Hilado vs Collector of Internal Revenue

Posted on December 6, 2012

100 Phil. 188

1956

Secretary of Finance revoked a general circular pursuant to which a taxpayer claimed deductions
from his gross income.

FACTS
Hilado filed his income tax return wherein he claimed the amount of P12,387.65 as a deductible
item from his gross income pursuant to the Collector of Internal Revenues General Circular No.
V-123, issued pursuant to certain rules laid down by the Secretary of Finance.
Subsequently, the new Secretary of Finance, through the CIR, issued General Circular No. V-
139 which revoked General Circular No. V-123 and laid down the rule that property losses
which occurred during the World War II are deductible in the year of actual loss/destruction of
said property. As a consequence, the P12,387.65 was disallowed as a deduction from petitioners
gross income for 1951 and the CIR demanded from him the payment of P3,546 as deficiency
income tax for the year.

ISSUE
Whether the Secretary of Finance acted with valid authority in revoking General Circular No. V-
123 and approving in lieu thereof, General Circular No. V-139.

HELD
Yes. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the
acts or previous rulings of his predecessors in office because the construction of a statute by
those administering it is not binding on their successors if the latter becomes satisfied that a
different construction should be given. General Circular No. V-123, having been issued on a
wrong construction by the law, cannot give rise to a vested right that can be invoked by a
taxpayer. A vested right cannot spring from a wrong interpretation.
An administrative officer cannot change a law enacted by Congress. Once a regulation which
merely interprets a statute is determined erroneous, it becomes a nullity. The CIRs
erroneous construction of the law does not preclude or stop the Government from collecting a
tax legally due.
Under Art. 2254 of the Civil Code, no vested/acquired right can arise from acts/omissions
which are against the law or which infringe upon the rights of others.