#1 FERDINAND MARRCOS II, petitioner, vs COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D.

DE GUZMAN, respondents. (G.R. No. 120880, JUNE 5, 1997) FACTS: On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax liabilities and obligations of the late president Ferdinand Marcos as well as that of his families and cronies. The investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, estate tax returns, and several income tax returns from 1982-1986 which were in violation of the NIRC. Criminal charges were also filed against Imelda Marcos. The CIR also prepared and filed the Estate Tax Return for the estate of the late president, ITR for the spouses Marcos, and the ITR of Bongbong for the years 1982-1985. The BIR issued several deficiency estate and income tax assessments. The Commissioner averred that these assessments were personally and constructively served upon Imelda Marcos through her caretaker Mr. Martinez at her last known address and to Bongbong through his caretaker, also at his last known address. Formal assessment notices were also served upon Imelda through Bongbong at his office in the House of Representatives. A Notice to Taxpayer inviting Imelda to a conference was furnished to her counsel Dean Antonio Coronel but to no avail. These deficiency tax assessments were not protested administratively by the Marcoses within 30 days from service of said assessments. The BIR issued notices of levy on real property against certain parcels of land owned by the Marcoses to satisfy the alleged estate tax and deficiency income taxes of the spouses Marcos. Copies of these notices were served upon Imelda, and their counsel of record. The notices of sale at a public auction were posted and there being no bidder, the lots were declared forfeited in favor of the government. Bongbong filed the instant petition for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for TRO and/or writ of prelim injuction. ISSUE: Whether the proper avenues of assessment and collection of said tax obligations were taken by the respondent Bureau. Whether notices of levy, notices of sale, and subsequent sale of properties of the late president effected by BIR are null and void for disregarding the established procedure for the enforcement of taxes upon the estate of the deceased. Whether BIR has authority to collect by summary remedy of levying upon, and sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate over the supposed will of the dead. HELD: It has been repeatedly observed that the enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of the government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with the law as any arbitrariness will negate the very reason for government itself. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the claimant to present a claim before the probate court so that said

court may order the administrator to pay the amount thereof. This remedy is allegedly, exclusive, and cannot be effected through any other means.

In the Philippines, the enforcement and collection of estate tax, is executive in character. Section 3 of the NIRC states that the powers and duties of the Bureau of Internal Revenue shall comprehend the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to and administer the supervisory and police power conferred to it by this Code or other laws. Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate. This liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties. Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the properties of the decedent. They are exempted from the application of the statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance. The Government has two ways of collecting the taxes in question. 1. By going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. 2. By subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.) The Tax Bureau did not err in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. It is not the Department of Justice which is tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue, whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. The court denied present petition.

#2 Meralco vs. Savellana On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation against the Meralco Securities Corporation for tax evasion for having paid income tax only on 25 % of the dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly shortchanging the government of income tax due from 75% of the said dividends. Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he found and held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the dividends it received from the Manila Electric Co. and accordingly denied Maniago's claim for informer's reward on a non-existent deficiency. On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against the Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the Commissioner to impose the alleged deficiency tax assessment on the Meralco Securities Corporation and to award to him the corresponding informer's reward under the provisions of R.A. 2338. Respondent judge granted the said petition and thereafter, denied the motions for reconsideration filed by all the parties. Hence, this petition by Meralco. Issue: (1) Whether the respondent judge has jurisdiction over the subject matter of the case Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdictionto review by appeal, among others, 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 or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by courts of first instance, and even those already pending in said courts.The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue. The determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section 7 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 or other law or part of law administered by the Bureau of Internal Revenue. Moreover, since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not he against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. Petition is granted. #3 REPUBLIC OF THE PHILIPPINES VS. COURT OF TAX APPEALS, G.R. NO. G.R. NO. 139050 OCTOBER 2, 2001

Facts: This case is a petition for review under Rule 45 of the Revised Rules of Court assailing the affirmance by the Court of Appeals of the decision of the Court of Tax Appeal. On 12 December 1992, a shipment of bales of textile gray cloth arrived at the Manila International Container Port aboard a vessel. The shipment's Inward Foreign Manifest stated that the bales of cloth were consigned to GQ GARMENTS, Inc. The Clean Report of Findings (CRF) issued by the Societe Generale de Surveilance (SGS), however, mentioned AGFHA, Incorporated, to be the consignee of the shipment. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward

Foreign Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. On 22 January 1993, FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment, on the ground that GQ GARMENTS, Inc., could not be located in its given address, and was thus suspected to be a fictitious firm. Forfeiture proceedings of the Tariff and Customs Code were initiated. AGFHA, Inc., filed a motion for intervention contending that AGFHA, Inc., is the lawful owner and actual consignee of the subject shipment. The motion for intervention was granted. The Collector of Customs came up with a draft decision ordering the lifting of the warrant of seizure and detention on the basis of its findings that GQ GARMENTS, Inc., was not a fictitious corporation and that there was a valid waiver of rights over the bales of cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc. The draft decision was submitted to the Deputy Commissioner for clearance and approval, who, in turn, transmitted it to the CIIS for comment. The CIIS opposed the draft decision, insisting that GQ GARMENTS, Inc., was a fictitious corporation and that even if it did exist, its president, John Barlin, had no authority to waive the right over the subject shipment in favor of AGFHA, Inc. The Deputy Commissioner, relying on the comment of the CIIS, rejected the draft decision of the Collector of Customs. A joint motion for reconsideration was filed and was given due course. Convinced that the evidence presented established the legal existence of GQ GARMENTS, Inc., and finding that a resolution passed by the Board of Directors of GQ GARMENTS, Inc., ratified the waiver of its president, the Collector of Customs in another draft decision granted the joint motion. The Office of the Commissioner of Customs, however, disapproved the new draft decision and denied the release of the goods. In deference to the directive of the Commissioner, the District Collector of Customs ordered the forfeiture of the shipment. On 14 October 1994, AGFHA, Inc., interposed an appeal to the Office of the Commissioner of Customs. The appeal was dismissed consistently with the Commissioner's earlier stand that disapproved the Collector of Customs' draft decision. On 5 October 1995, AGFHA, Inc., filed a petition for review with the Court of Tax Appeals questioning the forfeiture of the bales of textile cloth. Finding merit in the plea of appellants, the Court of Tax Appeals granted the petition and ordered the release of the goods to AGFHA, Inc. On 27 December 1996, the Commissioner of Customs then challenged before the Court of Appeals the decision of the tax court. In its decision, dated 31 May 1999, the Court of Appeals dismissed the appeal for lack of merit. Then the appellate court ruled that the Bureau of Customs has failed to satisfy its burden of proving fraud on the part of the importer or consignee. Issue: Whether or not there is fraud. Held: The petition was denied and the assailed decision of the Court of Appeals is affirmed. The appeal is not meritorious. The requisites for the forfeiture of goods under Section 2530(f), in relation to (1) (3-5), of the Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or paper - all touching on the importation or exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an intention on the part of the importer/consignee to evade the payment of the duties due. Petitioner asserts that all of these requisites are present in this case. It contends that it did not presume fraud, rather the events positively point to the existence of fraud. Private respondent AGFHA, Inc., on the other hand, maintains that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due. The resolution of this issue would entail a re-evaluation of the attendant circumstances, a matter that cannot be freely undertaken by the Supreme Court. For it has been a settled rule that the Supreme Court is not a trier of facts. Findings of the appellate court are generally binding and cannot be disturbed by this Court unless it is sufficiently shown that there has been no evidence on record to support such findings. The assessment made by the appellate court carry even more weight when it is consistent with that of the trial court. Consonantly, the factual determination of the Court of Tax Appeals, when supported by substantial evidence, will not be reversed on appeal unless it is clear that the said court has committed gross error in the process. The Collector of Customs, Court of Tax Appeals and the Court of Appeals are unanimous in concluding that no fraud has been committed by private respondent in the importation of the bales of cloth. The records do appear to sustain this conclusion. Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional wrong-doing with the clear purpose of avoiding the tax. Forfeiture is not favored in law nor in equity. Mere negligence is not equivalent to the fraud contemplated by law. What is here involved is an honest mistake, not even directly attributable to private respondent, which will not deprive the government of its right to

collect the proper tax. The conclusion of the appellate court, being consistent with the evidence on record and not contrary to law and jurisprudence, hardly can be overturned by this Court. #4 GR. No. 81446 August 18, 1988 BONIFACIA SY PO vs. HONORABLE COURT OF TAX APPEALS AND HONORABLE COMMISSIONER OF INTERNAL REVENUE FACTS In the taxable years 1964 to 1972, the deceased Po Bien Sing was the sole proprietor of Silver Cup Wine Factory, Talisay, Cebu. He was engaged in the business of manufacture and sale of compounded liquors, using alcohol and other ingredients as raw materials. On the basis of a denunciation against Silver Cup allegedly "for tax evasion amounting to millions of pesos" the then Secretary of Finance Cesar Virata directed the Finance-BIR--NBI team to conduct the corresponding investigation in a memorandum dated April 2, 1971 . Accordingly, a letter and a subpoena duces tecum dated April 13,1971 and May 3,1971, respectively, were issued against Silver Cup requesting production of the accounting records and other related documents for the examination of the team. Mr. Po Bien Sing did not produce his books of accounts as requested. This prompted the team with the assistance of the PC Company, Cebu City, to enter the factory bodega of Silver Cup and seized different brands, consisting of 1,555 cases of alcohol products. The inventory lists of the seized alcohol products are contained in Volumes I, II, III, IV and V. On the basis of the team's report of investigation, the respondent Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 and for deficiency specific tax for January 2,1964 to January 19, 1972 in the amount of P5,595,003.68. Petitioner protested the deficiency assessments through letters dated October 9 and October 30, 1972 , which protests were referred for reinvestigation. The corresponding report dated August 13, 1981 recommended the reiteration of the assessments in view of the taxpayer's persistent failure to present the books of accounts for examination, compelling respondent to issue warrants of distraint and levy on September 10, 1981. The warrants were admittedly received by petitioner on October 14, 1981, which petitioner deemed respondent's decision denying her protest on the subject assessments. Hence, petitioner's appeal on October 29,1981. ISSUE: Whether or not the assessment has valid and legal basis? HELD Yes. 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 legal option except to resort to the power conferred upon him under Section 16 of the Tax Code. The applicable legal provision is Section 16(b) of the National Internal Revenue Code of 1977 as amended. It reads: Sec. 16. Power of the Commissioner of Internal Revenue to make assessments. xxx xxx xxx b) Failure to submit required returns, statements, reports and other documents. - When a report required by law as a basis for the assessment of an 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 of Internal Revenue shall assess the proper tax on the best evidence obtainable. In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise, files a false or fraudulent return or other documents, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes. 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. 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. #5 BACHE & CO. PHIL. INC. vs. JUDGE VIVENCIO RUIZ, RODOLFO DE LEON and ARTURO LOGRONIO GR No. L-32409 February 27, 1971 Facts: On February 24, 1970, Commissioner of Internal Revenue Misael Vera wrote a letter to Judge Vivencio Ruiz requesting the issuance of search warrant against Bache & Co. Phil. Inc. for violation of Sec. 46 (a) of the NIRC, as well as Sections 53, 72, 73, 208 and 209, and to authorize Examiner Rodolfo de Leon to make and file the application for the said search warrant. De Leon, together with his witness, Arturo Logronio, went to the CFI Rizal bringing the letter request and documents. At the time, Judge Vivencio Ruiz was hearing a case so he instructed his Deputy Clerk of Court to take the depositions of De Leon and Logronio. The stenographer read to Judge Ruiz the stenographic notes and the Judge Asked Logronio to take oath and warned him that f his deposition was false, he could be charged of Perjury. Judge Ruiz, thereafter, signed the application for search warrant and Search Warrant 2-M-70 was issued accordingly. 3 days later, BIR agents seized the search warrant at the office of Bache & Co. Phil. Inc. in Makati. The agents proceeded and yielded 6 boxes of documents. Based on these documents, the BIR assessed Bache & Co. for a sum of P 294,394,729.97 as tax assessment for that taxable year. Bache & Co. brought the matter to the Supreme Court. ISSUE: Whether the search warrant is valid. DECISION: No, it is invalid for the following reasons: 1. The respondent Judge failed to personally examine the complainant and his witness. The examination of the complainant and the witnesses he may produce is required by Art. 3, Section 1, par. 3 of the Constitution and by Sections 3 and 4 of Rule 126 of the Rules of Court, should be conducted by the Judge himself and not by others.

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the existence and non-existence of a probable cause pursuant to the aforementioned Constitutional provision and Rules of Court, both of which prohibit the issuance of warrants except upon probable cause. In this case, no personal examination at all was conducted by the respondent judge of the complainant and his witness. The participation of the judge in the proceedings which led to the issuance of the search warrant was thus limited to the stenographers readings of the notes to a few words of warning against perjury and to administering the oath to the complainant and his witness. This cannot be considered a personal examination. 2. The search warrant was issued for more than one specific offense. Search warrant No. 2-M-70 was issued for violation of Sec. 46(a) of the NIRC in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209. The search warra nt in question was issued for at least 4 distinct offenses under the Tax Code. Section 3 of the Rules of Court provides that no search warrant shall issue but upon probable cause in connection with one specific offence. The court added thereto a paragrap h directing that no search warrant shall issue for more than one specific offense. 3. The search warrant does not particularly describe the things to be seized. The documents and papers sought to be seized did not particularly describe the things to be seized since it tends to defeat the major objective of the Bill of Rights which is the elimination of general warrants, for the language used was so all embracing as to include all conceivable records of Bach & Co. Phil. Inc. which if seized, could probably render its business inoperative. SC granted the petition and held that the search warrant was null and void. #6 CIR vs. CA, CTA and FORTUNE TOBACCO CORP.

Facts Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortun changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act No. 7654 was enacted 55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2 days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it follows that the same shall be considered locally manufactured foreign brand for purposes of determining the ad valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. Fortune Tobacco filed a petition for review with the CTA. CTA upheld the position of Fortune. CA affirmed. Issue Whether it was necessary for BIR to follow the legal requirements when it issued its RMC Held

The SC ruled in the affirmative. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which publication, filing, and prior hearing. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. BUT when, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, the agency must accord, at least to those directly affected, a chance to be heard, before that new issuance is given the force and effect of law. RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. #7 G.R. No. L-66653 June 19, 1986 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS Facts: Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through its branch office. Said branch office applied to remit to its parent company abroad, branch profit amounting to P7,647,058. Thus, on March 14, 1979, it paid a 15% branch profit remittance tax pursuant to Sec. 24 (b) (2) (ii), as interpreted in a BIR Ruling dated January 21, 1980, and remitted to its head office the amount of P6,499,999.30. Claiming that the 15% profit remittance should have been based on the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058), Burroughs filed a claim for refund or tax credit in the amount of P172,058.90 representing alleged overpaid branch profit remittance tax. Burroughs filed a petition for the recovery of the aforementioned amount of P172,058.81 with the CTA which ordered the Commissioner of Internal Revenue to grant a tax credit in favor of Burroughs. Hence, the instant petition is filed. The CIR contends that Burroughs is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980 which circular states that the 15% branch profit remittance tax should be based on the amount actually applied for by the branch.

Issue: Whether the tax base upon which the 15% branch profit remittance tax imposed under the provisions of Section 24(b) of the Tax Code, as amended, is the profit actually remitted abroad and not the amount actually applied for? Held: Yes, the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the amount actually applied for. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states: Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made.

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and the remittance tax that should have been paid of P974,999,89 is well-taken. The contention of CIR that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980 is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which provides for non-retroactivity of rulings. Hence, the assailed decision of CTA is hereby affirmed. #8 ABS-CBN BROADCASTING CORPORATION vs. COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE G.R. No. L-52306 October 12, 1981 Facts: ABS-CBN Broadcasting Corporation was engaged in the business of telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or business within the Philippines, for which it paid rentals after withholding income tax of 30% of one-half of the film rentals. On 12 April 1961, in implementation of Section 24 (b) of the National Internal Revenue Code, the Commissioner of Internal Revenue issued General Circular V-334. Pursuant to the foregoing, the company dutifully withheld and turned over to the Bureau of Internal Revenue the amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines. The last year that the company withheld taxes pursuant to the foregoing Circular was in 1968. On 27 June 1968, RA 5431 amended Section 24(b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from such amount referring to rents. etc. to gross income. On 8 February 1971, the Commissioner of Internal Revenue issued Revenue Memorandum Circular 4-71, revoking General Circular V-334, and holding that the latter was erroneous for lack of legal basis, because the tax therein prescribed should be based on gross income without deduction whatever. On the basis o f the new Circular, the Commissioner issued against the company a letter of assessment and demand dated 16 April 1971, but allegedly released by it and received by the Commissioner on 12 April 1971, requiring them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in the total amount of P525,897.06. On 5 May 1971, the company requested for a reconsideration and withdrawal of the assessment. However, without acting thereon, the Commissioner, on 6 April 1976, issued a warrant of distraint and levy over the companys personal as well as real properties. The company then filed its Petition for Review with the Court of Tax Appeals (CTA Case 2809) whose Decision, dated 29 November 1979, affirmed the assessment by the Commissioner of Internal Revenue of a deficiency withholding income tax against the company for the years 1965 to 1968 for a total amount of P525,897.06 (P75,895.24, P99,239.18, P128,502.00 and P222,260.64), plus the surcharge and interest which have accrued thereon incident to delinquency, pursuant to Section 51(e) of the National Internal Revenue Code, as amended; with the costs against the company. Hence, the Petition for Review on Certiorari. The Supreme Court reversed the judgment of the Court of Tax Appeals, and set aside the questioned assessment; without costs. Issue: Whether respondent can apply General Circular No. 4-71 retroactively and issue a deficiency assessment against petitioner in the amount of P 525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968

Held: In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on August 9, 1969, it provides: Sec. 338-A. Non-retroactivity of rulings. Any revocation, modification, or reversal of and of the 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 relocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return or 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. It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive application where to so apply them would be prejudicial to taxpayers. The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated exceptions are concerned, admittedly, petitioner does not fall under any of them. Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present case in that General Circular No. V-334 is a nullity because in effect, it changed the law on the matter. The Court of Tax Appeals sustained this position holding that: "Deductions are wholly and exclusively within the power of Congress or the law-making body to grant, condition or deny; and where the statute imposes a tax equal to a specified rate or percentage of the gross or entire amount received by the taxpayer, the authority of some administrative officials to modify or change, much less reduce, the basis or measure of the tax should not be read into law." The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction. #9 NATIONAL DEVELOPMENT COMPANY vs. COMMISSIONER OF INTERNAL REVENUE G.R. NO. L-53961, JUNE 30, 1987 FACTS: The NDC entered into contracts with several Japanese shipbuilding companies for the construction of twelve ocean-going vessels. The purchase price was to come from the proceeds of bonds issued by the Central Bank. Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes were signed for the balance by the NDC, guaranteed by the Republic if the Philippines. The remaining payments and interests thereon were remitted in due time by the NDC to Tokyo. No tax was withheld. The Commissioner then held NDC liable on such tax. Negotiations followed but failed. The BIR thereon served n NDC a warrant of distraint and levy to enforce collection of the claimed amount. The NDC went to the CTA but the BIR was sustained. ISSUE: Whether or not the petitioner were not subject to tax under Sec. 37 of the Tax Code because all related activities were done in Tokyo. HELD: No, the Japanese shipbuilders were liable to tax on the interest remitted to them under Sec. 37 of the Tax Code, thus:

Sec. 37. Income from sources within the Philippines. (a) Gross income from sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: (1) Interest, - Interest derived from sources within the Philippines, and interest on bonds, notes, or other interest bearing obligations of residents, corporate or otherwise; The law does not speak of activity but of source, which in this case is the NDC. This is a domestic and resident corporation with principal offices in Manila. #10 FREDERICK C. FISHER, plaintiff-appellant, vs. WENCESLAO TRINIDAD, Collector of Internal Revenue, defendantappellee. G.R. No. L-17518 October 30, 1922 FACTS: In 1919, the Philippine American Drug Company declared a stock dividend. The proportionate share of said stock dividend of the appellant was P24,800 which was thereafter issued to him. In March 1920, the appellant, upon demand of the Collector of Internal Revenue, paid under protest, and voluntarily, unto the appellee the sum of P889.91 as income tax on said stock dividend. To recover the said sum, appellant instituted the present action. The defendant demurred to the petition upon the ground that it did not state facts sufficient to constitute cause of action. The demurrer was sustained and the plaintiff appealed. ISSUE: Are the said stock dividends considered income and taxable as such under the provisions of Section 25 of Act No. 2833? HELD: No, stock dividends are not considered income and are not taxable as such. Generally speaking, stock dividends represent undistributed increase in the capital of corporations or firms, joint stock companies, etc., etc., for a particular period. They are used to show the increased interest or proportional shares in the capital of each stockholder. In other words, the inventory of the property of the corporation, etc., for particular period shows an increase in its capital, so that the stock theretofore issued does not show the real value of the stockholder's interest, and additional stock is issued showing the increase in the actual capital, or property, or assets of the corporation, etc. The New Standard Dictionary, edition of 1915, defines an income as "the amount of money coming to a person or corporation within a specified time whether as payment or corporation within a specified time whether as payment for services, interest, or profit from investment." Webster's International Dictionary defines an income as "the receipt, salary; especially, the annual receipts of a private person or a corporation from property." Mr. Black, in his law dictionary, says "An income is the return in money from one's business, labor, or capital invested; gains, profit or private revenue." "An income tax is a tax on the yearly profits arising from property, professions, trades, and offices." Mr. Justice Hughes, later Associate Justice of the Supreme Court of the United States and now Secretary of State of the United States, in his argument before the Supreme Court of the United States in the case of Towne vs. Eisner, supra, defined an "income" in an income tax law, unless it is otherwise specified, to mean cash or its equivalent. It does not mean choses in action or unrealized increments in the value of the property, and cites in support of the definition, the definition given by the Supreme Court in the case of Gray vs. Darlington, supra. If the ownership of the property represented by a stock dividend is still in the corporation and to in the holder of such stock, then it is difficult to understand how it can be regarded as income to the stockholder and not as a part of the capital or assets of the corporation. (Gibbsons vs. Mahon, supra.) The stockholder has received nothing but a representation of an interest in the property of the corporation and, as a matter of fact, he may never receive anything, depending upon the final outcome of the business of the corporation. The entire assets of the corporation may be consumed by mismanagement, or eaten up by debts and obligations, in which case the holder of the stock dividend will never have received an income from his investment in the corporation. A

corporation may be solvent and prosperous today and issue stock dividends in representation of its increased assets, and tomorrow be absolutely insolvent by reason of changes in business conditions, and in such a case the stockholder would have received nothing from his investment. In such a case, if the holder of the stock dividend is required to pay an income tax on the same, the result would be that he has paid a tax upon an income which he never received. Such a conclusion is absolutely contradictory to the idea of an income. An income subject to taxation under the law must be an actual income and not a promised or prospective income. The Supreme Court held that the judgment of the lower court should be revoked. #11 VICENTE MADRIGAL and his wife SUSANA PATERNO, plaintiffs-appellants, vs JAMES J. RAFFERTY, Collector of Internal Revenue, and VENANCIO CONCEPCION, Deputy Collector of Internal Revenue, defendants-appellees. FACTS: Vicente Madrigal and Susana Paterno were married under the provisions of law concerning conjugal partnership. Vicente filed a sworn declaration that his total income for 1914 was PhP 296,302.73 but he later submitted a claim that said amount was the income for the conjugal partnership. He averred that the pursuant to the Act of Congress of Oct 3, 1913, this income should be divided into two equal parts, as the income of Vicente and the other of Susana. The Attorney General of the Philippines held with Madrigal. The Revenue Officers forwarded the opinion to Washington for a decision by the United States Treasury Department. The US Commissioner reversed the opinion of the Attorney General deciding against Madrigals claim. After payment under protest, Madrigal filed in the CFI Manila an action against the Collector of Internal Revenue and the Deputy Collector of Internal Revenue. Madrigal alleged that he paid an excessive amount as income tax. The defendants set forth the basis for the tax profits made by Madrigal in his coal and shopping business; profits made by Susana in her embroidery business; and profits made by Madrigal in a pawnshop company. ISSUE: Whether the income tax should be divided into two equal parts because of the conjugal partnership existing between Madrigal and Susana. Whether the taxes imposed by the Income Tax Law taxes upon income tax and not upon capital and property. HELD: The Income Tax Law of the United States extended tot eh Philippine Islands, is the result of an effect on the part of the legislators to put into statutory form this canon of taxation and of social reform. The aim has been to mitigate the evils arising from inequalities of wealth by a progressive scheme of taxation. This places the burden on those best able to pay. The income tax is supposed to reach the earnings of the entire non-governmental property of the country. The essential difference between capital and income is that capital is a fund, income is a flow. A fund of property existing at an instant of time is called capital. A flow of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund thorough a period of time is called an income. Capital is wealth, while income is the service of wealth. Property is a tree, income is the

fruit; labor is a tree, income the fruit; capital is a tree, income the fruit. A tax on income is not a tax on property. Income can be defined as profits or gains. #12 Conwi vs. CTA Petitioners are Filipino citizens and employees of Procter and Gamble, Philippine Manufacturing Corporation, with offices at Sarmiento Building, Ayala Avenue, Makati, Rizal. Said corporation is a subsidiary of Procter & Gamble, a foreign corporation based in Cincinnati, Ohio, U.S.A. During the years 1970 and 1971 petitioners were assigned, for certain periods, to other subsidiaries of Procter & Gamble, outside of the Philippines, during which petitioners were paid U.S. dollars as compensation for services in their foreign assignments. When they filed their income tax returns for the year 1970, theyve computed the tax by applying the dollar -to-peso conversion based on the floating rate provided by the BIR. However, on 1973, they filed an amended tax return using the par value of the peso provided by Sec.40 of RA 265. They claim for a refund due to overpayment. In its decision, the respondent Court of Tax Appeals held that the proper conversion rate for the purpose of reporting and paying the Philippine income tax on the dollar earnings of petitioners are the rates prescribed under Revenue Memorandum Circulars Nos. 7-71 and 41-71 and denied the petition. Petitioners claim that public respondent Court of Tax Appeals erred in holding: 1. That petitioners' dollar earnings are receipts derived from foreign exchange transactions. 2. That the proper rate of conversion of petitioners' dollar earnings for tax purposes in the prevailing free market rate of exchange and not the par value of the peso; and 3. That the use of the par value of the peso to convert petitioners' dollar earnings for tax purposes into Philippine pesos is "unrealistic" and, therefore, the prevailing free market rate should be the rate used. The Commissioner of the BIR denied the claim of petitioners stating that the basis must be the prevailing free market rate of exchange. The CTA also held that petitioners dollar earnings are receipts derived from foreign exchange transactions. Issue: Whether the petitioners dollar earnings are receipts derived from foreign exchange transactions. Whether the same is exempt from tax. Held: 1. Income may be defined as an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be though of as flow of the fruits of one's labor. Petitioners are correct as to their claim that their dollar earnings are not receipts derived from foreign exchange transactions. For a foreign exchange transaction is simply that a transaction in foreign exchange, foreign exchange being "the conversion of an amount of money or currency of one country into an equivalent amount of money or currency of another." When petitioners were assigned to the foreign subsidiaries of Procter & Gamble, they were earning in their assigned nation's currency and were ALSO spending in said currency. There was no conversion, therefore, from one currency to another. The dollar earnings of petitioners are the fruits of their labors in the foreign subsidiaries of Procter & Gamble. It was a definite amount of money which came to them within a specified period of time of two yeas as payment for their services. 2. Petitioners forget that they are citizens of the Philippines, and their income, within or without, and in these cases wholly without, are subject to income tax. Sec. 21, NIRC, as amended, does not brook any exemption. Since petitioners have already paid their 1970 and 1971 income taxes under the uniform rate of exchange prescribed under the aforestated Revenue Memorandum Circulars, there is no reason for respondent Commissioner to refund any taxes to petitioner as said Revenue Memorandum Circulars, being of long standing and not contrary to law, are valid. Although it has become a worn-out cliche, the fact still remains that "taxes are the lifeblood of the government" and one of the duties of a Filipino citizen is to pay his income tax. WHEREFORE, the petitioners are denied for lack of merit.

#13

COMMISSIONER OF INTERNAL REVENUE VS. MELCHOR J. JAVIER, JR. and THE COURT OF TAX APPEALS, G.R. No. 78953, July 31, 1991 Facts: In 1977, Victoria Javier, wife of Javier-respondent, received $999k from Prudential Bank remitted by her sister Dolores through Mellon Bank in US. Around 3 weeks after, Mellon Bank filed a complaint with CFI Rizal against Javier claiming that its remittance of $1M was a clerical error and should have been $1k only and praying that the excess be returned on the ground that the Javiers are just trustees of an implied trust for the benefit of Mellon Bank. CFI charged Javier with estafa alleging that they misappropriated and converted it to their own personal use. A year after, Javier filed his Income Tax Return for 1977 and stating in the footnote that the taxpayer was recipient of some money received abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation. The Commissioner of Internal Revenue wrote a letter to Javier demanding him to pay taxes for the deficiency, due to the remittance. Javier replied to the Commissioner and said that he will pay the deficiency but denied that he had any undeclared income for 1977 and requested that the assessment of 1977 be made to await final court decision on the case filed against him for filing an allegedly fraudulent return. Commissioner replied that the amount of Mellon Banks erroneous remittance which you were able to dispose is definitely taxable and the Commissioner imposed a 50% fraud penalty on Javier. 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: The Petition was denied and the appealed decision was affirmed. The Supreme Court held that there was no actual and intentional fraud through wilful and deliberate misleading of the BIR in the case. 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. Javier even noted that the taxpayer was recipient of some money received abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation. In this case, the remittance was not a taxable gain, since it is still under litigation and there is a chance that Javier might have the obligation to return it. It will only become taxable once the case has been settled because by then whatever amount that will be rewarded, Javier has a claim of right over it. A taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite and unconditional obligation to return or repay. #14 [G.R. No. 124043. October 14, 1998] COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MENS CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., FACTS Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees

collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA. ISSUE Is the income derived from rentals of real property owned by the Young Mens Christian Association of the Philippines, Inc. (YMCA) subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution? HELD Yes. In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its rental property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. As previously stated, a reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase any of their activities conducted for profit does not qualify the word properties. This makes income from the property of the organization taxable, regardless of how that income is used -- whether for profit or for lofty non-profit purposes. Laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites. #15 CIR vs. V.E. Lednicky and Maria Valero Lednicky GR No. L-18169 July 31, 1964 Facts: V.E. and Maria Valero Lednicky are husband and wife, respectively, both American Citizens residing in the Philippines and have derived all their income from the Philippine sources for the taxable years in question. They filed their Income Tax Return for 1956, reporting a gross income of P1, 017,287.65 and a net income of P733,809.44. They amended their ITR and claimed a deduction of P205, 939. 24 paid in the U.S. as federal income tax for 1956 and thus, they requested a refund of P112,437.90. BIR failed to act upon the request for refund so the spouses brought the matter to the CTA. CTA ruled for the spouses, holding that they are entitled for refund. BIR appealed to the SC. ISSUE: Whether a citizen of the U.S. residing in the Philippine who derives income whole from sources within Philippines may deduct from his gross income the income taxes he paid to the U.S. for the taxable year based on Sec. 30 (C-1) of the Tax Code. DECISION: We agree with appellant Commissioner that the Construction and wording of Section 30 (c) (1) (B) of the Internal Revenue Act shows the law's intent that the right to deduct income taxes paid to foreign government from the

taxpayer's gross income is given only as an alternative or substitute to his right to claim a tax credit for such foreign income taxes under section 30 (c) (3) and (4); so that unless the alien resident has a right to claim such tax credit if he so chooses, he is precluded from deducting the foreign income taxes from his gross income. For it is obvious that in prescribing that such deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of paragraph (3) (relating to credits for taxes paid to foreign countries), the statute assumes that the taxpayer in question also may signify his desire to claim a tax credit and waive the deduction; otherwise, the foreign taxes would always be deductible, and their mention in the list of nondeductible items in Section 30(c) might as well have been omitted, or at least expressly limited to taxes on income from sources outside the Philippine Islands. Much stress is laid on the thesis that if the respondent taxpayers are not allowed to deduct the income taxes they are required to pay to the government of the United States in their return for Philippine income tax, they would be subjected to double taxation. What respondents fail to observe is that double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity. In the present case, while the taxpayers would have to pay two taxes on the same income, the Philippine government only receives the proceeds of one tax. As between the Philippines, where the income was earned and where the taxpayer is domiciled, and the United States, where that income was not earned and where the taxpayer did not reside, it is indisputable that justice and equity demand that the tax on the income should accrue to the benefit of the Philippines. Any relief from the alleged double taxation should come from the United States, and not from the Philippines, since the former's right to burden the taxpayer is solely predicated on his citizenship, without contributing to the production of the wealth that is being taxed. Finally, to allow an alien resident to deduct from his gross income whatever taxes he pays to his own government amounts to conferring on the latter the power to reduce the tax income of the Philippine government simply by increasing the tax rates on the alien resident. Every time the rate of taxation imposed upon an alien resident is increased by his own government, his deduction from Philippine taxes would correspondingly increase, and the proceeds for the Philippines diminished, thereby subordinating our own taxes to those levied by a foreign government. Such a result is incompatible with the status of the Philippines as an independent and sovereign state. SC reversed the decision of CTA and disallowed the refunds claimed by the spouses Lednicky. #16 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. The deficiency expanded withholding tax was allegedly due to the failure of ICC to withhold 1% e-withholding tax on its claimed deduction for security services. 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 r uling was reversed by CA, which was sustained by SC, and case was 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. Petitioner appealed to CA, which affirmed CTA, hence the petition.

Issue Whether the expenses for professional and security services are deductible. Held The SC ruled in the negative. 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 have reasonably 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. #17 G.R. No. L-12954 February 28, 1961 COLLECTOR OF INTERNAL REVENUE, petitioner, vs. ARTHUR HENDERSON, respondent. x---------------------------------------------------------x G.R. No. L-13049 February 28, 1961 ARTHUR HENDERSON, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent. Facts: Arthur and Marie Henderson (later referred to as taxpayers) filed with the Bureau of Internal Revenue (BIR) returns of annual net income for the years 1948 to 1952. In due time, the taxpayers received from the BIR assessment notices and paid the amounts assessed. In November 1953, BIR reassessed the taxpayers income for the years 1948 to 1952 and demanded payment of the deficiency taxes. In the foregoing assessments, BIR considered as part of their taxable income the taxpayer-husbands allowances for rental, residential expenses, subsistence, water, electricity and telephone; bonus paid to him; withholding tax and entrance fee to the Marikina Gun and Country Club paid by his employer for his account; and travelling allowance of his wife. The taxpayers cla imed that as regards the husbandtaxpayer's allowances for rental and utilities such as water, electricity and telephone, he did not receive the money for said allowances, but that they lived in the apartment furnished and paid for by his employer; that only the amount of P3,900 for each year, which is the amount they would have spent for rental of an apartment including utilities, should be taxed; and that as regards the wife-taxpayer's travelling allowance of P3,247.40 in 1952, it should not be considered as part of their income because she merely accompanied him in his business trip as his secretary and, at the behest of her husband's employer. The Commissioner of Internal Revenue (CIR) denied the taxpayers request for reconsideration, except as regards the assessment of their income tax due for the year 1948, which was modified and demanded payment of the deficiency taxes of P4,370.24 for 1948, P3,662.23 for 1949, P3,023 for 1950, P2,058 for 1951 and P4,108 for 1952, plus surcharge and interest. As their request for refund was not acted upon by the CIR, the taxpayers filed a petition for review in the Court of Tax Appeals which rendered judgment holding that the inherent nature of petitioners

(husband-taxpayer) employment as president of the American International Underwriter does not require him to occupy apartments supplied by his employer-corporation; that, however, only the amount of P4,800 annually, the ratable value to him of the quarters furnished constitutes as part of taxable income; that since the taxpayers did not receive any benefit out of the P3,247.40 traveling expense allowance granted in 1952 to the wife-taxpayer and that she merely undertook the trip abroad at the behest of her husband's employer, the same could not be considered as income; and that even if it were considered as such, still it could not be subject to tax because it was deductible as travel expense; and ordering the CIR to refund to the taxpayers the amount of P5,109.33 with interest. As the motions for reconsideration of both the taxpayers and the CIR were denied, the instant petitions were filed. The taxpayers claimed that the CTA erred in considering the amounts of P1,400 and P1,849.32 for managers residential expense in 1948 as taxable income despite the fact that the y were of the same nature as the rentals for the apartment. On the other hand, the CIR claimed that the evidence was not sufficient to support the findings and conclusions of the CTA. Issue: Whether the allowances for rental apartment furnished by the husband-taxpayers employercorporation, including utilities such as light, water, telephone, etc. and the allowance for travel expenses given by his employer-corporation to his wife in 1952 part of taxable income? Held: Section 29, Commonwealth Act No. 466, National Internal Revenue Code, provides: "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rents dividend, securities, or the transaction of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever. The evidence presented at the hearing of the case substantially supports the findings of the Court of Tax Appeals. The taxpayers are childless and are the only two in the family. The quarters, therefore, that they occupied at the Embassy Apartments consisting of a large sala, three bedrooms, dining room, two bathrooms, kitchen and a large porch, and at the Rosaria Apartments consisting of a kitchen, sala dining room, two bedrooms and a bathroom, exceeded their personal needs. But the exigencies of the husband-taxpayer's high executive position, not to mention social standing, demanded and compelled them to live in a more spacious and pretentious quarters like the ones they had occupied. That is why his employer-corporation had to grant him allowances for rental and utilities in addition to his annual basic salary to take care of those extra expenses for rental and utilities in excess of their personal needs. Hence, the fact that the taxpayers had to live or did not have to live in the apartments chosen by the husband-taxpayer's employer-corporation is of no moment, for no part of the allowances in question redounded to their personal benefit or was retained by them. Their bills for rental and utilities were paid directly by the employer-corporation to the creditors. Nevertheless, as correctly held by the Court of Tax Appeals, the taxpayers are entitled only to a ratable value of the allowances in question, and only the amount of P4,800 annually, the reasonable amount they would have spent for house rental and utilities such as light, water, telephone, etc., should be the amount subject to tax, and the excess considered as expenses of the corporation. Likewise, the findings of the Court of Tax Appeals that the wife-taxpayer had to make the trip to New York at the behest of her husband's employer-corporation to help in drawing up the plans and specifications of a proposed building, is also supported by the evidence. On the taxpayers appeal, an examiner o f the Bureau of Internal Revenue who examined the books of account of the American International Underwriters for the Philippines, Inc., testified that he total amount of P3,249.32 was reflected in its books as "living expenses of Mr. and Mrs. Arthur Henderson in the quarters they occupied in 1948;" and that "the amount of P1,400 was included as manager's residential expense while the amount of P1,849.32 was entered as profit and loss account." Acting head of the accounting department of the American International Underwriters for the Philippines, Inc., also testified that rentals, utilities, water, telephone and electric bills of executives of the corporation were entered in the books of account as "subsistence allowances and expenses;" that there was a separate account for salaries and wages of employees and officers; and that expenses for rentals and other utilities were not charged to salary accounts. Hence, the taxpayers' claim is supported by the

evidence. The total amount of P3,249.32 "for manager's residential expense" in 1948 should be treated as rentals for apartments and utilities and should not form part of the ratable value subject to tax. The judgment under review is modified and the Collector of Internal Revenue is ordered to refund to the taxpayers the sum of P5,986.61. #18 COMMISSIONER OF INTERNAL REVENUE vs. CARLOS LEDESMA, JULIETA LEDESMA, VICENTE GUSTILO. JR. and AMPARO LEDESMA DE GUSTILO G.R. No. L-17509 January 30, 1970 Facts: Respondents, Carlos Ledesma, Julieta Ledesma and the spouses Amparo Ledesma and Vicente Gustilo, Jr., purchased from their parents, Julio Ledesma and Florentina de Ledesma, the sugar plantation known as Hacienda Fortuna. After their purchase of the plantation, herein respondents took over the sugar cane farming on the plantation. The respondents shared equally the expenses of production, on the basis of their respective one-third undivided portions of the plantation. The San Carlos Milling Co., Ltd. issued to respondents separate quedans for the sugar produced, based on the quota under the plantation audits respectively issued to them. In their individual income tax returns for the year 1949 the respondents included as part of their income their respective net profits derived from their individual sugar production from the Hacienda Fortuna, as herein-above stated. Respondents organized themselves into a general co-partnership under the firm name Hacienda Fortuna, for the production of sugar cane for conversion into sugar, palay and corn and such other products as may profitably be produced on said hacienda, which products shall be sold or otherwise disposed of for the purpose of realizing profit for the partnership. The Collector assessed it for corporate income tax to which the respondents opposed to. Respondents averred that they were operating merely as co-owners of the plantation known as Hacienda Fortuna, so that the case of the Hacienda Fortuna was really one of co-ownership and not that of an unregistered co-partnership which was subject to corporate tax. Issue: Whether the collector is correct in assessing income of Hacienda Fortuna as corporation Held: The provision of law that is relevant to this question is, that portion of Section 24 of the National Internal Revenue Code which reads as follows: Sec. 24. Rate of tax on corporation. (a) Tax on domestic corporations. In general, there shall be levied, collected, and paid annually upon the total net income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of, the Philippines, no matter how created or organized, but not including duly registered general co-partnerships domestic life insurance companies and foreign life insurance companies doing business The Court of Tax Appeals made a finding that the respondents had actually operated the "Hacienda Fortuna" as a general partnership from January 1, 1949, and that when its articles of general partnership were registered on July 14, 1949 that registration had the effect of giving the partnership the status of a registered co-partnership which places it under the purview of Section 24 of the Tax Code as exempt from the payment of corporate income tax during the entire taxable year of 1949. The Bureau of Internal Revenue, in the exercise of its powers relative to the collection of internal revenue taxes, fees and charges, may make, and has in fact issued, administrative rules and rulings in connection with the enforcement of the provisions of the National Internal Revenue Code. There are rulings of the Bureau of Internal Revenue where the "status-at-the-end-of-the-taxable-year" rule has been applied in determining the taxpayer's income tax liability during the taxable year.

The Court of Tax Appeals, in its decision, has pointed out that as early as 1924 the Bureau of Internal Revenue had applied the "status-at-the-end-of-the-taxable-year" rule in determining the income tax liability of a partnership, such that a partnership is considered a registered partnership for the entire taxable year even if its articles of copartnership are registered only at the middle of the taxable year, or in the last month of the taxable year. We agree with the Court of Tax Appeals that the ruling is a sound one, and it is in consonance with the purpose of the law in requiring the registration of partnerships. The policy of the law is to encourage persons doing business under a partnership agreement to have the partnership agreement, or the articles of partnership, registered in the mercantile registry, so that the public may know who the real partners of the partnership are, the capital stock of the partnership, the interest or contribution of each partner in the capital stock, the proportionate share of each partner in the profits, and the earnings or salaries of the partner or partners who render service for the partnership. #19 MARIANO P. PASCUAL AND RENATO P. DRAGON vs. THE COMMISSIONER OF INTERNAL REVENUE AND COURT OF TAX APPEALS G.R. NO. 78133, OCTOBER 18, 1988 FACTS: Petitioners bought 2 parcels of land on 1965 and another 3 parcels of land on 1966. The first 2 parcels of land were sold by petitioners on 1968, while the 3 parcels of land were sold on 1970. Petitioners realized a net profit on the both sales. The corresponding capital gains taxes were paid by petitioners by availing tax amnesties granted in 1973 and 1974. However, Acting BIR Commissioner Plana assessed and required petitioners to pay alleged deficiency corporate income taxes. Petitioners protested said assessment but in a reply by respondent Commissioner, it was alleged that petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Sec. 20 (b) and its income was subject to the taxes prescribed under Sec. 24 if the NIRC. On review, the CTA affirmed the decision of the respondent Commissioner. ISSUE: Whether or not the Commissioner erred in holding that petitioners formed an unregistered partnership subject to corporate income tax. HELD: Yes, the Commissioner erred in his decision because there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent Commissioner and / or his representatives just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. The two isolated transactions whereby they purchased properties and sold the same few years thereafter did not thereby make them partners. #20 JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters, petitioners vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents. G.R. No. L68118 October 29, 1985 FACTS: Jose Obillos, Sr. completed payment to Ortigas & CO., Ltd. On two lots located at Greenhills, San Juan, Rizal. The next day, he transferred his rights to his four children, the petitioners, to enable them to build their residences. Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots. After having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canda. They derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792. One day after the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue (CIR) required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to

individual income tax on their shares thereof. He assessed P37,018 as corporate income tax and considered the share of the profits of each petitioner in the sum of P33,584 as taxable in full (not a mere capital gain of which is taxable). The commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of Sections 24(a) and 84(b) of the Tax Code. Petitioners contested the assessments. CTA sustained the same; hence, this appeal. ISSUE: W/N the co-ownership is taxable? HELD: No, the co-ownership is not taxable. It is error to consider the petitioners as having formed a partnership under Article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves. To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated. As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the coownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture. The Supreme Court reversed and set aside the judgment of the Tax Court. #21 PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. (G.R. No 148187, April 16, 2008) FACTS: Philex Mining Corporation entered into an agreement with Baguio Gold Mining to manage and operate the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties agreement was named as "Power of Attorney". Philex Mining made advances of cash and property for projects in accordance with their agreement. The mine suffered continuing losses over the years an Philex withdrew as manager of the mine. Mine operations stopped. The parties executed a "Compromise with Dation in Payment" wherein Baguio Gold admitted an indebtedness to petitioner and agreed to pay the same in three segments. Subsequently, the parties executed an "Amendment to Compromise with Dation in Payment" where the parties changed Baguio Golds indebtedness to petitioner which included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. This time, Baguio Gold undertook to pay petitioner in two segments. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner. In its 1982 annual income tax return, Philex deducted from its gross income money as "loss on settlement of receivables from Baguio Gold against reserves and allowances." However, the BIR disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax

Philex protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction were satisfied, (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the taxable year when it was determined to be worthless. Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The bad debt deduction represented advances made by Philex which formed part of Baguio Golds "pecuniary obligations" to petitioner. It also included payments made by petitioner as guarantor of Baguio Golds long -term loans which legally entitled petitioner to be subrogated to the rights of the original creditor. Philex also asserted that due to Baguio Golds irreversible losses, it would not be able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless, petitioner claimed that it is enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect. The BIR denied petitioners protest. It held that the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy. CTA denied petition for review. The CTA rejected petitions assertion that the advances Philex made were in the nature of a loan. It instead characterized the advances as petitioners investment in a partnership with Baguio Gold. The CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount is in the nature of an investment, it could not be deducted as a bad debt from petitioners gross income. ISSUE: Whether the Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. Nino Mine pursuant to the Power of Attorney is an investment instead of a loan. HELD: Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and "Amended Compromise with Dation in Payment" that the parties executed in 1982. These documents, are evidence that the parties intent to treat the advances and payments as a loan and establish a creditor -debtor relationship between them. The petition lacks merit. The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true nature of the business relationship between petitioner and Baguio Gold. The compromise agreements were mere collateral documents executed by the parties pursuant to the termination of their business relationship created under the "Power of Attorney". On the other hand, it is the latter which established the juridical relation of the parties and defined the parameters of their dealings with one another. The compromise agreements were executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which petitioner could recover the advances and payments it made under the "Power of Attorney". The parties entered into the compromise agreements as a consequence of the dissolution of their business relationship. It did not define that relationship or indicate its real character. The "Power of Attorney" revealed that a partnership or joint venture was intended by the parties. Under a contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. While a corporation 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 similar to a particular partnership.

The legal concept of a joint venture is of common law origin. It has been understood to mean an organization formed for some temporary purpose. It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. The main difference is that partnerships are for general businesses while joint ventures are formed for a single transaction only. U nder Philippine law, a joint venture is a form of partnership and should be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. The "Power of Attorney" indicates that the parties had intended to create a partnership and establish a common fund for the purpose. They also had a joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine. Under the "Power of Attorney", Philex and Baguio Gold undertook to contribute money, property and industry to the common fund known as the Sto. Nio mine.T here is a substantive equivalence in the respective contributions of the parties to the development and operation of the mine. Philex asserts that it could not have entered into a partnership agreement with Baguio Gold because it did not "bind" itself to contribute money or property to the project. The wording of the parties agreement as to petitioners contribution to the common fund does not detract from the fact that petitioner transferred its funds and property to the project. The main object of the "Power of Attorney" was not to confer power in favor of Philex to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold, in which the former was to manage and operate the latters mine through the parties mutual contribution of material resources and industry. In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably lead to the conclusion that a partnership was formed between petitioner and Baguio Gold. The tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and conditions of such loans. The parties also did not provide a specific maturity date for the advances to become due and demandable, and the manner of payment was unclear. All these point to the inevitable conclusion that the advances were not loans but capital contributions to a partnership. The lower courts did not err in treating petitioners advances as investments in a partnership. The advances were not "debts" of Baguio Gold to petitioner inasmuch as Baguio Gold was under no unconditional obligation to return the same to the former under the "Power of Attorney". Petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed. In this case, petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a valid bad debt deduction. The petition is denied. #22 #23 N.V. REEDERIJ "AMSTERDAM" and ROYAL INTEROCEAN LINES VS. COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-46029, June 23, 1988

Facts: Both vessels of petitioner N.V. Reederij Amsterdam called on Philippine ports to load cargoes for foreign destinations. The freight fees for these transactions were paid in abroad. In these two transactions, petition Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income tax has been paid by Amsterdam on the freight receipts. As a result, Commissioner of Internal Revenue filed the corresponding income tax returns for the petitioner. Commissioner assessed petitioner for deficiency of income tax, as a nonresident foreign corporation not engaged in trade or business. On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of the aforementioned vessels and paid the tax in pursuant to their supposed classification. On the same date, petitioner Royal Interocean Lines, as the husbanding agent of Amsterdam, filed a written protest against the abovementioned assessment made by the respondent Commissioner. The protest was denied. On appeal, Court Tax Appeal modified the assessment by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal to the Supreme Court. Issue: Whether or not N.V. Reederij Amsterdam should be taxed as a foreign corporation not engaged in trade or business in the Philippines. Held: The Petition is denied. Petitioner is a foreign corporation not authorized or licensed to do business in the Philippines. It does not have a branch in the Philippines, and it only made two calls in Philippine ports, one in 1963 and the other in 1964. In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation does not amount to engaging in trade or business in the Philippines for income tax purposes. A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines. It is permitted to claim deductions from gross income but only to the extent connected with income earned in the Philippines. On the other hand, foreign corporations not doing business in the Philippines are taxable on income from all sources within the Philippines. The tax is 30% (now 35% for non-resident foreign corporation which is also known as foreign corporation not engaged in trade or business) of such gross income. Petitioner Amsterdam is a nonresident foreign corporation, organized and existing under the laws of the Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines. #24 [G.R. No. 148191. November 25, 2003] COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORPORATION FACTS For the calendar year 1995, Respondent filed its Quarterly Percentage Tax Returns reflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60. Respondent alleges that the total gross receipts in the amount of P1,474,691,693.44 included the sum of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final withholding tax. On January 30, 1996, the Court of Tax Appeals rendered a decision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of Internal Revenue, wherein it was held that the 20% final withholding tax on [a] banks interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts tax. On June 19, 1997, on the strength of the aforementioned decision, Respondent filed with the Bureau of Internal Revenue BIR a letter-request for the refund or issuance of tax credit certificate in the aggregate amount of P3,508,078.75, representing allegedly overpaid gross receipts tax for the year 1995. ISSUE Whether or not the 20% final withholding tax on banks interest income forms part of the taxable gross receipts in computing the 5% gross receipts tax? HELD

Yes. Under the Tax Code, the earnings of banks from passive income are subject to a twenty percent final withholding tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks, because it is paid directly to the government by the entities from which the banks derived the income. Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code on their gross receipts, including the passive income. Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax obligations. Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent portion of the passive income of banks would actually be paid to the banks and then remitted by them to the government in payment of their income tax. The institution of the withholding tax system does not alter the fact that the 20 percent portion of their passive income constitutes part of their actual earnings, except that it is paid directly to the government on their behalf in satisfaction of the 20 percent final income tax due on their passive incomes. There is no double taxation in this case, because there is no taxing twice, by the same taxing authority, within the same jurisdiction, for the same purpose, in different taxing periods, some of the property in the territory. Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation.