TAXATION LAW 1
Case Digests 31-40
CASE NO. 31
CIR V. METRO STAR SUPREMA, INC.
G.R. NO. 185371
DECEMBER 8, 2010
FACTS:
The BIR through a letter of authority cause the examination of respondent’s
books of account and other accounting records for income tax and other internal
revenue taxes for the taxable year 1999. For the latter’s failure to comply with the
several requests of the presentation of records and subpoena duces tecum, the BIR
Legal Division issued as an Indorsement to proceed with the investigation based on
the best evidence obtainable preparatory to the issuance of notice of assessment.
Respondent received a preliminary 15 day letter and a Formal Letter of Demand
assessing it with deficiency VAT and withholding tax for the taxable year 1999.
ISSUE:
WON the failure to strictly comply with notice requirements prescribed under Section
228 of the NIRC of 1997 and the R.R. No 12-99, is tantamount to a denial of due
process.
HELD:
YES, the sending of a PAN to taxpayer to inform him of the assessment
made is but part of the “due process requirement in the issuance of a deficiency
tax assessment made by the tax authorities. The persuasiveness of the right to due
process reaches both substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own rules is a denial of
Metro Star’s right to due process. Thus, for its failure to send the PAN stating the facts
and the law on which the assessment was made as required by Section 228 of R.A. No.
8424, the assessment made by the CIR is void.
CASE NO. 32
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL V. COMMISSIONER OF
INTERNAL REVENUE
G.R. NO. 155541
JANUARY 27, 2004
FACTS:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business
affairs were managed by the Philippine Trust Company (Philtrust). Two days after her
death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income
Tax Return for 1978. The return did not indicate that the decedent had died. Philtrust
also filed a verified petition for appointment as Special Administrator wit. The court a
quo appointed one of the heirs as Special Administrator. Philtrust’s motion for
reconsideration was denied by the probate court.
The court a quo issued an Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special Administrator. Subsequently, Mr.
Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in
his stead.
In the meantime, the BIR conducted an administrative investigation on the
decedent’s tax liability and found a deficiency income tax for the year 1977 in the
amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail
a demand letter and Assessment Notice addressed to the decedent “c/o Philippine
Trust Company, Sta. Cruz, Manila” which was the address stated in her 1978 Income
Tax Return. No response was made by Philtrust. The BIR was not informed that the
decedent had actually passed away.
ISSUE:
WON the service of deficiency tax assessment against the estate of Juliana Del Gabriel
was a valid service in order to bind the Estate.
HELD:
YES. The relationship between the decedent and Philtrust was one of
agency, which is a personal relationship between agent and principal. Under
Article 1919 (3) of the Civil Code, death of the agent or principal automatically
terminates the agency. In this instance, the death of the decedent on April 3, 1979
automatically severed the legal relationship between her and Philtrust, and such could
not be revived by the mere fact that Philtrust continued to act as her agent when, on
April 5, 1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically
severed at the moment of the Taxpayer’s death, none of Philtrust’s acts or omissions
could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and
Assessment Notice No. NARD-78-82-00501 was improperly done.
It must be noted that Philtrust was never appointed as the administrator of the
Estate of the decedent, and, indeed, that the court a quo twice rejected Philtrust’s
motion to be thus appointed. As of November 18, 1982, the date of the demand letter
and Assessment Notice, the legal relationship between the decedent and Philtrust had
already been non-existent for three years.
CASE NO. 33
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC
G.R. No. 136975
March 31, 2005
FACTS:
Hantex Trading Co is a company organized under the Philippines. It is engaged
in the sale of plastic products. For this purpose, it is required to file an Import Entry
and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs
under Section 1301 of the Tariff and Customs Code. Sometime in 1989, Lt. Vicente
Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and
Investigation Bureau (EIIB), received confidential information that the respondent had
imported synthetic resin amounting to P115, 599,018.00 but only declared P45,
538,694.57.
Thus, Hantex receive a subpoena to present its books of account which it failed
to do. The bureau cannot find any original copies of the products Hantex imported
since the originals were eaten by termites. Thus, the Bureau relied on the certified
copies of the respondent’s Profit and Loss Statement on file with the SEC, the machine
copies of the Consumption Entries submitted by the informer, as well as excerpts from
the entries certified by Tomas and Danganan.
The case was submitted to the CTA which ruled that Hantex have tax deficiency and is
ordered to pay, per investigation of the Bureau. The CA ruled that the income and sales tax
deficiency assessments issued by the petitioner were unlawful and baseless since the copies of
were not duly authenticated by the public officer charged with their custody.
ISSUE:
WON the final assessment for deficiency income tax and sales tax for the latter’s
importation of goods is based on competent evidence and on the law.
HELD:
NO. It was not based on competent evidence. Section 16 of the NIRC of
1977, as amended, provides that the Commissioner of Internal Revenue has the
power to make assessments and prescribe additional requirements for tax
administration and enforcement. Among such powers are those provided in
paragraph (b), which provides that *“Failure to submit required returns, statements, reports
and other documents. – When a report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the time fixed by law or regulation
or when there is reason to believe that any such report is false, incomplete or erroneous, the
Commissioner shall assess the proper tax on the best evidence obtainable.”*
This provision applies when the Commissioner of Internal Revenue
undertakes to perform her administrative duty of assessing the proper tax
against a taxpayer, to make a return in case of a taxpayer’s failure to file one, or
to amend a return already filed in the BIR. The “best evidence” envisaged in Section
16 of the 1977 NIRC, as amended, includes the corporate and accounting records of
the taxpayer who is the subject of the assessment process, the accounting records of
other taxpayers engaged in the same line of business, including their gross profit and
net profit sales.
Mere photocopies of the Consumption Entries have no probative weight if
offered as proof of the contents thereof. The reason for this is that such copies
are mere scraps of paper and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer.
CASE NO. 34
SMI-ED PHILIPPINES VS. CIR
G.R. NO. 175410
NOVERMBER 14, 2016
FACTS:
SMI-ED Philippines, a PEZA-registered corporation, constructed buildings and
purchased machineries and equipment after its registration; however, it failed to
commence operations. Its factory closed and later on sold its buildings and some
machineries and equipment. In November 2000, it was dissolved. In its quarterly
income tax return for year 2000, it subjected the entire gross sales of its properties to
5% final tax on PEZA registered corporations and paid taxes amounting to more than
44 million pesos. SMI-Ed then filed an administrative claim for the refund of more
than 44 million pesos with the BIR which did not act on said claim. Hence, SMI-Ed
filed a petition for review before the CTA which denied the claim for refund and instead
even subjected the sales of SMI-Ed’s assets to 6% capital gains tax under Sec. 27(D)(5)
of NIRC and Sec. 2 of Revenue Regulations No. 8-98.
ISSUE:
WON SMI-Ed Philippines is entitled to its claim for refund.
HELD:
YES, The Bureau of Internal Revenue is ordered to refund petitioner SMI-Ed
Philippines Technology, Inc. the amount of 5% final tax paid to the BIR, less the
6% capital gains tax on the sale of petitioner SMI-Ed Philippines Technology,
Inc.'s land and building. To determine, therefore, if petitioner is entitled to refund,
the amount of capital gains tax for the sold land and/or building of petitioner and the
amount of corporate income tax for the sale of petitioner’s machineries and equipment
should be deducted from the total final tax paid.
CASE NO. 35
COMMISSIONER OF INTERNAL REVENUE V. KUDOS METAL CORPORATION
G.R. 178087
MAY 5, 2010
FACTS:
The CTA En Banc ruled for canceling the assessment notices issued against
respondent for having been issued beyond the prescriptive period. It found the first
Waiver of the Statute of Limitations incomplete and defective for failure to comply with
the provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus: the waiver
failed to indicate the date of acceptance. Such date of acceptance is necessary to
determine whether the acceptance was made within the prescriptive period; and, the
fact of receipt by the taxpayer of his file copy was not indicated on the original copy.
The requirement to furnish the taxpayer with a copy of the waiver is not only to give
notice of the existence of the document but also of the acceptance by the BIR and the
perfection of the agreement. The subject waiver is therefore incomplete and defective.
As such, the three-year prescriptive period was not tolled or extended and continued
to run.
ISSUE:
WON the late assessment of the CIR is still valid and effective on the ground that
respondent is already in estoppel.
HELD:
NO, it is not valid and effective. Section 203 of the National Internal
Revenue Code of 1997 (NIRC) mandates the government to assess internal
revenue taxes within three years from the last day prescribed by law for the
filing of the tax return or the actual date of filing of such return, whichever
comes later. Hence, an assessment notice issued after the three-year prescriptive
period is no longer valid and effective. Exceptions however are provided under Section
222 of the NIRC.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90 issued on April 4,
1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the
proper execution of the waiver. 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.
CASE NO. 36
COMMISSIONER OF INTERNAL REVENUE vs. BASF COATING INKS PHILS., INC.
G.R. No. 198677
November 26, 2014
FACTS:
Petitioner in the said case submitted 2 letters to BIR. The first was a notice of
dissolution. The send was a manifestation with documents supporting said dissolution
such as BIR Form 1905 which refers to an update of information contained in its tax
registration. Thereafter, a FAN was sent to BC's former address. The FAN indicated an
amount of 18 million pesos representing income tax, VAT, WTC, EWT and DST for the
taxable year of 1999. BIR's RDO issued a First Notice before the Issuance of Warrant
of Distraint and Levy (FNB), which was sent to the residence of one of BC's directors.
The BC filed a protest letter citing lack of due process and prescription as
grounds. After 180 days without action on the part of the CIR, BC filed a petition for
review with the CTA. The CTA First Division ruled that since the CIR was actually
aware of BC's new address and such error in sending should not be taken against BC.
According to them, since there are no valid notices sent to BC, the subsequent
assessments against it are considered void. CIR filed an MR which was denied later
on. So, it went to CTA en banc. The CTA En Banc held that CIR's right to assess
respondent for deficiency taxes has already prescribed and that the FAN issued to
respondent never attained finality because BC did not receive it.
ISSUE:
WON the running of the 3-year prescriptive period to assess suspended when BC
failed to notify the CIR of its change of address.
HELD:
NO, the 3-year prescriptive period to assess was not suspended in favor of
the CIR even if BC failed notify regarding its change of address. Under the Tax
Code, the running of the Statute of Limitations shall be suspended when the taxpayer
cannot be located in the address given in the return filed upon which a tax is being
assessed or collected.
In addition, Section 11 of RR 12-85 states that, in case of change of
address, the taxpayer is required to give a written notice thereof to the RDO or
the district having jurisdiction over his former legal residence and/or place of
business. However, the Supreme Court ruled that the above-mentioned provisions on
the suspension of the 3-year period to assess apply only if the CIR is not aware of the
whereabouts of the taxpayer.
CASE NO. 37
CIR VS. THE STANLEY WORKS SALES PHILS. INC.
G.R. NO. 187589
DECEMBER 3, 2014
FACTS:
Petitioner is the duly appointed officer of the Bureau of Internal Revenue (BIR).
Respondent, on the other hand, is a domestic corporation duly organized and existing
under Philippine laws and duly registered with the Securities and Exchange
Commission.
In 1979, respondent and Stanley Works Agencies (Pte.) Limited, Singapore
(Stanley-Singapore) entered into a Representation Agreement under which, the
petitioner was appointed as its sole agent within the Philippines. Thereafter, the
respondent filed with the BIR its Annual Income Tax Return for taxable year 1989;
then, pursuant to Letter of Authority (LoA), the BIR issued against respondent a Pre-
Assessment Notice (PAN) for 1989 deficiency income tax. The respondent received its
copy of the PAN. Petitioner issued to respondent Assessment Notice.
In 1993, a certain Mr. John Ang, on behalf of respondent, executed a "Waiver of
the Defense of Prescription under the Statute of Limitations of the National Internal
Revenue Code" (Waiver). Under the terms of the Waiver, respondent waived its right to
raise the defense of prescription under Section 223 of the NIRC of 1977 insofar as the
assessment and collection of any deficiency taxes for the year ended December 31,
1989, but not after June 30, 1994.
The Waiver was not signed by petitioner or any of his authorized representatives
and did not state the date of acceptance as prescribed under Revenue Memorandum
Order No. 20-90. Respondent did not execute any other Waiver or similar document
before or after the expiration of the first Waiver.
ISSUE:
WON the petitioner’s right to collect the deficiency income tax of respondent for
taxable year 1989 has prescribed.
HELD:
No, there is no more right to collect. Petitioner mainly argues that the
period to collect the assessed deficiency income taxes has not yet prescribed.
The resolution of the main issue requires a factual determination of the proper
execution of the Waiver. The CTA Division has already made a factual finding on the
infirmities of the Waiver executed by respondent. The Court found that the following
requisites were absent:
(1) Conformity of either petitioner or a duly authorized representative;
(2) Date of acceptance showing that both parties had agreed on the Waiver before
the expiration of the prescriptive period; and
(3) Proof that respondent was furnished a copy of the Waiver.
These findings are undisputed by petitioner. In fact, it cites BPI v. CIR to
support its contention that the approval of the CIR need not be express, but may be
implied from the acts of the BIR officials in response to the request for reinvestigation.
Accordingly, petitioner argues that the actual approval of the Waiver is apparent from
the proceedings that were additionally conducted in determining the propriety of the
subject assessment.
CASE NO. 38
FISHWEALTH CANNING CORPORATION VS. CIR
G.R. NO. 179343
JANUARY 21, 2010
FACTS:
Petitioner was assessed for income tax, Value Added Tax and withholding tax.
After Court of Tax Appeals issued a Final Decision on Disputed Assessment.Petitioner
filed a Letter of Reconsideration with the CIR instead of appealing the same to the
Court of Tax Appeals within 30 days. The CIR then issued a Preliminary Collection
Letter which prompted the Petitioner to file its Petition with the Court of Tax Appeals.
CIR argued that the Petition with the Court of Tax Appeals was filed out of time.
ISSUE:
WON the filing of a Reconsideration toll the running of the 30-day period to appeal to
the Court of Tax Appeals.
HELD:
NO. 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. 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.
CASE NO. 39
RCBC VS. CIR
G.R. NO. 168498
APRIL 24, 2007
FACTS:
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
ISSUE:
WON the petitioner timely filed its petition for review before the court of tax appeals;
thus, the court of tax appeals had jurisdiction over the case.
HELD:
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.
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.
CASE NO. 40
CIR VS. BPI
G.R. NO. 134062
APRIL 17, 2007
FACTS:
Petitioner Commissioner of Internal Revenue (CIR) assessed respondent Bank of
the Philippine Islands’ (BPI’s) deficiency percentage and documentary stamp taxes for
the year 1986 in the total amount of ₱129,488,656.63:
Both notices of assessment intended to inform the respondent of the
assessment of its percentage and documentary stamp, and thereby requesting to pay
the above amount to the Office of BIR or to our Collection Agent in the Office of the
City or Deputy Provincial Treasurer. Thereafter, BPI received a letter from CIR stating
that: its letter failed to qualify as a protest under Revenue Regulations No. 12-85 and
therefore not deserving of any rejoinder as no valid issue was raised against the
validity of the assessment.
Respondent requested a reconsideration of the assessments which was denied
in a letter, received. Respondent filed a petition for review in the CTA. In a decision,
the CTA dismissed the case for lack of jurisdiction since the subject assessments had
become final and unappealable. The CTA ruled that BPI failed to protest on time under
Section 270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in
relation to Section 11 of RA 1125.
ISSUE:
WON the assessments issued to BPI for deficiency percentage and documentary stamp
taxes had already become final and unappealable.
HELD:
Yes, it is final and unappealable. The court cannot absolve BPI of its
liability under the subject tax assessments, upon realization of the fact
that assessments (which have been pending for almost 20 years) involve a
considerable amount of money. It cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly
due it and the public will suffer if taxpayers will not be held liable for the
proper taxes assessed against them.
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from the very
existence of the state whose social contract with its citizens obliges it to
promote public interest and common good. The theory behind the exercise
of the power to tax emanates from necessity; without taxes, government cannot
fulfill its mandate of promoting the general welfare and well-being of the
people.
