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THIRD DIVISION and, doing business in Quezon City, shall pay a franchise tax at the

rate of ten percent (10%) of one percent (1%) for 1993-1994,


G.R. No. 166408 October 6, 2008 twenty percent (20%) of one percent (1%) for 1995, and thirty
percent (30%) of one percent (1%) for 1996 and the succeeding
QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, years thereafter, of gross receipts and sales derived from the
petitioners, operation of the business in Quezon City during the preceding
vs. calendar year.
ABS-CBN BROADCASTING CORPORATION, respondent.
On May 3, 1995, ABS-CBN was granted the franchise to install and operate radio
DECISION and television broadcasting stations in the Philippines under R.A. No. 7966.4
Section 8 of R.A. No. 7966 provides the tax liabilities of ABS-CBN which reads:
REYES, R.T., J.:
Section 8. Tax Provisions. - The grantee, its successors or assigns,
CLAIMS for tax exemption must be based on language in law too plain to be shall be liable to pay the same taxes on their real estate, buildings
mistaken. It cannot be made out of inference or implication. and personal property, exclusive of this franchise, as other persons
or corporations are now hereafter may be required by law to pay.
The principle is relevant in this petition for review on certiorari of the Decision1 In addition thereto, the grantee, its successors or assigns, shall pay
of the Court of Appeals (CA) and that2 of the Regional Trial Court (RTC) a franchise tax equivalent to three percent (3%) of all gross
ordering the refund and declaring invalid the imposition and collection of local receipts of the radio/television business transacted under this
franchise tax by the City Treasurer of Quezon City on ABS-CBN Broadcasting franchise by the grantee, its successors or assigns, and the said
Corporation (ABS-CBN). percentage tax shall be in lieu of all taxes on this franchise or
earnings thereof; Provided that the grantee, its successors or
The Facts assigns shall continue to be liable for income taxes under Title II of
the National Internal Revenue Code pursuant to Section 2 of
Petitioner City Government of Quezon City is a local government unit duly Executive No. 72 unless the latter enactment is amended or
organized and existing by virtue of Republic Act (R.A.) No. 537, otherwise repealed, in which case the amendment or repeal shall be
known as the Revised Charter of Quezon City. Petitioner City Treasurer of applicable thereto. (Emphasis added)
Quezon City is primarily responsible for the imposition and collection of taxes
within the territorial jurisdiction of Quezon City. ABS-CBN had been paying local franchise tax imposed by Quezon City.
However, in view of the above provision in R.A. No. 9766 that it "shall pay a
Under Section 31, Article 13 of the Quezon City Revenue Code of 1993,3 a franchise tax x x x in lieu of all taxes," the corporation developed the opinion that
franchise tax was imposed on businesses operating within its jurisdiction. The it is not liable to pay the local franchise tax imposed by Quezon City.
provision states: Consequently, ABS-CBN paid under protest the local franchise tax imposed by
Quezon City on the dates, in the amounts and under the official receipts as
Section 31. Imposition of Tax. - Any provision of special laws or follows:
grant of tax exemption to the contrary notwithstanding, any person,
corporation, partnership or association enjoying a franchise O.R. No. Date Amount Paid
whether issued by the national government or local government 2464274 7/18/1995 P 1,489,977.28
2484651 10/20/1995 1,489,977.28 0048756 1-23-97 2,731,135.81
2536134 1/22/1996 2,880,975.65 0067352 4-03-97 2,731,135.81
8354906 1/23/1997 8,621,470.83 Total P19,944,672.667
48756 1/23/1997 2,731,135.81
67352 4/3/1997 2,731,135.81 Quezon City argued that the "in lieu of all taxes" provision in R.A. No. 9766
could not have been intended to prevail over a constitutional mandate which
Total P19,944,672.665
ensures the viability and self-sufficiency of local government units. Further, that
taxes collectible by and payable to the local government were distinct from taxes
On January 29, 1997, ABS-CBN filed a written claim for refund for local collectible by and payable to the national government, considering that the
franchise tax paid to Quezon City for 1996 and for the first quarter of 1997 in the Constitution specifically declared that the taxes imposed by local government
total amount of Fourteen Million Two Hundred Thirty-Three Thousand Five units "shall accrue exclusively to the local governments." Lastly, the City
Hundred Eighty-Two and 29/100 centavos (P14,233,582.29) broken down as contended that the exemption claimed by ABS-CBN under R.A. No. 7966 was
follows: withdrawn by Congress when the Local Government Code (LGC) was passed.8
Section 193 of the LGC provides:
O.R. No. Date Amount Paid
2536134 1-22-96 P 2,880,975.65 Section 193. Withdrawal of Tax Exemption Privileges. - Unless
8354906 1-23-97 8,621,470.83 otherwise provided in this Code, tax exemptions or incentives
0048756 1-23-97 2,731,135.81 granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or
Total P14,233,582.296 -controlled corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-stock and non-
In a letter dated March 3, 1997 to the Quezon City Treasurer, ABS-CBN profit hospitals and educational institutions, are hereby
reiterated its claim for refund of local franchise taxes paid. withdrawn upon the effectivity of this Code. (Emphasis added)

On June 25, 1997, for failure to obtain any response from the Quezon City On August 13, 1997, ABS-CBN filed a supplemental complaint adding to its
Treasurer, ABS-CBN filed a complaint before the RTC in Quezon City seeking claim for refund the local franchise tax paid for the third quarter of 1997 in the
the declaration of nullity of the imposition of local franchise tax by the City amount of Two Million Seven Hundred Thirty-One Thousand One Hundred
Government of Quezon City for being unconstitutional. It likewise prayed for the Thirty-Five and 81/100 centavos (P2,731,135.81) and of other amounts of local
refund of local franchise tax in the amount of Nineteen Million Nine Hundred franchise tax as may have been and will be paid by ABS-CBN until the resolution
Forty-Four Thousand Six Hundred Seventy-Two and 66/100 centavos of the case.
(P19,944,672.66) broken down as follows:
Quezon City insisted that the claim for refund must fail because of the absence of
O.R. No. Date Amount Paid a prior written claim for it.
2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28 RTC and CA Dispositions
2536134 1-22-96 2,880,975.65
On January 20, 1999, the RTC rendered judgment declaring as invalid the
8354906 1-23-97 8,621,470.83 imposition on and collection from ABS-CBN of local franchise tax paid pursuant
to Quezon City Ordinance No. SP-91, S-93, after the enactment of R.A. No. 7966, In addition, the RTC, again citing the case of Province of Misamis Oriental v.
and ordered the refund of all payments made. The dispositive portion of the RTC Cagayan Electric Power and Light Company, Inc. (CEPALCO),12 ruled that the
decision reads: imposition of the local franchise tax was an impairment of ABS-CBN's contract
with the government. The imposition of another franchise on the corporation by
WHEREFORE, judgment is hereby rendered declaring the the local authority would constitute an impairment of the former's charter, which
imposition on and collection from plaintiff ABS-CBN is in the nature of a private contract between it and the government.
BROADCASTING CORPORATION of local franchise taxes
pursuant to Quezon City Ordinance No. SP-91, S-93 after the As to the amounts to be refunded, the RTC rejected Quezon City's position that a
enactment of Republic Act No. 7966 to be invalid, and, written claim for refund pursuant to Section 196 of the LGC was a condition sine
accordingly, the Court hereby orders the defendants to refund all qua non before filing the case in court. The RTC ruled that although Fourteen
its payments made after the effectivity of its legislative franchise Million Two Hundred Thirty-Three Thousand Five Hundred Eighty-Two and
on May 3, 1995. 29/100 centavos (P14,233,582.29) was the only amount stated in the letter to the
Quezon City Treasurer claiming refund, ABS-CBN should nonetheless be also
SO ORDERED.9 refunded of all payments made after the effectivity of R.A. No. 7966. The
inaction of the City Treasurer on the claim for refund of ABS-CBN legally
In its decision, the RTC ruled that the "in lieu of all taxes" provision contained in rendered any further claims for refund on the part of plaintiff absurd and futile in
Section 8 of R.A. No. 7966 absolutely excused ABS-CBN from the payment of relation to the succeeding payments.
local franchise tax imposed under Quezon City Ordinance No. SP-91, S-93. The
intent of the legislature to excuse ABS-CBN from payment of local franchise tax The City of Quezon and its Treasurer filed a motion for reconsideration which
could be discerned from the usage of the "in lieu of all taxes" provision and from was subsequently denied by the RTC. Thus, appeal was made to the CA. On
the absence of any qualification except income taxes. Had Congress intended to September 1, 2004, the CA dismissed the petition of Quezon City and its
exclude taxes imposed from the exemption, it would have expressly mentioned so Treasurer. According to the appellate court, the issues raised were purely legal
in a fashion similar to the proviso on income taxes. questions cognizable only by the Supreme Court. The CA ratiocinated:

The RTC also based its ruling on the 1990 case of Province of Misamis Oriental For another, the issues which appellants submit for this Court's
v. Cagayan Electric Power and Light Company, Inc. (CEPALCO).10 In said case, consideration are more of legal query necessitating a legal opinion
the exemption of respondent electric company CEPALCO from payment of rather than a call for adjudication on the matter in dispute.
provincial franchise tax was upheld on the ground that the franchise of
CEPALCO was a special law, while the Local Tax Code, on which the provincial xxxx
ordinance imposing the local franchise tax was based, was a general law. Further,
it was held that whenever there is a conflict between two laws, one special and The first issue has earlier been categorized in Province of Misamis
particular and the other general, the special law must be taken as intended to Oriental v. Cagayan Electric and Power Co., Inc. to be a legal one.
constitute an exception to the general act. There is no more argument to this.

The RTC noted that the legislative franchise of ABS-CBN was granted years after The next issue although it may need the reexamination of the
the effectivity of the LGC. Thus, it was unavoidable to conclude that Section 8 of pertinent provisions of the local franchise and the legislative
R.A. No. 7966 was an exception since the legislature ought to be presumed to franchise given to appellee, also needs no evaluation of facts. It
have enacted it with the knowledge and awareness of the existence and prior suffices that there may be a conflict which may need to be
enactment of Section 13711 of the LGC. reconciled, without regard to the factual backdrop of the case.
The last issue deals with a legal question, because whether or not 2) Whether appellants' imposition of local franchise tax is a
there is a prior written claim for refund is no longer in dispute. violation of appellee's legislative franchise; and
Rather, the question revolves on whether the said requirement may
be dispensed with, which obviously is not a factual issue.13 3) Whether one can do away with the requirement on prior written
claim for refund.15
On September 23, 2004, petitioner moved for reconsideration. The motion was,
however, denied by the CA in its Resolution dated December 16, 2004. Hence, Obviously, these are purely legal questions, cognizable by this Court, to the
the present recourse. exclusion of all other courts. There is a question of law when the doubt or
difference arises as to what the law is pertaining to a certain state of facts.16
Issues
Section 2, Rule 50 of the Rules of Court provides that an appeal taken to the CA
Petitioner submits the following issues for resolution: under Rule 41 raising only questions of law is erroneous and shall be dismissed,
issues of pure law not being within its jurisdiction.17 Consequently, the dismissal
I. by the CA of petitioners' appeal was in order.

Whether or not the phrase "in lieu of all taxes" indicated in the In the recent case of Sevilleno v. Carilo,18 this Court ruled that the dismissal of the
franchise of the respondent appellee (Section 8 of RA 7966) serves appeal of petitioner was valid, considering the issues raised there were pure
to exempt it from the payment of the local franchise tax imposed questions of law, viz.:
by the petitioners-appellants.
Petitioners interposed an appeal to the Court of Appeals but it was
II. dismissed for being the wrong mode of appeal. The appellate court
held that since the issue being raised is whether the RTC has
Whether or not the petitioners-appellants raised factual and legal issues before the jurisdiction over the subject matter of the case, which is a question
Honorable Court of Appeals.14 of law, the appeal should have been elevated to the Supreme Court
under Rule 45 of the 1997 Rules of Civil Procedure, as amended.
Our Ruling Section 2, Rule 41 of the same Rules which governs appeals from
judgments and final orders of the RTC to the Court of Appeals,
The second issue, being procedural in nature, shall be dealt with immediately. But provides:
there are other resultant issues linked to the first.
SEC. 2. Modes of appeal. -
I. The dismissal by the CA of petitioners' appeal is in order because it raised
purely legal issues, namely: (a) Ordinary appeal. - The appeal to the Court of Appeals
in cases decided by the Regional Trial Court in the exercise
1) Whether appellee, whose franchise expressly provides that its of its original jurisdiction shall be taken by filing a notice
payment of franchise tax shall be in lieu of all taxes in this of appeal with the court which rendered the judgment or
franchise or earnings thereof, is absolutely excused from paying final order appealed from and serving a copy thereof upon
the franchise tax imposed by appellants; the adverse party. No record on appeal shall be required
except in special proceedings and other cases of multiple or
separate appeals where the law or these Rules so require. In
such cases, the record on appeal shall be filed and served in Consequently, issues which deal with the jurisdiction of a court
like manner. over the subject matter of a case are pure questions of law. As
petitioners' appeal solely involves a question of law, they should
(b) Petition for review. - The appeal to the Court of have directly taken their appeal to this Court by filing a petition
Appeals in cases decided by the Regional Trial Court in the for review on certiorari under Rule 45, not an ordinary appeal
exercise of its appellate jurisdiction shall be by petition for with the Court of Appeals under Rule 41. Clearly, the appellate
review in accordance with Rule 42. court did not err in holding that petitioners pursued the wrong
mode of appeal.
(c) Appeal by certiorari. - In all cases where only questions
of law are raised or involved, the appeal shall be to the Indeed, the Court of Appeals did not err in dismissing petitioners'
Supreme Court by petition for review on certiorari in appeal. Section 2, Rule 50 of the same Rules provides that an
accordance with Rule 45. appeal from the RTC to the Court of Appeals raising only
questions of law shall be dismissed; and that an appeal
In Macawili Gold Mining and Development Co., Inc. v. Court of erroneously taken to the Court of Appeals shall be dismissed
Appeals, we summarized the rule on appeals as follows: outright, x x x.19 (Emphasis added)

(1) In all cases decided by the RTC in the exercise of its However, to serve the demands of substantial justice and equity, the Court opts to
original jurisdiction, appeal may be made to the Court of relax procedural rules and rule upon on the merits of the case. In Ong Lim Sing
Appeals by mere notice of appeal where the appellant Jr. v. FEB Leasing and Finance Corporation,20 this Court stated:
raises questions of fact or mixed questions of fact and law;
Courts have the prerogative to relax procedural rules of even the
(2) In all cases decided by the RTC in the exercise of its most mandatory character, mindful of the duty to reconcile both
original jurisdiction where the appellant raises only the need to speedily put an end to litigation and the parties' right to
questions of law, the appeal must be taken to the Supreme due process. In numerous cases, this Court has allowed liberal
Court on a petition for review on certiorari under Rule 45; construction of the rules when to do so would serve the demands of
substantial justice and equity. In Aguam v. Court of Appeals, the
(3) All appeals from judgments rendered by the RTC in the Court explained:
exercise of its appellate jurisdiction, regardless of whether
the appellant raises questions of fact, questions of law, or "The court has the discretion to dismiss or not to dismiss an
mixed questions of fact and law, shall be brought to the appellant's appeal. It is a power conferred on the court, not
Court of Appeals by filing a petition for review under Rule a duty. The "discretion must be a sound one, to be
42. exercised in accordance with the tenets of justice and fair
play, having in mind the circumstances obtaining in each
It is not disputed that the issue brought by petitioners to the Court case." Technicalities, however, must be avoided. The law
of Appeals involves the jurisdiction of the RTC over the subject abhors technicalities that impede the cause of justice. The
matter of the case. We have a long standing rule that a court's court's primary duty is to render or dispense justice. "A
jurisdiction over the subject matter of an action is conferred only litigation is not a game of technicalities." "Lawsuits unlike
by the Constitution or by statute. Otherwise put, jurisdiction of a duels are not to be won by a rapier's thrust. Technicality,
court over the subject matter of the action is a matter of law. when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves Section 151. Scope of Taxing Powers. - Except as otherwise
scant consideration from courts." Litigations must be provided in this Code, the city may levy the taxes, fees and charges
decided on their merits and not on technicality. Every party which the province or municipality may impose: Provided,
litigant must be afforded the amplest opportunity for the however, That the taxes, fees and charges levied and collected by
proper and just determination of his cause, free from the highly urbanized and component cities shall accrue to them and
unacceptable plea of technicalities. Thus, dismissal of distributed in accordance with the provisions of this Code.
appeals purely on technical grounds is frowned upon where
the policy of the court is to encourage hearings of appeals The rates of taxes that the city may levy may exceed the maximum
on their merits and the rules of procedure ought not to be rates allowed for the province or municipality by not more than
applied in a very rigid, technical sense; rules of procedure fifty percent (50%) except the rates of professional and amusement
are used only to help secure, not override substantial taxes. (Emphasis supplied)
justice. It is a far better and more prudent course of action
for the court to excuse a technical lapse and afford the Such taxing power by the local government, however, is limited in the sense that
parties a review of the case on appeal to attain the ends of Congress can enact legislation granting exemptions. This principle was upheld in
justice rather than dispose of the case on technicality and City Government of Quezon City, et al. v. Bayan Telecommunications, Inc.22 Said
cause a grave injustice to the parties, giving a false this Court:
impression of speedy disposal of cases while actually
resulting in more delay, if not a miscarriage of justice.21 This thus raises the question of whether or not the City's Revenue
Code pursuant to which the city treasurer of Quezon City levied
II. The "in lieu of all taxes" provision in its franchise does not exempt ABS- real property taxes against Bayantel's real properties located within
CBN from payment of local franchise tax. the City effectively withdrew the tax exemption enjoyed by
Bayantel under its franchise, as amended.
A. The present controversy essentially boils down to a dispute between the
inherent taxing power of Congress and the delegated authority to tax of local Bayantel answers the poser in the negative arguing that once again
governments under the 1987 Constitution and effected under the LGC of 1991. it is only "liable to pay the same taxes, as any other persons or
corporations on all its real or personal properties, exclusive of its
The power of the local government of Quezon City to impose franchise tax is franchise."
based on Section 151 in relation to Section 137 of the LGC, to wit:
Bayantel's posture is well-taken. While the system of local
Section 137. Franchise Tax. - Notwithstanding any exemption government taxation has changed with the onset of the 1987
granted by any law or other special law, the province may impose Constitution, the power of local government units to tax is still
a tax on businesses enjoying a franchise, at the rate not exceeding limited. As we explained in Mactan Cebu International Airport
fifty percent (50%) of one percent (1%) of the gross annual Authority:
receipts for the preceding calendar year based on the incoming
receipt, or realized within its territorial jurisdiction. x x x "The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local
xxxx legislative bodies, no longer merely be virtue of a valid
delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution.
Under the latter, the exercise of the power may be subject In net effect, the controversy presently before the Court involves,
to such guidelines and limitations as the Congress may at bottom, a clash between the inherent taxing power of the
provide which, however, must be consistent with the basic legislature, which necessarily includes the power to exempt, and
policy of local autonomy. x x x" the local government's delegated power to tax under the aegis of
the 1987 Constitution.
Clearly then, while a new slant on the subject of local taxation now
prevails in the sense that the former doctrine of local government Now to go back to the Quezon City Revenue Code which imposed
units' delegated power to tax had been effectively modified with real estate taxes on all real properties within the city's territory and
Article X, Section 5 of the 1987 Constitution now in place, the removed exemptions theretofore "previously granted to, or
basic doctrine on local taxation remains essentially the same. For presently enjoyed by all persons, whether natural or juridical [x x
as the Court stressed in Mactan, "the power to tax is [still] x]" there can really be no dispute that the power of the Quezon
primarily vested in the Congress." City Government to tax is limited by Section 232 of the LGC which
expressly provides that "a province or city or municipality within
This new perspective is best articulated by Fr. Joaquin G. Bernas, the Metropolitan Manila Area may levy an annual ad valorem tax
S.J., himself a Commissioner of the 1986 Constitutional on real property such as land, building, machinery, and other
Commission which crafted the 1987 Constitution, thus: improvement not hereinafter specifically exempted." Under this
law, the Legislature highlighted its power to thereafter exempt
"What is the effect of Section 5 on the fiscal position of certain realties from the taxing power of local government units.
municipal corporations? Section 5 does not change the An interpretation denying Congress such power to exempt would
doctrine that municipal corporations do not possess reduce the phrase "not hereinafter specifically exempted" as a pure
inherent powers of taxation. What it does is to confer jargon, without meaning whatsoever. Needless to state, such
municipal corporations a general power to levy taxes and absurd situation is unacceptable.
otherwise create sources of revenue. They no longer have
to wait for a statutory grant of these powers. The power of For sure, in Philippine Long Distance Telephone Company, Inc.
the legislative authority relative to the fiscal powers of (PLDT) vs. City of Davao, this Court has upheld the power of
local governments has been reduced to the authority to Congress to grant exemptions over the power of local government
impose limitations on municipal powers. Moreover, these units to impose taxes. There, the Court wrote:
limitations must be "consistent with the basic policy of
local autonomy." The important legal effect of Section 5 is "Indeed, the grant of taxing powers to local government
thus to reverse the principle that doubts are resolved against units under the Constitution and the LGC does not affect
municipal corporations. Henceforth, in interpreting the power of Congress to grant exemptions to certain
statutory provisions on municipal fiscal powers, doubts will persons, pursuant to a declared national policy. The legal
be resolved in favor of municipal corporations. It is effect of the constitutional grant to local governments
understood, however, that taxes imposed by local simply means that in interpreting statutory provisions on
government must be for a public purpose, uniform within a municipal taxing powers, doubts must be resolved in favor
locality, must not be confiscatory, and must be within the of municipal corporations."23 (Emphasis supplied)
jurisdiction of the local unit to pass."
In the case under review, the Philippine Congress enacted R.A. No. 7966 on
March 30, 1995, subsequent to the effectivity of the LGC on January 1, 1992.
Under it, ABS-CBN was granted the franchise to install and operate radio and taxation are not favored in law, nor are they presumed. They must be expressed in
television broadcasting stations in the Philippines. Likewise, Section 8 imposed the clearest and most unambiguous language and not left to mere implications. It
on ABS-CBN the duty of paying 3% franchise tax. It bears stressing, however, has been held that "exemptions are never presumed, the burden is on the claimant
that payment of the percentage franchise tax shall be "in lieu of all taxes" on the to establish clearly his right to exemption and cannot be made out of inference or
said franchise.24 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
Congress has the inherent power to tax, which includes the power to grant tax exemption ought to be expressed in clear and unambiguous terms.29
exemptions. On the other hand, the power of Quezon City to tax is prescribed by
Section 151 in relation to Section 137 of the LGC which expressly provides that Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to
notwithstanding any exemption granted by any law or other special law, the City three (3) percent of all gross receipts of the radio/television business transacted
may impose a franchise tax. It must be noted that Section 137 of the LGC does under the franchise and the franchise tax shall be "in lieu of all taxes" on the
not prohibit grant of future exemptions. As earlier discussed, this Court in City franchise or earnings thereof.
Government of Quezon City v. Bayan Telecommunications, Inc.25 sustained the
power of Congress to grant tax exemptions over and above the power of the local The "in lieu of all taxes" provision in the franchise of ABS-CBN does not
government's delegated power to tax. expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear
whether the exemption would include both local, whether municipal, city or
B. The more pertinent issue now to consider is whether or not by passing R.A. provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay
No. 7966, which contains the "in lieu of all taxes" provision, Congress intended to three (3) percent franchise tax and income taxes under Title II of the NIRC. But
exempt ABS-CBN from local franchise tax. whether the "in lieu of all taxes provision" would include exemption from local
tax is not unequivocal.
Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise
does not expressly exempt it from payment of local franchise tax. They contend As adverted to earlier, the right to exemption from local franchise tax must be
that a tax exemption cannot be created by mere implication and that one who clearly established and cannot be made out of inference or implications but must
claims tax exemptions must be able to justify his claim by clearest grant of be laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of all
organic law or statute. taxes" provision should be construed against ABS-CBN. ABS-CBN has the
burden to prove that it is in fact covered by the exemption so claimed. ABS-CBN
Taxes are what civilized people pay for civilized society. They are the lifeblood of miserably failed in this regard.
the nation. Thus, statutes granting tax exemptions are construed stricissimi juris
against the taxpayer and liberally in favor of the taxing authority. A claim of tax ABS-CBN cites the cases Carcar Electric & Ice Plant v. Collector of Internal
exemption must be clearly shown and based on language in law too plain to be Revenue,30 Manila Railroad v. Rafferty,31 Philippine Railway Co. v. Collector of
mistaken. Otherwise stated, taxation is the rule, exemption is the exception.26 The Internal Revenue,32 and Visayan Electric Co. v. David33 to support its claim that
burden of proof rests upon the party claiming the exemption to prove that it is in that the "in lieu of all taxes" clause includes exemption from all taxes.
fact covered by the exemption so claimed.27
However, a review of the foregoing case law reveals that the grantees' respective
The basis for the rule on strict construction to statutory provisions granting tax franchises expressly exempt them from municipal and provincial taxes. Said the
exemptions or deductions is to minimize differential treatment and foster Court in Manila Railroad v. Rafferty:34
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 On the 7th day of July 1906, by an Act of the Philippine
legislature intended to exempt him by unmistakable terms. For exemptions from Legislature, a special charter was granted to the Manila Railroad
Company. Subsection 12 of Section 1 of said Act (No. 1510) that ABS-CBN shall instead be liable to pay a franchise tax of 3% of all gross
provides that: receipts in lieu of all other taxes.

"In consideration of the premises and of the granting of this On this score, the RTC ruling is flawed. In keeping with the laws that have been
concession or franchise, there shall be paid by the grantee passed since the grant of ABS-CBN's franchise, the corporation should now be
to the Philippine Government, annually, for the period of subject to VAT, instead of the 3% franchise tax.
thirty (30) years from the date hereof, an amount equal to
one-half (1/2) of one per cent of the gross earnings of the At the time of the enactment of its franchise on May 3, 1995, ABS-CBN was
grantee in respect of the lines covered hereby for the subject to 3% franchise tax under Section 117(b) of the 1977 National Internal
preceding year; after said period of thirty (30) years, and Revenue Code (NIRC), as amended, viz.:
for the fifty (50) years thereafter, the amount so to be paid
annually shall be an amount equal to one and one-half (1 SECTION 117. Tax on franchises. - Any provision of general or
1/2) per cent of such gross earnings for the preceding year; special laws to the contrary notwithstanding, there shall be levied,
and after such period of eighty (80) years, the percentage assessed and collected in respect to all franchise, upon the gross
and amount so to be paid annually by the grantee shall be receipts from the business covered by the law granting the
fixed by the Philippine Government. franchise, a tax in accordance with the schedule prescribed
hereunder:
Such annual payments, when promptly and fully made by
the grantee, shall be in lieu of all taxes of every name and (a) On electric utilities, city gas, and water supplies Two
nature - municipal, provincial or central - upon its capital (2%) percent
stock, franchises, right of way, earnings, and all other
property owned or operated by the grantee under this (b) On telephone and/or telegraph systems, radio and/or
concession or franchise."35 (Underscoring supplied) broadcasting stations Three (3%) percent

In the case under review, ABS-CBN's franchise did not embody an exemption (c) On other franchises Five (5%) percent. (Emphasis
similar to those in Carcar, Manila Railroad, Philippine Railway, and Visayan supplied)
Electric. Too, the franchise failed to specify the taxing authority from whose
jurisdiction the taxing power is withheld, whether municipal, provincial, or On January 1, 1996, R.A. No. 7716, otherwise known as the Expanded Value
national. In fine, since ABS-CBN failed to justify its claim for exemption from Added Tax Law,36 took effect and subjected to VAT those services rendered by
local franchise tax, by a grant expressed in terms "too plain to be mistaken" its radio and/or broadcasting stations. Section 3 of R.A. No. 7716 provides:
claim for exemption for local franchise tax must fail.
Section 3. Section 102 of the National Internal Revenue Code, as
C. The "in lieu of all taxes" clause in the franchise of ABS-CBN has become amended is hereby further amended to read as follows:
functus officio with the abolition of the franchise tax on broadcasting companies
with yearly gross receipts exceeding Ten Million Pesos. SEC. 102. Value-added tax on sale of services and use or
lease of properties. - (a) Rate and base of tax. - There shall
In its decision dated January 20, 1999, the RTC held that pursuant to the "in lieu be levied, assessed and collected, as value-added tax
of all taxes" provision contained in Section 8 of R.A. No. 7966, ABS-CBN is equivalent to 10% of gross receipts derived from the sale or
exempt from the payment of the local franchise tax. The RTC further pronounced
exchange of services, including the use or lease of "Sec. 12. Section 117 of the National Internal Revenue Code, as
properties. amended, is hereby further amended to read as follows:

The phrase "sale or exchange of services" means the "Sec. 117. Tax on franchise. - Any provision of general or
performance of all kinds of services in the Philippines, for special law to the contrary, notwithstanding, there shall be
others for a fee, remuneration or consideration, including levied, assessed and collected in respect to all franchises
those performed or rendered by construction and service on radio and/or television broadcasting companies whose
contractors; x x x services of franchise grantees of annual gross receipts of the preceding year does not
telephone and telegraph, radio and television broadcasting exceed Ten million pesos (P10,000,000.00), subject to
and all other franchise grantees except those under Section Section 107(d) of this Code, a tax of three percent (3%) and
117 of this Code; x x x (Emphasis supplied) on electric, gas and water utilities, a tax of two percent
(2%) on the gross receipts derived from the business
Notably, under the same law, "telephone and/or telegraph systems, broadcasting covered by the law granting the franchise: Provided,
stations and other franchise grantees" were omitted from the list of entities subject however, That radio and television broadcasting
to franchise tax. The impression was that these entities were subject to 10% VAT companies referred to in this section, shall have an option
but not to franchise tax. Only the franchise tax on "electric, gas and water to be registered as a value-added tax payer and pay the tax
utilities" remained. Section 12 of R.A. No. 7716 provides: due thereon: Provided, further, That once the option is
exercised, it shall not be revoked. (Emphasis supplied)
Section 12. Section 117 of the National Internal Revenue Code, as
amended, is hereby further amended to read as follows: On the other hand, radio and/or television companies with yearly gross receipts
exceeding P10,000,000.00 were subject to 10% VAT, pursuant to Section 102 of
SEC. 117. Tax on Franchises. - Any provision of general or the NIRC.
special law to the contrary notwithstanding there shall be
levied, assessed and collected in respect to all franchises On January 1, 1998, R.A. No. 842439 was passed confirming the 10% VAT
on electric, gas and water utilities a tax of two percent liability of radio and/or television companies with yearly gross receipts exceeding
(2%) on the gross receipts derived from the business P10,000,000.00.
covered by the law granting the franchise. (Emphasis
added) R.A. No. 9337 was subsequently enacted and became effective on July 1, 2005.
The said law further amended the NIRC by increasing the rate of VAT to 12%.
Subsequently, R.A. No. 824137 took effect on January 1, 199738 containing more The effectivity of the imposition of the 12% VAT was later moved from January
amendments to the NIRC. Radio and/or television companies whose annual gross 1, 2006 to February 1, 2006.
receipts do not exceed P10,000,000.00 were granted the option to choose between
paying 3% national franchise tax or 10% VAT. Section 9 of R.A. No. 8241 In consonance with the above survey of pertinent laws on the matter, ABS-CBN
provides: is subject to the payment of VAT. It does not have the option to choose between
the payment of franchise tax or VAT since it is a broadcasting company with
SECTION 9. Section 12 of Republic Act No. 7716 is hereby amended to read as yearly gross receipts exceeding Ten Million Pesos (P10,000,000.00).
follows:
VAT is a percentage tax imposed on any person whether or not a franchise
grantee, who in the course of trade or business, sells, barters, exchanges, leases,
goods or properties, renders services. It is also levied on every importation of
goods whether or not in the course of trade or business. The tax base of the VAT
is limited only to the value added to such goods, properties, or services by the
seller, transferor or lessor. Further, the VAT is an indirect tax and can be passed
on to the buyer.

The franchise tax, on the other hand, is a percentage tax imposed only on
franchise holders. It is imposed under Section 119 of the Tax Code and is a direct
liability of the franchise grantee.

The clause "in lieu of all taxes" does not pertain to VAT or any other tax. It
cannot apply when what is paid is a tax other than a franchise tax. Since the
franchise tax on the broadcasting companies with yearly gross receipts exceeding
ten million pesos has been abolished, the "in lieu of all taxes" clause has now
become functus officio, rendered inoperative.

In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in
lieu of all taxes" clause in its franchise failed to specify the taxes the company is
sought to be exempted from. Neither did it particularize the jurisdiction from
which the taxing power is withheld. Second, the clause has become functus officio
because as the law now stands, ABS-CBN is no longer subject to a franchise tax.
It is now liable for VAT.

WHEREFORE, the petition is GRANTED and the appealed Decision


REVERSED AND SET ASIDE. The petition in the trial court for refund of local
franchise tax is DISMISSED.

SO ORDERED.
to the Bureau of Internal Revenue each year, within thirty (30) days after
the audit and approval of the accounts, a franchise tax as may be
EN BANC prescribed by law of all gross receipts of the telephone or other
telecommunications businesses transacted under this franchise by the
G.R. No. 156040 December 11, 2008 grantee; Provided, That the grantee shall continue to be liable for income
taxes payable under Title II of the National Internal Revenue Code
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., petitioner, pursuant to Section 2 of Executive Order No. 72 unless the latter
vs. enactment is amended or repealed, in which case the amendment or repeal
CITY GOVERNMENT OF BATANGAS represented by HON. ANGELITO shall be applicable thereto.
DONDON A. DIMACUHA, Batangas City Mayor, MR. BENJAMIN S.
PARGAS, Batangas City Treasurer, and ATTY. TEODULFO A. DEQUITO, The grantee shall file the return with and pay the tax due thereon to the
Batangas City Legal Officer, respondents. Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall
DECISION be subject to audit by the Bureau of Internal Revenue. (Boldfacing and
underscoring supplied)
CARPIO, J.:
Sometime in 1997, respondent issued a building permit for the installation of
The Case petitioner’s telecommunications facilities in Batangas City. After the installation
of the facilities, petitioner applied with the Mayor’s office of Batangas City for a
This is a petition for review on certiorari1 assailing the Regional Trial Court’s permit to operate. Because of a discrepancy in the actual investment costs used in
Order2 dated 2 May 2002 in Civil Case No. 5343 as well as the 19 November computing the prescribed fees for the clearances and permits, petitioner was not
2002 Order denying the Motion for Reconsideration. In the assailed orders, able to secure a Mayor’s Permit for the year 1998. Petitioner was also advised to
Branch 8 of the Regional Trial Court (RTC) of Batangas City (RTC-Branch 8) settle its unpaid realty taxes. However, petitioner claimed exemption from the
reversed the 28 March 2001 Order3 issued by Branch 3 of RTC-Batangas City payment of realty tax, citing the first sentence of Section 5 of RA 7678, the
(RTC-Branch 3). RTC-Branch 8 declared that under its legislative franchise, Letter-Opinion of the Bureau of Local Government Finance (BLGF) dated 8 April
Digital Telecommunications Philippines, Inc. (petitioner) is not exempt from 1997,5 and the letter of the Office of the President dated 12 March 1996.6
paying real property tax assessed by the Batangas City Government (respondent).
In 1999, respondent refused to issue a Mayor’s Permit to petitioner without
The Facts payment of its realty taxes.

On 17 February 1994, Republic Act No. 7678 (RA 7678)4 granted petitioner a 25- On 22 June 1999, petitioner paid P68,890.39 under protest as fees for the permit
year franchise to install, operate and maintain telecommunications systems to operate, but respondent refused to accept the payment unless petitioner also
throughout the Philippines. Section 5 of RA 7678 reads: paid the realty taxes.7

Sec. 5. Tax Provisions. - The grantee shall be liable to pay the same On 2 July 1999, respondent threatened to close down petitioner’s operations.
taxes on its real estate, buildings, and personal property exclusive of Hence, on 3 July 1999, petitioner instituted a complaint for prohibition and
this franchise as other persons or corporations are now or hereafter mandamus with prayer for a temporary restraining order or writ of preliminary
may be required by law to pay. In addition thereto, the grantee shall pay injunction. This case was raffled to RTC-Branch 3. On the same date, respondent
served a Cease and Desist Order on petitioner.8
On 20 January 2000, during the pendency of the complaint, petitioner paid its - DECLARING that the plaintiff Digital Telecommunications
realty taxes of P2,043,265 under protest.9 Petitioner resumed its business, Philippines, Inc., under its legislative franchise RA No. 7678, is not
rendering the other issues raised in petitioner’s complaint moot. Consequently, the exempted from the payment of real property tax being collected by the
only issue left for resolution is whether petitioner is exempt from the realty tax defendant City of Batangas and, accordingly,
under Section 5 of RA 7678.
- ORDERING said plaintiff to pay the City of Batangas real estate taxes
The Ruling of RTC-Branch 3 in the amount of Ph4,620,683.33 which was due as of January, 2000, as
well as those due thereafter, plus corresponding interest and penalties.13
On 28 March 2001, RTC-Branch 3 issued the following Order:
On 29 May 2002, petitioner moved for reconsideration. On 19 November 2002,
WHEREFORE, premises considered, the Court hereby declares that the RTC-Branch 8 denied petitioner’s motion for reconsideration.
real estate, buildings and personal property of plaintiff Digital
Telecommunications Philippines, Inc. which are used in the operation of Hence, this petition.
its franchise are exempt from payment of real property taxes, but those not
so used should be held liable thereto.10 The Issue

RTC-Branch 3 reasoned that the phrase "exclusive of this franchise" in the first The sole issue for resolution is whether, under the first sentence of Section 5 of
sentence of Section 5 of RA 7678 limits the real properties that are subject to RA 7678, petitioner’s real properties used in its telecommunications business are
realty tax only to those which are not used in petitioner’s telecommunications exempt from the realty tax.
business. In short, petitioner’s real properties used in its telecommunications
business are not subject to realty tax.11 Petitioner’s Contentions

On 1 May 2001, respondent moved for reconsideration. Before acting on the Petitioner contends that its exemption from realty tax is based on the first
motion, the Presiding Judge of RTC-Branch 3 voluntarily inhibited himself sentence of Section 5 of RA 7678. Petitioner claims that the evident purpose of
because the newly-elected mayor of Batangas City was his kumpadre.12 The case the phrase "exclusive of this franchise" is to limit the real properties that are
was re-raffled to RTC-Branch 8. subject to realty tax only to properties that are not used in petitioner’s
telecommunications business.14 Petitioner asserts that the phrase "exclusive of this
The Ruling of RTC-Branch 8 franchise" must not be construed as a useless surplusage. Petitioner points out that
its exemption from realty tax was affirmed in two separate opinions, one rendered
On 2 May 2002, RTC-Branch 8 issued an Order which reads: by the Office of the President on 12 March 1996 and the other by the BLGF on 8
April 1997 and reaffirmed on 4 January 1999.15 The BLGF declared that "the real
WHEREFORE, the defendants’ Motion for Reconsideration is hereby properties of Digitel, which are used in the operation of its franchise are x x x
granted. The Order of this Court dated March 21, 2001 is hereby set aside found to be exempt from the payment of real property taxes beginning 1 January
and, in lieu thereof, judgment is hereby rendered in favor of the defendants 1993. However, all other properties of that company not used in connection with
and against the plaintiff: the operation of its franchise shall remain taxable."16

- DISMISSING the Amended Complaint; Petitioner further argues that under the Local Government Code, the realty tax is
imposed on all lands, buildings, machineries and other improvements attached to
real property. A franchise is an incorporeal being, a special privilege granted by
the legislature. Hence, to read the first sentence of Section 5 of RA 7678 to mean 7678 is ambiguous with respect to the phrase "exclusive of this franchise,"20 thus
that the franchisee shall pay taxes on its real properties used in its petitioner resorted to the rules on statutory construction.21
telecommunications business would render the phrase "exclusive of this
franchise" meaningless. Respondent adds that the legislative franchises granted to other
telecommunications companies contain the same phrase "exclusive of this
Petitioner admits that the franchise granted under RA 7678 is a personal property, franchise." This shows the intent of Congress to make franchisees liable for the
but the franchise is not the "personal property" referred to in the first sentence of realty tax rather than exempt them even if the real properties are used in their
Section 5. Petitioner asserts that the phrase "real estate, buildings, and personal telecommunications business.22
property" in the first sentence of Section 5 refers solely to real properties and does
not include personal properties. Petitioner explains thus: The Office of the Solicitor General (OSG), appearing for respondent, contends
that the first sentence of Section 5 provides for petitioner’s general liability to pay
For PTEs (public telecommunication entities), these personal properties taxes and does not provide for petitioner’s exemption from realty tax. The OSG
include the switches which were installed in the exchange buildings as invokes the doctrine of last antecedent which is an aid in statutory construction.
well as the outside and inside plant equipment. Initially, these The OSG argues that under this doctrine, the qualifying word or phrase only
telecommunications materials and equipment were personal property in restricts the word or phrase to which the qualifying word or phrase is immediately
character. But, having been installed and made operational by being associated and not the word or phrase which is distantly or remotely located. In
attached to the exchange building, they are now converted into the first sentence of Section 5, the phrase "exclusive of this franchise" restricts
immovables or real property. That being the case, the phrase "real only the words "personal property" which immediately precede the phrase
estate, buildings and personal property" actually refer[s] to properties "exclusive of this franchise." This means that the franchise, an intangible personal
that are liable for real estate tax. And, Congress having made the property, should be excluded from the personal properties that are subject to taxes
qualification with the phrase "exclusive of this franchise," only such real under the first sentence of Section 5. The OSG adds that the use of the comma to
properties that are not used in furtherance of the franchise are subject to separate "real estate, buildings" from "personal property" exerts a dominant
real property tax.17 (Emphasis supplied) influence in the application of the doctrine of last antecedent. Further, the OSG
reiterates that laws granting exemption from tax are to be construed strictissimi
Respondent’s Contentions juris against the taxpayer and liberally in favor of the taxing power.

Respondent contends that the phrase "exclusive of this franchise" does not mean The Ruling of the Court
that petitioner is exempt from the realty tax on its real properties used in its
telecommunications business. The first sentence of Section 5 of RA 7678 makes The petition has no merit.
petitioner "liable to pay the same taxes for its real estate, buildings, and personal
property exclusive of this franchise as other persons or corporations are or Section 5 of RA 7678 imposes taxes
hereafter may be required by law to pay." This shows the clear intent of Congress and does not exempt from realty tax
to tax petitioner’s real and personal properties.18 Respondent asserts that the
phrase "exclusive of this franchise" is a qualification of the broad declaration on The issue in this case involves the interpretation of the phrase "exclusive of this
the franchisee’s liability for taxes which is the main thrust of the first sentence of franchise" in the first sentence of Section 5 of RA 7678.
Section 5. Respondent points out that petitioner is paying taxes and fees on all its
motor vehicles, which are personal properties, without distinction.19 Respondent Section 5 of RA 7678 states:
also points out that petitioner admits that the first sentence of Section 5 of RA
Sec. 5. Tax Provisions. - The grantee shall be liable to pay the same mean that its real properties that are used in its telecommunications business shall
taxes on its real estate, buildings, and personal property exclusive of not be subject to realty tax. Respondent interprets the same phrase to mean that
this franchise as other persons or corporations are now or hereafter the term "personal property" shall not include petitioner’s franchise, which is an
may be required by law to pay. In addition thereto, the grantee shall pay intangible personal property.
to the Bureau of Internal Revenue each year, within thirty (30) days after
the audit and approval of the accounts, a franchise tax as may be We rule that the phrase "exclusive of this franchise" simply means that
prescribed by law of all gross receipts of the telephone or other petitioner’s franchise shall not be subject to the taxes imposed in the first sentence
telecommunications businesses transacted under this franchise by the of Section 5. The first sentence lists the properties that are subject to taxes, and
grantee; Provided, That the grantee shall continue to be liable for income the list excludes the franchise. Thus, the first sentence provides:
taxes payable under Title II of the National Internal Revenue Code
pursuant to Section 2 of Executive Order No. 72 unless the latter The grantee shall be liable to pay the same taxes on its real estate,
enactment is amended or repealed, in which case the amendment or repeal buildings, and personal property exclusive of this franchise as other
shall be applicable thereto. persons or corporations are now or hereafter may be required by law to
pay. (Emphasis supplied)
The grantee shall file the return with and pay the tax due thereon to the
Commissioner of Internal Revenue or his duly authorized representative in A plain reading shows that the phrase "exclusive of this franchise" is meant to
accordance with the National Internal Revenue Code and the return shall exclude the legislative franchise from the properties subject to taxes under the
be subject to audit by the Bureau of Internal Revenue. (Boldfacing and first sentence. In effect, petitioner’s franchise, which is a personal property, is not
underscoring supplied) subject to the taxes imposed on properties under the first sentence of Section 5.

The first sentence of Section 5 of RA 7678 is the same provision found in almost However, petitioner’s gross receipts from its franchise are subject to the
all legislative franchises in the telecommunications industry dating back to 1905.23 "franchise tax" under the second sentence of Section 5. Thus, the second sentence
It is also the same provision that appears in the legislative franchises of other provides:
telecommunications companies like Philippine Long Distance Telephone
Company,24 Smart Information Technologies, Inc.,25 and Globe Telecom.26 Since In addition thereto, the grantee shall pay to the Bureau of Internal Revenue
1905, no telecommunications company has claimed exemption from realty tax each year, within thirty (30) days after the audit and approval of the
based on the phrase "exclusive of this franchise," until petitioner filed the present accounts, a franchise tax as may be prescribed by law of all gross receipts
case on 3 July 1999.27 of the telephone or other telecommunications businesses transacted under
this franchise by the grantee; x x x (Emphasis supplied)
The first sentence of Section 5 clearly states that the legislative franchisee shall be
liable to pay the following taxes: (1) "the same taxes on its real estate, buildings, In short, petitioner’s franchise is excluded from the properties taxable under the
and personal property exclusive of this franchise as other persons or first sentence of Section 5 but the gross receipts from its franchise are expressly
corporations are now or hereafter may be required by law to pay"; (2) "franchise taxable under the second sentence of the same Section.
tax as may be prescribed by law of all gross receipts of the telephone or other
telecommunications businesses transacted under this franchise";28 and (3) "income The first sentence of Section 5 imposes on the franchisee the "same taxes" that
taxes payable under Title II of the National Internal Revenue Code." non-franchisees are subject to with respect to real and personal properties. The
clear intent is to put the franchisees and non-franchisees in parity in the taxation
The crux of the controversy lies in the interpretation of the phrase "exclusive of of their real and personal properties. Since non-franchisees have obviously no
this franchise" in the first sentence of Section 5. Petitioner interprets the phrase to franchises, the franchise must be excluded from the list of properties subject to tax
to maintain the parity between the franchisees and non-franchisees. However, the The inclusion of "fishing boats," personal properties that can never be attached to
franchisee is taxable separately from its franchise. Thus, the second sentence of a land or building so as to make them real properties, demonstrates that Section 6
Section 5 imposes the "franchise tax" on gross receipts, which under Republic Act of RA 3218, like the first sentence of Section 5 of RA 7678, not only applies to
No. 7716 has been replaced by the 10% Valued Added Tax effective 1 January real properties but also to personal properties.
1996.29
Second, there is no language in the first sentence of Section 5 expressly or even
Section 5 can be divided into three parts. First is the first sentence which imposes impliedly exempting petitioner from the realty tax. The phrases "exemption from
taxes on real and personal properties, excluding one property, that is, the real estate tax," "free from real estate tax" or "not subject to real estate tax" do not
franchise. This puts in parity the franchisees and non-franchisees in the taxation appear in the first sentence. No matter how one reads the first sentence, there is no
of real and personal properties. Second is the second sentence which imposes the grant of exemption, express or implied, from realty tax. In fact, the first sentence
franchise tax, which is applicable solely to the franchisee. And third is the proviso expressly imposes taxes on both real and personal properties, excluding only the
in the second sentence that imposes the income tax on the franchisee, the same intangible personal property that is the franchise.
income tax payable by non-franchisees.
A tax exemption cannot arise from vague inference. The first sentence of Section
Petitioner claims that the first sentence refers only to real properties, and that the 5 does not grant any express or even implied exemption from realty tax. On the
phrase "exclusive of this franchise" exempts petitioner from realty tax on its real contrary, the first sentence categorically states that the franchisee is subject to the
properties used in its telecommunications business. This claim has no basis in the "same taxes currently imposed, and those taxes that may be subsequently
language of the law as written in the first sentence of Section 5. First, the first imposed, on other persons or corporations," taxpayers that admittedly are all
sentence expressly refers to taxes on "real estate" and on "personal property." subject to realty tax. The first sentence does not limit the imposition of the "same
Clearly, the first sentence does not refer only to taxes on real properties, but also taxes" to realty tax only but even to "those taxes" that may in the future be
to taxes on personal properties. The trial court correctly observed that petitioner imposed on other taxpayers, which future taxes shall also be imposed on
pays taxes on its motor vehicles,30 which are personal properties, that are used in petitioner. Thus, the first sentence of Section 5 imposes on petitioner not only
its telecommunications business.31 There is also the documentary stamp tax on realty tax but also other taxes.
transactions involving real and personal properties, which petitioner and other
taxpayers are liable for.32 The phrase "personal property exclusive of this franchise" merely means that
"personal property" does not include the franchise even if the franchise is an
A franchise granted by Congress to operate a private radio station for the intangible personal property. Stated differently, the first sentence of Section 5
franchisee’s communications in deep-sea fishing shows that the first sentence of provides that petitioner shall pay tax on its real properties as well as on its
Section 5 of RA 7678 does not refer to real properties alone. Section 6 of personal properties but the franchise, which is an intangible personal property,
Republic Act No. 3218 (RA 3218), entitled An Act Granting Batas Riego De Dios shall not be deemed personal property.
A Franchise To Construct, Maintain And Operate Private Radio Stations For
Radio Communications In Its Deep-Sea Fishing Industry, provides: The historical usage of the phrase "exclusive of this franchise" in franchise laws
enacted by Congress indubitably shows that the phrase is not a grant of tax
SECTION 6. The grantee shall be liable (1) to pay the same taxes on its exemption, but an exclusion of one type of personal property subject to taxes, and
real estate, building, fishing boats and personal property, exclusive of the excluded personal property is the franchise. Thus, the franchises of
this franchise as other persons or corporations are now, or hereafter may telecommunications companies in Republic Act Nos. 4137,33 5692,34 5739,35
be required by law to pay, and shall further be liable (2) to pay all other 5785,36 5790,37 5791,38 5795,39 5810,40 5847,41 5848,42 5856,43 5857,44 5913,45
taxes that may be imposed by the National Internal Revenue Code by 5914,46 5929,47 5937,48 5958,49 5959,50 5974,51 5993,52 5994,53 6002,54 6006,55
reason of this franchise. (Emphasis supplied)
6007,56 6013,57 6024,58 6097,59 6510,60 6536,61 and 653062 contain the following As may be recalled, the taxing power of local governments under both the
common tax provision: 1935 and the 1973 Constitutions solely depended upon an enabling law.
Absent such enabling law, local government units were without authority
The grantee shall be liable to pay the same taxes, unless exempted to impose and collect taxes on real properties within their respective
therefrom, on its business, real estate, buildings, and personal property, territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may be
exclusive of this franchise, as other persons or corporations are now or validly viewed as an implied delegation of power to tax, the delegation
hereafter may be required by law to pay. (Emphasis supplied) under that provision, as couched, is limited to impositions over properties
of the franchisee which are not actually, directly and exclusively used in
The phrase "unless exempted therefrom" in the common provision clearly the pursuit of its franchise. Necessarily, other properties of Bayantel
clarifies that the phrase "exclusive of this franchise" does not grant any tax directly used in the pursuit of its business are beyond the pale of the
exemption. To claim tax exemption, there must be an express exemption from tax delegated taxing power of local governments. In a very real sense,
in another provision of law. On the other hand, the deletion of the phrase "unless therefore, real properties of Bayantel, save those exclusive of its franchise,
exempted therefrom" from the common provision does not give rise to any tax are subject to realty taxes. Ultimately, therefore, the inevitable result
exemption. was that all realties which are actually, directly and exclusively used
in the operation of its franchise are "exempted" from any property
Bayantel and Digitel Cases tax. (Emphasis supplied)

In City Government of Quezon City v. Bayan Telecommunications, Inc.,63 this In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of
Court’s Second Division held that "all realties which are actually, directly and Pangasinan,64 this Court’s Third Division ruled that Digitel’s real properties
exclusively used in the operation of its franchise are ‘exempted’ from any located within the territorial jurisdiction of Pangasinan that are actually, directly
property tax." The Second Division added that Bayantel’s franchise being national and exclusively used in its franchise are exempt from realty tax under the first
in character, the "exemption" granted applies to all its real and personal properties sentence of Section 5 of RA 7678. The Third Division explained thus:
found anywhere within the Philippines. The Second Division reasoned in this
wise: The more pertinent issue to consider is whether or not, by passing
Republic Act No. 7678, Congress intended to exempt petitioner
The legislative intent expressed in the phrase ‘exclusive of this franchise’ DIGITEL’s real properties actually, directly and exclusively used by the
cannot be construed other than distinguishing between two (2) sets of grantee in its franchise.
properties, be they real or personal, owned by the franchisee, namely, (a)
those actually, directly and exclusively used in its radio or The fact that Republic Act No. 7678 was a later piece of legislation can be
telecommunications business, and (b) those properties which are not so taken to mean that Congress, knowing fully well that the Local
used. It is worthy to note that the properties subject of the present Government Code had already withdrawn exemptions from real property
controversy are only those which are admittedly falling under the first taxes, chose to restore such immunity even to a limited degree.
category. Accordingly:

To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively The Court views this subsequent piece of legislation as an express
works to grant or delegate to local governments of Congress’ inherent and real intention on the part of Congress to once again remove
power to tax the franchisee’s properties belonging to the second group of from the LGC’s delegated taxing power, all of the franchisee’s x x
properties indicated above, that is, all properties which, "exclusive of this x properties that are actually, directly and exclusively used in the
franchise," are not actually and directly used in the pursuit of its franchise. pursuit of its franchise.
In view of the unequivocal intent of Congress to exempt from real In Radio Communications of the Philippines, Inc. (RCPI) v. Provincial Assessor
property tax those real properties actually, directly and exclusively used of South Cotabato,67the Court’s First Division held that RCPI’s radio relay station
by petitioner DIGITEL in the pursuit of its franchise, respondent Province tower, radio station building, and machinery shed are real properties and are
of Pangasinan can only levy real property tax on the remaining real subject to real property tax. The Court added that:
properties of the grantee located within its territorial jurisdiction not part
of the above-stated classification. Said exemption, however, merely RCPI cannot also invoke the equality of treatment clause under Section 23
applies from the time of the effectivity of petitioner DIGITEL’s legislative of Republic Act No. 7925. The franchises of Smart, Islacom, TeleTech,
franchise and not a moment sooner. Bell, Major Telecoms, Island Country, and IslaTel,68 all expressly
declare that the franchisee shall pay the real estate tax, using words similar
Nowhere in the language of the first sentence of Section 5 of RA 7678 does it to Section 14 of RA 2036, as amended. The provisions of these subsequent
expressly or even impliedly provide that petitioner’s real properties that are telecommunication franchises imposing the real estate tax on franchisees
actually, directly and exclusively used in its telecommunications business are only confirm that RCPI is subject to the real estate tax. Otherwise, RCPI
exempt from payment of realty tax. On the contrary, the first sentence of Section will stick out like a sore thumb, being the only telecommunications
5 specifically states that the petitioner, as the franchisee, shall pay the "same taxes company exempt from the real estate tax, in mockery of the spirit of
on its real estate, buildings, and personal property exclusive of this franchise as equality of treatment that RCPI is invoking, not to mention the violation of
other persons or corporations are now or hereafter may be required by law to the constitutional rule on uniformity of taxation.
pay."
It is an elementary rule in taxation that exemptions are strictly construed
The heading of Section 5 is "Tax Provisions," not Tax Exemptions. To reiterate, against the taxpayer and liberally in favor of the taxing authority. It is the
the phrase "exemption from real estate tax" or other words conveying exemption taxpayer’s duty to justify the exemption by words too plain to be mistaken
from realty tax do not appear in the first sentence of Section 5. The phrase and too categorical to be misinterpreted. (Emphasis supplied)
"exclusive of this franchise" in the first sentence of Section 5 merely qualifies the
phrase "personal property" to exclude petitioner’s legislative franchise, which is In RCPI, the Court emphasized that telecommunications companies which were
an intangible personal property. Petitioner’s franchise is subject to tax in the granted legislative franchise are liable to realty tax. The intent to grant realty tax
second sentence of Section 5 which imposes the "franchise tax." Thus, there is no exemption cannot be discerned from Republic Act No. 405469 and neither from
grant of tax exemption in the first sentence of Section 5. the legislative franchises of other telecommunications companies. Tax
exemptions granted to one or more, but not to all, telecommunications companies
The interpretation of the phrase "exclusive of this franchise" in the Bayantel and similarly situated will violate the constitutional rule on uniformity of taxation.70
Digitel cases goes against the basic principle in construing tax exemptions. In
PLDT v. City of Davao,65 the Court held that "tax exemptions should be granted The intent of Congress is to make
only by clear and unequivocal provision of law on the basis of language too plain legislative franchisees liable to tax
to be mistaken. They cannot be extended by mere implication or inference."
In PLDT v. City of Davao,71 it was observed that after the imposition of VAT on
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax telecommunications companies, Congress refused to grant any tax exemption to
exemption must point to a specific provision of law conferring on the taxpayer, in telecommunications companies that sought new franchises from Congress, except
clear and plain terms, exemption from a common burden. Any doubt whether a the exemption from specific tax.72 More importantly, the uniform tax provision in
tax exemption exists is resolved against the taxpayer.66 these new franchises expressly states that the franchisee shall pay not only all
taxes, except specific tax, under the National Internal Revenue Code, but also all
RCPI case
taxes under "other applicable laws,"73 one of which is the Local Government On 25 October 2004, the BLGF issued Memorandum Circular No. 15-2004.79
Code which imposes the realty tax.74 This circular reversed the BLGF’s Letter-Opinion dated 8 April 1997 recognizing
realty tax exemption under the phrase "exclusive of this franchise." This later
In fact, Section 12 of Republic Act No. 9180 (RA 9180),75 the legislative circular states that the real properties owned by Globe and Smart
franchise of Digitel Mobile, a 100%-owned subsidiary of petitioner, states that the Telecommunications and all other telecommunications companies similarly
franchisee, its successors or assigns shall be subject to the payment of "all taxes, situated are subject to the realty tax. The BLGF has reversed its opinion on the
duties, fees or charges and other impositions under the National Internal Revenue realty tax exemption of telecommunications companies. Hence, petitioner’s claim
Code of 1997, as amended, and other applicable laws."76 Section 12 of RA 9180 of tax exemption based on BLGF’s opinion does not hold water. Besides, the
provides: BLGF has no authority to rule on claims for exemption from the realty tax.80

SECTION 12. Tax Provisions. \emdash The grantee, its successors or WHEREFORE, we DENY the petition. We AFFIRM the 2 May 2002 and 19
assigns, shall be subject to the payment of all taxes, duties, fees or November 2002 Orders of the Regional Trial Court, Branch 8, Batangas City, in
charges and other impositions under the National Internal Revenue Civil Case No. 5343.
Code of 1997, as amended, and other applicable laws: Provided, That
nothing herein shall be construed as repealing any specific tax exemptions, SO ORDERED.
incentives, or privileges granted under any relevant law: Provided, further,
That all rights, privileges, benefits and exemptions accorded to existing
and future telecommunications franchises shall likewise be extended to the
grantee.

The grantee shall file the return with the city or province where its facility
is located and pay the income tax due thereon to the Commissioner of
Internal Revenue or his duly authorized representatives in accordance with
the National Internal Revenue Code and the return shall be subject to audit
by the Bureau of Internal Revenue. (Emphasis supplied)

Thus, Digitel Mobile is subject to tax on its real estate and personal properties,
whether or not used in its telecommunications business.

In Compagnie Financiere Sucres et Denrees v. Commissioner of Internal


Revenue,77 the Court ruled that "the governing principle is that tax exemptions are
to be construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority \endash he who claims an exemption must be able to justify
his claim by the clearest grant of statute." A person claiming an exemption has the
burden of justifying the exemption by words too plain to be mistaken and too
categorical to be misinterpreted. Tax exemptions are never presumed and the
burden lies with the taxpayer to clearly establish his right to exemption.78

BLGF Opinions
SECOND DIVISION After much wrangling in the Court of Tax Appeals (CTA) and
the Court of Appeals, Fortune Tobacco Corporation (Fortune
COMMISSIONER OF INTERNAL G.R. Nos. 167274-75
Tobacco) was granted a tax refund or tax credit representing specific
REVENUE,
Petitioner, Present: taxes erroneously collected from its tobacco products. The tax refund
is being re-claimed by the Commissioner of Internal Revenue
QUISUMBING, J.,
Chairperson, (Commissioner) in this petition.
YNARES-SANTIAGO,
- versus - CARPIO MORALES,
The following undisputed facts, summarized by the Court of
TINGA, and
VELASCO, JR., JJ. Appeals, are quoted in the assailed Decisioni[1] dated 28 September
2004:
FORTUNE TOBACCO
CORPORATION, Promulgated:
CAG.R. SP No. 80675
Respondent.
July 21, 2008
xxxx
x---------------------------------------------------------------------------x Petitionerii[2] is a domestic corporation duly organized and
existing under and by virtue of the laws of the Republic of the
Philippines, with principal address at Fortune Avenue, Parang,
Marikina City.
DECISION
Petitioner is the manufacturer/producer of, among others,
TINGA, J.: the following cigarette brands, with tax rate classification based on
net retail price prescribed by Annex “D” to R.A. No. 4280, to wit:

Brand Tax Rate


Simple and uncomplicated is the central issue involved, yet
Champion M 100 P1.00
whopping is the amount at stake in this case.
Salem M 100 P1.00
Salem M King P1.00
Camel F King P1.00 exceed Six Pesos and fifty centavos (P6.50) per pack, the
Camel Lights Box 20’s P1.00 tax shall be Five pesos (P5.00) per pack;
Camel Filters Box 20’s P1.00
Winston F Kings P5.00 (4) If the net retail price (excluding the excise tax
Winston Lights P5.00 and the value-added tax) is below Five pesos (P5.00) per
pack, the tax shall be One peso (P1.00) per pack;
Immediately prior to January 1, 1997, the above-mentioned
cigarette brands were subject to ad valorem tax pursuant to then “Variants of existing brands of cigarettes which are
Section 142 of the Tax Code of 1977, as amended. However, on introduced in the domestic market after the effectivity
January 1, 1997, R.A. No. 8240 took effect whereby a shift from of R.A. No. 8240 shall be taxed under the highest
the ad valorem tax (AVT) system to the specific tax system was classification of any variant of that brand.
made and subjecting the aforesaid cigarette brands to specific tax
under [S]ection 142 thereof, now renumbered as Sec. 145 of the The excise tax from any brand of cigarettes within
Tax Code of 1997, pertinent provisions of which are quoted thus: the next three (3) years from the effectivity of R.A. No.
8240 shall not be lower than the tax, which is due from
Section 145. Cigars and Cigarettes- each brand on October 1, 1996. Provided, however, that in
cases were (sic) the excise tax rate imposed in paragraphs
(A) Cigars. – There shall be levied, assessed and (1), (2), (3) and (4) hereinabove will result in an increase in
collected on cigars a tax of One peso (P1.00) per cigar. excise tax of more than seventy percent (70%), for a brand
of cigarette, the increase shall take effect in two tranches:
“(B) Cigarettes packed by hand. – There shall be fifty percent (50%) of the increase shall be effective in
levied, assessesed and collected on cigarettes packed by 1997 and one hundred percent (100%) of the increase shall
hand a tax of Forty centavos (P0.40) per pack. be effective in 1998.

Duly registered or existing brands of cigarettes or


(C) Cigarettes packed by machine. – There shall
new brands thereof packed by machine shall only be
be levied, assessed and collected on cigarettes packed by
packed in twenties.
machine a tax at the rates prescribed below:
The rates of excise tax on cigars and cigarettes
(1) If the net retail price (excluding the excise tax under paragraphs (1), (2) (3) and (4) hereof, shall be
and the value-added tax) is above Ten pesos (P10.00) per increased by twelve percent (12%) on January 1, 2000.
pack, the tax shall be Twelve (P12.00) per pack; (Emphasis supplied)
(2) If the net retail price (excluding the excise tax New brands shall be classified according to their
and the value added tax) exceeds Six pesos and Fifty current net retail price.
centavos (P6.50) but does not exceed Ten pesos (P10.00)
per pack, the tax shall be Eight Pesos (P8.00) per pack. For the above purpose, ‘net retail price’ shall mean
the price at which the cigarette is sold on retail in twenty
(3) If the net retail price (excluding the excise tax (20) major supermarkets in Metro Manila (for brands of
and the value-added tax) is Five pesos (P5.00) but does not cigarettes marketed nationally), excluding the amount
intended to cover the applicable excise tax and value-added
tax. For brands which are marketed only outside Metro excise) exceeds
[M]anila, the ‘net retail price’ shall mean the price at P10.00 per pack
which the cigarette is sold in five (5) major supermarkets in P8.00/pack P8.96/pack
the region excluding the amount intended to cover the (2) Exceeds P10.00
applicable excise tax and the value-added tax. per pack

The classification of each brand of cigarettes based (3) Net retail price P5.00/pack P5.60/pack
on its average retail price as of October 1, 1996, as set forth (excluding VAT and
in Annex “D,” shall remain in force until revised by excise) is P5.00 to
Congress. P6.50 per pack

Variant of a brand shall refer to a brand on which (4) Net Retail Price
a modifier is prefixed and/or suffixed to the root name of (excluding VAT and P1.00/pack P1.12/pack
the brand and/or a different brand which carries the same excise) is below
logo or design of the existing brand. P5.00 per pack

To implement the provisions for a twelve percent (12%)


increase of excise tax on, among others, cigars and cigarettes
packed by machines by January 1, 2000, the Secretary of Finance,
upon recommendation of the respondent Commissioner of Internal
Revenue Regulations No. 17-99 likewise provides in the
Revenue, issued Revenue Regulations No. 17-99, dated December
last paragraph of Section 1 thereof, “(t)hat the new specific tax
16, 1999, which provides the increase on the applicable tax rates
rate for any existing brand of cigars, cigarettes packed by
on cigar and cigarettes as follows:
machine, distilled spirits, wines and fermented liquor shall
not be lower than the excise tax that is actually being paid
prior to January 1, 2000.”
SECTION DESCRIPTION OF PRESENT NEW
SPECIFIC TAX SPECIFIC For the period covering January 1-31, 2000, petitioner
ARTICLES RATE PRIOR TAX RATE allegedly paid specific taxes on all brands manufactured and
TO JAN. 1, 2000 EFFECTIVE removed in the total amounts of P585,705,250.00.
JAN. 1, 2000
On February 7, 2000, petitioner filed with respondent’s
145 (A) P1.00/cigar P1.12/cigar Appellate Division a claim for refund or tax credit of its
purportedly overpaid excise tax for the month of January 2000 in
(B)Cigarettes packed the amount of P35,651,410.00
by machine
On June 21, 2001, petitioner filed with respondent’s
(1) Net retail price Legal Service a letter dated June 20, 2001 reiterating all the
(excluding VAT and P12.00/pack P13.44/ pack claims for refund/tax credit of its overpaid excise taxes filed on
various dates, including the present claim for the month of CA G.R. SP No. 83165
January 2000 in the amount of P35,651,410.00.
The petition contains essentially similar facts, except that
As there was no action on the part of the respondent, the said case questions the CTA’s December 4, 2003 decision in
petitioner filed the instant petition for review with this Court on CTA Case No. 6612 granting respondent’s1[3] claim for refund of
December 11, 2001, in order to comply with the two-year period the amount of P355,385,920.00 representing erroneously or
for filing a claim for refund. illegally collected specific taxes covering the period January 1,
2002 to December 31, 2002, as well as its March 17, 2004
In his answer filed on January 16, 2002, respondent Resolution denying a reconsideration thereof.
raised the following Special and Affirmative Defenses;
xxxx
4. Petitioner’s alleged claim for refund is subject to
administrative routinary investigation/examination In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the
by the Bureau; Court of Tax Appeals reduced the issues to be resolved into two as
stipulated by the parties, to wit: (1) Whether or not the last paragraph
5. The amount of P35,651,410 being claimed by of Section 1 of Revenue Regulation[s] [No.] 17-99 is in accordance
petitioner as alleged overpaid excise tax for the with the pertinent provisions of Republic Act [No.] 8240, now
month of January 2000 was not properly incorporated in Section 145 of the Tax Code of 1997; and (2)
documented. Whether or not petitioner is entitled to a refund of P35,651,410.00 as
alleged overpaid excise tax for the month of January 2000.
6. In an action for tax refund, the burden of proof is
on the taxpayer to establish its right to refund, and xxxx
failure to sustain the burden is fatal to its claim for
refund/credit. Hence, the respondent CTA in its assailed October 21, 2002
[twin] Decisions[s] disposed in CTA Case Nos. 6365 & 6383:
7. Petitioner must show that it has complied with the
provisions of Section 204(C) in relation [to] WHEREFORE, in view of the foregoing, the court finds the
Section 229 of the Tax Code on the prescriptive instant petition meritorious and in accordance with law. Accordingly,
period for claiming tax refund/credit; respondent is hereby ORDERED to REFUND to petitioner the amount of
P35,651.410.00 representing erroneously paid excise taxes for the period
8. Claims for refund are construed strictly against the January 1 to January 31, 2000.
claimant for the same partake of tax exemption
from taxation; and SO ORDERED.

9. The last paragraph of Section 1 of Revenue Herein petitioner sought reconsideration of the above-quoted
Regulation[s] [No.]17-99 is a valid implementing decision. In [twin] resolution[s] [both] dated July 15, 2003, the Tax Court, in an
regulation which has the force and effect of law.” apparent change of heart, granted the petitioner’s consolidated motions for
reconsideration, thereby denying the respondent’s claim for refund.

1
The Commissioner appealed the aforesaid decisions of the CTA.
However, on consolidated motions for reconsideration filed The petition questioning the grant of refund in the amount of
by the respondent in CTA Case Nos. 6363 and 6383, the July 15,
2002 resolution was set aside, and the Tax Court ruled, this time with P680,387,025.00 was docketed as CA-G.R. SP No. 80675,
a semblance of finality, that the respondent is entitled to the refund whereas that assailing the grant of refund in the amount of
claimed. Hence, in a resolution dated November 4, 2003, the tax P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The
court reinstated its December 21, 2002 Decision and disposed as petitions were consolidated and eventually denied by the Court of
follows: Appeals. The appellate court also denied reconsideration in its
WHEREFORE, our Decisions in CTA Case Nos. Resolution3[5] dated 1 March 2005.
6365 and 6383 are hereby REINSTATED.
Accordingly, respondent is hereby ORDERED to In its Memorandum4[6] 22 dated November 2006, filed on behalf
REFUND petitioner the total amount of of the Commissioner, the Office of the Solicitor General (OSG) seeks
P680,387,025.00 representing erroneously paid
excise taxes for the period January 1, 2000 to to convince the Court that the literal interpretation given by the CTA
January 31, 2000 and February 1, 2000 to
December 31, 2001. and the Court of Appeals of Section 145 of the Tax Code of 1997
SO ORDERED. (Tax Code) would lead to a lower tax imposable on 1 January 2000

Meanwhile, on December 4, 2003, the Court of Tax Appeals than that imposable during the transition period. Instead of an
rendered decision in CTA Case No. 6612 granting the prayer for the increase of 12% in the tax rate effective on 1 January 2000 as
refund of the amount of P355,385,920.00 representing overpaid
excise tax for the period covering January 1, 2002 to December 31, allegedly mandated by the Tax Code, the appellate court’s ruling
2002. The tax court disposed of the case as follows:
would result in a significant decrease in the tax rate by as much as
IN VIEW OF THE FOREGOING, the Petition for
Review is GRANTED. Accordingly, respondent is 66%.
hereby ORDERED to REFUND to petitioner the
amount of P355,385,920.00 representing overpaid The OSG argues that Section 145 of the Tax Code admits of
excise tax for the period covering January 1, 2002 to
December 31, 2002. several interpretations, such as:
SO ORDERED.
1. That by January 1, 2000, the excise tax on cigarettes should be
Petitioner sought reconsideration of the decision, but the the higher tax imposed under the specific tax system and the tax imposed
same was denied in a Resolution dated March 17, 2004.2[4] (Emphasis
supplied) (Citations omitted)
3

2 4
under the ad valorem tax system plus the 12% increase imposed by par. 5, promulgated, enforced and implemented Revenue Regulation No. 17-
Sec. 145 of the Tax Code;
99, which effectively created a separate classification for cigarettes
2. The increase of 12% starting on January 1, 2000 does not
apply to the brands of cigarettes listed under Annex “D” referred to in based on the excise tax “actually being paid prior to January 1,
par. 8, Sec. 145 of the Tax Code;
2000.”7[9]
3. The 12% increment shall be computed based on the net retail
price as indicated in par. C, sub-par. (1)-(4), Sec. 145 of the Tax Code It should be mentioned at the outset that there is no dispute
even if the resulting figure will be lower than the amount already being
paid at the end of the transition period. This is the interpretation followed between the fact of payment of the taxes sought to be refunded and
by both the CTA and the Court of Appeals.5[7]
the receipt thereof by the Bureau of Internal Revenue (BIR). There is
also no question about the mathematical accuracy of Fortune
This being so, the interpretation which will give life to the legislative Tobacco’s claim since the documentary evidence in support of the
intent to raise revenue should govern, the OSG stresses. refund has not been controverted by the revenue agency. Likewise, the

Finally, the OSG asserts that a tax refund is in the nature of a claims have been made and the actions have been filed within the two

tax exemption and must, therefore, be construed strictly against the (2)-year prescriptive period provided under Section 229 of the Tax

taxpayer, such as Fortune Tobacco. Code.

In its Memorandum6[8] dated 10 November 2006, Fortune The power to tax is inherent in the State, such power being

Tobacco argues that the CTA and the Court of Appeals merely inherently legislative, based on the principle that taxes are a grant of

followed the letter of the law when they ruled that the basis for the the people who are taxed, and the grant must be made by the

12% increase in the tax rate should be the net retail price of the immediate representatives of the people; and where the people have

cigarettes in the market as outlined in paragraph C, sub paragraphs laid the power, there it must remain and be exercised.8[10]

(1)-(4), Section 145 of the Tax Code. The Commissioner allegedly


has gone beyond his delegated rule-making power when he
5 7

6 8
This entire controversy revolves around the interplay between (4) If the net retail price (excluding the excise tax and the
value-added tax) is below Five pesos (P5.00) per pack, the tax
Section 145 of the Tax Code and Revenue Regulation 17-99. The shall be One peso (P1.00) per pack;
main issue is an inquiry into whether the revenue regulation has Variants of existing brands of cigarettes which are
introduced in the domestic market after the effectivity of R.A. No.
exceeded the allowable limits of legislative delegation. 8240 shall be taxed under the highest classification of any variant
of that brand.
For ease of reference, Section 145 of the Tax Code is again
The excise tax from any brand of cigarettes within the next
reproduced in full as follows: three (3) years from the effectivity of R.A. No. 8240 shall not be
lower than the tax, which is due from each brand on October 1,
1996. Provided, however, That in cases where the excise tax rates
Section 145. Cigars and Cigarettes- imposed in paragraphs (1), (2), (3) and (4) hereinabove will result
in an increase in excise tax of more than seventy percent (70%),
(A) Cigars.—There shall be levied, assessed and collected for a brand of cigarette, the increase shall take effect in two
on cigars a tax of One peso (P1.00) per cigar. tranches: fifty percent (50%) of the increase shall be effective in
1997 and one hundred percent (100%) of the increase shall be
(B). Cigarettes packed by hand.—There shall be levied, effective in 1998.
assessed and collected on cigarettes packed by hand a tax of Forty
centavos (P0.40) per pack.

(C) Cigarettes packed by machine.—There shall be Duly registered or existing brands of cigarettes or new
levied, assessed and collected on cigarettes packed by machine a brands thereof packed by machine shall only be packed in
tax at the rates prescribed below: twenties.

(1) If the net retail price (excluding the excise tax and the The rates of excise tax on cigars and cigarettes under
value-added tax) is above Ten pesos (P10.00) per pack, the tax paragraphs (1), (2) (3) and (4) hereof, shall be increased by
shall be Twelve pesos (P12.00) per pack; twelve percent (12%) on January 1, 2000.

(2) If the net retail price (excluding the excise tax and the New brands shall be classified according to their current
value added tax) exceeds Six pesos and Fifty centavos (P6.50) but net retail price.
does not exceed Ten pesos (P10.00) per pack, the tax shall be
Eight Pesos (P8.00) per pack. For the above purpose, ‘net retail price’ shall mean the
price at which the cigarette is sold on retail in twenty (20) major
(3) If the net retail price (excluding the excise tax and the supermarkets in Metro Manila (for brands of cigarettes marketed
value-added tax) is Five pesos (P5.00) but does not exceed Six nationally), excluding the amount intended to cover the applicable
Pesos and fifty centavos (P6.50) per pack, the tax shall be Five excise tax and value-added tax. For brands which are marketed
pesos (P5.00) per pack; only outside Metro Manila, the ‘net retail price’ shall mean the
price at which the cigarette is sold in five (5) major intended to
cover the applicable excise tax and the value-added tax. (1) Net Retail Price
(excluding VAT and
The classification of each brand of cigarettes based on its Excise) exceeds P12.00/pack P13.44/pack
average retail price as of October 1, 1996, as set forth in Annex P10.00 per pack
“D,” shall remain in force until revised by Congress.
(2) Net Retail Price
Variant of a brand’ shall refer to a brand on which a (excluding VAT and
modifier is prefixed and/or suffixed to the root name of the brand Excise) is P6.51 up
and/or a different brand which carries the same logo or design of to P10.00 per pack P8.00/pack P8.96/pack
the existing brand.9[11](Emphasis supplied)
(3) Net Retail Price
(excluding VAT and
P5.00/pack P5.60/pack
excise) is P5.00 to
Revenue Regulation 17-99, which was issued pursuant to the P6.50 per pack
unquestioned authority of the Secretary of Finance to promulgate (4) Net Retail Price
(excluding VAT and
rules and regulations for the effective implementation of the Tax excise) is below P1.00/pack P1.12/pack
Code, 10[12]
interprets the above-quoted provision and reflects the 12% P5.00 per pack)

increase in excise taxes in the following manner:

This table reflects Section 145 of the Tax Code insofar as it


SECTION DESCRIPTION OF PRESENT NEW mandates a 12% increase effective on 1 January 2000 based on the
SPECIFIC TAX SPECIFIC
ARTICLES RATES PRIOR TAX RATE taxes indicated under paragraph C, sub-paragraph (1)-(4). However,
TO JAN. 1, 2000 Effective Jan..
1, 2000 Revenue Regulation No. 17-99 went further and added that “[T]he

145 (A) Cigars P1.00/cigar P1.12/cigar


new specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented liquor shall
(B)Cigarettes packed
by Machine
9

10
not be lower than the excise tax that is actually being paid prior to as increased by 12%—a situation not supported by the plain wording
January 1, 2000.”11[13] of Section 145 of the Tax Code.

Parenthetically, Section 145 states that during the transition This is not the first time that national revenue officials had
period, i.e., within the next three (3) years from the effectivity of the ventured in the area of unauthorized administrative legislation.
Tax Code, the excise tax from any brand of cigarettes shall not be
In Commissioner of Internal Revenue v. Reyes,12[14] respondent
lower than the tax due from each brand on 1 October 1996. This
was not informed in writing of the law and the facts on which the
qualification, however, is conspicuously absent as regards the 12%
assessment of estate taxes was made pursuant to Section 228 of the
increase which is to be applied on cigars and cigarettes packed by
1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She
machine, among others, effective on 1 January 2000. Clearly and
was merely notified of the findings by the Commissioner, who had
unmistakably, Section 145 mandates a new rate of excise tax for
simply relied upon the old provisions of the law and Revenue
cigarettes packed by machine due to the 12% increase effective on 1
Regulation No. 12-85 which was based on the old provision of the
January 2000 without regard to whether the revenue collection
law. The Court held that in case of discrepancy between the law as
starting from this period may turn out to be lower than that collected
amended and the implementing regulation based on the old law, the
prior to this date.
former necessarily prevails. The law must still be followed, even
By adding the qualification that the tax due after the 12% though the existing tax regulation at that time provided for a different
increase becomes effective shall not be lower than the tax actually procedure.13[15]
paid prior to 1 January 2000, Revenue Regulation No. 17-99
In Commissioner of Internal Revenue v. Central Luzon Drug
effectively imposes a tax which is the higher amount between the ad
Corporation,14[16] the tax authorities gave the term “tax credit” in
valorem tax being paid at the end of the three (3)-year transition
Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning utterly
period and the specific tax under paragraph C, sub-paragraph (1)-(4),
12
13

11 14
disparate from what R.A. No. 7432 provides. Their interpretation In Commissioner of Internal Revenue v. Michel J. Lhuillier
muddled up the intent of Congress to grant a mere discount privilege Pawnshop, Inc.,16[18] Commissioner Jose Ong issued Revenue
and not a sales discount. The Court, striking down the revenue Memorandum Order (RMO) No. 15-91, as well as the clarificatory
regulation, held that an administrative agency issuing regulations may Revenue Memorandum Circular (RMC) 43-91, imposing a 5%
not enlarge, alter or restrict the provisions of the law it administers, lending investor’s tax under the 1977 Tax Code, as amended by
and it cannot engraft additional requirements not contemplated by the Executive Order (E.O.) No. 273, on pawnshops. The Commissioner
legislature. The Court emphasized that tax administrators are not anchored the imposition on the definition of lending investors
allowed to expand or contract the legislative mandate and that the provided in the 1977 Tax Code which, according to him, was broad
“plain meaning rule” or verba legis in statutory construction should be enough to include pawnshop operators. However, the Court noted
applied such that where the words of a statute are clear, plain and free that pawnshops and lending investors were subjected to different tax
from ambiguity, it must be given its literal meaning and applied treatments under the Tax Code prior to its amendment by the
without attempted interpretation. executive order; that Congress never intended to treat pawnshops in
the same way as lending investors; and that the particularly involved
As we have previously declared, rule-making power must be
section of the Tax Code explicitly subjected lending investors and
confined to details for regulating the mode or proceedings in order to
dealers in securities only to percentage tax. And so the Court affirmed
carry into effect the law as it has been enacted, and it cannot be
the invalidity of the challenged circulars, stressing that
extended to amend or expand the statutory requirements or to embrace
“administrative issuances must not override, supplant or modify the
matters not covered by the statute. Administrative regulations must
law, but must remain consistent with the law they intend to carry
always be in harmony with the provisions of the law because any
out.”17[19]
resulting discrepancy between the two will always be resolved in
favor of the basic law.15[17]

16

15 17
In Philippine Bank of Communications v. Commissioner of order on 22 August 1986 and not assessments made to that date.
Internal Revenue,18[20] the then acting Commissioner issued RMC 7- Resolving the issue in the negative, the Court held:
85, changing the prescriptive period of two years to ten years for
x x x all such issuances must not override, but must remain
claims of excess quarterly income tax payments, thereby creating a consistent and in harmony with, the law they seek to apply and
implement. Administrative rules and regulations are intended to
clear inconsistency with the provision of Section 230 of the 1977 Tax
carry out, neither to supplant nor to modify, the law.21[23]
Code. The Court nullified the circular, ruling that the BIR did not
xxx
simply interpret the law; rather it legislated guidelines contrary to the
If, as the Commissioner argues, Executive Order No. 41
statute passed by Congress. The Court held: had not been intended to include 1981-1985 tax liabilities already
assessed (administratively) prior to 22 August 1986, the law could
It bears repeating that Revenue memorandum-circulars are have simply so provided in its exclusionary clauses. It did not. The
considered administrative rulings (in the sense of more specific conclusion is unavoidable, and it is that the executive order has
and less general interpretations of tax laws) which are issued from been designed to be in the nature of a general grant of tax amnesty
time to time by the Commissioner of Internal Revenue. It is subject only to the cases specifically excepted by it.22[24]
widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great
respect by the courts. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. In the case at bar, the OSG’s argument that by 1 January 2000,
Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with, the the excise tax on cigarettes should be the higher tax imposed under the
law they seek to apply and implement.19[21] specific tax system and the tax imposed under the ad valorem tax
system plus the 12% increase imposed by paragraph 5, Section 145 of
20[22]
In Commissioner of Internal Revenue v. CA, et al., the
the Tax Code, is an unsuccessful attempt to justify what is clearly an
central issue was the validity of RMO 4-87 which had construed the
impermissible incursion into the limits of administrative legislation.
amnesty coverage under E.O. No. 41 (1986) to include only
Such an interpretation is not supported by the clear language of the
assessments issued by the BIR after the promulgation of the executive
law and is obviously only meant to validate the OSG’s thesis that
18
19 21

20 22
Section 145 of the Tax Code is ambiguous and admits of several record,23[25] the shift from the ad valorem system to the specific tax
interpretations. system is likewise meant to promote fair competition among the
players in the industries concerned, to ensure an equitable
The contention that the increase of 12% starting on 1 January
distribution of the tax burden and to simplify tax administration by
2000 does not apply to the brands of cigarettes listed under Annex
classifying cigarettes, among others, into high, medium and low-
“D” is likewise unmeritorious, absurd even. Paragraph 8, Section
priced based on their net retail price and accordingly graduating tax
145 of the Tax Code simply states that, “[T]he classification of each
rates.
brand of cigarettes based on its average net retail price as of October
1, 1996, as set forth in Annex ‘D’, shall remain in force until revised At any rate, this advertence to the legislative record is merely
by Congress.” This declaration certainly does not lend itself to the gratuitous because, as we have held, the meaning of the law is clear
interpretation given to it by the OSG. As plainly worded, the average on its face and free from the ambiguities that the Commissioner
net retail prices of the listed brands under Annex “D,” which classify imputes. We simply cannot disregard the letter of the law on the
cigarettes according to their net retail price into low, medium or high, pretext of pursuing its spirit.24[26]
obviously remain the bases for the application of the increase in
excise tax rates effective on 1 January 2000. Finally, the Commissioner’s contention that a tax refund
partakes the nature of a tax exemption does not apply to the tax refund
The foregoing leads us to conclude that Revenue Regulation
to which Fortune Tobacco is entitled. There is parity between tax
No. 17-99 is indeed indefensibly flawed. The Commissioner cannot
refund and tax exemption only when the former is based either on a
seek refuge in his claim that the purpose behind the passage of the
tax exemption statute or a tax refund statute. Obviously, that is not
Tax Code is to generate additional revenues for the government.
the situation here. Quite the contrary, Fortune Tobaccos claim for
Revenue generation has undoubtedly been a major consideration in
the passage of the Tax Code. However, as borne by the legislative
23

24
refund is premised on its erroneous payment of the tax, or better still Tax refunds (or tax credits), on the other hand, are not founded
the government’s exaction in the absence of a law. principally on legislative grace but on the legal principle which
underlies all quasi-contracts abhorring a person’s unjust enrichment at
Tax exemption is a result of legislative grace. And he who the expense of another.28[30] The dynamic of erroneous payment of tax
claims an exemption from the burden of taxation must justify his fits to a tee the prototypic quasi-contract, solutio indebiti, which
claim by showing that the legislature intended to exempt him by covers not only mistake in fact but also mistake in law.29[31]
words too plain to be mistaken.25[27] The rule is that tax exemptions The Government is not exempt from the application of solutio
must be strictly construed such that the exemption will not be held to indebiti.30[32] Indeed, the taxpayer expects fair dealing from the
be conferred unless the terms under which it is granted clearly and Government, and the latter has the duty to refund without any
distinctly show that such was the intention.26[28] unreasonable delay what it has erroneously collected.31[33] If the State
expects its taxpayers to observe fairness and honesty in paying their
A claim for tax refund may be based on statutes granting tax taxes, it must hold itself against the same standard in refunding excess
exemption or tax refund. In such case, the rule of strict interpretation (or erroneous) payments of such taxes. It should not unjustly enrich
against the taxpayer is applicable as the claim for refund partakes of itself at the expense of taxpayers.32[34] And so, given its essence, a
the nature of an exemption, a legislative grace, which cannot be claim for tax refund necessitates only preponderance of evidence for
allowed unless granted in the most explicit and categorical language. its approbation like in any other ordinary civil case.
The taxpayer must show that the legislature intended to exempt him
Under the Tax Code itself, apparently in recognition of the
from the tax by words too plain to be mistaken.27[29]
pervasive quasi-contract principle, a claim for tax refund may be

28

29
25 30
26 31

27 32
based on the following: (a) erroneously or illegally assessed or not be unduly exacted nor assumed beyond the plain meaning of the
collected internal revenue taxes; (b) penalties imposed without tax laws.35[37]
authority; and (c) any sum alleged to have been excessive or in any
WHEREFORE, the petition is DENIED. The Decision of the
manner wrongfully collected.33[35]
Court of Appeals in CA G.R. SP No. 80675, dated 28 September
2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No
What is controlling in this case is the well-settled doctrine of
pronouncement as to costs.
strict interpretation in the imposition of taxes, not the similar doctrine
as applied to tax exemptions. The rule in the interpretation of tax laws SO ORDERED.
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.34[36] As burdens, taxes should

FIRST DIVISION

33

34 35
G.R. No. 170574 January 30, 2009 a. They are both evidenced by a passbook;

PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS b. The depositors can make deposits or withdrawals anytime which
BANK, INC.), Petitioner, are not subject to penalty; and
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent. c. Both can have an Automatic Transfer Agreement (ATA) with
the depositor’s current or checking account.6
DECISION
Petitioner alleges that the only difference between the regular savings account and
CARPIO, J.: the SSDA is that the SSDA is for depositors who maintain savings deposits with a
substantial average daily balance, and as an incentive, they are given higher
The Case interest rates than regular savings accounts. These deposits are classified
separately in petitioner’s financial statements in order to maintain a separate
The Philippine Banking Corporation, now, Global Business Bank, Inc., record for savings deposits with substantial balances entitled to higher interest
(petitioner) filed this Petition for Review1 to reverse the Court of Tax Appeals’ rates.7
Decision2 dated 23 November 2005 in CTA EB No. 63 (C.T.A. Case No. 6395).
In the assailed decision, the Court of Tax Appeals En Banc ordered petitioner to Petitioner maintains that the tax assessments are erroneous because Section 180 of
pay P17,595,488.75 and P47,767,756.24 as deficiency documentary stamp taxes the 1977 NIRC does not include deposits evidenced by a passbook among the
for the taxable years 1996 and 1997, respectively, on its bank product called enumeration of instruments subject to DST. Petitioner asserts that the language of
"Special/Super Savings Deposit Account" (SSDA). the law is clear and requires no interpretation.8 Section 180 of the 1977 NIRC, as
amended,9 provides:
The Facts
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of
3
Petitioner is a domestic corporation duly licensed as a banking institution. For the exchange, drafts, instruments and securities issued by the government or any
taxable years 1996 and 1997, petitioner offered its SSDA to its depositors. The of its instrumentalities, certificates of deposit bearing interest and others not
SSDA is a form of a savings deposit evidenced by a passbook and earning a payable on sight or demand. — On all loan agreements signed abroad wherein
higher interest rate than a regular savings account. Petitioner believes that the the object of the contract is located or used in the Philippines; bills of exchange
SSDA is not subject to Documentary Stamp Tax (DST) under Section 180 of the (between points within the Philippines), drafts, instruments and securities issued
1977 National Internal Revenue Code (NIRC), as amended.4 by the Government or any of its instrumentalities or certificates of deposits
drawing interest, or orders for the payment of any sum of money otherwise than
On 10 January 2000, the Commissioner of Internal Revenue (respondent) sent at the sight or on demand, or on all promissory notes, whether negotiable or non-
petitioner a Final Assessment Notice assessing deficiency DST based on the negotiable, except bank notes issued for circulation, and on each renewal of any
outstanding balances of its SSDA, including increments, in the total sum of such note, there shall be collected a documentary stamp tax of Thirty centavos
P17,595,488.75 for 1996 and P47,767,756.24 for 1997. These assessments were (P0.30) on each Two hundred pesos, or fractional part thereof, of the face value of
based on the outstanding balances of the SSDA appearing in the schedule attached any such agreement, bill of exchange, draft, certificate of deposit, or note:
to petitioner’s audited financial statements for the taxable years 1996 and 1997.5 provided, that only one documentary stamp tax shall be imposed on either loan
agreement, or promissory note issued to secure such loan, whichever will yield a
Petitioner claims that the SSDA is in the nature of a regular savings account since higher tax: provided, however, that loan agreements or promissory notes the
both types of accounts have the following common features: aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000)
executed by an individual for his purchase on installment for his personal use or
Time Deposits SSDA
that of his family and not for business, resale, barter or hire of a house, lot, motor
vehicle, appliance or furniture shall be exempt from the payment of the
documentary stamp tax provided under this section. (Boldfacing supplied) 1. The holding period is fixed beforehand. 1. The holding period floats at the option of
the depositor. It can be 30, 60, 90 or 120
Petitioner insists that the SSDA, being issued in the form of a passbook, cannot be days or more and as an incentive for
construed as a certificate of deposit subject to DST under Section 180 of the 1977 maintaining a longer holding period, the
NIRC. Petitioner explains that the SSDA is a necessary offshoot of the depositor earns higher interest.
deregulated interest rate regime in bank deposits.10 Petitioner elucidates:
2. There is pre-termination because there is 2. No pre-termination and the passbook
With the removal of the respective interest rate ceilings on savings and time no partial withdrawal of a certificate. Pre- account is simply reverted to an ordinary
deposit, banks are enabled to legitimately offer higher rates on savings account termination results in the surrender and savings status in case of early or partial
which may even be at par with rates on time deposit. Practically, the distinction cancellation of the certificate of deposit. withdrawal or if the required holding
between a savings and a time deposit was removed insofar as interest rates are period is not met.
concerned. This being so, and for the legitimate purpose of further enticing
deposits for savings account, banks have evolved a product – the Super/Special Petitioner also argues that even on the assumption that a passbook evidencing the
Savings Account – which offers the flexibility of a savings deposit but does away SSDA is a certificate of deposit, no DST will be imposed because only negotiable
with the rigidity of a time deposit account and with interest rate at par with the certificates of deposits are subject to tax under Section 180 of the 1977 NIRC.13
latter. This is offered as an incentive for depositors who maintain or who wish to Petitioner reasons that a savings passbook is not a negotiable instrument and it
maintain deposits with substantial average daily balance. Such depositors will be cannot be denied that savings passbooks have never been taxed as certificates of
entitled to an attractive interest rate, a rate higher than that to which the regular deposits.14
savings account is entitled. Just like an ordinary savings, Super/Special Savings
Deposits can be withdrawn anytime. Of course, to be entitled to preferential Petitioner alleges that prior to the passage of Republic Act No. 924315 (RA 9243),
interest rate, such account must conform to a stated minimum deposit balance there was no law subjecting SSDA to DST during the taxable years 1996 and
within a specified holding period. Otherwise, the depositor will lose the incentive 1997. The amendatory provision in RA 9243 now specifically includes
of a higher interest rate and the account will revert to an ordinary savings account "certificates or other evidences of deposits that are either drawing interest
and be entitled only to prevailing rates of interest applicable to regular savings significantly higher than the regular savings deposit taking into consideration the
account. And unlike a time deposit account, the Super/Special Savings Account size of the deposit and the risks involved or drawing interest and having a specific
comes in the form of a passbook, hence need not be formally renewed in the maturity date."16 Petitioner admits that with this new taxing clause, its SSDA is
manner that a time deposit certificate has to be formally surrendered and renewed now subject to DST. However, the fact remains that this provision was non-
upon maturity.11 existent during the taxable years 1996 and 1997 subject of the assessments in the
present case.17
Petitioner argues that the DST is imposed on the basis of a mere inference or
perceived implication of what the SSDA is supposed to be and not on the basis of Respondent, through the Office of the Solicitor General, contends that the SSDA
what the law specifically states. Petitioner points out the differences between the is substantially the same and identical to that of a time deposit account because in
SSDA and time deposits:12 order to avail of the SSDA, one has to deposit a minimum of P50,000 and this
amount must be maintained for a required period of time to earn higher interest
rates.18 In a time deposit account, the minimum deposit requirement is P20,000
and this amount must be maintained for the agreed period to earn the agreed bank or banker of the receipt of a sum of money on deposit which the bank or
interest rate. If a time deposit is pre-terminated, a penalty will be imposed banker promises to pay to the depositor, to the order of the depositor, or some
resulting in a lower interest income. In a regular savings account, the interest rate other person or his order, whereby the relation of debtor and creditor between the
is fixed and there is no penalty imposed for as long as the required minimum bank and the depositor is created."26
balance is maintained. Thus, respondent asserts that the SSDA is a time deposit
account, albeit in the guise of a regular savings account evidenced by a The CTA pointed out that this Court neither referred to a particular form of
passbook.19 deposit nor limited the coverage to time deposits only. This Court used the term
"written acknowledgment" which means that for as long as there is some written
Respondent explains that under Section 180 of the 1977 NIRC, certificates of memorandum of the fact that the bank accepted a deposit of a sum of money from
deposits deriving interest are subject to the payment of DST. Petitioner’s a depositor, the writing constitutes a certificate of deposit. The CTA held that a
passbook evidencing its SSDA is considered a certificate of deposit, and being passbook representing an interest-earning deposit account issued by a bank
very similar to a time deposit account, it should be subject to the payment of qualifies as a certificate of deposit drawing interest.27
DST.20
The CTA emphasized that Section 180 of the 1977 NIRC imposes DST on
Respondent also argues that Section 180 of the 1977 NIRC categorically states documents, whether the documents are negotiable or non-negotiable.28 The CTA
that certificates of deposit deriving interest are subject to DST without limiting held that petitioner’s argument that Section 180 of the 1977 NIRC imposes the
the enumeration to negotiable certificates of deposit. Based on the definition of a DST only on negotiable certificates of deposit as implied from the old tax
certificate of deposit in Far East Bank and Trust Company v. Querimit,21 a provision is erroneous.29 Section 217 of Commonwealth Act No. 466, as amended
certificate of deposit may or may not be negotiable, since it may be payable only (old NIRC) reads:
to the depositor.22
Sec. 217. Stamp tax on negotiable promissory notes, bills of exchange, drafts,
The Ruling of the Court of Tax Appeals certificate of deposit bearing interest and others not payable on sight or
demand. - On all bills of exchange (between points within the Philippines), drafts
On 23 November 2005, the Court of Tax Appeals En Banc (CTA) affirmed the or certificates of deposit drawing interest, or orders for the payment of any sum of
Decision and Resolution of the CTA’s Second Division. The dispositive portion money otherwise than at sight or on demand, or all negotiable promissory notes,
reads: except bank notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of four centavos on each two
WHEREFORE, the instant petition is DENIED for lack of merit. Accordingly, hundred pesos, or fractional part thereof, of the face value of any such bill of
the petitioner is hereby ORDERED to PAY the amounts of P17,595,488.75 and exchange, draft, certificate of deposit, or note. (As amended by Sec. 6, Republic
P47,767,756.24 as deficiency documentary stamp taxes for the taxable years 1996 Act No. 40)30 (Emphasis in the original)
and 1997, plus 25% surcharge for late payment and 20% annual delinquency
interest for late payment from January 20, 2002 until fully paid pursuant to The CTA observed that the requirement of negotiability pertains to promissory
Sections 248 and 249 of the Tax Code.23 notes only. Such intention is disclosed by the fact that the word negotiable was
written before promissory notes followed by a comma, hence, the word
The CTA ruled that a deposit account with the same features as a time deposit, negotiable modifies promissory notes only. Therefore, with respect to all other
i.e., a fixed term in order to earn a higher interest rate, is subject to DST imposed documents mentioned in Section 217 of the old NIRC, the attribute of
in Section 180 of the 1977 NIRC.24 It is clear that "certificates of deposit drawing negotiability is not required.31 The CTA added that the applicable provision is
interest" are subject to DST. The CTA, citing Far East Bank and Trust Company Section 180 of the 1977 NIRC and not Section 217 of the old NIRC.32 Section 180
v. Querimit,25 defined a certificate of deposit as "a written acknowledgment by a of the 1977 NIRC provides that the following are subject to DST, to wit: (1) Loan
Agreements; (2) Bills of Exchange; (3) Drafts; (4) Instruments and Securities then the SSDAs are subject to DST. If not, then they are merely regular savings
issued by the Government or any of its instrumentalities; (5) Certificates of account which concededly are not subject to DST. So what are "certificates of
Deposits drawing interest; (6) Orders for the payment of any sum of money deposits drawing interest," and how do they differ from a regular savings
otherwise than at sight or on demand; and (7) Promissory Notes, whether account?
negotiable or non-negotiable. Therefore, the DST is imposed on all certificates of
deposit drawing interest without any qualification.33 Section 180 of the 1977 NIRC, as amended, provides:

The CTA held that a certificate of time deposit, a type of a certificate of deposit Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of
drawing interest, is subject to DST. The CTA observed that the SSDA has the exchange, drafts, instruments and securities issued by the government or any
same nature and characteristics as a time deposit.34 The CTA discussed the of its instrumentalities, certificates of deposit bearing interest and others not
similarities of a time deposit account with an SSDA: payable on sight or demand. — On all loan agreements signed abroad wherein
the object of the contract is located or used in the Philippines; bills of exchange
In order for the depositor to earn the agreed higher interest rate in a Special/Super (between points within the Philippines), drafts, instruments and securities issued
Savings Account, the required minimum amount of deposit must not only be met by the Government or any of its instrumentalities or certificates of deposits
but should also be maintained for a definite period. Thus, the Special/Super drawing interest, or orders for the payment of any sum of money otherwise than
Savings Account is a deposit with a fixed term. Withdrawal before the expiration at the sight or on demand, or on all promissory notes, whether negotiable or non-
of said fixed term results to the reduction of the interest rate. The fixed term and negotiable, except bank notes issued for circulation, and on each renewal of any
reduction of interest rate in case of pre-termination are essentially the features of a such note, there shall be collected a documentary stamp tax of Thirty centavos
time deposit. Hence, this Court concurs with the conclusion reached in the (P0.30) on each Two hundred pesos, or fractional part thereof, of the face value of
assailed Decision that petitioner’s Special/Super Savings Deposits and certificates any such agreement, bill of exchange, draft, certificate of deposit, or note:
of time deposit are substantially the same, if not one and the same product, and provided, that only one documentary stamp tax shall be imposed on either loan
therefore both are subject to the DST on certificates of deposit.35 agreement, or promissory note issued to secure such loan, whichever will yield a
higher tax: provided, however, that loan agreements or promissory notes the
The CTA stated that the fact that the SSDA is evidenced by a passbook is aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000)
immaterial because in determining whether certain instruments are subject to executed by an individual for his purchase on installment for his personal use or
DST, substance would control over form and labels.36 that of his family and not for business, resale, barter or hire of a house, lot, motor
vehicle, appliance or furniture shall be exempt from the payment of the
On 14 December 2005, petitioner appealed to this Court the CTA decision.37 documentary stamp tax provided under this section. lavvphil.zw+(Boldfacing and
underscoring supplied)
The Issue
In Far East Bank and Trust Company v. Querimit,39 the Court defined a certificate
Petitioner submits this sole issue for our consideration: whether petitioner’s of deposit as "a written acknowledgment by a bank or banker of the receipt of a
product called Special/Super Savings Account is subject to DST under Section sum of money on deposit which the bank or banker promises to pay to the
180 of the 1977 NIRC prior to the passage of RA 9243 in 2004.38 depositor, to the order of the depositor, or to some other person or his order,
whereby the relation of debtor and creditor between the bank and the depositor is
The Ruling of the Court created." A certificate of deposit is also defined as "a receipt issued by a bank for
an interest-bearing time deposit coming due at a specified future date."40
The issue in the present case is whether petitioner’s SSDAs are "certificates of
deposits drawing interest" as used in Section 180 of the 1977 NIRC. If they are,
The deposit operations of a bank as listed in the Bangko Sentral ng Pilipinas
Holding Period None Yes Yes
Manual of Regulations for Banks41 consist of the following:
Withdrawal Allowed Withdrawal amounts Allowed provided the
1. Demand Deposits – are deposits, subject to withdrawal either by to pre-termination minimum amount to
check or thru the automated tellering machines which are earn the higher
otherwise known as current or checking accounts. The Bank may interest rate is
or may not pay interest on these accounts.42 maintained,
otherwise, the regular
2. Savings Deposits – are interest-bearing deposits which are savings interest rate
withdrawable either upon presentation of a properly accomplished will apply.
withdrawal slip together with the corresponding passbook or thru
the automated tellering machines.43
Based on the definition and comparison, it is clear that a certificate of deposit
3. Negotiable Order of Withdrawal Accounts – are interest-bearing drawing interest as used in Section 180 of the 1977 NIRC refers to a time deposit
savings deposit which are withdrawable by means of Negotiable account. As the Bureau of Internal Revenue (BIR) explained in Revenue
Orders of Withdrawal.44 Memorandum Circular No. 16-2003,46 the distinct features of a certificate of
deposit from a technical point of view are as follows:
4. Time Deposits – are interest-bearing deposits with specific
maturity dates and evidenced by certificates issued by the bank.45 a. Minimum deposit requirement;

Petitioner treats the SSDA as a regular savings deposit account since it is b. Stated maturity period;
evidenced by a passbook and allows withdrawal. Respondent treats the SSDA as a
time deposit account because of the higher interest rates and holding period. It is c. Interest rate is higher than the ordinary savings account;
then significant to differentiate a regular savings deposit and a time deposit vis-à-
vis the SSDA to determine if the SSDA is a certificate of deposit drawing interest d. Not payable on sight or demand, but upon maturity or in case of
referred to in Section 180 of the 1977 NIRC. A comparison of a savings account, pre-termination, prior notice is required; and
time deposit account, and SSDA is shown in the table below:
e. Early withdrawal penalty in the form of partial loss or total loss
of interest in case of pre-termination.
Savings Account Time Deposit SSDA
The SSDA is for depositors who maintain savings deposits with substantial
Interest rate Regular savings interest Higher interest rate Higher interest rate
average daily balance and which earn higher interest rates. The holding period of
Period None Fixed Term Fixed Term an SSDA floats at the option of the depositor at 30, 60, 90, 120 days or more and
for maintaining a longer holding period, the depositor earns higher interest rates.
Evidenced by: Passbook Certificate of Time Passbook There is no pre-termination of accounts in an SSDA because the account is simply
Deposit reverted to an ordinary savings status in case of early or partial withdrawal or if
the required holding period is not met. Based on the foregoing, the SSDA has all
Pre-termination None With penalty With penalty of the distinct features of a certificate of deposit.
Petitioner argues that a deposit account evidenced by a passbook cannot be MR. ANDAYA. Yeah, but I guess concerning the constraint of government
construed as a certificate of deposit subject to DST under Section 180 of the 1977 revenue, even the industry itself right now is not pushing in that direction, but in
NIRC. In International Exchange Bank v. Commissioner of Internal Revenue,47 the long term, when most of us in this room are gone, we hope that DST will
this Court categorically ruled that a passbook representing an interest earning disappear from the face of this earth, no.
deposit account issued by a bank qualifies as a certificate of deposit drawing
interest and should be subject to DST. The Court added that "a document to be Now, I think the move of the DOF to expand the coverage of or to add that
deemed a certificate of deposit requires no specific form as long as there is some phrase, "Other evidence of indebtedness," it just removed ambiguity. When we
written memorandum that the bank accepted a deposit of a sum of money from a testified earlier in the House on this very same bill, we did not interpose any
depositor."48 objections if only for the sake of avoiding further ambiguity in the
implementation of DST on deposits. Because of what has happened so far is, we
Petitioner also argues that prior to the passage of RA 9243, there was no law don't know whether the examiner is gonna come in and say, "This savings deposit
subjecting SSDA to DST. In International Exchange Bank v. Commissioner of is not savings but it’s time deposit." So, I think what DOF has done is to eliminate
Internal Revenue,49 the Court held that the amendment to include "other evidences any confusion. They said that a deposit that has a maturity...
of deposits that are drawing interest significantly higher than the regular savings
deposit" was intended to eliminate the ambiguity. The Court explained: THE CHAIRMAN. Uh-huh.

If at all, the further amendment was intended to eliminate precisely the scheme MR. ANDAYA. ...which is time, in effect, regardless of what form it takes should
used by banks of issuing passbooks to "cloak" its time deposits as regular savings be subject to DST.
deposits. This is reflected from the following exchanges between Mr. Miguel
Andaya of the Bankers Association of the Philippines and Senator Ralph Recto, THE CHAIRMAN. Would you include savings deposit now?
Senate Chairman of the Committee on Ways and Means, during the deliberations
on Senate Bill No. 2518 which eventually became RA 9243: MR. ANDAYA. So that if we cloaked a deposit as savings deposit but it has got a
fixed maturity...
MR. MIGUEL ANDAYA (Bankers Association of the Philippines). Just to
clarify. Savings deposit at the present is not subject to DST. THE CHAIRMAN. Uh-huh.

THE CHAIRMAN. That’s right. MR. ANDAYA. ..that would fall under the purview. (Italics in the original)

MR. ANDAYA. Time deposit is subject. I agree with you in principle that if we DST is imposed on Certificates of Deposits Bearing Interest
are going to encourage deposits, whether savings or time... including a special savings account evidenced by a passbook.

THE CHAIRMAN. Uh-huh. Documentary stamp tax is a tax on documents, instruments, loan agreements, and
papers evidencing the acceptance, assignment, sale or transfer of an obligation,
MR. ANDAYA. ...it’s questionable whether we should tax it with DST at all, right or property incident thereto. A DST is actually an excise tax because it is
even the question of imposing final withholding tax has been raised as an issue. imposed on the transaction rather than on the document.50 A DST is also levied on
the exercise by persons of certain privileges conferred by law for the creation,
THE CHAIRMAN. If I had it my way, I'll cut it by half. revision, or termination of specific legal relationships through the execution of
specific instruments.51 Hence, in imposing the DST, the Court considers not only
the document but also the nature and character of the transaction.
Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the face Moreover, a certificate of deposit may be payable to the depositor, to the order of
value of any certificate of deposit drawing interest. As correctly observed by the the depositor, or to some other person or his order. From the use of the
CTA, a certificate of deposit is a written acknowledgment by a bank of the receipt conjunction or, instead of and, the negotiable character of a certificate of deposit
of a sum of money on deposit which the bank promises to pay to the depositor, to is immaterial in determining the imposition of DST.55
the order of the depositor, or to some other person or his order, whereby the
relation of debtor or creditor between the bank and the depositor is created.52 In Banco de Oro Universal Bank v. Commissioner of Internal Revenue,56 this
Court upheld the CTA’s decision and ruled:
Petitioner’s SSDA has the following features:
The CTA en banc likewise declared that in practice, a time deposit transaction is
1. Although the money placed in the SSDA can be withdrawn covered by a certificate of deposit while petitioner's Investment Savings Account
anytime, the money is subject to a holding period in order to earn a (ISA) transaction is through a passbook. Despite the differences in the form of
higher interest rate. Otherwise, in case of premature withdrawal, any documents, the CTA en banc ruled that a time deposit and ISA have
the depositor will not earn the preferred interest ranging from 8% essentially the same attributes and features. It explained that like time deposit,
or higher but only the normal interest rate on regular savings ISA transactions bear a fixed term or maturity because the bank acknowledges
deposit. receipt of a sum of money on deposit which the bank promises to pay the
depositor, bearer or to the order of a bearer on a specified period of time. Section
2. In order to qualify for an SSDA, the depositor must place a 180 of the 1997 NIRC does not prescribed the form of a certificate of deposit. It
substantial amount of money of not less than P50,000. This amount may be any 'written acknowledgment by a bank of the receipt of money on
is even larger than what is needed to open a time deposit which is deposit.' The definition of a certificate of deposit is all encompassing to
P20,000. Aside from the substantial amount of money required, include a savings account deposit such as ISA. (Emphasis supplied)
this amount must be maintained within a certain period just like a
time deposit. Availment of the Tax Amnesty Program

3. On the issue of penalty, in an SSDA, if the depositor withdraws On 24 May 2007, during the pendency of this case before this Court, Republic
the money and the balance falls below the "minimum balance" of Act No. 9480 or "An Act Enhancing Revenue Administration and Collection by
P50,000, the interest is reduced. This condition is identical to that Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the
imposed on a time deposit that is withdrawn before maturity. 53 National Government for Taxable Year 2005 and Prior Years" (RA 9480), lapsed
into law.
Based on these features, it is clear that the SSDA is a certificate of deposit
drawing interest subject to DST even if it is evidenced by a passbook and non- The pertinent provisions of RA 9480 are:
negotiable in character. In International Exchange Bank v. Commissioner of
Internal Revenue,54 we held that: Section 1. Coverage. There is hereby authorized and granted a tax amnesty which
shall cover all national internal revenue taxes for the taxable year 2005 and
A document to be deemed a certificate of deposit requires no specific form as prior years, with or without assessments duly issued therefor, that have remained
long as there is some written memorandum that the bank accepted a deposit of a unpaid as of December 31, 2005: Provided, however, That the amnesty hereby
sum of money from a depositor. What is important and controlling is the nature or authorized and granted shall not cover persons or cases enumerated under Section
meaning conveyed by the passbook and not the particular label or nomenclature 8 hereof.
attached to it, inasmuch as substance, not form, is paramount.lavvph!l.net
xxx
Sec. 6. Immunities and Privileges. Those who availed themselves of the tax The Department of Finance (DOF) issued DOF Department Order No. 29-07 (DO
amnesty under Section 5 hereof, and have fully complied with all its conditions 29-07).57 Section 6 of DO 29-07 provides:
shall be entitled to the following immunities and privileges:
SEC. 6. Method of Availment of Tax Amnesty. -
1. The taxpayer shall be immune from the payment of taxes, as well as
addition thereto, and the appurtenant civil, criminal or administrative 1. Forms/Documents to be filed. - To avail of the general tax amnesty, concerned
penalties under the National Internal Revenue Code of 1997, as amended, taxpayers shall file the following documents/requirements:
arising from the failure to pay any and all internal revenue taxes for taxable
year 2005 and prior years. a. Notice of Availment in such form as may be prescribed by the
BIR;
xxx
b. Statements of Assets, Liabilities and Networth (SALN) as of
Sec. 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend December 31, 2005 in such form, as may be prescribed by the BIR;
to the following persons or cases existing as of the effectivity of this Act:
c. Tax Amnesty Return in such form as may be prescribed by the
1. Withholding agents with respect to their withholding tax BIR.
liabilities;
xxx
2. Those with pending cases falling under the jurisdiction of the
Presidential Commission on Good Government; 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
3. Those with pending cases involving unexplained or unlawfully after complete payment. The completion of these requirements shall be
acquired wealth or under the Anti-Graft and Corrupt Practices Act; deemed full compliance with the provisions of RA 9480. (Emphasis supplied)

4. Those with pending cases filed in court involving violation of The BIR issued Revenue Memorandum Circular No. 19-2008 (RMC 19-2008).58
the Anti-Money Laundering Law; The pertinent provisions are:

5. Those with pending criminal cases for tax evasion and other Who may avail of the amnesty?
criminal offenses under Chapter II of Title X of the National
Internal Revenue Code of 1997, as amended, and the felonies of The following taxpayers may avail of the Tax Amnesty Program:
frauds, illegal exactions and transactions, and malversation of
public funds and property under Chapters III and IV of Title VII of P Individuals
the Revised Penal Code; and
P Estates and Trusts
6. Tax cases subject of final and executory judgment by the
courts. (Emphasis supplied) P Corporations
P Cooperatives and tax-exempt entities that have become taxable as of December Q-32 May surviving or new corporations avail of the tax amnesty in behalf of
31, 2005 the corporations absorbed or dissolved pursuant to a merger or consolidation
that took effect prior to Taxable Year 2005? Can they avail of the Tax Amnesty?
P Other juridical entities including partnerships.
A-32 Yes, these companies can avail of the tax amnesty for purposes of obtaining
Ø Fiscal year taxpayers may likewise avail of the tax amnesty using their tax clearances for the dissolved or absorbed corporations. (Emphasis supplied)
Financial Statement ending in any month of 2005.
On 21 September 2007, Metropolitan Bank and Trust Company (Metrobank), the
EXCEPT: surviving entity that absorbed petitioner’s banking business, filed a Tax Amnesty
Return,60 paid the amnesty tax and fully complied with all the requirements61 of
Q Withholding agents with respect to their withholding tax liabilities the Tax Amnesty Program under RA 9480. Petitioner alleges that by virtue of this
availment, petitioner is now deemed "immune from the payment of taxes as well
Q Those with pending cases: as additions thereto," and is statutorily discharged from paying all internal
revenue tax liabilities for the taxable year 2005 and prior years. Petitioner
Q Under the jurisdiction of the PCGG contends that the availment includes all deficiency tax assessments of the BIR
subject of this petition.
Q Involving violations of the Anti-Graft and Corrupt Practices Act
A tax amnesty is a general pardon or the intentional overlooking by the State of
Q Involving violations of the Anti-Money Laundering Law its authority to impose penalties on persons otherwise guilty of violation of a tax
law. It partakes of an absolute waiver by the government of its right to collect
Q For tax evasion and other criminal offenses under the NIRC and/or the RPC what is due it and to give tax evaders who wish to relent a chance to start with a
clean slate. A tax amnesty, much like a tax exemption, is never favored nor
Q Issues and cases which were ruled by any court (even without finality) in presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be
favor of the BIR prior to amnesty availment of the taxpayer. (e.g. Taxpayers construed strictly against the taxpayer and liberally in favor of the taxing
who have failed to observe or follow BOI and/or PEZA rules on entitlement to authority.62
Income Tax Holiday Incentives and other incentives)
The DST is one of the taxes covered by the Tax Amnesty Program under RA
Q Cases involving issues ruled with finality by the Supreme Court prior to 9480.63 As discussed above, petitioner is clearly liable to pay the DST on its
the effectivity of RA 9480 (e.g. DST on Special Savings Account) SSDA for the years 1996 and 1997. However, petitioner, as the absorbed
corporation, can avail of the tax amnesty benefits granted to Metrobank.
Q Taxes passed on and collected from customers for remittance to the BIR
Records show that Metrobank, a qualified tax amnesty applicant,64 has duly
Q Delinquent Accounts/Accounts Receivable considered as assets of the complied with the requirements enumerated in RA 9480, as implemented by DO
BIR/Government, including self-assessed tax. (Emphasis supplied) 29-07 and RMC 19-2008.65 Considering that the completion of these requirements
shall be deemed full compliance with the tax amnesty program,66 the law
The BIR also issued Revenue Memorandum Circular No. 69-2007 (RMC 69- mandates that the taxpayer shall thereafter be immune from the payment of taxes,
2007).59 The pertinent portion provides: and additions thereto, as well as 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.67
The BIR’s 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.

Wherefore, we GRANT the petition, and SET ASIDE the Court of Tax
Appeals’ Decision dated 23 November 2005 in CTA EB No. 63 solely in view of
petitioner’s availment of the Tax Amnesty Program.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice
THIRD DIVISION seeking the reversal and setting aside of the
Decision36[1] dated 21 May 2007 and Resolution37[2]
METROPOLITAN BANK G.R. No. 178797 dated 9 July 2007 of the Court of Tax Appeals (CTA) en
AND TRUST CO.,
banc in C.T.A. E.B. No. 247. The CTA en banc affirmed
Pet Present:
itioner, the assessment by the Bureau of Internal Revenue (BIR)
YNARES-SANTIAGO, J.,
against petitioner Metropolitan Bank and Trust Co.
Chairperson,
CHICO-NAZARIO, (Metrobank) for deficiency Documentary Stamp Tax
VELASCO, JR.,
- versus - NACHURA, and (DST) for taxable year 1999.
PERALTA, JJ.
There is no dispute as to the antecedent facts of
Promulgated: this case.
COMMISSIONER OF
INTERNAL REVENUE, August 4, 2009
Respondent. Metrobank is a domestic corporation and a duly
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - -x licensed banking institution. It offers to the public a
product called the Universal Savings Account (UNISA).

DECISION UNISA is for a depositor able to maintain a savings


deposit with Metrobank with substantial average daily
CHICO-NAZARIO, J.: balance. A depositor is entitled to a higher interest rate
in a UNISA, than in a regular savings account. When a
Before this Court is a Petition for Review on depositor opens a UNISA, he/she is issued a passbook
Certiorari under Rule 45 of the Revised Rules of Court by Metrobank. The depositor may withdraw from
36

37
his/her UNISA anytime. However, to be entitled to the
preferential interest rate, the depositor must be able to Special Savings Account or 170,980,990,473
UNISA .33
conform to the stated minimum deposit balance for the Rate of Tax (Sec. 180 0.15%
NIRC)
specified holding period for the UNISA, otherwise, Basic DST Due 256,471,485.71
Add: Surcharge 64,117,871.4
his/her account will revert to a regular savings account. 3
Interest until 152,618,100. 216,735,971.97
12/31/02 54
TOTAL AMOUNT DUE 473,207,457.97
Pursuant to Letter of Authority No. LOA 2000
00052501 dated 26 June 2001, the BIR investigated
Metrobank filed with ACIR-LTS Abella on 11
Metrobank for its Gross Receipts Tax (GRT), Final
December 2002 a protest to the PAN.39[4] Metrobank
Withholding Tax (FWT), and DST liabilities for 1999. As
argued that its UNISA should not be subject to DST and
a result of said investigation, respondent Commissioner
it should not be made liable for the 25% surcharge on
of Internal Revenue (CIR), through Edwin R. Abella
its alleged deficiency DST for 1999.
(Abella), Assistant Commissioner of the Large
Taxpayers Service (ACIR-LTS) of the BIR, issued on 30
On 7 January 2003, ACIR-LTS Abella issued
September 2002, a Pre-Assessment Notice (PAN)38[3]
Assessment No. DST-2-99-000022 and a Formal Letter
assessing Metrobank for deficiency DST on its UNISA for
of Demand40[5] to Metrobank, requesting the latter to
1999, based on Section 180 of the National Internal
pay the deficiency DST on the UNISA for 1999, together
Revenue Code (NIRC). Said DST deficiency of
with surcharge, interest, and compromise penalty, in
Metrobank for 1999, together with surcharge and
the total amount of P477,588,959.62, computed as
interest, amounted to P473,207,457.97, per the
follows:
following calculation in the PAN:
39

38 40
ASSESSMENT NO. DST-2-99-000022 Petitioner filed a Petition for Review with the CTA
Universal Savings Account (UNISA) Php on 21 April 2004. The Petition was docketed as C.T.A.
(Gross Amount) 170,980,990,473.3
3 Case No. 6955, and raffled to the CTA Second Division.
Rate of Tax (Sec. 180 NIRC) 0.15%
Basic DST Due 256,471,485.71 The CTA Second Division failed to find merit in the
Add:
Surcharge Php Petition of Metrobank and, thus, decreed in its
64,117,871.42
Interest (1/10/00-1/31/03) 156,974,602.49 Decision42[7] dated 1 September 2006:
Compromise Penalty 25,000.00 221,117,473.91
Total DST Deficiency Php 477,588,959.62

WHEREFORE, the Petition for Review is hereby


DISMISSED for lack of merit. The Decision of the [CIR]
Metrobank filed with the CIR on 17 January 2003 a dated March 2, 2004 is hereby AFFIRMED with
modifications. The compromise penalty of P25,000.00 is
protest against Assessment No. DST-2-99-000022. Said hereby CANCELLED there being no mutual agreement
arrived at between the parties.
protest was denied by the CIR in a Decision41[6] dated 2
Accordingly, [Metrobank] is ORDERED TO PAY the
March 2004, the fallo of which reads: [CIR] the amount of P477,563,959.62 representing
deficiency documentary stamp taxes for the taxable year
1999, computed as follows:
WHEREFORE, predicated on all the foregoing,
METROBANK’s protest against Assessment Notice No. Basic Tax P 256,471,485.71
DST-2-99-000022 is hereby DENIED. Consequently, Add: 25% Surcharge 64,117,871.42
METROBANK is hereby ordered to pay the total amount of Interest 156,974,602.49
P477,588,959.62, as deficiency documentary stamp tax
for the taxable year 1999, plus increments that have P 477,563,959.62
legally accrued thereon until the actual date of payment,
to the Large Taxpayer’s Service, BIR National Office In addition, [Metrobank] is ORDERED TO PAY 20%
Building, Diliman, Quezon City, within thirty (30) days delinquency interest on the amount of P477,563,959.62
from receipt hereof; otherwise, collection thereof will be computed from April 26, 2004 until full payment thereof,
effected through the summary remedies provided by law. pursuant to Section 249(C) of the National Internal
Revenue Code of 1997.
This constitutes the Final Decision of this Office on
the matter.
41 42
The Motion for Reconsideration of Metrobank was
denied by the CTA Second Division in a Resolution43[8] The CTA en banc denied the Motion for
dated 3 January 2007. Reconsideration of Metrobank in a Resolution dated 9
July 2007.
Metrobank thereafter filed a Petition for Review
with the CTA en banc, docketed as C.T.A. E.B. No. 247. Hence, Metrobank comes before this Court via the
In a Decision promulgated on 21 May 2007, the CTA en present Petition, raising the sole issue of whether the
banc affirmed the Decision dated 1 September 2006 UNISA was subject to DST in 1999 under Section 180 of
and Resolution dated 3 January 2007 of the CTA Second the NIRC, prior to the amendment thereof by Republic
Division in C.T.A. Case No. 6955, and dismissed the Act No. 9243, which took effect on 20 May 2004.
Petition of Metrobank. According to the CTA en banc,
the decisive issue of whether special savings accounts I
evidenced by passbooks, such as the UNISA of
Metrobank, were subject to DST under Section 180 of Prior to Republic Act No. 9243, Section 180 of the
the NIRC, had already been resolved in the affirmative NIRC imposed DST on the following documents or
by this Court in its Resolution dated 15 January 2007 in instruments:
Banco de Oro Universal Bank v. Commissioner of
Internal Revenue (BDO case)44[9] and its Decision dated SEC. 180. Stamp Tax on all Bonds, Loan
Agreements, Promissory Notes, Bills of Exchange, Drafts,
4 April 2007 in International Exchange Bank v. Instruments and Securities Issued by the Government or
Any of its Instrumentalities, Deposit Substitute Debt
Commissioner of Internal Revenue (IEB case).45[10] Instruments, Certificates of Deposits Bearing
Interest and Others Not Payable on Sight or
43
Demand. – On all bonds, loan agreements, including
44
those signed abroad, wherein the object of the contract is
45
located or used in the Philippines, bills of exchange
(between points within the Philippines), drafts, earns premium interest. Given the nature and
instruments and securities issued by the Government or
any of its instrumentalities, deposit substitute debt substance of the passbook issued by Metrobank for
instruments, certificates of deposits drawing
interest, orders for the payment of any sum of money UNISA, it is, for all intents and purposes, a certificate of
otherwise than at sight or on demand, on all promissory
notes, whether negotiable or non-negotiable, except bank deposit earning interest, which is subject to DST.
notes issued for circulation, and on each renewal of any
such note, there shall be collected a documentary stamp
tax of Thirty centavos (P0.30) on each Two hundred pesos
(P200), or fractional part thereof, of the face value of any Metrobank opposes the assessment against it for
such agreement, bill of exchange, draft, certificate of
deposit, or note: x x x (Emphases ours.) deficiency DST on the UNISA for 1999 because the
passbook issued for such an account was not among
It is beyond question that a certificate of deposit the documents subject to DST enumerated in Section
issued by a bank for a time deposit was subject to DST 180 of the NIRC, prior to its amendment by Republic Act
under Section 180 of the NIRC. The CIR treated the No. 9243. Section 180 of the NIRC imposed DST only
UNISA of Metrobank like a time deposit, although a on a certificate of deposit bearing interest that is not
passbook is issued for the former, rather than a payable on sight or demand, such as the certificate
certificate of deposit. The CIR pointed out that in order issued by a bank for a time deposit.
to be entitled to the premium rate for UNISA, the
depositor, just like in a time deposit, must wait for the Metrobank explains that a UNISA is not the same
holding period to expire before making the withdrawal. as a time deposit account. It is a new product
This constitutes a restriction on the depositor’s right to developed by Metrobank after the removal of interest
withdraw from his deposit prior to the expiration of the ceilings on both savings and time deposits. It offers the
holding period. Although the passbook issued by flexibility of a savings deposit account by doing away
Metrobank for UNISA is not in the form of certificate nor with the rigidity of a time deposit account, but with
is it labeled as such, it has a fixed maturity date and interest rate on par with the latter. A time deposit can
be distinguished from a UNISA by the following
features: (1) in a time deposit account, the depositor Metrobank further insists that to be taxable under
agrees that the bank shall keep the money for a fixed Section 180 of the NIRC, the certificate of deposit must
period; in a UNISA, the depositor can make withdrawals be negotiable. It must be payable to the depositor, to
anytime, just like an ordinary savings account; to be his order, or to some other person or his order. A
entitled to the preferential interest rate for UNISA, passbook, by all accounts, is not negotiable. It is
however, the depositor must maintain the required merely a paper book issued by a bank or savings
minimum deposit balance within the specified holding institution to a depositor to record deposits to,
period; (2) a time deposit account is evidenced by a withdrawals from, and interest earned by a savings
certificate of deposit; on the other hand, a UNISA is account.
covered by a passbook; (3) for renewal, the certificate
issued for a time deposit has to be formally surrendered Finally, Metrobank refers to the deliberations of
upon maturity, while the passbook issued for UNISA both Houses of Congress on the precursor bills for
need not be renewed in the same manner; and (4) the Republic Act No. 9243. According to Metrobank,
withdrawal of the money from a time deposit account records of said deliberations reveal that the legislators
before the expiration of the fixed period would mean acknowledged the existence of a loophole in Section
the pretermination of said account; in comparison, 180 of the NIRC, as it was then worded, by virtue of
there can be no pretermination of a UNISA, since the which, banks offering special savings accounts, with
account simply reverts to an ordinary savings account high interest rates and specified holding periods,
in case the depositor makes a withdrawal, which would evidenced by passbooks instead of certificates of
result in non-compliance with the required maintaining deposit, escape payment of DST. Thus, the legislators
balance or holding period for UNISA. deemed it necessary to amend Section 180 of the NIRC
through Republic Act No. 9243. Re-numbered as UNISA of Metrobank become subject to DST under the
Section 179, the amended provision now reads: aforequoted Section 179.

SEC. 179. Stamp Tax on All Debt Instruments. – On every The Court agrees with the CTA en banc that the
original issue of debt instruments, there shall be collected a
documentary stamp tax on One peso (P1.00) on each Two hundred pivotal issue in this case had been squarely resolved in
pesos (P200), or fractional part thereof, of the issue price of any such
debt instruments: Provided, That for such debt instruments with terms the BDO case and the IEB case, which involved
of less than one (1) year, the documentary stamp tax to be collected
shall be of a proportional amount in accordance with the ratio of its assessments issued by the BIR against the banks BDO
term in number of days to three hundred sixty-five (365) days:
Provided, further, That only one documentary stamp tax shall be and IEB for DST on their respective special savings
imposed on either loan agreement, or promissory notes issued to
secure such loan. accounts, closely similar to the UNISA of Metrobank.
For purposes of this section, the term debt
instrument shall mean instruments representing
borrowing and lending transactions including but not
limited to debentures, certificates of indebtedness, due In the BDO case, this Court dismissed the Petition
bills, bonds, loan agreements, including those signed
abroad wherein the object of contract is located or used in for Review on Certiorari of BDO for the latter’s failure to
the Philippines, instruments and securities issued by the
government of any of its instrumentalities, deposit submit a verified statement of the dates of receipt of
substitute debt instruments, certificates or other
evidences of deposits that are either drawing the assailed judgment and filing of the motion for
interest significantly higher than the regular
savings deposit taking into consideration the size reconsideration, as required by Sections 4(b) and 5,
of the deposit and the risks involved or drawing
interest and having a specific maturity date, orders Rule 45, in relation to Section 5(d), Rule 56, of the
for payment of any sum of money otherwise than at sight
or on demand, promissory notes, whether negotiable or Revised Rules of Court. Yet, the Court also declared
non-negotiable, except bank notes issued for circulation.
(Emphasis ours.)
that even without the technical lapse of BDO, the
Petition of said bank should still be denied, there being
Metrobank posits that only after Republic Act No. no reversible error committed by the CTA en banc when
9243 amended the NIRC on 20 March 2004, did the the latter ruled as follows:
On April 7, 2006[,] the CTA en banc rendered the declaration made by the Court on the merits of the
herein challenged decision affirming the findings of its
First Division that petitioner’s ISA is the equivalent of same constitutes obiter dictum,47[12] which should not
the certificate of deposit and which would make it
subject to documentary stamp tax under Section bind the Court in its resolution of the case at bar.
180 of the NIRC.

The CTA en banc likewise declared [t]hat in


practice, a time deposit transaction is covered by a The Court is not persuaded. The Court resolved
certificate of deposit while petitioner’s ISA transaction is
through a passbook. Despite the differences in the the BDO case on both procedural and substantive
form of the documents, the CTA en banc ruled that
a time deposit and ISA have essentially the same grounds. The declaration of the Court in the BDO case
attributes and features. It explained that like time
deposit, ISA transactions bear a fixed term or maturity – that the Petition therein should be denied because the
because the bank acknowledges receipt of a sum of
money on deposit which the bank promises to pay the
CTA en banc committed no reversible error in rendering
depositor, bearer or to the order of a bearer on a specified its assailed decision – was purposely and categorically
period of time. Section 180 of the 1997 NIRC does not
prescribed the form of a certificate of deposit. It may be made. An additional reason in a decision (or in this
any “written acknowledgement by a bank of the receipt of
money on deposit.” The definition of a certificate of case, a resolution), brought forward after the case has
deposit is all encompassing to include a savings
account deposit such as ISA. been disposed of on one ground, is not to be regarded
xxxx as dicta. So, also, where a case presents two or more
Dedicated exclusively to the study and points, any one of which is sufficient to determine the
consideration of tax problems, the CTA has necessarily
developed an expertise in the subject of taxation that this ultimate issue, but the court actually decides all such
Court has recognized time and again. For this reason, the
findings of fact of a division of the CTA, particularly when points, the case becomes an authoritative precedent as
affirmed en banc, are generally conclusive on this Court
absent grave abuse of discretion or palpable error, which to every point decided; none of such points can be
are not present in this case.46[11] (Emphases ours.)
regarded as having the status of a dictum, and one
point should not be denied authority merely because
Metrobank avers that the Petition in the BDO case
another point was more dwelt on and more fully argued
was dismissed on a matter of procedure, and that the
46 47
and considered; nor does a decision on one proposition
make statements of the court regarding other The Court, in the IEB case, referred to the definition of a
propositions dicta.48[13] certificate of deposit in Far East Bank and Trust Company v.
Querimit,50[15] viz:
Hence, if according to the BDO case, the special savings
account of BDO (i.e., Investment Savings Account [ISA], covered by A certificate of deposit is defined as a written
acknowledgment by a bank or banker of the receipt of a
a passbook), is a certificate of deposit bearing interest, which is sum of money on deposit which the bank or banker
promises to pay to the depositor, to the order of the
subject to DST under Section 180 of the NIRC; then the identical depositor, or to some other person or his order, whereby
the relation of debtor and creditor between the bank and
product of Metrobank (i.e., UNISA) should likewise be subject to the depositor is created. x x x.

DST.
The Court then proceeded to elucidate even
further in the IEB case on what constitutes a certificate
The Court was able to more thoroughly consider
of deposit:
and address in the IEB case the very same arguments
raised herein by Metrobank.
A document to be deemed a certificate of deposit requires no
specific form as long as there is some written memorandum that the
bank accepted a deposit of a sum of money from a depositor. What
Just as in the BDO case, the Court held in the IEB is important and controlling is the nature or meaning conveyed by
the passbook and not the particular label or nomenclature attached to
case that a passbook issued by a bank, representing an it, inasmuch as substance, not form, is paramount.

interest-earning deposit account, qualifies as a Contrary to petitioner’s claim, not all certificates of deposit
are negotiable. A certificate of deposit may or may not be negotiable
certificate of deposit drawing interest, which is subject as gathered from the use of the conjunction or, instead of and, in its
definition. A certificate of deposit may be payable to the depositor, to
to DST.49[14] the order of the depositor, or to some other person or his order.

In any event, the negotiable character of any and all


documents under Section 180 is immaterial for purposes of imposing
48

49 50
DST. The same feature is present in a time deposit.
A depositor is allowed to withdraw his time deposit
Orders for the payment of sum of money payable at sight or even before its maturity subject to bank charges on its
on demand are of course explicitly exempted from the payment of pre[-]termination and the depositor loses his
DST. Thus, a regular savings account with a passbook which is entitlement to earn the interest rate corresponding to
withdrawable at any time is not subject to DST, unlike a time deposit the time deposit. Instead, he earns interest pertaining
which is payable on a fixed maturity date.51[16] only to a regular savings deposit. Thus, petitioner’s
argument that the savings deposit-FSD is
withdrawable anytime as opposed to a time deposit
The Court rejected the claim of IEB in the IEB case that which has a maturity date, is not tenable. In both
cases, the deposit may be withdrawn anytime but the
its special savings account, i.e., Fixed-Savings Deposit (FSD), depositor gets to earn a lower rate of interest. The
only difference lies on the evidence of deposit, a
was more akin to a regular savings account than a time deposit savings deposit-FSD is evidenced by a passbook,
while a time deposit is evidenced by a certificate of
account, ratiocinating that: time deposit."

In order for a depositor to earn the agreed


higher interest rate in a SA-FSD, the amount of
The FSD, like a time deposit, provides for a higher interest deposit must be maintained for a fixed period. Such
rate when the deposit is not withdrawn within the required fixed being the case, We agree with the finding that the SA-
period; otherwise, it earns interest pertaining to a regular savings FSD is a deposit account with a fixed term.
deposit. Having a fixed term and the reduction of interest rates in Withdrawal before the expiration of said fixed term
case of pre-termination are essential features of a time deposit. Thus results in the reduction of the interest rate. Having a
explains the CTA En Banc: fixed term and reduction of interest rate in case of
pre-termination are essentially the features of a time
It is well-settled that certificates of time deposit. Hence, this Court concurs with the
deposit are subject to the DST and that a certificate of conclusion reached in the assailed Decision that
time deposit is but a type of a certificate of deposit petitioner’s SA-FSD and time deposit are substantially
drawing interest. Thus, in resolving the issue before the same. . . . (Italics in the original; underscoring
Us, it is necessary to determine whether petitioner’s supplied)
Savings Account-Fixed Savings Deposit (SA-FSD)
has the same nature and characteristics as a time The findings and conclusions reached by the CTA which, by
deposit. In this regard, the findings of fact stated in the very nature of its function, is dedicated exclusively to the
the assailed Decision [of the CTA Division] are as consideration of tax problems and has necessarily developed an
follows: expertise on the subject, and unless there has been an abuse or
improvident exercise of authority, and none has been shown in the
"In this case, a depositor of a savings deposit- present case, deserves respect.
FSD is required to keep the money with the bank for
at least thirty (30) days in order to yield a higher It bears emphasis that DST is levied on the exercise by
interest rate. Otherwise, the deposit earns interest persons of certain privileges conferred by law for the creation,
pertaining only to a regular savings deposit. revision, or termination of specific legal relationships through the
execution of specific instruments. It is an excise upon the privilege,
51
opportunity or facility offered at exchanges for the transaction of the
business. MR. ANDAYA. . .it’s questionable whether we should
tax it with DST at all, even the question of imposing
While tax avoidance schemes and arrangements are not final withholding tax has been raised as an issue.
prohibited, tax laws cannot be circumvented in order to evade
payment of just taxes. To claim that time deposits evidenced by THE CHAIRMAN. If I had it my way, I’ll cut it by half.
passbooks should not be subject to DST is a clear evasion of the rule
on equality and uniformity in taxation that requires the imposition of MR. ANDAYA. Yeah, but I guess concerning the
DST on documents evidencing transactions of the same kind, in this constraint of government revenue, even the industry
particular case, on all certificates of deposits drawing interest.52[17] itself right now is not pushing in that direction, but in
the long term, when most of us in this room are gone,
we hope that DST will disappear from the face of this
The amendment of Section 180 of the NIRC and its re- earth, ‘no.

numbering as Section 179 by Republic Act No. 9243 in 2004 do Now, I think the move of the DOF to expand the
coverage of or to add that phrase, "Other evidence of
not mean that prior thereto, special savings deposits evidenced indebtedness," it just removed ambiguity. When we
testified earlier in the House on this very same bill, we
by passbooks were exempted from payment of DST. The did not interpose any objections if only for the sake of
avoiding further ambiguity in the implementation of
Court determined in the IEB case that: DST on deposits. Because of what has happened so
far is, we don’t know whether the examiner is gonna
come in and say, "This savings deposit is not savings
but it’s time deposit." So, I think what DOF has done
If at all, the further amendment was intended to eliminate is to eliminate any confusion. They said that a deposit
precisely the scheme used by banks of issuing passbooks to "cloak" that has a maturity. . .
its time deposits as regular savings deposits. This is reflected from
the following exchanges between Mr. Miguel Andaya of the Bankers THE CHAIRMAN. Uh-huh.
Association of the Philippines and Senator Ralph Recto, Senate
Chairman of the Committee on Ways and Means, during the MR. ANDAYA. . . . which is time, in effect, regardless
deliberations on Senate Bill No. 2518 which eventually became R.A. of what form it takes should be subject to DST.
9243:
THE CHAIRMAN. Would that include savings deposit
MR. MIGUEL ANDAYA (Bankers Association of the now?
Philippines). Just to clarify. Savings deposit at the
present time is not subject to DST. MR. ANDAYA. So that if we cloaked a deposit as
savings deposit but it has got a fixed maturity . . .
THE CHAIRMAN. That’s right.
MR. ANDAYA. Time deposit is subject. I agree with THE CHAIRMAN. Uh-huh.
you in principle that if we are going to encourage
deposits, whether savings or time… MR. ANDAYA. . . that would fall under the purview.53
[18]
(Underscoring supplied.)
THE CHAIRMAN. Uh-huh.
52 53
no doubt that the UNISA – the special savings account of
Given that the IEB case and the present case
Metrobank, granting a higher tax rate to depositors able to
substantially involve the same facts and arguments, then the 4
maintain the required minimum deposit balance for the
April 2007 Decision in the former serves as a judicial precedent
specified holding period, and evidenced by a passbook – is a
in the latter. The averment of Metrobank in the instant Petition
certificate of deposit bearing interest, already subject to DST
that the judgment in the IEB case is still not final, since IEB filed
even under the then Section 180 of the NIRC. Hence, the
a Motion for Reconsideration of the same, is no longer true.
assessment by the CIR against Metrobank for deficiency DST
The Court denied with finality the Motion for Reconsideration of
on the UNISA for 1999 was only proper.
IEB in a Resolution dated 1 August 2007 and, accordingly,
entry of judgment has been made in the IEB case on 15
II
January 2008.

Nevertheless, the Court takes note of an intervening


In a more recent case, Philippine Banking Corporation
event, which significantly affects its resolution of the Petition at
(Now: Global Business Bank, Inc.) v. Commissioner of Internal
bar.
Revenue (PBC case),54[19] the Court again considered the
Special/Super Savings Deposit Account (SSDA) of PBC,
On 17 April 2008, during the pendency of the present
evidenced by a passbook, as a certificate of deposit bearing
Petition, Metrobank filed a Manifestation before this Court.
interest on which DST under Section 180 of the NIRC could be
Metrobank manifested that it had availed itself of the Tax
imposed, citing both the BDO case and the IEB case.
Amnesty Program under Republic Act No. 9480, which lapsed
into law on 24 May 2007.55[20] Metrobank claimed that it was
In the absence of any compelling reason, the Court
qualified to avail itself of the Tax Amnesty Program, and that it
cannot depart from the foregoing jurisprudence. There can be
54 55
had fully complied with the requirements for the same. As a The coverage of Republic Act No. 9480 is laid down in
result, it became entitled to immunity from the payment of any Section 1 thereof:
and all taxes due from it for the taxable year 2005 and prior
years, including the deficiency DST on the UNISA for 1999. On SECTION 1. Coverage. — There is hereby authorized and
granted a tax amnesty which shall cover all national internal
the basis of the tax amnesty, Metrobank again prayed for the revenue taxes for the taxable year 2005 and prior years, with or
without assessments duly issued therefore, that have remained
reversal and setting aside of the 21 May 2007 Decision and 9 unpaid as of December 31, 2005: Provided, however, That the
amnesty hereby authorized and granted shall not cover persons or
July 2007 Resolution of the CTA en banc in C.T.A. E.B. No. cases enumerated under Section 8 hereof. (Emphases ours.)

247, and the cancellation of Final Assessment No. DST-2-99-


Section 8 of Republic Act No. 9480 enumerates persons
000022.
or cases which cannot be covered by the tax amnesty:

A tax amnesty is a general pardon or the intentional


SEC. 8. Exceptions. — The tax amnesty provided in Section
overlooking by the State of its authority to impose penalties on 5 hereof shall not extend to the following persons or cases existing as
of the effectivity of this Act:
persons otherwise guilty of violation of a tax law. It partakes of
(a) Withholding agents with respect to their withholding
an absolute waiver by the government of its right to collect tax liabilities;

what is due it and to give tax evaders who wish to relent a (b) Those with pending cases falling under the jurisdiction of
the Presidential Commission on Good Government;
chance to start with a clean slate. A tax amnesty, much like a
(c) Those with pending cases involving unexplained or
tax exemption, is never favored or presumed in law. The grant unlawfully acquired wealth or under the Anti-Graft and Corrupt
Practices Act;
of a tax amnesty, similar to a tax exemption, must be construed
(d) Those with pending cases filed in court involving violation
strictly against the taxpayer and liberally in favor of the taxing of the Anti-Money Laundering Law;

authority.56[21] (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
56
Revised Penal Code; and
remit the DST on the UNISA for 1999, but as one that was
(f) Tax cases subject of final and executory judgment by
the courts. (Emphases supplied.) directly liable for the said tax and failed to pay the same.

In his Comment on the Manifestation of Metrobank, the


The CIR did not provide the basis, whether in law or
CIR asserts that: (1) Metrobank is merely a withholding agent
administrative issuances, for its averment that Metrobank was a
for the depositors with respect to the DST on the UNISA, so it is
withholding agent for the DST on the UNISA. In contrast, it is
disqualified from availing itself of the tax amnesty following
clear from Section 3 of Revenue Regulations No. 9-200057[22]
Section 8(a) of Republic Act No. 9480; (2) the assessment
that a bank shall be responsible for the payment and remittance
against Metrobank for the deficiency DST for 1999 already
of the DST prescribed under Title VII of the NIRC; and unless it
attained finality, and it no longer qualifies for tax amnesty
is exempt from said tax, then it shall remit the same only as a
pursuant to Section 8(f) of Republic Act No. 9480; and (3)
collecting agent of the CIR. The pertinent provisions of
deficiency in DST is not covered by the tax amnesty under
Revenue Regulations No. 9-2000 are quoted hereunder:
Republic Act No. 9480.

SECTION 3. Mode of Payment and Remittance of the Tax. –


The reliance by the CIR on paragraphs (a) and (f) of
(a) In general. – Unless otherwise provided in these
Section 8 of Republic Act No. 9480 to oppose the availment by Regulations, any of the aforesaid parties to the taxable transaction
shall pay and remit the full amount of the tax in accordance with the
Metrobank of the Tax Amnesty Program is untenable. provisions of Section 200 of the Code.

(b) Exceptions. –

This is the first time that the CIR has alleged that (1) If one of the parties to the taxable transaction is
exempt from the tax, the other party who is not exempt shall be the
Metrobank is only a withholding agent for the DST on the one directly liable for the tax, in which case, the tax shall be paid
and remitted by the said non-exempt party, unless otherwise
UNISA. As pointed out by Metrobank, it was assessed by the provided in these Regulations.

CIR, not as a withholding agent that failed to withhold and/or (2) If the said tax-exempt party is one of the persons
enumerated in Section 3(c)(4) hereof, he shall be constituted as
57
agent of the Commissioner for the collection of the tax, in which Neither is there any merit in the insistence of the
case, he shall remit the tax so collected in the same manner and in
accordance with the provisions of Section 200 of the Code: Provided, CIR that Assessment No. DST-2-99-000022 is already
however, that if he fails to collect and remit the same as herein
required, he shall be treated personally liable for the tax, in addition final and executory in light of the failure of Metrobank,
to the penalties prescribed under Title X of the Code for failure to pay
the tax on time. firstly, to submit all the relevant supporting documents
xxxx within 60 days from filing of its protest with the CIR;
(c) Persons liable to remit the DST. – In general, the full and, secondly, to appeal to the CTA the inaction of the
amount of the tax imposed under Title VII of the Code may be
remitted by any of the party or parties to the taxable transaction, CIR on its protest within 30 days from the lapse of the
except in the following cases:
180-day period as provided in Section 228 of the
xxxx
NIRC.58[23]
(4) When one of the parties to the taxable document or
transaction is included in any of the entities enumerated below, such
entity shall be responsible for the remittance of the stamp tax
prescribed under Title VII of the Code: Provided, however, that if
such entity is exempt from the tax herein imposed, it shall remit the
The Court cannot simply accept the allegation of
tax as a collecting agent, pursuant to the preceding paragraph
Section 3(b)(2) hereof, any provision of these Regulations to the
the CIR that Metrobank failed to submit the relevant
contrary notwithstanding:
supporting documents within 60 days from the filing of
(a) A bank, a quasi-bank or non-bank financial intermediary,
a finance company, or an insurance, a surety, a fidelity, or annuity
its protest on 17 January 2003, when the CIR does not
company. (Emphases ours.)
even identify what these documents are. If the Court
does not know what particular documents Metrobank
There has never been any allegation made in this
purportedly failed to submit in support of its protest,
case that Metrobank is exempt from the DST on the
then the Court likewise cannot make a determination
UNISA and, thus, it is tasked to remit the said tax only
on the relevance of such documents. In addition, there
as a collecting agent. The standing presumption,
appear to be sufficient documents submitted by
therefore, is that Metrobank is directly liable for the
Metrobank to the CIR to have enabled the latter to
payment and remittance of the DST on the UNISA.
58
render on 2 March 2004 a Decision on the protest of the assessment. As argued by Metrobank, the very fact
former. that the instant case is still subject of the present
proceedings is proof enough that it has not reached a
This brings the Court to its next point. Per the final and executory stage as to be barred from the tax
computation of the CIR, the 180-day period for the CIR amnesty under Republic Act No. 9480.
to act on the protest of Metrobank ended on 13
September 2003, and the 30-day period for Metrobank The assertion of the CIR that deficiency DST is not
to file an appeal with the CTA ended on 13 October covered by the Tax Amnesty Program under Republic
2003. If, indeed, Assessment No. DST-2-99-000022 Act No. 9480 is downright specious.
became final and executory when the bank failed to file
an appeal with the CTA by 13 October 2003, why then To avail itself of the tax amnesty, Metrobank paid
did the CIR even bother with resolving the protest of 5% of the resulting increase in its networth, following
Metrobank against the said assessment and rendering a the amendment of its statement of assets and liabilities
Decision thereon on 2 March 2004? That the CIR issued as of 31 December 2005, to include therein previously
a Decision on 2 March 2004 denying the protest of undeclared assets and/or liabilities.59[24] The submission
Metrobank belies its own assertion herein that the of the CIR that the foregoing payment by Metrobank of
assessment subject of the protest became final and the amnesty tax “relates only to a determination of
executory after 13 October 2003. It also bears to stress [Metrobank]’s revised taxable income, and does not
that both the CTA Second Division and the CTA en banc delve on its unrecognized documentary stamp tax
took cognizance of the successive appeals of liabilities”60[25] is rebuffed by the all-encompassing
Metrobank, resolving both appeals on their merits words of Republic Act No. 9480 that those who availed
without regard to the supposed finality of the appealed 59

60
themselves of the tax amnesty, by paying the amnesty
tax and complying with all of its conditions, “shall be C.T.A. EB No. 269 involved the assessment by the
immune from the payment of taxes, as well as CIR against Metrobank for deficiency DST on the UNISA
addition thereto, and the appurtenant civil, criminal for 1995 to 1998, as well as on its Interbank Call Loans
or administrative penalties under the National Internal for 1998. The CTA en banc already promulgated on 30
Revenue Code of 1997, as amended, arising from the March 2007 a Decision in C.T.A. EB No. 269 against
failure to pay any and all internal revenue taxes Metrobank, prompting the latter to file a Motion to
for taxable year 2005 and prior years.”61[26] The Suspend Collection of Taxes and/or Enjoin the Issuance
Court has absolutely no basis to limit the immunity, of Warrant of Distraint, Garnishment and Levy and
resulting from the payment by Metrobank of the Motion for Waiver of Posting of Bond. While said
amnesty tax, only to income tax, and to exclude DST Motions were pending before the CTA en banc,
therefrom. Metrobank applied for tax amnesty under Republic Act
No. 9480. In its Resolution62[27] dated 28 March 2008 in
Finally, the CIR never questioned or rebutted that C.T.A. EB No. 269, the CTA en banc found that:
Metrobank had fully complied with the requirements for
tax amnesty under Republic Act No. 9480. Still, An examination of the records shows that
being a qualified tax amnesty applicant,
Metrobank calls the attention of this Court to the [Metrobank] duly complied with the requisites
enumerated in R.A. No. 9480, as implemented by
developments in another case before the CTA en banc, RMC No. 19-2008. The law mandates that a tax
amnesty compliant applicant shall be exempt from the
also between said bank and the CIR, docketed as C.T.A. payment of taxes, including the civil, criminal, or
administrative penalties under the Tax Code, pursuant to
EB No. 269, entitled Metropolitan Bank and Trust Section 6 of R.A. No. 9480 which states:

Company v. Commissioner of Internal Revenue. Section 6. Immunities and Privileges.


– Those who availed themselves of the tax
61 62
amnesty under Section 5 hereof, and have liabilities of PBC for 2005 and prior years were
fully complied with all its conditions shall be
entitled to the following immunities and absorbed by Metrobank and were, thus, deemed
privileges:
included in the application for tax amnesty filed by
(a) The taxpayers shall be immune
from the payment of taxes, as well as Metrobank. The Court found in the PBC case that:
additions thereto, and the appurtenant civil,
criminal or administrative penalties under Records show that Metrobank, a qualified tax
the National Internal Revenue Code of 1997, amnesty applicant, has duly complied with the
as amended, arising from the failure to pay requirements enumerated in RA 9480, as
any and all internal revenue taxes for implemented by DO 29-07 and RMC 19-2008.
taxable year 2005 and prior years. Considering that the completion of these requirements
shall be deemed full compliance with the tax amnesty
program, the law mandates that the taxpayer shall
Considering that the [Metrobank] satisfied the
thereafter be immune from the payment of taxes, and
requisites of the tax amnesty law, and is duly
additions thereto, as well as the appurtenant civil,
qualified tax amnesty applicant under R.A. No.
criminal or administrative penalties under the NIRC of
9480, the Court sees no cogent reason to resolve
1997, as amended, arising from the failure to pay any and
[Metrobank]’s Motion to Suspend Collection of Taxes
all internal revenue taxes for taxable year 2005 and prior
and/or Enjoin the Issuance of Warrant of Distraint,
years.63[28]
Garnishment and Levy, and its Motion for Waiver of
Posting of Bond, for being moot.

Given [Metrobank]’s compliance with the tax Metrobank filed only one application for tax
amnesty law, the subject tax deficiencies are
extinguished. amnesty under Republic Act No. 9480, since it already
WHEREFORE, premises considered, C.T.A. EB Case covered all national internal revenue taxes for 2005
No. 269 is hereby considered CLOSED and
TERMINATED. (Emphases ours.) and prior years. Hence, the factual determination
made by the CTA en banc in C.T.A. EB No. 269 and by
Also worthy of note is the fact that this Court, in
this Court in the PBC case – that Metrobank had
the PBC case, made its own determination that
complied with the requirements for its application and
Metrobank was entitled to the tax amnesty under
was qualified for the tax amnesty under Republic Act
Republic Act No. 9480. PBC and Metrobank merged,
No. 9480 – is binding on this Court, involving as it does
with Metrobank as the surviving entity. The tax
63
the very same application for tax amnesty of Metrobank COMMISSIONER OF G.R. No. 180066
INTERNAL REVENUE,
being invoked herein. Therefore, by virtue of the
Petitioner Present:
availment by Metrobank of the Tax Amnesty Program ,
YNARES-SANTIAGO, J.,
under Republic Act No. 9480, it is already immune from
Chairperson,
the payment of taxes, including the deficiency DST on CHICO-NAZARIO,
VELASCO, JR.,
the UNISA for 1999, as well as the addition thereto.
- versus - NACHURA, and
WHEREFORE, the instant Petition is GRANTED. The PERALTA, JJ.
Decision dated 21 May 2007 and Resolution dated 9
Promulgated:
July 2007 of the Court of Tax Appeals en banc in C.T.A.
PHILIPPINE AIRLINES, _____________________
E.B. No. 247 is REVERSED and SET ASIDE, and
INC.,
Assessment No. DST-2-99-000022 is CANCELLED, Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
solely in view of the availment by petitioner - - - - - - - - -x
Metropolitan Bank and Trust Co. of the Tax Amnesty
Program under Republic Act No. 9480. DECISION
SO ORDERED.

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on


THIRD DIVISION Certiorari, under Rule 45 of the Revised Rules of Court,
seeking the reversal and setting aside of the
Decision64[1] dated 9 August 2007 and Resolution65[2] declared the national flag carrier of the country; and
dated 11 October 2007 of the Court of Tax Appeals the grantee under Presidential Decree No. 159067[4] of a
(CTA) en banc in CTA E.B. No. 246. The CTA en banc franchise to establish, operate, and maintain transport
affirmed the Decision66[3] dated 31 July 2006 of the CTA services for the carriage of passengers, mail, and
Second Division in C.T.A. Case No. 7010, ordering the property by air, in and between any and all points and
cancellation and withdrawal of Preliminary Assessment places throughout the Philippines, and between the
Notice (PAN) No. INC FY-3-31-01-000094 dated 3 Philippines and other countries.68[5]
September 2003 and Formal Letter of Demand dated
12 January 2004, issued by the Bureau of Internal For its fiscal year ending 31 March 2001 (FY 2000-
Revenue (BIR) against respondent Philippine Airlines, 2001), PAL allegedly incurred zero taxable income,69[6]
Inc. (PAL), for the payment of Minimum Corporate which left it with unapplied creditable withholding
Income Tax (MCIT) in the amount of P272,421,886.58. tax70[7] in the amount of P2,334,377.95. PAL did not pay
any MCIT for the period.
There is no dispute as to the antecedent facts of
this case. In a letter dated 12 July 2002, addressed to
petitioner Commissioner of Internal Revenue (CIR), PAL
PAL is a domestic corporation organized under the
67 [4]
An Act Granting a New Franchise to Philippine Airlines, Inc. to
corporate laws of the Republic of the Philippines; Establish, Operate, and Maintain Air-Transport Services in the
Philippines and Other Countries.
64 [1]
Penned by Associate Justice Erlinda P. Uy with Presiding Justice 68[5]
Section 1 of Presidential Decree No. 1590.
Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., 69 [6]
According to the Annual Income Tax Return of PAL for the fiscal
Lovell R. Bautista, Caesar A. Casanova, and Olga Palanca-Enriquez, year in question, its allowable deductions exactly equalled its total
concurring; rollo, pp. 43-56. gross income of P39,470,862,232.00, thus, leaving zero taxable
65 [2]
Id. at 67-68. income.
66 [3]
Penned by Associate Justice Juanito C. Castañeda with Associate 70 [7]
Withheld at source, meaning, it was previously deducted and
Justices Erlinda P. Uy and Olga Palanca-Enriquez, concurring, id. at 70- withheld by various withholding agents from the income payments
90. made to PAL.
requested for the refund of its unapplied creditable
withholding tax for FY 2000-2001. PAL attached to its BIR officers and PAL representatives attended the
letter the following: (1) Schedule of Creditable Tax scheduled informal conference, during which the former
Withheld at Source for FY 2000-2001; (2) Certificates of relayed to the latter that the BIR was denying the claim
Creditable Taxes Withheld; and (3) Audited Financial for refund of PAL and, instead, was assessing PAL for
Statements. deficiency MCIT for FY 2000-2001. The PAL
representatives argued that PAL was not liable for MCIT
Acting on the aforementioned letter of PAL, the under its franchise. The BIR officers then informed the
Large Taxpayers Audit and Investigation Division 1 PAL representatives that the matter would be referred
(LTAID 1) of the BIR Large Taxpayers Service (LTS), to the BIR Legal Service for opinion.
issued on 16 August 2002, Tax Verification Notice No.
00201448, authorizing Revenue Officer Jacinto Cueto, The LTAID 1 issued, on 3 September 2003, PAN
Jr. (Cueto) to verify the supporting documents and No. INC FY-3-31-01-000094, which was received by PAL
pertinent records relative to the claim of PAL for refund on 23 October 2003. LTAID 1 assessed PAL for
of its unapplied creditable withholding tax for FY 2000- P262,474,732.54, representing deficiency MCIT for FY
20001. In a letter dated 19 August 2003, LTAID 1 Chief 2000-2001, plus interest and compromise penalty,
Armit S. Linsangan invited PAL to an informal computed as follows:
conference at the BIR National Office in Diliman,
Quezon City, on 27 August 2003, at 10:00 a.m., to Sales/Revenues from Operation P 38,798,721,685.00
Less: Cost of Services 30,316,679,013.00
discuss the results of the investigation conducted by Gross Income from Operation 8,482,042,672.00
Add: Non-operating income 465,111,368.00
Total Gross Income for MCIT purposes 9,947,154,040.0071[8]
Revenue Officer Cueto, supervised by Revenue Officer Rate of Tax 2%
Madelyn T. Sacluti.
71[8]
Should be P8,947,154,040.00.
Tax Due 178,943,080.80 Compromise Penalty 25,000.00
Add: 20% interest (8-16-00 to 10-31-03) 83,506,651.74 Total MCIT due and demandable P
Compromise Penalty 25,000.00 271,421,886.58 73[10]
Total Amount Due P
262,474,732.5472[9]

PAL received the foregoing Formal Letter of


PAL protested PAN No. INC FY-3-31-01-000094 Demand on 12 February 2004, prompting it to file with
through a letter dated 4 November 2003 to the BIR LTS. the BIR LTS a formal written protest dated 13 February
2004.
On 12 January 2004, the LTAID 1 sent PAL a
Formal Letter of Demand for deficiency MCIT for FY The BIR LTS rendered on 7 May 2004 its Final
2000-2001 in the amount of P271,421,88658, based on Decision on Disputed Assessment, which was received
the following calculation: by PAL on 26 May 2004. Invoking Revenue
Memorandum Circular (RMC) No. 66-2003, the BIR LTS
Sales/Revenues from P 38,798,721,685.00
Operation
denied with finality the protest of PAL and reiterated
Less: Cost of Services the request that PAL immediately pay its deficiency
Direct Costs - P
30,749,761,017. MCIT for FY 2000-2001, inclusive of penalties incident to
00
Less: Non- delinquency.
deductible
interest 433,082,004.00 30,316,679,013.00
expense PAL filed a Petition for Review with the CTA, which
Gross Income from P 8,482,042,672.00
Operation was docketed as C.T.A. Case No. 7010 and raffled to
Add: Non-operating 465,111,368.00
Income the CTA Second Division. The CTA Second Division
Total Gross Income for MCIT purposes P 9,947,154,040.00
MCIT tax due P 178,943,080.80 promulgated its Decision on 31 July 2006, ruling in favor
Interest – 20% per annum – 7/16/01 to 92,453,805.78
02/15/04
72[9]
Rollo, p. 105. 73[10]
Id. at 114.
of PAL. The dispositive portion of the judgment of the for the deficiency MCIT in the amount of
CTA Second Division reads: P272,421,886.58.”75[12] Consequently, the CTA en banc
denied the Petition of the CIR for lack of merit. The CTA
WHEREFORE, premises considered, the instant en banc likewise denied the Motion for Reconsideration
Petition for Review is hereby GRANTED. Accordingly,
Assessment Notice No. INC FY-3-31-01-000094 and of the CIR in a Resolution dated 11 October 2007.
Formal Letter of Demand for the payment of deficiency
Minimum Corporate Income Tax in the amount of
P272,421,886.58 are hereby CANCELLED and
WITHDRAWN. 74[11]
Hence, the CIR comes before this Court via the
instant Petition for Review on Certiorari, based on the
In a Resolution dated 2 January 2007, the CTA grounds stated hereunder:
Second Division denied the Motion for Reconsideration
of the CIR. THE COURT OF TAX APPEALS ERRED ON A QUESTION OF
LAW IN ITS ASSAILED DECISION BECAUSE:

(1) [PAL] CLEARLY OPTED TO BE COVERED BY THE


It was then the turn of the CIR to file a Petition for INCOME TAX PROVISION OF THE NATIONAL INTERNAL
Review with the CTA en banc, docketed as C.T.A. E.B. REVENUE CODE OF 1997 (NIRC OF 1997). (sic) AS
AMENDED; HENCE, IT IS COVERED BY THE MCIT
No. 246. The CTA en banc found that “the cited legal PROVISION OF THE SAME CODE.

provisions and jurisprudence are teeming with life with (2) THE MCIT DOES NOT BELONG TO THE CATEGORY
OF “OTHER TAXES” WHICH WOULD ENABLE RESPONDENT
respect to the grant of tax exemption too vivid to pass TO AVAIL ITSELF OF THE “IN LIEU” (sic) OF ALL OTHER
TAXES” CLAUSE UNDER SECTION 13 OF P.D. NO. 1590
unnoticed,” and that “the Court in Division correctly (“CHARTER”).

ruled in favor of the respondent [PAL] granting its (3) THE MCIT PROVISION OF THE NIRC OF 1997 IS NOT
AN AMENDMENT OF [PAL’S] CHARTER.
petition for the cancellation of Assessment Notice No.
(4) PAL IS NOT ONLY GIVEN THE PRIVILEGE TO CHOOSE
INC FY-3-31-01-000094 and Formal Letter of Demand BETWEEN WHAT WILL GIVE IT THE BENEFIT OF A LOWER
TAX, BUT ALSO THE RESPONSIBILITY OF PAYING ITS

74[11]
Id. at 89. 75[12]
Id. at 55.
SHARE OF THE TAX BURDEN, AS IS EVIDENT IN SECTION and freight revenues from its outgoing flights shall be subject to this
22 OF RA NO. 9337. tax.

(5) A CLAIM FOR EXEMPTION FROM TAXATION IS The tax paid by the grantee under either of the above
NEVER PRESUMED; [PAL] IS LIABLE FOR THE DEFICIENCY alternatives shall be in lieu of all other taxes, duties, royalties,
MCIT.76[13] registration, license, and other fees and charges of any kind, nature,
or description, imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government
agency, now or in the future, including but not limited to the following:
There is only one vital issue that the Court must
resolve in the Petition at bar, i.e., whether PAL is liable 1. All taxes, duties, charges, royalties, or fees due on local
purchases by the grantee of aviation gas, fuel, and oil, whether
refined or in crude form, and whether such taxes, duties, charges,
for deficiency MCIT for FY 2000-2001. royalties, or fees are directly due from or imposable upon the
purchaser or the seller, producer, manufacturer, or importer of said
petroleum products but are billed or passed on to the grantee either
as part of the price or cost thereof or by mutual agreement or other
The Court answers in the negative. arrangement; provided, that all such purchases by, sales or deliveries
of aviation gas, fuel, and oil to the grantee shall be for exclusive use
in its transport and nontransport operations and other activities
incidental thereto;
Presidential Decree No. 1590, the franchise of PAL,
contains provisions specifically governing the taxation 2. All taxes, including compensating taxes, duties, charges,
royalties, or fees due on all importations by the grantee of aircraft,
of said corporation, to wit: engines, equipment, machinery, spare parts, accessories,
commissary and catering supplies, aviation gas, fuel, and oil, whether
refined or in crude form and other articles, supplies, or materials;
provided, that such articles or supplies or materials are imported for
Section 13. In consideration of the franchise and rights the use of the grantee in its transport and nontransport operations
hereby granted, the grantee shall pay to the Philippine Government and other activities incidental thereto and are not locally available in
during the life of this franchise whichever of subsections (a) and reasonable quantity, quality, or price;
(b) hereunder will result in a lower tax:
3. All taxes on lease rentals, interest, fees, and other charges
(a) The basic corporate income tax based on the grantee's payable to lessors, whether foreign or domestic, of aircraft, engines,
annual net taxable income computed in accordance with the equipment, machinery, spare parts, and other property rented,
provisions of the National Internal Revenue Code; or leased, or chartered by the grantee where the payment of such taxes
is assumed by the grantee;
(b) A franchise tax of two per cent (2%) of the gross
revenues derived by the grantee from all sources, without distinction 4. All taxes on interest, fees, and other charges on foreign
as to transport or nontransport operations; provided, that with respect loans obtained and other obligations incurred by the grantee where
to international air-transport service, only the gross passenger, mail, the payment of such taxes is assumed by the grantee;

76[13]
Id. at 17-18.
5. All taxes, fees, and other charges on the registration,
licensing, acquisition, and transfer of aircraft, equipment, motor The term "gross revenues" is herein defined as the total
vehicles, and all other personal and real property of the grantee; and gross income earned by the grantee from; (a) transport, nontransport,
and other services; (b) earnings realized from investments in money-
6. The corporate development tax under Presidential Decree market placements, bank deposits, investments in shares of stock
No. 1158-A. and other securities, and other investments; (c) total gains net of total
losses realized from the disposition of assets and foreign-exchange
The grantee, shall, however, pay the tax on its real property transactions; and (d) gross income from other sources. (Emphases
in conformity with existing law. ours.)

For purposes of computing the basic corporate income tax


as provided herein, the grantee is authorized: According to the afore-quoted provisions, the
(a) To depreciate its assets to the extent of not more than taxation of PAL, during the lifetime of its franchise, shall
twice as fast the normal rate of depreciation; and
be governed by two fundamental rules, particularly: (1)
(b) To carry over as a deduction from taxable income any
net loss incurred in any year up to five years following the year of PAL shall pay the Government either basic corporate
such loss.
income tax or franchise tax, whichever is lower; and (2)
Section 14. The grantee shall pay either the franchise tax or
the basic corporate income tax on quarterly basis to the the tax paid by PAL, under either of these alternatives,
Commissioner of Internal Revenue. Within sixty (60) days after the
end of each of the first three quarters of the taxable calendar or fiscal shall be in lieu of all other taxes, duties, royalties,
year, the quarterly franchise or income-tax return shall be filed and
payment of either the franchise or income tax shall be made by the registration, license, and other fees and charges,
grantee.
except only real property tax.
A final or an adjustment return covering the operation of the
grantee for the preceding calendar or fiscal year shall be filed on or
before the fifteenth day of the fourth month following the close of the
calendar or fiscal year. The amount of the final franchise or income The basic corporate income tax of PAL shall be based on
tax to be paid by the grantee shall be the balance of the total
franchise or income tax shown in the final or adjustment return after its annual net taxable income, computed in accordance with the
deducting therefrom the total quarterly franchise or income taxes
already paid during the preceding first three quarters of the same National Internal Revenue Code (NIRC). Presidential Decree
taxable year.
No. 1590 also explicitly authorizes PAL, in the computation of
Any excess of the total quarterly payments over the actual
annual franchise of income tax due as shown in the final or its basic corporate income tax, to (1) depreciate its assets twice
adjustment franchise or income-tax return shall either be refunded to
the grantee or credited against the grantee's quarterly franchise or
income-tax liability for the succeeding taxable year or years at the
option of the grantee.
as fast the normal rate of depreciation;77[14] and (2) carry over as
a deduction from taxable income any net loss incurred in any The CIR, though, assessed PAL for MCIT for FY
year up to five years following the year of such loss.78[15] 2000-2001. It is the position of the CIR that the MCIT is
income tax for which PAL is liable. The CIR reasons that
Franchise tax, on the other hand, shall be two per Section 13(a) of Presidential Decree No. 1590 provides
cent (2%) of the gross revenues derived by PAL from all that the corporate income tax of PAL shall be computed
sources, whether transport or nontransport operations. in accordance with the NIRC. And, since the NIRC of
However, with respect to international air-transport 1997 imposes MCIT, and PAL has not applied for relief
service, the franchise tax shall only be imposed on the from the said tax, then PAL is subject to the same.
gross passenger, mail, and freight revenues of PAL from
its outgoing flights. The Court is not persuaded. The arguments of the
CIR are contrary to the plain meaning and obvious
In its income tax return for FY 2000-2001, filed intent of Presidential Decree No. 1590, the franchise of
with the BIR, PAL reported no net taxable income for PAL.
the period, resulting in zero basic corporate income tax,
which would necessarily be lower than any franchise Income tax on domestic corporations is covered by
tax due from PAL for the same period. Section 27 of the NIRC of 1997,79[16] pertinent provisions
of which are reproduced below for easy reference:
77 [14]
As a general rule, there shall be allowed as a depreciation
deduction a reasonable allowance for the exhaustion, wear and tear
(including reasonable allowance for obsolescence) of property used in
the trade or business. (Section 34(F)(1) of the NIRC of 1997) SEC. 27. Rates of Income Tax on Domestic
78 [15]
In general, losses shall be deducted from gross income in the Corporations. –
same taxable year said losses were incurred. The recognized
exception under Section 39(D) of the NIRC of 1997, allowing net capital
loss carryover, may only be availed of by a taxpayer “other than a 79 [16]
Prior to its amendment by Republic Act No. 9337, which was
corporation.” signed into law on 24 May 2005 and took effect on 1 July 2005.
(A) In General – Except as otherwise provided in rule in determining the income tax due from a domestic
this Code, an income tax of thirty-five percent (35%) is
hereby imposed upon the taxable income derived corporation under the NIRC of 1997, it can only be
during each taxable year from all sources within and
without the Philippines by every corporation, as defined in applied to PAL to the extent allowed by the provisions
Section 22(B) of this Code and taxable under this Title as
a corporation, organized in, or existing under the laws of in the franchise of PAL specifically governing its
the Philippines: Provided, That effective January 1, 1998,
the rate of income tax shall be thirty-four percent (34%); taxation.
effective January 1, 1999, the rate shall be thirty-three
percent (33%); and effective January 1, 2000 and
thereafter, the rate shall be thirty-two percent (32%).
After a conscientious study of Section 13 of
xxxx
Presidential Decree No. 1590, in relation to Sections
(E) Minimum Corporate Income Tax on Domestic
Corporations. –
27(A) and 27(E) of the NIRC of 1997, the Court, like the
CTA en banc and Second Division, concludes that PAL
(1) Imposition of Tax. – A minimum corporate
income tax of two percent (2%) of the gross income cannot be subjected to MCIT for FY 2000-2001.
as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this Title,
beginning on the fourth taxable year immediately
following the year in which such corporation commenced First, Section 13(a) of Presidential Decree No.
its business operations, when the minimum income tax is
greater than the tax computed under Subsection (A) of 1590 refers to “basic corporate income tax.” In
this Section for the taxable year.
Commissioner of Internal Revenue v. Philippine Airlines,

Hence, a domestic corporation must pay Inc.,80[17] the Court already settled that the “basic

whichever is higher of: (1) the income tax under Section corporate income tax,” under Section 13(a) of

27(A) of the NIRC of 1997, computed by applying the Presidential Decree No. 1590, relates to the general

tax rate therein to the taxable income of the rate of 35% (reduced to 32% by the year 2000) as

corporation; or (2) the MCIT under Section 27(E), also of stipulated in Section 27(A) of the NIRC of 1997.

the NIRC of 1997, equivalent to 2% of the gross income


of the corporation. Although this may be the general 80[17]
G.R. No. 160528, 9 October 2006, 504 SCRA 90, 100.
Section 13(a) of Presidential Decree No. 1590 deductions and/or personal and additional
requires that the basic corporate income tax be exemptions, if any, authorized for such types of
computed in accordance with the NIRC. This means income by the same Code or other special laws.
that PAL shall compute its basic corporate income tax The gross income, referred to in Section 31, is
using the rate and basis prescribed by the NIRC of 1997 described in Section 32 of the NIRC of 1997 as income
for the said tax. There is nothing in Section 13(a) of from whatever source, including compensation for
Presidential Decree No. 1590 to support the contention services; the conduct of trade or business or the
of the CIR that PAL is subject to the entire Title II of the exercise of profession; dealings in property; interests;
NIRC of 1997, entitled “Tax on Income.” rents; royalties; dividends; annuities; prizes and
winnings; pensions; and a partner’s distributive share in
Second, Section 13(a) of Presidential Decree No. the net income of a general professional partnership.
1590 further provides that the basic corporate income
tax of PAL shall be based on its annual net taxable Pursuant to the NIRC of 1997, the taxable income
income. This is consistent with Section 27(A) of the of a domestic corporation may be arrived at by
NIRC of 1997, which provides that the rate of basic subtracting from gross income deductions authorized,
corporate income tax, which is 32% beginning 1 not just by the NIRC of 1997,81[18] but also by special
January 2000, shall be imposed on the taxable income laws. Presidential Decree No. 1590 may be considered
of the domestic corporation. as one of such special laws authorizing PAL, in
computing its annual net taxable income, on which its
Taxable income is defined under Section 31 of the basic corporate income tax shall be based, to deduct
NIRC of 1997 as the pertinent items of gross
81 [18]
Section 34 of the NIRC of 1997 enumerates the allowable
income specified in the said Code, less the deductions, while Section 35 identifies the personal and additional
exemptions.
from its gross income the following: (1) depreciation of facilities directly utilized in providing the service, such
assets at twice the normal rate; and (2) net loss carry- as depreciation or rental of equipment used and cost of
over up to five years following the year of such loss. supplies.82[19] Noticeably, inclusions in and
exclusions/deductions from gross income for MCIT
In comparison, the 2% MCIT under Section 27(E) of purposes are limited to those directly arising from the
the NIRC of 1997 shall be based on the gross income conduct of the taxpayer’s business. It is, thus, more
of the domestic corporation. The Court notes that gross limited than the gross income used in the computation
income, as the basis for MCIT, is given a special of basic corporate income tax.
definition under Section 27(E)(4) of the NIRC of 1997,
different from the general one under Section 34 of the In light of the foregoing, there is an apparent
same Code. distinction under the NIRC of 1997 between taxable
income, which is the basis for basic corporate income
According to the last paragraph of Section 27(E)(4) tax under Section 27(A); and gross income, which is the
of the NIRC of 1997, gross income of a domestic basis for the MCIT under Section 27(E). The two terms
corporation engaged in the sale of service means gross have their respective technical meanings, and cannot
receipts, less sales returns, allowances, be used interchangeably. The same reasons prevent
discounts and cost of services. “Cost of services” this Court from declaring that the basic corporate
refers to all direct costs and expenses necessarily income tax, for which PAL is liable under Section 13(a)
incurred to provide the services required by the of Presidential Decree No. 1590, also covers MCIT under
customers and clients including (a) salaries and Section 27(E) of the NIRC of 1997, since the basis for
employee benefits of personnel, consultants, and
specialists directly rendering the service; and (b) cost of
82[19]
Section 27(E)(4) of the NIRC of 1997.
the first is the annual net taxable income, while the franchise tax, whichever is lower; and the tax so paid
basis for the second is gross income. shall be in lieu of all other taxes, except real property
tax. The income tax on the passive income of PAL falls
Third, even if the basic corporate income tax and within the category of “all other taxes” from which PAL
the MCIT are both income taxes under Section 27 of the is exempted, and which, if already collected, should be
NIRC of 1997, and one is paid in place of the other, the refunded to PAL.
two are distinct and separate taxes.
The Court herein treats MCIT in much the same
The Court again cites Commissioner of Internal way. Although both are income taxes, the MCIT is
Revenue v. Philippine Airlines, Inc.,83[20] wherein it held different from the basic corporate income tax, not just
that income tax on the passive income84[21] of a in the rates, but also in the bases for their computation.
domestic corporation, under Section 27(D) of the NIRC Not being covered by Section 13(a) of Presidential
of 1997, is different from the basic corporate income Decree No. 1590, which makes PAL liable only for basic
tax on the taxable income of a domestic corporation, corporate income tax, then MCIT is included in “all
imposed by Section 27(A), also of the NIRC of 1997. other taxes” from which PAL is exempted.
Section 13 of Presidential Decree No. 1590 gives PAL
the option to pay basic corporate income tax or That, under general circumstances, the MCIT is
83[20]
Supra note 17at 98, 100. paid in place of the basic corporate income tax, when
84 [21]
Passive income includes interest from deposits and yield or any
other monetary benefit from deposit substitutes and from trust funds the former is higher than the latter, does not mean that
and similar arrangements and royalties [Section 27(D)(1) of the Tax
Code of 1997]; capital gains from the sale of shares of stock not traded these two income taxes are one and the same. The
in the stock exchange [Section 27(D)(2); income derived under the
Expanded Foreign Currency Deposit System [Section 27(D)(3)]; said taxes are merely paid in the alternative, giving the
intercorporate dividends [Section 27(D)(4)]; and capital gains realized
from sale, exchange or disposition of lands and/or buildings [Section Government the opportunity to collect the higher
27(D)(5)].
amount between the two. The situation is not much franchise, PAL is to pay the least amount of tax
different from Section 13 of Presidential Decree No. possible.
1590, which reversely allows PAL to pay, whichever is
lower of the basic corporate income tax or the franchise Section 13 of Presidential Decree No. 1520 is not
tax. It does not make the basic corporate income tax unusual. A public utility is granted special tax
indistinguishable from the franchise tax. treatment (including tax exceptions/exemptions) under
its franchise, as an inducement for the acceptance of
Given the fundamental differences between the the franchise and the rendition of public service by the
basic corporate income tax and the MCIT, presented in said public utility.85[22] In this case, in addition to being
the preceding discussion, it is not baseless for this a public utility providing air-transport service, PAL is
Court to rule that, pursuant to the franchise of PAL, said also the official flag carrier of the country.
corporation is subject to the first tax, yet exempted
from the second. The imposition of MCIT on PAL, as the CIR insists,
would result in a situation that contravenes the
Fourth, the evident intent of Section 13 of objective of Section 13 of Presidential Decree No. 1590.
Presidential Decree No. 1520 is to extend to PAL tax In effect, PAL would not just have two, but three tax
concessions not ordinarily available to other domestic alternatives, namely, the basic corporate income tax,
corporations. Section 13 of Presidential Decree No. MCIT, or franchise tax. More troublesome is the fact
1520 permits PAL to pay whichever is lower of the that, as between the basic corporate income tax and
basic corporate income tax or the franchise tax; and the MCIT, PAL shall be made to pay whichever is
the tax so paid shall be in lieu of all other taxes, higher, irrefragably, in violation of the avowed
except only real property tax. Hence, under its 85 [22]
See Carcar Electric and Ice Plant Co., Inc. v. Collector of Internal
Revenue, 100 Phil. 50, 54 (1956).
intention of Section 13 of Presidential Decree No. 1590 that results in lower taxes. It is not the fact of tax
payment that exempts it, but the exercise of its
to make PAL pay for the lower amount of tax. option.

Under Subsection (a), the basis for the tax rate is


respondent’s annual net taxable income, which (as earlier
Fifth, the CIR posits that PAL may not invoke in the discussed) is computed by subtracting allowable
deductions and exemptions from gross income. By basing
instant case the “in lieu of all other taxes” clause in the tax rate on the annual net taxable income, PD 1590
Section 13 of Presidential Decree No. 1520, if it did not necessarily recognized the situation in which taxable
income may result in a negative amount and thus
pay anything at all as basic corporate income tax or translate into a zero tax liability.

franchise tax. As a result, PAL should be made liable Notably, PAL was owned and operated by the
government at the time the franchise was last amended.
for “other taxes” such as MCIT. This line of reasoning It can reasonably be contemplated that PD 1590 sought to
assist the finances of the government corporation in the
has been dubbed as the Substitution Theory, and this is form of lower taxes. When respondent operates at a loss
(as in the instant case), no taxes are due; in this
not the first time the CIR raised the same. The Court instances, it has a lower tax liability than that provided by
Subsection (b).
already rejected the Substitution Theory in
The fallacy of the CIR’s argument is evident
Commissioner of Internal Revenue v. Philippine Airlines, from the fact that the payment of a measly sum of
one peso would suffice to exempt PAL from other
Inc.,86[23] to wit: taxes, whereas a zero liability arising from its
losses would not. There is no substantial
distinction between a zero tax and a one-peso tax
“Substitution Theory” liability. (Emphasis ours.)
of the CIR Untenable

A careful reading of Section 13 rebuts the Based on the same ratiocination, the Court finds
argument of the CIR that the “in lieu of all other
taxes” proviso is a mere incentive that applies only the Substitution Theory unacceptable in the present
when PAL actually pays something. It is clear that PD
1590 intended to give respondent the option to avail itself Petition.
of Subsection (a) or (b) as consideration for its franchise.
Either option excludes the payment of other taxes and
dues imposed or collected by the national or the local
government. PAL has the option to choose the alternative The CIR alludes as well to Republic Act No. 9337,
86[23]
Supra note 17 at 100-101.
for reasons similar to those behind the Substitution
Theory. Section 22 of Republic Act No. 9337, more And sixth, Presidential Decree No. 1590 explicitly
popularly known as the Expanded Value Added Tax (E- allows PAL, in computing its basic corporate income
VAT) Law, abolished the franchise tax imposed by the tax, to carry over as deduction any net loss incurred in
charters of particularly identified public utilities, any year, up to five years following the year of such
including Presidential Decree No. 1590 of PAL. PAL may loss. Therefore, Presidential Decree No. 1590 does not
no longer exercise its options or alternatives under only consider the possibility that, at the end of a
Section 13 of Presidential Decree No. 1590, and is now taxable period, PAL shall end up with zero annual net
liable for both corporate income tax and the 12% VAT taxable income (when its deductions exactly equal its
on its sale of services. The CIR alleges that Republic gross income), as what happened in the case at bar,
Act No. 9337 reveals the intention of the Legislature to but also the likelihood that PAL shall incur net loss
make PAL share the tax burden of other domestic (when its deductions exceed its gross income). If PAL is
corporations. subjected to MCIT, the provision in Presidential Decree
No. 1590 on net loss carry-over will be rendered
The CIR seems to lose sight of the fact that the nugatory. Net loss carry-over is material only in
Petition at bar involves the liability of PAL for MCIT for computing the annual net taxable income to be used as
the fiscal year ending 31 March 2001. Republic Act basis for the basic corporate income tax of PAL; but PAL
No. 9337, which took effect on 1 July 2005, cannot be will never be able to avail itself of the basic corporate
applied retroactively87[24] and any amendment income tax option when it is in a net loss position,
introduced by said statute affecting the taxation of PAL because it will always then be compelled to pay the
is immaterial in the present case. necessarily higher MCIT.

87 [24]
Article 4 of the Civil Code provides that “Laws shall have no
retroactive effect, unless the contrary is provided.”
Consequently, the insistence of the CIR to subject special statute, will ordinarily not affect the special
PAL to MCIT cannot be done without contravening provisions of such earlier statute.88[25]
Presidential Decree No. 1520.
Neither can it be said that the NIRC of 1997
Between Presidential Decree No. 1520, on one repealed or amended Presidential Decree No. 1590.
hand, which is a special law specifically governing the
franchise of PAL, issued on 11 June 1978; and the NIRC While Section 16 of Presidential Decree No. 1590
of 1997, on the other, which is a general law on provides that the franchise is granted to PAL with the
national internal revenue taxes, that took effect on 1 understanding that it shall be subject to amendment,
January 1998, the former prevails. The rule is that on a alteration, or repeal by competent authority when the
specific matter, the special law shall prevail over the public interest so requires, Section 24 of the same
general law, which shall be resorted to only to supply Decree also states that the franchise or any portion
deficiencies in the former. In addition, where there are thereof may only be modified, amended, or repealed
two statutes, the earlier special and the later general – expressly by a special law or decree that shall
the terms of the general broad enough to include the specifically modify, amend, or repeal said franchise or
matter provided for in the special – the fact that one is any portion thereof. No such special law or decree
special and the other is general creates a presumption exists herein.
that the special is to be considered as remaining an
exception to the general, one as a general law of the The CIR cannot rely on Section 7(B) of Republic Act

land, the other as the law of a particular case. It is a No. 8424, which amended the NIRC in 1997 and reads

canon of statutory construction that a later statute, as follows:

general in its terms and not expressly repealing a prior 88 [25]


Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, G.R. No. 159647, 15 April 2005, 456 SCRA 414, 449.
(GSIS), acquired the majority shares in PAL. PAL was
Section 7. Repealing Clauses. – privatized in January 1992 when the local consortium
xxxx PR Holdings acquired a 67% stake therein.89[26]
(B) The provisions of the National Internal Revenue
Code, as amended, and all other laws, including
charters of government-owned or controlled It is true that when Presidential Decree No. 1590
corporations, decrees, orders, or regulations or parts
thereof, that are inconsistent with this Act are hereby was issued on 11 June 1978, PAL was then a
repealed or amended accordingly.
government-owned and controlled corporation; but

The CIR reasons that PAL was a government-owned and when Republic Act No. 8424, amending the NIRC, took

controlled corporation when Presidential Decree No. effect on 1 January 1998, PAL was already a private

1590, its franchise or charter, was issued in 1978. corporation for six years. The repealing clause under

Since PAL was still operating under the very same Section 7(B) of Republic Act No. 8424 simply refers to

charter when Republic Act No. 8424 took effect in 1998, charters of government-owned and controlled

then the latter can repeal or amend the former by corporations, which would simply and plainly mean

virtue of Section 7(B). corporations under the ownership and control of the
government at the time of effectivity of said statute.

The Court disagrees. It is already a stretch for the Court to read into said
provision charters, issued to what were then

A brief recount of the history of PAL is in order. government-owned and controlled corporations that are

PAL was established as a private corporation under the now private, but still operating under the same

general law of the Republic of the Philippines in charters.

February 1941. In November 1977, the government,


through the Government Service Insurance System 89[26]
http://www.philippineairlines.com/about_pal/milestones/milestones.jsp
That the Legislature chose not to amend or repeal 1997 necessary for the computation of the basic
Presidential Decree No. 1590, even after PAL was corporate income tax apply to PAL. And even though
privatized, reveals the intent of the Legislature to let Republic Act No. 8424 amended the NIRC by
PAL continue enjoying, as a private corporation, the introducing the MCIT, in what is now Section 27(E) of
very same rights and privileges under the terms and the said Code, this amendment is actually irrelevant
conditions stated in said charter. From the moment and should not affect the taxation of PAL, since the
PAL was privatized, it had to be treated as a private MCIT is clearly distinct from the basic corporate income
corporation, and its charter became that of a private tax referred to in Section 13(a) of Presidential Decree
corporation. It would be completely illogical to say that No. 1590, and from which PAL is consequently exempt
PAL is a private corporation still operating under a under the “in lieu of all other taxes” clause of its
charter of a government-owned and controlled charter.
corporation.
The CIR calls the attention of the Court to RMC No.
The alternative argument of the CIR – that the 66-2003, on “Clarifying the Taxability of Philippine
imposition of the MCIT is pursuant to the amendment of Airlines (PAL) for Income Tax Purposes As Well As Other
the NIRC, and not of Presidential Decree No. 1590 – is Franchise Grantees Similarly Situated.” According to
just as specious. As has already been settled by this RMC No. 66-2003:
Court, the basic corporate income tax under Section
13(a) of Presidential Decree No. 1590 relates to the Section 27(E) of the Code, as implemented by
Revenue Regulations No. 9-98, provides that MCIT of two
general tax rate under Section 27(A) of the NIRC of percent (2%) of the gross income as of the end of the
taxable year (whether calendar or fiscal year, depending
1997, which is 32% by the year 2000, imposed on on the accounting period employed) is imposed upon any
domestic corporation beginning the 4th taxable year
taxable income. Thus, only provisions of the NIRC of immediately following the taxable year in which such
corporation commenced its business operations. The MCIT
shall be imposed whenever such corporation has zero or
negative taxable income or whenever the amount of MCIT It is significant to note that RMC No. 66-2003 was
is greater than the normal income tax due from such
corporation. issued only on 14 October 2003, more than two years
With the advent of such provision beginning after FY 2000-2001 of PAL ended on 31 March 2001.
January 1, 1998, it is certain that domestic corporations
subject to normal income tax as well as those choose to This violates the well-entrenched principle that
be subject thereto, such as PAL, are bound to pay income
tax regardless of whether they are operating at a profit or statutes, including administrative rules and regulations,
loss.
operate prospectively only, unless the legislative intent
Thus, in case of operating loss, PAL may either opt
to subject itself to minimum corporate income tax or to to the contrary is manifest by express terms or by
the 2% franchise tax, whichever is lower. On the other
hand, if PAL is operating at a profit, the income tax
necessary implication.91[28]
liability shall be the lower amount between:

(1) normal income tax or MCIT whichever is higher; Moreover, despite the claims of the CIR that RMC
and
No. 66-2003 is just a clarificatory and internal issuance,
(2) 2% franchise tax.
the Court observes that RMC No. 66-2003 does more
The CIR attempts to sway this Court to adopt RMC than just clarify a previous regulation and goes beyond
No. 66-2003 since the “[c]onstruction by an executive mere internal administration. It effectively increases
branch of government of a particular law although not the tax burden of PAL and other taxpayers who are
binding upon the courts must be given weight as the similarly situated, making them liable for a tax for
construction comes from the branch of the government which they were not liable before. Therefore, RMC No.
called upon to implement the law.”90[27] 66-2003 cannot be given effect without previous notice
or publication to those who will be affected thereby. In
But the Court is unconvinced.

90[27]
Memorandum of the CIR, rollo, p. 264. 91[28]
BPI Leasing Corporation v. Court of Appeals, 461 Phil. 451, 460 (2003).
Commissioner of Internal Revenue v. Court of Appeals,92 Evidently, in order to place "Hope Luxury," "Premium
More," and "Champion" cigarettes within the scope of the
[29]
the Court ratiocinated that: amendatory law and subject them to an increased tax
rate, the now disputed RMC 37-93 had to be issued. In so
doing, the BIR not simply interpreted the law;
verily, it legislated under its quasi-legislative
It should be understandable that when an authority. The due observance of the requirements
administrative rule is merely interpretative in nature, its of notice, of hearing, and of publication should not
applicability needs nothing further than its bare issuance have been then ignored.
for it gives no real consequence more than what the law
itself has already prescribed. When, upon the other Indeed, the BIR itself, in its RMC 10-86, has
hand, the administrative rule goes beyond merely observed and provided:
providing for the means that can facilitate or
render least cumbersome the implementation of "RMC NO. 10-86
the law but substantially adds to or increases the
burden of those governed, it behooves the agency Effectivity of Internal Revenue Rules
to accord at least to those directly affected a and Regulations "It has been observed that
chance to be heard, and thereafter to be duly one of the problem areas bearing on
informed, before that new issuance is given the compliance with Internal Revenue Tax rules
force and effect of law. and regulations is lack or insufficiency of due
notice to the tax paying public. Unless
A reading of RMC 37-93, particularly considering there is due notice, due compliance
the circumstances under which it has been issued, therewith may not be reasonably
convinces us that the circular cannot be viewed simply as expected. And most importantly, their strict
a corrective measure (revoking in the process the enforcement could possibly suffer from legal
previous holdings of past Commissioners) or merely as infirmity in the light of the constitutional
construing Section 142(c)(1) of the NIRC, as amended, but provision on 'due process of law' and the
has, in fact and most importantly, been made in order to essence of the Civil Code provision
place "Hope Luxury," "Premium More" and "Champion" concerning effectivity of laws, whereby due
within the classification of locally manufactured cigarettes notice is a basic requirement (Sec. 1, Art. IV,
bearing foreign brands and to thereby have them covered Constitution; Art. 2, New Civil Code).
by RA 7654. Specifically, the new law would have its
amendatory provisions applied to locally manufactured "In order that there shall be a just
cigarettes which at the time of its effectivity were not so enforcement of rules and regulations, in
classified as bearing foreign brands. Prior to the issuance conformity with the basic element of
of the questioned circular, "Hope Luxury," "Premium due process, the following procedures
More," and "Champion" cigarettes were in the category of are hereby prescribed for the drafting,
locally manufactured cigarettes not bearing foreign brand issuance and implementation of the said
subject to 45% ad valorem tax. Hence, without RMC 37- Revenue Tax Issuances:
93, the enactment of RA 7654, would have had no new "(1). This Circular shall apply only
tax rate consequence on private respondent's products. to (a) Revenue Regulations; (b)
92[29]
329 Phil. 987, 1007-1009 (1996). Revenue Audit Memorandum Orders; and (c)
Revenue Memorandum Circulars and effect and should have been strictly complied with by
Revenue Memorandum Orders bearing on
internal revenue tax rules and regulations. PAL for its fiscal year which ended on 31 March 2001.
"(2). Except when the law otherwise
expressly provides, the aforesaid internal
revenue tax issuances shall not begin to Even conceding that the construction of a statute
be operative until after due notice
thereof may be fairly presumed. by the CIR is to be given great weight, the courts, which
"Due notice of the said issuances may include the CTA, are not bound thereby if such
be fairly presumed only after the following
procedures have been taken: construction is erroneous or is clearly shown to be in

"xxx xxx xxx "(5). Strict compliance conflict with the governing statute or the Constitution
with the foregoing procedures is enjoined.13
or other laws. "It is the role of the Judiciary to refine
Nothing on record could tell us that it was either and, when necessary, correct constitutional (and/or
impossible or impracticable for the BIR to observe and
comply with the above requirements before giving effect statutory) interpretation, in the context of the
to its questioned circular. (Emphases ours.)
interactions of the three branches of the
The Court, however, stops short of ruling on the government."93[30] It is furthermore the rule of long
validity of RMC No. 66-2003, for it is not among the standing that this Court will not set aside lightly the
issues raised in the instant Petition. It only wishes to conclusions reached by the CTA which, by the very
stress the requirement of prior notice to PAL before nature of its functions, is dedicated exclusively to the
RMC No. 66-2003 could have become effective. Only resolution of tax problems and has, accordingly,
after RMC No. 66-2003 was issued on 14 October 2003 developed an expertise on the subject, unless there has
could PAL have been given notice of said circular, and been an abuse or improvident exercise of authority.94[31]
only following such notice to PAL would RMC No. 66- 93 [30]
Philippine Scout Veterans Security and Investigation Agency,
Inc. v. National Labor Relations Commission, 330 Phil. 665, 676 (1996).
2003 have taken effect. Given this sequence, it is not 94 [31]
Commissioner of Internal Revenue v. Philippine National Bank,
G.R. No. 161997, 25 October 2005, 474 SCRA 303, 320; Commissioner
possible to say that RMC No. 66-2003 was already in of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, 31
August 2005, 468 SCRA 571, 593-594.
In the Petition at bar, the CTA en banc and in division applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by
both adjudged that PAL is not liable for MCIT under implication.” Parenthetically, in answering the
question of who is subject to tax statutes, it is
Presidential Decree No. 1590, and this Court has no basic that “in case of doubt, such statutes are to
be construed most strongly against the
sufficient basis to reverse them. 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.” (Emphases ours.)
As to the assertions of the CIR that exemption
from tax is not presumed, and the one claiming it must For two decades following the grant of its
be able to show that it indubitably exists, the Court franchise by Presidential Decree No. 1590 in 1978, PAL
recalls its pronouncements in Commissioner of Internal was only being held liable for the basic corporate
95[32]
Revenue v. Court of Appeals : income tax or franchise tax, whichever was lower; and
its payment of either tax was in lieu of all other taxes,
We disagree. Petitioner Commissioner of Internal
Revenue erred in applying the principles of tax exemption except real property tax, in accordance with the plain
without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is language of Section 13 of the charter of PAL.
obviously both illogical and impractical to
determine who are exempted without first Therefore, the exemption of PAL from “all other taxes”
determining who are covered by the aforesaid
provision. The Commissioner should have determined
was not just a presumption, but a previously
first if private respondent was covered by Section 205, established, accepted, and respected fact, even for the
applying the rule of strict interpretation of laws imposing
taxes and other burdens on the populace, before asking BIR.
Ateneo to prove its exemption therefrom. The Court
takes this occasion to reiterate the hornbook doctrine in
the interpretation of tax laws that “(a) statute will not be
construed as imposing a tax unless it does so clearly, The MCIT was a new tax introduced by Republic
expressly, and unambiguously. x x x (A) tax cannot be
imposed without clear and express words for that Act No. 8424. Under the doctrine of strict
purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes interpretation, the burden is upon the CIR to primarily
95[32]
338 Phil. 322, 330-331 (1997). prove that the new MCIT provisions of the NIRC of 1997,
clearly, expressly, and unambiguously extend and SO ORDERED.
apply to PAL, despite the latter’s existing tax
exemption. To do this, the CIR must convince the Court
that the MCIT is a basic corporate income tax,96[33] and
is not covered by the “in lieu of all other taxes” clause
of Presidential Decree No. 1590. Since the CIR failed in
this regard, the Court is left with no choice but to
consider the MCIT as one of “all other taxes,” from
which PAL is exempt under the explicit provisions of its
charter.
CERTIFICATION

Not being liable for MCIT in FY 2000-2001, it Pursuant to Article VIII, Section 13 of the
Constitution, and the Division Chairman’s Attestation, it
necessarily follows that PAL need not apply for relief is hereby certified that the conclusions in the above
from said tax as the CIR maintains. Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s
Division.
WHEREFORE, premises considered, the instant
Petition for Review is hereby DENIED, and the Decision
dated 9 August 2007 and Resolution dated 11 October REYNATO S. PUNO
2007 of the Court of Tax Appeals en banc in CTA E.B. Chief Justice
No. 246 is hereby AFFIRMED. No costs.

96[33]
Since it is readily apparent that the MCIT does not constitute the
alternative franchise tax.
CHICO-NAZARIO, J.:

This is a Petition for Review assailing the


Decision97[1] dated 29 April 2005 and the Resolution

THIRD DIVISION dated 20 April 2007 of the Court of Appeals in CA-G.R.


SP No. 77655, which annulled and set aside the

COMMISSIONER OF G.R. No. 178490 Decision dated 12 March 2003 of the Court of Tax
INTERNAL REVENUE, Appeals (CTA) in CTA Case No. 6276, wherein the CTA
Present:
Petitioner, held that respondent Bank of the Philippine Islands (BPI)
YNARES-SANTIAGO, J., already exercised the irrevocable option to carry over
Chairperson,
CHICO-NAZARIO, its excess tax credits for the year 1998 to the
VELASCO, JR., succeeding years 1999 and 2000 and was, therefore,
- versus - NACHURA, and
PERALTA, JJ. no longer entitled to claim the refund or issuance of a
tax credit certificate for the amount thereof.
Promulgated:

BANK OF THE On 15 April 1999, BPI filed with the Bureau of


PHILIPPINE ISLANDS, July 7, 2009
Respondent. Internal Revenue (BIR) its final adjusted Corporate
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Annual Income Tax Return (ITR) for the taxable year
- - - - - - - - - - -x
ending on 31 December 1998, showing a taxable

DECISION
97 [1]
Penned by Associate Justice Bienvenido L. Reyes with Associate
Justices Godardo A. Jacinto and Rosalinda Asuncion-Vicente concurring.
Rollo, pp. 25-33.
income of P1,773,236,745.00 and a total tax due of amount of P33,947,101.00. The computation of BPI is
P602,900,493.00. reproduced below:

For the same taxable year 1998, BPI already made Total Income Taxes Due
P602,900,493.00
income tax payments for the first three quarters, which Less: Tax Credits:
Prior year’s tax credits P59,424,222.00
amounted to P563,547,470.46.98[2] The bank also Quarterly payments 563,547,470.46
received income in 1998 from various third persons, Creditable taxes withheld 7,685,887.90
Foreign tax credit 6,190,014.00
which, were already subjected to expanded withholding 636,847,594.00
-------------------
taxes amounting to P7,685,887.90. BPI additionally -------------------
Net Tax Payable/(Refundable)
acquired foreign tax credit when it paid the United P(33,947,101.00)
States government taxes in the amount of
$151,467.00, or the equivalent of P6,190,014.46, on BPI opted to carry over its 1998 excess tax credit,
the operations of former’s New York Branch. Finally, in the amount of P33,947,101.00, to the succeeding
respondent BPI had carried over excess tax credit from taxable year ending 31 December 1999.99[3] For 1999,
the prior year, 1997, amounting to P59,424,222.00. however, respondent BPI ended up with (1) a net loss in
the amount of P615,742,102.00; (2) its still unapplied
Crediting the aforementioned amounts against the excess tax credit carried over from 1998, in the amount
total tax due from it at the end of 1998, BPI computed of P33,947,101.00; and (3) more excess tax credit,
an overpayment to the BIR of income taxes in the acquired in 1999, in the sum of P12,975,750.00. So in
1999, the total excess tax credits of BPI increased to
98[2]
Computed as follows:
Quarter coveredDate filedQuarterly Income Tax Paid1st Quarter06-01-
98378,564,898.342nd Quarter08-31-98184,982,572.123rd Quarter11-27-98---
Total563,547,470.46 99[3]
Exhibit “A-2.”
P46,922,851.00, which it once more opted to carry The CIR failed to act on the claim for tax refund of
over to the following taxable year. BPI. Hence, BPI filed a Petition for Review before the
CTA, docketed as CTA Case No. 6276.
For the taxable year ending 31 December 2000,
respondent BPI declared in its Corporate Annual ITR: (1) The CTA promulgated its Decision in CTA Case No.
zero taxable income; (2) excess tax credit carried over 6276 on 12 March 2003, ruling therein that since BPI
from 1998 and 1999, amounting to P46,922,851.00; had opted to carry over its 1998 excess tax credit to
and (3) even more excess tax credit, gained in 2000, in 1999 and 2000, it was barred from filing a claim for the
the amount of P25,207,939.00. This time, BPI failed refund of the same.
to indicate in its ITR its choice of whether to carry over
its excess tax credits or to claim the refund of or The CTA relied on the irrevocability rule laid down
issuance of a tax credit certificate for the amounts in Section 76 of the National Internal Revenue Code
thereof. (NIRC) of 1997, which states that once the taxpayer
opts to carry over and apply its excess income tax to
On 3 April 2001, BPI filed with petitioner succeeding taxable years, its option shall be irrevocable
Commissioner of Internal Revenue (CIR) an for that taxable period and no application for tax refund
administrative claim for refund in the amount of or issuance of a tax credit shall be allowed for the
P33,947,101.00, representing its excess creditable same.
income tax for 1998.
The CTA Decision adjudged:
A close scrutiny of the 1998 income tax return In the end, the CTA decreed:
of [BPI] reveals that it opted to carry over its excess
tax credits, the amount subject of this claim, to the
succeeding taxable year by placing an “x” mark on IN VIEW OF ALL THE FOREGOING, the instant
the corresponding box of said return (Exhibits A-2 & petition for review is hereby DENIED for lack of
3-a). For the year 1999, [BPI] again manifested its merit.101[5]
intention to carry over to the succeeding taxable
period the subject claim together with the current
excess tax credits (Exhibit J). Still unable to apply its
prior year’s excess credits in 1999 as it ended up in a BPI filed a Motion for Reconsideration of the
net loss position, petitioner again carried over the
said excess credits in the year 2000 (Exhibit K). foregoing Decision, but the CTA denied the same in a
The court already categorically ruled in a Resolution dated 3 June 2003.
number of cases that once the option to carry-over
and apply the excess quarterly income tax against
the income tax due for the taxable quarters of the BPI filed an appeal with the Court of Appeals,
succeeding taxable years has been made, such
option shall be considered irrevocable and no docketed as CA-G.R. SP No. 77655. On 29 April 2005,
application for cash refund or issuance of a tax credit
certificate shall be allowed therefore (Pilipinas the Court of Appeals rendered its Decision, reversing
Transport Industries vs. Commissioner of Internal
Revenue, CTA Case No. 6073, dated March 1, 2002; that of the CTA and holding that BPI was entitled to a
Pilipinas Hino, Inc. vs. Commissioner of Internal refund of the excess income tax it paid for 1998.
Revenue, CTA Case No. 6074, dated April 19, 2002;
Philam Asset Management, Inc. vs. Commissioner of
Internal Revenue, CTA Case No. 6210, dated May 2,
2002; The Philippine Banking Corporation (now The Court of Appeals conceded that BPI indeed
known as Global Business Bank, Inc.) vs.
Commissioner of Internal Revenue, CTA Resolution, opted to carry over its excess tax credit in 1998 to
CTA Case No. 6280, August 16, 2001. Since [BPI] 1999 by placing an “x” mark on the corresponding box
already exercised the irrevocable option to carry
over its excess tax credits for the year 1998 to the of its 1998 ITR. Nonetheless, there was no actual
succeeding years 1999 and 2000, it is, therefore, no
longer entitled to claim for a refund or issuance of a carrying over of the excess tax credit, given that BPI
tax credit certificate.100[4]
suffered a net loss in 1999, and was not liable for any
100[4]
CA rollo, pp. 28-29. 101[5]
CA rollo, p. 29.
income tax for said taxable period, against which the
1998 excess tax credit could have been applied. Finally, the appellate court cited BPI-Family
Savings Bank, Inc. v. Court of Appeals102[6] wherein this
The Court of Appeals added that even if Section 76 Court held that if a taxpayer suffered a net loss in a
was to be construed strictly and literally, the year, thus, incurring no tax liability to which the tax
irrevocability rule would still not bar BPI from seeking a credit from the previous year could be applied, there
tax refund of its 1998 excess tax credit despite was no reason for the BIR to withhold the tax refund
previously opting to carry over the same. The phrase which rightfully belonged to the taxpayer.103[7]
“for that taxable period” qualified the irrevocability of
the option of BIR to carry over its 1998 excess tax In a Resolution dated 20 April 2007, the Court of
credit to only the 1999 taxable period; such that, when Appeals denied the Motion for Reconsideration of the
the 1999 taxable period expired, the irrevocability of CIR.104[8]
the option of BPI to carry over its excess tax credit from
1998 also expired. Hence, the CIR filed the instant Petition for
Review, alleging that:
The Court of Appeals further reasoned that the
government would be unjustly enriched should the I

appellate court hold that the irrevocability rule barred THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN HOLDING THAT THE “IRREVOCABILITY
the claim for refund of a taxpayer, who previously RULE” UNDER SECTION 76 OF THE TAX CODE DOES
opted to carry-over its excess tax credit, but was not NOT OPERATE TO BAR PETITIONER FROM ASKING
FOR A TAX REFUND.
able to use the same because it suffered a net loss in
102[6]
386 Phil. 719 (2000).
the succeeding year. 103[7]
Id. at 727.
104[8]
Rollo, pp. 34-39.
BPI-Family on the ground that, since the bank declared
II
in its 1989 ITR that it would carry over its tax credits to
THE COURT OF APPEALS COMMITTED GRAVE ERROR
WHEN IT REVERSED AND SET ASIDE THE DECISION the following year, it should be presumed to have done
OF THE COURT OF TAX APPEALS AND HELD THAT so. In its Motion for Reconsideration filed with the CTA,
RESPONDENT IS ENTITLED TO THE CLAIMED TAX
REFUND. BPI-Family submitted its final adjusted ITR for 1989
showing that it incurred P52,480,173.00 net loss in
The Court finds merit in the instant Petition. 1990. Still, the CTA denied the Motion for
Reconsideration of BPI-Family. The Court of Appeals
The Court of Appeals erred in relying on BPI- likewise denied the appeal of BPI-Family and merely
Family, missing significant details that rendered said affirmed the judgment of the CTA. The Court, however,
case inapplicable to the one at bar. reversed the CTA and the Court of Appeals.

In BPI-Family, therein petitioner BPI-Family This Court decided to grant the claim for refund of
declared in its Corporate Annual ITR for 1989 excess BPI-Family after finding that the bank had presented
tax credits of P185,001.00 from 1988 and P112,491.00 sufficient evidence to prove that it incurred a net loss in
from 1989, totaling P297,492.00. BPI-Family clearly 1990 and, thus, had no tax liability to which its tax
indicated in the same ITR that it was carrying over said credit from 1989 could be applied. The Court stressed
excess tax credits to the following year. But on 11 in BPI Family that “the undisputed fact is that [BPI-
October 1990, BPI-Family filed a claim for refund of its Family] suffered a net loss in 1990; accordingly, it
P112,491.00 tax credit from 1989. When no action incurred no tax liability to which the tax credit could be
from the BIR was forthcoming, BPI-Family filed its claim applied. Consequently, there is no reason for the BIR
with the CTA. The CTA denied the claim for refund of and this Court to withhold the tax refund which
rightfully belongs to the [BPI-Family].” It was on the It is necessary for this Court, however, to
basis of this fact that the Court granted the appeal of emphasize that BPI-Family involved tax credit acquired
BPI-Family, brushing aside all procedural and technical by the bank in 1989, which it initially opted to carry
objections to the same through the following over to 1990. The prevailing tax law then was the
pronouncements: NIRC of 1985, Section 79106[10] of which provided:

Finally, respondents argue that tax refunds are Sec. 79. Final Adjustment Return. - Every
in the nature of tax exemptions and are to be corporation liable to tax under Section 24 shall file a
construed strictissimi juris against the claimant. final adjustment return covering the total net income
Under the facts of this case, we hold that [BPI- for the preceding calendar or fiscal year. If the sum of
Family] has established its claim. [BPI-Family] may the quarterly tax payments made during the said
have failed to strictly comply with the rules of taxable year is not equal to the total tax due on the
procedure; it may have even been negligent. These entire taxable net income of that year the corporation
circumstances, however, should not compel the shall either:
Court to disregard this cold, undisputed fact: that
petitioner suffered a net loss in 1990, and that it (a) Pay the excess tax still due; or
could not have applied the amount claimed as tax
credits. (b) Be refunded the excess amount paid, as
the case may be.
Substantial justice, equity and fair play are on
the side of [BPI-Family]. Technicalities and legalisms, In case the corporation is entitled to a refund
however exalted, should not be misused by the of the excess estimated quarterly income taxes-paid,
government to keep money not belonging to it and the refundable amount shown on its final adjustment
thereby enrich itself at the expense of its law-abiding return may be credited against the estimated
citizens. If the State expects its taxpayers to quarterly income tax liabilities for the taxable
observe fairness and honesty in paying their taxes, quarters of the succeeding taxable year. (Emphases
so must it apply the same standard against itself in ours.)
refunding excess payments of such taxes. Indeed,
the State must lead by its own example of honor,
dignity and uprightness.105[9]

106 [10]
The provision was erroneously cited as Section 69 in BPI-Family.
105[9]
BPI-Family Savings Bank, Inc. v. Court of Appeals, supra note 6 at 728- While the said provision was indeed Section 69 of the NIRC of 1977, it
729. was already re-numbered as Section 79 of the NIRC of 1985.
By virtue of the afore-quoted provision, the quarters of the succeeding taxable years. Once the
option to carry-over and apply the excess
taxpayer with excess income tax was given the option quarterly income tax against income tax due
for the taxable quarters of the succeeding
to either (1) refund the amount; or (2) credit the same taxable years has been made, such option shall
to its tax liability for succeeding taxable periods. be considered irrevocable for that taxable
period and no application for tax refund or
issuance of a tax credit certificate shall be
allowed therefor. (Emphases ours.)
Section 79 of the NIRC of 1985 was reproduced as
Section 76 of the NIRC of 1997,107[11] with the addition
When BPI-Family was decided by this Court, it did
of one important sentence, which laid down the
not yet have the irrevocability rule to consider. Hence,
irrevocability rule:
BPI-Family cannot be cited as a precedent for this case.

Section 76. Final Adjustment Return. - Every


corporation liable to tax under Section 24 shall file a The factual background of Philam Asset
final adjustment return covering the total net income
for the preceding calendar or fiscal year. If the sum Management, Inc. v. Commissioner of Internal
of the quarterly tax payments made during the said
Revenue,108[12] cited by the CIR, is closer to the instant
taxable year is not equal to the total tax due on the
entire taxable net income of that year the Petition. Both involve tax credits acquired and claims
corporation shall either:
for refund filed more than a decade after those in BPI-
(a) Pay the excess tax still due; or
Family, to which Section 76 of the NIRC of 1997 already
(b) Be refunded the excess amount paid, as the
apply.
case may be.

In case the corporation is entitled to a refund


of the excess estimated quarterly income taxes paid, The Court, in Philam, recognized the two options
the refundable amount shown on its final adjustment
return may be credited against the estimated offered by Section 76 of the NIRC of 1997 to a taxable
quarterly income tax liabilities for the taxable
corporation whose total quarterly income tax payments
107[11]
Took effect on 1 January 1998. 108[12]
G.R. No. 156637 and No. 162004, 14 December 2005, 477 SCRA 761.
in a given taxable year exceeds its total income tax The Court categorically declared in Philam that:
due. These options are: (1) filing for a tax refund or (2) “Section 76 remains clear and unequivocal. Once
availing of a tax credit. The Court further explained: the carry-over option is taken, actually or
constructively, it becomes irrevocable.” It
The first option is relatively simple. Any tax on mentioned no exception or qualification to the
income that is paid in excess of the amount due the
government may be refunded, provided that a irrevocability rule.
taxpayer properly applies for the refund.

The second option works by applying the Hence, the controlling factor for the operation of
refundable amount, as shown on the [Final
Adjustment Return (FAR)] of a given taxable year, the irrevocability rule is that the taxpayer chose an
against the estimated quarterly income tax liabilities
of the succeeding taxable year. option; and once it had already done so, it could no

These two options under Section 76 are longer make another one. Consequently, after the
alternative in nature. The choice of one taxpayer opts to carry-over its excess tax credit to the
precludes the other. Indeed, in Philippine Bank of
Communications v. Commissioner of Internal following taxable period, the question of whether or not
Revenue, the Court ruled that a corporation must
signify its intention -- whether to request a tax refund it actually gets to apply said tax credit is irrelevant.
or claim a tax credit -- by marking the corresponding
option box provided in the FAR. While a taxpayer is Section 76 of the NIRC of 1997 is explicit in stating that
required to mark its choice in the form provided by once the option to carry over has been made, “no
the BIR, this requirement is only for the purpose of
facilitating tax collection. application for tax refund or issuance of a tax credit
One cannot get a tax refund and a tax credit at certificate shall be allowed therefor.”
the same time for the same excess income taxes
paid.109[13] x x x
The last sentence of Section 76 of the NIRC of
1997 reads: “Once the option to carry-over and apply
the excess quarterly income tax against income tax due
109[13]
Id. at 772.
for the taxable quarters of the succeeding taxable its 1998 excess income tax credit. This construal
years has been made, such option shall be effectively renders nugatory the irrevocability rule. The
considered irrevocable for that taxable period evident intent of the legislature, in adding the last
and no application for tax refund or issuance of a tax sentence to Section 76 of the NIRC of 1997, is to keep
credit certificate shall be allowed therefor.” The phrase the taxpayer from flip-flopping on its options, and avoid
“for that taxable period” merely identifies the excess confusion and complication as regards said taxpayer’s
income tax, subject of the option, by referring to the excess tax credit. The interpretation of the Court of
taxable period when it was acquired by the taxpayer. Appeals only delays the flip-flopping to the end of each
In the present case, the excess income tax credit, succeeding taxable period.
which BPI opted to carry over, was acquired by the said
bank during the taxable year 1998. The option of BPI to The Court similarly disagrees in the declaration of
carry over its 1998 excess income tax credit is the Court of Appeals that to deny the claim for refund
irrevocable; it cannot later on opt to apply for a refund of BPI, because of the irrevocability rule, would be
of the very same 1998 excess income tax credit. tantamount to unjust enrichment on the part of the
government. The Court addressed the very same
The Court of Appeals mistakenly understood the argument in Philam, where it elucidated that there
phrase “for that taxable period” as a prescriptive period would be no unjust enrichment in the event of denial of
for the irrevocability rule. This would mean that since the claim for refund under such circumstances, because
the tax credit in this case was acquired in 1998, and BPI there would be no forfeiture of any amount in favor of
opted to carry it over to 1999, then the irrevocability of the government. The amount being claimed as a
the option to carry over expired by the end of 1999, refund would remain in the account of the taxpayer
leaving BPI free to again take another option as regards
until utilized in succeeding taxable years,110[14] as automatically mean that the taxpayer has opted for a
provided in Section 76 of the NIRC of 1997. It is worthy tax credit. The Court ratiocinated in G.R. No.
to note that unlike the option for refund of excess 156637111[15] of Philam:
income tax, which prescribes after two years from the
filing of the FAR, there is no prescriptive period for the One cannot get a tax refund and a tax credit at
the same time for the same excess income taxes
carrying over of the same. Therefore, the excess paid. Failure to signify one’s intention in the
FAR does not mean outright barring of a valid
income tax credit of BPI, which it acquired in 1998 and request for a refund, should one still choose
opted to carry over, may be repeatedly carried over to this option later on. A tax credit should be
construed merely as an alternative remedy to a tax
succeeding taxable years, i.e., to 1999, 2000, 2001, refund under Section 76, subject to prior verification
and approval by respondent.
and so on and so forth, until actually applied or credited
The reason for requiring that a choice be
to a tax liability of BPI. made in the FAR upon its filing is to ease tax
administration, particularly the self-assessment
and collection aspects. A taxpayer that makes a
Finally, while the Court, in Philam, was firm in its choice expresses certainty or preference and thus
demonstrates clear diligence. Conversely, a
position that the choice of option as regards the excess taxpayer that makes no choice expresses uncertainty
or lack of preference and hence shows simple
income tax shall be irrevocable, it was less rigid in the negligence or plain oversight.
determination of which option the taxpayer actually 111 [15]
Philam actually involved two consolidated cases, G.R. No.
156637 and G.R. No. 162004. In G.R. No. 156637, therein petitioner
chose. It did not limit itself to the indication by the Philam paid excess income tax for 1997. It did not indicate its option to
carry over or refund said excess income tax in its ITR for 1997. On 11
taxpayer of its option in the ITR. September 1998, however, it filed a claim for refund of the same. In
G.R. No. 162004, Philam incurred a net loss in 1998 and had
unapplied excess creditable income tax for the same period in the
amount of P459,756.07. In its ITR for the succeeding year of 1999,
Thus, failure of the taxpayer to make an Philam reported a tax due of only P80,042.00, creditable withholding
tax of P915,995.00, and excess credit carried over from 1998 of
appropriate marking of its option in the ITR does not P459,756.07. On 14 November 2000, Philam filed a claim for tax
refund, alleging that its tax liability for 1999 was deducted from its
110[14]
Philam Asset Management, Inc. v. Commissioner of Internal Revenue, creditable withholding tax for the same taxable period; leaving its
supra note 12 at 768. excess tax credit carried over from 1998 still unapplied.
thereby enrich itself at the expense of its law-abiding
xxxx
citizens.”
x x x Despite the failure of [Philam] to make
the appropriate marking in the BIR form, the filing
of its written claim effectively serves as an Therefore, as to which option the taxpayer chose
expression of its choice to request a tax
refund, instead of a tax credit. To assert that any is generally a matter of evidence. It is axiomatic that a
future claim for a tax refund will be instantly
hindered by a failure to signify one’s intention in the claimant has the burden of proof to establish the
FAR is to render nugatory the clear provision that
factual basis of his or her claim for tax credit or refund.
allows for a two-year prescriptive period.112[16]
(Emphases ours.) Tax refunds, like tax exemptions, are construed strictly
against the taxpayer.113[17]
Philam reveals a meticulous consideration by the
Court of the evidence submitted by the parties and the
In the Petition at bar, BPI was unable to discharge
circumstances surrounding the taxpayer’s option to
the burden of proof necessary for the grant of a refund.
carry over or claim for refund. When circumstances
BPI expressly indicated in its ITR for 1998 that it was
show that a choice has been made by the taxpayer to
carrying over, instead of refunding, the excess income
carry over the excess income tax as credit, it should be
tax it paid during the said taxable year. BPI
respected; but when indubitable circumstances clearly
consistently reported the said amount in its ITRs for
show that another choice – a tax refund – is in order, it
1999 and 2000 as credit to be applied to any tax
should be granted. “Technicalities and legalisms,
liability the bank may incur; only, no such opportunity
however exalted, should not be misused by the
arose because it suffered a net loss in 1999 and
government to keep money not belonging to it and
incurred zero tax liability in 2000. In G.R. No. 162004
of Philam, the Court found:
112 [16]
Philam Asset Management, Inc. v. Commissioner of Internal
Revenue, supra note 12 at 772, 776. See also Commissioner of Internal 113 [17]
Paseo Realty and Development Corporation v. Court of Appeals,
Revenue v. PERF Realty Corporation, G.R. No. 163345, 4 July 2008. G.R. No. 119286, 13 October 2004, 440 SCRA 235, 247.
First, the fact that it filled out the portion “Prior The choice by BPI of the option to carry over its
Year’s Excess Credits” in its 1999 FAR means that it
categorically availed itself of the carry-over option. 1998 excess income tax credit to succeeding taxable
In fact, the line that precedes that phrase in the BIR
form clearly states “Less: Tax Credits/Payments.” years, which it explicitly indicated in its 1998 ITR, is
The contention that it merely filled out that portion irrevocable, regardless of whether it was able to
because it was a requirement – and that to have
done otherwise would have been tantamount to actually apply the said amount to a tax liability. The
falsifying the FAR – is a long shot.
reiteration by BPI of the carry over option in its ITR for
The FAR is the most reliable firsthand evidence
of corporate acts pertaining to income taxes. In it 1999 was already a superfluity, as far as its 1998
are found the itemization and summary of additions excess income tax credit was concerned, given the
to and deductions from income taxes due. These
entries are not without rhyme or reason. They are irrevocability of the initial choice made by the bank to
required, because they facilitate the tax
administration process.114[18] carry over the said amount. For the same reason, the
failure of BPI to indicate any option in its ITR for 2000
BPI itself never denied that its original intention was already immaterial to its 1998 excess income tax
was to carry over the excess income tax credit it credit.
acquired in 1998, and only chose to refund the said
amount when it was unable to apply the same to any WHEREFORE, the instant Petition for Review of
tax liability in the succeeding taxable years. There can the Commissioner for Internal Revenue is GRANTED.
be no doubt that BPI opted to carry over its excess The Decision dated 29 April 2005 and the Resolution
income tax credit from 1998; it only subsequently dated 20 April 2007 of the Court of Appeals in CA-G.R.
changed its mind – which it was barred from doing by SP No. 77655 are REVERSED and SET ASIDE. The
the irrevocability rule. Decision dated 12 March 2003 of the Court of Tax
114[18]
Philam Asset Management, Inc. v. Commissioner of Internal Revenue, Appeals in CTA Case No. 6276, denying the claim of
supra note 12 at 778.
respondent Bank of the Philippine Islands for the refund
of its 1998 excess income tax credits, is REINSTATED. Republic of the Philippines

No costs. Supreme Court


Manila
THIRD DIVISION

SO ORDERED.
QUEZON CITY and THE CITY G.R. No. 166408
TREASURER OF QUEZON CITY,
Petitioners,
Present:

YNARES-
SANTIAGO, J.,
Chairper
son,
- versus - AUSTRIA-
MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

ABS-CBN BROADCASTING Promulgated:


CORPORATION,
Respondent. October 6, 2008

x-----------------------------------------------
---x

DECISION
as the Revised Charter of Quezon City. Petitioner City
REYES, R.T., J.:
Treasurer of Quezon City is primarily responsible for the
imposition and collection of taxes within the territorial
CLAIMS for tax exemption must be based on
jurisdiction of Quezon City.
language in law too plain to be mistaken. It cannot be
made out of inference or implication.
Under Section 31, Article 13 of the Quezon City
Revenue Code of 1993,117[3] a franchise tax was imposed
The principle is relevant in this petition for review
on businesses operating within its jurisdiction. The
on certiorari of the Decision 115[1]
of the Court of Appeals
provision states:
(CA) and that 116[2]
of the Regional Trial Court (RTC)
ordering the refund and declaring invalid the imposition Section 31. Imposition of Tax. – Any provision of
special laws or grant of tax exemption to the contrary
and collection of local franchise tax by the City notwithstanding, any person, corporation, partnership or
Treasurer of Quezon City on ABS-CBN Broadcasting association enjoying a franchise whether issued by the
national government or local government and, doing
Corporation (ABS-CBN). business in Quezon City, shall pay a franchise tax at the
rate of ten percent (10%) of one percent (1%) for 1993-
1994, twenty percent (20%) of one percent (1%) for
1995, and thirty percent (30%) of one percent (1%) for
The Facts 1996 and the succeeding years thereafter, of gross
receipts and sales derived from the operation of the
business in Quezon City during the preceding calendar
year.
Petitioner City Government of Quezon City is a
local government unit duly organized and existing by On May 3, 1995, ABS-CBN was granted the
virtue of Republic Act (R.A.) No. 537, otherwise known franchise to install and operate radio and television
115[1]
Rollo, pp. 56-67. Dated August 31, 2004. Penned by Associate Justice
Magdangal M. De Leon, with Associate Justices Romeo A. Brawner and
broadcasting stations in the Philippines under R.A. No.
Mariano C. Del Castillo, concurring.
116[2]
Id. at 46-54. Dated January 20, 1999. Penned by then Judge, now CA
Associate Justice, Lucas P. Bersamin. 117[3]
Quezon City Ordinance No. SP-91, S-93.
7966.118[4] Section 8 of R.A. No. 7966 provides the tax Consequently, ABS-CBN paid under protest the local
liabilities of ABS-CBN which reads: franchise tax imposed by Quezon City on the dates, in
the amounts and under the official receipts as follows:
Section 8. Tax Provisions. – The grantee, its
successors or assigns, shall be liable to pay the same
taxes on their real estate, buildings and personal O.R. No. Date Amount Paid
property, exclusive of this franchise, as other persons or 2464274 07-18-95 P 1,489,977.28
corporations are now hereafter may be required by law to 2484651 10-20-95 1,489,977.28
pay. In addition thereto, the grantee, its successors or 2536134 1-22-96 2,880,975.65
assigns, shall pay a franchise tax equivalent to three 8354906 1-23-97 8,621,470.83
percent (3%) of all gross receipts of the
radio/television business transacted under this 0048756 1-23-97 2,731,135.81
franchise by the grantee, its successors or assigns, 0067352 4-03-97 2,731,135.81
and the said percentage tax shall be in lieu of all Total P19,944,672.66119[5]
taxes on this franchise or earnings thereof; Provided
that the grantee, its successors or assigns shall continue
to be liable for income taxes under Title II of the National On January 29, 1997, ABS-CBN filed a written claim
Internal Revenue Code pursuant to Section 2 of Executive
No. 72 unless the latter enactment is amended or for refund for local franchise tax paid to Quezon City for
repealed, in which case the amendment or repeal shall be
applicable thereto. (Emphasis added) 1996 and for the first quarter of 1997 in the total
amount of Fourteen Million Two Hundred Thirty-Three
ABS-CBN had been paying local franchise tax
Thousand Five Hundred Eighty-Two and 29/100
imposed by Quezon City. However, in view of the centavos (P14,233,582.29) broken down as follows:
above provision in R.A. No. 9766 that it “shall pay a
franchise tax x x x in lieu of all taxes,” the corporation O.R. No Date Amount Paid
2536134 1-22-96 P 2,880,975.65
developed the opinion that it is not liable to pay the 8354906 1-23-97 8,621,470.83
local franchise tax imposed by Quezon City. 0048756 1-23-97 2,731,135.81
Total P14,233,582.29120[6]
118[4]
“An Act Granting the ABS-CBN Broadcasting Corporation a Franchise to
Construct, Install, Operate and Maintain Television and Radio Broadcasting
Stations in the Philippines, and for Other Purposes.” Enacted on March 30, 119[5]
Rollo, p. 17.
1995 and date of effectivity on May 3, 1995. 120[6]
Id.
In a letter dated March 3, 1997 to the Quezon City Quezon City argued that the “in lieu of all taxes”
Treasurer, ABS-CBN reiterated its claim for refund of provision in R.A. No. 9766 could not have been
local franchise taxes paid. intended to prevail over a constitutional mandate which
ensures the viability and self-sufficiency of local
On June 25, 1997, for failure to obtain any government units. Further, that taxes collectible by
response from the Quezon City Treasurer, ABS-CBN and payable to the local government were distinct from
filed a complaint before the RTC in Quezon City seeking taxes collectible by and payable to the national
the declaration of nullity of the imposition of local government, considering that the Constitution
franchise tax by the City Government of Quezon City for specifically declared that the taxes imposed by local
being unconstitutional. It likewise prayed for the refund government units “shall accrue exclusively to the local
of local franchise tax in the amount of Nineteen Million governments.” Lastly, the City contended that the
Nine Hundred Forty-Four Thousand Six Hundred exemption claimed by ABS-CBN under R.A. No. 7966
Seventy-Two and 66/100 centavos (P19,944,672.66) was withdrawn by Congress when the Local
broken down as follows: Government Code (LGC) was passed.122[8] Section 193 of
the LGC provides:
O.R. No. Date Amount Paid
2464274 7-18-95 P 1,489,977.28
2484651 10-20-95 1,489,977.28 Section 193. Withdrawal of Tax Exemption
2536134 1-22-96 2,880,975.65 Privileges. – Unless otherwise provided in this Code, tax
8354906 1-23-97 8,621,470.83 exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical,
0048756 1-23-97 2,731,135.81 including government-owned or -controlled
0067352 4-03-97 2,731,135.81 corporations, except local water districts, cooperatives
Total P19,944,672.66121[7] duly registered under R.A. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby
121[7]
Id. at 17-18. 122[8]
Id. at 46-60.
withdrawn upon the effectivity of this Code. (Emphasis all payments made. The dispositive portion of the RTC
added)
decision reads:
On August 13, 1997, ABS-CBN filed a supplemental
complaint adding to its claim for refund the local WHEREFORE, judgment is hereby rendered
declaring the imposition on and collection from plaintiff
franchise tax paid for the third quarter of 1997 in the ABS-CBN BROADCASTING CORPORATION of local franchise
taxes pursuant to Quezon City Ordinance No. SP-91, S-93
amount of Two Million Seven Hundred Thirty-One after the enactment of Republic Act No. 7966 to be
invalid, and, accordingly, the Court hereby orders the
Thousand One Hundred Thirty-Five and 81/100 defendants to refund all its payments made after the
effectivity of its legislative franchise on May 3, 1995.
centavos (P2,731,135.81) and of other amounts of local
SO ORDERED.123[9]
franchise tax as may have been and will be paid by
ABS-CBN until the resolution of the case. In its decision, the RTC ruled that the “in lieu of all
taxes” provision contained in Section 8 of R.A. No. 7966
Quezon City insisted that the claim for refund absolutely excused ABS-CBN from the payment of local
must fail because of the absence of a prior written franchise tax imposed under Quezon City Ordinance No.
claim for it. SP-91, S-93. The intent of the legislature to excuse
ABS-CBN from payment of local franchise tax could be
RTC and CA Dispositions discerned from the usage of the “in lieu of all taxes”
provision and from the absence of any qualification
On January 20, 1999, the RTC rendered judgment except income taxes. Had Congress intended to
declaring as invalid the imposition on and collection exclude taxes imposed from the exemption, it would
from ABS-CBN of local franchise tax paid pursuant to have expressly mentioned so in a fashion similar to the
Quezon City Ordinance No. SP-91, S-93, after the proviso on income taxes.
enactment of R.A. No. 7966, and ordered the refund of 123[9]
Id. at 54.
with the knowledge and awareness of the existence and
The RTC also based its ruling on the 1990 case of prior enactment of Section 137125[11] of the LGC.
Province of Misamis Oriental v. Cagayan Electric Power
and Light Company, Inc. (CEPALCO).124[10] In said case, In addition, the RTC, again citing the case of
the exemption of respondent electric company Province of Misamis Oriental v. Cagayan Electric Power
CEPALCO from payment of provincial franchise tax was and Light Company, Inc. (CEPALCO),126[12] ruled that the
upheld on the ground that the franchise of CEPALCO imposition of the local franchise tax was an impairment
was a special law, while the Local Tax Code, on which of ABS-CBN’s contract with the government. The
the provincial ordinance imposing the local franchise imposition of another franchise on the corporation by
tax was based, was a general law. Further, it was held the local authority would constitute an impairment of
that whenever there is a conflict between two laws, one the former’s charter, which is in the nature of a private
special and particular and the other general, the special contract between it and the government.
law must be taken as intended to constitute an
exception to the general act. As to the amounts to be refunded, the RTC
rejected Quezon City’s position that a written claim for
The RTC noted that the legislative franchise of refund pursuant to Section 196 of the LGC was a
ABS-CBN was granted years after the effectivity of the condition sine qua non before filing the case in court.
LGC. Thus, it was unavoidable to conclude that Section The RTC ruled that although Fourteen Million Two
8 of R.A. No. 7966 was an exception since the
125[11]
Section 137. Franchise Tax. – Notwithstanding any exemption granted
legislature ought to be presumed to have enacted it by any law or other special law, the province may impose a tax on business is
enjoying a franchise, at the rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction. x x
x
124[10]
G.R. No. 45355, January 12, 1990, 181 SCRA 38. 126[12]
Supra.
Hundred Thirty-Three Thousand Five Hundred Eighty- necessitating a legal opinion rather than a call for
adjudication on the matter in dispute.
Two and 29/100 centavos (P14,233,582.29) was the
xxxx
only amount stated in the letter to the Quezon City
The first issue has earlier been categorized in
Treasurer claiming refund, ABS-CBN should nonetheless Province of Misamis Oriental v. Cagayan Electric and
Power Co., Inc. to be a legal one. There is no more
be also refunded of all payments made after the argument to this.

effectivity of R.A. No. 7966. The inaction of the City The next issue although it may need the
reexamination of the pertinent provisions of the local
Treasurer on the claim for refund of ABS-CBN legally franchise and the legislative franchise given to appellee,
also needs no evaluation of facts. It suffices that there
rendered any further claims for refund on the part of may be a conflict which may need to be reconciled,
without regard to the factual backdrop of the case.
plaintiff absurd and futile in relation to the succeeding
payments. The last issue deals with a legal question, because
whether or not there is a prior written claim for refund is
no longer in dispute. Rather, the question revolves on
whether the said requirement may be dispensed with,
The City of Quezon and its Treasurer filed a motion which obviously is not a factual issue.127[13]

for reconsideration which was subsequently denied by


On September 23, 2004, petitioner moved for
the RTC. Thus, appeal was made to the CA. On
reconsideration. The motion was, however, denied by
September 1, 2004, the CA dismissed the petition of
the CA in its Resolution dated December 16, 2004.
Quezon City and its Treasurer. According to the
Hence, the present recourse.
appellate court, the issues raised were purely legal
questions cognizable only by the Supreme Court. The
Issues
CA ratiocinated:

Petitioner submits the following issues for


For another, the issues which appellants submit for
this Court’s consideration are more of legal query resolution:
127[13]
Rollo, pp. 64-65.
this franchise or earnings thereof, is
I. absolutely excused from paying the
Whether or not the phrase “in lieu of all taxes”
indicated in the franchise of the respondent appellee franchise tax imposed by appellants;
(Section 8 of RA 7966) serves to exempt it from the
payment of the local franchise tax imposed by the
petitioners-appellants.
2) Whether appellants’ imposition of local
II.
Whether or not the petitioners-appellants raised franchise tax is a violation of appellee’s
factual and legal issues before the Honorable Court of
Appeals.128[14] legislative franchise; and

Our Ruling

3) Whether one can do away with the


The second issue, being procedural in nature, shall requirement on prior written claim for
be dealt with immediately. But there are other refund.129[15]
resultant issues linked to the first.

Obviously, these are purely legal questions,


I. The dismissal by the CA of petitioners’ cognizable by this Court, to the exclusion of all other
appeal is in order because it raised purely legal courts. There is a question of law when the doubt or
issues, namely: difference arises as to what the law is pertaining to a
certain state of facts.130[16]
1) Whether appellee, whose franchise
expressly provides that its payment of
franchise tax shall be in lieu of all taxes in
129[15]
Id. at 65.
130[16]
Calvo v. Vergara, G.R. No. 134741, December 19, 2001, 372 SCRA 650,
128[14]
Id. at 23. as cited in Lavides v. Pre, G.R. No. 127830, October 17, 2001, 367 SCRA 382.
Section 2, Rule 50 of the Rules of Court provides
SEC. 2. Modes of appeal. –
that an appeal taken to the CA under Rule 41 raising
(a) Ordinary appeal. – The appeal to the
only questions of law is erroneous and shall be Court of Appeals in cases decided by the
Regional Trial Court in the exercise of its
dismissed, issues of pure law not being within its original jurisdiction shall be taken by

jurisdiction.131[17] Consequently, the dismissal by the CA


of petitioners’ appeal was in order.

In the recent case of Sevilleno v. Carilo,132[18] this


Court ruled that the dismissal of the appeal of
petitioner was valid, considering the issues raised there
were pure questions of law, viz.:

Petitioners interposed an appeal to the Court of


Appeals but it was dismissed for being the wrong mode of
appeal. The appellate court held that since the issue
being raised is whether the RTC has jurisdiction over the
subject matter of the case, which is a question of law, the
appeal should have been elevated to the Supreme Court
under Rule 45 of the 1997 Rules of Civil Procedure, as
amended. Section 2, Rule 41 of the same Rules which
governs appeals from judgments and final orders of the
RTC to the Court of Appeals, provides:
131[17]
Rule 50, Sec. 2. Dismissal of improper appeal to the Court of Appeals. –
An appeal under Rule 41 taken from the Regional Trial Court to the Court of
Appeals raising only questions of law shall be dismissed, issues of pure law
not being reviewable by said court. Similarly, an appeal by notice of appeal
instead of by petition for review from the appellate judgment of a Regional
Trial Court shall be dismissed.
An appeal erroneously taken to the Court of Appeals shall not be
transferred to the appropriate court but shall be dismissed outright.
132[18]
G.R. No. 146454, September 14, 2007.
filing a notice of appeal with the court which (3) All appeals from judgments rendered by
rendered the judgment or final order the RTC in the exercise of its appellate
appealed from and serving a copy jurisdiction, regardless of whether the
thereof upon the adverse party. No appellant raises questions of fact,
record on appeal shall be required questions of law, or mixed questions of
except in special proceedings and other fact and law, shall be brought to the
cases of multiple or separate appeals Court of Appeals by filing a petition for
where the law or these Rules so require. review under Rule 42.
In such cases, the record on appeal shall
be filed and served in like manner. It is not disputed that the issue brought by
petitioners to the Court of Appeals involves the
(b) Petition for review. – The appeal to the jurisdiction of the RTC over the subject matter of the case.
Court of Appeals in cases decided by the We have a long standing rule that a court’s jurisdiction
Regional Trial Court in the exercise of its over the subject matter of an action is conferred only by
appellate jurisdiction shall be by petition the Constitution or by statute. Otherwise put, jurisdiction
for review in accordance with Rule 42. of a court over the subject matter of the action is a matter
of law. Consequently, issues which deal with the
(c) Appeal by certiorari. – In all cases where jurisdiction of a court over the subject matter of a case
only questions of law are raised or are pure questions of law. As petitioners’ appeal solely
involved, the appeal shall be to the involves a question of law, they should have directly
Supreme Court by petition for review on taken their appeal to this Court by filing a petition for
certiorari in accordance with Rule 45. review on certiorari under Rule 45, not an ordinary appeal
with the Court of Appeals under Rule 41. Clearly, the
In Macawili Gold Mining and Development Co., Inc. appellate court did not err in holding that petitioners
v. Court of Appeals, we summarized the rule on appeals pursued the wrong mode of appeal.
as follows:

(1) In all cases decided by the RTC in the


exercise of its original jurisdiction, appeal
may be made to the Court of Appeals by
mere notice of appeal where the Indeed, the Court of Appeals did not err in
appellant raises questions of fact or dismissing petitioners’ appeal. Section 2, Rule 50 of the
mixed questions of fact and law; same Rules provides that an appeal from the RTC to the
Court of Appeals raising only questions of law shall be
(2) In all cases decided by the RTC in the dismissed; and that an appeal erroneously taken to the
exercise of its original jurisdiction where Court of Appeals shall be dismissed outright, x x x.133[19]
the appellant raises only questions of (Emphasis added)
law, the appeal must be taken to the
Supreme Court on a petition for review
on certiorari under Rule 45;

133[19]
Sevilleno v. Carilo, id.
However, to serve the demands of substantial opportunity for the proper and just
determination of his cause, free from the
justice and equity, the Court opts to relax procedural unacceptable plea of technicalities. Thus,
dismissal of appeals purely on technical
rules and rule upon on the merits of the case. In Ong grounds is frowned upon where the policy of
the court is to encourage hearings of appeals
Lim Sing Jr. v. FEB Leasing and Finance Corporation,134[20] on their merits and the rules of procedure
ought not to be applied in a very rigid,
this Court stated: technical sense; rules of procedure are used
only to help secure, not override substantial
justice. It is a far better and more prudent
course of action for the court to excuse a
Courts have the prerogative to relax procedural
technical lapse and afford the parties a
rules of even the most mandatory character, mindful of
review of the case on appeal to attain the
the duty to reconcile both the need to speedily put an end
ends of justice rather than dispose of the
to litigation and the parties’ right to due process. In
case on technicality and cause a grave
numerous cases, this Court has allowed liberal
injustice to the parties, giving a false
construction of the rules when to do so would serve the
impression of speedy disposal of cases while
demands of substantial justice and equity. In Aguam v.
actually resulting in more delay, if not a
Court of Appeals, the Court explained:
miscarriage of justice.135[21]
“The court has the discretion to
dismiss or not to dismiss an appellant’s
appeal. It is a power conferred on the court, II. The “in lieu of all taxes” provision in its
not a duty. The “discretion must be a sound
one, to be exercised in accordance with the franchise does not exempt ABS-CBN from
tenets of justice and fair play, having in mind
the circumstances obtaining in each case.”
payment of local franchise tax.
Technicalities, however, must be avoided.
The law abhors technicalities that impede
the cause of justice. The court’s primary A. The present controversy essentially boils down
duty is to render or dispense justice. “A
litigation is not a game of technicalities.” to a dispute between the inherent taxing power of
“Lawsuits unlike duels are not to be won by a
rapier’s thrust. Technicality, when it deserts Congress and the delegated authority to tax of local
its proper office as an aid to justice and
becomes its great hindrance and chief governments under the 1987 Constitution and effected
enemy, deserves scant consideration from
courts.” Litigations must be decided on their under the LGC of 1991.
merits and not on technicality. Every party
litigant must be afforded the amplest
134[20]
G.R. No. 168115, June 8, 2007, 524 SCRA 333. 135[21]
Ong Lim Sing Jr. v. FEB Leasing and Finance Corporation, id. at 343-344.
The power of the local government of Quezon City was upheld in City Government of Quezon City, et al. v.
to impose franchise tax is based on Section 151 in Bayan Telecommunications, Inc.136[22] Said this Court:
relation to Section 137 of the LGC, to wit:

Section 137. Franchise Tax. – Notwithstanding any


exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a This thus raises the question of whether or not the
franchise, at the rate not exceeding fifty percent (50%) of City’s Revenue Code pursuant to which the city treasurer
one percent (1%) of the gross annual receipts for the of Quezon City levied real property taxes against
preceding calendar year based on the incoming receipt, Bayantel’s real properties located within the City
or realized within its territorial jurisdiction. x x x effectively withdrew the tax exemption enjoyed by
Bayantel under its franchise, as amended.
xxxx
Bayantel answers the poser in the negative arguing
Section 151. Scope of Taxing Powers. – Except as that once again it is only “liable to pay the same taxes, as
otherwise provided in this Code, the city may levy the any other persons or corporations on all its real or
taxes, fees and charges which the province or personal properties, exclusive of its franchise.”
municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly Bayantel’s posture is well-taken. While the system
urbanized and component cities shall accrue to them and of local government taxation has changed with the onset
distributed in accordance with the provisions of this Code. of the 1987 Constitution, the power of local government
units to tax is still limited. As we explained in Mactan
The rates of taxes that the city may levy may Cebu International Airport Authority:
exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except “The power to tax is primarily vested
the rates of professional and amusement taxes. in the Congress; however, in our jurisdiction,
(Emphasis supplied) it may be exercised by local legislative
bodies, no longer merely be virtue of a valid
delegation as before, but pursuant to direct
Such taxing power by the local government, authority conferred by Section 5, Article X of
the Constitution. Under the latter, the
however, is limited in the sense that Congress can exercise of the power may be subject to such
guidelines and limitations as the Congress
enact legislation granting exemptions. This principle may provide which, however, must be
consistent with the basic policy of local
autonomy. x x x”

136[22]
G.R. No. 162015, March 6, 2006, 484 SCRA 169.
Clearly then, while a new slant on the subject of In net effect, the controversy presently before the
local taxation now prevails in the sense that the former Court involves, at bottom, a clash between the inherent
doctrine of local government units’ delegated power to taxing power of the legislature, which necessarily includes
tax had been effectively modified with Article X, Section 5 the power to exempt, and the local government’s
of the 1987 Constitution now in place, the basic doctrine delegated power to tax under the aegis of the 1987
on local taxation remains essentially the same. For as the Constitution.
Court stressed in Mactan, “the power to tax is [still]
primarily vested in the Congress.” Now to go back to the Quezon City Revenue Code
which imposed real estate taxes on all real properties
This new perspective is best articulated by Fr. within the city’s territory and removed exemptions
Joaquin G. Bernas, S.J., himself a Commissioner of the theretofore “previously granted to, or presently enjoyed
1986 Constitutional Commission which crafted the 1987 by all persons, whether natural or juridical [x x x]” there
Constitution, thus: can really be no dispute that the power of the Quezon
City Government to tax is limited by Section 232 of the
“What is the effect of Section 5 on the LGC which expressly provides that “a province or city or
fiscal position of municipal corporations? municipality within the Metropolitan Manila Area may levy
Section 5 does not change the doctrine that an annual ad valorem tax on real property such as land,
municipal corporations do not possess building, machinery, and other improvement not
inherent powers of taxation. What it does is hereinafter specifically exempted.” Under this law, the
to confer municipal corporations a general Legislature highlighted its power to thereafter exempt
power to levy taxes and otherwise create certain realties from the taxing power of local government
sources of revenue. They no longer have to units. An interpretation denying Congress such power to
wait for a statutory grant of these powers. exempt would reduce the phrase “not hereinafter
The power of the legislative authority specifically exempted” as a pure jargon, without meaning
relative to the fiscal powers of local whatsoever. Needless to state, such absurd situation is
governments has been reduced to the unacceptable.
authority to impose limitations on municipal
powers. Moreover, these limitations must be For sure, in Philippine Long Distance Telephone
“consistent with the basic policy of local Company, Inc. (PLDT) vs. City of Davao, this Court has
autonomy.” The important legal effect of upheld the power of Congress to grant exemptions over
Section 5 is thus to reverse the principle that the power of local government units to impose taxes.
doubts are resolved against municipal There, the Court wrote:
corporations. Henceforth, in interpreting
statutory provisions on municipal fiscal “Indeed, the grant of taxing powers to
powers, doubts will be resolved in favor of local government units under the
municipal corporations. It is understood, Constitution and the LGC does not affect the
however, that taxes imposed by local power of Congress to grant exemptions to
government must be for a public purpose, certain persons, pursuant to a declared
uniform within a locality, must not be national policy. The legal effect of the
confiscatory, and must be within the constitutional grant to local governments
jurisdiction of the local unit to pass.” simply means that in interpreting statutory
provisions on municipal taxing powers,
doubts must be resolved in favor of Congress has the inherent power to tax, which
municipal corporations.”137[23] (Emphasis
supplied) includes the power to grant tax exemptions. On the
other hand, the power of Quezon City to tax is
In the case under review, the Philippine Congress
prescribed by Section 151 in relation to Section 137 of
enacted R.A. No. 7966 on March 30, 1995, subsequent
the LGC which expressly provides that notwithstanding
to the effectivity of the LGC on January 1, 1992. Under
any exemption granted by any law or other special law,
it, ABS-CBN was granted the franchise to install and
the City may impose a franchise tax. It must be noted
operate radio and television broadcasting stations in
that Section 137 of the LGC does not prohibit grant of
the Philippines. Likewise, Section 8 imposed on ABS-
future exemptions. As earlier discussed, this Court in
CBN the duty of paying 3% franchise tax. It bears
City Government of Quezon City v. Bayan
stressing, however, that payment of the percentage
Telecommunications, Inc.139[25] sustained the power of
franchise tax shall be “in lieu of all taxes” on the said
Congress to grant tax exemptions over and above the
franchise.138[24]
power of the local government’s delegated power to
tax.

137[23]
City Government of Quezon City v. Bayan Telecommunications, Inc., id.
B. The more pertinent issue now to consider is
at 183-186.
138[24]
Section 8. Tax Provisions. – The grantee, its successors or assigns, shall
whether or not by passing R.A. No. 7966, which
be liable to pay the same taxes on their real estate, buildings and personal
property, exclusive of this franchise, as other persons or corporations are now contains the “in lieu of all taxes” provision, Congress
hereafter may be required by law to pay. In addition thereto, the grantee, its
successors or assigns, shall pay a franchise tax equivalent to three percent intended to exempt ABS-CBN from local franchise tax.
(3%) of all gross receipts of the radio/television business transacted under this
franchise by the grantee, its successors or assigns, and the said percentage
shall be in lieu of all taxes on this franchise or earnings thereof; Provided that
the grantee, its successors or assigns shall continue to be liable for income
taxes under Title II of the National Internal Revenue Code pursuant to Section
2 of Executive Order No. 72 unless the latter enactment is amended or
repealed, in which case the amendment or repeal shall be applicable thereto. 139[25]
Supra note 20.
Petitioners argue that the “in lieu of all taxes” The basis for the rule on strict construction to
provision in ABS-CBN’s franchise does not expressly statutory provisions granting tax exemptions or
exempt it from payment of local franchise tax. They deductions is to minimize differential treatment and
contend that a tax exemption cannot be created by foster impartiality, fairness and equality of treatment
mere implication and that one who claims tax among taxpayers.142[28] He who claims an exemption
exemptions must be able to justify his claim by clearest from his share of common burden must justify his claim
grant of organic law or statute. that the legislature intended to exempt him by
unmistakable terms. For exemptions from taxation are
Taxes are what civilized people pay for civilized not favored in law, nor are they presumed. They must
society. They are the lifeblood of the nation. Thus, be expressed in the clearest and most unambiguous
statutes granting tax exemptions are construed language and not left to mere implications. It has been
stricissimi juris against the taxpayer and liberally in held that “exemptions are never presumed, the burden
favor of the taxing authority. A claim of tax exemption is on the claimant to establish clearly his right to
must be clearly shown and based on language in law exemption and cannot be made out of inference or
too plain to be mistaken. Otherwise stated, taxation is implications but must be laid beyond reasonable doubt.
the rule, exemption is the exception.140[26] The burden of In other words, since taxation is the rule and exemption
proof rests upon the party claiming the exemption to the exception, the intention to make an exemption
prove that it is in fact covered by the exemption so ought to be expressed in clear and unambiguous
claimed.141[27] terms.143[29]

140[26]
Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, 142[28]
Maceda v. Macaraeg, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771,
September 11, 1996, 261 SCRA 667, 680. 799, citing Sands, C.D., Statutes and Statutory Construction, Vol. 3, p. 207.
141[27]
Agpalo, R.E., Statutory Construction, 2003 ed., p. 301. 143[29]
See note 27, at 302.
Section 8 of R.A. No. 7966 imposes on ABS-CBN a uncertainty in the “in lieu of all taxes” provision should
franchise tax equivalent to three (3) percent of all be construed against ABS-CBN. ABS-CBN has the
gross receipts of the radio/television business burden to prove that it is in fact covered by the
transacted under the franchise and the franchise tax exemption so claimed. ABS-CBN miserably failed in this
shall be “in lieu of all taxes” on the franchise or regard.
earnings thereof.
ABS-CBN cites the cases Carcar Electric & Ice
The “in lieu of all taxes” provision in the franchise Plant v. Collector of Internal Revenue,144[30] Manila
of ABS-CBN does not expressly provide what kind of Railroad v. Rafferty,145[31] Philippine Railway Co. v.
taxes ABS-CBN is exempted from. It is not clear Collector of Internal Revenue,146[32] and Visayan Electric
whether the exemption would include both local, Co. v. David147[33] to support its claim that that the “in
whether municipal, city or provincial, and national tax. lieu of all taxes” clause includes exemption from all
What is clear is that ABS-CBN shall be liable to pay taxes.
three (3) percent franchise tax and income taxes under
Title II of the NIRC. But whether the “in lieu of all taxes However, a review of the foregoing case law
provision” would include exemption from local tax is reveals that the grantees’ respective franchises
not unequivocal. expressly exempt them from municipal and provincial
taxes. Said the Court in Manila Railroad v. Rafferty:148[34]
As adverted to earlier, the right to exemption from
local franchise tax must be clearly established and
144[30]
53 O.G. (No. 4) 1068.
cannot be made out of inference or implications but 145[31]
40 Phil 224 (1919).
146[32]
91 Phil 35 (1952).
must be laid beyond reasonable doubt. Verily, the 147[33]
92 Phil. 969 (1953).
148[34]
Supra.
On the 7th day of July 1906, by an Act of the Electric. Too, the franchise failed to specify the taxing
Philippine Legislature, a special charter was granted to
the Manila Railroad Company. Subsection 12 of Section 1 authority from whose jurisdiction the taxing power is
of said Act (No. 1510) provides that:
withheld, whether municipal, provincial, or national. In
“In consideration of the premises and
of the granting of this concession or fine, since ABS-CBN failed to justify its claim for
franchise, there shall be paid by the grantee
to the Philippine Government, annually, for exemption from local franchise tax, by a grant
the period of thirty (30) years from the date
hereof, an amount equal to one-half (1/2) of expressed in terms “too plain to be mistaken” its claim
one per cent of the gross earnings of the
grantee in respect of the lines covered for exemption for local franchise tax must fail.
hereby for the preceding year; after said
period of thirty (30) years, and for the fifty
(50) years thereafter, the amount so to be
paid annually shall be an amount equal to
C. The “in lieu of all taxes” clause in the franchise
one and one-half (1½) per cent of such gross of ABS-CBN has become functus officio with the
earnings for the preceding year; and after
such period of eighty (80) years, the abolition of the franchise tax on broadcasting
percentage and amount so to be paid
annually by the grantee shall be fixed by the companies with yearly gross receipts exceeding Ten
Philippine Government.
Million Pesos.
Such annual payments, when
promptly and fully made by the grantee,
shall be in lieu of all taxes of every name and
nature – municipal, provincial or central – In its decision dated January 20, 1999, the RTC
upon its capital stock, franchises, right of
way, earnings, and all other property owned held that pursuant to the “in lieu of all taxes” provision
or operated by the grantee under this
concession or franchise.”149[35] (Underscoring contained in Section 8 of R.A. No. 7966, ABS-CBN is
supplied)
exempt from the payment of the local franchise tax.

In the case under review, ABS-CBN’s franchise did The RTC further pronounced that ABS-CBN shall instead

not embody an exemption similar to those in Carcar, be liable to pay a franchise tax of 3% of all gross

Manila Railroad, Philippine Railway, and Visayan receipts in lieu of all other taxes.

149[35]
Manila Railroad v. Rafferty, id. at 226.
On this score, the RTC ruling is flawed. In keeping On January 1, 1996, R.A. No. 7716, otherwise
with the laws that have been passed since the grant of known as the Expanded Value Added Tax Law,150[36] took
ABS-CBN’s franchise, the corporation should now be effect and subjected to VAT those services rendered by
subject to VAT, instead of the 3% franchise tax. radio and/or broadcasting stations. Section 3 of R.A.
No. 7716 provides:

Section 3. Section 102 of the National Internal


Revenue Code, as amended is hereby further amended to
At the time of the enactment of its franchise on read as follows:

May 3, 1995, ABS-CBN was subject to 3% franchise tax SEC. 102. Value-added tax on sale of
services and use or lease of properties. – (a)
under Section 117(b) of the 1977 National Internal Rate and base of tax. – There shall be levied,
assessed and collected, as value-added tax
Revenue Code (NIRC), as amended, viz.: equivalent to 10% of gross receipts derived
from the sale or exchange of services,
including the use or lease of properties.
SECTION 117. Tax on franchises. – Any provision of
The phrase “sale or exchange of
general or special laws to the contrary notwithstanding,
services” means the performance of all kinds
there shall be levied, assessed and collected in respect to
of services in the Philippines, for others for a
all franchise, upon the gross receipts from the business
fee, remuneration or consideration, including
covered by the law granting the franchise, a tax in
those performed or rendered by construction
accordance with the schedule prescribed hereunder:
and service contractors; x x x services of
franchise grantees of telephone and
(a) On electric utilities, city gas, and water
telegraph, radio and television broadcasting
supplies Two (2%) percent
and all other franchise grantees except those
(b) On telephone and/or telegraph systems,
under Section 117 of this Code; x x x
radio and/or broadcasting stations Three
(Emphasis supplied)
(3%) percent
(c) On other franchises Five (5%) percent.
(Emphasis supplied)
Notably, under the same law, “telephone and/or
telegraph systems, broadcasting stations and other

150[36]
Approved on May 5, 1994.
franchise grantees” were omitted from the list of were granted the option to choose between paying 3%
entities subject to franchise tax. The impression was national franchise tax or 10% VAT. Section 9 of R.A.
that these entities were subject to 10% VAT but not to No. 8241 provides:
franchise tax. Only the franchise tax on “electric, gas
and water utilities” remained. Section 12 of R.A. No. SECTION 9. Section 12 of Republic Act No. 7716 is
hereby amended to read as follows:
7716 provides:
“Sec. 12. Section 117 of the National
Internal Revenue Code, as amended, is
hereby further amended to read as follows:
Section 12. Section 117 of the National Internal
Revenue Code, as amended, is hereby further amended “Sec. 117. Tax on franchise. – Any
to read as follows: provision of general or special law to the
contrary, notwithstanding, there shall be
SEC. 117. Tax on Franchises. – Any levied, assessed and collected in respect to
provision of general or special law to the all franchises on radio and/or television
contrary notwithstanding there shall be broadcasting companies whose annual gross
levied, assessed and collected in respect to receipts of the preceding year does not
all franchises on electric, gas and water exceed Ten million pesos
utilities a tax of two percent (2%) on the (P10,000,000.00), subject to Section 107(d)
gross receipts derived from the business of this Code, a tax of three percent (3%) and
covered by the law granting the franchise. on electric, gas and water utilities, a tax of
(Emphasis added) two percent (2%) on the gross receipts
derived from the business covered by the
law granting the franchise: Provided,
Subsequently, R.A. No. 8241151[37] took effect on however, That radio and television
broadcasting companies referred to in this
January 1, 1997152[38] containing more amendments to section, shall have an option to be registered
as a value-added tax payer and pay the tax
the NIRC. Radio and/or television companies whose due thereon: Provided, further, That once the
option is exercised, it shall not be revoked.
annual gross receipts do not exceed P10,000,000.00 (Emphasis supplied)
151[37]
Entitled “An Act Amending Republic Act No. 7716, Otherwise Known as
the Expanded Value-Added Tax Law and Other Pertinent Provisions of the On the other hand, radio and/or television
National Internal Revenue Code, as Amended.” Approved on December 20,
1996.
152[38]
companies with yearly gross receipts exceeding
Published in the Philippine Star on January 9, 1997. Published in the
Official Gazette, Vol. 93, No. 6, p. 1463, on March 10, 1997.
P10,000,000.00 were subject to 10% VAT, pursuant to VAT is a percentage tax imposed on any person
Section 102 of the NIRC. whether or not a franchise grantee, who in the course
of trade or business, sells, barters, exchanges, leases,
On January 1, 1998, R.A. No. 8424153[39] was passed confirming goods or properties, renders services. It is also levied
the 10% VAT liability of radio and/or television companies with on every importation of goods whether or not in the
yearly gross receipts exceeding P10,000,000.00. course of trade or business. The tax base of the VAT is
limited only to the value added to such goods,
R.A. No. 9337 was subsequently enacted and became effective properties, or services by the seller, transferor or
on July 1, 2005. The said law further amended the NIRC by lessor. Further, the VAT is an indirect tax and can be
increasing the rate of VAT to 12%. The effectivity of the imposition passed on to the buyer.
of the 12% VAT was later moved from January 1, 2006 to February 1,
2006. The franchise tax, on the other hand, is a
percentage tax imposed only on franchise holders. It is
In consonance with the above survey of pertinent imposed under Section 119 of the Tax Code and is a
laws on the matter, ABS-CBN is subject to the payment direct liability of the franchise grantee.
of VAT. It does not have the option to choose between The clause “in lieu of all taxes” does not pertain
the payment of franchise tax or VAT since it is a to VAT or any other tax. It cannot apply when what is
broadcasting company with yearly gross receipts paid is a tax other than a franchise tax. Since the
exceeding Ten Million Pesos (P10,000,000.00). franchise tax on the broadcasting companies with
yearly gross receipts exceeding ten million pesos has
been abolished, the “in lieu of all taxes” clause has now
153[39]
Otherwise known as the Tax Reform Act of 1997, amended some
provisions of the 1977 NIRC by renumbering Section 117 as 119 and Section become functus officio, rendered inoperative.
102 as 108.
G.R. No. 124557 May 21, 2009

In sum, ABS-CBN’s claims for exemption must fail INTERNAL REVENUE, Petitioner,
vs.
on twin grounds. First, the “in lieu of all taxes” clause COMMISSIONER OF COURT OF APPEALS, COURT OF TAX
APPEALS, ADAMSON MANAGEMENT CORPORATION, LUCAS G.
in its franchise failed to specify the taxes the company
ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS
is sought to be exempted from. Neither did it REYES, Respondents.

particularize the jurisdiction from which the taxing DECISION


power is withheld. Second, the clause has become PUNO, C.J.:
functus officio because as the law now stands, ABS-CBN
Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No.
is no longer subject to a franchise tax. It is now liable 124557.

for VAT. G.R. No. 120935 involves a petition for review on certiorari filed by petitioners
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE
WHEREFORE, the petition is GRANTED and the LOS REYES (private respondents), in their respective capacities as president,
treasurer and secretary of Adamson Management Corporation (AMC) against
appealed Decision REVERSED AND SET ASIDE. The then Commissioner of Internal Revenue Liwayway Vinzons-Chato
petition in the trial court for refund of local franchise (COMMISSIONER), under Rule 45 of the Revised Rules of Court. They seek to
review and reverse the Decision promulgated on March 21, 1995 and Resolution
tax is DISMISSED. issued on July 6, 1995 of the Court of Appeals in CA-G.R. SP No. 35488
(Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna Falloran-Aliposa, et al.).
SO ORDERED.
G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner,
FIRST DIVISION assailing the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R.
SP No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals,
G.R. No. 120935 May 21, 2009 Adamson Management Corporation, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes. In the said Decision, the Court of Appeals
LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE upheld the Resolution promulgated on September 19, 1994 by the Court of Tax
LOS REYES, in their capacities as President, Treasurer and Secretary of Appeals (CTA) in C.T.A. Case No. 5075 (Adamson Management Corporation,
Adamson Management Corporation, Petitioners, Lucas G. Adamson, Therese Adamson and Sara de los Reyes v. Commissioner of
vs. Internal Revenue).
COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her
capacity as Commissioner of the Bureau of Internal Revenue, Respondents. The facts, as culled from the findings of the appellate court, follow:

x - - - - - - - - - - - - - - - - - - - - - - -x
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of granted the Motion. It ruled that the complaints for tax evasion filed by the
stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). Commissioner should be regarded as a decision of the Commissioner regarding
The shares were valued at P7,789,995.00.1 On June 22, 1990, P159,363.21 was the tax liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de
paid as capital gains tax for the transaction. los Reyes, and appealable to the CTA. It further held that the said cases cannot
proceed independently of the assessment case pending before the CTA, which has
On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 jurisdiction to determine the civil and criminal tax liability of the respondents
common shares of stock in AAI for P17,718,360.00. AMC paid the capital gains therein.
tax of P352,242.96.
On October 10, 1994, the Commissioner filed a Petition for Review with the
On October 15, 1993, the Commissioner issued a "Notice of Taxpayer" to AMC, Court of Appeals assailing the trial court’s dismissal of the criminal cases. She
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, averred that it was not a condition prerequisite that a formal assessment should
informing them of deficiencies on their payment of capital gains tax and Value first be given to the private respondents before she may file the aforesaid criminal
Added Tax (VAT). The notice contained a schedule for preliminary conference. complaints against them. She argued that the criminal complaints for tax evasion
may proceed independently from the assessment cases pending before the CTA.
The events preceding G.R. No. 120935 are the following:
On March 21, 1995, the Court of Appeals reversed the trial court’s decision and
On October 22, 1993, the Commissioner filed with the Department of Justice reinstated the criminal complaints. The appellate court held that, in a criminal
(DOJ) her Affidavit of Complaint2 against AMC, Lucas G. Adamson, Therese prosecution for tax evasion, assessment of tax deficiency is not required because
June D. Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and the offense of tax evasion is complete or consummated when the offender has
(d)3 , and 1104 , in relation to Section 1005 , as penalized under Section 255,6 and knowingly and willfully filed a fraudulent return with intent to evade the tax.9 It
for violation of Section 2537 , in relation to Section 252 (b) and (d) of the National ruled that private respondents filed false and fraudulent returns with intent to
Internal Revenue Code (NIRC).8 evade taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with
the Department of Justice, without an accompanying assessment of the tax
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes deficiency of private respondents, in order to commence criminal action against
filed with the DOJ a motion to suspend proceedings on the ground of prejudicial the latter for tax evasion.10
question, pendency of a civil case with the Supreme Court, and pendency of their
letter-request for re-investigation with the Commissioner. After the preliminary Private respondents filed a Motion for Reconsideration, but the trial court denied
investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The the motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935,
Motion for Reconsideration against the findings of probable cause was denied by raising the following issues:
the prosecutor.
1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de APPEALS ERRED IN APPLYING THE DOCTRINE IN UNGAB V. CUSI
los Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch (Nos. L-41919-24, May 30, 1980, 97 SCRA 877) TO THE CASE AT BAR.
150 in Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or
Suspend the Proceedings. They invoked the grounds that there was yet no final 2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE
assessment of their tax liability, and there were still pending relevant Supreme SECOND CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC.
Court and CTA cases. Initially, the trial court denied the motion. A Motion for
Reconsideration was however filed, this time assailing the trial court’s lack of 3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY
jurisdiction over the nature of the subject cases. On August 8, 1994, the trial court THE COMMISSIONER IN THE CASE AT BAR.
4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT assessment issued by the Commissioner, and it must be in accord with Section 6
SERVES AS AN IMPLIED ASSESSMENT ON THE TAX LIABILITY OF of Revenue Regulation No. 12-85. She maintained that she had not yet issued a
THE TAXPAYER. formal assessment of tax liability, and the tax deficiency amounts mentioned in
her criminal complaint with the DOJ were given only to show the difference
5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION between the tax returns filed and the audit findings of the revenue examiner.
FOR TAX EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE
THERE IS YET NO BASIS FOR THE CRIMINAL CHARGE OF WILLFULL The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion
INTENT TO EVADE THE PAYMENT OF A TAX. to Dismiss. Thus, the Commissioner filed the petition for review under G.R. No.
124557, raising the following issues:
6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF
YABES V. FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. 1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED
UNION SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) FOR FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT
ARE APPLICABLE TO THE CASE AT BAR. OF A CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING;

7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS 2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE
JURISDICTION OVER THE DISPUTE ON WHAT CONSTITUTES THE CASE AT BAR CAN PROCEED WITHOUT AN ASSESSMENT;
PROPER TAXES DUE FROM THE TAXPAYER.
3. WHETHER OR NOT THE COMPLAINT FILED WITH THE
In parallel circumstances, the following events preceded G.R. No. 124557: DEPARTMENT OF JUSTICE CAN BE CONSTRUED AS AN IMPLIED
ASSESSMENT; and
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and
Sara S. de los Reyes filed a letter request for re-investigation with the 4. WHETHER OR NOT THE COURT OF TAX APPEALS HAS
Commissioner of the "Examiner’s Findings" earlier issued by the Bureau of JURISDICTION TO ACT ON PRIVATE RESPONDENTS’ PETITION FOR
Internal Revenue (BIR), which pointed out the tax deficiencies. REVIEW FILED WITH THE SAID COURT.

On March 15, 1994 before the Commissioner could act on their letter-request, The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes three:
filed a Petition for Review with the CTA. They assailed the Commissioner’s
finding of tax evasion against them. The Commissioner moved to dismiss the 1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN
petition, on the ground that it was premature, as she had not yet issued a formal ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF
assessment of the tax liability of therein petitioners. On September 19, 1994, the AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA
CTA denied the Motion to Dismiss. It considered the criminal complaint filed by S. DE LOS REYES;
the Commissioner with the DOJ as an implied formal assessment, and the filing of
the criminal informations with the RTC as a denial of petitioners’ protest 2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX
regarding the tax deficiency. EVASION TO PROCEED AGAINST AMC, LUCAS G. ADAMSON,
THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES; and
The Commissioner repaired to the Court of Appeals on the ground that the CTA
acted with grave abuse of discretion. She contended that, with regard to the 3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO
protest provided under Section 229 of the NIRC, there must first be a formal TAKE COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL
ASPECTS OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, Neither the NIRC nor the revenue regulations governing the protest of
THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES. assessments12 provide a specific definition or form of an assessment. However,
the NIRC defines the specific functions and effects of an assessment. To consider
The case of CIR v. Pascor Realty, et al.11 is relevant. In this case, then BIR the affidavit attached to the Complaint as a proper assessment is to subvert the
Commissioner Jose U. Ong authorized revenue officers to examine the books of nature of an assessment and to set a bad precedent that will prejudice innocent
accounts and other accounting records of Pascor Realty and Development taxpayers.
Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and True, as pointed out by the private respondents, an assessment informs the
P3,015,236.35 for the years 1986 and 1987, respectively. taxpayer that he or she has tax liabilities. But not all documents coming from the
BIR containing a computation of the tax liability can be deemed assessments.
On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ
against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, To start with, an assessment must be sent to and received by a taxpayer, and must
alleging evasion of taxes in the total amount of P10,513,671.00. Private demand payment of the taxes described therein within a specific period. Thus, the
respondents filed an Urgent Request for Reconsideration/Reinvestigation NIRC imposes a 25 percent penalty, in addition to the tax due, in case the
disputing the tax assessment and tax liability. taxpayer fails to pay the deficiency tax within the time prescribed for its payment
in the notice of assessment. Likewise, an interest of 20 percent per annum, or such
The Commissioner denied the urgent request for reconsideration/reinvestigation higher rate as may be prescribed by rules and regulations, is to be collected from
because she had not yet issued a formal assessment. the date prescribed for its payment until the full payment.13

Private respondents then elevated the Decision of the Commissioner to the CTA The issuance of an assessment is vital in determining the period of limitation
on a petition for review. The Commissioner filed a Motion to Dismiss the petition regarding its proper issuance and the period within which to protest it. Section
on the ground that the CTA has no jurisdiction over the subject matter of the 20314 of the NIRC provides that internal revenue taxes must be assessed within
petition, as there was yet no formal assessment issued against the petitioners. The three years from the last day within which to file the return. Section 222,15 on the
CTA denied the said motion to dismiss and ordered the Commissioner to file an other hand, specifies a period of ten years in case a fraudulent return with intent to
answer within thirty (30) days. The Commissioner did not file an answer nor did evade was submitted or in case of failure to file a return. Also, Section 22816 of
she move to reconsider the resolution. Instead, the Commissioner filed a petition the same law states that said assessment may be protested only within thirty days
for review of the CTA decision with the Court of Appeals. The Court of Appeals from receipt thereof. Necessarily, the taxpayer must be certain that a specific
upheld the CTA order. However, this Court reversed the Court of Appeals document constitutes an assessment. Otherwise, confusion would arise regarding
decision and the CTA order, and ordered the dismissal of the petition. We held: the period within which to make an assessment or to protest the same, or whether
interest and penalty may accrue thereon.
An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time when It should also be stressed that the said document is a notice duly sent to the
penalties and interests begin to accrue against the taxpayer. To enable the taxpayer. Indeed, an assessment is deemed made only when the collector of
taxpayer to determine his remedies thereon, due process requires that it must be internal revenue releases, mails or sends such notice to the taxpayer.17
served on and received by the taxpayer. Accordingly, an affidavit, which was
executed by revenue officers stating the tax liabilities of a taxpayer and attached In the present case, the revenue officers’ Affidavit merely contained a
to a criminal complaint for tax evasion, cannot be deemed an assessment that can computation of respondents’ tax liability.lawphil.net It did not state a demand or a
be questioned before the Court of Tax Appeals. period for payment. Worse, it was addressed to the justice secretary, not to the
taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply Private respondents insist that Section 222 should be read in relation to Section
understood to mean: 255 of the NIRC,21 which penalizes failure to file a return. They add that a tax
assessment should precede a criminal indictment. We disagree. To reiterate, said
"A notice to the effect that the amount therein stated is due as tax and a demand Section 222 states that an assessment is not necessary before a criminal charge
for payment thereof."18 can be filed. This is the general rule. Private respondents failed to show that they
are entitled to an exception. Moreover, the criminal charge need only be
"Fixes the liability of the taxpayer and ascertains the facts and furnishes the data supported by a prima facie showing of failure to file a required return. This fact
for the proper presentation of tax rolls."19 need not be proven by an assessment.

Even these definitions fail to advance private respondents’ case. That the BIR The issuance of an assessment must be distinguished from the filing of a
examiners’ Joint Affidavit attached to the Criminal Complaint contained some complaint. Before an assessment is issued, there is, by practice, a pre-assessment
details of the tax liabilities of private respondents does not ipso facto make it an notice sent to the taxpayer. The taxpayer is then given a chance to submit position
assessment. The purpose of the Joint Affidavit was merely to support and papers and documents to prove that the assessment is unwarranted. If the
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to commissioner is unsatisfied, an assessment signed by him or her is then sent to
be a notice of the tax due and a demand to the private respondents for payment the taxpayer informing the latter specifically and clearly that an assessment has
thereof. been made against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the DOJ. Thereafter,
The fact that the Complaint itself was specifically directed and sent to the the taxpayer is notified that a criminal case had been filed against him, not that the
Department of Justice and not to private respondents shows that the intent of the commissioner has issued an assessment. It must be stressed that a criminal
commissioner was to file a criminal complaint for tax evasion, not to issue an complaint is instituted not to demand payment, but to penalize the taxpayer for
assessment. Although the revenue officers recommended the issuance of an violation of the Tax Code.
assessment, the commissioner opted instead to file a criminal case for tax evasion.
What private respondents received was a notice from the DOJ that a criminal case In the cases at bar, the Commissioner denied that she issued a formal assessment
for tax evasion had been filed against them, not a notice that the Bureau of of the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and
Internal Revenue had made an assessment. Sara S. de los Reyes. She admits though that she wrote the recommendation
letter22 addressed to the Secretary of the DOJ recommending the filing of criminal
Private respondents maintain that the filing of a criminal complaint must be complaints against AMC and the aforecited persons for fraudulent returns and tax
preceded by an assessment. This is incorrect, because Section 222 of the NIRC evasion.
specifically states that in cases where a false or fraudulent return is submitted or
in cases of failure to file a return such as this case, proceedings in court may be The first issue is whether the Commissioner’s recommendation letter can be
commenced without an assessment. Furthermore, Section 205 of the same Code considered as a formal assessment of private respondents’ tax liability.
clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi,20 petitioner therein sought the dismissal of the In the context in which it is used in the NIRC, an assessment is a written notice
criminal Complaints for being premature, since his protest to the CTA had not yet and demand made by the BIR on the taxpayer for the settlement of a due tax
been resolved. The Court held that such protests could not stop or suspend the liability that is there definitely set and fixed. A written communication containing
criminal action which was independent of the resolution of the protest in the CTA. a computation by a revenue officer of the tax liability of a taxpayer and giving
This was because the commissioner of internal revenue had, in such tax evasion him an opportunity to contest or disprove the BIR examiner’s findings is not an
cases, discretion on whether to issue an assessment or to file a criminal case assessment since it is yet indefinite.23
against the taxpayer or to do both.
We rule that the recommendation letter of the Commissioner cannot be Limited. The examiners also found that the VAT had not been paid for VAT-
considered a formal assessment. Even a cursory perusal of the said letter would liable sale of services for the third and fourth quarters of 1990. Arguably, the
reveal three key points: gross disparity in the taxes due and the amounts actually declared by the private
respondents constitutes badges of fraud.
1. It was not addressed to the taxpayers.
Thus, the applicability of Ungab v. Cusi25 is evident to the cases at bar. In this
2. There was no demand made on the taxpayers to pay the tax liability, nor seminal case, this Court ruled that there was no need for precise computation and
a period for payment set therein. formal assessment in order for criminal complaints to be filed against him. It
quoted Merten’s Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21,
3. The letter was never mailed or sent to the taxpayers by the thus:
Commissioner.
An assessment of a deficiency is not necessary to a criminal prosecution for
In fine, the said recommendation letter served merely as the prima facie basis for willful attempt to defeat and evade the income tax. A crime is complete when the
filing criminal informations that the taxpayers had violated Section 45 (a) and (d), violator has knowingly and willfully filed a fraudulent return, with intent to evade
and 110, in relation to Section 100, as penalized under Section 255, and for and defeat the tax. The perpetration of the crime is grounded upon knowledge on
violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.24 the part of the taxpayer that he has made an inaccurate return, and the
government’s failure to discover the error and promptly to assess has no
The next issue is whether the filing of the criminal complaints against the private connections with the commission of the crime.
respondents by the DOJ is premature for lack of a formal assessment.
This hoary principle still underlies Section 269 and related provisions of the
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) present Tax Code.
provides:
We now go to the issue of whether the CTA has no jurisdiction to take cognizance
Sec. 269. Exceptions as to period of limitation of assessment and collection of of both the criminal and civil cases here at bar.1avvphi1
taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court after the Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
collection of such tax may be begun without assessment, at any time within ten amended, the rulings of the Commissioner are appealable to the CTA, thus:
years after the discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact of fraud shall be SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive
judicially taken cognizance of in the civil or criminal action for collection appellate jurisdiction to review by appeal, as herein provided -
thereof…
(1) Decisions of the Commissioner of Internal Revenue in cases involving
The law is clear. When fraudulent tax returns are involved as in the cases at bar, a disputed assessments, refunds of internal revenue taxes, fees or other charges,
proceeding in court after the collection of such tax may be begun without penalties imposed in relation thereto, or other matters arising under the National
assessment. Here, the private respondents had already filed the capital gains tax Internal Revenue Code or other laws or part of law administered by the Bureau of
return and the VAT returns, and paid the taxes they have declared due therefrom. Internal Revenue;
Upon investigation of the examiners of the BIR, there was a preliminary finding
of gross discrepancy in the computation of the capital gains taxes due from the
sale of two lots of AAI shares, first to APAC and then to APAC Philippines,
Republic Act No. 8424, titled "An Act Amending the National Internal Revenue (3) Decisions, orders or resolutions of the Regional Trial Courts in local
Code, As Amended, And For Other Purposes," later expanded the jurisdiction of tax cases originally decided or resolved by them in the exercise of their
the Commissioner and, correspondingly, that of the CTA, thus: original or appellate jurisdiction;

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax xxx
Cases. – The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner, subject (b) Jurisdiction over cases involving criminal offenses as herein provided:
to review by the Secretary of Finance.
(1) Exclusive original jurisdiction over all criminal offenses arising from
The power to decide disputed assessments, refunds of internal revenue taxes, fees violations of the National Internal Revenue Code or Tariff and Customs
or other charges, penalties imposed in relation thereto, or other matters arising Code and other laws administered by the Bureau of Internal Revenue or
under this Code or other laws or portions thereof administered by the Bureau of the Bureau of Customs: Provided, however, That offenses or felonies
Internal Revenue is vested in the Commissioner, subject to the exclusive appellate mentioned in this paragraph where the principal amount of taxes and fees,
jurisdiction of the Court of Tax Appeals. exclusive of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) or where there is no specified amount claimed shall be
The latest statute dealing with the jurisdiction of the CTA is Republic Act No. tried by the regular courts and the jurisdiction of the CTA shall be
9282.26 It provides: appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for
SEC. 7. Section 7 of the same Act is hereby amended to read as follows: the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
Sec. 7. Jurisdiction. — The CTA shall exercise: proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided: reserve the filling of such civil action separately from the criminal action
will be recognized.
(1) Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other (2) Exclusive appellate jurisdiction in criminal offenses:
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of (a) Over appeals from the judgments, resolutions or orders of the Regional
Internal Revenue; Trial Courts in tax cases originally decided by them, in their respected
territorial jurisdiction.
(2) Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other (b) Over petitions for review of the judgments, resolutions or orders of the
charges, penalties in relation thereto, or other matters arising under the Regional Trial Courts in the exercise of their appellate jurisdiction over
National Internal Revenue Code or other laws administered by the Bureau tax cases originally decided by the Metropolitan Trial Courts, Municipal
of Internal Revenue, where the National Internal Revenue Code provides a Trial Courts and Municipal Circuit Trial Courts in their respective
specific period of action, in which case the inaction shall be deemed a jurisdiction.
denial;
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving 1. In G.R. No. 120935, AFFIRMING the CA decision dated March 21,
final and executory assessments for taxes, fees, charges and 1995, which set aside the Regional Trial Court’s Order dated August 8,
penalties: Provided, however, That collection cases where the 1994, and REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for
principal amount of taxes and fees, exclusive of charges and further proceedings before the trial court; and
penalties, claimed is less than One million pesos (P1,000,000.00)
shall be tried by the proper Municipal Trial Court, Metropolitan 2. In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision
Trial Court and Regional Trial Court. of the Court of Appeals dated March 29, 1996, and ORDERING the
dismissal of C.T.A. Case No. 5075.
(2) Exclusive appellate jurisdiction in tax collection cases:
No costs.
(a) Over appeals from the judgments, resolutions or orders
of the Regional Trial Courts in tax collection cases SO ORDERED.
originally decided by them, in their respective territorial
jurisdiction.

(b) Over petitions for review of the judgments, resolutions


or orders of the Regional Trial Courts in the exercise of
their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts,
in their respective jurisdiction.

These laws have expanded the jurisdiction of the CTA. However, they did not
change the jurisdiction of the CTA to entertain an appeal only from a final
decision or assessment of the Commissioner, or in cases where the Commissioner
has not acted within the period prescribed by the NIRC. In the cases at bar, the
Commissioner has not issued an assessment of the tax liability of private
respondents.

Finally, we hold that contrary to private respondents’ stance, the doctrines laid
down in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the
cases at bar. In these earlier cases, the Commissioner already rendered an
assessment of the tax liabilities of the delinquent taxpayers, for which reason the
Court ruled that the filing of the civil suit for collection of the taxes due was a
final denial of the taxpayers’ request for reconsideration of the tax assessment.

IN VIEW WHEREOF, premises considered, judgment is rendered:


protests begin to accrue against the taxpayer. To enable the taxpayer to determine
his remedies thereon, due process requires that it must be served on and received
by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers
stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax
evasion, cannot be deemed an assessment that can be questioned before the Court
of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court praying for the nullification of the October 30, 1996
Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853, which effectively
affirmed the January 25, 1996 Resolution 3 of the Court of Tax Appeals 4 CTA Case
No. 5271. The CTA disposed as follows:

WHEREFORE, finding [the herein petitioner's] "Motion to Dismiss" as


UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby
given a period of thirty (30) days from receipt hereof to file her
answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of
Appeals denying reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:

It appears that by virtue of Letter of Authority No. 001198, then BIR


Commissioner Jose U. Ong authorized Revenue Officers Thomas T.
Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the
G.R. No. 128315 June 29, 1999 books of accounts and other accounting records of Pascor Realty
and Development Corporation. (PRDC) for the years ending 1986,
COMMISSIONER OF INTERNAL REVENUE, petitioner, 1987 and 1988. The said examination resulted in a recommendation
vs. for the issuance of an assessment in the amounts of P7,498,434.65
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and and P3,015,236.35 for the years 1986 and 1987, respectively.
VIRGINIA S. DIO, respondents.
On March 1, 1995, the Commissioner of Internal Revenue filed a
criminal complaint before the Department of Justice against the
PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio,
PANGANIBAN, J.: alleging evasion of taxes in the total amount of P10,513,671 .00.
Private respondents PRDC, et. al. filed an Urgent Request for
An assessment contains not only a computation of tax liabilities, but also a demand Reconsideration/Reinvestigation disputing the tax assessment and
for payment within a prescribed period. It also signals the time when penalties and tax liability.
On March 23, 1995, private respondents received a subpoena from the decision properly appealable to [u]s.
the DOJ in connection with the criminal complaint filed by the Respondent's ground of denial, therefore, that there
Commissioner of Internal Revenue (BIR) against them. 1âwphi1.nêt was no formal assessment issued, is untenable.

In a letter dated May 17, 1995, the CIR denied the urgent request for It is the Court's honest belief, that the criminal case for tax evasion is
reconsideration/reinvestigation of the private respondents on the already anassessment. The complaint, more particularly, the Joint
ground that no formal assessment of the has as yet been issued by Affidavit of Revenue Examiners Lagmay and Savellano attached
the Commissioner. thereto, contains the details of the assessment like the kind and
amount of tax due, and the period covered:
Private respondents then elevated the Decision of the CIR dated May
17, 1995 to the Court of Tax Appeals on a petition for review Petitioners are right, in claiming that the provisions of Republic Act
docketed as CTA Case No. 5271 on July 21, 1995. On September 6, No. 1125, relating to exclusive appellate jurisdiction of this Court, do
1995, the CIR filed a Motion to Dismiss the petition on the ground not, make any mention of "formal assessment." The law merely
that the CTA has no jurisdiction over the subject matter of the states, that this Court has exclusive appellate jurisdiction over
petition, as there was no formal assessment issued against the decisions of the Commissioner of Internal Revenue on disputed
petitioners. The CTA denied the said motion to dismiss in a assessments, and other matters arising under the National Internal
Resolution dated January 25, 1996 and ordered the CIR to file an Revenue Code, other law or part administered by the Bureau of
answer within thirty (30) days from receipt of said resolution. The CIR Internal Revenue Code.
received the resolution on January 31, 1996 but did not file an
answer nor did she move to reconsider the resolution. As far as this Court is concerned, the amount and kind of tax due,
and the period covered, are sufficient details needed for an
Instead, the CIR filed this petition on June 7, 1996, alleging as "assessment." These details are more than complete, compared to
grounds that: the following definitions of the term as quoted hereunder. Thus:

Respondent Court of Tax Appeals acted with grave Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43
abuse of discretion and without jurisdiction in S.W. (2d) 386, 387, 163 Tenn. 332. (Words and Phrases, Permanent
considering the affidavit/report of the revenue officer Edition, Vol. 4, p. 446).
and the indorsement of said report to the secretary of
justice as assessment which may be appealed to the The word assessment when used in connection with taxation, may
Court of Tax Appeals; have more than one meaning. The ultimate purpose of an
assessment to such a connection is to ascertain the amount that
Respondent Court Tax Appeals acted with grave each taxpayer is to pay. More commonly, the word "assessment"
abuse of discretion in considering the denial by means the official valuation of a taxpayer's property for purpose of
petitioner of private respondents' Motion for taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60
Reconsideration as [a] final decision which may be Conn. 326, 325. (Ibid. p. 445)
appealed to the Court of Tax Appeals.
From the above, it can be gleaned that an assessment simply states
In denying the motion to dismiss filed by the CIR, the Court of Tax how much tax is due from a taxpayer. Thus, based on these
Appeals stated: definitions, the details of the tax as given in the Joint Affidavit of
respondent's examiners, which was attached to the tax evasion
We agree with petitioners' contentions, that the complaint, more than suffice to qualify as an assessment. Therefore,
criminal complaint for tax evasion is the assessment this assessment having been disputed by petitioners, and there being
issued, and that the letter denial of May 17, 1995 is a denial of their letter disputing such assessment, this Court
unquestionably acquired jurisdiction over the instant petition for Main Issue: Assessment
review. 6
Petitioner argues that the filing of the criminal complaint with the Department of
As earlier observed, the Court of Appeals sustained the CTA and dismissed the Justice cannot in any way be construed as a formal assessment of private
petition. respondents' tax liabilities. This position is based on Section 205 of the National
Internal Revenue Code 10 (NIRC), which provides that remedies for the collection of
Hence, this recourse to this Court. 7 deficient taxes may be by either civil or criminal action. Likewise, petitioner cites
Section 223(a) of the same Code, which states that in case of failure to file a return,
Ruling of the Court of Appeals the tax may be assessed or a proceeding in court may be begun without
assessment.
The Court of Appeals held that the tax court committed no grave abuse of discretion
in ruling that the Criminal Complaint for tax evasion filed by the Commissioner of Respondents, on the other hand, maintain that an assessment is not an action or
Internal Revenue with the Department of Justice constituted an "assessment" of the proceeding for the collection of taxes, but merely a notice that the amount stated
tax due, and that the said assessment could be the subject of a protest. By definition, therein is due as tax and that the taxpayer is required to pay the same. Thus,
an assessment is simply the statement of the details and the amount of tax due from qualifying as an assessment was the BIR examiners' Joint Affidavit, which contained
a taxpayer. Based on this definition, the details of the tax contained in the BIR the details of the supposed taxes due from respondent for taxable years ending 1987
examiners' Joint Affidavit, 8 which was attached to the criminal Complaint, constituted and 1988, and which was attached to the tax evasion Complaint filed with the DOJ.
an assessment. Since the assailed Order of the CTA was merely interlocutory and Consequently, the denial by the BIR of private respondents' request for
devoid of grave abuse of discretion, a petition for certiorari did not lie. reinvestigation of the disputed assessment is properly appealable to the CTA.

Issues We agree with petitioner. Neither the NIRC nor the regulations governing the protest
of assessments 11 provide a specific definition or form of an assessment. However,
the NIRC defines the specific functions and effects of an assessment. To consider
Petitioners submit for the consideration of this Court following issues:
the affidavit attached to the Complaint as a proper assessment is to subvert the
nature of an assessment and to set a bad precedent that will prejudice innocent
(1) Whether or not the criminal complaint for tax taxpayers.
evasion can be construed as an assessment.
True, as pointed out by the private respondents, an assessment informs the taxpayer
(2) Whether or not an assessment is necessary that he or she has tax liabilities. But not all documents coming from the BIR
before criminal charges for tax evasion may be containing a computation of the tax liability can be deemed assessments.
instituted.
To start with, an assessment must be sent to and received by a taxpayer, and must
(3) Whether or not the CTA can take cognizance of demand payment of the taxes described therein within a specific period. Thus, the
the case in the absence of an assessment. 9 NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer
fails to pay deficiency tax within the time prescribed for its payment in the notice of
In the main, the Court will resolve whether the revenue officers' Affidavit-Report, assessment. Likewise, an interest of 20 percent per annum, or such higher rates as
which was attached to criminal revenue Complaint filed the Department of Justice, may be prescribed by rules and regulations, is to be collected form the date
constituted an assessment that could be questioned before the Court of Tax prescribed for its payment until the full payment. 12
Appeals.
The issuance of an assessment is vital in determining, the period of limitation
The Court's Ruling regarding its proper issuance and the period within which to protest it. Section 203 13

of the NIRC provides that internal revenue taxes must be assessed within three
The petition is meritorious. years from the last day within which to file the return. Section 222, 14 on the other
hand, specifies a period of ten years in case a fraudulent return with intent to evade In addition, what private respondents sent to the commissioner was a motion for a
was submitted or in case of failure to file a return. Also, Section 228 15 of the same reconsideration of the tax evasion charges filed, not of an assessment, as shown
law states that said assessment may be protested only within thirty days from receipt thus:
thereof. Necessarily, the taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion would arise regarding the period This is to request for reconsideration of the tax evasion charges against my client,
within which to make an assessment or to protest the same, or whether interest and PASCOR Realty and Development Corporation and for the same to be referred to
penalty may accrue thereon. the Appellate Division in order to give my client the opportunity of a fair and objective
hearing. 19
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of internal Additional Issues:
revenue releases, mails or sends such notice to the taxpayer. 16
Assessment Not
In the present case, the revenue officers' Affidavit merely contained a computation of
respondents' tax liability. It did not state a demand or a period for payment. Worse, it Necessary Before Filing of
was addressed to the justice secretary, not to the taxpayers.
Criminal Complaint
Respondents maintain that an assessment, in relation to taxation, is simply
understood' to mean:
Private respondents maintain that the filing of a criminal complaint must be preceded
by an assessment. This is incorrect, because Section 222 of the NIRC specifically
A notice to the effect that the amount therein stated is due as tax and states that in cases where a false or fraudulent return is submitted or in cases of
a demand for payment thereof. 17 failure to file a return such as this case, proceedings in court may be commenced
without an assessment. Furthermore, Section 205 of the same Code clearly
Fixes the liability of the taxpayer and ascertains the facts and mandates that the civil and criminal aspects of the case may be pursued
furnishes the data for the proper presentation of tax rolls. 18 simultaneously. In Ungab v. Cusi, 20 petitioner therein sought the dismissal of the
criminal Complaints for being premature, since his protest to the CTA had not yet
Even these definitions fail to advance private respondents' case. That the BIR been resolved. The Court held that such protests could not stop or suspend the
examiners' Joint Affidavit attached to the Criminal Complaint contained some details criminal action which was independent of the resolution of the protest in the CTA.
of the tax liabilities of private respondents does not ipso facto make it an This was because the commissioner of internal revenue had, in such tax evasion
assessment. The purpose of the Joint Affidavit was merely to support and cases, discretion on whether to issue an assessment or to file a criminal case against
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a the taxpayer or to do both.
notice of the tax due and a demand to the private respondents for payment thereof.
Private respondents insist that Section 222 should be read in relation to Section 255
The fact that the Complaint itself was specifically directed and sent to the of the NLRC, 21 which penalizes failure to file a return. They add that a tax
Department of Justice and not to private respondents shows that the intent of the assessment should precede a criminal indictment. We disagree. To reiterate, said
commissioner was to file a criminal complaint for tax evasion, not to issue an Section 222 states that an assessment is not necessary before a criminal charge can
assessment. Although the revenue officers recommended the issuance of an be filed. This is the general rule. Private respondents failed to show that they are
assessment, the commissioner opted instead to file a criminal case for tax evasion. entitled to an exception. Moreover, the criminal charge need only be supported by a
What private respondents received was a notice from the DOJ that a criminal case prima facie showing of failure to file a required return. This fact need not be proven
for tax evasion had been filed against them, not a notice that the Bureau of Internal by an assessment.
Revenue had made an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint.
Before an assessment is issued, there is, by practice, a pre-assessment notice sent
to the taxpayer. The taxpayer is then given a chance to submit position papers and
documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer ESGUERRA, J.:p
informing the latter specifically and clearly that an assessment has been made
against him or her. In contrast, the criminal charge need not go through all these. Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a
The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified review and nullification of the decision of the Court of Tax Appeals in C.T.A. Case No.
that a criminal case had been filed against him, not that the commissioner has issued 109, modifying the decision of respondent Commissioner of Internal Revenue and
an assessment. It must be stressed that a criminal complaint is instituted not to ordering the petitioner to pay the government the sum of P227,691.77 representing
deficiency income taxes for the years 1946 to 1951, inclusive, with the condition that if the
demand payment, but to penalize the taxpayer for violation of the Tax Code. said amount is not paid within thirty days from the date the decision becomes final, there
shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12%
WHEREFORE, the petition is hereby GRANTED. The assailed Decision is per annum from the date of delinquency to the date of payment, in accordance with
REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No Section 51 of the National Internal Revenue Code, plus costs against the petitioner.
costs.
It is established that the late Matias H. Aznar who died on May 18, 1958, predecessor in
interest of herein petitioner, during his lifetime as a resident of Cebu City, filed his income
SO ORDERED. tax returns on the cash and disbursement basis, reporting therein the following:
Y Net Amo Ex
Vitug, Purisima and Gonzaga-Reyes, JJ., concur. ea Income unt hibi
r
of t
Romero, J., abroad on official business. Tax
Paid

1 P12,82 P11 pp.


9 2.00 4.66 85-
4 88
5 B.I.
R.
rec.

1 9,910.9 114. 38-


9 4 66 A
4 (pp
6 .
329
G.R. No. L-20569 August 23, 1974
-
332
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the deceased, B.I.
Matias H. Aznar, petitioner, R
vs. rec.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents. )

Sato, Enad Garcia for petitioner. 1 10,200. 132. 39


9 00 00 (pp
4 .
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special
7 75-
Attorney Librada R. Natividad for respondents.
78
B.I.
R
rec.
Based on the above findings of Examiner Guerrero, respondent Commissioner, in his letter dated
)
November 28, 1952, notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency to the
amount of P723,032.66, plus compromise penalty. The taxpayer requested a reinvestigation which
1 9,148.3 68.9 40
was granted for the purpose of verifying the merits of the various objections of the taxpayer to the
9 4 0 (pp
deficiency income tax assessment of November 28, 1952.
4 .
8 70-
73 After the reinvestigation, another deficiency assessment to the reduced amount of P381,096.07
B.I. dated February 16, 1955, superseded the previous assessment and notice thereof was received by
R. Matias H. Aznar on March 2, 1955.
rec.
) The new deficiency assessment was based on the following computations:

1 8,990.6 59.7 41
1946
9 6 2 (pp
4 .
9 64- Net income per return ........................ P9,910.94
67 Add: Under declared income .............. 22,559.94
B.I. Net income per investigation............... 32,470.45
R.
rec. Deduct: Income tax liability
) per return as assessed ...................................................... 114.66
Balance of tax due ........................................................... P3,687.10
1 8,364.5 28.2 42 Add: 50% surcharge ........................................................ 1,843.55
9 0 2 (pp DEFICIENCY INCOME TAX ...................................... P5,530.65
5 .
0 59-
1947
62,
BIR
rec. Net income per return ..................................................... P10,200.00
) Add: Under declared income ............................................ 90,413.56
Net income per reinvestigation ....................................... P100,613.56
1 6,800.0 non 43 Deduct: Personal and additional exemption ...................... 7,000.00
9 0 e (pp Amount of income subject to tax ...................................... P93,613.56
5 . Total tax liability ............................................................... P24,753.15
1 54- Deduct: Income tax liability per return as assessed ............ 132.00
57 Balance of tax due ........................................................... P24,621.15
BIR Add: 50% surcharge ........................................................ 12,310.58 DEFICIENCY INCOME
rec. TAX ...................................... P36,931.73
).
1948
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of
one obviously wealthy, pursuant to the authority granted him by Section 38 of the National Internal Net income per return ...................................................... P9,148.34
Revenue Code, caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer's true income Add: Under declared income ............................................. 15,624.63
for said years by using the net worth and expenditures method of tax investigation. The assets and Net income per reinvestigation .......................................... P24,772.97
liabilities of the taxpayer during the above-mentioned years were ascertained and it was discovered Deduct: Personal and additional exemptions ...................... 7,000.00
that from 1946 to 1951, his net worth had increased every year, which increases in net worth was Amount of income subject to tax ....................................... P17,772.97
very much more than the income reported during said years. The findings clearly indicated that the Total tax liability ............................................................... 2,201.40
taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid Deduct: Income tax liability per return as assessed ............ 68.90
years. Balance of tax due ........................................................... P2,132.500
Add: 50% surcharge ........................................................ 1,066.25 DEFICIENCY INCOME
TAX ...................................... P3,198.75
1949
1950 .... 278,783.00

Net income per return ....................................................... P9,990.66 1951 .... 11,526.00


Add: Under declared income ............................................. 105,418.53
Net income per reinvestigation .......................................... 114,409.19 Total .... P381,096.07
Deduct: Personal and additional exemptions ...................... P7,000.00
Amount of income subject to tax ....................................... P107,409.19
Total tax liability ............................................................... P30,143.68 In determining the unreported income, the respondent Commissioner of Internal Revenue resorted
Deduct: Income tax liability per return as assessed ............. 59.72 to the networth method which is based on the following computations:
Balance of tax due ............................................................ P30,083.96
Add: 50% surcharge ......................................................... 15,041.98 DEFICIENCY INCOME 1945
TAX ....................................... P45,125.94

Real estate inventory ................................ P64,738.00


1950 Other assets ............................................. 37,606.87
Total assets ............................................ P102,344.87
Net income per return ....................................................... P8,364.50 Less: Depreciation allowed ...................... 2,027.00
Add: Under declared income ............................................. 365,578.76 Networth as of Dec. 31, 1945 ................ P100,316.97
Net income per reinvestigation .......................................... P373,943.26
Deduct: Personal and additional exemptions ...................... 7,800.00 1946
Amount of income subject to tax ....................................... P366,143.26
Total tax liability ............................................................... P185,883.00
Deduct: Income tax liability per return as assessed ............. 28.00 Real estate inventory ................................. P86,944.18
Balance of tax due ............................................................ P185,855.00 Other assets ............................................. 60,801.65
Add: 50% surcharge ......................................................... 92,928.00 DEFICIENCY INCOME Total assets ............................................. P147,745.83
TAX ....................................... P278,783.00 Less: Depreciation allowed ...................... 4,875.41
Net assets ................................................ P142,870.42
Less: Liabilities .................. P17,000.00
1951 Net Worth as of
Jan. 1, 1946 ................... P100,316.97 P117,316.97
Net income per return ........................................................ P6,800.00 Increase in networth ................................. 25,553.45
Add: Under declared income ............................................... 33,355.80 Add: Estimated living expenses ................. 6,917.00
Net income per reinvestigation ............................................ P40,155.80 Net income .............................................. P32,470.45
Deduct: Personal and additional exemptions ........................ 7,200.00
Amount of income subject to tax ......................................... P32,955.80 1947
Total tax liability .................................................................. P7,684.00
Deduct: Income tax liability per return as assessed ............... - o - .
Balance of tax due .............................................................. P7,684.00 Real estate inventory .................................. P237,824.18
Add: 50% surcharge ........................................................... 3,842.00 DEFICIENCY INCOME Other assets ............................................... 54,495.52
TAX .......................................... P11,526.00 Total assets ............................................... P292,319.70
Less: Depreciation allowed ......................... 12,835.72
Net assets .................................................. 279,483.98
SUMMARY Less: Liabilities ................... P60,000.00
Networth as of
1946 Jan. 1, 1947 ........................ 125,870.42 P185,870.42
.... P5,530.65
Increase in networth ................................... P93,613.56
Add: Estimated living expenses ................... 7,000.00
1947 .... 36,931.73
Net income ................................................P100,613.56
1948 .... 3,198.75
1948
1949 .... 45,125.94
Real estate inventory .................................. P244,824.18 Less: Liabilities ........................................... P140,459.03
Other assets .............................................. 118,720.60 Networth as of
Total assets ............................................... P363,544.78 Jan. 1, 1951 ................ 710,809.40 P851,268.43
Less: Depreciation allowed ........................ 20,936.03 Increase in networth .................................... P32,955.80
Net assets ................................................. P342,608.75 Add: Estimated living expenses .................... 7,200.00
Less: Liabilities ................... P105,351.80 Net income ................................................. P40,155.80
Networth as of
Jan. 1, 1948 ...................... 219,483.98 P324,835.78 (Exh. 45-B, BIR rec. p. 188)
Increase in networth ................................... P17,772.97
Add: Estimated living expenses ................... 7,000.00
Net income ................................................ P24,772.97 On February 20, 1953, respondent Commissioner of Internal Revenue, thru the City Treasurer of
Cebu, placed the properties of Matias H. Aznar under distraint and levy to secure payment of the
deficiency income tax in question. Matias H. Aznar filed his petition for review of the case with the
1949 Court of Tax Appeals on April 1, 1955, with a subsequent petition immediately thereafter to restrain
respondent from collecting the deficiency tax by summary method, the latter petition being granted
Real estate inventory ................................. P400,515.52 on February 8, 1956, per C.T.A. resolution, without requiring petitioner to file a bond. Upon review,
Investment in schools and other colleges .... 23,105.29 this Court set aside the C.T.A. resolution and required the petitioner to deposit with the Court of
Other assets ............................................. 70,311.00 Tax Appeals the amount demanded by the Commissioner of Internal Revenue for the years 1949 to
Total assets ............................................... P493,931.81 1951 or furnish a surety bond for not more than double the amount.
Less: Depreciation allowed ........................ 32,657.08
Net assets ................................................. P461.274.73 On March 5, 1962, in a decision signed by the presiding judge and the two associate judges of the
Less; Liabilities .................. P116,608.59 Court of Tax Appeals, the lower court concluded that the tax liability of the late Matias H. Aznar for
Networth as of the year 1946 to 1951, inclusive should be P227,788.64 minus P96.87 representing the tax credit
Jan. 1, 1949 ...................... 237,256.95 P353,865.54 for 1945, or P227,691.77, computed as follows:
Increase in networth .................................. P107,409.19
Add: Estimated living expenses .................. 7,000.00
Net income ............................................... P114,409.19 1946

1950 Net income per return .............................................. P9,910.94


Add: Under declared income ..................................... 22,559.51
Net income ............................................................ P32,470.45
Real estate inventory .................................. P412,465.52 Less: Personal and additional exemptions .................. 6,917.00
Investment in Schools and Income subject to tax ............................................. P25,553.45
other colleges ................................ 193,460.99 Tax due thereon ...................................................... P3,801.76
October assets .......................................... 310,788.87 Less: Tax already assessed ...................................... 114.66
Total assets ............................................... P916,715.38 Balance of tax due .................................................... P3,687.10
Less; Depreciation allowed ........................ 47,561.99 Add: 50% surcharge ................................................. 1,843.55
Net assets ................................................. P869,153.39 Deficiency income tax ................................................ P5,530.65
Less: Liabilities .................. P158,343.99
Networth as of Jan. 1, 1950 ... 344,666.14 P503,010.13
Increase in networth ................................... P366,143.26 1947
Add: Estimated living expenses ................... 7,800.00
Net income ................................................. P373,943.26 Net income per return ............................................ P10,200.00
Add: Under declared income .................................. 57,551.19
1951 Net income ........................................................... P67,751.19
Less: Personal and additional exemptions ............... 7,000.00
Income subject to tax ............................................. P60,751.19
Real estate inventory ................................... P412,465.52 Tax due thereon ..................................................... P13,420.38
Investment in schools and other colleges ..... 214,016.21 Less: Tax already assessed ..................................... P132.00
Other assets ............................................... 320,209.40 Balance of tax due ................................................... P13,288.38
Total assets ................................................ P946,691.13 Add: 50% surcharge ................................................ 6,644.19
Less: Depreciation allowed ......................... 62,466.90 Deficiency income tax .............................................. P19,932.57
Net assets .................................................. P884,224.23
1948 Add: 50% surcharge .................................................. 58,660.00
Deficiency income tax ................................................ P175 980.00
Net income per return .............................................. P9,148.34
Add: Under declared income ..................................... 8,732.10 SUMMARY
Net income ............................................................ P17,880.44
Less: Personal and additional exemptions ................. 7,000.00 1946 P5,530.65
Income subject to tax .............................................. P10,880.44
Tax due thereon ...................................................... P1,029.67
Less: Tax already assessed ....................................... 68.90 1947 19,932.57
Balance of tax due .................................................... 960.77
Add: 50% surcharge ................................................. 480.38 1948 1,441.15
Deficiency income tax ............................................... P1,441.15
1949 13,378.27
1949
1950 175,980.00
Net income per return ................................................. P8,990.66
Add: under declared income ......................................... 43,718.53 1951 11,526.00
Net income ............................................................... P52,709.19
Less: Personal and additional exemptions .................... 7,000.00
Income subject to tax ................................................. P45,709.19 P227,788.64.
Tax due thereon ......................................................... P8,978.57
Less: Tax already assessed ......................................... 59.72 I
Balance of tax due ....................................................... P8,918.85
Add: 50% surcharge .................................................... 4,459.42
The first vital issue to be decided here is whether or not the right of the Commissioner of Internal
Deficiency income tax ................................................. P13,378.27
Revenue to assess deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947,
and 1948 had already prescribed at the time the assessment was made on November 28, 1952.
1950
Petitioner's contention is that the provision of law applicable to this case is the period of five years
Net income per return .................................................. P6,800.00 limitation upon assessment and collection from the filing of the returns provided for in See. 331 of
Add: Under declared income ......................................... 33,355.80 the National Internal Revenue Code. He argues that since the 1946 income tax return could be
Net income ................................................................. P40,155.80 presumed filed before March 1, 1947 and the notice of final and last assessment was received by
Less: Personal and additional exemptions ...................... 7,200.00 the taxpayer on March 2, 1955, a period of about 8 years had elapsed and the five year period
Income subject to tax .................................................. P32,955.80 provided by law (Sec. 331 of the National Internal Revenue Code) had already expired. The same
Tax due thereon ........................................................... P7,684.00 argument is advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and the
Less: Tax already assessed ........................................... -o- . return for 1948, which was filed on February 28, 1949. Respondents, on the other hand, are of the
Balance of tax due ........................................................ P7,684.00 firm belief that regarding the prescriptive period for assessment of tax returns, Section 332 of the
Add: 50% surcharge .................................................... 3,842.00 National Internal Revenue Code should apply because, as in this case, "(a) In the case of a false or
Deficiency income tax .................................................. P11,526.00 fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or
a proceeding in court for the collection of such tax may be begun without assessment, at any time
1951 within ten years after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of the NIRC).

Net income per return ................................................... P8,364.50 Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false
Add: Under declared income ........................................ 246,449.06 and fraudulent returns with intent to evade tax, while respondent Commissioner of Internal
Net income ............................................................... P254.813.56 Revenue insists contrariwise, with respondent Court of Tax Appeals concluding that the very
Less: Personal and additional exemptions .................... 7,800.00 "substantial under declarations of income for six consecutive years eloquently demonstrate the
Income subject to tax ................................................ P247,013.56 falsity or fraudulence of the income tax returns with an intent to evade the payment of tax."
Tax due thereon ........................................................ P117,348.00
Less: Tax already assessed ........................................ 28.00 To our minds we can dispense with these controversial arguments on facts, although we do not
Balance of tax due ..................................................... P117,320.00 deny that the findings of facts by the Court of Tax Appeals, supported as they are by very
substantial evidence, carry great weight, by resorting to a proper interpretation of Section 332 of during the Japanese occupation (World War II) and sold on various occasions, as follows: 1945,
the NIRC. We believe that the proper and reasonable interpretation of said provision should be that P5,000 and 1946, P30,000. To corroborate the testimony of the accountant, Mrs. Ramona
in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) Agustines testified that she bought from the wife of Matias H. Aznar in 1946 a diamond ring and a
failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such pair of earrings for P30,000; and in 1947 a wrist watch with diamonds, together with antique
tax may be begun without assessment, at any time within ten years after the discovery of the (1) jewelries, for P15,000. Matias H. Aznar, on the other hand testified that in 1945, his wife sold to
falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a separation of Sards Parino jewelries for P5,000 and question, Mr. Aznar stated that his transaction with Sards
the three different situations of false return, fraudulent return with intent to evade tax, and failure to Parino, with respect to the sale of jewelries, amounted to P15,000.
file a return is strengthened immeasurably by the last portion of the provision which segregates the
situations into three different classes, namely "falsity", "fraud" and "omission". That there is a The lower court did not err in finding material inconsistencies in the testimonies of Matias H. Aznar
difference between "false return" and "fraudulent return" cannot be denied. While the first merely and his witnesses with respect to the values of the jewelries allegedly disposed off as stated by the
implies deviation from the truth, whether intentional or not, the second implies intentional or witnesses. Thus, Mr. Aznar stated to the B.I.R. examiner that jewelries worth P10,000 were sold in
deceitful entry with intent to evade the taxes due. 1945, while his own accountant testified that the same jewelries were sold for only P5,000. Mr.
Aznar also testified that Mrs. Agustines purchased from his wife jewelries for P35,000, and yet Mrs.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of Agustines herself testified that she bought jewelries for P30,000 and P15,000 on two occasions, or
the NIRC should be applicable to normal circumstances, but whenever the government is placed at a total of P45,000.
a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to
false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period We do not see any plausible reason to challenge the fundamentally sound basis advanced by the
of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or Court of Tax Appeals in considering the inconsistencies of the witnesses' testimony as material, in
omission even seems to be inadequate and should be the one enforced. the following words:

There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent We do not say that witnesses testifying on the same transaction should give
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years identical testimonies. Because of the frailties and the limitations of the human
within which to assess petitioner's tax liability had not expired at the time said assessment was mind, witnesses' statements are apt to be inconsistent in certain points, but
made. usually the inconsistencies refer to the minor phases of the transaction. It is the
insignificance of the detail of an occurrence that fails to impress the human mind.
II When that same mind, made to recall what actually happened, the significant
point which it failed to take note is naturally left out. But it is otherwise as regards
As to the alleged errors committed by the Court of Tax Appeals in not deducting from the alleged significant matters, for they leave indelible imprints upon the human mind.
undeclared income of the taxpayer for 1946 the proceeds from the sale of jewelries valued at Hence, testimonial inconsistencies on the minor details of an occurrence are
P30,000; in not excluding from other schedules of assets of the taxpayer (a) accounts receivable dismissed lightly by the courts, while discrepancies on significant points are
from customers in the amount of P38,000 for 1948, P126,816.50 for 1950, and provisions for taken seriously and weigh adversely to the party affected thereby.
doubtful accounts in the amount of P41,810.56 for 1950; (b) over valuation of hospital and dental
buildings for 1949 in the amount of P32,000 and P6,191.32 respectively; (c) investment in hollow There is no sound basis for deviating from the lower court's conclusion that: "Taxwise in view of the
block business in the amount of P8,603.22 for 1949; (d) over valuation of surplus goods in the aforesaid inconsistencies, which we deem material and significant, we dismiss as without factual
amount of P23,000 for the year 1949; (e) various lands and buildings included in the schedule of basis petitioner's allegation that jewelries form part of his inventory of assets for the purpose of
assets for the years 1950 and 1951 in the total amount of P243,717.42 for 1950 and P62,564.00 for establishing his net worth at the beginning of 1946."
1951, these issues would depend for their resolution on determination of questions of facts based
on an evaluation of evidence, and the general rule is that the findings of fact of the Court of Tax As to the accounts receivable from the United States government for the amount of P38,254.90,
Appeals supported by substantial evidence should not be disturbed upon review of its decision representing a claim for goods commandered by the U.S. Army during World War II, and which
(Section 2, Rule 44, Rules of Court). amount petitioner claimed should be included in his net worth as of January 1, 1946, the Court of
Tax Appeals correctly concluded that the uncontradicted evidence showed that "the collectible
On the question of the alleged sale of P30,000 worth of jewelries in 1946, which amount petitioner accounts of Mr. Aznar from the U.S. Government in the sum of P38,254.90 should be added to his
contends should be deducted from the taxpayer's net worth as of December 31, 1946, the record assets (under accounts receivable) as of January 1, 1946. As of December 31, 1947, and
shows that Matias H. Aznar, when interviewed by B.I.R. Examiner Guerrero, stated that at the December 31, 1948, the years within which the accounts were paid to him, the 'accounts receivable
beginning of 1945 he had P60,000 worth of jewelries inherited from his ancestors and were shall decrease by P31,362.37 and P6,892.53, respectively."
disposed off as follows: 1945, P10,000; 1946, P20,000; 1947, P10,000; 1948, P10,000; 1949,
P7,000; (Report of B.I.R. Examiner Guerrero, B.I.R. rec. pp. 90-94). Regarding a house in Talisay Cebu, (covered by Tax Declaration No. 8165) which was listed as an
asset during the years 1945 and 1947 to 1951, but which was not listed as an asset in 1946
During the hearing of this case in the Court of Tax Appeals, petitioner's accountant testified that on because of a notation in the tax declaration that it was reconstructed in 1947, the lower court
January 1, 1945, Matias H. Aznar had jewelries worth P60,000 which were acquired by purchase correctly concluded that the reconstruction of the property did not render it valueless during the
time it was being reconstructed and consequently it should be listed as an asset as of January 1, P6,191.34), We find no sufficient reason to alter the conclusion of respondent Court of Tax Appeals
1946, with the same valuation as in 1945, that is P1,500. sustaining the respondent Commissioner of Internal Revenue's valuation of both properties.

On the question of accounts receivable from customers in the amount of P38,000 for 1948, and Respondent Commissioner of Internal Revenue based his valuation of the hospital building on the
P123,816.58 for the years 1950 and 1951, which were included in the assets of Mr. Aznar for those representation of Mr. Matias H. Aznar himself who, in his letter (Exh. 35) to the Philippine National
years by the respondent Commissioner of Internal Revenue, it is very clear that those figures were Bank dated September 5, 1949, stated that the hospital building cost him P132,000. However in
taken from the statements (Exhs. 31 and 32) filed by Mr. Matias H. Aznar with the Philippine view of the effect of a typhoon in 1949 upon the building, the value allowed was P130,000. Exhibit
National Bank when he was intending to obtain a loan. These statements were under oath and the 35, contrary to petitioner's contention, should be given probative value because, although it is an
natural implication is that the information therein reflected must be the true and accurate financial unsigned plain copy, that exhibit was taken by the investigating examiner of the B.I.R. from the files
condition of the one who executed those statements. To believe the petitioner's argument that the of the Southwestern Colleges and formed part of his report of investigation as a public official. The
late Mr. Aznar included those figures in his sworn statement only for the purpose of obtaining a estimates of an architect and a civil engineer who agreed that a value of P84,240 is fair for the
bigger credit from the bank is to cast suspicion on the character of a man who can no longer hospital building, made years after the building was constructed, cannot prevail over the petitioner's
defend himself. It would be as if pointing the finger of accusation on the late Mr. Aznar that he own estimate of his property's value.
intentionally falsified his sworn statements (Exhs. 31 and 32) to make it appear that there were
non-existent accounts receivable just to increase his assets by fictitious entries so that his credit Respondent Commissioner of Internal Revenue's valuation of P36,191.34 of the Dentistry Building
with the Philippine National Bank could be enhanced. Besides, We do not lose sight of the fact that is based on the letter of Mr. and Mrs. Matias H. Aznar to the Southwestern Colleges, dated
those statements (Exhs. 31 and 32) were executed before this tax controversy arose and the December 15, 1950, which is embodied in the minutes of the meeting of the Board of Trustees of
disputable presumptions that a person is innocent of crime or wrong; that a person intends the the Southwestern Colleges held on May 7, 1951 (Exhibit G-1). In Exhibit 26 A, which is the cash
ordinary consequences of his voluntary act; that a person takes ordinary care of his concerns; that book of the Southwestern Colleges, this building was listed as of the same amount. Petitioner's
private transaction have been fair and regular; that the ordinary course of business has been estimate of P30,000 for this building, based on Architect Paca's opinion, cannot stand against the
followed; that things have happened according to the ordinary course of nature and the ordinary owner's estimate and that which appears in the cash book of the Southwestern Colleges, if we take
habits of life; that the law has been obeyed (Sec. 5, (a), (c), (d), (p), (q), (z), (ff), Rule 131 of the into consideration that the owner's (Mr. Matias H. Aznar) letter was written long before this tax
Rules of Court), together with the conclusive presumption that "whenever a party has, by his own proceeding was initiated, while architect Paca's estimate was made upon petitioner's request solely
declaration, act, or omission, intentionally and deliberately led another to believe a particular thing for the purpose of evidence in this tax case.
true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or
omission, be permitted to falsify it" (Sec. 3 (a), Rule 131, Rules of Court), convincingly indicate that
the accounts receivable stated by Mr. Aznar in Exhibits 31 and 32 were true, in existence, and In the inventory of assets of petitioner, respondent Commissioner of Internal Revenue included the
accurate to the very amounts mentioned. administrative building valued at P19,200 for the years 1947 and 1948, and P16,700 for the years
1949 to 1951; and a high school building valued at P48,000 for 1947 and 1948, and P45,000 for
1949, 1950 and 1951. The reduced valuation for the latter years are due to allowance for partial
There is no merit to petitioners argument that those statements were only for the purpose of loss resulting from the 1949 typhoon. Petitioner did not question the inclusion of these buildings in
obtaining a bigger credit from the bank (impliedly stating that those statements were false) and the inventory for the years prior to 1950, but objected to their inclusion as assets as of January 1,
those accounts were allegedly back accounts of students of the Southwestern Colleges and were 1950, because both buildings were destroyed by a typhoon in November of 1949. There is
worthless, and if collected, would go to the funds of the school. The statement of the late Mr. Aznar sufficient evidence (Exh. G-1, affidavit of Jesus S. Intan, employee in the office of City Assessor of
that they were accounts receivable from customers should prevail over the mere allegation of Cebu City, Exh. 18, Mr. Intan's testimony, a copy of a letter of the City Assessor of Cebu City) to
petitioner, unsupported as they are by convincing evidence. There is no reason to disturb the lower prove that the two buildings were really destroyed by typhoon in 1949 and, therefore, should be
court's conclusion that the amounts of P38,000 and P123,816.58 were accounts receivable from eliminated from the petitioner's inventory of assets beginning December 31, 1949.
customers and as such must be included as petitioner's assets for the years indicated.
On the issue of investment in the hollow blocks business, We see no compelling reason to alter the
As to the questions of doubtful accounts (bad debts), for the amount of P41,810.56, it is clear that lower court's conclusion that "whatever was spent in the hollow blocks business is an investment,
said amount is taken from Exhibit 31, the sworn statement of financial condition filed by Mr. Matias and being an investment, the same should be treated as an asset. With respect to the amount
H. Aznar with the Philippine National Bank. The lower court did not commit any error in again giving representing the value of the building, there is no duplication in the listing as the inventory of real
much weight to the statement of Mr. Aznar and in concluding that inasmuch as this is an item property does not include the building in question."
separate and apart from the taxpayer's accounts receivable and non-deductible expense, it should
be reverted to the accounts receivable and, consequently, considered as an asset in 1950.
Respondent Commissioner of Internal Revenue included in the inventory, under the heading of
other asset, the amount of P8,663.22, treated as investment in the hollow block business.
On the alleged over valuation of two buildings (hospital building which respondent Commissioner of Petitioner objects to the inclusion of P1,683.42 which was spent on the building and in the business
Internal Revenue listed as an asset from 1949-1951 at the basic valuation of P130,000, and which and of P674.35 which was spent for labor, fuel, raw materials, office supplies etc., contending that
petitioner claims to be over valued by P32,000; dentistry building valued by respondent the former amount is a duplication of inventory (included among the list of properties) and the latter
Commissioner of Internal Revenue at P36,191.34, which petitioner claims to be over valued by is a business expense which should be eliminated from the list of assets.
The inclusion of expenses (labor and raw materials) as part of the hollow block business is The uncontested portions of the lower court's decision consisting of its conclusions that library
sanctioned in the inventory method of tax verification. It is a sound accounting practice to include books valued at P7,041.03, appearing in a journal of the Southwestern Colleges marked as' Exhibit
raw materials that will be used for future manufacture. Inclusion of direct labor is also proper, as all 25-A, being an investment, should be treated as an asset beginning December 31, 1950; that the
these items are to be embodied in a summary of assets (investment by the taxpayer credited to his expenses for construction to the amount of P113,353.70, which were spent for the improvement of
capital account as reflected in Exhibit 72-A, which is a working sheet with entries taken from the the buildings appearing in Exhibit 24 are deemed absorbed in the increased value of the buildings
journal of the petitioner concerning his hollow blocks business). There is no evidence to show that as appraised by respondent Commissioner of Internal Revenue at cost after improvements were
there was duplication in the inclusion of the building used for hollow blocks business as part of made, and should be taken out as additional assets; that the amount receivable of P5,776 from a
petitioner's investment as this building was not included in the listing of real properties of petitioner certain Benito Chan should be treated as petitioner's asset but the amount of P5,776 representing
(Exh. 45-C p. 187 B.I.R. rec.). the value of a house and lot given as collateral to secure said loan should not be considered as an
asset of petitioner since to do so would result in a glaring duplication of items, are all affirmed.
As to the question of the real value of the surplus goods purchased by Mr. Matias H. Aznar from There seems to be no controversy as to the rest of the items listed in the inventory of assets.
the U.S. Army, the best evidence, as observed correctly by the lower court, is the statement of Mr.
Matias H. Aznar, himself, as appearing Exh. 35 (copy of a letter dated September 5, 1949 to the III
Philippine National Bank), to the effect "as part of my assets I have different merchandise from
Warehouse 35, Tacloban, Leyte at a total cost of P43,000.00 and valued at no less than P20,000 at The second issue which appears to be of vital importance in this case centers on the lower court's
present market value." Petitioner's claim that the goods should be valued at only P20,000 in imposition of the fraud penalty (surcharge of 50% authorized in Section 72 of the Tax Code). The
accordance with an alleged invoice is not supported by evidence since the invoice was not petitioner insists that there might have been false returns by mistake filed by Mr. Matias H. Aznar
presented as exhibit. The lower court's act in giving more credence to the statement of Mr. Aznar as those returns were prepared by his accountant employees, but there were no proven fraudulent
cannot be questioned in the light of clear indications that it was never controverted and it was given returns with intent to evade taxes that would justify the imposition of the 50% surcharge authorized
at a time long before the tax controversy arose. by law as fraud penalty.

The last issue on propriety of inclusion in petitioner's assets made by respondent Commissioner of The lower court based its conclusion that the 50% fraud penalty must be imposed on the following
Internal Revenue concerns several buildings which were included in the list of petitioner's assets as reasoning: .
of December 31, 1950. Petitioner contends that those buildings were conveyed and ceded to
Southwestern Colleges on December 15, 1950, in consideration of P100,723.99 to be paid in cash.
The value of the different buildings are listed as: hospital building, P130,000; gymnasium, P43,000; It appears that Matias H. Aznar declared net income of P9,910.94, P10,200,
dentistry building, P36,191.34; bodega 1, P781.18; bodega 2, P7,250; college of law, P10,950; P9,148.34, P8,990.66, P8,364.50 and P6,800 for the years 1946, 1947, 1948,
laboratory building, P8,164; home economics, P5,621; morgue, P2,400; science building, P23,600; 1949, 1950 and 1951, respectively. Using the net worth method of determining
faculty house, P5,760. It is suggested that the value of the buildings be eliminated from the real the net income of a taxpayer, we find that he had net incomes of P32,470.45,
estate inventory and the sum of P100,723.99 be included as asset as of December 31, 1950. P67,751.19, P17,880.44, P52,709.11, P254,813.56 and P40,155.80 during the
respective years 1946, 1947, 1948, 1949, 1950, and 1951. In consequence, he
underdeclared his income by 227% for 1946, 564% for 1947, 95%, for 1948,
The lower court could not find any evidence of said alleged transfer of ownership from the taxpayer 486% for 1949, 2,946% for 1950 and 490% for 1951. These substantial under
to the Southwestern Colleges as of December 15, 1950, an allegation which if true could easily be declarations of income for six consecutive years eloquently demonstrate the
proven. What is evident is that those buildings were used by the Southwestern Colleges. It is true falsity or fraudulence of the income tax return with an intent to evade the
that Exhibit G-1 shows that Mr. and Mrs. Matias H. Aznar offered those properties in exchange for payment of tax. Hence, the imposition of the fraud penalty is proper (Perez vs.
shares of stocks of the Southwestern Colleges, and Exhibit "G" which is the minutes of the meeting Court of Tax Appeals, G.R. No. L-10507, May 30, 1958). (Emphasis supplied)
of the Board of Trustees of the Southwestern Colleges held on August 6, 1951, shows that Mr.
Aznar was amenable to the value fixed by the board of trustees and that he requested to be paid in
cash instead of shares of stock. But those are not sufficient evidence to prove that transfer of As could be readily seen from the above rationalization of the lower court, no distinction has been
ownership actually happened on December 15, 1950. Hence, the lower court did not commit any made between false returns (due to mistake, carelessness or ignorance) and fraudulent returns
error in sustaining the respondent Commissioner of Internal Revenue's act of including those (with intent to evade taxes). The lower court based its conclusion on the petitioner's alleged
buildings as part of the assets of petitioner as of December 31, 1950. fraudulent intent to evade taxes on the substantial difference between the amounts of net income
on the face of the returns as filed by him in the years 1946 to 1951 and the net income as
determined by the inventory method utilized by both respondents for the same years. The lower
Petitioner also contends that properties allegedly ceded to the Southwestern Colleges in 1951 for court based its conclusion on a presumption that fraud can be deduced from the very substantial
P150,000 worth of shares of stocks, consisting of: land, P22,684; house, P13,700; group of disparity of incomes as reported and determined by the inventory method and on the similarity of
houses, P8,000; building, P12,000; nurses home, P4,100; nurses home, P2,080, should be consecutive disparities for six years. Such a basis for determining the existence of fraud (intent to
excluded from the inventory of assets as of December 31, 1951. The evidence (Exh. H), however, evade payment of tax) suffers from an inherent flaw when applied to this case. It is very apparent
clearly shows that said properties were formally conveyed to the Southwestern Colleges only on here that the respondent Commissioner of Internal Revenue, when the inventory method was
September 25, 1952. Undoubtedly, petitioner was the owner of those properties prior to September resorted to in the first assessment, concluded that the correct tax liability of Mr. Aznar amounted to
25, 1952 and said properties should form part of his assets as of December 31, 1951. P723,032.66 (Exh. 1, B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in
another assessment dated February 16, 1955, concluded that the tax liability should be reduced to 1951 7,684.00
P381,096.07. This is a crystal-clear, indication that even the respondent Commissioner of Internal P151,859.10
Revenue with the use of the inventory method can commit a glaring mistake in the assessment of
petitioner's tax liability. When the respondent Court of Tax Appeals reviewed this case on appeal, it The total sum of P151,859.10 should be decreased by P96.87 representing the tax credit for 1945,
concluded that petitioner's tax liability should be only P227,788.64. The lower court in three thereby leaving a balance of P151,762.23.
instances (elimination of two buildings in the list of petitioner's assets beginning December 31,
1949, because they were destroyed by fire; elimination of expenses for construction in petitioner's
assets as duplication of increased value in buildings, and elimination of value of house and lot in WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the imposition of
petitioner's assets because said property was only given as collateral) supported petitioner's stand the 50% fraud penalty is concerned, and affirmed in all other respects. The petitioner is ordered to
on the wrong inclusions in his lists of assets made by the respondent Commissioner of Internal pay to the Commissioner of Internal Revenue, or his duly authorized representative, the sum of
Revenue, resulting in the very substantial reduction of petitioner's tax liability by the lower court. P151,762.23, representing deficiency income taxes for the years 1946 to 1951, inclusive, within 30
The foregoing shows that it was not only Mr. Matias H. Aznar who committed mistakes in his report days from the date this decision becomes final. If the said amount is not paid within said period,
of his income but also the respondent Commissioner of Internal Revenue who committed mistakes there shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per
in his use of the inventory method to determine the petitioner's tax liability. The mistakes committed annum from the date of delinquency to the date of payment, in accordance with Section 51 of the
by the Commissioner of Internal Revenue which also involve very substantial amounts were also National Internal Revenue Code.
repeated yearly, and yet we cannot presume therefrom the existence of any taint of official fraud.
With costs against the petitioner.
From the above exposition of facts, we cannot but emphatically reiterate the well established
doctrine that fraud cannot be presumed but must be proven. As a corollary thereto, we can also Makalintal, C.J, Castro, Teehankee, Makasiar and Muñoz Palma, JJ., concur
state that fraudulent intent could not be deduced from mistakes however frequent they may be,
especially if such mistakes emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities The predecessor of the petitioner
undoubtedly filed his income tax returns for "the years 1946 to 1951 and those tax returns were
prepared for him by his accountant and employees. It also appears that petitioner in his lifetime and
during the investigation of his tax liabilities cooperated readily with the B.I.R. and there is no
indication in the record of any act of bad faith committed by him.

The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by
law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by
the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both
petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries
in the returns and in the assessment, respectively, under the inventory method of determining tax
liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of
the respondent as made in good faith.

We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code
should not be imposed, but eliminated from the income tax deficiency for each year from 1946 to
1951, inclusive. The tax liability of the petitioner for each year should, therefore, be:

1946 P 3,687.10
1947 13,288.38
1948 960.77
1949 8,918.85
1950 117,320.00
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner
Commissioner of Internal Revenue (CIR) assails the November 24, 2004 decision1 of
the Court of Appeals (CA) annulling the formal assessment notice issued by the CIR
against respondent Enron Subic Power Corporation (Enron) for failure to state the
legal and factual bases for such assessment.

Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority
as a freeport enterprise,2 filed its annual income tax return for the year 1996 on April
12, 1997. It indicated a net loss of P7,684,948. Subsequently, the Bureau of Internal
Revenue, through a preliminary five-day letter,3 informed it of a proposed
assessment of an alleged P2,880,817.25 deficiency income tax.4 Enron disputed the
proposed deficiency assessment in its first protest letter.5

On May 26, 1999, Enron received from the CIR a formal assessment notice6
requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable
year 1996. Enron protested this deficiency tax assessment.7

Due to the non-resolution of its protest within the 180-day period, Enron filed a
petition for review in the Court of Tax Appeals (CTA). It argued that the deficiency tax
assessment disregarded the provisions of Section 228 of the National Internal
Revenue Code (NIRC), as amended,8and Section 3.1.4 of Revenue Regulations
(RR) No. 12-999 by not providing the legal and factual bases of the assessment.
Enron likewise questioned the substantive validity of the assessment.10

In a decision dated September 12, 2001, the CTA granted Enron’s petition and
ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA
reasoned that the assessment notice sent to Enron failed to comply with the
requirements of a valid written notice under Section 228 of the NIRC and RR No. 12-
99. The CIR’s motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.

EN BANC The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held
that the audit working papers did not substantially comply with Section 228 of the
G.R. No. 166387 January 19, 2009 NIRC and RR No. 12-99 because they failed to show the applicability of the cited law
to the facts of the assessment. The CIR filed a motion for reconsideration but this
was deemed abandoned when he filed a motion for extension to file a petition for
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
review in this Court.
vs.
ENRON SUBIC POWERCORPORATION, Respondents.
The CIR now argues that respondent was informed of the legal and factual bases of
the deficiency assessment against it.
RESOLUTION
We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In
CORONA, J.:
Compagnie Financiere Sucres et Denrees v. CIR,11 we held:
We reiterate the well-established doctrine that as a matter of practice and principle, In [this] case, [the CIR] merely issued a formal assessment and indicated therein the
[we] will not set aside the conclusion reached by an agency, like the CTA, especially supposed tax, surcharge, interest and compromise penalty due thereon. The
if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to the Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did
study and consideration of tax problems and has necessarily developed an expertise not provide Enron with the written bases of the law and facts on which the subject
on the subject, unless there has been an abuse or improvident exercise of authority assessment is based. [The CIR] did not bother to explain how it arrived at such an
on its part, which is not present here. assessment. Moreso, he failed to mention the specific provision of the Tax Code or
rules and regulations which were not complied with by Enron.13
The CIR errs in insisting that the notice of assessment in question complied with the
requirements of the NIRC and RR No. 12-99. Both the CTA and the CA concluded that the deficiency tax assessment merely
itemized the deductions disallowed and included these in the gross income. It also
A notice of assessment is: imposed the preferential rate of 5% on some items categorized by Enron as costs.
The legal and factual bases were, however, not indicated.
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a
Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to The CIR insists that an examination of the facts shows that Enron was properly
the PAN was found to be without merit. The Notice of Assessment shall inform the apprised of its tax deficiency. During the pre-assessment stage, the CIR advised
[t]axpayer of this fact, and that the report of investigation submitted by the Revenue Enron’s representative of the tax deficiency, informed it of the proposed tax
Officer conducting the audit shall be given due course. deficiency assessment through a preliminary five-day letter and furnished Enron a
copy of the audit working paper14 allegedly showing in detail the legal and factual
The formal letter of demand calling for payment of the taxpayer’s deficiency tax or bases of the assessment. The CIR argues that these steps sufficed to inform Enron
taxes shall state the fact, the law, rules and regulations or jurisprudence on of the laws and facts on which the deficiency tax assessment was based.
which the assessment is based, otherwise the formal letter of demand and the
notice of assessment shall be void. (emphasis supplied)12 We disagree. The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid substitutes for the
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the mandatory notice in writing of the legal and factual bases of the assessment. These
law and the facts on which the assessment is made. Otherwise, the assessment is steps were mere perfunctory discharges of the CIR’s duties in correctly assessing a
void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was taxpayer.15 The requirement for issuing a preliminary or final notice, as the case may
enacted. Section 3.1.4 of the revenue regulation reads: be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the
CIR issued an advice, a preliminary letter during the pre-assessment stage and a
3.1.4. Formal Letter of Demand and Assessment Notice. – The formal letter of
final notice, in the order required by law, does not necessarily mean that Enron was
demand and assessment notice shall be issued by the Commissioner or his duly
informed of the law and facts on which the deficiency tax assessment was made.
authorized representative. The letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, The law requires that the legal and factual bases of the assessment be stated in the
the formal letter of demand and assessment notice shall be void. The same formal letter of demand and assessment notice. Thus, such cannot be presumed.
shall be sent to the taxpayer only by registered mail or by personal delivery. xxx Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99
(emphasis supplied) would be rendered nugatory. The alleged “factual bases” in the advice, preliminary
letter and “audit working papers” did not suffice. There was no going around the
mandate of the law that the legal and factual bases of the assessment be stated in
It is clear from the foregoing that a taxpayer must be informed in writing of the legal
writing in the formal letter of demand accompanying the assessment notice.
and factual bases of the tax assessment made against him. The use of the word
“shall” in these legal provisions indicates the mandatory nature of the requirements
laid down therein. We note the CTA’s findings: We note that the old law merely required that the taxpayer be notified of the
assessment made by the CIR. This was changed in 1998 and the taxpayer must now
be informed not only of the law but also of the facts on which the assessment is
made.16 Such amendment is in keeping with the constitutional principle that no
person shall be deprived of property without due process.17 In view of the absence of
a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. We reiterate our ruling
in Reyes v. Almanzor, et al.:18

Verily, taxes are the lifeblood of the Government and so should be collected without
unnecessary hindrance. However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason for the Government itself.

WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of
the Court of Appeals isAFFIRMED.

No costs.

SO ORDERED.

RENATO C. CORONA
Associate Justice
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