You are on page 1of 63

TAXATION II Compilation of doctrines based on the syllabus of Atty.

Bobby Lock
PART I - Remedies under the NIRC
I. ASSESMENT OF INTERNAL REVENUE TAXES
A. Definition/Nature/effect/Basis
Sections 4-7, 203, 222, 223, 228, 232, 235, 266 NIRC
Revenue Regulations (RR) No. 12-99 dated September 6,
1999, as amended by RR No. 18-2013 dated November
28, 2013
http://bir.gov.ph/taxpayerrights/taxpayerrights.htm
Republic Act No. 10021
1. Tax Audit Process
2. Letter of Authority/Audit Notice/Tax Verification Notice
Revenue Audit Memorandum Order (RAMO) No. 1-00
Revenue Memorandum Order (RMO) No. 44-10
RMO 69-10
Commissioner of Internal Revenue vs. Sony Philippines, Inc.
Based on Section 13 of the Tax Code, a Letter of Authority
or LOA is the authority given to the appropriate revenue officer
assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account and
other accounting records of a taxpayer for the purpose of
collecting the correct amount of tax. The very provision of the Tax
Code that the CIR relies on is unequivocal with regard to its power
to grant authority to examine and assess a taxpayer.
There must be a grant of authority before any revenue
officer can conduct an examination or assessment. Equally
important is that the revenue officer so authorized must not go
beyond the authority given. In the absence of such an authority,
the assessment or examination is a nullity.
3. Preservation of books of accounts and tax records
RR 17-13
RR 5-14
4. Tax Assessment
Lara Defensor 2015

Commissioner of Internal Revenue vs. Pascor Realty and
Development Corporation
The issuance of an assessment is vital in determining the
period of limitation regarding its proper issuance and the period
within which to protest it. Section 203 of the NIRC provides that
internal revenue taxes must be assessed within three years from
the last day within which to file the return. Section 222, on the
other hand, specifies a period of ten years in case a fraudulent
return with intent to evade was submitted or in case of failure to
file a return. Also, Section 228 of the same law states that said
assessment may be protested only within thirty days from receipt
thereof. Necessarily, the taxpayer must be certain that a specific
document constitutes an assessment. Otherwise, confusion would
arise regarding the period within which to make an assessment or
to protest the same, or whether interest and penalty may accrue
thereon.
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 revenue
releases, mails or sends such notice to the taxpayer. 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 was addressed to the justice
secretary, not to the taxpayers.
5. Pre-assessment Notice (PAN)/when not required
6. Notice of Assessment or Formal Assessment Notice
(FAN)
7. Deficiency vs. Delinquency
8. Jeopardy Assessment
Sec. 3 (1)(a) RR 30-02
9. Power of the Commissioner to assess deficiency tax /
best evidence obtainable
Revenue Memorandum Circular (RMC) No. 23-00
Page 1

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Sy Po vs. Court of Tax Appeals
The law is specific and clear. The rule on the “best
evidence obtainable” applies when a tax report required by law for
the purpose of assessment is not available or when the tax report
is incomplete or fraudulent.

BIR can accept documents which cannot be admitted in a judicial
proceeding where the Rules of Court are strictly observed. To
require the consent of the taxpayer would defeat the intent of the
law to help the BIR assess and collect the correct amount of
taxes.

In the instant case, the persistent failure of the late Po
Bien Sing and the herein petitioner to present their books of
accounts for examination for the taxable years involved left the
Commissioner of Internal Revenue no other legal option except to
resort to the power conferred upon him under the tax code.

Issuance of subpoena duces tecum for the production of
the documents requested by the petitioner—which documents
petitioner claims to be crucial to its defense—is unnecessary in
view of the CTA order for respondent to certify and forward to it all
the records of the case. If the order has not been complied with,
the CTA can enforce it by citing respondent for indirect contempt.

Tax assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to prove
otherwise. In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior officers
will not be disturbed. All presumptions are in favor of the
correctness of tax assessments.
Fitness By Design, Inc. vs. Commissioner of Internal
Revenue
Petitioner impugns the manner in which the documents in
question reached the BIR, Sablan having allegedly submitted
them to the BIR without its (petitioner’s) consent. Petitioner’s lack
of consent does not, however, imply that the BIR obtained them
illegally or that the information received is false or malicious. Nor
does the lack of consent preclude the BIR from assessing
deficiency taxes on petitioner based on the documents. Thus
Section 5 of the Tax Code provides: In ascertaining the
correctness of any return, or in making a return when none has
been made, or in determining the liability of any person for any
internal revenue tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is authorized.

10. Rule on Amendment of Returns
11. Power to issue Subpoena Duces Tecum
RMO 45-10
RMO 10-13
RMO 08-14
B. Period to assess deficiency tax
1. Prescription
a. Rationale/Construction/Interpretation
Republic of the Phils. vs. Ablaza
The law prescribing a limitation of actions for the collection
of the income tax is beneficial both to the Government and to its
citizens, to the government because tax officers would be obliged
to act properly in the making' of assessments and to citizens
because after the lapse of the period of prescription citizens would
have a feeling of security against unscrupulous tax agents who
will always find an excuse to inspect the books of taxpayers, not
to determine the latter's real liability but to take advantage of
every opportunity to molest peaceful law abiding citizens. Without
such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents.

The law thus allows the BIR access to all relevant or
material records and data in the person of the taxpayer, and the
Lara Defensor 2015

Page 2

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
The law of prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval
of the law.
b. Ordinary – 3 years from date of filing (Sec. 203, NIRC)
c. Extraordinary – 10 years from discovery of fraud, falsity, or
omission (see also Sec. 248B)
d. Counting of periods (Art. 13 of NCC vs. Sec. 31 of Revised
Admin Code)
Commissioner of Internal Revenue vs. Primetown Property
Group, Inc.
The rule is that the two year prescriptive period is
reckoned from the filing of the final adjusted return. But how
should the two year prescriptive period be computed? As already
quoted, Article 13 of the Civil Code provides that when the law
speaks of a year, it is understood to be equivalent to 365 days. In
National Marketing Corporation v. Tecson, 29 SCRA 70 (1969),
we ruled that a year is equivalent to 365 days regardless of
whether it is a regular year or a leap year.
A calendar month is “a month designated in the calendar
without regard to the number of days it may contain.” It is the
“period of time running from the beginning of a certain numbered
day up to, but not including, the corresponding numbered day of
the next month, and if there is not a sufficient number of days in
the next month, then up to and including the last day of that
month.” To illustrate, one calendar month from December 31,
2007 will be from January 1, 2008 to January 31, 2008; one
calendar month from January 31, 2008 will be from February 1,
2008 until February 29, 2008.
Under the Civil Code, a year is equivalent to 365 days
whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12
Lara Defensor 2015

calendar months. Needless to state, under the Administrative
Code of 1987, the number of days is irrelevant. There obviously
exists a manifest incompatibility in the manner of computing legal
periods under the Civil Code and the Administrative Code of 1987.
For this reason, we hold that Section 31, Chapter VIII, Book I of
the Administrative Code of 1987, being the more recent law,
governs the computation of legal periods. Lex posteriori derogat
priori.
e. Rule if wrong returns/amended return
CIR VS AYALA SECURITES ***NOSCRA***
On the issue of whether Sec. 331 or See. 332(a) of the
National Internal Revenue Code should apply to this case, there is
no iota of evidence presented by the petitioner as to any fraud or
falsity on the return with intent to evade payment of tax, not even
in the income tax assessment nor in the letter-decision of
February 18, 1963, nor in his answer to the petition for review.
Petitioner merely relies on the provisions of Sec 25 of the National
Internal Revenue Code, violation of which, according to Petitioner,
presupposes the existence of fraud. But this is begging the
question and We do not subscribe to the view of the petitioner.
Fraud is a question of fact and the circumstances
constituting fraud must be alleged and proved in the court below.
The finding of the trial court as to its existence and non- existence
is final and cannot be reviewed here unless clearly shown to be
erroneous.
The applicable provision of law in this case is Section 331
of the National Internal Revenue Code (NOW 203)
BUTUAN SAWMILL, INC VS CTA ***NOSCRA***
Income tax return cannot be considered as a return for
compensating tax for purposes of computing the period of
prescription under Section 331 of the Tax Code, and that the
taxpayer must file a return for the particular tax required by law in
Page 3

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
order to avail himself of the benefits of Section 331 of the Tax
Code; otherwise, if he does not file a return, an assessment may
be made within the time stated in Section 332(a) of the same
Code.
Petitioner failed to file a return for the disputed sales
corresponding to the years 1951, 1952 and 1953, and this
omission was discovered only on September 17, 1957, and that
under Section 332(a) of the Tax Code assessment thereof may be
made within ten (10) years from and after the discovery of the
omission to file the return, it is evident that the lower court
correctly held that the assessment and collection of the sales tax
in question has not yet prescribed.
Commissioner of Internal Revenue vs. Phoenix Assurance
Co., Ltd.
Where the deficiency assessment is based on the
amended return, which is substantially different from the original
return, the period of prescription of the right to issue the same
should be counted from the filing of the amended, not the original
income tax return.
Commissioner of Internal Revenue vs. Gonzales
Fraud is a question of fact. The circumstances constituting
it must be alleged and proved in the Court of Tax Appeals. And the
finding of said court as to its existence or nonexistence is final
unless clearly shown to be erroneous. (Gutierrez vs. Court of
TaxAppeals, 101 Phil. 713). As the court 'a quo found that no
fraud was alleged and proven therein, the Commissioner's
assertion that the return was fraudulent cannot be entertained.
A return need not be complete in all particulars. It is
sufficient if it complies substantially with the law. There is
substantial compliance (1) when the return is made in good faith
and is not false or fraudulent; (2) when it covers the entire period
involved; and (3) when it contains information as to the various
items of income, deductions and credits with such definiteness as
Lara Defensor 2015

to permit the computation and assessment of the tax. (Mertens,
Jr., 10 Law of Federal Income Taxation, 1958 ed., Sec. 57.13).
Where the return was made on the wrong form, it was held
that the filing thereof did not start the running of the period of
limitations, and where the return was very deficient, there was no
return at all as required in Section 93 of the Tax Code. If the
taxpayer failed to observe the law, Section 332 of the Tax Code,
which grants the Commissioner of Internal Revenue ten years
period within which to bring an action "for tax collection, applies.
Section 94 of the Tax Code obligates him to make a return or
amend one already filed based on his own knowledge and
information obtained through testimony or otherwise, and
subsequently to assess thereon the taxes due. The running of the
period of limitations under Section 332(a) of the Tax Code should
be reckoned "from the date the "fraud was discovered.
The Tax Code does not bar the right to contest the legality
of the tax after a taxpayer pays it. Under Section 306 thereof, he
can pay the tax and claim a refund therefor. A fortiori his
willingness to pay the tax is no waiver of his right to raise
defenses against the legality of the tax.
2. Suspension of prescriptive periods/ exceptions
Secs. 203, 222 and 223 NIRC
RMO 20-90 as amended by Revenue Delegation
Authority Order (RDAO) No. 05-01 (execution of
waiver on Statute of Limitations)
cases on 222 and 223:
Republic vs. Ret
Section 332 of the Tax Code does not apply in the
collection of income t by summary proceedings. But when the
collection of income taxes is to be effected by court action, said
provision is controlling.
Page 4

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Under Section 332 (a) of the Tax Code, the Collector is
given two alternatives: (1) to assess the tax within 10 years from
the discovery of the falsity, fraud or omission, or (2) to file an
action in court for the collection of such tax without assessment
also within 10 years from the discovery of the falsity, fraud or
omission. An assessment against the taxpayer takes the case out
of the realms of the provisions of the said section and places it
under the mandate of section 332(c).
Sections 331, 332, and 333 of the Tax Code support the
theory of prescriptibility of a judicial action to collect income tax.
To hold otherwise would render said provisions idle and useless.
Bank of the Philippine Islands vs. Commissioner of Internal
Revenue
The BIR has three years, counted from the date of actual
filing of the return or from the last date prescribed by law for the
filing of such return, whichever comes late, to assess a national
internal revenue tax or to begin a court proceeding for the
collection thereof without an assessment. In case of a false or
fraudulent return with intent to evade tax or the failure to file any
return at all, the prescriptive period for assessment of the tax due
shall be 10 years from discovery by the BIR of the falsity, fraud, or
omission. When the BIR validly issues an assessment, within
either the three year or ten year period, whichever is appropriate,
then the BIR has another three years after the assessment within
which to collect the national internal revenue tax due thereon by
distraint, levy, and/or court proceeding. The assessment of the tax
is deemed made and the three year period for collection of the
assessed tax begins to run on the date the assessment notice
had been released, mailed or sent by the BIR to the taxpayer.
Under Section 223(c) of the Tax Code of 1977, as
amended, it is not essential that the Warrant of Distraint and/or
Levy be fully executed so that it can suspend the running of the
statute of limitations on the collection of the tax. It is enough that
the proceedings have validly began or commenced and that their
Lara Defensor 2015

execution has not been suspended by reason of the voluntary
desistance of the respondent BIR Commissioner. Existing
jurisprudence establishes that distraint and levy proceedings are
validly begun or commenced by the issuance of the Warrant and
service thereof on the taxpayer. It is only logical to require that the
Warrant of Distraint and/or Levy be, at the very least, served upon
the taxpayer in order to suspend the running of the prescriptive
period for collection of an assessed tax, because it may only be
upon the service of the Warrant that the taxpayer is informed of
the denial by the BIR of any pending protest of the said taxpayer,
and the resolute intention of the BIR to collect the tax assessed.
Though the statute of limitations on assessment and
collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The
indefinite extension of the period for assessment is unreasonable
because it deprives the said taxpayer of the assurance that he will
no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.
In order to provide even better protection to the taxpayer
against unreasonable investigation, the Tax Code of 1977, as
amended, identifies specifically in Sections 223 and 224 thereof
the circumstances when the prescriptive periods for assessing
and collecting taxes could be suspended or interrupted.
According to paragraphs (b) and (d) of Section 223 of the
Tax Code of 1977, as amended, the prescriptive periods for
assessment and collection of national internal revenue taxes,
respectively, could be waived by agreement, to wit—SEC. 223.
Exceptions as to period of limitation of assessment and collection
of taxes.—x x x (b) If before the expiration of the time prescribed
in the preceding section for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its
assessment after such time the tax may be assessed within the
period agreed upon. The period so agreed upon may be extended
Page 5

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
by subsequent written agreement made before the expiration of
the period previously agreed upon. . . . (d) Any internal revenue
tax which has been assessed within the period agreed upon as
provided in paragraph (b) herein above may be collected by
distraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the three year
period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the
period previously agreed upon. The agreements so described in
the afore quoted provisions are often referred to as waivers of the
statute of limitations. The waiver of the statute of limitations,
whether on assessment or collection, should not be construed as
a waiver of the right to invoke the defense of prescription but,
rather, an agreement between the taxpayer and the BIR to extend
the period to a date certain, within which the latter could still
assess or collect taxes due. The waiver does not mean that the
taxpayer relinquishes the right to invoke prescription
unequivocally.
A valid waiver of the statute of limitations under
paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, must be: (1) in writing; (2) agreed to by both the
Commissioner and the taxpayer; (3) before the expiration of the
ordinary prescriptive periods for assessment and collection; and
(4) for a definite period beyond the ordinary prescriptive periods
for assessment and collection. The period agreed upon can still
be extended by subsequent written agreement, provided that it is
executed prior to the expiration of the first period agreed upon.
The BIR had issued Revenue Memorandum Order (RMO) No.
2090 on 04 April 1990 to lay down an even more detailed
procedure for the proper execution of such a waiver. RMO No.
2090 mandates that the procedure for execution of the waiver
shall be strictly followed, and any revenue official who fails to
comply therewith resulting in the prescription of the right to assess
and collect shall be administratively dealt with.

Lara Defensor 2015

This Court had consistently ruled in a number of cases
that a request for reconsideration or reinvestigation by the
taxpayer, without a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax Code
and implementing rules, will not suspend the running thereof.
The Tax Code of 1977, as amended, also recognizes
instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes
could be suspended, even in the absence of a waiver, under
Section 224 thereof, which reads—SEC. 224. Suspension of
running of statute.—The running of the statute of limitation
provided in Section[s] 203 and 223 on the making of assessment
and the beginning of distraint or levy or a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the
period during which the Commissioner is prohibited from making
the assessment or beginning distraint or levy or a proceeding in
court and for sixty days thereafter; when the taxpayer requests for
a reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected:
Provided, That, if the taxpayer informs the Commissioner of any
change in address, the running of the statute of limitations will not
be suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the
Philippines.
With the issuance of RR No. 1285 on 27 November 1985
providing the above quoted distinctions between a request for
reconsideration and a request for reinvestigation, the two types of
protest can no longer be used interchangeably and their
differences so lightly brushed aside. It bears to emphasize that
under Section 224 of the Tax Code of 1977, as amended, the
running of the prescriptive period for collection of taxes can only
be suspended by a request for reinvestigation, not a request for
Page 6

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
reconsideration. Undoubtedly, a reinvestigation, which entails the
reception and evaluation of additional evidence, will take more
time than a reconsideration of a tax assessment, which will be
limited to the evidence already at hand; this justifies why the
former can suspend the running of the statute of limitations on
collection of the assessed tax, while the latter can not.
That the BIR Commissioner must first grant the request for
reinvestigation as a requirement for suspension of the statute of
limitations is even supported by existing jurisprudence. In the
case of Republic of the Philippines v. Gancayco, taxpayer
Gancayco requested for a thorough reinvestigation of the
assessment against him and placed at the disposal of the
Collector of Internal Revenue all the evidences he had for such
purpose; yet, the Collector ignored the request, and the records
and documents were not at all examined. Considering the given
facts, this Court pronounced that—. . . The act of requesting a
reinvestigation alone does not suspend the period. The request
should first be granted, in order to effect suspension. (Collector
vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra).
Moreover, the Collector gave appellee until April 1, 1949, within
which to submit his evidence, which the latter did one day before.
There were no impediments on the part of the Collector to file the
collection case from April 1, 1949.
The burden of proof that the taxpayer’s request for
reinvestigation had been actually granted shall be on respondent
BIR Commissioner. The grant may be expressed in
communications with the taxpayer or implied from the actions of
the respondent BIR Commissioner or his authorized BIR
representatives in response to the request for reinvestigation.
As had been previously discussed herein, the statute of
limitations on assessment and collection of national internal
revenue taxes may be suspended if the taxpayer executes a valid
waiver thereof, as provided in paragraphs (b) and (d) of Section
223 of the Tax Code of 1977, as amended; and in specific
Lara Defensor 2015

instances enumerated in Section 224 of the same Code, which
include a request for reinvestigation granted by the BIR
Commissioner. Outside of these statutory provisions, however,
this Court also recognized one other exception to the statute of
limitations on collection of taxes in the case of Collector of Internal
Revenue v. Suyoc Consolidated Mining Co. x x x In the Suyoc
case, this Court expressly conceded that a mere request for
reconsideration or reinvestigation of an assessment may not
suspend the running of the statute of limitations. It affirmed the
need for a waiver of the prescriptive period in order to effect
suspension thereof. However, even without such waiver, the
taxpayer may be estopped from raising the defense of
prescription because by his repeated requests or positive acts, he
had induced Government authorities to delay collection of the
assessed tax.
The Wyeth Suaco case cannot be in conflict with the
Suyoc case because there are substantial differences in the
factual backgrounds of the two cases. The Suyoc case refers to a
situation where there were repeated requests or positive acts
performed by the taxpayer that convinced the BIR to delay
collection of the assessed tax. This Court pronounced therein that
the repeated requests or positive acts of the taxpayer prevented
or estopped it from setting up the defense of prescription against
the Government when the latter attempted to collect the assessed
tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a
request for reinvestigation, which was apparently granted by the
BIR and, consequently, the prescriptive period was indeed
suspended as provided under Section 224 of the Tax Code of
1977, as amended.
CONTINENTAL MICRONESIA, INC. - PHIL. BRANCH VS CIR
***CTACASE***
Petitioner requested for a reinvestigation on October 15,
1998, and which request was granted by respondent in the letter
dated November 9, 1998, the running of the three-year period to
assess was suspended pursuant to the Section 223 of the
Page 7

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Code.Settled is the rule that when the taxpayer requests for a
reinvestigation of an assessment which is granted by respondent,
the running of the period to assess under Section 203 and 222 is
suspended.
Section 223 of the Code makes no distinction as to
whether the request for reinvestigation of an assessment against
the taxpayer is on a preliminary assessment notice or final
assessment notice. It is a well known maxim in statutory
construction that where the law does not distinguish, We should
not distinguish. Thus, for as long as the request for reinvestigation
is granted by the respondent, the running of statute of limitations
to issue an assessment under Section 203 and 223 is suspended.
Philippine Journalists, Inc. vs. Commissioner of Internal
Revenue
A waiver of the statute of limitations under the NIRC, to a
certain extent, is a derogation of the taxpayers’ right to security
against prolonged and unscrupulous investigations and must
therefore be carefully and strictly construed. The waiver of the
statute of limitations is not a waiver of the right to invoke the
defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR
that the period to issue an assessment and collect the taxes due
is extended to a date certain. The waiver does not mean that the
taxpayer relinquishes the right to invoke prescription
unequivocally particularly where the language of the document is
equivocal. For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment, our tax
law provides a statute of limitations in the collection of taxes.
Thus, the law on prescription, being a remedial measure, should
be liberally construed in order to afford such protection. As a
corollary, the exceptions to the law on prescription should perforce
be strictly construed.

Lara Defensor 2015

Commissioner of Internal Revenue vs. Kudos Metal
Corporation
The doctrine of estoppel cannot be applied in this case as
an exception to the statute of limitations on the assessment of
taxes considering that there is a detailed procedure for the proper
execution of the waiver, which the BIR must strictly follow. As we
have often said, the doctrine of estoppel is predicated on, and has
its origin in, equity which, broadly defined, is justice according to
natural law and right. As such, the doctrine of estoppel cannot
give validity to an act that is prohibited by law or one that is
against public policy. It should be resorted to solely as a means of
preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an
undue advantage, or to extend beyond them requirements of the
transactions in which they originate. Simply put, the doctrine of
estoppel must be sparingly applied.
Rizal Commercial Banking Corporation vs. Commissioner of
Internal Revenue
Under Article 1431 of the Civil Code, the doctrine of
estoppel is anchored on the rule that “an admission or
representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying
thereon.” A party is precluded from denying his own acts,
admissions or representations to the prejudice of the other party
in order to prevent fraud and falsehood.
The taxpayer shares the responsibility of making certain
that the tax is properly withheld by the withholding agent, so as to
avoid any penalty that may arise from the nonpayment of the
withholding tax due.—Based on the foregoing, the liability of the
withholding agent is independent from that of the taxpayer. The
former cannot be made liable for the tax due because it is the
latter who earned the income subject to withholding tax. The
withholding agent is liable only insofar as he failed to perform his
duty to withhold the tax and remit the same to the government.
The liability for the tax, however, remains with the taxpayer
Page 8

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
because the gain was realized and received by him. While the
payor-borrower can be held accountable for its negligence in
performing its duty to withhold the amount of tax due on the
transaction, RCBC, as the taxpayer and the one which earned
income on the transaction, remains liable for the payment of tax
as the taxpayer shares the responsibility of making certain that
the tax is properly withheld by the withholding agent, so as to
avoid any penalty that may arise from the nonpayment of the
withholding tax due. RCBC cannot evade its liability for FCDU
Onshore Tax by shifting the blame on the payor-borrower as the
withholding agent.
Aznar vs. Court of Tax Appeals
Proceeding for collection of deficiency taxes based on
false return, fraudulent return or failure to file a return prescribes
in ten years.—In the three different cases of (1) false return, (2)
fraudulent return with intent to evade tax, (3) failure to file a return,
the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any
time within ten years after the discovery of the falsity, fraud, or
omission.
The ordinary period of prescription of 5 years within which
to assess tax liabilities under Sec. 331 of the NIRC should be
applicable to normal circumstances, but whether the government
is placed at a disadvantage so as to prevent its lawful agents from
proper assessment of tax liabilities due to false returns, fraudulent
returns intended to evade payment of tax or failure to file returns,
the period of ten years provided for in Sec. 332 (a) NIRC, from the
time of the discovery of the falsity, fraud or omission even seems
to be inadequate and should be the one enforced.
Republic vs. Ker ,& Company, Ltd.
Fraud is a question of fact (Gutierrez vs. Court of Tax
Appeals, 101 Phil. 713) which must be alleged and proved
(Section 12, Rule 15 [now Section 5, Rule 8], Rules of Court). It is
a serious charge and, to be sustained, it must be supported by
Lara Defensor 2015

clear and convincing proof (Collector of Internal Revenue vs.
Benipayo, L13656, January 31, 1962). In the instant case the
filing by the taxpayer of a false return was neither alleged in the
complaint nor proved in court. Hence, the lower court correctly
resolved the issue of prescription without touching upon
fraudulence of the return.
The assessment for deficiency income tax for 1947 has
become final and executory, and, therefore, defendant may not
anymore raise defenses which go into the merits of the
assessment, i.e., prescription of the Commissioner’s right to
assess the tax. (Republic of the Philippines vs. Albert, L12996,
December 28, 1961; Republic of the Philippines vs. Lim Tian Teng
Sons ,& Co., Inc., L21731, March 31, 1966). However, defendant
raised the defense of prescription in the proceedings below, and
the Republic of the Philippines, instead of questioning the right of
the defendant to raise such defense, litigated on it and submitted
the issue for resolution of the court. By its actuation, the
government should be considered to have waived its right to
object to the setting up of such defense.
Under Section 333 of the Tax Code the running of the
prescriptive period to collect deficiency taxes shall be suspended
for the period during which the Commissioner of Internal Revenue
is prohibited from beginning a distraint and levy or instituting a
proceeding in court, and for sixty days thereafter. In the case at
bar, the pendency of the taxpayer's appeal in the Court of Tax
Appeals and in the Supreme Court had the effect of temporarily
staying the hands of the said Commissioner. If the taxpayer’s
stand that the pendency of the appeal did not stop the running of
the period because the Court of Tax Appeals did not have
jurisdiction over the case is upheld, taxpayers would be
encouraged to delay the payment of taxes in the hope of
ultimately avoiding the same. Under the circumstances, the
running of the prescriptive period was suspended.

Page 9

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Where the letter of assessment shows that the deficiency
income tax for 1948 and 1949 became due on March 15, 1953
and that for 1950 accrued on February 15, 1954 and the tax in
question remained unpaid, the delinquency interest accrued and
became due starting from said due dates.

unreasonable or that no harassment or injustice is meant by the
Government. And when such situation comes to pass there are
authorities that hold, based on weighty reasons, that such an
attitude or behavior should not be countenanced if only to protect
the interest of the Government.

CIR VS SUYOC ***NOSCRA***
'He who prevents a thing from being done may not avail
himself of the nonperformance which he has himself occasioned,
for the law says to him in effect "this is your own act, and
therefore you are not damnified." '

Commissioner of Internal Revenue vs. Philippine Global
Communication, Inc.
The law prescribed a period of three years from the date
the return was actually filed or from the last date prescribed by
law for the filing of such return, whichever came later, within which
the BIR may assess a national internal revenue tax. However, the
law increased the prescriptive period to assess or to begin a court
proceeding for the collection without an assessment to ten years
when a false or fraudulent return was filed with the intent of
evading the tax or when no return was filed at all. In such cases,
the tenyear period began to run only from the date of discovery by
the BIR of the falsity, fraud or omission.

That petitioner refrained from collecting the tax by distraint
or levy or by proceeding in court within the 5-year period from the
filing of the second amended final return due to the several
requests of respondent for extension to which petitioner yielded to
give it every opportunity to prove its claim regarding the
correctness of the assessment. Because of such requests,
several reinvestigations were made and a hearing was even held
by the Conference Staff organized in the collection office to
consider claims of such nature which, as the record shows, lasted
for several months. After inducing petitioner to delay collection as
he in fact did, it is most unfair for respondent to now take
advantage of such desistance to elude his deficiency income, tax
liability to the prejudice of the Government invoking the technical
ground of prescription.
While we may agree with the Court of Tax Appeals that a
mere request for reexamination or reinvestigation may not have
the effect of suspending the running of the period of limitation for
in such case there is need of a written agreement to extend the
period between the Collector and the taxpayer, there are cases
however where a taxpayer may be prevented from setting up the
defense of prescription even if he has not previously waived it in
writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not
Lara Defensor 2015

If the BIR issued this assessment within the three year
period or the ten year period, whichever was applicable, the law
provided another three years after the assessment for the
collection of the tax due thereon through the administrative
process of distraint and/or levy or through judicial proceedings.
The three year period for collection of the assessed tax began to
run on the date the assessment notice had been released, mailed
or sent by the BIR.
The provisions on prescription in the assessment and
collection of national internal revenue taxes became law upon the
recommendation of the tax commissioner of the Philippines. The
report submitted by the tax commission clearly states that these
provisions on prescription should be enacted to benefit and
protect taxpayers.
In a number of cases, this Court has also clarified that the
statute of limitations on the collection of taxes should benefit both
Page 10

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
the Government and the taxpayers. In these cases, the Court
further illustrated the harmful effects that the delay in the
assessment and collection of taxes inflicts upon taxpayers. In
Collector of Internal Revenue v. Suyoc Consolidated Mining
Company, 104 Phil. 819 (1958), Justice Montemayor, in his
dissenting opinion, identified the potential loss to the taxpayer if
the assessment and collection of taxes are not promptly made.
In Republic of the Philippines v. Ablaza, 108 Phil. 1105
(1960), this Court emphatically explained that the statute of
limitations of actions for the collection of taxes is justified by the
need to protect law abiding citizens from possible harassment.
In the recent case Bank of the Philippine Islands v.
Commissioner of Internal Revenue, 473 SCRA 205 (2005), this
Court, in confirming these earlier rulings, pronounced that:
Though the statute of limitations on assessment and collection of
national internal revenue taxes benefits both the Government and
the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite
extension of the period for assessment is unreasonable because
it deprives the said taxpayer of the assurance that he will no
longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.
In Commissioner of Internal Revenue v. B.F. Goodrich,
303 SCRA 546 (1999), this Court affirmed that the law on
prescription should be liberally construed in order to protect
taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly construed.
The Tax Code of 1977, as amended, provides instances
when the running of the statute of limitations on the assessment
and collection of national internal revenue taxes could be
suspended, even in the absence of a waiver, under Section 271
thereof which reads: Section 224. Suspension of running of
statute.—The running of the statute of limitation provided in
Lara Defensor 2015

Sections 268 and 269 on the making of assessments and the
beginning of distraint or levy or a proceeding in court for collection
in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court
and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected x x x.
The main difference between these two types of protests
lies in the records or evidence to be examined by internal revenue
officers, whether these are existing records or newly discovered
or additional evidence. A reevaluation of existing records which
results from a request for reconsideration does not toll the running
of the prescription period for the collection of an assessed tax.
Section 271 distinctly limits the suspension of the running of the
statute of limitations to instances when reinvestigation is
requested by a taxpayer and is granted by the CIR. The Court
provided a clearcut rationale in the case of Bank of the Philippine
Islands v. Commissioner of Internal Revenue, 473 SCRA 205
(2005), explaining why a request for reinvestigation, and not a
request for reconsideration, interrupts the running of the statute of
limitations on the collection of the assessed tax.
The Court reiterated the ruling in Republic v. Lopez, 7
SCRA 566 (1963), in the case of Commissioner of Internal
Revenue v. Sison, 7 SCRA 884 (1963), “that where a taxpayer
demands a reinvestigation, the time employed in reinvestigating
should be deducted from the total period of limitation.” Finally, in
Republic v. Arcache, 10 SCRA 337 (1964), the Court enumerated
the reasons why the taxpayer is barred from invoking the defense
of prescription, one of which was that, “In the first place, it
appears obvious that the delay in the collection of his 1946 tax
liability was due to his own repeated requests for reinvestigation
and similarly repeated requests for extension of time to pay.”
Page 11

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
The distinction between a request for reconsideration and
a request for reinvestigation is significant. It bears repetition that a
request for reconsideration, unlike a request for reinvestigation,
cannot suspend the statute of limitations on the collection of an
assessed tax. If both types of protest can effectively interrupt the
running of the statute of limitations, an erroneous assessment
may never prescribe. If the taxpayer fails to file a protest, then the
erroneous assessment would become final and unappealable. On
the other hand, if the taxpayer does file the protest on a patently
erroneous assessment, the statute of limitations would
automatically be suspended and the tax thereon may be collected
long after it was assessed. Meanwhile the interest on the
deficiencies and the surcharges continue to accumulate. And for
an unrestricted number of years, the taxpayers remain uncertain
and are burdened with the costs of preserving their books and
records. This is the predicament that the law on the statute of
limitations seeks to prevent.
The Court, in sustaining for the first time the suspension of
the running of the statute of limitations in cases where the
taxpayer requested for a reinvestigation, gave this justification: A
taxpayer may be prevented from setting up the defense of
prescription even if he has not previously waived it in writing as
when by his repeated requests or positive acts the Government
has been, for good reasons, persuaded to postpone collection to
make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government.
This rationale is not applicable to the present case where
the respondent did nothing to prevent the BIR from collecting the
tax. It did not present to the BIR any new evidence for its
reevaluation. At the earliest opportunity, respondent insisted that
the assessment was invalid and made clear to the BIR its refusal
to produce documents that the BIR requested. On the other hand,
the BIR also communicated to the respondent its unwavering
stance that its assessment is correct. Given that both parties were
at a deadlock, the next logical step would have been for the BIR
Lara Defensor 2015

to issue a Decision denying the respondent’s protest and to
initiate proceedings for the collection of the assessed tax and,
thus, allow the respondent, should it so choose, to contest the
assessment before the CTA. Postponing the collection for eight
long years could not possibly make the taxpayer feel that the
demand was not unreasonable or that no harassment or injustice
is meant by the Government. There was no legal, or even a
moral, obligation preventing the CIR from collecting the assessed
tax. In a similar case, Cordero v. Gonda, the Court did not
suspend the running of the prescription period where the acts of
the taxpayer did not prevent the government from collecting the
tax.
The three year statute of limitations on the collection of an
assessed tax provided under Section 269(c) of the Tax Code of
1977, a law enacted to protect the interests of the taxpayer, must
be given effect. In providing for exceptions to such rule in Section
271, the law strictly limits the suspension of the running of the
prescription period to, among other instances, protests wherein
the taxpayer requests for a reinvestigation. In this case, where the
taxpayer merely filed two protest letters requesting for a
reconsideration, and where the BIR could not have conducted a
reinvestigation because no new or additional evidence was
submitted, the running of statute of limitations cannot be
interrupted. The tax which is the subject of the Decision issued by
the CIR on 8 October 2002 affirming the Formal Assessment
issued on 14 April 1994 can no longer be the subject of any
proceeding for its collection. Consequently, the right of the
government to collect the alleged deficiency tax is barred by
prescription.
Commissioner of Internal Revenue vs. United Salvage and
Towage (Phils.), Inc.
Indeed, Section 228 of the Tax Code provides that the
taxpayer shall be informed in writing of the law and the facts on
which the assessment is made. Otherwise, the assessment is
void. To implement the aforesaid provision, Revenue Regulation
Page 12

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
No. 12-99 was enacted by the BIR, of which Section 3.1.4 thereof
reads: 3.1.4. Formal Letter of Demand and Assessment Notice.—
The formal letter of demand and assessment notice shall be
issued by the Commissioner or his duly authorized representative.
The letter of demand calling for payment of the 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 formal letter of demand and assessment notice
shall be void. The same shall be sent to the taxpayer only by
registered mail or by personal delivery. x x x It is clear from the
foregoing that a taxpayer must be informed in writing of the legal
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.
The statute of limitations on assessment and collection of
national internal revenue taxes was shortened from five (5) years
to three (3) years by virtue of Batas Pambansa Blg. 700. Thus,
petitioner has three (3) years from the date of actual filing of the
tax return to assess a national internal revenue tax or to
commence court proceedings for the collection thereof without an
assessment. However, when it validly issues an assessment
within the three (3)year period, it has another three (3) years
within which to collect the tax due by distraint, levy, or court
proceeding. The assessment of the tax is deemed made and the
three (3) year period for collection of the assessed tax begins to
run on the date the assessment notice had been released, mailed
or sent to the taxpayer. Same; While taxes are the lifeblood of the
government, the power to tax has its limits, in spite of all its
plenitude.—We ought to reiterate our earlier teachings that “in
balancing the scales between the power of the State to tax and its
inherent right to prosecute perceived transgressors of the law on
one side, and the constitutional rights of a citizen to due process
of law and the equal protection of the laws on the other, the scales
must tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights under the Constitution.” Thus, while
“taxes are the lifeblood of the government,” the power to tax has
Lara Defensor 2015

its limits, in spite of all its plenitude. Even as we concede the
inevitability and indispensability of taxation, it is a requirement in
all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. After all, the statute of
limitations on the collection of taxes was also enacted to benefit
and protect the taxpayers, as elucidated in the case of
Commissioner of Internal Revenue v. Philippine Global
Communication, Inc., 506 SCRA 427 (2006).
CIR VS BSAF COATING + INK PHILS., INC. ***NOSCRA***
It is true that, under Section 223 of the Tax Reform Act of
1997, the running of the Statute of Limitations provided under the
provisions of Sections 203 and 222 of the same Act shall be
suspended when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being
assessed or collected. In addition, Section 11 of Revenue
Regulation No. 12-85 states that, in case of change of address,
the taxpayer is required to give a written notice thereof to the
Revenue District Officer or the district having jurisdiction over his
former legal residence and/or place of business. However, this
Court agrees with both the CTA Special First Division and the CTA
En Banc in their ruling that the above mentioned provisions on the
suspension of the three-year period to assess apply only if the
BIR Commissioner is not aware of the whereabouts of the
taxpayer.
Despite the absence of a formal written notice of
respondent's change of address, the fact remains that petitioner
became aware of respondent's new address as shown by
documents replete in its records. As a consequence, the running
of the three-year period to assess respondent was not suspended
and has already prescribed.
C. Requisites of a valid assessment
Sec. 3 of RR 12-99, as amended by RR 18-13
1. Due Process
Page 13

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Collector of Internal Revenue vs. Benipayo
An assessment fixes and determines the tax 'liability of a
taxpayer. As soon as it is served, an obligation arises on the part
of the taxpayer concerned to pay the amount assessed and
demanded. Hence, assessments should not be based on mere
presumptions no matter how reasonable or logical said
presumptions may be.
To sustain the deficiency assessed against respondent
would amount to a finding that he had, for a considerable period
of time, cheated and defrauded the government by selling to each
adult patron two children's tax-free tickets instead of one ticket
subject to the amusement tax provided for in Section 260 of the
National Internal Revenue Code. Fraud is a serious charge and,
to be sustained, must be supported by clear and convincing proof
which, in this case, is lacking.
Commissioner of Internal Revenue vs. Enron Subic Power
Corporation
It is clear from the foregoing that a taxpayer must be
informed in writing of the legal 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: In
[this] case, [the CIR] merely issued a formal assessment and
indicated therein the supposed tax, surcharge, interest and
compromise penalty due thereon. The Revenue Officers of the
[the CIR] in the issuance of the Final Assessment Notice did not
provide Enron with the written bases of the law and facts on which
the subject assessment is based. [The CIR] did not bother to
explain how it arrived at such an assessment. Moreso, he failed to
mention the specific provision of the Tax Code or rules and
regulations which were not complied with by Enron.
The advice of tax deficiency, given by the CIR to an
employee of Enron, as well as the preliminary five-day letter, were
not valid substitutes for the mandatory notice in writing of the legal
Lara Defensor 2015

and factual bases of the assessment. These steps were mere
perfunctory discharges of the CIR’s duties in correctly assessing a
taxpayer. The requirement for issuing a preliminary or final notice,
as the case may 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 preassessment stage and a final notice, in the order required by law,
does not necessarily mean that Enron was informed of the law
and facts on which the deficiency tax assessment was made.
The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise,
the express provisions of Article 228 of the NIRC and RR No.
12-99 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 writing
in the formal letter of demand accompanying the assessment
notice.
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.
Such amendment is in keeping with the constitutional principle
that no person shall be deprived of property without due process.
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., 196 SCRA 322 (1991): 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.
Page 14

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Commissioner of Internal Revenue vs. Reyes
The second paragraph of Section 228 of the Tax Code is
clear and mandatory. It provides as follows: “Sec. 228. Protesting
of Assessment.—x x x x x x x x x “The taxpayers shall be
informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void.”
Even a cursory review of the preliminary assessment
notice, as well as the demand letter sent, reveals the lack of basis
for—not to mention the insufficiency of —the gross figures and
details of the itemized deductions indicated in the notice and the
letter. This Court cannot countenance an assessment based on
estimates that appear to have been arbitrarily or capriciously
arrived at. Although taxes are the lifeblood of the government,
their assessment and collection “should be made in accordance
with law as any arbitrariness will negate the very reason for
government itself.”
Tax laws are civil in nature. Under our Civil Code, acts
executed against the mandatory provisions of law are void, except
when the law itself authorizes the validity of those acts. Failure to
comply with Section 228 does not only render the assessment
void, but also finds no validation in any provision in the Tax Code.
We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
A BROWN CO., INC VS CIR **CTACASE**
[T]he procedural due process requirements that must be
strictly followed in order to sustain the validity and legality of an
assessment.
In the case before us, the records show that the
respondent failed to comply with these prerequisites. merely four
(4) days after the Preliminary Assessment Notice was received at
petitioner’s previous address, and without waiting for the lapse of
the mandatory 15 -day period for petitioner to reply, respondent
had already issued the subject assessments. Such actuations
reveal a disposition to prejudge petitioner as liable for
Lara Defensor 2015

assessment, even before it could be given a chance to be heard.
It cannot be argued that the issuance of a Preliminary
Assessment Notice may be legally dispensed with inasmuch as
the situation of the present case is not one of the excepted
circumstances justifying the issuance of an Assessment without
the Preliminary Assessment. Moreover, the Preliminary
Assessment and Assessment Notices were sent to the wrong
addresses.These were done despite the fact that petitioner had
already informed respondent of its change of addresses as well
as its transfer to another Revenue District Office.
To reiterate, the respondent committed grave violations of
the law and regulations when he issued the subject Assessments.
The above violations go against the values of right to due process
held dearly by the judiciary. And this court is not about to exempt
this instant case from the same principle it has long enshrined.
WHEREFORE, the subject assessments are hereby declared as
null and void, cancelled and set aside. SO ORDERED.
Commissioner of Internal Revenue vs. Menguito
NOTE: the applicable rule on due process is RR 18-13
As to the address indicated on the assessment notices,
respondent cannot question the same for it is the said address
which appears in its percentage tax returns. While respondent
claims that he had earlier notified petitioner of a change in his
business address, no evidence of such written notice was
presented. Under Section 11 of Revenue Regulation No. 12-85,
respondent’s failure to give written notice of change of address
bound him to whatever communications were sent to the address
appearing in the tax returns for the period involved in the
investigation.
While the lack of a post reporting notice and preassessment notice is a deviation from the requirements under
Section 1 and Section 2 of Revenue Regulation No. 12- 85, the
same cannot detract from the fact that formal assessments were
Issued to and actually received by respondents in accordance
Page 15

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
with Section 228 of the National Internal Revenue Code which
was in effect at the time of assessment. It should be emphasized
that the stringent requirement that an assessment notice be
satisfactorily proven to have been issued and released or, if
receipt thereof is denied, that said assessment notice have been
served on the taxpayer, applies only to formal assessments
prescribed under Section 228 of the National Internal Revenue
Code, but not to post reporting notices or pre-assessment notices.
The issuance of a valid formal assessment is a substantive
prerequisite to tax collection, for it contains not only a computation
of tax liabilities but also a demand for payment within a prescribed
period, thereby signaling the time when penalties and interests
begin to accrue against the taxpayer and enabling the latter to
determine his remedies therefor. Due process requires that it must
be served on and received by the taxpayer.
A post-reporting notice and pre-assessment notice do not
bear the gravity of a formal assessment notice. The post-reporting
notice and pre-assessment notice merely hint at the initial findings
of the BIR against a taxpayer and invites the latter to an “informal”
conference or clarificatory meeting. Neither notice contains a
declaration of the tax liability of the taxpayer or a demand for
payment thereof. Hence, the lack of such notices inflicts no
prejudice on the taxpayer for as long as the latter is properly
served a formal assessment notice. In the case of respondent, a
formal assessment notice was received by him as acknowledged
in his Petition for Review and Joint Stipulation; and, on the basis
thereof, he filed a protest with the BIR, Baguio City and eventually
a petition with the CTA.
Commissioner of Internal Revenue vs. Metro Star Superama
Inc.
Jurisprudence is replete with cases holding that if the
taxpayer denies ever having received an assessment from the
BIR, it is incumbent upon the latter to prove by competent
evidence that such notice was indeed received by the addressee.
The onus probandi was shifted to respondent to prove by contrary
Lara Defensor 2015

evidence that the Petitioner received the assessment in the due
course of mail. The Supreme Court has consistently held that
while a mailed letter is deemed received by the addressee in the
course of mail, this is merely a disputable presumption subject to
controversion and a direct denial thereof shifts the burden to the
party favored by the presumption to prove that the mailed letter
was indeed received by the addressee (Republic vs. Court of
Appeals, 149 SCRA 351).
Section 228 of the Tax Code clearly requires that the
taxpayer must first be informed that he is liable for deficiency
taxes through the sending of a PAN. He must be informed of the
facts and the law upon which the assessment is made. The law
imposes a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in
administrative investigations — that taxpayers should be able to
present their case and adduce supporting evidence.
It is clear that the sending of a PAN to taxpayer to inform
him of the assessment made is but part of the “due process
requirement in the issuance of a deficiency tax assessment,” the
absence of which renders nugatory any assessment made by the
tax authorities. The use of the word “shall” in subsection 3.1.2
describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Star’s right to due process. Thus, for its
failure to send the PAN stating the facts and the law on which the
assessment was made as required by Section 228 of R.A. No.
8424, the assessment made by the CIR is void.
It is an elementary rule enshrined in the 1987 Constitution
that no person shall be deprived of property without due process
of law. In balancing the scales between the power of the State to
tax and its inherent right to prosecute perceived transgressors of
the law on one side, and the constitutional rights of a citizen to
Page 16

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
due process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s
right is amply protected by the Bill of Rights under the
Constitution. Thus, while “taxes are the lifeblood of the
government,” the power to tax has its limits, in spite of all its
plenitude.
2. Power of CIR to issue assessments
Meralco Securities Corporation vs. Savellano
Respondent judge has no jurisdiction to take cognizance
of the case because the subject matter thereof clearly falls within
the scope of cases now exclusively within the jurisdiction of the
Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted
June 16, 1954, granted to the Court of Tax Appeals exclusive
appellate jurisdiction to review by appeal, among others,
decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto,
or other matters arising under the National Internal Revenue Code
or other law or part of law administered by the Bureau of Internal
Revenue. The law transferred to the Court of Tax Appeals
jurisdiction over all cases involving said assessments previously
cognizable by courts of first instance, and even those already
pending in said courts. The question of whether or not to impose a
deficiency tax assessment on Meralco Securities Corporation
undoubtedly comes within the purview of the words "disputed
assessments" or of "other matters arising under the National
Internal Revenue Code . . . .”
Thus, even assuming arguendo that the right granted the
taxpayers affected to question and appeal disputed assessments,
under section 7 of Republic Act No. 1125, may be availed of by
strangers or informers like the late Maniago, the most that he
could have done was to appeal to the Court of Tax Appeals the
ruling of petitioner Commissioner of Internal Revenue within thirty
(30) days from receipt thereof pursuant to section 11 of Republic
Act No. 1125. He failed to take such an appeal to the tax court.
Lara Defensor 2015

The ruling is clearly final and no longer subject to review by the
courts.
Moreover, since the office of the Commissioner of Internal
Revenue is charged with the administration of revenue laws,
which is the primary responsibility of the executive branch of the
government, mandamus may not lie against the Commissioner to
compel him to impose a tax assessment not found by him to be
due or proper for that would be tantamount to a usurpation of
executive functions. As we held in the case of Commissioner of
Immigration vs. Arca anent this principle, “the administration of
immigration laws is the primary responsibility of the executive
branch of the government. Extensions of stay of aliens are
discretionary on the part of immigration authorities, and neither a
petition for mandamus nor one for certiorari can compel the
Commissioner of Immigration to extend the stay of an alien whose
period to stay has expired.
Such discretionary power vested in the proper executive
official, in the absence of arbitrariness or grave abuse so as to go
beyond the statutory authority, is not subject to the contrary
judgment or control of others. " 'Discretion' when applied to public
functionaries, means a power or right conferred upon them by law
of acting officially, under certain circumstances, uncontrolled by
the judgment or consciences of others. A purely ministerial act or
duty in contradiction to a discretional act is one which an officer or
tribunal performs in a given state of facts, in a prescribed manner,
in obedience to the mandate of a legal authority, without regard to
or the exercise of his own judgment upon the propriety or
impropriety of the act done. If the law imposes a duty upon a
public officer and gives him the right to decide how or when the
duty shall be performed, such duty is discretionary and not
ministerial. The duty is ministerial only when the discharge of the
same requires neither the exercise of official discretion or
judgment.”

Page 17

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Maceda vs. Macaraig, Jr.
In the petition it is alleged that petitioner is “instituting this
suit in his capacity as a taxpayer and a duly-elected Senator of
the Philippines.” Public respondent argues that petitioner must
show he has sustained direct injury as a result of the action and
that it is not sufficient for him to have a mere general interest
common to all members of the public. The Court however agrees
with the petitioner that as a taxpayer he may file the instant
petition following the ruling in Lozada when it involves illegal
expenditure of public money. The petition questions the legality of
the tax refund to NPC by way of tax credit certificates and the use
of said assigned tax credits by respondent oil companies to pay
for their tax and duty liabilities to the BIR and Bureau of Customs.
It may be useful to make a distinction, for the purpose of
this disposition, between a direct tax and an indirect tax. A direct
tax is a tax for which a taxpayer is directly liable on the transaction
or business it engages in. Examples are the custom duties and ad
valorem taxes paid by the oil companies to the Bureau of
Customs for their importation of crude oil, and the specific and ad
valorem taxes they pay to the Bureau of Internal Revenue after
converting the crude oil into petroleum products. On the other
hand, “indirect taxes are taxes primarily paid by persons who can
shift the burden upon someone else.” For example, the excise
and ad valorem taxes that oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products from its
refinery can be shifted to its buyer, like the NPC, by adding them
to the “cash” and/or “selling price.”
Mandamus does not lie to compel the Commissioner of
Internal Revenue to impose a tax assessment not found by him to
be proper. It would be tantamount to a usurpation of executive
functions. Even in Meralco, this Court recognizes the situation
when mandamus can control the discretion of the Commissioners
of Internal Revenue and Customs when the exercise of discretion
is tainted with arbitrariness and grave abuse as to go beyond
statutory authority.
Lara Defensor 2015

3. Modes of service Assessments
4. When Assessment is made
Nava vs. Commissioner of Internal Revenue
Deficiency income tax assessments cannot be enforced
where the tax collector cannot prove that said assessments were
served on the taxpayer within the period of prescription provided
by law.
The presumption that a letter duly directed and mailed was
received in the regular course of mail cannot apply where none of
the required facts to raise this presumption, i.e., that the letter was
properly addressed with postage prepaid and that it was mailed,
have been shown.
Mere notations on the records of the tax collector of the
mailing of a notice of a deficiency tax assessment to a taxpayer,
made without .the taxpayer’s intervention, notice, or control, and
without adequate supporting evidence, cannot suffice to prove
that such notice was sent and received; otherwise, the taxpayer
would be at the mercy of the revenue officers, without adequate
protection or defense.
Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal
Revenue
Under Section 203 of the National Internal Revenue Code
(NIRC), respondent had three (3) years from the last day for the
filing of the return to send an assessment notice to petitioner. In
the case of Collector of Internal Revenue v. Bautista, 105 Phil.
1326 (1959), this Court held that an assessment is made within
the prescriptive period if notice to this effect is released, mailed or
sent by the CIR to the taxpayer within said period. Receipt thereof
by the taxpayer within the prescriptive period is not necessary. At
this point, it should be clarified that the rule does not dispense
with the requirement that the taxpayer should actually receive,
Page 18

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
even beyond the prescriptive period, the assessment notice which
was timely released, mailed and sent.
In Protector’s Services, Inc. v. Court of Appeals, 330
SCRA 404 (2000), this Court ruled that when a mail matter is sent
by registered mail, there exists a presumption, set forth under
Section 3(v), Rule 131 of the Rules of Court, that it was received
in the regular course of mail. The facts to be proved in order to
raise this presumption are: (a) that the letter was properly
addressed with postage prepaid; and (b) that it was mailed. While
a mailed letter is deemed received by the addressee in the
ordinary course of mail, this is still merely a disputable
presumption subject to contravention, and a direct denial of the
receipt thereof shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed received
by the addressee.
Independent evidence, such as the registry receipt of the
assessment notice, or a certification from the Bureau of Posts,
could have easily been obtained. Yet respondent failed to present
such evidence. In the case of Nava v. Commissioner of Internal
Revenue, 13 SCRA 104 (1965), this Court stressed on the
importance of proving the release, mailing or sending of the
notice. While we have held that an assessment is made when
sent within the prescribed period, even if received by the taxpayer
after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and
L-12259, May 27, 1959), this ruling makes it the more imperative
that the release, mailing, or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayer’s
intervention, notice, or control, without adequate supporting
evidence, cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or
defense.
II. PROTESTING AN ASSESMENT / REMEDY BEFORE
PAYMENT
A. How to protest or dispute an assessment administratively
Lara Defensor 2015

Sec. 228 NIRC
Sec. 3.1.5 RR 12-99, as amended by RR 18-13
1. When to file protest- within 30 days from receipt of FAN
2. Where to file
3. Reinvestigation vs Reconsideration
Bank of the Philippine Islands vs. Commissioner of Internal
Revenue
same pg.5
4. Other requirements
a. Submission of relevant documents
b. Payment of protest not required under the NIRC
5. Effects of filing of a protest
6. Effects of failure to file a protest/ failure to submit
relevant documents
Marcos II vs. Court of Appeals
It has been repeatedly observed, and not without merit,
that the enforcement of tax laws and the collection of taxes, is of
paramount importance for the sustenance of government. Taxes
are the lifeblood of the government and 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 government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and
the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.
We hold otherwise. The Notices of Levy upon real property
were issued within the prescriptive period and in accordance with
the provisions of the present Tax Code. The deficiency tax
assessment, having already become final, executory, and
demandable, the same can now be collected through the
summary remedy of distraint or levy pursuant to Section 205 of
the NIRC.
Page 19

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
The omission to file an estate tax return, and the
subsequent failure to contest or appeal the assessment made by
the BIR is fatal to the petitioner’s cause, as under the above-cited
provision, in case of failure to file a return, the tax may be
assessed at any time within ten years after the omission, and any
tax so assessed may be collected by levy upon real property
within three years following the assessment of the tax. Since the
estate tax assessment had become final and unappealable by the
petitioner’s default as regards protesting the validity of the said
assessment, there is now no reason why the BIR cannot continue
with the collection of the said tax. Any objection against the
assessment should have been pursued following the avenue
paved in Section 229 of the NIRC on protests on assessments of
internal revenue taxes.
Petitioner further argues that “the numerous pending court
cases questioning the late president’s ownership or interests in
several properties (both real and personal) make the total value of
his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents’
assessment of the estate tax and their issuance of the Notices of
Levy and sale are premature and oppressive.” He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and
0141, which were filed by the government to question the
ownership and interests of the late President in real and personal
properties located within and outside the Philippines. Petitioner,
however, omits to allege whether the properties levied upon by
the BIR in the collection of estate taxes upon the decedent’s
estate were among those involved in the said cases pending in
the Sandiganbayan. Indeed, the court is at a loss as to how these
cases are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not
affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Moreover, these objections to the assessments should
have been raised, considering the ample remedies afforded the
Lara Defensor 2015

taxpayer by the Tax Code, with the Bureau of Internal Revenue
and the Court of Tax Appeals, as described earlier, and cannot be
raised now via Petition for Certiorari, under the pretext of grave
abuse of discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the established
institutions for governance in the scheme of a well-ordered
society. The subject tax assessments having become final,
executory and enforceable, the same can no longer be contested
by means of a disguised protest. In the main, Certiorari may not
be used as a substitute for a lost appeal or remedy. This judicial
policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
Republic vs. Ker ,& Company, Ltd.
The assessment for deficiency income tax for 1947 has
become final and executory, and, therefore, defendant may not
anymore raise defenses which go into the merits of the
assessment, i.e., prescription of the Commissioner’s right to
assess the tax. (Republic of the Philippines vs. Albert, L-12996,
December 28, 1961; Republic of the Philippines vs. Lim Tian Teng
Sons ,& Co., Inc., L-21731, March 31, 1966). However, defendant
raised the defense of prescription in the proceedings below, and
the Republic of the Philippines, instead of questioning the right of
the defendant to raise such defense, litigated on it and submitted
the issue for resolution of the court. By its actuation, the
government should be considered to have waived its right to
object to the setting up of such defense.
P R U L I F E U K I N S U R A N C E C O R P O R AT I O N V S C I R
**CTACASE**
In Solidbank Corporation vs. Commissioner of Internal
Revenue, this Court ruled :
"xxx [T]he finality of the assessment, as worded in the
provision of law, simply means that where the taxpayer decides
to forego with its opportunity to present the documents in
support of its claim within sixty {60) days from the filing of its
Page 20

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
protest, it merely lost its chance to further contest the
assessment.
Effectively, its non-compliance with the submission of
the necessary documents would either mean that the
petitioner no longer wishes to further submit any document
for the reason that its protest letter filed was more than
enough to support its claim, or that the petitioner failed to
comply thus it can no longer give justification with regard to
its objections as to the correctness of the assessment
notices.
Nonetheless, the necessity of the submission of the
supporting documents lies on the petitioner. It cannot be left to the
discretion of the respondent for in doing so would leave the
petitioner's case at the mercy of the whims of the respondent. In
other words, it is for the petitioner to decide whether or not
supporting documents are necessary to support its protest, for it is
in the best position, being the affected party to the assessment, to
determine which documents are necessary and essential to
garner a favorable decision from the respondent.”
ABN-AMRO SAVINGS BANK CORPORATION VS CIR
**CTACASE**
In a recent case (Oceanic Wireless Network, Inc. vs.
Commissioner of Internal Revenue) the Court En Bane held that
"where the taxpayer failed to submit relevant supporting
documents within the sixty (60) day period from filing of the
protest, and in case of inaction by the respondent and the
taxpayer chooses to appeal to the Court of Tax Appeals, the same
must be made within thirty (30) days from the lapse of the onehundred eighty (180) day period, the one-hundred eighty (180)
day period must be reckoned from the date the protest was filed.
The sixty (60) day period shall not be added to the computation of
the one-hundred eighty (180) days because from the wordings of
the law, in case the taxpayer fails to submit relevant supporting
documents, the assessment becomes final. The one hundred
eighty (180) day period, therefore, commenced to run from the
date protest was filed. Failure on the part of the petitioner to file a
Lara Defensor 2015

Petition for Review with the Court of Tax Appeals within thirty (30)
days from the lapse of the one hundred eighty (180) day period
reckoned from the date the protest was filed, renders the
assessment final, Executory and demandable."
Commission of Internal Revenue vs. First Express Pawnshop
Company, Inc.
If the protest is not acted upon within 180 days from
submission of documents, the taxpayer adversely affected by the
inaction may appeal to the CTA within 30 days from the lapse of
the 180-day period. Respondent, having submitted its supporting
documents on the same day the protest was filed, had until 31
July 2002 to wait for petitioner’s reply to its protest. On 28 August
2002 or within 30 days after the lapse of the 180-day period
counted from the filing of the protest as the supporting documents
were simultaneously filed, respondent filed a petition before the
CTA.
B. Commissioner of Internal Revenue renders a decision on the
disputed assessment
Oceanic Wireless Network, Inc. vs. Commissioner of Internal
Revenue
A demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested assessment.
The determination on whether or not a demand letter is final is
conditioned upon the language used or the tenor of the letter
being sent to the taxpayer.
We laid down the rule that the Commissioner of Internal
Revenue should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of
the disputed assessment, thus: . . . we deem it appropriate to
state that the Commissioner of Internal Revenue should always
indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer
constitutes his final determination on the disputed assessment, as
Page 21

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
contemplated by Sections 7 and 11 of Republic Act No. 1125, as
amended. On the basis of his statement indubitably showing that
the Commissioner’s communicated action is his final decision on
the contested assessment, the aggrieved taxpayer would then be
able to take recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues.
The general rule is that the Commissioner of Internal
Revenue may delegate any power vested upon him by law to
Division Chiefs or to officials of higher rank. He cannot, however,
delegate the four powers granted to him under the National
Internal Revenue Code (NIRC) enumerated in Section 7.
The authority to make tax assessments may be delegated
to subordinate officers. Said assessment has the same force and
effect as that issued by the Commissioner himself, if not reviewed
or revised by the latter such as in this case.
A request for reconsideration must be made within thirty
(30) days from the taxpayer’s receipt of the tax deficiency
assessment, otherwise, the decision becomes final, unappealable
and therefore, demandable. A tax assessment that has become
final, executory and enforceable for failure of the taxpayer to
assail the same as provided in Section 228 can no longer be
contested.
C. Remedy of the taxpayer
Sec. 3.5.1, RR 12-99, as amended RR 18-13
Sec. 228 NIRC
RA 9282 as amended by RA 9503
Revised Rules of the CTA AM No. 05-11-05-CTA
dated November 22, 2005, as amended on
September 16, 2008
1. If protest is expressly denied
2. CIR’s actions equivalent to denial of protest
Lara Defensor 2015

3. CIR fails to act on the protest within 180 days from
submission of relevant documents
Lascona Land Co. Inc. vs. Commission of Internal Revenue
In RCBC v. CIR, 522 SCRA 144 (2007), the Court has held
that in case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission of
documents, a taxpayer can either: (1) file a petition for review with
the Court of Tax Appeals within 30 days after the expiration of the
180-day period; or (2) await the final decision of the
Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision.
Rizal Commercial Banking Corporation vs. Commissioner of
Internal Revenue
In case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission of
documents, a taxpayer can either: 1) file a petition for review with
the Court of Tax Appeals within 30 days after the expiration of the
180-day period; or 2) await the final decision of the Commissioner
on the disputed assessments and appeal such final decision to
the Court of Tax Appeals within 30 days after receipt of a copy of
such decision. However, these options are mutually exclusive,
and resort to one bars the application of the other.
Based on the foregoing, petitioner can not now claim that
the disputed assessment is not yet final as it remained unacted
upon by the Commissioner; that it can still await the final decision
of the Commissioner and thereafter appeal the same to the Court
of Tax Appeals. This legal maneuver cannot be countenanced.
After availing the first option, i.e., filing a petition for review which
was however filed out of time, petitioner can not successfully
resort to the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax
Appeals, on the pretext that there is yet no final decision on the
disputed assessment because of the Commissioner’s inaction.
Page 22

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
4. Remedy in case CIR files a case or issues a warrant of
distraint or levy
5. Effect of failure to protest/ appeal on time
Commissioner of Internal Revenue vs. Concepcion
Where a taxpayer seeking a refund of estate and
inheritance taxes whose request is denied and whose appeal to
the Court of Tax Appeals was dismissed for being filed out of time,
sues anew to recover such taxes, already paid under protest, his
action is devoid of merit. For in the same way that the expedient
of an appeal from a denial of a tax request for cancellation of
warrant of distraint and levy cannot be utilized to test the legality
of an assessment which had become conclusive and binding on
the taxpayer, so is section 360 of the Tax Code not available to
revive the right to contest the validity of an assessment which had
become final for failure to appeal the same on time.
Philippine Journalists, Inc. vs. Commissioner of Internal
Revenue same pg. 8
6. Matter appealable to the CTA
7. Appeal to the CTA En Banc/ Supreme Court
Fishwealth Canning Corporation vs. Commissioner of
Internal Revenue
In the case at bar, petitioner’s administrative protest was
denied by Final Decision on Disputed Assessment dated August
2, 2005 issued by respondent and which petitioner received on
August 4, 2005. Under the above-quoted Section 228 of the 1997
Tax Code, petitioner had 30 days to appeal respondent’s denial of
its protest to the CTA. Since petitioner received the denial of its
administrative protest on August 4, 2005, it had until September 3,
2005 to file a petition for review before the CTA Division. It filed
one, however, on October 20, 2005, hence, it was filed out of
time. For a motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal to
the CTA.
Lara Defensor 2015

Allied Banking Corporation vs. Commissioner of Internal
Revenue
In the instant case, petitioner timely filed a protest after
receiving the PAN. In response thereto, the BIR issued a Formal
Letter of Demand with Assessment Notices. Pursuant to Section
228 of the NIRC, the proper recourse of petitioner was to dispute
the assessments by filing an administrative protest within 30 days
from receipt thereof. Petitioner, however, did not protest the final
assessment notices. Instead, it filed a Petition for Review with the
CTA. Thus, if we strictly apply the rules, the dismissal of the
Petition for Review by the CTA was proper.
A careful reading of the Formal Letter of Demand with
Assessment Notices leads us to agree with petitioner that the
instant case is an exception to the rule on exhaustion of
administrative remedies, i.e., estoppel on the part of the
administrative agency concerned.
In this case, records show that petitioner disputed the PAN
but not the Formal Letter of Demand with Assessment Notices.
Nevertheless, we cannot blame petitioner for not filing a protest
against the Formal Letter of Demand with Assessment Notices
since the language used and the tenor of the demand letter
indicate that it is the final decision of the respondent on the
matter. We have time and again reminded the CIR to indicate, in a
clear and unequivocal language, whether his action on a disputed
assessment constitutes his final determination thereon in order for
the taxpayer concerned to determine when his or her right to
appeal to the tax court accrues. Viewed in the light of the
foregoing, respondent is now estopped from claiming that he did
not intend the Formal Letter of Demand with Assessment Notices
to be a final decision.
We are not disregarding the rules of procedure under
Section 228 of the NIRC, as implemented by Section 3 of BIR
Revenue Regulations No. 12-99. It is the Formal Letter of
Demand and Assessment Notice that must be administratively
Page 23

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
protested or disputed within 30 days, and not the PAN. Neither
are we deviating from our pronouncement in St. Stephen’s
Chinese Girl’s School v. Collector of Internal Revenue, 104 Phil.
314 (1958) that the counting of the 30 days within which to
institute an appeal in the CTA commences from the date of receipt
of the decision of the CIR on the disputed assessment, not from
the date the assessment was issued.
Republic vs. Lim Tian Teng Sons & Co., Inc.
Before the creation of the Court of Tax Appeals the remedy
of a taxpayer who desired to contest an assessment issued by the
Collector of Internal Revenue was to pay the tax and bring an
action in the ordinary courts for its recovery pursuant to Section
306 of the Tax Code. (Sarasola vs. Trinidad, 40 Phil. 252; Alhambra Cigar & Cigarette Manufacturing Co. vs. Collector of Internal
Revenue, L-12026, May 29, 1959). Collection or payment of the
tax was not made to wait until after the Collector of Internal
Revenue has resolved all issues raised by the taxpayer against
an assessment. Republic Act 1125 creating the Court of Tax
Appeals allows the taxpayer to dispute the correctness or legality
of an assessment both in the purely administrative level and in
said court, but it does not stop or prohibit the Collector of Internal
Revenue from collecting the tax through any of the means
provided for in Section 316 of the Tax Code, except when
enjoined by said Court of Tax Appeals.
The taxpayer’s failure to appeal to the Court of Tax
Appeals in due time made the assessment in question final,
executory and demandable. (Republic of the Philippines vs.
Manila Port Service, L-18208, November 27, 1964.) And when the
present action for collection of the tax was instituted, said
taxpayer was already barred from disputing the correctness of the
assessment or invoking any defense that would reopen the
question of its tax liability on the merits. (Republic of the
Philippines vs. Albert, L-12996, December 28, 1961). Otherwise,
the period of thirty days for appeal to the Court of Tax Appeals
Lara Defensor 2015

would make little sense. (Republic of the Philippines vs. Lopez, L18007, March 30, 1963).
ABN-AMRO SAVINGS BANK CORPORATION VS CIR
**CTACASE**
In the RCBC case, the Supreme Court held that in case
the Commissioner failed to act on the disputed assessment within
the 180-day period, a taxpayer can either: 1) file a petition for
review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or 2) await the final decision of
the Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after
receipt of a copy of such decision. However, these options are
mutually exclusive, and resort to one bars the application of the
other.
As held in the same case of Oceanic, the "failure on the
part of the petitioner to file a Petition for Review with the Court of
Tax Appeals within thirty (30) days from the lapse of the one
hundred eighty (180) day period reckoned from the date the
protest was filed, renders the assessment final, executory and
demandable." The resolution of the other issues raised becomes
moot and academic.
Advertising Associates, Inc. vs. Court of Appeals
The reviewable decision of the B.I.R. Commissioner is that
letter where he clearly directed the taxpayer to appeal to the Tax
Court, and not the warrants of distraint and levy.—No amount of
quibbling or sophistry can blink the fact that said letter, as its tenor
shows, embodies the Commissioner’s final decision within the
meaning of section 7 of Republic Act No. 1125. The
Commissioner said so. He even directed the taxpayer to appeal it
to the Tax Court. That was the same situation in St. Stephen’s
Association and St. Stephen’s Chinese Girl’s School vs. Collector
of Internal Revenue, 104 Phil. 314, 317-318.

Page 24

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
The directive is in consonance with this Court’s dictum that
the Commissioner should always indicate to the taxpayer in clear
and unequivocal language what constitutes his final determination
of the disputed assessment. That procedure is demanded by the
pressing need for fair play, regularity and orderliness in
administrative action (Surigao Electric Co., Inc. vs. Court of Tax
Appeals, L-25289, June 28, 1974, 57 SCRA 523).

under the circumstances of this case, what may be considered as
final decision or assessment of the Commissioner is the filing of
the complaint for collection in the respondent Court of First
Instance of Cagayan, the summons of which was served on
petitioners on January 20, 1971, and that therefore the appeal
with the Court of Tax Appeals in CTA Case No. 2216 was filed on
time.

Commissioner of lnternal Revenue vs. Algue, Inc.
Appeal from a decision of the Commissioner of Internal
Revenue with the Court of Tax Appeals is 30 days from receipt
thereof. —The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be
made within thirty days after receipt of the decision or ruling
challenged.

The respondent Court of First Instance of Cagayan can
only acquire jurisdiction over this case filed against the heirs of
the taxpayer if the assessment made by the Commissioner of
Internal Revenue had become final and incontestable. If the
contrary is established, as this Court holds it to be, considering
the aforementioned conclusion of the Court of Tax Appeals on the
finality and incontestability of the assessment made by the
Commissioner is correct, then the Court of Tax Appeals had
exclusive jurisdiction over this case. Petitioners received the
summons in Civil Case No. II-7 of the respondent Court of First
Instance of Cagayan on January 20, 1971, and petitioners filed
their appeal with the Court of Tax Appeals in CTA Case No. 2216,
on February 12, 1971, well within the thirty-day prescriptive period
under Section 11 of Republic Act No. 1125. The Court of Tax
Appeals has exclusive appellate jurisdiction to review on appeal
any decision of the Collector of Internal Revenue in cases
involving disputed assessments and other matters arising under
the National Internal Revenue Code.

It is true that as a rule the warrant of distraint and levy is
"proof of the finality of the assessment" and "renders hopeless a
request for reconsideration," being "tantamount to an outright
denial thereof and makes the said request deemed rejected." But
there is a special circumstance in the case at bar that prevents
application of this accepted doctrine. The proven fact is that four
days after the private respondent received the petitioner's notice
of assessment, it filed its letter of protest. This was apparently not
taken into account before the warrant of distraint and levy was
issued; indeed, such protest could not be located in the office of
the petitioner. It was only after Atty. Guevara gave the BIR a copy
of the protest that it was, if at all, considered by the tax authorities.
During the intervening period, the warrant was premature and
could therefore not be served.
Yabes vs. Flojo
The filing by the Bureau of Internal Revenue of an action
for collection of deficiency taxes allegedly due from the taxpayer
can be considered as the final decision or assessment of the
Commissioner of Internal Revenue.—There is no reason for Us to
disagree from or reverse the Court of Tax Appeals’ conclusion that
Lara Defensor 2015

Where a court has no jurisdiction dismissal of action, not a
mere suspension of proceedings, must be made.—The
recommendation of the Solicitor General that the lower court hold
in abeyance any action or proceeding in Civil Case No. II-7 until
after the Court of Tax Appeals shall have finally decided CTA
Case No. 2216, is untenable since the lower court has no
jurisdiction over the case. Jurisdiction over an action includes
jurisdiction over all interlocutory matters incidental to the case and
deemed necessary to preserve the subject matter of the suit or
protect interests of the parties. Absent jurisdiction over the case, it
Page 25

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
would be improper for the Court of First Instance of Cagayan to
take cognizance over the case and act upon interlocutory matters
of the case, as well.
Commissioner of Internal Revenue vs. Union Shipping Corp.
The Commissioner of Internal Revenue must state
whether his action on questioned assessment is final. It cannot be
implied from mere issuance of warrant of distraint and levy.—
There appears to be no dispute that petitioner did not rule on
private respondent’s motion for reconsideration but contrary to the
above ruling of this Court, left private respondent in the dark as to
which action of the Commissioner is the decision appealable to
the Court of Tax Appeals. Had he categorically stated that he
denies private respondent’s motion for reconsideration and that
his action constitutes his final determination on the disputed
assessment, private respondent without needless difficulty would
have been able to determine when his right to appeal accrues and
the resulting confusion would have been avoided.
Under the circumstances, the Commissioner of Internal
Revenue, not having clearly signified his final action on the
disputed assessment, legally the period to appeal has not
commenced to run. Thus, it was only when private respondent
received the summons on the civil suit for collection of deficiency
income on December 28, 1978 that the period to appeal
commenced to run.
The request for reinvestigation and reconsideration was in
effect considered denied by petitioner when the latter filed a civil
suit for collection of deficiency income. So that on January 10,
1979 when private respondent filed the appeal with the Court of
Tax Appeals, it consumed a total of only thirteen (13) days well
within the thirty day period to appeal pursuant to Section 11 of
R.A. 1125.

Lara Defensor 2015

Commissioner of Internal Revenue vs. Isabela Cultural
Corporation
In the light of the above facts, the Final Notice Before
Seizure cannot but be considered as the commissioner’s decision
disposing of the request for reconsideration filed by respondent,
who received no other response to its request. Not only was the
Notice the only response received; its content and tenor
supported the theory that it was the CIR’s final act regarding the
request for reconsideration. The very title expressly indicated that
it was a final notice prior to seizure of property. The letter itself
clearly stated that respondent was being given “this LAST
OPPORTUNITY” to pay; otherwise, its properties would be
subjected to distraint and levy.
Section 228 of the National Internal Revenue Code states
that a delinquent taxpayer may nevertheless directly appeal a
disputed assessment, if its request for reconsideration remains
unacted upon 180 days after submission thereof, x x x In this
case, the said period of 180 days had already lapsed when
respondent filed its request for reconsideration on March 23,
1990, without any action on the part of the CIR.
Jurisprudence dictates that a final demand letter for
payment of delinquent taxes may be considered a decision on a
disputed or protested assessment.
D. Non-retroactivity od rulings
1. BIR Rulings
RR 5-2012
2. Rulings of first impression
3. Review/ Appeal to Sec. Of Finance
Commissioner of Internal Revenue vs. Philippine Health Care
Providers, Inc.
Relative to the second issue, Section 246 of the 1997 Tax
Code, as amended, provides that rulings, circulars, rules and
regulations promulgated by the Commissioner of Internal
Page 26

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Revenue have no retroactive application if to apply them would
prejudice the taxpayer. The exceptions to this rule are: (1) where
the taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of
Internal Revenue; (2) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based, or (3) where the taxpayer acted
in bad faith.
Good faith is that state of mind denoting honesty of
intention and freedom from knowledge of circumstances which
ought to put the holder upon inquiry, an honest intention to abstain
from taking any unconscientious advantage of another, even
through technicalities of law, together with absence of all
information, notice, or benefit or belief of facts which render
transaction unconscientious.—We agree with both the Tax Court
and the Court of Appeals that respondent acted in good faith. In
Civil Service Commission v. Maala, 467 SCRA 390 (2005), we
described good faith as “that state of mind denoting honesty of
intention and freedom from knowledge of circumstances which
ought to put the holder upon inquiry; an honest intention to
abstain from taking any unconscientious advantage of another,
even through technicalities of law, together with absence of all
information, notice, or benefit or belief of facts which render
transaction unconscientious.” According to the Court of Appeals,
respondent’s failure to describe itself as a “health maintenance
organization,” which is subject to VAT, is not tantamount to bad
faith. We note that the term “health maintenance organization”
was first recorded in the Philippine statute books only upon the
passage of “The National Health Insurance Act of 1995” (Republic
Act No. 7875). Section 4 (o) (3) thereof defines a health
maintenance organization as “an entity that provides, offers, or
arranges for coverage of designated health services needed by
plan members for a fixed prepaid premium.” Under this law, a
health maintenance organization is one of the classes of a “health
care provider.” It is thus apparent that when VAT Ruling No.
231-88 was issued in respondent’s favor, the term “health
Lara Defensor 2015

maintenance organization” was yet unknown or had no
significance for taxation purposes. Respondent, therefore,
believed in good faith that it was VAT exempt for the taxable years
1996 and 1997 on the basis of VAT Ruling No. 231-88.
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals,
108 SCRA 142 (1981), this Court held that under Section 246 of
the 1997 Tax Code, the Commissioner of Internal Revenue is
precluded from adopting a position contrary to one previously
taken where injustice would result to the taxpayer. Hence, where
an assessment for deficiency withholding income taxes was
made, three years after a new BIR Circular reversed a previous
one upon which the taxpayer had relied upon, such an
assessment was prejudicial to the taxpayer. To rule otherwise,
opined the Court, would be contrary to the tenets of good faith,
equity, and fair play. This Court has consistently reaffirmed its
ruling in ABS-CBN Broadcasting Corp. in the later cases of
Commissioner of Internal Revenue v. Borroughs, Ltd., 142 SCRA
324 (1986), Commissioner of Internal Revenue v. Mega Gen.
Mdsg. Corp., 166 SCRA 166 (1988), Commissioner of Internal
Revenue v. Telefunken Semiconductor (Phils.), Inc., 249 SCRA
401 (1995), and Commissioner of Internal Revenue v. Court of
Appeals, 267 SCRA 557(1997). The rule is that the BIR rulings
have no retroactive effect where a grossly unfair deal would result
to the prejudice of the taxpayer, as in this case.
Commissioner of Internal Revenue vs. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc.
In seeking a refund of its excess output tax, respondent
relied on VAT Ruling No. 003-99, which reconfirmed BIR Ruling
No. 023-95 “insofar as it held that the services being rendered by
BWSCMI is subject to VAT at zero percent (0%).” Respondent’s
reliance on these BIR rulings binds petitioner. Petitioner’s filing of
his Answer before the CTA challenging respondent’s claim for
refund effectively serves as a revocation of VAT Ruling No.
003-99 and BIR Ruling No. 023-95. However, such revocation
cannot be given retroactive effect since it will prejudice
Page 27

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
respondent. Changing respondent’s status will deprive respondent
of a refund of a substantial amount representing excess output
tax. Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given
retroactive application if the revocation will prejudice the taxpayer.
Further, there is no showing of the existence of any of the
exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.
Philippine Bank of Communications vs. Commissioner of
Internal Revenue
When the Acting Commissioner of Internal Revenue
issued RMC 7-85, changing the prescriptive period of two years to
ten years on claims of excess quarterly income tax payments,
such circular created a clear inconsistency with the provision of
Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply
interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress.
It bears repeating that Revenue memorandum-circulars
are considered administrative rulings (in the sense of more
specific and less general interpretations of tax laws) which are
issued from time to time by the Commissioner of Internal
Revenue. It is 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. Thus, courts will not countenance
administrative issuances that override, instead of remaining
consistent and in harmony with, the law they seek to apply and
implement.
Further, fundamental is the rule that the State cannot be
put in estoppel by the mistakes or errors of its officials or agents.
As pointed out by the respondent courts, the nullification of RMC
No. 7-85 issued by the Acting Commissioner of Internal Revenue
is an administrative interpretation which is not in harmony with
Lara Defensor 2015

Sec. 230 of 1977 NIRC, for being contrary to the express
provision of a statute. Hence, his interpretation could not be given
weight for to do so would, in effect, amend the statute.
Article 8 of the Civil Code recognizes judicial decisions,
applying or interpreting statutes as part of the legal system of the
country. But administrative decisions do not enjoy that level of
recognition. A memorandum-circular of a bureau head could not
operate to vest a taxpayer with a shield against judicial action. For
there are no vested rights to speak of respecting a wrong
construction of the law by the administrative officials and such
wrong interpretation could not place the Government in estoppel
to correct or overrule the same. Moreover, the non-retroactivity of
rulings by the Commissioner of Internal Revenue is not applicable
in this case because the nullity of RMC No. 7-85 was declared by
respondent courts and not by the Commissioner of Internal
Revenue. Lastly, it must be noted that, as repeatedly held by this
Court, a claim for refund is in the nature of a claim for exemption
and should be construed in strictissimi juris against the taxpayer.
Commissioner of lnternal Revenue vs. Court of Appeals
However, well-entrenched is the rule that rulings and
circulars, rules and regulations promulgated by the Commissioner
of Internal Revenue would have no retroactive application if to so
apply them would be prejudicial to the taxpayers.
Bad faith imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. lt partakes of the nature
of fraud; a breach of a known duty through some motive of
interest or ill will. We find no convincing evidence that private
respondent’s implementation of the computation mandated by BIR
Ruling 473–88 was ill-motivated or attended with a dishonest
purpose. To the contrary, as a sign of good faith, private
respondent immediately reverted to the computation mandated by
BIR Ruling 017–91 upon knowledge of its issuance on 11
February 1991.
Page 28

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
As regards petitioner’s argument that private respondent
should have made consultations with it before private respondent
used the computation mandated by BIR Ruling 473–88, suffice it
to state that the aforesaid BIR Ruling was clear and categorical
thus leaving no room for interpretation. The failure of private
respondent to consult petitioner does not imply bad faith on the
part of the former.
Admittedly the government is not estopped from collecting
taxes legally due because of mistakes or errors of its agents. But
like other principles of law, this admits of exceptions in the interest
of justice and fair play, as where injustice will result to the
taxpayer.
Commissioner of Internal Revenue vs. Filinvest Development
Corporation
In its appeal before the CA, the CIR argued that the
foregoing ruling was later modified in BIR Ruling No. 108-99
dated 15 July 1999, which opined that inter-office memos
evidencing lendings or borrowings extended by a corporation to
its affiliates are akin to promissory notes, hence, subject to
documentary stamp taxes. In brushing aside the foregoing
argument, however, the CA applied Section 246 of the 1993 NIRC
from which proceeds the settled principle that rulings, circulars,
rules and regulations promulgated by the BIR have no retroactive
application if to so apply them would be prejudicial to the
taxpayers. Admittedly, this rule does not apply: (a) where the
taxpayer deliberately misstates or omits material facts from his
return or in any document required of him by the Bureau of
Internal Revenue; (b) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or (c) where the taxpayer acted
in bad faith. Not being the taxpayer who, in the first instance,
sought a ruling from the CIR, however, FDC cannot invoke the
foregoing principle on non-retroactivity of BIR rulings.

Lara Defensor 2015

Commissioner of Internal Revenue vs. San Roque Power
Corporation February 12, 2013
Since the Commissioner has exclusive and original
jurisdiction to interpret tax laws, taxpayers acting in good faith
should not be made to suffer for adhering to general interpretative
rules of the Commissioner interpreting tax laws, should such
interpretation later turn out to be erroneous and be reversed by
the Commissioner or this Court. Indeed, Section 246 of the Tax
Code expressly provides that a reversal of a BIR regulation or
ruling cannot adversely prejudice a taxpayer who in good faith
relied on the BIR regulation or ruling prior to its reversal.
SERENO, C.J., Separate Dissenting Opinion:
We find it violative of the right to procedural due process of
taxpayers when the Court itself allowed the taxpayers to believe
that they were observing the proper procedural periods and, in a
sudden jurisprudential turn, deprived them of the relief provided
for and earlier relied on by the taxpayers. It is with this reason and
in the interest of substantial justice that the strict application of the
120+<30 day period should be applied prospectively to claims for
refund or credit of excess input VAT. To apply these rules
retroactively would be tantamount to punishing the public for
merely following interpretations of the law that have the
imprimatur of this Court. To do so creates a tear in the public
order and sow more distrust in public institutions. We would be
fostering uncertainty in the minds of the public, especially in the
business community, if we cannot guarantee our own obedience
to these rules.
Commissioner of Internal Revenue vs. San Roque Power
Corporation October 8 2013
The general rule is that a void law or administrative act
cannot be the source of legal rights or duties. Article 7 of the Civil
Code enunciates this general rule, as well as its exception: “Laws
are repealed only by subsequent ones, and their violation or nonobservance shall not be excused by disuse, or custom or practice
to the contrary. When the courts declared a law to be inconsistent
Page 29

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
with the Constitution, the former shall be void and the latter shall
govern. Administrative or executive acts, orders and regulations
shall be valid only when they are not contrary to the laws or the
Constitution.” The doctrine of operative fact is an exception to the
general rule, such that a judicial declaration of invalidity may not
necessarily obliterate all the effects and consequences of a void
act prior to such declaration.
Clearly, for the operative fact doctrine to apply, there must
be a “legislative or executive measure,” meaning a law or
executive issuance, that is invalidated by the court. From the
passage of such law or promulgation of such executive issuance
until its invalidation by the court, the effects of the law or executive
issuance, when relied upon by the public in good faith, may have
to be recognized as valid. In the present case, however, there is
no such law or executive issuance that has been invalidated by
the Court except BIR Ruling No. DA-489-03. To justify the
application of the doctrine of operative fact as an exemption, San
Roque asserts that “the BIR and the CTA in actual practice did not
observe and did not require refund seekers to comply with the
120+30 day periods.” This is glaring error because an
administrative practice is neither a law nor an executive issuance.
Moreover, in the present case, there is even no such
administrative practice by the BIR as claimed by San Roque.
Under Section 246, taxpayers may rely upon a rule or
ruling issued by the Commissioner from the time the rule or ruling
is issued up to its reversal by the Commissioner or this Court. The
reversal is not given retroactive effect. This, in essence, is the
doctrine of operative fact. There must, however, be a rule or ruling
issued by the Commissioner that is relied upon by the taxpayer in
good faith. A mere administrative practice, not formalized into a
rule or ruling, will not suffice because such a mere administrative
practice may not be uniformly and consistently applied. An
administrative practice, if not formalized as a rule or ruling, will not
be known to the general public and can be availed of only by
those with informal contacts with the government agency.
Lara Defensor 2015

Although Section 4 of the 1997 Tax Code provides that the
“power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance,”
Section 7 of the same Code does not prohibit the delegation of
such power. Thus, “[t]he Commissioner may delegate the powers
vested in him under the pertinent provisions of this Code to any or
such subordinate officials with the rank equivalent to a division
chief or higher, subject to such limitations and restrictions as may
be imposed under rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the
Commissioner.”
Philippine American Life and General Insurance Company vs.
Secretary of Finance
To leave undetermined the mode of appeal from the
Secretary of Finance would be an injustice to taxpayers
prejudiced by his adverse rulings. To remedy this situation, We
imply from the purpose of RA 1125 and its amendatory laws that
the CTA is the proper forum with which to institute the appeal.
This is not, and should not, in any way, be taken as a derogation
of the power of the Office of President but merely as recognition
that matters calling for technical knowledge should be handled by
the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to
adjudicate tax, customs, and assessment cases, there can be no
other court of appellate jurisdiction that can decide the issues
raised in the CA petition, which involves the tax treatment of the
shares of stocks sold.
BANCO DE ORO VS REPUBLIC ***NOSCRA***
[W]hile revenue regulations as a general rule have no
retroactive effect, if the revocation is due to the fact that the
regulation is erroneous or contrary to law, such revocation shall
have retroactive operation as to affect past transactions, because
a wrong construction of the law cannot give rise to a vested right
that can be invoked by a taxpayer
Page 30

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
The Bureau of Internal Revenue’s interpretation as
expressed in the three 2001 BIR Rulings is not consistent with
law. Its interpretation of “at any one time” to mean at the point of
origination alone is unduly restrictive.
This court further held that “[a] memorandum-circular of a
bureau head could not operate to vest a taxpayer with a shield
against judicial action [because] there are no vested rights to
speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not
place the Government in estoppel to correct or overrule the
same.”
III. REMEDIES AVAILABLE TO THE GOVERNMENT
A. Prescriptive period to collect
Sec. 222 NIRC
Republic vs. Hizon
Revenue Administrative Order No. 10-95 specifically
authorizes the Litigation and Prosecution Section of the Legal
Division of regional district offices to institute the necessary civil
and criminal actions for tax collection. As the complaint filed in this
case was signed by the BIR’s Chief of Legal Division for Region 4
and verified by the Regional Director, there was, therefore,
compliance with the law.
The lower court refused to recognize RAO No. 10-95 and,
by implication, RAO No. 5-83. It held: [M]emorand[a], circulars
and orders emanating from bureaus and agencies whether in the
purely public or quasipublic corporations are mere guidelines for
the internal functioning of the said offices. They are not laws
which courts can take judicial notice of. As such, they have no
binding effect upon the courts for such memorand[a] and circulars
are not the official acts of the legislative, executive and judicial
departments of the Philippines . . . . This is erroneous. The rule is
that as long as administrative issuances relate solely to carrying
into effect the provisions of the law, they are valid and have the
Lara Defensor 2015

force of law. The governing statutory provision in this case is §4(d)
of the NIRC.
As amended by R.A. No. 8424, the NIRC is now even
more categorical. Sec. 7 of the present Code authorizes the BIR
Commissioner to delegate the powers vested in him under the
pertinent provisions of the Code to any subordinate official with
the rank equivalent to a division chief or higher.
Commissioner of Internal Revenue vs. Hambrecht & Quist
Philippines, Inc.
The fact that an assessment has become final for failure of
the taxpayer to file a protest within the time allowed only means
that the validity or correctness of the assessment may no longer
be questioned on appeal. However, the validity of the assessment
itself is a separate and distinct issue from the issue of whether the
right of the CIR to collect the validly assessed tax has prescribed.
This issue of prescription, being a matter provided for by the
NIRC, is well within the jurisdiction of the CTA to decide.
The plain and unambiguous wording of the said provision
dictates that two requisites must concur before the period to
enforce collection may be suspended: (a) that the taxpayer
requests for reinvestigation, and (b) that petitioner grants such
request.
B. Administrative remedies / Summary Remedies
Secs. 205-217
1. Distraint of personal property
Secs. 205-207, 217, 208-209, 210, 212 NIRC
RMC 5-01
2. Levy of Real Property
Secs. 205-207, 217, 208-209, 213-214 NIRC
3. Forfeiture
Sec. 215

Page 31

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Castro vs. Collector of Internal Revenue
The provision in parsgraph 1, of Section 328 of the Tax
Code that in the absence of bidders the taxpayer's property is to
be "forfeited to the Government in satisfaction of the claim in
question", does not operate in satisfaction of the total tax claims
even beyond the value of the property forfeited, but was intended
to mean only a discharge pro tanto of the tax liabilities. This is
confirmed by the provisions of section 330 of the Revenue Code
to the effect that "remedy by distraint of personal property and
levy on realty may be repeated if necessary until the full amount
due, including all expenses, is collected." This section makes no
distinction between forfeitures to the Government and sales to
third persons.
4. Tax lien
Sec. 219 NIRC
Republic vs. Enriquez
It is settled that the claim of the government predicated on
a tax lien is superior to the claim of a private litigant predicated on
a judgment. The tax lien attaches not only from the service of the
warrant of distraint of personal property but from the time the tax
became due and payable.
Besides, the distraint on the subject properties of Maritime
Company of the Philippines as well as the notice of their seizure
were made by petitioner, through the Commissioner of Internal
Revenue, long before the writ of execution was issued by the
Regional Trial Court of Manila, Branch 31. There is no question
then that at the time the writ of execution was issued, the two (2)
barges, MCP-1 and MCP-4, were no longer properties of the
Maritime Company of the Philippines. The power of the court in
execution of judgments extends only to properties unquestionably
belonging to the judgment debtor. Execution sales affect the rights
of the judgment debtor only, and the purchaser in an auction sale
acquires only such right as the judgment debtor had at the time of
Lara Defensor 2015

sale. It is also well-settled that the sheriff is not authorized to
attach or levy on property not belonging to the judgment debtor.
Commissioner of Internal Revenue vs. NLRC
The National Internal Revenue Code provides for the
collection of delinquent taxes by any of the following remedies: (a)
distraint of personal property or levy of real property of the
delinquent taxpayer and (b) civil or criminal action.
With respect to the four barges in question, petitioner
resorted to constructive distraint pursuant to § 303 (now § 206) of
the NIRC. This provision states: Constructive distraint of the
property of a taxpayer.—To safeguard the interest of the
Government, the Commissioner of Internal Revenue may place
under constructive distraint the property of a delinquent taxpayer
or any taxpayer who, in his opinion, is retiring from any business
subject to tax, or intends to leave the Philippines, or remove his
property therefrom, or hide or conceal his property, or perform any
act tending to obstruct the proceedings, for collecting the tax due
or which may be due from him.
Accordingly, what we said in the prior case in upholding
the validity of distraint of two of the six barges (MCP Nos. 1 and
4), fully applies in this case: It is settled that the claim of the
government predicated on a tax lien is superior to the claim of a
private litigant predicated on a judgment. The tax lien attaches not
only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable.
Besides, the distraint on the subject properties of Maritime
Company of the Philippines as well as the notice of their seizure
were made by petitioner, through the Commissioner of Internal
Revenue, long before the writ of execution was issued by the
Regional Trial Court of Manila, Branch 31. There is no question
then that at the time the writ of execution was issued, the two (2)
barges, MCP-1 and MCP-4, were no longer properties of the
Maritime Company of the Philippines. The power of the court in
execution of judgments extends only to properties unquestionably
Page 32

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
belonging to the judgment debtor. Execution sales affect the rights
of the judgment debtor only, and the purchaser in an auction sale
acquires only such right as the judgment debtor had at the time of
sale. It is also well-settled that the sheriff is not authorized to
attach or levy on property not belonging to the judgment debtor.
Article 110 of the Labor Code does not purport to create a
lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property owned
by their employer. Claims for unpaid wages do not therefore fall at
all within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the
extent that such claims for unpaid wages are already covered by
Article 2241, number 6; “claims for laborers’ wages, on the goods
manufactured or the work done;” or by Article 2242, number 3:
“claims of laborers and other workers engaged in the construction,
reconstruction or repair of buildings, canals and other works, upon
said buildings, canals or other works.” To the extent that claims for
unpaid wages fall outside the scope of Article 2241, number 6 and
2242, number 3, they would come within the ambit of the category
of ordinary preferred credits under Article 2244.
In addition, we have held that Art. 110 of the Labor Code
applies only in case of bankruptcy or judicial liquidation of the
employer. This is clear from the text of the law: ART. 110. Worker
preference in case of bankruptcy.—In the event of bankruptcy or
liquidation of an employer’s business, his workers shall enjoy first
preference as regards wages due them for services rendered
during the period prior to the bankruptcy or liquidation, any
provision of law to the contrary notwithstanding. Unpaid wages
shall be paid in full before other creditors may establish any
claims to a share in the assets of the employer.
Hongkong & Shanghai Banking Corporation vs. Rafferty.
A lien in its modern acceptation is understood to denote a
legal claim or charge on property, either real or personal, as
security for the payment of some debt or obligation. Its meaning is
Lara Defensor 2015

more extensive than the jus retentionis (derecho de retención) of
the civil law.
The internal revenue tax constitutes a paramount lien
either on the property upon which the tax is imposed or on any
other property used in any business or occupation upon which the
tax is imposed.
The tax lien does not establish itself upon property which
has been transferred to innocent purchasers prior to demand.
In order that the lien may follow the property into the
hands of a third party, it is further essential that the latter should
have notice, either actual or constructive.
In the case of real estate or special assessment taxation a
man cannot get rid of his liability to a tax by buying without notice.
(City of Seattle vs. Kelleher [1904], 195 U. S., 351.)
5. No injunction to restrain collection of taxes
Sec. 218 NIRC
Rule 10 AM No. 05-11-07-CTA November 22, 2005
as amended on September 16, 2008
RMO 42-10
C. Judicial Remedies
Sec. 205
Sec 220, 221 NIRC
Republic vs. Hizon
Sec. 229 of the Code mandates that a request for
reconsideration must be made within 30 days from the taxpayer’s
receipt of the tax deficiency assessment, otherwise the
assessment becomes final, unappealable and, therefore,
demandable. The notice of assessment for respondent’s tax
deficiency was issued by petitioner on July 18, 1986. On the other
hand, respondent made her request for reconsideration thereof
Page 33

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
only on November 3, 1992, without stating when she received the
notice of tax assessment. She explained that she was constrained
to ask for a reconsideration in order to avoid the harassment of
BIR collectors. In all likelihood, she must have been referring to
the distraint and levy of her properties by petitioner’s agents
which took place on January 12, 1989. Even assuming that she
first learned of the deficiency assessment on this date, her
request for reconsideration was nonetheless filed late since she
made it more than 30 days thereafter. Hence, her request for
reconsideration did not suspend the running of the prescriptive
period provided under §223(c). Although the Commissioner acted
on her request by eventually denying it on August 11, 1994, this is
of no moment and does not detract from the fact that the
assessment had long become demandable.
Petitioner’s reliance on the Court’s ruling in Advertising
Associates, Inc. v. Court of Appeals is misplaced. What the Court
stated in that case and, indeed, in the earlier case of Palanca v.
Commissioner of Internal Revenue, is that the timely service of a
warrant of distraint or levy suspends the running of the period to
collect the tax deficiency in the sense that the disposition of the
attached properties might well take time to accomplish, extending
even after the lapse of the statutory period for collection. In those
cases, the BIR did not file any collection case but merely relied on
the summary remedy of distraint and levy to collect the tax
deficiency. The importance of this fact was not lost on the Court.
Thus, in Advertising Associates, it was held: “It should be noted
that the Commissioner did not institute any judicial proceeding to
collect the tax. He relied on the warrants of distraint and levy to
interrupt the running of the statute of limitations.”
Mambulao Lumber Company vs. Republic
The five-year period to file action for collection of forest
charges is counted from the date of assessment letter made by
the B.I.R., and not from the demand letter sent by the Bureau of
Forestry.—Petitioner’s aforesaid argument lacks merit. As
correctly observed by the trial court and the Court of Appeals in
Lara Defensor 2015

the appealed decision, the letter of demand of the Acting
Commissioner of Internal Revenue dated August 29, 1958 was
the basis of respondent’s complaint filed in this case and not the
demand letter of the Bureau of Forestry dated January 15, 1949.
This must be so because forest charges are internal revenue
taxes and the sole power and duty to collect the same is lodged
with the Bureau of Internal Revenue and not with the Bureau of
Forestry. The computation and/or assessment of forest charges
made by the Bureau of Forestry may or may not be adopted by
the Commissioner of Internal Revenue and such computation
made by the Bureau of Forestry is not appealable to the Court of
Tax Appeals. Therefore, for the purpose of computing the fiveyear period within which to file a complaint for collection, the
demand or even the assessment made by the Bureau of Forestry
is immaterial.
In the case at bar, the commencement of the fiveyear
period should be counted from August 29, 1958, the date of the
letter of demand of the Acting Commissioner of Internal Revenue
to petitioner Mambulao Lumber Company. It is this demand or
assessment that is appealable to the Court of Tax Appeals. The
complaint for collection was filed in the Court of First Instance of
Manila on August 25, 1961, very much within the five-year period
prescribed by Section 332 (c) of the Tax Code. Consequently, the
right of the Commissioner of Internal Revenue to collect the forest
charges and surcharges in the amount of P15,443.55 has not
prescribed.
Failure of taxpayer to appeal to the C.T.A., a B.I.R.
assessment makes said assessment final and executory.—
Furthermore, it is not disputed that on October 18, 1958, petitioner
requested for a reinvestigation of its tax liability. In reply thereto,
respondent in a letter dated July 8, 1959, gave petitioner a period
of twenty (20) days from receipt thereof to submit the results of its
verification of payments and failure to comply therewith would be
construed as abandonment of the request for reinvestigation.
Petitioner failed to comply with this requirement. Neither did it
Page 34

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the letter dated July 8, 1959, as prescribed under
Section 11 of Republic Act No. 1125, thus making the assessment
final and executory.
After B.I.R. assessment becomes final, and collection suit
is filed in court, there can no longer be any inquiry on merits of
original case. Defenses available only those jurisdictional nature
or on fraud.—In a proceeding like this the taxpayer’s defenses are
similar to those of the defendant in a case for the enforcement of
a judgment by judicial action under Section 6 of Rule 39 of the
Rules of Court. No inquiry can be made therein as to the merits of
the original case or the justness of the judgment relied upon, other
than by evidence of want of jurisdiction, of collusion between the
parties, or of fraud in the party offering the record with respect to
the proceedings. As held by this Court in Insular Government vs.
Nico the taxpayer may raise only the questions whether or not the
Collector of Internal Revenue had jurisdiction to do the particular
act, and whether any fraud was committed in the doing of the act.
Fernandez Hermanos, Inc, vs. Commissioner of Internal
Revenue
Five-year 'period to effect collection by judicial action;
When period of prescription is counted.—A judicial action for the
collection of a tax is begun by the filing of a complaint with the
proper court of first instance, or where the assessment is
appealed to the Court of Tax Appeals, by filing an answer to the
taxpayer's petition for review wherein payment of the tax is prayed
for. This is but logical for where the taxpayer avails of the right to
appeal the tax assessment to the Court of Tax Appeals, the said
Court is vested with the authority to pronounce judgment as to the
taxpayer's liability to the exclusion of any other court.
Philippine National Oil Company vs. Court of Appeals
Prescription, being a matter of defense, imposes the
burden on the taxpayer to prove that the full period of the
limitation has expired, and this requires him to positively establish
Lara Defensor 2015

the date when the period started running and when the same was
fully accomplished.—The issue of prescription, however, was
brought up only in the dissenting opinion and was never raised by
PNOC and PNB in the proceedings before the BIR nor in any of
their pleadings submitted to the CTA and the Court of Appeals.
Section 1, Rule 9 of the Rules of Civil Procedure lays down the
rule on defenses and objections not pleaded, and reads:
SECTION 1. Defenses and objections not pleaded.—Defenses
and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action
pending between the parties for the same cause, or that the
action is barred by prior judgment or by the statute of limitations,
the court shall dismiss the claim. The general rule enunciated in
the above-quoted provision governs the present case, that is, the
defense of prescription, not pleaded in a motion to dismiss or in
the answer, is deemed waived. The exception in same provision
cannot be applied herein because the pleadings and the evidence
on record do not sufficiently show that the action is barred by
prescription. It has been consistently held in earlier tax cases that
the defense of prescription of the period for the assessment and
collection of tax liabilities shall be deemed waived when such
defense was not properly pleaded and the facts alleged and
evidences submitted by the parties were not sufficient to support a
finding by this Court on the matter.
The BIR (the collecting government agency), PNOC (the
taxpayer), and PNB (the withholding agent) initially found
themselves on the same side.—In the case of PNB, an
assessment was issued against it by the BIR on 08 October 1986,
so that the BIR had until 07 October 1989 to enforce it and to
collect the tax assessed. The filing, however, by private
respondent Savellano of his Amended Petition for Review before
the CTA on 02 July 1988 already constituted a judicial action for
collection of the tax assessed which stops the running of the
three-year prescriptive period for collection thereof. A judicial
Page 35

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court; or where the
assessment is appealed to the CTA, by filing an answer to the
taxpayer’s petition for review wherein payment of the tax is
prayed for. The present case is unique, however, because the
Petition for Review was filed by private respondent Savellano, the
informer, against the BIR, PNOC, and PNB. The BIR, the
collecting government agency; PNOC, the taxpayer; and PNB, the
withholding agent, initially found themselves on the same side.
That the Amended Petition for Review was filed by the
informer and not the taxpayer, and that the prayer for the
enforcement of the tax assessment and payment of the tax was
also made by the informer, not the BIR, should not affect the
nature of the case as a judicial action for collection—upon the
filing of the Amended Petition for Review, judicial action for
collection of the tax had been initiated and the running of the
prescriptive period for collection of the said tax was terminated.—
Private respondent Savellano, in his Amended Petition for Review
in CTA Case No. 4249, prayed for (1) the CTA to direct the BIR
Commissioner to enforce and collect the tax, and (2) PNB and/or
PNOC to pay the tax—making CTA Case No. 4249 a collection
case. That the Amended Petition for Review was filed by the
informer and not the taxpayer; and that the prayer for the
enforcement of the tax assessment and payment of the tax was
also made by the informer, not the BIR, should not affect the
nature of the case as a judicial action for collection. In case the
CTA grants the Petition and the prayer therein, as what has
happened in the present case, the ultimate result would be the
collection of the tax assessed. Consequently, upon the filing of the
Amended Petition for Review by private respondent Savellano,
judicial action for collection of the tax had been initiated and the
running of the prescriptive period for collection of the said tax was
terminated.
Supposing that CTA Case No. 4249 is not a collection
case which stops the running of the prescriptive period for the
Lara Defensor 2015

collection of the tax, CTA Case No. 4249, at the very least,
suspends the running of the said prescriptive period. Under
Section 271 of the NIRC of 1977, as amended, the running of the
prescriptive period to collect deficiency taxes shall be suspended
for the period during which the BIR Commissioner is prohibited
from beginning a distraint or levy or instituting a proceeding in
court, and for 60 days thereafter. Just as in the cases of Republic
v. Ker & Co., Ltd. and Protector’s Services, Inc. v. Court of
Appeals, this Court declares herein that the pendency of the
present case before the CTA, the Court of Appeals and this Court,
legally prevents the BIR Commissioner from instituting an action
for collection of the same tax liabilities assessed against PNOC
and PNB in the CTA or the regular trial courts. To rule otherwise
would be to violate the judicial policy of avoiding multiplicity of
suits and the rule on lis pendens.
That CTA Case No. 4249 was initiated by private
respondent Savellano, the informer, instead of PNOC, the
taxpayer, or PNB, the withholding agent, would not prevent the
suspension of the running of the prescriptive period for collection
of the tax. What is controlling herein is the fact that the BIR
Commissioner cannot file a judicial action in any other court for
the collection of the tax because such a case would necessarily
involve the same parties and involve the same issues already
being litigated before the CTA in CTA Case No. 4249. The threeyear prescriptive period for collection of the tax shall commence to
run only after the promulgation of the decision of this Court in
which the issues of the present case are resolved with finality.
IV. STATUTORY OFFENSES AND PENALTIES
A. Civil Penalties / Surcharges / Interest
Secs. 247-251 NIRCO
RR 12-99 as amended by RR 18-13
1. Applicable Interesst Rate
2. How to compute Interest
3. Rules on Interest
Page 36

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Bank of the Philippine Islands vs. Commissioner of Internal
Revenue
In the case of Philippine Refining Company v. Court of
Appeals, 256 SCRA 667 (1996), this Court categorically ruled that
even if an assessment was later reduced by the courts, a
delinquency interest should still be imposed from the time demand
was made by the CIR. As correctly pointed out by the Solicitor
General, the deficiency tax assessment in this case, which was
the subject of the demand letter of respondent Commissioner
dated April 11, 1989, should have been paid within thirty (30) days
from receipt thereof. By reason of petitioner’s default thereon, the
delinquency penalties of 25% surcharge and interest of 20%
accrued from April 11, 1989. The fact that petitioner appealed the
assessment to the CTA and that the same was modified does not
relieve petitioner of the penalties incident to delinquency. The
reduced amount of P237,381.25 is but a part of the original
assessment of P1,892,584.00. This doctrine is consistent with the
earlier decisions of this Court justifying the imposition of additional
charges and interests incident to delinquency by explaining that
the nature of additional charges is compensatory and not a
penalty. The above legal provision makes no distinctions nor does
it establish exceptions. It directs the collection of the surcharge
and interest at the stated rate upon any sum or sums due and
unpaid after the dates prescribed in subsections (b), (c), and (d) of
the Act for the payment of the amounts due. The provision
therefore is mandatory in case of delinquency. This is justified
because the intention of the law is precisely to discourage delay in
the payment of taxes due to the State and, in this sense, the
surcharge and interest charged are not penal but compensatory in
nature—they are compensation to the State for the delay in
payment, or for the concomitant use of the funds by the taxpayer
beyond the date he is supposed to have paid them to the State.
REPUBLIC CEMENT CORPORATION VS CIR ***NOSCRA***
The imposition of deficiency interest is sanctioned by
Section 249 (B), in relation to Section 249 (A) of the NIRC of
1997,On the other hand, the imposition of delinquency interest on
Lara Defensor 2015

failure to pay a deficiency tax is allowed under Section 249 (C) (3)
of the NIRC.
A comparison of Section 249 (B) and 249 (C) (3) of the
NIRC reveals that the deficiency interest on any deficiency tax is
assessed "from the date prescribed for its payment until the full
payment thereof" while the delinquency interest, which is imposed
for failure to pay a deficiency tax, is assessed starting "on the due
date appearing in the notice and demand of the Commissioner
until the amount is fully paid". Clearly, the law itself allows the
imposition of these two kinds of interests simultaneously, and
therefore, there is no double imposition of interest penalty. Hence,
petitioner's assertion that the 20% deficiency interest should be
computed from January 25, 2000 until January 31, 2005 and not
until full payment is contrary to the very language of the NIRC.
4. Deficiency vs Delinquency Tax
5. Surcharge: 25% or 50%
Sec. 248 NIRC
Castro vs. Collector of Internal Revenue
The acquittal of a taxpayer in a criminal case can not
operate to discharge him from the duty to pay tax, because that
duty is imposed by statute prior to and independently of any
attempt on the part of the taxpayer to evade payment.
Addition like the 50% surcharge to the main tax are not
penalties but civil administrative sanctions, provided primarily as a
safeguard for the protection of the state revenue and to reimburse
the government for the heavy expense of investigation and the
loss resulting from the taxpayer's fraud. (Helvering vs. Mitchell,
303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S., 317 U.S. 492). This
is made plain by the fact that such surcharges are enforceable,
like the primary tax itself, by distraint or civil suit, and that they are
provided in section 4 , of Repub lic Act No that is separate and
distinct from that providing for criminal prosecution (Section 7).
a. False vs Fraudulent return
Page 37

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
b. Fraud Assessment
c. Mandatory Imposition of penalties
Philippine Refining Company vs. Court of Appeals
As correctly pointed out by the Solicitor General, the
deficiency tax assessment in this case, which was the subject of
the demand letter of respondent Commissioner dated April 11,
1989, should have been paid within thirty (30) days from receipt
thereof. By reason of petitioner’s default thereon, the delinquency
penalties of 25% surcharge and interest of 20% accrued from
April 11, 1989. The fact that petitioner appealed the assessment
to the CTA and that the same was modified does not relieve
petitioner of the penalties incident to delinquency. The reduced
amount of P237,381.25 is but a part of the original assessment of
P1,892,584.00.
Our attention has also been called to two of our previous
rulings and these we set out here for the benefit of petitioner and
whosoever may be minded to take the same stance it has
adopted in this case. Tax laws imposing penalties for
delinquencies, so we have long held, are intended to hasten tax
payments by punishing evasions or neglect of duty in respect
thereof. If penalties could be condoned for flimsy reasons, the law
imposing penalties for delinquencies would be rendered nugatory,
and the maintenance of the Government and its multifarious
activities will be adversely affected.
We have likewise explained that it is mandatory to collect
penalty and interest at the stated rate in case of delinquency. The
intention of the law is to discourage delay in the payment of taxes
due the Government and, in this sense, the penalty and interest
are not penal but compensatory for the concomitant use of the
funds by the taxpayer beyond the date when he is supposed to
have paid them to the Government. Unquestionably, petitioner
chose to turn a deaf ear to these injunctions.
d. When penalties may be waived
Lara Defensor 2015

Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of
Internal Revenue
(cant find its relation to the topic READ FULL TEXT?)
re: w/r DST should apply to pawn shop tickets.
It is clear from the foregoing provisions that the subject of
a DST is not limited to the document embodying the enumerated
transactions. A DST is an excise tax on the exercise of a right or
privilege to transfer obligations, rights or properties incident
thereto. In Philippine Home Assurance Corporation v. Court of
Appeals, 301 SCRA 443, 447 (1999), it was held that: In general,
documentary stamp taxes are levied on the exercise by persons
of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of
specific instruments. Examples of such privileges, the exercise of
which, as effected through the issuance of particular documents,
are subject to the payment of documentary stamp taxes are
leases of lands, mortgages, pledges and trusts, and conveyances
of real property.
True, the law does not consider said ticket as an evidence
of security or indebtedness. However, for purposes of taxation,
the same pawn ticket is proof of an exercise of a taxable privilege
of concluding a contract of pledge. At any rate, it is not said ticket
that creates the pawnshop’s obligation to pay DST but the
exercise of the privilege to enter into a contract of pledge. There is
therefore no basis in petitioner’s assertion that a DST is literally a
tax on a document and that no tax may be imposed on a pawn
ticket.
The settled rule is that tax laws must be construed in favor
of the taxpayer and strictly against the government; and that a tax
cannot be imposed without clear and express words for that
purpose. Taking our bearing from the foregoing doctrines, we
scrutinized Section 195 of the NIRC, but there is no way that said
provision may be interpreted in favor of petitioner. Section 195
Page 38

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
unqualifiedly subjects all pledges to DST. It states that “[o]n every
x x x pledge x x x there shall be collected a documentary stamp
tax x x x.” It is clear, categorical, and needs no further
interpretation or construction. The explicit tenor thereof requires
hardly anything than a simple application.

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 law. It must amount to intentional wrongdoing
with the sole object of avoiding the tax.

The onus of proving that pawnshops are not subject to
DST is thus shifted to petitioner. In establishing tax exemptions, it
should be borne in mind that taxation is the rule, exemption is the
exception. Accordingly, statutes granting tax exemptions must be
construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. One who claims an exemption from
tax payments rests the burden of justifying the exemption by
words too plain to be mistaken and too categorical to be
misinterpreted

Commission of Internal Revenue vs. Javier, Jr.
We are persuaded considerably by the private
respondent’s contention that there is no fraud in the filing of the
return and agree fully with the Court of Tax Appeals’ interpretation
of Javier’s notation on his income tax return filed on March 15,
1978 thus: “Taxpayer was the recipient of some money from
abroad which he presumed to be a gift but turned out to be an
error and is now subject of litigation;” that it was an “error or
mistake of fact or law” not constituting fraud, that such notation
was practically an invitation for investigation and that Javier had
literally “laid his cards on the table.”

e. Rule on prima facie fraud
Sec. 248(B) NIRC
Aznar vs. Court of Tax Appeals
Our stand that the law should be interpreted to mean a
separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to 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
difference between “false return” and “fraudulent return” cannot be
denied. While the first merely implies deviation from the truth,
whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
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
Lara Defensor 2015

In Aznar v. Court of Appeals, fraud in relation to the filing of
income tax return, was discussed in this manner: xxx 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 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.
Fraud is never imputed and the courts never sustain
findings of fraud upon circumstances which, at most, create only
Page 39

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
suspicion and the mere understatement of a tax is not itself proof
of fraud for the purpose of tax evasion.
In the case at bar, there was no actual and intentional
fraud through willful and deliberate misleading of the government
agency concerned, the Bureau of Internal Revenue, headed by
the herein petitioner. The government was not induced to give up
some legal right and place itself at a disadvantage so as to
prevent its lawful agents from proper assessment of tax liabilities
because Javier did not conceal anything. Error or mistake of law
is not fraud. The petitioner’s zealousness to collect taxes from the
unearned windfall to Javier is highly commendable. Unfortunately,
the imposition of the fraud penalty in this case is not justified by
the extant facts.
B. Crimes / Offenses / Penalties / Forfeitures
Secs. 220, 221, 224-226 NIRC
Secs. 253-281 NIRC
RMC 101-90
1. Precondition before a criminal case may be filed
Ungab vs. Cusi, Jr.
Jurisdiction of the Court of First Instance over criminal
prosecution for violations of the National Internal Revenue Code;
Computation and assessment of deficiency taxes is not a prerequisite for criminal prosecution under the Code.—What is
involved here is not the collection of taxes where the assessment
of the Commissioner of Internal Revenue may be reviewed by the
Court of Tax Appeals, but a criminal prosecution for violations of
the National Internal Revenue Code which is within the
recognizance of Courts of First Instance. While there can be no
civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the
tax before there can be a criminal prosecution under the Code.
Lara Defensor 2015

Petition for reconsideration of assessment of deficiency
taxes suspends the prescriptive period for the collection of taxes,
not the prescriptive period of a criminal action for violation of law.
—Besides, it has been ruled that a petition for reconsideration of
an assessment may affect the suspension of the prescriptive
period for the collection of taxes, but not the prescriptive period of
a criminal action for violation of law. Obviously, the protest of the
petitioner against the assessment of the District Revenue Officer
cannot stop his prosecution for violation of the National Internal
Revenue Code. Accordingly, the respondent Judge did not abuse
his discretion in denying the motion to quash filed by the
petitioner.
Commissioner of Internal Revenue vs. Court of Appeals
“Wilful” means “premeditated; malicious; done with intent,
or with bad motive or purpose, or with indifference to the natural
consequence x x x.” “Fraud” in its general sense, “is deemed to
comprise anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable
advantage taken of another.”
Fraud cannot be presumed. If there was fraud or wilful
attempt to evade payment of ad valorem taxes by private
respondents through the manipulation of the registered wholesale
price of the cigarettes, it must have been with the connivance or
cooperation of certain BIR officials and employees who
supervised and monitored Fortune’s production activities to see to
it that the correct taxes were paid. But there is no allegation, much
less evidence, of BIR personnel’s malfeasance. In the very least,
there is the presumption that the BIR personnel performed their
duties in the regular course in ensuing that the correct taxes were
paid by Fortune.
We share with the view of both the trial court and Court of
Appeals that before the tax liabilities of Fortune are first finally
Page 40

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
determined, it cannot be correctly asserted that private
respondents have wilfully attempted to evade or defeat the taxes
sought to be collected from Fortune. In plain words, before one is
prosecuted for wilful attempt to evade or defeat any tax under
Sections 253 and 255 of the Tax Code, the fact that a tax is due
must first be proved.
Reading Ungab carefully, the pronouncement therein that
deficiency assessment is not necessary prior to prosecution is
pointedly and deliberately qualified by the Court with following
statement quoted from Guzik v. U.S.: “The crime is complete
when the violator has knowingly and wilfully filed a fraudulent
return with intent to evade and defeat a part or all of the tax.” In
plain words, for criminal prosecution to proceed before
assessment, there must be a prima facie showing of a wilful
attempt to evade taxes. There was a wilful attempt to evade tax in
Ungab because of the taxpayer’s failure to declare in his income
tax return “his income derived from banana sapplings.” In the
mind of the trial court and the Court of Appeals, Fortune’s
situation is quite apart factually since the registered wholesale
price of the goods, approved by the BIR, is presumed to be the
actual wholesale price, therefore, not fraudulent and unless and
until the BIR has made a final determination of what is supposed
to be the correct taxes, the taxpayer should not be placed in the
crucible of criminal prosecution. Herein lies a whale of difference
between Ungab and the case at bar.
Commissioner of Internal Revenue vs. Pascor Realty and
Development Corporation
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 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 commenced without an assessment. Furthermore, Section 205
of the same Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously. In Ungab v.
Lara Defensor 2015

Cusi, petitioner therein sought the dismissal of the criminal
Complaints for being premature, since his protest to the CTA had
not yet been resolved. The Court held that such protests could not
stop or suspend the criminal action which was independent of the
resolution of the protest in the CTA. This was because the
commissioner of internal revenue had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal
case against the taxpayer or to do
both.
Private respondents insist that Section 222 should be read
in relation to Section 255 of the NIRC, which penalizes failure to
file a return. They add that a tax assessment should precede a
criminal indictment. We disagree. To reiterate, said Section 222
states that an assessment is not necessary before a criminal
charge 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 supported by a prima facie showing
of failure to file a required return. This fact need not be proven by
an assessment.
The assuance of an assessment must be distinguished
from the filing of a complaint. Before an assessment is issued,
there is, by practice, a preassessment notice sent to the taxpayer.
The taxpayer is then given a chance to submit position papers
and documents to prove that the assessment is unwarranted. If
the commissioner is unsatisfied, an assessment signed by him or
her is then sent to the taxpayer informing the latter specifically
and clearly that an assessment has been made against him or
her. In contrast, the criminal charge need not go through all these.
The criminal charge is filed directly with the DOJ. Thereafter, the
taxpayer is notified that a criminal case had been filed against
him, not that the commissioner has issued an assessment. It must
be stressed that a criminal complaint is instituted not to demand
payment, but to penalize the taxpayer for violation of the Tax
Code.
Page 41

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Adamson vs. Court of Appeals
The law is clear. When fraudulent tax returns are involved
as in the cases at bar, a proceeding in court after the collection of
such tax may be begun without assessment. Here, the private
respondents had already filed the capital gains tax return and the
VAT returns, and paid the taxes they have declared due
therefrom. Upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the computation
of the capital gains taxes due from the sale of two lots of AAI
shares, first to APAC and then to APAC Philippines, Limited. The
examiners also found that the VAT had not been paid for VATliable sale of services for the third and fourth quarters of 1990.
Arguably, the gross disparity in the taxes due and the amounts
actually declared by the private respondents constitutes badges of
fraud. Thus, the applicability of Ungab v. Cusi (97 SCRA
877[1980]) is evident to the cases at bar. In this seminal case, this
Court ruled that there was no need for precise computation and
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, thus: An assessment of a deficiency is
not necessary to a criminal prosecution for willful attempt to defeat
and evade the income tax. A crime is complete when the violator
has knowingly and willfully filed a fraudulent return, with intent to
evade and defeat the tax. The perpetration of the crime is
grounded upon knowledge on 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 connections with
the commission of the crime.
2. Compromise Penalty
a. Nature and enforcement
RMO 7-15
Comm'r. of Internal Revenue vs. Lianga Bay Logging Co., Inc.
The Commissioner required payment of P300.00 as
compromise if Lianga wished “to settle extrajudicially the violation”
but “compromise penalty” of P300.00 also sought to be imposed,
Lara Defensor 2015

there is no basis therefor, and, as the Court of Tax Appeals finally
declares, “the imposition of the same without the conformity of the
taxpayer is illegal and unauthorized (Coll. v. U.S.T., 104 Phil.
1062; Phil. Int. Fair v. Coll., G.R. Nos. L-12928 & L-12932, March
31, 1962).”
3. Element of tax evasion
Commissioner of Internal Revenue vs. Estate of Benigno P.
Toda, Jr.
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax avoidance
is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms
length. Tax evasion, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities.
Tax evasion connotes the integration of three factors: (1)
the end to be achieved, i.e., the payment of less than that known
by the taxpayer to be legally due, or the non-payment of tax when
it is shown that a tax is due; (2) an accompanying state of mind
which is described as being “evil,” in “bad faith,” “willfull,” or
“deliberate and not accidental”; and (3) a course of action or
failure of action which is unlawful.
Fraud in its general sense, “is deemed to comprise
anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or
by which an undue and unconscionable advantage is taken of
another.”
4. Persons liable in case taxpayer is a juridical entity
5. Payment of tax in criminal cases
Sec. 253 (a) NIRC
Sec. 205 (b) last paragraph
Page 42

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Republic vs. Patanao
Under the Penal Code the civil liability is incurred by
reason of the offender's criminal act. The criminal liability gives
birth to the civil obligation such that, generally, if one is not
criminally liable under the Penal Code, he cannot become civilly
liable thereunder, The situation under the income tax law is the
exact opposite. Civil liability to pay taxes arises from fact, for
instance, that one has engaged himself in business, and not
because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil
obligation. The incongruity of the factual premises and foundation
principles of the two cases is one of the reasons for not imposing
civil indemnity on the criminal infractor of the income tax law.
Another reason of course, is found in the fact that, while Section
73 of the National Internal Revenue Code has provided for the
imposition of the penalty of imprisonment or fine, or both, for
refusal or neglect to pay income tax or to make a return thereof, it
does not provide the collection of said tax in criminal proceedings.
The only civil remedies provided for the collection of
income tax are distraint and levy and judicial action, which
remedies are generally exclusive in the absence of a contrary
legislative intent.
Since the taxpayer's civil liability is not included in the
criminal action, his acquittal in the criminal proceeding does not
necessarily entail exoneration from his liability to pay the taxes.
His legal duty to pay taxes cannot be affected by his attempt to
evade payment, Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding nor is it a mere
civil liability arising from a crime that could be wiped out by the
judicial declaration of nonexistence of the criminal acts charged.
Castro vs. Collector of Internal Revenue
The acquittal of a taxpayer in a criminal case can not
operate to discharge him from the duty to pay tax, because that
Lara Defensor 2015

duty is imposed by statute prior to and independently of any
attempt on the part of the taxpayer to evade payment.
6. Probable Cause
Bureau of Internal Revenue vs. Court of Appeals
In view of the foregoing, we are convinced that there is
probable cause to indict respondent spouses for tax evasion as
petitioner was able to show that a tax is due from them. Probable
cause, for purposes of filing a criminal information, is defined as
such facts that are sufficient to engender a well-founded belief
that a crime has been committed, that the accused is probably
guilty thereof, and that he should be held for trial. It bears
stressing that the determination of probable cause does not
require actual or absolute certainty, nor clear and convincing
evidence of guilt; it only requires reasonable belief or probability
that more likely than not a crime has been committed by the
accused.
7. Crimes under Secs. 254 and 255
8. Civil liability in criminal cases
PEOPLE OF THE PHILIPPINES VS LITO S. GALERO
*CTACASE*
Absent the allegation of this essential element, the
accused cannot be convicted for violation of Section 255 of the
NIRC of 1997, as amended. Well-settled is the rule that to warrant
conviction, every element of the crime must be alleged and
proved.
Furthermore, the Court finds that, not only did the
Amended Information fail to allege the essential element of
"willfulness" in the manner of commission of the offense charged,
the prosecution also did not present evidence to establish this
essential element of "willfulness". Although it was shown that
accused knew about the assessment against RTTCI and the
demand made to said corporation to pay its corporate tax
Page 43

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
obligations, as well as accused's subsequent failure to comply
therewith, this failure was not shown to be intentional or
deliberate.
The evidence presented shows a pattern of affirmative
acts on accused's attempt to pay the corporation's tax liabilities
despite the alleged financial incapacity of the corporation to do so.
Clearly, these acts negate voluntary or purposeful intention, on
the part of the accused, not to pay the tax liabilities of the
corporation. Thus, the Court finds insufficiency of evidence to hold
accused criminally and civilly liable for the offense charged in this
case.
PEOPLE OF THE PHILIPPINES VS JOEL C. MENDEZ
*CTACASE*
As to the civil aspect of these consolidated cases, the
same is deemed instituted herewith pursuant to Section 7(b)(1) of
Republic Act No. 9282, which provides that "criminal action and
the corresponding civil action for the recovery of civil liability for
taxes and penalties shall at all times be simultaneously instituted
with, and jointly determined in the same proceeding by the CTA,
the filing of a criminal action being deemed to necessarily carry
with it the filing of the civil action, and no right to reserve the filing
of such civil action separately from the criminal action will be
recognized ."
there was no showing that an assessment was made by
the BIR on the accused's deficiency tax for the taxable years 2002
and 2003. What the prosecution provided are mere computations
of the alleged tax deficiencies of the accused for the taxable year
2002 and 2003.
an assessment of the tax before there can be a criminal
prosecution is not necessary. Whereas, in case of a civil action for
collection of the tax, the assessment procedures provided by the
NIRC of 1997, as amended, should be complied with.
Lara Defensor 2015

Accordingly, considering that there was no assessment issued by
the
BIR against the accused, the foregoing computations presented
by the
prosecution to prove the civil liabilities of the accused for the
taxable years 2002 and 2003 may not be used by this Court as its
basis to impose the civil liabilities prayed for by the prosecution.
Therefore, a proper determination of the civil liabilities for the nonpayment of tax based on the computations submitted by the
prosecution may not be achieved.
PEOPLE OF THE PHILIPPINES VS BENJAMIN G. KINTANAR
*CTACASE*
As to the civil aspect of the instant case, the same is
deemed instituted herewith pursuant to Section 7(b)(1) of
Republic Act No 9282,71 which provides that ―criminal action
and the corresponding civil action for the recovery of civil liability
for taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by
the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to
reserve the filing of such civil action separately from the criminal
action will be recognized.”
PEOPLE OF THE PHILIPPINES VS JUDY ANNE SANTOS
*CTACASE*
the Court finds the failure of the prosecution to establish
the guilt of
the accused beyond the required reasonable doubt.
an acquittal for failure of the prosecution to prove all
elements of the offense (sec.255) beyond reasonable doubt does
not include the extinguishment of the civil liability.
In case of acquittal, the accused may still be adjudged
civilly liable. The extinction of the penal action does not carry with
it the extinction of the civil action where: (a) the acquittal is based
on reasonable doubt as only preponderance of evidence is
required; (b) the court declares that the liability of the accused is
Page 44

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
only civil; and (c) the civil liability of the accused does not arise
from or is not based upon the crime of which the accused was
acquitted.98
PEOPLE OF THE PHILIPPINES vs DR. VICENTE GANA
CASTILLO AND DR. MA. TERESA CHAN CASTILLO
*CTACASE*
With regard to the civil aspect of this case, the same is
deemed simultaneously instituted pursuant to Section 7(b)(1) of
Republic Act No. 9282, which provides that "criminal action and
the corresponding civil action for the recovery of civil liability for
taxes and penalties shall at all times be simultaneously instituted
with, and jointly determined in the same proceeding by the CTA,
the filing of the criminal action being deemed to necessarily carry
with it the filing of the civil action, and no right to reserve the filing
of such civil action separately from the criminal action will be
recognized.”
Plainly, an assessment of the tax before there can be a
criminal prosecution is not necessary. Whereas, in case of a civil
action for collection of the tax, the assessment procedures
provided by the NIRC of 1997, as amended, should be satisfied.
"SEC. 205. Remedies for the Collection of Delinquent
Taxes.-XXX XXX XXX
The judgment in the criminal case shall not only impose
the penalty but shall also order payment of the taxes
subject of the criminal case as finally decided by the
Commissioner.”
In this case, the civil liability sought to be determined is the civil
liability provided under the afore-mentioned section. To reiterate,
while an assessment is not required in the prosecution of the
criminal case, the final determination of the Commissioner as to
the tax liability is necessary in order for the Court to rule on the
civil liability.
Lara Defensor 2015

9. Prescription of violations of the NIRC
Lim, Sr. vs. Court of Appeals
Relative to Criminal Cases Nos. 1788 and 1789 which
involved petitioners' refusal to pay the deficiency income taxes
due, again both parties are in accord that by their nature, the
violations as charged could only be committed after service of
notice and demand for payment of the deficiency taxes upon the
taxpayers. Petitioners maintain that the five-year period of
limitation under Section 354 should be reckoned from April 7,
1965, the date of the original assessment while the Government
insists that it should be counted from July 3, 1968 when the final
notice and demand was served on petitioners’ daughter-in-law.
We hold for the Government. Section 51 (b) of the Tax Code
provides: "(b) Assessment and payment of deficiency tax.—After
the return is filed, the Commissioner of Internal Revenue shall
examine it and assess the correct amount of the tax. The tax or
deficiency in tax so discovered shall be paid upon notice and
demand from the Commissioner of lnternal Revenue." (Italics
supplied) Inasmuch as the final notice and demand for payment of
the deficiency taxes was served on petitioners on July 3, 1968, it
was only then that the cause of action on the part of the BIR
accrued. This is so because prior to the receipt of the letter
assessment, no violation has yet been committed by the
taxpayers. The offense was committed only after receipt was
coupled with the wilful refusal to pay the taxes due within the
alloted period. The two criminal informations, having been filed on
June 23, 1970, are well-within the five-year prescriptive period
and are not time-barred.
On behalf of the Government, the Solicitor General
counters that the crime of filing false returns can be considered
"discovered" only after the manner of commission, and the nature
and extent of the fraud have been definitely ascertained. It was
only on October 10, 1967 when the BIR rendered its final decision
holding that there was no ground for the reversal of the
assessment and therefore required the petitioners to pay
Page 45

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
P1,237,190.55 in deficiency taxes that the tax infractions were
discovered. Not only that. The Solicitor General stresses that
Section 354 speaks not only of discovery of the fraud but also
institution of judicial proceedings. Note the conjunctive word "and"
between the phrases "the discovery thereof' and "the institution of
judicial proceedings for its investigation and proceedings." In
other words, in addition to the fact of discovery, there must be a
judicial proceeding for the investigation and punishment of the tax
offense before the five-year limiting period begins to run. It was on
September 1,1969 that the offenses subject of Criminal Cases
Nos. 1790 and 1791 were indorsed to the Fiscal's Office for
preliminary investigation. Inasmuch as a preliminary investigation
is a proceeding for investigation and punishment of a crime, it was
only on September 1,1969 that the prescriptive period
commenced. x x x The Court is inclined to adopt the view of the
Solicitor General. For while that particular point might have been
raised in the Ching Lak case, the Court, at that time, did not give a
definitive ruling which would have settled the question once and
for all. As Section 354 stands in the statute book (and to this day it
has remained unchanged) it would indeed seem that the tax
cases, such as the present ones, are practically imprescriptible for
as long as the period from the discovery and institution of judicial
proceedings for its investigation and punishment, up to the filing of
the information in court does not exceed five (5) years.

V. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY
AFTER PAYMENT
A. Who may file for refund/ tax credit
1. Basis of Tax Refunds
Commissioner of Internal Revenue vs. Acesite (Philippines)
Hotel Corporation
Considering the foregoing discussion, there are
undoubtedly erroneous payments of the VAT pertaining to the
effectively zero-rate transactions between Acesite and PAGCOR.
Verily, Acesite has clearly shown that it paid the subject taxes
Lara Defensor 2015

under a mistake of fact, that is, when it was not aware that the
transactions it had with PAGCOR were zero-rated at the time it
made the payments. In UST Cooperative Store v. City of Manila,
15 SCRA 656 (1965), we explained that “there is erroneous
payment of taxes when a taxpayer pays under a mistake of fact,
as for the instance in a case where he is not aware of an existing
exemption in his favor at the time the payment was made.” Such
payment is held to be not voluntary and, therefore, can be
recovered or refunded.
Tax refunds are based on the principle of quasi-contract or
solutio indebiti and the pertinent laws governing this principle are
found in Arts. 2142 and 2154 of the Civil Code, x x x When money
is paid to another under the influence of a mistake of fact, that is
to say, on the mistaken supposition of the existence of a specific
fact, where it would not have been known that the fact was
otherwise, it may be recovered. The ground upon which the right
of recovery rests is that money paid through misapprehension of
facts belongs in equity and in good conscience to the person who
paid it.
The Government comes within the scope of solutio indebiti
principle as elucidated in Commissioner of Internal Revenue v.
Fireman’s Fund Insurance Company, 148 SCRA 315 (1987),
where we held that: “Enshrined in the basic legal principles is the
time-honored doctrine that no person shall unjustly enrich himself
at the expense of another. It goes without saying that the
Government is not exempted from the application of this doctrine.”
2. Taxpayer / withholding agent
Commissioner of lnternal Revenue vs. Procter & Gamble
Philippine Manufacturing Corporation
Since the claim for refund was filed by P&G-Phil., the
question which arises is: 10 P&G-Phil. a “taxpayer” under Section
309 (3) of the NIRC? The term “taxpayer” is defined in our NIRC
as referring to “any person subject to tax imposed by the Title [on
Page 46

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
Tax on Income]." It thus becomes important to note that under
Section 53 (c) of the NIRC, the withholding agent who is “required
to deduct and withhold any tax” is made “personally liable for such
tax” and indeed is indemnified against any claims and demands
which the stockholder might wish to make in questioning the
amount of payments effected by the withholding agent in
accordance with the provisions of the NIRC. The withholding
agent, P&G-Phil., is directly and independently liable for the
correct amount of the tax that should be withheld from the
dividend remittances. The withholding agent is, moreover, subject
to and liable for deficiency assessments, surcharges and
penalties should the amount of the tax withheld be finally found to
be less than the amount that should have been withheld under
law. A “person liable for tax” has been held to be a “person subject
to tax” and properly considered a “taxpayer.” The terms “liable for
tax” and “subject to tax” both connote legal obligation or duty to
pay a tax. It is very difficult, indeed conceptually impossible, to
consider a person who is statutorily made “liable for tax” as not
“subject to tax,” By any reasonable standard, such a person
should be regarded as a party in interest, or as a person having
sufficient legal interest, to bring a suit for refund of taxes he
believes were illegally collected from him.
Commissioner of Internal Revenue vs. Smart
Communication, Inc.
The person entitled to claim a tax refund is the taxpayer.
However, in case the taxpayer does not file a claim for refund, the
withholding agent may file the claim. In Commissioner of Internal
Revenue v. Procter & Gamble Philippine Manufacturing
Corporation, 204 SCRA 377 (1991), a withholding agent was
considered a proper party to file a claim for refund of the withheld
taxes of its foreign parent company.
Although the fact that the taxpayer and the withholding
agent are related parties is a factor that increases the latter’s legal
interest to file a claim for refund, there is nothing in Commissioner
of Internal Revenue v. Procter & Gamble
Lara Defensor 2015

Honda Cars Philippines, Inc. vs. Honda Cars Technical
Specialists and Supervisors Union
Under the withholding tax system, the employer as the
withholding agent acts as both the government and the taxpayer’s
agent. Except in the case of a minimum wage earner, every
employer has the duty to deduct and withhold upon the
employee’s wages a tax determined in accordance with the rules
and regulations to be prescribed by the Secretary of Finance,
upon the CIR’s recommendation. As the Government’s agent, the
employer collects tax and serves as the payee by fiction of law. As
the employee’s agent, the employer files the necessary income
tax return and remits the tax to the Government.
3 .Requisites for a valid claim for refund
Commissioner of Internal revenue vs.Far East Bank & Trust
Company (now Bank of the Philippine Island)
A taxpayer claiming for a tax credit or refund of creditable
withholding tax must comply with the following requisites: 1) The
claim must be filed with the CIR within the two-year period from
the date of payment of the tax; 2) It must be shown on the return
that the income received was declared as part of the gross
income; and 3) The fact of withholding must be established by a
copy of a statement duly issued by the payor to the payee
showing the amount paid and the amount of the tax withheld.
Commissioner of Internal Revenue vs. Concepcion
Where a taxpayer seeking a refund of estate and
inheritance taxes whose request is denied and whose appeal to
the Court of Tax Appeals was dismissed for being filed out of time,
sues anew to recover such taxes, already paid under protest, his
action is devoid of merit. For in the same way that the expedient
of an appeal from a denial of a tax request for cancellation of
warrant of distraint and levy cannot be utilized to test the legality
of an assessment which had become conclusive and binding on
the taxpayer, so is section 360 of the Tax Code not available to
Page 47

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
revive the right to contest the validity of an assessment which had
become final for failure to appeal the same on time.

Returns (BIR Form 1606) proving that the amount of
P74,400,028.49 was withheld and paid by PNB in the year 2003.

Commissioner of Internal Revenue vs. Court of Appeals
he grant of a refund is founded on the assumption that the
tax return is valid, that is, the facts stated therein are true and
correct. The deficiency assessment, although not yet final,
created a doubt as to and constitutes a challenge against the truth
and accuracy of the facts stated in said return which, by itself and
without unquestionable evidence, cannot be the basis for the
grant of the refund.

Ergo, the evidence on record sufficiently proves that the
claimed creditable withholding tax was withheld and remitted to
the BIR, that such withholding and remittance was erroneous, and
that the claimed creditable withholding tax was not used by
Gotesco to settle its tax liabilities.

PNB VS CIR ***NOSCRA***
In its claim for refund, PNB explained that it inadvertently applied
the six percent (6%) creditable withholding tax rate on the sale of
real property classified as ordinary asset, when it should have
applied the five percent (5%) creditable withholding tax rate on the
sale of ordinary assets
In this case, PNB was able to establish, through the
evidence it presented, that Gotesco did not in fact use the claimed
creditable withholding taxes to settle its tax liabilities, to reiterate:
(1) Gotesco’s 2003 Audited Financial Statements, which still
included the mortgaged property in the asset account “Properties
and Equipment,” proving that Gotesco did not recognize the
foreclosure sale and therefore, the payment by PNB of the
creditable withholding taxes corresponding to the same; (2)
Gotesco’s 2003 ITRs, which the CTA Special First Division
required to show that the excess creditable withholding tax
claimed for refund was not used by Gotesco, along with the 2003
Schedule of Prepaid Tax which itemized in detail the withholding
taxes claimed by Gotesco for the year 2003 amounting to
P6,014,433.00; (3) the testimony of Gotesco’s former accountant,
proving that the amount subject of PNB’s claim for refund was not
included among the creditable withholding taxes stated in
Gotesco’s 2003 ITR; and(4) the Withholding Tax Remittance
Lara Defensor 2015

4. Refunds where written claim is not needed
Sec. 204 (3) NIRC
Sec. 229 NIRC
Vda. de San Agustin vs. Commissioner of Internal Revenue
The case has a striking resemblance to the controversy in
Roman Catholic Archbishop of Cebu vs. Collector of Internal
Revenue. The petitioner in that case paid under protest the sum
of P5,201.52 by way of income tax, surcharge and interest and,
forthwith, filed a petition for review before the Court of Tax
Appeals. Then respondent Collector (now Commissioner) of
Internal Revenue set up several defenses, one of which was that
petitioner had failed to first file a written claim for refund, pursuant
to Section 306 of the Tax Code, of the amounts paid. Convinced
that the lack of a written claim for refund was fatal to petitioner’s
recourse to it, the Court of Tax Appeals dismissed the petition for
lack of jurisdiction. On appeal to this Court, the tax court’s ruling
was reversed; the Court held: “We agree with petitioner that
Section 7 of Republic Act No. 1125, creating the Court of Tax
Appeals, in providing for appeals from—x x x allows an appeal
from a decision of the Collector in cases involving ‘disputed
assessments’ as distinguished from cases involving ‘refunds of
internal revenue taxes, fees or other charges, x x x’; that the
present action involves a disputed assessment’; because from the
time petitioner received assessments Nos. 17-EC-00301- 55 and
17-AC-600107-56 disallowing certain deductions claimed by him
in his income tax returns for the years 1955 and 1956, he already
protested and refused to pay the same, questioning the
Page 48

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
correctness and legality of such assessments; and that the
petitioner paid the disputed assessments under protest before
filing his petition for review with the Court a quo, only to forestall
the sale of his properties that had been placed under distraint by
the respondent Collector since December 4, 1957. To hold that
the taxpayer has now lost the right to appeal from the ruling on
the disputed assessment but must prosecute his appeal under
section 306 of the Tax Code, which requires a taxpayer to file a
claim for refund of the taxes paid as a condition precedent to his
right to appeal, would in effect require of him to go through a
useless and needless ceremony that would only delay the
disposition of the case, for the Collector (now Commissioner)
would certainly disallow the claim for refund in the same way as
he disallowed the protest against the assessment. The law,
should not be interpreted as to result in absurdities.” The Court
sees no cogent reason to abandon the above dictum and to
require a useless formality that can serve the interest of neither
the government nor the taxpayer. The tax court has aptly acted in
taking cognizance of the taxpayer’s appeal to it.

petitioner corporation had until April 15, 1984 within which to file
its claim for refund. Considering that ACCRAIN filed its claim for
refund as early as December 29, 1983 with the respondent
Commissioner who failed to take any action thereon and
considering further that the non-resolution of its claim for refund
with the said Commissioner prompted ACCRAIN to reiterate its
claim before the Court of Tax Appeals through a petition for review
on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax
court that ACCRAIN's claim for refund was barred by prescription.

5. Relevant Corporate taxpayers/ Irrevocability Rule
Sec. 76 NIRC

CIR VS TMX SAKES ***NOSCRA***
CTA:When a tax is paid in installments, the prescriptive
period of two years provided in Section 306 (now Section 292) of
the Revenue Code should be counted from the date of the final
payment or last installment. . . . This rule proceeds from the
theory that in contemplation of tax laws, there is no payment until
the whole or entire tax liability is completely paid. Thus, a
payment of a part or portion thereof, cannot operate to start the
commencement of the statute of limitations.

ACCRA INVESTMENTS VS CA ***NOSCRA***
Clearly, there is the need to file a return first before a claim
for refund can prosper inasmuch as the respondent
Commissioner by his own rules and regulations mandates that the
corporate taxpayer opting to ask for a refund must show in its final
adjustment return the income it received from all sources and the
amount of withholding taxes remitted by its withholding agents to
the Bureau of Internal Revenue. The petitioner corporation filed its
final adjustment return for its 1981 taxable year on April 15, 1982.
In our Resolution dated April 10, 1989 in the case of
Commissioner of Internal Revenue v. Asia Australia Express, Ltd.
(G. R. No. 85956), we ruled that the two-year prescriptive period
within which to claim a refund commences to run, at the earliest,
on the date of the filing of the adjusted final tax return. Hence, the
Lara Defensor 2015

It bears emphasis at this point that the rationale in
computing the two-year prescriptive period with respect to the
petitioner corporation's claim for refund from the time it filed its
final adjustment return is the fact that it was only then that
ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations. The "date of payment",
therefore, in ACCRAIN's case was when its tax liability, if any, fell
due upon its filing of its final adjustment return on April 15, 1982

Since the audit, as required by Section 321 (now Section
232) of the Tax Code is to be conducted yearly, then it is the Final
Adjustment Return, where the figures of the gross receipts and
deductions have been audited and adjusted, that is truly reflective
of the results of the operations of a business enterprise. Thus, it is
only when the Adjustment Return covering the whole year is filed
Page 49

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
that the taxpayer would know whether a tax is still due or a refund
can be claimed based on the adjusted and audited figures.

over in the succeeding taxable years, creditable against future
income tax liabilities until fully utilized

SYSTRAPHILS HOLDINGS VS CIR ***NOSCRA***
this case is closely similar to Philam Asset Management,
Inc. v. Commissioner of Internal Revenue.In that case, Philam
Asset Management, Inc. had an unapplied creditable withholding
tax in the amount of P459,756.07 for the year 1998. It carried over
the said excess tax to the following taxable year, 1999. In the next
succeeding year, it had a tax due in the amount of P80,042 and a
creditable withholding tax in the amount of P915,995. As such, the
amount due for the year 1999 (P80,042) was credited to its
P915,995 creditable withholding tax for that year. Thus, its 1998
creditable withholding tax in the amount of P459,756.07 remained
unutilized. Thereafter, it filed a claim for refund with respect to the
unapplied creditable withholding tax of P459,756.07 for the year
1998. The Court denied the claim and ruled:

**FOOTNOTE Where, however, the corporation permanently
ceases its operations before full utilization of the tax credits it
opted to carry over, it may then be allowed to claim the refund of
the remaining tax credits. In such a case, the remaining tax
credits can no longer be carried over and the irrevocability rule
ceases to apply. Cessante ratione legis, cessat ipse lex.

Section 76 [is] clear and unequivocal. Once the carry-over
option is taken, actually or constructively, it becomes irrevocable.
Petitioner has chosen that option for its 1998 creditable
withholding taxes. Thus, it is no longer entitled to a tax refund of
P459,756.07, which corresponds to its 1998 excess tax credit.
Nonetheless, the amount will not be forfeited in the governments
favor, because it may be claimed by petitioner as tax credits in the
succeeding taxable years. (emphasis supplied)
Since petitioner elected to carry over its excess credits for
the year 2000 in the amount of P4,627,976 as tax credits for the
following year, it could no longer claim a refund. Again, at the risk
of being repetitive, once the carry over option was made, actually
or constructively, it became forever irrevocable regardless of
whether the excess tax credits were actually or fully utilized.
Nevertheless, as held in Philam Asset Management, Inc., the
amount will not be forfeited in favor of the government but will
remain in the taxpayers account. Petitioner may claim and carry it
Lara Defensor 2015

SITHEPHILS HOLDINGS VS CIR **CTACASE**
In its amended Annual Income Tax Return for the taxable
year ended December 31 , 1998, petitioner indicated its intention
to refund the excess payment of P1,729,368.00 by placing an "x"
mark on the appropriate box. However, on the following year
1999, petitioner again carried over the same amount. In line with
our previous pronouncements on the matter, once an option to
carry-over the excess credit is exercised, said option becomes
irrevocable. Even though it indicated in the amended 1998 income
tax return ''To be refunded", it however, already carried-over the
overpaid income tax to taxable year 1999. Petitioner's original
option to refund the excess tax is actually negated by his very act
of carrying over said excess amount to the succeeding taxable
year. It had exercised the option to carry-over the excess tax
credit to the succeeding taxable year and the option is irrevocable
per above mentioned provision. Although there is the original
option to refund, what is controlling is the actual exercise of the
option, which in this case is the carry-over. Consequently,
petitioner is no longer entitled to the refund or tax credit ofthe
overpaid income tax for 1998, as it already opted to carry over
said overpaid amount to the succeeding taxable quarter.
We now proceed to resolve petitioner's claim for taxable
year 1999. Fundamental is the rule that in order to be entitled to
the refund of excess creditable withholding tax at source,
petitioner must comply with the following three basic
requirements:
Page 50

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
1. That the claim for refund was filed within the
two-year prescriptive period provided under Section
204(3) [now 204 (C)] in relation to Section 230 [now 229]
of the Tax Code, as amended;
2. That the fact of withholding is established by a
copy of a statement duly issued by the payor (withholding
agent) to the payee, showing the amount paid and the
amount of tax withheld therefrom; and
3. That the income upon which the taxes were
withheld were included in the return of the recipient
It is likewise significant to note that the unutilized
creditable withholding tax was no longer carried over to the
succeeding taxable year as shown in petitioner's 2000 Annual
Income Tax Return
WHEREFORE, m view of the foregoing, the instant
petition for review IS PARTIALLY GRANTED. Respondent is
hereby ORDERED to REFUND or· lSSUE A TAX CREDIT
CERTIFICATE in favor of petitioner in the reduced amount of
P2,387,975.00 representing the unutilized creditable withholding
tax for taxable year 1999. P titioner's claim for refund of overpaid
income tax for taxable year 1998 is DENIED without prejudice
however, to the right of the petitioner to carry-over the said
amount to the succeeding taxable years ad infinitum pursuant to
Section 76 of the 1997 Tax Code.
SO ORDERED.
BPI-FAMILY SAVINGS BANK INC VS CA, CTA 122480
***NOSCRA***
Finally, respondents argue that tax refunds are in the
nature of tax exemptions and are to be construed strictissimi juris
against the claimant. Under the facts of this case, we hold that
petitioner has established its claim. Petitioner may have failed to
strictly comply with the rules of procedure; it may have even been
negligent. These circumstances, however, should not compel the
Court to disregard this cold, undisputed fact: that petitioner
Lara Defensor 2015

suffered a net loss in 1990, and that it could not have applied the
amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of
petitioner. Technicalities and legalisms, however exalted, should
not be misused by the government to keep money not belonging
to it and thereby enrich itself at the expense of its law-abiding
citizens. If the State expects its taxpayers to observe fairness and
honesty in paying their taxes, so must it apply the same standard
against itself in refunding excess payments of such taxes. Indeed,
the State must lead by its own example of honor, dignity and
uprightness.
PHILAM ASSET MANAGEMENT VS CIR ***NOSCRA***
These two options under Section 76 are alternative in nature.The
choice of one precludes the other.
Whether the FIFO principle is applied or not, Section 76
remains clear and unequivocal. Once the carry-over option is
taken, actually or constructively, it becomes irrevocable. Petitioner
has chosen that option for its 1998 creditable withholding taxes.
Thus, it is no longer entitled to a tax refund of P459,756.07, which
corresponds to its 1998 excess tax credit. Nonetheless, the
amount will not be forfeited in the governments favor, because it
may be claimed by petitioner as tax credits in the succeeding
taxable years.
CIR VS BPI 178940 ***NOSCRA***
There would be no unjust enrichment in the event of denial
of the claim for refund, in cases where the taxpayer opted to
carry-over its excess creditable withholding tax (CWT) under
Section 76 of the NIRC of 1997, as amended, because there
would be no forfeiture of any amount in favor of the government.
The amount being claimed by petitioner would remain in his
account until it is fully utilized in succeeding taxable years. It is
worthy to note that unlike the option for refund, which prescribes
after two (2) years from the filing of the FAR, there is no
prescriptive period for the carrying over of the same
Page 51

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
(Commissioner of Internal Revenue vs. Bank of the Philippine
Islands, 592 SCRA 219, 232-233).
-orTax credit; irrevocability. Section 76 of the NIRC of 1997
gives two options to a taxable corporation whose total quarterly
income tax payments in a given taxable year exceeds its total
income tax due. These options are: (1) filing for a tax refund or (2)
availing of a tax credit.
Section 76 remains clear and unequivocal. Once the carryover option is taken, actually or constructively, it becomes
irrevocable. It mentioned no exception or qualification to the
irrevocability rule.
Hence, the controlling factor for the operation of the
irrevocability rule is that the taxpayer chose an option; and once it
had already done so, it could no longer make another one.
Consequently, after the taxpayer opts to carry-over its excess tax
credit to the following taxable period, the question of whether or
not it actually gets to apply said tax credit is irrelevant. Section 76
of the NIRC of 1997 is explicit in stating that once the option to
carry over has been made, “no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor.”
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 for the taxable
quarters of the succeeding taxable years has been made, such
option shall be considered irrevocable for that taxable period and
no application for tax refund or issuance of a tax credit certificate
shall be allowed therefor.” The phrase “for that taxable period”
merely identifies the excess income tax, subject of the option, by
referring to the taxable period when it was acquired by the
taxpayer. In the present case, the excess income tax credit, which
BPI opted to carry over, was acquired by the said bank during the
taxable year 1998. The option of BPI to carry over its 1998 excess
Lara Defensor 2015

income tax credit is irrevocable; it cannot later on opt to apply for
a refund of the very same 1998 excess income tax credit.
ASIA WORLD PROPERTIES VS CIR ***NOSCRA***
National Internal Revenue Code; irrevocability of option to
carry-over of excess income tax credits. In the old National
Internal Revenue Code provision, the option to carry-over the
excess or overpaid income tax for a given taxable year is limited
to the immediately succeeding taxable year only. Under the
current provision, the application of the option to carry-over the
excess creditable tax is not limited only to the immediately
following tax year but extends to the next succeeding taxable
years. Thus, once the taxpayer opts to carry-over the excess
income tax against the taxes due for the succeeding taxable
years, such option s irrevocable for the whole amount of the
excess income tax, thus, prohibiting the taxpayer from applying
for a refund for that same excess income tax in the nest
succeeding taxable years. The unutilized excess tax credits will
remain in the taxpayer’s account and will be carried over and
applied against the taxpayer’s income tax liabilities until fully
utilized
I M P S A C O N S T R U C T I O N C O R P O R AT I O N V S C I R
**CTACASE**
The irrevocability rule is absolute, the rule will only cease
to apply upon cessation of business and after determining that the
taxpayer has already paid off all its tax liabilities. Undisputedly,
petitioner is not even in the process of dissolving its corporate
existence; thus, to grant petitioner's claim would render nugatory
the irrevocability rule under Section 76 of the NIRC of 1997, as
amended.
CIR VS RHOMBUS ENEGERY INCORPORATED**CTACASE**
It bears stressing that the last paragraph of Section 76 of
the NIRC of 1997, as amended, provides that once the option to
carry-over and apply the excess quarterly income tax against
income due for the taxable quarters of the succeeding taxable
Page 52

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash
refund or issuance of a TCC shall be allowed therefore.
Considering that petitioner opted to carry-over its
unutilized creditable withholding tax of P1,500,653.00 for taxable
year 2005 to the first, second and third quarters of taxable year
2006 when it had actually carried-over said excess creditable
withholding tax to the first, second and third quarters in its
Quarterly Income Tax Returns for taxable year 2006, said option
to carryover becomes irrevocable. Petitioner's act of reporting in
its Annual Income Tax Return for taxable year 2006 of prior year's
excess credits other than MCIT as 0.00, will not change the fact
that petitioner had already opted the carry-over option in its first,
second and third quarters Quarterly Income Tax Returns for
taxable year 2006, and said choice is irrevocable. As previously
mentioned, whether or not petitioner actually gets to apply said
excess tax credit is irrelevant and would not change the carryover option already made.
WIMBERNNER & INIGO INSURANCE BROKERS, INC VS CIR
***NOSCRA***
FACTUAL CASE! -applied for refund CTA Division partially
granted petitioner’s claim for refund of excess and unutilized
CWT.
Those who claim must not only prove its entitlement to the
excess credits, but likewise must prove that no carry-over has
been made in cases where refund is sought.
“the absence of any amount written in the Prior Year
excess Credit – Tax Withheld portion of petitioner’s 2004 annual
ITR clearly shows that no prior excess credits were carried over in
the first four quarters of 2004. And since petitioner was able to
sufficiently prove that excess tax credits in 2003 were not carried
over to taxable year 2004 by leaving the item “Prior Year’s Excess
Credits” as blank in its 2004 annual ITR, then petitioner is entitled
to a refund.”
Lara Defensor 2015

It must be emphasized that once the requirements laid
down by the NIRC have been met, a claimant should be
considered successful in discharging its burden of proving its right
to refund. Thereafter, the burden of going forward with the
evidence, as distinct from the general burden of proof, shifts to the
opposing party,25 that is, the CIR. It is then the turn of the CIR to
disprove the claim by presenting contrary evidence which could
include the pertinent ITRs easily obtainable from its own files
Verily, with the petitioner having complied with the
requirements for refund, and without the CIR showing contrary
evidence other than its bare assertion of the absence of the
quarterly ITRs, copies of which are easily verifiable by its very
own records, the burden of proof of establishing the propriety of
the claim for refund has been sufficiently discharged. Hence, the
grant of refund is proper.

REPUBLIC VS TEAM (PHILIPPINES) ENERGY ORPORATION***NOSCRA***
+REFUND ANG GUSTO NILA.CTA GRANTED THE REFUND.
Section 76 of the NIRC outlines the mechanisms and
remedies that a corporate taxpayer may opt to exercise, viz:
Section 76. Final Adjusted Return.- Every corporation liable to tax
under Section 27 shall file a final adjustment return covering the
total taxable income for the preceding calendar of fiscal year. If
the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable
income of that year, the corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or

Page 53

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
(C) Be credited or refunded withthe excess amount paid, as the
case may be.
In case the corporation is entitled to a tax credit or refund
of the excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried over
and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the
option to carry over and apply the excess quarterly income tax
against income tax due for the taxable years of the succeeding
taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed
therefor. The two options are alternative and not cumulative in
nature, that is, the choice of one precludes the other. The logic
behind the rule, according to Philam Asset Management, Inc. v.
Commissioner of Internal Revenue, is to ease tax administration,
particularly the self-assessment and collection aspects. In Philam
Asset Management, Inc., the Court expounds on the two
alternative options of a corporate taxpayer on how the choice of
one option precludes the other.
The Final Adjustment Return is the most reliable first hand
evidence of corporate acts pertaining to income taxes. In it are
found the itemization and summary of additions to and deductions
from income taxes due. These entries are not without rhyme or
reason. They are required, because they facilitate the tax
administration process.
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 for the taxable
quarters of the succeeding taxable years has been made, such
option shall be considered irrevocable for that taxable period and
no application for tax refund or issuance of a tax credit certificate
shall be allowed therefor." The phrase "for that taxable period"
merely identifies the excess income tax, subject of the option, by
Lara Defensor 2015

referring to the taxable period when it was acquired by the
taxpayer. In the present case, the excess income tax credit, which
BPI opted to carry over, was acquired by the said bank during the
taxable year 1998. The option of BPI to carry over its 1998 excess
income tax credit is irrevocable; it cannot later on opt to apply for
a refund of the very same 1998 excess income tax credit.
The amount being claimed asa refund would remain in the
account of the taxpayer until utilized in succeeding taxable years,
as provided in Section 76 of the NIRC of 1997. It is worthy to note
that unlike the option for refund of excess income tax, which
prescribes after two years from the filing of the FAR, there is no
prescriptive period for the carrying over of the same. Therefore,
the excess income tax credit of BPI, which it acquired in 1998 and
opted to carry over, may be repeatedly carried over to succeeding
taxable years, i.e., to 1999, 2000, 2001, and so on and so forth,
until actually applied or credited to a tax liability of BPI
The requirements for entitlement of a corporate taxpayer
for a refund or the issuance of tax credit certificate involving
excess withholding taxes are as follows:
1. That the claim for refund was filed within the
two-year reglementary period pursuant to Section 22918
of the NIRC;
2. When it is shown on the ITR that the income
payment received is being declared part of the taxpayer’s
gross income; and
3. When the fact of withholding is established by a
copy of the withholding tax statement, duly issued by the
payor to the payee, showing the amount paid and income
tax withheld from that amount.
CONCURRING NI SERRENOOnly the option to carry over is irrevocable
Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the
Page 54

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate
shall be allowed therefor. (Emphasis supplied)
The subsequent quarterly return must be presented.
To my mind, in claims for a refund under Section 76, the
requirement of presenting the subsequent quarterly returns is
indispensable to show that the taxpayer did not apply its tax
credits to succeeding taxable quarters. We should be mindful of
the basic principle in taxation that the burden of proving
entitlement to a refund is on the taxpayer; therefore, it is the
taxpayer that has the burden of proving that it has not carried over
its creditable tax to succeeding quarterly returns.
Mere filling up the portion on “Prior Year’s Excess Credits”
is tantamount to a constructive carry-over choice. This portion is
clearly available for the taxpayer to fill up, not just in the FAR but
even in the quarterly returns. Logically also, upon the filing of
subsequent quarterly
returns, the entries in that portion may be utilized and tax liabilities
for the quarter deducted therefrom. I therefore find it significant to
require taxpayers to present subsequent returns to the court to
avoid the possibility of granting a refund even when the amount
claimed had actually been applied to tax liabilities for the
succeeding taxable quarters or year after the claim was filed.
It must be emphasized that this requirement is evidentiary,
as the CTA (being the trial court) has no access to these
documents; and so when the quarterly returns are not submitted,
the court cannot verify whether the choice was amended and
excess credits were utilized during the succeeding quarters.
6. Rule in case of Merger/ Corporate taxpayers
contemplating dissolution
SEC. 52 (C) NIRC
Lara Defensor 2015

if corp remains subsisting and its business operations are
continuing-76 (FAR)
BPI VS CIR 144653 ***NOSCRA***
As required by 244 of Revenue Regulation No. 2, any
corporation contemplating dissolution must submit tax return on
the income earned by it from the beginning of the year up to the
date of its dissolution or retirement and pay the corresponding tax
due upon demand by the Commissioner of Internal Revenue.
Nothing in 78 of the Tax Code limited the return to be filed by the
corporation concerned to a mere information return.
It is noteworthy that 78 of the Tax Code was substantially
reproduced first in 45(c), of the amendments to the same Tax
Code, and later in 52(C) of the National Internal Revenue Code of
1997. Through all the re-enactments of the law, there has been no
change in the authority granted to the Secretary (formerly
Minister) of Finance to require corporations to submit such other
information as he may prescribe. Indeed, Revenue Regulation No.
2 had been in existence prior to these amendments. Had
Congress intended only information returns, it would have
expressly provided so.
Considering that 78 of the Tax Code, in relation to 244 of
Revenue Regulation No. 2, applies to FBTC, the two-year
prescriptive period should be counted from July 30, 1985, i.e., 30
days after the approval by the SEC of its plan for dissolution. In
accordance with 292 of the Tax Code, July 30, 1985 should be
considered the date of payment by FBTC of the taxes withheld on
the earned income. Consequently, the two-year period of
prescription ended on July 30, 1987. As petitioners claim for tax
refund before the Court of Tax Appeals was filed only on
December 29, 1987, it is clear that the claim is barred by
prescription.
7. When 2 year period does not apply
Page 55

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
CIR VS PNB ***NOSCRA***
In Commissioner vs. Phi-am Life, the Court ruled that an
availment of a tax credit due for reasons other than the erroneous
or wrongful collection of taxes may have a different prescriptive
period. Absent any specific provision in the Tax Code or special
laws, that period would be ten (10) years under Article 1144 of the
Civil Code. Significantly, Commissioner vs. Phil-Am is partly a
reiteration of a previous holding that even if the two (2)-year
prescriptive period, if applicable, had already lapsed, the same is
not jurisdictional and may be suspended for reasons of equity and
other special circumstances.

assume that the agreed carrying forward of the balance of the
advance payment extended to succeeding taxable years, and not
only in 1992. Thus, upon posting a net income in 1997 and
regaining a profitable business operation, respondent bank
promptly sought the issuance of a TCC for the reason that its
credit balance of P73, 298,892.60 remained unutilized. If ever,
petitioners pose about respondent PNB never having made a
written claim for refund only serves to buttress the latters position
that it was not out to secure a refund or recover the aforesaid
amount, but for the BIR to issue a TCC so it can apply the same
to its future tax obligations.

Like the CA, this Court perceives no compelling reason
why the principle enunciated in Panay Electric and Commissioner
vs. Phil-Am Life should not be applied in this case, more so since
the amount over which tax credit is claimed was theoretically
booked as advance income tax payment. It bears stressing that
respondent PNB remitted the P180 Million in question as a
measure of goodwill and patriotism, a gesture noblesse oblige, so
to speak, to help the cash-strapped national government. It would
thus indeed, be unfair, as the CA correctly observed, to leave
respondent PNB to suffer losing millions of pesos advanced by it
for future tax liabilities. The cut becomes all the more painful when
it is considered that PNBs failure to apply the balance of such
advance income tax payment from 1992 to 1996 was, to repeat,
due to business downturn experienced by the bank so that it
incurred no tax liability for the period.

8. Remedy of the taxpayer
Sec. 229 NIRC
RA 9282 as amended by RA 9503
AM No. 05-11-07-CTA November 22, 2005
as amended on September 16, 2008

The suspension of the two (2)-year prescriptive period is
warranted not solely by the objective or purpose pursuant to
which respondent PNB made the advance income tax payment in
1991. Records show that petitioners very own conduct led the
bank to believe all along that its original intention to apply the
advance payment to its future income tax obligations will be
respected by the BIR. Notwithstanding respondent PNBs failure to
request for tax credit after incurring negative tax position in 1992,
up to taxable year 1996, there appears to be a valid reason to
Lara Defensor 2015

a. CIR renders a decision
b. CIR does not render a decision
c. APPEAL to the CTA
9. Issuance of Tax Credit Certificate
a. Tax Credit, Tax Credit Certificate, Tax Debit
Memo
b. Sources of Tax Credit
c. Uses of Tax Credit
d. Sale / Assignment of Tax Credit
e. Validity, conversion and Validation
f. Forfeiture of Cash Refunds/ Tax Credit
10. Erroneously Refunded Tax
Guagua Electric Light vs CIR ***NOSCRA***
CIR erroneously refunded a sum to Guagua Electric. the
demand of the Taxpayer to pay the sum is in effect an
Page 56

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
assessment for deficiency franchise tax. The right to asses or
collect the same is governed by sec 331 of the old tax code rather
than 1145 of the civil code. a special law shall prevail over a
general law. Moreover, the commissioner of internal revenue
revised his first deficiency assessment dated march 2, 1961 by
eliminating therefrom the deficiency tax for the period prior to
January 1, 1956 because the right to assess the same has
prescribed. By insisting on the payment of the amount of 16,
593.87 (which covers the period from september 1951 to
november 1956), he is, in fact trying to collect the same deficiency
tax, the right to assess the same he had found to have been lost
by prescription.
VI. Jurisdiction of the Court of Tax Appeals
RA No. 9282, as amended by RA No. 9503
Revised Rules of the CTA, AM No. 05-11-07-CTA dated
November 22, 2005, as amended on September 16, 2008
1. Why was the CTA created?
Philippine Refining Company vs. Court of Appeals
The contentions of PRC that nobody is in a better position
to determine when an obligation becomes a bad debt than the
creditor itself, and that its judgment should not be substituted by
that of respondent court as it is PRC which has the facilities in
ascertaining the collectibility or uncollectibility of these debts, are
presumptuous and uncalled for. The Court of Tax Appeals is a
highly specialized body specifically created for the purpose of
reviewing tax cases. Through its expertise, it is undeniably
competent to determine the issue of whether or not the debt is
deductible through the evidence presented before it.
Because of this recognized expertise, the findings of the
CTA will not ordinarily be reviewed absent a showing of gross
error or abuse on its part. The findings of fact of the CTA are
binding on this Court and in the absence of strong reasons for this
Court to delve into facts, only questions of law are open for
determination. Were it not, therefore, due to the desire of this
Lara Defensor 2015

Court to satisfy petitioner’s calls for clarification and to use this
case as a vehicle for exemplification, this appeal could very well
have been summarily dismissed.
2. Weight given to CTA decisions
3. Composition of the Court (No. of Divisions and Justices, the
CTA En Banc)
4. Reversal of Decisions of CTA Division
5. Jurisdiction of CTA Division
a. Constitutionality of Regulations/Tax Laws
Asia International Auctioneers vs. Parayno
Jurisdiction is defined as the power and authority of a
court to hear, try and decide a case. The issue is so basic that it
may be raised at any stage of the proceedings, even on appeal. In
fact, courts may take cognizance of the issue even if not raised by
the parties themselves. There is thus no reason to preclude the
CA from ruling on this issue even if allegedly, the same has not
yet been resolved by the trial court.
R.A. No. 1125, as amended, states: Sec. 7. Jurisdiction.—
The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided—(1)
Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal
Revenue Code or other laws or part of law administered by
the Bureau of Internal Revenue; x x x (emphases supplied) We
have held that RMCs are considered administrative rulings which
are issued from time to time by the CIR.
British American Tobbaco vs. Camacho
The jurisdiction of the Court of Tax Appeals is defined in
Republic Act No. 1125, as amended by Republic Act No. 9282.
Section 7 thereof states, in pertinent part: x x x While the above
statute confers on the CTA jurisdiction to resolve tax disputes in
Page 57

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
general, this does not include cases where the constitutionality of
a law or rule is challenged. Where what is assailed is the validity
or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts. Indeed,
the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts. This is within the
scope of judicial power, which includes the authority of the courts
to determine in an appropriate action the validity of the acts of the
political departments. Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.
St. Paul College vs. San Rafael *CTA CASE*
In this case, petitioner admitted that it did not file an
appeal of the assailed SIR Ruling with the Secretary of Finance
based on the parties’ Joint Stipulation of Facts23 submitted on
May 17, 2011. Hence, petitioner failed to exhaust all available
administrative remedies before filing the instant Petition for
Review with the CTA. Let it be reiterated that under the doctrine of
exhaustion of administrative remedies, recourse through court
action cannot prosper until after all such administrative remedies
have first been exhausted. If remedy is available within the
administrative machinery, this should be resorted to before resort
can be made to courts. It is settled that non-observance of the
doctrine of exhaustion of administrative remedies results in lack of
cause of action, which is one of the grounds in the Rules of Court
justifying the dismissal of the complaint.
Lara Defensor 2015

Moreover, the Court of Tax Appeals' jurisdiction to resolve
tax disputes excludes the power to rule on the constitutionality or
validity of a law, rule or regulation. This authority is vested before
the regular courts as emphasized in the case of British American
Tobacco v. Jose Isidro N. Camacho.
the validity of BIR Ruling No. 143-2010 should have been

elevated to the Secretary of Finance and eventually before
the regular courts, and not with the CTA.
Indeed, petitioner's immediate filing of the instant
case with the CTA resulted to the dismissal of the present
case due to its failure to exhaust administrative remedies
and the absence of the CTA's jurisdiction.
Philamlife vs. Secretary of Finance
To leave undetermined the mode of appeal from the
Secretary of Finance would be an injustice to taxpayers
prejudiced by his adverse rulings. To remedy this situation, We
imply from the purpose of RA 1125 and its amendatory laws that
the CTA is the proper forum with which to institute the appeal.
This is not, and should not, in any way, be taken as a derogation
of the power of the Office of President but merely as recognition
that matters calling for technical knowledge should be handled by
the agency or quasi-judicial body with specialization over the
controversy. As the specialized quasi-judicial agency mandated to
adjudicate tax, customs, and assessment cases, there can be no
other court of appellate jurisdiction that can decide the issues
raised in the CA petition, which involves the tax treatment of the
shares of stocks sold.
In the recent case of City of Manila v. Grecia-Cuerdo, 715
SCRA 182 (2014), the Court En Banc has ruled that the CTA now
has the power of certiorari in cases within its appellate jurisdiction.
Banco De Oro vs. Republic
We agree with respondents that the jurisdiction to review
the rulings of the Commissioner of Internal Revenue pertains to
Page 58

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
the Court of Tax Appeals. The questioned BIR Ruling Nos. 3702011 and DA 378-2011 were issued in connection with the
implementation of the 1997 National Internal Revenue Code on
the taxability of the interest income from zero-coupon bonds
issued by the government. Under Republic Act No. 1125 (An Act
Creating the Court of Tax Appeals), as amended by Republic Act
No. 9282, such rulings of the Commissioner of Internal Revenue
are appealable to that court.
b. Civil/Criminal Cases
Adamson vs. CA
Republic Act Nos. 8424 and 9282-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.
CIR vs. Hambrecht & Quist Philippines, Inc.
The assailed CTA En Banc Decision was correct in
declaring that there was nothing in the foregoing provision upon
which petitioner’s theory with regard to the parameters of the term
“other matters” can be supported or even deduced. What is rather
clearly apparent, however, is that the term “other matters” is
limited only by the qualifying phrase that follows it. Thus, on the
strength of such observation, we have previously ruled that the
appellate jurisdiction of the CTA is not limited to cases which
involve decisions of the CIR on matters relating to assessments or
refunds. The second part of the provision covers other cases that
arise out of the National Internal Revenue Code (NIRC) or related
laws administered by the Bureau of Internal Revenue (BIR)

Lara Defensor 2015

The issue of prescription of the BIR’s right to collect taxes
may be considered as covered by the term “other matters” over
which the CTA has appellate jurisdiction.
The phraseology of Section 7, number (1), denotes an
intent to view the CTA’s jurisdiction over disputed assessments
and over “other matters” arising under the NIRC or other laws
administered by the BIR as separate and independent of each
other. This runs counter to petitioner’s theory that the latter is
qualified by the status of the former, i.e., an “other matter” must
not be a final and unappealable tax assessment or, alternatively,
must be a disputed assessment.
The first paragraph of Section 11 of Republic Act No. 1125,
as amended by Republic Act No. 9282, belies petitioner’s
assertion as the provision is explicit that, for as long as a party is
adversely affected by any decision, ruling or inaction of petitioner,
said party may file an appeal with the CTA within 30 days from
receipt of such decision or ruling. The wording of the provision
does not take into account the CIR’s restrictive interpretation as it
clearly provides that the mere existence of an adverse decision,
ruling or inaction along with the timely filing of an appeal operates
to validate the exercise of jurisdiction by the CTA.
The fact that an assessment has become final for failure of
the taxpayer to file a protest within the time allowed only means
that the validity or correctness of the assessment may no longer
be questioned on appeal. However, the validity of the assessment
itself is a separate and distinct issue from the issue of whether the
right of the CIR to collect the validly assessed tax has prescribed.
This issue of prescription, being a matter provided for by the
NIRC, is well within the jurisdiction of the CTA to decide.
City of Manila vs. Grecia-Cuerdo
Petitioners availed of the wrong remedy when they filed
the instant special civil action for certiorari under Rule 65 of the
Rules of Court in assailing the Resolutions of the CA which
Page 59

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
dismissed their petition filed with the said court and their motion
for reconsideration of such dismissal.There is no dispute that the
assailed Resolutions of the CA are in the nature of a final order as
they disposed of the petition completely. It is settled that in cases
where an assailed judgment or order is considered final, the
remedy of the aggrieved party is appeal. Hence, in the instant
case, petitioner should have filed a petition for review on certiorari
under Rule 45, which is a continuation of the appellate process
over the original case.

Bureau of Customs; and (3) Decisions of provincial or City Boards
of Assessment Appeals in cases involving the assessment and
taxation of real property or other matters arising under the
Assessment Law, including rules and regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic Act
No. 9282 (RA 9282) amending RA 1125 by expanding the
jurisdiction of the CTA, enlarging its membership and elevating its
rank to the level of a
collegiate court with special jurisdiction.

In accordance with the liberal spirit pervading the Rules of
Court and in the interest of substantial justice, this Court has,
before, treated a petition for certiorari as a petition for review on
certiorari, particularly (1) if the petition for certiorari was filed
within the reglementary period within which to file a petition for
review on certiorari; (2) when errors of judgment are averred; and
(3) when there is sufficient reason to justify the relaxation of the
rules. Considering that the present petition was filed within the 15day reglementary period for filing a petition for review on certiorari
under Rule 45, that an error of judgment is averred, and because
of the significance of the issue on jurisdiction, the Court deems it
proper and justified to relax the rules and, thus, treat the instant
petition for certiorari as a petition for review on certiorari.

While it is clearly stated that the CTA has exclusive
appellate jurisdiction over decisions, orders or resolutions of the
RTCs in local tax cases originally decided or resolved by them in
the exercise of their original or appellate jurisdiction, there is no
categorical statement under RA 1125 as well as the amendatory
RA 9282, which provides that the CTA has jurisdiction over
petitions for certiorari assailing interlocutory orders issued by the
RTC in local tax cases filed before it. The prevailing doctrine is
that the authority to issue writs of certiorari involves the exercise
of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere
existence of appellate jurisdiction. Thus, in the cases of Pimentel
v. COMELEC, 101 SCRA 769 (1980), Garcia v. De Jesus, 206
SCRA 779 (1992), Veloria v. COMELEC, 211 SCRA 907 (1992);
Department of Agrarian Reform Adjudication Board v. Lubrica, 457
SCRA 800 (2005), and Garcia v. Sandiganbayan, 237 SCRA 552
(1994), this Court has ruled against the jurisdiction of courts or
tribunals over petitions for certiorari on the ground that there is no
law which expressly gives these tribunals such power. It must be
observed, however, that with the exception of Garcia v.
Sandiganbayan, 237 SCRA 552 (1994), these rulings pertain not
to regular courts but to tribunals exercising quasijudicial powers.
With respect to the Sandiganbayan, Republic Act No. 8249 now
provides that the special criminal court has exclusive original
jurisdiction over petitions for the issuance of the writs of
mandamus, prohibition, certiorari, habeas corpus, injunctions, and

On June 16, 1954, Congress enacted Republic Act No.
1125 (RA 1125) creating the CTA and giving to the said court
jurisdiction over the following: (1) Decisions of the Collector of
Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue; (2) Decisions of
the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges; seizure, detention
or release of property affected fines, forfeitures or other penalties
imposed in relation thereto; or other matters arising under the
Customs Law or other law or part of law administered by the
Lara Defensor 2015

Page 60

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
other ancillary writs and processes in aid of its appellate
jurisdiction.

jurisdiction. There is no perceivable reason why the transfer
should only be considered as partial, not total.

Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original
jurisdiction, to issue writs of certiorari, prohibition and mandamus.
With respect to the Court of Appeals, Section 9 (1) of Batas
Pambansa Blg. 129 (BP 129) gives the appellate court, also in the
exercise of its original jurisdiction, the power to issue, among
others, a writ of certiorari, whether or not in aid of its appellate
jurisdiction. As to Regional Trial Courts, the power to issue a writ
of certiorari, in the exercise of their original jurisdiction, is provided
under Section 21 of BP 129. The foregoing notwithstanding, while
there is no express grant of such power, with respect to the CTA,
Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme
Court and in such lower courts as may be established by law and
that judicial power includes the duty of the courts of justice to
settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality
of the Government.

Consistent with the above pronouncement, this Court has
held as early as the case of J.M. Tuason & Co., Inc. v. Jaramillo,
et al., 9 SCRA 189 (1963), that “if a case may be appealed to a
particular court or judicial tribunal or body, then said court or
judicial tribunal or body has jurisdiction to issue the extraordinary
writ of certiorari, in aid of its appellate jurisdiction.” This principle
was affirmed in De Jesus v. Court of Appeals, 212 SCRA 823
(1992), where the Court stated that “a court may issue a writ of
certiorari in aid of its appellate jurisdiction if said court has
jurisdiction to review, by appeal or writ of error, the final orders or
decisions of the lower court.” The rulings in J.M. Tuason and De
Jesus were reiterated in the more recent cases of Galang, Jr. v.
Geronimo, 643 SCRA 631 (2011) and Bulilis v. Nuez, 655 SCRA
241 (2011). Furthermore, Section 6, Rule 135 of the present
Rules of Court provides that when by law, jurisdiction is conferred
on a court or judicial officer, all auxiliary writs, processes and
other means necessary to carry it into effect may be employed by
such court or officer.

It can be fairly interpreted that the power of the CTA
includes that of determining whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction on
the part of the RTC in issuing an interlocutory order in cases
falling within the exclusive appellate jurisdiction of the tax court. It,
thus, follows that the CTA, by constitutional mandate, is vested
with jurisdiction to issue writs of certiorari in these cases. Indeed,
in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a
writ of certiorari. In transferring exclusive jurisdiction over
appealed tax cases to the CTA, it can reasonably be assumed
that the law intended to transfer also such power as is deemed
necessary, if not indispensable, in aid of such appellate
Lara Defensor 2015

If this Court were to sustain petitioners’ contention that
jurisdiction over their certiorari petition lies with the CA, this Court
would be confirming the exercise by two judicial bodies, the CA
and the CTA, of jurisdiction over basically the same subject matter
— precisely the split — jurisdiction situation which is anathema to
the orderly administration of justice. The Court cannot accept that
such was the legislative motive, especially considering that the
law expressly confers on the CTA, the tribunal with the specialized
competence over tax and tariff matters, the role of judicial review
over local tax cases without mention of any other court that may
exercise such power. Thus, the Court agrees with the ruling of the
CA that since appellate jurisdiction over private respondents’
complaint for tax refund is vested in the CTA, it follows that a
petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the same
Page 61

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
court. To rule otherwise would lead to an absurd situation where
one court decides an appeal in the main case while another court
rules on an incident in the very same case.
It would be somewhat incongruent with the pronounced
judicial abhorrence to split jurisdiction to conclude that the
intention of the law is to divide the authority over a local tax case
filed with the RTC by giving to the CA or this Court jurisdiction to
issue a writ of certiorari against interlocutory orders of the RTC
but giving to the CTA the jurisdiction over the appeal from the
decision of the trial court in the same case. It is more in
consonance with logic and legal soundness to conclude that the
grant of appellate jurisdiction to the CTA over tax cases filed in
and decided by the RTC carries with it the power to issue a writ of
certiorari when necessary in aid of such appellate jurisdiction. The
supervisory power or jurisdiction of the CTA to issue a writ of
certiorari in aid of its appellate jurisdiction should coexist with, and
be a complement to, its appellate jurisdiction to review, by appeal,
the final orders and decisions of the RTC, in order to have
complete supervision over the acts of the latter.
A grant of appellate jurisdiction implies that there is
included in it the power necessary to exercise it effectively, to
make all orders that will preserve the subject of the action, and to
give effect to the final determination of the appeal. It carries with it
the power to protect that jurisdiction and to make the decisions of
the court thereunder effective. The court, in aid of its appellate
jurisdiction, has authority to control all auxiliary and incidental
matters necessary to the efficient and proper exercise of that
jurisdiction. For this purpose, it may, when necessary, prohibit or
restrain the performance of any act which might interfere with the
proper exercise of its rightful jurisdiction in cases pending before
it.
Indeed, courts possess certain inherent powers which may
be said to be implied from a general grant of jurisdiction, in
addition to those expressly conferred on them. These inherent
Lara Defensor 2015

powers are such powers as are necessary for the ordinary and
efficient exercise of jurisdiction; or are essential to the existence,
dignity and functions of the courts, as well as to the due
administration of justice; or are directly appropriate, convenient
and suitable to the execution of their granted powers; and include
the power to maintain the court’s jurisdiction and render it
effective in behalf of the litigants. Thus, this Court has held that
“while a court may be expressly granted the incidental powers
necessary to effectuate its jurisdiction, a grant of jurisdiction, in
the absence of prohibitive legislation, implies the necessary and
usual incidental powers essential to effectuate it, and, subject to
existing laws and constitutional provisions, every regularly
constituted court has power to do all things that are reasonably
necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and
mandates.” Hence, demands, matters or questions ancillary or
incidental to, or growing out of, the main action, and coming within
the above principles, may be taken cognizance of by the court
and determined, since such jurisdiction is in aid of its authority
over the principal matter, even though the court may thus be
called on to consider and decide matters which, as original
causes of action, would not be within its cognizance.
6. Jurisdiction of CTA EB
7. Suspension of Collection of Tax
8. Appeal to the SC
VII. Abatement of Tax / Tax Compromise
Secs. 7 and 204, NIRC
RR No. 13-01
RR No. 30-02
RR No. 8-04
RR No. 4-12
RR No. 9-13
A. Authority of CIR to abate taxes
Page 62

TAXATION II Compilation of doctrines based on the syllabus of Atty. Bobby Lock
1. Grounds for abating taxes and penalties
2. Conditions
B. Power to compromise
1. Cases that can be compromised
2. Cases that cannot be compromised
3. Basis for acceptance of compromise settlement and
rates
CIR vs. Azucena T. Reyes
Under the present provisions of the Tax Code and
pursuant to elementary due process, taxpayers must be informed
in writing of the law and the facts upon which a tax assessment is
based; otherwise, the assessment is void. Being invalid, the
assessment cannot in turn be used as a basis for the perfection of
a tax compromise.
Done! Thank You! Good Luck!

Lara Defensor 2015

Page 63