DIMDOMS COMPILED TAX DIGEST
1.) CIR v. Traders Royal Bank relationship but that of a creditor-debtor relationship, the same
J. De Castro
FACTS: (keyword: Trust Indenture Agreement)
• TRB is a domestic corporation duly registered with the Securities and
Exchange Commission and authorized by the Bangko Sentral ng Pilipinas
(BSP) to engage in commercial banking.5 On the strength of the Letter of
Authority (L.A.) No. 000018565 dated July 27, 1998, the Bureau of Internal
Revenue (BIR) conducted an investigation concerning all national internal
revenue tax liabilities of TRB for taxable years 1996-1997.
• Subsequently, the BIR issued a Formal Letter of Demand and Assessment
Notice.
• TRB Vice President Bayani R. Navarro (Navarro) wrote a letter dated
January 7, 20009 protesting the foregoing assessments of the BIR on the
following grounds:
• In response, we would like to point out that Special Savings Deposits being
savings deposit accounts are not subject to the documentary stamp tax.
Likewise, Trust Indenture Agreement[s] are not subject to documentary
stamp tax for the reason that relationship established between parties is
that of the trustor and trustee, wherein the funds and/or properties of the
trustor are given to the Trustee Bank not as a deposit but under a Common
Trust Fund maintained and to be managed by the Trustee.
• The CIR adopted the position of the BIR examiners that the Special Savings
Deposit should be deemed a time deposit account subject to DST under
Section 180 of the Tax Code of 1977. The CIR reasoned:
• This Office believes and so holds that the Special Savings Deposit and Time
Deposit are just one and the same banking transaction. To evade payment
of the DST, efforts were made by banks to place a superficial distinction
between the two (2) deposit accounts by introducing an innovation using
a regular passbook to document the Special Savings Deposit and by
claiming that the said special deposit has no specific maturity date.
• In fact, it could be said that the passbook is in itself a "certificate of
deposit."
• As for the Trust Indenture Agreements, the CIR opined that they were but
a form of deposit, likewise subject to DST. According to the CIR:
• Based on the foregoing features, it is evident that the contention of the
bank is misplaced. Although the contract is termed as "trust agreement,"
it can be considered as a misnomer because the relationship existing
between the parties in the subject contract is actually not a trustor-trustee
relationship governing deposits of money in banks.
The CIR ruled in the end:
IN VIEW WHEREOF, this Office has resolved to DENY the protest of herein
protestant-bank. Assessment Notice Nos. ST-DST-96-0234-99 and ST-DST-97-0233-
99 demanding payment of the respective amounts of ₱10,517,740.57 and
₱18,349,556.33 as documentary stamp taxes for the taxable years 1996 and 1997
are hereby AFFIRMED in all respects.
CTA RULING:
• On April 28, 2004, the CTA Division rendered a Decision, resolving the first
two issues in favor of the CIR and the last one in favor of TRB.
• The CTA Division agreed with the CIR that the Special Savings Deposits and
Time Deposits were akin to each other in that the bank would acknowledge
the receipt of money on deposit which the bank promised to pay to the
depositor, bearer, or to the order of the bearer after a specified period of
time.
• In both cases, the deposits could be withdrawn anytime but the depositor
would earn a lower rate of interest. The only difference was the evidence
of the deposits: a passbook for Special Savings Deposits and a certificate of
deposit for Time Deposits. Considering that the passbook and the
certificate of time deposit were evidence of transactions, then both should
be subject to DST, an excise tax on transactions.
• The CTA Division, however, concurred with TRB that the Trust Indenture
Agreements were different from the certificate of deposit, thus:
• A Trust Indenture Agreement has a different feature and concept from a
certificate of deposit. When a depositor enters into a trust agreement,
what is created is a trustor-trustee relationship. The money deposited is
placed in trust to a common fund and then invested by the Trust
Department into a profitable venture. The yield or return of investment is
higher and varies depending on the actual profit earned. In some trust
agreements, a depositor may even get a negative return of investment.
The fact that there is an "expected rate of return" does not necessarily
convert a trust agreement into a time deposit.
• The CTA en banc promulgated its Decision in C.T.A. EB No. 32 on February
14, 2005, dismissing the Petition of the CIR and affirming the cancellation
by the CTA Division of the assessments against TRB for DST on its Trust
Indenture Agreements for 1996 to 1997. They stated that:
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DIMDOMS COMPILED TAX DIGEST
• [TRB] likewise correctly pointed out that the trust funds managed by its
Trust Department cannot be appropriately alleged as time deposits,
because the acceptance of deposits is beyond the realm of the business of
the trust department of banks as implied under Section X407 of the
Manual of Regulations for Banks inasmuch as no debtor-creditor
relationship exists between the parties in the trust agreement.
• The trust placement not being a time deposit, it cannot therefore be
subject to documentary stamp tax as a certificate of deposit.
• The CTA en banc, in a Decision dated April 26, 2005 in C.T.A. EB No.
34,22 similarly dismissed the Petition of TRB and upheld the ruling of the
CTA Division that TRB was liable for DST on its Special Savings Deposits
for 1996 to 1997, plus surcharge and delinquency interest. The CTA en
banc concluded:
• For all intents and purposes, [TRB’s] Special Savings and Mega Savings
Deposit are deemed to be of the same nature and substance as a certificate
of deposit bearing interest. Therefore, We hold that said Special Savings
and Mega Savings passbooks are in themselves certificates of deposit,
subject to documentary stamp tax
• (TWO CAUSES OF ACTION, ONE FOR TIA & ANOTHER FOR SPECIAL
SAVINGS)
• Issue: Whether or not TRB’s Trust Indenture Agreements are liable for
Documentary Stamp Tax
• Held: Yes. TRB made no attempt to explain why it did not present the Trust
Indenture Agreements, and such failure inevitably led to a lack of factual
basis to claim otherwise. Tax assessments by tax examiners are presumed
correct and made in good faith. The taxpayer has the duty to prove
otherwise.
• DOCTRINE: In the absence of proof of any irregularities in the performance
of duties, an assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments.
• The importance of the actual Trust Indenture Agreements cannot be
gainsaid. The only way the Court can determine the actual relationship
between TRB and its clients is through a scrutiny of the terms and
conditions embodied in the said Agreements.
• Article 1370 of the Civil Code provides:
• Art. 1370. If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its
stipulations shall control.
• If the words appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former.
• In the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used
to project that intention in their contract, all the words, not just a
particular word or two, and words in context, not words standing alone.
• The burden fell upon TRB to produce the Trust Indenture Agreements, not
only because the said Agreements were in its possession, but more
importantly, because its protest against the DST assessments was entirely
grounded on the allegation that said Agreements were trusts. TRB was the
petitioner before the CTA in C.T.A. Case No. 6392 and it was among its
affirmative allegations that the said Trust Indenture Agreements were
trusts, thus, TRB had the obligation of proving this fact. It is a basic rule of
evidence that each party must prove its affirmative allegation.
• TRB, in its Formal Offer of Evidence,35 submitted only one document,
Exhibit "A," which was page 10 of the 1993 MORB containing Section X407
on Non-Trust, Non-Fiduciary and/or Non-Investment Management
Activities.
• A reading of Section X407 of the 1993 MORB reveals that it merely
explained the basic characteristics of a trust or other fiduciary and
investment management relationship, and expressly identified the
instances which would not constitute a trust, fiduciary and/or investment
management relationship. Simply put, Section X407 of the MORB set the
standards in determining whether a contract was one of trust or some
other agreement.
• Therefore, it was still necessary for TRB to present the Trust Indenture
Agreements to test the terms and conditions thereof against the standards
set by Section X407 of the 1993 MORB. Without the actual Trust Indenture
Agreements, there would be no factual basis for concluding that the same
were trusts under Section X407 of the 1993 MORB.
• In the absence of proof of any irregularities in the performance of official
duties, an assessment will not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does not appear to have
been arrived at arbitrarily or capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment is erroneous.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is
GRANTED. The assailed Decision dated February 14, 2005 of the CTA en bane in
C.T.A. EB No. 32, affirming the Decision dated April 28, 2004 and Resolution dated
September 10, 2004 of the CT A Division in C.T.A. Case No. 6392, is REVERSED and
SET ASIDE. Respondent Traders Royal Bank is ORDERED to pay the deficiency
Documentary Stamp Taxes on its Trust Indenture Agreements for the taxable years
1996 and 1997
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2.) UNGAB v. CUSI
J. CONCEPCION
FACTS: (keyword: Banana saplings)
• Sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax
returns filed by the herein petitioner, Quirico P. Ungab, for the calendar
year ending December 31, 1973.
• In the course of his examination, he discovered that the petitioner failed
to report his income derived from sales of banana saplings.
• As a result, the BIR District Revenue Officer at Davao City sent a "Notice of
Taxpayer" to the petitioner informing him that there is due from him
(petitioner) the amount of P104,980.81, representing income, business tax
and forest charges for the year 1973 and inviting petitioner to an informal
conference where the petitioner, duly assisted by counsel, may present his
objections to the findings of the BIR Examiner.
• Upon receipt of the notice, the petitioner wrote the BIR District Revenue
Officer protesting the assessment, claiming that he was only a dealer or
agent on commission basis in the banana sapling business and that his
income, as reported in his income tax returns for the said year, was
accurately stated.
• BIR Examiner Ben Garcia, had filed a fraudulent income tax return so that
he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the
Bureau of Internal Revenue.
• Special Investigation Division of the Bureau of Internal Revenue: found
sufficient proof that the herein petitioner is guilty of tax evasion for the
taxable year 1973 and recommended his prosecution:
• Commissioner of Internal Revenue approved the prosecution of the
petitioner.
• Thereafter, State Prosecutor Jesus Acebes conducted a preliminary
investigation of the case, and finding probable cause, filed six (6)
informations against the petitioner with the Court of First Instance of
Davao City, to wit:
• On September 16, 1975, the petitioner filed a motion to quash the
informations upon the grounds that: (1) the informations are null and void
for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and
• (2) the trial court has no jurisdiction to take cognizance of the above-
entitled cases in view of his pending protest against the assessment made
by the BIR Examiner.
• TC: denied the motion on October 22, 1975.
• As prayed for, a temporary restraining order was issued by the Court,
ordering the respondent Judge from further proceeding with the trial and
hearing of Criminal Cases.
• The petitioner seeks the annulment of the informations filed against him
on the ground that the respondent State Prosecutor is allegedly without
authority to do so.
• The petitioner argues that while the respondent State Prosecutor may
initiate the investigation of and prosecute crimes and violations of penal
laws when duly authorized, certain requisites, enumerated by this Court in
its decision in the case of Estrella vs. Orendain, should be observed before
such authority may be exercised.
ISSUE: W/N the Trial Court has jurisdiction to take cognizance of the cases
HELD: YES
• The contention is without merit. What is involved here is not the collection
of taxes where the assessment of the Commissioner of Internal Revenue
may be reviewed by the Court of Tax Appeals, but a criminal prosecution
for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance.
• While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is
no requirement for the precise computation and assessment of the tax
before there can be a criminal prosecution under the Code.
• The contention is made, and is here rejected, that an assessment of the
deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully filed fraudulent returns
with intent to evade and defeat a part or all of the tax.
• An assessment of a deficiency is not necessary to a criminal prosecution
for willful attempt to defeat and evade the income tax. A crime is
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DIMDOMS COMPILED TAX DIGEST
complete when the violator has knowingly and willfuly filed a fraudulent
return with intent to evade and defeat the tax.
• The perpetration of the crime is grounded upon knowledge on the part of
the taxpayer that he has made an inaccurate return, and the government's
failure to discover the error and promptly to assess has no connections
with the commission of the crime. 15
• Besides, it has been ruled that a petition for reconsideration of an
assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for
violation of law.
• Obviously, the protest of the petitioner against the assessment of the
District Revenue Officer cannot stop his prosecution for violation of the
National Internal Revenue Code. Accordingly, the respondent Judge did
not abuse his discretion in denying the motion to quash filed by the
petitioner.chanrobles virtual law library
WHEREFORE, the petition should be, as it is hereby dismissed. The temporary
restraining order heretofore issued is hereby set aside. With costs against the
petitioner.chanrobles virtual law library
SO ORDERED.
3.) CIR v.Primetown, GR 162155, August 28, 2007
J. Corona
FACTS: (keyword: Leap Year not counted)
• Gilbert Yap, Vice Chair of Primetown applied on March 11, 1999 for a
refund or credit of income tax which Primetown paid in 1997.
• In Yap's letter to petitioner revenue district officer Arturo V. Parcero of
Revenue District No. 049 (Makati) of the Bureau of Internal Revenue (BIR),
he explained that the increase in the cost of labor and materials and
difficulty in obtaining financing for projects and collecting receivables
caused the real estate industry to slowdown. As a consequence, while
business was good during the first quarter of 1997, respondent suffered
losses amounting to P71,879,228 that year.
• He claimed that they are entitled for a refund because they suffered losses
that year due to the increase of cost of labor and materials, etc.
• However, despite the losses, they still paid their quarterly income tax and
remitted creditable withholding tax from real estate sales to BIR. Hence,
they were claiming for a refund. On May 13, 1999, revenue officer
Elizabeth Santos required Primetown to submit additional documents to
which Primetown complied with. However, its claim was not acted upon
which prompted it to file a petition for review in CTA on April 14, 2000.
• CTA dismissed the petition as it was filed beyond the 2-year prescriptive
period for filing a judicial claim for tax refund according to Sec 229 of NIRC.
According to CTA, the two-year period is equivalent to 730 days pursuant
to Art 13 of NCC.
• The tax court applied Article 13 of the Civil Code which states:
• Art. 13. When the law speaks of years, months, days or nights, it shall be
understood that years are of three hundred sixty-five days each; months,
of thirty days; days, of twenty-four hours, and nights from sunset to sunrise.
• If the months are designated by their name, they shall be computed by the
number of days which they respectively have.
• In computing a period, the first day shall be excluded, and the last included
• Since Primetown filed its final adjustment return on April 14, 1998 and that
year 2000 was a leap year, the petition was filed 731 days after Primetown
filed its final adjusted return. Hence, beyond the reglementary period.
Primetown appealed to CA. CA reversed the decision of CTA.
• Hence, this appeal.
ISSUE: Whether or not Art. 13 of the Civil Code should be applied rather than EO 292
or Sec. 31 of the of Admin Code of 1987
HELD::
The latter should be applied. Being the more recent law, it governs the computation
of legal periods. Lex posteriori derogat priori.
• As already quoted, Article 13 of the Civil Code provides that when the law
speaks of a year, it is understood to be equivalent to 365 days. In National
Marketing Corporation v. Tecson, we ruled that a year is equivalent to 365
days regardless of whether it is a regular year or a leap year.
• However, in 1987, EO 292 or the Administrative Code of 1987 was enacted.
Section 31, Chapter VIII, Book I thereof provides:
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DIMDOMS COMPILED TAX DIGEST
• Sec. 31. Legal Periods. Year shall be understood to be twelve calendar
months; month of thirty days, unless it refers to a specific calendar month
in which case it shall be computed according to the number of days the
specific month contains; day, to a day of twenty-four hours and; night from
sunrise to sunset. (emphasis supplied)
• A calendar month is a month designated in the calendar without regard to
the number of days it may contain.
• It is the period of time running from the beginning of a certain numbered
day up to, but not including, the corresponding numbered day of the next
month, and if there is not a sufficient number of days in the next month,
then up to and including the last day of that month. To illustrate, one
calendar month from December 31, 2007 will be from January 1, 2008 to
January 31, 2008; one calendar month from January 31, 2008 will be from
February 1, 2008 until February 29, 2008.
• Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to
365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant.
• A law may be repealed expressly (by a categorical declaration that the law
is revoked and abrogated by another) or impliedly (when the provisions of
a more recent law cannot be reasonably reconciled with the previous
one).[31] Section 27, Book VII (Final Provisions) of the Administrative Code
of 1987 states:
• Sec. 27. Repealing clause. All laws, decrees, orders, rules and regulation, or
portions thereof, inconsistent with this Code are hereby repealed or
modified accordingly.
• A repealing clause like Sec. 27 above is not an express repealing clause
because it fails to identify or designate the laws to be abolished. [32] Thus,
the provision above only impliedly repealed all laws inconsistent with the
Administrative Code of 1987.
• Applying Section 31, Chapter VIII, Book I of the Administrative Code of
1987 to this case, the two-year prescriptive period (reckoned from the
time respondent filed its final adjusted return [34] on April 14, 1998)
consisted of 24 calendar months
• We therefore hold that respondent's petition (filed on April 14, 2000) was
filed on the last day of the 24th calendar month from the day respondent
filed its final adjusted return. Hence, it was filed within the reglementary
period.
Accordingly, the petition is hereby DENIED. The case is REMANDED to the Court of
Tax Appeals which is ordered to expeditiously proceed to hear C.T.A. Case No. 6113
entitled Primetown Property Group, Inc. v. Commissioner of Internal Revenue and
Arturo V. Parcero.
4.) Asian International Auctioneers Inc. v Parayno
J.PUNO
FACTS: (keyword: Imported Motor Vehicles in Subic)
• Congress passed RA No. 7227, creating the Subic Special Economic Zone
(SSEZ) and extending a number of economic or tax incentives therein.
• On June 3, 2003, then CIR Parayno issued RMC No. 31-2003 setting the “
Uniform Guidelines on Taxation of Imported Motor Vehicles through the
Subic Free Port Zone and Other Freeport Zones that are Sold at Public
Auction.”
• Petitioners, are Philippine corporations engaged in the importation of
mainly secondhand or used motor vehicles and heavy transportation or
construction equipment which they sell to the public through auction.
• They filed a complaint before the RTC of Olongapo City, praying for the
nullification of RMC No. 31-2003 for being unconstitutional and an ultra
vires act with an application for a writ of preliminary injunction.
• Respondents submitted their joint Opposition and they also filed a joint
Motion to Dismiss on the grounds the “the trial court has no jurisdiction
over the subject matter of the complaint.
• RTC: granted the application for a writ of preliminary injunction.
• Consequently, respondents filed with the CA a petition for certiorari under
Rule 65 to enjoin the RTC from exercising jurisdiction over the case.
• CA : granted the petition and declared the RTC bereft of jurisdiction to take
cognizance of the civil case filed by petitioners. Hence, this petition.
ISSUE: Whether the trial court has jurisdiction to hear a case to declare RMCs
unconstitutional and against an existing law where the challenge does not involve
rate and figures of the imposed taxes.
2 No. RA No. 1125, as amended, states that:
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DIMDOMS COMPILED TAX DIGEST
• “ Sec 7. Jurisdiction. The CA shall exercise appellate jurisdiction
to review by appeal, as herein provided:
1) Decisions of the CIR in cases involving disputed assessments, refunds of
iternal revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the NIRC or other laws or part of law
administered by BIR; xxx”
• RMCs are considered administrative rulings which are issued from time to
time by the CIR. In this case, the assailed RRs and RMCs are actually rulings
or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Sec 12 of RA 7227.
• They were issued pursuant to the power of the CIR under Section 4 of the
NIRC.
Section 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases.-- The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters
arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals. (emphases supplied)
• Petitioners’ failure to ask the CIR for a reconsideration of the assailed RRs
and RMCs is another reason why the instant case should be dismissed. It is
settled that the premature invocation of the court’s intervention is fatal
one’s cause of action.
The party with an administrative remedy must not only initiate the prescribed
administrative procedure to obtain relief but also pursue it to its appropriate
conclusion before seeking judicial intervention in order to give the
administrative agency an opportunity to decide the matter itself correctly and
prevent unnecessary and premature resort to the court.
IN VIEW WHEREOF, the petition is DENIED.
SO ORDERED.
REYES v. CIR + Notice Requirement
J. Panganiban
FACTS: (keyword: Notice Requirement)
• By virtue of a sworn affidavit for reward by one Abad, an investigation was
conducted by BIR on the estate of the deceased Maria Tancinco who died
in 1993 leaving a residential lot and old house in Dasma. Without
submitting a preliminary finding report, an LOA was issued and received by
Reyes, one of the heirs on 14 March 1997.
• Then on 12 Feb 1998, a PAN was issued against the estate, and a FAN as
well as demand letter was issued on 22 April 1998. For the assessment of
P14.9M for estate tax of the estate of Maria Tancinco. On March 11, 1999,
the heirs proposed a compromise settlement of P1,000,000.00.
• During those dates, RA 8424 Tax Reform Act was already in effect. RA 8424
stated that the taxpayer must be informed of both the law and facts on
which the assessment was based. The notice required under the old law
was no longer sufficient under the new law. First, RA 8424 has already
amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR’s findings was
changed in 1998 to informing the taxpayer of not only the law, but also of
the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
• Due to failure to pay tax on the deadline BIR notified on June 6, 2000 that
the subject property would be sold at public auction on August 8, 2000.
Reyes filed a protest with the BIR. Hence the petition for review filed by
Reyes in CTA and a TRO to desist and refrain from proceeding with the
auction sale of the subject property or from issuing a warrant pending
determination of the case and/or unless a contrary order is issued.
• CIR filed a motion saying CTA has no jurisdiction since the assessment
against the estate is already final and executory; and (ii) that the petition
was filed out of time
• CTA: Ruled in favour of CIR ordering Reyes to pay the estate tax amounting
to 19M. CTA ratiocinated that there can only be a perfected and
consummated compromise of the estate’s tax liability[,] if the NEB has
approved [Reyes’s] application for compromise in accordance with RR No.
6-2000, as implemented by RMO No. 42-2000.
• CA : Partly granted petition. SC – Affirmed, petition w/o merit.
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DIMDOMS COMPILED TAX DIGEST
ISSUE: Whether or not whether the assessment against the estate is valid; and,
second, whether the compromise entered into is also valid.
HELD: No.
Under the present provisions of the Tax Code and pursuant to elementary due
process, taxpayers must be informed in writing of the law and the facts upon which
a tax assessment is based; otherwise, the assessment is void. Being invalid, the
assessment cannot in turn be used as a basis for the perfection of a tax compromise.
This was clear and mandatory under Section 228.
• It was on February 12, 1998, that a preliminary assessment notice was
issued against the estate. On April 22, 1998, the final estate tax assessment
notice, as well as demand letter, was also issued. During those dates, RA
8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.
• Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the
findings by the CIR, who had simply relied upon the provisions of former
Section 229 prior to its amendment by Republic Act (RA) No. 8424,
otherwise known as the Tax Reform Act of 1997.
• To be simply informed in writing of the investigation being conducted and
of the recommendation for the assessment of the estate taxes due is
nothing but a perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean that Reyes already
knew the law and the facts on which the assessment was based. It does
not at all conform to the compulsory requirement under Section 228.
Moreover, the Letter of Authority received by respondent on March 14,
1997 was for the sheer purpose of investigation and was not even the
requisite notice under the law.
• Petitioner violated the cardinal rule in administrative law that the taxpayer
be accorded due process. Not only was the law here disregarded, but no
valid notice was sent, either. A void assessment bears no valid fruit.
• The law imposes a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and
adduce supporting evidence.[19] In the instant case, respondent has not
been informed of the basis of the estate tax liability. Without complying
with the unequivocal mandate of first informing the taxpayer of the
governments claim, there can be no deprivation of property, because no
effective protest can be made.[20]The haphazard shot at slapping an
assessment, supposedly based on estate taxations general provisions that
are expected to be known by the taxpayer, is utter chicanery.
ON RETROACTIVITY:
• The procedure for protesting an assessment under the Tax Code is found
in Chapter III of Title VIII, which deals with remedies. Being procedural in
nature, can its provision then be applied retroactively? The answer is yes.
• The general rule is that statutes are prospective. However, statutes that
are remedial, or that do not create new or take away vested rights, do not
fall under the general rule against the retroactive operation of
statutes.[14] Clearly, Section 228 provides for the procedure in case an
assessment is protested. The provision does not create new or take away
vested rights. In both instances, it can surely be applied
retroactively. Moreover, RA 8424 does not state, either expressly or by
necessary implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending proceedings would
impair vested rights.
• Validity of Compromise. It would be premature for this Court to declare
that the compromise on the estate tax liability has been perfected and
consummated, considering the earlier determination that the assessment
against the estate was void.
• Nothing has been settled or finalized. Under Section 204(A) of the Tax
Code, where the basic tax involved exceeds one million pesos or the
settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the NEB composed of the
petitioner and four deputy commissioners.
• Finally, as correctly held by the appellate court, this provision applies to all
compromises, whether government-initiated or not. Ubi lex non distinguit,
nec nos distinguere debemos. Where the law does not distinguish, we
should not distinguish.
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DIMDOMS COMPILED TAX DIGEST
6. Phil. Journalist Inc. v. CIR
J. YNARES SANTIAGO
FACTS: (keyword: unlimited waiver)
• The case arose from the Annual Income Tax Return filed by petitioner for
the calendar year ended December 31, 1994 which presented a net income
of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax
credits for the year, petitioner paid the amount of P10,247,384.00.
• On August 10, 1995 BIR issued Letter of Authority No. 87120[4] for
Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio
Gapasin to examine petitioners books of account and other accounting
records for internal revenue taxes for the period January 1, 1994 to
December 31, 1994.
• From the examination, the petitioner was told that there were deficiency
taxes, inclusive of surcharges, interest and compromise penalty in the
amount of P 127,980,433.20.
• Revenue District Officer Jaime Concepcion invited petitioner to send a
representative to an informal conference on September 15, 1997 for an
opportunity to object and present documentary evidence relative to the
proposed assessment.
• On September 22, 1997, petitioners Comptroller, Lorenza Tolentino,
executed a Waiver of the Statute of Limitation Under the National Internal
Revenue Code (NIRC).
• The document waive[d] the running of the prescriptive period provided
by Sections 223 and 224 and other relevant provisions of the NIRC and
consent[ed] to the assessment and collection of taxes which may be found
due after the examination at any time after the lapse of the period of
limitations fixed by said Sections 223 and 224 and other relevant provisions
of the NIRC, until the completion of the investigation.
• On July 2, 1998, Revenue Officer De Vera submitted his audit report
recommending the issuance of an assessment and finding that petitioner
had deficiency taxes in the total amount of P136,952,408.97.
• On October 5, 1998, the Assessment Division of the BIR issued Pre-
Assessment Notices which informed petitioner of the results of the
investigation.
• BIR Revenue Region No. 6 demanded petitioner to pay P111,291,214.46.
• On March 16, 1999, a Preliminary Collection Letter was sent by Deputy
Commissioner Romeo S. Panganiban to the petitioner to pay the
assessment within ten (10) days from receipt of the letter.
• On November 10, 1999, a Final Notice Before Seizure was issued by the
same deputy commissioner giving the petitioner ten (10) days from receipt
to pay.
• Petitioner received a copy of the final notice on November 24, 1999. By
letters dated November 26, 1999, petitioner asked to be clarified how the
tax liability of P111,291,214.46 was reached and requested an extension
of thirty (30) days from receipt of the clarification within which to reply.[9]
• BIR received a follow-up letter from the petitioner asserting that its (PJI)
records do not show receipt of Tax Assessment/Demand No. 33-1-000757-
94.[10]
• Petitioner also contested that the assessment had no factual and legal
basis. On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-06-
046[11] signed by Deputy Commissioner Romeo Panganiban for the BIR
was received by the petitioner.
• Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA)
which was amended on May 12, 2000.
• Petitioner complains: (a) that no assessment or demand was received
from the BIR; (b) that the warrant of distraint and/or levy was without
factual and legal bases as its issuance was premature; (c) that the
assessment, having been made beyond the 3-year prescriptive period, is
null and void; (d) that the issuance of the warrant without being given the
opportunity to dispute the same violates its right to due process; and (e)
that the grave prejudice that will be sustained if the warrant is enforced is
enough basis for the issuance of the writ of preliminary injunction.
• CTA: Petition granted. The waiver is an unlimited waiver. It does not
contain a definite expiration date. Under RMO No. 20-90, the phrase
indicating the expiry date of the period agreed upon to assess/collect the
tax after the regular three-year period of prescription should be filled up
• The waiver executed by the petitioner on September 22, 1997 to be
suffering from legal infirmities, rendering the same invalid and ineffective,
the Court finds Assessment/Demand No. 33-1-000757-94 issued on
8
DIMDOMS COMPILED TAX DIGEST
December 5, 1998 to be time-barred. Consequently, the Warrant of
Distraint and/or Levy issued pursuant thereto is considered null and void.
• CA: The petition for review filed on 26 April 2000 with CTA was neither
timely filed nor the proper remedy. Decision of the CTA are hereby SET
ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax
liability of P111,291,214.46.
ISSUE:
W/N the CTA has jurisdiction of the case YES
W/N the waiver is valid NO
HELD: Petition GRANTED.
• CA ruled that only decisions of the BIR denying a request for
reconsideration or reinvestigation may be appealed to the CTA. Since P did
not file a request for reinvestigation or reconsideration, the assessment
notices became final and unappealable. P now argue that the case was
brought to the CTA because the warrant of distraint/levy was illegally
issued and that no assessment was issued because it was based on an
invalid waiver of the statutes of limitations.
• SC agrees w P. Sec 7(1) of RA 1125, the Act Creating the CTA, provides for
the jurisdiction of that special court. The appellate jurisdiction of the CTA
is not limited to cases which involve decisions of the CIR on matters
relating to assessments/refunds.
• The 2ND part of the provision covers other cases that arise out of the
NIRC/related laws administered by the BIR. The wording of the provision is
clear and simple. It gives the CTA the jurisdiction to determine if the
warrant of distraint and levy issued by the BIR is valid and to rule if the
Waiver of Statute of Limitations was validly effected.
• This is not the 1ST case where the CTA validly ruled on issues that did not
relate directly to a disputed assessment or a claim for refund. In Pantoja v.
David, we upheld the jurisdiction of the CTA to act on a petition to
invalidate and annul the distraint orders of the Commissioner of Internal
Revenue. Also, in CIR v. CA, the decision of the CTA declaring several
waivers executed by the taxpayer as null and void, thus invalidating the
assessments issued by the BIR, was upheld by this Court.
• The 2nd and 5th assigned errors both focus on RMO No. 20-90 on the
requisites of a valid waiver of the statute of limitations. The CA held that
the req’ts and procedures laid down in the RMO are only formal in nature
and did not invalidate the waiver that was signed even if the requirements
were not strictly observed.
• The NIRC, under Sect 203 and 222, provides for a statute of limitations on
the assessment and collection of internal revenue taxes in order to
safeguard the interest of the taxpayer against unreasonable investigation.
• Unreasonable investigation contemplates cases where the period for
assessment extends indefinitely because this deprives the taxpayer of the
assurance that it will no longer be subjected to further investigation for
taxes after the expiration of a reasonable period of time.
• RMO No. 20-90 implements these provisions of the NIRC relating to the
period of prescription for the assessment and collection of taxes. A cursory
reading of the Order supports petitioner’s argument that the RMO must
be strictly followed (use of the word “must”, among others)
• A waiver of the statute of limitations under the NIRC, to a certain extent,
is a derogation of the taxpayers’ right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed.
• The waiver of the statute of limitations is not a waiver of the right to
invoke the defense of prescription as erroneously held by the CA. It is an
agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain.
• The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the
document is equivocal. For the purpose of safeguarding taxpayers from
any unreasonable examination, investigation/assessment, our tax law
provides a statute of limitations in the collection of taxes.
• Thus, the law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. As a corollary, the
exceptions to the law on prescription should perforce be strictly construed.
RMO No. 20-90 explains the rationale of a waiver: “The period agreed upon
shall constitute the time within which to effect the assessment/collection
of the tax in addition to the ordinary prescriptive period.”
• As found by the CTA, the Waiver of Statute of Limitations, signed by P’s
comptroller is not valid and binding because it does not conform with the
provisions of RMO No. 20-90. P’s waiver became unlimited in time,
violating Sec 222(b) of the NIRC.
• The waiver is also defective from the gov’t side because it was signed
only by a revenue district officer, not the Commissioner, as mandated by
the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the
9
DIMDOMS COMPILED TAX DIGEST
taxpayer or the BIR, but is a bilateral agreement bet. 2 parties to extend
the period to a date certain. The conformity of the BIR must be made by
either the Commissioner/the Revenue District Officer.
• This case involves taxes amounting to more than 1M and executed almost
7mos before the expiration of the 3yr prescription period. For this, RMO
No. 20-90 requires the Commissioner of Internal Revenue to sign for the
BIR.
• The other defect noted in this case is the date of acceptance which makes
it difficult to fix with certainty if the waiver was actually agreed before the
expiration of the 3yr prescriptive period. The CA held that the date of the
execution of the waiver on Sep 22, 1997 could reasonably be understood
as the same date of acceptance by the BIR. P points out however that RDO
Sarmiento could not have accepted the waiver yet because she was not
the officer of RDO No. 33 on such date.
• Ms. Sarmiento’s transfer and assignment to RDO No. 33 was only signed
by the BIR Commissioner on Jan 16, 1998 as shown by the Revenue Travel
Assignment Order No. 14-98. The CTA noted in its decision that it is
unlikely as well that Ms. Sarmiento made the acceptance on Jan 16, 1998
because "Revenue Officials normally have to conduct first an inventory of
their pending papers and property responsibilities."29
• Finally, the records show that P was not furnished a copy of the waiver.
Under RMO No. 20-90, the waiver must be executed in 3 copies with the
2ND copy for the taxpayer. The flaw in CA’s reasoning stems from its
assumption that the waiver is a unilateral act of the taxpayer when it is in
fact and in law an agreement between the taxpayer and the BIR.
• The requirement to furnish the taxpayer with a copy of the waiver is not
only to give notice of the existence of the document but of the acceptance
by the BIR and the perfection of the agreement.
• The waiver document is incomplete and defective and thus the 3yr
prescriptive period was not tolled or extended and continued to run until
Apr 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-
94 issued on Dec 9, 1998 was invalid because it was issued beyond the
3yr period. In the same manner, Warrant of Distraint and/or Levy No. 33-
06-046 which petitioner received on March 28, 2000 is also null and void
for having been issued pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition for review is GRANTED.
The Decision of the Court of Appeals dated August 5, 2003 and its Resolution
dated March 31, 2004 are REVERSED and SET ASIDE. The Decision of the Court
of Tax Appeals in CTA Case No. 6108 dated May 14, 2002, declaring Warrant of
Distraint and/or Levy No. 33-06-046 null and void, is REINSTATED.
7.) CIR v. Kudos Metal Corporation + Waiver of Defense
J. Del Castillo
Facts: (keyword: Waiver of Defense)
• Pursuant to a Letter of Authority dated September 7, 1999, the BIR served
upon Kudos Metal Corp Notices of Presentation of Records. Kudos failed
to comply with these notices. Hence, the BIR issued a Subpeona Duces
Tecum dated September 21, 2006.
• On December 10, 2001, Kudos’ accountant, executed a Waiver of the
Defense of Prescription. This was followed by a second Waiver of Defense
of Prescription on February 18, 2003.
• On August 25, 2003, the BIR issued a Preliminary Assessment Notice for
the taxable year 1998 against the respondent. This was followed by a
Formal Letter of Demand with Assessment Notices.
• Respondent challenged the assessments by filing its Protest on Various Tax
Assessments on December 3, 2003 and its Legal Arguments and
Documents in Support of Protests against Various Assessments on
February 2, 2004.
CTA Division
o Right to assess has prescribed. Issues of the first waiver:
Assistant Commissioner is not the revenue official authorized to
sign the waiver, as the tax case involves more than P1,000,000.
The waiver failed to indicate the date of acceptance. In this
regard, only the Commissioner is authorized to enter into
agreement with the petitioner in extending the period of
assessment;
o Secondly, the waiver failed to indicate the date of acceptance.
Such date of acceptance is necessary to determine whether the
acceptance was made within the prescriptive period
o The fact of receipt by the taxpayer of his file copy was not
indicated on the original copy. The requirement to furnish the
taxpayer with a copy of the waiver is not only to give notice of
10
DIMDOMS COMPILED TAX DIGEST
the existence of the document but also of the acceptance by the
BIR and the perfection of the agreement.
• CTA En Banc
o Agreed only to the second and third grounds.
• Petitioner argues that the governments right to assess taxes is not barred
by prescription as the two waivers executed by respondent, through its
accountant, effectively tolled or extended the period within which the
assessment can be made. Petitioner insists that by acquiescing to the audit
during the period specified in the waivers, respondent led the government
to believe that the delay in the process would not be utilized against
it. Thus, respondent may no longer repudiate the validity of the waivers and
raise the issue of prescription.
• Respondent maintains that prescription had set in due to the invalidity of
the waivers executed by Pasco, who executed the same without any
written authority from it, in clear violation of RDAO No. 5-01. As to the
doctrine of estoppel by acquiescence relied upon by petitioner, respondent
counters that the principle of equity comes into play only when the law is
doubtful, which is not present in the instant case.
Issue: Whether or not the Government’s right to assess the tax has already
prescribed
Held: Yes.
The waivers executed by respondents accountant did not extend the period within
which the assessment can be made
• Petitioner does not deny that the assessment notices were issued beyond
the three-year prescriptive period, but claims that the period was
extended by the two waivers executed by respondents accountant.
• However, A perusal of the waivers executed by respondents accountant
reveals the following infirmities:
• The waivers were executed without the notarized written authority
of Pasco to sign the waiver in behalf of respondent.
• The waivers failed to indicate the date of acceptance.
• The fact of receipt by the respondent of its file copy was not indicated in
the original copies of the waivers.
• Due to the defects in the waivers, the period to assess or collect taxes was
not extended. Consequently, the assessments were issued by the BIR
beyond the three-year period and are void.
• We find no merit in petitioners claim that respondent is now estopped
from claiming prescription since by executing the waivers, it was the one
which asked for additional time to submit the required documents.
• The doctrine of estoppel cannot be applied in this case as an exception to
the statute of limitations on the assessment of taxes considering that there
is a detailed procedure for the proper execution of the waiver, which the
BIR must strictly follow. As we have often said, the doctrine of estoppel is
predicated on, and has its origin in, equity which, broadly defined, is justice
according to natural law and right.
• As such, the doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. It should be resorted
to solely as a means of preventing injustice and should not be permitted
to defeat the administration of the law, or to accomplish a wrong or secure
an undue advantage, or to extend beyond them requirements of the
transactions in which they originate.
• Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its
failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself
issued.
• As stated earlier, the BIR failed to verify whether a notarized written
authority was given by the respondent to its accountant, and to indicate
the date of acceptance and the receipt by the respondent of the waivers.
• Having caused the defects in the waivers, the BIR must bear the
consequence. It cannot shift the blame to the taxpayer. To stress, a waiver
of the statute of limitations, being a derogation of the taxpayers right to
security against prolonged and unscrupulous investigations, must be
carefully and strictly construed.
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30,
2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are
hereby AFFIRMED.
8.) Rizal Banking Corp v. CIR
J. MENDOZA
FACTS: (keyword: estoppel)
11
DIMDOMS COMPILED TAX DIGEST
• Petitioner Rizal Commercial Banking Corporation (RCBC) is a
corporation engaged in general banking operations. It seasonably
filed its Corporation Annual Income Tax Returns for Foreign Currency
Deposit Unit for the calendar years 1994 and 1995.
• On August 15, 1996, RCBC received Letter of Authority No. 133959
issued by then Commissioner of Internal Revenue (CIR) Liwayway
Vinzons-Chato, authorizing a special audit team to examine the books
of accounts and other accounting records for all internal revenue
taxes from January 1, 1994 to December 31, 1995.
• On January 23, 1997, RCBC executed two Waivers of the Defense of
Prescription Under the Statute of Limitations of the National Internal
Revenue Code covering the internal revenue taxes due for the years
1994 and 1995, effectively extending the period of the Bureau of
Internal Revenue (BIR) to assess up to December 31, 2000.
• Disagreeing with the said deficiency tax assessment, RCBC filed a
protest on February 24, 2000 and later submitted the relevant
documentary evidence to support it.
• It filed a petition for review before the CTA, pursuant to Section 228
of the 1997 Tax Code.[7]
• On December 6, 2000, RCBC received another Formal Letter of
Demand with Assessment Notices dated October 20, 2000, following
the reinvestigation it requested, which drastically reduced the original
amount of deficiency taxes.
• On the same day, RCBC paid the following deficiency taxes as assessed
by the BIR
• RCBC, however, refused to pay the following assessments for
deficiency onshore tax and documentary stamp tax which remained
to be the subjects of its petition for review
• RCBC argued that the waivers of the Statute of Limitations which it
executed on January 23, 1997 were not valid because the same were
not signed or conformed to by the respondent CIR as required under
Section 222(b) of the Tax Code.
• As regards the deficiency FCDU onshore tax, RCBC contended that
because the onshore tax was collected in the form of a final
withholding tax, it was the borrower, constituted by law as the
withholding agent, that was primarily liable for the remittance of the
said tax.
• CTA-First Division: partially granted the petition for review. It
considered as closed and terminated the assessments for deficiency
income tax, deficiency gross receipts tax, deficiency final withholding
tax, deficiency expanded withholding tax, and deficiency
documentary stamp tax (not an industry issue) for 1994 and 1995.[14]
It, however, upheld the assessment for deficiency final tax on FCDU
onshore income and deficiency documentary stamp tax for 1994 and
1995 and ordered RCBC to pay the following amounts plus 20%
delinquency tax.
• Petitioner filed a MR
• CTA-First Division: substantially upheld its earlier ruling, except for its
inadvertence in the addition of the total amount of deficiency taxes.
As such, it modified its earlier decision and ordered RCBC to pay the
amount of ₱132,654,261.69 plus 20% delinquency tax.
• CTA-En Banc: denied the petition for lack of merit. It ruled that by
receiving, accepting and paying portions of the reduced assessment,
RCBC bound itself to the new assessment, implying that it recognized
the validity of the waivers.[20] RCBC could not assail the validity of
the waivers after it had received and accepted certain benefits as a
result of the execution of the said waivers
ISSUE: Whether petitioner, by paying the other tax assessment covered by the
waivers of the statute of limitations, is rendered estopped from questioning the
validity of the said waivers with respect to the assessment of deficiency onshore tax
HELD: YES. Petitioner is estopped from questioning the validity of the waivers.
• Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored
on the rule that an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against
the person relying thereon. A party is precluded from denying his own acts,
admissions or representations to the prejudice of the other party in order
to prevent fraud and falsehood.
• Estoppel is clearly applicable to the case at bench. RCBC, through its partial
payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of
those waivers.
• Had petitioner truly believed that the waivers were invalid and that the
assessments were issued beyond the prescriptive period, then it should
not have paid the reduced amount of taxes in the revised assessment.
• RCBCs subsequent action effectively belies its insistence that the waivers
are invalid. The records show that on December 6, 2000, upon receipt of
12
DIMDOMS COMPILED TAX DIGEST
the revised assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from questioning the validity
of the waivers. To hold otherwise and allow a party to gainsay its own act
or deny rights which it had previously recognized would run counter to the
principle of equity which this institution holds dear.
• RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame
on the payor-borrower as the withholding agent. As such, it is liable for
payment of deficiency onshore tax on interest income derived from foreign
currency loans, pursuant to Section 24(e)(3) of the National Internal
Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic corporationsxxxx(3) Tax on
income derived under the Expanded Foreign Currency Deposit System. Income
derived by a depository bank under the expanded foreign currency deposit
system from foreign currency transactions with nonresidents, offshore banking
units in the Philippines, local commercial banks including branches of foreign
banks that may be authorized by the Central Bank to transact business with
foreign currency depository system units and other depository banks under the
expanded foreign currency deposit system shall be exempt from all taxes,
except taxable income from such transactions as may be specified by the
Secretary of Finance, upon recommendation of the Monetary Board to be
subject to the usual income tax payable by banks: Provided, That interest
income from foreign currency loans granted by such depository banks under
said expanded system to residents (other than offshore banking units in the
Philippines or other depository banks under the expanded system) shall be
subject to a 10% tax. (Emphasis supplied)
• As a final note, this Court has consistently held that findings and
conclusions of the CTA shall be accorded the highest respect and shall
be presumed valid, in the absence of any clear and convincing proof
to the contrary.[36] The CTA, as a specialized court dedicated
exclusively to the study and resolution of tax problems, has developed
an expertise on the subject of taxation.[37] As such, its decisions shall
not be lightly set aside on appeal, unless this Court finds that the
questioned decision is not supported by substantial evidence or there
is a showing of abuse or improvident exercise of authority on the part
of the Tax Court.
WHEREFORE, the petition is DENIED
SO ORDERED.
FISHWEALTH v. CIR
J. Carpio
Facts: (keyword: MOTION FOR RECONSIDERATION DOES NOT STALL)
• The Commissioner of Internal Revenue (respondent), by Letter of
Authority dated May 16, 2000, ordered the examination of the
internal revenue taxes for the taxable year 1999 of Fishwealth
Canning Corp. (petitioner).
• The investigation disclosed that petitioner was liable in the amount
of P2,395,826.88 representing income tax, value added tax (VAT),
withholding tax deficiencies and other miscellaneous
deficiencies. Petitioner eventually settled these obligations on August
30, 2000.
• On August 25, 2000, respondent reinvestigated petitioners books of
accounts and other records of internal revenue taxes covering the
same period for the purpose of which it issued a subpoena duces
tecum requiring petitioner to submit its records and books of
accounts.
• Petitioner requested the cancellation of the subpoena on the ground
that the same set of documents had previously been examined.
• As petitioner did not heed the subpoena, respondent thereafter filed
a criminal complaint against petitioner for violation of Sections 5 (c)
and 266 of the 1997 Internal Revenue Code, which complaint was
dismissed for insufficiency of evidence.
• Respondent thereafter issued a Final Decision on Disputed
Assessment dated August 2, 2005, which petitioner received
on August 4, 2005, denying its letter of protest, apprising it of
its income tax and VAT liabilities in the amounts of P15,396,905.24
and P63,688,434.40 [sic], respectively, for the taxable year 1999, and
requesting the immediate payment thereof, inclusive of penalties
incident to delinquency.
13
DIMDOMS COMPILED TAX DIGEST
• Instead of appealing to the CTA, petitioner filed, on September 1,
2005, a Letter of Reconsideration dated August 31, 2005.
• In his Answer, respondent argued, among other things, that the
petition was filed out of time which argument the First Division of the
CTA upheld and accordingly dismissed the petition.
• On November 21, 2006, petitioner filed a petition for review before
the CTA En Banc which, by Decision of July 5, 2007, held that the
petition before the First Division, as well as that before it, was filed
out of time.
Issue: Whether or not the Petitioner filed out of time in the CTA
Held: Yes.
In the case at bar, petitioners administrative protest was denied by Final Decision on
Disputed Assessment dated August 2, 2005 issued by respondent and
which petitioner received on August 4, 2005. Under the above-quoted Section 228
of the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its
protest to the CTA.
• Since petitioner received the denial of its administrative protest
on August 4, 2005, it had until September 3, 2005 to file a petition for
review before the CTA Division. It filed one, however, on October 20,
2005, hence, it was filed out of time. For a motion for reconsideration
of the denial of the administrative protest does not toll the 30-day
period to appeal to the CTA.
• On petitioners final contention that it has a meritorious case in view
of the dismissal of the above-mentioned criminal case filed against it
for violation of the 1997 Internal Revenue Code, the same fails. For
the criminal complaint was instituted not to demand payment, but to
penalize the taxpayer for violation of the Tax Code.
WHEREFORE, the petition is DISMISSED.
ISSUE: Whether or not respondent has proven its entitlement to the refund
10.) CIR v. Far East Bank
HELD: NO
J. Del Castillo
• Respondent miserably failed to prove its entitlement to the refund.
FACTS: (keyword: tax refund)
• On April 10, 1995, respondent filed with the Bureau of Internal
Revenue (BIR) two Corporate Annual Income Tax Returns, one for its
Corporate Banking Unit (CBU) and another for its Foreign Currency
Deposit Unit (FCDU), for the taxable year ending December 31, 1994.
The return for the CBU consolidated the respondents’ overall income
tax liability for 1994, which reflected a refundable income tax of
P12,682,864.00
• Pursuant to Section 69 of the old National Internal Revenue Code
(NIRC), the amount of P12,682,864.00 was carried over and applied
against respondents’ income tax liability for the taxable year ending
December 31, 1995.
• On April 15, 1996, respondent filed its 1995 Annual Income Tax
Return, which showed a total overpaid income tax in the amount of
P17,443,133.00.
• Pursuant to Section 69[7] of the old National Internal Revenue Code
(NIRC), the amount of P12,682,864.00 was carried over and applied
against respondents income tax liability for the taxable year ending
December 31, 1995.
• On April 15, 1996, respondent filed its 1995 Annual Income Tax
Return, which showed a total overpaid income tax in the amount of
P17,443,133.00
• CTA: denied respondents claim for refund on the ground that
respondent failed to show that the income derived from rentals and
sale of real property from which the taxes were withheld were
reflected in its 1994 Annual Income Tax Return.
• On October 20, 1999, respondent filed a Motion for New Trial based
on excusable negligence which was however denied.
• CA: reversed the Decision of the CTA. The CA found that respondent
has duly proven that the income derived from rentals and sale of real
property upon which the taxes were withheld were included in the
return as part of the gross income.
Therefore, we grant the petition filed by the petitioner CIR for being
meritorious.
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DIMDOMS COMPILED TAX DIGEST
• A taxpayer claiming for a tax credit or refund of creditable withholding tax
must comply with the following requisites:
1) The claim must be filed with the CIR within the two-year period from the date of
payment of the tax;
2) It must be shown on the return that the income received was declared as part of
the gross income; and
3) The fact of withholding must be established by a copy of a statement duly issued
by the payor to the payee showing the amount paid and the amount of the tax
withheld.
• The two-year period requirement is based on Section 229 of the NIRC of
1997.
Respondent timely filed its claim for refund. However, respondent failed to prove
that the income derived from rentals and sale of real property were included in the
gross income as reflected in its return.
• Respondents explanation that its income derived from rentals and sales of
real properties were included in the gross income but were classified as
Other Earnings in its Schedule of Income attached to the return is not
supported by the evidence.
• There is nothing in the Schedule of Income to show that the income under
the heading Other Earnings includes income from rentals and sales of real
property.
• No documentary or testimonial evidence was presented by respondent to
prove this. In fact, respondent, upon realizing its omission, filed a motion
for new trial on the ground of excusable negligence with the CTA.
Respondent knew that it had to present additional evidence showing the
breakdown of the Other Earnings reported in its Schedule of Income
attached to the return to prove that the income from rentals and sales of
real property were actually included under the heading Other Earnings.
• Unfortunately, the CTA was not convinced that there was excusable
negligence to justify the granting of a new trial.
• Respondent failed to present all the Certificates of Creditable Tax Withheld
at Source.
• The CA likewise failed to consider in its Decision the absence of several
Certificates of Creditable Tax Withheld at Source. It immediately granted
the refund without first verifying whether the fact of withholding was
established by the Certificates of Creditable Tax Withheld at Source as
required under Section 10 of Revenue Regulation No. 6-85.
• As correctly pointed out by the CTA, the certifications (Exhibit UU) issued
by respondent cannot be considered in the absence of the required
Certificates of Creditable Tax Withheld at Source.
The burden is on the taxpayer to prove its entitlement to the refund.
• Moreover, the fact that the petitioner failed to present any evidence or to
refute the evidence presented by respondent does not ipso facto entitle
the respondent to a tax refund. It is not the duty of the government to
disprove a taxpayers claim for refund. Rather, the burden of establishing
the factual basis of a claim for a refund rests on the taxpayer.
• And while the petitioner has the power to make an examination of the
returns and to assess the correct amount of tax, his failure to exercise such
powers does not create a presumption in favor of the correctness of the
returns. The taxpayer must still present substantial evidence to prove his
claim for refund. As we have said, there is no automatic grant of a tax
refund.
• Hence, for failing to prove its entitlement to a tax refund, respondents
claim must be denied. Since tax refunds partake of the nature of tax
exemptions, which are construed strictissimi juris against the taxpayer,
evidence in support of a claim must likewise be strictissimi scrutinized and
duly proven.
WHEREFORE, the petition is GRANTED. The assailed January 31, 2006 Decision of the
Court of Appeals in CA-G.R. SP No. 56773 and its July 19, 2006 Resolution are
REVERSED and SET ASIDE. The October 4, 1999 Decision of the Court of Tax Appeals
denying respondents claim for tax refund for failure to prove that the income derived
from rentals and sale of real property from which the taxes were withheld were
reflected in its 1994 Annual Income Tax Return, is REINSTATED and AFFIRMED.
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