You are on page 1of 365

TAXATION II DIGESTS ATTY.

BANIQUED
ALS2014B
ALS2014B 1 of 162
"#$
RIGHTS AND REMEDIES OF THE GOVERNMENT UNDER
THE NATIONAL INTERNAL REVENUE CODE
01 - CIR v. Aquafresh Seafoods, Inc. (2010) (Residential to Commercial)
Doctrine:
While the CIR is given the authority to determine the fair market value of the subject properties for the purpose of
computing internal revenue taxes, such authority is not without restriction or limitation.
The first sentence of Section 6(E) sets the limitation or condition in the exercise of such power by requiring
respondent to consult with competent appraisers both from private and public sectors.
Facts:
Aquafresh Seafoods sold to Philips Seafood two parcels of land located at Barrio Banica, Roxas City. Aquafresh
paid the corresponding Capital Gains Tax (P186,000) and Documentary Stamp Tax (P46,500). However, the BIR received
a report that the purchase price of the sale was undervalued for tax purposes. They conducted an investigation and
concluded that the subject properties were commercial and had a higher zonal value (P2000). They sent deficiency
assessment notices to Aquafresh for tax deficiencies. The deficiencies were based on the supposed selling price following
the P2000 zonal value. Aquafresh protested but the protest was denied.
Aquafresh filed a petition for review with the CTA seeking the reversal of the decision. They argued that since the
properties were located in Barrio Banica, classified as residential and given a zonal value of P650 per sq/m in the 1995
Revised Zonal Values of Real Property, the prescribed zonal value should prevail. Aquafresh contends that the BIR had
no business in re-classifying the subject properties to commercial. The CTA decided in favor of Aquafresh stating that
while the CIR is given the authority to determine the zonal values, the same is not without limitation - it should be done in
consulation with competent appraisers both from the public and private sectors (Sec. 6e, NIRC).
The CIR now assails the CTA decision. First, he argues that the requirement of consultation is mandatory only
when it is prescribing real property values that is when a formulation or change is made in the schedule of zonal
values. He argues that what they did was not to prescribe the zonal value, but merely classify the same as commercial and
apply the corresponding zonal value for such classification based on the existing schedule of zonal values. Second, he
argues that their act was pursuant to their Zonal Valuation Guidelines. According to the CIR, the guidelines provide that
All real properties, regardless of actual use, located in a street/barangay zone, the use of which are predominantly
commercial shall be classified as Commercial for purposes of zonal valuation.
Issues:
1. W/N the CIR is correct in re-classifying the subject properties from residential to commercial, consequently
raising the zonal value of the properties.
Held/Ratio:
1. NO. While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the
law is clear that the same has to be done upon consultation with competent appraisers both from the public and
private sectors. It is undisputed that at the time of the sale of the subject properties found in Barrio Banica, Roxas
City, the same were classified as residential. The petitioner cannot unilaterally classify the same to commercial
without first conducting a re-evaluation of the zonal values as mandated under Section 6(E) of the NIRC.
As to the contention that consultation is needed only when there is a change in the prescribed zonal values, and
what they did was merely to classify the properties to commercial and apply the zonal values, it should be noted
that ALL the properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values. The
act of classifying the subject properties into commercial involves a re-classification and revision of the prescribed
zonal values.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 2 of 162
"#$
As to the second contention, the Guidelines provision being invoked may only be used as basis when the real
property is located in an area or zone where the properties are not yet classified and their respective zonal
valuation are not yet determined. The BIR itself expressed this view in a BIR Ruling . Such is not the situation in
the case.
02 - CIR v. COA (1993)
Doctrines:
That the informers reward was sought and given in relation to tax delinquencies of government agencies provides
no reason for disallowance
Facts:
This case is a consolidated case of CIR v COA and Savellano v COA. On June 25, 1986 Tirso B. Savellano
funished BIR with a confidential affidavit of information which reveals that National Coal Authority (NCA) and
Philippine National Oil Company do not pay taxes amounting to P 234 Million. After several demands and investigation
of BIR, the two corporation NCA and PNOC paid the BIR their tax liability. A few months later, the Minister of finance
with the recommendation from BIR Commissioner Bienvenido Tan Jr. agreed to pay Savellano an informers reward
(15% of the P 15.9 M paid by NCA. In 1989, COA issued a decision wherein in disallowed the payment of informers
reward to Savellano on the ground that such payment according to Sec 281 of NIRC is conditioned upon the actual
recovery or revenue realized by the government . In this case, the government was not able to realize any benefit since the
unpaid tax liabilities were collected from 2 government agencies (NCA and PNOC.)
Issues:
1. Whether the approval by the Department of Finance of the claim of the informers reward conclusive upon the
executive agencies concerned including COA.
2. Whether the informer Savellano is not entitled to receive the informers reward because there was no actual
collection of revenues since the unpaid tax liabilities were collected from government agencies as well.
Held/Ratio:
1. NO. The Supreme Court held that the final determination made by Dept of Finance cant bind COA. COA is
vested by the Constitution with power and authority to audit and ensure that the public funds are expended and
used in conformity with the law. To bar COA from reviewing the decision of Dept. Finance and BIR is to
circumvent and ignore Sec. 3 Art IX of 1987 Constitution where it stated that no law shall be passed exempting
any entity of the government from jurisdiction of the COA. The Court, however, added that the disallowance of
COA is not absolute and final for it may still be set aside and nullified by the SC if done with grave abuse of
discretion.
2. NO. The SC held that Savellano is still entitled to the informers reward despite the fact that such unpaid tax
liabilities were recovered from 2 government agencies (NCA and PNOC.) The Court said that these 2 agencies
possess legal personalities separate and distinct from the Philippine government and they both perform
proprietary functions. This means that their revenues do not automatically goes to the general funds of the
government and it is only when such revenues are subjected to tax does it create revenue for the government. In
the end, the Court held that the Sec 281 (Now Sec 282) of NIRC does not make any distinction between
delinquent taxpayers whether private natural or juridical persons, or public or quasi-public agencies. It is
sufficient that such delinquent party is subjected and violated tax laws and the informers report resulted in the
recovery of revenues.



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 3 of 162
"#$
03 - Fitness by Design, Inc. v. CIR (2008)
Facts:
On March 17, 2004, the CIR assessed Fitness by Design, Inc. (FbD) for deficiency taxes for the taxable year
1995. FbD protested the assessment on the ground that it was issued beyond the three-year prescriptive period.
Additionally, FbD claimed that since it was incorporated only on May 30, 1995, there was no basis to assume that it had
already earned income for the tax year 1995.
On February 1, 2005, the CIR issued a warrant of distraint and/or levy against FbD, thus, the latter filed on March
1, 2005 a Petition for Review before the CTA, where it reiterated its defense of prescription.
The CIR, in his Answer, alleged that the right of the CIR to assess deficiency taxes has not yet prescribed since
the 1995 ITR filed by FbD on April 11, 1996 was false and fraudulent for deliberate failure to declare its true sales. The
CIR argued further that investigations by the revenue officers disclosed that it has been operating/doing business and had
sales operations for the year 1995 which it failed to report in its 1995 ITR, thus, there was deliberate intent to evade tax.
Hence, the CIR argued that the period of prescription shall be 10 years from the date of discovery of such fraud, pursuant
to Sec. 222(a) of the Tax Code. The CIR also contended that the deficiency tax assessments have already become final,
executory and demandable for failure of the petitioner to file a protest within the reglementary period provided for by law.
The BIR also filed on March 10, 2005 a criminal complaint before the DOJ against the officers and accountant of
petitioner for violation of the provisions of The National Internal Revenue Code of 1977, as amended, covering the
taxable year 1995.
A preliminary hearing on the issue of prescription was conducted before the CTA, during which FbDs former
bookkeeper attested that a former colleague Sablan illegally took custody of FbDs accounting records, invoices,
and official receipts and turned them over to the BIR.
A subpoena ad testificandum and subpoena duces tecum was requested by FbD for the appearance of Sablan and
the production of the Affidavit of the Informer. In a related move, FbD submitted written interrogatories addressed to
Sablan, and to the revenue officers of the BIR.
By Resolution of January 15, 2007, the CTA denied petitioners Motion for Issuance of Subpoenas and
disallowed the submission by petitioner of written interrogatories, it finding that the testimony, documents, and
admissions sought are not relevant and that to require Sablan to testify would violate Section 2 of Republic Act No. 2338,
as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of
informers of violations of internal revenue laws, except when the information is proven to be malicious or false.
Issue:
1. Whether the CTA committed grave abuse of discretion when it issued the questioned Resolution?
Held/Ratio:
1. NO. The Court found that the testimonies, documents and admissions sought by FbD to be presented in the case
through subpoenas and written interrogatories were not relevant to the issues before the CTA, since the issues
pertain only to whether the CIRs tax assessment against FbD had already prescribed, and whether FbDs tax
return was false or fraudulent. However, the reason of FbD for requesting the issuance of subpoenas and
submission of written interrogatories was to establish that its accounting records and related documents, invoices,
and receipts were illegally obtained.
Furthermore, the SC affirmed the CTAs reasoning that the subpoenas and answers to the written interrogatories
would violate Section 2 of Republic Act No. 2338 as implemented by Section 12 of Finance Department Order
No. 46-66.
FbD claims that it only intended to obtain information on the whereabouts of the documents it needs in order to
refute the assessment, and not to disclose the identity of the informer. However, the SC found that the
interrogatories addressed to Sablan and the revenue officers show that they were intended to confirm FbDs belief
that Sablan was the informer.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 4 of 162
"#$
FbD argues that the BIR obtained the documents illegally since Sablan allegedly submitted them to the BIR
without FbDs consent. The SC, however, found that FbDs lack of consent does not imply that the BIR obtained
them illegally or that the information received is false or malicious.
Section 5 of the Tax Code allows the BIR access to all relevant or material records and data in the person of the
taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of
Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the
BIR assess and collect the correct amount of taxes.
Also, the SC said that there is no more need for the issuance of subpoena duces tecum for the production of the
documents requested by FbD since the CTA already ordered the CIR to certify and forward to it all the records of
the case.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 5 of 162
"#$
04 - Sy Po v. CTA (1998)
Doctrine:
Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.
xxx xxx xxx
(b) Failure to submit required returns, statements, reports and other documents. - When a report required
by law as a basis for the assessment of an national internal revenue tax shall not be forthcoming within
the time fixed by law or regulation or when there is reason to believe that any such report is false,
incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best
evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully
or otherwise, files a false or fraudulent return or other documents, the Commissioner shall make or amend
the return from his own knowledge and from such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all legal purposes.
Tax assessments by tax examiners are presumed correct and made in good faith.
Facts:
Sy Po is the widow of Mr. Sing which was the sole owner of a wine store and factory (Silver Cup) in Cebu. The
Secretary of Finance (Virata) conducted an investigation on Silver Cup for its alleged tax evasion amounting to millions.
A subpoena for relevant documents was issued, but Sing did not produce such. This prompted the investigators to enter
the factory bodega of Silver Cup and cease different products. They posited the deficiency income tax to be around
7million based on the confiscated goods.
Sy Po protested such deficiency assessments so the BIR recommended the reiteration of the assessments in view
of Silver Cups persistent failure to present documents which then compelled the CTA to isse warrants of distraint and
levy.
Issue:
1. W/N the assessments have valid legal bases
Held/Ratio:
1. YES. The law was specific and clear. The rule on the best evidence obtainable applies when a tax report
required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent.
In this case, the persistent failure of the late Mr. Sing and the herein petitioner to present their books of accounts
for examination for the taxable years left the CIR no other legal option except to resort to the power conferred
upon him under Section 16 of the Tax Code.
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to
prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly
made by a BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in
favor of the correctness of tax assessments.
Actually, the revenue inspector or storekeeper comes around once a week Sometimes, when the storekeeper is
around in the morning and Mr. Sing wants to operate with untaxed alcohol as raw materials, Mr. Sing tells the
storekeeper to go home because the factory is not going to operate for the day. After the storekeeper leaves, the
illegal operation then begins. Untaxed alcohol is brought in from Cebu Alcohol Plant into the compound of Silver
Cup. When the storekeeper comes, he sees nothing because untaxed alcohol is brought directly to, and stored at, a
secret tunnel within the bodega itself inside the compound of Silver Cup.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 6 of 162
"#$
05 - Pilipinas Shell Petroleum Corporation v. CIR (2007)
Facts:
Pilipinas Petroelum Shell Corporation, PSPC for brevity, is the subsidiary of Shell Philippines, and is engaged in
the importation, refining and sale of petroleum products. From 1988 to 1997, PSPC paid part of its excise tax liabilities
with Tax Credit Certificates (TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center (Center) and other BOI registered companies.
PSPC signified its intent to use the said TCCs to pay part of its excise tax liabilities said payments were duly
approved by the center. However, on April 22, 1998 the BIR sent a collection to PSPC for alleged deficiency excise tax
liabilities. The BIR further stated that PSPC is not a qualified transferee of the TCTCs. PSPC protested the collection
letter.
On July 23, 1999 the CTA rendered a decision in favor of PSPC and that the TCCs was legal and valid.
Respondent elevated the decision to the Court of Appeals.
Meanwhile, despite the pendency of the case in the Court of Appeals, the Center sent several letters to PSPC
dated August 31, 1999 to submit copies of pertinent sales and invoices and delivery receipts covering sale transactions of
PSPC products to the TCC assignors/transferors purportedly in collection with an ongoing post audit.
PSPCs response to the letter and received by the Center emphasized that the required submission of these
documents had no legal basis, for the applicable rules and regulations on the matter on the matter only require that both
the assignor and assignee of the TCCs be BOI-registered.
On November 22, 1999, PSPC received an assessment letter from respondent for excise tax deficiencies,
surcharges, and interest based on the first batch of cancelled TCCs. PSPC protested the assessment letter but the protest
was denied by the BIR.
RA 9282 was promulgated expanding the jurisdiction of the CTA. Thus the case was heard decided by the CTA
Division.
The CTA division ruled in favor of PSPC. It held that respondent failed to prove with convincing evidence that
the TCCs transferred to PSPC were fraudulently issued as respondents finding of the alleged fraud was merely
speculative.
Respondent filed his Motion for reconsideration. CTA ruled in favor of respondent and ordered PSPC to pay its
tax deficiencies.
Thus, PSPC filed this petition.
Issues:
1. W/N the CTA gravely erred in ordering petitioner PSPC to pay the amount of 284, 760, 987.00 as alleged
deficiency excise taxes.
2. W/N the CTA gravely erred in issuing the question decision upholding the cancellation of the TCC utilized by
Petitioner PSPC in paying its excise liabilities.
3. W/N the CTA gravely erred in imposing surcharges and interests on the alleged deficiency excise tax on
Petitioner PSPC
4. W/N Assessment is void considering that it failed to comply with the statutory as well as regulatory
requirements in the issuance of assessment.
Held/Ratio: The petition is meritorious
1. Yes. It is clear that a TCC is an undertaking by the government through the BIR or DOF, acknowledging that a
taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit
granted by law or other sources and instances granted by law such as on specific unused input taxes and excise
taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 7 of 162
"#$
Therefore, the TCCs are immediately valid and effective after their issuance.
2. Yes. But even assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice PSPCs
rights as earlier explained since PSPC has not been shown or proven to have participated in the perpetration of the
fraudulent acts, nor is it shown that PSPC committed fraud in the transfer and utilization of the subject TCCs.
3. Yes. This issue has been mooted by our disquisition above resolving the first issue in that PSPC has duly settled
its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no basis for the imposition of a late
payment surcharges and for interests, and no need for further discussion on the matter.
4. Yes. PSPC was not accorded due process before the assessment was levied on it.
The Center informed PSPC of the cancellation of the subject TCCs and the TDM covering the application of the
TCCs to PSPCs excise tax liabilities. The objections of PSPC were brushed aside by the Center and respondent
issued the assessment on November 15, 1999, without following the statutory and procedural requirements clearly
provided under the NIRC and applicable regulations.
What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec. 245 of the
NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of national internal revenue taxes,
fees, and charges. The procedures delineated in the said statutory provisos and RR 12-99 were not followed by
respondent, depriving PSPC of due process in contesting the formal assessment levied against it. Respondent
ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice,
as required. PSPCs November 4, 1999 motion for reconsideration of the purported Center findings and
cancellation of the subject TCCs and the TDM was not even acted upon.
PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax returns for
1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand and assessment notice. For
being formally defective, the November 15, 1999 formal letter of demand and assessment notice is void.
Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides:
3.1.4 Formal Letter of Demand and Assessment Notice.The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by personal delivery. (Emphasis supplied.)
In short, respondent merely relied on the findings of the Center, which did not give PSPC ample opportunity to air
its side. While PSPC indeed protested the formal assessment, such does not denigrate the fact that it was deprived
of statutory and procedural due process to contest the assessment before it was issued.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 8 of 162
"#$
06 - CIR v. Menguito (2008)
Facts:
Spouses Menguito are owners of a restaurant with branches in Pasay and Baguio. In 1997, the spouses were
informed by the BIR Assessment Division of Baguio, through a ten (10) day Preliminary Letter that investigation showed
that they have undeclared sales from 1991 1993 thereby resulting to deficiency income and percentage taxes of around
34Million. Mrs. Menguito protested. The BIR alleged that Meguito committed fraud with intent to evade the payment of
tax by under-declaring his sales.
The CTA rules in favor of the CIR and ordered the spouses to pay deficiency and percentage tax. The spouses
MR was also denied. Menguitos then appealed to the CA questioning the Assessment notices.
Issues:
1. W/N the CA erred in holding that respondent was denied due process for failure of CIR to validly serve
respondent with the post-reporting and pre-assessment notices.
Held/Ratio:
1. YES. The SC stressed that the requirement that an assessment notice be satisfactorily proven to have been issued
and released or, if receipt thereof is denied, that such assessment notice have been served on the taxpayer, applies
only to formal assessments under Sec. 22 of the NIRC and NOT to post-reporting or pre- assessment notices.
According to the SC a post-reporting or pre-assessment notice do not bear the gravity of a foral assessment
notice. Such notices merely serves as hints of the initial findings f the BIR against a taxpayer and invites the latter
to an informal conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of
the taxpayer or a demand for payment. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as
long as the latter is then served a formal assessment notice.
There is no doubt that petitioner failed to prove that it served on respondent a post-reporting notice and a pre-
assessment notice. What the BIR sent was a mere letter it sent to Menguito informing him of the initial outcome
of the investigation into his sales, and the release of a preliminary assessment upon completion of the
investigation, with notice for the latter to file any objection within five days from receipt of the letter. Another,
the Preliminary Ten (10) Day Letter to respondent, informing him that he had been found to be liable for
deficiency income and percentage tax and inviting him to submit a written objection to the proposed assessment
within 10 days from receipt of notice. But nowhere on the face of said documents can be found evidence that
these were sent to and received by respondent. Nor is there separate evidence, such as a registry receipt of the
notices or a certification from the Bureau of Posts, that such were actually mailed to the petitioner.
However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements
under Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal
assessments were issued to and actually received by respondents in accordance with Section 228 of the National
Internal Revenue Code which was in effect at the time of assessment.
Formal assessment substantive requisite to tax collection containg computation of tax liabilities and a demand
for payment within a said period. Thereby signaling the time when penalties and remedies accrue and determined.
Due process requires for such be served on and received by the taxpayer. (Roxas Securities Inc. v. CIR, GR
157064, August 7, 2006)


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 9 of 162
"#$
07 - CIR v. Metro Star Superama, Inc. (2010)
Doctrines:
Sending of a PAN (pre-assessment notice) as required by Section 228 of NIRC is part of due process requirement
in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the
tax authorties. Failure to send the PAN makes CIR tax assessment VOID.
Facts:
CIR filed before the Supreme Court a petition for review on certiorari against the CTA-En bancs decision that
the assessment made by CIR is Void due to non-service of PAN. CIR assessed Metro Star Superama, Inc (Metrostar) of
deficiency in value-added tax and withholding tax for 1999. The following are previous events:
On Jan 2001 Regional Director of BIR issued letter of Authority for Revenue Officer to examine Metrostars
book of account. Due to failure of the latter to present the records a subpoena duces tecum was issued by BIR. On Nov
2001, a preliminary 15-day letter was issued to Metrostar wherein BIR stated that a post audit review was held and that it
was found that there was a deficiency in value-added and withholding taxes of around P292,000. On April 11, 2002,
Metrostar received Formal Letter of Demand Assessing from Rev. district assessing them P292,000 for deficiency value-
added and withholding taxes for 1999. With this, Metro star filed a petition for review with CTA wherein the corporation
denied that it received a PAN thus claiming that such assessment made by BIR was not accorded due process.
Issues:
1. W/N Metro Star complied with due process requirement of serving PAN before assessment
2. W/N deficiency assessment issued by respondent are void for failure to send PAN
Held/Ratio:
1. YES. The Court held that the failure of the respondent to prove receipt of the assessment by the Petitioner leads to
the conclusion that no assessment was issued. Based on jurisprudence, if the taxpayer denies ever having received
an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was
indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that
the Petitioner received the assessment in the due course of mail. It is essential to prove the fact of mailing is the
registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the
Petitioner or its authorized representative. In this case, CIR only stated that since FAN (final assessment notice)
was served then the PAN should have also been served. CIR, however, failed to support its claim with substantial
evidence. With this, the Court held that there was no clear showing that Metrostar actually received the alleged
PAN.
2. YES, Section 228 of NIRC clearly requires that taxpayer must first be informed that he is liable for deficiency of
taxes through send of PAN and to proceed heedlessly with tax collection without first establishing a valid
assessment is violative of ones right for due process. The Court held that the sending of PAN to taxpayer to
inform him of the assessment made is but part of the due process requirement in the issuance of deficiency tax
assessment the absence of which renders nugatory any assessment made by the tax authority. It is clearly stated
in sec 228, that failure to send PAN stating the facts and the law on which the assessment was made, renders the
assessment made by CIR void.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 10 of 162
"#$
08 - Commissioner of Internal Revenue v. Azucena Reyes (2006) (informed of basis v. notified of findings)
Doctrines:
Taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise,
the assessment is void.
An invalid assessment notice amounts to lack of due process.
An invalid assessment cannot be the basis of a tax compromise.
Facts:
In 1993, Tancino died and left a house and lot in Dasmarias Village. In 1997, on the basis of an information, the
Revenue District of Makati conducted an investigation on Tancinos estate. They issued a Letter of Authority for the
regular investigation of the estate tax case. The letter was received by Azucena Reyes, one of Tancinos heirs.
On Feb. 1998, a preliminary assessment notice against the estate amounting to P14,580,618.67 was issued by
the BIR. On May 1998, the heirs received a Final Assessment (dated April 1998) amounting to P14,912,205.47 inclusive
of surcharge and interest. The heirs protested the assessment because the Dasma Property was already sold in 1990 (the
property was to be seized for failure to pay tax liabilities). They also proposed several compromises
1
, pleading
financial incapacity, but the BIR rejected the offers. According to the BIR the financial incapacity of the heirs is
immaterial as the estate had a total value of P32M. Thus, in 2000, they demanded payment of P18,034,382.13 otherwise,
the property will be auctioned off. The heirs failed to pay and the auction was scheduled.
Reyes filed a petition for review in the CTA and applied for the issuance of a writ of preliminary injunction to
enjoin the BIR from proceeding with the auction. She assailed that the assessments and investigations were void ab
initio. The injunction was issued. Meanwhile, during the pendency of the case, the BIR issued a Rev. Regulation offering
delinquent tax payers to compromise liability. The proceedings in the CTA was postponed and Reyes applied for
compromise under the Rev. Reg. Reyes paid P1,062,778.20 to the BIR as compromise, however, the compromise was
yet to be perfected because the National Evaluation Board (NEB) has not yet approved said compromise. Reyes asked the
CTA to declare the compromise perfected but the CTA denied the request, leaving the compromise unapproved.
The CTA resumed hearing the petition for review and decided that Reyes should pay P19,504,909.78 as
deficiency tax. The CTA said that there could be no valid compromise because the NEB did not approve the application.
The CTA also said the assessments were valid because the heirs knew of the findings of the BIR investigation. The
CA partly reversed the decision and held that there was no valid assessment and the question on validity of the
compromise is still premature.
Issues:
1. W/N the assessments were valid.
2. W/N there is a valid compromise under the Revenue Regulation.
Held/Ratio:
1. NO. Sec. 228 requires that taxpayers must be informed in writing of the law and the facts upon which a tax
assessment is based; otherwise, the assessment is void. In the instant case, Reyes was not informed but was
merely notified by the CIR of the findings in the investigation. The requirement of notifying the taxpayers of the
findings of the CIR as provided in the old Sec. 229 is now amended by the Tax Reform Act of 1997. Sec. 228 is
now the procedure to be followed. When the assessments were sent to the heirs, the amendment was already in

1. First compromise: P1,000,000
Second Compromise: 50% of the basic tax liabilities
Third Compromise: 100% of the basic tax liability amounting to P5,313,891.00.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 11 of 162
"#$
effect. Moreover, the Letter of Authority they sent to Reyes was not even notice of the findings but is a
mere notice for conducting an investigation.
The fact that during this time there was still no regulation issued by the BIR to implement Sec. 228 is of no
moment because the law must still be followed even if the RR then existing pertains to the implementation of the
old law (Sec 229). The subsequent implementation of a new RR in 1999 should retroact to the time Sec. 228 was
promulgated in 1998.
The Court also said that a review of the assessments would show lack of basis and insufficiency of figures and
deductions. They held that the assessments were arbitrary and based on estimates capriciously arrived at.
2. Because the assessments were VOID, the Court could not decide on whether or not the compromise was valid or
not.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 12 of 162
"#$
09 - CIR v. Enron Subic Powercorporation (2009)
Doctrine:
Due process demands that a taxpayer must be informed of the legal and factual bases of the assessment against it.
Otherwise, the assessment is void.
Facts:
The respondent corporation Enron filed its annual income tax return, for the year 1996 on April 12, 1997,
indicating a net loss of P7,684,948. Subsequently, it was informed by BIR, through a PRELIMINARY 5-DAY LETTER,
of a proposed assessment of an alleged P2,880,817.25 deficiency income tax. Enron disputed this proposed assessment
in its first protest letter. On May 26, 1999, the CIR sent Enron a FORMAL ASSESSMENT NOTICE requiring the latter
to pay the alleged deficiency income tax of P2,880,817.25 for the year 1996. This was again protested by Enron.
Because its protest wasnt resolved within the 180-day period, Enron filed a petition for review in the CTA,
questioning the substantive validity of the assessment and arguing that the deficiency tax assessment did not provide the
legal and factual bases of the assessment, in defiance of Sec. 228 of the NIRC and Sec 3.1.4 of RR No. 12-99.
2
The CTA
ordered the deficiency assessment cancelled for the reason that the assessment notice sent to Enron failed to comply with
the requirements of the mentioned provisions by failing to show the applicability of the cited law to the facts of the
assessment. This CTA ruling was affirmed by the CA. The CIR argues that Enron was informed, through the preliminary
5-day letter and the formal assessment notice, of the legal and factual bases of the deficiency assessment against it.
Issue:
1. Whether the deficiency assessment is void for noncompliance with Sec. 228 and RR No. 12-99
Held/Ratio:
1. Yes, it is void. It is clear that a taxpayer must be informed in writing of the legal and factual bases of the tax
assessment made against him. In this case, the CIR merely issued a formal assessment and indicated therein the
supposed tax, surcharge, interest and compromise penalty due thereon. In issuing the Formal Assessment Notice,
the CIR did not provide Enron with the written bases of the law and facts on which the assessment was based. The
CIR did not bother to explain how it arrived at such an assessment. More so, he failed to mention the specific
provision of the Tax Code or rules and regulations which were not complied with by Enron. The advice of tax
deficiency and the preliminary 5-day letter were not valid substitutes for the mandatory notice in writing provided
for in Sec. 228 of the NIRC and RR No. 12-99.
The Court notes that the old law merely required that the taxpayer be notified of the assessment made by the
BIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the
facts on which the assessment is made. The Court explained that such an amendment is in keeping with the
constitutional principle that no person shall be deprived of property without due process.

2. Section 3.1.4. of RR No. 12-99: ... The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state
the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand
or assessment notice shall be void.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 13 of 162
"#$
10 - Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, et al. (1999)
Doctrines:
Assessment is laying a tax. The word assessment when used in connection with taxation, may have more than
one meaning. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each
taxpayer is to pay. More commonly, the word assessment means the official valuation of a taxpayers property
for purpose of taxation
An assessment informs the taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must
demand payment of the taxes within a specific period. It is deemed a notice duly sent to the taxpayer. It is
considered made only when the collector of internal revenue releases, mails or sends such notice to the
taxpayer.
Facts:
BIR Commissioner Jose Ong authorized Revenue Officers Thomas Que, Sonia Estorco and Emmanuel Savellano
to examine Pasco Realty and Development Corporation (PRDC) books of accounts and other accounting records. They
examined years 1986, 1987, and 1988. They recommended that an assessment be issued in the amounts of P7,498,434.65
and P3,015,236.35 for the years 1986 and 1987, respectively.
The Commissioner of Internal Revenue filed a criminal complaint in the DOJ against PRDC, its President Rogelio
Dio, and its Treasurer Virgina Dio. The CIR alleged PRDC evaded taxes amounting to P10,513,671.00. The DOJ
subpoenaed PRDC, President Dio and Treasurer Dio.
Contesting the complaint, PRDC filed an Urgent Request for Reconsideration/ Reinvestigation of the tax liability.
However, in a letter, the CIR denied this because the Commissioner has yet to issue a formal assessment.
PRDC filed a petition for review before the Court of Tax Appeals (CTA). CIR filed a Motion to Dismiss claiming
that the CTA lacks jurisdiction over the subject matter of the petition due to the absence of a formal assessment. The CTA
denied the motion to dismiss and ordered the CIR to file an answer.
Instead of filing an answer or moving to reconsider the resolution, the CIR filed a Petition for Review on
Certiorari before the Court of Appeals (CA). It claimed the CTA acted with grave abuse of discretion and without
discretion when it considered the affidavit/ report of the revenue officer and the indorsement of the report to the Secretary
of Justice as assessment. The CA held that the CTA did not commit grave abuse of discretion when it ruled that the
criminal complaint for tax evasion constituted an assessment. The Joint Affidavit of the revenue officers submitted with
the criminal complaint already contains sufficient details needed for an assessment. To constitute as an assessment, the
following details must be present: kind and amount of tax due, and the period covered. Moreover, the CTA acquired
jurisdiction when the CIR denied PRDCs letter concerning the disputing of the assessment.
CIR appealed to the SC.
Issues:
1. W/N the filing of the criminal complaint with the attached Joint Affidavit can be construed as an assessment.
Held/Ratio:
1. NO. There is no specific definition or form of assessment contained in the NIRC and revenue regulations.
However, the NIRC provides the specific functions and effects of an assessment. An assessment informs the
taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must demand payment of the taxes
within a specific period. It is deemed a notice duly sent to the taxpayer. It is considered made only when the
collector of internal revenue releases, mails or sends such notice to the taxpayer. The taxpayer must be certain that
a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within
which to make an assessment or to protest the same, or whether interest and penalty may accrue.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 14 of 162
"#$
Here, the Joint Affidavit is not an assessment. First, it only contained a computation of PRDCs tax liability.
Second, it did not state a demand or a period for payment. Third, it was addressed to the justice secretary and not
the taxpayers.
Though the Joint Affidavit contains certain details, it continues to remain an assessment because its purpose was
merely to support and substantiate the complaint for tax evasion. It was not meant to be a notice of the tax due and
a demand of payment to PRDC. Moreover, the fact that it was specifically addressed and sent to the DOJ shows
that the CIR intended to file a complaint and not issue an assessment. Although the revenue officers
recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax
evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had
been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. Further, the
CIR received a motion for reconsideration of the tax evasion charges and not an assessment.
- - - - - - - - - - - - - - - - - - - - - - -
Other additional issues:
Assessment is not necessary before a criminal complaint may be filed.
Section 222 of the NIRC provides that in cases where a false or fraudulent return is submitted or in cases of failure to file
a return such as this case, proceedings in court may be commenced without an assessment.
Procedure on how assessments are issued:
Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then
given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner
is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly
that an assessment has been made against him or her. The criminal charge need not go through all these.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 15 of 162
"#$
11 - Republic v. Court of Appeals (1987) [assessment, mail]
Facts:
The Commissioner of Internal Revenue assessed Nielson & Co. to pay the ad valorem tax, occupation fees,
additional residence tax and 25% surcharge for late payment for the years 1949 to 1952. In a demand letter dated July 16,
1955, the CIR assessed the deficiency taxes totaling P14,449. CIR sent 3 more demand letters. Nielson did not contest the
assessment of the Court of Tax Appeals. On the theory that the assessment has become final and executory, the CIR filed
a complaint for collection of the said amount with the CFI of Manila. But since there was a failure to serve summons on
Nielson, the case was dismissed without prejudice. The CFI refiled the case which is now the subject matter of this appeal.
Issues:
1. W/N the letter of assessment dated July 16, 1955 was received by Nielson in the ordinary course of mail
Held/Ratio:
1. No. While the contention of petitioner that service is deemed complete and effective upon the expiration of five
days after mailing, the presumption that arises is merely a disputable presumption, subject to controversion and a
direct denial of Nielson of the receipt thereof shifts the burden upon the party favored by the presumption to prove
that the mailed letter was indeed received by the addressee.
However, the follow-up letter is considered a notice of assessment in itself which was duly received by Nielson in
accordance with its own admission.
Under Section 7 of RA1125, the assessment is appealable to the CTA within 30 days from receipt of the letter, the
taxpayers failure to appeal in due time makes the assessment in question final executory and demandable.
In a suit for collection of internal revenue taxes, where the assessment has already become final and executory,
the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of
the original case or the justness of the judgment relied upon.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 16 of 162
"#$
12 - Basilan Estates v. CIR (1967) WARNING: SUPER COMPLICATED
Facts:
Basilan filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of P8,028 .On February
26, 1959, the Commissioner of Internal Revenue, per examiners report of February 19, 1959, assessed Basilan Estates,
Inc., a deficiency income tax of P3,912 for 1953 and P86,876.85 as 25% surtax on unreasonably accumulated profits as of
1953. On non-payment of the assessed amount, a warrant of distraint and levy was issued but was not executed because
Basilan got the Deputy Commissioner of Internal Revenue to order the Zamboanga City District Director to hold
execution and maintain constructive embargo instead. Because of its refusal to waive the period of prescription, the
corporations request for reinvestigation was not given due course, and on December 2, 1960, notice was served the
corporation that the warrant of distraint and levy would be executed.
Basilan filed before the CTA a petition for review alleging prescription of the period for assessment and
collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and error in finding the
existence of unreasonably accumulated profits and the imposition of 25% surtax thereon. On October 31, 1963, the Court
of Tax Appeals found that there was no prescription and affirmed the deficiency assessment in toto.
Issues:
1. Has the Commissioners right to collect deficiency income tax prescribed? (NOT PART OF THE TOPIC BUT I
PUT IT HERE JUST IN CASE HE ASKS.)
2. Was the disallowance of items claimed as deductible proper?
3. Have there been unreasonably accumulated profits? If so, should the 25% surtax be imposed on the balance of the
entire surplus from 1947-1953, or only for 1953?
4. Is the petitioner exempt from the penalty tax under Republic Act 1823 amending Section 25 of the Tax?
Held/Ratio:
1. NO, the presence of circumstances that led the court to presume regularity in the performance of official
functions. The notice of assessment shows the assessment to have been made and released by the BIR on
February 26, 1959, well within the five-year period. The Commissioner himself in his letter answering
petitioners request to lift, the warrant of distraint and levy, asserts that notice had been sent to petitioner. In the
letter of the Regional Director forwarding the case to the Chief of the Investigation Division, notice of assessment
was said to have been sent to petitioner. Subsequently, the Chief of the Investigation Division indorsed on March
18, 1959 the case to the Chief of the Law Division. There it was alleged that notice was already sent to petitioner
on February 26, 1959. These circumstances pointing to official performance of duty must necessarily prevail over
petitioners contrary interpretation.
2. YES for depreciation since the income tax law does not authorize the depreciation of an asset beyond its
acquisition cost. For then what the taxpayer would recover will be, not only the acquisition cost, but also some
profit.
But NO, for expenses. These were disallowed on the ground that the nature of these expenses could not be
satisfactorily explained nor could the same be supported by appropriate papers. Under Section 337 of the Tax
Code, receipts and papers supporting such expenses need be kept by the taxpayer for a period of five years from
the last entry. At the time of the investigation, said five years had lapsed. Taxpayers stand on this issue is
therefore sustained.
3. YES, In the unreasonable accumulation of P347,507.01 are included P200,000 for electrification of driers and
mechanization and P50,000 for malaria control which were reserved way back in 1948 (p. 67 of the BIR records)
but reverted to the general fund only in 1953. If there were any plans for these amounts to be used in further
expansion through projects, it did not appear in the records as was properly indicated in 1948 when such amounts
were reserved. Thus, they are improperly accumulated



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 17 of 162
"#$
From 1947 until 1953. The previous accumulations should be considered in determining unreasonable
accumulations for the year concerned. In determining whether accumulations of earnings or profits in a particular
year are within the reasonable needs of a corporation, it is necessary to take into account prior accumulations,
since accumulations prior to the year involved may have been sufficient to cover the business needs and
additional accumulations during the year involved would not reasonably
4. NO. We have but to point out that the unreasonable accumulation was in 1953. The exemption was by virtue of
Republic Act 1823 which amended Sec. 25 only on June 22, 1957 more than three years after the period
covered by the assessment.
(NOTE: THE CASE DID NOT EXACTLY ANSWER THE QUESTION WHAT IS AN ASSESSMENT. HOWEVER, I
THINK THAT WHAT THE CASE SHOWS ARE THE PARTS OF AN ASSESMENT WHICH ARE THE
AFOREMENTIONED ISSUES AND ANSWERS EXCEPT FOR PRESCRIPTION.)
13 - Nava v. CIR (1965)
Doctrines:
The release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without
the taxpayers intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise,
the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense
Facts:
On May 15, 1951, Nava filed his income tax return for the year 1950 and was assessed, on the same day, by the
CIR the sum of P4,952 based solely on said return. He paid one half of the tax due and offered his backpay certificate to
pay the balance. The CIR refused to accept the backpay certificate. Subsequently, the CIR sent Nava notices demanding
payment of the balance.
On March 30, 1955, the CIR issued a deficiency income tax assessment notice requiring Nava to pay not later
than April 30, 1955 the sum of P9,124.50, that included the balance mentioned above and a 50% surcharge. Notices of
this revised assessment were purportedly issued to Nava. Nava claims that he learned of this assessment for the first time
only on December 19, 1956, more than five years since the original tax return was filed. Nava asked for a
reinvestigation of this new assessment and was told that it could only be done if he waives the statute of limitations. Nava
refused to do so. Hence, the CIR denied the reconsideration of the assessment. Nava then filed a case with the CTA. The
CTA reduced the assessment to P3,052.00 and cancelled the 50% surcharge.
Issues:
1. W/N the enforcement of the tax assessment has prescribed
Held/Ratio:
1. YES. While the Rules of Court presumes that a letter duly directed and mailed was received in the regular course
of mail, this cannot be applied to the case at bar. The CIR failed to prove that the assessment notice dated March
30, 1955 and other supposed written demand letters or notices were in fact issued or sent to Nava.
The CTA, in deciding the case, relied mainly on the duplicate copy of the deficiency income tax notice found in
the BIR file of Nava. Nava denied having received the original copy of the said notice. The BIR presented Sangil,
a clerk of the BIR, to establish that the original copy was actually issued on March 30, 1955. However, the
witness disclaimed having personal knowledge of its issuance or release on said date and said that there is no
notation in the file copy that stated that the original copy was ever actually issued or sent to Nava. The CTA also
relies on a note sent or delivered by Nava to the BIR where he said that he received the second final notice. The
BIR also presented Fernandez, a BIR employee who sends mail and keeps a record of letters mailed to the
taxpayers. He maintains that there was a notation that a letter dated March 15, 1957 was mailed to Nava but that
he wasnt the one who prepared such entry. At any rate, the 1957 letter was obviously mailed beyond the 5-year
limitation period.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 18 of 162
"#$
There was no valid and effective issuance or release of said deficiency income tax assessment notice dated March
30, 1955 and of the other demand letters. These dates cannot be reckoned with in computing the period of
prescription within which a court action to collect the same may be brought. The fact that Nava acknowledged
receipt of the second final notice is no proof that he received the first one by mail. There is a difference between
receiving a second final notice and receiving a final notice for the second time.
Since Navas 1950 income tax return was made on May 15, 1951, and no valid and effective notice of the re-
assessment was made after that date, it is evident that the period under Section 331 of the Tax Code within which
to make a re-assessment expired on May 15, 1956. Since the notice of said deficiency income tax was effectively
made on December 19, 1956 at the earliest, the judicial action to collect any deficiency tax on Navas 1950
income tax return has already prescribed under Section 332 (c) of the Tax Code, it having been found by the CTA
that said return was not false or fraudulent.
The release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without
the taxpayers intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise,
the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 19 of 162
"#$
14 - Barcelon, Roxas Securities, Inc. v. CIR (2006)
Doctrines:
An assessment is made within the prescriptive period if the notice of assessment is released, mailed or sent by the
CIR to the taxpayer within the said period. Receipt thereof by the taxpayer within the prescriptive period is not
necessary.
Facts:
Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.), a corporation engaged in the trading of
securities, was issued by the CIR an assessment for deficiency income tax for P826,698.31. This arose from the
disallowance of deductions for salaries, bonuses and allowances (P1.2 million) for failing to subject such items to
withholding taxes. The CIR alleges that the Formal Assessment Notice (FAN) was sent through registered mail on
February 6, 1991, while Barcelon denies receiving it and alleges to have only known of the deficiency when it was served
with a Warrant of Distraint or Levy a year later.
Important dates:
April 15, 1988 - last day of filing of return
April 15, 1991 (3 years later) - last day of sending an assessment notice
February 6, 1991 - alleged date of mailing of the assessment notice
Issue:
1. W/N the right to assess Barcelons alleged deficiency income tax is barred by prescription. (Note: Under Sec. 203
of the NIRC, the CIR has 3 years from the last day of filing of the return to send an assessment notice to a
taxpayer.)
Held/Ratio:
1. YES. The right to assess and collect the alleged deficiency income tax has already prescribed.
In CIR v. Bautista, the Court held that an assessment is made within the prescriptive period if notice to this
effect is released, mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the
taxpayer within the prescriptive period is not necessary. However, this does not dispense with the requirement
that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice.
When a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course
of mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed
with postage prepaid; and (b) that it was mailed. However, this is merely a disputable presumption. A direct
denial of the receipt thereof shifts the burden upon the party favored by the presumption (in this case, the CIR) to
prove that the mailed letter was indeed received by the addressee (Barcelon).
Since Barcelon denies receiving the assessment notice, the burden is on the CIR to prove that the assessment was
indeed received by the former. In this case, the CIR was unable to present substantial evidence to prove that the
notice was mailed before the expiration of the period and that the notice was received by Barcelon. The CIR
presented the BIR record book and the BIR records custodian who made the entries therein. However, the
testimony of the custodian is hearsay since it was not stated that she has personal knowledge of the entries nor
was it stated that the facts recorded were acquired by her personally or through official information. Furthermore,
independent evidence, such as the registry receipt, or a certification from the Bureau of Posts, could have been
easily obtained by the CIR yet it failed to present such evidence. The evidence offered by the CIR is therefore
insufficient to give rise to the presumption that the assessment notice was received in the regular course of mail.
Consequently, the right of the government to assess and collect the alleged deficiency is already barred by
prescription.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 20 of 162
"#$
15 - Collector v. Bautista (1959)
Doctrine:
Sec. 331 of the Tax Code provides that deficiency assessment must be made within 5 years after the return was
filled, and the assessment is deemed made when the notice to this effect is released, mailed or sent by the
Collector to the taxpayer, for the purpose of giving effect to said assessment. Said Section does not require that
notice be received by the taxpayer within the said period of 5 years.
Facts:
Sps. Pedro Bautista and Dativa Tan each filled a separate income tax return (ITR) in 1947. The husband reported
an income of P2300, and paid an income tax of P9, after claiming personal exemptions of P2500 as head of the family and
P500 for a minor child. The wife reported an income of P9999.9 from a sale of a lot and building at Tabora st. Manila,
paying an income tax of P490. She claimed a personal exemption of P2500 as head of the family and P500 for the same
minor child.
The BIR, assessed a deficiency tax against them in the sum of P1564.54, which was mainly based on the under-
declaration of the of the wifes share in the Tabora property and the overvaluation of the cost.
Issue:
1. W/N the right to assess the deficiency income tax has prescribed? (Important)
2. W/N the Sps. deductions should be allowed, for loses sustained as a result of a fire which destroyed their house?
(Not important)
3. W/N the Tabora property was an ordinary asset? (Not important)
Held/Ratio:
1. No. Sec. 331 of the Tax Code provides that deficiency assessment must be made within 5 years after the return
was filled, and the assessment is deemed made when the notice to this effect is released, mailed or sent by the
Collector to the taxpayer, for the purpose of giving effect to said assessment. Said Section does not require that
notice be received by the taxpayer within the said period of 5 years.
The Baustistas filled their ITR as of March 1, 1948. The Collector assessed the deficiency tax on Jan 21, 1953 and
notice to this effect was sent or given due course prior Mar 1, 1953, for it was received in the Office of the City
Treasurer of Quezon City, on Feb 13, 1953, and hence before expiration of said period.
2. No, the question of whether the disallowance was correct or not depends upon the credence of the testimonial
evidence, which the lower court was in a better position to decide.
3. No, the property was primarily held for rent, and they never occupied it as their residence.



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 21 of 162
"#$
16 - Adamson v. CA (2009)
Doctrines:
An assessment contains not only a computation of tax liabilities, but also a demand for payment within a
prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer.
To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and
received by the taxpayer.
Facts:
This case is a consolidation of G.R. No. 120935 and G.R. No. 124557.
Lucas Adamson and Adamson Management Corporation (AMC) sold 131,897 common shares of stock in
Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were valued P7,789,995. P159,363.21
was paid as capital gains tax for the transaction. On a different date, AMC sold to APAC another 229,870 common shares
of stock in AAI for P17,718,360. AMC paid capital gains tax of P352,242.96. The Commissioner issued a Notice of
Taxpayer to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of
deficiencies on their payment of capital gains tax and Value Added Tax (VAT).
G.R. No. 120935
Private respondents Lucas Adamson, Therese Adamson and Sara delos Reyes (in their capacity as
president, treasurer and secretary of AMC, respectively) were criminally charged before the RTC of Makati for
tax evasion. In a Motion for Reconsideration Lucas, Therese and Sara invoked the grounds that there was yet no final
assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases. The trial court
granted the Motion. The Commissioner filed a Petition for Review with the Court of Appeals assailing the trial courts
dismissal of the criminal cases. She averred that it was not a condition prerequisite that a formal assessment should
first be given to the private respondents before she may file the aforesaid criminal complaints against them. She
argued that the criminal complaints for tax evasion may proceed independently from the assessment cases pending
before the CTA.
The Court of Appeals reversed the trial courts decision and reinstated the criminal complaints. The appellate
court held that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the
offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax.

It ruled that private respondents filed false and fraudulent returns with
intent to evade taxes, and acting thereupon, the Commissioner filed an Affidavit of Complaint with the Department of
Justice, without an accompanying assessment of the tax deficiency of private respondents, in order to commence criminal
action against the latter for tax evasion.
G.R. No. 124557
AMC, Lucas Adamson, Therese Adamson and Sara de los Reyes filed a Petition for Review with the CTA. They
assailed the Commissioners finding of tax evasion against them. The Commissioner moved to dismiss the petition. The
CTA denied the Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ
as an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of
petitioners protest regarding the tax deficiency.
The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave abuse of
discretion. She maintained that she had not yet issued a formal assessment of tax liability, and the tax deficiency
amounts mentioned in her criminal complaint with the DOJ were given only to show the difference between the tax
returns filed and the audit findings of the revenue examiner.
Issues:
1. W/N the Commissioner has already rendered an assessment of the tax liability of AMC, Lucas Adamson, Therese
Adamson and Sara delos Reyes


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 22 of 162
"#$
2. W/N the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a
formal assessment.
Held/Ratio:
1. No. An assessment contains not only a computation of tax liabilities, but also a demand for payment within
a prescribed period. It also signals the time when penalties and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be
served on and received by the taxpayer. A formal assessment is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice
to the taxpayer.
In the present case, the revenue officers Affidavit that was submitted to the DOJ merely contained a
computation of respondents tax liability. It did not state a demand or a period for payment. Worse, it was
addressed to the justice secretary, not to the taxpayers. That the BIR examiners Joint Affidavit attached to the
Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it
an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal
Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the
private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private
respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to
issue an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is
issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance
to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through
all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal
case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a
criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax
Code.
Therefore, the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a
cursory perusal of the said letter would reveal three key points:
a. It was not addressed to the taxpayers.
b. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set
therein.
c. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations
2. Yes.
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes. - (a) In the
case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court after the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud or omission:
Provided, That in a fraud assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for collection thereof
The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after
the collection of such tax may be begun without assessment. Here, the private respondents had already filed the
capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 23 of 162
"#$
investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to
APAC Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of
services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the
amounts actually declared by the private respondents constitutes badges of fraud.
The case of Ungab v. Cusi was applied to the case at bar. In this case, the Court ruled that there was no need for
precise computation and formal assessment in order for criminal complaints to be filed against him.
17 - Collector v. Benipayo (1962) (extrapolation of 3:1 child-to-adult ratio)
Doctrines:
Assessment must be based on actual facts.
Facts:
Respondent Alberto Benipayo is the owner and operator of the Lucena Theater located in the municipality of
Lucena, Quezon. In October of 1953 Internal Revenue Agent Romeo de Guias investigated respondents amusement tax
liability in connection with the operation of Benipayos theater.
His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena
Theater was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period the
period from August, 1952 to September, 1953, the proportion is reversed - three children to one adult. From this he
concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the
amusement tax prescribed in Section 260 of the National Internal Revenue Code. Based on the average ratio between
adult and children attendance in the past years, Examiner de Guia recommended a deficiency amusement tax assessment
against respondent in the sum of P11,193.45, inclusive of 25% surcharge, plus a suggested compromise penalty of
P900.00 for violation of section 260 of the National Internal Revenue Code, or a total sum of P12,093.45 covering the
period from August, 1952 to September, 1953 inclusive. In July of 1954, CIR issued a deficiency amusement tax
assessment against Benipayo. In August 1954, Benipayo filed the corresponding protest with the Conference Staff of the
Bureau of Internal Revenue.
After due hearing, the Conference Staff submitted to petitioner Collector of Internal Revenue its finding to the
effect that the meager reports of these fieldmen (Examiner de Guia and the Provincial Revenue Agent of Quezon) are
mere presumptions and conclusions, devoid of findings of the fact of the alleged fraudulent practices of the herein
taxpayer. In view thereof, and as recommended by the Conference Staff, CIR referred the case back to the Provincial
Revenue Agent of Quezon for further investigation. The Provincial Revenue Officer H.I. Bernardo reinforced the findings
of Agent De Guia. His report stated that returns from July 1-11 showed tickets with ratio of 1:3, but from July 14-24,
when agents for his office supervised in the sales of admission tickets, the sales ratio soared to 3:1. His investigation
report read without fear of contradiction that the ratio of 3:1 xxx conveys the true picture of the situation under the law of
averages.
Thereafter, the Conference Staff of the Bureau of Internal Revenue recommended to the Collector of Internal
Revenue the issuance of the deficiency amusement tax assessment in question in this appeal. CTA reversed the decision of
the CIR, relieving Benipayo of the deficiency amusement tax assessed.
Issues:
1. W/N there is sufficient evidence in the record showing that Benipayo sold and issued to his adult customers two
tax-free 20-centavo childrens tickets, instead of one 40-centavo ticket for each adult customer; to cheat or
defraud the Government.
Held/Ratio:
1. NO. The Court quoted the decision of the CTA:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 24 of 162
"#$
[A]ssessments should not be based on mere presumptions no matter how reasonable or logical
said presumptions may be. Assuming arguendo that the average ratio of adults and children
patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the
inference that the same conditions existed during the years in question (1952 and 1953). The fact
that almost the same ratio existed during the month of July, 1955 does not provide a sufficient
inference on the conditions in 1952 and 1953. ..
In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The
presumption of correctness of assessment being a mere presumption cannot be made to rest on
another presumption that the circumstances in 1952 and 1953 are presumed to be the same as
those existing in 1949 to 1951 and July 1955. In the case under consideration there are no
substantial facts to support the assessment in question. ...
Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the
present case, is lacking.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 25 of 162
"#$
18 - CIR v. Hantex Trading Co., Inc. (2005)
Doctrine:
The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places
no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is
kept. The purpose is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The
standard is not the form of the record but where it might shed light on the accuracy of the taxpayers return.
As a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All
presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such
assessment was based on sufficient evidence.
Facts:
Hantex Trading Co., Inc. is a corporation engaged in the sale of plastic products and importation of synthetic resin
and other chemicals for the manufacture of its products. It is required to file an Import Entry and Internal Revenue
Declaration (Consumption Entry) with the Bureau of Customs.
In October 1989, Lt. Amoto, Acting Chief of the Counter-Intelligence Division of the Economic Intelligence and
Investigation Bureau (EIIB), received confidential information that Hantex had imported synthetic resin amounting to
P115,599,018.00 but only declared P45,538,694.97 for the year 1987. The informer based it on the photocopies of 77
Consumption Entries furnished by another informer. The EIIB failed to secure certified copies since the custodian in the
Bureau of Customs told them that the original copies had been eaten by termites. The Chief of the Collection Division
Merlita Tomas of the Port of Manila could also not authenticate the copies since she did not have the originals. She wrote
a letter, merely indicating the entry numbers and the date of release of the imports made by Hantex. The Bureau of
Customs Chief of Collection Division Augusto Danganan also could not authenticate the import entries since the originals
had also been eaten by termites. He just issued a certification of the entries filed by Hantex.
Thus, the EIIB relied on the photocopies and the certifications of Tomas and Danganan and recommended the
collection of the tax assessment to the BIR. The BIR conducted an investigation and found out that there was a prima
facie case of fraud against Hantex, based on the report of the EIIB. The BIR Commissioner sent a letter dated April 15,
1991 to demand payment of the deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25,
inclusive of surcharge and interest.
Hantex made a protest and stated that since the officers failed to present the original or authenticated copies of the
Consumption and Import Entry Accounts. However, the CIR denied the request. The CTA ruled in favor of the BIR and
Hantex was ordered to pay. However, the CA reversed the decision and ruled that the assessments were unlawful and
baseless since the photocopies were not duly authenticated nor verified under oath by the investigators.
Issue:
1. W/N the BIRs assessment against Hantex for deficiency income tax and sales tax for the was based on actual
facts
Held/Ratio:
1. NO. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other
taxpayers engaged in the same line of business, including their gross profit and net profit sales. The court stated
that the law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It
places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR
is kept. The purpose is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The
BIR Commissioner was correct in saying that the best evidence may consist of hearsay evidence. The general rule
is that administrative agencies such as the BIR are not bound by the technical rules of evidence.
However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include
mere photocopies of records/documents. The BIR, in making a preliminary and final tax deficiency assessment


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 26 of 162
"#$
against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative weight if offered as proof of the contents
thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as
basis for any deficiency income or business taxes against a taxpayer.
The Court in Collector of Internal Revenue v. Benipayo ruled that the assessment must be based on actual
facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished
by the informer of the EIIB were furnished by another informer. The BIR or the EIIB could have gotten hold of
the originals since these are accomplished in several copies.
The BIR acted arbitrarily and capriciously in relying on the machine copies of the Consumption Entries.
Also, it should not have considered the certifications made by Tomas and Danganan because they did not
authenticate the copies of the Consumption Entries. They just indicated in their letters the numbers of the
entries and the dates of release of the imports.




TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 27 of 162
"#$
19 - People v. Sandiganbayan (2005) (San Miguel 300M to 10M tax)
Doctrines:
A final assessment is needed as the basis for collection by distraint or levy.
An abatement or cancellation of the taxes due is proper if the assessment is erroneous or excessive.
Facts:
The BIR assessed that San Miguel Corp. (SMC) had a tax deficiency of up to P343M on specific and ad valorem
taxes for the fiscal year 1985-1986. On 13 July 1987, it sent a PAN demanding payment of the assessed deficiency. On
August 10, SMC protested the assessment, arguing that 1) its excess ad valorem payments (because the BIR had a scheme
allowing the pre-payments of taxes) should be applied to its deficiency in payment of specific taxes, and 2) that the BIR
computed its ad valorem tax deficiency wrongly by disallowing the deduction of the price differential (cost of freight from
place of production to warehouse) and the ad valorem tax itself from the tax base. On October 7, the protest was denied,
but the BIR reduced the tax deficiency to around P302M by allowing the excess ad valorem deposits to be credited. CIR
Bienvenido Tan wrote to SMC of the decision on their protest on October 8. SMC received this letter on October 26.
On October 27, SMC representatives met with Tan in order to orally move to have the assessment reinvestigated.
Tan then forwarded the matter to different BIR officials under him to ask for their opinion on how much deficiency tax
should really be paid by SMC. On November 2, SMC filed a request for reinvestigation. The Chief of the Legislative
Ruling and Research Division recommended that SMCs tax liability should be reduced to P22M. On 21 August 1988,
SMC offered to pay P10M to settle the assessment. The Chief of the BIRs Prosecutor Division and the Legal Service
Assistant Commissioner recommended the acceptance of the compromise settlement. In the end, Tan approved the
compromise settlement.
Because of this, Tan was charged with violating Sec. 3(e) of the Anti-Graft and Corrupt Practices Act by
approving a compromise agreement reducing SMCs liability from P302 to P10, which was grossly disadvantageous to
the government. The Sandiganbayan acquitted Tan, but the Ombudsman still raised the case to the SC on certiorari.
According to the Ombudsman, the P302 assessment was already final and executory since SMC did not appeal to the
CTA, so it could not have been the subject of a compromise agreement anymore.
Issues:
1. W/N the assessment was final and executory (impt for IV-A)
2. W/N the compromise was proper (impt for IV-F)
Held/Ratio:
1. NO, the assessment was not yet final and executory. When Tan wrote to SMC on October 8 to say that the BIR
has finally decided on its case, he was pertaining to the decision on SMCs protest and not on the assessment
itself. It did not constitute as a final assessment on SMCs tax liability. First, the phrase finally decided referred
to the reduction of the assessment, not to total amount of deficiency. Assuming arguendo that it was a final
assessment, its finality was suspended because of Tans handwritten note on the bottom left of the 2
nd
page,
extending the period for tender of payment because he was going to refer the assessment to the BIRs Legal
Service.
Thus, while it was reviewing SMCs request for reinvestigation, the BIR did not render a decision about the
disputed assessment, and consequently, it could not yet have given a FAN to SMC. Because the assessment was
clearly not yet final, executory or demandable, and while it is pending with the CIR, it cannot serve as the
basis of collection by distraint or levy or by judicial action. (This is the only mention of distraint/levy in the
case.)
Here are more reasons why the court said that the assessment wasnt final yet:
Second, SMC filed a timely request for reinvestigation on November 2. Since it received the alleged assessment
only on October 26, their administrative protest was done within 30 days of such receipt, as allowed under Sec.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 28 of 162
"#$
229. Further, SMCs oral protest on their October 27 meeting with Tan was not merely pro formait is
considered as a protest already, and it suspended the period for appeal. Third, after SMCs request for
reinvestigation, there was no other issuance from BIR that could be considered as a decision. Thus, SMC could
not appeal to the CTA, which only had jurisdiction over decisions involving disputed assessments, and not on the
assessments themselves. Fourth, it was also quite obvious that no decision could be rendered yet since the protest
was referred to different BIR officials for further review. Fifth and last, petitioners reliance on Sec. 228 (which
provided that after the BIRs inaction over the protest over 180 days, the taxpayer could appeal to the CTA) was
erroneous since during this time, RA 8424, which amended Sec. 228 to supersede Sec. 229, was not yet in effect.
Thus, even if the review took more than 180 days, SMC had no other recourse but to wait for the BIRs decision.
2. YES. The court said that what really happened was an abatement or cancellation, and not a compromise. An
abatement is the diminution or decrease in the amount of tax imposed, and it refers to the act of eliminating,
nullifying, lessening, or moderating the tax imposed. Cancellation, on the other hand, means to obliterate, cross
out, or invalidate and to strike out, delete, erase, make void or invalid, annul, destroy, revoke or recall the tax
imposed. The BIR may abate or cancel the whole or any unpaid portion of a tax liability, including its
increments, if its assessment is excessive or erroneous, or if the administration costs involved dont justify
the collection of the amount due. There is no need for mutual concessions, because an excessive or
erroneous tax is not compromisedit is abated or canceled. Moreover, there was no finality in the assessment
that could be settled.
Here, the tax deficiency imposed on SMC was erroneous since it was computed wrongly. When the BIR assessors
computed SMCs alleged tax liability, the price that they used as the tax base included the price differential and
the ad valorem tax itself. As proved by Tan, the tax base should be based on the price of the liquor while it is at
the brewery where it was produced, since as per Sec. 110 of the NIRC, as amended by PD 1994 in 1986, the
excise tax of a domestic product should be paid before the removal of such product from the place of production.
Thus, price differential should not be counted in the tax base. And by including the ad valorem tax in the tax base,
essentially, they imposed tax on another tax (tax pyramiding, which has no basis in fact or in law). Moreover, Tan
showed that inclusion of the ad valorem tax in the tax base would only yield to a circuitous manner of
computation that can never end in imposing the proper ad valorem tax on the taxpayer.



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 29 of 162
"#$
20 - Republic v. Lim Tian Teng Sons and Co., Inc (1966) (Copra outturn)
Doctrines:
The Collector of Internal Revenue is authorized to collect delinquent internal revenue tax either by distraint, levy
or by judicial action or both as long as he assesses the same within the time fixed by law and should be timely
appealed to the Court of Tax Appeal as per RA 1125 Sec. 11.
Facts:
Lim Tian Teng & Sons (LTT) was a domestic corporation based in Cebu which was engaged in the export of
copra. The copra was weighed both at the point of departure and the point of destination. The weight at the point of
departure before shipment was called copra outturn. To allow loss of weight due to shrinkage LTT collected only 95% of
the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final
liquidation and adjustment. On March 30, 1953 they filed their income tax return for 1952 based on accrued income and
expenses and it showed a loss of P50K. They took as part of the beginning inventory for 1952 the copra outturn shipped in
1951 in the sum of P95K they already partially collected as part of its outstanding stock as of Dec. 31, 1951. The
Collector of Internal Revenue (CIR) audited and examined their 1952 return and eliminated the P95K outturn from the
beginning inventory of 1952 and considered it as an accrued income for 1951. This increased LTTs income in 1952 by
P95K and raised their taxable income. Subsequently, the CIR in a letter dated Jan. 16, 1957 assessed LTT a deficiency
income tax of P10K and a surcharge of P5K and demanded payment on Feb 15, 1957. On Jan 31, 1957 LTT requested a
reinvestigation. There was no reply from the CIR but instead referred the case to the Solicitor General for collection. On a
letter dated Sept 20, 1957 which must have been received no later than Oct 8, 1957, the SolGen demanded from LTT
payment within 5 days otherwise judicial action would be instituted without notice. LTT in a letter reiterated its request
for reinvestigation and to be allowed to present supporting papers concerning its tax liability. This request was relayed by
the SolGen to the CIR. The Deputy CIR wrote a letter to LTT informing them that a reinvestigation would be granted if
LTT executed a waiver of the statute of limitations within 10 days. This was extended up to Dec 31 1957 and advised
LTT that if no waiver was produced by this date then a judicial action for collection would be instituted without notice.
LTT failed to file a waiver and the CIR instituted an action in the CFI of Cebu for collection of deficiency income tax on
Sept 2, 1958 or 8 months later. The CFI ruled in favor of the CIR but the latter moved for reconsideration on the fact that
the decision did not include a 5% surcharge for late payment of tax.
Issues:
1. W/N the CFI has jurisdiction to entertain the collection case against LTT even if the CIR has not made a decision
on the request of reinvestigation?
2. W/N the assessment was final and executory?
3. W/N the assessment was correct?
Held/Ratio:
1. Yes. The stand of LTT that the CIR has to make a final decision on the assessment before the filing of a collection
case has no merit. The CIR is authorized to collect delinquent taxes either by distraint and levy or by judicial
action or both simultaneously. The only requisite before he can collect the tax is that he must assess the same
within the time fixed by law and in the case of false or fraudulent return with intent to evade the tax or for failure
to file a return, a proceeding in court for collection may be begun without an assessment. The Tax Code does not
require the CIR to rule first on request for reinvestigation before going to court to collect the assessed tax. Infact
Sec 305 of the Tax Code withholds from all courts except the Court of Tax Appeal (CTA) under Sec 11 of
RA1125 the authority to restrain the collection of any national internal revenue tax, fee or charge. Before the
creation of the CTA, the remedy of a taxpayer who contests an assessment was to pay the tax and bring an action
in court for recovery under Sec 306 of the Code. The CTA now allows the taxpayer to dispute the correctness and
legality of an assessment both in a purely administrative level and in the said court but it does not stop the CIR
from collecting tax through any means provided by Sec 316 of the Code unless enjoined by the same CTA.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 30 of 162
"#$
2. Yes. The Court considered that the decision of the CIR to collect the tax was indicative of its decision against
reinvestigation. This was communicated to LTT by the SolGen in its letter dated Sept 20, 1957 which must have
been received no later than Oct. 8, 1957. They had from this date 30 days to appeal the assessment to the CTA.
Instead they again requested for a reinvestigation. The CIR responded to LTT by saying that the request would be
granted if they would sign a waiver of statute of limitation as per General Circular V-258. The deadline to submit
was Dec 31, 1957. Having failed to file a waiver automatically brought the denial of the request for
reinvestigation. The Court further said that even if the reckoning date to file an appeal to the CTA was moved
from Oct 8 to Dec 31, 1957, the period to file an appeal has long passed when the action for collection was filed
in the CFI in Sept. 1958. Taxpayers failure to file an appeal to the CTA in due time made the assessment final,
executory and demandable. LTT was barred from disputing the correctness of the assessment. No inquiry can be
made on the merit of the original case or the justness of the judgment other than evidence of want of jurisdiction,
of collusion between the parties or fraud in a party offering the record with respect to the proceedings.
3. Yes. From what appeared in the 1952 return the accounting method used by LTT was the accrual method of
accounting. As such the copra outturn in the amount of P95K should have been treated as accrued income of 1951
instead of stock on hand of 1952. There if every indication that the 1952 income was fraudulent. That the
beginning inventory for 1952 considered the copra outturn on hand but as of Dec 31 1951 it was not in its bodega
anymore. It was in transit to a foreign port and they no longer owned the copra as it was already paid for. They
did not follow their own system of accounting. This deviation was made to lessen its tax liability. Therefore the
surcharge of 50% was correct.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 31 of 162
"#$
21 - Edward San Juan v. Vasquez & CIR (1961)
Doctrines:
Court of Tax Appeals has exclusive appellate jurisdiction to review by appeal decisions of the CIR in cases
involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue.
CIR may not ignore the positive dispute against the assessment by immediately bringing an action to collect, thus
depriving the taxpayer of his right to appeal the disputed assessment.
Facts:
On June 5, 1954, The Collector of Internal Revenue informed San Juan, through his accountant, that he has until
July 16, 1954 to pay deficiency taxes (P19,704.50) without penalty or until July 31, 1954 to submit evidence to refute the
CIRs assessment. San Juans accountant wrote a letter dated July 30, 1954 to the CIR. He explained why the assessments
were not due and owed to CIR, and begged the CIR to reconsider the penalties. He also assured full payment upon receipt
of the adjusted assessment. The CIR did not respond to the letter.
On February 25, 1959, the CIR brought the action seeking to enjoin San Juan before the CFI of Manila. San Juan
contested the assessments in his answer. He alleged that the action has already prescribed as it was filed more than 5 years
from the date of the return. San Juan moved to dismiss the action on the ground that the CTA, not the CFI, had proper
jurisdiction. He also claimed that a case was pending before the CTA. The CFI denied the Motion to Dismiss. An MR was
filed but it was also denied. San Juan filed a Petition for certiorari and prohibition alleging CFIs lack of jurisdiction.
Issues:
1. W/N the CFI lacked jurisdiction over cases involving disputed assessments
Held/Ratio:
a) YES. It is the CTA who has proper jurisdiction.
Under Sec. 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review
by appeal decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal Revenue.
The criminal complaint against San Juan is for the recovery of income taxes and deficiency tax. San Juan
questioned the correctness of the assessment in both his accountants letter and his answer. Despite this, the CIR
refused to correct the assessment and claimed that it was made in accordance with law. However, the CIR may
not overlook the fact that the assessment had been disputed as the objections to the assessment had been made
within the period. He may not ignore the positive dispute against the assessment by immediately bringing an
action to collect, thus depriving the taxpayer of his right to appeal the disputed assessment.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 32 of 162
"#$
22 - Yabes v. Flojo (1982)
Doctrine:
The CFI of Cagayan (civil courts) can only acquire jurisdiction over a case filed against the heirs of the taxpayer
if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the
contrary is established, then the Court of Tax Appeals has exclusive jurisdiction over the case.
Facts:
Doroteo Yabes was, for sometime, an exclusive dealer of products of the International Harvester Macleod, Inc.
On May 1, 1962, He received a letter from the CIR demanding payment of the amount of P15,976.81 as commercial
brokers fixed and percentage taxes plus surcharges and the sum of P2,530 as compromise penalty allegedly due from
Yabes for the years 1956-1960. Yabes protested the assessment against him on the ground that his agreements with the
International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence he claimed he was not
liable to pay such kind of taxes. The Commissioner informed Yabes that he acted as a commercial broker in accordance
with the ruling of the BIR in the case of Cirilo D. Constantino. Yabes then sent two letters:
1. An appeal, requesting for the reinvestigation, or review of the case by the appellate division of the Bureau of
Internal Revenue.
2. A request that the appeal be held in abeyance pending final decision of the Case of Cirilo D. Constantino (a
case involving similar facts.)
In reply, the COMMISSIONER INFORMED YABES IN A LETTER (DATED SEPTEMBER 18, 1962)
THAT HIS REQUEST FOR REINVESTIGATION WAS DENIED ON THE GROUND THAT HE HAS NOT
SUBMITTED ANY EVIDENCE TO OFFSET THE FINDINGS OF THE BIR as to warrant a reinvestigation thereof.
However, eight days later or on September 26, 1962, the Commissioner wrote a letter advising Yabes that the
administrative appeal will be held in abeyance pending the resolution of the issues in the Constantino case.
To give time for the Commissioner to study the case and several other cases similar thereto, Yabes filed a tax
waiver on October 20, 1962, extending the period of prescription to December 31, 1967. Yabes died on March 13, 1963
and no estate proceedings were instituted for the settlement of his estate. His widow also died during the pendency of the
case; the petitioners in this case are the deceased taxpayers heirs.
On March 14, 1966, the Court of Tax Appeals decided the Constantino case and ruled that agreements
entered into by Constantino with the International Harvester Macleod, Inc. were of purchase and sale, and not of
agency, hence no commercial brokers fixed and percentage fees could be collected from the said taxpayer. However
on appeal, the CA reversed the ruling of the CTA and ruled in favor of the Commissioner of Internal Revenue.
After a lapse of about five years, the heirs of Yabes, through their lawyers, received on August 4, 1967, a
letter from the Commissioner dated July 27, 1967, requesting the heirs to waive anew the Statute of Limitations
and further confirming the previous understanding that the final resolution of the protest of the deceased Doroteo
Yabes was being held in abeyance until the Supreme Court renders its decision in the Constantino case. The heirs
of Doroteo Yabes filed a revised waiver further extending the period of prescription to December 31, 1970.
For 3 years, no word was received by the heirs of Yabes or their lawyers. On January 20, 1971, the heirs of
Yabes received the summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the
Court of First Instance of Cagayan which seeks to collect from the petitioners the sum of P15,976.82, as deficiency
commercial brokers fixed and percentage taxes, including surcharges and interest thereon, due from their predecessor-in-
interest, Doroteo Yabes, by reason of the latters income derived from transactions as dealer of the products of the
International Harvester Macleod, Inc.
Taking the complaint as the final decision of the Commissioner on the disputed assessment against the
deceased taxpayer Doroteo Yabes, petitioners filed on February 12, 1971, a petition for review of said disputed
assessment with the Court of Tax Appeals. On the same day, the heirs of Yabes filed their answer to the complaint
of the Commissioner before the Court of First Instance of Cagayan and alleged therein that the Court of Tax Appeals
has exclusive jurisdiction over the action and that there is another action of the same nature between the parties relating to


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 33 of 162
"#$
the same assessment pending before the Court of Tax Appeals. The Commissioner filed a motion to dismiss with the
Court of Tax Appeals and subsequently filed a memorandum in support of said motion to dismiss, on the ground
that the assessment against Doroteo Yabes had already become final, executory and incontestable (Final na daw
kasi hindi nag-appeal si Yabes within 30 days from the denial of his protest dated September 18, 1962. Yung naka-all
caps na part. Haha.), and the Court of Tax Appeals had no jurisdiction over the case.
The heirs filed a formal motion to dismiss with the Court of First Instance of Cagayan on the grounds that
said Court has no jurisdiction over the case and that there is another action pending between the same parties for the
same cause before a competent court. The CFI of Cagayan denied the heirs motion to dismiss on the ground that the
heirs have already made a previous answer wherein they categorically admitted the jurisdiction of the court over
the subject matter.
Issues:
1. W/N the assessment made by the CIR against Doroteo Yabes has become final, executory and incontestable after
failing to appeal within the 30-day period from the denial (dated September 18, 1962) of the protest against such
assessment.
2. W/N the CFI of Cagayan has jurisdiction over the case.
Held/Ratio:
1. No. The period for appeal should NOT be counted from September 18, 1962. In a letter of July 27, 1967, CIR
informed the heirs that a resolution of their protest was being held in abeyance until the Supreme Court
renders a decision on a similar case involving the same factual and legal issues. (The Constantino case)
As a matter of fact, in an earlier letter dated September 26, 1962, the CIR also informed the heirs counsel that
administrative appeal for and in behalf of their clients win be held in abeyance pending resolution of the issues
on a similar case which was appealed by you to the Court of Tax Appeals. It is clear from the letters that the
CIR reconsidered the finality of its decision regarding the protest and therefore the assessment cannot be
considered final and executory.
2. No. Under the circumstances of the case, what may be considered as final decision or assessment of the
Commissioner is the filing of the complaint for collection in the CFI of Cagayan, the summons of which was
served on the heirs on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals was
filed on time. The CFI of Cagayan can only acquire jurisdiction over this case filed against the heirs of the
taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and
incontestable. If the contrary is established, then the Court of Tax Appeals has exclusive jurisdiction over
this case. The heirs received the summons in the case filed before the CFI of Cagayan on January 20, 1971, and
they filed their appeal with the Court of Tax Appeals on February 12, 1971, well within the thirty-day prescriptive
period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate
jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving
disputed assessments and other matters arising under the National Internal Revenue Code.
Additional: The Court ruled that the dismissal of the complaint is not sufficient. The ends of justice would best be served
by considering the complaint filed in CFI of Cagayan not only as a final notice of assessment but also as a counterclaim in
the CTA case, in order to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy between the
parties. After all, the two cases involve the same parties, the same subject matter, and the same issue, which is the liability
of the heirs of the deceased Doroteo Yabes for commercial brokers fixed and percentage taxes due from the said
deceased.






TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 34 of 162
"#$
23 - Emilio E. Lim, Sr. and Antonia Sun Lim v. CA (1990)
Doctrines:
The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the same time
to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to
that effect.
Facts:
Emilio Lim, Sr. and Antonia Sun Lim were engaged in the dealership of various household appliances. They filed
income tax returns for 1958 and 1959. In 1959, a raid was conducted at their business address in Manila by the NBI. The
NBI seized business and accounting records which served as bases for an investigation undertaken by the BIR.
In 1964, the BIR discovered that the ITRs filed by the petitioners were false or fraudulent. In 1965, the BIR
informed the petitioners that they were to pay P922,913.04 as deficiency income taxes. Emilio requested for a
reinvestigation that was denied by the BIR for Lims refusal to accomplish a waiver of prescription.
In 1967, the BIR assessed the petitioners P934,000.54 as deficiency income taxes plus interest and compromise
penalty. The petitioners protested this latest assessment and repeated the request for reinvestigation. The BIR rendered a
final decision, requiring petitioners to pay the deficiency income taxes. A final notice and demand for payment was served
on petitioners in 1968.
The petitioners did not pay the taxes. Hence, 4 separate criminal informations were filed against the petitioners in
the CFI of Manila for violation of Sections 45 and 51 in relation to Section 73 of the NIRC. The CFI ruled in favor of the
BIR and ordered the petitioners to pay a fine and to pay the government pursuant to PD 69 the deficiency taxes. On
appeal, the CA affirmed the CFI decision. 23 days later, Emilio Lim, Sr. died. Antonia moved for a reconsideration of the
CA decision. The CA then decided that by the death of Emilio, his criminal liability is extinguished and his heirs are
substituted as to the civil aspect of the case.
Issues:
1. W/N the criminal charges prescribed in 10 years
2. W/N the prescriptive period commenced to run from the date of the final assessment (1968)
3. W/N the petitioners should pay the deficiency taxes to the government under PD 69, as decided by the CFI
Held/Ratio:
1. NO, FIVE, as provided by the NIRC: All violations of any provision of this Code shall prescribe after five
years.
2. YES. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the CIR. Hence, it
was only in 1968 that the cause of action on the part of the BIR accrued. The offense was committed only after
receipt of the letter-assessment with the willful refusal to pay the taxes due.
3. NO. SC said that the lower court erred in applying PD 69, which provides that the judgment in the criminal case
shall not only impose the penalty but shall order payment of the taxes subject of the criminal case. The decree
took effect on January 1, 1973, while the criminal cases were instituted on June 23, 1970. PD 69 has no
retroactive effect. The SC added that there is no legal sanction for the imposition of payment of the civil
indemnity to the Government in a criminal proceeding for violation of income tax laws. While Section 73
provides for the imposition of the penalty for refusal or neglect to pay income tax or to make a return thereof, by
imprisonment or fine or both, it fails to provide for the collection of said tax in criminal proceedings. The NIRC
provides only civil remedies for the collection of income tax, such as distraint of goods, chattels or by judicial
action. The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the
same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax
Code to that effect. Antonia Sun Lim was ordered to pay the fine. The fine is deemed extinguished in the case of
the deceased Emilio.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 35 of 162
"#$
24 - Republic of the Philippines v. Pedro Patanao (1967)
Facts:
This is an appeal from an order of the CFI of Agusan in a civil case, dismissing the Republics complaint in so far
as it concerns the collection of deficiency income taxes (taxable year 1951, 1953 and 1954) and residence taxes (1951-
52).
Patanao was engaged in the business of producing logs and lumber for sale during the years 1951-55. It was
alleged that he failed to file income tax returns for 1953 and 1954 and that the return he filed for 1951, 1952 and 1955
were false and fraudulent because he did not report substantial income earned by him from his business.
The Republic through the Deputy Commissioner of Internal Revenue sent a letter of demand with enclosed
income taxes assessment. Notwithstanding repeated demands, the Republic refused, failed and neglected to pay the taxes
and the assessment became final, executory and demandable because it was not contested before the CTA,
Patanao moved to dismiss the complaint on 2 grounds:
1. Action is barred by prior judgment, Patanao having been previously acquitted in criminal cases for failure
to file income tax returns and non-payment of income taxes.
2. Action is prescribed.
After considering the motion to dismiss, the opposition and the rejoinder to the opposition, the lower court held
that the only cause of action left to the Republic is for the collection of income tax due for the year 1955 and the residence
tax for 1953 to 1955. The lower court ruled that the present action was barred by prior judgment, being that the accused
was acquitted in prior criminal cases for not filing and non-payment of his income tax returns for the years 1953 and
1954. Since there was no waiver or reservation as to the filing of a separate civil vase, Patanao was completely exonerated
of any civil action to collect the payment of the said taxes.
Issues:
1. W/N the lower court properly dismissed the case for being barred by prior judgment.
Held/Ratio:
1. NO, the court fell into error in applying the principle underlying the civil liability of an offender under the Penal
Code to a case involving the collection of taxes. The 2 cases are of different factual premises, which are opposed
to each other and founded on entirely different philosophies.
Under the penal law, civil liability is incurred by reason of the offenders criminal act. Meanwhile, under the
income tax law, the civil liability to pay taxes arises from engaging in a taxable activity (i.e. business) and the
criminal liability from the failure to satisfy such civil obligation. The difference in the factual premises and
foundation principles of the 2 cases is one of the reasons for not imposing civil indemnity on the criminal
infractor of the income tax law. Also, while the NIRC provided the imposition of the penalty of imprisonment or
fine for refusal or neglect to pay income taxes or to make a return, it failed to provide for collection of income tax
in criminal proceedings. The only civil remedies provided for the collection of income tax are distraint of goods,
chattels by judicial action, which are remedies generally exclusive in the absence of a contrary intent.
The acquittal in criminal cases cannot operate to discharge Patanao from the duty of paying taxes which the law
requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the
taxpayer to evade payment. The obligation is not a consequence of the felonious acts charged in the criminal
proceedings, nor is it a mere civil liability arising from crime tat could be wiped out by the judicial declaration of
non-exitence of the criminal acts charged.
As to the prescription of the action, the complaint was filed on December 7, 1962 and was not barred by
prescription because what was applicable was the 10-year prescription period from the discovery of the falsity,
fraud or omission. The fraud in the income tax return for 1951 was discovered on February 14, 1958 hence the
1962 filing was well within the 10-year prescription period.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 36 of 162
"#$
25 - Ungab v. Judge Cusi (1980)
Doctrines:
There is no requirement for the precise computation and assessment of the tax before there can be a
criminal prosecution under the Code. The crime is complete when the violator has knowingly and willfully
filed fraudulent returns with intent to evade and defeat taxes.
Facts:
On July 1974, BIR examiner Garcia examined the income tax returns of Ungab for the calendar year 1973. Garcia
discovered that Ungab failed to report his income from sales of banana saplings. So, the BIR District Revenue Officer
sent a Notice of Taxpayer to Ungab saying that he owes P104,980 (income, business tax and forest charges). They
also invited him and his lawyer to an informal conference where he could present his objections.
Upon receipt of the notice, Ungab protested the assessment claiming that he was only a dealer/agent on
commission basis in the banana sapling business and that his income was correct. BIR Examiner Garcia however was
convinced that Ungab had filed a fraudulent return so he submitted Fraud Referral Report to the Tax Fraud Unit of
the BIR. The Unit found sufficient proof that Ungab is guilty of tax evasion and recommended his prosecution. The
Commissioner of the BIR approved the prosecution on the second indorsement.
State Prosecutor Acebes (designated to assist in all violations of the NIRC) conducted a preliminary
investigation of the case and finding probable cause filed 6 informations against Ungab. Ungab filed a motion to quash to
annul the informations filed against him but Judge Cusi denied this.
Issues:
1. W/N the State Prosecutor has authority to initiate and prosecute the case against him
2. W/N the court has jurisdiction even though there is a pending protest against the assessment made by the BIR
Examiner
Held/Ratio:
1. YES. The State Prosecutor first sought permission from the City Fiscal of Davao before he started the preliminary
investigation of these cases. The Fiscal, designating the State Prosecutor to assist all fiscals in the investigation
and prosecution of all violations of the NIRC, graciously allowed the State Prosecutor to conduct the
investigation. In fact, the investigation was conducted in the office of the City Fiscal.
2. YES. What is involved here is not the collection of taxes but a criminal prosecution for violations of NIRC
which is within the cognizance of the trial court. While there can be no civil action to enforce collection before
the assessment procedures provided in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution under the Code. The
crime is complete when the violator has knowingly and willfully filed fraudulent returns with intent to evade and
defeat taxes.
A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the
protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for
violation of the NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the motion to quash.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 37 of 162
"#$
26 - CIR v. Cebu Portland Cement Company and CTA (1987)
Doctrine:
Sec. 291 Injunction not available to restrain collection of taxNo court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code.
Facts:
The CTA ordered the CIR to refund Cebu Portland Cement Company (CEPOC) P359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it. After denial of motions for reconsideration filed by
both CIR and CEPOC, the latter moved for a writ of execution to enforce the judgment.
CIR opposed the motion for the writ of execution on the ground that CEPOC had an outstanding sales tax liability
to which the judgment debt had already been credited. In fact, there was still a balance amounting to P4,789, 279. 85 plus
28% surcharge. CTA granted the motion, stating that the liability of CEPOC for the alleged sales tax was still being
questioned and therefore could not be set-off against the refund.
CIR filed a petition for review of the CTA resolution claiming that the refund should be charged against the tax
deficiency of CEPOC on cement sales under Sec. 186 of the Tax Code. According to the CIR, cement is a manufactured
and not a mineral product, therefore not exempt from sales taxes. He adds that he enforced the tax deficiency through his
power of distraint of personal property, as granted to him under the Tax Code, and that the collection of any national
internal revenue tax may not be enjoined under Sec. 305, subject to only to the exception under RA. 1125
3
, which is not
applicable in this case. The CIR also denies that the sales tax assessments have prescribed because the sales tax returns
have not been filed by CEPOC.
On the other hand, CEPOC denied liability for sales taxes alleging that cement as a mineral product is exempted
from sales taxes under Sec. 188 of the Tax Code after the effectivity of RA. 1299
4
and in accordance with the ruling in
CEPOC v. CIR (1968). In addition it claimed that the alleged tax deficiency was unenforceable because the tax
assessment was not yet final, the same being under protest. It also cites prescription as a defense, not having been filed
within the reglementary 5 year period from the filing of tax returns.
Issues:
1. W/N the sales tax was properly imposed
2. W/N the assessment of its sales tax liability has expired
3. W/N the assessment of its sales tax cannot be enforced because it is still being contested (IMPT)
Held/Ratio:
1. YES. Cement has always been considered a manufactured product, therefore liable for sales tax. It has never been
considered a mineral product under the Tax Code because it is a product of a manufacturing process, even if 80%
of its components are minerals.
2. NO. What CEPOC filed on June 30, 1962 was not its sales returns but its ad valorem returns. Hence, the
assessments made for sales taxes on January 14, 1968 and March 4, 1968 were not out of time. In order to avail of
the benefits of the 5-year prescription period, the taxpayer should have filed the required return for the tax
involved that is the sales return.

3. No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs
shall suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law: Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal
Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any
stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a
surety bond for not more than double the amount with the Court.
4. Act Amending CA. 466 Sec, 246, defining minerals and mineral products


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 38 of 162
"#$
3. NO. Taxes are the lifeblood of the government. If payment of taxes could be postponed by simply questioning
their validity, the machinery of the state would grind to a halt and government functions would be paralyzed. The
Tax Code states that, no court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee, or charge imposed by this Code. This injunction is available not only when the
assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to
the assessment is still-and only-on the administrative level. There is more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still
due from the CEPOC.
27 - Churchill & Tait v. Rafferty (1915)
Doctrine:
That no courts shall have authority to grant an injunction restraining the collection of any taxes imposed, but the
remedy of the taxpayer who claims that he is unjustly assessed or taxed shall be by payment under protest of the
sum claimed from him by the Collector of Internal Revenue and by action to recover back the sum claimed to
have been illegally collected.
Facts:
The judgment appealed from in this case perpetually restrains and prohibits the defendant and his deputies from
collecting and enforcing against the plaintiffs and their property the annual tax mentioned and described in subsection (b)
of section 100 of Act No. 2339, effective July 1, 1914, and from destroying or removing any sign, signboard, or billboard,
the property of the plaintiffs, for the sole reason that such sign, signboard, or billboard is, or may be, offensive to the
sight; and decrees the cancellation of the bond given by the plaintiffs to secure the issuance of the preliminary injunction
granted soon after the commencement of this action.
Issues:
1. W/N the court may restrain by injunction the collection of tax complained of
2. W/N section 100 of Act No. 2339 is valid conferring power upon the Collector of Internal Revenue to remove any
sign, signboard, or billboard upon the ground that the same is offensive to the sight or is otherwise a nuisance.
Held/Ratio:
1. No. Section 3224 of the Revised Statutes of the United States, effective since 1867, provides that: No suit for the
purpose of restraining the assessment or collection of any tax shall be maintained in any court.
Section 139, with which we have been dealing, reads: No court shall have authority to grant an injunction to
restrain the collection of any internal-revenue tax.
A comparison of these two sections show that they are essentially the same. Both expressly prohibit the
restraining of taxes by injunction.
In Pollock v. Farmers Loan & Trust Co. (157 U.S., 429) the court, through Mr. Justice Miller, said: If there
existed in the courts, state or National, any general power of impeding or controlling the collection of taxes, or
relieving the hardship incident to taxation, the very existence of the government might be placed in the power of a
hostile judiciary.
Section 84 of Act No. 82 provides that No court shall entertain any suit assailing the validity of a tax assessed
under this act until the taxpayer shall have paid, under protest, the taxes assessed against him[.]
This inhibition was inserted in section 17 of Act No. 83 and applies to taxes imposed by provincial boards. The
inhibition was not inserted in the Manila Charter until the passage of Act No. 1793, effective October 12, 1907.
Act No. 355 expressly makes the payment of the exactions claimed a condition precedent to a resort to the courts
by dissatisfied importers. Section 52 of Act No. 1189 provides That no courts shall have authority to grant an
injunction restraining the collection of any taxes imposed by virtue of the provisions of this Act, but the remedy
of the taxpayer who claims that he is unjustly assessed or taxed shall be by payment under protest of the sum


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 39 of 162
"#$
claimed from him by the Collector of Internal Revenue and by action to recover back the sum claimed to have
been illegally collected.
2. Yes, by virtue of the states police power. The pertinent provisions of subsection (b) of section 100 of Act No.
2339 read: If after due investigation the Collector of Internal Revenue shall decide that any sign, signboard, or
billboard displayed or exposed to public view is offensive to the sight or is otherwise a nuisance, he may by
summary order direct the removal of such sign, signboard, or billboard, and if same is not removed within ten
days after he has issued such order he my himself cause its removal, and the sign, signboard, or billboard shall
thereupon be forfeited to the Government, and the owner thereof charged with the expenses of the removal so
effected. When the sign, signboard, or billboard ordered to be removed as herein provided shall not comply with
the provisions of the general regulations of the Collector of Internal Revenue, no rebate or refund shall be allowed
for any portion of a year for which the tax may have been paid. Otherwise, the Collector of Internal Revenue may
in his discretion make a proportionate refund of the tax for the portion of the year remaining for which the taxes
were paid. An appeal may be had from the order of the Collector of Internal Revenue to the Secretary of Finance
and Justice whose decision thereon shall be final.
The basic idea of civil polity in the United States is that government should interfere with individual effort only to
the extent necessary to preserve a healthy social and economic condition of the country. State interference with
the use of private property may be exercised in three ways. First, through the power of taxation, second, through
the power of eminent domain, and third, through the police power. Buy the first method it is assumed that the
individual receives the equivalent of the tax in the form of protection and benefit he receives from the government
as such. By the second method he receives the market value of the property taken from him. But under the third
method the benefits he derived are only such as may arise from the maintenance of a healthy economic standard
of society and is often referred to as damnum absque injuria.



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 40 of 162
"#$
28 - CIR v. Reyes and CTA (1957) (distraint & levy after 3 years of filing for return)
Doctrines:
After three years have elapsed from the date to which income tax returns (that have been found to be false,
fraudulent, or erroneous) may have been made, the CIR cant make summary collection through administrative
methods, but must do so through judicial proceedings.
The requirement of the bond as a condition precedent to the issuance of the writ of injunction applies only in
cases where the processes by which the collection sought to be made by means thereof are carried out in
consonance with the law
Facts:
Aurelio Reyes dutifully filed his income tax returns for the years 1946-1950, with the last one filed on 27 April
1951. However, more than three years later, on 13 October 1954, the BIR sent a letter of demand to Reyes for
deficiency income taxes, surcharges, interests, and penalties for those years. According to the letter, Reyes had until
October 31 to pay the taxes either to the BIR or the City Treasurer of Manila. Together with the letter, he received a
warrant of distraint and levy should he fail to settle his account. But on November 4, Reyes received another letter from
the City Treasurer saying that the BIR instructed it to execute the said warrant if the Reyes still hadnt settled the amount
by November 10.
On November 15, Reyes filed a petition to review the CIRs assessment of his alleged deficiency tax liabilities.
He followed it up the next day with an urgent petition to restrain the CIR for executing the warrant of distraint and levy,
alleging that (a) the period to collect via summary proceedings has already prescribed under Sec. 51(d) of the
NIRC, (b) the distraint and levy would work injustice and irreparable injury to him and render any judgment by the Court
in the main case meaningless and ineffectual, (c) that the requirement under Sec. 11 of RA 1125 that a taxpayer must
first file a bond or deposit before the warrant of distraint and levy may be suspended is not applicable in this case,
and (d) theres no possibility that he would abscond w/ his property or remove or conceal them since they consist mostly
of real property in Metro Manila and shares of stock in the Philippine Racing Club.
The CIR opposed the petition, arguing that (a) the CTA had no authority to restrain him from executing the
warrant of distraint and levy, (b) that the proper remedy for Reyes would be to pay first then seek recovery after, and (c)
Sec. 51(d) doesnt preclude distraint and levy. The CTA sided with Reyes, and restrained the CIR from executing the
warrant of distraint and levy, w/o prejudice to any judicial remedies that the CIR may take. The SolGen instituted a notice
of appeal before this Court.
Issues:
1. W/N the CTA could restrain the CIR from executing the warrant of restraint and levy, even w/o requiring the
filing of a bond or make a deposit as prescribed by Sec. 11 of RA 1125
Held/Ratio:
1. YES. In a long line of cases, the SC has consistently held that the three-year prescriptive period under Sec.
51(d) constitutes a limitation on the governments right to enforce the collection of income taxes by
summary proceedings (distraint and levy). The remaining remedy would be to institute a civil action for
collection. Thus, after three years have elapsed from the date to which income tax returns (that have been found to
be false, fraudulent, or erroneous) may have been made, the CIR cant make summary collection through
administrative methods, but must do so through judicial proceedings.
In this case, the bond/deposit required under Sec. 11 of RA 1125 is not applicable since it only applies when
the collection via distraint or levy is proper. In this case, it is illogical to require the taxpayer to pay a bond to
restrain the collection via a warrant of distraint and levy when such warrant was itself incorrectly issued. The
requirement of the bond as a condition precedent to the issuance of the writ of injunction applies only in cases
where the processes by which the collection sought to be made by means thereof are carried out in consonance
with the law. Sec. 11 of RA 1125 is premised on the assumption that the collection by summary proceedings is by
itself in accordance with existing law; and then what is suspended is the act of collecting, whereas, in the case at


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 41 of 162
"#$
bar what the respondent Court suspended was the use of the method employed to verify the collection which was
evidently illegal after the lapse of the three-year limitation period.
29 - CIR v. Avelino (1956)
Doctrine:
The Court may suspend the collection of taxes even without the required bond if it is found that such collection
would be unlawful.
Facts:
Jose Avelino filed his income tax returns for 1946 and 1948 on February 28, 1947 and April 20, 1949. Five years
and thirty-five days after the last of the two returns was filed (May 24, 2954), the Collector of Internal Revenue
demanded from Jose Avelino the payment of the above taxes. Upon his failure to pay them, the Collector issued on
September 23, 1954, a warrant of garnishment. This was followed by another warrant of distraint, and levy. Avelino filed
an urgent petition with the Court of Tax Appeals praying that the Collector of Internal Revenue be enjoined from
proceeding with the sale of his properties and that the assessment made by him be reviewed.
The CTA issued a resolution declaring the warrants of garnishment, as well as of distraint and levy, including the
seizure and notice of sale of the properties of Jose Avelino, null and void, and ordering the Collector of Internal Revenue
to desist from collecting through summary administrative methods the deficiency income taxes.
Issues:
1. Whether the CIR is barred from collecting through summary administrative methods of distraint and levy the
deficiency income taxes in question
2. Whether the CTA erred in restraining the CIR from collecting through summary administrative methods the
deficiency income taxes, and without requiring a bond in accordance with section 11 of Republic Act No. 1125.
Held/Ratio:
1. YES. The government loses its rights to collect the income tax by summary proceedings after three years
have elapsed from the time the income tax return is filed, although it may still collect the tax by judicial
action.
Since, admittedly, the deficiency taxes in question were assessed and the warrants for their collection by distraint
and levy were issued after the period of three years from the filing of the returns, the warrants and the levy were
issued without authority of law and hence, the Court of Tax Appeals acted properly in enjoining their
enforcement.
While a five-year prescriptive period was given in sections 331 and 332 of the NIRC, it applies only to internal
revenue taxes in general and not to income tax which is given a two-year prescription by sec 51(d) of the same
law.
2. NO. This case is not an injunction against the judicial collection for taxes. Instead, what is enjoined is the
enforcement by distraint and levy which was found to be in violation of the law.
XXX The Court, when in its opinion, the collection of the tax by the CIR may jeopardize the interest of the
taxpayer it may, at any stage of the proceeding, suspend the collection and require the taxpayer either to deposit
the amount claimed or file a surety bond for not more than double the amount with the court.
While court did not require the taxpayer to deposit the amount claimed or to file a bond, such action is
justified considering that the court found the action of the Collector to be contrary to law (beyond the
prescriptive period). To require a bond under such a situation would indeed be illogical and improper. (Citing a
similar case involving A.P. Reyes)


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 42 of 162
"#$
29 - PNOC v. CA (2005) (Sorry this is a really long and complicated case, so bear with me.)
Facts:
The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B.
Savellano.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests earned by
its money placements with PNB and which PNB did not withhold. Another letter, dated 14 October 1986, PNOC
reiterated its proposal to settle its tax liability through the set-off of the said tax liability against NAPOCORS pending
claim for tax refund/credit. The BIR replied that the proposal for set-off was premature since NAPOCORs claim was still
under process. Once more, BIR requested PNOC to settle its tax liability in the total amount of P385,961,580.82,
consisting of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November 1986.
On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC
proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax, in accordance
with the provisions of Executive Order (E.O.) No. 44, which BIR Commissioner Bienvenido A. Tan accepted.
Disagreeing with the CIR regarding the reward and the compromise, Savellano filed a Petition for Review ad
cautelam with the CTA, docketed as CTA Case No. 4249. There are numerous motions filed by both parties and in the
end both the CTA and CA ruled that the Compromise is invalid.
Issue:
1. W/N the declaration by the CTA that the compromise agreement was without force and effect is proper.
Held/Ratio:
1. Yes. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent
account or a disputed assessment (which is required by E.O. 44) as of 31 December 1985. PNOCs tax liability
could not be considered a delinquent account since it was not self-assessed (the BIR conducted an
assessment of PNOC and PNB after obtaining information from private respondent Savellano.
Also, such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31
December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an
assessment that could have been disputed or protested on or before 31 December 1985, having been issued
on a later date.
Although PNOC and PNB have extensively argued their entitlement to compromise under E.O. No. 44,
neither of them has presented any evidence to prove that it may compromise its tax liability under Section
246 of the NIRC of 1977, as amended, which is the proper law.
In addition, the tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No.
44. E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather
than a mere agent. RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the required tax
because of neglect, ignorance of the law, or his belief that he was not required by law to withhold tax, to apply for
a compromise settlement of his withholding tax liability under E.O. No. 44. A withholding agent, in such a
situation, may compromise the withholding tax assessment against him precisely because he is being held directly
accountable for the tax. RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation
from the withholding agent who withheld the tax but failed to remit the amount to the Government. The latter is
disqualified from applying for a compromise settlement because he is being made accountable as an agent, who
held funds in trust for the Government.
Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for
compromise was filed beyond the deadline. Although the compromise agreement was executed only on 22 June
1987, PNOC is claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering to
compromise its tax liability, and that the said letter should be considered as PNOCs application for compromise
settlement. A perusal of PNOCs letter, dated 25 September 1986, would reveal, however, that the terms of its


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 43 of 162
"#$
proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay outright
30% of the basic tax assessed against it as required by E.O. No. 44. Instead, PNOCs offer to set-off was
obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44 because
it would not only delay collection, but more importantly, it would not guarantee collection.
The compromise agreement between the BIR and PNOC was contrary to law having been entered into by
BIR Commissioner Tan in excess of his authority. E.O. No. 44 and the NIRC of 1977, as amended, had
identified the situations wherein the BIR Commissioner may compromise tax liabilities, and none of these existed.
The compromise, moreover, was contrary to public policy; they delayed the collection of taxes. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious needs.
30 - Proton Pilipinas v. Republic (2006)
Doctrine:
Civil liability to pay taxes arises from the fact that one has engaged himself in business, and not because of any
criminal act committed by him.
Facts:
Proton Pilipinas Corporation (Proton) is engaged in the business of importing, manufacturing, and selling
vehicles. In 1997, Devmark Textile Industries, Inc. (Devmark), engaged in the business of spinning, knitting, weaving,
dyeing, and finishing all types of textile, yarns, and fabrics, together with Texasia, Inc. (Texasia) purchased various
vehicles distributed and marketed by Proton. In payment thereof, the above named companies offered Proton their
Tax Credit Certificates (TCCs) worth P30,817,191.00. The companies, through their officers, guaranteed Proton that
the TCCs were valid, genuine, and subsisting and that TCCs were a safe and valid mode of payment for import duties and
taxes as they were issued by the Department of Finance (DOF) and duly honored and accepted by the Bureau of Customs
(BOC).
Persuaded by the representations and assurances made by the two companies as to the legality of the transaction,
Paul Y. Rodriguez, in his capacity as Executive Vice-President of Proton, accepted the TCCs and signed a Deed of
Assignment with Eulogio L. Reyes, General Manager of Devmark. The TCCs were submitted to the DOF for evaluation
and approval. The TCCs were cleared by the DOF and were used by Proton for the payment of customs and duties
taxes to the BOC.
Meanwhile, the Office of the Ombudsman (Ombudsman) under Hon. Aniano Desierto began conducting an
investigation on the alleged P60 Billion DOF Tax Credit Scam. The TCCs assigned to Proton were found to be
irregularly and fraudulently issued by several officers of the DOF, including its Department Undersecretary
Belicena, to Devmark. Apparently, all the pertinent documents submitted by Devmark in support of its application for
the TCCs were fake and spurious. As a consequence thereof, the transfers of the subject TCCs to Proton and their
subsequent use of the same was declared invalid and illegal.
The Ombudsman filed with the Sandiganbayan, Criminal Cases charging DOF Undersecretary Belicena
together with Reyes, General Manager of Devmark, Peter Y. Rodriguez and Paul Y. Rodriguez, in their capacity as
Director and Executive Vice-President/Chief Operating Officer of Proton, respectively, for violation of Section 3 (e) and
(j) of The Anti Graft and Corrupt Practices Act. Proton then filed a criminal case for Estafa against the officers of
Devmark. THE BOC ON THE OTHER HAND, FILED A CASE AGAINST PROTON BEFORE THE RTC FOR
THE COLLECTION OF TAXES AND CUSTOMS DUTIES, WHICH REMAIN UNPAID BECAUSE THE
SUBJECT TCCS HAD BEEN CANCELLED BROUGHT ABOUT BY PROTONS USE OF FRAUDULENT
TCCS IN PAYING ITS OBLIGATIONS. Proton argues that the RTC had no jurisdiction since the filing of the criminal
cases was anchored on the alleged conspiracy among accused public officials, including the corporate officers, regarding
the anomalous and illegal transfer of four TCCs from Devmark to Proton and the latters subsequent use of three TCCs in
paying their customs duties and taxes to the detriment of the government, the civil case regarding collection of unpaid
customs duties and taxes was deemed impliedly instituted with the criminal cases before the Sandiganbayan. Proton


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 44 of 162
"#$
then filed a Motion to Dismiss the case filed by BOC against it on the grounds of lack of jurisdiction, prematurity of
action, and litis pendentia. The RTC denied said Motion. Proton sought reconsideration but the same was denied.
Issue:
1. W/N the case filed by the BOC involving collection of unpaid customs duties and taxes of Proton, belongs to the
Sandiganbayan and not to the RTC, as it can be considered the civil aspect of the Criminal Cases filed before the
Sandiganbayan.
Held/Ratio:
1. No. While it is true that according to Section 4, of Republic Act No. 8249, the institution of the criminal action
automatically carries with it the institution of the civil action for the recovery of civil liability, however, in the
case at bar, the civil case for the collection of unpaid customs duties and taxes cannot be simultaneously
instituted and determined in the same proceedings as the criminal cases before the Sandiganbayan, as it
cannot be made the civil aspect of the criminal cases filed before it. It should be borne in mind that the tax and
the obligation to pay the same are all created by statute; so are its collection and payment governed by
statute. The payment of taxes is a duty which the law requires to be paid. Said obligation is not a
consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising
from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts
charged. HENCE, THE PAYMENT AND COLLECTION OF CUSTOMS DUTIES AND TAXES IN
ITSELF CREATES CIVIL LIABILITY ON THE PART OF THE TAXPAYER. SUCH CIVIL
LIABILITY TO PAY TAXES ARISES FROM THE FACT, FOR INSTANCE, THAT ONE HAS
ENGAGED HIMSELF IN BUSINESS, AND NOT BECAUSE OF ANY CRIMINAL ACT COMMITTED
BY HIM.








TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 45 of 162
"#$
31 - Philippine Refining Company v. Court of Appeals (1996)
Doctrines:
SEC 248. Civil Penalties. (a) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25%) of the amount due, in the following cases:
...
(3) Failure to pay the tax within the time prescribed for its payment.
SEC. 249. Interest. (a) In general. There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations,
from the date prescribed for payment until the amount is fully paid.
(c) Delinquency interest. In case of failure to pay:
(1) The amount of the tax due on any return required to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and
demand of the Commissioner, there shall be assessed and collected, on the unpaid amount, interest at the
rate prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the
tax.
Facts:
Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue
(Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584.00. The assessment was timely
protested by petitioner on April 26, 1989, on the ground that it was based on the erroneous disallowances of bad debts
and interest expense although the same are both allowable and legal deductions. Respondent Commissioner, however,
issued a warrant of garnishment against the deposits of petitioner which action the latter considered as a denial of its
protest.
Petitioner accordingly filed a petition for review with the CTA on the same assignment of error. In its decision,
the CTA modified the findings of the Commissioner by reducing the deficiency income tax assessment to P237,381.26,
with surcharge and interest incident to delinquency. In said decision, the Tax Court reversed and set aside the
Commissioners disallowance of the supposed interest expense of P2,666,545.19 but maintained the disallowance of the
bad debts of thirteen (13) debtors. Petitioner then elevated the case to respondent CA.
Issue:
1. W/N the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its payment of the tax
assessed is improper and unwarranted, considering that the assessment of the Commissioner was modified by the
CTA and the decision of said court has not yet become final and executory.
Held/Ratio:
1. No. The deficiency tax assessment in this case, which was the subject of the demand letter of respondent
Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason
of petitioners default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from
April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does
not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of
the original assessment of P1,892,584.00.
Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or
neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties
for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious
activities will be adversely affected. It is mandatory to collect penalty and interest at the stated rate in case of


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 46 of 162
"#$
delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government and, in
this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the
taxpayer beyond the date when he is supposed to have paid them to the Government.
32 - BPI v. CIR (2006)
Doctrine:
It is only equitable for the government to collect interest from a taxpayer who, by the governments error,
received a refund which was not due him.
The intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense,
the surcharge and interest charged are not penal but compensatory in nature
Facts:
From February to October 1986, BPI sold to the BSP US Dollars for P1,608,541,900.00. BPI telegraphically
coordinates with a bank in New York in order to credit US Dollars to the BSP account. Upon confirmation, BSP credits
the peso to the BPI account. During 1985 to 1987, BSP enjoyed tax exemption privileges. However, in 1985, a law was
passed that taxes any party to which BSP transacts with in respect to these kinds of transactions.
In 1988, the CIR ordered an investigation to be made on BPIs sale of foreign currency. The CIR issued a pre-
assessment notice informing BPI of its liability for documentary stamp tax plus penalties assessed at P3,016,316.06. BPI
disputed this. Nevertheless, the CIR issued an Assessment. BPI formally protested the assessment, but the protest was
denied. In 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary
stamp tax in the amount of P3,016,316.06.
Consequently, a petition for review was filed with the CTA in 1990. On 31 May 1994, the CTA rendered the
Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central
Bank from the period July 1986 to October 1986 only, thus substantially reducing the CIRs original assessment down
to P690,030 inclusive penalties plus 20% annual interest until fully paid.
Motions for Revconsideration were filed in the CA which likewise affirmed the CTAs Decision imposing a 20%
delinquency on the reduced assessment.
BPI filed a Partial Motion for Reconsideration to the SC.
Issue:
1. W/N the delinquency interest of 20% per annum is applicable
Held/Ratio:
1. YES. The SC categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest
should still be imposed from the time demand was made by the CIR. This doctrine is consistent with the earlier
decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by
explaining that the nature of additional charges is compensatory and not a penalty.
The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the
surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed. The
provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is
precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest
charged are not penal but compensatory in nature they are compensation to the State for the delay in payment,
or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the
State.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed
for the taxpayers use of the funds at the time when the State should have control of said funds. Collecting


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 47 of 162
"#$
such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest
over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.
33 - Tambunting Pawnshop v. CIR (2010)
Doctrines:
From RR 12-99:
SECTION 4. Civil Penalties.
4.1 Twenty-Five Percent (25%) Surcharge. There shall be imposed, in addition to the basic tax
required to be paid, a penalty equivalent to twenty-five percent (25%)thereof, in any the following cases:
4.1.1 Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and
regulations on the date prescribed; or
4.1.2 Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than
those with whom the return is required to be filed; or
4.1.3 Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
4.1.4 Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions
of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed,
on or before the date prescribed for its payment.
Facts:
Tambunting Pawnshop (Tambunting) is engaged in the pawnshop business. The BIR sent an assessment notice
dated August 27, 2003 to Tambunting. It demanded the payment of deficiency VAT (P5,212,404.52) and compromise
penalty (P25,000) for the taxable year of 2000.
Tambunting protested the assessment and argued that a pawnshop business is not subject to VAT and the
compromise penalty. The CIR did not do anything about the protest. As a result, Tambunting filed a petition for review
before the CTA (2
nd
division). The CTA (2
nd
division) ordered Tambunting to pay CIR the deficiency VAT plus 25%
surcharge and 20% delinquency interest per annum (The CTA deleted the compromise penalty).
Tambunting filed a motion for partial reconsideration. It submitted a written manifestation, attaching a copy of the
BIR tax payment deposit slip and the corresponding schedule evincing the payment of P828,809.67 pursuant to a
settlement agreement with the BIR. The CTA denied the motion for partial reconsideration. Tambunting appealed by
petition for review to the CTA en banc. The CTA en banc denied the petition for review. It also denied the subsequent
motion for reconsideration.
Hence, Tambunting appealed. Tambunting claims that pawnshops are not within the concept of all services and
similar services as contained in Section 108 of the NIRC. It also claims that the enumeration of services subject to VAT
is exclusive.
Issues:
1. W/N a pawnshop operator is liable for VAT and compromise penalty during the taxable year of 2000.
Held/Ratio:
1. NO. Pawnshops are treated as non-bank financial intermediaries. Various laws (and subsequent amendments)
related to VAT levied upon non-bank financial intermediaries resulted to consecutive deferments.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 48 of 162
"#$

Sec 3 and 17 of RA 7716 (Expanded VAT Laws)
VAT on non-financial intermediaries was first
levied. The amount is equivalent to 10% of gross
receipts.
Sec. 11 of RA 8421 amended Sec. 17 of RA 7716
Moved the effectivity of VAT on non-bank
financial intermediaries to January 1, 1998
RA 8424 (NIRC)
Moved the effectivity of VAT on non-bank
financial intermediaries to December 31, 1999.
RA 8761
Moved the effectivity of VAT on non-bank
financial intermediaries to January 1, 2001
RA 9010
Moved the effectivity of VAT on non-bank
financial intermediaries to January 1, 2003
The consecutive deferments of the effectivity date of the application of VAT on non-bank financial intermediaries
resulted in their non-liability for VAT during the affected taxable years (1996-2002). Moreover, the VAT
deficiency assessment and the surcharge served on Tambunting lacked legal basis and must be canceled.
Tambunting is entitled to a refund of the amount it paid under the settlement agreement for the taxable year of
2000 only.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 49 of 162
"#$
34 - Michel Lhuiller v. CIR (2006)
*NOTE: the main issue in the case is whether pawnshop transactions are subject to Documentary Stamp Tax (DST). With
regard to the topic of civil penalties: the Court merely imposed Lhuiller Pawnshop to pay an additional deficiency
interest of 20% per annum for failure to pay the required DST on Jan 2, 2000.
Doctrine:
For failure to pay the Deficiency DST the Court may, in pursuant to Sec 249 NIRC (now Sec 248), imposed a
delinquency Interest rate of 20% per annum from Jan 2, 2000 (date taxpayer should have paid BIR) until the
deficiency assessment are fully paid.
Facts:
Michel J. Lhuiller Pawnshop, Inc, (Lhuiller) is a corporation engaged in the pawnshop business which issues
pawn ticket to customers. The case started when Lhuiller received 2 Assessment Notices from BIR Cebu City for
deficiency VAT for P 19,961,639 and deficiency DST for P 13, 142,986 for the fiscal year of 1997. Lhuiller filed motion
for reconsideration to CIR but it was denied which prompted the former to file for petition for review with CTA.
CTA decided in favour of Lhuiller and set aside the assessment notice holding that a pawn ticket cant be subject
of a DST.
Then the CA reversed CTA decision and held that Lhuiller should pay the deficiency DST. It clarified that it is
not the actual pawn ticket that is subjected to DST but rather it is the transaction of pledge (as evidenced by the pawn
ticket) which is being taxed.
The dispositive portion stated the amount to be paid by Lhuillier:
(1) P19,961636.09, as deficiency Value-Added Tax, inclusive of surcharge and interest; and
(2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997.
(3) Delinquency Interest at the rate of 20% per annum from January 2, 2000, until the deficiency
assessment are fully paid, pursuant to Section 249 of the National Internal Revenue Code.
* Note that No. 3 was only added after CIR filed a motion for partial reconsideration praying that Lhuiller be ordered to
also pay the said deficiency interest.
Issue:
1. Whether Lhuiller Pawnshop transactions are subject to DST
Held/Ratio:
1. YES. The Court held that the transactions of Lhuiller are subjected to DST. It is expressly stated in Sec 195 of
NIRC that on every mortgage or pledge of land, estate, or property, real or personalthere shall be collected
a documentary stamp tax. As defined in PD 114 (Pawnshop Regulations Act) the business of pawnshop is
basically engaging in lending money on personal property delivered as security for loans (pledge.) In this case,
the Court clarified that it is not the pawn ticket that creates the pawnshops obligation to pay DST but
rather it is the exercise of the privilege to enter into a contract of pledge.
ADDITIONAL: The Court also noted BIR Ruling No. 018-88 which held that DST is a tax on document and since a pawn
ticket is not an evidence of indebtedness, it cant be subject to DST. In the case at hand, the Court held that the
interpretation of the BIR Ruling is inconsistent with Sec 195 of NIRC. The former being merely an admin issuance
cant override or modify the law (NIRC. )


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 50 of 162
"#$
35 - Connel Bros. Co. v. CIR (1963) (sales tax, difference in computation)
Doctrine:
In all cases where the delinquent has delayed the administration of the law or has intentionally violated the
provisions of the law, or has purposely delayed filing the return, the Collector of Internal Revenue will insist on
enforcing the specific penalty for failure to make return within the time prescribed by law.
Facts:
Connel Bros. Co. is engaged in the importation of general merchandise. The case concerned the alleged
deficiency in sales tax paid by Connel for the period of January 18, 1948 to January 31, 1949.
Section 186 of the NIRC imposes a sales tax of 5% of the gross selling price or gross value in money of the
articles so sold, bartered, exchanged or transferred. The following circulars promulgated by the BIR are applicable:
General Circular No. 431 provides that if a manufacturer, producer, or importer, in fixing the gross selling price
of an article sold by him, has included an amount of money intended to cover the sales tax in the gross selling
price of the articles, the sales tax shall be based on the gross selling price less the amount intended to cover the
tax, if the same be billed to the purchaser as separate item.
General Circular No. 440 reiterates the requirement of separate billing: Unless billed to the purchaser as
separate items in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross
selling price of the articles sold, and deductions thereof will not be allowed.
NOTE: [The sales tax of 5% is based on the gross selling price of the articles sold, bartered, exchanged, or transferred.
But the manufacturer, producer, or importer can already include the sales tax in fixing the gross selling price which
means that the burden of paying would be shifted to the customer. The circulars require that the amount corresponding to
the sales tax must be billed to the purchaser as a separate item so that the deduction would be allowed by the BIR when it
computes for the tax.]
Up to January 17, 1948, every sales invoice issued by Connel contained an itemization of the actual selling price
and of the 5% sales tax, which was then added to the selling price and shifted to the customer, in compliance with General
Circulars No. 431 and 440. However, for January 18, 1948 until January 31, 1949, the sales invoice merely showed one
single amount in each instance: the TOTAL actual selling price, with the notation 5% sales tax included.
Due to its failure to itemize the amount allotted for the sales tax, there had been a difference in the computations
made by Connel and the BIR. The BIR based the 5% tax on the single amount since Connel did not make a separate
itemization of the amounts, while Connel computed it on the basis of the actual selling price alone (it deducted the amount
which was shifted to the customer).
The difference between the amounts resulting from the two methods of computation is the alleged deficiency in
sales tax. The BIR assessed that the deficiency in sales tax amounted to P29,365.50 but it was later reduced to P21,716.54.
In 1950, Connel contested the validity of the assessment but it deposited a check with the BIR. It was in 1956 when the
check was converted as payment for the deficiency. Then a formal request for refund was filed but it was denied by the
BIR.
In 1957, Connel filed a petition for review with the CTA. The CTA denied the request for a refund and imposed a
25% surcharge.
Issue:
1. W/N the mere notation of the words 5% sales tax included on the invoices of Connel complies with the
mentioned circulars
2. W/N the imposition of the 25% surcharge was proper
Held/Ratio:
1. NO. The 5% sales tax under Section 186 of the Revenue Code is imposed on such gross selling price, including


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 51 of 162
"#$
the tax itself when it shifted to the customer, for that is the total amount that he pays to receive the goods
purchased by him. The deduction that is allowed by the two circulars constitutes in effect an exception to the
rule established by the statute, and may be availed of only if the amount intended to cover the tax is billed the
purchaser as a separate item. The exception is merely a privilege granted to the taxpayer which, if he is to claim
its benefits, must be complied with by him.
It was clearly emphasized in the Circulars that the amount of tax must be stated as a separate item in the
sales invoice. Certainly a simple indication on the invoice that the 5% tax is already included in the
aggregate sum charged to the customer cannot be a separate billing of the amount of such tax. The intention
is to apprise the customer of the exact amount of the tax that is passed on to him for payment. The deduction is
allowed only when the amount intended to cover the sales tax is billed as a separate item in the invoices.
Connel relied on the case of Fred Wilson and Company, Inc. wherein the Board of Tax Appeals allowed the mere
notation of the words tax included as substantial compliance. However, Connel cannot rely on this ruling which
was decided on 1952, since the sales covered were in 1948-1949.
2. NO. In all cases where the delinquent has delayed the administration of the law or has intentionally violated the
provisions of the law, or has purposely delayed filing the return, the Collector of Internal Revenue will insist on
enforcing the specific penalty for failure to make return within the time prescribed by law. Failure to make this
return and pay the tax during the months in which the said taxes are payable will be considered as purposely
delaying filing the return. The necessity of notifying the taxpayer of his delinquency or the discovery of such a
delinquency by a revenue officer will be treated as delaying the administration the law.
However in this case, the Court did not affirm the CTAs decision of imposing a 25% surcharge. The Court ruled
that Connel, in preparing its sales invoices as it did, was not guilty of an intentional violation of the law. It did not
delay filing the returns for the sales taxes corresponding to the period in question, let alone did so purposely. The
delay was in the payment of the deficiency, which arose from a mistaken understanding of the regulations
laid down by the BIR. The ensuing controversy was, generated in good faith and should furnish no justification
for the imposition of a penalty.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 52 of 162
"#$
36 - Tuazon, Jr. v. Lingad (1974)
Doctrines:
Payment of surcharge and interest should be eliminated in cases when the taxpayer relied in good faith upon
opinions rendered by no less than the highest officials of the BIR, including the Commissioner himself.
The ruling in the previous case (Connell Bros. Co. v. CIR) applies to this case.
Facts:
This case involved two parcels of land inherited by Tuazon from his mother. When his mother was still alive,
these lots (with an area of 318 and 67,684 sq. m.) were subdivided into 29 lots, 28 of these were leased out with contracts
ending in 1953. The 29
th
lot with an area of 48,000 sq. m. was not leased to any person because it needed filling due to its
very low elevation.
After the petitioner took possession of the mentioned parcels in 1950, he instructed his attorney-in-fact, J. Antonio
Araneta, to sell them. The 28 lots were immediately sold on a 10-year installment basis. Lot 29 could not however be sold
immediately due to its low elevation.
In 1952, the atty-in-fact had Lot 29 filled. This lot was subsequently subdivided into smaller lots. The small lots
were then sold over the years on a uniform 10-year annual amortization basis. The attorney-in-fact did not employ any
broker nor did he put up advertisements in the matter of the sale thereof.
In 1953 and 1954 the petitioner reported his income from the sale of the small lots as long-term capital gains.
In 1957, like the previous years, the petitioner treated his income from the sale of the small lots as capital gains.
He, however, deducted the real estate dealers tax he paid for in 1957 on account of rentals received from the mentioned
28 lots and other properties of the petitioner. The CIR approved the assessment. On Jan. 1963, however, the
Commissioner reversed himself and considered the profits derived as ordinary gains and ordered him to pay the proper
taxes and an additional .5% monthly interest from 1959-1962.
His motion for reconsideration was denied. On appeal, the CTA modified the Commissioners order and required
him to pay an additional 5% surcharge and 1% monthly interest.
Issues:
1. W/N the properties in question which the petitioner had inherited and subsequently sold in small lots to other
persons should be regarded as capital assets
2. W/N he should be maid liable to pay the surcharge and monthly interest (relevant issue)
Held/Ratio:
1. NO. The following circumstances in combination show unequivocally that the petitioner was, at the time material
to this case, engaged in the real estate business: (1) the parcels of land involved have in totality a substantially
large area, nearly seven (7) hectares, big enough to be transformed into a subdivision, and in the case at bar, the
said properties are located in the heart of Metropolitan Manila; (2) they were subdivided into small lots and then
sold on installment basis (this manner of selling residential lots is one of the basic earmarks of a real estate
business); (3) comparatively valuable improvements were introduced in the subdivided lots for the unmistakable
purpose of not simply liquidating the estate but of making the lots more saleable to the general public; (4) the
employment of J. Antonio Araneta, the petitioners attorney-in-fact, for the purpose of developing, managing,
administering and selling the lots in question indicates the existence of owner-realty broker relationship; (5) the
sales were made with frequency and continuity, and from these the petitioner consequently received substantial
income periodically; (6) the annual sales volume of the petitioner from the said lots was considerable, e.g.,
P102,050.79 in 1953; P103,468.56 in 1954; and P119,072.18 in 1957; and (7) the petitioner, by his own tax
returns, was not a person who can be indubitably adjudged as a stranger to the real estate business. Under the
circumstances, this Court finds no error in the holding below that the income of the petitioner from the sales of the
lots in question should be considered as ordinary income.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 53 of 162
"#$
2. NO. This Court notes, however, that in ordering the petitioner to pay the deficiency income tax, the Tax Court
also required him to pay a 5% surcharge plus 1% monthly interest. In our opinion this additional requirement
should be eliminated because the petitioner relied in good faith upon opinions rendered by no less than the highest
officials of the Bureau of Internal Revenue, including the Commissioner himself. The following ruling in Connell
Bros. Co. (Phil.) v. Collector of Internal Revenue

applies with reason to the case at bar:
We do not think Section 183(a) of the National Internal Revenue Code is applicable. The same
imposes the penalty of 25% when the percentage tax is not paid on time, and contemplates a case
where the liability for the tax is undisputed or indisputable. In the present case the taxes were
paid, the delay being with reference to the deficiency, owing to a controversy as to the proper
interpretation if Circulars Nos. 431 and 440 of the office of respondent-appellee. The controversy
was generated in good faith, since that office itself appears to have formerly taken the view that
the inclusion of the words tax included on invoices issued by the taxpayer was sufficient
compliance with the requirements of said circulars.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 54 of 162
"#$
37 - CIR v. Republic Cement (1983)
Surcharges for late tax payments apply only when the percentage tax is not paid on time, and contemplates
a case where the liability for the tax is undisputed or indisputable.
Facts:
All of the five (5) respondents in the case are domestic corporations engaged in the business of manufacturing
cement.
Pursuant to the decision of the SC in another case (declaring that cement is a manufactured product), the CIR
issued individual assessments against the respondents for the corresponding sales deficiency tax. The assessments
amounted to a total of P38.5 million. [Note: Apparently, the disputed assessments carried with it a 25% surcharge
pursuant to Section 183 (a) of the Tax Code [now Sec. 193 (a) (3)] prescribing the said surcharge for late tax payment.]
The respondents jointly protested the assessments made against them. The CIR denied the joint protest of the
respondents.
The respondents then appealed the matter to the CTA. The CTA ultimately reversed the ruling of the CIR.
The petitioner then filed the petition before the SC.
Issues:
1. (Main issue but not relevant) Whether or not cement should be considered as a mineral or a manufactured good
for purposes of determining the applicable tax.
2. (Relevant issue to the topic) Whether or not the 25% surcharge for late payment was proper.
Held/Ratio:
1. Cement is a manufactured good.
2. The 25% surcharges was not proper hence, should be deleted.
Citing the case of Connell bros. v CIR, the Court explained that Section 183 (a) of the Tax Code [now Sec. 193
(a) (3)] prescribing surcharges for late tax payments is applicable only when the percentage tax is not paid on
time, and contemplates a case where the liability for the tax is undisputed or indisputable. Further, it said
that where the taxpayer apparently had himself originally adopted an incorrect interpretation of its own
circulars, it would not be just to penalize appellant for falling into the same error.
It found that in the instant case, the assessments are not undisputed or indisputable.
According to the Court, the dispute arose not merely from the respondents good faith divergent interpretation of
the law but more from the stand of the BIR itself that cement is a mineral product. The Court noted that in fact,
the CTA affirmed this stand of the BIR.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 55 of 162
"#$
38 - Antam Pawnshop Corporation v. CIR (2008)
Facts:
Antam is a duly organized corporation engaged in the pawnshop business. The BIR examined Antams books of
accounts and other accounting records for all internal revenue taxes for the period covering January 1 to December 31,
1998. Antam was assessed with deficient VAT, MCIT, DST, and compromise penalties.
CTA: On the issue of the DST on pawn tickets, they are neither security nor a printed evidence of indebtedness.
Consequently, it cannot be considered as a document subject to DST under Section 195 of the NIRC. However, for failure
to present proof of payment of tax, Antam was held liable for DST on subscribed capital stock in the amount of
P15,000.00.
CA: Pawn tickets are subject to DST. It was ruled that the pawn ticket is the logical document evidencing a
contract of pledge and thus subject to DST pursuant to Section 195 of the NIRC in relation to Section 173.

The CA explained that the DST provided under Section 173 of the NIRC is levied, not on the documents, but in
respect to the transaction so had or accomplished. In general, documentary stamp taxes are levied on the exercise by
persons of certain privileges conferred by law for the creation, revision or termination of specific legal relationships
through the execution of specific instruments.
Issues:
1. Whether Antam is liable for DST
2. Whether Antam is liable for surcharges and delinquency interest
Held/Ratio:
1. Yes. Antams contention that pawn ticket, being merely a receipt for a pawn as defined in P.D. No. 114, is thus
not subject to DST under Section 195 of the NIRC and that the document to be taxed should be the pledge
agreement, and not the pawn ticket, cannot prosper because what is subject to DST is not the ticket itself but
the privilege of entering into a contract of pledge.
In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law
for the creation, revision, or termination of specific legal relationships through the execution of specific
instruments. [Cites doctrines from Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue]
2. No. Good faith and honest belief that one is not subject to tax on the previous interpretation of the
government instrumentality tasked to implement the tax law are sufficient justification for petitioner to be
spared of interest and surcharges.
The dispute as to the tax liability of petitioner for DST on pawn tickets arose not simply because of ordinary
divergence of views in the interpretation of the law. Petitioners position was founded on the previous
interpretation of the BIR that a pawn ticket is not a printed evidence of indebtedness, hence, not subject to
DST. Even the CTA, the specialized body handling tax cases, sustained its position and it was only only recently,
in Lhuillier, that the Court made a categorical pronouncement that pawn tickets are subject to DST.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 56 of 162
"#$
39 - CIR v. Javier, Jr. (1991)
Doctrine:
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances, which, at most, create
only suspicion, and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.
Facts:
About June 3, 1977, Victoria L. Javier (wife of private respondent, Melchor Javier, Jr.) received from the
Prudential Bank and Trust Company the amount of US$999,973.70 remitted by her sister, Mrs. Dolores Ventosa through
some banks in the United States, among which is Mellon Bank, N.A. Later that month, Mellon Bank, N.A. filed a
complaint against private respondent, his wife and other defendants, claiming that its remittance of
US$1,000,000.00 was a clerical error and should have been US$1,000.00 only and prayed that the excess amount be
returned on the ground that the defendants are trustees of an implied trust for the benefit of Mellon Bank with the
duty to return said amount from the moment it was received.
In November 1977, the Fiscal of Pasay City filed an information with the then Circuit Criminal Court charging
Spouses Javier with the crime of estafa, alleging that they misappropriated, misapplied, and converted to their own
personal use and benefit the amount they received as a result of a mistake in remittance.
On March 15, 1978, Javier filed his income tax return for 1977 showing a gross income of P53,053.38 and a net
income of P48,053.88 and stating in the footnotes of the return that Taxpayer was recipient of some money
received from abroad which he presumed to be a gift but turned out to be an error and is now subject of
litigation.
In 1980, Javier received a letter from the acting Commissioner of Internal Revenue, together with income
assessment notices for the years 1976 and 1977, demanding that he pay P1,615.96 and P9,287,297.51 as deficiency
assessments for the years 1976 and 1977 respectively. On December 15, 1980, he wrote to the BIR that he was paying the
deficiency income assessment for the year 1976 but denied that he had any undeclared income for 1977 and requested that
the assessment for the latter year be made to await final court decision on the case filed against him for filing an allegedly
fraudulent return.
He again received from Acting CIR Romulo Villa a letter stating in reply to his December 15, 1980 letter-protest
that the amount of Mellon Banks erroneous remittance which you were able to dispose, is taxable. The Commissioner
also imposed a 50% fraud penalty against him. Disagreeing, Javier filed an appeal with the CTA, which held that the 50%
surcharge imposition should be deleted.
Issue:
1. W/N Javier is liable for the 50% fraud penalty.
Held/Ratio:
1. No. CIR contends that Melchor Javier, Jr. committed fraud by not declaring the mistaken remittance in his
income tax return and by merely making a footnote thereon. However, it is respectfully submitted that the said
return was not fraudulent. The footnote was practically an invitation to the CIR to make an investigation,
and to make the proper assessment.
The rule in fraud cases is that the proof must be clear and convincing, that is, it must be stronger than the mere
preponderance of evidence which could be sufficient to sustain a judgment on the issue of correctness of the
deficiency itself apart from the fraud penalty. When Javier filed the questioned return, he was guided not by
that willful and deliberate intent to prevent the Government from making a proper assessment which
constitute fraud, but by an honest doubt as to whether or not the mistaken remittance was subject to tax.
Under the then Section 72 of the Tax Code, a taxpayer who files a false return is liable to pay the fraud penalty of
50% of the tax due from him or of the delinquency tax in case payment has been made on the basis of the return
filed before the discovery of the falsity or fraud.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 57 of 162
"#$
In Aznar v. Court of Tax Appeals, it was held that the fraud contemplated by law in relation to the filing of
income tax return is actual and not constructive. It must be intentional fraud, consisting of deception willfully
and deliberately done or resorted to in order to induce another to give up some legal right.
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances, which, at most, create
only suspicion, and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.
A fraudulent return is always an attempt to evade a tax but a merely false return may not be. Herein, there
was no actual and intentional fraud through willful and deliberate misleading of the government agency
concerned, the BIR. Javier did not conceal anything to induce the government to give up some legal right and
place itself at a disadvantage as to prevent its lawful agents from proper assessment of tax liabilities. Error or
mistake of law is not fraud.
As ruled by the CTA, the 50% surcharge imposed as fraud penalty by the BIR in the deficiency assessment should
be deleted.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 58 of 162
"#$
40 - CIR v. JAL (1991)
Facts:
Since mid-July, 1957, JAL had maintained an office at the Filipinas Hotel, Roxas Boulevard, Manila. Said office
did not sell tickets but was maintained merely for the promotion of the companys public relations and to hand out
brochures, literature and other information playing up the attractions of Japan as a tourist spot and the services enjoyed in
JAL planes.
On July 17, 1957, JAL constituted the Philippine Air Lines (PAL), as its general sales agent in the Philippines. As
an agent, PAL, among other things, sold for and in behalf of JAL, plane tickets and reservations for cargo spaces which
were used by the passengers or customers on the facilities of JAL.
On June 2, 1972, JAL received deficiency income tax assessment notices and a demand letter from petitioner
Commissioner of Internal Revenue (hereinafter referred to as Commissioner for brevity), all dated February 28, 1972, for
a total amount of P2,099,687.52 inclusive of 50% surcharge and interest, for years 1959 through 1963. On June 19, 1972,
JAL protested said assessments alleging that as a non-resident foreign corporation, it was taxable only on income from
Philippine sources as determined under Section 37 of the Tax Code, and there being no such income during the period in
question, it was not liable for the deficiency income tax liabilities assessed.
JAL therefore, elevated the case to the Court of Tax Appeals which, in turn, reversed the decision
Issue:
1. W/N sales of tickets and other activities by PAL in behalf of JAL were taxable.
2. W/N the imposition of a surcharge is proper? (IMPORTANT)
3. W/N the imposition of an interest is proper? (IMPORTANT)
4. W/N the imposition of a compromise penalty is proper? (IMPORTANT)
Held/Ratio:
1. YES. Section 29 of the old Tax Code provides that the words `income from any source whatever disclose a
legislative policy to include all income not expressly exempted within the class of taxable income under our laws.
The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within,
Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.
2. NO. Nowhere in the records of the case can be found that JAL deliberately failed to file its income tax returns for
the years covered by the assessment. There was not even an attempt by petitioner to prove the same or justify the
imposition of the 50% surcharge. The 50% surcharge or fraud penalty provided in Section 72 of the National
Internal Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the required tax return
within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand,
the same Section provides that if the failure to file the required tax return is not due to willful neglect, a penalty of
25% is to be added to the amount of the tax due from the taxpayer. Thus, 25% is the proper charge.
3. YES. As to the 1/2% interest per month, the same finds basis in Section 51(d) of the Tax Code then in force.
Interest on deficiency. Interest upon the amount determined as a deficiency shall be assessed at the same time as
the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall
be collected as a part of the tax, at the rate of six per centum per annum from the date prescribed for the payment
of the tax x x x; PROVIDED, That the maximum amount that may be collected as interest on deficiency shall in
no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription
to the contrary notwithstanding.
The 6% interest per annum is the same as 1/2% interest per month and petitioner correctly computed such interest
equivalent to three years which is the maximum set by the law.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 59 of 162
"#$
4. NO. The compromise penalty amounting to P1,500.00 for violation of bookkeeping regulations appears to be
without support. The particular provision in the said regulations allegedly violated was not even specified.
Furthermore, the term compromise penalty itself is not found among the penal provisions of the Bookkeeping
Regulations
41 - Insular Lumber Company v. CIR (1956)
Note: This was lifted directly from e-SCRA. No other text appears except for these two paragraphs.
Appeal from a judgment of the Court of First Instance of Negros Occidental ordering defendant to reimburse
plaintiff the amount of P25,780.64, plus interest thereon from the time the taxes were collected, and to pay the costs. This
is a reconstituted case. The complaint was filed in the Court of First Instance of Negros Occidental on Aug. 1, 1935 by the
Insular Lumber Co., against the Collector of Internal Revenue for the recovery of the total amount of P25,821.07,
representing 1!% sales tax, 25% surcharge for late payment, and an additional surcharge of 100% for allegedly making
fraudulent returns, all of which plaintiff paid under protest. After trial, the Court below rendered judgment absolving
defendant from the complaint, and on appeal to the Court of Appeals, judgment was affirmed. Upon certiorari to this
Court, we ordered the remand to the court a quo f or the reception of certain evidence erroneously excluded at the trial.
Before the second hearing could be had, war broke out and the records of the case were destroyed.
Judgment appealed from is reversed insofar as it orders the appellant CoIlector of Internal Revenue to refund to
plaintiff-appellee the 1!% sales taxes and the 25% surcharge for late payment collected under the first, second, third and
fourth causes of action; and affirmed insofar as it orders the appellant to refund to plaintiff-appellee the 100% surcharge
collected under the first,. second, third, fourth, and sixth, causes of action, but without interest thereon. No costs. Reyes,
J.B. L., J., ponente.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 60 of 162
"#$
42 - Cagayan Electric v. CIR (1985) (interest)
Doctrine:
Since the assessment is highly controversial (because the CIR was not certain of petitioners liability and that
petitioner has reason to believe that it is not liable to pay income tax), petitioner should only be liable for the tax
proper and not for the surcharge and interest.
Facts:
Cagayan Electric Power & Light Co., Inc. (Cagayan Electric) is the holder of a legislative franchise under RA
3247. By virtue of the franchise, Cagayan Electric is exempted from paying 3% tax on its gross earnings from the sale of
electric current
5
.
RA 5431 (27 June 1968) was passed amending section 24 of the Tax Code, and made liable to income tax all
corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code
notwithstanding the provisions of existing special or general laws to the contrary. Therefore, franchise companies were
subjected to income tax in addition to franchise tax.
Cagayan Electrics franchise was amended by RA 6020 (04 August 1969) [added Villanueva and Jasaan, Misamis
Oriental to its zone]. Under this amendment, the tax exemption in its original charter is re-enacted.
By virtue of RA 5431, the CIR required Cagayan Electric to pay deficiency taxes for 1968-1971. Syempre,
petitioner contested. CIR cancelled the assessments for 1970 and 1971 only.
Cagayan Electric appealed to the Tax Court. Court held that the petitioner is liable for January 1 to August 3,
1969 (dates when RA 5431 was in effect as to Cagayan Electric). Petitioner appealed to SC.
Issue:
1. W/N the assessment was valid
Held/Ratio:
1. NO. A franchise is a mere privilege. The Congress could impair ones legislative franchise when the public
interest so requires.
RA 5431 had the effect of withdrawing petitioners income tax. The Tax Court correctly held that the exemption
was restored by the subsequent enactment of RA 6020 which re-enacted the said tax exemption. Hence, as
correctly held by the Tax Court, petitioner is liable only for income tax for the period from January 1 to August 3,
1969.
It should be noted that franchise companies have been paying income tax in addition to the franchise tax.
However, it cannot be denied that the 1969 assessment is highly controversial since petitioner has reason not to
pay the income tax because of the tax exemption in its franchise.
For this reason, the Court held that it should be liable only for tax proper and should not be held liable for
surcharge and interest.

5. Section 3, RA 3247. In lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly
exempted.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 61 of 162
"#$
43 - Republic v. Heras (1970) (backpay certificates)
Doctrines:
There being an invalid payment by the taxpayer of his tax liability, which constituted no payment at all, the
collection of surcharges and interests becomes mandatory on the CIR and the courts.
Interest for deficiency tax is not punitive but compensatory in nature. It is the charge for the use of taxpayer of
funds that rightfully should have been in the government coffers and utilized for its needs.
Facts:
Antonio Heras filed his income tax return for 1958, declaring a taxable net income of P62, 444.64. Yet upon audit
and examination of the return by the BIR, he was held accountable for a deficiency of P 13,962.00. He was sent an
Income Tax Assessment Notice on May 14, 1959. On August 17, 1959 Heras paid the tax due to the Municipal
Treasurer of Bacoor Cavite using negotiable certificates of indebtedness in the sum of P13, 934.55 and cash in the
amount of P24.75, making the total P 13, 962.00
However Heras was later notified by the Revenue Office that pursuant to BIR General Circular No. V-289
dated May 8, 1959, payment of income taxes with indorsed negotiable backpay certificates is not allowed. After
another demand for payment was ignored, an action for collection for the alleged deficiency income tax was filed against
Heras for the sum of P13,934.55; P697.00 as 5% surcharge; plus 1% monthly interest in the amount from May 31, 1959 or
for a total of P 19, 637, 04.
As his defense, Heras claimed the following: a) that his payment on August 17, 1959 to the Municipal Treasurer
was valid; b) that upon acceptance of payment, the Republic of the Philippines was estopped from pursuing the complaint;
and c) that the opinion of the Secretary of Justice upon which Circular V-289 was based is not binding on the courts.
Nevertheless, the Republic contended that only original applicants of such certificates had the privilege to use backpay
certificates for payment of taxes and other obligations to the government, while Heras was only an assignee of the
certificate.
The CFI rendered judgment in favor of Heras and held as valid and effective his payment using the indorsed
negotiable backpay certificates. Hence, this appeal.
Issues:
1. W/N negotiable certificates of indebtedness or backpay certificates may be used for payment for tax liabilities by
holders who are not the original applicants therefor
2. W/N Heras is liable for surcharges and interests for late payment of his 1958 income tax (IMPT)
Held/Ratio:
1. NO. It is not denied by Heras that he was only an assignee of the backpay certificates. Under R.A. 304 as
amended by R.A. 800 and 897, and further supported by the case of De Borja v. Gella, the law confined the
privilege of using backpay certificates for payment of taxes by its original applicants. In enumerating the
obligations that may be properly settled with the said certificates, the law referred to them as his taxes, and
government hospital bills of the applicant, making it clear that the intent of the legislators was to limit its use by
the original applicants or original holders thereof. The most an assignee or a subsequent holder like Heras could
do was have it discounted upon maturity or to negotiate it.
2. YES. Heras not being the original applicant of the certificates, the effected payment of his tax obligation
constituted no payment at all. His tax liability not only remained unextinguished, but became subjected to
surcharges and penalties for late payment.
Under Sec. 51-e of the Internal Revenue Code, where the deficiency tax is not paid in full, there shall be collected
upon the unpaid amount, as part of the tax, interest of 1% a month, but not to exceed the amount corresponding to
3 years, plus 5% surcharge, such surcharge to be computed from the notice of the assessment or demand of the
Commissioner.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 62 of 162
"#$
After being informed of the basis of the demand by the Commissioner (the BIR circular disallowing backpay
certificates for settlement of the tax obligations of assignees or subsequent holders), the refusal of Heras to pay
the demanded income tax cannot be considered in good faith that would relieve payment of surcharges and
interests. There being an invalid payment of his tax liability, which constituted no payment at all, the
collection of surcharges and interests becomes mandatory on the CIR and the courts.
The interest collectible is not punitive, but compensatory in nature. It is compensation to the State for the
delay in the payment of tax. It is the charge for the use by the taxpayer of funds that rightfully should have
been in the government coffers and utilized for its needs.
44 - CIR v. Lianga Bay Logging Co., Inc. & CTA (1991) (Class C sawmill operator)
Doctrines:
The imposition of a compromise penalty w/o the conformity of the taxpayer is illegal and unauthorized
Facts:
Lianga is a forest concessionare. It originally held an ordinary timber license, but in 1958, its license was
converted into a Timber License Agreement. With this, Lianga also operated a sawmill, and it posted a bond of
P25k w/ the CIR to guarantee payment of any forest charges w/c may be due from it. Forest officers were also
permanently assigned to Liangas concession, where they prepared monthly reports about the quantity of logs cut
and removed. Based on these, under the Revised Internal Revenue Forest Products Regulation No. 85, Lianga was
certified as a Class C sawmill operator. Based on the officers reports, Liangas forest charges were computed, and for
the period of April 1956-December 1961, it paid a total of P336k in regular forest charges.
Two years later, the CIR wrote to Lianga demanding that it pay P84k, which represented a 25% surcharge on the
P336k it paid earlier. According to the CIR, Lianga had to pay the surcharge for not complying w/ Sec. 267 of the NIRC
(in relation to Secs. 11 and 13 of Regulations No. 85) which required forest concessionaires to file auxiliary invoices
before it could remove forest products from its cutting area. The CIR also demanded that Lianga pay P300 as compromise
fee if Lianga wished to settle the supposed violation extrajudicially. Lianga asked the CIR to reconsider his assessment,
but the latter refused, so Lianga appealed to the CTA. The CTA decided in favor of Lianga.
Issues:
1. W/N the imposition of the 25% surcharge and additional compromise fee was proper since Lianga failed to file
auxiliary invoices
Held/Ratio:
1. NO. Sec. 11 of Regulations No. 85 only requires the submission of auxiliary invoices for the concessionaire who
holds an ordinary license. It provides for separate requirements in case of forest concessionaires who own/operate
sawmills, like Lianga. Being a Class C sawmill operator, Lianga wasnt required to submit auxiliary
invoices but only a copy of its monthly scale reports (the one made by the forest officers). Thus, by
submitting such report, Lianga could transport the logs it had cut w/o any corresponding auxiliary invoice. The
CTA conclusively found that Lianga is a Class C sawmill operator because a) it posted the bond to guarantee
payment of forest charges and b) forest officers have been permanently assigned to it. The CIR has never
claimed & made no effort to prove that Lianga did not submit the necessary report and other invoices.
Thus, it is presumed that Lianga has complied w/ all its requirements. Plus, the CIRs assessment of the
surcharge was even based on the monthly report that Lianga is required to submit.
Sec. 267 of the NIRC does not specify the nature of the invoice which is required to be submitted before forest
products can be removed from the forest concession. It may refer either to auxiliary invoices or
official/commercial invoices, such as those prepared by Class C sawmill operators. In this case, Lianga prepared
the necessary sawmill and commercial invoices, so no violation of the rule may be imputed to it. Thus, there
is no basis for the compromise penalty, and as the CTA declared, the imposition of the same w/o the
conformity of the taxpayer is illegal & unauthorized.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 63 of 162
"#$
45 - The Philippines International Fair, Inc. v. CIR (1962)
Doctrines:
The payment of the compromise is really a penalty to avoid prosecution for violation of provisions of the Tax
Code.
Facts:
Philippines International Fair (PIF) is engaged in the business of establishing, operating and managing of
international fairs and expositions. In 1953 and 1954, the PIF held a fair and charged fees for admission to the exposition
and amusement grounds and the auditoriums.
The CIR, in 1954, sent 3 letters demanding the payment of P132,220 as amusement tax on its gross receipts
derived from admission tickets to the exposition and amusement grounds, Aquacade Show, and benefit dances, and those
derived from its gate and auditorium fees. The CIR also demanded the payment of P33,055.12 as 25% surcharge thereon
for late payment and P13,200.00 as compromise penalty. The compromise penalty was allegedly for the extrajudicial
settlement of PIFs violation of some sections of the Tax Code. The PIF requested for reinvestigation. The CIR still
ordered PIF to pay.
PIF appealed to the CTA. The CTA ordered PIF to pay the amusement tax and surcharge on its gross receipts
from admission tickets to the exposition ground, auditorium, and benefit dances. The CTA exempted PIF from paying the
amusement tax and surcharge on its receipts from admission tickets to the Aquacade Show and the compromise penalty.
PIF alleged that it is not subject to the amusement tax because its activities were sponsored by the Philippine
Government and by virtue of RA 722 which exempts exhibitions, except film and radio phonographic records. The CIR
alleged that the CIR erred in exempting PIF from paying the amusement taxes on the Aquacade Show and the
compromise penalty.
Issues:
1. W/N PIF is exempt from paying amusement taxes on the Aquacade Show?
2. W/N PIF is exempt from paying the compromise penalty?
Held/Ratio:
1. YES. It is an art exhibition, covered by the exemption under RA 722.
2. YES. The case at hand is not a criminal action instituted against PIF for having violated some of the provisions of
the Tax Code. Rather, this case deals with a tax assessment or demand made by the CIR upon PIF, from which
PIF appealed to the CTA and ultimately to the SC. It is clear that the PIF resisted the assessment. Consequently,
the result of the proceedings cannot be considered a compromise because the CTA and the SCs decision
constitute an adjudication upon the issue arising from the assessment made by the CIR, on the one hand, and
PIFs refusal to pay the same, on the other.
A compromise is really a penalty for violation of the provisions of the Tax Code. Since this case is not a
criminal case, the payment of the alleged compromise cannot be imposed upon the taxpayer in the present
proceedings (unless the taxpayer gives his consent).



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 64 of 162
"#$
46 - CIR v. Phoenix Assurance Co., Ltd. (1965) (amended return)
Facts:
Phoenix Assurance Co., Ltd. is a foreign insurance corporation based in London which entered into worldwide
reinsurance treaties.
April 1, 1953 - Phoenix filed its Philippine income tax return for 1952.
August 30, 1955 - Phoenix amended its ITRs for 1952 and 1953.
July 24, 1958 - CIR assessed a deficiency tax of P5,667.00 representing disallowed deductions for head office
expenses.
August 1, 1958 - BIR assessed Phoenix deficiency income taxes for the years 1952 and 1954 for P2,847.
Phoenix protested the assessment. The CIR denied the protest. On appeal, the CTA, among other things, declared
that the right of the CIR to assess the deficiency income tax for 1952 has prescribed, the same having been exercised more
than 5 years from the date the original return was filed (April 1, 1953). The CIR insists that the right to issue the
assessment has not prescribed since it was made within 5 years from the date when the amended return was filed (August
30, 1955).
Issues:
1. W/N the right of the CIR to assess deficiency income tax for the year 1952 against Phoenix has prescribed
(Should the running of the prescriptive period commence from the filing of the original or amended return?)
Held/Ratio:
1. NO. The prescriptive period for making the assessment should be counted from the date of filing of the amended
return.
The amended return of Phoenix was substantially different from the original return. The changes made in
the amended ITR consisted of the exclusion of reinsurance premiums from domestic insurance companies by
Phoenixs London head office, exclusion of reinsurance premiums ceded to foreign reinsurers not doing business
in the Philippines, and various items of deduction attributable to such excluded reinsurance premiums, thereby
substantially modifying the original return. (Just remember that the amended return was substantially different
from the original return)
Considering that the deficiency assessment was based on the amended return which is substantially different from
the original return, the period of limitation should be counted from the filing of the amended return. From August
30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less
than five years elapsed. The right of the CIR to assess the deficiency tax on such amended return has not
prescribed.
To hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes by simply reporting
in their original return heavy losses and amending the same more than five years later when the CIR has lost his
authority to assess the proper tax thereunder.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 65 of 162
"#$
47 - Butuan Sawmill v. CTA (1966)
Doctrine:
An ITR cannot be considered as a return for compensating tax for purposes of computing the period of
prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax
required by law in order to avail himself o the benefits of Section 331; otherwise, if he does not file a return, an
assessment may be made within the time stated in Section 332(a) of the NIRC.
Facts:
Butuan Sawmill sold logs to Japanese firms at prices, including the costs of loading, wharfage stevedoring and
other costs in the PHL. Upon investigation of the BIR, it was found out that no sales tax return was filed by Butuan
Sawmill and neither did it pay the corresponding tax on the sales. Because of this, the CIR amended the assessment it had
previously made. The CTA upheld the amended assessment of the sales tax and surcharge. The CTA also said that the
assessment was made well within the 10 year period prescribed by Section 332(a) of the NIRC since Butuan Sawmill
omitted to file its sales tax returns for 1951, 1952 and 1953. This omission was discovered only in 1957. Butuan Sawmill
claimed that the filing of its ITR, wherein the proceeds of the disputed sales were declared, is substantial compliance with
the requirement of filing a sales tax return. Butuan Sawmill also alleged that if there should be deemed a return filed by
them, the 5 year period within which to make an assessment and collection of the tax from the time the return was filed
under Section 331, and not Section 332(a), should apply. Further, Butuan Sawmill allged that since it had filed its ITRs in
1951,1952 and 1953, and that the assessment was made only in 1957, the CIR should be barred from making its
assessment.
Issue:
1. W/N the assessment was made within the prescriptive period?
Held/Ratio:
1. YES. An ITR cannot be considered as a return for compensating tax for purposes of computing the period of
prescription under Section 331 of the Tax Code (5 years), and that the taxpayer must file a return for the particular
tax required by law in order to avail himself o the benefits of Section 331; otherwise, if he does not file a return,
an assessment may be made within the time stated in Section 332(a) (10 years) of the NIRC.
The 10 year period applies in this case.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 66 of 162
"#$
48 - CIR v. Primetown Property Group, Inc. (2007) (leap year)
Facts:
On March 11, 1999, Gilbert Yap, vice chair of Primetown, applied for the refund or credit of quarterly corporate
income tax and creditable withholding tax that Primetown paid in 1997, explaining that while business was good during
the first quarter of 1997, the real estate industry slowed down and Primetown suffered losses amounting to P71,879,228
that year. It was required to submit additional documents to support its claim. Primetown complied but its claim was not
acted upon.
On April 14, 2000, it filed a petition for review in the CTA.
The CTA dismissed the petition ruling that it was filed beyond the 2-year prescriptive period for filing a judicial
claim for tax refund or tax credit.
6
It applied Article 13 of the Civil Code stating that years are of 365 days each and the 2-
year prescriptive period was equivalent to 730 days. Since the final adjusted return was filed on April 14, 1998, and
the year 2000 was a leap year, 731 days have elapsed since the filing of the return.
The CA reversed the decision ruling that since Article 13 does not distinguish between a regular year and a leap
year, the period covered by April 14, 1998 to April 14, 2000 (note that in counting dates, first day is excluded) should still
be counted as 365 days each or a total of 730 days.
Issue:
1. W/N the period for filing a judicial claim for tax refund or tax credit has prescribed.
Held/Ratio:
1. NO. The conclusion of the CA that respondent filed its petition for review in the CTA within the 2-year
prescriptive period is correct. Its basis, however, is not.
Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365
days. In a prior case, the SC has ruled that a year is equivalent to 365 days regardless of whether it is a regular
year or a leap year. However, the Administrative Code of 1987 provides that a year should be understood to be 12
calendar months. The Administrative Code of 1987, being the more recent law, should thus govern the
computation of legal periods.
Applying the Administrative Code of 1987 to the case, the 2-year prescriptive period consisted of 24 calendar
months. Thus, the petition filed on April 14, 2000 was filed on the last day of the 24
th
calendar month from the
day it filed its final adjusted return (April 14,1998). Hence, it was filed within the reglementary period.
The case is remanded to the CTA.



6. Sec. 229 of NIRC - In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 67 of 162
"#$
49 - CIR v. Engineering Equipment & Supply Co. (1975)
Facts:
Engineering Equipment and Supply Co., an engineering and machinery firm, is engaged in the design and
installation of central type air conditioning system, pumping plants and steel fabrications.
CIR received an anonymous letter denouncing Engineering for tax evasion by misdeclaring its imported articles
and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. Engineering was
likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. So, NBI and Central
Bank conducted a raid and search on which occasion voluminous records of the firm were seized and confiscated. CIR
also reported about deficiency advance sales tax. CIR assessed against the Company payment of the increased amount and
suggested that P10,000 be paid as compromise in extrajudicial settlement of the Companys penal liability for violation of
the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and
particulars of the Commissioners assessment.Engineering appealed the case to the Court of Tax Appeals. During the
pendency of the case the investigating revenue examiners reduced the Companys deficiency tax. CTA declared that
Engineering is a contractor and is exempt from deficiency manufacturers sales tax. The Commissioner, not satisfied with
the decision of the CTA, appealed to the Supreme Court.
Issue:
1. Is Engineering Equipment a manufacturer or contractor? CONTRACTOR.
2. Corrollarily, is the installation of a centralized air-conditioning system a contact of sale or a contract for piece of
work? CONTRACT FOR PIECE OF WORK.
3. Is Celestino Co v. CIR case applicable in this case? NO.
Held/Ratio:
1. The word contractor has come to be used with special reference to a person who, in the pursuit of the
independent business, undertakes to do a specific job or piece of work for other persons, using his own means and
methods without submitting himself to control as to the petty details. The true test of a contractor is that when he
renders service in the course of an independent occupation, representing the will of his employer only as to the
result of his work, and not as to the means by which it is accomplished.
Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as
refrigeration compressors in complete set, heat exchangers or coils) which were used in executing contracts
entered into by it. Engineering undertook negotiations and execution of individual contracts for the design, supply
and installation of air conditioning units of the central type taking into consideration in the process such factors as
the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises;
the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling
load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan.
Relative to the installation of air conditioning system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each had to be engineered separately.
2. NATURE OF OBJECT TEST:
The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether
the thing transferred is one NOT in existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons
even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes
and keeps on hand for sale to anyone, and no change or modification of it is made at defendants request, it is a
contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.
The air conditioning units installed in a central type of air conditioning system would not have existed but for the
order of the party desiring to acquire it and if it existed without the special order of Engineerings customer, the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 68 of 162
"#$
said air conditioning units were not intended for sale to the general public. Hence, it is a contract for a piece of
work.
3. Celestino Co compared to Engineering Equipment:
Points of discussion:
a. Advertisement as manufacturer/contractor
b. Ready-made materials
In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and
windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of
doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company
stationery carrying the bold print ORIENTAL SASH FACTORY. As a general rule, sash factories receive
orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from
ready-made doors and windows of standard sizes for the average home, which sales were reflected in their
books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum
difficult to have been derived from its few customers who placed special orders for these items.
In the present case, the company advertised itself as Engineering Equipment and Supply Company, Machinery
Mechanical Supplies, Engineers, Contractors and not as manufacturers. It likewise paid the contractors tax on all
the contracts for the design and construction of central system. Similarly, it did not have ready-made air
conditioning units for sale.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 69 of 162
"#$
50 - Taligaman Lumber v. CIR (1962) (Prescription, whether 5 years or 10 years)
Doctrines:
Prescription is an affirmative defense which a taxpayer claiming under Section 331 must prove (First of all,
that it filed its return, then, that the time within which the government could issue an assessment has already
prescribed.)
Facts:
Taligaman Lumber Co. is a domestic corporation engaged in the business of cutting and converting logs into
lumber for selling. It has offices in Caloocan and Butuan city.
On December 23, 1953, a BIR agent recommended an assessment of P 134,381 as deficiency sales tax covering
sales made by the Caloocan City branch during the years 1948-1952. Reexaminations of the books of accounts led to
a reduced assessment, issued on May 31, 1955, reducing the deficiency income tax liability to P 83,645 inclusive of
25% surcharge.
A similar deficiency income tax assessment was made covering sales made by the Butuan City branch during the
years 1948-1953. Said assessment for the amount of P 98,145 was issued on June 21, 1954. Like in the other branch, a
reexamination was conducted and a new assessment was issued on November 15, 1954 for a reduced amount of P 39,
527 inclusive of 25% surcharge.
To settle these liabilities, Taligaman Lumber proposed to pay P 39, 527. (As a compromise, perhaps.) CIR refused
to modify either assessment which pushed Taligaman Lumber to bring the matter before the CTA. The CTA reduced the
total liability of Taligaman Lumber to P 85,790 inclusive of 25% surcharge.
Taligaman Lumber now assails the decision of the CTA alleging that 1) the right of the government to collect
deficiency income taxes for the years 1948 and 1949 has already prescribed (remember/s: assessments were issued
in 1955 and 1954) and 2) that the export sales made by the Butuan City branch were consummated abroad and hence, not
taxable.
Issues:
1. W/N the governments right to collect deficiency income taxes for the years 1948 and 1949 has already prescribed
(NO)
2. W/N the export sales made by the Butuan City branch are taxable (YES)
Held/Ratio:
1. NO, the governments right to collect deficiency income taxes for the years 1948 and 1949 has NOT
prescribed.
Taligaman Lumbers bases its contention that the right to collect has already prescribed on Section 331 of the
Revised Internal Revenue Law that states:
Except as provided in the succeeding section, internal revenue taxes shall be assessed within five
years after the return was filed, and no proceeding in court without assessment the collection of
such taxes shall be begun after the expiration of such period. For the purposes of this section a
return filed before the last day prescribed by law for the filling thereof shall be considered as filed
on such last day: Provided, That this limitation shall not apply to cases already investigated prior
to the approval of this Code
On the other hand, the CIR says that the applicable provision is Section 332:
In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud, or
omission.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 70 of 162
"#$
Taligaman Lumber contends that the CIR did not give any affirmative evidence showing that it did not file its tax
returns for the years 1948 and 1949, such that Section 332 could apply. However, the Court stated that
prescription is an affirmative defense which Taligaman Lumber must prove in order that it may avail itself
of the benefits under Section 331. Taligaman must first prove that it filed its returns for 1948 and 1949, and
that the period within which the government could issue an assessment has already prescribed. In this case,
Taligaman failed to prove that it submitted the returns for the years 1948 and 1949. Hence, the conclusion is
that it did not file the said returns. Consequently, Section 332 applies and the government had 10 years within
which to make the corresponding assessments. The BIR issued the assessment in 1954 and 1955, well within 10
years from 1948 and 1949.
2. YES, the export sales made by the Butuan City branch are taxable.
The export sales made by the Butuan City branch to Japanese buyers are taxable. The agreed price was F.O.B.
Agusan. As we learned in Sales, the employment of such terminology shows the intent of the parties to have title
to the goods pass to the buyer upon delivery of the logs in Agusan, on board the vessels that took the foods to
Japan. Hence, the export sales were consummated in the Philippines and are subject to sales tax.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 71 of 162
"#$
51 - Aznar v. CTA (1974)
Facts:
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of one obviously
wealthy, Matias H. Aznar caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayers true income for said
years. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax
returns for the aforesaid years. Based on the findings, Commissioner, in his letter dated November 28, 1952, notified the
taxpayer of the assessed tax delinquency to the amount of P723,032.66, plus compromise penalty. The taxpayer requested
a reinvestigation which was granted for the purpose of verifying the merits of the various objections of the taxpayer to the
deficiency income tax assessment. After the reinvestigation, another deficiency assessment to the reduced amount of
P381,096.07 was received.
Petitioner firstly avers that according to the NIRC, the right of the CIR to assess deficiency income taxes for the
years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952; there
being a five year limitation upon assessment and collection from the filing of the returns. Meanwhile, respondents believe
that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: (a) In
the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission. Petitioner argues said provision does not apply because the taxpayer did not
file false and fraudulent returns with intent to evade tax.
Secondly, petitioner insists that there might have been false returns by mistake filed as those returns were
prepared by his accountant employees, but there were no proven fraudulent returns with intent to evade taxes that would
justify the imposition of the 50% surcharge authorized by law as fraud penalty.
Issue:
1. W/N the right of the Commissioner of Internal Revenue to assess deficiency income for the years 1946, 1947, and
1948 had already prescribed at the time the assessment was made on November 28, 1952.
2. W/N the imposition of 50% surcharge authorized by law as fraud penalty was proper
Held/Ratio:
1. No. The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the
NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so
as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return
intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a)
NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be
the one enforced. There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years
within which to assess petitioners tax liability had not expired at the time said assessment was made.
2. NO. The lower court based its conclusion on a presumption that fraud can be deduced from the very substantial
disparity of incomes as reported and determined by the inventory method and on the similarity of consecutive
disparities for six years. Such a basis for determining the existence of fraud (intent to evade payment of tax)
suffers from an inherent flaw. We cannot but emphatically reiterate the well-established doctrine that fraud cannot
be presumed but must be proven. Fraudulent intent could not be deduced from mistakes however frequent they
may be, especially if such mistakes emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities The predecessor of the petitioner undoubtedly filed
his income tax returns for the years 1946 to 1951 and those tax returns were prepared for him by his accountant
and employees. It also appears that petitioner in his lifetime and during the investigation of his tax liabilities
cooperated readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by
him.
The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was based


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 72 of 162
"#$
merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to
warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must
be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce
another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent
to evade the tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent.
52 - CIR v. B.F. Goodrich Phils., Inc. (now Sime Darby International Tire Co., Inc.) and CA (1999)
Doctrine:
What is involved here is not a first assessment; nor is it one within the 5-year period stated in Section 331. Since
what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based
on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the
very specific terms fraud, irregularity, and mistake. Falsity does not appear to be included in this enumeration.
Falsity suffices for an assessment, which is a first assessment made within the five-year period. When it is a
subsequent assessment made beyond the five-year period, then, it may be validly justified only by fraud,
irregularity and mistake on the part of the taxpayer.
Facts:
BF Goodrich (now SIME DARBY INTERNATIONAL) (BF for brevity) was an American owned and controlled
corp. which sought to operate the manufacturing of rubber tires in the Philippines and in order for its application to be
granted, the Central Bank required it to develop a rubber plantation. In compliance with this, BF purchased from the
government in 1961, under the Public Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of
land located in Tumajubong, Basilan, and there developed a rubber plantation.
In 1973, however, the justice secretary rendered an opinion stating that, upon the expiration of the Parity
Amendment on July 3, 1974, the ownership rights of Americans over public agricultural lands, including the right to
dispose or sell their real estate, would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty
Philippines, Inc. on January 21, 1974, its Basilan landholding forP500,000 payable in installments. In accord with the
terms of the sale, Siltown Realty Philippines, Inc. (Siltown) leased the said parcels of land to private respondent for a
period of 25 years, with an extension of another 25 years at the latters option.
The BIR issued a letter of authority requesting the examination of BFs books and accounts to determine its tax
liability for 1974. The assessment resulted with a deficiency income tax of P6,005.35 which BF duly paid. The BIR next
examined Siltowns business, income and tax liabilities and based on this, the BIR Commissioner issued another
assessment for deficiency in donors tax amounting to P1,020,850 to BF because the BIR claims that it under sold its
Basilan property based on the fair market value of said property. The BIR considered the deficiency between the fair
market value 500,000.
BF contested, on April 9, 1981, it received another assessment dated March 16, 1981, which increased
to P1,092,949 the amount demanded for the alleged deficiency donors tax, surcharge, interest and compromise penalty.
BF appealed before the CTA which modified the decision. Respondent appealed to the CA which reversed the
CTA.
Issues:
1. W/N petitioners right to assess herein deficiency donors tax has indeed prescribed as ruled by public respondent
Court of Appeals
2. W/N the herein deficiency donors tax assessment for 1974 is valid and in accordance with law


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 73 of 162
"#$
Held/Ratio:
1. CA did not commit error in reversing the CTA, because notwithstanding what petitioner claims that the CAs
ruling was based on factual findings that should have been left undisturbed on appeal, in the absence of any
showing that it had been tainted with gross error or grave abuse of discretion, the CTAs application of the law to
the facts of this controversy is an altogether different matter, for it involves a legal question. There is a question of
law when the issue is the application of the law to a given set of facts. On the other hand, a question of fact
involves the truth or falsehood of alleged facts. In the present case, the Court of Appeals ruled not on the truth or
falsity of the facts found by the CTA, but on the latters application of the law on prescription.
Section 331 of the National Internal Revenue Code provides:
SEC. 331. Period of limitation upon assessment and collection. Except as provided in the
succeeding section, internal-revenue taxes shall be assessed within five years after the return was
filed, and no proceeding in court without assessment for the collection of such taxes shall be
begun after expiration of such period. For the purposes of this section, a return filed before the
last day prescribed by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already investigated prior to the
approval of this Code.
Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981
assessments were issued by the BIR beyond the five-year statute of limitations. The Court has thoroughly studied
the records of this case and found no basis to disregard the five-year period of prescription.
The subsequent assessment made by the respondent Commissioner on October 10, 1980, modified by that of
March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the
returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year
1974 were duly filed by the petitioner, and assessment of taxes due for such year including that on the transfer
of properties on June 21, 1974 was made on April 13, 1975 and acknowledged by Letter of Confirmation No.
101155 terminating the examination on this subject. The subsequent assessment of October 10, 1980 modified, by
that of March 16, 1981, was made beyond the period expressly set in Section 331 of the National Internal
Revenue Code xxx.
2. No it was not valid. Petitioner relies on the CTA ruling which uses falsity as the basis for validating its subsequent
assessments which is allowed under Sec. 15 of the 1974 tax code (now sec.16 of NIRC) which grants the BIR the
power to assess the proper tax on the best evidence obtainable when there is reason to believe that a report of a
taxpayer is false, incomplete or erroneous. More, when there is falsity with intent to evade tax. That it is guilty of
falsity when it undervalued its property that it sold to Siltown.
The court finds this misplaced because:
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our
tax law provides a statute of limitations in the collection of taxes.
The law on prescription, being a remedial measure, should be liberally construed in order to afford such
protection.

As a corollary, the exceptions to the law on prescription should perforce be strictly construed.
Section 15 of the NIRC, on the other hand, provides that [w]hen a report required by law as a basis for
the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or
regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the
Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable.
Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by
allowing the initial assessment to be made on the basis of the best evidence available. Having made its initial
assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-
year prescriptive period, the second and the third assessments under consideration before us.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 74 of 162
"#$
Nor is petitioners claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of
limitations. Petitioner insists that private respondent committed falsity when it sold the property for a price
lesser than its declared fair market value. This fact alone did not constitute a false return which contains wrong
information due to mistake, carelessness or ignorance.

It is possible that real property may be sold for less than
adequate consideration for a bona fide business purpose; in such event, the sale remains an arms length
transaction. In the present case, the private respondent was compelled to sell the property even at a price less than
its market value, because it would have lost all ownership rights over it upon the expiration of the parity
amendment. In other words, private respondent was attempting to minimize its losses. At the same time, it was
able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on
the price.
Furthermore, the fact that private respondent sold its real property for a price less than its declared fair market
value did not by itself justify a finding of false return. Indeed, private respondent declared the sale in its 1974
return submitted to the BIR.

Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said property was of public record. This it
did not do, however, during all those five years. Moreover, the BIR failed to prove that respondents 1974 return
had been filed fraudulently. Equally significant was its failure to prove respondents intent to evade the payment
of the correct amount of tax.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 75 of 162
"#$
54 - Siao Tiao Hong v. CIR (1992)
Doctrine:
In order to avail of the benefits of section 331 [now section 203], one must file a return for the lending investors
fixed tax; otherwise, an assessment made within the period provided for in Section 332 (a) [now section 222 (a)]
which provides for exceptions as to period of limitation of assessment and collection of taxes.
Facts:
[dates are important !]
The petitioner is a real estate developer whose principal income is derived from rentals. He had several deposits
and extended loans to his friends supposedly on accommodation and not for profit. He declared an income of P9,582
from rents and royalties and P5,540 as interest income from bonds, bank deposits, etc. in his ITR for the year 1958. On
May 25, 1960, the BIR ordered an examination of his books in connection with the 1958 return. A month after, June 21,
1060, the Revenue Examiner recommended that the petitioner be assessed for: 1) a deficiency income tax of
P1,068.79, and 2) fixed taxes as a lending investor at P300 each year for the years 1955-1959. The petitioner protested
the accuracy of the assessment and requested a reexamination, which was thereafter granted. On November 3, 1961, after
reexamination, the revenue examiner reported that there was no discrepancy on the said return. Despite such finding, the
Regional Office of the BIR still sent him a letter, on June 2, 1961, demanding payment of P2,400 as lending
investors fixed tax for the years 1953-1960.
Almost a year after, May 30, 1962, the BIR brought a collection suit for the P2,400 fixed tax against the
petitioner. The City Court dismissed the suit for being premature since no assessment was received by the petitioner.
Hence, the case was not one of undisputed assessment within the jurisdiction of the court. The petitioner filed a formal
protest to the assessment in August 1965 but was denied by the BIR Regional Office on March 1966. Such denial
prompted him to file a petition for review with the CTA, which affirmed his liability for the lending investors fixed
taxed. Now, the petitioner argues that such loans were only accommodations for his friends and not extended for profit.
He also argues that, assuming he was liable for the fixed tax, the right to collect the same had already prescribed since no
assessment for lending investors tax was made within the 5 year period from the filing of the petitioners income tax
returns for the years 1953-1959.
Issue:
1. Whether the petitioner is liable for lending investors tax
2. Whether the BIRs right to collect the same had prescribed
Held/Ratio:
1. Yes. The bank deposits were not considered as loans in the sense that such would constitute the conduct of a
lending business, on which the fixed tax is imposed. On the other hand, the loans he extended to several
individuals are subject to lending investors tax. Evidence shows that these were not mere isolated transactions to
his friends; his contention is belied by the fact that he collected interest from the borrowers and that such interests
were reflected in his income tax return.
2. No. The period provided in Section 331 [now Section 203 I think] is inapplicable here since fixed taxes are not
included in an income tax return and neither is it paid together with the income tax. The Code provides a
different date for payment of fixed taxes, for which a separate return must be filed. The Court ruled that for
prescription to have set in, he must have filed a return for the lending investors fixed tax; otherwise, an
assessment may be made within the period provided for in Sec. 332 (a) [now section 222] which provides for
exceptions as to the period of limitation of assessment and collection of taxes:
(a) In case of a false or fraudulent return with intent to evade tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without an assessment, at any time within 10 years after the discovery of the falsity, fraud, or
omission.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 76 of 162
"#$
His omission to file a return was discovered on June 21, 1960, when the initial examination of books was
conducted. The assessment for lending investors tax was made on June 2, 1961 (well within the 5 year period).
The collection must be made within the 5-year period from the assessment. The running of the period was
suspended on May 27,1963 when the complaint for collection was filed against the petitioner. The period ran
again upon dismissal by the city court on July 14, 1965 and was stopped on October 27, 1966 when the CIR filed
his answer to the petition for review brought by the petitioner before the CTA. All in all, a total of 3 years, 3
months and 8 days had elapsed. Therefore, the right of the CIR to assess and collect the lending investors
fixed tax had not yet prescribed.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 77 of 162
"#$
55 - CIR v. Tulio (2005)
Doctrines:
Section 223 specifies 3 instances when the running of the 3-year prescriptive period is inapplicable: (1) filing a
false return; (2) filing a fraudulent return with intent to evade tax, or (3) failure to file a return. The period within
which to assess the tax is ten years from the discovery of the fraud, falsification, or omission.
Facts:
Arturo Tulio is in the construction business. On February 28, 1991, the CIR sent him a demand letter with 2 final
assessment notices. He requested the payment of Tulios deficiency percentage taxes of P188,585.76 and P245,669.53 for
taxable years 1986 and 1987. Despite receipt, Tulio did not act on the assessment notices. As a result, it became final and
executory pursuant to Section 229 of the NIRC. On October 15, 1991, CIR issued a warrant of distraint and/or levy
against Tulio. However, Tulio had no properties which can be placed under distraint and/or levy.
On April 3, 1991, October 5, 1993, and May 14, 1997, CIR sent letters to Tulio. These letters provided Tulio with
the last opportunity to settle his deficiency tax liabilities. However, Tulio still refused to settle his deficiency taxes. CIR
filed a civil action for collection of deficiency percentage taxes before the RTC of Baguio. [RTC has jurisdiction because
ordinary courts entertain BIR money claims based on assessments that have become final and executory.] The RTC
directed Tulio to file his answer. Three days later, Tulio filed a motion to dismiss claiming that the complaint was filed
beyond the three-year prescription period. RTC granted the motion to dismiss. CIR filed a motion for reconsideration but
the RTC denied this. Hence, CIR filed a petition for review on certiorari.
Issues:
1. W/N the complaint may be dismissed on the ground of prescription.
Held/Ratio:
1. NO. The RTC misapplied Section 203 of the NIRC. Section 203 provides for the three-year prescriptive period
from the filing of the tax return within which internal revenue taxes shall be assessed. The RTC held that the
prescriptive period should be counted from the day the return was filed. However, Tulio failed to file a tax return.
When a taxpayer fails to file a tax return, Section 223 of the NIRC is the applicable provision.
Under Section 223 (now Section 222) provides that in the event a taxpayer fails to file a return, the tax is assessed
or a proceeding in court for collection may be filed without assessment, at any time within 10 years after the
discovery of the falsity, fraud or omission. Any internal revenue tax may be collected by distraint or levy or by a
proceeding in court within 3 years following the assessment of the tax.
Section 223 specifies 3 instances when the running of the 3-year prescriptive period is inapplicable: (1) filing a
false return; (2) filing a fraudulent return with intent to evade tax, or (3) failure to file a return. The period within
which to assess the tax is ten years from the discovery of the fraud, falsification, or omission.
Here, Tulio failed to file his tax returns for 1986 and 1987. CIR discovered Tulios omission on September 14,
1989. The ten-year prescriptive period commenced on September 14, 1989 and ended on September 14, 1999.
The two final assessment notices were issued on February 28, 1991 well within the three-year prescriptive
period. It became final and executor when Tulio failed to question of protest the deficiency assessments.
Since the tax had become final and unappealable, CIR can enforce its authority to collect Tulios deficiency
percentage taxes.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 78 of 162
"#$
56 - Republic v. Acebedo (1968) once prescribed, waiver of statute cant revive action.
Doctrine:
SEC. 332. Exemptions as to period of limitation of assessment and collection of taxes.
...
(c) Where the assessment of any internal-revenue tax has been made within the period of limitation above
prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun:
(1) within five years after the assessment of the tax, or
(2) prior to the expiration of any period for collection agreed upon in writing by the Collector of
Internal Revenue and the taxpayer before the expiration of such five-year period.
The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of
the period previously agreed upon.
Facts:
A suit for collection of deficiency tax was filed against Felix Acebedo in the amount of P5,962 for the year 1948.
A notice of assessment was issued on September 1949. The complaint was filed on 1961. Even before filing his answer,
Acebedo filed a motion to dismiss on the ground of prescription. The motion was granted by the lower court and the same
dismissed the case.
Hence, the petitioner Republic filed an appeal with this court, contending that the various requests for
reinvestigation or reconsideration of the tax assessment made by the respondent suspended the 5 year period
prescription period and that the waiver of statute of limitations duly executed in 1959 was sufficient to further
suspend period of prescription.
Issues:
1. W/N a request for a reinvestigation suspends the running of the period for filing an action for collection?
2. W/N the waiver of limitations suspended the period?
Held/Ratio:
1. No. More than five years had elapsed since assessment in question was made, and hence prescription had
already set in.
Details of communication:
The defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof
on October 1949. There is no evidence that this request was considered or acted upon. In fact, on October
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the
assessment, but there was no follow up of this warrant. Consequently, the request for reinvestigation did not
suspend the running of the period for filing an action for collection.
The next communication of record is a letter signed for the defendant by one Troadio Concha and dated October
6, 1951, again requesting a reinvestigation of his tax liability. Nothing came of this request either.
On February 9, 1954, the defendants lawyers wrote the Collector of Internal Revenue informing him that the
books of their client were ready at their office for examination. The Collectors reply was dated more than a
year later (October 4, 1955). By October 4, 1955, more than five years had elapsed since assessment in
question was made, and hence prescription had already set in.
2. No. October 4, 1955, the Commissioner required that the Acebedo specify his objections to the assessment
and execute the enclosed forms for waiver, of the statute of limitations. But at that time, more than five
years had elapsed since the assessment in question was made, and hence prescription had already set in,
making subsequent events in connection with the said assessment entirely immaterial. Even the written


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 79 of 162
"#$
waiver of the statute signed by the defendant on December 17, 1959 could no longer revive the right of
action.
57 - CIR v. CA (1999)
Facts:
On January 15, 1982 Carnation Phils., Inc. filed its Corporation Annual Income Tax Return for taxable year and
its Manufacturers/Producers Percentage Tax Return for the quarter, both ending September 30, 1981. On October 13,
1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Lardizabal, signed three separate
waivers of the Statute of Limitations under the NIRC which were not signed by the BIR Commissioner or any of his
agents. In August 5, 1987, Carnation received BIRs letter of demand dated July 29, 1987 asking the said corporation to
pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales
tax on undeclared sales, all for the year 1981. Carnation immediately disputed the assessments and requested a
reconsideration and reinvestigation thereof, and later that same year a supplemental protest was also filed. The protests
were denied by the BIR Commissioner thus prompting Carnation to appeal with CTA.
Issue:
1. Whether the signing of the waiver tolled the 5 year prescriptive period
Held/Ratio:
1. NO. Sec 319 (b) provides that: Where before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing
to its assessment after such time, the tax may be assessed at anytime prior to the expiration of the period agreed
upon. The period so agreed upon may be extended by subsequent agreement in writing made before the
expiration of the period previously agreed upon. The law is clear and since in this case it was undisputed that the
waivers were not signed by the CIR, the contention of BIR Commissioner on the validity of such waivers (that
when examiners or agents extend the audit and investigation period, BIR gave implied consent to the waivers,
signature of Commissioner is mere formality and that a waiver is not a contract but a unilateral act of renouncing
ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions
set forth in the waiver) must fail. The waivers executed by Carnation were said to be for end in consideration of
the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of
its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all
pending at the time, and so it cannot be said to be unilateral nor the Commissioners signature as mere formality
because the very signatures of both the CIR and the taxpayer which give birth to such a valid agreement.
The assessment of the income and sales tax deficiency of Carnation were issued way beyond the five-year
prescriptive period and were declared by court as null and void.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 80 of 162
"#$
59 - CIR v. FMF Corp. (2008)
Facts:
On April 15, 1996, FMF filed its Annual ITR for taxable year 1995. On May 8, 1996, however, it filed an
amended. The BIR then sent FMF pre-assessment notices, all dated October 6, 1998, informing it of its alleged tax
liabilities. FMF filed a protest. The RDO informed FMF that the reinvestigation had been referred to a Revenue Officer.
RDO also advised FMF of the informal conference set to allow it to present evidence to dispute the BIR assessments.
On the said informal conference, FMF President Enrique Fernandez executed a waiver of the three-year
prescriptive period for the BIR to assess internal revenue taxes, hence extending the assessment period until October 31,
1999. The waiver was accepted and signed by RDO Zambarrano.
On October 18, 1999, FMF received amended pre-assessment notices dated October 6, 1999 from the BIR. FMF
immediately filed a protest on November 3, 1999 but on the same day, it received BIRs Demand Letter and Assessment
Notice.
On November 24, 1999, FMF filed a letter of protest on the assessment invoking, inter alia, the defense of
prescription by reason of the invalidity of the waiver. In its reply, the BIR insisted that the waiver is valid because it was
signed by the RDO, a duly authorized representative of petitioner.
Issues:
1. W/N the waiver is valid.
2. Did the three year period to assess prescribe?
Held/Ratio:
1. NO. An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC,
which provides:
...
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its assessment after such time,
the tax may be assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.
The above provision authorizes the extension of the original three-year period by the execution of a valid waiver,
where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the taxes due
is extended to an agreed upon date.
Under RMO No. 20-90, which implements Sections 203 and 222 (b), the following procedures should be
followed:
a. The waiver must be in the form identified as Annex A hereof....
b. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated.
Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
c. The following revenue officials are authorized to sign the waiver.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 81 of 162
"#$
A. In the National Office
...
3. Commissioner For tax cases involving more than P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still pending investigation and the period
to assess is about to prescribe regardless of amount.
...
d. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact
of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.
e. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied
with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with.
Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-
year prescriptive period.
1. It was not proven that respondent was furnished a copy of the BIR-accepted waiver
2. The waiver was signed only by a revenue district officer, when it should have been signed by the
Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an
amount of more than P1 million, and the period to assess is not yet about to prescribe.
3. It did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite
necessary to determine whether the waiver was validly accepted before the expiration of the original
three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the
very signatures of both the Commissioner and the taxpayer to give birth to a valid agreement.
As to the contention that the RMO is merely directory, a waiver of the statute of limitations under the NIRC, to a
certain extent being a derogation of the taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed.
Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon
between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding
effect on respondent because there was no consent by the Commissioner.
2. YES. The Assessment Notice dated October 25, 1999, was issued beyond the three-year prescriptive period. The
waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor extended and
continued to run until April 15, 1999. Even if the three-year period be counted from May 8, 1996, the date of
filing of the amended return, assuming the amended return was substantially different from the original return, a
case which affects the reckoning point of the prescriptive period, still, the subject assessment is definitely
considered time-barred.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 82 of 162
"#$
60 - CIR v. Kudos Metal Corporation (2010)
Facts:
Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos Metal Corp Notices of
Presentation of Records. Kudos failed to comply with these notices. Hence, the BIR issued a Subpeona Duces Tecum
dated September 21, 2006.
On December 10, 2001, Kudos accountant, executed a Waiver of the Defense of Prescription. This was followed
by a second Waiver of Defense of Prescription on February 18, 2003.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand with Assessment Notices.
CTA Division
Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not the revenue official
authorized to sign the waiver, as the tax case involves more than P1,000,000. The waiver failed to indicate the date of
acceptance. The fact of receipt by the taxpayer of his file copy was not indicated on the original copy.
CTA En Banc
Agreed only to the second and third grounds.
Issue:
1. Whether the right of the government to assess has expired.
Held/Ratio:
1. Yes. An assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222of the NIRC.
The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the
taxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO
05-01issued on August 2, 2001 lay down the procedure for the proper execution of the waiver.
7

The first waiver had the following infirmities:

7. 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___, which indicates
the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be
filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver
must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such
delegation should be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the
waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue
official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer
or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of
prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the
agreement.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 83 of 162
"#$
1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the
waivers.
Estoppel does not apply in this case. In another case
8
, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes. There was a finding that the taxpayer made
several requests or positive acts to convince the government to postpone the collection of taxes.
In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent
made any request to persuade the BIR to postpone the issuance of the assessments.
The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO
05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority
was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the
respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot
shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the
taxpayers right to security against prolonged and unscrupulous investigations, must be carefully and strictly
construed.

8. Collector of Internal Revenue v. Suyoc Consolidated Mining Company


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 84 of 162
"#$
61 - RCBC v. CIR (2011) (RCBC is estopped because it already paid)
Facts:
RCBC filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar years
1994 and 1995. On August 15, 1996, RCBC received a Letter of Authority issued from CIR Liwayway Vinzons-Chato,
authorizing a special audit team to examine the books for all internal revenue taxes from January 1, 1994 to December 31,
1995.
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to assess
up to December 31, 2000.
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment
Notices from the BIR. RCBC filed a protest on February 24, 2000 and on November 20, 2000, it filed a petition for
review before the CTA. On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment
Notices dated October 20, 2000, following the reinvestigation it requested, which drastically reduced the original amount
of deficiency taxes and on the same day, RCBC paid the following deficiency taxes as assessed. RCBC, however, refused
to pay the following assessments for deficiency onshore tax and documentary stamp tax which remained to be the subjects
of its petition for review.
Issue:
1. Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is
rendered estopped from questioning the validity of the said waivers with respect to the assessment of deficiency
onshore tax.
Held/Ratio:
1. YES. RCBC, through its partial payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner
truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount of taxes in the revised assessment.
RCBCs subsequent action effectively belies its insistence that the waivers are invalid. The records show that on
December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested
taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party
to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of
equity which this institution holds dear.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 85 of 162
"#$
62 - Avon Products Manufacturing, Inc. v. CIR (2010) (waiver of prescriptive period)
Doctrines:
Under RMO No. 20-90, the waiver must be executed in 3 copies with the second copy for the taxpayer.
The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the agreement.
Facts:
Avon Products Manufacturing, Inc. (AVON) filed its VAT Returns and the Monthly Remittance Returns of
Income Tax Withheld for the taxable year 1999 on different dates (dates between Feb 25 1999 and Jan 25 2000). It also
signed two Waivers of the Defense of Prescription under the Statute of Limitations of the NIRC.
CIR sent a Preliminary Assessment Notice (Dec 23, 2002) to Avon covering a deficiency tax of P80,246,459.15.
Avon filed a letter protesting against the PAN. Without ruling on the protest, CIR sent a Final Assessment Notice and
Formal Letter of Demand (April 11, 2003) to Avon. Avon again protested the FAN. CIRs Revenue Officers prepared a
Memorandum recommending the enforcement and collection of the deficiency tax assessments because Avon failed to
submit the necessary documents to support its protest. The Large Taxpayers Collection and Enforcement Division served
the Collection Letter to Avon.
Issues:
1. W/N the waivers are defective
Held/Ratio:
1. YES. The Waivers executed are invalid and ineffective since CIR did not provide Avon a copy of the accepted
Waivers, as required in Revenue Memorandum Order No. 20-90. And the invalidity of the waiver did not extend
the original 3-year prescriptive period.
As it appears from the evidence, no duly BIR-accepted waiver was received by Avon involving the deficiency tax,
deficiency withholding tax and deficiency withholding tax on compensation assessments. (The prescription dates
are between Feb 25, 2002 and Jan 25, 2003). Considering that Avon received the FAN only on April 11, 2003,
way beyond the period allowed by law to assess petitioner over its deficiency VAT, expanded withholding and
withholding tax on compensation, the assessments should have already prescribed
Notably, the law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizen; to the Government because tax officers would be obliged to act promptly in the
making of assessments and to citizens because after the lapse of the period of prescription, citizens would have a
feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of
taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such legal defense, taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by unscrupulous agents. The
law on prescription, being a remedial measure, should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommends the approval of the law.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 86 of 162
"#$
63 - Afisco Insurance Corp. v. CA (1999) (suspension of prescriptive period)
Doctrines:
The prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.
Facts:
The petitioners are 41 non-life insurance corporations. They issued a Erection, Machinery Breakdown, Boiler
Explosion and Contractors All Risk insurance policies. Thereafter, they entered into a Quota Share Reinsurance Treaty
and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (okay, Munich for short nalang).
The reinsurance treaties required petitioners to form a pool, which was created on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax for the year ending in 1975. The CIR assessed a deficiency corporate
taxes of P1,843,273.60, and withholding taxes of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the
petitioners, respectively (letter of assessment dated March 27, 1981, petitioners were informed only on Nov 11, 1981).
Petitioners protested the assessments. CIR denied the protest and ordered the Pool of Machinery Insurers (Pool) to pay the
deficiencies.
The CA ruled that the Pool was a partnership taxable as a corporation, and that its collection of premiums on
behalf of its members, the ceding companies, was taxable income. It added that prescription did not bar the BIR from
collecting the taxes due, because the taxpayer cannot be located at the address given in the information return filed. (no
other facts about the change of address was given)
Issues:
1. W/N the pool is taxable as a Corporation
2. W/N the Commissioners right to assess the Clearing House had already prescribed (IMP)
Held/Ratio:
1. YES. The term partnership includes a syndicate, group, pool, joint venture, or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried on.
2. NO. The CA and the CTA categorically found that the prescriptive period was tolled under then Section 333 of
the NIC, because the taxpayer cannot be located at the address given in the information return filed and for which
reason there was delay in sending the assessment. Indeed, whether the governments right to collect and assess the
tax has prescribed involves facts which have been ruled upon by the lower courts. The law clearly states that the
prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 87 of 162
"#$
64 - CIR v. Hambrecht and Quist Philippines, Inc. (2010)
Doctrine:
! Section 224 of the 1986 NIRC states that two requisites must concur before the period to enforce the collection
may be suspended: a) that the taxpayer requests for reinvestigation and b) that the BIR grants such request.
Facts:
The case is about the alleged deficiency in income and expanded withholding taxes of Hambrecht and Quist. The
deficiency income tax resulted from the disallowance of certain items of expense (professional fees, donations, salaries,
management fees). For the deficiency in expanded withholding tax, Hambrecht failed to withhold the appropriate tax on
the management fees.
January 8, 1993: an assessment notice was sent by the BIR through registered mail
February 15, 1993: Through a letter, Hambrecht & Quist informed the BIR of its change of business address
from Corinthian Plaza, Paseo de Roxas to PCIB Tower in Makati Ave. corner H.V. de la Costa
November 4, 1993: Hambrecht received a follow-up letter or tracer dated October 11, 1993 issued by the BIR,
demanding payment for alleged deficiency income and expanded withholding taxes for taxable year 1989
amounting to P2,936,560.87.
December 3, 1993: Hambrecht made a protest and requested a reinvestigation (letter to the BIR)
November 7, 2001, AFTER 8 YEARS: Hambrecht received a letter from the CIR. It stated that its protest was
denied on the ground that the protest against the disputed tax assessment was filed beyond the 30-day period
prescribed in then Section 229 of the NIRC.
Hambrecht filed a Petition for Review with the CTA. The CTA Original Division ruled that the assessment notice
send to Hambrecht on January 8, 1993 in its old address was valid and binding since it gave a formal notice of its change
of address only on February 18, 1993. Thus, the assessment has become final and unappealable. However, it ruled that the
CIR failed to collect the assessed taxes within the prescriptive period. The CIR filed a Petition for Review with the CTA
en banc but it was denied.
Issues:
1. W/N the CTA has jurisdiction to rule that the governments right to collect the tax has prescribed
2. W/N the period to collect the assessment has prescribed
Held/Ratio:
1. YES. R.A. 1125, Section 7:
Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review
by appeal, as herein provided
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or
other law as part of law administered by the Bureau of Internal Revenue.
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters
relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC
or related laws administered by the BIR. The issue of prescription of the BIRs right to collect taxes may be
considered as covered by the term other matters.
2. YES. The CIR contends that its right to collect the tax deficiency it assessed on Hambrecht is not barred by
prescription since the prescriptive period was allegedly suspended by the request for reinvestigation.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 88 of 162
"#$
Section 224 of the 1986 NIRC states that two requisites must concur before the period to enforce the collection
may be suspended: a) that the taxpayer requests for reinvestigation and b) that the BIR grants such request.
In this case, it is not disputed that Hambrecht filed a request for reinvestigation. However, it was only 8 years later
when the BIR replied that protest was denied. In other words, the request for reinvestigation was NOT
GRANTED so the prescriptive period was not suspended. Therefore, the BIRs right to collect has already
prescribed.
65 - Republic v. Ablaza (1960) (Letter of Investigation)
Facts:
On October 3, 1951 the CIR assessed income taxes for the years 1945 - 1948 on the ITR of Ablaza.
On October 16, 1951, Ablazas accountants requested a reinvestigation of Ablazas tax liability, on the ground
that it is based on third-party information and the taxpayer was not permitted to appear in person. The petition for
reinvestigation was granted.
On March 10, 1954, Ablaza sent a letter to the BIR, which requested for a copy of the re-assesment as soon as the
reinvestigation is over.
9
(see foot note the issue revolves around the interpretation of the letter)
On February 11, 1957, after the reinvestigation, the CIR made a final assessment on the income taxes of Ablaza,
Issue:
1. W/N the March 10 1954, letter be interpreted as a request for reinvestigation therefore the period of prescription
would continue to be suspended?
Held/Ratio:
1. No, If said letter be interpreted as a request for further investigation or a new investigation, different and distinct
from the investigation demanded or prayed for in Ablazas first letter, then the period of prescription would
continue to be suspended thereby. But if the letter does not ask for another investigation, the result would be the
opposite. However, the letter does not ask for another investigation. Its first paragraph shows that the
reinvestigation then being conducted was by virtue of its request of October 16, 1951. All that the letter asks is
that the taxpayer be furnished a copy of the computation. The request may be explained in this manner: As the
reinvestigation was allowed on October 1, 1951 and on October 16, 1951, the taxpayer supposed or expected that
at the time, March, 1954 the reinvestigation was about to be finished and he wanted a copy of the re-assessment in
order to be prepared to admit or contest it. Nowhere does the letter imply a demand or request for a ready
requested and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the
suspension of the period of limitations.
Notes: The first letter was a request for reinvestigation therefore it suspended the prescriptive period.
The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend
the law. The benefit being, that the government will promptly assess taxes and the citizens will have a senses of security
against unscrupulous tax agents.

9. In this connection, we wish to state that this case is presently under reinvestigation as per our request dated October 16, 1951, and
your letter to us dated October 17, 1951, and that said tax liability being only a tentative assessment, we are not as yet advised of
the results of the requested reinvestigation.
In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the detailed computation of
the alleged tax liability as soon as the reinvestigation is terminated to enable us to prove the veracity of the taxpayer's side of the
case, and if it is found out that said assessment is proper and in order, we assure you of our assistance in the speedy disposition of
this case. (Exh. "P")



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 89 of 162
"#$
66 - Republic of the Phil. v. Mambulao Lumber Company (1962)
Doctrine:
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes.
Facts:
Mambulao Lumber (ML) admitted 3 liabilities/causes of action (1) forest charges of P588 covered by a bond by
General Insurance (GI) (2) ML and GI both admitted they were solidarily liable for P296 also covered by a bond (3) ML
and GI admitted that they were solidarily liable for P3,928 also covered by a bond. These 3 liabilites totaled P4,803.
Dates (dont memorize):
(1) ML paid to the Republic P8200 for reforestation charges Dec. 29, 1956
(2) ML paid to the Republic P927 for reforestation charges April 30, 1947 June 24, 1948
* These charges were paid by ML due to R.A. 115 which states that in addition to the regular forest charges provided
under the NIRC, the amount of P0.50 on each cubic meter of timber used for commercial purposes shall be imposed for
reforestation. The total amount paid by ML for reforestation charges is P9,127.
ML is saying that since the Republic has not made use of those reforestation charges collected from it for
reforesting the denuded area, the Republic should refund said amount, or if it cannot be refunded, at least it
should be compensated with what ML owed the Republic.
Issues:
1. W/N the sum of P9,127 paid by ML as reforestation charges may be set-off or applied to the payment of the sum
of P4,803 as forest charges
Held/Ratio:
a. NO. Under Sec. 1 of RA No. 115, the amount collected as reforestation charges from a timber licenses or
concessionaire shall constitute a fund to be known as the Reforestation Fund. The funds shall be expended by the
Director of Forestry with the approval of the Sec. of Agriculture.
There is nothing in the law which requires that the amount collected as reforestation charges should be used
exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not
so used, the same should be refunded to him. Observe too, that the licensees area may or may not be reforested
at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs
reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in
the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether
the area covered by his license is reforested or not.
Also, under the Civil Code, ML and the Republic are not mutually creditors and debtors of each other.
Important: The general rule, based on grounds of public policy is well-settled that no set-off is admissible
against demands for taxes levied for general or local governmental purposes. The reason on which the
general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of
a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent
of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by
the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is
plain that some legitimate and necessary expenditure must be curtailed. If the taxpayers claim is disputed,
the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of
the government will be thrown into great confusion.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 90 of 162
"#$
RIGHTS AND REMEDIES OF THE TAXPAYER UNDER THE
NATIONAL INTERNAL REVENUE CODE
National Internal Revenue Code
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration
and Enforcement.
(A) Examination of Returns and Determination of Tax Due. ...
Any return, statement, or declaration filed in any office authorized to receive the same shall not be
withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified,
changed, or amended: Provided, further, that no notice for audit or investigation of such return, statement, or
declaration has, in the meantime, been actually served upon the taxpayer.
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may
...
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to
the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for which no actual
payment was made.
SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 91 of 162
"#$
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and demandable.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively
or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit.
(A) Forfeiture of Refund. A refund check or warrant issued in accordance with the pertinent provisions of this
Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was
mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the
general fund.cralaw
(B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provisions of this
Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be
considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the
amount covered by the certificate shall revert to the general fund.
(C) Transitory Provision. For purposes of the preceding Subsection, a tax credit certificate issued by the
Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a
creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly
authorized representative or on before June 30, 1998.
R.A. No. 1125, as Amended by R.A. No. 9282


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 92 of 162
"#$
SEC. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction shall
be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount o taxes and fees, exclusive of charges and penalties, claimed is less
than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by
the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of
Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the
recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action
separately from the criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 93 of 162
"#$
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective
jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That collection
cases where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper
Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the Exercise of their appellate jurisdiction over tax collection
cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts, in their respective jurisdiction.
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule
42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or
in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the
CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of
Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by
filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil
Procedure with the CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be
raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a
motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof:
Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and
appeal shall likewise apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of
Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of
Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the
interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount
with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may
directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.
SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil proceeding involving matter arising under the National
Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 94 of 162
"#$
provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the
provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial,
may file a petition for review with the CTA en banc.
SEC. 19. Review by Certiorari. A party adversely affected by a decision or ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Revised Rules of the CTA, A.M. No. 05-11-07-CTA, Nov. 22, 2005
RULE 4: JURISDICTION OF THE COURT
SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:
a. Exclusive original or appellate jurisdiction to review by appeal the following:
...
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code or other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue
within the one hundred eighty day-period under Section 228 of the National Internal revenue Code shall
be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not
necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case;
Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal
Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the
taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and
Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under
Section 229 of the National Internal Revenue Code;
RULE 8: PROCEDURE IN CIVIL CASES
SEC. 3. Who may appeal; period to file petition. (a) A party adversely affected by a decision, ruling or the inaction of
the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the
Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by
petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period
fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the
taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the
taxes. (n)
Revenue Memorandum Circular No. 40-2003
SUBJECT: Effect of the Issuance and Receipt of Letter Notice to the Taxpayers Right to Amend its Tax Returns
as Provided under Section 6 of the National Internal Revenue Code
TO: All Internal Revenue Officers and Others Concerned
For the information and guidance of all internal revenue officers and others concerned, please refer to the attached
copy of the memorandum of Deputy Commissioner Jose Mario C. Buag of the Legal and Inspection Group dated June 9,
2003 clarifying the following issue:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 95 of 162
"#$
Whether or not the Letter Notice (LN) being served by the Bureau upon taxpayers who were found to have under-
declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or
investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of
such audit or investigation.
The Deputy Commissioner for Legal and Inspection Group opines and I quote:
LN being served by the Bureau upon taxpayers who were found to have under- declared their sales or purchases through
the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify
the taxpayers concerned from amending any return which is the subject of such audit or investigation.
Please be guided accordingly.
Revenue Memorandum Circular No. 49-2003
SUBJECT: Amending Answer to Question Number 17 of Revenue Memorandum Circular No. 42-2003 and
Providing Additional Guidelines on Issues Relative to the Processing of Claims for Value-Added Tax (VAT)
Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center, Department of Finance (OSS-DOF) by Direct Exporters
TO: All Internal Revenue Officers and Others Concerned
In response to request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to
the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period
prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
1. A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a
claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-
DOF), the administrative agency and the tax court may act on the case separately. While the case is
pending in the tax court and at the same time is still under process by the administrative agency, the
litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head
of the investigating/processing office for the docket containing certified true copies of all the documents
pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on
the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the
administrative agency shall continue processing the refund/TCC case until such time that a final decision
has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter
shall cease from processing the claim. On the other hand, if the administrative agency is able to process
the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the
concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the positive
resolution or approval of the motion must be furnished the administrative agency as a prerequisite to the
release of the tax credit certificate/tax refund processed administratively. However, if the taxpayer is not
agreeable to the findings of the administrative agency or does not respond accordingly to the action of the
agency, the agency shall not release the refund/TCC unless the taxpayer shows proof of withdrawal of the
case filed with the tax court. If, despite the termination of the processing of the refund/TCC at the
administrative level, the taxpayer decides to continue with the case filed at the tax court, the litigation
lawyer of the BIR, upon the initiative of either the Legal Office or the Processing Office of the
Administrative Agency, shall present as evidence against the claim of the taxpayer the result of
investigation of the investigating/processing office.
2. Additional paragraphs are hereto added to the last paragraph of RMC No. 42-2003 to read as follows:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 96 of 162
"#$
supporting documents required by the investigating/processing office? When should the investigating/
processing office officially receive claims for tax credit/refund and what is the period required to process
such claims?
A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the
documentary requirements unless given further extension by the head of the processing unit, but such
extension should not exceed thirty (30) days.
For claims to be filed by claimants with the respective investigating/processing office of the
administrative agency, the same shall be officially received only upon submission of complete
documents.
For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty
(120) days from receipt of the complete documents. If, in the course of the investigation and processing of
the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office, which shall be construed as within the one hundred twenty (120) day
period.
All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.
Revenue Regulations No. 12-99, Sep. 6, 1999
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer who audited the taxpayers records shall, among
others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officers submitted report of
investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special
Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of Division
concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayers payment
of his internal revenue taxes, for the purpose of Informal Conference, in order to afford the taxpayer with an
opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of
receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District
Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of
Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the
Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized
representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if
warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment Division or by
the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at
least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail,
the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see
illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of
the PAN, he shall beconsidered in default, in which case, a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment of the taxpayers deficiency tax liability, inclusive of
the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the preliminary
assessment notice shall not be required in any of the following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayers deficiency tax liability shall be sufficient:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 97 of 162
"#$
(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
appearing on the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding taxfor a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice
shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for
payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice
shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail
or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name;
(b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a
person other than the taxpayer himself; and (d) date of receipt thereof.
3.1.5 Disputed Assessment. The taxpayer or his duly authorized representative may protest administratively
against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt
thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer
only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the
deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No
action shall be taken on the taxpayers disputed issues until the taxpayer has paid the deficiency tax or taxes
attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes
attributable to the disputed issues shall be suspended.
The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest
is based, otherwise, his protest shall be considered void and without force and effect. If there are several issues
involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment
is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to
pay the corresponding deficiency tax or taxes attributable thereto.
The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of
filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The phrase
submit the required documents includes submission or presentation of the pertinent documents for scrutiny and
evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report
of investigation. If the taxpayer fails to file a valid protest against the formal letter of demand and assessment
notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and
demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become
final, executory and demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative,
the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said
decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 98 of 162
"#$
taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision
of the Commissioners duly authorized representative, the latters decision shall not be considered final, executory
and demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the taxpayers protest within one hundred
eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest,
the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day
period, otherwise, the assessment shall become final, executory and demandable.
3.1.6 Administrative Decision on a Disputed Assessment. The decision of the Commissioner or his duly
authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence on
which such decision is based, otherwise, the decision shall be void (see illustration inANNEX C hereof), in which
case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final
decision.
3.1.7 Constructive Service. If the notice to the taxpayer herein required is served by registered mail, and no
response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail,
the same shall be considered actually or constructively received by the taxpayer. If the same is personally served
on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the
same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by
leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and
signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The
revenue officer who constructively served the same shall make a written report of this matter which shall form
part of the docket of this case (see illustration in ANNEX D hereof).
CASES
PILIPINAS SHELL PETROLEUM CORP V. CIR -- PSPC paid part of its excise tax liabilities with TCCs which it
validly purchased. BIR sent a collection to PSPC for alleged deficiency excise tax liabilities claiming that the
TCCs that were used were fraudulently acquired thus, may not be used to pay taxes. PSPC now avers that its
statutory and procedural right to due process was violated in the issuance of the assessment because the
procedures delineated in the statutory provisos and RR 12-99 were not followed by respondent. Respondent
ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment
notice, as required. Respondent merely relied on the findings of the Center which did not give PSPC ample
opportunity to air its side. PSPCs motion for reconsideration of the purported Center findings and cancellation of
the subject TCCs and the TDM was not even acted upon. Because of this defect, the assessment of respondent for
deficiency excise taxes against petitioner was canceled and declared without force and effect for lack of legal
basis.
CIR v. MENGUITO (2008) non-receipt of PAN okay as long as taxpayer receives FAN Menguito is engaged in
the cafeteria business. He was given formal assessment notices by the CIR which stated that he had deficiency
income and percentage taxes. Menguito questioned the validity of the formal assessment notices, alleging that
they were issued in violation of the requirement of Revenue Regulations No. 12-85, which requires that the
taxpayer should first be issued a post-reporting notice and pre-assessment notice before the preliminary findings
of deficiency may ripen into a formal assessment.
In the case, Menguito did not receive a pre-assessment notice. Instead, he received various letters informing him
of the findings of the BIR. However, while the lack of a post-reporting notice and pre-assessment notice is a
deviation from the requirements under Revenue Regulation No. 12-85, the same cannot detract from the fact that
formal assessments were issued to and actually received by Menguito. A post-reporting notice and pre-
assessment notice do not bear the gravity of a formal assessment notice. Neither notice contains a declaration of
the tax liability of the taxpayer or a demand for payment. Hence, the lack of such notices inflicts no prejudice on
the taxpayer for as long as the latter is properly served a formal assessment notice. The fact that Menguito did


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 99 of 162
"#$
not receive a pre-assessment notice does not affect his liability for deficiency income and percentage taxes
because he received formal assessment notices anyway.
CIR v. METRO STAR SUPERAMA no proof of delivery / PAN serves due process Metro Star Superama
(Metro Star) was being assessed by the CIR for deficiencies in VAT and Withholding for the year 1999. A
warrant of distraint and levy has already been issued against them. Metro Star alleges that they did not receive
any PAN, thus being denied of due process. The CIR claims that Metro Star in fact received such PAN on Jan
16, 2002 and also states that even though there was no PAN, they sent a FAN which informed Metro Star of the
CIRs claims.
To have the presumption to prove that mailed letter is deemed received by the addressee, the CIR must prove:
1) the letter was properly addressed with postage prepaid, and 2) that it was mailed. CIR failed to present
evidence to prove the presumption.
Metro Star is denied due process by not receiving the PAN. A close study of Sec. 228 of the NIRC says that a
taxpayer must be informed of such deficiency. Receipt of a PAN is not merely a formal requirement but a
substantial one that serves due process.
CIR v. REYES (2006) Dasmarias House/ assessment is not just to notify but rather to inform The heirs of
Maria Tancino received a PAN and FAN (14 M) for proper estate tax on the Dasmarias Village house and lot
left by the decedent. Heirs initially filed for a compromise but after a series of petitions and motions, the CTA
questioned the validity of the assessment notice. CA modified the decision of the CTA and adjudged that the
assessment notices were void for they violated Sec 228 of NIRC and the substantive due process.
In this case, SC affirmed and clarified that based on Section 228 (as amended by RA 8424 in 1998) the old
requirement of merely notifying the taxpayer of CIRs finding no longer suffice for now it is required that
assessment notice must inform the taxpayer of the laws and facts on which it was made. It must contain
gross figures and itemized details for the Court can no longer accept assessments based on mere arbitrary
or capricious estimates. Failure to do so invalidates an assessment and thus it cant be used as basis for the
perfection of a tax compromise in the future.
CIR v. ENRON (2009) Formal Letter of Assessment and Demand must state the facts and the law on which it is
based following Sec 228 of the Tax Code and RR 12-99 Sec 3.1.4. Otherwise it is void. Enron, a corp. registered
with the SBMA, filed its ITR for 1996 in April 1997. BIR sent them a preliminary 5 day letter and informed of
proposed assessment on deficiency income tax which they protested. They were given a formal assessment notice
which Enron protested but was denied. They appealed with the CTA. The appeal was granted by the CTA. The
CA affirmed by saying that the assessment failed to comply with Sec 228 of the NIRC and its implementing
regulation RR 12-99. The CIR in a Petition for Review to the SC claims that Enron was properly informed of the
fact and law on which the assessment was made, during the pre-assessment stage, by the following: advising
representative of Enron of the tax deficiency, informing them of proposed tax deficiency assessment thru
preliminary 5 day letter and furnishing them of a copy of the audit working paper. The Supreme Court held it is
mandatory for the formal letter of demand and assessment state the facts and law in which the assessment was
made following Sec 228 of the NIRC and RR 12-99. In this case the CIR merely issued a formal letter indicating
the supposed tax, surcharge, interest and penalty without explaining how they computed the amount without
providing the provision of law in which it was based. The Court noted that in the old law what was required is the
taxpayer simply is notified of their tax deficiency. This was amended to follow the constitutional principle that no
person shall be deprived of property without due process.
CIR v. BANK OF THE PHILIPPINE ISLANDS (2007) this is not a protest/factual basis not required under
old law In October 1988, the CIR sent two notices of assessment to BPI for deficiency percentage and
documentary stamp taxes for the year 1986. BPI replied, arguing that the deficiency assessments were not
assessments at all because of their failure to disclose the facts and circumstances upon which they were based.
BPI made it clear that its decision to pay or protest the assessment would be communicated to the CIR only upon
receipt a clarificatory letter from the latter. In reply, the CIR claimed that BPIs letter failed to raise any valid
issues and thus, did not qualify as a protest. Be that as it may, the CIR acquiesced and provided BPI with an


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 100 of 162
"#$
explanation of the basis for its assessments. This very same letter, dated May 8, 1991 expressed that it
constituted the CIRs final decision the matter. BPI filed a petition for review before the CTA in 1992. This
was denied on the ground of lack of jurisdiction because the assessments had already become final and
unappealable. The CA reversed, finding that the assessments failure to indicate the factual and legal bases
rendered them void.
The assessments are valid because the old law merely required that the taxpayer be notified of the CIRs
findings, nothing more. The assessments in this case were sent to the taxpayer prior to the passage of the Tax
Reform Act of 1997, which, in addition to notification, now also requires the CIR to cite the law and the facts
upon which assessments are based. Because the initial notices are valid, the running of the period within which
BPI should have protested such notices started from May 8, 1991, when CIR specifically manifested that such
letter constituted its final decision on the matter. Hence, BPI filed its petition for review before the CTA in 1992,
the assessments had already become final, as BPI only had 30 days from May 8 to file an appeal.
CIR v. FIRST EXPRESS PAWNSHOP (2009)
Facts: On December 2001, the CIR assessed several tax deficiencies income tax, VAT, documentary stamp tax and
DST along with surcharges against First Express Pawnshop. First Express received the notices on January 3,
2001. It filed its written protests to the assessments on February 1, 2001 attaching thereto its General Information
Sheet and Balance Sheet. (Relevant fact shown in later part of decision: Apparently, the CIR requested several
other documents loan agreement with lender banks, official receipts of interests received, documentary evidence
of donations made, proof of DST payment on subscriptions from First Express after it filed its protest but the
latter failed to present them.) The CIR not having responded to the written protests with the 180 days as
prescribed by the NIRC, First Express filed petition before the CTA. In its petition, First Express maintained that
it was not a lending investor (subject to VAT), its documents were not among those subject to the DST and the
pawn tickets it issued were pledges which are subject to tax under section 195. The CIR made a general
opposition that its opposition was valid and binding. First Express in the meantime paid the income tax
deficiency. The CTA partially affirmed the assessment of the DST. The CTA en banc affirmed the CTA first
division ruling.
Issue: Has the assessment reached finality when First Express failed to present the documents demanded by the CIR
within 60 days from filing of its protest as prescribed by Section 228 of the NIRC? (The CIR insists that the CTA
should not have entertained the petition of First Express because the latter did not submit relevant supporting
documents as a requisite to remedy of filing of petition before the said court pursuant to section 228.)
Held: First Express complied with the requirement of submitting relevant supporting documents prescribed in section
228 of the NIRC. Hence, the petition was validly entertained by the CTA.
Ratio: The SC said that First Express did not fail to file the necessary relevant supporting documents referred to in
section 228 of the NIRC.
The Court said that First Express attached its GIS and Balance Sheet upon filing of its protest.
Also, It said that the CIR cannot insist on requiring First Express to present proof of payment of the DST because
the said document does not exist pursuant to the latters claims that it was not liable to pay such in the first place.
Finally, the Court said that in referring to relevant supporting documents it must be understood to mean those
necessary to support the legal basis in disputing an assessment. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot specify what particular kind of documents the taxpayer has to present
otherwise, the taxpayer may be required to present documents that /she cannot submit.
First Express having complied with the requirement of section 228 as to submission of relevant supporting
documents, the assessment against it did not become final and executor.
MARCOS II v. CA (1997)
Facts: Following the death of former President Marcos in 1989, investigations were conducted on his and his familys
tax liabilities and it was found that the Marcoses failed to file a written notice of death of the decedent estate tax


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 101 of 162
"#$
return and income tax returns for the years 1982 to 1986. The CIR thereby caused the preparation of the estate tax
return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the
income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate
tax assessments and the corresponding deficiency income tax assessments. The deficiency tax assessments were
not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR
issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned
by Marcoses. These lands were forfeited in favor of the government because there were no bidders during the
auction sale.
Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul the
notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA
dismissed, holding that the deficiency assessments for the estate and income taxes have already become final and
unappealable and may thus be enforced by summary remedy of levying upon the real property.
Issue: Whether or not the proper avenue of assessment and collection was taken by the BIR.
Held: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and
other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into
finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President
Marcos. The deficiency tax assessment, having become final, executory and demandable, the same can now
be collected through the summary remedy of distraint and levy.
DAYRIT v. CRUZ (1988)
Facts: The Teodoro spouses died and the heirs of the deceased filed separate inheritance and estate tax. CIR sent the
heirs a notice of deficiency assessment on their estate and inheritance taxes. The heirs asked for reconsideration
and requested a period of 30 days within which to submit their position paper. (They never submitted a
position paper.)
Meanwhile, PD 23 (Tax Amnesty Subject to Certain Conditions) as amended by PD 67 was passed which states
that voluntary disclosure of previously untaxed income shall be condoned and a tax of 10% of such income shall
be imposed. The heirs applied for tax amnesty under the law and were asked to pay PhP285k. The CIR instituted
an action for collection and contends that the heirs cannot avail of the tax amnesty in view of the prior existing
assessments issued against the estate of the deceased spouses. The heirs claim that they were freed from any
liability imposed by the previous assessments because they availed of the tax amnesty.
Issue: W/N the heirs could avail of the tax amnesty.
Held: NO. In the heirs motion for reconsideration of the assessments, they requested the CIR for a period of 30 days
within which to submit their position paper, but they never did. Such failure to file a position paper may be
construed as abandonment of the heirs request for reconsideration. It took the CIR a period of more than one
year and five months to institute an action for collection. Under the circumstances of the case, the act of the
CIR in filing an action may be considered as an outright denial of the heirs request for reconsideration.
From the date of the receipt of the copy of the CIRs letter for collection of estate and inheritance taxes against the
estate of the late Teodoro spouses, the heirs must contest or dispute the same and upon denial thereof, they have a
period of 30 days within which to appeal the case to the CTA. This they failed to avail of.
OCEANIC WIRELESS INC. v. CIR -- demand letter issued by a subordinate Oceanic received from the BIR
deficiency tax assessments. They protested the assessments and requested a consideration or cancellation of the
same. On January, the Chief of BIR Billing Division denied the request and asked Oceanic to pay their dues
within 10 days from receipt of the letter otherwise the necessary warrants for distraint and levy will be
issued. They failed to pay and the warrants were issued. It was only on November that Oceanic filed a case with
the CTA. Logically, it was denied due to prescription. Oceanic contends that the reply issued by the Chief of
Billing cannot be considered a final demand because a subordinate officer issued it.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 102 of 162
"#$
A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested
assessment. The determination on whether or not it is final is conditioned upon the language used or tenor of the
letter being sent to the taxpayer. The letter must use clear and equivocal terms whenever his action on an
assessment constitutes his final determination. This is to enable the taxpayer to determine when his right to
appeal to the CTA accrues. The fact that only a subordinate of the CIR issued the demand is of no moment
because demands may be made by the commissioner or his duly authorized representative (see Sec 6, NIRC).
After the denial of the protest/MR, Oceanic had 30 days to file an appeal with the CTA. However, since it
failed to appeal the denial within the reglementary period, the decision of the CIR (via its subordinate) was
considered final, executory and enforceable (see Sec 228, NIRC).
CIR v. ISABELA CULTURAL CORPORATION final decision, last opportunity CIR investigated Isabela
Cultural Corporations 1986 books of account and discovered an income tax deficiency of some 9 million. Isabel
protested. CIR sent an assessment letter and demanded payment of deficiency income tax and withholding tax.
Isabela requested for reconsideration. CIR sent Isabela a Final Notice before Seizure and demanded payment
within 10 days from its receipt. Isabela treated this as CIRs final decision and filed a petition before the CTA. SC
held that the Final Notice Before Seizure is deemed as the CIRs final decision. If the protest is not acted upon
within 180 days from submission of documents, the taxpayer may appeal to the CTA. Here, Isabela filed its
request for reconsideration beyond the 180-day period. Moreover, the letter stated, We are giving you this last
opportunity to settle the adverted assessment. It was tantamount to a rejection of the request for reconsideration.
CIR v. AYALA SECURITIES CORP. Ayala Securities Corporation (Ayala) filed its income tax returns for its fiscal
year which ended on 1955. The CIR assessed Ayala for deficiency taxes on its accumulated surplus. Ayala
protested and eventually received a letter dated February 18, 1963 from the CIR examiner calling its attention to
the unpaid tax and requesting for the payment within five (5) days from receipt of the letter. Believing the letter
to be a denial of its protest, Ayala filed with the CTA a petition for review.
CIR maintains that the CTA erred in holding that the letter dated February 18, 1963 is a denial of Ayalas
protest against the assessment. They contend that the letter is merely an ordinary office letter designed to
remind delinquent taxpayers of their obligations to pay their taxes to and not a decision on a disputed or
protested assessment contemplated under Section 7(1) of R.A. 1125.
The court ruled that the letter of February 18, 1963 is tantamount to a denial of the protest of Ayala on the
assessment made by the CIR considering the firm stand of the CIR against the reconsideration of the disputed
assessment in view of the continued refusal of Ayala to execute the waiver of the period of limitation (the
action has already prescribed). The letter amounts to a decision on a disputed or protested assessment and,
therefore, the CTA did not err in taking cognizance of this case.
ALLIED BANKING v. CIR (2010) appeal on final demand / exception to rule on exhaustive remedies BIR
issued a PAN to Allied Bank for Documentary Stamp Tax and Gross Receipt Tax deficiency. Allied protested, but
BIR wrote a Formal Letter of Demand w/ Assessment Notice denying the protest telling Allied that it was their
final decision based on investigation and that if Allied disagrees, then it may appeal the final decision w/in 30
days from receipt thereof. Allied appealed to the CTA, but the CIR opposed on the ground that what is to be
appealed to the CTA is the CIRs decision on the taxpayers protest of the FAN, and not the FAN itself. CTA
dismissed the petition since Allied failed to exhaust all administrative remedies.
While that is true, this case consists as an exception to the rule on exhaustion of administrative remedies since
the CIR is estopped from the words it used in the FAN. It appears from the FAN that the CIR has already
made a final decision on the matter, and that Allied may appeal the decision w/in 30 days. Taken in its ordinary
context in tax cases and under prevailing tax law, appeal means appeal to the CIR. Thus, taking into
consideration that the FAN contained the words final decision and appeal, the SC reversed the CTA decision,
since it led Allied to believe that the Formal Letter of Demand was the CIRs decision on the protest and that the
formers remedy was to appeal to the CTA.
*Note: Allied Bank offered a compromise and BIR accepted.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 103 of 162
"#$
CIR v. UNION SHIPPING CORP. CIR assessed against Union Shipping Corporation deficiency income taxes.
Union Shipping protested. The CIR, without ruling on the protest, issued and served a Warrant of Distraint and
Levy. Union Shipping reiterated its request for reinvestigation of the assessment and for the reconsideration of the
summary collection thru distraint and levy. The CIR, again not ruling on such request, instead filed a collection
suit with the CFI of Manila. The CFI issued summons. Union Shipping filed with the CFI a decision it was able to
obtain from the CTA, absolving Union Shipping from paying any deficiency tax. The issue in this case is whether
or not the CTA has jurisdiction over this case. Note that, in this case, the CIR did not rule on the protest, leaving
Union Shipping in the dark as to which action of the CIR is the decision appealable to the CTA.
The SC has held that the CIR should always indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment. It is on the basis of such final determination that a taxpayer would be able to take recourse
to the tax court. In other words, the taxpayer would be able to determine when his right to appeal to the tax
court accrues. The reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its
Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax
Appeals and not the warrants of distraint. The issuance of a warrant of distraint and levy is proof of the finality of
an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment. Applying
such to the case at hand, the period to appeal has not commenced to run because the CIR did not signify his
final action on the matter. Union Shippings protest was in effect considered denied when the CIR filed a civil
suit for collection of deficiency income. Thus, it was only when Union Shipping received the summons on the
civil suit that the period to appeal commenced to run. Hence, the CTA had jurisdiction over the case because
Union Shipping filed its petition for review within the reglementary period.
SAN JUAN v. VASQUEZ jurisdiction of CTA There was a collection suit against San Juan for income taxes for
various years and deficiency tax and surcharges therein. The Collector of Internal Revenue brought the action in
the Court of First Instance of Manila. Petitioner moved to dismiss the action on the ground that the court had no
jurisdiction to take cognizance of the action because the matter involved a disputed assessment, the jurisdiction
of which fell upon the Court of Tax Appeals; and that there is a pending action in the Court of Tax Appeals,
involving the same disputed assessment. Thedetermination of the correctness or incorrectness of a tax assessment
to which the taxpayer is not agreeable falls within the jurisdiction of the Court of Tax Appeals and not of the
Court of First Instance. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any
decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising
under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue (Section 7 RA 1125)
REPUBLIC v. LIM TIAN TENG SONS & CO., INC. (1966) Referral to Solicitor General for Collection
constitutes denial Lim Tian Teng Sons & Co., Inc., with Office in Cebu, is engaged in the exportation of copra.
In the audit and examination of taxpayers 1952 income tax return, the CIR eliminated the P95,500 outturn from
the beginning inventory for 1952 and considered it as accrued income for 1951. (This assessment was later upheld
by the SC to be correct based on accounting standards.) On January 31, 1957 Lim Tian requested
reinvestigation of its 1952 income tax liability. The CIR did not reply; instead, he referred the case to the
Solicitor General for collection by judicial action. Lim Tian assails the jurisdiction of the lower court on the
ground that the assessment in question has not become final and executor. SC: For what is more indicative of
the CIRs decision against reinvestigation than his insistence to collect the tax? This decision was
communicated to defendant in a letter dated September 20, 1957 from the office of the Solicitor General which
must have been received by defendant not later than October 8, 1957 for on said date it acknowledged receipt
thereof. It had thirty days from receipt within which to appeal to the CTA. Instead of appealing to the Tax Court,
however, the defendant herein in a letter dated October 8, 1957 reiterated its request for reinvestigation. Taxpayer
failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and
demandable.
PHIL. PLANTERS INVESTMENT CO. INC v. ACTING CIR (1962) Warrant of Distraint and Levy as Denial of
Reinvestigation Phil. Planters entered into a Management Contract with Binalbagan-Isabela Sugar Company
Inc.(BISCOM) to act as its Manager of its business affairs. CIR assessed Phil. Planters 3 separate times for


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 104 of 162
"#$
percentage tax on gross compensation for allegedly acting as a commercial broker for BISCOM for the years
1951-1961. Phil. Planters sought reinvestigation of the case to enable it to present evidence and at the same
time, requested that collection of the amounts assessed be deferred for which it offered to file the necessary
bond. As no reply was received from the CIR, and having been informed that collection of the amounts
would be enforced by distraint and levy, Phil. Planters filed a petition for review with motion for issuance
of an order suspending the collection of the said tax and enjoining respondent and his representatives
from enforcing the same. After hearing, court granted the motion upon filing and approval of surety bond for
1.3 M to secure the payment of 901K, 384K and 271 K. In resolving the case, the CTA held that managing
corporations are not independent contractors within Sec. 191 of Revenue Code. Such corporations are only
subject to income and residence tax from whatever income it received under the employment contract. Even if
Phil. Planters paid the commercial brokers annual tax from 1953-1961, it cannot be considered a commercial
broker if it had not intervened in any brokerage transaction. Being a nominal amount, Phil Planters was willing to
pay P150/yearly in case a broker would be needed by the planters to intervene in their sales, however this need
never arose.
HILADO v. CIR CTA case regarding Atty. Vicente Hilado filed his return on Feb 26, 1954 for his gross income
in 1953. He claimed deductions and exemptions making his taxable income P61, 774.67. BIR sent 4 letters
requesting the breakdown of his 1953 income and other documents, but remained unanswered. Thus, BIR
assessed him with a deficiency of P5, 085 due to BIRs disallowance of half of his deductions. When Hilado
asked for an explanation, BIR said Hilado was not able to substantiate his deductions. Hilado protested but BIR
did not resolve his protest and just issued a warrant for distraint and levy. The court stated that the issuance of a
warrant for distraint and levy to enforce collection of deficiency assessment was tantamount to an outright
denial of the request for reconsideration.
CENTRAL CEMENT CO. v. CIR The BIR sent letters of proposed assessment to Central Cement, in which the
latter disputed. On September 20, 1988, Central Cement received from the BIR a FAN, for alleged deficiency
income tax and expanded withholding tax. A protest was sent by Central. On December 1, 1988, while awaiting
resolution of the protest, an undated Warrant of Levy and Distraint were served on petitioner.
The issuance of the warrants of distraint and levy and warrants of garnishment was in violation of Section 207 of
the NIRC which only authorizes the issuance of warrants not earlier than three months nor later than six months
from receipt of the demand. The CIR where enjoined from enforcing the warrants.
ADVERTISING ASSOCIATES v. CA and CIR (1984) warrant of distraint to toll prescriptive period The CIR
required Advertising Associates to pay deficiency contractors tax w/ 25% surcharge since the latter was
operating more as a general advertising business than a media office. Advertising contested the assessment in
1974, but the CIR reiterated the same. For 4 years, there was no movement in the case. But in 1978, the CIR
issued 2 warrants of distraint to satisfy the deficiency taxes. He requested Advertising to pay w/in 10 days from
receipt of demand, stating that it constitutes as the final decision on the matter, and the remedy was to appeal to
the CTA w/in 30 days. When advertising did that, the CTA enjoined the enforcement of the warrant of distraint,
but did not decide on the merits of the case.
Advertising now contends that collection of the tax has prescribed. However, the SC pointed out that it received
the demand letters in June 1973 & March 1974, and the warrants were served on April & May 1978, well within
five years of the assessment. Obviously, the warrants were issued to interrupt the five-year prescriptive
period. The CIR relied on the warrants to interrupt the running of the statute of limitations, and not on
instituting any judicial action. It gave Advertising the opportunity to contest the assessments, but at the
same time, safeguarded the Governments interests. So CTA decision is reversed. In case of non-payment of
the deficiency taxes, the warrants should be enforced.
FISHWEALTH CANNING CORP. v. CIR does not toll the 30-day appeal period Fishwealth did not comply
with subpoenas for its records and then submitted a protest for the impropriety of the subpoena.The CIR still
issued a FAN of Income Tax and VAT deficiencies worth P67.6M for the year 1999. Fishwealth received the
denial of the protest on August 4, 2005. The CIR demanded payment prompting Fishwealth to file Petition for
Review on October 20, 2005 but was denied. Petition to SC dismissed. Section 228 of the NIRC provides for 30


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 105 of 162
"#$
days to appeal the denial of the protest. Therefore, Fishwealth receiving the denial on August 4, 2005 had until
September 3, 2005 to file a petition for review before the CTA Division. However, it filed one on October 20,
2005. Hence, filed out of time. An MR of the denial of the administrative protes does not toll the 30-day
period to appeal to the CTA.
CIR v. VILLA (1968) jurisdiction of CTA Spouses Villa filed a joint income tax returns for 1951 to 1956. BIR
issued on February 23, 1961 assessments for deficiency income tax and residence tax. Villa received the
assessment on April 7, 1961. Villa filed a petition for review in the CTA without contesting the assessment.
HELD: The CTA did not acquire jurisdiction over the case. Paragraph 1 of Section 7 of RA 1125 states that CTA
shall exercise exclusive appellare jurisdiction to review by appeal the decisions of the CIR. The word decision
has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself. Jurisdiction over the subject matter is fundamental for
the count to act on a given controversy. It is conferred by law, not by the consent of the parties. It can be
challenged at any stage of the proceedings and for lack of jurisdictions a court can dismiss a case motu proprio.
MERALCO SECURITIES CORP. v. SAVELLANO (1982) CFI Judge no jurisdiction / no reward The late
Juan Maniago submitted to the CIR a confidential denunciation against the Meralco Securities Corp for tax
evasion having paid tax on only 25% of the dividends received from Manila Electric. The CIR filed a motion to
dismiss for finding no basis for deficiency since indeed only 25% is returnable as per Sec. 24(A), NIRC. Maniago
filed for mandamus against the CIR to compel the assessment of the alleged deficiency corporate tax. Judge
Victorino Savellano ordered the assessment and collection of the said taxes All parties filed MRs but were
denied. Hence the CIR filed a separate petition stating that indeed, the CFI judge has no jurisdiction and the CIR
ruling is not reviewable by mandamus. Judge Savellano has no jurisdiction. This matter is now exclusively
within the jurisdiction of the CTA. The CTA having appellate jurisdiction to review by appeal decisions of the
CIR. The law transferred to the CTA jurisdiction over all cases involving such assessments previously cognizable
by the CFI. What Maniago couldve done is to appeal to the CTA within 30 days from receipt of ruling by the
CIR. It is furthermore cleared that mandamus only lies to enforce the performance of a ministerial act or duty not
those which are discretionary. Since no taxes are to be collected, no informers reward is due to private
respondents as the informers heirs.
CIR v. COA / SAVELLANO v. COA (1993) audit jurisdiction / reward valid Tirso Savellano furnished the BIR
with a confidential affidavit denouncing the Natl Coal Authority (NCA) and the Phil. Natl Oil Co. (PNOC) for
non-payment of taxes on interest earnings from PNB. Savellano received reward upon Dep. Of Finance approval.
However, a few years later, the Commission on Audit (COA) disallowed the payment of such reward since the
NCA case reward is based on the actual collection/recovery of revenues wherein none was realized by the
government. CIR claimes the DoF approval was conclusive. COA invokes its audit jurisdiction and questions the
standing of the CIR. The reward should be granted. The informers award was based on section 316 of the
NIRC. PNOC and NCA are subject to tax having personalities distinct from the government. if they evade
payment of their taxes, the amounts corresponding to such liabilities could be utilized for purposes exclusive to
them; contrarily, if they do pay their taxes, the amounts so paid accrue to the General Fund; Section 281
prescribes that for an informer to be entitled to the reward, the information he furnishes should result in the
recovery of revenues; statutes offering reward must be liberally construed in favor of informers; the possibility of
collusion is not sufficient basis for disallowance, since collusion cannot be assumed, while the official acts of
the BIR and the Department of Finance are entitled to a presumption of regularity; mere possibility of collusion
to obtain the informers reward as sufficient ground for disallowance. Collusion cannot be presumed. It must be
proved by clear and convincing evidence. In the case at bar, there is no showing of collusion between petitioner
Savellano as informer and any official or employee of the BIR or the Department of Finance.
PNOC v. CA (2005) Savellano informed the BIR that PNB failed to withhold 15% final tax on interest earnings and/
or yields from money placements of PNOC with the bank. BIR requested PNOC to settle its tax liability. PNOC
made an offer to compromise its tax liability and proposed to set-off its tax liability against a pending claim for
tax refund/ credit of NAPOCOR. BIR replied that the proposal for set-off was premature since NAPOCORs
claim was still under process. BIR requested PNOC to settle its tax liability again. PNOC proposed a compromise,
representing 30% of the basic tax. BIR paid Savellanos informers reward in four installments. However,


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 106 of 162
"#$
Savellano claims he never received the last installment. He filed a Petition for Review ad cautelam with the CTA
and claimed that BIR acted with grave abuse of discretion in entering into a compromise agreement which
diminished his reward. PNB and PNOC filed Motions to Dismiss arguing the CTAs lack of jurisdiction. The
CTA upheld its jurisdiction and declared the compromise agreement without force and effect, and ordered the
CIR to enforce assessment against PNB. PNB and PNOC appealed. The court held that the CTA shall exercise
exclusive appellate jurisdiction to review by appeal the decisions of the CIR in cases involving disputed
assessments, refunds of internal revenue taxes, fees, or other charges, penalties imposed in relation thereto
or other matters arising under the NIRC or other relevant laws. Here, Savellano submitted before the CTA
questions of law involving the interpretation and application of EO No. 44, which authorized the CIR to
compromise delinquent accounts and disputed assessments, and Sec. 316, NIRC, which involves informers
reward. These are appealable to the CTA.
SEC. OF FINANCE v. AGANA (1975) Shamrock Well-Drilling Enterprises, Inc. (Shamrock) imports seamless iron
and steel pipes and tubes from Japan at prices less than its fair value, to the injury of the local industry. The
Secretary of Finance then ordered Shamrock to pay a dumping duty in the amount of $63 per metric.
Shamrock refused to pay. The Customs Commissioner refused to release the goods unless the payment of
regular customs duties plus the anti-dumping charges be made. Shamrock brought the matter to the Court of
First Instance (CFI) as if on appeal and sought to annul the orders of the Secretary of Finance, and likewise
to have a writ of preliminary injunction issued. Judge Agana, herein respondent, ruled in favor of Shamrock,
ordering the release of the imported goods upon payment of a bond. The Secretary of Finance questioned the
jurisdiction of Judge Agana, stating that it was the CTA which has jurisdiction over the matter, and not the CFI.
The CTA was created by virtue of a constitutional grant of authority. It is the legislative determination to vest sole
and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized
court. The CTA has jurisdiction over whatever may be incidental to the legality of an assessment, and the
explicit determination of the Secretary of Finance that Shamrock is liable for anti-dumping duties falls
under such category. Therefore, appropriate judicial body to pass upon the validity of the order of the
Secretary of Finance imposing anti-dumping duties is the CTA.
CIR v. JOSEFINA LEAL (2002) pawnshop Josefina Leal, being a pawnshop owner, is assailed the revenue
orders imposing 5% lending investors tax on pawnshops issued by petitioner. The RTC granted the prohibition
sought by Leal- holding that the revenue regulations are in effect new taxes (against pawnshops). The case was
brought to the CA on certiorari. It held that the questioned RMO and RMC are actually rulings or opinions
implementing the liability.
Clearly then, she should have filed her petition with the Court of Tax Appeals, not the RTC. This is because the
jurisdiction to review the rulings of the Commissioner pertains to the Court of Tax Appeals, not to the RTC.
The determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable,
falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the
provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction
to review, on appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments
and other matters arising under the National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue.
ASIA INTL AUCTIONEERS, INC v. PARAYNO, JR. (2007) RMCs and RRs are considered as decisions of
the CIR CIR issued RRs 1-95, 12-97, & 16-99, as well as RMCs 31-2003 & 32-2003 to regulate the VAT
imposed on companies that sell motor vehicles through public auction at exclusive economic zones. Petitioners
Asia Intl and Subic Bay Motors Corp., which are both such companies operating in the Subic Bay EEZ, assailed
the validity of the above-enumerated RRs and RMCs before the RTC of Olongapo City. The RTC granted a TRO
and prelim injunction in their favor, but upon appeal, the CA reversed on the ground that the RTC had no
jurisdiction. CA is right because it is the CTA which has exclusive appellate jurisdiction over decisions of the
CIR, and other laws administered by the BIR. RMCs are considered administrative rulings which are
issued by the CIR from time to time. Plus, there is premature invocation of the courts intervention since
petitioners failed to file a motion for reconsideration of said RMCs.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 107 of 162
"#$
BRITISH AMERICAN TOBACCO v. CAMACHO (2008) issue on constitutionality not within the jurisdiction of
CTA A petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction was
filed by petitioner to enjoin the implementation of Section 145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and
RMO No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal
protection and uniformity provisions of the Constitution. Lower court upheld the constitutionality and this
prompted the filing of a petition for review to SC. While the petition was pending, RA 9334 took effect which
effectively increased the excise tax of petitioners products. Commissioner assessed petitioners importation of
911,000 packs of Lucky Strike cigarettes liable for taxes in the total sum of P22.775M. Thus petitioner filed a
Supplement to Petition for Review which assailed the constitutionality of RA 9334 insofar as it retained Annex
D (classification of brand of cigarettes based on average net retail price as of Oct 1996) and praying for the
classification of Lucky Strike products at a lower tax bracket. Fortune Tobacco intervened and contended that
petitioner should have brought its petition before the CTA rather than the RTC. Sec 7 of RA 1125 provides for
the jurisdiction of CTA which includes exclusive appellate jurisdiction to review by appeal the decisions or
the inaction deemed as denial of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal
Revenue. While the CTA has jurisdiction to resolve tax disputes in general, this does not include cases
where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The petition for injunction
filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as
amended, and the validity of its implementing rules and regulations. Petitioner, therefore, properly filed the
subject case before the RTC.
TAN TIONG BIO v. BIR (1956) Central Syndicate is a corporation organized for a limited period of two years. It
allegedly purchased from Dee Hong Lue stock of surplus properties from the Foreign Liquidation Commission.
Later on, it claimed refund for the excess in the payment of the sales tax due to the adjustment and reduction of
the purchase price. However, an agent of the CIR reported that it was the syndicate who was the actual importer
and original seller of the surplus goods, a scheme adopted for evasion of tax payment. The CTA rendered a
decision holding the incorporators of the syndicate to be severally liable, the syndicates personality having had
expired. Syndicate appealed to the Court of Tax Appeals. Solicitor-General moved for the dismissal of the appeal
on the ground that the Appellant Central Syndicate no longer had the capacity to sue because its term of existence
had expired on August 15, 1948. In a petition for review, the court ruled in favor of Central Syndicate. In any
event, the government cannot insist on making a tax assessment against a corporation that no longer exists
and then turn around and oppose the appeal questioning the legality of the assessment precisely on the
ground that the corporation is non- existent, and has no longer capacity to sue. The government cannot adopt
inconsistent stands and thereby deprive the officers and directors of the defunct corporation of the remedy to
question the validity and correctness of the assessment for which, if sustained, they would be held personally
liable as successors-in-interest to the corporate property.
THE ACTING COLLECTOR OF CUSTOMS v. CTA and COMMISSIONER OF CUSTOMS (1957) The
Philippine Education Co., Inc (intervenor-respondent) imported by copies of an issue of the magazine Pageant
which carried an article entitled Check Your Sex-Life Against the New Kinsey Report. The Bureau of Customs
through the Collector of Customs rendered a decision holding that the said article violated provisions of the
Philippine Tariff Act of 1909 which prohibits entry of obscene and indecent reading materials in the Philippines
and ordered the seizure, forfeiture and burning of the copies of the magazine. The importer appealed the decision
in due time to the Commissioner of Customs in conformity with the procedures established by Section 1380 of the
then Admin Code. The Commissioner rendered a judgment reversing the Collector of Customs view by holding
that the magazine did not contain obscene or indecent article. The Secretary of Finance directed the transmittal of
the records to the CTA for review. The CTA informed the Commissioner that under RA No. 1125 it was not
empowered nor under legal obligation to review motu propio decisions of the Collector of Internal Revenue,


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 108 of 162
"#$
Commissioner of Customs or the provincial or city Board of Assessment Appeals, unlike the defunct Board of
Tax Appeals which was conferred that prerogative.
The issues are (1) whether the jurisdiction of the CTA to take cognizance of appeals from decisions of the
Commissioner of Customs is only limited to cases involving disputed assessments and payment of duties and
charges subject of detention and seizure proceedings in the BOC [YES] and (2) whether the Collector of Customs
in his official capacity can institute an appeal from a decision of the Commissioner of Customs to the CTA even
granting that the Collector was directed by the Secretary of Finance [NO].
(1) Sec 7 of RA No. 1125 provides that the CTA shall have exclusive jurisdiction to review by appeal decisions of
the Commissioner of Customs in cases involving liability of customs duties, fees or other money charges; seizure,
detention or release of property affected; fines, forfeitures, or other penalties in relation thereto or other
matters arising under the Customs Law or other law or part of law administered by the Bureau of
Customs. The last sentence comes after an enumeration of the class of cases cognizable by the CTA and by the
doctrine of ejusdem generis, in order that the other matters arising under Bureau of Customs may come within
the jurisdiction of the Court, they should involve liability for payment of money to the Government. The case at
bar does not involve liability for customs duties, fees or other money charges; therefore the present case does not
come within the appellate jurisdiction of the CTA. The proper remedy in this case, as there is no tax or pecuniary
liability involved is through administrative means rather than in the judiciary, in accordance with the Customs
Law.
(2) Sec 11 of RA No. 1125 provides an enumeration of those who may appeal from a decision or ruling of the
Collector of Internal Revenue, the Commissioner of Customs or Board of Assessment Appeals. The right to
appeal is allowed only to persons, associations or corporations adversely affected by the same, and applying the
doctrine ofinclusion unius est exlusio alterius, the Government is certainly not one of them.
SOUTHERN CROSS CEMENT CORP v. CEMENT MANUFACTURERS ASSOC. OF THE PHILS ET AL.
(2005) Issue in this case is W/N the CA has jurisdiction over the special civil action for certiorari filed by Phil
Cement Corp to appeal the DTI Secretarys Decision disapproving the request to impose a safeguard measure
(tariff) on Portland cement. Sec. 29 of RA.8800 or the Safeguard Measures Act (SMA) provides that: Any
interested party who is adversely affected by the ruling of the Secretary in connection with the imposition
of a safeguard measure may file with the CTA a petition for review Respondents argue that the CTAs
jurisdiction is limited to issues regarding the imposition of a safeguard measure, and not to decisions of the
DTI/Tarriff Commission not to impose a safeguard measure, as in this case. The Court ruled that the key phrase
in connection with is broad enough to cover rulings, which modify, suspend, terminate a safeguard measure
or even a ruling not to impose a safeguard measure. Even the US SC in similar cases has conceded that phrases
such as relate to and in connection with may be extended to the farthest stretch of indeterminacy for,
universally, relations or connections are infinite and stops nowhere. To provide more guidance, the US SC even
resorted to looking at the statute and its objectives as an alternative to an uncritical literalism. It is held that
there seems to be no sense in vesting jurisdiction on the CTA over a decision to impose a safeguard measure
but not one choosing not to impose because in both cases, the common question for resolution is still an
issue definitely fraught with some tax dimension. The determination of the question will call upon the same
kind of expertise that a specialized body such as the CTA presumably possesses. Lastly, respondents claim
that this case calls for a split jurisdiction or split review of the Decision must also fail seeing as there is no explicit
expression of bifurcated (meaning separated/branched) appeals in Sec. 29 of the SMA.
*FYI Sec. 7, RA 1125 as amended or RA 9282 now provides: Decisions of the Secretary of Trade and
Industry involving safeguard measures under RA 8800, where either party may appeal the decision to impose
or not to impose said duties. However, RA 9282 was promulgated in 2004 and cannot be given retroactive effect
so the Court had to decide relying only on Sec. 29 of the SMA or RA 8800, promulgated in 2000.
OLLADA v. CTA (1956) no criminal jurisdiction; unfair competition not appealable to CTA A case for
mandamus was ALREADY pending in the CFI when R.A. 1125 created the CTA. Upon the order of the court, it
issued an order remanding the case to the CTA. Ollada filed a motion before the CTA to return the case to the
CFI because the case involves the issue of unfair competition and NOT a disputed assessment therefore


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 109 of 162
"#$
CTA does not have jurisdiction. Respondents say that the question of unfair competition is but an incident of the
main issue which is the authority of the Collector to approve any simplified set of bookkeeping records and that
the matter arises under the NIRC so CTA has jurisdiction.
The question involved in the mandamus case does not cover any disputed assessment or refund of any
internal revenue tax, fee, charge or penalty imposed in relation thereto. Rather, it involves unfair competition
arising from the use of simplified set of bookkeeping records. It has nothing to do with any assessment or
refund of any tax, fee or penalty. It cannot be pretended that for any violation of the Internal Revenue Law,
Customs Law, or Assessment Law, the case may be appealed to the Court of Tax Appeals, for if such were the
case, then the latter court would also have jurisdiction to review cases involving penal provisions such as those
embodied in Title XI of the National Internal Revenue Code. Undoubtedly, such court does not have criminal
jurisdiction.
Sec. 7 provides that the CTA has jurisdiction over other matters arising under the NIRC or other law or part of
law administered by the Bureau of Internal Revenue. The court also used the principle of ejusdem generis.
Anti-competition is not of the same kind as a disputed assessment or refund of any tax.
LACSONA LAND v. CIR (2000) taxpayer has option to wait for CIRs decision On 20 April 1998, Lacsona
filed a protest against the CIRs assessment of deficiency taxes for 1993. On 12 March 1999 (well beyond the
180-day period given to the CIR to render a decision, and the 30 days thereafter given to the taxpayer to appeal to
the CTA, under Sec. 228), it received a letter from the CIR declaring that such assessment has become final &
executory for failure to file an appeal with the CTA w/in 30 days after the lapse of the 180-day period for the CIR
to render a decision. SC reversed the CA ruling, since taxpayers are given 2 options under Sec. 228 in case of
inaction of the CIR on a protest: they can either a) file a petition for review w/ the CTA w/in 30 days after
the expiration of the 180-day period, OR b) wait for the CIR to render a decision, and appeal to the CTA
w/in 30 days from receipt of such decision. These are mutually exclusive, and resort to one bars application
of the other. Thus, when Lacsona decided to wait for the CIRs decision on its protest, and finally receipt of the
decision on March 12, it filed timely filed the appeal on 12 April 1999.
RCBC v. CIR (2007) 30 days after 180-day prescriptive period is jurisdictional RCBC filed a protest to the CIR
on 20 July 2001. Because the CIR did not act on the protest, it had until 16 April 2002 (w/in 30 days after the
180-day period for the CIR to decide on the case, which commenced on 18 Sept. 2011RCBCs deadline to
file the necessary documents) to file an appeal with the CTA. However, it filed the appeal only on April 30.
Thus, it filed beyond the prescriptive period, and as such, the CTA has no jurisdiction over the case in the
first place. While the right to appeal the CIRs decision to the CTA is merely a statutory remedy, the prescriptive
period requirement is jurisdictional.
Also RCBCs contention that this is excusable due to the negligence of its counsel cannot be given merit since for
negligence to be excusable, it must be one which ordinary diligence & prudence could not have guarded against,
and by reason of which, an aggrieved partys rights have probably been impaired. In this case, counsels excuse
that he failed to forward the necessary documents because his secretary wasnt doing her work since he failed to
renew her employment does not fall under excusable negligence.
CIR v. YUSECO and CTA (1961) CTA has no original jurisdiction to issue writs of prohibition J. C. Yuseco did
not file his income tax return so the BIR made the income tax return and assessed him for income taxes. The BIR
then demanded payment. Yuseco requested for reinvestigation but it was denied. A warrant of distraint and levy
was issued thereafter. So Yuseco, filed a petition for prohibition with the CTA. The CTA declared the warrant
of distraint and levy as void and enjoined the CIR from collecting the taxes from Yuseco. The CIR argued that the
taxpayer cannot bring in the CTA an independent special civil action for prohibition without taking to said Court
an appealed decision or ruling of the CIR in the cases provided for in Sections 7 and 11 of R.A. No. 1125.
The writ of prohibition or injunction that the CTA may issue under the provisions of section 11, Republic
Act No. 1125, to suspend the collection of taxes, is merely ancillary to and in furtherance of its appellate
jurisdiction in the cases mentioned in section 7 of the Act. The power to issue the writ exists only in cases
appealed to it. The intention of Congress was to vest the Court of Tax Appeals with jurisdiction to issue writs of


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 110 of 162
"#$
prohibition and injunction only in aid of its appellate jurisdiction in cases appealed to it and not to clothe it
with original jurisdiction to issue them. Taxes being the chief source of revenue for the Government to keep it
running must be paid immediately and without delay.
COLLECTOR v. BATANGAS TRANS. CO (1958) joint mgmt. of 2 buses/ CIR reassesses even with perfected
CTA appeal After WWII, Batangas Transpo. And Laguna Bus decided to have a joint management and with this
CIR initially assessed them with income tax deficiency of P 54, 143 for the said partnership. The 2 bus
companies appealed before CTA but CIR, instead of filing his answer, set aside the original assessment and
reassessed them to have a tax liability of P 148,890 explaining that the buses were erroneously credited in the last
assessment. The issue now lies as to whether the CIR may still modify his assessment even after the appeal has
been perfected with the CTA. In this case, the Supreme Court laid the ruling and doctrine that even with the
appeal pending before the CTA, the Collector of Internal Revenue may still amend his assessment.
(further explanation) Justice Montemayor in this case presented the two arguments. In the first view, the CIR
should no longer be allowed to change his assessment after perfection of appeal because the jurisdiction and
control was automatically transferred to the CTA. Such allowance may also induce CIR to not exercise due care
in the assessment since they can change it anytime. The Court however, ruled in favour of the second view and
stated that allowing such reassessment is not prejudicial to the taxpayer since the CIR is allowed not only to
increase but also decrease the tax liability. Allowing for changes in the appealed assessment prevents
multiplicity of suit, since the CIR no longer has to file a separate subsequent assessment to collect additional
sums. It held that thegovernment should not be bound by errors committed in the assessment by its agents
especially if this was due to misinterpretation or application of tax laws in good faith.
(effect) Thus the CIR pending appeal in CTA may amend his assessment and include such amendment in his
answer and the CTA may redetermine the assessment based on the evidence to be presented.
COMMISSIONER OF CUSTOMS v. GELMART INDUSTRIES PHIL. (2009) Commissioner of Customs issued
Warrants of Seizure and Detention and decreed the forfeiture of Gelmarts shipments. CTA First Division
reversed and ordered its release. Commissioner appealed to the SC. The SC is without jurisdiction. The CTA en
banc has exclusive appellate jurisdiction relative to review of decisions or resolutions on motion for
reconsideration or new trial of the CTAs two divisions in cases arising from administrative agencies (like
Bureau of Customs). Here, the procedure was not followed by the Commissioner and he offered no adequate
explanation. Commissioners failure to file an MR of the assailed decision of the CTA First Division, or at least a
petition for review with the CTA en banc, invoking the latters exclusive appellate jurisdiction to review decisions
of the CTA divisions, rendered the assailed decision final and executory.
(NOTE: Decisions of administrative agencies are raised on petition for review to a CTA Division. A party can file
an MR or MNT before the same CTA division. The resolution of the CTA division on the MR or MNT is raised
to the CTA en banc.
COMMISSIONER OF CUSTOMS v. MARINA (2010) A motion of reconsideration or new trial must be filed
with the CTA Division concerned before an appeal can be filed with the CTA en Banc. Marina Sales Inc.
(Marina) manufactures Sunquick juice concentrates being the manufacturing arm of CO-RO Food of Denmark.
They import raw materials in the country for this purpose. In the past the Bureau of Customs (BOC) assessed
them a 1% import duty rate. The Valuation and Classification Review Committee of the BOC reclassified their
import to a 7% import duty rate. This was appealed to the Commissioner of Customs which was denied. Marina
filed a petition for review before the CTA second division. CTA ruled in favor of Marina. Consequently, the
Commissioner appealed to the CTA en Banc. CTA en banc denied the appeal of the Commissioner because he
failed to file before the CTA 2
nd
division a motion for reconsideration before elevating to the CTA en banc.
Commissioner appealed to the SC on a petition for review. The SC denied the petition based Rule 8 Sec 1 on the
Revised Rule of the Court of Tax Appeal (Please see provision below). On the procedure, the Court agrees with
the CTA En Banc that the Commissioner failed to comply with the mandatory provisions of Rule 8, Section 1 of
the Revised Rules of the Court of Tax Appeals

requiring that the petition for review of a decision or resolution of
the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the
Division. The rules are clear. Before the CTA En Banc could take cognizance of the petition for review


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 111 of 162
"#$
concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it
sought prior reconsideration or moved for a new trial with the concerned CTA division.
Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule, to wit:
SECTION 1. Review of Cases in the Court en banc. In cases falling under the exclusive appellate jurisdiction
of the Court en banc, the petition for review of a decision or resolution of the Court in Division must be preceded
by the filing of a timely motion for reconsideration or new trial with the Division.
JUDY ANNE L. SANTOS v. BIR (2008) CIR Parayno sent a letter to the DOJ recommending the criminal
prosecution of Juday for filing a false and fraudulent return. Apparently, Juday only declared 8M as her earnings
for 2002, when her true income is about 16M. This resulted to a tax deficiency of 1M+. State Prosecutor
Torrevillas filed a criminal case against Juday in the CTA. Juday filed a motion to quash based on denial of due
process and lack of authority of the State Prosecutor to file a case. The CTA First Division denied the motion to
quash. Juday then filed a petition for review with the CTA en banc to appeal the denial of her motion to
quash. CTA en banc denied the petition because the denial of the motion is an interlocutory order which, as a
general rule, is not appealable.
The Supreme Court denied Judays petition. According to the SC the filing of a petition for review with the CTA
en banc from a decision, resolution, or order of a CTA Division is a remedy newly made available in proceedings
before the CTA, because prior to the amendment of the law creating the CTA, the CTA is not a collegial body.
However, despite this new addition, the rule on petitions for review under the Rules of Court for other courts
has long been followed by the CTA. And as we know, under the Rules only final orders are appealable. An
interlocutory order is not appealable being merely provisional. However, in ordinary cases, there is a remedy
for the denial of an interlocutory order the filing of a special civil action for certiorari under Rule 65, in
cases of grave abuse of discretion. But since Juday failed to raise the issue of whether the CTA, under its
expanded jurisdiction, is granted jurisdiction over special civil actions for certiorari, the SC was precluded
from making a pronouncement. The SC however may take cognizance of a SCA for Certiorari, so Juday was
not left without recourse. The SC however said that there being no grave abuse of discretion in the denial of
motion to quash, Judays petition must necessarily fail.
(Contention ni Juday sa motion to quash, denied daw siya ng equal protection kasi si REGINE VELASQUEZ di
sinampahan ng kaso ng DOJ. " Sabi ng SC uhm, syempre dapat yung defect nasa face ng information para
iquash.)
ST. STEPHENS ASSOCIATION AND ST. STEPHENS CHINESE GIRLS SCHOOL v. CIR (1958) period
for appeal computed from the receipt of decision of the CIR on the disputed assessment Petitioner St.
Stephens Association turned over the amount of P9,252.48 to the St. Stephens Chinese Girls School, and the
transfer of funds was entered in the ledger and cash book of the School as a donation. An examiner of the BIR
reported the donation to the CIR and thereafter, sent petitioners an assessment notice (received November 12,
1954) demanding the payment for donors and donees gift taxes, surcharges and interests. Petitioners requested
for cancellation and withdrawal of the assessment notice on the ground that the amount was erroneously entered
by the bookkeeper as a donation, when the truth was that said amount was obtained by the Association by means
of small contributions from the public and allocated to the School for its maintenance. CIR denied the request.
Petitioners asked for reconsideration but were again denied on a letter dated July 11, 1955, which
they received onJuly 25, 1955. A petition for review was filed before the CTA on August 13, 1955. The Court
held that the petition was NOT filed within the thirty-day period prescribed in Section 11 of R.A. No. 1125
because 37 days had already elapsed (based on a computation of the running and tolling of the period for appeal).
It further held that the period for petitioners appeal started to run from their receipt of the assessment
notice in question. Hence, the CTA dismissed the case for lack of jurisdiction.
Where a taxpayer questions an assessment and asks the CIR to reconsider or cancel the same because he (the
taxpayer) believes he is not liable therefor, the assessment becomes a disputed assessment that the CIR must
decide, and the taxpayer can appeal to the CTA only upon receipt of the decision of the CIR on the disputed
assessment, in accordance with paragraph (1) of section 7, R.A. No. 1125. The period for appeal must be
computed from the time petitioners received the decision of the respondent CIR on the disputed assessment,


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 112 of 162
"#$
and not from the time they received said assessment. It is evident that respondent CIR considered the July 11,
1955 letter as its final decision in the case, hence the warning in the last paragraph that the same would become
final in thirty days unless petitioners appealed to the CTA within the same period. Petitioners having filed their
appeal on the 19th day from the receipt of this decision, their appeal was filed on time and the CTA erred in
dismissing the same for lack of jurisdiction.
BAGUIO COUNTRY CLUB v. CIR and CA (1959) (This is the exact case, just one paragraph) Petition to review a
resolution of the Court of Tax Appeals dismissing petitioners appeal. The appeal must be sustained. Interpreting
Section 11 of Republic Act No. 1125 in the case of St. Stephens Association, et al. vs. Collector of Internal
Revenue (104 Phil 314), this Court declared that where a taxpayer questions an assessment and asks the
Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the
assessment becomes a disputed assessment that the Collector must decide, and the taxpayer can appeal to the
Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment. In the case
at bar, the assessment became a disputed assessment that the Collector must decide when petitioner questioned
it validity and asked for its reconsideration and that he could appeal to the Court of Tax Appeals only upon receipt
of the decision of the Collector. Petitioner received the decision of the Collector denying its request for
reconsideration on June 21, 1956. It follows that its appeal taken on July 7, 1956 was well within the time
prescribed by the statute. Resolution reversed. Reyes, A. J., ponente.
ROMAN CATHOLIC ARCHBISHOP OF CEBU v. CIR (1962) period to appeal counted from the date of receipt
of the denial of MR by the CIR The Archbishop filed the 1955 and 1956 income tax returns (ITRs) of the
Archdiocese on Feb. 21, 1956 and Feb. 18, 1957, respectively. The CIR disallowed the depreciation expenses;
hence, deficiency income taxes were determined on the ITRs dated July 15, 1956 and March 30, 1957,
respectively. Then, the Archbishop submitted 3 motions of requests for the reconsideration of the 2 Tax
Assessments. The first he submitted to the Regional Director, and it was denied on July 18, 1957; the second was
on August 18, 1957, addressed to the CIR, and was denied on November 5, 1957, in a letter received by the
Archbishop on November 21, 1957; and the third request was made on November 23, 1957, and again denied on
January 20, 1958, modified to the Archbishop on February 1, 1958. All motions for reconsideration by the
Archbishop were premised on the same grounds, allowing the depreciation expenses. The appeal to the Tax Court
was filed only on February 19, 1958. By these successive motions for reconsideration, the Archbishop delayed the
review of his case by the Tax Court for nearly two years. The decision by the CIR dated November 5, 1957,
denying the second request for reconsideration of the assessment, was certainly reviewable by the Court of Tax
Appeals. Hence, the 30-day appeal period should be counted from November 21, 1957, when the taxpayer
received copy of the CIRs ruling. The running of the period was not interrupted by the filing of the third request
for reconsideration, because the latter did not advance new grounds not previously alleged, and was, therefore,
merely pro forma. Therefore, petitioner's petition for review should have been lodged with the Tax Court not later
than December 21, 1957, but it was actually filed only on February 1, 1958.
PANTRANCO v. BLAQUERA (1960) (failure to file request w/n 30days) The Collector assessed Pantranco with a
documentary stamp tax deficiency w/ compromise penalty worth P74k. Pantranco requested for a reinvestigation
but was denied and was afterwards assessed a lower amount (P66k). Because of the change in the amount,
Pantranco requested a clarification. The Collector then wrote him a letter enclosing therewith a letter dated Sept.
1954. This was received on Nov. 20, 1954. Pantranco sought a reconsideration of the modified assessement on
Dec. 2, 1954.
Considering that the ruling or decision of the Collector of September 1954 had been received by Pantranco on
November 20, the Court held that the 30-day period began to run on November 20; that it was interrupted by the
petition for reconsideration filed December 3, 1954; and that such interruption ended on June 11, 1955, when
denial of the reconsideration was received by Pantranco; and finding that the petition had thus been presented
on the 34th day after receipt of the Collectors definite assessment, (November 20 to December 3-13 days;
June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 113 of 162
"#$
The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to contest within
thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals, or to any
other court. The period of thirty days is jurisdictional and non-extensible.
BASA v. REPUBLIC (1985) For failure to report in full his capital gains income for the sale of land, Basa was
assessed a deficiency tax assessment for the year 1957 to 1960. A demand letter was sent in Aug 31, 1967. The
Commissioner sent a letter-decision dated Dec. 6, 1974. Since Basa did not contest the assessment the decision
had become final and executory and a suit was filed in the CFI for collection. CFI ruled against Basa. The trial
court affirmed the assessment. Instead of appealing to the SC, Basa filed an appeal with the CA and failed to file
it within the reglementary period. CFI dismissed the appeal. Basa then filed a special action for certiorari with
the SC.
Issue: 1. W/N trial court acted within its jurisdiction?
2. W/N the action has prescribed?
Held: 1. YES. The trial court acted within its jurisdiction in rendering its decision and dismissing Basas appeal. He
should have appealed the decision with the SC. Since he failed to do so the decision became final and executory
and has no cause of action for certiorari. If he wanted to contest the assessment, he should have done so with the
Court of Tax Appeals. He may not contest the same with the CFI.
2. NO, the issue of prescription is baseless. The assessment was based on the fact his income tax was if not
fraudulent were false because he misdeclared his income. Therefore, a deficiency assessment may be made
within 10 years from discovery of the fraud. Court action should be instituted within 5 years after but this period
was suspended during the time the commissioner is prohibited from instituting court action. As explained in the
Solicitor General's memorandum, Basa's requests for reinvestigation tolled the prescriptive period of five years
within which court action may be instituted. Moreover, the issue of prescription should also have been raised in
the Tax Court.
MAMBULAO LUMBER v. CIR (1984) Power to collect forest charges rests on the BIR, not with the Bureau of
Forestry On August 29, 1958, the Acting CIR assessed petitioner Mambulao for deficiency sales tax, forest
charges and surcharges. Petitioner requested for reinvestigation of its tax liability. The CIR, in its reply, gave
Petitioner a period of 20 days from the receipt thereof to submit the results of its verification of payments with a
warning that failure to comply therewith would be construed as an abandonment of the request for reinvestigation.
Mambulao failed to comply despite repeated demands. CIR filed a complaint for collection on August 25, 1961.
Petitioner appealed to the CA, which affirmed the decision. An MR was filed but was denied. Petitioner argues
that counting from January 15, 1949 when the Bureau of Forestry made an assessment and demand for payment
of forest charges and surcharges in 1949, up to the filing of the complaint for collection, more than 5 years had
elapsed.
Forest charges are internal revenue taxes and the sole power and duty to collect the same is lodged with the
Bureau of Internal Revenue and not with the Bureau of Forestry. The computation and/or assessment of
forest charges made by the Bureau of Forestry may or may not be adopted by the CIR and such computation made
by the Bureau of Forestry is not appealable to the CTA. In the present case, the commencement of the five-
year prescriptive period should be counted from August 29, 1958, the date of the letter of demand of the
CIR to Mambulao. The complaint for collection was filed on August 25, 1961, well within the prescriptive
period. Furthermore, it is not disputed that when Petitioner requested for reinvestigation, it failed to submit the
results of its verification payments which was construed as abandonment of its request. Neither did it appeal to the
CTA within 30 days from receipt of the letter dated July 8, 1959, thus making the assessment final and executory.
REPUBLIC v. CA (1987) In a demand letter dated July 16, 1955, the CIR assessed Nielson & Co. deficiency taxes.
CIR reiterated its demand for payment per letters dated (1) April 29, 1956, (2) Sept. 19, 1956, and (3) February
9, 1960. Nielson did not contest the assessment in the CTA. On the theory that the assessment had become final
and executory, the CIR filed a complaint for collection against Nielson. However, there was a failure to serve
summons so the complaint was dismissed WITHOUT prejudice. The complaint was refilled but the same was


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 114 of 162
"#$
erroneously docketed as the same case previously dismissed. Without correcting this error, another complaint was
filed, the subject matter of this appeal.
Issue: 1. W/N the letter of assessment dated July 16, 1955 was received by Nielson in the ordinary course of mail
2. Assuming that the letter dated July 16, 1955 was not considered an assessment, on the theory that the same had
not been received, W/N the letter dated Sept. 19, 1956 is itself an assessment which was duly received by
Nielson.
Held: 1. NO. While the contention of the CIR is that a mailed letter is deemed received by the addressee in the ordinary
course of mail, still this is merely a disputable presumption, and a direct denial of the receipt thereof shifts the
burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the
addressee.
2. YES. The follow-up letter dated Sept. 19, 1956 reiterating its demand for the payment of taxes as originally
demanded in the CIRs letter dated July 16, 1955 is considered a notice of assessment in itself which was duly
received by Nielson in accordance with its own admission.
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty
(30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the
assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing
the correctness of the assessment or from invoking any defense that would reopen the question of its liability on
the merits.
COLLECTOR v. CTA (1960) October 31, 1955, demand was made by the Collector of Internal Revenue against
Thompson Shirts Factory for the payment of deficiency tax. On March 15, 1956, taxpayer asked for
reinvestigation .This was done, and on March 21, 1957, a revised demand. This demand was received by the
taxpayer on April 9, 1957, and on April 15, 1957, a request for reinvestigation was again made. On April 17,
1957, the CIR denied the request for reinvestigation. This denial was received by the taxpayer on April 21, 1957,
and on May 14, 1957 he instituted the action in the Court of Tax Appeals.
The taxpayers second request for reinvestigation suspended the prescriptive period. The petition for
reinvestigation is not pro-forma even if tested by the Rules of Court, because specific grounds are mentioned in
said petition for reinvestigation, namely, lack of opportunity of taxpayer to be assisted by counsel in the
investigation, and the findings are not in accordance with the facts and the evidence in the case. The rule against
pro-forma motions should be not very strictly applied in tax cases before the Court of Tax Appeals, for the reason
that the Rules of Court is only supplementory in character before said Court. Besides, in actions for certiorari filed
before courts of justice, a motion for reconsideration should first be presented before a writ of certiorari may be
invoked. Lastly, the need of exhausting all administrative remedies before resort to the courts is made, demands
that the motion for reconsideration be filed. The final and definitive assessment was made in the letter of the
Collector on March 21, 1957. After that definite demand, only one motion for reconsideration was made, and that
is made in the letter of the taxpayer dated April 15, 1957. This motion even, if coached in general terms, serves
the purpose of preparing the case for petition for review, as above indicated.
CIR v. ALGUE, INC. (1988) "exception to Warrant of Distraint and Levy as proof of the finality of the assessment
which renders hopeless request for reconsideration" January 14, 1965, Algue received a letter assessing them
P83,183.85 delinquency income taxes for 1958 and 1959. January 18, 1965, Algue filed a letter of protest or
request for reconsideration, stamp received the same day. March 12, 1965, a warrant of distraint and levy was
presented to Algue through its counsel, Atty. Guevara, who refused to receive it due to the pending protest, for
which no positive act was shown to have been made, no copy could even be found in the dockets. Atty. Guevara
gave a photostat of it to the BIR. April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking
any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to
be served. April 23, 1965, Algue filed a petition for review with the CTA. ISSUE is w/n the appeal to the CTA
was filed on time and the Court ruled in the affirmative. Since the protest was not pro-forma, meaning it had
strong legal considerations, it effectively tolled the reglementary period for an appeal to the CTA (30days from
receipt of decision). [Jan. 14 receipt of assessment--(4 days)--Jan. 18 protest --period tolled-- April 7 denial of


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 115 of 162
"#$
protest, thus period started running again to April 23 (appeal to CTA). 4 days + 16 days, = 20 days lang] It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a
request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed
rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine.
CIR v. CENTRAL AZUCARERA DON PEDRO (1973) On May 22, 1963 it filed an application with the Board of
Industries for tax exemption and then informed the CIR of the approval of its application for tax exemption and
claimed a tax credit for the entire amount of P294,705.00 which it had paid. In a letter dated May 12, 1966 the
CIR informed the Central that he was allowing a tax credit of only P246,403.00 and disallowing the sum of
P48,302.00 on the ground that the claim for tax credit with respect thereto was filed only on July 22, 1965, or
more than (2) years after it was paid, and therefore under Sec. 309 of the Tax Code the right to recover the same
had already prescribed. The court held that the granting of a tax exemption to an applicant engaged in a
basic industry retroacts to the date of the filing of application for exemption. If it is the grant of exemption
by the Board of Industries that gives rise to the right to file a claim for tax credit or tax refund with the
Commissioner of Internal Revenue. In fine, when the tax sought to be refunded is illegally or erroneously
collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the
prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the
right of refund. Thus, it had not prescribed yet.
CIR v. PNB (2005) In early April 1991, PNB issued to the BIR a check for P180,000,000.00. The check represented
PNBs advance income tax payment for the banks 1991 operations and was remitted in response to then
President Corazon C. Aquinos call to generate more revenues for national development. By the end of CY 1991,
PNBs annual income tax liability, per its 1992 annual income tax return, amounted to P144,253,229.78, which,
when compared to its claimed total credits and tax payments of P217,552,122.38 [which includes the P180M],
resulted to a credit balance in its favor in the amount of P73,298,892.60.8 This credit balance was carried-over to
cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the banks negative
tax position for the said inclusive years, having incurred losses during the 4-year period. CIR ruled that the claim
in question is time-barred, the bank having filed such claim only in 1997, or more than two (2) years from 1992
when the overpayment of annual income tax for 1991 was realized by the bank and the amount of excess payment
ascertained with the filing of its final 1991 income tax return.
Section 230 [now Section 229] of the Tax Code, as couched, particularly its statute of limitations component, is,
in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively,
illegally or wrongfully collected.
Black defines the term erroneous or illegal tax as one levied without statutory authority. In the strict legal
viewpoint, therefore, PNBs claim for tax credit did not proceed from, or is a consequence of overpayment
of tax erroneously or illegally collected.
We therefore hold that the tax credit sought by PNB is not simply a case of excess payment, but rather for the
application of the balance of advance income tax payment for subsequent taxable years after failure or
impossibility to make such application or carry over the preceding four (4)-year period when no tax liability was
incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the two (2)-year
prescriptive period as to legally bar any request for such tax credit certificate considering the special
circumstances under which the advance income tax payment was made and the unexpected event (four years of
business losses) which prevented such application or carry over.
SANTIAGO BERMEJO v. COLLECTOR (1950) file for claim of refund first before resorting to courts Bermejo
was assessed P1,083.75 for the sale of nipa shingles and charcoal. He objected to the assessment, contending that
the products were agricultural, thus free from taxation. Later on he proposed to pay the tax by installments,
without prejudice to whatever action he may take on the matter, which was granted. After paying the first
installment, he sued for recovery of sum of money. CIRs answer maintained the validity of the assessment and
levy, and before the trial, moved for the dismissal of the complaint on the ground that the Bermejo had not
complied with the provisions of section of the Internal Revenue Law 306 (now Sec 229 of NIRC), since he did
not file a claim with the collector for the refund of the amount he had delivered before filing a case in court. The


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 116 of 162
"#$
law clearly stipulates that after paying the tax, the citizen must submit a claim for refund before resorting to
the courts. The reason behind this is first, to afford the collector an opportunity to correct the action of
subordinate officers; and second, to notify the Government that such taxes have been questioned, and the notice
should then be borne in mind in estimating the revenue available for expenditure. Previous objections to the tax
may not take the place of the claim for refund, because it could be said that in paying, the tax payer has
finally come to realize the validity of assessment.
ANDREA VDA. DE AGUINALDO v. CIR (1965) Spouses Aguinaldo received cash dividends (P10,000) from
Aguinaldo Brothers, Inc. They did not declare this in their 1952 joint income tax. Instead, they declared P5,000
in their 1953 income tax. The BIR discovered this and Spouses Aguinaldo readjusted the returns. It resulted to a
deficiency income tax (P3,840) and an overpayment tax (P1,600). However, the CIR assessed the deficiency tax
but did not credit the overpayment. CIR said that the overpayment cannot be credited because the claim for tax
credit was filed beyond the two-year period. The Court held that Spouses Aguinaldo paid income tax for 1953 on
August 14, 1954, even though the adjustment took place on August 29, 1955. The claim for tax credit was filed
on January 13, 1958. It was clearly filed beyond the two-year period. Such period is a condition precedent and
non-compliance precludes the CIR from exercising their authority.
MERALCO v. CIR (2006) (CTA CASE) Claim for refund must be filed within two years from erroneous
payment MERALCO obtained two loans in the amount of $120 Million and $1 Million respectively from
Norddeutsche Landesbank Gironzentrale, Singapore Branch (NLG Bank). MERALCO discovered that NLG was
a foreign government-owned financing institution under the Federal Republic of Germany. Hence, MERALCO
filed a request before the BIR law division to determine whether or not NLG was tax exempt under the NIRC.
Pending determination, MERALCO continued to remit to the BIR the 10% withholding tax on its interest
payments to NLG. BIR thereafter issued a ruling on October 7, 2003, declaring interest payments made in favor
of NLG as tax exempt. This prompted MERALCO to file a claim for refund or issuance of a tax credit certificate
covering the amounts erroneously remitted to the BIR.
The claim was filed beyond the 2-year prescriptive period. Under the NIRC, it is clear that a claim for refund
must be filed within 2 years from the payment of the tax or penalty, regardless of any supervening cause. Non-
compliance with this condition bars recovery. In this case, prescriptive period started to run from the date of
payment, not from the issuance of the BIR ruling cited above as petitioner MERALCO believes. Since the claim
for refund filed by MERALCO covers payments made both within and beyond the coverage of such 2-year
period, its claim for refund must bepartially granted. The claim for refund concerning payments made covering
the period of January 1999 to July 2002 must be denied on the ground of prescription. However, its claim for
refund concerning payments after such period must be granted.



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 117 of 162
"#$
E. Payment Under Protest Not Needed
RAMIE TEXTILES, INC. v. MATHAY (1979) Ramie paid its taxes for machineries from 1959- 1964. On May 19,
1967, Ramie filed a claim for refund since the machineries were exempt from tax, which the Provincial Treaurer
denied. The question at issue, therefore, is whether or not protest is a condition precedent or a sine qua non
requirement for the recover of real estate taxes paid under the erroneous belief that the, claimant was liable
therefor, and if so, what is the prescriptive period. The Court ruled that protest is not a requirement in order
that a taxpayer who paid under a mistaken belief that it is required by law, may claim for a refund. In the
case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of the fact that it
was exempted from payment of the realty tax under Commonwealth Act No. 470. Payment was made through
error or mistake, in the honest belief that petitioner was liable, and therefore could not have been made
under protest, but with complete voluntariness. In any case, a taxpayer should not be held to suffer loss by his
good intention to comply with what he believes is his legal obligation, where such obligation does not really exist.
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti the claim for
refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the
New Civil Code. As already stated the claim for refund must be made within six (6) years from date of payment.
Since petitioner demanded the refund of real estate taxes mistakenly paid only on May 23, 1967, it can recover
only those paid during the period from October 31, 1961 to September 9, 1965 or a total amount of P61,007.33.
Petitioner has, by reason of the six (6) years prescriptive period, lost its right to recover the amount of P17,033.84
paid during the period from July 24, 1959 to March 27,1961.
F. Utilization of Tax Credit Certificate; Meaning of Tax Debit Memo
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may
...
3. ...
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund
be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was
made.
PILIPINAS SHELL PETROLEUM CORP v. CIR -- PSPC paid part of its excise tax liabilities with TCCs which it
validly purchased. BIR sent a collection to PSPC for alleged deficiency excise tax liabilities claiming that the
TCCs that were used were fraudulently acquired thus, may not be used to pay taxes. PSPC now avers that its
statutory and procedural right to due process was violated in the issuance of the assessment because the
procedures delineated in the statutory provisos and RR 12-99 were not followed by respondent. Respondent
ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment
notice, as required. Respondent merely relied on the findings of the Center which did not give PSPC ample
opportunity to air its side. PSPCs motion for reconsideration of the purported Center findings and cancellation of
the subject TCCs and the TDM was not even acted upon. Because of this defect, the assessment of respondent for
deficiency excise taxes against petitioner was canceled and declared without force and effect for lack of legal
basis.
Revenue Memorandum Order No. 86-98
SUBJECT: Payment of National Internal Revenue Taxes in the Form of Tax Credit Certificate (TCC), Under
Certain Conditions, Pursuant to Section 204 of the Tax Code of 1997
TO: All Internal Revenue Officers and Others Concerned


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 118 of 162
"#$
SEC. 1. Scope. This Order is issued to ensure a uniform compliance with the pertinent provisions of Section 204 of the
Tax Code of 1997, as follows:
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any
internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request
for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section
230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable
balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided,
further That in no case shall a tax refund be given resulting from availment of incentives granted pursuant
to special laws for which no actual payment was made.
SEC. 2. Coverage. All concerned are hereby enjoined to strictly implement the above provisions of law, as follows:
1. TCC issued prior to January 1, 1998. A TCC duly issued under the provisions of the National Internal Revenue
Code prior to January 1, 1998 shall not be accepted in payment of the taxpayer's internal revenue tax liabilities,
unless the same has been duly revalidated pursuant to the provisions of Section 230 of the said Code, as
implemented by Revenue Regulations No. 7-98, dated July 9, 1998.
2. TCC issued beginning January 1, 1998. A TCC duly issued under the provisions of the National Internal
Revenue Code beginning January 1, 1998 may be used by its grantee in payment of his internal revenue taxes,
except his withholding tax liability.
3. Kinds of internal revenue taxes against which a TCC may be applied in payment; Exception. Subject to the
provisions of the preceding paragraphs, any TCC duly issued by the Commissioner of Internal Revenue, or his
duly authorized representative, under the provisions of the National Internal Revenue Code may be used by its
grantee in payment of his internal revenue taxes, such as income taxes, estate and donor's taxes, value-added tax,
percentage taxes, excise taxes and documentary stamp taxes, except his withholding tax liability.
4. Meaning of a TCC "issued under the provisions of the Code"; Exception. (a) This term is limited only to any
TCC issued under the pertinent provisions of the National Internal Revenue Code, such as, but not limited to, a
TCC duly issued by the Commissioner of Internal Revenue, or his duly authorized representative, for taxes
erroneously paid by or illegally collected from the taxpayer, excess credit for creditable income taxes withheld
from income derived, or a TCC duly issued to a VAT-registered taxpayer on account of his transactions subject to
zero percent (0%) value-added tax. (b) Exception. The term "issued under the provisions of the Code" does not
include any TCC issued pursuant to the provisions of any law, other than the National Internal Revenue Code,
such as a TCC issued pursuant to the provisions of the Omnibus Investments Code, the Tariff and Customs Code,
or other general or special law.
5. TCC issued pursuant to the provisions of any law other than the NIRC . Any TCC duly issued pursuant to the
provisions of any law, other than the National Internal Revenue Code, may only be used, subject to the limitations
of the law and regulations under which the same has been issued.
5.1 TCC issued by the Bureau of Customs. Any TCC issued by the Commissioner of Customs, or his
duly authorized representative, pursuant to Section 106 of the Tariff and Customs Code , as Duty
Drawbacks, may only be used in payment of the grantee's liability to the Bureau of Customs for duties,
charges and taxes on his importation, the provisions of Section 12(a) of the NIRC notwithstanding. It may
not be used in payment of his internal revenue tax liabilities directly payable to the Bureau of Internal
Revenue.
5.2 TCC issued under the Omnibus Investments Code. A TCC issued by the Board of Investments, or
its duly authorized representative, pursuant to the provisions of the Omnibus Investments Code , as
amended, may only be used for the purposes for which the same has been issued to the grantee, in
accordance with the provisions of the Omnibus Investments Code and its implementing rules and
regulations. Any TCC issued jointly by the Board of Investments (BOI) and the Bureau of Internal
Revenue (BIR), pursuant to the provisions of the Omnibus Investments Code and its implementing rules
and regulations, may be used by the grantee or his qualified transferee, in payment of the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 119 of 162
"#$
grantee/transferee's internal revenue taxes, except his withholding tax liabilities: Provided, however, That
any TCC issued jointly by the Board of Investments (BOI) and the Bureau of Customs (BOC), pursuant
to the provisions of the Omnibus Investments Code and its implementing rules and regulations, shall not
be used in payment of the grantee/transferee's liability for any internal revenue tax directly payable to the
BIR, the provisions of Section 12(a) of the NIRC notwithstanding, hence, the same may only be used in
payment of customs duties, charges and taxes on his importation, directly payable to the Bureau of
Customs.
SEC. 3. Sanction. Strict compliance herewith is enjoined. Any violation of this Order shall be subject to disciplinary
action and shall be dealt with accordingly.
SEC. 4. Effectivity. This Order shall take effect immediately.
Revenue Regulation No. 05-2000
SUBJECT: Prescribing the Regulations Governing the Manner of the Issuance of Tax Credit Certificates, and the
Conditions for their Use, Revalidation and Transfer
TO: All Internal Revenue Officers and Others Concerned
Pursuant to Section 244 in relation to Sections 76 , 112 , 130 , 135, 204 and 230 all of the Tax Code of 1997, these
Regulations are hereby promulgated to prescribe the rules governing the issuance of BIR-issued Tax Credit Certificates
(TCCs), and the conditions for their use, conversion, revalidation and transfer.
SEC. 1. Definition of Terms.
A. Tax Credit For purposes of these Regulations, the term "tax credit" shall refer to the amount due to a taxpayer
resulting from an overpayment of a tax liability or erroneous payment of a tax due.
B. Tax Credit Certificate means a certification, duly issued to the taxpayer named therein, by the Commissioner
or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed
formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money
value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those
excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in
accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.
C. Tax Debit Memo means a certification, duly issued by the Commissioner or his duly authorized representative,
reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the
taxpayer named therein has duly paid his internal revenue tax liability in the form of and through the use of a Tax
Credit Certificate, duly issued and existing in accordance with the provisions of these Regulations. The Tax Debit
Memo shall serve as the official receipt from the BIR evidencing a taxpayer's payment or satisfaction of his tax
obligation. The amount shown therein shall be charged against and deducted from the credit balance of the
aforesaid Tax Credit Certificate.
D. Direct Internal Revenue Tax Liability shall refer to taxes for which the taxpayer is made statutorily liable. In
essence, "direct internal revenue tax liability" pertains to the liability of a person mandated by law to file the tax
return and pay the tax due thereon.
SEC. 2. Sources of Tax Credit. A tax credit is being granted for the following:
(a) At the option of the taxpayer, excess quarterly income taxes paid reflected in the final adjustment return.
(b) At the option of the taxpayer, overwithholding at source of income taxes to the extent that the amount of such
overpayment was not deducted or applied against income tax due.
(c) Input taxes as follows:
i. Attributed to zero-rated sales made by VAT-registered taxpayer including export sales by a VAT-registered
exporter;


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 120 of 162
"#$
ii. Attributed to effectively zero-rated sales made by VAT-registered taxpayer; and
iii. On capital goods imported or locally-purchased by a VAT-registered taxable person.
(d) Unused input taxes resulting from cancellation of VAT registration due to retirement from or cessation of
business, or due to changes in or cessation of status as a VAT taxable taxpayer under Section 106(C) of the Tax
Code.
(e) Excise taxes paid on:
i. Petroleum products sold to tax-exempt entities and international carriers;
ii. Goods locally produced or manufactured and actually exported without returning to the Philippines;
(f) Taxes erroneously or illegally paid or penalties imposed without authority.
Any taxpayer who is erroneously registered as a VAT person will not be covered by paragraphs (c) and (d) of this Section.
In no case shall a tax refund or tax credit certificate be given resulting from availment of incentives granted pursuant to
special laws for which no actual tax payment was made.
SEC. 3. Uses of Tax Credit Certificate. Whenever a Tax Credit Certificate (TCC) is issued to a taxpayer to
acknowledge the existence of a valid tax credit, such Tax Credit Certificate may be used by the grantee or his assignee in
the payment of his direct internal revenue tax liability, such as income tax; documentary stamp tax, excise tax, value
added tax, percentage tax and other internal revenue taxes. However, in no case shall the TCC be used in payment of the
following:
(a) Payment or remittance for any kind of withholding tax.
(b) Payment arising from the availment of tax amnesty declared under a legislative enactment.
(c) Payment of deposits on withdrawal of exciseable articles.
(d) Payment of taxes not administered or collected by the Bureau of Internal Revenue.
(e) Payment of compromise penalty.
SEC. 4. Assignment or Transfer.
(a) Transferability of TCC. Taxpayers with TCCs issued by the BIR in their name hold the same in the concept of
an owner. Consequently, BIR-issued TCCs may be transferred in favor of an assignee subject only to the
following conditions:
i. The transfer must be with prior approval of the Commissioner or his duly authorized representative who
shall verify whether or not the TCC sought to be transferred is still valid in the hands of the original holder;
ii. The transfer should be limited to one transfer only.
iii. The transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax
liability and in no case shall the same be available for conversion to cash in his hands.
(b) Assignment Procedures. The transfer or assignment of a TCC from the original holder to his or its assignee
shall be subject to the following procedures:
i. The TCC sought to be assigned or transferred shall be presented before the Commissioner or his duly
authorized representative for verification. If found to be valid and still with creditable balance, the TCC
shall be marked "Valid for Transfer", countersigned by the said officer.
ii. Upon execution of the Deed of Assignment, the transferor shall present the same, together with the original
copy of the TCC.
iii. The original copy of the TCC shall still be cancelled even if only a portion of its face value is transferred or
assigned, in which case, new TCC(s) shall be issued representing the respective portions pertaining to the
transferee(s) and/or the balance remaining for the account of the transferor.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 121 of 162
"#$
iv. Any TCC issued in favor of the transferee or assignee shall by valid for five (5) years, but subject to the
following conditions which must be annotated therein, as follows:
1. Not valid for further transfer;
2. Not valid for cash conversion.
SEC. 5. Period of Validity, Conversion and Revalidation.
(a) Validity Period. Any Tax Credit Certificate (TCC) issued in accordance with the pertinent provision of the Tax
Code of 1997 which remains unutilized after five (5) years from date of issue shall, unless revalidated before the
end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's
internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the
General Fund of the National Government.
The revalidated TCC shall be valid for a period of five years from the date of issue.
(b) Conversion Period. Any request for conversion into cash refund of unutilized tax credits may be allowed
during the validity period of the TCC. Provided, however, that the original copy of the Tax Credit Certificate
showing a creditable balance is surrendered to the Asst. Commissioner, Collection Service or other duly
authorized Revenue Officer for verification and cancellation. Provided, further, that a refund check or treasury
warrant issued in accordance with the pertinent provisions of the Tax Code of 1997, which shall remain uncashed
or unclaimed within five (5) years from the date of issue, mailing or delivery, whichever comes later, shall be
forfeited in favor of the Government and the amount thereof shall revert to the general fund.
(c) Revalidation Period. In general, a TCC may be revalidated prior to the expiration of its validity period.
Provided, however, that any TCC issued prior to January 1, 1998 in which the grantee's holding period therefor as
of said date is less than five (5) years counted from date of issue, may be submitted for revalidation by the holder
within six (6) months prior to the end of the fifth (5th) year. For example, a TCC issued on December 31, 1997
shall be presented for revalidation within the six-month period prior to expiration, i.e., from July 1 to December
31, 2002.
(d) Procedure for Revalidation. The revalidation of any TCC validly issued and subsisting in accordance with the
provisions of law and Regulations shall be initiated by the filing of an application therefor with the Collection
Service or other duly authorized Office of the Bureau of Internal Revenue.
The revalidation shall be accomplished through the issuance of a new TCC, reflecting its unutilized amount or
creditable balance. Provided, however, that no revalidated TCC shall be issued unless the Commissioner's duly
authorized representative has certified that the applicant taxpayer has no outstanding tax liability. If the holder has
any outstanding tax liability, said liability shall be applied first against the TCC sought to be revalidated through
the issuance of a Tax Debit Memo (TDM). CacISA
For this purpose, the term "outstanding tax liability" shall refer to an assessment that is already final and
executory.
SEC. 6. Repealing Clause. Revenue Regulations No. 7-98 and any other revenue issuance inconsistent with these
Regulations are hereby repealed, amended or modified accordingly.
SEC. 7. Effectivity. These Regulations shall take effect fifteen (15) days from publication in any newspaper of general
circulation.
BIR Ruling No. 164-98, Nov. 23, 1998
E.O. 226-000-00-165-98
Petron Corporation
7901 Makati Avenue
1200 Makati City
Attention: Mr. Fredesuende G. Ong


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 122 of 162
"#$
Vice-President-Finance
Gentlemen:
This refers to your letter dated July 31, 1997 addressed to the Honorable Antonio P. Belicena, Undersecretary,
Department of Finance, Central Bank Bldg., Roxas Blvd., Manila which was referred to this Office for comment and
recommendation, relative to the Tax Credit Certificates (TCC) assigned by some of your customers to you in payment of
their fuel purchases.
It is represented that the assignment of the TCCs is duly approved by the Department of Finance (DOF) through the
issuance of Tax Debit Memos (TDM); that to comply with the requirements for the application of the assigned TCC
against your payment of specific taxes to the Bureau of Internal Revenue (BIR), you still need to request for another TDM
from the Collections Programs Division of the BIR; that on July 23, 1997 when you requested for TDM from the BIR for
some of the assigned TCCs previously approved by the DOF, you were advised by the Assistant Chief of the Collections
Programs Division of the BIR, that it could not approve the application of the assigned TCCs against your tax payment to
the BIR for lack of legal basis; and that you were advised that to qualify for assignment, the product being sold by you to
the assignor/customer must be raw material component of the finished product of the assignor/customer.
In connection therewith, you are requesting clarification of the stand taken by the Assistant Chief of the Collection
Programs Division of the BIR to the effect that they can not approve the application of the assigned TCCs against your
payment to the BIR for lack of legal basis.
In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office held that
In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of
Investments to implement P.D. 1789 and B.P. Blg. 391 stating:
Rule IX Transferability of Tax Credit Certificate
Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital
equipment purchased, withholding tax on interest, raw materials used in the manufactured export
products shall be issued by the Minister of Finance or his representative upon recommendation of
the Board. Said certificate may be transferred only to another registered enterprise in accordance
with the Memorandum of Agreement between the Ministry of Finance and the Board of
Investments dated October 5, 1982.
Tax credit certificates on net local content and on net value earned shall be issued by the
Chairman of the Board or his representative and may be transferred only to domestic producers of
the raw material and/or component suppliers and may require compliance with local content for
such raw material/component.
the tax credit certificates issued by the Board of Investments is limited to one transfer by the grantee to its
domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you
can be the transferee and user of such certificate, you are not allowed to transfer the same to your own
supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor
component of your finished product.
Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit
Certificate and, in effect, to allow Petron to use the same as payment of its tax liability is hereby denied
for lack of legal basis.
Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in
accordance with Executive Order No. 226 otherwise known as the Omnibus Investments Act of 1987 to some of your
customers can not be transferred to you in payment of their fuel purchases and in turn can not be used by you in payment
of your tax liabilities.
Very truly yours,
(SGD.) BEETHOVEN L. RUALO


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 123 of 162
"#$
Commissioner of Internal Revenue
BIR Ruling No. 165-98, Nov. 23, 1998
Pilipinas Shell Petroleum Corporation
Shell House, 156 Valero St.
Salcedo Village, Makati City
Attention: Mr. P.R. Cruz
General Manager
Treasury and Taxation
Gentlemen:
This refers to your letter dated July 31, 1997 to the Honorable Antonio P. Belicena, Undersecretary of Finance,
Department of Finance Central Bank Bldg., Roxas Blvd., Manila, which was referred to this Office for comment and
recommendation relative to the transferability of Tax Credit Certificates (TCC) issued by the One-Stop Shop Tax Credit
and Duty Drawback Center to BOI registered firms pursuant to Executive Order No. 226 otherwise known as Omnibus
Investments Code of 1987.
It is represented that the TCCs transferred to you by some of your customers in payment of their fuel purchases and in
turn being used by you in payment of your tax liabilities is being questioned by Atty. Estrella V. Martinez, Assistant
Chief, Collections Programs Division of the BIR, since it is in violations of BIR Ruling No. 181-94 dated December 14,
1994.
In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office ruled as follows:
In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of
Investments to implement P.D. 1789 and B.P. Blg. 391 stating:
Rule IX Transferability of Tax Credit Certificate
Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital
equipment purchased, withholding tax on interest, raw materials used in the manufactured export
products shall be issued by the Minister of Finance or his representative upon recommendation of
the Board. Said certificate may be transferred only to another registered enterprise in accordance
with the Memorandum of Agreement between the Ministry of Finance and the Board of
Investments dated October 5, 1982.
Tax credit certificates on net local content and on net value earned shall be issued by the
Chairman of the Board or his representative and may be transferred only to domestic producers of
the raw material and/or component suppliers and may require compliance with local content for
such raw material/component.
the tax credit certificate issued by the Board of Investments is limited to one transfer by the grantee to its
domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you
can be the transferee and user of such certificate, you are not allowed to transfer the same to your own
supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor
component of your finished product.
Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit
Certificate and in effect, to allow Petron to use the same as payment of its tax liability is hereby denied
for lack of legal basis.
Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in
accordance with Executive Order No. 226 otherwise known as the Omnibus Investment Act of 1987 to some of your
customers can not be transferred to you in payment of the fuel purchases and in turn can not be used by you in payment of
your tax liabilities.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 124 of 162
"#$
Very truly yours,
(SGD.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue
BIR Ruling No. 113-99, July 29, 1999
Luzon Hydro Corporation
6th Floor Legaspi Building
110 Legaspi Street
1229 Makati City
Attention: Mr. Jose Maria Fernandez
Gentlemen:
This refers to your letter dated June 30, 1999 stating that Luzon Hydro Corporation (Luzon Hydro) was granted by this
Office a tax credit based on the unutilized input taxes reflected in its VAT returns; that such unutilized input taxes are
booked as receivables and not as part of the cost of corporate asset; that this grant was by virtue, among others, of BIR
Ruling No. DA-248-A-99 dated April 23, 1999; that since the corporation's hydro electric plant is still in the process of
construction, Luzon Hydro will not be able to utilize the tax credit until may be after two years from completion of
construction of the hydro electric plant; and that since Luzon Hydro needs cash for its construction, it executed four Deeds
of Assignment of the tax credit granted to it in favor of its four (4) affiliates and sister companies which advanced to
Luzon Hydro the value of the tax credit assigned to each of such sister companies and affiliates.
Based on the foregoing, you request for a ruling on the following:
1. Whether the four (4) deeds of assignment are subject to documentary stamp tax and if it is subject, may we know
how much;
2. Whether Luzon is liable to pay income tax as a result of the grant to it of tax credit;
3. Whether the assignees who be the present holders of the tax credit certificates i.e. Davao Light & Power
Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development
Corporation are liable for income tax upon the issuance to them of the tax credit certificates.
In reply, please be informed that assignments of tax credit certificates are not one among those expressly subjected to
documentary stamp tax under Title VII of the Tax Code of 1997. However, the notarial acknowledgment to said deed of
assignment is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997 (BIR
Ruling No. DA-437-98 dated September 25, 1998)
On the other hand, Luzon Hydro is not liable to pay income tax as a result of the grant to it of tax credit since VAT which
is the source of such tax credit is not eligible as a deduction from gross income under Section 34(C) of the Tax Code of
1997 and it has not been actually utilized as a deduction since it partakes the nature of an excess input.
In like manner, the assignees who are the present holders of the tax credit certificates namely: Davao Light & Power
Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development
Corporation are not liable for income tax upon the issuance to them of the tax credit certificates since they have only
accommodated their affiliate or sister company by advancing the value of the tax credit assigned to each of them.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be
disclosed that the facts are different, then this ruling shall be considered null and void.
BIR Ruling No. 192-99, Dec. 6, 1999
Catindig Tiongco & Nibungco
Law Office
4th Floor, JMT Corporate Condominium
ADB Avenue, Ortigas Center
1600 Pasig City


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 125 of 162
"#$
Attention: Atty. Henry S. Rojas
Gentlemen:
This refers to your letter dated September 10, 1999 requesting, in effect, for a ruling on the assignability of BIR-issued
Tax Credit Certificates on behalf of your clients, PHILEX MINING CORPORATION and PHILEX GOLD
PHILIPPINES, INC.
It is represented, among others, that Philex Mining Corporation (Philex) is engaged in the sale of gold and in the export of
mineral products which entitled it to the benefit of "zero-rating" for VAT purposes; that in the course of your business
operations, you have accumulated a number of Tax Credit Certificates representing the amount of input taxes which you
have claimed as a refund from the government; that these TCCs are supposed to represent a valid obligation of the
government and should be available either for the payment of all internal revenue taxes (except withholding tax) or for
cash refund; that however, you find yourselves unable to avail of the benefits of these TCCs on account of the dire
conditions of your business; that you have been continuously posting negative financial results since 1997 such that you
find no situation wherein you can apply your TCCs in the payment of taxes; that to ease your financial burden and support
your operations, you have tried to convert these TCCs into cash refund but this proved unavailing as the government is
always short of funds for cash refunds; that in the meantime, you are being required by law to first shoulder your input tax
liabilities in the process of purchasing goods and services for your operations, leading to further accumulation of tax
credits and perennially causing added burden to your already precarious position.
It is therefore your suggestion that since both options currently available to you, i.e., use of TCCs in payment of taxes
and/or cash refund of TCCs from the BIR, prove unavailing, you now propose a third option, that is, the transfer of these
TCCs to other taxpayers. Finally, you submit that out of the process, an ideal situation could therefore ensue, i.e., there
will be no cash outlay at all from the government and you, in turn, could realize the effective reimbursement in money's
worth of your unutilized TCCs.
In reply, please be advised that insofar as BIR-issued TCCs are concerned, there is no provision under the Tax Code of
1997 expressly prohibiting the transfer or assignment of duly-issued BIR TCCs. Under the Code, a Tax Credit Certificate
may be validly issued for amounts representing erroneously paid taxes; excess quarterly individual or corporate income
taxes paid; illegally collected taxes; VAT on Zero-rated or Effectively Zero-rated Sales; input taxes paid on capital goods
imported or locally purchased; and for unused input taxes due to retirement from or cessation of business or cessation of
status of a Vat-registered person. In all instances, a BIR-issued TCC presupposes the existence of a previously paid tax
arising out of the normal application of the provisions of the Tax Code. In contrast to a BOI-issued Tax Credit Certificate
which is in the nature of a tax incentive granted by special laws to the grantee, such TCC is transferable only under certain
conditions (Article 71, Omnibus Investments Code, as implemented by Rule VII of the Rules and Regulations of E.O
226).
Verily, taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. In BIR Ruling No.
098-95 dated June 27, 1995, this Office had an occasion to state that "(I)n the event of the issuance of tax credit
certificate, the taxpayer as the owner thereof, has the exclusive right to enjoy and dispose of the certificate according to its
wishes. These powers are necessarily an attribute of the taxpayer's ownership of said certificate. The free enjoyment and
disposition of said certificate can only be subject to the limitations imposed by law. (Articles 427 and 428, New Civil
Code of the Philippines)" As previously stated, there are no express, much less implied, limitations imposed by law on the
transfer of TCCs issued under the Tax Code. On the contrary, the law specifically allows the conversion of unutilized tax
credits into cash refund within five (5) years from date of issue (Sections 204 and 230, NIRC). If the taxpayer can
ultimately dispose the cash proceeds of his TCCs in any manner he chooses, we see no cogent reason why the source of
such proceeds should be treated differently. At any rate, the conversion into cash refund or the transfer of the TCC to
another yields the same result, without any revenue loss or prejudice to the government.
In view of the foregoing, this Office is of the opinion, and so holds, that a TCC validly issued pursuant to the Tax Code of
1997 can be transferred or assigned by the owner provided, of course, that the TCC sought to be transferred must not have
expired and remains valid in the hands of the original holder pursuant to the provisions of Section 230 of the Code.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 126 of 162
"#$
Finding that copies of the TCCs sought to be transferred by your client, PHILEX MINING CORPORATION, i.e., TCC
Nos. 007755, 007994 and 014883 are valid and with creditable balances, this Office interposes no objection to their
assignment.
This ruling is being issued on the basis of the foregoing facts. if upon investigation, it will be disclosed that the facts are
different, then this ruling shall be considered null and void.
G. Forfeiture of Refund or Tax Credit
SEC. 230. Forfeiture of Cash Refund and of Tax Credit.
(A) Forfeiture of Refund. A refund check or warrant issued in accordance with the pertinent provisions of this
Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was
mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the
general fund.cralaw
(B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provisions of this
Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be
considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the
amount covered by the certificate shall revert to the general fund.
(C) Transitory Provision. For purposes of the preceding Subsection, a tax credit certificate issued by the
Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a
creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly
authorized representative or on before June 30, 1998.
H. Offsetting Against Deficiency Tax Assessments
CIR v. CEBU PORTLAND CEMENT COMPANY (1987) offsetting of refund against deficiency tax
assessments The CIR was ordered to refund Cebu Portland the amount of P359,408.98 representing
overpayments of ad valorem taxes on cement produced and sold by it. When Cebu Portland moved for a writ of
execution, the CIR opposed on the ground that the refund should be charged against an outstanding sales tax
liability of Cebu Portland. Cebu Portland claims that the alleged sales tax liability could not as yet be enforced
since the assessment is not yet final, the same still being under protest. Held: Cebu Portlands argument loses
sight of the urgency of the need to collect taxes as the lifeblood of the government. If the payment of taxes
could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed. Sec. 291 of the Tax Code provides: No court shall have authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this
Code. To require the CIR to refund to Cebu Portland the amount of the judgment debt which the former will later
have the right to distrain for payment of the latters sales tax liability is an idle ritual.
BPI SECURITIES CORP v. CIR (2002) The principle that taxes are not subject to set-off or legal compensation
must govern, especially in this case where the taxes and the taxpayer's claim are not fully liquidated, due and
demandable. Petitioner BPI filed their first quarterly income tax return for 1997 before BPI-makati in the amount
of 6,313,761.62. Subsequently, it filed its second quarter return amounting to 6,548,928.21 and since it already
paid 6,313,761.62 it only paid the balance amounting to 235, 166.59. For its third quarter return it declared a net
income loss of 762,555.36 for the quarter. For the first three quarters of the year, petitioner had already earned a
total taxable income of 16,948,668.10, with the tax due thereon amounting to P5,932,033 .84. In its FINAL
income tax return it reflected a taxable income in the amount of 17,569,560.00. Hence, the total tax due for the
year amounted to P6, 149,346.00 only. Thus, it overpaid in the amount of 399,582.21 which petitioner opted to
apply as tax credit for the taxable year of 1998. For its annual tax return for 1998, however petitioner filed a net
income loss with nil tax liability. So petitioner again indicated in the return its intention to carry over the same to
the next taxable year. However for 1999 it again incurred a net income loss with nil tax liability. In 2000,
petitioner filed with the BIR a written claim for refund. In its answer however, BIR stating, among others that


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 127 of 162
"#$
Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption from
taxation and as such, they are looked upon with disfavour. Petitioner provided for documents in the form of its
Corporate Quarterly Income Tax Returns and Bank Deposit slips for the years in question. BIR interposed a
recommendation by its revenue officer denying petitioner's claim for refund and at the same time recommending
the issuance of a preliminary assessment notice in the total sum of P20,758,189.91. The issues presented were w/n
the petitioner made an overpayment and that if so, was it not able to utilize the tax credit for the succeeding year.
The court answered yes in both issues citing Sec.60 of the NIRC. (However, this is not what the subheading in the
case list is about). In discussing further as regards to the claim of the revenue officer for the deficiency
assessment, that due to its deficiency income tax, it cannot be credited the refund, the court held that the said
report "cannot serve as an obstacle to the grant of the instant claim for refund because petitioner's alleged
tax deficiencies for the taxable year 1997 is not the issue presented before Us in this petition for review. It
appears that the memorandum report has not yet ripened into a formal assessment duly approved by the
Regional Director or by the Commissioner of Internal Revenue. Thus, the same can proceed independently of
the claim for refund and its merits or demerits may be determined in separate proceedings as provided for in the
Tax Code. The principle that taxes are not subject to set-off or legal compensation must govern, especially in this
case where the taxes and the taxpayer's claim are not fully liquidated, due and demandable.
A. SORIANO CORP v. CIR (1998) Petitioner filed a judicial action for refund of P 5.7 M representing overpayment
of income tax resulting from an excess payment of creditable withholding tax for 1993&1994. This was
because in 1994, petitioner had a zero income tax liability due to its operation losses but had a refundable of P5M
arising from a prior years excess credit of P1.6 M and the 1993 creditable withholding tax at source of P 3.3 M.
Despite choosing to carry over its 93 creditable withholding tax, it continued to suffer net losses. As a result, its
application of its 1993 overpayment against anticipated income tax liability in 1994 became nugatory. On Dec. 1,
1995 petitioner filed a letter claim for refund with the BIR. Due to the CIRs inaction, petitioner filed a petition
for review on Apr. 12, 1996 to conform to the reglementary period of 2 yrs as prescribed in the Tax Code for
claim of refund. As special and affirmative defenses, respondent alleged that petitioners claim for refund is
pending administrative investigation and not properly documented.
The Court held that the overpayment of income tax should be refunded. The petitioners claim for refund was
filed within 2 yrs from payment of the tax; the income upon which the creditable withholding taxes were paid
were included in its final adjustment returns, and that the creditable withholding taxes were duly supported by
Certificates of Creditable Withholding Tax at source. The objection of the respondent that the claim for refund
should be denied on the basis of a memorandum report submitted by its Revenue Officer which
recommended a proposed deficiency assessment for income tax, VAT, expanded withholding tax, withholding
tax on salaries, among others holds no water. The court cannot tackle such an issue without the actual formal
assessment issued by the respondent. To deny the instant claim for refund on the basis of a proposed
assessment will cause an injustice to the taxpayer because assessments usually pass through specific
administrative processes where the remedy of protest is made available to said taxpayer.
REPUBLIC OF THE PHILIPPINES v. MAMBULAO (1962) The only issue to be resolved in this appeal is
whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges
from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and
owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in
the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation
of said sum of P4,802.37 due from it as forest charges.
Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is applicable,
such that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in
the sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not
mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. On this
point, the trial court correctly observed
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 128 of 162
"#$
action or any indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or
transaction sued on.
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that
taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive
acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not
required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a
claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await
and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion.
FNCB FINANCE v. CIR (1993) Investors Finance Corp filed an amended return to reflect creditable income taxes.
It then filed a claim for tax credit to the BIR. According to the BIR, there was deficiency taxes due which the BIR
automatically set-off against the amount claimed as excess creditable income tax. The result was that Investors
Finance Corp even had deficiency tax due. The CTA held that the BIR cannot be allowed to apply the tax
credit claimed against the alleged deficiency tax when no assessment has been made. It cannot automatically
set-off alleged deficiency tax against a claim for tax credit.
PHILEX MINING CORP. v. CIR (1999) Philex Mining Corp. (Philex) filed a claim for refund with the
Commissioner of Internal Revenue (CIR) for P623,169.30, representing 25% percent of the specific taxes
paid. Pending CIR action, Philex filed a case for tax refund with the CTA. The CTA granted Philexs claim, but
only to the extent of P16,747.36. The Court of Appeals affirmed the decision of the CTA. On appeal to the SC,
Philex contends that tax refund under R.A. 1435 must be computed on the basis of the increased rates
actually paid under the 1977 NIRC and not on the specific tax deemed paid under Section 1 and 2 of the
law. In addition to this, Philex claims they are entitled to 20% interest. The Court ruled that since the partial
refund authorized R.A. 1435 is in the nature of a tax exemption, it must be construed strictissimi juris against the
grantee. There is no expression of a legislative will authorizing a refund based on the higher rates claimed by
Philex. When the law itself does not explicitly provide that a refund under R.A. 1435 may be based on higher
rates which were non-existent at the time of its enactment, the Court cannot presume otherwise. As to the 20%
interest per annum claimed by Philex, the same cannot be granted even if a refund is approved. The rule is
that no interest on refund of tax can be awarded unless authorized by law or the collection of the tax was
attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration
where there is room for two opinions, however much it may be believed that an erroneous conclusion was
reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. None of the
exceptions are present in the case.
BIR Ruling No. 359-93, Aug. 26, 1993
King, Capuchino, Tan & Associates
2nd Floor, Belman II Bldg.
Quezon Ave. corner Cordillera St.
Quezon City
Attention: Atty. Bayani L. Chua
This refers to your letter dated July 6, 1993 requesting that Tax Credit Certificate bearing Serial Numbers 001876 and
001877 in the respective amounts of P602,244.37 and P1,234,526.85 issued by this Office in favor of your client,
Maricalum Mining Corporation (MMC) be applied to the other tax liabilities of MMC specifically its excise tax liability
which will fall due on July 20, 1993 and not to deficiency assessments involving the amounts of P7,756,577.81,
P868,425.77, P3,900,339.77 and P3,692,644.58 under Assessment Notice Nos. FAS-1-88-93-000574, 1-89-93-00575, 1-
88-92-000561 and 1-88-92-000562 on the ground that said deficiency assessments are not yet final since the same are
being contested and/or protested by MMC.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 129 of 162
"#$
In reply thereto, please be informed that your request is hereby granted. Pursuant to Section 229 of the Tax Code, as
amended. An assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If
the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on
the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the
decision shall become final, executory and demandable. Since your protest on the aforementioned deficiency assessments
was timely filed, i.e., within the thirty (30) day period from your receipt of the assessments, the assessments have not as
yet become final, executory and demandable.
Such being the case, and while the said Tax Credit Certificates bear the notation that the same shall be applied first in
(partial) payment of the deficiency assessments involving the amounts of P7,756,577.81, P868,425.77, P3,900,339.77 and
P3,692,644.58 under Assessment Notice Nos. FAS 1-88-92-000574, 1-89-92-000575, 1-88-92-000561 and 1-88-92-
000562, nevertheless, such assessments have been protested and therefore, not yet final, executory, and demandable.
Accordingly, said Tax Credit Certificates bearing Serial Numbers 001876 and 001877 in the respective amounts of
P602,244.37 and P1,234,526.85 can be applied by MMC to the payment of its other tax liabilities like excise taxes due
from it this July, or subsequent period.
I. Whether Government is Liable for Interest, Attorneys Fees, Etc.
CIR v. SWEENEY (1959) The National Government cannot be required to pay interest in the absence of a
statutory provision clearly or expressly directing or authorizing such payment Petitioners Sweeney, et al.
were past presidents of the International Club of Iloilo, Inc. The Club maintained and operated a clubhouse with a
bar wherein liquor and light refreshments were sold exclusively to members and their guests. The CIR demanded
from the Club payment of fixed and percentage taxes (~Php3,000) for the operation of a bar. The Club paid the
taxes under protest and thereafter filed a written claim for refund. However, the CIR did not act on the claim,
causing petitioners Sweeney, et al. to take the case to the CTA. The CTA ruled in favor of petitioners Sweeney
and the Club, holding that they were not liable for the taxes because they were not operating the bar for profit.
Therefore, the CTA ordered the CIR to refund the taxes paid, with interest. The SC agreed that the CIR must
refund the taxes paid, but disallowed the payment of interest on such refund. The National Government
cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or
authorizing such payment, and no such law has been cited by the petitioners.
VICTORIAS MILLING CO., INC. v. COMMISSIONER (1967) The Court of Tax Appeals declared Victorias
Milling as exempt from payment of advance sales tax on its importations of ready-made cloth sugar bags and
materials for conversion into sugar containers, and ordering the CIR to refund to Victorias the sum of P66,949.79,
without interest. Victorias Milling appealed the CTA's decision arguing that the refund of the protested sales tax
collected by the revenue authorities should have been ordered with payment of interest, for the reason that the
Commissioner of Internal Revenue was guilty of arbitrariness, because of its flip-flopping ruling on the
exemption from sales tax the bags and materials imported by Victorias Milling. The Court ruled that the mere
fact of the reversal of a ruling previously rendered is not per se evidence of arbitrariness, neither is the fact
that the administrative ruling is found by the courts not in accordance with law. Arbitrariness presupposes
inexcusable or obstinate disregard of legal provisions, which, the Court found does not exist.
J. Proper Party to File a Claim for Refund or Tax Credit
CIR v. WANDER PHILIPPINES (1988) withholding agent has the right to file the claim for refund. Wander Phil.
Is a domestic corporation. It is a wholly-owned subsidiary of Glaro, a Swiss Corporation not engaged in trade in
the Phil. Wander remitted some dividends to Glaro and paid a 35% withholding tax. The following year, Wander
filed with BIR a claim for refund and/or tax credit contending it was only liable to pay 15%. CIR maintains and
argues that it is Glaro the tax payer, and not Wander, the remitter or payor of the dividend income and a mere
withholding agent for and in behalf of the Philippine Government, which should be legally entitled to receive the
refund if any. SC ruled that said corporation is first and foremost a wholly owned subsidiary of Glaro. The fact
that it became a withholding agent of the government which was not by choice but by compulsion under Section


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 130 of 162
"#$
53 (b) of the Tax Code, cannot by any stretch of the imagination be considered as an abdication of its
responsibility to its mother company. Thus, this Court construing Section 53 (b) of the Internal Revenue Code
held that "the obligation imposed thereunder upon the withholding agent is compulsory." It is a device to insure
the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by
aliens who are outside the taxing jurisdiction of this Court. In fact, Wander may be assessed for deficiency
withholding tax at source, plus penalties consisting of surcharge and interest (Section 54, NLRC). Therefore, as
the Philippine counterpart, Wander is the proper entity who should for the refund or credit of overpaid
withholding tax on dividends paid or remitted by Glaro.
CIR v. PROCTER & GAMBLE (1988) Procter and Gamble Phils (P&G-Phils) is a wholly owned subsidiary of
Procter and Gamble, U.S.A.(P&G-USA). As such, P&G-U.S.A. is the sole shareholder or stockholder of P&G-
Phil. P&G-Phil also has a legal personality separate and distinct from P&G-U.S.A. For 1974 and 1975, P&G-Phil.
filed its income tax return and also declared dividends in favor of P&G-USA. In 1977, P&G-Phil. invoking the
tax-sparing credit provision in Section 24(b) as the withholding agent of the Philippine government with
respect to the dividend taxes paid by P&G-U.S.A., filed a claim with the CIR for the refund of the
20%portion of the 35% whole tax paid.
The Court ruled that P&G-Phil is not the proper party to claim the refund. The submission of the CIR that
P&G-Phil. is but a withholding agent of the government and therefore cannot claim reimbursement of the
alleged over paid taxes is completely meritorious. The real party in interest being the mother corporation in the
United States, it follows that P&G-USA is the real party in interest, and should have been the claimant in
this case. P&G-USA must prove that it is entitled under the US tax code equivalent to at least 20% waived or
deemed paid by the government.
CIR v. PROCTER & GAMBLE PHIL. (1991) taxpayer/ refund allowed. P&G Phils. filed for a claim of refund
or tax credit for excess taxes withheld for dividends declared to its sole stockholder P&G USA (35% ang
nawithheld niya, dapat 15% lang as per Sec. 24B). No responsive action was taken by the CIR, thus a petition for
review was filed to the CTA. The CTA ordered the CIR to grant the tax credit, but the CIR appealed by alleging
the incapacity to claim of P&G Phils (dapat daw P&G USA). Refund must be granted. The term taxpayer
found in Sec. 309 (3) is applicable to P&G Phils. Sec. 53(c) provides that the withholding agent who is
required to deduct and withhold any tax is made personally liable for such tax. Therefore, P&G is directly
and independently liable for the correct amount of tax, and authorized to file the claim for refund and
recovery. Nothing precludes the BIR from requiring P&G Phils. to provide proof of authority, given by P&G
USA, to collect refund and forward back the proceeds or apply such refunds to Philippine tax duties of P&G
USA, before payment of refund or issuance of a tax credit certificate.
CHINA BANKING CORP. v. CIR (1993) The withholding agent has capacity to file a suit on behalf of the
taxpayer. Petitioner China Bank issued several promissory notes/commercial papers in the primary market as
money market placements. After the issuance, it paid the required 35% transaction tax due on the total interests.
However, before the maturity dates, the money market placements were withdrawn in full and were preterminated
so the total interests paid was reduced. Thus, the transaction tax due should only be based on the reduced amount.
Since petitioner has already paid the tax previously, it argues that there was an overpayment. Hence, the claim for
refund. The issue is whether or not the petitioner bank has personality in bringing the present suit for being
a mere withholding agent and not the taxpayer. The Court ruled that the 35% transaction tax is an income tax
on interest earnings to the lenders or placers. And these lenders or placers the actual taxpayers and not the
petitioner; it is only a withholding agent. In the recent case of CIR v. Procter & Gamble Philippine
Manufacturing Corporation, it was ruled that a withholding agent has capacity to file a suit on behalf of the
taxpayers. Under the NIRC, a taxpayer is any person subject to tax. Section 53c of the NIRC defines a
withholding agent as one who is required to deduct and withhold any tax and is made personally liable for
such tax. A person liable for tax has been held to be a person subject to tax and is properly considered
a taxpayer. Thus, such person should be regarded as a party-in-interest or as a person having sufficient
legal interest to bring a suit for refund of taxes. The withholding agent is constituted as the agent of both the
Government and the taxpayer.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 131 of 162
"#$
SILKAIR (SINGAPORE) PTE. LTD. v. CIR (2008) jet fuel, true tax payer is the proper party to file a refund
SilkAir, a Singaporean Airline Company, which has a representative office in the Philippines, files for a refund
of excise tax from the BIR. This excise tax arose from their transactions with Petron Corporation for jet fuel.
They claim that the tax paid by them is exempted under Sec 135 of the NIRC and Art. 4(b) of the Air Transport
Agreement between Singapore and the Philippines. These laws give tax exemptions to SilkAir (not necessary for
our topic). The CIR denied the petition for refund on the ground that SilkAir is not the proper party to file
such petition.
It has been held that the proper party to file such refund is Petron Corporation, which is the true taxpayer in
the transaction. The amount of excise tax was only shifted to SilkAir upon the sale, but they do not have the
burden of paying such. Under Sec. 130 of the NIRC, the manufacturer is the one liable for excise tax. The
amount that was passed onto SilkAir is not longer serves as a tax liability, but only an additional cost for their
transaction.
PHILIPPINE GEOTHERMAL, INC. v. CIR (2005) Government has to restore to taxpayer the sums
representing erroneous payment To avoid tax deficiency, Geothermal Inc. remitted VAT of the fees received
from NPC (around Php 39.3 M.) It then filed an administrative claim for refund with BIR alleging that the sale of
steam to NPC is a VAT exempt transaction according to FIRB Reso. 17-87 in pursuant to EO 93. Both the BIR
and CTA confirm the VAT exemption. The CTA however ruled that instead of Php 39.3M, Geothermal Inc.
should only be refunded with Php 9.01 M or the amount not included in the payment or reimbursement made by
NPC to Geothermal. The SC disagreed with CTA and held that the government has to restore Geothermal the
sum it erroneously paid (Php 39.3 M). Thus the amount of refund should have been based on the VAT Returns
filed by the taxpayer (Geothermal Inc.) The issue as to whether this was already reimbursed by NPC is no
longer the concern of the CTA. The latter issue should only be between Geothermal and NPC. The Court held
that for indirect taxes like VAT the proper party to question or seek a refund of the tax is the statutory
taxpayer and who paid the same even when he shifts the burden thereof to another. In this case,
Geothermal has the legal personality to apply for refund since it is the one who made the erroneous VAT
payment and who will suffer financially by paying in good faith what it had believed to be its potential
liability.
K. Taxes Not Subject of Set-Off
FRANCIA v. IAC (1988) Francia owned a piece of land, a part of which was expropriated, and payment of Php4,116
was deposited with PNB. Subsequently, it was discovered that Francia had failed to pay the real estate taxes on
the land since 1963 totaling Php2,400, so his property was sold at public auction. Francia was not present at the
auction, and Fernandez was the highest bidder. When Francia learned of this through the TCT registration of
Fernandez, he filed a complaint to annul the auction sale, one of his contentions being that his deficiency taxes
should have been set-off/compensated from the expropriation payment.
However, the SC ruled that there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. Internal revenue taxes cannot be the subject of
compensation because the government and the taxpayer are not mutual creditors and debtors of each other
and the claim for taxes is not a debt, demand, contract, or judgment as is allowed to be set-off.
[There were other reasons for ruling against Francia, such as: the deposit for just compensation was already his
and should have been withdrawn and used to pay the deficiency; real estate tax was for local government, while
expropriation was for national government; etc.]
CALTEX v. COA (1992)
Facts: The Oil Price Stabilization Fund was created for the purpose of minimizing frequent price changes brought about
by exchange rate adjustments. Oil Companies will be reimbursed for cost increase and possible cost
underrecovery incurred due to reduction of domestic prices.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 132 of 162
"#$
COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an
early release of its reimbursement certificates which the latter denied. Caltex submitted a proposal to COA for the
payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offsetting
remittances and reimbursements for the current and ensuing years.
Caltex questions the decisions of COA for disallowing the offsetting of its claims for reimbursement with its due
OPSF remittance.
Issue: W/N the amounts due from Caltex to the OPSF may be offsetted against Caltex outstanding claims from said
funds.
Held: NO. It is explicitly provided that the source of OPSF is taxation. It is settled that a taxpayer may not offset taxes
due from the claims that he may have against the government. Taxes cannot be subject of compensation because
the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such
a debt, demand, contract or judgment as is allowed to be set off.
There is no merit in Caltexs contention that the OPSF contributions are not for a public purpose because they go
to a special fund of the government Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the
police power of the state.
The oil industry is greatly imbued with public interest as it vitally affects the general welfare.
MARCOS II v. CA (1997)
Facts: Following the death of former President Marcos in 1989, investigations were conducted on his and his familys
tax liabilities and it was found that the Marcoses failed to file a written notice of death of the decedent estate tax
return and income tax returns for the years 1982 to 1986. The CIR thereby caused the preparation of the estate tax
return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the
income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate
tax assessments and the corresponding deficiency income tax assessments. The deficiency tax assessments were
not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR
issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned
by Marcoses. These lands were forfeited in favor of the government because there were no bidders during the
auction sale.
Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul the
notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA
dismissed, holding that the deficiency assessments for the estate and income taxes have already become final and
unappealable and may thus be enforced by summary remedy of levying upon the real property.
Issue: Whether or not the proper avenue of assessment and collection was taken by the BIR.
Held: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and
other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into
finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President
Marcos. The deficiency tax assessment, having become final, executory and demandable, the same can now
be collected through the summary remedy of distraint and levy.
BPI-FAMILY SAVINGS BANK, INC. v. CA (2000) business losses / no tax liability / tax credit cannot be
applied / refund - BPI indicated in its 1989 ITR that it would apply the total refundable amount (inclusive of
1988 and 1989 tax credit) as tax credit for the succeeding taxable year: 1990. BPI later informed the BIR it would
be claiming the amount stated as the 1989 tax credit as a tax refund, alleging it did not apply the total refundable
amount to its 1990 ITR due to alleged business losses it occurred during that year. CTA and CA said there should
be no refund because BPI failed to show it has not credited to its 1990 ITR the total refundable amount it
previously declared to be applied as a tax credit in 1990.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 133 of 162
"#$
BPI had excess withholding tax for 1989 and was thus entitled to a refund. The Return clearly showed that BPI
suffered a net loss in 1990. BPI could not have applied the amounts as a tax credit, as it occurred no tax
liability. Rules of procedure should not be ignored to defeat the attainment of justice. If a taxpayer suffered a
net loss in a subsequent year, incurring no tax liability to which a previous years tax credit could be
applied, there is no reason for the BIR to withhold the tax refund which rightfully belongs to the taxpayer.
PHILEX MINING CORP. v. CIR (1998) BIR sent a letter to Philex asking it to settle its tax liabilities. Philex
protested the demand for payment of stating that it has pending claims for VAT input credit/refund. Therefore,
these claims for tax credit/refund should be applied against the tax liabilities. In reply, the BIR, found no merit in
Philexs position. Since these pending claims have not yet been established or determined with certainty, it
follows that no legal compensation can take place.
Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of tax cannot await the results of a lawsuit against the government.
CIR v. CITYTRUST BANKING CORPORATION (2006) Except for a pending issue in another CTA proceeding,
Citytrust considered all its deficiency tax liabilities for 1984 fully settled, hence, it prayed that it be granted
a refund. The CIR interposed his objection, however, alleging that Citytrust still had unpaid deficiency income,
business and withholding taxes for the year 1985. Due to these deficiency assessments, the CIR insisted that
Citytrust was not entitled to any tax refund.
On October 16, 1997, the CTA set aside the CIRs objections and granted the refund.
Before us in this petition for review on certiorari, the CIR contends that respondent is not entitled to the refund of
P13,314,506.14 as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the CA erred in not
holding that payment by Citytrust of its deficiency income tax was an admission of its tax liability and,
therefore, a bar to its entitlement to a refund of income tax for the same taxable year. In resolving this case,
the CTA did not allow a set-off or legal compensation of the taxes involved. The CTA complied with the
Courts order to conduct further proceedings for the reception of the CIRs evidence in CTA Case No. 4099. In
the course thereof, Citytrust paid the assessed deficiencies to remove all administrative impediments to its
claim for refund. But the CIR considered this payment as an admission of a tax liability which was inconsistent
with Citytrusts claim for refund. There is indeed a contradiction between a claim for refund and the
assessment of deficiency tax. The CA pointed out that the case was remanded to the CTA for the reception of
additional evidence precisely to resolve the apparent contradiction.Because of the CTAs recognized expertise in
taxation, its findings are not ordinarily subject to review specially where there is no showing of grave error or
abuse on its part.
BIR Ruling No. 415-93, Oct. 15, 1993
The Honorable
Undersecretary Tomas I. Alcantara
Department of Trade and Industry
385 Sen. Gil Puyat Avenue
Makati, Metro Manila
This refers to your request for confirmation and/or issuance of guidelines for the automatic offsetting of claims for VAT
input tax by mining companies against their excise tax liabilities.
I reply, I regret to inform you that the same cannot be granted for lack of legal basis. Any claim for tax credit or refund of
alleged excess input tax by a VAT registered taxpayer pursuant to Sections 104 and 106 both of the Tax Code, as
amended by E.O. 273, shall be subject to verification by this Office pursuant to existing rules and regulations.
Accordingly, until after the amount claimed as input taxes attributable to goods exported, or on sales which are zero-rated
or effectively zero-rated or input tax paid on capital goods imported or locally purchased, to the extent that such input


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 134 of 162
"#$
taxes have not been applied against output taxes, have been finally determined to be legally due to the taxpayer, and a tax
credit certificate issued therefor, no automatic offsetting of the amount claimed as input tax against the tax liability of the
taxpayer can be allowed.
However, a Tax Credit Certificate duly issued by this Office shall, upon proper application, be allowed to be used in
payment of excise and other tax liabilities of taxpayers, like the mining companies.
L. Solutio Indebiti as Basis of Tax Refund/Credit
CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION (2007) Acesite owns Holiday Inn and leases a
portion of its premises to PAGCOR for casino operations. Acesite incurred VAT from its rental income and sale
of food and beverages to PAGCOR. It tried to shift the taxes to PAGCOR by incorporating it in the amount
assessed to PAGCOR. PAGCOR refused to pay the said taxes on account of its tax exempt status. Hence, Acesite
paid the VAT. Belatedly, Acesite realized that its transaction with PAGCOR was subject to zero rate as it is
considered a tax-exempt entity. Acesite filed an administrative claim for refund with the CIR but the latter failed
to resolve the same. Hence, Acesite filed a petition with the CTA. CTA ordered the CIR to refund the amounts
paid. CA affirmed the CTA decision and further said that PAGCOR was exempt from both direct and indirect
taxes, such as VAT. PAGCORs tax exemption covers the indirect tax of VAT, under PD 1869, the charter
creating PAGCOR. This exemption is also extended to entities or individuals dealing with PAGCOR. It must be
noted that the indirect tax of VAT can be shifted or passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals
dealing with PAGCOR in casino operations, the law is exempting PAGCOR from being liable for indirect
taxes. PAGCORs exemption also falls within the purview of Section 102(b)(3) of the NIRC (Followings
services performed by VAT-registered persons shall be subject to 0% - Services rendered to persons or
entities whose exemption under special laws). Verily, Acesite has clearly shown that it paid the taxes under a
mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the
time it made the payments. Hence, the CIR should refund the said taxes. An action for a tax refund partakes of the
nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it
is strictly construed against the claimant who must discharge such burden convincingly.
CIR v. TOKYO SHIPPING (1995) Tokyo Shipping prepaid its tax obligations on a freight contract it entered into.
Upon arrival at the port of destination, no cargo was found thus the freight contract never materialized. Tokyo
Shipping now filed a refund to the CIR for no taxable transaction transpired. CTA ruled in favor of Tokyo. SC
likewise ordered CIR to refund Tokyo because there was no taxable event and the prepayment made by Tokyo
was a mistake.
AB LEASING AND FINANCE CORP. v. CIR (2003) Petitioner had an overpayment of its net income tax for the
taxable year (TY) 1993, of which it chose to apply the excess payment as tax credits for the following year, 1994.
By the end of 1994, petitioner incurred net loss exempting it from payment of the 1994 taxes. It was thus unable
to apply the tax credits incurred in 1993. Petitioner filed 2 claims with the CIR then to CTA for refund of
overpaid income taxes for TY 1993 (Case 1) and 1994 (Case 2), respectively. CTA dismissed Case 1 for
insufficiency of evidence but ruled in favour of petitioner in Case 2, ordering CIR to refund the unutilized tax
paid for TY 1994. Court held that although 69 of the old NIRC provides: when a corporation is entitled to a
refund of the excess income taxes paid, the refundable amount on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year (the carrying
forward of any excess income tax for a given TY is limited to the succeeding TY only), the petitioner is entitled
to claim the refund of the taxes it overpaid.
Petitioner had signified its intention to apply the entire amount of excess payment for 1993 and for 1994 to the
year 1995. Even assuming that there was a need for petitioner to present in evidence the 1995 ITR or the
breakdown of excess taxes paid in 1994, the CTA could have taken judicial notice of the records of Case 2,
petitioners claim for refund of overpaid taxes for 1994, which was already pending before it. It is significant to
note that petitioners claim for refund in said case was granted by the CTA, as mentioned earlier. At all events,
while the rules of evidence and jurisprudence do not sanction the grant of evidentiary value to evidence which is


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 135 of 162
"#$
not formally offered, it must be stressed that technical rules of procedure are not ends in themselves but are
primarily designed to help in the administration of justice. Moreover, the law creating the CTA expressly provides
that it shall not be governed strictly by technical rules of evidence. Substantial justice, equity and fair play are
thus on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the
State to keep money not belonging to it. If it expects its taxpayers to observe fairness and honesty in paying
their taxes, it must apply the same standard against itself in refunding excess payments of such taxes. It
should not enrich oneself at the expense of another.
CIR v. MERALCO (2007) The CIR found that Meralco was liable for deficiency income and franchise taxes (around
2M each). On the other hand, Meralco filed a letter-claim for refund or credit in the amount of 107M representing
overpaid income taxes. CIR didnt act on the request so Meralco filed a judicial claim for refund or credit with the
CTA. While the case was pending, Meralco paid the deficiency franchise tax. It also protested the payment of the
alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for
refund or credit but this was refused by the CIR. The CTA ordered the CIR to refund or, in the alternative, issue
a tax credit certificate in favor of Meralco the sum of 107M representing overpaid income taxes. The case was
elevated by the CIR to the CA, but the CA affirmed. Now the CIR alleges in the SC that the claim for tax
refund should be construed strictly against the claimant as it partakes the nature of exemption from taxes.
Sec. 69 of the 1986 NIRC (see Sec. 76 of 1997 NIRC there are differences) provides that if the sum of the
quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable
income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay
the excess tax still due, or (b) be refunded the excess amount paid. A corporate taxpayer's option to avail of
tax credit does not, however, mean that it is ipso facto granted. For the CIR still has to investigate and
ascertain the veracity of the claim. Both the CTA and CA found Meralcos claim for tax refund or credit
meritorious on the basis of testimonial and documentary evidence. The deficiency franchise tax had already been
paid and the deficiency income tax was the subject of a compromise agreement. The issue of w/n Meralco
adduced sufficient evidence to prove its entitlement to refund is a question of fact w/c cant be brought to the SC.
Therefore, the finding of fact by the CTA and CA is upheld. Moreover, a taxpayer may recover from the BIR
excess income tax paid under the provisions of Sec. 86 of the 1986 NIRC w/in 10 years from the date of payment
considering that it is an obligation created by law.
Note: Solutio Indebiti was not mentioned in the case. However, the Civil Code states that if something is received
when theres no right to demand such, and such was unduly delivered through mistake, the obligation to return
arises. I am assuming that since there was overpayment, the CIR has to return the excess.
PHILAM ASSET MANAGEMENT v. CIR (2005) Philam has creditable withholding taxes from 1997. The
following year, Philam wanted to utilize the credit. It applied for a tax refund by filing a written claim before the
Commissioner. The Commissioner refused to grant a refund, holding that for a request for either a refund or a
credit of income tax paid, a corporation must signify its intention by marking the corresponding option box on its
annual corporate final adjustment return (FAR). Parenthetically, Section 76 of the NIRC offers two options to a
taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax
due. These options are (1) filing for a tax refund or (2) availing of a tax credit.
Tax refund is easier as it only requires that a taxpayer properly apply for the refund (through written claim before
the Commissioner). The tax credit option works by applying the refundable amount, as shown on the FAR of a
given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These
two options are alternative in nature; the choice of one precludes the other.
Meanwhile, while a taxpayer is required to mark its choice in the form provided by the BIR (the FAR), this
requirement is only for the purpose of facilitating tax collection. Failure to signify ones intention in the FAR
does not mean outright barring of a valid request for a refund, should one still choose this option later on.
The taxpayers failure to indicate an option in its FAR does not automatically mean that the taxpayer has opted to
carry-over its income tax credit. The taxpayers choice may be ascertained using circumstantial evidence.
Nonetheless, when a choice to carry-over the tax credit in the succeeding year has been made actually or
constructively, this becomes irrevocable already.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 136 of 162
"#$
Finally, the Commissioner erroneously ruled that the ITR or FAR of the succeeding year be submitted as evidence
to determine whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities. Requiring
that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no
basis in law and jurisprudence.
M. Substantiation Requirements for Refund Claims: Withholding Tax Certificates, etc.
CITIBANK N.A. v. CA and CIR (1997) Citibanks tenants withheld and paid taxes to the BIR for rentals due to
Citibank. The tenants withheld such taxes quarterly for the years 1979 and 1980. It was shown in Citibanks final
adjusted ITRs for said years that they suffered net losses and were entitled to tax credits. In 1981, they
submitted a claim for refund of said taxes and filed a petition for review with the CTA. BIR argued that the claim
was filed out of time. The CTA ruled in favor of Citibank. On appeal, the CA ruled that it was not enough for
Citibank to show its lack of income tax liability. They should have also shown that the withholding tax was
illegally or erroneously collected and remitted by the tenants. SC said that when the taxes were withheld
quarterly by the tenants, the taxes were legally collected. However, when final adjusted returns were filed and it
showed that the taxpayer is entitled to refund, the withheld taxes ceased to be legally collected.
As to the onus probandi, there is no disagreement that a claimant has the burden of proof to establish the factual
basis of the claim for tax credit or refund. Tax refunds are construed strictly against the taxpayer. However, there
is no need for a detailed showing of the truthfulness of each item in the ITR. In the case at bar, the BIRs only
contention is prescription. They only raised the issue of the validity of the losses claimed in 1992. It can thus be
presumed that the BIR held the ITRs valid. The fact that the ITRs showed losses should be enough as basis
for refund of said taxes. To require Citibank to produce their books would constitute an assessment and would
be contrary to the Tax Code especially when more than 10 years have lapsed since 1979 and 1980. The BIR
should refund the tax or else the government is guilty of unjust enrichment.
FAR EAST BANK AND TRUST CO. v. CA (2005) During the period from 1990 to 1991, Cavite Development
Bank [CDB] sold some acquired assets in the course of which it allegedly withheld the creditable tax from the
sales proceeds which amounted to P755,715.00. In said years, CDB filed income tax returns which reflected that
CDB incurred negative taxable income or losses for both years. Since there was no tax against which to credit or
offset the taxes withheld by CDB, the result was that CDB had excess creditable withholding tax. In the early part
of 1992, CDB was merged with FEBTC with the latter as its surviving entity. Petitioner being the surviving
entity, FEBTC acquired all the assets of CDB. Being the surviving entity of the merger, filed this Petition for
Review after its administrative claim for refund was not acted upon. Petitioner contends that the confirmation
receipts presented by it constitute competent and irrefutable proof of the fact that taxes were withheld and
remitted to the BIR. The issue is whether petitioner adduced sufficient evidence to prove its entitlement to a
refund. A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare
the income payments it received as part of its gross income and (b) establish the fact of withholding. On this
score, the relevant revenue regulation provides as follows:
Section 10. Claims for tax credit or refund. Claims for tax credit or refund of income tax deducted and
withheld on income payments shall be given due course only when it is shown on the return that the income
payment received was declared as part of the gross income and the fact of withholding is established by a copy of
the statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the
amount of tax withheld therefrom.
The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income
tax returns are the same taxes withheld from CDBs income payments from the sale of its acquired assets. This is
because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will
show that what are reflected therein are merely the names of the payors and the amount of tax. The nature of the
tax paid, or at the very least, the income payments from which the taxes paid were withheld are not reflected
therein.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 137 of 162
"#$
BANCO FILIPINO SAVINGS AND MORTGAGE BANK v. CA, CTA and CIR (2007) substantiation
requirements of refund claims Banco Filipino filed with CIR an administrative claim for refund of creditable
taxes withheld for the year 1995. CIR failed to act on the claim, so Banco Filipino filed a Petition for Review
with CTA. Banco Filipino presented the following: (a) Certificate of Income Tax Withheld on Compensation for
the year 1995 (from the sale of acquired assets), and (b) Monthly Remittance Return of Income Taxes Withheld.
CTA granted the claim partially [only the part which was substantiated by evidence (a)]. Banco Filipino filed a
Petition for Review with CA, but was dismissed. The issue was whether the CA erred in affirming the
disallowance of Banco Filipinos claim for tax refund because the evidence lacks probative value. HELD: CA did
not err. There are three conditions for the grant of a claim for refund of creditable withholding tax: 1) the
claim is filed with the CIR within the 2-year period from the date of payment of the tax, 2) it is shown on the
return of the recipient that the income payment received was declared as part of the gross income, and 3) the fact
of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount
paid and the amount of the tax withheld therefrom (basis of #3: Section 10 of RR 6-85).
It was proven that #s 1 and 2 have been complied with; the question now is if #3 was complied just by presenting
evidence (a) and (b). The Court ruled that Banco Filipinos evidence was not sufficient. The document which
may be accepted as evidence of the third condition must emanate from the payor itself, and not merely from the
payee, and must indicate the name of the payor, the income payment basis of the tax withheld, the amount of the
tax withheld and the nature of the tax paid. In the case at bar, though it was issued by the payor, the document
does not state the amount and nature of the income payment. Hence, it cannot be verified from the document if
the tax withheld is correct.
PLDT v. CIR (2008) PLDT terminated employees due to redundancy. In compliance with labor law requirements,
PLDT paid them separation pay and other benefits. It deducted from such separation pay withholding taxes which
were remitted to the BIR. In 1997, it filed a claim for tax refund. The CTA contended that PLDT failed to
show proof of payment of separation pay and remittance of the alleged withheld taxes. CA dismissed the
same. PLDT now asserts that it is not essential to prove that the separation pay benefits were actually received by
the terminated employees. They further contend that for as long as there is no legal basis for the payment of taxes
to the BIR, the taxpayer is entitled to refund.
The SC ruled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally
in favor of the taxing authority, and the taxpayer bears the burden of establishing the factual basis of his
claim for a refund. RR 6-85 must be followed which states that claims for tax credit refund shall be given due
course only when it is shown on the return that the income payment received was declared as part of the gross
income and the fact of withholding is established by a copy f the statement duly issued by the payer to the payee.
PLDT must do two things to be able to successfully make a claim for tax refund: a) declare the income
payments it received as part of its gross income and b) establish the fact of withholding. In this case, the
evidence that PLDT offered does not sufficiently establish its claim for refund. As it failed to comply with RR 6-
85, the refund must be denied.
CIR v. A. SORIANO CORP. (1997) Soriano Corporation filed before the CTA a petition for refund of excess tax
payments made to the BIR. During trial, only Soriano presented evidence to support its refund claim. The BIR
merely submitted the case for decision without presenting any evidence and without objecting to the existence
of statements and certificates offered by Soriano as proof of withholding taxes. After the CTA rendered its
decision ordering the payment of refunds, the BIR sought reconsideration and the admission of a certain BIR
report into evidence. The Court ruled that the said BIR report was forgotten evidence which could no longer be
considered on appeal and was not newly discovered evidence that would merit a new trial. The CIR urged that
Section 8 of the Rules of the Court of Tax Appeals called for liberal application of the rules on new trial
based on newly discovered evidence but the Court held that to do so would give rise to a dangerous
precedent where there would be no end to a hearing because, every time a party is aggrieved by its
decision, he can have it set aside by asking to be allowed to present additional evidence without having to
comply with the requirements of a motion for a new trial based on newly discovered evidence.
FILINVEST DEVELOPMENT CORP v. CIR (2011)


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 138 of 162
"#$
Facts: CTA rendered a decision dismissing Filinvests petition for review of its claim for refund representing excess
creditable withholding taxes for years 1994-1996 for insufficiency of evidence because it failed to present in
evidence its 1997 income tax return.The CTA held that since petitioner indicated in its 1996 Income Tax Return
that it has opted to carry over any excess income tax paid to the following year, there was no way for the court to
determine with particular certainty if petitioner Filinvest indeed applied or credited the refundable amount to its
1997 tax liability, if there were any. In this petition for review, petitioner Filinvest alleges that the CTA erred in
denying its claim for tax refund on the sole ground that it failed to present in evidence its Annual Income Tax
Return for Corporations for 1997 despite holding that it had complied with all the requirements to sustain a claim
for tax refund. The main issue for our resolution is whether petitioner is entitled to the tax refund or tax credit it
seeks.
Issue: W/N FILINVEST is entitled to refund
Held: We rule in the affirmative. In the proceedings before the CTA, petitioner presented in evidence its letter of claim
for refund before the BIR to show that it was made within the two-year reglementary period; its Income Tax
Returns for the years 1995 and 1996 to prove its total creditable withholding tax and the fact that the amounts
were declared as part of its gross income; and several certificates of income tax withheld at source corresponding
to the period of claim to prove the total amount of the taxes erroneously withheld. More importantly, petitioner
attached its 1997 Income Tax Return to its Motion for Reconsideration, making the same part of the records
of the case. The CTA cannot simply ignore this document.
Thus, we hold that petitioner has complied with all the requirements to prove its claim for tax refund.
It is true that herein petitioner has the burden of proving that it is entitled to refund. However, we have
already held that once the claimant has submitted all the required documents, it is the function of the BIR
to assess these documents with purposeful dispatch.
In proving the inclusion of the income payments which formed the basis of the withholding taxes and the fact of
withholding, this Court has held that:
[D]etailed proof of the truthfulness of each and every item in the income tax return is not required. That
function is lodged in the Commissioner of Internal Revenue by the NIRC which requires the Commissioner to
assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return. x x
x The grant of a refund is founded on the assumption that the tax return is valid; that is, the facts stated therein are
true and correct. In fact, even without petitioners tax claim, the Commissioner can proceed to examine the books,
records of the petitioner-bank, or any data which may be relevant or material in accordance with Section 16 of the
present NIRC.
BPI FAMILY SAVINGS BANK v. CA (2000) BPI claimed a tax refund for the year 1989 and declared in its income
tax return for the same year the amount as a tax credit to be applied to the succeeding taxable year. But in 1990,
BPO filed a claim with the CIR stating that it did not apply the same as tax credit for the year 1990 because it
suffered business losses. Without waiting for the CIRs response, BPI filed a petition for review with the CTA
seeking a refund but the CTA dismissed the petition on the ground that BPI failed to present as evidence its
Corporate Annual Income Tax Return for 1990 to establish the fact that it had not yet credited the amount
to its 1990 tax liability. The SC disagreed with the CTA, stating that BPI actually presented evidence to prove its
claim. The manager of BPIs accounting department testified to this fact. BPI also presented its claim for
refund and a certification issued by its VP stating that the said amount will not be automatically credited
against any succeeding income tax liabilities. A copy of the Final Adjustment Return for 1990 was also
attached to the MR filed with the CTA. A final adjustment return shows whether a corporation incurred a loss
or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred a net
loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.
CIR v. MERALCO (2007) The CIR found that Meralco was liable for deficiency income and franchise taxes (around
2M each). On the other hand, Meralco filed a letter-claim for refund or credit in the amount of 107M representing
overpaid income taxes. CIR didnt act on the request so Meralco filed a judicial claim for refund or credit with the
CTA. While the case was pending, Meralco paid the deficiency franchise tax. It also protested the payment of the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 139 of 162
"#$
alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for
refund or credit but this was refused by the CIR. The CTA ordered the CIR to refund or, in the alternative, issue
a tax credit certificate in favor of Meralco the sum of 107M representing overpaid income taxes. The case was
elevated by the CIR to the CA, but the CA affirmed. Now the CIR alleges in the SC that the claim for tax
refund should be construed strictly against the claimant as it partakes the nature of exemption from taxes.
Sec. 69 of the 1986 NIRC (see Sec. 76 of 1997 NIRC there are differences) provides that if the sum of the
quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable
income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay
the excess tax still due, or (b) be refunded the excess amount paid. A corporate taxpayer's option to avail of
tax credit does not, however, mean that it is ipso facto granted. For the CIR still has to investigate and
ascertain the veracity of the claim. Both the CTA and CA found Meralcos claim for tax refund or credit
meritorious on the basis of testimonial and documentary evidence. The deficiency franchise tax had already been
paid and the deficiency income tax was the subject of a compromise agreement. The issue of w/n Meralco
adduced sufficient evidence to prove its entitlement to refund is a question of fact w/c cant be brought to the SC.
Therefore, the finding of fact by the CTA and CA is upheld. Moreover, a taxpayer may recover from the BIR
excess income tax paid under the provisions of Sec. 86 of the 1986 NIRC w/in 10 years from the date of payment
considering that it is an obligation created by law.
Note: Solutio Indebiti was not mentioned in the case. However, the Civil Code states that if something is received
when theres no right to demand such, and such was unduly delivered through mistake, the obligation to return
arises. I am assuming that since there was overpayment, the CIR has to return the excess.
STATE LAND INVESTMENT CORP. v. CIR (2008) Petitioner filed with the BIR its annual income tax return for
1997. For that year, its tax due was P9.7 M while its credits for the same year was P23.6M. The remaining P13.9
M unutilized was applied as credit for 1998 but still, a balance of P9.8 M from its 1997 excess credit remained.
On April 7, 2000, petitioner filed a claim for refund. Due to the CIRs inaction, it filed a petition for review with
the CTA on April 13, 2000 to toll the 2 yr prescriptive period. On April 4, 2002 CTA denied the claim for
refund ruling that petitioners failure to present its 1999 corporate annual ITR is fatal to its claim for
refund (petitioners 1998 ITR stated that it would carry over its 1997 excess tax credit to 1999 and in failing to
present its 1999 ITR, CTA was unable to determine with certainty that its 1997 tax credit was not charged against
tax liabilities for 1999). The issue is W/N petitioner is entitled to refund of P 9.8 M representing excess creditable
withholding tax for 1997? Yes.
Under Sec 69 (now, sec 76), if the total tax due is less that the quarterly tax payments during the year, a taxpayer
is entitled to a refund or credit for the excess amount paid. Due to business losses, petitioner had no tax liability in
1999 to which the 1997 excess tax credits could be applied. Excess income taxes paid in a year that could not
be applied to taxes due the following year may be refunded the next year, provided that the claim for such
a refund is made within two years after payment of the tax. It was not necessary on the part of petitioner to
file with the BIR its income tax return for 1999. In Philam Asset Management, Inc. v. Commissioner of
Internal Revenue, the Tax Code merely requires the filing of the final adjustment return for the preceding
not the succeeding taxable year. Any refundable amount indicated therein corresponding to the preceding
taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding
taxable year. Requiring that the income tax return or the final adjustment return of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. Under the principle of
solutio indebiti provided in Art. 2154, Civil Code,the BIR received something when there was no right to
demand it, and thus, it has the obligation to return it.
CIR v. FAR AST BANK & TRUST CO. (2010) FEBTC filed a claim for refund with the BIR. Due to the failure of
the CIR to act on the claim for refund, FEBTC brought the matter to the CTA. The CTA denied the refund on the
ground that FEBTC failed to show that the income derived from rentals and sale of real property from which the
taxes were withheld were reflected in its 1994 Annual Income Tax Return. SC affirmed the decision of the CTA,
holding that FEBTC failed to prove its entitlement to the refund. A taxpayer claiming for a tax credit or refund of
creditable withholding tax must comply with the following requisites:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 140 of 162
"#$
(1) The claim must be filed with the CIR within the 2-year period from the date of payment of the tax; (2) It must
be shown on the return that the income received was declared as part of the gross income; and (3) The fact
of withholding must be established by a copy of a statement duly issued by the payor to the payee showing
the amount paid and the amount of the tax withheld.
Section 10 of Rev. Reg. 6-85 states that claims for tax credit or refund of income tax deducted and withheld
on income payments shall be given due course only when it is shown on the return that the income payment
received was declared as part of the gross income and the fact of withholding is established by a copy of the
statement duly issued by the payer to the payee showing the amount paid and the amount of tax withheld
therefrom.
FEBTC failed to include the income derived from rentals and sales of real property in its ITR. Hence, since no
income was reported, no tax was withheld. It is incumbent upon the taxpayer to reflect in his return the income
upon which any creditable tax is required to be withheld at the source. Further, FEBTC failed to present all the
Certificates of Creditable Tax Withheld at Source. FEBTC failed to present substantial evidence to prove its claim
for refund. [Although the BIR did not present evidence in this case, there is no automatic refund. Entitlement to a
tax refund is for the taxpayer to prove and not for the government to disprove.]
VI. APPEAL IN CASE OF DENIAL OF REFUND/TAX CREDIT CLAIM
A. CTA (Division and En Banc)
SEC. 7. Jurisdiction. The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction shall
be deemed a denial;
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary
of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial
Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the
expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule
42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or
in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the
CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of
Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by
filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil
Procedure with the CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be
raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a
motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof:
Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and
appeal shall likewise apply.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 141 of 162
"#$
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of
Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of
Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the
interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount
with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may
directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.
SEC. 18. Appeal to the Court of Tax Appeals En Banc. No civil proceeding involving matter arising under the National
Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein
provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the
provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial,
may file a petition for review with the CTA en banc.
CTA Circular No. 1-95
SUBJECT : CTA Rules Governing the Presentation of Voluminous Documents as Evidence Such as Receipts,
Invoices and Vouchers
In accordance with the announced policy of the court and in the interest of speedy administration of justice, the Court
hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such
as receipts, invoices and vouchers, as evidence to establish certain facts, pursuant to Section 3 (c), Rule 130 of the Rules
of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as
Section 8 of Republic Act No. 1125.
1. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary
containing the total amount/s of the tax account or tax paid for the period involved and a chronological or
numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents of the summary after making
an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must
properly be identified by a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt or invoice or other documents for marking,
identification and comparison with the originals thereof need not be done before the Court or the Commissioner
anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and
other documents covering the said accounts or payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and
verify the correctness of the summary and CPA certification. However, the originals of the said receipts, invoices
or documents should be ready for verification and comparison in case doubt on the authenticity of the particular
documents presented is raised during the hearing of the case.
Be guided accordingly.
Quezon City, Metro Manila, January 25, 1995.
CTA Circular No. 10-97 (amends CTA Circular No. 1-95)
SUBJECT : Amending CTA Circular No. 1-95 Rules Governing the Presentation of Voluminous Documents as
Evidence Such as Receipts, Invoices, Vouchers or Long Accounts
In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the
presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 142 of 162
"#$
establish certain facts pursuant to Section 3 (c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania
Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by
the Court, present: (a) a Summary containing, among others, a chronological listing of the numbers, dates and
amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents of the summary after making
an examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to
conduct the audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of
the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for marking, identification
and comparison with the originals thereof need not be done before the Court or Clerk of Court anymore after the
introduction of the summary and CPA certification. It is enough that the receipts, invoices, vouchers or other
documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and
verify the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in case doubt on the authenticity thereof is
raised during the hearing or resolution of the formal offer of evidence.
Be guided accordingly.
Quezon City, Metro Manila, October 6, 1997.
(SGD.) ERNESTO D. ACOSTA
Presiding Judge
(SGD.) AMANCIO Q. SAGA
Associate Judge
(SGD.) RAMON O. DE VEYRA
Associate Judge
Revenue Memorandum Circular No. 49-2003
SUBJECT: Amending Answer to Question Number 17 of Revenue Memorandum Circular No. 42-2003 and
Providing Additional Guidelines on Issues Relative to the Processing of Claims for Value-Added Tax (VAT)
Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center, Department of Finance (OSS-DOF) by Direct Exporters
TO: All Internal Revenue Officers and Others Concerned
In response to request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the
statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period
prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
1. A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a
claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-
DOF), the administrative agency and the tax court may act on the case separately. While the case is
pending in the tax court and at the same time is still under process by the administrative agency, the
litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head
of the investigating/processing office for the docket containing certified true copies of all the documents
pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on
the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 143 of 162
"#$
administrative agency shall continue processing the refund/TCC case until such time that a final decision
has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter
shall cease from processing the claim. On the other hand, if the administrative agency is able to process
the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the
concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the positive
resolution or approval of the motion must be furnished the administrative agency as a prerequisite to the
release of the tax credit certificate/tax refund processed administratively. However, if the taxpayer is not
agreeable to the findings of the administrative agency or does not respond accordingly to the action of the
agency, the agency shall not release the refund/TCC unless the taxpayer shows proof of withdrawal of the
case filed with the tax court. If, despite the termination of the processing of the refund/TCC at the
administrative level, the taxpayer decides to continue with the case filed at the tax court, the litigation
lawyer of the BIR, upon the initiative of either the Legal Office or the Processing Office of the
Administrative Agency, shall present as evidence against the claim of the taxpayer the result of
investigation of the investigating/processing office.
2. Additional paragraphs are hereto added to the last paragraph of RMC No. 42-2003 to read as follows:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the
supporting documents required by the investigating/processing office? When should the investigating/
processing office officially receive claims for tax credit/refund and what is the period required to process
such claims?
A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the
documentary requirements unless given further extension by the head of the processing unit, but such
extension should not exceed thirty (30) days.
For claims to be filed by claimants with the respective investigating/processing office of the
administrative agency, the same shall be officially received only upon submission of complete
documents.
For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty
(120) days from receipt of the complete documents. If, in the course of the investigation and processing of
the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office, which shall be construed as within the one hundred twenty (120) day
period.
All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.
B. Supreme Court
SEC. 19. Review by Certiorari. A party adversely affected by a decision or ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
VII. STATUTE OF LIMITATIONS
A. Period to File Protest
SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice
shall not be required in the following cases:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 144 of 162
"#$
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and demandable.
PANTRANCO v. BLAQUERA (1960) (failure to file request w/n 30days) The Collector assessed Pantranco with a
documentary stamp tax deficiency w/ compromise penalty worth P74k. Pantranco requested for a reinvestigation
but was denied and was afterwards assessed a lower amount (P66k). Because of the change in the amount,
Pantranco requested a clarification. The Collector then wrote him a letter enclosing therewith a letter dated Sept.
1954. This was received on Nov. 20, 1954. Pantranco sought a reconsideration of the modified assessement on
Dec. 2, 1954.
Considering that the ruling or decision of the Collector of September 1954 had been received by Pantranco on
November 20, the Court held that the 30-day period began to run on November 20; that it was interrupted by the
petition for reconsideration filed December 3, 1954; and that such interruption ended on June 11, 1955, when
denial of the reconsideration was received by Pantranco; and finding that the petition had thus been presented
on the 34th day after receipt of the Collectors definite assessment, (November 20 to December 3-13 days;
June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.
The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to contest within
thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals, or to any
other court. The period of thirty days is jurisdictional and non-extensible.
DY PAC COMPANY v. CTA (1972) Petitioner DyPac was assessed by CIR of deficiency taxes on March 1967. It
protested the assessment on April 1967. CIR sent a letter dated October 1987, received by petitioner on November
1967 denying the protest and requiring petitioner to pay the assessment within 30 days from receipt of the letter.
On December 1967, petitioner then wrote a letter to the Secretary of Finance requesting him to withdraw the
denial of CIR. Sec. of Finance endorsed the letter to CIR of which CIR again sent a letter to petitioner. The
second letter reiterated the previous demand to pay the deficiency assessment.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 145 of 162
"#$
Sec. 11 of RA 1125 states that: Any person, association or corporation adversely affected by a decision or ruling
of the Commissioner of Internal Revenue, x x x may file an appeal in the Court of Tax Appeals within thirty days
after receipt of such decision or ruling. Issue was which was the appealable decision of the Commissioner, the
first letter of denial of protest dated October 1967 received by the petitioner on November 1967, as the
respondents contend, OR the second letter sent by CIR dated May 1968, received by petitioner on June 1968, as
the petitioner insists? If the latter, then the petition for review filed with the CTA on July 5, 1968 was timely; if
not, the assessment had become final and executory. SC held that the point from which the period to appeal
should be counted is the receipt by the petitioner of the first letter on November 1967 and not the second letter.
Par.1, Sec.11 of RA 1125 allows appeal from the decision or ruling of the Commissioner of CIR. The word
decision has been interpreted to mean decisions of the Commissioner on protests of taxpayers against
assessments. And, in computing the 30-day period for appeal to the CTA, counting should begin from the date of
receipt of the decision of the Commissioner on the disputed assessment. However, where several requests for
reconsideration have been filed with the Commissioner, it would appear that the communication from the latter
overruling taxpayers request for reconsideration and affirming the disputed assessment in terms clearly indicating
finality of the action taken, constitutes the appealable decision or ruling.
Considering the substance of the first letter of the respondent Commissioner of October 1967, it is evident that the
said letter constitutes his decision; it has the unmistakable tenor of finality that would make it the appealable
decision or ruling. The respondent Commissioner himself considered the said letter as his decision that is final,
hence his request for payment for the last time. It is also quite certain that the petitioner himself must have
believed that the letter of October 1967 was the final decision of respondent Commissioner for otherwise he
would not have turned to the Secretary of Finance immediately thereafter for possible relief. From June 1968, the
date when the petitioner received the respondent Commissioners second letter of May 1968, to July 1968, the
date when the petitioner filed its petition for review with the CTA, an additional 30 days had elapsed. The appeal
was therefore late by 25 days. The period to appeal being jurisdictional and non-extendible, is filed beyond the
30-day period.
COMMISSIONER v. CONCEPCION (1968) Concepcion (ancillary administrator of the estate of Mary H. Mitchell-
Roberts), and Jack F. Mitchell-Roberts (husband of the deceased) sought a refund of estate and inheritance taxes
on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses as joint tenants with full
rights of survivorship and not as tenants in common but was denied. Not being agreeable to the assessment of the
Commissioner of Internal Revenue, respondents appealed the decision to the CTA which was dismissed because
the appeal was filed beyond the reglementary period of 30 days. Thus the decision became final, executory and
demandable. Concepcion and Mitchell-Roberts paid the taxes in question along with delinquency penalties, and at
the same time filed a claim for the refund of said amounts. Without waiting for the decision of CIR on the claim
for refund, another appeal was filed in order to avoid the prescriptive period of two years provided for in Section
306 of the NIRC. CTA in that appeal case ordered the CIR to refund Concepcion and Mitchell-Roberts. SC
overturned and said that once the matter has reached the stage of finality in view of the failure to appeal, it
logically follows that it could no longer be reopened through the expedient of an appeal from the denial of
petitioners request. The procedure set forth in Section 306 of the NIRC is not available to revive the right
to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to
appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken.
Furthermore, having paid the same, Concepcion and Mitchell-Roberts are clearly devoid of any legal right
to sue for recovery.
BASILAN ESTATES, INC. v. CIR (1967) Petitioner Basilan Estates, Inc. filed on March 24, 1954 its income tax
returns for 1953 and paid an income tax of P8,028. On February 26, 1959, the CIR, per examiners report,
assessed petitioner a deficiency income tax and 25% surtax on unreasonably accumulated profits as of 1953
pursuant to Section 25 of the Tax Code. On non-payment of the assessed amount, a warrant of distraint and levy
was issued but the same was not executed because Basilan succeeded in getting the Deputy Commissioner of
Internal Revenue to order the Director of the district in Zamboanga City to hold execution and maintain
constructive embargo instead. Because of its refusal to waive the period of prescription, the corporations request


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 146 of 162
"#$
for reinvestigation was not given due course. Eventually, notice was served the corporation that the warrant of
distraint and levy would be executed.
Petitioner filed before the CTA a petition for review alleging prescription of the period for assessment and
collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and error in finding
the existence of unreasonably accumulated profits and the imposition of 25% surtax thereon. The CTA found that
there was no prescription and affirmed the deficiency assessment in toto.
The notice of assessment shows the assessment to have been made on February 26, 1959, well within the five-
year period. Even granting that notice had been received by the petitioner late, as alleged, under Section 331 of
the (Old) Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed made
when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is not required that
the notice be received by the taxpayer within the aforementioned five-year period. Moreover, the presumption of
regularity of official functions prevails.
REPUBLIC v. CA (1987) Follow-up letter which reiterates demand for payment of taxes considered notice of
assessment. Failure of taxpayer to appeal the assessment to the CTA in due time makes the assessment final
executory and demandable and the taxpayer is barred from disputing the correctness of the assessment. In
a demand letter, dated 16 July 1955, the CIR assessed respondent deficiency taxes for the years 1949 to 1952.
Petitioner reiterated its demand three times - dated 24 April 1956, 19 September 1956 and 9 February 1960.
Private respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the assessment
had become final and executory, petitioner filed a complaint for collection of the said amount against respondent.
ISSUE: W/N the CIRs letter dated 19 Sept. 1956 which was duly received by respondents is an assessment.
HELD: Yes. The follow-up letter is considered a notice of assessment in itself which was duly received by private
respondent in accordance with its own admission. Under Section 7 of Republic Act No. 1125, the assessment is
appealable to the CTA within thirty (30) days from receipt of the letter. The taxpayers failure to appeal in due
time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment or from invoking any defense that
would reopen the question of its liability on the merits. In Mamburao Lumber Co. vs. Republic, this Court further
said: In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become
final and executory, the action to collect is akin to an action to enforce a judgment.
B. Period to File Refund or Tax Credit Claim
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may
...
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to
the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for which no actual
payment was made.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 147 of 162
"#$
collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively
or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
TRANS PHILIPPINES INVESTMENT CORP. v. CIR (1995)
CIR v. SWEENEY (1959) The National Government cannot be required to pay interest in the absence of a
statutory provision clearly or expressly directing or authorizing such payment Petitioners Sweeney, et al.
were past presidents of the International Club of Iloilo, Inc. The Club maintained and operated a clubhouse with a
bar wherein liquor and light refreshments were sold exclusively to members and their guests. The CIR demanded
from the Club payment of fixed and percentage taxes (~Php3,000) for the operation of a bar. The Club paid the
taxes under protest and thereafter filed a written claim for refund. However, the CIR did not act on the claim,
causing petitioners Sweeney, et al. to take the case to the CTA. The CTA ruled in favor of petitioners Sweeney
and the Club, holding that they were not liable for the taxes because they were not operating the bar for profit.
Therefore, the CTA ordered the CIR to refund the taxes paid, with interest. The SC agreed that the CIR must
refund the taxes paid, but disallowed the payment of interest on such refund. The National Government
cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or
authorizing such payment, and no such law has been cited by the petitioners. Taxpayers need not wait for
the CIR to act on the refund claim before going to court within the 2 year prescription period
GIBBS v. CIR (1960) CIR denied Gibbs request for refund by saying I regret to have to inform you that for reasons
stated in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your said request. It was
made on a letter that was received on November 14, 1956, by the petitioners brother who was acting as an
attorney-in-fact. On October 1, 1958, Gibbs filed with the CTA a petition for review and refund of tax paid. The
SC held that the action has prescribed because it was filed beyond the 30-day period from the receipt of the
denial of the refund claim (November 14, 1956) which, by its words, is deemed as a final decision on the
controversy. Also, the petitioners brother was his attorney in law and deemed authorized recipient.
CIR v. CA (1999) Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly
organized and existing under Philippine laws. It acts as the liquidator of Paramount Acceptance Corporation after
its dissolution on March 31, 1986. The question is whether the two-year period of prescription for filing a claim
for refund, as provided in 230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when
the corporate income tax return was actually filed or from April 15, 1986 when, according to 70(b) of the NIRC,
the final adjustment return could still be filed without incurring any penalty. The aforesaid 230 of the NIRC
provides that such period must be counted from the date of payment of the tax. But, given the facts as stated
above, when was the corporate income tax paid in this case?
We agree with the respondent courts ruling that the date of payment of the tax as prescribed under the Tax Code
is the date when the corporate income tax return is required to be filed. Clearly, the prescriptive period of two
years should commence to run only from the time that the refund is ascertained, which can only be determined
after a final adjustment return is accomplished.
In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private
respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition
for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription.
ACCRA INVESTMENTS v. CA (1991) filing of return signifies payment / counting starts from payment On
April 15, 1982 ACCRA Investments Corp (ACCRAIN) filed and paid its annual income tax return for the year
ended December 31, 1981 which reported a loss. On December 29, 1983, ACCRAIN claimed for refund from the
CIR then a petition for review to the CTA, both stating that such claim from refund was filed out of time for the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 148 of 162
"#$
reckoning date should be on December 31, 1981 when taxes withheld at source were paid. Court decided that the
date of payment referred to in Sec. 230 is that when the tax payer actually files and pays its income tax
return (Sec. 49 NIRC). Such date is April 15, 1982, therefore ACCRAIN has until April 1984 to claim
refund. The lower courts had missaplied jurisprudence in holding that the taxpayer whose income is withheld
at source will be deemed to have paid its tax liability end of the tax year. (Gibbs vs. CIR)
BPI v. CIR (2001) When the corporation is contemplating dissolution, the 2-year prescription period begins 30
days after the SEC approves the plan of dissolution Family Bank and Trust Company (FBTC) merged with
BPI in July 1, 1985. Prior to the merger, FBTC had in its favor, creditable withholding taxes amounting to
~P174k from the 1985 tax year and excess credit of ~P 2M from the previous year. After the merger of BPI and
FBTC, BPI claimed the amount of the creditable withholding taxes (174k) and excess credit(2M) for refund. The
CIR only allowed the refund for the 2M, and disallowed that of the 174k, saying that the claim for refund of the
latter had already prescribed. BPI filed a petition for review in the CTA on December 29, 1987. CTA denied
the claim on the ground of prescription.
The question is, when did the 2 year period begin to run? BPI contends that it started on April 15, 1986 when
FBTC filed its final adjusted return pursuant to Section 46(a) of the Tax Code. On the other hand, the CIR
contends that the 2-year prescription period began to run from July 31, 1985---30 days after the approval by the
SEC of the plan of dissolution pursuant to the merger, as directed by Section 78 of the Tax Code.[See 1] The SC
ruled that the prescription period began to run 30 days after the SEC approved the plan of dissolution
(July 31, 1985) and consequently, the claim for refund had already prescribed. Thus, the rule is, the period of
prescription begins upon filing of the Final Adjustment Return applies only when the corporation remains
subsisting and its business operations are continuing. When the corporation is contemplating dissolution, 78 of
the Tax Code applies and the prescription period begins 30 days after the SEC approves the plan of dissolution.
[1] Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the
dissolution of the corporation render a correct return to the Commissioner of Internal Revenue, verified under
oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall,
by regulations, prescribe. The dissolving corporation prior to the issuance of the Certificate of Dissolution by the
Securities and Exchange Commission shall secure a certificate of tax clearance from the Bureau of Internal
Revenue which certificate shall be submitted to the Securities and Exchange Commission.
CIR v. TMX SALES, INC. (1992) where a tax is paid on installments, the two-year prescriptive period for the
claim of refund should commence to run from the date of the last installment (filing of the Final Return)
On May 15, 1981, TMX filed its quarterly income tax for the first quarter of 1981. During the subsequent
quarters, it suffered losses, so upon filing of its Annual Income Tax Return on April 15, 1982, it declared a net
loss. On March 14, 1984, TMX Sales filed a claim for refund before the CTA, representing overpaid income
tax. The CIR argued that more than 2 years have elapsed from the payment of quarterly income tax and the filing
of the claim, thus the claim of TMX Sales has already prescribed. The CTA ruled that it has not yet prescribed
since the period should be counted from the date of final payment. The issue is whether the 2-year prescriptive
period would commence to run from the date the quarterly income tax was paid or from the date of filing
the Final Return (final payment). The Court held that the most reasonable and logical application of the law
would be to compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the
Annual Income Tax Return, when it can be finally ascertained if the taxpayer still has to pay additional income
tax or if he is entitled to a refund of overpaid income tax. This ruling is reiterated in Commission of Internal
Revenue v. Carlos Palanca, wherein the Court stated that where the tax account was paid on installment, the
computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be
from the date of the last installment. Since the prescriptive period is counted from the filing of the Final
Adjustment Return on April 15, 1982, TMX Sales is not yet barred by prescription.
CIR v. PRIMETOWN PROPERTY GROUP, INC. (2007) Yap, Vice Chair of Primetown Property Group
(Primetown) applied on March 11, 1999 for the refund / credit of income tax Primetown paid in 1997. However,
its claim was not acted upon so Primetown filed a petition for review with the CTA on April 14, 2000. CTA
dismissed the appeal as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 149 of 162
"#$
refund or tax credit in accordance with Sec. 229 NIRC. According to the CTA, the two-year prescriptive period is
730 days pursuant to Art 13 of the Civil Code wherein years are of 365 days each. Since Primetown filed its
final adjusted return on April, 14, 1998 and the year 2000 was a leap year, the petition was filed 731 days after
Primetown filed its final adjusted return, therefore beyond the reglementary period. CA reversed.
The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. But how
should the two-year prescriptive period be computed? Article 13 of the Civil Code provides that when the law
speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of
whether it is a regular year or a leap year.
CIR v. PL MANAGEMENT INTERNATIONAL PHILIPPINES, INC. (2011) unlike the option for tax refund
claims, which prescribes after 2 years of filing, there is no prescriptive period for tax credit On April 13,
1998, PL Management filed 1997 ITR where it expressly stated that its creditable withholding tax of P 1.2
million shall be claimed as tax credit for its 1998 ITR. However, tax credit was not claimed the next year
because PL Mgmt was in net loss. In 2000, PL Mgmt then filed written claim for the tax refund with CIR. CIR
failed to act on the claim, which prompted for case to be elevated to CTA on April 14, 2000. CTA denied the
petition because it was filed beyond the 2-yr prescription but CA reversed this and held that PL Management may
get the refund because prescription period may be suspended for reasons of equity. SC disallowed the refund but
the PL management is permitted to apply unutilized P 1.2 million as tax credit in succeeding taxable years.
The Court held that if total tax payment exceeds tax liability, taxpayers have 2 options: (1) tax refund or (2) tax
credit. The choice of one precludes the other. In this case, PL Management already chose option (2) when it
declared that it will carry-over the unutilized P 1.2 Million to the 1998 ITR. This then bars the company from
claiming a tax refund. Based on jurisprudence, it must be noted that unlike claims for refund (which prescribes
after 2 years of filing ITR), the option of tax credit does not have a prescriptive period and such amount
(1.2 million) may be carried over to succeeding taxable years until fully exhausted.
ORAL AND DENTAL COLLEGE v. CTA (1958) (Prescription runs irrespective of pendency of refund claim
with the CIR; conflict between NIRC 2 yr period and RA 1125) Petitioner is school claiming to be exempt
from taxes and thus sought to recover the taxes it allegedly paid wrongfully. Said taxes were paid on May 15,
1951, September 15, 1951 and May 15, 1952, and that although the claim for the refund of the same was filed
with the CIR on November 14, 1952, the request for the reconsideration of the latters decision was denied only
on April 20, 1955. Meanwhile, no proceeding in court was instituted for that purpose in the intervening
period. In dismissing the petition filed with the Court of Tax Appeals, said tribunal relied on the provisions of
section 306 of the NIRC which provided for the 2 year prescriptive period within which refund claims must be
brought. The Court ruled that under said provisions, the taxpayers failure to comply with the requirement
regarding the institution of the action or proceeding in court within 2 years after the payment of the taxes bars him
from the recovery of the same, irrespective of whether a claim for the refund of such taxes filed with the
Collector of Internal Revenue is still pending action of the latter.
The petitioner argued that its refund claim has not prescribed because of the seeming conflict between the NIRC
2 year prescriptive period (counted from payment, irrespective of the action taken by the CIR) and the and
Section 11 of Republic Act 1125 specifically providing that actions should be brought to the Court of Tax
Appeals within 30 days from receipt of the decision of the Collector of Internal Revenue. The Court deferred
ruling on the matter and notes that although it has the power to interpret laws, the legislature should take notice of
apparent conflicts in statutes and work towards its elimination.
CIR v. PHILIPPINE AMERICAN LIFE INSURANCE CO. (1995) The prescriptive period of two years should
commence to run only from the time that the refund is ascertained, which can only be determined after a
final adjustment return is accomplished On May 30, 1983, Philam life paid its 1983 1st Quarter income tax of
P3,246,141. On August 29, 1983, it paid P396,874 for the 2nd Quarter. The company later on paid P708,464 for
the 3rd Quarter of the same year. In the 4th Quarter, however, it suffered loss and thereby had no income tax
liability. In the 4th quarter return, Philam life declared a refund of P3,991,841 representing the 1st and 2nd
quarterly payments (comprising of the 1st quarter payment of P3,246.141 plus 215,742.00 as withholding taxes on
rental income for 1983 and P133,084.00 representing 1982 income tax refund applied as 1983 tax credit). In 1984,


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 150 of 162
"#$
Philam life suffered loss again and applied for tax credit of its overpaid taxes in 1983 and 1982. On December 16,
1985, it filed another claim for refund with the CIRs appellate division for an amended and increased amount. On
January 2, 1986, it filed petition for review with the CTA.
[note: The simple story of the case is this Philam life remits/pays to the BIR tax withheld on income for the
1983 1st quarter but it would eventually turn out that its business operations actually resulted in a loss by the end
of the year 1983, as reflected in the Corporate Final Adjustment Return subsequently filed with the BIR. Because
of this, Philam life sought to have the payments made on the earlier quarters refunded.]
The issue is the reckoning date of the two-year prescriptive period provided in Section 230 of the NIRC for the
recovery of tax erroneously or illegally collected. CIR claims that the running of the prescriptive period
commences from the remittance/payment at the end of the first quarter of the tax withheld instead of from the
filing of the Final Adjustment Return. In such a case, Philamlife is not entitled for refund. The Supreme Court
held that the CIR was wrong. The prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final adjustment return is
accomplished. Although quarterly taxes due are required to be paid within sixty days from the close of each
quarter, the fact that the amount shall be deducted from the tax due for the succeeding quarter shows that until a
final adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due
from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what
should be refunded to the corporation. In the present case, this date is April 16, 1984, and two years from this date
would be April 19, 1986. The record shows that the claim for refund was field on December 16, 1985 and the
petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year
reglamentary period. Even if the two-year prescriptive period had already lapsed, the same is not
jurisdictional and may be suspended for reasons of equity and other special circumstances.
FAR EAST BANK AND TRUST COMPANY v. CIR (2006) FEBTC was a trustee for employee retirement funds,
and in the exercise of its authority, it invested such funds in various placements and securities. The interest
income earned on these investments was subjected to withholding tax. However, a previous ruling by the SC
declared income for retirement funds exempt from income tax, so FEBTC filed for refunds with the BIR, which
were all denied. In order to comply with the 2-year prescriptive period, instead of filing a petition for review,
FEBTC filed a Motion to Admit Supplemental Petition (Supplement) with its ongoing case in the CTA for the
same subject matter but for different time periods. The CTA denied this motion and suggested that FEBTC file a
petition for review instead. FEBTC obliged, but the petition for review was filed more than 2 years after payment
of the withholding taxes.
FEBTCs contention that the prescriptive period should be reckoned from the date of the filing of its Supplement
was denied. The prescriptive period also could not have been deemed suspended upon filing of the Supplement, as
the 2 year period cannot be deemed tolled upon the filing of just any judicial claim with any court, much less a
supplement whose admission is discretionary upon the court. Refund denied. [This was actually just Obiter, as the
real ratio was the failure to submit the proper documentary requirements. Prescription was an even if discussion
of the merits.]
VIII. REQUEST FOR RULING
Revenue Memorandum Order No. 45-99
A. Procedure
B. Appeal Procedure
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 151 of 162
"#$
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
Revenue Administrative Order No. 3-2001, Oct. 22, 2001
SUBJECT: IMPLEMENTING FURTHER DEPARTMENT ORDER NO. 23-01 DATED OCTOBER 5, 2001
THAT PROVIDES FOR THE RULES ON THE FIRST PARAGRAPH OF SECTION 4 OF THE TAX CODE OF
1997
TO: ALL INTERNAL REVENUE OFFICERS AND OTHERS CONCERNED
I. OBJECTIVES
To identify the responsibilities of revenue officers and to provide for the procedure for the proper implementation
of the first paragraph of Section 4 of the Tax Code of 1997, as implemented by Department Order No. 23-01, that
vests in the Secretary of Finance the power to review the interpretation of the Tax Code and other tax laws by the
Commissioner of Internal Revenue.
To provide for the certification fees to be paid to the Bureau of Internal Revenue by the taxpayers seeking review
of rulings that interpret the provisions of the Tax Code and other tax laws.
II. SCOPE
This Revenue Administrative Order (RAO) covers rulings issued by the Commissioner of Internal Revenue
(Commissioner) and by officers (delegatee/s) with duly delegated powers to issue rulings on behalf of the
Commissioner under pertinent issuances such as, but not limited to the Commissioner's Memoranda dated June
21, 2000 and October 26, 2000; Revenue Memorandum Order (RMO) No. 75-99; Revenue Memorandum
Circular (RMC) No. 10-2001, RMC Nos. 3-2001 and 2-2001, as supplemented by RMC No. 14-2001; and, RMC
No. 39-2001.
Particularly, these rulings refer to those issued by the Commissioner, or by his Deputy Commissioner for Legal
and Inspection Group, Assistant Commissioner for Legal Service, or by the Regional Directors, as may be
appropriate.
This RAO does not cover, however, disputed assessments, refunds of internal revenue taxes, fees or other charges,
and penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws or portions
thereof administered by the Bureau of Internal Revenue. In these instances, the Court of Tax Appeals has the
exclusive appellate jurisdiction pursuant to the second paragraph of the same Section 4 of the Tax Code of 1997.
Neither shall this RAO apply to rulings that are deemed void ab initio because they contradict duly issued
Revenue Regulations, Revenue Memorandum Orders, Revenue Memorandum Rulings, and Revenue
Memorandum Circulars.
III. PROCEDURE
1. Within thirty (30) days from the date of receipt of the adverse ruling of the Commissioner, the affected taxpayer
may seek the review of the ruling by the Department of Finance. In all cases, the adverse ruling that can be
brought to the Department of Finance shall only be the final adverse decision of the Commissioner.
In the case of rulings by the Commissioner's delegatees, the taxpayer shall exhaust administrative remedies within
the Bureau of Internal Revenue by filing a letter of reconsideration addressed to the Commissioner, but filed with
the Office of the Assistant Commissioner for Legal Service (ACIR-LS) in the case of adverse rulings decided by
the Revenue Regional Directors or with the Office of the Deputy Commissioner of Internal Revenue for Legal
and Inspection Group (DCIR-LIG) in the case of adverse rulings decided by the ACIR-LS within fifteen (15) days
from receipt of an adverse ruling, before requesting for a review by the Secretary of Finance;


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 152 of 162
"#$
2. File with the Office of the Commissioner, for endorsement to the ACIR-LS, a copy of the request for review of
the Ruling;
3. Request from the ACIR-LS for an authenticated and certified true copy of the complete docket or records on file.
4. Pay the certification fee to the authorized agent bank having jurisdiction over the taxpayer or the place of business
of the taxpayer, using Payment Form 0605;
5. Present to the ACIR-LS the original copy of the official receipt that evidences payment of the certification fee,
and submit a photocopy thereof to form part of the docket or records of the case;
6. Within five (5) days from the date of payment of the certification fee, the ACIR-LS shall instruct the Division
Chief of the Law Division or the International Tax Affairs Division, as the case may be, for each and every page
of the records of the case, sequentially numbered, to be photocopied, including a copy of the subject BIR Ruling,
and for the complete set to be stamped and signed by the concerned Division Chief to be an authentic and true
copy of the original and complete records on file. In the case of rulings made by the Revenue Regional Directors
and finally decided by the Commissioner to be adverse to the taxpayer, the ACIR-LS shall certify and
authenticate the duplicate copy of the records of the case;
7. The appropriate office shall also prepare the endorsement letter of the Commissioner of Internal Revenue (Annex
"A"), which letter shall be signed by the Assistant Commissioner for Legal Service, who is hereby designated as
the Commissioner's duly authorized representative. In this regard, the ACIR-LS shall submit to the
Commissioner, copy furnished the ODCIR-LIG, a monthly report of cases appealed and certifications made;
8. The authenticated and certified true copy of the docket or records of the case, including the endorsement thereof
to the Secretary of Finance, through the Revenue Operations Group, shall be released to the holder of the original
copy of the official receipt evidencing payment of the certification fee.
IV. TAXPAYER'S REQUEST FOR REVIEW BY THE SECRETARY OF FINANCE
A taxpayer who receives an adverse ruling from the Commissioner of Internal Revenue may, within thirty (30)
days from the date of receipt of such ruling, seek its review by the Secretary of Finance, either by himself/itself or
through his/its duly accredited tax agent or representative. The request for review shall be in writing and under
oath, and must:
a) be addressed to the Secretary of Finance and filed with the Revenue Operations Group, Department of
Finance, DOF Building, BSP Complex, Roxas Boulevard corner Pablo Ocampo Street, City of Manila;
b) contain the heading "Request for Review of BIR Ruling No. _____";
c) allege and show that the request was filed within the reglementary period;
d) allege the material facts upon which the ruling was requested;
e) state that exactly the same set of facts were presented to the BIR;
f) define the issues to be resolved;
g) contain the facts and the law relied upon to dispute the ruling of the Commissioner;
h) be signed by or on behalf of the taxpayer filing the request for review, provided that, only those lawyers
engaged by the taxpayer and/or tax agents accredited by the BIR may sign on behalf of the taxpayer;
i) indicate the Taxpayer Identification Number (TIN) of the taxpayer;
j) be accompanied by a copy of the Commissioner's challenged ruling;
k) contain a statement of the Office of the Commissioner of Internal Revenue, indicating that a copy of the
request for review of the ruling was received by the Commissioner's Office and;
l) specifically state that the taxpayer does not have a pending assessment or case in any court of justice
where the same issues are being considered.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 153 of 162
"#$
Furthermore, the taxpayer must, at the time of filing of the request for review, submit a duplicate copy of the
records on file with the BIR pertaining to his request, which set of records must be authenticated and certified by
the BIR.
V. CERTIFICATION FEE
For this purpose, the requesting taxpayer shall pay a certification fee in the amount of ten pesos (P10.00) for every
page of the complete records on file that shall be reproduced and certified to be a true and authentic copy thereof.
Any and all amounts paid as certification fee are non-refundable and shall be forfeited in case the taxpayer finally
decides not to seek a review by the Secretary of Finance.
VI. EFFECTIVITY CLAUSE
This Order shall take effect immediately.
Revenue Memorandum Circular No. 40-A-2002, May 7, 2002
C. Non-Retroactivity of Revocation of Rulings or Regulations
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to
the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the
taxpayer acted in bad faith.
COMMISSIONER v. MEGA GEN. MERCH. (1988) specific tax, to 7%, then back to specific tax/paraffin wax
imports Mega General Merchandising Corporation (MGMC) is engaged in the business of importing paraffin
wax. In 1974, MGMC started to import such goods. The importation imposed upon a specific tax under Sec
142(i) of the Tax Code (MGMC would pay a relatively higher amount under this tax provision).
Subsequently, due to Ruling of the CIR in 1977, importation of paraffin wax is only now subject to a 7% tax
rate. Then, a year after, in 1978, the CIR revoked the previous ruling and stated that paraffin imports are subject
to the specific rate under Sec 142(i).
MGMC now claims a refund of the tax paid by them on the year 1977, because they claim to be prejudiced by
the passing of the new Ruling of the CIR in 1978. The CTA ruled in their favor that revocations of rulings
must not prejudice the rights of taxpayers. But the SC reversed the decision of the CTA, although it is true that
they were prejudiced by the revocation, their importation has dated way back before the passing of the first ruling
in 1977.
CIR v. BURROUGHS LTD. AND CTA (1986) In 1979 Burroughs applied with the Central Bank for authority to
remit branch profits to its foreign branch. The total amount of its remittance was 7,647,058.00 and under Sec. 24
(b)(ii) it was obliged to deduct 15% as remittance tax amounting to 1,147,058.70 with the actual amount remitted
amounting to 6,499,999.30. In 1980, the then acting commissioner issued a RR which stated that Sec. 24 (b)(ii)
had been interpreted to mean that the tax base upon which the 15% branch profit remittance tax ... shall be
imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance
is to be made. Thus, in 1981 Burroughs filed before the CTA a written claim for the refund or tax credit of the
amount of P172,058.90 representing alleged overpaid branch profit remittance tax (because 15% of 6,499,999.30
is only 974,999.89). The CTA affirmed the decision. BIR claims that such ruling is no longer applicable to
Burroughs because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR
ruling of January 21, 1980 which stated that considering that the 15% branch profit remittance tax is imposed and
collected at source, necessarily the tax base should be the amount actually applied for by the branch with the
Central Bank of the Philippines as profit to be remitted abroad. The issue was whether or not under such
memorandum circular, Burroughs is no longer entitled to refund. The court ruled in the negative stating that


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 154 of 162
"#$
since Burroughs paid its remittance tax in 1979, RR of 1980 was the correct interpretation to be applied. It cited
Sec. 327 (now Sec. 246) which provides for the non-retroactive application of any revocation, modification, or
reversal of any of the rules and regulations promulgated by the BIR if it will be prejudicial to the taxpayer save
for certain exceptions which the court did not find in the case at bar.
ABS-CBN v. CTA (1981) By virtue of General Circular No. V-334 issued by the CIR, ABS-CBN (petitioner)
dutifully withheld and turned over to the BIR the amount of 30% of ! of the film rentals paid by it to foreign
corporations not engaged in trade or business within the Philippines. The last year that petitioner withheld taxes
pursuant to the foregoing Circular was in 1968. In 1971, the CIR issued Revenue Memorandum Circular No. 4-
71, revoking the abovementioned General Circular, and held that the latter was erroneous for lack of legal basis,
because the tax therein prescribed should be based on gross income without deduction whatever.
On the basis of the new Circular, the CIR issued against ABS-CBN a letter of assessment and demand, requiring
them to pay deficiency withholding income tax on the remitted films for rentals in years 1965 through 1968 and
film royalty as of the end of 1968.
The SC ruled that notwithstanding the well-entrenched principle that the Government is never estopped from
collecting taxes because mistakes or errors on the part of agents, the same admits of exceptions in the interest of
justice and fair play. Thus it has been held that the Commissioner or Collector is precluded from adopting a
position inconsistent with one previously taken where injustice would result therefrom or where there has been
misrepresentation to the taxpayer.
PNOC v. CA (2005) An administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the
acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not
binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given.
It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its
implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led
to Commissioner Ongs revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such
a revocation was only proper considering that the former BIR Commissioners decision to approve the said
compromise agreement was based on the erroneous construction of the law (i.e., E.O. No. 44 and its
implementing rules and regulations) and should not give rise to any vested right on PNOC.
Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his
predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June
1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a
general rule, the Government cannot be estopped from collecting taxes by the mistake, negligence, or omission
of its agents
CIR v. BENGUET CORPORATION (2005) In January of 1988, Benguet Corporation applied for and was granted
by the BIR zero-rated status on its sale of gold to Central Bank. On 28 August 1988, Deputy Commissioner of
Internal Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88, which declared that [t]he sale of gold to
Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as
amended by Executive Order No. 273. The BIR came out with at least six (6) other issuances reiterating the
zero-rating of sale of gold to the Central Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February
1990. Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank during
the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in
relation to the subject sales of gold. It then filed applications for tax refunds/credits corresponding to input VAT.
Respondents applications were either unacted upon or expressly disallowed by petitioner. In addition, petitioner
issued a deficiency assessment against respondent when, after applying respondents creditable input VAT costs
against the retroactive 10% VAT levy, there resulted a balance of excess output VAT.
The express disallowance of respondents application for refunds/credits and the issuance of deficiency
assessments against it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated 23 January 1992-that was
issued subsequent to the consummation of the subject sales of gold to the Central Bank which provides that sales
of gold to the Central Bank shall not be considered as export sales and thus, shall be subject to 10% VAT. In


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 155 of 162
"#$
addition, BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all inconsistent BIR issuances. The
BIR also issued VAT Ruling No. 059-92 dated 28 April 1992 and Revenue Memorandum Order No. 22-92 which
decreed that the revocation of VAT Ruling No. 3788-88 by VAT Ruling No. 008-92 would not unduly prejudice
mining companies and, thus, could be applied retroactively.
Respondent filed three separate petitions for review with the CTA arguing that retroactive application of BIR
VAT Ruling No. 008-92 would violate Sec. 246 of the NIRC, which mandates the non-retroactivity of rulings or
circulars issued by the Commissioner of Internal Revenue that would operate to prejudice the taxpayer. CTA
dismissed all three petitions. CA reversed. Petitioner appealed to the SC with the question of whether respondent
would suffer prejudice from the retroactive application of VAT Ruling No. 008-92.
At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by
respondent ordained that gold sales to the Central Bank were zero-rated. Respondent should not be faulted for
relying on the BIRs interpretation of the said laws and regulations. While it is true, as petitioner alleges, that
government is not estopped from collecting taxes which remain unpaid on account of the errors or mistakes of its
agents and/or officials and there could be no vested right arising from an erroneous interpretation of law, these
principles must give way to exceptions based on and in keeping with the interest of justice and fairplay, as has
been done in the instant matter. For, it is primordial that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Before
respondent was entitled to tax refunds or credits based on petitioners own issuances. Then suddenly, it found
itself instead being made to pay deficiency taxes with petitioners retroactive change in the VAT categorization of
respondents transactions with the Central Bank. This is the sort of unjust treatment of a taxpayer which the law in
Sec. 246 of the NIRC abhors and forbids.
CIR v. BENGUET CORPORATION (2006) Similar facts and the same ruling with the 2005 case. Additional
information: There is no question, therefore, as to the prohibition against the retroactive application of the
revocation, modification or reversal, as the case maybe, of previously established Bureau on Internal Revenue
(BIR) Rulings when the taxpayers interest would be prejudiced thereby. But even if prejudicial to a taxpayer,
retroactive application is still allowed where: (a) a taxpayer deliberately misstates or omits material facts from his
return or any document required by the BIR; (b) where subsequent facts gathered by the BIR are materially
different from which the ruling is based; and (c) where the taxpayer acted in bad faith.
CIR v. BURMEISTER and WAIN SCANDANAVIAN CONTRACTOR MINDANAO, INC. (2007) revocation
of a ruling by the CIR will not be given retroactive application if the revocation will prejudice the
taxpayer BWSCM sought a ruling from the BIR to ascertain the tax implications of transactions involving
foreign currency remittances. BIR Ruling No. 023-95 was issued declaring that if BWSCM chooses to register as
a VAT taxpayer and the consideration for its services is paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, its services shall be subject to 0% VAT. Pursuant to the
ruling, BWSCM registered as a VAT taxpayer. For the year 1996, it filed VAT returns showing zero rated sales.
However, in 1997, it subjected itself to the 10% VAT because it allegedly misinterpreted RR No. 5-96 which is
applicable to its case. In 1999, it was able to secure VAT Ruling No. 003-99 which reconfirmed BIR Ruling No.
023-95 holding that the services of BWSCM is subject to VAT at 0%. Pursuant to this, BWSCM filed a claim for
the issuance of a TCC representing the 10% VAT payments. Held: BWSCMs services do not qualify for 0%
VAT because the recipient is doing business not outside, but within the Philippines. Nevertheless, BWSCMs
reliance on the two rulings holding that it is subject to 0% VAT binds the BIR. When the CIR filed its
Answer in the CTA challenging the claim for refund, such serves as a revocation of the rulings. However, such
revocation cannot be given retroactive effect since it will prejudice BWSCM. Changing BWSCMs status will
deprive it of a refund of a substantial amount representing excess output tax. Nonetheless, from the filing of the
CIRs Answer before the CTA, BWSCMs services shall be subject to the regular 10% VAT as such filing is
deemed a revocation of the rulings.
CIR v. CA, CTA, & ALHAMBRA INDUSTRIES, INC. (1997) Alhambra is engaged in the manufacture and sale of
cigarette products. On April 1991, the CIR assessed them with deficiency Ad Valorem Tax (AVT). Eventually,
Alhambra elevated the case to the CTA. The CTA ordered the CIR to refund to Alhambra erroneously paid AVT.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 156 of 162
"#$
According to the CTA, Alhambra used BIR Ruling 473-88 (1988), allowing it to exclude VAT in the
determination of gross selling price for purposes of computing AVT. Thereafter, CIR issued BIR Ruling 017-91
(1991), revoking the earlier BIR Ruling 473-88 for being violative of Sec. 142 of the then Tax Code. It included
back the VAT to the gross selling price in determining the tax base for computing the AVT on cigarettes. CIR
sought to apply the revocation retroactively to Alhambras removals of cigarettes for the period starting
November 1990 to January 1991 on the ground that Alhambra allegedly acted in bad faith which is an
exception to the rule on non-retroactivity of BIR Rulings. The CIR also alleged that since the earlier ruling is
contrary to the Tax Code, it does not confer vested rights to Alhambra; that good faith is immaterial in cases of
reliance on a void ruling; that Alhambra acted in good faith; that there is presumption of regularity in the
assessment; and strict construction of claim of tax refunds should be applied.
CIR claims that Alhambra falls under the 3
rd
exception to non-retroactivity, which is bad faith. Bad faith imports
a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of
fraud; a breach of a known duty through some motive of interest or ill will.Alhambra, upon knowledge of
the effectivity of the newer BIR Ruling 017-91, immediately implemented the method of computation
mandated therein. This manifests its good faith. Well-entrenched is the rule that rulings and circulars,
rules and regulations promulgated by the CIR would have no retroactive application if to so apply them
would be prejudicial to the taxpayers, subjects to exceptions (not present in this case). Alhambra would be
prejudiced by the retroactive application.
CIR v. TELEFUNKEN SEMICONDUCTOR PHILIPPINES, INC. (1995) Telefunken is registered with the Board
of Investments (BOI) under Republic Act No. 6135. Telefunken paid contractors tax. Then Telefunken wrote a
letter to the BIR stating that the payment of contractors tax was erroneous and requested its refund or tax credit
thereof. Telefunken contended that under the provisions of Section 7 of Republic Act No. 6135 in relation to
Section 8 (a) of Republic Act No. 5186 (The Investment Act), it was exempted from the payment of all national
internal revenue taxes for the period in question, except for income tax. CIR argues that the NIRC speaks of firms
registered under Republic Act No. 5186 and thus, the privilege of tax exemption cannot be made to apply to firms
registered under Republic Act No. 6135.
Telefunken is entitled to the tax credit. There is no difference between the gross receipts of pioneer
enterprises registered with the BOI under RA No. 6135 and the gross receipts of registered pioneer
enterprises under RA No. 5186. In fact, the CIR himself had ruled in the same on 1974 in a case. CIR now
maintains that this 1974 ruling has been abrogated with the passage of the 1977 Tax Code. However, the wording
of the relevant part(for this case) of the 1974 and 1977 Tax Code are the same. Lastly, under Sec. 246 of the
National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is
prejudicial to the taxpayer.
D. Weight of BIR Rulings
PBCOM v. CIR (1999) Weight of BIR Rulings. PBCom filed its quarterly income tax returns for the first and second
quarters of 1985. Subsequently, however, PBCom suffered net loss thereby showing no income tax liability in its
Annual Income Tax Returns for the year-ended December 31, 1985. For the succeeding year PBCom likewise
reported a net loss and thus declared no tax payable for the year. But during these two years, PBCom earned
rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes in
1986. PBCom then requested CIR for a tax credit for the withholding taxes. Thereafter it filed a claim for refund
of creditable withholding tax. Pending the investigation of CIR, it filed a Petition for Review with CTA. CTA
decided in favor of the BIR on the ground that the Petition was filed out of time as the same was filed beyond the
two-year reglementary period. The issue now is whether RR 7-85, which alters the reglementary period from 2
years to 10 years, is valid, thereby making PBComs petition valid. HELD: it is INVALID. Administrative
issuances are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency,
the law prevails over them. Administrative agencies have no legislative power. When the Acting Commissioner of
Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 157 of 162
"#$
NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute
passed by Congress.
E. Reliance on Ruling Issued to Third Party
SANIWARES v. CIR (1992)
F. Authority of Regional Directors to Issue Certain Rulings
Revenue Memorandum Circular No. 3-2001, Jan. 31, 2001
IX. AMNESTY, ABATEMENT, AND COMPROMISE
CIR v. CA (1999) Tax amnesties like tax exemption are strictly construed against the taxpayer and liberally
construed in favor of the taxing authority.
Don Andres Soriano founded A.Soriano Y Cia which became ANSCOR a corporation wholly owned and
controlled by the family of Don Andres. Over the years the value of ANSCOR increased and stock dividends
were declared and issued to Don Andres. When he died one half of his shares was transferred to his wife as her
conjugal share and the other half remained with his estate. Don Andress wife and his estate exchanged a portion
of their common shares to preferred shares. ANSCOR in a board resolution redeemed a majority of the common
stock of Don Andress estate saying that their redemption of stocks was to partially reduce the companys foreign
exchanges remittance in case dividends are declared.
After examining the books of accounts of ANSCOR, they were assessed for deficiency withholding tax at the
source for the year 1968 and 1969 despite the claim of ANSCOR that it availed of the tax amnesty under PD 23 as
amended by PD 67. ANSCOR protested but was denied. In a petition for review, the CTA reversed the ruling of
the CIR by interpreting Sec 83b of the 1939 Revenue Act. CTA said the redemption of stock of ANSCOR and
their exchange of common with preferred created income. CIR claimed that what ANSCOR did was a
cancellation and in effect the estate of Don Andres increased and ANSCOR had a duty to withhold tax. ANSCOR
denied this and specifically invoked the tax amnesty.
PD 67 condones the collection of internal revenue taxes including penalties for non-payment as well as civil,
criminal or administrative liability from the voluntary disclosure of previously untaxed income and/or wealth
realized here or abroad by any taxpayer. ANSCOR was assessed deficiency withholding tax and as such is held
liable in the capacity of withholding agent and not as a taxpayer. As a withholding agent is no more than an agent
or a collector of tax for the government for payment of the taxpayer. He is not liable for the tax of the taxpayer as
no wealth flowed into him he earned no income. Since as a withholding agent he earned no income and PD 67
applies only to income earned that was not declared and not collected, the amnesty under the aforementioned law
does not apply to him.
(Important) Tax Amnesty, much like tax exemption is never favored nor presumed in law and if granted by
the statute, the term of the amnesty like that if tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority. Furthermore, the claim of amnesty of ANSCOR cannot
prosper because implementing rule of PD 370 Sec 4.2 says that the tax amnesty does not cover tax liabilities with
or without assessment on withholding tax at the source under Sec 53 54 of the NIRC. Thus, by specific
provision of law it is not covered by the amnesty.
PEOPLE v. SANDIGANBAYAN (2005)
SECURITY BANK v. CIR (2006) Security Bank Corp. (SBC) received a PAN for deficiency Documentary Stamp
Tax (DST) on the (1) promissory notes issued and (2) on sale of securities under repurchase agreement. SBC
protested because the promissory notes were NON-NEGOTIABLE and therefore not subject to DST and the sale
of securities were also not subject to DST. The BIR did not answer the letter-protest but it sent an assessment
letter . SBC answered and said that the BIR, through former Commissioner Tan, entered into a general


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 158 of 162
"#$
compromise agreement with the Bankers Association of the Phil. (BAP) concerning the DST assessment relating
to non-negotiable promissory notes. Pursuant to said compromise, SBC signed its own compromise
agreement by paying P650k as full settlement. The court said that the compromise was not valid because it
was not authorized by the BIR commissioner. SBCs contention that the BIR, through its various officials,
accepted its offer to settle its entire DST deficiency assessment. (they paid P650k) ISSUE: W/N the compromise
is valid? HELD: NO. The BIR Commissioner has the sole power and authority to compromise taxes.
Neither was there any showing that the BIR Commissioner specifically authorized those revenue officials, who
purportedly accepted and approved SBCs offer of payment, to compromise the DST on sale of securities, which,
to stress, were not included in the Compromise Agreement of August 15, 1988 by delegating his power to
compromise said DST assessment on securities. This ultra vires act of those revenue officials cannot have any
valid and binding legal effect upon the BIR, so as to proscribe the latter from issuing the assailed reassessment of
unpaid DST on the sales of securities under repurchase agreements for the year 1983.
PHILIPPINE BANKING CORPORATION (now Global Business Bank, Inc.) v. CIR (2009) Surviving or new
corporations may avail of the tax amnesty in behalf of the corporation absorbed or dissolved pursuant to a
merger or consolidation that took effect prior to taxable year 2005 Philippine Banking Corporation (PBC)
offered its Special/Super Savings Deposit Account (SSDA) to its depositors. SSDAs allowed depositors who
maintained a high daily average account balance to earn interest on their deposits at a higher rate, provided that a
minimum deposit of P50,000 is maintained within an agreed time period of 30, 60, or 90 days. BIR sent PBC a
final assessment notice for deficiency Documentary Stamp Tax (DST). The assessment was anchored on the fact
that the law subjects certificates of deposits drawing interest to the payment of DST. BIR argued that while it is
true that SSDA deposits are evidenced by a passbook instead of a certificate of deposit, SSDA deposits were akin
to time deposits evidenced by certificates and therefore, the passbook must be treated as a certificate in itself and
thus, subject to DST.
The CTA 2nd division, CTA en banc and thereafter the SC itself found PBC liable to pay DST. However,
during the pendency of the case, RA 9480
10
granting an amnesty on all unpaid revenue taxes imposed by the

10. The pertinent provisions of RA 9480 are:
Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall cover all national internal revenue
taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as
of December 31, 2005: Provided, however, That the amnesty hereby authorized and granted shall not cover persons or cases
enumerated under Section 8 hereof.
...
Sec. 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section 5 hereof, and have fully
complied with all its conditions shall be entitled to the following immunities and privileges:
1. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the appurtenant civil,
criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.
...
Sec. 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following persons or cases existing as of
the effectivity of this Act:
1. Withholding agents with respect to their withholding tax liabilities;
2. Those with pending cases falling under the jurisdiction of the Presidential Commission on Good Government;
3. Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft and Corrupt Practices
Act;
4. Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 159 of 162
"#$
national government for the taxable year 2005 and prior years lapsed into law. Pursuant to the law, Metrobank,
the surviving entity that absorbed PBC, applied for and complied with all the requirements of the Tax
Amnesty program. By virtue of Metrobanks availment, PBC is now deemed statutorily discharged from
paying the DST, it appearing that the finding of the SC with respect to PBCs liability to pay the tax had
yet to become final and executory when Metrobank qualified for the amnesty program.
BAAS, JR. v. CA (2000) mere filing of tax amnesty return does not shield from prosecution In 1976, Baas
sold a parcel of land located in Muntinlupa to Ayala Investment Corp. for around Php2.3M. Ayala paid around
Php400k, w/ the agreement that the remaining balance would be paid in four equal installments, w/ 12% interest
p.a. This was evidenced by one promissory note. Contrary to regular practice, Baas discounted the promissory
note that same day, and Ayala issued nine checks, each amounting to Php205k. In its 1976 Income Tax Return,
Baas reported as income the original Php400k payment, but upon inspection, it was found out that Baas didnt
include any amounts receivable. Therefore, the BIR concluded that the sale was not really on installment
basis but was paid w/ cash and that having realized the entire income that year, the whole Php2.3M should
have been indicated therein, not just the Php400k. The BIR found that he had deficiency taxes of around
Php900k.
A criminal case for tax evasion was filed against Baas. On July 1981, Baas filed for tax amnesty under P.D.
1740 and paid Php41,729. Later that November, he filed for another amnesty under P.D. 1840 and paid Php1.5k.
In both, he didnt recognize that the sale was on cash basis. He didnt amend his income return, and didnt
pay the additional taxes due him. However, the mere filing of tax amnesty return under P.D.s 1740 & 1840
doesnt ipso facto shield him from prosecution. Tax amnesty is a general pardon to taxpayers who want to start a
clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to
go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be
immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed his previously untaxed
income and must have paid the corresponding tax on such previously untaxed income. In both instances, he
did not meet the twin requirements under both P.D.s of (1) declaring all his untaxed income and (2) full payment
of tax due thereon. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against
the taxpayer and liberally in favor of the taxing authority.
REPUBLIC v. CA and PRECISION PRINTING (2000) assessments made prior to August 21, 1986 are still
covered the E.O. 41 On June 10, 1985, BIR issued an assessment notice and letter against Precision Printing and
demanded payment (P248,406.11). However, Precision Printing did not pay within the prescribed period. The tax
assessment became final and demandable. On October 31, 1986, Precision Printing filed a Tax Amnesty Return
(pursuant to EO 41), Statements of Net Worth, its Amended Tax Return, and other supporting documents. BIR
filed a complaint against Precision Printing for the collection of deficiency income tax. Precision Printing claimed
that it is not liable because of the Tax Amnesty. RTC ruled in favor of Precision Printing. CA upheld. Under R.O.
4-87, a certification of tax amnesty is sufficient basis for the cancellation/withdrawal of assessment notice and
letters of demand, issued after August 21, 1986 for the collection of income, business, estate or donors taxes
during the taxable years. BIR claims Precision Printing was assessed of its tax deficiency before Revenue Order
4-87 was issued to implement E.O. 41. BIR is wrong. On its face, R .O. 4-87 reckoned the applicability of the tax
amnesty from the date E.O. 41 took effect on August 22, 1986. However, EO 41 does not limit its applicability
to assessment made prior to its effectivity. E.O. 41 merely provided for a general statement covering all tax
liabilities incurred from 1981-1985. If it intended to exclude 1981-1985 tax liabilities already assessed, the law

5. Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title X of the National
Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal exactions and transactions, and malversation of
public funds and property under Chapters III and IV of Title VII of the Revised Penal Code; and
6. Tax cases subject of final and executory judgment by the courts. (Emphasis supplied)



TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 160 of 162
"#$
could have simply included exclusionary clauses. It did not. E.O. 41 is in the nature of a general grant of tax
amnesty subject only to cases specifically excepted by it.
CIR v. ARIETE (2010)
Facts: Respondent filed her income tax returns for the years 1993, 1994, 1995, and 1996 under Revenue Memorandum
Order (RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise known as the Voluntary
Assessment Program (VAP). Respondent was subsequently assessed with deficiency income taxes for the years
1993 to 1996. CIR issued four assessment notices against respondent. Respondent filed an Assessment Protest
with Prayer for Reinvestigation but was denied. On 16 April 1999, respondent offered a compromise settlement
but the same was denied. It elevated the case to the CTA which canceled the deficiency assessments.
The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the requirements before a person may be
excluded from the coverage of the VAP are:
a. The person(s) must be under investigation by the Tax Fraud Division and/or the regional Special Investigation
Division;
b. The investigation must be as a result of a verified information filed by an informer under Section 281 of the
NIRC, as amended; and
c. The investigation must be duly registered in the Official Registry Book of the Bureau before the date of
availment under the VAP The CTA also stated that the rationale behind the VAP is to give taxpayers a final
opportunity to come up with a clean slate before they will be dealt with strictly for not paying their correct taxes.
The CTA noted that under the RMOs, among the benefits that can be availed by the taxpayer-applicant are:
1) A bona fide rectification of filing errors and assessment of tax liabilities under the VAP shall relieve the
taxpayer-applicant from any criminal or civil liability incident to the misdeclaration of incomes, purchases,
deductions, etc., and non-filing of a return.
2) The taxpayer who shall avail of the VAP shall be liable only for the payment of the basic tax due.
The CTA ruled that even if respondent violated the National Internal Revenue Code (Tax Code), she was given
the chance to rectify her fault and be absolved of criminal and civil liabilities incident to her non-filing of income
tax by virtue of the VAP. The CTA held that respondent is not disqualified to avail of the VAP. Hence,
respondent has no more liabilities after paying the corresponding taxes due.
ARGUMENTS
Petitioner contends that the VAP, being in the nature of a tax amnesty, must be strictly construed against the
taxpayer-applicant such that petitioners failure to record the information in the Official Registry Book of the BIR
does not affect respondents disqualification from availment of the benefits under the VAP. Petitioner argues that
taxpayers who are under investigation for non-filing of income tax returns before their availment of the VAP are
not covered by the program and are not entitiled to its benefits. Petitioner alleges that the underlying reason for
the disqualification is that availment of the VAP by such taxpayer is no longer voluntary. Petitioner asserts that
voluntariness is the very essence of the Voluntary Assessment Program.
Respondent claims that where the terms of a statute are clear and unambiguous, no interpretation is called for, and
the law is applied as written, for application is the first duty of the court, and interpretation, only where literal
application is impossible or inadequate.
SUPREME COURTS RULING
On 27 October 1997, the CIR, in implementing the VAP, issued RMO No. 59-97 to give erring taxpayers a final
opportunity to come up with a clean slate. Any person liable to pay income tax on business and compensation
income, value-added tax and other percentage taxes under Titles II, IV and V, respectively, of the Tax Code for
the taxable years 1993 to 1996, who due to inadvertence or otherwise, has not filed the required tax return may
avail of the benefits under the VAP.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 161 of 162
"#$
It is evident from these RMOs that the CIR was consistent in using the word and and has even underscored the
word in RMO No. 63-97. This denotes that in addition to the filing of the verified information, the same should
also be duly recorded in the Official Registry Book of the BIR. It is sufficiently clear that for a person to be
excluded from the coverage of the VAP, the verified information must not only be filed under Section 281of the
Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment
under the VAP.
Petitioners failure to effect compliance with the requirement of recording the verified information or
investigation in the Official Registry Book of the BIR means that respondent, even if under investigation, can
avail of the benefits of the VAP. Consequently, respondent is relieved from any criminal or civil liability incident
to the non-filing of a return.
CIR v. PHILEX MINING CORPORATION (2010) Availment of tax amnesty does not mean admission of
validity of assessments made" "Presumption of correctness of SALN submitted to avail of tax amnesty,
applies even against CIR In 2002 The CIR assessed deficiency taxes and sent a Formal Letter of Demand
against PMC for the year 1998 (not under this topic: assessments void, issued beyond prescriptive period of 3 yrs;
Although 2 waivers were signed by PMC, CTA division held these to be invalid for being defective, not strictly
complying with the form the RMO prescribed, therefore did not toll prescriptive period). Furthermore, PMC in
2008 availed of the tax amnesty program RA 9480, which granted amnesty on all unpaid internal revenue taxes
for 2005 and prior years, which was approved. CIR contended its availment of the tax amnesty amounts to
admitting the validity of the assessments made. Section 1 of R.A. No. 9480 provides that the tax amnesty covers
all national internal revenue taxes for taxable year 2005 and prior years, with or without assessments, that have
remained unpaid as of December 31, 2005. It does not necessarily mean that a taxpayer admits the validity of any
prior assessments and waivers, since the tax amnesty covers even those without any assessment. The law does not
impose such conditions, save for the taxpayer to satisfy all the qualification requirements. Said law also requires
applicants to fill up an SALN form, to be given to the Revenue District Officer of the BIR. The BIR is presumed
by law to have sufficiently passed upon taxpayer's compliance, it cannot belatedly question the correctness of
PMC's SALN at this point in time, after it has already failed to even file a timely MR when the CTA resolved
PMC's availment of the tax amnesty. Moreover, there is a presumption created by law of the correctness of the
SALN, and those who can question this are parties OTHER than the BIR or its agents.
X. DECLARATORY RELIEF, CERTIORARI, PROHIBITION, AND MANDAMUS
BRITISH AMERICAN TOBACCO v. CAMACHO (2008) issue on constitutionality not within the jurisdiction of
CTA A petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction was
filed by petitioner to enjoin the implementation of Section 145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and
RMO No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal
protection and uniformity provisions of the Constitution. Lower court upheld the constitutionality and this
prompted the filing of a petition for review to SC. While the petition was pending, RA 9334 took effect which
effectively increased the excise tax of petitioners products. Commissioner assessed petitioners importation of
911,000 packs of Lucky Strike cigarettes liable for taxes in the total sum of P22.775M. Thus petitioner filed a
Supplement to Petition for Review which assailed the constitutionality of RA 9334 insofar as it retained Annex
D (classification of brand of cigarettes based on average net retail price as of Oct 1996) and praying for the
classification of Lucky Strike products at a lower tax bracket. Fortune Tobacco intervened and contended that
petitioner should have brought its petition before the CTA rather than the RTC. Sec 7 of RA 1125 provides for
the jurisdiction of CTA which includes exclusive appellate jurisdiction to review by appeal the decisions or
the inaction deemed as denial of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal
Revenue. While the CTA has jurisdiction to resolve tax disputes in general, this does not include cases
where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The petition for injunction


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 162 of 162
"#$
filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as
amended, and the validity of its implementing rules and regulations. Petitioner, therefore, properly filed the
subject case before the RTC.
CJH (Camp John Hay) DEVELOPMENT CORPORATION v. BIR, BOC (2008)
Facts: Proclamation No. 420 was issued by President FVR to create a Special Economic Zone (SEZ) in a portion of
Camp John Hay in Baguio City. Section 3 of the Proclamation granted incentives to the SEZ, such as tax
exemptions for businesses located inside the SEZ, and the operation of the SEZ as a special customs territory
providing for tax and duty free importations of certain goods. In line with the Proclamation, the BIR issued its
Revenue Regulations while the BOC issued its Customs Administrative Order. The two issuances provided the
rules and regulations to be implemented within the Camp John Hay SEZ. Subsequently, however, Section 3 of the
Proclamation was declared unconstitutional by the SC. Thus, the Office of the City Treasurer sent a demand letter
for real property taxes. The BOC followed suit and demanded from CJH unpaid duties and taxes due on all the
importations made by CJH in the previous years. The BIR also sent a letter to CJH stating that CJH will be
considered as an ordinary corporation subject to the regular corporate income tax. CJH then filed before the RTC
a declaratory relief questioning the retroactive application by the BOC of the decision of the Court in voiding Sec.
3 of Proc. No.420. CJH claimed that the assessment was null and void because it violated the non-retroactive
principle under the Tariff and Customs Code.
The RTC rendered its order denying the petition of CJH, ruling that the decision of the Court applies retroactively
because the tax exemption granted by Proclamation No. 420 is null and void from the beginning. (1) The RTC
also ruled that the petition for declaratory relief is not the appropriate remedy. (2) A judgment of the court cannot
be the proper subject of a petition for declaratory relief; (3) Also, the RTC held that Commonwealth Act No. 55
(CA No. 55), which forbids the use of declaratory relief in cases where a taxpayer questions his tax liability, is
still in force and effect.
Held: The SC upheld the decision of the RTC, expounding on the ruling of the RTC, as follows:
(1) There are other remedies available to a party who is not agreeable to a decision by a court. If it involves a
decision of an appellate court, the party may file a motion for reconsideration or new trial in order that the defect
may be corrected. In case of ambiguity of the decision, a party may file a motion for a clarificatory judgment.
CJH is not left without recourse. The Tariff and Customs Code (TCC) provides for the administrative and judicial
remedies available to a taxpayer who is minded to contest an assessment, subject of course to certain
reglementary periods.
(2) The proper subject matter of a declaratory relief is a deed, will, contract, or other written instrument, or the
construction or validity of statute or ordinance. (CJH is claiming that the petition questions the validity of the
demand letter or assessment sent to it by the BOC.) The SC ruled that it is really not the demand letter which is
the subject matter of the petition. The court is asked to determine whether the decision of the SC (declaring Sec. 3
as null and void) has a retroactive effect. A petition for declaratory relief cannot properly have a court decision as
its subject matter.
(3) The SC said that CA No. 55 is still in effect since it was not yet repealed by a subsequent law. (CJH is
claiming that CA No. 55 has been repealed by the Rules on Declaratory Relief in the Rules of Court since the said
provision was not included in the instances where declaratory relief will lie.) The Court cannot repeal, modify or
alter an act of the Legislature.
NOTES: Requisites for a petition for declaratory relief to prosper are: (1) there must be a justiciable controversy;
(2) the controversy must be between persons whose interests are adverse; (3) the party seeking declaratory relief
must have a legal interest in the controversy; and (4) the issue involved must be ripe for judicial determination.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 163 of 365
"#$
ESTATE TAX
I. INTRODUCTION
A. When Estate Tax Accrues
Revenue Regulation No. 2-2003, Dec. 16, 2002
LORENZO v. POSADAS (1937) Hanley died, leaving a will, which directed that all his real estate not be disposed of
for a period of 10 years after his death, and that the same be managed by the executors, and proceeds given to his
nephew, and after the 10 years the property be given to his nephew.
The inheritance accrues at the time of the death of the decedent. The Admin Code (law applicable at the time),
imposes the tax upon every transmission by virtue of inheritance. The tax therefore is upon transmission or the
transfer or devolution of property of a decedent, made effective by his death. Since according to the Civil Code,
the rights to the succession of a person are transmitted from the moment of his death. Therefore a transmission
by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual
possession of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that
time. (Tax is based on the value of the property at the time of the death of the decedent)
However the accrual of the inheritance tax is distinct from the obligation to pay the same. The corresponding
inheritance tax should have been paid on or before the date trust estate vested in trustee. Because the
delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in
this case.
A trustee is entitled to receive a fair compensation for his services. But this it does not mean that the
compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is
no statute in the Philippines which requires trustees commissions to be deducted in determining the net
value of the estate subject to inheritance tax. Because the compensation of a trustee, earned, not in the
administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses.
B. Non-Resident Alien Decedent
BEAM v. YATCO (1948) The CIR assessed the heirs of Lydia Beam inheritance tax for properties acquired by her
and her husband (shares of stock) during their marriage. The heirs of Lydia paid under protest and are now
seeking a refund, claiming the deceased were citizens of Utah. Under the Utah law, the properties acquired during
the marriage would have been considered separate. The court held that they are not entitled to a refund. They
failed to establish Utah citizenship because there was no sufficient proof that the Sps. Beam intended to return
to/stay there. The Sps. Beam became citizens of California in 1923 when they established permanent residence
there, despite Mr. Beams visits to the Philippines (he even lived here for a year). Lydia Beam was a Californian
citizen at the time she died, thus as regards her personal property in the Philippines, California law is
applicable (Art. 10). In the absence of proof, it is presumed to be the same as Philippine law. The shares are
community property; thus, upon her death her ! share passed to her heirs subject to inheritance tax.
CIR v. MCGRATH (1961) In 1956, the CIR assessed against the estate of Dora Anna Wood, of which Ellen Wood
McGrath is the administratrix, estate tax, inheritance tax, surcharges and interest. On appeal, the CTA declared
the estate of Wood exempt from inheritance tax but subject to estate tax. The CIR appealed insisting that there is
no reciprocity between the California and Philippine laws on the matter of the death tax on intangible personal
property, and as such, the estate is liable to pay inheritance tax. Held: No reciprocity exists in this case since the
law of California does not grant full exemption from the estate and inheritance taxes to Filipino residents in the
said state.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 164 of 365
"#$
Pertinent provisions:
Section 122 of NIRC provides:
And, provided, further, That no tax shall be collected under this Title in respect of intangible personal
property (a) if the decedent at the time of his death was a resident of a foreign country which at the time
of his death did not impose a transfer tax or death tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in the foreign country, or (b) if the laws of the foreign
country of which the decedent was a resident at the time of his death allow a similar exemption from
transfer taxes or death taxes of every character in respect of intangible personal property owned by
citizens of the Philippines not residing in that foreign country.
On the other hand, Section 13851 of the California Inheritance Tax Law, insofar as pertinent, reads:.
SEC. 13851. Intangibles of nonresident: Conditions. Intangible personal property is exempt from the tax
imposed by this part if the decedent at the time of his death was a resident of a Territory or another State
of the United States of a foreign state or country which then imposed a legacy, succession, or death tax in
respect to intangible personal property of its own residents, but either:
(a) Did not impose a legacy, succession, or death tax of any character in respect to intangible personal
property of residents of this State, or
(b) Had in its laws a reciprocal provision under which intangible personal property of a non-resident was
exempt from legacy, succession, or death taxes of every character if the Territory or other State of the
United States or foreign state or country in which the nonresident resided allows a similar exemption in
respect to intangible personal property of residents of the Territory or State of the United States or foreign
state or country of residence of the decedent.
It is clear from both these provisions that the reciprocity must be total, that is, with respect to transfer or death
taxes of any and every character, in the case of the Philippine law, and to legacy, succession, or death tax of any
and every character, in the case of the California law. Therefore, if any of the two states collects or imposes and
does not exempt any transfer, death, legacy, or succession tax of any character, the reciprocity does not work.
This is the underlying principle of the reciprocity clauses in both laws.
CIR v. CAMPOS RUEDA (1971) Non-resident alien decedent, a state need not fulfill all the requisites of statehood
to be considered a foreign country Rueda was the administrator of the estate of Vda. de Cerdeira, a Spanish
national who resided in Tangier, Morocco. The CIR assessed deficiency estate and inheritance taxes
(P161,874.95) on the transfer of intangible personal properties situated in the Philippines belonging to Vda. de
Cerdeira. Rueda sought tax exemptions based on Section 122 of the then NIRC, which provides: no tax shall be
collectedin respect of intangible personal propertyif the laws of the foreign country of which the decedent
was a resident at the time of his death allow a similar exemption from transfer taxes or death taxesin respect of
intangible personal property owned by citizens of the Philippines not residing in that foreign country. (Basta, the
foreign country must also grant the same tax exemption to Filipinos.)
The CIR contends that Tangier, Morocco is not a foreign country as contemplated in Section 122 because it was
not independent and thus did not fulfill all the requirements for statehood as prescribed in PIL. Ruling against the
CIR, the SC decided that a state need not fulfill all the requisites of statehood to be considered a foreign
country under Section 122. (In another decision, it recognized the state of California as a foreign country.)
The SC considered Tangier, Morocco as a foreign country, entitling the estate of Vda. de Cerdeira to the tax
exemption.
C. General Definition of Gross Estate
Sec. 85. Gross Estate. The value of the gross estate of the decedent shall be determined by including the value at the
time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided, however, that in the


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 165 of 365
"#$
case of a nonresident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines shall be included in his taxable estate.
(A) Decedent's Interest. To the extent of the interest therein of the decedent at the time of his death;
(B) Transfer in Contemplation of Death. To the extent of any interest therein of which the decedent has at any time
made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at
or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained
for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the
right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate
the person who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale for
an adequate and full consideration in money or money's worth.
(C) Revocable Transfer.
(1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case
of a bona fide sale for an adequate and full consideration in money or money's worth) by trust or
otherwise, where the enjoyment thereof was subject at the date of his death to any change through the
exercise of a power (in whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the decedent acquired
such power), t o alter, amend, revoke, or terminate, or where any such power is relinquished in
contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the
date of the decedent's death even though the exercise of the power is subject to a precedent giving of
notice or even though the alteration, amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or before the date of the decedent's death
notice has been given or the power has been exercised.
In such cases, proper adjustment shall be made representing the interests which would have been excluded from
the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not
been exercised on or before the date of his death, such notice shall be considered to have been given, or the power
exercised, on the date of his death.
(D) Property Passing Under General Power of Appointment. To the extent of any property passing under a general
power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or
intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has
retained for his life or any period not ascertainable without reference to his death or for any period which does not
in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b)
the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in
money or money's worth.
(E) Proceeds of Life Insurance. To the extent of the amount receivable by the estate of the deceased, his executor,
or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether
or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary
is irrevocable.
(F) Prior Interests. Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section
shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of powers, as severally
enumerated and described therein, whether made, created, arising, existing, exercised or relinquished before or
after the effectivity of this Code.
(G) Transfers of Insufficient Consideration. If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 166 of 365
"#$
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
(H) Capital of the Surviving Spouse. The capital of the surviving spouse of a decedent shall not, for the purpose of
this Chapter, be deemed a part of his or her gross estate.
Sec. 104. Definitions. For purposes of this Title, the terms "gross estate" and "gifts" include real and personal property,
whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but
which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift": Provided,
further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation
or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds
by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs
in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be
considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any
character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or
donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as
the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated,
refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount
by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax.
D. Constitution
1. Property in Which Decedent Had an Interest
Sec. 85. Gross Estate. ...
(A) Decedent's Interest. To the extent of the interest therein of the decedent at the time of his death;
2. Transfers in Contemplation of Death
(B) Transfer in Contemplation of Death. To the extent of any interest therein of which the decedent has at any time
made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at
or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained
for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the
right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate
the person who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale for
an adequate and full consideration in money or money's worth.
VIDAL DE ROCES v. POSADAS (1933) donation inter vivos made in consideration or contemplation of death
are advances on inheritance and thus part of inheritance tax Tuazon initially donated in public document a
parcel of land to Vidal de Roces et al. Vidal. A few months after, Tuazon died and left a will where he bequeathed
to Vidal, legacy of 5K each. CIR then demanded Vidal, to pay as inheritance tax (based on: donation + legacy).


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 167 of 365
"#$
Vidal paid under protest and then filed action to recover from CIR. They contested that donations Inter vivos
(during lifetime) should not be included in the inheritance tax. Supreme Court held that the tax collected on
the donation is also part of the inheritance tax because its transmission was made in contemplation of
donors death and this was supported by the fact that same donees were later instituted as legatees in his
will. Under the inheritance tax, all gifts refer to donation inter vivos which were made in contemplation
or consideration of donors death.
Dissenting opinion by Justice Villa-real: The majority decision established a legal presumption that all gifts inter
vivos made to persons (not forced heirs but are later instituted legates in donors will) are presumed to be made in
contemplation of donors death. This should not be so because such presumption is not found in any law or fact
(not inferred from antecedent circumstances.) With this in mind, donation inter vivos made to such person should
not be presumed made mortis causa, thus the burden of proof rests with CIR who contends that donation inter
vivos was made in contemplation of death.
BIR RULING NO. 163-89, AUG. 8, 1989 Sps. Benitez (trustor) executed a Deed of Trust conveying all their
properties in favor of their daughter Sister Scholastica Benitez and/or Faro Benitez (trustees) for the benefit of
their 6 children as beneficiaries. The following were conveyed: A) Rights and interest of 16 memorial lots from
Manila Memorial Park for the sole benefit and enjoyment of Sister Scholastica and/or the Community of
Benedictine Sisters to the exclusion of the other beneficiaries, where a Deed of Assignment was executed on Sept
3, 1976 or after the death of one of the trustors so that legal title of such would be transferred to Sister
Scholastica and her community. B) Certain parcels of land together with all their improvements thereonwhere
the trustees had the power to lease or mortgage said properties and shall hold all the rents, income, and proceeds
from any lease, mortgage or other disposal of said properties for the benefit of the beneficiaries. So far, 4 parcels
of land have been transferred.
The transfer of all properties of the trustor who died within 3 yrs from the date of said transfer come
within the purview of Sec. 88 of the Tax Code. b) Transfer in contemplation of death: To the extent of any
interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of
or intended to take effect in possession or enjoyment, or after his death, or of which he has at any time made a
transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without
reference to his death or for any period which does not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from the property; or (2) the right, either alone or in conjunction with any
person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case
of a bona fide sale for an adequate and full consideration in money or moneys worth. Any transfer of a material
part of his property in the nature of a final disposition or distribution thereof, made by the decedent within
three years prior to his death without such consideration, shall, unless shown to the contrary, be deemed to
have been made in contemplation of death within the meaning of this Chapter.
All properties covered by the Deed of Trust shall be considered as forming part of the decedents gross
estate subject to estate tax. (Sec. 88: Value of the gross estate of the decedent shall be determined by including
the value at the time of his death of all property, real, personal, tangible or intangible, wherever situated, except
real property situated outside the Philippines) The transfer of properties during the lifetime of the trustor does
not preclude the imposition of the estate tax prescribed under Sec. 85 of the Tax Code. In addition, the
contemplated transfers of the real properties by the trustees are subject to the capital gains tax pursuant to Sec 21
(e) of the Tax Code.
DISON v. POSADAS (1932) During his lifetime, Felix Dison executed in favor of his son Luis Dison a Deed of Gift
transferring to the later 22 tracts of land to the latter as donee. The Collector of Internal Revenue (CIR) assessed
Dison an inheritance tax in the amount of P2,808.73 which he paid under protest. Luis Dison filed a suit for the
recovery of the paid inheritance tax, claiming that the tax was illegal because the property he received thru a Deed
of Gift inter vivos, which he duly accepted and registered before the death of his father, was a gift and not an
inheritance and therefore not subject to inheritance tax. The court ruled in favor of the CIR saying that the gift
inter vivos made by Felix Dison was actually an advance of the inheritance of Luis Dison and therefore subject to
inheritance tax.. Sec. 1540 of the Administrative Code (governs inheritance tax at the time) states:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 168 of 365
"#$
Additions of Gifts and Advances. After the aforementioned deductions have been made, there shall be
added to the resulting amount the value of all gifts or advances made by the predecessor to any of those
who, after his death, shall prove to be his heirs, devises, legatees, or donees mortis causa.
The Court held that the transfer (Deed of Gift inter vivos) was an advancement upon the inheritance which the
donee as the sole and forced heir of the donor, would be entitled to receive upon the death of the donor. The fact
is that when the father executed the Deed of Gift, he transferred all of his property to his son and only reserved for
himself usufruct for three parcel of land out of the twenty two transferred. In addition, Luis was the only son and
only heir of Felix and these properties would be inherited by Luis upon the death of his father. The applicable
inheritance tax statute at the time (Sec 1540 of the Administrative Code) presumes that such gifts have been
made in anticipation of inheritance, devise, bequest, or gift mortis causa, when the donee, after the death of the
donor proves to be his heir, devisee or donee mortis causa, for the purpose of evading the tax, and it is to prevent
this that it provides that they shall be added to the resulting amount. Simply stated, the law presumes that when
a gift/donation has executed in favor of the donee who proves to be an heir of the donor, such donation/gift will
be presumed an advance of supposed donors inheritance and will be assessed an inheritance tax.
3. Transfers Taking Effect at Death
(B) Transfer in Contemplation of Death. To the extent of any interest therein of which the decedent has at any time
made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at
or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained
for his life or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the
right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate
the person who shall possess or enjoy the property or the income therefrom; except in case of a bonafide sale for
an adequate and full consideration in money or money's worth.
GANUELAS v. CAWED (2003) "Donations mortis causa not complying with formalities for validity of wills
void" Ganuelas executed a donation of real property in favor of her niece, Ursulina, stipulated to take effect after
her death and that should donee predecease the donor, the donation is rescinded. Celestina revoked the donation a
month before she died. Ursulina obtained tax declarations for the subject properties of the donation in her name
thereafter refusing to share the proceeds with the other nieces of Celestina. The latter filed a case alleging
donation was void as it was mortis causa which failed to comply with the formalities required of wills. Ursulina
answered it was inter vivos and that the revocation was void (ground for revocation was not valid). The
distinction between a transfer inter vivos and mortis causa is important as the validity or revocation of the
donation depends upon its nature. If inter vivos, it must be executed and accepted with the formalities
prescribed by Articles 748 and 749 of the Civil Code, may be revoked only for the reasons provided in
Articles 760, 764 and 765; except when it is onerous in which case the rules on contracts will apply. If
mortis causa, the donation must be in the form of a will, with all the formalities for the validity of wills,
otherwise it is void and cannot transfer ownership. Court held it was mortis causa, null & void for not
complying with provisions governing wills. Thus, property part of estate of deceased to pass intestate.
BIR RULING NO. 81-98, MAY 28, 1998 A Deed of Donation Mortis Causa was executed by and between Atty.
Amalia Carino as the Donor, and her sister Marijo Carino, as the Donee. The Donation includes a property
covered by a TCT and the 1/3 undivided share in another property. The donation was subject to the following
conditions: a) that the donation shall produce effects only after the donors death and b) the donor may cancel or
amend the donation at any time during her lifetime. The donor requested for exemption from the payment of gift
tax under Section 91 (Section 98 of the Tax Code of 1997). The BIR ruled that the donations/gifts are exempt
from the donors tax. Since the donations are to take effect upon the donors death, they partake of the
nature of testamentary provisions and the same shall remain part of the donors gross estate at the time of
his/her death even if the same have been donated in favor of the donee. The provisions regarding the
imposition of the estate tax on transfers in contemplation of death shall apply in this case.
The said deed can be annotated at the back of the TCTs in order not to prejudice the right of any person that may
be affected by said donation.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 169 of 365
"#$
BIR RULING NO. 10-03, SEPT. 8, 2003 Joint Depositors Survivorship Agreement-no withdrawal-subject to
estate tax A question was raised regarding a Survivorship Agreement executed by Joint Depositors. What
happens after a joint depositor dies? Does the entire remaining balance of the deposit belong to the surviving co-
depositor, and may withdraw the remaining balance in the account? NO. Section 97 of the NIRC provides that
joint account holders are not allowed to any withdrawal from the account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid; Provided, however, That the administrator of the
estate or any one (1) of the heirs of the decedent may, upon authorization by the Commissioner; withdraw an
amount not exceeding Twenty thousand pesos (P20,000).
More importantly, considering that the joint account contemplates a co-ownership relationship therefore a
presumption of equal share (50/50) is applied, in addition to the fact that upon the co-depositors death, a Transfer
in Contemplation of Death [Sec. 85 (b) NIRC] occurs, therefore the 50% transferred out will be included in
computing the value of the gross estate of the deceased co-depositor and thus, subject to the proper estate tax.
4. Transfers with Retained Interest

5. Revocable Transfers
(C) Revocable Transfer.
A. To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case
of a bona fide sale for an adequate and full consideration in money or money's worth) by trust or
otherwise, where the enjoyment thereof was subject at the date of his death to any change through the
exercise of a power (in whatever capacity exerciseable) by the decedent alone or by the decedent in
conjunction with any other person (without regard to when or from what source the decedent acquired
such power), t o alter, amend, revoke, or terminate, or where any such power is relinquished in
contemplation of the decedent's death.
(3) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the
date of the decedent's death even though the exercise of the power is subject to a precedent giving of
notice or even though the alteration, amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or before the date of the decedent's death
notice has been given or the power has been exercised.
In such cases, proper adjustment shall be made representing the interests which would have been excluded from
the power if the decedent had lived, and for such purpose if the notice has not been given or the power has not
been exercised on or before the date of his death, such notice shall be considered to have been given, or the power
exercised, on the date of his death.
BIR RULING NO. 013-2005, AUG. 16, 2005 ISSUE: W/N a transfer of real property under a revocable trust
agreement is exempt from estate tax
NO! NOT EXEMPT!
Spouses Antonio and Patricia Salvador own a certain real estate property. They intend to change and register
the Trust Property with the register of Deeds to A. & P. Salvador Living Trust with Antonio being the
trustee and Patricia being the Successor Trustee. In case Antonio should die first, the trustee will be Patricia. In
case Patricia should die first, Antonio shall remain the trustee. Whoever is the eldest will be the Surviving trustee
until he dies, and then the next eldest etc.
Under Sec. 24 (D) (1) of the Tax Code, capital gains presumed to have been realized from the sale, exchange or
other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro
sales and other forms of conditional sales, by individuals, including estates and trusts shall be taxed at the rate


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 170 of 365
"#$
of six percent (6%) based on the gross selling price or current fair market value as determined in
accordance with section 6(e) of the same code, whichever is higher.
Such being the case, and considering there is no actual transfer of ownership over the property, as a result
of the transfer of the property to A&P Salvador Living Trust from Spouses Salvador, the said transfer is
not subject to the 6% capital gains tax. Also, no donors tax shall be imposed because there is no transfer of
ownership.
The deed involving the trust is not subject to documentary stamp tax. However, the notarial acknowledgement is
subject to the documentary stamp tax.
On the other hand, Section 85 (C) of the Tax Code provides that interest in the property of which the decedent
has at any time made a transfer by trust or otherwise is included in decedents gross estate. The value of the
gross estate of the decedent shall be determined by including the value at the time of his death of all properties,
real or personal, tangible or intangible, wherever situated to the extent of any interest therein, of which the
decedent has at any time made a transfer by trust, where the enjoyment thereof was subject at the date of his death
to any change through the exercise of a power by the decedent to alter, amend, revoke, or terminate or where any
such power is relinquished in contemplation of the decedents death.
In a revocable transfer of property, such as in this case, the property continues to be owned by the
transferor during his lifetime notwithstanding the transfer, as he still retains beneficial ownership. The
rationale for taxing such transfer in trust at the time of death of the trustor is to reach transfers which are
really substitutes for testamentary disposition and thus prevent evasion of estate tax. To be exempt for
estate tax, the transfer by inter vivos must be absolute and outright with no strings attached whatsoever by
the transferor, which is not the case here.
IN OTHER WORDS. All properties covered by the Revocable Living Trust shall be considered as forming part
of the decedents gross estate subject to estate tax pursuant to Section 85 upon the death of the owner of the
property.
So, in case of the death of Antonio of his spouse, the proposed transfer of the real property under the Revocable
Trust Agreement shall be subject to estate tax to the extent of either your or your spousess interest therein at the
time of death,
BIR RULING NO. DA-279-2006, APR. 15, 2006 The Revocable Living Trust Agreement and the Irrevocable Living
Trust Agreement cover the Living Trust and Trust Estate, and that the accounts opened through these trust
vehicles are generally and fundamentally built for long-term administration and accumulation for the
eventual transfer to the designated beneficiary/ies of your clients. Whereas, as compared to the Common
Trust Fund (CTF), the beneficiaries are one and the same person which is the trustor or the beneficial ownership
of the trust fund remains with the individual participant of the trust.
In a revocable transfer of funds to the designated beneficiary/ies of your client, such as in this case, the
funds continue to be owned by the trustor during his lifetime notwithstanding the transfer, as he still
retains the beneficial ownership. The rationale for taxing such transfer in trust at the time of death of the trustor
is to reach transfers which are really substitutes for testamentary disposition and thus prevent evasion of estate
tax.
In other words, all trust funds covered by the Revocable Living Trust Agreement of your client shall be
considered as forming part of its gross estate subject to estate tax pursuant to Section 85 of the Tax Code of
1997, upon the death of the trustor.
6. Power of Appointment
(D) Property Passing Under General Power of Appointment. To the extent of any property passing under a general
power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of, or
intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 171 of 365
"#$
retained for his life or any period not ascertainable without reference to his death or for any period which does not
in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b)
the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in
money or money's worth.
7. Proceeds of Life Insurance
(E) Proceeds of Life Insurance. To the extent of the amount receivable by the estate of the deceased, his executor,
or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of whether
or not the insured retained the power of revocation, or to the extent of the amount receivable by any beneficiary
designated in the policy of insurance, except when it is expressly stipulated that the designation of the beneficiary
is irrevocable.
II. VALUATION OF ESTATE AND AMOUNT TO BE INCLUDED IN CASES COVERED BY SECS. 85(B), (C),
AND (D) OF THE NIRC
(G) Transfers of Insufficient Consideration. If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
Sec. 88. Determination of the Value of the Estate.
(A) Usufruct. To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there
shall be taken into account the probable life of the beneficiary in accordance with the latest Basic Standard
Mortality Table, to be approved by the Secretary of Finance, upon recommendation of the Insurance
Commissioner.
(B) Properties. The estate shall be appraised at its fair market value as of the time of death.
However, the appraised value of real property as of the time of death shall be, whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.
DIZON v. COURT OF TAX APPEALS (2008) Atty. Jesus Gonzales signed and filed on behalf of the Estate of Jose
Fernandez the required estate tax return and represented the same in securing a Certificate of Tax Clearance with
the BIR Regional Director of San Pablo City. The BIR Regional Director issued Certifications stating that the
taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be
transferred to his heirs. Petitioner requested the probate courts authority to sell several properties forming part of
the Estate, for the purpose of paying its creditors. However, the Assistant Commissioner for Collection of the BIR
issued an Estate Tax Assessment Notice, demanding the payment of deficiency estate tax. On June 2, 1994,
petitioner filed a petition for review before respondent CTA. In the hearings conducted, petitioner did not present
testimonial evidence but merely documentary evidence. Respondents [BIR] counsel presented Alberto Enriquez,
who was one of the revenue examiners who conducted the investigation on the estate tax case of the late Jose
Fernandez. The CTA denied the petition for review, opining that the pieces of evidence introduced by the BIR
were admissible in evidence. CA affirmed the decision of the CTA, ruling that the petitioners act of filing an
estate tax return with the BIR and the issuance of the BIR Certification did not deprive the BIR Commissioner of
her authority to re-examine or re-assess the said return filed on behalf of the Estate. Hence, the instant Petition.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 172 of 365
"#$
Issues: (1)Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR
(2) Whether the actual claims of the creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements entered into by
the Estate with its creditors
Held: (1) Under Sec. 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA (Sec. 34, Rule 132 of the Revised Rules on Evidence).In
People v. Napat, the Court relaxed the rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the same must have been
duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of
the case. In this case, the Court finds that these requirements have NOT been satisfied. The assailed pieces of
evidence were presented and marked during the trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony. He was also subjected to cross-examination and re-
cross examination by petitioner. But Albertos account and the exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces of evidence presented by the BIR. Moreover, while Albertos
testimony identifying the BIRs evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case. While the CTA is not governed strictly by technical rules of evidence, the
presentation of the BIRs evidence is not a mere procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and verify the truth of BIRs claims against the Estate.
The BIRs failure to formally offer these pieces of evidence, despite CTAs directives, is fatal to its cause. Such
failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal
omission.
(2) Post-death development should not be considered. There is no law, nor do we discern any legislative intent in
our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death
developments must be considered in determining the net value of the estate. It bears emphasis that the tax burdens
are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or
activity is taxable generally resolved against taxation. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term claims required to be presented against a decedents estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at
the time of death are significant to, and should be made the basis of, the determination allowable.
III. EXEMPT TRANSFERS
Sec 87. Exemption of Certain Acquisitions and Transmissions. The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net
income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent
(30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.
IV. EXCLUSION OF CONJUGAL SHARE OF SURVIVING SPOUSE


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 173 of 365
"#$
Sec. 85. Gross Estate. ...
(H) Capital of the Surviving Spouse. The capital of the surviving spouse of a decedent shall not, for the purpose of
this Chapter, be deemed a part of his or her gross estate.
V. DEDUCTIONS FROM GROSS ESTATE
Sec. 86. Computation of Net Estate. For the purpose of the tax imposed in this Chapter, the value of the net estate shall
be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. In the case of a citizen or resident of the Philippines,
by deducting from the value of the gross estate
(1) Expenses, Losses, Indebtedness, and taxes. Such amounts: (a) For actual funeral expenses or in an
amount equal to five percent (5%) of the gross estate, whichever is lower, but in no case to exceed Two
hundred thousand pesos (P200,000); (b) For judicial expenses of the testamentary or intestate
proceedings; (c) For claims against the estate: Provided, That at the time the indebtedness was incurred
the debt instrument was duly notarized and, if the loan was contracted within three (3) years before the
death of the decedent, the administrator or executor shall submit a statement showing the disposition of
the proceeds of the loan; (d) For claims of the deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the gross estate; and (e) For unpaid mortgages upon,
or any indebtedness in respect to, property where the value of decedent's interest therein, undiminished by
such mortgage or indebtedness, is included in the value of the gross estate, but not including any income
tax upon income received after the death of the decedent, or property taxes not accrued before his death,
or any estate tax.
The deduction herein allowed in the case of claims against the estate, unpaid mortgages or any
indebtedness shall, when founded upon a promise or agreement, be limited to the extent that they were
contracted bona fide and for an adequate and full consideration in money or money's worth.
There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses are not
compensated for by insurance or otherwise, and if at the time of the filing of the return such losses have
not been claimed as a deduction for the income tax purposes in an income tax return, and provided that
such losses were incurred not later than the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.
(2) Property Previously Taxed. An amount equal to the value specified below of any property forming a
part of the gross estate situated in the Philippines of any person who died within five (5) years prior to the
death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been
acquired in exchange for property so received: One hundred percent (100%) of the value, if the prior
decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; Eighty percent (80%) of the value, if the prior
decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to his death; Sixty percent
(60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years
prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death; Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; Twenty percent (20%) of the value, if the prior
decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to his death; These
deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was finally


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 174 of 365
"#$
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may
be, and only in the amount finally determined as the value of such property in determining the value of
the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is
included in the decedent's gross estate, and only if in determining the value of the estate of the prior
decedent, no deduction was allowable under paragraph (2) in respect of the property or properties given in
exchange therefor.
Where a deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the
deduction allowable under said Subsection shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible
under said paragraph (2) bears to the value of the decedent's estate.
Where the property referred to consists of two or more items, the aggregate value of such items shall be
used for the purpose of computing the deduction.
(3) Transfers for Public Use. The amount of all the bequests, legacies, devises or transfers to or for the use
of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively
public purposes.
(4) The Family Home. An amount equivalent to the current fair market value of the decedent's family
home: Provided, however, That if the said current fair market value exceeds One million pesos
(P1,000,000), the excess shall be subject to estate tax.
As a sine qua non condition for the exemption or deduction, said family home must have been the
decedent's family home as certified by the barangay captain of the locality.
(5) Standard Deduction. An amount equivalent to One million pesos (P1,000,000).
(6) Medical Expenses. Medical Expenses incurred by the decedent within one (1) year prior to his death
which shall be duly substantiated with receipts: Provided, That in no case shall the deductible medical
expenses exceed Five Hundred Thousand Pesos (P500,000).
(7) Amount Received by Heirs Under Republic Act No. 4917. Any amount received by the heirs from the
decedent - employee as a consequence of the death of the decedent-employee in accordance with
Republic Act No. 4917: Provided, That such amount is included in the gross estate of the decedent.
(B) Deductions Allowed to Nonresident Estates. In the case of a nonresident not a citizen of the Philippines, by
deducting from the value of that part of his gross estate which at the time of his death is situated in the
Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. That proportion of the deductions specified in paragraph
(1) of Subsection (A) of this Section which the value of such part bears to the value of his entire gross
estate wherever situated;
(2) Property Previously Taxed. An amount equal to the value specified below of any property forming
part of the gross estate situated in the Philippines of any person who died within five (5) years prior to the
death of the decedent, or transferred to the decedent by gift within five (5) years prior to his death, where
such property can be identified as having been received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance, or which can be identified as having been
acquired in exchange for property so received: One hundred percent (100%) of the value if the prior
decedent died within one (1) year prior to the death of the decedent, or if the property was transferred to
him by gift, within the same period prior to his death; Eighty percent (80%) of the value, if the prior
decedent died more than one (1) year but not more than two (2) years prior to the death of the decedent, or
if the property was transferred to him by gift within the same period prior to his death; Sixty percent
(60%) of the value, if the prior decedent died more than two (2) years but not more than three (3) years


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 175 of 365
"#$
prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death; Forty percent (40%) of the value, if the prior decedent died more than three (3) years
but not more than four (4) years prior to the death of the decedent, or if the property was transferred to
him by gift within the same period prior to his death; and Twenty percent (20%) of the value, if the prior
decedent died more than four (4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior to his death.These
deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title is finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may
be, and only in the amount finally determined as the value of such property in determining the value of
the gift, or the gross estate of such prior decedent, and only to the extent that the value of such property is
included in that part of the decedent's gross estate which at the time of his death is situated in the
Philippines; and only if, in determining the value of the net estate of the prior decedent, no deduction is
allowable under paragraph (2) of Subsection (B) of this Section, in respect of the property or properties
given in exchange therefore.
Where a deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior to the decedent's death, then the
deduction allowable under said paragraph shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (1) and (3) of this Subsection as the amount otherwise deductible
under paragraph (2) bears to the value of that part of the decedent's gross estate which at the time of his
death is situated in the Philippines.
Where the property referred to consists of two (2) or more items, the aggregate value of such items shall
be used for the purpose of computing the deduction.
(3) Transfers for Public Use. The amount of all bequests, legacies, devises or transfers to or for the use of
the Government of the Republic of the Philippines or any political subdivision thereof, for exclusively
public purposes.
(C) Share in the Conjugal Property. The net share of the surviving spouse in the conjugal partnership property as
diminished by the obligations properly chargeable to such property shall, for the purpose of this Section, be
deducted from the net estate of the decedent.
(D) Miscellaneous Provisions. No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return
required to be filed under Section 90 the value at the time of his death of that part of the gross estate of the
nonresident not situated in the Philippines.
(E) Tax Credit for Estate Taxes paid to a Foreign Country.
(1) In General. The tax imposed by this Title shall be credited with the amounts of any estate tax imposed
by the authority of a foreign country.
(2) Limitations on Credit. The amount of the credit taken under this Section shall be subject to each of the
following limitations: (a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate
situated within such country taxable under this Title bears to his entire net estate; and (b) The total
amount of the credit shall not exceed the same proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire
net estate.
A. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
1. Funeral Expenses


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 176 of 365
"#$

2. Expenses for Testamentary or Intestate Proceedings
CIR v. CA (2000) Pedro Pajanar, a member of the Philippine Scout Bataan was part of the infamous Death march by
reason of which he suffered shock and became insane. His sister became the guardian of his person while his
property was placed under the guardianship of PNB. The sole issue in this case is whether the notarial fee paid for
the extrajudicial settlement in the amount of P60,753 and the attorneys fees in the guardianship proceedings in
the amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to arrive at the
value of the net estate. Court answers the question in the affirmative. This Court adopts the view under
American jurisprudence that expenses incurred in the extrajudicial settlement of the estate should be
allowed as a deduction from the gross estate. There is no requirement of formal administration. It is
sufficient that the expense be a necessary contribution toward the settlement of the case.
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonars estate to his lawful heirs. Similarly, the attorneys
fees paid to PNB for acting as the guardian of Pedro Pajonars property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed accounting of decedents property
and gave advice as to the proper settlement of the latters estate, acts which contributed towards the collection of
decedents assets and the subsequent settlement of the estate.
LIZARRAGA HERMANOS v. ABADA (1919) The deceased owed the plaintiffs a certain amount of money and
presented their claim during the estate proceedings. The commissioner set the amount to around 13k. After
several years, they presented a claim on the estate for more than 65k which according to them includes money
used by the administratrix for the property. The lower court approved the plaintiffs request to attach the estates
property. The heirs are now questioning the validity of the claim and the validity of the attachment. The supreme
court ruled that the claim and the mortgage are invalid even they were approved by the lower court. (no res
judicata dahil void in the first place?)
The expenses of administration should be those:
1. necessary for the management of the property
2. for protecting it against destruction or deterioration
3. for the production of fruits
BUT the sum expended by an administrator of an extensive administration of the estates of the decedent can not
be considered expenses of administration
The state grants no power to an administrator to borrow money upon a mortgage of the real estate of the decedent
is not controverted. Indeed, such an act would be contrary to policy and purposes of the administration which
aims to close up, and not to continue an estate.
Although the mortgage was one made by the administrator and approved by the court, still this approval cannot
render valid the void acts of an administrator.
DE GUZMAN v. DE GUZMAN (1978) Administration Expenses Felix de Guzman of Gapan, Nueva Ecija died
testate with eight children to whom he bequeathed their family home there. Victorino de Guzman was appointed
administrator. Three of the eight children questioned the administration expenses for the estate incurred by
Victorino and approved by the probate court.
An executor or administrator is allowed the necessary expenses in the care, management, and settlement of
the estate. He is entitled to possess and manage the decedents real and personal estate as long as it is necessary
for the payment of the debts and the expenses of administration. He is accountable for the whole decedents estate
which has come into his possession, with all the interest, profit, and income thereof.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 177 of 365
"#$
Expense Supreme
Courts
Decision
Reason
Renovation and Improvement of
the Family Home
Allowed This obviously redounded to the benefit of the 8 heirs as co-
owners. Expense is necessary for the preservation and use of the
family residence, and for the heirs comfort, convenience and
security.
Living expenses of one of the
heirs/children who stayed in the
family home without paying rent
Denied She should use her own income for her living expenses while
occupying the family residence.
Expense for the first death
anniversary celebration of the
decedent
Denied It has no connection with the care, management and settlement of
the decedents estate
Stenographic Notes and
Representation Expenses
Denied They were not explained or accounted for.
Gift for Physician who Tended to
the Decedent
Allowed --
3. Claims Against the Estate
DIZON v. COURT OF TAX APPEALS (2008) Atty. Jesus Gonzales signed and filed on behalf of the Estate of Jose
Fernandez the required estate tax return and represented the same in securing a Certificate of Tax Clearance with
the BIR Regional Director of San Pablo City. The BIR Regional Director issued Certifications stating that the
taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be
transferred to his heirs. Petitioner requested the probate courts authority to sell several properties forming part of
the Estate, for the purpose of paying its creditors. However, the Assistant Commissioner for Collection of the BIR
issued an Estate Tax Assessment Notice, demanding the payment of deficiency estate tax. On June 2, 1994,
petitioner filed a petition for review before respondent CTA. In the hearings conducted, petitioner did not present
testimonial evidence but merely documentary evidence. Respondents [BIR] counsel presented Alberto Enriquez,
who was one of the revenue examiners who conducted the investigation on the estate tax case of the late Jose
Fernandez. The CTA denied the petition for review, opining that the pieces of evidence introduced by the BIR
were admissible in evidence. CA affirmed the decision of the CTA, ruling that the petitioners act of filing an
estate tax return with the BIR and the issuance of the BIR Certification did not deprive the BIR Commissioner of
her authority to re-examine or re-assess the said return filed on behalf of the Estate. Hence, the instant Petition.
Issues: (1)Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR
(2) Whether the actual claims of the creditors may be fully allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or condoned through compromise agreements entered into by
the Estate with its creditors
Held: (1) Under Sec. 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA (Sec. 34, Rule 132 of the Revised Rules on Evidence).In
People v. Napat, the Court relaxed the rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the same must have been
duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 178 of 365
"#$
the case. In this case, the Court finds that these requirements have NOT been satisfied. The assailed pieces of
evidence were presented and marked during the trial particularly when Alberto took the witness stand. Alberto
identified these pieces of evidence in his direct testimony. He was also subjected to cross-examination and re-
cross examination by petitioner. But Albertos account and the exchanges between Alberto and petitioner did not
sufficiently describe the contents of the said pieces of evidence presented by the BIR. Moreover, while Albertos
testimony identifying the BIRs evidence was duly recorded, the BIR documents themselves were not
incorporated in the records of the case. While the CTA is not governed strictly by technical rules of evidence, the
presentation of the BIRs evidence is not a mere procedural technicality which may be disregarded considering
that it is the only means by which the CTA may ascertain and verify the truth of BIRs claims against the Estate.
The BIRs failure to formally offer these pieces of evidence, despite CTAs directives, is fatal to its cause. Such
failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal
omission.
(2) Post-death development should not be considered. There is no law, nor do we discern any legislative intent in
our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death
developments must be considered in determining the net value of the estate. It bears emphasis that the tax burdens
are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or
activity is taxable generally resolved against taxation. Such construction finds relevance and consistency in our
Rules on Special Proceedings wherein the term claims required to be presented against a decedents estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at
the time of death are significant to, and should be made the basis of, the determination allowable.
COLLECTOR v. HAYGOOD (1938) Discusses the 2 different procedures in collecting a claim for taxes due and
unpaid presented by the CIR in a testate or intestate proceedings depending on whether the:
(1) discovery of erroneous tax returns is made WITHIN three years after the date such returns should have
been filed OR (2) when the discovery of erroneous return take place AFTER three years from the date the
return are filed.
Annie Haygood was appointed as the administratrix of the estate of her deceased husband. The provincial fiscal of
Rizal, in behalf of CIR filed in the testamentary proceedings, a sworn motion claiming merchants sale tax unpaid
by the deceased, plus surcharge on undeclared sales. The tax in question was discovered after 3 years from the
date it should have been declared.
The SC relied on 2 cases previously decided by the SC: Knowles and Pineda cases. Both cases are in accord that :
the assessment made by the CIR, contained in his sworn declaration, constitutes prima facie evidence of the
existence of the unpaid taxes; but they, nevertheless, differ in this respect: that in the case of Knowles this
evidence is said to be destroyed by the mere objection to the allegations contained in the claim and by the general
and specific denial of the alleged facts, the burden of proof falling on the CIR, who must substantiate his claim by
material and competent evidence; and in the case of Pineda it is held the duty of the administrator of the estate of
the deceased to prove that the claim for taxes due the government, made under oath is unjustified. The
discrepancy, if any, is more apparent than real, considering the fact that in the case of Knowles the failure to
declare the income tax was discovered after three years following the expiration of the term within which to file
such declaration; while in the case of Pineda the error in the declaration was discovered within three from the date
the declaration was made.
The fact in the case of Pineda differ from those in the case of Knowles and since the law provides a different
procedure in each case, there is no conflict in the decision rendered in two cases.
First, when the discovery of erroneous tax returns is made within three years after the date such returns
should have been filed, and the declarant dies, the claim for payment of the tax assessed by the CIR must be
made in the testate or intestate proceedings by filing a motion accompanied by a statement of the taxes duly sworn
to by the CIR, and a competent court may summarily order, without previous trial, the judicial administrator to


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 179 of 365
"#$
pay the claim if funds are available, taking into consideration the order of payment established in section 753 of
the Code of Civil Procedure, and the administrator may pay the claim under protest in order to recover in a
separate suit what he may have erroneously paid; and, secondly, when the discovery of erroneous return take
place after three years from the date the return are filed, the CIR shall present the claim by filing a motion
accompanied by a statement under oath of the unpaid taxes, said motion being in the nature of a civil suit should
be prosecuted through the filing of a written answer and the presentation of evidence.
In this case, the discovery of deficiency tax was after the lapse of 3years from the date the erroneous return was
filed, are identical with those in the case of Knowles; therefore, the rule in that case should be followed with
respect to the procedure in collecting a claim for taxes due and unpaid presented by the CIR in a testate or
intestate proceedings.
LORENZO v. POSADAS (1937) Hanley died, leaving a will, which directed that all his real estate not be disposed of
for a period of 10 years after his death, and that the same be managed by the executors, and proceeds given to his
nephew, and after the 10 years the property be given to his nephew.
The inheritance accrues at the time of the death of the decedent. The Admin Code (law applicable at the time),
imposes the tax upon every transmission by virtue of inheritance. The tax therefore is upon transmission or the
transfer or devolution of property of a decedent, made effective by his death. Since according to the Civil Code,
the rights to the succession of a person are transmitted from the moment of his death. Therefore a transmission
by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual
possession of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that
time. (Tax is based on the value of the property at the time of the death of the decedent)
However the accrual of the inheritance tax is distinct from the obligation to pay the same. The corresponding
inheritance tax should have been paid on or before the date trust estate vested in trustee. Because the
delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in
this case.
A trustee is entitled to receive a fair compensation for his services. But this it does not mean that the
compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is
no statute in the Philippines which requires trustees commissions to be deducted in determining the net
value of the estate subject to inheritance tax. Because the compensation of a trustee, earned, not in the
administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not
come properly within the class or reason for exempting administration expenses.
4. Claims Against Insolvent Persons

5. Unpaid Debts/Mortgages

6. Losses
B. Vanishing Deduction

C. Transfers For Public Use

D. Family Home
BIR RULING NO. 012-2002, APR. 3, 2002 This is a request for a clarification on the entitlement of the Estate of
SOFRONIO AMPER, SR. (SOFRONIO for brevity) to the a) Deduction of the Family Home and b)
Standard deduction as provided in Section 86(A)(4) and (5), respectively, of the 1997 Tax Code.
Section 86(A)(4) and (5) of the 1997 Tax Code specifically provide that:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 180 of 365
"#$
SEC. 86. Computation of Net Estate. For the purpose of the tax imposed in this Chapter, the value of
the net estate shall be determined:
(A) Deductions Allowed to the Estate of a Citizen or a Resident. In the case of a citizen or resident of
the Philippines, by deducting from the value of the gross estate
...
(4) The Family Home. An amount equivalent to the current fair market value of the decedents family
home: Provided, however, That if the said current fair market value exceeds One million pesos
(P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or
deduction, said family home must have been the decedents family home as certified by the barangay
captain of the locality.
(5) Standard Deduction. An amount equivalent to One million pesos (P1,000,000).
SOFRONIO is a natural-born Filipino citizen who joined the U.S. Merchant Marine sometime in 1946. They
acquired as husband and wife a real estate property located at Merville Park, Paraaque City and in 1966 built
thereon a residential house. This place became their residence from 1966 up to the time of his death. A
certification issued by the Barangay Chairman of Barangay Merville, Alicia R. Benzon, was attached to the
request to prove that SOFRONIO and LEONILA are bona fide residents and owners of the said home. As a
Merchant Marine, he was assigned to different places, came home to the Philippines to his wife whenever he had
the opportunity. They acquired the subject property with all the intention of residing thereat, and to retire in his
home country. From the time he retired at the age of 65 years old, he went home to the Philippines to reside
therein. In 1998, due to his kidney problems, other ailments, and, old age, the family agreed to bring him to
California, U.S.A. for treatment and hospitalization. All expenses for medicine and hospitalization were free,
being a retired U.S. Merchant Marine. Those were the privileges, among others, granted by the U.S. government
to its retired personnel, aside from the fact that all his children were there. On January 11, 2001, Jose finally
succumbed and died, leaving the subject property as his only estate.
There was an intention on the part of SOFRONIO to reside in the Philippines. The only reason he left the
Philippines was to avail of free medical treatment in the United States, and there was no intention to reside in the
United States permanently.
Although Section 86(A) speaks of a resident of the Philippines, the same should be construed as to
necessarily include resident aliens. Basic and axiomatic is the rule on statutory construction that the Courts, or
in this case this Office, must give effect to the general legislative intent that can be discovered from or is
unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a
particular provision thereof, should be considered. It is noteworthy to state that, the law precisely distinguishes a
citizen or resident (Section 86(A), 1997 Tax Code) from a nonresident not a citizen of the Philippines (Section 86
(B) thereof) in terms of allowable deductions for an estate.
In BIR Ruling No. 009-99 dated January 22, 1999, the above enumerated items are properly authorized by
law to be deducted as independent, separate and distinct items of deduction which may properly be deducted
from the gross estate of a resident decedent, subject to the limitations or conditions that are provided for under
each said item above.
Thus, the estate of SOFRONIO can avail of the deductions afforded to it under Section 86(A)(1) to (7) of the
1997 Tax Code, as implemented by Revenue Regulations No. 17-93 dated August 30, 1993, including the
deduction of the Family Home and the Standard Deduction of P1,000,000.00 each.
E. Standard Deduction
BIR Ruling No. 009-99, Jan. 22, 1999
Mr. Pepito A. Gonzales
Certified Public Accountant


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 181 of 365
"#$
2895 Benita Street
Tondo, Manila
Sir:
This refers to your letter dated November 19, 1998, requesting for a ruling to the effect that all items enumerated in
Section 86(A) of the Tax Code of 1997 are allowable as deductions from the value of the gross estate of a resident
decedent, in computing the net estate upon which the estate tax shall be due.
Section 86(A) of the Tax Code of 1997 enumerates the allowable deductions in computing the net estate of a deceased
resident or citizen, to wit:
1. Expenses, Losses, Indebtedness, and Taxes
2. Property Previously Taxed
3. Transfers for Public Use
4. The Home
5. Standard Deduction
6. Medical Expenses; and
7. Amount Received by Heirs under Republic Act No. 4917.
In reply, please be informed that when the provisions of a law contain an enumeration of things, the enumeration shall be
construed in the sense of mentioned, indicated, referred to, or authorized. (Words and Phrases Permanent Edition,
Vol. 14A, p. 415). The interpretation that must prevail, therefore is, that the above enumerated items are separate and
distinct items, independent of each other. As such, the above enumerated items are properly authorized by law to be
deducted as independent, separate and distinct items of deduction, which may properly be deducted from the gross estate
of a resident decedent, subject to the limitations or conditions that are provided for under each said item above.
Clearly, therefore, it is not a requirement of the law, that the amounts computed, corresponding to the other remaining
items in the enumeration (namely #s 1-4 and 6-7 of Section 86(A) of the Tax Code of 1997), be included in the standard
deduction, in #5 above, which will limit the entire deduction to the amount of the said item, amounting to One Million
Pesos (P1,000,000.00). This interpretation is certainly contrary to the intention of the law.
Very truly yours,
(SGD.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue
BIR RULING NO. 012-2002, APR. 3, 2002, supra
F. Medical Expenses

G. Death Benefits from Employer Under NIRC 32(B)(6)(a) and (b)
VI. FOREIGN TAX CREDITS
Sec. 86. Computation of Net Estate. ...
(E) Tax Credit for Estate Taxes paid to a Foreign Country.
(1) In General. The tax imposed by this Title shall be credited with the amounts of any estate tax imposed
by the authority of a foreign country.
(2) Limitations on Credit. The amount of the credit taken under this Section shall be subject to each of the
following limitations: (a) The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken, which the decedent's net estate
situated within such country taxable under this Title bears to his entire net estate; and (b) The total
amount of the credit shall not exceed the same proportion of the tax against which such credit is taken,


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 182 of 365
"#$
which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire
net estate.
VII. SPECIAL RULES FOR NON-RESIDENT ALIENS
A. Meaning of Resident or Non-Resident

B. Inclusions in Gross Estate

C. Deductions from Gross Estate

D. Foreign Tax Credits
See Secs. 85; 86 (B), (D), & (E); and 104, supra
VIII. ADMINISTRATIVE PROVISIONS
A. Tax Rates

B. Notice of Death

C. Estate Tax Return
Sec. 84. Rates of Estate Tax. There shall be levied, assessed, collected and paid upon the transfer of the net estate as
determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a
tax based on the value of such net estate, as computed in accordance with the following schedule:
If the net estate is:
OVER BUT NOT OVER THE TAX SHALL BE PLUS OF THE EXCESS OVER
200,000 Exempt
200,000 550,000 0 5% 200,000
500,000 2,000,000 15,000 8% 500,000
2,000,000 5,000,000 135,000 11% 2,000,000
5,000,000 10,000,000 465,000 15% 5,000,000
10,000,000 And Over 1,215,000 20% 10,000,000
Sec. 89. Notice of Death to be Filed. In all cases of transfers subject to tax, or where, though exempt from tax, the
gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of the legal heirs,
as the case may be, within two (2) months after the decedent's death, or within a like period after qualifying as such
executor or administrator, shall give a written notice thereof to the Commissioner.
Sec. 90. Estate Tax Returns.
(A) Requirements. In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the
gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of the
estate, where the said estate consists of registered or registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as
a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth:


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 183 of 365
"#$
(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen
of the Philippines, of that part of his gross estate situated in the Philippines;(2) The deductions allowed from gross
estate in determining the estate as defined in Section 86; and (3) Such part of such information as may at the time
be ascertainable and such supplemental data as may be necessary to establish the correct taxes. Provided,
however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall be
supported with a statement duly certified to by a Certified Public Accountant containing the following: (a)
Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a
nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines; (b) Itemized
deductions from gross estate allowed in Section 86; and (c) The amount of tax due whether paid or still due and
outstanding.
(B) Time for Filing. For the purpose of determining the estate tax provided for in Section 84 of this Code, the
estate tax return required under the preceding Subsection (A) shall be filed within six (6) months from the
decedent's death.
A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the
Commissioner within thirty (30) after the promulgation of such order.
(C) Extension of Time. The Commissioner shall have authority to grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for filing the return.
(D) Place of Filing. Except in cases where the Commissioner otherwise permits, the return required under
Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer, Collection Officer, or
duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death
or if there be no legal residence in the Philippines, with the Office of the Commissioner.
D. Payment of Estate Tax
Sec. 91. Payment of Tax.
(A) Time of Payment. The estate tax imposed by Section 84 shall be paid at the time the return is filed by the
executor, administrator or the heirs.
(B) Extension of Time. When the Commissioner finds that the payment on the due date of the estate tax or of any
part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment
of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two
(2) years in case the estate is settled extrajudicially.
In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the
expiration of the period of the extension, and the running of the Statute of Limitations for assessment as provided
in Section 203 of this Code shall be suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on
the part of the taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the
case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties
as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms
of the extension.
(C) Liability for Payment. The estate tax imposed by Section 84 shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share of the estate.
Such beneficiary shall to the extent of his distributive share of the estate, be subsidiarily liable for the payment of
such portion of the estate tax as his distributive share bears to the value of the total net estate.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 184 of 365
"#$
For the purpose of this Chapter, the term "executor" or "administrator" means the executor or administrator of the
decedent, or if there is no executor or administrator appointed, qualified, and acting within the Philippines, then
any person in actual or constructive possession of any property of the decedent.
COMMISSIONER v. GONZALES (1966) prescriptive period for assessment doesnt run if return is
incomplete Matias Yusay died intestate, leaving two heirs, Jose and Lilia. Jose was administrator and filed the
estate and inheritance tax return on 1949. However, in 1957, the CIR found out that there were several other
undeclared properties, for which a new assessment was issued in 1958. In the meantime, Jose died, so the BIR
went after his widow, and sister, Lilia, who was co-administratix of the estate. Lilia argues that the assessment
was filed beyond the five-year prescriptive period.
The 1958 assessment was filed on time. The estate and inheritance tax return must set forth: 1) value of the
gross estate of the decedent at the time of his death; 2) the deductions allowed in order to determine the net
estate; and 3) information and such supplemental data that are ascertainable, and as may be necessary to
establish the correct taxes. A return need not complete in all particulars. It is sufficient if it complies
substantially w/ the law. There is substantial compliance 1) when the return is made in good faith and is not
false/fraudulent; 2) when it covers the entire period involved; and 3) when it contains information as to the
various items of income, deduction, and credit w/ such definiteness as to permit the computation and
assessment of the tax.
The 1949 assessment submitted by Jose was incomplete because: a) it stated no heirno inheritance tax could
be assessed since if there is no heir, the intestate estate is eschewed in favor of the State; and b) it was incomplete
there was significant underdeclaration of properties. The return filed in this case was so deficient that it
prevented the CIR from computing the taxes due on the estate. It was as though no return was made. Thus,
the prescriptive period for making an assessment only started in 1957 when the CIR learned that there
was a huge underdeclaration of the gross estate.
Upon motion for reconsideration, the SC held that Lilia Yusay must pay for the entire estate and inheritance tax
since she is solidarily liable. As co-administratix, she is liable for the whole estate and as heir, she is liable for
her share. When she instituted the present action, she herself argued that one administrator may bring the action
on behalf of the others. It then follows that she must bear the decision solidarily for the others as well. The other
co-administrators cannot be held liable in the present action since they are not a party to it.
VERA v. NAVARRO (1977) advance payment of inheritance/distribution of decedents assets, when not
allowed - Judge Tan, the executor of the estate of a certain Elsie Gaches, on motion filed for the advance
payment of the inheritance and allowances to the heirs pending the probate proceedings. He assured the court
that the balance of the estate after the advance payment is sufficient to cover any liability to the government like
taxes and other charges. CIR Vera opposed such motion of Judge Tan and presented proof that the balance of the
estate is not sufficient to pay such taxes. The court denied Judge Tans motion. Consequently, Judge Tan paid the
taxes due of the estate but there was a discrepancy on the inheritance taxes. Judge Tan again filed a motion for
advance payment of inheritance. This time, the court allowed it. Vera now files this action against the trial
court judge for allowing the inheritance to be advanced.
The SC held that the orders allowing such motion of Judge Tan is in excess of the courts jurisdiction. The court
may only allow a distribution of a decedents assets when the following have been complied with:
1. When the inheritance tax, among others, have been paid
2. When a sufficient bond is given to meet the inheritance tax and other charges
3. When the obligations stated in the Rules of Court (debts, funeral charges, etc.) have been paid
None of these are present in the case.
VERA v. FERNANDEZ (1979) CIR seeks to collect unpaid taxes from the Tongco intestate estate for the years 1946-
1948. The administrator for the estate argued that the collectible of the government from the estate has prescribed
pursuant to Section 2 of Rule 86 of the Rules of Court. The Rules of Court provides that money claims must


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 185 of 365
"#$
be filed not later than 1 year from notice of death but not earlier than 6 months. Since the collection case
was filed by the CIR beyond the period provided by Rule 86, the trial court ruled in favor of the administrator.
CIR now questions the trial court order claiming that Rule 86 does not apply. What should apply is the NIRC, for
which the action was filed within the reglementary period. Court ruled that NIRC should apply. Rule 86 applies
only to private creditors of the estate and not to the government. Taxes are the lifeblood of the government
and NIRC should apply.
GOVERNMENT OF THE PHILIPPINE ISLANDS v. PAMINTUAN (1930) Pamintuan died in 1925 and intestate
proceedings were instituted. A committee on claims and appraisals was created to act upon claims against his
estate. The committee rendered a report on the outstanding obligations of the estate. The estate thereafter settled
all its obligations and the heirs (respondents) were given their respective shares based on a duly approved
partition proposal. The administrator filed the income tax returns of the estate for the years 1925 and 1926 and the
intestate proceedings were finally closed. However, after the termination of the proceedings, the Government
discovered that when Pamintuan was still alive, he sold his house and lot but never paid the corresponding
income tax on such sale. In 1927, the Government demanded payment of this outstanding tax but the heirs
refused payment. The CFI said that the Governments failure to file its claim with the committee on claims and
appraisals barred its claim for the outstanding tax liability. The SC reversed and said that the clear weight of
judicial authority is to the effect that claims for taxes and assessments, whether assessed before or after the
death of the decedent, are not required to be presented to the committee. Administration proceedings of
Pamintuan having been closed, and his estate distributed among his heirs, the latter are responsible for the
payment of the income tax here in question in proportion to the share of each in said estate.
PASTOR, JR. v. COURT OF APPEALS (1983) Pastor, Sr. died on June 5, 1966, survived by his wife, their two
legitimate children Pastor, Jr. and Sofia, and an illegitimate child, not natural, named QUEMADA. QUEMADA
filed a petition for the probate of an alleged holographic will of PASTOR, SR. with the probate court. The will
contained only one testamentary disposition: a legacy in favor of QUEMADA consisting of 30% of PASTOR,
SR.'s 42% share in the operation by Atlas Consolidated Mining (ATLAS). The PROBATE COURT appointed
him special administrator of the entire estate of PASTOR, SR., whether or not covered or affected by the
holographic will. On December 5, 1972, the PROBATE COURT issued an order allowing the will to probate.
Later on, the PROBATE COURT issued an Order of Execution and Garnishment, resolving the question of
ownership of the royalties payable by ATLAS and ruling that the legacy to QUEMADA was not inofficious. The
PROBATE COURT thus directed ATLAS to remit directly to QUEMADA the royalties due decedent's estate, of
which QUEMADA was authorized to retain 75% for himself as legatee and to deposit 25% with a reputable
banking institution for payment of the estate taxes and other obligations of the estate. The order being
"immediately executory", QUEMADA succeeded in obtaining a Writ of Execution and Garnishment, and in
serving the same on ATLAS on the same day. PASTOR JR. filed petition for certiorari before the CA and SC.
The SC ruled that the Probate order did not resolve the questions of ownership and intrinsic validity of the
holographic will because in a special proceeding for the probate of a will, the issue by and large is restricted to the
extrinsic validity of the will. Furthermore, the ordered payment of legacy would be violative of the rule requiring
prior liquidation of the estate of the deceased, i.e., the determination of the assets of the estate and payment of all
debts and expenses, before apportionment and distribution of the residue among the heirs and legatees. Also, the
estate tax has never been paid on the estate of PASTOR, SR. Payment therefore of the legacy to QUEMADA
would collide with the provision of the National Internal Revenue Code requiring payment of estate tax before
delivery to any beneficiary of his distributive share of the estate (Section 107 [c])
BIR RULING NO. 072-2000, DEC. 18, 2000 Mrs. Madonna Rivera sent a letter on behalf of the heirs of the late
Olivia Chiong Olaivar and Pedrito Timbal Olaivar who died due to a car accident, requesting for an extension of
two (2) years within which to pay the corresponding estate tax due pursuant to Section 91 (B) of the Tax Code.
Section 91(B) of the Tax Code provides, viz:
(B) Extension of Time. When the Commissioner finds that the payment on the due date of the estate
tax or any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend
the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 186 of 365
"#$
settled through the courts, or two (2) years in case the estate is settled extrajudically. In such case the
amount in respect of which the extension is granted shall be paid on or before the date of the expiration of
the period of the extension, and the running of the Statute of Limitations for assessment as provided in
Section 203 of this Code shall be suspended for the period of any such extension
Accordingly, since Mrs. Rivera is having difficulty in getting all important documents under the deceased parents
safekeeping, Commissioner Fonacier granted the request.
However, it shall be understood that the estate shall be liable for the corresponding interest that shall have accrued
thereon up to the time of payment of the estate tax.
BIR RULING NO. 210-99, DEC. 20, 1999 Due date for payment of estate taxes may be suspended Mr. Uriel
Balboa sent a request for extension to file the estate tax return of Fernanda S. Balboa and an extension of 24
months within which to pay the tax. Mr. Balboa claimed that the 2 parcels of land were the only assets left by the
deceased and that it would take time for the said lots to be sold. He also claimed that if the heirs are forced to sell
under pressure, it would most likely result to loss. Then Commissioner Rualo granted the request based on the
CIRs authority to grant in meritorious cases, a reasonable extension for the filing of the estate tax return (not
exceeding 30 days for filing the return) as well as extension of time to pay the said taxes (not to exceed 5 years)
when payment would impose undue hardship upon the estate or any of the heirs.
As a result of the extension, the statute of limitation for assessment is suspended. Also, taxpayer is liable to
pay for corresponding interests that have accrued thereon up to the time of filing of the return and payment of
tax due.
E. Consequences of Non-Payment of Estate Tax
Sec. 248. Civil Penalties.
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules
and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other
than those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or
in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the
tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery
of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a
substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations
to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent
return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions,
shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.
Sec. 249. Interest.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 187 of 365
"#$
(A) In General. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the
interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date
prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand
of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the
tax.
(D) Interest on Extended Payment. If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized
an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.
Sec. 94. Payment Before Delivery by Executor or Administrator. No judge shall authorize the executor or judicial
administrator to deliver a distributive share to any party interested in the estate unless a certification from the
Commissioner that the estate tax has been paid is shown.
Sec. 95. Duties of Certain Officers and Debtors. Registers of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due
thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non
payment of the tax discovered by them.
Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the
preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa,
legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection of the aforementioned tax.
Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor,
unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the
executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the
deceased.
Sec. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. If after the payment of the estate tax, new
obligations of the decedent shall appear, and the persons interested shall have satisfied them by order of the court, they
shall have a right to the restitution of the proportional part of the tax paid.
Sec. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. There shall not be transferred to any
new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established
in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. If
a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it
shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 188 of 365
"#$
imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the
heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand
pesos (P20,000) without the said certification.
For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said
depositors.
F. Status of Heirs Pending Partition of Estate
REYES v. REGIONAL TRIAL COURT OF MAKATI, BRANCH 142 (2008) This case involves the shares of
stock of Zenith, a domestic company owned by the Reyes family. The shareholdings of the father left upon his
death were partitioned among the children but upon the mothers death, no such partition took place. One of the
children, Rodrigo, is suing his brother Oscar Reyes for allegedly appropriating the mothers stocks for himself.
[this was a highly procedural case regarding the jurisdiction of the rtc for intra-corporate disputes. Relevant to us,
though, is the finding that the court had no jurisdiction because Rodrigo could not be considered a stockholder of
his mothers shares]. Simply stated, the transfer of title by means of succession, though effective and valid
between the parties involved (i.e., between the decedents estate and her heirs), does not bind the corporation
and third parties. The transfer must be registered in the books of the corporation to make the transferee-heir a
stockholder entitled to recognition as such both by the corporation and by third parties. Additionally, Section 97
of the National Internal Revenue Code requires a certification from the Commissioner of Internal Revenue
that the estate taxes have been paid before any shares in a domestic corporation is transferred in the name
of the new owner.
IX. EFFECT OF RENUNCIATION/WAIVER BY SOME HEIRS
A. By or Among Heirs of Different Degree
BIR RULING NO. 455-93, NOv. 19, 1993 Renunciation by wife of properties inherited from husband in favor
of first-born grandchildren Tax Consequences Mrs. Asuncion inherited properties from his deceased
husband. However, she renounced her inheritance of the properties including her conjugal share, in favor of her
first-born grandchildren, through an extrajudicial settlement. The beneficiaries of the properties of their
grandmother would like to transfer and register the properties in their names.
1. Is Mrs. Asuncion liable for any tax for renouncing her share or inheritance in favor of her first born
children? YES
This is legal succession. In legal succession, accretion takes place in case of repudiation among heirs of the
SAME DEGREE. The co-heirs in legal succession are co-owners of the inheritance, for which reason there is
always a right of accretion among them, unlike in testamentary succession. If the renunciation by an heir is made
in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect an act of disposition
inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody but by one or more heirs
Accordingly, the renunciation of Mrs. Asuncion of her inheritance, as well as her conjugal shares, in favor
of her first-born grandchildren who are not her co-heirs but are heirs of different degree shall be subject to
the donors tax (because its considered as a donation, not additional inheritance) imposed under Section 91 of
the (old) tax code
2. If she was liable at all, would her availment of the tax amnesty cover up her tax obligations? NO
Such amnesties didnt relieve her donors tax liability. Her claims on tax amnesties under the PDs didnt include
tax liabilities arising from the disposition or transfer of property by reason of death or by donation.
3. Is a BIR clearance necessary for purposes of registering said properties? YES.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 189 of 365
"#$
For purposes of registering the properties in the name of the first-born grandchildren as consequence of the
donation no registration of any document transferring real property shall be effected by the Registry of Deeds
unless the CIR or his representative has certified that such transfer has been paid.
B. By or Among Heirs of Same Degree
BIR RULING NO. 105-99, JULY 13, 1999 ESTATE TAX; Waiver by Heirs of their Respective Shares - The
gross estate of the late Antigono A. Rosil which consists merely of bank accounts in the total amount of
P153,478.01 which is even lower than the P200,000.00 tax exempt portion of the net estate bracket as imposed
under Section 84 of the same Code is indeed exempt from estate tax. However, the executor, administrator or any
of the legal heirs of the late Antigono A. Rosil shall be required to file the corresponding estate tax return within
six (6) months from the decedents death with the Revenue District Officer (RDO) of the revenue district where
the decedent was previously registered.
On the other hand, the waiver by the three (3) legitimate children of their respective share in the abovementioned
estate in favor of their mother is not subject to donors tax as prescribed under Section 98 of the Tax Code of
1997 because in legal succession, accretion takes place in case of repudiation among heirs of the same degree. In
other words, when the three (3) legitimate children renounced their share in the inheritance, they did not donate
the property/share to their mother, since the said property/share has never become their own.
BIR RULING NO. DA-251-99, APR. 23, 1999 In re to query regarding w/n the repudiation of inheritance in favour
of a co-heir is subject to donors tax. As a rule, when a person renounces/repudiates his part of the
inheritance, the right of accretion takes place and the same is added or incorporated to that of his co-heirs,
co-devisees or co-legatees. Pacita Villa, wife of deceased renounced/waived her share in the estate of her
husband in favour of their son Jesus Villa who became the sole heir. Undoubtedly, when the surviving spouse
renounced her share in the inheritance, she did not donate the property which had never became hers. Such being
the case, the renunciation is not subject to donors tax imposed under Section 98 of the Tax Code.
Consequently, the corresponding estate tax computed in accordance with the schedule provided for under Section
84 of the same Tax Code, shall be imposed upon transfer of the net estate to Jesus S. Villa.
BIR Ruling No. ___, Aug. 25, 1977
August 25, 1977
The Register of Deeds
Office of the Register of Deeds Caloocan City
Sir:
This refers to your letter dated June 16, 1977 requesting a certification to the effect that the waiver made by all of the
legitimate children of the late Felix H. Yoingco of their right to inherit and to participate in a piece of real property located
in Caloocan City in favor of their mother, Mrs. Consolacion B. Yoingco by virtue of a "Deed of Extrajudicial, Partition
with Waiver, and Sale" executed on April 25, 1976 is not subject to donor's (gift) tax.
In reply, I have the honor to inform you that this Office is of the opinion and so holds that the inheritance renounced by
the Yoingco children in favor of their mother, is not a donation but additional inheritance to the latter; hence no donor's
(gift) taxes are due from the Yoingco children. (BIR Ruling No. 65-092 dated August 20, 1965).
Very truly yours,
EFREN I. PLANA
Acting Commissioner of Internal Revenue
TAN-P4519-F2828-A-8


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 190 of 365
"#$
DONORS TAX
I. MEANING OF GIFT
Revenue Regulations No. 2-2003, Dec. 16, 2002
Sec. 104. Definitions. For purposes of this Title, the terms "gross estate" and "gifts" include real and personal property,
whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but
which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift": Provided,
further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation
or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds
by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs
in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be
considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any
character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or
donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as
the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount
previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated,
refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount
by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated,
refunded or otherwise repaid in respect of such tax.
TUZON v. CA (1992) Municipality of Camalaniugan, Cagayan adopted Resolution 9, which required thresher
operators who will apply for a permit to thresh palay within the municipality to donate 1% of all the palay
threshed by them. Jurado paid the license fee for the thresher operators. However, the municipal treasurer refused
to receive this and required Jurado to secure a mayors permit first. The Mayor required Jurado to comply with
Resolution 9 and sign the agreement. Jurado ignored this and sent the license fee to the municipal treasurer by
postal money order. The license fee was returned to him. While it would appear from the wording of the
resolution that the municipal government merely intends to solicit the 1% contribution from the threshers, the
implementing agreement seems to make the donation obligatory and a condition precedent to the issuance
of the mayors permit. This goes against the nature of a donation, which is an act of liberality and never
obligatory. The mayor and municipal treasurer are liable to Jurado for refusing to issue the mayors permit and
license because of his refusal to comply with Resolution 9.
PIROVANO v. CIR (1965) De la Rama Steamship Co. insured the life of Enrico Pirovano, until the time of his death
designating itself as the beneficiary. Pirovano died. The Board of Directors of DLRSC adopted a resolution that
the Company shall pay the proceeds of said life insurance policies to the heirs of Pirovano. Mrs. Pirovano, in
behalf of her children, executed a public document formally accepting the donation and on the same date, the
Company took official notice of this formal acceptance. The CIR assessed donees gift tax against DLRSC, which
the latter paid. DLRSC contested CIRs assessment and imposition of the donees gift taxes and donors gift tax
and also made a claim for refund of the donors gift tax so collected.
The payment of donees gift tax was proper because it was not a remuneratory one but a donation. There is
nothing on record to show that when the late Pirovano rendered services he was not fully compensated for such


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 191 of 365
"#$
services, or that, because they were largely responsible for the rapid and very successful development of the
activities of the company, Pirovano expected or was promised further compensation over and in addition to his
regular emoluments as President and General Manager. The fact that his services contributed in a large measure to
the success of the company did not give rise to a recoverable debt, and the conveyances made by the company to
his heirs remain a gift or donation. This is emphasized by the directors Resolution, that out of gratitude the
company decided to renounce in favor of Pirovanos heirs the proceeds of the life insurance policies in question.
The true consideration for the donation was, therefore, the companys gratitude for his services, and not the
services themselves.
TANG HO v. BOARD OF TAX APPEALS (1955) Li Seng Giap, his wife and 13 children (petitioners) are
stockholders of two close family corporations named Li Seng Giap & Sons, Inc. and Li Seng Giap & Co. The CIR
regarded the stock transfers from Li Seng Giap to his children as undeclared gifts and assessed Li Seng Giap and
his children donors and donees taxes. The petitioners requested for a revision of their assessments and submitted
donors and donees gift tax returns and claimed that they were given cash as gift propter nuptias for the married
children, and an equivalent amount as gift inter vivos for the unmarried children, and the cash gifts were used to
purchase the stocks. Petitioners claim that the cash gifts form part of the conjugal property and should be
divided between their parents, and as separate donors, should be taxed separately to each one of them. The
SC held that under the Old Civil Code, to be a donation by both spouses and taxable to both, the wife must
expressly join the husband in making the gift. In this case, the donation of the property belonging to the
conjugal partnership, made during its existence, by the husband alone in favor of the common children, is
taxable to him exclusively as sole donor.
COMMISSIONER v. DUBERSTEIN (1960) Duberstein received a Cadillac from a long-time business acquaintance
for information on possible customers. Duberstein did not include this as his gross income. Taxpayer Stanton
received a large amount of money as a gratuity after he resigned his employment of 10 years with a church. It was
also claimed that this was his separation pay. He also did not include this in his gross income.
What controls is the intention with which payment, however voluntary, has been made. There should be
detached and disinterested generosity out of affection, respect, admiration, charity or like impulses. The
conclusion whether a transfer amounts to a gift is one that must be reached on consideration of all the factors.
Duberstein is liable, Stantons liability cannot be determined.
OLD COLONY TRUST CO. v. COMMISSIONER (1929) William Wood was president of the American Woolen
Company for the years 1918 through 1920. The company established and enforced a policy for the years 1919 and
1920 wherein the company would pay the taxes of the president and other company officers. The company paid
$681,169.88 for 1918 and $351,179.27 for 1919 on behalf of Wood. The Board of Tax Appeals held that these
amounts paid were income of Wood. The Supreme Court of the United States speaking through Justice Taft
affirmed the findings of the lower court and held that the taxes paid were income of Wood. The Court explained
that Wood and the other employees received a direct benefit from the said company policy when their tax
obligation was discharged by the company. Wood received a benefit in exchange for his services to the
company. This was clearly a taxable gain. Hence, the discharge of a taxpayers obligation by a third party is
equivalent to direct receipt by the taxpayer.
BOGARDUS v. CIR (1937) gift & compensation are mutually exclusive / payment to employees by former
stockholders in a new corporation Unopco Corp. bought the assets of Universal Oil Products Corp.
Universals former stockholders and president then became the new stockholders and president of Unopco. In a
stockholder meeting, the president suggested to give gifts or honorariums to Universals past and present
employees who stayed loyal to the corporation. The stockholders agreed. A total of $600k was appropriated for it,
and $10k was given to petitioner Bogardus.
The Court held that such payments were gifts, and not compensation, and are, therefore, tax exempt. The
recipients were employees of the Universal company, which was in no way connected to Unopco or any of its
stockholders at the time the payments were given. There is entirely lacking the constraining force of any
moral or legal duty as well as the incentive of anticipated benefit of any kind beyond the satisfaction which
flows from the performance of a generous act. The intent is shown by the appeal made at the stockholders


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 192 of 365
"#$
meeting to the effect that it would be a nice and generous thing for these former stockholders of the
Universal to show their appreciation of the past loyalty of that companys employees.
Because the Unopco stockholders had benefited by the past services of the recipients, it by no means follows that
the distribution in question was not a gratuity. It nowhere appears in the record that full compensation had not
been made for these services. Also, while the word honorarium generally denotes compensatory payment, such
is negated by its use as an alternative to the word gift. Moreover, it was used during an informal meeting where
the general tenor was to gratuitously give gifts to former employees. Last, even if word bonus was employed, it
is the intent of the stockholders during the meeting that must govern.
Dissenting Opinion:
Jurisprudence holds that gift and compensation are not always mutually exclusive, but can overlap at times. What
controls is the intention with which payment, however voluntary, has been made. If it was made with the intention
that services rendered in the past shall be requited more completely, though full acquittance has been given, then
it is compensation and must be taxed. However, if it is given to show good will, esteem, or kindliness toward
persons who happen to have served, but are thus paid w/o thought to make requital for service, it is a gift and is
tax exempt. This is a question of fact that must be decided by the proper court, not the Supreme Court.
ROBERTSON v. U.S. (1952) Robertson is a musician and composer who submitted his symphony (created from
1936-1939) for the music award offering of Henry Reichhold (philantrophist) for the 3 best symphonic works
written by native-orn composers. In 1947, Robertson won the $25,000 award, which he included in his 1947
income tax return as gross income and claimed benefits of 107(b) of the Internal Revenue Code (computed the
tax as though the $25,000 had been received ratably during the years 1937, 1938, and 1939). Later on he filed for
refund which Commissioner did not allow and even determined a deficiency in the tax he paid. Robertson paid the
deficiency, filed a supplemental claim of refund and filed a suit. District Court held the award as a gift but the
Court of Appeals reversed. The court held that the payment of a prize to a winner of a contest is the discharge
of a contractual obligation. The acceptance by the contestants of the offer tendered by the sponsor of the contest
creates an enforceable contract. The discharge of legal obligations is in no sense a gift. A cash prize received
by the winner of a contest in musical composition is gross income, and it is not a gift excluded from gross
income. The case would be different if an award were made in recognition of past achievements or present
abilities, or if payment was given not for services, but out of affection, respect, admiration, charity or like
impulses.
COMMISSIONER v. LOBUE (1956) LoBue was the manager of the New York sales division of Michigan Chemical
Corporation. He was chosen as one of the recipients of a non-transferable stock option plan, allowing employees
to purchase stocks at $5 per share over a 3-year period. The amount of stocks LoBue and the other recipients
would be able to purchase over such period was made dependent on their performance and conditioned upon their
continued stay in the company. LoBue exercised the option granted him and purchased over $9000 worth of
stocks for the price of less than $2000. While the difference between the market value and the actual price paid by
LoBue was reported as an expense by Michigan, LoBue did not report the corresponding amount as income.
Thus, he was assessed for deficiency income tax by the Commissioner, contending that the difference constituted
as part of the compensation given to LoBue.
The gain must be treated as compensation and thus, must be subjected to income tax. The motive behind the
grant of the stock option, which was to give employees like LoBue proprietary interest in the company does not
change the nature of the benefit from compensation to a mere gift. When assets are transferred to employees to
secure better performance, such assets shall be considered additional compensation. Moreover, the point
when the gain should be considered realized and therefore taxed is at the time when the stock option is
exercised. It is at this point when the taxpayer realizes a gain which is the difference between the market
value and actual price paid. The reckoning point cannot be when the option is granted because in this particular
case, the option was explicitly characterized as non-transferable and thus could not be disposed of in a manner
that would translate to a gain on the part of the employee.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 193 of 365
"#$
STARKS v. COMMISSIONER (1966) Payment for companionship as gift Greta Starks received certain sums
of money for the years 1954-1958 which were used by her to buy a house, a car, jewelry, and fur coats, and to pay
for her living expenses. The Commissioner assessed her deficiency income tax for such items, as she was not
gainfully employed during the years in question. The money was evidently for services rendered and the
Commissioner subjected her to self-employment tax. The donor in this case, a married man who was 55 years
older than her (and whose name was omitted), stated that he gave her the money to insure her companionship
with him would continue. The court held that companionship cannot be considered as a service performed by
Starks, but rather served as the purpose for the gifts that were given to her. The money and/or property were thus
considered gifts and not part of her taxable income.
LLADOC v. CIR (1965) A gift tax is not a property tax, but an excise tax imposed on the transfer of property
by way of gift inter vivos M.B. Estate, Inc. donated cash to Fr. Lladoc, the parish priest of Victoria, Negros
Occidental, for the construction of a catholic church. The BIR assessed the Parish of Victoria for donees tax.
Lladoc protested the assessment, but the protest was denied. The issue now is whether the imposition of donees
tax is violative of the constitutional provision exempting lands, buildings, or churches etc., used exclusively for
religious purposes from tax. The SC said that the exemption is only from the payment of taxes assessed on the
properties enumerated, as property taxes, as contra distinguished from excise taxes. Here what was assessed was a
gift tax, the assessment was not on the properties themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties.
Hence the Diocese of Bacolod, to which the Parish of Victoria belongs, is liable to pay donee's tax.
II. VALUATION OF GIFTS
Sec. 102. Valuation of Gifts Made in Property. If the gift is made in property, the fair market value thereof at the time
of the gift shall be considered the amount of the gift.
In case of real property, the provisions of Section 88(B) shall apply to the valuation thereof.
III. TRANSFER FOR LESS THAN ADEQUATE CONSIDERATION
Sec. 100. Transfer for Less Than Adequate and Full Consideration. Where property, other than real property referred
to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the
amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the
calendar year.
CIR v. B.F. GOODRICH PHILS., INC. (1999) Sale for less than FMV allowable for bona fide business
purpose BF Goodrich was an American owned and controlled company which sought to manufacture rubber
tires in the Philippines. The Central Bank required for BFs application the development of a rubber plantation, so
BF bought land from the government for such purpose under the Parity Amendment. The Parity Amendment was
set to expire in 1974, which meant that ownership rights of Americans over public agricultural lands, including
the right to sell or dispose real estate, would be lost. Because of this, BF sold its lands to Siltown Realty
Philippines, and Siltown agreed to lease the lands back as part of the sale.
The CIR assessed BF deficiency donors tax, among others, for purportedly selling the lands way below the fair
market value. However, the Court held that it is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose, in which case, the sale remains an arms length
transaction. In this case, BF was compelled to sell the property at a price less than its market value because it
would have lost all ownership rights over it upon the expiration of the Parity Amendment. BF was attempting to
minimize its losses. Moreover, it was able to lease the property for 25 years, renewable for another 25 years, and
this can be regarded as additional consideration for the price.
IV. EXEMPT GIFTS


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 194 of 365
"#$
Sec. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this
Chapter:
(A) In the Case of Gifts Made by a Resident.
(1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by
parents to each of their legitimate, recognized natural, or adopted children to the extent of the first Ten
thousand pesos (P10,000);
(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of the said Government; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall
be used by such donee for administration purposes.
For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited
nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a
school, college or university and/or charitable corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no
dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees
or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines.
(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic organization or research institution or organization:
Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes.
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country.
(1) In General. The tax imposed by this Title upon a donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
(2) Limitations on Credit. The amount of the credit taken under this Section shall be subject to each of the
following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
BIR RULING NO. 171-98, Dec. 3, 1998 Lot awarded to National Children's Hospital by virtue of Proclamation
No 439 Lot awarded to National Children's Hospital by virtue of Proclamation No 439 dated December 23, 1953
is exempt from donor's and donee's tax pursuant to Section 112(3) of Commonwealth Act No. 466.
BIR RULING NO. 56-99, Apr. 23, 1999 Exemption of US Embassy on Donation of Vehicle The donation of a
vehicle by the US Embassy in favor of the Central Records Division of the Department of Foreign Affairs is
exempt from the payment of donor's tax pursuant to Section 101(A)(2) of the Tax Code of 1997 considering that


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 195 of 365
"#$
the donee is a political subdivision of the Government. The aforesaid Deed of Donation is also not subject to the
documentary stamp tax of P15.00 imposed under Section 188 of the same Code.
V. FOREIGN TAX CREDIT
Sec. 101. Exemption of Certain Gifts. The following gifts or donations shall be exempt from the tax provided for in this
Chapter:
...
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country.
(1) In General. The tax imposed by this Title upon a donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any donor's tax of any character and description imposed by
the authority of a foreign country.
(2) Limitations on Credit. The amount of the credit taken under this Section shall be subject to each of the
following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such
country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which
such credit is taken, which the donor's net gifts situated outside the Philippines taxable under
this title bears to his entire net gifts.
VI. ON WHOM IMPOSED
Sec. 98. Imposition of Tax.
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section 99.
VII. ADMINISTRATIVE
A. Tax Rates
Sec. 99. Rates of Tax Payable by Donor.
(A) In General. The tax for each calendar year shall be computed on the basis of the total net gifts made during the
calendar year in accordance with the following schedule: If the net gift is:
OVER BUT NOT OVER THE TAX SHALL BE PLUS OF THE EXCESS
OVER
100,000 Exempt
100,000 200,000 0 2% 100,000
200,000 500,000 2,000 4% 200,000
500,000 1,000,000 14,000 6% 500,000
1,000,000 3,000,000 44,000 8% 1,000,000
3,000,000 5,000,000 204,000 10% 3,000,000


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 196 of 365
"#$
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000
(B) Tax Payable by Donor if Donee is a Stranger. When the donee or beneficiary is stranger, the tax payable by
the donor shall be thirty percent (30%) of the net gifts.
For the purpose of this tax, a "stranger", is a person who is not a: (1) Brother, sister (whether by whole or half-
blood), spouse, ancestor and lineal descendant; or (2) Relative by consanguinity in the collateral line within the
fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes
shall be governed by the Election Code, as amended.
B. Donors Tax Return
Sec. 103. Filing of Return and Payment of Tax.
(A) Requirements. Any individual who makes any transfer by gift (except those which, under Section 101, are
exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a return under oath
in duplicate.
The return shall se forth:
(1) Each gift made during the calendar year which is to be included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations made pursuant to law.
C. Payment of Donors Tax
(B) Time and Place of Filing and Payment. The return of the donor required in this Section shall be filed within
thirty (30) days after the date the gift is made and the tax due thereon shall be paid at the time of filing.
Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to an
authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of
the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence
in the Philippines, with the Office of the Commissioner.
In the case of gifts made by a nonresident, the return may be filed with the Philippine Embassy or Consulate in
the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner.
D. Consequences of Non-Payment of Donors Tax
Sec. 248. Civil Penalties.
(b) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules
and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other
than those with whom the return is required to be filed; or


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 197 of 365
"#$
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is
required to be filed, on or before the date prescribed for its payment.
(c) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or
in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the
tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery
of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a
substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations
to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent
return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions,
shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement
of deductions, as mentioned herein.
Sec. 249. Interest.
(A) In General. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the
interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date
prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand
of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate
prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the
tax.
(D) Interest on Extended Payment. If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized
an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.
Sec. 95. Duties of Certain Officers and Debtors. Registers of Deeds shall not register in the Registry of Property any
document transferring real property or real rights therein or any chattel mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in this Title and actually due
thereon had been paid is show, and they shall immediately notify the Commissioner, Regional Director, Revenue District
Officer, or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located, of the non
payment of the tax discovered by them.
Any lawyer, notary public, or any government officer who, by reason of his official duties, intervenes in the
preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa,
legacy or inheritance, shall have the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or
Revenue Collection Officer of the place where he may have his principal office, with copies of such documents and any
information whatsoever which may facilitate the collection of the aforementioned tax.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 198 of 365
"#$
Neither shall a debtor of the deceased pay his debts to the heirs, legatee, executor or administrator of his creditor,
unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown; but he may pay the
executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the
deceased.
Sec. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. There shall not be transferred to any
new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established
in the Philippines any share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shownIf a
bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it
shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes
imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or any one (1) of the
heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand
pesos (P20,000) without the said certification.
For this purpose, all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said
depositors.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 199 of 365
"#$
VALUE-ADDED TAX
I. TRANSACTIONS SUBJECT TO REGULAR VAT
A. In General
Sec. 105. Persons Liable. Any person who, in the course of trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of
the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether
or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines
by nonresident foreign persons shall be considered as being course of trade or business.
BIR RUL. 98-97, AUG. 28, 1997 Tax consequences of the pre-termination of the lease and cancellation of option to
purchase affecting your client, Read Rite Philippines, Inc. A domestic corporation engaged in manufacturing and
export, has existing long term Lease Contracts with Option to Purchase over two contiguous parcels of land with
improvements with Philamlife and with PERF Realty Corporation, both domestic corporations engaged in
insurance and real estate business, respectively; that Philamlife and PERF have a prospective buyer who is willing
to buy said properties free from all liens and encumbrances including Read Rite's existing leasehold rights and
option to purchase, the three parties prepared to enter into an agreement wherein Read Rite will consent and agree
to the pre-termination of the Lease Contracts and cancel options to purchase for a certain consideration to be
mutually agreed upon by all parties (pre-termination penalty, price for the cancellation of the option and
indemnity for the resulting disturbance or damage arising from the lease pre-termination) the amount of such
higher than the original cost basis of the Leased Properties:
1. Revenue Regulations No. 6-85 (Revised and Expanded Withholding Tax Regulations) implementing Section
50(b) of the Tax Code: payments to persons enumerated therein are subject to the expanded withholding tax. (The
payment to be received by Read Rite is not among those specified therein, hence such payment not subject to the
expanded withholding tax.)
2. VAT-- Section 99 of the Tax Code provides: Persons Liable those who, in the ordinary course of trade or
business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods
shall be liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code.
Moreover, in BIR Ruling No. 31-83 dated March 1, 198, this Office has ruled that an option to buy, in the hands
of a taxpayer who does not deal in options, is a capital asset and the sale thereof gives rise to a capital gain.
Since Read Rite does not deal in leasehold rights and options in its ordinary course of trade or business, the pre-
termination of the lease and the cancellation of the options to purchase is not subject to VAT is hereby confirmed.
3. Payment received by Read Rite shall form part of its gross income subject to the 35% corporate income tax:
Section 28, Tax Code the term "gross income" is defined to mean all income from whatever source derived.
Income, in a broad sense, means all wealth which flows into the taxpayer other than as a mere return of capital.
4. Payment for pre-termination and cancellation of the options are necessary expenses to prepare the leased
properties for sale and free the same of the leasehold rights and options to purchase, said consideration should


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 200 of 365
"#$
form part of the adjusted cost basis of the properties in the hands of Philamlife and PERF regardless of the
amount of such consideration relative to the original cost basis.
5. Finally, the document on the pre-termination of the lease contracts and the cancellation of the options to
purchase shall be subject to the documentary stamp tax imposed under Section 188 of the Tax Code, as amended.
Nelly Magallanes Lopez vs. CIR: "X x x gain or loss in sales or exchanges of propert x x x The cost ordinarily is
not only the price paid for the property but includes expenses involved in its acquisition, and capital expenses
incurred on the property made thereafter. The purchase price of property includes any indebtedness to which it is
acquired. (Ibid.)
BIR RUL. NO. 18-05, SEPT. 16, 2005 The CIR revoked RRMC 2-2002 on the taxability of condominium
corporations. RRMC 2-2002 issued on June 19, 2002 by Regional Director Antonio I. Ortega of Revenue Region
8, Makati City was declared void for being contrary to existing laws, regulations, rulings, and jurisprudence.
Moreover, Regional Directors do not have the delegated power and jurisdiction to issue RMCs as the same lies
within the exclusive jurisdiction of the Office of the CIR. Nonetheless, CIR clarified the taxability of
condominium corporations as follows: 1. condominium dues and assessments are not taxable income of the
condominium corporations; 2. Condominium corporations are not subject to VAT when they collect association
dues from unit owners pursuant to their corporate purpose as trustees of the fund; 3. Unless the condominium
corporation engages in activities for profit, it is not subject to VAT.
VAT RUL. NO. 444-88 Establishing a company consumer store basic commodities are sold where the projected sales
is approx. 2.5Million. Can these sales be classifies ad zero-rated considering s a seller at cost there will be no
value added to the goods. Cannot qualify as zero-rated. Since they do not meet the conditons set in Sec. 100(a) as
amended by E.O. 273. Thus the transaction, though wanting of profit, must be seen to be undertaken by persons
liale to VAT under Sec. 99. Moreover, the projected sales of 2.5Million is a strong basis for VAT sales
classification.
VAT RUL. NO. 207-90, NOV. 8, 1990
Siguion Reyna, Montecillo & Ongsiako Law Offices
A. Soriano Bldg., Ayala Avenue Makati, Metro Manila
Attention: Atty. Jose Lis C . Leagogo
Sir:
This refers to your letter No. 89-337, dated May 16, 1990, requesting for a reconsideration of our VAT RULING
NO. 087-90, dated April 5, 1990, holding that your client, RCA GLOBAL COMMUNICATIONS, INC. (PHIL.
BRANCH), is subject to 10% value added tax vis-a-vis its sale of technical services to Philippine Global Communication
(PHILCOM).
It is being contended that the value added tax may be levied provided the sale of service is made in the course of
business; that, your client's sale of technical services is made only to one person, i.e., sale to Philcom; that, since the same
is only one and isolated transaction, the same may not be constituted a sale made in the course of business; that, Section
2(j) of the VAT Revenue Regulations No. 5-87 defines "sale of service" as the performance of all kinds of services for
others for a fee, which means, to be taxable as a business act, services must be made to more than one person since the
word "others" pertains to several persons/contractees rather than to only one person.
Please be informed that Section 99, NIRC, provides:
Any person who, in the course of trade or business, sells, barters or exchanges goods, renders services,
or engaged in similar transactions ... shall be subject to value added tax (VAT) imposed in Sections 100
and 102 of this Code.
Whether or not a person is engaged in business is determined by his intent for doing an act or series of acts. An
initial or single act may be constituted done in the course of business if the same is done with the intent of carrying on a
business.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 201 of 365
"#$
However, there may be a business without any sequence of acts, for if an isolated transaction, which if
repealed would be a transaction in a business, is proved to have been undertaken with the intent that it
should be the first of several transactions, that is, with intent of carrying on a business, then it is a first
transaction in an existing business. For example, where a person makes all necessary preparations to carry
on the business of a wholesale liquor dealer, and holds himself out and solicits trade as such, and makes
one sale without a license, intending to continue the business, he is engaged in, or carrying on, the
business within the meaning of the statute regulating the business. (9 C.J. 1103. See also annotations and
jurisprudence on the NIRC, Jose Aranas, 1983 ed., pp. 135-136)
Your client has been engaged in communications business at the time it contracted with PHILCOM. There is no
necessity to prove your client's intent in selling technical services to PHILCOM. It is more than apparent your client sold
its services while engaging in worldwide communications business. That its transaction with PHILCOM was isolated may
not, however, detract from the fact that the same was entered into because it was, as it is presently, its line of business.
This Office finds no factual and legal basis to reconsider our said VAT RULING NO. 087-90, dated April 5,
1990.
Very truly yours,
JOSE U. ONG
Commissioner of Internal Revenue
BIR RUL. NO. 10-98, FEB. 5, 1998 A domestic corporation that provided technical, research, and management
assistance to its AFFILIATED companies and received payments on a REIMBURSEMENT-OF-COST basis,
without any intention of realizing profit, remains subject to VAT on services it rendered. In fact, even if such
corporation is organized without any intention of realizing profit, any income or profit generated by the entity in
the conduct of its activities is subject to income tax.
As long as the entity is providing services for a fee, remuneration, or consideration, then the service rendered is
subject to VAT. It is immaterial whether the primary purpose of the corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-of-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered.
CIR v. COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION (COMASECO) (2000)
Services need not be profit oriented to be liable for VAT for services. The CIR is seeking to collect from
COMASECO deficiency VAT (Php ~350k) for services rendered in 1988. COMASECO is an affiliate of
Philamlife, organized by the latter to perform collection, consultative and other technical services. COMASECO
does not obtain profit for its services to Philamlife because it is paid on a "no-profit, reimbursement-of-cost-only"
basis. At issue is whether COMASECO was engaged in the sale of services, and thus liable to pay VAT thereon.
The 1997 NIRC provides that:
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 and 108 of this Code.
"The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the person
engaged therein is a non-stock, nonprofit organization, or government entity.
SEC. 108. The phrase "sale of services" means the "performance of all kinds of services for others for a fee,
remuneration or consideration." The SC held that COMASECO was liable for VAT for services because as
long as the entity provides service for a fee, remuneration or consideration, then the service rendered is
subject to VAT. This is despite payment being on a "no-profit, reimbursement-of-cost-only" basis.
LAPANDAY CORP. v. CIR (2009) if the income from the main business activity is subject to VAT, the
incidental income shall also be subject to VAT, provided that there is no particular provision applicable to
the specific transaction Lapanday Foods Corporation is a domestic corporation engaged in rendering


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 202 of 365
"#$
management services. Lapanday received a Formal Assessment Notice for alleged deficiency value-added tax
(VAT), expanded withholding tax (EWT), final withholding tax (FWT), and documentary stamp tax (DST). The
CIR said that Lapanday is liable to pay the deficiency VAT which resulted from the interest income it
derived from inter-company loans to its affiliates, as a form of financial assistance in the course of trade and
business. The issue is whether the interest on loans extended by Lapanday to its affiliates is subject to VAT.
Lapanday is a domestic corporation engaged in managing, promoting, administering or assisting in any business
or activity of corporations, partnerships, associations, individual or firm. When it extended loans to its affiliates,
it provided assistance to corporations, and thus performed services incidental to its business. Since the
loan assistance provided to its affiliates is incidental to its business, it is deemed a transaction in the course of
trade and business. Considering that Lapandays income from its management services is subject to VAT, it
necessarily follows then, that the interests from loan which is an incidental income, is also subject to VAT. It is
immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered
to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT. Lapandays income from loans extended to its
affiliates is subject to VAT. Whether it has realized profit or not is insignificant, as long as it has provided
financial assistance or services for a fee, remuneration or consideration, such service rendered is subject to
VAT.
VAT RUL. NO. 26-97, APRIL 1, 1997 In a few of their locations, San Miguel Corporation share the same buildings
with its subsidiaries. The buildings were leased from a third party and San Miguel Corporation was the named
lessee. SMC advances the payment to the lessor as well as the payment for utilities, maintenance and other
expenses. SMC then collects payment from the subsidiaries for their proportionate share, without profit or mark-
up. They ask for confirmation on whether these payments (subsidiaries to SMC), which are in the nature of
reimbursements, are subject to VAT. According to the BIR, under the tax code, a person who in the course of
trade or business, sells, barters, exchanges, leases goods or properties or renders services, and any person who
imports goods shall be subject to the value added tax." Accordingly, since SMC does not sell, barter, exchange,
nor lease any good or property and neither does it render any service to the subsidiaries, the above transactions are
not subject to the value added tax.
TOURIST TRADE AND TRAVEL CORP. v. CIR, CTA CASE NO. 4806, JAN. 19, 1996
BIR RUL. NO. 113-98, JULY 23, 1998 Isolated Sale of Microwave Backbone Transmission network The sale
of a microwave backbone transmission network by Liberty Broadcasting Network, Inc., a domestic corporation
holding a congressional franchise to provide the public with wireless radio communication services and to operate
radio communication stations nationwide, to another wireless communications carrier, being an isolated
transaction, is not in the course of its trade or business of selling communication services. Thus, not subject to
VAT. Moreover, the subject sale shall not result in any input tax credit to the buyer.
CIR v. MAGSAYSAY LINES, INC. (2006) VAT is levied only on the sale, barter or exchange of goods or services
by persons who engage in such activities, in the course of trade or business Pursuant to a government program
for privatization, the National Development Company (NDC) decided to sell in one lot its National Marine
Corporation (NMC) shares and 5 of its ships. Magsaysay Lines, offering to buy the shares and vessels for P168
million, won the public bidding. Among the stipulated terms and conditions for the public auction was that the
winning bidder was to pay the 10% VAT on the value of the vessels. A formal request for a ruling on whether or
not the sale of the vessels was subject to VAT was filed. The BIR ruled that the sale of the vessels was subject to
the 10% VAT citing the fact that NCD was a VAT-registered enterprise, and thus its transactions incident to its
normal VAT-registered activity of leasing out personal property including the sale of its own assets are subject to
the 10% VAT. Magsaysay filed an appeal and a petition for refund of the VAT payments with the CTA. Both the
CTA and the CA ruled in favor of Magsaysay. Held: The sale is not subject to VAT. VAT is levied only on the
sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or
business. Carrying on business does not mean the performance of a single disconnected act, but means
conducting, prosecuting and continuing business by performing progressively all the acts normally incident
thereof; while doing business conveys the idea of business being done, not from time to time, but all the time.


TAXATION II DIGESTS ATTY. BANIQUED
ALS2014B
ALS2014B 203 of 365
"#$
Course of business or doing business