CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA
18-19
1. REPRESENTATIVE AMADO S. BAGATSING VSCOMMITTEE ON
PRIVATIZATION, G.R. No. 112399 July 14, 1995.
FACTS: PETRON was originally registered with the Securities and
Exchange Commission (SEC) in 1966 under the corporate name "Esso
Philippines, Inc." ESSO became a wholly-owned company of the
government under the corporate name PETRON and as a subsidiary
of PNOC.PETRON owns the largest, most modern complex refinery in
the Philippines. It is listed as the No. 1corporation in terms of assets
and income in the Philippines in 1993.
President Corazon C. Aquino promulgated Proclamation No. 50 in the
exercise of her legislative power under the Freedom Constitution.
Implicit in the Proclamation is the need to raise revenue for the
Government and the ideal of leaving business to the private sector
by creating the committee on privatization. The Government can
then concentrate on the delivery of basic services and the
performance e of vital public functions.
The Presidential Cabinet of President Ramos approved the
privatization of PETRON as part of the Energy Sector Action Plan.
PNOC Board of Directors passed a resolution authorizing the
company to negotiate and conclude a contract with the consortium
of Salomon Brothers of Hongkong Limited and PCI Capital
Corporation for financial advisory services to be rendered to PETRON.
The Petron Privatization Working Committee (PWC) was thus
formed. It finalized a privatization strategy with 40% of the shares to
be sold to a strategic partner and 20% to the general public The
President approved the 40% — 40% — 20%privatization strategy of
PETRON.
The invitation to bid was published in several newspapers of general
circulation, both local and foreign. The PNOC Board of Directors then
passed Resolution No. 866, S. 1993, declaring ARAMCO the winning
DVOREF LAW 3-B; A.Y.
bidder. PNOC and ARAMCO signed the Stock Purchase Agreement,
the two companies signed the Shareholders' Agreement.
The petition for prohibition in G.R. No. 112399 sought: (1) to nullify
the bidding conducted for the sale of a block of shares constituting
40% of the capital stock (40% block) of Petron Corporation (PETRON)
and the award made to Aramco Overseas Company, B.V. (ARAMCO)
as the highest bidder and (2) to stop the sale of said block of shares
to ARAMCO. The petition for prohibition and certiorari in G.R. No.
115994 sought to annul the sale of the same block of Petron shares
subject of the petition in G.R. No. 112399.
ARAMCO entered a limited appearance to question the jurisdiction
over its person, alleging that it is a foreign company organized under
the laws of the Netherlands, that it is not doing nor licensed to do
business in the Philippines, and that it does not maintain an office or
a business address in and has not appointed a resident agent for the
Philippines (Rollo, p. 240).
Petitioners however, countered that they filed theaction in their
capacity as members of Congress.
ISSUE: WON Petitioners have a locus standi.
RULING: Petition is dismissed.
LOCUS STANDI
In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R.
No. 113105, August 19, 1994, we held that the members of Congress
have the legal standing to question the validity of acts of the
Executive which injures them in their person or the institution of
Congress to which they belong. In the latter case, the acts cause
derivative but nonetheless substantial injury which can be
questioned by members of Congress (Kennedy v. James, 412 F. Supp.
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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA
353 [1976]). In the absence of a claim that the contract in question
violated the rights of petitioners or impermissibly intruded into the
domain of the Legislature, petitioners have no legal standing to
institute the instant action in their capacity as members of Congress.
However, petitioners can bring the action in their capacity as
taxpayers under the doctrine laid down in Kilosbayan, Inc. v.
Guingona, 232 SCRA 110 (1994). Under said ruling, taxpayers may
question contracts entered into by the national government or
government-owned or controlled corporations alleged to be in
contravention of the law. As long as the ruling in Kilosbayan on locus
standi is not reversed, we have no choice but to follow it and uphold
the legal standing of petitioners as taxpayers to institute the present
action.
PRIVATIZATION
The only requirement under R.A. No. 7181 in order to privatize a
strategic industry like PETRON is the approval of the President. In the
case of PETRON's privatization, the President gave his approval not
only once but twice.
PETRON's privatization is also in line with and is part of the Philippine
Energy Program under R.A. No. 7638. Section 5(b) of the law provides
that the Philippine Energy Program shall include a policy direction
towards the privatization of government agencies related to energy.
BIDDING
On the claim that there was a failed bidding, petitioners contend that
there were only three bidders. One of them, PETRONAS, submitted a
bid lower than the floor price while a second, failed to pre-qualify.
Under said COA Circular, there is a failure of bidding when: 1) there
is only one offeror; or (2) when all the offers are non-complying or
DVOREF LAW 3-B; A.Y. 18-19
unacceptable.In the case at bench, there were three offerors: SAUDI
ARAMCO, PETRONAS and WESTMONT. While two offerors were
disqualified, PETRONAS for submitting a bid below the floor price and
WESTMONT for technical reasons, not all the offerors were
disqualified. To constitute a failed bidding under the COA Circular, all
the offerors must be disqualified.
2. Philex Mining Corporation vs.CIR, G.R. No. 125704 August 28,
1998
FACTS: The Court of Tax Appeals ordered Philex to pay the amount of
P110, 677,668.52 as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest
from August 6, 1994 until fully paid. Philex refused to pay and argued
that it had pending claims for VAT input credit/refund for the taxes it
paid for the years 1989-1991 in the amount of P119,977,037.02 plus
interest and therefore should be applied against the said excise tax
liabilities in a manner of a set-off or legal compensation.
ISSUE: WON taxes could be the subject of a set-off or legal
compensation?
RULING: No. Taxes could not be the subject of a set-off or legal
compensation for the simple reason that the government and the
taxpayer are not mutual creditors and debtors of each other. Claims
for taxes are neither debts nor contracts.A taxpayer cannot refuse to
pay his taxes when they fall due simply because he has a claim against
the government that the collection of the tax is contingent on the
result of the lawsuit it filed against the government. In the case at
bar, the claims of Philex for VAT refund is still pending litigation.
Moreover, taxes are the lifeblood of the government and should be
collected without unnecessary hindrance. Citing Francia v.
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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA DVOREF LAW 3-B; A.Y. 18-19

Intermediate Appellate Court, the SC categorically held that taxes the applicable rate of withholding tax on the dividends remitted was
cannot be subject to set-off or compensation, thus: ―We have only 15%.
consistently ruled that there can be no off-setting of taxes against the
ISSUE: Whether or not P&G Philippines is entitled to the refund or
claims that the taxpayer may have against the government. A person
tax credit.
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 RULING: YES. P&G Philippines is entitled.
collection of tax cannot await the results of a lawsuit against the
government. Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be
applied to dividend remittances to non-resident corporate
stockholders of a Philippine corporation. This rate goes down to 15%
ONLY IF he country of domicile of the foreign stockholder corporation
3. CIR VS PROCTER AND GAMBLE PHILIPPINE MANUFACTURING
“shall allow” such foreign corporation a tax credit for “taxes deemed
CORPORATION (204 SCRA 377)
paid in the Philippines,” applicable against the tax payable to the
NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS domiciliary country by the foreign stockholder corporation. However,
such tax credit for “taxes deemed paid in the Philippines” MUST, as a
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be
minimum, reach an amount equivalent to 20 percentage points
applied to dividend remittances to non-resident corporate
which represents the difference between the regular 35% dividend
stockholders of a Philippine corporation. This rate goes down to 15%
tax rate and the reduced 15% tax rate. Thus, the test is if USA “shall
ONLY IF the country of domicile of the foreign stockholder corporation
allow” P&G USA a tax credit for ”taxes deemed paid in the
“shall allow” such foreign corporation a tax credit for “taxes deemed
Philippines” applicable against the US taxes of P&G USA, and such tax
paid in the Philippines,” applicable against the tax payable to the
credit must reach at least 20 percentage points. Requirements were
domiciliary country by the foreign stockholder corporation. However,
met.
such tax credit for “taxes deemed paid in the Philippines” MUST, as a
minimum, reach an amount equivalent to 20 percentage points.

FACTS: Procter and Gamble Philippines declared dividends payable 4. Ericsson Telecom vs. Pasig G.R. NO. 176667 November 22, 2007
to its parent company and sole stockholder, P&G USA. Such dividends
FACTS: Ericsson Telecommunications, Inc. (petitioner), a corporation
amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding
with principal office in Pasig City (respondent), is engaged in the
tax to the BIR which amounted to Php 8.3M It subsequently filed a
design, engineering, and marketing of telecommunication
claim with the Commissioner of Internal Revenue for a refund or tax
facilities/system. In an Assessment Notice dated October 25, 2000
credit, claiming that pursuant to Section 24(b)(1) of the National
issued by the City Treasurer of Pasig City, petitioner was assessed a
Internal Revenue Code, as amended by Presidential Decree No. 369,
business tax deficiency for the years 1998 and 1999 amounting to
P9,466,885.00 and P4,993,682.00, respectively, based on its gross

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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA
revenues as reported in its audited financial statements for the years
1997 and 1998. Petitioner filed a Protest claiming that the
computation of the local business tax should be based on gross
receipts and not on gross revenue.
Respondent issued another Notice of Assessment to petitioner on
November 19, 2001, this time based on business tax deficiencies for
the years 2000 and 2001, amounting to P4,665,775.51 and
P4,710,242.93, respectively, based on its gross revenues for the years
1999 and 2000. Again, petitioner filed a Protest, reiterating its
position that the local business tax should be based on gross receipts
and not gross revenue. Respondent denied petitioner’s protest and
gave the latter 30 days within which to appeal the denial.
Petitioner filed a petition for review with the RTC of Pasig, praying for
the annulment and cancellation of petitioner’s deficiency local
business taxes totaling P17,262,205.66.
ISSUE: What is the extent of the Power of Local Taxation?
RULING: The power to tax is primarily vested in the Congress;
however, it may be exercised by local legislative bodies pursuant to
direct authority conferred by Section 5, Article X of the Constitution.
Under the latter, the exercise of the power may be subject to such
guidelines and limitations as Congress may provide. Respondent
assessed deficiency local business taxes on petitioner based on the
latter’s gross revenue as reported in its financial statements, arguing
that gross receipts is synonymous with gross earnings/revenue,
which, in turn, includes uncollected earnings. Petitioner, however,
contends that only the portion of the revenues which were actually
and constructively received should be considered in determining its
tax base.
DVOREF LAW 3-B; A.Y. 18-19
Thus, respondent committed a palpable error when it assessed
petitioner’s local business tax based on its gross revenue as reported
in its audited financial statements, as Section 143 of the Local
Government Code and Section 22(e) of the Pasig Revenue Code
clearly provide that the tax should be computed based on gross
receipts.
5. United Airlines vs. Commissioner of Internal Revenue September
29, 2009, G.R. No. 178788
FACTS: International airline, petitioner United Airlines, filed a claim
for income tax refund. Petitioner sought to be refunded the
erroneously collected income tax from in the amount of
P5,028,813.23 on passenger revenue from tickets sold in the
Philippines, the uplifts of which did not originate in the Philippines.
The airlines ceased operation originating form the Philippines since
February 21, 1998.
Court of Tax Appeals ruled the petitioner is not entitled to a refund
because under the NIRC, income tax on GPB also includes gross
revenue from carriage of cargoes from the Philippines. And upon
assessment by the CTA, it was found out that petitioner deducted
items from its cargo revenues which should have entitled the
government to an amount of P 31.43 million, which is obviously
higher than the amount the petitioner prayed to be refunded.
Petitioner argued that the petitioner’s supposed underpayment
cannot offset his claim to a refund as established by well-settled
jurisprudence.
ISSUE: Whether or not petitioner is entitled to a refund?
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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA
RULING: Petitioner was correct in averring that his claim to a refund
cannot be subject to offsetting or, as it claimed the offsetting to be,
a legal compensation under Sec. 28(A)(3)(a)
“Petitioner’s (similar) tax refund claim assumes that the tax return
that it filed was correct. Given, however, the finding of the CTA that
petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997
NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed
by petitioner is now put in doubt. As such, we(the court) cannot grant
the prayer for a refund.”
The court held that the petitioner is not entitled to a refund, Having
underpaid the GPB tax due on its cargo revenues for 1999, the
amount of the former being even much higher (P31.43 million) than
the tax refund sought (P5.2 million).
Relevant note:
The Court have consistently ruled that there can be no off-setting [or
compensation”] 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.(francia vs
Intermediate appellate court)
The grant of a refund is founded on the assumption that the tax
return is valid, that is, the facts stated therein are true and correct.
The deficiency assessment, although not yet final, created a doubt as
to and constitutes a challenge against the truth and accuracy of the
facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the
refund. (CIR vs CTA)
DVOREF LAW 3-B; A.Y. 18-19
6. CIR VS. PHILIPPINE AIRLINES, INC., GR 180066, July 7, 2009 -
MINIMUM CORPORATE INCOME TAX
FACTS: PHILIPPINE AIRLINES, INC. had zero taxable income for 2000
but would have been liable for Minimum Corporate Income Tax
based on its gross income. However, PHILIPPINE AIRLINES, INC. did
not pay the Minimum Corporate Income Tax using as basis its
franchise which exempts it from “all other taxes” upon payment of
whichever is lower of either (a) the basic corporate income tax based
on the net taxable income or (b) a franchise tax of 2%.
ISSUE: Is PAL liable for Minimum Corporate Income Tax?
RULING: NO. PHILIPPINE AIRLINES, INC.’s franchise clearly refers to
"basic corporate income tax" which refers to the general rate of 35%
(now 30%). In addition, there is an apparent distinction under the Tax
Code between taxable income, which is the basis for basic corporate
income tax under Sec. 27 (A) and gross income, which is the basis for
the Minimum Corporate Income Tax under Section 27 (E). The two
terms have their respective technical meanings and cannot be used
interchangeably. Not being covered by the Charter which makes PAL
liable only for basic corporate income tax, then Minimum Corporate
Income Tax is included in "all other taxes" from which PHILIPPINE
AIRLINES, INC. is exempted.
The CIR also can not point to the “Substitution Theory” which states
that Respondent may not invoke the “in lieu of all other taxes”
provision if it did not pay anything at all as basic corporate income
tax or franchise tax. The Court ruled that it is not the fact tax payment
that exempts Respondent but the exercise of its option. The Court
even pointed out the fallacy of the argument in that a measly sum of
one peso would suffice to exempt PAL from other taxes while a zero
liability would not and said that there is really no substantial
distinction between a zero tax and a one-peso tax liability. Lastly, the
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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA
Revenue Memorandum Circular stating the applicability of the MCIT
to PAL does more than just clarify a previous regulation and goes
beyond mere internal administration and thus cannot be given effect
without previous notice or publication to those who will be affected
thereby.
7. Pansacola vs CIR, GR No. 172598, Dec 21, 2007
FACTS: On April 13, 1998, Pansacola filed his income tax return for
the taxable year 1997 that reflected an overpayment of P5,950. In it
he claimed the increased amounts of personal and additional
exemptions under Section 35 of the NIRC, although his certificate of
income tax withheld on compensation indicated the lesser allowed
amounts on these exemptions. He claimed a refund of P5,950 with
the BIR, which was denied. Later, the CTA also denied his claim
because according to the tax court, “it would be absurd for the law
to allow the deduction from a taxpayer's gross income earned on a
certain year of exemptions availing on a different taxable year.”
CA denied his petition for lack of merit, ruling that the NIRC took
effect on January 1, 1998, thus the increased exemptions were
effective only to cover taxable year 1998 and cannot be applied
retroactively.
ISSUE: Could the exemptions under Section 35 of the NIRC, which
took effect on January 1, 1998, be availed of for the taxable year
1997?
RULING: No. The petition for refund should be denied.
Section 35 (A) and (B) allow the basic personal and additional
exemptions ad deductions from gross or net income, as the case
maybe, to arrive at the correct taxable income of certain individual
DVOREF LAW 3-B; A.Y. 18-19
taxpayers. Section 24 (A)(1)(a) imposed income tax on a resident
citizen's taxable income derived for each taxable year.
Taxable income is the pertinent items of gross income specified in the
NIRC, less the deductions and/or personal and additional
exemptions, if any, authorized for such types of income by the NIRC
or other special laws (Section 31, NIRC).
Taxable year means the calendar year, upon the basis of which the
net income is computed under Title II of the NIRC [Section 22(P)].
Section 43 also supports the rule that the taxable income of an
individual shall be computed on the basis of the calendar year.
Section 45 provides that the deductions provided for under Title II of
the NIRC shall be taken for the taxable year in which they are “paid
or accrued” or “paid or incurred.”
Moreover, Section 79(H) requires the employer to determine, on or
before the end of the calendar year but prior to the payment of the
compensation for the last payroll period, the tax due from each
employee's taxable compensation income for the entire taxable year
in accordance with Section 24 (A). This is for the purpose of
withholding from the employee's December salary, or refunding to
him not later than January 25 of the succeeding year, the difference
between the tax due and the tax withheld.
Therefore, as provided in Section 24 (A)(1)(A) in relation to Sections
31 and 22(P) and
Sections 43, 45, and 79(H) of the NIRC, the income subject to income
tax is the taxpayer's income as derived and computed during the
calendar year, his taxable year. It is clear from the cited provisions
that what the law should consider for the purpose of determining the
tax due from an individual taxpayer is his status and qualified
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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA DVOREF LAW 3-B; A.Y. 18-19

dependendts at the close of the taxable year and not at the time the
return is filed and the tax due thereon is paid.
Section 35(C) of the NIRC allows a taxpayer to still claim the
corresponding full amount of exemption for a taxable year, e.g. if he
marries; have additional dependents; he, his spouse, or any of his
dependents die; and if any of his dependents marry, turn 21, or
become gainfully employed. It is as if the changes in his or his
dependents' status took place at the close of the taxable year.
Consequently, his correct taxable income and his corresponding
allowable deductions e.g. personal and additional deductions, if any,
had already been determined as of the end of thecalendar year.
Petitioner's taxable income covers his income for the calendar year
1997. The law cannot be given retroactive effect. It is established that
tax laws are prospective in application, unless it is expressly provided
to apply retroactively.
In the NIRC, there is no specific mention that the increased amounts
of personal and additional exemptions under Section 35 shall be
given retroactive effect. Personal and additional exemptions are
considered as deductions from gross income. Deductions for income
tax purposes partake of the nature of tax exemptions, hence strictly
construed against the taxpayer and cannot be allowed unless
expressly granted.

In the case of petitioner, the availability of the aforementioned

deductions if he is thus entitled, would be reflected on his tax return 8. Pilipinas Shell Petroleum Corp vs CIR, GR No. 172598, Dec 21,
filed on or before the 15th day of April 1999 as mandated by Section 2007
51 (C) (1). Since the NIRC took effect on , the increased amounts of
FACTS: In 1988, BIR sent a collection letter to Petitioner Pilipinas Shell
personal and additional exemptions under Section 35, can only be
Petroleum Corporation (PSPC) for alleged deficiency excise tax
allowed as deductions from the individual taxpayer’s gross or net
liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and
income, as the case maybe, for the taxable year 1998 to be filed in
1994 to 1997, inclusive of delinquency surcharges and interest. As
1999.The NIRC made no reference that the personal and additional
basis for the collection letter, the BIR alleged that PSPC is not a
exemptions shall apply on income earned before January 1, 1998.
qualified transferee of the TCCs it acquired from other BOI-registered
There is nothing in the NIRC that express any such intent. The policy
companies. These alleged excise tax deficiencies covered by the
declarations in its enactment do not indicate it was a social legislation
collection letter were already paid by PSPC with TCCs acquired
that adjusted personal and additional exemptions according to the
through, and issued and duly authorized by the Center, and duly
poverty threshold level (as in the case of RA 7167, as authorized by
covered by Tax Debit Memoranda (TDM) of both the Center and BIR,
Section 29(1) (4) of the NIRC) nor is there any indication that its
with the latter also issuing the corresponding Accept Payment for
application should retroact.
Excise Taxes (APETs).
At the time petitioner filed his 1997 return and paid the tax due
PSPC protested the collection letter, but it was denied. Because of
thereon in April 1998, the increased amounts of personal and
respondent inaction on a motion for reconsideration PSPC filed a
additional exemptions in Section 35 were not yet available. It has not
petition for review before the CTA.
yet accrued as of December 31, 1997, the last day of his taxable year.

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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA
In 1999, the CTA ruled that the use by PSPC of the TCCs was legal and
valid, and that respondent’s attempt to collect alleged delinquent
taxes and penalties from PSPC without an assessment constitutes
denial of due process. Respondent elevated CTA Decision to the
Court of Appeals (CA) through a petition for review.
Despite the pendency of this case, PSPC received assessment letter
from respondent for excise tax deficiencies, surcharges, and interest
based on the first batch of cancelled TCCs and TDM covering PSPC’s
use of the TCCs. All these cancelled TDM and TCCs were also part of
the subject matter of the now pending before the CA.
PSPC protested the assessment letter, but the protest was denied by
the BIR, constraining it to file another case before the CTA.
Subsequently, CTA ruled in favor of PSPC and accordingly cancelled
and set aside the assessment issued by the respondent. Respondent
motion for reconsideration of the above decision which was rejected
thus respondent appealed the above decision before the CTA En
Banc.
The CTA En Banc ruled in favor of respondent and ordered PSPC to
pay the amount of P570,577,401.61 as deficiency excise tax for the
taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and
20% interest.
ISSUE: Whether or not petitioner is liable for the assessment of
deficiency excise tax after the validly issued TCCs were subsequently
cancelled for having been issued fraudulently
RULING: No. Petitioner is not liable for the assessment of deficiency
excise tax.
In the instant case, with due application, approval, and acceptance of
the payment by PSPC of the subject TCCs for its then outstanding
excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs have
DVOREF LAW 3-B; A.Y. 18-19
been canceled as the money value of the tax credits these
represented have been used up. Therefore, the DOF through the
Center may not now cancel the subject TCCs as these have already
been canceled and used up after their acceptance as payment for
PSPC’s excise tax liabilities. What has been used up, debited, and
canceled cannot anymore be declared to be void, ineffective, and
canceled anew.
Besides, it is indubitable that with the issuance of the corresponding
TDM, not only is the TCC canceled when fully utilized, but the
payment is also final subject only to a post-audit on computational
errors. Under RR 5-2000, a TDM is a certification, duly issued by the
Commissioner or his duly authorized representative, reduced in a BIR
Accountable Form in accordance with the prescribed formalities,
acknowledging that the taxpayer named therein has duly paid his
internal revenue tax liability in the form of and through the use of a
Tax Credit Certificate, duly issued and existing in accordance with the
provisions of these Regulations. The Tax Debit Memo shall serve as
the official receipt from the BIR evidencing a taxpayer’s payment or
satisfaction of his tax obligation. The amount shown therein shall be
charged against and deducted from the credit balance of the
aforesaid Tax Credit Certificate.
Thus, with the due issuance of TDM by the Center and TDM by the
BIR, the payments made by PSPC with the use of the subject TCCs
have been effected and consummated as the TDMs serve as the
official receipts evidencing PSPC’s payment or satisfaction of its tax
obligation. Moreover, the BIR not only issued the corresponding
TDM, but it also issued ATAPETs which doubly show the payment of
the subject excise taxes of PSPC.
Based on the above discussion, we hold that respondent erroneously
and without factual and legal basis levied the assessment.
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CASE DIGESTS: INCOME TAXATION | ATTY. RAFAELITA PLAZA DVOREF LAW 3-B; A.Y. 18-19

Consequently, the CTA En Banc erred in sustaining respondent’s power to limit the meaning and coverage of the term "goods" in
assessment. Section 105 of the Tax Code without statutory authority or basis. The
transitional input tax credit operates to benefit newly VAT-registered
9. Fort Bonifacio Development Corp. vs CIR, GR No. 173425, Jan 22,
persons, whether or not they previously paid taxes in the acquisition
2013
of their beginning inventory of goods, materials and supplies.
FACTS: Petitioner was a real estate developer that bought from the
national government a parcel of land that used to be the Fort
Bonifacio military reservation. At the time of the said sale there was
as yet no VAT imposed so Petitioner did not pay any VAT on its
purchase. Subsequently, Petitioner sold two parcels of land to Metro
Pacific Corp. In reporting the said sale for VAT purposes (because the
VAT had already been imposed in the interim), Petitioner claimed
transitional input VAT corresponding to its inventory of land. The BIR
disallowed the claim of presumptive input VAT and thereby assessed
Petitioner for deficiency VAT.

ISSUE: Is Petitioner entitled to claim the transitional input VAT on its

sale of real properties given its nature as a real estate dealer and if so
(i) is the transitional input VAT applied only to the improvements on
the real property or is it applied on the value of the entire real
property and (ii) should there have been a previous tax payment for
the transitional input VAT to be creditable?

RULING: YES. Petitioner is entitled to claim transitional input VAT

based on the value of not only the improvements but on the value of
the entire real property and regardless of whether there was in fact
actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make
those in the real estate business subject to a different treatment from
those engaged in the sale of other goods or properties or in any other
commercial trade or business. On the scope of the basis for
determining the available transitional input VAT, the CIR has no

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