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TITLE REMEDIES

CHAPTER I Remedies in General


SECTION 202 Final Deed to Pur!aser" # In ase t!e ta$%a&er s!all not redeem
t!e %ro%ert& as !erein %ro'ided( t!e Re'enue Distrit O))ier s!all( as *rantor(
e$eute a deed on'e&in* to t!e %ur!aser so mu! o) t!e %ro%ert& as !as +een
sold( )ree )rom all liens o) an& ,ind -!atsoe'er( and t!e deed s!all suintl& reite
all t!e %roeedin*s u%on -!i! t!e 'alidit& o) t!e sale de%ends"
SECTION 20. Period o) Limitation /%on Assessment and Colletion" # E$e%t
as %ro'ided in Setion 222( internal re'enue ta$es s!all +e assessed -it!in t!ree 0.1
&ears a)ter t!e last da& %resri+ed +& la- )or t!e )ilin* o) t!e return( and no
%roeedin* in ourt -it!out assessment )or t!e olletion o) su! ta$es s!all +e
+e*un a)ter t!e e$%iration o) su! %eriod2
Pro'ided( T!at in a ase -!ere a return is )iled +e&ond t!e %eriod %resri+ed +&
la-( t!e t!ree 0.13&ear %eriod s!all +e ounted )rom t!e da& t!e return -as )iled"
For %ur%oses o) t!is Setion( a return )iled +e)ore t!e last da& %resri+ed +& la- )or
t!e )ilin* t!ereo) s!all +e onsidered as )iled on su! last da&"
FACTS: In two notices dated October 28, 1988, Commissioner of Internal Revene
!CIR", assessed #an$ of t%e &%ili''ine Islands( !#&I(s" deficienc) 'ercenta*e and
docmentar) stam' ta+es for t%e )ear 198,- On .ecember 1/, 1988, #&I re'lied t%at t%e
0deficienc) assessments0 are no assessments at all becase t%e ta+'a)er is not informed,
even in t%e va*est terms, w%) it is bein* assessed a deficienc)- #&I re1ested t%at t%e
e+aminer concerned be re1ired to state, even in t%e briefest form, w%) %e believes t%e
ta+'a)er %as a deficienc) docmentar) and 'ercenta*e ta+es- It was onl) on 2ne 23,
1991, w%en #&I received a letter from CIR dated 4a) 8, 1991, e+'lainin* t%e basis of t%e
assessments-
On 2l) ,, 1991, #&I re1ested reconsideration of t%e assessments stated in t%e CIR(s
4a) 8, 1991 letter- T%is was denied on .ecember 12, 1991, received b) #&I on 2anar)
21, 1992- On Febrar) 18, 1992, #&I filed a 'etition for review in t%e CTA- T%e CTA
dismissed t%e case for lac$ of 5risdiction since t%e sb5ect assessments %ad become final
and na''ealable- It rled t%at #&I failed to 'rotest on time nder Section 23/ of t%e
6ational Internal Revene Code !6IRC" of 198, and Section 3 in relation to Section 11
of RA 1127- Reconsideration was denied- On a''eal, t%e CA reversed and remanded t%e
case to t%e CTA for a decision on t%e merits- It rled t%at t%e October 28, 1988 notices
were not valid assessments becase t%e) did not inform t%e ta+'a)er of t%e le*al and
factal bases t%erefor- It declared t%at t%e 'ro'er assessments were t%ose contained in t%e
4a) 8, 1991 letter w%ic% 'rovided t%e reasons for t%e claimed deficiencies- T%s, it %eld
t%at #&I filed t%e 'etition for review in t%e CTA on time-
8ence, t%e CIR elevated t%e case to t%e S'reme Cort-
ISS9:: ;%ic% of t%e 0assessments0 < t%e 6OTIC:S of October 28, 1988 or t%e 4a) 8,
1991 =:TT:R :>&=AI6I6? T8: #AS:S for t%e assessments < is t%e R:C@O6I6?
.AT: for 'r'oses of com'tin* &R:SCRI&TIO6 of &ROT:STA
8:=.: T%e 6OTIC:S of October 28, 1998- Admittedl), t%e CIR did not inform #&I in
writin* of t%e law and facts on w%ic% t%e assessments of t%e deficienc) ta+es were made-
8e merel) notified #&I of %is findin*s, consistin* onl) of t%e com'tation of t%e ta+
liabilities and a demand for 'a)ment t%ereof wit%in B/ da)s after recei't-In merel)
notif)in* #&I of %is findin*s, T8: CIR R:=I:. O6 T8: &ROCISIO6S OF T8:
FOR4:R S:CTIO6 23/ &RIOR TO ITS A4:6.4:6T #D RA 8E2E !Ta+ Reform Act of
1993"- Accordin*l), w%en t%e assessments were made 'rsant to t%e former Section 23/,
t%e onl) re1irement was for t%e CIR to 0notif)0 or inform t%e ta+'a)er of %is 0findin*s-0
6OT8I6? I6 T8: O=. =A; R:F9IR:. A ;RITT:6 STAT:4:6T TO T8:
TA>&AD:R OF T8: =A; A6. FACTS O6 ;8IC8 T8: ASS:SS4:6TS ;:R:
#AS:.- T%e Cort cannot read into t%e law w%at obviosl) was not intended b)
Con*ress- T%at wold be 5dicial le*islation, not%in* less- 2ris'rdence sim'l)
re1ired t%at t%e assessments contain a CO4&9TATIO6 OF TA> =IA#I=ITI:S, t%e
A4O96T t%e ta+'a)er was to 'a) and a .:4A6. FOR &AD4:6T wit%in a 'rescribed
'eriod- :ver)t%in* considered, t%ere was no dobt t%e October 28, 1988 notices
sfficientl) met t%e re1irements of a valid assessment nder t%e old law and
5ris'rdence-
Considerin* t%at t%e October 28, 1988 notices were valid assessments, #&I s%old %ave
'rotested t%e same wit%in B/ da)s from recei't t%ereof- T%e .ecember 1/, 1988 re'l) it
sent to t%e CIR did not 1alif) as a 'rotest- As a matter of fact, #&I never deemed it a
'rotest since it did not even consider t%e October 28, 1988 notices as valid or 'ro'er
assessments- T%e inevitable conclsion is t%at #&I(s failre to 'rotest t%e assessments
wit%in t%e B/Gda) 'eriod 'rovided in t%e former Section 23/ meant t%at t%e) became final
and na''ealable- T%s, t%e CTA correctl) dismissed #&I(s a''eal for lac$ of
5risdiction- #&I was, from t%en on, barred from dis'tin* t%e correctness of t%e
assessments or invo$in* an) defense t%at wold reo'en t%e 1estion of its liabilit) on t%e
merits-
T%e sentence: 0T%e ta+'a)ers s%all be informed in writin* of t%e law and t%e facts on
w%ic% t%e assessment is madeH ot%erwise, t%e assessment s%all be void0 was not in t%e
old Section 23/ bt was onl) later on inserted in t%e renmbered Section 228 in 1993-
:videntl), t%e le*islatre saw t%e need to modif) t%e former Section 23/ b) insertin* t%e
afore1oted sentence- T%e fact t%at t%e amendment was necessar) s%owed t%at, 'rior to
t%e introdction of t%e amendment, t%e statte %ad an entirel) different meanin*-
C I R vs- #an$ of t%e &%ili''ine Islands, ?-R- 6o- 1BE/,2, A'ril 13, 2//3
FACTS: &etitioner filed its Annal Income Ta+ Retrn for ta+able )ear 1983 on 1E A'ril
1988- T%e last da) for filin* b) 'etitioner of its retrn was on 17 A'ril 1988, t%s, *ivin*
res'ondent ntil 17 A'ril 1991 wit%in w%ic% to send an assessment notice- ;%ile
res'ondent avers t%at it sent t%e assessment notice dated 1 Febrar) 1991 on , Febrar)
1991, wit%in t%e t%ree !B"G)ear 'eriod 'rescribed b) law, 'etitioner denies %avin*
received an assessment notice from res'ondent- &etitioner alle*es t%at it came to $now of
t%e deficienc) ta+ assessment onl) on 13 4arc% 1992 w%en it was served wit% t%e
;arrant of .istraint and =ev)-
ISS9:: ;%et%er res'ondentIs ri*%t to assess 'etitionerIs alle*ed deficienc) income ta+ is
barred b) 'rescri'tion-
8:=.: Des- 9nder Section 2/B of t%e 6ational Internal Revene Code !6IRC",
res'ondent %ad t%ree !B" )ears from t%e last da) for t%e filin* of t%e retrn to send an
assessment notice to 'etitioner- In t%e case of Collector of Internal Revene v- #atista,
t%e Cort %eld t%at an assessment is made wit%in t%e 'rescri'tive 'eriod if notice to t%is
effect is released, mailed or sent b) t%e CIR to t%e ta+'a)er wit%in said 'eriod- Recei't
t%ereof b) t%e ta+'a)er wit%in t%e 'rescri'tive 'eriod is not necessar)- At t%is 'oint, IT
S8O9=. #: C=ARIFI:. T8AT T8: R9=: .O:S 6OT .IS&:6S: ;IT8 T8:
R:F9IR:4:6T T8AT T8: TA>&AD:R S8O9=. ACT9A==D R:C:IC:, :C:6
#:DO6. T8: &R:SCRI&TIC: &:RIO., T8: ASS:SS4:6T 6OTIC: ;8IC8 ;AS
TI4:=D R:=:AS:., 4AI=:. A6. S:6T-
In &rotectorIs Services, Inc- v- Cort of A''eals, t%e Cort rled t%at w%en a mail matter
is sent b) re*istered mail, t%ere e+ists a 'resm'tion, set fort% nder Section B!v", Rle
1B1 of t%e Rles of Cort, t%at it was received in t%e re*lar corse of mail- T%e facts to
be 'roved in order to raise t%is 'resm'tion are: !a" t%at t%e letter was 'ro'erl)
addressed wit% 'osta*e 're'aidH and !b" t%at it was mailed- ;%ile a mailed letter is
deemed received b) t%e addressee in t%e ordinar) corse of mail, t%is is still merel) a
dis'table 'resm'tion sb5ect to controversion, and a direct denial of t%e recei't t%ereof
s%ifts t%e brden 'on t%e 'art) favored b) t%e 'resm'tion to 'rove t%at t%e mailed
letter was indeed received b) t%e addressee-
In t%e case of 6ava v- Commissioner of Internal Revene, t%e Cort stressed on t%e
im'ortance of 'rovin* t%e release, mailin* or sendin* of t%e notice-
;%ile we %ave %eld t%at an assessment is made w%en sent wit%in t%e 'rescribed 'eriod,
even if received b) t%e ta+'a)er after its e+'iration !Coll- of Int- Rev- vs- #atista, =G
1227/ and =G12279, 4a) 23, 1979", t%is rlin* ma$es it t%e more im'erative t%at t%e
release, mailin*, or sendin* of t%e notice be clearl) and satisfactoril) 'roved- 4ere
notations made wit%ot t%e ta+'a)erIs intervention, notice, or control, wit%ot ade1ate
s''ortin* evidence, cannot sfficeH ot%erwise, t%e ta+'a)er wold be at t%e merc) of t%e
revene offices, wit%ot ade1ate 'rotection or defense-
In t%e 'resent case, 'etitioner denies receivin* t%e assessment notice, and t%e res'ondent
was nable to 'resent sbstantial evidence t%at sc% notice was, indeed, mailed or sent
b) t%e res'ondent before t%e #IRIs ri*%t to assess %ad 'rescribed and t%at said notice was
received b) t%e 'etitioner:
T%e res'ondent 'resented t%e #IR record boo$ w%ere t%e name of t%e ta+'a)er, t%e $ind
of ta+ assessed, t%e re*istr) recei't nmber and t%e date of mailin* were noted- T%e #IR
records cstodian, In*rid Cersola, also testified t%at s%e made t%e entries t%erein-
Res'ondent offered t%e entr) in t%e #IR record boo$ and t%e testimon) of its record
cstodian as entries in official records in accordance wit% Section EE, Rle 1B/ of t%e
Rles of Cort- In t%is case, %owever, t%e entries made b) In*rid Cersola were not based
on %er 'ersonal $nowled*e as s%e did not attest to t%e fact t%at s%e 'ersonall) 're'ared
and mailed t%e assessment notice- 6or was it stated in t%e transcri't of steno*ra'%ic
notes %ow and from w%om s%e obtained t%e 'ertinent information- 4oreover, s%e did not
attest to t%e fact t%at s%e ac1ired t%e re'orts from 'ersons nder a le*al dt) to sbmit
t%e same- 8ence, Rle 1B/, Section EE finds no a''lication in t%e 'resent case- T%s, t%e
evidence offered b) res'ondent does not 1alif) as an e+ce'tion to t%e rle a*ainst
%earsa) evidence-
Frt%ermore, inde'endent evidence, sc% as t%e re*istr) recei't of t%e assessment notice,
or a certification from t%e #rea of &osts, cold %ave easil) been obtained- Det
res'ondent failed to 'resent sc% evidence-
#arcelon, Ro+as Secrities, Inc- vs- C I R, ?-R- 6o- 173/,E, A*st 3, 2//,
2ris'rdence is re'lete wit% cases %oldin* t%at if t%e ta+'a)er denies ever %avin*
received an assessment from t%e #IR, it is incmbent 'on t%e latter to 'rove b)
com'etent evidence t%at sc% notice was indeed received b) t%e addressee- T%e ons
'robandi was s%ifted to res'ondent to 'rove b) contrar) evidence t%at t%e &etitioner
received t%e assessment in t%e de corse of mail- T%e S'reme Cort %as consistentl)
%eld t%at w%ile a mailed letter is deemed received b) t%e addressee in t%e corse of mail,
t%is is merel) a dis'table 'resm'tion sb5ect to controversion and a direct denial
t%ereof s%ifts t%e brden to t%e 'art) favored b) t%e 'resm'tion to 'rove t%at t%e mailed
letter was indeed received b) t%e addressee !Re'blic vs- Cort of A''eals, 1E9 SCRA
B71"- T%s as %eld b) t%e S'reme Cort in ?onJalo &- 6ava vs- Commissioner of
Internal Revene, 1B SCRA 1/E, 2anar) B/, 19,7:
0T%e facts to be 'roved to raise t%is 'resm'tion are !a" t%at t%e letter was 'ro'erl)
addressed wit% 'osta*e 're'aid, and !b" t%at it was mailed- Once t%ese facts are 'roved,
t%e 'resm'tion is t%at t%e letter was received b) t%e addressee as soon as it cold %ave
been transmitted to %im in t%e ordinar) corse of t%e mail- #t if one of t%e said facts
fails to a''ear, t%e 'resm'tion does not lie- !CI, 4oran, Comments on t%e Rles of
Cort, 19,B ed, 7,G73 citin* :nri1eJ vs- Snlife Assrance of Canada, E1 &%il- 2,9"-0
- - - - ;%at is essential to 'rove t%e fact of mailin* is t%e re*istr) recei't issed b) t%e
#rea of &osts or t%e Re*istr) retrn card w%ic% wold %ave been si*ned b) t%e
&etitioner or its at%oriJed re'resentative- And if said docments cannot be located,
Res'ondent at t%e ver) least, s%old %ave sbmitted to t%e Cort a certification issed b)
t%e #rea of &osts and an) ot%er 'ertinent docment w%ic% is e+ected wit% t%e
intervention of t%e #rea of &osts- T%is Cort does not 't mc% credence to t%e selfG
servin* docmentations made b) t%e #IR 'ersonnel es'eciall) if t%e) are ns''orted b)
sbstantial evidence establis%in* t%e fact of mailin*- T%s:
0;%ile we %ave %eld t%at an assessment is made w%en sent wit%in t%e 'rescribed 'eriod,
even if received b) t%e ta+'a)er after its e+'iration !Coll- of Int- Rev- vs- #atista, =G
1227/ and =G12279, 4a) 23, 1979", t%is rlin* ma$es it t%e more im'erative t%at t%e
release, mailin* or sendin* of t%e notice be clearl) and satisfactoril) 'roved- 4ere
notations made wit%ot t%e ta+'a)er(s intervention, notice or control, wit%ot ade1ate
s''ortin* evidence cannot sfficeH ot%erwise, t%e ta+'a)er wold be at t%e merc) of t%e
revene offices, wit%ot ade1ate 'rotection or defense-0 !6ava vs- CIR, 1B SCRA 1/E,
2anar) B/, 19,7"-
+++++++++-
T%e failre of t%e res'ondent to 'rove recei't of t%e assessment b) t%e &etitioner leads to
t%e conclsion t%at no assessment was issed- Conse1entl), t%e *overnment(s ri*%t to
isse an assessment for t%e said 'eriod %as alread) 'rescribed- !Indstrial Te+tile
4anfactrin* Co- of t%e &%ils-, Inc- vs- CIR, CTA Case E887, A*st 22, 199,"
!CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- 4:TRO STAR S9&:RA4A, I6C-,
?-R- 6o- 187B31 .ecember 8, 2/1/"
PRESCRIPTION Waiver of the defense of prescription
T%e waiver of t%e statte of limitations is not a waiver of t%e ri*%t to invo$e t%e defense
of 'rescri'tion- It is an a*reement between t%e ta+'a)er and t%e #IR t%at t%e 'eriod to
isse an assessment and collect t%e ta+es de is e+tended to a date certain- T%e waiver
does not mean t%at t%e ta+'a)er relin1is%es t%e ri*%t to invo$e 'rescri'tion
ne1ivocabl), 'articlarl) w%ere t%e lan*a*e of t%e docment is e1ivocal- For t%e
'r'ose of safe*ardin* ta+'a)ers from an) nreasonable e+amination, investi*ation or
assessment, or ta+ law 'rovides a statte of limitations in t%e assessment and collection
of ta+es- 4oreover, t%e law on 'rescri'tion, bein* a remedial measre, s%old be
liberall) constred in order to afford sc% 'rotection- As a corollar), t%e e+ce'tions to
t%e law on 'rescri'tion s%old 'erforce be strictl) constred-
&%ili''ine 2ornalists vs- Commissioner,
?-R- 6o- 1,2872, .ec- 1,, 2//E
;ellGsettled is t%e rle t%at 'rescri'tion as a defense is waived if not seasonabl)
inter'osed-
Cisa)an :lectric Co- vs- Commissioner, B9 SCRA EB
&rescri'tion bein* a matter of defense, t%e brden is on t%e ta+'a)er to 'rove t%at t%e fll
'eriod of limitation %as e+'ired, so t%at %e s%old 'ositivel) establis% t%e date w%en t%e
'eriod started to rn and w%en it ended-
Ferol vs- Collector, , SCRA B/E
T%e 'lea of 'rescri'tion is also deemed waived b) t%e failre to alle*e it in t%e
answer,4amblao =mber Co- vs- Re'blic, b) failin* to raise t%e isse of 'rescri'tion
in t%e 'etition for review filed in t%e CTA, S)C%ico vs- Collector, 1/3 &%il- E28 or b)
ac$nowled*ment of t%e obli*ation, Sambrano vs- CTA and Collector, 1/1 &%il- 1 or
rennciation of t%e benefit of 'rescri'tion alread) obtained- Re'blic vs- =im de D, 1/
SCRA 3B3
A ta+'a)er cannot 1estion t%e validit) of t%e waiver if %e alread) 'aid some of t%e
deficienc) ta+es covered b) t%e waiver- T%e ta+'a)er s%old %ave refsed to 'a) an) of
t%e deficienc) ta+es covered b) t%e waiver if %e reall) believes t%at t%e waiver is not valid
and t%e assessments were issed be)ond t%e 'rescri'tive 'eriod-
RiJal Commercial #an$in* Cor'oration vs- Commissioner, CTA
Case 6o- ,2/1, .ec- 17, 2//E
A waiver of t%e statte of limitations si*ned b) Com'troller of a cor'oration is valid,
even wit%ot a letter or certificate of at%orit) to e+ecte t%e waiver- R4O 2/G9/ clearl)
'rovides t%at, in case t%e ta+'a)er is a cor'oration, t%e waiver mst be si*ned b) an) of
its res'onsible officials- ;it%ot dobt, t%e Com'troller is a res'onsible official of a
cor'oration wit%in t%e 'rview of t%e law- T%e law merel) re1ires t%at t%e waiver be
si*ned b) an) of a cor'orationIs res'onsible officials, not necessaril) an at%oriJed
re'resentative or officer-
&%ili''ine 2ornalists vs- Commissioner, CTA Case 6o- ,1/8, 4a) 1E, 2//2
A waiver of t%e statte of limitations nder t%e Ta+ Code to a certain e+tent is a
dero*ation of t%e ta+'a)erIs ri*%ts to secrit) a*ainst 'rolon*ed and nscr'los
investi*ations and mst, t%erefore, be carefll) and strictl) constred- Oano vs- Cort of
A''eals, B98 SCRA 727 T%e decision of t%e CTA declarin* several waivers e+ected b)
t%e ta+'a)er as nll and void, t%s invalidatin* t%e assessments issed b) t%e #IR, was
'%eld b) t%e S'reme Cort- Commissioner vs- Cort of A''eals, B/B SCRA ,1E
&rescri'tion in relation to acts or dela)s of ta+'a)erGG&etitioner contends t%at res'ondent
ma) not avail %imself of t%e 'lea of 'rescri'tion, t%e dela) in ma$in* t%e revised
assessment %avin* been de mainl) to %is 'rotest a*ainst t%e ori*inal assessment,
t%ereb) indcin* 'etitioner to order several reinvesti*ations, t%e first of w%ic% was made
b) e+aminer :s'inosa w%o sbmitted %er re'ort A*st 23, 197B, 'on w%ic% t%e income
ta+ assessment notice of October 19, 197B, mst %ave been based- &etitioner relies, in
s''ort of %is 'retense, 'on t%e case of Collector vs- S)oc Consolidated 4inin* Co-,
=G11723, 6ov- 27, 1978, in w%ic% we %eld t%at KL t%ere are cases %owever w%ere a
ta+'a)er ma) be 'revented from settin* ' t%e defense of 'rescri'tion even if %e %as not
'reviosl) waived it in writin* as w%en b) %is re'eated re1ests or 'ositive acts, t%e
?overnment %as been, for *ood reasons, 'ersaded to 'ost'one collection to ma$e %im
feel t%at t%e demand was not nreasonable or t%at no %arassment or in5stice is meant b)
t%e ?overnment-M T%e S)oc case is not in 'oint, for res'ondent %ad not re1ested, or
indced t%e 'etitioner b) 'ositive acts to dela) t%e ma$in* of t%e revised assessment
notice of Oct- 19, 197B- 9' to t%at time, res'ondent merel) contended t%at t%e amonts
so*%t to be collected b) 'etitioner were not de from t%e estate of t%e deceased and *ave
%is reasons t%erefor- &etitioner %ad a 'erfectl) le*itimate ri*%t to do t%is and t%e same
does not sffice to sto' %im from invo$in* t%e statte of limitations- T%e rle a''licable
to t%e case at bar is t%at laid down in Collector vs- Solano, =G11E37, 2l) B1, 1978 and
Collector vs- &ineda, 2 SCRA E/1
:ffect of frad assessments w%ic% are final and e+ector)-GGSection 222!a" Ne+ce'tions as
to 'eriod of limitation of assessmentO of t%e Ta+ Code 'rovides t%at K+ ++ in a frad
assessment w%ic% %as beGcome final and e+ector), t%e fact of frad s%all be 5diciall)
ta$en co*niJance of in t%e civil or criminal action for t%e collection t%ereGof-M T%e effect
of t%is 'rovision is to 'lace wit%in t%e sco'e of 5dicial notice nder Section 1, Rle 129
of t%e Rles of Cort, and t%s dis'ense wit% t%e need for 'roof t%erefor, t%ose frad
assessments w%ic% %ave become final and e+ector) nder t%e law-
8owever, in Re'blic vs- @er P Co-, s'ra, t%e Commissioner maintained t%at t%e
ta+'a)er filed a false retrn and since t%e frad 'enalt) of 7/Q src%ar*e was im'osed
in t%e deficienc) income ta+ assessment, w%ic% %as become final and e+ector), t%e
findin* of t%e Commissioner as to t%e e+istence of frad %as also become final and need
not be 'roved- T%is contention sffers from a flaw in t%at it fails to consider t%e wellG
settled 'rinci'le t%at frad is a 1estion of fact, w%ic% mst be alle*ed and 'roved-
Frad is a serios c%ar*e and, to be sstained, it mst be s''orted b) clear and
convincin* 'roof- Accordin*l), frad s%old %ave been alle*ed and 'roved in t%e lower
cort- On t%ese 'remises, we sstain t%e rlin* of t%e lower cort on t%e 'oint of
'rescri'tion- @er P Co- raised t%e defense of 'rescri'tion in t%e 'roceedin*s below and
t%e Re'blic, instead of 1estionin* t%e ri*%t of t%e defendant to raise sc% defense,
liti*ated on it and sbmitted t%e isse for resoltion of t%e cort- #) its actation, t%e
Re'blic s%old be considered to %ave waived its ri*%t to ob5ect to t%e settin* ' of sc%
defense-
An assessment notice issed after t%e t%reeG)ear 'rescri'tive 'eriod is no lon*er valid
and effective-
Section 2/B of t%e 6ational Internal Revene Code of 1993 !6IRC" mandates t%e
*overnment to assess internal revene ta+es wit%in t%ree )ears from t%e last da)
'rescribed b) law for t%e filin* of t%e ta+ retrn or t%e actal date of filin* of sc% retrn,
w%ic%ever comes later- 8ence, an assessment notice issed after t%e t%reeG)ear
'rescri'tive 'eriod is no lon*er valid and effective-
Commissioner of Internal Revene vs- @dos 4etal Cor'-, ?-R- 6o- 138/83, 4a) 7,
2/1/
=imitation of actions for collection of income ta+ benefits bot% t%e ?overnment and its
citiJens-
T%e law 'rescribin* a limitation of actions for t%e collection of t%e income ta+ is
beneficial bot% to t%e ?overnment and to its citiJensH to t%e ?overnment becase ta+
officers wold be obli*ed to act 'rom'tl) in t%e ma$in* of assessment, and to citiJens
becase after t%e la'se of t%e 'eriod of 'rescri'tion citiJens wold %ave a feelin* of
secrit) a*ainst nscr'los ta+ a*ents w%o will alwa)s find an e+cse to ins'ect t%e
boo$s of ta+'a)ers, not to determine t%e latter(s real liabilit), bt to ta$e advanta*e of
ever) o''ortnit) to molest 'eacefl, lawGabidin* citiJens- ;it%ot sc% a le*al defense
ta+'a)ers wold frt%ermore be nder obli*ation to alwa)s $ee' t%eir boo$s and $ee'
t%em o'en for ins'ection sb5ect to %arassment b) nscr'los ta+ a*ents-
Re'blic of t%e &%ils-vs- =is ?- AblaJa, ?-R- 6o- =G1E719, 2l) 2,, 19,/
Ta+ assessments b) ta+ e+aminers are 'resmed correct and made in *ood fait%
Ta+ assessments b) ta+ e+aminers are 'resmed correct and made in *ood fait%- T%e
ta+'a)er %as t%e dt) to 'rove ot%erwise- In t%e absence of 'roof of an) irre*larities in
t%e 'erformance of dties, an assessment dl) made b) a #rea of Internal Revene
e+aminer and a''roved b) %is s'erior officers will not be distrbed- All 'resm'tions
are in favor of t%e correctness of ta+ assessments-
Commissioner of Internal Revene vs- ;)et% Saco =aboratories, Inc-, et al-, ?-R- 6o-
3,281, Se'tember B/, 1991
;aiver of statte of limitations does not mean t%at ta+'a)er relin1is%es its ri*%t to
invo$e 'rescri'tion-
A waiver of t%e statte of limitations nder t%e 6IRC, to a certain e+tent, is a dero*ation
of t%e ta+'a)ersI ri*%t to secrit) a*ainst 'rolon*ed and nscr'los investi*ations and
mst t%erefore be carefll) and strictl) constred- T%e waiver of t%e statte of limitations
is not a waiver of t%e ri*%t to invo$e t%e defense of 'rescri'tion as erroneosl) %eld b)
t%e Cort of A''eals- It is an a*reement between t%e ta+'a)er and t%e #IR t%at t%e 'eriod
to isse an assessment and collect t%e ta+es de is e+tended to a date certain- T%e waiver
does not mean t%at t%e ta+'a)er relin1is%es t%e ri*%t to invo$e 'rescri'tion
ne1ivocall) 'articlarl) w%ere t%e lan*a*e of t%e docment is e1ivocal- For t%e
'r'ose of safe*ardin* ta+'a)ers from an) nreasonable e+amination, investi*ation or
assessment, or ta+ law 'rovides a statte of limitations in t%e collection of ta+es- T%s,
t%e law on 'rescri'tion, bein* a remedial measre, s%old be liberall) constred in order
to afford sc% 'rotection- As a corollar), t%e e+ce'tions to t%e law on 'rescri'tion s%old
'erforce be strictl) constred-
&%ili''ine 2ornalists, Inc- vs- Commissioner of Internal Revene, ?-R- 6o- 1,2872,
.ecember 1,, 2//E
;aiver of statte of limitations is a bilateral a*reement between ta+'a)er and #IR-
T%e waiver is not a nilateral act b) t%e ta+'a)er or t%e #IR, bt is a bilateral a*reement
between two 'arties to e+tend t%e 'eriod to a date certain- T%e conformit) of t%e #IR
mst be made b) eit%er t%e Commissioner or t%e Revene .istrict Officer-
&%ili''ine 2ornalists, Inc- vs- Commissioner of Internal Revene, ?-R- 6o- 1,2872,
.ecember 1,, 2//E
Re1irement to frnis% ta+'a)er wit% co') of t%e waiver is to *ive notice of acce'tance
b) t%e #IR and 'erfection of t%e a*reement-
9nder R4O 6o- 2/G9/, t%e waiver mst be e+ected in t%ree co'ies wit% t%e second co')
for t%e ta+'a)er- T%e ta+'a)er mst be frnis%ed wit% a co') of t%e waiver becase even
if $nowin*l) e+ected, it is not considered a nilateral act of t%e ta+'a)er bt is in fact
and in law an a*reement between t%e ta+'a)er and t%e #IR- ;%en t%e ta+'a)erIs
com'troller si*ned t%e waiver, it was not )et com'lete and final becase t%e #IR %ad not
assented- T%ere is com'liance wit% t%e 'rovision of R4O 6o- 2/G9/ onl) after t%e
ta+'a)eAll 'resm'tions are in favor of ta+ assessments
Assessments are 'rima facie 'resmed correct and made in *ood fait%- Contrar) to t%e
t%eor) of AC4.C, it is t%e ta+'a)er and not t%e #rea of Internal Revene w%o %as t%e
dt) of 'rovin* ot%erwise- It is an elementar) rle t%at in t%e absence of 'roof of an)
irre*larities in t%e 'erformance of official dties, an assessment will not be distrbed-
All 'resm'tions are in favor of ta+ assessments- Ceril), failre to 'resent 'roof of error
in t%e assessment will 5stif) 5dicial affirmance of said assessment-
Commissioner of Internal Revene vs- Cort of A''eals, et al-, ?-R- 6o- 1/E171, 4arc%
1/, 1997
Contents of a valid ta+ assessment-
An assessment contains not onl) a com'tation of ta+ liabilities, bt also a demand for
'a)ment wit%in a 'rescribed 'eriod- It also si*nals t%e time w%en 'enalties and interests
be*in to accre a*ainst t%e ta+'a)er- To enable t%e ta+'a)er to determine %is remedies
t%ereon, de 'rocess re1ires t%at it mst be served on and received b) t%e ta+'a)er-
Commissioner of Internal Revene vs- &ascor Realt) and .evt- Cor'-, et al-, ?-R- 6o-
128B17, 2ne 29, 1999
;%en ta+ assessment is deemed made-
T%e assessment is deemed made w%en t%e notice to t%is effect is released, mailed or sent
to t%e ta+'a)er for t%e 'r'ose of *ivin* effect to said assessment- It a''earin* t%at t%e
'erson liable for t%e 'a)ment of t%e ta+ did not receive t%e assessment, t%e assessment
cold not become final and e+ector)-
Re'blic of t%e &%ils-vs- =eonor de la Rama, et al-, ?-R- 6o- =G211/8, 6ovember 29,
19,,
6otice of assessment sent to ta+'a)erIs old office is not a valid assessment-
Assmin* ar*endo t%at t%ere was a deficienc) ta+ for w%ic% t%e ta+'a)er was liable, t%e
commissioner failed to ma$e a valid assessment on it since t%e notice of assessment was
sent to t%e &AC(s old !and t%erefore im'ro'er" office address- &AC alread) indicated its
new address in its 198, ta+ retrn filed wit% t%e #IR(s 4a$ati office- T%is
notwit%standin*, t%e commissioner sent t%e notice of assessment to t%e ta+'a)erIs old
bsiness address instead of its new address, w%ic% was also #&I(s !&AC(s li1idator"
office address- Since t%ere was a failre to effect a timel) valid assessment, t%e 'eriod for
filin* a criminal case for &AC(s ta+ liabilities %ad 'rescribed b) t%e time 'etitioner
institted t%e criminal cases a*ainst its former officers-
Commissioner of Internal Revene vs- #&I, as li1idator of &aramont Acce'tance
Cor'-, ?-R- 6o- 1B7EE,, Se'tember 2B, 2//B
6ot all #IR docments containin* a com'tation of ta+ liabilit) can be deemed
assessments-
6eit%er t%e 6IRC nor t%e revene re*lations *overnin* t%e 'rotest of assessments
'rovide a s'ecific definition or form of an assessment- 8owever, t%e 6IRC defines t%e
s'ecific fnctions and effects of an assessment- To consider t%e affidavit attac%ed to t%e
Com'laint as a 'ro'er assessment is to sbvert t%e natre of an assessment and to set a
bad 'recedent t%at will 're5dice innocent ta+'a)ers- An assessment informs t%e ta+'a)er
t%at %e or s%e %as ta+ liabilities- #t not all docments comin* from t%e #IR containin* a
com'tation of t%e ta+ liabilit) can be deemed assessments-
Commissioner of Internal Revene vs- &ascor Realt) and .evt- Cor'-, et al-, ?-R- 6o-
128B17, 2ne 29, 1999
Assessment mst be sent to and received b) a ta+'a)er and mst demand 'a)ment of
ta+es-
An assessment mst be sent to and received b) a ta+'a)er, and mst demand 'a)ment of
t%e ta+es described t%erein wit%in a s'ecific 'eriod- T%s, t%e 6IRC im'oses a 27 'ercent
'enalt), in addition to t%e ta+ de, in case t%e ta+'a)er fails to 'a) t%e deficienc) ta+
wit%in t%e time 'rescribed for its 'a)ment in t%e notice of assessment- =i$ewise, an
interest of 2/ 'ercent 'er annm, or sc% %i*%er rate as ma) be 'rescribed b) rles and
re*lations, is to be collected from t%e date 'rescribed for its 'a)ment ntil t%e fll
'a)ment-
Commissioner of Internal Revene vs- &ascor Realt) and .evt- Cor'-, et al-, ?-R- 6o-
128B17, 2ne 29, 1999
Issance of an assessment is vital in determinin* 'eriod of limitation-
T%e issance of an assessment is vital in determinin* t%e 'eriod of limitation re*ardin*
its 'ro'er issance and t%e 'eriod wit%in w%ic% to 'rotest it- Section 2/B of t%e 6IRC
'rovides t%at internal revene ta+es mst be assessed wit%in t%ree )ears from t%e last da)
wit%in w%ic% to file t%e retrn- Section 222, on t%e ot%er %and, s'ecifies a 'eriod of ten
)ears in case a fradlent retrn wit% intent to evade was sbmitted or in case of failre
to file a retrn- Also, Section 228 of t%e same law states t%at said assessment ma) be
'rotested onl) wit%in t%irt) da)s from recei't t%ereof- 6ecessaril), t%e ta+'a)er mst be
certain t%at a s'ecific docment constittes an assessment- Ot%erwise, confsion wold
arise re*ardin* t%e 'eriod wit%in w%ic% to ma$e an assessment or to 'rotest t%e same, or
w%et%er interest and 'enalt) ma) accre t%ereon- It s%old also be stressed t%at t%e said
docment is a notice dl) sent to t%e ta+'a)er- Indeed, an assessment is deemed made
onl) w%en t%e collector of internal revene releases, mails or sends sc% notice to t%e
ta+'a)er-
Commissioner of Internal Revene vs- &ascor Realt) and .evt- Cor'-, et al-, ?-R- 6o-
128B17, 2ne 29, 1999
Affidavit containin* a com'tation of ta+ liabilit) is not a valid assessment-
T%e 'r'ose of t%e 2oint Affidavit containin* a com'tation of ta+ liabilit) was merel) to
s''ort and sbstantiate t%e criminal com'laint for ta+ evasion- Clearl), it was not
meant to be a notice of t%e ta+ de and a demand for 'a)ment t%ereof-
Commissioner of Internal Revene vs- &ascor Realt) and .evt- Cor'-, et al-, ?-R- 6o-
128B17, 2ne 29, 1999
9nreasonable investi*ation refers to cases w%ere 'eriod for assessment e+tends
indefinitel)-
T%e 6IRC, nder Sections 2/B and 222, 'rovides for a statte of limitations on t%e
assessment and collection of internal revene ta+es in order to safe*ard t%e interest of
t%e ta+'a)er a*ainst nreasonable investi*ation- 9nreasonable investi*ation
contem'lates cases w%ere t%e 'eriod for assessment e+tends indefinitel) becase t%is
de'rives t%e ta+'a)er of t%e assrance t%at it will no lon*er be sb5ected to frt%er
investi*ation for ta+es after t%e e+'iration of a reasonable 'eriod of time-
&%ili''ine 2ornalists, Inc- vs- Commissioner of Internal Revene, ?-R- 6o- 1,2872,
.ecember 1,, 2//E
Rationale for 'rescribin* a limitation of actions for income ta+ collection-
T%e law 'rescribin* a limitation of actions for t%e collection of t%e income ta+ is
beneficial bot% to t%e ?overnment and to its citiJensH to t%e ?overnment becase ta+
officers wold be obli*ed to act 'rom'tl) in t%e ma$in* of assessment, and to citiJens
becase after t%e la'se of t%e 'eriod of 'rescri'tion citiJens wold %ave a feelin* of
secrit) a*ainst nscr'los ta+ a*ents w%o will alwa)s find an e+cse to ins'ect t%e
boo$s of ta+'a)ers, not to determine t%e latter(s real liabilit), bt to ta$e advanta*e of
ever) o''ortnit) to molest 'eacefl, lawGabidin* citiJens- ;it%ot sc% a le*al defense
ta+'a)ers wold frt%ermore be nder obli*ation to alwa)s $ee' t%eir boo$s and $ee'
t%em o'en for ins'ection sb5ect to %arassment b) nscr'los ta+ a*ents- T%e law on
'rescri'tion bein* a remedial measre s%old be inter'reted in a wa) condcive to
brin*in* abot t%e beneficent 'r'ose of affordin* 'rotection to t%e ta+'a)er wit%in t%e
contem'lation of t%e Commission w%ic% recommend t%e a''roval of t%e law-
Re'blic of t%e &%il- vs- =is ?- AblaJa, ?-R- 6o- =G1E719, 2l) 2,, 19,/
?overnment s%old not await t%e reslt of t%e criminal 'roceedin*s before it can collect
t%e otstandin* cstoms dties and ta+es-
Ta+es are t%e lifeblood of t%e nation t%ro*% w%ic% t%e *overnment a*encies contine to
o'erate and wit% w%ic% t%e State effects its fnctions for t%e welfare of its constitents- It
is also settled t%at ta+es are t%e lifeblood of t%e *overnment and t%eir 'rom't and certain
availabilit) is an im'erios need- So t%en, t%e determination of t%e validit) or invalidit)
of t%e TCCs cannot be re*arded as a 're5dicial isse t%at mst first be resolved wit%
finalit) in t%e Criminal Cases filed before t%e Sandi*anba)an- T%e ?overnment s%old
not and mst not await t%e reslt of t%e criminal 'roceedin*s in t%e Sandi*anba)an
before it can collect t%e otstandin* cstoms dties and ta+es of t%e 'etitioner for sc%
will ndl) restrain t%e ?overnment in doin* its fnctions- T%e mac%ineries of t%e
?overnment will not be able to fnction well if t%e collection of ta+es will be dela)ed so
mc% so if its collection will de'end on t%e otcome of an) criminal 'roceedin*s on t%e
*ise t%at t%e isse of collection of ta+es is a 're5dicial isse t%at need to be first
resolved before enforcin* its collection-
&roton &ili'inas Cor'- vs- Re'blic of t%e &%il-, ?-R- 6o- 1,7/23, October 1,, 2//,
T%e ta+'a)er s%old actall) receive, even be)ond t%e 'rescri'tive 'eriod, t%e
assessment notice w%ic% was timel) released, mailed and sent-
9nder Section 2/B of t%e 6ational Internal Revene Code !6IRC", res'ondent %ad t%ree
!B" )ears from t%e last da) for t%e filin* of t%e retrn to send an assessment notice to
'etitioner- In t%e case of Collector of Internal Revene v- #atista, !1/7 &%il- 1B2,, 1B23
N1979O" t%is Cort %eld t%at an assessment is made wit%in t%e 'rescri'tive 'eriod if
notice to t%is effect is released, mailed or sent b) t%e CIR to t%e ta+'a)er wit%in said
'eriod- Recei't t%ereof b) t%e ta+'a)er wit%in t%e 'rescri'tive 'eriod is not necessar)- At
t%is 'oint, it s%old be clarified t%at t%e rle does not dis'ense wit% t%e re1irement t%at
t%e ta+'a)er s%old actall) receive, even be)ond t%e 'rescri'tive 'eriod, t%e assessment
notice w%ic% was timel) released, mailed and sent-
#arcelon, Ro+as Secrities, Inc- vs- Commissioner of Internal Revene, ?-R- 6o- 173/,E,
A*st 3, 2//,
SECTION 204" Aut!orit& o) t!e Commissioner to Com%romise( A+ate and
Re)und or Credit Ta$es" # T!e Commissioner ma& #
0A1 Com%romise t!e %a&ment o) an& internal re'enue ta$( -!en2
051 A reasona+le dou+t as to t!e 'alidit& o) t!e laim a*ainst t!e ta$%a&er e$ists6 or
021 T!e )inanial %osition o) t!e ta$%a&er demonstrates a lear ina+ilit& to %a& t!e
assessed ta$"
T!e om%romise settlement o) an& ta$ lia+ilit& s!all +e su+7et to t!e )ollo-in*
minimum amounts2
For ases o) )inanial ina%ait&( a minimum om%romise rate e8ui'alent to ten
%erent 05091 o) t!e +asi assessed ta$6 and
For ot!er ases( a minimum om%romise rate e8ui'alent to )ort& %erent 04091 o)
t!e +asi assessed ta$"
:!ere t!e +asi ta$ in'ol'ed e$eeds One million %esos 0P5(000(0001 or -!ere t!e
settlement o))ered is less t!an t!e %resri+ed minimum rates( t!e om%romise s!all
+e su+7et to t!e a%%ro'al o) t!e E'aluation ;oard -!i! s!all +e om%osed o) t!e
Commissioner and t!e )our 041 De%ut& Commissioners"
0;1 A+ate or anel a ta$ lia+ilit&( -!en2
051 T!e ta$ or an& %ortion t!ereo) a%%ears to +e un7ustl& or e$essi'el& assessed6 or
021 T!e administration and olletion osts in'ol'ed do not 7usti)& t!e olletion o)
t!e amount due"
All riminal 'iolations ma& +e om%romised e$e%t2
0a1 t!ose alread& )iled in ourt( or
0+1 t!ose in'ol'in* )raud"
0C1 Credit or re)und ta$es erroneousl& or ille*all& reei'ed or %enalties im%osed
-it!out aut!orit&( re)und t!e 'alue o) internal re'enue stam%s -!en t!e& are
returned in *ood ondition +& t!e %ur!aser( and( in !is disretion( redeem or
!an*e unused stam%s t!at !a'e +een rendered un)it )or use and re)und t!eir 'alue
u%on %roo) o) destrution" No redit or re)und o) ta$es or %enalties s!all +e allo-ed
unless t!e ta$%a&er )iles in -ritin* -it! t!e Commissioner a laim )or redit or
re)und -it!in t-o 021 &ears a)ter t!e %a&ment o) t!e ta$ or %enalt&2
Pro'ided( !o-e'er( T!at a return )iled s!o-in* an o'er%a&ment s!all +e
onsidered as a -ritten laim )or redit or re)und"
A Ta$ Credit Certi)iate 'alidl& issued under t!e %ro'isions o) t!is Code ma& +e
a%%lied a*ainst an& internal re'enue ta$( e$ludin* -it!!oldin* ta$es( )or -!i!
t!e ta$%a&er is diretl& lia+le" An& re8uest )or on'ersion into re)und o) unutili<ed
ta$ redits ma& +e allo-ed( su+7et to t!e %ro'isions o) Setion 2.0 o) t!is Code2
Pro'ided( T!at t!e ori*inal o%& o) t!e Ta$ Credit Certi)iate s!o-in* a redita+le
+alane is surrendered to t!e a%%ro%riate re'enue o))ier )or 'eri)iation and
anellation2 Pro'ided( )urt!er( T!at in no ase s!all a ta$ re)und +e *i'en resultin*
)rom a'ailment o) inenti'es *ranted %ursuant to s%eial la-s )or -!i! no atual
%a&ment -as made"
T!e Commissioner s!all su+mit to t!e C!airmen o) t!e Committee on :a&s and
Means o) +ot! t!e Senate and House o) Re%resentati'es( e'er& si$ 0=1 mont!s( a
re%ort on t!e e$erise o) !is %o-ers under t!is Setion( statin* t!erein t!e
)ollo-in* )ats and in)ormation( amon* ot!ers2 names and addresses o) ta$%a&ers
-!ose ases !a'e +een t!e su+7et o) a+atement or om%romise6 amount in'ol'ed6
amount om%romised or a+ated6 and reasons )or t!e e$erise o) %o-er2 Pro'ided(
T!at t!e said re%ort s!all +e %resented to t!e O'ersi*!t Committee in Con*ress t!at
s!all +e onstituted to determine t!at said %o-ers are reasona+l& e$erised and t!at
t!e Go'ernment is not undul& de%ri'ed o) re'enues"
CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- FAR :AST #A6@ P TR9ST CO-
N?-R- 6o- 13B87E, 4arc% 17, 2/1/O
FACTS: Far :ast #an$ P Trst Co- filed wit% t%e #IR two Cor'orate Annal Income Ta+
Retrns: one for its Cor'orate #an$in* 9nit !C#9" and anot%er for its Forei*n Crrenc)
.e'osit 9nit- T%e retrn for t%e C#9 consolidated t%e res'ondent(s overall income ta+
liabilit) for 199E, w%ic% reflected a refndable income ta+, t%e amont of w%ic% was carried
over and a''lied a*ainst its income ta+ liabilit) for t%e ta+able )ear endin* .ecember B1,
1997- Res'ondent t%en filed its 1997 Annal Income Ta+ Retrn, w%ic% s%owed a total
over'aid income ta+ of &13,EEB,1BB-//- Ot of t%is amont, res'ondent so*%t t%e refnd of
&1B,,E7,1/9-// and o'ted to carr) over t%e remainin* 'ortion of t%e refndable income ta+
to t%e ne+t ta+able )ear- ;%en t%e Commissioner of Internal Revene failed to act on t%e
claim for refnd, res'ondent elevated t%e matter to t%e CTA-
T%e CTA fond t%at res'ondent failed to 'rove t%at t%e income derived from rentals and sale
of real 'ro'ert) from w%ic% t%e ta+es were wit%%eld were reflected in its 199E Annal Income
Ta+ Retrn- T%e CA fond ot%erwiseH %ence, t%is &etition for Review on Certiorari-
ISS9:: ;%et%er or not res'ondent is entitled to t%e refnd-
R9=I6?: Res'ondent failed to 'rove its entitlement to t%e refnd-
A ta+'a)er claimin* for a ta+ credit or refnd of creditable wit%%oldin* ta+ mst com'l) wit%
t%e followin* re1isites:
1" T%e claim mst be filed wit% t%e CIR wit%in t%e twoG)ear 'eriod from t%e date of
'a)ment of t%e ta+H
2" It mst be s%own on t%e retrn t%at t%e income received was declared as 'art of t%e
*ross incomeH and
B" T%e fact of wit%%oldin* mst be establis%ed b) a co') of a statement dl) issed b)
t%e 'a)or to t%e 'a)ee s%owin* t%e amont 'aid and t%e amont of t%e ta+ wit%%eld-
Res'ondent com'lied wit% t%e first re1irement since t%e filin* of t%e administrative claim
for refnd and 5dicial claim for refnd were well wit%in t%e twoG)ear 'eriod from t%e date of
t%e filin* of t%e retrn- 8owever, res'ondent failed to com'l) wit% t%e second and t%ird
re1irements becase w%ile its Annal Income Ta+ Retrn s%ows t%at t%e *ross income was
derived solel) from sales of services, its 'roof of wit%%oldin* was evidenced b) Certificates
of Creditable Ta+ ;it%%eld at Sorce w%ic% 'ertained to rentals and 4ont%l) Remittance
Retrns of Income Ta+es ;it%%eld w%ic% 'ertained to sales of real 'ro'ert)- In fact, t%e
'%rase 06OT A&&=ICA#=:0 was 'rinted on t%e sc%edles 'ertainin* to rent, sale of real
'ro'ert), and trst income- T%s, based on t%e entries in t%e retrn, t%e income derived from
rentals and sales of real 'ro'ert) 'on w%ic% t%e creditable ta+es were wit%%eld were not
inclded in res'ondent(s *ross income as reflected in its retrn- Since no income was
re'orted, it follows t%at no ta+ was wit%%eld- It is incmbent 'on t%e ta+'a)er to reflect in
%is retrn t%e income 'on w%ic% an) creditable ta+ is re1ired to be wit%%eld at t%e sorce-
:>>O64O#I= &:TRO=:94 A6. C8:4ICA= 8O=.I6?S, I6C-G&8I=I&&I6:
#RA6C8 vs- CO44ISSIO6:R OF I6T:R6A= R:C:69: N?-R- 6o- 18/9/9- 2anar)
19, 2/11-O
FACTS: &etitioner :++on is a forei*n cor'oration dl) or*aniJed and e+istin* nder t%e
laws of t%e State of .elaware, 9nited States of America, at%oriJed to do bsiness in t%e
&%ili''ines t%ro*% its &%ili''ine #ranc%- :++on is en*a*ed in t%e bsiness of sellin*
'etrolem 'rodcts to domestic and international carriers- In 'rsit of its bsiness,
:++on 'rc%ased from Calte+ &%ili''ines, Inc- !Calte+" and &etron Cor'oration !&etron"
2et AG1 fel and ot%er 'etrolem 'rodcts, t%e e+cise ta+es on w%ic% were 'aid for and
remitted b) bot% Calte+ and &etron- Said ta+es, %owever, were 'assed on to :++on w%ic%
ltimatel) s%oldered t%e e+cise ta+es on t%e fel and 'etrolem 'rodcts-
On October B/, 2//B, :++on filed a 'etition for review wit% t%e CTA claimin* a refnd or
ta+ credit in t%e amont of &%'1/7,/9B,7B,-E3, re'resentin* t%e amont of e+cise ta+es
'aid on 2et AG1 fel and ot%er 'etrolem 'rodcts it sold to international carriers from
6ovember 2//1 to 2ne 2//2- .rin* :++on(s 're'aration of evidence, t%e CIR filed a
motion to first resolve t%e isse of w%et%er or not :++on was t%e 'ro'er 'art) to as$ for a
refnd- :++on t%en filed its o''osition to t%e motion-
T%e CTA First .ivision issed a resoltion sstainin* t%e CIR(s 'osition and dismissin*
:++on(s claim for refnd- :++on filed a motion for reconsideration, bt t%is was denied-
:++on filed a 'etition for review wit% t%e CTA :n #anc assailin* t%e Resoltions of t%e
CTA First .ivision w%ic% dismissed t%e 'etition for review- T%e CTA :n #anc dismissed
t%e 'etition for review and affirmed t%e two resoltions of t%e CTA First .ivision-
ISS9:S: I- ;%et%er t%e assailed decision and resoltion erroneosl) 'ro%ibited
'etitioner, as t%e distribtor and vendor of 'etrolem 'rodcts to international carriers
re*istered in forei*n contries w%ic% %ave e+istin* bilateral a*reements wit% t%e
&%ili''ines, from claimin* a refnd of t%e e+cise ta+es 'aid t%ereonH and
II- ;%et%er t%e assailed decisions erred in affirmin* t%e dismissal of 'etitioner(s
claim for refnd based on res'ondent(s 0motion to resolve first t%e isse of w%et%er or not
t%e 'etitioner is t%e 'ro'er 'art) t%at ma) as$ for a refnd,0 since said motion is
essentiall) a motion to dismiss, w%ic% s%old %ave been denied otri*%t b) t%e cort of
ta+ a''eals for %avin* been filed ot of time-
8:=.: T%e S'reme Cort denied t%e 'etition-
I- I- On res'ondent(s 0motion to resolve first t%e isse of w%et%er or not t%e
'etitioner is t%e 'ro'er 'art) t%at ma) as$ for a refnd-0 T%e S'reme Cort
%eld t%at t%is case is a clear ct a''lication of Rle 1,, Section , of t%e 1993
Rles of Civil &rocedre- T%e CIR did not file a motion to dismiss- T%s, %e
'leaded t%e *ronds for dismissal as affirmative defenses in its Answer and
t%ereafter 'ra)ed for t%e condct of a 'reliminar) %earin* to determine
w%et%er 'etitioner was t%e 'ro'er 'art) to a''l) for t%e refnd of e+cise ta+es
'aid- If :++on was not t%e 'ro'er 'art) to a''l) for t%e refnd of e+cise ta+es
'aid, t%en it wold be seless to 'roceed wit% t%e case- It wold not ma$e an)
sense to 'roceed to tr) a case w%en 'etitioner %ad no standin* to 'rse it-
II- On w%et%er 'etitioner, as t%e distribtor and vendor of 'etrolem 'rodcts to
international carriers re*istered in forei*n contries w%ic% %ave e+istin*
bilateral a*reements wit% t%e &%ili''ines, can claim a refnd of t%e e+cise
ta+es 'aid t%ereon- T%e e+cise ta+, w%en 'assed on to t%e 'rc%aser, becomes
'art of t%e 'rc%ase 'rice- :+cise ta+es are im'osed nder Title CI of t%e
6IRC- T%e) a''l) to s'ecific *oods manfactred or 'rodced in t%e
&%ili''ines for domestic sale or consm'tion or for an) ot%er dis'osition, and
to t%ose t%at are im'orted- In effect, t%ese ta+es are im'osed w%en two
conditions concr: first, t%at t%e articles sb5ect to ta+ belon* to an) of t%e
cate*ories of *oods enmerated in Title CI of t%e 6IRCH and second, t%at said
articles are for domestic sale or consm'tion, e+cldin* t%ose t%at are actall)
e+'orted-
T%ere are, %owever, certain e+em'tions to t%e covera*e of e+cise ta+es, sc% as 'etrolem
'rodcts sold to international carriers and e+em't entities or a*encies- 9nder Section
1B7, 'etrolem 'rodcts sold to international carriers of forei*n re*istr) on t%eir se or
consm'tion otside t%e &%ili''ines are e+em't from e+cise ta+, 'rovided t%at t%e
'etrolem 'rodcts sold to sc% international carriers s%all be stored in a bonded
stora*e tan$ and ma) be dis'osed of onl) in accordance wit% t%e rles and re*lations to
be 'rescribed b) t%e Secretar) of Finance, 'on recommendation of t%e Commissioner-
T%e confsion in t%is case stems from t%e fact t%at e+cise ta+es are of t%e natre of
indirect ta+es, t%e liabilit) for 'a)ment of w%ic% ma) fall on a 'erson ot%er t%an %e w%o
actall) bears t%e brden of t%e ta+- As 'etitioner is not t%e stattor) ta+'a)er, it is not
entitled to claim a refnd of e+cise ta+es 'aid- If t%e 'art) stattoril) liable for t%e ta+ is
different from t%e 'art) w%o bears t%e brden of sc% ta+, w%o is entitled to claim a
refnd of t%e ta+ 'aidA
T%e S'reme Cort cited Sections 129 and 1B/ of t%e 6IRC and a bod) of 5ris'rdence
%oldin* t%at t%e 'ro'er 'art) to 1estion, or to see$ a refnd of, an indirect ta+, is t%e
stattor) ta+'a)er, or t%e 'erson on w%om t%e ta+ is im'osed b) law and w%o 'aid t%e
same, even if %e s%ifts t%e brden t%ereof to anot%er- T%e determination of w%o is t%e
ta+'a)er 'la)s a 'ivotal role in claims for refnd becase t%e same law 'rovides t%at it is
onl) t%e ta+'a)er w%o %as t%e le*al 'ersonalit) to as$ for a refnd in case of erroneos
'a)ment of ta+es- T%erefore, as :++on is not t%e 'art) stattoril) liable for 'a)ment of
e+cise ta+es nder Section 1B/, in relation to Section 129 of t%e 6IRC, it is not t%e 'ro'er
'art) to claim a refnd of an) ta+es erroneosl) 'aid-
=astl), t%e S'reme Cort rled t%at t%ere is no nilateral amendment of e+istin*
bilateral a*reements of t%e &%ili''ines wit% ot%er contries w%en t%e CTA :n #anc %eld
t%at onl) 'etrolem 'rodcts 'rc%ased directl) from t%e manfactrers or 'rodcers are
e+em't from e+cise ta+es-
CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- ASIA6 TRA6S4ISSIO6
COR&ORATIO6 N?-R- 6o- 139,13- 2anar) 19, 2/11-O
FACTS: Res'ondent Asian Transmission Cor'oration !ATC" is a domestic cor'oration
en*a*ed in t%e manfactre of atomotive 'arts- It filed its annal Income Ta+ Retrn
!ITR" for t%e )ear 2/// on A'ril 1/, 2//1 w%ere it declared a *ross income of
&B3/,7B2,/82-//, a net loss of &239,92,,227-// and a minimm cor'orate income ta+
!4CIT" of &3,E1/,,E2-//- T%e 4CIT de was offset a*ainst t%e &B8,B/1,198-// e+istin*
ta+ credits and creditable ta+es wit%%eld of t%e ATC, t%ereb) leavin* an e+cess ta+ credit
or over'a)ment of &B/,89/,77,-//-
For t%e &B/,89/,77,-// over'a)ment, ATC o'ted 0To be issed a Ta+ Credit Certificate-0
In its ITR for t%e )ear 2//1, res'ondent declared a *ross income of &B22,8B9,8/2-//, a
net loss of &B3,8,9,E77-//, and 4CIT of &,,E7,,39,-//- After dedctin* its 4CIT de
a*ainst its e+istin* ta+ credits and creditable ta+es, res'ondent was left wit% a total ta+
credit of &71,3,/,B12-//- Res'ondent, %owever, a''lied 'art of its ntiliJed creditable
ta+es for t%e )ear 2/// amontin* to &3,,B9,822-// to its 4CIT de of &,,E7,,39,-//
for t%e )ear 2//1- =eft na''lied of its 2/// creditable ta+es, t%erefore, was t%e amont
of &1,18B,/2,-//- A*ain, res'ondent o'ted 0To be issed a Ta+ Credit Certificate0 for t%e
e+cess income ta+ 'a)ment-
On A'ril 9, 2//B, res'ondent filed wit% CIR(s =ar*e Ta+'a)ers Service an administrative
claim for t%e issance of ta+ credit certificate or cas% refnd in t%e amont of
&28,7/9,738-//, re'resentin* e+cessRntiliJed creditable income ta+es wit%%eld as of
.ecember B1, 2//1- ATC t%en filed a 'etition for review wit% t%e CTA wit%ot waitin* for
an action from t%e CIR to avoid t%e 'rescri'tive 'eriod nder Section 229 of t%e Ta+
Code-
T%e CTAGFirst .ivision rendered its .ecision 'artiall) *rantin* ATC(s claim for refnd
on its ntiliJed creditable wit%%oldin* ta+es for t%e ta+able )ear 2//1- It, %owever,
noted t%at ATC cold not be issed a ta+ credit certificate for t%e remainin* 2///
ntiliJed creditable ta+es 'rsant to Section 38 of t%e Ta+ Code, considerin* t%at ATC
initiall) declared t%at it wold o't 0To be Issed a Ta+ Credit Certificate0 for its 2///
creditable ta+es, bt never reall) e+ercised t%is o'tion- Instead, it made se of t%e o'tion
to carr)Gover its e+cess income ta+ 'a)ments, w%en it a''lied t%e same in redcin* its
2//1 4CIT-
T%e CTAGFirst .ivision ordered t%e CIR to isse a ta+ credit certificate in favor of ATC
in t%e redced amont of &2E,B27,87,-78 re'resentin* t%e ntiliJed creditable
wit%%oldin* ta+es for t%e ta+able )ear 2//1 based on its own com'tation- #ot% 'arties
so*%t reconsideration- Findin* merit onl) in t%e motion for reconsideration of ATC, t%e
CTAGFirst .ivision issed t%e Amended .ecision on A*st E, 2//,, and ordered
res'ondent to refnd or in t%e alternative, isse a ta+ credit certificate in favor of t%e
'etitioner t%e amont of &23,B27,87,-78 re'resentin* ntiliJed creditable wit%%oldin*
ta+es for ta+able )ear 2//1-
On a''eal, t%e CTAG:n #anc was convinced t%at ATC was able to 'rovide sfficient
evidence to establis% its claim for refnd or issance of a ta+ credit certificate-
8ence, t%e 'etition for review on certiorari-
ISS9:: ;%et%er or not res'ondent is entitled to refnd in t%e amont of &23,B27,87,-78
re'resentin* t%e alle*ed ntiliJed creditable wit%%oldin* ta+es for t%e ta+able )ear
2//1-
8:=.: T%e S'reme Cort denied t%e 'etition-
T%e CIR ar*es t%at w%ile t%e certificates of wit%%oldin* ta+es and t%e annal income ta+
retrns for t%e )ears 2/// and 2//1 sbmitted b) ATC ma) 'rove t%e inclsion of income
'a)ments w%ic% were t%e bases of t%e wit%%oldin* ta+es and t%e fact of wit%%oldin*, t%e)
are not sfficient to 'rove entitlement to t%e ta+ refnd re1ested- Accordin* to t%e CIR,
since Section 2-78-B !#" of Revene Re*lation 'rovides t%at 0claims for refnd or ta+
credit s%all be *iven de corse 'on s%owin* t%at income 'a)ment %as been declared as
'art of *ross income and t%e fact of wit%%oldin* is establis%ed,0 t%e mere sbmission of
t%e wit%%oldin* ta+ statements s%all onl) mean t%at ATC(s claim s%all be *iven de
corse, i-e-, %eard or considered- Accordin*l), t%e CIR 'osits t%at ATC still %as to s%ow
t%at it is entitled to t%e refnd re1ested b) 'rovin* not onl) t%e income 'a)ments made
bt also t%e re'orted losses-
T%e S'reme Cort 'ointed ot t%at t%e ar*ments raised b) t%e CIR in s''ort of its
'osition %ave alread) been t%oro*%l) discssed bot% b) t%e CTAGFirst .ivision and t%e
CTAG:n #anc- It reiterated t%e rle t%at t%e Cort will not li*%tl) set aside t%e
conclsions reac%ed b) t%e CTA w%ic%, b) t%e ver) natre of its fnction of bein*
dedicated e+clsivel) to t%e resoltion of ta+ 'roblems, %as accordin*l) develo'ed an
e+'ertise on t%e sb5ect, nless t%ere %as been an abse or im'rovident e+ercise of
at%orit)- At an) rate, t%e CIR is correct in statin* t%at t%e ta+'a)er bears t%e brden of
'roof to establis% not onl) t%at a refnd is 5stified nder t%e law bt also t%at t%e
amont t%at s%old be refnded is correct- In t%is case, %owever, t%e CTAGFirst .ivision
and t%e CTAG:n #anc niforml) fond t%at from t%e evidence sbmitted, ATC %as
establis%ed its claim for refnd or issance of a ta+ credit certificate for ntiliJed
creditable wit%%oldin* ta+es for t%e ta+able )ear 2//1 in t%e amont of &23,B27,87,-78-
T%e Cort finds no co*ent reason to rle differentl)-
;it% res'ect to t%e losses incrred b) t%e ATC, it is tre t%at t%e ta+'a)er bears t%e
brden to establis% t%e losses, bt it is 1ite clear from t%e evidence 'resented t%at ATC
%as flfilled its dt)- 4oreover, ot%er t%an t%e bare assertion t%at ATC mst establis% its
losses, t%e CIR fails to 'oint to an) circmstance or evidence t%at wold cast dobt on
ATC(s sworn declaration t%at it incrred losses in 2/// and 2//1-
C I R vs- Sea*ate Tec%nolo*) !&%il-", ?-R- 6o- 17B8,,, Febrar) 11, 2//7
FACTS: Sea*ate Tec%nolo*), a CATGre*istered and &:SAGre*istered manfactrer
of recordin* com'onents sed in com'ters for e+'ort, filed CAT retrns for t%e
'eriod 1 A'ril 1998 to B/ 2ne 1999- On October E, 1999, res'ondent filed an
administrative claim for refnd of CAT in't ta+es in t%e amont of
&28,B,9,22,-B8- T%is claim was not acted 'on b) 'etitioner 'rom'tin* t%e
res'ondent to elevate t%e case to t%e CTA on 2l) 21, 2/// b) wa) of &etition for
Review in order to toll t%e rnnin* of t%e twoG)ear 'rescri'tive 'eriod-
On 2l) 19, 2//1, t%e CTA rendered a decision *rantin* t%e claim for refnd-
T%e CA affirmed t%e .ecision of t%e CTA *rantin* t%e claim for refnd or issance
of a ta+ credit certificate !TCC" in favor of res'ondent in t%e redced amont of
&12,122,922-,,, re'resentin* t%e ntiliJed bt sbstantiated in't CAT 'aid on
ca'ital *oods 'rc%ased for t%e 'eriod coverin* A'ril 1, 1998 to 2ne B/, 1999-
ISS9:: Is res'ondent entitled to refnd or issance of Ta+ Credit CertificateA
R9=I6?: Des- 6o dobt, as a &:SAGre*istered enter'rise wit%in a s'ecial
economic Jone, res'ondent is entitled to t%e fiscal incentives and benefits 'rovided
for in eit%er &. ,, or :O 22,- It s%all, moreover, en5o) all 'rivile*es, benefits,
advanta*es or e+em'tions nder bot% Re'blic Act 6os- 3223 and 38EE- From t%e
aboveGcited laws, it is immediatel) clear t%at 'etitioner en5o)s 'referential ta+
treatment- It is not sb5ect to internal revene laws and re*lations and is even
entitled to ta+ credits- T%e CAT on ca'ital *oods is an internal revene ta+ from
w%ic% 'etitioner as an entit) is e+em't- Alt%o*% t%e transactions involvin* sc%
ta+ are not e+em't, 'etitioner as a CATGre*istered 'erson, %owever, is entitled to
t%eir credits- Since t%e 'rc%ases of res'ondent are not e+em't from t%e CAT, t%e
rate to be a''lied is Jero- Its e+em'tion nder bot% &. ,, and RA 391, effectivel)
sb5ects sc% transactions to a Jero rate, becase t%e ecoJone wit%in w%ic% it is
re*istered is mana*ed and o'erated b) t%e &:SA as a se'arate cstoms territor)-
8avin* determined t%at res'ondent(s 'rc%ase transactions are sb5ect to a Jero
CAT rate, t%e ta+ refnd or credit is in order-
As correctl) %eld b) bot% t%e CA and t%e Ta+ Cort, res'ondent %ad c%osen t%e
fiscal incentives in :O 22, over t%ose in RA 391, and &. ,,- It o'ted for t%e
income ta+ %olida) re*ime instead of t%e 7 'ercent 'referential ta+ re*ime- As a
matter of law and 'rocedre, its re*istration stats entitlin* it to sc% ta+ %olida)
can no lon*er be 1estioned- Its sales transactions intended for e+'ort ma) not be
e+em't, bt li$e its 'rc%ase transactions, t%e) are JeroGrated- 6o 'rior
a''lication for t%e effective Jero ratin* of its transactions is necessar)- #ein* CATG
re*istered and %avin* satisfactoril) com'lied wit% all t%e re1isites for claimin* a
ta+ refnd of or credit for t%e in't CAT 'aid on ca'ital *oods 'rc%ased,
res'ondent is entitled to sc% CAT refnd or credit-
C I R vs- Cit)trst #an$in* Cor'oration, ?-R- 6o- 17/812, A*st 22, 2//,
FACTS: T%e CTA ordered t%e CIR to *rant res'ondent, Cit)trst, a refnd in t%e amont
of &1B,B1E,7/,-1E re'resentin* its over'aid income ta+es for 198E and 1987- T%e CIR
filed a motion for reconsideration !4R" on t%e *rond t%at t%e Certificate of Ta+
;it%%eld was inconclsive evidence of 'a)ment and remittance of ta+ to t%e #rea of
Internal Revene- In its s''lemental 4R, t%e CIR alle*ed an additional *rond: t%at
Cit)trst %ad otstandin* deficienc) income and bsiness ta+ liabilities of &E,7/9,29B-31
for 198E, t%s, t%e claim for refnd was not in order- T%e ta+ cort denied bot% motions-
T%e case was elevated to t%e CA bt t%e a''ellate cort affirmed-
On 'etition for review on certiorari to t%e S'reme Cort, %owever, it rled t%at t%ere
was an a''arent contradiction between t%e claim for refnd and t%e deficienc)
assessments a*ainst Cit)trst, and t%at t%e *overnment cold not be %eld in esto''el de
to t%e ne*li*ence of its officials or em'lo)ees, es'eciall) in cases involvin* ta+es- For
t%at reason, t%e case was remanded to t%e CTA for frt%er rece'tion of evidence- T%e ta+
cort t%ereafter condcted t%e necessar) 'roceedin*s- One of t%e e+%ibits 'resented and
offered in t%e %earin*s was a letter, si*ned b) t%e CIR, statin* certain frt%er assessments
a*ainst Cit)trst for 198E- Cit)trst 'aid t%ese deficienc) ta+ liabilities- :+ce't for a
'endin* isse in anot%er CTA 'roceedin*, Cit)trst considered all its deficienc) ta+
liabilities for 198E fll) settledH %ence, it 'ra)ed t%at it be *ranted a refnd-
T%e CIR ob5ected alle*in* t%at Cit)trst still %ad n'aid deficienc) income, bsiness and
wit%%oldin* ta+es for t%e )ear 1987- .e to t%ese deficienc) assessments, t%e CIR
insisted t%at Cit)trst was not entitled to an) ta+ refnd-
T%e CTA set aside t%e CIRIs ob5ections and *ranted t%e refnd- T%e CA affirmed-
ISS9:: ;%et%er t%e CTAIs *rant of refnd in favor of Cit)trst coverin* alle*ed
over'aid income ta+es for 198E s%old be sstained 6OT;IT8STA6.I6? alle*ations of
otstandin* income ta+ liabilities for 1987-
8:=.: D:S #ecase of t%e CTAIs reco*niJed e+'ertise in ta+ation, its findin*s are not
ordinaril) sb5ect to review s'eciall) w%ere t%ere is no s%owin* of *rave error or abse
on its 'art- In resolvin* t%e case, t%e CTA did not allow a setGoff or le*al com'ensation
of t%e ta+es involved- T%e CTA reasoned:
First, res'ondentIs 'osition violates t%e order of t%e S'reme Cort in directin* t%e CTA
to condct frt%er 'roceedin*s for t%e rece'tion of 'etitionerIs evidence, and t%e
dis'osition of t%e 'resent case- Alt%o*% t%e S'reme Cort did not s'ecificall) mention
w%at $ind of 'etitionerIs evidence s%old be entertained, t%e CTA is of t%e o'inion t%at
t%e evidence s%old 'ertain onl) to t%e 198E assessments w%ic% were t%e onl)
assessments raised as a defense on a''eal to t%e Cort of A''eals and t%e S'reme
Cort- T%e assessments embodied in :+%ibit K7M of res'ondent were never raised on
a''eal to t%e %i*%er corts- 8ence, evidence related to said assessments s%old not be
allowed as t%is will lead to endless liti*ation-
Second, t%e CTA %as no 5risdiction to tr) an assessment case w%ic% was never a''ealed
to it- ;it% de res'ect to t%e S'reme CortIs decision, it is t%e CTAIs firm stand t%at in
%earin* a refnd case, t%e CTA cannot %ear in t%e same case an assessment dis'te even
if t%e 'arties involved are t%e same 'arties-
T%ere is indeed a contradiction between a claim for refnd and t%e assessment of
deficienc) ta+-
4anila #an$in* Cor'- vs- C I R, ?-R- 6o- 1,8118, A*st 28, 2//,
FACTS: &etitioner, 4anila #an$in* Cor'oration, was incor'orated in 19,1 and since
t%en %ad en*a*ed in t%e commercial ban$in* indstr) ntil 1983 w%en t%e 4onetar)
#oard of t%e #an*$oSentraln*&ili'inas !#S&" issed Resoltion 6o- 7/7, 'rsant to
Section 29 of Re'blic Act !R-A-" 6o- 2,7 !t%e Central #an$ Act", 'ro%ibitin* 'etitioner
from en*a*in* in bsiness b) reason of insolvenc)- T%s, 'etitioner ceased o'erations
t%at )ear and its assets and liabilities were 'laced nder t%e c%ar*e of a *overnmentG
a''ointed receiver- 4eanw%ile, R-A- 6o- 8E2E, ot%erwise $nown as t%e Com're%ensive
Ta+ Reform Act of 1993, became effective on 2anar) 1, 1998- One of t%e c%an*es
introdced b) t%is law is t%e im'osition of t%e minimm cor'orate income ta+ on
domestic and resident forei*n cor'orations- Im'lementin* t%is law is Revene
Re*lations 6o- 9G98 statin* t%at t%e law allows a for !E" )ear 'eriod from t%e time t%e
cor'orations were re*istered wit% t%e #rea of Internal Revene !#IR" drin* w%ic% t%e
minimm cor'orate income ta+ s%old not be im'osed- On 2ne 2B, 1999, after 12 )ears
since 'etitioner sto''ed its bsiness o'erations, t%e #S& at%oriJed it to o'erate as a
t%rift ban$- T%e followin* )ear, s'ecificall) on A'ril 3, 2///, it filed wit% t%e #IR its
annal cor'orate income ta+ retrn and 'aid &BB,81,,1,E-// for ta+able )ear 1999-
&rior to t%e filin* of its income ta+ retrn, 'etitioner sent a letter to t%e #IR re1estin* a
rlin* on w%et%er it is entitled to t%e for !E"G)ear *race 'eriod rec$oned from 1999- In
ot%er words, 'etitioner(s 'osition is t%at since it resmed o'erations in 1999, it will 'a)
its minimm cor'orate income ta+ onl) after for !E" )ears t%ereafter- On Febrar) 22,
2//1, t%e #IR issed #IR Rlin* 6o- //3G2//1 statin* t%at 'etitioner is entitled to t%e
for !E"G)ear *race 'eriod- Since it reo'ened in 1999, t%e minimm cor'orate income ta+
ma) be im'osed 0not earlier t%an 2//2, i-e- t%e fort% ta+able )ear be*innin* 1999-0
&rsant to t%e above Rlin*, 'etitioner filed wit% t%e #IR a claim for refnd of t%e sm
of &BB,81,,1,E-// erroneosl) 'aid as minimm cor'orate income ta+ for ta+able )ear
1999-
ISS9:: ;%et%er 'etitioner is entitled to a refnd of its minimm cor'orate income ta+
'aid to t%e #IR for ta+able )ear 1999-
8:=.: Des, nder RR EG97 !bt 6OT nder RR 9G98 im'lementin* RA 8E2E"-
Section 23!:" of t%e Ta+ Code 'rovides:
Sec- 23- Rates of Income Ta+ on .omestic Cor'orations- T - - -
!:" 4inimm Cor'orate Income Ta+ on .omestic Cor'orations- T
!1" Im'osition of Ta+- T A minimm cor'orate income ta+ of two 'ercent !2Q" of t%e
*ross income as of t%e end of t%e ta+able )ear, as defined %erein, is %ereb) im'osed on a
cor'oration ta+able nder t%is Title, be*innin* on t%e fort% ta+able )ear immediatel)
followin* t%e )ear in w%ic% sc% cor'oration commenced its bsiness o'erations, w%en
t%e minimm cor'orate income ta+ is *reater t%an t%e ta+ com'ted nder Sbsection !A"
of t%is Section for t%e ta+able )ear-
!2" Carr) Forward of :+cess 4inimm Ta+- T An) e+cess of t%e minimm cor'orate
income ta+ over t%e normal income ta+ as com'ted nder Sbsection !A" of t%is Section
s%all be carried forward and credited a*ainst t%e normal income ta+ for t%e t%ree !B"
immediatel) scceedin* ta+able )ears-
+++++++++
On t%e ot%er %and, Revene Re*lation 6o- 9G98 s'ecifies t%e 'eriod w%en a cor'oration
becomes sb5ect to t%e minimm cor'orate income ta+, t%s:
!7" S'ecific Rles for .eterminin* t%e &eriod ;%en a Cor'oration #ecomes Sb5ect
to t%e 4CIT !minimm cor'orate income ta+" T
For 'r'oses of t%e 4CIT, t%e ta+able )ear in w%ic% bsiness o'erations commenced
s%all be t%e )ear in w%ic% t%e domestic cor'oration re*istered wit% t%e #rea of
Internal Revene !#IR"-
Firms w%ic% were re*istered wit% #IR in 199E and earlier )ears s%all be covered b) t%e
4CIT be*innin* 2anar) 1, 1998-
T%e intent of Con*ress relative to t%e minimm cor'orate income ta+ is to *rant a for
!E"G)ear ss'ension of ta+ 'a)ment to newl) formed cor'orations- Cor'orations still
startin* t%eir bsiness o'erations %ave to stabiliJe t%eir ventre in order to obtain a
stron*%old in t%e indstr)- It does not come as a sr'rise t%en w%en man) com'anies
re'orted losses in t%eir initial )ears of o'erations- T%s, in order to allow new
cor'orations to *row and develo' at t%e initial sta*es of t%eir o'erations, t%e lawma$in*
bod) saw t%e need to 'rovide a *race 'eriod of for )ears from t%eir re*istration before
t%e) 'a) t%eir minimm cor'orate income ta+-
Si*nificantl), on Febrar) 2B, 1997, Con*ress enacted R-A- 6o- 39/,, ot%erwise $nown
as t%e 0T%rift #an$s Act of 1997-0 It too$ effect on 4arc% 18, 1997- T%is law 'rovides for
t%e re*lation of t%e or*aniJation and o'erations of t%rift ban$s- 9nder Section B, t%rift
ban$s inclde savin*s and mort*a*e ban$s, 'rivate develo'ment ban$s, and stoc$
savin*s and loans associations or*aniJed nder e+istin* laws- On 2ne 17, 1999, t%e #IR
issed Revene Re*lation 6o- EG97 im'lementin* certain 'rovisions of t%e said R-A- 6o-
39/,- Section , 'rovides:
Sec- ,- &eriod of e+em'tion- T All t%rift ban$s created and or*aniJed nder t%e
'rovisions of t%e Act s%all be e+em't from t%e 'a)ment of all ta+es, fees, and c%ar*es of
w%atever natre and descri'tion, e+ce't t%e cor'orate income ta+ im'osed nder Title II
of t%e 6IRC and as s'ecified in Section 2!A" of t%ese re*lations, for a 'eriod of five !7"
)ears from t%e date of commencement of o'erationsH w%ile for t%rift ban$s w%ic% are
alread) e+istin* and o'eratin* as of t%e date of effectivit) of t%e Act !4arc% 18, 1997",
t%e ta+ e+em'tion s%all be for a 'eriod of five !7" )ears rec$oned from t%e date of sc%
effectivit)-
For 'r'oses of t%ese re*lations, 0date of commencement of o'erations0 s%all be
nderstood to mean t%e date w%en t%e t%rift ban$ was re*istered wit% t%e Secrities and
:+c%an*e Commission or t%e date w%en t%e Certificate of At%orit) to O'erate was
issed b) t%e 4onetar) #oard of t%e #an*$oSentraln*&ili'inas, w%ic%ever comes later-
&etitioner ban$ was re*istered wit% t%e #IR in 19,1- 8owever, in 1983, it was fond
insolvent b) t%e 4onetar) #oard of t%e #S& and was 'laced nder receivers%i'- After
twelve !12" )ears, or on 2ne 2B, 1999, t%e #S& issed to it a Certificate of At%orit) to
O'erate as a t%rift ban$- :arlier, or on 2anar) 21, 1999, it re*istered wit% t%e #IR- T%en
it filed wit% t%e S:C its Articles of Incor'oration w%ic% was a''roved on 2ne 22, 1999-
It is clear from t%e aboveG1oted 'rovision of Revene Re*lations 6o- EG97 t%at t%e date
of commencement of o'erations of a t%rift ban$ is t%e date it was re*istered wit% t%e S:C
or t%e date w%en t%e Certificate of At%orit) to O'erate was issed to it b) t%e 4onetar)
#oard of t%e #S&, w%ic%ever comes later- Revene Re*lations 6o- 9G98, im'lementin*
R-A- 6o- 8E2E im'osin* t%e minimm cor'orate income ta+ on cor'orations, 'rovides
t%at for 'r'oses of t%is ta+, t%e date w%en bsiness o'erations commence is t%e )ear in
w%ic% t%e domestic cor'oration re*istered wit% t%e #IR- 8owever, nder Revene
Re*lations 6o- EG97, t%e date of commencement of o'erations of t%rift ban$s, sc% as
%erein 'etitioner, is t%e date t%e 'articlar t%rift ban$ was re*istered wit% t%e S:C or t%e
date w%en t%e Certificate of At%orit) to O'erate was issed to it b) t%e 4onetar) #oard
of t%e #S&, w%ic%ever comes later-
Clearl) t%en, Revene Re*lations 6o- EG97, not Revene Re*lations 6o- 9G98, a''lies
to 'etitioner, bein* a t%rift ban$- It is, t%erefore, entitled to a *race 'eriod of for !E"
)ears conted from 2ne 2B, 1999 w%en it was at%oriJed b) t%e #S& to o'erate as a
t%rift ban$- Conse1entl), it s%old onl) 'a) its minimm cor'orate income ta+ after for
!E" )ears from 1999-
Atlas Consolidated 4inin* and .ev(t- Cor'- vs- C I R,
?-R- 6o- 1E772,, 4arc% 1,, 2//3
FACTS: On 4arc% B1, 199B, 'etitioner 'resented to res'ondent Commissioner of
Internal Revene, a''lications for refnd or ta+ credit of e+cess in't ta+es for t%e
second, t%ird and fort% 1arters of 1992- &etitioner attribted t%ese claims to its sales of
*old to t%e Central #an$, co''er concentrates to &%ili''ine Associated Smeltin* and
Refinin* Cor'oration !&ASAR" and ')rite to &%ili''ine &%os'%ates, Inc- !&%il'%os" on
t%e t%eor) t%at t%ese were JeroGrated transactions resltin* in refndable or creditable
in't ta+es nder Section 1/,!b" of t%e Ta+ Code of 198,- Res'ondent(s continos
inaction and t%e imminent e+'iration of t%e twoG)ear 'eriod for be*innin* a cort action
for ta+ credit or refnd 'rom'ted 'etitioner to brin* its claims to t%e Cort of Ta+
A''eals !CTA"-
#ot% t%e CTA and t%e CA denied 'etitioner(s claims on, amon* ot%ers, insfficienc) of
evidence-
ISS9:: ;%et%er t%e docmentar) evidence addced b) 'etitioner sffice for t%e
'r'ose of its a''lication for ta+ credit or refnd
8:=.: 6o- It %as alwa)s been t%e rle t%at t%ose see$in* ta+ refnds or credits bear
t%e brden of 'rovin* t%e factal bases of t%eir claims and of s%owin*, b) words too
'lain to be mista$en, t%at t%e le*islatre intended to entitle t%em to sc% claims- T%e rle,
in t%is case, re1ired 'etitioner to !1" s%ow t%at its sales 1alified for JeroGratin* nder
t%e laws t%en in force and !2" 'resent sfficient evidence t%at t%ose sales reslted in
e+cess in't ta+es- T%ere is no dis'te t%at res'ondent %ad a''roved 'etitioner(s
a''lications for t%e JeroGratin* of its sales to t%e Central #an$, &ASAR and &%il'%os
'rior to t%e transactions from w%ic% t%ese claims arose- T%s, on t%e stren*t% of t%e
rlin* in Atlas Consolidated 4inin* and .evelo'ment Cor'- v- Commissioner of Internal
Revene t%at res'ondent(s a''roval of 'etitioner(s a''lication for JeroGratin* of its sales
to &%il'%os and &ASAR 0indbitabl) si*nified0 t%at sc% sales 1alified for JeroGratin*, it
cold well be conceded t%at 'etitioner %ad com'lied wit% t%e first re1irement-
8owever, 'etitioner mst also sbmit sfficient evidence to 5stif) t%e *rant of refnd or
ta+ credit- It was %ere t%at 'etitioner fell s%ort-
T%e CTA and t%e CA bot% fond t%at 'etitioner failed to com'l) wit% t%e evidentiar)
re1irements for claims for ta+ credits or refnds set fort% in Section 2 !c" of Revene
Re*lations BG88 and in CTA Circlar 1G97, as amended b) CTA Circlar 1/G93-
CTA Circlar 1G97 li$ewise re1ired sbmission of invoices or recei'ts s%owin* t%e
amonts of ta+ 'aid:
1- T%e 'art) w%o desires to introdce as evidence sc% volminos docments mst,
after motion and a''roval b) t%e Cort, 'resent: !a" a Smmar) containin*, amon*
ot%ers, a c%ronolo*ical listin* of t%e nmbers, dates and amonts covered b) t%e invoices
or recei'ts and t%e amontRs of ta+ 'aidH and !b" a Certification of an inde'endent
Certified &blic Accontant attestin* to t%e correctness of t%e contents of t%e smmar)
after ma$in* an e+amination, evalation and adit of t%e volminos recei'ts and
invoices- - - -
2- T%e met%od of individal 'resentation of eac% and ever) recei't, invoice or
accont for mar$in*, identification and com'arison wit% t%e ori*inals t%ereof need not
be done before t%e Cort or Cler$ of Cort an)more after t%e introdction of t%e
smmar) and C&A certification- It is eno*% t%at t%e recei'ts, invoices, voc%ers or ot%er
docments coverin* t%e said acconts or 'a)ment to be introdced in evidence mst be
'reGmar$ed b) t%e 'art) concerned and sbmitted to t%e Cort in order to be made
accessible to t%e adverse 'art) w%o desires to c%ec$ and verif) t%e correctness of t%e
smmar) and C&A certification- =i$ewise t%e ori*inals of t%e volminos recei'ts,
invoices or acconts mst be read) for verification and com'arison in case dobt on t%e
at%enticit) t%ereof is raised drin* t%e %earin* or resoltion of t%e formal offer of
evidence-
#ot% corts correctl) observed t%at 'etitioner never sbmitted an) of t%e invoices or
recei'ts re1ired b) t%e fore*oin* rles and %eld t%is omission to be fatal to its case-
#anco Fili'ino Savin*s and 4ort*a*e #an$ vs- Cort of A''eals, et al-, ?-R- 6o-
177,82, 4arc% 23, 2//3
FACTS: &etitioner filed wit% t%e Commissioner of Internal Revene an administrative
claim for refnd of creditable ta+es wit%%eld for t%e )ear 1997- As t%e CIR failed to act
on its claim, 'etitioner filed a &etition for Review wit% t%e CTA- It attac%ed to its &etition
several docments, incldin*: 1" Certificate of Income Ta+ ;it%%eld on Com'ensation
!#IR Form 6o- ;G2" for t%e Dear 1997 e+ected b) Oscar =oJano coverin* &32/-// as
ta+ wit%%eld on rental income 'aid to 'etitioner !:+%ibit 0II0"H and 2" 4ont%l)
Remittance Retrn of Income Ta+es ;it%%eld nder #IR Form 6o- 13EB; issed b)
'etitioner, indicatin* varios amonts it wit%%eld and remitted to t%e #IR !:+%ibits 0C0
t%ro*% 0S0"-
In %is Answer, res'ondent CIR inter'osed s'ecial and affirmative defenses s'ecificall)
t%at 'etitioner(s claim is not 'ro'erl) docmented- #ot% t%e CTA and t%e CA denied t%e
'etition on *rond t%at t%e docmentar) evidence 'resented lac$ed 'robative vale-
ISS9:: ;%et%er t%e CA erred in affirmin* t%e disallowance b) t%e CTA of 'etitioner(s
claim for ta+ refnd on *rond t%at t%e latter(s :+%ibit 0II0 and :+%ibits 0C0 t%ro*% 0S0
lac$ 'robative vale-
8:=.: 6o- T%ere are t%ree conditions for t%e *rant of a claim for refnd of creditable
wit%%oldin* ta+: 1" t%e claim is filed wit% t%e CIR wit%in t%e twoG)ear 'eriod from t%e
date of 'a)ment of t%e ta+H 2" it is s%own on t%e retrn of t%e reci'ient t%at t%e income
'a)ment received was declared as 'art of t%e *ross incomeH and, B" t%e fact of
wit%%oldin* is establis%ed b) a co') of a statement dl) issed b) t%e 'a)or to t%e 'a)ee
s%owin* t%e amont 'aid and t%e amont of t%e ta+ wit%%eld t%erefrom-
T%e t%ird condition is s'ecificall) im'osed nder Section 1/ of Revene Re*lation 6o-
,G87 !as amended", t%s:
Sec- 1/- Claim for ta+ credit or refnd- T !a" Claims for Ta+ Credit or Refnd of
income ta+ dedcted and wit%%eld on income 'a)ments s%all be *iven de corse onl)
w%en it is s%own on t%e retrn t%at t%e income 'a)ment received %as been declared as
'art of t%e *ross income and t%e fact of wit%%oldin* is establis%ed b) a co') of t%e
;it%%oldin* Ta+ Statement dl) issed b) t%e 'a)or to t%e 'a)ee s%owin* t%e amont
'aid and t%e amont of ta+ wit%%eld t%erefrom - - - -
T%ere is no dobt t%at 'etitioner com'lied wit% t%e first two re1irements- T%e 1estion is
w%et%er it com'lied wit% t%e t%ird condition b) 'resentin* merel) a Certificate of Income
Ta+ ;it%%eld on Com'ensation or #IR Form 6o- ;G2 !:+%ibit 0II0" and 4ont%l)
Remittance Retrn of Income Ta+es ;it%%eld nder #IR Form 6o- 13EB; !:+%ibits 0C0
t%ro*% 0S0"- &etitioner ar*es t%at its :+%ibit 0II0 and :+%ibits 0C0 t%ro*% 0S0 s%old
be accorded t%e same 'robative vale as a #IR Form 6o- 13EB-1, for said docments are
also official #IR forms and t%e) reflect t%e fact t%at ta+es were actall) wit%%eld and
remitted- It a''eals for liberalit) considerin* t%at its annal retrn clearl) s%ows t%at it
is entitled to creditable wit%%oldin* ta+-T%e docment w%ic% ma) be acce'ted as
evidence of t%e t%ird condition, t%at is, t%e fact of wit%%oldin*, mst emanate from t%e
'a)or itself, and not merel) from t%e 'a)ee, and mst indicate t%e name of t%e 'a)or, t%e
income 'a)ment basis of t%e ta+ wit%%eld, t%e amont of t%e ta+ wit%%eld and t%e natre
of t%e ta+ 'aid-
At t%e time material to t%is case, t%e re1isite information re*ardin* wit%%oldin* ta+es
from t%e sale of ac1ired assets can be fond in #IR Form 6o- 13EB-1- As described in
Section , of Revene Re*lations 6o- ,G87, #IR Form 6o- 13EB-1 is a written statement
issed b) t%e 'a)or as wit%%oldin* a*ent s%owin* t%e income or ot%er 'a)ments made b)
t%e said wit%%oldin* a*ent drin* a 1arter or )ear and t%e amont of t%e ta+ dedcted
and wit%%eld t%erefrom- It readil) identifies t%e 'a)or, t%e income 'a)ment and t%e ta+
wit%%eld- It is com'lete in t%e relevant details w%ic% wold aid t%e corts in t%e
evalation of an) claim for refnd of creditable wit%%oldin* ta+es- In relation to
wit%%oldin* ta+es from rental income, t%e re1isite information can be fond in #IR
Form 6o- 13EBG37/- &etitioner is well aware of t%is for its own :+%ibits 0AA0 t%ro*%
0880 are all in #IR Form 6o- 13EBG37/- As earlier stated, t%e CTA a''roved 'etitioner(s
claim for refnd to t%e e+tent of &18,88E-E/, w%ic% is t%e 'ortion of its claim s''orted
b) its :+%ibits 0AA0 t%ro*% 088-0
In t%e 'resent case, t%e dis'ted 'ortions of 'etitioner(s claim for refnd is s''orted
merel) b) :+%ibits 0C0 t%ro*% 0S0 and :+%ibit 0II-0 :+%ibits 0C0 t%ro*% 0S0 were
issed b) 'etitioner as 'a)ee 'r'ortedl) actin* as wit%%oldin* a*ent, and not b) t%e
alle*ed 'a)ors in t%e transactions covered b) t%e docments- 4oreover, t%e docments
do not identif) t%e 'a)ors involved or t%e natre of t%eir transaction- T%e) do not
indicate t%e amont and natre of t%e income 'a)ments 'on w%ic% t%e ta+ was
com'ted or t%e natre of t%e transactions from w%ic% t%e income 'a)ments were
derived, s'ecificall) w%et%er it reslted from t%e sale of 'etitioner(s ac1ired assets-
As to 'etitioner(s :+%ibit 0II,0 w%ile it was issed b) a 'a)or, t%e docment does not state
t%e amont and natre of t%e income 'a)ment- 8ence, it cannot be verified from t%e
docment if t%e ta+ wit%%eld is correct- For all its deficiencies, t%erefore, 'etitioner(s
:+%ibits 0C0 t%ro*% 0S0 cannot ta$e t%e 'lace of #IR Form 6o- 13EB-1 and its :+%ibit
0II,0 of #IR Form 6o- 13EBG37/- &etitioner cannot falt t%e CA and CTA for findin* said
evidence insfficient to s''ort its claim for ta+ refnd-
Sil$air !Sin*a'ore" &te- =td- vs- Commissioner of Internal Revene,
?-R- 6os- 131B8B P 132B39, 6ovember 1E, 2//8
FACTS: T%ese consolidated cases so*%t to set aside CTA decision and CTA :n #anc
resoltion den)in* 'etitionerIs claim for refnd of e+cise ta+es 'aid on 'etitioner(s
'rc%ase of aviation 5et fel from &etron Cor'oration in 1999- &etitioner 'rc%ased
aviation 5et fel from &etron for se on 'etitioner(s international fli*%ts- #ased on t%e
Aviation .eliver) Recei'ts and Invoices 'resented, e+cise !s'ecific" ta+ was added to t%e
amont 'aid b) 'etitioner on its 'rc%ases of aviation 5et fel- &etitioner, t%ro*% its
sister com'an) Sin*a'ore Airlines =td-, 'aid e+cise ta+es for its 'rc%ases of t%e aviation
5et fel from &etron- &etitioner, contendin* t%at it is e+em't from t%e 'a)ment of e+cise
ta+es nder Section 1B7 of t%e 1993 6IRC, and nder Article E of t%e Air Trans'ort
A*reement between t%e ?overnments of t%e Re'blic of t%e &%ili''ines and t%e Re'blic
of Sin*a'ore, filed a formal claim for refnd wit% t%e Commissioner of Internal Revene-
ISS9:: ;%et%er 'etitioner is t%e 'ro'er 'art) to claim a refnd for t%e e+cise ta+es
'aid-
8:=.: An e+cise ta+ is an indirect ta+ w%ere t%e ta+ brden can be s%ifted to t%e
consmer bt t%e ta+ liabilit) remains wit% t%e manfactrer or 'rodcer- In t%e refnd of
indirect ta+es, t%e stattor) ta+'a)er is t%e 'ro'er 'art) w%o can claim t%e refnd- T%e
e+cise ta+ is de from t%e manfactrers of t%e 'etrolem 'rodcts and is 'aid 'on
removal of t%e 'rodcts from t%eir refineries- :ven before t%e aviation 5et fel is
'rc%ased from &etron, t%e e+cise ta+ is alread) 'aid b) &etron- &etron, bein* t%e
manfactrer, is t%e 0'erson sb5ect to ta+0- In t%is case, &etron, w%ic% 'aid t%e e+cise
ta+ 'on removal of t%e 'rodcts from its #ataan refiner), is t%e 0'erson liable for ta+0-
&etitioner is neit%er a 0'erson liable for ta+0 nor 0a 'erson sb5ect to ta+0- T%ere is also
no le*al dt) on t%e 'art of 'etitioner to 'a) t%e e+cise ta+H %ence, 'etitioner cannot be
considered t%e ta+'a)er-
:ven if t%e ta+ is s%ifted b) &etron to its cstomers and even if t%e ta+ is billed as a
se'arate item in t%e aviation deliver) recei'ts and invoices issed to its cstomers,
&etron remains t%e ta+'a)er becase t%e e+cise ta+ is im'osed directl) on &etron as t%e
manfactrer- 8ence, &etron, as t%e stattor) ta+'a)er, is t%e 'ro'er 'art) t%at can claim
t%e refnd of t%e e+cise ta+es 'aid to t%e #IR-
Filinvest .evelo'ment Cor'- vs- C I R, ?-R- 6o- 1E,9E1, A*st 9, 2//3
FACTS: Filinvest filed wit% t%e CIR, a claim for refnd, or in t%e alternative, t%e issance
of a ta+ credit certificate re'resentin* e+cess creditable wit%%oldin* ta+es for ta+able
)ears 199E, 1997, and 199,- ;%en t%e CIR %ad not resolved 'etitioner(s claim for refnd
and t%e twoG)ear 'rescri'tive 'eriod was abot to la'se, Filinvest filed a &etition for
Review wit% t%e CTA w%ic% was dismissed for insfficienc) of evidence- A 'etition for
review filed wit% t%e CA was li$ewise denied ntil t%e case reac%ed t%e S'reme Cort-
ISS9:: Is 'etitioner entitled to t%e ta+ refnd or ta+ creditA
R9=I6?: Des- &etitioner %as com'lied wit% all t%e re1irements to 'rove its claim for
ta+ refnd- ;%ile it is tre t%at 'etitioner %as t%e brden of 'rovin* t%at it is entitled to
refnd, %owever, it %as alread) been %eld t%at once t%e claimant %as sbmitted all t%e
re1ired docments, it is t%e fnction of t%e #IR to assess t%ese docments wit%
'r'osefl dis'atc%- T%e CIR is *iven t%e 'ower to *rant a ta+ credit or refnd even
wit%ot a written claim t%erefor, if t%e former determines from t%e face of t%e retrn t%at
'a)ment %ad clearl) been erroneosl) made- :videntl), t%e CIR(s fnction is not merel)
to receive t%e claims for refnd bt it is also *iven t%e 'ositive dt) to determine t%e
veracit) of sc% claim-
T%at no one s%all n5stl) enric% oneself at t%e e+'ense of anot%er is a lon*Gstandin*
'rinci'le 'revailin* in or le*al s)stem- T%is a''lies not onl) to individals bt to t%e
State as well- In t%e field of ta+ation w%ere t%e State e+acts strict com'liance 'on its
citiJens, t%e State mst li$ewise deal wit% ta+'a)ers wit% fairness and %onest)- T%e %ars%
'ower of ta+ation mst be tem'ered wit% evenG%andedness - 8ence, nder t%e 'rinci'le of
soltioindebiti, t%e ?overnment %as to restore to 'etitioner t%e sms re'resentin*
erroneos 'a)ments of ta+es-
C I R vs- &rimetown &ro'ert) ?ro', Inc-, ?-R- 6o- 1,2177, A*st 28, 2//3
FACTS: ?ilbert Da', vice c%air of &rimetown &ro'ert) ?ro', Inc-, a''lied for t%e
refnd or credit of income ta+ 'aid in 1993- 8e e+'lained t%at t%e increase in t%e cost of
labor and materials and difficlt) in obtainin* financin* for 'ro5ects and collectin*
receivables cased t%e real estate indstr) to slowdown- As a conse1ence, w%ile
bsiness was *ood drin* t%e first 1arter of 1993, res'ondent sffered losses amontin*
to &31,839,228 t%at )ear- Da' claimed t%at becase &rimetown sffered losses, it was not
liable for income ta+es- 6evert%eless, res'ondent 'aid its 1arterl) cor'orate income ta+
and remitted creditable wit%%oldin* ta+ from real estate sales to t%e #IR- On 4a) 1B,
1999, res'ondent was re1ired to sbmit additional docments to s''ort its claim-
Res'ondent com'lied bt its claim was not acted 'on- T%s, on A'ril 1E, 2///, it filed a
'etition for review wit% t%e CTA- 8owever, t%e CTA dismissed t%e 'etition as it was filed
be)ond t%e twoG)ear 'rescri'tive 'eriod for filin* a 5dicial claim for ta+ refnd or ta+
credit-
9'on denial of its motion for reconsideration, res'ondent filed an a''eal wit% t%e CA
w%ic% reversed t%e CTA decision- &etitioners moved for reconsideration bt it was
deniedH %ence, t%is a''eal-
ISS9:: 8ow s%old t%e twoG)ear 'rescri'tive 'eriod be com'tedA
R9=I6?: #ot% Article 1B of t%e Civil Code and Section B1, C%a'ter CIII, #oo$ I of t%e
Administrative Code of 1983 deal wit% t%e same sb5ect matter T t%e com'tation of
le*al 'eriods- 9nder t%e Civil Code, a )ear is e1ivalent to B,7 da)s w%et%er it be a
re*lar )ear or a lea' )ear- 9nder t%e Administrative Code of 1983, %owever, a )ear is
com'osed of 12 calendar mont%sH t%s, t%e nmber of da)s is irrelevant- T%ere bein* a
manifest incom'atibilit) in t%e manner of com'tin* le*al 'eriods nder t%e Civil Code
and t%e Administrative Code of 1983, t%e more recent law, t%e Administrative Code of
1983, *overns t%e com'tation of le*al 'eriods- A''l)in* Section B1, C%a'ter CIII, #oo$
I of t%e Administrative Code of 1983, t%e twoG)ear 'rescri'tive 'eriod !rec$oned from t%e
time res'ondent filed its final ad5sted retrn on A'ril 1E, 1998" consisted of 2E calendar
mont%s-
Since res'ondent(s 'etition !filed on A'ril 1E, 2///" was filed on t%e last da) of t%e 2Et%
calendar mont% from t%e da) res'ondent filed its final ad5sted retrn, it was filed wit%in
t%e re*lementar) 'eriod-
C I R vs- 4anila :lectric Com'an), ?-R- 6o- 121,,,, October 1/, 2//3
FACTS: 4anila :lectric Co-, a le*islative franc%ise *rantee, %ad been 'a)in* a 2Q
franc%ise ta+ based on its *ross recei'ts, in lie of all ot%er ta+es and assessments of
w%atever natre- 8owever, 'on t%e effectivit) of :-O- 6o- 32 on Febrar) 1/, 1983,
res'ondent became sb5ect to t%e 'a)ment of re*lar cor'orate income ta+- For t%e last
1arter endin* .ecember B1, 1983, res'ondent filed on A'ril 17, 1988 its tentative
income ta+- Actin* on a )earl) rotinar) =etter of At%orit), an investi*ation was
condcted w%ic% s%owed res'ondentIs liabilit) for deficienc) income ta+ and deficienc)
franc%ise ta+-
On A'ril 13, 1989, res'ondent filed an amended final cor'orate Income Ta+ Retrn
endin* .ecember B1, 1988 reflectin* a refndable amont of &1/3,,E9,329- It t%en filed
a letterGclaim for refnd or credit in t%e same amont of &1/3,,E9,329 re'resentin*
over'aid income ta+es for t%e )ears 1983 and 1988- ;%en no action was made on its
re1est, res'ondent filed a 5dicial claim for refnd or credit wit% t%e CTA w%ic% rled in
its favor- &etitioner t%en elevated t%e case to t%e CA bt t%e a''ellate cort affirmed t%e
ta+ cort(s decisionH %ence, t%e 'resent 'etition-
ISS9:S: .id t%e res'ondent addce sfficient evidence to 'rove its entitlement to a
refndA
R9=I6?: Des- If t%e sm of t%e 1arterl) ta+ 'a)ments made drin* a ta+able )ear is not
e1al to t%e total ta+ de on t%e entire ta+able income of t%at )ear as s%own in its final
ad5stment retrn, t%e cor'oration %as t%e o'tion to eit%er: !a" 'a) t%e e+cess ta+ still
de, or !b" be refnded t%e e+cess amont 'aid- T%e retrns sbmitted are 0merel) 'reG
adited w%ic% consist mainl) of c%ec$in* mat%ematical accrac) of t%e fi*res in t%e
retrn-0 After sc% c%ec$in*, t%e 'r'ose of w%ic% bein* to 0insre 'rom't action on
cor'orate annal income ta+ retrns s%owin* refndable amonts arisin* from over'aid
1arterl) income ta+es,0 t%e refnd or ta+ credit is *ranted- A cor'orate ta+'a)er(s
o'tion to avail of ta+ credit does not, %owever, mean t%at it is i'so facto *ranted- For
'etitioner %as still to investi*ate and ascertain t%e veracit) of t%e claim- It bears notin*
t%at t%e ta+ cort and t%e a''ellate cort fond res'ondent(s claim for ta+ refnd or
credit meritorios on t%e basis of t%e testimonial and docmentar) evidence addced b)
t%e 'arties- It bears notin* too t%at 'etitioner did not dis'te t%e validit) and at%enticit)
of res'ondent(s 1arterl) income ta+ retrns as well as t%e final ad5stment retrns for
t%e )ears 1983 and 1988 and 'roofs of 'a)ment of its ta+ liabilities-
It is doctrinal t%at t%e factal findin*s of t%e Cort of Ta+ A''eals, w%en s''orted b)
sbstantial evidence, will not be distrbed on a''eal, nless it is s%own t%at it committed
*ross error in t%e a''reciation of facts- 8ence, as a matter of 'ractice and 'rinci'le, t%is
Cort will not set aside t%e conclsion reac%ed b) t%e said cort, es'eciall) if affirmed b)
t%e Cort of A''eals-
Intel Tec%nolo*) &%il-, Inc- vs- C I R, ?-R- 6o- 1,,3B2, A'ril 23, 2//3
FACTS: &etitioner is a domestic cor'oration en*a*ed in t%e bsiness of desi*nin*,
develo'in*, manfactrin* and e+'ortin* advanced and lar*eGscale inte*rated circit
com'onents !ICs"- It is re*istered wit% t%e #rea of Internal Revene !#IR" as a valeG
added ta+ !CAT" entit) in 199,- It is li$ewise re*istered wit% t%e &%ili''ine :conomic
Sone At%orit) !&:SA" as an :coJone e+'ort enter'rise- As a CATGre*istered entit),
'etitioner filed wit% t%e Commission of Internal Revene its 4ont%l) CAT .eclarations
and Farterl) CAT Retrn for t%e second 1arter of 1998 declarin* JeroGrated e+'ort
sales of &2,7B8,9/,,8E/-1, and CAT in't ta+es from domestic 'rc%ases of *oods and
services in t%e total amont of &11,33/,181-3/- &etitioner alle*ed t%at its JeroGrated
e+'ort sales were 'aid for in acce'table forei*n crrenc) and were inwardl) remitted in
accordance wit% t%e re*lations of t%e #an*$oSentraln*&ili'inas !#S&"- On 4a) 18,
1999, 'etitioner filed wit% t%e Commission of Internal Revene a claim for ta+
creditRrefnd of CAT in't ta+es on its domestic 'rc%ases of *oods and services directl)
sed in its commercial o'erations- &etitioner(s claim for refnd amonted to
&11,33/,181-3/ coverin* t%e 'eriod A'ril 1, 1998 to 2ne B/, 1998-
ISS9:S: ;%et%er 'etitioner is entitled to t%e ta+ creditRrefnd so*%t
8:=.: Des- 9nder Sections 1/, !A"!2"!a"!1" in relation to 112!A" of t%e Ta+ Code, a
ta+'a)er en*a*ed in JeroGrated or effectivel) JeroGrated transactions ma) a''l) for a
refnd or issance of a ta+ credit certificate for in't ta+es 'aid attribtable to sc% sales
'on com'l)in* wit% t%e followin* re1isites: !1" t%e ta+'a)er is en*a*ed in sales w%ic%
are JeroGrated !li$e e+'ort sales" or effectivel) JeroGratedH !2" t%e ta+'a)er is CATG
re*isteredH !B" t%e claim mst be filed wit%in two )ears after t%e close of t%e ta+able
1arter w%en sc% sales were madeH !E" t%e creditable in't ta+ de or 'aid mst be
attribtable to sc% sales, e+ce't t%e transitional in't ta+, to t%e e+tent t%at sc% in't
ta+ %as not been a''lied a*ainst t%e ot't ta+H and !7" in case of JeroGrated sales nder
Section 1/, !A" !2" !a" !1" and !2", Section 1/, !#", and Section 1/8 !#" !1" and !2", t%e
acce'table forei*n crrenc) e+c%an*e 'roceeds t%ereof %ad been dl) acconted for in
accordance wit% #S& rles and re*lations-
.ocmentar) evidence sbmitted b) 'etitioner, e-*-, smmar) of e+'ort sales, sales
invoices, official recei'ts, airwa) bills and e+'ort declarations, 'rove t%at it is en*a*ed
in t%e 0sale and actal s%i'ment of *oods from t%e &%ili''ines to a forei*n contr)-0
T%s, 'etitioner is considered en*a*ed in e+'ort sales !a JeroGrated transaction if made
b) a CATGre*istered entit)"- 4oreover, t%e certification of inward remittances attests to
t%e fact of 'a)ment 0in acce'table forei*n crrenc) or its e1ivalent in *oods or services,
and acconted for in accordance wit% t%e rles and re*lations of t%e #S&-0 T%erefore,
'etitioner(s evidence, to*et%er wit% t%e re1irements of Sections 1/, !A"!2"!a"!1" and
112!A" of t%e Ta+ Code, as enmerated earlier, sfficientl) establis% t%at it is entitled to a
claim for refnd or issance of a ta+ credit certificate for creditable in't ta+es-
Rationale for re1irin* a written claim for refnd-
A claimant mst first file a written claim for refnd, cate*oricall) demandin* recover) of
over'aid ta+es wit% t%e CIR, before resortin* to an action in cort- T%is obviosl) is
intended, first, to afford t%e CIR an o''ortnit) to correct t%e action of sbordinate
officersH and second, to notif) t%e *overnment t%at sc% ta+es %ave been 1estioned, and
t%e notice s%old t%en be borne in mind in estimatin* t%e revene available for
e+'enditre-
Commissioner of Internal Revene vs- Rosemarie Acosta, ?-R- 6o- 17E/,8, A*st B,
2//3
Ombdsman can investi*ate w%ere t%ere is a ss'icion of im'ro'riet) in t%e *rant of ta+
refnd b) #IR-
T%e determination of w%et%er to *rant a ta+ refnd falls wit%in t%e e+clsive e+'ertise of
t%e #IR- 6onet%eless, w%en t%ere is a ss'icion of even 5st a tin*e of im'ro'riet) in t%e
*rant of t%e same, t%e Ombdsman cold ri*%tfll) ascertain w%et%er t%e determination
was done in accordance wit% law and identif) t%e 'ersons w%o ma) be %eld res'onsible
t%ereto- In t%at sense, t%e Ombdsman cold not be accsed of nlawfll) intrdin* into
and intervenin* wit% t%e #IRIs e+ercise of discretion-
Commissioner of Internal Revene vs- Office of t%e Ombdsman, ?-R- 6o- 1171/B, A'ril
11, 2//2
Re1isites for t%e e+ercise of commissioner(s 'ower to abate or cancel ta+ liabilit)-
T%e 'ower of t%e commissioner to abate or cancel a ta+ liabilit) can be e+ercised onl)
w%en !1" t%e ta+ a''ears to be n5stl) or e+cessivel) assessed, or !2" t%e administration
and collection costs involved do not 5stif) t%e collection of t%e ta+ de- In t%is instance,
t%e cancellation of ta+ liabilit) is done even before t%e determination of t%e amont de-
In an) event, criminal violations of t%e Ta+ Code, for w%ic% le*al actions %ave been filed
in cort or in w%ic% frad is involved, cannot be com'romised-
Francisco I- C%aveJ vs- &C??, et al-, ?-R- 6o- 1B/31,, .ecember 9, 1998
CHAPTER II Ci'il Remedies )or Colletion o) Ta$es
SECTION 20> Remedies )or t!e Colletion o) Delin8uent Ta$es" # T!e i'il
remedies )or t!e olletion o) internal re'enue ta$es( )ees( or !ar*es( and an&
inrement t!ereto resultin* )rom delin8uen& s!all +e2
0a1 ;& distraint o) *oods( !attels( or e))ets( and ot!er %ersonal %ro%ert& o)
-!ate'er !arater( inludin* sto,s and ot!er seurities( de+ts( redits( +an,
aounts( and interest in and ri*!ts to %ersonal %ro%ert&( and +& le'& u%on real
%ro%ert& and interest in or ri*!ts to real %ro%ert&6 and
0+1 ;& i'il or riminal ation"
Eit!er o) t!ese remedies or +ot! simultaneousl& ma& +e %ursued in t!e disretion
o) t!e aut!orities !ar*ed -it! t!e olletion o) su! ta$es2 Pro'ided( !o-e'er( t!at
t!e remedies o) distraint and le'& s!all not +e a'ailed o) -!ere t!e amount o) ta$
in'ol'ed is not more t!an One !undred %esos 0P5001"
T!e 7ud*ment in t!e riminal ase s!all not onl& im%ose t!e %enalt& +ut s!all also
order %a&ment o) t!e ta$es su+7et o) t!e riminal ase as )inall& deided +& t!e
Commissioner"
T!e ;ureau o) Internal Re'enue s!all ad'ane t!e amounts needed to de)ra& osts
o) olletion +& means o) i'il or riminal ation( inludin* t!e %reser'ation or
trans%ortation o) %ersonal %ro%ert& distrained and t!e ad'ertisement and sale
t!ereo)( as -ell as o) real %ro%ert& and im%ro'ements t!ereon"
Assessment of a deficienc) is not necessar) to a criminal 'rosection for ta+ evasion-
;%ile t%ere can be no civil action to enforce collection before t%e assessment 'rocedres
'rovided in t%e Code %ave been followed, t%ere is no re1irement for t%e 'recise
com'tation and assessment of t%e ta+ before t%ere can be a criminal 'rosection nder
t%e Code- An assessment of a deficienc) is not necessar) to a criminal 'rosection for
willfl attem't to defeat and evade t%e income ta+- A crime is com'lete w%en t%e violator
%as $nowin*l) and willfll) filed a fradlent retrn wit% intent to evade and defeat t%e
ta+- T%e 'er'etration of t%e crime is *ronded 'on $nowled*e on t%e 'art of t%e
ta+'a)er t%at %e %as made an inaccrate retrn, and t%e *overnmentIs failre to discover
t%e error and 'rom'tl) to assess %as no connections wit% t%e commission of t%e crime-
Firico &- 9n*ab vs- Cicente 6- Csi, 2r-, et al-, ?-R- 6os- =GE1919G2E, 4a) B/, 198/
SECTION 20= Construti'e Distraint o) t!e Pro%ert& o) a Ta$%a&er # To
sa)e*uard t!e interest o) t!e Go'ernment( t!e Commissioner ma& %lae under
onstruti'e distraint t!e %ro%ert& o) a delin8uent ta$%a&er or an& ta$%a&er -!o( in
!is o%inion( is retirin* )rom an& +usiness su+7et to ta$( or is intendin* to lea'e t!e
P!ili%%ines or to remo'e !is %ro%ert& t!ere)rom or to !ide or oneal !is %ro%ert&
or to %er)orm an& at tendin* to o+strut t!e %roeedin*s )or olletin* t!e ta$ due
or -!i! ma& +e due )rom !im"
T!e onstruti'e distraint o) %ersonal %ro%ert& s!all +e e))eted +& re8uirin* t!e
ta$%a&er or an& %erson !a'in* %ossession or ontrol o) su! %ro%ert& to si*n a
reei%t o'erin* t!e %ro%ert& distrained and o+li*ate !imsel) to %reser'e t!e same
intat and unaltered and not to dis%ose o) t!e same in an& manner -!ate'er(
-it!out t!e e$%ress aut!orit& o) t!e Commissioner"
In ase t!e ta$%a&er or t!e %erson !a'in* t!e %ossession and ontrol o) t!e %ro%ert&
sou*!t to +e %laed under onstruti'e distraint re)uses or )ails to si*n t!e reei%t
!erein re)erred to( t!e re'enue o))ier e))etin* t!e onstruti'e distraint s!all
%roeed to %re%are a list o) su! %ro%ert& and( in t!e %resene o) t-o 021 -itnesses(
lea'e a o%& t!ereo) in t!e %remises -!ere t!e %ro%ert& distrained is loated( a)ter
-!i! t!e said %ro%ert& s!all +e deemed to !a'e +een %laed under onstruti'e
distraint"
Sec- 2/, G Constrctive .istraint of t%e &ro'ert) of a Ta+'a)er
#IR cannot a''oint a de'ositar) as a 'blic officer-
T%e constrctive distraint of 'ersonal 'ro'ert) s%all be effected b) re1irin* t%e ta+'a)er
or an) 'erson %avin* 'ossession or control of sc% 'ro'ert) to si*n a recei't coverin*
t%e 'ro'ert) distrained and obli*ate %imself to 'reserve t%e same intact and naltered
and not to dis'ose of t%e same in an) manner w%atever wit%ot t%e e+'ress at%orit) of
t%e Commissioner- 8owever, t%ere is no 'rovision in t%e 6IRC constittin* sc% 'erson a
'blic officer b) reason of sc% re1irement- T%e #IR(s 'ower at%oriJin* a 'rivate
individal to act as a .:&OSITARD cannot be stretc%ed to inclde t%e 'ower to a''oint
%im as a 'blic officer-
Alfredo =- AJarcon vs- Sandi*anba)an, et al-, ?-R- 6o- 11,/BB, Febrar) 2,, 1993
SECTION 20? Summar& Remedies" #
0A1 Distraint o) Personal Pro%ert&" # /%on t!e )ailure o) t!e %erson o-in* an&
delin8uent ta$ or delin8uent re'enue to %a& t!e same at t!e time re8uired( t!e
Commissioner or !is dul& aut!ori<ed re%resentati'e( i) t!e amount in'ol'ed is in
e$ess o) One million %esos 0P5(000(0001( or t!e Re'enue Distrit O))ier( i) t!e
amount in'ol'ed is One million %esos 0P5(000(0001 or less( s!all sei<e and distraint
an& *oods( !attels( or e))ets( and t!e %ersonal %ro%ert&( inludin* sto,s and
ot!er seurities( de+ts( redits( +an, aounts( and interests in and ri*!ts to
%ersonal %ro%ert& o) su! %ersons in su))iient 8uantit& to satis)& t!e ta$( or !ar*e(
to*et!er -it! an& inrement t!ereto inident to delin8uen&( and t!e e$%enses o)
t!e distraint and t!e ost o) t!e su+se8uent sale"
A re%ort on t!e distraint s!all( -it!in ten 0501 da&s )rom reei%t o) t!e -arrant( +e
su+mitted +& t!e distrainin* o))ier to t!e Re'enue Distrit O))ier( and to t!e
Re'enue Re*ional Diretor2
Pro'ided( T!at t!e Commissioner or !is dul& aut!ori<ed re%resentati'e s!all(
su+7et to rules and re*ulations %romul*ated +& t!e Seretar& o) Finane( u%on
reommendation o) t!e Commissioner( !a'e t!e %o-er to li)t su! order o)
distraint2
Pro'ided( )urt!er( T!at a onsolidated re%ort +& t!e Re'enue Re*ional Diretor
ma& +e re8uired +& t!e Commissioner as o)ten as neessar&"
0;1 Le'& on Real Pro%ert&" # A)ter t!e e$%iration o) t!e time re8uired to %a& t!e
delin8uent ta$ or delin8uent re'enue as %resri+ed in t!is Setion( real %ro%ert&
ma& +e le'ied u%on( +e)ore( simultaneousl& or a)ter t!e distraint o) %ersonal
%ro%ert& +elon*in* to t!e delin8uent" To t!is end( an& internal re'enue o))ier
desi*nated +& t!e Commissioner or !is dul& aut!ori<ed re%resentati'e s!all %re%are
a dul& aut!entiated erti)iate s!o-in* t!e name o) t!e ta$%a&er and t!e amounts
o) t!e ta$ and %enalt& due )rom !im" Said erti)iate s!all o%erate -it! t!e )ore o)
a le*al e$eution t!rou*!out t!e P!ili%%ines"
Le'& s!all +e e))eted +& -ritin* u%on said erti)iate a desri%tion o) t!e %ro%ert&
u%on -!i! le'& is made" At t!e same time( -ritten notie o) t!e le'& s!all +e
mailed to or ser'ed u%on t!e Re*ister o) Deeds o) t!e %ro'ine or it& -!ere t!e
%ro%ert& is loated and u%on t!e delin8uent ta$%a&er( or i) !e +e a+sent )rom t!e
P!ili%%ines( to !is a*ent or t!e mana*er o) t!e +usiness in res%et to -!i! t!e
lia+ilit& arose( or i) t!ere +e none( to t!e ou%ant o) t!e %ro%ert& in 8uestion"
In ase t!e -arrant o) le'& on real %ro%ert& is not issued +e)ore or simultaneousl&
-it! t!e -arrant o) distraint on %ersonal %ro%ert&( and t!e %ersonal %ro%ert& o) t!e
ta$%a&er is not su))iient to satis)& !is ta$ delin8uen&( t!e Commissioner or !is
dul& aut!ori<ed re%resentati'e s!all( -it!in t!irt& 0.01 da&s a)ter e$eution o) t!e
distraint( %roeed -it! t!e le'& on t!e ta$%a&er@s real %ro%ert&"
:it!in ten 0501 da&s a)ter reei%t o) t!e -arrant( a re%ort on an& le'& s!all +e
su+mitted +& t!e le'&in* o))ier to t!e Commissioner or !is dul& aut!ori<ed
re%resentati'e2
Pro'ided( !o-e'er( T!at a onsolidated re%ort +& t!e Re'enue Re*ional Diretor
ma& +e re8uired +& t!e Commissioner as o)ten as neessar&2
Pro'ided( )urt!er( T!at t!e Commissioner or !is dul& aut!ori<ed re%resentati'e(
su+7et to rules and re*ulations %romul*ated +& t!e Seretar& o) Finane( u%on
reommendation o) t!e Commissioner( s!all !a'e t!e aut!orit& to li)t -arrants o)
le'& issued in aordane -it! t!e %ro'isions !ereo)"
Inabilit) to 'a) ta+es w%ic% ma) reslt in ss'ension of bsiness is not a defense in
enforcement of ta+ laws-
Fotin* from t%e case of Don*blood vs- Se+ton !B2 4ic%-, E/,", 2d*e Coole), s'ea$in*
for t%e cort, said: 0#t if t%is consideration is sfficient to 5stif) t%e transfer of a
controvers) from a cort of law to a cort of e1it), t%en ever) controvers) w%ere mone)
is demanded ma) be made t%e sb5ect of e1itable co*niJance- To enforce a*ainst a
dealer a 'romissor) note ma) in some cases as effectall) brea$ ' %is bsiness as to
collect from %im a ta+ of e1al amont- T%is is not w%at is $nown to t%e law as
irre'arable in5r)- T%e corts %ave never reco*niJed t%e conse1ences of t%e mere
enforcement of a mone) demand as fallin* wit%in t%at cate*or)-0
Francis A- C%rc%ill, et al-, vs- 2ames 2- Raffert), ?-R- 6o- 1/732, .ecember 21, 1917
Satrnino .avid vs- Simeon Ramos, et al-, ?-R- 6o- =GEB//, October B1, 1971
SECTION 20A Proedure )or Distraint and Garnis!ment # T!e o))ier ser'in*
t!e -arrant o) distraint s!all ma,e or ause to +e made an aount o) t!e *oods(
!attels( e))ets or ot!er %ersonal %ro%ert& distrained( a o%& o) -!i!( si*ned +&
!imsel)( s!all +e le)t eit!er -it! t!e o-ner or %erson )rom -!ose %ossession su!
*oods( !attels( or e))ets or ot!er %ersonal %ro%ert& -ere ta,en( or at t!e d-ellin*
or %lae o) +usiness o) su! %erson and -it! someone o) suita+le a*e and
disretion( to -!i! list s!all +e added a statement o) t!e sum demanded and note
o) t!e time and %lae o) sale"
Sto,s and ot!er seurities s!all +e distrained +& ser'in* a o%& o) t!e -arrant o)
distraint u%on t!e ta$%a&er and u%on t!e %resident( mana*er( treasurer or ot!er
res%onsi+le o))ier o) t!e or%oration( om%an& or assoiation( -!i! issued t!e
said sto,s or seurities"
De+ts and redits s!all +e distrained +& lea'in* -it! t!e %erson o-in* t!e de+ts or
!a'in* in !is %ossession or under !is ontrol su! redits( or -it! !is a*ent( a o%&
o) t!e -arrant o) distraint" T!e -arrant o) distraint s!all +e su))iient aut!orit& to
t!e %erson o-nin* t!e de+ts or !a'in* in !is %ossession or under !is ontrol an&
redits +elon*in* to t!e ta$%a&er to %a& to t!e Commissioner t!e amount o) su!
de+ts or redits"
;an, aounts s!all +e *arnis!ed +& ser'in* a -arrant o) *arnis!ment u%on t!e
ta$%a&er and u%on t!e %resident( mana*er( treasurer or ot!er res%onsi+le o))ier o)
t!e +an," /%on reei%t o) t!e -arrant o) *arnis!ment( t!e +an, s!all turn o'er to
t!e Commissioner so mu! o) t!e +an, aounts as ma& +e su))iient to satis)& t!e
laim o) t!e Go'ernment"
SECTION 20B Sale o) Pro%ert& Distrained and Dis%osition o) Proeeds # T!e
Re'enue Distrit O))ier or !is dul& aut!ori<ed re%resentati'e( ot!er t!an t!e
o))ier re)erred to in Setion 20A o) t!is Code s!all( aordin* to rules and
re*ulations %resri+ed +& t!e Seretar& o) Finane( u%on reommendation o) t!e
Commissioner( )ort!-it! ause a noti)iation to +e e$!i+ited in not less t!an t-o
021 %u+li %laes in t!e munii%alit& or it& -!ere t!e distraint is made( s%ei)&in*
t!e time and %lae o) sale and t!e artiles distrained"
T!e time o) sale s!all not +e less t!an t-ent& 0201 da&s a)ter notie to t!e o-ner or
%ossessor o) t!e %ro%ert& as a+o'e s%ei)ied and t!e %u+liation or %ostin* o) su!
notie" One %lae )or t!e %ostin* o) su! notie s!all +e at t!e O))ie o) t!e Ma&or
o) t!e it& or munii%alit& in -!i! t!e %ro%ert& is distrained"
At t!e time and %lae )i$ed in su! notie( t!e said re'enue o))ier s!all sell t!e
*oods( !attels( or e))ets( or ot!er %ersonal %ro%ert&( inludin* sto,s and ot!er
seurities so distrained( at %u+li aution( to t!e !i*!est +idder )or as!( or -it! t!e
a%%ro'al o) t!e Commissioner( t!rou*! dul& liensed ommodit& or sto,
e$!an*es"
In t!e ase o) sto,s and ot!er seurities( t!e o))ier ma,in* t!e sale s!all e$eute a
+ill o) sale -!i! !e s!all deli'er to t!e +u&er( and a o%& t!ereo) )urnis!ed t!e
or%oration( om%an& or assoiation -!i! issued t!e sto,s or ot!er seurities"
/%on reei%t o) t!e o%& o) t!e +ill o) sale( t!e or%oration( om%an& or
assoiation s!all ma,e t!e orres%ondin* entr& in its +oo,s( trans)er t!e sto,s or
ot!er seurities sold in t!e name o) t!e +u&er( and issue( i) re8uired to do so( t!e
orres%ondin* erti)iates o) sto, or ot!er seurities"
An& residue o'er and a+o'e -!at is re8uired to %a& t!e entire laim( inludin*
e$%enses( s!all +e returned to t!e o-ner o) t!e %ro%ert& sold" T!e e$%enses
!ar*ea+le u%on ea! sei<ure and sale s!all em+rae onl& t!e atual e$%enses o)
sei<ure and %reser'ation o) t!e %ro%ert& %endin* t!e sale( and no !ar*e s!all +e
im%osed )or t!e ser'ies o) t!e loal internal re'enue o))ier or !is de%ut&"
#IR(s 'ower to a''oint a de'ositar) cannot inclde t%e 'ower to a''oint %im as 'blic
officer-
It is tre t%at Sec- 2/, of t%e 6IRC at%oriJes t%e #IR to effect a constrctive distraint b)
re1irin* 0an) 'erson0 to 'reserve a distrained 'ro'ert), t%s: 0- - - T%e constrctive
distraint of 'ersonal 'ro'ert) s%all be effected b) re1irin* t%e ta+'a)er or an) 'erson
%avin* 'ossession or control of sc% 'ro'ert) to si*n a recei't coverin* t%e 'ro'ert)
distrained and obli*ate %imself to 'reserve t%e same intact and naltered and not to
dis'ose of t%e same in an) manner w%atever wit%ot t%e e+'ress at%orit) of t%e
Commissioner- - - 8owever, t%ere is no 'rovision in t%e 6IRC constittin* sc% 'erson a
'blic officer b) reason of sc% re1irement- T%e #IR(s 'ower at%oriJin* a 'rivate
individal to act as a .:&OSITARD cannot be stretc%ed to inclde t%e 'ower to a''oint
%im as a 'blic officer-
Alfredo =- AJarcon vs- Sandi*anba)an, et al-, ?-R- 6o- 11,/BB, Febrar) 2,, 1993
SECTION 250 Release o) Distrained Pro%ert& /%on Pa&ment Prior to Sale" # I)
at an& time %rior to t!e onsummation o) t!e sale all %ro%er !ar*es are %aid to t!e
o))ier ondutin* t!e sale( t!e *oods or e))ets distrained s!all +e restored to t!e
o-ner"
SECTION 255 Re%ort o) Sale to ;ureau o) Internal Re'enue # :it!in t-o 021
da&s a)ter t!e sale( t!e o))ier ma,in* t!e same s!all ma,e a re%ort o) !is
%roeedin*s in -ritin* to t!e Commissioner and s!all !imsel) %reser'e a o%& o)
su! re%ort as an o))iial reord"
SECTION 252 Pur!ase +& Go'ernment at Sale /%on Distraint # :!en t!e
amount +id )or t!e %ro%ert& under distraint is not e8ual to t!e amount o) t!e ta$ or
is 'er& mu! less t!an t!e atual mar,et 'alue o) t!e artiles o))ered )or sale( t!e
Commissioner or !is de%ut& ma& %ur!ase t!e same in +e!al) o) t!e National
Go'ernment )or t!e amount o) ta$es( %enalties and ost due t!ereon"
Pro%ert& so %ur!ased ma& +e resold +& t!e Commissioner or !is de%ut&( su+7et to
t!e rules and re*ulations %resri+ed +& t!e Seretar& o) Finane( t!e net %roeeds
t!ere)rom s!all +e remitted to t!e National Treasur& and aounted )or as internal
re'enue"
SECTION 25. Ad'ertisement and Sale # :it!in t-ent& 0201 da&s a)ter le'&( t!e
o))ier ondutin* t!e %roeedin*s s!all %roeed to ad'ertise t!e %ro%ert& or a
usa+le %ortion t!ereo) as ma& +e neessar& to satis)& t!e laim and ost o) sale6 and
su! ad'ertisement s!all o'er a %eriod o) at least t!irt& 0.01 da&s"
It s!all +e e))etuated +& %ostin* a notie at t!e main entrane o) t!e munii%al
+uildin* or it& !all and in a %u+li and ons%iuous %lae in t!e +arrio or distrit
in -!i! t!e real estate lies and +& %u+liation one a -ee, )or t!ree 0.1 -ee,s in a
ne-s%a%er o) *eneral irulation in t!e munii%alit& or it& -!ere t!e %ro%ert& is
loated"
T!e ad'ertisement s!all ontain a statement o) t!e amount o) ta$es and %enalties so
due and t!e time and %lae o) sale( t!e name o) t!e ta$%a&er a*ainst -!om ta$es
are le'ied( and a s!ort desri%tion o) t!e %ro%ert& to +e sold" At an& time +e)ore t!e
da& )i$ed )or t!e sale( t!e ta$%a&er ma& disontinue all %roeedin*s +& %a&in* t!e
ta$es( %enalties and interest"
I) !e does not do so( t!e sale s!all %roeed and s!all +e !eld eit!er at t!e main
entrane o) t!e munii%al +uildin* or it& !all( or on t!e %remises to +e sold( as t!e
o))ier ondutin* t!e %roeedin*s s!all determine and as t!e notie o) sale s!all
s%ei)&"
:it!in )i'e 0>1 da&s a)ter t!e sale( a return +& t!e distrainin* or le'&in* o))ier o)
t!e %roeedin*s s!all +e entered u%on t!e reords o) t!e Re'enue Colletion
O))ier( t!e Re'enue Distrit O))ier and t!e Re'enue Re*ional Diretor" T!e
Re'enue Colletion O))ier( in onsultation -it! t!e Re'enue Distrit O))ier( s!all
t!en ma,e out and deli'er to t!e %ur!aser a erti)iate )rom !is reords( s!o-in*
t!e %roeedin*s o) t!e sale( desri+in* t!e %ro%ert& sold( statin* t!e name o) t!e
%ur!aser and settin* out t!e e$at amount o) all ta$es( %enalties and interest2
Pro'ided( !o-e'er( T!at in ase t!e %roeeds o) t!e sale e$eeds t!e laim and ost
o) sale( t!e e$ess s!all +e turned o'er to t!e o-ner o) t!e %ro%ert&"
T!e Re'enue Colletion O))ier( u%on a%%ro'al +& t!e Re'enue Distrit O))ier
ma&( out o) !is olletion( ad'ane an amount su))iient to de)ra& t!e osts o)
olletion +& means o) t!e summar& remedies %ro'ided )or in t!is Code( inludin*
t!e %reser'ation or trans%ortation in ase o) %ersonal %ro%ert&( and t!e
ad'ertisement and su+se8uent sale( +ot! in ases o) %ersonal and real %ro%ert&
inludin* im%ro'ements )ound on t!e latter" In !is mont!l& olletion re%orts( su!
ad'anes s!all +e re)leted and su%%orted +& reei%ts"
SECTION 254 Redem%tion o) Pro%ert& Sold # :it!in one 051 &ear )rom t!e date
o) sale( t!e delin8uent ta$%a&er( or an& one )or !im( s!all !a'e t!e ri*!t o) %a&in*
to t!e Re'enue Distrit O))ier t!e amount o) t!e %u+li ta$es( %enalties( and
interest t!ereon )rom t!e date o) delin8uen& to t!e date o) sale( to*et!er -it!
interest on said %ur!ase %rie at t!e rate o) )i)teen %erent 05>91 %er annum )rom
t!e date o) %ur!ase to t!e date o) redem%tion( and su! %a&ment s!all entitle t!e
%erson %a&in* to t!e deli'er& o) t!e erti)iate issued to t!e %ur!aser and a
erti)iate )rom t!e said Re'enue Distrit O))ier t!at !e !as t!us redeemed t!e
%ro%ert&( and t!e Re'enue Distrit O))ier s!all )ort!-it! %a& o'er to t!e %ur!aser
t!e amount +& -!i! su! %ro%ert& !as t!us +een redeemed( and said %ro%ert&
t!erea)ter s!all +e )ree )rom t!e lien o) su! ta$es and %enalties"
T!e o-ner s!all not( !o-e'er( +e de%ri'ed o) t!e %ossession o) t!e said %ro%ert&
and s!all +e entitled to t!e rents and ot!er inome t!ereo) until t!e e$%iration o) t!e
time )or its redem%tion"
SECTION 25> For)eiture to Go'ernment )or :ant o) ;idder # In ase t!ere is
no +idder )or real %ro%ert& e$%osed )or sale as !ereina+o'e %ro'ided or i) t!e
!i*!est +id is )or an amount insu))iient to %a& t!e ta$es( %enalties and osts( t!e
Internal Re'enue O))ier ondutin* t!e sale s!all delare t!e %ro%ert& )or)eited to
t!e Go'ernment in satis)ation o) t!e laim in 8uestion and -it!in t-o 021 da&s
t!erea)ter( s!all ma,e a return o) !is %roeedin*s and t!e )or)eiture -!i! s!all +e
s%read u%on t!e reords o) !is o))ie"
It s!all +e t!e dut& o) t!e Re*ister o) Deeds onerned( u%on re*istration -it! !is
o))ie o) an& su! delaration o) )or)eiture( to trans)er t!e title o) t!e %ro%ert&
)or)eited to t!e Go'ernment -it!out t!e neessit& o) an order )rom a om%etent
ourt"
:it!in one 051 &ear )rom t!e date o) su! )or)eiture( t!e ta$%a&er( or an& one )or
!im( ma& redeem said %ro%ert& +& %a&in* to t!e Commissioner or t!e latter@s
Re'enue Colletion O))ier t!e )ull amount o) t!e ta$es and %enalties( to*et!er
-it! interest t!ereon and t!e osts o) sale( +ut i) t!e %ro%ert& +e not t!us redeemed(
t!e )or)eiture s!all +eome a+solute"
SECTION 25= Resale o) Real Estate Ta,en )or Ta$es # T!e Commissioner s!all
!a'e !ar*e o) an& real estate o+tained +& t!e Go'ernment o) t!e P!ili%%ines in
%a&ment or satis)ation o) ta$es( %enalties or osts arisin* under t!is Code or in
om%romise or ad7ustment o) an& laim t!ere)or6 and said Commissioner ma&(
u%on t!e *i'in* o) not less t!an t-ent& 0201 da&s notie( sell and dis%ose o) t!e
same at %u+li aution( or -it! t!e %rior a%%ro'al o) t!e Seretar& o) Finane(
dis%ose o) t!e same at %ri'ate sale" In eit!er ase( t!e %roeeds o) t!e sale s!all +e
de%osited -it! t!e National Treasur&( and an aountin* o) t!e same s!all +e
rendered to t!e C!airman o) t!e Commission on Audit
SECTION 25? Furt!er Distraint or Le'& # T!e remed& +& distraint o) %ersonal
%ro%ert& and le'& on realt& ma& +e re%eated i) neessar& until t!e )ull amount due(
inludin* all e$%enses( is olleted"
COLLECTION REMEDIES
SEC" 20> 0SIM/LTANEO/S1
ASSESSMENT SEC. 203
3 YEARS FROM ASSESSMENT NOTICE
SECTION 25A In7untion not A'aila+le to Restrain Colletion o) Ta$ # No ourt
s!all !a'e t!e aut!orit& to *rant an in7untion to restrain t!e olletion o) an&
national internal re'enue ta$( )ee or !ar*e im%osed +& t!is Code"
Im'osition of safe*ard measres s%old not be en5oined des'ite availabilit) of 5dicial
review-
Section 218 of t%e Ta+ Reform Act of 1993 'ro%ibits an) cort from *rantin* an
in5nction to restrain t%e collection of an) national internal revene ta+, fee or c%ar*e
im'osed b) t%e internal revene code- A similar '%iloso'%) is e+'ressed b) Section 29 of
t%e Safe*ard 4easres Act !R-A- 6o- 88//", w%ic% states t%at t%e filin* of a 'etition for
review before t%e CTA does not sto', ss'end, or ot%erwise toll t%e im'osition or
collection of t%e a''ro'riate tariff dties or t%e ado'tion of ot%er a''ro'riate safe*ard
measres- T%is evinces a clear le*islative intent t%at t%e im'osition of safe*ard
measres, des'ite t%e availabilit) of 5dicial review, s%old not be en5oined
notwit%standin* an) timel) a''eal of t%e im'osition- 'rem/7cd
Sot%ern Cross Cement Cor'- vs- &%il- Cement 4anfactrers Cor'-, et al-, ?-R- 6o-
1787E/, 2l) 8, 2//E
#) ta$in* awa) in5nction, t%e State leaves t%e ta+'a)er to t%e same ordinar) remedial
actions 'revailin* between citiJen and citiJen-
&reventive remedies of t%e corts are e+traordinar) and are not t%e sal remedies- T%e
ori*in and %istor) of t%e writ of in5nction s%ow t%at it %as alwa)s been re*arded as an
e+traordinar), 'reventive remed), as distin*is%ed from t%e common corse of t%e law to
redress evils after t%e) %ave been consmmated- 6o in5nction isses as of corse, bt is
*ranted onl) 'on t%e oat% of a 'art) and w%en t%ere is no ade1ate remed) at law- T%e
?overnment does ta$e awa) t%e 'reventive remed) of in5nction, if it ever e+isted, and
leaves t%e ta+'a)er, in a contest wit% it, to t%e same ordinar) remedial actions w%ic%
'revail between citiJen and citiJen-
Francis A- C%rc%ill, et al- vs- 2ames 2- Raffert), ?-R- 6o- 1/732, .ecember 21, 1917
Ille*alit) or nconstittionalit) of a ta+ does not at%oriJe corts to restrain its
collection b) in5nction-
T%e mere fact t%at a ta+ is ille*al, or t%at t%e law, b) virte of w%ic% it is im'osed, is
nconstittional, does not at%oriJe a cort of e1it) to restrain its collection b)
in5nction- T%ere mst be a frt%er s%owin* t%at t%ere are s'ecial circmstances w%ic%
brin* t%e case nder some well reco*niJed %ead of e1it) 5ris'rdence, sc% as t%at
irre'arable in5r), mlti'licit) of sits, or a clod 'on title to real estate will reslt, and
also t%at t%ere is no ade1ate remed) at law-
Francis A- C%rc%ill, et al- vs- 2ames 2- Raffert), ?-R- 6o- 1/732, .ecember 21, 1917
Ta+ collectors are at%oriJed to seiJe and sell 'ro'ert) of delin1ent ta+'a)ers wit%ot
cort assistance-
A citiJen(s 'ro'ert), bot% real and 'ersonal, ma) be ta$en, and sall) is ta$en, b) t%e
*overnment in 'a)ment of its ta+es wit%ot an) 5dicial 'roceedin*s w%atever- In t%is
contr), t%e officer c%ar*ed wit% t%e collection of ta+es is at%oriJed to seiJe and sell t%e
'ro'ert) of delin1ent ta+'a)ers wit%ot a''l)in* to t%e corts for assistance, and t%e
constittionalit) of t%e law at%oriJin* t%is 'rocedre never %as been seriosl)
1estioned-
Francis A- C%rc%ill, et al- vs- 2ames 2- Raffert), ?-R- 6o- 1/732, .ecember 21, 1917
6o *overnment cold e+ist if ever) liti*ios man were 'ermitted to dela) t%e collection of
its ta+es-
T%is mst necessaril) be t%e corse, becase it is 'on ta+ation t%at t%e ?overnment
c%iefl) relies to obtain t%e means to carr) on its o'erations, and it is of t%e tmost
im'ortance t%at t%e modes ado'ted to enforce t%e collection of t%e ta+es levied s%old be
smmar) and interfered wit% as little as 'ossible- 6o *overnment cold e+ist if ever)
liti*ios man were 'ermitted to dela) t%e collection of its ta+es- T%is 'rinci'le of 'blic
'olic) mst be constantl) borne in mind in determinin* cases sc% as t%e one nder
consideration- And t%o*% t%is was intended to a''l) alone to ta+es levied b) t%e 9nited
States, it s%ows t%e sense of Con*ress of t%e evils to be feared if corts of 5stice cold, in
an) case, interfere wit% t%e 'rocess of collectin* ta+es on w%ic% t%e *overnment de'ends
for its contined e+istence- It is a wise 'olic)- It is fonded in t%e sim'le '%iloso'%)
derived from t%e e+'erience of a*es, t%at t%e 'a)ment of ta+es %as to be enforced b)
smmar) and strin*ent means a*ainst a relctant and often adverse sentimentH and to do
t%is sccessfll), ot%er instrmentalities and ot%er modes of 'rocedre are necessar),
t%an t%ose w%ic% belon* to corts of 5stice-
Francis A- C%rc%ill, et al- vs- 2ames 2- Raffert), ?-R- 6o- 1/732, .ecember 21, 1917
In5nction is not available to restrain t%e collection of ta+es even if dis'ted-
It is clear t%at t%e word 0ta+,0 as sed in t%e 'rovision 'ro%ibitin* in5nctions, means a
ta+ even if it is dis'ted b) t%e ta+'a)er, for ot%erwise it wold be sfficient to dis'te a
ta+ in order to ta$e it ot from t%e 'rovisions of said section, renderin* t%em 'racticall)
n*ator)-
Satrnino .avid vs- Simeon Ramos, et al-, ?-R- 6o- =GEB//, October B1, 1971
Rationale for 'ro%ibitin* in5nctions from restrainin* ta+ collection-
T%e ar*ment t%at t%e assessment cannot as )et be enforced becase it is still bein*
contested loses si*%t of t%e r*enc) of t%e need to collect ta+es as Kt%e lifeblood of t%e
*overnmentM- If t%e 'a)ment of ta+es cold be 'ost'oned b) sim'l) 1estionin* t%eir
validit), t%e mac%iner) of t%e state wold *rind to a %alt and all *overnment fnctions
wold be 'aral)Jed- T%at is t%e reason w%), save for t%e e+ce'tion alread) noted, t%e Ta+
Code 'ro%ibits an in5nction from restrainin* collection of ta+--
Commissioner of Internal Revene vs- Ceb &ortland Cement Co-, et al-, ?-R- 6o- =G
29/79, .ecember 17, 1983
SECTION 25B Nature and E$tent o) Ta$ Lien # I) an& %erson( or%oration(
%artners!i%( 7oint3aount 0uentas en %artii%aion1( assoiation or insurane
om%an& lia+le to %a& an internal re'enue ta$( ne*lets or re)uses to %a& t!e same
a)ter demand( t!e amount s!all +e a lien in )a'or o) t!e Go'ernment o) t!e
P!ili%%ines )rom t!e time -!en t!e assessment -as made +& t!e Commissioner
until %aid( -it! interests( %enalties( and osts t!at ma& arue in addition t!ereto
u%on all %ro%ert& and ri*!ts to %ro%ert& +elon*in* to t!e ta$%a&er2
Pro'ided( T!at t!is lien s!all not +e 'alid a*ainst an& mort*a*ee( %ur!aser or
7ud*ment reditor until notie o) su! lien s!all +e )iled +& t!e Commissioner in
t!e o))ie o) t!e Re*ister o) Deeds o) t!e %ro'ine or it& -!ere t!e %ro%ert& o) t!e
ta$%a&er is situated or loated"
Ta+ lien is more s'erior t%an a 'rivate liti*antIs claim 'redicated on a 5d*ment-
It is settled t%at t%e claim of t%e *overnment 'redicated on a ta+ lien is s'erior to t%e
claim of a 'rivate liti*ant 'redicated on a 5d*ment- T%e ta+ lien attac%es not onl) from
t%e service of t%e warrant of distraint of 'ersonal 'ro'ert) bt from t%e time t%e ta+
became de and 'a)able-
Re'blic of t%e &%il- vs- Ramon ?- :nri1eJ, ?-R- 6o- 38B91, October 21, 1988
SECTION 220 3 Form and Mode o) Proeedin* in Ations Arisin* under t!is
Code" # Ci'il and riminal ations and %roeedin*s instituted in +e!al) o) t!e
Go'ernment under t!e aut!orit& o) t!is Code or ot!er la- en)ored +& t!e ;ureau
o) Internal Re'enue s!all +e +rou*!t in t!e name o) t!e Go'ernment o) t!e
P!ili%%ines and s!all +e onduted +& le*al o))iers o) t!e ;ureau o) Internal
Re'enue +ut no i'il or riminal ation )or t!e reo'er& o) ta$es or t!e
en)orement o) an& )ine( %enalt& or )or)eiture under t!is Code s!all +e )iled in
ourt -it!out t!e a%%ro'al o) t!e Commissioner"
T%e Solicitor ?eneral, not #IR le*al officers, %as 'rimar) res'onsibilit) to a''ear for t%e
*overnment in a''ellate 'roceedin*s-
T%e Solicitor ?eneral, bein* t%e 'rinci'al law officer and le*al defender of t%e state, its
a*encies and instrmentalities, is a'tl) t%e office t%at can brin* a case on a''eal to t%e
Cort of A''eals or t%e S'reme Cort- T%e instittion or commencement before a
'ro'er cort of civil and criminal actions and 'roceedin*s arisin* nder t%e Ta+ Reform
Act w%ic% 0s%all be condcted b) le*al officers of t%e #rea of Internal Revene0 is not
in dis'te- An a''eal from sc% cort, %owever, is not a matter of ri*%t- Section 22/ of
t%e Ta+ Reform Act mst not be nderstood as overtrnin* t%e lon* establis%ed 'rocedre
before t%is Cort in re1irin* t%e Solicitor ?eneral to re'resent t%e interest of t%e
Re'blic- T%is 'rononcement finds 5stification in t%e varios laws definin* t%e Office
of t%e Solicitor ?eneral, be*innin* wit% Act 6o- 1B7, w%ic% too$ effect on 1, 2ne 19/1,
' to t%e 'resent Administrative Code of 1983-
Commissioner of Internal Revene vs- =a Serte Ci*ar and Ci*arette Factor), ?-R- 6o-
1EE9E2, 2ne E, 2//2
SECTION 225 Remed& )or En)orement o) Statutor& Penal Pro'isions # T!e
remed& )or en)orement o) statutor& %enalties o) all sorts s!all +e +& riminal or
i'il ation( as t!e %artiular situation ma& re8uire( su+7et to t!e a%%ro'al o) t!e
Commissioner"
T%e civil liabilit) to 'a) ta+es is not a conse1ence of a criminal act bt arises from t%e
fact t%at one %as en*a*ed %imself in bsiness-
T%e civil case for t%e collection of n'aid cstoms dties and ta+es cannot be
simltaneosl) institted and determined in t%e same 'roceedin*s as t%e criminal cases
before t%e Sandi*anba)an, as it cannot be made t%e civil as'ect of t%e criminal cases
filed before it- It s%old be borne in mind t%at t%e ta+ and t%e obli*ation to 'a) t%e same
are all created b) statteH so are its collection and 'a)ment *overned b) statte- T%e
'a)ment of ta+es is a dt) w%ic% t%e law re1ires to be 'aid- Said obli*ation is not a
conse1ence of t%e felonios acts c%ar*ed in t%e criminal 'roceedin* nor is it a mere
civil liabilit) arisin* from crime t%at cold be wi'ed ot b) t%e 5dicial declaration of
nonGe+istence of t%e criminal acts c%ar*ed- 8ence, t%e 'a)ment and collection of cstoms
dties and ta+es in itself creates civil liabilit) on t%e 'art of t%e ta+'a)er- Sc% civil
liabilit) to 'a) ta+es arises from t%e fact, for instance, t%at one %as en*a*ed %imself in
bsiness, and not becase of an) criminal act committed b) %im-
&roton &ili'inas Cor'- vs- Re'blic of t%e &%il-, ?-R- 6o- 1,7/23, October 1,, 2//,
SECTION 222 E$e%tions as to Period o) Limitation o) Assessment and
Colletion o) Ta$es" #
0a1 In t!e ase o) a )alse or )raudulent return -it! intent to e'ade ta$ or o)
)ailure to )ile a return( t!e ta$ ma& +e assessed( or a %roeedin* in ourt )or t!e
olletion o) su! ta$ ma& +e )iled -it!out assessment( at an& time -it!in ten 0501
&ears a)ter t!e diso'er& o) t!e )alsit&( )raud or omission2 Pro'ided( T!at in a )raud
assessment -!i! !as +eome )inal and e$eutor&( t!e )at o) )raud s!all +e
7udiiall& ta,en o*ni<ane o) in t!e i'il or riminal ation )or t!e olletion
t!ereo)"
&eriod wit%in w%ic% to assess ta+ in cases of fradlent and false retrns and failre to
file a retrn-
T%e law is clear- ;%en fradlent ta+ retrns are involved as in t%e cases at bar, a
'roceedin* in cort after t%e collection of sc% ta+ ma) be be*n wit%ot assessment-
8ere, t%e 'rivate res'ondents %ad alread) filed t%e ca'ital *ains ta+ retrn and t%e CAT
retrns, and 'aid t%e ta+es t%e) %ave declared de t%erefrom- 9'on investi*ation of t%e
e+aminers of t%e #IR, t%ere was a 'reliminar) findin* of *ross discre'anc) in t%e
com'tation of t%e ca'ital *ains ta+es de from t%e sale of two lots of AAI s%ares, first to
A&AC and t%en to A&AC &%ili''ines, =imited- T%e e+aminers also fond t%at t%e CAT %ad
not been 'aid for CATGliable sale of services for t%e t%ird and fort% 1arters of 199/-
Ar*abl), t%e *ross dis'arit) in t%e ta+es de and t%e amonts actall) declared b) t%e
'rivate res'ondents constittes bad*es of frad-
=cas ?- Adamson, et al- vs- Cort of A''eals, et al-, ?-R- 6os- 12/9B7 P 12E773, 4a)
21, 2//9
In cases of !1" fradlent retrnsH !2" false retrns wit% intent to evade ta+H and !B"
failre to file a retrn, t%e 'eriod wit%in w%ic% to assess ta+ is ten )ears from discover) of
t%e frad, falsification or omission, as t%e case ma) be-
Commissioner of Internal Revene vs- T%e :state of #eni*no &- Toda, 2r-, et al-, ?-R- 6o-
1E3188, Se'tember 1E, 2//E
&rescri'tive 'eriod is interr'ted once ta+'a)er re1ests for reinvesti*ation or
reconsideration of assessment-
Settled is t%e rle t%at t%e 'rescri'tive 'eriod 'rovided b) law to ma$e a collection b)
distraint or lev) or b) a 'roceedin* in cort is interr'ted once a ta+'a)er re1ests for
reinvesti*ation or reconsideration of t%e assessment-
Commissioner of Internal Revene vs- ;)et% Saco =aboratories, Inc-, et al-, ?-R- 6o-
3,281, Se'tember B/, 1991
Ta+'a)er(s re1est for review or reconsideration of assessment interr'ts 'eriod of
'rescri'tion-
T%e 'eriod of 'rescri'tion of action to collect a ta+'a)er(s deficienc) income ta+
assessment is interr'ted w%en t%e ta+'a)er re1ests for a review or reconsideration of
said assessment, and starts to rn a*ain w%en said re1est is denied- .edctin* all t%e
'eriods of ss'ension from t%e fiveG)ear 'rescri'tive 'eriod, t%e action for collection was
timel) 'resented-
Commissioner of Internal Revene vs- Ca'itol Sbdivision, Inc-, ?-R- 6o- =G1899B, A'ril
B/, 19,E
4ere re1est for ree+amination or reinvesti*ation of assessment ma) not ss'end t%e
rnnin* of t%e 'eriod of limitation-
A mere re1est for ree+amination or reinvesti*ation of assessment ma) not ss'end t%e
rnnin* of t%e 'eriod of limitation for in sc% a case t%ere is need of a written a*reement
to e+tend t%e 'eriod between t%e Collector and t%e ta+'a)er- T%ere are cases, %owever,
w%ere a ta+'a)er ma) be 'revented from settin* ' t%e defense of 'rescri'tion even if %e
%as not 'reviosl) waived it in writin* as w%en b) %is re'eated re1ests or 'ositive acts
t%e ?overnment %as been, for *ood reasons, 'ersaded to 'ost'one collection to ma$e
%imself feel t%at t%e demand was not nreasonable or t%at no %arassment or in5stice is
meant b) t%e ?overnment- And w%en sc% sitation comes to 'ass t%ere are at%orities
t%at %old, based on wei*%t) reasons, t%at sc% an attitde or be%avior s%old not be
contenanced if onl) to 'rotect t%e interest of t%e ?overnment-
Commissioner of Internal Revene vs- S)oc Consolidated 4inin* Co-, et al-, ?-R- 6o-
=G11723, 6ovember 27, 1978
Criminal com'laint is institted not to demand 'a)ment bt to 'enaliJe t%e ta+'a)er for
violation of t%e Ta+ Code-
T%e issance of an assessment mst be distin*is%ed from t%e filin* of a com'laint-
#efore an assessment is issed, t%ere is, b) 'ractice, a 'reGassessment notice sent to t%e
ta+'a)er- T%e ta+'a)er is t%en *iven a c%ance to sbmit 'osition 'a'ers and docments
to 'rove t%at t%e assessment is nwarranted- If t%e commissioner is nsatisfied, an
assessment si*ned b) %im or %er is t%en sent to t%e ta+'a)er informin* t%e latter
s'ecificall) and clearl) t%at an assessment %as been made a*ainst %im or %er- In
contrast, t%e criminal c%ar*e need not *o t%ro*% all t%ese- T%e criminal c%ar*e is filed
directl) wit% t%e .O2- T%ereafter, t%e ta+'a)er is notified t%at a criminal case %ad been
filed a*ainst %im, not t%at t%e commissioner %as issed an assessment- It mst be stressed
t%at a criminal com'laint is institted not to demand 'a)ment, bt to 'enaliJe t%e
ta+'a)er for violation of t%e Ta+ Code-
Commissioner of Internal Revene vs- &ascor Realt) and .evt- Cor'-, et al-, ?-R- 6o-
128B17, 2ne 29, 1999
CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- AIR I6.IA and T8: CO9RT OF TA>
A&&:A=S N?-R- 6o- 32EEB- 2anar) 29, 1988-O
SD==A#9S
1- TA>ATIO6H R:C:69: .:RIC:. #D A6 I6T:R6ATIO6A= AIR=I6:, 8ACI6? 6O
=A6.I6? RI?8TS, FRO4 SA=:S OF AIR=I6: TIC@:TS T8RO9?8 IT A?:6T,
TA>A#=: AS I6CO4:- T Revene derived b) an international air carrier from sales of
tic$ets in t%e &%ili''ines for air trans'ortation, w%ile %avin* no landin* ri*%ts in t%e
contr), constittes income of t%e said international air carrier from &%ili''ine sorces and,
accordin*l), ta+able nder Section 2E !b" !2" of t%e 6ational Internal Revene Code as rled
in Commissioner of Internal Revene v- #ritis% Overseas Airwa)s Cor'oration, 1E9 SCRA
B97 !1983"-
2- I.-H ;I==F9= 6:?=:CT TO FI=: R:F9IR:. TA> R:T9R6 OR FRA9.9=:6T
I6T:6T TO :CA.: &AD4:6T OF TA>:S, 6OT &R:S94:.- T T%e willfl ne*lect to file
t%e re1ired ta+ retrn or t%e fradlent intent to evade t%e 'a)ment of ta+es, considerin*
t%at t%e same is accom'anied b) le*al conse1ences, cannot be 'resmed- T%e frad
contem'lated b) law is actal and not constrctive- It mst be intentional frad, consistin*
of dece'tion willfll) and deliberatel) done or resorted to in order to indce anot%er to *ive
' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross, is not e1ivalent to t%e frad wit%
intent to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross, is not e1ivalent to
t%e frad wit% intent to evade t%e ta+ contem'lated b) t%e law- It mst amont to intentional
wron*doin* wit% t%e sole ob5ect of avoidin* t%e ta+-
B- I.-H I4&OSITIO6 OF =:SS:R &:6A=TD I6 T8: A#S:6C: OF ;I==F9=
6:?=:CT TO FI=: T8: R:F9IR:. TA> R:T9R6- T T%ere bein* no co*ent basis to find
willfl ne*lect to file t%e re1ired ta+ retrn on t%e 'art of t%e 'rivate res'ondent, t%e 7/Q
src%ar*e or frad 'enalt) im'osed 'on it is im'ro'er- 6onet%eless, sc% failre sb5ects
t%e 'rivate res'ondent to a 27Q 'enalt) 'rsant to Section 32 of t%e ta+ code cited earlier-
&3E,2/B-9/ constittes t%e ta+ deficienc) of t%e 'rivate res'ondent- 27Q of t%is amont is
&B3,1/1-97-
E- I.-H TA> .:FICI:6CDH I6T:R:ST CO==:CTI#=: 6OT TO :>C::. B D:ARS- T
;e find t%e E2Q interest assessed b) t%e 'etitioner to be in order- At t%e time t%e ta+ liabilit)
of t%e 'rivate res'ondent accred, Section 71 !d" of t%e ta+ code, before it was amended b)
&residential .ecree 6o- 13/7 'rescribed an interest rate of 1EQ 'er annm, 'rovided t%at
t%e ma+imm amont t%at cold be collected as interest on t%e ta+ deficienc) will not e+ceed
t%e amont corres'ondin* to a 'eriod of t%ree )ears- T%s, t%e ma+imm interest rate t%en
was E2Q- T%is ma+imm interest rate is a''licable to t%e 'rivate res'ondent inasmc% as
t%e 'eriod between 4arc% B1, 193, !t%e end of t%e fiscal )ear in 1estion" and Febrar) 2/,
1981 !t%e time w%en t%e 'etitioner made t%e assessment in 1estion" e+ceeds t%ree )ears-
&3E,2/B-9/ constittes t%e ta+ deficienc) of t%e 'rivate res'ondent- E2Q of t%is amont is
&B1,1,7-,E-
7- I.-H I.-H A..ITIO6A= I6T:R:ST CO==:CTI#=: 6OT TO :>C::. T8R::
D:ARS- T &rsant to Section 71 !e" !2" of t%e ta+ code, as amended b) &residential .ecree
6o- 13/7, t%e 'rivate res'ondent is liable to 'a) additional interest of 2/Q 'er annm
!com'ted from Febrar) 2/, 1981, t%e date w%en t%e Commissioner so*%t t%e 'a)ment of
t%e ta+ deficienc)" on t%e total amont n'aid- A carefl readin* of Section 71 !e" !2" s%ows
t%at t%is interest is in addition to t%e interest 'rovided in Section 71 !d"- T%is view can be
*leaned from t%e se of t%e '%rase 0;%ere a deficienc), or an) interest assessed in
connection t%erewit% nder 'ara*ra'% !d" of t%is section0 in Section 71 !e" !2"- T%e
additional interest is to be com'ted 'on t%e entire amont of t%e ta+ liabilit) !'revios
interest inclded" w%ic% remains n'aid- T%is is manifested b) t%e se of t%e '%rase 0t%ere
s%all be collected 'on t%e n'aid amont as 'art of t%e ta+0 in Section 71 !e" !2"- 8owever,
t%e same Section 'rovides t%at t%e ma+imm amont t%at ma) be collected as interest cannot
e+ceed t%e amont corres'ondin* to a 'eriod of t%ree )ears- In t%is case, t%e ma+imm rate
wold be ,/Q-
,- I.-H I.-H A..ITIO6A= S9RC8AR?:, 4A6.ATORD- T &rsant to Section 71 !e"
!B" of t%e same code, as amended b) t%e said .ecree, t%e 'rivate res'ondent is li$ewise
liable to 'a) an additional src%ar*e of 1/Q !flat rate" of t%e total amont of ta+ n'aid- An
e+amination of Section 71 !e"!B" reveals t%at t%is src%ar*e is im'osed for t%e late 'a)ment
of t%e n'aid ta+ deficienc) andRor n'aid interest assessed in connection t%erewit%, in
addition to all ot%er c%ar*es- T%is is confirmed b) t%e se of t%e words 0t%ere s%all be
collected in addition to t%e interest 'rescribed %erein Nreferrin* to t%e entire Section 71 !e"O
and in 'ara*ra'% !d" above Nreferrin* to Section 71 !d"O-0 T%e additional src%ar*e is
com'ted on t%e amont of ta+ n'aid, e+clsive of all ot%er im'ositions- T%is is confirmed
b) t%e '%rase 0ten 'er centm of t%e amont of ta+ n'aid-0 T%e failre to 'a) t%e ta+
deficienc) wit%in t%e re1ired 'eriod of time 'on demand is 'enaliJed b) t%is additional
src%ar*e- 9'on sc% failre to 'a), t%e src%ar*e is atomaticall) deH its im'osition is
mandator)-
. : C I S I O 6
T%is is a &etition w%ic% see$s t%e review of a .ecision of t%e Cort of Ta+ A''eals-
T%e 'rivate res'ondent Air India is a forei*n cor'oration or*aniJed nder t%e laws of India-
It is not licensed to do bsiness in t%e &%ili''ines as an international carrier- Its air'lanes
do not o'erate wit%in &%ili''ine territor) nor service 'assen*ers embar$in* from &%ili''ine
'orts- T%e firm is re'resented in t%e &%ili''ines b) its *eneral sales a*ent, &%ili''ine
Air=ines, Inc-, a cor'orate entit) dl) or*aniJed nder t%e laws of t%e &%ili''ines- Air India
sells air'lane tic$ets in t%e &%ili''ine t%ro*% t%is a*ent- T%ese tic$ets are serviced b) Air
India air'lanes otside t%e &%ili''ines- In sm, Air India(s stats in t%e &%ili''ines is t%at of
an offGline international carrier not en*a*ed in t%e bsiness of air trans'ortation in t%e
&%ili''ines-
T%e total sales of air'lane tic$ets transacted b) &%ili''ine Air =ines, Inc- for t%e 'rivate
res'ondent drin* t%e fiscal )ear endin* 4arc% B1, 193, amonted to &2,9,8,17,-//- On
accont of t%e same, t%e %erein 'etitioner Commissioner of Internal Revene %eld t%e 'rivate
res'ondent liable for t%e 'a)ment of &1E2,E31-,8- 1 T%e amont re'resents t%e 2-7Q income
ta+ on t%e 'rivate res'ondent(s *ross &%ili''ine billin*s for t%e said fiscal )ear 'rsant to
Section 2E !b" !2" of t%e 6ational Internal Revene Code, as amended, inclsive of t%e 7/Q
src%ar*e and interest for willfl ne*lect to file a retrn as 'rovided nder Section 32 of t%e
same code- T%e com'tation is as follows T
?ross &%ili''ine billin*s &2,9,8,17,-//
Income Ta+ de t%ereon at 2-7Q 3E,2/E-//
Add: 7/Q src%ar*e B3,1/2-//
1EQ interest 'er annm !E2Q ma+imm" B1,1,7-,8
TTTTTT
Total Amont .e and Collectible &1E2,E31-,8
From t%e action ta$en b) t%e 'etitioner, t%e 'rivate res'ondent bro*%t an A''eal to t%e
Cort of Ta+ A''eals- T%e t%rst of t%e A''eal is, inter alia, t%at t%e 'rivate res'ondent
cannot be %eld liable to 'a) t%e said im'osition becase it did not derive an) income from
sorces wit%in t%e &%ili''ines drin* t%e said fiscal )ear and t%at t%e amont of
&2,9,8,17,-// mentioned in t%e assessment made b) t%e 'etitioner was derived e+clsivel)
from sorces otside t%e &%ili''ines-
On t%e ot%er %and, t%e 'etitioner ar*ed t%at t%e amont of &2,9,8,17,-// was realiJed in
t%e &%ili''ines and was, t%erefore, derived from sorces wit%in t%e &%ili''ines- &etitioner
also stressed t%at in case of an) dobt, t%e 'resm'tion is t%at t%e ta+ assessment is correct-
In its .ecision dated 2ne 23, 1987, t%e Cort of Ta+ A''eals rled in favor of t%e 'rivate
res'ondent and set aside t%e decision of t%e 'etitioner- T%e ta+ cort li$ewise %eld t%at t%e
src%ar*e and interest im'osed 'on t%e 'rivate res'ondent are im'ro'er- T%e 'ertinent
'ortions of t%e .ecision are as follows:
09nder t%e law, t%e sits of t%e income derived from labor or 'erformance of service is
determined b) t%e 'lace w%ere t%e labor is 'erformed or t%e service rendered, not b) t%e
'lace w%ere 'a)ment is made !Sec- B3, 6at- Int- Rev- Code-" It follows t%at t%e sits of t%e
income derived b) forei*n international carriers from t%e bsiness of air trans'ortation is
t%e 'lace w%ere t%e air'lane service is rendered or 'erformed- Accordin*l), to ta+ t%e
income derived b) 'etitioner !Air India" from t%e trans'ortation service rendered or
'erformed otside t%e &%ili''ines wold violate not onl) t%e 6ational Internal Revene
Code bt also t%e de 'rocess clase of t%e Constittion-
0+++ +++ +++
0- - - we fll) a*ree wit% 'etitioner !Air India" t%at it is not liable for src%ar*e of 7/Q, - - -
0- - -T%e src%ar*e of 7/Q of t%e n'aid ta+ or deficienc) ta+ is so*%t to be im'osed in t%is
case nder Section 32 of t%e Revene Code w%ic% 'rovides t%at t%e said src%ar*e is to be
im'osed T
0In case of willfl ne*lect to file t%e retrn or list re1ired nder t%is Title wit%in t%e time
'rescribed b) law, or in case a false or fradlent retrn or list is willfll) made - - -0
0T%ere is no claim or 'retense t%at %erein 'etitioner !Air India" willfll) failed to file an
income ta+ retrn for t%e fiscal )ear 193,- 6eit%er t%e re'ort of t%e e+aminer nor t%e
Amended Answer filed b) res'ondent !t%e Commissioner" ma$es mention of an) fact or
circmstance to 'rove t%at t%e failre of 'etitioner !Air India" to file t%e retrn was willfl-
&etitioner is c%ar*ed wit% failre to file a retrn-
0;illfl failre to file an income ta+ retrn w%ic% 5stifies t%e im'osition of t%e 7/Q
src%ar*e, or w%at is commonl) called t%e frad 'enalt), re1ires t%at t%e failre to file a
retrn was de to an intent to evade 'a)ment of ta+ le*all) de, in ot%er words an intention
to defrad t%e ?overnment of lawfl revene- 4ere failre to file are trn is not in itself,
standin* alone, evidence of frad - - -!Citin* AJnar v- Cort of Ta+ A''eals, 78 SCRA 719-"
0&etitioner !Air India" can not be c%ar*ed wit% an intention to defrad t%e ?overnment
becase it %onestl) and sincerel) believes t%at it is not liable for t%e ta+ so*%t to be im'osed
'on it-0
8ence, t%is &etition for Review- T%e &etition is anc%ored on t%e ar*ment t%at t%e 'rivate
res'ondent is liable for t%e im'osition in 1estion-
Com'l)in* wit% t%e instrctions of t%is Cort, t%e 'rivate res'ondent sbmitted its Comment
on t%e &etition-
After sbse1ent 'leadin*s were filed b) t%e 'arties, t%e case was deemed sbmitted for
decision-
;e find merit in t%e &etition-
T%e 'rinci'al isse raised in t%is &etition is w%et%er or not t%e revene derived b) an
international air carrier from sales of tic$ets in t%e &%ili''ines for air trans'ortation, w%ile
%avin* no landin* ri*%ts in t%e contr), constittes income of t%e said international air
carrier from &%ili''ine sorces and, accordin*l), ta+able nder Section 2E !b" !2" of t%e
6ational Internal Revene Code-
T%is isse %as been settled in t%e affirmative in Commissioner of Internal Revene v- #ritis%
Overseas Airwa)s Cor'oration T%is Cort, s'ea$in*, t%ro*% 4me- 2stice Amerfina A-
4elencioG8errera, %eld t%at sc% revene constittes ta+able income- T%e 'ertinent 'ortions
of t%e said .ecision are as follows T
0T%e Ta+ Code defines (*ross income( t%s:
0(?ross Income( incldes *ains, 'rofits, and income derived from salaries, wa*es or
com'ensation for 'ersonal service of w%atever $ind and in w%atever form 'aid, or from
'rofession, vocations, trades, bsiness, commerce, sales, or dealin*s in 'ro'ert), w%et%er
real or 'ersonal, *rowin* ot of t%e owners%i' or se of or interest in sc% 'ro'ert)H also
from interests, rents, dividends, secrities, or t%e transactions of an) bsiness carried on for
*ain or 'rofit, or *ains, 'rofits, and income derived from an) sorce w%atever- - -
0T%e definition is broad and com're%ensive to inclde 'roceeds from sales of trans'ort
docments- (T%e words income from an) sorce w%atever( disclose a le*islative 'olic) to
inclde all income not e+'ressl) e+em'ted wit%in t%e class of ta+able income nder or
laws-( Income means (cas% received or its e1ivalent(H it is t%e amont of mone) comin* to a
'erson wit%in a s'ecific time - - - H it means somet%in* distinct from 'rinci'al or ca'ital- For,
w%ile ca'ital is a fnd, income is a flow- As sed in or income ta+ law, (income( refers to t%e
flow of wealt%-
+++ +++ +++
0T%e sorce of an income is t%e 'ro'ert), activit) or service t%at 'rodced t%e income- For
t%e sorce of income to be considered as comin* from t%e &%ili''ines, it is sfficient t%at t%e
income is derived from activit) wit%in t%e &%ili''ines- In #OAC(s case, t%e sale of tic$ets in
t%e &%ili''ines is t%e activit) t%at 'rodces t%e income- T%e tic$ets e+c%an*ed %ands %ere
and 'a)ments for fares were also made %ere in &%ili''ine crrenc)- T%e sits of t%e sorce of
'a)ments is t%e &%ili''ines- T%e flow of wealt% 'roceeded from, and occrred wit%in,
&%ili''ine territor), en5o)in* t%e 'rotection accorded b) t%e &%ili''ine *overnment- In
consideration of sc% 'rotection, t%e flow of wealt% s%old s%are t%e brden of s''ortin*
t%e *overnment-
+++ +++ +++
0#OAC, %owever, wold im'ress 'on t%is Cort t%at income derived from trans'ortation is
income for services, wit% t%e reslt t%at t%e 'lace w%ere t%e services are rendered determines
t%e sorce and since #OAC(s service of trans'ortation is 'erformed otside t%e &%ili''ines,
t%e income derived is from sorces wit%ot t%e &%ili''ines and, t%erefore, not ta+able nder
income ta+ laws, - - -
0T%e absence of fli*%t o'erations to and from t%e &%ili''ines is not determinative of t%e
sorce of income or t%e sits of income ta+ation- Admittedl), #OAC was an offGline
international airline at t%e time 'ertinent to t%is case- T%e test of ta+abilit) is t%e (sorce(H
and t%e sorce of an income is t%at activit) - - - w%ic% 'rodced t%e income- 9n1estionabl),
t%e 'assa*e docmentations in t%ese cases were sold in t%e &%ili''ines and t%e revene
t%erefrom was derived from a bsiness activit) re*larl) 'rsed wit%in t%e &%ili''ines- And
even if t%e #OAC tic$ets sold covered t%e (trans'ort of 'assen*ers and car*o to and from
forei*n cities,( it cannot alter t%e fact t%at income from t%e sale of tic$ets was derived from
t%e &%ili''ines- T%e word sorce( conve)s one essential idea, t%at of ori*in, and t%e ori*in of
t%e income %erein is t%e &%ili''ines-0
4oreover, t%e ta+able income involved in t%is case is for t%e fiscal )ear endin* 4arc% B1,
193,- In t%e concrrin* o'inion of C%ief 2stice Tee%an$ee in aforesaid case %e made t%e
followin* observations:
0I 5st wis% to 'oint ot t%at t%e conflict between t%e ma5orit) o'inion 'enned b) 4me-
2stice 4elencioG8errera and t%e dissentin* o'inion 'enned b) 4r- 2stice Feliciano as to
t%e 'ro'er c%aracteriJation of t%e ta+able income derived b) res'ondent #OAC from t%e
sales in t%e &%ili''ines of tic$ets for #OAC fli*%ts as sold and issed b) its *eneral sales
a*ent in t%e &%ili''ines %as become moot after 6ovember 2E, 1932- #ot% o'inions state t%at
b) amendment t%ro*% &-.- 6o- ,9, 'roml*ated on 6ovember 2E, 1932, of section 2E !b"!2"
of t%e Ta+ Code 'rovidin* for t%e rate of income ta+ on forei*n cor'orations, international
carriers sc% as res'ondent #OAC, %ave since t%en been ta+ed at a redced rate of 2G1R2Q
on t%eir *ross &%ili''ine billin*s- T%ere is, t%erefore, no lon*er an) sorce of sbstantial
conflict between t%e two o'inions as to t%e 'resent 2G1R2Q ta+ on t%eir *ross &%ili''ine
billin*s c%ar*ed a*ainst sc% international carriers as %erein res'ondent forei*n
cor'oration-0
On t%e basis of t%e doctrine annonced in #ritis% Overseas Airwa)s Cor'oration, t%e
revene derived b) t%e 'rivate res'ondent Air India from t%e sales of air'lane tic$ets t%ro*%
its a*ent &%ili''ine Air =ines, Inc-, %ere in t%e &%ili''ines, mst be considered ta+able
income- As correctl) assessed b) t%e 'etitioner, sc% income is sb5ect to a 2-7Q ta+
'rsant to &residential .ecree 6o- 1B77, amendin* Section 2E !b"!2" of t%e ta+ code- T%e
total &%ili''ine billin*s of t%e 'rivate res'ondent for t%e ta+able )ear in 1estion amonts to
&2,9,8,17,-//- 2-7Q of t%is amont or &3E,2/B-9/ constittes t%e income ta+ de from t%e
'rivate res'ondent-
T%e ta+ liabilit) of t%e 'rivate res'ondent t%s settled, ;e come now to t%e 'ro'riet) of t%e
7/Q src%ar*e and t%e interest im'osed 'on it b) t%e Commissioner of Internal Revene-
T%e 7/Q src%ar*e or frad 'enalt) 'rovided in Section 32 of t%e 6ational Internal Revene
Code is im'osed on a delin1ent ta+'a)er w%o willfll) ne*lects to file t%e re1ired ta+
retrn wit%in t%e 'eriod 'rescribed b) t%e law, or w%o willfll) files a false or fradlent ta+
retrn, to wit T
0Sec- 32- Src%ar*es for failre to render retrns and for renderin* false and fradlent
retrns- T In case of willfl ne*lect to file t%e retrn or list re1ired nder t%is Title wit%in
t%e time 'rescribed b) law, or in case a false or fradlent retrn or list is willfll) made, t%e
Commissioner of Internal Revene s%all add to t%e ta+ or to t%e deficienc) ta+, in case an)
'a)ment %as been made on t%e basis of sc% retrn before t%e discover) of t%e falsit) or
frad, a src%ar*e of fift) 'er centm of t%e amont of sc% ta+ or deficienc) ta+- In case of
an) failre to ma$e and file a retrn or list wit%in t%e time 'rescribed b) law or b) t%e
Commissioner or ot%er internal revene officer, not de to willfl ne*lect, t%e Commissioner
of Internal Revene s%all add to t%e ta+ twent)Gfive 'er centm of its amont, e+ce't t%at,
w%en a retrn is volntaril) and wit%ot notice from t%e Commissioner or ot%er officer filed
after sc% time, and it is s%own t%at t%e failre to file it was de to a reasonable case, no
sc% addition s%all be made to t%e ta+- T%e amont so added to an) ta+ s%all be collected at
t%e same time in t%e same manner and as 'art of t%e ta+ nless t%e ta+ %as been 'aid before
t%e discover) of t%e ne*lect, falsit), or frad, in w%ic% case t%e amont so added s%all be
collected in t%e same manner as t%e ta+-0
On t%e ot%er %and, t%e same Section 'rovides t%at if t%e failre to file t%e re1ired ta+ retrn
is not de to willfl ne*lect, a 'enalt) of 27Q is to be added to t%e amont of t%e ta+ de
from t%e ta+'a)er-
;e %ave *one t%ro*% t%e alle*ations of t%e 'etitioner as well as t%e 4emorandm
sbmitted b) t%e Solicitor ?eneral on be%alf of t%e Commissioner and on t%e basis of t%e
same- ;e are not convinced t%at t%e 'rivate res'ondent can be considered to %ave willfll)
ne*lected to file t%e re1ired ta+ retrn t%ereb) warrantin* t%e im'osition of t%e 7/Q frad
'enalt) 'rovided in Section 32- At t%e most, t%ere is t%e barren claim t%at sc% failre was
fradlent in c%aracter, wit%ot an) evidence or 5stification for t%e same- T%e willfl
ne*lect to file t%e re1ired ta+ retrn or t%e fradlent intent to evade t%e 'a)ment of ta+es,
considerin* t%at t%e same is accom'anied b) le*al conse1ences, cannot be 'resmed- At
t%is 'oint, ;e call attention to t%e 'rononcement of t%is Cort in AJnar v- Cort of Ta+
A''eals, to wit T
0T%e lower cort(s conclsion re*ardin* t%e e+istence of fradlent intent to evade 'a)ment
of ta+es was based merel) on a 'resm'tion and not on evidence establis%in* a willfl filin*
of false and fradlent retrns so as to warrant t%e im'osition of t%e frad 'enalt)- T%e
frad contem'lated b) law is actal and not constrctive- It mst be intentional frad,
consistin* of dece'tion willfll) and deliberatel) done or resorted to in order to indce
anot%er to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross, is not e1ivalent to
t%e frad wit% intent to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross, is not
e1ivalent to t%e frad wit% intent to evade t%e ta+ contem'lated b) t%e law- It mst amont
to intentional wron*doin* wit% t%e sole ob5ect of avoidin* t%e ta+- It necessaril) follows t%at
a mere mista$e cannot be considered as fradlent intent, and if bot% 'etitioner and
res'ondent Commissioner of Internal Revene committed mista$es in ma$in* entries in t%e
retrns and in t%e assessment, res'ectivel), nder t%e inventor) met%od of determinin* ta+
liabilit), it wold be nfair to treat t%e mista$es of t%e 'etitioner as tainted wit% frad and
t%ose of t%e res'ondent as made in *ood fait%-0
T%ere bein* no co*ent basis to find willfl ne*lect to file t%e re1ired ta+ retrn on t%e 'art
of t%e 'rivate res'ondent, t%e 7/Q src%ar*e or frad 'enalt) im'osed 'on it is im'ro'er-
6onet%eless, sc% failre sb5ects t%e 'rivate res'ondent to a 27Q 'enalt) 'rsant to
Section 32 of t%e ta+ code cited earlier- &3E,2/B-9/ constittes t%e ta+ deficienc) of t%e
'rivate res'ondent- 27Q of t%is amont is &B3,1/1-97-
As for t%e interest w%ic% t%e 'rivate res'ondent is liable to 'a), ;e find t%e E2Q interest
assessed b) t%e 'etitioner to be in order- At t%e time t%e ta+ liabilit) of t%e 'rivate res'ondent
accred, Section 71 !d" of t%e ta+ code, before it was amended b) &residential .ecree 6o-
13/7 'rescribed an interest rate of 1EQ 'er annm, 'rovided t%at t%e ma+imm amont t%at
cold be collected as interest on t%e ta+ deficienc) will not e+ceed t%e amont corres'ondin*
to a 'eriod of t%ree )ears- T%s, t%e ma+imm interest rate t%en was E2Q- T%is ma+imm
interest rate is a''licable to t%e 'rivate res'ondent inasmc% as t%e 'eriod between 4arc%
B1, 193, !t%e end of t%e fiscal )ear in 1estion" and Febrar) 2/, 1981 !t%e time w%en t%e
'etitioner made t%e assessment in 1estion" e+ceeds t%ree )ears- &3E,2/B-9/ constittes t%e
ta+ deficienc) of t%e 'rivate res'ondent- E2Q of t%is amont is &B1,1,7-,E-
;e will now loo$ into t%e 'ro'riet) of t%e ot%er im'ositions-
T%e 'etitioner 'ra)s t%at 'rsant to Section 71 !e" !2" of t%e ta+ code, as amended b)
&residential .ecree 6o- 13/7, t%e 'rivate res'ondent is liable to 'a) additional interest of
2/Q 'er annm !com'ted from Febrar) 2/, 1981, t%e date w%en t%e Commissioner so*%t
t%e 'a)ment of t%e ta+ deficienc)" on t%e total amont n'aid, to wit T
0!2" .eficienc)- T ;%ere a deficienc), or an) interest assessed in connection t%erewit%
nder 'ara*ra'% !d" of t%is section, or an) addition to t%e ta+es 'rovided for in Section
sevent)Gtwo of t%is Code is not 'aid in fll wit%in t%irt) da)s from t%e date of notice and
demand from t%e Commissioner of Internal Revene, t%ere s%all be collected 'on t%e
n'aid amont as 'art of t%e ta+, interest at t%e rate of twent) 'er centm 'er annm from
t%e date of sc% notice and demand ntil it is 'aid: &rovided, T%at t%e ma+imm amont t%at
ma) be collected as interest on deficienc) s%all in no case e+ceed t%e amont corres'ondin*
to a 'eriod of t%ree )ears, t%e 'resent 'rovisions re*ardin* 'rescri'tion to t%e contrar)
notwit%standin*-0
A carefl readin* of Section 71 !e" !2" s%ows t%at t%is interest is in addition to t%e interest
'rovided in Section 71 !d"- T%is view can be *leaned from t%e se of t%e '%rase 0;%ere a
deficienc), or an) interest assessed in connection t%erewit% nder 'ara*ra'% !d" of t%is
section0 in Section 71 !e" !2"- T%e additional interest is to be com'ted 'on t%e entire
amont of t%e ta+ liabilit) !'revios interest inclded" w%ic% remains n'aid- T%is is
manifested b) t%e se of t%e '%rase 0t%ere s%all be collected 'on t%e n'aid amont as 'art
of t%e ta+0 in Section 71 !e" !2"- 8owever, t%e same Section 'rovides t%at t%e ma+imm
amont t%at ma) be collected as interest cannot e+ceed t%e amont corres'ondin* to a
'eriod of t%ree )ears- In t%is case, t%e ma+imm rate wold be ,/Q-
T%e 'etitioner also 'ra)s t%at 'rsant to Section 71 !e" !B" of t%e same code, as amended b)
t%e said .ecree, t%e 'rivate res'ondent is li$ewise liable to 'a) an additional src%ar*e of
1/Q !flat rate" of t%e total amont of ta+ n'aid to wit T
0!B" Src%ar*e- T If an) amont of ta+ s%own on t%e retrn is not 'aid in fll on or before
t%e date 'rescribed for its 'a)ment nder 'ara*ra'% !a" of t%is Section, or an) amont of
deficienc), and an) interest assessed in connection t%erewit%, is not 'aid in fll wit%in t%e
'eriod 'rescribed in t%e assessment notice and demand re1ired nder 'ara*ra'% !b" of t%is
Section, t%ere s%all be collected in addition to t%e interest 'rescribed %erein and in
'ara*ra'% !d" above and as 'art of t%e ta+ a src%ar*e of ten 'er centm of t%e amont of
ta+ n'aid-0
An e+amination of Section 71 !e"!B" reveals t%at t%is src%ar*e is im'osed for t%e late
'a)ment of t%e n'aid ta+ deficienc) andRor n'aid interest assessed in connection
t%erewit%, in addition to all ot%er c%ar*es- T%is is confirmed b) t%e se of t%e words 0t%ere
s%all be collected in addition to t%e interest 'rescribed %erein Nreferrin* to t%e entire Section
71 !e"O and in 'ara*ra'% !d" above Nreferrin* to Section 71 !d"O-0 T%e additional src%ar*e
is com'ted on t%e amont of ta+ n'aid, e+clsive of all ot%er im'ositions- T%is is
confirmed b) t%e '%rase 0ten 'er centm of t%e amont of ta+ n'aid-0 T%e failre to 'a) t%e
ta+ deficienc) wit%in t%e re1ired 'eriod of time 'on demand is 'enaliJed b) t%is additional
src%ar*e- 9'on sc% failre to 'a), t%e src%ar*e is atomaticall) deH its im'osition is
mandator)-
9nder t%e aforementioned 'rovisions of t%e ta+ code, t%e 'rivate res'ondent became liable to
'a) t%e additional interest 'rovided in Section 71 !e" !2" and t%e 1/Q src%ar*e 'rovided in
Section 71 !e" !B" t%irt) da)s after Febrar) 2/, 1981, t%e date w%en t%e Commissioner of
Internal Revene so*%t t%e 'a)ment of t%e deficienc)- 4ore t%an t%ree )ears %ave 'assed
since and )et t%e accont remains nsettled- T%s, t%e additional interest and src%ar*e can
be im'osed on t%e 'rivate res'ondent as asserted b) t%e 'etitioner- &residential .ecree 6o-
13/7 too$ effect on A*st 1, 198/- It was, t%erefore, t%e law in effect w%en t%e additional
interest and src%ar*e cold be le*all) im'osed on t%e 'rivate res'ondent-
=et 9s now a''l) t%e additional interest to t%e ta+ liabilit) of t%e 'rivate res'ondent- T%e
income ta+ de from t%e 'rivate res'ondent for t%e ta+able )ear endin* 4arc% B1, 193, is
&3E,2/E-//- T%e 27Q src%ar*e nder Section 32 is &B3,1/1-97- T%e E2Q interest nder
Section 71 !d" is &B1,1,7-,E- T%e sm of t%ese fi*res is &1E2,E31-79-
4ore t%an t%ree )ears %ave 'assed since Febrar) 2/, 1981- 8ence, t%e t%reeG)ear or ,/Q
ma+imm interest 'rovided in Section 71 !e" !2" calls for a''lication- It is com'ted a*ainst
t%e total amont n'aid b) t%e 'rivate res'ondent G &1E2,E31-79- ,/Q of t%is amont is
&87,E82-97- T%e ta+ liabilit) of t%e 'rivate res'ondent, e+clsive of interest and src%ar*e is
&3E,2/E-//- 1/Q of t%is amont is &3,E2/-E/, re'resentin* t%e 1/Q src%ar*e 'rovided in
Section 71 !e" !B"-
In sm, t%e followin* sc%edle illstrates t%e total ta+ liabilit) of t%e 'rivate res'ondent T
Income Ta+ for Fiscal )ear
endin* 4arc% B1, 193, &3E,2/E-//
Add: 27Q src%ar*e
nder Section 32 B3,1/1-97
E2Q ma+imm interest
nder Section 71 !d" B1,1,7-,E
TTTTT
Total &1E2,E31-79
Add: ,/Q ma+imm additional
interest nder &residential
.ecree 6o- 13/7 !com'ted
on &1E2,E31-79" 87,E82-97
TTTTTT
Total &223,97E-7E
Add: 1/Q additional src%ar*e
nder &residential .ecree
6o- 13/7 !com'ted on
n'aid ta+ of &3E,2/E-//" &3,E2/-E/
TTTTT
TOTA= TA> .9: FRO4 T8:
&RICAT: R:S&O6.:6T &2B7,B3E-9E
Accordin*l), ;e %old t%at t%e 'rivate res'ondent is liable for n'aid ta+es and c%ar*es in
t%e total amont of Two 8ndred T%irt)GFive T%osand, T%ree 8ndred Sevent)GFor &esos
and 6inet)GFor Centavos !&2B7,B3E-9E"-
;8:R:FOR:, in view of t%e fore*oin*, t%e .ecision of t%e Cort of Ta+ A''eals in CTA
Case 6o- BEE1 is %ereb) S:T ASI.:- T%e 'rivate res'ondent Air India is %ereb) ordered to
'a) t%e amont of &2B7,B3E-9E as deficienc) ta+, inclsive of interest and src%ar*es- ;e
ma$e no 'rononcement as to costs-
SO OR.:R:.-
0+1 I) +e)ore t!e e$%iration o) t!e time %resri+ed in Setion 20. )or t!e
assessment o) t!e ta$( +ot! t!e Commissioner and t!e ta$%a&er !a'e a*reed in
-ritin* to its assessment a)ter su! time( t!e ta$ ma& +e assessed -it!in t!e %eriod
a*reed u%on" T!e %eriod so a*reed u%on ma& +e e$tended +& su+se8uent -ritten
a*reement made +e)ore t!e e$%iration o) t!e %eriod %re'iousl& a*reed u%on"
EXTENSION OF PRESCRIPTIVE PERIOD
&rsant to Section 22B !ss'ension of rnnin* of statte of limitations" of t%e Ta+ Code,
internal revene ta+es ma) be assessed or collected after t%e ordinar) 'rescri'tive
'eriod, if before its e+'iration, bot% t%e Commissioner and t%e ta+'a)er %ave a*reed in
writin* to its assessment andRor collection after said 'eriod- T%e 'eriod so a*reed 'on
ma) be e+tended b) sbse1ent written a*reement made before t%e e+'iration of t%e
'eriod 'reviosl) a*reed 'on- T%is written a*reement between t%e Commissioner and
t%e ta+'a)er is t%e soGcalled K;aiver of t%e Statte of =imitations-M
;%et%er t%e ta+'a)er s%old si*n t%e waiver or not will de'end on t%e 'articlar facts of
t%e case- S%old t%e ta+'a)er c%oose not to si*n t%e waiver, t%e revene officer wold
most li$el) recommend t%e issance of a formal assessment notice and letter of demand-
At t%is level, t%e remed) of t%e ta+'a)er is to file a 'rotest wit%in B/ da)s from date of
recei't of t%e assessment- 8owever, to be able to cancel t%e assessment made, it is
incmbent 'on t%e ta+'a)er to 'rodce and sbmit docmentar) evidence and le*al
ar*ments in s''ort of its 'osition- T%s, if t%e 'ro'osed assessment is 'erceived to be
wea$ and t%e ta+'a)er can sbmit t%e docmentar) evidence on t%e 1estioned items, t%e
ta+'a)er ma) o't not to si*n sc% waiver bt t%e ta+'a)er mst be read) to fi*%t t%e
assessment at t%e administrative and 5dicial levels t%ro*% t%e sbmission of t%e
ori*inal co'ies of t%e re1isite docmentar) evidence- On t%e ot%er %and, b) si*nin* t%e
waiver w%ic% e+tends t%e 'eriod for anot%er si+ mont%s wit%in w%ic% t%e Commissioner
can ma$e an assessment, a revised 'reliminar) assessment ma) be issed or t%e com'lete
wit%drawal of t%e 'ro'osed assessment ma) even be %ad at t%e administrative level- T%e
e+ection of t%e waiver, %owever, does not ss'end t%e rnnin* of deficienc) interest
e1ivalent to 2/Q 'er annm of t%e basic ta+ assessed- In order t%at no new items can
be raised b) t%e revene officers after t%e e+ection of t%e waiver, certain restrictions or
limitations wit% res'ect to t%e $ind of ta+, ta+able 'eriod, and isses involvin* certain
t)'es of ta+es ma) be inserted in t%e waiver b) t%e ta+'a)er or %is at%oriJed
re'resentative- T%is will 'revent nscr'los revene officers from e+'andin* t%e sco'e
of t%e e+amination or ma$e new assessments on t%e stren*t% of a *eneral or nrestricted
waiver-
#efore si*nin* a waiver, t%e ta+'a)er s%old nderstand t%at different ta+es %ave
different startin* 'oints for 'r'oses of 'rescri'tion- Ordinar) income ta+es 'rescribe
wit%in t%ree )ears from t%e filin* of t%e annal income ta+ retrns for individals or
cor'orations !#IR Form 13/1 or 13/2" coverin* t%e incomes sb5ect to *lobal ta+
s)stemH ca'ital *ains sb5ect to final wit%%oldin* ta+es 'rescribe from t%e filin* of t%e
ca'ital *ains ta+ retrns coverin* t%e transactionsH w%ile vale added ta+ and ot%er
'ercenta*e ta+es 'rescribe from t%e filin* of t%e 1arterl) ta+ retrns-
T%e sta*e of t%e ta+ e+amination ma) be material and %ave an im'act on t%e validit) of
t%e assessment- T%e *eneral rle is t%at a waiver w%ic% does not s'ecif) t%e $ind and
amont of ta+es covered is not valid- 8owever, a waiver is treated as valid even if it did
not s'ecif) t%e $ind and amont of ta+es covered, if at t%e time it was e+ected, t%e #IR
%ad not )et come ' wit% 'reliminar) findin*s- At t%at sta*e, t%e $ind and amont of ta+
de were still nascertainable-
Oceanic ;ireless 6etwor$ vs- Commissioner, CTA
Case ,111, 6ov- B, 2//E
&rocedres in t%e e+ection of waiversG In t%e e+ection of said waiver, t%e followin*
'rocedres s%old be followed:
1- T%e waiver mst be in t%e form identified %ereof- T%is form ma) be re'rodced b) t%e
Office concerned bt t%ere s%old be no deviation from sc% form- T%e '%rase 0bt not
after UUUUUU 19 UUU0 s%old be filled '- T%is indicates t%e e+'ir) date of t%e 'eriod
a*reed 'on to assess or collect t%e ta+ after t%e re*lar t%reeG)ear 'eriod of
'rescri'tion- T%e 'eriod a*reed 'on s%all constitte t%e time wit%in w%ic% to effect t%e
assessment or collection of t%e ta+ in addition to t%e ordinar) 'rescri'tive 'eriod-
2- T%e waiver s%all be si*ned b) t%e ta+'a)er %imself or %is dl) at%oriJed
re'resentative- In t%e case of a cor'oration, t%e waiver mst be si*ned b) an) of its
res'onsible officials-
Soon after t%e waiver is si*ned b) t%e ta+'a)er, t%e Commissioner or t%e revene official
at%oriJed b) %im, as %ereinafter 'rovided, s%all si*n t%e waiver indicatin* t%at t%e #IR
%as acce'ted and a*reed to t%e waiver- T%e date of sc% acce'tance b) t%e #IR s%old
be indicated- #ot% t%e date of e+ection b) t%e ta+'a)er and date of acce'tance b) t%e
#IR s%old be before t%e e+'iration of t%e 'eriod of 'rescri'tion or before t%e la'se of
t%e 'eriod a*reed 'on in case a sbse1ent a*reement is e+ected-
B- T%e followin* revene officials are at%oriJed to si*n t%e waiver-
A. In the Nationa Office
1- ACIRs for Collection, For ta+ cases involvin*
S'ecial O'erations, not more t%an &7//,///
6ational Assessment, :+cise and
=e*al on ta+ cases 'endin* before
t%eir res'ective offices-
In t%e absence of t%e ACIR,
t%e 8ead :+ective Assistant
ma) si*n t%e waiver-
2- .e't) Commissioner For ta+ cases involvin*
4ore t%an &7//,///-// bt not more t%an &14
B- Commissioner For ta+ cases involvin* more t%an &14
!. In the Re"iona Offices
1- T%e Revene .istrict Officer wit% res'ect to ta+ cases still 'endin* investi*ation and
t%e 'eriod to assess is abot to 'rescribe, re*ardless of amont-
2- T%e Re*ional .irector, t%e Assistant Re*ional .irector, t%e C%ief, Assessment
.ivision or t%e C%ief, =e*al .ivision wit% res'ect to cases still 'endin* review and t%e
'eriod to assess or collect is abot to 'rescribe, re*ardless of amont-
B- T%e Re*ional .irector, t%e Assistant Re*ional .irector, t%e C%ief, Collection .ivision
or t%e C%ief, =e*al .ivision wit% res'ect to cases still 'endin* collection and t%e 'eriod
to assess or collect is abot to 'rescribe re*ardless of amont-
E- T%e waiver mst be e+ected in t%ree co'ies, t%e ori*inal co') to be attac%ed to t%e
doc$et of t%e case, t%e second co') for t%e ta+'a)er and t%e t%ird co') for t%e Office
acce'tin* t%e waiver- T%e fact of recei't b) t%e ta+'a)er of %is file co') s%all be indicated
in t%e ori*inal co')-
7- T%e fore*oin* 'rocedres s%all be strictl) followed- An) revene official fond not to
%ave com'lied wit% t%is Order resltin* in 'rescri'tion of t%e ri*%t to assess or collect
s%all be administrativel) dealt wit%-
1
A ;aiver mst be in t%e form 'rescribed in t%e re*lations- Amon* ot%ers, t%e ;aiver:
!a" mst indicate a definite e+'iration date a*reed 'on b) t%e Commissioner and t%e
ta+'a)er wit%in w%ic% to assess or collect t%e ta+ after t%e re*lar t%reeG)ear 'eriod of
'rescri'tionH and !b" s%old state t%e date of acce'tance b) t%e #IR- ;it%ot t%e date, it
cannot be determined w%et%er t%e ;aiver was actall) acce'ted before t%e e+'iration of
t%e t%reeG)ear assessment 'eriod- In addition, it is now re1ired t%at t%e waiver to be
sbmitted to t%e #IR s%old be dl) notariJed b) a notar) 'blic-
T%e ta+'a)er mst be frnis%ed a co') of t%e acce'ted ;aiver- 9nder R4O 2/G9/, it is
re1ired t%at t%e ;aiver be e+ected in t%ree co'ies, t%e second co') of w%ic% is for t%e
ta+'a)er- T%e fact of recei't b) t%e ta+'a)er of %is co') s%old be indicated in t%e
ori*inal co')- T%e waiver is not a nilateral act of t%e ta+'a)er- ;%en 'etitionerIs
com'troller si*ned t%e waiver, it was not )et com'lete and final becase t%e #IR %ad not
assented- T%ere is com'liance wit% t%e 'rovision of R4O 2/G9/ onl) after t%e ta+'a)er
received a co') of t%e waiver acce'ted b) t%e #IR- T%e re1irement to frnis% t%e ta+G
'a)er wit% a co') of t%e waiver is not onl) to *ive notice of t%e e+istence of t%e docment
bt of t%e acce'tance b) t%e #IR and t%e 'erfection of t%e a*reement-
&%ili''ine 2ornalist vs- Commissioner, ?-R- 6o- 1,2872, .ec- 1,, 2//E
T%e 'rescribed form re1ires a statement of t%e $ind of ta+ and t%e amont of t%e ta+ de-
T%e 'r'ose of statin* t%is s'ecific $ind of ta+ and t%e amont of ta+ de is for t%e
'etitioner to determine w%ic% amon* t%e 'ro'osed ta+ assessments ma) sbse1entl) be
issed wit%ot t%e 'etitioner invo$in* t%e defense of 'rescri'tion- If t%e amont and $ind
of ta+ were not indicated in t%e said waiver, t%ere was no a*reement to s'ea$ of-
&fiJer, Inc- vs- Commissioner, CTA Case 6o- ,1B7, A'r- 21, 2//BH
F4F .evelo'ment Cor'oration vs- Commissioner, CTA Case
6o- ,17B, 4ar- 2/, 2//B
I#strative Cases$
1- A waiver is ineffective if it is e+ected be)ond t%e 'rescri'tive 'eriod-GGSection 222!b"
and !d" of t%e Ta+ Code at%oriJes t%e ta+'a)er and t%e ?overnment to e+tend b) mtal
a*reement in writin* t%e 'rescri'tive 'eriod for t%e assessment and collection of ta+es- It
is necessar) t%at t%e waiver be e+ected b) t%e 'arties before t%e la'se of t%e fiveG)ear
'rescri'tive'eriod- A waiver is ineffective if it is e+ected be)ond t%e ori*inal t%reeG)ear
!now five )ear" 'eriod of 'rescri'tion- Re'blic vs- Acebedo, 22 SCRA 1B7, T%e rle is
5
in accord wit% t%e *eneral law on 'rescri'tion t%at re1ires a written ac$nowled*ment of
t%e debtor to renew t%e case of action or interr't t%e rnnin* of t%e limitation
'eriod-
2
T%ere can be no e+tension of t%e 'rescri'tive 'eriod once 'rescri'tion %as set in-
T%e law does not at%oriJe t%e e+tension of t%e 'rescri'tive 'eriod once 'rescri'tion %as
set in- T%e waiver of t%e statte of limitations e+ected b) t%e ta+'a)er cannot be
deemed to inclde ta+es w%ic% %ad alread) 'rescribed- T%e clear im'ort of Section
222!b" is t%at it does not at%oriJe e+tension b) a*reement of t%e Commissioner and t%e
ta+'a)er once 'rescri'tion %as attac%edH i-e-, after e+'iration of t%e ori*inal 'eriod-
Re'blic vs- =im de D, 1/ SCRA 3B3H
&%ili''ine 2ornalists vs Commissioner, ?-R- 6o- 1,2872, .ec- 1,, 2//E
2- ;aiver, w%ere no 'eriod #IR ma) assess ta+ is indicated, is invalid-GGA close scrtin)
of t%e waiver revealed t%at no 'eriod was a*reed 'on wit%in w%ic% t%e res'ondent ma)
validl) assess t%e 'etitioner after t%e re*lar t%reeG)ear 'eriod of 'rescri'tion 'rovided
b) law- T%is Cort, t%erefore, %olds t%at t%e said waiver is invalid and wit%ot an)
bindin* effect on t%e 'etitioner for t%e reason t%at t%ere was no consent b) t%e
res'ondentGCommissioner and no 'eriod was set or a*reed 'on for sbse1ent
assessment-
&elican vs- Commissioner, CTA Case 6o- 7993, 4a) 1,, 2//B
T%e waiver t%at does not s'ecif) a definite a*reed date between t%e #IR and 'etitioner,
wit%in w%ic% t%e former ma) assess and collect ta+es, becomes nlimited in time,
violatin* Section 222!b" of t%e Ta+ Code-
3
B- R.O w%o attested in t%e waiver did not si*n it for t%e CommissionerGA close scrtin)
of t%e waiver of t%e statte of limitation s%ows t%at t%e R.O %ad merel) attested t%e
aforesaid waiverH t%at aforesaid officer did not si*n t%e waiver eit%er for or b) virte of
t%e at%orit) of t%e Commissioner- Clearl), for all le*al intents and 'r'oses of t%e
above law, Section BB2 !now Section 222" of t%e Ta+ Code, t%ere was no valid waiver
e+ected b) t%e Commissioner and 'etitioner to sto' t%e rnnin* of t%e 'eriod wit%in
w%ic% to validl) assess t%e ta+ in 1estion- 4oreover, it is onl) t%e Commissioner, w%o is
s'eciall) named b) said 'rovision of Section BB2!b" of t%e Ta+ Code, as t%e one w%o can
si*n t%e waiver of t%e statte of limitation, and since t%e Commissioner %as not si*ned
t%e waiver, t%ere is, t%erefore, no consmmated or valid waiver w%ic% ma) ss'end t%e
rnnin* of t%e 'eriod wit%in w%ic% to assess t%e ta+ in 1estion
Collector vs- Solano, =G11E37, 2l) B1, 1978
2
.
E- Filin* of bond is tantamont to a written waiver-G% Onl) written a*reements can
ss'end t%e rnnin* of t%e 'eriod of limitation-Re'blic vs- Ret, E SCRA 38B
T%e filin* of t%e bond %as been %eld to be tantamont to a written waiver w%ic%
interr'ts t%e 'eriod of limitation- Re'blic vs- >avier ?n Tradin* Co-, E SCRA 11BB
T%e filin* of a c%attel mort*a*e to secre t%e ta+ obli*ation is tantamont to a writGten
waiver of t%e statte of limitations- Sambrano vs- CTA, 1/1 &%il 1-
7- ;aivers e+tend, not redce, 'rescri'tive 'eriods 'rovided b) law-GG Ta+
waivers are s''osed to e+tend, not redce, t%e 'rescri'tive 'eriods 'rovided b) law-
8ence, t%e Commissioner cannot validl) a*ree to redce t%e 'rescri'tive 'eriod to less
t%an t%at *ranted b) law to t%e detriment of t%e State, since it diminis%es t%e
?overnmentIs o''ortnities to collect ta+es de to t%e Re'blic- Re'blic vs- =o'eJ, 3
SCRA 7,,
R#es in cases &here 'ore than one &aiver &as si"ned
1- ;aiver mst be in writin* and si*ned b) bot% t%e Commissioner and t%e ta+'a)er-GG
T%e CTA %eld t%at t%e t%ree waivers si*ned b) t%e ta+'a)er %ave no bindin* effect for
lac$ of consent on t%e 'art of t%e Commissioner- 9'on t%e ot%er %and, t%e
Commissioner maintains t%at t%e waivers are valid alt%o*% not si*ned b) t%e
Commissioner becase !a" w%en t%e revene officers e+tended t%e 'eriod to adit and
investi*ate ta+'a)erIs ta+ retrns, t%e #IR *ave its im'lied consent to sc% waiversH !b"
t%e si*natre of t%e Commissioner is a mere formalit) and t%e lac$ of it does not vitiate
t%e bindin* effect of t%e waiversH and !c" t%at a waiver is not a contract bt a nilateral
act of renoncin* oneIs ri*%t to avail of t%e defense of 'rescri'tion and remains bindin*
in accordance wit% t%e terms and conditions set fort% in t%e waiver- T%e cort did not *o
alon* wit% CommissionerIs t%eor)- Section B19 !now Section 222" of t%e Ta+ Code is
clear and e+'licit t%at t%e waiver mst be in writin* and si*ned b) bot% t%e
Commissioner and t%e ta+'a)er-
Commissioner vs- Carnation &%il !now mer*ed wit% 6estle &%ils-" and CTA,
CAG?-R- S& 6o- B/22/, 4a) B1, 199E
2- ;aiver mst be si*ned b) revene official w%o is dl) at%oriJed-GG&etitioner filed its
1989 annal income ta+ retrn on A'ril 11, 199/ and so, t%e #IR %as ntil A'ril 17, 199B
to assess- On 4arc% 1,, 199B, 'etitioner e+ected a waiver consentin* to t%e assessment
andR or collection of t%e ta+es w%ic% ma) be fond de after investi*ation at an) time
before or after t%e la'se of t%e 'eriod of limitations fi+ed b) Sections 2/B !'eriod of
limitation 'on assessment and collection" and 222 !e+ce'tions as to 'eriod of limitation
of assessment and collection of ta+es" of t%e Ta+ Code bt not later t%an Se'tember B/,
199B- It wold seem, t%erefore, t%at t%e #IRIs ri*%t to assess was e+tended b) t%e said
waiver- An e+amination, %owever, of t%e waiver wold reveal t%e absence of t%e
si*natre of t%e Commissioner, w%ose si*natre is re1ired in waivers for ta+ cases
involvin* more t%an one million 'esos nder R4O 2/G9/- T%e sb5ect waiver was
instead si*ned b) t%e Assistant Revene Service C%ief, S'ecial O'erations Service, of t%e
#IR- Since t%e amont involved in t%e assessment is &1,,279,,13-,3, t%e waiver was
invalid insofar as t%e said assessment was concerned and conse1entl), it did not
ss'end t%e rnnin* of t%e t%reeG)ear 'rescri'tive 'eriod- T%s, w%en res'ondent issed
t%e aforesaid assessment on 2l) 23, 199B, %is ri*%t to assess %as 'rescribed-
&%ili''ine #an$ of Commnications vs- Commissioner, CTA Case
6o- 7271, 6ov- 3, 1999
B- 9nsi*ned first waiver is not a valid a*reementH 'eriod to assess was not ss'ended b)
t%e e+ection of first waiver-GGT%e first waiver e+tended t%e 'eriod of assessment ' to
.ecember B1, 1992 and t%e second waiver e+tended it ' to 2ne B/, 199B- 8owever,
t%ese waivers %ave no bindin* effect- T%e first waiver was not valid beGcase t%e
Commissioner !or %is dl) at%oriJed re'resentative" did not *ive %is consent as
evidenced b) t%e fact t%at %e did not si*n t%e docment- T%e fact t%at it was left nsi*ned
b) t%e Commissioner si*nifies t%at t%ere was no valid a*reement to sto' t%e rnnin* of
t%e 'eriod of limitations- Section 222!b" of t%e Ta+ Code clearl) 'rovides t%at bot% t%e
Commissioner and t%e ta+'a)er mst a*ree in writin* on t%e 'eriod a*reed 'on- Since
t%e Commissioner did not affi+ %er si*natre, t%e docment is ineffectiveL-T%e fact t%at
t%e waiver e+ected on Se'tember B/, 1992 was si*ned b) t%e re'resentative of t%e
'etitioner and not b) t%e Commissioner, t%e 'eriod to assess was never e+tended- T%e
waiver was not consmmated and t%erefore was invalid and void- As re*ards t%e second
waiver e+ected b) t%e 'etitioner, t%e same was of no conse1ence since t%e first waiver
was not valid- T%s, t%e 'eriod to assess was not ss'ended b) 'etitionerIs e+ection of
t%e first waiver, more so b) t%e second waiver- As re1ired b) Section 222 of t%e Ta+
Code, t%e second waiver mst be e+ected before t%e e+'iration of t%e 'eriod 'reviosl)
a*reed 'on- Inasmc% as t%ere is no valid waiver 'reviosl) a*reed 'on, no valid
e+tension can be made- T%e law bars t%e res'ondent in issin* t%e sb5ect assessment-
=Jon &ac$a*in* &rodcts vs- Commissioner, CTA
Case 7/1,, 2ne 2B, 1993
E- Amont and $ind of ta+, and date of acce'tance of waiver b) #IR and date of fact of
recei't b) ta+'a)er mst be indicated in t%e waiver-GGIf t%e amont and $ind of ta+ were
not indicated in t%e first waiver, t%ere was lo*icall) no a*reement to s'ea$ of- An
a*reement is Kt%e e+'ression b) two or more 'ersons of a common intention to affect
t%eir le*al relationsH it consists in t%eir bein* of t%e same mind and intention concernin*
t%e matter a*reed 'on-M
4
4oreover, t%e date of t%e acce'tance of said waiver b) t%e
res'ondent and t%e fact of recei't b) t%e 'etitioner of its co') of t%e acce'ted waiver
were not indicated in said waiver- T%erefore, %avin* rled t%at t%e first waiver was
invalid, t%e t%reeG)ear re*lementar) 'eriod was not interr'ted- In ot%er words, t%e
4
assessment issed on 4arc% 1E, 199,, for alle*ed liabilit) incrred in 199/ alread)
'rescribed- Considerin* t%at t%e first waiver is not valid, t%ere can be no basis for t%e
second waiver L In sm, even s''osin* t%at t%e two waivers were valid, t%e assessment
issed on 4arc% 1E, 199, is still void sim'l) becase it does not corres'ond to t%e
ori*inal assessments nor to t%e same assessments in a redced amont- As evinced b)
t%e records, t%e sb5ect assessment is entirel) se'arate and distinct from t%e assessment
issed on 6ovember 27, 199E- T%e assessment issed on 4arc% 1E, 199,, w%ic% *ives
rise to t%e instant 'etition, 'ertains to deficienc) income ta+ for 199/ in t%e amont of
&87,282,E7,-13, b) reason of t%e disallowance b) res'ondent of certain interest
e+'enses- 8owever, t%e assessment notices aboveGmentioned relate to different ta+
liabilities of %erein 'etitioner- In fact, t%e memorandm issed b) t%e Revene Officer
w%o condcted t%e reinvesti*ation contained a recommendation for t%e cancellation of
t%e same assessments for lac$ of factal and le*al basis-
Solid Cement Cor'oration vs- Commissioner, CTA
Case 7E2/, 4a) 23, 1999H
Commissioner vs- F4F .ev- Cor'-,
CAG?R S& 6o- 39,37, 2an- B1, 2//7
7- Failre of t%e 'arties to set or state t%e e+tended 'eriod of 'rescri'tion in t%e waiver
invalidates sc% waiver-
Commissioner vs- :nron Sbic &ower Cor'oration,
CAG?R S& 6o- 829,,, .ec- 21, 2//E
T%e #IR cannot %ide be%ind t%e doctrine of esto''el to cover its failre to com'l) wit%
R4O 2/G9/ and R.AO /7G/1, w%ic% t%e #IR itself issed- As stated earlier, t%e #IR
failed to verif) w%et%er a notariJed written at%orit) was *iven b) t%e res'ondent to its
accontant, and to indicate t%e date of acce'tance and t%e recei't b) t%e res'ondent of
t%e waivers- 8avin* cased t%e defects in t%e waivers, t%e #IR mst bear t%e
conse1ence- It cannot s%ift t%e blame to t%e ta+'a)er- To stress, a waiver of t%e statte of
limitations, bein* a dero*ation of t%e ta+'a)er(s ri*%t to secrit) a*ainst 'rolon*ed and
nscr'los investi*ations, mst be carefll) and strictl) constred-
Commissioner of Internal Revene vs- @dos 4etal Cor'-, ?-R- 6o- 138/83, 4a) 7,
2/1/
01 An& internal re'enue ta$ -!i! !as +een assessed -it!in t!e %eriod o)
limitation as %resri+ed in %ara*ra%! 0a1 !ereo) ma& +e olleted +& distraint or
le'& or +& a %roeedin* in ourt -it!in )i'e 0>1 &ears )ollo-in* t!e assessment o)
t!e ta$"
C I R vs- &%il- ?lobal Commnication, Inc-, ?-R- 6o- 1,31E,, October B1, 2//,
FACTS: &%il- ?lobal Commnication, a cor'oration en*a*ed in telecommnications,
received a Formal Assessment 6otice dated A'ril 1E, 199E, for deficienc) income ta+ in
t%e total amont of &118,231,,32-//- T%ro*% consel, res'ondent filed two formal
'rotest letters a*ainst t%e assessment alle*in* lac$ of factal and le*al basis- 4ore t%an
ei*%t )ears after t%e assessment was 'resmabl) issed, res'ondent received from t%e
CIR a Final .ecision den)in* its 'rotest and affirmin* t%e assessment in toto-
Res'ondent t%en filed a &etition for Review wit% t%e CTA w%ic% rled t%at t%e CIRIs ri*%t
to collect %as 'rescribed- It decided t%at t%e 'rotest letters filed b) t%e res'ondent cannot
constitte a re1est for reinvesti*ation, %ence, t%e) cannot toll t%e rnnin* of t%e
'rescri'tive 'eriod to collect t%e assessed deficienc) income ta+- After a motion for
reconsideration and a &etition for Review wit% t%e CTA en banc were denied, t%e CIR
went to t%e S'reme Cort on a &etition for Review on Certiorari-
ISS9:: ;%et%er or not CIR(s ri*%t to collect res'ondent(s alle*ed deficienc) income ta+
is barred b) 'rescri'tion nder Section 2,9!c" of t%e Ta+ Code of 1933-
R9=I6?: T%e t%reeG)ear statte of limitations on t%e collection of an assessed ta+
'rovided nder Section 2,9!c" of t%e Ta+ Code of 1933, a law enacted to 'rotect t%e
interests of t%e ta+'a)er, mst be *iven effect- In 'rovidin* for e+ce'tions to sc% rle in
Section 231, t%e law strictl) limits t%e ss'ension of t%e rnnin* of t%e 'rescri'tion
'eriod to, amon* ot%er instances, 'rotests w%erein t%e ta+'a)er re1ests for a
reinvesti*ation-
In t%is case, w%ere t%e ta+'a)er merel) filed two 'rotest letters re1estin* for a
reconsideration, and w%ere t%e #IR cold not %ave condcted a reinvesti*ation becase
no new or additional evidence was sbmitted, t%e rnnin* of statte of limitations cannot
be interr'ted- T%e ta+ w%ic% is t%e sb5ect of t%e .ecision issed b) t%e CIR on 8
October 2//2 affirmin* t%e Formal Assessment issed on 1E A'ril 199E can no lon*er be
t%e sb5ect of an) 'roceedin* for its collection- Conse1entl), t%e ri*%t of t%e *overnment
to collect t%e alle*ed deficienc) ta+ is barred b) 'rescri'tion-
#an$ of t%e &%ili''ine Islands vs- C I R, ?-R- 6o- 1B93B,, October 13, 2//7
FACTS: On two se'arate occasions, 'articlarl) on /, 2ne 1987 and 1E 2ne 1987,
'etitioner #&I sold 9nited States !9S" V7//,///-// to t%e Central #an$ of t%e
&%ili''ines !Central #an$", for t%e total sales amont of 9SV1,///,///-//- On 1/
October 1989, t%e #IR issed an Assessment findin* 'etitioner #&I liable for deficienc)
.ST on its aforeGmentioned sales of forei*n bills of e+c%an*e to t%e Central #an$-
&etitioner #&I received t%e Assessment, to*et%er wit% t%e attac%ed Assessment 6otice on
2/ October 1989- &etitioner #&I 'rotested t%e Assessment in a letter dated 1, 6ovember
1989, and filed wit% t%e #IR on 13 6ovember 1989- &etitioner #&I did not receive an)
immediate re'l) to its 'rotest letter- 8owever, on 17 October 1992, t%e #IR issed a
;arrant of .istraint andRor =ev) a*ainst 'etitioner #&I for t%e assessed deficienc) .ST
for ta+able )ear 1987- It served t%e ;arrant on 'etitioner #&I onl) on 2B October 1992-
T%en a*ain, 'etitioner #&I did not %ear from t%e #IR ntil 11 Se'tember 1993, w%en its
consel received a letter, dated 1B A*st 1993, si*ned b) t%en #IR Commissioner
=iwa)wa)CinJonsGC%ato, den)in* its 0re1est for reconsideration,0 and addressin* t%e
'oints raised b) 'etitioner #&I in its 'rotest letter, dated 1, 6ovember 1989- 9'on
recei't of t%is letter, 'etitioner #&I 'roceeded to file a &etition for Review wit% t%e CTA
on 1/ October 1993H to w%ic% res'ondent #IR Commissioner, re'resented b) t%e Office
of t%e Solicitor ?eneral, filed an Answer on /8 .ecember 1993-
&etitioner #&I raised in its &etition for Review before t%e CTA, in addition to t%e
ar*ments 'resented in its 'rotest letter, dated 1, 6ovember 1989, t%e defense of
'rescri'tion of t%e ri*%t of res'ondent #IR Commissioner to enforce collection of t%e
assessed amont- It alle*ed t%at res'ondent #IR Commissioner onl) %ad t%ree )ears to
collect on t%e Assessment, bt s%e waited for seven )ears and nine mont%s to den) t%e
'rotest-
ISS9:: ;%et%er t%e ri*%t of res'ondent #IR Commissioner to collect from 'etitioner
#&I t%e alle*ed deficienc) .ST for ta+able )ear 1987 %ad 'rescribed-
8:=.: Des- As ennciated in Secs- 2/B, 22B and 22E of t%e Ta+ Code, t%e #IR %as t%ree
)ears, conted from t%e date of actal filin* of t%e retrn or from t%e last date 'rescribed
b) law for t%e filin* of sc% retrn, w%ic%ever comes later, to assess a national internal
revene ta+ or to be*in a cort 'roceedin* for t%e collection t%ereof wit%ot an
assessment- In case of a false or fradlent retrn wit% intent to evade ta+ or t%e failre
to file an) retrn at all, t%e 'rescri'tive 'eriod for assessment of t%e ta+ de s%all be 1/
)ears from discover) b) t%e #IR of t%e falsit), frad, or omission- ;%en t%e #IR validl)
isses an assessment, wit%in eit%er t%e t%reeG)ear or tenG)ear 'eriod, w%ic%ever is
a''ro'riate, t%en t%e #IR %as anot%er t%ree )ears after t%e assessment wit%in w%ic% to
collect t%e national internal revene ta+ de t%ereon b) distraint, lev), andRor cort
'roceedin*- T%e assessment of t%e ta+ is deemed made and t%e t%reeG)ear 'eriod for
collection of t%e assessed ta+ be*ins to rn on t%e date t%e assessment notice %ad been
released, mailed or sent b) t%e #IR to t%e ta+'a)er-
In t%e 'resent &etition, t%ere is no controvers) on t%e timeliness of t%e issance of t%e
Assessment, onl) on t%e 'rescri'tion of t%e 'eriod to collect t%e deficienc) .ST followin*
its Assessment- ;%ile t%e Assessment and t%e corres'ondin* Assessment 6otice were
bot% dated 1/ October 1989 and were received b) 'etitioner #&I on 2/ October 1989,
t%ere was no s%owin* as to w%en t%e said Assessment and Assessment 6otice were
released, mailed or sent b) t%e #IR- Still, it can be *ranted t%at t%e latest date t%e #IR
cold %ave released, mailed or sent t%e Assessment and Assessment 6otice to 'etitioner
#&I was on t%e same date t%e) were received b) t%e latter, on 2/ October 1989- Contin*
t%e t%reeG)ear 'rescri'tive 'eriod, for a total of 1,/97 da)s, from 2/ October 1989, t%en
t%e #IR onl) %ad ntil 19 October 1992 wit%in w%ic% to collect t%e assessed deficienc)
.ST-
T%e earliest attem't of t%e #IR to collect on t%e Assessment was its issance and service
of a ;arrant of .istraint andRor =ev) on 'etitioner #&I- Alt%o*% t%e ;arrant was
issed on 17 October 1992, 'revios to t%e e+'iration of t%e 'eriod for collection on 19
October 1992, t%e same was served on 'etitioner #&I onl) on 2B October 1992-
In t%eir .ecisions, bot% t%e CTA and t%e Cort of A''eals fond t%at t%e filin* b)
'etitioner #&I of a 'rotest letter ss'ended t%e rnnin* of t%e 'rescri'tive 'eriod for
collectin* t%e assessed .ST-
T%e statte of limitations on assessment and collection of national internal revene ta+es
ma) be ss'ended if t%e ta+'a)er e+ectes a valid waiver t%ereof, as 'rovided in
'ara*ra'%s !b" and !d" of Section 22B of t%e Ta+ Code of 1933, as amendedH and in
s'ecific instances enmerated in Section 22E of t%e same Code, w%ic% inclde a re1est
for reinvesti*ation *ranted b) t%e #IR Commissioner- Otside of t%ese stattor)
'rovisions, %owever, t%is Cort also reco*niJed one ot%er e+ce'tion to t%e statte of
limitations on collection of ta+es in t%e case of Collector of Internal Revene v- S)oc
Consolidated 4inin* Co-
i- :+ection of a valid waiver
T%e statte of limitations on assessment and collection of national internal revene ta+es
ma) be waived, sb5ect to certain conditions, nder 'ara*ra'%s !b" and !d" of Section
22B of t%e Ta+ Code of 1933, as amended, res'ectivel)- &etitioner #&I, %owever, did not
e+ecte an) sc% waiver in t%e case at bar-
Accordin* to 'ara*ra'%s !b" and !d" of Section 22B of t%e Ta+ Code of 1933, as
amended, t%e 'rescri'tive 'eriods for assessment and collection of national internal
revene ta+es, res'ectivel), cold be waived b) a*reement-
T%e a*reements so described are often referred to as waivers of t%e statte of limitations-
T%e waiver of t%e statte of limitations, w%et%er on assessment or collection, s%old not
be constred as a waiver of t%e ri*%t to invo$e t%e defense of 'rescri'tion bt, rat%er, an
a*reement between t%e ta+'a)er and t%e #IR to e+tend t%e 'eriod to a date certain,
wit%in w%ic% t%e latter cold still assess or collect ta+es de- T%e waiver does not mean
t%at t%e ta+'a)er relin1is%es t%e ri*%t to invo$e 'rescri'tion ne1ivocall)-
A valid waiver of t%e statte of limitations nder 'ara*ra'%s !b" and !d" of Section 22B of
t%e Ta+ Code of 1933, as amended, mst be: !1" in writin*H !2" a*reed to b) bot% t%e
Commissioner and t%e ta+'a)erH !B" before t%e e+'iration of t%e ordinar) 'rescri'tive
'eriods for assessment and collectionH and !E" for a definite 'eriod be)ond t%e ordinar)
'rescri'tive 'eriods for assessment and collection- T%e 'eriod a*reed 'on can still be
e+tended b) sbse1ent written a*reement, 'rovided t%at it is e+ected 'rior to t%e
e+'iration of t%e first 'eriod a*reed 'on- T%e #IR %ad issed Revene 4emorandm
Order !R4O" 6o- 2/G9/ on /E A'ril 199/ to la) down an even more detailed 'rocedre
for t%e 'ro'er e+ection of sc% a waiver- R4O 6o- 2/G9/ mandates t%at t%e 'rocedre
for e+ection of t%e waiver s%all be strictl) followed, and an) revene official w%o fails to
com'l) t%erewit% resltin* in t%e 'rescri'tion of t%e ri*%t to assess and collect s%all be
administrativel) dealt wit%-
A re1est for reconsideration or reinvesti*ation b) t%e ta+'a)er, wit%ot a valid waiver of
t%e 'rescri'tive 'eriods for t%e assessment and collection of ta+, as re1ired b) t%e Ta+
Code and im'lementin* rles, will not ss'end t%e rnnin* t%ereof-
T%e 'rotest filed b) 'etitioner #&I did not constitte a re1est for reinvesti*ation,
*ranted b) t%e res'ondent #IR Commissioner, w%ic% cold %ave ss'ended t%e rnnin*
of t%e statte of limitations on collection of t%e assessed deficienc) .ST nder Section
22E of t%e Ta+ Code of 1933, as amended-
ii- Re1est for reinvesti*ation w%ic% is *ranted b) t%e Commissioner
T%ere is a distinction between a re1est for reconsideration and a re1est for
reinvesti*ation- Revene Re*lations !RR" 6o- 12G87, issed on 23 6ovember 1987 b)
t%e Secretar) of Finance, 'on t%e recommendation of t%e #IR Commissioner, *overns
t%e 'rocedre for 'rotestin* an assessment and distin*is%es between t%e two t)'es of
'rotest, as follows T
!a" Re1est for reconsideration- T refers to a 'lea for a reGevalation of an
assessment on t%e basis of e+istin* records wit%ot need of additional evidence- It ma)
involve bot% a 1estion of fact or of law or bot%-
!b" Re1est for reinvesti*ation- T refers to a 'lea for reGevalation of an assessment
on t%e basis of newl)Gdiscovered or additional evidence t%at a ta+'a)er intends to 'resent
in t%e reinvesti*ation- It ma) also involve a 1estion of fact or law or bot%-
;it% t%e issance of RR 6o- 12G87 on 23 6ovember 1987 'rovidin* t%e aboveG1oted
distinctions between a re1est for reconsideration and a re1est for reinvesti*ation, t%e
two t)'es of 'rotest can no lon*er be sed interc%an*eabl) and t%eir differences so
li*%tl) brs%ed aside- It bears to em'%asiJe t%at nder Section 22E of t%e Ta+ Code of
1933, as amended, t%e rnnin* of t%e 'rescri'tive 'eriod for collection of ta+es can onl)
be ss'ended b) a re1est for reinvesti*ation, not a re1est for reconsideration-
9ndobtedl), a reinvesti*ation, w%ic% entails t%e rece'tion and evalation of additional
evidence, will ta$e more time t%an a reconsideration of a ta+ assessment, w%ic% will be
limited to t%e evidence alread) at %andH t%is 5stifies w%) t%e former can ss'end t%e
rnnin* of t%e statte of limitations on collection of t%e assessed ta+, w%ile t%e latter
cannot-
T%e 'rotest letter of 'etitioner #&I, dated 1, 6ovember 1989 and filed wit% t%e #IR t%e
ne+t da), on 13 6ovember 1989, did not s'ecificall) re1est for eit%er a reconsideration
or reinvesti*ation- A close review of t%e contents t%ereof wold reveal, %owever, t%at it
'rotested Assessment 6o- FASG7G87G89G//2/7E based on a 1estion of law, in 'articlar,
w%et%er or not 'etitioner #&I was liable for .ST on its sales of forei*n crrenc) to t%e
Central #an$ in ta+able )ear 1987- T%e same 'rotest letter did not raise an) 1estion of
factH neit%er did it offer to 'resent an) new evidence- In its own letter to 'etitioner #&I,
dated 1/ Se'tember 1992, t%e #IR itself referred to t%e 'rotest of 'etitioner #&I as a
re1est for reconsideration- T%ese considerations wold lead t%is Cort to dedce t%at
t%e 'rotest letter of 'etitioner #&I was in t%e natre of a re1est for reconsideration,
rat%er t%an a re1est for reinvesti*ation and, conse1entl), Section 22E of t%e Ta+ Code
of 1933, as amended, on t%e ss'ension of t%e rnnin* of t%e statte of limitations s%old
not a''l)-
:ven if, for t%e sa$e of ar*ment, t%is Cort *losses over t%e distinction between a
re1est for reconsideration and a re1est for reinvesti*ation, and considers t%e 'rotest of
'etitioner #&I as a re1est for reinvesti*ation, t%e filin* t%ereof cold not %ave
ss'ended at once t%e rnnin* of t%e statte of limitations- Article 22E of t%e Ta+ Code of
1933, as amended, ver) 'lainl) re1ires t%at t%e re1est for reinvesti*ation %ad been
*ranted b) t%e #IR Commissioner to ss'end t%e rnnin* of t%e 'rescri'tive 'eriods for
assessment and collection-
T%at t%e #IR Commissioner mst first *rant t%e re1est for reinvesti*ation as a
re1irement for ss'ension of t%e statte of limitations is even s''orted b) e+istin*
5ris'rdence-
T%e brden of 'roof t%at t%e ta+'a)er(s re1est for reinvesti*ation %ad been actall)
*ranted s%all be on res'ondent #IR Commissioner- T%e *rant ma) be e+'ressed in
commnications wit% t%e ta+'a)er or im'lied from t%e actions of t%e res'ondent #IR
Commissioner or %is at%oriJed #IR re'resentatives in res'onse to t%e re1est for
reinvesti*ation-
In t%e 'resent &etition, !1" t%e 'rotest filed b) 'etitioner #&I was a re1est for
reconsideration, not a reinvesti*ation, of t%e assessment a*ainst itH and !2" even *rantin*
t%at t%e 'rotest of 'etitioner #&I was a re1est for reinvesti*ation, t%ere was no s%owin*
t%at it was *ranted b) res'ondent #IR Commissioner and t%at actal reinvesti*ation %ad
been condcted-
iii- Collector of Internal Revene v- S)oc Consolidated 4inin* Co-
T%e onl) e+ce'tion to t%e statte of limitations on collection of ta+es, ot%er t%an t%ose
alread) 'rovided in t%e Ta+ Code, was reco*niJed in t%e S)oc case-
In t%e S)oc case, t%is Cort e+'ressl) conceded t%at a mere re1est for reconsideration
or reinvesti*ation of an assessment ma) not ss'end t%e rnnin* of t%e statte of
limitations- It affirmed t%e need for a waiver of t%e 'rescri'tive 'eriod in order to effect
ss'ension t%ereof- 8owever, even wit%ot sc% waiver, t%e ta+'a)er ma) be esto''ed
from raisin* t%e defense of 'rescri'tion becase b) %is re'eated re1ests or 'ositive acts,
%e %ad indced ?overnment at%orities to dela) collection of t%e assessed ta+-
#) t%e 'rinci'le of esto''el, ta+'a)er S)oc was not allowed to raise t%e defense of
'rescri'tion a*ainst t%e efforts of t%e ?overnment to collect t%e ta+ assessed a*ainst it-
T%is Cort ado'ted t%e followin* 'rinci'le from American 5ris'rdence: 08e w%o
'revents a t%in* from bein* done ma) not avail %imself of t%e non'erformance w%ic% %e
%as %imself occasioned, for t%e law sa)s to %im in effect (t%is is )or own act, and
t%erefore )o are not damnified-(0
Conclsion
To smmariJe all t%e fore*oin* discssion, t%is Cort la)s down t%e followin* rles on
t%e e+ce'tions to t%e statte of limitations on collection- T%e statte of limitations on
collection ma) onl) be interr'ted or ss'ended b) a valid waiver e+ected in
accordance wit% 'ara*ra'% !d" of Section 22B of t%e Ta+ Code of 1933, as amended, and
t%e e+istence of t%e circmstances enmerated in Section 22E of t%e same Code, w%ic%
inclde a re1est for reinvesti*ation *ranted b) t%e #IR Commissioner-
:ven w%en t%e re1est for reconsideration or reinvesti*ation is not accom'anied b) a
valid waiver or t%ere is no re1est for reinvesti*ation t%at %ad been *ranted b) t%e #IR
Commissioner, t%e ta+'a)er ma) still be %eld in esto''el and be 'revented from settin*
' t%e defense of 'rescri'tion of t%e statte of limitations on collection w%en, b) %is own
re'eated re1ests or 'ositive acts, t%e ?overnment %ad been, for *ood reasons,
'ersaded to 'ost'one collection to ma$e t%e ta+'a)er feel t%at t%e demand is not
nreasonable or t%at no %arassment or in5stice is meant b) t%e ?overnment, as laid
down b) t%is Cort in t%e S)oc case-
0d1 An& internal re'enue ta$( -!i! !as +een assessed -it!in t!e %eriod a*reed
u%on as %ro'ided in %ara*ra%! 0+1 !ereina+o'e( ma& +e olleted +& distraint or
le'& or +& a %roeedin* in ourt -it!in t!e %eriod a*reed u%on in -ritin* +e)ore
t!e e$%iration o) t!e )i'e 0>13&ear %eriod" T!e %eriod so a*reed u%on ma& +e
e$tended +& su+se8uent -ritten a*reements made +e)ore t!e e$%iration o) t!e
%eriod %re'iousl& a*reed u%on"
0e1 Pro'ided( !o-e'er( T!at not!in* in t!e immediatel& %reedin* Setion and
%ara*ra%! 0a1 !ereo) s!all +e onstrued to aut!ori<e t!e e$amination and
in'esti*ation or in8uir& into an& ta$ return )iled in aordane -it! t!e %ro'isions
o) an& ta$ amnest& la- or deree"
Sec- 222 !b" G :+ce'tions as to &eriod of =imitation of Assessment and Collection of
Ta+es
T%e #IR cannot %ide be%ind t%e doctrine of esto''el to cover its failre to com'l) wit%
R4O 2/G9/ and R.AO /7G/1, w%ic% t%e #IR itself issed- As stated earlier, t%e #IR
failed to verif) w%et%er a notariJed written at%orit) was *iven b) t%e res'ondent to its
accontant, and to indicate t%e date of acce'tance and t%e recei't b) t%e res'ondent of
t%e waivers- 8avin* cased t%e defects in t%e waivers, t%e #IR mst bear t%e
conse1ence- It cannot s%ift t%e blame to t%e ta+'a)er- To stress, a waiver of t%e statte of
limitations, bein* a dero*ation of t%e ta+'a)er(s ri*%t to secrit) a*ainst 'rolon*ed and
nscr'los investi*ations, mst be carefll) and strictl) constred-
Commissioner of Internal Revene vs- @dos 4etal Cor'-, ?-R- 6o- 138/83, 4a) 7,
2/1/
SECTION 22. Sus%ension o) Runnin* o) Statute o) Limitations" # T!e runnin*
o) t!e Statute o) Limitations %ro'ided in Setions 20. and 222 on t!e ma,in* o)
assessment and t!e +e*innin* o) distraint or le'& or a %roeedin* in ourt )or
olletion( in res%et o) an& de)iien&( s!all +e sus%ended )or t!e %eriod durin*
-!i! t!e Commissioner is
0a1 %ro!i+ited )rom ma,in* t!e assessment or +e*innin* distraint or le'& or a
%roeedin* in ourt and )or si$t& 0=01 da&s t!erea)ter6
0+1 -!en t!e ta$%a&er re8uests )or a rein'esti*ation -!i! is *ranted +& t!e
Commissioner6
01 -!en t!e ta$%a&er annot +e loated in t!e address *i'en +& !im in t!e return
)iled u%on -!i! a ta$ is +ein* assessed or olleted2
Pro'ided( T!at( i) t!e ta$%a&er in)orms t!e Commissioner o) an& !an*e in
address( t!e runnin* o) t!e Statute o) Limitations -ill not +e sus%ended6
0d1 -!en t!e -arrant o) distraint or le'& is dul& ser'ed u%on t!e ta$%a&er( !is
aut!ori<ed re%resentati'e( or a mem+er o) !is !ouse!old -it! su))iient disretion(
and no %ro%ert& ould +e loated6 and
0e1 -!en t!e ta$%a&er is out o) t!e P!ili%%ines"
Interr#ption of the Prescriptive Period
T%e rnnin* of t%e 'rescri'tive 'eriods for assessment and collection of ta+es is
ss'ended nder an) of t%e followin* circmstances:
a- ;%en t%e Commissioner is 'ro%ibited from ma$in* t%e
assessment or be*innin* distraint and lev) or a 'roceedin* in cort and for si+t)
!,/" da)s t%ereafterH
b. ;%en t%e ta+'a)er re1ests for t%e reinvesti*ation w%ic% is *ranted b) t%e
CommissionerH
c- ;%en t%e ta+'a)er cannot be located in t%e address *iven b) %im in t%e retrn
filed 'on w%ic% a ta+ is bein* assessed or collectedH 'rovided t%at if t%e ta+'a)er
informs t%e Commissioner of an) c%an*e in address, t%e rnnin* of t%e Statte of
=imitations will not be ss'endedH
d- ;%en t%e warrant of distraint and lev) is dl) served 'on t%e ta+'a)er, %is
at%oriJed re'resentative or a member of %is %ose%old wit% sfficient discretion
and no 'ro'ert) cold be locatedH and
e- ;%en t%e ta+'a)er is ot of t%e &%ili''ines-
T%e volntar) and nilateral act of res'ondent in invitin* 'etitioner to air its ob5ections
to t%e 'ro'osed assessment cold not be constred to ss'end t%e 'eriod wit%in to assess
t%e ta+- &acific Trans'ort =ines vs- Commissioner,
CTA Case 6o- 1/B9, A'r- 29, 1981
&eriod t%e Commissioner is 'ro%ibited from ma$in* assessment, be*innin* distraint and
lev), or 'roceedin* in cort and for si+t) da)s-GGT%e rnnin* of t%e 'rescri'tive 'eriod to
collect deficienc) ta+es s%all be ss'ended for t%e 'eriod drin* w%ic% t%e Commissioner
is 'ro%ibited from be*innin* a distraint and lev) or instittin* a 'roceedin* in cort, and
for si+t) da)s t%ereafter- In t%is case, t%e 'endenc) of t%e ta+'a)erIs a''eal in t%e CTA
and in t%e S'reme Cort %ad t%e effect of tem'oraril) sta)in* t%e %ands of t%e
Commissioner- If t%e ta+'a)erIs stand t%at t%e 'endenc) of t%e a''eal did not sto' t%e
rnnin* of t%e 'eriod becase t%e CTA did not %ave 5risdiction over t%e case is '%eld,
ta+'a)ers wold be encora*ed to dela) t%e 'a)ment of ta+es in t%e %o'e of ltimatel)
avoidin* t%e same- 9nder t%e circmstances, t%e rnnin* of t%e 'rescri'tive 'eriod was
ss'ended- T%e reason for sc% 'ro%ibition is t%at w%en a case is on a''eal to t%e CTA,
t%e Commissioner is 'revented from filin* an ordinar) action to collect t%e ta+ in t%e
re*lar corts- Re'blic vs- @er P Co-, =td-, 18 SCRA 2/3
Re1est for reinvesti*ation is *ranted b) #IR-GGT%e onl) a*reement t%at can ss'end t%e
rnnin* of t%e 'rescri'tive 'eriod for t%e collection of ta+es is a written a*reement
between t%e ta+'a)er and t%e Commissioner, entered into before t%e e+'iration of t%e
fiveG)ear !now t%reeG)ear" 'eriod, e+tendin* t%e 'eriod of limitation 'rescribed b) law-
T%e rle is in accord wit% t%e *eneral law on 'rescri'tion t%at re1ires a written
ac$nowled*ment of t%e debtor to renew t%e case of action or interr't t%e rnnin* of t%e
limitation 'eriod-
6ew Civil Code, Art- 1177H
Collector vs- Solano, =G11E37, 2l) B1, 1978H
Re'blic vs- ?anca)co, 11 SCRA B8/
A mere re1est for reinvesti*ation or reconsideration of an assessment does not %ave t%e
effect of ss'ension- T%e rlin* is lo*icalH ot%erwise, t%ere wold be no 'oint to t%e le*al
re1irement t%at t%e e+tension of t%e ori*inal 'eriod be a*reed 'on in writin*-M T%e
Kle*al re1irementM above adverted to obviosl) refers to Section B19!c " !now Section
22B" of t%e Ta+ Code, w%ereb) t%e fiveG)ear 'eriod t%erein fi+ed to enforce collection of a
ta+, eit%er b) distraint or lev) or b) a 'roceedin* in cort, ma) be e+tended if, 'rior to
t%e e+'iration t%ereof, anot%er 'eriod is a*reed 'on in writin* b) t%e Commissioner and
t%e ta+'a)er-M
Commissioner vs- Atlas Consolidated 4inin* P .evelo'ment Cor'oration,
CAG ?-R- S& 6o- E1939, Se't- B/, 1999
;%ere t%e reinvesti*ation re1ested b) a''ellant was not condcted becase neit%er t%e
a''ellant nor %is consel a''eared, t%e 'rescri'tive 'eriod remains ss'ended ntil t%e
#IR issed a warrant of distraint and lev), w%ic% was t%e first clear and ne1ivocal act
on t%e 'art of t%e ?overnment w%ic% s%owed t%at as far as it was concerned, t%e old
assessment of t%e deficienc) ta+es was final, and %ence collection of t%e amont assessed
wold 'roceed- T%e interr'tion be*an on Se't- 2, 197E, w%en t%e a''ellantIs re1est for
reinvesti*ation was *ranted, since t%e *rant in effect tied t%e %ands of t%e a''ellee from
filin* t%e action-Re'blic vs- A1ias, BB SCRA ,/3
?ivin* a written notice to t%e #IR abot t%e ta+G'a)erIs c%an*e of address is ver)
im'ortant in t%at failre to do so wold mean ss'ension of t%e rnnin* of t%e statte of
limitations- T%e recei't of a warrant of distraint andRor lev) b) t%e ta+'a)er will also
sto' t%e rnnin* of t%e 'rescri'tive 'eriod w%ere no 'ro'ert) belon*in* to t%e ta+'a)er
can be fond b) t%e #IR-
Differences (et&een e)tension and interr#ption of prescriptive periods
a- In e+tension of t%e 'rescri'tive 'eriod, t%e ta+'a)er and t%e Commissioner or %is
at%oriJed re'resentative si*n a written waiver e+tendin* t%e 'eriod wit%in w%ic% t%e
#IR ma) assess or collect t%e ta+- In ss'ension or interr'tion of t%e 'rescri'tive
'eriod, t%e contractin* 'arties do not si*n an) written a*reement interr'tin* t%e 'eriod-
:it%er t%e ta+'a)er re1ested for a reinvesti*ation w%ic% was *ranted b) t%e
Commissioner, or a warrant of distraint or lev) was issed b) t%e Commissioner or %is
at%oriJed re'resentative and no 'ro'ert) of t%e ta+'a)er cold be located-
b- T%e *ronds for e+tension of t%e 'rescri'tive 'eriod are 'rovided for in Section 222!b"
to !e", w%ile t%e *ronds for t%e interr'tion of t%e 'rescri'tive 'eriod are *iven in
Section 22B, bot% of t%e Ta+ Code-
c- To validl) e+tend t%e 'rescri'tive 'eriod, t%e waiver mst be si*ned b) t%e contractin*
'arties before t%e e+'iration of t%e time 'rescribed to assess or to collect !or before t%e
issance, release and mailin* of t%e assessment notice and demand letter"- In t%e case of
ss'ension or interr'tion of 'rescri'tive 'eriod, t%e actions of t%e ta+'a)er and t%e #IR
are ta$en after t%e issance, release and mailin* of assessment notice and letter of
demand-
d- In e+tension and ss'ension of t%e 'rescri'tive 'eriod, t%e effect is to e+tend or
'rolon* t%e 'eriod wit%in w%ic% t%e Commissioner ma) assess or collect t%e ta+- In
ss'ension of t%e 'rescri'tive 'eriod, t%e 'eriod drin* w%ic% an) of t%e enmerated
condition e+ists is dedcted from t%e total 'eriod- T%e 'eriod to assess or collect
mentioned in t%e law is not e+tended- 8owever, in t%e case of e+tension, t%e 'eriod stated
in t%e law wit%in w%ic% t%e Commissioner ma) assess or collect is e+tended b) t%e
a*reement si*ned b) bot% 'arties-
When '#st iss#e on prescription (e raised*
Isse of 'rescri'tion mst be raised b) t%e *overnment at t%e administrative level.%% T%e
Commissioner claims t%at frad attended t%e filin* of t%e retrnH t%at t%is bein* so,
Section BB2!a" Nnow Section 222!a"O of t%e Ta+ Code wold a''l)- It ma) be well to note
t%at t%e assessment letter itself did not im'te frad in t%e retrn wit% intent to evade
'a)ment of t%e ta+- &recisel), no src%ar*e for frad was im'osed- In %is answer to t%e
'etition for review filed b) Dsa) in t%e CTA, t%e Commissioner alle*ed no frad-
Instead, %e broac%ed t%e insfficienc) of t%e retrn as barrin* t%e commencement of t%e
rnnin* of t%e statte of limitations- 8e raised t%e 'oint of frad for t%e first time in t%e
'roceedin*s, onl) in %is memorandm filed wit% t%e Ta+ Cort sbse1ent to restin* %is
case- Said Cort re5ected t%e 'lea of frad for lac$ of alle*ation and 'roof, and rled
t%at t%e retrn, alt%o*% not accrate, was sfficient to start t%e 'eriod of 'rescri'tion-
Frad is a 1estion of fact- T%e circmstances constittin* it mst be alle*ed and 'roved
in t%e cort below-
T%e CFI actin* as a settlement cort is not t%e 'ro'er tribnal to 'ass 'on t%e defense
of 'rescri'tionH t%erefore, it wold be bt ftile to raise it t%erein- 4oreover, t%e Ta+
Code does not bar t%e ri*%t to contest t%e le*alit) of t%e ta+ after a ta+'a)er 'a)s it-
9nder Section B/,, %e can 'a) t%e ta+ and claim a refnd t%erefore- A fortiori, %is
willin*ness to 'a) t%e ta+ is no waiver to raise defenses a*ainst t%e ta+ le*alit)-
Commissioner vs- ?onJales, 18 SCRA 373
Isse of 'rescri'tion mst be raised b) t%e ta+'a)er at t%e administrative level-GGT%e
isse as to t%e ri*%t of t%e *overnment to assess and collect mst be raised at t%e
administrative level, and evidence to 'rove 'rescri'tion of t%e ri*%t to assess and collect
mst be introdced b) t%e ta+'a)er-
Invalidit) of waiver ma) still be raised drin* t%e trial at CTA-GGT%e contention of t%e
res'ondent t%at failre of t%e 'etitioner to raise t%e isse of 'rescri'tion in its letterG
'rotest, 'reclded it from invo$in* t%e same for t%e first time before t%is Cort is
ntenable- In t%e first 'lace, t%e 'etitioner cannot raise t%e isse of 'rescri'tion in its
letterG'rotest filed on 2l) 17, 199B becase of its 'rior e+ection of a s''osedl) valid
Kwaiver of t%e defense of 'rescri'tionM on A*st 13, 1992- It was onl) after a carefl
'ersal of t%e records of t%e #IR t%at t%e 'etitioner discovered t%e invalidit) of t%e
waiver si*ned b) its re'resentative- Sc% $nowled*e 'rom'ted t%e 'etitioner to file a
4otion to Allow &etitioner to Addce Additional Rebttal :vidence w%ere it invo$ed t%e
defense of 'rescri'tion-
Central Cement Cor'oration vs- Commissioner, CTA
Case 7/2E, 2ne 1B, 1993
;%en *overnment admitted alle*ation of 'rescri'tion in its answer, ta+'a)er need not
introdce evidence-GG;%en t%e ta+'a)er assailed t%e ri*%t of t%e *overnment to assess
and collect, alle*ed t%e facts constittin* 'rescri'tion, s''orted b) anne+es !in its
'etition for review", and t%e *overnment admitted t%e alle*ation in its answer, t%ere was
no need for t%e ta+'a)er to 'resent frt%er evidence on t%is 'ointL T%e demand on t%e
ta+'a)er to 'a) t%e amont erroneosl) refnded is in effect an assessment for deficienc)
franc%ise ta+- And bein* so, t%e ri*%t to assess or collect t%e same is *overned b)
Section BB1 !now Section 222" of t%e Ta+ Code, rat%er t%an b) Article 11E7 of t%e Civil
Code ?a*a :lectric =i*%t &lant Co-
vs- Collector and Cort of Ta+ A''eals
Re1isites for ss'ension of t%e 'eriod to enforce collection-
T%e 'lain and nambi*os wordin* of t%e said 'rovision dictates t%at two re1isites
mst concr before t%e 'eriod to enforce collection ma) be ss'ended: !a" t%at t%e
ta+'a)er re1ests for reinvesti*ation, and !b" t%at t%e Commissioner of Internal Revene
!CIR" *rants sc% re1est- On t%is 'oint, we %ave 'reviosl) %eld t%at: T%e above section
is 'lainl) worded- In order to ss'end t%e rnnin* of t%e 'rescri'tive 'eriods for
assessment and collection, t%e re1est for reinvesti*ation mst be *ranted b) t%e CIR-
Conse1entl), t%e mere filin* of a 'rotest letter w%ic% is not *ranted does not o'erate to
ss'end t%e rnnin* of t%e 'eriod to collect ta+es-
Commissioner of Internal Revene vs- 8ambrec%t P Fist &%ili''ines, Inc-, ?-R- 6o-
1,9227, 6ovember 13, 2/1/
#an$ of t%e &%ili''ine Islands vs- Commissioner of Internal Revene, ?-R- 6o- 13E9E2,
4arc% 3, 2//8
T%e 'endenc) of ta+'a)er(s a''eal tem'oraril) sta)ed t%e %ands of t%e Commissioner-
9nder t%e Ta+ Code t%e rnnin* of t%e 'rescri'tive 'eriod to collect deficienc) ta+es
s%all be ss'ended for t%e 'eriod drin* w%ic% t%e Commissioner of Internal Revene is
'ro%ibited from be*innin* a distraint and lev) or instittin* a 'roceedin* in cort, and
for si+t) da)s t%ereafter- T%e 'endenc) of t%e ta+'a)er(s a''eal in t%e Cort of Ta+
A''eals and in t%e S'reme Cort %ad t%e effect of tem'oraril) sta)in* t%e %ands of t%e
said Commissioner- If t%e ta+'a)er(s stand t%at t%e 'endenc) of t%e a''eal did not sto'
t%e rnnin* of t%e 'eriod becase t%e Cort of Ta+ A''eals did not %ave 5risdiction over
t%e case of ta+es is '%eld, ta+'a)ers wold be encora*ed to dela) t%e 'a)ment of ta+es
in t%e %o'e of ltimatel) avoidin* t%e same- 9nder t%e circmstances, t%e rnnin* of t%e
'rescri'tive 'eriod was ss'ended-0
Re'blic of t%e &%ils-vs- @er P Co-, =td-, ?-R- 6o- =G21,/9, Se'tember 29, 19,,
SECTION 224 Remed& )or En)orement o) For)eitures" # T!e )or)eiture o)
!attels and remo'a+le )i$tures o) an& sort s!all +e en)ored +& t!e sei<ure and
sale( or destrution( o) t!e s%ei)i )or)eited %ro%ert&" T!e )or)eiture o) real
%ro%ert& s!all +e en)ored +& a 7ud*ment o) ondemnation and sale in a le*al
ation or %roeedin*( i'il or riminal( as t!e ase ma& re8uire"
SECTION 22> :!en Pro%ert& to +e Sold or Destro&ed" # Sales o) )or)eited
!attels and remo'a+le )i$tures s!all +e e))eted( so )ar as %ratia+le( in t!e same
manner and under t!e same onditions as t!e %u+li notie and t!e time and
manner o) sale as are %resri+ed )or sales o) %ersonal %ro%ert& distrained )or t!e
non3%a&ment o) ta$es"
Distilled s%irits( li8uors( i*ars( i*arettes( ot!er manu)atured %roduts o) to+ao(
and all a%%aratus used in or a+out t!e illiit %rodution o) su! artiles ma&( u%on
)or)eiture( +e destro&ed +& order o) t!e Commissioner( -!en t!e sale o) t!e same
)or onsum%tion or use -ould +e in7urious to %u+li !ealt! or %re7udiial to t!e
en)orement o) t!e la-"
All ot!er artiles su+7et to e$ise ta$( -!i! !a'e +een manu)atured or remo'ed
in 'iolation o) t!is Code( as -ell as dies )or t!e %rintin* or ma,in* o) internal
re'enue stam%s and la+els -!i! are in imitation o) or %ur%ort to +e la-)ul stam%s(
or la+els ma&( u%on )or)eiture( +e sold or destro&ed in t!e disretion o) t!e
Commissioner"
For)eited %ro%ert& s!all not +e destro&ed until at least t-ent& 0201 da&s a)ter
sei<ure"
SECTION 22= Dis%osition o) Funds Reo'ered in Le*al Proeedin*s or O+tained
)rom For)eitures" # All 7ud*ments and monies reo'ered and reei'ed )or ta$es(
osts( )or)eitures( )ines and %enalties s!all +e %aid to t!e Commissioner or !is
aut!ori<ed de%uties as t!e ta$es t!emsel'es are re8uired to +e %aid( and e$e%t as
s%eiall& %ro'ided( s!all +e aounted )or and dealt -it!in t!e same -a&"
SECTION 22? Satis)ation o) Cud*ment Reo'ered A*ainst an& Internal Re'enue
O))ier" # :!en an ation is +rou*!t a*ainst an& Internal Re'enue O))ier to
reo'er dama*es +& reason o) an& at done in t!e %er)ormane o) o))iial dut&( and
t!e Commissioner is noti)ied o) su! ation in time to ma,e de)ense a*ainst t!e
same( t!rou*! t!e Soliitor General( an& 7ud*ment( dama*es or osts reo'ered in
su! ation s!all +e satis)ied +& t!e Commissioner( u%on a%%ro'al o) t!e Seretar&
o) Finane( or i) t!e same +e %aid +& t!e %erson sued s!all +e re%aid or reim+ursed
to !im"
No su! 7ud*ment( dama*es( or osts s!all +e %aid or reim+ursed in +e!al) o) a
%erson -!o !as ated ne*li*entl& or in +ad )ait!( or -it! -ill)ul o%%ression"
CHAPTER III Protestin* an Assessment( Re)und( Et"
SECTION 22A Protestin* o) Assessment # :!en t!e Commissioner or !is dul&
aut!ori<ed re%resentati'e )inds t!at %ro%er ta$es s!ould +e assessed( !e s!all )irst
noti)& t!e ta$%a&er o) !is )indin*s2
Pro'ided !o-e'er( T!at a %re3assessment notie s!all not +e re8uired in t!e
)ollo-in* ases2
0a1 :!en t!e )indin* )or an& de)iien& ta$ is t!e result o) mat!ematial error in
t!e om%utation o) t!e ta$ as a%%earin* on t!e )ae o) t!e return6 or
0+1 :!en a disre%an& !as +een determined +et-een t!e ta$ -it!!eld and t!e
amount atuall& remitted +& t!e -it!!oldin* a*ent6 or
01 :!en a ta$%a&er -!o o%ted to laim a re)und or ta$ redit o) e$ess redita+le
-it!!oldin* ta$ )or a ta$a+le %eriod -as determined to !a'e arried o'er and
automatiall& a%%lied t!e same amount laimed a*ainst t!e estimated ta$ lia+ilities
)or t!e ta$a+le 8uarter or 8uarters o) t!e sueedin* ta$a+le &ear6 or
0d1 :!en t!e e$ise ta$ due on e$isa+le artiles !as not +een %aid6 or
0e1 :!en an artile loall& %ur!ased or im%orted +& an e$em%t %erson( su! as(
+ut not limited to( 'e!iles( a%ital e8ui%ment( ma!ineries and s%are %arts( !as
+een sold( traded or trans)erred to non3e$em%t %ersons"
T!e ta$%a&ers s!all +e in)ormed in -ritin* o) t!e la- and t!e )ats on -!i! t!e
assessment is made6 ot!er-ise( t!e assessment s!all +e 'oid"
:it!in a %eriod to +e %resri+ed +& im%lementin* rules and re*ulations( t!e
ta$%a&er s!all +e re8uired to res%ond to said notie" I) t!e ta$%a&er )ails to res%ond(
t!e Commissioner or !is dul& aut!ori<ed re%resentati'e s!all issue an assessment
+ased on !is )indin*s"
Su! assessment ma& +e %rotested administrati'el& +& )ilin* a re8uest )or
reonsideration or rein'esti*ation -it!in t!irt& 0.01 da&s )rom reei%t o) t!e
assessment in su! )orm and manner as ma& +e %resri+ed +& im%lementin* rules
and re*ulations" :it!in si$t& 0=01 da&s )rom )ilin* o) t!e %rotest( all rele'ant
su%%ortin* douments s!all !a'e +een su+mitted( ot!er-ise( t!e assessment s!all
+eome )inal"
I) t!e %rotest is denied in -!ole or in %art( or is not ated u%on -it!in one !undred
ei*!t& 05A01 da&s )rom su+mission o) douments( t!e ta$%a&er ad'ersel& a))eted
+& t!e deision or ination ma& a%%eal to t!e Court o) Ta$ A%%eals -it!in t!irt&
0.01 da&s )rom reei%t o) t!e said deision( or )rom t!e la%se o) t!e one !undred
ei*!t& 05A01 da& %eriod6 ot!er-ise( t!e deision s!all +eome )inal( e$eutor& and
demanda+le"
C I R vs- AJcena T- Re)es, ?-R- 6o- 179,9E, 2anar) 23, 2//,
FACTS: 4aria C- Tancinco died, leavin* a 1,292 s1areGmeter residential lot and an old
%ose t%ereon- On t%e basis of a sworn informationGforGreward filed b) a certain
Ra)mond Abad, t%e #IR condcted an investi*ation on decedent(s estate- Sbse1entl), it
issed a Retrn Cerification Order- #t wit%ot t%e re1ired 'reliminar) findin*s bein*
sbmitted, it issed =etter of At%orit) for t%e re*lar investi*ation of t%e estate ta+ case-
AJcena T- Re)es, one of t%e decedent(s %eirs, received t%e =etter of At%orit) on 4arc%
1E, 1993- On Febrar) 12, 1998, t%e #IR issed a 'reliminar) assessment notice a*ainst
t%e estate in t%e amont of &1E,78/,,18-,3- On 4a) 1/, 1998, t%e %eirs of t%e decedent
received a final estate ta+ assessment notice and a demand letter, bot% dated A'ril 22,
1998, for t%e amont of &1E,912,2/7-E3, inclsive of src%ar*e and interest- On
6ovember 12, 1998, t%e CIR issed a 'reliminar) collection letter to Re)es, followed b)
a Final 6otice #efore SeiJre dated .ecember E, 1998-
On 2anar) 7, 1999, a ;arrant of .istraint andRor =ev) was served 'on t%e estate,
followed on Febrar) 11, 1999 b) 6otices of =ev) on Real &ro'ert) and Ta+ =ien a*ainst
it-
As t%e estate failed to 'a) its ta+ liabilit) wit%in t%e A'ril 17, 2/// deadline, t%e C%ief,
Collection :nforcement .ivision, #IR, notified Re)es on 2ne ,, 2/// t%at t%e sb5ect
'ro'ert) wold be sold at 'blic action on A*st 8, 2///- On 2ne 1B, 2///, NRe)esO
filed a 'rotest wit% t%e #IR A''ellate .ivision- Assailin* t%e sc%edled action sale, s%e
asserted t%at t%e assessment, letter of demand, and t%e w%ole ta+ 'roceedin*s a*ainst t%e
estate are void ab initio-
ISS9:: ;%et%er t%e assessment a*ainst t%e estate is valid-
8:=.: 6o- In t%e 'resent case, Re)es was not informed in writin* of t%e law and t%e
facts on w%ic% t%e assessment of estate ta+es %ad been made- S%e was merel) notified of
t%e findin*s b) t%e CIR, w%o %ad sim'l) relied 'on t%e 'rovisions of former Section 229
'rior to its amendment b) R-A- 6o- 8E2E !Ta+ Reform Act of 1993"-
First, RA 8E2E %as alread) amended t%e 'rovision of Section 229 on 'rotestin* an
assessment- T%e old re1irement of merel) notif)in* t%e ta+'a)er of t%e CIR(s findin*s
was c%an*ed in 1998 to informin* t%e ta+'a)er of not onl) t%e law, bt also of t%e facts
on w%ic% an assessment wold be madeH ot%erwise, t%e assessment itself wold be
invalid- It was on Febrar) 12, 1998, t%at a 'reliminar) assessment notice was issed
a*ainst t%e estate- On A'ril 22, 1998, t%e final estate ta+ assessment notice, as well as
demand letter, was also issed- .rin* t%ose dates, RA 8E2E was alread) in effect- T%e
notice re1ired nder t%e old law was no lon*er sfficient nder t%e new law-
To be sim'l) informed in writin* of t%e investi*ation bein* condcted and of t%e
recommendation for t%e assessment of t%e estate ta+es de is not%in* bt a 'erfnctor)
disc%ar*e of t%e ta+ fnction of correctl) assessin* a ta+'a)er- T%e act cannot be ta$en to
mean t%at Re)es alread) $new t%e law and t%e facts on w%ic% t%e assessment was based-
It does not at all conform to t%e com'lsor) re1irement nder Section 228- 4oreover,
t%e =etter of At%orit) received b) res'ondent on 4arc% 1E, 1993 was for t%e s%eer
'r'ose of investi*ation and was not even t%e re1isite notice nder t%e law- T%e
'rocedre for 'rotestin* an assessment nder t%e Ta+ Code is fond in C%a'ter III of
Title CIII, w%ic% deals wit% remedies- #ein* 'rocedral in natre, can its 'rovision t%en
be a''lied retroactivel)A T%e answer is )es-
T%e *eneral rle is t%at stattes are 'ros'ective- 8owever, stattes t%at are remedial, or
t%at do not create new or ta$e awa) vested ri*%ts, do not fall nder t%e *eneral rle
a*ainst t%e retroactive o'eration of stattes- Clearl), Section 228 'rovides for t%e
'rocedre in case an assessment is 'rotested- T%e 'rovision does not create new, or ta$e
awa) vested, ri*%ts- In bot% instances, it can srel) be a''lied retroactivel)- 4oreover,
RA 8E2E does not state, eit%er e+'ressl) or b) necessar) im'lication, t%at 'endin*
actions are e+ce'ted from t%e o'eration of Section 228, or t%at a''l)in* it to 'endin*
'roceedin*s wold im'air vested ri*%ts-
Second, t%e nonGretroactive a''lication of Rev- Re*- 6o- 12G99 is of no moment,
considerin* t%at it merel) im'lements t%e law- A ta+ re*lation is 'roml*ated b) t%e
finance secretar) to im'lement t%e 'rovisions of t%e Ta+ Code- ;%ile it is desirable for
t%e *overnment at%orit) or administrative a*enc) to %ave one immediatel) issed after
a law is 'assed, t%e absence of t%e re*lation does not atomaticall) mean t%at t%e law
itself wold become ino'erative-
At t%e time t%e 'reGassessment notice was issed to Re)es, RA 8E2E alread) stated t%at
t%e ta+'a)er mst be informed of bot% t%e law and facts on w%ic% t%e assessment was
based- T%s, t%e CIR s%old %ave re1ired t%e assessment officers of t%e #rea of
Internal Revene !#IR" to follow t%e clear mandate of t%e new law- T%e old re*lation
*overnin* t%e issance of estate ta+ assessment notices ran afol of t%e rle t%at ta+
re*lations T old as t%e) were T s%old be in %armon) wit%, and not s''lant or
modif), t%e law- 4oreover, an administrative rle inter'retive of a statte, and not
declarative of certain ri*%ts and corres'ondin* obli*ations, is *iven retroactive effect as
of t%e date of t%e effectivit) of t%e statte- RR 12G99 is one sc% rle- #ein* inter'retive of
t%e 'rovisions of t%e Ta+ Code, even if it was issed onl) on Se'tember ,, 1999, t%is
re*lation was to retroact to 2anar) 1, 1998 T a date 'rior to t%e issance of t%e
'reliminar) assessment notice and demand letter-
T%ird, neit%er Section 229 nor RR 12G87 can 'revail over Section 228 of t%e Ta+ Code-
6o dobt, Section 228 %as re'laced Section 229- T%e 'rovision on 'rotestin* an
assessment %as been amended- Frt%ermore, in case of discre'anc) between t%e law as
amended and its im'lementin* bt old re*lation, t%e former necessaril) 'revails- T%s,
between Section 228 of t%e Ta+ Code and t%e 'ertinent 'rovisions of RR 12G87, t%e latter
cannot stand becase it cannot *o be)ond t%e 'rovision of t%e law- T%e law mst still be
followed, even t%o*% t%e e+istin* ta+ re*lation at t%at time 'rovided for a different
'rocedre- T%e re*lation t%en sim'l) 'rovided t%at notice be sent to t%e res'ondent in
t%e form 'rescribed, and t%at no conse1ence wold ense for failre to com'l) wit% t%at
form-
Fort%, 'etitioner violated t%e cardinal rle in administrative law t%at t%e ta+'a)er be
accorded de 'rocess- 6ot onl) was t%e law %ere disre*arded, bt no valid notice was
sent, eit%er- A void assessment bears no valid frit- T%e law im'oses a sbstantive, not
merel) a formal, re1irement- To 'roceed %eedlessl) wit% ta+ collection wit%ot first
establis%in* a valid assessment is evidentl) violative of t%e cardinal 'rinci'le in
administrative investi*ations: t%at ta+'a)ers s%old be able to 'resent t%eir case and
addce s''ortin* evidence- In t%e instant case, res'ondent %as not been informed of t%e
basis of t%e estate ta+ liabilit)- ;it%ot com'l)in* wit% t%e ne1ivocal mandate of first
informin* t%e ta+'a)er of t%e *overnment(s claim, t%ere can be no de'rivation of
'ro'ert), becase no effective 'rotest can be made- T%e %a'%aJard s%ot at sla''in* an
assessment, s''osedl) based on estate ta+ation(s *eneral 'rovisions t%at are e+'ected to
be $nown b) t%e ta+'a)er, is tter c%icaner)-
:ven a crsor) review of t%e 'reliminar) assessment notice, as well as t%e demand letter
sent, reveals t%e lac$ of basis for T not to mention t%e insfficienc) of T t%e *ross
fi*res and details of t%e itemiJed dedctions indicated in t%e notice and t%e letter- T%is
Cort cannot contenance an assessment based on estimates t%at a''ear to %ave been
arbitraril) or ca'riciosl) arrived at- Alt%o*% ta+es are t%e lifeblood of t%e *overnment,
t%eir assessment and collection 0s%old be made in accordance wit% law as an)
arbitrariness will ne*ate t%e ver) reason for *overnment itself-0
Fift%, t%e rle a*ainst esto''el does not a''l)- Alt%o*% t%e *overnment cannot be
esto''ed b) t%e ne*li*ence or omission of its a*ents, t%e obli*ator) 'rovision on
'rotestin* a ta+ assessment cannot be rendered n*ator) b) a mere act of t%e CIR- Ta+
laws are civil in natre- 9nder or Civil Code, acts e+ected a*ainst t%e mandator)
'rovisions of law are void, e+ce't w%en t%e law itself at%oriJes t%e validit) of t%ose acts-
Failre to com'l) wit% Section 228 does not onl) render t%e assessment void, bt also
finds no validation in an) 'rovision in t%e Ta+ Code- ;e cannot condone errant or
enter'risin* ta+ officials, as t%e) are e+'ected to be vi*ilant and lawGabidin*-
CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- 96IO6 S8I&&I6? COR&-
?-R- 6o- ,,1,/ 4a) 21, 199/
T%e Commissioner of Internal Revene s%old alwa)s indicate to t%e ta+'a)er in clear
and ne1ivocal lan*a*e w%enever %is action on an assessment 1estioned b) a
ta+'a)er constittes %is final determination on t%e dis'ted assessment, as contem'lated
b) sections 3 and 11 of Re'blic Act 1127, as amended- On t%e basis of t%is statement
indbitabl) s%owin* t%at t%e Commissioner(s commnicated action is %is final decision
on t%e contested assessment, t%e a**rieved ta+'a)er wold t%en be able to ta$e recorse
to t%e ta+ cort at t%e o''ortne time- ;it%ot needless difficlt), t%e ta+'a)er wold be
able to determine w%en %is ri*%t to a''eal to t%e ta+ cort accres- T%is rle of condct
wold also obviate all desire and o''ortnit) on t%e 'art of t%e ta+'a)er to continall)
dela) t%e finalit) of t%e assessment G and, conse1entl), t%e collection of t%e amont
demanded as ta+es G b) re'eated re1ests for reGcom'tation and reconsideration- On t%e
'art of t%e Commissioner, t%is wold encora*e %is office to condct a carefl and
t%oro*% std) of ever) 1estioned assessment and render a correct and definite decision
t%ereon in t%e first instance- T%is wold also deter t%e Commissioner from nfairl)
ma$in* t%e ta+'a)er *ro'e in t%e dar$ and s'eclate as to w%ic% action constittes t%e
decision a''ealable to t%e ta+ cort- Of *reater im'ort, t%is rle of condct wold meet a
'ressin* need for fair 'la), re*larit), and orderliness in administrative action-!Sri*ao
:lectric Co-, Inc- v- C-T-A-, 73 SCRA 72B, 728, N193EO"-
CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- :6RO6 S9#IC &O;:R COR&- N?-R-
6o- 1,,B83, 2anar) 19, 2//9-O
FACTS: Res'ondent, :nron Sbic &ower Cor'- !:nron", a domestic cor'oration
re*istered wit% t%e Sbic #a) 4etro'olitan At%orit) as a free'ort enter'rise, filed its
annal income ta+ retrn for 199, indicatin* a net loss- T%e #rea of Internal Revene
informed it of a 'ro'osed assessment of an alle*ed deficienc) income ta+- :nron dis'ted
t%e 'ro'osed deficienc) assessment in its first 'rotest letter- It li$ewise 'rotested t%e
deficienc) ta+ assessment contained in t%e sbse1ent formal assessment notice-
.e to t%e nonGresoltion of its 'rotest wit%in t%e 18/Gda) 'eriod, :nron filed a 'etition
for review wit% t%e Cort of Ta+ A''eals w%ic% *ranted :nron(s 'etition and ordered t%e
cancellation of its deficienc) ta+ assessment for t%e )ear 199,, reasonin* t%at t%e
assessment notice failed to com'l) wit% t%e re1irements of a valid written notice nder
Section 228 of t%e 6IRC and RR 6o- 12G99-
T%e CIR a''ealed t%e CTA decision to t%e CA bt t%e CA affirmed it, %oldin* t%at t%e
adit wor$in* 'a'ers did not sbstantiall) com'l) wit% Section 228 of t%e 6IRC and RR
6o- 12G99 becase t%e) failed to s%ow t%e a''licabilit) of t%e cited law to t%e facts of t%e
assessment- T%e CIR filed a motion for reconsideration bt t%is was deemed abandoned
w%en %e filed a motion for e+tension to file a 'etition for review wit% t%e S'reme Cort-
ISS9:: ;as :nron informed of t%e le*al and factal bases of t%e deficienc) assessment
a*ainst itA
8:=.: T%e advice of ta+ deficienc), *iven b) t%e CIR to an em'lo)ee of :nron, as well
as t%e 'reliminar) fiveGda) letter, were not valid sbstittes for t%e mandator) notice in
writin* of t%e le*al and factal bases of t%e assessment- T%e re1irement for issin* a
'reliminar) or final notice, as t%e case ma) be, informin* a ta+'a)er of t%e e+istence of a
deficienc) ta+ assessment is mar$edl) different from t%e re1irement of w%at sc% notice
mst contain- 2st becase t%e CIR issed an advice, a 'reliminar) letter drin* t%e 'reG
assessment sta*e and a final notice, in t%e order re1ired b) law, does not necessaril)
mean t%at :nron was informed of t%e law and facts on w%ic% t%e deficienc) ta+
assessment was made- T%e law re1ires t%at t%e le*al and factal bases of t%e assessment
be stated in t%e formal letter of demand and assessment notice- T%s, sc% cannot be
'resmed- Ot%erwise, t%e e+'ress 'rovisions of Article 228 of t%e 6IRC and RR 6o- 12G
99 wold be rendered n*ator)- T%e alle*ed 0factal bases0 in t%e advice, 'reliminar)
letter and 0adit wor$in* 'a'ers0 did not sffice-
In view of t%e absence of a fair o''ortnit) for :nron to be informed of t%e le*al and
factal bases of t%e assessment a*ainst it, t%e assessment in 1estion was void-
CO44ISSIO6:R OF I6T:R6A= R:C:69: vs- FIRST :>&R:SS &A;6S8O& CO-,
I6C N?-R- 6os- 132/E7GE,- 2ne 1,, 2//9-O
FACTS: &etitioner issed assessment notices a*ainst First :+'ress &awns%o' Co- for
deficienc) income ta+, CAT and docmentar) stam' ta+ on de'osit on sbscri'tion and
on 'awn tic$ets- Res'ondent filed its written 'rotest on t%e assessments- ;%en 'etitioner
did not act on t%e 'rotest drin* t%e 18/Gda) 'eriod, res'ondent filed a 'etition before
t%e CTA- First :+'ress later 'aid deficienc) income ta+ inclsive of interest- In its rlin*,
t%e CTA First .ivision ordered t%e CIR to cancel t%e assessments for deficienc) .ST and
directed t%e res'ondent to 'a) t%e deficienc) CAT- #ot% 'arties filed t%eir 4otions for
Reconsideration w%ic% was denied b) t%e CTA First .ivision- T%ereafter, bot% 'arties
filed t%eir res'ective &etitions for Review wit% t%e CTA :n #anc- T%e CTA :n #anc
affirmed res'ondent(s liabilit) to 'a) t%e CAT and ordered it to 'a) .ST on its 'awns%o'
tic$ets- 8owever, it fond t%at res'ondent(s de'osit on sbscri'tion was not sb5ect to
.ST, 'ointin* ot t%at de'osit on sbscri'tion is not sb5ect to .ST in t%e absence of
'roof t%at an e1ivalent amont of s%ares was sbscribed or issed in consideration for
t%e de'osit-
A**rieved b) t%e CTA :n #anc(s .ecision w%ic% rled t%at res'ondent(s de'osit on
sbscri'tion was not sb5ect to .ST, 'etitioner elevated t%e case before t%is Cort-
ISS9:S:
1- ;%et%er t%e CTA erred on a 1estion of law in disre*ardin* t%e rle on finalit) of
assessments 'rescribed nder Section 228 of t%e Ta+ Code-
2- ;%et%er res'ondent is liable to 'a) .ST on de'osit on sbscri'tion of ca'ital
stoc$-
R9=I6?:
1- ;e re5ect 'etitioner(s view t%at t%e assessment %as become final and
na''ealable- It cannot be said t%at res'ondent failed to sbmit relevant s''ortin*
docments t%at wold render t%e assessment final becase w%en res'ondent sbmitted its
'rotest, res'ondent attac%ed t%e ?IS and #alance S%eet- Frt%er, 'etitioner cannot insist
on t%e sbmission of 'roof of .ST 'a)ment becase sc% docment does not e+ist as
res'ondent claims t%at it is not liable to 'a), and %as not 'aid, t%e .ST on t%e de'osit on
sbscri'tion-
T%e term 0relevant s''ortin* docments0 s%old be nderstood as t%ose docments
necessar) to s''ort t%e le*al basis in dis'tin* a ta+ assessment as determined b) t%e
ta+'a)er- T%e #IR can onl) inform t%e ta+'a)er to sbmit additional docments- T%e #IR
cannot demand w%at t)'e of s''ortin* docments s%old be sbmitted- Ot%erwise, a
ta+'a)er will be at t%e merc) of t%e #IR, w%ic% ma) re1ire t%e 'rodction of docments
t%at a ta+'a)er cannot sbmit-
Res'ondent %as com'lied wit% t%e re1isites in dis'tin* an assessment 'rsant to
Section 228 of t%e Ta+ Code- 8ence, t%e ta+ assessment cannot be considered as final,
e+ector) and demandable-
2- Res'ondent is not liable for t%e 'a)ment of .ST on its de'osit on sbscri'tion
becase t%ere is )et no sbscri'tion t%at creates ri*%ts and obli*ations between t%e
sbscriber and t%e cor'oration- T%e de'osit on stoc$ sbscri'tion is merel) an amont of
mone) received b) a cor'oration wit% a view of a''l)in* t%e same as 'a)ment for
additional issance of s%ares in t%e ftre, an event w%ic% ma) or ma) not %a''en-
Re1irements for 'rotest of ta+ assessment
Final 6otice #efore SeiJre is deemed as commissioner(s final decision-
A final demand letter for 'a)ment of delin1ent ta+es ma) be considered a decision on a
dis'ted or 'rotested assessment-
Tenor of commissioner(s letter indicates final natre of determination on ta+'a)er(s ta+
liabilit)-
#IR s%old clearl) indicate to ta+'a)er its final action on a dis'ted assessment-
;arrant is deemed 'rematre w%ere no cate*orical rlin* on ta+'a)er(s re1est for
reconsideration was issed-
Timel) service of warrant of distraint or lev) ss'ends t%e rnnin* of t%e 'eriod to
collect t%e ta+ deficienc)-
#) insertin* a new sentence in Sec- 228, t%e le*islatre intended to insert a new 'rovision
re*ardin* t%e form and sbstance of assessments issed b) t%e CIR-
.istinction between a Re1est for Reconsideration and a Re1est for Reinvesti*ation-
Allied #an$in* Cor'- vs- Commissioner of Internal Revene, ?-R- 6o- 137/93, Febrar)
7, 2/1/
Fis%wealt% Cannin* Cor'- vs- Commissioner of Internal Revene, ?-R- 6o- 139BEB,
2anar) 21, 2/1/
Ta+'a)er mst be notified of ta+ liabilit) t%ro*% a &reliminar) Assessment 6otice
Indeed, Section 228 of t%e Ta+ Code clearl) re1ires t%at t%e ta+'a)er mst first be
informed t%at %e is liable for deficienc) ta+es t%ro*% t%e sendin* of a &A6 !&reliminar)
Assessment 6otice"- 8e mst be informed of t%e facts and t%e law 'on w%ic% t%e
assessment is made- T%e law im'oses a sbstantive, not merel) a formal, re1irement- To
'roceed %eedlessl) wit% ta+ collection wit%ot first establis%in* a valid assessment is
evidentl) violative of t%e cardinal 'rinci'le in administrative investi*ations T t%at
ta+'a)ers s%old be able to 'resent t%eir case and addce s''ortin* evidence-
Commissioner of Internal Revene vs- 4etro Star S'erama, Inc-, ?-R- 6o- 187B31,
.ecember 8, 2/1/
Re1irements for 'rotest of ta+ assessment
A ta+ 'rotest case, nder t%e TCC&, involves a 'rotest of t%e li1idation of im'ort entries-
A li1idation is t%e final com'tation and ascertainment b) t%e collector of t%e dties on
im'orted merc%andise, based on official re'orts as to t%e 1antit), c%aracter, and vale
t%ereof, and t%e collector(s own findin* as to t%e a''licable rate of dt)H it is a$in to an
assessment of internal revene ta+es nder t%e 6ational Internal Revene Code w%ere
t%e ta+ liabilit) of t%e ta+'a)er is definitel) determined-
&ili'inas S%ell &etrolem Cor'- vs- Commissioner of Cstoms, ?-R- 6o- 13,B8/, 2ne
18, 2//9
Section 228 of t%e Ta+ Code 'rovides t%e remed) to dis'te a ta+ assessment wit%in a
certain 'eriod of time- It states t%at an assessment ma) be 'rotested b) filin* a re1est
for reconsideration or reinvesti*ation wit%in B/ da)s from recei't of t%e assessment b)
t%e ta+'a)er- ;it%in ,/ da)s from filin* of t%e 'rotest, all relevant s''ortin* docments
s%all %ave been sbmittedH ot%erwise, t%e assessment s%all become final-
Commissioner of Internal Revene vs- First :+'ress &awns%o' Co-, Inc-, ?-R- 6os-
132/E7GE,, 2ne 1,, 2//9
Section 228 states t%at if t%e 'rotest is not acted 'on wit%in 18/ da)s from sbmission of
docments, t%e ta+'a)er adversel) affected b) t%e inaction ma) a''eal to t%e CTA wit%in
B/ da)s from t%e la'se of t%e 18/Gda) 'eriod-
Commissioner of Internal Revene vs- First :+'ress &awns%o' Co-, Inc-, ?-R- 6os-
132/E7GE,, 2ne 1,, 2//9
Section 228 of t%e 6IRC 'rovides t%at t%e ta+'a)er s%all be informed in writin* of t%e
law and t%e facts on w%ic% t%e assessment is made- Ot%erwise, t%e assessment is void- To
im'lement t%e 'rovisions of Section 228 of t%e 6IRC, RR 6o- 12G99 was enacted- Section
B-1-E of t%e revene re*lation reads:
B-1-E- Formal =etter of .emand and Assessment 6otice- T T%e formal letter of demand
and assessment notice s%all be issed b) t%e Commissioner or %is dl) at%oriJed
re'resentative- T%e letter of demand callin* for 'a)ment of t%e ta+'a)er(s deficienc) ta+
or ta+es s%all state t%e facts, t%e law, rles and re*lations, or 5ris'rdence on w%ic%
t%e assessment is based, ot%erwise, t%e formal letter of demand and assessment notice
s%all be void- T%e same s%all be sent to t%e ta+'a)er onl) b) re*istered mail or b)
'ersonal deliver)- - - - !em'%asis s''lied"
It is clear from t%e fore*oin* t%at a ta+'a)er mst be informed in writin* of t%e le*al and
factal bases of t%e ta+ assessment made a*ainst %im- T%e se of t%e word 0s%all0 in
t%ese le*al 'rovisions indicates t%e mandator) natre of t%e re1irements laid down
t%erein-
Commissioner of Internal Revene vs- :nron Sbic &ower Cor'-, ?-R- 6o- 1,,B83,
2anar) 19, 2//9
T%e law re1ires t%at t%e le*al and factal bases of t%e assessment be stated in t%e
formal letter of demand and assessment notice- T%s, sc% cannot be 'resmed-
Ot%erwise, t%e e+'ress 'rovisions of Article 228 of t%e 6IRC and RR 6o- 12G99 wold be
rendered n*ator)- T%e alle*ed 0factal bases0 in t%e advice, 'reliminar) letter and
0adit wor$in* 'a'ers0 did not sffice- T%ere was no *oin* arond t%e mandate of t%e
law t%at t%e le*al and factal bases of t%e assessment be stated in writin* in t%e formal
letter of demand accom'an)in* t%e assessment notice-
Commissioner of Internal Revene vs- :nron Sbic &ower Cor'-, ?-R- 6o- 1,,B83,
2anar) 19, 2//9
Final 6otice #efore SeiJre is deemed as commissioner(s final decision-
T%e Final 6otice #efore SeiJre s%old be considered as a denial of re1est for
reconsideration of t%e dis'ted assessment- T%e 6otice s%old be deemed as t%e
ta+'a)er(s last act, since failre to com'l) wit% it wold lead to t%e distraint and lev) of
t%e ta+'a)er(s 'ro'erties- 6ot onl) was t%e 6otice t%e onl) res'onse receivedH its content
and tenor s''orted t%e t%eor) t%at it was t%e CIR(s final act re*ardin* t%e re1est for
reconsideration- T%e ver) title e+'ressl) indicated t%at it was a final notice 'rior to
seiJre of 'ro'ert)- T%e letter itself clearl) stated t%at res'ondent was bein* *iven 0t%is
=AST O&&ORT96ITD0 to 'a)H ot%erwise, its 'ro'erties wold be sb5ected to distraint
and lev)- 'rem/7cd
Commissioner of Internal Revene vs- Isabela Cltral Cor'-, ?-R- 6o- 1B721/, 2l) 11,
2//1
A final demand letter for 'a)ment of delin1ent ta+es ma) be considered a decision on a
dis'ted or 'rotested assessment-
A letter reiteratin* t%e demand of t%e #IR for t%e settlement of t%e assessment alread)
made and for t%e immediate 'a)ment of a certain sm in s'ite of t%e ve%ement 'rotest of
t%e ta+'a)er is tantamont to a denial of t%e reconsideration or 'rotest of t%e assessment-
T%is certainl) is a clear indication of t%e firm stand of t%e commissioner a*ainst t%e
reconsideration of t%e dis'ted assessment, in view of t%e contined refsal of t%e
ta+'a)er to e+ecte t%e waiver of t%e 'eriod of limitation 'on t%e assessment in
1estion- T%is bein* so, t%e said letter amonted to a decision on a dis'ted or 'rotested
assessment-
Commissioner of Internal Revene vs- A)ala Secrities Cor'-, et al-, ?-R- 6o- =G29E87,
4arc%B1, 193,
Tenor of commissioner(s letter indicates final natre of determination on ta+'a)er(s ta+
liabilit)-
A letter of demand from t%e commissioner demandin* not onl) t%e 'a)ment of a certain
amont bt also *ivin* a warnin* t%at in t%e event t%e ta+'a)er fails to 'a) %e wold be
constrained to enforce t%e collection t%ereof b) means of le*al remedies, n1estionable
constittes t%e final action ta$en b) t%e commissioner on t%e ta+'a)er(s several re1ests
for reconsideration and recom'tation- T%e tenor of t%e letter, s'ecificall) t%e statement
re*ardin* t%e resort to le*al remedies, nmista$abl) indicated t%e final natre of t%e
determination made b) t%e commissioner of t%e ta+'a)er(s deficienc) franc%ise ta+
liabilit)-0
Sri*ao :lectric Co-, Inc- vs- Cort of Ta+ A''eals, et al-, ?-R- 6o- =G27289, 2ne 28,
193E
#IR s%old clearl) indicate to ta+'a)er its final action on a dis'ted assessment-
T%e #IR s%old alwa)s indicate to t%e ta+'a)er in clear and ne1ivocal lan*a*e w%at
constittes final action on a dis'ted assessment- T%e ob5ect of t%is 'olic) is to avoid
re'eated re1ests for reconsideration b) t%e ta+'a)er, t%ereb) dela)in* t%e finalit) of t%e
assessment and, conse1entl), t%e collection of t%e ta+es de- Frt%ermore, t%e ta+'a)er
wold not be *ro'in* in t%e dar$, s'eclatin* as to w%ic% commnication or action of t%e
#IR ma) be t%e decision a''ealable to t%e ta+ cort-
Commissioner of Internal Revene vs- 9nion S%i''in* Cor'-, et al-, ?-R- 6o- ,,1,/, 4a)
21,199/
;arrant is deemed 'rematre w%ere no cate*orical rlin* on ta+'a)er(s re1est for
reconsideration was issed-
T%e ;arrant of .istraint and =ev) issed to t%e ta+'a)er is 'rematre- T%e absence of a
cate*orical rlin* on ta+'a)er(s re1est for reconsideration is not deemed e1ivalent to a
denial of t%e re1est- Sc% re1est cold not in fact be fond in its records, since t%e #IR
cannot be 'resmed to %ave ta$en it into consideration- T%e re1est was considered onl)
w%en t%e ta+'a)er *ave a co') of it, dl) stam'Greceived b) t%e #IR- 8ence, t%e warrant
is deemed 'rematre-
Commissioner of Internal Revene vs- Al*e, Inc-, et al-, ?-R- 6o- =G2889,, Febrar) 13,
1988
Timel) service of warrant of distraint or lev) ss'ends t%e rnnin* of t%e 'eriod to
collect t%e ta+ deficienc)-
T%e timel) service of a warrant of distraint or lev) ss'ends t%e rnnin* of t%e 'eriod to
collect t%e ta+ deficienc) in t%e sense t%at t%e dis'osition of t%e attac%ed 'ro'erties mi*%t
well ta$e time to accom'lis%, e+tendin* even after t%e la'se of t%e stattor) 'eriod for
collection- T%e Commissioner did not institte an) 5dicial 'roceedin* to collect t%e ta+-
8e relied on t%e warrants of distraint to interr't t%e rnnin* of t%e statte of limitations-
8e *ave t%e ta+'a)er am'le o''ortnit) to contest t%e assessments bt at t%e same time
safe*arded t%e ?overnment(s interest b) means of t%e warrants of distraint- 'rem/7cd
Advertisin* Associates, Inc- vs- Cort of A''eals, et al-, ?-R- 6o- 79378, .ecember 2,,
198E
#) insertin* a new sentence in Sec- 228, t%e le*islatre intended to insert a new 'rovision
re*ardin* t%e form and sbstance of assessments issed b) t%e CIR-
T%e le*islatre saw t%e need to modif) t%e former Section 23/ b) insertin* t%e sentence:
0NtO%e ta+'a)ers s%all be informed in writin* of t%e law and t%e facts on w%ic% t%e
assessment is madeH ot%erwise, t%e assessment s%all be void-0 T%e fact t%at t%e
amendment was necessar) s%owed t%at, 'rior to t%e introdction of t%e amendment, t%e
statte %ad an entirel) different meanin*- T%e inserted sentence in t%e renmbered
Section 228 was not an affirmation of w%at t%e law re1ired nder t%e former Section
23/- T%e amendment introdced b) RA 8E2E was an innovation and cold not be
reasonabl) inferred from t%e old law- Clearl), t%e le*islatre intended to insert a new
'rovision re*ardin* t%e form and sbstance of assessments issed b) t%e CIR-
CIR vs- #&I, ?-R- 6o- 1BE/,2, A'ril 13, 2//3
.istinction between a Re1est for Reconsideration and a Re1est for Reinvesti*ation-
T%e distinction between a re1est for reconsideration and a re1est for reinvesti*ation is
si*nificant- It bears re'etition t%at a re1est for reconsideration, nli$e a re1est for
reinvesti*ation, cannot ss'end t%e statte of limitations on t%e collection of an assessed
ta+- If bot% t)'es of 'rotest can effectivel) interr't t%e rnnin* of t%e statte of
limitations, an erroneos assessment ma) never 'rescribe- If t%e ta+'a)er fails to file a
'rotest, t%en t%e erroneos assessment wold become final and na''ealable- On t%e
ot%er %and, if t%e ta+'a)er does file t%e 'rotest on a 'atentl) erroneos assessment, t%e
statte of limitations wold atomaticall) be ss'ended and t%e ta+ t%ereon ma) be
collected lon* after it was assessed- 4eanw%ile t%e interest on t%e deficiencies and t%e
src%ar*es contine to accmlate- And for an nrestricted nmber of )ears, t%e
ta+'a)ers remain ncertain and are brdened wit% t%e costs of 'reservin* t%eir boo$s
and records- T%is is t%e 'redicament t%at t%e law on t%e statte of limitations see$s to
'revent-
T%s, t%e t%reeG)ear statte of limitations on t%e collection of an assessed ta+ 'rovided
nder Section 2,9!c" of t%e Ta+ Code of 1933, a law enacted to 'rotect t%e interests of t%e
ta+'a)er, mst be *iven effect- In 'rovidin* for e+ce'tions to sc% rle in Section 231, t%e
law strictl) limits t%e ss'ension of t%e rnnin* of t%e 'rescri'tion 'eriod to, amon*
ot%er instances, 'rotests w%erein t%e ta+'a)er re1ests for a reinvesti*ation-
Commissioner of Internal Revene vs- &%il- ?lobal Commnication, Inc-, ?-R- 6o-
1,31E,, October B1, 2//,
T%e release, mailin* or sendin* of t%e notice mst be clearl) and satisfactoril) 'roved-
In t%e case of 6ava v- Commissioner of Internal Revene, t%is Cort stressed on t%e
im'ortance of 'rovin* t%e release, mailin* or sendin* of t%e notice: 0;%ile we %ave %eld
t%at an assessment is made w%en sent wit%in t%e 'rescribed 'eriod, even if received b)
t%e ta+'a)er after its e+'iration !Coll- of Int- Rev- vs- #atista, =G1227/ and =G12279,
4a) 23, 1979", t%is rlin* ma$es it t%e more im'erative t%at t%e release, mailin*, or
sendin* of t%e notice be clearl) and satisfactoril) 'roved- 4ere notations made wit%ot
t%e ta+'a)er(s intervention, notice, or control, wit%ot ade1ate s''ortin* evidence,
cannot sfficeH ot%erwise, t%e ta+'a)er wold be at t%e merc) of t%e revene offices,
wit%ot ade1ate 'rotection or defense-0
#arcelon, Ro+as Secrities, Inc- vs- Commissioner of Internal Revene, ?-R- 6o-
173/,E,A*st 3, 2//,
SECTION 22B Reo'er& o) Ta$ Erroneousl& or Ille*all& Colleted" # No suit or
%roeedin* s!all +e maintained in an& ourt )or t!e reo'er& o) an& national
internal re'enue ta$ !erea)ter alle*ed to !a'e +een erroneousl& or ille*all& assessed
or olleted( or o) an& %enalt& laimed to !a'e +een olleted -it!out aut!orit&( or
o) an& sum alle*ed to !a'e +een e$essi'el& or in an& manner -ron*)ull&
olleted( until a laim )or re)und or redit !as +een dul& )iled -it! t!e
Commissioner6 +ut su! suit or %roeedin* ma& +e maintained( -!et!er or not
su! ta$( %enalt&( or sum !as +een %aid under %rotest or duress"
In an& ase( no su! suit or %roeedin* s!all +e )iled a)ter t!e e$%iration o) t-o 021
&ears )rom t!e date o) %a&ment o) t!e ta$ or %enalt& re*ardless o) an& su%er'enin*
ause t!at ma& arise a)ter %a&ment2
Pro'ided( !o-e'er( T!at t!e Commissioner ma&( e'en -it!out a -ritten laim
t!ere)or( re)und or redit an& ta$( -!ere on t!e )ae o) t!e return u%on -!i!
%a&ment -as made( su! %a&ment a%%ears learl& to !a'e +een erroneousl& %aid"
Two reasons w%) a wit%%oldin* a*ent %as a le*al ri*%t to file a claim for refnd-
A wit%%oldin* a*ent %as t%e obli*ation to remit recovered ta+es to t%e 'rinci'al ta+'a)er-
Commissioner of Internal Revene vs- Far :ast #an$ P Trst Co-, ?-R- 6o- 13B87E,
4arc% 17,2/1/
T%e twoG)ear 'rescri'tive 'eriod is com'ted based on Sec- B1 of t%e Administrative
Code of 1983, not Art-1B of t%e Civil Code-
T%e rle is t%at t%e twoG)ear 'rescri'tive 'eriod is rec$oned from t%e filin* of t%e final
ad5sted retrn- #t %ow s%old t%e twoG)ear 'rescri'tive 'eriod be com'tedA #ot%
Article 1B of t%e Civil Code and Section B1, C%a'ter CIII, #oo$ I of t%e Administrative
Code of 1983 deal wit% t%e same sb5ect matter G t%e com'tation of le*al 'eriods-
9nder t%e Civil Code, a )ear is e1ivalent to B,7 da)s w%et%er it be a re*lar )ear or a
lea' )ear- 9nder t%e Administrative Code of 1983, %owever, a )ear is com'osed of 12
calendar mont%s- 6eedless to state, nder t%e Administrative Code of 1983, t%e nmber
of da)s is irrelevant- T%ere obviosl) e+ists a manifest incom'atibilit) in t%e manner of
com'tin* le*al 'eriods nder t%e Civil Code and t%e Administrative Code of 1983- For
t%is reason, we %old t%at Section B1, C%a'ter CIII, #oo$ I of t%e Administrative Code of
1983, bein* t%e more recent law, *overns t%e com'tation of le*al 'eriods- =e+ 'osteriori
dero*at 'riori-
CIR vs- &rimetown &ro'ert) ?ro', Inc-, ?-R- 6o- 1,2177, A*st 28, 2//3
Ta+ refnds are strictl) constred a*ainst t%e 'erson claimin* t%e e+em'tion-
Ta+ refnds are in t%e natre of ta+ e+em'tions- As sc%, t%ese are re*arded as in
dero*ation of soverei*n at%orit) and are to be strictl) constred a*ainst t%e 'erson or
entit) claimin* t%e e+em'tion- T%e brden of 'roof is 'on %im w%o claims t%e e+em'tion
and %e mst be able to 5stif) %is claim b) t%e clearest *rant nder Constittional or
stattor) law, and %e cannot be 'ermitted to rel) 'on va*e im'lications-
#&I =easin* Cor'- vs- Cort of A''eals, et al-, ?-R- 6o- 123,2E, 6ovember 18, 2//B
T%e State mst observe fairness and %onest) in refndin* e+cess ta+ 'a)ments-
Tec%nicalities and le*alisms, %owever e+alted, s%old not be missed b) t%e State to $ee'
mone) not belon*in* to it- If it e+'ects its ta+'a)ers to observe fairness and %onest) in
'a)in* t%eir ta+es, it mst a''l) t%e same standard a*ainst itself in refndin* e+cess
'a)ments of sc% ta+es- It s%old not enric% oneself at t%e e+'ense of anot%er-
A# =easin* and Finance Cor'- vs- Commissioner of Internal Revene, ?-R- 6o- 1B8BE2,
2l) 8,2//B
T%e Ombdsman %as 'ower to investi*ate w%en t%ere is a tin*e of im'ro'riet) in t%e
*rant of ta+ refnds-
T%e 'ower to investi*ate and to 'rosecte w%ic% was *ranted b) law to t%e Ombdsman
is 'lenar) and n1alified- T%e Ombdsman Act ma$es it 'erfectl) clear t%at t%e
5risdiction of t%e Ombdsman encom'asses 0all $inds of malfeasance, misfeasance and
nonfeasance t%at %ave been committed b) an) officer or em'lo)ee - - - drin* %is tenre
of office- Concededl), t%e determination of w%et%er to *rant a ta+ refnd falls wit%in t%e
e+clsive e+'ertise of t%e #IR- 6onet%eless, w%en t%ere is a ss'icion of even 5st a tin*e
of im'ro'riet) in t%e *rant of t%e same, t%e Ombdsman cold ri*%tfll) ascertain
w%et%er t%e determination was done in accordance wit% law and identif) t%e 'ersons w%o
ma) be %eld res'onsible t%ereto- In t%at sense, t%e Ombdsman cold not be accsed of
nlawfll) intrdin* into and intervenin* wit% t%e #IR(s e+ercise of discretion- Indeed,
t%e clase 0an) Nille*alO act or omission of an) 'blic official0 is broad eno*% to
embrace an) crime committed b) a 'blic official- T%e law does not 1alif) t%e natre of
t%e ille*al act or omission of t%e 'blic official or em'lo)ee t%at t%e Ombdsman ma)
investi*ate- It does not re1ire t%at t%e act or omission be related to or be connected wit%
or arise from t%e 'erformance of official dt)-
#rea of Internal Revene vs- Office of t%e Ombdsman, ?-R- 6o- 1171/B, A'ril 11,
2//2
Re1irements for t%e recover) of an) national internal revene ta+ assessed or collected-
Section 2B/ of t%e 6ational Internal Revene Code 'recldes an) sit or 'roceedin* from
bein* maintained in an) cort for t%e recover) of an) national internal revene ta+
alle*ed to %ave been erroneosl) or ille*all) assessed or collected, or of an) 'enalt)
claimed to %ave been collected wit%ot at%orit), or of an) sm said to %ave been
e+cessive or in an) manner wron*fll) collected nless !a" a written claim for t%e refnd
or credit t%ereof %as been dl) filed wit% t%e Commissioner and !b" t%e sit or 'roceedin*
s%all %ave been institted wit%in two )ears from t%e date of 'a)ment of t%e ta+ or 'enalt)
re*ardless of an) s'ervenin* case t%at mi*%t arise after sc% 'a)ment !revo$in* t%e
rle annonced in Commissioner vs- 6ational &ower Cor'oration, and Commissioner vs-
Cictorias 4illin* Com'an)"-
Commissioner of Internal Revene vs- &%ili''ine American =ife Insrance Co-, et al-,
?-R- 6o- 1/72/8, 4a) 29, 1997
T%e twoG)ear 'eriod is not 5risdictional and ma) be ss'ended nder e+ce'tional
circmstances-
T%e twoG)ear 'eriod is a limitation of action not onl) in sbmittin* t%e written claim for
t%e refnd of t%e ta+ to t%e Commissioner bt li$ewise in filin* t%e case !a''eal" wit% t%e
Cort of Ta+ A''eals !w%ic% %as 5risdiction t%ereover e+clsive of t%e re*lar corts"-
T%is twoG)ear 'eriod, nli$e t%e t%irt)Gda) 'eriod of a''eal from t%e decision of t%e
Commissioner, is not 5risdictional and it ma) t%ereb) be ss'ended nder e+ce'tional
circmstances- T%is twoG)ear 'rescri'tive 'eriod is intended to a''l) to sits or
'roceedin*s for t%e recover) of ta+es, 'enalties or sms erroneosl), e+cessivel), ille*all)
or wron*fll) collectedH accordin*l), an availment of a ta+ credit *ranted b) law ma)
%ave a different 'rescri'tive 'eriod- Absent an) s'ecific 'rovision in t%e Ta+ Code or
s'ecial laws t%at 'eriod wold be ten )ears nder Article 11EE of t%e Civil Code-
Commissioner of Internal Revene vs- &%ili''ine American =ife Insrance Co-, et al-,
?-R- 6o- 1/72/8, 4a) 29, 1997
;%en twoG)ear 'rescri'tive 'eriod commences to rn-
T%e twoG)ear 'rescri'tive 'eriod wit%in w%ic% to claim a refnd commences to rn, at t%e
earliest, on t%e date of t%e filin* of t%e ad5sted final ta+ retrn-
ACCRA Investments Cor'- vs- Cort of A''eals, ?-R- 6o- 9,B22, .ecember 2/, 1991
Rationale in com'tin* t%e twoG)ear 'rescri'tive 'eriod-
It bears em'%asis t%at t%e rationale in com'tin* t%e twoG)ear 'rescri'tive 'eriod wit%
res'ect to t%e ta+'a)er(s claim for refnd from t%e time it filed its final ad5stment retrn
is t%e fact t%at it was onl) t%en t%at ACCRAI6 cold ascertain w%et%er it made 'rofits or
incrred losses in its bsiness o'erations- T%e 0date of 'a)ment0, t%erefore, in
ACCRAI6(s case was w%en its ta+ liabilit), if an), fell de 'on its filin* of its final
ad5stment retrn on A'ril 17, 1982-
ACCRA Investments Cor'- vs- Cort of A''eals, ?-R- 6o- 9,B22, .ecember 2/, 1991
T%e *overnment mst follow t%e same rles of 'rocedre w%ic% bind 'rivate 'arties
T%e #IR s%old not be allowed to defeat an ot%erwise valid claim for refnd b) raisin*
t%e 1estion of alle*ed inca'acit) of t%e ta+'a)er to file an action for refnd or ta+
credit, for t%e first time on a''eal before t%e S'reme Cort- T%is is clearl) a matter of
'rocedre- &etitioner does not 'retend t%at &P?G&%il-, s%old it scceed in t%e claim for
refnd, is li$el) to rn awa), as it were, wit% t%e refnd instead of transmittin* sc%
refnd or ta+ credit to its 'arent and sole stoc$%older- It is common'lace t%at in t%e
absence of e+'licit stattor) 'rovisions to t%e contrar), t%e *overnment mst follow t%e
same rles of 'rocedre w%ic% bind 'rivate 'arties-
Commissioner of Internal Revene vs- &rocter P ?amble &%il-, ?-R- 6o- ,,8B8,
.ecember 2, 1991
;%en 'eriod of 'rescri'tion starts-
;%en t%e ta+ so*%t to be refnded is ille*all) or erroneosl) collected, t%e 'eriod of
'rescri'tion starts from t%e date t%e ta+ was 'aidH bt w%en t%e ta+ is le*all) collected,
t%e 'rescri'tive 'eriod commences to rn from t%e date of occrrence of t%e s'ervenin*
case w%ic% *ave rise to t%e ri*%t of refnd-
Commissioner of Internal Revene vs- Cictorias 4illin* Co-, Inc-, et al-, ?-R- 6o- =G
2E1/8, 2anar) B, 19,8
Failre to institte action wit%in 2 )ears after 'a)ment of ta+ bars ta+'a)er from
recover) of t%e same-
T%e ta+'a)er(s failre to com'l) wit% t%e re1irement re*ardin* t%e instittion of t%e
action or 'roceedin* in cort wit%in 2 )ears after t%e 'a)ment of t%e ta+es bars %im from
t%e recover) of t%e same, irres'ective of w%et%er a claim for t%e refnd of sc% ta+es filed
wit% t%e Collector of Internal Revene is still 'endin* action of t%e latter-
Colle*e of Oral P .ental Sr*er) vs- Cort of Ta+ A''eals, et al-, ?-R- 6o- =G1/EE,,
2anar) 28, 1978
Rationale for re1irin* ta+'a)er to sbmit a claim for refnd before resortin* to corts-
T%e law clearl) sti'lates t%at after 'a)in* t%e ta+, t%e citiJen mst sbmit a claim for
refnd before resortin* to t%e corts- T%e idea 'robabl) is, first, to afford t%e collector an
o''ortnit) to correct t%e action of sbordinate officersH and second, to notif) t%e
?overnment t%at sc% ta+es %ave been 1estioned, and t%e notice s%old t%en be borne in
mind in estimatin* t%e revene available for e+'enditre- &revios ob5ections to t%e ta+
ma) not ta$e t%e 'lace of t%at claim for refnd, becase t%ere ma) be some reason to
believe t%at, in 'a)in*, t%e ta+'a)er %as finall) come to realiJe t%e validit) of t%e
assessment- An)wa), strict com'liance wit% t%e conditions im'osed for t%e retrn of
revene corrected is a doctrine consistentl) a''lied %ere and in t%e 9nited States-
Santia*o 4- #erme5o vs- Collector of Internal Revene, ?-R- 6o- =GB/29, 2l) 27, 197/
Two reasons w%) a wit%%oldin* a*ent %as a le*al ri*%t to file a claim for refnd-
A wit%%oldin* a*ent %as a le*al ri*%t to file a claim for refnd for two reasons- First, %e
is considered a 0ta+'a)er0 nder t%e 6IRC as %e is 'ersonall) liable for t%e wit%%oldin*
ta+ as well as for deficienc) assessments, src%ar*es, and 'enalties, s%old t%e amont of
t%e ta+ wit%%eld be finall) fond to be less t%an t%e amont t%at s%old %ave been
wit%%eld nder law- Second, as an a*ent of t%e ta+'a)er, %is at%orit) to file t%e
necessar) income ta+ retrn and to remit t%e ta+ wit%%eld to t%e *overnment im'liedl)
incldes t%e at%orit) to file a claim for refnd and to brin* an action for recover) of
sc% claim-
Commissioner of Internal Revene vs- Smart Commnication, Inc-, ?-R- 6os- 139/E7GE,,
A*st 27, 2/1/, citin* Commissioner of Internal Revene v- &rocter P ?amble &%il-
4f*- Cor'-, ?-R- 6o- ,,8B8, .ecember 2, 1991
A wit%%oldin* a*ent %as t%e obli*ation to remit recovered ta+es to t%e 'rinci'al ta+'a)er-
;%ile t%e wit%%oldin* a*ent %as t%e ri*%t to recover t%e ta+es erroneosl) or ille*all)
collected, %e nevert%eless %as t%e obli*ation to remit t%e same to t%e 'rinci'al ta+'a)er-
As an a*ent of t%e ta+'a)er, it is %is dt) to retrn w%at %e %as recoveredH ot%erwise, %e
wold be n5stl) enric%in* %imself at t%e e+'ense of t%e 'rinci'al ta+'a)er from w%om
t%e ta+es were wit%%eld, and from w%om %e derives %is le*al ri*%t to file a claim for
refnd-Commissioner of Internal Revene vs- Smart Commnication, Inc-, ?-R- 6os-
139/E7GE,, A*st 27, 2/1/
SECTION 2.0 For)eiture o) Cas! Re)und and o) Ta$ Credit" #
0A1 For)eiture o) Re)und" # A re)und !e, or -arrant issued in aordane -it!
t!e %ertinent %ro'isions o) t!is Code( -!i! s!all remain unlaimed or unas!ed
-it!in )i'e 0>1 &ears )rom t!e date t!e said -arrant or !e, -as mailed or
deli'ered( s!all +e )or)eited in )a'or o) t!e Go'ernment and t!e amount t!ereo)
s!all re'ert to t!e *eneral )und"
0;1 For)eiture o) Ta$ Credit" # A ta$ redit erti)iate issued in aordane -it!
t!e %ertinent %ro'isions o) t!is Code( -!i! s!all remain unutili<ed a)ter )i'e 0>1
&ears )rom t!e date o) issue( s!all( unless re'alidated( +e onsidered in'alid( and
s!all not +e allo-ed as %a&ment )or internal re'enue ta$ lia+ilities o) t!e ta$%a&er(
and t!e amount o'ered +& t!e erti)iate s!all re'ert to t!e *eneral )und"
0C1 Transitor& Pro'ision" # For %ur%oses o) t!e %reedin* Su+setion( a ta$ redit
erti)iate issued +& t!e Commissioner or !is dul& aut!ori<ed re%resentati'e %rior
to Canuar& 5( 5BBA( -!i! remains unutili<ed or !as a redita+le +alane as o) said
date( s!all +e %resented )or re'alidation -it! t!e Commissioner or !is dul&
aut!ori<ed re%resentati'e or on +e)ore Cune .0( 5BBA"
Commissioner of Internal Revene is dt)Gbond to determine t%e veracit) of claims for
refnd-
9nder Section 2B/ of t%e 6IRC and Section 1/ of Revene Re*lation 6o- 12G8E, t%e CIR
is *iven t%e 'ower to *rant a ta+ credit or refnd even wit%ot a written claim t%erefor, if
t%e former determines from t%e face of t%e retrn t%at 'a)ment %ad clearl) been
erroneosl) made- :videntl), t%e CIR(s fnction is not merel) to receive t%e claims for
refnd bt it is also *iven t%e 'ositive dt) to determine t%e veracit) of sc% claim-
Filinvest .evelo'ment Cor'- vs- CIR, ?-R- 6o- 1E,9E1, A*st 9, 2//3
SECTION 2.5 Ation to Contest For)eiture o) C!attel" # In ase o) t!e sei<ure
o) %ersonal %ro%ert& under laim o) )or)eiture( t!e o-ner desirin* to ontest t!e
'alidit& o) t!e )or)eiture ma&( at an& time +e)ore sale or destrution o) t!e %ro%ert&(
+rin* an ation a*ainst t!e %erson sei<in* t!e %ro%ert& or !a'in* %ossession t!ereo)
to reo'er t!e same( and u%on *i'in* %ro%er +ond( ma& en7oin t!e sale6 or a)ter t!e
sale and -it!in si$ 0=1 mont!s( !e ma& +rin* an ation to reo'er t!e net %roeeds
reali<ed at t!e sale"
TITLE IDCom%liane Re8uirements
CHAPTER I Eee%in* o) ;oo,s o) Aounts and Reords
SECTION 2.2 Eee%in* o) ;oo,s o) Aounts
0A1 Cor%orations( Com%anies( Partners!i%s or Persons Re8uired to Eee% ;oo,s o)
Aounts" # All or%orations( om%anies( %artners!i%s or %ersons re8uired +& la-
to %a& internal re'enue ta$es s!all ,ee% a 7ournal and a led*er or t!eir e8ui'alents2
Pro'ided( !o-e'er( T!at t!ose -!ose 8uarterl& sales( earnin*s( reei%ts( or out%ut
do not e$eed Fi)t& t!ousand %esos 0P>0(0001 s!all ,ee% and use sim%li)ied set o)
+oo,,ee%in* reords dul& aut!ori<ed +& t!e Seretar& o) Finane -!erein all
transations and results o) o%erations are s!o-n and )rom -!i! all ta$es due t!e
Go'ernment ma& readil& and auratel& +e asertained and determined an& time o)
t!e &ear2
Pro'ided( )urt!er( T!at or%orations( om%anies( %artners!i%s or %ersons -!ose
*ross 8uarterl& sales( earnin*s( reei%ts or out%ut e$eed One !undred )i)t&
t!ousand %esos 0P5>0(0001( s!all !a'e t!eir +oo,s o) aounts audited and
e$amined &earl& +& inde%endent Certi)ied Pu+li Aountants and t!eir inome ta$
returns aom%anied -it! a dul& aom%lis!ed Aount In)ormation Form 0AIF1
-!i! s!all ontain( amon* ot!ers( in)ormation li)ted )rom erti)ied +alane s!eets(
%ro)it and loss statements( s!edules listin* inome3%roduin* %ro%erties and t!e
orres%ondin* inome t!ere)rom and ot!er rele'ant statements"
R:C:69: R:?9=ATIO6S 6O- //9G/9 .ecember 2B, 2//9 Re*lations
to define t%e re1irements, obli*ations and res'onsibilities im'osed on ta+'a)ers for
electronic record $ee'in* and maintenance, retention and sbmission of electronic boo$s
of acconts, electronic records, and ot%er sorces of information
R:C:69: R:?9=ATIO6S 6O- /17G1/ 6ovember 27, 2/1/
6otes to Financial Statements in t%e Income Ta+ Retrns s%all inclde information on
ta+es, dties and license fees 'aid or accred drin* t%e ta+able )ear, 'articlarl) t%e
followin*:
1- T%e amont of CAT ot't ta+ declared drin* t%e )ear and t%e accont title and
amontRs 'on w%ic% t%e same was based- If t%ere are JeroGrated salesRrecei'ts andRor
e+em't salesRrecei'ts, a statement to t%at effect and t%e le*al basis t%ereforH
2- T%e amont of CAT In't ta+es claimed bro$en down into:
a- #e*innin* of t%e )earH
b- Crrent )ear(s domestic 'rc%asesR'a)ments for:
i- ?oods for resaleRmanfactre or frt%er 'rocessin*
ii- ?oods ot%er t%an for resale or manfactre
iii- Ca'ital *oods sb5ect to amortiJation
iv- Ca'ital *oods not sb5ect to amortiJation
v- Services lod*ed nder cost of *oods sold
vi- Services lod*ed nder ot%er accontsH
c- Claims for ta+ creditRrefnd and ot%er ad5stmentsH and
d- #alance at t%e end of t%e )ear-
B- T%e landed cost of im'orts and t%e amont of cstoms dties and tariff fees 'aid
or accred t%ereonH
E- T%e amont of e+cise ta+Res, classified 'er ma5or 'rodct cate*or), i-e-, tobacco
'rodcts, alco%ol 'rodcts, atomobiles, minerals, oil and 'etrolem, etc- 'aid on T
a- =ocall) 'rodced e+cisable items, and
b- Im'orted e+cisable items-
7- .ocmentar) stam' ta+ !.ST" on loan instrments, s%ares of stoc$ and ot%er
transactions sb5ect t%eretoH
,- All ot%er ta+es, local and national, incldin* real estate ta+es, license and 'ermit
fees lod*ed nder t%e Ta+es and =icenses accont bot% nder t%e Cost of Sales and
O'eratin* :+'ense accontsH
3- T%e amont of wit%%oldin* ta+es cate*oriJed into:
i- Ta+ on com'ensation and benefits
ii- Creditable wit%%oldin* ta+Res
iii- Final wit%%oldin* ta+Res
8- &eriods covered and amontRs of deficienc) ta+ assessments, w%et%er 'rotested or
notH
9- Ta+ cases, and amonts involved, nder 'reliminar) investi*ation, liti*ation
andRor 'rosection in corts or bodies otside t%e #IR-0
R:C:69: R:?9=ATIO6S 6O- /8G/3 2l) B, 2//3
Additional Com'liance Re1irements of Concerned Ta+'a)ers in t%e =i*%t of 4andator)
Ado'tion of t%e &%ili''ine Financial Re'ortin* Standards in Recordin* and &resentin*
#siness Transactions and Reslts- T T%e &%ili''ines %as ado'ted t%e International
Financial Re'ortin* Standards !IFRS" as t%e &%ili''ine Financial Re'ortin* Standards
!&FRS" t%at s%old be observed b) bi* cor'orate ta+'a)ers in t%e recordin* of t%eir
bsiness transactions and 're'aration of Financial Statements startin* )ear 2//7- 9nder
t%e &FRS, t%e recordin* and t%e reco*nition of bsiness transactions for financial
accontin* 'r'oses, in a ma5orit) of sitations, differ from t%e a''lication of ta+ rles
on t%e same transactions resltin* to dis'arit) of re'orts for financial accontin* visGaG
vis ta+ accontin*- 8ence, t%ere is a need to reconcile t%e dis'arit) in a s)stematic and
clear manner to avoid irritants between t%e ta+'a)er and t%e ta+ enforcer- Accordin*l),
concerned ta+'a)ers are %ereb) mandated to maintain boo$s and records t%at wold
reflect t%e reconcilin* items between Financial Statements fi*res andRor data wit% t%ose
reflectedR'resented in t%e filed Income Ta+ Retrn !ITR"- T%e recordin* and 'resentation
of t%e reconcilin* items in sc% boo$s and records s%all be done in sc% a manner t%at
wold facilitate t%e nderstandin* b) t%e e+aminersRaditors of t%e #rea of Internal
Revene tas$ed to nderta$e aditRinvesti*ation fnctions, 'rovidin* in sfficient detail
t%e com'tation of t%e differences and t%e reasons t%erefor aimed at brin*in* into
a*reement t%e &FRS and ITR fi*res-
R:C:69: R:?9=ATIO6S 6O- /3G/3 2l) 9, 2//3
Amended Certain &rovisions of Revene Re*lations 6o- 21G2//2, Im'lementin* Section
, !8" of t%e Ta+ Code of 1993, At%oriJin* t%e Commissioner of Internal Revene to
&rescribe Additional &rocedral andRor .ocmentar) Re1irements in Connection wit%
t%e &re'aration and Sbmission of Financial Statements Accom'an)in* t%e Ta+ Retrns
Contents and Format of Financial Statements to be Attac%ed to t%e Annal Income Ta+
Retrn or Information Retrn- T T%e Financial Statements wit% accom'an)in* Aditor(s
Certificate attac%ed to t%e Annal Income Ta+ Retrn, or Annal Information Retrn for
ta+Ge+em't 'ersons, as t%e case ma) be, to be filed wit% t%e #rea of Internal Revene,
t%r its collection a*ents incldin* Accredited A*ent #an$s, s%all 'resentRstate t%e
acconts t%erein in a ver) descri'tive fas%ion sc% t%at t%e natre of t%e s'ecific
transactions entered in t%e acconts are $nown to t%e reader- T%e accont titles to be
sed mst be s'ecific and not control acconts w%ic% mst be com'letel) enmerated in
t%e financial statements and t%ese acconts mst conform to t%e basic framewor$ of t%e
financial re'ortin* standards 'roml*ated b) t%e Financial Re'ortin* Standards Concil
!FRSC" of t%e &%ili''ines w%ic% are t%e ?enerall) Acce'ted Accontin* &rinci'les in t%e
&%ili''ines w%ic% inclde &%ili''ine Accontin* Standards !&AS" and &%ili''ine
Financial Re'ortin* Standards !&FRS" and t%e refinements introdced t%ereon in res'ect
to certain t)'es of indstries as well as to t%e rles and re1irements of re*lator)
a*encies t%at %ave s'ervision over t%em sc% as t%e Secrities and :+c%an*e
Commission !S:C", #an*$o Sentral n* &ili'inas !#S&", Insrance Commission !IC", etc-
0;1 Inde%endent Certi)ied Pu+li Aountant De)ined" # T!e term @Inde%endent
Certi)ied Pu+li Aountant(@ as used in t!e %reedin* %ara*ra%!( means an
aountant -!o %ossesses t!e inde%endene as de)ined in t!e rules and re*ulations
o) t!e ;oard o) Aountan& %romul*ated %ursuant to Presidential Deree No" =B2(
ot!er-ise ,no-n as t!e Re'ised Aountan& La-"
SECTION 2.. Su+sidiar& ;oo,s" # All or%orations( om%anies( %artners!i%s
or %ersons ,ee%in* t!e +oo,s o) aounts mentioned in t!e %reedin* Setion ma&(
at t!eir o%tion( ,ee% su+sidiar& +oo,s as t!e needs o) t!eir +usiness ma& re8uire2
Pro'ided( T!at -!ere su! su+sidiaries are ,e%t( t!e& s!all )orm %art o) t!e
aountin* s&stem o) t!e ta$%a&er and s!all +e su+7et to t!e same rules and
re*ulations as to t!eir ,ee%in*( translation( %rodution and ins%etion as are
a%%lia+le to t!e 7ournal and t!e led*er"
SECTION 2.4 Lan*ua*e in -!i! ;oo,s are to +e Ee%t6 Translation" # All su!
or%orations( om%anies( %artners!i%s or %ersons s!all ,ee% t!e +oo,s or reords
mentioned in Setion 2.2 !ereo) in a nati'e lan*ua*e( En*lis! or S%anis!2
Pro'ided( !o-e'er( T!at i) in addition to said +oo,s or reords t!e ta$%a&er ,ee%s
ot!er +oo,s or reords in a lan*ua*e ot!er t!an a nati'e lan*ua*e( En*lis! or
S%anis!( !e s!all ma,e a true and om%lete translation o) all t!e entries in su!
ot!er +oo,s or reords into a nati'e lan*ua*e( En*lis! or S%anis!( and t!e said
translation must +e made +& t!e +oo,,ee%er( or su! ta$%a&er( or in !is a+sene( +&
!is mana*er and must +e erti)ied under oat! as to its orretness +& t!e said
+oo,,ee%er or mana*er( and s!all )orm an inte*ral %art o) t!e a)oresaid +oo,s o)
aounts" T!e ,ee%in* o) su! +oo,s or reords in an& lan*ua*e ot!er t!an a nati'e
lan*ua*e( En*lis! or S%anis!( is !ere+& %ro!i+ited"
SECTION 2.> Preser'ation o) ;oo,s o) Aounts and Ot!er Aountin*
Reords" # All t!e +oo,s o) aounts( inludin* t!e su+sidiar& +oo,s and ot!er
aountin* reords o) or%orations( %artners!i%s( or %ersons( s!all +e %reser'ed +&
t!em )or a %eriod +e*innin* )rom t!e last entr& in ea! +oo, until t!e last da&
%resri+ed +& Setion 20. -it!in -!i! t!e Commissioner is aut!ori<ed to ma,e
an assessment" T!e said +oo,s and reords s!all +e su+7et to e$amination and
ins%etion +& internal re'enue o))iers2 Pro'ided( T!at )or inome ta$ %ur%oses(
su! e$amination and ins%etion s!all +e made onl& one in a ta$a+le &ear( e$e%t
in t!e )ollo-in* ases2
0a1 Fraud( irre*ularit& or mista,es( as determined +& t!e Commissioner6
0+1 T!e ta$%a&er re8uests rein'esti*ation6
01 Feri)iation o) om%liane -it! -it!!oldin* ta$ la-s and re*ulations6
0d1 Feri)iation o) a%ital *ains ta$ lia+ilities6 and
0e1 In t!e e$erise o) t!e Commissioner@s %o-er under Setion >0;1 to o+tain
in)ormation )rom ot!er %ersons in -!i! ase( anot!er or se%arate e$amination and
ins%etion ma& +e made" E$amination and ins%etion o) +oo,s o) aounts and
ot!er aountin* reords s!all +e done in t!e ta$%a&er@s o))ie or %lae o) +usiness
or in t!e o))ie o) t!e ;ureau o) Internal Re'enue"
All or%orations( %artners!i%s or %ersons t!at retire )rom +usiness s!all( -it!in ten
0501 da&s )rom t!e date o) retirement or -it!in su! %eriod o) time as ma& +e
allo-ed +& t!e Commissioner in s%eial ases( su+mit t!eir +oo,s o) aounts(
inludin* t!e su+sidiar& +oo,s and ot!er aountin* reords to t!e Commissioner
or an& o) !is de%uties )or e$amination( a)ter -!i! t!e& s!all +e returned"
Cor%orations and %artners!i%s ontem%latin* dissolution must noti)& t!e
Commissioner and s!all not +e dissol'ed until leared o) an& ta$ lia+ilit&"
An& %ro'ision o) e$istin* *eneral or s%eial la- to t!e ontrar& not-it!standin*(
t!e +oo,s o) aounts and ot!er %ertinent reords o) ta$3e$em%t or*ani<ations or
*rantees o) ta$ inenti'es s!all +e su+7et to e$amination +& t!e ;ureau o) Internal
Re'enue )or %ur%oses o) asertainin* om%liane -it! t!e onditions under -!i!
t!e& !a'e +een *ranted ta$ e$em%tions or ta$ inenti'es( and t!eir ta$ lia+ilit&( i)
an&"
CHAPTER II
Administrati'e Pro'isions
SECTION 2.="Re*istration Re8uirements" #
0A1 Re8uirements" # E'er& %erson su+7et to an& internal re'enue ta$ s!all
re*ister one -it! t!e a%%ro%riate Re'enue Distrit O))ier2
G051 :it!in ten 0501 da&s )rom date o) em%lo&ment( or
G021 On or +e)ore t!e ommenement o) +usiness( or
G0.1 ;e)ore %a&ment o) an& ta$ due( or
G041 /%on )ilin* o) a return( statement or delaration as re8uired in t!is Code"
T!e re*istration s!all ontain t!e ta$%a&er@s name( st&le( %lae o) residene(
+usiness( and su! ot!er in)ormation as ma& +e re8uired +& t!e Commissioner in
t!e )orm %resri+ed t!ere)or"
A %erson maintainin* a !ead o))ie( +ran! or )ailit& s!all re*ister -it! t!e
Re'enue Distrit O))ier !a'in* 7urisdition o'er t!e !ead o))ie( +ran! or )ailit&"
For %ur%oses o) t!is Setion( t!e term @)ailit&@ ma& inlude +ut not +e limited to
sales outlets( %laes o) %rodution( -are!ouses or stora*e %laes"
R:C:69: R:?9=ATIO6S 6O- //7G1/ 4a) 27, 2/1/Issance of TI6 Card and t%e
Transfer of Re*istration
R:C:69: R:?9=ATIO6S 6O- /11G/8 A*st 17, 2//8Consolidated Revene
Re*lations on Ta+'a)ers &rimar) Re*istration, Its 9'dates, and Cancellation
0;1 Annual Re*istration Fee" # An annual re*istration )ee in t!e amount o) Fi'e
!undred %esos 0P>001 )or e'er& se%arate or distint esta+lis!ment or %lae o)
+usiness( inludin* )ailit& t&%es -!ere sales transations our( s!all +e %aid u%on
re*istration and e'er& &ear t!erea)ter on or +e)ore t!e last da& o) Canuar&2
Pro'ided( !o-e'er( T!at oo%erati'es( indi'iduals earnin* %urel& om%ensation
inome( -!et!er loall& or a+road( and o'erseas -or,ers are not lia+le to t!e
re*istration )ee !erein im%osed"
T!e re*istration )ee s!all +e %aid to an aut!ori<ed a*ent +an, loated -it!in t!e
re'enue distrit( or to t!e Re'enue Colletion O))ier( or dul& aut!ori<ed Treasurer
o) t!e it& or munii%alit& -!ere ea! %lae o) +usiness or +ran! is re*istered"
0C1 Re*istration o) Ea! T&%e o) Internal Re'enue Ta$" # E'er& %erson -!o is
re8uired to re*ister -it! t!e ;ureau o) Internal Re'enue under Su+setion 0A1
!ereo)( s!all re*ister ea! t&%e o) internal re'enue ta$ )or -!i! !e is o+li*ated(
s!all )ile a return and s!all %a& su! ta$es( and s!all u%date su! re*istration o) an&
!an*es in aordane -it! Su+setion 0E1 !ereo)"
0D1 Trans)er o) Re*istration" # In ase a re*istered %erson deides to trans)er !is
%lae o) +usiness or !is !ead o))ie or +ran!es( it s!all +e !is dut& to u%date !is
re*istration status +& )ilin* an a%%liation )or re*istration in)ormation u%date in t!e
)orm %resri+ed t!ere)or"
0E1 Ot!er /%dates" # An& %erson re*istered in aordane -it! t!is Setion
s!all( -!ene'er a%%lia+le( u%date !is re*istration in)ormation -it! t!e Re'enue
Distrit O))ie -!ere !e is re*istered( s%ei)&in* t!erein an& !an*e in ta$ t&%e and
ot!er ta$%a&er details"
0F1 Canellation o) Re*istration" #
051 General Rule" # T!e re*istration o) an& %erson -!o eases to +e lia+le to a
ta$ t&%e s!all +e anelled u%on )ilin* -it! t!e Re'enue Distrit O))ie -!ere !e is
re*istered( an a%%liation )or re*istration in)ormation u%date in a )orm %resri+ed
t!ere)or6
021 Canellation o) Falue3added Ta$ Re*istration" # A FAT3re*istered %erson
ma& anel !is re*istration )or FAT i)2
G0a1 He ma,es -ritten a%%liation and an demonstrate to t!e Commissioner@s
satis)ation t!at !is *ross sales or reei%ts )or t!e )ollo-in* t-el'e 0521 mont!s(
ot!er t!an t!ose t!at are e$em%t under Setion 50B0A1 to 0/1( -ill not e$eed One
million )i'e !undred t!ousand %esos 0P5(>00(0001( or
G0+1 He !as eased to arr& on !is trade or +usiness( and does not e$%et to
reommene an& trade or +usiness -it!in t!e ne$t t-el'e 0521 mont!s"
T!e anellation o) re*istration -ill +e e))eti'e )rom t!e )irst da& o) t!e )ollo-in*
mont!"
0G1 Persons Re8uired to Re*ister )or Falue3added Ta$" #
051 An& %erson -!o( in t!e ourse o) trade or +usiness( sells( +arters or
e$!an*es *oods or %ro%erties( or en*a*es in t!e sale or e$!an*e o) ser'ies( s!all
+e lia+le to re*ister )or 'alue3added ta$ i)2
G0a1 His *ross sales or reei%ts )or t!e %ast t-el'e 0521 mont!s( ot!er t!an t!ose
t!at are e$em%t under Setion 50B0A1 to 0/1( !a'e e$eeded One million )i'e
!undred t!ousand %esos 0P5(>00(00016 or
G0+1 T!ere are reasona+le *rounds to +elie'e t!at !is *ross sales or reei%ts )or
t!e ne$t t-el'e 0521 mont!s( ot!er t!an t!ose t!at are e$em%t under Setion
50B0A1 to 0/1( -ill e$eed One million )i'e !undred t!ousand %esos 0P5(>00(0001"
021 E'er& %erson -!o +eomes lia+le to +e re*istered under %ara*ra%! 051 o) t!is
Su+setion s!all re*ister -it! t!e Re'enue Distrit O))ie -!i! !as 7urisdition
o'er t!e !ead o))ie or +ran! o) t!at %erson( and s!all %a& t!e annual re*istration
)ee %resri+ed in Su+setion 0;1 !ereo)" I) !e )ails to re*ister( !e s!all +e lia+le to
%a& t!e ta$ under Title IF as i) !e -ere a FAT3re*istered %erson( +ut -it!out t!e
+ene)it o) in%ut ta$ redits )or t!e %eriod in -!i! !e -as not %ro%erl& re*istered"
0H1 O%tional Re*istration )or Falue3added Ta$ o) E$em%t Person" #
051 An& %erson -!o is not re8uired to re*ister )or 'alue3added ta$ under
Su+setion 0G1 !ereo) ma& elet to re*ister )or 'alue3added ta$ +& re*isterin* -it!
t!e Re'enue Distrit O))ie t!at !as 7urisdition o'er t!e !ead o))ie o) t!at %erson(
and %a&in* t!e annual re*istration )ee in Su+setion 0;1 !ereo)"
021 An& %erson -!o elets to re*ister under t!is Su+setion s!all not +e entitled
to anel !is re*istration under Su+setion 0F1021 )or t!e ne$t t!ree 0.1 &ears"
For %ur%oses o) Title IF o) t!is Code( an& %erson -!o !as re*istered 'alue3added
ta$ as a ta$ t&%e in aordane -it! t!e %ro'isions o) Su+setion 0C1 !ereo) s!all
+e re)erred to as a @FAT3re*istered %erson@ -!o s!all +e assi*ned onl& one Ta$%a&er
Identi)iation Num+er 0TIN1"
0I1 Su%%l&in* o) Ta$%a&er Identi)iation Num+er 0TIN1" # An& %erson re8uired
under t!e aut!orit& o) t!is Code to ma,e( render or )ile a return( statement or ot!er
doument s!all +e su%%lied -it! or assi*ned a Ta$%a&er Identi)iation Num+er
0TIN1 -!i! !e s!all indiate in su! return( statement or doument )iled -it! t!e
;ureau o) Internal Re'enue )or !is %ro%er identi)iation )or ta$ %ur%oses( and
-!i! !e s!all indiate in ertain douments( su! as( +ut not limited to( t!e
)ollo-in*2
G051 Su*ar 8uedans( re)ined su*ar release order or similar instruments6
G021 Domesti +ills o) ladin*6
G0.1 Douments to +e re*istered -it! t!e Re*ister o) Deeds or Assessor@s O))ie6
G041 Re*istration erti)iate o) trans%ortation e8ui%ment +& land( sea or air6
G0>1 Douments to +e re*istered -it! t!e Seurities and E$!an*e Commission6
G0=1 ;uildin* onstrution %ermits6
G0?1 A%%liation )or loan -it! +an,s( )inanial institutions( or ot!er )inanial
intermediaries6
G0A1 A%%liation )or ma&or@s %ermit6
G0B1 A%%liation )or +usiness liense -it! t!e De%artment o) Trade and Industr&6
and
G0501 Su! ot!er douments -!i! ma& !erea)ter +e re8uired under rules and
re*ulations to +e %romul*ated +& t!e Seretar& o) Finane( u%on reommendation
o) t!e Commissioner"
In ases -!ere a re*istered ta$%a&er dies( t!e administrator or e$eutor s!all
re*ister t!e estate o) t!e deedent in aordane -it! Su+setion 0A1 !ereo) and a
ne- Ta$%a&er Identi)iation Num+er 0TIN1 s!all +e su%%lied in aordane -it!
t!e %ro'isions o) t!is Setion"
In t!e ase o) a nonresident deedent( t!e e$eutor or administrator o) t!e estate
s!all re*ister t!e estate -it! t!e Re'enue Distrit O))ie -!ere !e is re*istered2
Pro'ided( !o-e'er( T!at in ase su! e$eutor or administrator is not re*istered(
re*istration o) t!e estate s!all +e made -it! and t!e Ta$%a&er Identi)iation
Num+er 0TIN1 su%%lied +& t!e Re'enue Distrit O))ie !a'in* 7urisdition o'er !is
le*al residene"
Onl& one Ta$%a&er Identi)iation Num+er 0TIN1 s!all +e assi*ned to a ta$%a&er"
An& %erson -!o s!all seure more t!an one Ta$%a&er Identi)iation Num+er s!all
+e riminall& lia+le under t!e %ro'isions o) Setion 2?> on @Fiolation o) Ot!er
Pro'isions o) t!is Code or Re*ulations in General"
SECTION 2.?"Issuane o) Reei%ts or Sales or Commerial In'oies" # All
%ersons su+7et to an internal re'enue ta$ s!all( )or ea! sale and trans)er o)
mer!andise or )or ser'ies rendered 'alued at T-ent&3)i'e %esos 0P2>"001 or
more( issue dul& re*istered reei%ts or sale or ommerial in'oies( %re%ared at
least in du%liate( s!o-in* t!e date o) transation( 8uantit&( unit ost and
desri%tion o) mer!andise or nature o) ser'ie2
Pro'ided( !o-e'er( T!at -!ere t!e reei%t is issued to o'er %a&ment made as
rentals( ommissions( om%ensation or )ees( reei%ts or in'oies s!all +e issued
-!i! s!all s!o- t!e name( +usiness st&le( i) an&( and address o) t!e %ur!aser(
ustomer or lient"
T!e ori*inal o) ea! reei%t or in'oie s!all +e issued to t!e %ur!aser( ustomer or
lient at t!e time t!e transation is e))eted( -!o( i) en*a*ed in +usiness or in t!e
e$erise o) %ro)ession( s!all ,ee% and %reser'e t!e same in !is %lae o) +usiness )or
a %eriod o) t!ree 0.1 &ears )rom t!e lose o) t!e ta$a+le &ear in -!i! su! in'oie
or reei%t -as issued( -!ile t!e du%liate s!all +e ,e%t and %reser'ed +& t!e issuer(
also in !is %lae o) +usiness( )or a li,e %eriod"
T!e Commissioner ma&( in meritorious ases( e$em%t an& %erson su+7et to an
internal re'enue ta$ )rom om%liane -it! t!e %ro'isions o) t!is Setion"
T%e im'rintin* of 0JeroGrated0 is necessar) to distin*is% sales sb5ect to 1/Q CAT, t%ose
t%at are sb5ect to /Q CAT !JeroGrated" and e+em't sales, to enable t%e #rea of
Internal Revene to 'ro'erl) im'lement and enforce t%e ot%er 'rovisions of t%e 1993
6IRC on CAT, namel):
1- SeroGrated sales NSec- 1/,!A"!2" and Sec- 1/8!#"OH
2- :+em't transactions NSec- 1/9O in relation to Sec- 112!A"H
B- Ta+ Credits NSec- 11/OH and
E- Refnds or ta+ credits of in't ta+ NSec- 112O
@e'co &%il- Cor'- vs- Commissioner of Internal Revene, ?-R- 6o- 1399,1, 2anar) B1,
2/11, citin* @e'co &%ili''ines Cor'oration v- Commissioner of Internal Revene, CTA
:-#- Case 6o- 1/3, 2ne 29, 2//3
T%e 'rintin* of t%e word 0JeroGrated0 is re1ired to be 'laced on CAT invoices or recei'ts
coverin* JeroGrated sales in order to be entitled to claim for ta+ credit or refnd- - - - T%e
a''earance of t%e word 0JeroGrated0 on t%e face of invoices coverin* JeroGrated sales
'revents b)ers from falsel) claimin* in't CAT from t%eir 'rc%ases w%en no CAT is
actall) 'aid- Absent sc% word, t%e *overnment ma) be refndin* ta+es it did not
collect-
4icrosoft &%il-, Inc- vs- Commissioner of Internal Revene, ?-R- 6o- 18/13B, A'ril ,,
2/11 citin* &anasonic v- Commissioner of Internal Revene
Sections 11B and 2B3 did not re1ire t%e inclsion of t%e word 0JeroGrated0 for JeroGrated
sales covered b) its recei'ts or invoices- T%e #IR incor'orated t%is re1irement onl)
after t%e enactment of R-A- 9BB3 on 6ovember 1, 2//7, a law t%at did not )et e+ist at t%e
time it issed its invoices-
#t w%en 'etitioner - - - made t%e e+'ort sales sb5ect of t%is case, i-e-, from A'ril 1998 to
4arc% 1999, t%e rle t%at a''lied was Section E-1/8G1 of RR 3G97, ot%erwise $nown as
t%e Consolidated CaleGAdded Ta+ Re*lations, w%ic% t%e Secretar) of Finance issed on
.ecember 9, 1997 and too$ effect on 2anar) 1, 199,- It alread) re1ired t%e 'rintin* of
t%e word 0JeroGrated0 on t%e invoices coverin* JeroGrated sales- ;%en R-A- 9BB3
amended t%e 1993 6IRC on 6ovember 1, 2//7, it made t%is 'articlar revene
re*lation a 'art of t%e ta+ code- T%is conversion from re*lation to law did not diminis%
t%e bindin* force of sc% re*lation wit% res'ect to acts committed 'rior to t%e enactment
of t%at law-
&anasonic Commnications Ima*in* Cor'- of t%e &%il- vs- Commissioner of Internal
Revene, ?-R- 6o- 138/9/, Febrar) 8, 2/1/
SECTION 2.A"Printin* o) Reei%ts or Sales or Commerial In'oies" # All
%ersons -!o are en*a*ed in +usiness s!all seure )rom t!e ;ureau o) Internal
Re'enue an aut!orit& to %rint reei%ts or sales or ommerial in'oies +e)ore a
%rinter an %rint t!e same"
No aut!orit& to %rint reei%ts or sales or ommerial in'oies s!all +e *ranted
unless t!e reei%ts or in'oies to +e %rinted are seriall& num+ered and s!all s!o-(
amon* ot!er t!in*s( t!e name( +usiness st&le( Ta$%a&er Identi)iation Num+er
0TIN1 and +usiness address o) t!e %erson or entit& to use t!e same( and su! ot!er
in)ormation t!at ma& +e re8uired +& rules and re*ulations to +e %romul*ated +& t!e
Seretar& o) Finane( u%on reommendation o) t!e Commissioner"
All %ersons -!o %rint reei%t or sales or ommerial in'oies s!all maintain a
lo*+oo,Hre*ister o) ta$%a&ers -!o a'ailed o) t!eir %rintin* ser'ies" T!e
lo*+oo,Hre*ister s!all ontain t!e )ollo-in* in)ormation2
051 Names( Ta$%a&er Identi)iation Num+ers o) t!e %ersons or entities )or -!om
t!e reei%ts or sales or ommerial in'oies -ere %rinted6 and
021 Num+er o) +oo,lets( num+er o) sets %er +oo,let( num+er o) o%ies %er set and
t!e serial num+ers o) t!e reei%ts or in'oies in ea! +oo,let"
SECTION 2.B" Si*n to +e E$!i+ited +& Distiller( Reti)ier( Com%ounder(
Re%a,er and :!olesale Li8uor Dealer" # E'er& %erson en*a*ed in distillin* or
reti)&in* s%irits( om%oundin* li8uors( re%a,in* -ines or distilled s%irits( and
e'er& -!olesale li8uor dealer s!all ,ee% ons%iuousl& on t!e outside o) !is %lae
o) +usiness a si*n e$!i+itin*( in letters not less t!an si$ entimeters 0= ms"1 !i*!(
!is name or )irm st&le( -it! t!e -ords @Re*istered Distiller(@ @Reti)ier o) S%irits(@
@Com%ounder o) Li8uors(@ @Re%a,er o) :ines or Distilled S%irits(@ or @:!olesale
Li8uor Dealer(@ as t!e ase ma& +e( and !is assessment num+er"
SECTION 240" Si*n to +e E$!i+ited +& Manu)aturer o) Produts o) To+ao" #
E'er& manu)aturer o) i*ars( i*arettes or to+ao( and e'er& -!olesale dealer in
lea) to+ao or manu)atured %roduts o) to+ao s!all %lae and ,ee% on outside
o) t!e +uildin* -!erein !is +usiness is arried on( so t!at it an +e distintl& seen( a
si*n statin* !is )ull name and +usiness in letters not less t!an si$ entimeters 0=
ms"1 !i*! and also *i'in* !is assessment num+er"
SECTION 245"E$!i+ition o) Certi)iate o) Pa&ment at Plae o) ;usiness" # T!e
erti)iate or reei%ts s!o-in* %a&ment o) ta$es issued to a %erson en*a*ed in a
+usiness su+7et to an annual re*istration )ee s!all +e ,e%t ons%iuousl& e$!i+ited
in %lain 'ie- in or at t!e %lae -!ere t!e +usiness is onduted6 and in ase o) a
%eddler or ot!er %ersons not !a'in* a )i$ed %lae o) +usiness( s!all +e ,e%t in t!e
%ossession o) t!e !older t!ereo)( su+7et to %rodution u%on demand o) an& internal
re'enue o))ier"
SECTION 242"Continuation o) ;usiness o) Deeased Person" # :!en an&
indi'idual -!o !as %aid t!e annual re*istration )ee dies( and t!e same +usiness is
ontinued +& t!e %erson or %ersons interested in !is estate( no additional %a&ment
s!all +e re8uired )or t!e residue o) t!e term o) -!i! t!e ta$ -as %aid2 Pro'ided(
!o-e'er( T!at t!e %erson or %ersons interested in t!e estate s!ould( -it!in t!irt&
0.01 da&s )rom t!e deat! o) t!e deedent( su+mit to t!e ;ureau o) Internal Re'enue
or t!e Re*ional or Re'enue Distrit O))ie in'entories o) *oods or sto,s !ad at t!e
time o) su! deat!"
T!e re8uirement under t!is Setion s!all also +e a%%lia+le in t!e ase o) trans)er
o) o-ners!i% or !an*e o) name o) t!e +usiness esta+lis!ment"
SECTION 24."Remo'al o) ;usiness to Ot!er Loation" # An& +usiness )or -!i!
t!e annual re*istration )ee !as +een %aid ma&( su+7et to t!e rules and re*ulations
%resri+ed +& t!e Seretar& o) Finane( u%on reommendation o) t!e
Commissioner( +e remo'ed and ontinued in an& ot!er %lae -it!out t!e %a&ment
o) additional ta$ durin* t!e term )or -!i! t!e %a&ment -as made"
CHAPTER III
Rules and Re*ulations
SECTION 244"Aut!orit& o) Seretar& o) Finane to Promul*ate Rules and
Re*ulations" # T!e Seretar& o) Finane( u%on reommendation o) t!e
Commissioner( s!all %romul*ate all need)ul rules and re*ulations )or t!e e))eti'e
en)orement o) t!e %ro'isions o) t!is Code"
Rles and re*lations 'roml*ated b) t%e Secretar) of Finance deserve wei*%t and
res'ect-
T%e at%orit) of t%e Secretar) of Finance, in con5nction wit% t%e Commissioner of
Internal Revene, to 'roml*ate needfl rles and re*lations for t%e effective
enforcement of internal revene laws cannot be controverted- Sc% rles and re*lations,
as well as administrative o'inions and rlin*s, ordinaril) deserve to be *iven wei*%t and
res'ect b) t%e corts-
Com'ania ?eneral de Tabacos de Fili'inas vs- Cort of A''eals, et al-, ?-R- 6o- 1E3B,1,
4arc% 2B, 2//E
Administrative issances mst remain consistent wit% t%e law t%e) intend to carr) ot-
T%e 'ower of t%e CIR to ma$e rlin*s and o'inions in connection wit% t%e
im'lementation of internal revene laws cannot be controverted- 8owever, t%e CIR
cannot, in t%e e+ercise of sc% 'ower, isse administrative rlin*s or circlars not
consistent wit% t%e law so*%t to be a''lied- Indeed, administrative issances mst not
override, s''lant or modif) t%e law, bt mst remain consistent wit% t%e law t%e) intend
to carr) ot- Onl) Con*ress can re'eal or amend t%e law- ;%ile t%e rleGma$in*
at%orit) of t%e CIR is not dobted, li$e an) ot%er *overnment a*enc), t%e CIR ma) not
disre*ard le*al re1irements or a''licable 'rinci'les in t%e e+ercise of 1asiGle*islative
'owers-
Commissioner of Internal Revene vs- 4ic%el 2- =%illier &awns%o', Inc-, ?-R- 6o-
17/9E3, 2l) 17, 2//B
=e*islative rle distin*is%ed from inter'retative rle-
T%ere are two $inds of administrative issances: t%e le*islative rle and t%e
inter'retative rle- A le*islative rle is in t%e natre of sbordinate le*islation, desi*ned
to im'lement a 'rimar) le*islation b) 'rovidin* t%e details t%ereof- An inter'retative
rle, on t%e ot%er %and, is desi*ned to 'rovide *idelines to t%e law w%ic% t%e
administrative a*enc) is in c%ar*e of enforcin*- 'l'ecdtai
Commissioner of Internal Revene vs- 4ic%el 2- =%illier &awns%o', Inc-, ?-R- 6o-
17/9E3, 2l) 17, 2//B
An administrative rle s%old be 'blis%ed if it sbstantiall) adds to or increases t%e
brden of t%ose *overned-
;%en an administrative rle is merel) inter'retative in natre, its a''licabilit) needs
not%in* frt%er t%an its bare issance for it *ives no real conse1ence more t%an w%at
t%e law itself %as alread) 'rescribed- ;%en, 'on t%e ot%er %and, t%e administrative rle
*oes be)ond merel) 'rovidin* for t%e means t%at can facilitate or render least
cmbersome t%e im'lementation of t%e law bt sbstantiall) adds to or increases t%e
brden of t%ose *overned, it be%ooves t%e a*enc) to accord at least to t%ose directl)
affected a c%ance to be %eard, and t%ereafter to be dl) informed, before t%at new
issance is *iven t%e force and effect of law-
Commissioner of Internal Revene vs- Cort of A''eals, et al-, ?-R- 6o- 1193,1, A*st
29, 199,
Commissioner of Internal Revene vs- 4ic%el 2- =%illier &awns%o', Inc-, ?-R- 6o-
17/9E3, 2l) 17, 2//B
=imitation to t%e at%orit) of t%e Secretar) of Finance to 'roml*ate rles and
re*lations-
T%e Secretar) of Finance is *ranted, nder Section 2EE of RA 8E2E, t%e at%orit) to
'roml*ate t%e necessar) rles and re*lations for t%e effective enforcement of t%e
'rovisions of t%e law- Sc% at%orit) is sb5ect to t%e limitation t%at t%e rles and
re*lations mst not override, bt mst remain consistent and in %armon) wit%, t%e law
t%e) see$ to a''l) and im'lement- It is wellGsettled t%at an administrative a*enc) cannot
amend an act of Con*ress-
C%amber of Real :state and #ilders( Associations, Inc- vs- Alberto Romlo, et al-, ?-R-
6o- 1,/37,, 4arc% 9, 2/1/
SECTION 24>" S%ei)i Pro'isions to +e Contained in Rules and Re*ulations"
# T!e rules and re*ulations o) t!e ;ureau o) Internal Re'enue s!all( amon* ot!er
t!in*s( ontain %ro'isions s%ei)&in*( %resri+in* or de)inin*2
G0a1 T!e time and manner in -!i! Re'enue Re*ional Diretors s!all an'ass t!eir
res%eti'e Re'enue Re*ions )or t!e %ur%ose o) diso'erin* %ersons and %ro%ert&
lia+le to national internal re'enue ta$es( and t!e manner in -!i! t!eir lists and
reords o) ta$a+le %ersons and ta$a+le o+7ets s!all +e made and ,e%t6
G0+1 T!e )orms o) la+els( +rands or mar,s to +e re8uired on *oods su+7et to an
e$ise ta$( and t!e manner in -!i! t!e la+elin*( +randin* or mar,in* s!all +e
e))eted6
G01 T!e onditions under -!i! and t!e manner in -!i! *oods intended )or
e$%ort( -!i! i) not e$%orted -ould +e su+7et to an e$ise ta$( s!all +e la+elled(
+randed or mar,ed6
G0d1 T!e onditions to +e o+ser'ed +& re'enue o))iers res%etin* t!e institutions
and ondut o) le*al ations and %roeedin*s6
G0e1 T!e onditions under -!i! *oods intended )or stora*e in +onded -are!ouses
s!all +e on'e&ed t!it!er( t!eir manner o) stora*e and t!e met!od o) ,ee%in* t!e
entries and reords in onnetion t!ere-it!( also t!e +oo,s to +e ,e%t +& Re'enue
Ins%etors and t!e re%orts to +e made +& t!em in onnetion -it! t!eir su%er'ision
o) su! !ouses6
G0)1 T!e onditions under -!i! denatured alo!ol ma& +e remo'ed and dealt in(
t!e !arater and 8uantit& o) t!e denaturin* material to +e used( t!e manner in
-!i! t!e %roess o) denaturin* s!all +e e))eted( so as to render t!e alo!ol
suita+l& denatured and un)it )or oral inta,e( t!e +onds to +e *i'en( t!e +oo,s and
reords to +e ,e%t( t!e entries to +e made t!erein( t!e re%orts to +e made to t!e
Commissioner( and t!e si*ns to +e dis%la&ed in t!e +usiness or +& t!e %erson )or
-!om su! denaturin* is done or +& -!om( su! alo!ol is dealt in6
G0*1 T!e manner in -!i! re'enue s!all +e olleted and %aid( t!e instrument(
doument or o+7et to -!i! re'enue stam%s s!all +e a))i$ed( t!e mode o)
anellation o) t!e same( t!e manner in -!i! t!e %ro%er +oo,s( reords( in'oies
and ot!er %a%ers s!all +e ,e%t and entries t!erein made +& t!e %erson su+7et to t!e
ta$( as -ell as t!e manner in -!i! lienses and stam%s s!all +e *at!ered u% and
returned a)ter ser'in* t!eir %ur%oses6
G0!1 T!e onditions to +e o+ser'ed +& re'enue o))iers res%etin* t!e en)orement
o) Title III im%osin* a ta$ on estate o) a deedent( and ot!er trans)ers mortis ausa(
as -ell as on *i)ts and su! ot!er rules and re*ulations -!i! t!e Commissioner
ma& onsider suita+le )or t!e en)orement o) t!e said Title III6
G0i1 T!e manner in -!i! ta$ returns( in)ormation and re%orts s!all +e %re%ared and
re%orted and t!e ta$ olleted and %aid( as -ell as t!e onditions under -!i!
e'idene o) %a&ment s!all +e )urnis!ed t!e ta$%a&er( and t!e %re%aration and
%u+liation o) ta$ statistis6
G071 T!e manner in -!i! internal re'enue ta$es( su! as inome ta$( inludin*
-it!!oldin* ta$( estate and donor@s ta$es( 'alue3added ta$( ot!er %erenta*e ta$es(
e$ise ta$es and doumentar& stam% ta$es s!all +e %aid t!rou*! t!e olletion
o))iers o) t!e ;ureau o) Internal Re'enue or t!rou*! dul& aut!ori<ed a*ent +an,s
-!i! are !ere+& de%uti<ed to reei'e %a&ments o) su! ta$es and t!e returns(
%a%ers and statements t!at ma& +e )iled +& t!e ta$%a&ers in onnetion -it! t!e
%a&ment o) t!e ta$2
Pro'ided( !o-e'er( T!at not-it!standin* t!e ot!er %ro'isions o) t!is Code
%resri+in* t!e %lae o) )ilin* o) returns and %a&ment o) ta$es( t!e Commissioner
ma&( +& rules and re*ulations( re8uire t!at t!e ta$ returns( %a%ers and statements
and ta$es o) lar*e ta$%a&ers +e )iled and %aid( res%eti'el&( t!rou*! olletion
o))iers or t!rou*! dul& aut!ori<ed a*ent +an,s2
Pro'ided( )urt!er( T!at t!e Commissioner an e$erise t!is %o-er -it!in si$ 0=1
&ears )rom t!e a%%ro'al o) Re%u+li At No" ?=4= or t!e om%letion o) its
om%re!ensi'e om%uteri<ation %ro*ram( -!i!e'er omes earlier2 Pro'ided(
)inall&( T!at se%arate 'enues )or t!e Lu<on( Fisa&as and Mindanao areas ma& +e
desi*nated )or t!e )ilin* o) ta$ returns and %a&ment o) ta$es +& said lar*e
ta$%a&ers"
For %ur%oses o) t!is Setion( @lar*e ta$%a&er@ means a ta$%a&er -!o satis)ies an& o)
t!e )ollo-in* riteria6
051 Falue3Added Ta$ 0FAT1 # ;usiness esta+lis!ment -it! FAT %aid or %a&a+le
o) at least One !undred t!ousand %esos 0P500(0001 )or an& 8uarter o) t!e %reedin*
ta$a+le &ear6
021 E$ise Ta$ # ;usiness esta+lis!ment -it! e$ise ta$ %aid or %a&a+le o) at least
One million %esos 0P5(000(0001 )or t!e %reedin* ta$a+le &ear6
0.1 Cor%orate Inome Ta$ # ;usiness esta+lis!ment -it! annual inome ta$ %aid
or %a&a+le o) at least One million %esos 0P5(000(0001 )or t!e %reedin* ta$a+le
&ear6 and
041 :it!!oldin* Ta$ # ;usiness esta+lis!ment -it! -it!!oldin* ta$ %a&ment or
remittane o) at least One million %esos 0P5(000(0001 )or t!e %reedin* ta$a+le
&ear"
Pro'ided( !o-e'er( T!at t!e Seretar& o) Finane( u%on reommendation o) t!e
Commissioner( ma& modi)& or add to t!e a+o'e riteria )or determinin* a lar*e
ta$%a&er a)ter onsiderin* su! )ators as in)lation( 'olume o) +usiness( -a*e and
em%lo&ment le'els( and similar eonomi )ators"
T!e %enalties %resri+ed under Setion 24A o) t!is Code s!all +e im%osed on an&
'iolation o) t!e rules and re*ulations issued +& t!e Seretar& o) Finane( u%on
reommendation o) t!e Commissioner( %resri+in* t!e %lae o) )ilin* o) returns
and %a&ments o) ta$es +& lar*e ta$%a&ers"
SECTION 24="Non3Retroati'it& o) Rulin*s" # An& re'oation( modi)iation or
re'ersal o) an& o) t!e rules and re*ulations %romul*ated in aordane -it! t!e
%reedin* Setions or an& o) t!e rulin*s or irulars %romul*ated +& t!e
Commissioner s!all not +e *i'en retroati'e a%%liation i) t!e re'oation(
modi)iation or re'ersal -ill +e %re7udiial to t!e ta$%a&ers( e$e%t in t!e
)ollo-in* ases2
G0a1 :!ere t!e ta$%a&er deli+eratel& misstates or omits material )ats )rom !is
return or an& doument re8uired o) !im +& t!e ;ureau o) Internal Re'enue6
G0+1 :!ere t!e )ats su+se8uentl& *at!ered +& t!e ;ureau o) Internal Re'enue are
materiall& di))erent )rom t!e )ats on -!i! t!e rulin* is +ased6 or
G01 :!ere t!e ta$%a&er ated in +ad )ait!"
Alt%o*% t%e sb5ect foreclosre sale and redem'tion too$ 'lace before t%e effectivit) of
RR 6o- EG99, its 'rovisions ma) be *iven retroactive effect- In t%is case, t%e retroactive
a''lication of RR 6o- EG99 is more consistent wit% t%e 'olic) of aidin* t%e e+ercise of t%e
ri*%t of redem'tion- As t%e Cort of Ta+ A''eals conclded in one case, RR 6o- EG99
0%as crbed t%e ine1it) of im'osin* a ca'ital *ains ta+ even before t%e e+'iration of t%e
redem'tion 'eriod NsinceO t%ere is )et no transfer of title and no 'rofit or *ain is realiJed
b) t%e mort*a*or at t%e time of foreclosre sale bt onl) 'on e+'iration of t%e
redem'tion 'eriod-0 In %is commentaries, .e =eon e+'ressed t%e view t%at w%ile revene
re*lations as a *eneral rle %ave no retroactive effect, if t%e revocation is de to t%e fact
t%at t%e re*lation is erroneos or contrar) to law, sc% revocation s%all %ave retroactive
o'eration as to affect 'ast transactions, becase a wron* constrction of t%e law cannot
*ive rise to a vested ri*%t t%at can be invo$ed b) a ta+'a)er-
S'reme Transliner, Inc-, et al- vs- #&I Famil) Savin*s #an$, Inc-, ?-R- 6os- 1,7,13 P
1,78B3, Febrar) 2B, 2/11
#IR rlin*s %ave not retroactive effect if it wold 're5dice t%e ta+'a)er-
T%e rle is t%at t%e #IR rlin*s %ave no retroactive effect w%ere a *rossl) nfair deal
wold reslt to t%e 're5dice of t%e ta+'a)er-
CIR vs- &%il- 8ealt% Care &roviders, Inc-, ?-R- 6o- 1,8129
TITLE D
Statutor& O))enses and Penalties
CHAPTER I
Additions to t!e Ta$
SECTION 24?" General Pro'isions #
G0a1 T!e additions to t!e ta$ or de)iien& ta$ %resri+ed in t!is C!a%ter s!all a%%l&
to all ta$es( )ees and !ar*es im%osed in t!is Code" T!e amount so added to t!e ta$
s!all +e olleted at t!e same time( in t!e same manner and as %art o) t!e ta$"
G0+1 I) t!e -it!!oldin* a*ent is t!e Go'ernment or an& o) its a*enies( %olitial
su+di'isions or instrumentalities( or a *o'ernment3o-ned or 3ontrolled
or%oration( t!e em%lo&ee t!ereo) res%onsi+le )or t!e -it!!oldin* and remittane
o) t!e ta$ s!all +e %ersonall& lia+le )or t!e additions to t!e ta$ %resri+ed !erein"
G01 T!e term @%erson@( as used in t!is C!a%ter( inludes an o))ier or em%lo&ee o) a
or%oration -!o as su! o))ier( em%lo&ee or mem+er is under a dut& to %er)orm
t!e at in res%et o) -!i! t!e 'iolation ours"
SECTION 24A"Ci'il Penalties" #
0A1 T!ere s!all +e im%osed( in addition to t!e ta$ re8uired to +e %aid( a %enalt&
e8ui'alent to t-ent&3)i'e %erent 02>91 o) t!e amount due( in t!e )ollo-in* ases2
051 Failure to )ile an& return and %a& t!e ta$ due t!ereon as re8uired under t!e
%ro'isions o) t!is Code or rules and re*ulations on t!e date %resri+ed6 or
021 /nless ot!er-ise aut!ori<ed +& t!e Commissioner( )ilin* a return -it! an
internal re'enue o))ier ot!er t!an t!ose -it! -!om t!e return is re8uired to +e
)iled6 or
0.1 Failure to %a& t!e de)iien& ta$ -it!in t!e time %resri+ed )or its %a&ment in
t!e notie o) assessment6 or
041 Failure to %a& t!e )ull or %art o) t!e amount o) ta$ s!o-n on an& return re8uired
to +e )iled under t!e %ro'isions o) t!is Code or rules and re*ulations( or t!e )ull
amount o) ta$ due )or -!i! no return is re8uired to +e )iled( on or +e)ore t!e date
%resri+ed )or its %a&ment"
0;1 In ase o) -ill)ul ne*let to )ile t!e return -it!in t!e %eriod %resri+ed +& t!is
Code or +& rules and re*ulations( or in ase a )alse or )raudulent return is -ill)ull&
made( t!e %enalt& to +e im%osed s!all +e )i)t& %erent 0>091 o) t!e ta$ or o) t!e
de)iien& ta$( in ase an& %a&ment !as +een made on t!e +asis o) su! return
+e)ore t!e diso'er& o) t!e )alsit& or )raud2
Pro'ided( T!at a su+stantial underdelaration o) ta$a+le sales( reei%ts or inome(
or a su+stantial o'erstatement o) dedutions( as determined +& t!e Commissioner
%ursuant to t!e rules and re*ulations to +e %romul*ated +& t!e Seretar& o)
Finane( s!all onstitute %rima )aie e'idene o) a )alse or )raudulent return2
Pro'ided( )urt!er( T!at )ailure to re%ort sales( reei%ts or inome in an amount
e$eedin* t!irt& %erent 0.091 o) t!at delared %er return( and a laim o)
dedutions in an amount e$eedin* t!irt& %erent 0.091 o) atual dedutions( s!all
render t!e ta$%a&er lia+le )or su+stantial underdelaration o) sales( reei%ts or
inome or )or o'erstatement o) dedutions( as mentioned !erein"
T8: &8I=I&&I6: ?9ARA6TD CO-, I6C-, 'etitioner, vs- T8: CO44ISSIO6:R OF
I6T:R6A= R:C:69: and T8: CO9RT OF TA> A&&:A=S, :T A=-, res'ondents- N?-R-
6o-=G22/3E- Se'tember ,, 19,7-O
SD==A#9S
1- TA>ATIO6H I6CO4: TA>H R:I6S9RA6C: &R:4I94S C:.:. TO FOR:I?6
R:I6S9R:RS S9#2:CT TO ;IT88O=.I6? TA>- T Reinsrance 'remims on local ris$s
ceded b) domestic insrers to forei*n reinsrers not doin* bsiness in t%e &%ili''ines are
sb5ect to wit%%oldin* ta+-
2- I.-H I.-H R:I6S9RA6C: &R:4I94S C:.:. TO FOR:I?6 R:I6S9R:RS
CO6SI.:R:. I6CO4: FRO4 &8I=I&&I6: SO9RC:S- T ;%ere t%e reinsrance
contracts s%ow t%at t%e activities t%at constitted t%e nderta$in* to reinsre a domestic
insrer a*ainst losses arisin* from t%e ori*inal insrances in t%e &%ili''ines were 'erformed
in t%e &%ili''ines, t%e reinsrance 'remims are considered as comin* from sorces wit%in
t%e &%ili''ines and are sb5ect to &%ili''ine income ta+-
B- I.-H I.-H I.-H &=AC: OF ACTICITD CR:ATI6? I6CO4: CO6TRO==I6?- T
Section 2E of t%e Ta+ Code does not re1ire a forei*n cor'oration to en*a*e in bsiness in
t%e &%ili''ines in sb5ectin* its income to ta+- It sffices t%at t%e activit) creatin* t%e income
is 'erformed or done in t%e &%ili''ines- ;%at is controllin*, t%erefore, is not t%e 'lace of
bsiness bt t%e 'lace of activit) t%at created an income-
E- I.-H I.-H S:CTIO6 B3 OF TA> CO.: 6OT A== I6C=9SIC: :694:RATIO6- T
Section B3 of t%e Ta+ Code is not an allGinclsive enmeration, for it merel) directs t%at t%e
$inds of income mentioned t%erein s%old be treated as income from sorces wit%in t%e
&%ili''ines bt it does not re1ire t%at ot%er $inds of income s%old not be considered
li$ewise-
7- I.-H I.-H 6O :STO&&:= O6 ?OC:R64:6T FOR 4ISTA@: OF ITS A?:6TS- T
T%e defense of reliance in *ood fait% on rlin*s of t%e Commissioner of Internal Revene
re1irin* no wit%%oldin* of t%e ta+ de on reinsrance 'remims ma) free t%e ta+'a)er from
t%e 'a)ment of src%ar*es or 'enalties im'osed for failre to 'a) t%e corres'ondin*
wit%%oldin* ta+, bt it certainl) wold not e+cl'ate it from liabilit) to 'a) sc% wit%%oldin*
ta+- T%e ?overnment is not esto''ed from collectin* ta+es b) t%e mista$es or errors of its
a*ents-
,- I.-H I.-H ;IT88O=.I6? TA> O6 R:I6S9RA6C: &R:4I94S CO4&9T:. O6
TOTA= A4O96T C:.:.- T T%e wit%%oldin* ta+ on reinsrance 'remims s%old be
com'ted on t%e total amont ceded instead of on t%e amont actall) remitted to forei*n
reinsrers- Sections 7B and 7E of t%e Ta+ Code allow no dedction from t%e income t%erein
enmerated in determinin* t%e amont to be wit%%eld- Accordin*l), in com'tin* t%e
wit%%oldin* ta+ de on t%e reinsrance 'remims no dedction s%all be reco*niJed-
R : S O = 9 T I O 6
T%e &%ili''ine ?arant) Com'an), Inc- moves for t%e reconsideration of or decision,
'roml*ated on A'ril B/, 19,7, %oldin* it liable for t%e 'a)ment of income ta+ w%ic% it
s%old %ave wit%%eld and remitted to t%e #rea of Internal Revene in t%e total sm of
&B37,BE7-//-
T%e *ronds raised in t%e instant motion all s'rin* from movant(s view t%at t%e Cort of Ta+
A''eals as well as t%is Cort fond it 0innocent of t%e c%ar*es of violatin*, wilfll) or
ne*li*entl), sbGsection !c" of Section 7B and Section 7E of t%e 6ational Internal Revene
Code-0 8ence, it cannot sbse1entl) be %eld liable for t%e assessment of &B37,BE7-// based
on said sections-
T%e 'remise of movant(s reasonin* cannot be acce'ted- T%e Cort of Ta+ A''eals and t%is
Cort did not find t%at it did not violate Section 7B!c" and 7E of t%e Ta+ Code- On t%e
contrar), movant was fond to %ave violated Section 7B!c" b) failin* to file t%e necessar)
wit%%oldin* ta+ retrn and to 'a) t%e ta+ de- Still, findin* t%at movant(s violation was de
to a reasonable case T namel), reliance on t%e advice of its aditors and o'inion of t%e
Commissioner of Internal Revene T no src%ar*e to t%e ta+ was im'osed- Section 32 of t%e
Ta+ Code 'rovides:
0S:C- 32- Src%ar*es for failre to render retrns and for renderin* false and fradlent
retrns- T T%e Commissioner of Internal Revene s%all assess all income ta+es- In case of
willfl ne*lect to file t%e retrn or list wit%in t%e time 'rescribed b) law, or in case a false or
fradlent retrn or list is willfll) made, t%e Commissioner of Internal Revene s%all add to
t%e ta+ or to t%e deficienc) ta+, in case an) 'a)ment %as been made on t%e basis of sc%
retrn before t%e discover) of t%e falsit) or frad, a src%ar*e of fift) 'er centm of t%e
amont of sc% ta+ or deficienc) ta+- In case of an) failre to ma$e and file a retrn or list
wit%in t%e time 'rescribed b) law or b) t%e Commissioner or ot%er internal revene officer,
not de to willfl ne*lect, t%e Commissioner of Internal Revene s%all add to t%e ta+ twent)G
five 'er centm of its amont, e+ce't t%at, w%en a retrn is volntaril) and wit%ot notice
from t%e Commissioner or ot%er officer filed after sc% time, and it is s%own t%at t%e failre
to file it was de to a reasonable case, no sc% addition s%all be made to t%e ta+- - - -0
It will be noted t%at t%e first %alf of t%e aboveG1oted section covers failre to file a retrn,
willin*l) andRor de to ne*li*ence, in w%ic% case t%e src%ar*e is 7/Q- In t%e second 'art of
t%e law it covers failre to ma$e and file a retrn 0not de to willfl ne*lect0, in w%ic% case
onl) 27Q src%ar*e s%old be added- As a frt%er concession to t%e ta+'a)er t%e aboveG
1oted section 'rovides t%at if 0it is s%own t%at t%e failre to file it was de to a reasonable
case, no sc% addition s%all be made to t%e ta+-0
It wold, t%erefore, be incorrect for movant to state t%at it was fond 0innocent of t%e
c%ar*es of violatin*, willfll) or ne*li*entl), sbGsection !c" of Section 7B and section 7E0-
For, 'recisel), t%e mere fact t%at it was e+em'ted from 'a)in* t%e 'enalt) necessaril) im'lies
violation of Section 7B!c"- Ciolatin* Section 7B!c" is one t%in*H im'osin* t%e 'enalt) for sc%
violation nder Section 32 WW is anot%er- If it is fond t%at t%e failre to file is de to a
reasonable case, t%en e+em'tion from src%ar*e sets in bt never e+em'tion from 'a)ment
of t%e ta+ de-
Since movant failed to 'a) t%e ta+ de, in t%e sm of &B37,BE7-//, t%is Cort ordered it to
'a) t%e same- Sim'l) becase movant was relieved from 'a)in* t%e src%ar*e for failre to
file t%e necessar) retrns, it now wants s to absolve it from 'a)in* even t%e ta+- T%is, we
cannot do- T%e nonGim'osition of t%e 27Q src%ar*e does not carr) wit% it remission of t%e
ta+-
4ovant ar*es t%at it cold not be e+'ected to wit%%old t%e ta+, for as earl) as A*st 18,
197B t%e #oard of Ta+ A''eals %eld in t%e case of Fran$lin #a$er t%at t%e reinsrance
'remims in 1estion were not sb5ect to wit%%oldin*- On to' of t%at, movant maintains, t%e
Commissioner of Internal Revene, in re'l) to t%e 1er) of its accontants and aditors,
issed on Se'tember 7, 197B an o'inion sbscribin* to t%e rlin* in t%e Fran$lin #a$er case-
As alread) e+'lained in or decision a mista$e committed b) ?overnment a*ents is not
bindin* on t%e ?overnment-
Inasmc% as movant insists on t%is 'oint in its motion for reconsideration, we s%all frt%er
elaborate on t%e same- Section 2// of t%e Income Ta+ Re*lations e+'ressl) *rants
'rotection to %im onl) if and w%en %e follows strictl) w%at %as been 'rovided t%erein-
Section 7B!c" ma$es t%e wit%%oldin* a*ent 'ersonall) liable for t%e income ta+ wit%%eld
nder Section 7E- It states:
0S:C- 7B!c"- Retrn and 'a)ment- T :ver) 'erson re1ired to dedct and wit%%old an) ta+
nder t%is section s%all ma$e retrn t%ereof, in d'licate, on or before t%e fifteent% da) of
A'ril of eac% )ear, and, on or before t%e time fi+ed b) law for t%e 'a)ment of t%e ta+, s%all
'a) t%e amont wit%%eld to t%e officer of t%e ?overnment of t%e &%ili''ines at%oriJed to
receive it- :ver) sc% 'erson is made 'ersonall) liable for sc% ta+, and is indemnified
a*ainst t%e claims and demands of an) 'erson for t%e amont of an) 'a)ments made in
accordance wit% t%e 'rovisions of t%is section-0
T%e law sets no condition for t%e 'ersonal liabilit) of t%e wit%%oldin* a*ent to attac%- T%e
reason is to com'el t%e wit%%oldin* a*ent to wit%%old t%e ta+ nder all circmstances- In
effect, t%e res'onsibilit) for t%e collection of t%e ta+ as well as t%e 'a)ment t%ereof is
concentrated 'on t%e 'erson over w%om t%e ?overnment %as 5risdiction- T%s, t%e
wit%%oldin* a*ent is constitted t%e a*ent of bot% t%e ?overnment and t%e ta+'a)er- ;it%
res'ect to t%e collection andRor wit%%oldin* of t%e ta+, %e is t%e ?overnment(s a*ent- In
re*ard to t%e filin* of t%e necessar) income ta+ retrn and t%e 'a)ment of t%e ta+ to t%e
?overnment, %e is t%e a*ent of t%e ta+'a)er- T%e wit%%oldin* a*ent, t%erefore, is no ordinar)
*overnment a*ent es'eciall) becase nder Section 7B!c" %e is %eld 'ersonall) liable for t%e
ta+ %e is dt) bond to wit%%oldH w%ereas, t%e Commissioner of Internal Revene and %is
de'ties are not made liable b) law-
4ovant t%en frt%er contends t%at as a*ent of t%e ?overnment it was released from liabilit)
for t%e ta+ after it was advised b) t%e Commissioner of Internal Revene t%at t%e reinsrance
'remims involved were not sb5ect to wit%%oldin*- It relies on t%e 'rovisions of t%e second
'ara*ra'% of Section 2// of t%e Income Ta+ Re*lation, w%ic% states:
0In case of dobt, a wit%%oldin* a*ent ma) alwa)s 'rotect %imself b) wit%%oldin* t%e ta+
de, and 'rom'tl) casin* a 1er) to be addressed to t%e Commissioner of Internal Revene
for t%e determination of w%et%er or not t%e income 'aid to an individal is not sb5ect to
wit%%oldin*- In case t%e Commissioner of Internal Revene decides t%at t%e income 'aid to
an individal is not sb5ect to wit%%oldin*- T%e wit%%oldin* a*ent ma) t%ere'on remit t%e
amont of ta+ wit%%eld-0
T%e section aboveG1oted rela+es t%e a''lication of t%e strin*ent 'rovisions of Section 7B of
t%e Ta+ Code- Accordin*l), it *rants e+em'tion from ta+ liabilit), and in so doin*, it la)s
down ste's to be ta$en b) t%e wit%%oldin* a*ent, namel), !1" t%at %e wit%%olds t%e ta+ de,
!2" t%at %e 'rom'tl) addresses a 1er) to t%e Commissioner of Internal Revene for
determination w%et%er or not t%e income 'aid to an individal is sb5ect to wit%%oldin*H and
!B" t%at t%e Commissioner of Internal Revene decides t%at sc% income is not sb5ect to
wit%%oldin*- Strict observance of said ste's is re1ired of a wit%%oldin* a*ent before %e
cold be released from liabilit)- ?enerall), t%e law frowns 'on e+em'tion from ta+ation,
%ence, an e+em'tin* 'rovision s%old be constred strictissimi 5ris-
It ma) be illminatin* to mention %ere %owever t%at t%e Income Ta+ Re*lations was issed
b) t%e Secretar) of Finance 'on %is at%orit), 0to 'roml*ate all needfl rles and
re*lations of t%e effective enforcement0 of t%e 'rovisions of t%e Ta+ Code- T%e mission
t%erefore of Section 2//, 1oted above, is to im'lement Section 7B of t%e Ta+ Code for no
ot%er 'r'ose t%an to enforce its 'rovisions effectivel)- It s%old also be noted, t%at Section
7B 'rovides for no e+em'tion from t%e dt) to wit%%old e+ce't in t%e cases of ta+Gfree
covenant bonds and dividends-
T%e facts in t%is case do not s''ort a findin* t%at movant com'lied wit% Section 2//- For, it
%as not been s%own t%at it wit%%eld t%e amont of ta+ de before it in1ired from t%e #rea
of Internal Revene as to t%e ta+abilit) of t%e reinsrance 'remims involved- As a matter of
fact, t%e Cort of Ta+ A''eals fond t%at 0'on advice of its accontants and aditors, - - -
'etitioner did not collect and remit to t%e Commissioner of Internal Revene t%e wit%%oldin*
ta+0- T%is findin* of fact of t%e lower cort, nc%allen*ed as it is, ma) not be distrbed-
T%e re1irement in Section 2// t%at t%e wit%%oldin* a*ent s%old first wit%%old t%e ta+
before addressin* a 1er) to t%e Commissioner of Internal Revene is not wit%ot a meanin*
for it is in $ee'in* wit% t%e *eneral o'eration of or ta+ laws: 'a)ment 'recedes defense-
&rior to t%e creation of t%e Cort of Ta+ A''eals, t%e remed) of a ta+'a)er was to 'a) an
internal revene ta+ first and file a claim for refnd later- T%is remed) %as not been
abro*ated, for t%e law creatin* t%e Cort of Ta+ A''eals merel) *ives to t%e ta+'a)er an
additional remed)- ;it% res'ect to cstoms dties t%e consi*nee or im'orter concerned is
re1ired to 'a) t%em nder 'rotest, before %e is allowed to 1estion le*alit) of t%e
im'osition- =i$ewise, validit) of a realt) ta+ cannot be assailed ntil after t%e ta+'a)er %as
'aid t%e ta+ nder 'rotest- T%e le*islatre, in ado'tin* sc% measres in or ta+ laws, onl)
wanted to be assred t%at ta+es are 'aid and collected wit%ot dela)- For ta+es are t%e
lifeblood of *overnment- Also, sc% measres tend to 'revent collsion between t%e ta+'a)er
and t%e ta+ collector- #) 1estionin* a ta+(s le*alit) wit%ot first 'a)in* it, a ta+'a)er, in
collsion wit% #rea of Internal Revene- officials, can ndl) dela), if not totall) evade,
t%e 'a)ment of sc% ta+-
Of corse, in t%is case t%ere was absoltel) no sc% collsion- &recisel), t%e &%ili''ine
?arant) Com'an), Inc- was absolved from t%e 'a)ment of t%e 27Q src%ar*e for nonGfilin*
of income ta+ retrns inasmc% as t%e Ta+ Cort as well as t%is Cort believes t%at its
omission was de to a reasonable case-
;8:R:FOR:, t%e motion for reconsideration is denied- So ordered-
CIVI+ PENA+TIES
T%e term Kcivil 'enaltiesM is a *eneric term sed to refer to src%ar*es, deficienc)
and delin1enc) interests, and com'romise 'enalties for violation of certain 'rovisions of
t%e Ta+ Code im'osin* criminal sanctions-
S#rchar"es%% T%ere s%all be im'osed, in addition to t%e ta+ re1ired to be 'aid, a
'enalt) e1ivalent to 27Q of t%e amont de, in t%e followin* cases:
1- Failre to file an) retrn and 'a) t%e ta+ de t%ereon as re1ired nder t%e
'rovisions of t%is Code or rles and re*lations on t%e date 'rescribedH or
2- 9nless ot%erwise at%oriJed b) t%e Commissioner, filin* a retrn wit% an
internal revene officer ot%er t%an t%ose wit% w%om t%e retrn is re1ired to be
filedH or
B- Failre to 'a) t%e deficienc) ta+ wit%in t%e time 'rescribed for its 'a)ment in
t%e notice of assessmentH or
E- Failre to 'a) t%e fll or 'art of t%e amont of ta+ s%own on an) retrn
re1ired to be filed nder t%e 'rovisions of t%is Code or rles and re*lations, or
t%e fll amont of ta+ de for w%ic% no retrn is re1ired to be filed, on or before
t%e date 'rescribed for its 'a)ment-
In case of willfl ne*lect to file t%e retrn wit%in t%e 'eriod 'rescribed b) t%is Code
or b) rles and re*lations, or in case a false or fradlent retrn is willfll) made, t%e
'enalt) to be im'osed s%all be fift) 'ercent !7/Q" of t%e ta+ or of t%e deficienc) ta+, in
case an) 'a)ment %as been made on t%e basis of sc% retrn before t%e discover) of t%e
falsit) or frad- A sbstantial nderGdeclaration of ta+able sales, recei'ts or income, or
a sbstantial overstatement of dedctions, as determined b) t%e Commissioner 'rsant
to t%e rles and re*lations to be 'roml*ated b) t%e Secretar) of Finance, s%all
constitte pri'a facieevidence of a false or fradlent retrn- Failre to re'ort sales,
recei'ts or income in an amont e+ceedin* t%irt) 'ercent !B/Q" of t%at declared 'er
retrn, and a claim of dedctions in an amont e+ceedin* t%irt) 'ercent !B/Q" of actal
dedctions, s%all render t%e ta+'a)er liable for sbstantial nderGdeclaration of sales,
recei'ts or income or for overstatement of dedctions, as mentioned %erein- Sec 2E8
6IRC
,ood faith in pa-in" ta) at o&er rate-GG It is 'atentl) nfair for t%e *overnment to
re1ire t%e 'a)ment of 27Q src%ar*e, if t%e ta+'a)er acted in *ood fait% in 'a)in* t%e
franc%ise ta+ at t%e lower rates fi+ed b) its franc%ises-
?a*a :lectric =i*%t &lant Co- vs- Commissioner, 19 SCRA 39/-
Ti'e for pa-'ent of ta) is fi)ed-GGT%e time 'rescribed for t%e 'a)ment of ta+ was fi+ed,
w%et%er or not a notice of t%e assessment was *iven to t%e ta+'a)er- Central AJcarera
.on &edro vs- CTA, =G2B2B,, 4a) B1, 19,3- Constrin* t%e 'rovisions of t%e old
Section 71!d" and !e" of t%e Ta+ Code, as amended b) RA 2BEB, t%e interest and 27Q
src%ar*e on deficienc) ta+es are im'osable 'on failre of t%e ta+'a)er to 'a) t%e ta+
on t%e date fi+ed in t%e law for t%e 'a)ment t%ereof- Commissioner vs- Connel #ros- Co-
!&%il", E/ SCRA E1,H t%e 27Q src%ar*e is no lon*er im'osed nder R-A- 8E2E on
deficienc) ta+es- T%e rle %as to be so becase a deficienc) ta+ indicates nonG'a)ment of
t%e correct ta+, and sc% deficienc) e+ists not onl) from t%e assessment t%ereof to 'a) t%e
correct amont of ta+ w%en it s%old %ave been 'aidH and t%e im'osition t%ereof is
mandator) even in t%e absence of frad or willfl failre to 'a) t%e ta+ in fll-
Abad vs- CTA and Commissioner, =G2/8BE, Oct- 19, 19,,
Repeated #nder%state'ent of inco'e.%% In anot%er case, t%e ta+'a)er nderstated %is
income b) 223Q for 19E,, 7,EQ for 19E3, 97Q for 19E8, E8,Q for 19E9, 2,9E,Q for
197/, and E9/Q for 1971- T%e cort said t%ese sbstantial nderGdeclarations of income
for si+ consective )ears elo1entl) demonstrate t%e falsit) or fradlence of t%e income
ta+ retrns wit% intent to evade t%e 'a)ment of ta+- 8ence, t%e im'osition of t%e frad
'enalt) is 'ro'er-
&ereJ vs- Cort of Ta+ A''eals, =G1/7/3, 4a) B/, 1978
Filin* of amended retrn after service of letter of at%orit)-GG Section , !A" of t%e
Code 'rovides t%at an) ta+ retrn filed b) a ta+'a)er 0ma) be modified, c%an*ed or
amended0 b) t%e ta+'a)er 0wit%in t%ree !B" )ears from date of sc% filin*-0 8owever, 0no
notice for adit or investi*ation of sc% retrn, statement or declaration %as, in t%e
meantime, been actall) served 'on t%e ta+'a)er-0 T%s, if 'on investi*ation, it is
determined t%at t%e ta+'a)er(s ori*inall) filed ta+ retrn is false or fradlent, sc%
ta+'a)er s%all remain liable to t%e 7/Q civil 'enalt), w%et%er or not t%e ta+'a)er %as
filed %is amended ta+ retrn, if t%e said amended ta+ retrn was filed onl) after issance
of t%e =etter of At%orit) for t%e investi*ation of t%e ta+'a)er(s ta+ retrn or sc%
amendment %as been made in t%e corse of t%e said investi*ation-
O'ission or #nder%state'ent of capita "ains.%% In a demand letter dated A*st B1,
19,3, t%e Commissioner assessed 'etitioner for deficienc) income ta+es for 1973 to
19,/- T%e deficienc) ta+ assessments were based on t%e 'etitionerIs failre to re'ort in
fll %is ca'ital *ains on t%e sales of land- T%is omission or nderGdeclaration of income
5stified t%e im'osition of 7/Q src%ar*e-
Re.#est for reinvesti"ation 'a- to prescriptive period-GGT%e isse of 'rescri'tion
raised b) 'etitioner is baseless- T%e assessments were 'redicated on t%e fact t%at %is
income ta+ retrns, if not fradlent, were false becase %e nderGdeclared %is income-
In sc% a case, t%e deficienc) assessments ma) be made wit%in ten )ears after t%e discoG
ver) of t%e falsit) or omission- T%e cort action s%old be institted wit%in five )ears
after t%e assessment, bt t%is 'eriod is ss'ended drin* t%e time t%at t%e Commissioner
is 'ro%ibited from instittin* a cort action- As e+'lained in t%e Solicitor ?eneralIs
memorandm, #asaIs re1est for reinvesti*ation tolled t%e 'rescri'tive 'eriod of five
)ears wit%in w%ic% cort action ma) be bro*%t-
Commissioner vs- Ca'itol Sbdivision, Inc-, 119 &%il- 1/71
Collector vs- S)oc Consolidated 4inin* Co-, 1/E &%il- 819
4oreover, t%e isse of 'rescri'tion s%old %ave been raised in t%e Ta+ Cort- #asa vs-
Commissioner, ?-R- 6o- =GE7233, A*- 7, 1987
Additions to t%e basic ta+ li$e t%e 7/Q src%ar*e are not 'enalties bt civil
administrative sanctions, 'rovided 'rimaril) as a safe*ard for t%e 'rotection of t%e state
revene and to reimbrse t%e *overnment for t%e %eav) e+'ense of investi*ation and t%e
loss resltin* from t%e ta+'a)erIs frad-
Castro vs- Collector, E SCRA 1/9B
8owever, to sb5ect a ta+'a)er to t%e 'a)ment of t%e 7/Q src%ar*e, t%e State mst s%ow
eit%er t%at t%ere was a willfl ne*lect to file a retrn, or t%at a case of false or fradlent
retrn willfll) made e+ists-
Commissioner vs- Cisa)an :lectric Co-, 2B SCRA 317
Ta) dein.#enc- and ta) deficienc-
A ta+'a)er is considered Kdelin1entM in t%e 'a)ment of %is ta+ w%en !a" t%e selfG
assessed ta+ 'er retrn filed b) t%e ta+'a)er on t%e 'rescribed date was not 'aid at all or
was onl) 'artiall) 'aidH or !b" t%e deficienc) ta+ assessed b) t%e #IR became final and
e+ector)-
T%e term Kdeficienc)M means !1" t%e amont b) w%ic% t%e ta+ im'osed b) law as
determined b) t%e Commissioner or %is at%oriJed re'resentative e+ceeds t%e amont
s%own as t%e ta+ b) t%e ta+'a)er 'on %is retrnH or !2" if no amont is s%own as t%e ta+
b) t%e ta+'a)er 'on %is retrn, or if no retrn is made b) t%e ta+'a)er, t%en t%e amont
b) w%ic% t%e ta+ is determined b) t%e Commissioner or %is at%oriJed re'resentative
e+ceeds t%e amonts 'reviosl) assessed !or collected wit%ot assessment" as a
deficienc) !Sec- 7,!#", Ta+ Code"-
R:C:69: R:?9=ATIO6S 6O- //9G1/ Se'tember 1B, 2/1/
&olicies and ?idelines for t%e Abatement of Src%ar*es andRor Com'romise &enalties
in Relation to t%e Filin* of Ta+ Retrns and &a)ment of Ta+es nder Certain Conditions
sc% as ta+'a)ers w%o s%all %ave %ave e+'ressed t%eir willin*ness to volntaril) file and
'a) ta+es andRor rectif) t%e retrns t%e) %ave 'reviosl) filed and 'a) an) and all
deficienc) ta+es and increments t%ereto, bt at t%e same time, t%e) re1ested for t%e
abatement of corres'ondin* src%ar*es andRor com'romise 'enalties- In line wit% t%is
'ro*ram, t%e #IR %as ado'ted t%e 'olic) to deter, to t%e *reatest 'ossible de*ree, ta+
evasion 'ractices and to encora*e volntar) com'liance wit% t%e internal revene ta+
laws-
Frad cannot be 'resmed-
Fradlent intent cold not be dedced from mista$es %owever fre1ent t%e) ma) be,
es'eciall) if sc% mista$es emanate from erroneos entries or erroneos classification of
items in accontin* met%ods tiliJed for determination of ta+ liabilities- T%e frad
contem'lated b) law is actal and not constrctive- It mst be intentional frad,
consistin* of dece'tion willfll) and deliberatel) done or resorted to in order to indce
anot%er to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross, is not e1ivalent
to t%e frad wit% intent to evade t%e ta+ contem'lated b) t%e law- It mst amont to
intentional wron*doin* wit% t%e sole ob5ect of avoidin* t%e ta+-
2ose #- AJnar vs- Cort of Ta+ A''eals, et al-, ?-R- 6o- =G2/7,9, A*st 2B, 193E
Commissioner of Internal Revene vs- Air India, et al-, ?-R- 6o- =G32EEB, 2anar) 29,
1988
SECTION 24B"Interest" #
0A1 In General" # T!ere s!all +e assessed and olleted on an& un%aid amount o)
ta$( interest at t!e rate o) t-ent& %erent 02091 %er annum( or su! !i*!er rate as
ma& +e %resri+ed +& rules and re*ulations( )rom t!e date %resri+ed )or %a&ment
until t!e amount is )ull& %aid"
0;1 De)iien& Interest" # An& de)iien& in t!e ta$ due( as t!e term is de)ined in
t!is Code( s!all +e su+7et to t!e interest %resri+ed in Su+setion 0A1 !ereo)(
-!i! interest s!all +e assessed and olleted )rom t!e date %resri+ed )or its
%a&ment until t!e )ull %a&ment t!ereo)"
0C1 Delin8uen& Interest" # In ase o) )ailure to %a&2
051 T!e amount o) t!e ta$ due on an& return re8uired to +e )iled( or
021 T!e amount o) t!e ta$ due )or -!i! no return is re8uired( or
0.1 A de)iien& ta$( or an& sur!ar*e or interest t!ereon on t!e due date a%%earin*
in t!e notie and demand o) t!e Commissioner( t!ere s!all +e assessed and
olleted on t!e un%aid amount( interest at t!e rate %resri+ed in Su+setion 0A1
!ereo) until t!e amount is )ull& %aid( -!i! interest s!all )orm %art o) t!e ta$"
0D1 Interest on E$tended Pa&ment" # I) an& %erson re8uired to %a& t!e ta$ is
8uali)ied and elets to %a& t!e ta$ on installment under t!e %ro'isions o) t!is Code(
+ut )ails to %a& t!e ta$ or an& installment !ereo)( or an& %art o) su! amount or
installment on or +e)ore t!e date %resri+ed )or its %a&ment( or -!ere t!e
Commissioner !as aut!ori<ed an e$tension o) time -it!in -!i! to %a& a ta$ or a
de)iien& ta$ or an& %art t!ereo)( t!ere s!all +e assessed and olleted interest at
t!e rate !ereina+o'e %resri+ed on t!e ta$ or de)iien& ta$ or an& %art t!ereo)
un%aid )rom t!e date o) notie and demand until it is %aid"
Interest and src%ar*es on deficienc) ta+es are im'osable 'on failre of t%e ta+'a)er to
'a) t%e ta+ on t%e date fi+ed b) law-
T%e rle as to w%en interest and src%ar*es on delin1enc) ta+ 'a)ments becomes
c%ar*eable is well settled- T%e interest and src%ar*es on deficienc) ta+es are im'osable
'on failre of t%e ta+'a)er to 'a) t%e ta+ on t%e date fi+ed in t%e law for t%e 'a)ment
t%ereof- T%e rle %as to be so becase a deficienc) ta+ indicates nonG'a)ment of t%e
correct ta+, and sc% deficienc) e+ists not onl) from t%e assessment t%ereof bt from t%e
time t%e ta+'a)er failed to 'a) t%e correct amont of ta+ w%en it s%old %ave been 'aidH
and t%e im'osition t%ereof is mandator) even in t%e absence of frad or willfl failre to
'a) t%e ta+ in fll-
A*inaldo Indstries Cor'- !Fis%in* 6ets .ivision" vs- Commissioner of Internal
Revene, et al-, ?-R- 6o- =G2939/, Febrar) 27, 1982
Im'osition of interest is not 'enal bt com'ensator) in natre-
T%e im'osition of interest is bt a 5st com'ensation to t%e State for t%e dela) in 'a)in*
t%e ta+ and for t%e concomitant se b) t%e ta+'a)er of fnds t%at ri*%tfll) s%old be in
t%e *overnment(s %ands- T%e fact t%at t%e interest c%ar*ed is made, 'ro'ortionate to t%e
'eriod of dela) constittes t%e best evidence t%at sc% interest is not 'enal bt
com'ensator)-
A*inaldo Indstries Cor'- !Fis%in* 6ets .ivision" vs- Commissioner of Internal
Revene, et al-, ?-R- 6o- =G2939/, Febrar) 27, 1982
Collection of 'enalt) and interest in case of delin1enc) is mandator)-
It is mandator) to collect 'enalt) and interest at t%e stated rate in case of delin1enc)-
T%e intention of t%e law is to discora*e dela) in t%e 'a)ment of ta+es de t%e
?overnment and, in t%is sense, t%e 'enalt) and interest are not 'enal bt com'ensator)
for t%e concomitant se of t%e fnds b) t%e ta+'a)er be)ond t%e date w%en %e is s''osed
to %ave 'aid t%em to t%e ?overnment-
&%ili''ine Refinin* Com'an), et al- vs- Cort of A''eals, et al-, ?-R- 6o- 11839E, 4a) 8,
199,
Src%ar*es are not 'enalties bt civil administrative sanctions-
Additions li$e t%e 7/Q src%ar*e to t%e main ta+ are not 'enalties bt civil
administrative sanctions, 'rovided 'rimaril) as a safe*ard for t%e 'rotection of t%e state
revene and to reimbrse t%e *overnment for t%e %eav) e+'ense of investi*ation and t%e
loss resltin* from t%e ta+'a)er(s frad-
4aria #- Castro vs- Collector of Internal Revene, ?-R- 6o- =G1213E, A'ril 2,, 19,2
Stron* reasons of 'olic) to s''ort a strict observance of t%e rle on im'osition of
src%ar*e-
Ta+ laws im'osin* 'enalties for delin1encies are clearl) intended to %asten ta+
'a)ments or to 'nis% evasion or ne*lect of dt) in res'ect t%ereof- If dela)s in ta+
'a)ments are to be condoned for li*%t reasons, t%e law im'osin* 'enalties for
delin1encies wold be rendered n*ator), and t%e maintenance of t%e *overnment and
its mltifarios activities wold be as 'recarios as ta+'a)ers are willin* or nwillin* to
'a) t%eir obli*ations to t%e state in time- Im'eratives of 'blic welfare will not a''rove
of t%is reslt
Celso #- 2amora, et al- vs- #ibiano =- 4eer, ?-R- 6o- E8129, 6ovember 11, 19E2
A*inaldo Indstries Cor'- !Fis%in* 6ets .ivision" vs- Commissioner of Internal
Revene, et al-, ?-R- 6o- =G2939/, Febrar) 27, 1982
?ood fait% 5stifies t%e deletion of t%e im'osition of src%ar*es and interest-
T%e settled rle is t%at *ood fait% and %onest belief t%at one is not sb5ect to ta+ on t%e
basis of 'revios inter'retation of *overnment a*encies tas$ed to im'lement t%e ta+ law,
are sfficient 5stification to delete t%e im'osition of src%ar*es and interest-
4ic%el 2- =%illier &awns%o', Inc- vs- Commissioner of Internal Revene, ?-R- 6o-
1,,38,, Se'tember 11, 2//,
SECTION 2>0" Failure to File Certain In)ormation Returns" # In t!e ase o)
ea! )ailure to )ile an in)ormation return( statement or list( or ,ee% an& reord( or
su%%l& an& in)ormation re8uired +& t!is Code or +& t!e Commissioner on t!e date
%resri+ed t!ere)or( unless it is s!o-n t!at su! )ailure is due to reasona+le ause
and not to -ill)ul ne*let( t!ere s!all( u%on notie and demand +& t!e
Commissioner( +e %aid +& t!e %erson )ailin* to )ile( ,ee% or su%%l& t!e same( One
t!ousand %esos 0P5(0001 )or ea! su! )ailure2
Pro'ided( !o-e'er( T!at t!e a**re*ate amount to +e im%osed )or all su! )ailures
durin* a alendar &ear s!all not e$eed T-ent&3)i'e t!ousand %esos 0P2>(0001"
SECTION 2>5"Failure o) a :it!!oldin* A*ent to Collet and Remit Ta$" # An&
%erson re8uired to -it!!old( aount )or( and remit an& ta$ im%osed +& t!is Code
or -!o -ill)ull& )ails to -it!!old su! ta$( or aount )or and remit su! ta$( or
aids or a+ets in an& manner to e'ade an& su! ta$ or t!e %a&ment t!ereo)( s!all( in
addition to ot!er %enalties %ro'ided )or under t!is C!a%ter( +e lia+le u%on
on'ition to a %enalt& e8ual to t!e total amount o) t!e ta$ not -it!!eld( or not
aounted )or and remitted"
.eficienc) ta+es are im'osed for failre of a wit%%oldin* a*ent to collect ta+-
It is not t%e 6.C t%at is bein* ta+ed- T%e ta+ was de on t%e interests earned b) t%e
2a'anese s%i'bilders- It was t%e income of t%ese com'anies and not t%e Re'blic of t%e
&%ili''ines t%at was sb5ect to t%e ta+ t%e 6.C did not wit%%old- In effect, t%erefore, t%e
im'osition of t%e deficienc) ta+es on t%e 6.C is a 'enalt) for its failre to wit%%old t%e
same from t%e 2a'anese s%i'bilders-
6ational .evelo'ment Com'an) vs- Commissioner of Internal Revene, ?-R- 6o- =G
7B9,1, 2ne B/, 1983
SECTION 2>2"Failure o) a :it!!oldin* A*ent to Re)und E$ess :it!!oldin* Ta$"
# An& em%lo&erH-it!!oldin* a*ent -!o )ails or re)uses to re)und e$ess
-it!!oldin* ta$ s!all( in addition to t!e %enalties %ro'ided in t!is Title( +e lia+le to
a %enalt& e8ual to t!e total amount o) re)unds -!i! -as not re)unded to t!e
em%lo&ee resultin* )rom an& e$ess o) t!e amount -it!!eld o'er t!e ta$ atuall&
due on t!eir return"
CHAPTER II
Crimes( Ot!er O))enses and For)eitures
SECTION 2>."General Pro'isions" #
0a1 An& %erson on'ited o) a rime %enali<ed +& t!is Code s!all( in addition to
+ein* lia+le )or t!e %a&ment o) t!e ta$( +e su+7et to t!e %enalties im%osed !erein2
Pro'ided( T!at %a&ment o) t!e ta$ due a)ter a%%re!ension s!all not onstitute a
'alid de)ense in an& %roseution )or 'iolation o) an& %ro'ision o) t!is Code or in
an& ation )or t!e )or)eiture o) unta$ed artiles"
G0+1 An& %erson -!o -ill)ull& aids or a+ets in t!e ommission o) a rime %enali<ed
!erein or -!o auses t!e ommission o) an& su! o))ense +& anot!er s!all +e lia+le
in t!e same manner as t!e %rini%al"
G01 I) t!e o))ender is not a iti<en o) t!e P!ili%%ines( !e s!all +e de%orted
immediatel& a)ter ser'in* t!e sentene -it!out )urt!er %roeedin*s )or de%ortation"
I) !e is a %u+li o))ier or em%lo&ee( t!e ma$imum %enalt& %resri+ed )or t!e
o))ense s!all +e im%osed and( in addition( !e s!all +e dismissed )rom t!e %u+li
ser'ie and %er%etuall& dis8uali)ied )rom !oldin* an& %u+li o))ie( to 'ote and to
%artii%ate in an& eletion" I) t!e o))ender is a Certi)ied Pu+li Aountant( !is
erti)iate as a Certi)ied Pu+li Aountant s!all( u%on on'ition( +e
automatiall& re'o,ed or anelled"
G0d1 In t!e ase o) assoiations( %artners!i%s or or%orations( t!e %enalt& s!all +e
im%osed on t!e %artner( %resident( *eneral mana*er( +ran! mana*er( treasurer(
o))ier3in3!ar*e( and em%lo&ees res%onsi+le )or t!e 'iolation"
G0e1 T!e )ines to +e im%osed )or an& 'iolation o) t!e %ro'isions o) t!is Code s!all
not +e lo-er t!an t!e )ines im%osed !erein or t-ie t!e amount o) ta$es( interests
and sur!ar*es due )rom t!e ta$%a&er( -!i!e'er is !i*!er"
&recise com'tation and assessment of ta+ is not re1ired before criminal 'rosection-
Assessment of deficienc) ta+ is not necessar) before ta+'a)er can be 'rosected-
&recise com'tation and assessment of ta+ is not re1ired before criminal 'rosection-
;%ile t%ere can be no civil action to enforce collection before t%e assessment 'rocedres
'rovided in t%e Code %ave been followed, t%ere is no re1irement for t%e 'recise
com'tation and assessment of t%e ta+ before t%ere can be a criminal 'rosection nder
t%e Code- ;%at is involved %ere is not t%e collection of ta+es w%ere t%e assessment of t%e
Commissioner of Internal Revene ma) be reviewed b) t%e Cort of Ta+ A''eals, bt a
criminal 'rosection for violations of t%e 6ational Internal Revene Code w%ic% is
wit%in t%e co*niJance of corts of first instance-
Assessment of deficienc) ta+ is not necessar) before ta+'a)er can be 'rosected-
An assessment of a deficienc) is not necessar) to a criminal 'rosection for willfl
attem't to defeat and evade t%e income ta+- A crime is com'lete w%en t%e violator %as
$nowin*l) and willfll) filed a fradlent retrn wit% intent to evade and defeat t%e ta+-
T%e 'er'etration of t%e crime is *ronded 'on $nowled*e on t%e 'art of t%e ta+'a)er
t%at %e %as made an inaccrate retrn, and t%e *overnment(s failre to discover t%e error
and 'rom'tl) to assess %as no connections wit% t%e commission of t%e crime-
Firico &- 9n*ab vs- Cicente 6- Csi, 2r-, et al-, ?-R- 6os- =GE1919G2E, 4a) B/, 198/
SECTION 2>4"Attem%t to E'ade or De)eat Ta$" # An& %erson -!o -ill)ull&
attem%ts in an& manner to e'ade or de)eat an& ta$ im%osed under t!is Code or t!e
%a&ment t!ereo) s!all( in addition to ot!er %enalties %ro'ided +& la-( u%on
on'ition t!ereo)( +e %unis!ed +& a )ine o) not less t!an T!irt& t!ousand %esos
0P.0(0001 +ut not more t!an One !undred t!ousand %esos 0P500(0001 and su))er
im%risonment o) not less t!an t-o 021 &ears +ut not more t!an )our 041 &ears2
Pro'ided( T!at t!e on'ition or a8uittal o+tained under t!is Setion s!all not +e a
+ar to t!e )ilin* o) a i'il suit )or t!e olletion o) ta$es"
Ee'ents of ta) evasion.
#efore one is 'rosected for willfl attem't to evade or defeat an) ta+ nder t%e Ta+
Code, t%e fact t%at a ta+ is de mst first be 'roved-
For criminal 'rosection to 'roceed before assessment, t%ere mst be a 'rima facie
s%owin* of a willfl attem't to evade ta+es-
:lements of ta+ evasion-
Ta+ evasion connotes t%e inte*ration of t%ree factors: !1" t%e end to be ac%ieved, i-e-, t%e
'a)ment of less t%an t%at $nown b) t%e ta+'a)er to be le*all) de, or t%e nonG'a)ment of
ta+ w%en it is s%own t%at a ta+ is deH !2" an accom'an)in* state of mind w%ic% is
described as bein* 0evil,0 in 0bad fait%,0 0willfll,0 or 0deliberate and not accidental0H
and !B" a corse of action or failre of action w%ic% is nlawfl-
Commissioner of Internal Revene vs- T%e :state of #eni*no &- Toda, 2r-, et al-, ?-R- 6o-
1E3188, Se'tember 1E, 2//E
#efore a ta+'a)er cold be 'rosected for ta+ evasion nder t%e Ta+ Code, t%e fact t%at
t%e deficienc) income, ad valorem and valeGadded ta+es were de s%old first be
establis%ed-
Commissioner of Internal Revene vs- Cort of A''eals, et al-, ?-R- 6o- 119B22, 2ne E,
199,
For criminal 'rosection to 'roceed before assessment, t%ere mst be a 'rima facie
s%owin* of a willfl attem't to evade ta+es- Since t%e re*istered w%olesale 'rice of t%e
*oods, a''roved b) t%e #IR, is 'resmed to be t%e actal w%olesale 'rice, t%erefore, not
fradlent and nless and ntil t%e #IR %ad made a final determination of w%at is
s''osed to be t%e correct ta+es, t%e ta+'a)er s%old not be 'laced in t%e crcible of
criminal 'rosection-
Commissioner of Internal Revene vs- Cort of A''eals, et al-, ?-R- 6o- 119B22, 2ne E,
199,
ISS/ANCES Aditin* Standards #oard
State'ent on A#ditin" Standards
SAS 00
Consideration of Fra#d in a Financia State'ent A#dit
KRes'onsibilities and Fnctions of t%e Inde'endent Aditor0 states 0T%e aditor %as a
res'onsibilit) to 'lan and 'erform t%e adit to obtain reasonable assrance abot w%et%er
t%e financial statements are free of material misstatement, w%et%er cased b) error or frad0
T%is Statement establis%es standards and 'rovides *idance to aditors in flfillin* t%at
res'onsibilit), as it relates to frad, in an adit of financial statements condcted in
accordance wit% *enerall) acce'ted aditin* standards-
K:valatin* adit evidenceM re1ires t%e aditor to assess t%e ris$s of material misstatement
de to frad t%ro*%ot t%e adit and to evalate at t%e com'letion of t%e adit w%et%er t%e
accmlated reslts of aditin* 'rocedres and ot%er observations affect t%e assessment- It
also re1ires t%e aditor to consider w%et%er identified misstatements ma) be indicative of
frad and, if so, directs t%e aditor to evalate t%eir im'lications-
CO44ISSIO6:R OF I6T:R6A= R:C:69:, 'etitioners, vs- T8: 8O6ORA#=: CO9RT
OF A&&:A=S, T8: 8O6ORA#=: TIRSO .( C- C:=ASCO, &R:SI.I6? 29.?:,
R:?IO6A= TRIA= CO9RT OF F9:SO6 CITD, #RA6C8 88, FORT96: TO#ACCO
COR&ORATIO6, , res'ondents-
N?-R- 6o- 119B22- 2ne E, 199,-O
SD==A#9S
1- TA>ATIO6H 6ATIO6A= I6T:R6A= R:C:69: CO.:H #:FOR: O6: IS
&ROS:C9T:. FOR ;I==F9= ATT:4&T TO :CA.: OR .:F:AT A6D TA> 96.:R
S:CTIO6S 27B A6. 277 T8:R:OF T8: FACT T8AT A TA> IS .9: 49ST FIRST #:
&ROC:.- T It is t%e o'inion of bot% t%e trial cort and res'ondent Cort of A''eals, t%at
before Fortne and t%e ot%er 'rivate res'ondents cold be 'rosected for ta+ evasion nder
Sections 27B and 277 of t%e Ta+ Code, t%e fact t%at t%e deficienc) income, ad valorem and
valeGadded ta+es were de from Fortne for t%e )ear 1992 s%old first be establis%ed-
Fortne received from t%e Commissioner of Internal Revene t%e deficienc) assessment
notices in t%e total amont of &3,,87,9E2,221-/, on A*st 2E, 199B- 8owever, nder
Section 229 of t%e Ta+ Code, t%e ta+'a)er %as t%e ri*%t to move for reconsideration of t%e
assessment issed b) t%e Commissioner of Internal Revene wit%in t%irt) !B/" da)s from
recei't of t%e assessment, and if t%e motion for reconsideration is denied, it ma) a''eal to
t%e Cort of A''eals wit%in t%irt) !B/" da)s from recei't of t%e Commissioner(s decision-
8ere, Fortne received t%e Commissioner(s assessment notice dated A*st 1B, 199B on
A*st 2E, 199B as$in* for t%e 'a)ment of t%e deficienc) ta+es- ;it%in t%irt) !B/" da)s from
recei't t%ereof, Fortne moved for reconsideration- T%e Commissioner %as not resolved t%e
re1est for reconsideration ' to t%e 'resent- ;e s%are wit% t%e view of bot% t%e trial cort
and Cort of A''eals t%at before t%e ta+ liabilities of Fortne are first finall) determined, it
cannot be correctl) asserted t%at 'rivate res'ondents %ave wilfll) attem'ted to evade or
defeat t%e ta+es so*%t to be collected from Fortne- In 'lain words, before one is 'rosected
for wilfl attem't to evade or defeat an) ta+ nder Sections 27B and 277 of t%e Ta+ Code, t%e
fact t%at a ta+ is de mst first be 'roved-
2- I.-H I.-H FOR CRI4I6A= &ROS:C9TIO6 TO &ROC::. #:FOR: ASS:SS4:6T,
T8:R: 49ST #: A &RI4A FACI: S8O;I6? OF A ;I==F9= ATT:4&T TO :CA.:
TA>:S- T ;e cannot sbscribe to t%e 'etitioners( t%esis citin* 9n*ad vs- Csi, t%at t%e lac$
of final determination of Fortne(s e+act or correct ta+ liabilit) is not a bar to criminal
'rosection, and t%at w%ile a 'recise com'tation and assessment is re1ired for a civil
action to collect ta+ deficiencies, t%e Ta+ Code does not re1ire sc% com'tation and
assessment 'rior to criminal 'rosection- Readin* 9n*ad carefll), t%e 'rononcement
t%erein t%at deficienc) assessment is not necessar) 'rior to 'rosection is 'ointedl) and
deliberatel) 1alified b) t%e Cort wit% followin* statement 1oted from ?Ji$ vs- 9-S- !7E
F2d- ,18": 0T%e crime is com'lete w%en t%e violator %as $nowin*l) and wilfll) filed a
fradlent retrn wit% intent to evade and defeat a 'art or all of t%e ta+-0 In 'lain words, for
criminal 'rosection to 'roceed before assessment, t%ere mst be a 'rima facie s%owin* of a
wilfl attem't to evade ta+es- T%ere was a wilfl attem't to evade ta+ in 9n*ad becase of
t%e ta+'a)er(s failre to declare in %is income ta+ retrn 0%is income derived from banana
sa'lin*s-0 In t%e mind of t%e trial cort and t%e Cort of A''eals, Fortne(s sitation is 1ite
a'art factall) since t%e re*istered w%olesale 'rice of t%e *oods, a''roved b) t%e #IR, is
'resmed to be t%e actal w%olesale 'rice, t%erefore, not fradlent and nless and ntil t%e
#IR %ad made a final determination of w%at is s''osed to be t%e correct ta+es, t%e ta+'a)er
s%old not be 'laced in t%e crcible of criminal 'rosection- 8erein lies a w%ale of
difference between 9n*ad and t%e case at bar-
B- R:4:.IA= =A;H CRI4I6A= &ROC:.9R:H &R:=I4I6ARD I6C:STI?ATIO6H
4AD #: :62OI6:. ;8:R: :>C:&TIO6A= CIRC94STA6C:S SO ;ARRA6T- T In
issin* t%e 1estioned orders *rantin* t%e issance of a writ of 'reliminar) in5nction, t%e
trial cort believed t%at said orders were warranted to afford 'rivate res'ondents ade1ate
'rotection of t%eir constittional ri*%ts, 'articlarl) in reference to 'resm'tion of
innocence, de 'rocess and e1al 'rotection of t%e laws- T%e trial cort also fond merit in
'rivate res'ondents( contention t%at 'reliminar) in5nction s%old be issed to avoid
o''ression and becase t%e acts of t%e state 'rosectors were wit%ot or in e+cess of
at%orit) and for t%e reason t%at t%ere was a 're5dicial 1estion- Contrar) to 'etitioners(
sbmission, 'reliminar) investi*ation ma) be en5oined w%ere e+ce'tional circmstances so
warrant- In 8ernandeJ vs- Albano and Fortn vs- =aban*, in5nction was issed to en5oin a
'reliminar) investi*ation- In t%e case at bar, 'rivate res'ondents filed a motion to dismiss
t%e com'laint a*ainst t%em before t%e 'rosection and alternativel), to ss'end t%e
'reliminar) investi*ation on t%e *ronds cited %ereinbefore, one of w%ic% is t%at t%e
com'laint of t%e Commissioner is not s''orted b) an) evidence to serve as ade1ate basis
for t%e issance of t%e sb'oena to t%em and 't t%em to t%eir defense- Indeed, t%e 'r'ose
of a 'reliminar) in5nction is to secre t%e innocent a*ainst %ast), malicios and o''ressive
'rosection and to 'rotect %im from an o'en and 'blic accsation of crime, from t%e
troble, e+'ense and an+iet) of a 'blic trial and also to 'rotect t%e state from seless and
e+'ensive trials-
E- I.-H AS =O6? AS A CO9RT ACTS ;IT8I6 ITS 29RIS.ICTIO6, A6D A==:?:.
:RRORS CO44ITT:. I6 T8: :>:RCIS: OF ITS 29RIS.ICTIO6, ;I== A4O96T TO
6OT8I6? 4OR: T8A6 :RRORS OF 29.?4:6T R:CI:;A#=: #D TI4:=D A&&:A=
A6. 6OT #D S&:CIA= CICI= ACTIO6 OF C:RTIORARI- T ;e believe t%at t%e trial cort
in issin* its 1estioned orders, w%ic% are interloctor) in natre, committed no *rave abse
of discretion amontin* to lac$ of 5risdiction- T%ere are factal and le*al bases for t%e
assailed orders- On t%e ot%er %and, t%e brden is 'on t%e 'etitioners to demonstrate t%at
t%e 1estioned orders constitte a w%imsical and ca'ricios e+ercise of 5d*ment, w%ic% t%e)
%ave not- For certiorari will not be issed to cre errors in 'roceedin*s or correct erroneos
conclsions of law or fact- As lon* as a cort acts wit%in its 5risdiction, an) alle*ed errors
committed in t%e e+ercise of its 5risdiction will amont to not%in* more t%an errors of
5d*ment w%ic% are reviewable b) timel) a''eal and not b) a s'ecial civil action of
certiorari- Conse1entl), t%e Re*ional Trial Cort acted correctl) and 5diciosl), and as
demanded b) t%e facts and t%e law, in issin* t%e orders *rantin* t%e writs of 'reliminar)
in5nction, in den)in* 'etitioners( motion to dismiss and in admittin* t%e s''lemental
'etitions- ;%at 'etitioners s%old %ave done was to file an answer to t%e 'etition filed in t%e
trial cort, 'roceed to t%e %earin* and a''eal t%e decision of t%e cort if adverse to t%em-
#:==OSI==O, 2-, concrrin* and dissentin*:
1- R:4:.IA= =A;H &ROCISIO6A= R:4:.I:SH I6296CTIC: ;RITSH T8:
:>:RCIS: OF SO96. 29.ICIA= .ISCR:TIO6 #D T8: TRIA= CO9RT I6
I6296CTIC: 4ATT:RS S8O9=. 6OT #: I6T:RF:R:. ;IT8 :>C:&T I6 CAS: OF
4A6IF:ST A#9S:- T ;ell entrenc%ed is t%e rle t%at t%e issance of t%e writ of
'reliminar) in5nction as an ancillar) or 'reventive remed) to secre t%e ri*%ts of a 'art) in
a 'endin* case rests 'on t%e sond discretion of t%e cort %earin* it- T%e e+ercise of sond
5dicial discretion b) t%e trial cort in in5nctive matters s%old not be interfered wit% e+ce't
in case of manifest abse w%ic% is not tre in t%e case before s- :1all) well settled is t%at
nder Sec- 3, Rle 78, Rles of Cort, a wide latitde is *iven to t%e trial cort- T%is is
becase t%e conflictin* claims in an a''lication for a 'rovisional writ more often t%an not
involves a factal determination w%ic% is not t%e fnction of t%is Cort, or even res'ondent
a''ellate cort- T%s in t%e case at bar t%e ascertainment of t%e actal ta+ liabilit), if an),
based on t%e evidence alread) 'resented and still to be 'resented, is more wit%in t%e
com'etence of t%e trial cort before w%ic% t%e 'arties %ave raised t%e ver) same isse in t%e
main case- T%e trt% or falsit) of t%e diver*ent statements t%at t%ere was deliberate %aste in
issin* t%e sb'oenas and in den)in* 'rivate res'ondents( motion to dismiss ma) be
confirmed not b) t%is Cort bt b) t%e trial cort drin* t%at %earin* on t%e merits-
2- I.-H I.-H I.-H 6O ?RAC: A#9S: OF .ISCR:TIO6 CA6 #: ATTRI#9T:. TO A
29.?: OR #O.D I6 T8: ISS9A6C: T8:R:OF ;8:R: A &ARTD ;AS 6OT
.:&RIC:. OF ITS .AD I6 CO9RT AS IT ;AS 8:AR. A6. 8AS :>8A9STIC:=D
&R:S:6T:. A== ITS AR?94:6TS A6. .:F:6S:S- T 6o *rave abse of discretion can
be attribted to a 5d*e or bod) in t%e issance of a writ of 'reliminar) in5nction w%ere a
'art) was not de'rived of its da) in cort as it was %eard and %ad e+%astivel) 'resented all
its ar*ments and defenses- It is ndis'ted t%at in t%e case before s 'etitioners and 'rivate
res'ondents were *iven sfficient time and o''ortnit) to 'resent t%eir res'ective 'ieces of
evidence as well as ar*ments in s''ort of t%eir 'ositions- Conse1entl), I concr wit% t%e
findin* of t%e ma5orit) t%at t%e trial cort committed no *rave abse of discretion- As
res'ondent a''ellate cort said, 0N*Orave abse of discretion as a *rond for issance of
writs of certiorari and 'ro%ibition im'lies ca'ricios and w%imsical e+ercise of 5d*ment as
is e1ivalent to lac$ of 5risdiction, or w%ere t%e 'ower is e+ercised in an arbitrar) or
des'otic manner b) reason of 'assion, 're5dice or 'ersonal %ostilit) amontin* to an
evasion of 'ositive dt) or to a virtal refsal to 'erform t%e dt) en5oined, or to act at all in
contem'lation of law- For sc% writs to lie t%ere mst be ca'ricios, arbitrar) and w%imsical
e+ercise of 'ower, t%e ver) antit%esis of t%e 5dicial 'rero*ative in accordance wit% centries
of bot% civil and common law traditions-0 T%e trial cort, to m) mind, is not *ilt) of an) of
t%ese- T%s I accord res'ect to t%e e+ercise of t%e trial cort(s sond 5dicial discretion and
%old t%at t%e same s%old not be interfered wit%-
B- I.-H I.-H I.-H .9: &ROC:SS CO6SI.:RATIO6S .ICTAT: T8AT I6296CTIC:
;RITS AR: 6OT 29.?4:6T O6 T8: 4:RITS #9T 4:R:=D OR.:RS FOR T8:
?RA6T OF A &ROCISIO6A= A6. A6CI==ARD R:4:.D TO &R:S:RC: T8: STAT9S
F9O 96TI= T8: 4:RITS OF T8: CAS: CA6 #: 8:AR.H CAS: AT #AR- T To
'ermanentl) en5oin t%e trial cort from 'roceedin* in an) manner in Civil Case 6o- FG9EG
1939/ and allow t%e 'reliminar) investi*ation of t%e com'laints doc$eted as I-S- 6os- 9BG
7/8, 9BG139E2 and 9BG78E wit% t%e .e'artment of 2stice to resme ntil t%eir final
conclsion and com'letion wold *o a*ainst t%e 'revailin* rle t%at corts s%old avoid
issin* a writ or 'reliminar) in5nction w%ic% wold in effect dis'ose of t%e main case
wit%ot trial- .e 'rocess considerations dictate t%at t%e assailed in5nctive writs are not
5d*ments on t%e merits bt merel) orders for t%e *rant of a 'rovisional and ancillar)
remed) to 'reserve t%e stats 1o ntil t%e merits of t%e case can be %eard- T%e %earin* on
t%e a''lication for issance of a writ of 'reliminar) in5nction is se'arate and distinct from
t%e trial on t%e merits of t%e main case- T%e 1antm of evidence re1ired for one is different
from t%at for t%e ot%er, so t%at it does not necessaril) follow t%at if t%e cort *rants and
isses t%e tem'orar) writ a''lied for t%e same cort will now %ave to rle in favor of t%e
'etition for 'ro%ibition and i'so facto ma$e t%e 'rovisional in5nction 'ermanent- If *rave
abse of discretion attended t%e issance of t%e writ of 'reliminar) in5nction, t%en b) all
means nllif) t%e absive act T bt onl) t%at- T%e main case s%old be allowed to 'roceed
accordin* to de 'rocess- T%e trial cort s%old receive t%e evidence from t%e contendin*
'arties, wei*% and evalate t%e same and t%en ma$e its findin*s- Clearl), t%e dismissal of t%e
main case as a reslt of a mere incident relative to t%e issance of an ancillar) writ is
'rocedrall) aw$ward and violates de 'rocess, as it de'rives 'rivate res'ondents of t%eir
ri*%t to 'resent t%eir case in cort and s''ort it wit% its evidence-
E- &O=ITICA= =A;H &O;:RS OF T8: STAT:H I6 #A=A6CI6? O6 T8: SCA=:S
T8: &O;:RS OF T8: STAT: TO TA>, TO &ROS:C9T: &:RC:IC:.
TRA6S?R:SSORS OF T8: =A; A6. T8: RI?8TS OF A CITIS:6 TO .9: &ROC:SS
A6. :F9A= &ROT:CTIO6, T8: SCA=:S 49ST TI=T I6 FACOR OF A6 I6.ICI.9A=,
FOR A CITIS:6(S RI?8T IS A4&=D &ROT:CT:. #D T8: #I== OF RI?8TS OF T8:
CO6STIT9TIO6- T In resolvin* t%e fndamental isse at %and, i-e-, w%et%er t%e trial cort
committed *rave abse of discretion in issin* t%e sb5ect writs of 'reliminar) in5nction, we
cannot avoid balancin* on t%e scales t%e 'ower of t%e State to Ta+ and its in%erent ri*%t to
'rosecte 'erceived trans*ressors of t%e law on one side, and t%e constittional ri*%ts of a
citiJen to de 'rocess of law and t%e e1al 'rotection of t%e laws on t%e ot%er- Obviosl) t%e
scales mst tilt in favor of t%e individal, for a citiJen(s ri*%t is am'l) 'rotected b) t%e #ill of
Ri*%ts of t%e Constittion- T%s w%ile 0ta+es are t%e lifeblood of t%e *overnment,0 t%e 'ower
to ta+ %as its limits, ins'ite of all its 'lenitde- In t%e instant case, it seems t%at de to t%e
overJealosness in collectin* ta+es from 'rivate res'ondents and to some accident of
immediate overw%elmin* interest w%ic% distressin*l) im'assions and distorts 5d*ment, t%e
State %as nwittin*l) i*nored t%e citiJens( constittional ri*%ts-
7- I.-H I.-H CO9RTS S8O9=. 6OT 8:SITAT: TO I6CO@: T8: CO6STIT9TIO6A=
?9ARA6T::S TO ?IC: A.:F9AT: &ROT:CTIO6 TO CITIS:6S ;8:6 FAC:. ;IT8
T8: :6OR4O9S &O;:RS OF T8: STAT:, :C:6 ;8:6 ;8AT IS I6 ISS9: AR:
O6=D &ROCISIO6A= R:4:.I:S- T Corts indeed s%old not %esitate to invo$e t%e
constittional *arantees to *ive ade1ate 'rotection to t%e citiJens w%en faced wit% t%e
enormos 'owers of t%e State, even w%en w%at is in isse are onl) 'rovisional remedies, as
in t%e case at %and- In da)s of *reat 'ressre, it is allrin* to ta$e s%ort cts b) borrowin*
dictatorial tec%ni1es- #t w%en we do, we set in motion an arbitrar) or sbversive inflence
b) or own desi*n w%ic% destro)s s from wit%in- =et not t%e 'resent case dan*erosl) swa)
towards t%at trend-
&A.I==A, 2-, dissentin*:
1- R:4:.IA= =A;H &ROCISIO6A= R:4:.I:SH A CO9RT OR.:R TO STO& A
&R:=I4I6ARD I6C:STI?ATIO6 IS A6 ACT OF I6T:RF:R:6C: ;IT8 T8:
I6C:STI?ATI6? OFFIC:RS( .ISCR:TIO6 A#S:6T A6D S8O;I6? OF ?RAC: A#9S:
OF .ISCR:TIO6 O6 T8: &ART OF T8: =ATT:R I6 CO6.9CTI6? S9C8
&R:=I4I6ARD I6C:STI?ATIO6H CAS: AT #AR- T T%e 'ro'er 'rocedre on t%e 'art of
'rivate res'ondents after t%eir motion to dismiss was denied b) t%e investi*atin* 'anel,
s%old %ave been an a''eal from sc% an adverse resoltion to t%e Secretar) of 2stice, not
a s'ecial civil action for certiorari and 'ro%ibition wit% a''lication for 'reliminar)
in5nction before t%e res'ondent trial cort- As a corollar), t%e res'ondent trial cort s%old
%ave desisted from entertainin* 'rivate res'ondents( ori*inal 'etition for certiorari and
'ro%ibition wit% 'ra)er for 'reliminar) in5nction becase a cort order to sto' a
'reliminar) investi*ation is an act of interference wit% t%e investi*atin* officers( discretion,
absent an) s%owin* of *rave abse of discretion on t%e 'art of t%e latter in condctin* sc%
'reliminar) investi*ation-
2- I.-H I.-H .OCTRI6: OF :>8A9STIO6 OF A.4I6ISTRATIC: R:4:.I:SH 6OT
CO4&=I:. ;IT8 I6 CAS: AT #AR- T T%e isse of w%et%er or not t%e evidence sbmitted
b) 'etitioners is sfficient to warrant t%e filin* of criminal informations for fradlent ta+
evasion is 'rematrel) raised- To ar*e, as 'rivate res'ondents do, t%at one 'iece of
evidence, i-e- t%e .ail) 4anfactrer(s Sworn Statements, s%old be 'rodced at a
'articlar sta*e of t%e investi*ation, in order to determine t%e 'robable *ilt of t%e accsed,
is to dictate to t%e investi*atin* officers t%e 'rocedre b) w%ic% evidence s%old be
'resented and e+amined- Frt%er, 0a 'reliminar) investi*ation is not t%e occasion for t%e fll
and e+%astive dis'la) of t%e 'arties( evidenceH it is for t%e 'resentation of sc% evidence
onl) as ma) en*ender a well *ronded belief t%at an offense %as been committed and t%at t%e
accsed is 'robabl) *ilt) t%ereof - - -0 #esides, t%e 'reliminar) investi*ation %as not )et
been terminated- T%e 'ro'er 'rocedre t%en s%old be to allow t%e investi*ators, w%o
ndeniabl) %ave 5risdiction, to condct and finis% t%e 'reliminar) investi*ation and to
render a resoltion- T%e 'art) a**rieved b) said resoltion can t%en a''eal it to t%e
Secretar) of 2stice, as re1ired b) t%e settled doctrine of e+%astion of administrative
remedies- ;%at s'ecial 1alification or 'rivile*e, I ma) as$, do 'rivate res'ondents %ave,
'articlarl) Fortne and =cio Tan, as to e+em't t%em from t%e o'eration of t%is rooted
'rinci'le and entitle t%em to immediate 5dicial relief from t%e res'ondent trial cort in t%is
caseA
B- TA>ATIO6H 6ATIO6A= I6T:R6A= R:C:69: CO.:H T8: =AC@ OF A FI6A=
.:T:R4I6ATIO6 OF TA>&AD:R(S :>ACT OR CORR:CT TA> =IA#I=ITD IS 6OT A #AR
TO CRI4I6A= &ROS:C9TIO6 FOR FRA9.9=:6T TA> :CASIO6- T T%e res'ondents
Cort of A''eals and t%e trial cort maintain, as 'rivate res'ondents do, t%at a 'revios
assessment of t%e correct amont of ta+es de is necessar) before 'rivate res'ondents ma)
be c%ar*ed criminall) for fradlent ta+ evasion- T%is view is decidedl) not s''orted b)
law and 5ris'rdence- T%e lac$ of a final determination of res'ondent Fortne(s e+act or
correct ta+ liabilit) is no a bar to criminal 'rosection for fradlent ta+ evasion- ;%ile a
'recise com'tation and assessment is re1ired for a civil action to collect a ta+ deficienc),
t%e 6ational Internal Revene Code does not re1ire sc% com'tation and assessment 'rior
to criminal 'rosection for fradlent ta+ evasion-
E- I.-H I.-H T8: R9=I6? I6 T8: 96?A# CAS: IS 96.IS&9TA#=D O6 A==
FO9RS ;IT8 A6. CO6C=9SIC: TO T8: CAS: AT #AR- T It s%old be stressed and
'ointed ot t%at in 9n*ab t%e Cort denied t%e 'ra)er of t%erein 'etitioner to 1as%
informations for ta+ evasion t%at %ad alread) been filed in cort- In ot%er words, t%e
'rosectors in 9n*ab %ad alread) fond 'robable case to tr) t%erein 'etitioner for ta+
evasion- .es'ite t%is fact t%ere was no findin* b) t%e Cort of violation of an) of 'etitioner(s
constittional ri*%ts- In t%e 'resent case, 'rivate res'ondents were merel) bein* re1ired to
sbmit conterGaffidavits to t%e com'laints filed- If no violation of constittional ri*%ts was
committed in 9n*ab, 'on t%e filin* of t%e criminal informations in Cort, %ow can t%ere
now be a violation of 'rivate res'ondents( constittional ri*%ts 'on a re1irement b) t%e
investi*ators t%at 'rivate res'ondents sbmit t%eir conterGaffidavitsA T%e Cort %as not
been 'resented an) com'ellin* or 'ersasive ar*ment w%) t%e 9n*ab doctrine %as to be
abandoned- It is *ood law and s%old be t%e nemesis of fradlent ta+ evaders- It *ives teet%
to t%e 'ro'er enforcement of or ta+ laws-
7- I.-H I.-H S:CTIO6S 123!b" A6. 1E2!c" T8:R:OF AR: 6OT .:T:R4I6ATIC:
OF T8: TA>&AD:R(S CRI4I6A= =IA#I=ITD I6 CAS: AT #AR- T As t%e Solicitor ?eneral
correctl) 'oints ot, Sections 123!b" and 1E2!c" of t%e Ta+ Code are bot% a''licable in
determinin* t%e amont of ta+ de- Section 123!b" 'rovides for t%e met%od of determinin*
t%e *ross w%olesale 'rice to be re*istered wit% t%e #IR w%ile Section 1E2!c" 'rovides for t%e
rate of ad valorem ta+ to be 'aid- Said rate is e+'ressed as a 'ercenta*e of t%e re*istered
*ross sellin* 'rice w%ic% is determined, in trn, based on Section 123!b"- T%e
aforementioned two !2" 'rovisions of t%e Ta+ Code are certainl) not determinative of 'rivate
res'ondents( criminal liabilit), if an)- A readin* of t%e #IR com'laints 'endin* wit% t%e .O2
Revene Cases Tas$ Force s%ows t%at 'rivate res'ondent Fortne is bein* accsed of sin*
0dmm)0 cor'orations and bsiness condits as well as nonGe+istent individals and entities
to enable t%e com'an) !Fortne" to re'ort *ross recei'ts from sales of its ci*arette brands
lower t%an *ross recei'ts w%ic% are actall) derived from sc% sales- Sc% lower *ross
recei'ts of t%e com'an), as re'orted b) res'ondent Fortne t%s reslt in lower ad valorem,
valeGadded and income ta+es 'aid to t%e *overnment- Stated a little differentl), res'ondent
Fortne is accsed of sellin* at w%olesale 'rices its ci*arette brands t%ro*% dmm) entities
in t%e 'rofits of w%ic% it %as a controllin* interest- 9nder Section 123!b", t%e *ross sellin*
'rice of t%e *oods s%old be t%e w%olesale 'rice of sc% dmm) T entities to its b)ers bt it
is alle*ed b) t%e *overnment t%at res'ondent Fortne %as 'r'osel) made se of sc%
entities to evade 'a)ment of %i*%er bt le*all) correct ta+es-
,- I.-H I.-H T8: 9S: OF A 4:T8O. OR .:CIC: #D A 4A69FACT9R:R TO
4A@: IT A&&:AR T8AT &RO.9CTS AR: SO=. AT A ;8O=:SA=: &RIC: =O;:R
T8A6 T8: A4O96TS T8AT T8: 4A69FACT9R:R ACT9A==D R:A=IS:S FRO4
S9C8 ;8O=:SA=: OF ITS &RO.9CTS T8RO9?8 T8: 9S: OF .944D :6TITI:S
IS A C=:AR CIO=ATIO6 OF S:CTIO6 123!b" I6 R:=ATIO6 TO T8: &:6A=
&ROCISIO6S OF T8: TA> CO.:H CAS: AT #AR- T &a)ment of ad valorem and ot%er
ta+es based on t%e w%olesale 'rice re*istered wit% t%e #IR 'res''oses and natrall)
assmes t%at t%e re*istered w%olesale 'rices corres'ond to t%e actal w%olesale 'rices at
w%ic% t%e manfactrer sells t%e 'rodct- If a manfactrer ma$es se of a met%od or device
to ma$e it a''ear t%at 'rodcts are sold at a w%olesale 'rice lower t%an t%e amonts t%at t%e
manfactrer actall) realiJes from sc% w%olesale of its 'rodcts, as w%at res'ondent
Fortne is accsed of doin*, t%ro*% t%e se of dmm) entities, t%en t%ere arises criminal
liabilit) nder t%e 'enal 'rovisions of t%e Ta+ Code- T%is is clear from Section 123!b"
afore1oted in relation to t%e 'enal 'rovisions of t%e Ta+ Code-
3- CO6STIT9TIO6A= =A;H #I== OF RI?8TSH TA>&AD:R(S RI?8T TO .9:
&ROC:SS, :F9A= &ROT:CTIO6 A6. &R:S94&TIO6 OF I66OC:6C: IS 6OT
CIO=AT:. I6 CAS: AT #AR- T It is im'ortant to stress t%at in a 'reliminar) investi*ation,
t%e investi*atin* officers( sole dt) is to determine, before t%e 'resentation of evidence b) t%e
'rosection and b) t%e defense, if t%e latter s%old wis% to 'resent an), w%et%er or not t%ere
are reasonable *ronds for 'roceedin* formall) a*ainst t%e accsed- T%is is in conformit)
wit% t%e 'r'ose of a 'reliminar) investi*ation w%ic% is to secre t%e innocent a*ainst %ast),
malicios, and o''ressive 'rosections, and to 'rotect %im from an o'en and 'blic
accsation of crime, from t%e troble, e+'ense and an+iet) of 'blic trial, and also to
'rotect t%e state from seless and e+'ensive trials- As restated b) t%e illstrios late C%ief
2stice 4anel C- 4oran T 0- - - t%e 'r'ose of a 'reliminar) investi*ation is to afford t%e
accsed an o''ortnit) to s%ow b) %is own evidence t%at t%ere is no reasonable *rond to
believe t%at %e is *ilt) of t%e offense c%ar*ed and t%at, t%erefore, t%ere is no *ood reason for
frt%er %oldin* %im to await trial in t%e Cort of First Instance-0 &rescindin* from t%e tenets
aboveGdiscssed, it is clear from t%e ince'tion t%at t%ere %ad been no violation of 'rivate
res'ondents( constittional ri*%ts to 'resm'tion of innocence, de 'rocess and e1al
'rotection of t%e laws- T%e 'reliminar) investi*ation, I re'eat, %as not )et been terminated-
At t%is sta*e, onl) t%e com'lainant %as finis%ed 'resentin* its affidavits and s''ortin*
docments- Obviosl) t%en, t%e investi*atin* 'anel fond t%at t%ere were *ronds to
contine wit% t%e in1ir), %ence, t%e issance of sb'oena and an order for t%e sbmission
of conterGaffidavits b) 'rivate res'ondents- Instead of filin* conterGaffidavits, 'rivate
res'ondents filed a Cerified 4otion to .ismissH Alternativel), 4otion to Ss'end- At t%is
'oint, it ma) be as$ed, %ow cold 'rivate res'ondents( constittional ri*%t to 'resm'tion of
innocence be violated w%en, in all sta*es of t%e 'reliminar) investi*ation, t%e) were
'resmed innocentA .eclarin* t%at t%ere are reasonable *ronds to contine wit% t%e
in1ir) is not t%e same as 'rononcin* t%at a res'ondent is *ilt) or 'robabl) *ilt) of t%e
offense c%ar*ed-
CIT9?, 2-, se'arate o'inion:
1- R:4:.IA= =A;H &ROCISIO6A= R:4:.I:SH &R:=I4I6ARD I6296CTIO6H IT
;O9=. #: A6 ACT &R:CI&ITAT: FOR T8: CO9RTS TO TA@: O6 A CAS: :C:6
#:FOR: T8: CO4&=AI6T OR I6FOR4ATIO6 IS FI=:. #D T8: &ROS:C9TIO6- T I
see in t%e 'etition t%e overridin* isse of w%et%er or not 5dicial relief cold be resorted to
in order to sto' state 'rosectors from *oin* t%ro*% wit% t%eir investi*ation of com'laints
lod*ed a*ainst 'rivate res'ondents- Almost invariabl), t%is Cort %as resolved not to ndl)
interfere, let alone to 'erem'toril) 'revent, t%e 'rosectin* a*encies or offices of t%e
*overnment in t%eir investi*atorial wor$ or in t%eir own evalation of t%e reslts of
investi*ation- It wold indeed be, in m) view, an act 'reci'itate for t%e corts to ta$e on a
case even before t%e com'laint or information is filed b) t%e 'rosection- Of corse, one
cannot 'reclde t%e 'ossibilit) t%at at times com'ellin* reasons ma) dictate ot%erwiseH I do
not t%in$ %owever, t%at t%e instant case cold be t%e ri*%t occasion for it-
2- TA>ATIO6H T8: 4ATT:R AFF:CTI6? T8: CICI= =IA#I=ITD FOR .9:
&AD4:6T OF I6T:R6A= R:C:69: TA>:S, I6C=9.I6? T8: A&&=ICA#=:
R:4:.I:S A6. &ROC::.I6?S I6 T8: .:T:R4I6ATIO6 T8:R:OF, 49ST #:
CO6SI.:R:. A&ART FRO4 A6. T:C86ICA==D I6.:&:6.:6T OF T8: CRI4I6A=
AS&:CT T8AT 4AD #: #RO9?8T TO #:AR I6 A&&RO&RIAT: CAS:S- T T%e matter
affectin* t%e civil liabilit) for t%e de 'a)ment of internal revene ta+es, incldin* t%e
a''licable remedies and 'roceedin*s in t%e determination t%ereof, mst be considered a'art
from and tec%nicall) inde'endent of t%e criminal as'ect t%at ma) be bro*%t to bear in
a''ro'riate cases- A recorse in one is not necessaril) 'reclsive of, nor wold t%e reslts
t%ereof be conclsive on, t%e ot%er-
. : C I S I O 6
T%e 'ivotal isse in t%is 'etition for review is w%et%er or not res'ondent Cort of A''eals in
its decision in CAG?-R- S& 6o- BB799 correctl) rled t%at t%e Re*ional Trial Cort of
FeJon Cit) !#ranc% 88" in Civil Case 6o- FG9EG1839/ did not commit *rave abse of
discretion amontin* to lac$ of 5risdiction in issin* for !E" orders directin* t%e issance
of writs of 'reliminar) in5nction restrainin* 'etitioner 'rosectors from continin* wit% t%e
'reliminar) in5nction of I-S- 6os- 9BG7/8 and 9BG78E in t%e .e'artment of 2stice and I-S-
6o- 9BG139E2 in t%e Office of t%e Cit) &rosectors of FeJon Cit) w%erein 'rivate
res'ondents were res'ondents and den)in* 'etitioners( 4otion to .ismiss said Civil Case
6o- 9EG1839/-
In resolvin* t%e isse raised in t%e 'etition, t%e Cort ma) be *ided b) its definition of w%at
constittes *rave abse of discretion- #) *rave abse of discretion is meant sc% ca'ricios
and w%imsical e+ercise of 5d*ment as is e1ivalent to lac$ of 5risdiction T%e abse of
discretion mst be 'atent and *ross as to amont to an evasion of 'ositive dt) or a virtal
refsal to 'erform a dt) en5oined b) law, or to act at all in contem'lation of law as w%ere
t%e 'ower is e+ercised in an arbitrar) and des'otic manner b) reason of 'assion and
%ostilit)-
On 2ne 1, 199B, t%e &resident issed a 4emorandm creatin* a Tas$ Force to investi*ate
t%e ta+ liabilities of manfactrers en*a*ed in ta+ evasion sc%eme, sc% as sellin* 'rodcts
t%ro*% dmm) mar$etin* cor'orations to avoid 'a)ment of correct internal revene ta+, to
collect from t%em an) ta+ liabilities discovered from sc% investi*ation, and to file t%e
necessar) criminal actions a*ainst t%ose w%o ma) %ave violated t%e ta+ code- T%e tas$ force
was com'osed of t%e Commissioner of Internal Revene as C%airman, a re'resentative of t%e
.e'artment of 2stice and a re'resentative of t%e :+ective Secretar)-
On 2l) 1, 199B, t%e Commissioner of Internal Revene issed a Revene 4emorandm
Circlar 6o- B3G9B reclassif)in* best sellin* ci*arettes bearin* t%e brands 08o'e,0 04ore,0
and 0C%am'ion0 as ci*arettes of forei*n brands sb5ect to a %i*%er rate of ta+-
On A*st B, 199B, res'ondent Fortne Tobacco Cor'oration !Fortne" 1estioned t%e
validit) of t%e reclassification of said brands of ci*arettes as violative of its ri*%t to de
'rocess and e1al 'rotection of law- &arent%eticall), on Se'tember 8, 199B, t%e Cort of Ta+
A''eals b) resoltion rled t%at t%e reclassification made b) t%e Commissioner 0is of
dobtfl le*alit)0 and en5oined its enforcement-
In a letter of A*st 1B, 199B w%ic% was received b) Fortne on A*st 2E, 199B, t%e
Commissioner assessed a*ainst Fortne t%e total amont of &3,,87,9E2,221-,, re'resentin*
deficienc) income, ad valorem and valeGadded ta+ for t%e )ear 1992 wit% t%e re1est t%at
t%e said amont be 'aid wit%in t%irt) !B/" da)s 'on recei't t%ereof- Fortne on Se'tember
13, 199B moved for reconsideration of t%e assessments-
On Se'tember 3, 199B, t%e Commissioner of Internal Revene filed a com'laint wit% t%e
.e'artment of 2stice a*ainst res'ondent Fortne, its cor'orate officers, nine !9" ot%er
cor'orations and t%eir res'ective cor'orate officers for alle*ed fradlent ta+ evasion for
s''osed nonG'a)ment b) Fortne of t%e correct amont of income ta+, ad valorem ta+ and
valeGadded ta+ for t%e )ear 1992- T%e com'laint alle*ed, amon* ot%ers, t%at:
In t%e said income ta+ retrn, t%e ta+'a)er declared a net ta+able income of
&18B,,1B,E/8-// and an income ta+ de of &,E,2,E,,9B-//- #ased mainl) on docmentar)
evidence sbmitted b) t%e ta+'a)er itself, t%ese declarations are false and fradlent
becase t%e correct ta+able income of t%e cor'oration for t%e said )ear is
&1,282,979,B99-27-
T%is nderdeclaration w%ic% reslted in t%e evasion of t%e amont of &32B,33B,379-39 as
deficienc) income ta+ for t%e )ear 1992 is a violation of Section E7 of t%e Ta+ Code,
'enaliJed nder Section 27B in relation to Sections 272!b" and !d" and 27B t%ereof, t%s: - - -
+++++++++
Fortne Tobacco Cor'oration, t%ro*% its CiceG&resident for Finance, Ro+as C%a, li$ewise
filed valeGadded ta+ retrns for t%e 1st, 2nd, Brd and Et% 1arters of 1992 wit% t%e Rev-
.istrict Office of 4ari$ina, 4etro 4anila, declarin* t%erein *ross ta+able sales, as follows:
1st Ftr- &2,92E,E18,/77-//
2nd Ftr- 2,98/,BB7,2B7-//
Brd Ftr- 2,8B9,719,B27-//
Et% Ftr- 2,992,B8,,//7-//
8owever, contrar) to w%at %ave been re'orted in t%e said valeGadded ta+ retrns, and
based on docmentar) evidence obtained from t%e ta+'a)er, t%e total actal ta+able sales of
t%e cor'oration for t%e )ear 1992 amonted to &1,,178,737,/B7-// instead of
&11,929,B22,BBE-72 as declared b) t%e cor'oration in t%e said CAT retrns-
T%ese fradlent nderdeclarations w%ic% reslted in t%e evasion of valeGadded ta+es in t%e
a**re*ate amont of &1,1,9,,88,,E7-,B for t%e entire )ear 1992 are violations of Section
11/ in relation to Section 1// of t%e Ta+ Code, w%ic% are li$ewise 'enaliJed nder t%e
afore1oted Section 27B, in relation to Section 272, t%ereof- Sections 11/ and 1// 'rovide:
+++++++++
Frt%ermore, based on t%e cor'oration(s CAT retrns, t%e cor'oration re'orted its ta+able
sales for 1992 in t%e amont of &11,3B,,,78,78/- T%is declaration is li$ewise false and
fradlent becase, based on t%e dail) manfactrer(s sworn statements sbmitted to t%e #IR
b) t%e ta+'a)er, its total ta+able sales drin* t%e )ear 1992 is &1,,,8,,B32,297-//- As a
reslt t%ereof, t%e cor'oration was able to evade t%e 'a)ment of ad valorem ta+es in t%e
a**re*ate amont of &7,392,E39,81,-2E in violation of Section 123 in relation to Section
1E2, as amended b) R-A- ,97,, 'enaliJed nder t%e afore1oted Section 27B, in relation to
Section 272, all of t%e Ta+ Code- Sections 123 and 1E2, as amended b) R-A- ,97,, are 1oted
as follows: - - -
T%e com'laint doc$eted as I-S- 6o- 9BG7/8, was referred to t%e .e'artment of 2stice Tas$
Force on revene cases w%ic% fond sfficient basis to frt%er investi*ate t%e alle*ations
t%at Fortne, t%ro*% fradlent means, evaded 'a)ment of income ta+, ad valorem ta+, and
valeGadded ta+ for t%e )ear 1992 t%s, de'rivin* t%e *overnment of revenes in t%e amont
of Seven and OneG%alf !&3-7" #illion &esos-
T%e fradlent sc%eme alle*edl) ado'ted b) 'rivate res'ondents consisted of ma$in*
fictitios and simlated sales of Fortne(s ci*arette 'rodcts to nonGe+istin* individals and
to entities incor'orated and e+istin* onl) for t%e 'r'ose of sc% fictitios sales b) declarin*
re*istered w%olesale 'rices wit% t%e #IR lower t%an Fortne(s actal w%olesale 'rices w%ic%
are re1ired for determination of Fortne(s correct income, ad valorem, and valeGadded ta+
liabilities- T%e 0*%osts w%olesale b)ers0 t%en ostensibl) sold t%e 'rodcts to cstomers and
ot%er w%olesalersRretailers at %i*%er w%olesale 'rices determined b) Fortne- T%e ta+
retrns and manfactrer(s sworn statements filed b) Fortne wold t%en declare t%e
fictitios sales it made to t%e condit cor'orators and nonGe+istin* individal b)ers as its
*ross sales-
On Se'tember 8, 199B, t%e .e'artment of 2stice Tas$ Force issed a sb'oena directin*
'rivate res'ondents to sbmit t%eir conterGaffidavits not later t%an Se'tember 2/, 199B-
Instead of filin* t%eir conterGaffidavits, t%e 'rivate res'ondents on October 17, 199B filed a
Cerified 4otion to .ismissH Alternativel) 4otion to Ss'end, based 'rinci'all) on t%e
followin* *ronds:
1- T%e com'laint of 'etitioner Commissioner follows a 'attern of 'rosection a*ainst
'rivate res'ondents in violation of t%eir ri*%t to de 'rocess and e1al 'rotection of t%e law-
2- &etitioner Commissioner and t%e Cort of Ta+ A''eals %ave still to determine
Fortne(s ta+ liabilit) for 1992 in 1estionH wit%ot an) ta+ liabilit), t%ere can be no ta+
evasion-
B- :+clsive 5risdiction to determine ta+ liabilit) is vested in t%e Cort of Ta+ A''eals,
t%erefore, t%e .O2 is wit%ot 5risdiction to condct 'reliminar) investi*ation-
E- T%e com'laint of 'etitioner Commissioner is not s''orted b) an) evidence to serve
as ade1ate basis for t%e issance of sb'oena to 'rivate res'ondents and to 't t%em to
t%eir defense-
At t%e sc%edled 'reliminar) investi*ation on October 17, 199B, 'rivate res'ondents were
as$ed b) t%e 'anel of 'rosectors to inform it of t%e as'ects of t%e Cerified 4otion to .ismiss
w%ic% consel for 'rivate res'ondents did so briefl)- Consel for t%e Commissioner of
Internal Revene as$ed for fifteen !17" da)s wit%in w%ic% to file a re'l) in writin* to 'rivate
res'ondents( Cerified 4otion to .ismiss- T%ere'on, t%e 'anel of 'rosectors declared a
recess- 9'on reconvenin*, t%e 'anel of 'rosectors denied t%e motion to dismiss and treated
t%e same as 'rivate res'ondents( conterGaffidavits-
On October 2/, 199B, 'rivate res'ondents filed a motion for reconsideration of t%e order of
October 17, 199B- On October 21, 199B, 'rivate res'ondents filed a motion to re1ire t%e
sbmission b) t%e #rea of Internal Revene of certain docments in frt%er s''ort of
t%eir Cerified 4otion to .ismiss- Amon* t%e docments so*%t to be 'rodced are t%e 0.ail)
4anfactrer(s Sworn Statements0 w%ic% accordin* to 'etitioner Commissioner in %er
com'laint were sbmitted b) Fortne to t%e #IR and w%ic% were t%e basis of %er conclsion
t%at Fortne(s ta+ declarations were false and fradlent- Fortne claimed t%at wit%ot t%e
0.ail) 4anfactrer(s Sworn Statements,0 t%ere is no evidence to s''ort t%e com'laint,
%ence, warrantin* its otri*%t dismissal-
On October 2,, 199B, 'rivate res'ondents moved for t%e in%ibition of t%e State &rosectors
assi*ned to t%e case for alle*ed lac$ of im'artialit)- &rivate res'ondents also so*%t t%e
'rodction of t%e 0.ail) 4anfactrer(s Sworn Statements0 sbmitted b) certain ci*arette
com'anies similarl) sitated as Fortne bt were not 'roceeded a*ainst, t%s, 'rivate
res'ondents c%ar*ed t%at Fortne and its officers were bein* sin*led ot for criminal
'rosection w%ic% is discriminator) and in violation of t%e e1al 'rotection clase of t%e
Constittion-
On .ecember 2/, 199B, t%e 'anel of 'rosectors issed an Omnibs Order den)in* 'rivate
res'ondents( motion for reconsideration, motion for ss'ension of investi*ation, motion to
in%ibit t%e State &rosectors, and motion to re1ire sbmission b) t%e #IR of certain
docments to frt%er s''ort 'rivate res'ondents( motion to dismiss-
On 2anar) E, 199E, 'rivate res'ondents filed a 'etition for certiorari and 'ro%ibition wit%
'ra)er for 'reliminar) in5nction wit% t%e Re*ional Trial Cort, #ranc% 88, FeJon Cit),
doc$eted as FG9EG1839/, 'ra)in* t%at t%e com'laint of t%e Commissioner of Internal
Revene and t%e orders of t%e 'rosectors in I-S- 6o- 9BG7/8 be dismissed or set aside,
alternativel), t%e 'roceedin*s on t%e 'reliminar) investi*ation be ss'ended 'endin* final
determination b) t%e Commissioner of Fortne(s motion for reconsiderationRreinvesti*ation
of t%e A*st 1B, 199B assessment of t%e ta+es de-
On 2anar) 13, 199E, 'etitioners filed a motion to dismiss t%e 'etition on t%e *ronds t%at
!a" t%e trial cort is bereft of 5risdiction to en5oin a criminal 'rosection nder 'reliminar)
investi*ationH !b" a criminal 'rosection for ta+ frad can 'roceed inde'endentl) of criminal
or administrative actionH !c" t%ere is no 're5dicial 1estion to 5stif) ss'ension of t%e
'reliminar) investi*ationH !d" 'rivate res'ondents( ri*%ts to de 'rocess was not violatedH
and !e" selective 'rosection is not a valid defense in t%is 5risdiction-
On 2anar) 19, 199E, at t%e %earin* of t%e incident for t%e issance of a writ of 'reliminar)
in5nction in t%e 'etition, 'rivate res'ondents offered in evidence t%eir verified 'etition for
certiorari and 'ro%ibition and its anne+es- &etitioners res'onded b) 'ra)in* t%at t%eir
motion to dismiss t%e 'etition for certiorari and 'ro%ibition be considered as t%eir
o''osition to 'rivate res'ondents( a''lication for t%e issance of a writ of 'reliminar)
in5nction-
On 2anar) 27, 199E, t%e trial cort issed an order *rantin* t%e 'ra)er for t%e issance of
a 'reliminar) in5nction- T%e trial cort rationaliJed its order in t%is wise:
a" It is 'rivate res'ondents( claim t%at t%e ad valorem ta+ for t%e )ear 1992 was levied,
assessed and collected b) t%e #IR nder Section 1E2!c" of t%e Ta+ Code on t%e basis of t%e
0manfactrer(s re*istered w%olesale 'rice0 dl) a''roved b) t%e #IR- Fortne(s ta+able
sales for 1992 was in t%e amont of &11,3B,,,78,78/-//-
b" On t%e ot%er %and, it is 'etitioners( contention t%at Fortne(s declaration was false
and fradlent becase, based on its dail) manfactrer(s sworn statements sbmitted to t%e
#IR, its ta+able sales in 1992 were &1,,,8,,B32,297-//, as a reslt of w%ic%, Fortne was
able to evade t%e 'a)ment of ad valorem ta+ in t%e a**re*ate amont of &7,392,E39,81,-2E-
c" At t%e %earin* for 'reliminar) investi*ation, t%e 0.ail) 4anfactrer(s Sworn
Statements0 w%ic%, accordin* to 'etitioners, were sbmitted to t%e #IR b) 'rivate
res'ondents and made t%e basis of 'etitioner Commissioner(s com'laint t%at t%e total
ta+able sales of Fortne in 1992 amonted to &1,,,8,,B32,297-// were not 'rodced as 'art
of t%e evidence for 'etitioners- In fact, 'rivate res'ondents %ad filed a motion to re1ire
'etitioner Commissioner to sbmit t%e aforesaid dail) manfactrer(s sworn statements
before t%e .O2 'anel of 'rosectors to s%ow t%at Fortne(s actal ta+able sales totaled
&1,,,8,,B3B,297-//, bt t%e motion was denied-
d" T%ere is not%in* on record in t%e 'reliminar) investi*ation before t%e 'anel of
investi*ators w%ic% s''orts t%e alle*ation t%at Fortne made a fradlent declaration of its
1992 ta+able sales-
e" Since, as alle*ed b) 'rivate res'ondents, t%e ad valorem ta+ for t%e )ear 1992 s%old
be based on t%e 0manfactrer(s re*istered w%olesale 'rice0 w%ile, as claimed b) 'etitioners,
t%e ad valorem ta+es s%old be based on t%e w%olesale 'rice at w%ic% t%e manfactrer sold
t%e ci*arettes, w%ic% is a le*al isse as admitted b) a #IR law)er drin* t%e %earin* for
'reliminar) in5nction, t%e correct inter'retation of t%e law involved, w%ic% is Section 1E2!c"
of t%e Ta+ Code, constittes a 're5dicial 1estion w%ic% mst first be resolved before
criminal 'roceedin*s for ta+ evasion ma) be 'rsed- In ot%er words, t%e #IR mst first
ma$e a final determination, w%ic% it %as not, of Fortne(s ta+ liabilit) relative to its 1992 ad
valorem, valeGadded and income ta+es before t%e ta+'a)er can be made liable for ta+
evasion-
f" T%ere was a 'reci'itate issance b) t%e 'anel of 'rosectors of sb'oenas to 'rivate
res'ondents, on t%e ver) da) followin* t%e filin* of t%e com'laint wit% t%e .O2 consistin* of
abot ,// 'a*es, and t%e 'reci'itate denial b) t%e 'anel of 'rosectors, after a recess of
abot twent) !2/" mintes, of 'rivate res'ondents( motion to dismiss, consistin* of one
%ndred and t%irt)Gfive !1B7" 'a*es-
*" &rivate res'ondents %ad been es'eciall) tar*eted b) t%e *overnment for 'rosection-
&rior to t%e filin* of t%e com'laint in I-S- 6o- 9BG7/8, 'etitioner Commissioner issed
Revene 4emorandm Circlar 6o- B3G9B reclassif)in* Fortne(s best sellin* ci*arettes,
namel) 08o'e,0 04ore,0 and 0C%am'ion0 as ci*arettes bearin* a forei*n brand, t%ereb)
im'osin* 'on t%em a %i*%er rate of ta+ t%at wold 'rice t%em ot of t%e mar$et-
%" ;%ile in 'etitioner Commissioner(s letter of A*st 1B, 199B, s%e *ave Fortne a
'eriod of t%irt) !B/" da)s from recei't t%ereof wit%in w%ic% to 'a) t%e alle*ed ta+ deficienc)
assessments, s%e filed t%e criminal com'laint for ta+ evasion before t%e 'eriod la'sed-
i" #ased on t%e fore*oin*, t%e criminal com'laint a*ainst 'rivate res'ondents was filed
'rematrel) and in violation of t%eir constittional ri*%t to e1al 'rotection of t%e laws-
On 2anar) 2,, 199E, 'rivate res'ondents filed wit% t%e trial cort a 4otion to Admit
S''lemental &etition and so*%t t%e issance of a writ of 'reliminar) in5nction to en5oin
t%e State &rosectors from continin* wit% t%e 'reliminar) investi*ation filed b) t%em
a*ainst 'rivate res'ondents wit% t%e FeJon Cit) &rosector(s Office, doc$eted as I-S- 9BG
139E2, for alle*ed fradlent ta+ evasion, committed b) 'rivate res'ondents for t%e ta+able
)ear 199/- &rivate res'ondents averred in t%eir motion t%at no s''ortin* docments or
co'ies of t%e com'laint were attac%ed to t%e sb'oena in I-S- 9BG139E2H t%at t%e sb'oena
violates 'rivate res'ondents( constittional ri*%t to de 'rocess, e1al 'rotection and
'resm'tion of innocenceH t%at I-S- 9BG139E2 is sbstantiall) t%e same as I-S- 9BG7/8H t%at
no ta+ assessment %as been issed b) t%e Commissioner of Internal Revene and considerin*
t%at ta+es 'aid %ave not been c%allen*ed, no ta+ liabilit) e+istsH and t%at since Assistant Cit)
&rosector #ara1ia was a former classmate of &residential =e*al Consel Antonio T-
Car'io, t%e former cannot condct t%e 'reliminar) investi*ation in an im'artial manner-
On 2anar) 28, 199E, 'rivate res'ondents filed wit% t%e trial cort a second s''lemental
'etition, also see$in* to sta) t%e 'reliminar) investi*ation in I-S- 9BG78E, w%ic% was t%e t%ird
com'laint filed a*ainst 'rivate res'ondents wit% t%e .O2 for alle*ed fradlent ta+ evasion
for t%e ta+able )ear 1991-
On 2anar) B1, 199E, t%e lower cort admitted t%e two !2" s''lemental 'etitions and issed
a tem'orar) restrainin* order in I-S- 9BG139E2 and I-S- 9BG78E- Also, on t%e same da),
'etitioners filed an 9r*ent 4otion for Immediate Resoltion of 'etitioners( motion to
dismiss-
On Febrar) 3, 199E, t%e trial cort issed an order den)in* 'etitioners( motion to dismiss
'rivate res'ondents( 'etition see$in* to sta) 'reliminar) investi*ation in I-S- 9BG7/8, rlin*
t%at t%e isse of w%et%er Sec- 123!b" of t%e 6ational Ta+ Revene Code s%old be t%e basis
of 'rivate res'ondents( ta+ liabilit) as contended b) t%e #rea of Internal Revene, or
w%et%er it is Section 1E2!c" of t%e same Code t%at a''lies, as ar*ed b) %erein 'rivate
res'ondents, s%old first be settled before an) com'laint for fradlent ta+ evasion can be
initiated-
On Febrar) 1E, 199E, t%e trial cort issed an order *rantin* 'rivate res'ondents( 'etition
for a s''lemental writ of 'reliminar) in5nction, li$ewise en5oinin* t%e 'reliminar)
investi*ation of t%e two !2" ot%er com'laints filed wit% t%e FeJon Cit) &rosector(s Office
and t%e .O2 for fradlent ta+ evasion, I-S- 9BG139E2 and I-S- 9BG78E, for alle*ed ta+
evasion for t%e ta+able )ears 199/ and 1991, res'ectivel)- In *rantin* t%e s''lemental writ,
t%e trial cort stated t%at t%e two ot%er com'laints are t%e same as in I-S- 9BG7/8, e+ce't t%at
t%e former refer to t%e ta+able )ears 199/ and 1991-
On 4arc% 3, 199E, 'etitioners filed a 'etition for certiorari and 'ro%ibition wit% 'ra)er for
'reliminar) in5nction before t%is Cort- 8owever, t%e 'etition was referred to t%e Cort of
A''eals for dis'osition b) virte of its ori*inal concrrent 5risdiction over t%e 'etition-
On .ecember 19, 199E, t%e Cort of A''eals in CAG?-R- 6o- S&GBB799 rendered a decision
den)in* t%e 'etition- T%e Cort of A''eals rled t%at t%e trial cort committed no *rave
abse of discretion in orderin* t%e issance of writs of 'reliminar) in5nction and in den)in*
'etitioners( motion to dismiss- In '%oldin* t%e reasons and conclsions *iven b) t%e trial
cort in its orders for t%e issance of t%e 1estioned writs, t%e Cort of A''eals said in 'art:
In ma$in* sc% conclsion t%e res'ondent Cort mst %ave nderstood from %erein
'etitioner Commissioner(s letterGcom'laint of 1E 'a*es !''- E33GE9/, rollo of t%is case" and
t%e 5oint affidavit of ei*%t revene officers of 13 'a*es attac%ed t%ereto !''- E91G7/3, s'ra"
and its anne+es !''- 7/8G1/33, s'ra", t%at t%e c%ar*e a*ainst %erein res'ondents is for ta+
evasion for nonG'a)ment b) %erein res'ondent Fortne of t%e correct amonts of income ta+,
ad valorem ta+ and vale added ta+, not necessaril) (fradlent ta+ evasion-( 8ence, t%e
need for 'revios assessment of t%e correct amont b) %erein 'etitioner Commissioner
before %erein res'ondents ma) be c%ar*ed criminall)- Certiorari will not be issed to cre
errors in 'roceedin*s or correct erroneos conclsions of law or fact- As lon* as a Cort
acts wit%in its 5risdiction, an) alle*ed error committed in t%e e+ercise of its 5risdiction,
will amont to not%in* more t%an errors of 5d*ment w%ic% are reviewable b) timel) a''eal
and not b) a s'ecial civil action of certiorari !Santos, 2r- vs- Cort of A''eals, 172 SCRA
B38H ?old Cit) Inte*rated &ort Services, Inc- vs- Intermediate A''ellate Cort, 131 SCRA
739"-
T%e 1estioned orders issed after %earin* !Anne+es A, #, C and ., 'etition" bein* bt
interloctor), review t%ereof b) t%is Cort is ina''ro'riate ntil final 5d*ment is rendered,
absent a s%owin* of *rave abse of discretion on t%e 'art of t%e issin* cort !See Can .orn
vs- Romillo, 1B9 SCRA 1B9, 1E1H 6ewswee$, Inc- vs- IAC, 131, 133H 4endoJa vs- Cort of
A''eals, 2/1 SCRA BEB, B72"- T%e factal and le*al isses involved in t%e main case still
before t%e res'ondent Cort are best resolved after trial- &etitioners, t%erefore, instead of
resortin* to t%is 'etition for certiorari and 'ro%ibition s%old %ave filed an answer to t%e
'etition as ordained in Section E, Rle 1,, in connection wit% Rle 11 of t%e Revised Rles of
Cort, inter'osin* as defense or defenses t%e ob5ection or ob5ections raised in t%eir motion
to dismiss, t%en 'roceed to trial in order t%at t%ereafter t%e case ma) be decided on t%e
merits b) t%e res'ondent Cort- In case of an adverse decision, t%e) ma) a''eal t%erefrom
b) w%ic% t%e entire record of t%e case wold be elevated for review !See 4endoJa vs- Cort
of A''eals, s'ra"- T%erefore, certiorari and 'ro%ibition resorted to b) %erein 'etitioners
will not lie in view of t%e remed) o'en to t%em- T%s, t%e resltin* dela) in t%e final
dis'osition of t%e case before t%e res'ondent Cort wold not %ave been incrred-
?rave abse of discretion as a *rond for issance of writs of certiorari and 'ro%ibition
im'lies ca'ricios and w%imsical e+ercise of 5d*ment as is e1ivalent to lac$ of
5risdiction, or w%ere t%e 'ower is e+ercised in an arbitrar) or des'otic manner b) reason of
'assion, 're5dice, or 'ersonal %ostilit), amontin* to an evasion of 'ositive dt) or to a
virtal refsal to 'erform t%e dt) en5oined, or to act at all in contem'lation of law
!Confederation of CitiJens =abor 9nion vs- 6=RC, ,/ SCRA 8EH #stamante vs-
Commission on Adit, 21, SCRA 1BE"- For sc% writs to lie, t%ere mst be ca'ricios,
arbitrar) and w%imsical e+ercise of 'ower, t%e ver) antit%esis of t%e 5dicial 'rero*ative in
accordance wit% centries of bot% civil law and common law traditions !Don* vs- Slit, 1,2
SCRA ,79, ,,EH FCC vs- IAC, 1,, SCRA 177H &refoods Cor'- vs- 6=RC, 131 SCRA E7"-
Certiorari and 'ro%ibition are remedies narrow in sco'e and infle+ible in c%aracter- T%e)
are not *eneral tilit) tools in t%e le*al wor$s%o' !Cda- de ?ia vs- Celoso, 178 SCRA BE/,
BEE"- T%eir fnction is bt limited to correction of defects of 5risdiction solel), not to be
sed for an) ot%er 'r'ose !?arcia vs- Ranada, 1,, SCRA 9", sc% as to cre errors in
'roceedin*s or to correct erroneos conclsions of law or fact !?old Cit) Inte*rated &orts
Services vs- IAC, 131 SCRA 739"- .e re*ard for t%e fore*oin* teac%in*s ennciated in t%e
decisions cited can not brin* abot a decision ot%er t%an w%at %as been reac%ed %erein-
6eedless to sa), t%e case before t%e res'ondent cort involvin* t%ose a*ainst %erein
res'ondents for alle*ed nonG'a)ment of t%e correct amonts de as income ta+, ad valorem
ta+ and vale added ta+ for t%e )ears 199/, 1991 and 1992 !Civil Case 6o- FG9EG1839/" is
not ended b) t%is decision- T%e res'ondent Cort is still to tr) t%e case and decide it on t%e
merits- All t%at is decided %ere is bt t%e validit) of t%e orders of t%e res'ondent Cort
*rantin* %erein res'ondents( a''lication for 'reliminar) in5nction and den)in* %erein
'etitioners( motion to dismiss- If 'on t%e facts establis%ed after trial and t%e a''licable law,
dissoltion of t%e writ of 'reliminar) in5nction allowed to be issed b) t%e res'ondent Cort
is called for and a 5d*ment favorable to %erein 'etitioners is demanded, t%e res'ondent
Cort is dt) bond to render 5d*ment accordin*l)-
;8:R:FOR:, t%e instant 'etition for certiorari and 'ro%ibition wit% a''lication for
issance of restrainin* order and writ of 'reliminar) in5nction is .IS4ISS:.- Costs de
oficio-
T%eir motion for reconsideration %avin* been denied b) res'ondent a''ellate cort on
Febrar) 2B, 1997, 'etitioners filed t%e 'resent 'etition for review based on t%e followin*
*ronds:
T8: R:S&O6.:6T CO9RTS CO44ITT:. ?RAC: A#9S: OF .ISCR:TIO6
A4O96TI6? TO =AC@ OR :>C:SS OF 29RIS.ICTIO6 I6 8O=.I6? T8AT:
I- T8:R: IS A &R:29.ICIA= A6.ROR =:?A= F9:STIO6 TO 29STIFD T8:
S9S&:6SIO6 OF T8: &R:=I4I6ARD I6C:STI?ATIO6-
II- &RICAT: R:S&O6.:6TS( RI?8TS TO .9: &ROC:SS, :F9A= &ROT:CTIO6
A6. &R:S94&TIO6 OF I66OC:6C: ;:R: CIO=AT:.H O6 T8: CO6TRARD, T8:
STAT: ITS:=F ;AS .:&RIC:. OF .9: &ROC:SS-
III- T8: A.4ISSIO6 OF &RICAT: R:S&O6.:6TS( S9&&=:4:6TA= &:TITIO6S
;:R: &RO&:R-
IC- T8:R: ;AS S:=:CTIC: &ROS:C9TIO6-
C- T8: FACT9A= A==:?ATIO6S I6 T8: &:TITIO6 AR: 8D&OT8:TICA==D
A.4ITT:. I6 A 4OTIO6 TO .IS4ISS #AS:. O6 29RIS.ICTIO6A= ?RO96.S-
CI- T8: ISS9A6C: OF T8: ;RITS OF I6296CTIO6 IS 6OT A .:CISIO6 O6 T8:
4:RITS OF T8: &:TITIO6 #:FOR: T8: =O;:R CO9RT-
T%e 'etition is bereft of merit-
In essence, t%e com'laints in I-S- 6os- 9BG7/8, 9BG78E and 9BG139E2 c%ar*ed 'rivate
res'ondents wit% fradlent ta+ evasion or wilfll) attem'tin* to evade or defeat 'a)ment of
income ta+, ad valorem ta+ and valeGadded ta+ for t%e )ear 1992, as well as for t%e )ears
199/G1991-
T%e 'ertinent 'rovisions of law involved are Sections 123!b" and 1E2!c" of t%e 6ational
Internal Revene Code w%ic% state:
Sec- 123- - - -
!b" .etermination of *ross sellin* 'rice of *oods sb5ect to ad valorem ta+- T 9nless
ot%erwise 'rovided, t%e 'rice, e+cldin* t%e valeGadded ta+, at w%ic% t%e *oods are sold at
w%olesale in t%e 'lace of 'rodction or t%ro*% t%eir sales a*ents to t%e 'blic s%all
constitte t%e *ross sellin* 'rice- If t%e manfactrer also sells or allows sc% *oods to be
sold at w%olesale 'rice in anot%er establis%ment of w%ic% %e is t%e owner or in t%e 'rofits at
w%ic% %e %as an interest, t%e w%olesale 'rice in sc% establis%ment s%all constitte t%e *ross
sellin* 'rice- S%old sc% 'rice be less t%an t%e costs of manfactre 'ls e+'enses incrred
ntil t%e *oods are finall) sold, t%en a 'ro'ortionate mar*in of 'rofit, not less t%an 1/Q of
sc% manfactrin* costs and e+'enses, s%all be added to constitte t%e *ross sellin* 'rice-
Sec- 1E2- - - -
!c" Ci*arettes 'ac$ed in twenties- T T%ere s%all be levied, assessed and collected on
ci*arettes 'ac$ed in twenties an ad valorem ta+ at t%e rates 'rescribed below based on t%e
manfactrer(s re*istered w%olesale 'rice:
+++++++++
&rivate res'ondents contend t%at 'er Fortne(s CAT retrns, correct ta+able sales for 1992
was in t%e amont of &11,3B,,,78,78/-// w%ic% was t%e 0manfactrer(s re*istered
w%olesale 'rice0 in accordance wit% Section 1E2!c" of t%e Ta+ Code and 'aid t%e amont of
&E,8/7,27E,72B as ad valorem ta+-
On t%e ot%er %and, 'etitioners alle*e, as s'ecificall) worded in t%e com'laint in I-S- 6o- 9BG
7/8, t%at 0based on t%e dail) manfactrer(s sworn statements sbmitted to t%e #IR b) t%e
Ta+'a)er !Fortne(s" total ta+able sales drin* t%e )ear 1992 is &1,,,8,,B32,297-//,0 as a
reslt of w%ic% Fortne 0was able to evade t%e 'a)ment of ad valorem ta+es in t%e a**re*ate
amont of &7,392,E39,81,-2E - - -0
&etitioners now ar*e t%at Section 123!b" la)s down t%e rle t%at in determinin* t%e *ross
sellin* 'rice of *oods sb5ect to ad valorem ta+, it is t%e 'rice, e+cldin* t%e valeGadded
ta+, at w%ic% t%e *oods are sold at w%olesale 'rice in t%e 'lace of 'rodction or t%ro*%
t%eir sales a*ents to t%e 'blic- T%e re*istered w%olesale 'rice s%all t%en be sed for
com'tin* t%e ad valorem ta+ w%ic% is im'osable 'on removal of t%e ta+able *oods from
t%e 'lace of 'rodction- 8owever, 'etitioners claim t%at Fortne sed t%e 0manfactrer(s
re*istered w%olesale 'rice in sellin* t%e *oods to alle*ed fictitios individals and dmm)
cor'orations for t%e 'r'ose of evadin* t%e 'a)ment of t%e correct ad valorem ta+-
T%ere can be no 1estion t%at nder Section 123!b", t%e ad valorem ta+ s%old be based on
t%e correct 'rice e+cldin* t%e valeGadded ta+, at w%ic% *oods are sold at w%olesale in t%e
'lace of 'rodction- It is si*nificant to note t%at amon* t%e *oods sb5ect to ad valorem ta+,
t%e law T s'ecificall) Section 1E2!c" T re1ires t%at t%e corres'ondin* ta+ on ci*arettes
s%all be levied, assessed and collected at t%e rates based on t%e 0manfactrer(s re*istered
w%olesale 'rice-0 ;%) does t%e w%olesale 'rice need to be re*istered and w%at is t%e
'r'ose of t%e re*istrationA T%e reason is selfGevident, w%ic% is to ensre t%e 'a)ment of t%e
correct ta+es b) t%e manfactrers of ci*arettes t%ro*% close s'ervision, monitorin* and
c%ec$in* of t%e bsiness o'erations of t%e ci*arette com'anies- As 'ointed ot b) 'rivate
res'ondents, no indstr) is as intensel) s'ervised b) t%e #IR and also b) t%e 6ational
Tobacco Administration !6TA"- T%s, t%e 'rc%ase and se of raw materials are sb5ect to
'rior at%oriJation and a''roval b) t%e 6TA- Im'ortations of bobbins or ci*arette 'a'er, t%e
manfactre, sale, and tiliJation of t%e same, are sb5ect to #IR s'ervision and a''roval-
4oreover, as 'ointed to b) 'rivate res'ondents, for 'r'oses of closer s'ervision b) t%e
#IR over t%e 'rodction of ci*arettes, Revene :nforcement Officers are detailed on a 2EG
%or basis in t%e 'remises of t%e manfactrer to secre 'rodction and removal of finis%ed
'rodcts- Com'osite 4obile Teams condct conterGsecrit) on t%e bsiness o'erations as
well as t%e 'erformance of t%e Revene :nforcement Officers detailed t%ereat- :ver) transfer
of an) raw material is not allowed nless, in addition to t%e re1ired 'ermits, accom'anied
b) Revene :nforcement Officer- For t%e 'r'ose of determinin* t%e 04anfactrer(s
Re*istered ;%olesale &rice0 a ci*arette manfactrer is re1ired to file a 4anfactrer(s
.eclaration !#IR Form 6o- B1-/B" for eac% brand of ci*arette manfactred, statin*: a-"
4aterialsH b" =aborH c" Over%eadH d" Ta+ #rden and t%e ;%olesale &rice b) Case- T%e data
sbmitted t%erewit% is verified b) t%e Revene Officers and a''roved b) t%e Commissioner of
Internal Revene- An) c%an*e in t%e manfactrer(s re*istered w%olesale 'rice of an) brand
cannot be effected wit%ot sbmittin* t%e corres'ondin* Sworn 4anfactrer(s .eclaration
and verified b) t%e Revene Officer and a''roved b) t%e Commissioner on Internal Revene-
T%e amont of ad valorem ta+ 'a)ments to*et%er wit% t%e &a)ment Order and Confirmation
Recei't 6os- mst be indicated in t%e sales and deliver) invoices and to*et%er wit% t%e
4anfactrer(s Sworn .eclarations on !a" t%e 1antit) of raw materials sed drin* t%e
da)(s o'erationsH !b" t%e total 1antit) 'rodced accordin* to brandH and !c" t%e
corres'ondin* 1antit) removed drin* t%e da), t%e corres'ondin* w%olesale 'rice t%ereof,
and t%e CAT 'aid t%ereon mst be 'resented to t%e corres'ondin* #IR re'resentative for
at%entication before removal-
T%s, as observed b) t%e trial cort in its order of 2anar) 27, 199E *rantin* 'rivate
res'ondents( 'ra)er for t%e issance of a writ of 'reliminar) in5nction, Fortne(s re*istered
w%olesale 'rice !was" dl) a''roved b) t%e #IR, w%ic% fact is not dis'ted b) 'etitioners-
6ow, if ever) ste' in t%e 'rodction of ci*arettes was closel) monitored and s'ervised b)
t%e #IR 'ersonnel s'ecificall) assi*ned to Fortne(s 'remises, and considerin* t%at t%e
4anfactrer(s Sworn .eclarations on t%e data re1ired to be sbmitted b) t%e
manfactrer were scrtiniJed and verified b) t%e #IR and, frt%er, since t%e manfactrer(s
w%olesale 'rice was dl) a''roved b) t%e #IR, t%en it is 'resmed t%at sc% re*istered
w%olesale 'rice is t%e same as, or a''ro+imates 0t%e 'rice, e+cldin* t%e valeGadded ta+, at
w%ic% t%e *oods are sold at w%olesale in t%e 'lace 'rodction,0 ot%erwise, t%e #IR wold not
%ave a''roved t%e re*istered w%olesale 'rice of t%e *oods for 'r'oses of im'osin* t%e ad
valorem ta+ de- In sc% case, and in t%e absence of contrar) evidence, it was 'reci'itate
and 'rematre to conclde t%at 'rivate res'ondents made fradlent retrns or wilfll)
attem'ted to evade 'a)ment of ta+es de- 0;ilfl0 means 0'remeditatedH maliciosH done
wit% intent, or wit% bad motive or 'r'ose, or wit% indifference to t%e natral conse1ence - -
-0 0Frad0 in its *eneral sense, 0is deemed to com'rise an)t%in* calclated to deceive,
incldin* all acts, omissions, and concealment involvin* a breac% of le*al or e1itable dt),
trst or confidence 5stl) re'osed, resltin* in t%e dama*e to anot%er, or b) w%ic% an nde
and nconscionable advanta*e ta$en of anot%er-0
Frad cannot be 'resmed- If t%ere was frad or wilfl attem't to evade 'a)ment of ad
valorem ta+es b) 'rivate res'ondents t%ro*% t%e mani'lation of t%e re*istered w%olesale
'rice of t%e ci*arettes, it mst %ave been wit% t%e connivance or coo'eration of certain #IR
officials and em'lo)ees w%o s'ervised and monitored Fortne(s 'rodction activities to see
to it t%at t%e correct ta+es were 'aid- #t t%ere is no alle*ation, mc% less evidence, of #IR
'ersonnel(s malfeasance- In t%e ver) least, t%ere is t%e 'resm'tion t%at t%e #IR 'ersonnel
'erformed t%eir dties in t%e re*lar corse in ensrin* t%at t%e correct ta+es were 'aid b)
Fortne-
It is t%e o'inion of bot% t%e trial cort and res'ondent Cort of A''eals, t%at before Fortne
and t%e ot%er 'rivate res'ondents cold be 'rosected for ta+ evasion nder Sections 27B
and 277 of t%e Ta+ Code, t%e fact t%at t%e deficienc) income, ad valorem and valeGadded
ta+es were de from Fortne for t%e )ear 1992 s%old first be establis%ed- Fortne received
from t%e Commissioner of Internal Revene t%e deficienc) assessment notices in t%e total
amont of &3,,87,9E2,221-/, on A*st 2E, 199B- 8owever, nder Section 229 of t%e Ta+
Code, t%e ta+'a)er %as t%e ri*%t to move for reconsideration of t%e assessment issed b) t%e
Commissioner of Internal Revene wit%in t%irt) !B/" da)s from recei't of t%e assessmentH
and if t%e motion for reconsideration is denied, it ma) a''eal to t%e Cort of A''eals wit%in
t%irt) !B/" da)s from recei't of t%e Commissioner(s decision- 8ere, Fortne received t%e
Commissioner(s assessment notice dated A*st 1B, 199B on A*st 2E, 199B as$in* for t%e
'a)ment of t%e deficienc) ta+es- ;it%in t%irt) !B/" da)s from recei't t%ereof, Fortne moved
for reconsideration- T%e Commissioner %as not resolved t%e re1est for reconsideration '
to t%e 'resent-
;e s%are wit% t%e view of bot% t%e trial cort and Cort of A''eals t%at before t%e ta+
liabilities of Fortne are first finall) determined, it cannot be correctl) asserted t%at 'rivate
res'ondents %ave wilfll) attem'ted to evade or defeat t%e ta+es so*%t to be collected from
Fortne- In 'lain words, before one is 'rosected for wilfl attem't to evade or defeat an)
ta+ nder Sections 27B and 277 of t%e Ta+ Code, t%e fact t%at a ta+ is de mst first be
'roved-
S''ose t%e Commissioner eventall) resolves Fortne(s motion for reconsideration of t%e
assessments b) 'rononcin* t%at t%e ta+'a)er is not liable for an) deficienc) assessment,
t%en, t%e criminal com'laints filed a*ainst 'rivate res'ondents will %ave no le* to stand on-
In view of t%e fore*oin* reasons, we cannot sbscribe to t%e 'etitioners( t%esis citin*, 9n*ad
v- Csi, t%at t%e lac$ of a final determination of Fortne(s e+act or correct ta+ liabilit) is not
a bar to criminal 'rosection, and t%at w%ile a 'recise com'tation and assessment is
re1ired for a civil action to collect ta+ deficiencies, t%e Ta+ Code does not re1ire sc%
com'tation and assessment 'rior to criminal 'rosection-
Readin* 9n*ad carefll), t%e 'rononcement t%erein t%at deficienc) assessment is not
necessar) 'rior to 'rosection is 'ointedl) and deliberatel) 1alified b) t%e Cort wit%
followin* statement 1oted from ?Ji$ v- 9-S-: 0T%e crime is com'lete w%en t%e violator %as
$nowin*l) and wilfll) filed a fradlent retrn wit% intent to evade and defeat a 'art or all
of t%e ta+-0 In 'lain words, for criminal 'rosection to 'roceed before assessment, t%ere mst
be a 'rima facie s%owin* of a wilfl attem't to evade ta+es- T%ere was a wilfl attem't to
evade ta+ in 9n*ad becase of t%e ta+'a)er(s failre to declare in %is income ta+ retrn 0%is
income derived from banana sa'lin*s-0 In t%e mind of t%e trial cort and t%e Cort of
A''eals, Fortne(s sitation is 1ite a'art factall) since t%e re*istered w%olesale 'rice of
t%e *oods, a''roved b) t%e #IR, is 'resmed to be t%e actal w%olesale 'rice, t%erefore, not
fradlent and nless and ntil t%e #IR %as made a final determination of w%at is s''osed
to be t%e correct ta+es, t%e ta+'a)er s%old not be 'laced in t%e crcible of criminal
'rosection- 8erein lies a w%ale of difference between 9n*ad and t%e case at bar-
T%is brin*s s to t%e erroneos dis1isition t%at 'rivate res'ondents( recorse to t%e trial
cort b) wa) of s'ecial civil action of certiorari and 'ro%ibition was im'ro'er becase: a"
t%e 'roceedin*s before t%e state 'rosectors !'reliminar) in5nction" were far from
terminated T 'rivate res'ondents were merel) sb'oenaed and as$ed to sbmit conter
affidavits, matters t%at t%e) s%old %ave a''ealed to t%e Secretar) of 2sticeH b" it is onl)
after t%e sbmission of 'rivate res'ondents( conter affidavits t%at t%e 'rosectors will
determine w%et%er or not t%ere is eno*% evidence to file in cort criminal c%ar*es for
fradlent ta+ evasion a*ainst 'rivate res'ondentsH and c" t%e 'ro'er 'rocedre is to allow
t%e 'rosectors to condct and finis% t%e 'reliminar) investi*ation and to render a
resoltion, after w%ic% t%e a**rieved 'art) can a''eal t%e resoltion to t%e Secretar) of
2stice-
;e disa*ree-
As a *eneral rle, criminal 'rosections cannot be en5oined- 8owever, t%ere are reco*niJed
e+ce'tions w%ic%, as smmariJed in #roc$a v- :nrile are:
a- To afford ade1ate 'rotection to t%e constittional ri*%ts of t%e accsed !8ernandeJ
vs- Albano, et al-, =G19232, 2anar) 27, 19,3, 19 SCRA 97"H
b- ;%en necessar) for t%e orderl) administration of 5stice or to avoid o''ression or
mlti'licit) of actions !.ima)*a, et al- vs- FernandeJ, EB &%il- B/EH 8ernandeJ vs- Albano,
s'raH Fortn vs- =aban*, et al-, =GB8B8B, 4a) 23, 1981, 1/E SCRA ,/3"H
c- ;%en t%ere is a 're5dicial 1estion w%ic% is sb 5dice !.e =eon vs- 4abana*, 3/
&%il- 2/2"H
d- ;%en t%e acts of t%e officer are wit%ot or in e+cess of at%orit) !&lanas vs- ?il, ,3
&%il- ,2"H
e- ;%ere t%e 'rosection is nder an invalid law, ordinance or re*lation !Don* vs-
Raffert), BB &%il- 77,H D Con* :n* vs- Trinidad, E3 &%il- B87, B89"H
f- ;%en doble 5eo'ard) is clearl) a''arent !San*alan* vs- &eo'le and Alvendia, 1/9
&%il- 11E/"H
*- ;%ere t%e cort %ad no 5risdiction over t%e offense !=o'eJ vs- Cit) 2d*e, =G27397,
October 29, 19,,, 18 SCRA ,1,"H
%- ;%ere it is a case of 'ersection rat%er t%an 'rosection !Rstia vs- Ocam'o, CAG
?-R- 6o- E3,/, 4arc% 27, 19,/"H
i- ;%ere t%e c%ar*es are manifestl) false and motivated b) t%e lst for ven*eance
!Recto vs- Castelo, 18 =-2- N197BO, cited in Rano vs- Alvenia, CAG?-R- 6o- B/32/GR, October
8, 19,2H Cf- ?in*ona, et al- vs- Cit) Fiscal, =G,//BB, A'ril E, 198E, 128 SCRA 733"H and
5- ;%en t%ere is clearl) no 'rima facie case a*ainst t%e accsed and a motion to 1as%
on t%at *rond %as been denied !Salon*a vs- &ano, et al-, =G7972E, Febrar) 18, 1987, 1BE
SCRA EB8"-
In issin* t%e 1estioned orders *rantin* t%e issance of a writ of 'reliminar) in5nction, t%e
trial cort believed t%at said orders were warranted to afford 'rivate res'ondents ade1ate
'rotection of t%eir constittional ri*%ts, 'articlarl) in reference to 'resm'tion of
innocence, de 'rocess and e1al 'rotection of t%e laws- T%e trial cort also fond merit in
'rivate res'ondents( contention t%at 'reliminar) in5nction s%old be issed to avoid
o''ression and becase t%e acts of t%e state 'rosectors were wit%ot or in e+cess of
at%orit) and for t%e reason t%at t%ere was a 're5dicial 1estion-
Contrar) to 'etitioners( sbmission, 'reliminar) investi*ation ma) be en5oined w%ere
e+ce'tional circmstances so warrant- In 8ernandeJ v- Albano and Fortn v- =aban*,
in5nction was issed to en5oin a 'reliminar) investi*ation- In t%e case at bar, 'rivate
res'ondents filed a motion to dismiss t%e com'laint a*ainst t%em before t%e 'rosection and
alternativel), to ss'end t%e 'reliminar) investi*ation on t%e *ronds cited %ereinbefore, one
of w%ic% is t%at t%e com'laint of t%e Commissioner is not s''orted b) an) evidence to serve
as ade1ate basis for t%e issance of t%e sb'oena to t%em and 't t%em to t%eir defense-
Indeed, t%e 'r'ose of a 'reliminar) in5nction is to secre t%e innocent a*ainst %ast),
malicios and o''ressive 'rosection and to 'rotect %im from an o'en and 'blic accsation
of crime, from t%e troble, e+'ense and an+iet) of a 'blic trial and also to 'rotect t%e state
from seless and e+'ensive trials- T%s, t%e 'ertinent 'rovisions of Rle 112 of t%e Rles of
Cort state:
S:CTIO6 B- &rocedre- T :+ce't as 'rovided for in Section 3 %ereof, no com'laint
or information for an offense co*niJable b) t%e Re*ional Trial Cort s%all be filed wit%ot a
'reliminar) investi*ation %avin* been first condcted in t%e followin* manner:
!a" T%e com'laint s%all state t%e $nown address of t%e res'ondent and be accom'anied
b) affidavits of t%e com'lainant and %is witnesses as well as ot%er s''ortin* docments, in
sc% nmber of co'ies as t%ere are res'ondents, 'ls two !2" co'ies for t%e official file- T%e
said affidavits s%all be sworn to before an) fiscal, state 'rosector or *overnment official
at%oriJed to administer oat%, or, in t%eir absence or navailabilit), a notar) 'blic, w%o
mst certif) t%at %e 'ersonall) e+amined t%e affiants and t%at %e is satisfied t%at t%e)
volntaril) e+ected and nderstood t%eir affidavits-
!b" ;it%in ten !1/" da)s after t%e filin* of t%e com'laint, t%e investi*atin* officer s%all
eit%er dismiss t%e same if %e finds no *rond to contine wit% t%e in1ir), or isse a
sb'oena to t%e res'ondent, attac%in* t%ereto a co') of t%e com'laint, affidavits and ot%er
s''ortin* docments- ;it%in ten !1/" da)s from recei't t%ereof, t%e res'ondent s%all sbmit
conterGaffidavits and ot%er s''ortin* docments- 8e s%all %ave t%e ri*%t to e+amine all
ot%er evidence sbmitted b) t%e com'lainant-
!c" Sc% conterGaffidavits and ot%er s''ortin* evidence sbmitted b) t%e res'ondent
s%all also be sworn to and certified as 'rescribed in 'ara*ra'% !a" %ereof and co'ies t%ereof
s%all be frnis%ed b) %im to t%e com'lainant-
!d" If t%e res'ondent cannot be sb'oenaed, or if sb'oenaed does not sbmit conterG
affidavits wit%in t%e ten !1/" da) 'eriod, t%e investi*atin* officer s%all base %is resoltion on
t%e evidence 'resented b) t%e com'lainant-
!e" If t%e investi*atin* officer believes t%at t%ere are matters to be clarified, %e ma) set a
%earin* to 'ro'ond clarificator) 1estions to t%e 'arties or t%eir witnesses, drin* w%ic%
t%e 'arties s%all be afforded an o''ortnit) to be 'resent bt wit%ot t%e ri*%t to e+amine or
crossGe+amine- If t%e 'arties so desire, t%e) ma) sbmit 1estions to t%e investi*atin* officer
w%ic% t%e latter ma) 'ro'ond to t%e 'arties or witnesses concerned-
!f" T%ereafter, t%e investi*ation s%all be deemed conclded, and t%e investi*atin* officer
s%all resolve t%e case wit%in ten !1/" da)s t%erefrom- 9'on t%e evidence t%s addced, t%e
investi*atin* officer s%all determine w%et%er or not t%ere is sfficient *rond to %old t%e
res'ondent for trial-
As fond b) t%e Cort of A''eals, t%ere was obvios %aste b) w%ic% t%e sb'oena was issed
to 'rivate res'ondents, 5st t%e da) after t%e com'laint was filed, %ence, wit%ot t%e
investi*atin* 'rosectors bein* afforded material time to e+amine and std) t%e volminos
docments a''ended to t%e com'laint for t%em to determine if 'reliminar) investi*ation
s%old be condcted- T%e Cort of A''eals frt%er added t%at t%e 'reci'itate %aste in t%e
issance of t%e sb'oena 5stified 'rivate res'ondents( mis*ivin*s re*ardin* t%e ob5ectivit)
and netralit) of t%e 'rosectors in t%e condct of t%e 'reliminar) investi*ation and so, t%e
a''ellate cort conclded, t%e *rant of 'reliminar) investi*ation b) t%e trial cort to afford
ade1ate 'rotection to 'rivate res'ondents( constittional ri*%ts and to avoid o''ression
does not constitte *rave abse of discretion amontin* to lac$ of 5risdiction- ==5r
T%e com'laint filed b) t%e Commissioner on Internal Revene states itself t%at t%e 'rimar)
evidence establis%in* t%e falsit) of t%e declared ta+able sales in 1992 in t%e amont of
&11,3B,,,78,78/-// were t%e 0.ail) 4anfactrer(s Sworn Statements0 sbmitted b) t%e
ta+'a)er w%ic% wold s%ow t%at t%e total ta+able sales in 1992 are in t%e amont of
&1,,,8,,B32,297-//- 8owever, t%e Commissioner did not 'resent t%e 0.ail) 4anfactrer(s
Sworn Statements0 s''osedl) sbmitted to t%e #IR b) t%e ta+'a)er, 'rom'tin* 'rivate
res'ondents to move for t%eir 'rodction in order to verif) t%e basis of 'etitioners(
com'tation- Still, t%e Commissioner failed to 'rodce t%e declarations- In #or5a v- 4oreno,
it was %eld t%at t%e act of t%e investi*ator in 'roceedin* wit% t%e %earin* wit%ot first actin*
on res'ondents( motion to dismiss is a manifest disre*ard of t%e re1irement of de 'rocess-
Im'licit in t%e o'inion of t%e trial cort and t%e Cort of A''eals is t%at, if 'on t%e
e+amination of t%e com'laint, it was clear t%at t%ere was no *rond to contine wit% t%e
in1ir), t%e investi*atin* 'rosector was dt) bond to dismiss t%e case- On t%is 'oint, t%e
trial cort stressed t%at t%e 'rosectors condctin* t%e 'reliminar) investi*ation s%old %ave
allowed t%e 'rodction of t%e 0.ail) 4anfactrer(s Sworn Statements0 sbmitted b)
Fortne wit%ot w%ic% t%ere was no valid basis for t%e alle*ation t%at 'rivate res'ondents
wilfll) attem'ted to evade 'a)ment of t%e correct ta+es- T%e 'rosectors s%old also %ave
'rodced t%e 0.ail) 4anfactrer(s Sworn Statements0 b) ot%er ci*arette com'anies, as
so*%t b) 'rivate res'ondents, to s%ow t%at t%ese com'anies w%ic% %ad 'aid t%e ad valorem
ta+es on t%e same basis and in t%e same manner as Fortne were not similarl) criminall)
c%ar*ed- #t t%e investi*atin* 'rosectors denied 'rivate res'ondents( motion, t%s,
indicatin* t%at onl) Fortne was sin*led ot for 'rosection- T%e trial cort and t%e Cort of
A''eals maintained t%at at t%at sta*e of t%e 'reliminar) investi*ation, w%ere t%e com'laint
and t%e accom'an)in* affidavits and s''ortin* docments did not s%ow an) violation of t%e
Ta+ Code 'rovidin* 'enal sanctions, t%e 'rosectors s%old %ave dismissed t%e com'laint
otri*%t becase of total lac$ of evidence, instead of re1irin* 'rivate res'ondents to sbmit
t%eir conter affidavits nder Section B!b" of Rle 112-
;e believe t%at t%e trial cort in issin* its 1estioned orders, w%ic% are interloctor) in
natre, committed no *rave abse of discretion amontin* to lac$ of 5risdiction- T%ere are
factal and le*al bases for t%e assailed orders- On t%e ot%er %and, t%e brden is 'on t%e
'etitioners to demonstrate t%at t%e 1estioned orders constitte a w%imsical and ca'ricios
e+ercise of 5d*ment, w%ic% t%e) %ave not- For certiorari will not be issed to cre errors in
'roceedin*s or correct erroneos conclsions of law or fact- As lon* as a cort acts wit%in
its 5risdiction, an) alle*ed errors committed in t%e e+ercise of its 5risdiction will amont to
not%in* more t%an errors of 5d*ment w%ic% are reviewable b) timel) a''eal and not b) a
s'ecial civil action of certiorari- Conse1entl), t%e Re*ional Trial Cort acted correctl) and
5diciosl), and as demanded b) t%e facts and t%e law, in issin* t%e orders *rantin* t%e
writs of 'reliminar) in5nction, in den)in* 'etitioners( motion to dismiss and in admittin* t%e
s''lemental 'etitions- ;%at 'etitioners s%old %ave done was to file an answer to t%e
'etition filed in t%e trial cort, 'roceed to t%e %earin* and a''eal t%e decision of t%e cort if
adverse to t%em-
;8:R:FOR:, t%e instant 'etition is %ereb) .IS4ISS:.-
SO OR.:R:.-
:STA#=IS8I6? I6T:6T A6. ;I==F9=6:SS
A- IntentR;illflness in Criminal =aw
i- 4ens Rea G 4ental element of t%e offense t%at accom'anies t%e criminal act-
ii- acts non facitrem nisi mens sit rea < Kt%e act does not ma$e a 'erson *ilt)
nless t%e mind is also *ilt)-M
iii- IntentRwillflness is *enerall) e1ated wit% malice, es'eciall) as re*ards crimes
nder t%e Revised &enal Code-
1- KIt %as been said t%at w%ile t%e word 0willfl0 sometimes means little more t%an
intentionall) or desi*nedl), )et it is more fre1entl) nderstood to e+tend a little frt%er
and a''ro+imate t%e idea of t%e milder $ind of le*al maliceH t%at is, it si*nifies an evil
intent wit%ot 5stifiable e+cse- In one case it was said to mean, as em'lo)ed in a statte
in contem'lation, 0wantonl)0 or 0caselessl)H0 in anot%er, 0wit%ot reasonable *ronds
to believe t%e t%in* lawfl-0 And S%aw, C- 2-, once said t%at ordinaril) in a statte it
means 0not merel) Xvolntaril)( bt wit% a bad 'r'oseH in ot%er words, corr'tl)-0 In
:n*lis% and t%e American stattes definin* crimes 0malice,0 0malicios,0 0maliciosl),0
and 0malice aforet%o*%t0 are words indicatin* intent, more 'rel) tec%nical t%an
0willfl0 or willfll),0 bt 0t%e difference between t%em is not *reatH0 t%e word 0malice0
not often bein* nderstood to re1ire *eneral malevolence toward a 'articlar
individal, and si*nif)in* rat%er t%e intent from or le*al 5stification-M N9-S- vs- A%
C%on*, ?-R- 6o- =G7232, 19 4arc% 191/ !17 &%il- E88"
2- ?enerall), malice or intent is deemed irrelevant in s'ecial 'enal laws as t%e latter are
considered mala 'ro%ibita- 6evert%eless, if s'ecific intent is re1ired, t%e same mst be
'roved-
iv- IntentR;illflness as an element of certain violations of t%e 6IRC
1- Section 27E- Attem't to :vade or .efeat Ta+- < KAn) 'erson w%o willfll) attem'ts in
an) manner to evade or defeat an) ta+ im'osed nder t%is Code or t%e 'a)ment t%ereof
s%allL be 'nis%edLM
2- Sec- 277- Failre to File Retrn, S''l) Correct and Accrate Information, &a) Ta+,
;it%%old and Remit Ta+ and Refnd :+cess Ta+es ;it%%eld on Com'ensation- < KAn)
'erson re1ired nder t%is Code or b) rles and re*lations 'roml*ated t%erender to
'a) an) ta+, ma$e a retrn, $ee' an) record, or s''l) correct and accrate information,
w%o willfll) fails to 'a) sc% ta+, ma$e a sc% retrn, $ee' sc% record, or s''l) sc%
correct and accrate information, or wit%%old or remit ta+es wit%%eld, or refnd e+cess
ta+es wit%%eld on com'ensation, at t%e time or times re1ired b) law or rles and
re*lations, s%allL be 'nis%edLM
B- Sec- 273- &enal =iabilit) for 4a$in* False :ntries, Records or Re'orts, or 9sin*
Falsified or Fa$e Accontable Forms
a- ;illfll) falsifies an) re'ort or statement bearin* on an) e+amination or aditL
b- ;illfll) attem'ts in an) manner to evade or defeat an) ta+ im'osedL
#- &%ili''ine 2ris'rdence on IntentR;illflness in Ta+ Cases
i- S'reme Cort .ecisions
2OS: #- AS6AR, in %is ca'acit) as Administrator of t%e :state of t%e deceased, 4atias 8-
AJnar, 'etitioner, vs- CO9RT OF TA> A&&:A=S and CO==:CTOR OF I6T:R6A=
R:C:69:, res'ondents- N?-R- 6o- =G2/7,9- A*st 2B, 193E-O
. : C I S I O 6
&etitioner, as administrator of t%e estate of t%e deceased, 4atias 8- AJnar, see$s a review
and nllification of t%e decision of t%e Cort of Ta+ A''eals in C-T-A- Case 6o- 1/9,
modif)in* t%e decision of res'ondent Commissioner of Internal Revene and orderin* t%e
'etitioner to 'a) t%e *overnment t%e sm of &223,,91-33 re'resentin* deficienc) income
ta+es for t%e )ears 19E, to 1971, inclsive, wit% t%e condition t%at if t%e said amont is not
'aid wit%in t%irt) da)s from t%e date t%e decision becomes final, t%ere s%all be added to t%e
n'aid amont t%e src%ar*e of 7Q, 'ls interest at t%e rate of 12Q 'er annm from t%e date
of delin1enc) to t%e date of 'a)ment, in accordance wit% Section 71 of t%e 6ational Internal
Revene Code, 'ls costs a*ainst t%e 'etitioner-
It is establis%ed t%at t%e late 4atias 8- AJnar w%o died on 4a) 18, 1978, 'redecessor in
interest of %erein 'etitioner, drin* %is lifetime as a resident of Ceb Cit), filed %is income
ta+ retrns on t%e cas% and disbrsement basis, re'ortin* t%erein t%e followin*:
0Dear 6et Income Amont of :+%ibit
Ta+ &aid
19E7 &12,822-// &11E-,, ''- 87 G 88 #-I-R- rec-
19E, 9,91/-9E 11E-,, B8GA !''- B29GBB2 #-I-R- rec-"
19E3 1/,2//-// 1B2-//B9 !''- 37G38 #-I-R- rec-"
19E8 9,1E8-BE ,8-9/ E/ !''- 3/G3B #-I-R- rec-"
19E9 8,99/-,, 79-32 E1 !''- ,EG,3 #-I-R- rec-"
197/ 8,B,E-7/ 28-22 E2 !''- 79G,2, #IR rec-"0
1971 ,,8//-// none EB !''- 7EG73 #IR rec-"0
T%e Commissioner of Internal Revene %avin* %is dobts on t%e veracit) of t%e re'orted
income of one obviosl) wealt%), 'rsant to t%e at%orit) *ranted %im b) Section B8 of t%e
6ational Internal Revene Code, cased #-I-R- :+aminer 8onorio ?errero to ascertain t%e
ta+'a)er(s tre income for said )ears b) sin* t%e net wort% and e+'enditres met%od of ta+
investi*ation- T%e assets and liabilities of t%e ta+'a)er drin* t%e aboveGmentioned )ears
were ascertained and it was discovered t%at from 19E, to 1971, %is net wort% %ad increased
ever) )ear, w%ic% increases in net wort% was ver) mc% more t%an t%e income re'orted
drin* said )ears- T%e findin*s clearl) indicated t%at t%e ta+'a)er did not declare correctl)
t%e income re'orted in %is income ta+ retrns for t%e aforesaid )ears-
#ased on t%e above findin*s of :+aminer ?errero, res'ondent Commissioner, in %is letter
dated 6ovember 28, 1972, notified t%e ta+'a)er !4atias 8- AJnar" of t%e assessed ta+
delin1enc) to t%e amont of &32B,/B2-,,, 'ls com'romise 'enalt)- T%e ta+'a)er re1ested
a reinvesti*ation w%ic% was *ranted for t%e 'r'ose of verif)in* t%e merits of t%e varios
ob5ections of t%e ta+'a)er to t%e deficienc) income ta+ assessment of 6ovember 28, 1972-
After t%e reinvesti*ation, anot%er deficienc) assessment to t%e redced amont of
&B81,/9,-/3 dated Febrar) 1,, 1977, s'erseded t%e 'revios assessment and notice
t%ereof was received b) 4atias 8- AJnar on 4arc% 2, 1977-
T%e new deficienc) assessment was based on t%e followin* com'tations:
19E,
6et income 'er retrn &9,91/-9E
Add: 9ndeclared income 22,779-71
TTTT
6et income 'er investi*ation &B2,E3/-E7
.edct: &ersonal and additional e+em'tions ,,913-//
TTTT
Amont of income sb5ect to ta+ &27,77B-E7
YYYYYYYY
Total ta+ liabilit) &B,8/1-3,
.edct: Income ta+ liabilit) 'er retrn as assessed 11E,,,
TTTTT
#alance of ta+ de & B,,83-1/
Add: 7/Q src%ar*e 1,8EB-77
.:FICI:6CD I6CO4: TA> 7,7B/-,7
YYYYYYYY
19E3
6et income 'er retrn &1/,2//-//
Add: 9nderdeclared income 9/,E1B-7,
TTTTT
6et income 'er reinvesti*ation &1//,,1B-7,
.edct: &ersonal and additional e+em'tion 3,///-//
TTTTT
Amont of income sb5ect to ta+ &9B,,1B,7,
TTTTT
Total ta+ liabilit) &2E,37B-17
.edct: Income ta+ liabilit) 'er retrn as assessed 1B2-//
TTTTT
#alance of ta+ de &2E,,21-17
Add 7/Q src%ar*e 12,B1/-78
TTTTT
.:FICI:6CD I6CO4: TA> &B,,9B1-3B
YYYYYYYYY
19E8
6et income 'er retrn &9,1E8-BE
Add 9nderdeclared income 17,,2E-,B
TTTTT
6et income 'er reinvesti*ation &2E,332-93
.edct: &ersonal and additional e+em'tions 3,///-//
TTTTT
Amont of income sb5ect to ta+ 13,332-93
TTTTT
Total ta+ liabilit) 2,2/1-E/
.edct: Income ta+ liabilit) 'er retrn as assessed ,8-9/
TTTTT
#alance of ta+ de &2,1B2-7/
Add: 7/Q src%ar*e 1,/,,-27
TTTTT
.:FICI:6CD I6CO4: TA> &B,198-37
YYYYYYYYY
19E9
6et income 'er retrn &9,99/-,,
Add: 9nderdeclared income 1/7,E18-7B
TTTTT
6et income 'er reinvesti*ation &11E,E/9-19
.edct: &ersonal and additional e+em'tions &3,///-//
TTTTT
Amont of income sb5ect to ta+ &1/3,E/9-19
TTTTT
Total ta+ liabilit) &B/,1EB-,8
.edct: Income ta+ liabilit) 'er retrn as assessed 79-32
TTTTT
#alance of ta+ de &B/,/8B-9,
Add: 7/Q src%ar*e 17,/E1-98
TTTTT
.:FICI:6CD I6CO4: TA> &E7,127-9E
YYYYYYYYY
197/
6et income 'er retrn &8,B,E-7/
Add: 9nderdeclared income B,7,738-3,
TTTTT
6et income 'er reinvesti*ation &B3B,9EB-2,
.edct: &ersonal and additional e+em'tions 3,8//-//
TTTTT
Amont of income sb5ect to ta+ &B,,,1EB-2,
TTTTT
Total ta+ liabilit) &187,88B-//
.edct: Income ta+ liabilit) 'er retrn as assessed 28-//
TTTTT
#alance of ta+ de &187,877-//
Add: 7/Q src%ar*e 92,928-//
TTTTT
.:FICI:6CD I6CO4: TA> &238,38B-//
YYYYYYYYY
1971
6et income 'er retrn &,,8//-//
Add: 9nderdeclared income BB,B77-8/
TTTTT
6et income 'er reinvesti*ation &E/,177-8/
.edct: &ersonal and additional e+em'tions 3,2//-//
TTTTT
Amont of income sb5ect to ta+ &B2,977-8/
TTTTT
Total ta+ liabilit) &3,,8E-//
.edct: Income ta+ liabilit) 'er retrn as assessed G o G
TTTTT
#alance of ta+ de &3,,8E-//
Add: 7/Q src%ar*e B,8E2-//
TTTTT
.:FICI:6CD I6CO4: TA> &11,72,-//
YYYYYYYYY
S944ARD
19E, & 7,7B/-,7
19E3 B,,9B1-3B
19E8 B,198-37
19E9 E7,127-9E
197/ 238,38B-//
1971 11,72,-//
TTTTT
Total &B81,/9,-/3
YYYYYYYYY
In determinin* t%e nre'orted income, t%e res'ondent Commissioner of Internal Revene
resorted to t%e networt% met%od w%ic% is based on t%e followin* com'tations:
19E7
Real estate inventor) & ,E,3B8-//
Ot%er assets B3,,/,-83
TTTTT
Total assets &1/2,BEE-83
=ess: .e'reciation allowed 2,/23-//
6etwort% as of .ec- B1, 19E7 &1//,B1,-93
YYYYYYYYY
19E,
Real estate inventor) &8,,9EE-18
Ot%er assets ,/,8/1-,7
TTTTT
Total assets &1E3,3E7-8B
=ess: .e'reciation allowance H E,837-E1
TTTTT
6et assets &1E2,83/-E2
=ess: =iabilities &13,///-//
6etwort% as of 2an- 1, 19E, &1//,B1,-93 &113,B1,-93
TTTT TTTTT
Increase in networt% 27,77B-E7
Add: :stimated livin* e+'enses ,,913-//
6et income &B2,E3/-E7
YYYYYYYYY
19E3
Real estate inventor) &2B3,82E-18
Ot%er assets 7E,E97-72
TTTTT
Total assets &292,B19-3/
=ess: .e'reciation allowed 12,8B7-32
TTTTT
6et assets &239,E8B-98
=ess: =iabilities &,/,///-//
6etwort% as of 2an- 1, 19E3 127,83/-E2 &187,83/-E2
TTTTT TTTTT
Increase in networt% &9B,,1B-7,
Add: :stimated livin* e+'enses 3,///-//
TTTTT
6et income &1//,,1B-7,
YYYYYYYYY
19E8
Real estate inventor) &2EE,82E-18
Ot%er assets 118,32/-,/
TTTTT
Total assets &B,B,7EE-38
=ess: .e'reciation allowed 2/,9B,-/B
TTTTT
6et assets &BE2,,/8-37
=ess: =iabilities & 1/7,B71-8/
6etwort% as of 2an- 1, 19E8 219,E8B-98 &B2E,8B7-38
TTTTTT TTTTT
Increase in networt% &13,332-93
Add: :stimated livin* e+'enses 3,///-//
TTTTT
6et income &2E,332-93
YYYYYYYY
19E9
Real estate inventor) &E//,717-72
Investment in sc%ools and ot%er colle*es 2B,1/7-29
Ot%er assets 3/,B11-//
TTTTT
Total assets &E9B-9B1-81
=ess: .e'reciation allowed B2,,73-/8
TTTTT
6et assets &E,1,23E-3B
=ess: =iabilities &11,,,/8-79
6etwort% as of 2an- 1, 19E9 2B3,27,-97 &B7B,8,7-7E
TTTTT TTTTT
Increase in networt% &1/3,E/9-19
Add: :stimated livin* e+'enses 3,///-//
TTTTT
6et income &11E,E/9-19
YYYYYYYY
197/
Real estate inventor) &E12,E,7-72
Investment in Sc%ools and ot%er colle*es 19B,E,/-99
Ot%er assets B1/,388-83
TTTTT
Total assets &91,,317-B8
=ess: .e'reciation allowed E3,7,1-99
6et assets &8,9,17B-B9
=ess =iabilities &178,BEB-99
6etwort% as of 2an- 1, 197/ BEE,,,,-1E &7/B,/1/-1B
TTTTT TTTTT
Increase in networt% &B,,,1EB-2,
Add: :stimated livin* e+'enses 3,8//-//
TTTTT
6et income &B3B,9EB-2,
1971
Real estate inventor) &E12,E,7-72
Investment in sc%ools and ot%er colle*es 21E,/1,-21
Ot%er assets B2/,2/9-E/
TTTTT
Total assets &9E,,,91-1B
=ess: .e'reciation allowed ,2,E,,-9/
TTTTT
6et assets &88E,22E-2B
=ess: =iabilities &1E/,E79-/B
6etwort% as of 2an- 1, 1971 31/,8/9-E/ &871,2,8-EB
TTTTT
Increase in networt% & B2,977-8/
Add: :stimated livin* e+'enses 3,2//-//
TTTTT
6et income &E/,177-8/
!:+%- E7G#, #IR rec- '- 188"-
On Febrar) 2/, 197B, res'ondent Commissioner of Internal Revene, t%r t%e Cit)
Treasrer of Ceb, 'laced t%e 'ro'erties of 4atias 8- AJnar nder distraint and lev) to
secre 'a)ment of t%e deficienc) income ta+ in 1estion- 4atias 8- AJnar filed %is 'etition
for review of t%e case wit% t%e Cort of Ta+ A''eals on A'ril 1, 1977, wit% a sbse1ent
'etition immediatel) t%ereafter to restrain res'ondent from collectin* t%e deficienc) ta+ b)
smmar) met%od, t%e latter 'etition bein* *ranted on Febrar) 8, 197,, 'er C-T-A-
resoltion, wit%ot re1irin* 'etitioner to file a bond- 9'on review, t%is Cort set aside t%e
C-T-A- resoltion and re1ired t%e 'etitioner to de'osit wit% t%e Cort of Ta+ A''eals t%e
amont demanded b) t%e Commissioner of Internal Revene for t%e )ears 19E9 to 1971 or
frnis% a sret) bond for not more t%an doble t%e amont-
On 4arc% 7, 19,2, in a decision si*ned b) t%e 'residin* 5d*e and t%e two associate 5d*es
of t%e Cort of Ta+ A''eals, t%e lower cort conclded t%at t%e ta+ liabilit) of t%e late 4atias
8- AJnar for t%e )ear 19E, to 1971, inclsive s%old be &223,388-,E mins &9,-83
re'resentin* t%e ta+ credit for 19E7, or &223,,91-33, com'ted as follows:
19E,
6et income 'er retrn &9,91/-9E
Add: 9nderdeclared income 22,779-71
TTTT
6et income & B2,E3/-E7
=ess: &ersonal and additional e+em'tions ,,913-//
TTTT
Income sb5ect to ta+ & 27,77B-E7
Ta+ de t%ereon & B,8/1-3,
TTTT
=ess: Ta+ alread) assessed 11E-,,
#alance of ta+ de & B,,83-1/
TTTT
Add: 7/Q src%ar*e 1,8EB-77
.eficienc) income ta+ & 7,7B/-,7
YYYYYYY
19E3
6et income 'er retrn &1/,2//-//
Add: 9nderdeclared income 73,771-19
TTTT
6et income &,3,371-19
=ess: &ersonal and additional e+em'tions 3,///-//
TTTT
Income sb5ect to ta+&,/,371-19
TTTT
Ta+ de t%ereon &1B,E2/-B8
=ess: Ta+ alread) assessed 1B2-//
TTTT
#alance of ta+ de &1B,288-B8
Add: 7/Q src%ar*e ,,,EE-19
TTTT
.eficienc) income ta+ &19,9B2-73
YYYYYYY
19E8
6et income 'er retrn &9,1E8-BE
Add: 9nderdeclared income 8,3B2-1/
TTTT
6et income &13,88/-EE
=ess: &ersonal and additional e+em'tions 3,///-//
TTTT
Income sb5ect to ta+&1/,88/-EE
TTTT
Ta+ de t%ereon &1,/29-,3
TTTT
=ess: Ta+ alread) assessed ,8-9/
#alance of ta+ de 9,/-33
Add: 7/Q src%ar*e E8/-B8
.eficienc) income ta+ &1,EE1-17
YYYYYYY
19E9
6et income 'er retrn &8,99/-,,
Add: 9nderdeclared income EB,318-7B
TTTT
6et income &72,3/9-19
=ess: &ersonal and additional e+em'tions 3,///-//
TTTT
Income sb5ect to ta+&E7,3/9-19
TTTT
Ta+ de t%ereon &8,938-73
=ess: Ta+ alread) assessed 79-32
TTTT
#alance of ta+ de &8,918-87
Add: 7/Q src%ar*e E,E79-E2
TTTT
.eficienc) income ta+ &1B,B38-23
YYYYYYYY
197/
6et income 'er retrn &,,8//-//
Add: 9nderdeclared income BB,B77-8/
TTTT
6et income &E/,177-8/
=ess: &ersonal and additional e+em'tions 3,2//-//
TTTT
Income sb5ect to ta+&B2,977-8/
TTTT
Ta+ de t%ereon &3,,8E-//
=ess: Ta+ alread) assessed G o G
TTTT
#alance of ta+ de &3,,8E-//
Add: 7/Q src%ar*e B,8E2-//
TTTT
.eficienc) income ta+ &11,72,-//
YYYYYYYY
1971
6et income 'er retrn &8,B,E-7/
Add: 9nderdeclared income 2E,,EE9-/,
TTTTT
6et income &27E,81B-7,
=ess: &ersonal and additional e+em'tions 3,8//-//
TTTTT
Income sb5ect to ta+&2E3,/1B-7,
TTTTT
Ta+ de t%ereon &113,BE8-//
=ess: Ta+ alread) assessed 28-//
TTTTT
#alance of ta+ de &113,B2/-//
Add: 7/Q src%ar*e 78,,,/-//
TTTT
.eficienc) Income ta+ &137,98/-//
YYYYYYYYY
S944ARD
19E, & 7,7B/-,7
19E3 19,9B2-73
19E8 1,EE1-17
19E9 1B,B38-23
197/ 137,98/-//
1971 11,72,-//
TTTTT
&223,388-,E
YYYYYYYYY
I
T%e first vital isse to be decided %ere is w%et%er or not t%e ri*%t of t%e Commissioner of
Internal Revene to assess deficienc) income ta+es of t%e late 4atias 8- AJnar for t%e )ears
19E,, 19E3, and 19E8 %ad alread) 'rescribed at t%e time t%e assessment was made on
6ovember 28, 1972-
&etitioner(s contention is t%at t%e 'rovision of law a''licable to t%is case is t%e 'eriod of five
)ears limitation 'on assessment and collection from t%e filin* of t%e retrns 'rovided for in
Sec- BB1 of t%e 6ational Internal Revene Code- 8e ar*es t%at since t%e 19E, income ta+
retrn cold be 'resmed filed before 4arc% 1, 19E3 and t%e notice of final and last
assessment was received b) t%e ta+'a)er on 4arc% 2, 1977, a 'eriod of abot 8 )ears %ad
ela'sed and t%e five )ear 'eriod 'rovided b) law !Sec- BB1 of t%e 6ational Internal Revene
Code" %ad alread) e+'ired- T%e same ar*ment is advanced on t%e ta+'a)er(s retrn for
19E3, w%ic% was filed on 4arc% 1, 19E8, and t%e retrn for 19E8, w%ic% was filed on
Febrar) 28, 19E9- Res'ondents, on t%e ot%er %and, are of t%e firm belief t%at re*ardin* t%e
'rescri'tive 'eriod for assessment of ta+ retrns, Section BB2 of t%e 6ational Internal
Revene Code s%old a''l) becase, as in t%is case, 0!a" In t%e case of a false or fradlent
retrn wit% intent to evade ta+ or of a failre to file a retrn, t%e ta+ ma) be assessed, or a
'roceedin* in cort for t%e collection of sc% ta+ ma) be be*n wit%ot assessment, at an)
time wit%in ten )ears after t%e discover) of t%e falsit), frad or omission0 !Sec- BB2 !a" of t%e
6IRC"-
&etitioner ar*es t%at Sec- BB2 of t%e 6IRC does not a''l) becase t%e ta+'a)er did not file
false and fradlent retrns wit% intent to evade ta+, w%ile res'ondent Commissioner of
Internal Revene insists contrariwise, wit% res'ondent Cort of Ta+ A''eals concldin* t%at
t%e ver) 0sbstantial nder declarations of income for si+ consective )ears elo1entl)
demonstrate t%e falsit) or fradlence of t%e income ta+ retrns wit% an intent to evade t%e
'a)ment of ta+-0
To or minds we can dis'ense wit% t%ese controversial ar*ments on facts, alt%o*% we do
not den) t%at t%e findin*s of facts b) t%e Cort of Ta+ A''eals, s''orted as t%e) are b) ver)
sbstantial evidence, carr) *reat wei*%t, b) resortin* to a 'ro'er inter'retation of Section
BB2 of t%e 6IRC- ;e believe t%at t%e 'ro'er and reasonable inter'retation of said 'rovision
s%old be t%at in t%e t%ree different cases of !1" false retrn, !2" fradlent retrn wit% intent
to evade ta+, !B" failre to file a retrn, t%e ta+ ma) be assessed, or a 'roceedin* in cort for
t%e collection of sc% ta+ ma) be be*n wit%ot assessment, at an) time wit%in ten )ears
after t%e discover) of t%e !1" falsit), !2" frad, !B" omission- Or stand t%at t%e law s%old
be inter'reted to mean a se'aration of t%e t%ree different sitations of false retrn,
fradlent retrn wit% intent to evade ta+, and failre to file a retrn is stren*t%ened
immeasrabl) b) t%e last 'ortion of t%e 'rovision w%ic% a**re*ates t%e sitations into t%ree
different classes, namel) 0falsit)0, 0frad0 and 0omission0- T%at t%ere is a difference
between 0false retrn0 and 0fradlent retrn0 cannot be denied- ;%ile t%e first merel)
im'lies deviation from t%e trt%, w%et%er intentional or not, t%e second im'lies intentional or
deceitfl entr) wit% intent to evade t%e ta+es de-
T%e ordinar) 'eriod of 'rescri'tion of 7 )ears wit%in w%ic% to assess ta+ liabilities nder
Sec- BB1 of t%e 6IRC s%old be a''licable to normal circmstances, bt w%enever t%e
*overnment is 'laced at a disadvanta*e so as to 'revent its lawfl a*ents from 'ro'er
assessment of ta+ liabilities de to false retrns, fradlent retrn intended to evade 'a)ment
of ta+ or failre to file retrns, t%e 'eriod of ten )ears 'rovided for in Sec- BB2 !a" 6IRC,
from t%e time of t%e discover) of t%e falsit), frad or omission even seems to be inade1ate
and s%old be t%e one enforced-
T%ere bein* ndobtedl) false ta+ retrns in t%is case, ;e affirm t%e conclsion of t%e
res'ondent Cort of Ta+ A''eals t%at Sec- BB2 !a" of t%e 6IRC s%old a''l) and t%at t%e
'eriod of ten )ears wit%in w%ic% to assess 'etitioner(s ta+ liabilit) bad net e+'ired at t%e time
said assessment was made-
II
As to t%e alle*ed errors committed b) t%e Cort of Ta+ A''eals in not dedctin* from t%e
alle*ed ndeclared income of t%e ta+'a)er for 19E, t%e 'roceeds from t%e sale of 5ewelries
valed at &B/,///H in not e+cldin* from ot%er sc%edles of assets of t%e ta+'a)er !a"
acconts receivable from cstomers in t%e amont of &B8,/// for 19E8, &12,,81,-7/ for
197/, and 'rovisions for dobtfl acconts in t%e amont of &E1,81/-7, for 197/H !b" over
valation of %os'ital and dental bildin*s for 19E9 in t%e amont of &B2,/// and &,,191-B2
res'ectivel)H !c" investment in %ollow bloc$ bsiness in t%e amont of &8,,/B-22 for 19E9H
!d" over valation of sr'ls *oods in t%e amont of &2B,/// for t%e )ear 19E9H !e" varios
lands and bildin*s inclded in t%e sc%edle of assets for t%e )ears 197/ and 1971 in t%e
total amont of &2EB,313-E2 for 197/ and &,2,7,E-// for 1971, t%ese isses wold de'end
for t%eir resoltion on determination of 1estions of facts based on an evalation of
evidence, and t%e *eneral rle is t%at t%e findin*s of fact of t%e Cort of Ta+ A''eals
s''orted b) sbstantial evidence s%old not be distrbed 'on review of its decision
!Section 2, Rle EE, Rles of Cort"-
On t%e 1estion of t%e alle*ed sale of &B/,/// wort% of 5ewelries in 19E,, w%ic% amont
'etitioner contends s%old be dedcted from t%e ta+'a)er(s net wort% as of .ecember B1,
19E,, t%e record s%ows t%at 4atias 8- AJnar, w%en interviewed b) #-I-R- :+aminer
?errero, stated t%at at t%e be*innin* of 19E7 %e %ad &,/,/// wort% of 5ewelries in%erited
from %is ancestors and were dis'osed off as follows: 19E7, &1/,///H 19E,, &2/,///H 19E3,
&1/,///H 19E8, &1/,///H 19E9, &3,///H !Re'ort of #-I-R- :+aminer ?errero, #-I-R- rec- ''-
9/G9E"-
.rin* t%e %earin* of t%is case in t%e Cort of Ta+ A''eals, 'etitioner(s accontant testified
t%at on 2anar) 1, 19E7, 4atias 8- AJnar %ad 5ewelries wort% &,/,/// w%ic% were ac1ired
b) 'rc%ase drin* t%e 2a'anese occ'ation !;orld ;ar II" and sold on varios occasions,
as follows: 19E7, &7,/// and 19E,, &B/,///- To corroborate t%e testimon) of t%e accontant,
4rs- Ramona A*stines testified t%at s%e bo*%t from t%e wife of 4atias 8- AJnar in 19E, a
diamond rin* and a 'air of earrin*s for &B/,///H and in 19E3 a wrist watc% wit% diamonds,
to*et%er wit% anti1e 5ewelries, for &17,///- 4atias 8- AJnar, on t%e ot%er %and testified
t%at in 19E7, %is wife sold to Sards &ariZo 5ewelries for &7,/// and ot%ers to 4rs- Ramona
A*stines for abot &B7,///- In answer to anot%er 1estion, 4r- AJnar stated t%at %is
transaction wit% Sards &ariZo, wit% res'ect to t%e sale of 5ewelries, amonted to &17,///-
T%e lower cort did not err in findin* material inconsistencies in t%e testimonies of 4atias
8- AJnar and %is witnesses wit% res'ect to t%e vales of t%e 5ewelries alle*edl) dis'osed off
as stated b) t%e witnesses- T%s, 4r- AJnar stated to t%e #-I-R- e+aminer t%at 5ewelries wort%
&1/,/// were sold in 19E7, w%ile %is own accontant testified t%at t%e same 5ewelries were
sold for onl) &7,///- 4r- AJnar also testified t%at 4rs- A*stines 'rc%ased from %is wife
5ewelries for &B7,///, and )et 4rs- A*stines %erself testified t%at s%e bo*%t 5ewelries for
&B/,/// and &17,/// on two occasions, or a total of &E7,///-
;e do not see an) 'lasible reason to c%allen*e t%e fndamentall) sond basis advanced b)
t%e Cort of Ta+ A''eals in considerin* t%e inconsistencies of t%e witnesses( testimon) as
material, in t%e followin* words:
0;e do not sa) t%at witnesses testif)in* on t%e same transaction s%old *ive identical
testimonies- #ecase of t%e frailties and t%e limitations of t%e %man mind, witnesses(
statements are a't to be inconsistent in certain 'oints, bt sall) t%e inconsistencies refer to
t%e minor '%ases of t%e transaction- It is t%e insi*nificance of t%e detail of an occrrence t%at
fails to im'ress t%e %man mind- ;%en t%at same mind, made to recall w%at actall)
%a''ened, t%e insi*nificant 'oint w%ic% it failed to ta$e note is natrall) left ot- #t, it is
ot%erwise as re*ards si*nificant matters, for t%e) leave indelible im'rints 'on t%e %man
mind- 8ence, testimonial inconsistencies on t%e minor details of an occrrence are dismissed
li*%tl) t%e corts, w%ile discre'ancies on si*nificant 'oints are ta$en seriosl) and wei*%
adversel) to t%e 'art) affected t%ereb)-0
T%ere is no sond basis for deviatin* from t%e lower cort(s conclsion t%at: 0Ta+wise, in
view of t%e aforesaid inconsistencies, w%ic% we deem material and si*nificant, we dismiss as
wit%ot factal basis 'etitioner(s alle*ation t%at 5ewelries form 'art of %is inventor) of assets
for t%e 'r'ose of establis%in* %is net wort% at t%e be*innin* of 19E,-0
As to t%e acconts receivable from t%e 9nited States *overnment for t%e amont of
&B8,27E-9/, re'resentin* a claim for *oods commandered b) t%e 9-S- Arm) drin* ;orld
;ar II, and w%ic% amont 'etitioner claimed s%old be inclded in %is net wort% as of
2anar) 1, 19E,, t%e Cort of Ta+ A''eals correctl) conclded t%at t%e ncontradicted
evidence s%owed t%at 0t%e collectible acconts of 4r- AJnar from t%e 9-S- ?overnment in t%e
sm of &B8,27E-9/ s%old be added to %is assets !nder acconts receivable" as of 2anar)
1, 19E,- As of .ecember B1, 19E3, and .ecember B1, 19E8, t%e )ears wit%in w%ic% t%e
acconts were 'aid to %im, t%e (acconts receivable( s%all decrease b) &B1,B,2-B3 and
&,,892-7B, res'ectivel)-0
Re*ardin* a %ose in Talisa) Ceb, !covered b) Ta+ .eclaration 6o- 81,7" w%ic% was listed
as an asset drin* t%e )ears 19E7 and 19E3 to 1971, bt w%ic% was not listed as an asset in
19E, becase of a notation in t%e ta+ declaration t%at it was reconstrcted in 19E3, t%e lower
cort correctl) conclded t%at t%e reconstrction of t%e 'ro'ert) did not render it valeless
drin* t%e time it was bein* reconstrcted and conse1entl) it s%old be listed as an asset as
of 2anar) 1, 19E,, wit% t%e same valation as in 19E7, t%at is &1,7//-
On t%e 1estion of acconts receivable from cstomers in t%e amont of &B8,/// for 19E8,
and &12B,81,-78 for t%e )ears 197/ and 1971, w%ic% were inclded in t%e assets of 4r-
AJnar for t%ose )ears b) t%e res'ondent Commissioner of Internal Revene, it is ver) clear
t%at t%ose fi*res were ta$en from t%e statements !:+%s- B1 and B2" filed b) 4r- 4atias 8-
AJnar wit% t%e &%ili''ine 6ational #an$ w%en %e was intendin* to obtain a loan- T%ese
statements were nder oat% and t%e natral im'lication is t%at t%e information t%erein
reflected mst be t%e tre and accrate financial condition of t%e one w%o e+ected t%ose
statements- To believe t%e 'etitioner(s ar*ment t%at t%e late 4r- AJnar inclded t%ose fi*res
in %is sworn statement onl) for t%e 'r'ose of obtainin* a bi**er credit from t%e ban$ is to
cast ss'icion on t%e c%aracter of a man w%o can no lon*er defend %imself- It wold be as if
'ointin* t%e fin*er of accsation on t%e late 4r- AJnar t%at %e intentionall) falsified %is
sworn statements !:+%s- B1 and B2" to ma$e it a''ear t%at t%ere were nonGe+istent acconts
receivable 5st to increase %is assets b) fictitios entries so t%at %is credit wit% t%e &%ili''ine
6ational #an$ cold be en%anced- #esides, ;e do not lose si*%t of t%e fact t%at t%ose
statements !:+%s- B1 and B2" were e+ected before t%is ta+ controvers) arose and t%e
dis'table 'resm'tions t%at a 'erson is innocent of crime or wron*H t%at a 'erson intends
t%e ordinar) conse1ences of %is volntar) actH t%at a 'erson ta$es ordinar) care of %is
concernsH t%at 'rivate transaction %ave been fair and re*larH t%at t%e ordinar) corse of
bsiness %as been followedH t%at t%in*s %ave %a''ened accordin* to t%e ordinar) corse of
natre and t%e ordinar) %abits of lifeH t%at t%e law %as been obe)ed !Sec- 7, !a", !c", !d", !'",
!1", !J", !ff", Rle 1B1 of t%e Rles of Cort", to*et%er wit% t%e conclsive 'resm'tion t%at
0w%enever a 'art) %as, b) %is own declaration, act, or omission, intentionall) and
deliberatel) led anot%er to believe a 'articlar t%in* tre, and to act 'on sc% belief, %e
cannot, in an) liti*ation arisin* ot of sc% declaration, act or omission, be 'ermitted to
falsif) it0 !Sec- B !a", Rle 1B1, Rles of Cort", convincin*l) indicate t%at t%e acconts
receivable stated b) 4r- AJnar in :+%ibits B1 and B2 were tre, in e+istence, and accrate to
t%e ver) amonts mentioned-
T%ere is no merit to 'etitioners ar*ment t%at t%ose statements were onl) for t%e 'r'ose of
obtainin* a bi**er credit from t%e ban$ !im'liedl) statin* t%at t%ose statements were false"
and t%ose acconts were alle*edl) bac$ acconts of stdents of t%e Sot%western Colle*es
and were wort%less, and if collected, wold *o to t%e fnds of t%e sc%ool- T%e statement of
t%e late 4r- AJnar t%at t%e) were acconts receivable from cstomers s%old 'revail over t%e
mere alle*ation of 'etitioner, ns''orted as t%e) are b) convincin* evidence- T%ere is no
reason to distrb t%e lower cort(s conclsion t%at t%e amonts of &B8,/// and &12B,81,-78
were acconts receivable from cstomers and as sc% mst be inclded as 'etitioner(s assets
for t%e )ears indicated-
As to t%e 1estions of dobtfl acconts !bad debts", for t%e amont of &E1,81/-7,, it is clear
t%at said amont is ta$en from :+%ibit B1, t%e sworn statement of financial condition filed b)
4r- 4atias 8- AJnar wit% t%e &%ili''ine 6ational #an$- T%e lower cort did not commit an)
error in a*ain *ivin* mc% wei*%t to t%e statement of 4r- AJnar and in concldin* t%at
inasmc% as t%is is an item se'arate and a'art from t%e ta+'a)er(s acconts receivable and
nonGdedctible e+'ense, it s%old be reverted to t%e acconts receivable and, conse1entl),
considered as an asset in 197/-
On t%e alle*ed over valation of two bildin*s !%os'ital bildin* w%ic% res'ondent
Commissioner of Internal Revene listed as an asset from 19E9G1971 at t%e basic valation
of &1B/,///, and w%ic% 'etitioner claims to be over valed b) &B2,///H dentistr) bildin*
valed b) res'ondent Commissioner of Internal Revene at &B,,191-BE, w%ic% 'etitioner
claims to be over valed b) &,,191-BE", ;e find no sfficient reason to alter t%e conclsion
of res'ondent Cort of Ta+ A''eals sstainin* t%e res'ondent Commissioner of Internal
Revene(s valation of bot% 'ro'erties-
Res'ondent Commissioner of Internal Revene based %is valation of t%e %os'ital bildin*
on t%e re'resentation of 4r- 4atias 8- AJnar %imself w%o, in %is letter !:+%- B7" to t%e
&%ili''ine 6ational #an$ dated Se'tember 7, 19E9, stated t%at t%e %os'ital bildin* cost %im
&1B2,///- 8owever in view of t%e effect of a t)'%oon in 19E9 'on t%e bildin*, t%e vale
allowed was &1B/,///- :+%ibit B7, contrar) to 'etitioner(s contention, s%old be *iven
'robative vale becase, alt%o*% it is an nsi*ned 'lain co'), t%at e+%ibit was ta$en b) t%e
investi*atin* e+aminer of t%e #-I-R- from t%e files of t%e Sot%western Colle*es and formed
'art of %is re'ort of investi*ation as a 'blic official- T%e estimates of an arc%itect and a
civil en*ineer w%o a*reed t%at a vale of &8E,2E/ is fair for t%e %os'ital bildin*, made
)ears after t%e bildin* was constrcted, cannot 'revail over t%e 'etitioner(s own estimate of
%is 'ro'ert)(s vale-
Res'ondent Commissioner of Internal Revene(s valation of &B,,191-BE of t%e .entistr)
#ildin* is based on t%e letter of 4r- and 4rs- 4atias 8- AJnar to t%e Sot%western
Colle*es, dated .ecember 17, 197/, w%ic% is embodied in t%e mintes of t%e meetin* of t%e
#oard of Trstees of t%e Sot%western Colle*es %eld on 4a) 3, 1971 !:+%ibit ?G1"- In
:+%ibit 2, A, w%ic% is t%e cas% boo$ of t%e Sot%western Colle*es, t%is bildin* was listed as
of t%e same amont- &etitioner(s estimate of &B/,/// for t%is bildin*, based on Arc%itect
&aca(s o'inion, cannot stand a*ainst t%e owner(s estimate and t%at w%ic% a''ears in t%e
cas% boo$ of t%e Sot%western Colle*es, if we ta$e into consideration t%at t%e owner(s !4r-
4atias 8- AJnar" letter was written lon* before t%is ta+ 'roceedin* was initiated, w%ile
arc%itect &aca(s estimate was made 'on 'etitioner(s re1est solel) for t%e 'r'ose of
evidence in t%is ta+ case-
In t%e inventor) of assets of 'etitioner, res'ondent Commissioner of Internal Revene
inclded t%e administrative bildin* valed at &19,2// for t%e )ears 19E3 and 19E8, and
&1,,3// for t%e )ears 19E9 to 1971H and a %i*% sc%ool bildin* valed at &E8,/// for 19E3
and 19E8, and &E7,/// for 19E9, 197/ and 1971- T%e redced valation for t%e latter )ears
are de to allowance for 'artial loss resltin* from t%e 19E9 t)'%oon- &etitioner did not
1estion t%e inclsion of t%ese bildin*s in t%e inventor) for t%e )ears 'rior to 197/, bt
ob5ected to t%eir inclsion as assets as of 2anar) 1, 197/, becase bot% bildin*s were
destro)ed b) a t)'%oon in 6ovember of 19E9- T%ere is sfficient evidence !:+%- ?G1, affidavit
of 2ess S- Intan, em'lo)ee in t%e office of Cit) Assessor of Ceb Cit), :+%- 18, 4r- Intan(s
testimon), a co') of a letter of t%e Cit) Assessor of Ceb Cit)" to 'rove t%at t%e two bildin*s
were reall) destro)ed b) t)'%oon in 19E9 and, t%erefore, s%old be eliminated from t%e
'etitioner(s inventor) of assets be*innin* .ecember B1, 19E9-
On t%e isse of investment in t%e %ollow bloc$s bsiness, ;e see no com'ellin* reason to
alter t%e lower cort(s conclsion t%at 0w%atever was s'ent in t%e %ollow bloc$s bsiness is
an investment, and bein* an investment, t%e same s%old be treated as an asset- ;it% res'ect
to t%e amont re'resentin* t%e vale of t%e bildin*, t%ere is no d'lication in t%e listin* as
t%e inventor) of real 'ro'ert) does not inclde t%e bildin* in 1estion-0
Res'ondent Commissioner of Internal Revene inclded in t%e inventor), nder t%e %eadin*
of ot%er asset, t%e amont of &8,,,B-22, treated as investment in t%e %ollow bloc$ bsiness-
&etitioner ob5ects to t%e inclsion of &1,,8B-E2 w%ic% was s'ent on t%e bildin* and in t%e
bsiness and of &,3E-B7 w%ic% was s'ent for labor, fel, raw materials, office s''lies etc-,
contendin* t%at t%e former amont is a d'lication of inventor) !inclded amon* t%e list of
'ro'erties" and t%e latter is a bsiness e+'ense w%ic% s%old be eliminated from t%e list of
assets-
T%e inclsion of e+'enses !labor and raw materials" as 'art of t%e %ollow bloc$ bsiness is
sanctioned in t%e inventor) met%od of ta+ verification- It is a sond accontin* 'ractice to
inclde raw materials t%at will be sed for ftre manfactre- Inclsion of direct labor is
also 'ro'er, as all t%ese items are to be embodied in a smmar) of assets !investment b) t%e
ta+'a)er credited to %is ca'ital accont as reflected in :+%ibit 32GA, w%ic% is a wor$in*
s%eet wit% entries ta$en from t%e 5ornal of t%e 'etitioner concernin* %is %ollow bloc$s
bsiness", T%ere is no evidence to s%ow t%at t%ere was d'lication in t%e inclsion of t%e
bildin* sed for %ollow bloc$s bsiness as 'art of 'etitioner(s investment as t%is bildin*
was not inclded in t%e listin* of real 'ro'erties of 'etitioner !:+%, E7GC '- 183 #-I-R- rec-"-
As to t%e 1estion of t%e real vale of t%e sr'ls *oods 'rc%ased b) 4r- 4atias 8- AJnar
from t%e 9-S- Arm), t%e best evidence, as observed correctl) b) t%e lower cort, is t%e
statement of 4r- 4atias 8- AJnar, %imself, as a''earin* in :+%- B7 !co') of a letter dated
Se'tember 7, 19E9 to t%e &%ili''ine 6ational #an$", to t%e effect 0as 'art of m) assets I %ave
different merc%andise from ;are%ose B7, Tacloban, =e)te at a total cost of &EB,///-// and
valed at no less t%an &2/,/// at 'resent mar$et vale-0 &etitioner(s claim t%at t%e *oods
s%old be valed at onl) &2/,/// in accordance wit% an alle*ed invoice is not s''orted b)
evidence since t%e invoice was not 'resented as e+%ibit- T%e lower cort(s act in *ivin* more
credence to t%e statement of 4r- AJnar cannot be 1estioned in t%e li*%t of clear indications
t%at it was never controverted and it was *iven at a time lon* before t%e ta+ controvers)
arose-
T%e last isse on 'ro'riet) of inclsion in 'etitioner(s assets as made b) res'ondent
Commissioner of Internal Revene concerns several bildin*s w%ic% were inclded in t%e
list of 'etitioner(s assets as of .ecember B1, 197/, &etitioner contends t%at t%ose bildin*s
were conve)ed and ceded to t%e Sot%western Colle*es on .ecember 17, 197/, in
consideration of &1//,32B-99 to be 'aid in cas%- T%e vale of t%e different bildin*s are
listed as: %os'ital bildin*, &1B/,///H *)mnasim, &EB,///H dentistr) bildin*, &B,,191,BEH
bode*a 1, &381,18H bode*a 2, &3,27/H colle*e of law, &1/,97/H laborator) bildin*, &8,1,EH
%ome economics, &7,,21H mor*e, &2,E//H science bildin*, &2B,,//H faclt) %ose,
&7,3,/- It is s**ested t%at t%e vale of t%e bildin*s be eliminated from t%e real estate
inventor) and t%e sm of &1//,32B-99 be inclded as asset as of .ecember B1, 197/-
T%e lower cort cold not find an) evidence of said alle*ed transfer of owners%i' from t%e
ta+'a)er to t%e Sot%western Colle*es as of .ecember 17, 197/, an alle*ation w%ic% if tre
cold easil) be 'roven- ;%at is evident is t%at t%ose bildin*s were sed b) t%e Sot%western
Colle*es- It is tre t%at :+%ibit ?G1 s%ows t%at 4r- and 4rs- 4atias 8- AJnar offered t%ose
'ro'erties in e+c%an*e for s%ares of stoc$s of t%e Sot%western Colle*es, and :+%ibit 0?0
w%ic% is t%e mintes of t%e meetin* of t%e #oard of Trstees of t%e Sot%western Colle*es
%eld on A*st ,, 1971, s%ows t%at 4r- AJnar was amenable to t%e vale fi+ed b) t%e board
of trstees and t%at %e re1ested to be 'aid in cas% instead of s%ares of stoc$- #t t%ose are
not sfficient evidence to 'rove t%at transfer of owners%i' actall) %a''ened on .ecember
17, 197/- 8ence, t%e lower cort did not commit an) error in sstainin* t%e res'ondent
Commissioner of Internal Revene(s act of incldin* t%ose bildin*s as 'art of t%e assets of
'etitioner as of .ecember B1, 197/-
&etitioner also contends t%at 'ro'erties alle*edl) ceded to t%e Sot%western Colle*es in
1971 for &17/,/// wort% of s%ares of stoc$s, consistin* of: land, &22,,8EH %ose, &1B,3//H
*ro' of %oses, &8,///H bildin*, &12,///H nrses %ome, &E,1//H nrses %ome, &2,/8/,
s%old be e+clded from t%e inventor) of assets as of .ecember B1, 1971- T%e evidence
!:+%- 8", %owever, clearl) s%ows t%at said 'ro'erties were formall) conve)ed to t%e
Sot%western Colle*es onl) on Se'tember 27, 1972- 9ndobtedl), 'etitioner was t%e owner
of t%ose 'ro'erties 'rior to Se'tember 27, 1972 and said 'ro'erties s%old form 'art of %is
assets as of .ecember B1, 1971-
T%e ncontested 'ortions of t%e lower cort(s decision consistin* of its conclsions t%at
librar) boo$s valed at &3,/E1-/B, a''earin* in a 5ornal of t%e Sot%western Colle*es
mar$ed as :+%ibit 27GA, bein* an investment, s%old be treated as an asset be*innin*
.ecember B1, 197/H t%at t%e e+'enses for constrction to t%e amont of &11B,B7B-3/, w%ic%
were s'ent for t%e im'rovement of t%e bildin*s a''earin* in :+%ibit 2E are deemed
absorbed in t%e increased vale of t%e bildin*s as a''raised b) res'ondent Commissioner
of Internal Revene at cost after im'rovements were made, and s%old be ta$en ot as
additional assetsH t%at t%e amont receivable of &7,33, from a certain #enito C%an s%old
be treated as 'etitioner(s asset bt t%e amont of &7,33, re'resentin* t%e vale of a %ose
and lot *iven as collateral to secre said loan s%old not be considered as an asset of
'etitioner since to do so wold reslt in a *larin* d'lication of items, are all affirmed-
T%ere seems to be no controvers) as to t%e rest of t%e items listed in t%e inventor) of assets-
III
T%e second isse w%ic% a''ears to be of vital im'ortance in t%is case centers on t%e lower
cort(s im'osition of t%e frad 'enalt) !src%ar*e of 7/Q at%oriJed in Section 32 of t%e Ta+
Code"- T%e 'etitioner insists t%at t%ere mi*%t %ave been false retrns b) mista$e filed b) 4r-
4atias 8- AJnar as t%ose retrns were 're'ared b) %is accontant em'lo)ees, bt t%ere were
no 'roven fradlent retrns wit% intent to evade ta+es t%at wold 5stif) t%e im'osition of
t%e 7/Q src%ar*e at%oriJed b) law as frad 'enalt)-
T%e lower cort based its conclsion t%at t%e 7/Q frad 'enalt) mst be im'osed on t%e
followin* reasonin*:
0It a''ears t%at 4atias 8- AJnar declared net income of &9,91/-9E, &1/,2//, &9,1E8-BE,
&8,99/-,,, &8,B,E-7/ and &,,8// for t%e )ears 19E,, 19E3, 19E8, 19E9, 197/ and 1971,
res'ectivel)- 9sin* t%e net wort% met%od of determinin* t%e net income of a ta+'a)er, we find
t%at %e %ad net incomes of &B2,E3/-E7, &,3,371-19, &13,88/-EE, &72,3/9-11, &27E,81B-7,
and &E/,177-8/ drin* t%e res'ective )ears 19E,, 19E3, 19E8, 19E9, 197/, and 1971- In
conse1ence, %e nderdeclared %is income b) 223Q for 19E,, 7,EQ for 19E3, 97Q for 19E8,
E8,Q for 19E9, 2,9E,Q for 197/ and E9/Q for 1971- T%ese sbstantial nderdeclarations of
income for si+ consective )ears elo1entl) demonstrate t%e falsit) or fradlence of t%e
income ta+ retrns wit% an intent to evade t%e 'a)ment of ta+- 8ence t%e im'osition of t%e
frad 'enalt) is 'ro'er !&ereJ vs- Cort of Ta+ A''eals, ?-R- 6o- =G1/7/3, 4a) B/, 1978"-0
!:m'%asis ors"
As cold be readil) seen from t%e above rationaliJation of t%e lower cort, no distinction %as
been made between false retrns !de to mista$e, carelessness or i*norance" and fradlent
retrns !wit% intent to evade ta+es"- T%e lower cort based its conclsion on t%e 'etitioner(s
alle*ed fradlent intent to evade ta+es on t%e sbstantial difference between t%e amonts of
net income on t%e face of t%e retrns as filed b) %im in t%e )ears 19E, to 1971 and t%e net
income as determined b) t%e inventor) met%od tiliJed b) bot% res'ondents for t%e same
)ears- T%e lower cort based its conclsion on a 'resm'tion t%at frad can be dedced
from t%e ver) sbstantial dis'arit) of incomes as re'orted and determined b) t%e inventor)
met%od and on t%e similarit) of consective dis'arities for si+ )ears- Sc% a basis for
determinin* t%e e+istence of frad !intent to evade 'a)ment of ta+" sffers from an in%erent
flaw w%en a''lied to t%is case- It is ver) a''arent %ere t%at t%e res'ondent Commissioner of
Internal Revene, w%en t%e inventor) met%od was resorted to in t%e first assessment,
conclded t%at t%e correct ta+ liabilit) of 4r- AJnar amonted to &32B,/B2-,, !:+%- 1, #-I-R-
rec- ''- 12,G129"- After a reinvesti*ation t%e same res'ondent, in anot%er assessment dated
Febrar) 1,, 1977, conclded t%at t%e ta+ liabilit) s%old be redced to &B81,/9,-/3- T%is is
a cr)stalGclear, indication t%at even t%e res'ondent Commissioner of Internal Revene wit%
t%e se of t%e inventor) met%od can commit a *larin* mista$e in t%e assessment of
'etitioner(s ta+ liabilit)- ;%en t%e res'ondent Cort of Ta+ A''eals reviewed t%is case on
a''eal, it conclded t%at 'etitioner(s ta+ liabilit) s%old be onl) &223,388-,E- T%e lower
cort in t%ree instances !elimination of two bildin*s in t%e list of 'etitioner(s assets
be*innin* .ecember B1, 19E9, becase t%e) were destro)ed b) fireH elimination of e+'enses
for constrction in 'etitioner(s assets as d'lication of increased vale in bildin*s, and
elimination of vale of %ose and lot in 'etitioner(s assets becase said 'ro'ert) was onl)
*iven as collateral" s''orted 'etitioner(s stand on t%e wron* inclsions in %is lists of assets
made b) t%e res'ondent Commissioner of Internal Revene, resltin* in t%e ver) sbstantial
redction of 'etitioner(s ta+ liabilit) b) t%e lower cort- T%e fore*oin* s%ows t%at it was not
onl) 4r- 4atias 8- AJnar w%o committed mista$es in %is re'ort of %is income bt also t%e
res'ondent Commissioner of Internal Revene w%o committed mista$es in %is se of t%e
inventor) met%od to determine t%e 'etitioner(s ta+ liabilit)- T%e mista$es committed b) t%e
Commissioner of Internal Revene w%ic% also involve ver) sbstantial amonts were also
re'eated )earl), and )et we cannot 'resme t%erefrom t%e e+istence of an) taint of official
frad-
From t%e above e+'osition of facts, we cannot bt em'%aticall) reiterate t%e well establis%ed
doctrine t%at frad cannot be 'resmed bt mst be 'roven- As a corollar) t%ereto, we can
also state t%at fradlent intent cold not be dedced from mista$es %owever fre1ent t%e)
ma) be, es'eciall) if sc% mista$es emanate from erroneos entries or erroneos
classification of items in accontin* met%ods tiliJed for determination of ta+ liabilities- T%e
'redecessor of t%e 'etitioner ndobtedl) filed %is income ta+ retrns for t%e )ears 19E, to
1971 and t%ose ta+ retrns were 're'ared for %im b) %is accontant and em'lo)ees- It also
a''ears t%at 'etitioner in %is lifetime and drin* t%e investi*ation of %is ta+ liabilities
coo'erated readil) wit% t%e #-I-R- and t%ere is no indication in t%e record of an) act of bad
fait% committed b) %im-
T%e lower cort(s conclsion re*ardin* t%e e+istence of fradlent intent to evade 'a)ment
of ta+es was based merel) on a 'resm'tion and not on evidence establis%in* a willfl filin*
of false and fradlent retrns so as to warrant t%e im'osition of t%e frad 'enalt)- T%e
frad contem'lated b) law is actal and not constrctive- It mst be intentional frad,
consistin* of dece'tion willfll) and deliberatel) done or resorted to in order to indce
anot%er to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross, is not e1ivalent to
t%e frad wit% intent to evade t%e ta+ contem'lated b) t%e law- It mst amont to intentional
wron*Gdoin* wit% t%e sole ob5ect of avoidin* t%e ta+- It necessaril) follows t%at a mere
mista$e cannot be considered as fradlent intent, and if bot% 'etitioner and res'ondent
Commissioner of Internal Revene committed mista$es in ma$in* entries in t%e retrns and
in t%e assessment, res'ectivel), nder t%e inventor) met%od of determinin* ta+ liabilit), it
wold be nfair to treat t%e mista$es of t%e 'etitioner as tainted wit% frad and t%ose of t%e
res'ondent as made in *ood fait%-
;e conclde t%at t%e 7/Q src%ar*e as frad 'enalt) at%oriJed nder Section 32 of t%e Ta+
Code s%old not be im'osed, bt eliminated from t%e income ta+ deficienc) for eac% )ear
from 19E, to 1971, inclsive- T%e ta+ liabilit) of t%e 'etitioner for eac% )ear s%old,
t%erefore, be:
19E, &B,,83-1/
19E3 1B,288-B8
19E8 9,/-33
19E9 8,918-87
197/ 113,B2/-//
1971 3,,8E-//
TTTT
&171,879-1/
T%e total sm of &171,879-1/ s%old be decreased b) &9,-83 re'resentin* t%e ta+ credit for
19E7, t%ereb) leavin* a balance of &171,3,2-2B-
;8:R:FOR:, t%e decision of t%e Cort of Ta+ A''eals is modified in so far as t%e
im'osition of t%e 7/Q frad 'enalt) is concerned, and affirmed in all ot%er res'ects- T%e
'etitioner is ordered to 'a) to t%e Commissioner of Internal Revene, or %is dl) at%oriJed
re'resentative, t%e sm of &171,3,2-2B, re'resentin* deficienc) income ta+es for t%e )ears
19E, to 1971, inclsive, wit%in B/ da)s from t%e date t%is decision becomes final- If t%e said
amont is not 'aid wit%in said 'eriod, t%ere s%all be added to t%e n'aid amont t%e
src%ar*e of 7Q, 'ls interest at t%e rate of 12Q 'er annm from t%e date of delin1enc) to
t%e date of 'a)ment, in accordance wit% Section 71 of t%e 6ational Internal Revene Code-
1- AJnar vs- CTA !?-R- 6o- =G2/7,9, 2B A*st 193E, 78 SCRA 719"
a- ;%ile t%is is not a criminal case, t%e S'reme Cort !SC" %ad an o''ortnit) to
discss w%at constittes fradlent intent- T%e 'etitioner was 1estionin* t%e assessment
of deficienc) ta+ and im'osition of src%ar*e- T%ere was a sbstantial difference fond
between t%e amonts of net income on t%e face of t%e retrns as filed b) 'etitioner in t%e
)ears 19E, to 1971 and t%e net income as determined b) t%e inventor) met%od tiliJed b)
res'ondents for t%e same )ears-
b- T%e S'reme Cort rled:
KSc% a basis Ninventor) met%odO for determinin* t%e e+istence of frad !intent to evade
'a)ment of ta+" sffers from an in%erent flaw w%en a''lied to t%is case- It was not onl)
4r- 4atias 8- AJnar w%o committed mista$es in %is re'ort of %is income bt also t%e
res'ondent Commissioner of Internal Revene w%o committed mista$es in %is se of t%e
inventor) met%od to determine t%e 'etitioner(s ta+ liabilit)- T%e mista$es committed b)
t%e Commissioner of Internal Revene w%ic% also involve ver) sbstantial amonts were
also re'eated )earl), and )et we cannot 'resme t%erefrom t%e e+istence of an) taint of
official frad-
From t%e above e+'osition of facts, we cannot bt em'%aticall) reiterate t%e well
establis%ed doctrine t%at frad cannot be 'resmed bt mst be 'roven- As a corollar)
t%ereto, we can also state t%at fradlent intent cold not be dedced from mista$es
%owever fre1ent t%e) ma) be, es'eciall) if sc% mista$es emanate from erroneos
entries or erroneos classification of items in accontin* met%ods tiliJed for
determination of ta+ liabilities- T%e 'redecessor of t%e 'etitioner ndobtedl) filed %is
income ta+ retrns for 0t%e )ears 19E, to 1971 and t%ose ta+ retrns were 're'ared for
%im b) %is accontant and em'lo)ees- It also a''ears t%at 'etitioner in %is lifetime and
drin* t%e investi*ation of %is ta+ liabilities coo'erated readil) wit% t%e #-I-R- and t%ere
is no indication in t%e record of an) act of bad fait% committed b) %im-
T%e lower cort(s conclsion re*ardin* t%e e+istence of fradlent intent to evade
'a)ment of ta+es was based merel) on a 'resm'tion and not on evidence establis%in* a
willfl filin* of false and fradlent retrns so as to warrant t%e im'osition of t%e frad
'enalt)- T%e frad contem'lated b) law is actal and not constrctive- It mst be
intentional frad, consistin* of dece'tion willfll) and deliberatel) done or resorted to in
order to indce anot%er to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t or *ross,
is not e1ivalent to t%e frad wit% intent to evade t%e ta+ contem'lated b) t%e law- It mst
amont to intentional wron*Gdoin* wit% t%e sole ob5ect of avoidin* t%e ta+- It necessaril)
follows t%at a mere mista$e cannot be considered as fradlent intent, and if bot%
'etitioner and res'ondent Commissioner of Internal Revene committed mista$es in
ma$in* entries in t%e retrns and in t%e assessment, res'ectivel), nder t%e inventor)
met%od of determinin* ta+ liabilit), it wold be nfair to treat t%e mista$es of t%e
'etitioner as tainted wit% frad and t%ose of t%e res'ondent as made in *ood fait%-M
2- 9n*ab vs- Csi !?-R- 6o- =GE1919G2E, B/ 4a) 198/"
a- T%is is a criminal case for filin* a fradlent ta+ retrn, failre to render a tre
and com'lete retrn and en*a*in* in bsiness wit%ot first 'a)in* t%e annal fi+ed or
'rivile*e ta+- 8owever, t%e case did not discss t%e *ilt or innocence of t%e accsed, bt
tac$led t%e at%orit) of t%e 'rosector and t%e 5risdiction of t%e cort-
b- T%e followin* are t%e relevant 'rononcements of t%e S'reme Cort on intent
and willflness:
KT%e contention is made, and is %ere re5ected, t%at an assessment of t%e deficienc) ta+
de is necessar) before t%e ta+'a)er can be 'rosected criminall) for t%e c%ar*es
'referred- T%e crime is com'lete w%en t%e violator %as, as in t%is case, $nowin*l) and
willfll) filed fradlent retrns wit% intent to evade and defeat a 'art or all of t%e ta+-M
An assessment of a deficienc) is not necessar) to a criminal 'rosection for willfl
attem't to defeat and evade t%e income ta+- A crime is com'lete w%en t%e violator %as
$nowin*l) and willfll) filed a fradlent retrn wit% intent to evade and defeat t%e ta+-
T%e 'er'etration of t%e crime is *ronded 'on $nowled*e on t%e 'art of t%e ta+'a)er
t%at %e %as made an inaccrate retrn, and t%e *overnment(s failre to discover t%e error
and 'rom'tl) to assess %as no connections wit% t%e commission of t%e crime-M
B- CIR vs- 2avier !?-R- 6o- 3897B, B1 2l) 1991, 199 SCRA 82E"
a- A*ain, t%is is not a criminal case- T%e controvers) basicall) revolves arond t%e
assessment of deficienc) ta+ and im'osition of src%ar*e- T%e ta+'a)er was t%e reci'ient
of some mone) from abroad w%ic% %e 'resmed to be a *ift bt t%e amont was actall)
erroneosl) remitted to %is accont- In %is income ta+ retrn, t%e ta+'a)er 't a footnote
statin* t%e above and t%e fact t%at t%e amont is now sb5ect to liti*ation-
b- T%e S'reme Cort cited t%e rlin* in t%e AJnar case as re*ards frad and %eld:
KIn t%e case at bar, t%ere was no actal and intentional frad t%ro*% willfl and
deliberate misleadin* of t%e *overnment a*enc) concerned, t%e #rea of Internal
Revene, %eaded b) t%e %erein 'etitioner- T%e *overnment was not indced to *ive '
some le*al ri*%t and 'lace itself at a disadvanta*e so as to 'revent its lawfl a*ents from
'ro'er assessment of ta+ liabilities becase 2avier did not conceal an)t%in*- :rror or
mista$e of law is not frad- T%e 'etitioner(s Jealosness to collect ta+es from t%e
nearned windfall to 2avier is %i*%l) commendable- 9nfortnatel), t%e im'osition of t%e
frad 'enalt) in t%is case is not 5stified b) t%e e+tant facts- 2avier ma) be *ilt) of
swindlin* c%ar*es, 'er%a's even for *reed b) s'endin* most of t%e mone) %e received,
bt t%e records lac$ a clear s%owin* of frad committed becase %e did not conceal t%e
fact t%at %e %ad received an amont of mone) alt%o*% it was a 0sb5ect of liti*ation-M
CO44ISSIO6:R OF I6T:R6A= R:C:69:, 'etitioner, vs- 4:=C8OR 2- 2ACI:R, 2R- and
T8: CO9RT OF TA> A&&:A=S, res'ondents- N?-R- 6o- 3897B- 2l) B1, 1991-O
SD==A#9S
1- TA>ATIO6H I6CO4: TA>H S9RC8AR?:S FOR R:6.:RI6? FA=S: A6.
FRA9.9=:6T R:T9R6- T 9nder t%e t%en Section 32 of t%e Ta+ Code !now Section 2E8 of
t%e 1988 6ational Internal Revene Code", a ta+'a)er w%o files a false retrn is liable to
'a) t%e frad 'enalt) of 7/Q of t%e ta+ de from %im or of t%e deficienc) ta+ in case 'a)ment
%as been made on t%e basis of t%e retrn filed before t%e discover) of t%e falsit) or frad-
2- I.-H I.-H FI=I6? OF FRA9.9=:6T R:T9R6H 49ST #: ACT9A= A6.
I6T:6TIO6A= T8RO9?8 ;I==F9= A6. .:=I#:RAT: 4IS=:A.I6? OF T8:
?OC:R64:6T A?:6CD- T In AJnar v- Cort of Ta+ A''eals !=G2/7,9, 'roml*ated on
A*st 2B, 193E, 78 SCRA 719", frad in relation to t%e filin* of income ta+ retrn, was
discssed in t%is manner: - - - T%e frad contem'lated b) law is actal and not constrctive-
It mst be intentional frad, consistin* of dece'tion willfll) and deliberatel) done or
resorted to in order to indce anot%er to *ive ' some le*al ri*%t- 6e*li*ence, w%et%er sli*%t
or *ross, is not e1ivalent to t%e frad wit% intent to evade t%e ta+ contem'lated b) law- It
mst amont to intentional wron*Gdoin* wit% t%e sole ob5ect of avoidin* t%e ta+- It
necessaril) follows t%at a mere mista$e cannot be considered as fradlent intent, and if
bot% 'etitioner and res'ondent Commissioner of Internal Revene committed mista$es in
ma$in* entries in t%e retrns and in t%e assessment, res'ectivel), nder t%e inventor) met%od
of determinin* ta+ liabilit), it wold be nfair to treat t%e mista$es of t%e 'etitioner as
tainted wit% frad and t%ose of t%e res'ondent as made in *ood fait%- Frad is never im'ted
and t%e corts never sstain findin*s of frad 'on circmstances w%ic%, at most, create
onl) ss'icion and t%e mere nderstatement of a ta+ is not itself 'roof of frad for t%e
'r'ose of ta+ evasion-
B- I.-H I.-H I.-H 6OT &R:S:6T I6 CAS: AT #AR- T In t%e case at bar, t%ere was no
actal and intentional frad t%ro*% willfl and deliberate misleadin* of t%e *overnment
a*enc) concerned, t%e #rea of Internal Revene, %eaded b) t%e %erein 'etitioner- T%e
*overnment was not indced to *ive ' some le*al ri*%t and 'lace itself at a disadvanta*e so
as to 'revent its lawfl a*ents from 'ro'er assessment of ta+ liabilities becase 2avier did
not conceal an)t%in*- :rror or mista$e of law is not frad- T%e 'etitioner(s Jealosness to
collect ta+es from t%e nearned windfall to 2avier is %i*%l) commendable- 9nfortnatel), t%e
im'osition of t%e frad 'enalt) in t%is case is not 5stified b) t%e e+tant facts- 2avier ma) be
*ilt) of swindlin* c%ar*es, 'er%a's even for *reed b) s'endin* most of t%e mone) %e
received, bt t%e records lac$ a clear s%owin* of frad committed becase %e did not conceal
t%e fact t%at %e %ad received an amont of mone) alt%o*% it was a 0sb5ect of liti*ation-0 As
rled b) res'ondent Cort of Ta+ A''eals, t%e 7/Q src%ar*e im'osed as frad 'enalt) b)
t%e 'etitioner a*ainst t%e 'rivate res'ondent in t%e deficienc) assessment s%old be deleted-
. : C I S I O 6
Central in t%is controvers) is t%e isse as to w%et%er or not a ta+'a)er w%o merel) states as
a footnote in %is income ta+ retrn t%at a sm of mone) t%at %e erroneosl) received and
alread) s'ent is t%e sb5ect of a 'endin* liti*ation and t%ere did not declare it as income is
liable to 'a) t%e 7/Q 'enalt) for filin* a fradlent retrn-
T%is 1estion is t%e sb5ect of t%e 'etition for review before t%e Cort of t%e 'ortion of t%e
.ecision dated 2l) 23, 198B of t%e Cort of Ta+ A''eals !CTA" in C-T-A- Case 6o- BB9B,
entitled, 04elc%or 2- 2avier, 2r- vs- Rben #- Anc%eta, in %is ca'acit) as Commissioner of
Internal Revene,0 w%ic% orders t%e deletion of t%e 7/Q src%ar*e from 2avier(s deficienc)
income ta+ assessment on %is income for 1933-
T%e res'ondent CTA in a Resoltion dated 4a) 27, 1983, denied t%e Commissioner(s
4otion for Reconsideration B and 4otion for 6ew Trial on t%e deletion of t%e 7/Q
src%ar*e assessment or im'osition-
T%e 'ertinent facts as are accratel) stated in t%e 'etition of 'rivate res'ondent 2avier in t%e
CTA and incor'orated in t%e assailed decision now nder review, read as follows:
+++ +++ +++
2- T%at on or abot 2ne B, 1933, Cictoria =- 2avier, t%e wife of t%e 'etitioner !'rivate
res'ondent %erein", received from t%e &rdential #an$ and Trst Com'an) in &asa) Cit) t%e
amont of 9SV999,93B-3/ remitted b) %er sister, 4rs- .olores Centosa, t%ro*% some ban$s
in t%e 9nited States, amon* w%ic% is 4ellon #an$, 6-A-
B- T%at on or abot 2ne 29, 1933, 4ellon #an$, 6-A- filed a com'laint wit% t%e Cort
of First Instance of RiJal !now Re*ional Trial Cort", !doc$eted as Civil Case 6o- 2,899",
a*ainst t%e 'etitioner !'rivate res'ondent %erein", %is wife and ot%er defendants, claimin*
t%at its remittance of 9SV1,///,///-// was a clerical error and s%old %ave been
9SV1,///-// onl), and 'ra)in* t%at t%e e+cess amont of 9SV999,///-// be retrned on t%e
*rond t%at t%e defendants are trstees of an im'lied trst for t%e benefit of 4ellon #an$
wit% t%e clear, immediate, and continin* dt) to retrn t%e said amont from t%e moment it
was received-
E- T%at on or abot 6ovember 7, 1933, t%e Cit) Fiscal of &asa) Cit) filed an
Information wit% t%e t%en Circit Criminal Cort !doc$eted as CCCGCIIGBB,9G&-C-" c%ar*in*
t%e 'etitioner !'rivate res'ondent %erein" and %is wife wit% t%e crime of estafa, alle*in* t%at
t%e) misa''ro'riated, misa''lied, and converted to t%eir own 'ersonal se and benefit t%e
amont of 9SV999,///-// w%ic% t%e) received nder an im'lied trst for t%e benefit of
4ellon #an$ and as a reslt of t%e mista$e in t%e remittance b) t%e latter-
7- T%at on 4arc% 17, 1938, t%e 'etitioner !'rivate res'ondent %erein" filed %is Income
Ta+ Retrn for t%e ta+able )ear 1933 s%owin* a *ross income of &7B,/7B-B8 and a net
income of &E8,/7B-88 and statin* in t%e footnote of t%e retrn t%at 0Ta+'a)er was reci'ient
of some mone) received from abroad w%ic% %e 'resmed to be a *ift bt trned ot to be an
error and is now sb5ect of liti*ation-0
,- T%at on or before .ecember 17, 198/, t%e 'etitioner !'rivate res'ondent %erein"
received a letter from t%e actin* Commissioner of Internal Revene dated 6ovember 1E,
198/, to*et%er wit% income assessment notices for t%e )ears 193, and 1933, demandin* t%at
'etitioner !'rivate res'ondent %erein" 'a) on or before .ecember 17, 198/ t%e amont of
&1,,17-9, and &9,283,293-71 as deficienc) assessments for t%e )ears 193, and 1933
res'ectivel) - - -
3- T%at on .ecember 17, 198/, t%e 'etitioner !'rivate res'ondent %erein" wrote t%e
#rea of Internal Revene t%at %e was 'a)in* t%e deficienc) income assessment for t%e
)ear 193, bt den)in* t%at %e %ad an) ndeclared income for t%e )ear 1933 and re1ested
t%at t%e assessment for 1933 be made to await final cort decision on t%e case filed a*ainst
%im for filin* an alle*edl) fradlent retrn - - -
8- T%at on 6ovember 11, 1981, t%e 'etitioner !'rivate res'ondent %erein" received from
Actin* Commissioner of Internal Revene Romlo Cilla a letter dated October 8, 1981
statin* in re'l) to %is .ecember 17, 198/ letterG'rotest t%at 0t%e amont of 4ellon #an$(s
erroneos remittance w%ic% )o were able to dis'ose, is definitel) ta+able-0- - -
T%e Commissioner also im'osed a 7/Q frad 'enalt) a*ainst 2avier-
.isa*reein*, 2avier filed an a''eal before t%e res'ondent Cort of Ta+ A''eals on
.ecember 1/, 1981-
T%e res'ondent CTA, after t%e 'ro'er 'roceedin*s, rendered t%e c%allen*ed decision- ;e
1ote t%e concldin* 'ortion:
;e note t%at in t%e deficienc) income ta+ assessment nder consideration, res'ondent
!'etitioner %ere" frt%er re1ested 'etitioner !'rivate res'ondent %ere" to 'a) 7/Q src%ar*e
as 'rovided for in Section 32 of t%e Ta+ Code, in addition to t%e deficienc) income ta+ of
&E,888,,17-// and interest de t%ereon- Since 'etitioner !'rivate res'ondent" filed %is
income ta+ retrn for ta+able )ear 1933, t%e 7/Q src%ar*e was im'osed, in all 'robabilit),
b) res'ondent !'etitioner" becase %e considered t%e retrn filed false or fradlent- T%is
additional re1irement, to or mind, is mc% less called for becase 'etitioner !'rivate
res'ondent", as stated earlier, reflected in %is 1933 retrn as footnote t%at 0Ta+'a)er was
reci'ient of some mone) received from abroad w%ic% %e 'resmed to be *ift bt trned ot to
be an error and is now sb5ect of liti*ation-0
From t%is, it can %ardl) be said t%at t%ere was actal and intentional frad, consistin* of
dece'tion willfll) and deliberatel) done or resorted to b) 'etitioner !'rivate res'ondent" in
order to indce t%e ?overnment to *ive ' some le*al ri*%t, or t%e latter, de to a false
retrn, was 'laced at a disadvanta*e so as to 'revent its lawfl a*ents from 'ro'er
assessment of ta+ liabilities- !AJnar vs- Cort of Ta+ A''eals, =G2/7,9, A*st 2B, 193E, 7,
!sic" SCRA 719", becase 'etitioner literall) 0laid %is cards on t%e table0 for res'ondent to
e+amine- :rror or mista$e of fact or law is not frad- !Inslar =mber vs- Collector, =G31//,
A'ril 28, 197,-"- #esides, Section 29 is not too 'lain and sim'le to nderstand- Since t%e
1estion involved in t%is case is of first im'ression in t%is 5risdiction, nder t%e
circmstances, t%e 7/Q src%ar*e im'osed in t%e deficienc) assessment s%old be deleted-
T%e Commissioner of Internal Revene, not satisfied wit% t%e res'ondent CTA(s rlin*,
elevated t%e matter to s, b) t%e 'resent 'etition, raisin* t%e main isse as to:
;8:T8:R OR 6OT &RICAT: R:S&O6.:6T IS =IA#=: FOR T8: 7/Q FRA9.
&:6A=TDA
On t%e ot%er %and, 2avier candidl) stated in %is 4emorandm, t%at %e 0did not a''eal t%e
decision w%ic% %eld %im liable for t%e basic deficienc) income ta+ !e+cldin* t%e 7/Q
src%ar*e for frad"-0 8owever, %e sbmitted in t%e same memorandm 0t%at t%e isse ma)
be raised in t%e case not for t%e 'r'ose of correctin* or settin* aside t%e decision w%ic%
%eld %im liable for deficienc) income ta+, bt onl) to s%ow t%at t%ere is no basis for t%e
im'osition of t%e src%ar*e-0 T%is sbse1ent disavowal t%erefore renders moot and
academic t%e 'ostrin*s articlated in %is Comment on t%e nonGta+abilit) of t%e amont %e
erroneosl) received and t%e bl$ of w%ic% %e %ad alread) disbrsed- In an) event, an
a''eal at t%at time !of t%e filin* of t%e Comments" wold %ave been alread) too late to be
seasonable-
T%e 'etitioner, t%ro*% t%e office of t%e Solicitor ?eneral, stresses t%at:
+++ +++ +++
T%e record %owever is not ambivalent, as t%e record clearl) s%ows t%at 'rivate res'ondent is
selfGconvinced, and so acted, t%at %e is t%e beneficial owner, and of w%ic% reason is liable to
ta+- &t anot%er wa), t%e stdied insination t%at 'rivate res'ondent ma) not be t%e
beneficial owner of t%e mone) or income flowin* to %im as en%anced b) t%e stdied claim
t%at t%e amont is 0sb5ect of liti*ation0 is belied b) t%e record and clearl) e+'osed as a
fradlent 'lo), as witness w%at trans'ired 'on recei't of t%e amont-
8ere, it will be noted t%at t%e e+cess in t%e amont erroneosl) remitted b) 4:==O6 #A6@
for t%e amont of 'rivate res'ondent(s wife was V999,///-// after o'enin* a dollar accont
wit% &rdential #an$ in t%e amont of V999,99B-3/, 'rivate res'ondent and %is wife, wit%
%aste and dis'atc%, wit%in a s'an of eleven !11" electric da)s, s'ecificall) from 2ne B to
2ne 1E, 1933, effected a total massive wit%drawal from t%e said dollar accont in t%e sm of
V937,///-// or &3,/2/,///-// - - -
In re'l), t%e 'rivate res'ondent ar*es:
+++ +++ +++
T%e 'etitioner contends t%at t%e 'rivate res'ondent committed frad b) not declarin* t%e
0mista$en remittance0 in %is income ta+ retrn and b) merel) ma$in* a footnote t%ereon
w%ic% read: 0Ta+'a)er was t%e reci'ient of some mone) from abroad w%ic% %e 'resmed to
be a *ift bt trned ot to be an error and is now sb5ect of liti*ation-0 It is res'ectfll)
sbmitted t%at t%e said retrn was not fradlent- T%e footnote was 'racticall) an invitation
to t%e 'etitioner to ma$e am investi*ation, and to ma$e t%e 'ro'er assessment-
T%e rle in frad cases is t%at t%e 'roof 0mst be clear and convincin*0 !?riffit%s v- Comm-,
7/ F N2dO 382", t%at is, it mst be stron*er t%an t%e 0mere 're'onderance of evidence0 w%ic%
wold be sfficient to sstain a 5d*ment on t%e isse of correctness of t%e deficienc) itself
a'art from t%e frad 'enalt)- !Fran$ A- 6eddas, E/ #TA 732"- T%e followin* circmstances
attendant to t%e case at bar s%ow t%at in filin* t%e 1estioned retrn, t%e 'rivate res'ondent
was *ided, not b) t%at 0willfl and deliberate intent to 'revent t%e ?overnment from ma$in*
a 'ro'er assessment0 w%ic% constitte frad, bt b) an %onest dobt as to w%et%er or not t%e
0mista$en remittance0 was sb5ect to ta+-
First, t%is 8onorable Cort will ta$e 5dicial notice of t%e fact t%at soGcalled 0million dollar
case0 was *iven ver), ver) wide 'blicit) b) mediaH and onl) one w%o is not in %is ri*%t mind
wold %ave entertained t%e idea t%at t%e #IR wold not ma$e an assessment if t%e amont in
1estion was indeed sb5ect to t%e income ta+-
Second, as t%e res'ondent Cort rled, 0t%e 1estion involved in t%is case is of first
im'ression in t%is 5risdiction0 !See '- 17 of Anne+ 0A0 of t%e &etition"- :ven in t%e 9nited
States, t%e at%orities are not nanimos in %oldin* t%at similar recei'ts are sb5ect to t%e
income ta+- It s%old be noted t%at t%e decision in t%e Rt$in case is a fiveGtoGfor decisionH
and in t%e ver) case before t%is 8onorable Cort, one ot of t%ree 2d*es of t%e res'ondent
Cort was of t%e o'inion t%at t%e amont in 1estion is not ta+able- T%s, even wit%ot t%e
footnote, t%e failre to declare t%e 0mista$en remittance0 is not fradlent-
T%ird, w%en t%e 'rivate res'ondent filed %is income ta+ retrn on 4arc% 17, 1938 %e was
bein* sed b) t%e 4ellon #an$ for t%e retrn of t%e mone), and was bein* 'rosected b) t%e
?overnment for estafa committed alle*edl) b) %is failre to retrn t%e mone) and b)
convertin* it to %is 'ersonal benefit- T%e basic ta+ amonted to &E,899,B33-// !See '- , of
t%e &etition" and cold not %ave been 'aid wit%ot sin* 'art of t%e mista$en remittance-
T%s, it was not nreasonable for t%e 'rivate res'ondent to sim'l) state in %is income ta+
retrn t%at t%e amont received was still nder liti*ation- If %e %ad 'aid t%e ta+, wold t%at
not constitte estafa for sin* t%e fnds for %is own 'ersonal benefitA and wold t%e
?overnment refnd it to %im if t%e corts ordered %im to refnd t%e mone) to t%e 4ellon
#an$A
+++ +++ +++
9nder t%e t%en Section 32 of t%e Ta+ Code !now Section 2E8 of t%e 1988 6ational Internal
Revene Code", a ta+'a)er w%o files a false retrn is liable to 'a) t%e frad 'enalt) of 7/Q
of t%e ta+ de from %im or of t%e deficienc) ta+ in case 'a)ment %as been made on t%e basis
of t%e retrn filed before t%e discover) of t%e falsit) or frad-
;e are 'ersaded considerabl) b) t%e 'rivate res'ondent(s contention t%at t%ere is no frad
in t%e filin* of t%e retrn and a*ree fll) wit% t%e Cort of Ta+ A''eals( inter'retation of
2avier(s notation on %is income ta+ retrn filed on 4arc% 17, 1938 t%s: 0Ta+'a)er was t%e
reci'ient of some mone) from abroad w%ic% %e 'resmed to be a *ift bt trned ot to be an
error and is now sb5ect of liti*ation,0 t%at it was an 0error or mista$e of fact or law0 not
constittin* frad, t%at sc% notation was 'racticall) an invitation for investi*ation and t%at
2avier %ad literall) 0laid %is cards on t%e table-0
In AJnar v- Cort of Ta+ A''eals, frad in relation to t%e filin* of income ta+ retrn, was
discssed in t%is manner:
- - - T%e frad contem'lated b) law is actal and not constrctive- It mst be intentional
frad, consistin* of dece'tion willfll) and deliberatel) done or resorted to in order to
indce anot%er to *ive ' some le*al ri*%t- 6e*li*ence, -w%et%er sli*%t or *ross, is not
e1ivalent to t%e frad wit% intent to evade t%e ta+ contem'lated b) law- It mst amont to
intentional wron*Gdoin* wit% t%e sole ob5ect of avoidin* t%e ta+- It necessaril) follows t%at a
mere mista$e cannot be considered as fradlent intent, and if bot% 'etitioner and
res'ondent Commissioner of Internal Revene committed mista$es in ma$in* entries in t%e
retrns and in t%e assessment, res'ectivel), nder t%e inventor) met%od of determinin* ta+
liabilit), it wold be nfair to treat t%e mista$es of t%e 'etitioner as tainted wit% frad and
t%ose of t%e res'ondent as made in *ood fait%-
Frad is never im'ted and t%e corts never sstain findin*s of frad 'on circmstances
w%ic%, at most, create onl) ss'icion and t%e mere nderstatement of a ta+ is not itself 'roof
of frad for t%e 'r'ose of ta+ evasion-
A 0fradlent retrn0 is alwa)s an attem't to evade a ta+, bt a merel) 0false retrn0 ma)
not be- Ric$ v- 9-S-, A''- .-C-, 1,1 F- 2d 893, 898-
In t%e case at bar, t%ere was no actal and intentional frad t%ro*% willfl and deliberate
misleadin* of t%e *overnment a*enc) concerned, t%e #rea of Internal Revene, %eaded b)
t%e %erein 'etitioner- T%e *overnment was not indced to *ive ' some le*al ri*%t and 'lace
itself at a disadvanta*e so as to 'revent its lawfl a*ents from 'ro'er assessment of ta+
liabilities becase 2avier did not conceal an)t%in*- :rror or mista$e of law is not frad- T%e
'etitioner(s Jealosness to collect ta+es from t%e nearned windfall to 2avier is %i*%l)
commendable- 9nfortnatel), t%e im'osition of t%e frad 'enalt) in t%is case is not 5stified
b) t%e e+tant facts- 2avier ma) be *ilt) of swindlin* c%ar*es, 'er%a's even for *reed b)
s'endin* most of t%e mone) %e received, bt t%e records lac$ a clear s%owin* of frad
committed becase %e did not conceal t%e fact t%at %e %ad received an amont of mone)
alt%o*% it was a 0sb5ect of liti*ation-0 As rled b) res'ondent Cort of Ta+ A''eals, t%e
7/Q src%ar*e im'osed as frad 'enalt) b) t%e 'etitioner a*ainst t%e 'rivate res'ondent in
t%e deficienc) assessment s%old be deleted-
;8:R:FOR:, t%e 'etition is .:6I:. and t%e decision a''ealed from t%e Cort of Ta+
A''eals is AFFIR4:.- 6o costs- SO OR.:R:.-
E- CIR vs- CA !?-R- 6o- 119B22, /E 2ne 199,, 273 SCRA 2//"
a- A criminal case was filed a*ainst Fortne Tobacco !KFortneM" for alle*ed
fradlent ta+ evasion for s''osed nonG'a)ment of t%e correct amont of income ta+, ad
valorem ta+ and valeGadded ta+ for t%e )ear 1992- T%e fradlent sc%eme alle*edl)
ado'ted b) Fortne consisted of ma$in* fictitios and simlated sales of FortneIs
ci*arette 'rodcts to nonGe+istin* individals and to entities incor'orated and e+istin*
onl) for t%e 'r'ose of sc% fictitios sales b) declarin* re*istered w%olesale 'rices wit%
t%e #IR lower t%an FortneIs actal w%olesale 'rices, w%ic% are re1ired for
determination of FortneIs correct income and ta+ liabilities- Fortne so*%t t%e
in5nction of t%e 'reliminar) investi*ation-
b- T%e S'reme Cort %eld:
K;illflM means K'reGmeditatedH maliciosH done wit% intent, or wit% bad motive or
'r'ose, or wit% indifference to t%e natral conse1ence + ++-M KFradM in its *eneral
sense, Kis deemed to com'rise an)t%in* calclated to deceive, incldin* all acts,
omissions, and concealment involvin* a breac% of le*al or e1itable dt), trst or
confidence 5stl) re'osed, resltin* in t%e dama*e to anot%er, or b) w%ic% nde and
nconscionable advanta*e ta$en of anot%er-
Frad cannot be 'resmed- If t%ere was frad or willfl attem't to evade 'a)ment of ad
valorem ta+es b) 'rivate res'ondents t%ro*% t%e mani'lation of t%e re*istered
w%olesale 'rice of ci*arettes, it mst %ave been wit% t%e connivance of coo'eration of
certain #IR officials and em'lo)ees w%o s'ervised and monitored FortneIs 'rodction
activities to see to it t%at t%e correct ta+es were 'aid- #t t%ere is no alle*ation t%at,
mc% less evidence, of #IR 'ersonnelIs malfeasance-M
c- T%e SC frt%er clarified t%e rlin* in 9n*ab vs- Csi, to wit:
KIn 'lain words, for criminal 'rosection to 'roceed before assessment, t%ere mst be a
'rima facie s%owin* of a willfl attem't to evade ta+es- T%ere was a willfl attem't to
evade ta+ in 9n*ab becase of t%e ta+'a)erIs failre to declare in %is income ta+ retrn
K%is income derived from banana sa'lin*s-M In t%e mind of t%e trial cort and t%e Cort
of A''eals, FortneIs sitation is 1ite a'art factall) since t%e re*istered w%olesale
'rice of t%e *oods, a''roved b) t%e #IR, is 'resmed to be t%e actal w%olesale 'rice,
t%erefore, not fradlent and nless and ntil t%e #IR %as made a final determination of
w%at is s''osed to be t%e correct ta+es, t%e ta+'a)er s%old not be 'laced in t%e
crcible of criminal 'rosection-M
C- C%allen*es in &rovin* Intent and ;illflness in Ta+ Cases
i- ;illflness is a state of mind
ii- ;illflness is determined b) a sb5ective standard
iii- KT%e element of willflness is often t%e most difficlt element to 'rove in an
evasion case- Absent an admission or confession, w%ic% is seldom available, or
accom'lice testimon), willflness is rarel) sb5ect to direct 'roof and mst *enerall) be
inferred from t%e defendant(s acts or condct-M N9-S- Criminal Ta+ 4anal 8-/,N2OO
.- &roof of ;illflness in 9-S- 2ris'rdence
i- &roof of ;illflness < Failre to File Retrns N 9S Criminal Ta+ 4anal 1/-/EN7O
NaOO
1- ;illflness is s**ested b) a 'attern of failin* to file for consective )ears in
w%ic% retrns s%old %ave been filed- 9nited States v- ?reenlee, 713 F-2d 899, 9/B !Bd
Cir- 1937"- T%is ma) inclde )ears 'rior or sbse1ent to t%e 'rosection 'eriod- 9nited
States v- 9'ton, 399 F-2d EB2, EBB !8t% Cir- 198,"H 9nited States v- Farris, 713 F-2d 22,,
229 !3t% Cir- 1937"-
2- ;illflness ma) be s%own b) disre*ardin* IRS warnin* letters, and filin*
contradictor) forms- 9nited States v- S%ivers, 388 F-2d 1/E,, 1/E8 !7t% Cir- 198,"
B- T%ere is also an element of common sense in establis%in* willflness in a failre to
file case-
E- T%s, willflness can be s%own b) sc% factors as: t%e bac$*rond of t%e
defendantH t%e filin* of retrns in 'rior )ears, 9nited States v- #riscoe, ,7 F-Bd 73,, 788
!3t% Cir- 1997"H 9nited States v- 8aert, E/ F-Bd 193, 199 !3t% Cir- 199E"H 9nited States
v- #ir$enstoc$, 82B F-2d 1/2,, 1/28 !3t% Cir- 1983"H 9nited States v- #o%rer, 8/3 F-2d
179, 1,1 !1/t% Cir- 198," 9nited States v- S%ivers, 388 F-2d 1/E,, 1/E8 !7t% Cir- 198,"H
t%at t%e defendant was a colle*e *radate wit% accontin* $nowled*eH t%at t%e defendant
was familiar wit% boo$s and records and o'erated a bsiness, 9nited States v- Se*al, 8,3
F-2d 113B, 1139 !8t% Cir- 1989"H t%at t%e defendant earned a lar*e *ross income, #o%rer,
8/3 F-2d at 1,1- See also 9nited States v- 4ac=eod, EB, F-2d 9E3, 9E9 !8t% Cir- 1931"
9nited States v- Ostendorff, B31 F-2d 329, 3B1 !Et% Cir- 19,3"-
7- :vidence t%at a defendant %ad filed retrns in ot%er )ears w%en %e claimed
refnds w%ile t%ere was a sbstantial ta+ de for t%e )ears %e failed to file is relevant
evidence and more t%an eno*% to establis% willflness- ?ar*ilo, 77E F-2d at ,2-
ii- &roof of ;illflness < Attem't to :vade or .efeat Ta+ N9S Criminal Ta+ 4anal
8-/,N2OO
1- In t%e leadin* case of S'ies v- 9nited States, B13 9-S- E92, E99 !19EB", t%e
S'reme Cort, 0b) wa) of illstration and not b) wa) of limitation,0 set fort% t%e
followin* as e+am'les of condct from w%ic% willflness ma) be inferred:
K@ee'in* a doble set of boo$s, ma$in* false entries or alterations, or false invoices or
docments, destrction of boo$s or records, concealment of assets or coverin* ' sorces
of income, %andlin* of one(s affairs to avoid ma$in* t%e records sal in transactions of
t%e $ind, and an) condct, t%e li$el) effect of w%ic% wold be to mislead or to conceal-M
2- :+am'les of &roof of ;illflness < Attem't to :vade or .efeat Ta+
a- ;illflness ma) be inferred from evidence of a consistent 'attern of
nderre'ortin* lar*e amonts of income-
9nited States v- @im, 88E F-2d 189, 192 !7t% Cir- 1989" !evidence of willflness was
sfficient w%ere ta+'a)er failed to re'ort V182,,/1 of income over t%ree )ears"H 9nited
States v- @r)Js$e, 8B, F-2d 1/1B, 1/19G2/ !,t% Cir- 1988" !willflness fond w%ere
ta+'a)er failed to file com'lete ta+ retrns over a forG)ear 'eriod and nderre'orted %is
income b) V9E/-7/ for one of t%ose )ears"H 9nited States v- ?idr), 199 F-Bd 117/, 1173
!1/t% Cir- 1999"H see also 9nited States v- @lasner, 8/ F-Bd 77, ,B !2d Cir- 199,"H 9nited
States v- S$alic$), ,17 F-2d 1113 !7t% Cir- 198/"H 9nited States v- =arson, ,12 F-2d 1B/1
!8t% Cir- 198/"H 9nited States v- ?ardner, ,11 F-2d 33/ !9t% Cir- 198/"
b- Failre to s''l) an accontant wit% accrate and com'lete information-
9nited States v- Samara, ,EB F-2d 3/1, 3/B !l/t% Cir- 1981" !ta+'a)er $e't recei't boo$s
for cas% received bt did not s''l) t%em to accontant, t%s concealin* cas% recei'ts"H
see also 9nited States v- ?idr), 199 F-Bd 117/, 1173 !1/t% Cir-1999"H 9nited States v-
#rimberr), 9,1 F-2d 128,, 129/ !3t% Cir- 1992"H 9nited States v- C%esson, 9BB F-2d 298,
B/7 !7t% Cir- 1991"H 9nited States v- 4ic%ad, 8,/ F-2d E97, 7// !1st Cir- 1988"H 9nited
States v- 4e)er, 8/8 F-2d 1B/E, 1B/, !8t% Cir- 1983"H 9nited States v- As%field, 3B7 F-2d
1/1, 1/3 !Bd Cir- 198E"H 9nited States v- Conforte, ,2E F-2d 8,9 !9t% Cir- 198/"H 9nited
States v- Sc%er, E3, F-2d B19 !3t% Cir- 193B"-
c- Ta+'a)er w%o relies on ot%ers to $ee' %is records and 're'are %is ta+ retrns ma)
not wit%%old information from t%ose 'ersons relative to ta+able events and t%en esca'e
criminal res'onsibilit) for t%e resltin* false retrns-
9nited States v- Simonelli, 2B3 F-Bd 19, B/ !1st Cir- 2//1"H 9nited States v- O(@eefe, 827
F-2d B1E, B18 !11t% Cir- 1983"H 9nited States v- ?arava*lia, 7,, F-2d 1/7, !,t% Cir-
1933"-
d- False statements to a*entsH false e+cl'ator) statements, w%et%er made b) a
defendant or insti*ated b) %im-
9nited States v- C%esson, 9BB F-2d 298, B/E !7t% Cir- 1991"H 9nited States v-
Frederic$son, 8E, F-2d 713, 72/G21 !8t% Cir- 1988" !ta+'a)er falsel) stated t%at s%e did
not receive income from ot%er em'lo)ees w%o wor$ed in %er massa*e 'arlor and t%at s%e
de'osited most of %er income in t%e ban$"H 9nited States v- ;als%, ,23 F-2d 88 !3t% Cir-
198/"H 9nited States v- Ta*er, E81 F-2d 93, 1// !1/t% Cir- 193B"H 9nited States v-
Callanan, E7/ F-2d 1E7, 17/ !Et% Cir- 1931"H 9nited States v- 2ett, B72 F-2d 139, 182 !,t%
Cir- 19,7"H see also 9nited States v- @lasner, 8/ F-Bd 77, ,B !2d Cir- 199,"H 9nited
States v- &istante, E7B F-2d E12 !9t% Cir- 1931"H 9nited States v- Adonis, 221 F-2d 313,
319 !Bd Cir- 1977"-
e- @ee'in* a doble set of boo$s- 9nited States v- .aniels, ,13 F-2d 1E, !7t% Cir-
198/"-
f- 8idin*, destro)in*, t%rowin* awa), or Klosin*M boo$s and records-
9nited States v- ;al$er, 89, F-2d 297, B// !8t% Cir- 199/" !ta+'a)ers %id records and
assets in an attem't to conceal t%em from t%e IRS"- See 9nited States v- C%esson, 9BB
F-2d 298, B/EG/7 !7t% Cir- 1991" !ta+'a)er altered and destro)ed invoices after
nder*oin* a civil adit for nderre'ortin* income"H 9nited States v- &istante, E7B F-2d
E12 !9t% Cir- 1931"H 9nited States v- 8olovac%$a, B1E F-2d BE7, B73 !3t% Cir-
19,B"H ?arie') v- 9nited States, 189 F-2d E79, E,B !,t% Cir- 1971"-
*- 4a$in* or sin* false docments, false entries in boo$s and records, false
invoices, and t%e li$e-
9nited States v- ;ilson, 118 F-Bd 228, 2B, !Et% Cir- 1993"H 9nited States v- C%esson, 9BB
F-2d 298, B/E !7t% Cir- 1991"H 9nited States v- ;al$er, 89, F-2d 297, 298 !8t% Cir- 199/"
!defendants sbmitted false invoices to t%eir famil) com'an) so t%at t%e com'an) wold
treat t%eir 'ersonal e+'enses as bsiness e+'enses"-
%- .estrction of invoices to cstomers- 9nited States v- ?arava*lia, 7,, F-2d 1/7,,
1/79 !,t% Cir- 1933"-
i- 6ominees < &lacin* 'ro'ert) or a bsiness in t%e name of anot%er-
9nited States v- .aniel, 97, F-2d 7E/ !,t% Cir- 1992"H 9nited States v- &eterson, BB8 F-2d
797, 793 !3t% Cir- 19,E"H 9nited States v- ;oodner, B13 F-2d ,E9, ,71 !2d Cir- 19,B"H
#an$s v- 9nited States, 2/E F-2d ,,,, ,32 !8t% Cir- 197B", vacated and remanded, BE8
9-S- 9/7 !1977", reaff(d, 22B F-2d 88E !8t% Cir- 1977"-
5- :+tensive se of crrenc) or cas%ier(s c%ec$s-
9nited States v- .aniel, 97, F-2d 7E/ !,t% Cir- 1992" !defendant sed cas% e+tensivel),
immediatel) converted c%ec$s to cas%, and 'aid em'lo)ees and insrance 'olicies in
cas%"H 9nited States v- 8olovac%$a, B1E F-2d BE7, B78 !3t% Cir- 19,B"H Sc%ermann v-
9nited States, 13E F-2d B93, B98 !8t% Cir- 19E9"-
$- S'endin* lar*e amonts of cas% w%ic% cold not be reconciled wit% t%e amont of
income re'orted-
9nited States v- Simonelli, 2B3 F-Bd 19, B/ !1st Cir- 2//1"H 9nited States v- Olbres, ,1
F-Bd 9,3, 931 !1st Cir- 1997"H 9nited States v- @im, 88E F-2d 189, 192 !7t% Cir- 1989"H or
en*a*in* in srre'titios cas% transactions, 9nited States v- S$alic$), ,17 F-2d 1113 !7t%
Cir- 198/"- See also 9nited States v- 8ollada), 7,, F-2d 1/18, 1/2/ !7t% Cir- 1938"
9nited States v- 4ortimer, BEB F-2d 7//, 7/B !3t% Cir- 19,7" !mone) orders and cas%ier(s
c%ec$s"-
l- 9se of ban$ acconts %eld nder fictitios names- 9nited States v- Ratner, E,E
F-2d 1/1, 1/7 !9t% Cir- 1932"H :lwert v- 9nited States, 2B1 F-2d 928 !9t% Cir- 197,"H cf-
9nited States v- ;%ite, E13 F-2d 89, 92 !2d Cir- 19,9"-
m- C%ec$s cas%ed and t%e crrenc) de'osited in an otGofGtown ban$ accont- 9nited
States v- ;%ite, E13 F-2d 89, 92 !2d Cir- 19,9"-
n- 9nort%odo+ accontin* 'ractices wit% dece'tive reslts- 9nited States v- Slts$),
E83 F-2d 8B2, 8BE !2d Cir- 193B"H 9nited States v- ;aller, E,8 F-2d B23, B29 !7t% Cir-
1932"-
o- Re'etitios omissions of items of income, e-*-, income from varios sorces not
re'orted-
9nited States v- ;al$er, 89, F-2d 297, 299 !8t% Cir- 199/" !over a twoG)ear 'eriod
ta+'a)er failed to re'ort interest income totalin* V2/,E3,"H 9nited States v- Ta*er, E39
F-2d 12/, 122 !1/t% Cir- 193B"H S%erwin v- 9nited States, B2/ F-2d 1B3, 1E1 !9t% Cir-
19,B"-
'- &rior and sbse1ent similar acts reasonabl) close to t%e 'rosection )ears-
9nited States v- 4iddleton, 2E, F-Bd 827, 8B,G8B3 !,t% Cir- 2//1"H 4att%ews v- 9nited
States, E/3 F-2d 1B31, 1B81 !7t% Cir- 19,9"H 9nited States v- 2o%nson, B8, F-2d ,B/ !Bd
Cir- 19,3"H 9nited States v- 4a*ns, B,7 F-2d 1//3 !2d Cir- 19,,"H 9nited States v- Al$er,
2,/ F-2d 1B7 !Bd Cir- 1978"H cf- Fed- R- :vid- Rle E/E!b"-
1- Alias sed on *amblin* tri' GG relevant to an intent to evade ta+es- 9nited States v-
Catalano, E91 F-2d 2,8, 23B !2d Cir- 193E"-
r- T%e defendant(s attitde toward t%e re'ortin* and 'a)ment of ta+es *enerall)-
9nited States v- 8o*an, 8,1 F-2d B12 !1st Cir- 1988"H 9nited States v- Stein, EB3 F-2d 337
!3t% Cir- 1931"H 9nited States v- O(Connor, EBB F-2d 372, 37E !lst Cir- 193/"H 9nited
States v- Ta)lor, B/7 F-2d 18B, 187 !Et% Cir- 19,2"H
s- #ac$*rond and e+'erience of defendant- ?eneral edcational bac$*rond and
e+'erience of defendant can be considered as bearin* on defendant(s abilit) to form
willfl intent-
9nited States v- ?idr), 199 F-Bd 117/, 1173G1178 !1/t% Cir-1999"!willflness inferred
from defendant(s e+'ertise in accontin* via %er bsiness de*ree and %er wor$
e+'erience as com'troller of a com'an)"H 9nited States v- @lasner, 8/ F-Bd 77, ,B !2d
Cir- 199," !defendant(s bac$*rond as a C&A, and e+tensive bsiness e+'erience
incldin* t%at as a 'rofessional ta+ 're'arer"H 9nited States v- Smit%, 89/ F-2d 311, 317
!7t% Cir- 1989" !defendant(s bac$*rond as an entre'rener 'robative of willflness"H
9nited States v- Se*al, 8,3 F-2d 113B, 1139 !8t% Cir- 1989" !defendant was a sccessfl
and so'%isticated bsinessman"H 9nited States v- Risc%ard, E31 F-2d 1/7, 1/8 !8t% Cir-
193B"H - See 9nited States v- .iamond, 388 F-2d 1/27 !Et% Cir- 198,"H 9nited States v-
4ac@enJie, 333 F-2d 811, 818 !2d Cir- 1987" !willflness inferred from t%e fact t%at eac%
defendant %ad a colle*e de*ree, one in economics and t%e ot%er in bsiness"-
t- Offer to bribe *overnment a*ent- #arcott v- 9nited States, 1,9 F-2d 929, 9B1GB2
!9t% Cir- 19E8" !attem't to bribe revene a*ent"-
- 9se of false names and srre'titios reliance on t%e se of cas%- 9nited States v-
;als%, ,23 F-2d 88, 92 !3t% Cir- 198/"H 9nited States v- 8ollada), 7,, F-2d 1/18, 1/2/
!7t% Cir- 1938"-
v- #ac$datin* docments, sc% as recei'ts, contracts, and t%e li$e, to *ain a ta+
advanta*e- 9nited States v- .ra'e, ,,8 F-2d 22 !1st Cir- 1982"H 9nited States v- Crm,
729 F-2d 1B8/ !9t% Cir- 193,"H 9nited States v- O(@eefe, 827 F-2d B1E !llt% Cir- 1983"-
w- Ille*al sorces of income- 9nited States v- &almer, 8/9 F-2d 17/E, 17/7G/, !llt%
Cir- 1983" !sale of narcotics"-
!#rden of Proof in Esta(ishin" Fra#d
A ta+ frad or evasion case is basicall) a criminal case- In t%e establis%ment of
frad, t%e brden of 'roof is on t%e #IR- T%e 'resm'tion t%at an officer of t%e
*overnment %as 'erformed %is dt) re*larl), !Sec 2 Rle 1B1 6ew Rles of Cort" as in
t%e case of t%e correctness of deficienc) assessments, is not a''licable in frad cases- In
criminal cases, t%e brden of 'roof as to t%e offense c%ar*ed lies on t%e 'rosection- !Sec
2 Rle 1B1 6ew Rles of Cort" 4ere ss'icions and dobts as to t%e intention of t%e
ta+'a)er are not sfficient 'roof of frad- Frad is never 'resmed, it mst be 'roved-
As in felonies nder t%e Revised &enal Code, t%e *ilt of t%e accsed for offenses nder
t%e Ta+ Code mst be establis%ed be)ond reasonable dobt-
1ET2ODS OF PROVIN, INCO1E
In *eneral, t%e income of t%e ta+'a)er ma) be 'roven b) t%e #IR t%ro*% t%e se of direct
a''roac% or evidence met%od or t%ro*% indirect met%ods-
A. Direct approach3 specific ite' or evidence 'ethod.%% T%is met%od of 'roof is t%e
sim'lest met%od of 'rovin* t%at a ss'ect %as 'aid for somet%in* sin* illicit
fnds received t%ro*% ille*al means- T%e investi*ator sim'l) loo$s for a s'ecific
financial transaction and tries to establis% a direct lin$ between t%e ss'ect and a
financial transaction- T%is met%od is t%e 'referred tec%ni1e of 'rovin* financial
criminal activit) becase it is t%e easiest to 'resent at trial, and t%e 'roof t%at
reslts from its a''lication is t%e most difficlt for t%e ss'ect to refte-
T%ere are two sides to ever) financial transaction: 'a)ment and recei't- T%e s'ecific
item met%od can be sed to docment t%e movement of mone) from eit%er side of a
transaction- K&ointGofG'a)ment anal)sisM be*ins at t%e transactionIs ori*in < t%e &AD:R
of t%e fnds- Alternativel),K'ointGofGrecei't anal)sisM be*ins wit% t%e receiver < t%e
R:CI&I:6T of t%e fnds- T%e t)'e of anal)sis to se is normall) contin*ent 'on t%e
circmstances of t%e investi*ation- &roof of fradlent acts is addced b) s'ecific items
of fradlent transactions- It is t%at met%od w%ereb) t%e e+istence of t%e 'rinci'al or
ltimate fact is 'roven wit%ot an) inference or 'resm'tion- :+am'les are:
Inco'e Ta)
1- Omission or nderstatement of ta+able income G
a- Failre to file income ta+ retrn-
b- Items of income and e+'enses, assets or liabilities %ave been omitted or falsel)
claimed in t%e accontin* records or retrn in order to minimiJe or redce ta+esH
c 4isclassification of acconts G Income ta$en 'on and classified as liabilitiesH
erroneos classification of income from ta+able to e+em'tH ordinar) *ains classified as
ca'ital *ainsH nonGdedctible e+'enses dis*ised as dedctible itemsH and ca'ital
e+'enditres classified as dedctible items-
d- SalesRincome of domestic branc%es 'r'ortedl) s%own as income of t%e forei*n %ead
officeH
e- @ee'in* two sets of invoice or recei'ts, one set re*istered wit% t%e #IR and sales or
income recorded t%ereon are t%e ones 'osted in t%e accontin* records, w%ereas t%e
ot%er set is not re'orted for ta+ 'r'osesH
f- @ee'in* two sets of boo$s of acconts records, one set re*istered wit% t%e #IR and t%e
ot%er set reflects t%e correct transactions and not re*istered and re'orted to t%e #IRH
*- 6onGissance of recei'ts to cstomersH and
%- Sales invoices or recei'ts issed to cstomers reflect t%e correct transactions, bt
invoices or recei'ts recorded for ta+ 'r'oses reflect mc% smaller amonts-
2- 9tiliJation of ot%er 'ersons or entities:
a- :stablis%ment of several entities G cor'orations, 'artners%i's, or 'ro'rietorGs%i's G
b) a 'erson b) ma$in* it a''ear t%at sale are made b) t%e different entities created w%en
in fact sc% sales are onl) made b) one 'ersonH
b- Allocatin* income and e+'enses to ot%er 'ersons in order to redce or minimiJe ta+es
b) a controllin* 'ersonH and
c- :stablis%ment of a re*istered 'artners%i' or cor'oration, sin* dmm) 'artners or
stoc$%olders-
d- Im'ro'er claims of costs of sales and dedctible e+'ense-
e- Fictitios 'rc%aser, or 'addin* of 'rc%ases, or t%at 'roceeds are diverted to t%e
'ersonal benefit of t%e ta+'a)er or %is assi*nH
f- False or fictitios claims of dedctionsH
* 4isclassification of dedctions G
i- Investments or ma5or re'airs or im'rovements claimed as nominal
e+'ensesH
ii- .ividend declarations classified as e+'enses or salariesH
iii- ;it%drawals claimed as e+'enses or com'ensationH
iv- Claim of de'reciation of nonGe+istin* assets or alread) fll) de'reciated, or on assets
w%ic% were a''raised %i*%er for credit 'r'osesH
v- Claim of 'rc%ases from noGCAT sorces as CAT 'rc%ases and claimin* ta+ credits
t%ereonH and
vi- Im'ro'er claims of ta+ credits wit%ot %avin* 'aid t%e in't ta+es 'assed on b) t%e
seller-
B- Claims of false 'ersonal e+em'tions G
a- Claimin* e+em'tions as married b) an nmarried individal or %ead of t%e famil) b)
sin*le 'ersons w%o do not actall) s''ort t%eir 'arentsH and
b- Claimin* false additional e+em'tions of alle*ed c%ildren, or c%ildren w%o are alread)
of a*e, or w%o are not '%)sicall) inca'acitated-
#siness Ta+es: CAT and &ercenta*e Ta+es
1- Omission or nderstatement of ta+able salesRincomeH
2- @ee'in* falsified boo$s of accontsH
B- 6onGissance of sales invoices, or nderG recordin* of sales to conceal t%e amont of
sales sb5ect to bsiness ta+es on CATH
E- Claimin* fictitios ta+ creditsH
7- Creditin* sales a*ainst items or income disconts of costs of sales to conceal t%e
amont of sales sb5ect to bsiness ta+es on CAT-
,- .edctin* a*ainst sales or income disconts w%ic% were *ranted sbse1entl) and
not in t%e sales invoice-
3- .edctin* retrned sales w%ic% were not actall) retrned-
8- 4isclassification of sales or income G
a Classif)in* sales as e+em't w%en in fact t%e) are ta+able,
b 4isclassification of sales of *oods sb5ect to CAT as onl) sb5ect to 'ercenta*e ta+esH
c Claimin* domestic sales as e+'ort sales w%en in fact t%e *oods were sold in t%e
domestic mar$etH and
d Sales in t%e local mar$et w%ic% are made to a''ear as sales b) t%e forei*n %ead office-
!. Indirect 1ethod
T%is relies 'on circmstantial evidence of determinin* t%e correct income or transaction
of a ta+'a)er- KCircmstantial evidenceM is t%at w%ic% tends to 'rove t%e e+istence of t%e
dis'ted fact b) 'roof of ot%er facts w%ic% %ave a le*itimate tendenc) to lead t%e mind to
a conclsion t%at t%e fact e+ists w%ic% is so*%t to be establis%ed- 8owever, w%ere
Kcircmstantial evidenceM is relied 'on to 'rove a fact, t%e circmstances mst be
'roved b) direct evidence and cannot t%emselves be inferred-
T%e le*al basis for an indirect a''roac% in t%e determination of t%e correct income or
transactions of a ta+'a)er is anc%ored on Sections , !'ower of t%e Commissioner to
ma$e assessments" and Section EB !*eneral rle" of t%e Ta+ Code-
1- 6etwort% or Inventor) 4et%od
T%is is a met%od of reconstrctin* income based on t%e t%eor) t%at if t%e ta+'a)er(s net
wort% %as increased in a *iven )ear in an amont lar*er t%an %is re'orted income, %e
%ad nderstated %is income for t%at )ear-
Formla:
T%e mat%ematical formla for t%is met%od ma) be laid down as follows:
Assets at )ear end
=ess: =iabilities at )ear end
:1als: 6etwort% for t%e )ear
=ess: &rior )earIs net wort%
:1als: Increase in net wort%
&ls: 6onGdedctible item
=ess: 6onGta+able income or recei'ts sb5ected to final ta+ or transfer ta+es
:1als: Ta+able net income
=ess: &ersonal and additional e+em'tions
:1als: 6et income sb5ect to ta+
T%e Commissioner(s determination of ta+'a)er(s nre'orted income t%ro*% t%e networt%
e+'enditre met%od sall) involves t%e followin* ste's:
1- T%e net wort% on a fi+ed startin* date is establis%ed !e+cess of assets over liabilities"-
T%is startin* date is sall) t%e be*innin* of t%e first ta+ )ear nder e+amination- T%e
amont of sc% net wort% is considered of vital im'ortance in order to foreclose t%e
'ossibilit) t%an an increase in net wort% drin* t%e ta+ )ear, or an e+cess of e+'enditre
over re'orted income, did not ori*inate from 'rior accmlated fnds !e-*-, %oarded cas%
or ndisclosed assets w%ic% wold not re'resent income drin* t%e ta+ )ear"-
2- T%e net wort% at t%e close of eac% ta+ )ear nder e+amination is establis%edH
B- Com'arison is made of t%e net wort% at t%e be*innin* and end of eac% )ear, to
determine t%e increase, if an)H
E- T%e increase in net wort% for eac% )ear is ad5sted to eliminate items accontin* for
sc% increases w%ic% arise from nonGta+ sorces !i-e-, *ifts, be1ests, ot%er recei'ts
e+em't from ta+, etc-" and ad5stment is made w%ere 'ro'ert) is sold at a 'rofit bt t%e
entire 'rofit is not ta+able becase of lon*Gterm ca'ital *ain 'rovision- T%e increase in
net wort% for t%e )ear, after t%ese eliminations and ad5stments, is 'resmed to be income
realiJed in t%at )earH
7- T%e amont of nonGdedctible e+'enditres is determined or estimated- T%ese items
sall) consists of 'ersonal, famil) and livin* e+'ensesH and
,- T%e reconstrcted income nder t%e net wort% e+'enditre met%od is t%e sm of items
!E" and !7" and t%is amont is t%en com'ared wit% t%e income re'orted, if an), b) t%e
ta+'a)er-
:stablis%in* t%e startin* 'oint
Followin* t%e decisions of t%e 9-S- S'reme Cort, or own S'reme Cort in t%e &ereJ
case said t%at one re1isite for t%e se of t%e net wort% met%od is t%e Kestablis%ment,
wit% reasonable certaint), of an o'enin* net wort% to serve as a startin* 'oint, from
w%ic% to calclate ftre increases in t%e ta+'a)erIs assets-M T%e wisdom of t%is
statement is a''arent since an inaccrate be*innin* net wort% will affect t%e accrac) of
t%e determination of income sbse1ent to t%e base 'oint- For instance, if a ta+'a)erIs
be*innin* net wort% is nderstated, ta+able income will be overstated-
&roof of visible assets and liabilities com'risin* be*innin* net wort% is sall) easil)
establis%ed b) sc% means as real estate recordsH income, estate and *ift ta+ retrns and
recordsH boo$s and records of t%e ta+'a)erH and ban$ records w%ic% t%e ta+'a)er ma)
frnis%- T%e item difficlt to 'rove is cas% on %and, in order to accont for 'art or all t%e
deficienc) in ta+able income- To establis% a firm startin* 'oint, it is necessar) to s%ow
t%at t%e defendant %ad no lar*e sm of cas% for w%ic% %e was not *iven credit- T%is is
sall) done b) offerin* evidence w%ic% ne*ates t%e e+istence of a cas% %oard-
Ta+able sorces of income
In order for income to be ta+able, it mst come from a ta+able sorce- In :*enio &ereJ
vs- CTA P CIR, ?-R- 6o- =G1/7/3, 4a) B/, 19,8, t%e S'reme Cort said: KT%e net
wort% increase mst be attribtable to ta+able income-M On t%e basis of t%e said case,
direct 'roof of t%e sorce of income is not essential-
T%e *overnment mst eit%er 'rove a li$el) sorce of ta+able income or ne*ate all nonG
ta+able sorce of income- In cases w%ere t%e *overnment resorts to t%e latter t)'e of
'roof, it is even more im'ortant to establis% a firm startin* 'oint, 'articlarl) wit%
reference to cas% on %and- An) dobt concernin* t%e startin* cas% cold create a dobt
as to t%e )ears w%ic% t%e increase occrred, and t%e cort mi*%t conclde t%at t%e
omission of income too$ 'lace in some 'rior )ear t%an drin* t%e )ears nder indictment-
Circmstance and conditions necessar) to warrant t%e se of t%e indirect met%od in
establis%in* a 'rima facie case of frad:
1- T%at t%e ta+'a)er(s accontin* records are inade1ate and do not clearl) reflects %is
incomeH or t%at t%e ta+'a)er maintains no boo$s and recordsH or t%at ta+'a)er(s
accontin* records are available, bt %e refses to 'rodce t%emH
2- T%at t%ere is a fi+ed startin* 'oint or o'enin* net wort% !i-e-, a date be*innin* of a
ta+able )ear or 'rior )ear to it", at w%ic% time t%e ta+'a)er(s financial conditions can be
affirmativel) establis%ed wit% some definiteness- !Statements of net wort% of ta+'a)ers,
w%o availed of t%e ta+ amnest) nder t%e 'rovisions of :-O- E1, ma) be sed as t%e
startin* 'oint as at .ecember B1, 'rsant to t%e at%orit) *iven to t%e #IR nder
Section 3 of said :-O-"-
B- T%at t%e circmstances are sc% t%at t%e met%od does reflect t%e ta+'a)er(s income
wit% reasonable accrac) and certainl), and 'ro'er and 5st addition of 'ersonal
e+'enses and ot%er nonGdedctible e+'enditres were made and correctH fair and
e1itable credit ad5stments were *iven b) wa) of eliminatin* nonGta+able items or
recei'ts or ta+able income w%ic% %ave been sb5ected to final ta+-
E- T%e need for evidence of t%e sorce of income nder t%is met%od- In all t%e leadin*
cases on t%is matter, corts are nanimos in %oldin* t%at w%en t%e ta+ case is civil in
natre, direct 'roof of sorces of income is not essential- 8owever, w%en a ta+'a)er is
criminall) 'rosected for ta+ evasion, t%e need for evidence of a li$el) sorce of income
becomes a 'reGre1isite for a sccessfl 'rosection-
T%is 'roof of a li$el) sorce of income ma) be s%own b) an) of t%e followin*:
1- .emonstratin* t%at t%ere were s'ecific omissions of income items b) t%e ta+'a)er in
%is income ta+ retrn-
2- A s%owin* t%at t%e natre of t%e ta+'a)er(s bsiness is sc% t%at it %as ca'acit) of
*eneratin* a sbstantial income-
B- &roofs of nderGdeclaration of income b) t%e e+istence of nre*istered sales invoices,
w%ic% were not recorded in t%e boo$sH
E- Findin*s of nrecorded 'rc%asesH
7- :+istence of bsiness 'ermits, license from *overnment a*encies as to t%e t)'es of
bsinesses t%e ta+'a)er is en*a*ed inH
,- @ee'in* se'arate sets of boo$s < one is re*istered and t%e ot%er, reflectin* t%e correct
transactions of a bsiness, is not re*istered-
3- 9se of false invoices or docments, and
8- ;illfl destrction of accontin* records-
2- :+'enditre 4et%od
T%e e+'enditre met%od 'roceeds on t%e t%eor) t%at w%ere t%e amont of mone) w%ic% a
ta+'a)er s'ends drin* a *iven )ear e+ceeds %is re'orted income, and t%e sorce of sc%
mone) is ot%erwise ne+'lained, it ma) be inferred t%at sc% e+'enditres re'resent
nre'orted income-
T%e discssion on w%en and %ow t%e net wort% met%od s%old be sed are e1all)
a''licable to t%e e+'enditres met%od- In a case w%ere t%e ta+'a)er %as several assets
!and liabilities" w%ose cost bases remain t%e same t%ro*%ot t%e 'eriod nder
investi*ation, t%e e+'enditre met%od ma) be 'referred over t%e net wort% met%od
becase a more laconic 'resentation can be made of t%e com'tation of ta+able income-
T%is is becase assets and liabilities w%ic% do not c%an*e drin* t%e 'eriod nder
investi*ation ma) be omitted from t%e e+'enditres statement- T%e e+'enditre met%od
is sed often on a ta+'a)er w%o s'ends %is income on lavis% livin* and %as little, if an),
net wort%-
Formla:
T%e e+'enditre met%od of determinin* income s%old be a''lied b) dedctin* t%e
a**re*ate )earl) e+'enditres from t%e declared )earl) income, not t%e e+'enditres
incrred eac% mont% from t%e declared t%erefor-
9nder t%is formla ennciated b) t%e cort in t%e aboveGcited case, t%e 'articlars in t%e
se of t%is met%od are s%own below:
A- :+'enditres for a *iven ta+able )ear:
1- All e+'enses and dedctions claimed 'er retrn filed wit% t%e #IR !:+clde nonGcas%
items, sc% as aromatiJation of *oodwill, de'reciation of assets, a''lication of deferred
e+'enses from 'rior 'eriod, etc-"
2- :+'enses, 'ersonal and nonGdedctive or dedctible for ta+ 'r'oses, as
determined 'er investi*ation !:+clde nonGcas% terms"
B- &a)ments of debts, 'a)ables, accrals,and ot%er liabilities G ta$en ' in t%e ITR
and t%ose not ta$en ', sc% as 'ersonal and ot%er liabilities-
E- &a)ment of ta+es
7- Ac1isition of assets G 'er ITR and 'ersonal ac1isitions sc% as cars, a''liances,
even real estate-
Total :+'enditres 'er Investi*ation
#- Sorces of Cas%:
1- .eclared income 'er Income Ta+ Retrn
.edct: Acconts Receivables if ta+'a)er is on cas% basis met%od of accontin*
Add : Collection from receivables
2- 6onGta+able recei'ts, 'riJes, ro)alties, etc-
B- 6onGTa+able recei't, sc% as dividends donations from abroad
E- Recei'ts sb5ected to transfer sc% as donations, in%eritance

7- Cas% loans, if an)
,- Cas% at t%e be*innin* of t%e 'eriod
:+cess Cas% as determined 'er Investi*ation
As in t%e case of t%e networt% met%od, w%en a ta+ case is civil in natre, direct 'roof of
sorces of income is not essential- 8owever, w%en a criminal case is filed a*ainst t%e
ta+'a)er, t%e need for evidence of a li$el) sorce of income becomes a 'rere1isite-
B- &ercenta*e 4et%od
Alt%o*% t%e se of t%is met%od is of little vale in criminal cases, it is sefl in testG
c%ec$in* or corroboratin* t%e reslts obtained b) some ot%er means of 'roof sc% as
s'ecific items, net wort%, and e+'enditres met%ods, and for evalatin* alle*ations from
information re*ardin* nre'orted 'rofits or income-
T%e 'ercenta*e met%od is a com'tation w%ereb) determinations are made b) t%e se of
'ercenta*es or ratios considered t)'ical of t%e bsiness nder investi*ation- #)
reference to similar bsinesses or sitations, 'ercenta*e com'tations are secred to
determine sales, *ross 'rofit, or even net 'rofit- =i$ewise, b) t%e se of some $nown base
and t%e t)'ical 'ercenta*e a''licable, individal items of income or e+'enses ma) be
determined-
T%ese 'ercenta*es ma) be e+ternall) derived or t%e) ma) in some instances be internall)
derived from t%e ta+'a)erIs acconts for ot%er 'eriods or from an anal)sis of sbsidiar)
records- ?ross 'rofit 'ercenta*es ma) be ot%er similar data- Also, ot%er )ears not
covered b) t%e investi*ation or 'ortion of )ear nder investi*ation ma) indicate t)'ical
'ercenta*e a''licable to t%e entire )ear or )ear nder investi*ation- It mst, %owever, be
em'%asiJed t%at in com'arin* transactions of similarl) sitated bsiness, t%e name of t%e
'articlar ta+'a)er sed as t%e model mst not be divl*ed to t%e ta+'a)er nder
investi*ation nor in t%e re'ort as t%is wold constitte as a violation b) an internal
revene officer of t%e 'rovision of Section 23/ !nlawfl divl*ence of trade secrets" of
t%e Ta+ Code-
Findin*s resltin* from t%e revene officerIs observation or srveillance of t%e ta+'a)erIs
bsiness o'erations for a definite 'eriod ma) be sed b) %im as basis for assessin* ta+es
for t%e ot%er 'eriods of t%e same ta+able )ear and sc% assessment is deemed 'rima facie
correct-
E- 9nit and Cale 4et%od
T%is is not a 'rime met%od of 'roof- T%e determination of *ross recei'ts ma) be
com'ted b) a''l)in* 'rice and 'rofit fi*res to t%e $nown ascertainable 1alit) of
bsiness done b) t%e ta+'a)er-
T%is met%od is feasible w%en t%e investi*ation can ascertain t%e nmber of nits %andled
b) t%e ta+'a)er and also w%en %e $nows t%e 'rice or 'rofit c%ar*ed 'er nit- T%ere ma)
be re*lator) bod) to w%ic% t%e ta+'a)er nits of 'rodction or service-
:+am'les are: !a" records of s*ar milled b) a s*ar centralH !b" records of fis%
'rodction to t%e #rea of Fis%er) and A1atic ResorcesH !c" records of
'rodction b) 'ioneer indstries to t%e #oard of InvestmentsH and !d" records of lo*s
e+'orted to t%e Forest 4ana*ement #rea-
T-pes of Ta) Fra#d
T%ere are two !2" t)'es of ta+ frad, to wit: !a" criminal fradH and !b" civil frad-
1- Criminal frad-GGA criminal ta+ frad case reslts w%en all t%e elements of frad can
be 'roven be)ond reasonable dobt- K&roof be)ond reasonable dobtM does not mean
sc% a de*ree of 'roof as absolte certaint), e+cldin* 'ossibilit) of error- ;%at is onl)
re1ired is t%at de*ree of 'roof w%ic% 'rodces conviction in an n're5diced mind-
4oral certaint) si*nifies t%e 5d*ment and conscience of t%e trial 5d*e, as a reasonable
man, is convinced t%at t%e defendant is *ilt) of t%e crime c%ar*ed- 9'on conviction, t%e
ta+'a)er s%all be liable to bot% criminal and civil 'enalties, in addition to deficienc)
ta+es-
2- Civil frad-GG;%en all t%e elements of frad cannot be 'roven be)ond reasonable
dobt, bt t%ese elements can be establis%ed b) clear and convincin* evidence amontin*
to more t%an a mere 're'onderance of evidence, civil frad e+ists- It cannot be 5stified
b) mere s'eclation- 8ere, t%e ta+'a)er s%all be liable aside from t%e deficienc) ta+es
onl) to t%e civil 'enalties- Aside from deficienc) ta+es, t%e ta+'a)er s%all be liable to
src%ar*e of fift) 'ercent !7/Q"- T%is 'enalt) can be im'osed b) t%e Commissioner even
wit%ot t%e concrrence of an) cort-
0&re'onderance of evidence0 means t%at t%e testimon) addced b) one side is more
credible and conclsive t%an t%at of t%e ot%er- 0Clear and convincin* evidence0 need not
rise to 'roof be)ond reasonable dobt as in a criminal case, bt mst be stron*er t%an
mere 're'onderance of evidence- In determinin* t%e 're'onderance or s'erior wei*%t
of t%e evidence, t%e cort ma) consider all t%e facts and circmstances of t%e case, li$e
t%e witnessesI manner of testif)in*, t%e natre of t%e facts to w%ic% t%e) testif), t%e
'robabilit) of t%eir testimon), t%eir interest or want of interest, and also t%eir 'ersonal
credibilit)-
Fase or Fra#d#ent Ret#rn
In t%e case of a false or fradlent retrn wit% intent to evade ta+ or of failre to file a
retrn, t%e ta+ ma) be assessed, or a 'roceedin* in cort for t%e collection of sc% ta+
ma) be filed wit%ot assessment at an) time wit%in ten !1/" )ears after t%e discover) of
t%e falsit), frad or omission-!sec 222 6IRC "
T%e 'ro'er and reasonable inter'retation of Section 222!a" !e+ce'tions as to 'eriod of
limitation of assessment and collection of ta+es" of t%e Ta+ Code s%old be t%at in t%e
t%ree different cases of !a" false retrn, !b" fradlent retrn wit% intent to evade ta+, !c"
failre to file a retrn, ta+ ma) be assessed, or a 'roceedin* in cort for t%e collection of
sc% ta+ ma) be be*n wit%ot assessment, at an) time wit%in ten )ears after t%e
discover) of t%e falsit), frad, or omission- T%e stand of t%e cort t%at t%e law s%old be
inter'reted to mean a se'aration of t%e t%ree different sitations of false retrn,
fradlent retrn wit% intent to evade ta+, and failre to file a retrn is stren*t%ened
immeasrabl) b) t%e last 'ortion of t%e 'rovision w%ic% a**re*ates t%e sitations into
t%ree different classes, namel) Kfalsit),M Kfrad,M and Komission-M T%at t%ere is a
difference between Kfalse retrnM and Kfradlent retrnM cannot be denied-
;%ile false retrn merel) im'lies deviation from t%e trt%, w%et%er intentional or not,
fradlent retrn im'lies intentional or deceitfl entr) !in t%e boo$s" wit% intent to evade
t%e ta+es de- ;%enever t%e *overnment is 'laced at a disadvanta*e so as to 'revent its
lawfl a*ents from 'ro'er assessment of ta+ liabilities de to false retrns, fradlent
retrn intended to evade 'a)ment of ta+, or failre to file retrns, t%e 'eriod of ten )ears
from t%e time of discover) or omission even seems to be inade1ate and s%old be t%e
one enforced-
Commissioner vs- A)ala 8otels, CAG?R S& 6o- 3//27, A'r- 19, 2//E
#ased on t%e decision of t%e cort in t%e AJnar case, it becomes eas) for revene
officers to claim t%at t%ere was falsit) in t%e retrn filed b) t%e ta+'a)er t%at wold allow
t%e assessment of ta+ wit%in ten )ears from date of discover)- T%e same cort, %owever,
re1ired t%at in order to render a retrn made b) a ta+'a)er a Kfalse retrnM wit%in t%e
meanin* of Section 222 of t%e Ta+ Code, t%ere mst a''ear a desi*n to mislead or
deceive on t%e 'art of t%e ta+'a)er, or at least cl'able ne*li*ence- A mista$e, w%ic% is
not cl'able in res'ect of its vale, wold not constitte a false retrn- In fact, t%e
S'reme Cort %eld t%at Kmere falsit) of a retrn does not merit t%e a''lication of t%e
tenG)ear 'rescri'tive 'eriod- T%e element of frad, as in t%e case of ta+'a)erIs intent to
evade t%e 'a)ment of t%e correct amont of ta+, mst be clearl) establis%ed-
In t%e case of willfl ne*lect to file t%e retrn wit%in t%e 'eriod 'rescribed b) t%is
Code or b) rles and re*lations, or in case a false or fradlent retrn is willfll)
made, t%e 'enalt) to be im'osed s%all be fift) 'ercent !7/Q" of t%e ta+ or of t%e
deficienc) ta+, in case an) 'a)ment %as been made on t%e basis of sc% retrn before t%e
discover) of t%e falsit) or frad- A sbstantial nderGdeclaration of ta+able sales,
recei'ts or income, or a sbstantial overstatement of dedctions, as determined b) t%e
Commissioner 'rsant to t%e rles and re*lations to be 'roml*ated b) t%e Secretar)
of Finance, s%all constitte 'rima facie evidence of a false or fradlent retrn- Failre
to re'ort sales, recei'ts or income in an amont e+ceedin* t%irt) 'ercent !B/Q" of t%at
declared 'er retrn, and a claim of dedctions in an amont e+ceedin* t%irt) 'ercent
!B/Q" of actal dedctions, s%all render t%e ta+'a)er liable to t%e 7/Q frad 'enalt) for
sbstantial nderGdeclaration of sales, recei'ts or income or for overstatement of
dedctions- T%e ta+'a)er mst note, %owever, t%at sc% le*al 'resm'tion is onl) 'rimaG
facie t%at cold be 'roven b) sbstantial docmentar) evidence-
Commissioner vs- #F ?oodric% &%ils-, B/B SCRA 7E,
Reevant Cases$
A. There is fra#d in the foo&in" decided cases$
1- Frad mst be t%e 'rodct of a deliberate intent to evade ta+es-GG Frad, in order to
5stif) an assessment based on t%e tenG)ear 'rescri'tive 'eriod, mst be t%e 'rodct of a
deliberate intent to evade ta+es- Frad means actal intentional wron*doin* and t%e
intent re1ired is t%e s'ecific 'r'ose to evade a ta+ owed- 8owever, w%en t%e errors
committed were eit%er mista$es of law or innocent mista$es of facts wit% no intention to
evade ta+, t%ere is no frad-
2- Frad is more t%an a mista$e in 5d*ment-G If t%e factor of 5d*ment enters into a
decision to do or not to do a 'articlar t%in*, w%ic%ever corse is ta$en can %ardl) be
called fradlent- Statements of o'inion, as distin*is%ed from t%ose of material facts,
are not frad- :rrors as to dobtfl le*al 'oints do not constitte frad- 4ista$e 'on a
dobtfl or difficlt 1estion of law ma) be t%e basis of *ood fait%- ;%en t%e mista$e is
one involvin* some matter of dobt or difficlt) of sc% serios natre as to reasonabl)
re1ire 5dicial interference, no 'enalt) can be im'osed becase t%e false statement is
de to %onest mista$e of law or fact-
Inslar =mber Co- vs- Collector, ?-R- 6o- =G31//, A'ril 28, 197,
B- Sim'le statement t%at retrn filed was not fradlent does not dis'rove e+istence of
frad-GG T%e income w%ic% was re'orted b) t%e ta+'a)er in %is retrn was t%e income
from t%e rents- Sbstantial income derived from ot%er sorces was not inclded- T%e
Cort %eld t%at a sim'le statement in t%e letter t%at t%e retrns were not fradlent is
not sfficient to overt%row t%e findin*s of t%e Commissioner as to t%e reason for t%e
omission- 8ence, t%e ta+ ma) be assessed wit%in ten )ears from t%e discover) of t%e
frad-
Ta)en*co vs- Collector, CTA Case 6o- 71, 2l) B1, 19,E
E-Sbstantial nderGdeclarations of income for si+ consective )ears demonstrate
fradlence of retrn-GG Sbstantial nderGdeclarations of income for si+
consective )ears elo1entl) demonstrate t%e falsit) or fradlence of t%e income
ta+ retrns wit% an intent to evade t%e 'a)ment of ta+- 8ence, t%e im'osition of t%e
frad 'enalt) is 'roG'er-
&ereJ vs- Cort of Ta+ A''eals, =G1/7/3, 4a) B/, 1978
7- &resence of fictitios e+'enses, wit% no evidence 'resented, 'roves e+istence of
frad-GG T%e CommissionerIs determination based on t%e circmstances of t%e case t%at
frad is 'resent stands if no evidence is 'resented b) t%e ta+'a)er to s%ow t%at t%e retrn
filed b) %im was not fradlent- T%e S'reme Cort '%eld t%e CommissionerIs findin*s
of frad bro*%t abot b) t%e 'resence of fictitios e+'enses, w%ic% were claimed b) t%e
ta+'a)er as dedctions from *ross income-
Tan ?an vs- Commissioner,
,- Advice of eminent consel-GG ;%en t%e ta+'a)erIs belief is fonded on t%e advice of
eminent consel or w%ere t%e mista$e is one involvin* some matter of dobt or difficlt)
of sc% natre as to reasonabl) re1ire 5dicial interference, t%ere is no frad-
;%ere t%e failre to failre an income ta+ retrn for and in be%alf of an entit) w%ic% is
later fond to be a cor'oration wit%in t%e meanin* of Section 22!#" of t%e Ta+ Code was
de to reasonable case, sc% as an %onest belief based on t%e advice of its attorne) and
accontants, a 'enalt) in t%e form of src%ar*e s%old not be im'osed and collected-
Collector vs- #atan*as Trans'ortation Co- et al-,
?-R- 6o- =G9,92, 2an- ,, 1978
!. 2o&ever3 the co#rts did not consider the ta) ret#rns fied as fase or fra#d#ent
&ith intent to evade the pa-'ent of the ta) in the foo&in" cases$
1. 4ere nderstatement in t%e ta+ retrn will not necessaril) im'l) frad-GG4ere
nderstatement in t%e ta+ retrns of seven 'ro'ert) sb5ect to estate ta+ will not
necessaril) im'l) frad- It a''ears t%at t%ree of t%e seven lots alle*ed to %ave been
e+clded were actall) inclded in t%e retrnsH t%at one lot was not inclded becase
it belon*ed to one of t%e %eirsH and t%at t%e t%ree remainin* lots were alread)
declared in t%e retrn sbmitted b) t%e %sband as 'art of t%e con5*al 'ro'ert) for
'r'oses of income ta+- T%e omission, t%erefore, was not deliberate and did not
amont to frad indicative of an intention to evade 'a)ment of t%e 'ro'er ta+ de t%e
*overnment- A mere failre to re'ort certain income or t%e filin* of a false retrn is
not sfficient basis for t%e a''lication of t%e tenG)ear 'rescri'tive 'eriod- An
indis'ensable in*redient t%at mst be 'roven to e+ist for t%e tenG)ear 'eriod to a''l)
is t%at t%ere mst be, a'art from t%e element of mista$e, a clear, ne1ivocal and
willfl intention to evade t%e ta+- T%ere is no basis to consider t%e ta+'a)erIs act as
fradlent wit% intent to evade ta+, if t%e ta+'a)er %as sfficientl) s%own t%at t%e nonG
re'ortin* of income was based on its reliance on several 'rovisions, rlin*s and
acce'ted 'rinci'les of ta+ation and ma) t%s be considered, at t%e ver) least, an
K%onest belief-M
A)ala 8otels vs- Commissioner, CTA Case 6o- ,//2, 2an- 1/, 2//2
Sale of real 'ro'ert) for a 'rice less t%an its fair mar$et vale is not necessaril) a false
retrn-GGT%e fact t%at 'rivate res'ondentIs 'ro'ert) was sold for a 'rice less t%an its
declared fair mar$et vale alone did not b) itself 5stif) a findin* of false retrn w%ic%
contains wron* information de to mista$e, carelessness or i*norance- T%e Cort
reasoned ot t%at Kit is 'ossible t%at real 'ro'ert) ma) be sold for less t%an ade1ate
consideration for a bona fide bsiness 'r'oseH in sc% event, t%e sale remains an [armIs
len*t% transaction-I &rivate res'ondent declared t%e sale in its 193E retrn sbmitted to
t%e #IR-
Commissioner vs- #-F- ?oodric% &%ils-,
2. Frad is a 1estion of fact and t%e circmstances constittin* frad mst be
alle*ed and 'roved in t%e trial cort-GG T%e findin* of t%e trial cort as to its nonG
e+istence is final and cannot be reviewed, nless clearl) s%own to be erroneos-
Frad is never li*%tl) to be 'resmed becase it is a serios c%ar*e-
Commissioner vs- A)ala Secrities Co-, 3/ SCRA 2/E
3. Frad is never im'ted and t%e corts never sstain findin*s of frad 'on
circmstances t%at onl) create ss'icion-GGT%e S'reme Cort %eld t%at it Kis
'ersaded considerabl) b) t%e 'rivate res'ondentIs !2avierIs" contention t%at
t%ere is no frad in t%e filin* of t%e retrn and a*ree fll) wit% t%e CTAIs
inter'retation of 2avierIs notation in %is income ta+ retrn filed on 4arc% 17,
1938, t%s: [T%e ta+'a)er was t%e reci'ient of some mone) from abroad w%ic% %e
'resmed to be a *ift bt trned ot to be an [error and is now sb5ect of
liti*ationI, t%at it was an [error or mista$e of fact or lawI not constittin* frad,
t%at sc% notation was 'racticall) an invitation for investi*ation and t%at 2avier
%ad literall) [laid %is cards on t%e table-IM Frad is never im'ted and t%e corts
never sstain findin*s of frad 'on circmstances w%ic%, at most create onl)
ss'icion and t%e mere nderstatement of a ta+ is not itself 'roof of frad for t%e
'r'ose of ta+ evasion- A Kfradlent retrnM is alwa)s an attem't to evade a
ta+, bt a merel) Kfalse retrnM ma) not be-
Commissioner vs- 2avier, 199 SCRA 82E
7- 4ista$es of revene officers on t%ree different occasions remove element of
frad-GT%e 'resence of frad was %eld 1ite nli$el) in an assessment w%ere t%e #IR
itself a''eared Knot too sreM as to t%e real amont of t%e ta+'a)erIs net income, as
w%ere t%e #IR %ad on t%ree different occasions arrived at t%ree %i*%l) different
com'tations-
Re'blic vs- =im de D,
T%e lower cort in t%ree instances s''orted 'etitionerIs stand on t%e wron*
inclsions in %is lists of assets made b) t%e Commissioner, resltin* in t%e ver)
sbstantial redction of 'etitionerIs ta+ liabilit) b) t%e lower cort- T%e fore*oin* s%ows
t%at it was not onl) 4r- AJnar w%o committed mista$es in %is re'ort of income bt also
t%e res'ondent Commissioner w%o committed mista$es in %is se of t%e inventor)
met%od- T%e mista$es of t%e Commissioner w%ic% also involve ver) sbstantial amonts
were also re'eated )earl), and )et we cannot 'resme t%erefrom t%e e+istence of an) taint
of official frad- It necessaril) follows t%at a mere mista$e cannot be considered as
fradlent intent, and if bot% 'etitioner and res'ondent committed mista$es in ma$in*
entries in t%e retrns and in t%e assessment, it wold be nfair to treat t%e mista$es of t%e
'etitioner as tainted wit% frad and t%ose of t%e res'ondent as made in *ood fait%-
AJnar vs- CTA and Collector,
,- Assessments based on mere a''ro+imations and calclations-T#) alle*in* t%at %e
em'lo)ed mat%ematical com'tations in ascertainin* t%e 1antit) of finis%ed 'rodcts
actall) manfactred and e+'orted b) 'etitioner, res'ondent concedes at least t%at %is
assessments were based on mere inferences and 'resm'tions- =i$ewise, b) statin* t%at
it was '%)sicall) im'ossible for sc% nmber of cartons wit% sc% volme ca'acit) to
contain sc% e+'ortation, or for 'etitioner to %ave manfactred and e+'orted sc%
finis%ed *arments, res'ondent admits t%at %is assessments were not based on actal facts
bt merel) on a''ro+imations and calclations- And in averrin* t%at t%e raw material
discre'ancies in )ards were arrived at b) mere inferences and 'resm'tions, and
sbse1entl) became t%e basis of t%e assessments for advance sales ta+ and for income
ta+, res'ondent failed to indicate %is neblos 'osition %ow t%e advance sales or t%e
ndeclared income from sales of embroider) te+tile materials in 'esos and centavos were
arrived at- Since frad is im'ted to 'etitioner, fradlent intent was dedced from
srmises and con5ectres, ns''orted b) clear and convincin* 'roof to t%is effect- T%e
'resm'tion of correctness of assessment, bein* a mere 'resm'tion, cannot be made to
rest on anot%er 'resm'tion-
Collector vs- #eni'a)o, E SCRA 182
Commissioner vs- Island ?arment 4anfactrin* Cor'oration and CTA, ?-R- 6o- =G
E,,EE, Se't- 11, 1983
Conse.#ence of fai#re to prove fra#d
T%e CommissionerIs failre to 'rove frad can be fatal to t%e assessment as w%en a
ta+ liabilit) is assessed be)ond t%e sal t%reeG)ear 'rescri'tive 'eriod- T%e fact t%at t%e
Commissioner did not inclde t%e frad 'enalt) in %is deficienc) assessment w%ic% was
issed after t%e filin* of t%e ta+'a)erIs retrn is an indication t%at t%e Commissioner
%imself does not believe t%at t%ere was frad- T%ere was no frad if t%e Commissioner
merel) relied 'on an alle*ed sbstantial nderGdeclaration of income ta+ resltin* from
%is own com'tation of t%e cost basis of t%e lands and im'rovements sold b) t%e ta+'a)er
to t%e ?overnment- It a''eared t%at t%e ta+'a)er %onestl) believed in a different cost
basis and %ad e+'lained t%e natre of t%e im'rovements introdced on t%e lands- T%e
mere nderstatement of income in itself does not 'rove frad-
Dtivo Sons 8ardware Co- vs- CTA, 1 SCRA 1,/
Effects of Fra#d
1- Civil frad reslts in t%e im'osition of t%e 7/Q src%ar*e, to be im'osed b) t%e
#IRH
2- Criminal frad involves t%e im'osition of 'enal sanctions to be im'osed b) t%e
Re*ional Trial Cort or t%e CTA, de'endin* on t%e amont of basic ta+, 'on
convictionH
B- T%e 'ower of t%e Commissioner to assess t%e ta+ is e+tended to ten !1/" )ears
from date of discover) of t%e falsit) or fradH %owever, Section 281 !'rescri'tion
for violations of an) 'rovision of t%is Code" of t%e Ta+ Code 'rovides t%at
K'rescri'tion for violations of t%e Ta+ Code s%all be*in to rn from t%e da) of t%e
commission of t%e violation of t%e law, and if t%e same be not $nown at t%e time,
from t%e discover) t%ereof and t%e instittion of 5dicial 'roceedin*s for its
investi*ation and 'nis%mentHM
E- Cases involvin* frad cannot be t%e sb5ect of com'romise as mandated b) Section
2/E of t%e Ta+ CodeH
7- T%e fact of frad s%all be 5diciall) ta$en co*niJance of in t%e civil or criminal action
for t%e collection of a frad assessment t%at %as become final and e+ector) on t%e
administrative levelH
,- Ss'ension and tem'orar) closre of t%e bsiness o'erations of a ta+'a)er nder
Section 11, !ta+ on 'ersons e+em't from CAT" of t%e Ta+ Code for violation of t%e
CAT 'rovisions-
SECTION 2>>" Failure to File Return( Su%%l& Corret and Aurate
In)ormation( Pa& Ta$( :it!!old and Remit Ta$ and Re)und E$ess Ta$es :it!!eld
on Com%ensation" # An& %erson re8uired under t!is Code or +& rules and
re*ulations %romul*ated t!ereunder to %a& an& ta$( ma,e a return( ,ee% an& reord(
or su%%l& orret and aurate in)ormation( -!o -ill)ull& )ails to %a& su! ta$(
ma,e su! return( ,ee% su! reord( or su%%l& su! orret and aurate
in)ormation( or -it!!old or remit ta$es -it!!eld( or re)und e$ess ta$es -it!!eld
on om%ensation( at t!e time or times re8uired +& la- or rules and re*ulations
s!all( in addition to ot!er %enalties %ro'ided +& la-( u%on on'ition t!ereo)( +e
%unis!ed +& a )ine o) not less t!an Ten t!ousand %esos 0P50(0001 and su))er
im%risonment o) not less t!an one 051 &ear +ut not more t!an ten 0501 &ears"
An& %erson -!o attem%ts to ma,e it a%%ear )or an& reason t!at !e or anot!er !as in
)at )iled a return or statement( or atuall& )iles a return or statement and
su+se8uentl& -it!dra-s t!e same return or statement a)ter seurin* t!e o))iial
reei'in* seal or stam% o) reei%t o) an internal re'enue o))ie -!erein t!e same
-as atuall& )iled s!all( u%on on'ition t!ere)or( +e %unis!ed +& a )ine o) not less
t!an Ten t!ousand %esos 0P50(0001 +ut not more t!an T-ent& t!ousand %esos
0P20(0001 and su))er im%risonment o) not less t!an one 051 &ear +ut not more t!an
t!ree 0.1 &ears"
SECTION 2>="Penal Lia+ilit& o) Cor%orations" # An& or%oration( assoiation or
*eneral o3%artners!i% lia+le )or an& o) t!e ats or omissions %enali<ed under t!is
Code( in addition to t!e %enalties im%osed !erein u%on t!e res%onsi+le or%orate
o))iers( %artners( or em%lo&ees( s!all( u%on on'ition )or ea! at or omission( +e
%unis!ed +& a )ine o) not less t!an Fi)t& t!ousand %esos 0P>0(0001 +ut not more
t!an One !undred t!ousand %esos 0P500(0001"
SECTION 2>?"Penal Lia+ilit& )or Ma,in* False Entries( Reords or Re%orts( or
/sin* Falsi)ied or Fa,e Aounta+le Forms" #
0A1 An& )inanial o))ier or inde%endent Certi)ied Pu+li Aountant en*a*ed to
e$amine and audit +oo,s o) aounts o) ta$%a&ers under Setion 2.2 0A1 and an&
%erson under !is diretion -!o2
051 :ill)ull& )alsi)ies an& re%ort or statement +earin* on an& e$amination or audit(
or renders a re%ort( inludin* e$!i+its( statements( s!edules or ot!er )orms o)
aountan& -or, -!i! !as not +een 'eri)ied +& !im %ersonall& or under !is
su%er'ision or +& a mem+er o) !is )irm or +& a mem+er o) !is sta)) in aordane
-it! sound auditin* %raties6 or
021 Certi)ies )inanial statements o) a +usiness enter%rise ontainin* an essential
misstatement o) )ats or omission in res%et o) t!e transations( ta$a+le inome(
dedution and e$em%tion o) !is lient6 or
0;1 An& %erson -!o2
051 Not +ein* an inde%endent Certi)ied Pu+li Aountant aordin* to Setion
2.20;1 or a )inanial o))ier( e$amines and audits +oo,s o) aounts o) ta$%a&ers6
or
021 O))ers to si*n and erti)& )inanial statements -it!out audit6 or
0.1 O))ers an& ta$%a&er t!e use o) aountin* +oo,,ee%in* reords )or internal
re'enue %ur%oses not in on)ormit& -it! t!e re8uirements %resri+ed in t!is Code
or rules and re*ulations %romul*ated t!ereunder6 or
041 Eno-in*l& ma,es an& )alse entr& or enters an& )alse or )ititious name in t!e
+oo,s o) aounts or reords mentioned in t!e %reedin* %ara*ra%!s6 or
0>1 Eee%s t-o 021 or more sets o) su! reords or +oo,s o) aounts6 or
0=1 In an& -a& ommits an at or omission( in 'iolation o) t!e %ro'isions o) t!is
Setion6 or
0?1 Fails to ,ee% t!e +oo,s o) aounts or reords mentioned in Setion 2.2 in a
nati'e lan*ua*e( En*lis! or S%anis!( or to ma,e a true and om%lete translation as
re8uired in Setion 2.4 o) t!is Code( or -!ose +oo,s o) aounts or reords ,e%t in
a nati'e lan*ua*e( En*lis! or S%anis!( and )ound to +e at material 'ariane -it!
+oo,s or reords ,e%t +& !im in anot!er lan*ua*e6 or
0A1 :ill)ull& attem%ts in an& manner to e'ade or de)eat an& ta$ im%osed under t!is
Code( or ,no-in*l& uses )a,e or )alsi)ied re'enue o))iial reei%ts( Letters o)
Aut!orit&( erti)iates aut!ori<in* re*istration( Ta$ Credit Certi)iates( Ta$ De+it
Memoranda and ot!er aounta+le )orms s!all( u%on on'ition )or ea! at or
omission( +e %unis!ed +& a )ine o) not less t!an Fi)t& t!ousand %esos 0P>0(0001 +ut
not more t!an One !undred t!ousand %esos 0P500(0001 and su))er im%risonment o)
not less t!an t-o 021 &ears +ut not more t!an si$ 0=1 &ears"
I) t!e o))ender is a Certi)ied Pu+li Aountant( !is erti)iate as a Certi)ied Pu+li
Aountant s!all +e automatiall& re'o,ed or anelled u%on on'ition"
In t!e ase o) )orei*ners( on'ition under t!is Code s!all result in !is immediate
de%ortation a)ter ser'in* sentene( -it!out )urt!er %roeedin*s )or de%ortation"
SECTION 2>A" /nla-)ul Pursuit o) ;usiness" # An& %erson -!o arries on an&
+usiness )or -!i! an annual re*istration )ee is im%osed -it!out %a&in* t!e ta$ as
re8uired +& la- s!all( u%on on'ition )or ea! at or omission( +e %unis!ed +& a
)ine o) not less t!an Fi'e t!ousand %esos 0P>(0001 +ut not more t!an T-ent&
t!ousand %esos 0P20(0001 and su))er im%risonment o) not less t!an si$ 0=1 mont!s
+ut not more t!an t-o 021 &ears2
Pro'ided( T!at in t!e ase o) a %erson en*a*ed in t!e +usiness o) distillin*(
reti)&in*( re%a,in*( om%oundin* or manu)aturin* an& artile su+7et to e$ise
ta$( !e s!all( u%on on'ition )or ea! at or omission( +e %unis!ed +& a )ine o) not
less t!an T!irt& t!ousand %esos 0P.0(0001 +ut not more t!an Fi)t& t!ousand %esos
0P>0(0001 and su))er im%risonment o) not less t!an t-o 021 &ears +ut not more t!an
)our 041 &ears"
Principes on Cri'ina Actions
T%e ta+ liabilit) of a delin1ent ta+'a)er ma) be collected t%ro*% t%e filin* of a
criminal action- Some im'ortant 'rinci'les in t%e collection of ta+es t%ro*% criminal
action are:
1- 6o criminal action for t%e recover) of ta+es or t%e enforcement of an) fine,
'enalt) or forfeitre s%all be filed in cort wit%ot t%e a''roval of t%e Commissioner- T%e
Commissioner, t%ro*% administrative issances, %as dele*ated t%is 'ower to file
criminal actions a*ainst delin1ent ta+'a)ers to %is sbordinate officials in t%e le*al
service-
2- Criminal actions institted on be%alf of t%e ?overnment nder t%e at%orit) of t%e
Ta+ Code or ot%er laws, enforced b) t%e #IR, s%all be bro*%t in t%e name of t%e
?overnment of t%e &%ili''ines and s%all be condcted b) t%e le*al officers of t%e #IR-
8owever, it does not 'reclde t%e #IR from see$in* t%e assistance of e+'erienced
liti*ators from t%e .e'artment of 2stice in t%e 'rosection of t%e criminal action-
Criminal cases are filed in t%e name of K&eo'le of t%e &%ili''ines verss t%e accsed
ta+'a)erM in order to differentiate it from civil cases for t%e collection of delin1ent ta+es
w%ic% are filed in t%e name of KRe'blic of t%e &%ili''ines verss t%e delin1ent
ta+'a)er-M
The Soicitor ,enera is the principa a& officer and e"a defender of the
"overn'ent.%% In its resoltion dated 17 6ovember 2///, t%e S'reme Cort denied t%e
&etition for Review on Certiorari sbmitted b) t%e Commissioner of Internal Revene for
nonGcom'liance wit% t%e 'rocedral re1irement of verification e+'licit in Section E,
Rle 3, of t%e 1993 Rles of Civil &rocedre and, frt%ermore, becase t%e a''eal was
not 'rsed b) t%e Solicitor ?eneral- ;%en t%e motion for reconsideration filed b)
'etitioner was li$ewise denied, 'etitioner filed t%e instant motion see$in* an elcidation
on t%e s''osed discre'anc) between t%e 'rononcement of t%is Cort, on one %and, t%at
wold re1ire t%e 'artici'ation of t%e Office of t%e Solicitor ?eneral and 'ertinent
'rovisions of t%e Ta+ Code, on t%e ot%er %and, t%at allow t%e le*al officers of t%e #IR to
institte and condct action in be%alf of t%e ?overnment nder Section 22/ of t%e Ta+
Reform Act of 1993 !R-A- 8E2E effective 1 2anar) 1998"-
Ordered to comment, t%e Office of t%e Solicitor ?eneral e+'ressed t%e view t%at nder
Section 22/ of t%e Ta+ Reform Act, amendin* Section 221 of t%e 199B Ta+ Code, Kt%e
'rimar) res'onsibilit) to condct civil and criminal actions lies wit% t%e le*al officers of
t%e #IR, sc% t%at it is no lon*er necessar) for #IR le*al officers to be de'tiJed b) t%e
Office of t%e Solicitor ?eneral or t%e Secretar) of 2stice before t%e) can commence an)
action nder t%e 1993 Ta+ Code-
T%e instittion or commencement before a 'ro'er cort of civil and criminal actions
and 'roceedin*s arisin* nder t%e Ta+ Reform Act w%ic% Ks%all be condcted b) le*al
officers of t%e #rea of Internal ReveneM is not in dis'te- An a''eal from sc% cort,
%owever, is not a matter of ri*%t- Section 22/ of t%e Ta+ Reform Act mst not be
nderstood as overtrnin* t%e lon* establis%ed 'rocedre before t%is Cort in re1irin*
t%e Solicitor ?eneral to re'resent t%e interest of t%e Re'blic- T%is Cort contines to
maintain t%at it is t%e Solicitor ?eneral w%o %as t%e 'rimar) res'onsibilit) to a''ear for
t%e *overnment in a''ellate 'roceedin*s- T%is 'rononcement finds 5stification in t%e
varios laws definin* t%e Office of t%e Solicitor ?eneral, be*innin* wit% Act 6o- 1B7,
w%ic% too$ effect on 1, 2ne 19/1, ' to t%e 'resent Administrative Code of 1983-
Aware t%at t%e dismissal of t%e 'etition cold %ave lastin* effect on *overnment
revenes, t%e lifeblood of t%e state, t%e Cort %eeds t%e 'lea of 'etitioner for a c%ance to
'rosecte t%e case- Relative to t%e lac$ of verification re1ired of 'etitions, t%e S'reme
Cort %as %eld in a nmber of instances t%at sc% a deficienc) can be e+csed or
dis'ensed wit% in meritorios cases, t%e defect bein* neit%er 5risdictional nor alwa)s
fatal- Cerification is mainl) intended to ensre t%at t%e alle*ations in t%e 'leadin*s are
tre and correct and not mere s'eclations
!Commissioner vs- =a Serte Ci*ar and Ci*arette Factor),
?-R- 6o- 1EE9E2, 2l) E, 2//2"-
B- T%e *rant of a motion to dismiss a criminal case mst be based 'on t%e 5d*eIs
own 'ersonal conviction t%at t%ere was no case a*ainst t%e accsed- T%e trial 5d*e
mst %imself be convinced t%at t%ere was indeed no sfficient evidence a*ainst t%e
accsed, and t%is conclsion can be arrived at onl) after an assessment of t%e evidence
in t%e 'ossession of t%e 'rosection- ;%at is im'erativel) re1ired is t%e trial 5d*eIs
own assessment of sc% evidence, it not bein* sfficient for t%e valid and 'ro'er e+ercise
of 5dicial discretion merel) to acce't t%e 'rosectionIs word for its s''osed
insfficienc) of evidence-4artineJ vs- Cort of A''eals
E- T%e ac1ittal of t%e ta+'a)er in a criminal action nder t%e Ta+ Code does not
necessaril) reslt in e+oneration of said ta+'a)er from %is civil liabilit) to 'a) ta+es- In
ordinar) criminal cases, t%e civil liabilit) in incrred b) reason of t%e offenderIs criminal
act- Article 1// of t%e Revised &enal Code 'rovides t%at ever) 'erson criminall) liable
for a felon) is also civill) liable- In ta+ cases, t%e civil liabilit) to 'a) ta+es arises not
becase of an) felon) bt 'on t%e ta+'a)erIs failre to 'a) ta+es- Criminal liabilit) in
ta+ation arises as a reslt of oneIs failre to 'a) %is ta+ liabilities- 4oreover, w%ile
Section 3B of t%e old Ta+ Code %as 'rovided t%e im'osition of t%e 'enalt) of
im'risonment or fine, or bot%, for refsal or ne*lect to 'a) income ta+ or to ma$e a
retrn t%ereof, it failed to 'rovide t%e collection of said ta+ in criminal 'roceedin*s- T%e
onl) civil remedies 'rovided for t%e collection of ta+es are distraint or *oods, c%attels,
etc- or b) 5dicial action, w%ic% remedies are *enerall) e+clsive in t%e absence of a
contrar) intent from t%e le*islator- Re'blic vs- &atanao 2/ SCRA 312
7- 9nder e+istin* 'rovision of law, t%e 5d*ment in t%e criminal Nta+O case s%all not
onl) im'ose t%e 'enalt) bt s%all also order 'a)ment of t%e ta+es sb5ect of t%e criminal
case as finall) decided b) t%e ComGmissioner- Also, nder R-A- 9282, t%e filin* of t%e
criminal case im'lies also t%e filin* of t%e civil case- In fact, no reservation for t%e filin*
of t%e civil case ma) be made nder t%is new law, nli$e t%at of a felon) nder t%e
Revised &enal Code- Accordin*l), not onl) are t%e individals bt also t%e cor'orations
w%o 'artici'ated in t%e commission of t%e offense are inclded in t%e information,
alt%o*% t%e cor'orations can onl) be %eld civill) liable-
,- ;it% re*ard to t%e ta+ 'ro'er, t%e ac1ittal in t%e criminal case cold not o'erate
to disc%ar*e t%e 'etitioner from t%e dt) to 'a) t%e ta+, w%ic% t%e law re1ires to be 'aid,
since t%at dt) is im'osed b) statte 'rior to and inde'endent of an) attem't on t%e 'art
of t%e ta+'a)er to evade 'a)ment- T%e obli*ation to 'a) t%e ta+ is not a mere
conse1ence of t%e felonios acts c%ar*ed in t%e information, nor is it a mere civil
liabilit) derived from a crime t%at wold be wi'ed ot b) t%e 5dicial declaration t%at t%e
criminal acts c%ar*ed did not e+ist-
Castro vs- Collector, ?-R- 6o- =G1213E, A'r- 2/, 19,2,
3- All violations of an) N'enalO 'rovision of t%e Ta+ Code s%all 'rescribe after five !7"
)ears- &rescri'tion s%all be*in to rn from t%e da) of t%e commission of t%e violation of
t%e law, and if t%e same be not $nown at t%e time, from t%e discover) t%ereof and t%e
instittion of 5dicial 'roceedin*s for its investi*ation and 'nis%ment- T%e 'rescri'tion
s%all be interr'ted w%en 'roceedin*s are institted a*ainst t%e *ilt) 'ersons and s%all
be*in to rn a*ain if t%e 'roceedin*s are dismissed for reasons not constittin* 5eo'ard)-
T%e term of 'rescri'tion s%all not rn w%en t%e offender is absent from t%e
&%ili''ines- 8owever,a 'etition for reconsideration of an assessment ma) affect t%e
ss'ension of t%e 'rescri'tive 'eriod for t%e collection of ta+es, bt not t%e 'rescri'tive
'eriod of a criminal action for violation of law-
&eo'le vs- C%in*=a$, =G1/,/9, 4a) 2B, 1978
;%en t%e civil action arisin* ot of a ta+ delin1enc) is e+tin*is%ed b) 'rescri'tion,
considerin* t%at nder t%e law, t%e ?overnment %as onl) five )ears from date of
assessment of ta+ wit%in w%ic% to collect t%e ta+, it is still 'ossible for sc% ta+ to be
collected b) criminal action inasmc% as actions of t%is $ind 'rescribe onl) after t%e
la'se of five )ears conted from t%e discover) of t%e crime and t%e instittion of
'roceedin*s for its investi*ation and 'nis%ment-
8- In a criminal action t%at was institted a*ainst t%e ta+'a)er for %avin* filed a false
and fradlent retrn and for failre to 'a) ta+es, t%e sbse1ent satisfaction of t%e ta+
liabilit) b) 'a)ment or 'rescri'tion will not o'erate to e+tin*is% t%e ta+'a)erIs criminal
liabilit)- ;%et%er nder t%e Ta+ Code or Revised &enal Code, t%e satisfaction of civil
liabilit) is not one of t%e *ronds for e+tinction of criminal action-
&eo'le vs- Tierra, 12 SCRA ,,,
9- If a 'erson convicted for violation of an) of t%e 'rovisions of t%e Ta+ Code %as no
'ro'ert) wit% w%ic% to meet t%e fine im'osed 'on %im b) t%e cort, or is nable to 'a)
sc% fine, %e s%all be sb5ect to a sbsidiar) 'ersonal liabilit)-T%is 'rovision corrected
t%e lac$ of at%orit) for t%e corts to im'ose sbsidiar) 'enalt) in case of insolvenc) on
t%e 'art of t%e ta+'a)er, w%ic% %e is sentenced to 'a)-
&eo'le vs- #ala*tas, 1/7 &%il- 1B,2
1/- An) 'erson convicted of a crime 'enaliJed b) t%e Ta+ Code s%all, in addition to
bein* liable for t%e 'a)ment of t%e ta+, s%all be sb5ect to t%e 'enalties im'osed %erein-
&a)ment of t%e ta+ de after a''re%ension s%all not constitte a valid defense in an)
'rosection for violation of an) 'rovision of t%is Code or in an) action for t%e forfeitre
of nta+ed articles-
11- If t%e Commissioner is convinced t%at t%e ta+'a)er is criminall) liable, %e s%old
institte criminal 'roceedin*s and not arbitraril) im'ose a 'enalt)-
Collector vs- 9niversit) of Sto- Tomas, 1/E &%il- 1/,2
8owever, if t%e #IR official acce'ts t%e 'a)ment of com'romise 'enalt) offered b) t%e
ta+'a)er for violation of a s'ecific 'rovision of law im'osin* criminal liabilit), t%e
criminal liabilit) of t%e ta+'a)er for sc% violation s%all be obliterated-
12- Ta+es are t%e lifeblood of *overnment and ever) citiJen is dt) bond to 'a)
ta+es and to 'a) ta+es in t%e ri*%t amont- T%erefore, tec%nicalities will %ave to )ield to
t%e *overnment interest of t%e nation to enforce its laws a*ainst ta+ evasion, es'eciall)
w%ere t%e amonts involved are %*e- &rocedral rles s%old not be a''lied wit%
ri*idit) es'eciall) w%en to do so wold reslt in manifest failre or miscarria*e of
5stice- Rles of 'rocedre s%old not be a''lied in a ver) tec%nical sense, for t%e) are
ado'ted to %el' secre, not overGride, sbstantial 5stice-
&eo'le vs- =cio C- Tan et al-, ?-R- 6o- 1EE3/3, 2l) 1B, 2//E
&i*lasG@amao vs- 6=RC, B73 SCRA ,E/
Fiin" of cri'ina action d#rin" the pendenc- of protest
T%e filin* of a criminal action drin* t%e 'endenc) of a 'rotested assessment will
de'end on w%et%er or not a crime is com'lete w%en t%e violator %as $nowin*l) and
willfll) filed a fradlent retrn wit% intent to evade and defeat a 'art or all of t%e ta+-
In ot%er words, for criminal 'rosection to 'roceed before or drin* t%e 'endenc) of an
assessment, t%ere mst be a 'rima facie s%owin* of a willfl attem't to evade ta+es-
In t%e case of /n"a( vs. C#si3 04 SCRA 544,t%e S'reme Cort rled t%at t%e
criminal action is le*all) 'ro'er w%ere t%e ta+'a)er deliberatel) did not declare %is
income from sales of banana sa'lin*s- ;%at is involved in t%e criminal action is le*all)
not t%e collection of ta+es w%ere t%e assessment of t%e Commissioner ma) be reviewed b)
t%e Cort of Ta+ A''eals bt a criminal 'rosection for violations of t%e Ta+ Code w%ic%
is wit%in t%e co*niJance of t%e Cort of First Instance !now Re*ional Trial Cort"- ;%ile
t%ere can be no civil action to enforce collection before t%e assessment 'rocedres in t%e
Code %ave been followed, t%ere is no re1irement for t%e 'recise com'tation and
assessment of t%e ta+ before t%ere can be a criminal 'rosection- T%e 'rotest of t%e
'etitioner a*ainst t%e assessment cannot sto' %is 'rosection for violation of t%e Ta+
Code-
In anot%er case, t%e S'reme Cort stated t%at K;e s%are t%e view of bot% t%e trial
cort and Cort of A''eals t%at before t%e ta+ liabilities of Fortne are first determined,
it cannot be correctl) assessed t%at 'rivate res'ondents %ave willfll) attem'ted to evade
or defeat t%e ta+es so*%t to be collected from Fortne- In 'lain words, before an)one is
'rosected for willfl attem't to evade or defeat an) ta+ nder Sections 27B and 277
!now Secs- 27E and 27,, 6IRC", t%e fact t%at a ta+ is de mst first be 'roved- S''ose
t%e Commissioner eventall) resolves FortneIs motion for reconsideration of t%e
assessments, 'rononcin* t%at t%e ta+'a)er is not liable for an) deficienc) assessment,
t%en t%e criminal com'laints filed a*ainst 'rivate res'ondents will %ave no le* to stand
on-
KIn view of t%e fore*oin* reasons, we cannot sbscribe to t%e
'etitionerIs t%esis citin* 9n*ab vs- Csi, t%at t%e lac$ of a final
determination of FortneIs e+act or correct ta+ liabilit) is not a bar to
criminal 'rosection, and t%at w%ile a 'recise com'tation and assessment
is re1ired for a civil action to collect ta+ deficiencies, t%e Ta+ Code does
not re1ire sc% com'tation and assessment 'rior to criminal 'rosection-
Readin* 9n*ab carefll), t%e 'rononcement t%erein t%at deficienc)
assessment is not necessar) 'rior to 'rosection is 'ointedl) and
deliberatel) 1alifed b) t%e Cort wit% t%e followin* statement 1oted from
?Ji$ v- 9-S-: 6T%e crime is com'lete w%en t%e violator %as $nowin*l) and
willfll) filed a fradlent retrn wit% intent to evade and defeat a 'art or
all of t%e ta+-I In 'lain words, for criminal 'rosection to 'roceed before
assessment, t%ere mst be a 'rima facie s%owin* of a willfl attem't to
evade ta+es- T%ere was a willfl attem't to evade ta+ in 9n*ab becase of
t%e ta+'a)erIs failre to declare in %is income ta+ retrn [%is income
derived from banana sa'lin*s-I In t%e mind of t%e trial cort and t%e Cort
of A''eals, FortneIs sitation is 1ite a'art factall) since t%e re*istered
w%olesale 'rice of t%e *oods, a''roved b) t%e #IR, is 'resmed to be t%e
actal w%olesale 'rice, t%erefore, not fradlent- 9nless and ntil t%e #IR
%as made a final determination of w%at is s''osed to be t%e correct ta+es,
t%e ta+'a)er s%old not be 'laced in t%e crcible of criminal 'rosection-
8erein lies a w%ale of difference between 9n*ab and t%e case at bar
Commissioner vs- Cort of A''eals and Fortne Tobacco Cor'oration, 93
SCRA 199H Resoltion on 4otion for Reconsideration, Feb- ,, 1993
T%e S'reme Cort reiterated t%e *eneral rle t%at an assessment is not necessar) before
a criminal c%ar*e can be filed-
T%e criminal c%ar*e need onl) be 'roved b) a 'rima facie s%owin* of failre to file a
re1ired ta+ retrn and sc% fact need not be 'roved b) an assessment-
T%e issance of an assessment mst be distin*is%ed from t%e filin* of a com'laint-
#efore an assessment is issed, t%ere is, b) 'ractice, a 'reGassessment notice sent to t%e
ta+'a)er- T%e ta+'a)er is t%en *iven a c%ance to sbmit 'osition 'a'ers and docments
to 'rove t%at t%e assessment is nwarranted- If t%e Commissioner is satisfied, an
assessment si*ned b) %im or %er is t%en sent to t%e ta+'a)er, informin* t%e latter
s'ecificall) and clearl) t%at an assessment %as been made a*ainst %im or %er- In
contrast, t%e criminal c%ar*e need not *o t%ro*% all t%ese- T%e criminal c%ar*e is filed
directl) wit% t%e .e'artment of 2stice- T%ereafter, t%e ta+'a)er is notified t%at a
criminal case %ad been filed a*ainst %im, not t%at t%e Commissioner %as issed an
assessment- It mst be stressed t%at a criminal com'laint is institted not to demand
'a)ment, bt to 'enaliJe t%e ta+'a)er for violation of t%e Ta+ Code-Commissioner vs-
&ascor Realt) and .evelo'ment Cor'oration, ?-R- 6o- 128B17, 2ne 29, 1999,
SECTION 2>B"Ille*al Colletion o) Forei*n Pa&ments" # An& %erson -!o
,no-in*l& underta,es t!e olletion o) )orei*n %a&ments as %ro'ided under
Setion =? o) t!is Code -it!out !a'in* o+tained a liense t!ere)or( or -it!out
om%l&in* -it! its im%lementin* rules and re*ulations( s!all( u%on on'ition )or
ea! at or omission( +e %unis!ed +& a )ine o) not less t!an T-ent& t!ousand %esos
0P20(0001 +ut not more t!an Fi)t& t!ousand %esos 0P>0(0001 and su))er
im%risonment o) not less t!an one 051 &ear +ut not more t!an t-o 021 &ears"
SECTION 2=0"/nla-)ul Possession o) Ci*arette Pa%er in ;o++ins or Rolls( Et"
# It s!all +e unla-)ul )or an& %erson to !a'e in !is %ossession i*arette %a%er in
+o++ins or rolls( i*arette ti%%in* %a%er or i*arette )ilter ti%s( -it!out t!e
orres%ondin* aut!orit& t!ere)or issued +& t!e Commissioner" An& %erson(
im%orter( manu)aturer o) i*ar and i*arettes( -!o !as +een )ound *uilt& under
t!is Setion( s!all( u%on on'ition )or ea! at or omission( +e %unis!ed +& a )ine
o) not less t!an T-ent& t!ousand %esos 0P20(0001 +ut not more t!an One !undred
t!ousand %esos 0P500(0001 and su))er im%risonment )or a term o) not less t!an si$
0=1 &ears and one 051 da& +ut not more t!an t-el'e 0521 &ears"
SECTION 2=5"/nla-)ul /se o) Denatured Alo!ol" # An& %erson -!o )or t!e
%ur%ose o) manu)aturin* an& +e'era*e( uses denatured alo!ol or alo!ol
s%eiall& denatured to +e used )or moti'e %o-er or -it!dra-n under +ond )or
industrial uses or alo!ol ,no-in*l& misre%resented to +e denatured to +e un)it )or
oral inta,e or -!o ,no-in*l& sells or o))ers )or sale an& +e'era*e made in -!ole
or in %art )rom su! alo!ol or -!o uses su! alo!ol )or t!e manu)ature o) li8uid
mediinal %re%arations ta,en internall&( or ,no-in*l& sells or o))ers )or sale su!
%re%arations ontainin* as an in*redient su! alo!ol( s!all( u%on on'ition )or
ea! at or omission +e %unis!ed +& a )ine o) not less t!an T-ent& t!ousand %esos
0P20(0001 +ut not more t!an One !undred t!ousand %esos 0P500(0001 and su))er
im%risonment )or a term o) not less t!an si$ 0=1 &ears and one 051 da& +ut not more
t!an t-el'e 0521 &ears"
An& %erson -!o s!all unla-)ull& reo'er or attem%t to reo'er +& distillation or
ot!er %roess an& denatured alo!ol or -!o ,no-in*l& sells or o))ers )or sale(
oneals or ot!er-ise dis%oses o) alo!ol so reo'ered or redistilled s!all +e
su+7et to t!e same %enalties im%osed under t!is Setion"
SECTION 2=2"S!i%ment or Remo'al o) Li8uor or To+ao Produts under False
Name or ;rand or as an Imitation o) an& E$istin* or Ot!er-ise Eno-n Produt
Name or ;rand" # An& %erson -!o s!i%s( trans%orts or remo'es s%irituous(
om%ounded or )ermented li8uors( -ines or an& manu)atured %roduts o) to+ao
under an& ot!er t!an t!e %ro%er name or +rand ,no-n to t!e trade as desi*natin*
t!e ,ind and 8ualit& o) t!e ontents o) t!e as,( +ottle or %a,a*e ontainin* t!e
same or as an imitation o) an& e$istin* or ot!er-ise ,no-n %rodut name or +rand
or auses su! at to +e done( s!all( u%on on'ition )or ea! at or omission( +e
%unis!ed +& a )ine o) not less t!an T-ent& t!ousand %esos 0P20(0001 +ut not more
t!an One !undred t!ousand %esos 0P500(0001 and su))er im%risonment o) not less
t!an si$ 0=1 &ears and one 051 da& +ut not more t!an t-el'e 0521 &ears"
SECTION 2=."/nla-)ul Possession or Remo'al o) Artiles Su+7et to E$ise Ta$
-it!out Pa&ment o) t!e Ta$" # An& %erson -!o o-ns andHor is )ound in
%ossession o) im%orted artiles su+7et to e$ise ta$( t!e ta$ on -!i! !as not +een
%aid in aordane -it! la-( or an& %erson -!o o-ns andHor is )ound in %ossession
o) im%orted ta$3e$em%t artiles ot!er t!an t!ose to -!om t!e& are le*all& issued
s!all +e %unis!ed +&2
0a1 A )ine o) not less t!an One t!ousand %esos 0P5(0001 nor more t!an T-o
t!ousand %esos 0P2(0001 and su))er im%risonment o) not less t!an si$t& 0=01 da&s
+ut not more t!an one !undred 05001 da&s( i) t!e a%%raised 'alue( to +e determined
in t!e manner %resri+ed in t!e tari)) and Customs Code( inludin* duties and
ta$es( o) t!e artiles does not e$eed One t!ousand %esos 0P5(00016
0+1 A )ine o) not less t!an Ten t!ousand %esos 0P50(0001 +ut not more t!an T-ent&
t!ousand %esos 0P20(0001 and su))er im%risonment o) not less t!an t-o 021 &ears
+ut not more t!an )our 041 &ears( i) t!e a%%raised 'alue( to +e determined in t!e
manner %resri+ed in t!e Tari)) and Customs Code( inludin* duties and ta$es( o)
t!e artiles e$eeds One t!ousand %esos 0P5(0001 +ut does not e$eed Fi)t&
t!ousand %esos 0P>0(00016
01 A )ine o) not less t!an T!irt& t!ousand %esos 0P.0(0001 +ut not more t!an Si$t&
t!ousand %esos 0P=0(0001 and su))er im%risonment o) not less t!an )our 041 &ears
+ut not more t!an si$ 0=1 &ears( i) t!e a%%raised 'alue( to +e determined in t!e
manner %resri+ed in t!e Tari)) and Customs Code( inludin* duties and ta$es( o)
t!e artiles is more t!an Fi)t& t!ousand %esos 0P>0(0001 +ut does not e$eed One
!undred )i)t& t!ousand %esos 0P5>0(00016 or
0d1 A )ine o) not less t!an Fi)t& t!ousand %esos 0P>0(0001 +ut not more t!an One
!undred t!ousand %esos 0P500(0001 and su))er im%risonment o) not less t!an ten
0501 &ears +ut not more t!an t-el'e 0521 &ears( i) t!e a%%raised 'alue( to +e
determined in t!e manner %resri+ed in t!e Tari)) and Customs Code( inludin*
duties and ta$es( o) t!e artiles e$eeds One !undred )i)t& t!ousand %esos
0P5>0(0001"
An& %erson -!o is )ound in %ossession o) loall& manu)atured artiles su+7et to
e$ise ta$( t!e ta$ on -!i! !a'e not +een %aid in aordane -it! la-( or an&
%erson -!o is )ound in %ossession o) su! artiles -!i! are e$em%t )rom e$ise
ta$ ot!er t!an t!ose to -!om t!e same is la-)ull& issued s!all +e %unis!ed -it! a
)ine o) not less t!an ten 0501 times t!e amount o) e$ise ta$ due on t!e artiles
)ound +ut not less t!an Fi'e !undred %esos 0P>001 and su))er im%risonment o) not
less t!an t-o 021 &ears +ut not more t!an )our 041 &ears"
An& manu)aturer( o-ner or %erson in !ar*e o) an& artile su+7et to e$ise ta$
-!o remo'es or allo-s or auses t!e unla-)ul remo'al o) an& su! artiles )rom
t!e %lae o) %rodution or +onded -are!ouse( u%on -!i! t!e e$ise ta$ !as not
+een %aid at t!e time and in t!e manner re8uired( and an& %erson -!o ,no-in*l&
aids or a+ets in t!e remo'al o) su! artiles as a)oresaid( or oneals t!e same a)ter
ille*al remo'al s!all( )or t!e )irst o))ense( +e %unis!ed -it! a )ine o) not less t!an
ten 0501 times t!e amount o) e$ise ta$ due on t!e artiles +ut not less t!an One
t!ousand %esos 0P5(0001 and su))er im%risonment o) not less t!an one 051 &ear +ut
not more t!an t-o 021 &ears"
T!e mere une$%lained %ossession o) artiles su+7et to e$ise ta$( t!e ta$ on -!i!
!as not +een %aid in aordane -it! la-( s!all +e %unis!a+le under t!is Setion"
SECTION 2=4" Failure or Re)usal to Issue Reei%ts or Sales or Commerial
In'oies( Fiolations Related to t!e Printin* o) su! Reei%ts or In'oies and Ot!er
Fiolations" #
0a1 An& %erson -!o( +ein* re8uired under Setion 2.? to issue reei%ts or sales or
ommerial in'oies( )ails or re)uses to issue su! reei%ts or in'oies( issues
reei%ts or in'oies t!at do not trul& re)let andHor ontain all t!e in)ormation
re8uired to +e ,no-n t!erein( or uses multi%le or dou+le reei%ts or in'oies( s!all(
u%on on'ition )or ea! at or omission( +e %unis!ed +& a )ine o) not less t!an
One t!ousand %esos 0P5(0001 +ut not more t!an Fi)t& t!ousand %esos 0P>0(0001
and su))er im%risonment o) not less t!an t-o 021 &ears +ut not more t!an )our 041
&ears"
0+1 An& %erson -!o ommits an& o) t!e ats enumerated !ereunder s!all +e
%enali<ed in t!e same manner and to t!e same e$tent as %ro'ided )or in t!is
Setion2
051 Printin* o) reei%ts or sales or ommerial in'oies -it!out aut!orit& )rom t!e
;ureau o) Internal Re'enue6 or
021 Printin* o) dou+le or multi%le sets o) in'oies or reei%ts6 or
0.1 Printin* o) unnum+ered reei%ts or sales or ommerial in'oies( not +earin*
t!e name( +usiness st&le( Ta$%a&er Identi)iation Num+er( and +usiness address o)
t!e %erson or entit&"
SECTION 2=>"O))enses Relatin* to Stam%s" # An& %erson -!o ommits an& o)
t!e ats enumerated !ereunder s!all( u%on on'ition t!ereo)( +e %unis!ed +& a
)ine o) not less t!an T-ent& t!ousand %esos 0P20(0001 +ut not more t!an Fi)t&
t!ousand %esos 0P>0(0001 and su))er im%risonment o) not less t!an )our 041 &ears
+ut not more t!an ei*!t 0A1 &ears2
0a1 Ma,in*( im%ortin*( sellin*( usin* or %ossessin* -it!out e$%ress aut!orit& )rom
t!e Commissioner( an& die )or %rintin* or ma,in* stam%s( la+els( ta*s or %la&in*
ards6
0+1 Erasin* t!e anellation mar,s o) an& stam% %re'iousl& used( or alterin* t!e
-ritten )i*ures or letters or anellation mar,s on internal re'enue stam%s6
01 Possessin* )alse( ounter)eit( restored or altered stam%s( la+els or ta*s or
ausin* t!e ommission o) an& su! o))ense +& anot!er6
0d1 Sellin* or o))erin* )or sale an& +o$ or %a,a*e ontainin* artiles su+7et to
e$ise ta$ -it! )alse( s%urious or ounter)eit stam%s or la+els or sellin* )rom an&
su! )raudulent +o$( %a,a*e or ontainer as a)orementioned6 or
0e1 Gi'in* a-a& or ae%tin* )rom anot!er( or sellin*( +u&in* or usin* ontainers
on -!i! t!e stam%s are not om%letel& destro&ed"
SECTION 2==" Failure to O+e& Summons" # An& %erson -!o( +ein* dul&
summoned to a%%ear to testi)&( or to a%%ear and %rodue +oo,s o) aounts(
reords( memoranda or ot!er %a%ers( or to )urnis! in)ormation as re8uired under
t!e %ertinent %ro'isions o) t!is Code( ne*lets to a%%ear or to %rodue su! +oo,s
o) aounts( reords( memoranda or ot!er %a%ers( or to )urnis! su! in)ormation(
s!all( u%on on'ition( +e %unis!ed +& a )ine o) not less t!an Fi'e t!ousand %esos
0P>(0001 +ut not more t!an Ten t!ousand %esos 0P50(0001 and su))er im%risonment
o) not less t!an one 051 &ear +ut not more t!an t-o 021 &ears"
SECTION 2=?"Delaration under Penalties o) Per7ur&" # An& delaration( return
and ot!er statements re8uired under t!is Code( s!all( in lieu o) an oat!( ontain a
-ritten statement t!at t!e& are made under t!e %enalties o) %er7ur&" An& %erson
-!o -ill)ull& )iles a delaration( return or statement ontainin* in)ormation -!i!
is not true and orret as to e'er& material matter s!all( u%on on'ition( +e su+7et
to t!e %enalties %resri+ed )or %er7ur& under t!e Re'ised Penal Code"
SECTION 2=A"Ot!er Crimes and O))enses" #
0A1 Misdelaration or Misre%resentation o) Manu)aturers Su+7et to E$ise Ta$"
# An& manu)aturer -!o( in 'iolation o) t!e %ro'isions o) Title FI o) t!is Code(
misdelares in t!e s-orn statement re8uired t!erein or in t!e sales in'oie( an&
%ertinent data or in)ormation s!all +e %unis!ed +& a summar& anellation or
-it!dra-al o) t!e %ermit to en*a*e in +usiness as a manu)aturer o) artiles su+7et
to e$ise ta$"
0;1 For)eiture o) Pro%ert& /sed in /nliensed ;usiness or Dies /sed )or Printin*
False Stam%s( Et" # All !attels( ma!iner&( and remo'a+le )i$tures o) an& sort
used in t!e unliensed %rodution o) artiles su+7et to e$ise ta$ s!all +e )or)eited"
Dies and ot!er e8ui%ment used )or t!e %rintin* or ma,in* o) an& internal re'enue
stam%( la+el or ta* -!i! is in imitation o) or %ur%orts to +e a la-)ul stam%( la+el
or ta* s!all also +e )or)eited"
0C1 For)eiture o) Goods Ille*all& Stored or Remo'ed" # /nless ot!er-ise
s%ei)iall& aut!ori<ed +& t!e Commissioner( all artiles su+7et to e$ise ta$
s!ould not +e stored or allo-ed to remain in t!e distiller&( distiller& -are!ouse(
+onded -are!ouse or ot!er %lae -!ere made( a)ter t!e ta$ t!ereon !as +een %aid6
ot!er-ise( all su! artiles s!all +e )or)eited" Artiles -it!dra-n )rom an& su!
%lae or )rom ustoms ustod& or im%orted into t!e ountr& -it!out t!e %a&ment o)
t!e re8uired ta$ s!all li,e-ise +e )or)eited"

CHAPTER III
Penalties Im%osed on Pu+li O))iers
SECTION 2=B Fiolations Committed +& Go'ernment En)orement O))iers" #
E'er& o))iial( a*ent( or em%lo&ee o) t!e ;ureau o) Internal Re'enue or an& ot!er
a*en& o) t!e Go'ernment !ar*ed -it! t!e en)orement o) t!e %ro'isions o) t!is
Code( -!o is *uilt& o) an& o) t!e o))enses !erein+elo- s%ei)ied s!all( u%on
on'ition )or ea! at or omission( +e %unis!ed +& a )ine o) not less t!an Fi)t&
t!ousand %esos 0P>0(0001 +ut not more t!an One !undred t!ousand %esos
0P500(0001 and su))er im%risonment o) not less t!an ten 0501 &ears +ut not more
t!an )i)teen 05>1 &ears and s!all li,e-ise su))er an additional %enalt& o) %er%etual
dis8uali)iation to !old %u+li o))ie( to 'ote( and to %artii%ate in an& %u+li
eletion2
0a1 E$tortion or -ill)ul o%%ression t!rou*! t!e use o) !is o))ie or -ill)ul
o%%ression and !arassment o) a ta$%a&er -!o re)used( delined( turned do-n or
re7eted an& o) !is o))ers s%ei)ied in %ara*ra%! 0d1 !ereo)6
0+1 Eno-in*l& demandin* or reei'in* an& )ee( ot!er or *reater sums t!an are
aut!ori<ed +& la- or reei'in* an& )ee( om%ensation or re-ard( e$e%t as +& la-
%resri+ed( )or t!e %er)ormane o) an& dut&6
01 :ill)ull& ne*letin* to *i'e reei%ts( as +& la- re8uired( )or an& sum olleted
in t!e %er)ormane o) dut& or -ill)ull& ne*letin* to %er)orm an& ot!er duties
en7oined +& la-6
0d1 O))erin* or underta,in* to aom%lis!( )ile or su+mit a re%ort or assessment on
a ta$%a&er -it!out t!e a%%ro%riate e$amination o) t!e +oo,s o) aounts or ta$
lia+ilit&( or o))erin* or underta,in* to su+mit a re%ort or assessment less t!an t!e
amount due t!e Go'ernment )or an& onsideration or om%ensation( or ons%irin*
or olludin* -it! anot!er or ot!ers to de)raud t!e re'enues or ot!er-ise 'iolate t!e
%ro'isions o) t!is Code6
0e1 Ne*letin* or +& desi*n %ermittin* t!e 'iolation o) t!e la- +& an& ot!er %erson6
0)1 Ma,in* or si*nin* an& )alse entr& or entries in an& +oo,( or ma,in* or si*nin*
an& )alse erti)iate or return6
0*1 Allo-in* or ons%irin* or olludin* -it! anot!er to allo- t!e unaut!ori<ed
retrie'al( -it!dra-al or reall o) an& return( statement or delaration a)ter t!e same
!as +een o))iiall& reei'ed +& t!e ;ureau o) Internal Re'enue6
0!1 Ha'in* ,no-led*e or in)ormation o) an& 'iolation o) t!is Code or o) an& )raud
ommitted on t!e re'enues olleti+le +& t!e ;ureau o) Internal Re'enue( )ailure to
re%ort su! ,no-led*e or in)ormation to t!eir su%erior o))ier( or )ailure to re%ort
as ot!er-ise re8uired +& la-6 and
0i1 :it!out t!e aut!orit& o) la-( demandin* or ae%tin* or attem%tin* to ollet(
diretl& or indiretl&( as %a&ment or ot!er-ise an& sum o) mone& or ot!er t!in* o)
'alue )or t!e om%romise( ad7ustment or settlement o) an& !ar*e or om%laint )or
an& 'iolation or alle*ed 'iolation o) t!is Code"
Pro'ided( T!at t!e %ro'isions o) t!e )ore*oin* %ara*ra%! not-it!standin*( an&
internal re'enue o))ier )or -!i! a %rima )aie ase o) *ra'e misondut !as +een
esta+lis!ed s!all( a)ter due notie and !earin* o) t!e administrati'e ase and
su+7et to Ci'il Ser'ie La-s( +e dismissed )rom t!e re'enue ser'ie2 Pro'ided(
)urt!er( T!at t!e term @*ra'e misondut@( as de)ined in t!e Ci'il Ser'ie La-( s!all
inlude t!e issuane o) )a,e letters o) aut!orit& and reei%ts( )or*er& o) si*nature(
usur%ation o) aut!orit& and !a+itual issuane o) unreasona+le assessments"
FACTS: Accsed, a #IR ?ro' S'ervisin* :+aminer, directl) demanded and e+torted
from 4rs- 4aria An*eles Ramasola Cesar t%e amont of &2/,/// in e+c%an*e for t%e
release of t%e certification of %er 'a)ment of t%e ca'ital *ains ta+ for t%e land 'rc%ased
b) t%e Ramasola NS'erstdioO Inc- from one Cat%erine Cor'J:nerio, a transaction
w%erein t%e accsed %as to intervene in %is official ca'acit)- C%ar*ed for violation of
Section B !b" of RA B/19 and for direct briber) nder Article 21/ of t%e Revised &enal
Code, 'etitioner was fond *ilt) of bot%-
ISS9:: ;%et%er accsed was 'laced in doble 5eo'ard)
8:=.: 6o- Section B of RA B/19 be*ins wit% t%e statement:
Sec- B- In addition to acts or omissions of 'blic officers alread) 'enaliJed b) e+istin*
law, t%e followin* NactsO s%all constitte corr't 'ractices of an) 'blic officer and are
%ereb) declared nlawfl:
One ma) t%erefore be c%ar*ed wit% violation of RA B/19 in addition to a felon) nder t%e
Revised &enal Code for t%e same delictal act, t%at is, eit%er concrrentl) or sbse1ent
to bein* c%ar*ed wit% a felon) nder t%e Revised &enal Code- T%ere is no doble
5eo'ard) if a 'erson is c%ar*ed simltaneosl) or sccessivel) for violation of Section B
of RA B/19 and t%e Revised &enal Code-
T%e rle a*ainst doble 5eo'ard) 'ro%ibits twice 'lacin* a 'erson in 5eo'ard) of
'nis%ment for t%e same offense- T%e test is w%et%er one offense is identical wit% t%e
ot%er or is an attem't to commit it or a frstration t%ereofH or w%et%er one offense
necessaril) incldes or is necessaril) inclded in t%e ot%er, as 'rovided in Section 3 of
Rle 113 of t%e Rles of Cort- An offense c%ar*ed necessaril) incldes t%at w%ic% is
'roved w%en some of t%e essential elements or in*redients of t%e former, as alle*ed in t%e
com'laint or information, constitte t%e latterH and an offense c%ar*ed is necessaril)
inclded in t%e offense 'roved w%en t%e essential in*redients of t%e former constitte or
form a 'art of t%ose constittin* t%e latter- A com'arison of t%e elements of t%e crime of
direct briber) defined and 'nis%ed nder Article 21/ of t%e Revised &enal Code and
t%ose of violation of Section B !b" of RA B/19 s%ows t%at t%ere is neit%er identit) nor
necessar) inclsion between t%e two offenses-
T%e elements of t%e crime 'enaliJed nder Section B !b" of RA B/19 are:
!1" t%e offender is a 'blic officerH
!2" %e re1ested or received a *ift, 'resent, s%are, 'ercenta*e or benefitH
!B" %e made t%e re1est or recei't on be%alf of t%e offender or an) ot%er 'ersonH
!E" t%e re1est or recei't was made in connection wit% a contract or transaction wit%
t%e *overnment and
!7" %e %as t%e ri*%t to intervene, in an official ca'acit) nder t%e law, in connection
wit% a contract or transaction-
On t%e ot%er %and, direct briber) %as t%e followin* essential elements:
!1" t%e offender is a 'blic officerH
!2" t%e offender acce'ts an offer or 'romise or receives a *ift or 'resent b) %imself or
t%ro*% anot%erH
!B" sc% offer or 'romise be acce'ted or *ift or 'resent be received b) t%e 'blic
officer wit% a view to committin* some crime, or in consideration of t%e e+ection of an
act w%ic% does not constitte a crime bt t%e act mst be n5st, or to refrain from doin*
somet%in* w%ic% it is %is official dt) to doH and
!E" t%e act w%ic% t%e offender a*rees to 'erform or w%ic% %e e+ectes is connected
wit% t%e 'erformance of %is official dties-
Clearl), t%e violation of Section B !b" of RA B/19 is neit%er identical nor necessaril)
inclsive of direct briber)- ;%ile t%e) %ave common elements, not all t%e essential
elements of one offense are inclded amon* or form 'art of t%ose enmerated in t%e
ot%er- ;%ereas t%e mere re1est or demand of a *ift, 'resent, s%are, 'ercenta*e or benefit
is eno*% to constitte a violation of Section B !b" of RA B/19, acce'tance of a 'romise
or offer or recei't of a *ift or 'resent is re1ired in direct briber)- 4oreover, t%e ambit of
Section B !b" of RA B/19 is s'ecific- It is limited onl) to contracts or transactions
involvin* monetar) consideration w%ere t%e 'blic officer %as t%e at%orit) to intervene
nder t%e law- .irect briber), on t%e ot%er %and, %as a wider and more *eneral sco'e:
!a" 'erformance of an act constittin* a crimeH !b" e+ection of an n5st act w%ic% does
not constitte a crime and !c" a*reein* to refrain or refrainin* from doin* an act w%ic% is
%is official dt) to do-
Alt%o*% t%e two c%ar*es a*ainst 'etitioner stemmed from t%e same transaction, t%e
same act *ave rise to two se'arate and distinct offenses- 6o doble 5eo'ard) attac%ed
since t%ere was a variance between t%e elements of t%e offenses c%ar*ed- T%e
constittional 'rotection a*ainst doble 5eo'ard) 'roceeds from a second 'rosection for
t%e same offense, not for a different one-
2anito T- 4erencillo vs- &eo'le of t%e &%il-, ?-R- 6os- 1E2B,9G3/, A'ril 1B, 2//3
#I#IA6O C- #A\AS, 2R-, 'etitioner, vs- CO9RT OF A&&:A=S, AF9I=I6O T- =ARI6,
RO.O=FO T9ASO6 A6. &ROCO&IO TA=O6, res'ondents- N?-R- 6o- 1/29,3- Febrar)
1/, 2///-O
SD6O&SIS
&etitioner, #ibiano C- #aZas 2r-, sold to A)ala Investment Cor'oration !ADA=A", 128,2,7
s1are meters of land located at #a)anan, 4ntinl'a, for two million, t%ree %ndred ei*%t
t%osand, seven %ndred sevent) !&2,B/8,33/-//" 'esos- T%e .eed of Sale 'rovided t%at
'on t%e si*nin* of t%e contract ADA=A s%all 'a) for %ndred si+t)Gone t%osand, seven
%ndred fift)Gfor !&E,1,37E-//" 'esos and t%e balance of one million, ei*%t %ndred fort)G
seven t%osand and si+teen !&1,8E3,/1,-//" 'esos to be 'aid in for e1al consective
annal installments- T%e same da), 'etitioner disconted t%e 'romissor) note wit% ADA=A,
for its face vale of &1,8E3,/1,-//, evidenced b) a .eed of Assi*nment si*ned b) t%e
'etitioner and ADA=A- ADA=A issed nine !9" c%ec$s to 'etitioner, all dated Febrar) 2/,
193,, drawn a*ainst #an$ of t%e &%ili''ine Islands wit% t%e niform amont of two %ndred
five t%osand, two %ndred twent)Gfor !&2/7,22E-//" 'esos- In t%e scceedin* )ears, ntil
1939, 'etitioner re'orted a niform income of two %ndred t%irt) t%osand, ei*%t %ndred
sevent)Gseven !&2B/,833-//" 'esos as *ain from sale of ca'ital asset- In %is 198/ income ta+
amnest) retrn, 'etitioner also re'orted t%e same amont of &2B/,833-// as t%e realiJed
*ain on dis'osition of ca'ital asset for t%e )ear- On A'ril 11, 1938 t%en Revene .irector
4aro Cala*io at%oriJed t%eir ta+ e+aminers, Rodolfo TaJon and &roco'io Talon to
e+amine t%e boo$s and records of 'etitioner for t%e )ear 193,- T%e) discovered t%at
'etitioner %ad no otstandin* receivable from t%e 193, land sale to ADA=A and conclded
t%at t%e sale was cas% and t%e entire 'rofit s%old %ave been ta+able in 193, since t%e
income was w%oll) derived in 193,- 4eantime, res'ondent A1ilino =arin w%o scceeded as
Re*ional .irector of 4anila, Re*ion ICGA, filed on 2ne 13, 1981 a criminal com'laint for
ta+ evasion a*ainst t%e 'etitioner- On 2l) 1, 1981, news items a''eared in t%e now defnct
:venin* :+'ress :venin* &ost and #lletin Toda), w%ic% mentioned 'etitioner(s false income
ta+ retrn concernin* t%e sale of land to ADA=A- Reactin* to t%e com'laint for ta+ evasion
and t%e news re'orts, 'etitioner filed wit% t%e RTC of 4anila an action for dama*es a*ainst
res'ondents =arin, TaJon and Talon for e+tortion and malicios 'blication of t%e #IR(s ta+
adit re'ort- T%e trial cort decided in favor of t%e res'ondents and awarded =arin
dama*es- Res'ondent a''ellate cort affirmed t%e trial cort(s decision- 8ence, t%e 'resent
'etition-
T%e S'reme Cort affirmed t%e decision of t%e Cort of A''eals- T%e Cort rled t%at
alt%o*% t%e 'roceeds of a disconted 'romissor) note are not considered 'art of initial
'a)ment, still it mst be inclded as ta+able income for t%e )ear it was converted to cas%-
;%en 'etitioner %ad t%e 'romissor) notes coverin* t%e scceedin* installment 'a)ments of
t%e land issed b) ADA=A, disconted b) ADA=A itself, on t%e same da) of t%e sale, %e lost
entitlement to re'ort t%e sale as a sale on installment, since, a ta+able dis'osition reslted
and 'etitioner was re1ired b) law to re'ort in %is retrns t%e income derived from t%e
discontin*- Accordin* to t%e Cort, w%at 'etitioner did is tantamont to an attem't to
circmvent t%e rle on 'a)ment of income ta+es *ained from t%e sale of t%e land to ADA=A
for t%e )ear 193,- T%e Cort deleted t%e award of actal dama*es to res'ondent =arin for
lac$ of basis becase t%e records of t%e case contained no statement w%atsoever of t%e
amont of t%e actal dama*es sstained b) t%e res'ondents- T%e Cort stressed t%at actal
dama*es cannot be allowed nless s''orted b) evidence on t%e record- T%e Cort, %owever,
a*reed t%at t%ere was sfficient basis for t%e award of moral and e+em'lar) dama*es in
favor of res'ondent =arin- &etitioner(s actions a*ainst =arin were fond b) t%e Cort
0nwarranted and baseless,0 bolstered b) t%e fact t%at t%e criminal c%ar*es filed a*ainst %im
in t%e Tanodba)an and Cit) Fiscal(s Office were all dismissed-
SD==A#9S
1- TA>ATIO6H TA> A46:STDH 4:R: FI=I6? OF TA> A46:STD R:T9R6 96.:R
&-.- 13E/ A6. &-.- 18E/ .O:S 6OT I&SO FACTO S8I:=. TA>&AD:R FRO4
I4496ITD A?AI6ST &ROS:C9TIO6- T &etitioner did not meet t%e twin re1irements of
&-.- 13E/ and 18E/, declaration of %is nta+ed income and fll 'a)ment of ta+ de t%ereon-
Clearl), t%e 'etitioner is not entitled to t%e benefits of &-.- 6os- 13E/ and 18E/- T%e mere
filin* of ta+ amnest) retrn nder &-.- 13E/ and 18E/ does not i'so facto s%ield %im from
immnit) a*ainst 'rosection- Ta+ amnest) is a *eneral 'ardon to ta+'a)ers w%o want to
start a clean ta+ slate- It also *ives t%e *overnment a c%ance to collect ncollected ta+ from
ta+ evaders wit%ot %avin* to *o t%ro*% t%e tedios 'rocess of a ta+ case- To avail of a ta+
amnest) *ranted b) t%e *overnment, and to be immne from sit on its delin1encies, t%e
ta+'a)er mst %ave volntaril) disclosed %is 'reviosl) nta+ed income and mst %ave 'aid
t%e corres'ondin* ta+ on sc% 'reviosl) nta+ed income- It also bears notin* t%at a ta+
amnest), mc% li$e a ta+ e+em'tion, is never favored nor 'resmed in law and if *ranted b)
statte, t%e terms of t%e amnest) li$e t%at of a ta+ e+em'tion mst be constred strictl)
a*ainst t%e ta+'a)er and liberall) in favor of t%e ta+in* at%orit)- 8ence, on t%is matter, it is
or view t%at 'etitioner(s claim of immnit) from 'rosection nder t%e s%ield of availin* ta+
amnest) is ntenable-
2- I.-H 6ATIO6A= I6T:R6A= R:C:69: CO.:H ACCO96TI6? &:RIO. A6.
4:T8O.S OF ACCO96TI6?H I6CO4: CO4&9T:. O6 I6STA==4:6T #ASISH
.ISCO96TI6? OF &RO4ISSORD 6OT:S .O6: #D T8: S:==:R 8I4S:=F ;I==
R:S9=T I6 A TA>A#=: .IS&OSITIO6H I6CO4: .:RIC:. FRO4 S9C8
.ISCO96TI6? 49ST #: R:&ORT:. I6 T8: R:T9R6S- T ;%ere an installment
obli*ation is disconted at a ban$ or finance com'an), a ta+able dis'osition reslts, even if
t%e seller *arantees its 'a)ment, contines to collect on t%e installment obli*ation, or
%andles re'ossession of merc%andise in case of defalt- T%is rle 'revails in t%e 9nited
States- Since or income ta+ laws are of American ori*in, inter'retations b) American corts
on or 'arallel ta+ laws %ave 'ersasive effect on t%e inter'retation of t%ese laws- T%s, b)
analo*), all t%e more wold a ta+able dis'osition reslt w%en t%e discontin* of t%e
'romissor) note is done b) t%e seller %imself- Clearl), t%e indebtedness of t%e b)er is
disc%ar*ed, w%ile t%e seller ac1ires mone) for t%e settlement of %is receivables- =o*icall)
t%en, t%e income s%old be re'orted at t%e time of t%e actal *ain- For income ta+ 'r'oses,
income is an actal *ain or an actal increase of wealt%- Alt%o*% t%e 'roceeds of a
disconted 'romissor) note is not considered initial 'a)ment, still it mst be inclded as
ta+able income on t%e )ear it was converted to cas%- ;%en 'etitioner %ad t%e 'romissor)
notes coverin* t%e scceedin* installment 'a)ments of t%e land issed b) ADA=A, disconted
b) ADA=A itself, on t%e same da) of t%e sale, %e lost entitlement to re'ort t%e sale as a sale
on installment since, a ta+able dis'osition reslted and 'etitioner was re1ired b) law to
re'ort in %is retrns t%e income derived from t%e discontin*- ;%at 'etitioner did is
tantamont to an attem't to circmvent t%e rle on 'a)ment of income ta+es *ained from t%e
sale of t%e land to ADA=A for t%e )ear 193,-
B- CICI= =A;H .A4A?:SH ACT9A= OR CO4&:6SATORDH A;AR. .:=:T:. FOR
=AC@ OF #ASIS- T =astl), 'etitioner 1estions t%e dama*es awarded to res'ondent =arin-
An) 'erson w%o see$s to be awarded actal or com'ensator) dama*es de to acts of anot%er
%as t%e brden of 'rovin* said dama*es as well as t%e amont t%ereof- =arin sa)s t%e
e+tortion cases filed a*ainst %im %am'ered %is immediate 'romotion, cased %im stron*
an+iet) and social %miliation- T%e trial cort awarded %im two %ndred t%osand
!&2//,///-//" 'esos as actal dama*es- 8owever, t%e a''ellate cort stated t%at, des'ite
'endenc) of t%is case, =arin was *iven a 'romotion at t%e #IR- Said res'ondent cort: 0;e
find not%in* on record, aside from defendantGa''ellee =arin(s statements !TS6, ''- ,G3, 11
.ecember 1987", to s%ow t%at %e sffered loss of seniorit) t%at alle*edl) barred %is
'romotion- In fact, %e was 'romoted to %is 'resent 'osition des'ite t%e 'endenc) of t%e
instant case !TS6, ''- B7GB9, /E 6ovember 1987"-0 4oreover, t%e records of t%e case contain
no statement w%atsoever of t%e amont of t%e actal dama*es sstained b) t%e res'ondents-
Actal dama*es cannot be allowed nless s''orted b) evidence on t%e record- T%e cort
cannot rel) on s'eclation, con5ectres or *esswor$ as to t%e fact and amont of dama*es-
To 5stif) a *rant of actal or com'ensator) dama*es, it is necessar) to 'rove wit% a
reasonable de*ree of certaint), t%e actal amont of loss- Since we %ave no basis wit% w%ic%
to assess, wit% certaint), t%e actal or com'ensator) dama*es conterGclaimed b)
res'ondent =arin, t%e award of sc% dama*es s%old be deleted-
E- I.-H I.-H 4ORA= .A4A?:SH #ASIS FOR A;AR. :STA#=IS8:.- T ;e a*ree t%at
t%ere is sfficient basis for t%e award of moral and e+em'lar) dama*es in favor of
res'ondent =arin- T%e a''ellate cort believed res'ondent =arin w%en %e said %e sffered
an+iet) and %miliation becase of t%e nfonded c%ar*es a*ainst %im- &etitioner(s actions
a*ainst =arin were fond 0nwarranted and baseless,0 and t%e criminal c%ar*es filed
a*ainst %im in t%e Tanodba)an and Cit) Fiscal(s Office were all dismissed- 8ence, t%ere is
ade1ate s''ort for res'ondent cort(s conclsion t%at moral dama*es %ave been 'roved-
7- I.-H I.-H I.-H A;AR.I6? 4ORA= .A4A?:S TO ?OC:R64:6T OFFICIA=S I6
CO66:CTIO6 ;IT8 T8:IR OFFICIA= F96CTIO6S 49ST #: :>:RCIS:. #D T8:
CO9RTS ;IT8 CA9TIO6H R:ASO6- T Considerin* t%at %ere, t%e award is in favor of a
*overnment official in connection wit% %is official fnction, it is wit% cation t%at we affirm
*rantin* moral dama*es, for it mi*%t o'en t%e flood*ates for *overnment officials conterG
claimin* dama*es in sits filed a*ainst t%em in connection wit% t%eir fnctions- 4oreover,
we mst be carefl lest t%e amonts awarded ma$e citiJens %esitate to e+'ose corr'tion in
t%e *overnment, for fear of lawsits from vindictive *overnment officials- T%s, conformabl)
wit% or declaration t%at moral dama*es are not intended to enric% an)one, we %ereb)
redce t%e moral dama*es award in t%is case from two %ndred t%osand !&2//,///-//"
'esos to sevent) five t%osand !&37,///-//" 'esos, w%ile t%e e+em'lar) dama*e is set at
&27,///-// onl)-
. : C I S I O 6
For review is t%e .ecision of t%e Cort of A''eals in CAG?-R- CC 6o- 13271 'roml*ated
on 6ovember 29, 1991- It affirmed in toto t%e 5d*ment of t%e Re*ional Trial Cort !RTC",
#ranc% B9, 4anila, in Civil Case 6o- 82G121/3- Said 5d*ment dis'osed as follows:
0FOR A== T8: FOR:?OI6? CO6SI.:RATIO6S, t%is Cort %ereb) renders 5d*ment
.IS4ISSI6? t%e com'laint a*ainst all t%e defendants and orderin* 'laintiff N%erein
'etitionerO to 'a) defendant =arin t%e amont of &2//,///-// !Two 8ndred T%osand
&esos" as actal and com'ensator) dama*esH &2//,///-// as moral dama*esH and
&7/,///-// as e+em'lar) dama*es and attorne)s fees of &1//,///-//-0
T%e facts, w%ic% we find s''orted b) t%e records, %ave been smmariJed b) t%e Cort of
A''eals as follows:
On Febrar) 2/, 193,, 'etitioner, #ibiano C- #aZas 2r- sold to A)ala Investment Cor'oration
!ADA=A", 128,2,7 s1are meters of land located at #a)anan, 4ntinl'a, for two million,
t%ree %ndred ei*%t t%osand, seven %ndred sevent) !&2,B/8,33/-//" 'esos- T%e .eed of
Sale 'rovided t%at 'on t%e si*nin* of t%e contract ADA=A s%all 'a) for %ndred si+t)Gone
t%osand, seven %ndred fift)Gfor !&E,1,37E-//" 'esos- T%e balance of one million, ei*%t
%ndred fort)Gseven t%osand and si+teen !&1,8E3,/1,-//" 'esos was to be 'aid in for
e1al consective annal installments, wit% twelve !12Q" 'ercent interest 'er annm on t%e
otstandin* balance- ADA=A issed one 'romissor) note coverin* for e1al annal
installments- :ac% 'eriodic 'a)ment of &E,1,37E-// 'esos s%all be 'a)able startin* on
Febrar) 2/, 1933, and ever) )ear t%ereafter, or ntil Febrar) 2/, 198/-
T%e same da), 'etitioner disconted t%e 'romissor) note wit% ADA=A, for its face vale of
&1,8E3,/1,-//, evidenced b) a .eed of Assi*nment si*ned b) t%e 'etitioner and ADA=A-
ADA=A issed nine !9" c%ec$s to 'etitioner, all dated Febrar) 2/, 193,, drawn a*ainst #an$
of t%e &%ili''ine Islands wit% t%e niform amont of two %ndred five t%osand, two %ndred
twent)Gfor !&2/7,22E-//" 'esos-
In %is 193, Income Ta+ Retrn, 'etitioner re'orted t%e &E,1,37E initial 'a)ment as income
from dis'osition of ca'ital asset-
Sellin* &rice of =and&2,B/8,33/-//
=ess Initial &a)ment E,1,37E-// B
TTTTTT
9nrealiJed ?ain &1,8E3,/1,-//
193, .eclaration of Income on .is'osition of Ca'ital Asset sb5ect to Ta+:
Initial &a)ment &E,1,37E-//
=ess: Cost of =and and ot%er incidental
:+'enses !3,,7E3-9/"
TTTTTT
Income &B87,2/,-1/
Income sb5ect to ta+ !&B87,2/,-1/ + 7/Q" &192,,/B-,7
In t%e scceedin* )ears, ntil 1939, 'etitioner re'orted a niform income of two %ndred
t%irt) t%osand, ei*%t %ndred sevent)Gseven !&2B/,833-//" 'esos E as *ain from sale of
ca'ital asset- In %is 198/ income ta+ amnest) retrn, 'etitioner also re'orted t%e same
amont of &2B/,833-// as t%e realiJed *ain on dis'osition of ca'ital asset for t%e )ear-
On A'ril 11, 1938, t%en Revene .irector 4aro Cala*io at%oriJed ta+ e+aminers,
Rodolfo TaJon and &roco'io Talon to e+amine t%e boo$s and records of 'etitioner for t%e
)ear 193,- T%e) discovered t%at 'etitioner %ad no otstandin* receivable from t%e 193, land
sale to ADA=A and conclded t%at t%e sale was cas% and t%e entire 'rofit s%old %ave been
ta+able in 193, since t%e income was w%oll) derived in 193,-
TaJon and Talon filed t%eir adit re'ort and declared a discre'anc) of two million, ninet)G
five t%osand, nine %ndred fifteen !&2,/97,917-//" 'esos in 'etitioner(s 193, net income-
T%e) recommended deficienc) ta+ assessment for two million, for %ndred sevent)Gt%ree
t%osand, si+ %ndred sevent)Gt%ree !&2,E3B,,3B-//" 'esos-
4eantime, A1ilino =arin scceeded Cala*io as Re*ional .irector of 4anila Re*ion ICGA-
After reviewin* t%e e+aminers( re'ort, =arin directed t%e revision of t%e adit re'ort, wit%
instrction to consider t%e land as ca'ital asset- T%e ta+ de was onl) fift) !7/Q" 'ercent of
t%e total *ain from sale of t%e 'ro'ert) %eld b) t%e ta+'a)er be)ond twelve mont%s 'rsant
to Section BE 7 of t%e 1933 6ational Internal Revene Code !6IRC"- T%e deficienc) ta+
assessment was redced to nine %ndred t%irt) si+ t%osand, five %ndred ninet)Gei*%t 'esos
and fift) centavos !&9B,,798-7/", inclsive of src%ar*es and 'enalties for t%e )ear 193,-
On 2ne 23, 198/, res'ondent =arin sent a letter to 'etitioner informin* %im of t%e income
ta+ deficienc) t%at mst be settled immediatel)-
On Se'tember 2,, 198/, 'etitioner ac$nowled*ed recei't of t%e letter bt insisted t%at t%e
sale of %is land to ADA=A was on installment-
On 2ne 8, 1981, t%e matter was endorsed to t%e Actin* C%ief of t%e =e*al #ranc% of t%e
6ational Office of t%e #IR- T%e C%ief of t%e Ta+ Frad 9nit recommended t%e 'rosection of
a criminal case for cons'irin* to file false and fradlent retrns, in violation of Section 71
of t%e Ta+ Code a*ainst 'etitioner and %is accontants, Andres &- Ale5andre and Conrado
#aZas-
On 2ne 13, 1981, =arin filed a criminal com'laint for ta+ evasion a*ainst t%e 'etitioner-
On 2l) 1, 1981, news items a''eared in t%e now defnct :venin* :+'ress wit% t%e %eadline:
0#IR C%ar*es Realtor0 and anot%er in t%e defnct :venin* &ost wit% a news item: 0#IR ra's
Realtor, 2 accontants-0 Anot%er news item also a''eared in t%e 2l) 2, 1981, isse of t%e
#lletin Toda) entitled: 0BGface &1G4 ta+ evasion ra's-0 All news items mentioned
'etitioner(s false income ta+ retrn concernin* t%e sale of land to ADA=A-
On 2l) 2, 1981, 'etitioner filed an Amnest) Ta+ Retrn nder &-.- 13E/ and 'aid t%e
amont of fort)Gone t%osand, seven %ndred twent)Gnine 'esos and ei*%t)Gone centavos
!&E1,329-81"- On 6ovember 2, 1981, 'etitioner a*ain filed an Amnest) Ta+ Retrn nder
&-.- 18E/ and 'aid an additional amont of one t%osand, five %ndred twent)Gfive 'esos
and si+t)Gtwo centavos !&1,727-,2"- In bot%, 'etitioner did not reco*niJe t%at %is sale of land
to ADA=A was on cas% basis-
Reactin* to t%e com'laint for ta+ evasion and t%e news re'orts, 'etitioner filed wit% t%e RTC
of 4anila an action , for dama*es a*ainst res'ondents =arin, TaJon and Talon for
e+tortion and malicios 'blication of t%e #IR(s ta+ adit re'ort- 8e claimed t%at t%e filin*
of criminal com'laints a*ainst %im for violation of ta+ laws were im'ro'er becase %e %ad
alread) availed of two ta+ amnest) decrees, &residential .ecree 6os- 13E/ and 18E/-
T%e trial cort decided in favor of t%e res'ondents and awarded =arin dama*es, as alread)
stated- &etitioner seasonabl) a''ealed to t%e Cort of A''eals- In its decision of 6ovember
29, 1991, t%e res'ondent cort affirmed t%e trial cort(s decision, t%s:
0T%e findin* of t%e cort a 1o t%at 'laintiffGa''ellant(s actions a*ainst defendantGa''ellee
=arin were nwarranted and baseless and as a reslt t%ereof, defendantGa''ellee =arin was
sb5ected to nnecessar) an+iet) and %miliation is t%erefore s''orted b) t%e evidence on
record-
.efendantGa''ellee =arin acted onl) in 'rsance of t%e at%orit) *ranted to %im- In fact,
t%e criminal c%ar*es filed a*ainst %im in t%e Tanodba)an and in t%e Cit) Fiscal(s Office were
all dismissed-
;8:R:FOR:, t%e a''ealed 5d*ment is %ereb) AFFIR4:. in toto-0
8ence t%is 'etition, w%erein 'etitioner raises before s t%e followin* 1eries:
I- ;8:T8:R T8: CO9RT OF A&&:A=S :RR:. I6 ITS I6T:R&R:TATIO6 OF
&:RTI6:6T TA> =A;S, T89S IT FAI=:. TO A&&R:CIAT: T8: CORR:CT6:SS A6.
ACC9RACD OF &:TITIO6:R(S R:T9R6 OF T8: I6CO4: .:RIC:. FRO4 T8: SA=:
OF T8: =A6. TO ADA=A-
II- ;8:T8:R T8: R:S&O6.:6T CO9RT :RR:. I6 6OT FI6.I6? T8AT T8:R:
;AS A6 A==:?:. ATT:4&T TO :>TORT N4O6:D FRO4O &:TITIO6:R #D &RICAT:
R:S&O6.:6TS-
III- ;8:T8:R T8: R:S&O6.:6T CO9RT :RR:. I6 ITS I6T:R&R:TATIO6 OF
&R:SI.:6TIA= .:CR:: 6OS- 13E/ A6. 18E/, A4O6? OT8:RS, &:TITIO6:R(S
I4496ITD FRO4 CRI4I6A= &ROS:C9TIO6-
IC- ;8:T8:R T8: R:S&O6.:6T CO9RT :RR:. I6 ITS I6T:R&R:TATIO6 OF
;:==G:STA#=IS8:. .OCTRI6:S OF T8IS 8O6ORA#=: CO9RT AS R:?AR.S T8:
A;AR. OF ACT9A=, 4ORA= A6. :>:4&=ARD .A4A?:S I6 FACOR OF
R:S&O6.:6T =ARI6-
In essence, 'etitioner as$s t%e Cort to resolve seriatim t%e followin* isses:
1- ;%et%er res'ondent cort erred in rlin* t%at t%ere was no e+tortion attem't b) #IR
officialsH
2- ;%et%er res'ondent cort erred in %oldin* t%at &-.- 13E/ and 18E/ *rantin* ta+
amnesties did not *rant immnit) from ta+ sitsH
B- ;%et%er res'ondent cort erred in findin* t%at 'etitioner(s income from t%e sale of
land in 193, s%old be declared as a cas% transaction in %is ta+ retrn for t%e same )ear
!becase t%e b)er disconted t%e 'romissor) note issed to t%e seller on ftre installment
'a)ments of t%e sale, on t%e same da) of t%e sale"H
E- ;%et%er res'ondent cort erred and committed *rave abse of discretion in awardin*
dama*es to res'ondent =arin-
T%e first isse, on w%et%er t%e Cort of A''eals erred in findin* t%at t%ere was no e+tortion,
involves a determination of fact- T%e Cort of A''eals observed,
0T%e onl) evidence to establis% t%e alle*ed e+tortion attem't b) defendantsGa''ellees is t%e
'laintiffGa''ellant(s self servin* declarations-
As fond b) t%e cort a 1o, 0said attem't was $nown to 'laintiffGa''ellant(s sonGinGlaw and
consel on record, )et, said consel did not ta$e t%e witness stand to corroborate t%e
testimon) of 'laintiff-0
As re'eatedl) %eld, findin*s of fact b) t%e Cort of A''eals es'eciall) if t%e) affirm factal
findin*s of t%e trial cort will not be distrbed b) t%is Cort, nless t%ese findin*s are not
s''orted b) evidence- 9 Similarl), neit%er s%old we distrb a findin* of t%e trial cort and
a''ellate cort t%at an alle*ation is not s''orted b) evidence on record- T%s, we a*ree
wit% t%e conclsion of res'ondent cort t%at %erein 'rivate res'ondents, on t%e basis of
evidence, cold not be %eld liable for e+tortion-
On t%e second isse of w%et%er &-.- 6os- 13E/ and 18E/ w%ic% *ranted ta+ amnesties also
*ranted immnit) from criminal 'rosection a*ainst ta+ offenses, t%e 'ertinent sections of
t%ese laws state:
&-.- 6o- 13E/- T CO6.O6I6? &:6A=TI:S FOR C:RTAI6 CIO=ATIO6S OF T8:
I6CO4: TA> =A; 9&O6 CO=96TARD .ISC=OS9R: OF 96.:C=AR:. I6CO4:
FOR I6CO4: TA> &9R&OS:S A6. R:F9IRI6? &:RIO.IC S9#4ISSIO6 OF 6:T
;ORT8 STAT:4:6T-
+++ +++ +++
S:CTIO6 1- Colntar) .isclosre of Correct Ta+able Income- T An) individal w%o, for
an) or all of t%e ta+able )ears 193E to 1939, %ad failed to file a retrn is %ereb), allowed to
file a retrn for eac% of t%e aforesaid ta+able )ears and accratel) declare t%erein t%e tre
and correct income, dedctions and e+em'tions and 'a) t%e income ta+ de 'er retrn-
=i$ewise, an) individal w%o filed a false or fradlent retrn for an) ta+able )ear in t%e
'eriod mentioned above ma) amend %is retrn and 'a) t%e correct amont of ta+ de after
dedctin* t%e ta+es alread) 'aid, if an), in t%e ori*inal declaration- !italics ors"
+++ +++ +++
S:CTIO6 7- Immnit) from &enalties- T An) individal w%o volntaril) files a retrn
nder t%is .ecree and 'a)s t%e income ta+ de t%ereon s%all be immne from t%e 'enalties,
civil or criminal, nder t%e 6ational Internal Revene Code arisin* from failre to 'a) t%e
correct income ta+ wit% res'ect to t%e ta+able )ears from w%ic% an amended retrn was filed
or for w%ic% an ori*inal retrn was filed in cases w%ere no retrn %as been filed for an) of
t%e ta+able )ears 193E to 1939: &rovided, %owever, T%at t%ese immnities s%all not a''l) in
cases w%ere t%e amont of net ta+able income declared nder t%is .ecree is nderstated to
t%e e+tent of 27Q or more of t%e correct net ta+able income- !italics ors"
&-.- 6O- 18E/ T ?RA6TI6? A TA> A46:STD O6 96TA>:. I6CO4: A6.ROR
;:A=T8 :AR6:. OR ACF9IR:. .9RI6? T8: TA>A#=: D:ARS 193E TO 198/ A6.
R:F9IRI6? T8: FI=I6? OF T8: STAT:4:6T OF ASS:TS, =IA#I=ITI:S, A6. 6:T
;ORT8-
S:CTIO6 1- Covera*e- T In case of volntar) disclosre of 'reviosl) nta+ed income
andRor wealt% sc% as earnin*s, recei'ts, *ifts, be1ests or an) ot%er ac1isition from an)
sorce w%atsoever, realiJed %ere or abroad, b) an) individal ta+'a)er, w%ic% are ta+able
nder t%e 6ational Internal Revene Code, as amended, t%e assessment and collection of all
internal revene ta+es, incldin* t%e increments or 'enalties on accont of nonG'a)ment, as
well as all civil, criminal or administrative liabilities arisin* from or incident t%ereto nder
t%e 6ational Internal Revene Code, are %ereb) condoned 'rovided t%at t%e individal
ta+'a)er s%all 'a)- !italics ors" - - -
S:CTIO6 2- Conditions for Immnit)- T T%e immnit) *ranted nder Section one of t%is
.ecree s%all a''l) onl) nder t%e followin* conditions:
a" Sc% 'reviosl) nta+ed income andRor wealt% mst %ave been earned or realiJed in
an) of t%e )ears 193E to 198/H
b" T%e ta+'a)er mst file an amnest) retrn on or before 6ovember B/, 1981, and fll)
'a) t%e ta+ de t%ereonH
c" T%e amnest) ta+ 'aid b) t%e ta+'a)er nder t%is .ecree s%all not be less t%an
&1,///-// 'er ta+able )earH and
d" T%e ta+'a)er mst file a statement of assets, liabilities and net wort% as of .ecember
B1, 198/, as re1ired nder Section , %ereof-
It will be recalled t%at 'etitioner entered into a deed of sale 'r'ortedl) on installment- On
t%e same da), %e disconted t%e 'romissor) note coverin* t%e ftre installments- T%e
discontin* seems 1estionable becase ordinaril), w%en a bill is disconted, t%e lender
!e-*- ban$s, financial instittion" c%ar*es or dedcts a certain 'ercenta*e from t%e 'rinci'al
vale as its com'ensation- 8ere, t%e discontin* was done b) t%e b)er- On 2l) 2, 1981, two
wee$s after t%e filin* of t%e ta+ evasion com'laint a*ainst %im b) res'ondent =arin on 2ne
13, 1981, 'etitioner availed of t%e ta+ amnest) nder &-.- 6o- 13E/- 8is amended ta+ retrn
for t%e )ears 193E G 1939 was filed wit% t%e #IR office of CalenJela, #lacan, instead of
4anila w%ere t%e 'etitioner(s 'rinci'al office was located- 8e a*ain availed of t%e ta+
amnest) nder &-.- 6o- 18E/- 8is disclosre, %owever, did not inclde t%e income from %is
sale of land to ADA=A on cas% basis- Instead %e insisted t%at sc% sale was on installment-
8e did not amend %is income ta+ retrn- 8e did not 'a) t%e ta+ w%ic% was considerabl)
increased b) t%e income derived from t%e discontin*- 8e did not meet t%e twin re1irements
of &-. 13E/ and 18E/, declaration of %is nta+ed income and fll 'a)ment of ta+ de
t%ereon- Clearl), t%e 'etitioner is not entitled to t%e benefits of &-.- 6os- 13E/ and 18E/- T%e
mere filin* of ta+ amnest) retrn nder &-.- 13E/ and 18E/ does not i'so facto s%ield %im
from immnit) a*ainst 'rosection- Ta+ amnest) is a *eneral 'ardon to ta+'a)ers w%o want
to start a clean ta+ slate- It also *ives t%e *overnment a c%ance to collect ncollected ta+
from ta+ evaders wit%ot %avin* to *o t%ro*% t%e tedios 'rocess of a ta+ case- To avail of a
ta+ amnest) *ranted b) t%e *overnment, and to be immne from sit on its delin1encies, t%e
ta+ 'a)er mst %ave volntaril) disclosed %is 'reviosl) nta+ed income and mst %ave 'aid
t%e corres'ondin* ta+ on sc% 'reviosl) nta+ed income-
It also bears notin* t%at a ta+ amnest), mc% li$e a ta+ e+em'tion, is never favored nor
'resmed in law and if *ranted b) statte, t%e terms of t%e amnest) li$e t%at of a ta+
e+em'tion mst be constred strictl) a*ainst t%e ta+'a)er and liberall) in favor of t%e ta+in*
at%orit)- 11 8ence, on t%is matter, it is or view t%at 'etitioner(s claim of immnit) from
'rosection nder t%e s%ield of availin* ta+ amnest) is ntenable-
On t%e t%ird isse, 'etitioner asserts t%at %is sale of t%e land to ADA=A was not on cas% basis
bt on installment as clearl) s'ecified in t%e .eed of Sale w%ic% states:
0T%at for and in consideration of t%e sm of T;O 4I==IO6 T8R:: 896.R:. :I?8T
T8O9SA6. S:C:6 896.R:. S:C:6TD !&2,B/8,33/-//" &:SOS &%ili''ine Crrenc),
to be 'aid as follows:
1- &E,1,37E-//, 'on t%e si*nin* of t%e .eed of SaleH and,
2- T%e balance of &1,8E3,/1,-//, to be 'aid in for !E" e1al, consective, annal
installments wit% interest t%ereon at t%e rate of twelve 'ercent !12Q" 'er annm, be*innin*
on Febrar) 2/, 193,, said installments to be evidenced b) for !E" ne*otiable 'romissor)
notes-0 12
&etitioner resorts to Section EB of t%e 6IRC and Sec- 137 of Revene Re*lation 6o- 2 to
s''ort %is claim-
Section EB of t%e 1933 6IRC states,
Installment basis- T !a" .ealers in 'ersonal 'ro'ert)- T - - -
!b" Sales of realt) and casal sales of 'ersonalt) T In t%e case !1" of a casal sale or
ot%er casal dis'osition of 'ersonal 'ro'ert) !ot%er t%an 'ro'ert) of a $ind w%ic% wold
'ro'erl) be inclded in t%e inventor) of t%e ta+'a)er if on %and at t%e close of t%e ta+able
)ear", for a 'rice e+ceedin* one t%osand 'esos, or !2" of a sale or ot%er dis'osition of real
'ro'ert) if in eit%er case t%e initial 'a)ments do not e+ceed twent)Gfive 'ercentm of t%e
sellin* 'rice, t%e income ma), nder re*lations 'rescribed b) t%e 4inister of Finance, be
retrned on t%e basis and in t%e manner above 'rescribed in t%is section- As sed in t%is
section t%e term 0initial 'a)ment0 means t%e 'a)ments received in cas% or 'ro'ert) ot%er
t%an evidences of indebtedness of t%e 'rc%aser drin* t%e ta+able 'eriod in w%ic% t%e sale
or ot%er dis'osition is made- - - -
Revene Re*lation 6o- 2, Section 137 'rovides,
Sale of real 'ro'ert) involvin* deferred 'a)ments- T 9nder Section EB deferredG'a)ment
sales of real 'ro'ert) inclde !1" a*reements of 'rc%ase and sale w%ic% contem'late t%at a
conve)ance is not to be made at t%e otset, bt onl) after all or a sbstantial 'ortion of t%e
sellin* 'rice %as been 'aid, and !b" sales in w%ic% t%ere is an immediate transfer of title, t%e
vendor bein* 'rotected b) a mort*a*e or ot%er lien as to deferred 'a)ments- Sc% sales
eit%er nder !a" or !b", fall into two classes w%en considered wit% res'ect to t%e terms of
sale, as follows:
!1" Sales of 'ro'ert) on t%e installment 'lan, t%at is, sales in w%ic% t%e 'a)ments
received in cas% or 'ro'ert) ot%er t%an evidences of indebtedness of t%e 'rc%aser drin*
t%e ta+able )ear in w%ic% t%e sale is made do not e+ceed 27 'er cent of t%e sellin* 'riceH
!2" .eferredG'a)ment sales not on t%e installment 'lan, t%at is sales in w%ic% t%e
'a)ments received in cas% or 'ro'ert) ot%er t%an evidences of indebtedness of t%e 'rc%aser
drin* t%e ta+able )ear in w%ic% t%e sale is made e+ceed 27 'er cent of t%e sellin* 'riceH
In t%e sale of mort*a*ed 'ro'ert) t%e amont of t%e mort*a*e, w%et%er t%e 'ro'ert) is
merel) ta$en sb5ect to t%e mort*a*e or w%et%er t%e mort*a*e is assmed b) t%e 'rc%aser,
s%all be inclded as a 'art of t%e 0sellin* 'rice0 bt t%e amont of t%e mort*a*e, to t%e
e+tent it does not e+ceed t%e basis to t%e vendor of t%e 'ro'ert) sold, s%all not be considered
as a 'art of t%e 0initial 'a)ments0 or of t%e 0total contract 'rice,0 as t%ose terms are sed in
Section EB of t%e Code, in sections 13E and 13, of t%ese re*lations, and in t%is section- T%e
term 0initial 'a)ments0 does not inclde amonts received b) t%e vendor in t%e )ear of sale
from t%e dis'osition to a t%ird 'erson of notes *iven b) t%e vendee as 'art of t%e 'rc%ase
'rice w%ic% are de and 'a)able in sbse1ent )ears- Commissions and ot%er sellin*
e+'enses 'aid or incrred b) t%e vendor are not to be dedcted or ta$en into accont in
determinin* t%e amont of t%e 0initial 'a)ments,0 t%e 0total contract 'rice,0 or t%e 0sellin*
'rice-0 T%e term 0initial 'a)ments0 contem'lates at least one ot%er 'a)ment in addition to
t%e initial 'a)ment- If t%e entire 'rc%ase 'rice is to be 'aid in a lm' sm in a later )ear,
t%ere bein* no 'a)ment drin* t%e )ear, t%e income ma) not be retrned on t%e installment
basis- Income ma) not be retrned on t%e installment basis w%ere no 'a)ment in cas% or
'ro'ert), ot%er t%an evidences of indebtedness of t%e 'rc%aser, is received drin* t%e first
)ear, t%e 'rc%aser %avin* 'romised to ma$e two or more 'a)ments, in later )ears-
&etitioner asserts t%at Sec- EB allows %im to retrn as income in t%e ta+able )ears involved,
t%e res'ective installments as 'rovided b) t%e deed of sale between %im and ADA=A-
Conse1entl), %e reli*iosl) re'orted %is )earl) income from sale of ca'ital asset, sb5ect to
ta+, as follows:
Dear 1933 !7/Q of &E,1,37E" & 2B/,833-//
1938 2B/,833-//
1939 2B/,833-//
198/ 2B/,833-//
&etitioner sa)s t%at %is ta+ declarations are acce'table modes of 'a)ment nder Section 137
of t%e Revene Re*lations !RR" 6o- 2- T%e term 0initial 'a)ment0, %e ar*es, does not
inclde amonts received b) t%e vendor w%ic% are 'art of t%e com'lete 'rc%ase 'rice, still
de and 'a)able in sbse1ent )ears- T%s, t%e 'roceeds of t%e 'romissor) notes, not )et de
w%ic% %e disconted to ADA=A s%old not be inclded as income realiJed in 193,- &etitioner
states t%at t%e ori*inal a*reement in t%e .eed of Sale s%old not be affected b) t%e
sbse1ent discontin* of t%e bill-
On t%e ot%er %and, res'ondents assert t%at ta+ation is a matter of sbstance and not of form-
Retrns are scrtiniJed to determine if transactions are w%at t%e) are and not declared to
evade ta+es- Considerin* t%e 'ro*ressive natre of or income ta+ation, w%en income is
s'read over several installment 'a)ments t%ro*% t%e )ears, t%e ta+able income *oes down
and t%e ta+ de corres'ondin*l) decreases- ;%en 'a)ment is in lm' sm t%e ta+ for t%e
)ear 'ro'ortionatel) increases- 9ltimatel), a declaration t%at a sale is on installment
diminis%es *overnment ta+es for t%e )ear of initial installment as a*ainst a declaration of
cas% sale w%ere ta+es to t%e *overnment is lar*er-
As a *eneral rle, t%e w%ole 'rofit accrin* from a sale of 'ro'ert) is ta+able as income in
t%e )ear t%e sale is made- #t, if not all of t%e sale 'rice is received drin* sc% )ear, and a
statte 'rovides t%at income s%all be ta+able in t%e )ear in w%ic% it is 0received,0 t%e 'rofit
from an installment sale is to be a''ortioned between or amon* t%e )ears in w%ic% sc%
installments are 'aid and received-
Section EB and Sec- 137 sa)s t%at amon* t%e entities w%o ma) se t%e aboveGmentioned
installment met%od is a seller of real 'ro'ert) w%o dis'oses %is 'ro'ert) on installment,
'rovided t%at t%e initial 'a)ment does not e+ceed 27Q of t%e sellin* 'rice- T%e) also state
w%at ma) be re*arded as installment 'a)ment and w%at constittes initial 'a)ment- Initial
'a)ment means t%e 'a)ment received in cas% or 'ro'ert) e+cldin* evidences of
indebtedness de and 'a)able in sbse1ent )ears, li$e 'romissor) notes or mort*a*es,
*iven of t%e 'rc%aser drin* t%e ta+able )ear of sale- Initial 'a)ment does not inclde
amonts received b) t%e vendor in t%e )ear of sale from t%e dis'osition to a t%ird 'erson of
notes *iven b) t%e vendee as 'art of t%e 'rc%ase 'rice w%ic% are de and 'a)able in
sbse1ent )ears- Sc% dis'osition or discontin* of receivable is material onl) as to t%e
com'tation of t%e initial 'a)ment- If t%e initial 'a)ment is wit%in 27Q of total contract
'rice, e+clsive of t%e 'roceeds of disconted notes, t%e sale 1alifies as an installment sale,
ot%erwise it is a deferred sale-
Alt%o*% t%e 'roceed of a disconted 'romissor) note is not considered 'art of t%e initial
'a)ment, it is still ta+able income for t%e )ear it was converted into cas%- T%e sbse1ent
'a)ments or li1idation of certificates of indebtedness is re'orted sin* t%e installment
met%od in com'tin* t%e 'ro'ortionate income to be retrned, drin* t%e res'ective )ear it
was realiJed- 6onGdealer sales of real or 'ersonal 'ro'ert) ma) be re'orted as income nder
t%e installment met%od 'rovided t%at t%e obli*ation is still otstandin* at t%e close of t%at
)ear- If t%e seller dis'oses t%e entire installment obli*ation b) discontin* t%e bill or t%e
'romissor) note, %e necessaril) mst re'ort t%e balance of t%e income from t%e discontin*
not onl) income from t%e initial installment 'a)ment-
;%ere an installment obli*ation is disconted at a ban$ or finance com'an), a ta+able
dis'osition reslts, even if t%e seller *arantees its 'a)ment, contines to collect on t%e
installment obli*ation, or %andles re'ossession of merc%andise in case of defalt- T%is rle
'revails in t%e 9nited States- Since or income ta+ laws are of American ori*in,
inter'retations b) American corts on or 'arallel ta+ laws %ave 'ersasive effect on t%e
inter'retation of t%ese laws- T%s, b) analo*), all t%e more wold a ta+able dis'osition
reslt w%en t%e discontin* of t%e 'romissor) note is done b) t%e seller %imself- Clearl), t%e
indebtedness of t%e b)er is disc%ar*ed, w%ile t%e seller ac1ires mone) for t%e settlement of
%is receivables- =o*icall) t%en, t%e income s%old be re'orted at t%e time of t%e actal *ain-
For income ta+ 'r'oses, income is an actal *ain or an actal increase of wealt%-
Alt%o*% t%e 'roceeds of a disconted 'romissor) note is not considered initial 'a)ment, still
it mst be inclded as ta+able income on t%e )ear it was converted to cas%- ;%en 'etitioner
%ad t%e 'romissor) notes coverin* t%e scceedin* installment 'a)ments of t%e land issed b)
ADA=A, disconted b) ADA=A itself, on t%e same da) of t%e sale, %e lost entitlement to re'ort
t%e sale as a sale on installment since, a ta+able dis'osition reslted and 'etitioner was
re1ired b) law to re'ort in %is retrns t%e income derived from t%e discontin*- ;%at
'etitioner did is tantamont to an attem't to circmvent t%e rle on 'a)ment of income ta+es
*ained from t%e sale of t%e land to ADA=A for t%e )ear 193,-
=astl), 'etitioner 1estions t%e dama*es awarded to res'ondent =arin-
An) 'erson w%o see$s to be awarded actal or com'ensator) dama*es de to acts of anot%er
%as t%e brden of 'rovin* said dama*es as well as t%e amont t%ereof- =arin sa)s t%e
e+tortion cases filed a*ainst %im %am'ered %is immediate 'romotion, cased %im stron*
an+iet) and social %miliation- T%e trial cort awarded %im two %ndred t%osand
!&2//,///-//" 'esos as actal dama*es- 8owever, t%e a''ellate cort stated t%at, des'ite
'endenc) of t%is case, =arin was *iven a 'romotion at t%e #IR- Said res'ondent cort:
0;e find not%in* on record, aside from defendantGa''ellee =arin(s statements !TS6, ''- ,G3,
11 .ecember 1987", to s%ow t%at %e sffered loss of seniorit) t%at alle*edl) barred %is
'romotion- In fact, %e was 'romoted to %is 'resent 'osition des'ite t%e 'endenc) of t%e
instant case !TS6, ''- B7GB9, /E 6ovember 1987"-0
4oreover, t%e records of t%e case contain no statement w%atsoever of t%e amont of t%e
actal dama*es sstained b) t%e res'ondents- Actal dama*es cannot be allowed nless
s''orted b) evidence on t%e record- T%e cort cannot rel) on s'eclation, con5ectres or
*esswor$ as to t%e fact and amont of dama*es- To 5stif) a *rant of actal or
com'ensator) dama*es, it is necessar) to 'rove wit% a reasonable de*ree of certaint), t%e
actal amont of loss- Since we %ave no basis wit% w%ic% to assess, wit% certaint), t%e
actal or com'ensator) dama*es conterGclaimed b) res'ondent =arin, t%e award of sc%
dama*es s%old be deleted-
4oral dama*es ma) be recovered in cases involvin* acts referred to in Article 21 of t%e
Civil Code- As a rle, a 'blic official ma) not recover dama*es for c%ar*es of false%ood
related to %is official condct nless %e 'roves t%at t%e statement was made wit% actal
malice- In #abst, et al- vs- 6ational Intelli*ence #oard, et al-, 1B2 SCRA B1,, BB/ !198E", we
reiterated t%e test for actal malice as set fort% in t%e landmar$ American case of 6ew Dor$
Times vs- Sllivan, w%ic% we %ave lon* ado'ted, in defamation and libel cases, viJ-:
0- - - wit% $nowled*e t%at it was false or wit% rec$less disre*ard of w%et%er it was false or
not-0
;e a''reciate 'etitioner(s claim t%at %e filed %is 193, retrn in *ood fait% and t%at %e %ad
%onestl) believed t%at t%e law allowed %im to declare t%e sale of t%e land, in installment- ;e
can frt%er *rant t%at t%e 'ertinent ta+ laws needed constrction, as we %ave earlier done-
T%at 'etitioner was offended b) t%e %eadlines alldin* to %im as ta+ evader is also fll)
nderstandable- All t%ese, %owever, do not 5stif) w%at amonted to a baseless 'rosection
of res'ondent =arin- &etitioner 'resented no evidence to 'rove =arin e+torted mone) from
%im- 8e even admitted t%at %e never met nor tal$ed to res'ondent =arin- ;%en t%e ta+
investi*ation a*ainst t%e 'etitioner started, =arin was not )et t%e Re*ional .irector of #IR
Re*ion ICGA, 4anila- On res'ondent =arin(s instrction, 'etitioner(s ta+ assessment was
considered one involvin* a sale of ca'ital asset, t%e income from w%ic% was sb5ected to
onl) fift) 'ercent !7/Q" assessment, t%s redcin* t%e ori*inal ta+ assessment b) %alf- T%ese
circmstances ma) be ta$en to s%ow t%at =arin(s involvement in e+tortion was not
indbitable- Det, 'etitioner went on to file t%e e+tortion cases a*ainst =arin in different fora-
T%is is w%ere actal malice cold attac% on 'etitioner(s 'art- Si*nificantl), t%e trial cort did
not err in dismissin* 'etitioner(s com'laints, a rlin* affirmed b) t%e Cort of A''eals-
@ee'in* all t%ese in mind, we are constrained to a*ree t%at t%ere is sfficient basis for t%e
award of moral and e+em'lar) dama*es in favor of res'ondent =arin- T%e a''ellate cort
believed res'ondent =arin w%en %e said %e sffered an+iet) and %miliation becase of t%e
nfonded c%ar*es a*ainst %im- &etitioner(s actions a*ainst =arin were fond 0nwarranted
and baseless,0 and t%e criminal c%ar*es filed a*ainst %im in t%e Tanodba)an and Cit)
Fiscal(s Office were all dismissed 8ence, t%ere is ade1ate s''ort for res'ondent cort(s
conclsion t%at moral dama*es %ave been 'roved-
6ow, %owever, w%at wold be a fair amont to be 'aid as com'ensation for moral dama*es
also re1ires determination- :ac% case mst be *overned b) its own 'ecliar circmstances-
On t%is score, .el Rosario vs- Cort of A''eals, cites several cases w%ere no actal
dama*es were ad5dicated, and w%ere moral and e+em'lar) dama*es were redced for
bein* 0too e+cessive,0 t%s:
0In t%e case of &6# v- C-A-, N27, SCRA B/9 !199,"O, t%is Cort 1oted wit% a''roval t%e
followin* observation from RC&I v- Rodri*eJ, viJ-:
(- - - - 6evert%eless, we find t%e award of &1//,///-// as moral dama*es in favor of
res'ondent Rodri*eJ e+cessive and nconscionable- In t%e case of &rdenciado v- Alliance
Trans'ort S)stem, Inc- !1E8 SCRA EE/ N1983O" we said: 0- - - NIOt is ndis'ted t%at t%e trial
corts are *iven discretion to determine t%e amont of moral dama*es !Alcantara v- Srro,
9B &%il- E32" and t%at t%e Cort of A''eals can onl) modif) or c%an*e t%e amont awarded
w%en t%e) are 'al'abl) and scandalosl) e+cessive (so as to indicate t%at it was t%e reslt of
'assion, 're5dice or corr'tion on t%e 'art of t%e trial cort( !?ellada v- ;arner #arnes P
Co-, Inc-, 73 O-?- NEO 3BE3, 3B78H Sadie v- #ac%arac% 4otors Co-, Inc-, 73 O-?- NEO ,B, and
Adone v- #ac%arac% 4otor Co-, Inc-, 73 O-?- ,7,"- #t in more recent cases w%ere t%e
awards of moral and e+em'lar) dama*es are far too e+cessive com'ared to t%e actal loses
sstained b) t%e a**rieved 'art), t%is Cort rled t%at t%e) s%old be redced to more
reasonable amonts- - - - - !Italics ors-"(
(In ot%er words, t%e moral dama*es awarded mst be commensrate wit% t%e loss or in5r)
sffered-(
0In t%e same case !&6# v- CA", t%is Cort fond t%e amont of e+em'lar) dama*es re1ired
to be 'aid !&1,///,///-//" (too e+cessive( and redced it to an (e1itable level(
!&27,///-//"-0
It will be noted t%at in above cases, t%e 'arties w%o were awarded moral dama*es were not
'blic officials- Considerin* t%at %ere, t%e award is in favor of a *overnment official in
connection wit% %is official fnction, it is wit% cation t%at we affirm *rantin* moral
dama*es, for it mi*%t o'en t%e flood*ates for *overnment officials conterGclaimin*
dama*es in sits filed a*ainst t%em in connection wit% t%eir fnctions- 4oreover, we mst be
carefl lest t%e amonts awarded ma$e citiJens %esitate to e+'ose corr'tion in t%e
*overnment, for fear of lawsits from vindictive *overnment officials- T%s, conformabl)
wit% or declaration t%at moral dama*es are not intended to enric% an)one, we %ereb)
redce t%e moral dama*es award in t%is case from two %ndred t%osand !&2//,///-//"
'esos to sevent) five t%osand !&37,///-//" 'esos, w%ile t%e e+em'lar) dama*e is set at
&27,///-// onl)- cdll
T%e law allows t%e award of attorne)(s fees w%en e+em'lar) dama*es are awarded, and
w%en t%e 'art) to a sit was com'elled to incr e+'enses to 'rotect %is interest- T%o*%
*overnment officers are sall) re'resented b) t%e Solicitor ?eneral in cases connected wit%
t%e 'erformance of official fnctions, considerin* t%e natre of t%e c%ar*es, %erein
res'ondent =arin was com'elled to %ire a 'rivate law)er for t%e condct of %is defense as
well as t%e sccessfl 'rsit of %is conterclaims- In or view, *iven t%e circmstances of
t%is case, t%ere is am'le *rond to award in %is favor &7/,///-// as reasonable attorne)(s
fees-
;8:R:FOR:, t%e assailed decision of t%e Cort of A''eals dated 6ovember 29, 1991, is
%ereb) AFFIR4:. wit% 4O.IFICATIO6 so t%at t%e award of actal dama*es are deletedH
and t%at 'etitioner is %ereb) OR.:R:. to 'a) to res'ondent =arin moral dama*es in t%e
amont of &37,///-//, e+em'lar) dama*es in t%e amont of &27,///-//, and attorne)(s fees
in t%e amont of &7/,///-// onl)-
6o 'rononcement as to costs- SO OR.:R:.-
SECTION 2?0"/nla-)ul Di'ul*ene o) Trade Serets" # E$e%t as %ro'ided in
Setion ?5 o) t!is Code and Setion 2= o) Re%u+li At No" =.AA( an& o))ier or
em%lo&ee o) t!e ;ureau o) Internal Re'enue -!o di'ul*es to an& %erson or ma,es
,no-n in an& ot!er manner t!an ma& +e %ro'ided +& la- in)ormation re*ardin* t!e
+usiness( inome( or estate o) an& ta$%a&er( t!e serets( o%eration( st&le or -or,( or
a%%aratus o) an& manu)aturer or %roduer( or on)idential in)ormation re*ardin*
t!e +usiness o) an& ta$%a&er( ,no-led*e o) -!i! -as a8uired +& !im in t!e
dis!ar*e o) !is o))iial duties( s!all( u%on on'ition )or ea! at or omission( +e
%unis!ed +& a )ine o) not less t!an Fi)t& t!ousand %esos 0P>0(0001 +ut not more
t!an One !undred t!ousand %esos 0P500(0001( or su))er im%risonment o) not less
t!an t-o 021 &ears +ut not more t!an )i'e 0>1 &ears( or +ot!"
SECTION 2?5"/nla-)ul Interest o) Re'enue La- En)orers in ;usiness" # An&
internal re'enue o))ier -!o is or s!all +eome interested( diretl& or indiretl&( in
t!e manu)ature( sale or im%ortation o) an& artile su+7et to e$ise ta$ under Title
FI o) t!is Code or in t!e manu)ature or re%air or sale( o) an& die )or %rintin*( or
ma,in* o) stam%s( or la+els s!all( u%on on'ition )or ea! at or omission( +e
%unis!ed +& a )ine o) not less t!an Fi'e t!ousand %esos 0P>(0001 +ut not more t!an
Ten t!ousand %esos 0P50(0001( or su))er im%risonment o) not less t!an t-o 021
&ears and one 051 da& +ut not more t!an )our 041 &ears( or +ot!"
SECTION 2?2"Fiolation o) :it!!oldin* Ta$ Pro'ision" # E'er& o))ier or
em%lo&ee o) t!e Go'ernment o) t!e Re%u+li o) t!e P!ili%%ines or an& o) its
a*enies and instrumentalities( its %olitial su+di'isions( as -ell as *o'ernment3
o-ned or 3ontrolled or%orations( inludin* t!e ;an*,oSentraln*Pili%inas 0;SP1(
-!o( under t!e %ro'isions o) t!is Code or rules and re*ulations %romul*ated
t!ereunder( is !ar*ed -it! t!e dut& to dedut and -it!!old an& internal re'enue
ta$ and to remit t!e same in aordane -it! t!e %ro'isions o) t!is Code and ot!er
la-s is *uilt& o) an& o))ense !erein+elo- s%ei)ied s!all( u%on on'ition )or ea!
at or omission +e %unis!ed +& a )ine o) not less t!an Fi'e t!ousand %esos 0P>(0001
+ut not more t!an Fi)t& t!ousand %esos 0P>0(0001 or su))er im%risonment o) not
less t!an si$ 0=1 mont!s and one 051 da& +ut not more t!an t-o 021 &ears( or +ot!2
0a1 Failin* or ausin* t!e )ailure to dedut and -it!!old an& internal re'enue ta$
under an& o) t!e -it!!oldin* ta$ la-s and im%lementin* rules and re*ulations6
0+1 Failin* or ausin* t!e )ailure to remit ta$es deduted and -it!!eld -it!in t!e
time %resri+ed +& la-( and im%lementin* rules and re*ulations6 and
01 Failin* or ausin* t!e )ailure to )ile return or statement -it!in t!e time
%resri+ed( or renderin* or )urnis!in* a )alse or )raudulent return or statement
re8uired under t!e -it!!oldin* ta$ la-s and rules and re*ulations"
Revene Re*lation EG9B re1ires 'a)ment of wit%%oldin* ta+es t%ro*% ban$s to avoid
em'lo)ees( direct recei't of ta+ 'a)ments-
#) accommodatin* and acce'tin* wit%%oldin* ta+ retrns and c%ec$ 'a)ments from a
ta+'a)er, a revene collection officer disre*arded an establis%ed #IR rle- Revene
Re*lation 6o- EG9B re1ires 'a)ment t%ro*% t%e ban$s 'recisel) to avoid, w%enever
'ossible, #IR em'lo)ees( direct recei't of ta+ 'a)ments- In t%e face of %er silence, t%e fact
t%at t%e c%ec$s ended ' in an nat%oriJed #IR accont elo1entl) s'ea$s, at t%e ver)
least, of %er *ross ne*li*ence in ta$in* care of collections t%at s%old not %ave 'assed
t%ro*% %er %ands in t%e first 'lace- #ecase of %er com'licit) in t%e trans*ression of t%e
cited #IR re*lation as well as %er *ross ne*li*ence, res'ondent is administrativel)
liable for miscondct-
#rea of Internal Revene, et al- vs- =ilia #- Or*ano?-R- 6o- 1E97E9, Febrar) 2,,
2//E
SECTION 2?." Penalt& )or Failure to Issue and E$eute :arrant # An& o))iial
-!o )ails to issue or e$eute t!e -arrant o) distraint or le'& -it!in t!irt& 0.01 da&s
a)ter t!e e$%iration o) t!e time %resri+ed in Setion 20? or -!o is )ound *uilt& o)
a+usin* t!e e$erise t!ereo) +& om%etent aut!orit& s!all +e automatiall&
dismissed )rom t!e ser'ie a)ter due notie and !earin*"
CHAPTER IF
Ot!er Penal Pro'isions
SECTION 2?4 Penalt& )or Seond and Su+se8uent O))enses" # In t!e ase o)
reinidene( t!e ma$imum o) t!e %enalt& %resri+ed )or t!e o))ense s!all +e
im%osed"
SECTION 2?>"Fiolation o) Ot!er Pro'isions o) t!is Code or Rules and
Re*ulations in General" # An& %erson -!o 'iolates an& %ro'ision o) t!is Code or
an& rule or re*ulation %romul*ated +& t!e De%artment o) Finane( )or -!i! no
s%ei)i %enalt& is %ro'ided +& la-( s!all( u%on on'ition )or ea! at or omission(
+e %unis!ed +& a )ine o) not more t!an One t!ousand %esos 0P5(0001 or su))er
im%risonment o) not more t!an si$ 0=1 mont!s( or +ot!"
SECTION 2?=" Penalt& )or Sellin*( Trans)errin*( Enum+erin* or in an& -a&
Dis%osin* o) Pro%ert& Plaed under Construti'e Distraint" # An& ta$%a&er(
-!ose %ro%ert& !as +een %laed under onstruti'e distraint( -!o sells( trans)ers(
enum+ers or in an& -a& dis%oses o) said %ro%ert&( or an& %art t!ereo)( -it!out t!e
,no-led*e and onsent o) t!e Commissioner( s!all( u%on on'ition )or ea! at or
omission( +e %unis!ed +& a )ine o) not less t!an t-ie t!e 'alue o) t!e %ro%ert& so
sold( enum+ered or dis%osed o) +ut not less t!an Fi'e t!ousand %esos 0P>(0001( or
su))er im%risonment o) not less t!an t-o 021 &ears and one 051 da& +ut not more
t!an )our 041 &ears( or +ot!"
SECTION 2??" Failure to Surrender Pro%ert& Plaed under Distraint and Le'&"
An& %erson !a'in* in !is %ossession or under !is ontrol an& %ro%ert& or ri*!ts to
%ro%ert&( u%on -!i! a -arrant o) onstruti'e distraint or atual distraint and le'&
!as +een issued s!all( u%on demand +& t!e Commissioner or an& o) !is de%uties
e$eutin* su! -arrant( surrender su! %ro%ert& or ri*!t to %ro%ert& to t!e
Commissioner or an& o) !is de%uties( unless su! %ro%ert& or ri*!t is( at t!e time o)
su! demand( su+7et to an atta!ment or e$eution under an& 7udiial %roess"
An& %erson -!o )ails or re)uses to surrender an& o) su! %ro%ert& or ri*!t s!all +e
lia+le in !is o-n %erson and estate to t!e Go'ernment in a sum e8ual to t!e 'alue
o) t!e %ro%ert& or ri*!ts not so surrendered +ut not e$eedin* t!e amount o) t!e
ta$es 0inludin* %enalties and interest1 )or t!e olletion o) -!i! su! -arrant !ad
+een issued( to*et!er -it! osts and interest i) an&( )rom t!e date o) su! -arrant"
In addition( su! %erson s!all( u%on on'ition )or ea! at or omission( +e
%unis!ed +& a )ine o) not less t!an Fi'e t!ousand %esos 0P>(0001( or su))er
im%risonment o) not less t!an si$ 0=1 mont!s and one 051 da& +ut not more t!an
t-o 021 &ears( or +ot!"
SECTION 2?A"Prourin* /nla-)ul Di'ul*ene o) Trade Serets" # An& %erson
-!o auses or %roures an o))ier or em%lo&ee o) t!e ;ureau o) Internal Re'enue
to di'ul*e an& on)idential in)ormation re*ardin* t!e +usiness( inome or
in!eritane o) an& ta$%a&er( ,no-led*e o) -!i! -as a8uired +& !im in t!e
dis!ar*e o) !is o))iial duties( and -!i! it is unla-)ul )or !im to re'eal( and an&
%erson -!o %u+lis!es or %rints in an& manner -!ate'er( not %ro'ided +& la-( an&
inome( %ro)it( loss or e$%enditure a%%earin* in an& inome ta$ return( s!all +e
%unis!ed +& a )ine o) not more t!an t-o t!ousand %esos 0P2(0001( or su))er
im%risonment o) not less t!an si$ 0=1 mont!s nor more t!an )i'e 0>1 &ears( or +ot!"
SECTION 2?B"Con)isation and For)eiture o) t!e Proeeds or Instruments o)
Crime" # In addition to t!e %enalt& im%osed )or t!e 'iolations o) t!e %ro'isions o)
Title D o) t!is Code( t!e same s!all arr& -it! it t!e on)isation and )or)eiture in
)a'or o) t!e Go'ernment o) t!e %roeeds o) t!e rime or 'alue o) t!e *oods( and
t!e instruments or tools -it! -!i! t!e rime -as ommitted2
Pro'ided( !o-e'er( T!at i) in t!e ourse o) t!e %roeedin*s( it is esta+lis!ed t!at
t!e instruments or tools used in t!e illiit at +elon* to a t!ird %erson( t!e same
s!all +e on)isated and )or)eited a)ter due notie and !earin* in a se%arate
%roeedin* in )a'or o) t!e Go'ernment i) su! t!ird %erson leased( let( !artered or
ot!er-ise entrusted t!e same to t!e o))ender"
Pro'ided( )urt!er( T!at in ase t!e lessee su+leased( or t!e +orro-er( !arterer( or
trustee allo-ed t!e use o) t!e instruments or tools to t!e o))ender( su! instruments
or tools s!all( li,e-ise( +e on)isated and )or)eited2
Pro'ided( )inall&( T!at %ro%ert& o) ommon arriers s!all not +e su+7et to
)or)eiture -!en used in t!e transation o) t!eir +usiness as su! ommon arrier(
unless t!e o-ner or o%erator o) said ommon arrier -as( at t!e time o) t!e ille*al
at( a onsentin* %art& or %ri'& t!ereto( -it!out %re7udie to t!e o-ner@s ri*!t o)
reo'er& a*ainst t!e o))ender in a i'il or riminal ation" Artiles -!i! are not
su+7et o) la-)ul ommere s!all +e destro&ed"
SECTION 2A0"Su+sidiar& Penalt&" # I) t!e %erson on'ited )or 'iolation o) an&
o) t!e %ro'isions o) t!is Code !as no %ro%ert& -it! -!i! to meet t!e )ine im%osed
u%on !im +& t!e ourt( or is una+le to %a& su! )ine( !e s!all +e su+7et to a
su+sidiar& %ersonal lia+ilit& at t!e rate o) one 051 da& )or ea! Ei*!t %esos and )i)t&
enta'os 0PA">01 su+7et to t!e rules esta+lis!ed in Artile .B o) t!e Re'ised Penal
Code"
SECTION 2A5"Presri%tion )or Fiolations o) an& Pro'ision o) t!is Code" # All
'iolations o) an& %ro'ision o) t!is Code s!all %resri+e a)ter Fi'e 0>1 &ears"
Presri%tion s!all +e*in to run )rom t!e da& o) t!e ommission o) t!e 'iolation o)
t!e la-( and i) t!e same +e not ,no-n at t!e time( )rom t!e diso'er& t!ereo) and
t!e institution o) 7udiial %roeedin*s )or its in'esti*ation and %unis!ment"
T!e %resri%tion s!all +e interru%ted -!en %roeedin*s are instituted a*ainst t!e
*uilt& %ersons and s!all +e*in to run a*ain i) t!e %roeedin*s are dismissed )or
reasons not onstitutin* 7eo%ard&"
T!e term o) %resri%tion s!all not run -!en t!e o))ender is a+sent )rom t!e
P!ili%%ines"
SECTION 2A2"In)ormer@s Re-ard to Persons Instrumental in t!e Diso'er& o)
Fiolations o) t!e National Internal Re'enue Code and in t!e Diso'er& and Sei<ure
o) Smu**led Goods" #
0A1 For Fiolations o) t!e National Internal Re'enue Code" # An& %erson( e$e%t
an internal re'enue o))iial or em%lo&ee( or ot!er %u+li o))iial or em%lo&ee( or
!is relati'e -it!in t!e si$t! de*ree o) onsan*uinit&( -!o 'oluntaril& *i'es de)inite
and s-orn in)ormation( not &et in t!e %ossession o) t!e ;ureau o) Internal
Re'enue( leadin* to t!e diso'er& o) )rauds u%on t!e internal re'enue la-s or
'iolations o) an& o) t!e %ro'isions t!ereo)( t!ere+& resultin* in t!e reo'er& o)
re'enues( sur!ar*es and )ees andHor t!e on'ition o) t!e *uilt& %art& andHor t!e
im%osition o) an& o) t!e )ine or %enalt&( s!all +e re-arded in a sum e8ui'alent to
ten %erent 05091 o) t!e re'enues( sur!ar*es or )ees reo'ered andHor )ine or
%enalt& im%osed and olleted or One million %esos 0P5(000(0001 %er ase(
-!i!e'er is lo-er"
T!e same amount o) re-ard s!all also +e *i'en to an in)ormer -!ere t!e o))ender
!as o))ered to om%romise t!e 'iolation o) la- ommitted +& !im and !is o))er !as
+een ae%ted +& t!e Commissioner and olleted )rom t!e o))ender2
Pro'ided( T!at s!ould no re'enue( sur!ar*es or )ees +e atuall& reo'ered or
olleted( su! %erson s!all not +e entitled to a re-ard2
Pro'ided( )urt!er( T!at t!e in)ormation mentioned !erein s!all not re)er to a ase
alread& %endin* or %re'iousl& in'esti*ated or e$amined +& t!e Commissioner or
an& o) !is de%uties( a*ents or e$aminers( or t!e Seretar& o) Finane or an& o) !is
de%uties or a*ents2
Pro'ided( )inall&( T!at t!e re-ard %ro'ided !erein s!all +e %aid under rules and
re*ulations issued +& t!e Seretar& o) Finane( u%on reommendation o) t!e
Commissioner"
R:C:69: R:?9=ATIO6S 6O- /1,G1/ 6ovember 27, 2/1/
?idelines, Rles P &rocedres in t%e Filin* of Confidential Information P t%e
Investi*ation of Cases Arisin* T%erefrom
0;1 For Diso'er& and Sei<ure o) Smu**led Goods" # To enoura*e t!e %u+li to
e$tend )ull oo%eration in eradiatin* smu**lin*( a as! re-ard e8ui'alent to ten
%erent 05091 o) t!e )air mar,et 'alue o) t!e smu**led and on)isated *oods or
One million %esos 0P5(000(0001 %er ase( -!i!e'er is lo-er( s!all +e *i'en to
%ersons instrumental in t!e diso'er& and sei<ure o) su! smu**led *oods"
T!e as! re-ards o) in)ormers s!all +e su+7et to inome ta$( olleted as a )inal
-it!!oldin* ta$( at t!e rate o) ten %erent 05091"
T!e %ro'isions o) t!e )ore*oin* Su+setions not-it!standin*( all %u+li o))iials(
-!et!er inum+ent or retired( -!o a8uired t!e in)ormation in t!e ourse o) t!e
%er)ormane o) t!eir duties durin* t!eir inum+en&( are %ro!i+ited )rom laimin*
in)ormer@s re-ard"
?rant of informer(s reward is not de'endent on classification of delin1ent ta+'a)er-
T%at t%e informer(s reward was so*%t and *iven in relation to ta+ delin1encies of
*overnment a*encies 'rovides no reason for disallowance- T%e law on t%e matter ma$es
no distinction w%atsoever between delin1ent ta+'a)ers in %is re*ard, w%et%er 'rivate
'erson or cor'orations, or 'blic or 1asiG'blic a*encies, it bein* sfficient for its
o'eration t%at t%e 'erson or entit) concerned is sb5ect to, and violated, revene laws,
and t%e informer(s re'ort t%ereof reslted in t%e recover) of revenes- It is elementar)
t%at w%ere t%e law does not distin*is%, none mst be made- 9bile+ non
distin*itnecnosdistin*eredebemos-
Commissioner of Internal Revene vs- Commission on Adit, ?-R- 6o- 1/193,, 2anar)
29, 199B
Informer(s reward is contin*ent 'on t%e 'a)ment and collection of n'aid or deficienc)
ta+es-
Since no ta+es are to be collected, no informer(s reward is de -to t%e informer(s %eirs-
Informer(s reward is contin*ent 'on t%e 'a)ment and collection of n'aid or deficienc)
ta+es- An informer is entitled b) wa) of reward onl) to a 'ercenta*e of t%e ta+es actall)
assessed and collected-
4eralco Secrities Cor'- vs- CictorinoSavellano, et al-, ?-R- 6o- =GB,181, October 2B,
1982
Re1irement for a 'erson to be e+clded from t%e covera*e of t%e Colntar) Assessment
&ro*ram-
It is sfficientl) clear t%at for a 'erson to be e+clded from t%e covera*e of t%e Colntar)
Assessment &ro*ram !CA&", t%e verified information mst not onl) be filed nder Section
281 N6ow Section 282 of t%e 6IRC, as amendedO of t%e Ta+ Code, it mst also be dl)
recorded in t%e Official Re*istr) #oo$ of t%e #IR before t%e date of availment nder t%e
CA&-
Commissioner of Internal Revene vs- 2lietaAriete, ?-R- 6o- 1,E172, 2anar) 21, 2/1/
TITLE DI
Allotment o) Internal Re'enue
CHAPTER I
Dis%osition and Allotment o) National Internal Re'enue in General
SECTION 2A." Dis%osition o) National Internal Re'enue # National internal
re'enue olleted and not a%%lied as !ereina+o'e %ro'ided or ot!er-ise s%eiall&
dis%osed o) +& la- s!all arue to t!e National Treasur& and s!all +e a'aila+le )or
t!e *eneral %ur%oses o) t!e Go'ernment( -it! t!e e$e%tion o) t!e amounts set
a%art +& -a& o) allotment as %ro'ided )or under Re%u+li At No" ?5=0( ot!er-ise
,no-n as t!e Loal Go'ernment Code o) 5BB5"
In addition to t!e internal re'enue allotment as %ro'ided )or in t!e %reedin*
%ara*ra%!( )i)t& %erent 0>091 o) t!e national ta$es olleted under Setions 50=(
50A and 55= o) t!is Code in e$ess o) t!e inrease in olletions )or t!e
immediatel& %reedin* &ear s!all +e distri+uted as )ollo-s2
0a1 T-ent& %erent 02091 s!all arue to t!e it& or munii%alit& -!ere su! ta$es
are olleted and s!all +e alloated in aordane -it! Setion 5>0 o) Re%u+li At
No" ?5=0( ot!er-ise ,no-n as t!e Loal Go'ernment Code o) 5BB56 and
0+1 Ei*!t& %erent 0A091 s!all arue to t!e National Go'ernment"
SECTION 2A4"Allotment )or t!e Commission on Audit" # One3!al) o) one
%erent 0I o) 591 o) t!e olletions )rom national internal re'enue ta$es not
ot!er-ise aruin* to s%eial aounts in t!e *eneral )und o) t!e national
*o'ernment s!all arue to t!e Commission on Audit as a )ee )or auditin* ser'ies
rendered to loal *o'ernment units( e$ludin* maintenane( e8ui%ment( and ot!er
o%eratin* e$%enses as %ro'ided )or in Setion 25 o) Presidential Deree No" ABA"
T!e Seretar& o) Finane is !ere+& aut!ori<ed to dedut )rom t!e mont!l& internal
re'enue ta$ olletions an amount e8ui'alent to t!e %erenta*e as !erein )i$ed( and
to remit t!e same diretl& to t!e Commission on Audit under su! rules and
re*ulations as ma& +e %romul*ated +& t!e Seretar& o) Finane and t!e C!airman
o) t!e Commission on Audit"
SECTION 2A>"Allotment )or t!e ;ureau o) Internal Re'enue" # An amount
e8ui'alent to )i'e %erent 0>91 o) t!e e$ess o) atual olletions o) national
internal re'enue ta$es o'er t!e olletion *oal s!all arue to t!e s%eial )und o)
t!e ;ureau o) Internal Re'enue and s!all +e treated as reei%ts automatiall&
a%%ro%riated" Said amount s!all +e utili<ed as inenti'e +onus )or re'enue
%ersonnel( %ur!ase o) neessar& e8ui%ment and )ailities )or t!e im%ro'ement o)
ta$ administration( as a%%ro'ed +& t!e Commissioner2
Pro'ided( T!at t!e President ma&( u%on reommendation o) t!e Commissioner(
diret t!at t!e e$ess +e redited to a S%eial Aount in t!e National Treasur& to
+e !eld in reser'e a'aila+le )or distri+ution as inenti'e +onus in t!e su+se8uent
&ears"
T!e Seretar& o) Finane is !ere+& aut!ori<ed to trans)er )rom t!e Treasur& an
amount e8ui'alent to t!e %erenta*e as !erein )i$ed and to remit t!e same diretl&
to t!e ;ureau o) Internal Re'enue under su! rules and re*ulations as ma& +e
%romul*ated +& t!e Seretar& o) Finane"
R:C:69: 4:4ORA6.94 OR.:R 6O- /82G1/ .ecember B, 2/1/
S9#2:CT : Criteria and &rocedres for Attrition of Officials and :m'lo)ees of
t%e #rea of Internal Revene, Incldin* Sbmission of Re1ired .ocments and
Re'orts, 9nder Re'blic Act 6o- 9BB7, or t%e 0Attrition Act of 2//70 and Its
Im'lementin* Rles and Re*lations
RA 6o- 9BB7 and its IRR mandate t%e settin* of criteria and 'rocedres for removin*
from t%e service Officials and :m'lo)ees w%ose revene collections fall s%ort of t%e
tar*et b) at least seven and a %alf 'ercent !3-7Q"- T%e law and t%e IRR li$ewise 'rovide
for docments and re'orts to be sbmitted b) t%e #rea of Internal Revene !#IR"
eit%er to t%e Revene &erformance :valation #oard !R&:#", .evelo'ment #d*et and
Coordinatin* Committee !.#CC", or Con*ress for t%e effective im'lementation of t%e
Act-
T%e 'rovisions of t%is Order s%all be inter'reted in t%e li*%t of t%e declared 'olic) of t%e
State to o'timiJe t%e reveneG*eneration ca'abilit) and collection of t%e #IR b)
'rovidin* for a s)stem of rewards and sanctions wit% t%e end view of encora*in* its
Officials and :m'lo)ees to e+ceed t%eir revene tar*ets-
T%e se'aration or removal from t%e service of t%e concerned Official or :m'lo)ee for
failin* to meet t%e collection tar*et b) at least 3-7Q s%all be sb5ect to Civil Service
laws, rles and re*lations- 9nder Section 21, Rle C of t%e IRR, t%e se'arated Official
or :m'lo)ee s%all be deemed dro''ed from t%e rolls- Section 2-2, Rle >II of CSC
4emorandm Circlar !4C" 6o- E/, s- of 1998, 1 as amended, 'rovides t%at an Official
or :m'lo)ee w%o is *iven two !2" consective nsatisfactor) ratin* ma) be dro''ed from
t%e rolls after de notice- 6otice s%all mean t%at t%e Officer or :m'lo)ee concerned is
informed in writin* of %is nsatisfactor) 'erformance for a semester and is sfficientl)
warned t%at a scceedin* nsatisfactor) 'erformance s%all warrant %is se'aration from
t%e service-
CHAPTER II
S%eial Dis%osition o) Certain National Internal Re'enue Ta$es
SECTION 2A="Dis%osition o) Proeeds o) Insurane Premium Ta$" # T-ent&3)i'e
%erent 02>91 o) t!e %remium ta$ olleted under Setion 52. o) t!is Code s!all
arue to t!e Insurane Fund as ontem%lated in Setion 45A o) Presidential
Deree No" =52 -!i! s!all +e used )or t!e %ur%ose o) de)ra&in* t!e e$%enses o)
t!e Insurane Commission" T!e Commissioner s!all turn o'er and deli'er t!e said
Insurane Fund to t!e Insurane Commissioner as soon as t!e olletion is made"
SECTION 2A?"S!ares o) Loal Go'ernment /nits in t!e Proeeds )rom t!e
De'elo%ment and /tili<ation o) t!e National :ealt!" # Loal *o'ernment units
s!all !a'e an e8uita+le s!are in t!e %roeeds deri'ed )rom t!e utili<ation and
de'elo%ment o) t!e national -ealt!( -it!in t!eir res%eti'e areas( inludin* s!arin*
t!e same -it! t!e in!a+itants +& -a& o) diret +ene)its"
0A1 Amount o) S!are o) Loal Go'ernment /nits" # Loal *o'ernment units s!all(
in addition to t!e internal re'enue allotment( !a'e a s!are o) )ort& %erent 04091 o)
t!e *ross olletion deri'ed +& t!e national *o'ernment )rom t!e %reedin* )isal
&ear )rom e$ise ta$es on mineral %roduts( ro&alties( and su! ot!er ta$es( )ees or
!ar*es( inludin* related sur!ar*es( interests or )ines( and )rom its s!are in an&
o3%rodution( 7oint 'enture or %rodution s!arin* a*reement in t!e utili<ation and
de'elo%ment o) t!e national -ealt! -it!in t!eir territorial 7urisdition"
0;1 S!are o) t!e Loal Go'ernments )rom An& Go'ernment A*en& or
Go'ernment3o-ned or 3Controlled Cor%oration" # Loal *o'ernment units s!all
!a'e a s!are( +ased on t!e %reedin* )isal &ear( )rom t!e %roeeds deri'ed +& an&
*o'ernment a*en& or *o'ernment3o-ned or 3ontrolled or%oration en*a*ed in
t!e utili<ation and de'elo%ment o) t!e national -ealt! +ased on t!e )ollo-in*
)ormula( -!i!e'er -ill %rodue a !i*!er s!are )or t!e loal *o'ernment unit2
051 One Perent 0591 o) t!e *ross sales or reei%ts o) t!e %reedin* alendar &ear6
or
021 Fort& %erent 04091 o) t!e e$ise ta$es on mineral %roduts( ro&alties( and su!
ot!er ta$es( )ees or !ar*es( inludin* related sur!ar*es( interests or )ines t!e
*o'ernment a*en& or *o'ernment3o-ned or 3ontrolled or%oration -ould !a'e
%aid i) it -ere not ot!er-ise e$em%t"
0C1 Alloation o) S!ares" # T!e s!are in t!e %reedin* Setion s!all +e distri+uted
in t!e )ollo-in* manner2
051 :!ere t!e natural resoures are loated in t!e %ro'ine2
0a1 Pro'ine # t-ent& %erent 020916
0+1 Com%onent it&Hmunii%alit& # )ort&3)i'e %erent 04>916 and
01 ;aran*a& # t!irt&3)i'e %erent 0.>91"
Pro'ided( !o-e'er( T!at -!ere t!e natural resoures are loated in t-o 021 or more
%ro'ines( or in t-o 021 or more om%onent ities or munii%alities or in t-o 021 or
more +aran*a&s( t!eir res%eti'e s!ares s!all +e om%uted on t!e +asis o)2 051
Po%ulation # se'ent& %erent 0?0916 and 021 Land area # t!irt& %erent 0.091"
021 :!ere t!e natural resoures are loated in a !i*!l& ur+ani<ed or inde%endent
om%onent it&2
0a1 Cit& # si$t&3)i'e %erent 0=>916 and
0+1 ;aran*a& # t!irt&3)i'e %erent 0.>91"
Pro'ided( !o-e'er( T!at -!ere t!e natural resoures are loated in t-o 021 or more
ities( t!e alloation o) s!ares s!all +e +ased on t!e )ormula on %o%ulation and land
area as s%ei)ied in su+setion 0C1051 !ereo)"
SECTION 2AA"Dis%osition o) Inremental Re'enues" #
0A1 Inremental Re'enues )rom Re%u+li At No" ?==0" # T!e inremental
re'enues )rom t!e inrease in t!e doumentar& stam% ta$es under R"A" No" ?==0
s!all +e set aside )or t!e )ollo-in* %ur%oses2
051 In 5BB4 and 5BB>( t-ent&3)i'e %erent 02>91 t!ereo) res%eti'el&( s!all arue
to t!e /ni)ied Home3Lendin* Pro*ram under E$euti'e Order No" B0 %artiularl&
)or mass3soiali<ed !ousin* %ro*ram to +e alloated as )ollo-s2 )i)t& %erent 0>091
)or mass3soiali<ed !ousin*6 t!irt& %erent 0.091 )or t!e ommunit& mort*a*e
%ro*ram6 and t-ent& %erent 02091 )or land +an,in* and de'elo%ment to +e
administered +& t!e National Housin* Aut!orit&2 Pro'ided( T!at not more t!an one
%erent 0591 o) t!e res%eti'e alloations !ereo) s!all +e used )or administrati'e
e$%enses6
021 In 5BB=( t-ent&3)i'e %erent 02>91 t!ereo) to +e utili<ed )or t!e National
Healt! Insurane Pro*ram t!at !erea)ter ma& +e mandated +& la-6
0.1 In 5BB4 and e'er& &ear t!erea)ter( t-ent&3)i'e %erent 02>91 t!ereo) s!all
arue to a Soial Eduation Fund to +e administered +& t!e De%artment o)
Eduation( Culture and S%orts )or t!e onstrution and re%air o) s!ool )ailities(
trainin* o) tea!ers( and %rourement or %rodution o) instrutional materials and
tea!in* aids6 and
041 In 5BB4 and e'er& &ear t!erea)ter( )i)t& %erent 0>091 t!ereo) s!all arue to a
S%eial In)rastruture Fund )or t!e onstrution and re%air o) roads( +rid*es( dams
and irri*ation( sea%orts and !&droeletri and ot!er indi*enous %o-er %ro7ets2
Pro'ided( !o-e'er( T!at )or t!e &ears 5BB4 and 5BB>( t!irt& %erent 0.091( and )or
t!e &ears 5BB=( 5BB? and 5BBA( t-ent& %erent 02091( o) t!is )und s!all +e
alloated )or de%ressed %ro'ines as delared +& t!e President as o) t!e time o) t!e
e))eti'it& o) R"A" No" ?==02
Pro'ided( )urt!er( T!ata'ailments under t!is )und s!all +e determined +& t!e
President on t!e +asis o) e8uit&"
Pro'ided( )inall&( T!at in %ara*ra%!s 021( 0.1 and 041 o) t!is Setion( not more t!an
one %erent 0591 o) t!e alloated )unds t!ereo) s!all +e used )or administrati'e
e$%enses +& t!e im%lementin* a*enies"
0;1 Inremental Re'enues )rom Re%u+li At No" A240" # Fi)teen %erent 05>91
o) t!e inremental re'enue olleted )rom t!e e$ise ta$ on to+ao %roduts under
R"A" No" A240 s!all +e alloated and di'ided amon* t!e %ro'ines %roduin*
+urle& and nati'e to+ao in aordane -it! t!e 'olume o) to+ao lea)
%rodution" T!e )und s!all +e e$lusi'el& utili<ed )or %ro*rams in %ursuit o) t!e
)ollo-in* o+7eti'es"
051 Coo%erati'e %ro7ets t!at -ill en!ane +etter 8ualit& o) a*riultural %roduts
and inrease inome and %roduti'it& o) )armers6
021 Li'eli!ood %ro7ets( %artiularl& t!e de'elo%ment o) alternati'e )armin* s&stem
to en!ane )armer@s inome6 and
0.1 A*ro3industrial %ro7ets t!at -ill ena+le to+ao )armers to +e in'ol'ed in t!e
mana*ement and su+se8uent o-ners!i% o) %ro7ets( su! as %ost3!ar'est and
seondar& %roessin* li,e i*arette manu)aturin* and +&3%rodut utili<ation"
T!e De%artment o) ;ud*et and Mana*ement( in onsultation -it! t!e O'ersi*!t
Committee reated under said R"A" No" A240( s!all issue t!e orres%ondin* rules
and re*ulations *o'ernin* t!e alloation and dis+ursement o) t!is )und"
R:C:69: R:?9=ATIO6S 6O- /12G/8 Se'tember 2B, 2//8
#asis of t%e Fifteen &ercent !17Q" S%are of t%e #eneficiar) &rovinces in t%e :+cise Ta+
Collection from =ocall) 4anfactred Cir*iniaGT)'e Ci*arettes nder Re'blic Act 6o-
3131
R:C:69: R:?9=ATIO6S 6O- //9G/8 Se'tember 9, 2//8
#asis of t%e Fifteen &ercent !17Q" S%are of t%e #eneficiar) &rovinces in t%e :+cise Ta+
Collection from =ocall) 4anfactred Cir*iniaGT)'e Ci*arettes 9nder Re'blic Act 6o-
3131
R:C:69: R:?9=ATIO6S 6O- /17G/8 6ovember 21, 2//8&rescribin* t%e 4anner of
Com'tin* t%e Incremental Revene to be 9sed as #asis of t%e Fifteen &ercent !17Q"
S%are of t%e #eneficiar) &rovinces &rodcin* #rle) and 6ative Tobacco in t%e :+cise
Ta+ Collection from Tobacco &rodcts nder Re'blic Act 6o- 82E/
0C1 Inremental Re'enues )rom t!e E$ise Ta$ on Alo!ol and To+ao Produts"
051 T-o and a !al) %erent 02">91 o) t!e inremental re'enue )rom t!e e$ise ta$
on alo!ol and to+ao %roduts startin* Canuar& 200> s!all +e remitted diretl& to
t!e P!ili%%ine Healt! Insurane Cor%oration )or t!e %ur%ose o) meetin* and
sustainin* t!e *oal o) uni'ersal o'era*e o) t!e National Healt! Insurane
Pro*ram6 and
021 T-o and a !al) %erent 02">91 o) t!e inremental re'enue )rom t!e e$ise ta$
on alo!ol and to+ao %roduts startin* Canuar& 200> s!all +e redited to t!e
aount o) t!e De%artment o) Healt! and onstituted as a trust )und )or its disease
%re'ention %ro*ram"
T!e earmar,in* %ro'ided under t!is %ro'ision s!all +e o+ser'ed )or )i'e 0>1 &ears
startin* )rom Canuar& 200>"G
R:C:69: R:?9=ATIO6S 6O- //EG/9 A'ril B, 2//9
Amendin* t%e &rovisions of Section 2E of Revene Re*lations 6o- BG2//, &ertainin* to
t%e allocable s%are of t%e &%ili''ine 8ealt% Insrance Cor'oration and t%e .e'artment
of 8ealt% in t%e Annal Incremental Revene nder Re'blic Act 6o- 9BBE
0D1 Inremental Re'enue )rom t!e Falue3added Ta$" # Fi)t& %erent 0>091 o) t!e
loal *o'ernment unit@s s!are )rom t!e inremental re'enue )rom t!e 'alue3added
ta$ s!all +e alloated and used e$lusi'el& )or t!e )ollo-in* %ur%oses2
051 Fi)teen %erent 05>91 )or %u+li elementar& and seondar& eduation( to
)inane t!e onstrution o) +uildin*s( %ur!ases o) s!ool )urniture and in3ser'ie
tea!er trainin*s6
021 Ten %erent 05091 )or !ealt! insurane %remiums o) enrolled indi*ents as a
ounter%art ontri+ution o) t!e loal *o'ernment to sustain t!e uni'ersal o'era*e
o) t!e national !ealt! insurane %ro*ram6
0.1 Fi)teen %erent 05>91 )or en'ironmental onser'ation to )ull& im%lement a
om%re!ensi'e national re)orestation %ro*ram6 and
041 Ten %erent 05091 )or a*riultural moderni<ation to )inane t!e onstrution o)
)arm3to3mar,et roads and irri*ation )ailities"
Su! alloations s!all +e se*re*ated as se%arate trust )unds +& t!e national treasur&
and s!all +e o'er and a+o'e t!e annual a%%ro%riation )or similar %ur%oses"
0E1 T!e amount o) Fi)teen million %esos 0P5>(000(0001 s!all +e alloated )or a
Pu+li In)ormation and Eduation Pro*ram to +e administered +& t!e ;ureau o)
Internal Re'enue( e$%lainin* learl& to +usinesses t!eir re*istration( in'oiin* and
re%ortin* re8uirements under t!e 'alue3added ta$ rules" Su! %ro*ram s!ould
inlude seminars and 'isits to ta$%a&ers to )amiliari<e t!em -it! t!e ta$( and t!e
de'elo%ment and %u+liation o) eas&3to3read *uides on t!e 'alue3added ta$"G
SECTION 2AB"S%eial Finanial Su%%ort to ;ene)iiar& Pro'ines Produin*
Fir*inia To+ao" # T!e )inanial su%%ort *i'en +& t!e National Go'ernment )or
t!e +ene)iiar& %ro'ines s!all +e onstituted and olleted )rom t!e %roeeds o)
)i)teen %erent 05>91 o) t!e e$ise ta$es on loall& manu)atured Fir*inia3t&%e o)
i*arettes"
T!e )unds allotted s!all +e di'ided amon* t!e +ene)iiar& %ro'ines %ro3rata
aordin* to t!e 'olume o) Fir*inia to+ao %rodution"
Pro'ines %roduin* Fir*inia to+ao s!all +e t!e +ene)iiar& %ro'ines under
Re%u+li At No" ?5?52
Pro'ided( !o-e'er( T!at to 8uali)& as +ene)iiar& under R"A" No" ?5?5( a %ro'ine
must !a'e an a'era*e annual %rodution o) Fir*inia lea) to+ao in an amount not
less t!an one million ,ilos2
Pro'ided( )urt!er( T!at t!e De%artment o) ;ud*et and Mana*ement 0D;M1 s!all
ea! &ear determine t!e +ene)iiar& %ro'ines and t!eir om%uted s!are o) t!e
)unds under R"A" No" ?5?5( re)errin* to t!e National To+ao Administration
0NTA1 reords o) to+ao ae%tanes( at t!e to+ao tradin* enters )or t!e
immediate %ast &ear"
T!e Seretar& o) ;ud*et and Mana*ement is !ere+& direted to retain annuall& t!e
said )unds e8ui'alent to )i)teen %erent 05>91 o) e$ise ta$es on loall&
manu)atured Fir*inia3t&%e i*arettes to +e remitted to t!e +ene)iiar& %ro'ines
8uali)ied under R"A" No" ?5?5"
T!e %ro'isions o) e$istin* la-s to t!e ontrar& not-it!standin*( t!e )i)teen %erent
05>91 s!are )rom *o'ernment re'enues mentioned in R"A" No" ?5?5 and due to t!e
Fir*inia to+ao3%roduin* %ro'ines s!all +e diretl& remitted to t!e %ro'ines
onerned"
Pro'ided( T!at t!is Setion s!all +e im%lemented in aordane -it! t!e *uidelines
o) Memorandum Cirular No" =53A( dated No'em+er 2A( 5BB.( -!i! amended
Memorandum Cirular No" =5( entitled GPresidin* Guidelines )or Im%lementin*
Re%u+li At No" ?5?5@( dated Canuar& 5( 5BB2"
Pro'ided( )urt!er( T!at in addition to t!e loal *o'ernment units mentioned in t!e
a+o'e irular( t!e onerned o))iials in t!e %ro'ine s!all +e onsulted as re*ards
t!e identi)iation o) %ro7ets to +e )inaned"
SECTION 2AB3A" Su%%ort )or Loal :ater Distrits" # T!e amount t!at -ould
!a'e +een %aid as inome ta$ and sa'ed +& t!e loal -ater distrit +& 'irtue o) its
e$em%tion to t!e inome ta$es s!all +e used +& t!e loal -ater distrit onerned
)or a%ital e8ui%ment e$%enditure in order to e$%and -ater ser'ies o'era*e and
im%ro'e -ater 8ualit& in order to %ro'ide sa)e and lean -ater in t!e %ro'ines(
ities( and munii%alities2
Pro'ided( T!at( t!e -ater distrit s!all ado%t internal ontrol re)orms t!at -ould
+rin* a+out t!eir eonomi and )inanial 'ia+ilit&2
Pro'ided( )urt!er( T!at t!e -ater distrit s!all not inrease +& more t!an t-ent&
%erent 02091 a &ear its a%%ro%riation )or %ersonal ser'ies( as -ell as )or tra'el(
trans%ortation or re%resentation e$%enses and %ur!ase o) motor 'e!iles"
All un%aid ta$es or an& %ortion t!ereo) due )rom a loal -ater distrit )or t!e
%eriod startin* Au*ust 5.( 5BB= until t!e e))eti'it& date o) t!is At are !ere+&
ondoned +& t!e Go'ernment su+7et to t!e )ollo-in* onditions2
051 t!at t!e ;ureau o) Internal Re'enue( a)ter are)ul re'ie- o) t!e )inanial
statements o) a -ater distrit a%%l&in* )or ondonation o) ta$es due( esta+lis!es its
)inanial ina%ait&( a)ter %ro'idin* )or its maintenane and o%eratin* e$%enses(
de+t ser'iin* and reser'e )und( to meet su! o+li*ations )or t!e %eriod stated
!erein6 and
021 t!at t!e -ater distrit a'ailin* o) su! ondonation s!all su+mit to Con*ress o)
t!e P!ili%%ines a %ro*ram o) internal re)orms( dul& erti)ied +& t!e loal -ater
utilities administration( t!at -ould +rin* a+out its eonomi and )inanial 'ia+ilit&"
All -ater distrits( t!rou*! t!e Loal :ater /tilities Administration( s!all )urnis!
t!e Committee on :a&s and Means o) t!e Senate and House o) Re%resentati'es(
res%eti'el&( on an annual +asis( -it! statistial data and )inanial statements
re*ardin* t!eir o%erations and ot!er in)ormation as ma& +e re8uired( )or %ur%oses
o) monitorin* om%liane -it! t!e %ro'isions o) t!is At and re'ie-in* t!e
rationali<ation )or ta$ e$em%tion %ri'ile*es"
TITLE DII
O'ersi*!t Committee
SECTION 2B0"Con*ressional O'ersi*!t Committee" #
A Con*ressional O'ersi*!t Committee( !ereina)ter re)erred to as t!e Committee( is
!ere+& onstituted in aordane -it! t!e %ro'isions o) t!is Code" T!e Committee
s!all +e om%osed o) t!e C!airmen o) t!e Committee on :a&s and Means o) t!e
Senate and House o) Re%resentati'es and )our 041 additional mem+ers )rom ea!
!ouse( to +e desi*nated +& t!e S%ea,er o) t!e House o) Re%resentati'es and t!e
Senate President( res%eti'el&"
T!e Committee s!all( amon* ot!ers( in aid o) le*islation2
051 Monitor and ensure t!e %ro%er im%lementation o) Re%u+li At No" A2406
021 Determine t!at t!e %o-er o) t!e Commissioner to om%romise and a+ate is
reasona+l& e$erised6
0.1 Re'ie- t!e olletion %er)ormane o) t!e ;ureau o) Internal Re'enue6 and
041 Re'ie- t!e im%lementation o) t!e %ro*rams o) t!e ;ureau o) Internal Re'enue"
In )urt!erane o) t!e !ereina+o'e ited o+7eti'es( t!e Committee is em%o-ered to
re8uire o) t!e ;ureau o) Internal Re'enue( su+mission o) all %ertinent in)ormation(
inludin* +ut not limited to2 industr& audits6 olletion %er)ormane data6 status
re%ort on riminal ations initiated a*ainst %ersons6 and t!e su+mission o) ta$%a&er
returns2
Pro'ided( !o-e'er( T!at an& return or return in)ormation -!i! an +e assoiated
-it!( or ot!er-ise identi)&( diretl& or indiretl&( a %artiular ta$%a&er s!all +e
)urnis!ed t!e Committee onl& -!en sittin* in E$euti'e Session unless su!
ta$%a&er ot!er-ise onsents in -ritin* to su! dislosure"
TITLE DIII
Re%ealin* Pro'isions
SECTION 2B5"In General" # All la-s( derees( e$euti'e orders( rules and
re*ulations or %arts t!ereo) -!i! are ontrar& to or inonsistent -it! t!is Code are
!ere+& re%ealed( amended or modi)ied aordin*l&"
It is tre t%at w%en &residential .ecree 6o- 179/ was issed on 11 2ne 1938, &A= was
t%en a *overnmentGowned and controlled cor'orationH bt w%en Re'blic Act 6o- 8E2E,
amendin* t%e 6IRC, too$ effect on 1 2anar) 1998, &A= was alread) a 'rivate
cor'oration for si+ )ears- T%e re'ealin* clase nder Section 3 !#" of Re'blic Act 6o-
8E2E sim'l) refers to c%arters of *overnmentGowned and controlled cor'orations, w%ic%
wold sim'l) and 'lainl) mean cor'orations nder t%e owners%i' and control of t%e
*overnment at t%e time of t%e effectivit) of said statte- It is alread) a stretc% for t%e
Cort to read into said 'rovision c%arters, issed to w%at were t%en *overnmentGowned
and controlled cor'orations t%at are now 'rivate, bt still o'eratin* nder t%e same
c%arters-
Commissioner of Internal Revene vs- &A=, Inc-, ?-R- 6o- 18//,,, 2l) 3, 2//9
CO44ISSIO6:R OF I6T:R6A= R:C:69:, 'etitioner, vs- ROS:4ARI: ACOSTA, as
re'resented b) Cir*ilio A- Abo*ado, res'ondent- ?-R- 6o- 17E/,8- A*st B, 2//3
. : C I S I O 6
Assailed in t%is 'etition for review are t%e .ecision and Resoltion dated Febrar) 1B, 2//2
and 4a) 29, 2//2, res'ectivel), of t%e Cort of A''eals in CAG?-R- S& 6o- 77732 w%ic% %ad
reversed t%e Resoltion dated A*st E, 1999 of t%e Cort of Ta+ A''eals in C-T-A- Case 6o-
7828 and ordered t%e latter to resolve res'ondent(s 'etition for review-
T%e facts are as follows:
Res'ondent is an em'lo)ee of Intel 4anfactrin* &%ils-, Inc- !Intel"- For t%e 'eriod
2anar) 1, 199, to .ecember B1, 199,, res'ondent was assi*ned in a forei*n contr)-
.rin* t%at 'eriod, Intel wit%%eld t%e ta+es de on res'ondent(s com'ensation income and
remitted to t%e #rea of Internal Revene !#IR" t%e amont of &B/8,/8E-7,-
On 4arc% 21, 1993, res'ondent and %er %sband filed wit% t%e #IR t%eir 2oint Individal
Income Ta+ Retrn for t%e )ear 199,- =ater, on 2ne 13, 1993, res'ondent, t%ro*% %er
re'resentative, filed an amended retrn and a 6onGResident CitiJen Income Ta+ Retrn, and
'aid t%e #IR &13,,9B-B3 'ls interests in t%e amont of &1E,E77-3,- On October 8, 1993,
s%e filed anot%er amended retrn indicatin* an over'a)ment of &B78,23E-,B-
Claimin* t%at t%e income ta+es wit%%eld and 'aid b) Intel and res'ondent reslted in an
over'a)ment of &BE/,918-92, res'ondent filed on A'ril 17, 1999 a 'etition for review
doc$eted as C-T-A- Case 6o- 7828 wit% t%e Cort of Ta+ A''eals !CTA"- T%e Commissioner
of Internal Revene !CIR" moved to dismiss t%e 'etition for failre of res'ondent to file t%e
mandator) written claim for refnd before t%e CIR-
In its Resoltion dated A*st E, 1999, t%e CTA dismissed res'ondent(s 'etition- For one, t%e
CTA rled t%at res'ondent failed to file a written claim for refnd wit% t%e CIR, a condition
'recedent to t%e filin* of a 'etition for review before t%e CTA- Second, t%e CTA noted t%at
res'ondent(s omission, inadvertentl) or ot%erwise, to alle*e in %er 'etition t%e date of filin*
t%e final ad5stment retrn, de'rived t%e cort of its 5risdiction over t%e sb5ect matter of
t%e case- T%e decretal 'ortion of t%e CTA(s resoltion states:
;8:R:FOR:, in view of all t%e fore*oin*, Res'ondent(s 4otion to .ismiss is ?RA6T:.-
Accordin*l)N,O t%e &etition for Review is %ereb) .IS4ISS:.-
SO OR.:R:.-
9'on review, t%e Cort of A''eals reversed t%e CTA and directed t%e latter to resolve
res'ondent(s 'etition for review- A''l)in* Section 2/E !c" of t%e 1993 6ational Internal
Revene Code !6IRC", t%e Cort of A''eals rled t%at res'ondent(s filin* of an amended
retrn indicatin* an over'a)ment was sfficient com'liance wit% t%e re1irement of a
written claim for refnd- T%e decretal 'ortion of t%e Cort of A''eals( decision reads:
;8:R:FOR:, findin* t%e 'etition to be meritorios, t%is Cort ?RA6TS it de corse and
R:C:RS:S t%e a''ealed Resoltions and .IR:CTS t%e Cort of Ta+ A''ealNsO to resolve
t%e 'etition for review on t%e merits-
SO OR.:R:.-
&etitioner so*%t reconsideration, bt it was denied- 8ence, t%e instant 'etition raisin* t%e
followin* 1estions of law:
I-
;8:T8:R OR 6OT T8: 1993 TA> R:FOR4 ACT CA6 #: A&&=I:. R:TROACTIC:=D-
II-
;8:T8:R OR 6OT T8: CTA 8AS 29RIS.ICTIO6 TO TA@: NCO?6ISA6C:O OF
R:S&O6.:6T(S &:TITIO6 FOR R:CI:;-
;%ile t%e main concern in t%is controvers) is t%e CTA(s 5risdiction, we mst first resolve
two isses- First, does t%e amended retrn filed b) res'ondent indicatin* an over'a)ment
constitte t%e written claim for refnd re1ired b) law, t%ereb) vestin* t%e CTA wit%
5risdiction over t%is caseA Second, can t%e 1993 6IRC be a''lied retroactivel)A
&etitioner avers t%at an amended retrn s%owin* an over'a)ment does not constitte t%e
written claim for refnd re1ired nder Section 2B/ of t%e 199B 6IRC !old Ta+ Code"- 8e
claims t%at an actal written claim for refnd is necessar) before a sit for its recover) ma)
'roceed in an) cort-
On t%e ot%er %and, res'ondent contends t%at t%e filin* of an amended retrn indicatin* an
over'a)ment of &B78,23E-,B constittes a written claim for refnd 'rsant to t%e clear
'roviso stated in t%e last sentence of Section 2/E !c" of t%e 1993 6IRC !new Ta+ Code", to
wit:
+++ +++ +++
L&rovided, %owever, T%at a retrn filed s%owin* an over'a)ment s%all be considered as a
written claim for credit or refnd-
+++ +++ +++
Alon* t%e same vein, res'ondent invo$es t%e liberal a''lication of tec%nicalities in ta+
refnd cases, conformabl) wit% or rlin* in #&IGFamil) Savin*s #an$, Inc- v- Cort of
A''eals- ;e are, %owever, nable to a*ree wit% res'ondent(s sbmission on t%is score-
T%e a''licable law on refnd of ta+es 'ertainin* to t%e 199, com'ensation income is Section
2B/ of t%e old Ta+ Code, w%ic% was t%e law t%en in effect, and not Section 2/E !c" of t%e new
Ta+ Code, w%ic% was effective startin* onl) on 2anar) 1, 1998-
6otewort%), t%e re1irements nder Section 2B/ for refnd claims are as follows:
1- A written claim for refnd or ta+ credit mst be filed b) t%e ta+'a)er wit% t%e
CommissionerH
2- T%e claim for refnd mst be a cate*orical demand for reimbrsementH
B- T%e claim for refnd or ta+ credit mst be filed, or t%e sit or 'roceedin* t%erefor
mst be commenced in cort wit%in two !2" )ears from date of 'a)ment of t%e ta+ or 'enalt)
re*ardless of an) s'ervenin* case- !:m'%asis ors-"
In or view, t%e law is clear- A claimant mst first file a written claim for refnd,
cate*oricall) demandin* recover) of over'aid ta+es wit% t%e CIR, before resortin* to an
action in cort- T%is obviosl) is intended, first, to afford t%e CIR an o''ortnit) to correct
t%e action of sbordinate officersH and second, to notif) t%e *overnment t%at sc% ta+es %ave
been 1estioned, and t%e notice s%old t%en be borne in mind in estimatin* t%e revene
available for e+'enditre-
T%s, on t%e first isse, we rle a*ainst res'ondent(s contention- :ntrenc%ed in or
5ris'rdence is t%e 'rinci'le t%at ta+ refnds are in t%e natre of ta+ e+em'tions w%ic% are
constred strictissimi 5ris a*ainst t%e ta+'a)er and liberall) in favor of t%e *overnment- As
ta+ refnds involve a retrn of revene from t%e *overnment, t%e claimant mst s%ow
indbitabl) t%e s'ecific 'rovision of law from w%ic% %er ri*%t arisesH it cannot be allowed to
e+ist 'on a mere va*e im'lication or inference nor can it be e+tended be)ond t%e ordinar)
and reasonable intendment of t%e lan*a*e actall) sed b) t%e le*islatre in *rantin* t%e
refnd- To re'eat, strict com'liance wit% t%e conditions im'osed for t%e retrn of revene
collected is a doctrine consistentl) a''lied in t%is 5risdiction-
9nder t%e circmstances of t%is case, we cannot a*ree t%at t%e amended retrn filed b)
res'ondent constittes t%e written claim for refnd re1ired b) t%e old Ta+ Code, t%e law
'revailin* at t%at time- 6eit%er can we a''l) t%e liberal inter'retation of t%e law based on
or 'rononcement in t%e case of #&IGFamil) Savin*s #an$, Inc- v- Cort of A''eals, as t%e
ta+'a)er t%erein filed a written claim for refnd aside from 'resentin* ot%er evidence to
'rove its claim, nli$e t%is case before s-
On t%e second isse, 'etitioner ar*es t%at t%e 1993 6IRC cannot be a''lied retroactivel) as
t%e instant case involved refnd of ta+es wit%%eld on a 199, income- Res'ondent, %owever,
'oints ot t%at w%en t%e 'etition was filed wit% t%e CTA on A'ril 17, 1999, t%e 1993 6IRC
was alread) in effect, %ence, Section 2/E !c" s%old a''l), des'ite t%e fact t%at t%e refnd
bein* so*%t 'ertains to a 199, income ta+- 6ote t%at t%e isse on t%e retroactivit) of Section
2/E !c" of t%e 1993 6IRC arose becase t%e last 'ara*ra'% of Section 2/E !c" was not fond
in Section 2B/ of t%e old Code- After a t%oro*% consideration of t%is matter, we find t%at we
cannot *ive retroactive a''lication to Section 2/E !c" abovecited- ;e %ave to stress t%at ta+
laws are 'ros'ective in o'eration, nless t%e lan*a*e of t%e statte clearl) 'rovides
ot%erwise-
4oreover, it s%old be em'%asiJed t%at a 'art) see$in* an administrative remed) mst not
merel) initiate t%e 'rescribed administrative 'rocedre to obtain relief, bt also 'rse it to
its a''ro'riate conclsion before see$in* 5dicial intervention in order to *ive t%e
administrative a*enc) an o''ortnit) to decide t%e matter itself correctl) and 'revent
nnecessar) and 'rematre resort to cort action- T%is t%e res'ondent did not follow
t%ro*%- Additionall), it cold not esca'e notice t%at at t%e time res'ondent filed %er
amended retrn, t%e 1993 6IRC was not )et in effect- 8ence, res'ondent %ad no reason at
t%at time to t%in$ t%at t%e filin* of an amended retrn wold constitte t%e written claim for
refnd re1ired b) a''licable law-
Frt%ermore, as t%e CTA stressed, even t%e date of filin* of t%e Final Ad5stment Retrn was
omitted, inadvertentl) or ot%erwise, b) res'ondent in %er 'etition for review- T%is omission
was fatal to res'ondent(s claim, for it de'rived t%e CTA of its 5risdiction over t%e sb5ect
matter of t%e case-
Finall), we cannot a*ree wit% t%e Cort of A''eals( findin* t%at t%e natre of t%e instant case
calls for t%e a''lication of remedial laws- Revene stattes are sbstantive laws and in no
sense mst t%eir a''lication be e1ated wit% t%at of remedial laws- As well said in a 'rior
case, revene laws are not intended to be liberall) constred- Considerin* t%at ta+es are t%e
lifeblood of t%e *overnment and in 8olmes(s memorable meta'%or, t%e 'rice we 'a) for
civiliJation, ta+ laws mst be fait%fll) and strictl) im'lemented-
;8:R:FOR:, t%e 'etition is ?RA6T:.- #ot% t%e assailed .ecision and Resoltion dated
Febrar) 1B, 2//2 and 4a) 29, 2//2, res'ectivel), of t%e Cort of A''eals in CAG?-R- S&
6o- 77732 are R:C:RS:. and S:T ASI.:- T%e Resoltion dated A*st E, 1999 of t%e
Cort of Ta+ A''eals in C-T-A- Case 6o- 7828 is %ereb) R:I6STAT:.-
6o 'rononcement as to costs- SO OR.:R:.-
TITLE DIF
Final Pro'isions
SECTION 2B2"Se%ara+ilit& Clause" # I) an& lause( sentene( %ara*ra%! or %art o)
t!is Code s!all +e ad7ud*ed +& an& Court o) om%etent 7urisdition to +e in'alid(
su! 7ud*ment s!all not a))et( im%air or in'alidate t!e remainder o) said Code( +ut
s!all +e on)ined in its o%eration to t!e lause( sentene( %ara*ra%! or %art t!ereo)
diretl& in'ol'ed in t!e ontro'ers&"
ACEO:LEDGMENTS2
San ;eda La- Re'ie- Center
Ateneo La- Re'ie- Center
CD Asia Le$Li+ris
Authors:
HECTOR DE LEON; REY ARALAR;