Principles of cases

Paseo Realty and Dev Corp vs CA

Taxation is a destructive power which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the government. And since taxes are what
we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer
and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be
clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is
the rule, exemption therefrom is the exception. [32]
Chamber of Real Estate and Builders Assoc Inc vs Romulo
Taxation is an inherent attribute of sovereignty. [34] It is a power that is purely legislative.
Essentially, this means that in the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. [36] It has the
authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or things
within its jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed,
why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and
where it shall be imposed.
[35]

As a general rule, the power to tax is plenary and unlimited unlimited in its range, acknowledging in
its very nature no limits, so that the principal check against its abuse is to be found only in the
responsibility of the legislature (which imposes the tax) to its constituency who are to pay it.
[37]
Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute,
tax legislation carries a presumption of constitutionality.
For income to be taxable, the following requisites must exist:
(1) there must be gain;
(2) the gain must be realized or received and
(3) the gain must not be excluded by law or treaty from
taxation.[47]
CIR vs Fortune Tobacco
The power to tax is inherent in the State, such power being inherently legislative, based on the principle
that taxes are a grant of the people who are taxed, and the grant must be made by the immediate
representatives of the people; and where the people have laid the power, there it must remain and be
exercised.10
Tax exemption is a result of legislative grace. And he who claims an exemption from the burden of taxation
must justify his claim by showing that the legislature intended to exempt him by words too plain to be
mistaken.27 The rule is that tax exemptions must be strictly construed such that the exemption will not be
held to be conferred unless the terms under which it is granted clearly and distinctly show that such was
the intention.28
A claim for tax refund may be based on statutes granting tax exemption or tax refund. In such case, the
rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature
of an exemption, a legislative grace, which cannot be allowed unless granted in the most explicit and
categorical language. The taxpayer must show that the legislature intended to exempt him from the tax by
words too plain to be mistaken.29
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace but on the
legal principle which underlies all quasi-contracts abhorring a persons unjust enrichment at the expense of
another.30The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in law. 31
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of taxes,
not the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is that a
statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the

provisions of a taxing act are not to be extended by implication. In answering the question of who is
subject to tax statutes, it is basic that in case of doubt, such statutes are to be construed most strongly
against the government and in favor of the subjects or citizens because burdens are not to be imposed nor
presumed to be imposed beyond what statutes expressly and clearly import. 36 As burdens, taxes should
not be unduly exacted nor assumed beyond the plain meaning of the tax laws. 37
Diaz vs Secretary of Finance ( Toll Fees vs Tax)
A tax is imposed under the taxing power of the government principally for the purpose of raising revenues
to fund public expenditures.[27] Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, therefore, they are not government exactions that can be properly treated as a
tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be
demanded by either the government or private individuals or entities, as an attribute of ownership. [28]
DOUBLE TAXATION
CIR Vs Solidabank
Double taxation means taxing the same property twice when it should be taxed only once; that is, x x
x taxing the same person twice by the same jurisdiction for the same thing. [117] It is obnoxious when the
taxpayer is taxed twice, when it should be but once. [118] Otherwise described as direct duplicate
taxation,[119] the two taxes must be imposed on the same subject matter, for the same purpose, by the same
taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same
kind or character.[120]
First, the taxes herein are imposed on two different subject matters. The subject matter of the FWT is
the passive income generated in the form of interest on deposits and yield on deposit substitutes, while
the subject matter of the GRT is the privilege of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is an
excise[121] rather than a property tax.[122] It is not an income tax, unlike the FWT. In fact, we have already
held that one can be taxed for engaging in business and further taxed differently for the income derived
therefrom.[123] Akin to our ruling in Velilla v. Posadas,[124] these two taxes are entirely distinct and are
assessed under different provisions.
Second, although both taxes are national in scope because they are imposed by the same taxing
authority -- the national government under the Tax Code -- and operate within the same Philippine
jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT
is deducted and withheld as soon as the income is earned, and is paid after every calendarquarter in which
it is earned. On the other hand, the GRT is neither deducted nor withheld, but is paid only after
every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same taxing authority, within
the same jurisdiction, for the same purpose, in different taxing periods, some of the property in the
territory.[125] Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is
clearly not showing double taxation.
CIR vs City Trust Investment Phils Inc

Double taxation means taxing for the same tax period the same thing or activity twice, when it
should be taxed but once, for the same purpose and with the same kind of character of tax. [26] This is not
the situation in the case at bar. The GRT is a percentage tax under Title V of the Tax Code ([Section 121],
Other Percentage Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The
two concepts are different from each other. In Solidbank Corporation,[27] this Court defined that a
percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value
in money of goods sold, bartered or imported; or of the gross receipts or earnings derived by any person
engaged in the sale of services. It is not subject to withholding. An income tax, on the other hand, is a
national tax imposed on the net or the gross income realized in a taxable year. It is subject to
withholding. Thus, there can be no double taxation here as the Tax Code imposes two different kinds of
taxes.

Now, both Asianbank and Citytrust rely on Manila Jockey Club[28] in support of their positions. We
are not convinced. In said case, Manila Jockey Club paid amusement tax on its commission in the total
amount of bets called wager funds from the period November 1946 to October 1950. But such payment
did not include the 5 % of the funds which went to the Board on Races and to the owners of horses and
jockeys. We ruled that the gross receipts of the Manila Jockey Club should not include the 5 % because
although delivered to the Club, such money has been especially earmarked by law or regulation for other
persons.
Villanueva vs City Of Iloilo
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently obnoxious in the exaction of
license fees or taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes
and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule
that a license tax may be levied upon a business or occupation although the land or property used in
connection therewith is subject to property tax. The State may collect an ad valorem tax on property used
in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of
tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense the same property
must be taxed twice when it should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district, during the same taxing period, and they
must be the same kind or character of tax."23 It has been shown that a real estate tax and the
tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of
the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is
something not favored, but is permissible, provided some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be uniform."25.
International Double Taxation
CIR vs SC Johson and Son

The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into
for the avoidance of double taxation. [9] The purpose of these international agreements is to reconcile the
national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous
taxation in two different jurisdictions. [10] More precisely, the tax conventions are drafted with a view
towards the elimination of international juridical double taxation, which is defined as the imposition of
comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and
for identical periods.[11], citing the Committee on Fiscal Affairs of the Organization for Economic Cooperation and Development (OECD).11 The apparent rationale for doing away with double taxation is to
encourage the free flow of goods and services and the movement of capital, technology and persons
between countries, conditions deemed vital in creating robust and dynamic economies. [12] Foreign
investments will only thrive in a fairly predictable and reasonable international investment climate and the
protection against double taxation is crucial in creating such a climate. [13]
Double taxation usually takes place when a person is resident of a contracting state and derives
income from, or owns capital in, the other contracting state and both states impose tax on that income or
capital. In order to eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the
respective rights to tax of the state of source or situs and of the state of residence with regard to certain
classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting
states; however, for other items of income or capital, both states are given the right to tax, although the
amount of tax that may be imposed by the state of source is limited. [14]
The second method for the elimination of double taxation applies whenever the state of source is
given a full or limited right to tax together with the state of residence. In this case, the treaties make it
incumbent upon the state of residence to allow relief in order to avoid double taxation. There are two
methods of relief- the exemption method and the credit method. In the exemption method, the income or
capital which is taxable in the state of source or situs is exempted in the state of residence, although in

some instances it may be taken into account in determining the rate of tax applicable to the taxpayers
remaining income or capital. On the other hand, in the credit method, although the income or capital
which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is
credited against the tax levied in the latter. The basic difference between the two methods is that in the
exemption method, the focus is on the income or capital itself, whereas the credit method focuses upon
the tax.[15]
In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the Philippines will
give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed
by the other country.[16]Thus the petitioner correctly opined that the phrase royalties paid under similar
circumstances in the most favored nation clause of the US-RP Tax Treaty necessarily contemplated
circumstances that are tax-related.
In the case at bar, the state of source is the Philippines because the royalties are paid for the right to
use property or rights, i.e. trademarks, patents and technology, located within the Philippines. [17] The
United States is the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based
there. Under the RP-US Tax Treaty, the state of residence and the state of source are both permitted to tax
the royalties, with a restraint on the tax that may be collected by the state of source. [18] Furthermore, the
method employed to give relief from double taxation is the allowance of a tax credit to citizens or residents
of the United States (in an appropriate amount based upon the taxes paid or accrued to the Philippines)
against the United States tax, but such amount shall not exceed the limitations provided by United States
law for the taxable year.[19] Under Article 13 thereof, the Philippines may impose one of three rates- 25
percent of the gross amount of the royalties; 15 percent when the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in preferred areas of activities; or the
lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar
circumstances to a resident of a third state.
Given the purpose underlying tax treaties and the rationale for the most favored nation clause, the
concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the
taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under
similar circumstances. This would mean that private respondent must prove that the RP-US Tax Treaty
grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties
earned from sources within the Philippines as those allowed to their German counterparts under the RPGermany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article
24 of the RP-Germany Tax Treaty, supra, expressly allows crediting against German income and
corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. On the other
hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double
taxation, does not provide for similar crediting of 20% of the gross amount of royalties paid.
Article 23
Relief from double taxation
Double taxation of income shall be avoided in the following manner:
1) In accordance with the provisions and subject to the limitations of the law of the United States
(as it may be amended from time to time without changing the general principle thereof), the
United States shall allow to a citizen or resident of the United States as a credit against the
United States tax the appropriate amount of taxes paid or accrued to the Philippines and, in the
case of a United States corporation owning at least 10 percent of the voting stock of a
Philippine corporation from which it receives dividends in any taxable year, shall allow credit for
the appropriate amount of taxes paid or accrued to the Philippines by the Philippine corporation
paying such dividends with respect to the profits out of which such dividends are paid. Such
appropriate amount shall be based upon the amount of tax paid or accrued to the Philippines,
but the credit shall not exceed the limitations (for the purpose of limiting the credit to the
United States tax on income from sources within the Philippines or on income from sources
outside the United States) provided by United States law for the taxable year. xxx.
The reason for construing the phrase paid under similar circumstances as used in Article 13 (2) (b)
(iii) of the RP-US Tax Treaty as referring to taxes is anchored upon a logical reading of the text in the light
of the fundamental purpose of such treaty which is to grant an incentive to the foreign investor by
lowering the tax and at the same time crediting against the domestic tax abroad a figure higher than what
was collected in the Philippines.

As stated earlier, the ultimate reason for avoiding double taxation is to encourage foreign investors to
invest in the Philippines - a crucial economic goal for developing countries. [23] The goal of double taxation
conventions would be thwarted if such treaties did not provide for effective measures to minimize, if not
completely eliminate, the tax burden laid upon the income or capital of the investor. Thus, if the rates of
tax are lowered by the state of source, in this case, by the Philippines, there should be a concomitant
commitment on the part of the state of residence to grant some form of tax relief, whether this be in the
form of a tax credit or exemption. [24] Otherwise, the tax which could have been collected by the Philippine
government will simply be collected by another state, defeating the object of the tax treaty since the tax
burden imposed upon the investor would remain unrelieved. If the state of residence does not grant some
form of tax relief to the investor, no benefit would redound to the Philippines, i.e., increased investment
resulting from a favorable tax regime, should it impose a lower tax rate on the royalty earnings of the
investor, and it would be better to impose the regular rate rather than lose much-needed revenues to
another country.
At the same time, the intention behind the adoption of the provision on relief from double taxation in
the two tax treaties in question should be considered in light of the purpose behind the most favored
nation clause.
The purpose of a most favored nation clause is to grant to the contracting party treatment not less
favorable than that which has been or may be granted to the most favored among other countries.
[25]
The most favored nation clause is intended to establish the principle of equality of international
treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges
accorded by either party to those of the most favored nation. [26]The essence of the principle is to allow the
taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country
of residence of such taxpayer is also a party provided that the subject matter of taxation, in this case
royalty income, is the same as that in the tax treaty under which the taxpayer is liable. Both Article 13 of
the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax Treaty, above-quoted, speaks of tax
on royalties for the use of trademark, patent, and technology. The entitlement of the 10% rate by U.S.
firms despite the absence of a matching credit (20% for royalties) would derogate from the design behind
the most favored nation clause to grant equality of international treatment since the tax burden laid upon
the income of the investor is not the same in the two countries. The similarity in the circumstances of
payment of taxes is a condition for the enjoyment of most favored nation treatment precisely to
underscore the need for equality of treatment.
We accordingly agree with petitioner that since the RP-US Tax Treaty does not give a matching tax
credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-West
Germany Tax Treaty, private respondent cannot be deemed entitled to the 10 percent rate granted under
the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances.
It bears stress that tax refunds are in the nature of tax exemptions. As such they are regarded as in
derogation of sovereign authority and to be construed strictissimi juris against the person or entity
claiming the exemption.[27] The burden of proof is upon him who claims the exemption in his favor and he
must be able to justify his claim by the clearest grant of organic or statute law. [28] Private respondent is
claiming for a refund of the alleged overpayment of tax on royalties; however, there is nothing on record to
support a claim that the tax on royalties under the RP-US Tax Treaty is paid under similar circumstances as
the tax on royalties under the RP-West Germany Tax Treaty.

Purpose of Taxation
COCOFED VS Republic
We have ruled time and again that taxes are imposed only for a public purpose. [111] They cannot be used
for purely private purposes or for the exclusive benefit of private persons. [112] When a law imposes taxes
or levies from the public, with the intent to give undue benefit or advantage to private persons, or the
promotion of private enterprises, that law cannot be said to satisfy the requirement of public purpose. [113]

[116]

The Court amply reasoned that the Stabilization Fund must be utilized for the benefit of
the entire sugar industry, and all its components, stabilization of the domestic market
including foreign market, the industry being of vital importance to the countrys economy and
to national interest.[117]

Similarly in this case, the coconut levy funds were sourced from forced exactions decreed under
P.D. Nos. 232, 276 and 582, among others, [118] with the end-goal of developing the entire coconut industry.
[119]
Clearly, to hold therefore, even by law, that the revenues received from the imposition of the coconut
levies be used purely for private purposes to be owned by private individuals in their private capacity and
for their benefit, would contravene the rationale behind the imposition of taxes or levies.
In this case, the coconut levy funds were being exacted from copra exporters, oil millers,
desiccators and other end-users of copra or its equivalent in other coconut products. [122] Likewise so, the
funds here were channeled to the purchase of the shares of stock in UCPB. Drawing a clear parallelism
between Gaston and this case, the fact that the coconut levy funds were collected from the persons or
entities in the coconut industry, among others, does not and cannot entitle them to be beneficial owners of
the subject funds or more bluntly, owners thereof in their private capacity. Parenthetically, the said
private individuals cannot own the UCPB shares of stocks so purchased using the said special funds of the
government.[123]

Planters vs Products Inc v Fertphil

One of the inherent limitations is that a tax may be levied only for public purposes:
The power to tax can be resorted to only for a constitutionally valid
public purpose. By the same token, taxes may not be levied for purely private
purposes, for building up of private fortunes, or for the redress of private
wrongs. They cannot be levied for the improvement of private property, or for
the benefit, and promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of constitutional law
that no general tax can be levied except for the purpose of raising money
which is to be expended for public use. Funds cannot be exacted under the
guise of taxation to promote a purpose that is not of public interest. Without
such limitation, the power to tax could be exercised or employed as an
authority to destroy the economy of the people. A tax, however, is not held
void on the ground of want of public interest unless the want of such interest
is clear. (71 Am. Jur. pp. 371-372)
In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and
Pesticide Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465
which, in turn, remitted the amount to the defendant Planters Products, Inc. thru the latters
depository bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff,
Fertiphil Corporation, which is a private domestic corporation, became poorer by the amount
of P6,698,144.00 and the defendant, Planters Product, Inc., another private domestic
corporation, became richer by the amount of P6,698,144.00.
CIR vs Central Luzon Drug Corp
Besides, the taxation power can also be used as an implement for the exercise of the power of eminent
domain.[80] Tax measures are but enforced contributions exacted on pain of penal sanctions [81] and
clearly imposed for a public purpose.[82] In recent years, the power to tax has indeed become a most
effective tool to realize social justice, public welfare, and the equitable distribution of wealth. [83]
While it is a declared commitment under Section 1 of RA 7432, social justice cannot be invoked to
trample on the rights of property owners who under our Constitution and laws are also entitled to
protection. The social justice consecrated in our [C]onstitution [is] not intended to take away rights from a
person and give them to another who is not entitled thereto. [84] For this reason, a just compensation for
income that is taken away from respondent becomes necessary. It is in the tax creditthat our legislators
find support to realize social justice, and no administrative body can alter that fact.
To put it differently, a private establishment that merely breaks even [85] -- without the discounts yet
-- will surely start to incur losses because of such discounts. The same effect is expected if its mark-up is
less than 20 percent, and if all its sales come from retail purchases by senior citizens. Aside from the
observation we have already raised earlier, it will also be grossly unfair to an establishment if the discounts
will be treated merely as deductions from either its gross income or its gross sales. Operating at a loss

through no fault of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if not
improper. Worse, profit-generating businesses will be put in a better position if they avail themselves
of tax credits denied those that are losing, because no taxes are due from the latter.
Republic vs COCOFED
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional
contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it
is levied for the support of the government. The coconut levy funds fall squarely into these elements for
the following reasons:
(a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring
the payment of prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer Stabilization
Fund (CCSF), mandated the following:
a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut
products, shall be imposed on every first sale, in accordance with the mechanics established under RA
6260, effective at the start of business hours on August 10, 1973.
The proceeds from the levy shall be deposited with the Philippine National Bank or any other government
bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not
form part of the general fund of the government.[50]
The coco levies were further clarified in amendatory laws, specifically PD No. 961 [51] and PD No.
1468[52] -- in this wise:
The Authority (Philippine Coconut Authority) is hereby empowered to impose and collect a levy, to be
known as the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada,
or its equivalent in other coconut products delivered to, and/or purchased by, copra exporters, oil millers,
desiccators and other end-users of copra or its equivalent in other coconut products. The levy shall be
paid by such copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in other
coconut products under such rules and regulations as the Authority may prescribe. Until otherwise
prescribed by the Authority, the current levy being collected shall be continued. [53]
Like other tax measures, they were not voluntary payments or donations by the people. They were
enforced contributions exacted on pain of penal sanctions, as provided under PD No. 276:
3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated
thereunder, shall, in addition to penalties already prescribed under existing administrative and special law,
pay a fine of not less than P2,500 or more than P10,000, or suffer cancellation of licenses to operate, or
both, at the discretion of the Court.[54]
Such penalties were later amended thus:
Whenever any person or entity willfully and deliberately violates any of the provisions of this Act, or any
rule or regulation legally promulgated hereunder by the Authority, the person or persons responsible for
such violation shall be punished by a fine of not more than P20,000.00 and by imprisonment of not more
than five years. If the offender be a corporation, partnership or a juridical person, the penalty shall be
imposed on the officer or officers authorizing, permitting or tolerating the violation. Aliens found guilty of
any offenses shall, after having served his sentence, be immediately deported and, in the case of a
naturalized citizen, his certificate of naturalization shall be cancelled. [55]
(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities
of the State. Indeed, the CCSF was collected under PD No. 276, issued by former President Ferdinand E.
Marcos who was then exercising legislative powers.[56]
(c) They were clearly imposed for a public purpose. There is absolutely no question that they were
collected to advance the governments avowed policy of protecting the coconut industry. This Court takes
judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and
coconuts and their byproducts occupy a leading position among the countrys export products; that it gives
employment to thousands of Filipinos; that it is a great source of the States wealth; and that it is one of
the important sources of foreign exchange needed by our country and, thus, pivotal in the plans of a
government committed to a policy of currency stability.
Taxation is done not merely to raise revenues to support the government, but also to provide means
for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest
as to be within the police power of the State, as held in Caltex Philippines v. COA[57] and Osmea v. Orbos.
[58]

Even if the money is allocated for a special purpose and raised by special means, it is still public in
character. In the case before us, the funds were even used to organize and finance State
offices. In Cocofed v. PCGG,[59] the Court observed that certain agencies or enterprises were organized

and financed with revenues derived from coconut levies imposed under a succession of laws of the late
dictatorship x x x with deposed Ferdinand Marcos and his cronies as the suspected authors and chief
beneficiaries of the resulting coconut industry monopoly. [60] The Court continued: x x x. It cannot be
denied that the coconut industry is one of the major industries supporting the national economy. It is,
therefore, the States concern to make it a strong and secure source not only of the livelihood of a
significant segment of the population, but also of export earnings the sustained growth of which is one of
the imperatives of economic stability. x x x.[61]
Walter Lutz vs J Antonio Araneta

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax
that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous
authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that
very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As
ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably
hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it
might have been applied;" and that "the legislative authority, exerted within its proper field, need not
embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed.
893).

Sison Jr. Vs Ancheta

The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly
set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private individual or group of individuals,'
continue to lose their well-defined boundaries and to be absorbed within activities that the government
must undertake in its sovereign capacity if it is to meet the increasing social challenges of the
times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed
of to assure the performance of vital state functions. It is the source of the bulk of public funds. To
praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain
availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude
'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits .
Adversely affecting as it does properly rights, both the due process and equal protection clauses inay
properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were
otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after
referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the
intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it
is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude:
"The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative
or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision as petitioner here alleges fails to abide by its command, then this
Court must so declare and adjudge it null. The injury thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as
here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to
say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls
for the application of the Holmes dictum. It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so
harsh and unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the lice power or the power of
eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination
that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be given to every
person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden
or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast
on some in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of approximating the
Ideal of the laws benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as
realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is
not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and
laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be treated in
law as though they were the same." 21 Hence the constant reiteration of the view that classification if
rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court,
through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a
state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which
result from a singling out of one particular class for taxation, or exemption infringe no constitutional
limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shag be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every
place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did
not present itself in that case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the
meaning of this clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies equally to all persons, firms and corporations
placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same time reducing the applicable tax rate.
Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must
rest upon substantial distinctions that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of
compensation income are set apart as a class. As there is practically no overhead expense, these

taxpayers are e not entitled to make deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would
not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income. There is ample justification then for
the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and business income.
Philippine Bank vs Communication vs CIR
Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. [13] Due process
of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be
so because it is upon taxation that the government chiefly relies to obtain the means to carry on its
operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied
should be summary and interfered with as little as possible.[14]
CIR vs Algue

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On
the other hand, such collection should be made in accordance with law as any arbitrariness will negate the
very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests
of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved.

CIR Vs BF Goodrich
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. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such protection.
[12]
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.

CIR vs Gonzalez
For the crime of tax evasion in particular, compliance by the taxpayer with such subpoena, if any had been
issued, is irrelevant. As we held in Ungab v. Cusi, Jr.,[41] [t]he crime is complete when the [taxpayer] has x
x x knowingly and willfully filed [a] fraudulent [return] with intent to evade and defeat x x x the tax.
CIR vs Estate of Benigno Toda
Is this a case of tax evasion or tax avoidance?
Tax avoidance (also tax minimization) and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned
by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities. [23]
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of
less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a

tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and (3) a course of action (means) or failure of action which is unlawful. [24]
All these factors are present in the instant case. It is significant to note that as early as 4 May 1989,
prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40
million from RMI,[25] and not from Altonaga. That P40 million was debited by RMI and reflected in its trial
balance[26] as other inv. Cibeles Bldg. Also, as of 31 July 1989, another P40 million was debited and
reflected in RMIs trial balance as other inv. Cibeles Bldg. This would show that the real buyer of the
properties was RMI, and not the intermediary Altonaga.
The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of
the many trusted corporate executives of Toda. This information was revealed by Mr. Boy Prieto, the
assistant accountant of CIC and an old timer in the company. [27] But Mr. Prieto did not testify on this
matter, hence, that information remains to be hearsay and is thus inadmissible in evidence.

Tax Amnesty vs. Tax Exemption (2001)

Distinguish a tax amnesty from a tax exemption. (3%)
SUGGESTED ANSWER:
Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising from nonpayment of
taxes. It is a general pardon given to all taxpayers. It applies only to past tax periods, hence of retroactive
application. (People v. Costonedo, G.R. No. L-46881, 1988).
(there will be a waiver signed, and would constitute to have retroactive amnesty)
Tax exemption is an immunity from the civil liability only. It is an immunity or privilege, a freedom from a
charge or burden to which others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 ME 365). It is
generally prospective in application.
(prospective Ex: you are exempted from income tax)
Strictissimi Juris
Atlas Consolidated Mining and Development Corp vs Province of Quezon
Taxation is a destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the government. And, since taxes are
what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments
must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated,
taxation is the rule, exemption therefrom is the exception.[21]
CIR Vs San Miguel Corp
It bears reiterating that 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.[17] In case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails as said rule or regulation cannot go beyond the terms and
provisions of the basic law.[18] It must be stressed that the objective of issuing BIR Revenue Regulations
is to establish parameters or guidelines within which our tax laws should be implemented, and not to
amend or modify its substantive meaning and import. As held in Commissioner of Internal Revenue v.
Fortune Tobacco Corporation,[19]
x x x The rule in the interpretation of tax laws is that a statute will not be
construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A
tax cannot be imposed without clear and express words for that purpose. Accordingly,
the general rule of requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are not to be extended
by implication. x x x As burdens, taxes should not be unduly exacted nor assumed
beyond the plain meaning of the tax laws.[20]
Hence, while it may be true that the interpretation advocated by petitioner CIR is in furtherance
of its desire to raise revenues for the government, such noble objective must yield to the clear provisions
of the law, particularly since, in this case, the terms of the said law are clear and leave no room for
interpretation.

COMPENSATION AND SET OFF

Philex Mining vs CIR (INCLUDING FRANCIA VS IAC)
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other.[17] 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.[18] We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court,[19] we categorically held that
taxes cannot be subject to set-off or compensation, thus:
We have consistently 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. The collection of tax
cannot await the results of a lawsuit against the government.
Domingo vs Garlitos

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court
and such jurisdiction continues until said properties have been distributed among the heirs entitled
thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper
procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the
court for an order to require the administrator to pay the amount due from the estate and required to be
paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction
of the estate had found that the claim of the estate against the Government has been recognized and an
amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No.
2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and demandable is well as fully
liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of
Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect
by operation of law, and extinguished both debts to the concurrent amount, eventhough the
creditors and debtors are not aware of the compensation.

TAX AMNESTY
CS GARMENT INC VS CIR
Tax amnesty refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and
power to impose penalties on persons or entities guilty of violating a tax law. 14 Tax amnesty aims to grant a
general reprieve to tax evaders who wish to come clean by giving them an opportunity to straighten out
their records.15 In 2007, Congress enacted R.A. 9480, which granted a tax amnesty covering "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." 16 These national internal revenue taxes
include (a) income tax; (b) VAT; (c) estate tax; (d) excise tax; (e) donors tax; (f) documentary stamp tax;
(g) capital gains tax; and (h) other percentage taxes. 17 Pursuant to Section 6 of the 2007 Tax Amnesty Law,
those who availed themselves of the benefits of the law became "immune from the payment of taxes, as
well as additions 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."
Amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty
Law, as soon as they fulfill the suspensive conditions imposed therein
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two types of conditions
one suspensive, the other resolutory. Borrowing from the concepts under our Civil Code, a condition may
be classified as suspensive when the fulfillment of the condition results in the acquisition of rights. On the
other hand, a condition may be considered resolutory when the fulfillment of the condition results in the

extinguishment of rights. In the context of tax amnesty, the rights referred to are those arising out of the
privileges and immunities granted under the applicable tax amnesty law.
The imposition of a suspensive condition under the 2007 Tax Amnesty Law is evident from the following
provisions of the law:
2007 Tax Amnesty Law Republic Act No. 9480
SECTION 2. Availment of the Amnesty. Any person, natural or juridical, who wishes to avail himself of the
tax amnesty authorized and granted under this Act shall file with the Bureau of Internal Revenue (BIR) a
notice and Tax Amnesty Return accompanied by a Statement of Assets, Liabilities and Networth (SALN) as
of December 31, 2005, in such form as may be prescribed in the implementing rules and regulations (IRR)
of this Act, and pay the applicable amnesty tax within six months from the effectivity of the IRR.
SECTION 4. Presumption of Correctness of the SALN. The SALN as of December 31, 2005 shall be
considered as true and correct except where the amount of declared networth is understated to the extent
of thirty percent (30%) or more as may be established in proceedings initiated by, or at the instance of,
parties other than the BIR or its agents: Provided, That such proceedings must be initiated within one year
following the date of the filing of the tax amnesty return and the SALN. Findings of or admission in
congressional hearings, other administrative agencies of government, and/or courts shall be admissible to
prove a thirty percent (30%) under-declaration.
SECTION 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:
(a) The taxpayer shall be immune from the payment of taxes, as well as additions 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.
(b) The taxpayers Tax Amnesty Return and the SALN as of December 31, 2005 shall not be
admissible as evidence in all proceedings that pertain to taxable year 2005 and prior years, insofar
as such proceedings relate to internal revenue taxes, before judicial, quasi-judicial or administrative
bodies in which he is a defendant or respondent, and except for the purpose of ascertaining the
networth beginning January 1, 2006, the same shall not be examined, inquired or looked into by any
person or government office. However, the taxpayer may use this as a defense, whenever
appropriate, in cases brought against him.
(c) The books of accounts and other records of the taxpayer for the years covered by the tax
amnesty availed of shall not be examined: Provided, That the Commissioner of Internal Revenue
may authorize in writing the examination of the said books of accounts and other records to verify
the validity or correctness of a claim for any tax refund, tax credit (other than refund or credit of
taxes withheld on wages), tax incentives, and/or exemptions under existing laws.
All these immunities and privileges shall not apply where the person failed to file a SALN and the Tax
Amnesty Return, or where the amount of networth as of December 31, 2005 is proven to be understated to
the extent of thirty percent (30%) or more, in accordance with the provisions of Section 3 hereof.
SECTION 7. When and Where to File and Pay. The filing of the Tax Amnesty Return and the payment of
the amnesty tax for those availing themselves of the tax amnesty shall be made within six months starting
from the effectivity of the IRR. It shall be filed at the office of the Revenue District Officer which has
jurisdiction over the legal residence or principal place of business of the filer. The Revenue District Officer
shall issue an acceptance of payment form authorizing an authorized agent bank, or in the absence
thereof, the collection agent or municipal treasurer concerned, to accept the amnesty tax payment.
Department of Finance Order No. 29-07: Rules and Regulations to Implement R.A. 9480
SECTION 6. Method of Availment of Tax Amnesty.
xxxx
3. Payment of Amnesty Tax and Full Compliance. Upon filing of the Tax Amnesty Return in accordance
with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty tax to the authorized agent bank or in the
absence thereof, the Collection Agent or duly authorized Treasurer of the city or municipality in which such
person has his legal residence or principal place of business.
The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed by the BIR for the use
of or to be accomplished by the bank, the collection agent or the Treasurer, showing the acceptance
of the amnesty tax payment. In case of the authorized agent bank, the branch manager or the assistant
branch manager shall sign the acceptance of payment form.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty Return shall be
submitted to the RDO, which shall be received only after complete payment. The completion of these
requirements shall be deemed full compliance with the provisions of R.A. 9480. (Emphases supplied)
In availing themselves of the benefits of the tax amnesty program, taxpayers must first accomplish the
following forms and prepare them for submission: (1) Notice of Availment of Tax Amnesty Form; (2) Tax

Amnesty Return Form (BIR Form No. 2116); (3) Statement of Assets, Liabilities and Net worth (SALN) as of
December 31, 2005; and (4) Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No.
0617).18
The taxpayers must then compute the amnesty tax due in accordance with the rates provided in Section 5
of the law,19 using as tax base their net worth as of 31 December 2005 as declared in their SALNs. At their
option, the revenue district office (RDO) of the BIR may assist them in accomplishing the forms and
computing the taxable base and the amnesty tax due. 20 The RDO, however, is disallowed from looking into,
questioning or examining the veracity of the entries contained in the Tax Amnesty Return, SALN, and other
documents they have submitted.21Using the Tax Amnesty Payment Form, the taxpayers must make a
complete payment of the computed amount to an authorized agent bank, a collection agent, or a duly
authorized treasurer of the city or municipality.22
Thereafter, the taxpayers must file with the RDO or an authorized agent bank the (1) Notice of Availment
of Tax Amnesty Form; (2) Tax Amnesty Return Form (BIR Form No. 2116); (3) SALN; and (4) Tax Amnesty
Payment Form.23 The RDO shall only receive these documents after complete payment is made, as shown
in the Tax Amnesty Payment Form.24 It must be noted that the completion of these requirements "shall be
deemed full compliance with the provisions of R.A. 9480." 25 In our considered view, this rule means that
amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty
Law as soon as the aforementioned documents are duly received.
The OSG has already confirmed 26 to this Court that CS Garment has complied with all of the documentary
requirements of the law. Consequently, and contrary to the assertion of the OSG, no further assessment by
the BIR is necessary. CS Garment is now entitled to invoke the immunities and privileges under Section 6 of
the law.
Similarly, we reject the contention of OSG that the BIR was given a one-year period to contest the
correctness of the SALN filed by CS Garment, thus making petitioners motion premature. Neither the 2007
Tax Amnesty Law nor Department of Finance (DOF) Order No. 29-07 (Tax Amnesty Law IRR) imposes a
waiting period of one year before the applicant can enjoy the benefits of the Tax Amnesty Law. It can be
surmised from the cited provisions that the law intended the immediate enjoyment of the immunities and
privileges of tax amnesty upon fulfilment of the requirements. Further, a reading of Sections 4 and 6 of the
2007 Tax Amnesty Law shows that Congress has adopted a "no questions asked" policy, so long as all the
requirements of the law and the rules are satisfied. The one-year period referred to in the law should thus
be considered only as a prescriptive period within which third parties, meaning "parties other than the BIR
or its agents," can question the SALN not as a waiting period during which the BIR may contest the SALN
and the taxpayer prevented from enjoying the immunities and privileges under the law.
This clarification, however, does not mean that the amnesty taxpayers would go scot-free in case they
substantially understate the amounts of their net worth in their SALN. The 2007 Tax Amnesty Law imposes
a resolutory condition insofar as the enjoyment of immunities and privileges under the law is concerned.
Pursuant to Section 4 of the law, third parties may initiate proceedings contesting the declared amount of
net worth of the amnesty taxpayer within one year following the date of the filing of the tax amnesty
return and the SALN. Section 6 then states that "All these immunities and privileges shall not apply x x x
where the amount of networth as of December 31, 2005 is proven to be understated to the extent of thirty
percent (30%) or more, in accordance with the provisions of Section 3 hereof." Accordingly, Section 10
provides that amnesty taxpayers who willfully understate their net worth shall be (a) liable for perjury
under the Revised Penal Code; and (b) subject to immediate tax fraud investigation in order to collect all
taxes due and to criminally prosecute those found to have willfully evaded lawful taxes due.
Nevertheless, in this case we note that the OSG has already Indicated 27 that the CIR had not filed a case
relative to the tax amnesty application of CS Garment, from the time the documents were filed in March
2008. Neither did the OSG mention that a third party had initiated proceedings challenging the declared
amount of net worth of the amnesty taxpayer within the one-year period.
Taxpayers with pending tax cases are still qualified to avail themselves of the tax amnesty program.
With respect to its last assertion, the OSG quotes the following guidelines under BIR RMC 19-2008 to
establish that CS Garment is disqualified from availing itself of the tax amnesty program: 28
A BASIC GUIDE ON THE TAX AMNESTY ACT OF 2007
The following is a basic guide for taxpayers who wish to avail of tax amnesty pursuant of Republic Act No.
9480 (Tax Amnesty Act of 2007).
Who may avail of the amnesty?
xxxx
EXCEPT:
[x] Withholding agents with respect to their withholding tax liabilities
[x] Those with pending cases:
Under the jurisdiction of the PCGG

 Involving violations of the Anti-Graft and Corrupt Practices Act

Involving violations of the Anti-Money Laundering Law
For tax evasion and other criminal offenses under the NIRC and/or the RPC
[x] Issues and cases which were ruled by any court (even without finality) in favor
of the BIR prior to amnesty availment of the taxpayer.(e.g. Taxpayers who have failed
to observe or follow BOI and/or PEZA rules on entitlement to Income Tax Holiday Incentives
and other incentives)
[x] Cases involving issues ruled with finality by the Supreme Court prior to the effectivity of
R.A. 9480 (e.g. DST on Special Savings Account)
[x] Taxes passed-on and collected from customers for remittance to the BIR
[x] Delinquent Accounts/Accounts Receivable considered as assets of the BIR/Government,
including self-assessed tax (Emphasis supplied)
To resolve the matter, we refer to the basic text of the Tax Amnesty Law and its implementing rules and
regulations, viz:
Republic Act No. 9480
SECTION 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following
persons or cases existing as of the effectivity of this Act:
xxxx
(f) Tax cases subject of final and executory judgment by the courts.
DOF Order No. 29-07: Rules and Regulations to Implement R.A. 9480
SECTION 5. Exceptions. The tax amnesty shall not extend to the following persons or cases existing as
of the effectivity of R.A. 9480:
xxxx
7. Tax cases subject of final and executory judgment by the courts. (Emphases supplied)
We cull from the aforementioned provisions that neither the law nor the implementing rules state that a
court ruling that has not attained finality would preclude the availment of the benefits of the Tax Amnesty
Law. Both R.A. 9480 and DOF Order No. 29-07 are quite precise in declaring that
"[t]ax cases subject of final and executory judgment by the courts" are the ones excepted from the
benefits of the law. In fact, we have already pointed out the erroneous interpretation of the law in
Philippine Banking Corporation (Now: Global Business Bank, Inc.) v. Commissioner of Internal Revenue, viz:
The BIRs inclusion of "issues and cases which were ruled by any court (even without finality) in favor of
the BIR prior to amnesty availment of the taxpayer" as one of the exceptions in RMC 19-2008 is misplaced.
RA 9480 is specifically clear that the exceptions to the tax amnesty program include "tax cases subject of
final and executory judgment by the courts." The present case has not become final and executory when
Metrobank availed of the tax amnesty program.29 (Emphasis supplied)
While tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority, 30 it is also a well-settled doctrine 31 that the rule-making power of
administrative agencies cannot be extended to amend or expand statutory requirements or to embrace
matters not originally encompassed by the law.1wphi1 Administrative regulations should always be in
accord with the provisions of the statute they seek to carry into effect, and any resulting inconsistency
shall be resolved in favor of the basic law. We thus definitively declare that the exception "[i]ssues and
cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment
of the taxpayer" under BIR RMC 19-2008 is invalid, as the exception goes beyond the scope of the
provisions of the 2007 Tax Amnesty Law.32
Considering the completion of the aforementioned requirements, we find that petitioner has successfully
availed itself of the tax amnesty benefits granted under the Tax Amnesty Law. Therefore, we no longer see
any need to further discuss the issue of the deficiency tax assessments. CS Garment is now deemed to
have been absolved of its obligations and is already immune from the payment of taxes including the
assessed deficiency in the payment of VAT, DST, and income tax as affirmed by the CTA en banc as well
as of the additions thereto (e.g., interests and surcharges). Furthermore, the tax amnesty benefits include
immunity from "the appurtenant civil, criminal, or administrative penalties under the NIRC of 1997, as
amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior
years."33
CIR VS MARUBENI
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or
intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of
evasion or violation of a revenue or tax law. [15] It partakes of an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give tax evaders who wish to relent a chance to
start with a clean slate.[16] A tax amnesty, much like a tax exemption, is never favored nor presumed in law.
[17]
If granted, 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. [18] For the right of taxation is inherent in government.
The State cannot strip itself of the most essential power of taxation by doubtful words. He who claims an
exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic
or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of the
legislature, that doubt must be resolved in favor of the state.[19]
CIR VS GONZALEZ
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.[51] Even assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax
amnesty, it bears noting that 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. [52]

ASIA INTERNATIONAL AUCTIONEERS INC VS CIR

Issue Before the Court
Both parties discussed the legal bases for AIAs tax liability, unmindful of the fact that this case stemmed
from the CTAs dismissal of AIAs petition for review for failure to file a timely protest, without passing upon
the substantive merits of the case.
Relevantly, on January 30, 2008, AIA filed a Manifestation and Motion with Leave of the Honorable Court to
Defer or Suspend Further Proceedings20rll on the ground that it availed of the Tax Amnesty Program
under Republic Act 948021rll (RA 9480), otherwise known as the Tax Amnesty Act of 2007. On February
13, 2008, it submitted to the Court a Certification of Qualification 22rll issued by the BIR on February 5,
2008 stating that AIA "has availed and is qualified for Tax Amnesty for the Taxable Year 2005 and Prior
Years" pursuant to RA 9480.
With AIAs availment of the Tax Amnesty Program under RA 9480, the Court is tasked to first determine its
effects on the instant petition.
Ruling of the Court
A tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violating a tax law. It partakes of an absolute waiver by the
government of its right to collect what is due it and to give tax evaders who wish to relent a chance to
start with a clean slate.23rll
A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of a tax
amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor
of the taxing authority.24rll
In 2007, RA 9480 took effect granting a tax amnesty to qualified taxpayers for all national internal revenue
taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that
have remained unpaid as of December 31, 2005.25rll
The Tax Amnesty Program under RA 9480 may be availed of by any person except those who are
disqualified under Section 8 thereof, to wit:chanroblesvirtuallawlibrary
Section 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following
persons or cases existing as of the effectivity of this Act:
(a) Withholding agents with respect to their withholding tax liabilities;
(b) Those with pending cases falling under the jurisdiction of the Presidential Commission on Good
Government;
(c) Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft
and Corrupt Practices Act;
(d) Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;
(e) Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title
X of the National Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal exactions
and transactions, and malversation of public funds and property under Chapters III and IV of Title VII of the
Revised Penal Code; and
(f) Tax cases subject of final and executory judgment by the courts.(Emphasis supplied)
The CIR contends that AIA is disqualified under Section 8(a) of RA 9480 from availing itself of the Tax
Amnesty Program because it is "deemed" a withholding agent for the deficiency taxes. This argument is
untenable.

The CIR did not assess AIA as a withholding agent that failed to withhold or remit the deficiency VAT and
excise tax to the BIR under relevant provisions of the Tax Code. Hence, the argument that AIA is "deemed"
a withholding agent for these deficiency taxes is fallacious.
Indirect taxes, like VAT and excise tax, are different from withholding taxes. To distinguish, in indirect taxes,
the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another
person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays
for it.26rll On the other hand, in case of withholding taxes, the incidence and burden of taxation fall on
the same entity, the statutory taxpayer. The burden of taxation is not shifted to the withholding agent who
merely collects, by withholding, the tax due from income payments to entities arising from certain
transactions27and remits the same to the government. Due to this difference, the deficiency VAT and excise
tax cannot be "deemed" as withholding taxes merely because they constitute indirect taxes. Moreover,
records support the conclusion that AIA was assessed not as a withholding agent but, as the one directly
liable for the said deficiency taxes.28rll
The CIR also argues that AIA, being an accredited investor/taxpayer situated at the Subic Special Economic
Zone, should have availed of the tax amnesty granted under RA 9399 29rll and not under RA 9480. This
is also untenable.
RA 9399 was passed prior to the passage of RA 9480. RA 9399 does not preclude taxpayers within its
coverage from availing of other tax amnesty programs available or enacted in futuro like RA 9480. More so,
RA 9480 does not exclude from its coverage taxpayers operating within special economic zones. As long as
it is within the bounds of the law, a taxpayer has the liberty to choose which tax amnesty program it wants
to avail.
CONSTITUTIONAL LIMITATIONS
LIWAYWAY VINZONS CHATO VS FORTUNE TOBACCO

In the case of Bagatsing v. Ramirez,24 the issue was which law should govern the publication of a tax
ordinance, the City Charter of Manila, a special act which treats ordinances in general and which requires
their publication before enactment and after approval, or the Tax Code, a general law, which deals in
particular with "ordinances levying or imposing taxes, fees or other charges," and which demands
publication only after approval. In holding that it is the Tax Code which should prevail, the Court elucidated
that:
There is no question that the Revised Charter of the City of Manila is a special act since it relates only to
the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local
governments. Blackstone defines general law as a universal rule affecting the entire community and
special law as one relating to particular persons or things of a class. And the rule commonly said is that a
prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and
the other general creates a presumption that the special is to be considered as remaining an exception of
the general, one as a general law of the land, the other as the law of a particular case. However, the rule
readily yields to a situation where the special statute refers to a subject in general, which the
general statute treats in particular. Th[is] exactly is the circumstance obtaining in the case at
bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general,
i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code
relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is
doubtless dominant, but, that dominant force loses its continuity when it approaches the
realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the
Local Tax Code controls. Here, as always, a general provision must give way to a particular provision.
Special provision governs.

FACTS:
This is a case for damages under Article 32 of the Civil Code filed by Fortune against Liwayway as CIR.
On June 10, 1993, the legislature enacted RA 7654, which provided that locally manufactured cigarettes
which are currently classified and taxed at 55% shall be charged an ad valorem tax of 55% provided that
the maximum tax shall not be less than Five Pesos per pack. Prior to effectivity of RA 7654, Liwayway
issued a rule, reclassifying Champion, Hope, and More (all manufactured by Fortune) as locally
manufactured cigarettes bearing foreign brand subject to the 55% ad valorem tax. Thus, when RA 7654
was passed, these cigarette brands were already covered.

In a case filed against Liwayway with the RTC, Fortune contended that the issuance of the rule violated its
constitutional right against deprivation of property without due process of law and the right to equal
protection of the laws.
For her part, Liwayway contended in her motion to dismiss that respondent has no cause of action against
her because she issued RMC 37-93 in the performance of her official function and within the scope of her
authority. She claimed that she acted merely as an agent of the Republic and therefore the latter is the one
responsible for her acts. She also contended that the complaint states no cause of action for lack of
allegation of malice or bad faith.
The order denying the motion to dismiss was elevated to the CA, who dismissed the case on the ground
that under Article 32, liability may arise even if the defendant did not act with malice or bad faith.
Hence this appeal.
ISSUES:

Whether or not a public officer may be validly sued in his/her private capacity for acts done in
connection with the discharge of the functions of his/her office
Whether or not Article 32, NCC, should be applied instead of Sec. 38, Book I, Administrative
Code
HELD:
On the first issue, the general rule is that a public officer is not liable for damages which a person may
suffer arising from the just performance of his official duties and within the scope of his assigned tasks. An
officer who acts within his authority to administer the affairs of the office which he/she heads is not liable
for damages that may have been caused to another, as it would virtually be a charge against the Republic,
which is not amenable to judgment for monetary claims without its consent. However, a public officer is by
law not immune from damages in his/her personal capacity for acts done in bad faith which, being outside
the scope of his authority, are no longer protected by the mantle of immunity for official actions.
Specifically, under Sec. 38, Book I, Administrative Code, civil liability may arise where there is bad faith,
malice, or gross negligence on the part of a superior public officer. And, under Sec. 39 of the same Book,
civil liability may arise where the subordinate public officers act is characterized by willfulness or
negligence. In Cojuangco, Jr. V. CA, a public officer who directly or indirectly violates the constitutional
rights of another, may be validly sued for damages under Article 32 of the Civil Code even if his acts were
not so tainted with malice or bad faith.
Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity for
acts done in the course of the performance of the functions of the office, where said public officer: (1)
acted with malice, bad faith, or negligence; or (2) where the public officer violated a constitutional right of
the plaintiff.
On the second issue, SC ruled that the decisive provision is Article 32, it being a special law, which prevails
over a general law (the Administrative Code).
Article 32 was patterned after the tort in American law. A tort is a wrong, a tortious act which
has been defined as the commission or omission of an act by one, without right, whereby another receives
some injury, directly or indirectly, in person, property or reputation. There are cases in which it has been
stated that civil liability in tort is determined by the conduct and not by the mental state of the tortfeasor,
and there are circumstances under which the motive of the defendant has been rendered immaterial. The
reason sometimes given for the rule is that otherwise, the mental attitude of the alleged wrongdoer, and
not the act itself, would determine whether the act was wrongful. Presence of good motive, or rather, the
absence of an evil motive, does not render lawful an act which is otherwise an invasion of anothers legal
right; that is, liability in tort in not precluded by the fact that defendant acted without evil intent.
NON RESIDENT ALIEN
CIR VS BAKER NICKEL

Pertinent portion of the National Internal Revenue Code (NIRC), states:

SEC. 25. Tax on Nonresident Alien Individual.
(A) Nonresident Alien Engaged in Trade or Business Within the Philippines.
(1) In General. A nonresident alien individual engaged in trade or business in the Philippines shall be
subject to an income tax in the same manner as an individual citizen and a resident alien individual, on
taxable income received from all sources within the Philippines. A nonresident alien individual who shall
come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180)
days during any calendar year shall be deemed a nonresident alien doing business in the Philippines,
Section 22(G) of this Code notwithstanding.
xxxx
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. There shall be
levied, collected and paid for each taxable year upon the entire income received from all sources within
the Philippines by every nonresident alien individual not engaged in trade or business within the
Philippines x x x a tax equal to twenty-five percent (25%) of such income. x x x
Pursuant to the foregoing provisions of the NIRC, non-resident aliens, whether or not engaged in trade or
business, are subject to Philippine income taxation on their income received from all sources within the
Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the incomes "source."
In construing the meaning of "source" in Section 25 of the NIRC, resort must be had on the origin of the
provision.
CO HEIRS
OBILLOS JR VS CIR

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.We find that the case at bar is fundamentally
similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the
'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or
invest additional ' capital to increase or expand the inherited properties; they merely
continued dedicating the property to the use to which it had been put by their forebears;
they individually reported in their tax returns their corresponding shares in the income and
expenses of the 'hacienda', and they continued for many years the status of co-ownership in
order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the
existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa
vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own
properties which produce income should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview of the income tax law. To hold
otherwise,
would
be
to
subject
the
income
of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property
does not produce an income at all, it is not subject to any kind of income tax, whether the
income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No.
738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp.
77-78).

PASCUAL VS CIR
n the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate
basis to support the proposition that they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few years thereafter did not thereby
make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on
their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as
the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been
formed, since there is no such existing unregistered partnership with a distinct personality nor with assets
that can be held liable for said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners have availed of
the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any

further tax liability arising therefrom.

NON STOCK NON PROFIT INSTITUTION
CIR VS ST LUKES
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions and hospitals
which are non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by
Subsection (D) hereof: Provided, That if the gross income from unrelated trade, business or other activity
exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals
from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable
income. For purposes of this Subsection, the term 'unrelated trade, business or other activity' means any
trade, business or other activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution or hospital of its primary purpose or function. A 'proprietary
educational institution' is any private school maintained and administered by private individuals or groups
with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the
Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority
(TESDA), as the case may be, in accordance with existing laws and regulations. (Emphasis supplied)
St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It contends that it is a charitable
institution and an organization promoting social welfare. The arguments of St. Luke's focus on the wording
of Section 30(E) exempting from income tax non-stock, non-profit charitable institutions. 34 St. Luke's
asserts that the legislative intent of introducing Section 27(B) was only to remove the exemption for
"proprietary non-profit" hospitals. 35 The relevant provisions of Section 30 state:
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this
Title in respect to income received by them as such:
xxxx
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or
asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;
xxxx
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social
welfare;
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties, real or personal, or from any of their activities
conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed
under this Code. (Emphasis supplied)
The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of the
NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E)
and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed
together without the removal of such tax exemption. The effect of the introduction of Section 27(B) is to
subject the taxable income of two specific institutions, namely, proprietary non-profit educational
institutions 36 and proprietary non-profit hospitals, among the institutions covered by Section 30, to the
10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last
paragraph of Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit
educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are
that they must be proprietary and non-profit. "Proprietary" means private, following the definition of a
"proprietary educational institution" as "any private school maintained and administered by private
individuals or groups" with a government permit. "Non-profit" means no net income or asset accrues to or
benefits any member or specific person, with all the net income or asset devoted to the institution's
purposes and all its activities conducted not for profit.
"Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club Filipino Inc. de
Cebu,37 this Court considered as non-profit a sports club organized for recreation and entertainment of its
stockholders and members. The club was primarily funded by membership fees and dues. If it had profits,
they were used for overhead expenses and improving its golf course. 38 The club was non-profit because of
its purpose and there was no evidence that it was engaged in a profit-making enterprise. 39
To be a charitable institution, however, an organization must meet the substantive test of charity in Lung
Center. The issue in Lung Center concerns exemption from real property tax and not income tax. However,
it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of
persons which lessens the burden of government. In other words, charitable institutions provide for free

goods and services to the public which would otherwise fall on the shoulders of government. Thus, as a
matter of efficiency, the government forgoes taxes which should have been spent to address public needs,
because certain private entities already assume a part of the burden. This is the rationale for the tax
exemption of charitable institutions. The loss of taxes by the government is compensated by its relief from
doing public works which would have been funded by appropriations from the Treasury. 42
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a tax
exemption are specified by the law granting it. The power of Congress to tax implies the power to exempt
from tax. Congress can create tax exemptions, subject to the constitutional provision that "[n]o law
granting any tax exemption shall be passed without the concurrence of a majority of all the Members of
Congress." 43 The requirements for a tax exemption are strictly construed against the taxpayer 44 because
an exemption restricts the collection of taxes necessary for the existence of the government.
The Court in Lung Center declared that the Lung Center of the Philippines is a charitable institution for the
purpose of exemption from real property taxes. This ruling uses the same premise as Hospital de San
Juan 45 and Jesus Sacred Heart College 46 which says that receiving income from paying patients does not
destroy the charitable nature of a hospital.
As a general principle, a charitable institution does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in the
hospital, or receives subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. 47
For real property taxes, the incidental generation of income is permissible because the test of exemption is
the use of the property. The Constitution provides that "[c]haritable institutions, churches and personages
or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation." 48The test of exemption is not strictly a requirement on the intrinsic nature
or character of the institution. The test requires that the institution use the property in a certain way, i.e.
for a charitable purpose. Thus, the Court held that the Lung Center of the Philippines did not lose its
charitable character when it used a portion of its lot for commercial purposes. The effect of failing to meet
the use requirement is simply to remove from the tax exemption that portion of the property not devoted
to charity.
The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress
decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of the
NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC
defines the corporation or association that is exempt from income tax. On the other hand, Section 28(3),
Article VI of the Constitution does not define a charitable institution, but requires that the institution
"actually, directly and exclusively" use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be devoted "exclusively" for
charitable purposes. The organization of the institution refers to its corporate form, as shown by its articles
of incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC specifically requires
that the corporation or association be non-stock, which is defined by the Corporation Code as "one where
no part of its income is distributable as dividends to its members, trustees, or officers" 49 and that any
profit "obtain[ed] as an incident to its operations shall, whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which the corporation was organized." 50 However, under Lung
Center, any profit by a charitable institution must not only be plowed back "whenever necessary or
proper," but must be "devoted or used altogether to the charitable object which it is intended to
achieve." 51
The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC
requires that these operations be exclusive to charity. There is also a specific requirement that "no part of
[the] net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any
specific person." The use of lands, buildings and improvements of the institution is but a part of its
operations.
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution.
However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the
organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable institution is not ipso
facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution

requires that a charitable institution use the property "actually, directly and exclusively" for charitable
purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution
must be "organized and operated exclusively" for charitable purposes. Likewise, to be exempt from income
taxes, Section 30(G) of the NIRC requires that the institution be "operated exclusively" for social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and operated
exclusively" by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties, real or personal, or from any of their activities
conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed
under this Code. (Emphasis supplied)
In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts
"any" activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax
exempt. This paragraph qualifies the requirements in Section 30(E) that the "[n]on-stock corporation or
association [must be] organized and operated exclusively for x x x charitable x x x purposes x x x." It
likewise qualifies the requirement in Section 30(G) that the civic organization must be "operated
exclusively" for the promotion of social welfare.
Thus, even if the charitable institution must be "organized and operated exclusively" for charitable
purposes, it is nevertheless allowed to engage in "activities conducted for profit" without losing its tax
exempt status for its not-for-profit activities. The only consequence is that the "income of whatever kind
and character" of a charitable institution "from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax." Prior to the introduction of Section 27(B), the tax
rate on such income from for-profit activities was the ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%.
GROSS INCOME
NATIONAL DEVELOPMENT CORP VS CIR

The Japanese shipbuilders were liable to tax on the interest remitted to them under Section 37 of the Tax
Code, thus:
SEC. 37. Income from sources within the Philippines. (a) Gross income from sources within
the Philippines. The following items of gross income shall be treated as gross income from
sources within the Philippines:
(1) Interest. Interest derived from sources within the Philippines, and interest on bonds,
notes, orother interest-bearing obligations of residents, corporate or otherwise;
xxx xxx xxx
The petitioner argues that the Japanese shipbuilders were not subject to tax under the above provision
because all the related activities the signing of the contract, the construction of the vessels, the
payment of the stipulated price, and their delivery to the NDC were done in Tokyo. 8 The law, however,
does not speak of activity but of "source," which in this case is the NDC. This is a domestic and resident
corporation with principal offices in Manila.
As the Tax Court put it:
It is quite apparent, under the terms of the law, that the Government's right to levy and
collect income tax on interest received by foreign corporations not engaged in trade or
business within the Philippines is not planted upon the condition that 'the activity or labor
and the sale from which the (interest) income flowed had its situs' in the Philippines. The law
specifies: 'Interest derived from sources within the Philippines, and interest on bonds, notes,
or other interest-bearing obligations of residents, corporate or otherwise.' Nothing there
speaks of the 'act or activity' of non-resident corporations in the Philippines, or place where
the contract is signed. The residence of the obligorwho pays the interest rather than the
physical location of the securities, bonds or notes or the place of payment, is the
determining factor of the source of interest income. (Mertens, Law of Federal Income
Taxation, Vol. 8, p. 128, citing A.C. Monk & Co. Inc. 10 T.C. 77; Sumitomo Bank, Ltd., 19 BTA
480; Estate of L.E. Mckinnon, 6 BTA 412; Standard Marine Ins. Co., Ltd., 4 BTA 853; Marine
Ins. Co., Ltd., 4 BTA 867.) Accordingly, if the obligor is a resident of the Philippines the
interest payment paid by him can have no other source than within the Philippines. The
interest is paid not by the bond, note or other interest-bearing obligations, but by the
obligor. (See mertens, Id., Vol. 8, p. 124.)
Here in the case at bar, petitioner National Development Company, a corporation duly
organized and existing under the laws of the Republic of the Philippines, with address and

principal office at Calle Pureza, Sta. Mesa, Manila, Philippines unconditionally promised to
pay the Japanese shipbuilders, as obligor in fourteen (14) promissory notes for each vessel,
the balance of the contract price of the twelve (12) ocean-going vessels purchased and
acquired by it from the Japanese corporations, including the interest on the principal sum at
the rate of five per cent (5%) per annum. (See Exhs. "D", D-1" to "D-13", pp. 100-113, CTA
Records; par. 11, Partial Stipulation of Facts.) And pursuant to the terms and conditions of
these promisory notes, which are duly signed by its Vice Chairman and General Manager,
petitioner remitted to the Japanese shipbuilders in Japan during the years 1960, 1961, and
1962 the sum of $830,613.17, $1,654,936.52 and $1,541.031.00, respectively, as interest
on the unpaid balance of the purchase price of the aforesaid vessels. (pars. 13, 14, & 15,
Partial Stipulation of Facts.)
The law is clear. Our plain duty is to apply it as written. The residence of the obligor which
paid the interest under consideration, petitioner herein, is Calle Pureza, Sta. Mesa, Manila,
Philippines; and as a corporation duly organized and existing under the laws of the
Philippines, it is a domestic corporation, resident of the Philippines. (Sec. 84(c), National
Internal Revenue Code.) The interest paid by petitioner, which is admittedly a resident of the
Philippines, is on the promissory notes issued by it. Clearly, therefore, the interest remitted
to the Japanese shipbuilders in Japan in 1960, 1961 and 1962 on the unpaid balance of the
purchase price of the vessels acquired by petitioner is interest derived from sources within
the Philippines subject to income tax under the then Section 24(b)(1) of the National Internal
Revenue Code. 9
There is no basis for saying that the interest payments were obligations of the Republic of the Philippines
and that the promissory notes of the NDC were government securities exempt from taxation under Section
29(b)[4] of the Tax Code, reading as follows:
SEC. 29. Gross Income. xxxx xxx xxx xxx
(b) Exclusion from gross income. The following items shall not be included in gross income
and shall be exempt from taxation under this Title:
xxx xxx xxx
(4) Interest on Government Securities. Interest upon the obligations of the Government of
the Republic of the Philippines or any political subdivision thereof, but in the case of such
obligations issued after approval of this Code, only to the extent provided in the act
authorizing the issue thereof.(As amended by Section 6, R.A. No. 82; emphasis supplied)
The law invoked by the petitioner as authorizing the issuance of securities is R.A. No. 1407, which in fact is
silent on this matter. C.A. No. 182 as amended by C.A. No. 311 does carry such authorization but, like R.A.
No. 1407, does not exempt from taxes the interests on such securities.
It is also incorrect to suggest that the Republic of the Philippines could not collect taxes on the interest
remitted because of the undertaking signed by the Secretary of Finance in each of the promissory notes
that:
Upon authority of the President of the Republic of the Philippines, the undersigned, for value
received, hereby absolutely and unconditionally guarantee (sic), on behalf of the Republic of
the Philippines, the due and punctual payment of both principal and interest of the above
note. 10
There is nothing in the above undertaking exempting the interests from taxes. Petitioner has not
established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied
but must be categorically and unmistakably expressed. 11 Any doubt concerning this question must be
resolved in favor of the taxing power. 12
EXCLUSION FROM GROSS INCOME
PLDT VS PROVINCE OF LAGUNA

PLDTs third assigned error has likewise been squarely addressed in the same en banc Resolution,
when the Court rejected PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax
exemption but to tax exclusion and hence, the strictissimi juris rule does not apply. The en
banc explains that these two terms actually mean the same thing, such that the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies
equally to tax exclusions:
Indeed, both in their nature and in their effect there is no difference between tax
exemption and tax exclusion. Exemption is an immunity or privilege; it is freedom from a

charge or burden to which others are subjected. Exclusion, on the other hand, is the
removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross
income and allowable deductions. Exclusion is thus also an immunity or privilege which
frees a taxpayer from a charge to which others are subjected. Consequently, the rule that
tax exemption should be applied in strictissimi juris against the taxpayer and liberally in
favor of the government applies equally to tax exclusions. To construe otherwise the in lieu
of all taxes provision invoked is to be inconsistent with the theory that R.A. No. 7925, 23
grants tax exemption because of a similar grant to Globe and Smart. [12]

ALLOWABLE DEDUCTIONS
QUEZON CITY VS ABS CBN BROADCASTING CORP
The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions
is to minimize differential treatment and foster impartiality, fairness and equality of treatment among
taxpayers.28 He who claims an exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the clearest and most unambiguous language
and not left to mere implications. It has been held that "exemptions are never presumed, the burden is on
the claimant to establish clearly his right to exemption and cannot be made out of inference or
implications but must be laid beyond reasonable doubt. In other words, since taxation is the rule and
exemption the exception, the intention to make an exemption ought to be expressed in clear and
unambiguous terms.29
ALL EVENTS TEST, ACCRUAL METHOD OF ACCOUNTING, ORDINARY AND NECESSARY EXPENSE
Accounting methods for tax purposes comprise a set of rules for determining when and how to report
income and deductions.12 In the instant case, the accounting method used by ICC is the accrual method.
Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting,
expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot
be claimed as deduction from income for the succeeding year. Thus, a taxpayer who is authorized to
deduct certain expenses and other allowable deductions for the current year but failed to do so cannot
deduct the same for the next year.13
The accrual method relies upon the taxpayers right to receive amounts or its obligation to pay them, in
opposition to actual receipt or payment, which characterizes the cash method of accounting. Amounts of
income accrue where the right to receive them become fixed, where there is created an enforceable
liability. Similarly, liabilities are accrued when fixed and determinable in amount, without regard to
indeterminacy merely of time of payment.14
For a taxpayer using the accrual method, the determinative question is, when do the facts present
themselves in such a manner that the taxpayer must recognize income or expense? The accrual of income
and expense is permitted when the all-events test has been met. This test requires: (1) fixing of a right to
income or liability to pay; and (2) the availability of the reasonable accurate determination of such income
or liability.
The all-events test requires the right to income or liability be fixed, and the amount of such income or
liability be determined with reasonable accuracy. However, the test does not demand that the amount of
income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary
to compute the amount with reasonable accuracy. The all-events test is satisfied where computation
remains uncertain, if its basis is unchangeable; the test is satisfied where a computation may be unknown,
but is not as much as unknowable, within the taxable year. The amount of liability does not have to
be determined exactly; it must be determined with "reasonable accuracy." Accordingly, the
term "reasonable accuracy" implies something less than an exact or completely accurate
amount.[15]
The propriety of an accrual must be judged by the facts that a taxpayer knew, or could
reasonably be expected to have known, at the closing of its books for the taxable year.
[16] Accrual method of accounting presents largely a question of fact; such that the taxpayer bears the
burden of proof of establishing the accrual of an item of income or deduction. 17
Corollarily, it is a governing principle in taxation that tax exemptions must be construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority; and one who claims an exemption
must be able to justify the same by the clearest grant of organic or statute law. An exemption from the
common burden cannot be permitted to exist upon vague implications. And since a deduction for income
tax purposes partakes of the nature of a tax exemption, then it must also be strictly construed. 18

In the instant case, the expenses for professional fees consist of expenses for legal and auditing services.
The expenses for legal services pertain to the 1984 and 1985 legal and retainer fees of the law firm
Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and for reimbursement of the expenses of
said firm in connection with ICCs tax problems for the year 1984. As testified by the Treasurer of ICC, the
firm has been its counsel since the 1960s.19 From the nature of the claimed deductions and the span of
time during which the firm was retained, ICC can be expected to have reasonably known the retainer fees
charged by the firm as well as the compensation for its legal services. The failure to determine the exact
amount of the expense during the taxable year when they could have been claimed as deductions cannot
thus be attributed solely to the delayed billing of these liabilities by the firm. For one, ICC, in the exercise
of due diligence could have inquired into the amount of their obligation to the firm, especially so that it is
using the accrual method of accounting. For another, it could have reasonably determined the amount of
legal and retainer fees owing to its familiarity with the rates charged by their long time legal consultant.
As previously stated, the accrual method presents largely a question of fact and that the taxpayer bears
the burden of establishing the accrual of an expense or income. However, ICC failed to discharge this
burden. As to when the firms performance of its services in connection with the 1984 tax problems were
completed, or whether ICC exercised reasonable diligence to inquire about the amount of its liability, or
whether it does or does not possess the information necessary to compute the amount of said liability
with reasonable accuracy, are questions of fact which ICC never established. It simply relied on the
defense of delayed billing by the firm and the company, which under the circumstances, is not sufficient to
exempt it from being charged with knowledge of the reasonable amount of the expenses for legal and
auditing services.

WITHOLDING TAXES
China banking corp vs CIR
In sum, all the aforementioned cases are one in saying that gross receipts comprise the entire receipts
without any deduction. Clearly, then, the 20% final withholding tax should form part of petitioners total
gross receipts for purposes of computing the GRT(gross receipts tax).
whether the 20% final withholding tax should form part of the total gross receipts for purposes of
computing the GRT.
11
In China Banking Corporation v. Court of Appeals,
we ruled that the amount of interest income withheld,
in payment of the 20% final withholding tax, forms part of the banks gross receipts in computing the GRT
on banks. The discussion in this case is instructive on this score:
9 10 11
Id. at 167-168.Id. at 25.G.R. Nos. 146749 and 147938, June 10, 2003, 403 SCRA 634; 451 Phil. 772 (2003).
Decision - 5 - G.R. No. 175108
The gross receipts tax on banks was first imposed on 1 October 1946 by Republic Act No. 39 (RA No. 39)
which amended Section 249 of the Tax Code of 1939. Interest income on banks, without any deduction,
formed part of their taxable gross receipts. From October 1946 to June 1977, there was no withholding tax
on interest income from bank deposits.
On 3 June 1977, Presidential Decree No. 1156 required the withholding at source of a 15% tax on interest
on bank deposits. This tax was a creditable, not a final withholding tax. Despite the withholding of the 15%
tax, the entire interest income, without any deduction, formed part of the banks taxable gross receipts. On
17 September 1980, Presidential Decree No. 1739 made the withholding tax on interest a final tax at the
rate of 15% on savings account, and 20% on time deposits. Still, from 1980 until the Court of Tax Appeals
decision in Asia Bank on 30 January 1996, banks included the entire interest income, without any
deduction, in their taxable gross receipts.
In Asia Bank, the Court of Tax Appeals held that the final withholding tax is not part of the banks taxable
gross receipts. The tax court anchored its ruling on Section 4(e) of Revenue Regulations No. 12- 80, which
stated that the gross receipts shall be based on all items actually received by the bank. The tax court
ruled that the bank does not actually receive the final withholding tax. As authority, the tax court cited
Collector of Internal Revenue v. Manila Jockey Club, which held that gross receipts of the proprietor should
not include any money which although delivered to the amusement place had been especially earmarked
by law or regulation for some person other than the proprietor. x x x
Subsequently, the Court of Tax Appeals reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v.
Commissioner and Standard Chartered Bank v. Commissioner, both promulgated on 16 November 2001,

the tax court ruled that the final withholding tax forms part of the banks gross receipts in
computing the gross receipts tax. The tax court held that Section 4(e) of Revenue Regulations 12-80
did not prescribe the computation of the gross receipts but merely authorized the determination of the
amount of gross receipts on the basis of the method of accounting being used by the taxpayer.
The tax court also held in Far East Bank and Standard Chartered Bank that the exclusion of the final
withholding tax from gross receipts operates as a tax exemption which the law must expressly
grant. No law provides for such exemption. In addition, the tax court pointed out that Section
7(c) of Revenue Regulations No. 17-84 had already superseded Section 4(e) of Revenue
12
Regulations No. 12-80. x x x
(Emphasis supplied)
Ossorio Pension Foundation Inc vs CA
The tax-exempt character of petitioners Employees' Trust Fund is not at issue in this case. The taxexempt character of the Employees' Trust Fund has long been settled. It is also settled that petitioner
exists for the purpose of holding title to, and administering, the tax-exempt Employees Trust Fund
established for the benefit of VMCs employees. As such, petitioner has the personality to claim tax refunds
due the Employees' Trust Fund.
In Citytrust Banking Corporation as Trustee and Investment Manager of Various Retirement Funds v.
Commissioner of Internal Revenue,[46] the CTA granted Citytrusts claim for refund on withholding taxes
paid on the investments made by Citytrust in behalf of the trust funds it manages, including petitioner.
[47]
Thus:
In resolving the second issue, we note that the same is not a case of first impression.
Indeed, the petitioner is correct in its adherence to the clear ruling laid by the Supreme
Court way back in 1992 in the case ofCommissioner of Internal Revenue vs. The Honorable
Court of Appeals, The Court of Tax Appeals and GCL Retirement Plan, 207 SCRA 487 at page
496, supra, wherein it was succinctly held:
xxx
There can be no denying either that the final withholding tax is
collected from income in respect of which employees trusts are declared
exempt (Sec. 56(b), now 53(b), Tax Code). The application of the withholdings
system to interest on bank deposits or yield from deposit substitutes is
essentially to maximize and expedite the collection of income taxes by
requiring its payment at the source. If an employees trust like the GCL enjoys
a tax-exempt status from income, we see no logic in withholding a certain
percentage of that income which it is not supposed to pay in the first
place.
xxx
Similarly, the income of the trust funds involved herein is exempt from the payment
of final withholding taxes.
This CTA decision became final and executory when the CIR failed to file a Petition for Review within the
extension granted by the CA.
Similarly, in BIR Ruling [UN-450-95], Citytrust wrote the BIR to request for a ruling exempting it from
the payment of withholding tax on the sale of the land by various BIR-approved trustees and tax-exempt
private employees' retirement benefit trust funds[48] represented by Citytrust. The BIR ruled that the
private employees benefit trust funds, which included petitioner, have met the requirements of the law
and the regulations and therefore qualify as reasonable retirement benefit plans within the contemplation
of Republic Act No. 4917 (now Sec. 28(b)(7)(A), Tax Code). The income from the trust fund investments is
therefore exempt from the payment of income tax and consequently from the payment of the creditable
withholding tax on the sale of their real property.[49]