CIR v. PINEDA

21 SCRA 105 / GR No. L-22734, September 15, 1967

FACTS: Atanasio Pineda died, survived by his wife, FelicisimaBagtas, and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were commenced in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.

HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.

The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.

PHILIPPINE ACETYLENE CO. INC. VS. COMMISSIONER

GR L-19707, 17 August 1967

Facts: Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen

and acetylene gases. It sold its products to the National Power Corporation (Napocor),

an agency of the Philippine Government, and the Voice of America (VOA), an agency of

the United States Government. The Commissioner assessed deficiency sales tax and

surcharges against the company. The company denied liability for the payment of tax

on the ground that both Napocor and VOA are exempt from taxes.

Issue: Whether Philippine Acetylene Co. is exempt from the tax.

Held: Sales tax are paid by the manufacturer or producer who must make a true and

complete return of the amount of his, her or its gross monthly sales, receipts or earnings

or gross value of output actually removed from the factory or mill, warehouse and to

pay the tax due thereon. The tax imposed by Section 186 of the Tax Code is a tax on the

manufacturer or producer and not a tax on the purchaser except probably in a very

remote and inconsequential sense. Accordingly, its levy on the sales made to tax-

exempt entities like the Napocor is permissible. On the other hand, there is nothing in

the language of the Military Bases Agreement to warrant the general exemption granted

by General Circular V-41 (1947). Thus, the expansive construction of the tax exemption

is void; and the sales to the VOA are subject to the payment of percentage taxes under

Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and

exemption will not be held to be conferred unless the terms under which it is granted

clearly and distinctly show that such was the intention.

COMMISSIONER VS. AMERICAN RUBBER

GR L-19667, 29 November 1966

Facts: American Rubber Company sold its rubber products locally and as prescribed by the Commissioner’s regulation, the company declared the same for tax purposes in which the Commissioner accordingly assessed. The company paid under protest the corresponding sales taxes thereon, claiming exemption under Section 188 (b) of the Tax Code, and subsequently claimed refund. With the Commissioner refusing to do so, the case was brought before the Court of Tax Appeals, which upheld the Commissioner’s stand that the company is not entitled to recover the sales tax that had been separately billed to its customers, and paid by the latter.

Issue: Whether the company can recover the sales tax paid.

Held: The sales tax is by law imposed directly, not on the thing sold, but on the act

(sale) of the manufacturer, producer, or importer, who is exclusively made liable for its

timely payment. Where the tax money paid by the company came from is really no

concern of the Government, but solely a matter between the company and its

customers. Once recovered, the company must hold the refunded taxes in trust for the

individual purchasers who advanced payment thereof, and whose names must appear

in company records. Herein, the company sales between 24 August 1956 (approval of

RA 1612) to 22 June 1957 (when RA 1856 restored the exemption of agricultural

products “whether in their original form or not”) were properly taxed. Such amount

corresponding to the period are not recoverable.

MACEDA VS. MACARAIG

GR 88291, 31 May 1991

Facts: Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. RA 358 (1949) granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to carry out the policy of the national electrification, and provided in detail NAPOCOR’s tax exceptions. PD 380 (1974) specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCOR’s exemption, which was approved by the President on 5 October 1987. Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery. Issue: Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the exemption in general terms.

Held: NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtness and obligation” and effective implementation of the policy enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed against NAPOCOR. On the contrary, the law mandates that it should be interpreted liberally so as to enhancethe tax exempt status of NAPOCOR. It is recognized principle that the rule on strict interpretation does notapply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of property owned by the state or a city or other public corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property “exception is the rule and taxation the exception.”

COMMISSIONER VS. GOTAMCO

GR L-31092, 27 February 1987

Facts: The World Trade Organization (WHO) decided to construct a building to house

its offices, as well as the other United Nations Offices in Manila. In inviting bids for the

construction of the building, the WHO informed the bidders of its tax exemptions. The

contract was awarded to John Gotamco and Sons. The Commissioner opined that a 3%

contractor’s tax should be due from the contractor. The WHO issued acertification that

Gotamco should be exempted, but the Commissioner insisted on the tax. Raised in the

Court of Tax Appeals, the court ruled in favor of Gotamco.

Issue: Whether Gotamco is likewise from the contractor’s tax in lieu of WHO’s

exemption from indirect taxes.

Held: Direct taxes are those that are demanded from the very person who, it is intended

or desired, should pay them; while indirect taxes are those that are demanded in the

first instance from one person in the expectation and intention that he can shift the

burden to someone else. Herein, the contractor’s tax is payable by the contractor but it is

the owner of the building that shoulders the burden of the tax because the same is

shifted by the contractor to the owner as a matter of self-preservation. Such tax is an

“indirect tax” on the organization, as the payment thereof or its inclusion in the bid

price would have meant an increase in the construction cost of the building. Hence, the

Contractee’s (WHO) exemption from “indirect taxes” implies that contractor (Gotamco)

is exempt from contractor’s tax.

REPUBLIC VS. MAMBULAO LUMBER GR L-17725, 28 February 1962

Facts: Mambulao Lumber Company paid the Government a total of P9,127.50 as

reforestation charges. Having found liable for an aggregate amount of P4,802.37 for

forest charges, it contended that since the Republic (Government) has not made use of

the reforestation charges for reforesting the denuded area of the land covered by the

company’s license, the Republic should refund said amount or, if it cannot be refunded,

at least the company should be compensated with what it owed the Republic for

reforestation charges.

Issue: Whether taxes may be subject of set-off or compensation.

Held: Internal revenue taxes, such as forest charges, cannot be the subject of set-off or

compensation. A claim for taxes is not such a debt, demand, contract or judgment as is

allowed to be set-off under the statutes of setoff, which are construed uniformly, in the

light of public policy, to exclude the remedy in an action or any indebtedness of the

State or municipality to one who is liable to the State or municipality for taxes. Neither

are they subject of recoupment since they do not arise out of the contract or transaction

sued on. Taxes are not in the nature of contracts between the parties but grow out of a

duty to, and are the positive acts of the government, to the making and enforcing of

which, the personal consent of individual taxpayers is not required.

DOMINGO VS. GARLITOS

GR L-18993, 29 June 1963

FACTS: InDomingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final

and executory the order of the Court of First Instance of Leyte for the payment of estate

and inheritance taxes, charges and penalties amounting to P40,058.55 by the Estate of

the late Walter Scott Price. The petition for execution filed by the fiscal, however, was

denied by the lower court. The Court held that the execution is unjustified as the

Government itself is indebted to the Estate for 262,200; and ordered the amount of

inheritance taxes be deducted from the Government’s indebtedness to the Estate.

ISSUE: Whether a tax and a debt may be compensated.

HELD: The court having jurisdiction of the Estate had found that the claim of the Estate

against the Government has been recognized and an amount of P262,200 has already

been appropriated by a corresponding law (RA 2700). Under the circumstances, both

the claim of the Government for inheritance taxes and the claim of the intestate for

services rendered have already become overdue and demandable as well as fully

liquidated. Compensation, therefore, takes place by operation of law, in accordance

with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the

concurrent amount.

FRANCIA VS. INTERMEDIATE APPELLATE COURT

GR L-67649, 28 June 1988

Facts: EngracioFrancia was the registered owner of a house and lot located in Pasay

City. A portion of such property was expropriated by the Republic of the Philippines in

1977. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. Thus,

his property was sold in a public auction by the City Treasurer of Pasay City.

Issue: Whether the expropriation payment may compensate for the real estate taxes due.

Held: There can be no off-setting of taxes against the claims that the taxpayer may have

against the government. A person canot refuse to pay a tax on the ground that the

government owes him an amount equal to or greater than the tax being collected. The

collection of a tax annot await the results of a lawsuit against the government. Internal

revenue taxes cannot be the subject of compensation. The Government and the taxpayer

are not mutually creditors and debtors of each other under Article 1278 of the Civil

Code and a claim of taxes is not such a debt, demand, contract or judgment as is

allowed to be set-off.

GASCON V. ARROYO

G.R. No. 78389 October 16, 1989

FACTS: The Lopez family owned 2 television stations. When martial law was declared, the stations were seized by the military. Thereafter the facilities were taken over by Kanlaon Broadcasting System and operated it as commercial TV stations. In 1978, the facilities were taken over by the . the National Media Production Center and operated as the Maharlika Broadcasting System TV 4 After the Marcos regime was toppled, the Presidential Committee on Good Governance (PCGG) sequestered / seized the stations. April 1986, Mr Lopez requested the return of the stations. An agreement to arbitrate was entered into regarding this matter. Thereupon, petitioners as taxpayers sought to set aside the agreement to arbitrate. On. April 17, 1986, the Lopez family requested Pres. Aquino to order to return to them Chs. 2 and 4. On October 18 1986, Ch 2 was returned to the Lopez family. Upon the Lopez family's request, the respondent Executive Secretary, by the authority of the President, entered into with ABS-CBN, represented by its Pres. Eugenio Lopez, Jr., an "Agreement to Arbitrate" Arbitration Committee was created composed of Atty. Catalino Macaraig, Jr., for RP and Atty. Pastor del Rosario for ABS-CBN, and retired Justice Vicente Abad Santos as Chairman

ISSUE: Whether petitioners as taxpayers have legal standing to sue HELD: No. Petitioners have not shown that they have a legal interest in the TV stations and that they would be adversely affected if and when the station is returned to the Lopez family. The present case is not an action to question the constitutionality or validity of a law.

COMMISSIONER VS. ALGUE

L-28890, 17 February 1988

FACTS: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc., an engineering and construction firm, as its agent, authorizing it to sell its land, factories, and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation (VOIC), inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00. From this commission, it paid Guevara et.al. P75,000.00 as promotional fees. Algue claimed as deductions. CIR disallowed it contending that it pertains to the company. The payment is fictitious considering that payees are mostly members of the family in control of Algue. CTA agree with Algue and held that the said amount had been legitimately paid by Algue for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of the VOIC and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company. ISSUE: Whether the P75,000 taken from the company’s commission and paid to the persons who actually labored for the formation of VOIC reasonable expense HELD: Yes. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions — (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation

payments is whether they are reasonable and are, in fact, payments purely for service.