Apostolic Prefect of the Mt. Province v.
El Tesorero de la Ciudad imposition of a charge on all property, real and personal, in a
de Baguio, G.R. No. 47252, [April 18, 1941], 71 PHIL 547-55
Facts
In 1937, an ordinance (Ordinance No. 137: Special Assessment List,
City of Baguio) was passed in the City of Baguio. The said ordinance
sought to assess properties of property owners within the defined
city limits. The Apostolic Prefect of Mt. Province (APMP), on the
other hand, is a religious corporation duly established under
Philippine laws. Pursuant to the ordinance, it paid a total amount of
P1,019.37 in protest. APMP later averred that it should be exempt
from the said special contribution since as a religious institution, it
has a constitutionally guaranteed right not to be taxed including its
properties.
HELD:
In the first place, the ordinance was in the nature of an assessment
and not a taxation.
The test of exemption from taxation is the use of the property for
purposes mentioned in the Constitution. Based on Justice Cooley’s
words:
While the word ‘tax’ in its broad meaning, includes both general
taxes and special assessments, and in a general sense a tax is an
assessment, and an assessment is a tax, yet there is a recognized
distinction between them in that assessment is confined to local
impositions upon property for the payment of the cost of public
improvements in its immediate vicinity and levied with reference to
special benefits to the property assessed. The differences between a
special assessment and a tax are that (1) a special assessment can
be levied only on land; (2) a special assessment cannot (at least in
most states) be made a personal liability of the person assessed; (3)
a special assessment is based wholly on benefits; and (4) a special
assessment is exceptional both as to time and locality. The
prescribed area, is a tax and not an assessment, although the
purpose is to make a local improvement on a street or highway. A
charge imposed only on property owners benefited is a special
assessment rather than a tax notwithstanding the statute calls it a
tax.
In the case at bar, the Prefect cannot claim exemption because the
assessment is not taxation per se but rather a system for the benefits
of the inhabitants of the city.
Victorias Milling Co., Inc. v. Office of the Presidential Assistant
for Legal Affairs, G.R. No. 73705, [August 27, 1987], 237 PHIL
306-314)
Facts
On April 28, 1981, the Iloilo Port Manager of respondent Philippine
Ports Authority (PPA for short) wrote petitioner Victorias Milling Co.,
requiring it to have its tugboats and barges undergo harbor
formalities and pay entrance/ clearance fees as well as berthing fees
effective May 1, 1981. PPA, likewise, requiring petitioner to secure a
permit for. cargo handling operations at its Da-an Banua wharf and
remit 10% of its gross income for said operations as the
government's share. To these demands, petitioner sent two (2)
letters, both dated June 2, 1981, wherein it maintained that it is
exempt from paying PPA any fee or charge because: (1) the wharf
and an its facilities were built and installed in its land; (2) repair and
maintenance thereof were and solely paid by it; (3) even the
dredging and maintenance of the Malijao River Channel from
Guimaras Strait up to said private wharf are being done by
petitioner's equipment and personnel; and (4) at no time has the
government ever spent a single centavo for such activities. Petitioner
further added that the wharf was being used mainly to handle sugar
purchased from district planters pursuant to existing milling
agreements.
Held
As correctly stated by the Solicitor General, the fees and charges
PPA collects are not for the use of the wharf that petitioner owns but
for the privilege of navigating in public waters, of entering and
leaving public harbors and berthing on public streams or waters.
(Rollo, pp. 056-057). In Compañia General de Tabacos de Filipinas
vs. Actg. Commissioner of Customs (23 SCRA 600), this Court laid
down the rule that berthing charges against a vessel are collectible
regardless of the fact that mooring or berthing is made from a private
pier or wharf. This is because the government maintains bodies of
water in navigable condition and it is to support its operations in this
regard that dues and charges are imposed for the use of piers and
wharves regardless of their ownership|||
ID.; ID.; HANDLING CHARGES; 10% THEREOF TO BE REMITTED
TO THE NATIONAL GOVERNMENT, IN THE NATURE OF
CONTRACTUAL COMPENSATION. — As to the requirement to
remit 10% of the handling charges, Section 6B-(ix) of the Presidential
Decree No. 857 authorized the PPA "To levy dues, rates, or charges
for the use of the premises, works, appliances, facilities, or for
services provided by or belonging to the Authority, or any
organization concerned with port operations." This 10% government
share of earnings of arrastre and stevedoring operators is in the
nature of contractual compensation to which a person desiring to
operate arrastre service must agree as a condition to the grant of the
permit to operate.||| (Victorias Milling Co., Inc. v. Office of the
Presidential Assistant for Legal Affairs, G.R. No. 73705, [August 27,
1987], 237 PHIL 306-314)
|| (Commissioner of Internal Revenue v. Vda. De Prieto, G.R. No.
L-13912, [September 30, 1960], 109 PHIL 592-598)
Facts
Respondent donated real property to her children. She paid the
assessed donor’s gift
tax, which assessment included interest on account of delinquency.
The followingyear, in her income tax return, respondent claimed the
interest as a deduction. TheCIR disallowed the deduction, but the
CTA reversed and allowed it. The SC affirmedthe CTA decision.
Interest on tax is interest on indebtedness and is thus deductible.
US Tax Code (which our provisions are based on) contemplates tax
as an
indebtedness. Jurisprudence has also held the same; although taxes aren’t
conceptually the same as debts, they may be considered as such.
Held
TAXATION; DEFICIENCY INCOME TAX; REQUISITES IN
ORDER THAT INTEREST MAY BE DEDUCTIBLE. — For
interest to be allowed as deduction from gross income, it must be
shown that there be indebtedness, that there should be interest
upon it, and that what is claimed as an interest deduction should
have been paid or accrued within the year.
TAX AS AN INDEBTEDNESS; INTEREST PAID FOR LATE
PAYMENT OF DONOR'S TAX DEDUCTIBLE. — The term
"indebtedness" as used in the Tax Code of the United States
containing similar provisions as in section 30 (b) (1) of our Tax
Code, has been defined as an unconditional and legally
enforceable obligation for the payment of money. Within the
meaning of that definition a tax may be considered an
 indebtedness. Hence, interest paid for late payment of donor's
tax is deductible from gross income under said section.
WHEN SECTION 80 OF REVENUE REGULATION NO. 2 IS
NOT APPLICABLE. — Although section 80 of Revenue
Regulation No. 2 (known as Income Tax Regulations)
promulgated by the Department of Finance, which provides that
"the word 'taxes' means taxes proper and no deductions should
be allowed for amounts representing interest, surcharge, or
penalties incident to delinquency," implements section 30 (c) of
the Tax Code governing deductions of taxes, the same is
inapplicable to a case where the taxpayer seeks to come under
section 30 (b) of the same Code providing for deduction of
interest on indebtedness.
TAXPAYER NOT PRECLUDED FROM CLAIMING INTEREST
PAYMENT AS DEDUCTION. — Although interest payment for
delinquency taxes is not deductible as tax under section 30 (c) of
the Tax Code and section 80 of the Income Tax Regulations, the
taxpayer is not said interest payment as deduction under section
30 (b) of the same code.
INTERPRETATION AND CONSTRUCTION OF TAX
STATUTES
Commissioner of Internal Revenue v. Court of Appeals, G.R.
No. 107135, [February 23, 1999], 363 PHIL 130-139)
FACTS:
Private respondent Central Vegetable Oil Manufacturing Co.,
Inc. (CENVOCO) is a manufacturer of edible oil and coconut,
coprameal cake and such other coconut related oil subject to the
miller tax of 3%. In 1986, CENVOCO purchased a specified number
of containers and packaging materials for its edible oil from its
suppliers, and paid the sales tax due thereon. After an investigation
by the Revenue Examiner, CENVOCO was assessed for deficiency
miller's tax in the total amount of P1,575,514.70. CENVOCO wrote
petitioner a letter requesting for reconsideration, contending that the
final provision of Section 168 of the Tax Code does not apply to
sales tax paid on containers and packaging materials, hence, the
amount paid therefor should have been credited against the miller's
tax assessed against it. Petitioner, through a letter, reiterated the
validity of its assessment. Dissatisfied, CENVOCO filed a petition for
review with the Court of Tax Appeals, which came out with a
decision in favor of CENVOCO. Petitioner appealed to the Court of
Appeals. The assailed decision was affirmed in toto. DHITcS
The Supreme Court dismissed the petition and affirmed the
decision of the Court of Appeals. The law relied upon by the BIR
Commissioner as the basis for not allowing CENVOCO's tax credit is
just a proviso of Section 168 of the old Tax Code. The restriction in
said proviso, however, is limited only to sales, miller's or excise taxes
paid "on raw materials used in the milling process." The Court ruled
that under the rules of statutory construction, exceptions as a
general rule, should be strictly but reasonably construed. They
extend only so far as their language fairly warrants, and all doubts
should be resolved in favor of the general provisions rather than the
exception. The exception provided for in section 168 of the old Tax
Code should be strictly construed. The Court also ruled that it is a
basic rule of interpretation that words and phrases used in the
statute in the absence of a clear legislative intent to the contrary,
should be given their plain, ordinary and common usage or meaning.
Cans and tetrapaks are not used in the manufacture of CENVOCO's
finished products which are coconut, edible oil or coprameal cake.
Such finished products are packed in cans and tetrapaks. There is
no error in allowing the sales taxes paid on the containers and
packaging materials of the milled products should be credited
against the miller's tax due thereon.
HELD:
STATUTORY CONSTRUCTION; EXCEPTIONS, AS A GENERAL
RULE, SHOULD BE STRICTLY CONSTRUED; THE EXCEPTION
PROVIDED FOR IN SECTION 168 OF THE OLD TAX
CODE SHOULD BE STRICTLY CONSTRUED. —
Under the rules of statutory construction, exceptions, as a general
rule, should be strictly but reasonably construed. They extend only
so far as their language fairly warrants, and all doubts should be
resolved in favor of the general provisions rather than the exception.
Where a general rule is established by statute with exceptions, the
court will not curtail the former nor add to the latter by implication.
. . . (Samson vs. Court of Appeals, 145 SCRA 659 [1986]). The
exception provided for in Section 168 of the old Tax Code should
thus be strictly construed. Conformably, the sales, miller's and excise
taxes paid on all other materials (except on raw materials used in the
milling process), such as the sales taxes paid on containers and
packaging materials of the milled products under consideration, may
be credited against the miller's tax due therefor.
BASIC RULES OF INTERPRETATION; RULES AND PHRASES
USED IN THE STATUTE, IN THE ABSENCE OF A CLEAR
LEGISLATIVE INTENT TO THE CONTRARY, SHOULD BE GIVEN
THEIR PLAIN, ORDINARY AND COMMON USAGE OR MEANING.
—
It is a basic rule of interpretation that words and phrases used in the
statute, in the absence of a clear legislative intent to the contrary,
should be given their plain, ordinary and common usage or meaning.
(Mustang Lumber Inc. vs. CA, 257 SCRA 430 [1996] citing Ruben E.
Agpalo, Statutory Construction, second ed. [1990], 131). From the
disquisition and rationalization aforequoted, containers and
packaging materials are certainly not raw materials. Cans and
tetrapaks are not use
TAXATION; TAX BURDENS ARE NOT TO BE IMPOSED BEYOND
WHAT THE STATUTE EXPRESSLY AND CLEARLY IMPORTS,
TAX STATUTES BEING CONSTRUED STRICTISSIMI
JURIS AGAINST THE GOVERNMENT. —
This Court is mindful of the well-entrenched principle that the
government is never estopped from collecting taxes because of
mistakes or errors on the part of its agents, but this rule admits of
exceptions in the interest of justice and fair play. (ABS CBN
Broadcasting Corp. vs. Court of Tax Appeals, 108 SCRA 151 [1981])
More so in the present case, where we discern no error in allowing
the sales taxes paid by CENVOCO on the containers and packages
of its milled products, to be credited against the deficiency miller's tax
due thereon, for a proper application of the law. It bears stressing
that tax burdens are not to be imposed, nor presumed to be imposed
beyond what the statute expressly and clearly imports, tax statutes
being construed strictissimi juris against the government.
Luzon Stevedoring Corp. v. Court of Tax Appeals, G.R. No. L-
30232, [July 29, 1988], 246 PHIL 666-673
FACTS
Petitioner-appellant Luzon Stevadoring Corporation (LSC), in 1961
and 1962, for the repair and maintenance of its tugboats, imported
various engine parts and other equipment for which it paid, under
protest, the assessed compensating tax. Unable to secure a tax
refund from the CIR, on January 2, 1964, it filed a Petition for Review
with the CTA, praying among others, that it be granted the refund of
the amount of P33,442.13.
Petitioner contends that tugboats are embraced and included in the
term cargo vesselunder the tax exemption provisions of Section 190
of the Revenue Code, as amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat and a barge loaded
with cargoes with the former towing the latter for loading and

unloading of a vessel in part, constitute a single vessel. Accordingly,
it concludes that the engines, spare parts and equipment imported
by it and used in the repair and maintenance of its tugboats are
exempt from compensating tax.
The CTA, however, in a Decision dated October 21, 1969 denied the
various claims for tax refund. Its Motion for Reconsideration was also
denied.
HELD
TAXATION; TAX EXEMPTIONS; ANY DIMINUTION OF POWER TO
TAX STRICTLY CONSTRUED; REASON. — This Court has laid
down the rule that "as the power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any reduction
or diminution thereof with respect to its mode or its rate, must be
strictly construed, and the same must be coached in clear and
unmistakable terms in order that it may be applied." (84 C.J.S. pp.
659-800), More specifically stated, the general rule is that any claim
for exemption from the tax statute should be strictly construed
against the taxpayer |||.
STATUTORY CONSTRUCTION AND INTERPRETATION; TERM
"TUGBOAT" DEFINED. — As quoted in the decision of the Court of
Tax Appeals, a tugboat is defined as follows: "A tugboat is a strongly
built, powerful steam or power vessel, used for towing and, now, also
used for attendance on vessel. (Webster New International
Dictionary, 2nd Ed.). "A tugboat is a diesel or steam power vessel
designed primarily for moving large ships to and from piers for towing
barges and lighters in harbors, rivers and canals. (Encyclopedia
International Grolier, Vol. 18, p. 256). "A tug is a steam vessel built
for towing, synonymous with tugboat." (Bouvier's Law Dictionary.)
Under the foregoing definitions, petitioner's tugboats clearly do not
fall under the categories of passenger and/or cargo vessels. Thus, it
is a cardinal principle of statutory construction that where a provision
of law speaks categorically, the need for interpretation is obviated,
no plausible pretense being entertained to justify non-compliance. All
that has to be done is to apply it in every case that falls within its
terms.
TAXATION; COURT OF TAX APPEALS; FINDINGS AND
CONCLUSION NOT DISTURBED LACKING ABUSE OF
AUTHORITY; CASE AT BAR. — On analysis of petitioner-appellant's
transactions, the Court of Tax Appeals found that no evidence was
adduced by petitioner-appellant that tugboats are passenger and/or
cargo vessels used in the shipping industry as an independent
business. There appears to be no plausible reason to disturb the
findings and conclusion of the Court of Tax Appeals. As a matter of
principle, this Court will not set aside the conclusion reached by an
agency such as the Court of Tax Appeals, which is, by the very
nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an
expertise on the subject unless there has been an abuse or
improvident exercise of authority (Reyes v. Commissioner of Internal
Revenue, 24 SCRA 199 [1981]), which is not present in the instant
case.|||
Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., G.R. No. L-31092, [February 27, 1987], 232 PHIL 38-44
FACTS
The World Health Organization (WHO) decided to construct a
building to house its offices, as well as the other United Nations
Offices in Manila. Inviting bids for the construction of the building, the
WHO informed the bidders of its tax exemptions. The contract was
awarded to John Gotamco and sons. The Commissioner opined that
a 3% contractor’s tax should be due from the contractor. The WHO
issued a certification that Gotamco should be exempted, but the
Commissioner insisted on the tax. Raised in the Court of Tax
Appeals, the Court ruled in favor of Gotamco.
HELD
TAXATION; CONTRACTOR'S TAX; AN INDIRECT TAX PAYABLE
BY THE OWNER OF THE BUILDING. — In context, direct taxes are
those are demanded from the very person who, it is intended or
desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation
and intention that he can shift the burden to someone else (Pollock
vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. 759.)
The contractor's tax is of course payable by the contractor but in the
last analysis it is the owner of the building that shoulders the burden
of the tax because the same is shifted by the contractor to the owner
as a matter of self-preservation. Thus, it is an indirect tax. And it is
an indirect tax on the WHO because, although it is payable by the
petitioner, the latter can shift its burden on the WHO. In the last
analysis the contractor and it certainly cannot be said that 'this tax
has no bearing upon the World Health Organization.
ID.; ID.; ID.; The Host Agreement, in specifically exempting to WHO
form "indirect taxes", contemplates taxes which, although not
imposed upon or paid by the Organization directly, form part of the
price paid or to be paid by it. This is made clear in Section 12 of the
Host Agreement which provides: "While the Organization will not, as
general rule, in the case of minor purchases, claim exemption from
excise duties, and from taxes on the sale of movable and immovable
property which from part of the price to be paid, nevertheless, when
the Organization is making important purchases for official use of
property on which such duties and taxes have been charged or are
chargeable the Government of the Republic of the Philippines shall
make appropriate administrative arrangements for the remission or
return of the amount of duty or tax." (Emphasis supplied). The
above-quoted provision, although referring only to purchases made
by the WHO, elucidates the clear intention of the Agreement to
exempt the WHO from "indirect" taxation. The certification issued by
the WHO, dated January 20, 1960, sought exemption of the
contractor, Gotamco, from any taxes in connection of the
construction of the WHO office building. The 3% contractor's tax
would be within the category and should be viewed as a form of an
"direct tax" on the Organization, as the payment thereof or its
inclusion in the bid price would have meant an increase in the
construction cost of the building.
|||
|||
Commissioner of Internal Revenue v. Court of Appeals, G.R. No.
115349, [April 18, 1997], 338 PHIL 322-338
FACTS
Private respondent is a non-stock, non-profit educational institution
with auxiliary units and branches all over the Philippines. One such
auxiliary unit is the Institute of Philippine Culture (IPC), which has no
legal personality separate and distinct from that of private
respondent. The IPC is a Philippine unit engaged in social science
studies of Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from international
organizations, private foundations and government agencies. On
July 8, 1983, private respondent received from petitioner
Commissioner of Internal Revenue a demand letter dated June 3,
1983, assessing private respondent the sum of P174,043.97 for
alleged deficiency contractor's tax, and an assessment dated June
27, 1983 in the sum of P1,141,837 for alleged deficiency income tax,
both for the fiscal year ended March 31, 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-protest and
subsequently filed with the latter a memorandum contesting the
validity of the assessments.
HELD
TAXATION; TAX IMPOSITION; AS A RULE, A STATUTE WILL NOT
BE CONSTRUED AS IMPOSING A TAX UNLESS IT DOES SO
CLEARLY, EXPRESSLY, AND UNAMBIGUOUSLY. — The Court
takes this occasion to reiterate the hornbook doctrine in the
interpretation of tax laws that "(a) statute will not be construed as
imposing a tax unless it does so clearly, expressly, and
unambiguously. . . (A) tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are
not to be extended by implication." Parenthetically, in answering the
question of who is subject to tax statutes, it is basics that "in case of
doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens
are not to be imposed nor presumed to be imposed beyond what
statutes expressly and clearly import.
ID.; ID.; SEC. 20 OF THE NATIONAL INTERNAL REVENUE CODE;
APPLICATION; EXEMPTION; NOT PRESENT IN CASE AT BAR. —
The Commissioner should have determined first if private respondent
was covered by Section 205, applying the rule of strict interpretation
CLASSIFICATIONS OF EXEMPTIONS
|||Province of Misamis Oriental v. Cagayan Electric Power and
Light Co., Inc., G.R. No. L-45355, [January 12, 1990], 260 PHIL
38-44
FACTS
Cagayan Electric Power and Light Company, Inc. (CEPALCO) was
granted a franchise on 17 June 1961 under RA 3247 to install,
operate and maintain an electric light, heat and power system in the
City of Cagayan de Oro and its suburbs. Said franchise was
amended on 21 June 1963 by RA 3570 which added the
municipalities of Tagoloan and Opol to CEPALCO’s sphere of
operation, and was further amended on 4 August 1969 by RA 6020
of laws imposing taxes and other burdens on the populace, before
asking Ateneo to prove its exemption therefrom. To fall under its
coverage, Section 205 of the National Internal Revenue
Code requires that the independent contractor be engaged in the
business of selling its services. Hence, to impose the three percent
contractor's tax on Ateneo's Institute of Philippine Culture, it should
be sufficiently proven that the private respondent is indeed selling its
services for a fee in pursuit of an independent business. And it is
only after private respondent has been found clearly to be subject to
the provisions of Sec. 205 that the question of exemption therefrom
would arise. Only after such coverage is shown does the rule of
construction — that tax exemptions are to be strictly construed
against the taxpayer — come into play. After reviewing the records of
this case, we find no evidence that Ateneo's Institute of Philippine
Culture ever sold its services for a free to anyone or was ever
engaged in a business apart from and independently of the
academic purposes of the university. The petitioner has presented
no evidence to prove its bare contention that, indeed, contracts for
sale of services were ever entered into by the private respondent.
which extended its field of operation to the municipalities of
Villanueva and Jasaan. On 28 June 1973, the Local Tax Code (PD
231) was promulgated. Section 9 of which provides for a Franchise
Tax. Pursuant thereto, the Province of Misamis Oriental enacted
Provincial Revenue Ordinance 19, whose Section 12 also provides
for a Franchise Tax. The Provincial Treasurer of Misamis Oriental
demanded payment of the provincial franchise tax from CEPALCO.
The company refused to pay, alleging that it is exempt from all taxes
except the franchise tax required by RA 6020. Nevertheless, in view
of the opinion rendered by the Provincial Fiscal, upon CEPALCO’s
request, upholding the legality of the Revenue Ordinance, CEPALCO
paid under protest on 27 May 1974 the sum of P4,276.28 and
appealed the fiscal’s ruling to the Secretary of Justice who reversed
it and ruled in favor of CEPALCO. On 26 June 1976, the Secretary of
Finance issued Local Tax Regulation 3-75 adopting entirely the
opinion of the Secretary of Justice. On 16 February 1976, the
Province filed in the CFI Misamis Oriental a complaint for declaratory
relief praying, among others, that the Court exercise its power to
construe PD 231 in relation to the franchise of CEPALCO (RA 6020),
and to declare the franchise as having been amended by PD 231.
The Court dismissed the complaint and ordered the Province to
return to CEPALCO the sum of P4,276.28 paid under protest. The
Province appealed to the Supreme Court. The Supreme Court
denied the petition for review, and affirmed in toto the decision of the
Court of First Instance; wtihout costs.
HELD
TAXATION; FRANCHISE TAX; P.D. NO. 231, BEING A GENERAL
LAW, DOES NOT AMEND OR REPEAL SEC. 3 OF RA 6020;
EXCEPTION. — There is no provision in P.D. No. 231 expressly or
impliedly amending or repealing Section 3 of R.A. No. 6020. The
perceived repugnancy between the two statutes should be very clear
before the Court may hold that the prior one has been repealed by
the later, since there is no express provision to that effect (Manila
Railroad Co. vs. Rafferty, 40 Phil. 224). The rule is that a special and
local statute applicable to a particular case is not repealed by a later
statute which is general in its terms, provisions and application even
if the terms of the general act are broad enough to include the cases
in the special law (id.) unless there is manifest intent to repeal or
alter the special law.
PRESUMPTION. — Republic Acts Nos. 3247, 3570 and 6020 are
special laws applicable only to CEPALCO, while P.D. No. 231 is a
general tax law. The presumption is that the special statutes are
exceptions to the general law (P.D. No. 231) because they pertain to
a special charter granted to meet a particular set of conditions and
circumstances.
EXEMPTING CLAUSE IN THE CONTRACT OF FRANCHISE;
PURPOSE. — The provision "shall be in lieu of all taxes of every
name and nature" in the franchise, this Court pointed out that such
exemption is part of the inducement for the acceptance of the
franchise and the rendition of public service by the grantee. As a
charter is in the nature of a private contract, the imposition of another
franchise tax on the corporation by the local authority would
constitute an impairment of the contract between the government
and the corporation.
INSTANCES EXEMPTIONS CONSTRUED LIBERALLY
Commissioner of Internal Revenue v. Court of Appeals, G.R. No.
108358, [January 20, 1995], 310 PHIL 392-401)
FACTS
On 22 August 1986, during the period when the President of the
Republic still wielded legislative powers, Executive Order 41 was
promulgated declaring a one-time tax amnesty on unpaid income
taxes, later amended to include estate and donor’s taxes and taxes
on business, for the taxable years 1981 to 1985. Availing itself of the
amnesty, R.O.H. Auto Products Philippines Inc., filed, in October
1986 and November 1986, its Tax Amnesty Return 34-F-00146-41
and Supplemental Tax Amnesty Return 34-F-00146-64-B,
respectively, and paid the corresponding amnesty taxes due. Prior to
this availment, the Commissioner of Internal Revenue, in a
communication received by the company on 13 August 1986,
assessed the latter deficiency income and business taxes for its
fiscal years ended 30 September 1981 and 30 September 1982 in an
aggregate amount of P1,410,157.71. The taxpayer wrote back to
state that since it had been able to avail Taxation Law I, 2003 ( 26 )
Haystacks (Berne Guerrero) itself of the tax amnesty, the deficiency
tax notice should forthwith be cancelled and withdrawn. The request
was denied by the Commissioner, in his letter of 22 November 1988,
on the ground that Revenue Memorandum Order 4-87, dated 09
February 1987, implementing EO 41, had construed the amnesty
coverage to include only assessments issued by the Bureau of
Internal Revenue after the promulgation of the executive order on 22
August 1986 and not to assessments theretofore made. The
company appealed the Commissioner’s denial to the Court of Tax
Appeals. Ruling for the taxpayer, the tax court held that the
Commissioner failed to present any case or law which proves than
an assessment can withstand or negate the force of a tax amnesty.
On appeal by the Commissioner to the Court of Appeals, the
decision of the tax court was affirmed. Hence, the present petition.
The Supreme Court affimed the decision of the court of Appeals,
sustaining that of the court of Tax Appeals, in toto; without costs
HELD
STATUTORY CONSTRUCTION; THERE IS NO NEED OF
INTERPRETATION WHERE NECESSARY LAW IS CLEAR AND
EXPLICIT; SCOPE OF EXECUTIVE ORDER NO. 41, EXPLICIT
AND REQUIRES NOTHING BEYOND ITS SIMPLE APPLICATION;
CASE AT BENCH. — We agree with both the Court of Appeals and
Court of Tax Appeals that Executive Order No. 41 is quite explicit
and requires hardly anything beyond a simple application of its
provisions. It reads: "SEC. 1. Scope of Amnesty. — A one-time tax
amnesty covering unpaid income taxes for the years 1981 to 1985 is
hereby declared." The period of the amnesty was later extended to
05 December 1986 from 31 October 1986 by Executive Order No.
54, dated 04 November 1986, and, its coverage expanded,
under Executive Order No. 64, dated 17 November 1986, to include
estate and donors taxes and taxes on business. If, as the
Commissioner argues, Executive Order No. 41 had not been
intended to include 1981-1985 tax liabilities already assessed
(administratively) prior to 22 August 1986, the law could have simply
so provided in its exclusionary clauses. It did not. The conclusion is
unavoidable, and it is that the executive order has been designed to
be in the nature of a general grant of tax amnesty subject only to the
cases specifically excepted by it.|||
|||(Maceda v. Macaraig, Jr., G.R. No. 88291 (Resolution), [June 8,
1993])
FACTS
HELD
TAXATION; NATIONAL POWER CORPORATION (NPC); EXEMPT
FROM ALL FORMS OF DIRECT AND INDIRECT TAXES. — A
chronological review of the NPC laws will show that it has been the
lawmaker's intention the NPC was to be completely tax exempt from
all forms of taxes — direct and indirect. NPC's tax exemption at first
applied to the bonds it was authorized to float to finance its
operations upon its creation by virtue of C.A. No. 120. When the
NPC was authorized to contract with the IBRD for foreign financing,
any loans obtained were to be completely tax exempt. After the NPC
was authorized to borrow from other sources of funds — aside from
issuance of bonds — it was again specifically exempted from all
types of taxes "to facilitate payment of its indebtedness." Even when
the ceilings for domestic and foreign borrowings were periodically
increased, the tax exemption privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however,
specifically withdrawn by Rep. Act No. 987, as above stated. The
exemption was, however, restored by R.A. No. 6395. Section
13, R.A. No. 6395, was very comprehensive in its enumeration of the
tax exemptions allowed NPC. Its Section 13(d) is the starting point of
this bone of contention among the parties. For easy reference, it is
reproduced as follows: "[T]he Corporation is hereby declared
exempt: . . . "(d) From all taxes, duties, fees, imposts and all other
charges imposed by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation
in the generation, transmission, utilization, and sale of electric
power." P.D. No. 380 added the phrase "directly or indirectly" to said
Section 13(d). Then came P.D. No. 938 which amended Sec. 13(a),
(b), (c) and (d) into one very simple paragraph. It should be noted
that Section 13, R.A. No. 6395, provided for tax exemptions for the
following items: 13(a) : court of administrative proceedings; 13(b) :
income, franchise, realty taxes; 13(c) : import of foreign goods
required for its operations and projects; 13(d) : petroleum products
used in generation of electric power. P.D. No. 938 lumped up 13(c)
and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included
13(a) under the "was well as" clause and added PNOC subsidiaries
as qualified for tax exemptions. This is the only conclusion one can
arrive at if he has read all the NPC laws in the order of enactment or
issuance as narrated above in part I hereof. President Marcos must
have considered all the NPC statues from C.A. No. 120 up to its
latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759,
AND came up with a very simple Section 13,R.A. No. 6395, as
amended BY P.D. No. 938. P.D. No. 938 did not amend the same
and so the tax exemption provision in Section 8 (b), R.A. No. 6395,
as amended by P.D. NO. 380, still stands. Since the subject matter
of this particular Section 8 (B) had to do only with loans and
machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT
UP WITH, and so, the tax exemption stood as is — with the express
mention of "direct and indirect" tax exemptions. And this "direct and
indirect" tax exemption privilege extended to "taxes, fees, imposts,
other charges . . . to be imposed" in the further — surely, an
indication that the lawmakers wanted the NPC to be exempt from
ALL FORMS of taxes — direct and indirect.
Comissioner of Internal revenue v. DLSU G.R. No. 19656
FACTS
The Commissioner submits the following arguments:DLSU's rental
income is taxable regardless of how such income is derived, used or
disposedof. DLSU's operations of canteens and bookstores within
its campus even thoughexclusively serving the university community
do not negate income tax liability.Article XIV, Section 4 (3) of the
Constitution and Section 30 (H) of the Tax Code“the income of
whatever kind and character of [a non-stock and non-
profiteducational institution] from any of [its] properties, real or
personal, or from any of (its]activities conducted for profit regardless
of the disposition made of such income , shall be subject totax
imposed by this Code.”
The Commissioner posits that a tax-exempt organization like DLSU
is exempt only from property tax but not from income tax on the
rentals earned from property.
Thus, DLSU'sincome from the leases of its real properties is not
exempt from taxation even if the incomewould be used for
educational purposes.
DLSU stresses that Article XIV, Section 4 (3) of the Constitution is
clear that
allassets and revenues of non-stock, non-profit educational
institutions used actually, directly andexclusively for educational
purposes are exempt from taxes and duties.
HELD
The requisites for availing the tax exemption under Article XIV,
Section 4 (3), namely: (1) the taxpayer falls under the
classification non-stock, non-profit educational institution; and (2)
the income it seeks to be exempted from taxation is used actually,
directly and exclusively for educational purposes.
A plain reading of the Constitution would show that Article
XIV, Section 4 (3) does not require that the revenues and income
must have also been sourced from educational activities or activities
related to the purposes of an educational institution. The phrase all
revenues is unqualified by any reference to the source of revenues.
Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and
income shall be exempt from taxes and duties.
Thus, when a non-stock, non-profit educational institution
proves that it uses its revenues actually, directly, and exclusively for
educational purposes, it shall be exempted from income tax, VAT,
and LBT. On the other hand, when it also shows that it uses its
assets in the form of real property for educational purposes, it shall
be exempted from RPT.
We further declare that the last paragraph of Section 30 of
the Tax Code is without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of
non-stock, non-profit educational institutions used actually, directly
and exclusively for educational purpose. We make this declaration in
the exercise of and consistent with our duty to uphold the primacy of
the Constitution. We stress that our holding here pertains only to
non-stock, non-profit educational institutions and does not cover the
other exempt organizations under Section 30 of the Tax Code.
For all these reasons, we hold that the income and revenues
of DLSU proven to have been used actually, directly and exclusively
for educational purposes are exempt from duties and taxes.
CERTAIN DOCTRINES IN TAXATION
Hydro Resources v. CA G.R. No. 80276
FACTS:
Hydro Resources Contractors Corporation enteredinto a L-23236 & L-23254, [May 31, 1967], 126 PHIL 685-696
contract of sale with the National Irrigation Authority ( N I A )
for the construction of Magat River
M u l t i p u r p o s e Project in Isabella in August 1978. The contract
provided thatHydro will import parts, construction equipment and
tools andt a x e s a n d d u t i e s t o b e p a i d b y N I A . T o o l s
a n d e q u i p m e n t arrived during 1978 and 1979. NIA
reneged on the contract.Therefore causing the transfer its
sale to Hydro in seperated a t e s i n D e c e m b e r 6 , 1 9 8 2
a n d M a r c h 2 4 , 1 9 8 3 . E x e c u t i v e Order 860 took effect during
December 21, 1982 provided for3% ad valorem tax on importations
and it specifically providedthat it should have no retroactive
effect. During the contract of sale execution, Hydro was
assessed and paid the said 3% ad valorem tax worth P
281,591 under protest. The Hydro whenfiling for refund with
Customs Commissioner who indorsedthe approval of the
refund but was denied by the Secretary of Finance and
motion was denied by the Court of Tax Appeals.
HELD:
The Court of Tax Appeals erred in applyi
n g a retroactive effect for the Executive Order therefore should
nothave been subject to the additional 3% ad valorem
tax. Ingeneral tax laws are not retroactive in nature. Not
only
thatE x e c u t i v e O r d e r 8 6 0 s p e c i f i c a l l y p r o v i d e s t
h a t i t i s n o t retroactive in nature, but also when the conditional
contract of sale was executed, its had a suspensive condition
contemplatedin the Civil Code (Article 1187) where it returned
ownership tothe seller Hydro because NIA was not able to
comply with its part of the contract, it was deemed
executed as if during theconstitution of the obligation
which was in 1978 and not in1982
Central Azucarera Don Pedro v. Court of Tax Appeals, G.R. Nos.
FACTS:
Central Azucarera Don Pedro, a domestic corporation with office
at Nasugbu, Batangas, had been filing its incometax returns
on the "fiscal year" basis ending August 31, of every year.[It had
been assessed deficienc y tax plus interest. It paid
thedeficiency tax but protested on the imposition of the
interest],claiming that the imposition of ½% monthly interest
on itsd e f i c i e n c y t a x f o r t h e f i s c a l y e a r 1 9 5 4 t o 1 9 5 8 ,
P u r s u a n t t o Section 51 (d) of the Revenue Code, as
amended by Republic Act No. 2343, is illegal, because the
imposition of interest one f f i c i e n c y i n c o m e t a x
earned prior to the effectivity o f t h e amendatory law
(Rep. Act 2343) [on 1959] will be tantamountto giving it (Rep. Act
No. 2343) retroactive application.
[Itf u r t h e r c o n t e n d s t h a t ] t h e a p p l i c a t i o n o f t h e
a m e n d e d provision (now Sec. 51-d of the Tax Code) to
the cases at bar would run counter to the constitutional restriction
against theenactment of ex post facto laws.
HELD:
TAXATION; TIME TO PAY INCOME TAX. — Under subsection (b)
of the same old Section 51, of the Tax Code the time prescribed for
the payment of tax was fixed, whether or not a notice of the
assessment was given to the taxpayer. Under the section as
amended by Rep. Act No. 2343, the time of payment is also fixed
and predetermined (usually coinciding with the filing of the return)
without the necessity of giving notification of the assessment to the
taxpayer by the Commissioner.
INTEREST ON DEFICIENCY, WHEN IMPOSED. — case, it is
evident that petitioner's contention that interest on such deficiency
accrued only when the taxpayer failed to pay the tax within the
period prescribed therefor by respondent Commissioner is not
correct; said interest was imposable in case of non-payment on time,
not only on the basic income tax, but also on the deficiency tax,
since the deficiency was part and parcel of petitioner's income tax
liability.
CIR v. BENGUET CORP 463 scra 28
FACTS
Benguet sold gold to the central bank relying on (BIR) VATRuling which declared
that the sale of gold to Central Bank was considered asexport sale subject to VAT
at zero-rate. It then filed applications for taxrefunds/credits corresponding to input
VAT it paid, but these applications wereeither unacted upon or expressly
disallowed by CIR. In addition, CIR issued adeficiency assessment when, after
applying Benguet’s creditable input VATcosts against the retroactive 10% VAT
levy, there resulted in a balance of output VAT payable.
HELD
The SC ruled in the negative. The CIR is precluded from adopting a
position inconsistent with onepreviously taken where injustice
would result therefrom, or when there has been a
misrepresentation tothe taxpayer. (citing ABS-CBN Broadcasting
Corp. vs. CTA and CIR, 108 SCRA 142)Is there really an actual
and imminent injury to the taxpayer if the ruling is given a
retroactiveapplication? While the CTA said there is none, the CA
had taken a contrary view which was affirmed bythe SC.The VAT
system of taxation allows a VAT-registered taxpayer to recover its input
VAT either by (1)passing on the 10% output VAT on the gross
selling price or gross receipts, as the case may be, to its buyer, or
(2) if the input tax is attributable to the purchase of capital gods or to
zero-rated sales, by filing aclaim for refund or tax credit with the
BIR. Simply stated, a taxpayer subject to 10% output VAT on
itssales of goods and services may recover its input VAT costs by
passing on said costs as output VAT to itsbuyers of goods and
services but it cannot claim the same as a refund or tax credit,
while a taxpayersubject to 0% on its sales of goods and services
may only recover its input costs by filing a refund or taxcredit with
the BIR.The SC is correct in holding that a retroactive imposition of
the VAT on the sale of gold to CentralBank will definitely result to
substantial economic prejudice to respondent. First, the respondent
could nolonger pass-on to CB the 10% output VAT which would be
retroactively imposed on said transactions, andsecond, it will also be
prevented from claiming the refund because the sale is no longer
zero rated. If thishappens the entire cost of the input VAT will be
borne by respondent Benguet without any avenue forrecovery.
CIR v. Burmeisters GR No. 153205 Jan. 2007
FACTS
This petition for review 1 seeks to set aside the 16 April 2002
Decision 2 of the Court of Appeals in CA-G.R. SP No. 66341
affirming the 8 August 2001 Decision 3 of the Court of Tax Appeals
(CTA). The CTA ordered the Commissioner of Internal Revenue
(petitioner) to issue a tax credit certificate for P6,994,659.67 in favor
of Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
(respondent).
The Antecedents
The CTA summarized the facts, which the Court of Appeals
adopted, as follows:
[Respondent] is a domestic corporation
duly organized and existing under and by virtue of
the laws of the Philippines with principal address
located at Daruma Building, Jose P. Laurel
Avenue, Lanang, Davao City.
It is represented that a foreign consortium
composed of Burmeister and Wain Scandinavian
Contractor A/S (BWSC-Denmark), Mitsui
Engineering and Shipbuilding, Ltd., and Mitsui and
Co., Ltd. entered into a contract with the National
Power Corporation (NAPOCOR) for the operation
and maintenance of [NAPOCOR's] two power
barges. The Consortium appointed BWSC-
Denmark as its coordination manager.
BWSC-Denmark established [respondent]
which subcontracted the actual operation and
maintenance of NAPOCOR's two power barges as
well as the performance of other duties and acts
which necessarily have to be done in the
Philippines. aITECA
NAPOCOR paid capacity and energy fees
to the Consortium in a mixture of currencies (Mark,
Yen, and Peso). The freely convertible non-Peso
component is deposited directly to the
Consortium's bank accounts in Denmark and
Japan, while the Peso-denominated component is
deposited in a separate and special designated
bank account in the Philippines. On the other
hand, the Consortium pays [respondent] in foreign
currency inwardly remitted to the Philippines
through the banking system.
In order to ascertain the tax implications of
the above transactions, [respondent] sought a
ruling from the BIR which responded with BIR
Ruling No. 023-95 dated February 14, 1995,
declaring therein that if [respondent] chooses to
register as a VAT person and the consideration for
its services is paid for in acceptable foreign
currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng
Pilipinas, the aforesaid services shall be subject to
VAT at zero-rate.
[Respondent] chose to register as a VAT
taxpayer. On May 26, 1995, the Certificate of
Registration bearing RDO Control No. 95-113-
007556 was issued in favor of [respondent] by the
Revenue District Office No. 113 of Davao City.
 For the year 1996, [respondent] seasonably filed its quarterly architectural designs and other similar
Value-Added Tax Returns reflecting, among others, a total zero- services, the consideration for which is
rated sales of P147,317,189.62 with VAT input taxes of paid for in acceptable foreign currency
P3,361,174.14, detailed as follows: and accounted for in accordance with the
rules and regulations of the BSP."
Qtr. Exh. Date Filed Zero-Rated Sales VAT Input Tax
xxx xxx xxx
In [conformity] with the aforecited
Revenue Regulations, [respondent] subjected its
1st E 04-18-96 P33,019,651.07 P608,953.48 sale of services to the Consortium to the 10% VAT
in the total amount of P103,558,338.11
2nd F 07-16-96 37,108,863.33 756,802.66 representing April to December 1996 sales since
said Revenue Regulations No. 5-96 became
3rd G 10-14-96 34,196,372.35 930,279.14 effective only on April 1996. The sum of
P43,893,951.07, representing January to March
4th H 01-20-97 42,992,302.87 1,065,138.86 1996 sales was subjected to zero rate.
Consequently, [respondent] filed its 1996
Totals P147,317,189.62 P3,361,174.14 amended VAT return consolidating therein the
VAT output and input taxes for the four calendar
============= =========== quarters of 1996. It paid the amount of
P6,994,659.67 through BIR's collecting agent,
On December 29, 1997, [respondent] PCIBank, as its output tax liability for the year
availed of the Voluntary Assessment Program 1996, computed as follows:
(VAP) of the BIR. It allegedly misinterpreted
Revenue Regulations No. 5-96 dated February 20, Amount subject to 10% VAT P103,558,338.11
1996 to be applicable to its case. Revenue
Regulations No. 5-96 provides in part thus: Multiply by 10%
SECTIONS 4.102-2(b)(2) and ———————
4.103-1(B)(c) of Revenue Regulations No.
7-95 are hereby amended to read as VAT Output Tax P10,355,833.81
follows:
Section 4.102-2(b)(2) — "Services Less: 1996 Input VAT P3,361,174.14
other than processing, manufacturing or
repacking for other persons doing ———————
business outside the Philippines for goods
which are subsequently exported, as well VAT Output Tax Payable P6,994,659.67
as services by a resident to a non-resident
foreign client such as project studies, =============
information services, engineering and
 On January 7,1999, [respondent] was able
to secure VAT Ruling No. 003-99 from the VAT
Review Committee which reconfirmed BIR Ruling
No. 023-95 "insofar as it held that the services
being rendered by BWSCMI is subject to VAT at
zero percent (0%)."
On the strength of the aforementioned
rulings, [respondent] on April 22,1999, filed a claim
for the issuance of a tax credit certificate with
Revenue District No. 113 of the BIR. [Respondent]
believed that it erroneously paid the output VAT
for 1996 due to its availment of the Voluntary
Assessment Program (VAP) of the BIR. 4
On 27 December 1999, respondent filed a petition for review
with the CTA in order to toll the running of the two-year prescriptive
period under the Tax Code.
The Ruling of the Court of Tax Appeals
In its 8 August 2001 Decision, the CTA ordered petitioner to
issue a tax credit certificate for P6,994,659.67 in favor of respondent.
The CTA's ruling stated:
[Respondent's] sale of services to the
Consortium [was] paid for in acceptable foreign
currency inwardly remitted to the Philippines and
accounted for in accordance with the rules and
regulations of Bangko Sentral ng Pilipinas. These
were established by various BPI Credit Memos
showing remittances in Danish Kroner (DKK) and
US dollars (US$) as payments for the specific
invoices billed by [respondent] to the consortium.
These remittances were further certified by the
Branch Manager . . . of BPI-Davao Lanang Branch
to represent payments for sub-contract fees that
came from Den Danske Aktieselskab Bank-
Denmark for the account of [respondent]. Clearly,
[respondent's] sale of services to the Consortium
is subject to VAT at 0% pursuant to Section
108(B)(2) of theTax Code.
xxx xxx xxx
The zero-rating of [respondent's] sale of
services to the Consortium was even confirmed by
the [petitioner] in BIR Ruling No. 023-95 dated
February 15, 1995, and later by VAT Ruling No.
003-99 dated January 7, 1999, . . . .
Since it is apparent that the payments for
the services rendered by [respondent] were
indeed subject to VAT at zero percent, it follows
that it mistakenly availed of the Voluntary
Assessment Program by paying output tax for its
sale of services. . . . DTAHSI
. . . Considering the principle of solutio
indebiti which requires the return of what has been
delivered by mistake, the [petitioner] is obligated to
issue the tax credit certificate prayed for by
[respondent]. . . . 5
Petitioner filed a petition for review with the Court of
Appeals, which dismissed the petition for lack of merit and affirmed
the CTA decision. 6
Hence, this petition.
The Court of Appeals' Ruling
In affirming the CTA, the Court of Appeals rejected
petitioner's view that since respondent's services are not destined for
consumption abroad, they are not of the same nature as project
studies, information services, engineering and architectural designs,
and other similar services mentioned in Section 4.102-2 (b) (2) of
Revenue Regulations No. 5-96 7 as subject to 0% VAT. Thus,
according to petitioner, respondent's services cannot legally qualify
for 0% VAT but are subject to the regular 10% VAT. 8
The Court of Appeals found untenable petitioner's contention
that under VAT Ruling No. 040-98, respondent's services should be
destined for consumption abroad to enjoy zero-rating. Contrary to
petitioner's interpretation, there are two kinds of transactions or
services subject to zero percent VAT under VAT Ruling No. 040-98.
These are (a) services other than repacking goods for other persons
doing business outside the Philippines which goods are
subsequently exported; and (b) services by a resident to a non-
resident foreign client, such as project studies, information services,
engineering and architectural designs and other similar services, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP). 9
The Court of Appeals stated that "only the first classification
is required by the provision to be consumed abroad in order to be
taxed at zero rate. In . . . the absence of such express or implied
stipulation in the statute, the second classification need not be
consumed abroad." 10
The Court of Appeals further held that assuming petitioner's
interpretation of Section 4.102-2 (b) (2) of Revenue Regulations No.
5-96 is correct, such administrative provision is void being an
amendment to the Tax Code.Petitioner went beyond merely
providing the implementing details by adding another requirement to
zero-rating. "This is indicated by the additional phrase 'as well as
services by a resident to a non-resident foreign client, such as
project studies, information services and engineering and
architectural designs and other similar services.' In effect, this phrase
adds not just one but two requisites: (a) services must be rendered
by a resident to a non-resident; and (b) these must be in the nature
of project studies, information services, etc." 11
The Court of Appeals explained that under Section 108 (b)
(2) of the Tax Code, 12 for services which were performed in the
Philippines to enjoy zero-rating, these must comply only with two
requisites, to wit: (1) payment in acceptable foreign currency and (2)
accounted for in accordance with the rules of the BSP. Section 108
(b) (2) of the Tax Code does not provide that services must be
"destined for consumption abroad" in order to be VAT zero-rated. 13
The Court of Appeals disagreed with petitioner's argument
that our VAT law generally follows the destination principle (i.e.,
exports exempt, imports taxable). 14 The Court of Appeals stated
that "if indeed the 'destination principle' underlies and is the basis of
the VAT laws, then petitioner's proper remedy would be to
recommend an amendment of Section 108 (b) (2) to Congress.
Without such amendment, however, petitioner should apply the
terms of the basic law. Petitioner could not resort to administrative
legislation, as what [he] had done in this case." 15
The Issue
The lone issue for resolution is whether respondent is
entitled to the refund of P6,994,659.67 as erroneously paid output
VAT for the year 1996. 16
The Ruling of the Court
We deny the petition.
At the outset, the Court declares that the denial of the instant
petition is not on the ground that respondent's services are subject to
0% VAT. Rather, it is based on the non-retroactivity of the prejudicial
revocation of BIR Ruling No. 023-95 17 and VAT Ruling No. 003-
99, 18 which held that respondent's services are subject to 0% VAT
and which respondent invoked in applying for refund of the output
VAT.
Section 102 (b) of the Tax Code,19 the applicable provision
in 1996 when respondent rendered the services and paid the VAT in
question, enumerates which services are zero-rated, thus:
(b) Transactions subject to zero-rate. —
The following services performed in the
Philippines by VAT-registered persons shall be
subject to 0%:
(1) Processing, manufacturing or
repacking goods for other persons doing
business outside the Philippines which
goods are subsequently exported, where
the services are paid for in acceptable
foreign currency and accounted for in
accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those
mentioned in the preceding sub-
 paragraph, the consideration for which is
paid for in acceptable foreign currency
and accounted for in accordance with the
rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(3) Services rendered to persons
or entities whose exemption under special
laws or international agreements to which
the Philippines is a signatory effectively
subjects the supply of such services to
zero rate;
(4) Services rendered to vessels
engaged exclusively in international
shipping; and
(5) Services performed by
subcontractors and/or contractors in
processing, converting, or manufacturing
goods for an enterprise whose export
sales exceed seventy percent (70%) of
total annual production. (Emphasis
supplied) ITEcAD
In insisting that its services should be zero-rated, respondent
claims that it complied with the requirements of the Tax Code for
zero rating under the second paragraph of Section 102 (b).
Respondent asserts that (1) the payment of its service fees was in
acceptable foreign currency, (2) there was inward remittance of the
foreign currency into the Philippines, and (3) accounting of such
remittance was in accordance with BSP rules. Moreover, respondent
contends that its services which "constitute the actual operation and
management of two (2) power barges in Mindanao" are not "even
remotely similar to project studies, information services and
engineering and architectural designs under Section 4.102-2 (b) (2)
of Revenue Regulations No. 5-96." As such, respondent's services
need not be "destined to be consumed abroad in order to be VAT
zero-rated."
Respondent is mistaken.
The Tax Code not only requires that the services be other
than "processing, manufacturing or repacking of goods" and that
payment for such services be in acceptable foreign currency
accounted for in accordance with BSP rules. Another essential
condition for qualification to zero-rating under Section 102 (b) (2) is
that the recipient of such services is doing business outside the
Philippines. While this requirement is not expressly stated in the
second paragraph of Section 102 (b), this is clearly provided in the
first paragraph of Section 102 (b) where the listed services must be
"for other persons doing business outside the Philippines." The
phrase "for other persons doing business outside the Philippines" not
only refers to the services enumerated in the first paragraph of
Section 102 (b), but also pertains to the general term "services"
appearing in the second paragraph of Section 102 (b). In short,
services other than processing, manufacturing, or repacking of
goods must likewise be performed for persons doing business
outside the Philippines.
This can only be the logical interpretation of Section 102 (b)
(2). If the provider and recipient of the "other services" are both doing
business in the Philippines, the payment of foreign currency is
irrelevant. Otherwise, those subject to the regular VAT under Section
102 (a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To
interpret Section 102 (b) (2) to apply to a payer-recipient of services
doing business in the Philippines is to make the payment of the
regular VAT under Section 102 (a) dependent on the generosity of
the taxpayer. The provider of services can choose to pay the regular
VAT or avoid it by stipulating payment in foreign currency inwardly
remitted by the payer-recipient. Such interpretation removes Section
102 (a) as a tax measure in the Tax Code,an interpretation this Court
cannot sanction. A tax is a mandatory exaction, not a voluntary
contribution.
When Section 102 (b) (2) stipulates payment in "acceptable
foreign currency" under BSP rules, the law clearly envisions the
payer-recipient of services to be doing business outside the
Philippines. Only those not doing business in the Philippines can be
required under BSP rules 20 to pay in acceptable foreign currency
for their purchase of goods or services from the Philippines. In a
domestic transaction, where the provider and recipient of services
are both doing business in the Philippines, the BSP cannot require
any party to make payment in foreign currency.
Services covered by Section 102 (b) (1) and (2) are in the
nature of export sales since the payer-recipient of services is doing
business outside the Philippines. Under BSP rules, 21 the proceeds
of export sales must be reported to the Bangko Sentral ng Pilipinas.
Thus, there is reason to require the provider of services under
Section 102 (b) (1) and (2) to account for the foreign currency
proceeds to the BSP. The same rationale does not apply if the
provider and recipient of the services are both doing business in the
Philippines since their transaction is not in the nature of an export
sale even if payment is denominated in foreign currency.
Further, when the provider and recipient of services
are both doing business in the Philippines, their transaction falls
squarely under Section 102 (a) governing domestic sale or
exchange of services. Indeed, this is a purely local sale or exchange
of services subject to the regular VAT, unless of course the
transaction falls under the other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "[s]ervices other
than those mentioned in the preceding subparagraph," the
legislative intent is that only the services are different between
subparagraphs 1 and 2. The requirements for zero-rating, including
the essential condition that the recipient of services is doing business
outside the Philippines, remain the same under both subparagraphs.
Significantly, the amended Section 108 (b) 22 [previously
Section 102 (b)] of the present Tax Code clarifies this legislative
intent. Expressly included among the transactions subject to 0% VAT
are "[s]ervices other than those mentioned in the [first] paragraph [of
Section 108 (b)] rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person
not engaged in business who is outside the Philippines when
the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP." ASDCaI
In this case, the payer-recipient of respondent's services is
the Consortium which is a joint-venture doing business in the
Philippines. While the Consortium's principal members are non-
resident foreign corporations, the Consortium itself is doing
business in the Philippines. This is shown clearly in BIR Ruling
No. 023-95 which states that the contract between the Consortium
and NAPOCOR is for a 15-year term, thus:
This refers to your letter dated January 14,
1994 requesting for a clarification of the tax
implications of a contract between a consortium
composed of Burmeister & Wain Scandinavian
Contractor A/S ("BWSC"), Mitsui Engineering &
Shipbuilding, Ltd. (MES), and Mitsui & Co., Ltd.
("MITSUI"), all referred to hereinafter as the
"Consortium", and the National Power Corporation
("NAPOCOR") for the operation and
maintenance of two 100-Megawatt power
barges ("Power Barges") acquired by
NAPOCOR for a 15-year term. 23 (Emphasis
supplied)
Considering this length of time, the Consortium's operation and
maintenance of NAPOCOR's power barges cannot be classified
as a single or isolated transaction. The Consortium does not fall
under Section 102 (b) (2) which requires that the recipient of the
services must be a person doing business outside the
Philippines. Therefore, respondent's services to the Consortium,
not being supplied to a person doing business outside the
Philippines, cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates
and maintains NAPOCOR's power barges in the Philippines.
NAPOCOR pays the Consortium, through its non-resident partners,
partly in foreign currency outwardly remitted. In turn, the Consortium
pays respondent also in foreign currency inwardly remitted and
accounted for in accordance with BSP rules. This payment scheme
does not entitle respondent to 0% VAT. As the Court held
in Commissioner of Internal Revenue v. American Express
International, Inc. (Philippine Branch), 24 the place of payment is
immaterial, much less is the place where the output of the service is
ultimately used. An essential condition for entitlement to 0% VAT
under Section 102 (b) (1) and (2) is that the recipient of the services
is a person doing business outside the Philippines. In this case, the
recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has
a 15-year contract to operate and maintain NAPOCOR's two 100-
megawatt power barges in Mindanao.
The Court recognizes the rule that the VAT system generally
follows the "destination principle" (exports are zero-rated whereas
imports are taxed). However, as the Court stated in American
Express, there is an exception to this rule. 25 This exception refers
to the 0% VAT on services enumerated in Section 102 and
performed in the Philippines. For services covered by Section 102
(b) (1) and (2), the recipient of the services must be a person doing
business outside the Philippines. Thus, to be exempt from the
destination principle under Section 102 (b) (1) and (2), the services
must be (a) performed in the Philippines; (b) for a person doing
business outside the Philippines; and (c) paid in acceptable foreign
currency accounted for in accordance with BSP rules. ITESAc
Respondent's reliance on the ruling in American
Express 26 is misplaced. That case involved a recipient of services,
specifically American Express International, Inc. (Hongkong Branch),
doing business outside the Philippines. There, the Court stated:
Respondent [American
Express International, Inc. (Philippine Branch)] is a
VAT-registered person that facilitates the
collection and payment of receivables belonging to
its non-resident foreign client [American
Express International, Inc. (Hongkong Branch)],
for which it gets paid in acceptable foreign
currency inwardly remitted and accounted for in
accordance with BSP rules and regulations. . .
. 27 (Emphasis supplied)
In contrast, this case involves a recipient of services — the
Consortium — which is doing business in the Philippines.
Hence, American Express' services were subject to 0% VAT,
while respondent's services should be subject to 10% VAT.
Nevertheless, in seeking a refund of its excess output tax,
respondent relied on VAT Ruling No. 003-99, 28 which
reconfirmed BIR Ruling No. 023-95 29 "insofar as it held that the
services being rendered by BWSCMI is subject to VAT at zero
percent (0%)." Respondent's reliance on these BIR rulings binds
petitioner.
Petitioner's filing of his Answer before the CTA challenging
respondent's claim for refund effectively serves as a revocation of
VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such
revocation cannot be given retroactive effect since it will prejudice
respondent. Changing respondent's status will deprive respondent of
a refund of a substantial amount representing excess output
tax. 30 Section 246 of the Tax Code provides that any revocation of
a ruling by the Commissioner of Internal Revenue shall not be given
retroactive application if the revocation will prejudice the taxpayer.
Further, there is no showing of the existence of any of the exceptions
enumerated in Section 246 of the Tax Code for the retroactive
application of such revocation.
However, upon the filing of petitioner's Answer dated 2
March 2000 before the CTA contesting respondent's claim for refund,
respondent's services shall be subject to the regular 10%
VAT. 31Such filing is deemed a revocation of VAT Ruling No. 003-99
and BIR Ruling No. 023-95.
WHEREFORE, the Court DENIES the petition.
SO ORDERED.
Quisumbing, Carpio-Morales, Tinga and Velasco, Jr.,
JJ., concur.
||| (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, [January
22, 2007], 541 PHIL 119-137)
HELD
There are two kinds of transactions or... services subject to zero
percent VAT under VAT Ruling No. 040-98. These are (a) services
other than repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported; and (b)
services by a resident to a non-resident foreign... client, such as
project studies, information services, engineering and architectural
designs and other similar services, the consideration for which is
paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).[9]... for services which were performed in
the Philippines to enjoy zero-rating, these must comply only with two
requisites, to wit: (1) payment in acceptable foreign currency... and
(2) accounted for in accordance with the rules of the BSP
CIR v. AYALA SECURITIES CORP.
Facts
An assessment made on 21 February 1961 by the Commissioner of
Internal Revenue against the Ayala Securities Corporation (and
received by the latter on 22 March 1961) in the sum of P758,687.04
on its surplus of P2,758,442.37 for its fiscal year ending 30
September 1955. Raised before the Court of Tax Appeals, the tax
court reversed the assessment of the 25% surtax and interest in the
amount of P758,687.04, and thereby cancelled and declared of no
force and effect the assessment of the Commissioner for 1955. On 8
April 1976, the Supreme Court affirmed the decision of the Court of
Tax Appeals and ruled that the assessment fell under the 5-year
prescriptive period provided in section 331 of the National Internal
Revenue Code (NIRC) and that the assessment had, therefore, been
made after the expiration of the said 5-year prescriptive period and
was of no binding force and effect. The Commissioner moved for
reconsideration. The Supreme Court set aside its decision of 8 April
1976, and rendered in lieu thereof another judgment ordering the
corporation to pay the assessment in the sum of P758,687.04 as
25% surtax on its unreasonably accumulated surplus, plus the 5%
surcharge and 1% monthly interest thereon, pursuant to section 51
(e) of the NIRC, as amended by RA 2343; with costs.
HELD
1. United Equipment & Supply Co. vs. CIR (CTA 1795, 30
October 1971)
The provisions of sections 331 and 332 of the National Internal
Revenue Code for prescriptive periods of 5 and 10 years after
the filing of the return do not apply to the tax on the taxpayer’s
unreasonably accumulated surplus under section 25 of the Tax
Code since no return is required to be filed by law or by
regulation on such unduly accumulated surplus on earnings. The
25% surtax is not subject to any statutory prescriptive period.
2. Section 331 NIRC; Period of limitation upon assessment
and collection Section 331 of the Revenue Code provides that
“Except as provided in the succeeding section, internal revenue
taxes shall be assessed within five years after the return was
filed, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of
such period. For the purpose of this section a return filed before
the last day prescribed by law for the filing thereof shall be
considered as filed on such last day; Provided, That this
limitation shall not apply to cases already investigated prior to
the approval of this Code.
3. Section 331 applies to National Internal Revenue Taxes which
requires the filing of returns Section 331 applies to assessment
of National Internal Revenue Taxes which requires the filing of
returns. A return the filing of which is necessary to start the
running of the five-year period for making an assessment, must
be one which is required for the particular tax. Consequently, it
has been held that the filing of an income tax return does not
start the running of the statute of limitation for assessment of the
sales tax. (Butuan Sawmill, Inc. v. Court of Tax Appeals, G.R.
No. L-20601, Feb. 28, 1966, 16 SCRA 277).
4. No return required for improperly accumulated surplus profits;
Tax thereon imposed as a penalty No return could have been
filed, and the law could not possibly require, for obvious reasons,
the filing of a return covering unreasonable accumulation of
corporate surplus profits. A tax imposed upon unreasonable
accumulation of surplus is in the nature of a penalty. (Helvering
v. National Grocery Co., 304 U.S. 282). It would not be proper for
the law to compel a corporation to report improper accumulation
of surplus. Taxation Law II, 2005 ( 1 )
5. Section 332 NIRC; Exceptions as to period of limitation of
assessment and collection of taxes Section 332 provides that (a)
In the case of a false or fraudulent return with intent to evade tax
or of failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the
discovery of the falsity, fraud, or omission. (b) Where before the
expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner of Internal
Revenue and the taxpayer have consented in writing to its
assessment after such time, the tax may be assessed at any
time prior to the expiration of the period agreed upon. The period
so agreed upon may be extended by subsequent agreements in
writing made before the expiration of the period previously
agreed upon. (c) Where the assessment of any internal revenue
tax has been made within the period of limitation above
prescribed such tax may be collected by distraint or levy by a
proceeding in court, but only if begun (1) within five years after
the assessment of the tax, or (2) prior to the expiration of any
period for collection agreed upon in writing by the Commissioner
of Internal Revenue and the taxpayer before the expiration of
such five-year period. The period so agreed upon may be
extended by subsequent agreements in writing made before the
expiration of the period previously agreed upon.
6. Section 332 applies to National Internal Revenue Taxes
which requires the filing of returns Section 332 has reference to
national internal revenue taxes which require the filing of returns.
This is Implied from the provision that the ten-year period for
assessment specified therein treats of the filing of a false or
fraudulent return or of a failure to file a return. There can be no
failure or omission to file a return where no return is required to
be filed by law or by regulations. 7. Right of government to
assess is imprescriptible, in the absence of express statutory
provision; Doctrine’s applicability to Section 25 NIRC It is well
settled limitations upon the right of the government to assess
and collect taxes will not be presumed in the absence of clear
legislation to the contrary. The existence of a time limit beyond
which the government may recover unpaid taxes is purely
dependent upon some express statutory provision, (51 Am. Jur.
867;
10 Mertens Law on Federal Income Taxation, par. 57. 02.). It
follows that in the absence of express statutory provision, the
right of the government to assess unpaid taxes is imprescriptible.
Since there is no express statutory provision limiting the right of
the Commissioner of Internal Revenue to assess the tax on
unreasonable accumulation of surplus provided in Section 25 of
the Revenue Code, said tax may be assessed at any time. In
fine, limitations upon the right of the government to assess and
collect taxes will not be presumed in the absence of clear
legislation to the contrary and that where the government has not
by express statutory provision provided a limitation upon its right
to assess unpaid taxes, such right is imprescriptible. 8. Purpose
of additional tax for a corporation’s improperly accumulated
profits or surplus The underlying purpose of the additional tax in
question on a corporation’s improperly accumulated profits or
surplus is as set forth in the text of section 25 of the Tax Code
itself to avoid the situation where a corporation unduly retains its
surplus earnings instead of declaring and paying dividends to its
shareholders or members who would then have to pay the
income tax due on such dividends received by them.
9. Corporation is a mere holding company through its mother
company, a registered copartnership consisting of family
members Ayala Securities Corporation is a mere holding
company of its shareholders through its mother company, a
registered co-partnership then set up by the individual
shareholders belonging to the same family. Said prima facie
evidence and presumption set up by the Tax Code is applied
without having been adequately rebutted by the corporation.
10. Ayala Securities Corp. fall under Revenue Regulations 2 The
Corporation falls under Revenue Regulation 2, implementing the
provisions of the income tax law which provides on holding and
investment companies that “A corporation having practically no
activities except holding property, and collecting the income
therefrom or investing therein shall be considered a Taxation
 Law II, 2005 ( 2 ) Haystacks (Berne Guerrero) holding company
within the meaning of section 25.” (Section 20)
||
| the same for its own prerogative. Moreover, double taxation, in
(Pepsi-Cola Bottling Co. of the Philippines, Inc. v. Municipality
of Tanauan, G.R. No. L-31156, [February 27, 1976], 161 PHIL 591-
611)
facts
Pepsi-Cola Bottling Company of the Philippines, Inc., filed a
complaint with preliminary injunction before the Court of First
Instance of Leyte to declare Section 2 of R.A. No. 2264, (known as
the Local Autonomy Act) unconstitutional as an undue delegation of
the taxing authority and declare null and void Municipal Ordinance
No. 23, which levies and collects from soft drinks producers and
manufactures a tax of 1/16 of a centavo for every bottle of soft drinks
corked, and Municipal Ordinance No. 27 which levies and collects on
soft drinks produced or manufactured within the territorial jurisdiction
a tax of one centavo on each gallon of volume capacity. The trial
court dismissed the complaint and upheld the constitutionality of Sec.
2 of R.A. No. 2264 and declared Municipal Ordinances Nos. 27 valid
and constitutional. Appealed to the Court of Appeals, the case was
certified to the Supreme Court as involving pure question of law.
The Supreme Court upheld the validity of the delegation to Municipal
Corporation or authority to tax and likewise the validity of Municipal
Ordinance No. 27, which repealed Municipal Ordinance No. 23.
HELD
DOUBLE TAXATION; GENERALLY NOT FORBIDDEN. — The
delegated authority under Section 2 of the Local Autonomy
Act cannot be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority specifies
the limitations and enumerates the taxes over local taxation may not
be exercised. The reason is that the State has exclusively reversed
general, is not forbidden by the fundamental law, since the injunction
against double taxation found in the Constitution of the United States
and some states of the Union has not been adopted as part thereof.
EXCEPTION. — Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental
entity or by the same jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and the other by the city
or municipality.
INSTANT CASE. — Where, as in the case at bar, the municipality
of Tanauan enacted Ordinance No. 27 imposing a tax of one centavo
on each gallon of volume capacity while in the previous Ordinance
No. 23, it was 1/16 of a centavo for every bottle corked, it is clear
that the intention of the municipal council was to substitute
Ordinance No. 27 to that of Ordinance No. 23, repealing the latter.
|||
TAXATION; NATURE; NON-DELEGATION OF POWER,
EXCEPTION. — The power of taxation is an essential and inherent
attribute of sovereignty, belonging as a matter of right to every
independent government, without being expressly conferred by the
people. It is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial
department of government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of
municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect
of matters of local concern. This is sanctioned by immemorial. By
necessary implication, the legislative power to create political
corporations for purpose of local self-government carries with it the
power to confer on such local government agencies the power to tax.
SCOPE OF LOCAL GOVERNMENT'S POWER TO TAX. — The
taxing authority conferred on local governments under Section
2, Republic Act No. 2264, is broad enough as to extend to almost
"everything, excepting those which are mentioned therein." As long
as the tax levied under the authority of a city or municipal ordinance
is not within the exceptions and limitations in the law, the same
comes within the ambit of the general rule, pursuant to the rules
of expresio unius est exclusio alterius, and exceptio firmat regulum in
casibus non excepti. Municipalities are empowered to impose not
only municipal license taxes upon persons engaged in any business
or occupation but also to levy for public purposes, just and uniform
taxes.
LIMITATION. — Municipalities and municipal districts are prohibited
to impose "any percentage tax on sales or other in any form based
thereon nor impose taxes on articles subject to specific tax, except
gasoline, under the provisions of the National Internal Revenue
Code." For purposes of this particular limitation, a municipal
ordinance which prescribes a set of radio between the amount of the
tax and the volume of sales of the taxpayer imposes a sales tax and
is null and void for being outside the power of the municipality to
enact.
|||
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. S.C. JOHNSON AND
SON, INC., and COURT OF
APPEALS, respondents.
The Solicitor General for petitioner.
Angara Abello Concepcion Regala & Cruz for private
respondent.
SYNOPSIS
Pursuant to the license agreement entered into by private
respondent S.C. Johnson and Son, U.S.A., the private respondent
was granted, among others, the right to use the trademark, patents
and technology of SC Johnson and Son, U.S.A. and was obliged to
pay to the latter royalties based on a percentage of net sales. The
said royalties were subjected by the government to a 25%
withholding tax. Consequently, from July, 1992 to May, 1993, the
private respondent paid a total withholding tax in the amount of
P1,603,433.00. However, on October 29, 1993 the private
respondent filed before the International Tax Affairs Division of the
Bureau of Internal Revenue a claim for refund of the overpaid
withholding tax on royalties in the amount of P963,266.00. The
Commissioner, not having acted on the claim for refund, the private
respondent then filed a petition for review before the Court of Tax
Appeals (CTA) wherein the latter rendered a decision in favor of tax
refund. The Court of Appeals affirmed in toto the CTA ruling. Hence,
this petition.
The Court ruled that the RP-US and the RP-West Germany
Tax Treaties do not contain similar provisions on tax crediting. Article
24 of the RP-Germany Tax Treaty, expressly allows crediting against
German income and corporation tax of 20% of the gross amount of
royalties paid under the law of the Philippines. On the other hand,
Article 23 of the RP-US Tax Treaty, which is the counterpart
provision with respect to relief for double taxation, does not provide
for similar crediting of 20% of the gross amount of royalties paid. The
Court agreed with petitioner that since the RP-US Tax Treaty does
not give a matching tax credit of 20 percent for the taxes paid to the
Philippines on royalties as allowed under the RP-West Germany Tax
Treaty, private respondent cannot be deemed entitled to the 10%
percent rate granted under the latter treaty for the reason that there
is no payment of taxes on royalties under similar circumstances. It
bears stress that tax refunds are in the nature of tax exemptions. As
such they are regarded as in derogation of sovereign authority and to
be construed strictissimi juris against the person or entry claiming the
exemption. The burden of proof is upon him who claims the
exemption in his favor and he must be able to justify his claim by the
clearest grant of organic or statute law. Private respondent is
claiming for a refund of the alleged overpayment of tax on royalties;
however, there is nothing on record to support a claim that the tax on
royalties under the RP-US Tax Treaty is paid under similar
circumstances as the tax on royalties under the RP-West Germany
Tax Treaty. The petition was GRANTED. SHCaDA
Held
TAX TREATIES; MOST FAVORED NATION CLAUSE; PURPOSE.
— The purpose of a most favored nation clause is to grant to the
contracting party treatment not less favorable than that which has
been or may be granted to the "most favored" among other
countries. The most favored nation clause is intended to establish
the principle of equality of international treatment by providing that
the citizens or subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored
nation. The essence of the principle is to allow the taxpayer in one
state to avail of more liberal provisions granted in another tax treaty
to which the country of residence of such taxpayer is also a party
provided that the subject matter of taxation, in this case royalty
income, is the same as that in the tax treaty under which the
taxpayer is liable.|||
RP-GERMANY TAX TREATY; 10 PERCENT
CONCESSIONAL TAX RATE IS APPLICABLE TO ROYALTIES
PAID UNDER SIMILAR CIRCUMSTANCES. — Given the purpose
underlying tax treaties and the rationale for the most favored nation
clause, the concessional tax rate of 10 percent provided for in the
RP-Germany Tax Treaty should apply only if the taxes imposed upon
royalties in the RP-US Tax Treaty and in the RP-Germany Tax
Treaty are paid under similar circumstances. This would mean that
private respondent must prove that the RP-US Tax Treaty grants
similar tax reliefs to residents of the United States in respect of the
taxes imposable upon royalties earned from sources within the
Philippines as those allowed to their German counterparts under the
RP-Germany Tax Treaty.
11.ID.; ID.; RP-US AND RP-WEST GERMANY TAX
TREATIES DO NOT CONTAIN SIMILAR PROVISIONS ON TAX
CREDITING. — The RP-US and the RP-West Germany Tax Treaties
do not contain similar provisions on tax crediting. Article 24 of the
RP-Germany Tax Treaty, supra, expressly allows crediting against
German income and corporation tax of 20% of the gross amount of
royalties paid under the law of the Philippines. On the other hand,
Article 23 of the RP-US Tax Treaty, which is the counterpart
provision with respect to relief for double taxation, does not provide
for similar crediting of 20% of the gross amount of royalties paid.
||(Commissioner of Internal Revenue v. Rufino, G.R. No. L-
33665-68, [February 27, 1987], 232 PHIL 44-57)
FACTS
This is a petition for review on certiorari of the CTA decision which
absolved petitioners from liability for capital gains tax on stocks
received by them from Eastern Theatrical, Inc. The Rufinos were
majority stockholders of Eastern Theatrical Co., Inc (hereinafter Old
ETC) which had a corporate term of 25 years, which terminated on
January 25, 1959, president of which was Ernesto Rufino. On
December 8, 1958, the Eastern Theatrical Co, Inc. (hereinafter New
ETC, with a corporate term of 50 years) was organized, and the
Rufinos were also the majority stockholders of the corporation, with
Vicente Rufino as the General-Manager. Both ETCs were engaged
in the same business.

Old ETC held a stockholder’s meeting to merge with the New ETC
on December 17, 1958 to continue its business after the end of Old
ETC’s corporate term. The merger was authorized by a board
resolution. It was expressly declared that the merger was necessary
to continue operating the Capitol and Lyric Theaters in Manila even
after the expiration of corporate existence, to preserve both its
booking contracts and to uphold its collective bargaining
agreements. Through the two Rufinos (Ernesto and Vicente), a Deed
of Assignment was executed, which conveyed and transferred all the
business, property, assets and good will of the Old ETC to the New
ETC in exchange for shares of stock of the latterto be issued to
the shareholders at the rate of one stock for each stock heldin the
Old ETC. The Deed was to retroact from January 1, 1959. New
ETC’s Board approved the merger and the Deed of Assignment on
January 12, 1959 and all changes duly registered with the SEC.
The BIR, after examination, declared that the merger was not
undertaken for a bona fide business purpose but only to avoid
liability for the capital gains tax on the exchange of the old for the
new shares of stock. He then imposed deficiency assessments
against the private respondents, the Rufinos. The Rufinos requested
for a reconsideration, which was denied. Therefore, they elevated
their matter to the CTA, who reversed the judgment of the CIR,
saying that they found that there was “no taxable gain derived from
the exchange of old stocks simply for new stocks for the New
Corporation” because it was pursuant to a valid plan of
reorganization. The CIR raised it to the SC on petition for review
oncertiorari.
HELD
TAXATION; NATIONAL INTERNAL REVENUE CODE; CAPITAL
GAINS TAX; MERGER MERELY DEFERRED COLLECTION
THEREOF; TAXES MAY BE IMPOSED AT THE PROPER TIME
WITHOUT PREJUDICE TO THE GOVERNMENT. — The merger
had merely deferred the claim for taxes, which may be asserted by
the government later, when gains are realized and benefits are
distributed among the stockholders as a result of the merger. In other
words, the corresponding taxes are not forever foreclosed or
forfeited but may at the proper time and without prejudice to the
government still be imposed upon the private respondents, in
accordance with Section 35(c) (4) of the Tax Code. Then, in
assessing the tax, "the basis of the property transferred in the hands
of the transferee shall be the same as it would be in the hands of the
transferor, increased by the amount of gain recognized to the
transferor on the transfer." the only inhibition now is that time has not
yet come.|||
DELPHER TRADES CORPORATION, and
DELFIN
PACHECO petitioners, vs. INTERMEDIATE
APPELLATE COURT and HYDRO PIPES
PHILIPPINES, INC., respondents.
SYLLABUS
1. CORPORATION LAW; STOCKHOLDER; STOCK
SUBSCRIPTION AS MEANS OF BECOMING A STOCKHOLDER IN
A CORPORATION. — After incorporation, one becomes a
stockholder of a corporation by subscription or by purchasing stock
directly from the corporation or from individual owners thereof
(Salmon, Dexter & Co. v. Unson, 47 Phil. 649, citing Bole v. Fulton
[1912], 233 Pa., 609). In the case at bar, in exchange for their
properties, the Pachecos acquired 2,500 original unissued no par
value shares of stocks of the Delpher Trades Corporation.
Consequently, the Pachecos became stockholders of the corporation
by subscription. "The essence of the stock subscription is an
agreement to take and pay for original unissued shares of a
corporation, formed or to be formed." (Rohrlich 243, cited in
Agbayani, Commentaries and Jurisprudence on the Commercial
Laws of the Philippines, Vol. III, 1980 Edition, p. 430).
2. ID.; SHARES OF STOCK; NO-PAR VALUE SHARES,
CONSTRUED. — "A no-par value share does not purport to
represent any stated proportionate interest in the capital stock
measured by value, but only an aliquot part of the whole number of
such shares of the issuing corporation. The holder of no-par shares
may see from the certificate itself that he is only an aliquot sharer in
the assets of the corporation. But this character of proportionate
interest is not hidden beneath a false appearance of a given sum in
money, as in the case of par value shares. The capital stock of a
corporation issuing only no-par value shares is not set forth by a
stated amount of money, but instead is expressed to be divided into
a stated number of shares, such as, 1,000 shares. This indicates that
a shareholder of 100 such shares is an aliquot sharer in the assets of
the corporation, no matter what value they may have, to the extent of
100/1,000 or 1/10. Thus, by removing the par value of shares, the
attention of persons interested in the financial condition of a
corporation is focused upon the value of assets and the amount of its
debts." (Agbayani, Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107)
3. ID.; INCORPORATION OF A CORPORATION; INVESTMENT IN
ANOTHER WAY TO CHANGE NATURE OF OWNERSHIP; CASE
AT BAR. — It is to be stressed that by their ownership of the 2,500
no par shares of stock, the Pachecos have control of the corporation.
Their equity capital is 55% as against 45% of the other stockholders,
who also belong to the same family group. In effect,
theDelpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to invest their properties and
change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take
control of their properties and at the same time save on inheritance
taxes.
4. TAXATION; RESORT TO LEGAL MEANS TO DECREASE
PAYMENT OF TAXES BY A TAXPAYER; RIGHT CANNOT BE
DOUBTED. — The records do not point to anything wrong or
objectionable about this "estate planning" scheme resorted to by the
Pachecos. "The legal right of a taxpayer to decrease the amount of
what otherwise could be his taxes or altogether avoid them, by
means which the law permits, cannot be doubted." (Liddell & Co.,
Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing
Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596).
5. CIVIL LAW; DEED OF EXCHANGE; NOT CONSIDERED A DEED
OF SALE. — The "Deed of Exchange" of property between the
Pachecos and Delpher Trades Corporation cannot be considered a
contract of sale. There was no transfer of actual ownership interests
by the Pachecos to a third party. The Pacheco family merely
changed their ownership from one form to another. The ownership
remained in the same hands. Hence, the private respondent has no
basis for its claim of a right of first refusal under the lease contract.
DECISION
GUTIERREZ, JR., J p:
The petitioners question the decision of the Intermediate Appellate
Court which sustained the private respondent's contention that the
deed of exchange whereby Delfin Pacheco and Pelagia Pacheco
conveyed a parcel of land to Delpher Trades Corporation in
exchange for 2,500 shares of stock was actually a deed of sale
which violated a right of first refusal under a lease contract.
Briefly, the facts of the case are summarized as follows:
"In 1974, Delfin Pacheco and his sister, Pelagia
Pacheco, were the owners of 27,169 square
meters of real estate identified as Lot. No. 1095,
Malinta Estate, in the Municipality of Polo (now
Valenzuela), Province of Bulacan (now Metro
Manila) which is covered by Transfer Certificate of
Title No. T-4240 of the Bulacan land registry.
"On April 3, 1974, the said co-owners leased to
Construction Components International Inc. the
same property and providing that during the
existence or after the term of this lease the lessor
should he decide to sell the property leased shall
 first offer the same to the lessee and the letter has
the priority to buy under similar conditions
(Exhibits A to A-5)
"On August 3, 1974, lessee Construction
Components International, Inc. assigned its rights
and obligations under the contract of lease in favor
of Hydro Pipes Philippines, Inc. with the signed
conformity and consent of lessors Delfin Pacheco
and Pelagia Pacheco (Exhs. B to B-6 inclusive)
"The contract of lease, as well as the assignment
of lease were annotated at the back of the title, as
per stipulation of the parties (Exhs. A to D-3
inclusive)
"On January 3, 1976, a deed of exchange was
executed between lessors Delfin and Pelagia
Pacheco and
defendant Delpher Trades Corporation whereby
the former conveyed to the latter the leased
property (TCT No. T-4240) together with another
parcel of land also located in Malinta Estate,
Valenzuela, Metro Manila (TCT No. 4273) for
2,500 shares of stock of defendant corporation
with a total value of P1,500,000.00 (Exhs. C to C-
5, inclusive)" (pp. 44-45, Rollo)
On the ground that it was not given the first option to buy the leased
property pursuant to the proviso in the lease agreement, respondent
Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of Lot. No. 1095 in its favor under conditions similar to
those whereby Delpher Trades Corporation acquired the property
from Pelagia Pacheco and Delphin Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the
plaintiff. The dispositive portion of the decision reads:
"ACCORDINGLY, the judgment is hereby
rendered declaring the valid existence of the
plaintiff's preferential right to acquire the subject
property (right of first refusal) and ordering the
defendants and all persons deriving rights
therefrom to convey the said property to plaintiff
who may offer to acquire the same at the rate of
P14.00 per square meter, more or less, for Lot
1095 whose area is 27,169 square meters only.
Without pronouncement as to attorney's fees and
costs. (Appendix I; Rec., pp. 246-247)."
(Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the
Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for
certiorari to review the appellate court's decision.
We initially denied the petition but upon motion for reconsideration,
we set aside the resolution denying the petition and gave it due
course.
The petitioners allege that:
"The denial of the petition will work great injustice
to the petitioners, in that:
"1. Respondent Hydro Pipes Philippines, Inc.
('private respondent') will acquire from petitioners
a parcel of industrial land consisting of 27,169
square meters or 2.7 hectares (located right after
the Valenzuela, Bulacan exit of the toll
expressway) for only P14/sq. meter, or a total
of P380,366, although the prevailing value thereof
is approximately P300/sq. meter or P8.1 Million;
"2. Private respondent is allowed to exercise its
right of first refusal even if there is no 'sale' or
transfer of actual ownership interests by
petitioners to third parties; and
"3. Assuming arguendo that there has been a
transfer of actual ownership interests, private
respondent will acquire the land not under 'similar
conditions' by which it was transferred to
petitionerDelpher Trades Corporation, as provided
 in the same contractual provision invoked by
private respondent." (pp. 251-252, Rollo)
The resolution of the case hinges on whether or not the "Deed of
Exchange" of the properties executed by the Pachecos on the one
hand and the Delpher Trades Corporation on the other was meant to
be a contract of sale which, in effect, prejudiced the private
respondent's right of first refusal over the leased property included in
the "deed of exchange."
Eduardo Neria, a certified public accountant and son-in-law of the
late Pelagia Pacheco testified that Delpher Trades Corporation is a
family corporation; that the corporation was organized by the children
of the two spouses (spouses Pelagia Pacheco and Benjamin
Hernandez and spouses Delfin Pacheco and Pilar Angeles) who
owned in common the parcel of land leased to Hydro Pipes
Philippines in order to perpetuate their control over the property
through the corporation and to avoid taxes; that in order to
accomplish this end, two pieces of real estate, including Lot No.
1095 which had been leased to Hydro Pipes Philippines, were
transferred to the corporation; that the leased property was
transferred to the corporation by virtue of a deed of exchange of
property; that in exchange for these properties, Pelagia and Delfin
acquired 2,500 unissued no par value shares of stock which are
equivalent to a 55% majority in the corporation because the other
owners only owned 2,000 shares; and that at the time of
incorporation, he knew all about the contract of lease of Lot. No.
1095 to Hydro Pipes Philippines. In the petitioners' motion for
reconsideration, they refer to this scheme as "estate planning." (p.
252, Rollo) LibLex
Under this factual backdrop, the petitioners contend that there was
actually no transfer of ownership of the subject parcel of land since
the Pachecos remained in control of the property. Thus, the
petitioners allege: "Considering that the beneficial ownership and
control of petitioner corporation remained in the hands of the original
co-owners, there was no transfer of actual ownership interests over
the land when the same was transferred to petitioner corporation in
exchange for the latter's shares of stock. The transfer of ownership, if
anything, was merely in form but not in substance. In reality,
petitioner corporation is a mere alter ego or conduit of the Pacheco
co-owners; hence the corporation and the co-owners should be
deemed to be the same, there being in substance and in effect an
identity of interest." (p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property.
They argue that there was no sale and that they exchanged the land
for shares of stocks in their own corporation. "Hence, such transfer is
not within the letter, or even spirit of the contract. There is a sale
when ownership is transferred for a price certain in money or its
equivalent (Art. 1468, Civil Code) while there is a barter or exchange
when one thing is given in consideration of another thing (Art. 1638,
Civil Code)." (pp. 254-255, Rollo)
On the other hand, the private respondent argues
that Delpher Trades Corporation is a corporate entity separate and
distinct from the Pachecos. Thus, it contends that it cannot be said
thatDelpher Trades Corporation is the Pacheco's same alter ego or
conduit; that petitioner Delfin Pacheco, having
treated Delpher Trades Corporation as such a separate and distinct
corporate entity, is not a party who may allege that this separate
corporate existence should be disregarded. It maintains that there
was actual transfer of ownership interests over the leased property
when the same was transferred to Delpher Trades Corporation in
exchange for the latter's shares of stock.
We rule for the petitioners.
After incorporation, one becomes a stockholder of a corporation by
subscription or by purchasing stock directly from the corporation or
from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47
Phil. 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at
bar, in exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of
theDelpher Trades Corporation. Consequently, the Pachecos
became stockholders of the corporation by subscription. "The
essence of the stock subscription is an agreement to take and pay
for original unissued shares of a corporation, formed or to be
formed." (Rohrlich 243, cited in Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. III,
1980 Edition, p. 430) It is significant that the Pachecos took no par
value shares in exchange for their properties.
 "A no-par value share does not purport to control of their properties and at the same time save on inheritance
represent any stated proportionate interest in the taxes.
capital stock measured by value, but only an
aliquot part of the whole number of such shares of As explained by Eduardo Neria:
the issuing corporation. The holder of no-par xxx xxx xxx
shares may see from the certificate itself that he is
only an aliquot sharer in the assets of the ATTY. LINSANGAN:
corporation. But this character of proportionate "Q Mr. Neria, from the point of view of
interest is not hidden beneath a false appearance taxation, is there any benefit to the
of a given sum in money, as in the case of par spouses Hernandez and Pacheco in
value shares. The capital stock of a corporation connection with their execution of a
issuing only no-par value shares is not set forth by deed of exchange on the properties
a stated amount of money, but instead is for no par value shares of the
expressed to be divided into a stated number of defendant corporation?
shares, such as, 1,000 shares. This indicates that
a shareholder of 100 such shares is an aliquot "A Yes, sir.
sharer in the assets of the corporation, no matter
what value they may have, to the extent of COURT:
100/1,000 or 1/10. Thus, by removing the par "Q What do you mean by 'point of view'?
value of shares, the attention of persons interested
in the financial condition of a corporation is "A To take advantage for both spouses and
focused upon the value of assets and the amount corporation in entering in the deed
of its debts." (Agbayani, Commentaries and of exchange.
Jurisprudence on the Commercial Laws of the
Philippines, Vol. III, 1980 Edition, p. 107) ATTY. LINSANGAN:

Moreover, there was no attempt to state the true or current market "Q (What do you mean by 'point of view'?)
value of the real estate. Land valued at P300.00 a square meter was What are these benefits to the
turned over to the family's corporation for only P14.00 a square spouses of this deed of exchange?
meter. LexLib "A Continuous control of the property, tax
It is to be stressed that by their ownership of the 2,500 no par shares exemption benefits, and other
of stock, the Pachecos have control of the corporation. Their equity inherent benefits in a corporation.
capital is 55% as against 45% of the other stockholders, who also "Q What are these advantages to the said
belong to the same family group. spouses from the point of view of
In effect, the Delpher Trades Corporation is a business conduit of the taxation in entering in the deed of
Pachecos. What they really did was to invest their properties and exchange?
change the nature of their ownership from unincorporated to "A Having fulfilled the conditions in the
incorporated form by organizing Delpher Trades Corporation to take income tax law, providing for tax
free exchange of property, they
 were able to execute the deed of
exchange free from income tax and
acquire a corporation.
"Q What provision in the income tax law are
you referring to?
"A I refer to Section 35 of the National
Internal Revenue Code under par.
C-sub-par. (2) Exceptions regarding
the provision which I quote: 'No gain
or loss shall also be recognized if a
person exchanges his property for
stock in a corporation of which as a
result of such exchange said person
alone or together with others not
exceeding four persons gains
control of said corporation.'
"Q Did you explain to the spouses this
benefit at the time you executed the
deed of exchange?
"A Yes, sir.
"Q You also, testified during the last hearing
that the decision to have no par
value share in the defendant
corporation was for the purpose of
flexibility. Can you explain flexibility
in connection with the ownership of
the property in question?
"A There is flexibility in using no par value
shares as the value is determined
by the board of directors in
increasing capitalization. The board
can fix the value of the shares
equivalent to the capital
requirements of the corporation.
"Q Now also from the point of taxation, is
there any flexibility in the holding by
the corporation of the property in
question?
"A Yes, since a corporation does not die it
can continue to hold on to the
property indefinitely for a period of
at least 50 years. On the other
hand, if the property is held by the
spouse the property will be tied up
in succession proceedings and the
consequential payments of estate
and inheritance taxes when an
owner dies.
"Q Now what advantage is this continuity in
relation to ownership by a particular
person of certain properties in
respect to taxation?
"A The property is not subjected to taxes on
succession as the corporation does
not die.
"Q So the benefit you are talking about are
inheritance taxes?
"A Yes, sir." (pp. 3-5, tsn., December 15,
1981).
The records do not point to anything wrong or objectionable about
this "estate planning" scheme resorted to by the Pachecos. "The
legal right of a taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means which the law
permits, cannot be doubted." (Liddell & Co., Inc. v. The Collector of
Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S.
465, 7 L. ed. 596). LLjur
The "Deed of Exchange" of property between the Pachecos
and Delpher Trades Corporation cannot be considered a contract of
sale. There was no transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family merely changed their
ownership from one form to another. The ownership remained in the
same hands. Hence, the private respondent has no basis for its
claim of a right of first refusal under the lease contract.
WHEREFORE, the instant petition is hereby GRANTED. The
questioned decision and resolution of the then Intermediate
Appellate Court are REVERSED and SET ASIDE. The amended
complaint in Civil Case No. 885-V-79 of the then Court of First
Instance of Bulacan is DISMISSED. No costs.
SO ORDERED.
Fernan, Bidin and Cortes, JJ., concur.
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. THE ESTATE
OF BENIGNO P. TODA, JR., Represented by
Special Co-administrators Lorna Kapunan and
Mario Luza Bautista, respondents.
DECISION
DAVIDE, JR., C.J p:
This Court is called upon to determine in this case whether
the tax planning scheme adopted by a corporation constitutes tax
evasion that would justify an assessment of deficiency income tax.
The petitioner seeks the reversal of the Decision 1 of the
Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799
affirming the 3 January 2000 Decision 2 of the Court of Tax Appeals
(CTA) in C.T.A. Case No. 5328, 3 which held that the respondent
Estate of Benigno P. Toda, Jr. is not liable for the deficiency income
tax of Cibeles Insurance Corporation (CIC) in the amount of
P79,099,999.22 for the year 1989, and ordered the cancellation and
setting aside of the assessment issued by Commissioner of Internal
Revenue Liwayway Vinzons-Chato on 9 January 1995.
The case at bar stemmed from a Notice of Assessment sent
to CIC by the Commissioner of Internal Revenue for deficiency
income tax arising from an alleged simulated sale of a 16-storey
commercial building known as Cibeles Building, situated on two
parcels of land on Ayala Avenue, Makati City. AHDcCT
On 2 March 1989, CIC authorized Benigno P. Toda, Jr.,
President and owner of 99.991% of its issued and outstanding
capital stock, to sell the Cibeles Building and the two parcels of land
on which the building stands for an amount of not less than P90
million. 4
On 30 August 1989, Toda purportedly sold the property for
P100 million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by Deeds of Absolute Sale
notarized on the same day by the same notary public. 5 TcHCDI
For the sale of the property to RMI, Altonaga paid capital
gains tax in the amount of P10 million. 6
On 16 April 1990, CIC filed its corporate annual income tax
return 7 for the year 1989, declaring, among other things, its gain
from the sale of real property in the amount of P75,728.021. After
crediting withholding taxes of P254,497.00, it paid P26,341,207 8 for
its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in
CIC to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of
Sale of Shares of Stocks. 9 Three and a half years later, or on 16
January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR)
sent an assessment notice 10 and demand letter to the CIC for
deficiency income tax for the year 1989 in the amount of
P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the
assessment should be directed against the old CIC, and not against
the new CIC, which is owned by an entirely different set of
stockholders; moreover, Toda had undertaken to hold the buyer of
his stockholdings and the CIC free from all tax liabilities for the fiscal
years 1987–1989. 11
 On 27 January 1995, the Estate of Benigno P. Toda, Jr.,
represented by special co-administrators Lorna Kapunan and Mario
Luza Bautista, received a Notice of Assessment 12 dated 9 January Less: Payment already made
1995 from the Commissioner of Internal Revenue for deficiency
income tax for the year 1989 in the amount of P79,099,999.22, 1. Per return P26,595,704.00
computed as follows:
2. Thru Capital Gains

Tax made by R.A.

Income Tax — 1989
Altonaga 10,000,000.00 36,595,704.00

—————— ———————
Net Income per return P75,987,725.00
Balance of tax due P24,999,999.75
Add: Additional gain on sale
Add: 50% Surcharge 12,499,999.88
of real property taxable under
25% Surcharge 6,249,999.94
ordinary corporate income
——————
but were substituted with
Total P43,749,999.57
individual capital gains
Add: Interest 20% from
(P200M – 100M) 100,000,000.00
4/16/90-4/30/94 (.808) 35,349,999.65
———————
———————
Total Net Taxable Income P175,987,725.00
TOTAL AMT. DUE & P79,099,999.22
COLLECTIBLE
per investigation
============

The Estate thereafter filed a letter of protest. 13

Tax Due thereof at 35% P61,595,703.75 In the letter dated 19 October 1995, 14 the Commissioner
dismissed the protest, stating that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned and controlled
by Todaby covering up the additional gain of P100 million, which
resulted in the change in the income structure of the proceeds of the
sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax
rate of 35%.
On 15 February 1996, the Estate filed a petition for
review 15 with the CTA alleging that the Commissioner erred in
holding the Estate liable for income tax deficiency; that the inference
of fraud of the sale of the properties is unreasonable and
unsupported; and that the right of the Commissioner to assess CIC
had already prescribed.
In his Answer 16 and Amended Answer, 17 the
Commissioner argued that the two transactions actually constituted a
single sale of the property by CIC to RMI, and that Altonaga was
neither the buyer of the property from CIC nor the seller of the same
property to RMI. The additional gain of P100 million (the difference
between the second simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC was taxed at the rate
of only 5% purportedly as capital gains tax of Altonaga, instead of at
the rate of 35% as corporate income tax of CIC. The income tax
return filed by CIC for 1989 with intent to evade payment of the tax
was thus false or fraudulent. Since such falsity or fraud was
discovered by the BIR only on 8 March 1991, the assessment issued
on 9 January 1995 was well within the prescriptive period prescribed
by Section 223 (a) of the National Internal Revenue Code of 1986,
which provides that tax may be assessed within ten years from the
discovery of the falsity or fraud. With the sale being tainted with
fraud, the separate corporate personality of CIC should be
disregarded. Toda, being the registered owner of the 99.991%
shares of stock of CIC and the beneficial owner of the remaining
0.009% shares registered in the name of the individual directors of
CIC, should be held liable for the deficiency income tax, especially
because the gains realized from the sale were withdrawn by him as
cash advances or paid to him as cash dividends. Since he is already
dead, his estate shall answer for his liability. EISCaD
In its decision 18 of 3 January 2000, the CTA held that the
Commissioner failed to prove that CIC committed fraud to deprive
the government of the taxes due it. It ruled that even assuming that a
pre-conceived scheme was adopted by CIC, the same constituted
mere tax avoidance, and not tax evasion. There being no proof of
fraudulent transaction, the applicable period for the BIR to assess
CIC is that prescribed in Section 203 of the NIRC of 1986, which is
three years after the last day prescribed by law for the filing of the
return. Thus, the government's right to assess CIC prescribed on 15
April 1993. The assessment issued on 9 January 1995 was,
therefore, no longer valid. The CTA also ruled that the mere
ownership by Toda of 99.991% of the capital stock of CIC was not in
itself sufficient ground for piercing the separate corporate personality
of CIC. Hence, the CTA declared that the Estate is not liable for
deficiency income tax of P79,099,999.22 and, accordingly, cancelled
and set aside the assessment issued by the Commissioner on 9
January 1995.
In its motion for reconsideration, 19 the Commissioner
insisted that the sale of the property owned by CIC was the result of
the connivance between Toda and Altonaga. She further alleged that
the latter was a representative, dummy, and a close business
associate of the former, having held his office in a property owned by
CIC and derived his salary from a foreign corporation (Aerobin, Inc.)
duly owned by Toda for representation services rendered. The CTA
denied 20 the motion for reconsideration, prompting the
Commissioner to file a petition for review 21 with the Court of
Appeals.
In its challenged Decision of 31 January 2001, the Court of
Appeals affirmed the decision of the CTA, reasoning that the CTA,
being more advantageously situated and having the necessary
expertise in matters of taxation, is "better situated to determine the
correctness, propriety, and legality of the income tax assessments
assailed by the Toda Estate." 22
Unsatisfied with the decision of the Court of Appeals, the
Commissioner filed the present petition invoking the following
grounds:
I. THE COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENT
COMMITTED NO FRAUD WITH
INTENT TO EVADE THE TAX ON
THE SALE OF THE
 PROPERTIES OF CIBELES To resolve the grounds raised by the Commissioner, the
INSURANCE CORPORATION. following questions are pertinent:
II. THE COURT OF APPEALS ERRED IN 1. Is this a case of tax evasion or tax avoidance?
NOT DISREGARDING THE
SEPARATE CORPORATE 2. Has the period for assessment of deficiency
PERSONALITY OF CIBELES income tax for the year 1989 prescribed?
INSURANCE CORPORATION. and

III. THE COURT OF APPEALS ERRED IN
HOLDING THAT THE RIGHT OF
PETITIONER TO ASSESS
RESPONDENT FOR
DEFICIENCY INCOME TAX FOR
THE YEAR 1989 HAD
PRESCRIBED.
The Commissioner reiterates her arguments in her previous
pleadings and insists that the sale by CIC of the Cibeles property
was in connivance with its dummy Rafael Altonaga, who was
financially incapable of purchasing it. She further points out that the
documents themselves prove the fact of fraud in that (1) the two
sales were done simultaneously on the same date, 30 August 1989;
(2) the Deed of Absolute Sale between Altonaga and RMI was
notarized ahead of the alleged sale between CIC and Altonaga, with
the former registered in the Notarial Register of Jocelyn H. Arreza
Pabelana as Doc. 91, Page 20, Book I, Series of 1989; and the
latter, as Doc. No. 92, Page 20, Book I, Series of 1989, of the same
Notary Public; (3) as early as 4 May 1989, CIC received P40 million
from RMI, and not from Altonaga. The said amount was debited by
RMI in its trial balance as of 30 June 1989 as investment in Cibeles
Building. The substantial portion of P40 million was withdrawn
by Toda through the declaration of cash dividends to all its
stockholders.
For its part, respondent Estate asserts that the
Commissioner failed to present the income tax return of Altonaga to
prove that the latter is financially incapable of purchasing the Cibeles
property.
3. Can respondent Estate be held liable for the
deficiency income tax of CIC for the year
1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion
or tax avoidance?
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax avoidance is
the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms
length. Tax evasion, on the other hand, is a scheme used outside of
those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities. 23
Tax evasion connotes the integration of three factors: (1) the
end to be achieved, i.e., the payment of less than that known by the
taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an accompanying state of mind which is
described as being "evil," in "bad faith," "willful," or "deliberate and
not accidental"; and (3) a course of action or failure of action which is
unlawful. 24 SITCcE
All these factors are present in the instant case. It is
significant to note that as early as 4 May 1989, prior to the purported
sale of the Cibeles property by CIC to Altonaga on 30 August 1989,
CIC received P40 million from RMI, 25 and not from Altonaga. That
P40 million was debited by RMI and reflected in its trial
balance 26 as "other inv. — Cibeles Bldg." Also, as of 31 July 1989,
another P40 million was debited and reflected in RMI's trial balance
as "other inv. — Cibeles Bldg." This would show that the real buyer
of the properties was RMI, and not the intermediary Altonaga.
 The investigation conducted by the BIR disclosed that
Altonaga was a close business associate and one of the many
trusted corporate executives of Toda. This information was revealed
by Mr. Boy Prieto, the assistant accountant of CIC and an old timer
in the company. 27 But Mr. Prieto did not testify on this matter,
hence, that information remains to be hearsay and is thus
inadmissible in evidence. It was not verified either, since the letter-
request for investigation of Altonaga was unserved, 28 Altonaga
having left for the United States of America in January 1990.
Nevertheless, that Altonaga was a mere conduit finds support in the
admission of respondent Estate that the sale to him was part of the
tax planning scheme of CIC. That admission is borne by the records.
In its Memorandum, respondent Estate declared:
Petitioner, however, claims there was a
"change of structure" of the proceeds of sale.
Admitted one hundred percent. But isn't this
precisely the definition of tax planning? Change
the structure of the funds and pay a lower tax.
Precisely, Sec. 40 (2) of the Tax Code exists,
allowing tax free transfers of property for stock,
changing the structure of the property and the tax
to be paid. As long as it is done legally, changing
the structure of a transaction to achieve a lower
tax is not against the law. It is absolutely allowed.
Tax planning is by definition to reduce, if
not eliminate altogether, a tax. Surely petitioner
[sic] cannot be faulted for wanting to reduce the
tax from 35% to 5%. 29 [Emphasis supplied].
The scheme resorted to by CIC in making it appear that
there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, "is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust or confidence justly
reposed, resulting in the damage to another, or by which an undue
and unconscionable advantage is taken of another." 30
Here, it is obvious that the objective of the sale to Altonaga
was to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax.
Altonaga's sole purpose of acquiring and transferring title of the
subject properties on the same day was to create a tax shelter.
Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax
ploy, a sham, and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated
to mislead the BIR with the end in view of reducing the consequent
income tax liability. aTEScI
In a nutshell, the intermediary transaction, i.e., the sale of
Altonaga, which was prompted more on the mitigation of tax liabilities
than for legitimate business purposes constitutes one of tax
evasion. 31
Generally, a sale or exchange of assets will have an income
tax incidence only when it is consummated. 32 The incidence of
taxation depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not
finally to be determined solely by the means employed to transfer
legal title. Rather, the transaction must be viewed as a whole, and
each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person cannot
be transformed for tax purposes into a sale by another by using the
latter as a conduit through which to pass title. To permit the true
nature of the transaction to be disguised by mere formalisms, which
exist solely to alter tax liabilities, would seriously impair the effective
administration of the tax policies of Congress. 33
To allow a taxpayer to deny tax liability on the ground that
the sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to Altonaga should be
disregarded for income tax purposes. 34 The two sale transactions
should be treated as a single direct sale by CIC to RMI.
Accordingly, the tax liability of CIC is governed by
then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the
Tax Reform Act of 1997), which stated as follows:
 Sec. 24. Rates of tax on corporations. —
(a) Tax on domestic corporations. — A tax is
hereby imposed upon the taxable net income
received during each taxable year from all sources
by every corporation organized in, or existing
under the laws of the Philippines, and
partnerships, no matter how created or organized
but not including general professional
partnerships, in accordance with the following:
Twenty-five percent upon the amount by
which the taxable net income does not exceed one
hundred thousand pesos; and
Thirty-five percent upon the amount by
which the taxable net income exceeds one
hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable
net income in 1989. The 5% individual capital gains tax provided
for in Section 34 (h) of the NIRC of 1986 35 (now 6% under
Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable.
Hence, the assessment for the deficiency income tax issued by
the BIR must be upheld.
Has the period of
assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of
the Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of
limitation of assessment and collection of taxes. —
(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court
after the collection of such tax may be begun
without assessment, at any time within ten years
after the discovery of the falsity, fraud or
omission:Provided, That in a fraud assessment
which has become final and executory, the fact of
fraud shall be judicially taken cognizance of in the
civil or criminal action for collection thereof . . ..
Put differently, in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return, the
period within which to assess tax is ten years from discovery of the
fraud, falsification or omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga,
through his counsel, asked the Opinion of the BIR on the tax
consequence of the two sale transactions. 36 Thus, the BIR was
amply informed of the transactions even prior to the execution of the
necessary documents to effect the transfer. Subsequently, the two
sales were openly made with the execution of public documents and
the declaration of taxes for 1989. However, these circumstances do
not negate the existence of fraud. As earlier discussed those two
transactions were tainted with fraud. And even
assumingarguendo that there was no fraud, we find that the income
tax return filed by CIC for the year 1989 was false. It did not reflect
the true or actual amount gained from the sale of the Cibeles
property. Obviously, such was done with intent to evade or reduce
tax liability. TSIDEa
As stated above, the prescriptive period to assess the
correct taxes in case of false returns is ten years from the discovery
of the falsity. The false return was filed on 15 April 1990, and the
falsity thereof was claimed to have been discovered only on 8 March
1991. 37 The assessment for the 1989 deficiency income tax of CIC
was issued on 9 January 1995. Clearly, the issuance of the correct
assessment for deficiency income tax was well within the prescriptive
period.
Is respondent Estate liable
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
A corporation has a juridical personality distinct and separate
from the persons owning or composing it. Thus, the owners or
stockholders of a corporation may not generally be made to answer
for the liabilities of a corporation and vice versa. There are, however,
certain instances in which personal liability may arise. It has been
held in a number of cases that personal liability of a corporate
director, trustee, or officer along, albeit not necessarily, with the
corporation may validly attach when:
1. He assents to the (a) patently unlawful act of
the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c)
conflict of interest, resulting in damages to
the corporation, its stockholders, or other
persons;
2. He consents to the issuance of watered down
stocks or, having knowledge thereof, does
not forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself personally and
solidarily liable with the corporation; or
4. He is made, by specific provision of law, to
personally answer for his corporate
action. 38
It is worth noting that when the late Toda sold his shares of
stock to Le Hun T. Choa, he knowingly and voluntarily held himself
personally liable for all the tax liabilities of CIC and the buyer for the
years 1987, 1988, and 1989. Paragraph g of the Deed of Sale of
Shares of Stocks specifically provides:
g. Except for transactions occurring in the
ordinary course of business, Cibeles has no
liabilities or obligations, contingent or otherwise,
for taxes, sums of money or insurance claims
other than those reported in its audited financial
statement as of December 31, 1989, attached
hereto as "Annex B" and made a part hereof. The
business of Cibeles has at all times been
conducted in full compliance with all applicable
laws, rules and regulations. SELLER undertakes
and agrees to hold the BUYER and Cibeles free
from any and all income tax liabilities of Cibeles for
the fiscal years 1987, 1988 and
1989. 39 [Emphasis Supplied].
When the late Toda undertook and agreed "to hold the
BUYER and Cibeles free from any all income tax liabilities of Cibeles
for the fiscal years 1987, 1988, and 1989," he thereby voluntarily
held himself personally liable therefor. Respondent estate cannot,
therefore, deny liability for CIC's deficiency income tax for the year
1989 by invoking the separate corporate personality of CIC, since its
obligation arose from Toda's contractual undertaking, as contained in
the Deed of Sale of Shares of Stock. ICESTA
WHEREFORE, in view of all the foregoing, the petition is
hereby GRANTED. The decision of the Court of Appeals of 31
January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET
ASIDE, and another one is hereby rendered ordering respondent
Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency
income tax of Cibeles Insurance Corporation for the year 1989, plus
legal interest from 1 May 1994 until the amount is fully paid.
Costs against respondent.
SO ORDERED.
SET OFF TAXES
sett
||| PHILEX MINING vs. CIR
FACTS
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax
liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand
for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in
the amount of P120 M plus interest. Therefore these claims for tax
credit/refund should be applied against the
tax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis
claims of tax refund of the petitioner?
HELD
CIVIL LAW; EXTINGUISHMENT OF OBLIGATIONS;
COMPENSATION; TAXES CANNOT BE SUBJECT TO LEGAL
COMPENSATION. — In several instances prior to the instant
case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of
each other. There is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity.
We find no cogent reason to deviate from the aforementioned
distinction. Prescinding from this premise, in Francia vs.
Intermediate Appellate Court, we categorically held that taxes
cannot be subject to set-off or compensation, thus: "We have
consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await
the results of a lawsuit against the government." The ruling
in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. vs. Commission on Audit, which reiterated that:
". . . a taxpayer may not offset taxes due from the claims that he
may have against the government. Taxes cannot be the subject
of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off." Further, Philex's reliance on our holding
in Commissioner of Internal Revenue vs. Itogon-Suyoc
Mines, Inc., wherein we ruled that a pending refund may be set
off against an existing tax liability even though the refund has not
yet been approved by the Commissioner, is no longer without
any support in statutory law. It is important to note that the
premise of our ruling in the aforementioned case was anchored
on Section 51(d) of the National Internal Revenue Code of 1939.
However, when the National Internal Revenue Code of 1977 was
enacted, the same provision upon which the Itogon-Suyoc
pronouncement was based was omitted. Accordingly, the
doctrine enunciated inItogon-Suyoc cannot be invoked by
Philex. DcITHE
2. TAXATION; NATIONAL INTERNAL REVENUE
CODE; A TAXPAYER CANNOT REFUSE TO PAY HIS TAXES
WHEN THEY FALL DUE SIMPLY BECAUSE HE HAS A CLAIM
AGAINST THE GOVERNMENT OR THAT THE COLLECTION
OF THE TAX IS CONTINGENT ON THE RESULT OF THE
LAWSUIT IT FILED AGAINST THE GOVERNMENT. — We fail
to see the logic of Philex's claim for this is an outright disregard
of the basic principle in tax law that taxes are the lifeblood of the
government and so should be collected without unnecessary
hindrance. Evidently, to countenance Philex's whimsical reason
would render ineffective our tax collection system. Too simplistic,
it finds no support in law or in jurisprudence. To be sure, we
cannot allow Philex to refuse the payment of its tax liabilities on
the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted. It must
be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain. Hence, a tax does
not depend upon the consent of the taxpayer. If any taxpayer
can defer the payment of taxes by raising the defense that it still
has a pending claim for refund or credit, this would adversely
affect the government revenue system. A taxpayer cannot refuse
to pay his taxes when they fall due simply because he has a
claim against the government or that the collection of the tax is
contingent on the result of the lawsuit it filed against the
government. Moreover, Philex's theory that would automatically
apply its VAT input credit/refund against its tax liabilities can
easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers
credit and offset their tax liabilities.
3. ID.; ID.; PENALTIES; PAYMENT OF SURCHARGE
IS MANDATORY; THE BUREAU OF INTERNAL REVENUE IS
NOT VESTED WITH ANY AUTHORITY TO WAIVE THE justly and not treacherously." Despite our concern with the
COLLECTION THEREOF. — The fact that Philex has pending lethargic manner by which the BIR handled Philex's tax claim, it
claims for VAT input claim/refund with the government is is a settled rule that in the performance of governmental function,
immaterial for the imposition of charges and penalties prescribed the State is not bound by the neglect of its agents and officers.
under Section 248 and 249 of the Tax Code of 1977. The Nowhere is this more true than in the field of taxation. Again,
payment of the surcharge is mandatory and the BIR is not vested while we understand Philex's predicament, it must be stressed
with any authority to waive the collection thereof. The same that the same is not a valid reason for the non-payment of its tax
cannot be condoned for flimsy reasons, similar to the one liabilities. cAaETS
advanced by Philex in justifying its non-payment of its tax
liabilities. Finally, Philex asserts that the BIR violated Section
106(e) of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, when it took
five years for the latter to grant its tax claim for VAT input
credit/refund.
4. ID.; ID.; THE BUREAU OF INTERNAL REVENUE
VIOLATED SECTION 106(e) OF THE NATIONAL INTERNAL
REVENUE CODE REQUIRING REFUND OF INPUT TAXES
WITHIN 60 DAYS FROM THE DATE OF THE APPLICATION
FOR REFUND WAS FILED. — In this regard, we agree with
Philex. While there is no dispute that a claimant has the burden
of proof to establish the factual basis of his or her claim for tax
credit or refund, however, once the claimant has submitted all
the required documents, it is the function of the BIR to assess
these documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that
government render fair service to the taxpayers. In the instant
case, the VAT input taxes were paid between 1989 to 1991 but
the refund of these erroneously paid taxes was only granted in
1996. Obviously, had the BIR been more diligent and judicious
with their duty, it could have granted the refund earlier. We need
not remind the BIR that simple justice requires the speedy refund
of wrongly-held taxes. Fair dealing and nothing less, is expected
by the taxpayer from the BIR in the latter's discharge of its
function. As aptly held in Roxas vs. Court of Tax Appeals: "The
power of taxation is sometimes called also the power to destroy.
Therefore it should be exercised with caution to minimize injury
to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the 'hen that lays
the golden egg.' And, in order to maintain the general public's
trust and confidence in the Government this power must be used