1992 Bar among other benefits, his terminal leave pay for which the BIR remedies, the

for which the BIR remedies, the laws and rules of procedure of general
1992 Bar, Q. I(1): Mr. Dante Raymundo retired from the
government service as Director of Land Transportation on
January 6, 1985. Upon retirement, Mr. Raymundo received,
among other benefits, his terminal leave pay for which the BIR
withheld the sum of P56.000.00 a week following the date of his
retirement.
On October 17, 1991, following the decision of the Supreme
Court that the money value of the accumulated leave
credits/terminal pay is not subject to withholding tax, Mr.
Raymundo filed a claim for refund of P56.000.00 with the
Commissioner of Internal Revenue.
Is Mr. Raymundo within his rights in claiming a refund of taxes
withheld on his terminal leave following the Supreme Court
decision?
A: No. Under Section 230 of the NIRC, a suit for the recovery of
tax erroneously or illegally collected cannot be filed after the
expiration of two years from the date of payment of tax
regardless of any supervening cause that may arise after payment.
Thus, the right of Mr. Raymundo to claim for refund has already
prescribed.
1992 Bar, Q. I(2): Mr. Dante Raymundo retired from the
government service as Director of Land Transportation on
January 6, 1985. Upon retirement, Mr. Raymundo received,
among other benefits, his terminal leave pay for which the BIR
withheld the sum of P56.000.00 a week following the date of his
retirement.
On October 17, 1991, following the decision of the Supreme
Court that the money value of the accumulated leave
credits/terminal pay is not subject to withholding tax, Mr.
Raymundo filed a claim for refund of P56.000.00 with the
Commissioner of Internal Revenue.
If the retiree is within his legal rights in claiming refund of the
taxes withheld, will the BIR automatically grant his claim?
Explain your answer.
A: No. Because he must file a written claim.
Comment: The question expresses that the retiree is “within his
legal rights" in claiming the refund of the taxes withheld.
Accordingly, an examinee can assume that all the requirements
have been met with respect to the refund. In this sense, an
examinee may be led to say it can be automatic.
1992 Bar, Q. I(3): Mr. Dante Raymundo retired from the
government service as Director of Land Transportation on
January 6, 1985. Upon retirement, Mr. Raymundo received,
withheld the sum of P56.000.00 a week following the date of his
retirement.
On October 17, 1991, following the decision of the Supreme
Court that the money value of the accumulated leave
credits/terminal pay is not subject to withholding tax, Mr.
Raymundo filed a claim for refund of P56.000.00 with the
Commissioner of Internal Revenue.
Assuming that the BIR denies the claim for refund, what could be
the possible reason or statutory basis for such a denial?
A: The possible reason for a denial would be that the written
claim has already prescribed or that the terminal pay leave is not
excluded from income tax. Sec. 230, NIRC (supra).
1992 Bar, Q. I(4): Mr. Dante Raymundo retired from the
government service as Director of Land Transportation on
January 6, 1985. Upon retirement, Mr. Raymundo received,
among other benefits, his terminal leave pay for which the BIR
withheld the sum of P56.000.00 a week following the date of his
retirement.
On October 17, 1991, following the decision of the Supreme
Court that the money value of the accumulated leave
credits/terminal pay is not subject to withholding tax, Mr.
Raymundo filed a claim for refund of P56.000.00 with the
Commissioner of Internal Revenue.
Discuss the theory of supervening event as it applies to claims
for refund of erroneously/illegally collected taxes. Can the
retiree claim a refund under this theory? Explain.
A: The theory of supervening event expresses that an event which
is beyond the control of the parties would allow the recovery of
erroneously or illegally collected taxes provided the proceeding
for such recovery is made within the prescriptive period from the
occurrence of such event.
The theory of the supervening event has been abrogated by
Section 230 of the NIRC.
1992 Bar, Q. II(1): What are the legal remedies of an aggrieved
taxpayer both at the administrative and judicial levels? Describe
separately the procedures.
A:
(a) The administrative and judicial remedies are such as may be
provided for in law imposing the tax. An expression of such
remedies in the law should then be deemed exclusive by the
taxpayer. When the law imposing the tax is silent on
application shall then govern.
(b) Under the NIRC, an aggrieved taxpayer may either:
(1) Dispute an assessment within thirty (30) days from receipt
thereof by filing with the Commissioner of Internal Revenue
a request for reconsideration of reinvestigation, or
(2) Pay the assessment within the thirty days then file a written
claim with the Commissioner of Internal Revenue for refund
within two years from full and final payment.
Upon an adverse decision of the Commissioner and within thirty
days from receipt of notice of denial, an appeal may be filed with
the Court of Tax Appeals. However, with respect to claims for
refunds, an appeal must also be filed within two years from the
date of full and final payment.
From the decision of the Court of Tax Appeals, an appeal or
petition for review by certiorari may be taken to the Court of
Appeals and then to the Supreme Court in appropriate cases.
1992 Bar, Q. II(2): Distinguish between a taxpayer’s remedies in
connection with his tax assessment and/or demand and his
claim for refund of taxes alleged to have been erroneously or
illegally collected.
A: A tax assessment becomes final unless it is disputed or
contested within 30 days from receipt thereof by the taxpayer. If
the action taken by the Commissioner on the request for
reconsideration is unacceptable to the taxpayer, the latter must
then appeal, by way of Petition for Review to the Court of Tax
Appeals within thirty days from receipt of the decision of the
Commissioner of Internal Revenue. The taxpayer may also opt to
pay the tax before the finality of the assessment (e.g., within 30
days from receipt of the assessment) and then file within two
years a written claim for the refund of the tax. A denial by the
Commissioner of a claim for refund must be appealed to the CTA
within thirty days from receipt of notice of denial and within two
years from the day of full and final payment. Continued inaction
by the Commissioner on claims for refund may thus be taken as a
denial appealable to the Court of Tax Appeals, in order to permit
the appeal to be considered or having been made within the two-
year mandatory period.
1992 Bar, Q. II(3): What are the requisites before a taxpayer's
request for reinvestigation may be granted by the BIR? Discuss
briefly.
A: A request for re-investigation refers to a plea for re- evaluation
of an assessment on the basis of newly-discovered evidence or
additional evidence the taxpayer intends to present in the re-
investigation.
Alternative: He must file a written protest stating his grounds or none of the above because the corporation is not a real estate power vested by law on the Commissioner of Internal Revenue in
therefor so that his protest could be granted. dealer? Discuss. the exercise of which the regular courts may not interfere with.

A: ABC corporation must pay the 35% corporate income tax. 1992 Bar, Q. IV(3)(a): Which court acts on: disputed
1992 Bar, Q. II(4): If the request for re-investigation is denied, is
The National Internal Revenue Code does not provide for the assessments?
it possible or advisable to file a petition for review with any
payment by corporations of 5% capital gains tax on the sale of real
court or agency as a last resort?
property, whether considered capital assets or not. Such income is A: The CTA exercises exclusive appellate Jurisdiction over disputed
included in the computation of net income (Gross taxable income assessments.
A: A denial of a request for re-investigation on an assessment
less deductions) and is subject to the tax rate of 35%.
partakes the nature of a decision if made by the Commissioner. In
this a case, an appeal may be filed with the CTA within thirty days 1992 Bar, Q. IV(3)(b): Which court acts on tax collection cases
Alternative: The capital gains derived will only form part of the
from receipt of the notice of denial. filed by the BIR?
taxable income of the taxpayer susceptible to deductions.
Accordingly, the net capital gain on the sale may not necessarily
Alternative: On the assumption that the denial by the BIR was not A: Tax collection cases are filed by the BIR with regular courts.
be subject to the 35% tax. The taxpayer’s total income and
made by the Commissioner himself but by the regional officer, for
deductions for the year must be considered.
instance, or that the request for re-investigation is not on an
1992 Bar, Q. V: Your client. United Market Cooperative, is
assessment as yet, then it may not necessarily constitute a
It is immaterial whether the corporation is a real estate dealer or requesting the Commissioner of Internal Revenue to exempt it
decision on a disputed assessment from which an appeal may be
not. from the payment of VAT on its purchase of prime commodities
made to the Court of Tax Appeals.
from food suppliers/manufacturers on the ground that it is
1992 Bar, Q. IV(1): Pursuant to the National Internal Revenue exempt from all taxes, including VAT, under R.A. No. 6938, the
Comment: The problem did not indicate the subject matter of the
Code and under existing rules and regulations, the Commissioner Cooperative Code of the Philippines.
request for reinvestigation nor the officials acting for and in behalf
of the BIR in the denial of the request for re-investigation. of Internal Revenue is clothed with the authority/power to
evaluate facts of tax cases and issue assessments/demands Do you think your client can obtain the necessary exemption
Assuming that the subject matter of the request for
against a taxpayer for deficiency taxes. from the BIR? If your answer is in the affirmative, explain the
reinvestigation were not an assessment or that the denial was
basis for the grant. If in the negative, state the basis for the
made by a lower official, then there would still be a need for
If an RTC Judge, on motion of an informer, renders a decision rejection of the request.
pursuing administrative remedies.
ordering the Commissioner to assess and collect from the
taxpayer certain deficiency taxes when, in fact, the BIR has A:
1992 Bar, Q. III: ABC, a domestic corporation sold in 1989 two (2)
already ascertained that no deficiency taxes are due the
condominiun units of Legaspi Towers in Roxas Blvd. for (1) An exemption is not necessary. The value added tax is not on
taxpayer, what proper course of action would you advise your
P8,158,142.00. Taxpayer corporation declared in its income tax the purchase but on the sellers, except in importation.
informer-client to undertake?
return for taxable year 1989, its gains derived from the sale of (2) No. The exemption to which the taxpayers are entitled to
the two (2) condominium units as follows: refers to those taxes that are levied on the exempt taxpayer
A: The issue being disputed assessment, jurisdiction, if at all, lies
with the Court of Tax Appeals and not with the RTC. The court or directly imposed on the exempted goods. The value
Unit A Unit B Total added tax is imposed on the sellers of goods and services,
decision, in my view, can be voided. I would simply advice my
Proceeds from P3,933,679 P4,224,463 P8,158,142 not the purchaser.
client to pursue the matter administratively. If the evidence
Sale
warrants, I could have the matter investigated by the
Less: Ombudsman. Alternative: Yes. Under the NIRC, transactions which are
(a) Acquisition P1,501,295 P4,224,463 P3,031,050 exempted by special laws from the payment of value-added taxes
Costs Alternative: I will advice the client to go to the BIR to file an shall be so exempt. RA 6938.the Cooperative Code of the
(Deed of information under oath so that it may consider any evidence my Philippines is a special law entitling the United Market
Sale 9-9- client may have in his possession. Cooperative in the case at bar to exemption from VAT.
83)
(b) Payments P49,428 P55,413 P104,661 1992 Bar, Q. VI(1): On September 10, 1991, a Bank Manager of
1992 Bar, Q. IV(2): Pursuant to the National Internal Revenue
of Realty People’s Bank, Inc. (PBI), upon reading an obituary announcing
Code and under existing rules and regulations, the Commissioner
Tax the death of Mr. Roberto Diaz refused to allow one of his heirs
of Internal Revenue is clothed with the authority/power to
Total of (A) (B) P1,550,543 P1,585,168 P3,135,711 to withdraw Mr. Diaz’ deposit amounting to P2 Million.
evaluate facts of tax cases and issue assessments/demands
Gains P2,238,136 P2,639,295 P5,022,431
against a taxpayer for deficiency taxes.
A week later, immediately following said denial, the
Without going into computations, answer the following administrator of the estate sued the Bank/Bank Manager to
Do you think an action for mandamus with the RTC can prosper
question: compel them to release the money since such act was arbitrary
to compel the Commissioner to issue a deficiency assessment?
and constituted a denial of property/constitutional rights.
Since ABC derived gains from the sale of the condominium units,
A: No. It has been held that the assessment of taxes is not a
should it pay the 5% capital gains tax, 35% corporate income tax
ministerial duty compellable by mandamus. It is a discretionary
If you are retained as counsel by the Bank/Bank Manager to
defend their stand in refusing to release the P2 Million to the
heirs, what would you raise as a legal defense? Discuss.
A: I would raise the defense that under Sec. 90 of the NIRC a bank
with knowledge of the death of a person who maintains a deposit
account with such bank shall allow withdrawals therefrom only if
the mandatory requirement of a certification from the
Commissioner that the taxes due thereon have been paid could be
presented by an heir. Absent such certification, a bank is
authorized to withhold the release of deposits of a decedent.
1992 Bar, Q. VI(2): On September 10, 1991, a Bank Manager of
People’s Bank, Inc. (PBI), upon reading an obituary announcing
the death of Mr. Roberto Diaz refused to allow one of his heirs
to withdraw Mr. Diaz’ deposit amounting to P2 Million.
A week later, immediately following said denial, the
administrator of the estate sued the Bank/Bank Manager to
compel them to release the money since such act was arbitrary
and constituted a denial of property/constitutional rights.
Under the same set of facts, would you, as administrator of the
estate, rather file an administrative appeal with the
Commissioner of Internal Revenue or a petition for review with
the Court of Tax Appeals? Explain.
A: An administrative appeal to the Commissioner of Internal
Revenue would not be a proper remedy without an original
proceeding having first been filed with the BIR
A petition for review with the Court of Tax Appeals, on the other
hand, requires a final decision of the Commissioner, the CTA being
a court of exclusive appellate jurisdiction.
As administrator, I would cause the payment of the proper taxes
on the deposits and thereafter, secure the required certification
from the Commissioner.
1992 Bar, Q. VI(3): On September 10, 1991, a Bank Manager of
People’s Bank, Inc. (PBI), upon reading an obituary announcing
the death of Mr. Roberto Diaz refused to allow one of his heirs
to withdraw Mr. Diaz’ deposit amounting to P2 Million.
A week later, immediately following said denial, the
administrator of the estate sued the Bank/Bank Manager to
compel them to release the money since such act was arbitrary
and constituted a denial of property/constitutional rights.
If the Commissioner of Internal Revenue allows the
administrator of the estate or the heirs of the decedent to
withdraw from the deposit account, what are the conditions
under the Tax Code which have to be met first?
A: Before withdrawals on deposits of a decedent could be
permitted, the proper taxes should first be paid and a certification
of such payment secured from the Commissioner. However, the
Commissioner may authorize the withdrawal without a
certification provided the amount to be withdrawn shall not
exceed P 10,000.00.
Alternative: Payment of the tax or the filing of a bond would, in
substance, be enough for the Commissioner to allow the
withdrawal.
1992 Bar, Q. VII(1): Mr. Bill Morgan, a Canadian citizen and a
resident of Scarborough, Ontario, sends a gift check of
$20,000.00to his future Filipino daughter-in-law who Is to be
married to his only son in the Philippines.
Is the donation by Mr. Morgan subject to tax? Explain.
A: Yes. While the gift has been made on account of marriage, to
qualify for exemption to the extent of the first PIO.OOO.OO (now
P50.000.00) of the value thereof, such gift should have been given
to a legitimate, recognized natural or adopted child of the donor.
Alternative: It is not subject to tax because the gift was made
outside the Philippines.
Note: The phrase “In the Philippines" is dangling and may be
interpreted by students to modify where the son is, where the
marriage Is, or where the daughter-in-law is. Furthermore, the
question does not say where the daughter-in-law received the
gift. We recommend that any answer that discusses the problem
of situs should be given full credit.
1992 Bar, Q. VII(2): Mr. Bill Morgan, a Canadian citizen and a
resident of Scarborough, Ontario, sends a gift check of
$20,000.00to his future Filipino daughter-in-law who Is to be
married to his only son in the Philippines.
What is the tax consequences, if any, to the donee (Filipino
daughter-in-law of Mr. Morgan)?
A: The gift, with respect to the donee, is excluded from gross
income and is exempt from Income taxation. There Is no donee’s
gift tax.
1992 Bar, Q. VII(3): Mr. Bill Morgan, a Canadian citizen and a
resident of Scarborough, Ontario, sends a gift check of
$20,000.00to his future Filipino daughter-in-law who Is to be
married to his only son in the Philippines.
Can you name one kind of gift that is exempt from donor’s tax
which is extendible to both residents and nonresidents or non-
citizens of the Philippines? Include qualifications, If any.
A: Gifts made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government are
exempt from gift tax with respect to both residents and non-
residents.
1992 Bar, Q. VIII(1): A disgruntled employee of Apache
Corporation reported to the Commissioner of Customs that the
company is illegally importing electronic equipment by way of
unlawful "shipside" activities thereby evading payment of
customs duties and taxes on the goods.
Accordingly, the Commissioner of Customs, upon the request of
the Economic Intelligence and Investigation Bureau (EIIB), issued
warrants of seizure and detention and directed EIIB to seize the
goods listed in the warrants.
After the seizure of the goods and considering the magnitude of
the value of the goods, counsel for Apache Corporation filed a
petition with the Supreme Court for certiorari, prohibition and
mandamus to enjoin the Commissioner of Customs and his
agents from continuing further with the forfeiture proceedings
and praying that the Commissioner return the confiscated
articles on the ground that the warrants were in violation of the
Rules of Court and the Bill of Rights.
If you are a newly-appointed Solicitor in the office of the
Solicitor General representing the Commissioner of Customs,
how would you defend the latter? Give the specific defenses.
A: Appurtenant to its power under the Tariff and Customs Code to
enforce the provisions of such law, the Bureau of Customs may
conduct searches and seizures even without the benefit of a
warrant issued by a judge upon probable cause. This is historically
considered an exemption from the constitutional guarantee
against unreasonable searches and seizures.
1992 Bar, Q. VIII(2): A disgruntled employee of Apache
Corporation reported to the Commissioner of Customs that the
company is illegally importing electronic equipment by way of
unlawful "shipside" activities thereby evading payment of
customs duties and taxes on the goods.
Accordingly, the Commissioner of Customs, upon the request of
the Economic Intelligence and Investigation Bureau (EIIB), issued
warrants of seizure and detention and directed EIIB to seize the
goods listed in the warrants.
After the seizure of the goods and considering the magnitude of
the value of the goods, counsel for Apache Corporation filed a
petition with the Supreme Court for certiorari, prohibition and
mandamus to enjoin the Commissioner of Customs and his
agents from continuing further with the forfeiture proceedings
and praying that the Commissioner return the confiscated
articles on the ground that the warrants were in violation of the
Rules of Court and the Bill of Rights.
Assuming that the enforcement of the warrant had been
extended to the residence of the President of Apache
Corporation, is such enforcement valid? Explain.
A: No. The Tariff and Customs Code authorizes custom officials
and agents to search any building, except dwelling houses.
1992 Bar, Q. VIII(3): A disgruntled employee of Apache
Corporation reported to the Commissioner of Customs that the
company is illegally importing electronic equipment by way of
unlawful "shipside" activities thereby evading payment of
customs duties and taxes on the goods.
Accordingly, the Commissioner of Customs, upon the request of
the Economic Intelligence and Investigation Bureau (EIIB), issued
warrants of seizure and detention and directed EIIB to seize the
goods listed in the warrants.
After the seizure of the goods and considering the magnitude of
the value of the goods, counsel for Apache Corporation filed a
petition with the Supreme Court for certiorari, prohibition and
mandamus to enjoin the Commissioner of Customs and his
agents from continuing further with the forfeiture proceedings
and praying that the Commissioner return the confiscated
articles on the ground that the warrants were in violation of the
Rules of Court and the Bill of Rights.
Do you think the petition for certiorari, prohibition and
mandamus filed by Apache Corporation will prosper in the
Supreme Court? Discuss.
A: No. The choice of remedy assumes want of authority and
Jurisdiction. Warrantless searches and seizures are, however,
authorized under TCC. Such searches and seizures are not
considered unreasonable within the meaning of the constitutional
guarantee.
1992 Bar, Q. IX: Ms. Edna Dinoso is the registered owner of a
residential lot with a two-storey house situated in Naga City. The
lot with an area of328 sq. meters is described and covered by
TCT No. 4739 of the Registry of Deeds of Naga City.
On September 12. 1977, a 115 sq. meter portion of Edna’s
property was expropriated by the Republic of the Philippines for
the sum of P6.700.00 representing the assessed value of the
aforesaid portion: This amount was deposited by the
Government in Edna’s account.
For almost ten (10) years, Edna failed to pay her real estate taxes
on the same property. Thus, on November 5, 1977, her property
was sold at public auction by the City Treasurer of Naga City to
satisfy her real estate tax delta-’ quencies amounting to
P5,800.00. The highest bidder for the property was Angel Chua.
Edna was not present at the public auction although she later
admitted having received the notice of hearing for the petition
for entiy of a new certificate of title by AngelChua. (Both the
auction sale and the final bill of sale were annotated at the back
of TCT No. 4739 by the Register of Deeds.)
On March 15, 1979, Edna filed a complaint to annul the auction
sale which was denied by the CFI Judge of Naga City. In fact, the
CFI Judge ordered the TCT # 4739 of Edna be cancelled and that a
new title be issued to Angel Chua.
On appeal, the Court of Appeals affirmed the CFI decision in
toto.
Edna then elevated the case to the Supreme Court citing several
grave errors of law, among which are:
(1) That her tax delinquencies (involving P5,800.00) for non-
payment of real estate taxes were offset by the sum of
P6,700.00which the government of the Philippines owed
her. She claims that her tax delinquencies have been
extinguished by legal compensation:
(2) That the price of P5,800.00 paid by Angel Chua was grossly
inadequate and that because of its inadequacy, the same is
tantamount to deprivation of property without due process
of law;
(3) That the public auction made on her property is void.
Discuss the merits of the appeal.
A:
(1) The decision of the Court of Appeals affirming the CFI
decision must be affirmed.
On the procedural aspect, it has not been shown, as required
under the Real Property Tax Code that plaintiff has paid the
amount for which the real property has been sold plus interest.
On the claim of extinction of tax liability by legal compensation,
there is jurisprudence to the effect that the doctrine of equitable
recoupment does not apply in this Jurisdiction. Assuming it does,
the facts of the case bear out that the Government does not owe
the plaintiff any amount.
(2) On the claim that the price for the property was grossly
inadequate, the Real Property Tax Code specifically
mentions that the sale of real property at public auction is
“to satisfy all the taxes and penalties due and costs of sale"
(Sec. 73). Thus, the selling price is based not on the fair
market value of the property sold at public auction but the
amount of real property taxes due thereon. In any case, the
delinquent taxpayer is given one year from the date of
registration of the sale within which to redeem the property
by paying the taxes due plus costs and interest.
(3) On the claim that the public auction made on the property is
void, the Real Property Tax Code provides (Sec. 83,2nd par.)
that a court shall not declare a sale invalid due to
irregularities in the proceedings unless such irregularities
have impaired the substantial rights of the taxpayer. In the
case at bar, the plaintiff received a notice of hearing for the
petition for entry of a new certificate of title during which
she could have questioned any irregularity in the conduct of
the sale.
1992 Bar, Q. X: Sometime in December 1980, a taxpayer donated
to his son 3,000 shares of stock of San Miguel Corporation. For
failure to file a donor’s return on the donation within the
statutory period, the taxpayer was assessed the sum of
PI02,000.00, as donor’s tax plus 25% surcharge or P25.500.00
and 20% interest or P20.400.00which he paid on June 24. 1985.
On April 10, 1986, he filed his income tax return for 1985
claiming among others, a deduction for interest amounting to
P9.500.00 and reported a taxable income of P96.000.00.
On November 10. 1986, the taxpayer filed an amended income
tax return for the same calendar year 1985, claiming therein an
additional deduction in the amount of P20.400.00 representing
interest paid on the donor’s gift tax.
A claim for refund of alleged overpaid income tax for 1985 was
filed with the Commissioner which was subsequently denied.
Upon appeal with the Court of Tax Appeals, the Commissioner
took Issue with the Court of Tax Appeal’s determination that the
amount paid by the taxpayer for interest on his delinquent taxes
is deductible from the gross income for the same year pursuant
to Sec. 29 (b) (1) of the National Internal Revenue Code.
The Commissioner of Internal Revenue pointed out that a tax is
not an indebtedness. He argued that there is a fundamental
distinction between a “tax" and a "debt". According to the
Commissioner, the deductibility of “interest on indebtedness
from a person’s income tax cannot extend to interest on taxes."
What is your opinion on the argument of the Commissioner that
a tax is not an indebtedness so that deductibility on the interest
on taxes should not be allowed?
A: The Commissioner’s argument is misplaced because the
interest on the donor’s tax is not one that can be considered as
having been incurred in connection with the taxpayer’s trade,
business or exercise of profession.
Alternative:

(a) While a tax may be considered a debt for purposes of
deducting from gross income, the interest on taxes cannot
be so considered, as such interest is in the nature of a
penalty, the imposition of which is designed to discourage
delinquent payment of taxes. To allow the deductibility of
such interest would be to diminish the punitive and
deterrent effects of the imposition, and thus to diminish the
importance of the prompt payment of taxes.
(b) The argument of the Commissioner is wrong. Because while
a tax as a general rule is not a debt, interest on a non-
payment of a tax has been considered like interest on
indebtedness by the Supreme Court. (Note: Whether or not
the interest is deductible under the present aw no
apparently in question).
1992 Bar, Q. X(2): Distinguish between the legal concept of
"taxes" and "debts".
A: A tax may be considered a debt in the Civil Code sense for the
following purposes:
(a) Collection being enforced by court action:
(b) Statute of limitations: and
(c) Deduction from gross income.
Strictly speaking, however, a tax is not a debt in that there can be
no set-off between the taxpayer and the Government.
1992 Bar, Q. X(3): Pursuant to the National Internal Revenue
Code, for interest to be deductible, what are the requirements to
be met? Explain.
A: For interest to be deductible, the following requirements must
be met:
(a) That there must be an indebtedness:
(b) That there is an interest on such indebtedness:
(c) Such interest was paid or accrued within the taxable year
(d) Interest was paid on a debt related to one’s profession,
trade or business.
1992 Bar, Q. XI(1): The President of the Philippines and the
Prime Minister of Japan entered into an executive agreement in
respect of a loan facility to the Philippines from Japan whereby it
was stipulated that interest on loans granted by private
Japanese financial institutions to private financial Institutions in
the Philippines shall not be subject to Philippine income taxes.
Is this tax exemption valid? Explain.
A: Yes. The tax exemption is valid because an executive
agreement has the force and effect of a treaty under the provision
of the Revenue Code. Taxation is subject to International Comity.
Alternative:
(a) The act of tax exemption is an act of taxation which is
inherently legislative. Therefore, a mere executive
agreement cannot provide for a tax exemption.
(b) No. Under the NIRC, for interest on investment in the
Philippines in loans to be exempt from taxation, such
investment must have been made by foreign government-
owned or controlled financing institutions or international
financing institutions established by governments. In the
case at bar, the loans would be granted by private Japanese
financial institutions and therefore, the interest thereon
would not be exempt from taxation.
1992 Bar, Q. XI(2): In a loan agreement between the Central
Bank of the Philippines (as borrower) and private international
bank (as lender), it is stipulated that all payments of Interest by
the Central Bank to the lenders shall be made free and clear
from all Philippine taxes which may be imposed thereon.
Is the stipulation valid? Explain.
A: No. The act of tax exemption is an act of taxation which is
inherently legislative and, therefore, a mere executive agreement
without concurrence by Congress, cannot provide for a tax
exemption.
Alternative: It is valid. The stipulation in the agreement that the
lender “shall be made free and clear" from all Philippine taxes,
simply meant that the Central Bank will assume the tax liability
which is not contrary to law, morals, good customs, public order
or public policy.
1992 Bar, Q. XII: Corporation X declared cash dividends in favor
of its non-resident stockholders in the United States from which
amount, the tax on dividend income was withheld.
Under the RP-US Tax Treaty, deductions allowed as tax on
dividends earned at source were fixed at lower rates giving rise
to overpayment of the tax on dividends paid to the nonresident
US stockholders (representing the difference between the
amount of withholding tax paid and the amount supposed to
have been withheld under the mentioned tax covenant).
Corporation X filed a claim for refund of said overpayment with
the Commissioner of Internal Revenue within the prescribed
period which however, remained unacted upon, and before the
expiration of the two (2) year reglementary period, it filed a
judicial claim for refund with the Court of Tax Appeals.
Respondent Commissioner of Internal Revenue argues that
Corporation X is not the real party in interest to prosecute a
claim for refund of the overpaid taxes of the nonresident US
stockholders, who are the real parties in interest. But neither
could it maintain an action for refund in a representative
capacity having failed to show proof of authorization.
Will Corporation X’s case prosper? Explain.
A: Yes. A subsidiary, while not the real party in interest, could
prosecute a claim of refund in behalf of its non-resident
stockholders by virtue of its being the withholding agent for the
government in respect of the cash dividends it declared [Comm.
vs. Wander Phils.).
Alternative: No. The tax is due on the non-resident stockholders.
The rule is that the refund may be claimed by the taxpayer on
whom the tax is imposed and who effectively paid the tax.
1992 Bar, Q. XIII: Under Section 2523 of the Tariff and Customs
Code, the duty of verifying the correct weight of a cargo
shipment is imposed upon the vessel’s master, owner or
employee. If a discrepancy between the actual gross weight and
declared gross weight of manifested cargo exceeds 20% and “the
Collector shall be of the opinion that such discrepancy was due
to the carelessness or incompetency of the master or pilot in
command, owner or employee of the vessel, a fine of not more
than 15% of the value of the article may be imposed upon the
importing vessel.”
ABC Corporation’s vessel was found, after appropriate
administrative proceedings, to have violated the said provision
far exceeding the 20% statutory limitation. The Collector of
Customs imposed a dine of P22.600.00 (representing 15% of the
value of the discrepancy) which was affirmed by the
Commissioner of Customs.
On appeal by ABC Corporation, the Court of Tax Appeals found
the fine of P22.600.00 harsh and unreasonable for a first offense
and reduced the same to P5.000.00.
The Commissioner of Customs questions the scope of authority
of the Court of Tax Appeals in the determination of the fine
imposable under Section 2523 of the Tariff and Customs Code.
Whose judgment should prevail under the circumstances of the
case? Explain fully.
A: The judgment of the Court of Tax Appeals should prevail.
The CTA has exclusive appellate jurisdiction over decisions of the
Commissioner of Customs in cases involving the imposition of
fines, forfeitures or other penalties.
1991 Bar
1991 Bar, Q. I(1): The police power, the power to tax and the
power of eminent domain are inherent powers of government.
May a tax be validly imposed in the exercise of the police power
and not of the power to tax? If your answer is in the affirmative,
give an example.
A: The police power may be exercised for the purpose of requiring
licenses for which license fees may have to be paid. The amount
of the license fees for the regulation of useful occupations should
only be sufficient to pay for the cost of the license and the
necessary expense of police surveillance and regulation. For non-
useful occupations, the license fee may be sufficiently high to
discourage the particular activity sought to be regulated. It is clear
from the foregoing that police power may not be exercised by
itself alone for the purpose of raising taxes. However, police
power may be exercised jointly with the power of taxation for the
purpose of raising revenues. (Lutz us. Araneta, 98 Phil. 148)
Alternative: Taxation involves the power to raise revenue not only
in order to support the existence of government but likewise to
carry out legitimate objects of government. Among such
legitimate objects are those that police power itself can cover. As
early as the case of Lutz vs. Araneta (98 Phil. 148), the Supreme
Court has ruled that taxation may be used to implement an object
of police power. An illustration of such exercise would be an
imposition of taxes on gambling, the rates of which are made
somewhat onerous in order to discourage gambling instead of an
outright prohibition thereof by an exercise of a police power
measure such as by present provisions of the Revised Penal Code.
1991 Bar, Q. I(2): Discuss the meaning and the implications of
the following statement: “Taxes are the lifeblood of government
and their prompt and certain availability is an imperious need."
A: The phrase, “taxes are the lifeblood of government, etc."
expresses the underlying basis of taxation which is governmental
necessity, for indeed, without taxation, a government can neither
exists nor endure. Taxation is the indispensable and inevitable
price for civilized society: without taxes, the government would be
paralyzed. This phrase has been used, for instance, to justify the
validity of the laws providing for summary remedies in the
collection of taxes. As a consequence of the above rule, an
injunction against the assessment and collection of taxes is
generally withheld be the laws imposing such taxes. Even when it
is not so, under procedural laws such an injunction may not be
obtained as held in the case of Valley Trading Co. vs. CFI (G.R. No.
49529, 31 March 1989), where the Supreme Court ruled that the
damages that may be caused to the taxpayer by being made to
pay the taxes cannot be said to be as irreparable as it would be
against the government’s inability to collect taxes.
1991 Bar, Q. II: To provide means for rehabilitation and
stabilization of the sugar industry so as to prepare it for the
eventuality of the loss of the quota allocated to the Philippines
resulting from the lifting of U.S. sanctions against an African
country. Congress passes a law increasing the existing tax on the
manufacture of sugar on a graduated basis. All collections made
under the law are to accrue to a special fund to be spent only for
the purposes enumerated therein, among which are to place the
sugar industry in a position to maintain itself and ultimately to
insure its continued existence despite the loss of that quota, and
to afford laborers employed in the industry a living wage and to
improve their working conditions. X, a sugar planter, files a suit
questioning the constitutionality of the law alleging that the tax
is not for a public purpose as the same is being levied exclusively
for the aid and support of the sugar industry.
Decide the case.
A: The suit filed by the sugar planter questioning the
constitutionality of the sugar industry stabilization measure is
untenable. Taxation is no longer merely for raising revenue to
support the existence of government but the power may also be
exercised to carry out legitimate objects of the government It is a
legitimate object of government to protect its local industries on
which the national economy largely depends. Where the aim of
the tax measure is to achieve such a governmental objective, the
tax Imposition can be said to be for a public purpose (Gaston vs.
Republic Bank, 158 SCRA 626).
1991 Bar, Q. III: Apple Computer Corp. (ACC) is a foreign
corporation doing business in the Philippines through a local
branch located at Makati, Metro Manila. In 1985, the local
branch applied with the Central Bank for authority to remit to
ACC branch profits amounting to P8,000,000.00. After paying the
15% branch remittance tax of P1,200,000.00, the branch office
remitted to ACC the balance of P6.800.000.00. In January 1986,
the branch office was advised by its. legal counsel that it
overpaid the branch remittance tax since the basis of the
computation thereof should be the amount actually remitted
and not the amount applied for. Accordingly, the branch office
applied for a refund in the amount of P180.000.00.
If you were the Commissioner of Internal Revenue, would you
grant the claim for refund?
A: If I were the Commissioner of Internal Revenue, I would allow
the claim for refund. The remittance tax should be computed on
the amount actually remitted (Marubeni Corporation vs.
Commissioner, G.R No. 76573, 14 September 1989). In the refund
of taxes, the claim therefor can be filed within two (2) years from
the time of payment so long as the tax payment was made before
an assessment by the Commissioner has become final (Sec. 230,
NIRC).
1991 Bar, Q. IV(1): Born of a poor family on 14 February 1944.
Mario worked his way through college. After working for more
than 2 years in X Manufacturing Corporation, Mario decided to
retire and avail of the benefits under the very reasonable
retirement plan maintained by his employer. He planned to
invest whatever retirement benefits he would receive in a
business that will provide his employer with the needed raw
materials. On the day of his retirement on 30 April 1985. he
received P400.000.00 as retirement benefit. In addition, his
endowment insurance policy, for which he was paying an annual
premium of PI.520.00 since 1965. also matured. He was then
paid the face value of his insurance policy in the amount of
P50.000.00.
Is Mario’s P400.000.00 retirement benefit subject to income tax?
A: Mario’s P400.000.00 retirement benefit is subject to income
tax. To be exempt, the retirement pay must have been extended
to an employee who is at least 50 years of age and who would
have worked for at least ten (10) years with the employer. The
amount cannot be considered as a separation pay that would
have exempted benefits from income tax since it was Mario who
had decided to retire instead of being required to do so (Sec. 28.
NIRC)
1991 Bar, Q. IV(1): Born of a poor family on 14 February 1944.
Mario worked his way through college. After working for more
than 2 years in X Manufacturing Corporation, Mario decided to
retire and avail of the benefits under the very reasonable
retirement plan maintained by his employer. He planned to
invest whatever retirement benefits he would receive in a
business that will provide his employer with the needed raw
materials. On the day of his retirement on 30 April 1985. he
received P400.000.00 as retirement benefit. In addition, his
endowment insurance policy, for which he was paying an annual
premium of PI.520.00 since 1965. also matured. He was then
paid the face value of his insurance policy in the amount of
P50.000.00.
Is his P50.000.00 insurance proceeds exempt from income
taxation?
A: The P50.000.00 insurance proceeds is not totally exempt from
income tax. The excluded amount is only that portion which
corresponds to the premiums that he had paid since 1965. At the
rate of PI,520.00 per year multiplied by twenty (20) years which
was the period of the policy, he must have paid a total of
P30.400.00. Accordingly, he will be subject to report as taxable
income the amount of P 19,600.00 (Sec. 28. NIRC)
1991 Bar, Q. V: Delstar Emmanuel Perez, a government
employee, retires from the service upon reaching the
compulsory retirement age of 65. Would the amount he is
entitled to receive by way of commutation of his accumulated
leave credits, of his terminal leave pay, be subject to income
tax?
A: The amount that Emmanuel Perez is to receive should not be
subjected to income tax, and such was the ruling by the Supreme
Court in the In Re Zialcita Administrative Case (Adm. Matter No.
90-6015-SC, 18 Oct. 1990). The ruling apparently repudiated, or at
least is inconsistent with, its earlier decision in Commissioner vs.
Victoriano (G.R. No. 83176, 10 August 1989).
1991 Bar, Q. VI: Robert Patterson is an American who first
arrived in the Philippines in 1944 as a member of the U.S. Armed
Forces that liberated the Philippines. After the war, he returned
to the United States but came back to the Philippines in 1958
and stayed here up to the present He is presently employed in
the United States Naval Base. Olongapo City. For the year 1985,
he earned US$10,856.00. Sometime in 1986, the District Revenue
Office of the Bureau of Internal Revenue served him a notice
informing him that he did not file his income tax return for the
year 1985 and directing him to file said return in 10 days. He
refused to file any return claiming that he is not a resident alien
and is therefore not required to file any income tax return.
Is Patterson’s claim correct?
A: Patterson’s claim is not correct. While Paterson is exempt from
income tax, an exemption from income tax does not, however,
necessarily mean an exemption likewise from the filing of an
income tax return {Garrison vs. Court of Appeals, 187 SCRA 525).
1991 Bar, Q. VII: Roberto Ruiz and Conrado Cruz bought three (3)
parcels of land from Rodrigo Sabado on 4 May 1976. Then on 8
July 1977, they bought two (2) parcels of land from Miguel
Sanchez. In 1988, they sold the first three parcels of land to
Central Realty, Inc. In 1989, they sold the two parcels to Jose
Guerrero. Ruiz and Cruz realized a net profit of P100,000.00 for
the sale in 1988 and PI50,000.00for the sale in 1989. The
corresponding capital gains taxes were individually paid by Ruiz
and Cruz.
On 20 September 1990, however, Ruiz and Cruz received a letter
from the Commissioner of Internal Revenue assessing them
deficiency corporate income taxes for the years 1988 and 1989
because, according to the Commissioner, during said years they,
as co-owners in the real estate transactions, formed an
unregistered partnership or joint venture taxable as a
corporation and that the unregistered partnership was subject to
corporate income tax, as distinguished from profits derived from
the partnership by them, which is subject to individual income
tax.
Are Robert Ruiz and Conrado Cruz liable for deficiency corporate
income tax?
A: Roberto Ruiz and Conrado Cruz are not liable for corporate
income tax. Abandoning evidently the Gatchalian rule, the
Supreme Court in a recent ruling (Pascual vs. Court of Tax Appeals,
G.R No. 78133, 18 Oct. 1988), held that isolated transactions by
two or more persons do not warrant their being considered as an
unregistered partnership. They will instead be considered as mere
co-owners; no corporate income tax is due on mere co-
ownerships. It was, therefore correct for Ruiz and Cruz to merely
pay their individual income tax liabilities on the real estate
transactions.
1991 Bar, Q. VIII(1): ABC Computer Corp. purchased some years
ago Membership Certificate No. 7 from the Calabar Golf Club,
Inc. for P300.000.00. In 4 September 1985, it transferred the
same to Mr. John Johnson, its American computer consultant, to
enable him to avail of the facilities of the Club during his stay
here. The consultancy agreement expired two (2) years later. In
the meantime, the value of the Club share appreciated and what
was purchased by the corporation at P300,000.00, commanded a
market value of P800.000.00 in 1987. Before he returned home a
few days after his tenure ended, Mr. Johnson transferred the
subject share to Mr. Robert James, the new consultant of the
firm and the newly designated playing representative, under a
Deed of Declaration of Trust and Assignment of Shares wherein
the former acknowledged the absolute ownership of ABC
Computer Corp. over the share, that the assignment was without
any consideration, and that the share was placed in his name
because the Club required it to be done.
Is the assignment/transfer of the shares from Johnson to James
subject to Income tax?
A: The assignment or transfer of shares from Johnson to James is
not subject to income tax. There had been no real change of
ownership that took place. There having been no actual sale or
exchange, no income tax incidence can be said to have occurred,
in addition, there was really no income realized or received
considering that in the Deed of Declaration of Trust and
Assignment of Shares, the absolute ownership of ABC Computer
Corporation was explicitly recognized.
1991 Bar, Q. VIII(2): ABC Computer Corp. purchased some years
ago Membership Certificate No. 7 from the Calabar Golf Club,
Inc. for P300.000.00. In 4 September 1985, it transferred the
same to Mr. John Johnson, its American computer consultant, to
enable him to avail of the facilities of the Club during his stay
here. The consultancy agreement expired two (2) years later. In
the meantime, the value of the Club share appreciated and what
was purchased by the corporation at P300,000.00, commanded a
market value of P800.000.00 in 1987. Before he returned home a
few days after his tenure ended, Mr. Johnson transferred the
subject share to Mr. Robert James, the new consultant of the
firm and the newly designated playing representative, under a
Deed of Declaration of Trust and Assignment of Shares wherein
the former acknowledged the absolute ownership of ABC
Computer Corp. over the share, that the assignment was without
any consideration, and that the share was placed in his name
because the Club required it to be done.
Is the said assignment a gift and, therefore, subject to gift tax?
A: The assignment can neither be held to be a gift. To be
considered a gift within the context of the NIRC, there must be a
transfer of ownership or a quantifiable interest. More
importantly, the transfer of the membership certificate was
merely a designation of the consultant to be the “playing
representative" of ABC Computer Corporation in the Calabar Golf
Club.
1991 Bar, Q. IX(1): Newtex International (Phils.) Inc. is an
American firm duly authorized to engage in business in the
Philippines as a branch office. In its activity of acting as a buying
agent for foreign buyers of shirts and dresses abroad and
performing liason work between its home office and the Filipino
garment manufacturers and exporters. Newt ex does not
generate any income. To finance its office expenses here, its
head office abroad regularly remits to it the needed amount. To
oversee its operations and manage its office here, which had
been in operation for two (2) years, the head office assigned
three (3) foreign personnel.
Is Newtex International (Phils.) Inc. subject to VAT?
A: Newtex International (Phils.) Inc. is not subject to VAT. The VAT
is imposed on sellers and not on buyers. The branch office did not
derive any income or compensation so as to possibly permit the
imposition of a VAT on compensation for services rendered. In
addition, since the transactions are direct export sales, the VAT
does not apply. Export sales are among those that are either zero
rated or exempt from VAT (Secs. 99-100, NIRC).
1991 Bar, Q. IX(1): Newtex International (Phils.) Inc. is an
American firm duly authorized to engage in business in the
Philippines as a branch office. In its activity of acting as a buying
agent for foreign buyers of shirts and dresses abroad and
performing liason work between its home office and the Filipino
garment manufacturers and exporters. Newt ex does not
generate any income. To finance its office expenses here, its
head office abroad regularly remits to it the needed amount. To
oversee its operations and manage its office here, which had
been in operation for two (2) years, the head office assigned
three (3) foreign personnel.
Are the three foreign personnel subject to Philippine income
tax?
A: The three (3) foreign personnel are subject to tax on the
income that they receive for services rendered in the Philippines.
Non-resident aliens are subject to tax on income from sources
within the Philippines., Income is deemed derived from sources
within the country when it is earned for services rendered in the
Philippines (Sec. 22. in relation to Sec. 36, NIRC).
1991 Bar, Q. X: Colawin Marketing Corp. (CMC) sells goods and
renders services to Pinatubo Inc., a contractor for the U.S. Base.
CMC applies for zero rate. Is it qualified for zero rating under the
pertinent Tax Code provisions on VAT?
A: CMC is not qualified for zero rating. The goods and services
rendered to Pinatubo, Inc.. evidently a domestic corporation,
cannot be considered as an export sale. Pinatubo Inc. is but a
contractor for the U.S. Base. The sales which are subject to zero
percent are export sales and sales to persons or entities whose
exemption under special laws or by an International Agreement
where the Philippines is a signatory effectively subjects such sales
to zero rate (Sec. 100, NIRC).
1991 Bar, Q. XI(1): Cebu Development Inc. (CDI) has an
authorized capital stock of P5,000,000,00 divided into 50,000
shares with a par value of One Hundred Pesos (P100.00) per
share. Of the authorized capital stock, twenty-five thousand
(25,000) shares have been subscribed. Mr. Juan Legaspi is a
stockholder of CDI where he has subscription amounting to
13,000 shares. To fully pay his unpaid subscription in the amount
of P950.000.00, Mr. Legaspi transferred to the corporation a
parcel of land that he owns by virtue of a Deed of Assignment.
Upon investigation, the BIR discovered that Mr. Legaspi acquired
said property for only P500,000.00.
Is Mr. Legaspi liable for any taxable gain?
A: The transfer by Mr. Legaspi to the corporation of the parcel of
land in payment of his unpaid subscription did not increase his
stockholdings in the corporation. It cannot be said that he
acquired control of the corporation by virtue of the transfer of the
land. His percentage of stockholdings in the capital stock of the
corporation remains the same after the transfer as before.
Therefore, Mr. Legaspi derived taxable gain for his economic gain
which was realized by virtue of the exchange of the land for the
liability for the subscription.
Alternative: Mr. Legaspi is not liable for any taxable gain. The
transaction amounted to an exchange of shares of property for
shares of stock as a result of which the property transferor
acquired control of the corporation. The 13,000 shares of stock
acquired in exchange of property was more than fifty percent
(50%) of the total subscribed capital stock of Cebu Development,
Inc. (CDI) that qualified the transaction as a tax-exempt under the
provisions of Sec. 34 (c) (2) of the National Internal Revenue Code.
1991 Bar, Q. XI(2): Cebu Development Inc. (CDI) has an
authorized capital stock of P5,000,000,00 divided into 50,000
shares with a par value of One Hundred Pesos (P100.00) per
share. Of the authorized capital stock, twenty-five thousand
(25,000) shares have been subscribed. Mr. Juan Legaspi is a
stockholder of CDI where he has subscription amounting to
13,000 shares. To fully pay his unpaid subscription in the amount
of P950.000.00, Mr. Legaspi transferred to the corporation a
parcel of land that he owns by virtue of a Deed of Assignment.
Upon investigation, the BIR discovered that Mr. Legaspi acquired
said property for only P500,000.00.
Is the CDI liable for any taxable gain?
A: CDI Itself Is not liable for any taxable gain since subscription
payments are not considered as taxable income being merely
investments in the corporation. However, a taxable incidence may
occur as and when the corporation sells the parcel of land for a
price over and above the value of the shares of stock or in this
case over and above P950,000.00. Until such time, however, there
is no realizable income on the part of the corporation.
1991 Bar, Q. XII: Antonio Cruz was appointed by the Regional
Trial Court as Administrator in the testate proceedings for the
settlement of the estate of his deceased father. On 12 February
1987, the Commissioner of Internal Revenue issued a deficiency
estate tax assessment for the estate in question in the amount
of P2.816,514.60. The notice of deficiency assessment was
received by the Administrator on 19 February 1987. In his letter
to the Commissioner, dated 21 February 1987, which was
received by the latter’s office two (2) days later, the
Administrator requested for a reconsideration of the assessment
on the ground that the same is contrary to law and is not
supported by sufficient evidence. He also requested for a period
of fifteen (15) days within which to submit the estate’s position
paper.
On 4 August 1988, not having received the promise position
paper, the Commissioner filed with the Court a motion for
allowance of claim and for an order of payment of estate taxes,
praying therein that the administrator be directed to pay the BIR
the aforementioned deficiency tax. The Administrator opposed
the motion alleging that by reasons of the pendency of his
request for reconsideration, the deficiency assessment has not
become final and executory and, therefore, the absence of a
decision on the disputed' assessment is a bar against collection
of taxes. He further argued that it is the Court of Tax Appeals,
and not the Regional Trial Court, which has exclusive jurisdiction
over the claim.
Resolve the motion and issues raised.
A: Evidently, the request for reconsideration did not express or
specify the grounds therefor. A request for reconsideration in the
tenor stated in the problem is insufficient, not being
substantiated, to stop the running of the 30-day period within
which the assessment may be disputed (Dayrit vs. Cruz, G.R No.
39919, 26 September 1988). The failure of the taxpayer to submit
the promised position paper within the said 30-day period had the
effect of rendering the assessment final and executory. In
addition, the pendency of a decision on a disputed assessment
does not bar the collection of the NIRC taxes, and no injunction
maybe issued by any court (except by the Court of Tax Appeals as
an incident to a timely petition for review). In the absence of a
petition for review with the Court of Tax Appeals which may be
brought by a taxpayer within thirty (30) days from the receipt of
the final decision of the Commissioner, the Court of Tax Appeals
has no jurisdiction to take cognizance thereof (See Sec. 11, RA.
1125). Premises considered, the action taken by the
Commissioner with the Regional Trial Court was appropriate and
in accordance with law.
Alternative: Once a request for reconsideration is made by the
taxpayer on an assessment of the BIR within 30 days from receipt
thereof, the Commissioner is bound to make a decision thereon.
That decision is the one appealable to the Court of Tax Appeals.
But if the taxpayer does not appeal within the 30day period, the
assessment becomes final and executory and demandable. The
implication of this new provision in the NIRC is that the
Commissioner cannot collect the tax as long as the taxpayer has
still the right to appeal from the Commissioner’s action.
1991 Bar, Q. XIII(1): Sometime in 15 September 1990, a shipment
of 150 packages of imported goods and personal effects arrived
and . was unloaded at the Port of Manila. After the amount of
P15,887.00 was paid by the consignee as customs duties.
internal revenue taxes, fees and other charges, the packages
were released from the Customs house. As the packages were
being transported from the Customs area to their destination,
the truck carrying them was intercepted at T.M, Kalaw St.,
Ermita, Manila by agents of the Economic Intelligence &
Investigation Bureau (EIIB). In a formal communication. EIIB
informed the Collector of Customs that the packages were
released from the customs zone without proper appraisal to the
damage of the Government and requested for the issuance of
the necessary warrant of seizure. Seizure proceedings (S.I. No.
796) was then instituted and the Collector of Customs issued a
warrant of seizure and detention.
During the progress of the search and seizure, and while the
goods were being removed by the Customs agents from the
bodegas where they were stored, the consignee filed a Petition
(Civil Case No. 234) with the Regional Trial Court of Manila
asking that the Collector of Customs and all his agents be
restrained from further enforcing the aforesaid warrant and
from proceeding with the trial of S.I. 796, and that said warrant
be declared null and void since the Collector no longer had
jurisdiction to issue the same considering that the customs
duties and taxes had already been paid and the goods had left
the control and jurisdiction of the Bureau of Customs
Did the Collector of Customs have Jurisdiction to issue the
warrant of seizure and detention?
A: On the assumption that the goods were released from Customs Ermita, Manila by agents of the Economic Intelligence & Ricardo San Miguel, an importer, questions the legality of the
custody without proper appraisal as contended by EIIB, the Investigation Bureau (EIIB). In a formal communication. EIIB Executive Order on the grounds that only Congress has the
Collector of Customs had Jurisdiction to issue the warrant of informed the Collector of Customs that the packages were authority to fix the rates of import duties and, in any event, such
seizure and detention. This remedy is generally available in released from the customs zone without proper appraisal to the an Executive Order can take effect only thirty (30) days after
importations tainted with irregularity (Sec. 2531, TCC: Viduya vs. damage of the Government and requested for the issuance of promulgation and the President has no authority to shorten said
Berdiago. 73 SCRA 553). the necessary warrant of seizure. Seizure proceedings (S.I. No. period.
796) was then instituted and the Collector of Customs issued a
warrant of seizure and detention. Are the objections of Mr. San Miguel tenable?
1991 Bar, Q. XIII(2): Sometime in 15 September 1990, a shipment
of 150 packages of imported goods and personal effects arrived
During the progress of the search and seizure, and while the A: No. the objections are not tenable as the Executive Order
and . was unloaded at the Port of Manila. After the amount of
goods were being removed by the Customs agents from the cannot take effect “immediately". Being an “external” law and
P15,887.00 was paid by the consignee as customs duties.
bodegas where they were stored, the consignee filed a Petition having the effect of law, the Executive Order cannot become
internal revenue taxes, fees and other charges, the packages
(Civil Case No. 234) with the Regional Trial Court of Manila effective without publication, a requirement of due process
were released from the Customs house. As the packages were
asking that the Collector of Customs and all his agents be (Tanada vs. Tuvera, 136 SCRA27; Executive Order No. 202).
being transported from the Customs area to their destination,
restrained from further enforcing the aforesaid warrant and
the truck carrying them was intercepted at T.M, Kalaw St.,
from proceeding with the trial of S.I. 796, and that said warrant Alternative: Under the Flexible Tariff Clause (Sec. 401, Tariff and
Ermita, Manila by agents of the Economic Intelligence &
be declared null and void since the Collector no longer had Customs Code), any order issued by the President thereunder can
Investigation Bureau (EIIB). In a formal communication. EIIB
jurisdiction to issue the same considering that the customs generally take effect only thirty (30) days after its issuance. In
informed the Collector of Customs that the packages were
duties and taxes had already been paid and the goods had left cases however of an order imposing additional import duties, the
released from the customs zone without proper appraisal to the
the control and jurisdiction of the Bureau of Customs. law provides that the same can take effect immediately.
damage of the Government and requested for the issuance of
the necessary warrant of seizure. Seizure proceedings (S.I. No.
Has the Regional Trial Court jurisdiction to hear and decide Civil 1991 Bar, Q. XV: The Municipality of Malolos passed an
796) was then instituted and the Collector of Customs issued a
Case No. 234? ordinance imposing a tax on any sale or transfer of real property
warrant of seizure and detention.
located within the municipality at a rate of one-fourth (1/4) of
A: No. the RTC has no jurisdiction. In the case of seizures and one percentum (1%) of the total consideration of such
During the progress of the search and seizure, and while the
forfeitures, an ordinary court may not take cognizance of the case transaction. X sold a parcel of land in Malolos which he inherited
goods were being removed by the Customs agents from the
and. therefore, said courts would be bereft of jurisdiction to hear from his deceased parents and refused to pay the aforesaid tax.
bodegas where they were stored, the consignee filed a Petition
and decide the same. The jurisdiction of the Collector of Customs He instead filed appropriate case asking that the ordinance be
(Civil Case No. 234) with the Regional Trial Court of Manila
in seizure and forfeiture proceedings is exclusive of all other declared null and void since such a tax can only be collected by
asking that the Collector of Customs and all his agents be
courts. The proper remedy would be to go through with the the national government, as in fact he has paid BIR the required
restrained from further enforcing the aforesaid warrant and
hearing of the case with the Collector of Customs from whose capital gains tax. The Municipality countered that under the
from proceeding with the trial of S.I. 796, and that said warrant
decision an appeal may be made to the Commissioner of Customs Constitution, each local government is vested with the power to
be declared null and void since the Collector no longer had
and. thereafter, if the taxpayer still feels aggrieved, to the Court of create its own sources of revenue and to levy taxes, and it
jurisdiction to issue the same considering that the customs
Tax Appeals. imposed the subject tax in the exercise of said constitutional
duties and taxes had already been paid and the goods had left
the control and jurisdiction of the Bureau of Customs. authority.
Observations: The problem does not indicate that the claim of
EIIB was in fact the case. Since the factual settings did not state Resolve the controversy.
Did the payment of the customs duties, taxes, etc. render illegal
categorically that the importation was irregular, it is possible that
and improper the issuance of said warrant?
an examinee would have considered the importation as falling A: The ordinance passed by the Municipality of Malolos imposing
under the administrative remedy of enforcement of tax lien. In a tax on the sale or transfer of real property is void. The Local Tax
A: In seizure and forfeiture, the payment of customs duties, taxes,
this remedy, the collector’s jurisdiction lies only while the goods Code only allows provinces and cities to impose a tax on the
etc., does not necessarily render as irregular and improper the
are in customs custody; hence, upon the release of the goods transfer of ownership of real property (Sec. 7 and Sec. 23, Local
issuance of a warrant of seizure and detention. What is legally
from customs custody a warrant of seizure and forfeiture would Tax Code). Municipalities are prohibited from imposing said tax
consequential is whether there was, in fact, an irregularity
not be justified. The problem did not indicate that there was any that provinces are specifically authorized to levy. (Sec. 22, Local
committed in the importation of the articles and their release
intention to smuggle or even an attempt to smuggle the imported Tax Code).
from customs.
goods.
While it is true that the Constitution has given broad powers of
1991 Bar, Q. XIII(3): Sometime in 15 September 1990, a shipment
1991 Bar, Q. XIV: In view of the unfavorable balance of payment taxation to local government units, this delegation, however, is
of 150 packages of imported goods and personal effects arrived
condition and the increasing budget deficit, the President of the subject to such limitations as may be provided by law (Sec. 5, Art
and . was unloaded at the Port of Manila. After the amount of
Philippines. upon recommendation of the National Economic X, 1987 Constitution).
P15,887.00 was paid by the consignee as customs duties.
and Development Authority, issues during a recess of Congress
internal revenue taxes, fees and other charges, the packages
an Executive Order imposing an additional duty on all imports at 1991 Bar, Q. XVI(1): The Municipality of Argao, Province of Cebu
were released from the Customs house. As the packages were
the rate of ten (10%) percent ad valorem. The Executive Order passed a tax ordinance requiring all professionals practicing in
being transported from the Customs area to their destination,
also provides that the same shall take effect immediately. the municipality to pay a tax equivalent to two (2%) percent of
the truck carrying them was intercepted at T.M, Kalaw St.,
their gross income. A certified true copy of the ordinance was
sent to the Secretary of Finance for review on 1 March 1989 and
was received by him on the same day. On 15 August 1989, even
as the tax ordinance remained unacted upon by the Secretary of
Finance, the municipality started collecting the tax in question.
The members of the Philippine Bar in the municipality
questioned the legality of the ordinance and sought the
suspension of the collection of the tax. but the municipality
argued that since the Secretary has not taken any action on the
ordinance for more than one hundred twenty days after his
receipt thereof, the legality of the ordinance can no longer be
questioned and insisted on the collection of the tax.
Is the tax ordinance in question legal?
A: No. the tax ordinance is not legal as the Local Tax Code allows
provinces and cities, to the exclusion of municipalities, to impose
an annual occupation tax on all persons engaged in the exercise or
practice of their profession or calling in specified amounts which
in the case of lawyers is P75.00 per annum (Secs. 11 and 12 in
relation to Sec. 23, Local Tax Code). A person authorized to
practice his profession or calling shall pay the tax to the province
where he practices his profession or calling or maintains his office.
No local government unit can impose a tax on income (Sec. 5,
Local Tax Code).
1991 Bar, Q. XVI(2): The Municipality of Argao, Province of Cebu
passed a tax ordinance requiring all professionals practicing in
the municipality to pay a tax equivalent to two (2%) percent of
their gross income. A certified true copy of the ordinance was
sent to the Secretary of Finance for review on 1 March 1989 and
was received by him on the same day. On 15 August 1989, even
as the tax ordinance remained unacted upon by the Secretary of
Finance, the municipality started collecting the tax in question.
The members of the Philippine Bar in the municipality
questioned the legality of the ordinance and sought the
suspension of the collection of the tax. but the municipality
argued that since the Secretary has not taken any action on the
ordinance for more than one hundred twenty days after his
receipt thereof, the legality of the ordinance can no longer be
questioned and insisted on the collection of the tax.
Is the Municipality correct in insisting on collecting the tax?
A: No, the Municipality was incorrect in insisting on the collection
of the tax. Once the tax on occupation is paid as stated in
paragraph (a), above, the lawyer is entitled to practice his
profession or calling in all parts of the Philippines without being
subject to any other national or local tax, license or fee for the
practice of such profession or calling.
1991 Bar, Q. XVI(3): The Municipality of Argao, Province of Cebu
passed a tax ordinance requiring all professionals practicing in
the municipality to pay a tax equivalent to two (2%) percent of
their gross income. A certified true copy of the ordinance was
sent to the Secretary of Finance for review on 1 March 1989 and
was received by him on the same day. On 15 August 1989, even
as the tax ordinance remained unacted upon by the Secretary of
Finance, the municipality started collecting the tax in question.
The members of the Philippine Bar in the municipality
questioned the legality of the ordinance and sought the
suspension of the collection of the tax. but the municipality
argued that since the Secretary has not taken any action on the
ordinance for more than one hundred twenty days after his
receipt thereof, the legality of the ordinance can no longer be
questioned and insisted on the collection of the tax.
Will the inaction of the Secretary of Finance bar the
professionals in the Municipality from questioning the legality of
that ordinance?
A: The inaction of the Secretary of Finance does not bar the
professionals in the Municipality from questioning the legality of
the ordinance. While it is true that the Secretary of Finance may
himself suspend the tax ordinance within a 120-day period from
receipt thereof, his failure to do so, however, has no preclusive
effect on taxpayers who may be adversely affected by the
ordinance.
1991 Bar, Q. XVI(2): The Municipality of Argao, Province of Cebu
passed a tax ordinance requiring all professionals practicing in
the municipality to pay a tax equivalent to two (2%) percent of
their gross income. A certified true copy of the ordinance was
sent to the Secretary of Finance for review on 1 March 1989 and
was received by him on the same day. On 15 August 1989, even
as the tax ordinance remained unacted upon by the Secretary of
Finance, the municipality started collecting the tax in question.
The members of the Philippine Bar in the municipality
questioned the legality of the ordinance and sought the
suspension of the collection of the tax. but the municipality
argued that since the Secretary has not taken any action on the
ordinance for more than one hundred twenty days after his
receipt thereof, the legality of the ordinance can no longer be
questioned and insisted on the collection of the tax.
What remedies are available to the taxpayer to enable him to
question the legality of that ordinance?
A: The taxpayer may pursue his remedies either administratively
or Judicially. He may, as the case warrants, file a formal protest
with the Secretary of Finance or query with the Provincial Fiscal
whose opinion is appealable to the Secretary of Justice whose
decision may be contested in the proper court. The other remedy
would be to file a special civil action for declaratory relief (if
circumstances still warrant) or to pay the tax and thereafter to file
an action for refund within six (6) years after such payment.
Alternative: On the basis of the facts of the problem. It would
appear that the administrative remedy is no longer available since
there is already an attempt to enforce collection. The only remedy
of the taxpayer is to pay the tax and sue for its recovery in the
ordinary court.
1991 Bar, Q. XVII: In view of the street widening and cementing
of roads and the improvement of drainage and sewers in the
district of Ermita, the City Council of the City of Manila passed an
ordinance imposing and collecting a special levy on lands in the
district. Jose Reyes, a landowner and resident of Ermita,
submitted a protest against the special levy fifteen (15) days
after the last publication of the ordinance alleging that the
special levy was exorbitant since the rate thereof was more than
the maximum rate of two (2%) percent of the assessed value of
the real properties allowed by Section 39 of P.D. 464, as
amended.
Assuming that Jose Reyes is able to prove that the rate of the
special levy is more than the aforesaid percentage limitation of
2%, will his protest prosper?
A: The special levy under the Real Property Tax Code on lands,
specially benefited by the proposed infrastructure, may not
exceed sixty per cent (60%) of the cost of said improvement. All
lands comprised within the district benefited are subject to the
special levy except lands exempt from the real property tax (Sec.
47. RPT). The protest shall be filed not later than 30 days after the
publication of the ordinance and may be submitted to the City
Sanggunian signed by a majority of the landowners affected by
the proposed work. If no such protest is filed in the manner above
specified, the city ordinance shall become final and effective. The
levy imposed under the ordinance should be within the limit of
sixty percent (60%) of the total cost of the proposed
improvement. The rate of two percent (2%) of the assessed value
under Sec. 39 of P.D. 464refers to the real property tax and not to
special levies.
1991 Bar, Q. XVIII(1): Dagat-dagatan Shipping Corp. (DSC)
brought into the country two (2) non-propelled foreign barges
which DSC chartered for use in the Philippine coastwise trade
under a Temporary Certificate of Philippine Registration, to be
returned to the foreign owner upon termination of the charter
period but not beyond 1999, pursuant to P.D. No. 760, as
amended. Upon their arrival, the barges were subjected to duty
by the Bureau of Customs. DSC refused to pay any customs duty
contending that the charter or lease of the barges, which will be
returned to the foreign owner when the charter expires, is not
an importation and, therefore cannot be subjected to any
customs duty.
Is DSC's refusal with or without legal basis?
A: DSC’s refusal is without legal basis. The term imposition
includes the entry into the country of any article from a foreign
country. The fact that imported goods are to be re-exported does
not mean that the customs duties may not be imposed, although,
in certain cases and subject to limitations prescribed by the Tariff
and Customs Code a drawback may be available to the taxpayer
so as to be able to obtain their refund. An example of which are
articles which are used in the manufacture of products for export
within three (3) years after the importation.

1991 Bar, Q. XVIII(1): Dagat-dagatan Shipping Corp. (DSC)

brought into the country two (2) non-propelled foreign barges
which DSC chartered for use in the Philippine coastwise trade
under a Temporary Certificate of Philippine Registration, to be
returned to the foreign owner upon termination of the charter
period but not beyond 1999, pursuant to P.D. No. 760, as
amended. Upon their arrival, the barges were subjected to duty
by the Bureau of Customs. DSC refused to pay any customs duty
contending that the charter or lease of the barges, which will be
returned to the foreign owner when the charter expires, is not
an importation and, therefore cannot be subjected to any
customs duty.

On what is the dutiable value of any imported article based?

A: The dutiable value of imported articles is the home

consumption cost value, i.e., the cost or fair market value or price
of the imported articles in wholesale quantities in the principal
market of the exporting country or country of origin, including
expenses collected from importation such as insurance, freight,
packaging, loading and unloading charges but excluding internal
excise taxes. In case such value is unascertainable, the
Commissioner may also determine the home consumption value
from any reliable and available data (Sec. 20l.TCC, as amended:
Commissioner vs. Court of Tax Appeals, G.R No. 72069,21 May
1988).