Commissioner of Internal Revenue vs Burroughs Limited and the Court of Tax Appeals

GR No L-66653 June 19, 1986

Facts:
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a
branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila. Claiming that the
15% profit remittance tax should have been computed on the basis of the amount actually remitted
(P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on
December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged
overpaid branch profit remittance tax.

Issue:
Whether or not Burroughs is entitled to any tax credit.
Whether or not Memorandum Circular No. 8-82 should be given a retroactive effect?

Ruling:
Yes. Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2) of
the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not
on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have
paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89
in remittance tax actually remitted to its head office in the United States, instead of Pl,147,058.70, on its net profits
of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of
P172,058.90.

Petitioner contends 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dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum
circular states
Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base
should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be
remitted abroad.

No. 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-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the
Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be
prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where
the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which
the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA
151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not
fall under any of them.

Mactan Cebu International Airport Authority vs Marcos, et al.,
GR No 120082 September 11, 1996

Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958,
mandated to principally undertake the economical, efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, and such other
airports as may be established in the Province of Cebu. Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter:

"Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government
or any of its political subdivisions, agencies and instrumentalities."

On October 11, 1994, however, the Office of the Treasurer of the City of Cebu, demanded payment for realty taxes
on several parcels of land belonging to the petitioner located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu
City, in the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty
taxes. It was also asserted that it is an instrumentality of the government performing governmental functions,
citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local
government units:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
a) x x x
x x x
o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units"

Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a
government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193
and 234 of the Local Government Code that took effect on January 1, 1992:

"Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938,
non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.
Section 234. Exemptions from Real Property Taxes. x x x
(a) x x x
x x x
(e) x x x
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations are
hereby withdrawn upon the effectivity of this Code."
Issues:
Whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been
granted to the petitioner, and

Whether the petitioner is a taxable person.

Ruling:

Section 15 of the petitioners Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands,
buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and
all assets, powers, rights, interests and privileges relating on airport works or air operations, including all
equipment which are necessary for the operations of air navigation, aerodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the Authority: Provided, however, that the operations control of all
equipment necessary for the operation of radio aids to air navigation, airways communication, the approach
control office, and the area control center shall be retained by the Air Transportation Office. No equipment,
however, shall be removed by the Air Transportation Office from Mactan without the concurrence of the Authority.
The Authority may assist in the maintenance of the Air Transportation Office equipment.
It may be reasonable to assume that the term lands refer to lands in Cebu City then administered by the Lahug
Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This
section involves a transfer of the lands, among other things, to the petitioner and not just the transfer of the
beneficial use thereof, with the ownership being retained by the Republic of the Philippines.

This transfer is actually an absolute conveyance of the ownership thereof because the petitioners authorized
capital stock consists of, inter alia, the value of such real estate owned and/or administered by the airports.
Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.

Moreover, the petitioner cannot claim that it was never a taxable person under its Charter. It was only exempted
from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of
the legislative intent to make it a taxable person subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be conceded to be an agency or instrumentality of the
Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
G.R. No. 159647 April 15, 2005

Facts:
Respondents operated six drugstores under the business name Mercury Drug. From January to December 1996
respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines pursuant to RA
7432 for a total of 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein net
losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of 904,769.00 allegedly
arising from the 20% sales discount. Unable to obtain affirmative response from petitioner, respondent elevated its
claim to the Court of Tax Appeals. The court dismissed the same but upon reconsideration, the latter reversed its
earlier ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent citing CA GR SP No.
60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with
illegally collected or erroneously paid taxes but that there are other situations which may warrant a tax
credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a payment of
taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the taking of private property for public use.

Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit.

Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on their
purchase of medicine from any private establishment in the country. The latter may then claim the cost of the
discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is subtracted directly from ones total tax liability. It is an
allowance against the tax itself or a deduction from what is owed by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction which is
subtraction from income for tax purposes, or an amount that is allowed by law to reduce income prior to the
application of the tax rate to compute the amount of tax which is due. In other words, whereas a tax credit reduces
the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit can be
applied. Without that liability, any tax credit application will be useless. There will be no reason for deducting the
latter when there is, to begin with, no existing obligation to the government. However, as will be presented shortly,
the existence of a tax credit or its grant by law is not the same as the availment or use of such credit. While the
grant is mandatory, the availment or use is not. If a net loss is reported by, and no other taxes are currently due
from, a business establishment, there will obviously be no tax liability against which any tax credit can be applied.
For the establishment to choose the immediate availment of a tax credit will be premature and impracticable.

ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005

Facts:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality of Sections 4, 5
and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;

These provisions contain a provision which authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied.

Issues:
Whether or not there is a violation of Article VI, Section 24 of the Constitution.

Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.

Whether or not there is a violation of the due process and equal protection of the Constitution.

Ruling:
No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, and excise and franchise taxes.

No, there is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes
what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go forward. In this case, it is not a delegation of
legislative power but a delegation of ascertainment of facts upon which enforcement and administration of the
increased rate under the law is contingent.

No, the power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts
to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of
validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.

Commissioner of Internal Revenue vs Algue Inc., and Court of Tax Appeals
GR No. L-28896 February 17, 1988

Facts:
The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as its agent, authorizing it to
sell its land, factories and oil manufacturing process.As such,the corporation worked for the formation of the
Vegetable Oil Investment Corporation, until they were able to purchased the PSEDC properties. For this sale, Algue
Inc., received as agent a commission of P126, 000.00, and it was from this commission that the P75, 000.00
promotional fees were paid to Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez.

Commissioner of Internal Revenue contends that the claimed deduction is not allowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with
Algue Inc., it held that the said amount had been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees.

Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by
private respondent Algue Inc., as legitimate business expenses in its income tax returns.

Ruling:
No, The Supreme Court agrees with the respondent court that the amount of the promotional fees was not
excessive. The P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to
the actual purchase by it of the Sugar Estate properties.

The claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.