1

TAXATION 1
1st Semester
Course Outline
Professor : JUDGE GIL G. BOLLOZOS, CPA
I.

A. Course Description
A study of the general principles of taxation as well as the provisions relating to the
organization and function of the Bureau of Internal Revenue, and the income taxation under
the National Internal, Revenue Code (NIRC) and its related laws, including cases pertinent
thereto.
Mode of Instruction : Recitations on the substantive law/provisions and cases assigned.
Students are expected to memorize the definitions and enumerations and salient
jurisprudence. Multiple Choice, essay questions, definitions and enumerations will be the
written exam.

COVERAGE :
Part I - Fundamentals of Taxation
Book : Fundamentals of Taxation
By Hector S. de Leon
Pages 1-85
A. Concepts, Nature, Characteristics of Taxation and Taxes
1. Meaning of taxation
2. Purpose and scope of taxation
3. Meaning of taxes
4. Essential characteristics of tax
5. Theory and basis of taxation
6. Nature of the power of taxation
7. Aspects of taxation
8. Extent of the of the legislative power to tax
9. Non-revenue objectives of taxation
10. Basic principles of a sound tax system
B. Classifications and Distinctions
1. Classification of taxes
2. Regressive / progressive system of taxation
3. Tax distinguished from toll
4. Tax distinguished from penalty
5. Tax distinguished from special assessment
6. Tax distinguished from license or permit fee
7. Importance of the distinctions
8. Tax distinguished from debt
9. Taxes not generally subject to set-off
10. Tax distinguished from other terms
11. Concept of power of eminent domain
12. Concept of police power
13. Similarities among taxation, eminent domain, and police power
14. Distinctions among the three powers
15. Taxation and public finance
C. Limitations on the Power of Taxation
1. Limitations classified
2. Enumeration of the limitations

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3. Requirement of due process of law
4. Requirement of equal protection of the laws
5. Requirement of uniformity and equity in taxation
6. Prohibition against imprisonment for non-payment of poll tax
7. Prohibition against impairment of obligation of contracts
8. Prohibition against infringement of religious freedom
9. Prohibition against appropriation for religious purposes
10. Prohibition against taxation of religious charitable, and educational entities, etc.
11. Prohibition against taxation of non-stock, non-profit educational institutions
12. Other constitutional limitations
13. Requirement of public purpose
14. Prohibition against delegation of taxing power
15. Exemption of government agencies or instrumentalities
16. Limitation of international comity
17. Limitation of territorial jurisdiction
D. Situs of Taxation and Double Taxation
1.
2.
3.
4.
5.
6.
E.

Meaning of situs of taxation

Situs of subjects of taxation
Multiplicity of situs
Meaning of doubles taxation
Instances of double taxation in its broad sense
Constitutionality of double taxation

Forms of Escape from Taxation

1. In general
2. Meaning of shifting
3. Meaning of impact of taxation
4. Meaning of incidence of taxation
5. Relations among impact, shifting, and incidence of a tax
6. Direct tax cannot be shifted
7. Kinds of shifting
8. Meaning of capitalization
9. Meaning of transformation
10. Meaning of tax evasion
11. Factors in tax evasion
12. Evidence to prove tax evasion
13. No proceeds in tax evasion
14. Meaning of tax avoidance
15. Tax avoidance not punishable by law
16. Distinction between tax evasion and tax avoidance

F.

Exemption from Taxation

1. Meaning of exemption from taxation
2. Nature of power to grant tax exemption
3. Rationale of tax exemption
4. Grounds for tax exemption
5. Equity not a ground for tax exemption
6. Nature of tax exemption
7. Kinds of tax exemption
8. Exemptions provided for in the Constitution
9. Exemptions provided for in the Tax Code
10. Exemptions provided for under special law
11. Construction of tax exemption statutes
12. Tax amnesty

G. Nature, Construction, Application, and Sources of Tax Laws

1. Nature of internal revenue law
2. Construction of tax laws

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3. Application of tax laws
4. Mandatory and directory provisions of tax laws
5. Sources of tax laws
6. Existing tax laws
7. Authority of Secretary of Finance to promulgate rules and regulations
8. Nature of power to make regulations
9. Necessity and function of regulations
10. Validity and effectivity of regulations
11. Force and effect of regulations
12. Administrative interpretations and opinions
13. Weight given to administrative interpretation
14. Power of Secretary of Finance to revoke rulings of his predecessor
15. Non-retroactivity of repeal of regulations or rulings
16. Decisions of the Supreme Court and Court of Tax Appeals
A. Meaning and Nature of Tax(es)
1. "Taxation" and "Tax" defined
Commisioner of Internal Revenue v. Algue, Inc., G.R. No. L-28896, February 17, 1988
2. Essential characteristics of taxes
3. Tax as distinguished from other forms of impositions
Tax v. license and regulatory fee
Osmea v. Orbos, G.R. No. 99886, March 31, 1993
Philippine Airlines, Inc. v. Edu, G.R. No. L-41383, August 15, 1988
Progressive Dev. Corp. v. Quezon City. G.R. No. L-36081, April 24, 1989
Compaia General de Tabacos de Filipinas v. City of Manila, G.R. No. L-16619, June 29,
1963
b. Tax v. special assessment
Sec. 240 Local Government Code RA 7160
Republic v. Bacolod Murcia, G.R. No. 19824-26, July 9, 1999
c. Tax v. toll
Sec. 155 Local Government Code
d. Tax v. tariff and customs duties
Garcia v. Executive Secretary, G.R. No. 101273, July 3, 1992
e. Obligation to pay v. obligation to pay debt
Art. 1279, New Civil Code of the Phils.
f. Rule on Set-off of Taxes
Caltex v. Commission on Audit, G.R. No. 92585, May 8, 1992
Francia v. Intermediate Appelate Court, G.R. No. L-67649, June 28, 1988
Republic v. Mambulao Lumber Company, G.R. No. 17725, February 28, 1962, RE: internal
revenue taxes cannot be the subject of the set-off or compensation.
CIR vs. Pineda, 21 SCRA 105
Philex Mining v. CIR, G.R. No. 125704, August 28, 1998
Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963
B. Purposes/Objectives of Taxation
1. Revenue-raising
PAL v. Edu, ibid
Osmea v. Orbos, ibid
2. Non-revenue/special or regulatory
Republic v. Bacolod-Murcia Milling Co., G.R. No. L-19824-26, July 9, 1999
Tio v. videogram Regulatory Board, G.R. No. 75697, June 18, 1987
Caltex v. Commission on Audit, ibid.
Esso Standard Eastern v. CIR,, G.R. No. L-28508-9, July 7, 1989
C. Theory and Basis of Taxation
1. Necessity Theory
Phil. Guaranty Co., Inc. v. CIR, G.R. No. L-22074, April 30, 1965
CIR v. Algue, ibid
Ferdinand Marcos II v. Court of Appeals, G.R. No. 120880, June 5, 1997
NPC v. City of Cabanatuan, G.R. No. 149110, April 9, 2003
2. Benefits-received Theory

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Gomez v. Palomar, G.R. No. L-23645, October 29, 1968
Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937
D. Aspects of taxation
1. Levy/Imposition by the legislative body
2. Collection/Administration/ways/methods of collection
"pay as you earn" "pay as you go" withholding system
"pay as you are assessed"
"pay as you file"
CASES:
CIR vs. ALGUE, 158 SCRA 9
CIR vs. Tokyo Shipping, GR# 68252, May 26, 1995 224 SCRA 332
BPI vs. CA, GR# 122480, April 12, 2000
CIR vs. Pineda, 21 SCRA 105
De Borja vs. Gella, L-18330 July 31, 1963
Vera vs. Fernandez, 89 SCRA 199
Republic vs. Patanao, L-22356, July 21, 1967
Phil Guaranty vs. CIR, 13 SCRA 775
CIR vs. Goodrich, L-22265, Dec. 22, 1967
CIR vs. CTA, 234 SCRA 348
PBCom vs. CIR, 302 SCRA 250
YMCA vs. CIR, 298 SCRA 83
Mactan Cebu Int'l Airport vs. Marcos, GR# 120082, Sept. 11, 1996
Luzon Stevedoring vs. CTA, L-30232, July 29, 1988
Caltex Phil. Vs. COA, GR# 92585, May 8, 1992
Lutz vs. Araneta, 98 Phil 148
Osmena vs. Orbos, GR# 99886, March 31, 1993
Churchill vs. Concepcion, 34 Phil 969
Roxas vs. CTA, L-25043 April 26, 1968
CIR vs. Lingayen Gulf Electric, L-23771 August 4, 1968
Punzalan vs. Mun. Board of Manila, 95 Phil 46
Com. Of Customs vs. Mla Starferry Inc, L-31776-78, Oct 21, 1993
CIR vs. Santos, GR#11952 August 18, 1997
Davao Gulf vs. CIR, 293 SCRA 77
Marcos II vs. CA, 273 SCRA 47
Gomez vs. Palomar, 25 SCRA 827
Chavez vs. Ongpin, GR# 76778 June 6, 1990
Wells Fargo vs. Collector, 70 Phil 235
Kapatiran vs. Tan, GR#81311 June 30 1988
Patalinghug vs. CA, GR# 104786 January 27, 1994
NDC vs. CIR, GR# 53961 June 30, 1987
Serafica vs. Treasurer of Ormoc, L-24813 April 28, 1969
Bagatsing vs. Ramirez, 74 SCRA 306
Villegas vs. Hiu Chiong Pao, 42 Phil 818
Apostolic Prefect vs. City of Baguio, 71 Phil 547
PAL vs. Edu, L-41383 August 15, 1988
Physical Therapy vs. Mun. Board, 101 Phil 1142
Esso Standard vs. CIR, L-28508-09 July 7, 1989
Villanueva vs. Iloilo, L-26521 December 28, 1968
Republic vs. Mambulao, L-17725 February 28, 1962
Domingo vs. Garlitos, L-18994 June 19, 1963
Francia vs. IAC, GR# 67649 June 26, 1988
CIR vs. Palanca, L-16626, Oct. 29, 1966
Philex Mining vs. CIR, GR# 125704 August 28, 1998
Pascual vs. Sec of Public Works, 110 Phil 331
San Carlos Mining vs. CIR, GR# 103379, Nov 23, 1993
Tio vs. Videogram, GR# 75697 June 18, 1987
PEP vs. De Ocampo, GR# 115931, Oct 30, 1995
Phil. Acetylene vs. CIR, L-19707 SCRA 1056
CIR vs. American Rubber, 18 SCRA 542
Maceda vs. Macaraig, GR# 88291 May 31, 1991

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CIR vs. Gotamco, L-31092 February 27, 1987
Gascon vs. Arroyo, GR# 78389 October 16, 1989
City Council of Cebu vs. Quizon, L-28972 October 31, 1972
Joya vs. PCGG, GR# 96541 August 24, 1993
Republic vs. Bacolod-Murcia, L-19824-26 July 9, 1966
Cuunjieng vs. Patstone, 42 Phil 818
NPC vs. Albay, 186 SCRA 198
American Bible vs. City of Manila, 101 Phil 386
Casanova vs. Hord, 8 Phil 125
Pepsi Cola vs. Mun. of Tanawan, 69 SCRA 460
Meralco vs. Yatco, 69 Phil 89
Smithbell vs. CIR, 65 SCRA 388
CEPALCO vs. CIR, L-60126 Sept. 25, 1985
Collector vs. Bisaya Land, 105 Phil 338
Macabingkil vs. Yatco, 21 SCRA 150
Valencia vs. Jimenez, 11 Phil 492
Sison vs. Ancheta, 130 SCRA 654
City of Baguio vs. De Leon, 25 SCRA 938
Juan Luna Subd. Vs. Sarmiento, 91 Phil 371
Hodges vs. Mun. Board of Ilo-ilo, 19 SCRA 28
Bishop of Nueva V vs. Prov. Board, 51 SCRA 352
Herrera vs. QC Board, 3 SCRA 186
RCPI vs. CIR, L-60547, July 1, 1985
Tolentino vs. Sec. of Finance, 235 SCRA 630
Lladoc vs. CIR, 14 Phil 292

Part II - Income Taxation

Book : National Internal Revenue Code of 1997
By Atty. Eufrocina M. Sacdalan-Casasola
Atty. Rosario S. Santiago-Bernaldo
Sec. 1-83
Title I - Organization and Function of the Bureau of Internal Revenue
Section 1. Title of the Code
Sec. 2. Powers and Duties of the Bureau of Internal Revenue
Sec. 3. Chief Officials of the Bureau of Internal Revenue
Sec. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases
Sec. 5. Power of the Commissioner to Obtain Information and to Summon, Examine, and Take
Testimony of Persons
Sec. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement
Sec. 7. Authority of the Commissioner to Delegate Power
Sec. 8. Duty of the Commissioner to Ensure the Provision and distribution of Forms, Receipts,
Certificates, and Appliance, and the Acknowledgement of Payment of Taxes
Sec. 9. Internal Revenue Districts
Sec. 10. Revenue Regional Director
Sec. 11. Duties of Revenue District Officers and Other Internal Revenue Officers
Sec. 12. Agents and Deputies for Collection of National Internal Revenue Officers
Sec. 13. Authority of a Revenue Officer
Sec. 14. Authority of Officers to Administer Oaths and Take Testimony
Sec. 15. Authority of Internal Revenue Officers to Make Arrests and Seizures
Sec. 16. Assignment of Internal Revenue Officers Involved in Excise tax Functions to
Establishments where Articles Subject to Excise Tax are Produced or Kept.
Sec. 17. Assignment of Internal Revenue Officers and Other Employees to Other Duties
Sec. 18. Reports of Violation of Laws
Sec. 19. Contents of Commissioner's Annual Report
Sec. 20. Submission of Report and Pertinent Information by the Commissioner
Sec. 21. Sources of Revenue

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Title II - Tax on Income
Sec. 22. Definitions
Sec. 23. General Principles of Income Taxation in the Philippines
Sec. 24. Income Tax Rates
Sec. 25. Tax on Nonresident Alien Individual
Sec. 26. Tax Liability of Members of General Professional Partnerships
Sec. 27. Rates of Income Tax on Domestic Corporations
Sec. 28. Rates of Income Tax on Foreign Corporations
Sec. 29. Imposition of Improperly Accumulated Earnings Tax
Sec. 30. Exemptions from Tax on Corporations
Sec. 31. Taxable Income, Defined
Sec. 32. Gross Income
Sec. 33. Special Treatment of Fringe Benefit
Sec. 34. Deductions from Gross Income
Sec. 35. Allowance of Personal Exemption for Individual Taxpayer
Sec. 36. Items not Deductible
Sec. 37. Special Provisions Regarding Income and Deductions of Insurance Companies,
Whether Domestic or Foreign
Sec. 38. Losses from Wash Sales of Stock or Securities
Sec. 39. Capital Gains and Losses
Sec. 40. Determination of Amount and Recognition of Gain or Loss
Sec. 41. Inventories
Sec. 42. Income from Sources within the Philippines
Sec. 43. General Rule
Sec. 44. Period in which Items of Gross Income Included
Sec. 45. Period for which Deductions and Credits Taken
Sec. 46. Change of Accounting Period
Sec. 47. Final or Adjustment Returns for a Period of Less than Twelve (12) Months
Sec. 48. Accounting for Long-term Contracts
Sec. 49. Installment Basis
Sec. 50. Allocation of Income and Deductions
Sec. 51. Individual Return
Sec. 52. Corporation Returns
Sec. 53. Extension of Time to File Returns
Sec. 54. Returns of Receivers, Trustees in Bankruptcy or Assignees
Sec. 55. Returns of General Professional Partnership
Sec. 56. Payment and Assessment of Income Tax for Individuals and Corporations
Sec. 57. Withholding of Tax at Source
Sec. 58. Returns and Payment of Taxes Withheld at Source
Sec. 59. Tax on Profits Collectible from Owner or Other Persons
Sec. 60. Imposition of Tax
Sec. 61. Taxable Income
Sec. 62. Exemption Allowed to Estates and Trusts
Sec. 63. Revocable Trusts
Sec. 64. Income for Benefit of Grantor
Sec. 65. Fiduciary Returns
Sec. 66. Fiduciaries Indemnified Against Claims for Taxes Paid
Sec. 67. Collection of Foreign Payments
Sec. 68. Information at Source as to Income Payments
Sec. 69. Return of Information of Brokers
Sec. 70. Returns of Foreign Corporations
Sec. 71. Disposition of Income Tax Returns Publication of Lists of Taxpayers and Filers
Sec. 72. Suit to Recover Tax Based on False or Fraudulent Returns
Sec. 73. Distribution of Dividends or Assets by Corporations
Sec. 74. Declaration of Income Tax for Individuals
Sec. 75. Declaration of Quarterly Corporate
Sec. 76. Final Adjustment Return
Sec. 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax
Sec. 78. Definitions
Sec. 79. Income Tax Collected at Source
Sec. 80. Liability for Tax

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Sec. 81. Filing of Return and Payment of Taxes Withheld
Sec. 82. Return and Payment in Case of Government Employees
Sec. 83. Statements and Returns
CASES
City Bank vs. CA, 280 SCRA 459
CIR vs. Wyeth Laboratories, 202 SCRA 125
Marcos vs. CA, 273 SCRA 47
CIR vs. Hartex, L-136075, March 3, 2005
Alhambra vs. Collector, 105 Phil. 1337
Estate of Maria Lim Vda. de Uy vs. Uy, 50 OG 5261
Collector vs. Benipayo, 4 SCRA 182
Behn Meyer vs. CIR, 27 Phil 647
Perez vs. CTA, GR# L-10507 May 30, 1948
Collector vs. Bohol LTO, GR# L-13099 and L-13462, April 29, 1960
Santos vs. Nable, 2 SCRA 21
Republic vs. Albert, GR# 12996, December 28, 1961.
Republic vs. Mla. Port Svc, GR# L-18208, Nov. 27, !964
Republic vs. Lopez, 2 SCRA 566
Commissioner vs. Avelino, GR# L-14847, September 19, 1961
Olsen vs. Rafferty, 32 Phil. 530
US vs. Molina, 29 Phil 119
Anderson vs. Collector, 66 Phil 205
Lim Hoa Ting vs. Central Bank, 104 Phil 573
Castro vs. Hechanova, L-23635, August 15, 1966.
Floreza vs. Ongpin, GR# 81356, February 26, 1990
Rep. vs. Patanao, L-22317, July 21, 1967
Collector vs. Batangas, 102 Phil 822
Commissioner vs. Malayan Insurance, 21 SCRA 544
Tanada vs. Tuvera, 146 SCRA 446
CONWI vs. CTA, 213 SCRA 83
CIR vs. CA, GR# L-108576 January 20, 1999
Zialcita, 190 SCRA 850
CIR vs. CA, 203 SCRA 1991
CIR vs. Mitsubishi, GR# 54908, January 22, 1990
CIR vs. CTA, 203 SCRA 72
CIR vs. P&G, 204 SCRA 377
CIR vs. Wander, 160 SCRA 573
Pareno vs. Sandigan, 256 SCRA 242
PRC vs. CA, 256 SCRA 667
Basilan Estates vs. Commissioner, GR# L-22492, Sept. 5, 1967
Umali vs. Estanislao, 209 SCRA 446
Calasanz vs. CIR, 144 SCRA 664
NDC vs. CIR, 151 SCRA 473
Lim vs. CA, 190 SCRA 616
PICOP vs. CA, 250 SCRA 434
BA vs. CA, 234 SCRA 302
CIR vs. P&G, 204 SCRA 377
Ropali vs. NLRC, 296 SCRA 309
Citibank vs. CA, 280 SCRA 459
CIR vs. Lucio Tan, GR# 119322, June 4, 1996
Rep. vs. de Guzman, 5 SCRA 990
Ungad vs. Cusi, 97 SCRA 877
Commissioner vs. Phoenix, L-19127, May 20, 1965
RP vs. CA, 149 SCRA 351
Commissioner vs. Westren Pacific, L-18804, May 27, 1965
Citibank vs. CA, L-107434, October 10, 1997
CIR vs. Philam, 244 SCRA 446
Palanca vs. Commissioner, L-16661, January 31, 1962
RP vs. CA, L-38540 April 30, 87
Advertising vs. CIR, GR# 59758, December 26, 1984
Calo vs. Magno, GR# L-18399, October 28, 1961

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CIR vs. NLRC, GR# 74965, Nov 9, 1994
HSBC vs. Rafferty, 39 Phil 145
Torres vs. Collector, GR# 48602, Feb 26, 1943
CIR vs. Hizon, GR# 130430, Dec 13, 1999
Rep. vs. Lim Tian Teng, 21731, March 31, 1966
Yabes vs. Flojo, 15 SCRA 278
CIR vs. Gonzales, L-19495 Nov 11, 1966
Mla vs. CIR, GR# L-12174, April 26, 1962
RP vs. Ching Lak, 103 Phil 1149 L-10609 5/23/58
Pp vs. Rubio, 57 PHIL 886
ONA vs. Commissioner, L-19342 5/25/72
Pascual vs. Commissioner, 166 SCRA 560
Tan vs. Del Rosario, 237 SCRA 324
Garrison vs. CA, 187 SCRA 525
Marubeni vs. CIR 177 SCRA 500
CIR vs. BOAC, 149 SCRA 395
CIR vs. CA, GR# 124043, 10/14/98
Pascual vs. Sec. of Public Works, 110 Phil 381
Gonzales vs. Marcos, 65 SCRA 624
Dumlao vs. COMELEC, 95 SCRA 392
CIR vs. American Airlines, 180 SCRA 274
CIR vs. Air India, 157 SCRA 648
CIR vs. JAL, 202 SCRA 450
Bank of America vs. CA, 234 SCRA 302
NV Amsterdam vs, CIR, 162 SCRA 489
CIR vs. CA, 298 SCRA 83
Abra vs. Aquino, 162 SCRA 106
Madrigal vs. Rafferty, 38 Phil 414
Commissioner vs. Tours Specialist, 183 SCRA 402
Fisher vs. Trinidad, 43 Phil 973
Request of Atty. Zialcita, 190 SCRA 850
CIR vs. Javier, 199 SCRA 824
ESSO vs. CIR, 175 SCRA 149
CIR vs. CA, 250 SCRA 434
CIR vs. P&G, 160 SCRA 560
CIR vs. Pascor, 309 SCRA 402
Collector vs. Yuseco, L-12518, 10/28/61
GASTON vs. Rep. Planter's Bank, 158 SCRA 622
Paseo Realty vs. CA, 440 SCRA 235
CIR vs. Central Luzon, 456 SCRA 414
CIR vs. CA, 208 SCRA 72
CIR vs. CA, 257 SCRA 200
PICOP vs. CA, 250 SCRA 454
RP vs. Nielson, 149 SCRA 351
Phil Journalist vs. CA, 447 SCRA 214
Estate of Diez vs. CIR, 421 SCRA 266
RP vs. Lion Tian Teng, 16 SCRA 583
RP vs. Hizon, 320 SCRA 574
Ungab vs. Cusi, 97 SCRA 877
CIR vs. Gonzales, 18 SCRA 757
Citibank vs. CA, 28 SCRA 457
RP vs. De Guzman, 5 SCRA 191
CIR vs. Lucio Tan, 257 SCRA 201
Castro vs. CIR, L-12174, 4/26/62.
Pp. vs. Balagtas, L-10210, 7/29/59

D. Digest of cases shall be written in your OWN HANDWRITING on a notebook with table of
contents following the listing of cases as chronologically assigned.
Digest of cases covering Part I (General Principles of Taxation) shall be submitted on the
Midterm Exam schedule.

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Digest of cases for Part II (Income Taxation, Remedies, Statutory Offenses) shall be submitted
on the Final Exam schedule.
Digest of cases shall be written using this format:
TITLE
FACTS
ISSUE/S
RULING
E. Computation of Grades
MIDTERM GRADE (MG)
20% (Quizzes, Attendance, Recitation, Notebook)
30% (Prelim Exam)
50% (Midterm Exam)
FINAL GRADE
20% (Quizzes, Attendance, Recitation, Notebook)
30% (Semifinal Exam)
50% (Final Exam)
Average of Midterm and Final Grade will be the official grade to be submitted to the Dean's Office.