G.R. No.

L-29059 December 15, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS, respondents.

CRUZ, J.:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the Supreme
Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland
Cement Company the amount of P 359,408.98, representing overpayments of ad valorem taxes on cement produced
and sold by it after October 1957. 1
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private
respondent, the latter moved for a writ of execution to enforce the said judgment . 2
The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax
liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing
on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge. 3
On April 22, 1968, the Court of Tax Appeals

* granted the motion, holding that the alleged sales tax liability of the private respondent was still being

questioned and therefore could not be set-off against the refund. 4

In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the refund should be
charged against the tax deficiency of the private respondent on the sales of cement under Section 186 of the Tax Code.
His position is that cement is a manufactured and not a mineral product and therefore not exempt from sales taxes. He
adds that enforcement of the said tax deficiency was properly effected through his power of distraint of personal
property under Sections 316 and 318 5 of the said Code and, moreover, the collection of any national internal revenue tax
may not be enjoined under Section 305, 6 subject only to the exception prescribed in Rep. Act No. 1125. 7 This is not
applicable to the instant case. The petitioner also denies that the sales tax assessments have already prescribed because the
prescriptive period should be counted from the filing of the sales tax returns, which had not yet been done by the private
respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the ground that cement is not a
manufactured product but a mineral product. 8 As such, it was exempted from sales taxes under Section 188 of the Tax
Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu Portland Cement Co. v.
Collector of Internal Revenue, 9 decided in 1968. Here Justice Eugenio Angeles declared that "before the effectivity of Rep.
Act No. 1299, amending Section 246 of the National Internal Revenue Code, cement was taxable as a manufactured product
under Section 186, in connection with Section 194(4) of the said Code," thereby implying that it was not considered a
manufactured product afterwards. Also, the alleged sales tax deficiency could not as yet be enforced against it because the
tax assessment was not yet final, the same being still under protest and still to be definitely resolved on the merits. Besides,
the assessment had already prescribed, not having been made within the reglementary five-year period from the filing of the
tax returns. 10
Our ruling is that the sales tax was properly imposed upon the private respondent for the reason that cement has
always been considered a manufactured product and not a mineral product. This matter was extensively discussed and
categorically resolved in Commissioner of Internal Revenue v. Republic Cement Corporation, 11 decided on August 10, 1983,
where Justice Efren L. Plana, after an exhaustive review of the pertinent cases, declared for a unanimous Court:

From all the foregoing cases, it is clear that cement qua cement was never considered as a mineral
product within the meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its

components are minerals, for the simple reason that cement is the product of a manufacturing process
and is no longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to maintain their present posture is the case
of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA
789) penned by Justice Eugenio Angeles. For some portions of that decision give the impression that
Republic Act No. 1299, which amended Section 246, reclassified cement as a mineral product that
was not subject to sales tax. ...
xxx xxx xxx
After a careful study of the foregoing, we conclude that reliance on the decision penned by Justice
Angeles is misplaced. The said decision is no authority for the proposition that after the enactment of
Republic Act No. 1299 in 1955 (defining mineral product as things with at least 80% mineral
content), cement became a 'mineral product," as distinguished from a "manufactured product," and
therefore ceased to be subject to sales tax. It was not necessary for the Court to so rule. It was enough
for the Court to say in effect that even assuming Republic Act No. 1299 had reclassified cement was
a mineral product, the reclassification could not be given retrospective application (so as to justify the
refund of sales taxes paid before Republic Act 1299 was adopted) because laws operate prospectively
only, unless the legislative intent to the contrary is manifest, which was not so in the case of Republic
Act 1266. [The situation would have been different if the Court instead had ruled in favor of refund,
in which case it would have been absolutely necessary (1) to make an unconditional ruling that
Republic Act 1299 re-classified cement as a mineral product (not subject to sales tax), and (2) to
declare the law retroactive, as a basis for granting refund of sales tax paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of October 29, 1968 (G.R. No. L-20563) insofar as its
pronouncements or any implication therefrom conflict with the instant decision.
The above views were reiterated in the resolution 12 denying reconsideration of the said decision, thus:
The nature of cement as a "manufactured product" (rather than a "mineral product") is well-settled.
The issue has repeatedly presented itself as a threshold question for determining the basis for
computing the ad valorem mining tax to be paid by cement Companies. No pronouncement was
made in these cases that as a "manufactured product" cement is subject to sales tax because this was
not at issue.
The decision sought to be reconsidered here referred to the legislative history of Republic Act No.
1299 which introduced a definition of the terms "mineral" and "mineral products" in Sec. 246 of the
Tax Code. Given the legislative intent, the holding in the CEPOC case (G.R. No. L-20563) that
cement was subject to sales tax prior to the effectivity f Republic Act No. 1299 cannot be construed
to mean that, after the law took effect, cement ceased to be so subject to the tax. To erase any and all
misconceptions that may have been spawned by reliance on the case ofCebu Portland Cement Co. v.
Collector of Internal Revenue, L-20563, October 29, 1968 (28 SCRA 789) penned by Justice Eugenio
Angeles, the Court has expressly overruled it insofar as it may conflict with the decision of August
10, 1983, now subject of these motions for reconsideration.
On the question of prescription, the private respondent claims that the five-year reglementary period for the
assessment of its tax liability started from the time it filed its gross sales returns on June 30, 1962. Hence, the
assessment for sales taxes made on January 16, 1968 and March 4, 1968, were already out of time. We disagree. This
contention must fail for what CEPOC filed was not the sales returns required in Section 183(n) but the ad valorem tax

returns required under Section 245 of the Tax Code. As Justice Irene R. Cortes emphasized in the aforestated
resolution:
In order to avail itself of the benefits of the five-year prescription period under Section 331 of the Tax
Code, the taxpayer should have filed the required return for the tax involved, that is, a sales tax
return. (Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29, 1966, 16 SCRA 277). Thus
CEPOC should have filed sales tax returns of its gross sales for the subject periods. Both parties
admit that returns were made for the ad valorem mining tax. CEPOC argues that said returns contain
the information necessary for the assessment of the sales tax. The Commissioner does not consider
such returns as compliance with the requirement for the filing of tax returns so as to start the running
of the five-year prescriptive period.
We agree with the Commissioner. It has been held in Butuan Sawmill Inc. v. CTA, supra,that the
filing of an income tax return cannot be considered as substantial compliance with the requirement of
filing sales tax returns, in the same way that an income tax return cannot be considered as a return for
compensating tax for the purpose of computing the period of prescription under Sec. 331. (Citing
Bisaya Land Transportation Co., Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 and L11812, May 29, 1959). There being no sales tax returns filed by CEPOC, the statute of stations in
Sec. 331 did not begin to run against the government. The assessment made by the Commissioner in
1968 on CEPOC's cement sales during the period from July 1, 1959 to December 31, 1960 is not
barred by the five-year prescriptive period. Absent a return or when the return is false or fraudulent,
the applicable period is ten (10) days from the discovery of the fraud, falsity or omission. The
question in this case is: When was CEPOC's omission to file tha return deemed discovered by the
government, so as to start the running of said period? 13
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the
urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed
by simply questioning their validity, the machinery of the state would grind to a halt and all government functions
would be paralyzed. That is the reason why, save for the exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No court shall have authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being questioned in a
court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the
administrative level. There is all the more reason to apply the rule here because it appears that even after crediting of
the refund against the tax deficiency, a balance of more than P 4 million is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of the judgment debt, which he will
later have the right to distrain for payment of its sales tax liability is in our view an Idle ritual. We hold that the
respondent Court of Tax Appeals erred in ordering such a charade.
WHEREFORE, the petition is GRANTED. The resolution dated April 22, 1968, in CTA Case No. 786 is SET ASIDE,
without any pronouncement as to costs.
SO ORDERED.
G.R. Nos. 89898-99 October 1, 1990
MUNICIPALITY OF MAKATI, petitioner,
vs.

THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge RTC of
Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and SHERIFF SILVINO
R. PASTRANA,respondents.
Defante & Elegado for petitioner.
Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.
RESOLUTION

CORTS, J.:
The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner Municipality of
Makati against private respondent Admiral Finance Creditors Consortium, Inc., Home Building System & Realty
Corporation and one Arceli P. Jo, involving a parcel of land and improvements thereon located at Mayapis St., San
Antonio Village, Makati and registered in the name of Arceli P. Jo under TCT No. S-5499.
It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case No. 13699. Attached
to petitioner's complaint was a certification that a bank account (Account No. S/A 265-537154-3) had been opened
with the PNB Buendia Branch under petitioner's name containing the sum of P417,510.00, made pursuant to the
provisions of Pres. Decree No. 42. After due hearing where the parties presented their respective appraisal reports
regarding the value of the property, respondent RTC judge rendered a decision on June 4, 1987, fixing the appraised
value of the property at P5,291,666.00, and ordering petitioner to pay this amount minus the advanced payment of
P338,160.00 which was earlier released to private respondent.
After this decision became final and executory, private respondent moved for the issuance of a writ of execution. This
motion was granted by respondent RTC judge. After issuance of the writ of execution, a Notice of Garnishment dated
January 14, 1988 was served by respondent sheriff Silvino R. Pastrana upon the manager of the PNB Buendia Branch.
However, respondent sheriff was informed that a "hold code" was placed on the account of petitioner. As a result of
this, private respondent filed a motion dated January 27, 1988 praying that an order be issued directing the bank to
deliver to respondent sheriff the amount equivalent to the unpaid balance due under the RTC decision dated June 4,
1987.
Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the expropriation
amount should be done in installments which the respondent RTC judge failed to state in his decision. Private
respondent filed its opposition to the motion.
Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation" informing the court that
private respondent was no longer the true and lawful owner of the subject property because a new title over the
property had been registered in the name of Philippine Savings Bank, Inc. (PSB) Respondent RTC judge issued an
order requiring PSB to make available the documents pertaining to its transactions over the subject property, and the
PNB Buendia Branch to reveal the amount in petitioner's account which was garnished by respondent sheriff. In
compliance with this order, PSB filed a manifestation informing the court that it had consolidated its ownership over
the property as mortgagee/purchaser at an extrajudicial foreclosure sale held on April 20, 1987. After several
conferences, PSB and private respondent entered into a compromise agreement whereby they agreed to divide
between themselves the compensation due from the expropriation proceedings.
Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1) approved the compromise
agreement; (2) ordered PNB Buendia Branch to immediately release to PSB the sum of P4,953,506.45 which
corresponds to the balance of the appraised value of the subject property under the RTC decision dated June 4, 1987,

from the garnished account of petitioner; and, (3) ordered PSB and private respondent to execute the necessary deed
of conveyance over the subject property in favor of petitioner. Petitioner's motion to lift the garnishment was denied.
Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On the other hand, for
failure of the manager of the PNB Buendia Branch to comply with the order dated September 8, 1988, private
respondent filed two succeeding motions to require the bank manager to show cause why he should not be held in
contempt of court. During the hearings conducted for the above motions, the general manager of the PNB Buendia
Branch, a Mr. Antonio Bautista, informed the court that he was still waiting for proper authorization from the PNB
head office enabling him to make a disbursement for the amount so ordered. For its part, petitioner contended that its
funds at the PNB Buendia Branch could neither be garnished nor levied upon execution, for to do so would result in
the disbursement of public funds without the proper appropriation required under the law, citing the case of Republic
of the Philippines v. Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899].
Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for reconsideration on
the ground that the doctrine enunciated in Republic v. Palacio did not apply to the case because petitioner's PNB
Account No. S/A 265-537154-3 was an account specifically opened for the expropriation proceedings of the subject
property pursuant to Pres. Decree No. 42. Respondent RTC judge likewise declared Mr. Antonio Bautista guilty of
contempt of court for his inexcusable refusal to obey the order dated September 8, 1988, and thus ordered his arrest
and detention until his compliance with the said order.
Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions forcertiorari with the Court of
Appeals, which were eventually consolidated. In a decision promulgated on June 28, 1989, the Court of Appeals
dismissed both petitions for lack of merit, sustained the jurisdiction of respondent RTC judge over the funds contained
in petitioner's PNB Account No. 265-537154-3, and affirmed his authority to levy on such funds.
Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the present petition for
review with prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining respondent RTC judge,
respondent sheriff, and their representatives, from enforcing and/or carrying out the RTC order dated December 21,
1988 and the writ of garnishment issued pursuant thereto. Private respondent then filed its comment to the petition,
while petitioner filed its reply.
Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals, but also alleges for the
first time that it has actually two accounts with the PNB Buendia Branch, to wit:
xxx xxx xxx
(1) Account No. S/A 265-537154-3 exclusively for the expropriation of the subject property, with
an outstanding balance of P99,743.94.
(2) Account No. S/A 263-530850-7 for statutory obligations and other purposes of the municipal
government, with a balance of P170,098,421.72, as of July 12, 1989.
xxx xxx xxx
[Petition, pp. 6-7; Rollo, pp. 11-12.]
Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts, it may fairly be
asked whether the second account was opened only for the purpose of undermining the legal basis of the assailed
orders of respondent RTC judge and the decision of the Court of Appeals, and strengthening its reliance on the
doctrine that public funds are exempted from garnishment or execution as enunciated in Republic v. Palacio[supra.]
At any rate, the Court will give petitioner the benefit of the doubt, and proceed to resolve the principal issues

presented based on the factual circumstances thus alleged by petitioner.

Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation proceedings it had
initiated over the subject property, petitioner poses no objection to the garnishment or the levy under execution of the
funds deposited therein amounting to P99,743.94. However, it is petitioner's main contention that inasmuch as the
assailed orders of respondent RTC judge involved the net amount of P4,965,506.45, the funds garnished by
respondent sheriff in excess of P99,743.94, which are public funds earmarked for the municipal government's other
statutory obligations, are exempted from execution without the proper appropriation required under the law.
There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-530850-7 are public
funds of the municipal government. In this jurisdiction, well-settled is the rule that public funds are not subject to levy
and execution, unless otherwise provided for by statute [Republic v. Palacio, supra.; The Commissioner of Public
Highways v. San Diego, G.R. No. L-30098, February 18, 1970, 31 SCRA 616]. More particularly, the properties of a
municipality, whether real or personal, which are necessary for public use cannot be attached and sold at execution
sale to satisfy a money judgment against the municipality. Municipal revenues derived from taxes, licenses and market
fees, and which are intended primarily and exclusively for the purpose of financing the governmental activities and
functions of the municipality, are exempt from execution [See Viuda De Tan Toco v. The Municipal Council of Iloilo,
49 Phil. 52 (1926): The Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629 (1950); Municipality of San
Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984, 130 SCRA 56]. The foregoing rule finds application in
the case at bar. Absent a showing that the municipal council of Makati has passed an ordinance appropriating from its
public funds an amount corresponding to the balance due under the RTC decision dated June 4, 1987, less the sum of
P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under execution may be validly effected on the
public funds of petitioner deposited in Account No. S/A 263-530850-7.
Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse. Where a municipality
fails or refuses, without justifiable reason, to effect payment of a final money judgment rendered against it, the
claimant may avail of the remedy ofmandamus in order to compel the enactment and approval of the necessary
appropriation ordinance, and the corresponding disbursement of municipal funds therefor [See Viuda De Tan Toco v.
The Municipal Council of Iloilo, supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales, 108 Phil. 247
(1960)].
In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by petitioner. No appeal was
taken therefrom. For three years now, petitioner has enjoyed possession and use of the subject property
notwithstanding its inexcusable failure to comply with its legal obligation to pay just compensation. Petitioner has
benefited from its possession of the property since the same has been the site of Makati West High School since the
school year 1986-1987. This Court will not condone petitioner's blatant refusal to settle its legal obligation arising
from expropriation proceedings it had in fact initiated. It cannot be over-emphasized that, within the context of the
State's inherent power of eminent domain,
. . . [j]ust compensation means not only the correct determination of the amount to be paid to the
owner of the land but also the payment of the land within a reasonable time from its taking. Without
prompt payment, compensation cannot be considered "just" for the property owner is made to suffer
the consequence of being immediately deprived of his land while being made to wait for a decade or
more before actually receiving the amount necessary to cope with his loss [Cosculluela v. The
Honorable Court of Appeals, G.R. No. 77765, August 15, 1988, 164 SCRA 393, 400. See also
Provincial Government of Sorsogon v. Vda. de Villaroya, G.R. No. 64037, August 27, 1987, 153
SCRA 291].
The State's power of eminent domain should be exercised within the bounds of fair play and justice. In the case at bar,
considering that valuable property has been taken, the compensation to be paid fixed and the municipality is in full

possession and utilizing the property for public purpose, for three (3) years, the Court finds that the municipality has
had more than reasonable time to pay full compensation.
WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay Philippine
Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is hereby required to submit to this
Court a report of its compliance with the foregoing order within a non-extendible period of SIXTY (60) DAYS from
the date of receipt of this resolution.
The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case No. 13699, is SET
ASIDE and the temporary restraining order issued by the Court on November 20, 1989 is MADE PERMANENT.
G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and COURT
OF TAX APPEALS, respondents.

PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax credit for
amounts representing pre-payment of income and common carrier's taxes under the National Internal Revenue Code,
section 24 (b) (2), as amended. 1
Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies,
Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA 2 chartered M/V
Gardenia to load 16,500 metric tons of raw sugar in the Philippines. 3 On December 23, 1980, Mr. Edilberto Lising, the
operations supervisor of Soriamont Agency, 4 paid the required income and common carrier's taxes in the respective sums of
FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75)
and FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) based on
the expected gross receipts of the vessel. 5 Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for
loading. On January 10, 1981, NASUTRA and private respondent's agent mutually agreed to have the vessel sail for Japan
without any cargo.
Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was realized from the
charter agreement, private respondent instituted a claim for tax credit or refund of the sum ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) before
petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim,
hence, on May 14, 1981, private respondent filed a petition for review 6 before public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed
to have been collected in accordance with law; that in an action for refund, the burden of proof is upon the taxpayer to
show that taxes are erroneously or illegally collected, and the taxpayer's failure to sustain said burden is fatal to the
action for refund; and that claims for refund are construed strictly against tax claimants. 7
After trial, respondent tax court decided in favor of the private respondent. It held:
It has been shown in this case that 1) the petitioner has complied with the mentioned statutory
requirement by having filed a written claim for refund within the two-year period from date of
payment; 2) the respondent has not issued any deficiency assessment nor disputed the correctness of

the tax returns and the corresponding amounts of prepaid income and percentage taxes; and 3) the
chartered vessel sailed out of the Philippine port with absolutely no cargo laden on board as cleared
and certified by the Customs authorities; nonetheless 4) respondent's apparent bit of reluctance in
validating the legal merit of the claim, by and large, is tacked upon the "examiner who is
investigating petitioner's claim for refund which is the subject matter of this case has not yet
submitted his report. Whether or not respondent will present his evidence will depend on the said
report of the examiner." (Respondent's Manifestation and Motion dated September 7, 1982). Be that
as it may the case was submitted for decision by respondent on the basis of the pleadings and records
and by petitioner on the evidence presented by counsel sans the respective memorandum.
An examination of the records satisfies us that the case presents no dispute as to relatively simple
material facts. The circumstances obtaining amply justify petitioner's righteous indignation to a more
expeditious action. Respondent has offered no reason nor made effort to submit any controverting
documents to bash that patina of legitimacy over the claim. But as might well be, towards the end of
some two and a half years of seeming impotent anguish over the pendency, the respondent
Commissioner of Internal Revenue would furnish the satisfaction of ultimate solution by manifesting
that "it is now his turn to present evidence, however, the Appellate Division of the BIR has already
recommended the approval of petitioner's claim for refund subject matter of this petition. The
examiner who examined this case has also recommended the refund of petitioner's claim. Without
prejudice to withdrawing this case after the final approval of petitioner's claim, the Court ordered the
resetting to September 7, 1983." (Minutes of June 9, 1983 Session of the Court) We need not fashion
any further issue into an apparently settled legal situation as far be it from a comedy of errors it
would be too much of a stretch to hold and deny the refund of the amount of prepaid income and
common carrier's taxes for which petitioner could no longer be made accountable.
On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this petition for review
on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to support its claim of refund; (2) it failed to
prove that it did not realize any receipt from its charter agreement; and (3) it suppressed evidence when it did not
present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue Code which at
that time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign country, engaged in
trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section
upon the total net income derived in the preceding taxable year from all sources within the
Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing business in the
Philippines of passage documents sold therein, whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the Philippines. The gross revenue realized from the said
cargo or mail include the gross freight charge up to final destination. Gross revenue from chartered
flights originating from the Philippines shall likewise form part of "Gross Philippine Billings"
regardless of the place or payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable for taxes

depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax liability
can be enforced the taxpayer must be shown to have earned income sourced from the Philippines.
We agree with petitioner that a claim for refund is in the nature of a claim for exemption 8 and should be construed
in strictissimi juris against the taxpayer. 9 Likewise, there can be no disagreement with petitioner's stance that private
respondent has the burden of proof to establish the factual basis of its claim for tax refund.
The pivotal issue involves a question of fact whether or not the private respondent was able to prove that it derived
no receipts from its charter agreement, and hence is entitled to a refund of the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been adduced by the private respondent proving that it derived
no receipt from its charter agreement with NASUTRA. This finding of fact rests on a rational basis, and hence must
be sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel M/V "Gardenia" arrived in Iloilo on
January 10, 1981 but found no raw sugar to load and returned to Japan without any cargo laden on board. Exhibit "E"
is the Clearance Vessel to a Foreign Port issued by the District Collector of Customs, Port of Iloilo while Exhibit "F"
is the Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The correctness of the
contents of these documents regularly issued by officials of the Bureau of Customs cannot be doubted as indeed, they
have not been contested by the petitioner. The records also reveal that in the course of the proceedings in the court a
quo, petitioner hedged and hawed when its turn came to present evidence. At one point, its counsel manifested that the
BIR examiner and the appellate division of the BIR have both recommended the approval of private respondent's
claim for refund. The same counsel even represented that the government would withdraw its opposition to the
petition after final approval of private respondents' claim. The case dragged on but petitioner never withdrew its
opposition to the petition even if it did not present evidence at all. The insincerity of petitioner's stance drew the sharp
rebuke of respondent court in its Decision and for good reason. Taxpayers owe honesty to government just as
government owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the private respondent, petitioner contends that private
respondent suppressed evidence when it did not present its charter agreement with NASUTRA. The contention cannot
succeed. It presupposes without any basis that the charter agreement is prejudicial evidence against the private
respondent. 10Allegedly, it will show that private respondent earned a charter fee with or without transporting its supposed
cargo from Iloilo to Japan. The allegation simply remained an allegation and no court of justice will regard it as truth.
Moreover, the charter agreement could have been presented by petitioner itself thru the proper use of a subpoena duces
tecum. It never did either because of neglect or because it knew it would be of no help to bolster its position. 11 For
whatever reason, the petitioner cannot take to task the private respondent for not presenting what it mistakenly calls
"suppressed evidence."
We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of ONE
HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS
(P107,142.75) erroneously prepaid by private respondent. The tax was paid way back in 1980 and despite the clear
showing that it was erroneously paid, the government succeeded in delaying its refund for fifteen (15) years. After
fifteen (15) long years and the expenses of litigation, the money that will be finally refunded to the private respondent
is just worth a damaged nickel. This is not, however, the kind of success the government, especially the BIR, needs to
increase its collection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR
should refund without any unreasonable delay what it has erroneously collected. Our ruling in Roxas v. Court of Tax
Appeals 12 is apropos to recall:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in order to
maintain the general public's trust and confidence in the Government this power must be used justly

and not treacherously.

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15, 1983, is
AFFIRMED in toto. No costs.
G.R. No. 122480

April 12, 2000

BPI-FAMILY SAVINGS BANK, Inc., petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and the COMMISSIONER OF INTERNAL
REVENUE,respondents.

PANGANIBAN, J.:
If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the
State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich
oneself at the expense of another.
The Case
Before us is a Petition for Review assailing the March 31, 1995 Decision of the Court of Appeals 1 (CA) in CA-GR SP
No. 34240, which affirmed the December 24, 1993 Decision 2 of the Court of Tax Appeals (CTA). The CA disposed as
follows:
WHEREFORE, foregoing premises considered, the petition is hereby DISMISSED for lack of merit. 3
On the other hand, the dispositive portion of the CTA Decision affirmed by the CA reads as follows:
WHEREFORE, in [view of] all the foregoing, Petitioner's claim for refund is hereby DENIED and this
Petition for Review is DISMISSED for lack of merit.4
Also assailed is the November 8, 1995 CA Resolution5 denying reconsideration.
The Facts
The facts of this case were summarized by the CA in this wise:
This case involves a claim for tax refund in the amount of P112,491.00 representing petitioner's tax withheld
for the year 1989.
In its Corporate Annual Income Tax Return for the year 1989, the following items are reflected:
Income P1,017,931,831.00
Deductions P1,026,218,791.00
Net Income (Loss) (P8,286,960.00)
Taxable Income (Loss) (P8,286,960.00)
Less:
1988 Tax Credit P185,001.00
1989 Tax Credit P112,491.00

TOTAL AMOUNT P297,492.00

REFUNDABLE
It appears from the foregoing 1989 Income Tax Return that petitioner had a total refundable amount
of P297,492 inclusive of the P112,491.00 being claimed as tax refund in the present case. However,
petitioner declared in the same 1989 Income Tax Return that the said total refundable amount of
P297,492.00 will be applied astax credit to the succeeding taxable year.
On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with
the respondent Commissioner of Internal Revenue alleging that it did not apply the 1989 refundable
amount of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return or other tax
liabilities due to the alleged business losses it incurred for the same year.
Without waiting for respondent Commissioner of Internal Revenue to act on the claim for refund,
petitioner filed a petition for review with respondent Court of Tax Appeals, seeking the refund of the
amount of P112,491.00.
The respondent Court of Tax Appeals dismissed petitioner's petition on the ground that petitioner
failed to present as evidence its corporate Annual Income Tax Return for 1990 to establish the fact
that petitioner had not yet credited the amount of P297,492.00 (inclusive of the amount P112,491.00
which is the subject of the present controversy) to its 1990 income tax liability.
Petitioner filed a motion for reconsideration, however, the same was denied by respondent court in its
Resolution dated May 6, 1994.6
As earlier noted, the CA affirmed the CTA. Hence, this Petition.7
Ruling of the Court of Appeals
In affirming the CTA, the Court of Appeals ruled as follows:
It is incumbent upon the petitioner to show proof that it has not credited to its 1990 Annual income
Tax Return, the amount of P297,492.00 (including P112,491.00), so as to refute its previous
declaration in the 1989 Income Tax Return that the said amount will be applied as a tax credit in the
succeeding year of 1990. Having failed to submit such requirement, there is no basis to grant the
claim for refund. . . .
Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of
sovereign authority and to be construed strictissimi juris against the person or entity claiming the
exemption. In other words, the burden of proof rests upon the taxpayer to establish by sufficient and
competent evidence its entitlement to the claim for refund.8
Issue
In their Memorandum, respondents identify the issue in this wise:
The sole issue to be resolved is whether or not petitioner is entitled to the refund of P112,491.90, representing
excess creditable withholding tax paid for the taxable year 1989.9
The Court's Ruling
The Petition is meritorious.
Main Issue:

Petitioner Entitled to Refund

It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled to a refund
amounting to P112,491. Pursuant to Section 69 10 of the 1986 Tax Code which states that a corporation entitled to a
refund may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding taxable year, petitioner
indicated in its 1989 Income Tax Return that it would apply the said amount as a tax credit for the succeeding taxable
year, 1990. Subsequently, petitioner informed the Bureau of Internal Revenue (BIR) that it would claim the amount as
a tax refund, instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed its
claim with the Court of Tax Appeals.
The CTA and the CA, however, denied the claim for tax refund. Since petitioner declared in its 1989 Income Tax
Return that it would apply the excess withholding tax as a tax credit for the following year, the Tax Court held that
petitioner was presumed to have done so. The CTA and the CA ruled that petitioner failed to overcome this
presumption because it did not present its 1990 Return, which would have shown that the amount in dispute was not
applied as a tax credit. Hence, the CA concluded that petitioner was not entitled to a tax refund.
We disagree with the Court of Appeals. As a rule, the factual findings of the appellate court are binding on this Court.
This rule, however, does not apply where, inter alia, the judgment is premised on a misapprehension of facts, or when
the appellate court failed to notice certain relevant facts which if considered would justify a different
conclusion. 11 This case is one such exception.
In the first place, petitioner presented evidence to prove its claim that it did not apply the amount as a tax credit.
During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioner's accounting department, testified to
this fact. It likewise presented its claim for refund and a certification issued by Mr. Gil Lopez, petitioner's vicepresident, stating that the amount of P112,491 "has not been and/or will not be automatically credited/offset against
any succeeding quarters' income tax liabilities for the rest of the calendar year ending December 31, 1990." Also
presented were the quarterly returns for the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented no evidence at
all. Because it ought to know the tax records of all taxpayers, the CIR could have easily disproved petitioner's claim.
To repeat, it did not do so.
More important, a copy of the Final Adjustment Return for 1990 was attached to petitioner's Motion for
Reconsideration filed before the CTA. 12 A final adjustment return shows whether a corporation incurred a loss or
gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred P52,480,173 as
net loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to petitioner's
Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion for Reconsideration, however,
the CTA ignored the said Return. In the same vein, the CA did not pass upon that significant document.
True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the
Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the
technical rules of evidence." 13The paramount consideration remains the ascertainment of truth. Verily, the quest for
orderly presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to arrive at
a just determination of a controversy.
1wphi1

In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net
loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax
credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the
appellate court committed a reversible error.

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They
are tools designed to facilitate the attainment of justice. 14 But there can be no just determination of the present action
if we ignore, on grounds of strict technicality, the Return submitted before the CTA and even before this Court. 15 To
repeat, the undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it incurred no tax liability to
which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax
refund which rightfully belongs to the petitioner.
Public respondents maintain that what was attached to petitioner's Motion for Reconsideration was not the final
adjustment Return, but petitioner's first two quarterly returns for 1990. 16 This allegation is wrong. An examination of
the records shows that the 1990 Final Adjustment Return was attached to the Motion for Reconsideration. On the
other hand, the two quarterly returns for 1990 mentioned by respondent were in fact attached to the Petition for
Review filed before the CTA. Indeed, to rebut respondents' specific contention, petitioner submitted before us its
Surrejoinder, to which was attached the Motion for Reconsideration and Exhibit "A" thereof, the Final Adjustment
Return for 1990. 17
CTA Case No. 4897
Petitioner also calls the attention of this Court, as it had done before the CTA, to a Decision rendered by the Tax Court
in CTA Case No. 4897, involving its claim for refund for the year 1990. In that case, the Tax Court held that
"petitioner suffered a net loss for the taxable year 1990 . . . ." 18 Respondent, however, urges this Court not to take
judicial notice of the said case. 19
As a rule, "courts are not authorized to take judicial notice of the contents of the records of other cases, even when
such cases have been tried or are pending in the same court, and notwithstanding the fact that both cases may have
been heard or are actually pending before the same judge." 20
Be that as it may, Section 2, Rule 129 provides that courts may take judicial notice of matters ought to be known to
judges because of their judicial functions. In this case, the Court notes that a copy of the Decision in CTA Case No.
4897 was attached to the Petition for Review filed before this Court. Significantly, respondents do not claim at all that
the said Decision was fraudulent or nonexistent. Indeed, they do not even dispute the contents of the said Decision,
claiming merely that the Court cannot take judicial notice thereof.
To our mind, respondents' reasoning underscores the weakness of their case. For if they had really believed that
petitioner is not entitled to a tax refund, they could have easily proved that it did not suffer any loss in 1990. Indeed, it
is noteworthy that respondents opted not to assail the fact appearing therein that petitioner suffered a net loss in
1990 in the same way that it refused to controvert the same fact established by petitioner's other documentary
exhibits.
In any event, the Decision in CTA Case No. 4897 is not the sole basis of petitioner's case. It is merely one more bit of
information showing the stark truth: petitioner did not use its 1989 refund to pay its taxes for 1990.
Finally, respondents argue that tax refunds are in the nature of tax exemptions and are to be construed strictissimi
juris against the claimant. Under the facts of this case, we hold that petitioner has established its claim. Petitioner may
have failed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed fact: that petitioner suffered a net loss in
1990, and that it could not have applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted,
should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of
its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must

it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its
own example of honor, dignity and uprightness.
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision and Resolution of the Court of Appeals
REVERSED and SET ASIDE. The Commissioner of Internal Revenue is ordered to refund to petitioner the amount of
P112,491 as excess creditable taxes paid in 1989. No costs.
1wphi1.nt

SO ORDERED.
G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other
hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The
corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal
Revenue was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of
protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2On
March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the
case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred
service of the warrant. 4On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. 5 Sixteen days
later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the
Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may
be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of
distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being
"tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its
letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued;
indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a
copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant
was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was notpro forma and was based
on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary
period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only
on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the
warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary
period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with
Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered.
The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of
the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal
holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact,
as the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has
been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as
agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid
the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after examining the evidence, that no
distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are members of the same family in
control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or
in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an
attempt to evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and
the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in
different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict
business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year,
when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the
total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in
view of the close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21 After deducting
the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties. This finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as
deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or
incurred in carrying on any trade or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The test of deductibility in the case of
compensation payments is whether they are reasonable and are, in fact, payments purely for service.
This test and deductibility in the case of compensation payments is whether they are reasonable and
are, in fact, payments purely for service. This test and its practical application may be further stated
and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of
whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. . . . (Promulgated
Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private
respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by
the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve
themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's
hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of
the government. The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes
that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the
respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private
respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the
petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.