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RESOLUTION PERLAS-BERNABE, J.: Before the Court is a Petition for Review seeking to reverse and set aside the Decision dated August 3, 2007 of the 1 2 3 Court of Tax Appeals (CTA) En Banc, and the Resolutions dated November 20, 2006 and February 22, 2007 of the CTA First Division dismissing Asia International Auctioneers, I nc.’s (AIA) appeal due to its alleged failure to timely protest the Commissioner of Internal Revenue’s (CIR) tax assessment. The Factual Antecedents AIA is a duly organized corporation operating within the Subic Special Economic Zone. It is engaged in the 4 importation of used motor vehicles and heavy equipment which it sells to the public through auction. On August 25, 2004, AIA received from the CIR a Formal Letter of Demand, dated July 9, 2004, containing an assessment for deficiency value added tax (VAT) and excise tax in the amounts of P 102,535,520.00 and P4,334,715.00, respectively, or a total amount of P 106,870,235.00, inclusive of penalties and interest, for 5 auction sales conducted on February 5, 6, 7, and 8, 2004. 6 AIA claimed that it filed a protest letter dated August 29, 2004 through registered mail on August 30, 2004. It also 7 submitted additional supporting documents on September 24, 2004 and November 22, 2004. 8 The CIR failed to act on the protest, prompting AIA to file a petition for review before the CTA on June 20, 2005, to 9 which the CIR filed its Answer on July 26, 2005. 10 On March 8, 2006, the CIR filed a motion to dismiss on the ground of lack of jurisdiction citing the alleged failure of AIA to timely file its protest which thereby rendered the assessment final and executory. The CIR denied receipt of the protest letter dated August 29, 2004 claiming that it only received the protest letter dated September 24, 11 2004 on September 27, 2004, three days after the lapse of the 30-day period prescribed in Section 228 of the Tax 12 Code. In opposition to the CIR’s motion to dismiss, AIA submitted the following evidence to prove the filing and the receipt of the protest letter dated August 29, 2004: (1) the protest letter dated August 29, 2004 with attached 13 Registry Receipt No. 3824; (2) a Certification dated November 15, 2005 issued by Wilfredo R. De Guzman, Postman III, of the Philippine Postal Corporation of Olongapo City, stating that Registered Letter No. 3824 dated August 30, 2004 , addressed to the CIR, was dispatched under Bill No. 45 Page 1 Line 11 on September 1, 2004 14 from Olongapo City to Quezon City; (3) a Certification dated July 5, 2006 issued by Acting Postmaster, Josefina M. Hora, of the Philippine Postal Corporation-NCR, stating that Registered Letter No. 3824 was delivered to the BIR 15 Records Section and was duly received by the authorized personnel on September 8, 2004; and (4) a certified photocopy of the Receipt of Important Communication Delivered issued by the BIR Chief of Records Division, Felisa 16 U. Arrojado, showing that Registered Letter No. 3824 was received by the BIR. AIA also presented Josefina M. Hora and Felisa U. Arrojado as witnesses to testify on the due execution and the contents of the foregoing documents. Ruling of the Court of Tax Appeals After hearing both parties, the CTA First Division rendered the first assailed Resolution dated November 20, 2006 17 granting the CIR’s motion to dismiss. Citing Republic v. Court of Appeals, it ruled that "while a mailed letter is deemed received by the addressee in the course of the mail, still, this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the 18 presumption to prove that the mailed letter indeed was received by the addressee." The CTA First Division faulted AIA for failing to present the registry return card of the subject protest letter. Moreover, it noted that the text of the protest letter refers to a Formal Demand Letter dated June 9, 2004 and not the subject Formal Demand Letter dated July 9, 2004. Furthermore, it rejected AIA’s argument that the September 24, 2004 letter merely served as a cover letter to the submission of its supporting documents pointing out that 19 there was no mention therein of a prior separate protest letter. AIA’s motion for reconsideration was subsequently denied by the CTA First Division in its second assailed Resolution dated February 22, 2007. On appeal, the CTA En Banc in its Decision dated August 3, 2007 affirmed the ruling of the CTA First Division holding that AIA’s evidence was not sufficient to prove receipt by the CIR of the protest letter dated August 24, 2004. Hence, the instant petition. Issue Before the Court Both parties discussed the legal bases for AIA’s tax liability, unmindful of the fact that this case stemmed from the CTA’s dismissal of AIA’s petition for review for failure to file a timely protest, without passing upon the substantive merits of the case. Relevantly, on January 30, 2008, AIA filed a Manifestation and Motion with Leave of the Honorable Court to Defer 20 or Suspend Further Proceedings on the ground that it availed of the Tax Amnesty Program under Republic Act 21 9480 (RA 9480), otherwise known as the Tax Amnesty Act of 2007. On February 13, 2008, it submitted to the 22 Court a Certification of Qualification issued by the BIR on February 5, 2008 stating that AIA "has availed and is qualified for Tax Amnesty for the Taxable Year 2005 and Prior Years" pursuant to RA 9480.
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With AIA’s availment of the Tax Amnesty Program under RA 9480, the Court is tasked to first determine its effects on the instant petition. Ruling of the Court A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute waiver by the government of its right 23 to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a tax amnesty, similar 24 to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. In 2007, RA 9480 took effect granting a tax amnesty to qualified taxpayers for all national internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained 25 unpaid as of December 31, 2005. The Tax Amnesty Program under RA 9480 may be availed of by any person except those who are disqualified under Section 8 thereof, to wit: Section 8. Exceptions. — The tax amnesty provided in Section 5 hereof shall not extend to the following persons or cases existing as of the effectivity of this Act: (a) Withholding agents with respect to their withholding tax liabilities ; (b) Those with pending cases falling under the jurisdiction of the Presidential Commission on Good Government; (c) Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft and Corrupt Practices Act; (d) Those with pending cases filed in court involving violation of the Anti-Money Laundering Law; (e) Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII of the Revised Penal Code; and (f) Tax cases subject of final and executory judgment by the courts.(Emphasis supplied) The CIR contends that AIA is disqualified under Section 8(a) of RA 9480 from availing itself of the Tax Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes. This argument is untenable. The CIR did not assess AIA as a withholding agent that failed to withhold or remit the deficiency VAT and excise tax to the BIR under relevant provisions of the Tax Code. Hence, the argument that AIA is "deemed" a withholding agent for these deficiency taxes is fallacious. Indirect taxes, like VAT and excise tax, are different from withholding taxes. 1âwphi1 To distinguish, in indirect taxes, the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another 26 person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. On the other hand, in case of withholding taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent who merely collects, by 27 withholding, the tax due from income payments to entities arising from certain transactions and remits the same to the government. Due to this difference, the deficiency VAT and excise tax cannot be "deemed" as withholding taxes merely because they constitute indirect taxes. Moreover, records support the conclusion that AIA was 28 assessed not as a withholding agent but, as the one directly liable for the said deficiency taxes. The CIR also argues that AIA, being an accredited investor/taxpayer situated at the Subic Special Economic Zone, 29 should have availed of the tax amnesty granted under RA 9399 and not under RA 9480. This is also untenable. RA 9399 was passed prior to the passage of RA 9480. RA 9399 does not preclude taxpayers within its coverage from availing of other tax amnesty programs available or enacted in futuro like RA 9480. More so, RA 9480 does not exclude from its coverage taxpayers operating within special economic zones. As long as it is within the bounds of the law, a taxpayer has the liberty to choose which tax amnesty program it wants to avail. 30 Lastly, the Court takes judicial notice of the "Certification of Qualification" issued by Eduardo A. Baluyut, BIR Revenue District Officer, stating that AlA "has availed and is qualified for Tax Amnesty for the Taxable Year 2005 and Prior Years" pursuant to RA 9480. In the absence of sufficient evidence proving that the certification was issued in excess of authority, the presumption that it was issued in the regular performance of the revenue district 31 officer's official duty stands. WHEREFORE, the petition is DENIED for being MOOT and ACADEMIC in view of Asia International Auctioneers, Inc.'s (AlA) availment of the Tax Amnesty Program under RA 9480. Accordingly, the outstanding deficiency taxes of AlA are deemed fully settled.
TAX REVIEW CASES
ANGELES UNIVERSITY FOUNDATION, Petitioner,
G.R. No. 189999 Present:
- versus -
CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as
LEONARDO-DE CASTRO,J., Acting Chairperson, BERSAMIN, VILLARAMA, JR., ** PEREZ, and *** PERLAS-BERNABE, JJ.
Treasurer of Angeles City and ENGR. DONATO N. DIZON, in his capacity as Acting Angeles City Promulgated: Building Official, Respondents. June 27, 2012 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION VILLARAMA, JR., J.: Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,   which seeks to reverse and set aside the Decision dated July 28, 2009 and Resolution dated October 12, 2009  of the Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed the Decision dated September 21, 2007 of the Regional Trial Court of Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the payment of building permit and other fees and ordering respondents to refund the same with interest at the legal rate. The factual antecedents: Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25, 1962 and was converted into a non-stock, non-profit education foundation under the provisions of Republic Act (R.A.) No.  6055 on December 4, 1975. Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for a building permit for the construction of an 11-storey building of the Angeles University Foundation Medical Center in its main campus located at MacArthur Highway, Angeles City, Pampanga. Said office issued a Building Permit Fee Assessment in the amount of P126,839.20. An Order of Payment was also issued by the City Planning and Development Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as Locational  Clearance Fee. In separate letters dated November 15, 2005 addressed to respondents City Treasurer Juliet G. Quinsaat and Acting City Building Official Donato N. Dizon, petitioner claimed that it is exempt from the payment of the building permit and locational clearance fees, citing legal opinions rendered by the Department of Justice (DOJ). Petitioner also reminded the respondents that they have previously issued building permits acknowledging such exemption from payment of building permit fees on the construction of petitioner’s 4 -storey AUF Information Technology  Center building and the AUF Professional Schools building on July 27, 2000 and March 15, 2004, respectively. Respondent City Treasurer referred the matter to the Bureau of Local Government Finance (BLGF) of the Department of Finance, which in turn endorsed the query to the DOJ. Then Justice Secretary Raul M. Gonzalez, in his letter-reply dated December 6, 2005, cited previous issuances of his office (Opinion No. 157, s. 1981 and Opinion No. 147, s. st 1982) declaring petitioner to be exempt from the payment of building permit fees. Under the 1 Indorsement dated January 6, 2006, BLGF reiterated the aforesaid opinion of the DOJ stating further that “xxx the Department of Finance,  thru this Bureau, has no authority to review the resolution or the decision of the DOJ.” Petitioner wrote the respondents reiterating its request to reverse the disputed assessments and invoking the DOJ legal opinions which have been affirmed by Secretary Gonzalez. Despite petitioner’s plea, however, respondents refused to issue the building permits for the construction of the AUF Medical Center in the main campus and renovation of a school building located at Marisol Village. Petitioner then appealed the matter to City Mayor Carmelo  F. Lazatin but no written response was received by petitioner.  Consequently, petitioner paid under protest the following: Medical Center (new construction) Building Permit and Electrical Fee Locational Clearance Fee Fire Code Fee P 217,475.20 283,741.64 144,690.00 Total - P 645,906.84
School Building (renovation) Building Permit and Electrical Fee Locational Clearance Fee P 37,857.20 6,000.57
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No. No.51 Petitioner likewise paid the following sums as required by the City Assessor’s Office: Real Property Tax – Basic Fee P 86. petitioner pointed out that the Local Government Code of 1991 provides in Sec.74 Total . And while petitioner may be exempt from the payment of real property tax. v.10 SEF 43. On September 21. As to the real property taxes imposed on petitioner’s property located in Marisol Village.00  Total – P130. petitioner was granted exemption only from income tax derived from its educational activities and real property used exclusively for educational purposes. 2006 and August 7. Respondents appealed to the CA which reversed the trial court. import duties. Electrical Permit and Sanitary Building Permit.54 Locational Clearance Fee 1. as held  in Philippine Airlines.99] By reason of the above payments.662.99 plus interest at the rate of 12% per annum.A.64 [GRAND TOTAL . 8 of R. 8 of R.  In its Answer. it cannot yet utilize the same for its intended use.000. 193 that non-stock and non-profit educational institutions like petitioner retained the tax exemptions or incentives which have been granted to them.  SO ORDERED. No. 6055. 6055 should be considered repealed on the basis of Sec.825. fees may be regarded as taxes depending on the purpose of its exaction. On June 9. which impositions are really taxes considering that they are provided under the chapter on “Local Government Taxation” in reference to the “revenue raising power” of local government units (LGUs). it is not exempt from the payment of regulatory fees. In any case. Under letters dated June 15. respondent City  Treasurer denied the claim for refund. petitioner contended that. and also praying for the award of attorney’s fees in the amount of P300. 209 of the National Building Code as exempted from the building permit fee. following the ejusdem generisrule.000. b.125. Plaintiff is exempt from the payment of building permit and other fees Ordering the Defendants to refund the total amount of Eight Hundred Twenty Six Thousand Six Hundred Sixty Two Pesos and 99/100 Centavos (P826.P 826. petitioner formally requested the respondents to refund the fees it paid under protest. inspection and regulation. respondents asserted that the claim of petitioner cannot be granted because its structures are not among those mentioned in Sec. Finding the Defendants liable for attorney’s fees in the amo unt of Seventy Thousand Pesos (Php70. petitioner is clearly  exempt from the payment of building permit fees. 2007. No.” declaring merely that such premises is intended to house the sports and other facilities of the university but by reason of the occupancy of informal settlers on the area. holding that while petitioner is a tax-free entity. 6055 and applicable jurisprudence and DOJ rulings.P 49.00 and litigation expenses. the CA concluded that petitioner is not entitled to the refund of building permit and related fees. until the aforesaid amount is fully paid.00). petitioner was issued the corresponding Building Permit. as well as real property tax it paid under protest. assessments and other collections for revenue purposes. petitioner in this case merely alleged that “the subject property is to be used actually. Wiring Permit. Ordering the Defendants to pay the costs of the suit. the CA held that petitioner is still not exempt because a building permit cannot be considered as the other “charges” mentioned in Sec. 244 of the Implementing Rules and Regulations of the Local Government Code. the trial court rendered judgment in favor of the petitioner and against the  respondents. 2006.99) plus legal interest thereon at the rate of twelve percent (12%) per annum commencing on the date of extra-judicial demand or June 14.930. 2006. Petitioner filed a motion for reconsideration which was denied by the CA.5. 2104 of the National Building Code. Petitioner countered that the subject building permit are being collected on the basis of Art. Moreover.274. Thus.A.  On August 31. The dispositive portion of the trial court’s decision reads: WHEREFORE. premises considered. The CA further stated that petitioner has not shown that the fees collected were excessive and more than the cost of surveillance. respondents pointed out that said premises will be used as a school dormitory which cannot be considered as a use exclusively for educational activities. Inc. judgment is rendered as follows: a. 2006. The CA noted that under R.967. plus litigation expenses.A. petitioner filed a Complaint before the trial court seeking the refund of P826. 6055 which refers to impositions in the nature of tax. Respondents argued that R. Under Sec.662. directly and exclusively for educational purposes. c. 2006.662. Since the disputed assessments are regulatory in nature. Regardless of the repealing clause in the National Building Code. this petition raising the following grounds: THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS OF THE HONORABLE COURT AND HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS NECESSITATING THE HONORABLE COURT’S EXERCISE OF ITS POWER OF SUPERVISION CONSIDERING THAT: Fire Code Fee JMDB TAX REVIEW CASES Page 4 . Hence. they are not taxes from which petitioner is exempt.A. Edu.531.
which do not apply to building permit fees. For resolution are the following issues: (1) whether petitioner is exempt from the payment of building permit and related fees imposed under the National Building Code. Petitioner stresses that the tax exemption granted to educational stock corporations which have converted into non-profit foundations was broadened to include any other charges imposed by the Government as one of the incentives for such conversion. Petitioner further contends that this Court has consistently held in several cases that the primary purpose of the exaction determines its nature. the amount representing the building permit and related fees and/or charges is such an exorbitant amount as to warrant a valid imposition. THE COURT OF APPEALS EFFECTIVELY WITHDREW THE PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK. INDEED. Respondents assert that the CA correctly distinguished a building permit fee from those “other charges” mentioned in Sec. These fees are based on computations and assessments made by the responsible officials of the City Engineer’s Office in accordance with the Schedule of Fees and criteria provided in the National Building Code. The standard set by law in the determination of the amount that may be imposed as license fees is such that is commensurate with the cost of regulation. RA 6055 REMAINS VALID AND IS IN FULL FORCE AND EFFECT. C. Even with the alleged criteria submitted by the respondents (e.g. the expenses of transportation for inspection and the preparation and reproduction of documents. IMPORT DUTIES AND ASSESSMENTS AS PART OF THE PRIVILEGE OF EXEMPTION GRANTED TO NON-STOCK. No. Respondents likewise contend that the presumption of regularity in the performance of official duty applies in this case. such amount exceeds the probable cost of regulation. impositions for services rendered by the local government units or for conveniences furnished. ITS IMPOSITION IS GENERALLY A TAX MEASURE AND THEREFORE. NON-PROFIT EDUCATIONAL FOUNDATIONS BY VIRTUE OF RA 6055 WHICH WITHDRAWAL IS BEYOND THE AUTHORITY OF THE COURT OF APPEALS TO DO. Thus. it is therefore subject to the regulatory fees imposed under the National Building Code. THE COURT OF APPEALS ERRED WHEN IT RULED IN THE QUESTIONED DECISION THAT NON-STOCK. Petitioner thus concludes that the disputed fees are substantially and mainly for purposes of revenue rather than regulation. a charge of a fixed sum which bears no relation to the cost of inspection and which is payable into the general revenue of the state is a tax rather than an exercise of the police power. they should properly be treated as tax from which petitioner is exempt. Inclusio unius est exclusio alterius. But in this case.906. Because the law did not include petitioner’s buildings from those structures exempt from the payment of building permit fee. cost of construction. JMDB TAX REVIEW CASES Page 5 . 6055. charges refer to pecuniary liability. NON-PROFIT EDUCATIONAL FOUNDATIONS ARE NOT EXEMPT. NON-PROFIT EDUCATIONAL FOUNDATIONS ARE LIMITED TO COLLECTIONS FOR REVENUE PURPOSES. THE COURT OF APPEALS’ APPLICATION OF THE PRINCIPLE OF EJUSDEM GENERIS IN RULING IN THE QUESTIONED DECISION THAT THE TERM “OTHER CHARGES IMPOSED BY THE GOVERNMENT” UNDER SECTION 8 OF RA 6055 DOES NOT INCLUDE BUILDING PERMIT AND OTHER RELATED FEES AND/OR CHARGES IS BASED ON ITS ERRONEOUS AND UNWARRANTED ASSUMPTION THAT THE TAXES. HENCE.g.A. In their Comment. presumably for the salary of inspectors or employees. are referred to as “service charges”. expenses of transportation and preparation and reproduction of documents) refer to charges and fees on business and occupation under Sec.84. as rents. 147 of the Local Government Code. STILL COVERED UNDER THE PRIVILEGE OF EXEMPTION. floor area and height).I. character of occupancy or use of building/structure. on the other hand.. which is already provided under the Constitution. the costs of inspection will not amount to P645. Petitioner should have presented evidence to prove its allegations that the amounts collected are exorbitant or unreasonable. As stated by petitioner itself. These incentives necessarily included exemption from payment of building permit and related fees as otherwise there would have been no incentives for educational foundations if the privilege were only limited to exemption from taxation. 6055.” A fee is generally imposed to cover the cost of regulation as activity or privilege and is essentially derived from the exercise of police power. The parameters set by the National Building Code can be considered as complying with the reasonable cost of regulation in the assessment and collection of building permit fees.A. Respondents also disagreed with petitioner’s contention that the fees imposed and collected are exorbitan t and exceeded the probable expenses of regulation. II. No. IN REVERSING THE TRIAL COURT’S DECISION DATED 21 SEPTEMBER 2007. A. and (2) whether the parcel of land owned by petitioner which has been assessed for real property tax is likewise exempt. so that even these fees cannot be deemed “charges” mentioned in Sec. THE COURT OF APPEALS’ DENIAL OF PETITIONER AUF’S EXEMPTION FROM REAL PROPERTY TAXES CONTAINED IN ITS QUESTIONED DECISION AND QUESTIONED RESOLUTION IS CONTRARY TO APPLICABLE LAW AND  JURISPRUDENCE. salary of employees. The bases of assessment cited by petitioner (e. Respondents point out that a building permit is classified under the term “fee. EVEN ASSUMING THAT THE BUILDING PERMIT AND OTHER RELATED FEES AND/OR CHARGES ARE NOT INCLUDED IN THE TERM “OTHER CHARGES IMPOSED BY THE GOVERNMENT” UNDER SECTION 8 OF RA 6055. and fees against persons or property. and the construction by petitioner of an 11-storey building. respondents maintain that petitioner is not exempt from the payment of building permit and related fees since the only exemptions provided in the National Building Code are public buildings and traditional indigenous family dwellings. B. inspection and licensing. 8 of R. 8 of R.
6055. (Italics supplied. specifications and other pertinent documents with the duly notarized application are found satisfactory and substantially conforming with the National Building Code of the Philippines x x x and its Implementing Rules and Regulations  (IRR). As to petitioner’s argument that the building permit fees collected by respondents are in reality taxes because the primary purpose is to raise revenues for the local government unit. Thus. clearances from various government authorities exercising and enforcing regulatory functions affecting buildings/structures. electrical and mechanical safety as well as with other rules and regulations implementing the National Building  Code. like local government units.” while the word “fee” pertains to a “charge  fixed by law for services of public officers or for use of a privilege under control of government. 7160). Exempted from the payment of building permit fees are: (1) public buildings and (2) traditional indigenous  family dwellings. as rents or fees against persons or property. and other charges imposed by the Government onall income derived from or property. firm or corporation. construction. non-profit educational foundations. construction. a framework of minimum standards and requirements to regulate and control their location. 1096 was issued adopting the National Building Code of the Philippines. used exclusively for the educational activities of the Foundation.D. including any agency or instrumentality of the  government to obtain a building permit for any construction. assessments.charges refers to pecuniary liability. property. installation. alteration or repair of any building or structure. make it the purpose of this Code to provide for allbuildings and structures. move. No. sanitary permit and zoning clearance must also be secured and the corresponding fees paid before a building permit may be issued. maintenance.) On February 19. ancillary permits such as electrical permit. moving. sitting.R. construct.A. Declaration of Policy It is hereby declared to be the policy of the State to safeguard life. Section 103.conversion. 1977. or rate for.location. repair. Note that the “other charges” mentioned in Sec. And as can be gleaned from the implementing rules and regulations of the National Building Code. the same does not hold water. 6055 is qualified by the words “imposed by the Government on all x x x property used exclusively for the educational activities of the foundation. consistent with theprinciples of sound environmental management and control.) No. design quality of materials. and addition to public and private buildings andstructures. repair.e.A. A “charge” is broadly defined as the “price of. they are not impositions from which petitioner is exempt. the Secretary of Public Works and Highways who is mandated to prescribe and fix the amount of fees and other charges that the Building Official shall collect in JMDB TAX REVIEW CASES Page 6 . use. structural design. Not being expressly included in the enumeration of structures to which the building permit fees do not apply. and maintenance. 8 of R. moving.” Building permit fees refers to the basic permit fee and other charges imposed under the National Building Code. buildings and structures. The Foundation shall be exempt from the payment of all taxes. real or personal. they are actually imposed on certain activities the owner may conduct either to build such structures or to repair. Presidential Decree (P. except traditional indigenous family dwellingsas defined herein. This is evident from the following provisions of the National Building Code: Section 102. alteration. may be further required before a building  permit may be issued.” As used in the Local Government Code of 1991 (R.) That a building permit fee is a regulatory imposition is highlighted by the fact that in processing an application for a building permit. repair. i.A. while fee means a charge fixed by law or ordinance for the regulation or inspection of a  business or activity. petitioner’s claim for exemption rests solely on its interpretation of the term “other charges imposed by the National Government” in the tax exemption clause of R. 6055 granted tax exemptions to educational institutions like petitioner which converted to nonstock. demolition or other work activity of a specific project/building/structure or portions thereof after the accompanying principal plans.A. The said Code requires every person. Section 8 of said law provides: SECTION 8.. lines and grades. addition. something. No. In this case. environmental health. use. health. convert or demolish any building or structure or causethe same to be done without first obtaining a building permittherefor from the Building Official assigned in the place where thesubject building is located or the building work is to be done. No. alter. Building permit refers to “a document issued by the Building Official x x x to anowner/applicant to proceed with the construction. sanitary and sewerage. xxxx Section 301. demolitionof.(Emphasis supplied. and tothis end. A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a  tax rather than an exercise of the police power. renovation. No. conversion. firm or corporation. import duties. Scope and Application (a) The provisions of this Code shall apply to the design.” Building permit fees are not impositions on property but on the activity subject of government regulation. and public welfare. alteration. occupancy. including any agency orinstrumentality of the government shall erect. While it may be argued that the fees relate to particular properties. Building Permits No person. renovate or demolish the same. site. the Building Official shall see to it that the applicant satisfies and conforms with approved standard requirements on zoning and land use. Since building permit fees are not charges on property. That “charges” in its ordinary meaning appears to be a general term which could cover a specific “fee” does not support petitioner’s position that building permit fees are among those “other charges” from which it was expressly exempted. alter. occupancy.
even though incidentally. by clear and unequivocal proof. DIRECTLY and EXCLUSIVELY used for charitable purposes. Cost of construction “ 10. Consequently.) Concededly. has promulgated and issued the Implementing Rules  and Regulations which provide for the bases of assessment of such fees. non-stock and non-profit hospitals and educational institutions. but if regulation is the primary purpose. there is no such incentive that is retained under the Local Government Code of 1991.C. On the other hand. in Gerochi v. while those portions leased to private entities and individuals are not exempt from such taxes. No. this Court explained: In distinguishing tax and regulation as a form of police power. then it will be deemed a tax even though the measure results in some form of regulation.E.A. as follows: 1. if the purpose is primarily to regulate. revenue is generated. mosques. 6. We explained the condition for the tax exemption privilege of charitable and educational institutions. Said provision states: SECTION 193.” (Emphasis supplied.000/sq. Exemptions from Real Property Tax.“Exclusive” is defined as  JMDB TAX REVIEW CASES Page 7 .) Considering that exemption from payment of regulatory fees was not among those “incentives” grante d to petitioner under R.000 (J) 3. Height Petitioner failed to demonstrate that the above bases of assessment were arbitrarily determined or unrelated to the activity being regulated. x x x x (Emphasis supplied. the fact that revenue is incidentally raised does not make the  imposition a tax. v. Subject to existing budgetary. and improvements. Character of occupancy or use of building 2. 6938. directly. the Building Official is hereby authorized to retain not more than twenty percent of his collection for the operating expenses of his office. Petitioner’s reliance on Sec. accounting and auditing rules and regulations. parsonages or convents appurtenant thereto. No. the determining factor is the purpose of the implemented measure. 7160 in order to be entitled to the exemption.A. If the purpose is primarily to raise revenue. Article VI of the 1987 Constitution provides: xxxx (3) Charitable institutions. The remaining eighty percent shall be deposited with the provincial. or presently enjoyed by all persons. x x x x (Emphasis supplied. revenue is incidentally generated for the benefit of local government units. Act No. Neither has petitioner adduced evidence to show that the rates of building permit fees imposed and collected by the respondents were unreasonable or in excess of the cost of regulation and inspection. city or municipal treasurer and shall accrue to the General Fund of the province. tax exemptions or incentives granted to.B.G.connection with the performance of regulatory functions. non-profit cemeteries. buildings. whether natural or juridical. this Court held that only portions of the hospital actually. in the case of building permit fees imposed by the National Government under the National Building Code.000 (F). Thus. no reversible error was committed by the CA in ruling that petitioner is liable to pay the subject building permit and related fees. 6055. except local water districts. the petitioner is burdened to prove.)  In Lung Center of the Philippines v. Floor area 4.  In Chevron Philippines. and all lands. actually. churches. and improvements actually. city or municipality concerned. (Emphasis supplied. that (a) it is a charitable institution. directly and exclusively used for religious.) Section 234(b) of the Local Government Code of 1991 implements the foregoing constitutional provision by declaring that -SECTION 234. Quezon City. Bases Conversion Development Authority . as follows: Under the 1973 and 1987 Constitutions and Rep. including governmentowned or controlled corporations. If generation of revenue is the primary purpose and regulation is merely incidental. non-profit or religious cemeteries and all lands. then it is deemed a regulation and an exercise of the police power of the state. Fees Every Building Official shall keep a permanent record and accurate account of all fees and other charges fixed and authorized by the Secretary to be collected and received under this Code.D. Withdrawal of Tax Exemption Privileges. 193 of the Local Government Code of 1991 is likewise misplaced.H. directly and exclusively used for charitable purposes are exempt from real property taxes. and exclusively used for religious. Section 28(3). the imposition is a tax. churches and parsonages or convents appurtenant thereto. Thus: Section 208. mosques. -. and (b) its real properties are ACTUALLY. Now. the Court stated: “The conservative and pivotal distinction between these two (2) powers rests in the purpose for which the charge is made.I).Unless otherwise provided in this Code. Inc. charitable or educational purposes. cooperatives duly registered under R. Department of Energy. are hereby withdrawn upon the effectivity of this Code. buildings. – The following are exempted from payment of the real property tax: xxxx (b) Charitable institutions. 8. on petitioner’s claim that it is exempted from the payment of real property tax assessed against its real property presently occupied by informal settlers.m (A. charitable or educational purposes shall be exempt from taxation.
” If real property is used for one or more commercial purposes. While there is no allegation or proof that petitioner leases the land to its present occupants. “in a manner to exclude. 2009 of the Court of Appeals in CA-G. The Decision dated July 28. It is not the use of the income from the real property that is determinative of whether the property is  used for tax-exempt purposes. WHEREFORE. JMDB TAX REVIEW CASES Page 8 . The respondents correctly assessed the land for real property taxes for the taxable period during which the land is not being devoted solely to petitioner’s educational activities.possessed and enjoyed to the exclusion of others .R. directly and exclusively used for educational purposes. directly and exclusively used for educational purposes. it is not exclusively used for the exempted purposes but is subject to taxation. Accordingly. and “exclusively” is defined. 90591 are AFFIRMED. direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. Solely is synonymous with exclusively. What is meant by actual. still there is no compliance with the constitutional and statutory requirement that said real property is actually. (Emphasis and underscoring supplied. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. the petition is DENIED. CV No. the CA did not err in ruling that petitioner is likewise not entitled to a refund of the real property tax it paid under protest. as enjoying a privilege exclusively.) Petitioner failed to discharge its burden to prove that its real property is actually. debarred from participation or enjoyment. 2009 and Resolution dated October 12.
506.97 424.096.29 460.477.55 8.640.00 2.955. On August 15.535. 2011 x --------------------------------------------------------------------------------------.98 25.819..429.365.52 667.versus COMMISSIONER OF INTERNAL REVENUE. JJ.Chairperson.39 367.00 78. 133959 issued by then Commissioner of Internal Revenue (CIR)Liwayway Vinzons-Chato.051.178.428. 1994 to December 31.38 Interest ₱ 191.585.000.000.R.99 12. PERALTA.31 113.148. J.65 699.98 ₱ JMDB TAX REVIEW CASES Page 9 .207. Promulgated: September 7.696.900.949.460.00 25.41 5. RCBC received a Formal Letter of Demand together with Assessment Notices  from the BIR for the following deficiency tax assessments: Compromise Penalties ₱ 25.33 4. JR.757.000.05 223.42 Total ₱ 443.864.97 972.25 58.52 33. RCBC executed two Waivers of the Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code covering the internal revenue taxes due for the years 1994 and 1995. It seasonably filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar  years 1994 and 1995.171.706.539.09 ₱ 250.370. RCBC received Letter of Authority No.050.496.659.485. and MENDOZA.66 351.: This is a petition for review on certiorari under Rule 45 seeking to set aside the July 27.740.x DECISION MENDOZA.058.35 4.566.819. Subsequently.34 25.478.00 25.72 67.22 4..628.462.100.675. 1997.00 300.525.90 13.193. * VILLARAMA.508.52 25.80 64.07 463.042.826.A.945.748.000.901.435. ABAD.755.718.00 9.20 34. 83 entitled “Rizal Commercial Banking Corporation v.12 53.269.000.963.047.26 331. E.626.00  .000.697.075. 2000.388. 1996.745. 170257 Present: VELASCO.08 5. 2005 Decision and  October 26. 2000.89 28.000.105. No.THIRD DIVISION RIZAL COMMERCIAL BANKING CORPORATION. Particulars Deficiency Income Tax 1995 (ST-INC-95-0199-2000) 1994 (ST-INC-94-0200-2000) Deficiency Gross Receipts Tax 1995 (ST-GRT-95-0201-2000) 1994 (ST-GRT-94-0202-2000) Deficiency Final Withholding Tax 1995 (ST-EWT-95-0203-2000) 1994 (ST-EWT-94-0204-2000) Deficiency Final Tax on FCDU Onshore Income 1995 (ST-OT-95-0205-2000) 1994 (ST-OT-94-0206-2000) Deficiency Expanded Withholding Tax 1995 (ST-EWT-95-0207-2000) 1994 (ST-EWT-94-0208-2000) Deficiency Documentary Stamp Tax 1995 (ST-DST1-95-0209-2000) 1995 (ST-DST2-95-0210-2000) 1994 (ST-DST3-94-0211-2000) 1994 (ST-DST4-94-0212-2000) TOTALS Basic Tax ₱ 252.00 143.150.335.21 2.59 81.052.844.” THE FACTS Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in general banking operations.415.482.037..89 ₱ 315.02 240.804.488.946.573.000. Commissioner of Internal Revenue.583.00 25.067.640.00 300.503.945. Respondent..322.68 512.381.000.200. G.00 ₱ 4.610.681.083.B.130.68 2. No.672. JR. 2005 Resolution of the Court of Tax Appeals En Banc (CTA-En Banc) in C.78 59.01 216. Petitioner.96 207.00 300. On January 23. J. 1995.15 112.10 61. on January 27.866.000.055.397.716.00 123.261. authorizing a special audit team to examine the books of accounts and  other accounting records for all internal revenue taxes from January 1.T.  effectively extending the period of the Bureau of Internal Revenue (BIR) to assess up to December 31.988.000.322.000.
802.051.496.266. RCBC contended that because the onshore tax was JMDB TAX REVIEW CASES Page 10 .14 1.436.03 671.287. RCBC received another Formal Letter of Demand with Assessment Notices dated October 20.131.589. 2000.954.92 21.36 ₱ 81.668.495.040.62 1.690.104.026.93 713.000.725.687.00 25.645.748.007.30 119.002.18 Total ₱ 3.55 On the same day. 2000 and later submitted the relevant documentary evidence to support it.22 409.55 7.77 RCBC argued that the waivers of the Statute of Limitations which it executed on January 23.104.72 24.131.701.260.568.972.330.366.303. pursuant to Section 228 of the 1997 Tax Code.656. following the reinvestigation it requested.49 Disagreeing with the said deficiency tax assessment.947.63 25. RCBC paid the following deficiency taxes as assessed by the BIR: Particulars Deficiency Income Tax Deficiency Gross Receipts Tax Deficiency Final Withholding Tax Deficiency Expanded Withholding Tax Deficiency Documentary Stamp Tax TOTALS 1994 ₱ 2.869.20 34.05 ₱ 303.36 520.947.429.08 ₱ 191.941.498.40 31.44 ₱ 126.20 79.718.052.291.503.842.08 1.84 4.80 348.240.561.130.89 4.802.28 ₱ 115.192.322.368.682.058.492.78 1995 ₱ 722.733.238.429.28 2.428.005.863.949.46 220.127.116.112.549.18 4.34 ₱ 235.11 6.367.277.96 RCBC.842. Much later on November 20.222.890.872.160.553.44 300.560.305.460.026.63 300.330.712.000. 2000.785.226.83 ₱ 52.80 ₱ 1. which drastically reduced the original amount of deficiency  taxes to the following: Surcharge &/ Compromise Particulars Deficiency Income Tax 1995 (INC-95-000003) 1994 (INC-94-000002) Deficiency Gross Receipts Tax 1995 (GRT-95-000004) 1994 (GRT-94-000003) Deficiency Final Withholding Tax 1995 (FT-95-000005) 1994 (FT-94-000004) Deficiency Final Tax on FCDU Onshore Income 1995 (OT-95-000006) 1994 (OT-94-000005) Deficiency Expanded Withholding Tax 1995 (EWT-95-000004) 1994 (EWT-94-000003) Deficiency Documentary Stamp Tax 1995 (DST-95-000006) 1995 (DST2-95-000002) 1994 (DST-94-000005) 1994 (DST2-94-000001) TOTALS Basic Tax ₱ 374.84 410.92 ₱ 5.62 ₱ 31.480.303.707.605.73  749.965.695.28 74.01 1.194.47 Total ₱ 721.753.277.348.124.009.36 ₱ 41.491.052.04 6.040.064.08 40.434.26 160.131.490.953.05 ₱ 96.738.041.40 ₱ 9.035.47 188.68 6.486.62 226.30 10. 1997 were not valid because the same were not signed or conformed to by the respondent CIR as required under Section 222(b) of the  Tax Code. RCBC filed a protest on February 24.52 3.903.08 ₱ 160.171.268.460.561.131.330. As regards the deficiency FCDU onshore tax.13 ₱ 287.44 672.993.291.300.92 1. refused to pay the following assessments for deficiency onshore tax and documentary stamp  tax which remained to be the subjects of its petition for review: Particulars Deficiency Final Tax on FCDU Onshore Income Basic Interest Sub Total Deficiency Documentary Stamp Tax Basic Surcharge Sub Total TOTALS 1994 1995 Total ₱ 34.926.508.63 161.96 138.58 599.46 6. 2000. it filed a petition for review  before the CTA.84 ₱ 164.38 149.856.26 ₱ 74.83 2.093.95 505.753.02 1.312.74 17.503.32 ₱ 15.10 40.170.90 81.000.236.21 ₱ 21.718.192.634.64 ₱ 17.421.46 905. On December 6.314.260.300.48 749.41 ₱ 24.881.17 714.707.2.938. however.589.37 2.305.203.960.760.893.00 1.155.221.009.10 79.971.863.75 220.510.052.953.240.291.174.45 1.43 Interest ₱ 346.72 297.32 351.21 ₱ 12.746.807.508.61 362.
III. denied the petition for lack of merit.13 ₱171. however. In its Resolution dated April 11. As to the deficiency onshore tax.47 Unsatisfied. it was the borrower.651.067. deficiency gross receipts tax.666.952. who was liable to pay the final tax  on FCDU. It.30 119.822.527.093.300. 2005.  JMDB TAX REVIEW CASES Page 11 . it modified its earlier decision  and ordered RCBC to pay the amount of ₱132.947.05 ₱69. implying that  it recognized the validity of the waivers. and deficiency documentary stamp tax (not an industry issue) for 1994 and 1995. it held that petitioner’s special  savings account was a certificate of deposit and. It considered as closed and terminated the assessments for deficiency income tax.303. On December 15. Hence.969.69 plus 20% delinquency tax. (3) it was the payor-borrower as withholding tax agent. II. the First Division of the Court of Tax Appeals (CTA-First Division) promulgated its  Decision which partially granted the petition for review.  that was primarily liable for the remittance of the said tax. It ruled that by receiving.330.34 1994 1995 Total ₱ 17. RCBC elevated the case to the CTA-En Banc where it raised the following issues: I. (2) the CTA erred in holding that RCBC was estopped from questioning the validity of the waivers.86 15.324. this petition.08 ₱62. and (4) RCBC’s special savings account was not subject to documentary stamp tax.583. accepting and paying portions of the reduced assessment.13 ₱ 41.260.292.026. 2005.69 and not ₱171.131.818.104.22.1686. 2009. had been rendered moot and academic by its payment of the tax deficiencies on Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and  1995 after the BIR approved its applications for tax abatement. was subject to documentary stamp tax. Whether or not petitioner is liable for deficiency onshore tax for taxable year 1994 and 1995. it would  then follow that the tax should be imposed on RCBC as the payee-bank.238.498.46 6.30 10.05 ₱ 115.654. Whether or not the right of the respondent to assess deficiency onshore tax and documentary stamp tax for taxable year 1994 and 1995 had already prescribed when it issued the formal letter of demand and assessment notices for the said taxable years.192.810.842. deficiency final withholding tax.527.843.08 48.510.654. constituted by law as the withholding agent. 2004. While awaiting the decision of this Court. in relation to the assessment of the deficiency documentary stamp tax on petitioner’s special savings account. RCBC bound itself to the new assessment.822. in its assailed Decision. 221.492.938. upheld the assessment for deficiency final tax on FCDU onshore income and deficiency documentary stamp tax for  1994 and 1995 and ordered RCBC to pay the following amounts plus 20% delinquency tax: Particulars Deficiency Final Tax on FCDU Onshore Income Basic Interest Sub Total Deficiency Documentary Stamp Tax (Industry Issue) Basic Surcharge Sub Total TOTALS ₱ 22. Whether or not petitioner’s special savings account is subject to documentary stamp tax under then Section 180  of the 1993 Tax Code. as such.19 31. As such.21 21.953. the CTA-First Division substantially upheld its earlier ruling.56 ₱ 24.47. RCBC filed its Manifestation dated July 22.713. The CTA-En Banc. relative to the DST deficiency assessment. arguing that: (1) the CTA erred in its addition of the total amount of deficiency taxes and the correct amount should only be ₱132.104.330. it held that because the payor-borrower was merely designated by law to withhold and remit the said tax.collected in the form of a final withholding tax.62 31. Finally. and not RCBC. informing the Court that this petition. except for its inadvertence in the addition of the total amount of deficiency taxes.261.040.261. deficiency expanded  withholding tax.993. RCBC filed its Motion for Reconsideration on January 21.356.83 52.434.093.34 119.51 ₱ 16.460.43 26. RCBC could not assail the validity of the waivers after it had received  and accepted certain benefits as a result of the execution of the said waivers.84 4.
THE COURT’S RULING Petitioner is estopped from questioning the validity of the waivers RCBC assails the validity of the waivers of the statute of limitations on the ground that the said waivers were merely attested to by Sixto Esquivias. Thus. Estoppel is clearly applicable to the case at bench. 2-98 which states: (A) Final Withholding Tax. The liability for payment of the tax rests primarily on the payor as a withholding agent. citing Section 2. admissions or representations to the  prejudice of the other party in order to prevent fraud and falsehood. only the following issues remain to be resolved by this Court: Whether petitioner. is rendered estopped from questioning the validity of the said waivers with respect to the assessment of  deficiency onshore tax. who is directly liable for the payment of onshore tax. through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers. RCBC’s subsequent action effectively belies its insistence that the waivers are invalid.57(A) of Revenue Regulations No. RCBC further argues that the principle of estoppel cannot be applied against it because its payment of the other tax assessments does not  signify a clear intention on its part to give up its right to question the validity of the waivers. — Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. as payee-bank. by paying the other tax assessment covered by the waivers of the statute of limitations. The CIR prayed that RCBC be considered to have withdrawn its appeal with respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years 1994 and 1995 and that the questioned CTA decision regarding RCBC’s deficiency  tax on FCDU Onshore Income for the same period be affirmed. and cannot be denied or disproved as against the person relying thereon. 2000. upon receipt of the revised assessment. and that he failed to indicate acceptance or  agreement of the CIR. The records show that on December 6. the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it. Under Article 1431 of the Civil Code.In its November 17. the deficiency tax shall be collected from the JMDB TAX REVIEW CASES Page 12 . RCBC is estopped from questioning the validity of the waivers.56 plus 20% delinquency interest per annu m.827. Liability for Deficiency Onshore Withholding Tax RCBC is convinced that it is the payor-borrower. can be held liable for deficiency onshore tax. To hold otherwise and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the  principle of equity which this institution holds dear. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period. Thus.” A party is precluded from denying his own acts. as required under Section 223 (b) of the 1977 Tax Code. then it should not have paid the reduced amount of taxes in the revised assessment. RCBC immediately made payment on the uncontested taxes. as withholding agent. impliedly admitted the validity of those waivers. in case of his failure to withhold the tax or in case of under withholding. THE ISSUES Thus.161. the CIR pointed out that the only remaining issues raised in the present petition were those pertaining to RCBC’s deficiency tax on FCDU Onshore Income for taxable years 1994 and 1995 in the aggregate amount of ₱80. The Court disagrees. which is mandated by law to  be collected at source in the form of a final withholding tax. 2009 Comment to the Manifestation. and Whether petitioner. RCBC. then Coordinator for the CIR.
not a taxpayer. a separate entity acting no more than an agent of the government for the collection of the tax in order to ensure its payments. RCBC. 24. While the payor-borrower can be held accountable for its negligence in performing its duty to withhold the amount of tax due on the transaction. the withholding agent is merely a tax collector. v. Under the withholding system. That interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than JMDB TAX REVIEW CASES Page 13 . The Executive Secretary . Before any further discussion. therefore. (2) to ensure the collection of tax. except taxable income from such transactions as may be specified by the Secretary of Finance. and the payee is the taxing authority. the Court has explained that the purpose of the withholding tax system is three-fold: (1) to provide the taxpayer with a convenient way of paying his tax liability. and (3) to improve the government’s cashflow. The payee is not required to file an income tax return for the particular income. (Emphasis supplied) The petitioner is mistaken. His (agent) liability is direct and independent from the taxpayer. RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent. to wit: In the operation of the withholding tax system. the payer is the taxpayer – he is the person subject to tax imposed by law. however. it should be pointed out that RCBC erred in citing the abovementioned Revenue Regulations No. offshore banking units in the Philippines. while the  withholding agent simply acts as an agent or a collector of the government to ensure the collection of taxes. The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax.payor/withholding agent. In Chamber of Real Estate and Builders’ Associations. Hence. but for the enforcement of the withholding provision of Section 53 of the Tax Code . because the income tax is still imposed on and due from the latter. Revenue Regulations No. The liability for the tax. the liability of the withholding agent is independent from that of the taxpayer. 2-98 because the same governs collection at source on income paid only on or after January 1. Court of Appeals. as elucidated  by this Court in the case of Commissioner of Internal Revenue v. In other words. as the taxpayer and the one which earned income on the transaction. local commercial banks including branches of foreign banks that may be authorized by the Central Bank to transact business with foreign currency depository system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes. As such.” (Emphases supplied)  Based on the foregoing. the withholding agent is the payor. It is. upon recommendation of the Monetary Board to be subject to the usual income tax payable by banks: Provided. The deficiency withholding tax subject of this petition was supposed to have been withheld on income paid during the taxable years of 1994 and 1995. Rates of tax on domestic corporations. remains liable for the payment of tax as the taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent. so as to avoid any penalty that may arise from the non-payment of the withholding tax due. the agent-payor becomes a payee by fiction of law. remains with the taxpayer because the gain was realized and received by him. 1998. indisputable that the withholding agent is merely a tax collector and not a taxpayer. The Tax Code only makes the agent personally liable for the tax arising from the breach of its legal duty to withhold as distinguished from its duty to pay tax since: “the government’s cause of action against the withholding agent is not for the collection of income tax. Under the withholding tax system. The agent is not liable for the tax as no wealth flowed into him – he earned no income. the payor is the taxpayer upon whom the tax is imposed. it is liable for payment of deficiency onshore tax on interest income derived from foreign currency loans. xxxx (e) Tax on certain incomes derived by domestic corporations xxxx (3) Tax on income derived under the Expanded Foreign Currency Deposit System. Inc. however. 2-98 obviously does not apply in this case. – Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with nonresidents. compliance with which is  imposed on the withholding agent and not upon the taxpayer. pursuant to Section 24(e)(3) of the National Internal Revenue Code of 1993: Sec. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government.
WHEREFORE.offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% tax. the petition is DENIED. As such. (Emphasis supplied) As a final note. JMDB TAX REVIEW CASES Page 14 . as a specialized court dedicated exclusively to the study and resolution of tax problems. unless this Court finds that the questioned decision is not supported by substantial evidence or there is a showing  of abuse or improvident exercise of authority on the part of the Tax Court. has  developed an expertise on the subject of taxation. its decisions shall not be lightly set aside on appeal. this Court has consistently held that findings and conclusions of the CTA shall be accorded the highest respect and shall be presumed valid. in the absence of any clear and convincing proof to the  contrary. The CTA.
On 29 November 1996. S-34-046-97 dated 3 February 1997.COMMISSIONER OF INTERNAL REVENUE. 74510.358.537.: Stockholder Number and Percentage of Shares Held Prior to the Exchange 2. Respondent. x-------------------------------------x COMMISSIONER OF INTERNAL REVENUE.177. 167689 PEREZ. FLI’s ownership structure was changed to the extent reflected in the following tabular précis.  gains control of said corporation. 163653 FILINVEST DEVELOPMENT CORPORATION. The Facts The owner of 80% of the outstanding shares of respondent Filinvest Alabang.00.535. viz. FLI requested a ruling from the Bureau of Internal Revenue (BIR) to the effect that no gain or loss should be recognized in the aforesaid transfer of real properties. (FLI). July 19.000 420.000 67. No.R.x DECISION G. FDC and FAI entered into a Deed of Exchange with FLI whereby the former both transferred in favor of the latter parcels of land appraised at P4. J. (b) Decision dated 26 January  2005 of the then Fourteenth Division in CA-G. Respondent.000 0 -------------463.: Assailed in these twin petitions for review on certiorari filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure are the decisions rendered by the Court of Appeals (CA) in the following cases: (a) Decision dated 16  December 2003 of the then Special Fifth Division in CA-G. (FAI). No.000 61.579.877.42% of the outstanding shares of Filinvest Land." With the BIR’s reiteration of the foregoing ruling upon the 10 February 1997 JMDB TAX REVIEW CASES Page 15 .575. R.01% --------------4.000 9.  463.301 shares of stock of FLI were issued to FDC and FAI. Petitioner. As a result of the exchange. -versus- G. 72992.306. In exchange for said parcels which were intended to facilitate development of medium-rise residential and commercial buildings.000 29.58% ----------------. Inc.629.226. finding that the exchange is among those contemplated under  Section 34 (c) (2) of the old National Internal Revenue Code (NIRC) which provides that “(n)o gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for a stock in such corporation of which as a result of such exchange said person.----------3.000 (100%) On 13 January 1997.217. and.226.094.R. -versusPromulgated: FILINVEST DEVELOPMENT CORPORATION. alone or together with others.226.96% FDC FAI OTHERS 1. Acting on the request.763.877. Petitioner. respondent Filinvest Development Corporation (FDC) is a holding company which also owned 67.000. SP No. not exceeding four (4) persons. SP No.094. Inc.000 32.177. R.301 Number and Percentage of Shares Held After the Exchange 2.42% 0 0 Number of Additional Shares Issued 42.03% 420. the BIR issued Ruling No.777. 2011 x----------------------------------------------------------------------------------------------.000 100% 1.
gave him "the power to allocate. namely. that as previously opined in BIR Ruling No.927.  JMDB TAX REVIEW CASES Page 16 . SP-INC-96-00018-2000 for deficiency income taxes in the sum of P150. the instructional letters as well as the cash and journal vouchers evidencing said cash advances were not subject to documentary stamp taxes.27 for 1996. distribute or apportion income or deductions between or among such organizations.487.061. 2. said cash advances amounted   to P2. said deficiency tax was also assessed on the taxable gain purportedly realized by FAI from the Deed of  Exchange it executed with FDC and FLI. On 3 January 2000. plus interests and compromise penalties. and (d) Assessment Notice No. Section 179 (b) and (c).23 for the year 1997. trades or business in order to prevent evasion of taxes.7 million. on the dilution resulting from the Shareholders’ Agreement FDC executed with RHPL as well as the “arm’s -length”  interest rate and documentary stamp taxes imposable on the advances FDC extended to its affiliates. SP-INC-97-0027 2000. among other matters. (FCI). viz. Having paid its subscription by executing a Deed of Assignment transferring to FAC a portion of its rights and interest in the Project worth P500.557. in the meantime.942. With their equity participation in FAC respectively pegged at 60% and 40% in the Shareholders’ Agreement. (c) Assessment Notice No. Inc. Docketed before said court as CTA Case No. FLI. together with FDC and FAI. On 3 January 2000. On various dates during the years 1996 and 1997. that no income tax may be imposed on the prospective gain from the supposed appreciation of FDC's shareholdings in FAC.00 in its Annual Income Tax Return for the taxable year 1996. SP-INC-97-00019-2000 for deficiency income taxes in the sum of P5. covered by the following Assessment Notices.: (a) Assessment Notice No. (RHPL) for the formation of a Singapore -based joint venture company called Filinvest Asia Corporation (FAC). the CIR filed its answer. FDC and FAC both prayed that the subject assessments for deficiency income and documentary stamp taxes for the years 1996  and 1997 be cancelled and annulled.066. FDC eventually reported  a net loss of P190.477.60 in 1996 and P3.8 million.213. that not being promissory notes or certificates of obligations.494. with the resultant diminution of its shares in FLI. FDC and FAI filed on 17 October 2000 a petition for review with the Court of Tax Appeals (CTA) pursuant to Section 228 of the 1997 NIRC. The foregoing deficiency taxes were assessed on the taxable gain supposedly realized by FDC from the Deed of Exchange it executed with FAI and FLI. SP-DST-96-00020-2000 for deficiency documentary stamp taxes in the sum of P10. no taxable gain should have been assessed from the subject Deed of Exchange since FDC and FAI collectively gained further control of FLI as a consequence of the exchange. On 26 January 2000 or within the reglementary period of thirty (30) days from notice of the assessment.request for clarification filed by FLI. The CIR also argued that FDC realized taxable gain arising from the dilution of its shares in FAC as a result of its Shareholders'  Agreement with RHPL. Davao Sugar Central Corporation (DSCC) and Filinvest Capital.074. As a consequence. complied with all the requirements  imposed in the ruling. FDC did not gain further control of said corporation. the rule is settled that interests cannot be demanded in the absence of a stipulation to the effect.699. Likewise calling attention to the fact that the cash advances FDC extended to its affiliates were interest free despite the interest bearing loans it obtained from banking institutions.06 for 1996.48 in 1997.638.677. SP-DST-97-00021-2000 for  deficiency documentary stamp taxes in the sum of P5. FAI similarly received from the BIR a Formal Letter of Demand for deficiency income taxes  in the sum ofP1. 6182. Duly evidenced by instructional letters as well as cash and journal vouchers. and. both FDC and FAI filed their respective requests for reconsideration/protest. In view of the failure of petitioner Commissioner of Internal Revenue (CIR) to resolve their request for reconsideration/protest within the aforesaid period. Covered by Assessment Notice No. that correlative to the CIR's lack of authority to impute theoretical interests on the cash advances FDC extended in favor of its affiliates. Having submitted the relevant supporting documents pursuant to the 31 January 2000 directive from the BIR Appellate Division.03 for 1997. On 4 December 2000.360. the latter. S-34-046-97. (b) Assessment Notice No.7 million worth of shares in said joint venture company to RHPL’s subscription worth P433. on the ground that the deficiency income and documentary stamp taxes assessed by the BIR were bereft of factual  and legal basis. 9-94 which provide that loan transactions are subject to said tax irrespective of whether or not they are evidenced by a formal agreement or by mere office memo.40 for 1997. FDC subscribed to P500. On 15 November 1996.796.425. FDC also extended advances in favor of  its affiliates." The CIR justified the imposition of documentary stamp taxes on the instructional letters as well as cash and journal vouchers for said cash advances on the strength of Section 180 of the NIRC and Revenue Regulations No.695. as implemented by Revenue Regulations No. the CIR invoked Section 43 of the old NIRC which. FDC also entered into a Shareholders’ Agreement with Reco Herrera PTE Ltd. tasked to develop and manage FDC’s 50% ownership of its PBCom Office Tower Project (the Project).716. the petition alleged. FAI. FDC received from the BIR a Formal Notice of Demand to pay deficiency income and  documentary stamp taxes.889. FDC and FAI filed on 11 September 2000 a letter requesting an early resolution of their request for reconsideration/protest on the ground that the 180 days prescribed for the resolution thereof  under Section 228 of the NIRC was going to expire on 20 September 2000. claiming that the transfer of property in question should not be considered tax free since.
6182 directing petitioner Filinvest Development Corporation to pay the amount ofP5. FAI and FLI. since they do not partake the nature of loan agreements. FDC filed on 5 November 2002 the petition for review docketed before the CA as CA-G. (c) can only be invoked in cases of  understatement of taxable net income or evident tax evasion. thus: WHEREFORE. Assessment Notice No. With the denial of its partial motion for reconsideration of the same 11 December 2002 resolution issued by the  CTA. as implemented by Section 1. the CTA went on to render the Decision dated 10 September 2002 which.03 representing deficiency income tax on allegedly undeclared interest income for the taxable year 1997. While likewise finding that the documents evidencing the cash advances FDC extended to its affiliates cannot be considered as loan agreements that are subject to documentary stamp tax. Accordingly. 2000 until full  payment thereof pursuant to Section 249 (c) (3) of the Tax Code.At the pre-trial conference. cancelled the rest of deficiency  income and documentary stamp taxes assessed against FDC and FAI for the years 1996 and 1997. plus 20% delinquency interest computed from February 16.e. No. the CTA enunciated. 482. SP-DST-96-00020-2000 and SP-DST-97-00021-2000 imposing deficiency documentary stamp tax on FDC for taxable years 1996 and 1997. the CTA referred to the equivalent provision in the Internal Revenue Code of the United States (IRC-US). For persuasive effect. 2000 until full payment thereof is REVERSED and SET ASIDE and. that the CIR's authority under Section 43 of the NIRC: (a) does not include the power to impute imaginary interest on said transactions. The foregoing petition was. the decretal portion of which states: WHEREFORE. As affirmed in the 3 February 1997 BIR Ruling No. respectively and Assessment Notice No. Assessment Notice No. premises considered. With the further admission of the Formal Offer of  Documentary Evidence subsequently filed by FDC and FAI and the conclusion of the testimony of Susana  Macabelda anent the cash advances FDC extended in favor of its affiliates. JMDB TAX REVIEW CASES Page 17 .972. The assailed Decision dated September 10.691. to wit: 1. the court finds the instant petition partly meritorious. S-34-046-97. and (c) for deficiency income tax on the gain FDC purportedly  realized from the increase of the value of its shareholdings in FAC. No.R. SP-INC-97-0027-2000 imposing deficiency income tax on FAI for the taxable year 1997 are hereby CANCELLED and SET ASIDE. The instructional letters as well as the cash and journal vouchers evidencing the advances FDC extended to its affiliates are not subject to documentary stamp taxes pursuant to BIR Ruling No. 72992. however. the CTA also ruled that the increase in the value of FDC's shares in FAC did not result in economic advantage in the absence of actual sale or conversion thereof. Calling attention to the fact that the cash advances it extended to its affiliates were interest-free in the absence of the express stipulation on interest required under Article 1956 of the Civil Code. However. In addition. among others. the instant petition is hereby GRANTED. no taxable gain can be recognized from the transaction under Section 34 (c) (2) of the old NIRC. the CIR also filed the petition for review docketed before the CA as CA-G. and. upon the following findings and conclusions.03 as deficiency income tax for taxable year 1997. the CA's then Special  Fifth Division rendered the herein assailed decision dated 16 December 2003. [FDC] is hereby ORDERED to PAY the amount of P5. FDC questioned the imposition of an arm'slength interest rate thereon on the ground. however. that the CIR was justified in assessing undeclared interests on the same cash advances pursuant to his authority under Section 43 of the NIRC in order to forestall tax evasion.R. Documents and Issues which was admitted in the 16 February 2001 resolution issued by the CTA. (b) is directed only against controlled taxpayers and not against mother or holding corporations.691. petitioner is also ORDERED to PAY 20% delinquency interest computed from February 16. i.482-2 of 1965-1969 Regulations of  the Law of Federal Income Taxation. 2002 rendered by the Court of Tax Appeals in CTA Case No. dated 30 July 1998. Upholding FDC's position. with the exception of the deficiency income tax on the interest income FDC supposedly realized from the advances it extended in favor of its affiliates. in view of all the foregoing. 2. SP-INC-96-00018-2000 imposing deficiency income tax on FDC for taxable year 1996. Sec. Dissatisfied with the foregoing decision. In essence. SP-INC-97-00019-2000 imposing deficiency income tax on petitioner for taxable year 1997. a new one entered annulling Assessment Notice No. (b) for deficiency documentary stamp taxes on the documents evidencing FDC's cash advances to its affiliates. 74510.  Finding that the collective increase of the equity participation of FDC and FAI in FLI rendered the gain derived from the exchange tax-free. hence. the parties filed a Stipulation of Facts. No  pronouncement as to costs. denied  due course and dismissed for lack of merit in the herein assailed decision dated 26 January 2005 rendered by the CA's then Fourteenth Division. the CIR argued that the CTA reversibly erred in cancelling the assessment notices: (a) for deficiency income taxes on the exchange of property between FDC.972.. the 29 November 1996 Deed of Exchange resulted in the combined control by FDC and FAI of more than 51% of the outstanding shares of FLI. pursuant to Rule 43 of the 1997 Rules of Civil Procedure. 116-98.
The Issues In G. 163653 is bereft of merit. “(i)n any case of two or more organizations. 466.” In amplification of the equivalent   provision under Commonwealth Act No. Since considerable interest expenses were deducted by FDC when said funds were borrowed.” In addition. the CIR asseverates that the CA should have accorded weight and respect to the findings of the CTA which. 2. can take judicial notice of US income tax laws and  regulations.R.R. trade or business. trade or business. the CIR's petitions for review on certiorariassailing the 16 December 2003 decision in CA-G. we find the CIR’s petition in G. the Commissioner of Internal Revenue is authorized to distribute. apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization. 163653. III THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT GAIN ON DILUTION AS A RESULT OF  THE INCREASE IN THE VALUE OF FDC’S SHAREHOLDINGS IN FAC IS NOT TAXABLE. they merely represent unrealized increase in capital. Admittedly. FDC resorted to interest-bearing fund borrowings from commercial banks.R. as the specialized court dedicated to the study and consideration of tax matters. 167689 impressed with partial merit. the CIR theorizes that interest income should likewise be declared when the same funds were sourced for the advances FDC extended to its affiliates. 179(b) of Revenue Regulation No. The Court’s Ruling While the petition in G. No. SP No. Sec. 116-98 had been subsequently modified by BIR Ruling No. 163653. the CIR maintains that it is vested with the power to allocate. trades or businesses even in the absence of fraud. trades or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests. said latter ruling cannot be given retroactive application if to do so would be prejudicial to the taxpayer. if he determines that such distribution. since said power is intended “to prevent evasion of taxes or clearly to reflect the income of any such organizations. Although BIR Ruling No.R. 163653 and 167689. the CIR urges the grant of its petition on the following ground: THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE COURT OF TAX APPEALS AND IN HOLDING  THAT THE ADVANCES EXTENDED BY RESPONDENT TO ITS AFFILIATES ARE NOT SUBJECT TO INCOME TAX. trades or businesses. dated 15 July 1999.3. distribute or apportion income or deductions between or among controlled organizations. FILINVEST ALABANG. 167689. 72992 and the 26 January 2005 decision in CAG. 4.R.R. INCORPORATED (FAI) AND FILINVEST LAND INCORPORATED (FLI) MET ALL THE REQUIREMENTS FOR THE NON-RECOGNITION OF TAXABLE GAIN UNDER SECTION 34 (c) (2) OF THE OLD NATIONAL INTERNAL REVENUE CODE (NIRC) (NOW SECTION 40 (C) (2) (c) OF THE NIRC. No.R. No. apportion or allocate gross income or deductions between or among such organization. for said purpose.R. petitioner proffers the following issues for resolution: I THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN HOLDING THAT THE EXCHANGE OF SHARES OF STOCK FOR PROPERTY AMONG FILINVEST DEVELOPMENT CORPORATION (FDC). No. the CIR argues that the CA erred in reversing the CTA’s finding that theoretical interests can be imputed on the advances FDC extended to its affiliates in 1996 and 1997 considering that. Respectively docketed before this Court as G. until actually converted thru sale or  disposition of said shares. No. In G. FDC's alleged gain from the increase of its shareholdings in FAC as a consequence of the Shareholders' Agreement it executed with RHPL cannot be considered taxable income since. Section 43 of the 1993 NIRC provides that. In G. 2 states as follows:  JMDB TAX REVIEW CASES Page 18 . Nos. on the other hand. to the effect that documentary stamp taxes are imposable on inter-office memos evidencing cash advances similar to those extended by FDC. 108-99. II THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING THAT THE LETTERS OF INSTRUCTION OR CASH VOUCHERS EXTENDED BY FDC TO ITS AFFILIATES ARE NOT DEEMED LOAN AGREEMENTS SUBJECT TO DOCUMENTARY STAMP TAXES UNDER SECTION 180 OF THE NIRC. Invoking Section 43 of the 1993 NIRC in relation to Section 179(b) of Revenue Regulation No. 74510 were consolidated pursuant to the 1 March 2006 resolution issued by this Court’s Third Division. No.
and. – When used in this section – (1) The term “organization” includes any kind. avoid or escape taxes. the statute contemplates that the Commissioner of Internal Revenue shall intervene. the net income (or as the case may be. in the case of a controlled taxpayer. and however exercisable or exercised. From the tenor of paragraph (c) of Section 179 of Revenue Regulation No. including. it would appear that FDC and its affiliates come within the purview of Section 43 of the 1993 NIRC. It does not mean the income. or arrangement be legally binding upon the parties thereto). the true net income from the property and business of a controlled taxpayer. is other than it would have been had the taxpayer in the conduct of his affairs been an  uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer. in the particular contract. The standard to be applied in every case is that of an uncontrolled taxpayer. as the case may be. or a corporation or association. or businesses owned or controlled directly or indirectly by the same interests. according to the standard of an uncontrolled taxpayer. chose to make (even though such contract. not its form or mode of exercise. the controlled taxpayer. had it in the conduct of its affairs (or. to the case of a fraudulent. or sham transaction. however. it may also be seen that the CIR's power to distribute. resulting to the controlled taxpayer by reason of the particular contract. irrespective of the place where organized. an estate. between or among the controlled taxpayers constituting the group. the fact that FDC extended substantial sums of money as cash advances to its said affiliates for the purpose of providing them financial assistance for their operational and capital expenditures seemingly indicate that the situation sought to be addressed by the subject provision exists. a partnership. In determining the true net income of a controlled taxpayer. where operated. or the item or element of either. The authority to determine true net income extends to any case in which either by inadvertence or design the taxable net income in whole or in part. and regardless of the place where carried on. or whether affiliated or not. (4) The term “controlled taxpayer” means any one of two or more organizations. 2 does not include the power to impute "theoretical interests" to the controlled taxpayer's  transactions. or to the case of a device designed to reduce or avoid tax by shifting or distorting income or deductions. arrangement or other act) dealt with the other members or members of the group at arm’s length. but not limited to the following items: compensation for JMDB TAX REVIEW CASES Page 19 . we find that the CIR's powers of distribution. a trust. . It is the reality of the control which is decisive. the deductions. (6) The term “true net income” means. As may be gleaned from the definitions of the terms “controlled” and "controlled taxpayer" under paragraphs (a) (3) and (4) of the foregoing provision. whether legally enforceable. whether exempt or taxable. whether it be a sole proprietorship. and regardless of whether domestic or foreign. by making such distributions. by determining. transaction. or arrangement. or the interest controlling it. Pursuant to Section 28 of the 1993 NIRC. (5) The term “group” and “group of controlled taxpayers” means the organizations. after all. Section 44 grants no right to a controlled taxpayer to apply its provisions at will. apportion or allocate gross income or deductions between or among controlled taxpayers may be likewise exercised whether or not fraud inheres in the transaction/s under scrutiny. the CIR can make the necessary rectifications in order to prevent evasion of taxes. The interests controlling a group of controlled taxpayer are assumed to have complete power to cause each controlled taxpayer so to conduct its affairs that its transactions and accounting records truly reflect the net income from the property and business of each of the controlled taxpayers. of a controlled taxpayer. nor does it grant any right to compel the Commissioner of Internal Revenue to apply its provisions. this has not been done and the taxable net income are thereby understated. FAI. or where its trade or business is conducted. apportionments. regardless of whether or where organized. 2. the Commissioner of Internal Revenue is not restricted to the case of improper accounting. Despite the broad parameters provided. whether owned individually or otherwise. (B) SCOPE AND PURPOSE.The purpose of Section 44 of the Tax Code is to place a controlled taxpayer on a tax parity with an uncontrolled taxpayer. (3) The term “controlled” includes any kind of control. shall determine the true net income of each controlled taxpayer. DSCC and FCI. If. any item or element affecting net income) which would have resulted to the controlled taxpayer. (C) APPLICATION – Transactions between controlled taxpayer and another will be subjected to special scrutiny to ascertain whether the common control is being used to reduce. colorable. trades or businesses owned or controlled by the same interests. any item or element affecting net income) which would have resulted to the controlled taxpayer. the term “gross income” is understood to mean all income from whatever source derived. however. direct or indirect. or allocations as he may deem necessary of gross income or deductions. transaction. transaction. had it in the conduct of its affairs (or. Aside from owning significant portions of the shares of stock of FLI. apportionment or allocation of gross income and deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue Regulation No. For as long as the controlled taxpayer's taxable income is not reflective of that which it would have realized had it been dealing at arm's length with an uncontrolled taxpayer. as the case may be. or of any item or element affecting net income. – (A) DEFINITIONS.Determination of the taxable net income of controlled taxpayer. (2) The terms “trade” or “business” include any trade or business activity of any kind. A presumption of control arises if income or deductions have been arbitrarily shifted. trades.
(b) were all temporarily in nature since they were repaid within the duration of one week to three months and were evidenced by mere journal entries. and. (c) the transfer is made by a person. apportioned or allocated by the CIR. No. pursuant to Article 1956 of the Civil Code of the Philippines.000 outstanding capital JMDB TAX REVIEW CASES Page 20 . Then as now. to accord precipitate credulity to the CIR's bare assertion that FDC had deducted substantial interest expense from its gross income.xxxx (c) Exception – x x x x No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for shares of stock in such corporation of which as a result of such exchange said person. prizes and winnings. FAI and FLI. DSCC and FCI financial assistance for their operational and capital expenditures. we also find a dearth of merit in the CIR's insistence on the imposition of deficiency income taxes on the transfer FDC and FAI effected in exchange for the shares of stock of FLI. For all its harping upon the supposed fact that FDC had resorted to borrowings from commercial banks. no interest shall be due unless it has been expressly stipulated in writing. "the amount of money comingto a person within a specific time" or "something  distinct from principal or capital. when it is borne in mind that. 167689. not exceeding four persons.  cash vouchers and instructional letters. Susan Macabelda . gains control of the transferee. alone or together with others. and similar items. More significantly. prior to the exchange. there is also no dispute that said transferee and transferors subsequently complied with the requirements provided for the non-recognition of gain  or loss from the exchange of property for tax. (d) as a result of the exchange the  transferor. it has been held that their assessment and collection should be in accordance with law as any  arbitrariness will negate the very reason for government itself. gains derived from dealings in property. More so. Section 34 (c) (2) of the 1993 NIRC pertinently provides as follows: Sec. including fees.R. royalties. gains control of said corporation. gross income derived from business. (b) the transferee exchanges its shares of stock for property/ies of the transferor. the CIR argues that taxable gain should be recognized for the exchange considering that FDC's controlling interest in FLI was actually decreased as a result thereof. acknowledged the concurrence of the foregoing requisites in  the Deed of Exchange the former executed with FDC and FAI by issuing BIR Ruling No. pensions. alone or together with others.” interest. probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed. there must be proof of the actual or. said witness testified that said advances: (a) were extended to give FLI. While admitting  that FDC obtained interest-bearing loans from commercial banks. That stocks issued for services shall not be considered as issued in return of property. Our circumspect perusal of the record yielded no evidence of actual or possible showing that the advances FDC extended to its affiliates had resulted to the interests subsequently assessed by the CIR. not exceeding four persons.  As even admitted in the 14 February 2001 Stipulation of Facts submitted by the parties. FDC owned 2. FAI. the rule is likewise settled that tax statutes must be  construed strictly against the government and liberally in favor of the taxpayer. indeed. the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the  provisions of a taxing act are not to be extended by implication. Provided. In G. and.” Even if we were. dividends.537. acting alone or together with others. the requisites for the non-recognition of gain or loss under the foregoing provision are as follows: (a) the transferee is a corporation. commissions.42% of FLI's 3. and partner’s  distributive share of the gross income of general professional partnership." Otherwise stated. S-34-046-97. While it has been held that the phrase "from whatever source derived" indicates a legislative policy to include all income not expressly exempted within the class of taxable income under our laws. not exceeding four. in fact. at the very least. annuities. the CIR had adduced no concrete proof that said funds were. With respect to the Deed of Exchange executed between FDC. the BIR had. are not to be presumed beyond  what the applicable statute expressly and clearly declares. Acting on the 13 January 1997 request filed by FLI.358. therefore. being burdens. Accordingly.535. there would still be no factual basis for the imputation of theoretical interests on the subject advances and assess deficiency income taxes thereon. 34.clarified that the subject advances were sourced from the corporation's rights offering in 1995 as well as the sale of its investment in BonifacioLand in  1997.services.FDC's Funds Management Department Manager who was the sole witness presented before the CTA . While it is true that taxes are the lifeblood of the government. Considering that taxes.000 or 67. With the  BIR's reiteration of said ruling upon the request for clarification filed by FLI. For said purpose. rents. as provided under Section 34 (c) (2) of the 1993 NIRC. the source of the advances the former provided its affiliates. the term "income" has been variously interpreted to mean "cash received or its equivalent". Determination of amount of and recognition of gain or loss . the CIR calls attention to the fact that.763.
96% of said transferee corporation's 4.stock. drafts. – On all loan agreements signed abroad wherein the object of the contract is located or used in the Philippines. whether negotiable or non-negotiable. 180.629.96% control of said transferee corporation. Against the clear tenor of Section 34(c) (2) of the 1993 NIRC.629.000 new shares issued to FAI which represents 9. Stamp tax on all loan agreements.088.877. instruments and securities issued by the Government or any of its instrumentalities or certificates of deposits drawing interest.711. it cannot be gainsaid that FDC ideally controls the same percentage of the 420. In determining the 51% stock ownership.000 additional FLI shares as a consequence of the exchange and with only 42.30) on each two hundred pesos. on the other hand. and on each renewal of any such note. it also appears that the supposed reduction of FDC's shares in FLI posited by the CIR is more apparent than real. Without owning a share from FLI's initial 3. however.e. Control is determined by the amount of stocks received.367.877. certificates of deposit bearing interest and others not payable on sight or demand. certificate of deposit or JMDB TAX REVIEW CASES Page 21 .226. On the principle that the transaction did not qualify as a tax-free exchange under Section 34 (c) (2) of the 1993 NIRC.386.629.217. FAI and FLI was penned by no less than Justice Acosta himself.575. Together FDC's 2.000 FLI shares as a result of the exchange purportedly resulted in its control of only 9. or on all promissory notes..629.000 thereof accruing in favor of FDC for a total of 2.000 shares (61.000 shares or 61.00 should be recognized on the part of FDC and in the sum  of P3. instruments and securities issued by the government or any of its instrumentalities. represents 7. total subscribed. be appreciated in combination with the 420.000 outstanding shares. promissory notes.094. apprised in FLI's request for clarification about the change of percentage of ownership of its outstanding capital stock. by itself. FAI's acquisition of 420.921. At any rate. bills of exchange.226.000 sha res.579. 1993.579. or orders for the payment of any sum of money otherwise than at sight or on demand. there shall be collected a documentary stamp tax of Thirty centavos (P0. said 7. bill of exchange (between points within the Philippines). 6182 upholding the tax-exempt status of the exchange  between FDC. draft. Filinvest Development Corp. Since the term "control" is clearly defined as "ownership of stocks in a corporation possessing at least fifty-one percent of the total voting power of classes of stocks entitled to one vote" under Section 34 (c) (6) [c] of the 1993 NIRC.763. alone or with other transferors not exceeding four persons. i. Inasmuch as the combined ownership of FDC and FAI of FLI's outstanding capital stock adds up to a total of 70. still gained control of Filinvest Land. bill of exchange.968% of the outstanding shares of FLI. Acosta who. This much was admitted by the parties in the 14 February 2001 Stipulation of Facts.877.226. opined that said provision  could be inapplicable if control is already vested in the exchangor prior to exchange. the transferors. it stands to reason that neither of said transferors can be held liable for deficiency income taxes the CIR assessed on the supposed gain which resulted from the subject transfer. or fractional part thereof.000 shares issued to its said co-transferor which.968% add up to an aggregate of 68.03% control of FLI as a consequence of the 29 November 1996 Deed of Transfer. of the face value of any such agreement. evident from the categorical language of Section 34 (c) (2) of the 1993 NIRC which provides that gain or loss will not be recognized in case the exchange of property for stocks results in the control of the transferee by the transferor. said corporation’s controlling interest was supposedly reduced to 61%.000 outstanding shares.  Documents and Issues they submitted to the CTA.226.99% of FLI's 4. As the uncontested owner of 80% of the outstanding shares of FAI.535. FDC's 2. Inc.877. 547-93 dated  December 29. the exchange of property for stocks between FDC FAI and FLI clearly qualify as a tax-free transaction under paragraph 34 (c) (2) of the same provision. On the other hand. therefore.42% FDC initially held prior to the exchange.998% of said transferee corporation's outstanding shares of stock which is evidently still greater than the 67. Section 180 of the NIRC provides follows: Sec. Upon the issuance of 443.575.99%." This was confirmed when. Rather than isolating the same as proposed by the CIR. in their book Tax Law and Jurisprudence.000. insofar as documentary stamp taxes on loan agreements and promissory notes are concerned.03 when reckoned from the transferee's aggregate 4. drafts.00 on the part of FAI. The paucity of merit in the CIR's position is.579. Aside from the fact that that the 10 September 2002 Decision in CTA Case No. only those persons who transferred property for stocks in the same transaction may be counted up to the maximum of five (BIR Ruling No. except bank notes issued for circulation. The term 'control' shall mean ownership of stocks in a corporation by possessing at least 51% of the total voting power of all classes of stocks entitled to vote. Considered alongside FDC's 61.000 outstanding shares. Inc. whether for property or for services by the transferor or transferors.000 shares or 70.03%) and FAI's 420.000 shares.575. FDC and FAI significantly point out that said authors have acknowledged that the position taken by the BIR is to the effect that "the law would apply  even when the exchangor already has control of the corporation at the time of the exchange.000 shares (9.96%) clearly add up to 3. the BIR opined as follows: Please be informed that regardless of the foregoing. the CIR asseverates that taxable gain in the sum of P263.03% control of FLI's 4. the CIR cites then Supreme Court Justice Jose Vitug and CTA Justice Ernesto D.452.000 outstanding shares should. and Filinvest Alabang.
motor vehicle. In  brushing aside the foregoing argument. resale. 174 and 175 of the Tax Code of 1997. could be invoked only by ASB Development Corporation. appliance or furniture shall be exempt from the payment of documentary stamp tax provided under this Section. rules and regulations promulgated by the BIR have no  retroactive application if to so apply them would be prejudicial to the taxpayers. circulars. – For purposes of these Regulations. or abroad when the obligation or right arises from Philippine sources or the property or object of the contract is located in the Philippines shall be subject to the documentary stamp tax of thirty centavos (P0. the CIR argued that the foregoing ruling was later modified in BIR Ruling No. advice or drawings by any form of check or withdrawal slip. sought a ruling from the CIR. That loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250. subject to documentary stamp taxes. which are. When read in conjunction with Section 173 of the 1993 NIRC.  In its appeal before the CA.note: Provided. it is informed that nothing in Regulations No. however. hence. under Section 180 of the Tax Code. 9-94 states that the same is subject to documentary stamp tax. both of the Tax Code. the inter-office memo is being prepared for accounting purposes only in order to avoid the co-mingling of funds of the corporate affiliates. or promissory notes issued to secure such loan.00) executed by an individual for his purchase on installment for his personal use or that of his family and not for business. generally refer to distinct and separate instruments. Stamp on all Loan Agreements. – All loan agreements whether made or signed in the Philippines. or (c) where the taxpayer  acted in bad faith." Correlatively. we find that the instructional letters as well as the journal and cash vouchers evidencing the advances FDC extended to its affiliates in 1996 and 1997 qualified as loan agreements upon which documentary stamp taxes may be imposed. the taxpayer who sought the same. to wit: On the matter of whether or not the inter-office memo covering the advances granted by an affiliate company is subject to documentary stamp tax. 116-98. JMDB TAX REVIEW CASES Page 22 . whichever will yield a higher tax: Provided however. In said ruling. respectively. The terms 'Loan Agreement" under Section 180 and "Mortgage' under Section 195. That only one documentary stamp tax shall be imposed on either loan agreement. this rule does not apply: (a) 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. more or less. while a deed of mortgage shall be taxed under Section 195." "Section 6. the foregoing provision concededly applies to "(a)ll loan agreements. Applying the aforesaid provisions to the case at bench. Admittedly. or abroad when the obligation or right arises from Philippine sources or the property or object of the contract is located or used in the Philippines. FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings.000. which may be evidenced by credit memo. 26 (Documentary Stamp Tax Regulations) and Revenue Regulations No. Section 3 (b) and Section 6 of Revenue Regulations No. said inter-office memo evidencing the lendings or borrowings which is neither a form of promissory note nor a certificate of indebtedness issued by the corporation-affiliate or a certificate of obligation. is not subject to documentary stamp tax imposed under Section 180. however. dated 30 July 1998 which. upon the condition that the same amount of the same kind and quality shall be paid. which may be evidenced by credit/debit memo. as amended. Such being the case. In keeping with the caveat attendant to every BIR Ruling to the effect that it is valid only if the facts claimed by the taxpayer are correct. or fractional part thereof. 10899 dated 15 July 1999. Rather. categorized as 'securities'. the documentary stamp tax shall be based on the amount of drawings or availment of the facilities. advice or drawings. A loan agreement shall be taxed under Section 180. 9-94 provide as follows: Section 3. the CA applied Section 246 of the 1993 NIRC from which proceeds the settled principle that rulings. of the face value of any such agreements. Definition of Terms. the CIR opined that documents like those evidencing the advances FDC extended to its affiliates are not subject to documentary stamp tax. Not being the taxpayer who. pursuant to Section 180 in relation to Section 173 of the Tax Code. barter or hire of a house. which opined that inter-office memos evidencing lendings or borrowings extended by a  corporation to its affiliates are akin to promissory notes.30) on each two hundred pesos. whether made or signed in the Philippines. lot. In cases where no formal agreements or promissory notes have been executed to cover credit facilities. in the first instance. the following term shall mean: (b) 'Loan agreement' – refers to a contract in writing where one of the parties delivers to another money or other consumable thing. (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. we find that the CA reversibly erred in utilizing BIR Ruling No. The term shall include credit facilities. strictly speaking.
11. 1. FDC reported a net loss of P190. Since “a mere advance in the value of the property of a person or corporation in no sense constitute the ‘income’ specified in the revenue law. 1.099.06. Assessment Notices Nos. Petition. FDC subscribed to P500. 163653 is DENIED for lack of merit and the CA’s 16 December 2003 Decision in G. 249 (a) and (b) of the NIRC which authorizes the assessment of the same “at the rate of twenty percent (20%).40.999. statement or list.400.12.00 in its Annual Income Tax Return for the taxable year 1996.16. Ltd. Bearing in mind the meaning of "gross income" as above discussed.00 as compromise penalty. 1996. the CIR's petition for review on certiorari in G. 1 and 7. 1. (‘RHPL’) for the formation of a joint venture company named Filinvest Asia Corporation (‘FAC’) which is based in Singapore (pars. the record shows that the parties were in agreement about the following factual antecedents narrated in the 14 February  2001 Stipulation of Facts. viz. the CIR has no factual and legal basis in assessing income tax on the increase in the value of FDC's shareholdings in FAC until the same is actually sold at a profit. SP-DST-96-00020-2000.793. premises considered.796. or such higher rate as may be prescribed by regulations”. finally. the CIR correctly assessed the sum of P6. P3. that it “constitutes and can be treated merely as an increase of capital.: “1. Petition. 6. The CIR’s petition in G.487. SP-DST-9700021-2000 or a total of P5. unless there  is a clear showing of a reversible error or an improvident exercise of authority.425.695. failed to establish. SP-DST-96-00020-2000 and SP-DST-97-00021-2000 issued for deficiency documentary stamp taxes due on the instructional letters as well as journal and cash vouchers evidencing the advances FDC extended to its affiliates are declared valid. Trinidad. we find no strong and cogent reasons to depart from said rule with respect to the CTA's finding that no deficiency income tax can be assessed on the gain on the supposed dilution and/or increase in the value of FDC's shareholdings in FAC which the CIR.7 million. FAC. Documents and Issues they submitted before the CTA.000. at any rate. for a total of P10. In Assessment Notice No. even then. Answer). In turn. that a mere increase or appreciation in the value of said shares cannot be considered income for taxation purposes. 167689 is PARTIALLY GRANTED and the CA’s 26 January 2005 Decision in CA-G. No. No.7 million worth of shares of stock representing a 60% equity participation in FAC. The imposition of deficiency interest is justified under Sec.R. it cannot be gainsaid. FDC entered into a Shareholders’ Agreement (‘SA’) with Reco Herrera Pte.721. No. Alongside the sum of P4. SP No. warranted under Sec. 1.” it has been held in the  early case of Fisher vs.599. In accordance with the terms of the SA. Absent showing of such error here. 74510 is MODIFIED.44 in interests andP25.”   Alongside the principle that tax revenues are not intended to be liberally construed.14.061.000. 1. 72992 is AFFIRMED in toto. 1.693.15. or keep any record or supply any information required” on the date prescribed therefor. from the date prescribed for the payment of the unpaid amount of tax until   full payment. 7.01 and 6. To our mind.62 for documentary stamp tax. Accordingly. the CIR similarly assessed P1. pars. WHEREFORE. we find that both the CTA and the CA erred in invalidating the assessments issued by the CIR for the deficiency documentary stamp taxes due on the instructional letters as well as the journal and cash vouchers evidencing the advances FDC extended to its affiliates in 1996 and 1997. be imputed against both the CTA and the CA for invalidating the Assessment Notice issued by the CIR for the deficiency income taxes FDC is supposed to have incurred as a consequence of the dilution of its shares in FAC.8 million worth of shares of stock of FAC representing a 40% equity participation in FAC. JMDB TAX REVIEW CASES Page 23 .699. RHPL subscribed to P433. Pursuant to the SA between FDC and RHPL. FDC executed a Deed of Assignment transferring to FAC a portion of FDC’s right and interests in the Project to the extent of P500. in turn.62 for documentary stamp tax.00 as compromise penalty in Assessment Notice No.R.78 in interests and P25. no reversible error can.” Hence. the rule is settled that the findings and conclusions of the CTA are accorded great respect and are generally upheld by this Court. the joint venture company formed by FDC and RHPL.050.R.13.R. the equity participation of FDC and RHPL in FAC was 60% and 40% respectively. 250 of the NIRC which prescribes the imposition thereof “in case of each failure to file an information or return. The imposition of the compromise penalty is. Anent FDC’s Shareholders’ Agreement with RHPL.11. par.12. Answer). On November 15. is tasked to develop and manage the 50% ownership interest of FDC in its PBCom Office Tower Project (‘Project’) with the Philip pine Bank of Communications (par. In payment of its subscription in FAC.Viewed in the light of the foregoing considerations.
upheld. SO ORDERED. JMDB TAX REVIEW CASES Page 24 . SP-INC-96-00018-2000. SP-INC-97-00019-2000 and SP-INC-97-00272000 issued for deficiency income assessed on (a) the “arms -length” interest from said advances.The cancellation of Assessment Notices Nos. and (c) income from the dilution resulting from FDC’s Shareholders’ Agreement with RHPL is. (b) the gain from FDC’s Deed of Exchange with FAI and FLI. however.
the Court issued another resolution treating the petition as one for  prohibition. on the other hand. they have an interest as regular users of tollways in stopping the BIR action. Purisima. and that the imposition of VAT on tollway operations has been the subject as early as 2003 of  several BIR rulings and circulars. since VAT was never factored into the formula for computing toll fees. when it enacted the NIRC. Petitioners claim that. enjoining the implementation of the VAT. in view of the consistent opposition of Diaz and other sectors to such move. . Timbol. 2011 x ---------------------------------------------------------------------------------------.x DECISION ABAD. In any event. it cannot be claimed that the rights of tollway   JMDB TAX REVIEW CASES Page 25 . Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of Representatives. claims that she served as Assistant Secretary of the Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration. No. that to impose VAT on toll fees would amount to a tax on public service. Petitioners hold the view that Congress did not. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators.” not a sale of services. At any rate. On August 13. J. upon Presiden t Benigno C.EN BANC RENATO V. Jacinto-Henares. intend to include toll fees within the meaning of “sale of services” that are subject to VAT. F. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees. On August 23. 2010 unless judicially enjoined. its imposition would violate the non-impairment clause of the constitution. Secretary of the Department of Finance. Commissioner of Internal Revenue. The imposition was deferred. that a toll fee is a “user’s tax. represented by respondents Cesar V. except where the law provides otherwise. DIAZ and AURORA MA. the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from VAT.R. Petitioners. 193007 Promulgated: July 19. Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on toll fees.versus THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE. Finally. the non-impairment clause cannot limit the State’s sovereign taxing power which is generally read into contracts. G. Later. The Court required the government. to comment on the  petition within 10 days from notice. and Kim S. however. Additionally. including tollway operations. Diaz and Aurora Ma.added tax? The Facts and the Case Petitioners Renato V. Respondents. 2010 the Court issued a temporary restraining order (TRO). Aquino III’s assumption of office in 2010. F. the BIR revived the idea and would impose the challenged tax on toll fees beginning August 16. that the Court should seek the meaning and intent of the law from the words used in the statute. But. and that. since the VAT would result in increased toll fees. 2010 the Office of the Solicitor General filed the government’s comment. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. TIMBOL.: May toll fees collected by tollway operators be subjected to value.
In their reply to the government’s comment. however. not only on the more than half a million motorists who use the tollways everyday. quasi-judicial. and adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the Secretary of Finance.operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate. which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16. B. Finally. the characterization that petitioners Diaz and Timbol gave their action. arguing that petitioners’ allegations clearly made out a case for declaratory relief.  The same may be said of the requirement of locus standi which is a mere procedural requisite. Here. but the duty of the Court to take cognizance of and resolve the issues that the petition raises. The Court’s Rulings A. Further. the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. Consequently. b) will impair the tollway operators’ right to a reasonable return of investment under their TOAs. Further. To dismiss the petition and resolve the issues later. Whether or not the Court may treat the petition for declaratory relief as one for prohibition. On the Substantive Issues: JMDB TAX REVIEW CASES Page 26 . 2010 the Court issued a resolution. after the challenged VAT has been imposed. But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far reaching implications and raises questions that need to be resolved for the public good. The Issues Presented The case presents two procedural issues: 1. and 2. speedy. The government has  sought reconsideration of the Court’s resolution. and c) is not administratively feasible and cannot be implemented. Its imposition would impact. moreover. For this reason. Besides. treating the petition as one for prohibition rather than one for declaratory relief. A belated declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution. contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory. and Whether or not petitioners Diaz and Timbol have legal standing to file the action. BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010). Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services. the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow account. On the Procedural Issues: On August 24. petitioners point out that tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises. But this would be illegal since only the Congress can modify VAT rates and authorize its disbursement. The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to  usurpation of legislative authority. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms “franchise grantees” and “sale of services” under Section 108 of the Code. 2010. 2. could cause more mischief both to the tax-paying public and the government. petitioners Diaz and Timbol has a plain. an action over which the Court has no original jurisdiction. the imposition of VAT on toll fees has far-reaching implications. the imposition of VAT on toll fees would have very minimal effect on motorists using the tollways. it is not only the right. that the petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial. Although the petition does not strictly comply with the requirements of Rule 65. The government adds. but more so on the governmen t’s effort to raise revenue for funding various projects and for reducing budgetary deficits. or ministerial functions when it sought to impose VAT on toll fees.  The case also presents two substantive issues: 1. the VAT on toll fees cannot be implemented.
whether personal or real.” This means that “services” to be subject to VAT need not fall under the traditional concept of services. the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments. operators or keepers of hotels. and collected. Lending investors (for use of money). (Underscoring supplied) It is plain from the above that the law imposes VAT on “all kinds of services” rendered in the Philippines for a fee.” they also come under the specific class described in Section 108 as “all other franchise grantees” who are subject to VAT. the fee is in effect for the latter’s use of the tollway  facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. “except those under Section 119 of this Code. Now. resorts. Common carriers by air and sea relative to their transport of passengers. maintain. cafes and other eating places. resthouses. It does not help petitioners’ cause that Section 108 subjects to VAT “all kinds of services” rendered for a fee “regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. on the gross receipts derived from the sale or exchange of services as well as from the use or lease of properties. including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes. and operate expressways. inns. The listing of specific services are intended to illustrate how pervasive and broad is the VAT’s reach rather than establish concrete limits to its application. resthouses. resorts. transportation contractors on their transport of goods or cargoes. and distribution companies. lending investors. Lessors or distributors of cinematographic films. The third paragraph of Section 108 defines “sale or exchange of services” as follows: The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the Philippines for others for a fee. 3. assessed. 5. refreshment parlors. dealers in securities. according to Section 108. whether personal or real. Transportation contractors on their transport of goods or cargoes. inns. sales of electricity by generation companies. fidelity. real estate. lessors of property. The relevant law in this case is Section 108 of the NIRC. common carriers by air and sea relative to their transport of passengers. And not only do tollway operators come under the broad term “all kinds of services. the personal or professional kinds that require the use of human knowledge and skills. operators or keepers of hotels. motels.” Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) JMDB TAX REVIEW CASES Page 27 . Lessors of property. goods or cargoes from one place in the Philippines to another place in the Philippines. Essentially. Proprietors. radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code and non-life insurance companies (except their crop insurances). telephone and telegraph. every activity that can be imagined as a form of “service” rendered for a fee should be deemed included unless some provision of law especially excludes it. manufacturing or repacking goods for others. remuneration or consideration. services of franchise grantees of electric utilities. VAT is levied. including surety. In this sense. including those performed or rendered by construction and service contractors. including clubs and caterers. transmission. In consideration for constructing tollways at their expense.  including those specified in the list. By qualifying “services” with the words “all kinds. Traffic in the regular public highways is for this reason slow-moving. pension houses. tollway operators construct.D. pension houses.” Congress has given the term “services” an all -encompassing meaning. the tollway operator is no different from the following service providers under Section 108 who allow others to use their properties or facilities for a fee: 1. also called tollways. When a tollway operator takes a toll fee from a motorist. and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. goods or cargoes from one place in the Philippines to another place in the Philippines. and 7. Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads. including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes. commercial. warehousing services. at the operators’ expense. lessors or distributors of cinematographic films. 6. motels. processing. Thus.One. stock. The enumeration of affected services is not exclusive. 4. Warehousing service operators. indemnity and bonding companies. as amended. persons engaged in milling. 2. do tollway operators render services for a fee? Presidential Decree (P. proprietors. proprietors or operators of restaurants. customs and immigration brokers.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render.
and the Court cannot surmise any. As the Court said in South African Airways v. Businesses of a public nature such as public utilities and the  collection of tolls or charges for its use or service is a franchise.” Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term “sale of services” under Section 108 of the Code. The term “ports” includes seaports and airports. not only to authorizations that Congress directly issues in the form of a special law. Under Article 420 of the Civil Code. rivers. constitute as much a legislative franchise as though the grant  had been made by Congress itself. Court of Appeals: No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code. read and considered in their natural. like “roads. Actually. ordinary. operation. the limitation on the kind of vehicles that can use the road. according to good and approved usage and without resorting to forced or subtle construction. nothing in Section 108 supports this contention. canals. and broadcasting companies in its list of VAT-covered businesses. Someone must pay for the maintenance of the road.” The congressional will is ultimately determined by the language of the law that the lawmakers voted on. petitioners base this argument on the following discussion in Manila International Airport  Authority (MIAA) v. owing to the nature and object of their business. Indeed. Petitioners argue that a toll fee is a “user’s tax” an d to impose VAT on toll fees is tantamount to taxing a  tax. but also to those granted by administrative  agencies to which the power to grant franchises has been delegated by Congress. consequently. “franchise grantees. torrents. as agents of the state. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads. Petitioners of course contend that tollway operators cannot be considered “franchise grantees” under Section 108 since they do not hold legislative franchises.D. Commissioner of  Internal Revenue.” Two. But nothing in Section 108 indicates that the “franchise grantees” it speaks of are those who hold legislative franchises. franchises conferred or granted by local authorities. or only those among the public who actually use the road through the toll fees they pay upon using the road. for making a distinction between franchises granted by Congress and franchises granted by some other government agency.” are owned by the State.” The construction. Petitioners give no reason. Tollway operators are. But. The reverse is true.that Section 119 spares from the payment of VAT. may grant franchises. 1112. the road is still “intended for public use” if anyone can use the road under the same terms and conditions as the rest of the public. the MIAAAirport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.  pursuant to the exercise of its delegated powers under P. the former tollway concessionaire for the North and South Luzon Expressways. Indeed. not c ontrolling in the interpretation of law. Section 108 opens other companies rendering public service for a fee to the imposition of VAT. The latter. The term “franchise” has been broadly construed as referring. This means ta xing those among the public who actually use a public facility instead of taxing all the public including those who never use  JMDB TAX REVIEW CASES Page 28 . telephone. Article 420 of the Civil Code d efines property of public dominion as “one intended for public use. either the public indirectly through the taxes they pay the government. Such fees are often termed user’s tax. constitute the bulk of the income that maintains the operations of MIAA. “statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are. The terminal fees MIAA charges to passengers. The franchise in this case is evidenced by a  “Toll Operation Certificate. In specifically including by way of example electric utilities. the meaning and intention of the law must first be sought “in the words of the statute itself. properly constituted. telegraph. TheMIAA Airport Lands and Buildings constitute a “port” constructed by the State. Congress granted special franchise for the operation of tollways to the Philippine National Construction Company. tollway franchises may also be granted by the TRB. Apart from Congress. The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Consequently.” Even if the government collects toll fees.The charging of fees. The word “franchise” broadly covers government grants of a  special right to do an act or series of acts of public concern. ports and bridges constructed by the State. again. and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. commonly accepted and most obvious significations. Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional deliberations of the would-be law. as well as the landing fees MIAA charges to airlines. The collection of such fees does not change the character of MIAA as an airport for public use. the speed restrictions and other conditions for the use of the road do not affect the public character of the road. x x x The operation by the government of a tollway does not change the character of the road as one for public use.
A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public  expenditures. a distinction is made between the liability for the tax and burden of the tax.” Thus. operate. MIAA forms part of the national government although not integrated in the department  framework. collectible from motorists. are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction. In other words. for the construction and maintenance of certain roadways. maintenance and operation of the tollways. VAT on tollway operations is not really a tax on the tollway user. This is not the case here. who in this case is the tollway operator. Although toll fees are charged for the use of public facilities. the toll fees essentially end up as earnings of the tollway operators. but the buyer bears its burden since the  amount of VAT paid by the former is added to the selling price. properties or services to  the buyer. the seller of services. For this reason. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain. toll fees may be demanded by either the government or private  individuals or entities. Indeed. sells or renders services for a fee. maintained. Thus. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. the Court held that the City could not proceed with the auction sale.  The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways. In such a case. The interest in and right to recover investments solely belongs to the private tollway investors. not to establish a rule that tollway fees are user’s tax. but to make the point that airport lands and buildings are properties of publi c dominion and that the collection of terminal fees for their use does not make them private properties. prophetic grounds. What the government seeks to tax here are fees collected from tollways that are constructed. It would of course be another matter if Congress enacts a law imposing a user’s tax. VAT is imposed on any person who. therefore. as an attribute of ownership. Although the tollway operator may shift the VAT burden to the tollway user. In sum. Besides. She has no interest at all in the profits to be earned under the TOAs. Except for a fraction given to the government. in the course of trade or business. property or service. Consequently. JMDB TAX REVIEW CASES Page 29 . are not taxes in any sense. and operated by private tollway operators at their own expense under the build. But the main issue in the MIAA case was whether or not Parañaque City could sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate taxes. the discussion in the MIAA case on toll roads and toll fees was made. they are not assessed and collected by the BIR and do not go to the general coffers of the government. Toll fees. As can be seen. they are not government exactions that can be properly treated as a tax. the seller remains directly and legally liable for payment of the VAT. her allegation that the private investors’ rate of recovery will be adversely affected by imposing VAT on tollway operations is purely speculative. equating terminal fees to a “user’s tax” must also pertain to tollway fees. Parenthetically. Taxes may be imposed only by the government under its sovereign authority. Tollway fees are not taxes. The Court cannot rule on matters that are manifestly conjectural. on the other hand. VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a “user’s tax. Once shifted. Under  Section 105 of the Code. In indirect taxation. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects. fees paid by the public to tollway operators for use of the tollways. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the VAT imposition. its airport lands and buildings are properties of public dominion beyond the commerce of  man under Article 420(1) of the Civil Code and could not be sold at public auction.the particular public facility. what is transferred is not the seller’s liability but merely the burden of the VAT. as well as to assure them a reasonable margin of income.” VAT is assessed against the tollway operator’s gross receipts and not necessarily on th e toll fees. is the person liable for VAT.” (Underscoring supplied) Petitioners assume that what the Court said above. the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay in order to purchase the good. Since local governments have no power to tax the national government. The tax in such a case goes directly to the government for the replenishment of resources it spends for the roadways. VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. and transfer scheme that the government has adopted  for expressways. but on the tollway operator. A user’s tax is more equitable – a principle of taxation mandated in the 1987  Constitution. Three. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees. it will not make the latter directly liable for the VAT.
Notably. The tollway operators agreed to waive the 2% transitional input VAT.A. 2010. the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT law’s coverage when she sought to impose VAT on tollway operations. the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on. according to them. DISMISSES the petitioners Renato V. 2010. the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition. will not render a tax imposition invalid “except to the extent that specific  constitutional or statutory limitations are impaired. even if the imposition of VAT on tollway operations may seem burdensome to implement. The VAT on franchise grantees has been in the statute books since 1994 when R. then it would have been well for the law to clearly say so. Consequently. in exchange for cancellation of their past due VAT liabilities. Lastly. It is only now. as petitioners so strongly allege. F. 2010 resolution. Nonobservance of the canon. Timbol’s petition for lack of merit. the VAT on  tollway operations is not administratively feasible. petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway operations impractical and incapable of implementation. But as the law is written. Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT. The Court has no discretion on the matter but simply applies the law. In this connection. however. The manner by which the BIR intends to implement the VAT – by rounding off the toll rate and putting any excess collection in an escrow account – is also illegal. Besides. Tax exemptions must be justified by clear statutory grant and based  on language in the law too plain to be mistaken. WHEREFORE. Here. absent any clear violation of law or the Constitution. any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress. Any declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature. while the alternative of giving “change” to thousands of motorists in order to meet the exact toll rate would be a logistical nightmare. Administrative feasibility is one of the canons of a sound tax system. 2010 Senate hearing provides some clue as to how the BIR intends to go  about it. however. the Court cannot prematurely declare as illegal. as reflected first and foremost in the language of the tax statute. the right to claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the circular’s validity. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Neither are their services among the VAT-exempt transactions under Section 109 of the Code. JMDB TAX REVIEW CASES Page 30 . except as may be provided under Section 119 of the Code. They are thus the ones who have a right to challenge the circular in a direct and proper action brought for the purpose. Diaz and Aurora Ma.” Thus. but failed to charge VAT-inclusive toll fees which by now can no longer be collected. For the same reason. the Court DENIES respondents Secretary of Finance and Commissioner of Internal Revenue’s motion for reconsideration of its August 24. 7716 or the Expanded ValueAdded Tax law was passed. that the executive has earnestly pursued the VAT imposition against tollway operators. The Court is thus duty-bound to simply apply the law as it is found. Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision. The Court’s role is to merely uphold this legislative p olicy. The issuance allegedly violates Section 111(A) of the Code which grants first time VAT payers a transitional input VAT of 2% on beginning inventory. any concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on whom the task of implementing tax laws primarily and ex clusively rests. Although the transcript of the August 12.Four. The Court cannot preempt the BIR’s discretion on the matter. address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice. the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway operators who have been assessed VAT as early as 2005. Finally. it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution. If the legislative intent was to exempt tollway operations from VAT. no such exemption obtains for tollway operators. the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. Conclusion In fine. and SETS ASIDE the Court’s temporary restraining order dated August 13. it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Thus. Thus. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws. the name. They cite the fact that. BIR RMC 63-2010 which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16. in order to claim input VAT. the date  when the VAT imposition was supposed to take effect.
JMDB TAX REVIEW CASES Page 31 .
57 207.... xxxx Asset Acquired Expenses: Documentary Stamps Capital Gains Tax Foreclosure Fee Registration and Filing Fee Add’l.906....000.. the mortgage was extrajudicially foreclosed and the property was sold to the bank as the highest bidder in the public auction conducted by the Office of the Provincial Sheriff  of Lucena City..417. represented by its Managing Director. . On August 7.... 165837 G.00 155...... 1996..25% p. x.-x BPI FAMILY SAVINGS BANK... No. Alvarez and Paulita S... ALVAREZ and PAULITA S..280.. MOISES C.. .00 906.versus BPI FAMILY SAVINGS BANK. JR.24 155.R.. a Certificate of Sale was issued in favor of the bank and the same was registered on October 1.. J... Respondents. February 25. For non-payment of the loan...25 0.01 10. Before the expiration of the one-year redemption period. x...23 23.. 2011 INC.: This case involves the question of the correct redemption price payable to a mortgagee bank as purchaser of the property in a foreclosure sale... Petitioner..-x DECISION VILLARAMA...718.35 1. 1995.853.64 1.00 JMDB TAX REVIEW CASES Page 32 .952... Respondent..635.817.36 908. Inc.906...551. 165617 Promulgated: SUPREME TRANSLINER. obtained a loan in the amount of P9..70 1.. INC.00 0... ALVAREZ.. Registration & Filing Fee 155.372.241. Accordingly... and Paulita S..70 1.00 518.R...versus G...827.a. INC... T-79193 in the name of Moises C.... Alvarez.555..23 P 11...00 from BPI Family Savings Bank with a 714-square meter lot covered by Transfer Certificate of Title No.. Petitioners.. ALVAREZ and PAULITA S.58 660.. Moises C. INC. MOISES C...711..35 from 08/07/96 to 04/07/97 (243 days) at 17..79 P 9..711.534. Supreme Transliner. 1996. the mortgagors notified the bank of their intention  to redeem the property... as collateral.142. Alvarez. the following Statement of Account was prepared by the bank indicating the total amount due under the mortgage loan agreement: xxxx Balance of Principal Add: Interest Due Late Payment Charges MRI Fire Insurance Foreclosure Expenses Sub-total Less: Unapplied Payment Total Amount Due As Of 08/07/96 (Auction Date) Add: Attorney’s Fees (15%) Liquidated Damages (15%) Interest on P 10.555..372..546. No.761. On April 24.THIRD DIVISION SUPREME TRANSLINER...207.  Alvarez. ALVAREZ.595..772.
representing the outstanding balance of the loan as of May 15.509. SP No.00 Total Amount Due As Of 04/07/97 Audit) P 15. DELA ROSA Senior Vice-President Gentlemen: This refers to your undertaking to settle the account of SUPREME TRANS LINER. the trial court rendered its decision dismissing the complaint and the bank’s counterclaims. 1997 including interest and other charges thereof within a period of five (5) working days after clearance of the check payment. That you will annotate your mortgage lien and pay us the full amount to close the loan within five (5) working days from the receipt of the titles. City of Lucena under TCT No. ALVAREZ. we interpose no objection to the annotation of your mortgage lien thereon subject to the following conditions: 1. AIDA C. free from liens/encumbrances other than our lien.79 08/07/96 to 04/07/97 (243 days) at 17. you will undertake and shoulder the cost of re-issuance of a new owner’s titles. With regard to the proposed refinancing of the account.a. That we will release the title and the Certificate of Redemption and other pertinent papers only to your authorized representative with complete authorization and identification.12. That in case of loss of titles. Branch 57. 1997. T-79193 which was foreclosed by BPI FAMILY SAVINGS BANK.a.237.M.12. 15% attorney’s fees and collection and legal costs. On September 30. 15% liquidated damages. The trial court held that plaintiffs-mortgagors are bound by the terms of the mortgage loan documents which clearly provided for the payment of the following interest. 4.249. together with Orient Development Banking Corporation which committed to finance the redemption.249. According to the trial court. ALVAREZ and PAULITA S.331. thus: May 14. charges and expenses: 18% p. On June 11.from Interest on P 906. legal and in accordance with documents duly signed by the mortgagors. JMDB TAX REVIEW CASES Page 33 . That we will issue the Certificate of Redemption after full payment of P15. 1997 ORIENT DEVELOPMENT BANKING CORPORATION th 7 Floor Ever Gotesco Corporate Center C. 1998 and also denied the bank’s motion for reconsideration.00 300.R.704. 1999. is valid. 3% post-default penalty. In its Answer with Special and Affirmative Defenses and Counterclaim. the bank asserted that the redemption price reflecting the stipulated interest. Recto Avenue corner Matapang Street Manila Attention: MS. 2. covering the real estate property located in the Poblacion. Cancellation Fee (Subject to 105. plaintiffs-mortgagors are estopped from questioning the correctness of the redemption price as they had freely and voluntarily signed the letter-agreement prepared by the defendant bank. 1997.  On February 14. That you will recognize our mortgage liens as first and superior until the loan with us is fully paid. Plaintiffs-mortgagors’ claim that they paid the redemption price demanded by the defen dant bank under extreme pressure was rejected by the trial court since there was active negotiation for the final redemption price between the bank’s representatives and plaintiffs -mortgagors who at the time had legal advice from their counsel. you will immediately and unconditionally return the titles to us without need of demand.142. The bank further contended that the claims are deemed waived and the mortgagors are already estopped from questioning the terms and conditions of their contract. INC.249. On May 21. and spouses MOISES C.704. That all expenses related to the cancellation of your annotated mortgage lien should the Bank be not fully paid on the period above indicated shall be charged to you. the mortgagors redeemed the property by paying  the sum of P15. 5. on the loan. with prayer for damages and attorney’s fees. 97-72 of the Regional Trial Courtof Lucena City. 1997. 1997. charges and/or expenses. The bank elevated the matter to the Court of Appeals (CA-G.25% p. and along with Orient Bank expressed their conformity to the terms and conditions therein. docketed a s Civil Case No. 3.12 xxxx The mortgagors requested for the elimination of liquidated damages and reduction of attorney’s fees and interest (1% per month) but the bank refused. 2002. INC. 7. If within this period. 47588) which dismissed the petition for certiorari onFebruary 26. 6. the mortgagors filed a complaint against the bank to recover the allegedly unlawful and excessive charges totaling P5.77. That all expenses for the registration of the annotation of mortgage and other incidental registration and cancellation expenses shall be borne by the borrower. the bank filed a motion to set the case for hearing on the special and affirmative defenses by way of motion to dismiss. The trial court denied the motion on January 8. A Certificate of Redemption was issued by the bank on May 27. you have not registered the same and paid us in full.704.
with 6% interest thereon from May 21.000. the trial court said this was belied by their own evidence. The total redemption price thus should only be P12.35 as per the recitals in the Certificate of Sale that said amount was paid to the foreclosing mortgagee to satisfy not only the principal loan but also “interest and penalty charges. CARRIDO Manager CONFORME: ORIENT DEVELOPMENT BANKING CORPORATION (SGD. BPI FAMILY BANK BY: (SGD.111. 165837 assails the CA in holding that – 1. registration and filing fee.111. Defendant-appellee is hereby ORDERED to pay plaintiffs-appellees (sic) the amount of P100. No. the Statement of Account showing the breakdown of the redemption price as computed by the defendant bank. the CA denied the parties’ respective motions for reconsideration.35 includes penalty charges and as such for purposes of computing the redemption price petitioner can no longer impose upon the private respondents the penalty charges in the form of 15% attorney’s fees and the 15% liquidated damages in the aggregate amount of P3. please indicate your conformity on the space provided below and return to us the duplicate copy. They specifically prayed for the return of all asset-acquired expenses consisting of documentary stamps tax.) MOISES C. 74761) which.  The mortgagors appealed to the CA (CA-G.40. A new one is hereby entered as follows: 1.592. Very truly yours.813.R.711. foreclosure fee.” These “penalty charges” consist of 15% attorney’s fees and 15% liquidated damages which the bank imposes as penalty in cases of violation of the terms of the mortgage deed. 165617. and if paid by the mortgagee. the petitioner bank in G. 4. … the Certificate of Sale. 1997 until fully returned.00 as exemplary damages and P100. CV No.If you find the foregoing conditions acceptable.) LOLITA C.R.711. 2. emphasis supplied.813. foregoing considered.) As to plaintiffs-mortgagors’ contention that the amounts representing attorney’s fees and liquidated damages were already included in the P10. Plaintiffs-appellants’ complaint for damages against defendant-appellee is hereby REINSTATED. The appellate court further stated that the mortgagors cannot be deemed estopped to question the propriety of the charges because from the very start they had repeatedly questioned the imposition of attorney’s fees and liquidated damages and were merely constrained to pay the demanded redempti on price  for fear that the redemption period will expire without them redeeming their property. ALVAREZ/PAULITA S.435.R.000. whether the same should be shouldered by the redemptioner.372.79. these petitions separately filed by the mortgagors and the bank. JMDB TAX REVIEW CASES Page 34 .813.  By Resolution dated October 12. 3. the bid price of P10. capital gains tax.711. In G.  SO ORDERED. 2004.111.00 as attorney’s fees. the petitioners-mortgagors raise the single issue of whether the foreclosing mortgagee should pay capital gains tax upon execution of the certificate of sale.000. 1997. Hence.72 and the bank should return the amount ofP3. Costs against defendant-appellee. ALVAREZ  Mortgagors (Underscoring in the original.372.372. 2004 reversed the trial court and decreed as follows: WHEREFORE.40 plus six (6) percent legal interest from May 21. by Decision dated April 6. and  additional registration and filing fee totaling P906. The CA ruled that attorney’s fees and liquidated damages were already included in the bid price of P10. cost of publication and expenses of the foreclosure proceedings.) AIDA C. the appealed decision is hereby REVERSED and SET ASIDE. No. INC. DELA ROSA Senior Vice President CONFORME: SUPREME TRANS LINER.40 representing attorney’s fees and liquidated damages.00 as moral damages. P100. (SGD.35 bid price. On the other hand. Defendant-appellee is hereby ORDERED to return to plaintiffs-appellees (sic) the invalidly collected amount of P3. although the evidence presented by the parties show otherwise.142.
2 of Revenue Memorandum Order (RMO) No. ADDITIONAL CHARGES IN CASE CERTAIN STIPULATIONS ARE NOT MET BY THE BORROWER a. 29-86 (as amended by RMO No. b. if any. which in no case shall be less than P2.35 is clearly shown by the Statement of Account as of April 4. that attorney’s fees and liquidated damages were not yet included in the bid price ofP10. x x x In the event of foreclosure. of Exhibit “3”. as the case may be. 27-89 and 6-92) states that these conditional JMDB TAX REVIEW CASES Page 35 . Section 2. whether judicially or extrajudicially. banking or credit institution. 16-88 and as further amended by RMO Nos. but not limited to BPI Leasing Corporation. and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property . BPI Securities Corporation and BPI Agricultural Development Bank. BPI Express Card Corporation. the mortgagor or debtor whose real property has been sold at public auction. 337. Attorney’s Fees: In case the Bank should engage the services of counsel to enforce its rights under this Agreement. Coming now to the issue of capital gains tax. e. c. … private respondents cannot be considered to be under estoppel to question the propriety of the aforestated penalty charges despite the fact that. all of which shall be secured by this mortgage. and e) The balance.000. judicially or extrajudicially. for the full or partial payment of an obligation to any bank. The following contract terms would show that the said items are separate and distinct from the bid price which represents only the outstanding loan balance with stipulated interest thereon. d. as found by the Honorable Trial Court. b) To the satisfaction of all interest and charges accruing upon the obligations herein and hereby secured. 1985). c) To the satisfaction of the principal amount of the obligations herein and hereby secured. and all the costs. we find merit in petitioners-mortgagors’ argument that there is no legal basis for the inclusion of this charge in the redemption price.000.  Additionally. the Disclosure Statement on Loan/Credit Transaction also duly signed by the petitionersmortgagors provides: 10. Under Revenue Regulations (RR) No. collection  expenses and disbursements allowed by law. 1997 prepared by the petitioner bank and given to petitioners-mortgagors. to redeem the property by paying the amount fixed by the court in the order of execution . 78. petitioners-mortgagors undertook to pay the attorney’s fees and the costs of registration and foreclosure. On the other hand. wherein they mutually agreed that the redemption price is in the sum of P15. to be due to the Borrower/Mortgagor.00 Liquidated Damages 15% of sum due but not less than P10. or the amount due under the mortgage deed.12.000. otherwise known as  the General Banking Act. within the purview of this Act shall have the right. 23. of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act.2. On the correct computation of the redemption price. Philippine currency.with interest thereon at the rate specified in the mortgage. 23 of the Mortgage Loan Agreement indicated that asset acquired expenses were to be added to the redemption price as part of “costs and other expenses incurred” by the mortgagee bank in connection with the foreclosure sale.00 on the ground that the former acted in bad faith in the imposition upon them of the aforestated penalty charges.000. plus costs. The term sale includes pacto de retro and other forms of conditional sale. or to Bank of the Philippine Islands or any of its subsidiaries/affiliates such as. x x x x (Emphasis supplied. Said provision reads: SEC. 13-85 (December 12.704. par.00% per month Attorney’s Services 15% of sum due but not less than P2. Section 78 of Republic Act No. every sale or exchange or other disposition of real property classified as capital asset under  Section 34(a) of the Tax Code shall be subject to the final capital gains tax. 3. governs in cases where the mortgagee is a bank. Application of Proceeds of Foreclosure Sale. including the attorney’s fees as herein provided. which financed the redemption of the foreclosed property.00 Collection & Legal Cost As provided by the Rules of Court Others (Specify) As correctly found by the trial court.372. The proceeds of sale of the mortgaged property/ies shall be applied as follows: a) To the payment of the expenses and cost of foreclosure and sale. when in truth it is entitled thereto as the law and the contract expressly provide and that private respondents agreed to pay the  same. … petitioner *to+ pay private respondents damages in the aggregate amou nt of P300. the private respondents and Orient Bank. but not limited to BPI Credit Corporation.711.)  Under the Mortgage Loan Agreement. d) To the satisfaction of all other obligations then owed by the Borrower/Mortgagor to the Bank or any of its subsidiaries/affiliates such as. xxxx 31. Post Default Penalty 3. within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage. “there was very active negotiation between the parties in the computation of the redemption price” culminating into the signing freely and voluntarily by the petitioner. the Borrower/Mortgagor shall pay an amount equivalent to fifteen (15%) percent of the total amount claimed by the Bank.00.249.
1999. 4-99. collected and paid by the person making. or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation. x x x (Emphasis supplied. De Leon expressed the view that while revenue regulations as a general rule have no retroactive effect. both petitions are PARTLY GRANTED. the capital gains [tax] on the foreclosure sale imposed under Secs. and a brief memorandum thereof shall be made by the Register of Deeds on the certificate of title. x x x (2) In case of non-redemption. JMDB TAX REVIEW CASES Page 36 . It is therefore clear that in foreclosure sale. 4118. 1997. and to retain only the sum provided in RR No. and a new certificate issued in the name of the purchaser. RR No. SEC. the certificate of title of the mortgagor shall be cancelled. Inc. DOCUMENTARY STAMP TAX. the transaction shall only be subject to the P15. the capital gains tax and documentary stamp tax  must be paid before title to the property can be consolidated in favor of the bank. Under Section 63 of Presidential Decree No. 6 of Act No. if no right of redemption exists. signed. But where the right of redemption exists. WHEREFORE. or transferring the real property wherever the document is made. except in the following cases: (a) 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. RR No.” In his commentaries. BPI Family Savings Bank. the retroactive application of RR No. In the event the property is redeemed. Inc. or reversal will be prejudicial to the taxpayers. – (1) In case the mortgagor exercises his right of redemption. finance and insurance companies. such revocation shall have retroactive operation as to affect past transactions. 3135 and title thereto is consolidated in the name of the mortgagee in case of non-redemption. the corresponding documentary stamp tax shall be levied. 4-99 “has curbed the inequity of imposing a capital gains tax even before the expiration of the redemption period [since] there is yet no transfer of title and no profit or gain is realized by the mortgagor at the time of foreclosure sale but only upon expiration of  the redemption period. No. (2) In case of non-redemption. 1986. signing. its provisions may be given retroactive effect in this case. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Sec. Alvarez and Paulita Alvarez. In G. 4. modification. accepted or transferred where the property is situated in the Philippines. issuing. because a wrong  construction of the law cannot give rise to a vested right that can be invoked by a taxpayer. as amended by Act No. 3. 4-99 is more consistent with the policy of aiding the exercise of the right of redemption. (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based.” Further. to petitioners Supreme Transliner. but the certificate of sale and the order confirming the sale shall be registered by brief memorandum thereof made by the Register of Deeds upon the certificate of title. no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. 4-99 as documentary stamps tax due on the foreclosure sale. 188 of the Tax Code of 1997 because no land or realty was sold or transferred for a consideration. In the interim. Moises C. the certificate of title of the mortgagor shall not be cancelled.00 documentary stamp tax imposed under Sec. the mortgagor is given the option whether or not to redeem the real property.) Although the subject foreclosure sale and redemption took place before the effectivity of RR No. there is no actual transfer of the mortgaged real property until after the expiration of the one-year redemption period as provided in Act No. is hereby ordered to RETURN the amounts representing capital gains and documentary stamp taxes as reflected in the Statement of Account To Redeem as of April 7. 4-99 issued on March 16. CAPITAL GAINS TAX. if the revocation is due to the fact that the regulation is erroneous or contrary to law. There was no actual transfer of title from the owners-mortgagors to the foreclosing bank. issued. and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. The issuance of the Certificate of Sale does not by itself transfer  ownership. the certificate or deed of redemption shall be filed with the Register of Deeds. for real property foreclosed by a bank on or after September 3. Section 246 of the NIRC of 1997 states: SEC. Considering that herein petitioners-mortgagors exercised their right of redemption before the expiration of the statutory one-year period. or (c) where the taxpayer acted in bad faith. further amends RMO No. – (1) In case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale. 246. 3135. the inclusion of the said charge in the total redemption price was unwarranted and the corresponding amount paid by the petitioners-mortgagors should be returned to them. Hence. 165617. Non-Retroactivity of Rulings. premises considered. – Any revocation. As the Court of Tax Appeals concluded in one case. accepting. 1529 otherwise known as the Property Registration Decree.R. In this case. petitioner bank is not liable to pay the capital gains tax due on the extrajudicial foreclosure sale. SEC.sales “necessarily include mortgage foreclosure sales (judicial and extrajudicial foreclosure sales).. 6-92 relative to the payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial foreclosure sale of capital assets initiated by banks. modification.
R. attorney’s fees and costs in favor of Supreme Transliner. No. Alvarez and Paulita Alvarez. Inc.R. Inc.. 2004 of the Court of Appeals in CA-G.In G. Moises C. Inc. The sums awarded as moral and exemplary damages. JMDB TAX REVIEW CASES Page 37 . petitioner BPI Family Savings Bank. 74761 is accordingly MODIFIED. Alvarez and Paulita Alvarez are DELETED. is hereby declared entitled to the attorney’s fees and liquidated damages included in the total redemption price paid by Supreme Transliner. The Decision dated April 6. 165837. CV No.. Moises C.
in his official capacity as COMMISSIONER OF INTERNAL REVENUE.D.D.D. charges. 2006. nor shall any form of tax or charge attach in any way to the earnings of the Corporation. JOSE MARIO BUÑAG. — x x x (1) Customs Duties. taxes and other imposts. The undisputed facts follow. who are persons acting for. 1977. by excluding petitioner from exemption from corporate income tax for being repugnant to Sections 1 and 10 of Article III of the Constitution. income or otherwise. P. 1399 was issued expanding the scope of PAGCOR's exemption.) No. .  To consolidate the laws pertaining to the franchise and powers of PAGCOR. on June 2. including all kinds of fees. 1067-A on January 1.) No. whether National or Local. No. Petitioner. whether National or Local. for the sole and exclusive use of the casinos. Exemptions. shall be assessed and collected under this Franchise from the Corporation. seeking the declaration of nullity of Section 1 of Republic Act (R.All importations of equipment. taxes and other imposts on importations.R. No.(a) Franchise Holder: No tax of any kind or form. 16-2005 for being contrary to law. except a franchise tax of five percent (5%) of the gross revenue. except a Franchise Tax of five percent (5%)of the gross revenue or earnings derived by the   JMDB TAX REVIEW CASES Page 38 . ships. No. 1978. P. PAGCOR was created pursuant to Presidential Decree (P. G. barges. x-----------------------------------------------------------------------------------------x DECISION PERALTA. represented herein by HON. Public and Private Respondents. including all kinds of fees.D. Simultaneous to its  creation.  No. 172087 Promulgated: March 15. as well as fees. shall likewise be totally exempt from the payment of all customs duties. Section 13 thereof reads as follows: Sec. or charges of any kind or nature. Thereafter. automobiles. Public Respondent. 1067-A) was issued exempting PAGCOR from the payment of  any type of tax. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code of 1997. J. aircraft and such other gambling paraphernalia. .PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR). JOHN DOE and JANE DOE.versus - THE BUREAU OF INTERNAL REVENUE (BIR). 2011 . levies. in behalf. P. vehicles. taxes and other imposts. 1067-B (supplementing P. 1869 was issued. or levies of whatever nature. boats.A. (2) Income and other taxes. or under the authority of Respondent. assessments or charges of any kind or nature. Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing contractual arrangements with the Corporation. recreation or amusement places to be established under and by virtue of this Franchise shall be exempt from the payment of duties. of petitioner Philippine Amusement and Gaming Corporation (PAGCOR). levies.D. for the sole and exclusive use of the casino or to be used to service the operations and requirements of the casino. No. Petitioner further seeks to prohibit the implementation of Bureau of Internal Revenue (BIR) Revenue Regulations No. 13.: For resolution of this Court is the Petition for Certiorari and Prohibition with prayer for the issuance of a Temporary Restraining Order and/or Preliminary Injunction. including accessories or related facilities. dated April 17. the proper and efficient management and administration thereof and such other clubs.
as well as any form of charges. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes. or instrumentalities owned and controlled by the Government. shall inure to the benefit of and extend to corporation(s). or government debentures. The dividend income shall not in such case be considered as part of the beneficiaries' taxable income. securities. certain sections of the National Internal Revenue Code of 1997 were amended. except the Government Service and Insurance Corporation (GSIS). except the Government Service and Insurance Corporation (GSIS). or activity. which was issued in September 1984. No. but it was later restored by Letter of Instruction No. 1998. the Philippine Health Insurance Corporation (PHIC). and the Philippine Charity Sweepstakes Office. thus:  (c) Government-owned or Controlled Corporations. the Social Security System (SSS). R. and the Philippine Charity Sweepstakes Office (PCSO).The provisions of existing special general laws to the contrary notwithstanding. No. PAGCOR's tax exemption was removed in June 1984 through P. the Philippine Charity Sweepstakes Office (PCSO). agencies. the Government Service and Insurance Corporation. established.  Different groups came to this Court via petitions for certiorari and prohibition constitutionality of R. (b) Others: The exemption herein granted for earnings derived from the operations conducted under the franchise. all corporations. 8424. industry. that such dividend income shall be totally exempted from income or other form of taxes if invested within six (6) months from the date the dividend income is received in the following: (a) operation of the casino(s) or investments in any affiliate activity that will ultimately redound to the benefit of the Corporation. 9337. upon the recommendation of the Secretary of Finance. however. No. fees or assessments of any kind. as an incentive to the beneficiaries. provincial or national government authority. − Notwithstanding any provision of law to the contrary.The provisions of existing special general laws to the contrary notwithstanding. the Social Security System. association(s). otherwise known as the National Internal Revenue Code of 1997. all corporations. took effect. or activity.  industry. or any other corporation with whom the Corporation has any existing arrangements in connection with or related to the operations of the casino(s).A. to raise the VAT rate to 12%. which imposes a 10% VAT on importation of goods. No. 2005. The said provisions were alleged to be violative of Section 28 JMDB TAX REVIEW CASES Page 39 .  With the enactment of R. be subject only to a final flat income rate of ten percent (10%) of the regular income tax rates. agencies or instrumentalities owned and controlled by the Government. (3) Dividend Income. (b) Government bonds. No. . 1430. or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. treasury notes. except petitioner PAGCOR. provided. Agencies or Instrumentalities. Agencies or Instrumentalities .A.A. which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax. Section 27 (c) of R.A. nature or description. or collected by any municipal. 9337 on May 24. 1931. The particular amendment that is at issue in this case is Section 1 of R. The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance of this provision shall be free of any tax. income or otherwise. agency(ies). Section 5. specifically from the payment of any tax.Corporation from its operation under this Franchise. which imposes a 10% Value Added Tax (VAT) on sale of goods and properties. levied. . shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business. On January 1. the Philippine Health Insurance Corporation (PHIC).D. the Social Security System (SSS). 8424 provides that government-owned and controlled corporations (GOCCs) shall pay corporate income tax. 9337. all contain a uniform proviso authorizing the President. and the Philippine Amusement and Gaming Corporation (PAGCOR) . which imposes a 10% VAT on sale of services and use or lease of properties. fees or levies. shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business. levies. the Philippine Health Insurance Corporation.A. in the event the Corporation should declare a cash dividend income corresponding to the participation of the private sector shall. No. and Section 6. or  (c) BOI-registered or export-oriented corporation(s). in particular: assailing the validity and 1) Section 4. thus: (c) Government-owned or Controlled Corporations.
by way of Manifestation In Lieu of Comment.A. Hence. 1869 ARE BOTH VALID AND CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE. in part. which section vests in Congress the exclusive authority to fix the rate of taxes. ARTICLE III OF THE 1987 CONSTITUTION. DOES NOT IMPOSE VAT ON PETITIONER OR ON  PETITIONER’S LICENSEES OR FRANCHISEES. shall be subject to the 10% VAT imposed under Sec.A. 108-3.108-3. PAGCOR raises the following issues: I WHETHER OR NOT RA 9337. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10. 9337 AND SECTION 13 (2) OF P. 9337.108 of the Tax Code. 16-2005. in its Comment dated December 29. regardless of how their franchisees may have been granted.A. reads: Sec. Article VI of the Constitution.A. Article III of the Constitution. 2006. as amended by R. 119 of the Tax Code. concurred with the arguments of the petitioner. 2005. III BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL STRICKEN DOWN BY LAWFUL AUTHORITIES. SECTION 108. The said revenue regulation.  The BIR. NO.(2). — xxxx (h) x x x Gross Receipts of all other franchisees. and Section 28 (1). and 3) other technical aspects of the passage of the law. specifically identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the National Internal Revenue Code of 1997. other than those covered by Sec. ARTICLE III OF THE 1987 CONSTITUTION. SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE NONIMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10. III WHETHER OR NOT RR 16-2005. SECTION 4. On September 1. It added that although the State is free to select the subjects of taxation and that the inequity resulting from singling out a particular class for taxation or exemption is not an infringement of the JMDB TAX REVIEW CASES Page 40 . SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1.   On the same date.D. No. ARTICLE III OF THE 1987 CONSTITUTION. Article VI of the Constitution. INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER AS WELL AS PETITIONER’S LICENSEES OR FRANCHISEES WHEN THE BASIC LAW. This includes. NO. Article III of the Constitution on due process. the present petition for certiorari. 4. the Philippine Amusement and Gaming Corporation (PAGCOR). or the guarantee of equal protection of the laws. among others. and its licensees or franchisees. 2) Sections 8 and 12 were alleged to be violative of Section 1. Definitions and Specific Rules on Selected Services. II SECTION 1 OF R. PARAGRAPH (H) IS NULL AND VOID AB INITIO FOR BEING BEYOND THE SCOPE OF THE BASIC LAW. RA 8424. No. respondent BIR issued Revenue Regulations (RR) No. Article VI of the Constitution. II WHETHER OR NOT RA 9337.  The Office of the Solicitor General (OSG). questioning the manner it was passed. the Court dismissed all the petitions and upheld the constitutionality of R. as well as of Section 26 (2). 9337. counters: I SECTION 1 OF R. which section provides for the "no amendment rule" upon the last reading of a bill. and of Section 1. AS INTERPRETED BY APPLICABLE JURISPRUDENCE.
Under Section 1 of R. It is not contested that before the enactment of R. thus: Equal protection requires that all persons or things similarly situated should be treated alike. 3) It must not be limited to existing conditions only. the Philippine Charity Sweepstakes Office (PCSO). The "equal protection of the laws is a pledge of the protection of equal laws. .  industry. 9337. 1997 would show that the exemption of PAGCOR from the payment of corporate income tax was due to the acquiescence of the Committee on Ways on Means to the request of PAGCOR that it be exempt  from such tax. not be arbitrary. this Court expounded the meaning and scope of equal protection. xxxx Legislative bodies are allowed to classify the subjects of legislation. the Social Security System (SSS). amending Section 27 (c) of the National Internal Revenue Code of 1977. 1. nor shall any person be denied the equal protection of the laws. DIAZ. To be valid. according to the OSG. sir. Furthermore. shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business. as an indispensable requisite. 1869 in relation to R. 9337. agencies or instrumentalities owned and controlled by the Government. should not be treated differently. DIAZ. it must conform to the following requirements: 1) It must be based on substantial distinctions. this Court finds the petition partly meritorious.. 9337. DIAZ. After a careful study of the positions presented by the parties. 8424. in other words. Laguio. petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. R. both as to rights conferred and responsibilities imposed. The records of the Bicameral Conference Meeting reveal: HON. HON. public respondent BIR exceeded its statutory authority when it enacted RR No. except the Government Service and Insurance Corporation (GSIS). Section 27 (c) of which. as it is violative of its right to equal protection of the laws under Section 1. we included a tax on cockfighting winnings. Because I was wondering whether we covered the tax on --. so as to give undue favor to some and unjustly discriminate against others. the Philippine Health Insurance Corporation (PHIC). No. CHAIRMAN ENRILE. No. Oo. A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on Means dated October 27. . or property without due process of law. No person shall be deprived of life. or activity. 9337." It limits governmental discrimination. a tax law must operate with the same force and effect to all persons. reads: (c) Government-owned or Controlled Corporations. The classification must.The provisions of existing special or general laws to the contrary notwithstanding. R.A. Article III of the Constitution: Sec. the law may operate only on some and not all of the people without violating the equal protection clause. Similar subjects. Tinanggal na ba natin yon? CHAIRMAN ENRILE. The equal protection clause extends to artificial persons but only insofar as their property is concerned. and the Philippine Amusement and Gaming Corporation (PAGCOR) .A. No. No. CHAIRMAN ENRILE.D. Agencies or Instrumentalities.  In City of Manila v. all corporations. R.  4) It must apply equally to all members of the class. Jr. No. tinanggal na namin yon. If the classification is reasonable.A. Wala na. 2) It must be germane to the purposes of the law.constitutional limitation. we removed the --- JMDB TAX REVIEW CASES Page 41 .Whether on a universal basis. The other thing. The guarantee means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in like circumstances. No. 16-2005. firms and corporations placed in a similar situation. Petitioner argues that such omission is unconstitutional.A.I noticed we imposed a tax on lotto winnings. HON. is we --. because the latter's provisions are contrary to the mandates of P.A. The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R. No. liberty. petitioner was one of the five GOCCs exempted from payment of corporate income tax as shown in R.
Assuming that when we release the money into the hands of the public. and I will accept that just for the sake of argument. Osmeña. but to reiterate. we have sterilized that entire seven billion. Philippine Insurance Commission. Mr.for wallpaper. The records of the Bicameral Conference Meeting dated April 18. we’re talking of this measure only. HON.7 billion after paying some small taxes that they are subjected to. Chairman. CHAIRMAN JAVIER. HON. the proponent of the amendment. In effect. and secondly. So. Chairman. ROXAS. That's why I am questioning this two billion.Health. I . Pati PAGCOR tinanggal upon request.HON.A. They will spend that eh. CHAIRMAN ENRILE. Yes. No. in 2003. It does not pass through the appropriation process. 8424. There’s a VAT. Chairman.(discontinued) HON.A. And Negros. It does. one of the reasons why we're even considering this VAT bill is we want to show the world who our creditors.arising from the exemption.. RECTO). Not anything.A. HON. Now. I took a quick look this morning. 8424. HON. Pagcor is unofficial. CHAIRMAN ENRILE. Yeah. SEN. I will accept.7 loss because of tax exemption. Because while essentially they claim that the money goes to government. health ba. there are other specific remittances like to the Philippine Sports Commission. 3555. OSMEÑA. So when they spend that--CHAIRMAN ENRILE. Mr. ROXAS. from the --. PAGCOR has been excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. amending R. That 7. . And I think that at least if we can capture 35 percent or 32 percent through the budgetary process. first. as mandated by various laws. etc. 9337. They are not being taken from the public and stored in a vault. 2005. . Is there a quantification? Is there an approximation? CHAIRMAN JAVIER. 1950 and House Bill No. and then about 400 million to the President's Social Fund. Yon ang request ng Chairman. Unfortunately today. no. No. DIAZ. That will be extra income for the taxpayers. But all in all. (inaudible) natin yong lotto? CHAIRMAN ENRILE. follow up lang. There is wisdom in the comments of my good friend from Cebu. Yeah. No. REP. ROXAS. R. it goes through what is constitutionally mandated as Congress appropriating and defining where the money is spent and not through a board of directors that has absolutely no accountability. they claim they remitted to national government seven billion. No. so they will be spending it. Philippine Insurance --. Mr. Mr. ROXAS. With the subsequent enactment of R. PUENTEBELLA. thus: THE CHAIRMAN (SEN. JMDB TAX REVIEW CASES Page 42 . Well. Senator Osmeña. Pagcor had a net income of 9. it is reflected in our official income of government which is applied to the national budget. of the Committee on the Disagreeing Provisions of Senate Bill No. Of the 9. in effect. ROXAS. that we are increasing official revenues that go to the national budget. the exemption of PAGCOR from paying corporate income tax was not based on a classification showing substantial distinctions which make for real differences. the exemption was granted upon the request of PAGCOR that it be exempt from the payment of corporate income tax. (laughter) Pag-Pagibig yon. Pagkatapos. I wonder if in the revenue gainers if we factored in an amount that would reflect the VAT and other sales taxes--CHAIRMAN ENRILE. somebody receives it in the form of wages and supplies and other services and other goods. it does. SEN. no. No. show that it is the legislative intent that PAGCOR be subject to the payment of corporate income tax. their net profit today should be about 12 billion.  The discussion above bears out that under R. maliliit na sa tao yon. We will not --. Chairman. it is not circulating in the economy which is unrealistic. they will not use that to --.7 billion. Precisely. no. There will be a VAT and there will be other sales taxes no. OSMEÑA. CHAIRMAN JAVIER. because this is taken and spent by government. with all due respect.
Mr. Mr. RECTO). LAPUS). because you may have your own pre-judgment on this and I don't blame you. What is your comment on this? This is going to affect a lot of services on the government side. . I think. But I would not want to put my friends from the Department of Finance in a difficult position. Mr. What exactly are the functions of Pagcor that are VATable? What will we VAT in Pagcor? THE CHAIRMAN (REP. supposedly a lot or most of it should go to government spending. Senator. say.REP. Mr. REP. Sale of what? xxxx REP. PUENTEBELLA. No. NOGRALES. as far as Pagcor is concerned? THE CHAIRMAN (SEN. how do you explain to them that if there is a fiscal gap some of our richest corporations has [been] spared [from] taxation by the government which is one rich source of revenues. Now. Chair. LAPUS). like Pagcor? So. Can we ask the DOF to respond to those before we call Congressman Teves? MR. it will help us because it will then enter as an official revenue although when dividends declare it also goes in as other income. Mr. Mr. Yes. Congressman Teves. Chairman. Congressman Nograles. It goes from pocket to the other. NOGRALES. Chairman. Just a point of inquiry from the Chair. I don't blame you. he said. (sic) xxxx REP. Chairman. Chairman. No. TEVES. PUENTEBELLA. And I know you have your own research. Do you mean to say we are going to amend it from income tax to value-added tax. Chair. Mr. Mr. social services and the like. We are just amending that section with regard to the exemption from income tax of Pagcor. from definitely improving the collection. This is on own income tax. would it be easier for you to make an argument if everything was exposed to taxation? REP. THE CHAIRMAN (REP. if I can add to that question also. that is on income tax. Mr. VILLAFUERTE. LAPUS). This is Pagcor income tax. Yeah. OSMEÑA. is it the . we are talking here on value-added tax. please. foreign creditors. that's why. why do you save. the disbursements on social services and other? REP. PURISIMA. xxxx REP. . LAPUS). NOGRALES. THE CHAIRMAN (REP. LOCSIN. “I accept that that a lot of it is going to spending for basic services. TEVES. SEN. but may we know your comments on this knowing that as Senator Osmeña just mentioned. Chairman. But I wanted to ask them. REP. Chairman. Thank you. REP. Pagcor is controlled under Section 27. going to most. Mr. Chair. JMDB TAX REVIEW CASES Page 43 . I know that. why do you spare certain government corporations on that. REP. xxxx THE CHAIRMAN (REP. Monico. Wouldn't it be easier for you to explain to. my question is. But will this not affect a lot. And Negros at the same time ay Kasimanwa. Chairman. LAPUS).” you know. what are we VATing Pagcor with. Mr. THE CHAIRMAN (REP. Now. TEVES. Anong i-va-Vat natin sa kanya. Chair. Mr.
and is read into. Petitioner states that the private parties/investors transacting with it considered the tax exemptions. There is impairment if a subsequent law changes the terms of a contract between the parties. or repeal by the  Congress when the common good so requires. which is beyond the purview of the non-impairment clause of the Constitution. the Court held that a franchise partakes the nature of a  grant. Province of Laguna. thing. as provided in Section 27 (c) of R. Article III of the Constitution. or consequence excludes all others as expressed in the familiar  maxim expressio unius est exclusio alterius. hence. PAGCOR failed to prove that it is still exempt from the payment of corporate income tax. No. No. Mr. Thus. thus. is to require PAGCOR to pay corporate income tax. No. such as those contained in government bonds or debentures. was not made pursuant to a valid classification based on substantial distinctions and the other requirements of a reasonable classification by legislative bodies. The burden of proof rests upon the party claiming  exemption to prove that it is. In Manila Electric Company v. as the legislative records of the Bicameral Conference Meeting dated October 27. act. the Senate version does not discuss a VAT  on Pagcor but it just takes away their exemption from non-payment of income tax. Not being excepted. in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked. and  supported by clear legal provision. Petitioner avers that laws form part of. petitioner PAGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax. abridging or in any manner changing the intention of the  parties. referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise. these exemptions. No. the express mention of the GOCCs exempted from payment of corporate income tax excludes all others.REP. or the National Internal Revenue Code of 1997. of the Committee on Ways and Means. Petitioner argues that the withdrawal of its exemption from corporate income tax by R.A. this is a secret agreement or the way they craft their contract. are far from being strictly contractual in nature. so that the law may operate only on some. Congressman Nograles. the amendatory provision is violative of the non-impairment clause of the Constitution.A. 9337 is null and void ab initio for violating the nonimpairment clause of the Constitution. Exemptions must be shown to exist clearly and categorically. 1997. imposes new conditions. expressed in the  maxim: exceptio firmat regulam in casibus non exceptis. nevertheless. show that PAGCOR’s exemption from payment of corporate income tax. and not all. Contractual tax exemptions. not too infrequently. The legislative intent. It is a basic precept of statutory construction that the express mention of one person. Chairman. tax exemptions are  construed strongly against the claimant. As regards franchises. dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the  parties. covered by the exemption so claimed. NOGRALES. Section 11. which inure to their benefit. lawfully entered into by JMDB TAX REVIEW CASES Page 44 . alteration. in fact. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the exemption. 9337 has the effect of changing the main consideration and inducement for the transactions of private parties with it. The pertinent portion of the case states:   While the Court has. The legislative records show that the basis of the grant of exemption to PAGCOR from corporate income tax was PAGCOR’s own request to be exempted. considering that Section 1 of R. The non-impairment clause is contained in Section 10. the omission or removal of PAGCOR from exemption from the payment of corporate income tax. which provides that no law impairing the obligation of contracts shall be passed.A. The non-impairment clause is limited in application to laws that derogate from prior acts orcontracts by enlarging. which basis? THE CHAIRMAN (SEN. In this case. as shown by the discussions in the Bicameral Conference Meeting. as the main consideration and inducement for their decision to transact/invest with it.A. the contract even without the parties expressly saying so. are those agreed to by the taxing authority in contracts. 8424. PAGCOR cannot find support in the equal protection clause of the Constitution. RECTO). without violating the equal protection clause. Article XII of the Constitution provides that no franchise or right shall be granted except under the condition that it shall be subject to amendment. As a rule. Petitioner further contends that Section 1 (c) of R. Petitioner’s contention lacks merit.  Taxation is the rule and exemption is the exception.
of the 1987 Constitution. which reads: Sec. Anent the validity of RR No. gaming pools. Under Section 11.A.e. R. Section 109 of the same Code. . is a special law that grants petitioner exemption from taxes. the following transactions shall be exempt from the value-added tax: xxxx (k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under  special laws. 8424). 1869. xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate .A. Article XII. alteration or  repeal by Congress as and when the common good so requires. Value-Added Tax on Sale of Services and Use or Lease of Properties. acting in its private capacity. No. is hereby further amended to read as follows: SEC. Moreover. whether on land or sea. assessed and collected. lotteries. is not violative of the non-impairment clause of the Constitution. — (A) Rate and Base of Tax.A. 529. A franchise partakes the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. No. 9337. xxxx  JMDB TAX REVIEW CASES Page 45 . sports. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k) thereof. No. clubs and other recreation or amusement places. PAGCOR was granted a franchise to operate and maintain gambling casinos. which may affect any benefits to PAGCOR’s transactions with private parties.. Hence. 9337 is it provided that petitioner can be subjected to VAT. alteration or repeal by Congress such as the amendment under Section 1 of R. a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services.A.A. as amended. the provision in Section 1 of R.(1) Subject to the provisions of Subsection (2) hereof. In this case.them under enabling laws in which the government. 9337]. except Presidential Decree No. No. No. Section 11.A. Exempt Transactions. No. tax exemptions of this kind may not be revoked without impairing the obligations of contracts. Petitioner is exempt from the payment of VAT.A. — There shall be levied. are not to be confused with tax exemptions granted under franchises. thus: [R. is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment. because PAGCOR’s charter. R. the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid for being contrary to R. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate income tax. No. 6. These contractual tax exemptions.A. No. 9337. including the use or lease of properties: x x x xxxx (B) Transactions Subject to Zero Percent (0%) Rate. Truly. Indeed. 9337. 16-2005.A. amending Section 27 (c) of R. which retained Section 108 (B) (3) of R. the exemption of PAGCOR from VAT is supported by Section 6 of R.A. Article XII of the Constitution. Section 108 of the same Code (R. which was already addressed above by this Court. etc. as amended. 9377. 7. No.. As pointed out by the OSG. No. sheds its cloak of authority and waives its governmental immunity. No. — The following services performed in the Philippines by VATregistered persons shall be subject to zero percent (0%) rate. like its precursor provisions in the 1935 and the 1973 Constitutions. 8424. is hereby further amended to read as follows: Section 109. 108. i.A. SEC. Nowhere in R. within  the territorial jurisdiction of the Republic of the Philippines. football.D. PAGCOR’s franchise is subject to amendment. P. 8424 by withdrawing the exemption of PAGCOR from corporate income tax. basketball. however. No.
(Emphasis supplied.152. 13.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. 1869]. PAGCOR refused to pay the taxes because of its tax-exempt status. it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes. levies. Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not to indirect taxes. fees or assessments of any kind. No. 1869 pertinently provides: Sec. or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. nature or description. Although.152. nor shall any form of tax or charge attach in any way to the earnings of the Corporation. Acesite paid VAT in the amount of P30. charges or levies of whatever nature. differently worded. (b) Others: The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax. The Court ruled that PAGCOR and Acesite were both exempt from paying VAT. income or otherwise. 152. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes. it did not amend the portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate. We disagree. — xxxx (2) Income and other taxes. the provision clearly exempts PAGCOR from indirect taxes. or national government authority.As pointed out by petitioner. like the VAT. . income or otherwise. 8424 by imposing VAT on other services not previously covered. No. However. In May 1998.02 from its rental income and sale of food and beverages to PAGCOR from January 1996 to April 1997.892.02. Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. shall be assessed and collected under this Franchise from the Corporation. as well as any form of charges. the term "Corporation" or operator refers to PAGCOR. levied. as well as fees. Acesite (Philippines) Hotel Corporation. In fact.892. fearing the legal consequences of its nonpayment. established or collected by any municipal. except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise. Section 13 of P. Exemptions. The unmistakable conclusion is that PAGCOR is not liable for the P30.D. the charter creating PAGCOR. PAGCOR paid only the amount due to Acesite minus VAT in the sum of P30.(a) Franchise Holder: No tax of any kind or form.A. shall inure to the benefit of and extend to corporation(s).A. grants the latter an exemption from the payment of taxes.A. 1869.) JMDB TAX REVIEW CASES Page 46 . R.02 to the Commissioner of Internal Revenue. It incurred VAT amounting toP30. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. No. Although the law does not specifically mention PAGCOR's exemption from indirect taxes. provincial. like VAT.892.892. whether National or Local. thus: xxxx PAGCOR is exempt from payment of indirect taxes It is undisputed that P.152. 8424 has been thoroughly and extensively  discussed in Commissioner of Internal Revenue v. fees or levies. 108 B (3). Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. Acesite sought the refund of the amount it paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.D. agency(ies). as follows: Under the above provision [Section 13 (2) (b) of P. 8424. association(s). although R. 9337 introduced amendments to Section 108 of R. It leased a portion of the hotel’s premises to PAGCOR.D.
Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code. while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite. like VAT. Acesite followed the latter method. by extending the exemption to entities or individuals dealing with PAGCOR. which provides: Section 102. hence. Thus. that is. We held in said case that the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the contractor itself who constructed the building owned by contractee WHO. In the instant case. it is still applicable to this case. while BIR Revenue Regulations No. the latter is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. 8424. in which case it is computed as 1/11 of such value. as amended ( now Sec. 8424). 16-2005. or services subject to VAT. the seller or lessor has the option to follow either way in charging its clients and customer. Thus. and in particular. Since PAGCOR is exempt from VAT under R. Section 1 of Republic Act No. like VAT. as amended by Republic Act No. it is exempting PAGCOR from being liable to indirect taxes.A. properties. and such does not violate the rule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee WHO. 16-2005. or services sold or leased. which  section was retained as Section 108 (B) (3) in R. therefore. as in the instant case. does not denigrate the fact that PAGCOR is exempt from an indirect tax. 108 [b]  of R. the said regulatory provision is hereby nullified. the basic law prevails.D. the proviso in P.A. the petition is PARTLY GRANTED. 9337. by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations.D. The manner of charging VAT does not make PAGCOR liable to said tax. It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement said law. because the said rule or regulation cannot go beyond the terms and provisions of  the basic law. xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis supplied). or charged as an additional 10% to the value. a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of services x x x.A. where the absolute tax exemption of the World Health Organization (WHO) upon an international agreement was upheld.A. is clearly to proscribe any indirect tax. by excluding petitioner Philippine Amusement and Gaming Corporation from the enumeration of government-owned and controlled corporations exempted from corporate income tax is valid and constitutional. the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 9337. or lessee of the goods. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National Internal Revenue Code of 1997.Indeed. that the following services performed in the Philippines by VAT registered persons shall be subject to 0%. WHEREFORE.(a) Rate and base of tax . 9337. Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of Internal Revenue v. It is true that VAT can either be incorporated in the value of the goods. JMDB TAX REVIEW CASES Page 47 .. No. The rationale for the exemption from indirect taxes provided for in P. Provided. as amended.There shall be levied. Value-added tax on sale of services. Inc. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. the legislature clearly granted exemption also from indirect taxes.A. can be shifted or passed to the buyer. John Gotamco &Sons. 1869. Verily. No. assessed and collected. that may  be shifted to PAGCOR. the first method. since the provision  relied upon has been retained in R. the use of either method. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code. amending Section 27 (c) of the National Internal Revenue Code of 1997. Be that as it may. 9337. cannot go beyond the provisions of R. No. extending the exemption to entities or individuals dealing with PAGCOR in casino operations. VAT exemption extends to Acesite Thus. transferee. charging an additional 10% of the gross sales and rentals. . RR No. properties. It must be noted that the indirect tax of VAT. No. 9337.
and Paulita S. INC.853. ALVAREZ and PAULITA S. Respondents.000..-x BPI FAMILY SAVINGS BANK.. No.25 0.00 0.. Petitioners. MOISES C... x.36 908.24 155..... obtained a loan in the amount of P9..718..711. . 1995. Supreme Transliner.: This case involves the question of the correct redemption price payable to a mortgagee bank as purchaser of the property in a foreclosure sale.... Petitioner..906...64 1..00 P 9.. 1996. 1996.761. x. J..635.. the following Statement of Account was prepared by the bank indicating the total amount due under the mortgage loan agreement: xxxx Balance of Principal Add: Interest Due Late Payment Charges MRI Fire Insurance Foreclosure Expenses Sub-total Less: Unapplied Payment Total Amount Due As Of 08/07/96 (Auction Date) Add: Attorney’s Fees (15%) Liquidated Damages (15%) Interest on P 10.57 207. Before the expiration of the one-year redemption period.772.. For non-payment of the loan.  Alvarez... INC.. Respondent..35 1. Moises C. February 25.. JR. MOISES C....versus - BPI FAMILY SAVINGS BANK..241..versus G. ALVAREZ and PAULITA S..23 P 11.. G..... xxxx Asset Acquired Expenses: Documentary Stamps Capital Gains Tax Foreclosure Fee Registration and Filing Fee 155.. a Certificate of Sale was issued in favor of the bank and the same was registered on October 1.. Alvarez and Paulita S...372.555.00 from BPI Family Savings Bank with a 714-square meter lot covered by Transfer Certificate of Title No...R.70 1. 165617 .-x DECISION VILLARAMA..952.534....00 155.58 JMDB TAX REVIEW CASES Page 48 ... as collateral...595.372..906.SUPREME TRANSLINER.23 23....555. represented by its Managing Director.00 518...R. 2011 INC.. No.. Accordingly.01 10.280.35 from 08/07/96 to 04/07/97 (243 days) at 17. the mortgagors notified the bank of their intention  to redeem the property. 165837 Promulgated: SUPREME TRANSLINER. Alvarez..417... T-79193 in the name of Moises C.70 1. INC. On August 7..546... Inc..25% p...827..817. On April 24..207. the mortgage was extrajudicially foreclosed and the property was sold to the bank as the highest bidder in the public auction conducted by the Office of the Provincial Sheriff  of Lucena City.. ALVAREZ..711. Alvarez...551. ALVAREZ..a...
1997. 1997 including interest and other charges thereof within a period of five (5) working days after clearance of the check payment. on the loan. ALVAREZ and PAULITA S. the mortgagors filed a complaint against the bank to recover the allegedly unlawful and excessive charges totaling P5. with prayer for damages and attorney’s fees. ALVAREZ. is valid. 15% attorney’s fees and collection and legal costs. and spouses MOISES C. and along with Orient Bank expressed their conformity to the terms and conditions therein. we interpose no objection to the annotation of your mortgage lien thereon subject to the following conditions: 1.00 906. Recto Avenue corner Matapang Street Manila Attention: MS. On June 11. 1998 and also denied the bank’s motion for reconsideration. SP No. The bank further contended that the claims are deemed waived and the mortgagors are already estopped from questioning the terms and conditions of their contract. charges and/or expenses. the mortgagors redeemed the property by paying  the sum of P15. That we will issue the Certificate of Redemption after full payment of P15. Branch 57. 47588) which dismissed the petition for certiorari onFebruary 26. 1997 ORIENT DEVELOPMENT BANKING CORPORATION th 7 Floor Ever Gotesco Corporate Center C.00 300.142.12 xxxx The mortgagors requested for the elimination of liquidated damages and reduction of attorney’s fees and interest (1% per month) but the bank refused.509. A Certificate of Redemption was issued by the bank on May 27. 1997. charges and expenses: 18% p. That all expenses for the registration of the annotation of mortgage and other incidental registration and cancellation expenses shall be borne by the borrower. 1997. 1999.79 105.Add’l.704. If you find the foregoing conditions acceptable. The trial court held that plaintiffs-mortgagors are bound by the terms of the mortgage loan documents which clearly provided for the payment of the following interest.12. On September 30. 6. Very truly yours. Registration & Filing Fee Interest on P 906.237. together with Orient Development Banking Corporation which committed to finance the redemption. City of Lucena under TCT No.77. free from liens/encumbrances other than our lien. Cancellation Fee Total Amount Due As Of 04/07/97 Audit) (Subject to 660. 3% post-default penalty. the trial court rendered its decision dismissing the complaint and the bank’s counterclaims. Plaintiffs-mortgagors’ claim that they paid the redemption price demanded by the defen dant bank under extreme pressure was rejected by the trial court since there was active negotiation for the final redemption price between the bank’s representatives and plaintiffs -mortgagors who at the time had legal advice from their counsel. With regard to the proposed refinancing of the account. The bank elevated the matter to the Court of Appeals (CA-G.331. 3. 4.00 P 15.a. INC. legal and in accordance with documents duly signed by the mortgagors.M.25% p. you will immediately and unconditionally return the titles to us without need of demand. The trial court denied the motion on January 8.12.79 from 08/07/96 to 04/07/97 (243 days) at 17.142. If within this period.249. 97-72 of the Regional Trial Courtof Lucena City. That in case of loss of titles. JMDB TAX REVIEW CASES Page 49 .  On February 14. That all expenses related to the cancellation of your annotated mortgage lien should the Bank be not fully paid on the period above indicated shall be charged to you. According to the trial court. you will undertake and shoulder the cost of re-issuance of a new owner’s titles. That you will annotate your mortgage lien and pay us the full amount to close the loan within five (5) working days from the receipt of the titles. you have not registered the same and paid us in full. covering the real estate property located in the Poblacion.249.249.R. T-79193 which was foreclosed by BPI FAMILY SAVINGS BANK.704. the bank asserted that the redemption price reflecting the stipulated interest. INC. 1997. representing the outstanding balance of the loan as of May 15. AIDA C.704. 5. 2. In its Answer with Special and Affirmative Defenses and Counterclaim. docketed a s Civil Case No. please indicate your conformity on the space provided below and return to us the duplicate copy. That we will release the title and the Certificate of Redemption and other pertinent papers only to your authorized representative with complete authorization and identification.a. That you will recognize our mortgage liens as first and superior until the loan with us is fully paid. DELA ROSA Senior Vice-President Gentlemen: This refers to your undertaking to settle the account of SUPREME TRANS LINER. 2002. 15% liquidated damages. thus: May 14. 7. plaintiffs-mortgagors are estopped from questioning the correctness of the redemption price as they had freely and voluntarily signed the letter-agreement prepared by the defendant bank. On May 21. the bank filed a motion to set the case for hearing on the special and affirmative defenses by way of motion to dismiss.
On the other hand.00 as attorney’s fees. (SGD.) MOISES C. the petitioner bank in G. 2. which financed the redemption of the foreclosed property.40 plus six (6) percent legal interest from May 21. wherein they mutually agreed that the redemption price is in the sum of P15. … the Certificate of Sale. DELA ROSA Senior Vice President CONFORME: SUPREME TRANS LINER. 165837 assails the CA in holding that – 1.79. capital gains tax. and  additional registration and filing fee totaling P906.72 and the bank should return the amount ofP3. the trial court said this was belied by their own evidence.813.704.000. 165617.711. “there was very active negotiation between the parties in the computation of the redemption price” culminating into the signing freely and voluntarily by the petitioner.  SO ORDERED.) AIDA C. 3. as found by the Honorable Trial Court. 1997.813. Defendant-appellee is hereby ORDERED to return to plaintiffs-appellees (sic) the invalidly collected amount of P3. No. cost of publication and expenses of the foreclosure proceedings. INC.35 includes penalty charges and as such for purposes of computing the redemption price petitioner can no longer impose upon the private respondents the penalty charges in the form of 15% attorney’s fees and the 15% liquidated damages in the aggregate amount of P3. the petitioners-mortgagors raise the single issue of whether the foreclosing mortgagee should pay capital gains tax upon execution of the certificate of sale.R. 2004 reversed the trial court and decreed as follows: WHEREFORE. with 6% interest thereon from May 21.372. Defendant-appellee is hereby ORDERED to pay plaintiffs-appellees (sic) the amount of P100. … private respondents cannot be considered to be under estoppel to question the propriety of the aforestated penalty charges despite the fact that. the private respondents and Orient Bank. foregoing considered. No. They specifically prayed for the return of all asset-acquired expenses consisting of documentary stamps tax. 4. although the evidence presented by the parties show otherwise. The CA ruled that attorney’s fees and liquidated damages were already included in the bid price of P10. The total redemption price thus should only be P12.R. registration and filing fee.711. 74761) which.249.) LOLITA C. the Statement of Account showing the breakdown of the redemption price as computed by the defendant bank. In G.142.  By Resolution dated October 12.00 as moral damages. the appealed decision is hereby REVERSED and SET ASIDE. P100. by Decision dated April 6. emphasis supplied.813.111.435. CV No. the bid price of P10.000. whether the same should be shouldered by the redemptioner. 1997 until fully returned.35 as per the recitals in the Certificate of Sale that said amount was paid to the foreclosing mortgagee to satisfy not only the principal loan but also “interest and penalty charges. The appellate court further stated that the mortgagors cannot be deemed estopped to question the propriety of the charges because from the very start they had repeatedly questioned the imposition of attorney’s fees and liquidated damages and were merely constrained to pay the demand ed redemption price  for fear that the redemption period will expire without them redeeming their property. CARRIDO Manager CONFORME: ORIENT DEVELOPMENT BANKING CORPORATION (SGD. ALVAREZ  Mortgagors (Underscoring in the original. and if paid by the mortgagee.) As to plaintiffs-mortgagors’ contention that the amounts representing attorney’s fees and liquidated damages were already included in the P10. 2.  The mortgagors appealed to the CA (CA-G.00 as exemplary damages and P100. of Exhibit “3”. JMDB TAX REVIEW CASES Page 50 .40.592. Hence. A new one is hereby entered as follows: 1.R. these petitions separately filed by the mortgagors and the bank.372. Costs against defendant-appellee.BPI FAMILY BANK BY: (SGD. Plaintiffs-appellants’ complaint for damages against defendant-appellee is hereby REINSTATED.12.111.” These “penalty charges” consist of 15% attorney’s fees and 15% liquidated damages which the bank imposes as penalty in cases of violation of the terms of the mortgage deed. foreclosure fee.40 representing attorney’s fees and liquidated damages. ALVAREZ/PAULITA S. the CA denied the parties’ respective motions for reconsideration.000.711.372.111.35 bid price. 2004.
BPI Express Card Corporation. Philippine currency. x x x x (Emphasis supplied. Attorney’s Fees: In case the Bank should engage the services of counsel to enforce its rights under this Agreement. that attorney’s fees and liqui dated damages were not yet included in the bid price ofP10.711. of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act. Section 78 of Republic Act No. within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage. Post Default Penalty Attorney’s Services Liquidated Damages Collection & Legal Cost Others (Specify) 3. judicially or extrajudicially. 337. c. petitioners-mortgagors undertook to pay the attorney’s fees and the costs of registration and foreclosure. or to Bank of the Philippine Islands or any of its subsidiaries/affiliates such as. but not limited to BPI Leasing Corporation.000. but not limited to BPI Credit Corporation. collection  expenses and disbursements allowed by law.3.372. to be due to the Borrower/Mortgagor. e. 1529 otherwise known as the Property Registration Decree. BPI Securities Corporation and BPI Agricultural Development Bank. the Disclosure Statement on Loan/Credit Transaction also duly signed by the petitionersmortgagors provides: 10. including the attorney’s fees as herein provided. 23.35 is clearly shown by the Statement of Account as of April 4.)  Under the Mortgage Loan Agreement. every sale or exchange or other disposition of real property classified as capital asset under  Section 34(a) of the Tax Code shall be subject to the final capital gains tax. … petitioner *to+ pay private respondents damages in the agg regate amount of P300.with interest thereon at the rate specified in the mortgage. 1985). 13-85 (December 12. d. the mortgagor or debtor whose real property has been sold at public auction. Said provision reads: SEC. Section 2. and all the costs. Under Revenue Regulations (RR) No. all of which shall be secured by this mortgage. within the purview of this Act shall have the right. The term sale includes pacto de retro and other forms of conditional sale. But where the right of redemption exists. ADDITIONAL CHARGES IN CASE CERTAIN STIPULATIONS ARE NOT MET BY THE BORROWER a. the certificate of title of the mortgagor shall be cancelled. but the certificate of sale and the order confirming the sale shall be registered by brief JMDB TAX REVIEW CASES Page 51 . if any.000.000. On the other hand.2 of Revenue Memorandum Order (RMO) No. banking or credit institution. 1997 prepared by the petitioner bank and given to petitioners-mortgagors. and e) The balance.” Further.00 As provided by the Rules of Court As correctly found by the trial court. 16-88 and as further amended by RMO Nos. 27-89 and 6-92) states that these conditional sales “necessarily include mortgage foreclosure sales (judicial and extrajudicial foreclosure sales).000. to redeem the property by paying the amount fixed by the court in the order of execution . b) To the satisfaction of all interest and charges accruing upon the obligations herein and hereby secured. 1986. otherwise known as  the General Banking Act. par. 23 of the Mortgage Loan Agreement indicated that asset acquired expenses were to be added to the redemption price as part of “costs and other expenses incurred” by the mortgagee bank in connection with the foreclosure sale. if no right of redemption exists. c) To the satisfaction of the principal amount of the obligations herein and hereby secured. which in no case shall be less than P2. we find merit in petitioners-mortgagors’ argument that there is no legal basis for the inclusion of this charge in the redemption price. plus costs. The following contract terms would show that the said items are separate and distinct from the bid price which represents only the outstanding loan balance with stipulated interest thereon. x x x In the event of foreclosure. the Borrower/Mortgagor shall pay an amount equivalent to fifteen (15%) percent of the total amount claimed by the Bank. 29-86 (as amended by RMO No. for the full or partial payment of an obligation to any bank. or the amount due under the mortgage deed.00. for real property foreclosed by a bank on or after September 3.  Additionally. Coming now to the issue of capital gains tax. governs in cases where the mortgagee is a bank. the capital gains tax and documentary stamp tax  must be paid before title to the property can be consolidated in favor of the bank. Under Section 63 of Presidential Decree No. d) To the satisfaction of all other obligations then owed by the Borrower/Mortgagor to the Bank or any of its subsidiaries/affiliates such as. On the correct computation of the redemption price. xxxx 31.00% per month 15% of sum due but not less than P2. Application of Proceeds of Foreclosure Sale. as the case may be. 78. and a new certificate issued in the name of the purchaser.00 15% of sum due but not less than P10.00 on the ground that the former acted in bad faith in the imposition upon them of the aforestated penalty charges. and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property . b. whether judicially or extrajudicially. The proceeds of sale of the mortgaged property/ies shall be applied as follows: a) To the payment of the expenses and cost of foreclosure and sale. the certificate of title of the mortgagor shall not be cancelled. when in truth it is entitled thereto as the law and the contract expressly provide and that private respondents agreed to pay the  same.
. As the Court of Tax Appeals concluded in one case. modification. 1997. Alvarez and Paulita Alvarez. the mortgagor is given the option whether or not to redeem the real property. to petitioners Supreme Transliner. Considering that herein petitioners-mortgagors exercised their right of redemption before the expiration of the statutory one-year period. JMDB TAX REVIEW CASES Page 52 . finance and insurance companies. The Decision dated April 6. accepting.. Non-Retroactivity of Rulings. The sums awarded as moral and exemplary damages. is hereby declared entitled to the attorney’s fees and liquidated damages included in the total redemption price paid by Supreme Transliner. Hence. Inc. Inc. the certificate or deed of redemption shall be filed with the Register of Deeds. 3. such revocation shall have retroactive operation as to affect past transactions. the capital gains [tax] on the foreclosure sale imposed under Secs. No. 246. 4-99. or reversal will be prejudicial to the taxpayers. 188 of the Tax Code of 1997 because no land or realty was sold or transferred for a consideration. Section 246 of the NIRC of 1997 states: SEC. In the interim. and to retain only the sum provided in RR No. Alvarez and Paulita Alvarez are DELETED. 6 of Act No. as amended by Act No. except in the following cases: (a) 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. 4-99 “has curbed the inequity of imposing a capital gains tax even before the expiration of the redemption period [since] there is yet no transfer of title and no profit or gain is realized by the mortgagor at the time of foreclosure sale but only upon expiration of  the redemption period. signed. the retroactive application of RR No. modification. 74761 is accordingly MODIFIED. CAPITAL GAINS TAX. if the revocation is due to the fact that the regulation is erroneous or contrary to law.R. (2) In case of non-redemption. 2004 of the Court of Appeals in CA-G. or transferring the real property wherever the document is made. and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. RR No. – (1) In case the mortgagor exercises his right of redemption. the inclusion of the said charge in the total redemption price was unwarranted and the corresponding amount paid by the petitioners-mortgagors should be returned to them. because a wrong  construction of the law cannot give rise to a vested right that can be invoked by a taxpayer. signing. No. there is no actual transfer of the mortgaged real property until after the expiration of the one-year redemption period as provided in Act No.. 165617. Moises C. Inc. The issuance of the Certificate of Sale does not by itself transfer  ownership. (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. issued. no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. CV No. 3135 and title thereto is consolidated in the name of the mortgagee in case of non-redemption. Alvarez and Paulita Alvarez. further amends RMO No. In the event the property is redeemed.” In his commentaries. 4-99 issued on March 16. Inc. Moises C. RR No.memorandum thereof made by the Register of Deeds upon the certificate of title. In G. 24(D)(1) and 27(D)(5) of the Tax Code of 1997 shall become due based on the bid price of the highest bidder but only upon the expiration of the one-year period of redemption provided for under Sec. It is therefore clear that in foreclosure sale. BPI Family Savings Bank. In this case. In G.) Although the subject foreclosure sale and redemption took place before the effectivity of RR No. 3135. – Any revocation. or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation. its provisions may be given retroactive effect in this case. De Leon expressed the view that while revenue regulations as a general rule have no retroactive effect. the corresponding documentary stamp tax shall be levied. DOCUMENTARY STAMP TAX. Moises C. and a brief memorandum thereof shall be made by the Register of Deeds on the certificate of title. petitioner bank is not liable to pay the capital gains tax due on the extrajudicial foreclosure sale.R. 6-92 relative to the payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial foreclosure sale of capital assets initiated by banks. petitioner BPI Family Savings Bank. – (1) In case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale. collected and paid by the person making. x x x (Emphasis supplied. 165837. is hereby ordered to RETURN the amounts representing capital gains and documentary stamp taxes as reflected in the Statement of Account To Redeem as of April 7. 4118. attorney’s fees and costs in favor of Supreme Transliner. 1999. issuing. x x x (2) In case of non-redemption.R.00 documentary stamp tax imposed under Sec. premises considered. the transaction shall only be subject to the P15. Inc. SEC. There was no actual transfer of title from the owners-mortgagors to the foreclosing bank. accepted or transferred where the property is situated in the Philippines. 4. 4-99 as documentary stamps tax due on the foreclosure sale. 4-99 is more consistent with the policy of aiding the exercise of the right of redemption. both petitions are PARTLY GRANTED. SEC. WHEREFORE. or (c) where the taxpayer acted in bad faith.
185371 Promulgated: .000. 306 and 2] its November 18.COMMISSIONER OF INTERNAL REVENUE.069. Petitioner. 67. 2005 Decision of the CIR which assessed respondent Metro Star Superama. G. in C.338.16.54 20% Interest 79. x x x.400.49 Compromise Penalty Late Payment P16.103. 2002.91 110. 2008 Resolution denying petitioner’s motion for reconsideration. 2001 by Regional Director Leonardo Sacamos. computed as follows: ASSESSMENT NOTICE NO. 2008 Decision of the Court of Tax  Appeals En Banc (CTA-En Banc).718. 7169 reversing the February 8.874. Revenue District Officer Socorro O. petitioner received a Formal Letter of Demand dated April 3.versus METRO STAR SUPERAMA. Inc. J.874. Legazpi City. which petitioner received on November 9. [the] OIC of BIR Legal Division issued an Indorsement dated September 26. No.772.584.01 TOTAL P 291. 10.A. For petitioner’s failure to comply with several requests for the presentation of records and Subpoena Duces Tecum. Justiniana to examine petitioner’s books of accounts and other accounting records for income tax and other internal revenue taxes for the taxable year 1999. (Metro Star) of deficiency value-added tax and withholding tax for the taxable year 1999.746. Said Letter of Authority was revalidated on August 10.: This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner Commissioner  of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16. December 8. On April 11. 067-99-003-579-072 VALUE ADDED TAX Gross Sales P1. Based on a Joint Stipulation of Facts and Issues of the parties.00 136.. On January 26. issued Letter of Authority No. 2001. The said letter stated that a post audit review was held and it was ascertained that there was deficiency value-added and withholding taxes due from petitioner in the amount of P 292. Legazpi City.08 Add: 25% Surcharge P 38.08 Less: Input Tax VAT Payable P 154.09 WITHHOLDING TAX Compensation Expanded  2.338.16. Legazpi City to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice.00 Failure to File VAT returns 2. EB No. 2001.00 18. 00006561 for Revenue Officer Daisy G. The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA Case No. the pertinent portions of which read: Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines. INC. assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos (P292. On November 8. 2002 from Revenue District No.92 JMDB TAX REVIEW CASES Page 53 . 2010 DECISION MENDOZA.R. the CTA Second Division summarized the factual and procedural antecedents of the case.400. 2001 informing Revenue District Officer of Revenue Region No. 67. 2001. Ramos-Lafuente issued a Preliminary 15-day Letter.90 Output Tax P 154.) for deficiency value-added and withholding taxes for the taxable year 1999.T. Respondent.731. the Regional Director of Revenue Region No.697.
142. Metro Star filed a petition for review with the CTA.561.01 Service Contractor Total SUMMARIES OF DEFICIENCIES VALUE ADDED TAX WITHHOLDING TAX TOTAL P 112.71 x 10% 1.272.2 Whether petitioner was informed of the law and facts on which the assessment is made in compliance with Section 228 of the National Internal Revenue Code. respondent Commissioner. Whether the assessment has become final and executory and demandable for failure of petitioner to protest the same within 30 days from its receipt thereof on April 11. Whether the deficiency assessments issued by the respondent are void for failure to state the law and/or facts upon which they are based.261.949.00 x 1% 412.466. which petitioner received on May 15. The parties then stipulated on the following issues to be decided by the tax court: 1.663. The CTA-Second Division found merit in the petition of Metro Star and. Petitioner. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal Revenue Code.334.028.07 as deficiency VAT and withholding tax for the year 1999.2.56 576. On February 8.73 Security Service 156. rendered a decision.00 x 5% 9. 2005.09 1. giving the latter last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof.20 Rental Expense 41.069. petitioner filed with the Office of respondent Commissioner a Motion for Reconsideration pursuant to Section 3. Revenue Regional Director of Revenue Region 10.103. 3. 2007. Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due  process. 67 sent a copy of the Final Notice of Seizure dated May 12.000. 2.Total Tax Due Less: Tax Withheld Deficiency Withholding Tax Add: 20% Interest p.805.805. Revenue District Office No.a.848.876.27 P 1.00 P 1.51 200.069. 12-99. 12-99 with regard to the issuance of a deficiency tax assessment. 2003. 4. through its authorized representative. On February 6. On July 30.16 Subsequently. 1.000.25 Audit Fee 193.92 P 291.5 of Revenue Regulations No. the decretal portion of which reads: JMDB TAX REVIEW CASES Page 54 . otherwise respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection. as owner/operator of a movie/cinema house. issued a Decision denying petitioner’s Motion for Reconsideration.07 x 5% 97. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code and Revenue Regulations No. 67 a Warrant of Distraint and/or Levy No. on March 21. Whether or not petitioner.16. Legaspi City.42 P 110. 1. 2005. x x x. 2004.73 x 1% 1. Compromise Penalty TOTAL *Expanded Withholding Tax P1. pursuant to Section 228 of the National Internal Revenue Code.25 Film Rental 10.874.1 Whether petitioner is liable for the respective amounts of P291.874. 2003.805.83 111. is subject to VAT on sales of services under Section 108(A) of the National Internal Revenue Code. 2.09 and P1. through counsel received said Decision on February 18. petitioner received from Revenue District Office No.1. 67-0029-23 dated May 12. 2004.07 P 292. 2003 demanding payment of deficiency value-added tax and withholding tax payment in the amount of P292. 2002.
this Court recognizes that the Court of Tax Appeals. The CIR. a direct denial of the receipt of mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the  addressee. and that due process was served nonetheless because the latter received the Final Assessment Notice (FAN). 56-57 citing Enriquez vs. The motion for reconsideration  2008Resolution. but the petition was dismissed after a determination that no new matters were raised. Once these facts are proved. 122605. has necessarily developed an expertise on the subject. It. In the absence of any clear and convincing proof to the contrary.R. has accordingly developed an exclusive expertise on the resolution unless there has been  an abuse or improvident exercise of authority. the assailed Decision dated February 8. and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. 2002.  filed by the CIR was likewise denied by the CTA-En Banc in its November 18. 149 SCRA 351). petitioner vs. Accordingly. the March 21. the Court wrote: Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Moran. SO ORDERED. Roxas Securities. the Petition for Review is hereby GRANTED. viz: Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR. it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee.) v. (now known as UBP Securities. Commissioner of Internal Revenue. In Sea-Land Service Inc. 2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against petitioner. 2007 Resolution of the CTA Second Division in CTA Case No. Commissioner of Internal Revenue. and (b) that it was mailed. No." JMDB TAX REVIEW CASES Page 55 . January 30. the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. ruled that the Formal Letter of Demand dated April 3.WHEREFORE. “Metro Star Superama.  Inc. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. 357 SCRA 441. respondent” are hereby AFFIRMEDin toto. The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which. The CTA-Second Division opined that “*w+hile there *is+ a disputable presumption that a mailed letter *is+ deemed received by the addressee in the ordinary course of mail. Court of Appeals. the CIR filed a petition for review with the CTA-En Banc. 13 SCRA 104. this Court must presume that the CTA rendered a decision which is valid in every respect. premises considered. 1963 ed. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail. The CIR sought reconsideration of the decision of the CTA-Second Division. (VI. insisting that Metro Star received the PAN. a further perusal of our ruling in Barcelon is instructive. The CTA-En Banc disposed:   WHEREFORE. v.. which by the very nature of its function is dedicated exclusively to the consideration of tax problems. Accordingly. 41 Phil 269). 2007 Resolution. 2002. On the matter of service of a tax assessment.” It also found that there was no clear showing that Metro Star actually received the alleged PAN. 7169 entitled. dated January 16. Inc. Commissioner of Internal Revenue. Aggrieved. accordingly. as well as the  Warrant of Distraint and/or Levy dated May 12. by the very nature of its functions. as Metro Star was denied due process. the presumption does not lie. Comments on the Rules of Court. Court of Appeals [G. But if one of the said facts fails to appear. the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. 1965: "The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid. 30 April 2001. Sunlife Assurance of Canada. comes now before this Court with the sole issue of whether or not Metro Star was denied due process. 445-446]. 2003 were void. Nava vs. Thus as held by the Supreme Court in Gonzalo P. In Barcelon. 2007 Decision and July 27. dated January 16. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. Inc. 2002. but the motion was denied in  the latter’s July 24.
" (Nava vs. vehicles. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Neither did it offer any explanation on why it failed to comply with the requirement of service of the PAN. Within a period to be prescribed by implementing rules and regulations. vs. CIR CTA Case 4885. 1959). What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. but not the PAN. that stated that he had received theFAN dated April 3. that he was willing to pay the tax as computed by the CIR. This Court does not put much credence to the self serving documentations made by the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. without adequate supporting evidence cannot suffice. Bautista. without adequate protection or defense. January 30. machineries and spare parts. Thus: "While we have held that an assessment is made when sent within the prescribed period. or (e) When the article locally purchased or imported by an exempt person.) The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed received the PAN dated January 16. but not limited to. or (d) When the excise tax due on exciseable articles has not been paid. of the Phils. all relevant supporting documents shall have been submitted. . May 27. 2002. If the taxpayer fails to respond. should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts. August 22. of Int. It could have simply presented the registry receipt or the certification from the postmaster that it mailed the PAN. or (b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. the assessment shall be void. It merely accepted the letter of Metro Star’s chairman dated April 29. vs. 228. Consequently. otherwise. Mere notations made without the taxpayer’s intervention. (Emphases supplied. capital equipment. however. Rev. the assessment shall become final. but failed. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made. And if said documents cannot be located. x x x. he shall first notify the taxpayer of his findings : provided. even if received by the taxpayer after its expiration (Coll. otherwise. L-12250 and L-12259.. the taxpayer shall be required to respond to said notice.R. the government’s right to issue an assessment for the said period has already prescribed. notice or control. 1996). traded or transferred to non-exempt persons. mailing or sending of the notice be clearly and satisfactorily proved. This now leads to the question: Is the failure to strictly comply with notice requirements prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R. 2002. 13 SCRA 104. 1965). JMDB TAX REVIEW CASES Page 56 . Inc. such as. CIR.) No. this ruling makes it the more imperative that the release. (Industrial Textile Manufacturing Co. Protesting of Assessment. the Commissioner or his duly authorized representative shall issue an assessment based on his findings. otherwise. The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was issued. 12-99 tantamount to a denial of due process? Specifically.When the Commissioner or his duly authorized representative finds that proper taxes should be assessed. and that he just wanted to clarify some matters with the hope of lessening its tax liability. Respondent at the very least. or (c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. has been sold. Within sixty (60) days from filing of the protest.x x x. that a preassessment notice shall not be required in the following cases: (a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. 2002. the taxpayer would be at the mercy of the revenue offices. are the requirements of due process satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the prescribed period was sent to the taxpayer? The answer to these questions require an examination of Section 228 of the Tax Code which reads: SEC.
vehicles. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN. No. Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN.1. if warranted. for appropriate review and issuance of a deficiency tax assessment. the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision. — The Revenue Officer who audited the taxpayer's records shall. the law. among others. the decision shall become final.3 Exceptions to Prior Notice of the Assessment. the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office.2 Preliminary Assessment Notice (PAN). executory and demandable. or JMDB TAX REVIEW CASES Page 57 . Indeed. state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes.that taxpayers should be able to present their case and adduce supporting  evidence. a formal letter of demand and assessment notice shall be caused to be issued by the said Office. or is not acted upon within one hundred eighty (180) days from submission of documents. the facts and the law.R. otherwise. as the case may be. (Emphasis supplied). This is confirmed under the provisions R. for the purpose of "Informal Conference. at least by registered mail. based on the said Officer's submitted report of investigation. The law imposes a substantive. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference. or the Chief of Division in the National Office. or from the lapse of one hundred eighty (180)day period. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts. 3. in which case. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. calling for payment of the taxpayer's deficiency tax liability. shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative. rules and regulations. it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes. If the taxpayer is not amenable. — 3.1 Notice for informal conference. in which case. he shall be considered in default.1. inclusive of the applicable penalties. not merely a formal. — The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases.4 Formal Letter of Demand and Assessment Notice. or (iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year.If the protest is denied in whole or in part. as the case may be. or (iv) When the excise tax due on excisable articles has not been paid. capital equipment. the taxpayer shall be informed. or (v) When an article locally purchased or imported by an exempt person. He must be informed of the facts and the law upon which the assessment is made. or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). but not limited to. has been sold.1. by the Revenue District Office or by the Special Investigation Division.1. — If after review and evaluation by the Assessment Division or by the Commissioner or his duly authorized representative. 3. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations . or (ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent." in order to afford the taxpayer with an opportunity to present his side of the case.1 Mode of procedures in the issuance of a deficiency tax assessment: 3. 12-99 of the BIR which pertinently provide: SECTION 3. traded or transferred to non-exempt persons. rules and regulations. he shall be considered in default. a Preliminary Assessment Notice (PAN) for the proposed assessment. in writing. showing in detail. machineries and spare parts. issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient: (i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer. — The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. 3. requirement. such as. as the case may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes. as the case may be. in which case. the said Office shall issue to the taxpayer.
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without  due process of law. 12-85 which sought to interpret Section 229 of the old tax law. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. the assessment itself would be  invalid. Thus. showing the following: (a) His name. (c) designation and authority to act for and in behalf of the taxpayer. it was said – Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. The case of CIR v. For all the awesome power of the tax collector. But even as we concede the inevitability and indispensability of taxation. then the taxpayer has a right to complain and the courts will then come to his succor. No. despite the natural reluctance to surrender part of one’s hard-earned income to taxing authorities. it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. Hence in Commissioner of Internal  Revenue v. xxx xxx xxx It is said that taxes are what we pay for civilized society. it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the “due process requirement in the issuance of a deficiency tax assessment . on the other hand. 8424. The use o f the word “shall” in subsection 3. while “taxes are the lifeblood of the government. Hence. cannot apply to this case because the issue therein was the non-compliance with the provisions of R.1.. Algue. From the provision quoted above. for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R. The regulation then. for it is well-settled that  a void assessment bears no fruit.jurisprudence on which the assessment is based. if acknowledged received by a person other than the taxpayer himself. On the other hand. (b) signature. Without taxes. and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other. (Emphasis supplied). R. 8424 has already amended the provision of Section 229 on protesting an assessment. which is the promotion of the common good. he may still be stopped in his tracks if the taxpayer can demonstrate x x x that the law has not  been observed. in spite of all its plenitude. The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side.A. If it is not. the government would be paralyzed for the lack of the motive power to activate and operate it. Thus. No. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the  requirements laid down by law and its own rules is a denial of Metro Star’s right to due process. the petition is DENIED. The same shall be sent to the taxpayer only by registered mail or by personal delivery. may be achieved.2 describes the mandatory nature of the service of a PAN. Menguito cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of an assessment.  JMDB TAX REVIEW CASES Page 58 . the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand. Otherwise. but also of the facts on which an assessment would be made. If sent by personal delivery. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof).” the power to tax has its limits. Inc. the assessment made by the CIR is void. x x x. otherwise. WHEREFORE. every person who is able to must contribute his share in the running of the government. simply provided that a notice be sent to the respondent in the form prescribed. RA No. for a citizen’s right is amply protected by the Bill of Rights under the Constitution. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation. and (d) date of receipt thereof. such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. and that no consequence would ensue for failure to comply with that form.” the absence of which renders nugatory any assessment made by the tax authorities. the scales must tilt in favor of the individual.
Located at Barangay Dalahican. 2001. The Philippine Fisheries Development Authority (PFDA) was created by virtue of P. ordering PFDA to pay the real property taxes imposed by the City Government of Lucena on the Lucena Fishing Port Complex. 1999. in a letter addressed to PFDA. as provided for under Sec. PFDA appealed to the CBAA. xxx PFDA’s Charter. 1999. L33. with functions and powers to (m)anage. and develop the Navotas Fishing Port Complex and such other fishing port complexes that may be established by the Authority. No. been handed over to the PFDA. this time in the amount of P45. Sec.00. The CBAA dismissed the appeal of petitioner Philippine Fisheries Development Authority (PFDA) from the Decision of the Local Board of Assessment Appeals (LBAA) ofLucena City.T.080. respectively. which was dismissed for lack of merit. 2. G.O.618. 120082. affirming the 5 October 2005 Decision of the Central Board of Assessment Appeals (CBAA) in CBAA Case No.R. P. J. 10 thereof: “(t)he Authority shall be exempted from the payment of income tax”.versus CENTRAL BOARD OF ASSESSMENT APPEALS. 977. No. 977 as amended by E. the CBAA dismissed the appeal for lack of merit.A. The allegations therefore that PFDA is not the beneficial user of LFPC and not a taxable person are rendered moot and academic by such ownership of PFDA over LFPC.D. 261 SCRA 667]. 772. provided for exemption from income tax under Par. 178030 . On October 26. Marcos.880.7 hectares more or less.D. Respondents. G. 2000 another demand letter was sent by the Government of Lucena City on the same LFPC property.R.: The Case 1 2 This petition for review assails the 9 May 2007 Decision of the Court of Tax Appeals in C. Lucena City. Pursuant thereto. No. In its Decision dated 5 October 2005. The Facts The facts as found by the CBAA are as follows: The records show that the Lucena Fishing Port Complex (LFPC) is one of the fishery infrastructure projects undertaken by the National Government under the Nationwide Fish Port-Package. Petitioner-Appellant PFDA took over the management and operation of LFPC in February 1992. Petitioner. before hand. 2000 Petitioner-Appellant filed its Appeal before the Local Board of Assessment Appeals of Lucena City. Promulgated: December 15. this was denied by the Appellee Local Board on December 10. 11 September 1996. On October 17. 977. 1978 and May 31. 193. 2001 Petitioner-Appellant filed its motion 3 for reconsideration.77 financed through a loan (L/A PH-25 and 51) from the Overseas Economic Cooperation Fund (OECF) of Japan.D. and declared under the MCIAA case [ Mactan Cebu International Airport Authority v.660. This was received by PFDA on November 24. as amended. Nothing was said however about PFDA’s exemption from JMDB TAX REVIEW CASES Page 59 . 1978. The CBAA ruled: Ownership of LFPC however has.00 covering the period from 1993 to 2000. the City Government of Lucena demanded payment of realty taxes on the LFPC property for the period from 1993 to 1999 in the total amount of P39. CITY OF LUCENA. LUCENA CITY ASSESSOR AND LUCENA CITY TREASURER. On December 18.764. On November 6.PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY (PFDA). LOCAL BOARD OF ASSESSMENT APPEALS OF LUCENA CITY. 2010 x--------------------------------------------------x DECISION CARPIO. EB No. the fish port was constructed on a reclaimed land with an area of 8. at a total cost of PHP 296. 11 of P. operate. dated November 9.397. .
WHEREFORE. which the CBAA denied in its Resolution dated 7 June 2006. Furthermore. ‒ Unless otherwise provided in this Code. 464 and Sec. and (e) Machinery and equipment used for pollution control and environmental protection. 40 of P. mosques. Therefore. and 234 of the Local Government Code which read: Section 193. operate. Power to Levy Real Property Tax. churches. and is therefore subject to the real property tax imposed by local government units pursuant to Section 232 in relation to Sections 193 and 234 of the Local Government Code. No. for consideration or otherwise. (d) All real property owned by duly registered cooperatives as provided for under R. Hence. charitable or educational purposes. (c) All machineries and equipment that are actually. except local water districts. The Ruling of the Court The petition is meritorious.A. are hereby withdrawn upon the effectivity of this Code. ‒ A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land. The Ruling of the Court of Tax Appeals The Court of Tax Appeals held that PFDA is a government-owned or controlled corporation. Exemptions from Real Property Tax. buildings and improvements actually. LFPC is exempted from payment of realty tax. (b) Charitable institutions. building. 6938. 232. and other improvement not hereinafter specifically exempted. directly. the Court of Tax Appeals denied PFDA’s petition for review and affirmed the 5 October 2005 Decision of the CBAA. xxx The ownership of LFPC as passed on by the Republic of the Philippines to PFDA is bourne by Direct evidence: P. 4 PFDA moved for reconsideration. whether natural or juridical. SO ORDERED. and develop the same. In ruling that PFDA is not exempt from paying real property tax. Reading Sec. 7160 however. The Issue The sole issue raised in this petition is whether PFDA is liable for the real property tax assessed on the Lucena Fishing Port Complex. parsonages or convents appurtenant thereto. non-stock and non-profit hospitals and educational institutions. cooperatives duly registered under R. including governmentowned or -controlled corporations. tax exemptions or incentives granted to. Section 234.A. 5 JMDB TAX REVIEW CASES Page 60 .D. as amended (supra). provided such ground: LFPC is owned by the Republic of the Philippines. the Court of Tax Appeals ruled that PFDA failed to prove that it is exempt from real property tax pursuant to Section 234 of the Local Government Code or any of its provisions. Section 232. and exclusively used for religious. 6938. Withdrawal of Tax Exemption Privileges. to a taxable person. 977.A. 234 of R. 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. nonprofit or religious cemeteries and all lands. this petition for review. ‒ The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivision except when the beneficial use thereof has been granted. the herein Appeal is hereby dismissed for lack of merit. machinery. No.payment of real property tax: PFDA therefore was not to lay claim for realty tax exemption on its Fishing Port Complexes. or presently enjoyed by all persons. Hence. PFDA is only tasked to manage. On appeal. the Court of Tax Appeals cited Sections 193. Petitioner-Appellant’s claim for realty tax exemption on LFPC is untenable.D. for all of the foregoing.
When the law vests in a government instrumentality corporate powers. vested with special functions or jurisdiction by law. whether natural or juridical. xxx Indeed. including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. it has no stockholders or voting shares. being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency. The Authority is actually a national government instrumentality which is defined as an agency of the national government. Neither is it a non-stock corporation because it has no members. In that case. and is therefore 11 exempt from real property tax under Section 234(a) of the Local Government Code. The ruling of the Court of Tax Appeals is anchored on the wrong premise that the PFDA is a government-owned or controlled corporation. the Lucena Fishing Port Complex is a property of public dominion intended for public use. Besides. Furthermore. the Authority is not a GOCC but an instrumentality of the government. administering special funds. Thus. it remains a government instrumentality exercising not only governmental but also 7 corporate powers. not integrated within the department framework. the Authority is liable to pay property tax. which was managed and operated by PFDA. However. this Court has already ruled that the PFDA is a government instrumentality and not a government-owned or controlled corporation. the PFDA is exempt from real property tax imposed on the Lucena Fishing Port Complex. The exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 9 10 of the Local Government Code. or presently enjoyed by. endowed with some if not all corporate powers. PFDA is subject to real property tax imposed by local government units having jurisdiction over its real properties pursuant to Section 232 of the Local Government Code. the instrumentality does not become a corporation. The Court of Tax Appeals held that as a government-owned or controlled corporation. With respect to these properties. According to the Court of Tax Appeals. 420. usually through a charter. the City of Iloilo assessed real property taxes on the Iloilo Fishing Port Complex (IFPC). The following things are property of public dominion: JMDB TAX REVIEW CASES Page 61 . (Emphasis supplied) 6 This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas Fishing Port Complex. Section 234 of the Local Government Code explicitly provides that any exemption from payment of real property tax granted to government-owned or controlled corporations have already been withdrawn upon the effectivity of the Local Government Code. the IFPC. PFDA is not liable to pay real property tax assessed by the Office of the City Treasurer of Lucena City on the Lucena Fishing Port Complex.Except as provided herein. Also. Nonetheless. said exemption does not apply to the portions of the IFPC which the Authority leased to private entities. except those portions which are leased to private persons or entities. Similarly. Court of Appeals . In consonance with the previous ruling. any exemption from payment of real property tax previously granted to. The Court held that PFDA is an instrumentality of the government and is thus exempt from the payment of real property tax. thus: The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax. except those portions which are leased to private persons or entities. In the 2007 case of Philippine Fisheries Development Authority v. Hence it is not a stock corporation. the Court held in the subsequent PFDA case that the PFDA is a government instrumentality not subject to real property tax except those portions of the Navotas Fishing Port Complex that were leased to taxable or private persons and entities for their 8 beneficial use. Unless the government instrumentality is organized as a stock or non-stock corporation. all persons. we hold that as a government instrumentality. local government units have no power to tax instrumentalities of the national government like the PFDA. The Authority has a capital stock but it is not divided into shares of stocks. and enjoying operational autonomy. which is also managed and operated by the PFDA. Section 193 of the Local Government Code withdrew all tax exemptions granted to government-owned or controlled corporations. Under Section 133(o) of the Local Government Code. the Court resolved the issue of whether the PFDA is a government-owned or controlled corporation or an instrumentality of the national government. On the contrary. Article 420 of the Civil Code provides: Art. Properties of public 12 dominion are owned by the State or the Republic of the Philippines. Thus.
(Emphasis supplied) The Lucena Fishing Port Complex. canals.T. JMDB TAX REVIEW CASES Page 62 . We declareVOID all the real property tax assessments issued by the City of Lucena on the Lucena Fishing Port Complex managed by Philippine Fisheries Development Authority. WHEREFORE. (2) Those which belong to the State. EB No.” The Lucena Fishing Port Complex “serves as PFDA’s commitment to continuously provide post -harvest infrastructure support to the fishing industry. and are intended for some public service or for the development of the national wealth. We DECLARE the Lucena Fishing Port Complex EXEMPT from real property tax imposed by the City of Lucena. rivers. is devoted for public use and falls within the term “ports. and others of similar character. EXCEPT for the portions that the Philippine Fisheries Development Authority has leased to private parties. shores.(1) Those intended for public use.A. especially in areas where productivity among the various players in 13 the fishing industry need to be enhanced.” As property of public dominion. torrents. the LucenaFishing Port Complex is owned by the Republic of the Philippines and thus exempt from real estate tax. We SET ASIDE the Decision dated 9 May 2007 of the Court of Tax Appeals in C. we GRANT the petition. ports and bridges constructed by the State. banks. without being for public use. such as roads. roadsteads. which is one of the major infrastructure projects undertaken by the National Government under the Nationwide Fishing Ports Package. 193.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
G.R. No. 177279 Present: CARPIO MORALES, J., Chairperson, BRION, BERSAMIN, VILLARAMA, JR., and SERENO, JJ.
- versus -
HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING CORPORATION Promulgated: (represented by LUIS M. CAMUS and LINO D. MENDOZA), October 13, 2010 Respondents. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION VILLARAMA, JR., J.: This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the   Decision dated October 31, 2006 and Resolution dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.  93387 which affirmed the Resolution dated December 13, 2005 of respondent Secretary of Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of the National Internal Revenue Code of 1997 (NIRC). The facts as culled from the records: Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable  years 1997, 1998 and 1999. The audit and investigation against LMCEC was precipitated by the information provided by an “informer” that LMCEC had substantial underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266  of the NIRC (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City).  Based on data obtained from an “informer” and various clients of LMCEC, it was discovered that LMCEC filed fraudulent tax returns with substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the company of total deficiency taxes amounting to P430,958,005.90 (income tax P318,606,380.19 and value-added tax [VAT] -P112,351,625.71) covering the said period. The Preliminary  Assessment Notice (PAN) was received by LMCEC on February 22, 2001. LMCEC’s alleged underdeclared income was summarized by petitioner as follows:
Year 1997 1998 1999 Income Per ITR 96,638,540.00 86,793,913.00 88,287,792.00 Income Per Investigation 283,412,140.84 236,863,236.81 251,507,903.13 Undeclared Income 186,733,600.84 150,069,323.81 163,220,111.13 Percentage of Underdeclaration 193.30% 172.90% 184.90%
In view of the above findings, assessment notices together with a formal letter of demand dated August 7,  2002 were sent to LMCEC through personal service on October 1, 2002. Since the company and its representatives refused to receive the said notices and demand letter, the revenue officers resorted to   constructive service in accordance with Section 3, Revenue Regulations (RR) No. 12-99 . On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr., referred to the Secretary of Justice for preliminary investigation its complaint against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities as President and Comptroller, respectively. The case was docketed as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue officers who conducted the tax fraud investigation, it was alleged that despite the receipt of the final assessment notice and formal demand letter on October 1, 2002, LMCEC failed and refused to pay the deficiency tax assessment in the total amount ofP630,164,631.61, inclusive of increments, which had become final and executory as a result of the said taxpayer’s failure to file a protest thereon  within the thirty (30)-day reglementary period. Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be held liable whatsoever for the alleged tax deficiency which had become due and demandable. Considering that the complaint and its annexes all showed that the suit is a simple civil action for collection and not a tax evasion case, the Department of Justice (DOJ) is not the proper forum for BIR’s complaint. They also assail as invalid the assessment notices which
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bear no serial numbers and should be shown to have been validly served by an Affidavit of Constructive Service executed and sworn to by the revenue officers who served the same. As stated in LMCEC’s letter -protest dated December 12, 2002 addressed to Revenue District Officer (RDO) Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already undergone a series of routine examinations for the years 1997,  1998 and 1999; under the NIRC, only one examination of the books of accounts is allowed per taxable year. LMCEC further averred that it had availed of the Bureau’s Tax Amnesty Programs (Economic Recovery Assistance Payment [ERAP] Program and the Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax  liability was terminated and closed under Letter of Termination dated June 1, 1999 issued by petitioner and  signed by the Chief of the Assessment Division. LMCEC claimed it made payments of income tax, VAT and expanded withholding tax (EWT), as follows:
TAXABLE YEAR 1997 Termination Letter Under Letter of Authority No. 174600 DatedNovember 4, 1998 ERAP Program pursuant to RR #2-99 VAP Program pursuant to RR #8-2001 AMOUNT OF TAXES PAID EWT - P VAT IT WC VAT IT VAT 6,000.00 540,605.02 3,000.00 38,404.55 61,635.40 878,495.28 1,324,317.00
LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate officers concerning the taxable years 1997 to 1999. With the grant of immunity from audit from the company’s availment of ERAP and VAP, which have a feature of a tax amnesty, the element of fraud is negated the moment the Bureau accepts the offer of compromise or payment of taxes by the taxpayer. The act of the revenue officers in finding justification under Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were not able to open the books of the company for the second time, after the routine examination, issuance of termination letter and the availment of ERAP and VAP. LMCEC thus maintained that unless there is a prior determination of fraud supported by documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs without first terminating those previously issued. It emphasized the fact that the BIR officers who filed and signed the Affidavit-Complaint in this case were the same ones who appeared as complainants in an earlier case filed against Camus for his alleged “failure to o bey summons in violation of Section 5 punishable under Section 266 of the NIRC of 1997” (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City). After preliminary investigation, said case was dismissed for lack of probable cause in a Resolution issued by the  Investigating Prosecutor on May 2, 2001. LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by petitioner for having no basis in fact and law. However, until now the said protest remains unresolved. As to the alleged informant who purportedly supplied the “confidential information,” LMCEC believes that such person is fictitious and his true identity and personality could not be produced. Hence, this case is another form of harassment against the company as what had been found by the Office of the City Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both have something to do with the audit/examination of LMCEC for taxable years 1997,  1998 and 1999 pursuant to LA No. 00009361. In the Joint Reply-Affidavit executed by the Bureau’s revenue officers, petitioner disagreed with the contention of LMCEC that the complaint filed is not criminal in nature, pointing out that LMCEC and its officers Camus and Mendoza were being charged for the criminal offenses defined and penalized under Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This finds support in Section 205 of the same Code which provides for administrative (distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to enforce collection of taxes. Both remedies may be pursued either independently or simultaneously. In this case, the BIR decided to simultaneously pursue both remedies and thus aside from this  criminal action, the Bureau also initiated administrative proceedings against LMCEC. On the lack of control number in the assessment notice, petitioner explained that such is a mere office requirement in the Assessment Service for the purpose of internal control and monitoring; hence, the unnumbered assessment notices should not be interpreted as irregular or anomalous. Petitioner stressed that LMCEC already lost its right to file a protest letter after the lapse of the thirty (30)-day reglementary period. LMCEC’s protest-letter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No. 40, Cubao, Quezon City was actually filed only on December 16, 2002, which was disregarded by the petitioner for being filed out of time. Even assuming for the sake of argument that the assessment notices were invalid, petitioner contended that   such could not affect the present criminal action, citing the ruling in the landmark case of Ungab v. Cusi, Jr. As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment Division, Revenue Region No. 7, Quezon City, petitioner pointed out that LMCEC failed to mention that the undated Certification issued by RDO Pablo C. Cabreros, Jr. of RD No. 40, Cubao, Quezon City stated that the report of the 1997 Internal Revenue taxes of LMCEC had already been submitted for review and approval of higher authorities. LMCEC also cannot claim as excuse from the reopening of its books of accounts the previous investigations and examinations. Under Section 235 (a), an exception was provided in the rule on once a year audit examination in case of “fraud, irregularity or
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mistakes, as determined by the Commissioner”. Petitioner explained that the distinction between a Regular Audit Examination and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district offices of the Bureau’s Regional Offices, the authority emanating from the Regional Director, while the latter is conducted by  the TFD of the National Office only when instances of fraud had been determined by the petitioner. Petitioner further asserted that LMCEC’s claim that it was granted immunity from audit when it availed of t he VAP and ERAP programs is misleading. LMCEC failed to state that its availment of ERAP under RR No. 2-99 is not a grant of absolute immunity from audit and investigation, aside from the fact that said program was only for income tax and did not cover VAT and withholding tax for the taxable year 1998. As for LMCEC’S availment of VAP in 1999 under RR No. 8-2001 dated August 1, 2001 as amended by RR No. 10-2001 dated September 3, 2001, the company failed to state that it covers only income tax and VAT, and did not include withholding tax. However, LMCEC is not actually entitled to the benefits of VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC, estoppel clearly does not lie against the BIR as this involved the exercise of an  inherent power by the government to collect taxes. Petitioner also pointed out that LMCEC’s assertion correlating this case with I .S. No. 00-956 is misleading because said case involves another violation and offense (Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure of LMCEC to submit or present its books of accounts and other accounting records for examination despite the issuance of subpoena duces tecum against Camus in his capacity as President of LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still on appeal and pending resolution by the DOJ. The determination of probable cause in said case is confined to the issue of whether there was already a violation of the NIRC by Camus in not  complying with the subpoena duces tecum issued by the BIR. Petitioner contended that precisely the reason for the issuance to the TFD of LA No. 00009361 by the Commissioner is because the latter agreed with the findings of the investigating revenue officers that fraud exists in this case. In the conduct of their investigation, the revenue officers observed the proper procedure under Revenue Memorandum Order (RMO) No. 49-2000 wherein it is required that before the issuance of a Letter of Authority against a particular taxpayer, a preliminary investigation should first be conducted to determine if a prima facie case for tax fraud exists. As to the allegedly unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has been disregarded by the Bureau for being pro forma and having been filed beyond the 15-day reglementary period. A subsequent letter dated April 20, 2001 was filed with the TFD and signed by a certain Juan Ventigan. However, this was disregarded and considered a mere scrap of paper since the said signatory had not shown any prior authorization to represent LMCEC. Even assuming said protest letter was validly filed on behalf of the company, the issuance of a Formal Demand Letter and Assessment Notice through constructive service on October 1, 2002 is deemed an implied denial of the said protest. Lastly, the details regarding the “informer” being confidential, such information is entitled  to some degree of protection, including the identity of the informant against LMCEC.  In their Joint Rejoinder-Affidavit, Camus and Mendoza reiterated their argument that the identity of the alleged informant is crucial to determine if he/she is qualified under Section 282 of the NIRC. Moreover, there was no assessment that has already become final, the validity of its issuance and service has been put in issue being anomalous, irregular and oppressive. It is contended that for criminal prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade taxes. As to LMCEC’s availment of the VAP and ERAP programs, the certificate of immunity from audit issued to it by the BIR is plain and simple, but petitioner is now saying it has the right to renege with impunity from its undertaking. Though petitioner deems LMCEC not qualified to avail of the benefits of VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No. 00-956 sometime in January 2001 it had already in its custody that “Confidential Information No. 29 -2000 dated July 7, 2000”, these revenue officers could have rightly filed the instant case and would not resort to filing said criminal complaint for refusal to comply with a subpoena duces tecum.  On September 22, 2003, the Chief State Prosecutor issued a Resolution finding no sufficient evidence to establish probable cause against respondents LMCEC, Camus and Mendoza. It was held that since the payments were made by LMCEC under ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were offered to taxpayers by the BIR itself, the latter is now in estoppel to insist on the criminal prosecution of the respondent taxpayer. The voluntary payments made thereunder are in the nature of a tax amnesty. The unnumbered assessment notices were found highly irregular and thus their validity is suspect; if the amounts indicated therein were collected, it is uncertain how these will be accounted for and if it would go to the coffers of the government or elsewhere. On the required prior determination of fraud, the Chief State Prosecutor declared that the Office of the City Prosecutor in I.S. No. 00-956 has already squarely ruled that (1) there was no prior determination of fraud, (2) there was indiscriminate issuance of LAs, and (3) the complaint was more of harassment. In view of such findings, any ensuing LA is thus defective and allowing the collection on the assailed assessment notices would already be in the context of a “fishing expedition” or “witch-hunting.” Consequently, there is nothing to speak of regarding the finality of assessment notices in the aggregate amount ofP630,164,631.61.  Petitioner filed a motion for reconsideration which was denied by the Chief State Prosecutor. Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for review under  Resolution datedDecember 13, 2005. The Secretary of Justice found that petitioner’s claim that there is yet no finality as to LMCEC’s payment of its 1997 taxes since the audit report was still pending review by higher authorities, is unsubstantiated and misplaced. It
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1999 issued to LMCEC. The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by inquiring into the validity of a Final Assessment Notice which has become final.was noted that the Termination Letter issued by the Commissioner on June 1. upon conviction thereof. That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.635. – Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall. There was no convincing proof presented by petitioner to show that the case of LMCEC falls under the exceptions provided in Section 235. petitioner’s course of action is contrary to Section 235 of the NIRC allowing only once in a given taxable year such examination and inspection of the taxpayer’s books of accounts and other accounting records. 2007 denying petitioner’s motion for reconsideration onMarch 20. As for taxable year 1998. as amended: SEC. (2) there must be intentional and substantial overstatement of deductions or exemptions. First. respondent Secretary found that pursuant to earlier LA No. Failure to File Return. For taxable year 1999. respondent Secretary noted that if indeed LMCEC committed fraud in the settlement of its tax liabilities. keep any record. respondent Secretary stated that the record shows that LMCEC paid VAT and withholding tax in the amount of P61. 38633 dated July 4. The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by dismissing the complaint based on grounds which are not even elements of the offenses charged. make such return. The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by dismissing petitioner’s evidence. the Secretary of Justice found petitioner to have engaged in forum shopping in view of the fact that while there is still pending an appeal from the Resolution of the City Prosecutor of Quezon City in said case. Attempt to Evade or Defeat Tax. the evidence of litis pendentia is present. then at the outset. it should have been discovered by the agents of petitioner. However. Pay Tax. 2000. petitioner challenged the ruling of respondent Secretary via a certiorari petition in the CA.404. the said entry of judgment was set aside upon manifestation by the petitioner that it has filed a petition for review before this Court subsequent to its receipt of  the Resolution dated March 6.000) but not more than One hundred thousand pesos (P100. On the allegation of fraud. No.000) and suffer imprisonment of not less than two (2) years but not more than four (4) years: Provided. 2000).  2006 Decision attained finality on March 25. 254.S. be punished by a fine of not less than Thirty thousand pesos (P30. Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. SEC. keep such record. the CA rendered the assailed decision denying the petition and concurred with the findings and conclusions of respondent Secretary. respectively.40 and P38. 38633. It appears that entry of judgment was issued by the CA stating that its October 31. Anent the earlier case filed against the same taxpayer (I. The petition is anchored on the following grounds: I. make a return. Petitioner’s motion for reconsideration was likewise denied by  the appellate court. II. 00009361 dated August 25. 1999 is explicit that the matter is considered closed. or supply such correct and JMDB TAX REVIEW CASES Page 66 . and consequently petitioner should not have issued the Letter of Termination and the Certificate of Immunity From Audit. petitioner hurriedly filed the instant case. respondent Secretary ruled that petitioner failed to establish the existence of the following circumstances indicating fraud in the settlement of LMCEC’s tax liabilities: (1) there must be intentional and substantial understatement of tax liability by the taxpayer. the claim that the tax fraud investigation was precipitated by an alleged “informant” has not been corroborated nor was it clearly established. 2000 calling for a similar investigation of its alleged 1999 tax  deficiencies when no final determination has yet been arrived on the earlier LA No. Petitioner filed the criminal complaint against the private respondents for violation of the following provisions of the NIRC.55. 00009361 dated August 25. III. Its motion for reconsideration having been denied. 2007. 2007. This eventually gave rise to the issuance of a certificate of immunity from audit for 1998 by the Office of the Commissioner of Internal Revenue. executory and demandable pursuant to Section 228 of the Tax Code of 1997 for failure of private respondent to file a protest  against the same. Clearly. and (3) recurrence of the foregoing circumstances.  On October 31. The core issue to be resolved is whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax). in addition to other penalties provided by law. petitioner miserably failed to explain why the assessment notices were unnumbered. Respondent Secretary duly considered the issuance of Certificate of Immunity  from Audit and Letter of Termination dated June 1. contrary to law. LMCEC’s 1999 tax liabilities were still pending investigation for which reason LMCEC assailed the subsequent issuance of LA No. Finally. hence there is no other conclusion but that the Bureau engaged in a “fishing expedition”. 2006. Petitioner thus should have been more  circumspect in the issuance of said documents. who willfully fails to pay such tax. – Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax. second. or supply any correct and accurate information. 255. Supply Correct and Accurate Information. and furthermore. 00-956). which not only involved the same parties but also similar substantial issues (the joint complaint-affidavit also alleged the issuance of LA No.
P112. the report on the tax fraud investigation conducted on LMCEC disclosed that it made substantial underdeclarations in its income tax returns for 1997. Failure to Obey Summons. a PAN was sent to and received by LMCEC on February 22. as in fact LMCEC was issued a Certificate of Immunity and Letter of Termination. Pursuant to RR No. No.) Respondent Secretary concurred with the Chief State Prosecutor’s conclusion that there is insufficient evidence to establish probable cause to charge private respondents under the above provisions. For the crime of tax evasion in particular. Respondent taxpayer is thereby allowed to do indirectly what it cannot do directly – to raise a collateral attack on the assessment when even a direct challenge of the same is legally barred. memoranda. a criminal complaint was filed by the Bureau against private respondents for violation of Section 266 which provides: SEC. private respondents were already notified that inasmuch as the revenue officers were not given the opportunity to examine LMCEC’s books of accounts. compliance by the taxpayer with such subpoena.958. Examine. 2001 for lack of legal and factual  basis and also for having been filed beyond the 15-day reglementary period. 00-956) dismissed by the City Prosecutor of Quezon City was still pending appeal.S. Such procedure is authorized under Section 5 of the NIRC. upon conviction thereof. said revenue officers gathered information from third parties. the Commissioner is authorized: (A) To examine any book.71) covering taxable years 1997. (2) there was no prior determination of the existence of fraud. or withhold or remit taxes withheld. The rationale for dismissing the complaint on the ground of lack of control number in the assessment notice likewise betrays a lack of awareness of tax laws and jurisprudence.. the final. which denied the same on April 12. government JMDB TAX REVIEW CASES Page 67 . memoranda. accounting records and other documents. such circumstance not being an element of the offense. or to furnish such information. respectively.19 and VAT . upon conviction. or in evaluating tax compliance. 00 -956 involving the act of disobedience to the summons in the course of the preliminary investigation on LMCEC’s correct tax liabilities for taxable years 1997. 266. respondent Secretary has no jurisdiction and authority to inquire into its validity. Hence. shall. or to appear and produce books of accounts. and to Summon. to verify its alleged underdeclarations of income reported by the Bureau’s informant under Section 282 of the NIRC. No. We grant the petition.606.accurate information. As mentioned in the PAN. No.  In the Details of Discrepancies attached as Annex B of the PAN. or in making a return when none has been made.000) but not more than Ten thousand pesos (P10. be punished by a fine of not less than Five thousand pesos (P5. records. or in collecting any such liability. which provides: SEC. 1998 and 1999 have all been settled or terminated. In response to said PAN. 1998  and 1999.90 (income tax  P318. in addition to other penalties provided by law. respondent Secretary erred in holding that petitioner committed forum shopping when it filed the present criminal complaint during the pendency of its appeal from the City Prosecutor’s dismissal of I. record or other data which may be relevant or material to such inquiry. – In ascertaining the correctness of any return.S. the revenue officers were not given the opportunity to examine LMCEC’s books of accounts and other accounting records because its officers failed to comply with the subpoena duces tecum earlier issued. (4) the books of accounts and other accounting records may be subject to audit examination only once in a given taxable year and there is no proof that the case falls under the exceptions provided in Section 235 of the NIRC.S. neglects to appear or to produce such books of accounts. There is no dispute that prior to the filing of the complaint with the DOJ. – Any person who.S. 5. 1998 and 1999. Power of the Commissioner to Obtain Information. records.000) and suffer imprisonment of not less than one (1) year but not more than two (2) years. 2001 wherein it was notified of the proposed assessment of deficiency taxes amounting to P430. Worse. or from any office or officer of the national and local governments.380. or to furnish information as required under the pertinent provisions of this Code. Jr. 00-956 is not determinative of the issue as to whether probable cause exists to charge the private respondents with the crimes of attempt to evade or defeat tax and willful failure to supply correct and accurate information and pay tax defined and penalized under Sections 254 and 255. paper. (B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. x x x x (Emphasis supplied. if any had been issued. being duly summoned to appear to testify.625. 12-99. and Take Testimony of Persons.000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.351. and (5) petitioner committed forum shopping when it filed the instant case even as the earlier criminal complaint (I. 00-956 involves a separate offense and hence litis pendentia is not present considering that the outcome of I. hence irregular and suspect. or other papers. (3) the assessment notices are unnumbered.005. or in determining the liability of any person for any internal revenue tax. 1998 and 1999. “*t+he crime is complete when the *taxpayer+ has x x x knowingly and willfully filed *a+ fraudulent *return+ with intent to evade and defeat x x x the tax. is irrelevant. and availed of the ERAP and VAP programs. or refund excess taxes withheld on compensations at the time or times required by law or rules and regulations shall. Cusi. Petitioner argues that with the finality of the assessment due to failure of the private respondents to challenge the same in accordance with Section 228 of the NIRC. LMCEC sent a letter-protest to the TFD. based on the following findings: (1) the tax deficiencies of LMCEC for taxable years 1997. or other papers. It is clear that I. As  we held in Ungab v. conclusive and undisputable evidence detailing a crime under our taxation laws is swept under the rug so easily on mere conspiracy theories imputed on persons who are not even the subject of the complaint. be punished by a fine of not less than Ten thousand pesos (P10.” Thus. No.
12-99. th e law. joint ventures or consortia and registered partnerships. petitioner sent to LMCEC by constructive service allowed under Section 3 of RR No. The  same shall be sent to the taxpayer only by registered mail or by personal delivery. but not limited to. Pursuant to Section 5(B) of the NIRC of 1997. including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations. Ayala Land Inc. Otherwise. – The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. Inc.4 of the revenue regulation reads: 3. (Emphasis supplied. herein private respondents cannot be allowed to escape criminal prosecution under Sections 254 and 255 of the NIRC by mere imputation of a “fictitious” or disqualified informant under Section 282 simply because other than disclosure of the official registry number of the third party “informer. rules and regulations or jurisprudence on which the assessment is based. rules and regulations. 3. Filinvest Alabang Inc.” the Bureau insisted on maintaining the confidentiality of the identity and personal circumstances of said “informer. Respondent Secretary. Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made. custody.) The Formal Letter of Demand dated August 7. As it is. or other data. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact. the assigned revenue officers resorted to third party information. or jurisprudence on which the assessment is based. and to give testimony. RR No. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. x xx x x x x (Emphasis supplied. Section 3. 12-99 was enacted. D. and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course. JMDB TAX REVIEW CASES Page 68 . the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax against said taxpayer.4. The formal letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the fact. papers. any information such as. and financial statements of corporations. or whose reply to the PAN was found to be without merit. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts. 23-2000 dated November 27. explaining the legal and factual bases of the assessment. Annex “A” of the Formal Letter of Demand thus stated: Thus. (C) To summon the person liable for tax or required to file a return.1. to verify the validity of the information previously provided by the informant. (D) To take such testimony of the person concerned. the law. or any other person. the law. joint accounts. Certificate of Income Tax Withheld at Source and/or Alphabetical List showing the income payments made to L. fully concurred with private respondents’ contention that the assessment notices w ere invalid for being unnumbered and the tax liabilities therein stated have already been settled and/or terminated. A notice of assessment is: [A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time.. as required by Section 228 of the NIRC. otherwise. or any officer or employee of such person. associations.e. to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books. regional operating headquarters of multinational companies. It also reiterated that in the absence of accounting records and other documents necessary for the proper determination of the company’s internal revenue tax liabilities . In the same vein.” Subsequently. insurance companies. To implement the provisions of Section 228 of the NIRC. the assessment is void. which is a mandatory requirement under Section 228 of the NIRC. 2000. receipts or sales and gross incomes of taxpayers. records. under oath. or any person having possession.M. Camus Engineering Corporation for the taxable years 1997 to 1999) were sent to the various clients of the subject corporation. otherwise the formal letter of  demand and the notice of assessment shall be void .agencies and instrumentalities. rules and regulations or jurisprudence on which the assessment is based. access letters requesting for information and the submission of certain documents (i. x x x. as may be relevant or material to such inquiry. addresses. the investigating revenue officers resorted to the “Best Evidence Obtainable” as provided in Section 6(B) of the NIRC (third party information) and in accordance with the procedure laid down in RMC No. The Notice of Assessment shall inform the [t]axpayer of this fact. and the names. assessment notice and formal demand informing the said taxpayer of the law and the facts on which the assessment is made. and their members. Formal Letter of Demand and Assessment Notice.M. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the  documents. 2. however. We have held that the lack of consent of the taxpayer under investigation does not imply that the BIR obtained the information from third parties illegally or that the information received is false or malicious. mutual fund companies. Consunji. including but not limited to the following: 1. costs and volume of production.) Private respondents’ assertions regarding the qualifications of the “informer” of the Bureau deserve scant consideration. We do not agree. the formal letter of demand and assessment notice shall be void.1. 2002 contains not only a detailed computation of LMCEC’s tax deficiencies but also details of the specified discrepancies.
2-99 issued on February 7. 1999 explained in its Policy Statement that considering the scarcity of financial and human resources as well as the time constraints within which the Bureau has to “clean the Bureau’s backlog of unaudited tax returns in order to keep updated and be focused with the most current accounts” in preparation for the full implementation of a computerized tax administration. 2001. compromising the revenue collection that would have been generated from audit and enforcement activities.2 Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of the Tax Code of 1997.323. due to inadvertence or otherwise. 29 2000 even prior to the issuance of the PAN. SM Investments. did not amount to settlement of its assessed tax deficiencies for the period 1997 to 1999. Final Assessment Notice (FAN). SM Prime Holdings. Makati Development Corporation From the documents gathered and the data obtained therein. 1998 and 1999 of an amount exceeding 30% income declared in its return is considered a substantial underdeclaration of income. through payment supposedly made in October 29. is never favored nor presumed in law and if granted by statute. the said revenue regulation was issued “providing for last priority in audit and investigation of tax returns” to accomplish the said objective “without. the availment by LMCEC of VAP under RR No. the substantial underdeclaration as defined under  Section 248(B) of the NIRC of 1997 by your corporation of its income had been confirmed . 8-2001 as amended by RR No. Gandia. Inc.84 in 1997. Philippine Securities Corporation 10. it was the subject of investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC duly recorded in the BIR Official Registry as Confidential Information (CI) No. private respondents supposedly availed of the VAP pursuant to RR No.069. Salazar informed private respondents that the estimated tax liabilities arising from LMCEC’s underdeclaration amounted to P186. P150. it bears noting that a tax amnesty. Shoemart. 9. respondent Secretary found the latter’s claim as meritorious on the basis of the Certificate of Immunity From Audit issued on December 6. These figures confirmed that the non-declaration by LMCEC for the taxable years  1997.81 in 1998 and P163. – x x x Any person. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. 10-2001.600. Respondent Secretary’s opinion that RR No. Inc. which constituted prima facie evidence of false or fraudulent return under Section   248(B) of the NIRC. 2001 before the said program ended on October 31. 5. except those falling under any of the following instances: 1. 2001. 8. 7 Chief of Assessment Division Ruth Vivian G. COVERAGE. It expressly excluded withholding tax returns (whether for income. or 1. it follows that the Bureau is likewise not barred from collecting any tax deficiency discovered as a result of tax fraud investigations.4. VAT and income taxes) but which was submitted for review of higher authorities as per the Certification of RD No. including estates and trusts. natural or juridical. 40 District Officer Pablo C. 2-99 and Letter of Termination dated June 1. Alabang Commercial Corporation 6.  Jr. As correctly asserted by petitioner.773.13 in 1999. as amended.” The program named as “Economic Recovery Assistance Payment (ERAP) Program” granted immunity from audit and investigation of income tax. Assistant Commissioner Percival T. and second. Even assumingarguendo that the issuance of RR No. Philam Properties Corporation 7. or percentage tax purposes).3 Tax fraud cases already filed and pending in courts for adjudication. the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in  favor of the taxing authority. clarified that the certificate of immunity from audit covered only income tax for the year 1997 and does not include VAT and withholding taxes. 1. nor immunity from prosecution for filing fraudulent return and attempt to evade or defeat tax. 2-99 is in the nature of tax amnesty. 2001. VAT and percentage tax returns for 1998. and JMDB TAX REVIEW CASES Page 69 . Cabreros.) In the same letter. VAT. duly processed and recorded in the BIR Official Registry Book on or before July 31. LMCEC is not qualified to avail of the VAP granting taxpayers the privilege of last priority in the audit and investigation of all internal revenue taxes for the taxable year 2000 and all prior years under certain conditions. Section 1 of RR No. 8-2001 provides: SECTION 1. x x x x (Emphasis supplied. however. liable to pay any of the above-cited internal revenue taxes for the above specified period/s who. it was issued a PAN on February 19. much like a tax exemption. while the Letter of Termination involved tax liabilities for taxable year 1997 (EWT. or Collection Letter issued on or before July 31. RR No. however. 1999 pursuant to RR No. Petitioner. erroneously paid his internal revenue tax liabilities or failed to file tax return/pay taxes may avail of the Voluntary Assessment Program (VAP).1 Those covered by a Preliminary Assessment Notice (PAN). 8-2001. 1999 issued by Revenue Region No. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax  case. from the express terms of the aforesaid revenue regulations.220. Inc. 2001. For 1999. considering that first. Since such immunity from audit and investigation does not preclude the collection of revenues generated from audit and enforcement activities. 2-99 contains the feature of a tax amnesty is thus misplaced. On the alleged settlement of the assessed tax deficiencies by private respondents. For the same reason.111.
if any. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. 00009361 for the TFD to conduct a formal fraud  investigation of LMCEC. As already stated. 1998 and 1999 upon verified information provided by an “informer” under Section 282 of the NIRC. the substantial underdeclared income in the returns filed by LMCEC for 1997. private respondents cannot invoke LMCEC’s availment of VAP to foreclose any subsequent audit of its account books and other accounting records in view of the strong finding of underdeclaration in LMCEC’s payment of correct income tax liability by more than 30% as supported by the written report of the TFD detailing the facts and the law on which such finding is based. Indeed. No such administrative protest was filed by private respondents seeking reconsideration of the August 7. The burden of proof is upon the complaining party to show clearly that the assessment JMDB TAX REVIEW CASES Page 70 . Private respondents cannot belatedly assail the said assessment.x x x x (Emphasis supplied. TAXPAYER’S BENEFIT FROM AVAILMENT OF THE VAP. whose determinations and assessments are presumed correct and made in good faith. Tax assessments by tax examiners are presumed correct and made in good faith. we hold that respondent Secretary gravely erred in declaring that petitioner is now estopped from assessing any tax deficiency against LMCEC after issuance of the aforementioned documents of immunity from audit/investigation and settlement of tax liabilities. which they allowed to lapse into finality. executory and demandable. It is axiomatic that the State can never be in estoppel. We have held that a taxpayer’s failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final. This conclusion finds support in Section 2 of RR No. Section 228 of the  NIRC provides the remedy to dispute a tax assessment within a certain period of time. the discovery of substantial underdeclarations of income by LMCEC for taxable years 1997. any objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on  assessments of internal revenue taxes. that any VAP payment should be allowed as tax credit against the deficiency tax due. 8-2001 and RR No. – A taxpayer who has availed of the VAP shall not be audited except upon authorization and approval of the Commissioner of Internal Revenue when there is strong evidence or finding of understatement in the payment of taxpayer’s correct tax liability by more than thirty percent (30%) as supported by a written report of the appropriate office detailing the facts and the law on which such finding is based: Provided. neither did they appeal to the Court of Tax Appeals. 10-2001. Based on the prima facie finding of the existence of fraud. respondent Secretary’s ruling that the filing of criminal complaint for violation of Sections 254 and 255 of the NIRC cannot prosper because of lack of prior determination of the existence of fraud. 10-2001 provides: SEC. an assessment will not be disturbed. Respondent Secretary’s other ground for assailing the course of action taken by petitioner in proceeding with the audit and investigation of LMCEC -. Records bear out that the assessment notice and Formal Letter of Demand dated August 7. It states that an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment by the taxpayer. petitioner issued LA No. following the procedure under RMO No. by raising issues as to its validity and correctness during the preliminary investigation after the BIR has referred the matter for prosecution under Sections 254 and 255 of the NIRC. and this is particularly true in matters involving taxation. 1998 and 1999 in amounts equivalent to more than 30% (the computation in the final assessment notice showed underdeclarations of almost 200%) constitutesprima facie evidence of fraudulent return under Section 248(B) of the NIRC. 8-2001 as amended by RR No. 2-99. As correctly pointed out by petitioner. the revenue officers conducted a preliminary investigation on the information and documents showing substantial understatement of LMCEC’s tax liabilities  which were provided by the Informer.is likewise untenable. 2002 were duly served on LMCEC on October 1. in case the concerned taxpayer has been subjected to tax audit. thereby precluding it from interposing the defenses of legality or validity of the  assessment and prescription of the Government’s right to assess. pursuant to the tax fraud investigation authorized by petitioner under LA No. 2. Prior to the issuance of the preliminary and final notices of assessment.) Moreover. The errors of certain administrative officers should never be  allowed to jeopardize the government’s financial position. The taxpayer has the duty of proving otherwise .  As we held in Marcos II v. 2002. RR No. is bereft of factual basis and contradicted by the evidence on record.the alleged violation of the general rule in Section 235 of the NIRC allowing the examination and inspection of taxpayer’s books of accounts and other accounting records only once in a taxable year -. 00009361. and all presumptions are in favor  of the correctness of a tax assessment unless proven otherwise. Consequently. as well as the necessity of obtaining information from third parties to ascertain the correctness of the return filed or evaluation of tax compliance in collecting taxes (as a result of the disobedience to the summons issued by the Bureau against the private respondents). but the Bureau of Internal Revenue. In the absence of proof of any irregularities in the performance of official duties. Court of Appeals : It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate. Private respondents did not file a motion for reconsideration of the said assessment notice and formal demand. xxxx Given the explicit conditions for the grant of immunity from audit under RR No. are circumstances warranting exception from  the general rule in Section 235. 2002 assessment notice and formal letter of demand. 15-95. however.
or by the law. the power of the Secretary of Justice to review does not preclude this Court and the CA from intervening and exercising our own powers of review with respect to the DOJ’s findings. 2007 of the Court of Appeals in CA-G. and cannot be raised now via Petition for Certiorari. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In so doing. when the circumstan ces warrant. to determine whether the prosecutor’s findings are supported by the facts. (Emphasis supplied. with the Bureau of Internal Revenue and the Court of Tax Appeals. under the pretext of grave abuse of discretion. as described earlier. M. executory and enforceable. courts should never shirk from exercising their power. JMDB TAX REVIEW CASES Page 71 . courts do not act as prosecutors but as organs of the judiciary. Camus and Comptroller Lino D. the Secretary of Justice. The subject tax assessments having become final. National Capital Judicial Region. The Secretary of Justice is hereby DIRECTED to order the Chief State Prosecutor to file before the Regional Trial Court of Quezon City. The Decision dated October 31. WHEREFORE. represented by its President Luis M. Moreover. the corresponding Information against L. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government. 2006 and Resolution dated March 6. In the main. However. for Violation of Sections 254 and 255 of the National Internal Revenue Code of 1997.  relevant statutes. as when a clear sufficiency or insufficiency of evidence to support a finding of probable cause is  ignored. Clearly. the petition is GRANTED. the same can no longer be contested by means of a disguised protest. 93387 are hereby REVERSED and SET ASIDE. such as in the exceptional case in which grave abuse of discretion is committed.R. this Court and the CA possess the power to review findings of prosecutors in preliminary investigations. The course of action taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society. Camus Engineering Corporation. Mendoza.is erroneous. Certiorari may not be used as a substitute for a lost appeal or remedy. and remedial rules to settle cases and controversies. SP No.) The determination of probable cause is part of the discretion granted to the investigating prosecutor and ultimately. Although policy considerations call for the widest latitude of deference to the prosecutor’s findings. exercising their mandate under the Constitution. x x x. considering the ample remedies afforded the taxpayer by the Tax Code. these objections to the assessments should have been raised.
1. FBDC pointed out the defects in the motion filed by the CIR. 2003. and not CIR. J.036. or until January 12. that was designated as petitioner in the  latter’s Motion for Extension of Time to File Petition for Review. a motion praying for an extension of fifteen (15) days from December 28. x ----------------------------------------------------------------------------------------x DECISION MENDOZA. The CIR sought to appeal the CTA decision to the CA.versus August 11. to admit the Amended Petition for  Review. on January 17. 2002 within which to file the petition. Section 4 of Rule 9 of the Revised Internal Rules of the Court of Appeals (“RIRCA”) JMDB TAX REVIEW CASES Page 72 . The decision of the Court of Tax Appeals (“CTA”) in CTA Case No.00. the Court of Tax Appeals (CTA) granted the petition of FBDC and ordered the CIR and the Revenue District Officer. 2002.R. Bureau of Internal Revenue (BIR). 2002 or until January 27. Revenue District No. The appeal was docketed as CA-G.R. 2002. 2002. to refund or issue a Tax Credit Certificatein the total amount of P15. filed by the Commissioner of Internal Revenue (CIR)against Fort Bonifacio Development Corporation (FBDC). denying their motion for the reconsideration thereof. In its decision dated December 7. Taguig and Pateros.  On January 21. Respondent.” Thus. Notably. it was FBDC. the last day for filing the petition for review. when the Commissioner filed his motion for second extension. the Court of Appeals. denying the prayer of petitioner CIR and the Revenue District Officer. The petitioner should be the Commissioner of Internal Revenue. 5962 subject of the above -entitled case is favorable to FBDC and the latter is not appealing said decision to this Court. the second motion for extension does not show that there is a “most compelling reason” for the second extension prayed for. 2001. 2002. the petitioner filed a Motion for Re-Extension of Time to File Petition for Review praying for  another extension of fifteen (15) days or until January 27. Moreover. 2001.01. denying the “MOTION FOR EXTENSION OF TIME TO FILE PETITION FOR REVIEW” (dated December 21. BIR. petitioner filed. Taguig and Pateros.01. On January 29. On February 1. G. UDK-4443.00. acting on the first motion for extension. No. undersigned counsel received a copy of the Commissioner’s “MOTION FOR RE EXTENSION OF TIME TO FILE PETITION FOR REVIEW” dated January 14. dated January 14. 2002. 2. 2010 FORT BONIFACIO DEVELOPMENT CORPORATION. 2002.  OnDecember 28. and (2) March 18.COMMISSIONER OF INTERNAL REVENUE. the first extension prayed for had already expired. 2001) filed by the Commissioner of Internal Revenue (“Commissioner”) as well as the Petition for Review. It will be noted that in the aforesaid second motion for extension. the Commissioner prayed for “an extension of fifteen (15) days from January 12. FBDC is not exempt from the payment of docket and other legal fees. 2002. SP No. 167606 Promulgated: . Earlier. challenging the Resolutions of the Court of  Appeals (CA) dated: (1)January 27. 2002. issued a  Resolution dismissing the petition for non-payment of docket and other legal fees pursuant to Section 1 (c) Rule 50 of the 1997 Rules of Civil Procedure. Revenue District No. In its Manifestation dated February 7. Petitioner.: At bar is a petition for review under Rule 45 of the Rules of Court. 2002.02. 2002. by registered mail. 44. 44. 2001.891. 2. 2. 2005. The title of the above-entitled case is wrong. the undersigned counsel received a copy of the Resolution of this Honorable Court dated January 29. Thus:  1.26 in favor of FBDC for the fourth quarter of taxable year 1997.
Makati City. 2002 was definitely beyond the extension prayed for. or past the deadline of January 27. 5) The proper officer that should have filed the case was the Solicitor General. It further argued that the original  petition for review could no longer be amended as the same was only filed on January 31. The timeliness of the appeal is a jurisdictional caveat. had already become final and executory. The following has been noted in said Petition: 3. 2002 was filed after the expiration of the first extension on January 12. and (c) lack of authority of Atty.00. 3. Jr. 4. denying the “Motion for Extension of Time to File Petition for Review” and dismissing the petition. to pursue the case on behalf of the petitioner CIR. The second motion for extension prayed for an extension of another fifteen (15) days from January 12. 6*c+. 6.02. The CA gave the following reasons: 1) The dismissal of the petition for review and denial of the amended petition are premised on: (a) the late filing of the original petition for review earlier filed by the petitioner CIR et al. therefore. 2002 Manifestation. 2002. 5. 2003 Resolution. Clearly. 2002. 2002. they did not file a motion for reconsideration. 2002 or until January 27. 2002. together with certified true copies of such material portions of the record referred to therein and other supporting papers” (Sec. Said resolution. 2002. 2001 or until January 12. dismissing the petition for review on February 4. It is not “accompanied by a clearly legible duplicate original or a certified true copy of the award. The filing of the petition for review on January 31. 2002. 6*e+. Rule 9. 2002 acknowledging their inadvertence in failing to correct the title of the petition where FBDC was designated as  petitioner and attaching a copy of the Amended Petition for Review. JMDB TAX REVIEW CASES Page 73 . It is not accompanied by proof of service of a copy of the Petition on the Court of Tax Appeals (Sec.01. 4) When petitioners received the Resolution dated January 29. The Petition does not “*s+tate the specific material dates showing that it was filed within the period fixed herein” (Sec.provides that “No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. RCP). 2) It should be noted that the first extension to file petition for review prayed for a period of fifteen (15) days from December 28. filed a Motion for Reconsideration (Re:   Resolution dated January 27. The second motion was dated January 14. 2005. RIRC.” dated January 28. citing the case of CIR v. Rule 9. RIRCA. not an officer of the BIR. 3.” An identical provision is found in the 1997 Rules of Civil Procedure (“RCP”) (Sec.03. judgment. There was no reason for the petitioners to assume that the motion for re-extension of time would be granted. RCP). the CIR and the Revenue District Officer filed a Manifestation dated May 16. 2002. 2002. 3) The last day of filing of the petition for review was on January 12. hence. The CA stated that it would have been more sympathetic to the pleas of the petitioner had the procedural flaws been isolated and non-jurisdictional. Sec. In its assailed January 27. 2002. Petitioners. 3.   FBDC then filed a Counter-Manifestation insisting on the denial of the admission of petitioners’ amended petition on the same grounds stated in its February 7. 2002. On June 10.. Sec. thus. Bomediano. this time through the Office of the Solicitor General (OSG). FBDC further stressed that the CA Resolution dated January 29. had already become final and executory for the CIR’s failure to file a motion for  reconsideration. Rule 43. 2002. the CA denied the prayer of petitioners to admit the amended petition for review. 2002. the second motion for extension dated January 14.. Alberto R. (b) the absence of a motion for  reconsideration of the Resolution dated January 29. as prayed for in the second motion for extension. Rule 43). legal officer of the BIR Region 8. RCP). On February 5. 6. final order or resolution appealed from. 2003) but it was denied by the CA in a Resolution dated March 18. denying the motion for extension of time to file petition. there was no more period to extend. La Suerte  Cigar and Cigarette Factory. Rule 43. reiterating the dismissal of the petition for review. 2002. undersigned counsel received a copy of the Commissioner’s “PETITION FOR REVIEW. 2002. thus.
(n) SEC. Thus. Energy Regulatory Board. for it is  jurisdictional.Aggrieved. Bureau of Patents. The failure to timely perfect an appeal cannot simply be dismissed as a mere technicality. (n)” The right to appeal is not a natural right. Board of Investments.036. Department of Agrarian Reform under Republic Act No. Agricultural Inventions Board. and voluntary arbitrators authorized by law. judgments. free from the constraints of technicalities.—This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards. or of the denial of petitioner’s motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency aquo. 2002 ON PURE TECHNICALITY AND IN NOT ADJUDICATING THE CASE ON THE MERITS CONSIDERING ITS IMPORTANCE AS IT INVOLVES AN ENORMOUS AMOUNT OF MONEY WHICH THE GOVERNMENT STANDS TO LOSE SHOULD THE PETITION BE DISMISSED OUTRIGHT. Petitioner and respondent filed their respective memoranda. judgment. Only one (1) motion for reconsideration shall be allowed.—The appeal shall be taken within fifteen (15) days from notice of the award. whether the appeal involves questions of fact. It is also not part of due process. Philippine Atomic Energy Commission. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days. Social Security Commission. Where to appeal. II THE COURT OF APPEALS ERRED IN HASTILY DISMISSING THE AMENDED PETITION FOR REVIEW CONSIDERING THAT THE PETITIONER HAS MERITORIOUS GROUNDS SHOWING WANT OF BASIS OF RESPONDENT’S CLAIM FOR REFUND IN THE AMOUNT OF P15. and denied admission of the Amended Petition for Review. THEREBY DEPRIVING THE GOVERNMENT OT ITS RIGHT TO DUE  PROCESS. Construction Industry Arbitration Commission. or mixed questions of fact and law. We resolve the issue in the affirmative. Upon proper motion and the payment of the full amount of the docket fee before the expiration of the reglementary period. Period of appeal. Securities and Exchange Commission. 6657. Land Registration Authority. Insurance Commission. of law. the Court resolved to give due course to the petition and directed the parties to submit  their respective memoranda within thirty (30) days from notice. On February 22.  provided: SECTION 1. Thus: Nor can petitioner invoke the doctrine that rules of technicality must yield to the broader interest of substantial justice. one who seeks to avail of the right to appeal must comply with the requirements of the Rules. the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review.891. Among these agencies are the Civil Service Commission. 4. the failure to perfect an appeal within the reglementary period is not a mere technicality. Central Board of Assessment Appeals. (n) xxx xxx xxx SEC. 3. 2006. Government Service Insurance System. It is merely a statutory privilege and may be exercised only in the manner and in accordance with the provisions of law. Trademarks and Technology Transfer. The then applicable rule. Office of the President.  It appears that the only issue to be resolved by this Court is whether or not the Court of Appeals correctly dismissed the original Petition for Review. final order or resolution. petitioner CIR seeks relief from this Court via this petition for review anchored on the following: I THE COURT OF APPEALS ERRED IN DISMISSING THE AMENDED PETITION FOR REVIEW DATED MAY 16. if publication is required by law for its effectivity.—An appeal under this Rule may be taken to the Court of Appeals within the period and in the manner herein provided. Failure to do so often leads to the loss of the  right to appeal. National Electrification Administration. National Telecommunications Commission. It raises a jurisdictional problem as it deprives the appellate court of jurisdiction over the JMDB TAX REVIEW CASES Page 74 . While every litigant must be given the amplest opportunity for the proper and just determination of his cause. Employees Compensation Commission. final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Scope.26. Rule 43 of the Rules of Court. or from the date of its last publication. Civil Aeronautics Board.
2002. in its Resolution dated January 29. the petition is DENIED. denied the motion for extension of time to file petition for review on the  ground of failure to pay docket and other legal fees. Indeed. the motions for extension of time and the petition for review that it filed were erroneously titled as “Fort Bonifacio Development Corporation v. If an appeal is not taken within the period prescribed therefor.” that “on the assumption that it was respondent which filed the motion. Just as a losing party has the privilege to file an appeal within the prescribed period. To recognize the foregoing statements would render the mandatory rule on appeals meaningless and nugatory. and (3) lack of authority of Atty. petitioner filed an Amended Petition for Review. Public policy and sound practice demand that judgments of courts should become final and irrevocable at some definite time fixed by law. We cannot always rule in favor of the Government. efficient and orderly discharge of judicial functions. WHEREFORE. Alberto R.appeal. the Court is of the view that said problem has been caused by petitioner’s own doing or undoing. In both cases. Such rules are necessary incidents to the proper. and that in order to rectify  the error. We declare that the right to appeal is not a natural right nor a part of due process. there are exceptions to this rule. 2002 but its January 27. so does the winner also have the correlative right to enjoy the fruits of his victory. 2003Resolution. Undeniably. petitioner even failed to sufficiently explain its failure to observe the Rules. JMDB TAX REVIEW CASES Page 75 . (2) the absence of a motion for reconsideration of the January 29. It bears emphasizing that the dismissal of the petition for review and the denial of the amended petition were premised rather on: (1) the late filing of the original petition for review by the CIR.  legal officer of the BIR Region 8. The failure to file the notice of appeal within the reglementary period is akin to the failure to pay the  appeal fee within the prescribed period. Records bear out that the assailed January 27. While We understand its counsel’s predicament of being burdened with a heavy case load. as a government official representing the BIR. however. to pursue the case on behalf of petitioner CIR. It has been ruled that perfection of an appeal in the manner and within the period laid down by law is not only mandatory but also jurisdictional. 2002 Resolution. and may be exercised only in the manner and in accordance with the provisions of the law. The rules. It is merely a statutory privilege.” that respondent filed a manifestation stating that the case  was incorrectly titled as it was not the one who appealed the CTA decision to the CA. 2003 Resolution reiterated the dismissal of the petition for review and thus denied the admission of the amended petition but NOT on the basis of the earlier (January 29. the CIR is exempted from payment of docket and other legal fees. [Emphases supplied] As to the claim that the government would suffer loss of substantial amount if not allowed to recover the tax refund in the amount of more than P15M. In this case.. 2002) resolution dismissing the petition for non-payment of docket and other legal fees as there was clearly an error in the designation of FBDC as petitioner in the first motion for extension of time filed by the CIR. the Court of Appeals. He cannot escape from the inflexible observance of this rule which is jurisdictional. The failure to perfect an appeal as required by the rules has the effect of defeating the right to appeal of a party and precluding the appellate court from acquiring jurisdiction over the case. At the risk of being repetitious. particularly on the statutory requirement for perfecting an appeal within the reglementary period provided. Failure to meet the requirements of an  appeal deprives the appellate court of jurisdiction to entertain any appeal. Fort Bonifacio Development  Corporation. The point of reference of Our discussion is not the CA’s Resolution dated January 29. Makati City. must be strictly followed. Petitioner merely pointed out that due to plain oversight. It need not be overemphasized that it is the responsibility of the counsel to check and keep track of the period of time left to file an appeal. the appeal is not perfected in due time. did not present any circumstances that would justify the relaxation of said rule. Petitioner. Commissioner of Internal Revenue” when it should have been “Commissioner of Internal Revenue v. Jr. Bomediano. the judgment becomes final and the court loses all jurisdiction over the case.
In accordance with the LGC. heat. (MACCI) of which AEC is a  member. a petition seeking the reduction of the tax rates and a review of the provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of Commerce and Industry Inc. distribute and sell electric current for light. Any provision of law or local ordinance to the contrary notwithstanding. fees and assessments. MACCI alleged that the RRCAC is oppressive.: The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applies only to national internal revenue taxes. unjust and confiscatory.. C. 1994. simultaneously onJanuary 22. J. Pampanga. Factual Antecedents On June 18. the BLGF  issued a First Indorsement to the City Treasurer of Angeles City. There being no action taken by the Sangguniang Panlungsod on the matter.   On January 1. June 29. seizing. Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month as may be provided in the respective franchise or pertinent municipal regulation and shall. to impose tax on businesses enjoying franchise. disposing and selling at public auction the properties owned by Angeles Electric Corporation (AEC). Section 1 of PD 551 provided that: SECTION 1. (PD) 551 reduced the franchise tax of electric franchise holders. DEL CASTILLO. distribution and sale of electric current. 1964. conferring upon provinces and  cities the power. be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings. 1994. heat and power shall be two percent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation. Acting on the petition. among others. 166134 Present: . heat and power  for sale in Angeles City. MACCI elevated the petition to the Department of Finance. Chairperson.R. (RA) 4079 to construct. In the petition. VELASCO. and not to local taxes. that it was published only once.ANGELES CITY. income and privilege of generation. This Petition for Certiorari under Rule 65 of the Rules of Court seeks to set aside the Writ of Preliminary Injunction issued by the Regional Trial Court (RTC) of Angeles City. 1974. S-93. LEONARDO-DE CASTRO. excessive. and power system for the purpose of generating and distributing electric light. 2010 x-------------------------------------------------------------------x DECISION DEL CASTILLO. Promulgated: Respondents. 1992. No. distribution and sale of electric current. and that no public hearings were conducted prior to its enactment. ANGELES CITY. in Civil Case No. On February 7. G. Presidential Decree No. Pursuant to Section 3-A thereof. JJ. RA 7160 or the Local Government Code (LGC) of 1991 was passed into law. ANGELES CITY ELECTRIC CORPORATION and REGIONAL TRIAL COURT BRANCH 57. Petitioner. enjoining Angeles City and its City Treasurer from levying. which referred the same to the Bureau of Local Government Finance (BLGF). JR. maintain and operate an electric light.. AEC’s payment of franchise tax for gross earnings from electric current sold was in lieu of all taxes. otherwise known as the Revised Revenue Code of Angeles City (RRCAC). 33. Branch 57. On September 11. theSangguniang Panlungsod of Angeles City enacted on December 23. receipts. 1993 Tax Ordinance No. instructing the latter to make representations with JMDB TAX REVIEW CASES Page 76 . and PEREZ. AEC was granted a legislative franchise under Republic Act No. any provision of the Local Tax Code or any other law to the contrary notwithstanding. 11401. the franchise tax payable by all grantees of franchises to generate.versus CORONA. J.
the City Treasurer issued a Notice of Assessment to AEC for payment of business tax.000. confiscating. seizing. garnishing. Angeles City and its City Treasurer filed an Answer   with Counterclaim to which AEC filed a Reply. Upon AEC’s posting of the required bond. taxes and fees can only be assessed and collected within five (5) years from the date they become due. wherein the lower court’s denial of a motion for the issuance of a writ of preliminary injunction to enjoin the collection of a local tax was upheld. Petitioner’s Arguments Petitioner’s main argument is that the collection of taxes cannot be enjoined by the RTC. the City Treasurer levied on the real properties of AEC. the City Treasurer denied the protest for lack of merit and requested AEC to settle its tax liabilities. AEC has been paying the local franchise tax to the Office of the City Treasurer on a quarterly basis. 2004. On February 17. license fee and other charges for the period 1993 to 2004 in the total amount of P94.  2004. AEC protested the assessment claiming that: (a) (b) pursuant to RA 4079. 2004. A Notice of Auction Sale posted announcing that a public auction of the levied properties of AEC would be held on May 7. it is exempt from paying local business tax. Petitioner further reasons that since the levy and auction of the JMDB TAX REVIEW CASES Page 77 . which was amended on May 31. Within the period prescribed by law. Inc. an Urgent Motion for Issuance of  Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin Angeles City and its City Treasurer from levying. selling and disposing at public auction the properties of AEC.” which was opposed by AEC. starting July 1995. Finding no compelling reason to disturb and reconsider its previous findings. in response to the petition for declaratory relief filed by AEC. 2004. docketed as Civil Case No. the RTC issued a Writ of Preliminary Injunction   on May 28.  (c) the period to assess had prescribed because under the LGC. in addition to the national franchise tax it pays every quarter to the Bureau of Internal Revenue (BIR). After due notice and hearing. and to make a report on the action taken within five days. Angeles City and its City Treasurer filed a “Motion for Dissolution of Preliminary Injunction and Motion for   Reconsideration of the Order dated May 24.the Sangguniang Panlungsod for the appropriate amendment of the RRCAC in order to ensure compliance with the provisions of the LGC. 2004.00. citing Valley Trading Co. On April 5. 11401. 2004 granting the issuance of a Writ of Preliminary Injunction. 2004. the payment of business tax would result in double taxation. followed by an  Order dated May 24. v. and disposing the properties of AEC. AEC appealed the denial of its protest to the RTC of Angeles City via a Petition for Declaratory Relief.  Issue Being a special civil action for certiorari. Branch II. since it is already paying franchise tax on business. annotating the levy. 2004.     was published and This prompted AEC to file with the RTC. the RTC issued a Temporary Restraining Order (TRO) on May 4. On August 5. Court  of First Instance of Isabela. the issue in the instant case is limited to the determination of whether the RTC gravely abused its discretion in issuing the writ of preliminary injunction enjoining Angeles City and its City Treasurer from levying. and (d) the assessment and collection of taxes under the RRCAC cannot be made retroactive to 1993 or prior to its  effectivity. Proceedings before the RTC Aggrieved.000. where the petition for declaratory relief was pending.194. conditioned upon the filing of a bond in the amount of P10. the RTC denied the joint motion on October 14. Thereafter. All other matters pertaining to the validity of the tax assessment and AEC’s tax exemption must therefore be left for the determination of the RTC where the main case is pending decision.861. selling. Meanwhile.. 2004 due to some clerical errors. 2004. 2004.10. Proceedings before the City Treasurer On January 22.
Thus. we ruled that: Unlike the National Internal Revenue Code.properties of a delinquent taxpayer are proper and lawful acts specifically allowed by the LGC. it must be emphasized that although there is no express prohibition in the LGC. or agency or a person is doing. fee or charge imposed by the code. viz: (a) That the applicant is entitled to the relief demanded. or (c) That a party. Such statutory lapse or intent. As to its tax liability. (b) That the commission. Courts therefore should exercise extreme caution in issuing such injunctions. The lower court’s denial of the motion for the issuance of a writ of preliminary injunction to enjoin the collection of the local tax was upheld in that case. and was necessary to prevent the petition from becoming moot. injunctions enjoining the collection of local taxes are frowned upon. petitioner’s reliance on the above-cited case to support its view that the collection of taxes cannot be enjoined is misplaced. Finally. In addition. Petitioner likewise insists that AEC must first pay the tax before it can protest the assessment. AEC counters that the issue of whether it is liable to pay the assessed local business tax is a factual issue that should be determined by the RTC and not by the Supreme Court via a petition for certiorari under Rule 65 of the Rules of Court. Private respondent’s Arguments Private respondent AEC on the other hand asserts that there was no grave abuse of discretion on the part of the RTC in issuing the writ of preliminary injunction because it was issued after due notice and hearing. Our Ruling We find the petition bereft of merit. the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any  national internal revenue tax. in the case of Valley Trading Co. however. may have allowed preliminary injunction where local taxes are involved but cannot negate the procedural rules and requirements under Rule  58. proceedings to invalidate a warrant of distraint and levy to restrain the collection of taxes do not violate the prohibition against injunction to restrain the collection of taxes because the proceedings are directed at the right of the City Treasurer to collect the tax by distraint or levy. AEC likewise points out that following the case of Pantoja v. and the whole or part of such relief consists in restraining the commission or continuance of the acts complained of. having been seasonably appealed pursuant to Section 195 of the  LGC. cited by the petitioner. In line with this principle. threatening. Branch II. court. No grave abuse of discretion was committed by the RTC Section 3. Nevertheless. or attempting to do. The LGC does not specifically prohibit an injunction enjoining the collection of taxes A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be collected    promptly. Court of First Instance of Isabela. An exception to this rule obtains only when in the opinion  of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the taxpayer. or is procuring or suffering to be done. The situation. of the Rules of Court lays down the requirements for the issuance of a writ of preliminary injunction.. either for a limited period or perpetually. JMDB TAX REVIEW CASES Page 78 . is different in the case of the collection of local taxes as there is no express provision in the LGC prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant. but because the circumstances required for the issuance of writ of injunction were not present. some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding. Rule 58. Inc. and tending to render the judgment ineffectual. however it may be viewed. David. these cannot be the subject of an injunctive writ. the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. without unnecessary hindrance or delay. v.  In light of the foregoing. or in the performance of an act or acts. AEC maintains that it is exempt from paying local business tax. AEC claims that the issuance of the writ of injunction was proper since the tax  assessment issued by the City Treasurer is not yet final. not because courts are prohibited from granting such injunction. In any case. petitioner contends that the tax exemption claimed by AEC has no legal basis because RA 4079 has been expressly repealed by the LGC.
speedy and adequate remedy available to the petitioner in the ordinary course of law except this application for a temporary restraining order and/or writ of preliminary injunction to stop the auction sale and/or to enjoin and/or restrain respondents from levying. it will render any judgment in this case ineffectual. “As an extraordinary remedy. Engr. CA. there will be a massive power failure or blackout which will adversely affect business and economy. the Court opines that notice is not required to the Solicitor General since what is involved is just a violation of a private right involving the right of ownership and possession of petitioner’s properties. In issuing the injunction. and enjoined. Petitioner in its petition is questioning the assessment or the ruling of the City Treasurer on the business tax and fees. Rule 63 requiring such notice to the Office of the Solicitor General. 254 SCRA 220) It appearing that the two essential requisites of an injunction have been satisfied. the RTC ratiocinated that: It is very evident on record that petitioner resorted and filed an urgent motion for issuance of a temporary restraining order and preliminary injunction to stop the scheduled auction sale only when a warrant of levy was issued and published in the newspaper setting the auction sale of petitioner’s property by the City Treasurer. And unless prevented. because if the respondent will not be restrained. garnishing. by reason of passion or personal hostility. its right[s] of ownership and possession of the properties subject of the auction sale. The purpose of injunction is to prevent injury and damage from being incurred. as there exists a right on the part of the petitioner to be protected. or otherwise exercising other administrative remedies against the petitioner and its properties. For grave abuse of discretion to prosper as a ground for certiorari. it will render this petition moot and academic. Inc. this alone justifies the move of the petitioner in seeking the injunctive reliefs sought for. merely few weeks after the petition for declaratory relief has been filed. The Court is fully aware of the Supreme Court pronouncement that injunction is not proper to restrain the collection of taxes. presented sufficient and convincing evidence proving irreparable damages and injury which were already elaborated in the temporary restraining order although the same may be realized only if the auction sale will proceed. the Court has no other recourse but to grant the prayer for the issuance of a writ of preliminary injunction considering that if the respondent will not be restrained from doing the acts complained of. confiscating. The right of ownership and possession of the petitioner over the properties subject of the auction sale is at stake. selling and disposing at public auction the properties of petitioner. but its employees will also be denied access to equipments vital to petitioner’s operations. and (2) an urgent and paramount necessity for the writ to prevent serious  damage. and not the local ordinance concerned. Respondents assert that not one of the witnesses presented by the petitioner have proven what kind of right has been violated by the respondent. Dau and Bacolor. thru its witnesses. therefore. Petitioner. Petitioner. it must be demonstrated that the lower court or tribunal has exercised its power in an arbitrary and despotic manner. and it must be patent and gross as would JMDB TAX REVIEW CASES Page 79 . but merely mentioned of an injury which is only a scenario based on speculation because of petitioner’s claim that electric power may be disrupted. injunction is calculated to preserve or maintain the status quo of things and is generally availed of to prevent actual or threatened acts. To the mind of the Court. and that the acts (conducting an auction sale) against which the injunction is to be directed. since there is no other plain. This being the case. except where there is grave abuse of discretion committed by the court. vs. Clark. until the merits of the case can be heard” (Cagayan de Oro City Landless Res. petitioner will not only lose control and operation of its facility. namely: (1) the existence of a clear and unmistakable right that must be protected. Pampanga. otherwise. in the hearing of the temporary restraining order. grave and irreparable damage will be suffered not only by the petitioner but all its electric consumers in Angeles. seizing. Abordo’s testimony reveals and even his Affidavit Exhibit “S” showed that if the auction sale will push thru. need not comply with Section 4. and will render moot and academic the  proceedings before this court. Assn. it will preempt the Court from properly adjudicating on the merits the various issues between the parties. and since only the petitioner has the capability to operate Petersville sub station.  As a rule. if not lives and properties in Angeles City and surrounding communities. the issuance of a preliminary injunction rests entirely within the discretion of the court taking cognizance of the case  and will not be interfered with. are violative of the said rights of the petitioner. The issue here as of the moment is the restraining of the respondent from pursuing its auction sale of the petitioner’s properties. annotating the levy.Two requisites must exist to warrant the issuance of a writ of preliminary injunction. restrained.
this rule finds no application in the instant case where the disputed tax assessment is not yet due and demandable. mere abuse of discretion is not enough. The issues of tax exemption.  words. petitioner primarily relied on the prohibition on the issuance of a writ of injunction to restrain the collection of taxes.  In other Guided by the foregoing. As we see it then. WHEREFORE. In the meantime. the RTC conducted a hearing where both parties were given the opportunity to present their arguments. Considering that AEC was able to appeal the denial of its  protest within the period prescribed under Section 195 of the LGC. During the hearing. the collection of business taxes through levy at this time  is. if not premature. Petitioner. But as we have already said. failed to show that the RTC acted arbitrarily and capriciously in granting the injunction. double taxation. raised in the protest of AEC now pending with the RTC. hasty. to our mind. Records also show that before issuing the injunction. the petition is hereby DISMISSED. AEC was able to show that it had a clear and unmistakable legal right over the properties to be levied and that it would sustain serious damage if these properties. would be sold at public auction. A final note. must first be resolved before the properties of AEC can be levied. we find no grave abuse of discretion on the part of the RTC in issuing the writ of injunction. the writ of injunction was properly issued. AEC’s rights of ownership and possession must be respected. prescription and the alleged retroactive application of the RRCAC.amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act in contemplation of law. SO ORDERED.  who has the burden to prove grave abuse of discretion. In assailing the injunction. which are vital to its operations. there is no such prohibition in the case of local taxes. JMDB TAX REVIEW CASES Page 80 . While we are mindful that the damage to a taxpayer’s property rights generally takes a back seat to the  paramount need of the State for funds to sustain governmental functions. Neither was petitioner able to prove that the injunction was issued without any factual or legal justification.
the government collects income tax even when the net income has not yet been determined. like the MCIT. Promulgated: March 9.58. is unconstitutional.R. to base the CWT on the gross selling price or fair market value of the real properties classified as ordinary assets. beginning on its fourth year of operation. all of which prescribe the rules and procedures for the collection of CWT on the sale of real properties categorized as ordinary assets.. INC. Petitioner. Inc. they ignore the different treatment by RA 8424 of ordinary assets and capital assets and second. (2) whether or not the imposition of the MCIT on domestic corporations is unconstitutional and (3) whether or not the imposition of CWT on income from sales of real properties classified as ordinary assets under RRs 2-98.57. Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause because. 2010 G. No. and Section 4(a)(ii) and (c)(ii) of RR 7-2003. ACTING SECRETARY OF FINANCE JUANITA D. EXECUTIVE SECRETARY ALBERTO ROMULO. JR.. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO. Jr. a corporation. then acting Secretary of Finance Juanita D. 160756 x-------------------------------------------------x DECISION CORONA. Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and creditable withholding tax (CWT) on sales of real properties classified as ordinary assets. more particularly those in the manufacturing sector. Petitioner also seeks to nullify Sections 2. The issues to be resolved are as follows: (1) whether or not this Court should take cognizance of the present case. much less. Petitioner argues that the MCIT violates the due process clause because it levies income tax even if there is no realized gain. THE HON. Respondents.2(J) (as amended by RR 6-2001) and 2. Amatong and then Commissioner of Internal Revenue Guillermo Parayno. as respondents.versus THE HON. Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. 6-2001 and 7-2003. Petitioner is an association of real estate developers and builders in the Philippines.: In this original petition for certiorari and mandamus. respondent Secretary of Finance has no authority to collect CWT. Petitioner contends that these revenue regulations are contrary to law for two reasons: first. . is questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424 and the revenue regulations (RRs) issued by the Bureau of Internal Revenue (BIR) to implement said provision and those involving  creditable withholding taxes. J. and THE HON. It impleaded former Executive Secretary Alberto Romulo. is assessed an MCIT of 2% of its  gross income when such MCIT is greater than the normal corporate income tax imposed under Section 27(A).  OVERVIEW OF THE ASSAILED PROVISIONS Under the MCIT scheme.CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATIONS. AMATONG. They contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but not on other business enterprises.2 of RR 2-98. petitioner Chamber of Real Estate and Builders’  Associations. If JMDB TAX REVIEW CASES Page 81 .
For purposes of these Regulations. 2. or because of force majeure. Section 27(E) of RA 8424 provides: Section 27 (E). [MCIT] on Domestic Corporations. For trading or merchandising concern. however. “cost of services” shall include interest expense. the corporation does not pay the MCIT. on the recommendation of the  Commissioner of Internal Revenue (CIR). – For purposes of applying the [MCIT] provided under Subsection (E) hereof. promulgated RR 9-98 implementing Section 27(E). plus import duties. 2000 and thereafter. consultants and specialists directly rendering the service and (B) cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used and cost of supplies: Provided. beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. “normal income tax” means the income tax rates prescribed under Sec. or because of legitimate business reverses. 28(A)(1) of the Code xxx at 32% effective January 1. 27(A) and Sec. discounts and cost of services. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal income tax due from such corporation. “cost of goods sold” shall include the invoice cost of the goods sold. as defined herein. – A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year. 1998. direct labor and manufacturing overhead. “gross income” means gross receipts less sales returns. xxx xxx xxx JMDB TAX REVIEW CASES Page 82 . such as raw materials used. is hereby imposed on a corporation taxable under this Title. Any excess of the MCIT over the normal tax shall be carried forward and credited against the normal income tax for the three immediately succeeding taxable years. “Cost of goods sold” shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. In the case of taxpayers engaged in the sale of service. – (1) Imposition of the Tax. The Secretary of Finance is hereby authorized to promulgate. – A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year (whether calendar or fiscal year. discounts and allowances and cost of goods sold. that in the case of banks.27(E) [MCIT] on Domestic Corporations. the term. (3) Relief from the [MCIT] under certain conditions. “cost of goods manufactured and sold” shall include all costs of production of finished goods. insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse. upon recommendation of the Commissioner. – Any excess of the [MCIT] over the normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years. The pertinent portions thereof read: Sec. On August 25. allowances. respondent Secretary of Finance (Secretary). – The Secretary of Finance is hereby authorized to suspend the imposition of the [MCIT] on any corporation which suffers losses on account of prolonged labor dispute. “Cost of services” shall mean all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including (A) salaries and employee benefits of personnel. when the minimum income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year. (1) Imposition of Tax. (2) Carry Forward of Excess Minimum Tax. (4) Gross Income Defined. depending on the accounting period employed) is hereby imposed upon any th domestic corporation beginning the fourth (4 ) taxable year immediately following the taxable year in which such corporation commenced its business operations. For a manufacturing concern. the term ‘gross income’ shall mean gross sales less sales returns. the necessary rules and regulations that shall define the terms and conditions under which he may suspend the imposition of the [MCIT] in a meritorious case. freight cost.the regular income tax is higher than the MCIT. freight in transporting the goods to the place where the goods are actually sold including insurance while the goods are in transit.
where the seller/transferor is habitually engaged in the real estate JMDB TAX REVIEW CASES Page 83 .2. Under Section 2. whichever is higher.000. the applicable rate of tax based on the entire consideration shall be withheld on the last installment or installments to be paid to the seller. . estate. 1. – Any excess of the [MCIT] over the normal income tax as computed under Sec. 27(A) of the Code shall be carried forward on an annual basis and credited against the normal income tax for the three (3) immediately succeeding taxable years. in accordance with the following schedule: Where the seller/transferor is exempt from [CWT] in accordance with Sec.00) but not more than two million pesos (P2. 2.2(J) of RR No.57. 2. 2-98. Income payment subject to [CWT] and rates prescribed thereon: xxx xxx xxx (J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale. other than capital assets. Exempt Upon the following values of real property.57. Exempt With a selling price of five hundred thousand pesos (P500.0% With selling price of more than two million pesos (P2. whether a corporation or otherwise. However. 2001: Sec. This provision was amended by RR 6-2001 on July 31. exchange or transfer of.000.57.0% Tax Regulations shall be used.(2) Carry forward of excess [MCIT]. 1998.000.000.000. promulgated  RR 2-98 implementing certain provisions of RA 8424 involving the withholding of taxes.2. no withholding tax is required to be made on the periodic installment payments where the buyer is an individual not engaged in trade or business. on April 17. 2. Income payment subject to [CWT] and rates prescribed thereon: xxx xxx xxx (J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale. sold by an individual. whichever is higher. shall be imposed upon the withholding agent.000.A [CWT] based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Code.00) or less. other than capital asset.5 of these regulations. income payments from the sale. the fair market value of the property received in exchange. xxx xxx xxx Meanwhile. exchange or transfer of real property. 3. as amended. Where the consideration or part thereof is payable on installment. transfer or exchange of real property. the tax shall be deducted and withheld by the buyer on every installment./buyer. trust. paid to the seller/owner for the sale. other than capital assets. trust fund or pension fund and the seller/transferor is habitually engaged in the real estate business in accordance with the following schedule – Those which are exempt from a withholding tax at source as prescribed in Sec.57. by persons residing in the Philippines and habitually engaged in the real estate business were subjected to CWT: Sec. In an exchange.5 of these regulations.57. corporation. exchange or transfer of real property classified as ordinary asset. respondent Secretary. In such a case. – Real property.00). if the buyer is engaged in trade or business. upon recommendation of respondent CIR. as determined in the Income 5.00) xxx xxx xxx Gross selling price shall mean the consideration stated in the sales document or the fair market value determined in accordance with Section 6 (E) of the Code. 2.5% With a selling price of more than five hundred thousand pesos (P500.
With a selling price of more than Five Hundred Thousand Pesos (P500. a. the fair market value of the property received in exchange shall be considered as the consideration.2. these rules shall apply: (i) If the sale is a sale of property on the installment plan (that is. (ii) If.000. shall be subject to the [CWT] (expanded) under Sec. or other disposition of real properties shall. In any case.000.00).business. based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Code. on the first installment.2(J) of [RR 2-98]. xxx xxx xxx 1. among others. be subject to applicable taxes imposed under the Code. providing for the guidelines in determining whether a particular real property is a capital or an ordinary asset for purposes of imposing the MCIT. resident aliens. RR No.000. as amended. payments in the year of sale exceed 25% of the selling price). and non-resident aliens engaged in trade or business in the Philippines. exchange.000. 2003.00) but not more than Two Million Pesos (P2.  On February 11. 7-2003 was promulgated.000. xxx xxx xxx (ii) The sale of real property located in the Philippines. 2. transfer or exchange of real property other than capital asset has been fully paid.57. whichever is higher. 3. as amended.Gains/Income derived from sale. barter or exchange subject to the CWT will not be recorded by the Registry of Deeds until the CIR has certified that such transfers and  conveyances have been reported and the taxes thereof have been duly paid: Sec.000. depending on whether the subject properties are classified as capital assets or ordinary assets. the tax shall be deducted and withheld by the buyer on every installment. In the case of individual citizen (including estates and trusts). and consequently. classified as ordinary assets. Registration with the Register of Deeds.58.. the buyer shall withhold the tax based on the gross selling price or fair market value of the property.0% Gross selling price shall remain the consideration stated in the sales document or the fair market value determined in accordance with Section 6 (E) of the Code.0% With a selling price of more than two Million Pesos (P2. whichever is higher. or exchanges subject to the creditable expanded withholding tax shall not be recorded by the Register of Deeds unless the [CIR] or his duly authorized representative has certified that such transfers and conveyances have been reported and the expanded withholding tax. With a selling price of Five Hundred Thousand Pesos (P500. – Deeds of conveyances of land or land and building/improvement thereon arising from sales. inclusive of the documentary stamp tax. whichever is higher. barters.5% 5. whether a corporation or otherwise. Applicable taxes on sale. due thereon have been fully paid xxxx. The pertinent portions thereof state: Section 4. (Underlined amendments in the original) Section 2.58. if the buyer is engaged in trade or business. . on the other hand. payments in the year of sale do not exceed 25% of the selling price).2 of RR 2-98 implementing Section 58(E) of RA 8424 provides that any sale. In an exchange. 2. to JMDB TAX REVIEW CASES Page 84 . no Certificate Authorizing Registration (CAR) shall be issued to the buyer unless the [CWT] due on the sale. xxx xxx xxx However. unless otherwise exempt. the sale is on a “cash basis” or is a “deferred -payment sale not on the installment plan” (that is.00).00) or less. exchange or other disposition of real property.
(4) the question of constitutionality must have been raised at the earliest opportunity and (5) the issue of constitutionality  must be the very lis mota of the case. based on net taxable income. has been assessed by the BIR for the payment of [MCIT] or [CWT] on sales of real property. or any of its members. As we stated  in Didipio Earth-Savers’ Multi-Purpose Association.2(J) of [RR 2-98]. xxx xxx xxx In the case of domestic corporations. On the other hand. Perceived or alleged hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues. 2. regardless of the classification thereof. Contrary to respondents’ assertion. xxx xxx xxx We shall now tackle the issues raised. domestic corporations may become subject to the [MCIT] under Sec. 27(E) of the Code. as amended. xxx c. any discussion on the constitutionality of the MCIT or CWT on sales of real property is essentially an academic exercise. there is no actual case calling for the exercise of judicial power and it is not yet ripe for adjudication because [petitioner] did not allege that CREBA. (3) the person challenging the validity of the act must have standing to do so. 27(A) of the Code. Petitioner has raised concerns in mere abstract and hypothetical form without any actual. to the ordinary income tax under Sec. Indeed. EXISTENCE OF A JUSTICIABLE CONTROVERSY Courts will not assume jurisdiction over a constitutional question unless the following requisites are satisfied: (1) there must be an actual case calling for the exercise of judicial review. Otherwise. adjudication would be no different from the giving of advisory opinion that does not really settle  legal issues.57. – xxx xxx (ii) The sale of land and/or building classified as ordinary asset and other real property (other than land and/or building treated as capital asset). a question is considered ripe for adjudication when the act being challenged has a direct adverse  effect on the individual challenging it. The assailed provisions are already being implemented. (2) the question before the court must be ripe for adjudication. 24(A)(1)(c) or 25(A)(1) of the Code. whichever is applicable. In lieu of the ordinary income tax. According to them. An actual case or controversy involves a conflict of legal rights or an assertion of opposite legal claims which is  susceptible of judicial resolution as distinguished from a hypothetical or abstract difference or dispute. Lacking empirical data on which to base any conclusion. as the case may be. however. even a singular violation of the  Constitution and/or the law is enough to awaken judicial duty. Respondents aver that the first three requisites are absent in this case.the ordinary income tax imposed under Sec. we do not have to wait until petitioner’s members have shut down their operations as a result of the MCIT or CWT. Gozun: By the mere enactment of the questioned law or the approval of the challenged act. as a corporate entity. Neither did petitioner allege that its members have shut down their businesses as a result of the payment of the MCIT or CWT. If the assailed provisions are indeed unconstitutional. Incorporated (DESAMA) v. specific and concrete instances cited that the assailed law and revenue regulations have actually and adversely affected it. shall be subject to the [CWT] (expanded) under Sec. Respondents next argue that petitioner has no legal standing to sue: JMDB TAX REVIEW CASES Page 85 . all of which are located in the Philippines. there is no better time than the present to settle such question once and for all. and consequently. the dispute is said to have ripened into a judicial controversy even without any other overt act.
Petitioner is an association of some of the real estate developers and builders in the Philippines. Petitioners did not allege that [it] itself is in the real estate business. It did not allege any material interest or any wrong that it  may suffer from the enforcement of [the assailed provisions]. Legal standing or locus standi is a party’s personal and substantial interest in a case such that it has sustained or  will sustain direct injury as a result of the governmental act being challenged. In Holy Spirit Homeowners  Association, Inc. v. Defensor, we held that the association had legal standing because its members stood to be injured by the enforcement of the assailed provisions: Petitioner association has the legal standing to institute the instant petition xxx. There is no dispute that the individual members of petitioner association are residents of the NGC. As such they are covered and stand to be either benefited or injured by the enforcement of the IRR, particularly as regards the selection process of beneficiaries and lot allocation to qualified beneficiaries. Thus, petitioner association may assail those provisions in the IRR which it believes to be unfavorable to the rights of its members. xxx Certainly, petitioner and its members have sustained direct injury arising from the enforcement of the IRR in that they have been disqualified and  eliminated from the selection process.
In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the  requirements of an actual case, ripeness or legal standing when paramount public interest is involved. The questioned MCIT and CWT affect not only petitioners but practically all domestic corporate taxpayers in our country. The transcendental importance of the issues raised and their overreaching significance to society make it  proper for us to take cognizance of this petition. CONCEPT AND RATIONALE OF THE MCIT The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation system. It came about as a result of the perceived inadequacy of the self-assessment system in capturing the true income of  corporations. It was devised as a relatively simple and effective revenue-raising instrument compared to the normal income tax which is more difficult to control and enforce. It is a means to ensure that everyone will make some minimum contribution to the support of the public sector. The congressional deliberations on this are illuminating: Senator Enrile. Mr. President, we are not unmindful of the practice of certain corporations of reporting constantly a loss in their operations to avoid the payment of taxes, and thus avoid sharing in the cost of government. In this regard, the Tax Reform Act introduces for the first time a new concept called the [MCIT] so as to minimize tax evasion, tax avoidance, tax manipulation in the country and for administrative convenience. … This will go a long way in ensuring that corporations will pay their just share in supporting our public life and our economic  advancement. Domestic corporations owe their corporate existence and their privilege to do business to the government. They also benefit from the efforts of the government to improve the financial market and to ensure a favorable business climate. It is therefore fair for the government to require them to make a reasonable contribution to the public expenses. Congress intended to put a stop to the practice of corporations which, while having large turn-overs, report minimal or negative net income resulting in minimal or zero income taxes year in and year out, through under declaration of income or over-deduction of expenses otherwise called tax shelters. Mr. Javier (E.) … *This+ is what the Finance Dept. is trying to remedy, that is why they have proposed the [MCIT]. Because from experience too, you have corporations which have been losing year in and year out and paid no tax. So, if the corporation has been losing for the past five years to ten years, then that corporation has no business to be in business. It is dead. Why continue if you are losing year in and year out? So, we have this  provision to avoid this type of tax shelters, Your Honor. The primary purpose of any legitimate business is to earn a profit. Continued and repeated losses after operations of a corporation or consistent reports of minimal net income render its financial statements and its tax payments suspect. For sure, certain tax avoidance schemes resorted to by corporations are allowed in our jurisdiction. The MCIT serves to put a cap on such tax shelters. As a tax on gross income, it prevents tax evasion and minimizes tax avoidance schemes achieved through sophisticated and artful manipulations of deductions and other stratagems. Since the tax base was broader, the tax rate was lowered. To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law:
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First, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital expenditures, the imposition of the MCIT commences only on the fourth taxable year immediately following the  year in which the corporation commenced its operations. This grace period allows a new business to stabilize  first and make its ventures viable before it is subjected to the MCIT. Second, the law allows the carrying forward of any excess of the MCIT paid over the normal income tax which shall  be credited against the normal income tax for the three immediately succeeding years. Third, since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of Finance to suspend the imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force  majeure and legitimate business reverses. Even before the legislature introduced the MCIT to the Philippine taxation system, several other countries already had their own system of minimum corporate income taxation. Our lawmakers noted that most developing countries, particularly Latin American and Asian countries, have the same form of safeguards as we do. As pointed out during the committee hearings: [Mr. Medalla:] Note that most developing countries where you have of course quite a bit of room for underdeclaration of gross receipts have this same form of safeguards. In the case of Thailand, half a percent (0.5%), there’s a minimum of income tax of half a percent (0.5%) of gross assessable income. In Korea a 25% of taxable income before deductions and exemptions. Of course the different countries have different basis for that minimum income tax. The other thing you’ll notice is the preponderance of Latin Amer ican countries that employed this  method. Okay, those are additional Latin American countries.
At present, the United States of America, Mexico, Argentina, Tunisia, Panama and Hungary have their own versions  of the MCIT.
MCIT IS NOT VIOLATIVE OF DUE PROCESS
Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive, arbitrary and confiscatory which amounts to deprivation of property without due process of law. It explains that gross income as defined under said provision only considers the cost of goods sold and other direct expenses; other major expenditures, such as administrative and interest expenses which are equally necessary to  produce gross income, were not taken into account. Thus, pegging the tax base of the MCIT to a corporation’s gross income is tantamount to a confiscation of capital because gross income, unlike net income, is not “realized  gain.” We disagree. Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The exercise of taxing power derives its source from the very existence of the State whose social contract with its  citizens obliges it to promote public interest and the common good. Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this means that in the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate),  coverage (subjects) and situs (place) of taxation. It has the authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and where it shall be imposed. As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that the principal check against its abuse is to be found only in the responsibility of the legislature (which  imposes the tax) to its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute, tax legislation carries a presumption of constitutionality.
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The constitutional safeguard of due process is embodied in the fiat “*no+ person shall be deprived of life, liberty or  property without due process of law.” In Sison, Jr. v. Ancheta, et al., we held that the due process clause may  properly be invoked to invalidate, in appropriate cases, a revenue measure when it amounts to a confiscation of  property. But in the same case, we also explained that we will not strike down a revenue measure as unconstitutional (for being violative of the due process clause) on the mere allegation of arbitrariness by the   taxpayer. There must be a factual foundation to such an unconstitutional taint. This merely adheres to the authoritative doctrine that, where the due process clause is invoked, considering that it is not a fixed rule but  rather a broad standard, there is a need for proof of such persuasive character. Petitioner is correct in saying that income is distinct from capital. Income means all the wealth which flows into the taxpayer other than a mere return on capital. Capital is a fund or property existing at one distinct point in time  while income denotes a flow of wealth during a definite period of time. Income is gain derived and severed  from capital. For income to be taxable, the following requisites must exist: (1) there must be gain; (2) the gain must be realized or received and (3) the gain must not be excluded by law or treaty from  taxation. Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital. The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale  of its goods, i.e., the cost of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed. Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross income. Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible  items and at the same time reducing the applicable tax rate. Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in many jurisdictions. Tax thereon is generally held to be within the power of a state to impose; or constitutional, unless it  interferes with interstate commerce or violates the requirement as to uniformity of taxation.
The United States has a similar alternative minimum tax (AMT) system which is generally characterized by a lower  tax rate but a broader tax base. Since our income tax laws are of American origin, interpretations by American  courts of our parallel tax laws have persuasive effect on the interpretation of these laws. Although our MCIT is not exactly the same as the AMT, the policy behind them and the procedure of their implementation are comparable. On the question of the AMT’s constitutionality, the United States Court of Appeals for the Ninth  Circuit stated in Okin v. Commissioner: In enacting the minimum tax, Congress attempted to remedy general taxpayer distrust of the system growing from large numbers of taxpayers with large incomes who were yet paying no taxes. xxx xxx xxx
We thus join a number of other courts in upholding the constitutionality of the [AMT]. xxx [It] is a rational means  of obtaining a broad-based tax, and therefore is constitutional.
The U.S. Court declared that the congressional intent to ensure that corporate taxpayers would contribute a  minimum amount of taxes was a legitimate governmental end to which the AMT bore a reasonable relation. American courts have also emphasized that Congress has the power to condition, limit or deny deductions  from gross income in order to arrive at the net that it chooses to tax. This is because deductions are a matter of  legislative grace. Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of the MCIT, taken with the reduction of the tax rate from 32% to 2%, is not constitutionally objectionable.
TAX REVIEW CASES
This is consistent with the law which imposes the MCIT on gross income notwithstanding the amount of the net income. RR 9-98 MERELY CLARIFIES SECTION 27(E) OF RA 8424 Petitioner alleges that RR 9-98 is a deprivation of property without due process of law because the MCIT is being imposed and collected even when there is actually a loss. by any factual or legal basis. or a zero or negative taxable income: Sec. petitioner does not cite any actual. (b) withholding of creditable tax at source and (c) tax-free covenant bonds. contrary to RA 8424 which calls for the  payment of the net income at the end of the taxable period. it adversely affects property rights. specific and concrete negative experiences of its members nor does it present empirical data to show that the implementation of the MCIT resulted in the confiscation of their property.2 of RR 2-98 and Sections 4(a)(ii) and (c)(ii) of RR 7-2003 were promulgated “with grave  abuse of discretion amounting to lack of jurisdiction” and “patently in contravention of law” because they ignore such distinctions.. Under Section 57 of RA 8424. the types of income subject to withholding tax are divided into three categories: (a) withholding of final tax on certain incomes. But the law also states that the MCIT is to be paid only if it is greater than the normal net income. merely defines the coverage of Section 27(E).e.58. The party alleging the law’s  unconstitutionality has the burden to demonstrate the supposed violations in understandable terms.Moreover. Petitioner’s arguments have no merit. contends that Sections 2. This means that even if a corporation incurs a net loss in its business operations or reports zero income after deducting its expenses. Petitioner theorizes that since RA 8424 treats capital assets and ordinary assets differently. it may well be the case that the MCIT would be less than the net income of the corporation which posts a zero or negative taxable income. respondents cannot disregard the distinctions set by the legislators as regards the tax base. Taxation is  necessarily burdensome because. after enumerating the distinctions between capital and ordinary assets under RA 8424. by its nature. i. its allegation that the MCIT is arbitrary and  confiscatory. in declaring that MCIT should be imposed whenever such corporation has zero or negative taxable income. The Court cannot strike down a law as unconstitutional simply because of its yokes. — xxx The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of [MCIT] is greater than the normal income tax due from such corporation. Petitioner is concerned with the second category (CWT) and maintains that the revenue regulations on the collection of CWT on sale of real estate categorized as ordinary assets are unconstitutional. it is still subject to an MCIT of 2% of its gross income. petitioner failed to support.  Petitioner. — (1) Imposition of the Tax. upon consummation of the sale via the CWT. Petitioner’s conclusion is based on the following premises: (a) the revenue regulations use gross selling price (GSP) or fair market value (FMV) of the real estate as basis for determining the income tax for the sale of real estate classified as ordinary assets and (b) they mandate the collection of income tax on a per transaction basis. We now proceed to the issues involving the CWT. AUTHORITY OF THE SECRETARY OF FINANCE TO ORDER THE COLLECTION OF CWT ON SALES OF REAL PROPERTY CONSIDERED AS ORDINARY ASSETS JMDB TAX REVIEW CASES Page 89 . The withholding tax system is a procedure through which taxes (including income taxes) are collected.2(J) and 2. modes of collection and payment of taxes on income from the sale of capital and ordinary assets. 2. (Emphasis supplied) RR 9-98. In sum.27(E) [MCIT] on Domestic Corporations. Obviously.57.
The questioned provisions of RR 2-98.e. national or juridical. as amended. the authority to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the law. the graduated rate of 1. second. Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any person. the tax base of the income tax from the sale of real property classified as ordinary assets remains to be the entity’s net income imposed under Section 2 4 (resident individuals) or Section 27 (domestic corporations) in relation to Section 31 of RA 8424. i. Petitioner is wrong. upon the recommendation of the [CIR]. residing in the Philippines. The [Secretary] may. Withholding of Tax at Source. Under RR 2-98.Gains/Income derived from sale. It is well-settled that an administrative agency cannot amend an act of  Congress.e. depending on whether the subject properties are classified as capital assets or ordinary assets. They are installments on the annual tax which may be due at the end of the taxable year. by payor-corporation/persons as provided for by law. require the withholding of a tax on the items of income payable to natural or juridical persons.The Secretary of Finance is granted. be subject to applicable taxes imposed under the Code. The CWT is to be  deducted from the net income tax payable by the taxpayer at the end of the taxable year. are well within the authority given by Section 57(B) to the Secretary. exchange. Such authority is subject to the limitation that the rules and regulations must not override. 57. to improve the government’s cash flow. – xxx xxx xxx (B) Withholding of Creditable Tax at Source. i. – Applicable taxes on sale. at the rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof. The taxes withheld are in the nature of advance tax payments by a taxpayer in order to extinguish its possible   tax obligation. the withholding tax is imposed on the income payable and the tax is creditable against the income tax liability of the taxpayer for the taxable year.5%-5% is between the 1%-32% range. prevention of delinquencies and reduction of governmental effort to  collect taxes through more complicated means and remedies.. Such authority is derived from Section 57(B) of RA 8424 which provides: SEC. Precisely. The withholding tax system was devised for three primary reasons: first. EFFECT OF RRS ON THE TAX BASE FOR THE INCOME TAX OF INDIVIDUALS OR CORPORATIONS ENGAGED IN THE REAL ESTATE BUSINESS Petitioner maintains that RR 2-98. or other disposition of real properties shall unless otherwise exempt. under Section 244 of RA 8424. as amended. Section 4(a)(ii) and (c)(ii) of RR 7-2003 reiterate that the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income: Section 4. which shall be credited against the income tax liability of the taxpayer for the taxable year. the  law they seek to apply and implement. We have long recognized that the method of withholding tax at source is a procedure of collecting income  tax which is sanctioned by our tax laws. arbitrarily shifted the tax base of a real estate business’ income tax from net income to GSP or FMV of the property sold. . This results in administrative savings. to ensure the collection of income tax which can otherwise be lost or substantially reduced through failure to file the  corresponding returns and third. exchange or other disposition of real property . prompt and efficient collection of taxes. but must remain consistent and in harmony with. to provide the taxpayer a convenient manner to meet his probable income tax liability. residing in the Philippines. gross income less allowable deductions. xxx xxx xxx JMDB TAX REVIEW CASES Page 90 .
shall be subject to the [CWT] (expanded) under Sec. b) Payee of income is required to report the income and/or pay the difference between the tax withheld and the tax due on the income. show that ordinary assets are not treated in the same manner as capital assets. xxx xxx xxx c. to the ordinary income tax imposed under Sec. Final withholding tax (FWT) and CWT are distinguished as follows: FWT a) The amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. 27(A) of the Code. the taxpayer is taxed on its net income. based on the [GSP] or current [FMV] as determined in accordance with Section 6(E) of the Code. resident aliens. The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of practicality and convenience. based on net taxable income. 24(A)(1)(c) or 25(A)(1) of the Code. If the tax due is greater than the tax withheld. i. then the taxpayer shall pay the difference. at the end of the year. to the ordinary income tax under Sec. whichever is higher. On the other hand.57. how much the taxpayer/seller will have as its net income at the end of the taxable year. on the other hand.2(J) of [RR 2-98]. 27(E) of the same Code. as amended. If. The differences between the two forms of withholding tax. and consequently. This final tax is also withheld at  source.2(j) of [RR 2-98]. The payee also has the right to ask for a refund if the tax withheld is more than the tax due. JMDB TAX REVIEW CASES Page 91 . Instead. In lieu of the ordinary income tax. all of which are located in the Philippines. said withholding agent’s knowledge and privity are limited only to the particular transaction in which he is a party. shall be subject to the [CWT] (expanded) under Sec. xxx xxx xxx (ii) The sale of real property located in the Philippines. the tax due is less than the tax withheld. classified as ordinary assets. The sale of land and/or building classified as ordinary asset and other real property (other than land and/or building treated as capital asset). and non-resident aliens engaged in trade or business in the Philippines. as the case may be.e. domestic corporations may become subject to the [MCIT] under Sec. 51 and Sec. however. In such a case. and consequently. 2. In the case of domestic corporations. creditable and final. as prescribed in Sec. 2. CWT a) Taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. NO BLURRING OF DISTINCTIONS BETWEEN ORDINARY ASSETS AND CAPITAL ASSETS RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real property categorized as ordinary assets. Section 27(D)(5) of RA 8424 imposes a final tax and flat rate of 6% on the gain presumed to be realized from the sale of a capital asset based on its GSP or FMV. regardless of the classification thereof. Undoubtedly. b)The liability for payment of the tax rests primarily on the payor as a withholding agent. (Emphasis supplied) Accordingly. nor is he privy to. Obviously.57. his basis can only be the GSP or FMV as these are the only factors reasonably known or knowable by him in connection with the performance of his duties as a withholding agent. whichever is applicable. c) The income recipient is still required to file an income tax return. In the case of individual citizens (including estates and trusts). the withholding agent/buyer who is obligated to withhold the tax does not know. as amended. the taxpayer/seller shall file its income tax return and credit the taxes withheld (by the withholding agent/buyer) against its tax due. the taxpayer will be entitled to a refund or tax credit. c) The payee is not required to file an income tax  return for the particular income..a.
FWT is imposed on the sale of capital assets. — Subject to rules and regulations. 57. 28(B)(5)(b). collection and payment of CWT at the time of transaction are contrary to the provisions of RA 8424 on the manner and time of filing of the return. Section 57(A) refers to FWT while Section 57(B) pertains to CWT. 24(D)(1). it is wrong to regard 57(A) and 57(B) in the same way. If that were the intent of Congress. 28(B)(1). Petitioner insists that the levy. and treated similarly as. Section 57(B) provides that the Secretary can require a CWT on “income payable to natural or juridical persons. the whole of Section 57 governs the withholding of income tax on passive income. payment and assessment of income tax  involving ordinary assets. residing in the Philippines. The withholding agent/buyer’s act of collecting the tax at the time of the transaction by withholding the tax due from the income payable is the essence of the withholding tax method of tax collection. 28(B)(2). 24(B)(2). 27(D)(2). The enumeration in Section 57(A) refers to passive income being subjected to FWT. the [Secretary] may promulgate. NO RULE THAT ONLY PASSIVE INCOMES CAN BE SUBJECT TO CWT Petitioner submits that only passive income can be subjected to withholding tax. These assets can be in the form of real properties that return rental income. the tax imposed or prescribed by Sections 24(B)(1). 25(A)(3). 25(A)(2). According to petitioner. 28(A)(7)(b). 28(B)(5)(a). CWT is imposed on the sale of ordinary assets. the same  is not passive income… It is income generated by the taxpayer’s assets. upon the recommendation of the [CIR]. shares of stock in a corporation that earn dividends or interest income received from savings. requiring the filing of income tax return by certain income payees. require the withholding of a tax on the items of income payable to natural or juridical persons. 25(C). Withholding of Tax at Source. 28(A)(7)(a). capital assets in contravention of the pertinent provisions of RA 8424. and 282 of this Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of this Code. 28(A)(4). 28(B)(4). Section 57(A) and (B) are distinct. 33. The fact that the tax is withheld at source does not automatically mean that it is treated exactly the same way as capital gains. The former covers the kinds of passive income enumerated therein and the latter encompasses any income other than those listed in 57(A). 27(D)(1). 27(D)(3). The inherent and substantial differences between FWT and CWT disprove petitioner’s contention that ordinary assets are being lumped together with. (B) Withholding of Creditable Tax at Source. (Emphasis supplied) This line of reasoning is non sequitur. On the other hand. JMDB TAX REVIEW CASES Page 92 . — The [Secretary] may. 28(B)(3). 25(B). It follows that Section 57(B) on CWT should also be limited to passive income: SEC. The BIR defines passive income by stating what it is not: …if the income is generated in the active pursuit and performance of the corporation’s primary purposes.” There is no requirement that this income be passive income. 28(A)(5). at the rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof. Indeed. which shall be credited against the income tax liability of the taxpayer for the taxable year. — (A) Withholding of Final Tax on Certain Incomes. 24(C). 28(A)(7)(c). it could have easily said so. As aforementioned. 25(E). the mechanics of the FWT are distinct from those of the CWT. 28(B)(5)(c). upon the recommendation of the [CIR]. residing in the Philippines.52 of the NIRC. by payor-corporation/persons as provided for by law. 25(D). 27(D)(5). Section 57(A) expressly states that final tax can be imposed on certain kinds of income and enumerates these as passive income. Since the law itself makes distinctions.  As previously stated. as amended. On the other hand. whether final or creditable.
RR 2-98 merely implements the law by specifying what income is subject to CWT.” the Secretary and CIR may specify the kinds of income the rules will a pply to based on what is feasible. In addition. The  CWT does not impose new taxes nor does it increase taxes. Again. It follows that the guaranty of the equal protection of the laws is not violated by legislation based on a reasonable classification. the due process requirement applies to the power to tax. do not modify or deviate from the text of Section 57(B). sudden and unpredictable interest rate surges. Petitioner’s desire to utilize for its operational and capital expenses money earmarked for the payment of taxes may be a practical business option but it is not a fundamental right which can be demanded from the court or from the government. the CWT is applied only on the amounts actually received or receivable by the real estate  entity. gain is never assured by mere receipt of the selling price. petitioner points out that manufacturing enterprises are not similarly imposed a CWT on their sales. the agency  may adopt any reasonable method to carry out its functions. long gestation period. More importantly. a real estate business is involved in a continuous process of production and it incurs costs and expenditures on a regular basis. administrative rules and regulations ordinarily deserve to be given weight and respect by the  courts in view of the rule-making authority given to those who formulate them and their specific expertise in their respective fields. Like a manufacturing concern. Sales on installment are taxed on a per-installment basis. The only difference is that “goods” produced  by the real estate business are house and lot units. considering that the law uses the general term “income. Specifically. continually spiraling development/construction costs. the assailed provisions of RR 2-98. Petitioner’s complaints are essentially matters of policy best addressed to the executive and legislative branches of the government. Similarly. heavy taxes and  prohibitive “up-front” regulatory fees from at least 20 government agencies. (2) be germane to the purpose of  the law. where a statute does not require any particular procedure to be followed by an administrative agency. Petitioner protests that the refund remedy does not make the CWT less burdensome because taxpayers have to  wait years and may even resort to litigation before they are granted a refund. Again. even if their manner of doing business is not much different from that of a real estate enterprise. as amended. it is stressed that the CWT is creditable against the tax due from the seller of the property at the end of the taxable year. NO VIOLATION OF EQUAL PROTECTION Petitioner claims that the revenue regulations are violative of the equal protection clause because the CWT is being levied only on real estate enterprises. The equal protection clause under the Constitution means that “no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like  circumstances. we disagree. As a result. JMDB TAX REVIEW CASES Page 93 . Nothing is taken that is not due so there is no confiscation of property repugnant to the constitutional  guarantee of due process. Petitioner complains that the amount withheld would have otherwise been used by the enterprise to pay labor wages.To repeat. materials. NO DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS Petitioner avers that the imposition of CWT on GSP/FMV of real estate classified as ordinary assets deprives its members of their property without due process of law because. This argument is misleading. cost of money and other expenses which can then save the entity from having to obtain loans entailing considerable interest expense. It has been held that. must (1) rest on substantial distinctions. The practical problems encountered in claiming a tax refund do not affect the constitutionality and validity of the CWT as a method of collecting the tax. the government is collecting tax from net income not yet gained or earned. Petitioner also lists the expenses and pitfalls of the trade which add to the burden of the realty industry: huge investments and borrowings.” Stated differently. It relates entirely to the method and time of payment. The seller will be able to claim a tax refund if its net income is less than the taxes withheld. (3) not be limited to existing conditions only and (4) apply equally to all members of the same class. Classification. all persons belonging to the same class shall be taxed alike. in their line of business. Petitioner’s lamentations will not support its attack on the constitutionality of the CWT. Besides. to be valid.
A reading of Section 2.2 of RR 2-98. the petition is hereby DISMISSED. Inequalities which result from a singling out of one particular class for taxation. Returns and Payment of Taxes Withheld at Source . Petitioner proffers hardly any reason to strike down this rule except to rely on its contention that the CWT is unconstitutional.000 corporations. it may choose what to subject to CWT.57.58. each manufacturing enterprise may have tens of thousands of transactions with several thousand customers every month involving both minimal and substantial amounts. 2-98 MERELY IMPLEMENTS SECTION 58 OF RA 8424 Lastly. As already discussed. e. The sales of manufacturers who have clients within the top 5. making it less cumbersome for the parties to comply with the withholding tax scheme. Furthermore. to withhold the taxes on each of their transactions with their tens or hundreds of suppliers may result in an inefficient and unmanageable system of taxation and may well defeat the purpose of the withholding tax system. 58.” When a party questions the constitutionality of an income tax measure. are also subject  to CWT for their transactions with said 5. and the capital gains or [CWT]. SECTION 2.The taxing power has the authority to make reasonable classifications for purposes of  taxation. or exemption. which provides that the Registry of Deeds should not effect the regisration of any document transferring real property unless a certification is issued by the CIR that the withholding tax has been paid. WHEREFORE. Under Section 57(B). is not their production processes but the prices of their goods sold and the number of transactions involved. a class and can be validly treated differently from other business enterprises. furniture. by itself. has been paid: xxxx any violation of this provision by the Register of Deeds shall be subject to the penalties imposed under Section 269 of this Code. JMDB TAX REVIEW CASES Page 94 . Petitioner counters that there are other businesses wherein expensive items are also sold infrequently. The real estate industry is.2 (M) of RR 2-98 will also show that petitioner’s argument is not accurate. as specified by the BIR. To require the customers of manufacturing enterprises.58. in insisting that its industry should be treated similarly as manufacturing enterprises. (Emphasis supplied) CONCLUSION The renowned genius Albert Einstein was once quoted as saying “*the+ hardest thing in the world to  understand is the income tax. infringe  no constitutional limitation. this provision uses almost exactly the same wording as Section 58(E) of RA 8424 and is unquestionably in accordance with it: Sec. heavy equipment. the Secretary may adopt any reasonable method to carry  out its functions. Petitioner has miserably failed to discharge its burden of convincing the Court that the imposition of MCIT and CWT is unconstitutional. it has to contend not only with Einstein’s observation but also with the vast and well -established jurisprudence in support of the plenary powers of Congress to impose taxes.2 OF RR NO. for purposes of the imposition of the CWT. fails to realize that what distinguishes the real estate business from other manufacturing enterprises. jewelry. petitioner assails Section 2. . – (E) Registration with Register of Deeds. at present. Petitioner. On the other hand.g. The income from the sale of a real property is bigger and its frequency of transaction limited.000 corporations. appliance and other capital goods yet these are not  similarly subjected to the CWT. if any.No registration of any document transferring real property shall be effected by the Register of Deeds unless the [CIR] or his duly authorized representative has certified that such transfer has been reported. We have ruled that it is not.
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