JURISTS BAR REVIEW CENTER UPDATES IN TAXATION July 2010 ATTY. RIZALINA V. LUMBERA I. PART I ( JURISPRUDENCE) A. 2007 Cases (1). COMMISSIONER OF INTERNAL REVENUE versus ISABELA CULTURAL CORPORATION (ICC) (G.R. 172231 12 February 2007) Facts: The ICC, received from the BIR an assessment for deficiency income tax arising from the BIRs disallowance of ICCs claimed expense deductions for professional and security services billed to and paid by ICC in 1986 in the amount of P333,196.86, to wit: (a) Expenses for the auditing services of SGV & Co., for the year ending December 31, 1985; (b) Expenses for the legal services [inclusive of retainer fees] of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson for the years 1984 and 1985. (c) Expense for security services of El Tigre Security & Investigation Agency for the months of April and May 1986. (d) The alleged understatement of ICCs interest income on the three promissory notes due from Realty Investment, Inc. and for deficiency expanded withholding tax in the amount of P4,897.79, inclusive of surcharges and interest, both for the taxable year 1986 for alleged failure of ICC to withhold 1% expanded withholding tax on its claimed P244,890.00 deduction for security services. ICC sought a reconsideration of the subject assessments. However, it received a final notice before seizure demanding payment of the amounts stated in the said notices. ICC then went to the CTA which rendered a decision canceling and setting aside the assessment notices issued against ICC. It held that the claimed deductions for professional and security services were properly claimed by ICC. BIR then filed a petition for review with the CA, which affirmed the CTA decision, thus the present case before the SC. Issue: Are these deductions allowed? Decision: (1). The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and auditing services, are: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer; and (d) it must be1

supported by receipts, records or other pertinent papers. The requisite that it must have been paid or incurred during the taxable year is further qualified by Section 45 of the National Internal Revenue Code (NIRC) which states that: "[t]he deduction provided for in this Title shall be taken for the taxable year in which paid or accrued or paid or incurred, dependent upon the method of accounting upon the basis of which the net income is computed x x x". (2). ICC uses the accrual method of accounting and pursuant to Revenue Audit Memorandum Order No. 1-2000, expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year. The accrual of income and expense is permitted when the all-events test has been met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable accurate determination of such income or liability. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as unknowable, within the taxable year. The amount of liability does not have to be determined exactly; it must be determined with "reasonable accuracy." Accordingly, the term "reasonable accuracy" implies something less than an exact or completely accurate amount. (3). The expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of said firm in connection with ICCs tax problems for the year 1984. From the nature of the claimed deductions and the span of time during which the firm was retained since 1960, ICC can be expected to have reasonably known the retainer fees charged by the firm as well as the compensation for its legal services. The failure to determine the exact amount of the expense during the taxable year when they could have been claimed as deductions cannot thus be attributed solely to the delayed billing of these liabilities by the firm. For one, ICC, in the exercise of due diligence could have inquired into the amount of their obligation to the firm, especially so that it is using the accrual method of accounting. For another, it could have reasonably determined the amount of legal and retainer fees owing to its familiarity with the rates charged by their long time legal consultant. The defense of delayed billing by the firm and the company, which under the circumstances, is not sufficient to exempt it from being charged with knowledge of the reasonable amount of the expenses for legal and auditing services (4). The professional fees of SGV & Co. for auditing the financial statements of ICC for the year 1985 cannot be validly claimed as expense deductions in 1986. This is so because ICC failed to present evidence showing that even with only "reasonable accuracy," as the standard to ascertain its liability to SGV & Co. in the2

year 1985, it cannot determine the professional fees which said company would charge for its services. ICC thus failed to discharge the burden of proving that the claimed expense deductions for the professional services were allowable deductions for the taxable year 1986. Hence, per Revenue Audit Memorandum Order No. 1-2000, they cannot be validly deducted from its gross income for the said year and were therefore properly disallowed by the BIR. (5). As to the expenses for security services, the records show that these expenses were incurred by ICC in 1986 and could therefore be properly claimed as deductions for the said year. (6). On the purported understatement of interest income from the promissory notes of Realty Investment, Inc., findings of the CTA and the Court of Appeals that no such understatement exists are sustained and that only simple interest computation and not a compounded one should have been applied by the BIR. There is indeed no stipulation between the latter and ICC on the application of compounded interest. Under Article 1959 of the Civil Code, unless there is a stipulation to the contrary, interest due should not further earn interest. (7). The findings of the CTA and the Court of Appeals that ICC truly withheld the required withholding tax from its claimed deductions for security services and remitted the same to the BIR is supported by payment order and confirmation receipts. Hence, the Assessment Notice for deficiency expanded withholding tax was properly cancelled and set aside. (2). FELS ENERGY INC. VS. PROVINCE OF BATANGAS (G.R. 168557 / 2-162007) NAPOCOR VS. LBAA OF BATANGAS (G.R. 170628 16 February 2007) Facts: NAPOCOR (NPC) entered into a lease contract with Polar Energy, Inc. over diesel engine power barges moored in Batangas providing that NAPOCOR shall be responsible for the payment of all taxes imposed by the National Government to which POLAR may be or become subject to or in relation to the performance of their obligations under the agreement and all real estate taxes and assessments, rates and other charges in respect of the Power Barges. POLAR subsequently assigned its rights under the Agreement to FELS. FELS then received an assessment from the Provincial Assessor of Batangas for real property taxes on the power barges. NPC acting on behalf of FELS sought reconsideration of the Provincial Assessors assessment to assess real property taxes on the power barges which was denied by the Provincial Assessor. NPC then filed a petition with the LBAA. The LBAA denied the petition. The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the bargesFELS, a private corporationis the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not3

justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time. Aggrieved, FELS appealed to the CBAA. The CBAA rendered a decided that the power barges exempt from real property tax. The Provincial Assessor filed an MR which was opposed by FELS and NPC. The CBAA issued a reversed its earlier decision. FELS and NPC filed separates petition for review before the CA. The CA denied the petition of NPC for being prescribed. Subsequently the petition of FELS was denied. Hence, these present petitions. Issues: (1). Are power barges, which are floating and movable, personal properties and therefore, not subject to real property tax? (2). Assuming that power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC")? (3). Assuming that power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law? (4). What is the proper remedy for assailed assessments issued by Assessors Office and does it prescribe? Ruling: (1) (2) (3) : Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. POLAR owns the power barges as stipulated in the agreement. It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads: SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:x x x(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; x x x Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas. (5). Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal interest in the property who is not satisfied with the4

action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. The last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayers property becomes absolute upon the expiration of the period to appeal. It also bears stressing that the taxpayers failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits. (3). THE COMMISIONER OF INTERNAL REVENUE versus ACESITE (PHILIPPINES) HOTEL CORPORATION ( G.R. No. 147295/ February 16, 2007) Facts: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along UN Avenue in Manila. It eases a portion of the hotels premises to PAGCOR for casino operations. It also caters food and beverages to PAGCORs casino patrons through the hotels restaurant outlets. For the period January 1996 to April 1997, Acesite incurred VAT from its rental income and sale of food and beverages to PAGCOR . Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status. Thus, PAGCOR paid the amount due to Acesite minus VAT while the latter paid the VAT to the CIR as it feared the legal consequences of non-payment of the tax. Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity and eventually filed fro refund with the CIR but the latter failed to resolve the same. It then filed a petition with the CTA which ordered the refund. The CA affirmed in toto the decision of the CTA holding that PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the transactions between respondent Acesite and PAGCOR were "effectively zerorated" because they involved the rendition of services to an entity exempt from indirect taxes. The CIR went to the SC on certiorari. Issue: (1). Is PAGCOR exempt from both direct and indirect taxes such as VAT? (2). What is basis of tax refund?5

Ruling: It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. A close scrutiny thereof clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. Although the law does not specifically mention PAGCORs exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for VAT and neither is Acesite as the latter is effectively subject to zero percent rate. VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or lessor has the option to follow either way in charging its clients and customer. Acesite followed the latter method that is, charging an additional 10% of the gross sales and rentals. Be that as it may, the use of either method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT. Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments. (2). Tax refunds are based on the principle of quasi-contract or solutio indebiti. Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against the claimant who must discharge such burden convincingly. In the instant case, respondent Acesite had discharged this burden as found by the CTA and the CA. The BIR must release the refund to respondent without any unreasonable delay. Indeed, fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund without any unreasonable delay what it has erroneously collected. (4). DIGITAL TELECOMMUNICATIONS PHIL., INC. vs. PANGASINAN ETC. (G. R. No. 152534/ February 23, 2007) PROVINCE OF

Facts: On Nov 13, 1992, the Province of Pangasinan granted Digitel a provincial franchise under Provincial Ordinance No 18-92 which required the grantee to pay6

franchise and real property taxes. Thereafter, DIGITEL was granted by Republic Act No. 7678, a legislative franchise authorizing the grantee to install, operate and maintain telecommunications systems, this time, throughout the Philippines. Under its legislative franchise, DIGITEL is liable for the payment of a franchise tax "as may be prescribed by law of all gross receipts of the telephone or other telecommunications businesses transacted under it by the grantee," as well as real property tax "on its real estate, and buildings "exclusive of this franchise." The Province of Pangasinan, in its examination of its record found that petitioner DIGITEL had a franchise tax deficiency for the years 1992-94 further alleging that DIGITEL had never paid any franchise tax to the province since it started its operation in 1992. Accordingly, the Sangguniang Panlalawigan passed Resolution No. 364 on 14 October 1994, categorically directing petitioner DIGITEL to pay the overdue franchise tax otherwise its franchise shall be inoperative. On 16 March 1995, Congress passed Republic Act No. 7925, otherwise known as "The Public Telecommunications Policy Act of the Philippines." Section 23 of this law entitled Equality of Treatment in the Telecommunications Industry, provided for the ipso facto application to any previously granted telecommunications franchises of any advantage, favor, privilege, exemption or immunity granted under existing franchises, or those still to be granted, to be accorded immediately and unconditionally to earlier grantees The provincial franchise and real property taxes remained unpaid, thus, the Province of Pangasinan filed a complaint for collection of sum of money against Digitel for franchise tax and ad valorem tax based on Sec 137 and 232 of the Local government Code (RA 7160). Digitel argues that under its legislative franchise, the payment of a franchise tax to the Bureau of Internal Revenue (BIR) would be "in lieu of all taxes" on said franchise or the earnings therefrom. It further maintains that its legislative franchise is subject to the immediate and unconditional application of the tax exemption found in the franchises of Globe, Smart and Bell, i.e., in Section 9 (b) of Republic Act No. 7229 and RA 7925. Issues: (1). Is DIGITEL exempt from the payment of provincial franchise tax? (2). If not exempt, are DIGITELs real properties found within the territorial jurisdiction of respondent Province of Pangasinan exempt from the payment of real property taxes by virtue of the phrase "exclusive of this franchise" found in Section 5 of its legislative franchise, Republic Act No. 7678? Ruling: (1). No. The Supreme Court has already resolved this issue in the case of Philippine Long Distance Telephone Company, Inc. v. City of Davao, where it clarified the confusion brought about by the effect of Section 23 of Republic Act No.7

7925 that the word "exemption" as used in the statute refers or pertains merely to an exemption from regulatory or reporting requirements of the DOTC or the NTC and not to the grantees tax liability. In that case, the Court held that in approving Section 23 of Republic Act No. 7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities; thus, it cannot be considered as having amended petitioner PLDTs franchise so as to entitle it to exemption from the imposition of local franchise taxes. The fact is that the term "exemption" in Sec 23 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. x x x Hence, a consideration of the law itself in its entirety and the proceedings of both Houses of Congress is in order. Tax exemption are highly disfavored. The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer. R.A. No. 7925 is a legislative enactment designed to set the national policy on telecommunications and provide the structures to implement it to keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC. The foregoing pronouncement notwithstanding, in view of the passage of Republic Act No. 7716, abolishing the franchise tax imposed on telecommunications companies effective 1 January 1996 and in its place is imposed a 10 percent Value-Added-Tax (VAT), the "in-lieu-of-all-taxes" clause/provision in the legislative franchises of Globe, Smart and Bell, among others, has now become functus officio, made inoperative for lack of a franchise tax. Therefore, taking into consideration the above, from 1 January 1996, petitioner DIGITEL ceased to be liable for national franchise tax and in its stead is imposed a 10% VAT in accordance with Section 108 of the Tax Code. (2). The second issue boils down to a dispute between the inherent taxing power of Congress and the delegated authority to tax of the local government borne by the 1987 Constitution. In the afore-quoted case of PLDT v. City of Davao, the Court already sustained the power of Congress to grant exemptions over and above the8

power of the local governments delegated taxing authority notwithstanding the source of such power. The fact that Republic Act No. 7678 was a later piece of legislation can be taken to mean that Congress, knowing fully well that the Local Government Code had already withdrawn exemptions from real property taxes, chose to restore such immunity even to a limited degree. In view of the unequivocal intent of Congress to exempt from real property tax those real properties actually, directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise, respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification. Said exemption, however, merely applies from the time of the effectivity of petitioner DIGITELs legislative franchise and not a moment sooner. (5). REPUBLIC OF THE PHILIPPINES represented by the Commissioner of Customs vs UNIMEX MICRO ELECTRONIC (G.R. Nos. 166309-10/ 09 March 2007) Facts: In a decision dated June 15, 1992, the CTA reversed the forfeiture decree issued by the Bureau of Customs and ordered the release of the UNIMEX shipment subject to the payment of customs duties. The said CTA decision became final and executory on July 20, 1992. As such decision could not be executed. As counsel failed to file a motion for writ of execution, UNIMEX filed on September 5, 2001 in the CTA a petition for the revival of its June 15, 1992 decision. It prayed for the immediate release by BOC of its shipment or, in the alternative, payment of the shipments value plus damages. The BOC Commissioner failed to file his answer, hence, he was declared in default. During the ex parte presentation of respondents evidence, BOC informed the court that the subject shipment could no longer be found at its warehouses. In its decision of September 19, 2002, the CTA declared that its June 15, 1992 decision could no longer be executed due to the loss of respondents shipment so it ordered the BOC Commissioner to pay respondent the commercial value of the goods based on the prevailing exchange rate at the time of their importation which payment shall be taken from the sale or sales of the goods or properties seized or forfeited by the Bureau of Customs. The BOC Commissioner and the respondent then filed separate petitions in the CA which were consolidated. In one case, the CA held that the BOC Commissioner was liable for the value of the subject shipment as the same was9

lost while in its custody. In the other case however, it ruled that the CTA erred in using as basis the prevailing peso-dollar exchange rate at the time of the importation instead of the prevailing rate at the time of actual payment pursuant to RA 4100. It added that respondent was also entitled to legal interest not at the rate of 6% per annum but at 12% per annum for the actual damages awarded. Issues: (1). Is there modification of Decision? Can the CTA modify its earlier decision? (2). Is UNIMEX guilty of laches? (3). Is the Bureau of Customs liable for interest? (4). Is the Bureau of Customs liable for actual damages? Ruling: (1). The general rule is that once a decision becomes final and executory, it cannot be altered or modified. However, this rule is not absolute. Where facts or events transpire after a decision has become executory, which facts constitute a supervening cause rendering the final judgment unenforceable, said judgment may be modified. Also, a final judgment may be altered when its execution becomes impossible or unjust. In the case at bar, parties do not dispute the fact that after the June 15, 1992 CTA decision became final and executory, respondents goods were inexplicably lost while under the BOCs custody. Certainly, this fact presented a supervening event warranting the modification of the CTA decision. Even if the CTA had maintained its original decision, still petitioner would have been unable to comply with it for the obvious reason that there was nothing more to deliver to respondent. (2). Laches is the failure or negligence to assert a right within a reasonable time, giving rise to a presumption that a party has abandoned it or declined to assert it. It is not a mere question of lapse or passage of time but is principally a question of the inequity or unfairness of permitting a right or claim to be asserted.It is clear from the records that UNIMEX was not guilty of negligence or omission. Neither did it abandon its claim against petitioner. There was never negligence or omission to assert its right within a reasonable period of time on the part of UNIMEX. In fact, from the moment it intervened in the proceedings before the Bureau of Customs up to the present time, UNIMEX is diligently trying to fight for what it believes is right. IT may have failed to secure a writ of execution with this court when the [CTA decision] became final and executory due to wrong legal advice, yet it does not mean that it was sleeping on its right for it filed a case against the shipping agent10

and/or the sub-agent. Therefore, there [was never] an occasion wherein petitioner had abandoned or declined to assert its right. Laches cannot stall respondents right to recover what is due to it especially where BOCs negligence in the safekeeping of the goods appears indubitable. There is no denying that BOC exhibited gross carelessness and ineptitude in the performance of its duty as it could not even explain why or how the goods vanished while in its custody. With this, it is difficult to exonerate petitioner from liability; otherwise, we would countenance a wrong and exacerbate respondents loss which to this day has remained unrecompensed. (3). Interest may be paid either as compensation for the use of money (monetary interest) referred to in Article 1956 of the New Civil Code or as damages (compensatory interest) under Article 2209 above cited. As clearly provided in [Article 2209], interest is demandable if: a) there is monetary obligation and b) debtor incurs delay. This case does not involve a monetary obligation to be covered by Article 2209. There is no dispute that this case was originally filed questioning the seizure of the shipment by the Bureau of Customs. Our decision subject of this action for revival [of judgment] did not refer to any monetary obligation by [petitioner] towards the [respondent]. In fact, if there was any monetary obligation mentioned, it referred to the obligation of [respondent] to pay the correct taxes, duties, fees and other charges before the release of the goods can be had. In one case, the Supreme Court held: "In a comprehensive sense, the term "debt" embraces not merely money due by contract, but whatever one is bound to render to another, either for contract or the requirement of the law, such as tax where the law imposes personal liability therefor." Therefore, the government was never a debtor to the petitioner in order that [Article] 2209 could apply. Nor was it in default for there was no monetary obligation to pay in the first place. There is default when after demand is made either judicially or extrajudicially. In other words, for interest to be demandable under Article 2209, there should be a monetary obligation and the debtor was in default Interest is not chargeable against petitioner except when it has expressly stipulated to pay it or when interest is allowed by the legislature or in eminent domain cases where damages sustained by the owner take the form of interest at the legal rate. Consequently, the CAs imposition of the 12% p.a. legal interest upon the finality of the decision of this case until the value of the goods is fully paid (as forbearance of credit) is likewise bereft of any legal anchor

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(4). Government Liability For Actual Damages Although it may be gainsaid that the satisfaction of respondents demand will ultimately fall on the government, and that, under the political doctrine of "state immunity," it cannot be held liable for governmental acts (jus imperii), we still hold that petitioner cannot escape its liability. The circumstances of this case warrant its exclusion from the purview of the state immunity doctrine. The Court cannot turn a blind eye to BOCs ineptitude and gross negligence in the safekeeping of respondents goods. We are not likewise unaware of its lackadaisical attitude in failing to provide a cogent explanation on the goods disappearance, considering that they were in its custody and that they were in fact the subject of litigation. The situation does not allow us to reject respondents claim on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine must be fairly observed and the State should not avail itself of this prerogative to take undue advantage of parties that may have legitimate claims against it. Accordingly, upon payment of the necessary customs duties by respondent, petitioners "payment shall be taken from the sale or sales of goods or properties seized or forfeited by the Bureau of Customs."

6). ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs COMMISSIONER OF INTERNAL REVENUE (G.R. No. 145526/ March 16, 2007) Facts: On March 31, 1993, petitioner Atlas Consolidated Mining and Development Corporation presented to Commissioner of Internal Revenue applications for refund or tax credit of excess input taxes. Petitioner attributed these claims to its sales of gold to the Central Bank, copper concentrates to Philippine Associated Smelting and Refining Corporation (PASAR) and pyrite to Philippine Phosphates, Inc. (Philphos) on the theory that these were zero-rated transactions resulting in refundable or creditable input taxes under Section 106(b) of the Tax Code of 1986. Due to respondents continuous inaction and the imminent expiration of the twoyear period for beginning a court action for tax credit or refund, petitioner brought its claims to the Court of Tax Appeals (CTA) by way of a petition for review. The CTA denied petitioners claims on the grounds of prescription and insufficiency of evidence. Petitioner appealed to the Court of Appeals (CA). The CA reversed the CTAs ruling on the matter of prescription but affirmed the latters decision in all other respects. Petitioners motion for reconsideration was denied for lack of merit. Thereupon, petitioner filed this appeal by certiorari12

Issues: 1. Whether or not the petitioner is entitled for the tax refund? 2. Whether or not the documentary requirements imposed by Revenue Regulations 3-88 applied only to administrative claims for refund or tax credit, should have had no bearing in a judicial claim for refund in the CTA which was "entirely independent of and distinct from the administrative claim? 3. Whether or not the summary and certification of an independent certified public accountant required by CTA Circular 1-95(1)12 "constitute the principal evidence" and rendered superfluous the submission of VAT invoices and receipts? Ruling: 1. The petitioner is not entitled to tax refund. It has always been the rule that those seeking tax refunds or credits bear the burden of proving the factual bases of their claims and of showing, by words too plain to be mistaken, that the legislature intended to entitle them to such claims. The rule, in this case, required petitioner to (1) show that its sales qualified for zero-rating under the laws then in force and (2) present sufficient evidence that those sales resulted in excess input taxes. It complied with the first requirement but failed in the second requirement. 2. A judicial claim for refund or tax credit in the CTA is not an original action but an appeal by way of petition for review of a previous, unsuccessful administrative claim. Therefore, as in every appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial agency did not have any reason to deny its claims. In this case, it was necessary for petitioner to show the CTA not only that it was entitled under substantive law to the grant of its claims but also that it satisfied all the documentary and evidentiary requirements for an administrative claim for refund or tax credit 3. There is nothing in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT payments. The circular was promulgated to avoid the timeconsuming procedure of presenting, identifying and marking of documents before the Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices and submitting the same to the court after the independent CPA shall have examined and compared them with the originals. Without presenting these pre-marked documents as evidence, the court cannot verify the authenticity and veracity of the independent auditors conclusions.

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(7). BANCO FILIPINO SAVINGS & MORTGAGE BANK VS. COURT OF APPEALS ET AL. (G.R.No.155682 / March 27, 2007) Facts : In its BIR Form No. 1702 or Corporation/Partnership Annual Income Tax Return for fiscal year 1995, Banco Filipino Savings and Mortgage Bank (petitioner) declared a net operating loss of P211,476,241.00 and total tax credit of P13,103,918.00, representing the prior years excess tax credit of P11,481,342.00 and creditable withholding taxes of P1,622,576.00. On February 4, 1998, petitioner filed with the Commissioner of Internal Revenue (CIR) an administrative claim for refund of creditable taxes withheld for the year 1995 in the amount of P1,622,576.00. As the CIR failed to act on its claim, petitioner filed a Petition for Review with the CTA on April 13, 1998. It attached to its Petition several documents, including: 1) Certificate of Income Tax Withheld on Compensation (BIR Form No. W-2) for the Year 1995 executed by Oscar Lozano covering P720.00 as tax withheld on rental income paid to petitioner (Exhibit "II"); and 2) Monthly Remittance Return of Income Taxes Withheld under BIR Form No. 1743W issued by petitioner, indicating various amounts it withheld and remitted to the BIR (Exhibits "C" through "Z"). In his Answer, respondent CIR interposed special and affirmative defenses, specifically that petitioners claim is not properly documented. The CTA issued the October 5, 1999 Decision granting only a portion of petitioners claim for refund. The CTA allowed the P18,884.40-portion of petitioners claim for refund as these are covered by Exhibits "AA" through "HH", which are all in BIR Form No. 1743-750 (Certificate of Creditable Tax Withheld at Source) issued by various payors and reflecting taxes deducted and withheld on petitioner-payees income from the rental of its real properties. However, the CTA disallowed the P1,603,691.60-portion of petitioners claim for tax refund on the ground that its Exhibit "II" and Exhibits "C" through "Z" lack probative value as these are not in BIR Form No. 1743.1, the form required under Revenue Regulations No. 6-85 (as amended), to support a claim for refund. Petitioner filed a Petition for Review with the CA but the CA dismissed the same. Its Motion for Reconsideration was also denied, hence, the Petition for Review on Certiorari under Rule 45 of the Rules of Court. Issue: Whether or not the CA erred in affirming the disallowance by the CTA of P1,603,691.60 of petitioners claim for tax refund on the ground that the latters Exhibit "II" and Exhibits "C" through "Z" lack probative value as not being in accordance with BIR Form No. 7431.1.14

Ruling: There are three conditions for the grant of a claim for refund of creditable withholding tax: the claim is filed with the CIR within the two-year period from the date of payment of the tax; it is shown on the return of the recipient that the income payment received was declared as part of the gross income; and, the fact of withholding is 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 therefrom. The third condition is specifically imposed under Section 10 of Revenue Regulation No. 6-85 (as amended) At the time material to this case, the requisite information regarding withholding taxes from the sale of acquired assets can be found in BIR Form No. 1743.1. As described in Section 6 of Revenue Regulations No. 6-85, BIR Form No. 1743.1 is a written statement issued by the payor as withholding agent showing the income or other payments made by the said withholding agent during a quarter or year and the amount of the tax deducted and withheld therefrom. It readily identifies the payor, the income payment and the tax withheld. It is complete in the relevant details which would aid the courts in the evaluation of any claim for refund of creditable withholding taxes. Petitioners Exhibits "C" through "Z" cannot take the place of BIR Form No. 1743.1 and its Exhibit "II," of BIR Form No. 1743-750.

(8). INT'L EXCHANGE BANK VS. COMMISSIONER OF INTERNATIONAL REVENUE (G.R. No. 171266 April 4, 2007 ) Facts: On april 13, 1999, petitioner, CIR served a Letter of Authority to International Exchange Bank (IBank) directing the examination of petitioners books of accounts and other accounting records for the year 1997 and "unverified prior years." IBank subsequently received on November 16, 1999 a "Notice to Taxpayer" from the Assistant Commissioner, Enforcement Service of the BIR, notifying it of the results of the examination re its tax liabilities amounting to P465,158,118.31 for 1996 and P17,033,311,974.23 for 1997, and requesting it to appear for an informal conference to present its side. After discussions, the parties resolved issues relating to transactions involving payment of final withholding and gross receipts taxes. On January 6, 2000, petitioner was personally served with an undated PreAssessment Notice (PAN) assessing it of deficiency on:

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(a). Purchases of securities from the BSP or Government Securities Purchased-Reverse Repurchase Agreement (RRPA); and (b). FSD for the taxable years 1996 and 1997, amounting to P25,180,492.15 and P75,383,751.55, respectively. According to the PAN, Government Securities Purchased-RRP is subject to DST under Section 180 of the NIRC, as amended, since this falls under the classification of Deposits Substitutes as defined by RR 3-97 while Savings DepositFSD should be treated as time deposits considering that its features are very much the same as time deposits (interest rates; terms). In substance, these are certificate[s] of deposits subject to Documentary Stamp Tax under Section 180 of the NIRC which provides among others that certificate[s] of deposits bearing interest and others not payable on sight or demand are subject to DST. The PAN advised petitioner that in case it was not agreeable to the above-quoted findings, it may "see the Assistant Commissioner-Enforcement Service to clarify issues arising from the investigation and/or review," and its failure to do so within 15 days from receipt of the PAN would mean that it was agreeable. On January 12, 2000, petitioner received a Formal Assessment Notice (FAN) for deficiency DST on its RRPA and FSD, including surcharges, in the amounts of P25,180,492.15 for 1996 and P75,383,751.55 for 1997, and an accompanying demand letter requesting payment thereof within 30 days. Acting on the FAN, IBank filed on February 11, 2000 a protest letter alleging that the assessments should be reconsidered on the grounds that: (1). the assessments are null and void for having been issued without any authority and due process, and were made beyond the prescribed period for making assessments; (2). there is no law imposing DST on RRPA, and assuming that DST was payable, it is the BSP which is liable therefor; (3). there is no law imposing DST on its FSD; and (4). assuming the deficiency assessments for DST were proper, the imposition of surcharges was patently without legal authority. As the BIR failed to act on the protest, IBank filed a petition for review before the CTA. CTA First Division ordered that the IBanks deficiency assessments pertaining to the reverse purchase agreements in the amounts of P6,720,183.77 and P22,838,302.16 inclusive of surcharges, for the years 1996 and 1997, respectively, be CANCELLED and WITHDRAWN. However, the deficiency assessments pertaining to savings deposits-FSD were UPHELD and IBank was16

ORDERED to PAY the amount of P71,005,757.77 representing deficiency DST for the years 1996 and 1997 plus 20% delinquency interest from February 12, 2000 until fully paid pursuant to Section 249 of the 1997 NIRC. CTA En banc affirmed the CTA Division, thus, the instant petition before the SC. ISSUE: Whether or not petitioners FSD is subject to DST for the years assessed. RULING: The applicable provision is Section 180 of the Tax Code, as amended by R.A. 7660, which reads: 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 non-negotiable, 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, xxx. (Emphasis and underscoring supplied) In resolving the issue, it is necessary to determine whether petitioners Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and characteristics as a time deposit. In this case, a depositor of a savings depositFSD is required to keep the money with the bank for at least thirty (30) days in order to yield a higher interest rate. Otherwise, the deposit earns interest pertaining only to a regular savings deposit. The same feature is present in a time deposit. A depositor is allowed to withdraw his time deposit even before its maturity subject to bank charges on its pre-termination and the depositor loses his entitlement to earn the interest rate corresponding to the time deposit. Instead, he earns interest pertaining only to a regular savings deposit. Thus, petitioners argument that the savings deposit-FSD is withdrawable anytime as opposed to a time deposit which has a maturity date, is not tenable. In both cases, the deposit may be withdrawn anytime but the depositor gets to earn a lower rate of interest. The only difference lies on the evidence of deposit, a savings deposit-FSD is evidenced by a passbook, while a time deposit is evidenced by a certificate of time deposit."

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(9). COMMISSIONER OF INTERNAL REVENUE VS. BANK OF THE PHILIPPINE ISLANDS (G.R. No. 134062/ April 17, 2007 ) Facts: In two notices dated October 28, 1988, petitioner CIR assessed respondent bank BPIs deficiency percentage and documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63: In a letter dated December 10, 1988, BPI repliedthe CIRs "deficiency assessments" are no assessments at all. The taxpayer is not informed, even in the vaguest terms, why it is being assessed a deficiency; that the alleged deficiency documentary stamp tax has no basis as these are subject to a compromise agreement between CIR and BAP; that as to the alleged deficiency percentage tax, the assessment cannot be protested since the letter does not even tell the taxpayer what particular percentage tax is involved and how the examiner arrived at the deficiency. As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay or protest the assessment. On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 explaining the basis of the assessments, although not obliged under existing laws at that time and stating that this constitutes the final decision of this office on the matter. On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs May 8, 1991 letter. This was denied in a letter dated December 12, 1991, received by BPI on January 21, 1992. On February 18, 1992, BPI filed a petition for review in the CTA. In a decision dated November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become final and unappealable. The CTA ruled that BPI failed to file its protest on time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA 1125. It denied reconsideration in a resolution dated May 27, 1996. On appeal, the CA reversed the tax courts decision and resolution and remanded the case to the CTA for a decision on the merits. It ruled that the October 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared that the proper assessments were those contained in the May 8, 1991 letter which provided the reasons for the claimed deficiencies. Thus, it held that BPI filed the petition for review in the CTA on time. The CIR elevated the case to this Court. Issues:18

(1). Are the October 28, 1988 notices valid assessments. (2). Are the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 final and unappealable? and (3). Is BPI liable for the said taxes? Ruling: (1). On the first issue, assessments were made pursuant to the prevailing law which was Section 270 (now renumbered Section 228) of the NIRC, the only requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law required a written statement to the taxpayer of the law and facts on which the assessments were based. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial legislation, nothing less. Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed period. Hence, there was no doubt the October 28, 1988 notices sufficiently met the requirements of a valid assessment under the old law and jurisprudence. The provision that 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 was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997. Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted sentence. The fact that the amendment was necessary showed that, prior to the introduction of the amendment, the statute had an entirely different meaning. Furthermore, BPIs theory that they were deprived of due process when the CIR failed to inform it of the factual and legal bases of the assessments even if these were not called for under the old law was debunked when BPI was given the opportunity to discuss with the CIR the assessment when the latter issued the former a Pre-Assessment Notice which BPI ignored and that the examiners themselves went to BPI and talked to them. (2). Under the former Section 270, there were two instances when an assessment becomes final and unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse decision on the protest was not appealed to the CTA within 30 days from receipt of the final decision. Considering that the October 28, 1988 notices were valid assessments, BPI should have protested the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not qualify as a protest since the letter itself stated that "as soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayers decision on whether to pay or protest the19

assessment." Hence, by its own declaration, BPI did not regard this letter as a protest against the assessments. As a matter of fact, BPI never deemed this a protest since it did not even consider the October 28, 1988 notices as valid or proper assessments. (3). The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day period provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then on, barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits. Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed to have failed to appeal the CIRs final decision regarding the disputed assessments within the 30-day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final decision on the matter." BPI therefore had 30 days from the time it received the decision on June 27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer the repercussions of its omission and be liable for the said taxes, thereby resolving the third issue of the case. (10) COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PHILIPPINE HEALTH CARE PROVIDERS, INC., Respondent. (G.R. No. 168129/ 24 April 2007) Facts: The Philippine Health Care Providers, Inc., is a corporation organized to establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization. On July 25, 1987, E.O. No. 273, imposing VAT was issued. Prior to effectivity thereof, Healthcare wrote the CIR inquiring whether the services it provides to the participants in its health care program are exempt from the payment of the VAT. On June 8, 1988, CIR, through the VAT Review Committee of the Bureau of Internal Revenue (BIR), issued VAT Ruling No. 231-88 stating that as a provider of medical services, it is exempt from the VAT coverage. This Ruling was subsequently confirmed by Regional Director Osmundo G. Umali of Revenue Region No. 8 in a letter dated April 22, 1994.

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On January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took effect substantially adopting the provisions of EO 273 on VAT and RA 7716 on E-VAT. On October 1, 1999, the BIR sent Preliminary Assessment Notice to Healthcare for deficiency VAT and DST for the years 1996/1997. It was protested by healthcare. CIR then sent a demand letter with attached four assessments for the same taxes which were also protested by Healthcare. Issues: (1) Are the services subject to VAT? (2) Does VAT Ruling No. 231-88 providing exemption from VAT have retroactive application? Ruling: (1). Section 103 of the NIRC specifies the exempt transactions from the provision of Section 102, thus: Medical, dental, hospital and veterinary services except those rendered by professionals The import of the above provision is plain. It requires no interpretation. It contemplates the exemption from VAT of taxpayers engaged in the performance of medical, dental, hospital, and veterinary services. Under the prepaid group practice health care delivery system adopted by Health Care, individuals enrolled in Health Care's health care program are entitled to preventive, diagnostic, and corrective medical services to be dispensed by Health Care's duly licensed physicians, specialists, and other professional technical staff participating in said group practice health care delivery system established and operated by Health Care. Such medical services will be dispensed in a hospital or clinic owned, operated, or accredited by Health Care. To be entitled to receive such medical services from Health Care, an individual must enroll in Health Care's health care program and pay an annual fee. Enrollment in Health Care's health care program is on a year-toyear basis and enrollees are issued identification cards. We note that these factual findings of the CTA were neither modified nor reversed by the Court of Appeals. It is a doctrine that findings of fact of the CTA, a special court exercising particular expertise on the subject of tax, are generally regarded as final, binding, and conclusive upon this Court, more so where these do not conflict with the findings of the Court of Appeals. Perforce, as respondent does not actually provide medical and/or hospital services, as provided under Section 103 on exempt transactions, but merely arranges for the same, its services are not VAT-exempt.21

(2). Section 246 of the 1997 Tax Code, as amended, provides that rulings, circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are: (1) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (2) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (3) where the taxpayer acted in bad faith. There is no showing that respondent "deliberately committed mistakes or omitted material facts" when it obtained VAT Ruling No. 231-88 from the BIR. The CTA held that respondent's letter which served as the basis for the VAT ruling "sufficiently described" its business and "there is no way the BIR could be misled by the said representation as to the real nature" of said business. It is thus apparent that when VAT Ruling No. 231-88 was issued in respondent's favor, the term "health maintenance organization" was yet unknown or had no significance for taxation purposes. Respondent, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88. (11). RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent. (G.R. No. 168498/ 24 April 2007) Facts: This involves a deficiency assessment for DST on special savings accounts and gross onshore tax imposed on RCBC by the BIR. In an earlier SC Decision dated June 16, 2006, the SC affirmed the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50 and Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475. The said resolutions of the CTA dismissed the petition for review filed by RCBC on the ground that the same was beyond the 30 day period after the expiration of the 180 day period of inaction on the part of the BIR. RCBC claims in its motion for reconsideration that its former counsels failure to file petition for review with the Court of Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable Issue: Is the petition for review filed out of time? Ruling:

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If indeed there was negligence, this is obviously on the part of petitioners own counsel whose prudence in handling the case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for the Court to resolve first the issue of this Courts jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution. Petitioners counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been. Such kind of negligence cannot support petitioners claim for relief from judgment. Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also, petitioners failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Governments right to assess. In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other. In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission of documents. Thus, RCBC opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory. Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioners inaction.23

(12). PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner, vs.COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF FINANCE and the CITY OF ILOILO, respondents. (G.R. No. 169836/ 31 July 2007) Facts: Beginning October 31, 1981, the then Ministry of Public Works and Highways reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo City, and constructed thereon the Iloilo Fishing Port Complex (IFPC), consisting of breakwater, a landing quay, a refrigeration building, a market hall, a municipal shed, an administration building, a water and fuel oil supply system and other port related facilities and machineries. Upon its completion, the same was turned over to the Philippine Fisheries Development Authority (PFDA) for its operation. Notwithstanding said turn over, title to the land and buildings of the IFPC remained with the Republic of the Philippines. PFDA in the meantime leased portions of IFPC to private firms and individuals engaged in fishing related businesses. In May 1988, the City of Iloilo assessed the entire IFPC for real property taxes. The assessment remained unpaid for the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the tax delinquency, the City of Iloilo scheduled on August 30, 1990, the sale at public auction of the IFPC. The PFDA assailed such assessment on the ground that it is exempt from payment of real estate tax. Issues: (1). Is PFDA liable to pay real property tax to the City of Iloilo? (2). Can IFPC be sold at public auction to satisfy the tax delinquency? Ruling: To resolve said issues, the Court has to determine (1) whether the Authority is a government owned or controlled corporation (GOCC) or an instrumentality of the national government; and (2) whether the IFPC is a property of public dominion. PFDA is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax. However, said exemption does not apply to the portions of the IFPC which the PFDA leased to24

private entities. With respect to these properties, PFDA is liable to pay real property tax. Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency. The Court makes a distinction between a GOCC and an instrumentality. For an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must not distribute any part of their income to said members. PFDA is actually a national government instrumentality which is defined as an agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or nonstock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, the Authority which is tasked with the special public function to carry out the governments policy "to promote the development of the countrys fishing industry and improve the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic products," exercises the governmental powers of eminent domain, and the power to levy fees and charges. At the same time, the Authority exercises "the general corporate powers conferred by laws upon private and government-owned or controlled corporations." On the basis of these parameters , PFDA should be classified as an instrumentality of the national government. As such, it is generally exempt from payment of real property tax, except those portions which have been leased to private entities. (2). PFDA is classified as an instrumentality of the national government which is liable to pay taxes only with respect to the portions of the property, the beneficial use of which were vested in private entities. When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities.2025

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. In case PFDA fails to pay the real property taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency. In Chavez v. Public Estates Authority it was held that reclaimed lands are lands of the public domain and cannot, without Congressional fiat, be subject of a sale, public or private, thus: The salient provisions of CA No. 141, on government reclaimed, foreshore and marshy lands of the public domain, provide that the only way the government can sell to private parties government reclaimed and marshy disposable lands of the public domain is for the legislature to pass a law authorizing such sale. CA No. 141 does not authorize the President to reclassify government reclaimed and marshy lands into other non-agricultural lands under Section 59 (d). Lands classified under Section 59 (d) are the only alienable or disposable lands for nonagricultural purposes that the government could sell to private parties. In the same vein, the port built by the State in the Iloilo fishing complex is a property of the public dominion and cannot therefore be sold at public auction. Article 420 of the Civil Code also provides that the following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.xxxx The Iloilo fishing port which was constructed by the State for public use and/or public service falls within the term "port" in Article 420 of the Civil Code and being a property of public dominion the same cannot be subject to execution or foreclosure sale. In order to satisfy the tax, the City of Iloilo has to resort to other means of satisfying such delinquency.

(13). COMMISSIONER OF INTERNAL REVENUE, vs. ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado, (G.R. No. 154068 / August 3, 2007) Facts: Acosta is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period January 1, 1996 to December 31, 1996, she was assigned in a foreign country. During that period, Intel withheld the taxes due on her compensation income and remitted to the Bureau of Internal Revenue (BIR) the amount of P308,084.56. On March 21, 1997, Acosta and her husband filed with the BIR their Joint Individual Income Tax Return for the year 1996. On June 17, 1997, Acosta,26

through her representative, filed an amended return and a Non-Resident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in the amount of P14,455.76. On October 8, 1997, she filed another amended return indicating an overpayment of P358,274.63. Claiming that the income taxes withheld and paid by Intel and Acosta resulted in an overpayment of P340,918.92, she filed on April 15, 1999 a petition for review with the Court of Tax Appeals (CTA) which was opposed by CIR for alleged failure of respondent to file the mandatory written claim for refund before the CIR. Issue: Does the CTA have jurisdiction over petitions for review when there is failure to file mandatory written claim for refund before the CIR. Ruling: A claimant must first file a written claim for refund, categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in court. This obviously is intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure. Tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government. As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund. To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction. (14). ). PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY vs. THE HONORABLE COURT OF APPEALS (G.R. No. 150301/ 02 October 2007) Facts: The controversy arose when respondent Municipality of Navotas assessed the real estate taxes allegedly due from petitioner Philippine Fisheries Development Authority (PFDA) for the period 1981-1990 on properties under its jurisdiction, management and operation located inside the Navotas Fishing Port Complex (NFPC). The assessed taxes remained unpaid despite the demands made by the municipality which prompted it, through Municipal Treasurer Florante M. Barredo, to give notice to petitioner on October 29, 1990 that the NFPC will be27

sold at public auction on November 30, 1990 in order that the municipality will be able to collect the delinquent realty taxes which, as of June 30, 1990, amounted to P23,128,304.51, inclusive of penalties. Petitioner sought the deferment of the auction sale claiming that the NFPC is owned by the Republic of the Philippines, and pursuant to Presidential Decree (P.D.) No. 977, it (PFDA) is not a taxable entity. Issue: Is NFPC exempt from payment of real property tax? Ruling: Local government units, pursuant to the fiscal autonomy granted by the provisions of Republic Act No. 7160 or the 1991 Local Government Code, can impose realty taxes on juridical persons subject to the limitations enumerated in Section 133 of the Code, to wit: Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following xxxxx (o) taxes, fees, charges of any kind on the national government, its agencies and instrumentalities, and local government units. The exemption does not apply when the beneficial use of the government property has been granted to a taxable person. Section 234 (a) of the Code states that real property owned by the Republic of the Philippines or any of its political subdivisions is exempted from payment of the real property tax "except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." As a rule, PFDA, being an instrumentality of the national government, is exempt from real property tax but the exemption does not extend to the portions of the NFPC that were leased to taxable or private persons and entities for their beneficial use. (15).ERICSSON TELECOMMUNICATIONS, INC., versus CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al. ( G.R. No. 176667 November 22, 2007) Facts: Ericsson Telecommunications, Inc. (ERICSSON), a corporation with principal office in Pasig City, is engaged in the design, engineering, and marketing of telecommunication facilities/system. In an Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City, it was assessed a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its28

audited financial statements for the years 1997 and 1998. Protest dated December 21, 2000 was filed by ERICSSON claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. The City of Pasig issued another Notice of Assessment on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again, a Protest was filed on January 21, 2002, reiterating its position that the local business tax should be based on gross receipts and not gross revenue. Issue: Is local business tax on contractors based on gross receipts or gross revenue? Ruling: The applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors which provides that the municipality may impose taxes on contractors and other independent contractors, in accordance with the following schedule of gross receipts for the preceding calendar year. The provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as to include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT). The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards, which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends), which is measured at the fair value of the consideration received or receivable. The audited financial statements of ERICSSON reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because it uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the amount can be determined with reasonable29

accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income. The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.

(16). 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 REVENUE DISTRICT OFFICER, BIR, Special Economic Zone, and OFFICE OF THE SOLICITOR GENERAL ( GR 163445/ 18 December 2007) Facts: 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. Subsequently the Secretary of Finance, through the recommendation of then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato, issued several revenue regulations relating to the tax incentives of companies within the 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. 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. They filed a complaint before the RTC of Olongapo City, praying for the nullification of RMC No. 31-2003 and other revenue regulations and RMCs for being unconstitutional and an ultra vires act. Consequently, the 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 for30

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. Issue: Does the trial court have jurisdiction over the subject matter of this case? Ruling: 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. 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. Petitioners contend that based 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. B. 2008 CASES (17). STATE LAND INVESTMENT CORPORATION, Petitioner VS. COMMISSIONER OF INTERNAL REVENUE, Respondent ( GR 171956/ 18 January 2008) Facts: State Land Investment Corporation, petitioner, is a corporation duly organized and existing under the laws of the Republic of the Philippines. It is a real estate developer engaged in the development and marketing of low, medium and high cost subdivision projects in the cities of Manila, Pasay and Quezon; and in Cavite and Bulacan.31

On April 15, 1997, it its annual income tax return for the calendar year ending December 31, 1997. reflecting taxable income of P27,723,328.00 with tax due in the amount of P9,703,165.54. Its total tax credits for the same year amounted to P23,632,959.05, inclusive of its prior years excess tax credits of P9,289,084.00. After applying its total tax credits of P23,632,959.05 against its income tax liability of P9,703,165.54, the amount of P13,929,793.51 remained unutilized. Petitioner opted to apply this amount as tax credit to the succeeding taxable year 1998. On April 15, 1999, petitioner again filed with the BIR its annual income tax return for the calendar year ending December 31, 1998, declaring a minimum corporate income tax due in the amount of P4,187,523.00. Petitioner charged the said amount against its 1997 excess credit of P13,929,793.51, leaving a balance of P9,742,270.51. Petitioner filed with the BIR a claim for refund of its unutilized tax credit for the year 1997 in the amount P 9,742,270.51. On April 13, 2000, in order to toll the running of the two-year prescriptive period and there being no immediate action on the part of the CIR, petitioner filed a petition for review with the Court of Tax Appeals (CTA) which denied the same, thus, the instant petition to the SC. Issue: Is Stateland entitled to the refund of P9,742,270.51 representing the excess creditable withholding tax for taxable year 1997? . Ruling: Commissioner of Internal Revenue is ordered to refund to petitioner the amount of P9,742,270.51 as excess creditable withholding taxes paid for taxable year 1997 Under Section 69 (now Section 76) of the Tax Code then in force, a corporation entitled to a refund of excess creditable withholding tax may either obtain the refund or credit the amount to the succeeding taxable year, thus: Section 69. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) (b) Pay the excess tax still due; or Be refunded the excess amount paid, as the case may be.32

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. Section 69 clearly provides that a taxable corporation is entitled to a tax refund when the sum of the quarterly income taxes it paid during a taxable year exceeds its total income tax due also for that year. Consequently, the refundable amount that is shown on its final adjustment return may be credited, at its option, against its quarterly income tax liabilities for the next taxable year. Excess income taxes paid in a year that could not be applied to taxes due the following year may be refunded the next year. Thus, if the excess income taxes paid in a given taxable year have not been entirely used by a taxable corporation against its quarterly income tax liabilities for the next taxable year, the unused amount of the excess may still be refunded, provided that the claim for such a refund is made within two years after payment of the tax. Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at the expense of its law-abiding citizens. Under the principle of solutio indebiti provided in Art. 2154, Civil Code, the BIR received something "when there [was] no right to demand it," and thus, it has the obligation to return it. Heavily militating against respondent Commissioner is the ancient principle that no one, not even the state, shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund of the wrongly held taxes. . (18). EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners, vs. BATHALA MARKETING INDUSTRIES, INC., respondent. (G.R. No. 150806/ 28 January 2008) Facts: In May 1997, Bathala Marketing Industries, Inc., as lessee, renewed its Contract of Lease with Ponciano L. Almeda (Ponciano) representing the lessor over a portion of the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City, consisting of 7,348.25 square meters, for a monthly rental of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless sooner terminated. SIXTH - It is expressly understood by the parties hereto that the rental rate stipulated is based on the present rate of assessment on the property, and that in case the assessment should33

hereafter be increased or any new tax, charge or burden be imposed by authorities on the lot and building where the leased premises are located, LESSEE shall pay, when the rental herein provided becomes due, the additional rental or charge corresponding to the portion hereby leased; provided, however, that in the event that the present assessment or tax on said property should be reduced, LESSEE shall be entitled to reduction in the stipulated rental, likewise in proportion to the portion leased by him; After the death of Ponciano and during effectivity of the contract, the lessors advised Bathala that Value Added Tax (VAT) on its monthly rentals shall be collected. In response, Bathala contends that VAT may not be imposed as the rentals fixed in the contract of lease were supposed to include the VAT therein, considering that their contract was executed on May 1, 1997 when the VAT law had long been in effect. Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but continued to pay the stipulated amount set forth in their contract. Issue: Ruling: Clearly, the person primarily liable for the payment of VAT is the lessor who may choose to pass it on to the lessee or absorb the same. Beginning January 1, 1996, the lease of real property in the ordinary course of business, whether for commercial or residential use, when the gross annual receipts exceed P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of the 10% VAT by the lessor, the actual shifting of the said tax burden upon the lessee is clearly optional on the part of the lessor, under the terms of the statute. The word "may" in the statute, generally speaking, denotes that it is directory in nature. It is generally permissive only and operates to confer discretion. In this case, despite the applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716, granting the lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of January 1, 1996, the original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10% VAT nor provided for its additional imposition when they renewed the contract of lease in May 1997. More significantly, said lessor did not actually collect a 10% VAT on the monthly rental due from the lessee-appellee after the execution of the May 1997 contract of lease. The inevitable