CIR vs.

CA, Atlas Consolidated

242 SCRA 289
GR No. 104151 March 10, 1995
"Assessments are prima facie presumed correct and made in good faith. So that, in the
absence of proof of any irregularities in the performance of official duties, an assessment
will not be disturbed."
FACTS: The Commissioner of Internal Revenue served two notices and demand for
payment of the respective deficiency ad valorem and buiness taxes for taxable years 1975
and 1976 against the respondent Atlas Consolidated Mining and Development Corporation
(ACMDC). The latter protested both assessments but the same were denied, hence it filed
two separate petitions for review in the Court of Tax Appeals. The CTA rendered a
consolidated decision holding, inter alia, that ACMDC was not liable for deficiency ad
valorem taxes on copper and silver for 1975 and 1976 thereby effectively sustaining the
theory of ACMDC that in computing the ad valorem tax on copper mineral, the refining and
smelting charges should be deducted, in addition to freight and insurance charges.
However, the tax court held ACMDC liable for the amount consisting of 25% surcharge for
late payment of the ad valorem tax and late filing of notice of removal of silver, gold and
pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax
and such contractor's tax for leasing out of its personal properties. ACDMC elevated the
matter to the Supreme Court claiming that the leasing out was a mere isolated transaction,
hence should not be subjected to contractor's tax.

CASE 2011-0223: COMMISSIONER OF INTERNAL REVENUE VS. SAN MIGUEL

CORPORATION (G.R. NO. 184428, 23 NOVEMBER 2011, VILLARAMA, JR. J.)
SUBJECT: INTERPRETATION OF BIR REVENUE REGULATIONS NO. 17-99 (BRIEF
TITLE: CIR VS. SMC).
=====================
DISPOSITIVE:
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated August
7, 2008 of the Court of Tax Appeals in C.T.A. EB No. 360 is AFFIRMED.
No costs.
SO ORDERED.
=====================
FIRST DIVISION

G.R. No. 184428

COMMISSIONER OF
INTERNAL REVENUE,
Petitioner,

Present:
CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMIN,
DELCASTILLO, and
VILLARAMA, JR., JJ.

ISSUE: Is the claim of the private respondent, with respect to the contractor's tax,
impressed with merit?
HELD: No. It is being held that ACMDC was not a manufacturer subject to the percentage
tax imposed by Section 186 of the tax code. However such conclusion cannot be made with
respect to the contractor's tax being imposed on ACMDC. It cannot validly claim that the
leasing out of its personal properties was merely an isolated transaction. Its book of
accounts shows that several distinct payments were made for the use of its personal
properties such as its plane, motor boat and dump truck. The series of transactions
engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from
the fact that during the period there were profits earned and reported therefor. The
allegation of ACMDC that it did not realize any profit from the leasing out of its said personal
properties, since its income therefrom covered only the costs of operation such as salaries
and fuel, is not supported by any documentary or substantial evidence.
Assessments are prima facie presumed correct and made in good faith. Contrary to the
theory of ACMDC, it is the taxpayer and not the BIR who has the duty of proving otherwise.
It is an elementary rule that in the absence of proof of any irregularities in the performance
of official duties, an assessment will not be disturbed. All presumptions are in favor of tax
assessments. Verily, failure to present proof of error in assessments will justify judicial
affirmance of said assessment.

CASE 2011-0223: COMMISSIONER OF INTERNAL REVENUE VS. SAN MIGUEL

CORPORATION (G.R. NO. 184428, 23 NOVEMBER 2011, VILLARAMA, JR. J.)
SUBJECT: INTERPRETATION OF BIR REVENUE REGULATIONS NO. 17-99 (BRIEF
TITLE: CIR VS. SMC).
Filed under: LATEST SUPREME COURT CASES Leave a comment
December 13, 2011

versus -

Promulgated:

SAN MIGUEL CORPORATION,

Respondent.

November 23, 2011

x-
-x
DECISION
VILLARAMA, JR., J.:
Elevated before us via a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, is the Decision[1][1] of the Court of Tax Appeals (CTA)
En Banc in C.T.A. EB No. 360 on a pure question of law, that is, whether the last paragraph
of Section 1 of Bureau of Internal Revenue (BIR) Revenue Regulations No. 17-99 faithfully
complies with the mandate of Section 143 of the Tax Reform Act of 1997.
The facts are undisputed:
Respondent San Miguel Corporation, a domestic corporation engaged in the manufacture
and sale of fermented liquor, produces as one of its products Red Horse beer which is sold
in 500-ml. and 1-liter bottle variants.
On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of 1997 took
effect. It reproduced, as Section 143 thereof, the provisions of Section 140 of the

old National Internal Revenue Code as amended by R.A. No. 8240[2][2] which became
effective on January 1, 1997. Section 143 of the Tax Reform Act of 1997 reads:
SEC. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise tax
on beer, lager beer, ale, porter and other fermented liquors except tuba, basi, tapuy and
similar domestic fermented liquors in accordance with the following schedule:
(a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume
capacity is less than Fourteen pesos and fifty centavos (P14.50), the tax shall be Six pesos
and fifteen centavos (P6.15) per liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of
volume capacity is Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos
(P22.00), the tax shall be Nine pesos and fifteen centavos (P9.15) per liter;
(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of
volume capacity is more than Twenty-two pesos (P22.00), the tax shall be Twelve pesos
and fifteen centavos (P12.15) per liter.
Variants of existing brands which are introduced in the domestic market after the effectivity
of Republic Act No. 8240 shall be taxed under the highest classification of any variant of that
brand.
Fermented liquor which are brewed and sold at micro-breweries or small establishments
such as pubs and restaurants shall be subject to the rate in paragraph (c) hereof.
The excise tax from any brand of fermented liquor within the next three (3) years from
the effectivity of Republic Act No. 8240 shall not be lower than the tax which was due
from each brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof
shall be increased by twelve percent (12%) on January 1, 2000.
x x x x (Emphasis and underscoring supplied.)
Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue Regulations
No. 17-99increasing the applicable tax rates on fermented liquor by 12% as follows:

SECTION

PRESENT
SPECIFIC TAX
RATES
(Prior to January
1, 2000)

NEW SPECIFIC
TAX
RATES(Effective
January 1, 2000)

FERMENTED LIQUORS
(a) Net Retail Price per liter
(excluding VAT &
Excise) is less than
P14.50

P6.15/liter

P6.89/liter

(b) Net Retail Price per liter

(excluding VAT &
Excise) is P14.50 up to
P22.00

P9.15/liter

P10.25/liter

DESCRIPTION OF
ARTICLES

xxxx

143

(c) Net Retail Price per liter

(excluding VAT &
Excise) is more than

P22.00

P12.15/liter

P13.61/liter

xxxx
This increase, however, was qualified by the last paragraph of Section 1 of Revenue
Regulations No. 17-99 which reads:
Provided, however, that the new specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented liquors shall not be lower than
the excise tax that is actually being paid prior to January 1, 2000. (Emphasis and
underscoring supplied.)
Now, for the period June 1, 2004 to December 31, 2004, respondent was assessed
and paid excise taxes amounting to P2,286,488,861.58[3][3] for the 323,407,194 liters of Red
Horse beer products removed from its plants. Said amount was computed based on the tax
rate of P7.07/liter or the tax rate which was being applied to its products prior to January 1,
2000, as the last paragraph of Section 1 of Revenue Regulations No. 17-99 provided that
the new specific tax rate for fermented liquors shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000.[4][4] Respondent, however, later contended
that the said qualification in the last paragraph of Section 1 of Revenue Regulations No. 1799 has no basis in the plain wording of Section 143. Respondent argued that the applicable
tax rate was only the P 6.89/liter tax rate stated in Revenue Regulations No. 17-99, and that
accordingly, its excise taxes should have been only P2,228,275,566.66.
On May 22, 2006, respondent filed before the BIR a claim for refund or tax credit of the
amount ofP60,778,519.56[5][5] as erroneously paid excise taxes for the period of May 22,
2004 to December 31, 2004. Later, said amount was reduced to P58,213,294.92 because
of prescription. As the petitioner Commissioner of Internal Revenue (CIR) failed to act on
the claim, respondent filed a petition for review with the CTA. [6][6]
On September 26, 2007,[7][7] the CTA Second Division granted the petition and ordered
petitioner to refund P58,213,294.92 to respondent or to issue in the latters favor a Tax
Credit Certificate for the said amount for the erroneously paid excise taxes. The CTA held
that Revenue Regulations No. 17-99 modified or altered the mandate of Section 143 of
the Tax Reform Act of 1997. The CTA Second Division held,
A reading of Section 143 of the [Tax Reform Act] of 1997, as amended, clearly shows that
the law contemplated two periods with applicable excise tax rate for each one: the first is
the three-year transition period beginning January 1, 1997, the date when RA 8240 took
effect, until December 31, [1999]; and the second is the period thereafter. During the
transition period, the excise tax rate shall not be lower than the tax rate which is due
from each brand on October 1, 1996. After the transitory period, the excise tax rate shall
be the figures provided under paragraphs (a), (b) and (c) of Section 143 of the [Tax
Reform Act] of 1997, as amended, but increased by 12%, regardless of whether such
rate is lower or higher than the tax rate that is actually being paid prior to January 1,
2000.
On the other hand, an analysis of the last paragraph of [Revenue Regulations No.] 17-99
would reveal that it created a new tax rate or a new requirement when it provided that the
new specific tax rate for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquors shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000. This is indeed a situation not
intended by Section 143 of the [Tax Reform Act] of 1997, as amended, both in letter and in
spirit. Rather, it is a clear contradiction to the import of the law.[8][8] (Emphasis supplied.)
Petitioner sought reconsideration[9][9] of the above decision, but the CTA Second Division
denied petitioners motion in a Resolution [10][10] dated January 17, 2008. Petitioner then filed
a Petition for Review[11][11] with the CTA En Banc.

On August 7, 2008,[12][12] the CTA En Banc affirmed the Decision and Resolution of the CTA
Second Division. The CTA En Banc held that [c]onsidering that there is nothing in the law
that allows the BIR to extend the three-year transitory period, and considering further that
there is no provision in the law mandating that the new specific tax rate should not be lower
than the excise tax that is actually being paid prior to January 1, 2000, the last paragraph of
[BIR Revenue Regulations No.] 17-99 has no basis in law and is inconsistent with the
situation contemplated under the provisions of Section 143 of the [Tax Reform Act of 1997].
It is an unauthorized administrative legislation and, therefore, invalid. [13][13]
Undaunted, petitioner filed the instant petition for review on certiorari, raising the sole
issue of whether the CTA committed reversible error in ruling that the provision in the last
paragraph of Section 1 of Revenue Regulations No. 17-99 is an invalid administrative
interpretation of Section 143 of the Tax Reform Act of 1997.
Petitioner contends that the last paragraph of Section 1 of Revenue Regulations No. 1799 providing that the new specific tax rate for any brand of cigars, cigarettes packed by
machine, distilled spirits, wines and fermented liquors shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000, is a valid administrative interpretation of
Section 143 of the Tax Reform Act of 1997. It carries out the legislative intent behind the
enactment of R.A. No. 8240, which is to increase government revenues through the
collection of higher excise taxes on fermented liquor.
Petitioner further points out that Section 143 of the Tax Reform Act of 1997 provides that for
3 years after the effectivity of R.A. No. 8240, i.e., from January 1, 1997 to December 31,
1999, the excise tax from any brand of fermented liquor shall not be lower than the tax due
on October 1, 1996. In the case of respondents Red Horse beer brand, the applicable tax
rate was the applicable tax rate as of October 1, 1996, i.e., P7.07/liter, which was higher
than the rate of P6.15/liter imposed under Section 143 of the Tax Reform Act of 1997.
However, the CTA ruled that after the 3-year transition period, the 12% increase in the
excise tax on fermented liquors should be based on the rates stated in paragraphs (a), (b),
and (c) of Section 143. Applying this interpretation, the rate of excise tax that may be
collected on respondents Red Horse beer brand after the 3-year period would only
beP6.89/liter, the figure arrived at after adding 12% to the rate of P6.15/liter imposed in
paragraph (a) of Section 143. Petitioner argues that said literal interpretation of Section 143
defeats the legislative intent behind the shift from the ad valorem system to the specific tax
system, i.e., to raise more revenues from the collection of taxes on the so-called sin
products like alcohol and cigarettes.
Respondent, for its part, maintains the correctness of the CTAs interpretation and stresses
that as already held by this Court in Commissioner of Internal Revenue v. Fortune Tobacco
Corporation,[14][14] the last paragraph of Section 1 of Revenue Regulations No. 17-99 finds
no support in the clear and plain wording of Section 143 of the Tax Reform Act of 1997.
We deny the petition for utter lack of merit.
Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It provides for two
periods: the first is the 3-year transition period beginning January 1, 1997, the date when
R.A. No. 8240 took effect, until December 31, 1999; and the second is the period
thereafter. During the 3-year transition period, Section 143 provides that the excise tax
from any brand of fermented liquorshall not be lower than the tax which was due from
each brand on October 1, 1996. After the transitory period, Section 143 provides that the
excise tax rate shall be the figures provided under paragraphs (a), (b) and (c) of Section 143
but increased by 12%, without regard to whether such rate is lower or higher than the tax
rate that is actually being paid prior to January 1, 2000 and therefore, without regard to
whether the revenue collection starting January 1, 2000 may turn out to be lower than that
collected prior to said date. Revenue Regulations No. 17-99, however, created a new tax
rate when it added in the last paragraph of Section 1 thereof, the qualification that the tax
due after the 12% increase becomes effective shall not be lower than the tax actually paid
prior to January 1, 2000. As there is nothing in Section 143 of the Tax Reform Act of
1997 which clothes the BIR with the power or authority to rule that the new specific tax rate

should not be lower than the excise tax that is actually being paid prior to January 1, 2000,
such interpretation is clearly an invalid exercise of the power of the Secretary of Finance to
interpret tax laws and to promulgate rules and regulations necessary for the effective
enforcement of the Tax Reform Act of 1997.[15][15] Said qualification must, perforce, be struck
down as invalid and of no effect.[16][16]
It bears reiterating that tax burdens are not to be imposed, nor presumed to be imposed
beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.[17][17] In case of discrepancy between the
basic law and a rule or regulation issued to implement said law, the basic law prevails as
said rule or regulation cannot go beyond the terms and provisions of the basic law. [18][18] It
must be stressed that the objective of issuing BIR Revenue Regulations is to establish
parameters or guidelines within which our tax laws should be implemented, and not to
amend or modify its substantive meaning and import. As held inCommissioner of Internal
Revenue v. Fortune Tobacco Corporation,[19][19]
x x x The rule in the interpretation of tax laws is that a statute will not be construed as
imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be
imposed without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to tax
laws and the provisions of a taxing act are not to be extended by implication. x x x As
burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the
tax laws.[20][20]
Hence, while it may be true that the interpretation advocated by petitioner CIR is in
furtherance of its desire to raise revenues for the government, such noble objective must
yield to the clear provisions of the law, particularly since, in this case, the terms of the said
law are clear and leave no room for interpretation.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated
August 7, 2008 of the Court of Tax Appeals in C.T.A. EB No. 360 is AFFIRMED.

NATIONAL POWER CORPORATION vs. PROVINCE OF

QUEZON - Real Property Tax
FACTS:
NPC is a GOCC that entered into an Energy Conversion Agreement (ECA) under a buildoperate-transfer (BOT) arrangement with Mirant Pagbilao Corp. Under the agreement,
Mirant will build and finance a thermal power plant in Quezon, and operate and maintain the
same for 25 years, after which, Mirant will transfer the power plant to the Respondent
without compensation. NPC also undertook to pay all taxes that the government may
impose on Mirant. Quezon then assessed Mirant real property taxes on the power plant and
its machineries.

ISSUES:
(1) Can Petitioner file the protest against the real property tax assessment?
(2) Can Petitioner claim exemption from the RPT given the BOT arrangement with Mirant?
(3) Is payment under protest required before an appeal to the LBAA is made?

HELD:
(1) NO. The two entities vested with personality to contest an assessment are (a) the owner
or (b) the person with legal interest in the property. NPC is neither the owner nor the
possessor/user of the subject machineries even if it will acquire ownership of the plant at the
end of 25 years. The Court said that legal interest should be an interest that is actual and
material, direct and immediate, not simply contingent or expectant. While the Petitioner
does indeed assume responsibility for the taxes due on the power plant and its machineries,
the tax liability referred to is the liability arising from law that the local government unit can
rightfully and successfully enforce, not the contractual liability that is enforceable between
the parties to a contract. The local government units can neither be compelled to recognize
the protest of a tax assessment from the Petitioner, an entity against whom it cannot enforce
the tax liability.
(2) NO. To successfully claim exemption under Section 234 (c) of the LGC, the claimant
must prove two elements: a) the machineries and equipment are actually, directly, and
exclusively used by local water districts and government-owned or controlled corporations;
and b) the local water districts and government-owned and controlled corporations claiming
exemption must be engaged in the supply and distribution of water and/or the generation
and transmission of electric power. Since neither the Petitioner nor Mirant satisfies both
requirements, the claim for exemption must fall.

the purpose. They also had a joint interest in the profits of the business as shown by the 5050 sharing of income of the mine.
Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends upon it or the
mutual interest of both principal and agent. In this case the non-revocation or nonwithdrawal under the PA applies to the advances made by the petitioner who is the agent
and not the principal under the contract. Thus, it cannot be inferred from the stipulation that
it is an agency.

Engracio Francia vs Intermediate Appellate Court

Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977,
a portion of his land (125 square meter) was expropriated by the government for P4,116.00.
The expropriation was made to give way to the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963 amounting to
P2,400.00. So in December 1977, the remaining 203 square meters of his land was sold at
a public auction (after due notice was given him). The highest bidder was a certain Ho
Fernandez who paid the purchase price of P2,400.00 (which was lesser than the price of
the portion of his land that was expropriated).

(3) YES. If a taxpayer disputes the reasonableness of an increase in a real property tax
assessment, he is required to "first pay the tax" under protest. The case of Ty does not
apply as it involved a situation where the taxpayer was questioning the very authority and
power of the assessor, acting solely and independently, to impose the assessment and of
the treasurer to collect the tax. A claim for tax exemption, whether full or partial, does not
question the authority of local assessors to assess real property tax.

Later, Francia filed a complaint to annul the auction sale on the ground that the selling price
was grossly inadequate. He further argued that his land should have never been auctioned
because the P2,400.00 he owed the government in taxes should have been set-off by the
debt the government owed him (legal compensation). He alleged that he was not paid by
the government for the expropriated portion of his land because though he knew that the
payment therefor was deposited in the Philippine National Bank, he never withdrew it.

PHILEX MINING CORP VS CIR

ISSUE: Whether or not the tax owed by Francia should be set-off by the debt owed him by
the government.

Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for
the former to manage the latters mining claim know as the Sto. Mine. The parties
agreement was denominated as Power of Attorney. The mine suffered continuing losses
over the years, which resulted in petitioners withdrawal as manager of the mine. The parties
executed a Compromise Dation in Payment, wherein the debt of Baguio amounted to Php.
112,136,000.00. Petitioner deducted said amount from its gross income in its annual tax
income return as loss on the settlement of receivables from Baguio Gold against reserves
and allowances. BIR disallowed the amount as deduction for bad debt. Petitioner claims
that it entered a contract of agency evidenced by the power of attorney executed by them
and the advances made by petitioners is in the nature of a loan and thus can be deducted
from its gross income. Court of Tax Appeals (CTA) rejected the claim and held that it is a
partnership rather than an agency. CA affirmed CTA
Issue: Whether or not it is an agency.
Held: No. The lower courts correctly held that the Power of Attorney (PA) is the instrument
material that is material in determining the true nature of the business relationship between
petitioner and Baguio. An examination of the said PA reveals that a partnership or joint
venture was indeed intended by the parties. While a corporation like the petitioner cannot
generally enter into a contract of partnership unless authorized by law or its charter, it has
been held that it may enter into a joint venture, which is akin to a particular partnership. The
PA indicates that the parties had intended to create a PAT and establish a common fund for

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the
contention. By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code).
This is not applicable in taxes. There can be no off-setting of taxes against the claims that
the taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a lawsuit against the
government.
The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw the money. Had
he done that, he could have paid his tax obligations even before the auction sale or could
have exercised his right to redeem which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not
tenable. The Supreme Court said: alleged gross inadequacy of price is not material when

the law gives the owner the right to redeem as when a sale is made at public auction, upon
the theory that the lesser the price, the easier it is for the owner to effect redemption. If
mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered altogether
impracticable. Where land is sold for taxes, the inadequacy of the price given is not a valid
objection to the sale. This rule arises from necessity, for, if a fair price for the land were
essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the
prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of
the land.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and
that taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its
tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes
under Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of
availment to Dec 15, 1986 and stated those who already availed amnesty under EO 41
should file an amended return to avail of the new benefits. Marubeni filed a supplemental
tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.

Domingo vs. Garlitos

FACTS:
In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and
executory the order of the Court of First Instance of Leyte for the payment of estate and
inheritance taxes, charges and penalties amounting to P40,058.55 by the Estate of the late
Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the
lower court. The Court held that the execution is unjustified as the Government itself is
indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be
deducted from the Governments indebtedness to the Estate.
ISSUE:
Whether a tax and a debt may be compensated.
HELD:
The court having jurisdiction of the Estate had found that the claim of the Estate against the
Government has been recognized and an amount of P262,200 has already been
appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of
the Government for inheritance taxes and the claim of the intestate for services rendered
have already become overdue and demandable as well as fully liquidated. Compensation,
therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the
Civil Code, and both debts are extinguished to the concurrent amount.

CIR vs. MARUBENI

Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the
1985 deficiency income, branch profit remittance and contractors taxes from Marubeni Corp
after finding the latter to have properly availed of the tax amnesty under EO 41 & 64, as
amended.
Marubeni, a Japanese corporation, engaged in general import and export trading, financing
and construction, is duly registered in the Philippines with Manila branch office. CIR
examined the Manila branchs books of accounts for fiscal year ending March 1985, and
found that respondent had undeclared income from contracts with NDC and Philphos for
construction of a wharf/port complex and ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency
taxes. CIR claims that the income respondent derived were income from Philippine sources,
hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for
review with CTA: the first, questioned the deficiency income, branch profit remittance and
contractors tax assessments and second questioned the deficiency commercial brokers
assessment.

Issue:
W/N Marubeni is exempted from paying tax

Held:
Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the
exception in Sec 4b of EO 41:
Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty
herein granted: xxx b) Those with income tax cases already filed in Court as of the
effectivity hereof;
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986,
a case had already been filed and was pending before the CTA and Marubeni therefore fell
under the exception. However, the point of reference is the date of effectivity of EO 41 and
that the filing of income tax cases must have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed.
Marubeni does not fall in the exception and is thus, not disqualified from availing of the
amnesty under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractors tax assessment (business tax) and
respondents availment of the amnesty under EO 64, which expanded EO 41s coverage.
When EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage
of the amnesty for business, estate and donors taxes. Instead, Section 8 said EO provided
that:
Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive Order shall remain in full force and effect.
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and
no vested right or obligations of contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for
the deficiency tax because the income from the projects came from the Offshore Portion
as opposed to Onshore Portion. It claims all materials and equipment in the contract

under the Offshore Portion were manufactured and completed in Japan, not in the
Philippines, and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government corporations NDC and
Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I and
II) and Philippine Pesos Portion and financed either by OECF or by suppliers credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)

toprove the receipt of the protest letter by the CIR. AIA filed a motion for reconsideration but
wasdenied; hence, this petition for review.On January 30, 2008, AIA filed a Manifestation
and Motion with Leave of the Honorable Court toDefer or Suspend Further Proceedings
since it availed of the Tax Amnesty Program under RepublicAct 9480, known as the Tax
Amnesty Act of 2007. On February 5, 2008, the Bureau of InternalRevenue issued a
Certification of Qual
ification stating that AIA has availed and qualified for TaxAmnesty for Taxable Year 2005
and Prior Years pursuant to RA 9480.

CIR argues that since the two agreements are turn-key, they call for the supply of both
materials and services to the client, they are contracts for a piece of work and are
indivisible. The situs of the two projects is in the Philippines, and the materials provided and
services rendered were all done and completed within the territorial jurisdiction of the
Philippines. Accordingly, respondents entire receipts from the contracts, including its
receipts from the Offshore Portion, constitute income from Philippine sources. The total
gross receipts covering both labor and materials should be subjected to contractors tax (a
tax on the exercise of a privilege of selling services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was performed
in the Philippines because some of them were completed in Japan (and in fact
subcontracted) in accordance with the provisions of the contracts. All services for the
design, fabrication, engineering and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in Japan. These services were
rendered outside Philippines taxing jurisdiction and are therefore not subject to
contractors tax.Petition denied.

Issue:
Is AIA disqualified from availing itself of the Tax Amnesty under Section 8 (a) of RA 9480?
Held:
No. Under Section 8 (a) of the RA 9480 withholding agents with respect to their withholding
taxliabilities shall be disqualified to avail of the tax amnesty. In this case, AIA was not being
assessed aswithholding agent that failed to withhold or remit the deficiency VAT and excise
tax but as ataxpayer who is directly liable for the said taxes. Moreover, RA 9480 does not
exclude from itscoverage taxpayers operating within special economic zones. Hence, AIA is
qualified to avail of theTax Amnesty under RA 9480.

Liwayway Vinzons-Chato vs. Fortune Tobacco, Corp.

G.R. No. 141309, June 19, 2007
FACTS:
This is a case for damages under Article 32 of the Civil Code filed by Fortune against
Liwayway as CIR.

EFFECTS OF TAX AMNESTY Asia International Auctioneers, Inc. v. Commissioner of

Internal Revenue
G.R. No. 179115, September 26, 2012Perlas-Bernabe, J.
Facts:
On August 25, 2004, Asia International Auctioneers, Inc. (AIA for brevity), a corporation
operatingwithin the Subic Special Economic Zone and is engaged in the importation and
selling of used motorvehicles and heavy equipment, was assessed by the Commissioner of
Internal Revenue
(CIR)
fordeficiency Value Added Tax and Excise Tax in the amounts of P 102,535,520.00 and
P4,334,715.00,

On June 10, 1993, the legislature enacted RA 7654, which provided that locally
manufactured cigarettes which are currently classified and taxed at 55% shall be charged
an ad valorem tax of 55% provided that the maximum tax shall not be less than Five Pesos
per pack. Prior to effectivity of RA 7654, Liwayway issued a rule, reclassifying Champion,
Hope, and More (all manufactured by Fortune) as locally manufactured cigarettes
bearing foreign brand subject to the 55% ad valorem tax. Thus, when RA 7654 was passed,
these cigarette brands were already covered.

respectively, or a total amount of P 106,870,235.00, inclusive of penalties and interest, for

auction

For her part, Liwayway contended in her motion to dismiss that respondent has no cause of
action against her because she issued RMC 37-93 in the performance of her official function
and within the scope of her authority. She claimed that she acted merely as an agent of the
Republic and therefore the latter is the one responsible for her acts. She also contended
that the complaint states no cause of action for lack of allegation of malice or bad faith.

sales conducted on February 5, 6, 7, and 8, 2004.AIA claimed that it filed a timely protest
letter through registered mail on August 30, 2004 andsubmitted additional supporting
documents on September 24, 2
004 and November 22, 2004. CIRs
failure to act on the protest prompted AIA to file a petition for review before the Court of
TaxAppeals on June 20, 2005. However, the CIR filed a motion to dismiss on the ground of
lack of
jurisdiction since AIAs failure to file its protest
within the 30-day reglamentary period renderedthe assessment final and executory.After
trial, the Court of Tax Appeals First Division ruled that there was no sufficient evidence

In a case filed against Liwayway with the RTC, Fortune contended that the issuance of the
rule violated its constitutional right against deprivation of property without due process of
law and the right to equal protection of the laws.

The order denying the motion to dismiss was elevated to the CA, who dismissed the case
on the ground that under Article 32, liability may arise even if the defendant did not act with
malice or bad faith.
Hence this appeal.
ISSUES:

Whether or not a public officer may be validly sued in his/her

private capacity for acts done in connection with the discharge of the
functions of his/her office

CIR vs. BAIER-NICKEL

Whether or not Article 32, NCC, should be applied instead of Sec. 38, Book
I, Administrative Code

Facts:
CIR appeals the CA decision, which granted the tax refund of respondent and reversed that
of the CTA. Juliane Baier-Nickel, a non-resident German, is the president of Jubanitex, a
domestic corporation engaged in the manufacturing, marketing and selling of embroidered
textile products. Through Jubanitexs general manager, Marina Guzman, the company
appointed respondent as commission agent with 10% sales commission on all sales
actually concluded and collected through her efforts.

HELD:
On the first issue, the general rule is that a public officer is not liable for damages which a
person may suffer arising from the just performance of his official duties and within the
scope of his assigned tasks. An officer who acts within his authority to administer the affairs
of the office which he/she heads is not liable for damages that may have been caused to
another, as it would virtually be a charge against the Republic, which is not amenable to
judgment for monetary claims without its consent. However, a public officer is by law not
immune from damages in his/her personal capacity for acts done in bad faith which, being
outside the scope of his authority, are no longer protected by the mantle of immunity for
official actions.
Specifically, under Sec. 38, Book I, Administrative Code, civil liability may arise where there
is bad faith, malice, or gross negligence on the part of a superior public officer. And, under
Sec. 39 of the same Book, civil liability may arise where the subordinate public
officers act is characterized by willfulness or negligence. In Cojuangco, Jr. V. CA, a public
officer who directly or indirectly violates the constitutional rights of another, may be validly
sued for damages under Article 32 of the Civil Code even if his acts were not so tainted with
malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her
private capacity for acts done in the course of the performance of the functions of the office,
where said public officer: (1) acted with malice, bad faith, or negligence; or (2) where the
public officer violated a constitutional right of the plaintiff.
On the second issue, SC ruled that the decisive provision is Article 32, it being a special law,
which prevails over a general law (the Administrative Code).
Article 32 was patterned after the tort in American law. A tort is a wrong, a
tortious act which has been defined as thecommission or omission of an act by one, without
right, whereby another receives some injury, directly or indirectly, in person, property or
reputation. There are cases in which it has been stated that civil liability in tort is determined
by the conduct and not by the mental state of the tortfeasor, and there are circumstances
under which the motive of the defendant has been rendered immaterial. The reason
sometimes given for the rule is that otherwise, the mental attitude of the alleged wrongdoer,
and not the act itself, would determine whether the act was wrongful. Presence of good
motive, or rather, the absence of an evil motive, does not render lawful an act which is
otherwise an invasion of anothers legal right; that is, liability in tort in not precluded by the
fact that defendant acted without evil intent.

In 1995, respondent received P1, 707, 772. 64 as sales commission from w/c Jubanitex
deducted the 10% withholding tax of P170, 777.26 and remitted to BIR. Respondent filed
her income tax return but then claimed a refund from BIR for the P170K, alleging this was
mistakenly withheld by Jubanitex and that her sales commission income was compensation
for services rendered in Germany not Philippines and thus not taxable here.
She filed a petition for review with CTA for alleged non-action by BIR. CTA denied her claim
but decision was reversed by CA on appeal, holding that the commission was received as
sales agent not as President and that the source of income arose from marketing activities
in Germany.

Issue: W/N respondent is entitled to refund

Held:
No. Pursuant to Sec 25 of NIRC, non-resident aliens, whether or not engaged in trade or
business, are subject to the Philippine income taxation on their income received from all
sources in the Philippines. In determining the meaning of source, the Court resorted to
origin of Act 2833 (the first Philippine income tax law), the US Revenue Law of 1916, as
amended in 1917.
US SC has said that income may be derived from three possible sources only: (1) capital
and/or (2) labor; and/or (3) the sale of capital assets. If the income is from labor, the place
where the labor is done should be decisive; if it is done in this country, the income should be
from sources within the United States. If the income is from capital, the place where the
capital is employed should be decisive; if it is employed in this country, the income should
be from sources within the United States. If the income is from the sale of capital assets,
the place where the sale is made should be likewise decisive. Source is not a place, it is
an activity or property. As such, it has a situs or location, and if that situs or location is within
the United States the resulting income is taxable to nonresident aliens and foreign
corporations.
The source of an income is the property, activity or service that produced the income. For
the source of income to be considered as coming from the Philippines, it is sufficient that the
income is derived from activity within the Philippines.
The settled rule is that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the taxpayer. To those therefore, who claim a refund rest
the burden of proving that the transaction subjected to tax is actually exempt from taxation.

In the instant case, respondent failed to give substantial evidence to prove that she
performed the incoming producing service in Germany, which would have entitled her to a
tax exemption for income from sources outside the Philippines. Petition granted.

Obillos et al vs. CIR/CA

GRN L68118 October 29, 1985
Aquino, J.:
FACTS:
Petitioners sold the lots they inherited from their father and derived a total profit of P33,584
for each of them. They treated the profit as capital gain and paid an income tax thereof. The
CIR required petitioners to pay corporate income tax on their shares, .20% tax fraud
surcharge and 42% accumulated interest. Deficiency tax was assessed on the theory that
they had formed an unregistered partnership or joint venture.

RULING:
By the contract of partnership, two or more persons bind themselves to contribute money,
industry or property to a common fund with the intention of dividing profits among
themselves. There is no evidence though, that petitioners entered into an agreement to
contribute MPI to a common fund and that they intend to divide profits among
themselves. The petitioners purchased parcels of land and became co-owners
thereof. Their transactions of selling the lots were isolated cases. The character of
habituality peculiar to the business transactions for the purpose of gain was not present.
The sharing of returns foes not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. There must be a
clear intent to form partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign the whole property.

ISSUE:
Whether or not partnership was formed by the siblings thus be assessed of the corporate
tax.

National Development Co. vs. Commissioner

RULING:
Petitioners were co-owners and to consider them partners would obliterate the distinction
between co-ownership and partnership. The petitioners were not engaged in any joint
venture by reason of that isolated transaction.

En Banc, Cruz (J): 14 concur

Art 1769 the sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any property from
which the returns are derived. There must be an unmistakable intention to form partnership
or joint venture.

PASCUAL & DRAGON VS CIR AND CTA

GRN 78133 October 18, 1988
Gancayco, J.:
FACTS:
Petitioners bought two parcels of land and another 3 parcels the following year. The 2
parcels were sold in 1968 while the other 3 were sold in 1970. Realizing profits from the
sale, petitioners filed capital gains tax. However, they were assessed with deficiency tax for
corporate income taxes.
ISSUE:
Whether or not petitioners formed an unregistered partnership thereby assessed with
corporate income tax.

GR L-53961, 30 June 1987

Facts: The National Development Co. (NDC) entered into contracts in Tokyo with several
Japanese
shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments
were made in cash
and through irrevocable letters of credit. When the vessels were completed and delivered to
the NDC in
Tokyo, the latter remitted to the shipbilders the amount of US$ 4,066,580.70 as interest on
the balance of the
purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax
in the total amount
of P5,115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of
distraint and levy after
negotiations failed.
Taxation Law I, 2004 ( 4 )Digests (Berne Guerrero)
Issue: Whether the NDC is liable for deficiency tax.
Held: The Japanese shipbuilders were liable on the interest remitted to them under Section
37 of the Tax
Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a
penalty for its

failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by
Section 53(c) of the
Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the
withholding agent of the
government and so should be liable for its omission.

PLDT vs. Province of Laguna

Philippine Long Distance Telephone Company, Inc.
vs. Province of Laguna, et al.
G.R. No. 151899 August 16, 2005
Garcia, J.:
Facts: PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to
render local and international telecommunications services. The terms and conditions of its
franchise were later consolidated under Republic Act No. 7082, Section 12 of which
embodies the so-called in-lieu-of-all taxes clause, whereunder PLDT shall pay a franchise
tax equivalent to 3% of all its gross receipts, which franchise tax shall be in lieu of all
taxes.
Thereafter, the Local Government Code took effect. Section 137 of the Code, in relation to
Section 151 thereof, grants provinces and other local government units the power to impose
local franchise tax on businesses enjoying a franchise. Invoking its authority, the Province of
Laguna, through its local legislative assembly, enacted a provincial ordinance imposing a
franchise tax upon all businesses enjoying a franchise, which includes PLDT. In compliance
with the ordinance, PLDT paid the Province of Laguna its local franchise tax liability for the
year 1998 in the amount of P1,081,212.10.

Prior thereto, Congress enacted the Public Telecommunications Policy Act of the
Philippines. Then, the Department of Finance, thru its Bureau of Local Government Finance
(BLGF), issued a ruling to the effect that PLDT, among other telecommunication companies,
became exempt from local franchise tax. Accordingly, PLDT shall be exempt from the
payment of franchise and business taxes imposable by LGUs under Sections 137 and 143,
respectively of the Local Government Code, upon the effectivity of RA 7925. However,
PLDT shall be liable to pay the franchise and business taxes on its gross receipts during the
period that PLDT was not enjoying the most favored clause provision of RA 7025.

PLDT then refused to pay the Province of Laguna its local franchise tax liability for the
following year and it even filed with the Office of the Provincial Treasurer a written claim for
refund of the amount it paid as local franchise tax for the previous year.

Issue: Does Section 23 of Rep. Act No. 7925 operate to exempt PLDT from payment of
franchise tax?
Held: No. In approving Section 23 of R.A. No. 7925, Congress intended it to operate as a
blanket tax exemption to all telecommunications entities. Applying the rule of strict
construction of laws granting tax exemptions and the rule that doubts should be resolved in
favor of municipal corporations in interpreting statutory provisions on municipal taxing

powers, we hold that section 23 of R.A. No. 7925 cannot be considered as having amended
petitioners franchise so as to entitle it to exemption from the imposition of local franchise
taxes.
The tax exemption must be expressed in the statute in clear language that leaves no doubt
of the intention of the legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor
of the taxing authority.

Mutatis mutandis also applies to this case: When exemption is claimed, it must be shown
indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is
fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of
any other construction that the proposition can be supported.

QUEZON CITY vs. ABS-CBN BROADCASTING

CORPORATION - Local Franchise Tax
FACTS:
ABS-CBN was granted a franchise which provides that it shall pay a 3% franchise tax and
the said percentage tax shall be in lieu of all taxes on this franchise or earnings thereof. It
thus filed a complaint against the imposition of local franchise tax.

ISSUE:
Does the in lieu of all taxes provision in ABS-CBNs franchise exempt it from payment of
the local franchise tax?

HELD:
NO. The right to exemption from local franchise tax must be clearly established beyond
reasonable doubt and cannot be made out of inference or implications.
The uncertainty over whether the in lieu of all taxes provision pertains to exemption from
local or national taxes, or both, should be construed against Respondent who has the
burden to prove that it is in fact covered by the exemption claimed. Furthermore, the in lieu
of all taxes clause in Respondents franchise has become ineffective with the abolition of
the franchise tax on broadcasting companies with yearly gross receipts exceeding P10
million as they are now subject to the VAT.

CIR vs. Isabela Cultural Corporation

Facts: Isabela Cultural Corporation (ICC), a domestic corporation received an assessment
notice for deficiency income tax and expanded withholding tax from BIR. It arose from the
disallowance of ICCs claimed expense for professional and security services paid by ICC;
as well as the alleged understatement of interest income on the three promissory notes due
from Realty Investment Inc. Thedeficiency expanded withholding tax was allegedly due to

the failure of ICC to withhold 1% e-withholding tax on its claimed deduction for security
services.

should be classified as a capital loss and not as a bad debt since there was no
indebtedness between China Banking and CBC.

ICC sought a reconsideration of the assessments. Having received a final notice of

assessment, it brought the case to CTA, which held that it is unappealable, since the
final notice is not a decision. CTAs ruling was reversed by CA, which was sustained by
SC, and casewas remanded to CTA. CTA rendered a decision in favor of ICC. It ruled that
the deductions for professional and security services were properly claimed, it said that
even if services were rendered in 1984 or 1985, the amount is not yet determined at that
time. Hence it is a proper deduction in 1986. It likewise found that it is the BIR which
overstate the interest income, when it applied compounding absent any stipulation.

Issue:
Whether or not the investment should be classified as a capital loss.

Petitioner appealed to CA, which affirmed CTA, hence the petition.

Held:

Issue: Whether or not the expenses for professional and security services are deductible.

Yes. Section 29.d.4.B of the NIRC contains provisions on securities becoming worthless. It
conveys that capital loss normally requires the concurrence of 2 conditions:

Held: No. One of the requisites for the deductibility of ordinary and necessary expenses is
that it must have been paid or incurred during the taxable year. This requisite is dependent
on the method of accounting of the taxpayer. In the case at bar, ICC is using the accrual
method of accounting. Hence, under this method, an expense is recognized when it is
incurred. Under a Revenue Audit Memorandum, when the method of accounting is accrual,
expenses not being claimed as deductions by a taxpayer in the current year when they are
incurred cannot be claimed in the succeeding year.
The accrual of income and expense is permitted when the all-events test has been met.
This test requires: 1) fixing of a right to income or liability to pay; and 2) the availability of the
reasonable accurate determination of such income or liability. The test does not demand
that the amount of income or liability be known absolutely, only that a taxpayer has at its
disposal the information necessary to compute the amount with reasonable accuracy.
From the nature of the claimed deductions and the span of time during which the firm
was retained, ICC can be expected to havereasonably known the retainer fees charged by
the firm. They cannot give as an excuse the delayed billing, since it could have inquired into
the amount of their obligation and reasonably determine the amount.

a.

there is a sale or exchange

b.

the thing sold or exchanges is a capital asset.

When securities become worthless, there is strictly no sale or exchange but the law deems
it to be a loss. These are allowed to be deducted only to the extent of capital gains and not
from any other income of the taxpayer. A similar kind of treatment is given by the NIRC on
the retirement of certificates of indebtedness with interest coupons or in registered form,
short sales and options to buy or sell property where no sale or exchange strictly exists. In
these cases, The NIRC dispenses with the standard requirements.

There is ordinary loss when the property sold is not a capital asset.

China Banking Corporation v CA

Facts:
China Banking Corporation made a 53% equity investment (P16,227,851.80) in the First
CBC Capital a Hongkong subsidiary engaged in financing and investment with deposittaking function.

It was shown that CBC has become insolvent so China Banking wrote-off its investment as
worthless and treated it as a bad debt or as an ordinary loss deductible from its gross
income.

CIR disallowed the deduction on the ground that the investment should not be classified as
being worthless. It also held that assuming that the securities were worthless, then they

In the case, CBC as an investee corporation, is a subsidiary corporation of China Banking

whose shares in CBC are not intended for purchase or sale but as an investment. An equity
investment is a capital asset of the investor. Unquestionably, any loss is a capital loss to the
investor.

-Additional notes:
*The loss cannot be deductible as bad debt since the shares of stock do not constitute a
loan extended by it to its subsidiary or a debt subject to obligatory repayment by the latter.