1

G.R. No. 167134 March 18, 2015 Add: 2,103,548.11 3,669,911.27

COMMISSIONER OF INTERNAL REVENUE, Surcharge

vs.
TOTAL P 10,517,740.57 P 18,349,556.33 8
TRADERS ROYAL BANK, Respondent.
=============== ===============
DECISION
TRB Vice President Bayani R. Navarro (Navarro) wrote a
LEONARDO-DE CASTRO, J.: letter dated January 7, 20009 protesting the foregoing
Before this Court is a Petition for Review on Certiorari filed assessments of the BIR on the following grounds:
by petitioner Commissioner of Internal Revenue (CIR) In response, we would like to point out that Special Savings
assailing the Decision1 dated February 14, 2005 of the Court Deposits being savings deposit accounts are not subject to
of Tax: Appeals (CTA) en bane in C.T.A. EB No. 32, which the documentary stamp tax. Likewise, Trust Indenture
denied the CIR's appeal of the Decision 2 dated April 28, 2004 Agreement[s] are not subject to documentary stamp tax for
and Resolution3 dated September 10, 2004 of the CT A the reason that relationship established between parties is
Division in C.T.A. Case No. 6392. The CTA Division cancelled that of the trustor and trustee, wherein the funds and/or
the assessments issued by the CIR against respondent properties of the trustor are given to the Trustee Bank not as
Traders Royal Bank (TRB) for deficiency documentary a deposit but under a Common Trust Fund maintained and
stamp taxes (DST) on the latter's Trust Indenture to be managed by the Trustee.
Agreements for taxable years 1996 and 1997, in the
amounts of ₱10,517,740.57and1!18,349,556.33, The same arguments are being invoked by other banks using
respectively.4 similar instruments and the imposition of the DST is
considered as an industry problem and is being contested by
TRB is a domestic corporation duly registered with the the entire banking community.
Securities and Exchange Commission and authorized by the
Bangko Sentral ng Pilipinas (BSP) to engage in commercial In his Decision dated December 20, 2001, 10 the CIR denied
banking.5 On the strength of the Letter of Authority (L.A.) the protest of TRB. The CIR adopted the position of the BIR
No. 000018565 dated July 27, 1998, the Bureau of Internal examiners that the Special Savings Deposit should be
Revenue (BIR) conducted an investigation concerning all deemed a time deposit account subject to DST under Section
national internal revenue tax liabilities of TRB for taxable 180 of the Tax Code of 1977. The CIR reasoned:
years 1996-1997. Following the investigation, the BIR issued [T]his Office believes and so holds that the Special Savings
a Pre-Assessment Notice dated November 10, 1999 against Deposit and Time Deposit are just one and the same banking
TRB. Subsequently, the BIR issued a Formal Letter of transaction. To evade payment of the DST, efforts were made
Demand and Assessment Notice Nos. ST-DST-96-0234- by banks to place a superficial distinction between the two
996 and ST-DST-97-0233-99,7 all dated December 27, 1999, (2) deposit accounts by introducing an innovation using a
against TRB for deficiency DST for 1996 and 1997, in the regular passbook to document the Special Savings Deposit
total amount of ₱28,867,296.90, broken down as follows: and by claiming that the said special deposit has no specific
DEFICIENCY DOCUMENTARY STAMP TAX maturity date. At first glance, the innovative scheme may
have accomplished in putting a semblance of difference
Industry between the aforesaid two (2) deposit accounts, but an
1996 1997
Issues on: analytical look at the passbook issued clearly reveals that
although it does not have the form of a certificate nor
Special Savings ₱5,041,882,798.03 ₱9,579,733,184.65 labelled as such, it has a fixed maturity date and for all
Deposit intents and purposes, it has the same nature and substance
as a "certificate of deposit bearing interest." In fact, it could
be said that the passbook is in itself a "certificate of
Trust Fund 567,500,927.00 55,783,860.92
deposit."11
As for the Trust Indenture Agreements, the CIR opined that
Mega Savings 77,911.32 150,872,997.87
they were but a form of deposit, likewise subject to DST.
Deposit
According to the CIR:
In an earlier case involving the same industry issue, We
Total 5,609,461,636.35 9,786,390,043.44 ruled that the essential features/characteristics of a Trust
Agreement are as follows:
Tax Rate .30/200 .30/200 A) The required minimum deposit is ₱50,000.00;
B) The shortest maturity date is 30 days;
C) It is not payable on sight or demand, in case of
Basic 8,414,192.45 14,679,645.07
pretermination, prior written notice is required; D)
It is automatically renewed in case the depositor
fails to withdraw the deposit at maturity date; E)

The bank used confirmation of participation to
evidence the acceptance of the funds from the
trustor.
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 but that of a creditor-debtor
relationship, the same relationship governing deposits of
money in banks.
xxxx
In the said contract of trust under the Civil Code, there is
only an equitable transfer of ownership by the trustor to the
trustee, the trustor retains his legal title to the subject
property. On the other hand, in the bank’s "trust agreement,"
once the specific funds or properties of the trustor are
placed under the common trust fund, there is a complete
transfer of ownership from the trustor to the trustee-bank.
It is manifested by the fact that said funds or properties may
be invested by the bank in whatever manner it may deem
necessary, the trustor has no control whatsoever over his
funds. Another point of distinction between the two
contracts is that, in the contract of trust every transaction
involving the trust property must be entered into by the
trustee for the benefit of the trustor or his designated
beneficiary; while in the bank’s "trust agreement," all
benefits from the transactions involving properties from the
common trust fund will be received solely by the trustee-
bank, the trustor’s only consolation is limited to receiving
higher rate of interest from his property. In effect, the
subject "trust agreement" although termed as such is but a
form of a deposit.
The fact that the subject trust agreement is evidenced by a
"confirmation of participation" and not by a certificate of
deposit is immaterial. As discussed above, what is important
and controlling is the nature or meaning conveyed by the
document and not the particular label or nomenclature
attached to it, inasmuch as its substance is paramount than
its form. Therefore, the examiners are correct in imposing
documentary stamp tax on the bank’s "trust agreements."12
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.
Consequently, the protestant-bank is hereby ordered to pay
the above-stated amounts plus interest that may have
accrued thereon until actual payment, to the Collection
Service, BIR National Office, Diliman, Quezon City, within
thirty (30) days from receipt hereof, otherwise, collection
shall be effected through the summary remedies provided
by law.
This constitutes the final decision of this Office on the
matter.13
2
TRB filed a Petition for Review14 with the CTA, which was
docketed as C.T.A. Case No. 6392. The parties stipulated the
following issues to be resolved by the CTA Division:
A. Whether or not Special Saving Deposits and
Mega Savings Deposits [both are Special Savings
Accounts (SSA)] are subject to documentary stamp
tax (DST) under Section 180 of the Tax Code.
B. Whether or not the ordinary saving account
passbook issued by [TRB] x x x can be considered a
certificate of deposit subject to documentary stamp
tax (DST).
C. Whether or not the Trust Indenture Agreements
are subject to documentary stamp tax (DST) under
Section 180 of the Tax Code.15
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. Under Section X407 of
the Manual of Regulations for Banks it is provided that "the
basic characteristic of trust, other fiduciary and investment
management relationship is the absolute non-existence of a
debtor-creditor relationship, thus, there is no obligation on
the part of the trustee, fiduciary or investment manager to
guarantee returns on the funds or properties regardless of
the results of the investment."16
The CTA Division ultimately decreed:
WHEREFORE, the assessments for deficiency documentary
stamp taxes on trust fund against [TRB] for taxable years
1996 and 1997 are hereby CANCELLED. However, the
assessments for deficiency documentary stamp taxes on

special savings deposit and mega savings deposit for same
taxable years 1996 and 1997 are hereby AFFIRMED.
ACCORDINGLY, [TRB] is ORDERED TO PAY the [CIR] the
deficiency documentary stamp taxes for the years 1996 and
1997 in the respective amounts of ₱9,453,676.33 and
₱18,244,886.69 (all inclusive of 25% surcharge) totaling
₱27,698,562.92 x x x.
xxxx
In addition, [TRB] is ORDERED TO PAY the [CIR] 20%
delinquency interest on ₱27,698,562.92 computed from
February 14, 2002 until fully paid pursuant to Section 249 of
the Tax Code, as amended.17
The parties each filed motions relative to the
aforementioned judgment of the CTA Division, to wit:
1. "Omnibus Motion for Substitution of Parties and
Motion for Reconsideration (Re: Decision dated
April 28, 2004)"filed on May 28, 2004 by [TRB]
seeking for the:
a. Substitution of parties from Traders
Royal Bank to Bank of Commerce;
b. Reconsideration and reversal of this
court’s Decision promulgated on April 28,
2004 finding [TRB] liable for deficiency
documentary stamp taxes for the taxable
years 1996 and 1997 in the amounts of
₱9,453,676.33 and ₱18,244,886.69,
respectively (all inclusive of the 25%
surcharge), plus 20% delinquency interest
computed from February 14, 2002 until
fully paid; and c. Cancellation of the
subject deficiency tax assessments.
2. "Motion for Partial Reconsideration" filed on May
24, 2004 by [CIR] seeking for a partial reversal of
this court’s Decision promulgated on April 28, 2004
with regard to the cancellation by this court of
[CIR’s] assessment for deficiency documentary
stamp taxes on the trust fund against [TRB] for the
taxable years 1996 and 1997.18
The CTA Division issued a Resolution dated September 10,
2004 denying the motions of the parties:
Based on the allegations of [TRB], the Purchase and Sale
Agreement [between TRB and the Bank of Commerce
(BOC)] was executed on November 9, 2001. Upon the
execution of the said agreement, the BOC assumed the
deposit liabilities of [TRB] for the taxable years covering
1996 and 1997. However, it is noteworthy to emphasize that
the Petition for Review was filed by [TRB] only on February
15, 2002 after the alleged transfer of right happened. To
adopt the view of [TRB] and pursuant to the quoted Section
19,Rule 3 of the 1997 Rules of Court, it should have been the
BOC that should have filed the Petition for Review instead of
[TRB]. Yet, this was not the case. The petition was filed by
petitioner Traders Royal Bank, notwithstanding the alleged
transfer of rights to Bank of Commerce prior to the
commencement of the action. Failure of[TRB] to show
3
justifiable reasons for such negligence and blunder, this
court cannot then allow the substitution of parties.
xxxx
There being no other new issues raised by [TRB] which this
court has not yet passed upon in its Decision of April 28,
2004, this court hereby RESOLVES to DENY[TRB’s] motion.
xxxx
Finding that the issue raised by the [CIR] had been
thoroughly discussed in the Decision of April 28, 2004, this
court finds no compelling reason to modify or alter the same
and thereby RESOLVES to DENY [CIR’s] Motion for Partial
Reconsideration.
WHEREFORE, both motions are hereby DENIED for lack of
merit. Accordingly, this court’s Decision promulgated on
April 28, 2004 is AFFIRMED in all respects.19
The CIR and TRB filed with the CTA en banc separate
Petitions for Review, docketed as C.T.A. EB Nos. 32 and 34,
respectively, partially appealing the Decision dated April 28,
2004 and Resolution dated September 10, 2004 of the CTA
Division.
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. According to the CTA en banc:
[A]n examination of the Petition for Review revealed that
the issues raised therein by the [CIR] have been discussed at
length and directly ruled upon in the assailed Decision and
in the subsequent Resolution. The Court is not convinced by
[CIR’s] arguments on the assigned errors to justify a reversal
of the questioned Decision.
The Manual for Regulations of Banks issued by the Central
Bank of the Philippines has defined the trust business as "xx
x any activity resulting from a trustor-trustee relationship
(trusteeship) involving the appointment of a trustee by a
trustor for the administration, holding, management of
funds and/or properties of the trustor by the trustee for use,
benefit or advantage of the trustor or others called
beneficiaries (Sec.X403 [a])."
As correctly explained in the questioned Decision, "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". [CIR’s] contention
that there is a complete transfer of ownership from the
trustor to the trustee bank because the funds may be
invested by the bank in whatever manner it may deem
necessary and the trustor having no control whatsoever
over his funds runs counter to[CIR’s] allegation in the
Petition that "A contract of trust under the Civil Code is
defined as the legal relationship between one person having
an equitable ownership in property and another person
owning [the] legal title to such property, the equitable
ownership of the former entitling him to the performance of
duties and the exercise of certain powers by the latter."
(citing Commentaries and Jurisprudence on the Civil Code of

the Philippines, Arturo Tolentino, Volume 4, p. 669). The
[CIR], in effect, admits that the trustee bank holds legal title
over the funds (i.e., has legal ownership of the funds), and is
entitled to exercise certain powers such as the investment of
the funds in behalf of the trustor (which is the essence of the
trust business).
[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.20
Hence, the dispositive portion of the Decision dated
February 14, 2005 of the CTA en banc in C.T.A. EB No. 32
reads:
WHEREFORE, finding that the Petition for Review is patently
without merit, the same is denied due course. Accordingly,
the same is DISMISSED.21
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 in accordance with
Section 180, National Internal Revenue Code of 1993, as
amended. While the DST is levied on the document itself, it
is not intended to be a tax on the document alone. Rather,
the DST is levied on the exercise of a privilege of conducting
a particular business or transaction through the execution of
specific instruments or documents (Phil. Home Assurance
Corp. vs. Court of Appeals, 301 SCRA 435). Lastly, there is
likewise no merit to [TRB’s] contention that the Division
erred in denying the "Motion for Substitution of Parties".
Generally, there is no need of a substitution or joinder of the
transferee as a party-litigant for after all even if the action is
continued by or against the original party, the judgment is
binding on all the parties (original party, adverse party and
transferee) (Oria Hnos. v. Gutierrez Hnos., 52 Phil. 156;
Correa v. Pascual, 99 Phil. 696;Bustamante v. Azarcon, L-
8939, May 28, 1957). This is a settled rule in this
jurisdiction. Indeed, We may say that the transferee is a
proper (or necessary) party, but not an indispensable party
to the original case (Fetalino v. Sanz, 44 Phil. 69).
xxxx
Accordingly, no error was committed by the Division when it
denied the "Motion for Substitution of Parties."23
4
Consequently, in its Decision dated April 26, 2005 in C.T.A.
EB No. 34, the CTA en banc adjudged:
All the foregoing considered, We see no reason to reverse
the assailed Decision and Resolution of the Division of this
Court.
WHEREFORE, premises considered, the instant petition is
hereby DENIED DUE COURSE, and accordingly, DISMISSED
for lack of merit.24
TRB filed a Motion for Reconsideration of the foregoing
Decision, but said Motion was denied by the CTA en banc in
a Resolution dated June 10, 2005.
The CIR filed a Petition for Review before the Court,
docketed as G.R. No. 167134, assailing the Decision dated
February 14, 2005 of the CTA en banc in C.T.A. EB No. 32.
TRB initially filed a Motion for Extension of Time to File
Petition for Review, requesting an extension of 30 days (i.e.,
until August 1, 2005) within which to appeal the Decision
dated April 26, 2005 and Resolution dated June 10, 2005 of
the CTA en banc in C.T.A. EB No. 34. The Motion of TRB was
docketed as G.R. No. 168491.
In a Resolution dated August 3, 2005, the Court consolidated
the Petitions in G.R. Nos. 167134 and 168491 considering
that they "assail the same decision of the Court of Tax
Appeals, involve the same parties, and raise interrelated
issues."
Eventually, the Court issued a Resolution dated June26,
2006, in which it resolved as follows:
It appearing that [TRB] in G.R. No. 168491 failed to file a
petition for review on certiorari within the extended period
which expired on August 1, 2005, the Court further resolves
to CONSIDER G.R. No. 168491 CLOSED and TERMINATED. 25
The Resolution dated June 26, 2006 of the Court in G.R. No.
168491 became final and executory and Entry of Judgment
was made in said case on August 24, 2006.
Presently pending resolution by the Court is the Petition for
Review of the CIR in G.R. No. 167134 which appealed the
Decision dated February 14, 2005 of the CTA en banc in
C.T.A. EB No. 32 based on the lone assignment of error, viz:
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING
THAT A TRUST INDENTURE AGREEMENT IS NOT A
CERTIFICATE OF DEPOSIT, HENCE, NOT SUBJECT TO
DOCUMENTARY STAMP TAX UNDER SECTION 180 OF THE
TAX CODE.26
Section 180 of the National Internal Revenue Code (NIRC) of
1977, as amended by Republic Act No. 7660 – in force
in1996 and 1997 – imposed DST on the following
documents:
Sec. 180. Stamp tax on all loan agreements, promissory
notes, bills of exchange, drafts, instruments and securities
issued by the government or any of its instrumentalities,
certificates of deposit bearing interest and others not
payable on sight or demand. – On all loan agreements signed
abroad wherein the object of the contract is located or used
in the Philippines; bills of exchange (between points within
the Philippines), drafts, instruments and securities issued by

the Government or any of its instrumentalities or certificates
of deposits drawing interest, or orders for the payment of
any sum of money otherwise than at sight or on demand, or
on all promissory notes, whether negotiable or
nonnegotiable, except bank notes issued for circulation, and
on each renewal of any such note, there shall be collected a
documentary stamp tax of Thirty centavos (P0.30) on each
two hundred pesos, or fractional part thereof, of the face
value of any such agreement, bill of exchange, draft,
certificate of deposit, or note: Provided, That only one
documentary stamp tax shall be imposed on either loan
agreement, or promissory notes issued to secure such loan,
whichever will yield a higher tax: Provided, however, That
loan agreements or promissory notes the aggregate of which
does not exceed Two hundred fifty thousand pesos
(₱250,000) executed by an individual for his purchase on
installment for his personal use or that of his family and not
for business, resale, barter or hire of a house, lot, motor
vehicle, appliance or furniture shall be exempt from the
payment of the documentary stamp tax provided under this
section.
The CIR maintains that the relationship between TRB and its
clients under the Trust Indenture Agreements was debtor-
creditors and the said Agreements were actually certificates
of deposit drawing/bearing interest subject to DST under
Section 180 of the NIRC of 1977, as amended. The CIR points
out that the only basis of the CTA en banc in ruling that the
relationship between TRB and its clients under the Trust
Indenture Agreements was that of trustee-trustors was
Section X407 of the 1993 Manual of Regulations for Banks
(MORB) issued by the BSP, which identified the basic
characteristics of a trust. The CIR argues, however, that the
very same provision, Section X407 of the 1993 MORB,
identified exceptions, that is, instances when the agreement
or contract would not constitute a trust. A trust as defined in
Section X407 of the 1993 MORB would be in the nature of an
exemption from the payment of DST. Accordingly, TRB had
the burden of proving the legal and factual bases of its claim
that its Trust Indenture Agreements fell under the definition
of "trust" and not among the exceptions in Section X407 of
the 1993 MORB. TRB, though, was unable to discharge such
burden, failing to present evidence, whether testimonial or
documentary, to prove its entitlement to DST exemption.
The CIR, for its part, claims that the Trust Indenture
Agreements were akin to certificates of deposit because said
Agreements also stated expected rates of return of the
investment or for the use of the amounts of deposits/trust
funds for a certain period, clearly falling under the exception
to what constituted a "trust" in Section X407, paragraph (d)
of the 1993 MORB. The CIR also asserts that TRB should not
be permitted to escape/evade the payment of DST by simply
labeling its certificates of deposit drawing/bearing interests
as "trust funds." In determining whether a certain
contract/agreement/document/instrument is subject to
DST, substance should control over form and labels.
In addition, the CIR insists that the Trust Indenture
Agreements between TRB and its clients were simple loans
governed by Article 1980 of the Civil Code.27 The trust funds,
being generic, could not be segregated from the other
funds/deposits held by TRB. While TRB had the obligation
to return the equivalent amount deposited, it had no
5
obligation to return or deliver the same money deposited.
Legal title to the trust funds was vested/transmitted to TRB
upon perfection of the trust agreement. It then followed that
TRB could make use of the funds/deposits for its banking
operations, such as to pay interest on deposits, to pay
withdrawals and dispose of the amount borrowed for any
purpose such as investing the funds/deposits into a
profitable venture. Currently, the CIR avers, the Trust
Indenture Agreements may be considered as "loan
agreements" or "debt instruments" subject to DST under
Sections 17328 and 17929 of the NIRC of 1997, as amended.
The Petition is meritorious.
Generally, the factual findings of the CTA, a special court
exercising expertise on the subject of tax, are regarded as
final, binding and conclusive upon this Court. 30 However,
there are well-recognized exceptions to this rule, 31 such as
when the conclusion is grounded entirely on speculations,
surmises, or conjectures, as well as when the findings are
conclusions without citation of specific evidence on which
they are based.
At the crux of the instant controversy are the Trust
Indenture Agreements of TRB. At issue is whether the said
Trust Indenture Agreements constituted deposits or trusts.
The BIR posits that the Agreements were deposits subject to
DST, while TRB proffers that the Agreements were trusts
exempt from DST.
Surprisingly, not a single copy of a Trust Indenture
Agreement and/or the Certificate of Participation (issued to
the client as evidence of the trust) could be found in the
records of the case.
The conduct by banks, such as TRB, of trusts and other
fiduciary business (in 1996 and 1997) was governed by the
1993 MORB, which enumerated the minimum documentary
requirements for trusts, including a written agreement or
indenture and a plan (i.e., written declaration of trust) for
common trust funds (CTF). Relevant provisions of the 1993
MORB are quoted in full below:
Sec. X409 Trust and Other Fiduciary Business. The conduct
of trust and other fiduciary business shall be subject to the
following regulations.
§ X409.1 Minimum documentary requirements. Each trust
or fiduciary account shall be covered by a written document
establishing such account, as follows:
a. In the case of accounts created by an order of the
court or other competent authority, the written
order of said court or authority.
b. In the case of accounts created by corporations,
business firms, organizations or institutions, the
voluntary written agreement or indenture entered
into by the parties, accompanied by a copy of the
board resolution or other evidence authorizing the
establishment of, and designating the signatories
to, the trust or other fiduciary account.
c. In the case of accounts created by individuals, the
voluntary written agreement or indenture entered
into by the parties.

The voluntary written agreement or indenture shall include
the following minimum provisions:
(1) Title or nature of contractual agreement in
noticeable print;
(2) Legal capacities, in noticeable print, of parties
sought to be covered;
(3) Purposes and objectives;
(4) Funds and/or properties subject of the
arrangement;
(5) Distribution of the funds and/or properties;
(6) Duties and powers of trustee or fiduciary;
(7) Liabilities of the trustee or fiduciary;
(8) Reports to the client;
(9) Termination of contractual arrangement and, in
appropriate cases, provision for successor-trustee
or fiduciary;
(10) The amount or rate of the compensation of
trustee or fiduciary;
(11) A statement in noticeable print to the effect
that trust and other fiduciary business are not
covered by the PDIC and that losses, if any, shall be
for the account of the client; and
(12) Disclosure requirements for transactions
requiring prior authority and/or specific written
investment directive from the client, court of
competent jurisdiction or other competent
authority. x x x x
Sec. X410 Common Trust Funds.(1) The administration
of CTFs shall be subject to the provisions of Subsecs.
X409.1 up to X409.6 and to the following regulations.
As an alternative compliance with the required prior
authority and disclosure under Subsecs. X409.2 and X409.3,
a list which shall be updated quarterly of prospective and/or
outstanding investment outlets may be made available by
the trustee for the review of all CTF clients.
xxxx
(3) Minimum documentary requirements for common trust
funds. In addition to the trust agreement or indenture
required under Subsec. X409.1, each CTF shall be
established, administered and maintained in accordance
with a written declaration of trust referred to as the plan,
which shall be approved by the board of directors of the
trustee and a copy submitted to the appropriate supervising
and examining department of the BSP within thirty (30)
banking days prior to its implementation.
The plan shall make provisions on the following matters:
a. Title of the plan;
b. Manner in which the plan is to be operated;
c. Investment powers of the trustee with respect to
the plan, including the character and kind of
investments which may be purchased;
6
d. Allocation, apportionment, distribution dates of
income, profit and losses;
e. Terms and conditions governing the admission or
withdrawal as well as expansion or contraction of
participation in the plan including the minimum
initial placement and account balance to be
maintained by the trustor;
f. Auditing and settlement of accounts of the trustee
with respect to the plan;
g. Detailed information on the basis, frequency, and
method of valuing and accounting of CTF assets
and each participation in the fund;
h. Basis upon which the plan may be terminated;
i. Liability clause of the trustee;
j. Schedule of fees and commissions which shall be
uniformly applied to all participants in a fund and
which shall not be changed between valuation
dates; and
k. Such other matters as may be necessary or
proper to define clearly the rights of participants
under the plan.
The legal capacity of the bank administering a CTF shall be
indicated in the plan and other related agreements or
contracts as trustee of the fund and not in any other capacity
such as fund manager, financial manager, or like terms.
The provisions of the plan shall control all participations in
the fund and the rights and benefits of all parties in interest.
The plan may be amended by resolution of the board of
directors of the trustee: Provided, however, That
participants in the fund shall be immediately notified of
such amendments and shall be allowed to withdraw their
participation if they are not in conformity with the
amendments made: Provided, further, That amendments to
the plan shall be submitted to the appropriate supervising
and examining department of the BSP within ten (10)
banking days from approval of the amendments by the
board of directors.
A copy of the plan shall be available at the principal office of
the trustee during regular office hours for inspection by any
person having an interest in a trust whose funds are
invested in the plan or by his authorized representative.
Upon request, a copy of the plan shall be furnished such
person.(Emphases supplied.)
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. 32 In
Bautista v. Court of Appeals,33 this Court said:
The rule is that where the language of a contract is plain and
unambiguous, its meaning should be determined without
reference to extrinsic facts or aids. The intention of the
parties must be gathered from that language, and from that
language alone. x x x.
Following the rules on interpretation of contracts, Rule 130,
Section 9 of the Revised Rules of Court lays down the parol
evidence rule:
Sec. 9. Evidence of written agreements.– When the terms of
an agreement have been reduced to writing, it is considered
as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no
evidence of such terms other than the contents of the
written agreement.
However, a party may present evidence to modify, explain or
add to the terms of the written agreement if he puts in issue
in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection
in the written agreement;
(b) The failure of the written agreement to express
the true intent and agreement of the parties
thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the
parties or their successors in interest after the
execution of the written agreement.
The term "agreement" includes wills.
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.34 As
Rule 131, Section 1 of the Revised Rules of Court states:
Section 1. Burden of proof. — Burden of proof is the duty of
a party to present evidence on the facts in issue necessary to
establish his claim or defense by the amount of evidence
required by law.
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.
Section X407 of the 1993 MORB is reproduced hereunder:
7
Sec. X407Non-Trust, Non-Fiduciary and/or Non-Investment
Management Activities The basic characteristic of trust,
other fiduciary and investment management relationship is
the absolute non-existence of a debtor-creditor relationship,
thus, there is no obligation on the part of the trustee,
fiduciary or investment manager to guarantee returns on
the funds or properties regardless of the results of the
investment. The trustee, fiduciary or investment manager is
entitled to fees/commissions which shall be stipulated and
fixed in the contract or indenture and the trustor or
principal is entitled to all the funds or properties less
fees/commissions, losses and other charges. Any
agreement/arrangement that does not conform to these
shall not be considered as trust, other fiduciary and/or
investment management relationship.
The following shall not constitute a trust, other fiduciary
and/or investment management relationship:
a. When there is a preponderance of purpose or of
intent that the arrangement creates or establishes a
relationship other than a trust, fiduciary and/or
investment management;
b. When the agreement or contract is itself used as
a certificate of indebtedness in exchange for money
placement from clients and/or as the medium for
confirming placements and investment thereof;
c. When the agreement or contract of an account is
accepted under the signature(s) of those other than
the trust officer or subordinate officer of the trust
department or those authorized by the board of
directors to represent the trust officer;
d. Where there is a fixed rate or guaranty of
interest, income or return in favor of its client or
beneficiary: Provided, however, That where funds
are placed in fixed income-generating investments,
a quotation of income expectation or like terms,
shall neither be considered as arrangements with a
fixed rate nor a guaranty of interest, income or
return when the agreement or indenture
categorically states in bold letters that the quoted
income expectation or like terms is neither assured
nor guaranteed by the trustee or fiduciary and it
does not, therefore, entitle the client to a fixed
interest or return on his investments: Provided,
further, that any of the following practices or
practices similar and/or tantamount thereto shall
be construed as fixing or guaranteeing the rate of
interest, income or return:
(1) Issuance of certificates, side
agreements, letters of undertaking, or
other similar documents providing for
fixed rates or guaranteeing interest,
income or return;
(2) Paying trust earnings based on
indicated or expected yield regardless of
the actual investment results;
(3) Increasing or reducing fees in order to
meet a quoted or expected yield;
 8

(4) Entering into any arrangement, presumed valid. In Sy Po v. Court of Tax Appeals, 37 the Court
scheme or practice which results in the pronounced:
payment of fixed rates or yield on trust
Tax assessments by tax examiners are presumed correct and
investments or in the payment of the
made in good faith. The taxpayer has the duty to prove
indicated or expected yield regardless of
otherwise. In the absence of proof of any irregularities in the
the actual investment results; and
performance of duties, an assessment duly made by a
e. Where the risk or responsibility is exclusively Bureau of Internal Revenue examiner and approved by his
with the trustee, fiduciary or investment manager superior officers will not be disturbed. All presumptions are
in case of loss in the investment of trust, fiduciary in favor of the correctness of tax assessments. (Citations
or investment management funds, when such loss omitted.)
is not due to the failure of the trustee or fiduciary to
In Marcos II v. Court of Appeals, 38 the Court again had the
exercise the skill, care, prudence and diligence
occasion to rule:
required by law.
It is not the Department of Justice which is the government
Trust, other fiduciary and investment management activities
agency tasked to determine the amount of taxes due upon
involving any of the foregoing which are accepted, renewed
the subject estate, but the Bureau of Internal Revenue,
or extended after 16 October 1990 shall be reported as
whose determinations and assessments are presumed
deposit substitutes and shall be subject to the reserve
correct and made in good faith. The taxpayer has the duty of
requirement for deposit substitutes from the time of
proving otherwise. In the absence of proof of any
inception, without prejudice to the imposition of the
irregularities in the performance of official duties, an
applicable sanctions provided for in Sections 36 and 37 of
assessment will not be disturbed. Even an assessment based
R.A. No. 7653.
on estimates is prima facie valid and lawful where it does
A reading of Section X407 of the 1993 MORB reveals that it not appear to have been arrived at arbitrarily or
merely explained the basic characteristics of a trust or other capriciously. The burden of proof is upon the complaining
fiduciary and investment management relationship, and party to show clearly that the assessment is erroneous.
expressly identified the instances which would not Failure to present proof of error in the assessment will
constitute a trust, fiduciary and/or investment management justify the judicial affirmance of said assessment. x x x.
relationship. Simply put, Section X407 of the MORB set the (Citations omitted.)
standards in determining whether a contract was one of
Given the failure of TRB to present proof of error in the tax
trust or some other agreement.
assessments of the BIR, the Court affirms the same.
Therefore, it was still necessary for TRB to present the Trust
The liabilities of TRB for deficiency DST on its Trust
Indenture Agreements to test the terms and conditions
Indenture Agreements for 1996 and 1997 are computed as
thereof against the standards set by Section X407 of the
follows:
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 1996 1997
MORB. TRB called Mr. Navarro, its Vice President, to the
witness stand to testify on the terms and conditions of the Trust Fund P 567,500,927.000 P 55,783,860.92
Trust Indenture Agreements. Mr. Navarro’s testimony,
though, cannot be accorded much weight and credence as it
Tax Rate .30/200 .30/200
is in violation of the parol evidence rule.
TRB made no attempt to explain why it did not present the
Trust Indenture Agreements, and it also did not take the
effort to establish that any of the exceptional circumstances Basic Tax 851,251.50 83,676.00
under Rule 130, Section 9 of the Revised Rules of Court,
allowing "a party to modify, explain or add to the terms of Add: Surcharge 212,812.88 20,919.00
written agreement," was extant in this case. Moreover, Mr.
Navarro’s testimony consisted essentially of conclusions of
law and general descriptions of trusts using the very same
words and terms under Section X407 of the 1993 MORB. Total P 1,064,064.38 P 104,595.00 39

In contrast, records show that the BIR examiners conducted

a thorough audit and investigation of the books of account of
TRB. Mr. Alexander D. Martinez, a BIR Revenue Officer,
testified that it took the BIR team of examiners more than
one-year to conduct and complete the audit and
examination of the documents of TRB, which consisted of
approximately 20,000 pages.36 The audit and investigation
resulted in the issuance of Assessment Notices against TRB
for DST tax liabilities for 1996 and 1997, which were duly
received by TRB. The tax assessments against TRB are
In addition, TRB is liable for 20%delinquency interest under
Section 249 of the NIRC of 199340
from February 14, 200241 until full payment of its foregoing
tax liabilities.
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.
 9

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, in the
amounts of Pl,064,064.38 and "1104, 595.00, respectively,
plus 20% delinquency interest from February 14, 2002 until
full payment thereof.

G.R. No. 163445 December 18, 2007
ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC
BAY MOTORS CORPORATION,
vs.
HON. GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal Revenue (BIR),
THE REGIONAL DIRECTOR, BIR, Region III, THE
At bar is a petition for review on certiorari seeking the
reversal of the decision 1 of the Court of Appeals (CA) in CA-
G.R. SP No. 79329 declaring the Regional Trial Court (RTC)
of Olongapo City, Branch 74, without jurisdiction over Civil
Case No. 275-0-2003.
The facts are undisputed.
Congress enacted Republic Act (R.A.) No. 7227 creating the
Subic Special Economic Zone (SSEZ) and extending a
number of economic or tax incentives therein. Section 12 of
the law provides:
(a) Within the framework and subject to the
mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code,
the [SSEZ] shall be developed into a self-sustaining,
industrial, commercial, financial and investment
center to generate employment opportunities in
and around the zone and to attract and promote
productive foreign investments;
(b) The [SSEZ] shall be operated and managed as a
separate customs territory ensuring free flow or
movement of goods and capital within, into and
exported out of the [SSEZ], as well as provide
incentives such as tax and duty-free importations of
raw materials, capital and equipment. However,
exportation or removal of goods from the
territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the
Philippines;
(c) The provision of existing laws, rules and
regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within
the [SSEZ]. In lieu of paying taxes, three percent
(3%) of the gross income earned by all businesses
and enterprise within the [SSEZ] shall be remitted
to the National Government, one percent (1%) each
to the local government units affected by the
declaration of the zone in proportion to their
population area, and other factors. In addition,
there is hereby established a development fund of
one percent (1%) of the gross income earned by all
business and enterprise within the [SSEZ] to be
utilized for the development of municipalities
outside the City of Olongapo and the Municipality
of Subic, and other municipalities contiguous to the
base areas.
In case of conflict between national and local laws
with respect to tax exemption privileges in the
10
[SSEZ], the same shall be resolved in favor of the
latter;
(d) No exchange control policy shall be applied and
free markets for foreign exchange, gold, securities
and future shall be allowed and maintained in the
[SSEZ]; (emphasis supplied)
On January 24, 1995, then Secretary of Finance Roberto F.
De Ocampo, through the recommendation of then
Commissioner of Internal Revenue (CIR) Liwayway Vinzons-
Chato, issued Revenue Regulations [Rev. Reg.] No. 1-
95,2 providing the "Rules and Regulations to Implement the
Tax Incentives Provisions Under Paragraphs (b) and (c) of
Section 12, [R.A.] No. 7227, [o]therwise known as the Bases
Conversion and Development Act of 1992." Subsequently,
Rev. Reg. No. 12-973 was issued providing for the
"Regulations Implementing Sections 12(c) and 15 of [R.A.]
No. 7227 and Sections 24(b) and (c) of [R.A.] No. 7916
Allocating Two Percent (2%) of the Gross Income Earned by
All Businesses and Enterprises Within the Subic, Clark, John
Hay, Poro Point Special Economic Zones and other Special
Economic Zones under PEZA." On September 27, 1999, Rev.
Reg. No. 16-994 was issued "Amending [RR] No. 1-95, as
amended, and other related Rules and Regulations to
Implement the Provisions of paragraphs (b) and (c) of
Section 12 of [R.A.] No. 7227, otherwise known as the ‘Bases
Conversion and Development Act of 1992’ Relative to the
Tax Incentives Granted to Enterprises Registered in the
Subic Special Economic and Freeport Zone."
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued
Revenue Memorandum Circular (RMC) No. 31-2003 setting
the "Uniform Guidelines on the Taxation of Imported Motor
Vehicles through the Subic Free Port Zone and Other
Freeport Zones that are Sold at Public Auction." The assailed
portions of the RMC read:
II. Tax treatments on the transactions involved in the
importation of motor vehicles through the SSEFZ and other
legislated Freeport zones and subsequent sale thereof
through public auction.—Pursuant to existing revenue
issuances, the following are the uniform tax treatments that
are to be adopted on the different transactions involved in
the importation of motor vehicles through the SSEFZ and
other legislated Freeport zones that are subsequently sold
through public auction:
A. Importation of motor vehicles into the freeport zones
1. Motor vehicles that are imported into the
Freeport zones for exclusive use within the zones
are, as a general rule, exempt from customs duties,
taxes and other charges, provided that the
importer-consignee is a registered enterprise
within such freeport zone. However, should these
motor vehicles be brought out into the customs
territory without returning to the freeport zones,
the customs duties, taxes and other charges shall be
paid to the BOC before release thereof from its
custody.
xxx

3. For imported motor vehicles that are imported
by persons that are not duly registered enterprises
of the freeport zones, or that the same are intended
for public auction within the freeport zones, the
importer-consignee/auctioneer shall pay the value-
added tax (VAT) and excise tax to the BOC before
the registration thereof under its name with the
LTO and/or the conduct of the public auction.
xxx
B. Subsequent sale/public auction of the motor vehicles
1. Scenario One – The public auction is conducted
by the consignee of the imported motor vehicles
within the freeport zone
xxx
1.2. In case the consignee-auctioneer is a
registered enterprise and/or locator not entitled
to the preferential tax treatment or if the same is
entitled from such incentive but its total income
from the customs territory exceeds 30% of its
entire income derived from the customs territory
and the freeport zone, the income derived from
the public auction shall be subjected to the regular
internal revenue taxes imposed by the Tax Code.
xxx
1.4. In the event that the winning bidder shall
bring the motor vehicles into the customs
territory, the winning bidder shall be deemed the
importer thereof and shall be liable to pay the VAT
and excise tax, if applicable, based on the winning
bid price. However, in cases where the consignee-
auctioneer has already paid the VAT and excise tax
on the motor vehicles before the registration
thereof with LTO and the conduct of public
auction, the additional VAT and excise tax shall be
paid by winning bidder resulting from the
difference between the winning bid price and the
value used by the consignee-auctioneer in
payment of such taxes. For excise tax purposes, in
case the winning bid price is lower than the total
costs to import, reconditioning/rehabilitation of
the motor vehicles, and other administrative and
selling expenses, the basis for the computation of
the excise tax shall be the total costs plus ten
percent (10%) thereof. The additional VAT and
excise taxes shall be paid to the BIR before the
auctioned motor vehicles are registered with the
LTO.
1.5 In case the services of a professional
auctioneer is employed for the public auction, the
final withholding tax of 25%, in case he/she is a
non-resident citizen or alien, or the expanded
withholding tax of 20%, in case he/she is a
resident citizen or alien, shall be withheld by the
consignee-auctioneer from the amount of
consideration to be paid to the professional
auctioneer and shall be remitted accordingly to
the BIR.
11
This was later amended by RMC No. 32-2003,5 to wit:
II. The imported motor vehicles after its release
from Customs custody are sold through public
auction/negotiated sale by the consignee within or
outside of the Freeport Zone:
A. The gross income earned by the consignee-seller from the
public auction/negotiated sale of the imported vehicles shall
be subject to the preferential tax rate of five percent (5%) in
lieu of the internal revenue taxes imposed by the National
Internal Revenue Code of 1997, provided that the following
conditions are present:
1.That the consignee-seller is a duly registered enterprise
entitled to such preferential tax rate as well as a
registered taxpayer with the Bureau of Internal
Revenue (BIR).
2.That the total income generated by the consignee-seller
from sources within the customs territory does not
exceed thirty percent (30%) of the total income derived
from all sources.
B. In case the consignee-seller is a registered enterprise
and/or locator not entitled to the preferential tax treatment
or if the same is entitled from such incentive but its total
income from the customs territory exceeds thirty percent
(30%) of its entire income derived from the customs
territory and the freeport zone, the sales or income derived
from the public auction/negotiated sale shall be subjected to
the regular internal revenue taxes imposed by the Tax Code.
The consignee-seller shall also observe the compliance
requirements prescribed by the Tax Code. When public
auction or negotiated sale is conducted within or outside of
the freeport zone, the following tax treatment shall be
observed:
1. Value Added Tax (VAT)/ Percentage Tax (PT) – VAT
or PT shall be imposed on every public auction or
negotiated sale.
2. Excise Tax – The imposition of excise tax on public
auction or negotiated sale shall be held in abeyance
pending verification that the importer’s selling price
used as a basis by the Bureau of Customs in
computing the excise tax is correctly determined.
Petitioners Asia International Auctioneers, Inc. (AIAI) and
Subic Bay Motors Corporation are corporations organized
under Philippine laws with principal place of business
within the SSEZ. They are 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.
Petitioners 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. The complaint
was docketed as Civil Case No. 275-0-2003 and raffled to
Branch 74. Subsequently, petitioners filed their "First
Amended Complaint to Declare Void, Ultra Vires, and
Unconstitutional [RMC] No. 31-2003 dated June 3, 2003 and
[RMC] No. 32-2003 dated June 5, 2003, with Application for
a Writ of Temporary Restraining Order and Preliminary
Injunction"6 to enjoin respondents from implementing the

questioned RMCs while the case is pending. Particularly,
they question paragraphs II(A)(1) and (3), II(B)(1.2), (1.4)
and (1.5) of RMC No. 31-2003 and paragraphs II(A)(2) and
(B) of RMC No. 32-2003. Before a responsive pleading was
filed, petitioners filed their Second Amended Complaint 7 to
include Rev. Reg. Nos. 1-95, 12-97 and 16-99 dated January
24, 1995, August 7, 1997 and September 27, 1999,
respectively, which allegedly contain some identical
provisions as the questioned RMCs, but without changing
the cause of action in their First Amended Complaint.
The Office of the Solicitor General (OSG) submitted its
"Comment (In Opposition to the Application for Issuance of
a Writ of Preliminary Injunction)." 8 Respondents CIR,
Regional Director and Revenue District Officer submitted
their joint "Opposition (To The Prayer for Preliminary
Injunction and/or Temporary Restraining Order by
Petitioners)."9
Then Secretary of Finance Jose Isidro N. Camacho filed a
Motion to Dismiss the case against him, alleging that he is
not a party to the suit and petitioners have no cause of
action against him.10 Respondents CIR, BIR Regional Director
and BIR Revenue District Officer also filed their joint Motion
to Dismiss on the grounds that "[t]he trial court has no
jurisdiction over the subject matter of the complaint" and
"[a] condition precedent, that is, exhaustion of
administrative remedies, has not been complied
with."11 Petitioners filed their "Motion to Expunge from the
Records the Respondents[’] Motion to Dismiss" 12 for
allegedly failing to comply with Section 4, Rule 15 of the
Rules of Court. To this, the respondents filed their
Opposition.13
Meantime, BIR Revenue District Officer Rey Asterio L.
Tambis sent a 10-Day Preliminary Notice 14 to the president
of petitioner AIAI for unpaid VAT on auction sales conducted
on June 6-8, 2003, as per RMC No. 32-2003.
On August 1, 2003, the trial court issued its order 15 granting
the application for a writ of preliminary injunction. The
dispositive portion of the order states:
WHEREFORE, premises considered, petitioners’
application for the issuance of a writ of preliminary
injunction is hereby GRANTED. Let the writ issue upon
the filing and approval by the court of an injunction bond
in the amount of Php 1 Million.
SO ORDERED.16
Consequently, respondents CIR, the BIR Regional Director of
Region III, the BIR Revenue District Officer of the SSEZ, and
the OSG filed with the CA a petition for certiorari under Rule
65 of the Rules of Court with prayer for the issuance of a
Temporary Restraining Order and/or Writ of Preliminary
Injunction to enjoin the trial court from exercising
jurisdiction over the case.17
Meantime, BIR Regional Director Danilo A. Duncano sent a
Preliminary Assessment Notice18 to the President of AIAI,
informing him of the VAT due from the company for the
auction sales conducted on June 6-8, 2003 as per RMC No.
32-2003, plus surcharge, interest and compromise penalty.
Thereafter, a Formal Letter of Demand 19 was sent to the
12
President of petitioner AIAI by the Officer-in-Charge of the
BIR Office of the Regional Director.
On March 31, 2004, the CA issued its assailed decision, the
dispositive portion of which states:
WHEREFORE, the petition is GRANTED. Public
respondent Regional Trial Court, Branch 74, of
Olongapo City is hereby declared bereft of jurisdiction
to take cognizance of Civil Case No. 275-0-2003.
Accordingly, said Civil Case No. 275-0-2003 is
hereby DISMISSED and the assailed Order dated August
1, 2003, ANNULLED and SET ASIDE.
SO ORDERED.20
Hence, this Petition for Review on Certiorari 21 with an
application for a temporary restraining order and a writ of
preliminary injunction to enjoin respondents "from
pursuing sending letters of assessments to petitioners."
Petitioners raise the following issues:
[a] [W]hether a petition for certiorari under Rule 65 of
the New Rules is proper where the issue raised therein
has not yet been resolved at the first instance by the
Court where the original action was filed, and,
necessarily, without first filing a motion for
reconsideration;
[b] [W]hich Court- the regular courts of justice
established under Batas Pambansa Blg. 129 or the Court
of Tax Appeals – is the proper court of jurisdiction to
hear a case to declare Revenue Memorandum Circulars
unconstitutional and against an existing law where the
challenge does not involve the rate and figures of the
imposed taxes;
[c] [D]ependent on an affirmative resolution of the
second issue in favor of the regular courts of justice,
whether the writ of preliminary injunction granted by
the Court at Olongapo City was properly and legally
issued.22
Petitioners contend that there were fatal procedural defects
in respondents’ petition for certiorari with the CA. They
point out that the CA resolved the issue of jurisdiction
without waiting for the lower court to first rule on the issue.
Also, respondents did not file a motion for reconsideration
of the trial court’s order granting the writ of preliminary
injunction before filing the petition with the CA.
The arguments are unmeritorious.
Jurisdiction is defined as the power and authority of a court
to hear, try and decide a case.23 The issue is so basic that it
may be raised at any stage of the proceedings, even on
appeal.24 In fact, courts may take cognizance of the issue
even if not raised by the parties themselves. 25 There is thus
no reason to preclude the CA from ruling on this issue even
if allegedly, the same has not yet been resolved by the trial
court.
As to respondents’ failure to file a motion for
reconsideration, we agree with the ruling of the CA, which
states:

It is now settled that the filing of a motion for
reconsideration is not always sine qua non before availing
of the remedy of certiorari.26 Hence, the general rule of
requiring a motion for reconsideration finds no
application in a case where what is precisely being
assailed is lack of jurisdiction of the respondent
court.27 And considering also the urgent necessity for
resolving the issues raised herein, where further delay
could prejudice the interests of the government, 28 the
haste with which the Solicitor General raised these issues
before this Court becomes understandable. 29
Now, to the main issue: does the trial court have jurisdiction
over the subject matter of this case?
Petitioners contend that jurisdiction over the case at bar
properly pertains to the regular courts as this is "an action
to declare as unconstitutional, void and against the
provisions of [R.A. No.] 7227" the RMCs issued by the CIR.
They explain that they "do not challenge the rate, structure
or figures of the imposed taxes, rather they challenge the
authority of the respondent Commissioner to impose and
collect the said taxes." They claim that the challenge on the
authority of the CIR to issue the RMCs does not fall within
the jurisdiction of the Court of Tax Appeals (CTA).
Petitioners’ arguments do not sway.
R.A. No. 1125, as amended, states:
Sec. 7. Jurisdiction.—The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by
appeal, as herein provided—
(1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto,
or other matters arising under the National
Internal Revenue Code or other laws or part of law
administered by the Bureau of Internal Revenue; x
x x (emphases supplied)
We have held that RMCs are considered
administrative rulings which are issued from time to time by
the CIR.30
Rodriguez v. Blaquera31 is in point. This case involves
Commonwealth Act No. 466, as amended by R.A. No. 84,
which imposed upon firearm holders the duty to pay an
initial license fee of P15 and an annual fee of P10 for each
firearm, with the exception that in case of "bona fide and
active members of duly organized gun clubs and accredited
by the Provost Marshal General," the annual fee is reduced
to P5 for each firearm. Pursuant to this, the CIR issued
General Circular No. V-148 which stated that "bona fide and
active members of duly organized gun clubs and accredited
by the Provost Marshal General… shall pay an initial fee of
fifteen pesos and an annual fee of five pesos for each firearm
held on license except caliber .22 revolver or rifle." The
General Circular further provided that "[m]ere membership
in the gun club does not, as a matter of right, entitle the
member to the reduced rates prescribed by law. The licensee
must be accredited by the Chief of Constabulary… [and] the
firearm covered by the license of the member must be of the
13
target model in order that he may be entitled to the reduced
rates." Rodriguez, as manager of the Philippine Rifle and
Pistol Association, Inc., a duly accredited gun club, in behalf
of the members who have paid under protest the regular
annual fee of P10, filed an action in the Court of First
Instance (now RTC) of Manila for the nullification of the
circular and the refund of P5. On the issue of jurisdiction,
plaintiff similarly contended that the action was not an
appeal from a ruling of the CIR but merely an attempt to
nullify General Circular No. V-148, hence, not within the
jurisdiction of the CTA. The Court, in finding this argument
unmeritorious, explained:
We find no merit in this pretense. General Circular No.
V-148 directs the officers charged with the collection
of taxes and license fees to adhere strictly to the
interpretation given by the defendant to the statutory
provision above mentioned, as set forth in the circular.
The same incorporates, therefore, a decision of the
Collector of Internal Revenue (now Commissioner of
Internal Revenue) on the manner of enforcement of
said statute, the administration of which is entrusted
by law to the Bureau of Internal Revenue. As such, it
comes within the purview of [R.A.] No. 1125, section 7
of which provides that the [CTA] "shall exercise
exclusive appellate jurisdiction to review by appeal * *
* decisions of the Collector of Internal Revenue in * * *
matters arising under the National Internal Revenue
Code or other law or part of law administered by the
Bureau of Internal Revenue." Besides, it is plain from
plaintiff’s original complaint that one of its main
purposes was to secure an order for the refund of the
sums collected in excess of the amount he claims to be
due by way of annual fee from the gun club members,
regardless of the class of firearms they have. Although
the prayer for reimbursement has been eliminated
from his amended complaint, it is only too obvious that
the nullification of General Circular No. V-148 is merely
a step preparatory to a claim for refund.
Similarly, in CIR v. Leal,32 pursuant to Section 116 of
Presidential Decree No. 1158 (The National Internal
Revenue Code, as amended) which states that "[d]ealers in
securities shall pay a tax equivalent to six (6%) per centum
of their gross income. Lending investors shall pay a tax
equivalent to five (5%) per cent, of their gross income," the
CIR issued Revenue Memorandum Order (RMO) No. 15-91
imposing 5% lending investor’s tax on pawnshops based on
their gross income and requiring all investigating units of
the BIR to investigate and assess the lending investor’s tax
due from them. The issuance of RMO No. 15-91 was an
offshoot of the CIR’s finding that the pawnshop business is
akin to that of "lending investors" as defined in Section
157(u) of the Tax Code. Subsequently, the CIR issued RMC
No. 43-91 subjecting pawn tickets to documentary stamp
tax. Respondent therein, Josefina Leal, owner and operator
of Josefina’s Pawnshop, asked for a reconsideration of both
RMO No. 15-91 and RMC No. 43-91, but the same was
denied by petitioner CIR. Leal then filed a petition for
prohibition with the RTC of San Mateo, Rizal, seeking to
prohibit petitioner CIR from implementing the revenue
orders. The CIR, through the OSG, filed a motion to dismiss
on the ground of lack of jurisdiction. The RTC denied the
 14

motion. Petitioner filed a petition for certiorari and remedy must not only initiate the prescribed administrative
prohibition with the CA which dismissed the petition "for procedure to obtain relief but also pursue it to its
lack of basis." In reversing the CA, dissolving the Writ of appropriate conclusion before seeking judicial intervention
Preliminary Injunction issued by the trial court and ordering in order to give the administrative agency an opportunity to
the dismissal of the case before the trial court, the Supreme decide the matter itself correctly and prevent unnecessary
Court held that "[t]he questioned RMO No. 15-91 and RMC and premature resort to the court. 36
No. 43-91 are actually rulings or opinions of the
Petitioners’ insistence for this Court to rule on the merits of
Commissioner implementing the Tax Code on the taxability
the case would only prove futile. Having declared the court a
of pawnshops." They were issued pursuant to the CIR’s
quo without jurisdiction over the subject matter of the
power under Section 24533 of the Tax Code "to make rulings
instant case, any further disquisition would be obiter dictum.
or opinions in connection with the implementation of the
provisions of internal revenue laws, including ruling on the IN VIEW WHEREOF, the petition is DENIED.
classification of articles of sales and similar purposes." The
Court held that under R.A. No. 1125 (An Act Creating the
Court of Tax Appeals), as amended, such rulings of the CIR
are appealable to the CTA.
In the case at bar, the assailed revenue regulations and
revenue memorandum circulars are actually rulings or
opinions of the CIR on the tax treatment of motor vehicles
sold at public auction within the SSEZ to implement Section
12 of R.A. No. 7227 which provides that "exportation or
removal of goods from the territory of the [SSEZ] to the
other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code
and other relevant tax laws of the Philippines." They were
issued pursuant to the power of the CIR under Section 4 of
the National Internal Revenue Code,34 viz:
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 point out that the CA based its decision on
Section 7 of R.A. No. 1125 that the CTA "shall exercise
exclusive appellate jurisdiction to review by appeal…"
decisions of the CIR. They argue that in the instant case,
there is no decision of the respondent CIR on any disputed
assessment to speak of as what is being questioned is purely
the authority of the CIR to impose and collect value-added
and excise taxes.
Petitioners’ failure to ask the CIR for a reconsideration of the
assailed revenue regulations 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
to one's cause of action. If a remedy within the
administrative machinery can still be resorted to by giving
the administrative officer every opportunity to decide on a
matter that comes within his jurisdiction, then such remedy
must first be exhausted before the court’s power of judicial
review can be sought. 35 The party with an administrative
 15

COMMISSIONER OF INTERNAL REVENUE ended December 31, 1994 together with

attachments
Vs.
FAR EAST BANK
B Corporate Annual Income Tax Return covering
G.R. No. 173854 March 15, 2010
income of respondents FCDU for the year
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x ended December 31, 1994 together with
attachments
Entitlement to a tax refund is for the taxpayer to prove and not for
the government to disprove. C Corporate Annual Income Tax Return covering
income of respondents CBU for the year
This Petition for Review on Certiorari assails the January ended December 31, 1995 together with
31, 2006 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. attachments
56773 which reversed and set aside the October 4, 1999
Decision[2] of the Court of Tax Appeals (CTA) in CTA Case No. D Corporate Annual Income Tax Return covering
5487. Also assailed is the July 19, 2006 Resolution[3] of the CA income of respondents FCDU for the year
denying the motion for reconsideration. ended December 31, 1995 together with
attachments
The CTA found that respondent Far East Bank & Trust
Company failed to prove that the income derived from rentals and
sale of real property from which the taxes were withheld were
N to Z; Certificates of Creditable
reflected in its 1994 Annual Income Tax Return. The CA found
otherwise. AA to UU Withholding Tax and Monthly Remittance
Returns of Income Taxes Withheld issued by
Factual Antecedents
various withholding agents for the year
On April 10, 1995, respondent filed with the Bureau of ended December 31, 1994
Internal Revenue (BIR) two Corporate Annual Income Tax Returns,
VV Letter claim for refund dated May 8, 1996 filed
one for its Corporate Banking Unit (CBU)[4] and another for its
with the Revenue District Office No. 33 on May 17,
Foreign Currency Deposit Unit (FCDU), [5] for the taxable year
1996[9]
ending December 31, 1994. The return for the CBU consolidated
the respondents overall income tax liability for 1994, which Petitioner, on the other hand, did not present any evidence.
reflected a refundable income tax of P12,682,864.00, computed
Ruling of the Court of Tax Appeals
as follows:
On October 4, 1999, the CTA rendered a Decision denying
Pursuant to Section 69[7] of the old National Internal
respondents claim for refund on the ground that respondent failed
Revenue Code (NIRC),
to show that the income derived from rentals and sale of real
the amount of P12,682,864.00 was carried over and applied property from which the taxes were withheld were reflected in its
against respondents income tax liability for the taxable year 1994 Annual Income Tax Return.
ending December 31, 1995. On April 15, 1996, respondent filed its
On October 20, 1999, respondent filed a Motion for New
1995 Annual Income Tax Return, which showed a total overpaid
Trial based on excusable negligence. It prayed that it be allowed to
income tax in the amount of P17,443,133.00, detailed as follows:
present additional evidence to support its claim for refund.
XXXXXXXXXX
However, the motion was denied on December 16,
Out of the P17,433,133.00 refundable income tax, 1999 by the CTA. It reasoned, thus:
only P13,645,109.00 was sought to be refunded by respondent. As
[Respondent] is reminded that this
to the remaining P3,798,024.00, respondent opted to carry it over
case was originally submitted for decision as
to the next taxable year.
early as September 22, 1998 (p. 497, CTA
On May 17, 1996, respondent filed a claim for refund of the Records). In view, however, of the Urgent
amount of P13,645,109.00 with the BIR. Due to the failure of Motion to Admit Memorandum filed on April
petitioner Commissioner of Internal Revenue (CIR) to act on the 27, 1999 by Atty. Louella Martinez, who
claim for refund, respondent was compelled to bring the matter to entered her appearance as collaborating
the CTA on April 8, 1997 via a Petition for Review docketed as CTA counsel of Atty. Manuel Salvador allegedly due
Case No. 5487. to the latter counsels absences, this Court set
aside its resolution of September 22, 1998 and
After the filing of petitioners Answer, trial ensued.
considered this case submitted for decision as
To prove its entitlement to a refund, respondent presented the of May 7, 1999. Nonetheless, it took
following documents: [respondent] another five months after it was
represented by a new counsel and after a
Exhibits Nature and Description decision unfavorable to it was rendered before
A Corporate Annual Income Tax Return covering [respondent] realized that an additional
income of respondents CBU for the year material documentary evidence has to be
presented by way of a new trial, this time

initiated by a third counsel coming from the
same law firm. x x x
Furthermore, in ascertaining
whether or not the income upon which the
taxes were withheld were included in the
returns of the [respondent], this Court based
its findings on the income tax returns and their
supporting schedules prepared and reviewed
by the [respondent] itself and which, to Us, are
enough to support the conclusion reached.
WHEREFORE, in view of the
foregoing, [respondents] Motion for New Trial
is hereby DENIED for lack of merit.
SO ORDERED.[10]
Ruling of the Court of Appeals
On appeal, the 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.
Hence, this present recourse.
Issue
The lone issue presented in this petition is whether
respondent has proven its entitlement to the refund.[11]
Our Ruling
We find that the respondent miserably failed to prove its
entitlement to the refund. Therefore, we grant the petition filed by
the petitioner CIR for being meritorious.
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.[12]
The two-year period requirement is based on Section 229 of the
NIRC of 1997 which provides that:
SECTION 229. Recovery of Tax Erroneously or Illegally Collected.
No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any
sum alleged to have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under
protest or duress.
16
In any case, no such suit or
proceeding shall be filed after the expiration of
two (2) years from the date of payment of the
tax or penalty regardless of any supervening
cause that may arise after payment: Provided,
however, That the Commissioner may, even
without a written claim therefor, refund or
credit any tax, where on the face of the return
upon which payment was made, such payment
appears clearly to have been erroneously
paid. (Formerly Section 230 of the old NIRC)
While the second and third requirements are found under Section
10 of Revenue Regulation No. 6-85, as amended, which reads:
Section 10. Claims for tax credit or
refund. Claims for tax credit or refund of income tax
deducted and withheld on income payments shall
be given due course only when it is shown on the
return that the income payment received was
declared as part of the gross income and the fact of
withholding is established by a copy of the
statement duly issued by the payer to the payee
(BIR Form No. 1743.1) showing the amount paid
and the amount of tax withheld therefrom.
Respondent timely filed its claim for refund.
There is no dispute that respondent complied with the first
requirement. The filing of respondents administrative claim for
refund on May 17, 1996 and judicial claim for refund on April 8,
1997 were well within the two-year period from the date of the
filing of the return on April 10, 1995.[13]
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.
However, as to the second and third requirements, the
tax court and the appellate court arrived at different factual
findings.
The CTA ruled that the income derived from rentals and
sales of real property were not included in respondents gross
income. It noted that in respondents 1994 Annual Income Tax
Return, the phrase NOT APPLICABLE was printed on the space
provided for rent, sale of real property and trust income. The CTA
also declared that the certifications issued by respondent cannot
be considered in the absence of the Certificates of Creditable Tax
Withheld at Source. The CTA ruled that:
x x x the Certificates of Creditable Tax
Withheld at Source submitted by [respondent]
pertain to rentals of real property while the
Monthly Remittance Returns of Income Taxes
Withheld refer to sales of real property. But, if
we are to look at Schedules 3, 4, and 5 of the
Annual Income Tax Return of [respondent] for
1994 (Exhibit A), there was no showing that
the Rental Income and Income from Sale of
Real Property were included as part of the
gross income appearing in Section A of the
said return. In fact, under the said schedules,
the phrase NOT APPLICABLE was printed by
[respondent]. Verily, the income of

[respondent] coming from rent and sale of
real property upon which the creditable
taxes withheld were based were not duly
reflected. As to the certifications issued by the
[respondent] (Exh. UU), the same cannot be
considered in the absence of the requisite
Certificates of Creditable Tax Withheld at
Source.
Based on the
foregoing, [respondent] has failed to comply
with two essential requirements for a valid
claim for refund. Consequently, the same
cannot be given due course. [14] (Emphasis
supplied)
On the other hand, the CA found thus:
We disagree with x x x CTAs
findings. In the case of Citibank, N.A. vs. Court of
Appeals (280 SCRA 459), the Supreme Court
held that:
a refund claimant is
required to prove the inclusion
of the income payments which
were the basis of the
withholding taxes and the fact
of withholding. However, a
detailed proof of the truthfulness
of each and every item in the
income tax return is not
required. x x x
x x x 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. x x x
In the case at bench, the BIR
examined [respondent] Banks Corporate
Annual Income Tax Returns for the years 1994
and 1995 when they were filed on April 10,
1995 and April 15, 1996,
respectively.Presumably, the BIR found no false
declaration in them because it did not allege
any false declaration thereof in its Answer (to
the petition for review) filed before
x x x CTA. Nowhere in the Answer, did the BIR
dispute the amount of tax refund being claimed
by [respondent] Bank as inaccurate or
erroneous. In fact, the reason given by the BIR
(in its Answer to the petition for review) why
the claimed tax refund should be denied was
that x x x the amount of P13,645,109.00 was
not illegally or erroneously
collected, hence, the petition for review has no
basis [see Record, p. 32]. The amount
of P17,433,133.00 reflected as refundable
income tax in [respondent] Banks Corporate
Annual Income Tax Return for the year 1995
was not disputed by the BIR to be inaccurate
because there were certain income not
included in the return of the
17
[respondent]. Verily, this leads Us to a
conclusion that [respondent] Banks Corporate
Annual Income Tax Returns submitted were
accepted as regular and even accurate by the
BIR.
Incidentally, under Sec. 16 of the
NIRC, the Commissioner of the BIR is tasked
to make an examination of returns and
assess the correct amount of tax, to wit:
Sec. 16. Power of the
Commissioner to make
assessment and prescribe
additional requirements for tax
administration and
enforcement.
(a) After a return is
filed as required under the
provision of this Code, the
Commissioner shall examine it
and assess the correct amount
of tax. x x x
which the [petitioner] Commissioner undeniably
failed to do. Moreover, noteworthy is the fact that
during the hearing of the petition for review before the
CTA, [petitioner] Commissioner of the BIR submitted the
case for decision in view of the fact that he has no
evidence to present nor records to submit relative to the
case x x x
Thus, although it is a fact that [respondent] failed to
indicate said income payments under the appropriate
Schedules 3, 4, and 5 of Section C of its 1994 Annual
Income Tax Return (Exhibit A), however, We give
credence to [respondent] Banks assertion that it
reported the said income payments as part of its
gross income when it included the same as part of
the Other Income, Trust Income, and Interest
Income stated in the Schedule of Income (referred to as
an attachment in Section C of Exhibit A, x x x and in the
1994 audited Financial Statements (FS) supporting
[respondents] 1994 Annual Corporate Income Tax
Return. The reason why the phrase NOT APPLICABLE
was indicated in schedules 3, 4, and 5 of Section C of
[respondents] 1994 Annual Income Tax Return is due to
the fact that [respondent] Bank already reported the
subject rental income and income from sale of real
property in the Schedule of Income under the headings
Other Income/Earnings, Trust Income and Interest
Income. Therefore, [respondent] Bank still complied
with the second requirement that the income upon
which the taxes were withheld are included in the return
as part of the gross income.
xxxx
[Respondent] Banks various documentary evidence
showing that it had satisfied all requirements under the
Tax Code vis--vis the Bureau of Internal Revenues
failure to adduce any evidence in support of their
denial of the claim, [respondent] Bank should,
 18

therefore, be granted the present claim for refund. government to disprove a taxpayers claim for refund. Rather, the
[15]
(Emphasis supplied) burden of establishing the factual basis of a claim for a refund rests
on the taxpayer.[20]
Between the decision of the CTA and the CA, it is the
formers that is based on the evidence and in accordance with the And while the petitioner has the power to make an
applicable law and jurisprudence. examination of the returns and to assess the correct amount of tax,
his failure to exercise such powers does not create a presumption
To establish the fact of withholding, respondent
in favor of the correctness of the returns. The taxpayer must still
submitted Certificates of Creditable Tax Withheld at Source and
present substantial evidence to prove his claim for refund. As we
Monthly Remittance Returns of Income Taxes Withheld, which
have said, there is no automatic grant of a tax refund.[21]
pertain to rentals and sales of real property,
respectively. However, a perusal of respondents 1994 Annual Hence, for failing to prove its entitlement to a tax refund,
Income Tax Return shows that the gross income was respondents claim must be denied. Since tax refunds partake of the
derived solely from sales of services. In fact, the phrase NOT nature of tax exemptions, which are construed strictissimi
APPLICABLE was printed on the schedules pertaining to rent, sale juris against the taxpayer, evidence in support of a claim must
of real property, and trust income.[16] Thus, based on the entries in likewise be strictissimi scrutinized and duly proven.[22]
the return, the income derived from rentals and sales of real
WHEREFORE, the petition is GRANTED. The
property upon which the creditable taxes were
assailed January 31, 2006 Decision of the Court of Appeals in CA-
withheld were not included in respondents gross income as
G.R. SP No. 56773 and its July 19, 2006 Resolution
reflected in its return. Since no income was reported, it follows
are REVERSED and SET ASIDE. The October 4, 1999 Decision of
that no tax was withheld. To reiterate, it is incumbent upon the
the Court of Tax Appeals denying respondents claim for tax refund
taxpayer to reflect in his return the income upon which any
for failure to prove that the income derived from rentals and sale of
creditable tax is required to be withheld at the source.[17]
real property from which the taxes were withheld were reflected in
Respondents explanation that its income derived from its 1994 Annual Income Tax
rentals and sales of real properties were included in the gross Return, is REINSTATED and AFFIRMED.
income but were classified as Other Earnings in its Schedule of
SO ORDERED.
Income[18] 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.[19] Unfortunately, the CTA was
not convinced that there was excusable negligence to justify the
granting of a new trial.
Accordingly, the CA erred in ruling that respondent
complied with the second requirement.
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
 19

FISHWEALTH vs. COMMISSIONER OF INTERNAL On November 21, 2006, petitioner filed a petition for
REVENUE GR NO. 179343, 2010 review before the CTA En Banc[16] which, by
Decision of July 5, 2007, held that the petition before the
[17]
x------------------------------------------x
First Division, as well as that before it, was filed out of time.
The Commissioner of Internal Revenue
Hence, the present petition,[18] petitioner arguing
(respondent), by Letter of Authority dated May 16, 2000,
that the CTA En Banc erred in holding that the petition it filed
[1]
ordered the examination of the internal revenue taxes for
before the CTA First Division as well as that filed before it
the taxable year 1999 of Fishwealth Canning Corp.
(CTA En Banc) was filed out of time.
(petitioner). The investigation disclosed that petitioner was
liable in the amount of P2,395,826.88 representing income The petition is bereft of merit.
tax, value added tax (VAT), withholding tax deficiencies and
Section 228 of the 1997 Tax Code provides that an
other miscellaneous deficiencies. Petitioner eventually
assessment
settled these obligations on August 30, 2000.[2]
x x x may be protested administratively by filing a
On August 25, 2000, respondent reinvestigated petitioners
request for reconsideration or reinvestigation within
books of accounts and other records of internal revenue taxes
thirty (30) days from receipt of the assessment in such
covering the same period for the purpose of which it issued a
form and manner as may be prescribed by
subpoena duces tecum requiring petitioner to submit its
implementing rules and regulations. Within sixty (60)
records and books of accounts. Petitioner requested the
days from filing of the protest, all relevant supporting
cancellation of the subpoena on the ground that the same set
documents shall have been submitted; otherwise, the
of documents had previously been examined.
assessment shall become final.
As petitioner did not heed the subpoena, respondent
If the protest is denied in whole or in part, or is
thereafter filed a criminal complaint against petitioner for
not acted upon within one hundred eighty (180) days
violation of Sections 5 (c) and 266 of the 1997 Internal
from submission of documents, the taxpayer adversely
Revenue Code, which complaint was dismissed for
affected by the decision or inaction may appeal to the
insufficiency of evidence.[3]
Court of Tax Appeals within thirty (30) days from
Respondent sent, on August 6, 2003, petitioner receipt of the said decision, or from the lapse of the
a Final Assessment Notice of income tax and VAT one hundred eighty (180)-day period; otherwise, the
deficiencies totaling P67,597,336.75 for the taxable year decision shall become final, executory and
1999,[4] which assessment petitioner contested by letter of demandable. (underscoring supplied)
September 23, 2003.[5]
In the case at bar, petitioners administrative
Respondent thereafter issued a Final Decision on protest was denied by Final Decision on Disputed
Disputed Assessment dated August 2, 2005, which petitioner Assessment dated August 2, 2005 issued by
received on August 4, 2005, denying its letter of protest, respondent and which petitioner received on August
apprising it of its income tax and VAT liabilities in the 4, 2005. Under the above-quoted Section 228 of the
amounts of P15,396,905.24 and P63,688,434.40 [sic], 1997 Tax Code, petitioner had 30 days to appeal
respectively, for the taxable year 1999,[6] and requesting the respondents denial of its protest to the CTA.
immediate payment thereof, inclusive of penalties incident to
Since petitioner received the denial of its
delinquency. Respondent added that if petitioner disagreed,
administrative protest on August 4, 2005, it had
it may appeal to the Court of Tax Appeals (CTA) within thirty
until September 3, 2005 to file a petition for review before
(30) days from date of receipt hereof, otherwise our said
the CTA Division. It filed one, however, on October 20, 2005,
deficiency income and value-added taxes assessments shall
hence, it was filed out of time. For a motion for
become final, executory, and demandable.[7]
reconsideration of the denial of the administrative
Instead of appealing to the CTA, petitioner filed, protest does not toll the 30-day period to appeal to the CTA.
on September 1, 2005, a Letter of Reconsideration
On petitioners final contention that it has a
dated August 31, 2005.[8]
meritorious case in view of the dismissal of the above-
By a Preliminary Collection Letter dated September mentioned criminal case filed against it for violation of the
6, 2005, respondent demanded payment of petitioners tax 1997 Internal Revenue Code,[19] the same fails. For the
liabilities,[9] drawing petitioner to file on October 20, 2005 a criminal complaint was instituted not to demand payment,
Petition for Review[10] before the CTA. but to penalize the taxpayer for violation of the Tax Code. [20]
In his Answer,[11] respondent argued, among other WHEREFORE, the petition is DISMISSED.
things, that the petition was filed out of time which argument
the First Division of the CTA upheld and accordingly
dismissed the petition.[12]
Petitioner filed a Motion for
Reconsideration[13] which was denied.[14] The Resolution
denying its motion for reconsideration was received by
petitioner on October 31, 2006.[15]

RCBC vs. CIR
x -----------------------------------------------------------------------
This is a petition for review on certiorari under
Rule 45 seeking to set aside the July 27, 2005 Decision [1] and
October 26, 2005 Resolution [2] of the Court of Tax
Appeals En Banc (CTA-En Banc) in C.T.A. E.B. No. 83
entitled Rizal Commercial Banking Corporation v.
Commissioner of Internal Revenue.
THE FACTS
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.[3]
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.[4]
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.[5]
Subsequently, on January 27, 2000, RCBC received a
Formal Letter of Demand together with Assessment Notices
from the BIR for the following deficiency tax assessments: [6]
XXXXXXXXXXXXXXX
(table)
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. Much later on November 20, 2000, 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 to the following:[8]
XXXXXXXX
(table)
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.[11] 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.[12]
20
On December 15, 2004, the First Division of the
Court of Tax Appeals (CTA-First Division) promulgated its
Decision[13] which 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:[15]
XXXXX
(table)
Unsatisfied, RCBC filed its Motion for Reconsideration on
January 21, 2005, arguing that: (1) the CTA erred in its
addition of the total amount of deficiency taxes and the
correct amount should only be ₱132,654,261.69 and not
₱171,822,527.47; (2) the CTA erred in holding that RCBC
was estopped from questioning the validity of the waivers;
(3) it was the payor-borrower as withholding tax agent, and
not RCBC, who was liable to pay the final tax on FCDU, and
(4) RCBCs special savings account was not subject to
documentary stamp tax.[16]
In its Resolution[17] dated April 11, 2005, the 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.[18]
RCBC elevated the case to the CTA-En Banc where it
raised the following issues:
I. Whether or not the right of the respondent to
assess deficiency onshore tax and documentary
stamp tax for taxable year 1994 and 1995 had
already prescribed when it issued the formal letter of
demand and assessment notices for the said taxable
years.
II. Whether or not petitioner is liable for
deficiency onshore tax for taxable year 1994 and
1995.
III. Whether or not petitioners special savings
account is subject to documentary stamp tax under
then Section 180 of the 1993 Tax Code. [19]
The CTA-En Banc, in its assailed Decision, 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.[21] As to the deficiency onshore tax, it held that
because the payor-borrower was merely designated by law
to withhold and remit the said tax, it would then follow that
the tax should be imposed on RCBC as the payee-bank.
[22]
Finally, in relation to the assessment of the deficiency
documentary stamp tax on petitioners special savings

account, it held that petitioners special savings account was
a certificate of deposit and, as such, was subject to
documentary stamp tax.[23]
Hence, this petition.
While awaiting the decision of this Court, RCBC
filed its Manifestation dated July 22, 2009, informing the
Court that this petition, relative to the DST deficiency
assessment, had been rendered moot and academic by its
payment of the tax deficiencies on Documentary Stamp
Tax (DST) on Special Savings Account (SSA) for taxable years
1994 and 1995 after the BIR approved its applications for
tax abatement.[24]
In its November 17, 2009 Comment to the Manifestation, the
CIR pointed out that the only remaining issues raised in the
present petition were those pertaining to RCBCs deficiency
tax on FCDU Onshore Income for taxable years 1994 and
1995 in the aggregate amount of ₱80,161,827.56 plus 20%
delinquency interest per annum. The CIR prayed that RCBC
be considered to have withdrawn its appeal with respect to
the CTA-En Banc ruling on its DST on SSA deficiency for
taxable years 1994 and 1995 and that the questioned CTA
decision regarding RCBCs deficiency tax on FCDU Onshore
Income for the same period be affirmed. [25]
THE ISSUES
Thus, only the following issues remain to be resolved by this
Court:
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.[26]
and
Whether petitioner, as payee-bank, can be held
liable for deficiency onshore tax, which is
mandated by law to be collected at source in the
form of a final withholding tax.[27]
THE COURTS RULING
Petitioner is estopped from
questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of
limitations on the ground that the said waivers were merely
attested to by Sixto Esquivias, then Coordinator for the CIR,
and that he failed to indicate acceptance or agreement of the
CIR, as required under Section 223 (b) of the 1977 Tax Code.
[28]
RCBC further argues that the principle of estoppel cannot
be applied against it because its payment of the other tax
assessments does not signify a clear intention on its part to
give up its right to question the validity of the waivers. [29]
The Court disagrees.
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
21
his own acts, admissions or representations to the prejudice
of the other party in order to prevent fraud and falsehood. [30]
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 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. [31]
Liability for Deficiency
Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as
withholding agent, who is directly liable for the payment of
onshore tax, citing Section 2.57(A) of Revenue Regulations
No. 2-98 which states:
(A) Final Withholding Tax. Under the final
withholding tax system the amount of income tax
withheld by the withholding agent is constituted as a
full and final payment of the income tax due from the
payee on the said income. The liability for payment
of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to
withhold the tax or in case of under withholding,
the deficiency tax shall be collected from the
payor/withholding agent. The payee is not
required to file an income tax return for the
particular income. (Emphasis supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that
RCBC erred in citing the abovementioned Revenue
Regulations No. 2-98 because the same governs collection at
source on income paid only on or after January 1, 1998. The
deficiency withholding tax subject of this petition was
supposed to have been withheld on income paid during the
taxable years of 1994 and 1995. Hence, Revenue Regulations
No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders Associations, Inc. v.
The Executive Secretary,[32] the Court has explained that the
purpose of the withholding tax system is three-fold: (1) to
provide the taxpayer with a convenient way of paying his tax
liability; (2) to ensure the collection of tax, and (3) to
improve the governments cashflow. Under the withholding
tax system, the payor is the taxpayer upon whom the tax is
imposed, while the withholding agent simply acts as an
agent or a collector of the government to ensure the
collection of taxes.[33]
 22

It is, therefore, indisputable that the withholding xxxx

agent is merely a tax collector and not a taxpayer, as
(3) Tax on income derived under the Expanded
elucidated by this Court in the case of Commissioner of
Foreign Currency Deposit System. Income derived
Internal Revenue v. Court of Appeals,[34] to wit:
by a depository bank under the expanded foreign
In the operation of the withholding tax system, the currency deposit system from foreign currency
withholding agent is the payor, a separate entity transactions with nonresidents, offshore banking
acting no more than an agent of the government for units in the Philippines, local commercial banks
the collection of the tax in order to ensure its including branches of foreign banks that may be
payments; the payer is the taxpayer he is the person authorized by the Central Bank to transact business
subject to tax imposed by law; and the payee is the with foreign currency depository system units and
taxing authority. In other words, the withholding other depository banks under the expanded foreign
agent is merely a tax collector, not a taxpayer. Under currency deposit system shall be exempt from all
the withholding system, however, the agent-payor taxes, except taxable income from such transactions
becomes a payee by fiction of law. His (agent) as may be specified by the Secretary of Finance,
liability is direct and independent from the upon recommendation of the Monetary Board to be
taxpayer, because the income tax is still imposed subject to the usual income tax payable by banks:
on and due from the latter. The agent is not Provided, That interest income from foreign
liable for the tax as no wealth flowed into him he currency loans granted by such depository
earned no income. The Tax Code only makes the banks under said expanded system to residents
agent personally liable for the tax arising from the (other than offshore banking units in the
breach of its legal duty to withhold as distinguished Philippines or other depository banks under the
from its duty to pay tax since: expanded system) shall be subject to a 10%
tax. (Emphasis supplied)
the governments cause of action against the
withholding agent is not for the collection of As a final note, this Court has consistently held that
income tax, but for the enforcement of the findings and conclusions of the CTA shall be accorded the
withholding provision of Section 53 of the highest respect and shall be presumed valid, in the absence
Tax Code, compliance with which is imposed on of any clear and convincing proof to the contrary. [36] The
the withholding agent and not upon the CTA, as a specialized court dedicated exclusively to the study
taxpayer.[35](Emphases supplied) and resolution of tax problems, has developed an expertise
on the subject of taxation. [37] As such, its decisions shall not
Based on the foregoing, the liability of the withholding agent
be lightly set aside on appeal, unless this Court finds that the
is independent from that of the taxpayer. The former cannot
questioned decision is not supported by substantial
be made liable for the tax due because it is the latter
evidence or there is a showing of abuse or improvident
who earned the income subject to withholding tax. The
exercise of authority on the part of the Tax Court. [38]
withholding agent is liable only insofar as he failed to
perform his duty to withhold the tax and remit the same to WHEREFORE, the petition is DENIED.
the government. The liability for the tax, however, remains
with the taxpayer because the gain was realized and
received by him.
While the payor-borrower can be held accountable for its
negligence in performing its duty to withhold the amount of
tax due on the transaction, RCBC, as the taxpayer and the
one which earned income on the transaction, remains liable
for the payment of tax as the taxpayer shares the
responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any
penalty that may arise from the non-payment of the
withholding tax due.
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
corporations

CIR vs. Kudos
x--------------------------------------------------
The prescriptive period on when to assess taxes benefits both the
government and the taxpayer.[1] Exceptions extending the period to
assess must, therefore, be strictly construed.
This Petition for Review on Certiorari seeks to set aside
the Decision[2] dated March 30, 2007 of the Court of Tax Appeals
(CTA) affirming the cancellation of the assessment notices for
having been issued beyond the prescriptive period and the
Resolution[3] dated May 18, 2007 denying the motion for
reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation
filed its Annual Income Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7,
1999, the Bureau of Internal Revenue (BIR) served upon
respondent three Notices of Presentation of Records. Respondent
failed to comply with these notices, hence, the BIR issued a
Subpeona Duces Tecum dated September 21, 2006, receipt of
which was acknowledged by respondents President, Mr. Chan
Ching Bio, in a letter dated October 20, 2000.
A review and audit of respondents records then ensued.
On December 10, 2001, Nelia Pasco (Pasco),
respondents accountant, executed a Waiver of the Defense of
Prescription,[4] which was notarized on January 22, 2002, received
by the BIR Enforcement Service on January 31, 2002 and by the
BIR Tax Fraud Division on February 4, 2002, and accepted by the
Assistant Commissioner of the Enforcement Service, Percival T.
Salazar (Salazar).
This was followed by a second Waiver of Defense of
Prescription[5] executed by Pasco on February 18, 2003, notarized
on February 19, 2003, received by the BIR Tax Fraud Division
on February 28, 2003 and accepted by Assistant Commissioner
Salazar.
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 for taxable year 1998, dated September 26,
2003 which was received by respondent on November 12, 2003.
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.
On June 22, 2004, the BIR rendered a final Decision[6] on
the matter, requesting the immediate payment of the following tax
liabilities:
Kind of Tax Amount
Income Tax P 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
23
Total P25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the governments right to assess taxes had
prescribed, respondent filed on August 27, 2004 a Petition for
Review[7] with the CTA. Petitioner in turn filed his Answer.[8]
On April 11, 2005, respondent filed an Urgent Motion for
Preferential Resolution of the Issue on Prescription.[9]
On October 4, 2005, the CTA Second Division issued a
Resolution[10] canceling the assessment notices issued against
respondent for having been issued beyond the prescriptive
period. It found the first Waiver of the Statute of Limitations
incomplete and defective for failure to comply with the provisions
of Revenue Memorandum Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is
not the revenue official authorized to sign the
waiver, as the tax case involves more
than P1,000,000.00. In this regard, only the
Commissioner is authorized to enter into
agreement with the petitioner in extending the
period of assessment;
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;
Third, 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 the existence of the
document but also of the acceptance by the BIR
and the perfection of the agreement.
The subject waiver is therefore
incomplete and defective. As such, the three-
year prescriptive period was not tolled or
extended and continued to run. x x x[11]
Petitioner moved for reconsideration but the CTA
Second Division denied the motion in a
Resolution[12] dated April 18, 2006.
Ruling of the Court of Tax Appeals, En BancOn appeal, the
CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was
authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first waiver
was still invalid based on the second and third grounds stated by
the CTA Second Division. Pertinent portions of the Decision read as
follows:
While the Court En Banc agrees with the
second and third grounds for invalidating the
first waiver, it finds that the Assistant
Commissioner of the Enforcement Service is
authorized to sign the waiver pursuant to
RDAO No. 05-01, which provides in part as
follows:
A. For National Office cases

Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax
fraud and policy
Enforcement Service cases
2. ACIR, Large Taxpayers Service For large
taxpayers cases than those cases falling
under Subsection B hereof
3. ACIR, Legal Service For cases pending
verification and awaiting resolution of certain
legal issues prior to prescription and for
issuance/compliance of Subpoena Duces
Tecum
4. ACIR, Assessment
Service (AS) For cases
which are pending in or
subject to review or
approval by the ACIR, AS
Based on the foregoing, the Assistant
Commissioner, Enforcement Service is
authorized to sign waivers in tax fraud cases. A
perusal of the records reveals that the
investigation of the subject deficiency taxes in
this case was conducted by the National
Investigation Division of the BIR, which was
formerly named the Tax Fraud Division. Thus,
the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still
invalid based on the second and third grounds
stated by the Court in Division. Hence, it did
not extend the prescriptive period to assess.
Moreover, assuming arguendo that
the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997
Tax Code which mandates that the period
agreed upon in a waiver of the statute can still
be extended by subsequent written
agreement, provided that it is executed prior to
the expiration of the first period agreed
upon. As previously discussed, the exceptions
to the law on prescription must be strictly
construed.
In the case at bar, the period agreed
upon in the subject first waiver expired
on December 31, 2002. The second waiver in
the instant case which was supposed to extend
the period to assess to December 31,
2003 was executed on February 18, 2003 and
was notarized on February 19, 2003. Clearly,
the second waiver was executed after the
expiration of the first period agreed
upon. Consequently, the same could not have
tolled the 3-year prescriptive period to assess.
[13]
Petitioner sought reconsideration but the same was
unavailing.
24
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN
BANC ERRED IN RULING THAT THE
GOVERNMENTS RIGHT TO ASSESS UNPAID
TAXES OF RESPONDENT PRESCRIBED.[14]
Petitioners Arguments
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. In disputing
the conclusion of the CTA that the waivers are invalid, petitioner
claims that respondent is estopped from adopting a position
contrary to what it has previously taken. 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.
Respondents Arguments
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.
Our Ruling
The petition is bereft of merit.
Section 203[15] of the National Internal Revenue Code of
1997 (NIRC) mandates the government to assess internal revenue
taxes within three years from the last day prescribed by law for the
filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after
the three-year prescriptive period is no longer valid and
effective. Exceptions however are provided under Section 222[16] of
the NIRC.
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.
We do not agree.
Section 222 (b) of the NIRC provides that the period to
assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the
expiration of the three-year period. RMO 20-90[17] issued on April
4, 1990 and RDAO 05-01[18] issued on August 2, 2001 lay down the
procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form
prescribed by RMO 20-90. The phrase but
not after ______ 19 ___, which indicates 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.
2. The waiver must be signed by the taxpayer
himself or his duly authorized
representative. In the case of a
corporation, the waiver must be signed by
any of its responsible officials. In case the
authority is delegated by the taxpayer to a
representative, such delegation should be
in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by
him must sign the waiver indicating that
the BIR has accepted and agreed to the
waiver. The date of such acceptance by the
BIR should be indicated. However, before
signing the waiver, the CIR or the revenue
official authorized by him must make sure
that the waiver is in the prescribed form,
duly notarized, and executed by the
taxpayer or his duly authorized
representative.
5. Both the date of execution by the taxpayer
and date of acceptance by the Bureau
should be before the expiration of the
period of prescription or before the lapse
of the period agreed upon in case a
subsequent agreement is executed.
6. The waiver must be executed in three copies,
the original copy to be attached to the
docket of the case, the second copy for the
taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by
the taxpayer of his/her file copy must be
indicated in the original copy to show that
the taxpayer was notified of the
acceptance of the BIR and the perfection
of the agreement.[19]
A perusal of the waivers executed by respondents
accountant reveals the following infirmities:
1. The waivers were executed without
the notarized written authority
of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the date
of acceptance.
3. 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.
Estoppel does not apply in this case
25
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.
In Collector of Internal Revenue v. Suyoc Consolidated
Mining Company,[20] the doctrine of estoppel prevented the
taxpayer from raising the defense of prescription against the
efforts of the government to collect the assessed tax. However, it
must be stressed that in the said case, estoppel was applied as an
exception to the statute of limitations on collection of taxes and not
on the assessment of taxes, as the BIR was able to make an
assessment within the prescribed period. More important, there
was a finding that the taxpayer made several requests or positive
acts to convince the government to postpone the collection of
taxes, viz:
It appears that the first assessment
made against respondent based on its second
final return filed on November 28, 1946 was
made on February 11, 1947. Upon receipt of
this assessment respondent requested for at
least one year within which to pay the amount
assessed although it reserved its right to
question the correctness of the assessment
before actual payment. Petitioner granted an
extension of only three months. When it failed
to pay the tax within the period extended,
petitioner sent respondent a letter
on November 28, 1950 demanding payment
of the tax as assessed, and upon receipt of the
letter respondent asked for a reinvestigation
and reconsideration of the assessment. When
this request was denied, respondent again
requested for a reconsideration on April 25,
1952, which was denied on May 6, 1953,
which denial was appealed to the Conference
Staff. The appeal was heard by the Conference
Staff from September 2, 1953 to July 16, 1955,
and as a result of these various negotiations,
the assessment was finally reduced on July 26,
1955. This is the ruling which is now being
questioned after a protracted negotiation on
the ground that the collection of the tax has
already prescribed.
It is obvious from the foregoing that
petitioner refrained from collecting the tax by
distraint or levy or by proceeding in court
within the 5-year period from the filing of the
second amended final return due to the several
requests of respondent for extension to which
petitioner yielded to give it every opportunity
to prove its claim regarding the correctness of
the assessment. Because of such requests,
several reinvestigations were made and a
hearing was even held by the Conference Staff
organized in the collection office to consider
claims of such nature which, as the record
shows, lasted for several months. After
inducing petitioner to delay collection as he in
fact did, it is most unfair for respondent to now
take advantage of such desistance to elude his
 26

deficiency income tax liability to the prejudice Moreover, the BIR cannot hide behind the doctrine of
of the Government invoking the technical estoppel to cover its failure to comply with RMO 20-90 and RDAO
ground of prescription. 05-01, which the BIR itself issued. As stated earlier, the BIR failed
to verify whether a notarized written authority was given by the
While we may agree with the Court
respondent to its accountant, and to indicate the date of
of Tax Appeals that a mere request for
acceptance and the receipt by the respondent of the
reexamination or reinvestigation may not have
waivers. Having caused the defects in the waivers, the BIR must
the effect of suspending the running of the
bear the consequence. It cannot shift the blame to the taxpayer. To
period of limitation for in such case there is
stress, a waiver of the statute of limitations, being a derogation of
need of a written agreement to extend the
the taxpayers right to security against prolonged and unscrupulous
period between the Collector and the taxpayer,
investigations, must be carefully and strictly construed.[25]
there are cases however where a taxpayer may
be prevented from setting up the defense of As to the alleged delay of the respondent to furnish the
prescription even if he has not previously BIR of the required documents, this cannot be taken against
waived it in writing as when by his repeated respondent. Neither can the BIR use this as an excuse for issuing
requests or positive acts the Government has the assessments beyond the three-year period because with or
been, for good reasons, persuaded to postpone without the required documents, the CIR has the power to make
collection to make him feel that the demand assessments based on the best evidence obtainable.[26]
was not unreasonable or that no harassment
WHEREFORE, the petition is DENIED. The assailed
or injustice is meant by the Government. And
Decision dated March 30, 2007 and Resolution dated May 18,
when such situation comes to pass there are
2007 of the Court of Tax Appeals are hereby AFFIRMED.
authorities that hold, based on weighty
reasons, that such an attitude or behavior SO ORDERED.
should not be countenanced if only to protect
the interest of the Government.
This case has no precedent in this
jurisdiction for it is the first time that such has
risen, but there are several precedents that
may be invoked in American jurisprudence. As
Mr. Justice Cardozo has said: The applicable
principle is fundamental and unquestioned. He
who prevents a thing from being done may not
avail himself of the nonperformance which he
has himself occasioned, for the law says to him
in effect this is your own act, and therefore you
are not damnified. (R. H. Stearns Co. vs. U.S., 78
L. ed., 647). Or, as was aptly said, The tax could
have been collected, but the government
withheld action at the specific request of the
plaintiff. The plaintiff is now estopped and
should not be permitted to raise the defense of
the Statute of Limitations. [Newport Co. vs. U.S.,
(DC-WIS), 34 F. Supp. 588].[21]
Conversely, in this case, the assessments were issued
beyond the prescribed period. Also, there is no showing that
respondent made any request to persuade the BIR to postpone the
issuance of the assessments.
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.[22] As such, the doctrine of estoppel cannot
give validity to an act that is prohibited by law or one that is against
public policy.[23] 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.[24] Simply put, the doctrine of
estoppel must be sparingly applied.

PHILIPPINE JOURNALISTS, INC., G.R. No. 162852
- versus
COMMISSIONER OF INTERNAL REVENUE
December 16, 2004
x --------------------------------------------------------------------- x
This is a petition for review filed by Philippine
Journalists, Incorporated (PJI) assailing the Decision [1] of the
Court of Appeals dated August 5, 2003, [2] which ordered
petitioner to pay the assessed tax liability of
P111,291,214.46 and the Resolution [3] dated March 31, 2004
which denied the Motion for Reconsideration.
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, Revenue District Office No. 33 of
the Bureau of Internal Revenue (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 following amounts:
Value Added Tax
229,527.90
Income Tax
125,002,892.95
Withholding Tax
2,748,012.35
_______________
Total
127,980,433.20
In a letter dated August 29, 1997, 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). [5] 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.[6]
On July 2, 1998, Revenue Officer De Vera submitted his
audit report recommending the issuance of an assessment
27
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. Thus, BIR Revenue Region No. 6, Assessment
Division/Billing Section, issued Assessment/Demand No.
33-1-000757-94[7] on December 9, 1998 stating the
following deficiency taxes, inclusive of interest and
compromise penalty:
Income Tax
P108,743,694.88
Value Added Tax
184,299.20
Expanded Withholding Tax
2,363,220.38
______________
Total
P111,291,214.46
On March 16, 1999, a Preliminary Collection Letter as
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[8] 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
P thirty (30) days from receipt of the clarification within
which to reply.[9]
The 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
P petitioner.
Petitioner filed a Petition for Review[12] 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.
On May 14, 2002, the CTA rendered its decision,
[13]
to wit:
As to whether or not the
assessment notices were received by the
petitioner, this Court rules in the
affirmative.

To disprove petitioners allegation
of non-receipt of the aforesaid assessment
notices, respondent presented a
certification issued by the Post Master of
the Central Post Office, Manila to the effect
that Registered Letter No. 76134 sent by
the BIR, Region No. 6, Manila on December
15, 1998 addressed to Phil. Journalists,
Inc. at Journal Bldg., Railroad St., Manila
was duly delivered to and received by a
certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999.
Respondent also showed proof that in
claiming Registered Letter No. 76134, Mr.
Sanchez presented three identification
cards, one of which is his company ID with
herein petitioner.
However, as to whether or not the
Waiver of the Statute of Limitations is
valid and binding on the petitioner is
another question. Since the subject
assessments were issued beyond the
three-year prescriptive period, it becomes
imperative on our part to rule first on the
validity of the waiver allegedly executed
on September 22, 1997, for if this court
finds the same to be ineffective, then the
assessments must necessarily fail.
After carefully examining the
questioned Waiver of the Statute of
Limitations, this Court considers the same
to be without any binding effect on the
petitioner for the following reasons:
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
Secondly, the waiver failed to
state the date of acceptance by the Bureau
which under the aforequoted RMO should
likewise be indicated
Finally, petitioner was not
furnished a copy of the waiver. It is to be
noted that under RMO No. 20-90, the
waiver must be executed in three (3)
copies, the second copy of which is for the
taxpayer. It is likewise required that the
fact of receipt by the taxpayer of his/her
file copy be indicated in the original copy.
Again, respondent failed to comply.
It bears stressing that RMO No.
20-90 is directed to all concerned internal
revenue officers. The said RMO even
provides that the procedures found
therein should be strictly followed, under
pain of being administratively dealt with
28
should non-compliance result to
prescription of the right to assess/collect
Thus, finding 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 December 5,
1998 to be time-barred. Consequently, the
Warrant of Distraint and/or Levy issued
pursuant thereto is considered null and
void.
WHEREFORE, in view of all the
foregoing, the instant Petition for Review
is hereby GRANTED. Accordingly, the
deficiency income, value-added and
expanded withholding tax assessments
issued by the respondent against the
petitioner on December 9, 1998, in the
total amount of P111,291,214.46 for the
year 1994 are hereby
declared CANCELLED,
WITHDRAWN and WITH NO FORCE AND
EFFECT. Likewise, Warrant of Distraint
and/or Levy No. 33-06-046 is hereby
declared NULL and VOID.
SO ORDERED.[14]
After the motion for reconsideration of the
Commissioner of Internal Revenue was denied by the CTA in
a Resolution dated August 2, 2002, an appeal was filed with
the Court of Appeals on August 12, 2002.
In its decision dated August 5, 2003, the Court of
Appeals disagreed with the ruling of the CTA, to wit:
The petition for review filed on 26 April
2000 with CTA was neither timely filed
nor the proper remedy. Only decisions of
the BIR, denying the request for
reconsideration or reinvestigation may be
appealed to the CTA. Mere assessment
notices which have become final after the
lapse of the thirty (30)-day reglementary
period are not appealable. Thus, the CTA
should not have entertained the petition at
all.
[T]he CTA found the waiver executed by
Phil. Journalists to be invalid for the
following reasons: (1) it does not indicate
a definite expiration date; (2) it does not
state the date of acceptance by the BIR;
and (3) Phil. Journalist, the taxpayer, was
not furnished a copy of the waiver. These
grounds are merely formal in nature. The
date of acceptance by the BIR does not
categorically appear in the document but
it states at the bottom page that the BIR
accepted and agreed to:, followed by the
signature of the BIRs authorized
representative. Although the date of

acceptance was not stated, the document
was dated 22 September 1997. This date
could reasonably be understood as the
same date of acceptance by the BIR since a
different date was not otherwise indicated.
As to the allegation that Phil. Journalists
was not furnished a copy of the waiver,
this requirement appears ridiculous. Phil.
Journalists, through its comptroller,
Lorenza Tolentino, signed the waiver. Why
would it need a copy of the document it
knowingly executed when the reason why
copies are furnished to a party is to notify
it of the existence of a document, event or
proceeding?
As regards the need for a definite
expiration date, this is the biggest flaw of
the decision. The period of prescription
for the assessment of taxes may be
extended provided that the extension be
made in writing and that it be made prior
to the expiration of the period of
prescription. These are the requirements
for a valid extension of the prescriptive
period. To these requirements provided
by law, the memorandum order adds that
the length of the extension be specified by
indicating its expiration date. This
requirement could be reasonably
construed from the rule on extension of
the prescriptive period. But this
requirement does not apply in the instant
case because what we have here is not an
extension of the prescriptive period but a
waiver thereof. These are two (2) very
different things. What Phil. Journalists
executed was a renunciation of its right to
invoke the defense of prescription. This is
a valid waiver. When one waives the
prescriptive period, it is no longer
necessary to indicate the length of the
extension of the prescriptive period since
the person waiving may no longer use this
defense.
WHEREFORE, the 02 August 2002
resolution and 14 May 2002 decision of
the CTA are hereby SET ASIDE.
Respondent Phil. Journalists is ordered
[to] pay its assessed tax liability of
P111,291,214.46.
SO ORDERED.[15]
Petitioners Motion for Reconsideration was denied
in a Resolution dated March 31, 2004. Hence, this appeal on
the following assignment of errors:
I.
The Honorable Court of Appeals
committed grave error in ruling that it is
outside the jurisdiction of the Court of Tax
Appeals to entertain the Petition for
29
Review filed by the herein Petitioner at the
CTA despite the fact that such case
inevitably rests upon the validity of the
issuance by the BIR of warrants of
distraint and levy contrary to the
provisions of Section 7(1) of Republic Act
No. 1125.
II.
The Honorable Court of Appeals gravely
erred when it ruled that failure to comply
with the provisions of Revenue
Memorandum Order (RMO) No. 20-90 is
merely a formal defect that does not
invalidate the waiver of the statute of
limitations without stating the legal
justification for such conclusion. Such
ruling totally disregarded the mandatory
requirements of Section 222(b) of the Tax
Code and its implementing regulation,
RMO No. 20-90 which are substantive in
nature. The RMO provides that violation
thereof subjects the erring officer to
administrative sanction. This directive
shows that the RMO is not merely cover
forms.
III.
The Honorable Court of Appeals gravely
erred when it ruled that the assessment
notices became final and unappealable.
The assessment issued is void and legally
non-existent because the BIR has no
power to issue an assessment beyond the
three-year prescriptive period where
there is no valid and binding waiver of the
statute of limitation.
IV.
The Honorable Court of Appeals gravely
erred when it held that the assessment in
question has became final and executory
due to the failure of the Petitioner to
protest the same. Respondent had no
power to issue an assessment beyond the
three year period under the mandatory
provisions of Section 203 of the NIRC.
Such assessment should be held void and
non-existent, otherwise, Section 203, an
expression of a public policy, would be
rendered useless and nugatory. Besides,
such right to assess cannot be validly
granted after three years since it would
arise from a violation of the mandatory
provisions of Section 203 and would go
against the vested right of the Petitioner to
claim prescription of assessment.
V.
The Honorable Court of Appeals
committed grave error when it HELD valid

a defective waiver by considering the
latter a waiver of the right to invoke the
defense of prescription rather than an
extension of the three year period of
prescription (to make an assessment) as
provided under Section 222 in relation to
Section 203 of the Tax Code, an
interpretation that is contrary to law,
existing jurisprudence and outside of the
purpose and intent for which they were
enacted.[16]
We find merit in the appeal.
The first assigned error relates to the jurisdiction of the
CTA over the issues in this case. The Court of Appeals ruled
that only decisions of the BIR denying a request for
reconsideration or reinvestigation may be appealed to the
CTA. Since the petitioner did not file a request for
reinvestigation or reconsideration within thirty (30) days,
the assessment notices became final and unappealable. The
petitioner now argue that the case was brought to the CTA
because the warrant of distraint or levy was illegally issued
and that no assessment was issued because it was based on
an invalid waiver of the statutes of limitations.
We agree with petitioner. Section 7(1) of Republic Act
No. 1125, the Act Creating the Court of Tax Appeals,
provides for the jurisdiction of that special court:
SEC. 7. Jurisdiction. The Court of
Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal,
as herein provided
(1) Decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties imposed in relation thereto,
or other matters arising under the
National Internal Revenue Code or
other laws or part of law administered
by the Bureau of Internal Revenue;
(Emphasis supplied).
The appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or
refunds. The second part of the provision covers other cases
that arise out of the NIRC or related laws administered by
the Bureau of Internal Revenue. 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 first 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,[17] 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 Commissioner of Internal Revenue v. Court
30
of Appeals,[18] 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 second and fifth assigned errors both focus on
Revenue Memorandum Circular No. 20-90 (RMO No. 20-90)
on the requisites of a valid waiver of the statute of
limitations. The Court of Appeals held that the
requirements 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 Sections 203 and 222,[19] 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. [20]
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. As was held
in Republic of the Phils. v. Ablaza:[21]
The law prescribing a limitation
of actions for the collection of the income
tax is beneficial both to the Government
and to its citizens; to the Government
because tax officers would be obliged to
act promptly in the making of assessment,
and to citizens because after the lapse of
the period of prescription citizens would
have a feeling of security against
unscrupulous tax agents who will always
find an excuse to inspect the books of
taxpayers, not to determine the latters real
liability, but to take advantage of every
opportunity to molest peaceful, law-
abiding citizens. Without such a legal
defense taxpayers would furthermore be
under obligation to always keep their
books and keep them open for inspection
subject to harassment by unscrupulous tax
agents. The law on prescription being a
remedial measure should be
interpreted in a way conducive to
bringing about the beneficent purpose
of affording protection to the taxpayer
within the contemplation of the
Commission which recommend the
approval of the law. (Emphasis supplied)
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 petitioners argument that the RMO must be
strictly followed, thus:
In the execution of said waiver, the
following procedures should be followed:
1. The waiver must be in the form identified hereof.
This form may be reproduced by the Office

concerned but there should be no deviation from
such form. The phrase but not after __________
19___ should be filled up
2. Soon after the waiver is signed by the taxpayer, the
Commissioner of Internal Revenue or the
revenue official authorized by him, as
hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and
agreed to the waiver. The date of such acceptance
by the Bureau should be indicated
3. The following revenue officials are authorized
to sign the waiver.
A. In the National Office
3. Commissioner For tax cases
involving more than P1M
B. In the Regional Offices
1. The Revenue District Officer with
respect to tax cases still pending
investigation and the period to
assess is about to prescribe
regardless of amount.
5. The foregoing
procedures shall be
strictly followed. Any
revenue official found
not to have complied
with this Order
resulting in
prescription of the
right to assess/collect
shall be
administratively dealt
with. (Emphasis
supplied)[22]
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.[23] 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 Court of Appeals. 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 or 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. [24] RMO
No. 20-90 explains the rationale of a waiver:
The phrase but not after _________ 19___ should be filled
up. This indicates the expiry date of the period agreed
upon to assess/collect the tax after the regular three-
31
year period of prescription. 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. (Emphasis supplied)
As found by the CTA, the Waiver of Statute of
Limitations, signed by petitioners comptroller on September
22, 1997 is not valid and binding because it does not
conform with the provisions of RMO No. 20-90. It did not
specify a definite agreed date between the BIR and
petitioner, within which the former may assess and collect
revenue taxes. Thus, petitioners waiver became unlimited in
time, violating Section 222(b) of the NIRC.
The waiver is also defective from the government
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 taxpayer
or the BIR, but is a bilateral agreement between two parties
to extend the period to a date certain. The conformity of the
BIR must be made by either the Commissioner or the
Revenue District Officer. This case involves taxes amounting
to more than One Million Pesos (P1,000,000.00) and
executed almost seven months before the expiration of the
three-year prescription period. For this, RMO No. 20-90
requires the Commissioner of Internal Revenue to sign for
the BIR.
The case of Commissioner of Internal Revenue v.
Court of Appeals,[25] dealt with waivers that were not signed
by the Commissioner but were argued to have been given
implied consent by the BIR. We invalidated the subject
waivers and ruled:
Petitioners submission is inaccurate
The Court of Appeals itself also passed upon
the validity of the waivers executed by Carnation,
observing thus:
We cannot go along with the petitioners theory.
Section 319 of the Tax Code earlier quoted is clear and
explicit that the waiver of the five-year[26] prescriptive
period must be in writing and signed by both the BIR
Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not
bear the written consent of the BIR Commissioner as
required by law.
We agree with the CTA in holding these waivers to be
invalid and without any binding effect on petitioner
(Carnation) for the reason that there was no consent by
the respondent (Commissioner of Internal Revenue).
For sure, no such written agreement concerning the
said three waivers exists between the petitioner and
private respondent Carnation.
What is more, the waivers in question reveal that
they are in no wise unequivocal, and therefore
necessitates for its binding effect the concurrence of the
Commissioner of Internal Revenue. On this basis neither
implied consent can be presumed nor can it be
contended that the waiver required under Sec. 319 of
the Tax Code is one which is unilateral nor can it be
 32

said that concurrence to such an agreement is a mere 2002, declaring Warrant of Distraint and/or Levy No. 33-06-
formality because it is the very signatures of both the 046 null and void, is REINSTATED.
Commissioner of Internal Revenue and the taxpayer
SO ORDERED.
which give birth to such a valid agreement.
[27]
(Emphasis supplied)
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 three-year
prescriptive period. The Court of Appeals held that the date
of the execution of the waiver on September 22, 1997 could
reasonably be understood as the same date of acceptance by
the BIR. Petitioner points out however that Revenue District
Officer Sarmiento could not have accepted the waiver yet
because she was not the Revenue District Officer of RDO No.
33 on such date. Ms. Sarmientos transfer and assignment to
RDO No. 33 was only signed by the BIR Commissioner on
January 16, 1998 as shown by the Revenue Travel
Assignment Order No. 14-98.[28] The Court of Tax Appeals
noted in its decision that it is unlikely as well that Ms.
Sarmiento made the acceptance on January 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 petitioner was not furnished a
copy of the waiver. Under RMO No. 20-90, the waiver must
be executed in three copies with the second copy for the
taxpayer. The Court of Appeals did not think this was
important because the petitioner need not have a copy of
the document it knowingly executed. It stated that the
reason copies are furnished is for a party to be notified of
the existence of a document, event or proceeding.
The flaw in the appellate courts 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. When the petitioners comptroller
signed the waiver on September 22, 1997, it was not yet
complete and final because the BIR had not assented. There
is compliance with the provision of RMO No. 20-90 only
after the taxpayer received a copy of the waiver accepted by
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 three-year prescriptive period was not tolled or
extended and continued to run until April 17, 1998.
Consequently, the Assessment/Demand No. 33-1-000757-94
issued on December 9, 1998 was invalid because it was
issued beyond the three (3) year 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,

Reyes vs CIR
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.
The Case
Before us are two consolidated 1 Petitions for Review2 filed
under Rule 45 of the Rules of Court, assailing the August 8,
2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No.
71392. The dispositive portion of the assailed Decision
reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed
decision of the Court of Tax Appeals is ANNULLED and SET
ASIDE without prejudice to the action of the National
Evaluation Board on the proposed compromise settlement
of the Maria C. Tancinco estate’s tax liability." 4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died,
leaving a 1,292 square-meter residential lot and an old
house thereon (or ‘subject property’) located at 4931 Pasay
Road, Dasmarinñ as Village, Makati City.
"On the basis of a sworn information-for-reward filed on
February 17, 1997 by a certain Raymond Abad (or ‘Abad’),
Revenue District Office No. 50 (South Makati) conducted an
investigation on the decedent’s estate (or ‘estate’).
Subsequently, it issued a Return Verification Order. But
without the required preliminary findings being submitted,
it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or
‘[Reyes]’), one of the decedent’s heirs, received the Letter of
Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division,
Bureau of Internal Revenue (or ‘BIR’), issued a preliminary
assessment notice against the estate in the amount
of P14,580,618.67. On May 10, 1998, the heirs of the
decedent (or ‘heirs’) received a final estate tax assessment
notice and a demand letter, both dated April 22, 1998, for
the amount of P14,912,205.47, inclusive of surcharge and
interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’)
protested the assessment [o]n behalf of the heirs on the
ground that the subject property had already been sold by
the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal
Revenue (or ‘[CIR]’) issued a preliminary collection letter to
[Reyes], followed by a Final Notice Before Seizure dated
December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was
served upon the estate, followed on February 11, 1999 by
Notices of Levy on Real Property and Tax Lien against it.
33
"On March 2, 1999, [Reyes] protested the notice of levy.
However, on March 11, 1999, the heirs proposed a
compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes]
proposed to pay 50% of the basic tax due, citing the heirs’
inability to pay the tax assessment. On March 20, 2000, [the
CIR] rejected [Reyes’s] offer, pointing out that since the
estate tax is a charge on the estate and not on the heirs, the
latter’s financial incapacity is immaterial as, in fact, the gross
value of the estate amounting to P32,420,360.00 is more
than sufficient to settle the tax liability. Thus, [the CIR]
demanded payment of the amount of P18,034,382.13 on or
before April 15, 2000[;] otherwise, the notice of sale of the
subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this
time proposing to pay 100% of the basic tax due in the
amount of P5,313,891.00. She reiterated the proposal in a
letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April
15, 2000 deadline, the Chief, Collection Enforcement
Division, BIR, notified [Reyes] on June 6, 2000 that the
subject property would be sold at public auction on August
8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR
Appellate Division. Assailing the scheduled auction sale, she
asserted that x x x the assessment, letter of demand[,] and
the whole tax proceedings against the estate are void ab
initio. She offered to file the corresponding estate tax return
and pay the correct amount of tax without surcharge [or]
interest.
"Without acting on [Reyes’s] protest and offer, [the CIR]
instructed the Collection Enforcement Division to proceed
with the August 8, 2000 auction sale. Consequently, on June
28, 2000, [Reyes] filed a [P]etition for [R]eview with the
Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No.
6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of
a Writ of Preliminary Injunction or Status Quo Order, which
was granted by the CTA on July 26, 2000. Upon [Reyes’s]
filing of a surety bond in the amount of P27,000,000.00, the
CTA issued a [R]esolution dated August 16, 2000 ordering
[the CIR] to desist and refrain from proceeding with the
auction sale of the subject property or from issuing a
[W]arrant of [D]istraint or [G]arnishment of [B]ank
[A]ccount[,] pending determination of the case and/or
unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the
grounds (i) that the CTA no longer has jurisdiction over the
case[,] because the assessment against the estate is already
final and executory; and (ii) that the petition was filed out of
time. In a [R]esolution dated November 23, 2000, the CTA
denied [the CIR’s] motion.
"During the pendency of the [P]etition for [R]eview with the
CTA, however, the BIR issued Revenue Regulation (or ‘RR’)
No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No.
42-2000 offering certain taxpayers with delinquent

accounts and disputed assessments an opportunity to
compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with
the BIR for the compromise settlement (or ‘compromise’) of
the assessment against the estate pursuant to Sec. 204(A) of
the Tax Code, as implemented by RR No. 6-2000 and RMO
No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for
Postponement of the hearing before the CTA scheduled on
January 9, 2001, citing her pending application for
compromise with the BIR. The motion was granted and the
hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of
the hearing set on February 6, 2001, this time on the ground
that she had already paid the compromise amount
of P1,062,778.20 but was still awaiting approval of the
National Evaluation Board (or ‘NEB’). The CTA granted the
motion and reset the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare
Application for the Settlement of Disputed Assessment as a
Perfected Compromise. In said motion, she alleged that [the
CIR] had not yet signed the compromise[,] because of
procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the
compromise is signed by the [CIR]. [Reyes] posited that the
absence of the requisite initials and signature[s] on said
documents does not vitiate the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,]
without the approval of the NEB, [Reyes’s] application for
compromise with the BIR cannot be considered a perfected
or consummated compromise.
"On March 9, 2001, the CTA denied [Reyes’s] motion,
prompting her to file a Motion for Reconsideration Ad
Cautelam. In a [R]esolution dated April 10, 2001, the CTA
denied the [M]otion for [R]econsideration with the
suggestion that[,] for an orderly presentation of her case and
to prevent piecemeal resolutions of different issues, [Reyes]
should file a [S]upplemental [P]etition for [R]eview[,]
setting forth the new issue of whether there was already a
perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for
Review with the CTA, followed on June 4, 2001 by its
Amplificatory Arguments (for the Supplemental Petition for
Review), raising the following issues:
‘1. Whether or not an offer to compromise by the [CIR], with
the acquiescence by the Secretary of Finance, of a tax
liability pending in court, that was accepted and paid by the
taxpayer, is a perfected and consummated compromise.
‘2. Whether this compromise is covered by the provisions of
Section 204 of the Tax Code (CTRP) that requires approval
by the BIR [NEB].’
"Answering the Supplemental Petition, [the CIR] averred
that an application for compromise of a tax liability under
RR No. 6-2000 and RMO No. 42-2000 requires the
evaluation and approval of either the NEB or the Regional
Evaluation Board (or ‘REB’), as the case may be.
34
"On June 14, 2001, [Reyes] filed a Motion for Judgment on
the Pleadings; the motion was granted on July 11, 2001.
After submission of memoranda, the case was submitted for
[D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the
decretal portion of which pertinently reads:
‘WHEREFORE, in view of all the foregoing, the instant
[P]etition for [R]eview is hereby DENIED. Accordingly,
[Reyes] is hereby ORDERED to PAY deficiency estate tax in
the amount of Nineteen Million Five Hundred Twenty Four
Thousand Nine Hundred Nine and 78/100
(P19,524,909.78), computed as follows:
xxxxxxxxx
‘[Reyes] is likewise ORDERED to PAY 20% delinquency
interest on deficiency estate tax due of P17,934,382.13 from
January 11, 2001 until full payment thereof pursuant to
Section 249(c) of the Tax Code, as amended.’
"In arriving at its decision, the 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.
"Anent the validity of the assessment notice and letter of
demand against the estate, the CTA stated that ‘at the time
the questioned assessment notice and letter of demand
were issued, the heirs knew very well the law and the facts
on which the same were based.’ It also observed that the
petition was not filed within the 30-day reglementary
period provided under Sec. 11 of Rep. Act No. 1125 and Sec.
228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228
of the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment notice
and the demand letter should have stated the facts and the
law on which they were based; otherwise, they were
deemed void.6 The appellate court held that while
administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law
and equity to observe substantive due process. The reason
behind this requirement, said the CA, was to ensure that
taxpayers would be duly apprised of -- and could effectively
protest -- the basis of tax assessments against them.7Since
the assessment and the demand were void, the proceedings
emanating from them were likewise void, and any order
emanating from them could never attain finality.
The appellate court added, however, that it was premature
to declare as perfected and consummated the compromise
of the estate’s tax liability. It explained that, where the basic
tax assessed exceeded P1 million, or where the settlement
offer was less than the prescribed minimum rates, the
National Evaluation Board’s (NEB) prior evaluation and
approval were the conditio sine qua non to the perfection
and consummation of any compromise.8Besides, the CA
pointed out, Section 204(A) of the Tax Code applied to all
compromises, whether government-initiated or not. 9 Where

the law did not distinguish, courts too should not
distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues for
the Court’s consideration:
"I.
Whether petitioner’s assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as
the other heirs, was not aware of the facts and the law on
which the assessment in question is based, after she had
opted to propose several compromises on the estate tax due,
and even prematurely acting on such proposal by paying
20% of the basic estate tax due." 11
The foregoing issues can be simplified as follows: first,
whether the assessment against the estate is valid; and,
second, whether the compromise entered into is also valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code 12 is
clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --
xxxxxxxxx
"The taxpayers shall be informed in writing of the law and
the facts on which the assessment is made: otherwise, the
assessment shall be void."
In the present case, 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 22913 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of
1997.
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.
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.
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
35
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.
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.
Second, the non-retroactive application of Revenue
Regulation (RR) No. 12-99 is of no moment, considering that
it merely implements the law.
A tax regulation is promulgated by the finance secretary to
implement the provisions of the Tax Code.15 While it is
desirable for the government authority or administrative
agency to have one immediately issued after a law is passed,
the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes,
RA 8424 already stated that the taxpayer must be informed
of both the law and facts on which the assessment was
based. Thus, the CIR should have required the assessment
officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation
governing the issuance of estate tax assessment notices ran
afoul of the rule that tax regulations -- old as they were --
should be in harmony with, and not supplant or modify, the
law.16
It may be argued that the Tax Code provisions are not self-
executory. It would be too wide a stretch of the imagination,
though, to still issue a regulation that would simply require
tax officials to inform the taxpayer, in any manner, of the law
and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired
results hard to achieve.
Moreover, an administrative rule interpretive of a statute,
and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the
effectivity of the statute.17 RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was
issued only on September 6, 1999, this regulation was to
retroact to January 1, 1998 -- a date prior to the issuance of
the preliminary assessment notice and demand letter.
 36

Third, neither Section 229 nor RR 12-85 can prevail over Validity of Compromise
Section 228 of the Tax Code.
It would be premature for this Court to declare that the
No doubt, Section 228 has replaced Section 229. The compromise on the estate tax liability has been perfected
provision on protesting an assessment has been amended. and consummated, considering the earlier determination
Furthermore, in case of discrepancy between the law as that the assessment against the estate was void. Nothing has
amended and its implementing but old regulation, the been settled or finalized. Under Section 204(A) of the Tax
former necessarily prevails.18 Thus, between Section 228 of Code, where the basic tax involved exceeds one million
the Tax Code and the pertinent provisions of RR 12-85, the pesos or the settlement offered is less than the prescribed
latter cannot stand because it cannot go beyond the minimum rates, the compromise shall be subject to the
provision of the law. The law must still be followed, even approval of the NEB composed of the petitioner and four
though the existing tax regulation at that time provided for a deputy commissioners.
different procedure. The regulation then simply provided
Finally, as correctly held by the appellate court, this
that notice be sent to the respondent in the form prescribed,
provision applies to all compromises, whether government-
and that no consequence would ensue for failure to comply
initiated or not. Ubi lex non distinguit, nec nos distinguere
with that form.
debemos. Where the law does not distinguish, we should not
Fourth, petitioner violated the cardinal rule in distinguish.
administrative law that the taxpayer be accorded due
WHEREFORE, the Petition is hereby DENIED and the
process. Not only was the law here disregarded, but no valid
assailed Decision AFFIRMED. No pronouncement as to costs.
notice was sent, either. A void assessment bears no valid
fruit. SO ORDERED.
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 government’s
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
taxation’s general provisions that are expected to be known
by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice,
as well as the demand letter sent, reveals the lack of basis
for -- not to mention the insufficiency of -- the gross figures
and details of the itemized deductions indicated in the
notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been
arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection
"should be made in accordance with law as any arbitrariness
will negate the very reason for government itself." 21
Fifth, the rule against estoppel does not apply. Although the
government cannot be estopped by the negligence or
omission of its agents, the obligatory provision on protesting
a tax assessment cannot be rendered nugatory by a mere act
of the CIR .
Tax laws are civil in nature. 22 Under our Civil Code, acts
executed against the mandatory provisions of law are void,
except when the law itself authorizes the validity of those
acts.23 Failure to comply with Section 228 does not only
render the assessment void, but also finds no validation in
any provision in the Tax Code. We cannot condone errant or
enterprising tax officials, as they are expected to be vigilant
and law-abiding.
Second Issue:

COMMISSIONER OF INTERNAL G.R. No. 162155
-versus
PRIMETOWN PROPERTY
GROUP, INC., August 28, 2007
x-----------------------------------------x
This petition for review on certiorari [1] seeks to set aside the
August 1, 2003 decision [2] of the Court of Appeals (CA) in CA-
G.R. SP No. 64782 and its February 9, 2004 resolution
denying reconsideration.[3]
On March 11, 1999, Gilbert Yap, vice chair of respondent
Primetown Property Group, Inc., applied for the refund or
credit of income tax respondent 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),[4] 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.[5] As a consequence, while business
was good during the first quarter of 1997, respondent
suffered losses amounting to P71,879,228 that year.[6]
According to Yap, because respondent suffered losses, it was
not liable for income taxes.[7] Nevertheless, respondent paid
its quarterly corporate income tax and remitted creditable
withholding tax from real estate sales to the BIR in the total
amount of P26,318,398.32.[8] Therefore, respondent was
entitled to tax refund or tax credit.[9]
On May 13, 1999, revenue officer Elizabeth Y. Santos
required respondent to submit additional documents to
support its claim.[10] Respondent complied but its claim was
not acted upon. Thus, on April 14, 2000, it filed a petition for
review[11] in the Court of Tax Appeals (CTA).
On December 15, 2000, the CTA dismissed the petition as it
was filed beyond the two-year prescriptive period for filing a
judicial claim for tax refund or tax credit. [12] It invoked
Section 229 of the National Internal Revenue Code (NIRC):
Sec. 229. Recovery of Taxes Erroneously
or Illegally Collected. -- No suit or
proceeding shall be maintained in any
court for the recovery of any national
internal revenue tax hereafter alleged to
have been erroneously or illegally
assessed or collected, or of any penalty
claimed to have been collected without
authority, or of any sum alleged to have
been excessively or in any manner
wrongfully collected, until a claim for
refund or credit has been duly filed with
the Commissioner; but such suit or
proceeding may be maintained, whether
or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding
shall be filed after the expiration of
two (2) years from the date of
payment of the tax or penalty
regardless of any supervening cause
37
that may arise after
payment: Provided, however, That the
Commissioner may, even without a claim
therefor, refund or credit any tax, where
on the face of the return upon which
payment was made, such payment
appears clearly to have been
erroneously paid. (emphasis supplied)
The CTA found that respondent filed its final adjusted return
on April 14, 1998. Thus, its right to claim a refund or credit
commenced on that date.[13]
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.
(emphasis supplied)
Thus, according to the CTA, the two-year prescriptive period
under Section 229 of the NIRC for the filing of judicial claims
was equivalent to 730 days. Because the year 2000 was a
leap year, respondent's petition, which was filed 731
days[14] after respondent filed its final adjusted return, was
filed beyond the reglementary period. [15]
Respondent moved for reconsideration but it was denied.
[16]
Hence, it filed an appeal in the CA.[17]
On August 1, 2003, the CA reversed and set aside the
decision of the CTA.[18] It ruled that Article 13 of the Civil
Code did not distinguish between a regular year and a leap
year. According to the CA:
The rule that a year has 365 days applies,
notwithstanding the fact that a particular
year is a leap year.[19]
In other words, even if the year 2000 was a leap year, the
periods covered by April 15, 1998 to April 14, 1999 and
April 15, 1999 to April 14, 2000 should still be counted as
365 days each or a total of 730 days. A statute which is clear
and explicit shall be neither interpreted nor construed. [20]
Petitioners moved for reconsideration but it was denied.
[21]
Thus, this appeal.
Petitioners contend that tax refunds, being in the nature of
an exemption, should be strictly construed against
claimants.[22] Section 229 of the NIRC should be strictly
appliedagainst respondent inasmuch as it has been
consistently held that the prescriptive period (for the filing
of tax refunds and tax credits) begins to run on the day
claimants file their final adjusted returns. [23] Hence, the
 38

claim should have been filed on or before April 13, 2000 or encompasses entirely the subject matter of the former law
within 730 days, reckoned from the time respondent filed its and they cannot be logically or reasonably reconciled. [33]
final adjusted return.
Both Article 13 of the Civil Code and Section 31, Chapter
The conclusion of the CA that respondent filed its petition VIII, Book I of the Administrative Code of 1987 deal with the
for review in the CTA within the two-year prescriptive same subject matter the computation of legal periods. Under
period provided in Section 229 of the NIRC is correct. Its the Civil Code, a year is equivalent to 365 days whether it be
basis, however, is not. a regular year or a leap year. Under the Administrative Code
of 1987, however, a year is composed of 12 calendar months.
The rule is that the two-year prescriptive period is reckoned
Needless to state, under the Administrative Code of 1987,
from the filing of the final adjusted return. [24] But how
the number of days is irrelevant.
should the two-year prescriptive period be computed?
There obviously exists a manifest incompatibility in the
As already quoted, Article 13 of the Civil Code provides that
manner of computing legal periods under the Civil Code and
when the law speaks of a year, it is understood to be
the Administrative Code of 1987. For this reason, we hold
equivalent to 365 days. In National Marketing Corporation v.
that Section 31, Chapter VIII, Book I of the Administrative
Tecson,[25] we ruled that a year is equivalent to 365 days
Code of 1987, being the more recent law, governs the
regardless of whether it is a regular year or a leap year. [26]
computation of legal periods. Lex posteriori derogat priori.
However, in 1987, EO[27] 292 or the Administrative Code of
Applying Section 31, Chapter VIII, Book I of the
1987 was enacted. Section 31, Chapter VIII, Book I thereof
Administrative Code of 1987 to this case, the two-year
provides:
prescriptive period (reckoned from the time respondent
Sec. 31. Legal Periods. Year shall be filed its final adjusted return [34] on April 14, 1998) consisted
understood to be twelve calendar of 24 calendar months, computed as follows:
months; month of thirty days, unless it
XXXXXX
refers to a specific calendar month in
which case it shall be computed according (table)
to the number of days the specific month
We therefore hold that respondent's petition (filed on April
contains; day, to a day of twenty-four
14, 2000) was filed on the last day of the 24 th calendar
hours and; night from sunrise to sunset.
month from the day respondent filed its final adjusted
(emphasis supplied)
return. Hence, it was filed within the reglementary period.
A calendar month is a month designated in the calendar
Accordingly, the petition is hereby DENIED. The case
without regard to the number of days it may contain.[28] It is
is REMANDED to the Court of Tax Appeals which is ordered
the period of time running from the beginning of a certain
to expeditiously proceed to hear C.T.A. Case No. 6113
numbered day up to, but not including, the corresponding
entitled Primetown Property Group, Inc. v. Commissioner of
numbered day of the next month, and if there is not a
Internal Revenue and Arturo V. Parcero.
sufficient number of days in the next month, then up to and
including the last day of that month. [29] To illustrate, one No costs.
calendar month from December 31, 2007 will be from
January 1, 2008 to January 31, 2008; one calendar month SO ORDERED.
from January 31, 2008 will be from February 1, 2008 until
February 29, 2008.[30]
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.
Implied repeals, however, are not favored. An implied repeal
must have been clearly and unmistakably intended by the
legislature. The test is whether the subsequent law

G.R. No. L-41919-24 May 30, 1980
UNGAB vs. THE COMMISSIONER OF INTERNAL REVENUE,
Petition for certiorari and prohibition with preliminary
injunction and restraining order to annul and set aside the
informations filed in Criminal Case Nos. 1960, 1961, 1962,
1963, 1964, and 1965 of the Court of First Instance of Davao,
all entitled: "People of the Philippines, plaintiff, versus Quirico
Ungab, accused;" and to restrain the respondent Judge from
further proceeding with the hearing and trial of the said
cases.
It is not disputed that 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. 1 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, however, was fully
convinced that the petitioner 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. After
examining the records of the case, the 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:
(1) For having filed a false or fraudulent income tax return
for 1973 with intent to evade his just taxes due the
government under Section 45 in relation to Section 72 of
the National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in
1973 and 1974, or a total of unpaid fixed taxes of P100.00
plus penalties of 175.00 or a total of P175.00, in
accordance with Section 183 of the National Internal
Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer
of banana poles or saplings, on the total sales of
P129,580.35 to the Davao Fruit Corporation, depriving
thereby the government of its due revenue in the amount
of P15,872.59, inclusive of surcharge. 2
In a second indorsement to the Chief of the Prosecution
Division, dated December 12, 1974, the Commissioner of
Internal Revenue approved the prosecution of the
petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been
designated to assist all Provincial and City Fiscals
throughout the Philippines in the investigation and
39
prosecution, if the evidence warrants, of all violations of the
National Internal Revenue Code, as amended, and other
related laws, in Administrative Order No. 116 dated
December 5, 1974, and to whom the case was assigned,
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:
(1) Criminal Case No. 1960 — Violation of Sec. 45, in
relation to Sec. 72 of the National Internal-Revenue
Code, for filing a fraudulent income tax return for the
calendar year ending December 31, 1973; 4
(2) Criminal Case No. 1961 — Violation of Sec. 182
(a), in relation to Secs. 178, 186, and 208 of the
National Internal Revenue Code, for engaging in
business as producer of saplings, from January, 1973
to December, 1973, without first paying the annual
fixed or privilege tax thereof; 5
(3) Criminal Case No. 1962 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of
banana saplings and to pay the percentage tax due
thereon, for the quarter ending December 31, 1973; 6
(4) Criminal Case No. 1963 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales
receipts and earnings in his business as producer of
saplings, and to pay the percentage tax due thereon,
for the quarter ending on March 31, 1973; 7
(5) Criminal Case No. 1964 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of
banana saplings for the quarter ending on June 30,
1973, and to pay the percentage tax due thereon; 8
(6) Criminal Case No. 1965 — Violation of Sec. 183
(a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true
and complete return on the gross quarterly sales,
receipts and earnings as producer of banana saplings,
for the quarter ending on September 30, 1973, and to
pay the percentage tax due thereon. 9
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. 10 However, the trial court denied the motion on
October 22, 1975. 11 Whereupon, the petitioner filed the
instant recourse. 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 Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965
of the Court of First Instance of Davao, all entitled: "People of
the Philippines, plaintiff, versus Quirico Ungab, accused."
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, 12 should be observed
before such authority may be exercised; otherwise, the
provisions of the Charter of Davao City on the functions and
powers of the City Fiscal will be meaningless because
according to said charter he has charge of the prosecution of
all crimes committed within his jurisdiction; and since
"appropriate circumstances are not extant to warrant the
intervention of the State Prosecution to initiate the
investigation, sign the informations and prosecute these
cases, said informations are null and void." The ruling
adverted to by the petitioner reads, as follows: têñ.£îhqwâ£
In view of all the foregoing considerations, it is the ruling
of this Court that under Sections 1679 and 1686 of the
Revised Administrative Code, in any instance where a
provincial or city fiscal fails, refuses or is unable, for any
reason, to investigate or prosecute a case and, in the
opinion of the Secretary of Justice it is advisable in the
public interest to take a different course of action, the
Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or
prosecution exclusively and only of such case, any
practicing attorney or some competent officer of the
Department of Justice or office of any city or provincial
fiscal, with complete authority to act therein in all
respects as if he were the provincial or city fiscal himself,
or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the
discharge of his duties, with the same complete authority
to act independently of and for such city or provincial
fiscal provided that no such appointment may be made
without first hearing the fiscal concerned and never after
the corresponding information has already been filed
with the court by the corresponding city or provincial
fiscal without the conformity of the latter, except when it
can be patently shown to the court having cognizance of
the case that said fiscal is intent on prejudicing the
interests of justice. The same sphere of authority is true
with the prosecutor directed and authorized under
Section 3 of Republic Act 3783, as amended and/or
inserted by Republic Act 5184. The observation
in Salcedo vs. Liwag, supra, regarding the nature of the
power of the Secretary of Justice over fiscals as being
purely over administrative matters only was not really
necessary, as indicated in the above relation of the facts
and discussion of the legal issues of said case, for the
resolution thereof. In any event, to any extent that the
opinion therein may be inconsistent herewith the same
is hereby modified.
The contention is without merit. Contrary to the petitioner's
claim, the rule therein established had not been violated.
40
The respondent State Prosecutor, although believing that he
can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he
started the preliminary investigation of these cases, and the
City Fiscal, after being shown Administrative Order No. 116,
dated December 5, 1974, designating the said State
Prosecutor to assist all Provincial and City fiscals throughout
the Philippines in the investigation and prosecution of all
violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the
respondent State Prosecutor to conduct the investigation of
said cases, and in fact, said investigation was conducted in
the office of the City Fiscal. 13
The petitioner also claims that the filing of the informations
was precipitate and premature since the Commissioner of
Internal Revenue has not yet resolved his protests against
the assessment of the Revenue District Officer; and that he
was denied recourse to the Court of Tax Appeals.
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. têñ.£îhqwâ£
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. 14
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 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. 16Obviously, 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.
 41

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.
SO ORDERED.