Chamber of Real Estate and Builders Associations, Inc., v. The Hon.

Executive
Secretary Alberto Romulo, et al
G.R. No. 160756. March 9, 2010
Facts: Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA), an
association of real estate developers and builders in the Philippines, questioned the
validity of Section 27(E) of the Tax Code which imposes the minimum corporate income
tax (MCIT) on corporations.
Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2% of
gross income, beginning on the 4th taxable year immediately following the year in which
it commenced its business operations, when such MCIT is greater than the normal
corporate income tax. If the regular income tax is higher than the MCIT, the corporation
does not pay the MCIT.
CREBA argued, among others, that the use of gross income as MCIT base amounts to a
confiscation of capital because gross income, unlike net income, is not realized gain.
CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise
known as the Consolidated Withholding Tax Regulations, which prescribe the rules and
procedures for the collection of CWT on sales of real properties classified as ordinary
assets, on the grounds that these regulations:
Use gross selling price (GSP) or fair market value (FMV) as basis for determining
the income tax on the sale of real estate classified as ordinary assets, instead of the
entitys net taxable income as provided for under the Tax Code;
Mandate the collection of income tax on a per transaction basis, contrary to the Tax
Code provision which imposes income tax on net income at the end of the taxable
period;
Go against the due process clause because the government collects income tax even
when the net income has not yet been determined; gain is never assured by mere
receipt of the selling price; and
Contravene the equal protection clause because the CWT is being charged upon real
estate enterprises, but not on other business enterprises, more particularly, those in the
manufacturing sector, which do business similar to that of a real estate enterprise.
Issues: (1) Is the imposition of MCIT constitutional? (2) Is the imposition of CWT on
income from sales of real properties classified as ordinary assets constitutional?
Held: (1) Yes. The imposition of the MCIT is constitutional. An income tax is arbitrary
and confiscatory if it taxes capital, because it is income, and not capital, which is subject
to income tax. However, MCIT is imposed on gross income which is computed by
deducting from gross sales the capital spent by a corporation in the sale of its goods,
i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is
not being taxed.
Various safeguards were incorporated into the law imposing MCIT.
Firstly, recognizing the birth pangs of businesses and the reality of the need to recoup
initial major capital expenditures, the MCIT is imposed only on the 4th taxable year
immediately following the year in which the corporation commenced its operations.

Secondly, the law allows the carry-forward of any excess of the MCIT paid over the
normal income tax which shall be credited against the normal income tax for the three
immediately succeeding years.
Thirdly, since certain businesses may be incurring genuine repeated losses, the law
authorizes the Secretary of Finance to suspend the imposition of MCIT if a corporation
suffers losses due to prolonged labor dispute, force majeure and legitimate business
reverses.
(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales of
real property classified as ordinary assets remains as the entitys net taxable income as
provided in the Tax Code, i.e., gross income less allowable costs and deductions. The
seller shall file its income tax return and credit the taxes withheld by the withholding
agent-buyer against its tax due. If the tax due is greater than the tax withheld, then the
taxpayer shall pay the difference. If, on the other hand, the tax due is less than the tax
withheld, the taxpayer will be entitled to a refund or tax credit.
The use of the GSP or FMV as basis to determine the CWT is for purposes of practicality
and convenience. The knowledge of the withholding agent-buyer is limited to the
particular transaction in which he is a party. Hence, his basis can only be the GSP or
FMV which figures are reasonably known to him.
Also, the collection of income tax via the CWT on a per transaction basis, i.e., upon
consummation of the sale, is not contrary to the Tax Code which calls for the payment of
the net income at the end of the taxable period. The taxes withheld are in the nature of
advance tax payments by a taxpayer in order to cancel its possible future tax obligation.
They are installments on the annual tax which may be due at the end of the taxable year.
The withholding agent-buyers act of collecting the tax at the time of the transaction, by
withholding the tax due from the income payable, is the very essence of the withholding
tax method of tax collection.
On the alleged violation of the equal protection clause, the taxing power has the
authority to make reasonable classifications for purposes of taxation. Inequalities which
result from singling out a particular class for taxation, or exemption, infringe no
constitutional limitation. The real estate industry is, by itself, a class and can be validly
treated differently from other business enterprises.
What distinguishes the real estate business from other manufacturing enterprises, for
purposes of the imposition of the CWT, is not their production processes but the prices of
their goods sold and the number of transactions involved. The income from the sale of a
real property is bigger and its frequency of transaction limited, making it less
cumbersome for the parties to comply with the withholding tax scheme. On the other
hand, each manufacturing enterprise may have tens of thousands of transactions with
several thousand customers every month involving both minimal and substantial
amounts.

Tan vs. Del Rosario

Facts:
1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income
Taxation Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as
the Rules and Regulations promulgated by public respondents pursuant to said law.
2.

Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the following

provisions of the Constitution:
-Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.
- Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
- Article III, Section 1 No person shall be deprived of . . . property without due process
of law, nor shall any person be denied the equal protection of the laws.

3. Petitioners contended that public respondents exceeded their rule-making authority in

applying SNIT to general professional partnerships. Petitioner contends that the title of
HB 34314, progenitor of RA 7496, is deficient for being merely entitled, "Simplified Net
Income Taxation Scheme for the Self-Employed and Professionals Engaged in the
Practice of their Profession" (Petition in G.R. No. 109289) when the full text of the title
actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and
Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and
29 of the National Internal Revenue Code,' as amended. Petitioners also contend it
violated due process.
5. The Solicitor General espouses the position taken by public respondents.
6. The Court has given due course to both petitions.
ISSUE: Whether or not the tax law is unconstitutional for violating due process
NO. The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax power. No
such transgression is so evident in herein case.
1. Uniformity of taxation, like the concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges
and liabilities. Uniformity does not violate classification as long as: (1) the standards that
are used therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to both
present and future conditions, and (4) the classification applies equally well to all those
belonging to the same class.
2. What is apparent from the amendatory law is the legislative intent to increasingly shift the
income tax system towards the schedular approach in the income taxation of individual
taxpayers and to maintain, by and large, the present global treatment on taxable
corporations. The Court does not view this classification to be arbitrary and
inappropriate.

ISSUE 2: Whether or not public respondents exceeded their authority in

promulgating the RR
No. There is no evident intention of the law, either before or after the amendatory
legislation, to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions individually and of
those who do it through a general professional partnership.

CIR v. AICHI FORGING COMPANY OF ASIA, INC.

G.R. No. 184823 October 6, 2010
Del Castillo, J.
Doctrine:
- The CIR has 120 days, from the date of the submission of the complete documents
within which to grant or deny the claim for refund/credit of input vat. In case of full or
partial denial by the CIR, the taxpayers recourse is to file an appeal before the CTA
within 30 days from receipt of the decision of the CIR. However, if after the 120-day
period the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
- A taxpayer is entitled to a refund either by authority of a statute expressly granting such
right, privilege, or incentive in his favor, or under the principle of solutio
indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a
taxpayer must prove not only his entitlement to a refund but also his compliance with the
procedural due process.
- As between the Civil Code and the Administrative Code of 1987, it is the latter that
must prevail being the more recent law, following the legal maxim, Lex posteriori
derogat priori.
- The phrase within two (2) years x x x apply for the issuance of a tax credit certificate
or refund under Subsection (A) of Section 112 of the NIRC refers to applications for
refund/credit filed with the CIR and not to appeals made to the CTA.
Facts:
Petitioner filed a claim of refund/credit of input vat in relation to its zero-rated sales from
July 1, 2002 to September 30, 2002. The CTA 2nd Division partially granted
respondents claim for refund/credit.
Petitioner filed a Motion for Partial Reconsideration, insisting that the administrative and
the judicial claims were filed beyond the two-year period to claim a tax refund/credit
provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the
year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30,
2004 was beyond the two-year period, which expired on September 29, 2004. He cited
as basis Article 13 of the Civil Code, which provides that when the law speaks of a year,
it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of
the administrative and the judicial claims contravenes Sections 112 and 229 of the

NIRC. According to the petitioner, a prior filing of an administrative claim is a condition

precedent before a judicial claim can be filed.
The CTA denied the MPR thus the case was elevated to the CTA En Banc for review.
The decision was affirmed. Thus the case was elevated to the Supreme Court.
Respondent contends that the non-observance of the 120-day period given to the CIR to
act on the claim for tax refund/credit in Section 112(D) is not fatal because what is
important is that both claims are filed within the two-year prescriptive period. In support
thereof, respondent cited Commissioner of Internal Revenue v. Victorias Milling Co., Inc.
[130 Phil 12 (1968)] where it was ruled that if the CIR takes time in deciding the claim,
and the period of two years is about to end, the suit or proceeding must be started in the
CTA before the end of the two-year period without awaiting the decision of the CIR.
Issues:
1. Whether or not the claim for refund was filed within the prescribed period
2. Whether or not the simultaneous filing of the administrative and the judicial claims
contravenes Section 229 of the NIRC, which requires the prior filing of an administrative
claim, and violates the doctrine of exhaustion of administrative remedies
Held:
1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation (G.R. No. 172129, September 12, 2008), the two-year period should be
reckoned from the close of the taxable quarter when the sales were made.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc (G.R. No.
162155, August 28, 2007, 531 SCRA 436), we said that as between the Civil Code,
which provides that a year is equivalent to 365 days, and the Administrative Code of
1987, which states that a year is composed of 12 calendar months, it is the latter that
must prevail being the more recent law, following the legal maxim, Lex posteriori
derogat priori.
Thus, applying this to the present case, the two-year period to file a claim for tax
refund/credit for the period July 1, 2002 to September 30, 2002 expired on September
30, 2004. Hence, respondents administrative claim was timely filed.
2. Yes. We find the filing of the judicial claim with the CTA premature.
Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the date of
the submission of the complete documents in support of the application [for tax
refund/credit], within which to grant or deny the claim. In case of full or partial denial by
the CIR, the taxpayers recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to
act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.
Subsection (A) of Section 112 of the NIRC states that any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such

sales. The phrase within two (2) years x x x apply for the issuance of a tax credit
certificate or refund refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA.
The case of Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. is
inapplicable as the tax provision involved in that case is Section 306, now Section 229 of
the NIRC. Section 229 does not apply to refunds/credits of input VAT.
The premature filing of respondents claim for refund/credit of input VAT before the CTA
warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

TAGANITO MINING CORPORATION vs. COMMISSIONER,

CTA Case No. 4702 April 28, 1995
Facts:
Taganito Mining Corporation (TMC) is a domestic corporation expressly granteda permit
by the government via an operating contract to explore, develop and utilizemineral
deposits found in a specified portion of a mineral reservation area located inSurigao del
Norte and owned by the government. In exchange, TMC is obliged to payroyalty to the
government over and above other taxes. During July to December 1989,TMC removed,
shipped and sold substantial quantities of Beneficiated Nickel Silicateore and Chromite
ore and paid excise taxes in the amount of Php6,277,993.65 incompliance with
Sec.151(3) of the Tax Code.The 5% excise tax was based on the amount and weight
shown in the provisionalinvoice issued by TMC. The metallic minerals are then shipped
abroad to Japanesebuyers where the minerals were analyzed allegedly by independent
surveyors uponunloading at its port of destination. Analysis abroad would oftentimes
reveal a differentvalue for the metallic minerals from that indicated in the
temporary/provisional invoice submitted by TMC. Variance is in the market values in
the provisional invoice and that indicated in the final calculation sheet presented by the
buyers.
Variances occur in theweight of the shipment or the price of the metallic minerals per
kilogram and sometimesin their metallic content resulting in discrepancies in the total
selling price. It is always the price indicated in the final invoice that is determinative of
the amount that the buyerswill eventually pay TMC. TMC contended that is entitled to a
refund because the actual market value thatshould be made the basis of the taxes is the
amount specified in the independentsurveyor abroad.
Issues:
1. Whether or not TMC is entitled to refund.2. Whether or not the actual market value
that should be used should be the marketvalue after the assessment abroad was
conducted.
RULING:
1. NO. Tax refund partake of the nature of an exemption, and as such, taxexemption
cannot be allowed unless granted in the most explicit and categoricallanguage. Taxes
are what we pay for civilized society. Without taxes, the governmentwould be paralyzed
for lack of the motive power to activate and operate it.

2. NO. Use market value right after removal from the bed or mines. Sec. 151(3)of the
Tax Code1: on all metallic minerals, a tax of five percent (5%) based on theactual market
value of the gross output thereof at the time of removal, in the case of those locally
extracted or produced: or the value used by the Bureau of Customs indetermining tariff
and customs duties, net of excise tax and value-added tax, in case of importation. The
law refers to the actual market value of the minerals at the time theseminerals were
moved away from the position it occupied, i.e. Philippine valuation andanalysis because
it is in this country where these minerals were extracted, removed andeventually shipped
abroad. To reckon the actual market value at the time of removal isalso consistent with
the essence of an excise tax. It is a charge upon the privilege of severing or extracting
minerals from the earth, and is due and payable upon removal of the mineral products
from its bed or mines (Republic Cement vs. Comm, 23 SCRA 967.
Commissioner of Internal Revenue vs. St Luke's Medical Center

Commissioner of Internal Revenue vs. St Luke's Medical Center

Facts:
St. Lukes Medical Center, Inc. (St. Lukes) is a hospital organized as a non-stock and
non-profit corporation. St. Lukes accepts both paying and non-paying patients. The BIR
assessed St. Lukes deficiency taxes for 1998 comprised of deficiency income tax,
value-added tax, and withholding tax. The BIR claimed that St. Lukes should be liable
for income tax at a preferential rate of 10% as provided for by Section 27(B). Further, the
BIR claimed that St. Lukes was actually operating for profit in 1998 because only 13% of
its revenues came from charitable purposes. Moreover, the hospitals board of
trustees, officers and employees directly benefit from its profits and assets.
On the other hand, St. Lukes maintained that it is a non-stock and non-profit
institution for charitable and social welfare purposes exempt from income tax under
Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not
destroy its income tax exemption.
Issue:
The sole issue is whether St. Lukes is liable for deficiency income tax in 1998
under Section 27(B) of the NIRC, which imposes a preferential tax rate of 10^ on the
income of proprietary non-profit hospitals.
Ruling:
Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand,
and Section 30(E) and (G) on the other hand, can be construed together without
the removal of such tax exemption.
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that they must be proprietary and
non-profit. Proprietary means private, following the definition of a proprietary
educational institution as any private school maintained and administered
by private individuals or groups with a government permit. Non-profit means no
net income or asset accrues to or benefits any member or specific person, with all

the net income or asset devoted to the institutions purposes and all its activities
conducted not for profit.
Non-profit does not necessarily mean charitable. In Collector of Internal Revenue
v. Club Filipino Inc. de Cebu, this Court considered as non-profit a sports club organized
for recreation and entertainment of its stockholders and members. The club was
primarily funded by membership fees and dues. If it had profits, they were used for
overhead expenses and improving its golf course. The club was non-profit because of its
purpose and there was no evidence that it was engaged in a profit-making
enterprise.
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable.
The Court defined charity in Lung Center of the Philippines v. Quezon City as a
gift, to be applied consistently with existing laws, for the benefit of an indefinite
number of persons, either by bringing their minds and hearts under the influence of
education or religion, by assisting them to establish themselves in life or [by] otherwise
lessening the burden of government. However, despite its being a tax exempt
institution, any income such institution earns from activities conducted for profit is
taxable, as expressly provided in the last paragraph of Sec. 30.
To be a charitable institution, however, an organization must meet the substantive test
of charity in Lung Center. The issue in Lung Center concerns exemption from real
property tax and not income tax. However, it provides for the test of charity in our
jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens
the burden of government. In other words, charitable institutions provide for
free goods and services to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of efficiency, the government forgoes
taxes which should have been spent to address public needs, because certain
private entities already assume a part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by the government is
compensated by its relief from doing public works which would have been funded by
appropriations from the Treasury.
The Constitution exempts charitable institutions only from real property taxes. In the
NIRC, Congress decided to extend the exemption to income taxes. However, the way
Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3),
Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is exempt from
income tax. On the other hand, Section 28(3), Article VI of the Constitution does not
define a charitable institution, but requires that the institution actually, directly and
exclusively use the property for a charitable purpose.
To be exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property actually, directly and exclusively
for charitable purposes.
To be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be organized and operated exclusively for charitable
purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC
requires that the institution be operated exclusively for social welfare.

However, the last paragraph of Section 30 of the NIRC qualifies the words organized
and operated exclusively by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this
Code.
In short, the last paragraph of Section 30 provides that if a tax exempt charitable
institution conducts any activity for profit, such activity is not tax exempt even as its
not-for-profit activities remain tax exempt.
Thus, even if the charitable institution must be organized and operated exclusively for
charitable purposes, it is nevertheless allowed to engage in activities conducted for
profit without losing its tax exempt status for its not-for-profit activities.The only
consequence is that the income of whatever kind and character of a charitable
institution from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax. Prior to the introduction of
Section 27(B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate
is now 10%.
The Court finds that St. Lukes is a corporation that is not operated exclusively for
charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict interpretation of a provision granting
tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section
30(E) and (G) of the NIRC requires that an institution be operated exclusively for
charitable or social welfare purposes to be completely exempt from income tax. An
institution under Section 30(E) or (G) does not lose its tax exemption if it earns
income from its for-profit activities. Such income from for-profit activities, under the
last paragraph of Section 30, is merely subject to income tax, previously at the ordinary
corporate rate but now at the preferential 10% rate pursuant to Section 27(B).
St. Lukes fails to meet the requirements under Section 30(E) and (G) of the NIRC to
be completely tax exempt from all its income. However, it remains a proprietary nonprofit hospital under Section 27(B) of the NIRC as long as it does not distribute any of its
profits to its members and such profits are reinvested pursuant to its corporate purposes.
St. Lukes, as a proprietary non-profit hospital, is entitled to the preferential tax rate of
10% on its net income from its for-profit activities.
St. Lukes is therefore liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC. However, St. Lukes has good reasons to rely on the letter dated 6 June 1990 by
the BIR, which opined that St. Lukes is a corporation for purely charitable and social
welfare purposes and thus exempt from income tax.
In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said 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.

WHEREFORE, St. Lukes Medical Center, Inc. is ORDERED TO PAY the deficiency
income tax in 1998 based on the 10% preferential income tax rate under Section
27(8) of the National Internal Revenue Code. However, it is not liable for surcharges
and interest on such deficiency income tax under Sections 248 and 249 of the
National Internal Revenue Code. All other parts of the Decision and Resolution of
the Court of Tax Appeals are AFFIRMED.