1.

Lucas Adamson, et. al. vs. CA, et. al. [May 21, 2009]
3.
Facts:
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common
shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding
Limited (APAC). The shares were valued at P7,789,995.00. On June
22, 1990, P159,363.21 was paid as capital gains tax for the
transaction.
On October 12, 1990, AMC sold to APAC Philippines, Inc. another
229,870 common shares of stock in AAI for P17,718,360.00. AMC
paid the capital gains tax of P352,242.96.

2.

On February 20, 2004, RCBC filed a Petition for Relief from Judgment
with the CTA. It argued that its counsels secretary misfiled and lost
the September 10, 2003 resolution amounting to excusable
negligence (grounds for petition are F.A.M.E.). The CTA denied the
petition. It stated that the negligence was not excusable nor was it
unavoidable. Thus prompting RCBC to file a petition for review with
the SC.

Issues:
1.
Whether the Commissioners recommendation letter can be
considered a formal assessment of private respondents tax
liability
2.
Whether the filing of criminal complaint against the private
respondents by the DOJ is premature for lack of formal
assessment
3.
Whether the CTA has jurisdiction to take cognizance of both the
criminal and civil cases here at bar

Ruling:
Relief cannot be granted on the flimsy excuse that the failure to
appeal was due to the neglect of petitioners counsel. Otherwise, all
that a losing party would do to salvage his case would be to invoke
neglect or mistake of his counsel as a ground for reversing or setting
aside the adverse judgment, thereby putting no end to litigation.

Ruling:
1.
In the context in which it is used in the NIRC, an assessment is a
written notice and demand made by the BIR on the taxpayer for
the settlement of a due tax liability that is there definitely set and
fixed. A written communication containing a computation by a
revenue officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiners findings is
not an assessment since it is yet indefinite.

Since petitioners ground for relief is not well-taken, it follows that the
assailed judgment stands.lavvphil.e+ Assuming ex gratia argumenti
that the negligence of petitioners counsel is excusable, still the
petition must fail. As aptly observed by the OSG, even if the petition
for relief from judgment would be granted, petitioner will not fare any
better if the case were to be returned to the CTA Second Division
since its action for the cancellation of its assessments had already
prescribed.

We rule that the recommendation letter of the Commissioner

cannot be considered a formal assessment. Even a cursory
perusal of the said letter would reveal three key points:
1.
It was not addressed to the taxpayers.
2.
There was no demand made on the taxpayers to pay the
tax liability, nor a period for payment set therein.
3.
The letter was never mailed or sent to the taxpayers by the
Commissioner.

Petitioner protested the assessments pursuant to Section 228 of the

NIRC, which provides:
SEC. 228. Protesting of Assessment.- x x x.
xxxx
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60)
days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within (30) days
from receipt of the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise the decision shall
become final, executory and demandable.

In fine, the said recommendation letter served merely as the

prima facie basis for filing criminal informations that the
taxpayers had violated Section 45 (a) and (d), and 110, in
relation to Section 100, as penalized under Section 255, and for
violation of Section 253, in relation to Section 252 9(b) and (d) of
the Tax Code
Section 269 of the NIRC (now Section 222 of the Tax Reform Act
of 1997) provides:
Sec. 269. Exceptions as to period of limitation of assessment
and collection of taxes.-(a) In the case of a false or fraudulent
return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court after the collection of
such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for collection
thereof

The CTA Second Division held:

Following the periods provided for in the aforementioned laws, from
July 20, 2001, that is, the date of petitioners filing of protest, it had
until September 18, 2001 to submit relevant documents and from
September 18, 2001, the Commissioner had until March 17, 2002 to
issue his decision. As admitted by petitioner, the protest remained
unacted by the Commissioner of Internal Revenue. Therefore, it had
until April 16, 2002 within which to elevate the case to this court. Thus,
when petitioner filed its Petition for Review on April 30, 2002, the
same is outside the thirty (30) period.

The law is clear. When fraudulent tax returns are involved as in

the cases at bar, a proceeding in court after the collection of
such tax may be begun without assessment. Here, the
private respondents had already filed the capital gains tax return
and the VAT returns, and paid the taxes they have declared due
therefrom. Upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale of two
lots of AAI shares, first to APAC and then to APAC Philippines,
Limited. The examiners also found that the VAT had not been
paid for VAT-liable sale of services for the third and fourth
quarters of 1990. Arguably, the gross disparity in the taxes due
and the amounts actually declared by the private respondents
constitutes badges of fraud.
Thus, the applicability of Ungab v. Cusi is evident to the cases at
bar. In this seminal case, this Court ruled that there was no need
for precise computation and formal assessment in order for
criminal complaints to be filed against him.

RCBC vs. CIR [April 24, 2007]

Facts:
On July 5,2001, RCBC received a Formal Letter of Demand from the
CIR for its tax liabilities (Gross Onshore Tax and DST). On July 20,
2001, RCBC filed a protest/request for reconsideration/reinvestigation
pursuant to Sec. 228 of the NIRC. The protest was not acted upon by
the CIR, led RCBC to file a petition for review in the CTA on April 30,
2002. CIR challenged the jurisdiction of the CTA forbeing beyond the
30-day period following the lapse of 180 days from RCBCs
submission of documents in support of its protest. It was dismissed.
The resolution denying the petition for review became final and
executory on September 10, 2003.

On October 15, 1993, the Commissioner issued a Notice of Taxpayer

to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S.
de los Reyes, informing them of deficiencies on their payment of
capital gains tax and Value Added Tax (VAT). The notice contained a
schedule for preliminary conference. Subsequent to the preliminary
conference, the CIR filed with the Department of Justice her Affidavit
of Complaint against Petitioners. The Court of Appeals ultimately ruled
that, in a criminal prosecution for tax evasion, assessment of tax
deficiency is not required because the offense of tax evasion is
complete or consummated when the offender has knowingly and
willfully filed a fraudulent return with intent to evade the tax.

2.

While laws governing the CTA have expanded the jurisdiction of

the Court, they did not change the jurisdiction of the CTA to
entertain an appeal only from a final decision or assessment of
the Commissioner, or in cases where the Commissioner has not
acted within the period prescribed by the NIRC. In the cases at
bar, the Commissioner has not issued an assessment of the tax
liability of private respondents.

As provided in Section 228, the failure of a taxpayer to appeal from an

assessment on time rendered the assessment final, executory and
demandable. Consequently, petitioner is precluded from disputing the
correctness of the assessment.
In fine, the failure to comply with the 30-day statutory period would bar
the appeal and deprive the Court of Tax Appeals of its jurisdiction to
entertain and determine the correctness of the assessment.
3.

Meralco Securities Corp vs. Victorino Savellano, et. al. [October

23, 1982]
JURISDICTION OF CTA
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**The law [SEC. 7 RA 1125 enacted 16 June 1954] transferred to the

Court of Tax Appeals jurisdiction over all cases involving (said)
assessments previously cognizable by the courts of first instance, and
even those already pending in said courts**

compounded liquors, using alcohol and other ingredients as raw

materials.
Then Secretary of Finance Cesar Virata directed the Finance-BIR-NBI
team to conduct an investigation on the basis of a charge against
Silver Cup allegedly "for tax evasion amounting to millions of pesos".
A letter and a subpoena duces tecum were issued against Silver Cup
requesting production of the accounting records and other related
documents but Mr. Po Bien Sing did not produce his books of
accounts as requested. This prompted the team to enter the factory
bodega of Silver Cup and seized different brands, consisting of 1,555
cases of alcohol products. On the basis of the team's report of
investigation, the respondent Commissioner of Internal Revenue (CIR)
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.

MANDAMUS
**After the Commissioner xxxx had after a mature and thorough study
rendered his decision or ruling that no tax is due or collectible, and his
decision is sustained by the Secretary xxxx such decision or ruling is
a valid exercise of discretion in the performance of official duty and
cannot be controlled much less reversed by mandamus**
Facts:
Maniago, who is after an informers reward, submitted to the CIR a
confidential denunciation against Meralco 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 shortchanging
the government of income tax due from 75% of the said dividends.
This denunciation was denied by the CIR after an investigation lead
that no deficiency tax was due since under the law then prevailing in
the case of dividends received by a domestic corporation liable to tax
under this Chapter . Only 25% thereof shall be returnable for the
purposes of tax imposed under this section. The CIR also denied
Maniagos claim for informers reward on a non-existent deficiency.
This action of the CIR was sustained by the Secretary of Finance in a
4th Indorsement dated 11 May 1971.

Petitioner protested the deficiency assessments and appealed to the

Court of Tax Appeals. The CTA affirmed the decision of the CIR in
assessing deficiency income tax for 1966 to 1970 in the amount of
P7,154,685.16 and deficiency specific tax for January 2, 1964 January
19, 1972, in the amount of P5,595,003.68 against the petitioner.
Issue:
Whether or not the assessments have valid and legal basis
Ruling:
Yes. The assessments have valid and legal basis.

Maniago then filed a case of mandamus before the Court of Instance,

which was granted by Judge Savellano, in disregard to the Motion to
Dismiss filed by Meralco and the CIR where the grounds raised were
lack of jurisdiction and that mandamus cannot lie against a
discretionary power. The Court ordered the CIR to assess and collect
from Meralco the sum of P51M as deficiency corporate income tax for
the period of 1962 to 1969 plus interest and surcharges thereon due
and to pay 25% to Maniago as informers reward.
Issues:
1.
WON the Court of First Instance has jurisdiction to decide the
Petition for mandamus.
2.
WON the Court of First Instance can compel the CIR through a
petition for mandamus to issue an assessment and collect the
deficient taxes due thereupon.
Ruling:
1.
The CFI had no jurisdiction to take cognizance of the case
because the subject matter thereof clearly falls within the scope
of the cases now exclusively within the jurisdiction of the CTA.
Section 7 of RA 1125, enacted 16 June 1954 granted to the CTA
exclusive appellate jurisdiction to review by appeal, among
others, decisions of the CIR in cases involving disputed
assessments, refunds or internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters
arising under the NIRC or other law or part of law administered
by the BIR. The question of whether or not to impose a
deficiency tax assessment on Meralco undoubtedly comes within
the purview of the words disputed assessments or of other
matters arising under the NIRC.
Assuming arguendo that the right granted the taxpayers affected
to question and appeal disputed assessments, under Sec 7 RA
1225, may be availed of by strangers or informers, like Maniago,
the most that he could have done was to appeal to the CTA the
ruling of the CIR within 30 days from receipt thereof pursuant to
Sec 11 of RA 1225. He failed to take such an appeal to the tax
court. The ruling is clearly final and no longer subject to review
by the courts.
2.

Since the office of the CIR is charged with the administration of

revenue laws, which is the primary responsibility of the executive
branch of the govt, mandamus may not lie against the CIR 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 function.
Mandamus only lies to enforce the performance of a ministerial
act or duty, and not to control the performance of a discretionary
power. Purely administrative and discretionary functions may not
be interfered with by the courts. Discretion, as thus intended,
means the power or right conferred upon the office of law of
action officially under certain circumstances according to the
dictates of his own judgment and conscience and not controlled
by the judgment or conscience of others. Mandamus may not be
resorted to so as to interfered with the manner in which the
discretion shall be exercised or to influence or coerce a
particular determination.

4.

Bonifacia Sy vs. CTA, et. al. [August 18, 1988]

Facts:
Bonifacia Sy Po (Petitioner) is the widow of the late Mr. Po Bien Sing.
In the taxable years 1964 to 1972, the deceased Po Bien Sing was
the sole proprietor of Silver Cup Wine Factory (Silver Cup) in Talisay,
Cebu. He was engaged in the business of manufacture and sale of

5.

1.

Settled is the rule that the factual findings of the Court of Tax
Appeals are binding upon this Honorable Court and can only be
disturbed on appeal if not supported by substantial evidence.
The existence of fraud as found by the respondents can not be
lightly set aside absent substantial evidence presented by the
petitioner to counteract such finding. The findings of fact of the
respondent Court of Tax Appeals are entitled to the highest
respect. We do not find anything in the questioned decision that
should disturb this long-established doctrine.

2.

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.

3.

The applicable legal provision is Section 16(b) of the National

Internal Revenue Code of 1977 as amended which states that
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. 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 report to the
power conferred upon him under Section 16 of the Tax Code.

4.

The existence of fraud which consist of the making of false

entries in the official register book and the storage of untaxed
alcohol in a secret tunnel within the petitioners bodega as found
by the respondents can not be lightly set aside absent
substantial evidence presented by the petitioner to counteract
such finding. The findings of fact of the respondent Court of Tax
Appeals are entitled to the highest respect. We do not find
anything in the questioned decision that should disturb this longestablished doctrine.

Capitol Steel Corp. vs. Phividec Industrial Authority [December 6,

2006]

5 CAPITOL STEEL CORPORATION

AUTHORITY, December 6, 2006

vs.PHIVIDEC

INDUSTRIAL

The properties of Capitol Steel were identified as the most ideal site for the
Mindanao International Container Terminal Project (MICTP). PHIVIDEC, a
GOCC, filed an expropriation case before the RTC of Misamis Oriental to
which the court issued a writ of possession in favor of PHIVIDEC.
The Technical Committee on Real Property Valuation (TCRPV) of the
Bureau of Internal Revenue (BIR) fixed the "reasonable and realistic zonal
valuation" of the properties at P700 per square meter.
PHIVIDEC re-filed on November 24, 2003 an expropriation case, and filed
an Urgent Motion for the Issuance of a Writ of Possession 15 to which it
attached a Certificate of Availability of Funds, 16 and Certifications from the
Landbank17 and the DBP18 that it deposited the total amount of
P116,563,500 required under Republic Act No. 8974 (R.A. 8974), "AN
ACT TO FACILITATE THE ACQUISITION OF RIGHT-OF-WAY, SITE OR
LOCATION FOR NATIONAL GOVERNMENT INFRASTRUCTURE
PROJECTS AND FOR OTHER PURPOSES."
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The total amount deposited represents one hundred percent (100%) of

the value of the properties based on the schedule of zonal valuation for
real properties under Department Order No. 40-9719 (D.O. 40-97) fixing
the zonal valuation of the properties at Sugbongcogon and Casinglot at
P300 and P500 per square meter, respectively.
DISCUSSION ON THE TWO CONFLICTING VALUATIONS:
PHIVIDEC: under D.O. 40-97, the zonal valuations of the properties are
P300 and P500 per square meter, respectively, as used in computing
internal revenue taxes.
Capitol Steel: TCRPV is authorized under Revenue Delegation of Authority
Order No. 4-2001 to conduct reappraisals of the zonal valuation of
properties on a "case to case level" upon the request of any taxpayer and
so TCRPV issued a resolution fixing the zonal valuation of the properties at
P700 per square meter.
RTC: TCRPV's fair market valuation of the properties at P700 per square
meter
CA: zonal valuation established under D.O. 40-97 should be the basis in
computing the provisional value of the properties.
Reason: TCRPV was neither binding nor effective for failure to comply with
the guidelines relative to the establishment of zonal values of real
properties under Revenue Memorandum Order No. 56-89, as amended
by Revenue Memorandum Order No. 56-94,
WON RTC HAS AUTHORITY TO VARY THE ZONAL VALUATION OF
PROPOERTIES ESTABSLIHED BY BIR UNDER DO 4097- for purposes
of issuing writ of possession
When the second expropriation case was re-filed, R.A. 8974, which
provides for substantive requirements before a writ of possession is issued,
was already in force and in effect.
Under R.A. 8974, the requirements for authorizing immediate entry in
expropriation proceedings involving real property are: (1) the filing of a
complaint for expropriation sufficient in form and substance; (2) due notice
to the defendant; (3) payment of an amount equivalent to 100% of the value
of the property based on the current relevant zonal valuation of the BIR
including payment of the value of the improvements and/or structures if any,
or if no such valuation is available and in cases of utmost urgency, the
payment of the proffered value of the property to be seized; and (4)
presentation to the court of a certificate of availability of funds from the
proper officials.
Upon compliance with the requirements, writ of possession becomes a
matter of right and it becomes the ministerial duty of the trial court to
forthwith issue the writ of possession. No hearing is required .
PAYMENT OF PROVISIONAL VALUE FOR THE ISSUANCE OF WRIT OF
POSSESSION VS PAYMENT OF JUST COMPENSATION
The first refers to the preliminary or provisional determination of the value of
the property. It is not a final determination of just compensation and may
not necessarily be equivalent to the prevailing fair market value of the
property
Just compensation, on the other hand, is the final determination of the fair
market value of the property. Market values, has also been described in a
variety of ways as the "price fixed by the buyer and seller in the open
market in the usual and ordinary course of legal trade and competition
There is no need for the determination with reasonable certainty of
the final amount of just compensation before the writ of possession
may be issued.
The "current relevant zonal valuation" under Section 4 of R.A. 8974
pertains to the values reflected in the schedule of zonal values embodied in
a Department Order issued pursuant to Revenue Memorandum Order
(RMO) No. 56-89 issued by the Commissioner of Internal Revenue.
300 and 500 sq.m VS 700 sq. m
P300 and P500 per square meter zonal values

the zonal values were approved by both the TCRPV and the
ECRPV and on even date, the Secretary of Finance, upon the
recommendation of the BIR, issued D.O. 40-97 to implement
the schedule of zonal values. D.O. 40-97 thereafter took effect

on October 21, 1997, 15 days after its publication in The

Philippine Journal.
P700 per square meter zonal value provided for under TCRPV
-

not approved by the ECRPV, was not embodied in a Department

Order, and did not undergo the required public hearing and
publication required under RMO 56-89.

based on a letter-request by Berck Y. Cheng, Executive

Assistant of Capitol Steel and the two private appraisers hired by
Capitol Steel

The revaluation under the TCRPV Resolution having failed to

comply with the requirements under RMO 12-89, the disregard
by the RTC of the zonal valuation under D.O. 40-97

TCRPV Resolution DID NOT effectively superseded D.O. 40-97

The TCRPV was created under Ministry Order No. 20-86 for the purpose of
assisting the Commissioner of Internal Revenue in prescribing real property
values for purposes of computing any internal revenue tax.
TCRPV and the STCRPV (subcommittee) are vested with authority to study
and prepare the schedule of zonal values BUT the valuation can only be
implemented if it is later embodied in a Department Order and is
rendered effective only upon its publication in the Official Gazette as
provided under RMO 56-89.
TCRPV Resolution was NOT issued pursuant to Revenue Delegation
Authority No. 4-2001 (RDAO 4-2001), hence, it need not comply with
RMO 56-89.
A revaluation pursuant to RDAO 4-2001 cannot be used to determine the
provisional value of the properties because The "appropriate clearances"
under RDAO 4-2001 refer to the Tax Clearance (TCL) or Certificate
Authorizing Registration (CAR), which are issued by the BIR after the
taxpayer pays the proper capital gains and documentary stamp taxes.
Admittedly, the revaluation was not sought by petitioner for the purpose of
computing any internal revenue taxes in order to secure the appropriate
clearances from the BIR, but for the purpose of computing the provisional
valuation of the properties sought to be expropriated.
Clearly, while the law grants to the Commissioner of Internal Revenue
the power to determine zonal values, including the authority to
delegate to the Assistant Commissioner of the Assessment Service
the authority to approve and sign TCRPV resolutions involving
requests for revaluation of established zonal values of real properties,
the same is for the purpose of computing internal revenue taxes.
SO IN THIS CASE, THE ISSUE IS ON THE PROVISIONAL VALUATION
OF THE PROPERTIES
Reevaluation does not constitute a revision of the schedule of zonal
values-1.

such a theory raises the possibility that all zonal valuations duly
published will be rendered inutile for the intention of merely
establishing a preliminary or provisional valuation for
purposes of the expropriating agency's entry into the
property.

2.

It will erase the distinction between preliminary payment based

on zonal valuation and the final determination by the court of fair
market value or just compensation.

3.

The theory is rife with mischievous consequences and will place

the state or the expropriating agency at the mercy of the
property owner. It raises the specter of unwarranted delays in
infrastructure and other important projects of the government.
For the avowed purpose of Republic Act No. 8974 is precisely to
provide the court in expropriation proceedings with a ready
reference or standard upon which to base the preliminary or
provisional payment to the property owner allowing the said
court to proceed with dispatch to the final phase of the
proceeding which is the final determination of just compensation.

Moreover, there is nothing under Republic Act No. 8974 which can be read
to allow an owner of the properties to be expropriated recourse to a "case
to case" revaluation "when it disagrees with the zonal valuation by the BIR.
Resort to this procedure would undeniably cause delay in government
3|Pa g e

infrastructure projects, and leave the determination of the provisional value

of the expropriated properties to the property owner and the TCRPV,
without the participation from the implementing expropriating agency. Such
is contrary to R.A. 8974.

The very provision of the Tax Code that the CIR relies on is
unequivocal with regard to its power to grant authority to examine and
assess a taxpayer.
SEC. 6. Power of the Commissioner to Make Assessments and
Prescribe Additional Requirements for Tax Administration and
Enforcement.
(A) Examination of Returns and Determination of tax Due. After a
return has been filed as required under the provisions of this
Code, the Commissioner or his duly authorized representative
may authorize the examination of any taxpayer and the
assessment of the correct amount of tax: Provided, however,
That failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer.
xxx

For purposes of a writ of possession, there is no need to look into the

peculiar and favorable features of the properties to be expropriated,
the court is being statutorily bound to rely only on the current relevant
zonal valuation of the BIR.
Petitioner, however, may in the determination of just compensation,
properly present and introduce evidence bearing on the properties' fair
market value.
Thus Section 5 of Republic Act No. 8974 provides:

Clearly, there must be a grant of authority before any revenue officer

can conduct an examination or assessment. Equally important is that
the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or
examination is a nullity.

SECTION 5. Standards for the Assessment of the Value of the Land

Subject of Expropriation Proceedings or Negotiated Sale. In order to
facilitate the determination of just compensation, the court may consider,
among other well-established factors, the following relevant standards:

As earlier stated, LOA 19734 covered "the period 1997 and unverified
prior years." For said reason, the CIR acting through its revenue
officers went beyond the scope of their authority because the
deficiency VAT assessment they arrived at was based on records from
January to March 1998 or using the fiscal year which ended in March
31, 1998. If the CIR wanted or intended the investigation to include
the year 1998, it should have done so by including it in the LOA or
issuing another LOA.

(a) The classification and use for which the property is suited;
(b) The developmental costs for improving the land;
(c) The value declared by the owners;

Upon review, the CTA-EB even added that the coverage of LOA
19734, particularly the phrase "and unverified prior years," violated
Section C of Revenue Memorandum Order No. 43-90 dated
September 20, 1990, the pertinent portion of which reads:

(d) The current selling price of similar lands in the vicinity;

(e) The reasonable disturbance compensation for the removal and/or
demolition of certain improvements on the land and for the value of
improvements thereon;

3.

(f) The size, shape or location, tax declaration and zonal valuation of the
land;
(g) The price of the land as manifested in the ocular findings, oral as well as
documentary evidence presented; and
(h) Such facts and events as to enable the affected property owners to have
sufficient funds to acquire similarly-situated lands of approximate areas as
those required from them by the government, and thereby rehabilitate
themselves as early as possible.
In fine, all the requirements set forth under Section 4 of R.A. 8974 have
been satisfactorily complied with, there is no legal impediment to the
issuance of a writ of possession in favor of respondent.

6.

CIR vs. Sony Phil., Inc. [November 17, 2010]

Facts:
On November 24, 1998, the CIR issued Letter of Authority authorizing
certain revenue officers to examine Sonys books of accounts and
other accounting records regarding revenue taxes for the period
1997 and unverified prior years.
On December 6, 1999, a preliminary assessment for 1997 deficiency
taxes and penalties was issued by the CIR which Sony protested.
Thereafter, acting on the protest, the CIR issued final assessment
notices, the formal letter of demand and the details of discrepancies.
Sony sought re-evaluation of the aforementioned assessment by
filing a protest on February 2, 2000.
Except for the compromise penalties, the CTA-First Division also
upheld the penalties for the late payment of VAT on royalties, for late
remittance of final withholding tax on royalty as of December
1997 and for the late remittance of EWT by some of Sonys branches.
The CIR insists that LOA 19734, although it states "the period 1997
and unverified prior years," should be understood to mean the fiscal
year ending in March 31, 1998.
Ruling:
The Court cannot agree.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is
the authority given to the appropriate revenue officer assigned to
perform assessment functions. It empowers or enables said revenue
officer to examine the books of account and other accounting records
of a taxpayer for the purpose of collecting the correct amount of tax.

A Letter of Authority should cover a taxable period not exceeding

one taxable year. The practice of issuing L/As covering audit of
"unverified prior years is hereby prohibited. If the audit of a
taxpayer shall include more than one taxable period, the other
periods or years shall be specifically indicated in the L/A.

On this point alone, the deficiency VAT assessment should have been
disallowed.
7.

CIR vs. Kudos Metal Corp. [May 5, 2010]

Facts:
On April 15, 1999, respondent filed its Annual Income Tax Return
(ITR) for the taxable year 1998. Subsequently, a review and audit of
respondents records ensued.
On December 10, 2001, respondents accountant executed a Waiver
of the Defense of Prescription, which was notarized on January 22,
2002, received by the BIR Enforcement Service on January 31, 2002
and by the BIR Tax Fraud Division on February 4, 2002, and accepted
by the Assistant Commissioner of the Enforcement Service.
This was followed by a second Waiver of Defense of
Prescriptionexecuted by the respondents accountant on February
18, 2003, notarized on February 19, 2003, received by the BIR Tax
Fraud Division on February 28, 2003 and accepted by Assistant
Commissioner.
On August 25, 2003, the BIR issued a Preliminary Assessment
Notice for the taxable year 1998 against the respondent. This was
followed by a Formal Letter of Demand with Assessment Notices
for taxable year 1998, dated September 26, 2003 which was received
by respondent on November 12, 2003.
The assessments were challenged by the respondent; however, BIR
rendered a final decision on the matter on June 22, 2004 and
requested the immediate payment of tax liabilities totaling 25M.
Upon belief that the governments right to assess taxes had
prescribed, respondent filed a petition for review with the CTA on
August 27, 2004.
The CTA Second Division issued a resolution cancelling the
assessment notices issued against respondent for having been issued
beyond the prescriptive period. It found the first Waiver of the
Statute of Limitations incomplete and defective for failure to
comply with the provisions of RMO No. 20-90, to wit:
1.
The Assistant Commissioner is not the revenue official
authorized to sign the waiver, as the tax case involves more than
P1,000,000.00. In this regard, only the Commissioner is
authorized to enter into agreement with the petitioner in
extending the period of assessment.
2.
The waiver failed to indicate the date of acceptance. Such date
of acceptance is necessary to determine whether the
acceptance was made within the prescriptive period.
3.
The fact of receipt by the taxpayer of his file copy was not
indicated on the original copy. The requirement to furnish the
4|Pa g e

taxpayer with a copy of the waiver is not only to give notice of

the existence of the document but also of the acceptance by the
BIR and the perfection of the agreement.
It ruled that the subject waiver is therefore incomplete and defective.
As such, the three-year prescriptive period was not tolled or extended
and continued to run.

exception to the statute of limitations on collection of taxes and

not on the assessment of taxes, as the BIR was able to make an
assessment within the prescribed period. More important, there
was a finding that the taxpayer made several requests or
positive acts to convince the government to postpone the
collection of taxes.

On appeal, the CTA En Banc affirmed the cancellation of the

assessment notices. Although it ruled that the Assistant Commissioner
was authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first waiver was
still invalid based on the second and third grounds stated by the CTA
Second Division.

Conversely, in this case, the assessments were issued beyond

the prescribed period. Also, there is no showing that respondent
made any request to persuade the BIR to postpone the issuance
of the assessments.
The BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO 20-90 and RDAO 05-01, which the
BIR itself issued. As stated earlier, the BIR failed to verify
whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of
acceptance and the receipt by the respondent of the waivers.
Having caused the defects in the waivers, the BIR must bear the
consequence. It cannot shift the blame to the taxpayer. To stress,
a waiver of the statute of limitations, being a derogation of the
taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed.

Issue:
1.
WON the governments right to assess unpaid taxes of
respondent has already prescribed.
2.
WON respondent is estopped from adopting a position it has
previously taken.
Ruling:
1.
Yes. The Court held that the waivers executed by respondents
accountant did not extend the period within which the
assessment can be made; thus, the assessment notices were
issued beyond the three-year prescriptive period.
Section 203 of the 1997 NIRCmandates the government to
assess internal revenue taxes within three years from the last
day prescribed by law for the filing of the tax return or the actual
date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period
is no longer valid and effective. Exceptions however are provided
under Section 222 of the NIRC.
Section 222 (b) of the NIRC provides that the period to assess
and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before
the expiration of the three-year period. RMO 20-9017 issued on
April 4, 1990 and RDAO 05-0118 issued on August 2, 2001 lay
down the procedure for the proper execution of the waiver, to wit:
1.
The waiver must be in the proper form prescribed by RMO
20-90. The phrase "but not after ______ 19 ___", which
indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of
prescription, should be filled up.
2.
The waiver must be signed by the taxpayer himself or his
duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible
officials. In case the authority is delegated by the taxpayer
to a representative, such delegation should be in writing
and duly notarized.
3.
The waiver should be duly notarized.
4.
The CIR or the revenue official authorized by him must sign
the waiver indicating that the BIR has accepted and agreed
to the waiver. The date of such acceptance by the BIR
should be indicated. However, before signing the waiver,
the CIR or the revenue official authorized by him must
make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly
authorized representative.
5.
Both the date of execution by the taxpayer and date of
acceptance by the Bureau should be before the expiration
of the period of prescription or before the lapse of the
period agreed upon in case a subsequent agreement is
executed.
6.
The waiver must be executed in three copies, the original
copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of
his/her file copy must be indicated in the original copy to
show that the taxpayer was notified of the acceptance of
the BIR and the perfection of the agreement.

8.

CIR vs. Pascor Realty and Development Corp., et. al.[June 19,
1999]
Facts:
Pursuant to Letter of Authority of CIR, Revenue Officers examined
books of accounts and other records of Pascor for 1986, 1987, and
1988. This resulted in the recommendation for the issuance of an
assessment. This also resulted to the filing of a criminal complaint for
tax evasion before the DOJ.
Pascor filed an Urgent Request for Recon/Reinvestigation before the
CIR, disputing the assessment and tax liability. CIR denied on the
ground that there was as yet no formal assessment to be disputed.
Pascor appealed to the CTA, insisting that the criminal complaint
amounted to an assessment. CIR was adamant that it was not.
Hence, there being no decision of CIR relating to assessment dispute,
there was nothing for CTA to review and it thus has no jurisdiction.
Both CTA and later, CA, were of the opinion that the criminal complaint
amounted to an assessment, and that CTA has appellate jurisdiction
over disputed assessments and not merely formal assessments.
Both also uniformly ruled that assessment is, by definition, simply the
statement of the details and the amount of tax due from a taxpayer
such that the details of tax contained in the BIR examiners Joint
Affidavit constituted an assessment.
Issues/Ruling:
I.
WON the criminal complaint can be construed as
assessment.

No. Neither the NIRC nor the regulations governing the protest
of assessments provide a specific definition or form of an
assessment. However, the NIRC defines the specific functions
and effects of an assessment, particularly, that it informs the
taxpayer that he or she has tax liabilities. But not all documents
coming from the BIR containing a computation of the tax liability
can be deemed assessments.
To be a valid assessment, it must be:
a.
Sent to and received by a taxpayer
b.
Must demand payment of the taxes described therein
c.
Within a specific period
d.
Deemed made only when the collector of internal revenue
releases, mails, or sends such notice to the taxpayer
In the present case, the revenue officers' Affidavit merely
contained a computation of respondents' tax liability. It did not
state a demand or a period for payment. Worse, it was
addressed to the justice secretary, not to the taxpayers.

Upon examination of the waivers executed by the respondents

accountant, however, the following infirmities were noted:
1.
The waivers were executed without the notarized written
authority of Pasco to sign the waiver in behalf of
respondent.
2.
The waivers failed to indicate the date of acceptance.
3.
The fact of receipt by the respondent of its file copy was not
indicated in the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect
taxes was not extended. Consequently, the assessments were
issued by the BIR beyond the three-year period and are void.
2.

No, estoppel does not apply in this case.

In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company, the doctrine of estoppel prevented the taxpayer from
raising the defense of prescription against the efforts of the
government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an

an

That the BIR examiners' Joint Affidavit attached to the Criminal

Complaint contained some details of the tax liabilities of private
respondents does not ipso facto make it an assessment. The
purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it
was not meant to be a notice of the tax due and a demand to the
private respondents for payment thereof.
II.

WON an assessment is necessary before criminal charges for

tax evasion can be instituted.
No. Section 222 of the NIRC specifically states that in cases
where a false or fraudulent return is submitted or in cases of
failure to file a return such as this case, proceedings in court
may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates
that the civil and criminal aspects of the case may be pursued
simultaneously.
5|Pa g e

appeal decisions of the Collector of Internal Revenue in cases

involving disputed assessments, and the disputed assessment must
be appealed by the person adversely affected by the decision within
thirty days after the receipt of the decision. In the instant case, the
person adversely affected should have been the administrator of the
estate, and the notice of the assessment should have been sent to
him. The administrator had not received the notice of assessment, and
he could not appeal the assessment to the Court of Tax Appeals within
30 days from notice. Hence the assessment did not fall within the
exclusive jurisdiction of the Court of Tax Appeals. Petition is
DISMISSED.

The issuance of an assessment must be distinguished from the

filing of a complaint. Before an assessment is issued, there is, by
practice, a pre-assessment notice sent to the taxpayer. The
taxpayer is then given a chance to submit position papers and
documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or
her is then sent to the taxpayer informing the latter specifically
and clearly that an assessment has been made against him or
her.
In contrast, the criminal charge need not go through all these.
The criminal charge is filed directly with the DOJ. Thereafter, the
taxpayer is notified that a criminal case had been filed against
him, not that the commissioner has issued an assessment. It
must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the
Tax Code.
In Ungab v. Cusi, petitioner therein sought the dismissal of the
criminal Complaints for being premature, since his protest to the
CTA had not yet been resolved. The Court held that such
protests could not stop or suspend the criminal action which was
independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue had, in such tax
evasion cases, discretion on whether to issue an assessment or
to file a criminal case against the taxpayer or to do both.
Moreover, the criminal charge need only be supported by a
prima facie showing of failure to file a required return. This fact
need not be proven by an assessment.
9.

Republic vs. Leonar de la Rama, et. al. [November 29, 1966]

Facts:
The estate of the late Esteban de la Rama was the subject of Special
Proceedings No. 401 of the Court of First Instance of Iloilo. The
executor-administrator, Eliseo Hervas, filed income tax returns of the
estate corresponding to the taxable year 1950. The Bureau of Internal
Revenue later claimed that it had found out that there had been
received by the estate in 1950 from the De la Rama Steamship
Company, Inc. cash dividends amounting to P86,800.00, which
amount was not declared in the income tax return of the estate for the
year 1950. The Bureau of Internal Revenue then made an
assessment as deficiency income tax against the estate. The Collector
of Internal Revenue wrote a letter to Mrs. Lourdes de la RamaOsmea informing her of the deficiency income tax and asking for
payment. Counsel for Lourdes wrote to the Collector acknowledging
receipt of the assessment but contended that Lourdes had no
authority to represent the estate, and that the assessment should be
sent to Leonor de la Rama who was pointed to by said counsel as the
administratrix. The Deputy Collector of Internal Revenue then sent a
letter to Leonor dela Rama as administratrix of the estate, asking
payment. The tax, as assessed, not having been paid, the Deputy
Commissioner of Internal Revenue, on September 7, 1959, wrote
another letter to Lourdes demanding the payment of the deficiency
income tax within the period of thirty days from receipt thereof. The
counsel of Lourdes insisted that the letter should be sent to Leonor de
la Rama. The Deputy Commissioner of Internal Revenue wrote to
Leonor de la Rama another letter, demanding the payment within
thirty days from receipt thereof. The deficiency income tax not having
been paid, the Republic of the Philippines filed a complaint against the
heirs of Esteban de la Rama. The Trial court, however, dismissed the
complaint on the ground that it was Eliseo Hervas, and neither Leonor
nor Lourdes, who was the proper administrator at the time, and to
whom the assessment should have been sent. The appellant
contended that the assessment had become final, because the
decision of the Collector of Internal Revenue was sent in a letter dated
February 11, 1960 and addressed to the heirs of the late Esteban de
la Rama, through Leonor de la Rama as administratrix of the estate,
and was not disputed or contested by way of appeal within thirty days
from receipt thereof to the CTA.
Issue:
WON there was proper notice of the tax assessment.
Ruling:
If the notice was not sent to the taxpayer for the purpose of giving
effect to the assessment, said notice cannot produce any effect.

10.

CIR vs. Rosemarie Acosta [August 3, 2007]

Facts:
Respondent is an employee of Intel Manufacturing Phils., Inc. and
was assigned in a foreign country from January 1, 1996 to December
31, 1996. During that period, the employer withheld the taxes due on
respondents compensation income and remitted to the BIR the
amount of P308,084.56.
On March 21, 1997, respondent and her husband field with the BIR
their Joint Individual Income Tax Return for the taxable year 1996.
Respondent subsequently filed an amended return and a NonResident Citizen Income Tax Return and paid P17,693.37 plus
interests on June 17, 1997. Another amended return was filed by
respondent on October 8, 1997 indicating an overpayment of
P358,274.63. According to the respondent, the income tax withheld by
the employer resulted in an overpayment of P340,918.92.
Respondent then filed on April 15, 1999 a petition for review with the
CTA. Petitioner moved to dismiss the petition for failure of the
respondent to file the mandatory written claim for refund before the
CIR.
The CTA dismissed the petition ruling that filing a written claim for
refund with the CIR is a condition precedent to the filing of a petition
for review before the CTA. The CTA also noted the respondents
omission, inadvertently or otherwise, to allege in her petition the date
of filing of the final adjustment return, depriving the court of its
jurisdiction over the subject matter of the case.
Upon appeal, the CA reversed the CTA decision and directed the latter
to resolve the respondents petition. The CA ruled that the
respondents filing of an amended return indicating an overpayment
was sufficient compliance with the requirement of a written claim for
refund.
Issues:
1.
WON the amended return filed by respondent indicating an
overpayment constitute the written claim for refund required by
law, thereby vesting CTA with jurisdiction.
2.
WON the 1997 NIRC can be applied retroactively.
Ruling:
1.
The Court ruled in the negative.
Section 204(c) of the 1997 NIRC (new Tax Code) states that:
x x x Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or
refund. x x x
On the other hand, Section 230 of the old Tax Code provides
that the requirements for refund claims are as follows:
1.
A written claim for refund or tax credit must be filed by the
taxpayer with the Commissioner;
2.
The claim for refund must be a categorical demand for
reimbursement;
3.
The claim for refund or tax credit must be filed, or the suit
or proceeding therefor must be commenced in court within
two (2) years from date of payment of the tax or
penalty regardless of any supervening cause.
The Court held that the applicable law on refund of taxes
pertaining to the 1996 compensation income is Section 230 of
the old Tax Code, which was the law then in effect, and not
Section 204(c) of the new Tax Code, which was effective starting
only on January 1, 1998.

The SC sustained the finding of the lower court that neither Leonor
nor Lourdes was the administratrix of the estate of Esteban Dela
Rama. The court noted that at the time the tax assessment was sent.
Spec Pro No. 401 were still open with respect to the cash dividends
upon which the deficiency assessment was levied. It is clear that at
the time these proceedings were taking place, Eliseo Hervas was the
duly appointed administrator of the estate.

Under the old Tax Code, a claimant must first file a written
claim for refund, categorically demanding recovery of overpaid
taxes with the CIR, before resorting to an action in court. This
obviously is intended, first, to afford the CIR an opportunity to
correct the action of subordinate officers; and second, to notify
the government that such taxes have been questioned, and the
notice should then be borne in mind in estimating the revenue
available for expenditure.

Plaintiff-appellant also contends that the lower court could not take
cognizance of the defense that the assessment was erroneous, this
being a matter that is within the exclusive jurisdiction of the Court of
Tax Appeals. This contention has no merit. According to Republic Act
1125, the Court of Tax Appeals has exclusive jurisdiction to review by

The Court held that that tax refunds are in the nature of tax
exemptions which are construed strictissimi juris against the
taxpayer and liberally in favor of the government. As tax refunds
involve a return of revenue from the government, the claimant
must show indubitably the specific provision of law from which
6|Pa g e

her right arises; it cannot be allowed to exist upon a mere vague

implication or inference nor can it be extended beyond the
ordinary and reasonable intendment of the language actually
used by the legislature in granting the refund.

corresponding information has already been filed with the court by the
corresponding city or provincial fiscal without the conformity of the
latter, except when it can be patently shown to the court having
cognizance of the case that said fiscal is intent on prejudicing the
interests of justice. x x x

Thus, the court did not agree that the amended return filed by
respondent constitutes the written claim for refund required by
the old Tax Code, the law prevailing at that time.
2.

Issues:
1.
WON the State Prosecutor has authority to initiate and prosecute
the cases.
2.
WON the trial court has jurisdiction of the cases despite the
pending protest.

No. Section 204(c) of the new Tax Code cannot be given

retroactive application. It must be noted that tax laws are
prospective in operation, unless the language of the statute
clearly provides otherwise.

Ruling:
1.
Yes. The rule enunciated in the case cited by the petitioner has
not been violated.
It was established that the State Prosecutor first sought
permission from the City Fiscal before starting the preliminary
investigation of the cases and that the City Fiscal allowed the
State Prosecutor to conduct the investigation of the said cases.
In fact, the investigation was conducted in the Office of the City
Fiscal.

It should be emphasized that a party seeking an administrative

remedy must not merely initiate the prescribed administrative
procedure to obtain relief, but also pursue it to its appropriate
conclusion before seeking judicial intervention in order to give
the administrative agency an opportunity to decide the matter
itself correctly and prevent unnecessary and premature resort to
court action.
Further, at the time respondent filed her amended return, the
1997 NIRC was not yet in effect. Hence, respondent had no
reason at that time to think that the filing of an amended return
would constitute the written claim for refund required by
applicable law.

2.

Additionally, even the date of filing of the Final Adjustment

Return was omitted, inadvertently or otherwise, by respondent in
her petition for review. This omission was fatal to respondents
claim, for it deprived the CTA of its jurisdiction over the subject
matter of the case.
11.

Yes.The Court held that what is involved in this case is not the
collection of taxes where the assessment of the CIR may be
reviewed by the CTA but a criminal prosecution for violations of
the NIRC which is within the cognizance of courts of first
instance.
The Court further held that there is no requirement for the
precise computation and assessment of the tax before there can
be a criminal prosecution under the NIRC. The crime is complete
when the violator has, as in this case, knowingly and willfully
filed fraudulent returns with intent to evade and defeat a part or
all of the tax.

Quirico Ungab vs. Vicente Cusi, Jr., et. al. [May 30, 1980]
An assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the income
tax. The perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an inaccurate
return, and the government's failure to discover the error and
promptly to assess has no connections with the commission of
the crime.

Facts:
Sometime in July 1974, BIR Examiner Garcia examined the income
tax returns filed by the petitioner for the calendar year ending
December 31, 1973. It was discovered that the petitioner failed to
report his income derived from sales of banana saplings. As a result, a
Notice of Taxpayer was sent to the petitioner informing him of tax due
amounting to P104,980.81 representing ncome, business tax and
forest charges for the year 1973 and inviting petitioner to an informal
conference where he may present his objections to the findings.
Upon receipt of the notice, petitioner wrote a protest to the BIR
Revenue District Officer claiming that he was only a dealer or agent
on commission basis in the banana sapling business and that his
income, as reported in his income tax returns for the said year, was
accurately stated.
BIR Examiner Garcia then submitted a Fraud Referral Report to the
Tax Fraud Unit of the BIR. After examination of the records, the
Special Investigation Division of the BIR found sufficient proof that the
petitioner is guilty of tax evasion for the taxable year 1973 and
recommended his prosecution.
In an indorsement to Chief of the Prosecution Division, the CIR
approved the prosecution of the petitioner. Thereafter, the State
Prosecutor, who had been designated to assist all Provincial and City
Fiscals in the investigation and prosecution of all violations of the
NIRC, conducted a preliminary investigation and, finding probable
cause, filed six (6) informations against the petitioner in the Court of
First Instance.
The petitioner filed a motion to quash the informations upon the
following grounds:
1.
The informations are null and void for want of authority on the
part of the State Prosecutor to initiate and prosecute the cases.
2.
The trial court has no jurisdiction to take cognizance of the cases
in view of his pending protest against the assessment made by
the BIR Examiner. Thus, the filing of the informations was
precipitate and premature since the CIR has not yet resolved the
issues and petitioner is, consequently denied recourse to the
CTA.
In support of his first contention, petitioner cited the decision rendered
in the case of Estrella vs. Orendain, to wit:
xx x in any instance where a provincial or city fiscal fails, refuses or is
unable, for any reason, to investigate or prosecute a case and, in the
opinion of the Secretary of Justice it is advisable in the public interest
to take a different course of action, the Secretary of Justice may either
appoint as acting provincial or city fiscal to handle the investigation or
prosecution exclusively and only of such case, any practicing attorney
or some competent officer of the Department of Justice or office of any
city or provincial fiscal, with complete authority to act therein in all
respects as if he were the provincial or city fiscal himself, or appoint
any lawyer in the government service, temporarily to assist such city
of provincial fiscal in the discharge of his duties, with the same
complete authority to act independently of and for such city or
provincial fiscal provided that no such appointment may be made
without first hearing the fiscal concerned and never after the

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

assessment may affect the suspension of the prescriptive period
for the collection of taxes, but not the prescriptive period of a
criminal action for violation of law.
12.

CIR vs. The Estate of Benigno Toda, Jr., et. al. [September 14,
2004]
Facts:
The case at bar stemmed from a Notice of Assessment sent to CIC by
the Commissioner of Internal Revenue for deficiency income tax
arising from an alleged simulated sale of a 16-storey commercial
building known as Cibeles Building, situated on two parcels of land on
Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its issued and outstanding capital stock, to sell
the Cibeles Building and the two parcels of land on which the building
stands for an amount of not less than P90 million.
On 30 August 1989, Toda purportedly sold the property for P100
million to Rafael A. Altonaga, who, in turn, sold the same property on
the same day to Royal Match Inc. (RMI) for P200 million. These two
transactions were evidenced by Deeds of Absolute Sale notarized on
the same day by the same notary public.
For the sale of the property to RMI, Altonaga paid capital gains tax in
the amount of P10 million.
On 16 April 1990, CIC filed its corporate annual income tax return for
the year 1989, declaring, among other things, its gain from the sale of
real property.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le
Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale of
Shares of Stocks.9 Three and a half years later, or on 16 January
1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice10 and demand letter to the CIC for deficiency
income tax for the year 1989 in the amount of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the
assessment should be directed against the old CIC, and not against
the new CIC, which is owned by an entirely different set of
stockholders; moreover, Toda had undertaken to hold the buyer of his
stockholdings and the CIC free from all tax liabilities for the fiscal
years 1987-1989.

7|Pa g e

In the letter dated 19 October 1995, the Commissioner dismissed the

protest, stating that a fraudulent scheme was deliberately perpetuated
by the CIC wholly owned and controlled by Toda by covering up the
additional gain of P100 million, which resulted in the change in the
income structure of the proceeds of the sale of the two parcels of land
and the building thereon to an individual capital gains, thus evading
the higher corporate income tax rate of 35%.

sale of the Cibeles property. Obviously, such was done with

intent to evade or reduce tax liability.
As stated above, the prescriptive period to assess the correct
taxes in case of false returns is ten years from the discovery of
the falsity. The false return was filed on 15 April 1990, and the
falsity thereof was claimed to have been discovered only on
8 March 1991. The assessment for the 1989 deficiency income
tax of CIC was issued on 9 January 1995. Clearly, the
issuance of the correct assessment for deficiency income
tax was well within the prescriptive period.

On 15 February 1996, the Estate filed a petition for review with the
CTA alleging that the Commissioner erred in holding the Estate liable
for income tax deficiency; that the inference of fraud of the sale of
the properties is unreasonable and unsupported; and that the
right of the Commissioner to assess CIC had already prescribed.

3.

In his Answer and Amended Answer, the Commissioner argued that

the two transactions actually constituted a single sale of the property
by CIC to RMI, and that Altonaga was neither the buyer of the
property from CIC nor the seller of the same property to RMI. The
additional gain of P100 million (the difference between the second
simulated sale for P200 million and the first simulated sale for P100
million) realized by CIC was taxed at the rate of only 5% purportedly
as capital gains tax of Altonaga, instead of at the rate of 35% as
corporate income tax of CIC. The income tax return filed by CIC for
1989 with intent to evade payment of the tax was thus false or
fraudulent. Since such falsity or fraud was discovered by the BIR
only on 8 March 1991, the assessment issued on 9 January 1995
was well within the prescriptive period prescribed by Section 223
(a) of the National Internal Revenue Code of 1986, which provides
that tax may be assessed within ten years from the discovery of the
falsity or fraud. With the sale being tainted with fraud, the separate
corporate personality of CIC should be disregarded.
In its decision of 3 January 2000, the CTA held that the Commissioner
failed to prove that CIC committed fraud to deprive the government of
the taxes due it.
Issue/Ruling:
1.
Is this a case of tax evasion or tax avoidance?
Here, it is obvious that the objective of the sale to Altonaga was
to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only
5% individual capital gains tax, and not the 35% corporate
income tax. Altonagas sole purpose of acquiring and transferring
title of the subject properties on the same day was to create a
tax shelter. Altonaga never controlled the property and did not
enjoy the normal benefits and burdens of ownership. The sale to
him was merely a tax ploy, a sham, and without business
purpose and economic substance. Doubtless, the execution of
the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability.lavvphi1.net
In a nutshell, the intermediary transaction, i.e., the sale of
Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of
tax evasion.31
2.

Has the period of assessment prescribed?

No. Section 269 of the NIRC of 1986 (now Section 222 of the
Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of assessment
and collection of taxes.-(a) In the case of a false or fraudulent
return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court after the collection of
such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for collection
thereof .
Put differently, in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a
return, the period within which to assess tax is ten years
from discovery of the fraud, falsification or omission, as the
case may be.
It is true that in a query dated 24 August 1989, Altonaga, through
his counsel, asked the Opinion of the BIR on the tax
consequence of the two sale transactions.36 Thus, the BIR was
amply informed of the transactions even prior to the execution of
the necessary documents to effect the transfer. Subsequently,
the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989. However,
these circumstances do not negate the existence of fraud. As
earlier discussed those two transactions were tainted with fraud.
And even assuming arguendo that there was no fraud, we find
that the income tax return filed by CIC for the year 1989 was
false. It did not reflect the true or actual amount gained from the

Is respondent Estate liable for the 1989 deficiency income tax of

Cibeles Insurance Corporation?
Yes. When the late Toda undertook and agreed "to hold the
BUYER and Cibeles free from any all income tax liabilities of
Cibeles for the fiscal years 1987, 1988, and 1989," he thereby
voluntarily held himself personally liable therefor. Respondent
estate cannot, therefore, deny liability for CICs deficiency
income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas
contractual undertaking, as contained in the Deed of Sale of
Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is hereby
GRANTED. The decision of the Court of Appeals of 31 January
2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE,
and another one is hereby rendered ordering respondent Estate
of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency
income tax of Cibeles Insurance Corporation for the year 1989,
plus legal interest from 1 May 1994 until the amount is fully paid.

13.

CIR vs. Hambrecht & Quist Philippines, Inc. [November 17, 2010]
Facts:
In a letter, respondent Hambrecht, Inc. informed the BIR of its change
of business address, which letter was received by the BIR on
February 18, 1993.
Respondent subsequently received a tracer letter from the BIR
demanding for payment of alleged deficiency income and expanded
withholding taxes for the taxable year 1989 amounting to P2.9 million.
On December 3, 1993, respondent filed with the BIR a protest letter
against said assessments. On November 7, 2001, nearly 8 years later,
respondent received from the CIR a letter dated October 27, 2001
informing respondent of the CIRs final decision denying its protest on
the ground that the protest was filed beyond the 30-day reglementary
period prescribed by the NIRC.
Respondent filed a petition for review with the CTA. The tax court held
that the notice by registered mail on January 8, 1993 to respondents
former place of business was binding since respondent only gave
formal notice of its change of address on February 18, 1993. Thus, the
assessment had become final and appealable for failure of
respondent to file a protest within the 30-day period. However, the
CTA held that the CIR failed to collect the assessed taxes within the
prescriptive period and directed the cancellation and withdrawal of the
Assessment Notice. The ruling was affirmed by the CTA en banc.
Issues:
1.
Whether the CTA jurisdiction to rule that the governments right
to collect the tax has prescribed.
2.
Whether the period to collect the assessment has prescribed.
Ruling:
1.
Yes. The appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the CIR on matters relating
to assessments or refunds. It also extends to other cases
that arise out of the NIRC or related laws administered by
the BIR. In the case at bar, the issue at hand is whether or not
the BIRs right to collect taxes had already prescribed, which
subject matter falls under Section 223 of the 1986 NIRC which
provides that any internal revenue tax may be collected within
three years following the assessment. In connection therewith,
the 1986 NIRC states that the collection of taxes is one of the
duties of the BIR. Thus, the issue of prescription of the BIRs
right to collect taxes may be considered as covered by the
term other matters over which the CTA has jurisdiction.
Mere existence of an adverse decision, riling or inaction along
with the timely filing of an appeal operates to validate the
jurisdiction of the CTA. The fact that an assessment for failure
to file a protest within the time allowed means that the
validity of the assessment may no longer be questioned on
appeal. However, the validity of the assessment itself is
separate and distinct from the issue of whether the right of
the CIR to collect the validly assessed tax has prescribed.
The issue of prescription, being a matter provided by the
NIRC, is well within the jurisdiction of the CTA.

8|Pa g e

2.

Yes. On this issue, the CIR argues that its right to collect the
tax deficiency assessed is not barred since the prescriptive
period thereof was allegedly suspended by respondents
request for reinvestigation.

presumption to prove that the mailed letter was indeed received by the
addressee.
The Court agrees with the CTA that the CIR failed to discharge its duty
and present any evidence to show that Metro Star indeed received the
PAN dated January 16, 2002. It could have simply presented the
registry receipt or the certification from the postmaster that it mailed
the PAN, but failed. Neither did it offer any explanation on why it failed
to comply with the requirement of service of the PAN.

Section 224 of the 1986 NIRC provides

Section 224. Suspension of the running of statute The running
of the statute of limitations provided in Section 203 and 223 on
the making of assessments and the beginning of distraint or levy
or a proceeding in court for collection, in respect of any
deficiency shall be suspended xxxx when the taxpayer requests
for a reinvestigation which is granted by the Commissioner xxxx

Section 228 of the Tax Code clearly requires that the taxpayer must
first be informed that he is liable for deficiency taxes through the
sending of a PAN. He must be informed of the facts and the law upon
which the assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations - that
taxpayers should be able to present their case and adduce supporting
evidence.

Thus two requisites must concur before the period to

enforce collection may be suspended: (a) that the taxpayer
requests for reinvestigation and (b) that the Commissioner
grants such request.
Consequently, mere filing of a protest letter which is not granted
does not suspend the running of the period to collect taxes. In
the case at bar, the records show that respondent filed a request
for reinvestigation on December 3, 1993; however, there is no
indication that petitioner acted upon respondents protest.
As held by the CTA Original Division

15.

Facts:
Commissioner of Internal Revenue assails the decision of the Court of
Appeals annulling the formal assessment notice issued by the CIR
against respondent Enron Subic Power Corporation for failure to state
the legal and factual bases for such assessment. CTA and CA ruled
that the assessment notice must not only refer to the supporting
revenue laws or regulations for the assessment but must also justify
their applicability to the factual milieu of the assessment.

It is evident that the respondent (CIR) did not conduct a

reinvestigation, the protest having been dismissed on the ground
that the assessment has become final and executory. There is
nothing in the record that would show what action was taken in
connection with the protest of the petitioner (Hambrecht). In fact,
petitioner (Hambrecht) did not hear anything from the
respondent (CIR) nor received any communication relative
thereto, not until 8 years later when the final decision of the CIR
was issued. In other words, the request for reinvestigation
was not granted.

CIR claims that Enron was properly apprised of its tax deficiency
because during the pre-assessment state, CIR advised Enron of the
tax deficiency and also sent a preliminary five-day letter with a copy of
the audit working paper allegedly showing in detail the legal and
factual basis.

Indeed, it is contradictory for the CIR to argue that respondents

December 3, 1993 protest which contained a request for
reinvestigation was filed beyond the reglementary period but still
claim that the same was implicitly granted by virtue of its October
27, 2001 letter.
14.

Issue:
WON the assessment is valid.
Ruling:
Assessment is void.
Section 228 of the NIRC provides that the taxpayer shall be informed
in writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is void. To implement the provisions of
Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of
the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice. The
formal letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of
demand calling for payment of the taxpayer's deficiency tax or taxes
shall state the facts, the law, rules and regulations, or jurisprudence
on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent
to the taxpayer only by registered mail or by personal delivery. . . .
(emphasis supplied)
The use of the word shall indicates the mandatory nature of the
requirements.
The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid
substitutes for the mandatory notice in writing of the legal and factual
bases of the assessment. The law requires that the legal and factual
bases of the assessment be stated in the formal letter of demand and
assessment notice and such cannot be presumed. There was no
going around the mandate of the law that the legal and factual bases
of the assessment be stated in writing in the formal letter of demand
accompanying the assessment notice.
Tax Code provides that a tax payer shall be informed (not merely
notified as was requirement before) in writing of the law and the facts
which the statement is made; otherwise the assessment shall be void.
This is in keeping with the constitutional principle that no person shall
be deprived of property without due process.

CIR vs. Metro Star Superama, Inc. [December 8, 2010]

Facts:
On January 26, 2001, a Letter of Authority was issued to examine
petitioners books of accounts and other accounting records for
income tax and other internal revenue taxes for the taxable year 1999.
Petitioner received a Formal Letter of Demand dated April 3, 2002
from Revenue District No. 67, Legazpi City, assessing petitioner the
amount of P292,874.16. for deficiency value-added and withholding
taxes for the taxable year 1999
Subsequently, a Final Notice of Seizure was received by petitioner on
May 15, 2003, giving the latter last opportunity to settle its deficiency
tax liabilities within ten (10) [days] from receipt thereof, otherwise
respondent BIR shall be constrained to serve and execute the
Warrants of Distraint and/or Levy and Garnishment to enforce
collection.
On February 6, 2004, petitioner received from Revenue District Office
No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated May
12, 2003 demanding payment of deficiency.
Denying that it received a Preliminary Assessment Notice (PAN) and
claiming that it was not accorded due process, Metro Star filed a
petition for review4 with the CTA.
The CIR, insisting that Metro Star received the PAN, dated January
16, 2002, and that due process was served nonetheless because the
latter received the Final Assessment Notice (FAN), comes now before
this Court with the sole issue of whether or not Metro Star was denied
due process.
Issue:
Whether the respondent complied with the due process requirement
as provided under the National Internal Revenue Code and Revenue
Regulations No. 12-99 with regard to the issuance of a deficiency tax
assessment
Ruling:
No. If the taxpayer denies ever having received an assessment from
the BIR, it is incumbent upon the latter to prove by competent
evidence that such notice was indeed received by the addressee. The
onus probandi was shifted to respondent to prove by contrary
evidence that the Petitioner received the assessment in the due
course of mail. The Supreme Court has consistently held that while a
mailed letter is deemed received by the addressee in the course of
mail, this is merely a disputable presumption subject to controversion
and a direct denial thereof shifts the burden to the party favored by the

CIR vs. Enron Subic Power Corp. [January 19, 2009]

16.

CIR vs. Isabela Cultural Corp. [July 11, 2011]

Facts:
After an investigation conducted on the 1986 books of Isabela Cultural
Corp. (ICC), it was initially assessed an income tax deficiency by the
Bureau of Internal Revenue (BIR) in the amount of P9,985,392.15. It
was later on reduced to P325,869.44, inclusive of Deficiency Income
Tax of P321,022.68 and Deficiency Expanded Withholding Tax of
P4,846.76, after protest.
On February 23, 1990, ICC received an assessment letter, dated
February 9, 1990, demanding payment of the amounts. ICC filed on
March 23, 1990 a letter dated March 22, 1990 requesting a
reconsideration of the assessment.
On February 9, 1995, ICC a Final Notice Before Seizure, dated
December 22, 1994. In said letter, BIR demanded payment of the
subject assessment within ten (10) days from receipt thereof.
Otherwise, failure on its part would constrain the BIR to collect the
subject assessment through summary remedies.
9|Pa g e

ICC considered said final notice of seizure as BIRs final decision.

Hence, it filed a petition for review with the Court of Tax Appeals
(CTA). The CTA dismissed the said petition but the dismissal was
reversed by the Court of Appeals (CA). The CA considered the final
notice sent by BIR as the BIRs decision, which was appealable to the
CTA.
Issue:
Whether or not the Final Notice Before Seizure constitutes the final
decision of the CIR appealable to the CTA.
Ruling:
A final demand letter from the Bureau of Internal Revenue, reiterating
to the taxpayer the immediate payment of a tax deficiency assessment
previously made, is tantamount to a denial of the taxpayer's request
for reconsideration. Such letter amounts to a final decision on a
disputed assessment and is thus appealable to the Court of Tax
Appeals (CTA).
In the light of the above facts, the Final Notice Before Seizure cannot
but be considered as the commissioner's decision disposing of the
request for reconsideration filed by respondent, who received no other
response to its request. Not only was the Notice the only response
received; its content and tenor supported the theory that it was
the CIR's final act regarding the request for reconsideration. The
very title expressly indicated that it was a final notice prior to seizure of
property. The letter itself clearly stated that respondent was being
given "this LAST OPPORTUNITY" to pay; otherwise, its properties
would be subjected to distraint and levy.
Furthermore, Section 228 of the National Internal Revenue Code
states that a delinquent taxpayer may nevertheless directly appeal a
disputed assessment, if its request for reconsideration remains
unacted upon 180 days after submission thereof. In this case, the
said period of 180 days had already lapsed when respondent filed its
request for reconsideration on March 23, 1990, without any action on
the part of the CIR.
Lastly, jurisprudence dictates that a final demand letter for payment of
delinquent taxes may be considered a decision on a disputed or
protested assessment.
Cases cited:
CIR vs Ayala Securities Corp: Considering that the said letter was in
itself a reiteration of the demand by the BIR for the settlement of the
assessment already made, and for the immediate payment of the
sum, it is tantamount to a denial of the reconsideration.
Surigao Electric vs CTA: In this letter the commissioner not only in
effect demanded that the petitioner pay the amount of P11,533.53 but
also gave warning that in the event it failed to pay, the said
commissioner would be constrained to enforce the collection thereof
by means of the remedies provided by law. The tenor of the letter,
specifically the statement regarding the resort to legal remedies,
unmistakably indicated the final nature of the determination made by
the commissioner of the petitioner's deficiency franchise tax liability.
CIR vs Union Shipping: CIR failed to rule on the Motion for
Reconsideration filed by private respondent, but simplycontinued to
demand payment of the latter's alleged tax delinquency.
CIR vs Algue: Not applicable. The Warrant of Distraint and Levy,
issued to the taxpayer without any categorical ruling on its request for
reconsideration, was not deemed equivalent to a denial of the request.
Because such request could not in fact be found in its records, the BIR
cannot be presumed to have taken it into consideration.
The BIR should always indicate to the taxpayer in clear and
unequivocal language what constitutes final action on a disputed
assessment. The object of this policy is to avoid repeated requests for
reconsideration by the taxpayer, thereby delaying the finality of the
assessment and, consequently, the collection of the taxes due.
Furthermore, the taxpayer would not be groping in the dark,
speculating as to which communication or action of the BIR may be
the decision appealable to the tax court.
17.

CIR vs. Phil. Global Communication, Inc.[October 31, 2006]

Facts:
PHILIPPINE GLOBAL COMMUNICATION, INC., 1990 Annual ITR on
15 April 1991. On 13 April 1992, the CIR issued Letter of Authority
examination of the books of account and other accounting records in
relation to 1990 income tax liability. On 22 April 1992, the BIR sent a
letter to respondent requesting the latter to present for examination
certain records and documents, but respondent failed to present any
document. On 21 April 1994, respondent received a Preliminary
Assessment Notice (PAN) dated 13 April 1994 for deficiency income
tax, inclusive of surcharge, interest, and compromise penalty, arising
from deductions that were disallowed for failure to pay the withholding
tax and interest expenses that were likewise disallowed. On the
following day, 22 April 1994, respondent received a Formal

Assessment Notice with Assessment Notice (FAN) No. 000688-807333, dated 14 April 1994, for deficiency income tax in the total
amount of P118,271,672.00.
On 6 May 1994, respondent, through its counsel Ponce Enrile
Cayetano Reyes and Manalastas Law Offices, filed a formal protest
letter against Assessment Notice No. 000688-80-7333 (FAN).
Respondent filed another protest letter on 23 May 1994, through
another counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In
both letters, respondent requested for the cancellation of the tax
assessment, which they alleged was invalid for lack of factual and
legal basis.
More than eight years after the assessment was presumably issued,
the Ponce Enrile Cayetano Reyes and Manalastas Law Offices
received from the CIR a Final Decision dated 8 October 2002 denying
the respondent's protest against Assessment Notice No. 000688-807333, and affirming the said assessment in toto.
Issue:
WON the prescriptive period was interrupted when Phlippine Global
filed 2 letters of protest disputing the deficiency and requesting the
cancellation of the said investment.
Ruling:
The law strictly limits the suspension of the running of the 3-year
prescription period to, among other instances, protests wherein the
taxpayer requests for a reinvestigation. In this case, where the
taxpayer merely filed two protest letters requesting for a
reconsideration, and where the BIR could not have conducted a
reinvestigation because no new or additional evidence was submitted,
the running of statute of limitations cannot be interrupted. The
exception does not apply to this case since the respondent never
requested for a reinvestigation. The CIR could not have conducted a
reinvestigation where the respondent refused to submit any new
evidence. At the earliest opportunity, respondent insisted that the
assessment was invalid and made clear to the BIR its refusal to
produce documents that the BIR requested. On the other hand, the
BIR also communicated to the respondent its unwavering stance that
its assessment is correct. Given that both parties were at a deadlock,
the next logical step would have been for the BIR to issue a Decision
denying the respondent's protest and to initiate proceedings for the
collection of the assessed tax and, thus, allow the respondent, should
it so choose, to contest the assessment before the CTA. Postponing
the collection for eight long years could not possibly make the
taxpayer feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government. Consequently,
the right of the government to collect the alleged deficiency tax is
barred by prescription.
If the BIR issued this assessment within the 3-year period or the 10year period (in case of fraud), whichever was applicable, the law
provided another 3 years after the assessment for the collection of the
tax due thereon through the administrative process of distraint and/or
levy or through judicial proceedings. The 3-year period for collection of
the assessed tax began to run on the date the assessment notice had
been released, mailed or sent by the BIR.
The assessment, in this case, was presumably issued on 14 April
1994 since the respondent did not dispute the CIR's claim. Therefore,
the BIR had until 13 April 1997. However, as there was no Warrant of
Distraint and/or Levy served on the respondents nor any judicial
proceedings initiated by the BIR, the earliest attempt of the BIR to
collect the tax due based on this assessment was when it filed its
Answer in CTA Case No. 6568 on 9 January 2003, which was several
years beyond the 3-year prescriptive period. Thus, the CIR is now
prescribed from collecting the assessed tax.
Citing Republic of the Philippines v. Ablaza and Bank of the Philippine
Islands v. Commissioner of Internal Revenue, the Court ruled that
although the statute of limitations on assessment and collection of
taxes benefits both the Government and the taxpayer, it principally
intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable as it deprives taxpayers of the assurance that it will no
longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, this
Court affirmed that the law on prescription should be liberally
construed in order to protect taxpayers and that, as a corollary, the
exceptions to the law on prescription should be strictly construed.
There are two types of protest, the request for reconsideration and the
request for reinvestigation, and distinguishes one from the other in this
manner:
(a) Request for reconsideration refers to a plea for a reevaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a
question of fact or of law or both.
(b) Request for reinvestigation refers to a plea for re-evaluation of
an assessment on the basis of newly-discovered evidence or
additional evidence that a taxpayer intends to present in the
10 | P a g e

investigation. It may also involve a question of fact or law or

both.

period; otherwise, the decision shall become final, executory and

demandable.

The main difference between these two types of protests lies in the
records or evidence to be examined by internal revenue officers,
whether these are existing records or newly discovered or additional
evidence. A re-evaluation of existing records which results from a
request for reconsideration does not toll the running of the prescription
period for the collection of an assessed tax. Section 271 distinctly
limits the suspension of the running of the statute of limitations to
instances when reinvestigation is requested by a taxpayer and is
granted by the CIR.

In the case at bar, petitioner's administrative protest was denied by

Final Decision on Disputed Assessment dated August 2, 2005 issued
by respondent and which petitioner received on August 4, 2005.
Under the above-quoted Section 228 of the 1997 Tax Code,petitioner
had 30 days to appeal respondent's denial of its protest to the CTA.
Since petitioner received the denial of its administrative protest on
August 4, 2005, it had until September 3, 2005 to file a petition for
review before the CTA Division. It filed one, however, on October 20,
2005, hence, it was filed out of time. For a motion for reconsideration
of the denial of the administrative protest does not toll the 30-day
period to appeal to the CTA.

Reason why a request for reinvestigation, and not a request for

reconsideration, interrupts the running of the statute of limitations on
the collection of the assessed tax:
19.
A reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a
tax assessment, which will be limited to the evidence already at hand;
this justifies why the former can suspend the running of the statute of
limitations on collection of the assessed tax, while the latter cannot.
The distinction between a request for reconsideration and a request
for reinvestigation is significant. It bears repetition that a request for
reconsideration, unlike a request for reinvestigation, cannot suspend
the statute of limitations on the collection of an assessed tax. If both
types of protest can effectively interrupt the running of the statute of
limitations, an erroneous assessment may never prescribe. If the
taxpayer fails to file a protest, then the erroneous assessment would
become final and unappealable. On the other hand, if the taxpayer
does file the protest on a patently erroneous assessment, the statute
of limitations would automatically be suspended and the tax thereon
may be collected long after it was assessed. Meanwhile the interest
on the deficiencies and the surcharges continue to accumulate. And
for an unrestricted number of years, the taxpayers remain uncertain
and are burdened with the costs of preserving their books and
records. This is the predicament that the law on the statute of
limitations seeks to prevent.
18.

Fishwealth Canning Corp. vs. CIR [January 21, 2010]

Facts:
CIR sent petitioner a Final Assessment Notice of income tax and VAT
deficiencies for the taxable year 1999, which assessment petitioner
contested by letter of September 23, 2003.
Respondent thereafter issued a Final Decision on Disputed
Assessment dated August 2, 2005, which petitioner received on
August 4, 2005, denying its letter of protest, apprising it of its income
tax and VAT liabilities for the taxable year 1999. Respondent added
that if petitioner disagreed, it may appeal to the Court of Tax Appeals
"within thirty (30) days from date of receipt hereof, otherwise our said
deficiency income and value-added taxes assessments shall become
final, executory, and demandable."
Instead of appealing to the CTA, petitioner filed, on September 1,
2005, a Letter of Reconsideration.
By a Preliminary Collection Letter dated September 6, 2005,
respondent demanded payment of petitioner's tax liabilities, drawing
petitioner to file on October 20, 2005 a Petition for Review before the
CTA.

Lascona Land Co., Inc. vs. CIR [March 5, 2012]

Facts:
On March 27, 1998, the Commissioner of Internal Revenue (CIR)
issued Assessment Notice No. 0000047-93-4075 against Lascona
Land Co., Inc. (Lascona) informing the latter of its alleged deficiency
income tax for the year 1993 in the amount of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but
was denied by Norberto R. Odulio, Regional Director, Bureau of
Internal Revenue, Revenue Region No. 8, Makati City, in his Letter6
dated March 3, 1999, on which reads arguing thatLASCONA was not
able to elevate the case to the Court of Tax Appeals as mandated by
the provisions of the last paragraph of Section 228 of the Tax Code
and by virtue thereof, the said assessment notice has become final,
executory and demandable.
On April 12, 1999, Lascona appealed the decision before the CTA and
was docketed as C.T.A. Case No. 5777. Lascona alleged that the
Regional Director erred in ruling that the failure to appeal to the CTA
within thirty (30) days from the lapse of the 180-day period rendered
the assessment final and executory.
The CIR, however, maintained that Lascona's failure to timely file an
appeal with the CTA after the lapse of the 180-day reglementary
period provided under Section 228 of the National Internal Revenue
Code (NIRC) resulted to the finality of the assessment.
On January 4, 2000, the CTA, in its Decision, nullified the subject
assessment.
The CIR moved for reconsideration.
On March 3, 2000, the CTA denied the CIR's motion for
reconsideration for lack of merit. Dissatisfied, the CIR filed an appeal
before the CA.9
The Court of Appeals granted the CIR's petition
Issue:
Whether the subject assessment has become final, executory and
demandable due to the failure of petitioner to file an appeal before the
CTA within thirty (30) days from the lapse of the One Hundred Eighty
(180)-day period pursuant to Section 228 of the NIRC.
Ruling:
The petition is meritorious.

Respondent argued that the petition was filed out of time which
argument the First Division of the CTA upheld and accordingly
dismissed the petition.

Section 228 of the NIRC is instructional as to the remedies of a

taxpayer in case of the inaction of the Commissioner on the protested
assessment, to wit:

Petitioner filed a Motion for Reconsideration which was denied.

SEC. 228. Protesting of Assessment. x x x

xxxx

Petitioner filed a petition for review before the CTA En Banc which
held that the petition before the First Division, as well as that before it,
was filed out of time.
Issue:
Whether or not the petition it filed before the CTA was filed out of time.
Ruling:
Yes. The petition was filed out of time.
Section 228 of the 1997 Tax Code provides that an assessment:
. . . may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt
of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing
of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within
one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to
the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of the one hundred eighty (180)-day

Within a period to be prescribed by implementing rules and

regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment
shall become final.
If the protest is denied in whole or in part, or is not acted upon within
one hundred eighty (180) days from submission of documents, the
taxpayer adversely affected by the decision or inaction may appeal to
the Court of Tax Appeals within (30) days from receipt of the said
decision, OR from the lapse of the one hundred eighty (180)-day
period; otherwise the decision shall become final, executory and
demandable. (Emphasis supplied).
11 | P a g e

Respondent, however, insists that in case of the inaction by the

Commissioner on the protested assessment within the 180-day
reglementary period, petitioner should have appealed the inaction to
the CTA.

Thus, according to the CTA, the two-year prescriptive period under

Section 229 of the NIRC for the filing of judicial claims was equivalent
to 730 days. Because the year 2000 was a leap year, respondent's
petition, which was filed 731 days after respondent filed its final
adjusted return, was filed beyond the reglementary period.

In arguing that the assessment became final and executory by the

sole reason that petitioner failed to appeal the inaction of the
Commissioner within 30 days after the 180-day reglementary period,
respondent, in effect, limited the remedy of Lascona, as a taxpayer,
under Section 228 of the NIRC to just one, that is - to appeal the
inaction of the Commissioner on its protestedassessment after the
lapse of the 180-day period. This is incorrect.

On appeal, the CA reversed and set aside the decision of the CTA. It
ruled that Article 13 of the Civil Code did not distinguish between a
regular year and a leap year.The rule that a year has 365 days
applies, notwithstanding the fact that a particular year is a leap year.
In other words, even if the year 2000 was a leap year, the periods
covered by April 15, 1998 to April 14, 1999 and April 15, 1999 to April
14, 2000 should still be counted as 365 days each or a total of 730
days.

In Section 228, when the law provided for the remedy to appeal the
inaction of the CIR, it did not intend to limit it to a single remedy of
filing of an appeal after the lapse of the 180-day prescribed period.
Precisely, when a taxpayer protested an assessment, he naturally
expects the CIR to decide either positively or negatively. A taxpayer
cannot be prejudiced if he chooses to wait for the final decision of the
CIR on the protested assessment. More so, because the law and
jurisprudence have always contemplated a scenario where the CIR
will decide on the protested assessment.

Issue:
WON respondent filed its petition beyond the two-year prescriptive
period.
Ruling:
No. The Court agreed with the decision of the CA but disagreed as to
its basis.

It must be emphasized, however, that in case of the inaction of the

CIR on the protested assessment, while we reiterate the taxpayer
has two options, either: (1) file a petition for review with the CTA within
30 days after the expiration of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessment and appeal
such final decision to the CTA within 30 days after the receipt of a
copy of such decision, these options are mutually exclusive and resort
to one bars the application of the other.

Section 31 of Executive Order No. 292 or the Administrative Code of

1987 provides:
Sec. 31. Legal Periods. "Year" shall be understood to be twelve
calendar months; "month" of thirty days, unless it refers to a specific
calendar month in which case it shall be computed according to the
number of days the specific month contains; "day", to a day of twentyfour hours and; "night" from sunrise to sunset.
A calendar month is "a month designated in the calendar without
regard to the number of days it may contain." It is the "period of time
running from the beginning of a certain numbered day up to, but not
including, the corresponding numbered day of the next month, and if
there is not a sufficient number of days in the next month, then up to
and including the last day of that month." To illustrate, one calendar
month from December 31, 2007 will be from January 1, 2008 to
January 31, 2008; one calendar month from January 31, 2008 will be
from February 1, 2008 until February 29, 2008.

Accordingly, considering that Lascona opted to await the final decision

of the Commissioner on the protested assessment, it then has the
right to appeal such final decision to the Court by filing a petition for
review within thirty days after receipt of a copy of such decision or
ruling, even after the expiration of the 180-day period fixed by law for
the Commissioner of Internal Revenue to act on the disputed
assessments. Thus, Lascona, when it filed an appeal on April 12,
1999 before the CTA, after its receipt of the Letter18 dated March 3,
1999 on March 12, 1999, the appeal was timely made as it was filed
within 30 days after receipt of the copy of the decision.1wphi1

Applying the Administrative Code of 1987, it being more recent than

the Civil Code, the two-year prescriptive period (reckoned from the
time respondent filed its final adjusted return on April 14, 1998)
consisted of 24 calendar months, is computed as follows:

Finally, the CIR should be reminded that taxpayers cannot be left in

quandary by its inaction on the protested assessment. It is imperative
that the taxpayers are informed of its action in order that the taxpayer
should then at least be able to take recourse to the tax court at the
opportune time. As correctly pointed out by the tax court:

Year 1

x x x to adopt the interpretation of the respondent will not only

sanction inefficiency, but will likewise condone the Bureau's inaction.
This is especially true in the instant case when despite the fact that
respondent found petitioner's arguments to be in order, the
assessment will become final, executory and demandable for
petitioner's failure to appeal before us within the thirty (30) day
period.19
20.

CIR vs. Primetown Property Group, Inc. [August 28, 2007]

Facts:
On March 11, 1999, respondents VP applied for the refund or credit of
income tax paid by the respondent in 1997. It was alleged that
because respondent suffered losses, it was not liable for income
taxes. Nevertheless, respondent paid its quarterly corporate income
tax and remitted creditable withholding tax from real estate sales to
the BIR in the total amount of P26,318,398.32. Therefore, respondent
was entitled to tax refund or tax credit.

Year 2

On May 13, 1999, the revenue officer required respondent to submit

additional documents to support its claim. Respondent complied but
its claim was not acted upon. Thus, it filed a petition for review with the
CTA on April 14, 2000.
The petition was dismissed by the CTA. It was held that the petition
was filed beyond the two-year prescriptive period for filing a judicial
claim for tax refund or tax credit under Section 229 of the NIRC, to wit:
Sec. 229. Recovery of Taxes Erroneously or Illegally Collected. x x x
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment:Provided, however, That the Commissioner may, even
without a claim therefor, refund or credit any tax, where on the face of
the return upon which payment was made, such payment appears
clearly to have been erroneously paid.
The CTA found that respondent filed its final adjusted return on April
14, 1998. Thus, its right to claim a refund or credit commenced on that
date following the rule under Article 13 of the Civil Code, to wit:
Art. 13. When the law speaks of years, months, days or nights, it shall
be understood that years are of three hundred sixty-five days
each; months, of thirty days; days, of twenty-four hours, and nights
from sunset to sunrise. x x x

1st

calendar month

April 15, 1998

to

Ma

2nd

calendar month

May 15, 1998

to

Ju

3rd

calendar month

June 15, 1998

to

Ju

4th

calendar month

July 15, 1998

to

Au

5th

calendar month

August 15, 1998

to

Se

6th

calendar month

September 15, 1998

to

Oc

7th

calendar month

October 15, 1998

to

No

8th

calendar month

November 15, 1998

to

De

9th

calendar month

December 15, 1998

to

Ja

10th

calendar month

January 15, 1999

to

Fe

11th

calendar month

February 15, 1999

to

Ma

12th

calendar month

March 15, 1999

to

Ap

13th

calendar month

April 15, 1999

to

Ma

14th

calendar month

May 15, 1999

to

Ju

15th

calendar month

June 15, 1999

to

Ju

16th

calendar month

July 15, 1999

to

Au

17th

calendar month

August 15, 1999

to

Se

18th

calendar month

September 15, 1999

to

Oc

19th

calendar month

October 15, 1999

to

No

20th

calendar month

November 15, 1999

to

De

21st

calendar month

December 15, 1999

to

Ja

22nd

calendar month

January 15, 2000

to

Fe

23rd

calendar month

February 15, 2000

to

Ma

24th

calendar month

March 15, 2000

to

Ap

The Court therefore held that respondent's petition (filed on April 14,
2000) was filed on the last day of the 24th calendar month from the
day respondent filed its final adjusted return. Hence, it was filed within
the reglementary period.
21.

CIR vs. Smart Communication, Inc. [August 25, 2010]

12 | P a g e

the taxpayer, his authority to file the necessary income tax return
and to remit the tax withheld to the government impliedly
includes the authority to file a claim for refund and to bring an
action for recovery of such claim.

Facts:
Smart Communications, Inc. (Smart) entered into 3 agreements with
Prism Transactive (M) Sdn. Bhd. (Prism), a non-resident Malaysian
corporation, under which Prism would provide programming and
consultancy services for the installation of the Service Download
Manager (SDM Agreement) and the Channel Manager (CM
Agreement), and for the installation and implementation of Smart
Money and Mobile Banking Service SIM Applications and Private Text
Platform (SIM Application Agreement). Prism billed Smart
US$547,822.45. Thinking that the amount constituted royalties, Smart
withheld from its payments to Prism the amount of US$136,955.61 or
P7,008,840.43, representing the 25% royalty tax under the RPMalaysia Tax Treaty.

Silkair (Singapore) Pte, Ltd. vs. Commissioner of Internal

Revenue (supra), cited by the CIR, was inapplicable as it
involved excise taxes, not withholding taxes. In that case, it was
ruled that the proper party to question, or seek a refund of, an
indirect tax is the statutory taxpayer, the person on whom the
tax is imposed by law and who paid the same even if he shifts
the burden thereof to another.
As an agent of the taxpayer, it is the duty of the withholding
agent to return to the principal taxpayer what he has recovered.
Otherwise, he would be unjustly enriching himself at the expense
of the principal taxpayer from whom the taxes were withheld,and
from whom he derives his legal right to file a claim for refund.

Within the 2-year period to claim a refund, Smart filed an

administrative claim with the Bureau of Internal Revenue (BIR) for the
refund of the withheld amount (P7,008,840.43). When the
Commissioner of Internal Revenue (CIR) failed to act on its claim,
Smart filed a Petition for Review with the Court of Tax Appeals (CTA).
Smart averred that its payments to Prism were not royalties but
business profits, as defined in the RP-Malaysian Tax Treaty, which
werenottaxablebecausePrismdidnothaveapermanentestablishmentinth
ePhilippines. The CIR countered that Smart, as a withholding agent
was not a party-in-interest to file the claim for refund, and even if it
were the proper party, there was no showing that the payments to
Prism constituted business profits.

2.

The RP-Malaysia Tax Treaty defines royalties as payments of

any kind received as consideration for: (i) the use of, or the right
to use, any patent, trade mark, design or model, plan, secret
formula or process, any copyright of literary, artistic or scientific
work, or for the use of, or the right to use, industrial, commercial,
or scientific equipment, or for information concerning industrial,
commercial or scientific experience; (ii) the use of, or the right to
use, cinematograph films, or tapes for radio or television
broadcasting. They are taxed at 25% of the gross amount.

The CTAs Second Division sustained Smarts right to file the claim for
refund, citing the cases of Commissioner of Internal Revenue vs.
Wander Philippines, Inc. [243 Phil. 717 (1988)], Commissioner of
Internal Revenue vs. Procter & Gamble Philippine Manufacturing
Corporation (G.R. No. 66838, 2 December 1991, 204 SCRA 377) and
Commissioner of Internal Revenue vs. The Court of Tax Appeals [G.R.
No. 93901, 11 February 1992 (Minute Resolution)]. However, it
granted only the refund of the withholding tax on Smarts payment for
the SDM Agreement (P3,989,456.43) because only the payment for
the SDM Agreement constituted royalty which was subject to
withholding tax. The court considered the payments for the CM and
SIM Application agreements as business profits which were not
subject to tax under the RP-Malaysia Tax Treaty.

Under the same Treaty, the business profits of an enterprise of

a Contracting State is taxable only in that State, unless the
enterprise carries on business in the other Contracting State
through a permanent establishment. The term permanent
establishment is defined as a fixed place of business where the
enterprise is wholly or partly carried on. However, even if there is
no fixed place of business, an enterprise of a Contracting State
is deemed to have a permanent establishment in the other
Contracting State if it carries on supervisory activities in that
other State for more than 6 months in connection with a
construction, installation or assembly project which is being
undertaken in that other State. In this case, it was established
during the trial that Prism did not have a permanent
establishment in the Philippines. Hence, business profits
derived from Prisms dealings with Smart were not taxable.

On appeal, the CTA En Banc affirmed its Second Divisions ruling. The
CIR, thus, brought the case to the Supreme Court for review, arguing
that the cases cited by the CTA in upholding Smarts right to claim the
refund, were inapplicable because the withholding agents therein
were wholly owned subsidiaries of the taxpayers, unlike in this case
where the withholding agent was unrelated to the taxpayer. The CIR
maintained that the proper party to file the refund was the taxpayer,
Prism, citing the case of Silkair (Singapore) Pte, Ltd. vs.
Commissioner of Internal Revenue (G.R. No. 173594, 6 February
2008, 544 SCRA 100). The CIR further argued that assuming Smart
was the proper party to file the claim, it was still not entitled to any
refund because its payments to Prism were taxable as royalties,
having been made in consideration for the use of the programs owned
by Prism.

Under its agreements with Smart, Prism had intellectual property

right over the SDM program, but not over the CM and SIM
Application programs as the proprietary rights of these programs
belonged to Smart. Thus, out of the payments made to Prism,
only the payment for the SDM program was a royalty subject to a
25% withholding tax; the payments for the CM and SIM
Application programs constituted Prisms non-taxable business
profits. The BIR should, therefore, refund the erroneously
withheld royalty taxes for the payments pertaining to the CM and
SIM Application Agreements.

Issues:
1.
Whether or not Smart had the right to file the claim for refund;
and
2.
Whether Smarts payments to Prism constituted business
profits or royalties.
Ruling:
1.
Smart, as withholding agent, may file the claim for refund.
The person entitled to claim a tax refund is the taxpayer
[Sections 204(c) and 229 of the National Internal Revenue Code
(NIRC)]. However, in case the taxpayer does not file a claim for
refund, the withholding agent may file the claim. Thus, in
Commissioner of Internal Revenue v. Procter & Gamble
Philippine Manufacturing Corporation (G.R. No. 66838,
December 2, 1991, 204 SCRA 377), a withholding agent was
considered a proper party to file a claim for refund of the
withheld taxes of its foreign parent company. The CIR was
incorrect in saying that this ruling applies only when the
withholding agent and the taxpayer are related parties, i.e.,
where the withholding agent is a wholly owned subsidiary of the
taxpayer. Although such relation between the taxpayer and the
withholding agent is
A factor that increases the latters legal interest to file a claim for
refund, there is nothing in the decision in said case to suggest
that such relationship is required or that the lack of such relation
deprives the withholding agent of the right to file a claim for
refund. Rather, what is clear in the decision is that a withholding
agent has a legal right to file a claim for refund for two reasons.
First, he is considered a taxpayer under the NIRC as he is
personally liable for the withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the amount of
the tax withheld be finally found to be less than the amount that
should have been withheld under law. Second, as an agent of

The payments for the CM and SIM Application Agreements

constituted business profits which were not taxable under the
RP-Malaysia Tax Treaty. However, the payment for the SDM
Agreement constituted taxable royalty under the same treaty.

The BIR was ordered to issue a Tax Credit Certificate to Prism in

the amount of P3,989,456.43
22.

Aguinaldo Industries Corp. (Fishing Nets Division) vs. CIR

[February 25, 1982]
Facts:
Aguinaldo Industries is engaged in the manufacture of fishing nets (a
tax exempt industry), which is handled by its Fish Nets Division. It is
also engaged in the manufacture of furniture which is operated by its
Furniture Division. Each division is provided with separate books of
accounts. The income from the Fish Nets Division, miscellaneous
income of the Fish Nets Division, and the income from the Furniture
Division are computed individually.
Petitioner acquired a parcel of land in Muntinlupa Rizal as site for its
fishing net factory. The transaction was entered in the books of the
Fish Nets Division. The company then found another parcel of land in
Marikina Heights, which was more suitable. They then sold the
Muntinlupa property and the profit derived from the sale was entered
in the books of the Fish Nets Division as miscellaneous income to
separate it from its tax exempt income.
For 1957, petitioner filed 2 separate ITRs (one for Fish Nets and one
for Furniture). After investigation, BIR examiners found that the Fish
Nets Div deducted from its gross income PhP 61k as additional
remuneration paid to the companys officers. Such amount was taken
from the sale of the land and was reported as part of the selling
expenses. The examiners recommended that such deduction be
disallowed. Petitioner then asserted in its letter that it should be
allowed because it was paid as bonus to its officers pursuant to Sec.3
13 | P a g e

of its by-laws: From the net profits shall be deducted for allowance of
the Pres. - 3%, VP - 1%, members of the Board - 10%.
CTA imposed a 5% surcharge and 1% monthly interest for the
deficiency assessment. Petitioner then stressed that the profit derived
from the sale of the land is not taxable because the Fish Nets Div
enjoys tax exemption under RA 901.

imposition of DST. It was correctly defined as such because the ticket

itself is not the security but the pawn or the personal property pledged
to the pawnbroker.

Petitioner not subject to penalties and surcharge

Issues:
1.
Whether the bonus given to the officers of the petitioner upon the
sale of its Muntinlupa land is an ordinary and necessary
business expense deductible for income tax purposes; and
2.
Whether petitioner is liable for surcharge and interest for late
payment.

Petitioner contend that they cannot be made to pay surcharges and

interest because it acted in good faith and the confusion as to whether
it is liable to pay DST is partly attributable to the divergent rulings of
the Bureau of Internal Revenue (BIR) on the matter.

Ruling:
1.
YES. These extraordinary and unusual amounts paid by
petitioner to these directors in the guise and form of
compensation for their supposed services as such, without any
relation to the measure of their actual services, cannot be
regarded as ordinary and necessary expenses within the
meaning of the law. This posture is in line with the doctrine in the
law of taxation that the taxpayer must show that its claimed
deductions clearly come within the language of the law since
allowances, like exemptions, are matters of legislative grace.

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

SC:

The same pronouncement was reiterated in Tuason, Jr. v. Lingad and

Commissioner of Internal Revenue v. Republic Cement Corporation
where the same surcharge was dispensed with because of the
taxpayer's good faith and the BIR's previous erroneous interpretation
of the laws involved.

Moreover, petitioner cannot now claim that the profit from the
sale is tax exempt. At the administrative level, the petitioner
implicitly admitted that the profit it derived from the sale of its
Muntinlupa land, a capital asset, was a taxable gain which
was precisely the reason why for tax purposes the petitioner
deducted therefrom the questioned bonus to its corporate
officers as a supposed item of expense incurred for the sale of
thesaid land, apart from the P51,723.72 commission paid by the
petitioner to the real estate agent who indeed effected the sale.
The BIR therefore had no occasion to pass upon the issue.
To allow a litigant to assume a different posture when he comes
before the court and challenge the position he had accepted at
the administrative level, would be to sanction a procedure
whereby the court which is supposed to review administrative
determinations would not review, but determine and decide
for the first time, a question not raised at the administrative
forum. The requirement of prior exhaustion of administrative
remedies gives administrative authorities the prior opportunity to
decide controversies within its competence, and in much the
same way that, on the judicial level, issues not raised in the
lower court cannot be raised for the first time on appeal. Up to
the time the questioned decision of the respondent Court was
rendered, the petitioner had always implicitly admitted that the
disputed capital gain was taxable, although subject to the
deduction of the bonus paid to its corporate officers. It was only
after the said decision had been rendered and on a motion for
reconsideration thereof, that the issue of tax exemption was
raised by the petitioner for the first time. It was thus not one of
the issues raised by petitioner in his petition and supporting
memorandum in the CTA.
2.

23.

YES. Interest and surcharges on deficiency taxes are imposable

upon failure of the taxpayer to pay the tax on the date fixed in
the law for the payment thereof, which was, under the
unamended Section 51 of the Tax Code, the 15th day of the 5th
month following the close of the fiscal year in the case of
taxpayers whose tax returns were made on the basis of fiscal
years. A deficiency tax indicates non-payment of the correct tax,
and such deficiency exists not only from the assessment thereof
but from the very time the taxpayer failed to pay the correct
amount of tax when it should have been paid and the imposition
thereof is mandatory even in the absence of fraud or willful
failure to pay the tax is full.

Michel J. Lhuillier Pawnshop, Inc. vs. CIR [September 11, 2006]

TAKE HOME LEARNING:
Penalties and surcharge may not be imposed if taxpayer was in good
faith and honestly believe that it is not subject to pay tax because of
the erroneous interpretation of the BIR on the laws involved.
This is a motion for reconsideration of the decision of the SC stating
that contracts of pledge entered into by pawnshops evidenced by
pawn tickets are subject to Documentary Stamp Tax (DST).
Pawn Ticket Subject to DST
It has been settled in another case that pawn tickets are subject to
DST although pawn ticket, as defined in Presidential Decree (P.D.)
No. 114 or the Pawnshop Regulation Act, is merely the pawnbrokers'
receipt for a pawn. For purposes of Section 195, pawnshop tickets
need not be an evidence of indebtedness nor a debt instrument
because it taxes the same as a pledge instrument. Neither should the
definition of pawnshop ticket, as not a security, exempt it from the
14 | P a g e