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Case Digests in Taxation

By Nikki Pamela Nadine M. Ignacio

1.) Commissioner of Internal Revenue v Construction Resources of
Asia, Inc.
Herein respondent is a domestic corporation duly registered as an
overseas contractor. In 1977, it entered into a contract with the
Malaysian government for the construction a road in Sabah. This
resulted in the respondent corporation accumulating foreign loans in
the amount of $3,900,000.00 with interest. It was soon discovered by
herein petitioners examiners that Construction resources of Asia failed
to file a withholding tax return and to withhold 15% tax on interest on
foreign loans. CIR then sent a demand letter to sought payment for the
withholding tax of the corporation as well as its documentary science
stamps tax. Petitioner however argued that it had nothing to withhold
in 1977 because actual payment of interest was made only on June 5,
Whether or not the certificate of stocks, to be taxable, must be
delivered to their respective stock-holder is not necessary.
Section 224 of the National Internal Revenue Code provides:
Stamp tax on original issue of certificates of stock. On every original
issue, whether on organization, reorganization, or for any lawful
purpose, of certificates of stock by any association, company, or
corporation, there shall be collected a documentary stamp tax of one
peso and ten centavos on each two hundred pesos, or fractional part
thereof, of the par value of such certificates.
It is clear from the above-quoted provision that for the aforestated tax
to attach, the certificates of stocks only need to be issued but not
delivered. As to the what the word "issue" contemplates in the context
of Section 224, we cite the case of Philippine Consolidated Coconut Ind,
Inc. v. Coll. of Int. Rev.(70 SCRA 22, 26-28), wherein we ruled:
A cursory perusal of the above provision clearly shows that the
documentary stamp tax is imposed on every original issue of a
certificate of stock (the document evidencing ownership of shares of
stock in the corporation), and that a documentary stamp tax is in the
nature of an excise tax because it is levied upon the privilege, the

opportunity and the facility of issuing certificates of stock. It being a

levy on the original issue of a certificate of stock (sic). The
documentary stamp tax under this provision of the law may be levied
only once, that is upon the original issue of the certificate. The crucial
point therefore, in the case before Us is the proper interpretation of the
word "issue."
Ordinarily, when a corporation issues a certificate of stock
(representing the ownership of stocks in the corporation to fully paid
subscription) the certificate of stock can be utilized for the exercise of
the attributes of ownership over the stocks mentioned on its face. The
stocks can be alienated; the dividends or fruits derived there from can
be enjoyed, and they can be conveyed, pledged or encumbered. The
certificate as issued by the corporation, irrespective of whether or not
it is in the actual or constructive possession of the stockholder,is
considered issued because it is with value and hence the documentary
stamp tax must be paid as imposed by Section 212 of the National
Internal Revenue Code, as amended.
The delivery of the certificates of stocks to the private respondent's
stockholders whether actual or constructive, is not essential for the
documentary and science stamps taxes to attach.
2.) Commissioner of Internal Revenue v First Express Pawnshop
Company, Inc.
Facts: CIR issued assessment notices against First Express pawnshop
for deficiency income tax, VAT and documentary stamp tax on deposit
on subscription and on pawn tickets. Respondent filed its written
protest on the assessments. When CIR did not act on the protest during
the 180-day period, respondent filed a petition before the CTA.
Respondent contended that petitioner did not consider the supporting
documents on the interest expenses and donations which resulted in
the deficiency income tax because they maintained that pawnshops
are not lending investors whose services are subject to VAT, hence it
was not liable for deficiency VAT. Respondent also alleged that no
deficiency DST was due because Section 180 of the National Internal
Revenue Code does not cover any document or transaction which
relates to respondent.
Whether or not the respondent has the right to dispute the assessment
in the CTA prescribed?

NO. The assessment against Respondent has not become final and not
appealable. It cannot be said that respondent failed to submit relevant
supporting documents that would render the assessment final because
when respondent submitted its protest, respondent attached all the
documents it felt were necessary to support its claim. Further, CIR
cannot insist on the submission of proof of DST payment because such
document does not exist as respondent claims that it is not liable to
pay, and has not paid, the DST on the deposit on subscription.
The term "relevant supporting documents" are those documents
necessary to support the legal basis in disputing a tax assessment as
determined by the taxpayer. The BIR can only inform the taxpayer to
submit additional documents and cannot demand what type of
supporting documents should be submitted. Otherwise, a taxpayer will
be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit. Since the taxpayer is
deemed to have submitted all supporting documents at the time of
filing of its protest, the 180-day period likewise started to run on that
same date.
3.) Commission on Internal Revenue v Filinvest Development
Filinvest Development Corporation (FDC) is a holding company owned
67.42% of the outstanding shares of Filinvest Land, Inc. (FLI). It is also
the owner of 80% of the outstanding shares of respondent Filinvest
Alabang, Inc. (FAI). On 29 November 1996, FDC and FAI entered into a
Deed of Exchange with FLI whereby the former both transferred in
favor of the latter parcels of land appraised at P4,306,777,000.00. In
exchange for said parcels which were intended to facilitate
development of medium-rise residential and commercial buildings,
463,094,301 shares of stock of FLI were issued to FDC and FAI.Filinvest
Development Corporation extended advances in favor of its affiliates
and supported the same with instructional letters and cash and journal
vouchers. The BIR assessed Filinvest for deficiency income tax by
imputing an arms length interest rate on its advances to affiliates.
Filinvest disputed this by saying that the CIR lacks the authority to
impute theoretical interest and that the rule is that interests cannot be
demanded in the absence of a stipulation to the effect.
On 13 January 1997, FLI requested a ruling from the Bureau of Internal
Revenue (BIR) to the effect that no gain or loss should be recognized in

the aforesaid transfer of real properties. The BIR issued Ruling No. S34-046-97 after finding that the exchange is among those
contemplated under Section 34 (c) of the old National Internal Revenue
Code (NIRC) which provides that no gain or loss shall be recognized if
property is transferred to a corporation by a person in exchange for a
stock in such corporation of which as a result of such exchange said
person, alone or together with others, not exceeding four persons,
gains control of said corporation."
Whether or not the CIR may impute theoretical interest on the
advances made by Filinvest to its affiliates?

NO. Despite the seemingly broad power of the CIR to distribute,
apportion and allocate gross income under (now) Section 50 of the Tax
Code, the same does not include the power to impute theoretical
interests even with regard to controlled taxpayers transactions. This is
true even if the CIR is able to prove that interest expense (on its own
loans) was in fact claimed by the lending entity. The term in the
definition of gross income that even those income from whatever
source derived is covered still requires that there must be actual or at
least probable receipt or realization of the item of gross income sought
to be apportioned, distributed, or allocated. Finally, the rule under the
Civil Code that no interest shall be due unless expressly stipulated in
writing was also applied in this case.
The Court also ruled that the instructional letters, cash and journal
vouchers qualify as loan agreements that are subject to DST
4.) Commission on Internal Revenue v Manila Bankers Life
Insurance Corporation
Herein respondent is a duly organized domestic corporation primarily
engaged in the life business insurance. On May 28, 1999, petitioner
Commissioner of Internal Revenue issued Letter of Authority No.
000020705 authorizing a special team of Revenue Officers to examine
the books of accounts and other accounting records of respondent for
taxable year "1997 & unverified prior years."

On December 14, 1999, based on the findings of the Revenue Officers,

the petitioner issued a Preliminary Assessment Notice against the
respondent for its deficiency internal revenue taxes for the year 1997.
On January 4, 2000, the petitioner issued against the respondent a
Formal Letter of Demand10 with the corresponding Assessment
Notices attached. On April 4, 2002, the CTA granted the respondents
Petition. The petitioner then went to the CA on a petition for review on
the grounds that the tax court erred in ruling that increases in the
coverage or the sum assured by an existing insurance policy is subject
to the documentary stamp tax.
Whether or not documentary stamp tax should be imposed on increase
due to additional premiums in the Money Plus Plan and the group
insurance plan?
The petition is granted. The law on Documentary stamp tax on
insurance policies states that uner Section 173 of the Tax code, the
documentary stamp tax becomes due and payable at the time the
insurance policy is issued with the tax based on the amount insured by
the policy as provided for in Section 183. The provision which
specifically applies to the renewals of life insurance policies is Section
183 which states that on all policies of insurance or other instruments
by whatever name the same may be called whereby an insurance shall
be made or renewed upon any life or lives, there shall be collected a
documentary stamp tax.
5.) Surigao Electric Co., Inc., v Court of Tax Appeals
Surigao Electric Co., is a grantee of a legislative electric franchise. In
November 1961 they received a warrant of distraint and levy to
enforce the collection from "Mainit Electric" of a deficiency franchise
tax plus surcharge in the total amount of P718.59. In a letter to the
Commissioner of Internal Revenue, the petitioner contested this
warrant, stating that it did not have a franchise in Mainit, Surigao.
Thereafter the Commissioner, by letter dated April 2, 1961, advised the
petitioner to take up the matter with the General Auditing Office,
enclosing a copy of the 4th Indorsement of the Auditor General dated
November 23, 1960. This indorsement indicated that the petitioner's
liability for deficiency franchise tax for the period from September
1947 to June 1959 was P21,156.06, excluding surcharge.

Subsequently, in a letter to the Auditor General dated August 2, 1962,

the petitioner asked for reconsideration of the assessment, admitting
liability only for the 2% franchise tax in accordance with its legislative
franchise and not at the higher rate of 5% imposed by section 259 of
the National Internal Revenue Code, as amended, which latter rate the
Auditor General used as basis in computing the petitioner's deficiency
franchise tax. On October 1, 1965, the Court of Tax Appeals dismissed
the appeal of the petitioner on the ground that the appeal was filed
beyond the thirty-day period of appeal.
Whether or not failure to pay would mean that enforcement of
collection would be through means of remedies?
Yes. The tenor of the letter, specifically, the statement regarding the
resort to legal remedies, unmistakably indicates the final nature of the
determination made by the Commissioner of the petitioner's deficiency
franchise tax liability.
The foregoing-view accords with settled jurisprudence and this
despite the fact that nothing in Republic Act 1125, as amended, even
remotely suggests the element truly determinative of the appealability
to the Court of Appeals of a ruling of the Commissioner of Internal
Revenue. Thus, this Court has considered the following
communications sent by the Commissioner to taxpayers as embodying
rulings appealable to the tax court: (a) a letter which stated the result
of the investigation requested by the taxpayer and the consequent
modification of the assessment; (b) letter which denied the request of
the taxpayer for the reconsideration cancellation, or withdrawal of the
original assessment; (c) a letter which contained a demand on the
taxpayer for the payment of the revised or reduced assessment; and
(d) a letter which notified the taxpayer of a revision of previous