submit their counter-affidavits not later than
20 September 1993. 2 Instead of filing counter-affidavits, private respondents
filed a "Verified Motion to Dismiss; Alternatively, Motion to Suspend." 3 Said
motion was denied by the DOJ Task Force and treated as private
respondents' counter-affidavit, in an order dated 15 October 1993. 4

Private respondents sought reconsideration of the aforementioned order of

denial and likewise filed motions to require submission by the Bureau of
Internal Revenue (BIR) of certain documents to support the verified motion to
dismiss or suspend the investigation, and for the inhibition of the state
prosecutors assigned to the case for alleged lack of impartiality. 5

On 20 December 1993, an omnibus order was issued by the investigating

Task Force: 6

a. denying reconsideration;

b. denying suspension of investigation; and

c. denying the motion to inhibit the investigating state

prosecutors.

Thereupon, or on 4 January 1994, private respondents went to court. They

filed a petition for certiorari and prohibition with prayer for preliminary
injunction in the Regional Trial Court, Branch 88, Quezon City, praying that

181 | M s . N o l a i d a A g u i r r e
the proceedings (investigation) before the DOJ Task Force be stopped. The
petition was docketed as Civil Case No. Q-94-19790. 7

On 17 January 1994, petitioners filed with the trial court a motion to dismiss
the aforesaid petition. 8 On 25 January 1994, the trial court issued instead an
order granting the herein private respondents' prayer for a writ of preliminary
injunction,9 to stop the preliminary investigation in the DOJ Revenue Cases
Task Force.

On 26 January 1994, private respondents filed with the trial court a Motion to
Admit Supplemental Petition seeking this time the issuance of another writ of
preliminary injunction against a second complaint of the BIR with the DOJ
docketed as I.S. No. 93-17942 likewise against herein private respondents for
fraudulent tax evasion for the year 1990. Private respondents averred in their
aforesaid motion with the trail court that --

a. no supporting documents nor copies of the complaint were attached to the

subpoena in I.S. No. 93-17942;

b. the abovementioned subpoena violates private respondents' constitutional

rights to due process, equal protection and presumption of innocence;

c. I.S. No. 93-17942 is substantially the same as I.S. No. 93-508 except that it
concerns the year 1990;

d. no tax assessment has been issued by the Commissioner of Internal

Revenue and since taxes already paid have not been challenged by the BIR,
no tax liability exists;

e. Assistant Quezon City Prosecutor Leopoldo E. Baraquia was a former

classmate of then Presidential Legal Counsel Antonio T. Carpio, thus, he
cannot conduct the preliminary investigation in an impartial manner.

On 28 January 1994, private respondents filed with the trial court a second
supplemental petition 10 this time seeking to stay the preliminary investigation
in I.S. No. 93-548, a third BIR complaint with the DOJ against private
respondents for fraudulent tax evasion for the year 1991.

On 31 January 1994, the trial court admitted the two (2) supplemental
petitions and issued a temporary restraining order stopping the preliminary
investigation of the two (2) later complaints with the DOJ against private
respondents for alleged fraudulent tax evasion for the years 1990 and 1991.

On 7 February 1994, the trial court also issued an order denying herein
petitioners' motion to dismiss private respondents' petition seeking to stay the
preliminary investigation in I.S. No. 93-508. The trial court ruled that the issue
of whether Sec. 127(b) of the National Internal Revenue (Tax) Code should be
the basis of herein private respondents' tax liability, as contended by the
Bureau of Internal Revenue, or whether it is Sec. 142(c) of the same code that
applies, as argued by herein private respondents, should first be settled
182 | M s . N o l a i d a A g u i r r e
before any criminal complaint for fraudulent tax evasion can be initiated or
maintained.

On 14 February 1994, the trial court issued a supplemental writ of preliminary

injunction this time enjoining the preliminary investigations of the two (2) other
BIR complaints with the DOJ for fraudulent tax evasion. The trial court then
denied motions to dismiss the two (2) supplemental petitions, filed by therein
respondents Commissioner of Internal Revenue and the DOJ Revenue Cases
Task Force investigators.

On 7 March 1994, herein petitioners filed with this Court a petition

for certiorari and prohibition with prayer for preliminary injunction which
questioned the orders issued by the trial court granting the private
respondents' prayer for preliminary injunction to stop the preliminary
investigation in the DOJ of the BIR's complaints for fraudulent tax evasions
against private respondents and denying petitioners' motions to dismiss
private respondents' various petitions with the trial court. The petition was
referred by this Court to the Court of Appeals which has original concurrent
jurisdiction over the petition.

On 19 December 1994, the Court of Appeals rendered a decision which, in

part, reads:

In making such conclusion the respondent Court (the Regional

Trial Court of Quezon City, Branch 88) must have understood
from herein petitioner Commissioner's letter-complaint of 14
pages and the joint affidavit of eight revenue officers of 17 pages
attached thereto and its annexes, that the charge against herein
respondents is for tax evasion for non-payment by herein
respondent Fortune of the correct amounts of income tax, ad
valorem tax and value added tax, not necessarily "fraudulent tax
evasion". Hence, the need for previous assessment of the correct
amount by herein petitioner Commissioner before herein
respondents may be charged criminally. Certiorari will not be
issued to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a Court acts within its
jurisdiction, any alleged error committed in the exercise of its
jurisdiction, will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil
action of certiorari.

The questioned orders issued after hearing being but

interlocutory, review thereof by this court is inappropriate until
final judgment is rendered, absent a showing of grave abuse of
discretion on the part of the issuing court. The factual and legal
issues involved in the main case still before the respondent Court
are best resolved after trial. Petitioners, therefore, instead of
resorting to this petition for certiorari and prohibition should have
filed an answer to the petition as ordained in Section 4, Rule 16,

183 | M s . N o l a i d a A g u i r r e
in connection with Rule 11 of the Revised Rules of Court,
interposing as defense or defenses the objection or objections
raised in their motion to dismiss, then proceed to trial in order that
thereafter the case may be decided on the merits by the
respondent Court. In case of an adverse decision, they may
appeal therefrom by which the entire record of the case would be
elevated for review. Therefore, certiorari and prohibition resorted
to by herein petitioners will not lie in view of the remedy open to
them. Thus, the resulting delay in the final disposition of the case
before the respondent Court would not have been incurred.

Grave abuse of discretion as a ground for issuance of writs

of certiorari and prohibition implies capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, or
where the power is exercised in an arbitrary or despotic manner
by reason of passion, prejudice, or personal hostility, amounting
to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined, or to act at all in contemplation of law. For such
writs to lie, there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of both civil law and common law
traditions. Certiorari and prohibition are remedies narrow in scope
and inflexible in character. They are not general utility tools in the
legal workshop. Their function is but limited to correction of
defects of jurisdiction solely, not to be used for any other purpose,
such as to cure errors in proceedings or to correct erroneous
conclusions of law or fact. Due regard for the foregoing teachings
enunciated in the decision cited can not bring about a decision
other than what has been reached herein.

Needless to say, the case before the respondent Court involving

those against herein respondents for alleged non-payment of the
correct amount due as income tax, ad valorem tax and value-
added tax for the years 1990, 1991, and 1992 is not ended by this
decision. The respondent Court is still to try the case and decide
it on the merits. All that is decided here is but the validity of the
orders of the respondent Court granting herein respondents'
application for preliminary injunction and denying herein,
petitioners' motion to dismiss. If upon the facts established after
trial and the applicable law, dissolution of the writ of preliminary
injunction allowed to be issued by the respondent Court is called
for and a judgment favorable to herein petitioners is demanded,
the respondent Court is duty bound to render judgment
accordingly.

WHEREFORE, the instant petition for certiorari and prohibition

with application for issuance of restraining order and writ of
preliminary injunction is DISMISSED. Costs de officio. (references
to annexes and citations omitted) 11

184 | M s . N o l a i d a A g u i r r e
Petitioners' motion for reconsideration of the aforequoted judgment was
denied by respondent appellate court on 23 February 1995, hence, the
present petition for review on certiorari based on the following grounds:

GROUNDS FOR THE PETITION

THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN HOLDING THAT:

I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO

JUSTIFY THE SUSPENSION OF THE PRELIMINARY
INVESTIGATION

II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS,

EQUAL PROTECTION AND PRESUMPTION OF INNOCENCE
WERE VIOLATED; ON THE CONTRARY, THE STATE ITSELF
WAS DEPRIVED OF DUE PROCESS

III. THE ADMISSION OF PRIVATE RESPONDENTS'

SUPPLEMENTAL PETITIONS WERE PROPER

IV. THERE WAS SELECTIVE PROSECUTION

V THE FACTUAL ALLEGATIONS IN THE PETITION ARE

HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS
BASED ON JURISDICTIONAL GROUNDS

VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A

DECISION ON THE MERITS OF THE PETITION BEFORE THE
LOWER COURT 12

DISCUSSION

At the outset, it should be pointed out that respondent appellate court's

observations to the effect that herein petitioners' recourse to said court
through a special civil action of certiorari and prohibition was improper (as
discussed in the aforequoted portion of the CA decision) actually and
appropriately apply to private respondents when they resorted to the remedy
of certiorari and prohibition with application for preliminary injunction with the
respondent Regional Trial Court to stop the preliminary investigation being
conducted by the DOJ Revenue Cases Task Force of the BIR complaints for
fraudulent tax evasion against private respondents. It is to be noted that the
proceedings before the investigators (preliminary investigation before the DOJ
Revenue Cases Task Force) are far from terminated. In fact, private
respondents were merely subpoenaed and asked to submit counter-affidavits.
They instead resorted to the courts for redress after denial of their motion to
dismiss. The proper procedure on the part of private respondents after their
motion to dismiss was denied by the investigating panel, should have been an
appeal from such an adverse resolution to the Secretary of Justice, not a
185 | M s . N o l a i d a A g u i r r e
special civil action for certiorariand prohibition with application for preliminary
injunction before the respondent trial court.

As a corollary, the respondent trial court should have desisted from

entertaining private respondents' original petition for certiorari and prohibition
with prayer for preliminary injunction because a court order to stop a
preliminary investigation is an act of interference with the investigating officers'
discretion, absent any showing of grave abuse of discretion on the part of the
latter in conducting such preliminary investigation.

The rule is settled that the fiscal (prosecutor) cannot be prohibited from
conducting and finishing his preliminary investigation. 13 The private
respondents' petition before the trial court in this case was clearly premature
since the case did not fall within any of the exceptions when prohibition lies to
stop a preliminary investigation. 14

The decision of the majority in this case clearly constitutes an untenable

usurpation of the primary duty and function of the prosecutors to conduct the
preliminary investigation of a criminal offense and the power of the Secretary
of Justice to review the resolution of said prosecutors.

In Guingona, supra, the Court en banc ruled thus:

"As a general rule, an injunction will not be granted to restrain a

criminal prosecution". With more reason will injunction not lie
when the case is still at the preliminary investigation stage. This
Court should not usurp the primary function of the City Fiscal to
conduct the preliminary investigation of the estafa charge and of
the petitioners' countercharge for perjury, which was consolidated
with the estafa charge.

The City Fiscal's office should be allowed to finish its investigation

and make its factual findings. This Court should not conduct the
preliminary investigation. It is not a trier of facts. (Reference to
footnotes omitted).

Before resolving the main issue in this petition, as earlier stated in this opinion,
several preliminary issues raised by private respondents in their "Verified
Motion To Dismiss; Alternatively, Motion To Suspend" need to be addressed,
namely:

A.) Private respondent Fortune's right to due process and equal protection of
the laws have been violated because of the subject preliminary investigation
before the DOJ Revenue Cases Task Force.

B.) Jurisdiction over Fortune's tax liability pertains to the Court of Tax Appeals
and not the Regional Trial Courts, thus, the Department of Justice, through its
state prosecutors, is without jurisdiction to conduct the subject preliminary
investigation.

186 | M s . N o l a i d a A g u i r r e
C.) The complaints for fraudulent tax evasion are unsupported by any
evidence to serve as basis for the issuance of a subpoena.

D.) The lack of final determination of Fortune's tax liability precludes criminal
prosecution.

1. On the alleged violation of Fortune's rights to due process and equal

protection of the laws, I fail to see any violation of said rights.

Fortune, its corporate officers, nine (9) other corporations and their respective
corporate officers alleged by the BIR to be mere "dummies" or conduits of
Fortune in the fraudulent tax evasion on the Government, were given the
opportunity to file their counter-affidavits to refute the allegations in the BIR
complaints, together with their supporting documents. It is only after
submission of counter-affidavits that the investigators will determine whether
or not there is enough evidence to file in court criminal charges for fraudulent
tax evasion against private respondents or to dismiss the BIR complaints. At
this stage of the preliminary investigation, the constitutional right of private
respondents to due process is adequately protected because they have been
given the opportunity to be heard, i.e., to file counter-affidavits.

Nor can it be said, as respondents falsely argue, that there was no ground or
basis for requiring the private respondents to file such counter-affidavits. As
respondent Court of Appeals admitted in its here assailed decision, the BIR
complaint (1st complaint) signed by the Commissioner of Internal Revenue
consisted of fourteen (14) pages supported by an annex consisting of
seventeen (17) pages in the form of a joint affidavit of eight (8) revenue
officers, to which were attached voluminous documents as annexes which,
when put together, constituted a formidable network of evidence tending to
show fraudulent tax evasion on the part of private respondents. When, on the
basis of such BIR complaint and its supporting documents, the investigating
Task Force saw a need to proceed with the inquiry and, consequently,
required private respondents to file their counter-affidavits, grave abuse of
discretion could hardly be imputed to said investigators.

2. On respondents' assertions that there is selective prosecution (no equal

protection of the laws) since other corporations similarly situated as they are,
are not being prosecuted and/or investigated, the argument is quite ludicrous,
to say the least. As pointed out by the Solicitor General, more than one
thousand (1,000) criminal cases for tax evasion have been filed in Metro
Manila alone. This number, even if it seems to represent but a small fraction of
"cases of actual tax evasion, undoubtedly show that respondents are not
being singled out. It is of note that the memorandum issued by the President
of the Philippines creating a task force to investigate tax evasion schemes of
manufacturers was issued three (3) months before the complaints against
private respondents were filed. This makes any charge of selective
prosecution baseless since it could not then be shown, nor has it been shown
by private respondents that only they (respondents) were being

187 | M s . N o l a i d a A g u i r r e
investigated/prosecuted. In fact, up to this time, respondents have failed to
substantiate this allegation of selective prosecution against them.

Moreover, assuming arguendo that other corporate manufacturers are guilty of

using similar schemes for tax evasion, allegedly used by respondents, the
Solicitor General correctly points out that the remedy is not dismissal of the
complaints against private respondents or stoppage of the investigations of
said complaints, but investigation and prosecution of other similar violators
(fraudulent tax evaders).

3. Private respondents' allegations that the Assistant Quezon City Prosecutor

(among those investigating the complaints against them) lacks impartiality, are
so unsubstantiated, imaginary, speculative and indeed puerile. They need not
be elaborately refuted as a mere denial would suffice under the
circumstances.

4. On the issue of jurisdiction, the rule is settled that city and state prosecutors
are authorized to conduct preliminary investigations of criminal offenses under
the National Internal Revenue Code. Said criminal offenses are within the
jurisdiction of the Regional Trial Court. 15

5. The issue of whether or not the evidence submitted by petitioners is

sufficient to warrant the filing of criminal informations for fraudulent tax
evasion is prematurely raised. 16 To argue, as private respondents do, that one
piece of evidence, i.e. the Daily Manufacturer's Sworn Statements, should be
produced at a particular stage of the investigation, in order to determine the
probable guilt of the accused, is to dictate to the investigating officers the
procedure by which evidence should be presented and examined. Further, "a
preliminary investigation is not the occasion for the full and exhaustive display
of the parties' evidence; it is for the presentation of such evidence only as may
engender a well grounded belief that an offense has been committed and that
the accused is probably guilty thereof . . ." 17

Besides, the preliminary investigation has not yet been terminated. The proper
procedure then should be to allow the investigators, who undeniably have
jurisdiction, to conduct and finish the preliminary investigation and to render a
resolution. The party aggrieved by said resolution can then appeal it to the
Secretary of Justice, 18 as required by the settled doctrine of exhaustion of
administrative remedies. What special qualification or privilege, I may ask, do
private respondents have, particularly Fortune and Lucio Tan, as to exempt
them from the operation of this rooted principle and entitle them to immediate
judicial relief from the respondent trial court in this case?

6. The respondents Court of Appeals and the trial court maintain, as private
respondents do, that a previous assessment of the correct amount of taxes
due is necessary before private respondents may be charged criminally for
fraudulent tax evasion. This view is decidedly not supported by law and
jurisprudence.

188 | M s . N o l a i d a A g u i r r e
The lack of a final determination of respondent Fortune's exact or correct tax
liability is not a bar to criminal prosecution for fraudulent tax evasion. While a
precise computation and assessment is required for a civil action to collect a
tax deficiency, the National Internal Revenue Code does not require such
computation and assessment prior to criminal prosecution for fraudulent tax
evasion. Thus, as this Court had earlier ruled --

An assessment of a deficiency is not necessary to a criminal

prosecution for willful attempt to defeat and evade the income tax.
A crime is complete when the violator has knowingly and willfully
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. 19

It follows that, under the Ungab doctrine, the filing of a criminal complaint for
fraudulent tax evasion would be proper even without a previous
assessment of the correct tax.

The argument that the Ungab doctrine will not apply to the case at bar
because it involves a factual setting different from that of the case at bar, is
erroneous. The Ungab case involved the filing of a fraudulent income tax
return because the defendant failed to report his income derived from sale of
banana saplings. In the case at bar, the complaints filed before the DOJ for
investigation charge private wholesale respondents with fraudulent
concealment of the actual price of products sold through declaration of
registered wholesale prices lower than the actual wholesale prices, resulting in
underpayment of income, ad valorem, and value-added taxes. Both cases
involve, therefore, fraudulent schemes to evade payment to the Government
of correct taxes.

The Court in Ungab stated further as follows:

The petitioner also claims that the filing of the informations was
precipitate and premature since the Commissioner of Internal
Revenue has not yet resolved his protests against the
assessment of the Revenue District Officer; and that he was
denied recourse to the Court of Tax Appeals.

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
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.
189 | M s . N o l a i d a A g u i r r e
 The contention is made, and is here rejected, that an assessment
of the deficiency tax due is necessary before the taxpayer can be
prosecuted criminally for the charges preferred. The crime is
complete when the violator has, as in this case, knowingly and
wilfully filed fraudulent returns with intent to evade and defeat a
part or all of the tax. [Guzik vs. U.S., 54 F2d 618] (emphasis
supplied)

The ruling in the Ungab case is undisputably on all fours with, and conclusive
to the case at bar. It should be stressed and pointed out that in Ungab the
Court denied the prayer of therein petitioner to quash informations for tax
evasion that had already been filed in court. In other words, the prosecutors
in Ungab had already found probable cause to try therein petitioner for tax
evasion. Despite this fact there was no finding by the Court of violation of any
of petitioner's constitutional rights.

In the present case, private respondents were merely being required to submit
counter-affidavits to the complaints filed. If no violation of constitutional rights
was committed in Ungab, upon the filing of the criminal informations in Court,
how can there now be a violation of private respondents' constitutional rights
upon a requirement by the investigators that private respondents submit their
counter-affidavits.

The Court has not been presented any compelling or persuasive argument
why the Ungab doctrine has to be abandoned. It is good law and should be
the nemesis of fraudulent tax evaders. It gives teeth to the proper enforcement
of our tax laws.

7. Private respondents argue that a case earlier file before the Court of Tax
Appeals (CTA) and now before this Court 20 involves a prejudicial question
justifying or requiring suspension of the preliminary investigation of the
complaints for fraudulent tax evasion against private respondents. Said case
involves the validity of BIR Revenue Memorandum Circular No. 37-93 dated 1
July 1993 which reclassified cigarettes manufactured by respondent Fortune.
The circular subjects cigarettes with brand names "Hope", "More" and
"Champion" to a 10% increase in ad valorem taxes starting 2 July 1993.
Respondent Fortune has assailed the validity of said revenue circular and the
case has yet to be decided with finality.

But the foregoing issue is irrelevant to the issue of fraudulent tax evasion
involved in this case. A final decision either upholding or nullifying the
aforementioned revenue circular will not affect private respondents' criminal
liability for fraudulent tax evasion, for the following reasons:

a) The revenue circular involved in the other case pertains

to ad valorem taxes on sales of Fortune's named cigarette brands after 1 July
1993 while the fraudulent tax evasion involved in the present case pertains to
years 1990, 1991 and 1992.

190 | M s . N o l a i d a A g u i r r e
b) The fraudulent scheme allegedly utilized by Fortune and its dummies, as
described in the BIR complaints pending with the DOJ Revenue Cases Task
Force, which resulted in the misdeclaration/underdeclaration of Fortune's
gross sales receipts resulting in turn in underpayment of ad valorem, value-
added and income taxes was actually a "built-in" tax evasion device already in
place even before the assailed revenue circular was issued. The scheme is
particularly designed to result in the underpayment of ad valorem, value-
added and income taxesregardless of the tax rate fixed by the government on
cigarette products.

8. Respondents also argue that the issue of whether Section 127(b) or Section
142(c) of the National Internal Revenue Code is applicable to private
respondents should first be settled before any criminal cases can be filed
against them. This argument is both misleading and erroneous.

The aforementioned provisions read:

Sec. 127. . . .

(b) Determination of gross selling price of goods subject to ad

valorem tax. -- Unless otherwise provided, the price, excluding
the value-added tax, at which the goods are sold at wholesale in
the place of production or through their sales agents to the public
shall constitute the gross selling price. If the manufacturer also
sells or allows such goods to be sold at wholesale price in
another establishment of which he is the owner or in the profits at
which he has an interest, the wholesale price in such
establishment shall constitute the gross selling price. Should such
price be less than the cost of manufacture plus expenses incurred
until the goods are finally sold, then a proportionate margin of
profit, not less than 10% of such manufacturing cost and
expenses, shall be added to constitute the gross selling price.

Sec. 142 . . .

(c) Cigarettes packed in twenties. -- There shall be levied,

assessed and collected on cigarettes packed in twenties an ad
valorem tax at the rates prescribed below based on the
manufacturer's registered wholesale price:

(1) On locally manufactured cigarettes bearing a foreign brand,

fifty-five percent (55%): Provided, That this rate shall apply
regardless of whether or not the right to use or title to the foreign
brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a
cigarette bears a foreign brand, the listing of brands
manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern.

191 | M s . N o l a i d a A g u i r r e
 (2) On other locally manufactured cigarettes, forty-five percent
(45%).

Duly registered or existing brands of cigarettes packed in twenties

shall not be allowed to be packed in thirties.

When the existing registered wholesale price, including tax, of

cigarettes packed in twenties does not exceed P4.00 per pack,
the rate shall be twenty percent (20%).

As the Solicitor General correctly points out, the two (2) aforequoted
provisions of the Tax Code are both applicable in determining the amount of
tax due. Section 127(b) provides for the method of determining the gross
wholesale price to be registered with the BIR while Section 142(c) provides
for the rate of ad valorem tax to be paid. Said rate is expressed as a
percentage of the registered gross selling price which is determined, in turn,
based on Section 127(b).

The aforementioned two (2) provisions of the Tax Code are certainly not
determinative of private respondents' criminal liability, if any. A reading of the
BIR complaints pending with the DOJ Revenue Cases Task Force shows that
private respondent Fortune is being accused of using "dummy" corporations
and business conduits as well as non-existent individuals and entities to
enable the company (Fortune) to report gross receipts from sales of its
cigarette brands lower than gross receipts which are actually derived from
such sales. Such lower gross receipts of the company, as reported by
respondent Fortune thus result in lower ad valorem, value-added and income
taxes paid to the government. Stated a little differently, respondent Fortune is
accused of selling at wholesale prices its cigarette brands through dummy
entities in the profits of which it has a controlling interest. Under Section
127(b), the gross selling price of the goods should be the wholesale price of
such dummy -- entities to its buyers but it is alleged by the government that
respondent Fortune has purposely made use of such entities to evade
payment of higher but legally correct taxes.

9. As to respondents' additional claim that with regard to ad valorem tax, they

merely based their liability on the wholesale price registered with the Bureau
of Internal Revenue (BIR) following the method used by all cigarette
manufacturers, said claim cannot absolve Fortune and its officers from
criminal liability. 21 Payment of ad valoremand other taxes based on the
wholesale price registered with the BIR presupposes and naturally assumes
that the registered wholesale price correspond to the actual wholesale prices
at which the manufacturer sells the product. If a manufacturer makes use of a
method or device to make it appear that products are sold at a wholesale price
lower than the amounts that the manufacturer actually realizes from such
wholesale of its products, as what respondent Fortune is accused of doing,
through the use of dummy entities, then there arises criminal liability under the
penal provisions of the Tax Code. This is clear from Section 127(b)
aforequoted in relation to the penal provisions of the Tax Code.

192 | M s . N o l a i d a A g u i r r e
10. Private respondents contend that the registration with the BIR of
manufacturer's wholesale price and the corresponding close supervision and
monitoring by BIR officials of the business operations of cigarette companies,
ensure payment of correct taxes. The argument is baseless. It does not follow
that the cited procedure is a guarantee against fraudulent schemes resorted to
by tax-evading individuals or entities. It only indicates that taxpayers bent on
evading payment of taxes would explore more creative devices or
mechanisms in order to defraud the government of its sources of income even
under its very nose. It is precisely to avoid and detect cases like this that the
President issued a Memorandum on 1 June 1993 creating a task force to
investigate tax liabilities of manufacturers engaged in tax evasion schemes,
such as selling products through dummy marketing companies at
underdeclared wholesale prices registered with the BIR.

Moreover, the Manufacturer's Declaration which is the basis for determining

the "Manufacturer's Registered Wholesale Price" (which in turn becomes the
basis for the imposition of ad valorem tax), even if verified by revenue officers
and approved by the Commissioner of Internal Revenue, does not necessarily
reflect the actual wholesale price at which the cigarettes are sold. This is why
manufacturers are still required to file other documents, like the "daily
manufacturer's sworn statements" in order to assist in determining whether or
not correct taxes have been paid. In fine, even if BIR officials may have
verified Fortunes' BIR registered wholesale price for its products, the same
does not estop or preclude the Government from filing criminal complaints for
fraudulent tax evasion based on evidence subsequently gathered to the effect
that such BIR registered wholesale prices were a misdeclaration or
underdeclaration of the actual wholesale price. It is hornbook law that the
Government is not bound or estopped by the mistakes, inadvertence, and
what more, connivance of its officials and employees with fraudulent schemes
to defraud the Government. 22

Even on the assumption that official duty of BIR officials and employees has
been regularly performed, the allegations in the complaints are clear enough
in that private respondents allegedly made use of schemes to make it appear
that respondent Fortune's tax liabilities are far less than what it (Fortune)
should be actually liable for under the law. The very nature of the offense for
which respondents are being investigated, certainly makes
regularity/irregularity in the performance of official duties irrelevant.

It should also be pointed out that the offense allegedly committed by private
respondents' consists in' the intentional use of "dummy" entities to make it
appear that respondent Fortune sells its products at lower wholesale prices,
which prices would correspond to the wholesale prices registered by Fortune
with the BIR, but not to the prices at which its products are sold by Fortune's
dummies. The difference between Fortune's BIR-reported wholesale prices
and the prices at which its dummies sell Fortune's products thus constitutes
amounts for which Fortune should actually incur tax liabilities but for which it
allegedly never paid taxes because of the operation of the tax evasion
scheme founded on a combined underdeclaration with the BIR of Fortune's

193 | M s . N o l a i d a A g u i r r e
wholesale price of its products and the sale of such products to is "dummy"
corporations or to non- existing individuals or entities. This is the obvious
reason why the government has sought to investigate the alleged tax evasion
scheme purportedly utilized by respondent Fortune and its dummy
corporations.

Based on the foregoing discussions, it follows that the answer to the main
issue formulated earlier in this opinion is in the negative since the private
respondents have not shown that there exist, in this case, exceptional grounds
removing it from the general rule that preliminary investigations of criminal
offenses and criminal prosecutions cannot be stayed or enjoined by the
courts. 23

11. The trial court's ruling that private respondents' constitutional rights have
been violated, rests on untenable grounds. It must be remembered, in this
connection, that exceptions to a settled rule, by their nature, must be strictly
applied. And any claim to an exception must be fully substantiated. In other
words, it must have real basis for existing.

The exceptions to the general rule against restraining orders or injunctions to

stop preliminary investigations or criminal prosecutions are enumerated
in Brocka vs. Enrile. 24 One specific exception is when an injunction is needed
for the adequate protection of the accused's constitutional rights. The
exception definitely does not apply in the case at bar.

Before proceeding to illustrate this point, it is important to stress that in a

preliminary investigation, the investigating officers' sole duty is to determine,
before the presentation of evidence by the prosecution and by the defense, if
the latter should wish to present any, whether or not there are reasonable
grounds for proceeding formally against the accused. 25 This is in conformity
with the purpose of a preliminary investigation which is to secure the innocent
against hasty, malicious, and oppressive prosecutions, and to protect him
from an open and public accusation of crime, from the trouble, expense and
anxiety of public trial, and also to protect the state from useless and expensive
trials.26 As restated by the illustrious late Chief Justice Manuel V. Moran --

. . . the purpose of a preliminary investigation is to afford the

accused an opportunity to show by his own evidence that there is
no reasonable ground to believe that he is guilty of the offense
charged and that, therefore, there is no good reason for further
holding him to await trial in the Court of First Instance. 27

Prescinding from the tenets above-discussed, it is clear from the inception that
there had been no violation of private respondents' constitutional rights to
presumption of innocence, due process and equal protection of the laws. The
preliminary investigation, I repeat, has not yet been terminated. At this stage,
only the complainant has finished presenting its affidavits and supporting
documents. Obviously then, the investigating panel found that there were
grounds to continue with the inquiry, hence, the issuance of subpoena and an
order for the submission of counter-affidavits by private respondents. Instead
194 | M s . N o l a i d a A g u i r r e
of filing counter-affidavits, private respondents filed a Verified Motion to
Dismiss; Alternatively, Motion to Suspend. At this point, it may be asked, how
could private respondents' constitutional right to presumption of innocence be
violated when, in all stages of the preliminary investigation, they were
presumed innocent? Declaring that there are reasonable grounds to continue
with the inquiry is not the same as pronouncing that a respondent is guilty or
probably guilty of the offense charged.

12. Private respondents cannot also claim that they were not afforded due
process and equal protection of the laws. In fact, the investigating panel was
concerned with just that when it ordered the submission of private
respondents' counter-affidavits. This procedure afforded private respondents
the opportunity to show by their own evidence that no reasonable grounds
exist for the filing of informations against them. Furthermore, contrary to the
findings of the trial court and the Court of Appeals, the alleged haste by which
the subpoena was issued to private respondents (the day after the filing of the
600-page annexed complaint) does not lessen the investigating panel's ability
to study and examine the complainant's evidence. Neither does such act merit
the conclusion that the investigating panel was less than objective in
conducting the preliminary investigation. Consequently, the general and
settled rule must apply that the courts cannot interfere with the discretion of
the investigating officer to determine the specificity and adequacy of the
averments in the complaint filed, except in very exceptional
circumstances, 28 which do not obtain here.

Therefore, private respondents' act of filing a petition for certiorari and

prohibition before the Regional Trial Court was rather untimely and uncalled
for, not only because private respondents failed to exhaust their administrative
remedies but also because the grounds cited in their petition before the trial
court were highly speculative -- more fancied than real.

Finally, Hernandez v. Albano (19 SCRA 95), cited by the majority to support
the conclusion that preliminary investigation can be stayed by the courts,
clearly states that preliminary investigation can be stayed by court order only
in extreme cases. Hernandez also states that:

By statute, the prosecuting officer of the City of Manila and his

assistants are empowered to investigate crimes committed within
the city's territorial jurisdiction. Not a mere privilege, it is the
sworn duty of a Fiscal to conduct an investigation of a criminal
charge filed with his office. The power to investigate postulates
the other obligation on the part of the Fiscal to investigate
promptly and file the case of as speedily. Public interest -- the
protection of society -- so demands. Agreeably to the foregoing, a
rule -- now of long standing and frequent application -- was
formulated that ordinarily criminal prosecution may not be blocked
by court prohibition or injunction. Really, if at every turn
investigation of a crime will be halted by a court order, the
administration of criminal justice will meet with an undue setback.

195 | M s . N o l a i d a A g u i r r e
 Indeed, the investigative power of the Fiscal may suffer such a
tremendous shrinkage that it may end up in hollow sound rather
than as a part and parcel of the machinery of criminal justice.

It should be noted that while Hernandez lays down the extreme grounds when
preliminary investigation of criminal offenses may be restrained by the courts,
the dispositive portion of the decision affirmed the decision of the trial court
dismissing a petition for certiorari and prohibition with prayer for preliminary
injunction filed to stay the preliminary investigation of criminal complaints
against petitioner Hernandez.

The other case cited by the majority to support its decision in this case, Fortun
v. Labang 29 involves criminal complaints filed against a judge of the Court of
First Instance by disgruntled lawyers who had lost their cases in the judge's
sala. Clearly, the basis for the Court to stay preliminary investigation
in Fortun was a finding that said complaints were filed merely as a form of
harassment against the judge and which "could have no other purpose than to
place petitioner-judge in contempt and disrepute". The factual situation in the
case at bar is poles apart from the factual situation in Fortun.

Further, in Fortun there was an express finding by the Court that complaints
against judges of the Courts of First Instance are properly filed with the
Supreme Court under Executive Order No. 264 (1970) since the Court is
considered as the department head of the judiciary. In the present case it
cannot be disputed that jurisdiction to conduct preliminary investigation over
fraudulent tax evasion cases lies with the state prosecutors (fiscals).

It cannot therefore be denied that neither Hernandez nor Fortun supports with
any plausibility the majority's disposition of the issues in the present case. On
the other hand, it appears to me all too clearly that the majority opinion, in this
case, has altered the entire rationale and concept of preliminary investigation
of alleged criminal offenses. That alteration has, of course, served the
purposes of distinguished private respondents. But I will have no part in the
shocking process especially in light of the fact that Government cries out that
the people have beencheated and defrauded of their taxes to the tune
allegedly of P25.6 billion pesos, and yet, it is not given by this Court even a
beggar's chance to prove it!

13. There is great and vital public interest in the successful investigation and
prosecution of criminal offenses involving fraudulent tax evasion. Said public
interest is much more compelling in the present case since private
respondents are not only accused of violating tax and penal laws but are also,
as a consequence of such violations, possibly depriving the government of a
primary source of revenue so essential to the life, growth and development of
the nation and for the prestation of essential services to the people.

14. It should be made clear, at this point, however, that this opinion is not a
pre-judgment or pre-determination of private respondents' guilt of the offense
charged. No one, not even the prosecutors investigating the cases for
fraudulent tax evasion, is, at this stage of the proceedings, when private
196 | M s . N o l a i d a A g u i r r e
respondents have yet to file their counter-affidavits, in a position to determine
and state with finality or conclusiveness whether or not private respondents
are guilty of the offense charged in the BIR complaints, now with the DOJ
Revenue Cases Task Force. It is precisely through the preliminary
investigation that the DOJ Task Force on Revenue Cases can determine
whether or not there are grounds to file informations in court or to dismiss the
BIR complaints.

15. I see no grave abuse of discretion committed by the state prosecutors in

requiring private respondents to submit counter-affidavits to the complaints for
fraudulent tax evasion and to determine the existence or absence of probable
criminal liability.

The Rules on Criminal Procedure do not even require, as a condition sine qua
non to the validity of a preliminary investigation, the presence of the
respondent as long as efforts to reach him are made and an opportunity to
controvert the complainant's evidence is accorded him. The purpose of the
rule is to check attempts of unscrupulous respondents to thwart criminal
investigations by not appearing or employing dilatory tactics. 30

16. Since the preliminary investigation in the DOJ Revenue Cases Task Force
against private respondents for alleged fraudulent tax evasion is well within its
jurisdiction and constitutes no grave abuse of discretion, it was in fact the
respondent trial court that committed grave abuse of discretion, amounting to
lack or excess of jurisdiction, when it stayed such preliminary investigation.

17. The successful prosecution of criminal offenders is not only a right but the
duty of the state. Only when the state's acts clearly violate constitutional rights
can the courts step in to interfere with the state's exercise of such right and
performance of such duty. I am indubitably impressed that there is no violation
of private respondents' constitutional rights in this case.

18. Lastly, the consolidation of the three (3) complaints in the DOJ against
private respondents should be allowed since they all involve the same scheme
allegedly used by private respondents to fraudulently evade payment of taxes.
Consolidation will not only avoid multiplicity of suits but will also enable private
respondents to more conveniently prepare whatever responsive pleadings are
required or expected of them.

It is, therefore, my considered view that the decision of the Court of Appeals of
19 December 1994 in CA G.R. SP No. 33599 should be SET ASIDE. The
respondent trial court should be ENJOINED from proceeding in any manner in
Civil Case No. Q-94-19790, or at least until further orders from this Court.

The preliminary investigation of the BIR complaints docketed as I.S. Nos. 93-
508, 93-17942 and 93-584 with the Department of Justice Revenue Cases
Task Force, being constitutionally and legally in order, should be allowed to
resume until their final conclusion or completion, with private respondents
given a non-extendible period of ten (10) days from notice to submit to the

197 | M s . N o l a i d a A g u i r r e
investigating panel their respective counter-affidavits and supporting
documents, if any.

VITUG, J., dissenting:

I see in the petition the overriding issue of whether or not judicial relief could
be resorted to in order to stop state prosecutors from going through with their
investigation of complaints lodged against private respondents. Almost
invariably, this Court has resolved not to unduly interfere, let alone to
peremptorily prevent, the prosecuting agencies or offices of the government in
their investigatorial work or in their own evaluation of the results of
investigation. It would indeed be, in my view, an act precipitate for the courts
to take on a case even before the complaint or information is filed by the
prosecution. Of course, one cannot preclude the possibility that at times
compelling reasons may dictate otherwise; I do not think, however, that the
instant case could be the right occasion for it.

While I do understand the concern expressed by some of my colleagues, i.e.,

that stopping the trial court from now proceeding with Civil Case No. Q-94-
9170 would, effectively, mean a disposition of the main case without its merits
having first been fully heard in the court below, in this particular situation
before the Court, however, the parties have since exhaustively and
adequately presented their respective cases. In the interest of good order, the
practical measure of enjoining the trial court from taking further cognizance of
the case would not thus appear to be really all that unwarranted.

A final word: The matter affecting the civil liability for the due payment of
internal revenue taxes, including the applicable remedies and proceedings in
the determination thereof, must be considered apart from and technically
independent of the criminal aspect that may be brought to bear in appropriate
cases. A recourse in one is not necessarily preclusive of, nor would the results
thereof be conclusive on, the other.

Accordingly, I vote to grant the petition.

CASE SYLLABI:

Actions; Certiorari; Words and Phrases; “Grave Abuse of Discretion,”

Defined.—In resolving the issue raised in the petition, the Court may be
guided by its definition of what constitutes grave abuse of discretion. By grave
abuse of discretion is meant such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction. The abuse of discretion must
be patent and gross as to amount to an evasion of positive duty or a virtual
refusal to perform a duty enjoined by law, or to act at all in contemplation of
law as where the power is exercised in an arbitrary and despotic manner by
reason of passion and hostility.
Same; Same; Same; Tax Evasion; If every step in the production of
cigarettes was closely monitored and supervised by the BIR personnel

198 | M s . N o l a i d a A g u i r r e
specifically assigned to the manufacturer’s premises, and considering
that the Manufacturer’s Sworn Declarations on the data required to be
submitted were scrutinized and verified by the BIR and, further, since
the manufacturer’s wholesale price was duly approved by the BIR, in
such case, and in the absence of contrary evidence, it was precipitate
and premature to conclude that the manufacturer made fraudulent
returns or wilfully attempted to evade payment of taxes due.—Now, if
every step in the production of cigarettes was closely monitored and
supervised by the BIR personnel specifically assigned to Fortune’s premises,
and considering that the Manufacturer’s Sworn Declarations on the data
required to be submitted by the manufacturer were scrutinized and verified by
the BIR and, further, since the manufacturer’s wholesale price was duly
approved by the BIR, then it is presumed that such registered wholesale price
is the same as, or approximates “the price, excluding the value-added tax, at
which the goods are sold at wholesale in the place of production,” otherwise,
the BIR would not have approved the registered wholesale price of the goods
for purposes of imposing the ad valorem tax due. In such case, and in the
absence of contrary evidence, it was precipitate and premature to conclude
that private respondents made fraudulent returns or wilfully attempted to
evade payment of taxes due.
Same; Same; Same; Same; Words and Phrases; “Willful” and “Fraud,”
Defined.—“Wilful” means “premeditated; malicious; done with intent, or with
bad motive or purpose, or with indifference to the natural consequence x x x.”
“Fraud” in its general sense, “is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage
taken of another.”
Same; Same; Same; Same; Fraud cannot be presumed.—Fraud cannot be
presumed. If there was fraud or wilful attempt to evade payment of ad valorem
taxes by private respondents through the manipulation of the registered
wholesale price of the cigarettes, it must have been with the connivance or
cooperation of certain BIR officials and employees who supervised and
monitored Fortune’s production activities to see to it that the correct taxes
were paid. But there is no allegation, much less evidence, of BIR personnel’s
malfeasance. In the very least, there is the presumption that the BIR
personnel performed their duties in the regular course in ensuing that the
correct taxes were paid by Fortune.
Same; Same; Same; Same; Before one is prosecuted for wilful attempt to
evade or defeat any tax under Sections 253 and 255 of the Tax Code, the
fact that a tax is due must first be proved.—We share with the view of both
the trial court and Court of Appeals that before the tax liabilities of Fortune are
first finally determined, it cannot be correctly asserted that private respondents
have wilfully attempted to evade or defeat the taxes sought to be collected
199 | M s . N o l a i d a A g u i r r e
from Fortune. In plain words, before one is prosecuted for wilful attempt to
evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact
that a tax is due must first be proved.
Same; Same; Same; Same; Instant case distinguished from Ungab v.
Cusi, 97 SCRA 877 (1980).—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.
Criminal Procedure; Preliminary Investigation; Exceptions to the general
rule that criminal prosecutions cannot be enjoined.—As a general rule,
criminal prosecutions cannot be enjoined. However, there are recognized
exceptions which, as summarized in Brocka v. Enrile are: a. To afford
adequate protection to the constitutional rights of the accused (Hernandez vs.
Albano, et al., L-19272, January 25, 1967, 19 SCRA 95); b. When necessary
for the orderly administration of justice or to avoid oppression or multiplicity of
actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano,
supra; Fortun vs. Labang, et al., L-38383, May 27, 1981, 104 SCRA 607); c.
When there is a prejudicial question which is sub judice (De Leon vs.
Mabanag, 70 Phil. 202); d. When the acts of the officer are without or in
excess of authority (Planas vs. Gil, 67 Phil. 62); e. Where the prosecution is
under an invalid law, ordinance or regulation (Young vs. Rafferty, 33 Phil. 556;
Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389); f. When double jeopardy is
clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140); g.
Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-
25795, October 29, 1966, 18 SCRA 616); h. Where it is a case of persecution
rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760, March 25,
1960); i. Where the charges are manifestly false and motivated by the lust for
vengeance (Recto vs. Castelo, 18 L.J. [1953], cited in Rañoa vs. Alvendia,
CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-
60033, April 4, 1984, 128 SCRA 577); and j. When there is clearly no prima
facie case against the accused and a motion to quash on that ground has
been denied (Salonga vs. Paño, et al., L-59524, February 18, 1985, 134
SCRA 438).
200 | M s . N o l a i d a A g u i r r e
Same; Same; Same; Preliminary investigation may be enjoined where
exceptional circumstances warrant.—Contrary to petitioners’ submission,
preliminary investigation may be enjoined where exceptional circumstances so
warrant. In Hernandez v. Albano and Fortun v. Labang, injunction was issued
to enjoin a preliminary investigation. In the case at bar, private respondents
filed a motion to dismiss the complaint against them before the prosecution
andalternatively, to suspend the preliminary investigation on the grounds cited
hereinbefore, one of which is that the complaint of the Commissioner is not
supported by any evidence to serve as adequate basis for the issuance of the
subpoena to them and put them to their defense. Indeed, the purpose of a
preliminary injunction is to secure the innocent against hasty, malicious and
oppressive prosecution and to protect him from an open and public accusation
of crime, from the trouble, expense and anxiety of a public trial and also to
protect the state from useless and expensive trials.
Actions; Certiorari; Pleadings and Practice; Certiorari will not be issued
to cure errors in proceedings or correct erroneous conclusions of law or
fact—as long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than
errors of judgment which are reviewable by timely appeal and not by a special
civil action of certiorari.—We believe that the trial court in issuing its
questioned orders, which are interlocutory in nature, committed no grave
abuse of discretion amounting to lack of jurisdiction. There are factual and
legal bases for the assailed orders. On the other hand, the burden is upon the
petitioners to demonstrate that the questioned orders constitute a whimsical
and capricious exercise of judgment, which they have not. For certiorari will
not be issued to cure errors in proceedings or correct erroneous conclusions
of law or fact. As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than
errors of judgment which are reviewable by timely appeal and not by a special
civil action of certiorari. Consequently, the Regional Trial Court acted correctly
and judiciously, and as demanded by the facts and the law, in issuing the
orders granting the writs of preliminary injunction, in denying petitioners’
motion to dismiss and in admitting the supplemental petitions. What
petitioners should have done was to file an answer to the petition filed in the
trial court, proceed to the hearing and appeal the decision of the court if
adverse to them.
BELLOSILLO, J., Concurring and Dissenting:
Due Process; Preliminary Injunction; Pleadings and Practice; The
dismissal of the main case as a result of a mere incident relative to the
issuance of an ancillary writ is procedurally awkward and violates due
process.—If grave abuse of discretion attended the issuance of the writ of
preliminary injunction, then by all means nullify the abusive act—but only that.
The main case should be allowed to proceed according to due process. The
trial court should receive the evidence from the contending parties, weigh and
201 | M s . N o l a i d a A g u i r r e
evaluate the same and then make its findings. Clearly, the dismissal of the
main case as a result of a mere incident relative to the issuance of an ancillary
writ is procedurally awkward and violates due process, as it deprives private
respondents of their right to present their case in court and support it with its
evidence.
Taxation; While “taxes are the lifeblood of the government,” the power
to tax has its limits, inspite of all its plenitude.—In resolving the
fundamental issue at hand, i.e., whether the trial court committed grave abuse
of discretion in issuing the subject writs of preliminary injunction, we cannot
avoid balancing on the scales the power of the State to tax and its inherent
right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection
of the laws on the other. Obviously the scales must tilt in favor of the individual,
for a citizen’s right is amply protected by the Bill of Rights of the Constitution.
Thus while “taxes are the lifeblood of the government,” the power to tax has its
limits, inspite of all its plenitude. Hence in Commissioner of Internal Revenue v.
Algue, Inc., we said—Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance. On the other hand, such
collection should be accordance with law as any arbitrariness will negate the
very reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the
real purpose of taxation, which is the promotion of the common good, may be
achieved.
Courts; Judicial Statesmanship; In days of great pressure, it is alluring
to take short cuts by borrowing dictatorial techniques, but when courts
do, they set in motion an arbitrary or subversive influence by their own
design which destroys them from within.—Finally, courts indeed should
not hesitate to invoke the constitutional guarantees to give adequate
protection to the citizens when faced with the enormous powers of the State,
even when what is in issue are only provisional remedies, as in the case at
hand. In days of great pressure, it is alluring to take short cuts by borrowing
dictatorial techniques. But when we do, we set in motion an arbitrary or
subversive influence by our own design which destroys us from within. Let not
the present case dangerously sway towards that trend.
PADILLA, J., Dissenting:
Criminal Procedure; Preliminary Investigation; Prosecutors; The
decision of the majority clearly constitutes an untenable usurpation of
the primary duty and function of the prosecutors to conduct the
preliminary investigation of a criminal offense and the power of the
Secretary of Justice to review the resolution of said prosecutors.—The
rule is settled that the fiscal (prosecutor) cannot be prohibited from conducting
and finishing his preliminary investigation. The private respondents’ petition
before the trial court in this case was clearly premature since the case did not
fall within any of the exceptions when prohibition lies to stop a preliminary
202 | M s . N o l a i d a A g u i r r e
investigation. The decision of the majority in this case clearly constitutes an
untenable usurpation of the primary duty and function of the prosecutors to
conduct the preliminary investigation of a criminal offense and the power of
the Secretary of Justice to review the resolution of said prosecutors.
Same; Taxation; Tax Evasion; The lack of a final determination of a
manufacturer’s exact or correct tax liability is not a bar to criminal
prosecution for fraudulent tax evasion.—The lack of a final determination
of respondent Fortune’s exact or correct tax liability is not a bar to criminal
prosecution for fraudulent tax evasion. While a precise computation and
assessment is required for a civil action to collect a tax deficiency, the
National Internal Revenue Code does not require such computation and
assessment prior to criminal prosecution for fraudulent tax evasion. Thus, as
this Court had earlier ruled—“An assessment of a deficiency is not necessary
to a criminal prosecution for willful attempt to defeat and evade the income tax.
A crime is complete when the violator has knowingly and willfully 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.”
It follows that, under the Ungab doctrine, the filing of a criminal complaint for
fraudulent tax evasion would be proper even without a previous assessment
of the correct tax.
Same; Same; Same; Estoppel; It is hornbook law that the Government is
not bound or estopped by the mistakes, inadvertence, and what more,
connivance of its officials and employees with fraudulent schemes to
defraud the Government.—In fine, even if BIR officials may have verified
Fortunes’ BIR registered wholesale price for its products, the same does not
estop or preclude the Government from filing criminal complaints for
fraudulent tax evasion based on evidence subsequently gathered to the effect
that such BIR registered wholesale prices were a misdeclaration or
underdeclaration of the actual wholesale price. It is hornbook law that the
Government is not bound or estopped by the mistakes, inadvertence, and
what more, connivance of its officials and employees with fraudulent schemes
to defraud the Government.
Commissioner of Internal Revenue vs. Pascor Realty and
Development Corporation, 309 SCRA 402, G.R. No. 128315. June 29,
1999
Panganiban, J.
Facts:
In this case, then BIR Commissioner Jose U. Ong authorized revenue officers
to examine the books of accounts and other accounting records of Pascor
Realty and Development Corporation (PRDC) for 1986, 1987 and 1988. This
resulted in a recommendation for the issuance of an assessment in the
203 | M s . N o l a i d a A g u i r r e
amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987,
respectively.
On March 1, 1995, the Commissioner filed a criminal complaint before the
DOJ against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S.
Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private
respondents filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability.
The Commissioner denied the urgent request for
reconsideration/reinvestigation because she had not yet issued a formal
assessment.
Private respondents then elevated the Decision of the Commissioner to the
CTA on a petition for review. The Commissioner filed a Motion to Dismiss the
petition on the ground that the CTA has no jurisdiction over the subject matter
of the petition, as there was yet no formal assessment issued against the
petitioners. The CTA denied the said motion to dismiss and ordered the
Commissioner to file an answer within thirty (30) days. The Commissioner did
not file an answer nor did she move to reconsider the resolution. Instead, the
Commissioner filed a petition for review of the CTA decision with the Court of
Appeals. The Court of Appeals upheld the CTA order. However, this Court
reversed the Court of Appeals decision and the CTA order, and ordered the
dismissal of the petition.
Issue:
Whether or not an assessment is necessary before criminal charges for tax
evasion may be instituted.
Held:
The Court ruled in the negative. An assessment contains not only a
computation of tax liabilities, but also a demand for payment within a
prescribed period. It also signals the time when penalties and interests begin
to accrue against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on and
received by the taxpayer. Accordingly, an affidavit, which was executed by
revenue officers stating the tax liabilities of a taxpayer and attached to a
criminal complaint for tax evasion, cannot be deemed an assessment that can
be questioned before the Court of Tax Appeals.
Neither the NIRC nor the revenue regulations governing the protest of
assessments[12] provide a specific definition or form of an
assessment. However, the NIRC defines the specific functions and effects of
an assessment. To consider the affidavit attached to the Complaint as a
proper assessment is to subvert the nature of an assessment and to set a bad
precedent that will prejudice innocent taxpayers.

204 | M s . N o l a i d a A g u i r r e
True, as pointed out by the private respondents, an assessment informs the
taxpayer that he or she has tax liabilities. But not all documents coming from
the BIR containing a computation of the tax liability can be deemed
assessments.
To start with, an assessment must be sent to and received by a taxpayer, and
must demand payment of the taxes described therein within a specific
period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax
due, in case the taxpayer fails to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment. Likewise, an interest
of 20 percent per annum, or such higher rate as may be prescribed by rules
and regulations, is to be collected from the date prescribed for its payment
until the full payment.[13]
The issuance of an assessment is vital in determining the period of limitation
regarding its proper issuance and the period within which to protest it. Section
203[14] of the NIRC provides that internal revenue taxes must be assessed
within three years from the last day within which to file the return. Section
222,[15] on the other hand, specifies a period of ten years in case a fraudulent
return with intent to evade was submitted or in case of failure to file a
return. Also, Section 228[16] of the same law states that said assessment may
be protested only within thirty days from receipt thereof. Necessarily, the
taxpayer must be certain that a specific document constitutes an
assessment. Otherwise, confusion would arise regarding the period within
which to make an assessment or to protest the same, or whether interest and
penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer.[17]
In the present case, the revenue officers’ Affidavit merely contained a
computation of respondents’ tax liability. It did not state a demand or a period
for payment. Worse, it was addressed to the justice secretary, not to the
taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply
understood to mean:
“A notice to the effect that the amount therein stated is due as tax and a
demand for payment thereof.”[18]
“Fixes the liability of the taxpayer and ascertains the facts and furnishes the
data for the proper presentation of tax rolls.”[19]
Even these definitions fail to advance private respondents’ case. That the BIR
examiners’ Joint Affidavit attached to the Criminal Complaint contained some
details of the tax liabilities of private respondents does not ipso facto make it
an assessment. The purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant
205 | M s . N o l a i d a A g u i r r e
to be a notice of the tax due and a demand to the private respondents for
payment thereof.
The fact that the Complaint itself was specifically directed and sent to the
Department of Justice and not to private respondents shows that the intent of
the commissioner was to file a criminal complaint for tax evasion, not to issue
an assessment. Although the revenue officers recommended the issuance of
an assessment, the commissioner opted instead to file a criminal case
for tax evasion. What private respondents received was a notice from the
DOJ that a criminal case for tax evasion had been filed against them, not a
notice that the Bureau of Internal Revenue had made an assessment.
Private respondents maintain that the filing of a criminal complaint must be
preceded by an assessment. This is incorrect, because Section 222 of the
NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings
in court may be commenced without an assessment. Furthermore, Section
205 of the same Code clearly mandates that the civil and criminal aspects of
the case may be pursued simultaneously. In Ungab v. Cusi,[20] petitioner
therein sought the dismissal of the criminal Complaints for being premature,
since his protest to the CTA had not yet been resolved. The Court held that
such protests could not stop or suspend the criminal action which was
independent of the resolution of the protest in the CTA. This was because the
commissioner of internal revenue 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.
Private respondents insist that Section 222 should be read in relation to
Section 255 of the NIRC,[21] which penalizes failure to file a return. They add
that a tax assessment should precede a criminal indictment. We disagree. To
reiterate, said Section 222 states that an assessment is not necessary before
a criminal charge can be filed. This is the general rule. Private respondents
failed to show that they are entitled to an exception. Moreover, the criminal
charge need only be supported by a prima facie showing of failure to file a
required return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-
assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by
him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast,
the criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case
had been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
206 | M s . N o l a i d a A g u i r r e
 CASE SYLLABI:
Same; Same; Same; Section 222 of the NIRC specifically states that in
cases of failure to file a return, proceedings in court may be commenced
without an assessment.—Private respondents maintain that the filing of a
criminal complaint must be preceded by an assessment. This is incorrect,
because Section 222 of the NIRC specifically states that in cases where a
false or fraudulent return is submitted or in cases of failure to file a return such
as this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil
and criminal aspects of the case may be pursued simultaneously. In Ungab v.
Cusi, petitioner therein sought the dismissal of the criminal Complaints for
being premature, since his protest to the CTA had not yet been resolved. The
Court held that such protests could not stop or suspend the criminal action
which was independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue 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.
Same; Same; Same; Section 222 states that an assessment is not
necessary before a criminal charge can be filed.—Private respondents
insist that Section 222 should be read in relation to Section 255 of the NIRC,
which penalizes failure to file a return. They add that a tax assessment should
precede a criminal indictment. We disagree. To reiterate, said Section 222
states that an assessment is not necessary before a criminal charge can be
filed. This is the general rule. Private respondents failed to show that they are
entitled to an exception. Moreover, the criminal charge need only be
supported by a prima facie showing of failure to file a required return. This fact
need not be proven by an assessment.
Same; Same; Same; A criminal complaint is instituted not to demand
payment, but to penalize the taxpayer for violation of the Tax Code.—The
issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-
assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him
or her is then sent to the taxpayer informing the latter specifically and clearly
that an assessment has been made against him or her. In contrast, the
criminal charge need not go through all these. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case
had been filed against him, not that the commissioner has issued an
assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
Adamson vs. Court of Apepals, 588 SCRA 27, G.R. No. 120935 & G.R.
No. 124557. May 21, 2009

207 | M s . N o l a i d a A g u i r r e
 Puno, CJ.
Facts:
The events preceding G.R. No. 120935 are the following:

On October 22, 1993, the Commissioner filed with the Department of Justice
(DOJ) her Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese
June D. Adamson and Sara S. de los Reyes for violation of Sections 45 (a)
and (d)[3], and 110[4], in relation to Section 100[5], as penalized under Section
255,[6] and for violation of Section 253[7], in relation to Section 252 (b) and (d)
of the National Internal Revenue Code (NIRC).[8]

AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los

Reyes filed with the DOJ a motion to suspend proceedings on the ground of
prejudicial question, pendency of a civil case with the Supreme Court, and
pendency of their letter-request for re-investigation with the
Commissioner. After the preliminary investigation, State Prosecutor Alfredo P.
Agcaoili found probable cause. The Motion for Reconsideration against the
findings of probable cause was denied by the prosecutor.

On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara
S. de los Reyes were charged before the Regional Trial Court (RTC)
of Makati, Branch 150 in Criminal Case Nos. 94-1842 to 94-1846. They filed
a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds
that there was yet no final assessment of their tax liability, and there were still
pending relevant Supreme Court and CTA cases. Initially, the trial court
denied the motion. A Motion for Reconsideration was however filed, this time
assailing the trial court’s lack of jurisdiction over the nature of the subject
cases. On August 8, 1994, the trial court granted the Motion. It ruled that the
complaints for tax evasion filed by the Commissioner should be regarded as a
decision of the Commissioner regarding the tax liabilities of Lucas G.
Adamson, Therese June D. Adamson and Sara S. de los Reyes, and
appealable to the CTA. It further held that the said cases cannot proceed
independently of the assessment case pending before the CTA, which has
jurisdiction to determine the civil and criminal tax liability of the respondents
therein.

On October 10, 1994, the Commissioner filed a Petition for Review with the
Court of Appeals assailing the trial court’s dismissal of the criminal
cases. She averred that it was not a condition prerequisite that a formal
assessment should first be given to the private respondents before she may
file the aforesaid criminal complaints against them. She argued that the
criminal complaints for tax evasion may proceed independently from the
assessment cases pending before the CTA.

On March 21, 1995, the Court of Appeals reversed the trial court’s decision
and reinstated the criminal complaints. The appellate court held that, in a
criminal prosecution for tax evasion, assessment of tax deficiency is not
required because the offense of tax evasion is complete or
208 | M s . N o l a i d a A g u i r r e
consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax.[9] It ruled that private
respondents filed false and fraudulent returns with intent to evade taxes,
and acting thereupon, petitioner filed an Affidavit of Complaint with the
Department of Justice, without an accompanying assessment of the tax
deficiency of private respondents, in order to commence criminal action
against the latter for tax evasion.[10]
In parallel circumstances, the following events preceded G.R. No.
124557:

On December 1, 1993, AMC, Lucas G. Adamson, Therese June D.

Adamson and Sara S. de los Reyes filed a letter request for re-
investigation with the Commissioner of the “Examiner’s Findings” earlier
issued by the Bureau of Internal Revenue (BIR), which pointed out the tax
deficiencies.

On March 15, 1994 before the Commissioner could act on their letter-
request, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S.
de los Reyes filed a Petition for Review with the CTA. They assailed the
Commissioner’s finding of tax evasion against them. The Commissioner
moved to dismiss the petition, on the ground that it was premature, as she
had not yet issued a formal assessment of the tax liability of therein
petitioners. On September 19, 1994, the CTA denied the Motion to
Dismiss. It considered the criminal complaint filed by the Commissioner
with the DOJ as an implied formal assessment, and the filing of the
criminal informations with the RTC as a denial of petitioners’ protest
regarding the tax deficiency.

The Commissioner repaired to the Court of Appeals on the ground that

the CTA acted with grave abuse of discretion. She contended that, with
regard to the protest provided under Section 229 of the NIRC, there must
first be a formal assessment issued by the Commissioner, and it must be in
accord with Section 6 of Revenue Regulation No. 12-85. She maintained
that she had not yet issued a formal assessment of tax liability, and the tax
deficiency amounts mentioned in her criminal complaint with the DOJ were
given only to show the difference between the tax returns filed and the
audit findings of the revenue examiner.

The Court of Appeals sustained the CTA’s denial of the Commissioner’s

Motion to Dismiss.

Issues:
1. Whether the Commissioner’s recommendation letter can be considered
as a formal assessment of private respondents’ tax liability.
2. Whether the filing of the criminal complaints against the private
respondents by the DOJ is premature for lack of a formal assessment.

Held #1:
209 | M s . N o l a i d a A g u i r r e
 We rule that the recommendation letter of the Commissioner cannot be
considered a formal assessment. Even a cursory perusal of the said letter
would reveal three key points:

1. It was not addressed to the taxpayers.

2. There was no demand made on the taxpayers to pay the tax
liability, nor a period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the
Commissioner.

In fine, the said recommendation letter served merely as the prima facie basis
for filing criminal informations that the taxpayers had violated Section 45 (a)
and (d), and 110, in relation to Section 100, as penalized under Section 255,
and for violation of Section 253, in relation to Section 252 9(b) and (d) of the
Tax Code.
Held #2:

Section 269 of the NIRC (now Section 222 of the Tax Reform Act of
1997) provides:

Sec. 269. Exceptions as to period of limitation of

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

The law is clear. When fraudulent tax returns are involved as in the
cases at bar, a proceeding in court after the collection of such tax may be
begun without assessment. Here, the private respondents had already filed
the capital gains tax return and the VAT returns, and paid the taxes they have
declared due therefrom. Upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the computation of the
capital gains taxes due from the sale of two lots of AAI shares, first to APAC
and then to APAC Philippines, Limited. The examiners also found that the
VAT had not been paid for VAT-liable sale of services for the third and fourth
quarters of 1990. Arguably, the gross disparity in the taxes due and the

210 | M s . N o l a i d a A g u i r r e
amounts actually declared by the private respondents constitutes badges of
fraud.
Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at
bar. In this seminal case, this Court ruled that there was no need for precise
computation and formal assessment in order for criminal complaints to be filed
against him. It quoted Merten’s Law of Federal Income Taxation, Vol. 10,
Sec. 55A.05, p. 21, thus:

An assessment of a deficiency is not necessary to a

criminal prosecution for willful attempt to defeat and evade the
income tax. A crime is complete when the violator has knowingly
and willfully 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.

This hoary principle still underlies Section 269 and related provisions of
the present Tax Code.

CASE SYLLABI:

Taxation; Assessments; Words and Phrases; In the context in which it is

used in the National Internal Revenue Code (NIRC), an assessment is a
written notice and demand made by the Bureau of Internal Revenue (BIR)
on the taxpayer for the settlement of a due tax liability that is there
definitely set and fixed—a written communication containing a computation
by a revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiner’s findings is not an
assessment since it is yet indefinite; A recommendation letter of the
Commissioner to the Department of Justice (DOJ) Secretary recommending
the filing of a criminal complaint against a taxpayer for fraudulent returns and
tax evasion cannot be considered a formal assessment.—The first issue is
whether the Commissioner’s recommendation letter can be considered as a
formal assessment of private respondents’ tax liability. In the context in which
it is used in the NIRC, an assessment is a written notice and demand made by
the BIR on the taxpayer for the settlement of a due tax liability that is there
definitely set and fixed. A written communication containing a computation by
a revenue officer of the tax liability of a taxpayer and giving him an opportunity
to contest or disprove the BIR examiner’s findings is not an assessment since
it is yet indefinite. We rule that the recommendation letter of the Commissioner
cannot be considered a formal assessment. Even a cursory perusal of the
said letter would reveal three key points: 1. It was not addressed to the
211 | M s . N o l a i d a A g u i r r e
taxpayers. 2. There was no demand made on the taxpayers to pay the tax
liability, nor a period for payment set therein. 3. The letter was never mailed or
sent to the taxpayers by the Commissioner. In fine, the said recommendation
letter served merely as the prima facie basis for filing criminal informations
that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to
Section 100, as penalized under Section 255, and for violation of Section 253,
in relation to Section 252 9(b) and (d) of the Tax Code.
Same; Same; When fraudulent tax returns are involved, a proceeding in
court after the collection of such tax may be begun without assessment;
There is no need for precise computation and formal assessment in
order for criminal complaints to be filed against a tax evader.—The law is
clear. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment. Here, the private respondents had already filed the capital gains
tax return and the VAT returns, and paid the taxes they have declared due
therefrom. Upon investigation of the examiners of the BIR, there was a
preliminary finding of gross discrepancy in the computation of the capital gains
taxes due from the sale of two lots of AAI shares, first to APAC and then to
APAC Philippines, Limited. The examiners also found that the VAT had not
been paid for VAT-liable sale of services for the third and fourth quarters of
1990. Arguably, the gross disparity in the taxes due and the amounts actually
declared by the private respondents constitutes badges of fraud. Thus, the
applicability of Ungab v. Cusi (97 SCRA 877 [1980]) is evident to the cases at
bar. In this seminal case, this Court ruled that there was no need for precise
computation and formal assessment in order for criminal complaints to be filed
against him. It quoted Merten’s Law of Federal Income Taxation, Vol. 10, Sec.
55A.05, p. 21, thus: An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and evade the income tax. A
crime is complete when the violator has knowingly and willfully 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.
Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc.,
193 SCRA 86, G.R. No. 35266. January 21, 1991
Narvasa, J.
Facts:

Lianga Bay Logging Co., Inc. (hereafter, simply Lianga), a domestic

corporation, has been a forest concessionaire since 1956, holding an ordinary
timber license issued by the Bureau of Forestry up to March 12, 1958 when its
license was converted into a Timber License Agreement (No. 49). 3 Within its
forest concession, Lianga has also been operating a sawmill, and in
connection therewith posted a bond in the amount of P25,000.00 with the
212 | M s . N o l a i d a A g u i r r e
Collector of Internal Revenue to guarantee payment of such forest charges as
may be due from it. 4 Forest officers have been assigned to Lianga's
concession. They prepared monthly reports setting forth inter alia the quantity
of logs cut and removed within a certain period and the computation of the
forest charges due thereon. It was on the basis of these reports that forest
charges were paid by Lianga to the Bureau of Internal Revenue thru the
deputy provincial treasurer. 5 For the period from April, 1956 to December,
1961, inclusive, it paid a total of P336,462.40 in regular forest charges. 6

Some two years later, the Commissioner of Internal Revenue wrote to Lianga,
demanding payment of P84,115.60, representing a 25% surcharge on said
sum of P336,462.40, on the theory that it had removed forest products from its
cutting area without the auxiliary invoices required by Section 267 of the
National Internal Revenue Code, being covered only by "commercial tables"
(prepared by the forest officers assigned to Lianga, supra). 7 The
Commissioner also required payment of P300.00 as compromise if Lianga
wished "to settle extrajudicially the violation" in question. Lianga asked the
Commissioner to reconsider his assessment and demand. It claimed that as
operator of a Class C sawmill, it was not required to prepare and submit
auxiliary invoices pursuant to Section 23 of Regulations No. 85 of the
Department of Finance. When the Commissioner refused to change his stand,
Lianga appealed to the Court of Tax Appeals. The Court of Tax Appeals
reversed the decision of the Commissioner of Internal Revenue, absolved
respondent Lianga Bay Logging Co., Inc. from liability for a 25% surcharge for
alleged failure to provide auxiliary invoices covering forest products cut and
removed from its forest concession during the period from April, 1956 to
December, 1961, plus the sum of P300 as "compromise penalty" for using
commercial scale table in violation of Section 4(j) of Regulations No. 85 of the
Department of Finance (Revised Internal Revenue Forest Products
Regulations ).
Issue:
Whether or not the imposition of compromise penalty is proper.
Held:

The Court affirmed the Decision of the CTA. The Tax Court's finding, on the
basis of the evidence, is that Lianga is a Class C sawmill. 13 The record does
indeed establish its character as such: in accordance with said Regulations
No. 85, forest officers have been permanently assigned to its concession for
the purpose of scaling all logs felled, and it has posted a bond to guarantee
the payment of the forest charges that may be due from it. It is not, therefore
required by Regulation No. 85 to accomplish and submit auxiliary
invoicesùrequired only of Class A sawmills, i.e., holders of ordinary timber
licenses, supra. What is required in lieu thereof, pursuant to said Regulations
No. 85, are the monthly scale reports (B.I.R. Form 14.15, drawn up by the
forest officers assigned to the concessions, and subsequently presented to
the deputy provincial treasurer for the purpose of paying the corresponding
213 | M s . N o l a i d a A g u i r r e
forest charges) as well as the Daily Trimmer Tally (B.I.R. Form No. 14.11);
sawmill or commercial invoice (B.I.R. Form No. 14.13); and monthly Abstract
of Sawmill invoice (B.I.R. Form No. 14.14). It is noteworthy that the petitioner
does not claim and has made no effort whatever to prove that these forms
were not accomplished. Thus, as the Tax Court declares, it is presumed that
Lianga "has complied with the requirements regarding the keeping and use of
the records and documents required of Class C sawmills, among which are
the Daily Trimmer Tally and Commercial invoice." 14 In fact, it appears that the
forest officers' reports and computations were the basis for the payment of
forest charges by Lianga, and the basis, as well, of the Commissioner's
computation of the alleged 25% surcharge.

Furthermore, Section 267 of the Tax Code, imposing a surcharge of 25% of

the regular forest charges if forest products are removed from the forest
concession "without invoice," does not specify the nature of the invoice
contemplated. Obviously, as the Tax Court says, the term is not limited to
auxiliary invoices. It may refer as well to "official" or "commercial" invoices
such as those prepared by Class C sawmills, supra. This is the interpretation
placed on the term by said Regulations No. 85 themselves, which declare that
the 25% surcharge is imposable on "Forest products transported
without official invoice, or commercial invoice, as the case requires." And
since, as far as the record goes, sawmill or commercial invoices were in fact
prepared by Lianga, no violation of the rule may be imputed to it at all.

As to the "compromise penalty" of P300.00 also sought to be imposed,

there is no basis therefor, and, as the Court of Tax Appeals finally
declares, "the imposition of the same without the conformity of the
taxpayer is illegal and unauthorized (Coll. v. U.S.T., 104 Phil. 1062; Phil. Int.
Fair v. Coll., G.R. Nos. L-12928 & L-12932, March 31, 1962)."

CASE SYLLABUS:
Taxation; Forest Charges; Sec. 11 of the Revised Internal Revenue
Forest Products Regulations No. 85, requiring auxiliary invoices, applies
only to forest concessionaires who are holders of ordinary licenses.—
Section 11 of Regulations No. 85 applies, as the Court of Tax Appeals
points out, to a “forest concessionaire who is the holder of an ordinary
license;” but there are separate provisions “on invoicing and payment of
forest charges x x in the case of owners or operators of sawmills who
are forest concessionaires,” like Lianga. For purposes of said
Regulations, “sawmills are classified into Class A, B, C, and D.” x x x
Now, the Tax Court’s finding, on the basis of the evidence, is that Lianga
is a Class C sawmill. The record does indeed establish its character as
such: in accordance with said Regulations No. 85, forest officers have
been permanently assigned to its concession for the purpose of scaling
all logs felled, and it has posted a bond to guarantee the payment of the
forest charges that may be due from it. It is not, therefore required by
Regulations No. 85 to accomplish and submit auxiliary invoices—

214 | M s . N o l a i d a A g u i r r e
required only of Class A sawmills, i.e., holders of ordinary timber licenses,
supra. What is required in lieu thereof, pursuant to said Regulations No. 85,
are the monthly scale reports (B.I.R. Form 14.15, drawn up by the forest
officers assigned to the concessions, and subsequently presented to the
deputy provincial treasurer for the purpose of paying the corresponding forest
charges) as well as the Daily Trimmer Tally (B.I.R. Form No. 14.11); sawmill
or commercial invoice (B.I.R. Form No. 14.13); and monthly Abstract of
Sawmill invoice (B.I.R. Form No. 14.14). It is noteworthy that the petitioner
does not claim and has made no effort whatever to prove that these forms
were not accomplished. Thus, as the Tax Court declares, it is presumed that
Lianga “has complied with the requirements regarding the keeping and use of
the records and documents required of Class C sawmills, among which are
the Daily Trimmer Tally and commercial invoice.” In fact, it appears that the
forest officers’ reports and computations were the basis for the payment of
forest charges by Lianga, and the basis, as well, of the Commissioner’s
computation of the alleged 25% surcharge. Furthermore, Section 267 of the
Tax Code, imposing a surcharge of 25% of the regular forest charges if forest
products are removed from the forest concession “without invoice,” does not
specify the nature of the invoice contemplated. Obviously, as the Tax Court
says, the term is not limited to auxiliary invoices. It may refer as well to “official”
or “commercial” invoices such as those prepared by Class C sawmills, supra.
This is the interpretation placed on the term by said Regulations No. 85
themselves, which declare that the 25% surcharge is imposable on “Forest
products transported without official invoice, or commercial invoice, as the
case requires.” And since, as far as the record goes, sawmill or commercial
invoices were in fact prepared by Lianga, no violation of the rule may be
imputed to it at all.
Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr.,
438 SCRA 290, G.R. No. 147188. September 14, 2004
Davide, Jr, J.
Facts:
Cibales Insurance Company (CIC) authorized Benigno P. Toda, Jr.,
President and owner of 99.991% of its issued and outstanding capital stock, to
sell the Cibeles Building and the two parcels of land on which the building
stands for an amount of not less than P90 million. Toda purportedly sold the
property for P100 million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for P200 million. These
two transactions were evidenced by Deeds of Absolute Sale notarized on the
same day by the same notary public.For the sale of the property to RMI,
Altonaga paid capital gains tax in the amount of P10 million.

CIC filed its corporate annual income tax return for the year 1989, declaring,
among other things, its gain from the sale of real property in the amount of
P75,728.021. After crediting withholding taxes ofP254,497.00, it paid
P26,341,207 for its net taxable income of P75,987,725. Toda sold his entire
215 | M s . N o l a i d a A g u i r r e
shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by
a Deed of Sale of Shares of Stocks. Three and a half years later, Toda died.
Subsequently, Bureau of Internal Revenue (BIR) sent an assessment notice
and demand letter to the CIC for deficiency income tax for the year 1989. The
new CIC asked for a reconsideration, asserting that the assessment should be
directed against the old CIC, and not against the new CIC, which is owned by
an entirely different set of stockholders; moreover, Toda had undertaken to
hold the buyer of his stockholdings and the CIC free from all tax liabilities for
the fiscal years 1987-1989. The estate of Toda then received a Notice of
Assessment for the deficiency of income tax in the amount of P79,099,999.22.
The Estate thereafter filed a letter of protest.

The Commissioner dismissed the protest. The Estate filed a petition for review
with the CTA. CTA held that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the taxes due it. The CTA also
denied the motion for reconsideration. The Court of Appeals affirmed the
decision of the CTA

Issue:
1. Is this a case of tax evasion or tax avoidance?
2. Has the period for assessment of deficiency income tax for the year
1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency income tax of
CIC for the year 1989, if any?

Held:

1.Tax evasion

Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device
within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. Tax
evasion connotes the integration of three factors: (1) the end to be achieved,
i.e., the payment of less than that known by the taxpayer to be legally due, or
the non-payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being "evil," in "bad faith,"
"willfull," or "deliberate and not accidental"; and (3) a course of action or failure
of action which is unlawful.

All these factors are present in the instant case. It is significant to note that as
early as 4 May 1989, prior to the purported sale of the Cibeles property by CIC
to Altonaga on 30 August 1989, CIC received P40 million from RMI, and not
from Altonaga. That P40million was debited by RMI and reflected in its trial
balance as "other inv.– Cibeles Bldg." Also, as of 31 July 1989, another P40
million was debited and reflected in RMI’s trial balance as "other inv.– Cibeles
Bldg." This would show that the real buyer of the properties was RMI, and not
216 | M s . N o l a i d a A g u i r r e
the intermediary Altonaga. Tax planning is by definition to reduce, if not
eliminate altogether, a tax. Surely petitioner cannot be faulted for wanting to
reduce the tax from 35% to 5%. The scheme resorted to by CIC in making it
appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate
tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, "is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is
taken of another." Hence, the sale to Altonaga should be disregarded for
income tax purposes. The two sale transactions should be treated as a single
direct sale by CIC to RMI. Accordingly, the tax liability of CIC is governed by
then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax
Reform Act of 1997). CIC is therefore liable to pay a 35% corporate tax for its
taxable net income in 1989. The 5% individual capital gains tax provided for in
Section 34 (h) of the NIRC of 1986 (now 6% under Section 24 (D) (1) of the
Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the
deficiency income tax issued by the BIR must be upheld.

2. No. (Legal basis: Section 269 of the NIRC of 1986 (now Section 222 of the
Tax Reform Act of 1997).

Put differently, in cases of (1) fraudulent returns; (2) false returns with intent
to evade tax; and (3) failure to file a return, the period within which to assess
tax is ten years from discovery of the fraud, falsification or omission, as the
case may be. The prescriptive period to assess the correct taxes in case of
false returns is ten years from the discovery of the falsity. The false return was
filed on 15 April 1990, and the falsity thereof was claimed to have been
discovered only on 8 March 1991.The assessment for the 1989 deficiency
income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the
correct assessment for deficiency income tax was well within the prescriptive
period.

3. Yes. A corporation has a juridical personality distinct and separate from the
persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa. There are, however, certain instances in which
personal liability may arise. It has been held in a number of cases that
personal liability of a corporate director, trustee, or officer along, albeit not
necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith
or gross negligence in directing its affairs, or (c) conflict of interest,
resulting in damages to the corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge
thereof, does not forthwith file with the corporate secretary his written
objection thereto;
3. He agrees to hold himself personally and solidarily liable with the
corporation; or
217 | M s . N o l a i d a A g u i r r e
4. He is made, by specific provision of law, to personally answer for his
corporate action.

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

CASE SYLLABI:

Taxation; Tax Avoidance Distinguished from Tax evasion.-- Tax

avoidance and tax evasion are the two most common ways used by taxpayers
in escaping from taxation. Tax avoidance is the tax saving device within the
means sanctioned by law. This method should be used by the taxpayer in
good faith and at arms length. Tax evasion, on the other hand, is a scheme
used outside of those lawful means and when availed of, it usually subjects
the taxpayer to further or additional civil or criminal liabilities.

Same; same; factor to determine TAX Evasion. -- Tax evasion connotes

the integration of three factors: (1) the end to be achieved, i.e., the payment of
less than that known by the taxpayer to be legally due, or the non-payment of
tax when it is shown that a tax is due; (2) an accompanying state of mind
which is described as being “evil,” in “bad faith,” “willfull,”or “deliberate and not
accidental”; and (3) a course of action or failure of action which is unlawful.

Same; Same; Fraud; Meaning of.- Fraud in its general sense, “is deemed to
comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or confidence
justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.”

Same; Same; Same; The intermediary transaction in this case

constitutes one of tax evasion.-- In a nutshell, the intermediary transaction,
i.e., the sale of Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of tax evasion.

Same; Prescriptions; The period within which to assess tax in cases of

fraudulent returns, false returns and failure to file a return is ten (10)
years from discovery of the fraud, falsification or omission.-- Put
differently, in cases of (1) fraudulent returns; (2) false returns with intent to
evade tax; and (3) failure to file a return, the period within which to assess tax
is ten years from discovery of the fraud, falsification or omission, as the case
may be.

Same; Same; The issuance of the correct assessment for deficiency

income tax as well within the prescriptive period.-- As stated above, the
218 | M s . N o l a i d a A g u i r r e
prescriptive period to assess the correct taxes in case of false returns is ten
years from the discovery of the falsity. The false return was filed on 15 April
1990, and the falsity thereof was claimed to have been discovered only on 8
March 1991.The assessment for the 1989 deficiency income tax of CIC was
issued on 9 January 1995. Clearly, the issuance of the correct assessment
for deficiency income tax was well within the prescriptive period.

People of the Philippines vs. Judy Anne Santos, CTA CRIM. CASE NO.
O-012, January 16, 2013
Bautista, J.
Facts:
The accused, Judy Anne Santos is charged for filing a false and fraudulent
Income Tax Return (“ITR”) for the taxable year 2002 by indicating therein a
gross income of P 8, 003,332.70, when in truth and in fact her correct
income for taxable year 2002 is P 16, 396, 234.70. She is prosecuted for
violation Section 255 of the 1997 NIRC as amended for her failure to
supply correct and accurate information, which resulted to an income tax
deficiency in the amount of P 1, 395,116.24, excluded interest and
penalties thereon in the amount of P 1, 319, 500. 94, or in the aggregate
income tax deficiency of P 2, 714,617.18.
Issue:
Whether or not the accused may be held liable for violation of Section 255
of the National Internal Revenue Code, as amended.
Held:
Section 255 enumerates the following offenses:
a. Willful failure to pay tax;
b. Willful failure to make a return;
c. Willful failure to keep any record;
d. Willful failure to supply correct and accurate information;
e. Willful failure to withhold or remit taxes withheld; or
f. Willful failure to refund excess taxes withheld on compensation.
One of the offenses above-enumerated is willful failure to supply correct
and accurate information, which is being attributed to the accused. The
elements of the said offense are as follows:
1. That a person is required to supply correct and accurate information;
2. That there is failure to supply correct and accurate information at the
time or times required by law or rules and regulations; and
3. That such failure to supply correct and accurate information is done
wilfully.
Require to supply Correct and Accurate Information

219 | M s . N o l a i d a A g u i r r e
Based on the records of the case, the accused unequivocally admitted that
as early as eight (8) years old, she entered the entertainment industry, and
that at present is an established movie actress, celebrity endorser and
showbiz personality. Further, for the subject taxable year 2002, she
admitted that she entered into contracts for her engagement as a
professional entertainer, movie actress, and product endorser. With this,
accused is required to file an income tax return for all her income from all
sources.
The prosecution was able to prove that the accused, earning her
professional income as an entertainer is required to file an income tax
return, as she did, and that accused apparently supplied correct and
accurate information thereof.
Failure to Supply Correct and Accurate Information at the Time
Required by Law
The prosecution was able to prove the element of failure to supply correct
and accurate information at the time required by law.
The prosecution presented that there were:
a. Undeclared income form ABS-CBN Broadcasting Corporation
b. Undeclared income from Viva Productions, Inc.
c. Undeclared income from Star Cinema Productions, Inc.
d. Undeclared income from Regal Entertainment, Inc.
e. Undeclared income from Century Canning Corporation
From the foregoing, the prosecution was able to show that from the
declared Gross Taxable Professional Income of the accused in the amount
of P 8, 003, 332.70, in her ITR for the taxable year 2002, accused has an
aggregate amount of P16, 396, 234.70, or a gross underdeclaration of P 8,
362, 902.00.
Willful Failure to Supply Correct and Accurate Information
As early discussed, the prosecution was able to prove that the accused
failed to supply correct and accurate information in her ITR for the
year2002 for her failure declare her other income payments received from
other sources.
However, it is well settled that mere understatement of a tax is not itself
proof of fraud for the purpose of tax evasion.
Based on the records of the case, the accused denied the signature
appearing on top of the name “Judy Anne Santos” in the ITR for taxable
year 2002, presented by the prosecution, and that the Certified Public
Accountant, who’s participation is limited to the preparation of the Financial
Statements attached to the return, likewise, denied signing the return on
behalf of the accused. Further, the working papers were all provided by the
manager of the accused.
220 | M s . N o l a i d a A g u i r r e
The Court, therefore, finds the records bereft of any evidence to establish
the element of willfulness on the part of the accused to supply the correct
and accurate information on her subject return.
The Court, however, only finds the accused negligent; and such is not
enough to convict her in the case at bench.
Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by law. Fraud must amount to
intentional wrong-doing with the sole object of avoiding the tax.
The Court also notes the intention of the accused to settle the case were it
not for the opposition of her Manager and then counsel, which negated any
motive of the accused to commit fraud.
In sum, the Court finds the failure of the prosecution to establish the guilt
of the accused beyond the required reasonable doubt.
Notes: In relation to Aznar vs CTA as emphasized by Atty. Lock

As could be readily seen from the above rationalization of the lower court, no
distinction has been made between false returns (due to mistake,
carelessness or ignorance) and fraudulent returns (with intent to evade taxes).
The lower court based its conclusion on the petitioner's alleged fraudulent
intent to evade taxes on the substantial difference between the amounts of net
income on the face of the returns as filed by him in the years 1946 to 1951
and the net income as determined by the inventory method utilized by both
respondents for the same years. The lower court based its conclusion on a
presumption that fraud can be deduced from the very substantial disparity of
incomes as reported and determined by the inventory method and on the
similarity of consecutive disparities for six years. Such a basis for determining
the existence of fraud (intent to evade payment of tax) suffers from an
inherent flaw when applied to this case. It is very apparent here that the
respondent Commissioner of Internal Revenue, when the inventory method
was resorted to in the first assessment, concluded that the correct tax liability
of Mr. Aznar amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After
a reinvestigation the same respondent, in another assessment dated February
16, 1955, concluded that the tax liability should be reduced to P381,096.07.
This is a crystal-clear, indication that even the respondent Commissioner of
Internal Revenue with the use of the inventory method can commit a glaring
mistake in the assessment of petitioner's tax liability. When the respondent
Court of Tax Appeals reviewed this case on appeal, it concluded that
petitioner's tax liability should be only P227,788.64. The lower court in three
instances (elimination of two buildings in the list of petitioner's assets
beginning December 31, 1949, because they were destroyed by fire;
elimination of expenses for construction in petitioner's assets as duplication of
increased value in buildings, and elimination of value of house and lot in
petitioner's assets because said property was only given as collateral)
supported petitioner's stand on the wrong inclusions in his lists of assets made
by the respondent Commissioner of Internal Revenue, resulting in the very

221 | M s . N o l a i d a A g u i r r e
substantial reduction of petitioner's tax liability by the lower court. The
foregoing shows that it was not only Mr. Matias H. Aznar who committed
mistakes in his report of his income but also the respondent Commissioner of
Internal Revenue who committed mistakes in his use of the inventory method
to determine the petitioner's tax liability. The mistakes committed by the
Commissioner of Internal Revenue which also involve very substantial
amounts were also repeated yearly, and yet we cannot presume
therefrom the existence of any taint of official fraud.

From the above exposition of facts, we cannot but emphatically reiterate the
well-established doctrine that fraud cannot be presumed but must be proven.
As a corollary thereto, we can also state that fraudulent intent could not be
deduced from mistakes however frequent they may be, especially if such
mistakes emanate from erroneous entries or erroneous classification of items
in accounting methods utilized for determination of tax liabilities The
predecessor of the petitioner undoubtedly filed his income tax returns for "the
years 1946 to 1951 and those tax returns were prepared for him by his
accountant and employees. It also appears that petitioner in his lifetime and
during the investigation of his tax liabilities cooperated readily with the B.I.R.
and there is no indication in the record of any act of bad faith committed by
him.

The lower court's conclusion regarding the existence of fraudulent intent

to evade payment of taxes was based merely on a presumption and not
on evidence establishing a willful filing of false and fraudulent returns so
as to warrant the imposition of the fraud penalty. 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.
Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by the law. It must amount to
intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as
fraudulent intent, and if both petitioner and respondent Commissioner of
Internal Revenue committed mistakes in making entries in the returns
and in the assessment, respectively, under the inventory method of
determining tax liability, it would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of the respondent as made in
good faith.

Republic vs. Patanao, 20 SCRA 712, No. L-22356. July 21, 1967
Angeles, J.
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
222 | M s . N o l a i d a A g u i r r e
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; income taxes and additional residence taxes for the
aforesaid years, is due from defendant; that on February 14, 1958, plaintiff,
through the Deputy Commissioner of Internal Revenue, sent a letter of
demand with enclosed income tax assessment to the defendant requiring him
to pay the said amount; that notwithstanding repeated demands the defendant
refused, failed and neglected to pay said taxes; and that the assessment for
the payment of the taxes in question has become final, executory and
demandable, because it was not contested before the Court of Tax Appeals in
accordance with the provisions of section 11 of Republic Act No. 1125.

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.

After considering the motion to dismiss, the opposition thereto and the
rejoinder to the opposition, the lower court entered the order appealed from,
holding that the only cause of action left to the plaintiff in its complaint is the
collection of the income tax due for the taxable year 1955 and the residence
tax (Class B) for 1953, 1954 and 1955. A motion to reconsider said order was
denied, whereupon plaintiff interposed the instant appeal, which was brought
directly to this Court, the questions involved being purely legal.

Issue:
Whether or not respondent’s acquittal in a criminal case bars the collection
of tax penalties.
Held:

In applying the principle underlying the civil liability of an offender under the
Penal Code to a case involving the collection of taxes, the court a quo fell into
error. The two cases are circumscribed by factual premises which are
diametrically opposed to each either, 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
223 | M s . N o l a i d a A g u i r r e
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).

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.

CASE SYLLABI:

224 | M s . N o l a i d a A g u i r r e
Taxation; Income tax; Civil liability under Penal Code and Income Tax
Law distinguished.—Under the Penal Code the civil liability is incurred by
reason of the offender's criminal act. 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 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 for 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 does not provide the collection of said tax in criminal
proceedings.
Same; Civil remedies for collection of income tax.—The only civil
remedies provided for the collection of income tax are distraint and levy and
judicial action, which remedies are generally exclusive in the absence of a
contrary legislative intent.
Same; Acquittal of taxpayer in criminal case does not exonerate him
from tax liability.—Since the taxpayer's civil liability is not included in the
criminal action, his acquittal in the criminal proceeding does not necessarily
entail exoneration from his liability to pay the taxes. His legal duty to pay taxes
cannot be affected by his attempt 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 a crime that could be wiped out by the judicial
declaration of nonexistence of the criminal acts charged.
Same; Prescription of action for collection of income tax.—Where the
fraud in the taxpayer's 1951 income tax return was allegedly discovered in
1958, the prescriptive period for collecting the 1951 deficiency tax is ten years
from the discovery of the fraud and not five years. The action instituted in
1962 to collect said deficiency has not prescribed.
Castro vs. Collector of Internal Revenue, 4 SCRA 1093, No. L-12174.
April 26, 1962
Reyes, J.B.L., J.
-----------------------------supra-----------------------------
Facts:
On November 22, 1947, Criminal Case No. 4976 was filed against her in the
Court of First Instance of Manila for violation of Section 4, in connection with
Section 8, of the War Profits Tax Law, for allegedly defrauding the Republic of
the Philippines in the total amount of P1,048,687.76. The criminal action, was
225 | M s . N o l a i d a A g u i r r e
filed at the instance of respondent and simultaneous with the filing of said
action, the petitioner received for the first time the notice of assessment dated
November 19, 1947 by registered mail from the Collector of Internal Revenue.
The said letter of demand was based on the report of Supervising Examiner
Felipe Aquino of the Bureau of Internal Revenue, who recommended that the
petitioner be assessed and made to pay the sum of P1,048,687.76 as war
profits tax and surcharge
On February 9, 1948, the motion of petitioner to quash the information was
denied by the Court of First Instance of Manila. At the scheduled hearing of
the case on the merits on March 7, 1949, the City Fiscal of Manila manifested
in open court that after a re-investigation of the case "the amount of the tax
due and for which the accused stands charged for evading payment is only
about P700,000.00, instead of P1,048,687.76 as stated in the information."
However, at the continuation of the hearing of the case on February 22, 1950,
Supervising Examiner Felipe Aquino of the Bureau of Internal Revenue, who
testified for the prosecution, declared in answer to questions propounded by
the City Fiscal "that as a result of a detailed reinvestigation conducted by his
office, it was found out that no war profits tax was due from the accused in
connection with the present case." Whereupon, City Fiscal Angeles moved for
the dismissal of the case. Finding the petition for dismissal to be well taken,
the Court of First Instance of Manila, in an Order dated February 22, 1950,
dismissed Criminal Case No. 4976 against petitioner.
After the dismissal of the Criminal Case, another report was submitted by the
same Supervising Examiner Felipe Aquino to his superiors wherein he
changed his previous stand taken before the Court of First Instance of Manila,
on the basis of which report another letter of demand for P2,008,293.53 as
war profits tax was issued against petitioner on January 24, 1950. Barely one
month thereafter, another report was again submitted by the same
Supervising Examiner Felipe Aquino to his superiors, on the basis of which
another letter of demand for war profits tax was issued by respondent against
petitioner for the sum of P2,229,976.94 or an increase of P221,683.31 over
that assessment of January 24, 1950. The case was again referred to the City
Fiscal's Office for another prosecution based on the earlier demand but the
same was again dropped.
Assignment of error and the decision of the Court:
(c) The third main ground of appeal is predicated on the acquittal of petitioner
in case No. 4976 of the Court of First Instance of Manila, wherein she was
criminally prosecuted for failure to render a true and accurate return of the war
profits tax due from her, with intent to evade payment of the tax. She contends
(Assignments of Error II to IV) that the acquittal should operate as a bar to the
imposition of the tax and specially the 50% surcharge provided by section 6 of
the War Profits law (R.A. No. 55), invoking the ruling in Coffey v. U.S., 29 L.
Ed. 436.

226 | M s . N o l a i d a A g u i r r e
With regard to the tax proper, the state correctly points out in its brief
that the acquittal in the criminal case could not operate to discharge
petitioner from the duty to pay the tax, since that duty is imposed by
statute prior to and independently of any attempts on the part of the
taxpayer to evade payment. The obligation to pay the tax is not a mere
consequence of the felonious acts charged in the information, nor is it a
mere civil liability derived from crime that would be wiped out by the
judicial declaration that the criminal acts charged did not exist.
As to the 50% surcharge, the very United States Supreme Court that rendered
the Coffey decision has subsequently pointed out that additions of this kind to
the main tax are not penalties but civil administrative sanctions, provided
primarily as a safeguard for the protection of the state revenue and to
reimburse the government for the heavy expense of investigation and the loss
resulting from the taxpayer's fraud (Helvering vs. Mitchell, 303 U.S. 390, 82 L.
Ed. 917; Spies vs. U.S. 317 U.S. 492). This is made plain by the fact that such
surcharges are enforceable, like the primary tax itself, by distraint or civil suit,
and that they are provided in a section of R.A. No. 55 (section 5) that is
separate and distinct from that providing for criminal prosecution (section 7).
We conclude that the defense of jeopardy and estoppel by reason of the
petitioner's acquittal is untenable and without merit. Whether or not there was
fraud committed by the taxpayer justifying the imposition of the surcharge is
an issue of fact to be inferred from the evidence and surrounding
circumstances; and the finding of its existence by the Tax Court is conclusive
upon us. (Gutierrez v. Collector, G.R. No. L-9771, May 31, 1951 ; Perez vs.
Collector, supra).
CASE SYLLABI:
Same; Same; Taxpayer not discharged from duty to pay tax by his
acquittal from criminal action.—The acquittal of a taxpayer in a criminal
case cannot operate to discharge him from the duty to pay tax, because that
duty is imposed by statute prior to and independently of any attempt on the
part of the taxpayer to evade payment.
Same; Same; 50% surcharge not a penalty.—Addition ike the 50%
surcharge to the main tax are not penalties but civil administrative sanctions,
provided primarily as a safeguard for the protection of the state revenue and
to reimburse the government for the heavy expense of investigation and the
loss resulting from the taxpayer's fraud. (Helvering vs. Mitchell, 303 U.S. 390,
82 L. Ed. 917; Spies vs. U.S., 317 U.S. 492). This is made plain by the fact
that such surcharges are enforceable, like the primary tax itself, by distraint or
civil suit, and that they are provided in section 4, of Repub lic Act No that is
separate and distinct from that providing for criminal prosecution (Section 7).
People of the Philippines vs. Galero, CTA Criminal Case No. 0-55,
September 30, 2009
Uy, J.
227 | M s . N o l a i d a A g u i r r e
Facts:
Galero is charged with the crime in violation of Sec. 255 in relation to Section
253 (d) and 256 of the NIRC. Accused allegedly refused to pay the deficiency
taxes despite due assessment, notice and demand to do so. The accused
voluntarily surrender and posted a bail. He entered a plea of “Not Guilty”.
Defendant claimed that his failure to pay tax is not willful, but rather due to
financial incapacity to pay the full amount, and to show good faith, he
presented a letter where he made an offer of compromise for payment of
deficiency tax assessments and subsequently paid portions of the said offer
despite the fact that it is still pending evaluation by the Technical Working
Group, national evaluation board. He also availed of the tax amnesty program
and paid total amount of P25, 000.00 as amnesty payment.
Issue:
Whether or not Galero is liable for violation of Sec. 255 in relation to Sec. 253
(d) and 256 of the NIRC
Held:
No. Accused attempted to settle said deficiencies by making an offer of
compromise, availment of tax amnesty and paying the amount stated in his
offer instead of protesting the said assessment, both administratively and
judicially. The third essential element of the crime charged in this case
requires that the failure to pay the required tax must be willful. A careful
examination of the amended information shows a crucial omission in its
averments of “willfulness” in the failure to pay the required taxes. It is
fundamental that every element constituting an offense charged must be
alleged in the complaint or information. And a complaint is deemed sufficient if
it describes the offense in the language of the statute whenever the statute
contains all of the essential elements constituting the particular offense.
The amended information does not allege “willful failure to pay taxes.” Absent
the allegation of this essential element, the accused cannot be convicted for
the violation raised.
No. Accused attempted to settle said deficiencies by making an offer of
compromise, availment of tax amnesty and paying the amount stated in his
offer instead of protesting the said assessment, both administratively and
judicially. The third essential element of the crime charged in this case
requires that the failure to pay the required tax must be willful. A careful
examination of the amended information shows a crucial omission in its
averments of “willfulness” in the failure to pa the required taxes. It is
fundamental that every element constituting an offense charged must be
alleged in the complaint or information. And a complaint is deemed sufficient if
it describes the offense in the language of the statute whenever the statute
contains all of the essential elements constituting the particular offense.

228 | M s . N o l a i d a A g u i r r e
The amended information does not allefe “willful failure to pay taxes.” Absent
the allegation of this essential element, the accused cannot be convicted for
the violation raised.
People of the Philippine vs. Mendez, CTA Criminal Case No. 0-013 &
0-015, January 11, 2011
Castañeda, J.
Willfull blindness as defined by the Black’s Law Dictionary as- deliberate
avoidance of knowledge of a crime especially by failing to make
reasonable inquiry about suspected wrongdoing despite being aware that it
is highly probable.
Facts:
Mendez was charged with a crime for violation of Sec. 255 of the NIRC. Two
information were subsequently filed;
a. For failure to file his ITR amounting to P 1,522,152.14 for the year 2002
b. For failure to supply the correct information in his ITR for the year 2003

Accused voluntary surrendered and posted bail, after pleading “Not Guilty.
The prosecution contends that accused has willfully and feloniously failed to
pay his AITR from 1995-2000.
The Prosecution contends, on the basis of the initial investigation and
recommendation, a Letter of Authority (LOA) No. 2001-00002438dated
November 8, 2004 was issued for the examination of books of accounts and
other accounting records for the period covering taxable years 2001, 2002 and
2003 of accused Dr. Joel Cortez Mendez. According to Atty. Cruz, the said
LOA was served on November 10, 2004 together with the First Letter-Notice
for the production of books of accounts and accounting records. Cherry Perez,
who allegedly represented herself as the authorized representative of accused
Dr. Mendez, duly received the said LOA. Despite receipt of the First Letter-
Notice, accused Dr. Mendez did not submit the required documents, as
specified in the said notice. As a consequence, a Second Letter-Noticeand a
Final Requestfor presentation and/or production of the required
records/documents were served upon -the accused Dr. Mendez, and duly
received on November 24, 2004 and January 11, 2005, respectively, thru his
accountant and employee named Richard Bianan and Carla Yadao.

Due to the failure of the accused to present or produce the needed records
and documents for examination despite several notices, the investigation
proceeded through "Third Party Information" and the "Best Evidence
Obtainable Rule" allowed under Section 5(B), in relation to Section 6(A) and
(B) of the Tax Code of 1997.

In the course of gathering information and best obtainable evidence pertaining

to the accused, the team verified certain data and information from the BIR
229 | M s . N o l a i d a A g u i r r e
Integrated Tax System (BIR-ITS) and different government agencies,
including private offices and entities.

During the investigation, it was further gathered that the accused filed his
income tax return for taxable year 2003 with Revenue District Office (ROO)
No. 4-Calasiao, Pangasinan, for his Mendez Weigh Less Center located at
CSI City Mall, Lucao District, Oagupan City despite the existence of his
principal place of business at 31 Races Avenue, Quezon City, as evidenced
by the Certification dated February 23, 2005 and the letter dated

August 15, 2006 issued by Mr. Joseph M. Catapia, Revenue District Officer of
ROO No. 4, and income tax return of the accused. Said certification was also
identified during trial by Mr. Joseph M. Catapia himself.

Defendant however refuted the claims. By presenting Cherry Perez, who was
then a medical staff on the issuance of the assessment notice, representatives
looked for the accused. Since the latter was not present, the BIR examiners
gave the letter to Perez instead. Perez then gave the letter to their accountant,
Richard Bianan, who deliberately concealed the documents from Mendez.

Accused further testified that Mr. Richard Bianan has been charged with
multiple counts of Estafa. He also stated that he issued checks and vouchers
in Mr. Richard Bianan's name for the payment of taxes and other obligations.

In addition, he also testifiedthat he leased the property located in A. Roces

Avenue, Quezon City on July 12, 2001 , but Weigh Less Center-Roces
Avenue Branch only started its operation on or about March 4, 2003. The
delay in operation was supposedly due to the fact that the property is a two-
floor residential unit that is not designed at all as office space and that he had
to cause its renovation as his personal funds would allow. Due to limited funds,
the construction took a while before the same was completed. The delay was
also caused by the problem with building authorities inasmuch as the
renovation was done without a permit.

Accused also made a statement that the idea of putting up clinics came up in
1996, but due to financial problems and because his focus then was art, the
clinics materialized only after several years. As regards the vehicles he
allegedly purchased from the years 2001 to 2003, he said that the said
vehicles were obtained through bank loans. He explained that the newspaper
advertisements were intended to generate public awareness in the business.
While he did attend to some celebrities, he did not charge them any fee. They
had a simple understanding that he would do certain medical services for his
celebrity clients and in return, they would endorse his future business. The
idea is that his future business is advertised through the publicity generated by
the treatments of celebrities.

Issue:

230 | M s . N o l a i d a A g u i r r e
WHETHER OR NOT ACCUSED DR. JOEL C. MENDEZ IS LIABLE FOR
VIOLATION OF SECTION 255 OF THE 1997 NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, FOR FAILURE TO FILE INCOME TAX
RETURN AND FOR FAILURE TO SUPPLY CORRECT AND ACCURATE
INFORMATION.

Held:
The accused is found guilty of the alleged violation.
In his defense, accused avers that he was not able to personally receive the
notices issued by the BIR. The accused alleges that it was his former
accountant, Mr. Richard Bianan, who received the notices and that Mr. Bianan
concealed said notices from the accused.

It must be pointed out that, as narrated by the accused in his Affidavit and as
confirmed by him during the cross-examination, Mr. Richard Bianan was
authorized by him to receive documents and notices on his behalf, including
the notices issued by the BIR. Hence, the notification requirement was
deemed substantially complied with by the BIR, considering that the subject
notices were admittedly received by Mr. Bianan.

Before going one by one with the foregoing elements, it may be relevant to
emphasize that direct evidence is not the sole means of establishing guilt
beyond reasonable doubt. Established facts that form a chain of
circumstances can lead the mind intuitively or impel a conscious process of
reasoning towards a conviction. Indeed, rules on evidence and principles in
jurisprudence have long recognized that the accused may be convicted
through circumstantial evidence.

ON CRIMINAL CASE NO. 0-015

First Element:

He is a person required under this code or by rules and regulations to pay any
tax, make a return, keep any record, or supply correct and accurate
information

Second Element:

He fails to supply correct and accurate information at the time or times

required by law or rules and regulation.

Anent the second element, the prosecution has the burden to prove that the
accused, as a duly registered taxpayer and as a sole proprietor of various
branches of Weigh Less Center, failed to supply the correct and accurate
information in his income tax return for taxable year 2003 due to his failure to
declare and indicate in his return all his income from all sources for taxable
year 2003.
231 | M s . N o l a i d a A g u i r r e
During the investigation, it was found that accused filed his income tax return
for taxable year 2003 with Revenue District Office No. 4-Calasiao, Pangasinan,
for his Mendez Weigh Less Center located at CSI City Mall, Lucao District,
Dagupan City, as evidenced by the Certification dated February 23, 2005
issued by Mr. Joseph M. Catapia, Revenue District Officer of ROO No. 4. In
the said Annual Income Tax Return submitted for taxable year 2003, the
accused declared a net loss of P38,893.91.

However, based on the documents gathered by the BIR Revenue District

Officers during the investigation, it was discovered that there are several other
branches registered with the BIR having the trade/business names "Weigh
Less Center", "Mendez Body and Face Salon and Spa" and "Mendez Body
and Face Skin Clinic" under the name of the accused Dr. Mendez as the sole
proprietor/owner. This fact was evidenced by the Certifications issued by the
duly authorized Revenue District Officers who certified the registration of said
branches with the BIR.

There were also several leasing receipts/documents that is circumstantial

evidence that may adduce that the accused has financial capacity.

Moreover, if the accused claims that he suffered a net loss from the operation
of his Mendez Weigh Less Center Dagupan branch during taxable year 2003,
then the substantial income found to have been earned by the accused during
the same year can be attributed to the operation of his other branches for
taxable year 2003; which were not reflected in the Annual Income Tax Return
submitted by the accused for the same year.

Furthermore, verification of the tax records from the SIR Integrated Tax
System revealed that accused Dr. Mendez did not file his income tax returns
for taxable year 2003 on its income earned from these other branches.

Third Element:Such failure is willful.

As regards the third element, this Court finds the failure of the accused to
supply the correct information in his return to be willful.

In case of People of the Philippines vs. Estelita Delos Angeles,this Court

defined the term "willful" in this wise:

"Willful in the tax crimes statutes means a voluntary, intentional violation of a

known legal duty and bad faith or bad purpose need not be shown [Mertens
(Law of Federal Income Taxation) Chapter 47.05, page 28, Volume 13, see
U.S. v. Green, 757 F2d 116, 85-1 USTC 9178 (CA 1985), in which the Court,
citing U.S. v. Moore, 627 F2d 830 (CA1980) and U.S. v. Verkuilen, 690 F2d
648, 82-2 USTC 9618 (CA7 1982), upheld the conviction of a tax protester for
willful failure to file returns]. "

In this case, the accused is considered to have knowledge that he has
the

232 | M s . N o l a i d a A g u i r r e
obligation to declare and file income tax return for taxes from all sources.
This
may be confirmed by his act of filing his income tax return declaring his
income from the operation of his Dagupan branch. Notwithstanding said
knowledge of the operation of his other branches as well as his obligation
to
file income tax return or at least consolidate and reflect his income from his
other branches in his income tax return filed in taxable year 2003, the accused
still failed to file his income tax return on his income from these other Weigh
Less Center branches for taxable year 2003; making it appear that his only
source of income was from the operation of his Weigh Less Center in
Dagupan City.

"Willful Blindness" is defined in Black's Law Dictionary as "deliberate

avoidance of knowledge of a crime, esp. by failing to make a reasonable
inquiry about suspected wrongdoing despite being aware that it is highly
probable." It "creates an inference of knowledge of the crime in question."
In
this case, even if the allegations of the accused were true, his failure to
examine his income tax return for 2003 and verify whether the same contains
correct and accurate information would still render the commission of the
offense charged willful.

It must be emphasized that denials by the accused of the crimes herein

charged, while failing to provide clear and convincing evidence to support the
same, clearly deserve no weight and should not be given any probative value.

Notes as emphasized by Atty. Lock:

Plainly, an assessment of the tax before there can be a criminal prosecution is

not necessary. Whereas, in case of a civil action for collection of the tax, the
assessment procedures provided by the NIRC of 1997, as amended, should
be complied with.

Accordingly, considering that there was no assessment issued by the BIR

against the accused, the foregoing computations presented by the prosecution
to prove the civil liabilities of the accused for the taxable years 2002 and 2003
may not be used by this Court as its basis to impose the civil liabilities prayed
for by the prosecution. Therefore, a proper determination of the civil liabilities
for the non-payment of tax based on the computations submitted by the
prosecution may not be achieved. (Section 205, NIRC)

People of the Philippines vs. Benjamin Kintanar, CTA CRIM. CASE

NO. O-031& O-032, September 27, 2010
Cotangco-Manalastas, J.
Case Summary:
Accused, Benjamin Kintanar, is charged in the CTA of two (2) consolidated
cases for failure to file his Income Tax Returns (ITRs) for the taxable years

233 | M s . N o l a i d a A g u i r r e
2000 and 2001 on his taxable income in the estimated amounts of P 3,
475, 090.64 and P 5, 175,242.12, respectively, exclusive of penalties,
ssurcharges and interest, in violation of the first paragraph of Section 255
of the National Internal Revenue Code as amended, which reads as
follows:
SEC. 255. Failure to File Return, Supply Correct and
Accurate Information, Pay Tax Withhold and Remit Tax
and Refund Excess Taxes Withheld on Compensation. -
Any person required under this Code or by rules and
regulations promulgated thereunder topay any tax make a
return, keep any record, or supply correct the accurate
information, who willfully fails to pay such tax, make such
return, keep such record, or supply correct and accurate
information, or withhold or remit taxes withheld, or refund
excess taxes withheld on compensation, at the time or times
required by law or rules and regulations shall, in addition to
other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1)
year but not more than ten (10) years. (emphasis supplied)
Section 255 enumerates the following offenses:
g. Willful failure to pay tax;
h. Willful failure to make a return;
i. Willful failure to keep any record;
j. Willful failure to supply correct and accurate information;
k. Willful failure to withhold or remit taxes withheld; or
l. Willful failure to refund excess taxes withheld on compensation.

To establish the offense of failure to file a return, the prosecution must

prove three (3) esssetial elements beyond reasonable that to wit:
1. That the accused was a person required to make of file a return;
2. That the accused failed to make or file a return at the time required
by law; and
3. That the failure to make or file a return was willfull.
The Court ruled that Benjamin Kintanar is found liable for violation of
Section 255 of the 1997 National Internal Revenue Code as amended.
That all the elements above stated are present. The prosecution was able
to prove that he is guilty beyond reasonable doubt of the crime charge.
Likewise, the record also show that the accused is informed of the
deficiency tax assessment against him through a formal letter of demand
and due to the accused’s failure to submit the supporting documents after
his request for reinvestigation within the reglementary period after the
same was granted, the assessments against the accused became final.

234 | M s . N o l a i d a A g u i r r e
Wherefore, in CTA Criminal Case No. 0-031 and 0-032 Benjamin kintanar
is GUILTY BEYOND REASONABLE DOUBT of violation of Section 255 of
the NIRC and sentenced to suffer an indeterminate penalty of
imprisonment of one (1) year as minimum, to two (2) years as maximum
and, is ordered to pay pay a fine in the amount P 10,000.00 with subsidiary
imprisonment in case accused has no property with which to meet the said
fine, pursuant to Section 280 of the NIRC AS AMENDED.
Aa regards civil liability, accused is hereby Ordered to pay deficiency
income tax for the taxable years 2000 and 2001 in the amount of P 8, 251,
605.72 and P10, 730,391.18 respectively, inclusive of the surcharge and
interest, plus 20% delinquency interest per annum from the total amount of
P 8, 251, 605,72 and P10, 730,391.18, counted from April 12, 2005, until
fully paid, pursuant to Section 249(c)(3) of the NIRC.
NOTA BENE:
As to the Civil aspect of the instant cases, the same were deemed
instituted herewith pursuant Section 7 (1) of Republic Act No. 9282 which
provides that :criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve
the filing of such civil action separately from the Criminal action will be
recognized.

Lim, Sr. vs. Court of Appeals, 190 SCRA 616, G.R. Nos. 48134-37.
October 18, 1990
Fernan, J.
Facts:
On October 5, 1959, a raid was conducted at their business address by the
National Bureau of Investigation by virtue of a search warrant issued by Judge
Wenceslao L. Cornejo of the City Court of Manila. A similar raid was made on
petitioners' premises at 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 Bureau of Internal Revenue (BIR).

On September 30, 1964 Senior Revenue Examiner Raphael S. Daet

submitted a memorandum with the findings that the income tax returns filed by
petitioners for the years 1958 and 1959 were false or fraudulent. Daet
recommended that an assessment of P835,127.00 be made against the
petitioners.

235 | M s . N o l a i d a A g u i r r e
Accordingly, on April 7, 1965, then Acting Commissioner of the BIR, Benjamin
M. Tabios informed petitioners that there was due from them the amount of
P922,913.04 as deficiency income taxes for 1958 and 1959, giving them until
May 7, 1965 to pay the amount.

On April 10, 1965, petitioner Emilio E. Lim, Sr., requested for a reinvestigation.
The BIR expressed willingness to grant such request but on condition that
within ten days from notice, Lim would accomplish a waiver of defense of
prescription under the Statute of Limitations and that one half of the deficiency
income tax would be deposited with the BIR and the other half secured by a
surety bond. If within the ten-day period the BIR did not hear from petitioners,
then it would be presumed that the request for reinvestigation had been
abandoned. Petitioner Emilio E. Lim, Sr. refused to comply with the above
conditions and reiterated his request for another investigation.

On October 10, 1967, the BIR rendered a final decision holding that there was
no cause for reversal of the assessment against the Lim couple. Petitioners
were required to pay deficiency income taxes for 1958 and 1959 amounting to
P1,237,190.55 inclusive of interest, surcharges and compromise penalty for
late payment. The final notice and demand for payment was served on
petitioners through their daughter-in-law on July 3, 1968.

Still, no payment was forthcoming from the delinquent taxpayers. Accordingly

on September 1, 1969, the matter was referred by the BIR to the Manila
Fiscal's Office for investigation and prosecution. On June 23, 1970, four (4)
separate criminal informations were filed against petitioners in the then Court
of First Instance of Manila, Branch VI for violation of Sections 45 and 51 in
relation to Section 73 of the National Internal Revenue Code. 2 Trial ensued.
On August 19, 1975, the trial court rendered two (2) joint decisions finding
petitioners guilty as charged. Hence the present petition for review by
certiorari.

In their Brief, petitioners contend that the Appellate Court erred in holding that
the offenses charged in Criminal Case Nos. 1790 and 1791 prescribed in ten
(10) years, instead of five (5) years; that the prescriptive period in Criminal
Cases Nos. 1788 and 1789 commenced to run only from July 3, 1968, the
date of the final assessment; that Section 316 of the Tax Code as amended
by Presidential Decree No. 69 was applicable to the case at bar; and that the
civil obligation of petitioner Emilio E. Lim, Sr. arising from the crimes charged
was not extinguished by his death.

Issue:

When is the reckoning date of the five year period for filing a criminal charges
against the petitioner?

Held:

We hold for the Government. Section 51 (b) of the Tax Code provides:

236 | M s . N o l a i d a A g u i r r e
 (b) Assessment and payment of deficiency tax. — After the return
is filed, the Commissioner of internal Revenue shall examine it
and assess the correct amount of the tax. The tax or deficiency in
tax so discovered shall be paid upon notice and demand from the
Commissioner of Internal Revenue. (Emphasis supplied)

Inasmuch as the final notice and demand for payment of the deficiency taxes
was served on petitioners on July 3, 1968, it was only then that the cause of
action on the part of the BIR accrued. This is so because prior to the receipt of
the letter-assessment, no violation has yet been committed by the taxpayers.
The offense was committed only after receipt was coupled with the wilful
refusal to pay the taxes due within the alloted period. The two criminal
informations, having been filed on June 23, 1970, are well-within the five-year
prescriptive period and are not time-barred.

With regard to Criminal Cases Nos. 1790 and 1791 which dealt with
petitioners' filing of fraudulent consolidated income tax returns with intent to
evade the assessment decreed by law, petitioners contend that the said
crimes have likewise prescribed. They advance the view that the five-year
period should be counted from the date ofdiscovery of the alleged fraud which,
at the latest, should have been October 15, 1964, the date stated by the
Appellate Court in its resolution of April 4, 1978 as the date the fraudulent
nature of the returns was unearthed. 9

On behalf of the Government, the Solicitor General counters that the crime of
filing false returns can be considered "discovered" only after the manner of
commission, and the nature and extent of the fraud have been definitely
ascertained. It was only on October 10, 1967 when the BIR rendered its final
decision holding that there was no ground for the reversal of the assessment
and therefore required the petitioners to pay P1,237,190.55 in deficiency taxes
that the tax infractions were discovered.

Not only that. The Solicitor General stresses that Section 354 speaks not only
of discovery of the fraud but also institution of judicial proceedings. Note the
conjunctive word "and" between the phrases "the discovery thereof" and "the
institution of judicial proceedings for its investigation and proceedings." In
other words, in addition to the fact of discovery, there must be a judicial
proceeding for the investigation and punishment of the tax offense before the
five-year limiting period begins to run. It was on September 1, 1969 that the
offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the
Fiscal's Office for preliminary investigation. Inasmuch as a preliminary
investigation is a proceeding for investigation and punishment of a crime, it
was only on September 1, 1969 that the prescriptive period commenced.

The Court is inclined to adopt the view of the Solicitor General. For while that
particular point might have been raised in the Ching Lak case, the Court, at
that time, did not give a definitive ruling which would have settled the question
once and for all. As Section 354 stands in the statute book (and to this day it
has remained unchanged) it would indeed seem that tax cases, such as the

237 | M s . N o l a i d a A g u i r r e
present ones, are practically imprescriptible for as long as the period from the
discovery and institution of judicial proceedings for its investigation and
punishment, up to the filing of the information in court does not exceed five (5)
years.

GUTTIERREZ, JR., J., concurring

I concur in the results.

I feel that certain issues need further clarification. I, therefore, reserve my

definitive vote on these issues. For instance, to say that no violation of the
Income Tax Law has been committed until after receipt of the letter
assessment overlooks the fact that the assessment is only evidence of a prior
violation. It is not the refusal to comply with the latter that creates the violation.
It is the failure to pay taxes in the years that they were due. Again, to make
discovery of the fraud and institution of judicial proceedings conjunctive seems
to me illogical because the judicial proceedings always come after discovery.
The date of discovery becomes meaningless under our decision. Perhaps, the
law needs amendment to make it clearer.

Add notes:

The petition, however, is impressed with merit insofar as it assails the

inclusion in the judgment of the payment of deficiency taxes in Criminal Cases
Nos. 1788-1789. The trial court had absolutely no jurisdiction in sentencing
the Lim couple to indemnify the Government for the taxes unpaid. The lower
court erred in applying Presidential Decree No. 69, particularly Section 316
thereof, which provides that "judgment in the criminal case shall not only
impose the penalty but shall order payment of the taxes subject of the criminal
case", because that decree took effect only on January 1, 1973 whereas the
criminal cases subject of this appeal were instituted on June 23, 1970. Save in
the two specific instances, Presidential Decree No. 69 has no retroactive
application.

CASE SYLLABI:

Taxation; Income Tax; Prescription; The 5-year prescriptive period

provided for under Sec. 354 of the Tax Code should be reckoned from
the date the final notice and demand was served on the taxpayer.—
Relative to Criminal Cases Nos. 1788 and 1789 which involved petitioners'
refusal to pay the deficiency income taxes due, again both parties are in
accord that by their nature, the violations as charged could only be committed
after service of notice and demand for payment of the deficiency taxes upon
the taxpayers. Petitioners maintain that the five-year period of limitation under
Section 354 should be reckoned from April 7, 1965, the date of the original
assessment while the Government insists that it should be counted from July
3, 1968 when the final notice and demand was served on petitioners'
daughter-in-law. We hold for the Government. Section 51 (b) of the Tax Code
provides: "(b) Assessment and payment of deficiency tax.—After the return is
238 | M s . N o l a i d a A g u i r r e
filed, the Commissioner of Internal Revenue shall examine it and assess the
correct amount of the tax. The tax or deficiency in tax so discovered shall be
paid upon notice and demand from the Commissioner of lnternal Revenue."
(Italics supplied) Inasmuch as the final notice and demand for payment of the
deficiency taxes was served on petitioners on July 3, 1968, it was only then
that the cause of action on the part of the BIR accrued. This is so because
prior to the receipt of the letter-assessment, no violation has yet been
committed by the taxpayers. The offense was committed only after receipt
was coupled with the wilful refusal to pay the taxes due within the alloted
period. The two criminal informations, having been filed on June 23, 1970, are
well-within the five-year prescriptive period and are not time-barred.
Same; Same; Same; Fraudulent Returns; In addition to the fact of
discovery, there must be a judicial proceeding for the investigation and
punishment of the tax offense before the five-year limiting period begins
to run.—On behalf of the Government, the Solicitor General counters that the
crime of filing false returns can be considered "discovered" only after the
manner of commission, and the nature and extent of the fraud have been
definitely ascertained. It was only on October 10, 1967 when the BIR rendered
its final decision holding that there was no ground for the reversal of the
assessment and therefore required the petitioners to pay P1,237,190.55 in
deficiency taxes that the tax infractions were discovered. Not only that. The
Solicitor General stresses that Section 354 speaks not only of discovery of the
fraud but also institution of judicial proceedings. Note the conjunctive word
"and" between the phrases "the discovery thereof' and "the institution of
judicial proceedings for its investigation and proceedings." In other words, in
addition to the fact of discovery, there must be a judicial proceeding for the
investigation and punishment of the tax offense before the five-year limiting
period begins to run. It was on September 1,1969 that the offenses subject of
Criminal Cases Nos. 1790 and 1791 were indorsed to the Fiscal's Office for
preliminary investigation. Inasmuch as a preliminary investigation is a
proceeding for investigation and punishment of a crime, it was only on
September 1,1969 that the prescriptive period commenced. x x x The Court is
inclined to adopt the view of the Solicitor General. For while that particular
point might have been raised in the Ching Lak case, the Court, at that time,
did not give a definitive ruling which would have settled the question once and
for all. As Section 354 stands in the statute book (and to this day it has
remained unchanged) it would indeed seem that the tax cases, such as the
present ones, are practically imprescriptible for as long as the period from the
discovery and institution of judicial proceedings for its investigation and
punishment, up to the filing of the information in court does not exceed five (5)
years.

239 | M s . N o l a i d a A g u i r r e
 CLAIMS FOR REFUND AND CREDIT OF TAXES/
REMEDY AFTER PAYMENY

A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT

Commissioner of Internal Revenue vs. Acesite (Philippines) Hotel
Corporation, 516 SCRA 93, G.R. No. 147295. February 16, 2007
Velasco, JR., J.
Facts:

Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel
along United Nations Avenue in Manila. It leases 6,768.53 square meters of
the hotel’s premises to the Philippine Amusement and Gaming Corporation
[hereafter, PAGCOR] for casino operations. It also caters food and beverages
to PAGCOR’s casino patrons through the hotel’s restaurant outlets. For the
period January (sic) 96 to April 1997, Acesite incurred VAT amounting to
P30,152,892.02 from its rental income and sale of food and beverages to
PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR
by incorporating it in the amount assessed to PAGCOR but the latter refused
to pay the taxes on account of its tax exempt status.

Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02
VAT while the latter paid the VAT to the Commissioner of Internal Revenue
[hereafter, CIR] as it feared the legal consequences of non-payment of the
tax. However, Acesite belatedly arrived at the conclusion that its transaction
with PAGCOR was subject to zero rate as it was rendered to a tax-exempt
entity. On 21 May 1998, Acesite filed an administrative claim for refund with
the CIR but the latter failed to resolve the same. Thus on 29 May 1998,
Acesite filed a petition with the Court of Tax Appeals [hereafter, CTA] which
was decided in this wise:

As earlier stated, Petitioner is subject to zero percent tax

pursuant to Section 102 (b)(3) [now 106(A)(C)] insofar as its
gross income from rentals and sales to PAGCOR, a tax exempt
entity by virtue of a special law. Accordingly, the amounts of
P21,413,026.78 and P8,739,865.24, representing the 10% EVAT
on its sales of food and services and gross rentals, respectively
from PAGCOR shall, as a matter of course, be refunded to the
petitioner for having been inadvertently remitted to the
respondent.

Thus, taking into consideration the prescribed portion of Petitioner’s claim for
refund of P98,743.40, and considering further the principle of ‘solutio indebiti’
which requires the return of what has been delivered through mistake,
Respondent must refund to the Petitioner the amount of P30,054,148.64.

240 | M s . N o l a i d a A g u i r r e
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA
holding that PAGCOR was not only exempt from direct taxes but was also
exempt from indirect taxes like the VAT and consequently, the transactions
between respondent Acesite and PAGCOR were "effectively zero-rated"
because they involved the rendition of services to an entity exempt from
indirect taxes. Thus, the CA affirmed the CTA’s determination by ruling that
respondent Acesite was entitled to a refund of PhP 30,054,148.64 from
petitioner.

Issue:
Whether PAGCOR’s tax exempton privilege includes indirect tax of VAT to
entitle Acesite to zero percent (0%) VAT rate and thus, entitled the latter a
claim for refund?
Held:
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter
an exemption from the payment of taxes. Section 13 of P.D. 1869.

The VAT exemption extend to Acesite. Thus, while it was proper for
PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable
for the payment of it as it is exempt in this particular transaction by operation
of law to pay the indirect tax. Such exemption falls within the former Section
102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A.
8424), which provides:

Section 102. Value-added tax on sale of services – (a) Rate and

base of tax – There shall be levied, assessed and collected, a
value-added tax equivalent to 10% of gross receipts derived by
any person engaged in the sale of services x x x; Provided, that
the following services performed in the Philippines by VAT-
registered persons shall be subject to 0%.

xxxx

(b) Transactions subject to zero percent (0%) rated.—

xxxx

(3) Services rendered to persons or entities whose

exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply
of such services to zero (0%) rate (emphasis supplied).

The rationale for the exemption from indirect taxes provided for in P.D. 1869
and the extension of such exemption to entities or individuals dealing with
PAGCOR in casino operations are best elucidated from the 1987 case
ofCommissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5 where
the absolute tax exemption of the World Health Organization (WHO) upon an

241 | M s . N o l a i d a A g u i r r e
international agreement was upheld. We held in said case that the exemption
of contractee WHO should be implemented to mean that the entity or person
exempt is the contractor itself who constructed the building owned by
contractee WHO, and such does not violate the rule that tax exemptions are
personal because the manifest intention of the agreement is to exempt the
contractor so that no contractor’s tax may be shifted to the contractee
WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or
individuals dealing with PAGCOR in casino operations, is clearly to proscribe
any indirect tax, like VAT, that may be shifted to PAGCOR.

Acesite paid VAT by mistake. Considering the foregoing discussion, there

are undoubtedly erroneous payments of the VAT pertaining to the effectively
zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has
clearly shown that it paid the subject taxes under a mistake of fact, that is,
when it was not aware that the transactions it had with PAGCOR were zero-
rated at the time it made the payments. In UST Cooperative Store v. City of
Manila,6 we explained that "there is erroneous payment of taxes when a
taxpayer pays under a mistake of fact, as for the instance in a case where he
is not aware of an existing exemption in his favor at the time the payment was
made."7 Such payment is held to be not voluntary and, therefore, can be
recovered or refunded.8

Solutio indebiti applies to the Government. Tax refunds are based on the
principle of quasi-contract or solutio indebiti and the pertinent laws governing
this principle are found in Arts. 2142 and 2154 of the Civil Code, which
provide, thus:

Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to
the juridical relation of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the expense of another.

Art. 2154. If something is received when there is no right to

demand it, and it was unduly delivered through mistake, the
obligation to return it arises.

When money is paid to another under the influence of a mistake

of fact, that is to say, on the mistaken supposition of the existence
of a specific fact, where it would not have been known that the
fact was otherwise, it may be recovered. The ground upon which
the right of recovery rests is that money paid through
misapprehension of facts belongs in equity and in good
conscience to the person who paid it.9

The Government comes within the scope of solutio indebiti principle as

elucidated in Commissioner of Internal Revenue v. Fireman’s Fund Insurance
Company, where we held that: "Enshrined in the basic legal principles is the
time-honored doctrine that no person shall unjustly enrich himself at the
expense of another. It goes without saying that the Government is not
exempted from the application of this doctrine."10

242 | M s . N o l a i d a A g u i r r e
Action for refund strictly construed; Acesite discharged the burden of
proof. Since an action for a tax refund partakes of the nature of an exemption,
which cannot be allowed unless granted in the most explicit and categorical
language, it is strictly construed against the claimant who must discharge such
burden convincingly.11 In the instant case, respondent Acesite had discharged
this burden as found by the CTA and the CA. Indeed, the records show that
Acesite proved its actual VAT payments subject to refund, as attested to by an
independent Certified Public Accountant who was duly commissioned by the
CTA. On the other hand, petitioner never disputed nor contested respondent’s
testimonial and documentary evidence. In fact, petitioner never presented any
evidence on its behalf.

One final word. The BIR must release the refund to respondent without any
unreasonable delay. Indeed, fair dealing is expected by our taxpayers from
the BIR and this duty demands that the BIR should refund without any
unreasonable delay what it has erroneously collected.12

CASE SYLLABI:

Taxation; Tax Exemptions; Philippine Amusement and Gaming

Corporation (PAGCOR) is also exempt from indirect taxes.—A close
scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to
taxes with no distinction on whether the taxes are direct or indirect. We are
one with the CA ruling that PAGCOR is also exempt from indirect taxes, like
VAT.
Same; Same; Acesite is not liable for the payment of the 10% Value
Added Tax (VAT) as it is exempt in this particular transaction by
operation of law to pay the indirect tax.—While it was proper for PAGCOR
not to pay the 10% VAT charged by Acesite, the latter is not liable for the
payment of it as it is exempt in this particular transaction by operation of law to
pay the indirect tax. Such exemption falls within the former Section 102 (b) (3)
of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424).
Same; Same; The proviso in P.D. No. 1869 extending the exemption to
entities or individuals dealing with Philippine Amusement and Gaming
Corporation [PAGCOR] in casino operations is clearly to proscribe any
indirect tax, like Value Added Tax (VAT), that may be shifted to
PAGCOR.—The rationale for the exemption from indirect taxes provided for in
P.D. 1869 and the extension of such exemption to entities or individuals
dealing with PAGCOR in casino operations are best elucidated from the 1987
case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., 148
SCRA 36 (1987), where the absolute tax exemption of the World Health
Organization (WHO) upon an international agreement was upheld. We held in
said case that the exemption of contractee WHO should be implemented to
mean that the entity or person exempt is the contractor itself who constructed
the building owned by contractee WHO, and such does not violate the rule
that tax exemptions are personal because the manifest intention of the
243 | M s . N o l a i d a A g u i r r e
agreement is to exempt the contractor so that no contractor’s tax may be
shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the
exemption to entities or individuals dealing with PAGCOR in casino operations,
is clearly to proscribe any indirect tax, like VAT, that may be shifted to
PAGCOR.
Tax Refunds; There is erroneous payment of taxes when a taxpayer pays
under a mistake of fact, as for the instance in a case where he is not
aware of an existing exemption in his favor at the time the payment was
made.—Considering the foregoing discussion, there are undoubtedly
erroneous payments of the VAT pertaining to the effectively zero-rate
transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown
that it paid the subject taxes under a mistake of fact, that is, when it was not
aware that the transactions it had with PAGCOR were zero-rated at the time it
made the payments. In UST Cooperative Store v. City of Manila, 15 SCRA
656 (1965), we explained that “there is erroneous payment of taxes when a
taxpayer pays under a mistake of fact, as for the instance in a case where he
is not aware of an existing exemption in his favor at the time the payment was
made.” Such payment is held to be not voluntary and, therefore, can be
recovered or refunded.
Same; Same; The ground upon which the right of recovery rests is that
money paid through misapprehension of facts belongs in equity and in
good conscience to the person who paid it.—Tax refunds are based on the
principle of quasi-contract or solutio indebiti and the pertinent laws governing
this principle are found in Arts. 2142 and 2154 of the Civil Code, x x x When
money is paid to another under the influence of a mistake of fact, that is to say,
on the mistaken supposition of the existence of a specific fact, where it would
not have been known that the fact was otherwise, it may be recovered. The
ground upon which the right of recovery rests is that money paid through
misapprehension of facts belongs in equity and in good conscience to the
person who paid it.
Same; Same; The Government is not exempted from the application of
the solutio indebiti principle.—The Government comes within the scope of
solutio indebiti principle as elucidated in Commissioner of Internal Revenue v.
Fireman’s Fund Insurance Company, 148 SCRA 315 (1987), where we held
that: “Enshrined in the basic legal principles is the time-honored doctrine that
no person shall unjustly enrich himself at the expense of another. It goes
without saying that the Government is not exempted from the application of
this doctrine.”
CIR vs. Procter & Gamble Philippine Manufacturing Corporation, 204
SCRA 377, G.R. No. 66838. December 2, 1991
Feliciano, J.
Facts:

244 | M s . N o l a i d a A g u i r r e
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.

Held:
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.

CASE SYLLABI:

Taxation; Claim for Refund; “taxpayer,”-defined.- Since the claim for

refund was filed by P&G-Phil., the question which arises is: is P&G-Phil. a
"taxpayer" under Section 309 (3) of the NIRC? The term "taxpayer" is defined
in our NIRC as referring to "any person subject to tax imposed by the Title [on
Tax on Income]." 2 It thus becomes important to note that under Section 53 (c)
of the NIRC, the withholding agent who is "required to deduct and withhold
any tax" is made " personally liable for such tax" and indeed is indemnified
against any claims and demands which the stockholder might wish to make in
questioning the amount of payments effected by the withholding agent in
accordance with the provisions of the NIRC. The withholding agent, P&G-Phil.,
is directly and independently liable 3 for the correct amount of the tax that
should be withheld from the dividend remittances. The withholding agent is,
moreover, subject to and liable for deficiency assessments, surcharges and
penalties should the amount of the tax withheld be finally found to be less than
the amount that should have been withheld under law.

245 | M s . N o l a i d a A g u i r r e
A "person liable for tax" has been held to be a "person subject to tax" and
properly considered a "taxpayer." The terms liable for tax" and "subject to
tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed
conceptually impossible, to consider a person who is statutorily made "liable
for tax" as not "subject to tax." By any reasonable standard, such a person
should be regarded as a party in interest, or as a person having sufficient legal
interest, to bring a suit for refund of taxes he believes were illegally collected
from him.

Same; tax on non-resident foreign corporations; Tax credit- The ordinary

thirty-five percent (35%) tax rate applicable to dividend remittances to non-
resident corporate stockholders of a Philippine corporation, goes down to
fifteen percent (15%) if the 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. In other words, in
the instant case, the reduced fifteen percent (15%) dividend tax rate is
applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed
paid in the Philippines" applicable against the US taxes of P&G-USA. The
NIRC specifies that such tax credit for "taxes deemed paid in the Philippines"
must, as a minimum, reach an amount equivalent to twenty (20) percentage
points which represents the difference between the regular thirty-five percent
(35%) dividend tax rate and the preferred fifteen percent (15%) dividend tax
rate.

It is important to note that Section 24 (b) (1), NIRC, does not require that the
US must give a "deemed paid" tax credit for the dividend tax (20 percentage
points) waived by the Philippines in making applicable the preferred divided
tax rate of fifteen percent (15%). In other words, our NIRC does not require
that the US tax law deem the parent-corporation to have paid the twenty (20)
percentage points of dividend tax waived by the Philippines. The NIRC only
requires that the US "shall allow" P&G-USA a "deemed paid" tax credit in an
amount equivalent to the twenty (20) percentage points waived by the
Philippines.

Same; Same; Same; question of when “deemed paid” tax credit should
have been actually granted.—The basic legal issue is this: which is the
applicable dividend tax rate in the instance case: the reular 35% rate or the
reduced (15%)? he question of whether or not P&G-USA is in fact given by
the US tax authorities a "deemed paid" tax credit in the required amount,
relates to the administrative implementation of the applicable reduced tax
rate.xxx Section 24 (b) (1), NIRC, does not in fact require that the "deemed
paid" tax credit shall have actually been granted before the applicable
dividend tax rate goes down from thirty-five percent (35%) to fifteen percent
(15%). As noted several times earlier, Section 24 (b) (1), NIRC, merely
requires, in the case at bar, that the USA "shall allow a credit against the
tax due from [P&G-USA for] taxes deemed to have been paid in the
Philippines . . ." There is neither statutory provision nor revenue regulation
issued by the Secretary of Finance requiring the actual grant of the "deemed
246 | M s . N o l a i d a A g u i r r e
paid" tax credit by the US Internal Revenue Service to P&G-USA before the
preferential fifteen percent (15%) dividend rate becomes applicable. Section
24 (b) (1), NIRC, 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.

Same; Same; Same; Philippines-United States Convention “With

Respect to Taxes on Income “-t remains only to note that under the
Philippines-United States Convention "With Respect to Taxes on Income," 15
the Philippines, by a treaty commitment, reduced the regular rate of dividend
tax to a maximum of twenty percent (20%) of the gross amount of dividends
paid to US parent corporations.xxx The Tax Convention, at the same time,
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] —.16 This is, of course, precisely
the "deemed paid" tax credit provided for in Section 902, US Tax Code,
discussed above. Clearly, there is here on the part of the Philippines a
deliberate undertaking to reduce the regular dividend tax rate of twenty
percent (20%) is a maximum rate, there is still a differential or additional
reduction of five (5) percentage points which compliance of US law (Section
902) with the requirements of Section 24 (b) (1), NIRC, makes available in
respect of dividends from a Philippine subsidiary.

Paras. J. Dissenting

Civil procedure; parties; withholding agent not real party in interest to

claim reimbursement of alleged tax overpayment.-- It is true that private
respondent, as withholding agent, is obliged by law to withhold and to pay
over to the Philippine government the tax on the income of the taxpayer,
PMC-U.S.A. (parent company). However, such fact does not necessarily
connote that private respondent is the real party in interest to claim
reimbursement of the tax alleged to have been overpaid. Payment of tax is an
obligation physically passed off by law on the withholding agent, if any, but the
act of claiming tax refund is a right that, in a strict sense, belongs to the
taxpayer which is private respondent's parent company. The role or function of
PMC-Phils., as the remitter or payor of the dividend income, is merely to
insure the collection of the dividend income taxes due to the Philippine
government from the taxpayer, "PMC-U.S.A.," the non-resident foreign
corporation not engaged in trade or business in the Philippines, as "PMC-
U.S.A." is subject to tax equivalent to thirty five percent (35%) of the gross
income received from "PMC-Phils." in the Philippines "as . . . dividends . . ."
(Sec. 24 [b], Phil. Tax Code). Being a mere withholding agent of the
government and the real party in interest being the parent company in the
United States, private respondent cannot claim refund of the alleged overpaid
taxes.

Same; Appeals; Issues raised for the first time on appeal; Government
can never be in estoppels- In like manner, petitioner Commissioner of
247 | M s . N o l a i d a A g u i r r e
Internal Revenue's failure to raise before the Court of Tax Appeals the issue
relating to the real party in interest to claim the refund cannot, and should not,
prejudice the government. Such is merely a procedural defect. It is axiomatic
that the government can never be in estoppel, particularly in matters involving
taxes.

Taxation; tax refunds are in the nature of tax exemptions.-- Tax refunds
are in the nature of tax exemptions. As such, they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against
the person or entity claiming the exemption. The burden of proof is upon him
who claims the exemption in his favor and he must be able to justify his claim
by the clearest grant of organic or statute law . . . and cannot be permitted to
exist upon vague implications.xxx Thus, when tax exemption is claimed, it
must be shown indubitably to exist, for every presumption is against it, and a
well founded doubt is fatal to the claim.

Commissioner of Internal Revenue vs. Smart Communication, Inc.,

629 SCRA 342, G.R. Nos. 179045-46. August 25, 2010

Del Castillo, J.

Facts:
( Smart entered into an agreement with Prism, a non-resident foreign
corporation domiciled in Malaysia, whereby prism will provide programming
and consultancy services to smart. Thinking that the payments to Prism were
royalties, Smart withheld 25% under the RP-Malaysia tax Treaty. Smart then
filed a refund with the BIR alleging that the payments were not subject to
Philippine withholding taxes given that they constituted business profits paid to
an entity without a permanent establishment in the Philippines.
Smart Communications, Inc. (Smart) entered into 3 agreements with Prism
Transactive (M) Sdn.Bhd. (Prism), a non-resident Malaysian corporation,
under which Prism would provide programming and consultancy services for
the installation of the Service Download Manager (SDM Agreement) and the
Channel Manager (CM Agreement), and for the installation and
implementation of Smart Money and Mobile Banking Service SIM Applications
and Private Text Platform (SIM Application Agreement). Prism billed
SmartUS$547,822.45. Thinking that the amount constituted royalties, Smart
withheld from its payments to Prism the amount ofUS$136,955.61 or
P7,008,840.43, representing the 25% royalty tax under the RP-Malaysia Tax
Treaty. Within the 2-year period to claim a refund, Smart filed an
administrative claim with the Bureau of Internal Revenue(BIR) for the refund of
the withheld amount (P7,008,840.43). When the Commissioner of Internal
Revenue (CIR) failed to act on its claim, Smart filed a Petition for Review with
the Court of Tax Appeals (CTA). Smart averred that its payments to Prism
were not royalties but “business profits,” as defined in the RP-Malaysian Tax
Treaty, which were not taxable because Prism did not have a permanent
establishment in the Philippines. The CIR countered that Smart, as a
withholding agent was not a party-in-interest to file the claim for refund, and
248 | M s . N o l a i d a A g u i r r e
even if it were the proper party, there was no showing that the payments to
Prism constituted “business profits.”

The CTA’s Second Division sustained Smart’s right to file the claim for refund,
citing the cases of Commissioner of Internal Revenue vs. Wander Philippines,
Inc. [243 Phil. 717 (1988)], Commissioner of Internal Revenue vs. Procter &
Gamble Philippine Manufacturing Corporation (G.R. No. 66838, 2 December
1991, 204 SCRA 377) and Commissioner of Internal Revenue vs. The Court
of Tax Appeals [G.R. No. 93901, 11 February 1992 (Minute Resolution)].
However, it granted only the refund of the withholding tax on Smart’s payment
for the SDM Agreement (P3,989,456.43) because only the payment for the
SDM Agreement constituted “royalty” which was subject to withholding tax.
The court considered the payments for the CM and SIM Application
agreements as “business profits” which were not subject to tax under the RP-
Malaysia Tax Treaty.
On appeal, the CTA En Banc affirmed its Second Division’s ruling. The CIR,
thus, brought the case to the Supreme Court for review, arguing that the
cases cited by the CTA in upholding Smart’s right to claim the refund, were
inapplicable because the withholding agents therein were wholly owned
subsidiaries of the taxpayers, unlike in this case where the withholding agent
was unrelated to the taxpayer. The CIR maintained that the proper party to file
the refund was the taxpayer, Prism, citing the case of Silkair (Singapore) Pte,
Ltd. vs. Commissioner of Internal Revenue (G.R. No. 173594, 6 February
2008, 544 SCRA 100). The CIR further argued that assuming Smart was the
proper party to file the claim, it was still not entitled to any refund because its
payments to Prism were taxable as royalties, having been made in
consideration for the use of the programs owned by Prism
Issue:
Whether or not Smart have the right to file the claim for refund?

Held:
YES. Smart as withholding agent may file a claim for refund.
The Court reiterated the ruling in Procter & Gamble stating that a person
“liable for tax” has sufficient legal interest to bring a suit for refund of taxes he
believes were illegally collected from him. Since the withholding agent is an
agent of the beneficial owner of the payments (i.e.., non-resident), the
authority as agent is held to include the filing of a claim for refund. The Silkair
case held inapplicable as it involved excise taxes and not withholding taxes.

Smart was granted a refund given that only a portion of its payments
represented royalties since it is only that portion over which Prism maintained
intellectual property rights and the rest involved full transfer of proprietary
rights to Smart and were thus treated as business profits of Prism.

249 | M s . N o l a i d a A g u i r r e
 CASE SYLLABI:
Taxation; Tax Refunds; Withholding Tax; Parties; The person entitled to
claim a tax refund is the taxpayer, but in case the taxpayer does not file
a claim for refund, the withholding agent may file the claim.—The person
entitled to claim a tax refund is the taxpayer. However, in case the taxpayer
does not file a claim for refund, the withholding agent may file the claim. In
Commissioner of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation, 204 SCRA 377 (1991), a withholding agent was
considered a proper party to file a claim for refund of the withheld taxes of its
foreign parent company.
Same; Same; Same; Same; Although the fact that the taxpayer and the
withholding agent are related parties is a factor that increases the
latter’s legal interest to file a claim for refund, there is nothing in
Commissioner of Internal Revenue v. Procter & Gamble Philippines
Manufacturing Corporation, 204 SCRA 377 (1991), to suggest that such
relationship is required or that the lack of such relation deprives the
withholding agent of the right to file a claim for refund—what is clear in
the decision is that a withholding agent has a legal right to file a claim for
refund.—Petitioner, however, submits that this ruling applies only when the
withholding agent and the taxpayer are related parties, i.e., where the
withholding agent is a wholly owned subsidiary of the taxpayer. We do not
agree. Although such relation between the taxpayer and the withholding agent
is a factor that increases the latter’s legal interest to file a claim for refund,
there is nothing in the decision to suggest that such relationship is required or
that the lack of such relation deprives the withholding agent of the right to file
a claim for refund. Rather, what is clear in the decision is that a withholding
agent has a legal right to file a claim for refund for two reasons. First, he is
considered a “taxpayer” under the NIRC as he is personally liable for the
withholding tax as well as for deficiency assessments, surcharges, and
penalties, should the amount of the tax withheld be finally found to be less
than the amount that should have been withheld under law. Second, as an
agent of the taxpayer, his authority to file the necessary income tax return and
to remit the tax withheld to the government impliedly includes the authority to
file a claim for refund and to bring an action for recovery of such claim.
Same; Same; Same; Same; Unjust Enrichment; While the withholding
agent has the right to recover the taxes erroneously or illegally collected,
he nevertheless has the obligation to remit the same to the principal
taxpayer.—In this connection, it is however significant to add that while the
withholding agent has the right to recover the taxes erroneously or illegally
collected, he nevertheless has the obligation to remit the same to the principal
taxpayer. As an agent of the taxpayer, it is his duty to return what he has
recovered; otherwise, he would be unjustly enriching himself at the expense of
the principal taxpayer from whom the taxes were withheld, and from whom he
derives his legal right to file a claim for refund.

250 | M s . N o l a i d a A g u i r r e
Same; Same; RP-Malaysia Tax Treaty; Words and Phrases; “Royalties,”
and “Permanent Establishment,” Defined.—Under the RP-Malaysia Tax
Treaty, the term royalties is defined as payments of any kind received as
consideration for: “(i) the use of, or the right to use, any patent, trade mark,
design or model, plan, secret formula or process, any copyright of literary,
artistic or scientific work, or for the use of, or the right to use, industrial,
commercial, or scientific equipment, or for information concerning industrial,
commercial or scientific experience; (ii) the use of, or the right to use,
cinematograph films, or tapes for radio or television broadcasting.” These are
taxed at the rate of 25% of the gross amount. Under the same Treaty, the
“business profits” of an enterprise of a Contracting State is taxable only in that
State, unless the enterprise carries on business in the other Contracting State
through a permanent establishment. The term “permanent establishment” is
defined as a fixed place of business where the enterprise is wholly or partly
carried on. However, even if there is no fixed place of business, an enterprise
of a Contracting State is deemed to have a permanent establishment in the
other Contracting State if it carries on supervisory activities in that other State
for more than six months in connection with a construction, installation or
assembly project which is being undertaken in that other State. In the instant
case, it was established during the trial that Prism does not have a permanent
establishment in the Philippines. Hence, “business profits” derived from
Prism’s dealings with respondent are not taxable. The question is whether the
payments made to Prism under the SDM, CM, and SIM Application
agreements are “business profits” and not royalties.
Same; Same; The government has no right to retain what does not
belong to it.—The government has no right to retain what does not belong to
it. “No one, not even the State, should enrich oneself at the expense of
another.”
Koppel (Phil.), Inc. vs. Collector of Internal Revenue, 3 SCRA 17, NO.
L-10550. September 19, 1961
Paredes, J.
Facts:

The petitioner, it appears, is a domestic corporation of American capital duly

organized and existing by virtue the Philippine laws. During the year 1942 to
the early part of 1945, the petitioner sustained losses arising from the
occupation of the Philippines by the Japanese Military forces from 1941 to the
battle of liberation in 1945. On March 27, 1942, the U.S. Congress passed
Public Law 506, (War Damage Insurance Act), to cover insurance of all
properties in the Philippines which might be damaged, destroyed or lost due to
the operations of war. The petitioner, relying on the provisions of this
legislation, entered in its books as "accounts receivable" from the U.S.
Government the entire value of its properties damaged, destroyed and lost
during World War II. On April 30, 1946, the U.S. Congress enacted Public Law
370 (Philippine Rehabilitation Act of 1946), which provided that the Philippine
251 | M s . N o l a i d a A g u i r r e
War Damage Commission supersedes the War Damage Commission. Section
102 of the Public Law 370 states:

. . . . Provided further, that in case the aggregate amount of the claims

which would be payable to anyone claimant under the foregoing
provisions exceeds $500, the aggregate amount the claims approved in
favor of such claimant shall be reduced by 25 per centum of the excess
over $500.

On January 15, 1947, the U.S.-Philippine War Damage Commission, the

agency entrusted with the enforcement of said Public Law 370, issued a
notice to the effect that February 25, 1947, was the date agreed upon as the
initial date for the issuance of forms for the claimants of war damages and the
claims could not be filed until after March 1, 1947. In 1947, the petitioner came
to know that its losses equivalent to 25% or P256,054.88 could not be
recovered, for which reason petitioner could not claim deduction for said
losses in its 1945 and 1946 income tax returns. Petitioner, therefore, in its
book of accounts for the year 1947, wrote off as "bad debts" the said amount
of P256,054.88. On June 6, 1949, the respondent Collector of Internal
Revenue, assessed against the petitioner's income tax for 1947, the sum of
P34,636.21, corresponding to the amount of P256,054.88 as war losses
sustained and ascertained to be recoverable in 1946. On June 29, 1949, the
petitioner paid under protest with the Bureau of Internal Revenue the amount
of P34,636.21 (O.R. No. 58094) as alleged deficiency income tax due, based
on the disallowed deduction of P256,054.88. Petitioner repeatedly sought from
respondent a reconsideration of the assessment and the refund of the amount
of P34,636.21 later reduced to P30,726.21, on the ground that said
assessment was illegal. The then Secretary of Finance, Pio Pedrosa, on
September 11, 1951, sustained petitioner's stand and that of other taxpayers
similarly situated, setting rules to be followed. The respondent issued general
Circular No. V-123 addressed to all Internal Revenue officers and income tax
examiners to apply the rules in the investigation of income tax returns
involving war damage losses. On September 21, 1951, petitioner reiterated its
demand for the refund of the amount of P30,726.53. Petitioner, on July 28,
1953, received a communication denying the refund of the amount, on the
ground that the ruling of Finance Secretary Pedrosa had already been
revoked by his successor, Secretary of Finance Aurelio Montinola.

On August 27, 1953, petitioner filed a petition for review with the then Board of
Tax Appeals (B.T.A. Case No. 157), praying that the respondent be ordered to
refund to the petitioner the sum of P30,726.53, to which on September 5,
1953 respondent answered, praying for the dismissal of the case. The case
was submitted for decision after the parties had filed their respective
memoranda. Notwithstanding the lapse of 60 days from the filing of the
petition for review, the Board of Tax Appeals, had not rendered any decision.
On November 4, 1953, petitioner gave notice of intention to file an appeal,
pursuant to section 21 of Executive Order No. 401-A. On November 13, 1953,
petitioner received a copy of the decision of the Board of Tax Appeals dated
October 26, 1953, confirming the order of the respondent Collector of Internal

252 | M s . N o l a i d a A g u i r r e
Revenue, in denying the refund requested by the petitioner. A petition for
review was presented before this Court, being case No. L-5701.

In this Court, respondent did not file his brief, instead on April 21, 1954, he
presented a motion to dismiss the appeal. On April 29, 1954, this Court
dismissed the petitioner's appeal in said case "without prejudice, following the
decision in University of Sto. Tomas vs. Board of Tax Appeals, G.R. No. L-
6701". On May 18, 1954, petitioner filed a complaint with the Manila Court of
First Instance, Civil Case No. 22893, entitled "Koppel (Philippines), Inc.
plaintiff v. Collector of Internal Revenue, defendant," praying that the latter be
ordered to refund to the former the sum of P30,726.53. Upon motion of the
Solicitor General, the Manila Court of First Instance remanded the case to the
Court of Tax Appeals, pursuant to section 22 of Rep. Act No. 1125, in which
Court, on December 14, 1955, the parties submitted a stipulation of facts. On
March 5, 1956, the Court of Tax Appeals rendered a decision, that the
petitioner’s cause of action has already prescribed.

Issue:

Whether or not a claim of petitioner’s refund has already prescribed.

Held:

The petitioner is estopped by laches. The record reveals that on June 29,
1949, the petitioner paid to the respondent the deficiency tax in question.
From the said date, the two years within which to file an action in court for the
recovery of the tax expired on June 29, 1951. Within the said period, the
petitioner failed to file an action for refund either in the Court of First Instance
or the Board of Tax Appeals, immediately after the creation of the Board under
Executive Order No. 401-A promulgated on Jan. 5, 1951. Petitioner just
waited for the decision of the respondent Collector of Internal Revenue in its
claim for refund, which was handed down on July 28, 1953, after more than
four (4) years from payment. It is clearly ruled in the Kiener case that the
petitioner should not have folded his arms and wait for the decision, knowing,
that the "time for bringing an action for a refund of income tax, fixed by statute,
is not extended by the delay of the Collector of Internal Revenue in giving
notice of the rejection of such claim (U.S. v. Michel, 282 U.S. 656, 51 S. Ct.
284)" (II Arañas, N.I.R. Code p. 719). There was an assessment; the petitioner
paid; the petitioner asked for refund; it was denied; a motion for
reconsideration was presented and no resolution was forthcoming from the
respondent Collector. Aware of the provisions of the law, it was the duty of the
petitioner to have urged the respondent for his decision and wake him up from
his lethargy or file his action within the time prescribed by law. While it is true
that there was a ruling couched in general terms, by the Secretary of Finance
on the matter, which was really controversial, because the same was later
revoked by another Secretary of Finance, said pronouncement, however, was
not a decision by the respondent Collector on the specific controversy relative
to the refund of the deficiency tax in question. The court should not give a
premium to a litigant who sleeps on his rights. The lawyers of the petitioner

253 | M s . N o l a i d a A g u i r r e
may not come now and invoke estoppel when they have been in laches
themselves. The government is never estopped by error or mistake on the
part of its agents (Pineda, et al. v. CFI and Coll. of Int. Rev., 52 Phil. 803). The
reservation made by the Supreme Court in the case No. L-5701 should not be
interpreted as permitting the petitioner to file another case under all
circumstances, but as the facts and circumstances might warrant under the
law. The ruling in the Kiener case is still a sound one, and should be, as it is
applied, as a matter of public policy, in the enforcement of tax laws.

CASE SYLLABI:

Taxation; Income tax; Action for refund; Taxpayer need not wait for
collector’s decision; Time for bringing action not extended by delay in
giving notice of the rejection of claim.—Knowing that the time for bringing
an action for a refund of income tax is not extended by the delay of the
Collector of Internal Revenue in giving notice of the rejection of such claim
(U.S. v. Michel, 282 U.S. 656, 51 S. Ct. 284; II Arañas, N.I.R. Code, p. 719), a
taxpayer should not fold his arms and wait for the decision of the Collector
before bringing the action for refund (Kiener Co., Ltd. vs. S. David, L-5157,
April 22, 1953, 49 O.G. No. 5, 1852).
Same; Same; Taxpayer duty bound to file action within the time
prescribed by law; Prescription.—Aware of the provisions of the law, it is
the duty of the taxpayer to urge the Collector for his decision and wake him up
from his lethargy or file his action within the time prescribed by law. The
petitioner not having filed his claim within the time fixed by law, his cause of
action has prescribed, and the court should not give a premium to a litigant
who sleeps on his rights.
Same; Same; Government not estopped by errors of its agents.—Having
failed to file his action for refund on time petitioner may not now invoke
estoppel when he himself is guilty of laches. The government is never
estopped by error or mistake on the part of its agents (Pineda, et al. vs. CFI
and Collector of Internal Revenue, 52 Phil. 803).
Commissioner of Internal revenue vs .Far East Bank &amp; Trust
Company (now Bank of the Philippine Island), 615 SCRA 417, G.R. No.
173854. March 15, 2010
Del Castillo, J.

“Entitlement to a tax refund is for the taxpayer to prove and not for the
government to disprove. “

Facts:
On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two
Corporate Annual Income Tax Returns, one for its Corporate Banking Unit
(CBU)[4] and another for its Foreign Currency Deposit Unit (FCDU),[5] for the taxable

254 | M s . N o l a i d a A g u i r r e
year ending December 31, 1994. The return for the CBU consolidated the
respondent’s overall income tax liability for 1994, which reflected a refundable
income tax of P12,682,864.00.

Pursuant to Section 69[7] of the old National Internal Revenue Code

(NIRC),the amount of P12,682,864.00 was carried over and applied against
respondent’s income tax liability for the taxable year ending December 31,
1995. On April 15, 1996, respondent filed its 1995 Annual Income Tax Return,
which showed a total overpaid income tax in the amount of P17,443,133.00.

Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought
to be refunded by respondent. As to the remaining P3,798,024.00, respondent
opted to carry it over to the next taxable year.On May 17, 1996, respondent filed a
claim for refund of the amount of P13,645,109.00 with the BIR. Due to the failure of
petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund,
respondent was compelled to bring the matter to the CTA on April 8, 1997 via a
Petition for Review docketed as CTA Case No. 5487.

On October 4, 1999, the CTA rendered a Decision denying respondent’s claim for
refund on the ground that respondent failed to show that the income derived from
rentals and sale of real property from which the taxes were withheld were reflected
in its 1994 Annual Income Tax Return. On October 20, 1999, respondent filed a
Motion for New Trial based on excusable negligence. It prayed that it be allowed to
present additional evidence to support its claim for refund.However, the motion was
denied on December 16, 1999 by the CTA.

On appeal, the CA reversed the Decision of the CTA. The CA found that
respondent has duly proven that the income derived from rentals and sale of real
property upon which the taxes were withheld were included in the return as part of
the gross income.Hence, this present recourse.

Issue:
Whether respondent has proven its entitlement to the refund.
Held:

We find that the respondent miserably failed to prove its entitlement to the
refund. Therefore, we grant the petition filed by the petitioner CIR for being
meritorious.

A taxpayer claiming for a tax credit or refund of creditable withholding tax must
comply with the following requisites:

255 | M s . N o l a i d a A g u i r r e
 1) The claim must be filed with the CIR within the two-year period from
the date of payment of the tax;

2) It must be shown on the return that the income received was declared
as part of the gross income; and
3) The fact of withholding must be established by a copy of a statement
duly issued by the payor to the payee showing the amount paid and
the amount of the tax withheld.[12]

The two-year period requirement is based on Section 229 of the NIRC of

1997 which provides that:

SECTION 229. Recovery of Tax Erroneously or Illegally Collected. —

No suit or proceeding shall be maintained in any court for the recovery
of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest
or duress.

In any case, no such suit or proceeding shall be filed after the

expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid. (Formerly Section 230
of the old NIRC)

While the second and third requirements are found under Section 10 of Revenue
Regulation No. 6-85, as amended, which reads:

Section 10. Claims for tax credit or refund. — Claims for tax
credit or refund of income tax deducted and withheld on income
payments shall be given due course only when it is shown on the
return that the income payment received was declared as part of the
gross income and the fact of withholding is established by a copy of
the statement duly issued by the payer to the payee (BIR Form No.
1743.1) showing the amount paid and the amount of tax withheld
therefrom.

256 | M s . N o l a i d a A g u i r r e
Respondent timely filed its claim for refund.There is no dispute that respondent
complied with the first requirement. The filing of respondent’s administrative claim
for refund on May 17, 1996 and judicial claim for refund onApril 8, 1997 were well
within the two-year period from the date of the filing of the return on April 10, 1995.
Respondent failed to prove that the income derived from rentals and
sale of real property were included in the gross income as reflected in its
return. To establish the fact of withholding, respondent submitted Certificates of
Creditable Tax Withheld at Source and Monthly Remittance Returns of Income
Taxes Withheld, which pertain to rentals and sales of real property,
respectively. However, a perusal of respondent’s 1994 Annual Income Tax Return
shows that the gross income was derived solely from sales of services. In fact,
the phrase “NOT APPLICABLE” was printed on the schedules pertaining to rent,
sale of real property, and trust income.[16] Thus, based on the entries in the return,
the income derived from rentals and sales of real property upon which the
creditable taxes were withheld were not included in respondent’s gross income
as reflected in its return. Since no income was reported, it follows that no tax was
withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the
income upon which any creditable tax is required to be withheld at the source.[17]

Respondent’s explanation that its income derived from rentals and sales of real
properties were included in the gross income but were classified as “Other
Earnings” in its Schedule of Income[18] attached to the return is not supported by the
evidence. There is nothing in the Schedule of Income to show that the income
under the heading “Other Earnings” includes income from rentals and sales of real
property. No documentary or testimonial evidence was presented by respondent to
prove this. In fact, respondent, upon realizing its omission, filed a motion for new
trial on the ground of excusable negligence with the CTA. Respondent knew that it
had to present additional evidence showing the breakdown of the “Other Earnings”
reported in its Schedule of Income attached to the return to prove that the income
from rentals and sales of real property were actually included under the heading
“Other Earnings.”

Respondent failed to present all the Certificates of Creditable Tax

Withheld at Source. The CA likewise failed to consider in its Decision the
absence of several Certificates of Creditable Tax Withheld at Source. It
immediately granted the refund without first verifying whether the fact of
withholding was established by the Certificates of Creditable Tax Withheld at
Source as required under Section 10 of Revenue Regulation No. 6-85. As
correctly pointed out by the CTA, the certifications (Exhibit UU) issued by
respondent cannot be considered in the absence of the required Certificates
of Creditable Tax Withheld at Source.

The burden is on the taxpayer to prove its entitlement to the refund.

Moreover, the fact that the petitioner failed to present any evidence or to
refute the evidence presented by respondent does not ipso facto entitle the
respondent to a tax refund. It is not the duty of the government to disprove a
257 | M s . N o l a i d a A g u i r r e
taxpayer’s claim for refund. Rather, the burden of establishing the factual
basis of a claim for a refund rests on the taxpayer.[20]

And while the petitioner has the power to make an examination of the returns
and to assess the correct amount of tax, his failure to exercise such powers
does not create a presumption in favor of the correctness of the returns. The
taxpayer must still present substantial evidence to prove his claim for
refund. As we have said, there is no automatic grant of a tax refund.[21]

Hence, for failing to prove its entitlement to a tax refund, respondent’s claim
must be denied. Since tax refunds partake of the nature of tax exemptions,
which are construed strictissimi juris against the taxpayer, evidence in support
of a claim must likewise be strictissimi scrutinized and duly proven.

CASE SYLLABI:

Taxation; Tax Refund; Requisites for taxpayer claiming for a tax credit or
refund of creditable withholding tax.—A taxpayer claiming for a tax credit
or refund of creditable withholding tax must comply with the following
requisites: 1) The claim must be filed with the CIR within the two-year period
from the date of payment of the tax; 2) It must be shown on the return that the
income received was declared as part of the gross income; and 3) The fact of
withholding must be established by a copy of a statement duly issued by the
payor to the payee showing the amount paid and the amount of the tax
withheld.
Same; Same; It is incumbent upon the taxpayer to reflect in his return
the income upon which any creditable tax is required to be withheld at
the source.—Based on the entries in the return, the income derived from
rentals and sales of real property upon which the creditable taxes were
withheld were not included in respondent’s gross income as reflected in its
return. Since no income was reported, it follows that no tax was withheld. To
reiterate, it is incumbent upon the taxpayer to reflect in his return the income
upon which any creditable tax is required to be withheld at the source.
Same; Same; It is not the duty of the government to disprove a
taxpayer’s claim for refund; the burden of establishing the factual basis
of a claim for a refund rests on the taxpayer.—The fact that the petitioner
failed to present any evidence or to refute the evidence presented by
respondent does not ipso facto entitle the respondent to a tax refund. It is not
the duty of the government to disprove a taxpayer’s claim for refund. Rather,
the burden of establishing the factual basis of a claim for a refund rests on the
taxpayer.
Same; Same; There is no automatic grant of a tax refund.—And while the
petitioner has the power to make an examination of the returns and to assess
the correct amount of tax, his failure to exercise such powers does not create
a presumption in favor of the correctness of the returns. The taxpayer must

258 | M s . N o l a i d a A g u i r r e
still present substantial evidence to prove his claim for refund. As we have
said, there is no automatic grant of a tax refund.
Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No.
L-23912. March 15, 1968
Fernando, J.
Facts:
An assessment in the sum of P1,181.33 and P2,616.10 representing estate
and inheritance taxes on 50 shares of stock of Edward J. Nell Company
issued in the names of both spouses “as joint tenants with full rights of
survivorship and not as tenants in common” was made by the Commissioner
of Internal Revenue on the ground that there was a transmission to the
husband of one-half share thereof upon the death of the wife, the above
shares being conjugal property. Jose Concepcion, as ancillary administrator of
the estate of Mary H. Mitchell-Roberts, and Jack F. Mitchell-Roberts, husband
of the deceased, opposed and maintained that there was no transmission of
property since under English law, ownership of all property acquired during
the marriage vests in the husband, and that the shares of stock were issued to
the spouses “as joint tenants with full rights of survivorship and not as tenants
in common. Not being agreeable to the theory entertained by the
Commissioner of Internal Revenue, Concepcion and Mitchell-Roberts, in CTA
Case 168, appealed such a decision under RA 1125. The Court of Tax
Appeals, however and on 29 April 1957, dismissed such an appeal as the
petition for review because it was filed beyond the reglementary period of 30
days. That decision became final.

On 14 June 1957, Concepcion and Mitchell-Roberts paid the taxes in question

amounting to P1,181.33 (as estate tax) and P2,616.10 (as inheritance tax),
inclusive of delinquency penalties, and at the same time filed a claim for the
refund of said amounts. Without waiting for the decision of the Commissioner
of Internal Revenue on the claim for refund, Concepcion and Mitchell-Roberts
instituted an appeal with the Court of Tax Appeals on 11 June 1959 in order to
avoid the prescriptive period of two years provided for in Section 306 of the
Revenue Code. The Court of Tax Appeals ordered the Commissioner of
Internal Revenue to refund the inheritance and estate taxes paid in the
amount of P3,797.43. The Commissioner filed a petition for review with the
Supreme Court.

Issue:
Whether a taxpayer who had lost his right to dispute the validity of an
assessment, the period for appealing to the Court of Tax Appeals having
expired, as found by such Court in a previous case in a decision now final,
and who thereafter paid under protest could then, relying on Section 306 of
the National Internal Revenue Code sue for recovery on the ground of its
illegality?
Held:

259 | M s . N o l a i d a A g u i r r e
No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was
reaffirmed categorically in this language: "Taxpayer's failure to appeal to the
Court of Tax Appeals 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 the merits.
Otherwise, the period of thirty days for appeal to the Court of Tax Appeals
would make little sense." Once the matter has reached the stage of finality in
view of the failure to appeal, it logically follows, in the appropriate language of
Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could
no longer be reopened through the expedient of an appeal from the denial of
petitioner's request for cancellation of the warrant of distraint and levy."
In the same way then that the expedient of an appeal from a denial of a tax
request for cancellation of warrant of distraint and levy cannot be utilized for
the purpose of testing the legality of an assessment, which had become
conclusive and binding on the taxpayer, there being no appeal, the procedure
set forth in Section 306 of the National Internal Revenue Code is not available
to revive the right to contest the validity of an assessment once the same had
been irretrievably lost not only by the failure to appeal but likewise by the
lapse of the reglementary period within which to appeal could have been
taken. Clearly then, the liability of respondent Concepcion as an ancillary
administrator of the estate of the deceased wife and of respondent
Mitchell-Roberts as the husband for the amount of P1, 181.33 as estate
tax and P2,616.10 as inheritance tax was beyond question. Having paid
the same, respondents are clearly devoid of any legal right to sue for
recovery.
CASE SYLLABUS:
Taxation; Recovery of tax illegally collected, denied where taxpayer had
failed to appeal in due time.—Where a taxpayer seeking a refund of estate
and inheritance taxes whose request is denied and whose appeal to the Court
of Tax Appeals was dismissed for being filed out of time, sues anew to
recover such taxes, already paid under protest, his action is devoid of merit.
For in the same way that the expedient of an appeal from a denial of a tax
request for cancellation of warrant of distraint and levy cannot be utilized to
test the legality of an assessment which had become conclusive and binding
on the taxpayer, so is section 360 of the Tax Code not available to revive the
right to contest the validity of an assessment which had become final for
failure to appeal the same on time.
Commissioner of Internal Revenue vs. Court of Appeals, 234 SCRA
348, G.R. No. 106611. July 21, 1994
Regalado, J.
Facts:
260 | M s . N o l a i d a A g u i r r e
In a letter dated August 26, 1986, herein private respondent corporation filed a
claim for refund with the Bureau of Internal Revenue (BIR) in the amount of
P19,971,745.00 representing the alleged aggregate of the excess of its
carried-over total quarterly payments over the actual income tax due, plus
carried-over withholding tax payments on government securities and rental
income, as computed in its final income tax return for the calendar year ending
December 31, 1985. 3 Two days later, or on August 28, 1986, in order to
interrupt the running of the prescriptive period, Citytrust filed a petition with the
Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming the
refund of its income tax overpayments for the years 1983, 1984 and 1985 in
the total amount of P19,971,745.00. 4

In the answer filed by the Office of the Solicitor General, for and in behalf of
therein respondent commissioner, it was asserted that the mere averment that
Citytrust incurred a net loss in 1985 does not ipso facto merit a refund. On
June 24, 1991, herein petitioner filed with the tax court a manifestation and
motion praying for the suspension of the proceedings in the said case on the
ground that the claim of Citytrust for tax refund in the amount of
P19,971,745.00 was already being processed by the Tax Credit/Refund
Division of the BIR, and that said bureau was only awaiting the submission by
Citytrust of the required confirmation receipts which would show whether or
not the aforestated amount was actually paid and remitted to the BIR.

The tax court rendered its decision, it held that petitioner is entitled to a refund
but only for the overpaid taxes incurred in 1984 and 1985. The refundable
amount as shown in its 1983 income tax return is hereby denied on the
ground of prescription. Respondent is hereby ordered to grant a refund to
petitioner Citytrust Banking Corp. in the amount of P13,314,506.14
representing the overpaid income taxes for 1984 and 1985,
A motion for the reconsideration of said decision was initially filed by the
Solicitor General on the sole ground that the statements and certificates of
taxes allegedly withheld are not conclusive evidence of actual payment and
remittance of the taxes withheld to the BIR. 12 A supplemental motion for
reconsideration was thereafter filed, wherein it was contended for the first time
that herein private respondent had outstanding unpaid deficiency income
taxes. Petitioner alleged that through an inter-office memorandum of the Tax
Credit/Refund Division, dated August 8, 1991, he came to know only lately
that Citytrust had outstanding tax liabilities for 1984 in the amount of
P56,588,740.91 representing deficiency income and business taxes covered
by Demand/Assessment Notice
Oppositions to both the basic and supplemental motions for reconsideration
were filed by private respondent Citytrust. Thereafter, the Court of Tax
Appeals issued a resolution denying both motions
As indicated at the outset, a petition for review was filed by herein petitioner
with respondent Court of Appeals which in due course promulgated its
decision affirming the judgment of the Court of Tax Appeals. Petitioner
261 | M s . N o l a i d a A g u i r r e
eventually elevated the case to this Court, maintaining that said respondent
court erred in affirming the grant of the claim for refund of Citytrust,
considering that, firstly, said private respondent failed to prove and
substantiate its claim for such refund; and, secondly, the bureau's findings of
deficiency income and business tax liabilities against private respondent for
the year 1984 bars such payment.
Issue:
Whether or not private respondent is entitled for a refund.
Held:
The Court ruled that the case be remanded to the CTA for further
proceedings.

The Court of Tax Appeals erred in denying petitioner's supplemental motion

for reconsideration alleging bringing to said court's attention the existence of
the deficiency income and business tax assessment against Citytrust. The fact
of such deficiency assessment is intimately related to and inextricably
intertwined with the right of respondent bank to claim for a tax refund for the
same year. To award such refund despite the existence of that deficiency
assessment is an absurdity and a polarity in conceptual effects. Herein private
respondent cannot be entitled to refund and at the same time be liable for a
tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid,
that is, the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a doubt as to and constitutes a
challenge against the truth and accuracy of the facts stated in said return
which, by itself and without unquestionable evidence, cannot be the basis for
the grant of the refund.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which
was the applicable law when the claim of Citytrust was filed, provides that
"(w)hen an assessment is made in case of any list, statement, or return, which
in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax
collected under such assessment shall be recovered by any suits unless it is
proved that the said list, statement, or return was not false nor fraudulent and
did not contain any understatement or undervaluation; but this provision shall
not apply to statements or returns made or to be made in good faith regarding
annual depreciation of oil or gas wells and mines."

Moreover, to grant the refund without determination of the proper assessment

and the tax due would inevitably result in multiplicity of proceedings or suits. If
the deficiency assessment should subsequently be upheld, the Government
will be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of
ten years after discovery of the falsity, fraud or omission in the false or

262 | M s . N o l a i d a A g u i r r e
fraudulent return involved. 23 This would necessarily require and entail
additional efforts and expenses on the part of the Government, impose a
burden on and a drain of government funds, and impede or delay the
collection of much-needed revenue for governmental operations.

CASE SYLLABI:
Administrative Law; The Government is not bound by the errors
committed by its governmental agents.—It is a long and firmly settled rule
of law that the Government is not bound by the errors committed by its agents.
In the performance of its governmental functions, the State cannot be
estopped by the neglect of its agent and officers. Although the Government
may generally be estopped through the affirmative acts of public officers
acting within their authority, their neglect or omission of public duties as
exemplified in this case will not and should not produce that effect.
Taxation; Taxes are the lifeblood of the nation.—Nowhere is the
aforestated rule more true than in the field of taxation. It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving
taxes. Taxes are the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its functions for
the welfare of its constituents. The errors of certain administrative officers
should never be allowed to jeopardize the Government’s financial position,
especially in the case at bar where the amount involves millions of pesos the
collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
Same; To award tax refund despite the existence of deficiency
assessment is an absurdity.—Further, it is also worth noting that the Court
of Tax Appeals erred in denying petitioner’s supplemental motion for
reconsideration alleging and bringing to said court’s attention the existence of
the deficiency income and business tax assessment against Citytrust. The fact
of such deficiency assessment is intimately related to and inextricably
intertwined with the right of respondent bank to claim for a tax refund for the
same year. To award such refund despite the existence of that deficiency
assessment is an absurdity and a polarity in conceptual effects. Herein private
respondent cannot be entitled to refund and at the same time be liable for a
tax deficiency assessment for the same year.
Same; The grant of a refund is founded on the assumption that the tax
return is valid.—The grant of a refund is founded on the assumption that the
tax return is valid, that is, the facts stated therein are true and correct. The
deficiency assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts stated in
said return which, by itself and without unquestionable evidence, cannot be
the basis for the grant of the refund.
Same; Actions; Multiplicity of suits; To grant the refund without
determination of the proper assessment and the tax due would
263 | M s . N o l a i d a A g u i r r e
inevitably result in multiplicity of proceedings or suits.—Moreover, to
grant the refund without determination of the proper assessment and the tax
due would inevitably result in multiplicity of proceedings or suits. If the
deficiency assessment should subsequently be upheld, the Government will
be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of
ten years after discovery of the falsity, fraud or omission in the false or
fraudulent return involved. This would necessarily require and entail additional
efforts and expenses on the part of the Government, impose a burden on and
a drain of government funds, and impede or delay the collection of much-
needed revenue for governmental operations.
Vda. de San Agustin vs. Commissioner of Internal Revenue, 364
SCRA 802, G.R. No. 138485. September 10, 2001
Vitug, J.

Facts:

The BIR assessed the estate of Atty. Agustin, and the sole heir (herein
petitioner) paid the assessed tax on protest and thereafter claimed a refund on
appeal. The Commissioner opposed the said petition, alleging that the CTA’s
jurisdiction was not properly invoked inasmuch as no claim for a tax refund of
the deficiency tax collected was filed with the Bureau of Internal revenue
before the petition was filed.

Issue:

Whether the filing of the claim for refund in this cases is essential before the
filing of the petition for review on the matter.

Held:
NO.
The case has a striking resemblance to Roman Catholic Archbishop of Cebu
vs CIR (4 SCRA 279). The petitioner in that case paid under protest the sum
of P5,201.52 by way of income tax, surcharge and interest and, forthwith,
filed a petition for review before the CTA. Then respondent CIR set up
several defences, one of which was the petitioner had failed to first file a
written claim for refund, pursuant to section 306 (now 229) of the tax code, of
the amounts paid. Convinced that the lack of a written claim for refund was
fatal to petitioner’s recourse to it, the CTA dismissed the petition for lack of
jurisdiction. On appeal to this court, the Court held:

We agree with petitioner that Section 7 of Republic Act No. 1125, creating the
Court of Tax Appeals, in providing for appeals from -

`(1) Decisions of the Collector of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the
264 | M s . N o l a i d a A g u i r r e
National Internal Revenue Code or other law or part of the law administered
by the Bureau of Internal Revenue -

allows an appeal from a decision of the Collector in cases involving `disputed

assessments’ as distinguished from cases involving `refunds of internal
revenue taxes, fees or other charges, x x x’; that the present action involves a
disputed assessment’; because from the time petitioner received assessments
Nos. 17-EC-00301-55 and 17-AC-600107-56 disallowing certain deductions
claimed by him in his income tax returns for the years 1955 and 1956, he
already protested and refused to pay the same, questioning the correctness
and legality of such assessments; and that the petitioner paid the disputed
assessments under protest before filing his petition for review with the Court a
quo, only to forestall the sale of his properties that had been placed under
distraint by the respondent Collector since December 4, 1957. To hold that
the taxpayer has now lost the right to appeal from the ruling on the disputed
assessment but must prosecute his appeal under section 306 of the Tax Code,
which requires a taxpayer to file a claim for refund of the taxes paid as a
condition precedent to his right to appeal, would in effect require of him to go
through a useless and needless ceremony that would only delay the
disposition of the case, for the Collector (now Commissioner) would certainly
disallow the claim for refund in the same way as he disallowed the protest
against the assessment. The law, should not be interpreted as to result in
absurdities.”

The Court sees no cogent reason to abandon the above dictum and to require
a useless formality that can serve the interest of neither the government nor
the taxpayer. The tax court has aptly acted in taking cognizance of the
taxpayer’s appeal to it.

CASE SYLLABI:
Taxation; Actions; Tax Refunds; To hold that the taxpayer has lost the
right to appeal from the ruling on the disputed assessment but must
prosecute his appeal under Section 306 of the Tax Code, which requires
a taxpayer to file a claim for refund of the taxes paid as a condition
precedent to his right to appeal, would in effect require of him to go
through a useless and needless ceremony that would only delay the
disposition of the case—the law should not be interpreted as to result in
absurdities.—The case has a striking resemblance to the controversy in
Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue. The
petitioner in that case paid under protest the sum of P5,201.52 by way of
income tax, surcharge and interest and, forthwith, filed a petition for review
before the Court of Tax Appeals. Then respondent Collector (now
Commissioner) of Internal Revenue set up several defenses, one of which
was that petitioner had failed to first file a written claim for refund, pursuant to
Section 306 of the Tax Code, of the amounts paid. Convinced that the lack of
a written claim for refund was fatal to petitioner’s recourse to it, the Court of
Tax Appeals dismissed the petition for lack of jurisdiction. On appeal to this

265 | M s . N o l a i d a A g u i r r e
Court, the tax court’s ruling was reversed; the Court held: “We agree with
petitioner that Section 7 of Republic Act No. 1125, creating the Court of Tax
Appeals, in providing for appeals from—x x x allows an appeal from a decision
of the Collector in cases involving ‘disputed assessments’ as distinguished
from cases involving ‘refunds of internal revenue taxes, fees or other charges,
x x x’; that the present action involves a disputed assessment’; because from
the time petitioner received assessments Nos. 17-EC-00301-55 and 17-AC-
600107-56 disallowing certain deductions claimed by him in his income tax
returns for the years 1955 and 1956, he already protested and refused to pay
the same, questioning the correctness and legality of such assessments; and
that the petitioner paid the disputed assessments under protest before filing
his petition for review with the Court a quo, only to forestall the sale of his
properties that had been placed under distraint by the respondent Collector
since December 4, 1957. To hold that the taxpayer has now lost the right to
appeal from the ruling on the disputed assessment but must prosecute his
appeal under section 306 of the Tax Code, which requires a taxpayer to file a
claim for refund of the taxes paid as a condition precedent to his right to
appeal, would in effect require of him to go through a useless and needless
ceremony that would only delay the disposition of the case, for the Collector
(now Commissioner) would certainly disallow the claim for refund in the same
way as he disallowed the protest against the assessment. The law, should not
be interpreted as to result in absurdities.” The Court sees no cogent reason to
abandon the above dictum and to require a useless formality that can serve
the interest of neither the government nor the taxpayer. The tax court has
aptly acted in taking cognizance of the taxpayer’s appeal to it.
Same; The delay in the payment of the deficiency tax within the time
prescribed for its payment in the notice of assessment justifies the
imposition of a 25% surcharge in consonance with Section 248A(3) of
the Tax Code.—The delay in the payment of the deficiency tax within the time
prescribed for its payment in the notice of assessment justifies the imposition
of a 25% surcharge in consonance with Section 248A(3) of the Tax Code. The
basic deficiency tax in this case being P538,509.50, the twenty-five percent
thereof comes to P134,627.37. Section 249 of the Tax Code states that any
deficiency in the tax due would be subject to interest at the rate of twenty
percent (20%) per annum, which interest shall be assessed and collected from
the date prescribed for its payment until full payment is made.
Same; Taxes, the lifeblood of the government, are meant to be paid
without delay and often oblivious to contingencies or conditions.—
Regrettably for petitioner, the need for an authority from the probate court in
the payment of the deficiency estate tax, over which respondent
Commissioner has hardly any control, is not one that can negate the
application of the Tax Code provisions aforequoted. Taxes, the lifeblood of the
government, are meant to be paid without delay and often oblivious to
contingencies or conditions.

266 | M s . N o l a i d a A g u i r r e
ACCRA Investments Corporation vs. Court of Appeals, 204 SCRA 957,
G.R. No. 96322. December 20, 1991
Gutierrez, Jr., J.
Facts:

The petitioner corporation is a domestic corporation engaged in the business

of real estate investment and management consultancy. On April 15, 1982,
the petitioner corporation filed with the Bureau of Internal Revenue its annual
corporate income tax return for the calendar year ending December 31, 1981
reporting a net loss of P2,957,142.00. In the said return, the petitioner
corporation declared as creditable all taxes withheld at source by various
withholding agents.

The withholding agents aforestated paid and remitted the above amounts
representing taxes on rental, commission and consultancy income of the
petitioner corporation to the Bureau of Internal Revenue from February to
December 1981.

In a letter dated December 29, 1983 addressed to the respondent

Commissioner of Internal Revenue, the petitioner corporation filed a claim for
refund inasmuch as it had no tax liability against which to credit the amounts
withheld.

Pending action of the respondent Commissioner on its claim for refund, the
petitioner corporation, on April 13, 1984, filed a petition for review with the
respondent Court of Tax Appeals (CTA) asking for the refund of the amounts
withheld as overpaid income taxes.

On January 27, 1988, the respondent CTA dismissed the petition for review
after a finding that the two-year period within which the petitioner corporation's
claim for refund should have been filed had already prescribed pursuant to
Section 292 of the National Internal Revenue Code of 1977, as amended.

Acting on the petitioner corporation's motion for reconsideration, the

respondent CTA in its resolution dated September 27, 1988 denied the same
for having been filed out of time. It ruled that the reckoning date for purposes
of counting the two-year prescriptive period within which the petitioner
corporation could file a claim for refund was December 31, 1981 when the
taxes withheld at source were paid and remitted to the Bureau of Internal
Revenue by its withholding agents, not April 15, 1982, the date when the
petitioner corporation filed its final adjustment return.

On January 14, 1989, the petitioner corporation filed with us its petition for
review which we referred to the respondent appellate court in our resolution
dated February 15, 1990 for proper determination and disposition. On May 28,
1990, the respondent appellate court affirmed the decision of the respondent
CTA

267 | M s . N o l a i d a A g u i r r e
Issue:

Whether or not the right of petitioner to claim for refund has already prescribed.

Held:

Petitioner corporation had until April 15, 1984 within which to file its
claim for refund.

The petitioner corporation is not claiming a refund of overpaid withholding

taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the
refundable or creditable amount determined upon the petitioner corporation's
filing of the its final adjustment tax return on or before 15 April 1982 when its
tax liability for the year 1981 fell due. The distinction is essential in the
resolution of this case for it spells the difference between being barred by
prescription and entitlement to a refund.

Section 70, subparagraph (b) of the same Code states when the income tax
return with respect to taxpayers like the petitioner corporation must be filed.
Thus:

Sec. 70 (b) Time of filing the income return - The corporate

quarterly declaration shall be filed within sixty (60) days following
the close of each of the first three quarters of the taxable year.
The final adjustment return shall be filed on or before the 15th
day of the 4th month following the close of the fiscal year, as the
case may be. The petitioner corporation's taxable year is on a
calendar year basis, hence, with respect to the 1981 taxable year,
ACCRAIN had until 15 April 1982 within which to file its final
adjustment return. The petitioner corporation duly complied with
this requirement. On the basis of the corporate income tax return
which ACCRAIN filed on 15 April 1982, it reported a net loss of
P2,957,142.00. Consequently, as reflected thereon, the petitioner
corporation, after due computation, had no tax liability for the year
1981. Had there been any, payment thereof would have been due
at the time the return was filed pursuant to subparagraph (c) of
the aforementioned codal provision which reads:

Sec. 70 (c) - Time payment of the income tax - The income tax
due on the corporate quarterly returns and the final income tax
returns computed in accordance with Sections 68 and 69 shall be
paid at the time the declaration or return is filed asprescribed by
the Commissioner of Internal Revenue. If we were to uphold the
respondent appellate court in making the "date of payment"
coincide with the "end of the taxable year," the petitioner
corporation at the end of the 1981 taxable year was in no position
then to determine whether it was liable or not for the payment of
its 1981 income tax.

268 | M s . N o l a i d a A g u i r r e
Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by
the Bureau of Internal Revenue requires that:

Section 8. Claims for tax credit or refund — Claims for tax credit
or refund of income tax deducted and withheld on income
payments shall be given due course only when it is shown on the
return that the income payment received was declared as part of
the gross income and the fact of withholding is established by a
copy of the statement, duly issued by the payor to the payee (BIR
Form No. 1743-A) showing the amount paid and the amount of
tax withheld therefrom.

The term "return" in the case of domestic corporations like ACCRAIN refers to
the final adjustment return as mentioned in Section 69 of the Tax Code of
1986.

Clearly, there is the need to file a return first before a claim for refund can
prosper inasmuch as the respondent Commissioner by his own rules and
regulations mandates that the corporate taxpayer opting to ask for a refund
must show in its final adjustment return the income it received from all sources
and the amount of withholding taxes remitted by its withholding agents to the
Bureau of Internal Revenue. The petitioner corporation filed its final
adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution
dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia
Australia Express, Ltd. (G. R. No. 85956), we ruled that the two-year
prescriptive period within which to claim a refund commences to run, at the
earliest, on the date of the filing of the adjusted final tax return. Hence, the
petitioner corporation had until April 15, 1984 within which to file its
claim for refund. Considering that ACCRAIN filed its claim for refund as early
as December 29, 1983 with the respondent Commissioner who failed to take
any action thereon and considering further that the non-resolution of its claim
for refund with the said Commissioner prompted ACCRAIN to reiterate its
claim before the Court of Tax Appeals through a petition for review on April 13,
1984, the respondent appellate court manifestly committed a reversible error
in affirming the holding of the tax court that ACCRAIN's claim for refund was
barred by prescription.

It bears emphasis at this point that the rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for refund
from the time it filed its final adjustment return is the fact that it was only then
that ACCRAIN could ascertain whether it made profits or incurred losses in its
business operations. The "date of payment", therefore, in ACCRAIN's case
was when its tax liability, if any, fell due upon its filing of its final adjustment
return on April 15, 1982.

CASE SYLLABUS:

Taxation; Prescription of action to claim refund; When two-year

prescriptive period commences to run.—Clearly, there is the need to file a

269 | M s . N o l a i d a A g u i r r e
return first before a claim for refund can prosper inasmuch as the respondent
Commissioner by his own rules and regulations mandates that the corporate
taxpayer opting to ask for a refund must show in its final adjustment return the
income it received from all sources and the amount of withholding taxes
remitted by its withholding agents to the Bureau of Internal Revenue. The
petitioner corporation filed its final adjustment return for its 1981 taxable year
on April 15, 1982. In our Resolution dated April 10,1989 in the case of
Commissioner of lnternal Revenue v. Asia Australia Express, Ltd. (G.R. No.
85956), we ruled that the two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the
adjusted final tax return. Hence, the petitioner corporation had until April 15,
1984 within which to file its claim for refund.
Commissioner of lnternal Revenue vs. TMX Sales, Inc., 205 SCRA 184,
G.R. No. 83736. January 15, 1992
Gutierrez, J.
Facts:
TMX Sales Inc. filed its quarterly income tax for the 1st quarter of 1981. It
declared P571,174.31 and paying an income tax of P247,019 on May 13,
1981. However, during the subsequent quarters, TMX suffered losses. On
April 15, 1982, when TMX filed its Annual Income Tax Return for the year
ended in December 31, 1981, it declared a net loss of P6,156,525. On July
9, 1982, TMX filed with the Appellate Division of BIR for refund in the
amount of P247,010 representing overpaid income tax. His claim was not
acted upon by the Commissioner of Internal Revenue. On May 14, 1984,
TMX Sales filed a petition for review before the Court of Tax Appeals
against CIR, praying that the CIR be ordered to refund to TMX the amount
of P247,010. The CIR averred that TMX is already barred for claiming the
refund since more than 2 years has elapsed between the payment (May 15,
1981) and the filing of the claim in court (March 14, 1984). The Court of
Tax Appeals rendered a decision granting the petition of TMX Sales and
ordered CIR to refund the amount mentioned. Hence, this appeal of CIR.
Issue:
Whether or not TMX Sales Inc. is entitled to a refund considering that two
years has already elapsed since the payment of the tax
Held:
Yes. Petition denied.
Sec. 292, par. 2 of the National Internal Revenue Code stated that “in any
case, no such suit or proceeding shall be begun after the expiration of two
years from the date of the payment of the tax or penalty regardless of any
supervening cause that may arise after payment.” This should be
interpreted in relation to the other provisions of the Tax Code. The most
270 | M s . N o l a i d a A g u i r r e
reasonable and logical application of the law would be to compute the 2-
year prescriptive period at the time of the filing of the Final Adjustment
Return or the Annual Income Tax Return, where it can finally be
ascertained if the tax payer has still to pay additional income tax or if he is
entitled to a refund of overpaid income tax. Since TMX filed the suit on
March 14, 1984, it is within the 2-year prescriptive period starting from April
15, 1982 when they filed their Annual Income Tax Return.

StatCon maxim: The intention of the legislature must be ascertained from

the whole text of the law and every part of the act is taken into view.
CASE SYLLABI:
Taxation; Statutory Construction; Interpretatio talis in ambiguis semper
frienda est, ut evitatur inconveniens et absurdum; Where there is
ambiguity, such interpretation as will avoid inconvenience and absurdity
is to be adopted.—Section 292 (now Section 230) of the National Internal
Revenue Code should be interpreted in relation to the other provisions of the
Tax Code in order to give effect to legislative intent and to avoid an application
of the law which may lead to inconvenience and absurdity. In the case of
People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should
receive a sensible construction, such as will give effect to the legislative
intention and so as to avoid an unjust or an absurd conclusion.
INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT
EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such
interpretation as will avoid inconvenience and absurdity is to be adopted.
Furthermore, courts must give effect to the general legislative intent that can
be discovered from or is unraveled by the four corners of the statute, and in
order to discover said intent, the whole statute, and not only a particular
provision thereof, should be considered. (Manila Lodge No. 761, et al. vs.
Court of Appeals, et al., 73 SCRA 162 [1976]) Every section, provision or
clause of the statute must be expounded by reference to each other in order
to arrive at the effect contemplated by the legislature.
Same; Recovery of tax erroneously or illegally collected; The twoyear
prescriptive period provided in Section 292 (now Sec. 230 of the Tax
Code) should be computed from the time of filing the Adjustment Return
or Annual Income Tax Return and final payment of income tax.—
Therefore, the filing of quarterly income tax returns required in Section 85
(now Section 68) and implemented per BIR Form 1702-Q and payment of
quarterly income tax should only be considered mere installments of the
annual tax due. These quarterly tax payments which are computed based on
the cumulative figures of gross receipts and deductions in order to arrive at a
net taxable income, should be treated as advances or portions of the annual
income tax due, to be adjusted at the end of the calendar or fiscal year. This is
reinforced by Section 87 (now Section 69) which provides for the filing of
271 | M s . N o l a i d a A g u i r r e
adjustment returns and final payment of income tax. Consequently, the two-
year prescriptive period provided in Section 292 (now Section 230 of the Tax
Code should be computed from the time of filing the Adjustment Return or
Annual Income Tax Return and final payment of income tax.
Same; Same; Prescription; Case at bar; Private respondent TMX Sales,
Inc. suit for a refund is not yet barred by prescription.—In the instant case,
TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return
on April 15, 1982, TMX Sales, Inc. is not yet barred by prescription.
Systra Philippines, Inc. vs. Commissioner of Internal Revenue, 533
SCRA 776, G.R. No. 176290. September 21, 2007
Corona, J.
Facts:
This is a case where a second motion for reconsideration was
filed by petitioner. Systra likewise questioned the substantive aspect of
CTA decisions. Petitioner had creditable taxes which they opted to carry
over to the succeeding year 2001. In 2001 ITR, it indicated that creditable
withholding taxes will also be carried over to next year’s tax as credit.
However, on August 9, 2001, petitioner instituted a claim for refund of its
unutilized creditable withholding taxes. Due to BIR’s inaction, petitioner
filed a petition for review. CTA partially granted the petition but denied
claim for refund because petitioner was precluded from claiming a refund.
Once it was made for a particular taxable period, the option to carry over
become irrevocable.
Issue:
Whether or not the exercise of the option to carry-over excess income tax
credits bars a taxpayer from claiming the excess tax credits for refund.
Held:
It was in the year 2000 that petitioner derived excess tax credits and exercised
the irrevocable option to carry them over as tax credits for the next taxable
year. The excess credits will only be applied “against income tax due for the
taxable quarters of the succeeding taxable years.”
Section 76 of the present tax code formulates an irrevocability rule which
stresses and fortifies the nature of the remedies or options as alternative, not
cumulative. It also provides that the excess tax credits “may be carried over
and credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years until fully utilized.
Nevertheless, the amount will not be forfeited in favor of the government but
will remain in the taxpayer’s account.”

272 | M s . N o l a i d a A g u i r r e
A corporation entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid has 2 options:
a. To carry over the excess credit;
b. To apply for the issuance of a tax credit certificate or to claim a
cash refund.
If the option to carry over the excess credit is exercised, the same shall be
irrevocable for that taxable period. In exercising its option, the corporation
must signify in its annual corporate adjustment return (by marking the option
box provided in the BIR Form) its intention either to carry over the excess
credit or to claim a refund. To facilitate tax collection, these remedies are in
the alternative and the choice of one precludes the other. This is known as the
irrevocability rule and is embodied in the last sentence of Sec. 76 of the Tax
Code. The phrase “such option shall be considered irrevocable for that taxable
period” means that the option to carry over the excess tax credits of a
particular taxable year can no longer be revoked. The rule prevents a taxpayer
from claiming twice the excess quarterly taxes paid:
As automatic credit against taxes for the taxable quarters of the succeeding
years for which no tax credit certificate has been issued and; As a tax credit
either for which a tax credit certificate will be issued or which will be claimed
for cash refund.
CASE SYLLABI:
Taxation; Two options in favor of a corporation entitled to a tax credit or
refund of the excess estimated quarterly income taxes paid; Remedies
are in the alternative and the choice of one precludes the other; The
irrevocability rule embodied in the last sentence of Section 76 of the Tax
Code prevents a taxpayer from claiming twice the excess quarterly taxes
paid.—A corporation entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid has two options: (1) to carry over the excess
credit or (2) to apply for the issuance of a tax credit certificate or to claim a
cash refund. If the option to carry over the excess credit is exercised, the
same shall be irrevocable for that taxable period. In exercising its option, the
corporation must signify in its annual corporate adjustment return (by marking
the option box provided in the BIR form) its intention either to carry over the
excess credit or to claim a refund. To facilitate tax collection, these remedies
are in the alternative and the choice of one precludes the other. This is known
as the irrevocability rule and is embodied in the last sentence of Section 76 of
the Tax Code. The phrase “such option shall be considered irrevocable for
that taxable period” means that the option to carry over the excess tax credits
of a particular taxable year can no longer be revoked. The rule prevents a
taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic
credit against taxes for the taxable quarters of the succeeding years for which
no tax credit certificate has been issued and (2) as a tax credit either for which
a tax credit certificate will be issued or which will be claimed for cash refund.
273 | M s . N o l a i d a A g u i r r e
 Sithe Phils. Holdings vs. Commissioner of Internal Revenue, CTA
Case No. 6274, April 4, 2003
Acosta, PJ.
Facts:
Petitioner filed with the BIR its Tentative Corporate Annual ITR for the
calendar year ended 31 Dec. 1998, a gross income of P259, 617, 830. And
total deductions of P181, 987,048, leaving petitioner with a taxable income
amounting to P77, 630, 782.00 and corresponding income tax liability of P26,
394,466.00. Petitioner filed its 1999 tentative CAITR declaring gross income of
P47, 246,000.00 and total deductions in the amount of P134, 765,287.00,
resulting to a net loss in the amount of P87,519,287.00. Petitioner
subsequently flied a reduced income amount, foreign exchange gain amount,
and total deductions, leaving petitioner with a taxable income amount of P73,
111,435.00.
As of the end of taxable year 1999, petitioner had an aggregate amount of
overpaid income tax and unutilized withholding tax credits of P4, 117,343.00.
Considering the overpaid income tax and available withholding tax and
available withholding tax credits were utilized in 1999, due to petitioner’s loss
position, petitioner indicated its intention of filing a claim for refund by marking
the appropriate box on the face of the Final Return for the said year.
Petitoner filed an administrative claim for refund and/or issuance of tax credit
certificate of the overpaid income tax and unutilized withholding tax credit
certificate of the overpaid income tax and unutilized withholding tax credits for
the taxable years 1998-1999 in the total amount of P4,177,343.00. Failing to
obtain an affirmative relief from the respondent on the said administrative
claim for refund, petitioner was compelled to elevate the matter before the
CTA.
Issues:
1. Whether or not the amount of overpaid and unutilized creditable taxes
were carried over to the succeeding taxable year.

2. Whether or not Petitioner is entitled to refund and/or credit the amount

of the overpayment and unutilized creditable taxes for 1998-1999.

Held:
1. Yes, for the year 1998.

By the clear wording of Sec. 76 of the NIRC, by the filing, it enables a

taxpayer to ascertain whether it has a tax still due or an excess and
overpaid income tax based on the adjusted and audited figures. If it is
shown that the taxpayer has a tax still due, then he must pay the

274 | M s . N o l a i d a A g u i r r e
 balance thereof and on the other hand, if he has an excess or overpaid
income tax, then he could carry it over to the succeeding taxable year or
he may credit or refund the excess or overpayment income tax, then he
could carry it over to the succeeding taxable year or he may credit or
refund the excess amount paid, as the case may be.

When the petitioner opted to carry over its excess tax credit to the
succeeding taxable year, it has in effect availed of the privilege allowed
only by Section 76. Thus, it is absurd for petitioner to exercise the
option to carry over the excess amount paid and on the same breath,
invoke the inapplicability of Section 76.

2. Yes, for the year 1999.

Fundamental is the rule that in order to be entitled to refund of excess

creditable withholding tax at source, petitioner must comply with the
following three basic requirements:

a. The claim for refund was filed within the 2 year prescriptive period
provided under Section 204 (c) in relation to Section 299
b. That the fact of withholding is established by a copy of statement
duly issued by the payer (withholding agent) to the payee, showing
the amount paid and the amount of tax withheld therefrom
c. The income upon which the taxes were withheld were included in the
return of the recipient.

From the documents submitted, petitioner showed compliance on the

aforesaid requirements.
It is likewise significant to note that the unutilized creditable withholding tax
was no longer carried over to the succeeding taxable year as shown in the
petitioner’s 2000 AITR.
BPI-Family Savings Bank, Inc. vs. Court of Appeals, 330 SCRA 507,
G.R. No. 122480. April 12, 2000
Panganiban, J.
Facts:
Petitioner had excess withholding taxes for the year 1989 and was thus
entitled to a refund amounting to P 112,491. Petitioner indicated in its 1989
Income tax Return that it would apply the amount as a tax credit for the
succeeding taxable year, 1990. However, it did not apply the amount as a
tax refund, instead of applying it as a tax credit. W hen no action from the
BIR was forthcoming, petitioner filed its claim with the CTA. The CTA and
CA, denied the claim for tax refund. It opined that since petitioner declared
in its 1989 Income Tax Return that it would apply the excess withholding

275 | M s . N o l a i d a A g u i r r e
tax as a credit for the following year, it was presumed to have done so and
failed to overcome this presumption because it did not present its 1990
Return, which would have shown that the amount in dispute was not
applied as a tax credit.
Issue:
Whether BPI can still opt to claim a tax refund?
Held:
YES. The undisputed fact is that petitioner suffered a net loss in 1990;
accordingly, it incurred no tax liability to which the tax credit could be
applied. Consequently there is no reason for the BIR and this court to
withhold the tax refund which rightfully belongs to the petitioner.
Finally, respondents argue that tax refunds are in the nature of tax
exemptions and are to be construed strictissimi juris against the claimant.
Under the facts of this case, we hold that petitioner has established its
claim. Petitioner may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed
fact: that petitioner suffered a net loss in 1990, and that it could not have
applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner.
Technicalities and legalisms, however exalted, should not be misused by
the government to keep money not belonging to it and thereby enrich itself
at the expense of its law-abiding citizens. If the State expects its taxpayers
to observe fairness and honesty in paying their taxes, so must it apply the
same standard against itself in refunding excess payments of such taxes.
Indeed, the State must lead by its own example of honor, dignity and
uprightness.
CASE SYLLABI:
Appeals; As a rule, the factual findings of the appellate court are binding
on the Supreme Court; Exceptions.—We disagree with the Court of
Appeals. As a rule, the factual findings of the appellate court are binding on
this Court. This rule, however, does not apply where, inter alia, the judgment
is premised on a misapprehension of facts, or when the appellate court failed
to notice certain relevant facts which if considered would justify a different
conclusion. This case is one such exception.
Taxation; Court of Tax Appeals; Pleadings and Practice; Procedural
Rules; Strict procedural rules generally frown upon the submission of
the Tax Return after the trial, but the law creating the Court of Tax
Appeals specifically provides that proceedings before it “shall not be
governed strictly by the technical rules of evidence”—the paramount
consideration remains the ascertainment of truth.—Strict procedural rules

276 | M s . N o l a i d a A g u i r r e
generally frown upon the submission of the Return after the trial. The law
creating the Court of Tax Appeals, however, specifically provides that
proceedings before it “shall not be governed strictly by the technical rules of
evidence.” The paramount consideration remains the ascertainment of truth.
Verily, the quest for orderly presentation of issues is not an absolute. It should
not bar courts from considering undisputed facts to arrive at a just
determination of a controversy. In the present case, the Return attached to the
Motion for Reconsideration clearly showed that petitioner suffered a net loss in
1990. Contrary to the holding of the CA and the CTA, petitioner could not have
applied the amount as a tax credit. In failing to consider the said Return, as
well as the other documentary evidence presented during the trial, the
appellate court committed a reversible error.
Same; Tax Refunds; If a taxpayer suffered a net loss in a subsequent
year, incurring no tax liability to which a previous year’s tax credit could
be applied, there is no reason for the Bureau of Internal Revenue to
withhold the tax refund which rightfully belongs to the taxpayer.—It
should be stressed that the rationale of the rules of procedure is to secure a
just determination of every action. They are tools designed to facilitate the
attainment of justice. But there can be no just determination of the present
action if we ignore, on grounds of strict technicality, the Return submitted
before the CTA and even before this Court. To repeat, the undisputed fact is
that petitioner suffered a net loss in 1990; accordingly, it incurred no tax
liability to which the tax credit could be applied. Consequently, there is no
reason for the BIR and this Court to withhold the tax refund which rightfully
belongs to the petitioner.
Same; Judicial Notice; Judgments; Courts are not authorized to take
judicial notice of the contents of the records of other cases, even when
such cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard or are
actually pending before the same judge.—As a rule, “courts are not
authorized to take judicial notice of the contents of the records of other cases,
even when such cases have been tried or are pending in the same court, and
notwithstanding the fact that both cases may have been heard or are actually
pending before the same judge.” Be that as it may, Section 2, Rule 129
provides that courts may take judicial notice of matters ought to be known to
judges because of their judicial functions. In this case, the Court notes that a
copy of the Decision in CTA Case No. 4897 was attached to the Petition for
Review filed before this Court. Significantly, respondents do not claim at all
that the said Decision was fraudulent or nonexistent. Indeed, they do not even
dispute the contents of the said Decision, claiming merely that the Court
cannot take judicial notice thereof.
Same; Tax Refunds; Rules of Procedure and Technicalities;
Technicalities and legalisms, however exalted, should not be misused
by the government to keep money not belonging to it and thereby enrich
277 | M s . N o l a i d a A g u i r r e
itself at the expense of its law-abiding citizens—if the State expects its
taxpayers to observe fairness and honesty in paying their taxes, so must
it apply the same standard against itself in refunding excess payments
of such taxes.—Respondents argue that tax refunds are in the nature of tax
exemptions and are to be construed strictissimi juris against the claimant.
Under the facts of this case, we hold that petitioner has established its claim.
Petitioner may have failed to strictly comply with the rules of procedure; it may
have even been negligent. These circumstances, however, should not compel
the Court to disregard this cold, undisputed fact: that petitioner suffered a net
loss in 1990, and that it could not have applied the amount claimed as tax
credits. Substantial justice, equity and fair play are on the side of petitioner.
Technicalities and legalisms, however exalted, should not be misused by the
government to keep money not belonging to it and thereby enrich itself at the
expense of its law-abiding citizens. If the State expects its taxpayers to
observe fairness and honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments of such taxes. Indeed,
the State must lead by its own example of honor, dignity and uprightness.
Philam Asset Management, Inc. vs. Commissioner of Internal Revenue,
477 SCRA 761, G.R. Nos. 156637 and 162004. December 14, 2005
Panganiban, J.
Facts:
On April 3, 1998, petitioner filed its annual corporate income tax return for
the taxable year 1997 representing a net loss, [but did not mark the option
box provided in the BIR form to signify its intention either to carry over the
excess credit or to claim a refund. Consequently, it failed to utilize to utilize
the creditable tax withheld. On September 11, 1998, petitioner filed an
administrative claim for refund with the BIR (for the) unutilized excess tax
credits for calendar year 1997. The claim for refund yielded no action on
the part of the BIR.
On April 13, 1999, petitioner filed its Annual Income Tax Return with the
BIR for the taxable year 1998 declaring a net loss. It likewise did not signify
its intention of either to carry over the excess credit or to claim a refund.
Consequently, it filled out the portion “Prior Year’s Excess Credits” in its
1999FAR]
Respondent denied the claim of petitioner for a refund of excess taxes
withheld in 1997 and 1998, because the latter had not indicated in its ITR
for that year whether it was opting for a credit or a refund. According to
petitioner, it neither chose nor marked the carry-over option box in its 1998
FAR. As this option was not chosen, it seems that there is nothing that can
be considered irrevocable. In other words, petitioner argues that it is still
entitled to a refund of its 1998 excess income tax payments.
Issue:
278 | M s . N o l a i d a A g u i r r e
Whether Philam is entitled to a tax refund for the taxable years 1997 and 1998.

Held:
YES for 1997; NO for 1998 as it had already chose tax credit- irrevocability
rule applies
For TAXABLE YEAR 1997: In the present case, although petitioner did not
mark the fund box in its 1997 FAR, neither did it perform any act indicating
that it chose a tax credit, On the contrary, it filed on September 11, 1998,
an administrative claim for the refund of its excess taxes withheld in 1997.
In none of its quarterly returns for 1998 did it apply the excess creditable
taxes. Under these circumstances, petitioner is entitled to tax refund of its
1997 excess tax credits.
For TAXABLE YEAR 1998: the fact that it filled out the portion “Prior
Year’s Excess Credits” in its 1999 FAR means that it categorically availed
itself of the carry-over option. In fact, the line that precedes that phrase in
the BIR form clearly states “Less: Tax Credits/Payments.” The contention
that it merely filled out that portion because it was a requirement -- and that
to have done otherwise would have been tantamount to falsifying the FAR -
- is a long shot. Failure to indicate the amount of “prior year’s excess
credits” does not mean falsification by a taxpayer of its current year’s FAR.
On the contrary, if an application for a tax refund has been -- or will be --
filed, then that portion of the BIR form should necessarily be blank, even if
the FAR of the previous taxable year already shows an overpayment in
taxes.
Second, the resulting redundancy in the claim of petitioner for a refund of
its 1998 excess tax credits on November 14, 2000 cannot be
countenanced. It cannot be allowed to avail itself of a tax refund and a tax
credit at the same time for the same excess income taxes paid. Besides,
disallowing it from getting a tax refund of those excess tax credits will not
enervate the two-year prescriptive period under the Tax Code. That period
will apply if the carry-over option has not been chosen.
Besides, “tax refunds x x x are construed strictly against the taxpayer.”
Petitioner has failed to meet the burden of proof required in order to
establish the factual basis of its claim for a tax refund. Once the carry-over
option is taken, actually or constructively, it becomes irrevocable.
Petitioner has chosen that option for its 1998 creditable withholding taxes.
Thus, it is no longer entitled to a tax refund of P459,756.07, which
corresponds to its 1998 excess tax credit. Nonetheless, the amount will
not be forfeited in the government’s favor, because it may be claimed by
petitioner as tax credits in the succeeding taxable years.
CASE SYLLABI:

279 | M s . N o l a i d a A g u i r r e
Taxation; Section 76 of the National Internal Revenue Code of 1997
offers two options to a taxable corporation whose total quarterly income
tax payments in a given taxable year exceeds its total income tax due—
filing for a tax refund, or availing of a tax credit.—This section applies to the
first case before the Court. Differently numbered in 1977 but similarly worded
20 years later (1997), Section 76 offers two options to a taxable corporation
whose total quarterly income tax payments in a given taxable year exceeds its
total income tax due. These options are (1) filing for a tax refund or (2) availing
of a tax credit. The first option is relatively simple. Any tax on income that is
paid in excess of the amount due the government may be refunded, provided
that a taxpayer properly applies for the refund. The second option works by
applying the refundable amount, as shown on the FAR of a given taxable year,
against the estimated quarterly income tax liabilities of the succeeding taxable
year.
Same; The two options under Section 76 of the National Internal
Revenue Code are alternative in nature—the choice of one precludes the
other.—These two options under Section 76 are alternative in nature. The
choice of one precludes the other. Indeed, in Philippine Bank of
Communications v. Commissioner of Internal Revenue, the Court ruled that a
corporation must signify its intention—whether to request a tax refund or claim
a tax credit—by marking the corresponding option box provided in the FAR.
While a taxpayer is required to mark its choice in the form provided by the BIR,
this requirement is only for the purpose of facilitating tax collection.
Same; Tax Refunds; Failure to signify one’s intention in the Final
Adjustment Return (FAR) does not mean outright barring of a valid
request for a refund, should one still choose this option later on.—One
cannot get a tax refund and a tax credit at the same time for the same excess
income taxes paid. Failure to signify one’s intention in the FAR does not mean
outright barring of a valid request for a refund, should one still choose this
option later on. A tax credit should be construed merely as an alternative
remedy to a tax refund under Section 76, subject to prior verification and
approval by respondent.
Same; Same; Rationale; The reason for requiring that a choice be made
in the Final Adjustment Return (FAR) upon its filing is to ease tax
administration, particularly the self-assessment and collection
aspects.—The reason for requiring that a choice be made in the FAR upon its
filing is to ease tax administration, particularly the self-assessment and
collection aspects. A taxpayer that makes a choice expresses certainty or
preference and thus demonstrates clear diligence. Conversely, a taxpayer that
makes no choice expresses uncertainty or lack of preference and hence
shows simple negligence or plain oversight.
Same; Same; Requiring that the Income Tax Return (ITR) or the Final
Adjustment Return of the succeeding year be presented to the Bureau of
Internal Revenue in requesting a tax refund has no basis in law and
280 | M s . N o l a i d a A g u i r r e
jurisprudence.—In the present case, respondent denied the claim of
petitioner for a refund of excess taxes withheld in 1997, because the latter (1)
had not indicated in its ITR for that year whether it was opting for a credit or a
refund; and (2) had not submitted as evidence its 1998 ITR, which could have
been the basis for determining whether its claimed 1997 tax credit had not
been applied against its 1998 tax liabilities. Requiring that the ITR or the FAR
of the succeeding year be presented to the BIR in requesting a tax refund has
no basis in law and jurisprudence.
Same; Same; To assert any future claim for a tax refund will be instantly
hindered by a failure to signify one’s intention in the Final Adjustment
Return is to render nugatory the clear provision that allows for a two-
year prescriptive period; When circumstances show that a choice of tax
credit has been made, it should be respected, but when indubitable
circumstances clearly show that another choice—tax refund—is in order,
it should be granted.—The Tax Code allows the refund of taxes to a
taxpayer that claims it in writing within two years after payment of the taxes
erroneously received by the BIR. Despite the failure of petitioner to make the
appropriate marking in the BIR form, the filing of its written claim effectively
serves as an expression of its choice to request a tax refund, instead of a tax
credit. To assert that any future claim for a tax refund will be instantly hindered
by a failure to signify one’s intention in the FAR is to render nugatory the clear
provision that allows for a two-year prescriptive period. In fact, in BPI-Family
Savings Bank v. CA, this Court even ordered the refund of a taxpayer’s
excess creditable taxes, despite the express declaration in the FAR to apply
the excess to the succeeding year. When circumstances show that a choice of
tax credit has been made, it should be respected. But when indubitable
circumstances clearly show that another choice—a tax refund—is in order, it
should be granted. “Technicalities and legalisms, however exalted, should not
be misused by the government to keep money not belonging to it and thereby
enrich itself at the expense of its law-abiding citizens.”
Same; Same; Carry-Over Option; A corporation that is entitled to a tax
refund or a tax credit for excess payment of quarterly income taxes may
carry over and credit the excess income taxes paid in a given taxable
year against the estimated income tax liabilities of the succeeding
quarters.—The carry-over option under Section 76 is permissive. A
corporation that is entitled to a tax refund or a tax credit for excess payment of
quarterly income taxes may carry over and credit the excess income taxes
paid in a given taxable year against the estimated income tax liabilities of the
succeeding quarters. Once chosen, the carry-over option shall be considered
irrevocable for that taxable period, and no application for a tax refund or
issuance of a tax credit certificate shall then be allowed.
Same; Same; Same; The fact that the corporation filled out the portion
“Prior Year’s Excess Credits” in the Final Adjustment Return means that
it categorically availed itself of the carry-over option; The Final
281 | M s . N o l a i d a A g u i r r e
Adjustment Return is the most reliable firsthand evidence of corporate
acts pertaining to income taxes; If an application for a tax refund has
been—or will be—filed, then that portion of the Bureau of Internal
Revenue form should necessarily be blank, even if the Final Adjustment
Return of the previous taxable year already shows an overpayment in
taxes.—The fact that it filled out the portion “Prior Year’s Excess Credits” in its
1999 FAR means that it categorically availed itself of the carry-over option. In
fact, the line that precedes that phrase in the BIR form clearly states “Less:
Tax Credits/Payments.” The contention that it merely filled out that portion
because it was a requirement—and that to have done otherwise would have
been tantamount to falsifying the FAR—is a long shot. The FAR is the most
reliable firsthand evidence of corporate acts pertaining to income taxes. In it
are found the itemization and summary of additions to and deductions from
income taxes due. These entries are not without rhyme or reason. They are
required, because they facilitate the tax administration process. Failure to
indicate the amount of “prior year’s excess credits” does not mean falsification
by a taxpayer of its current year’s FAR. On the contrary, if an application for a
tax refund has been—or will be—filed, then that portion of the BIR form should
necessarily be blank, even if the FAR of the previous taxable year already
shows an overpayment in taxes.
Same; Same; Same; Following a natural sequence, the prior year’s
excess tax credits will have to be reduced first to answer for any current
tax liabilities before the current year’s withheld amounts can be
applied.—Even if the FIFO principle were to be applied, the tax credits would
have to be in consonance with the usual and normal course of events. In fact,
the FAR is cumulative in nature. Following a natural sequence, the prior year’s
excess tax credits will have to be reduced first to answer for any current tax
liabilities before the current year’s withheld amounts can be applied.
Otherwise, there will be no sense in requiring a taxpayer to fill out the line
items in the FAR to segregate its sources of tax credits.
Same; Same; Same; Once the carry-over option is taken, actually or
constructively, it becomes irrevocable.—Whether the FIFO principle is
applied or not, Section 76 remains clear and unequivocal. Once the carryover
option is taken, actually or constructively, it becomes irrevocable. Petitioner
has chosen that option for its 1998 creditable withholding taxes. Thus, it is no
longer entitled to a tax refund of P459,756.07, which corresponds to its 1998
excess tax credit. Nonetheless, the amount will not be forfeited in the
government’s favor, because it may be claimed by petitioner as tax credits in
the succeeding taxable years.
Commissioner of Internal Revenue vs. Bank of the Philippine Islands,
592 SCRA 219, G.R. No. 178490. July 7, 2009
Chico-Nazario, J.
Facts:
282 | M s . N o l a i d a A g u i r r e
In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI
carried over the excess tax credits from the previous years of 1997, 1998
and 1999. However, BPI failed to indicate in its ITR its choice of whether to
carry over its excess tax credits or to claim the refund of or issuance of a
tax credit certificate.
BPI filed with the Commissioner of Internal Revenue (CIR) an
administrative claim for refund. The CIR failed to act on the claim for tax
refund of BPI. Hence, BPI filed a Petition for Review before the CTA, whom
denied the claim.
The CTA relied on the irrevocability rule laid down in Section 76 of the
National Internal Revenue Code (NIRC) of 1997, which states that once
the taxpayer opts to carry over and apply its excess income tax to
succeeding taxable years, its option shall be irrevocable for that taxable
period and no application for tax refund or issuance of a tax credit shall be
allowed for the same.
The Court of Appeals reversed the CTA decision stating that there was no
actual carrying over of the excess tax credit, given that BPI suffered a net
loss in 1999, and was not liable for any income tax for said taxable period,
against which the 1998 excess tax credit could have been applied.
The Court of Appeals further stated that even if Section 76 was to be
construed strictly and literally, the irrevocability rule would still not bar BPI
from seeking a tax refund of its 1998 excess tax credit despite previously
opting to carry over the same. The phrase “for that taxable period” qualified
the irrevocability of the option of BIR to carry over its 1998 excess tax
credit to only the 1999 taxable period; such that, when the 1999 taxable
period expired, the irrevocability of the option of BPI to carry over its
excess tax credit from 1998 also expired.
Issue:
1. What is the period captured by the irrevocability rule?
2. Whether or not the taxpayer’s failure to mark the option chosen is fatal
to whatever claim
Held:
1. The last sentence of Section 76 of the NIRC of 1997 reads: “Once the
option to carry-over and apply the excess quarterly income tax against
income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable for that
taxable period and no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor.” The phrase “for that taxable period”
merely identifies the excess income tax, subject of the option, by referring
to the taxable period when it was acquired by the taxpayer.

283 | M s . N o l a i d a A g u i r r e
In the present case, the excess income tax credit, which BPI opted to carry
over, was acquired by the said bank during the taxable year 1998. The
option of BPI to carry over its 1998 excess income tax credit is irrevocable;
it cannot later on opt to apply for a refund of the very same 1 998 excess
income tax credit.
2. No. Failure to signify one’s intention in the FAR does not mean outright
barring of a valid request for a refund, should one still choose this option
later on. The reason for requiring that a choice be made in the FAR upon
its filing is to ease tax administration (Philam Asset Management, Inc. v.
CIR G.R. No. 156637 and No. 162004, 14 December 2005). When
circumstances show that a choice has been made by the taxpayer to carry
over the excess income tax as credit, it should be respected; but when
indubitable circumstances clearly show that another choice – a tax refund
– is in order, it should be granted. Therefore, as to which option the
taxpayer chose is generally a matter of evidence.
“Technicalities and legalisms, however exalted, should not be misused by
the government to keep money not belonging to it and thereby enrich itself
at the expense of its law-abiding citizens.”
Doctrines:
1. The phrase “for that taxable period” merely identifies the excess income
tax, subject of the option, by referring to the taxable period when it was
acquired by the taxpayer.
2. When circumstances show that a choice has been made by the taxpayer
to carry over the excess income tax as credit, it should be respected; but
when indubitable circumstances clearly show that another choice, a tax
refund, is in order, it should be granted. As to which option the taxpayer
chose is generally a matter of evidence.
“Technicalities and legalisms, however exalted, should not be misused by
the government to keep money not belonging to it and thereby enrich itself
at the expense of its law-abiding citizens.”
CASE SYLLABI:
Taxation; Tax Credit; The Court stressed in BPI Family that the
undisputed fact is that [BPI-Family] suffered a net loss in 1990;
accordingly, it incurred no tax liability to which the tax credit could be
applied.—This Court decided to grant the claim for refund of BPI-Family after
finding that the bank had presented sufficient evidence to prove that it incurred
a net loss in 1990 and, thus, had no tax liability to which its tax credit from
1989 could be applied. The Court stressed in BPI Family that “the undisputed
fact is that [BPI-Family] suffered a net loss in 1990; accordingly, it incurred no
tax liability to which the tax credit could be applied. Consequently, there is no
reason for the BIR and this Court to withhold the tax refund which rightfully
belongs to the [BPI-Family].” It was on the basis of this fact that the Court
284 | M s . N o l a i d a A g u i r r e
granted the appeal of BPI-Family, brushing aside all procedural and technical
objections to the same through the following pronouncements: Finally,
respondents argue that tax refunds are in the nature of tax exemptions and
are to be construed strictissimi juris against the claimant. Under the facts of
this case, we hold that [BPI-Family] has established its claim. [BPI-Family]
may have failed to strictly comply with the rules of procedure; it may have
even been negligent. These circumstances, however, should not compel the
Court to disregard this cold, undisputed fact: that petitioner suffered a net loss
in 1990, and that it could not have applied the amount claimed as tax credits.
Same; Irrevocability Rule; Section 76 remains clear and unequivocal;
Once the carry-over option is taken, actually or constructively, it
becomes irrevocable.—The Court categorically declared in Philam that:
“Section 76 remains clear and unequivocal. Once the carry-over option is
taken, actually or constructively, it becomes irrevocable.” It mentioned no
exception or qualification to the irrevocability rule.
Same; Same; The controlling factor for the operation of the irrevocability
rule is that the taxpayer chose an option; and once it had already done
so, it could not longer make another one.—The controlling factor for the
operation of the irrevocability rule is that the taxpayer chose an option; and
once it had already done so, it could no longer make another one.
Consequently, after the taxpayer opts to carry-over its excess tax credit to the
following taxable period, the question of whether or not it actually gets to apply
said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating
that once the option to carry over has been made, “no application for tax
refund or issuance of a tax credit certificate shall be allowed therefor.”
Same; Same; Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the taxable quarters of
the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for tax
refund or issuance of a tax credit certificate shall be allowed therefor.—
The last sentence of Section 76 of the NIRC of 1997 reads: “Once the option
to carry-over and apply the excess quarterly income tax against income tax
due for the taxable quarters of the succeeding taxable years has been made,
such option shall be considered irrevocable for that taxable period and no
application for tax refund or issuance of a tax credit certificate shall be allowed
therefor.” The phrase “for that taxable period” merely identifies the excess
income tax, subject of the option, by referring to the taxable period when it
was acquired by the taxpayer. In the present case, the excess income tax
credit, which BPI opted to carry over, was acquired by the said bank during
the taxable year 1998. The option of BPI to carry over its 1998 excess income
tax credit is irrevocable; it cannot later on opt to apply for a refund of the very
same 1998 excess income tax credit.
Same; Tax Refund; It is worthy to note that unlike the option for refund
of excess income tax, which prescribes after two years from the filing of
285 | M s . N o l a i d a A g u i r r e
the FAR, there is no prescriptive period for the carrying over of the
same.—The Court similarly disagrees in the declaration of the Court of
Appeals that to deny the claim for refund of BPI, because of the irrevocability
rule, would be tantamount to unjust enrichment on the part of the government.
The Court addressed the very same argument in Philam, where it elucidated
that there would be no unjust enrichment in the event of denial of the claim for
refund under such circumstances, because there would be no forfeiture of any
amount in favor of the government. The amount being claimed as a refund
would remain in the account of the taxpayer until utilized in succeeding
taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to
note that unlike the option for refund of excess income tax, which prescribes
after two years from the filing of the FAR, there is no prescriptive period for the
carrying over of the same. Therefore, the excess income tax credit of BPI,
which it acquired in 1998 and opted to carry over, may be repeatedly carried
over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so
forth, until actually applied or credited to a tax liability of BPI.
Same; Failure of the taxpayer to make an appropriate marking of its
option in the Income Tax Return (ITR) does not automatically mean that
the taxpayer has opted for a tax credit.—Failure of the taxpayer to make an
appropriate marking of its option in the ITR does not automatically mean that
the taxpayer has opted for a tax credit. The Court ratiocinated in G.R. No.
156637 of Philam: One cannot get a tax refund and a tax credit at the same
time for the same excess income taxes paid. Failure to signify one’s intention
in the FAR does not mean outright barring of a valid request for a refund,
should one still choose this option later on. A tax credit should be construed
merely as an alternative remedy to a tax refund under Section 76, subject to
prior verification and approval by respondent. The reason for requiring that a
choice be made in the FAR upon its filing is to ease tax administration,
particularly the self-assessment and collection aspects. A taxpayer that makes
a choice expresses certainty or preference and thus demonstrates clear
diligence. Conversely, a taxpayer that makes no choice expresses uncertainty
or lack of preference and hence shows simple negligence or plain oversight.
Procedural Rules and Technicalities; Technicalities and legalisms,
however exalted, should not be misused by the government to keep
money not belonging to it and thereby enrich itself at the expense of its
law-abiding citizens.—Philam reveals a meticulous consideration by the
Court of the evidence submitted by the parties and the circumstances
surrounding the taxpayer’s option to carry over or claim for refund. When
circumstances show that a choice has been made by the taxpayer to carry
over the excess income tax as credit, it should be respected; but when
indubitable circumstances clearly show that another choice—a tax refund—is
in order, it should be granted. “Technicalities and legalisms, however exalted,
should not be misused by the government to keep money not belonging to it
and thereby enrich itself at the expense of its law-abiding citizens.”

286 | M s . N o l a i d a A g u i r r e
 Asia World Properties Philippine Corporation vs. Commissioner of
Internal Revenue, 626 SCRA 172, G.R. No. 171766. July 29, 2010
Carpio, J.
Facts:
Petitioner maintains that the option to carry-over and apply the excess
quarterly income tax against the income tax due in the succeeding taxable
years is irrevocable only for the next taxable period when the excess payment
was carried over. Thus, petitioner posits that the option to carry-over its 1999
excess income tax payment is irrevocable only for the succeeding taxable
year 2000 and that for the taxable year 2001, petitioner is not barred from
seeking a refund of the unused tax credits carried over from year 1999.
Issue:
Whether the petitioner can opt to avail of tax credit.
Held:
NO. Section 76 of the NIRC of 1997 clearly states: “Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for
cash refund or issuance of a tax credit certificate shall be allowed therefore.”
Section 76 expressly states that “the option shall be considered irrevocable
for that taxable period” – referring to the period comprising the “succeeding
taxable years.” Section 76 further states that “no application for cash refund
or issuance of a tax credit certificate shall be allowed therefore” – referring to
“that taxable period” comprising the “succeeding taxable years.”, Once the
taxpayer opts to carry-over the excess income tax against the taxes due for
the succeeding taxable years, such option is irrevocable for the whole amount
of the excess income tax, thus, prohibiting the taxpayer from applying for a
refund for that same excess income tax in the next succeeding taxable years.
The unutilized excess tax credits will remain in the taxpayer’s account and will
be carried over and applied against the taxpayer’s income tax liabilities in the
succeeding taxable years until fully utilized.
CASE SYLLABI:
Taxation; Tax Credit; Once the taxpayer opts to carry-over the excess
income tax against the taxes due for the succeeding taxable years, such
option is irrevocable for the whole amount of the excess income tax,
thus, prohibiting the taxpayer from applying for a refund for that same
excess income tax in the next succeeding taxable years; The unutilized
excess tax credits will remain in the taxpayer’s account and will be
carried over and applied against the taxpayer’s income tax liabilities in
the succeeding taxable years until fully utilized.—Once the taxpayer opts
to carry-over the excess income tax against the taxes due for the succeeding
287 | M s . N o l a i d a A g u i r r e
taxable years, such option is irrevocable for the whole amount of the excess
income tax, thus, prohibiting the taxpayer from applying for a refund for that
same excess income tax in the next succeeding taxable years. The unutilized
excess tax credits will remain in the taxpayer’s account and will be carried
over and applied against the taxpayer’s income tax liabilities in the succeeding
taxable years until fully utilized.
IMPSA Construction Corp. vs Commissioner of Internal Revenue, CTA
EB Case No. 685, May 24, 2011
Palanca-Enriquez, J.
Facts:
IMPSA is a domestic corporation, engaged in the construction business,
including design, supply, assembly, erection, commissioning, constructing etc.,
but limited to projects either primarily foreign funded or registered under the
build rehabilitate operate transfer arrangements. IMPSA entered into a
Turkney Contrack with CBK for the construction of power plants. For services
rendered, petitioner received income payments, which were allegedly
subjected to CWT. Petitioner filed with the BIR for ITR for 2001, reflecting the
tax liability, as it declared net loss in the amount of P16, 264,545. Petitioner
was unable to utilize the reported income tax payment for the first three
quarters, and creditable taxes withheld during the year. IMPSA opted to carry-
over the income tax overpayment of P93, 341,528.00 as tax credit to the
succeeding year/quarter, by marking the corresponding box in the return. For
2002, there is also an overpayment from IMPSA amounting to P198,
474,515.00, which IMPSA opted to carry-over.

IMPSA however, changed its mind and revised its option, from “Carry-over” to
“refunded”. IMPSA then filed with the BIR on 2004, its claims for refund in
excess income taxes paid/withheld for taxable year 2001 (93, 341, 528) and
2002-2003 (161, 383, 7476.24). Due to inaction on both claims and in order to
toll the running of the two-year prescriptive period, petitioner filed two separate
petitions for review.
Issue:
WHETHER OR NOT IMPSA IS ENTITLED TO A REFUND OF ITS EXCESS
INCOME TAX PAYMENTS AND CWT FOR TAXABLE YEARS 2001 & 2002
EVEN IOF THEY OPTED TO CARRY OVER ITS EXCESS CWT
Held:
No. The taxable corporation with excess quarterly income tax payments may
apply for a tax refund or tax credit, but not both. The two options are
alternative in nature. The choice of one precludes the other, and the choice of
one versus the other is irrevocable for the tax period until fully utilized.

288 | M s . N o l a i d a A g u i r r e
Section 76 however allows certain exceptions on the application of the
irrevocability rule. One of which is cessation of the business. Petitioner may
opt to claim for refund if it previously chose the irrevocable option to carry-over
since there is no more opportunity to utilize such excess credits. However, it
must be stressed that in order to exclude the company from the application of
the irrevocability rule. The termination of the business operation must be
permanent in nature. Thus, it must be proven that petitioner’s business
permanently ceased to operate.
In this case, petitioner admitted that it has not yet been legally dissolved.
Commissioner of Internal Revenue vs. Rhombus Energy Incorporated,
CTA EB Case No. 803, October 11, 2012
Palanca-Enriquez, J.
Facts:
Rhombus filed an Annual ITR for taxable year 2005, respondent indicated that
its excess creditable withholding tax ("CWT") for the year 2005 was "To be
refunded". On May 29, 2006, respondent filed its Quarterly Income Tax Return
for the first quarter of taxable year 2006 showing prior year's excess credits
ofP1,500,653.00.

On August 25, 2006, respondent filed its Quarterly Income Tax Return for the
second quarter of taxable year 2006 showing prior year's excess credits
ofP1,500,653.00.

On November 27, 2006, respondent filed its Quarterly Income Tax Return for
the third quarter of taxable year 2006 showing prior year's excess credits
ofP1,500,653.00.

On December 29, 2006, respondent filed with the Revenue Region No. 8 an
administrative claim for refund of its alleged excess/unutilized CWT for the
year 2005 in the amount ofP1,500,653.00.

Respondent filed its Annual Income Tax Return for taxable year 2006 showing
prior year's excess credits of PO.OO. Pending petitioner's action on
respondent's claim for refund or issuance of a tax credit certificate of its
excess/unutilized CWT for the year 2005 and before the lapse of the period for
filing an appeal, respondent filed the instant Petition for Review.

Issues:

1. WHETHER OR NOT RESPONDENT IS ENTITLED TO ITS CLAIM

FOR REFUND OF UNUTILIZED CREDIT ABLE WITHHOLDING T
AXES IN THE AMOUNT OF P1,500,653.00, FOR TAXABLE YEAR
2005.
2. WHETHER OR NOT RESPONDENT HAD ALREADY EXERCISED ITS
OPTION TO CARRY-OVER ITS CLAIM FOR REFUND OF
289 | M s . N o l a i d a A g u i r r e
 UNUTILIZED CREDIT ABLE WITHHOLDING TAXES

Held:

Section 76 gives two options to a taxable corporation whose total quarterly

income tax payment in a given taxable year exceeds its total income tax due.
These options are (1) be credited or refunded either in the form of cash or
credit certificate with the excess amount paid; or (2) carry over the excess
credit to the succeeding taxable year.

The first option works simply by applying for a cash refund or tax credit
certificate with the BIR for any tax on income that is paid in excess of the
amount due to the government. The second option, on the other hand, works
by applying the refundable amount, as shown on the Final Adjustment Return,
of the given taxable year, against the income tax liabilities of the succeeding
taxable year.

Since petitioner incurred a net loss for taxable year 2005, on December 29,
2006, petitioner filed with Revenue Region 8 an administrative claim for refund
of its excess creditable withholding tax for calendar year 2005 in the amount
of P1,500,653.00 (Exhibit "!"). In effect, petitioner availed o f the first option
provided in Section 76 o f the NIRC of1997, as amended.

However, a perusal of petitioner's Quarterly Income Tax Return for the first
quarter of taxable year 2006 (Exhibit "DD'') shows that petitioner carried over
its unutilized creditable withholding tax for taxable year 2005 in the amount
ofP1,500,653.00, subject of the present petition for refund or issuance of a
TCC.

Also, a perusal of petitioner’s Quarterly Income Tax Return for the second
quarter of taxable year 2006 (Exhibit "EE'') shows that petitioner again carried
over its unutilized creditable withholding tax for taxable year 2005 in the
amount ofP1,500,653.00, subject of the present petition for refund or issuance
of a TCC.

Likewise, petitioner's Quarterly Income Tax Return for the third quarter of
taxable year 2006 (Exhibit "FF") shows that petitioner carried over its
unutilized creditable withholding tax for taxable year 2005 in the amount of
Pl,500,653.00, subject of the present petition for refund or issuance ofa TCC.

It bears stressing that the last paragraph of Section 76 of the NIRC of 1997,
as amended, provides that once the option to carry-over and apply the excess
quarterly income tax against income due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or
issuance o f a TCC shall be allowed therefore.

Bank of the Philippine Islands vs. Commissioner of Internal Revenue,

290 | M s . N o l a i d a A g u i r r e
 363 SCRA 840, G.R. No. 144653. August 28, 2001

Mendoza, J.

Facts:

Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July
1, 1985, the Family Bank and Trust Co. (FBTC) earned income consisting of
rentals from its leased properties and interest from its treasury notes for the
period January 1 to June 30, 1985. As required by the Expanded Withholding
Tax Regulation, the lessees of FBTC withheld 5 percent of the rental income,
in the amount of P118,609.17, while the Central Bank, from which the treasury
notes were purchased by FBTC, withheld P55,456.60 from the interest earned
thereon. Creditable withholding taxes in the total amount of P174,065.77 were
remitted to respondent Commissioner of Internal Revenue.
FBTC, however, suffered a net loss of about P64,000,000.00 during the period
in question. It also had an excess credit of P2,146,072.57 from the previous
year. Thus, upon its dissolution in 1985, FBTC had a refundable amount
of P2,320,138.34, representing that year’s tax credit of P174,065.77 and the
previous year’s excess credit of P2,146,072.57.
As FBTC’s successor-in-interest, petitioner BPI claimed this amount as tax
refund, but respondent Commissioner of Internal Revenue refunded only the
amount of P2,146,072.57, leaving a balance of P174,065.77. Accordingly,
petitioner filed a petition for review in the Court of Tax Appeals on December
29, 1987, seeking the refund of the aforesaid amount.[2] However, in its
decision rendered on July 19, 1994, the Court of Tax Appeals dismissed
petitioner’s petition for review and denied its claim for refund on the ground
that the claim had already prescribed.[3] In its resolution, dated August 4,
1995, the Court of Tax Appeals denied petitioner’s motion for
reconsideration.[4]
Petitioner appealed to the Court of Appeals, but, in its decision rendered on
April 14, 2000, the appeals court affirmed the decision of the CTA.[5] The
appeals court subsequently denied petitioner’s motion for
[6]
reconsideration. Hence this petition.
Issue:
Whether petitioner’s claim is barred by prescription.
Held:
After due consideration of the parties’ arguments, we are of the opinion that, in
case of the dissolution of a corporation, the period of prescription should be
reckoned from the date of filing of the return required by §78 of the Tax Code.
Accordingly, we hold that petitioner’s claim for refund is barred by prescription.
First.Generally speaking, it is the Final Adjustment Return, in which amounts
of the gross receipts and deductions have been audited and adjusted, which is
reflective of the results of the operations of a business enterprise. It is only
when the return, covering the whole year, is filed that the taxpayer will be able
to ascertain whether a tax is still due or a refund can be claimed based on the
291 | M s . N o l a i d a A g u i r r e
adjusted and audited figures.[7] Hence, this Court has ruled that, at the
earliest, the two-year prescriptive period for claiming a refund commences to
run on the date of filing of the adjusted final tax return.[8]

This Court finds that the petition for review is filed out of time. FBTC, after the
end of its corporate life on June 30, 1985, should have filed its income tax
return within thirty days after the cessation of its business or thirty days after
the approval of the Articles of Merger. This is bolstered by Sec. 78 of the Tax
Code and under Sec. 244 of Revenue Regulation No. 2. . .[9]

As the FBTC did not file its quarterly income tax returns for the year 1985,
there was no need for it to file a Final adjustment Return because there was
nothing for it to adjust or to audit. After it ceased operations on June 30,
1985, its taxable year was shortened to six months, from January 1, 1985 to
June 30, 1985. The situation of FBTC is precisely what was contemplated
under §78 of the Tax Code. It thus became necessary for FBTC to file its
income tax return within 30 days after approval by the SEC of its plan or
resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the
fifteenth day of April, or almost 10 months after it ceased its operations, before
filing its income tax return.
Thus, §46(a) of the Tax Code applies only to instances in which the
corporation remains subsisting and its business operations are continuing. In
instances in which the corporation is contemplating dissolution, §78 of the Tax
Code applies. It is a rule of statutory construction that “[w]here there is in the
same statute a particular enactment and also a general one which in its most
comprehensive sense would include what is embraced in the former, the
particular enactment must be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within
the provisions of the particular enactment.”[10]
Second. Petitioner contends that what §78 required was an information
return, not an income tax return. It cites Revenue Memorandum Circular No.
14-85, of then Acting Commissioner of Internal Revenue Ruben B. Ancheta,
referring to an “information return” in interpreting Executive Order No. 1026,
which amended §78.[12]
The contention has no merit. The circular in question must be considered
merely as an administrative interpretation of the law which in no case is
binding on the courts.[13] The opinion in question cannot be given any effect
inasmuch as it is contrary to §244 of Revenue Regulation No. 2, as amended,
which was issued by the Minister of Finance pursuant to the authority granted
to him by §78 of the Tax Code. This provision states:

Sec. 244. Return of corporations contemplating dissolution

or retiring from business.— All corporations, partnership, joint
accounts and associations, contemplating dissolution or retiring
from business without formal dissolution shall, within 30 days
after the approval of such resolution authorizing their dissolution,
and within the same period after their retirement from business,
file their income tax returns covering the profit earned or business
292 | M s . N o l a i d a A g u i r r e
 done by them from the beginning of the year up to the date of
such dissolution or retirement and pay the corresponding income
tax due thereon upon demand by the Commissioner of Internal
Revenue. . .

This regulation prevails over the memorandum circular of the Acting

Commissioner of Internal Revenue, which petitioner invokes.
Thus, as required by §244 of Revenue Regulation No. 2, any corporation
contemplating dissolution must submit tax return on the income earned by it
from the beginning of the year up to the date of its dissolution or retirement
and pay the corresponding tax due upon demand by the Commissioner of
Internal Revenue. Nothing in §78 of the Tax Code limited the return to be filed
by the corporation concerned to a mere information return.
It is noteworthy that §78 of the Tax Code was substantially reproduced first in
§45(c), of the amendments to the same Tax Code, and later in §52(C) of the
National Internal Revenue Code of 1997. Through all the re-enactments of
the law, there has been no change in the authority granted to the Secretary
(formerly Minister) of Finance to require corporations to submit such other
information as he may prescribe. Indeed, Revenue Regulation No. 2 had
been in existence prior to these amendments. Had Congress intended only
information returns, it would have expressly provided so.
Third. Considering that §78 of the Tax Code, in relation to §244 of
Revenue Regulation No. 2, applies to FBTC, the two-year prescriptive period
should be counted from July 30, 1985, i.e., 30 days after the approval by the
SEC of its plan for dissolution. In accordance with §292 of the Tax Code, July
30, 1985 should be considered the date of payment by FBTC of the taxes
withheld on the earned income. Consequently, the two-year period of
prescription ended on July 30, 1987. As petitioner’s claim for tax refund
before the Court of Tax Appeals was filed only on December 29, 1987, it is
clear that the claim is barred by prescription.
CASE SYLLABI:

Taxation; Tax Refunds; Prescription; Corporation Law; In case of the

dissolution of a corporation, the period of prescription should be
reckoned from the date of filing of the return required by §78 of the Tax
Code.—After due consideration of the parties’ arguments, we are of the
opinion that, in case of the dissolution of a corporation, the period of
prescription should be reckoned from the date of filing of the return required
by §78 of the Tax Code. Accordingly, we hold that petitioner’s claim for refund
is barred by prescription.
Same; Same; Same; At the earliest, the two-year prescriptive period for
claiming a refund commences to run on the date of filing of the adjusted
final tax return.—Generally speaking, it is the Final Adjustment Return, in
which amounts of the gross receipts and deductions have been audited and
adjusted, which is reflective of the results of the operations of a business
enterprise. It is only when the return, covering the whole year, is filed that the
293 | M s . N o l a i d a A g u i r r e
taxpayer will be able to ascertain whether a tax is still due or a refund can be
claimed based on the adjusted and audited figures. Hence, this Court has
ruled that, at the earliest, the two-year prescriptive period for claiming a refund
commences to run on the date of filing of the adjusted final tax return.
Same; Same; Same; §46(a) of the Tax Code applies only to instances in
which the corporation remain s subsisting and its business operations
are continuing.—As the FBTC did not file its quarterly income tax returns for
the year 1985, there was no need for it to file a Final Adjustment Return
because there was nothing for it to adjust or to audit. After it ceased
operations on June 30, 1985, its taxable year was shortened to six months,
from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely
what was contemplated under §78 of the Tax Code. It thus became necessary
for FBTC to file its income tax return within 30 days after approval by the SEC
of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to
wait until the fifteenth day of April, or almost 10 months after it ceased its
operations, before filing its income tax return. Thus, §46(a) of the Tax Code
applies only to instances in which the corporation remains subsisting and its
business operations are continuing. In instances in which the corporation is
contemplating dissolution, §78 of the Tax Code applies. It is a rule of statutory
construction that “[w]here there is in the same statute a particular enactment
and also a general one which in its most comprehensive sense would include
what is embraced in the former, the particular enactment must be operative,
and the general enactment must be taken to affect only such cases within its
general language as are not within the provisions of the particular enactment.”
Same; Same; Separation of Powers; Debatable questions are for the
legislature to decide—the courts do not sit to resolve the merits of conflicting
issues.—Petitioner cites a hypothetical situation wherein the directors of a
corporation would convene on June 30, 2000 to plan the dissolution of the
corporation on December 31, 2000, but would submit the plan for dissolution
earlier with the SEC, which, in turn, would approve the same on October 1,
2000. Following §78 of the Tax Code, the corporation would be required to
submit its complete return on October 31, 2000, although its actual dissolution
would take place only on December 31, 2000. Suffice it to say that such a
situation may likewise be remedied by resort to §47 of the Tax Code. The
corporation can ask for an extension of time to file a complete income tax
return until December 31, 2000, when it would cease operations. This would
obviate any difficulty which may arise out of the discrepancies not covered by
§78 of the Tax Code. In any case, as held in Commissioner of Internal
Revenue v. Santos, “Debatable questions are for the legislature to decide.
The courts do not sit to resolve the merits of conflicting issues.”
Same; Same; Same; Corporation Law; Any corporation contemplating
dissolution must submit tax return on the income earned by it from the
beginning of the year up to the date of its dissolution or retirement and
pay the corresponding tax due upon demand by the Commissioner of
294 | M s . N o l a i d a A g u i r r e
Internal Revenue.—Thus, as required by §244 of Revenue Regulation No. 2,
any corporation contemplating dissolution must submit tax return on the
income earned by it from the beginning of the year up to the date of its
dissolution or retirement and pay the corresponding tax due upon demand by
the Commissioner of Internal Revenue. Nothing in §78 of the Tax Code limited
the return to be filed by the corporation concerned to a mere information
return.
Commissioner of Internal Revenue vs. Philippine National Bank, 474
SCRA 303, G.R. No. 161997. October 25, 2005

Garcia, J.

Facts:

PNB requested the BIR to issue a tax credit certificate (TCC) on the remaining
balance of the advance income tax payment it made in 1991. It should be
noted that the request was made considering that, while PNB carried over
such credit balance to the succeeding taxable years, i. e., 1992 to 1996, its
negative tax position during said tax period prevented it from actually applying
the credit balance of P73,298,892.60.
Petitioner first scores the CA for concluding that “the amount of advance
income tax payment voluntarily remitted to the BIR by the respondent was not
a consequence of a prior tax assessment or computation by the taxpayer
based on business income” and, therefore, it cannot “ be treated as similar to
those national revenue taxes erroneously, illegally or wrongfully paid as to be
automatically covered by the two (2) year limitation under section 230 of the
NIRC for the right to its recovery.” Petitioner invokes the all too-familiar
principle that the collection of taxes, being the lifeblood of the nation.
Issue:
Whether PNB is entitled to a tax refund
Held:
YES. It is fairly correct to say that the claim for tax credit was specifically
pursued to enable the respondent bank to utilize the same for future tax
liabilities.
In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not
proceed from, or is a consequence of overpayment of tax erroneously or
illegally collected. It is beyond cavil that respondent PNB issued to the BIR the
check for P180 Million in the concept of tax payment in advance, thus
eschewing the notion that there was error or illegality in the payment. What in
effect transpired when PNB wrote its July 28, 1997 letter was that respondent
sought the application of amounts advanced to the BIR to future annual
income tax liabilities, in view of its inability to carry-over the remaining amount

295 | M s . N o l a i d a A g u i r r e
of such advance payment to the four (4) succeeding taxable years, not having
incurred income tax liability during that period.
The instant case ought to be distinguished from a situation where, owing to
net losses suffered during a taxable year, a corporation was also unable to
apply to its income tax liability taxes which the law requires to be withheld and
remitted. In the latter instance, such creditable withholding taxes, albeit also
legally collected, are in the nature of “erroneously collected taxes” which
entitled the corporate taxpayer to a refund under Section 230 of the Tax Code.
Analyzing the underlying reason behind the advance payment made by
respondent PNB in 1991, the CA held that it would be improper to treat the
same as erroneous, wrongful or illegal payment of tax within the meaning of
Section 230 of the Tax Code. So that even if the respondent’s inability to
carry-over the remaining amount of its advance payment to taxable years
1992 to 1996 resulted in excess credit, it would be inequitable to impose the
two (2)-year prescriptive period in Section 230 as to bar PNB’s claim for tax
credit to utilize the same for future tax liabilities.
It bears stressing that respondent PNB remitted the P180 Million in question
as a measure of goodwill and patriotism, a gesture noblesse oblige, so to
speak, to help the cash-strapped national government. It would thus indeed,
be unfair, as the CA correctly observed, to leave respondent PNB to suffer
losing millions of pesos advanced by it for future tax liabilities. The cut
becomes all the more painful when it is considered that PNB’s failure to apply
the balance of such advance income tax payment from 1992 to 1996 was, to
repeat, due to business downturn experienced by the bank so that it incurred
no tax liability for the period.
CASE SYLLABI:
Taxation; Actions; No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, . . . ,
or of any sum, alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or
duress.—The core issue in this case pivots on the applicability hereto of the
two (2)-year prescriptive period under in Section 230 (now Sec. 229) of the
NIRC, reading: “SEC. 230. Recovery of tax erroneously or illegally
collected.—No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, . . , or of any sum, alleged to
have been excessive or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress. In any case, no such suit or proceeding
296 | M s . N o l a i d a A g u i r r e
shall be begun after the expiration of two [(2)] years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been
erroneously paid.
Same; Same; Statutes; Words and Phrases; Section 230 of the Tax Code,
as couched, particularly its statute of limitations component, is, in
context, intended to apply to suits for the recovery of internal revenue
taxes or sums erroneously, excessively, illegally or wrongfully collected.
Black defines the term erroneous or illegal tax as one levied without
statutory authority.—Section 230 of the Tax Code, as couched, particularly
its statute of limitations component, is, in context, intended to apply to suits for
the recovery of internal revenue taxes or sums erroneously, excessively,
illegally or wrongfully collected. Black defines the term erroneous or illegal tax
as one levied without statutory authority. In the strict legal viewpoint, therefore,
PNB’s claim for tax credit did not proceed from, or is a consequence of
overpayment of tax erroneously or illegally collected. It is beyond cavil that
respondent PNB issued to the BIR the check for P180 Million in the concept of
tax payment in advance, thus eschewing the notion that there was error or
illegality in the payment. What in effect transpired when PNB wrote its July 28,
1997 letter was that respondent sought the application of amounts advanced
to the BIR to future annual income tax liabilities, in view of its inability to carry-
over the remaining amount of such advance payment to the four (4)
succeeding taxable years, not having incurred income tax liability during that
period.
Same; Same; In Commissioner of Internal Revenue vs. Philippine
American Insurance Co., 244 SCRA 446 (1995), the Supreme Court ruled
that an availment of a tax credit due for reasons other than the
erroneous or wrongful collection of taxes may have a different
prescriptive period.—In Commissioner vs. Phil-Am Life, the Court ruled that
an availment of a tax credit due for reasons other than the erroneous or
wrongful collection of taxes may have a different prescriptive period. Absent
any specific provision in the Tax Code or special laws, that period would be
ten (10) years under Article 1144 of the Civil Code. Significantly,
Commissioner vs. PhilAm is partly a reiteration of a previous holding that even
if the two (2)-year prescriptive period, if applicable, had already lapsed, the
same is not jurisdictional and may be suspended for reasons of equity and
other special circumstances.
Same; Same; Courts; Court of Tax Appeals; Appeals; The rule of long
standing is that the Supreme Court will not set aside lightly the
conclusions reached by the Court of Tax Appeals (CTA) which, by the
very nature of its functions, is dedicated exclusively to the resolution of
tax problems and has, accordingly, developed an expertise on the
297 | M s . N o l a i d a A g u i r r e
subject, unless there has been an abuse or improvident exercise of
authority.—The rule of long standing is that the Court will not set aside lightly
the conclusions reached by the CTA which, by the very nature of its functions,
is dedicated exclusively to the resolution of tax problems and has, accordingly,
developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority. It is likewise settled that to a claimant rests
the onus to establish the factual basis of his or her claim for tax credit or
refund. In this case, however, petitioner does not dispute that a portion of the
P180 Million PNB remitted to the BIR in 1991 as advance payment remains
unutilized for the purpose for which it was intended in the first place. But
petitioner asserts that respondent’s right to recover the same is already time-
barred. The CTA upheld the position of petitioner. The CA ruled otherwise. We
find the CA’s position more in accord with the facts on record and is consistent
with applicable laws and jurisprudence.
Civil Procedure; Forum Shopping; A party ought to invoke the issue of
forum shopping, assuming its presence, at the first opportunity in his
motion to dismiss or similar pleading filed in the trial court.—Petitioner
presently faults the CA for not having taken notice that PNB’s initiatory
pleading before the CTA suffers from an infirmity that justifies the dismissal
thereof. But it is evident that the issue of forum shopping is being raised for
the first time in this appellate proceedings. Accordingly, the Court loathes to
accommodate petitioner’s urging for the dismissal of respondent’s basic claim
on the forum shopping angle. As earlier ruled by this Court, a party ought to
invoke the issue of forum shopping, assuming its presence, at the first
opportunity in his motion to dismiss or similar pleading filed in the trial court.
Else, he is barred from raising the ground of forum shopping in the Court of
Appeals and in this Court. So it must be here.
Guagua Electric Light Co., Inc. vs. Collector of Internal Revenue, 19
SCRA 790, No. L-23611. April 24, 1967
Bengzon, J.

Facts:

Guagua Electric Light Plant Co. is a grantee of municipal franchises by the

municpal councils of Guagua and Sexmoan, Pampanga. It reported a gross
income of P1,133,003.44 for 1947 go 1956 and paid thereon a franchise tax of
P56,664.97 computed at 5% in accordance with Section 259 of the Tax Code.
Believing that it should pay a lower franchise tax as provided by its franchises,
it filed a claim for refund on 25 March 1957 for overpayment. The
Commissioner denied the refund of franchise tax for the period prior to the 4th
quarter of 1951 on the ground that the right to refund has prescribed. The
Commissioner allowed the refund of P16,593.87. Later however, due to the
holding in Hoa Hin Co. vs. David, the Commissioner assessed against the
company deficiency franchise tax subject to a 25% surcharge, and thereby
including the amount previously allowed by the Commissioner to be refunded.

298 | M s . N o l a i d a A g u i r r e
Issue:

Whether the tax “refunded erroneously” should be imposed against the

company, or if the right to recover has prescribed.

Held:

Guagua Electric would be paying the same deficiency tax for the period of 1
January to 30 November 1956 if it is required to pay P16,593.87 in addition to
the sum of P19,938.12, the difference between the tax computed at 5%
pursuant to Section 259 of the Tax Code and the franchise tax paid at 1% and
2% under the franchise. Further, by insisting on the payment of P16,593.87
(September 1951 to November 1956), the Commissioner is trying to collect
the same deficiency tax where the right to assess the same, according to him,
has been lost by prescription. The demand on the taxpayer to pay the sum of
P16,593.87 is in effecct an assessment of deficiency franchise tax. The right
to assess, thus, and to collect is governed by Section 331 of the Tax Code
rather than by Article 1145 of the Civil Code, as a special law prevails over a
general law. Guagua Electric is absolved from the payment of P16,593.87.

CASE SYLLABI:

Taxation; Franchise tax; Section 259 of the Tax Code is constitutional—

The constitutionality of collecting franchise tax at the rate of 5% of the gross
receipts as provided for in Section 259 of the Tax Code, instead of at the
lower rate fixed by the franchise granted under Act 667, is a settled matter.

Same; Statutes; Law governing assessment for deficiency franchise

tax.—Where the Commissioner of Internal Revenue seeks to recover from the
taxpayer an amount which was erroneously ref unded to the latter as excess f
ranchise tax, said amount is in effect an assessment for deficiency franchise
tax. And being so, the right to assess or collect it is governed by Section 331
of the Tax Code rather than by Article 1145 of the New Civil Code. A special
law (Tax Code) prevails over a general law (New Civil Code).

Same; Prescription of franchise tax.—Deficiency franchise taxes for the

period prior to January 1, 1956 cannot be assessed and collected in March,
1961 inasmuch as the five-year prescriptive period for assessing and
collecting the same had already expired,

Same; Imposition of surcharge; Presence of good faith.—Where the

taxpayer acted in good faith in paying the franchise tax at the lower rate fixed
by its franchise, it is patently unfair on the part of the Government to require
him to pay 25% surcharge on the amount correctly due.

299 | M s . N o l a i d a A g u i r r e
 JURISDICTION OF THE COURT OF TAX
APPEALS

Philippine Refining Company vs. Court of Appeals, 256 SCRA 667,

G.R. No. 118794. May 8, 1996

Regalado, J.

------------supra----------

CASE SYLLABI:
Same; Same; Administrative Law; The Court of Tax Appeals is a highly
specialized body specifically created for the purpose of reviewing tax
cases and, through its expertise, it is undeniably competent to
determine the issue of whether or not the debt is deductible through the
evidence presented before it.—The contentions of PRC that nobody is in a
better position to determine when an obligation becomes a bad debt than the
creditor itself, and that its judgment should not be substituted by that of
respondent court as it is PRC which has the facilities in ascertaining the
collectibility or uncollectibility of these debts, are presumptuous and uncalled
for. The Court of Tax Appeals is a highly specialized body specifically created
for the purpose of reviewing tax cases. Through its expertise, it is undeniably
competent to determine the issue of whether or not the debt is deductible
through the evidence presented before it.
Same; Same; Same; The findings of the CTA will not ordinarily be
reviewed absent a showing of gross error or abuse on its part.—Because
of this recognized expertise, the findings of the CTA will not ordinarily be
reviewed absent a showing of gross error or abuse on its part. The findings of
fact of the CTA are binding on this Court and in the absence of strong reasons
for this Court to delve into facts, only questions of law are open for
determination. Were it not, therefore, due to the desire of this Court to satisfy
petitioner’s calls for clarification and to use this case as a vehicle for
exemplification, this appeal could very well have been summarily dismissed.
Asia International Auctioneers, Inc. vs. Parayno, Jr., 540 SCRA 536,
G.R. No. 163445. December 18, 2007

Puno, CJ.

Facts:

Then CIR Guillermo L. Parayno, Jr. and herein respondent, issued Revenue
Memorandum Circular (RMC) No. 31-2003 setting the "Uniform Guidelines on
the Taxation of Imported Motor Vehicles through the Subic Free Port Zone
and Other Freeport Zones that are Sold at Public Auction." The petitioners
300 | M s . N o l a i d a A g u i r r e
filed a complaint before the RTC of Olongapo City, praying for the nullification
of RMC No. 31-2003 for being unconstitutional and an ultra vires act. The
RTC granted TRO and a preliminary injunction pending the determination of
constitutionality. In response, the respondents filed with the CA a petition for
certiorari under Rule 65 of the Rules of Court with prayer for the issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin
the trial court from exercising jurisdiction over the case. The same was
granted and the CA declared the RTC of Olongapo City bereft of jurisdiction
and the TRO and preliminary injunction issued by the same null and void. The
CA held that the proper court with jurisdiction over the matter is the CTA and
not the RTC. Hence, the petitioners filed this petition. Petitioners contend that
jurisdiction over the case at bar properly pertains to the regular courts as this
is "an action to declare as unconstitutional, void”. They explain that they "do
not challenge the rate, structure or figures of the imposed taxes, rather they
challenge the authority of the respondent Commissioner to impose and collect
the said taxes." They claim that the challenge on the authority of the CIR to
issue the RMCs does not fall within the jurisdiction of the Court of Tax Appeals
(CTA).

Issue:
Does CTA have jurisdiction to decide the case?
Held:
The Court ruled in the affirmative. RMCs are considered administrative rulings
which are issued from time to time by the CIR. In the case at bar, the assailed
revenue regulations and revenue regulations and revenue memorandum
circulars are actually rulings or opinions of the CIR on the tax treatment of
motor vehicles sold at public auction within the SSEZ to implement Section 12
of RA No. 7227 which provides that “exportation or removal of goods from the
territory of the SSEZ to the other parts of the Philippine territory shall be
subject to Customs and Tariff Code and other relevant tax laws of the
Philippines.” They were issued pursuant to the power of the CIR under
Section 4 of the National Internal Revenue Code.
Petitioner’s failure to ask for a CIR for a reconsideration of the assailed
revenue regulations and RMCs is another reason why the instant case should
be dismissed. It is settled that the premature invocation of the court’s
intervention is fatal to one’s cause of action. If a remedy within the
administrative machinery can still be resorted to by giving the administrative
officer every opportunity to decide on a matter that comes within his
jurisdiction, then such remedy must first be exhausted before the court’s
power of judicial review van be sought. The party with an administrative
remedy must not only initiate the prescribed administrative procedure to obtain
relief but also pursue it to its appropriate conclusion before seeking judicial
intervention in order to give the administrative agency an opportunity to decide
the matter itself correctly and prevent unnecessary and premature resort to
the court.
CASE SYLLABI:

301 | M s . N o l a i d a A g u i r r e
Actions; Jurisdictions; Words and Phrases; Jurisdiction is defined as
the power and authority of a court to hear, try and decide a case, and
courts may take cognizance of the issue even if not raised by the parties
themselves—there is thus no reason to preclude the Court of Appeals from
ruling on said issue even if allegedly the same has not yet been resolved by
the trial court.—Jurisdiction is defined as the power and authority of a court to
hear, try and decide a case. The issue is so basic that it may be raised at any
stage of the proceedings, even on appeal. In fact, courts may take cognizance
of the issue even if not raised by the parties themselves. There is thus no
reason to preclude the CA from ruling on this issue even if allegedly, the same
has not yet been resolved by the trial court.
Administrative Law; Court of Tax Appeals; Jurisdictions; Revenue
Memorandum Circulars (RMCs) are considered administrative rulings
which are issued from time to time by the Commissioner of Internal
Revenue, and subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals.—R.A. No. 1125, as amended, states: Sec. 7.
Jurisdiction.—The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided—(1) Decisions of the
Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue
Code or other laws or part of law administered by the Bureau of Internal
Revenue; x x x (emphases supplied) We have held that RMCs are considered
administrative rulings which are issued from time to time by the
Same; Same; Exhaustion of Administrative Remedies; It is settled that
the premature invocation of the court’s intervention is fatal to one’s
cause of action—if a remedy within the administrative machinery can still be
resorted to by giving the administrative officer every opportunity to decide on a
matter that comes within his jurisdiction, then such remedy must first be
exhausted before the court’s power of judicial review can be sought.—
Petitioners’ failure to ask the CIR for a reconsideration of the assailed revenue
regulations and RMCs is another reason why the instant case should be
dismissed. It is settled that the premature invocation of the court’s intervention
is fatal to one’s cause of action. If a remedy within the administrative
machinery can still be resorted to by giving the administrative officer every
opportunity to decide on a matter that comes within his jurisdiction, then such
remedy must first be exhausted before the court’s power of judicial review can
be sought. The party with an administrative remedy must not only initiate the
prescribed administrative procedure to obtain relief but also pursue it to its
appropriate conclusion before seeking judicial intervention in order to give the
administrative agency an opportunity to decide the matter itself correctly and
prevent unnecessary and premature resort to the court.
British American Tobacco vs. Camacho, 562 SCRA 511, G.R. No.
163583. August 20, 2008
302 | M s . N o l a i d a A g u i r r e
 Ynares-Santiago, J.
Facts:
To implement RA 8240, the Bureau of Internal Revenue (BIR) issued
Revenue Regulations No. 1-97, 2 which classified the existing brands of
cigarettes as those duly registered or active brands prior to January 1, 1997.
New brands, or those registered after January 1, 1997, shall be initially
assessed at their suggested retail price until such time that the appropriate
survey to determine their current net retail price is conducted. In June 2001
British American Tobacco introduced into the market Lucky Strike Filter, Lucky
Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested
retail price of P9.90 per pack. 3 Pursuant to Sec. 145 (c) quoted above, the
Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.
On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue
Regulations No. 1-97 by providing, among others, a periodic review every two
years or earlier of the current net retail price of new brands and variants
thereof for the purpose of establishing and updating their tax classification.
Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was issued on
March 11, 2003, prescribing the guidelines and procedures in establishing
current net retail prices of new brands of cigarettes and alcohol products.
Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8,
2003 to implement the revised tax classification of certain new brands
introduced in the market after January 1, 1997, based on the survey of their
current net retail price. The survey revealed that Lucky Strike Filter, Lucky
Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail
price of P22.54, P22.61 and P21.23, per pack, respectively. Respondent
Commissioner of the Bureau of Internal Revenue thus recommended the
applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net
retail price is above P10.00 per pack. Thus filed before the Regional Trial
Court (RTC) of Makati, Branch 61, and a petition for injunction with prayer for
the issuance of a temporary restraining order (TRO) and/or writ of preliminary
injunction, docketed as Civil Case No. 03-1032. Said petition sought to enjoin
the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-
97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the
ground that they discriminate against new brands of cigarettes, in violation of
the equal protection and uniformity provisions of the Constitution. The trial
court rendered a decision upholding the constitutionality of Section 145 of the
NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003.
On March 20, 2006, Philip Morris Philippines Manufacturing Incorporated filed
a Motion for Leave to Intervene with attached Comment-in-Intervention.This
was followed by the Motions for Leave to Intervene of Fortune Tobacco
Corporation, Mighty Corporation, and JT International, S.A., with their
respective Comments-in-Intervention. The Intervenors claim that they are
parties-in-interest who stand to be affected by the ruling of the Court on the
constitutionality of Section 145 of the NIRC and its Annex “D” because they
are manufacturers of cigarette brands which are included in the said

303 | M s . N o l a i d a A g u i r r e
Annex. Hence, their intervention is proper since the protection of their interest
cannot be addressed in a separate proceeding.
According to the Intervenors, no inequality exists because cigarettes classified
by the BIR based on their net retail price as of December 31, 2003 now enjoy
the same status quo provision that prevents the BIR from reclassifying
cigarettes included in Annex “D.” It added that the Court has no power to
pass upon the wisdom of the legislature in retaining Annex “D” in RA 9334;
and that the nullification of said Annex would bring about tremendous loss of
revenue to the government, chaos in the collection of taxes, illicit trade of
cigarettes, and cause decline in cigarette demand to the detriment of the
farmers who depend on the tobacco industry.
Intervenor Fortune Tobacco further contends that petitioner is estopped from
questioning the constitutionality of Section 145 and its implementing rules and
regulations because it entered into the cigarette industry fully aware of the
existing tax system and its consequences. Petitioner imported cigarettes into
the country knowing that its suggested retail price, which will be the initial
basis of its tax classification, will be confirmed and validated through a survey
by the BIR to determine the correct tax that would be levied on its cigarettes.
Moreover, Fortune Tobacco claims that the challenge to the validity of the BIR
issuances should have been brought by petitioner before the Court of Tax
Appeals (CTA) and not the RTC because it is the CTA which has exclusive
appellate jurisdiction over decisions of the BIR in tax disputes.
On August 7, 2006, the OSG manifested that it interposes no objection to the
motions for intervention. Therefore, considering the substantial interest of the
intervenors, and in the higher interest of justice, the Court admits their
intervention.
Issues:
1. Whether or not Fortune Tobacco is correct that petitioner should
have filed the petition in the CTA instead of RTC;
2. Whether or not Sec 145 of the NIRC violates the equal protection
clause and uniformity of taxation clauses; and
3. Whether or not Revenue Regulation are invalid insofar as they
empower BIR to reclassify and update the classification of new brands
every two years or earlier.
Held:
1. The CTA has no jurisdiction to rule on the constitutionality of BIR
issuances. The jurisdiction of the Court of Tax Appeals is defined in
Republic Act No. 1125, as amended by Republic Act No. 9282. Section
7 thereof states, in pertinent part:

Sec. 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as

herein provided:

304 | M s . N o l a i d a A g u i r r e
1. Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of
Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in

cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relations
thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of
Internal Revenue, where the National Internal Revenue
Code provides a specific period of action, in which case the
inaction shall be deemed a denial; xxx.[25]

While the above statute confers on the CTA jurisdiction to resolve tax
disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged. Where what is assailed is
the validity or constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a
law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including the
regional trial courts. This is within the scope of judicial power, which
includes the authority of the courts to determine in an appropriate action
the validity of the acts of the political departments. Judicial power
includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.[26]

In Drilon v. Lim,[27] it was held:

We stress at the outset that the lower court had

jurisdiction to consider the constitutionality of Section 187,
this authority being embraced in the general definition of
the judicial power to determine what are the valid and
binding laws by the criterion of their conformity to the
fundamental law. Specifically, B.P. 129 vests in the
regional trial courts jurisdiction over all civil cases in which
the subject of the litigation is incapable of pecuniary
estimation, even as the accused in a criminal action has the
305 | M s . N o l a i d a A g u i r r e
 right to question in his defense the constitutionality of a law
he is charged with violating and of the proceedings taken
against him, particularly as they contravene the Bill of
Rights. Moreover, Article X, Section 5(2), of the
Constitution vests in the Supreme Court appellate
jurisdiction over final judgments and orders of lower courts
in all cases in which the constitutionality or validity of any
treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction,
ordinance, or regulation is in question.

The petition for injunction filed by petitioner before the RTC is a

direct attack on the constitutionality of Section 145(C) of the NIRC, as
amended, and the validity of its implementing rules and regulations. In
fact, the RTC limited the resolution of the subject case to the issue of
the constitutionality of the assailed provisions. The determination of
whether the assailed law and its implementing rules and regulations
contravene the Constitution is within the jurisdiction of regular
courts. The Constitution vests the power of judicial review or the power
to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts.[28] Petitioner, therefore,
properly filed the subject case before the RTC.

2. Section 145 of the National Internal Revenue Code is Constitutional. In

the instant case, there is no question that the classification freeze
provision meets the geographical uniformity requirement because the
assailed law applies to all cigarette brands in the Philippines. And, for
reasons already adverted to in our August 20, 2008 Decision, the four-
fold test has been met in the present case. As held in the assailed
Decision, the instant case neither involves a suspect classification nor
impinges on a fundamental right. Consequently, the rational basis test
was properly applied to gauge the constitutionality of the assailed law in
the face of an equal protection challenge. It has been held that "in the
areas of social and economic policy, a statutory classification that
neither proceeds along suspect lines nor infringes constitutional rights
must be upheld against equal protection challenge if there is any
reasonably conceivable state of facts that could provide a rational basis
for the classification." Under the rational basis test, it is sufficient that
the legislative classification is rationally related to achieving some
legitimate State interest. Petitioner's reliance on Ormoc Sugar Co. is
misplaced. In said case, the controverted municipal ordinance
specifically named and taxed only the Ormoc Sugar Company, and
excluded any subsequently established sugar central from its coverage.
Thus, the ordinance was found unconstitutional on equal protection
grounds because its terms do not apply to future conditions as well.
This is not the case here. The classification freeze provision uniformly
applies to all cigarette brands whether existing or to be introduced in the

306 | M s . N o l a i d a A g u i r r e
 market at some future time. It does not purport to exempt any brand
from its operation nor single out a brand for the purpose of imposition of
excise taxes.
3. The Revenue Regulation is invalid. In order to implement RA 8240
following its effectively on January 1, 1997, the BIR issued Revenue
Regulations No. 1-97, dated December 13, 1996, which mandates a
one-time classification only.[79] Upon their launch, new brands shall be
initially taxed based on their suggested net retail price. Thereafter, a
survey shall be conducted within three (3) months to determine their
current net retail prices and, thus, fix their official tax classifications.
However, the BIR made a turnaround by issuing Revenue Regulations
No. 9-2003, dated February 17, 2003, which partly amended Revenue
Regulations No. 1-97, by authorizing the BIR to periodically reclassify
new brands (i.e., every two years or earlier) based on their current net
retail prices. Thereafter, the BIR issued Revenue Memorandum Order
No. 6-2003, dated March 11, 2003, prescribing the guidelines on the
implementation of Revenue Regulations No. 9-2003. This was patent
error on the part of the BIR for being contrary to the plain text and
legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue Regulations No. 1-
97, as amended by Section 2 of Revenue Regulations 9-2003, and
Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the
operation of Section 145 of the NIRC because they authorize the
Commissioner of Internal Revenue to update the tax classification of
new brands every two years or earlier subject only to its issuance of the
appropriate Revenue Regulations, when nowhere in Section 145 is
such authority granted to the Bureau. Unless expressly granted to the
BIR, the power to reclassify cigarette brands remains a prerogative of
the legislature which cannot be usurped by the former.

CASE SYLLABUS:
Court of Tax Appeals; Jurisdiction; Where what is assailed is the validity
or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same.—
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No.
1125, as amended by Republic Act No. 9282. Section 7 thereof states, in
pertinent part: x x x While the above statute confers on the CTA jurisdiction to
resolve tax disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged. Where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the
regular courts have jurisdiction to pass upon the same. The determination of
whether a specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial review or the power
to declare a law, treaty, international or executive agreement, presidential
decree, order, instruction, ordinance, or regulation in the courts, including the
307 | M s . N o l a i d a A g u i r r e
regional trial courts. This is within the scope of judicial power, which includes
the authority of the courts to determine in an appropriate action the validity of
the acts of the political departments. Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been
a grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
Negros Consolidated Farmers Association Multi-Purpose Cooperative vs.
Commissioner of Internal Revenue, CTA Case No. 7994, February 17,
2012, and Resolution on the Motion for Reconsideration promulgated on
March 24, 2012
Acosta, PJ.

Facts:

Respondent submits that CTA erred in ruling that it has jurisdiction to rule on
the validity of Revenue Regulations No. 13-2008 issued by the Commissioner
of Internal Revenue.

Issue:

Whether or not the CTA has a jurisdiction to rule on the validity of revenue
regulations.

Held:

The Motion for Reconsideration is devoid of merit. As already emphasized in

the assailed Decision, this Court is of the opinion that it has jurisdiction to rule
on the validity of a rule or regulation issued by the Bureau of Internal
Revenue, in this case, Revenue Regulations No. 13-2008 which was issued in
the exercise of the Commissioner's power to make rulings or opinions in
connection with the implementation of the provisions of the National Internal
Revenue Code, in particular, Section 109 thereof.

Under Republic Act No. 1125 (An Act Creating the Court of TaxAppeals [CTA
for brevity]), as amended, such rulings of the Commissioner ofInternal
Revenue are appealable to that court, thus:

"SEC. 7. Jurisdiction. — The Court of Tax Appeals shall exerciseexclusive

appellate jurisdiction to review by appeal, as herein provided

(1) Decisions of the Commissioner of Internal Revenue in casesinvolving

disputed assessments, refunds of internal revenue taxes, fees orother
charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws or part of law
administered by the Bureau of Internal Revenue;

xxx xxx xxx." (Emphasis added)

308 | M s . N o l a i d a A g u i r r e
"SEC. 11. Who may appeal; effect of appeal. — Any person,association or
corporation adversely affected by a decision or ruling ofthe
Commissioner of Internal Revenue,or the Commissioner of Customsor any
provincial or city Board of Assessment Appeals may file anappeal in the
Court of Tax Appeals within thirty days after the receipt ofsuch decision
or ruling.

xxx xxx xxx." (Emphasis added)

"SEC. 18. . . . — No judicial proceeding against the Governmentinvolving

matters arising under the National Internal Revenue Code, theCustoms
Law or the Assessment Law shall be maintained, except as herein provided,
until and unless an appeal has been previously filed with the Court of
Tax Appeals and disposed of in accordance with the
xxx xxx xxx." (Emphasis added)

The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:

"Plaintiff maintains that this is not an appeal from a ruling of the

Collector of Internal Revenue, but merely an attempt to nullify
General Circular No. V-148, which does not adjudicate or settle
any controversy, and that, accordingly, this case is not within the
jurisdiction of the Court of Tax Appeals. "We find no merit in this
pretense. General Circular No. V-148 directsthe officers charged
with the collection of taxes and license fees toadhere strictly to
the interpretation given by the defendant to thestatutory
provisions abovementioned, as set forth in the Circular. Thesame
incorporates, therefore, a decision of the Collector of
InternalRevenue (now Commissioner of Internal Revenue) on
the manner ofenforcement of the said statute, the
administration of which is entrustedby law to the Bureau of
Internal Revenue. As such, it comes within thepurview of
Republic Act No. 1125, Section 7 of which provides that
theCourt of Tax Appeals 'shall exercise exclusive appellate
jurisdiction toreview by appeal . . . decisions of the Collector
of Internal Revenue in . .. matters arising under the National
Internal Revenue Code or other lawor part of the law
administered by the Bureau of Internal Revenue.' . . ."
(Emphasis added)

Contrast with the case cited by respondent in support of the Motion for Partial
Reconsideration, specifically the case of British American Tobacco vs. Jose
IsidroCamacho, et al. (G.R. No. 163583, August 20, 2008), the
constitutionality of Republic Act (RA) No. 8424 and RA 9334, including the
implementing regulations, viz.: Revenue Regulations Nos. 1-97, 9-2003, and
22-2003 and Revenue Memorandum Order No. 6-2003 were raised and the
Supreme Court ruled that the jurisdiction of the Court of Tax Appeals does not
include cases where the constitutionality of a law or rule is challenged. Clearly,
in the case at bar, no question on constitutionality is raised.

309 | M s . N o l a i d a A g u i r r e
Anent respondent's claim that the Court of Tax Appeals' Second Division
hadruled in the case of Commissioner of Internal Revenue vs. United
Cadiz SugarFarmers Association Multi-Purpose Cooperative, that it had
no jurisdiction torule on the validity of RR No. 13-2008 "as it does not indicate
that the Court of TaxAppeals' jurisdiction includes the power to decide or rule
on the validity of a rule orRepublic Act No. 1125, as amended by Republic Act
Nos. 3457, 9282, and 9503." Suffice it to say that the decision of its co-division
is not binding on this Court whichis co-equal to the other. Further, it must be
stressed that judicial decisions thatform part of our legal system are only the
decisions of the Supreme Court and not ofthe appellate courts.
St. Paul College of San Rafael vs. Commissioner of Internal Revenue
Court of Tax Appeals (En Banc) EB No. 874 promulgated May 27, 2013
Facts:
On December 13, 2010, Respondent Commissioner of Internal Revenue (CIR)
issued BIR Ruling No. 143-2010, which held that Petitioner St. Paul College of
San Rafael (SPC) may be held liable for DST on school diplomas. On January
13, 2011, SPC filed a Petition for Review with the Court of Tax Appeals (CTA)
praying for the reversal of BIR Ruling No. 143-2010. On June 19, 2011, the
Court in Division dismissed SPC’s petition on the ground of failure to exhaust
administrative remedies and lack of jurisdiction. Upon denial of its Motion for
Reconsideration, SPC appealed to the CTA En Banc.
Issues:
1. Did SPC fail to exhaust the administrative remedies prescribed by law?
2. Does the CTA have jurisdiction to reverse the ruling of the CIR?
Held:
1. Yes. SPC failed to exhaust the administrative remedies before seeking
judicial intervention. The proper remedy was to file an appeal with the
Secretary of Finance. Section 4 of the Tax Code provides that the
Secretary of Finance has the power to review rulings of the CIR
interpreting the provisions of the Tax Code and other tax laws. The
Secretary of Finance issued Department Order No. 23-01 prescribing the
guidelines for appeal by taxpayers of adverse rulings issued by the CIR.
Under the said order, a taxpayer may seek the review of an adverse ruling
issued by the CIR within 30 days from receipt thereof.

SPC’s claim that it is exempt from the rule on exhaustion of administrative

remedies as the petition allegedly raises purely questions of law has no
merit. The Supreme Court previously ruled that a party cannot, in the guise
of raising pure questions of law, seek judicial intervention without
exhausting the available administrative remedies. The premature
invocation of the court’s intervention is lethal to one’s cause of action. In
the absence of waiver or estoppel, the case can be dismissed for failure to
state a cause of action.

310 | M s . N o l a i d a A g u i r r e
2. No. The CTA has no jurisdiction to rule on the validity or constitutionality of
a rule, regulation or ruling issued by the CIR. The Supreme Court
previously ruled that while the law confers on the CT jurisdiction to resolve
tax disputes in general, this does not include cases where the
constitutionality of a law or rule is challenged. The determination of
whether a set of rules issued by an administrative agency contravenes the
law or the constitution is within the jurisdiction of the regular courts.
Adamson vs. Court of Appeals, 588 SCRA 27, G.R. No. 120935 & G.R.
No. 124557. May 21, 2009
3. Puno, CJ.

----------supra-----------
Dispositive portion:

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
amended, the rulings of the Commissioner are appealable to the CTA, thus:

SEC. 7. Jurisdiction. – The Court of Tax Appeals shall

exercise exclusive appellate jurisdiction to review by appeal, as
herein provided -
(1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or
other matters arising under the National Internal
Revenue Code or other laws or part of law
administered by the Bureau of Internal Revenue;

Republic Act No. 8424, titled “An Act Amending the National Internal
Revenue Code, As Amended, And for Other Purposes,” later expanded the
jurisdiction of the Commissioner and, correspondingly, that of the CTA, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws

and to Decide Tax Cases. – The power to interpret the provisions
of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.

The latest statute dealing with the jurisdiction of the CTA is Republic Act
No. 9282.[26] It provides:
311 | M s . N o l a i d a A g u i r r e
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as
herein provided:
(1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal

Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the
inaction shall be deemed a denial;

(3) Decisions, orders or resolutions of the Regional

Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or
appellate jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as
herein provided:

(1) Exclusive original jurisdiction over all criminal

offenses arising from violations of the National
Internal Revenue Code or Tariff and Customs
Code and other laws administered by the
Bureau of Internal Revenue or the Bureau of
Customs: Provided, however, That offenses or
felonies mentioned in this paragraph where the
principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One
million pesos (P1,000,000.00) or where there is
no specified amount claimed shall be tried by
the regular courts and the jurisdiction of the CTA
shall be appellate. Any provision of law or the
Rules of Court to the contrary notwithstanding,
the criminal action and the corresponding civil
action for the recovery of civil liability for taxes
and penalties shall at all times be
simultaneously instituted with, and jointly
determined in the same proceeding by the CTA,

312 | M s . N o l a i d a A g u i r r e
 the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil
action, and no right to reserve the filling of such
civil action separately from the criminal action
will be recognized.

(2) Exclusive appellate jurisdiction in criminal

offenses:
(a) Over appeals from the judgments,
resolutions or orders of the Regional Trial
Courts in tax cases originally decided by them,
in their respected territorial jurisdiction.
(b) Over petitions for review of the
judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate
jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.
(c) Jurisdiction over tax collection cases as
herein provided:
(1) Exclusive original jurisdiction in tax
collection cases involving final and executory
assessments for taxes, fees, charges and
penalties: Provided, however, That collection
cases where the principal amount of taxes
and fees, exclusive of charges and penalties,
claimed is less than One million pesos
(P1,000,000.00) shall be tried by the proper
Municipal Trial Court, Metropolitan Trial
Court and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax
collection cases:
(a) Over appeals from the judgments,
resolutions or orders of the Regional Trial
Courts in tax collection cases originally
decided by them, in their respective
territorial jurisdiction.
(b) Over petitions for review of the
judgments, resolutions or orders of the
Regional Trial Courts in the exercise of
their appellate jurisdiction over tax
collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts,
in their respective jurisdiction.

313 | M s . N o l a i d a A g u i r r e
These laws have expanded the jurisdiction of the CTA. However, they did not
change the jurisdiction of the CTA to entertain an appeal only from a final
decision or assessment of the Commissioner, or in cases where the
Commissioner has not acted within the period prescribed by the NIRC. In the
cases at bar, the Commissioner has not issued an assessment of the tax
liability of private respondents.

CASE SYLLABUS:

Same; Court of Tax Appeals; Republic Act Nos. 8424 and 9282, even as
they expanded the jurisdiction of the Court of Tax Appeals (CTA), did not
change the jurisdiction of the CTA to entertain an appeal only from a
final decision or assessment of the Commissioner, or in cases where the
Commissioner has not acted within the period prescribed by the
National Internal Revenue Code (NIRC).—These laws have expanded the
jurisdiction of the CTA. However, they did not change the jurisdiction of the
CTA to entertain an appeal only from a final decision or assessment of the
Commissioner, or in cases where the Commissioner has not acted within the
period prescribed by the NIRC. In the cases at bar, the Commissioner has not
issued an assessment of the tax liability of private respondents.

Commissioner of Internal Revenue vs. Hambrecht & Quist Philippines,

Inc., 635 SCRA 162, G.R. No. 169225. November 17, 2010
Leonardo- De Castro, J.
Facts:
Petitioner argues that the CTA had no jurisdiction over the case since the CTA
itself had ruled that the assessment had become final and unappealable.
Citing Protector’s Services Inc. V. CA, the CIR argued that, after the lapse of
the 30-day period to protest, respondent may no longer dispute the
correctness of the assessment and its appeal to the CTA should be dismissed.
The CIR took issue with the CTA’s pronouncement that it had jurisdiction to
decide “other matters” related to the tax assessment such as the issue on the
right to collect the same since the CIR maintains that when the law says that
the CTA has jurisdiction over “other matters’’, it presupposes that the tax
assessment has not become final and unappealable.
Issue:
Whether the CTA has jurisdiction to take cognizance of the case at bar.

Held:
The CTA has jurisdiction. We cannot countenance the CIR’s assertion with
regard to this point.The jurisdiction of the CTA is governed by Section 7 of
Republic Act No. 1125, as amended, and the term “other matters” referred to
by the CIR in its argument can be found in number (1) of the aforementioned
provision, to wit:
314 | M s . N o l a i d a A g u i r r e
 Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein provided –
1. Decisions of the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National
Internal Revenue Code or other law as part of law
administered by the Bureau of Internal Revenue.
The assailed CTA En Banc Decision was correct in declaring that there was
nothing in the foregoing provision upon which petitioner’s theory with regard to
the parameters of the term “other matters” can be supported or even deduced.
What is rather clearly apparent, however, is that the term “other matters” is
limited only by the qualifying phrase that follows it.
Thus, on the strength of such observation, we have previously ruled that the
appellate jurisdiction of the CTA is not limited to cases which involve decisions
of the CIR on matters relating to assessments or refunds. The second part of
the provision covers other cases that arise out of the National Internal
Revenue Code (NIRC) or related laws administered by the Bureau of Internal
Revenue (BIR).
The CTA law clearly bestows jurisdiction to the CTA even on “other matters
arising under the National Internal Revenue Code”. Thus, the issue of whether
the right of the CIR to collect has prescribed, collection being one of the duties
of the BIR, is considered covered by the term “other matters”. The fact that
assessment has become final for failure to protest only means that the validity
or correctness of the assessment may no longer be questioned on appeal.
However, this issue is entirely distinct from the issue of whether the right to
collect has in fact prescribed.
The Court ruled that the right to collect has indeed prescribed since there was
no proof that the request for reinvestigation was in fact granted/acted upon by
the CIR. Thus, the period to collect was never suspended.
CASE SYLLABI:
Court of Tax Appeals; Jurisdiction; The appellate jurisdiction of the
Court of Tax Appeals (CTA) is not limited to cases which involve
decisions of the Commissioner of Internal Revenue (CIR) on matters
relating to assessments or refunds.--the assailed CTA En Banc Decision
was correct in declaring that there was nothing in the foregoing provision upon
which petitioner’s theory with regard to the parameters of the term “other
matters” can be supported or even deduced. What is rather clearly apparent,
however, is that the term “other matters” is limited only by the qualifying
phrase that follows it. Thus, on the strength of such observation, we have
previously ruled that the appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the CIR on matters relating to assessments
or refunds. The second part of the provision covers other cases that arise out
of the National Internal Revenue Code (NIRC) or related laws administered by
the Bureau of Internal Revenue (BIR).

315 | M s . N o l a i d a A g u i r r e
Same; Same; Under Section 3, 1986 of NIRC, the issue of prescription of
the BIR’s right to collect taxes may be considered as covered by the
term “other matters’ over which the Court of tax Appeals has appellate
jurisdiction.-- the issue of prescription of the BIR’s right to collect taxes may
be considered as covered by the term “other matters” over which the CTA has
appellate jurisdiction.

Same; Same; the phraseology of section 7, number (1), denotes an intent

to review the CTA’s jurisdiction over disputed assessments and over
“other matters’’ arising under the NIRC or other laws administered by
the BIR as separate and independent of each other.-- the phraseology of
Section 7, number (1), denotes an intent to view the CTA’s jurisdiction over
disputed assessments and over “other matters” arising under the NIRC or
other laws administered by the BIR as separate and independent of each
other. This runs counter to petitioner’s theory that the latter is qualified by the
status of the former, i.e., an “other matter” must not be a final and
unappealable tax assessment or, alternatively, must be a disputed
assessment.

Same; Same; The mere existence of an adverse decision, ruling or

inaction along with the timely filing of an appeal operates to validate the
exercise of jurisdiction by the CTA.-- the first paragraph of Section 11 of
Republic Act No. 1125,as amended by Republic Act No. 9282, belies
petitioner’s assertion as the provision is explicit that, for as long as a party is
adversely affected by any decision, ruling or inaction of petitioner, said party
may file an appeal with the CTA within 30 days from receipt of such decision
or ruling. The wording of the provision does not take into account the CIR’s
restrictive interpretation as it clearly provides that the mere existence of an
adverse decision, ruling or inaction along with the timely filing of an appeal
operates to validate the exercise of jurisdiction by the CTA.

City of Manila vs. Judge Grecia-Cuerdo, G.R. No. 175723, February 4,

2014
Peralta, J.
Facts:
On January 24, 2004, private respondents filed [with the Regional Trial Court
of Pasay City] the complaint denominated as one for “Refund or Recovery of
Illegally and/or Erroneously–Collected Local Business Tax, Prohibition with
Prayer to Issue TRO and Writ of Preliminary Injunction” which was docketed
as Civil Case No. 04–0019–CFM before public respondent’s sala [at Branch
112].
In its Order3 dated July 9, 2004, the RTC granted private respondents’
application for a writ of preliminary injunction.Petitioners filed a Motion for
Reconsideration4 but the RTC denied it in its Order5 dated October 15, 2004.
Petitioners then filed a special civil action for certiorari with the CA assailing
the July 9, 2004 and October 15, 2004 Orders of the RTC.6

316 | M s . N o l a i d a A g u i r r e
In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners’
petition for certiorari holding that it has no jurisdiction over the said petition.
The CA ruled that since appellate jurisdiction over private respondents’
complaint for tax refund, which was filed with the RTC, is vested in the Court
of Tax Appeals (CTA), pursuant to its expanded jurisdiction under Republic
Act No. 9282 (RA 9282), it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise,
be filed with the CTA.

Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its

Resolution dated November 29, 2006.
Issue:
Whether or not the CTA has jurisdiction over a special civil action
for certiorari assailing an interlocutory order issued by the RTC in a local tax
case.
Held:
The Court rules in the affirmative.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282
(RA 9282) amending RA 1125 by expanding the jurisdiction of the CTA,
enlarging its membership and elevating its rank to the level of a collegiate
court with special jurisdiction. Pertinent portions of the amendatory act
provides thus:

Sec. 7. Jurisdiction. – The CTA shall exercise:

Exclusive appellate jurisdiction to review by appeal, as herein provided:

xxxx

3. Decisions, orders or resolutions of the Regional Trial Courts in local

tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original jurisdiction, to issue
writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the
appellate court, also in the exercise of its original jurisdiction, the power to
issue, among others, a writ of certiorari,whether or not in aid of its appellate
jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari,
in the exercise of their original jurisdiction, is provided under Section 21 of BP
129.

The foregoing notwithstanding, while there is no express grant of such power,

with respect to the CTA, Section 1, Article VIII of the 1987 Constitution
provides, nonetheless, that judicial power shall be vested in one Supreme
Court and in such lower courts as may be established by law and that judicial
power includes the duty of the courts of justice to settle actual controversies
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involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly

interpreted that the power of the CTA includes that of determining whether or
not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory order in cases
falling within the exclusive appellate jurisdiction of the tax court. It, thus,
follows that the CTA, by constitutional mandate, is vested with jurisdiction to
issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ
of certiorari. In transferring exclusive jurisdiction over appealed tax cases to
the CTA, it can reasonably be assumed that the law intended to transfer also
such power as is deemed necessary, if not indispensable, in aid of such
appellate jurisdiction. There is no perceivable reason why the transfer should
only be considered as partial, not total.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same
level as the CA and shall possess all the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be

implied from a general grant of jurisdiction, in addition to those expressly
conferred on them. These inherent powers are such powers as are necessary
for the ordinary and efficient exercise of jurisdiction; or are essential to the
existence, dignity and functions of the courts, as well as to the due
administration of justice; or are directly appropriate, convenient and suitable to
the execution of their granted powers; and include the power to maintain the
court’s jurisdiction and render it effective in behalf of the litigants.38

Thus, this Court has held that “while a court may be expressly granted the
incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction,
in the absence of prohibitive legislation, implies the necessary and usual
incidental powers essential to effectuate it, and, subject to existing laws and
constitutional provisions, every regularly constituted court has power to do all
things that are reasonably necessary for the administration of justice within the
scope of its jurisdiction and for the enforcement of its judgments and
mandates.”39 Hence, demands, matters or questions ancillary or incidental to,
or growing out of, the main action, and coming within the above principles,
may be taken cognizance of by the court and determined, since such
jurisdiction is in aidof its authority over the principal matter, even though the
court may thus be called on to consider and decide matters which, as original
causes of action, would not be within its cognizance.40

Based on the foregoing disquisitions, it can be reasonably concluded that the

authority of the CTA to take cognizance of petitions for certiorari questioning
interlocutory orders issued by the RTC in a local tax case is included in the

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powers granted by the Constitution as well as inherent in the exercise of its
appellate jurisdiction.

CASE SYLLABI:
Taxation; The CTA has jurisdiction over a special civil action for
certiorari assailing an interlocutory order issued by the RTC in a local
tax case. -In order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of
certiorari. In transferring exclusive jurisdiction over appealed tax cases to the
CTA, it can reasonably be assumed that the law intended to transfer also such
power as is deemed necessary, if not indispensable, in aid of such appellate
jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total.
Consistent with the above pronouncement, this Court has held as early as the
case of J.M. Tuason & Co., Inc. v. Jaramillo, et al. [118 Phil. 1022 (1963)] that
“if a case may be appealed to a particular court or judicial tribunal or body,
then said court or judicial tribunal or body has jurisdiction to issue the
extraordinary writ of certiorari, in aid of its appellate jurisdiction.” This principle
was affirmed in De Jesus v. Court of Appeals (G.R. No. 101630, August 24,
1992) where the Court stated that “a court may issue a writ of certiorari in
aid of its appellate jurisdiction if said court has jurisdiction to review, by
appeal or writ of error, the final orders or decisions of the lower court.”

ABATEMENT OF TAX/ TAX COMPROMISE

Commissioner of Internal Revenue vs. Reyes, 480 SCRA 382, G.R. No.
159694. January 27, 2006
Panganiban, CJ.
-----------supra----------
In this case the Court ruled that the assessment notice against the estate of
the decease is invalid. Under the present provisions of the Tax Code and
pursuant to elementary due process, taxpayers must be informed in writing of
the law and the facts upon which a tax assessment is based; otherwise, the
assessment is void. Being invalid, the assessment cannot in turn be used as
a basis for the perfection of a tax compromise.
Fact:
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In
1997, a tax audit was conducted on the estate. Meanwhile, the National
Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the
estate was issued a final assessment notice (FAN) demanding the estate to
pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s
319 | M s . N o l a i d a A g u i r r e
liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one
of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR)
nevertheless issued a warrant of distraint and/or levy. Reyes again protested
the warrant but in March 1999, she offered a compromise and was willing to
pay P1 million in taxes. Her offer was denied. She continued to work on
another compromise but was eventually denied. The case reached the Court
of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes
received a favorable judgment.

Issue:

Whether or not the compromise entered into is valid.

Held:
The Court affirmed the decision of the CA.
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228
of the Tax Code and RR 12-99 were mandatory and unequivocal
in their requirement. The assessment notice and the demand
letter should have stated the facts and the law on which they
were based; otherwise, they were deemed void.[6] The appellate
court held that while administrative agencies, like the BIR, were
not bound by procedural requirements, they were still required by
law and equity to observe substantive due process. The reason
behind this requirement, said the CA, was to ensure that
taxpayers would be duly apprised of -- and could effectively
protest -- the basis of tax assessments against them.[7] Since the
assessment and the demand were void, the proceedings
emanating from them were likewise void, and any order
emanating from them could never attain finality.
The appellate court added, however, that it was premature
to declare as perfected and consummated the compromise of the
estate’s tax liability. It explained that, where the basic tax
assessed exceeded P1 million, or where the settlement offer was
less than the prescribed minimum rates, the National Evaluation
Board’s (NEB) prior evaluation and approval were
the conditio sine qua non to the perfection and consummation of
any compromise.[8] Besides, the CA pointed out, Section 204(A)
of the Tax Code applied to all compromises, whether
government-initiated or not.[9] Where the law did not distinguish,
courts too should not distinguish. Hence, this Petition.[10]
It would be premature for this Court to declare that the compromise on the
estate tax liability has been perfected and consummated, considering the
earlier determination that the assessment against the estate was

320 | M s . N o l a i d a A g u i r r e
void. Nothing has been settled or finalized. Under Section 204(A) of the
Tax Code, where the basic tax involved exceeds one million pesos or the
settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the NEB composed of the
petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all
compromises, whether government-initiated or
not. Ubi lex non distinguit, nec nos distingueredebemos. Where the law
does not distinguish, we should not distinguish.

*********END OF PART I*********

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