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TOPIC- POWERS OF CIR:

COMMISSIONER VS. BURROUGH, LTD.

FACTS: Burroughs Limited is a foreign corporation authorized to engage in trade or


business in the Philippines through a branch office located at Makati. Sometime in
1979, said branch office applied with the Central Bank for authority to remit to its
parent company abroad, branch profit. It paid the 15% branch profit remittance tax.
Claiming that the 15% profit remittance tax should have been computed on the basis of
the amount actually remitted and not on the amount before profit remittance tax,
Burroughs filed a written claim for the refund or tax credit representing alleged
overpaid branch profit remittance tax. Thereafter Burroughs filed with the CTA a
petition for review for the recovery of the amount. CTA ordered the CIR to grant a tax
credit in favour of Burroughs Limited.

ISSUE: Whether the tax base upon which the 15% branch profit

remittance tax shall be imposed is the amount applied for remittance on the profit
actually remitted and not the amount before profit remittance tax?

HELD: Yes. Section 24(b)(2)(ii) (Now Section 28(A)(5) states that Any profit remitted
abroad by a branch to its head office shall be subject to a tax of fifteen per cent
(15 %). In a BIR Ruling dated 1980, the CIR held

that the provision should mean that "the tax base upon which the 15% branch profit
remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on
the total branch profits out of which the remittance is to be made. " Applying therefore,
the aforequoted ruling, the claim of Burrough that it made an overpayment is valid.

Commissioner v. CA
(G.R. # 119761; 08-29-1996)

Facts:

RA 7654 was enacted by Congress on June 10, 1993 and


took effect July 3, 1993.
It amended partly Sec. 142 (c) of the NIRC.
Fortune Tobacco manufactured the following cigarettes brands: Hope, More and
Champion. Prior to RA 7654, these 3 brands were considered local brands subjected
to an
ad valorem tax of 20 to 45%. Applying the amendment and nothing else,) the 3 brands
should fall under Sec 142 (c) (2)NIRC and be taxed at 20 to 45%.3.However, onJuly 1,
1993
petitioner Commissioner of Internal Revenue issued
Revenue Memorandum Circular37-93which reclassified the 3 brands as locally
manufactured cigarettes bearing a foreign brand subject to the 55%ad valorem
tax. Ther classification was before RA 7654 took effect.4.

In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1)
NIRC imposing upon these brands rate of 55%instead of just 20 to 45% under Sec 142
(c) (2)NIRC.5.

There was no notice and hearing. CIR argued that the memo circular was merely an
interpretative ruling of the BIR which did not require notice and hearing.

Issue:
WON RMC 37-93 was valid and enforceable

No; lack of notice and hearing violated due process required for promulgated rules. Moreover,
it infringed on uniformity of taxation / equal protection since other local cigarettes
bearing foreign brands had not been included within the scope of the memo circular.

Ratio
1.

Contrary to petitioners contention, the memo was not a mere interpretative rule but a
legislative rule in the nature of subordinate legislation, designed to implement a
primary legislation by providing the details thereof. Promulgated legislative rules must
be published.2.

On the other hand, interpretative rules only provide guidelines to the law which the
administrative agency is in charge of enforcing.3.
BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply
interpret RA 7654 but legislated under its quasi-legislative authority.

:the administrative issuance was not quasi-legislative but quasi-judicial. Due process
should still be observed of course but use

CIR V. CA, CTA, & Fortune Tobacco


(BIR Rules and Regulations)
Facts:
CIR, through RMC 37-93, aims to collect deficiencies on ad valorem taxes against
Fortune Tobacco following are classification of foreign branded cigarettes, as per RA
7654.Fortune Tobacco raised the issue of the propriety of the assessment to the CTA,
which decided against the CIR. CTA was affirmed by CA.

ISSUE:
Is RMC 37-93 a mere interpretative ruling, therefore not requiring, for its effectivity,
hearing and filing with the UP Law Center?

NO.Ratio Decidendi:

1. When an administrative rule is merely interpretative, its applicability needs nothing


further than its bare issuance for it gives no real consequence more than what the law
itself has already prescribed.2. When, upon the other hand, the administrative rule
goes beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially adds to or increases the
burden of those governed, it behooves the agency to accord at least to those directly
affected a chance to be heard, and thereafter to be duly informed, before that new
issuance is given the force and effect of law.

3. A reading of RMC 37-93, particularly considering the circumstances under which it


has been issued, convinces us that the circular cannot be viewed simply as a
corrective measure or merely as construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly, been made in order to place "Hope
Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them covered by
RA 7654.4. Specifically, the new law would have its amendatory provisions applied to
locally manufactured cigarettes which at the time of its effectivity were not so classified
as bearing foreign brands. (Prior to the issuance of the questioned circular, "Hope
Luxury," "Premium More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes
not bearing foreign brand subject to 45%
ad valoremtax.)5. Hence, without RMC 37-93, the enactment of RA 7654,would have
had no new tax rate consequence on private respondent's products.6. Evidently, in
order to place "Hope Luxury," "Premium More, "and "Champion" cigarettes within the
scope of the amendatory law and subject them to an increased tax rate, the now
disputed RMC 37-93 had to be issued.7. In so doing, the BIR not simply interpreted the
law; verily, It legislated under its quasi-legislative authority. The due observance of the
requirements of notice, of hearing, and of publication should not have been ignored.

FACTS:

PB COM VS CIR.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking
corporation duly organized under Philippine laws, filed its quarterly income tax returns
for the first and second quarters of 1985, reported profits, and paid the total income tax
of P5,016,954.00 by applying PBCom's tax credit memos for P3,401,701.00 and
P1,615,253.00, respectively. Subsequently, however, PBCom suffered net loss of
P25,317,228.00, thereby showing no income tax liability in its Annual Income Tax
Returns for the year-ended December 31, 1985. For the succeeding year, ending
December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and
thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50
in 1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the
Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00
representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue,


petitioner instituted a Petition for Review on November 18, 1988 before the Court of
Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled:
"Philippine Bank of Communications vs. Commissioner of Internal Revenue."
The CTA decided in favor of the BIR on the ground that the Petition was filed out of
time as the same was filed beyond the two-year reglementary period. A motion for
Reconsideration was denied and the appeal to Court of Appeals was likewise denied.
Thus, this appeal to Supreme Court.

Issues:

a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period
from two (2) years to ten (10) years is valid.
b) Whether or not the petition for tax refund had already prescribed.

Ruling:

a. RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year


prescriptive period is invalid.

Administrative issuances are merely interpretations and not expansions of the


provisions of law, thus, in case of inconsistency, the law prevails over them.
Administrative agencies have no legislative power.

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 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.

b. By implication of the above, claim for refund had already prescribed.

Since the petition had been filed beyond the prescriptive period, the same has already
prescribed. The fact that the final adjusted return show an excess tax credit does not
automatically entitle taxpayer claim for refund without any express intent.

WHEREFORE, the petition is hereby DENIED.

FACTS:
Cir vs Sony phil.17 nov 2010
Sony Philippines was ordered examined for the period 1997 and unverified prior
years as indicated in the Letter of Authority. The audit yielded assessments against
Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final
Withholding Tax on royalties for the period January to March 1998 and (2) deficiency
VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony
International Singapore (SIS).

ISSUES:
(1) Is Petitioner liable for deficiency Value Added Tax?
(2) Was the investigation of its 1998 Final Withholding Tax return valid?

HELD:
(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices
when it paid for certain advertising costs. This is sufficient to accord it the benefit of
input VAT credits and where the money came from to satisfy said advertising billings is
another matter but does not alter the VAT effect. In the same way, Sony Philippines
cannot be deemed to have received the reimbursable as a fee for a VAT-taxable
activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view
of the companys dire or adverse economic conditions. More importantly, the absence
of a sale, barter or exchange of goods or properties supports the non-VAT nature of
the reimbursement. This was distinguished from the COMASERCO case where even if
there was similarly a reimbursement-on-cost arrangement between affiliates, there was
in fact an underlying service. Here, the advertising services were rendered in favor of
Sony Philippines not SIS.

(2) NO. A Letter of Authority should cover a taxable period not exceeding one year
and to indicate that it covers unverified prior years should be enough to invalidate it. In
addition, even if the Final Withholding Tax was covered by Sony Philippines fiscal year
ending March 1998, the same fell outside of the period 1997 and was thus not validly
covered by the Letter of Authority.

FITNESS BY DESIGN INC V. CIR


Facts:

Commissioner on Internal Revenue (respondent) assessed Fitness by Design,


Inc. (petitioner) for deficiency income taxes for the tax year 1995. Petitioner protested
and filed a Petition for Review with Motion to Suspend Collection of Income Tax,
before the Court of Tax Appeals and raised prescription as a defense. A preliminary
hearing on the issue of prescription was conducted during which petitioners former
bookkeeper attested that certified public accountant Leonardo Sablan illegally took
custody of petitioners accounting records, invoices, and official receipts and turned
them over to the BIR.

Petitioner requested for the issuance of subpoena ad testificandum to Sablan for


the hearing and of subpoena duces tecum to the BIR for the production of the Affidavit
of the Informer bearing on the assessment in question. In addition, petitioner submitted
written interrogatories addressed to Sablan. The CTA denied petitioners motion for
Issuance of Subpoenas and disallowed the submission by petitioner of written
interrogatories to Sablan. The CTA found that to require Sablan to testify would violate
Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance
Department Order No. 46-66, proscribing the revelation of identities of informers of
violations of internal revenue laws, except when the information is proven to be
malicious or false. Petitioner filed a rule 65.

Issue: Did the CTA err in denying the motions for subpoenas and written
interrogatories?

Held:

The CTA did NOT err. In requesting the issuance of the subpoenas and the
submission of written interrogatories, petitioner sought to establish that its accounting
records and related documents, invoices, and receipts which were the bases of the
assessment against it were illegally obtained. The only issues, however, which
surfaced during the preliminary hearing before the CTA, were whether respondents
issuance of assessment against petitioner had prescribed and whether petitioners tax
return was false or fraudulent.

Besides, as the CTA held, the subpoenas and answers to the written
interrogatories would violate Section 2 of Republic Act No. 2338 as implemented by
Section 12 of Finance Department Order No. 46-66. Petitioner claims, however, that it
only intended to elicit information on the whereabouts of the documents it needs in
order to refute the assessment, and not to disclose the identity of the informer.
Petitioners position does not persuade. The interrogatories addressed to Sablan and
the revenue officers show that they were intended to confirm petitioners belief that
Sablan was the informer.

Lastly, Petitioner impugns the manner in which the documents in question


reached the BIR, Sablan having allegedly submitted them to the BIR without its
(petitioners) consent. Petitioners 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. Section 5 of the Tax Code allows the BIR access
to all relevant or material records and data in the person of the taxpayer, and the 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

BUREAU OF INTERNAL REVENUE, represented by the COMMISSIONER OF


INTERNAL REVENUE, petitioner, vs. OFFICE OF THE
OMBUDSMAN, respondent.

DECISION
DE LEON, JR., J.:
Graft Investigation Officer II Christopher S. Soquilon of the Office of the
Ombudsman (OMBUDSMAN, for brevity) received information from an informer-for-
reward regarding allegedly anomalous grant of tax refunds to Distillera Limtuaco &
Co., Inc. (Limtuaco, for brevity) and La Tondea Distilleries, Inc. Upon receipt of the
information, Soquilon recommended[1] to then Ombudsman Conrado M. Vasquez that
the case be docketed and subsequently assigned to him for investigation.[2]
On November 29, 1993, the Ombudsman issued a subpoena duces
tecum[3] addressed to Atty. Millard Mansequiao of the Legal Department of the Bureau
of Internal Revenue (BIR) ordering him to appear before the Ombudsman and to bring
the complete original case dockets of the refunds granted to Limtuaco and La
Tondea.
The BIR, through Assistant Commissioner for Legal Service Jaime M. Maza, asked
that it be excused from complying with the subpoena duces tecum because (a) the
Limtuaco case was pending investigation by Graft Investigation Officer II Napoleon S.
Baldrias; and (b) the investigation thereof and that of La Tondea was mooted when
the Sandiganbayan ruled in People v. Larin[4] that the legal issue was no longer in
question since the BIR had ruled that the ad valorem taxes were erroneously paid and
could therefore be the proper subject of a claim for tax credit.[5]
Without resolving the issues raised by the BIR, the Ombudsman issued another
subpoena duces tecum, dated December 9, 1993, addressed to BIR Commissioner
Liwayway Vinzons-Chato ordering her to appear before the Ombudsman and to bring
the complete original case dockets of the refunds granted to Limtuaco and La
Tondea.[6]
The BIR moved to vacate the subpoena duces tecum arguing that (a) the second
subpoena duces tecum was issued without first resolving the issues raised in its
Manifestation and Motion dated December 8, 1993; (b) the documents required to be
produced were already submitted to Graft Investigation Officer II Baldrias; (c) the issue
of the tax credit of ad valorem taxes has already been resolved as proper by the
Sandiganbayan; (d) the subpoena duces tecum partook of the nature of an omnibus
subpoena because it did not specifically described the particular documents to be
produced; (e) there was no clear showing that the tax case dockets sought to be
produced contained evidence material to the inquiry; (f) compliance with the
subpoena duces tecum would violate Sec. 269[7] of the National Internal Revenue
Code (NLRC) on unlawful divulgence of trade secrets and Sec. 277[8] on procuring
unlawful divulgence of trade secrets; and (g) Limtuaco and La Tondea had the right to
rely on the correctness and conclusiveness of the decisions of the Commissioner of
Internal Revenue.[9]
The Ombudsman denied[10] the Motion to Vacate the Subpoena Duces
Tecum, pointing out that the Limtuaco tax refund case then assigned to Baldrias was
already referred to the Fact-Finding and Investigation Bureau of the Ombudsman for
consolidation with Case No. OMB-0-93-3248. The Ombudsman also claimed that the
documents submitted by the BIR to Baldrias were incomplete and not certified. It
insisted that the issuance of the subpoena duces tecum was not a fishing expedition
considering that the documents required for production were clearly and particularly
specified.
The BIR moved to reconsider[11] the respondents Order dated February 15, 1994
alleging that (a) the matter subject of the investigation was beyond the scope of the
jurisdiction of the Ombudsman; (b) the subpoena duces tecum was not properly issued
in accordance with law; and (c) non-compliance thereto was justifiable. The BIR
averred it had the exclusive authority whether to grant a tax credit and that the
jurisdiction to review the same was lodged with the Court of Tax Appeals and not with
the Ombudsman.
According to the BIR, for a subpoena duces tecum to be properly issued in
accordance with law, there must first be a pending action because the power to issue a
subpoena duces tecum is not an independent proceeding. The BIR noted that the
Ombudsman issued the assailed subpoena duces tecum based only on the information
obtained from an informer-for-reward and the report of Asst. Comm. Imelda L.
Reyes. The BIR added that the subpoena duces tecum suffered from a legal infirmity
for not specifically describing the documents sought to be produced.
Finding no valid reason to reverse its Order dated February 15, 1994, the
Ombudsman denied the motion for reconsideration and reiterated its directive to the
BIR to produce the documents.[12] Instead of complying, the BIR manifested its
intention to elevate the case on certiorari to this Court.[13] The Ombudsman thus
ordered Asst. Comm. Maza to show cause why he should not be cited for contempt for
contumacious refusal to comply with the subpoena duces tecum.[14]
However, before the expiration of the period within which Asst. Comm. Maza was
required to file a reply to the show cause order of the Ombudsman, the BIR filed before
this Court the instant Petition for Certiorari, Prohibition and Preliminary Injunction and
Temporary Restraining Order.[15]
Petitioner BIR insists that the investigative power of the Ombudsman is not
unbridled. Particularly on the issue of tax refunds, the BIR maintains that the
Ombudsman could validly exercise its power to investigate only when there exists an
appropriate case and subject to the limitations provided by law. [16] Petitioner opines
that the fact-finding investigation by the Ombudsman is not the proper case as it is only
a step preliminary to the filing of recovery actions on the tax refunds granted to
Limtuaco and La Tondea.
This Court is not persuaded. No less than the 1987 Constitution enjoins that the
Ombudsman and his Deputies, as protectors of the people, shall act promptly
on complaints filed in any form or manner against public officials or employees of the
government, or any subdivision, agency or instrumentality thereof, including
government-owned or controlled corporations, and shall, in appropriate case, notify the
complainants of the action taken and the result thereof.[17]
Clearly, there is no requirement of a pending action before the Ombudsman could
wield its investigative power. The Ombudsman could resort to its investigative
prerogative on its own[18] or upon a complaint filed in any form or manner. Even when
the complaint is verbal or written, unsigned or unverified, the Ombudsman could, on its
own, initiate the investigation.[19] Thus

There can be no objection to this procedure in the Office of the Ombudsman where
anonymous letters suffice to start an investigation because it is provided in the
Constitution itself. In the second place, it is apparent that in permitting the filing of
complaints in any form and manner, the framers of the Constitution took into account
the well-known reticence of the people which keep them from complaining against
official wrongdoings. As this Court had occasion to point out, the Office of the
Ombudsman is different from other investigatory and prosecutory agencies of the
government because those subject to its jurisdiction are public officials who, through
official pressure and influence, can quash, delay or dismiss investigations held against
them. On the other hand complainants are more often than not poor and simple folk
who cannot afford to hire lawyers.[20]

The term in an appropriate case has already been clarified by this Court
in Almonte v. Vasquez,[21] thus
Rather than referring to the form of complaints, therefore, the phrase in an appropriate
case in Art. XI, 12 means any case concerning official act or omission which is
alleged to be illegal, unjust, improper, or inefficient, The phrase subject to such
limitations as may be provided by law refers to such limitations as may be provided by
Congress or, in the absence thereof, to such limitations as may be imposed by courts.

Plainly, the pendency of an action is not a prerequisite before the Ombudsman can
start its own investigation.
Petitioner next avers that the determination of granting tax refunds falls within its
exclusive expertise and jurisdiction and that its findings could no longer be disturbed by
the Ombudsman purportedly through its investigative power as it was a valid exercise
of discretion. Petitioner suggests that what respondent should have done was to
appeal its decision of granting tax credits to Limtuaco and La Tondea to the Court of
Tax Appeals since it is the proper forum to review the decisions of the Commissioner
of Internal Revenue.
This contention of the BIR is baseless. The power to investigate and to prosecute
which was granted by law to the Ombudsman is plenary and unqualified.[22] The
Ombudsman Act makes it perfectly clear that the jurisdiction of the Ombudsman
encompasses all kinds of malfeasance, misfeasance and nonfeasance that have been
committed by any officer or employee xxx during his tenure of office.[23]
Concededly, the determination of whether to grant a tax refund falls within the
exclusive expertise of the BIR. Nonetheless, when there is a suspicion of even just a
tinge of impropriety in the grant of the same, the Ombudsman could rightfully ascertain
whether the determination was done in accordance with law and identify the persons
who may be held responsible thereto. In that sense, the Ombudsman could not be
accused of unlawfully intruding into and intervening with the BIRs exercise of
discretion.
As correctly posited by the Office of the Solicitor General

xxx (T)he Ombudsman undertook the investigation not as an appellate body


exercising the power to review decisions or rulings rendered by a subordinate body,
with the end view of affirming or reversing the same, but as an investigative agency
tasked to discharge the role as protector of the people[24] pursuant to his authority to
investigate xxx any act or omission of any public official, employee, office or agency,
when such act or omission appears to be illegal, unjust, improper or inefficient.[25] The
OSG insists that the mere finality of petitioners ruling on the subject of tax refund
cases is not a legal impediment to the exercise of respondents investigative authority
under the Constitution and its Charter (RA 6770) which xxx is so encompassing as to
include all kinds of malfeasance, misfeasance and nonfeasance that have been
committed by any officer or employee during his tenure of office.[26]

Indeed, the clause any [illegal] act or omission of any public official is broad
enough to embrace any crime committed by a public official. The law does not qualify
the nature of the illegal act or omission of the public official or employee that the
Ombudsman may investigate. It does not require that the act or omission be related to
or be connected with or arise from the performance of official duty.[27]
Petitioner fears that the fact-finding investigation being conducted by respondent
would only amount to a general inquisitorial examination on the case dockets with a
view to search through them to gather evidence[28] considering that the
subpoena duces tecum did not describe with particularity the documents sought to be
produced.
This Court is unimpressed. We agree with the view taken by the Solicitor General
that the assailed subpoena duces tecum indeed particularly and sufficiently described
the records to be produced. There is every indication that petitioner knew precisely
what records were being referred to as it even suggested that the tax dockets sought
to be produced may not contain evidence material to the inquiry and that it has already
submitted the same to Baldrias.
The records do not show how the production of the subpoenaed documents would
necessarily contravene Sec. 269[29] of the National Internal Revenue Code (NIRC) on
unlawful divulgence of trade secrets and Sec. 277[30] of the same Code on procuring
unlawful divulgence of trade secrets. The documents sought to be produced were only
the case dockets of the tax refunds granted to Limtuaco and La Tondea which are
public records, and the subpoena duces tecum were directed to the public officials
who have the official custody of the said records. We find no valid reason why the
trade secrets of Limtuaco and La Tondea would be unnecessarily disclosed if such
official records, subject of the subpoena duces tecum, were to be produced by the
petitioner BIR to respondent Office of the Ombudsman.
Assuming, for the sake of argument, that the case dockets of the tax refunds which
were granted to Limtuaco and La Tondea contain trade secrets, that fact, however,
would not justify their non-production before the Ombudsman. As this Court has
underscored in Almote v. Vasquez[31] -

At common law a governmental privilege against disclosure is recognized with respect


to state secrets bearing on military, diplomatic and similar matters. This privilege is
based upon public interest of such paramount importance as in and of itself
transcending the individual interests of a private citizen, even though, as a
consequence thereof, the plaintiff cannot enforce his legal rights xxx

In the case at bar, there is no claim that military or diplomatic secrets will be disclosed
by the production of records pertaining to the personnel of EIB. Indeed, EIIBs function
is the gathering and evaluation of intelligence reports and information regarding illegal
activities affecting the national economy, such as, but not limited to economic
sabotage, smuggling, tax evasion, dollar salting. Consequently, while in cases which
involve state secrets it may be sufficient to determine from the circumstances of the
case that there is reasonable danger that compulsion of the evidence will expose
military maters without compelling production, no similar excuse can be made for a
privilege resting on other consideration.

Above all, even if the subpoenaed documents are treated as presumptively privileged,
this decision would only justify ordering their inspection in camera but not their
nonproduction xxx

Besides, under the facts of this case, petitioner should not have concerned itself
with possibly violating the pertinent provisions of the NLRC on unlawful divulgence or
unlawful procurement of trade secrets considering Rule V of the Rules of Procedure of
the Office of the Ombudsman[32] which provides that

(a) Any person whose testimony or production of documents or other evidence is


necessary to determine the truth in any inquiry, hearing, or proceeding being
conducted by the Office of the Ombudsman or under its authority in the performance or
furtherance or its constitutional functions and statutory objectives, including preliminary
investigation, may be granted immunity from criminal prosecution by the Ombudsman,
upon such terms and conditions as the Ombudsman may determine, taking into
account the pertinent provisions of the Rules of Court xxx
With regard to the manner in which the investigation was conducted, petitioner
asserts that the investigation conducted by the Office of the Ombudsman violated due
process, inasmuch as it commenced its investigation by issuing the subpoena duces
tecum without first furnishing petitioner with a summary of the complaint and requiring
it to submit a written answer.[33] The Ombudsman labels this assertion of the BIR as
premature maintaining that it is only when the Ombudsman finds reasonable ground to
investigate further that it is required to furnish respondent with the summary of the
complaint. The Ombudsman insists that in the instant case, it has yet to make that
determination.
On this score, we rule in favor of petitioner BIR. Records show that immediately
upon receipt of the information from an informer-for-reward, Graft Investigator
Soquilon, in a Memorandum dated November 26, 1993 addressed to then
Ombudsman Conrado M. Vasquez, requested that the case be docketed and
assigned to him for a full-blown fact-finding investigation.[34] In his Memorandum,
Soquilon averred that he is certain that these refunds can be recovered by reason of
the Tanduay precedent xxx and using the power of this Office, we will not only bring
back to the government multi-million illegal refunds but, like the Tanduay case, we will
be establishing graft and corruption against key BIR officials.[35] In a marginal note
dated November 26, 1993,[36] Ombudsman Vasquez approved the docketing of the
case and its assignment to Soquilon. Likewise, in the Preliminary Evaluation
Sheet[37] of the Office of the Ombudsman, the Fact Finding Investigation Bureau of the
Ombudsman was named as complainant against Concerned High Ranking and Key
Officials of the Bureau of Internal Revenue who granted multi-million tax refunds to
Limtuaco and La Tondea Distilleries for alleged violation of RA 3019. On November
29, 1993 and December 9, 1993 Soquilon issued the assailed subpoena duces
tecum requiring the concerned BIR officials to appear before the Ombudsman and to
bring with them the complete case dockets of the tax refunds granted to Limtuaco and
La Tondea.
It is our view and we hold that the procedure taken by the respondent did not
comply with the safeguards enumerated in Sec. 26, (2) of RA 6770 or the
Ombudsman Act of 1989, which clearly provides that

(2) The Office of the Ombudsman shall receive complaints from any source in
whatever form concerning an official act or omission. It shall act on the complaint
immediately and if it finds the same entirely baseless, it shall dismiss the same and
inform the complainant of such dismissal citing the reasons therefore. If it finds a
reasonable, ground to investigate further, it shall first furnish the respondent public
officer or employee with a summary of the complaint and require him to submit a
written answer within seventy-two hours from receipt hereof. If the answer is found
satisfactory, it shall dismiss the case.

The procedure which was followed by the respondent likewise contravened


the Rules of Procedure of the Office of the Ombudsman,[38] Sec. 4, Rule 11 of which
provides that

(a) If the complaint is not under oath or is based only on official reports, the
investigating officer shall require the complaint or supporting witnesses to execute
affidavits to substantiate the complaints.

(b) After such affidavits have been secured, the investigating officer shall issue an
order, attaching thereto a copy of the affidavits and other supporting documents,
directing the respondent to submit, within ten (10) days from receipt thereof, his
counter-affidavits and controverting evidence with proof of service thereof on the
complainant. The complainant may file reply affidavits within ten (10) days after
service of the counter-affidavits xxx

It is clear from the initial comments of Soquilon in his Memorandum to Ombudsman


Vasquez that he undoubtedly found reasonable grounds to investigate further. In fact,
he recommended that the case be docketed immediately and assigned to him for a
full-blown fact-finding investigation. Even during that initial stage, Soquilon was
convinced that the granting of the tax refunds was so anomalous that he assured
Ombudsman Vasquez of the eventual recovery of the tax refunds and the prosecution
and conviction of key BIR officials for graft and corruption.
We commend the graft investigators of the Office of the Ombudsman in their efforts
to cleanse our bureaucracy of scalawags. Sometimes, however, in their zeal and
haste to pin down the culprits they tend to circumvent some procedures. In this case,
Graft Investigation Officer Soquilon forgot that there are always two (2) sides to an
issue and that each party must be given every opportunity to air his grievance or
explain his side as the case may be. This is the essence of due process.
The law clearly provides that if there is a reasonable ground to investigate further,
the investigator of the Office of the Ombudsman shall first furnish the respondent
public officer or employee with a summary of the complaint and require him to submit a
written answer within seventy-two (72) hours from receipt thereof. In the instant case,
the BIR officials concerned were never furnished by the respondent with a summary of
the complaint and were not given the opportunity to submit their counter-affidavits and
controverting evidence. Instead, they were summarily ordered to appear before the
Ombudsman and to produce the case dockets of the tax refunds granted to Limtuaco
and La Tondea. They are aggrieved in that, from the point of view of the respondent,
they were already deemed probably guilty of granting anomalous tax refunds. Plainly,
respondent Office of the Ombudsman failed to afford petitioner with the basics of due
process in conducting its investigation.
WHEREFORE, the petition is GRANTED. The respondent Office of the
Ombudsman is prohibited and ordered to desist from proceeding with Case No. OMB-
0-93-3248; and its Orders dated November 29, 1993, December 9, 1993 and February
15, 1994 are hereby ANNULLED and SET ASIDE.
SO ORDERED.

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INCG.R. No. 136975.
March 31, 2005
Facts:
Hantex Trading Co is a company organized under the Philippines. It is engaged in the
sale of plastic products, it imports synthetic resin and other chemicals for the
manufacture of its products. For this purpose, it is required to file an Import Entry and
Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under
Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente
Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and
Investigation Bureau (EIIB), received confidential information that the respondent had
imported synthetic resin amounting to P115,599,018.00 but only declared
P45,538,694.57. Thus ,Hentex receive a subpoena to present its books of account
which it failed to do. The bureau cannot find any original copies of the products Hentex
imported since the originals were eaten by termites. Thus, the Bureau relied on the
certified copies of the respondents Profit and Loss Statement for 1987and 1988 on file
with the SEC, the machine copies of the Consumption Entries, Series of
1987,submitted by the informer, as well as excerpts from the entries certified by Tomas
and Danganan. The case was submitted to the CTA which ruled that Hentex have tax
deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the
income and sales tax deficiency assessments issued by the petitioner were unlawful
and baseless since the copies of the import entries relied upon in computing the
deficiency tax of the respondent were not duly authenticated by the public officer
charged with their custody, nor verified under oath by the EIIB and the
BIR investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for
deficiency income tax and sales tax for the latters 1987 importation of resins and
calcium bicarbonate is based on competent evidence and the law.

Held :Central to the second issue is Section 16 of the NIRC of 1977, as amended
which provides that the Commissioner of Internal Revenue has the power to make
assessments and prescribe additional requirements for tax administration and
enforcement. Among such powers are those provided in paragraph (b), which provides
that Failure to submit required returns, statements, reports and other documents?
When a report required by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by law or regulation or when
there is reason to believe that any such report is false, incomplete or erroneous, the
Commissioner shall assess the proper tax on the best evidence obtainable. This
provision applies when the Commissioner of Internal Revenue undertakes to perform
her administrative duty of assessing the proper tax against a taxpayer, to make a
return in case of a taxpayers failure to file one, or to amend a return already filed in the
BIR. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended,
includes the corporate and accounting records of the taxpayer who is the subject of the
assessment process, the accounting records of other taxpayers engaged in the same
line of business ,including their gross profit and net profit sales. Such evidence also
includes data, record, paper ,document or any evidence gathered by internal revenue
officers from other taxpayers who had personal transactions or from whom the subject
taxpayer received any income; and record, data, document and information secured from
government offices or agencies, such as the SEC, the Central Bank of the Philippines, the
Bureau of Customs, and the Tariff and Customs Commission .However, the best
evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not
include mere photocopies of records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the
said assessment on mere machine copies of records/documents. Mere photocopies of
the Consumption Entries have no probative weight if offered as proof of the contents
thereof. The reason for this is that such copies are mere scraps of paper and are of
no probative value as basis for any deficiency income or business taxes against a
taxpayer

G.R. No. 96262 March 22, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
EMBROIDERY AND GARMENTS INDUSTRIES (PHIL.), INC., respondent.

PARDO, J.:

The case is an appeal via certiorari from a decision of the Court of Appeals 1 affirming
that of the Court of Tax Appeals 2 absolving respondent from liability for deficiency
income tax and advance sales tax in the amounts of P2,756,241.68, and
P3,500,798.47, respectively, for the years 1959 to 1961.

The facts may be related as follows:

On September 21, 1964, on the basis of a sworn report of an informer, the Courts of
First Instance of Manila and Bulacan issued search warrants for the seizure of certain
documents from the offices of respondent Embroidery and Garments Industries (Phil.),
Inc. in Manila and Valenzuela, Bulacan. Armed with the warrants, agents of the Anti-
Technical Smuggling Unit, Bureau of Internal Revenue, seized various business
records and documents from respondent's offices.

On January 4, 1966, petitioner assessed respondent the sum of P436,846.44, inclusive


of 75% surcharge and penalty as advance sales tax for the years 1959 to 1961 and, on
March 23, 1966, assessed deficiency income tax in the sum of P4,799,641.95,
inclusive of 50% surcharge and 1/2% monthly interest for the years 1960 and 1961.
Respondent protested the assessments, and on December 9,1970, petitioner issued to
respondent a revised assessment requiring the latter to pay the amount of
P2,756,241.68, inclusive of 50% surcharge and 1/2% monthly interest as deficiency
income tax for the years 1959 to 1961. On December 22, 1970, petitioner required
respondent to pay P3,500,798.47, as advance sales tax and 75% surcharge
corresponding to the same years.

On January 7, 1971, respondent filed with the Bureau of Internal Revenue a protest
disputing the revised assessments and requesting further investigation. On the same
date, petitioner denied the protest.

On January 20, 1971, respondent requested petitioner to reconsider the denial of its
protest. On January 29, 1971, petitioner granted the request upon respondent's
execution of a waiver of the statute of limitations.

On September 14, 1971, petitioner denied respondent's protest on the disputed


assessments.

On October 14, 1971 , respondent filed with the Court of Tax Appeals a petition for
review of the disputed tax assessments.

On March 29, 1972, respondent filed its answer to the petition praying for its dismissal.

On January 15, 1990, the Court of Tax Appeals rendered decision finding respondent
not liable for deficiency income tax and advance sales tax assessed against it, and
accordingly, reversed the BIR decision. In its decision, the Court of Tax Appeals held
that the assessments were doubtful validity as they were based on the incompetent
evidence consisting of an informant's report and the sworn statement of the disgruntled
former general manager of respondent that in the years in question respondent sold all
its dollar quotas to local Chinese textile traders at an overprice or premium on the
dollar value of textile importation of 80% for suiting materials and 70.% for women's
clothing materials and faked its invoices to reduce its costs of importation. On the other
hand, respondent adduced evidence consisting of official records of the Bureau of
Customs that its tax-free importation's had been re-exported to their suppliers in
accordance with the Embroidery Law and cleared by the Bureau of Customs. The tax
court ruled that the assessments must be based on actual facts and proved by
competent evidence, not imposed based on unverified information supplied by an
informant, or disputed presumptions.

On June 13, 1990, petitioner filed with the Court of Appeals a petition for review of the
decision of the Court of Tax Appeals. 3

On November 9, 1990, the Court of Appeals promulgated its decision affirming the
appealed decision of the tax court. 4

On December 4, 1990, petitioner filed a motion for reconsideration of the Court of


Appeals' decision.

On February 7, 1991, the Court of Appeals denied the motion. 5

On March 18, 1991, within, the extended time granted, petitioner filed with the
Supreme Court a petition for review on certiorari of the decision of the Court of
Appeals. 6

In the petition, the Commissioner of Internal Revenue submits that the Court of
Appeals erred:

(1) in not holding that respondent is liable for deficiency income tax and advance sales
tax in view of its failure to declare its income realized for the years 1959 to 1961 from
the sales of its dollar quota to local Chinese textile dealers at a premium of 70% to
80% of the dollar value, which dollar quota rights were allocated by the Central Bank of
the Philippines to enable respondent to import tax-free textile raw materials to be
manufactured into finished products for re-export pursuant to the provisions of the
Embroidery Law (R. A. No. 3137), and

(2) in not holding that the imposition of 50% surcharge for fraud was legal and
justified. 7

The issues raised are clearly factual and must be resolved on the basis of the evidence
adduced before the tax court. The case tarried too long in the tax court. In the
meantime, the star witness had died, and the needed originals of documentary
evidence could no longer be located.
What is more, it is a, fundamental rule that on appeal via certiorari from a decision of
the Court of Appeals to the Supreme Court may raise only questions of law, which
must be distinctly set forth. 8 Findings of fact of the Court of Appeals and even of the
tax court are final, binding or conclusive on the parties 9 and upon this Court, 10 which
will not be reviewed 11 or disturbed on appeal unless these findings are not supported
by evidence, 12 with certain well recognized exceptions, such as (1) when the
conclusion is grounded entirely on speculations 13, surmises or conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3) where there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial courts; 14 (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion; and (10) when the findings of
fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.15 This case does not come within any of the
exceptions.

WHEREFORE, the Court hereby AFFIRMS the appealed decision of the Court of
Appeals in CA-G.R. SP No. 20813.

FACTS:
Cir vs Aquafresh 20 oct 2010
Aquafresh Seafoods sold two parcels of located at Barrio Banica in Roxas City and
paid the corresponding CGT and DST due on the sale. However, the BIR assessed
Aquafresh Seafoods based on its conclusion that the lots were classified as
commercial and not residential as claimed by the taxpayer. Aquafresh Seafoods
defense was that there was already a pre-defined zonal value for the said lots and thus
the BIR could not reclassify the same to be commercial lots.

ISSUE:
Is the requirement (under Section 6 of the Tax Code) of consultation with competent
appraisers both from the public and private sectors in determining fair market value
applicable in this case?
HELD:
YES. The BIRs position that the requirement of consultation with appraisers is
mandatory only when formulating or making changes in the schedule of zonal values is
wrong. The Court held that the BIRs act of classifying the subject properties involved a
re-classification and revision of the prescribed zonal values. It was likewise added that
the application of the rule of assigning zonal values based on the predominant use of
property only applies when the property is located in an area or zone where the
properties are not yet classified and their zonal values are not yet determined. If a
determination has already been made, the BIR has no discretion as regards its
classification and/or valuation.

G.R. No. 130430 December 13, 1999

REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the


Bureau of Internal Revenue (BIR), petitioner,
vs.
SALUD V. HIZON, respondent.

The facts are as follows:

On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income
tax assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not
having contested the assessment, petitioner, on January 12, 1989, served warrants of
distraint and levy to collect the tax deficiency. However, for reasons not known, it did
not proceed to dispose of the attached properties.

More than three years later, or on November 3, 1992, respondent wrote the BIR
requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter
dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the
Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the tax
deficiency. The complaint was signed by Norberto Salud, Chief of the Legal Division,
BIR Region 4, and verified by Amancio Saga, the Bureau's Regional Director in
Pampanga.

Respondent moved to dismiss the case on two grounds: (1) that the complaint was not
filed upon authority of the BIR Commissioner as required by 221 2 of the National
Internal Revenue Code, and (2) that the action had already prescribed. Over
petitioner's objection, the trial court, on August 28, 1997, granted the motion and
dismissed the complaint. Hence, this petition. Petitioner raises the following issues: 3

I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR


COLLECTION OF TAXES WAS WITHOUT THE APPROVAL OF THE
COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL
INTERNAL REVENUE CODE.

II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES


FILED AGAINST RESPONDENT HAD ALREADY BEEN BARRED BY THE
STATUTE OF LIMITATIONS.

First. In sustaining respondent's contention that petitioner's complaint was filed without
the authority of the BIR Commissioner, the trial court stated: 4

There is no question that the National Internal Revenue Code explicitly


provides that in the matter of filing cases in Court, civil or criminal, for the
collection of taxes, etc., the approval of the commissioner must first be
secured. . . . [A]n action will not prosper in the absence of the
commissioner's approval. Thus, in the instant case, the absence of the
approval of the commissioner in the institution of the action is fatal to the
cause of the plaintiff . . . .

The trial court arrived at this conclusion because the complaint filed by the BIR
was not signed by then Commissioner Liwayway Chato.

Sec. 221 of the NIRC provides:

Form and mode of proceeding in actions arising under this Code. Civil
and criminal actions and proceedings instituted in behalf of the Government
under the authority of this Code or other law enforced by the Bureau of
Internal Revenue shall be brought in the name of the Government of the
Philippines and shall be conducted by the provincial or city fiscal, or the
Solicitor General, or by the legal officers of the Bureau of Internal Revenue
deputized by the Secretary of Justice, but no civil and criminal actions for
the recovery of taxes or the enforcement of any fine, penalty or forfeiture
under this Code shall begun without the approval of the Commissioner.
(Emphasis supplied)

To implement this provision Revenue Administrative Order No. 5-83 of the BIR
provides in pertinent portions:

The following civil and criminal cases are to be handled by Special


Attorneys and Special Counsels assigned in the Legal Branches of
Revenues Regions:

xxx xxx xxx

II. Civil Cases

1. Complaints for collection on cases falling within the


jurisdiction of the Region . . . .

In all the abovementioned cases, the Regional Director is


authorized to sign all pleadings filed in connection therewith
which, otherwise, requires the signature of the Commissioner.

xxx xxx xxx

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.

However, 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 quasi-public 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. . . . 5

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 force of
law. 6 The governing statutory provision in this case is 4(d) of the NIRC which
provides:

Specific provisions to be contained in regulations. The regulations of the


Bureau of Internal Revenue shall, among other things, contain provisions
specifying, prescribing, or defining:

xxx xxx xxx

(d) The conditions to be observed by revenue officers, provincial fiscals and


other officials respecting the institution and conduct of legal actions and
proceedings.

RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.

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, except the following:

(a) The power to recommend the promulgation of rules and regulations by


the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or


modify any existing ruling of the Bureau;

(c) The power to compromise or abate under 204 (A) and (B) of this Code,
any tax deficiency: Provided,however, that assessment issued by the
Regional Offices involving basic deficiency taxes of five hundred thousand
pesos (P500,000.00) or less, and minor criminal violations as may be
determined by rules and regulations to be promulgated by the Secretary of
Finance, upon the recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation
board which shall be composed of the Regional Director as Chairman, the
Assistant Regional Director, heads of the Legal, Assessment and
Collection Divisions and the Revenue District Officer having jurisdiction
over the taxpayer, as members; and

(d) The power to assign or reassign internal revenue officers to


establishments where articles subject to excise tax are produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing
of tax collection cases.

Second. With regard to the issue that the case filed by petitioner for the collection of
respondent's tax deficiency is barred by prescription, 223(c) of the NIRC provides:

Any internal revenue tax which has been assessed within the period of
limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years 7 following the assessment of the tax.

The running of the three-year prescriptive period is suspended 8

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 the 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 or 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.
Petitioner argues that, in accordance with this provision, respondent's request for
reinvestigation of her tax deficiency assessment on November 3, 1992 effectively
suspended the running of the period of prescription such that the government
could still file a case for tax collection. 9

The contention has no merit. Sec. 229 10 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. 11 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 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. 12 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.

Nonetheless, it is contended that the running of the prescriptive period under 223(c)
was suspended when the BIR timely served the warrants of distraint and levy on
respondent on January 12, 1989. 13 Petitioner cites for this purpose our ruling
in Advertising Associates Inc., v. Court of Appeals. 14 Because of the suspension, it is
argued that the BIR could still avail of the other remedy under 223(c) of filing a case
in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997.

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, 15 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: 16 "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.

Moreover, if, as petitioner in effect says, the prescriptive period was suspended
twice, i.e., when the warrants of distraint and levy were served on respondent on
January 12, 1989 and then when respondent made her request for reinvestigation of
the tax deficiency assessment on November 3, 1992, the three-year prescriptive period
must have commenced running again sometime after the service of the warrants of
distraint and levy. Petitioner, however, does not state when or why this took place and,
indeed, there appears to be no reason for such. It is noteworthy that petitioner raised
this point before the lower court apparently as an alternative theory, which, however, is
untenable.

For the foregoing reasons, we hold that petitioner's contention that the action in this
case had not prescribed when filed has no merit. Our holding, however, is without
prejudice to the disposition of the properties covered by the warrants of distraint and
levy which petitioner served on respondent, as such would be a mere continuation of
the summary remedy it had timely begun. Although considerable time has passed
since then, as held inAdvertising Associates Inc. v. Court of Appeals 17 and Palanca
v. Commissioner of Internal Revenue, 18 the enforcement of tax collection through
summary proceedings may be carried out beyond the statutory period considering that
such remedy was seasonably availed of.

WHEREFORE, the petition is DENIED.


Republic vs. Hizon
REPUBLIC vs. HIZON
320 SCRA 574
GR No. 130430, December 13, 1999

"A request for reconsideration of the tax assessment does not effectively suspend the
running of the prescriptive period if the same is filed after the assessment had become
final and un appealable."

FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency
income tax assessment covering the fiscal year 1981-1982. Respondent not having
contested the assessment, petitioner BIR, on January 12, 1989, served warrants of
distraint and levy to collect the tax deficiency. However, for reasons not known, it did
not proceed to dispose of the attached properties.
More than three years later, the respondent wrote the BIR requesting a
reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11,
1994, denied the request. On January 1, 1997, it filed a case with the RTC to collect
the tax deficiency. Hizon moved to dismiss the case on two grounds: (1) that the
complaint was not filed upon authority of the BIR Commissioner as required by Sec.
221 of the NIRC, and (2) that the action had already prescribed. Over petitioner's
objection, the trial court granted the motion and dismissed the complaint.
BIR on the other hand contends that respondent's request for reinvestigation of her
tax deficiency assessment on November 1992 effectively suspended the running of the
period of prescription.

ISSUE: Has the action for collection of the tax prescribed?

HELD: Yes. Sec. 229 of the NIRC 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 only on November 3, 1992, without stating when she received the notice of tax
assessment. Hence, her request for reconsideration did not suspend the running of the
prescriptive period provided under Sec. 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.

The appellate jurisdiction of the CTA is not


limitedt o c a s e s C I R o n m a t t e r s r e l a t i n g t o
assessments or refunds.

The second part of the Provision covers other cases that arise out of the
NIRC or related laws administered by the Bureau of Internal Revenue
The wording of the provision is clear and simple. It gives the CTA
the j u r i s d i c t i o n t o d e t e r m i n e i f t h e w a r r a n t o f distraint and levy
issued by the BIR is valid and to rule if the Waiver of Statute of Limitations
was validly effected

Thus, the CTA may act on a petition to invalidate and annul the distraint orders of the CIR
or declaring several waivers executed
by thet a xp a ye r a s n u l l a n d vo i d , t h u s i n va l i d a t i n g t h e assessments issued by
the BIR.

PNOC vs. CA

BIR requested PNOC to settle its liability for taxes on the


interest earned by its money placements with PNB and which PNB did not withhold.
PNOC wrote BIR and made an offer to compromise its tax liability
,estimated at P304M against NAPOCORs pending claim for tax refund. CIR
accepted the compromise .Private respondent Savellano was paid the informer's reward
in the total amount of 14M representing15% of tax collected by the BIR from PNOC
and PNB.But private respondent Savellano, demandd from BIR the
payment of the balance of his informer's rewarda n d s o u g h t
reconsideration of CIRs decision to
c o mp r o mi s e t h e t a x l i a b i l i t y o f P NO C.
Wh i l e t h e a f o r e s a i d Mo t i o n f o r R e c o n s i d e r a t i o n wa s s t i l l pending with the
BIR, private respondent Savellano filed a Petition for Review with the CTA, Alleging
that CIR acted
with grave abuse of discretion in entering into a compromise agreement that
resulted in "a gross and unconscionable diminution" of
his reward.P r i v a t e r e s p o n d e n t S a v e l l a n o p r a y e d f o r t h e e n f o r c e m e
nt and collection of the total taxassessment against taxpay
e r P N O C a n d / o r withholding agent PNB; and the payment to him by
CIR of the 15% informer's reward on the total
taxc o l l e c t e d . T h e C T A r u l e d t h a t t h e c o m p r o m i s e a g r e e m e n t b e t w
e e n B I R a n d P N B a n d P N O C i s without force, and ruled that Private
respondent be paid the balance of the informers reward .PNB assailed the decision of CTA
on ground that the BIR demand letter should be considered as a new
assessment against PNB. As a new assessment, it gave rise to a new dispute
and controversy solely
between the BIR and PNB that should be administratively
settled or adjudicated

Held:

(ang haba ng case)

Jurisdiction of the CTA

A. The demand letter, dated 16 January 1991 did not constitute a new
assessment against PNB.

The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No.
4249 is that the BIR demand letter, dated 16 January 1991,53 should be considered as
a new assessment against PNB. As a new assessment, it gave rise to a new dispute
and controversy solely between the BIR and PNB that should be administratively
settled or adjudicated, as provided in P.D. No. 242.
This argument is without merit. The issuance by the BIR of the demand letter, dated
16 January 1991, was merely a development in the continuing effort of the BIR to
collect the tax assessed against PNOC and PNB way back in 1986.

BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle
its tax liability. The BIR subsequently sent another letter, dated 08 October 1986, to
PNB, as withholding agent, demanding payment of the tax it had failed to withhold on
the interest earnings and/or yields from PNOC's money placements. PNOC wrote the
BIR three succeeding letters offering to compromise its tax liability; PNB, on the other
hand, did not act on the demand letter it received, dated 08 October 1986. The BIR
and PNOC eventually reached a compromise agreement on 22 June 1987. Private
respondent Savellano questioned the validity of the compromise agreement because
the reduced amount of tax collected from PNOC, by virtue of the compromise
agreement, also proportionately reduced his informer's reward. Private respondent
Savellano then requested the BIR Commissioner to review and reconsider the
compromise agreement. Acting on the request of private respondent Savellano, the
new BIR Commissioner declared the compromise agreement to be without basis and
issued the demand letter, dated 16 January 1991, against PNB, as the withholding
agent for PNOC.

It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could
not stand alone as a new assessment. It should always be considered in the factual
context summarized above.

In fact, the demand letter, dated 16 January 1991, actually referred to the withholding
tax assessment first issued in 1986 and its eventual settlement through a compromise
agreement. In addition, the computation of the deficiency withholding tax was based
on the figures from the 1986 assessments against PNOC and PNB, and BIR no longer
conducted a new audit or investigation of either PNOC and PNB before it issued the
demand letter on 16 January 1991.

These constant references to past events and circumstances demonstrate that the
demand letter, dated 16 January 1991, was not a new assessment, but rather, the
latest action taken by the BIR to collect on the tax assessments issued against PNOC
and PNB in 1986.
PNB argues that the demand letter, dated 16 January 1991, introduced a new
controversy. We see it differently as the said demand letter presented the resolution
by BIR Commissioner Ong of the previous controversy involving the compromise of the
1986 tax assessments. BIR Commissioner Ong explicitly declared therein that the
compromise agreement was without legal basis, and requested PNB, as the
withholding agent, to pay the amount of withholding tax still due.

B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of
Republic Act No. 1125.

Having established that the BIR demand letter, dated 16 January 1991, did not
constitute a new assessment, then, there could be no basis for PNB's claim that any
dispute arising from the new assessment should only be between BIR and PNB.

Still proceeding from the argument that there was a new dispute between PNB and
BIR, PNB sought the suspension of the proceedings in CTA Case No. 4249, after it
contested the deficiency withholding tax assessment against it and the demand for
payment thereof before the DOJ, pursuant to P.D. No. 242. The CTA, however,
correctly sustained its jurisdiction and continued the proceedings in CTA Case No.
4249; and, in effect, rejected DOJ's claim of jurisdiction to administratively settle or
adjudicate BIR's assessment against PNB.

The CTA assumed jurisdiction over the Petition for Review filed by private respondent
Savellano based on the following provision of Rep. Act No. 1125, the Act creating the
Court of Tax Appeals:

SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive


appellate jurisdiction to review by appeal, as herein provided -

(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; . . . (Underscoring ours.)

In his Petition before the CTA, private respondent Savellano requested a review of the
decisions of then BIR Commissioner Tan to enter into a compromise agreement with
PNOC and to reject his claim for additional informer's reward. He submitted before the
CTA questions of law involving the interpretation and application of (1) E.O. No. 44,
and its implementing rules and regulations, which authorized the BIR Commissioner to
compromise delinquent accounts and disputed assessments pending as of 31
December 1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977
(NIRC of 1977), as amended, which granted to the informer a reward equivalent to
15% of the actual amount recovered or collected by the BIR.54 These should
undoubtedly be considered as matters arising from the NIRC and other laws being
administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act
No. 1125.

PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency
withholding tax assessment by virtue of P.D. No. 242. Provisions on jurisdiction of
P.D. No. 242 read:

SECTION 1. Provisions of law to the contrary notwithstanding, all disputes,


claims and controversies solely between or among the departments, bureaus,
offices, agencies, and instrumentalities of the National Government, including
government-owned or controlled corporations, but excluding constitutional offices
or agencies, arising from the interpretation and application of statutes, contracts
or agreements, shall henceforth be administratively settled or adjudicated as
provided hereinafter; Provided, That this shall not apply to cases already pending
in court at the time of the effectivity of this decree.

SECTION 2. In all cases involving only questions of law, the same shall be
submitted to and settled or adjudicated by the Secretary of Justice, as Attorney
General and ex officio legal adviser of all government-owned or controlled
corporations and entities, in consonance with Section 83 of the Revised
Administrative Code. His ruling or determination of the question in each case
shall be conclusive and binding upon all the parties concerned.

SECTION 3. Cases involving mixed questions of law and of fact or only factual
issues shall be submitted to and settled or adjudicated by:

(a) The Solicitor General, with respect to disputes or claims controversies


between or among the departments, bureaus, offices and other agencies of
the National Government;
(b) The Government Corporate Counsel, with respect to disputes or claims
or controversies between or among government-owned or controlled
corporations or entities being served by the Office of the Government
Corporate Counsel; and

(c) The Secretary of Justice, with respect to all other disputes or claims or
controversies which do not fall under the categories mentioned in
paragraphs (a) and (b).

The PNB and DOJ are of the same position that P.D. No. 242, the more recent law,
repealed Section 7(1) of Rep. Act No. 1125,55 based on the pronouncement of this
Court in Development Bank of the Philippines v. Court of Appeals, et al., 56] quoted
below:

The Court expresses its entire agreement with the conclusion of the Court of
Appeals and the basic premises thereof that there is an "irreconcilable
repugnancybetween Section 7(2) of R.A. No. 1125 and P.D. No. 242," and
hence, that the later enactment (P.D. No. 242), being the latest expression of the
legislative will, should prevail over the earlier.

In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of
Rep. Act No. 1125, which provides for the exclusive appellate jurisdiction of the CTA
over decisions of the Commissioner of Customs. PNB contends that P.D. No. 242
should be deemed to have likewise repealed Section 7(1) of Rep. Act No. 1125, which
provide for the exclusive appellate jurisdiction of the CTA over decisions of the BIR
Commissioner.57

After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No.
242, this Court finds itself in disagreement with the pronouncement made
in Development Bank of the Philippines v. Court of Appeals, et al.,58and refers to the
earlier case of Lichauco & Company, Inc. v. Apostol, et al.,59 for the guidelines in
determining the relation between the two statutes in question, to wit:

The cases relating to the subject of repeal by implication all proceed on the
assumption that if the act of later date clearly reveals an intention on the part of
the law making power to abrogate the prior law, this intention must be given
effect; but there must always be a sufficient revelation of this intention, and it has
become an unbending rule of statutory construction that the intention to repeal a
former law will not be imputed to the Legislature when it appears that the two
statutes, or provisions, with reference to which the question arises bear to each
other the relation of general to special. (Underscoring ours.)

When there appears to be an inconsistency or conflict between two statutes and one of
the statutes is a general law, while the other is a special law, then repeal by implication
is not the primary rule applicable. The following rule should principally govern instead:

Specific legislation upon a particular subject is not affected by a general law upon
the same subject unless it clearly appears that the provisions of the two laws are
so repugnant that the legislators must have intended by the later to modify or
repeal the earlier legislation. The special act and the general law must stand
together, the one as the law of the particular subject and the other as the general
law of the land. (Ex Parte United States, 226 U. S., 420; 57 L. ed., 281; Ex Parte
Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St. Louis & S. F. R. Co.,
204 Fed. Rep., 970.)

Where there are two acts or provisions, one of which is special and particular,
and certainly includes the matter in question, and the other general, which, if
standing alone, would include the same matter and thus conflict with the special
act or provision, the special must be taken as intended to constitute an exception
to the general act or provision, especially when such general and special acts or
provisions are contemporaneous, as the Legislature is not to be presumed to
have intended a conflict. (Crane v. Reeder and Reeder, 22 Mich., 322, 334;
University of Utah vs. Richards, 77 Am. St. Rep., 928.)60

It has, thus, become an established rule of statutory construction that between a


general law and a special law, the special law prevails Generalia specialibus non
derogant.61

Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is
a general law that deals with administrative settlement or adjudication of disputes,
claims and controversies between or among government offices, agencies and
instrumentalities, including government-owned or controlled corporations. Its coverage
is broad and sweeping, encompassing all disputes, claims and controversies. It has
been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the
Revised Administrative Code of the Philippines.62 On the other hand, Rep. Act No.
1125 is a special law63 dealing with a specific subject matter the creation of the CTA,
which shall exercise exclusive appellate jurisdiction over the tax disputes and
controversies enumerated therein.

Following the rule on statutory construction involving a general and a special law
previously discussed, then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act
No. 1125, specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an
exception to P.D. No. 242. Disputes, claims and controversies, falling under Section 7
of Rep. Act No. 1125, even though solely among government offices, agencies, and
instrumentalities, including government-owned and controlled corporations, remain in
the exclusive appellate jurisdiction of the CTA. Such a construction resolves the
alleged inconsistency or conflict between the two statutes, and the fact that P.D. No.
242 is the more recent law is no longer significant.

Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No.
1125, the present dispute would still not be covered by P.D. No. 242. Section 1 of P.D.
No. 242 explicitly provides that only disputes, claims and controversies solely between
or among departments, bureaus, offices, agencies, and instrumentalities of the
National Government, including constitutional offices or agencies, as well as
government-owned and controlled corporations, shall be administratively settled or
adjudicated. While the BIR is obviously a government bureau, and both PNOC and
PNB are government-owned and controlled corporations, respondent Savellano is a
private citizen. His standing in the controversy could not be lightly brushed aside. It
was private respondent Savellano who gave the BIR the information that resulted in
the investigation of PNOC and PNB; who requested the BIR Commissioner to
reconsider the compromise agreement in question; and who initiated CTA Case No.
4249 by filing a Petition for Review.

In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this Court
upheld the jurisdiction of the Court of Industrial Relations over the ordinary courts and
justified its decision in the following manner:

We are unprepared to break away from the teaching in the cases just adverted
to. To draw a tenuous jurisdictional line is to undermine stability in labor
litigations. A piecemeal resort to one court and another gives rise to multiplicity
of suits. To force the employees to shuttle from one court to another to secure
full redress is a situation gravely prejudicial. The time to be lost, effort wasted,
anxiety augmented, additional expense incurred these are considerations
which weigh heavily against split jurisdiction. Indeed, it is more in keeping with
orderly administration of justice that all the causes of action here "be cognizable
and heard by only one court: the Court of Industrial Relations."

The same justification is used in the present case to reject DOJ's jurisdiction over the
BIR and PNB, to the exclusion of the other parties. The rights of all four parties in CTA
Case No. 4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB, the
withholding agent; and private respondent Savellano, the informer claiming his reward;
arose from the same factual background and were so closely interrelated, that a
pronouncement as to one would definitely have repercussions on the others. The ends
of justice were best served when the CTA continued to exercise its jurisdiction over
CTA Case No. 4249. The CTA, which had assumed jurisdiction over all the parties to
the controversy, could render a comprehensive resolution of the issues raised and
grant complete relief to the parties.

II

Validity of the Compromise Agreement

A. PNOC could not apply for a compromise under E.O. No. 44 because its tax
liability was not a delinquent account or a disputed assessment as of 31
December 1985.

PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case
No. 4249 declaring the compromise agreement between BIR and PNOC without force
and effect.

PNOC asserts that the compromise agreement was in accordance with E.O. No. 44,
and its implementing rules and regulations, and should be binding upon the parties
thereto.

E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the
power to compromise any disputed assessment or delinquent account pending as of
31 December 1985, upon the payment of an amount equal to 30% of the basic tax
assessed; in which case, the corresponding interests and penalties shall be
condoned. E.O. No. 44 took effect on 04 September 1986 and remained effective until
31 March 1987.

The disputed assessments or delinquent accounts that the BIR Commissioner could
compromise under E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-
86, as follows:

a) Delinquent account Refers to the amount of tax due on or before December


31, 1985 from a taxpayer who failed to pay the same within the time prescribed
for its payment arising from (1) a self assessed tax, whether or not a tax return
was filed, or (2) a deficiency assessment issued by the BIR which has become
final and executory.

Where no return was filed, the taxpayer shall be considered delinquent as of the
time the tax on such return was due, and in availing of the compromise, a tax
return shall be filed as a basis for computing the amount of compromise to be
paid.

b) Disputed assessment refers to a tax assessment disputed or protested on


or before December 31, 1985 under any of the following categories:

1) if the same is administratively protested within thirty (30) days from the
date the taxpayer received the assessment, or

2.) if the decision of the BIR on the taxpayer's administrative protest is


appealed by the taxpayer before an appropriate court.

PNOC's tax liability could not be considered a delinquent account since (1) it was not
self-assessed, because the BIR conducted an investigation and assessment of PNOC
and PNB after obtaining information regarding the non-withholding of tax from private
respondent Savellano; and (2) the demand letter, issued against it on 08 August 1986,
could not have been a deficiency assessment that became final and executory by 31
December 1985.

The dissenting opinion contends, however, that the tax liability of PNOC constitutes a
self-assessed tax, and is, therefore, a delinquent account as of 31 December 1985,
qualifying for a compromise under E.O. No. 44. It anchors its argument on the
declaration made by this Court in Tupaz v. Ulep,65 that internal revenue taxes are self-
assessing.

It is not denied herein that the self-assessing system governs Philippine internal
revenue taxes. The dissenting opinion itself defines self-assessed tax as, "a tax that
the taxpayer himself assesses or computes and pays to the taxing authority." Clearly,
such a system imposes upon the taxpayer the obligation to conduct an assessment of
himself so he could determine and declare the amount to be used as tax basis, any
deductions therefrom, and finally, the tax due.

E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The
phrase "whether or not a tax return was filed" only refers to the compliance by the
taxpayer with the obligation to file a return on the dates specified by law, but it does not
do away with the requisite that the tax must be self-assessed in order for the taxpayer
to avail of the compromise. The second paragraph of Section 2(a) of RR No. 17-86
expressly commands, and still imposes upon the taxpayer, who is availing of the
compromise under E.O. No. 44, and who has not previously filed any return, the duty
to conduct self-assessment by filing a tax return that would be used as the basis for
computing the amount of compromise to be paid.

Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after
conducting a self-assessment, discovers or becomes aware that he had failed to pay a
tax due on or before 31 December 1985, regardless of whether he had previously filed
a return to reflect such tax; voluntarily comes forward and admits to the BIR his tax
liability; and applies for a compromise thereof. In case the taxpayer has not previously
filed any return, he must fill out such a return reflecting therein his own declaration of
the taxable amount and computation of the tax due. The compromise payment shall
be computed based on the amount reflected in the tax return submitted by the taxpayer
himself.

Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively,
conducted self-assessment in this case. There is no showing that in the absence of
the tax assessment issued by the BIR against them, that PNOC and/or PNB would
have voluntarily admitted their tax liabilities, already amounting to P385,961,580.82, as
of 15 November 1986, and would have offered to compromise the same. In fact, both
PNOC and PNB were conspicuously silent about their tax liabilities until they were
assessed thereon.

Any attempt by PNOC and PNB to assess and declare by themselves their tax
liabilities had already been overtaken by the BIR's conduct of its audit and investigation
and subsequent issuance of the assessments, dated 08 August 1986 and 08 October
1986, against PNOC and PNB, respectively. The said tax assessments, uncontested
and undisputed, presented the results of the BIR audit and investigation and the
computation of the total amount of tax liabilities of PNOC and PNB. They should be
controlling in this case, and should not be so easily and conveniently ignored and set
aside. It would be a contradiction to claim that the tax liabilities of PNOC and PNB are
self-assessed and, at the same time, BIR-assessed; when it is clear and simple that it
had been the BIR that conducted the assessment and determined the tax liabilities of
PNOC and PNB.

That the BIR-assessed tax liability should be differentiated from a self-assessed one, is
supported by the provisions of RR No. 17-86 on the basis for computing the amount of
compromise payment. Note that where tax liabilities are self-assessed, the
compromise payment shall be computed based on the tax return filed by the
taxpayer.66 On the other hand, where the BIR already issued an assessment, the
compromise payment shall be computed based on the tax due on the assessment
notice.67

For instances where the BIR had already issued an assessment against the taxpayer,
the tax liability could still be compromised under E.O. No. 44 only if: (1) the
assessment had been final and executory on or before 31 December 1985 and,
therefore, considered a delinquent account as of said date;68 or (2) the assessment
had been disputed or protested on or before 31 December 1985.69

RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44,
does mention different types of assessments that may be compromised under said
statute (i.e., jeopardy assessments, arbitrary assessments, and tax assessments of
doubtful validity). RMO No. 39-86 may not have expressly stated any qualification for
these particular types of assessments; nonetheless, E.O. No. 44 specifically refers only
to assessments that were delinquent or disputed as of 31 December 1985.
E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so
that they are harmonized and consistent with each other. Accordingly, this Court finds
that the different types of assessments mentioned in RMO No. 39-86 would still have
to qualify as delinquent accounts or disputed assessments as of 31 Dcember 1985, so
that they could be compromised under E.O. No. 44.

The BIR had first written to PNOC on 08 August 1986, demanding payment of the
income tax on the interest earnings and/or yields from PNOC's money placements with
PNB from 15 October 1984 to 15 October 1986. This demand letter could be regarded
as the first assessment notice against PNOC.

Such an assessment, issued only on 08 August 1986, could not have been final and
executory as of 31 December 1985 so as to constitute a delinquent account. Neither
was the assessment against PNOC an assessment that could have been disputed or
protested on or before 31 December 1985, having been issued on a later date.

Given that PNOC's tax liability did not constitute a delinquent account or a disputed
assessment as of 31 December 1985, then it could not be compromised under E.O.
No. 44.

The assessment against PNOC, instead, was more appropriately covered by Revenue
Memorandum Circular (RMC) No. 31-86. RMC No. 31-86 clarifies the scope of
availment of the tax amnesty under E.O. No. 4170 and compromise payments on
delinquent accounts and disputed assessments under E.O. No. 44. The third
paragraph of RMC No. 31-86 reads:

[T]axpayers against whom assessments had been issued from January 1 to


August 21, 1986 may settle their tax liabilities by way of compromise under
Section 246 of the Tax Code as amended by paying 30% of the basic
assessment excluding surcharge, interest, penalties and other increments
thereto.

The above-quoted paragraph supports the position that only assessments that were
disputed or that were final and executory by 31 December 1985 could be the subject of
a compromise under E.O. No. 44. Assessments issued between 01 January to 21
August 1986 could still be compromised by payment of 30% of the basic tax assessed,
not anymore pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977,
as amended.

Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the
authority to compromise the payment of any internal revenue tax under the following
circumstances: (1) there exists a reasonable doubt as to the validity of the claim
against the taxpayer; or (2) the financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.71

There are substantial differences in circumstances under which compromises may be


granted under Section 246 of the NIRC of 1977, as amended, and E.O. No.
44. Although PNOC and PNB have extensively argued their entitlement to
compromise under E.O. No. 44, neither of them has alleged, much less, has presented
any evidence to prove that it may compromise its tax liability under Section 246 of the
NIRC of 1977, as amended.

B. The tax liability of PNB as withholding agent also did not qualify for
compromise under E.O. No. 44.

Before proceeding any further, this Court reconsiders the conclusion made by BIR
Commissioner Ong in his demand letter, dated 16 January 1991, that the compromise
settlement executed between the BIR and PNOC was without legal basis because
withholding taxes were not actually taxes that could be compromised, but a penalty for
PNB's failure to withhold and for which it was made personally liable.

E.O. No. 44 covers disputed or delinquency cases where the person assessed was
himself the taxpayer rather than a mere agent.72 RMO No. 39-86 expressly allows a
withholding agent, who failed to withhold the required tax because of neglect,
ignorance of the law, or his belief that he was not required by law to withhold tax, to
apply for a compromise settlement of his withholding tax liability under E.O. No. 44. A
withholding agent, in such a situation, may compromise the withholding tax
assessment against him precisely because he is being held directly accountable for the
tax.73

RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation
from the withholding agent who withheld the tax but failed to remit the amount to the
Government. A withholding agent in the latter situation is the one disqualified from
applying for a compromise settlement because he is being made accountable as an
agent, who held funds in trust for the Government.74

Both situations, however, involve withholding agents. The right to compromise under
these provisions should have been claimed by PNB, the withholding agent for
PNOC. The BIR held PNB personally accountable for its failure to withhold the tax on
the interest earnings and/or yields from PNOC's money placements with PNB. The
BIR sent a demand letter, dated 08 October 1986, addressed directly to PNB, for
payment of the withholding tax assessed against it, but PNB failed to take any action
on the said demand letter. Yet, all the offers to compromise the withholding tax
assessment came from PNOC and PNOC did not claim that it made the offers to
compromise on behalf of PNB.

Moreover, the general requirement of E.O. No. 44 still applies to withholding agents
that the withholding tax liability must either be a delinquent account or a disputed
assessment as of 31 December 1985 to qualify for compromise settlement. The
demand letter against PNB, which also served as its assessment notice, had been
issued on 08 October 1986 or two months later than PNOC's. PNB's withholding tax
liability could not be considered a delinquent account or a disputed assessment, as
defined under RR No. 17-86, for the same reasons that PNOC's tax liability did not
constitute as such. The tax liability of PNB, therefore, was also not eligible for
compromise settlement under E.O. No. 44.

C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44,
their application for compromise was filed beyond the deadline.

Despite already ruling that the tax liabilities of PNOC and PNB could not be
compromised under E.O. No. 44, this Court still deems it necessary to discuss the
finding of the CTA that the compromise agreement had been filed beyond the
effectivity of E.O. No. 44, since the CTA made a declaration in relation thereto that
paragraph 2 of RMO No. 39-86 was null and void for unduly extending the effectivity of
E.O. No. 44.

Paragraph 2 of RMO No. 39-86 provides that:

2. Period for availment. Filing of application for compromise settlement under


the said law shall be effective only until March 31, 1987. Applications filed on or
before this date shall be valid even if the payment or payments of the
compromise amount shall be made after the said date, subject, however, to the
provisions of Executive Order No. 44 and its implementing Revenue Regulations
No. 17-86.

It is well-settled in this jurisdiction that administrative authorities are vested with the
power to make rules and regulations because it is impracticable for the lawmakers to
provide general regulations for various and varying details of management. The
interpretation given to a rule or regulation by those charged with its execution is
entitled to the greatest weight by the court construing such rule or regulation, and such
interpretation will be followed unless it appears to be clearly unreasonable or
arbitrary.75

RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable
or arbitrary. It does not unduly expand the coverage of E.O. No. 44 by merely
providing that applications for compromise filed until 31 March 1987 are still valid, even
if payment of the compromised amount is made on a later date.

It cannot be expected that the compromise allowed under E.O. No. 44 can be
automatically granted upon mere filing of the application by the taxpayer. Irrefutably,
the applications would still have to be processed by the BIR to determine compliance
with the requirements of E.O. No. 44. As it is uncontested that a taxpayer could still file
an application for compromise on 31 March 1987, the very last day of effectivity of E.O.
No. 44, it would be unreasonable to expect the BIR to process and approve the
taxpayer's application within the same date considering the volume of applications filed
and pending approval, plus the other matters the BIR personnel would also have to
attend to. Thus, RMO No. 39-86 merely assures the taxpayers that their applications
would still be processed and could be approved on a later date. Payment, of course,
shall be made by the taxpayer only after his application had been approved and the
compromised amount had been determined.

Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be
addressed is whether PNOC had been able to submit an application for compromise
on or before 31 March 1987 in compliance thereof. Although the compromise
agreement was executed only on 22 June 1987, PNOC is claiming that it had already
written a letter to the BIR, as early as 25 September 1986, offering to compromise its
tax liability, and that the said letter should be considered as PNOC's application for
compromise settlement.

A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that the
terms of its proposed compromise did not conform to those authorized by E.O. No.
44. PNOC did not offer to pay outright 30% of the basic tax assessed against it as
required by E.O. No. 44; and instead, made the following offer:

(2) That PNOC be permitted to set-off its foregoing mentioned tax liability
of P304,419,396.83 against the tax refund/credit claims of the National Power
Corporation (NPC) for specific taxes on fuel oil sold to NPC
totaling P335,259,450.21, which tax refunds/credits are actually receivable
accounts of our Company from NPC.76

PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.77 The BIR, in
its letters to PNOC, dated 8 October 198678 and 11 November 1986,79 consistently
denied PNOC's offer because the claim for tax refund/credit of NAPOCOR was still
under process, so that the offer to set-off such claim against PNOC's tax liability was
premature.

Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a


tax liability against a claim for tax refund/credit. Compromise under E.O. No. 44 may
be availed of only in the following circumstances:

SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a
compromise any delinquent account or disputed assessment which has been
due as of December 31, 1985, by paying an amount equal to thirty percent
(30%) of the basic tax assessed.

SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise,


the amount offered as compromise in complete settlement of the delinquent
account shall be paid immediately in cash or manager's certified check.

Deferred or staggered payments of compromise amounts over P50,000 may be


considered on a case to case basis in accordance with the extant regulations of
the Bureau upon approval of the Commissioner of Internal Revenue, his Deputy
or Assistant as delineated in their respective jurisdictions.

If the Compromise amount is not paid as required herein, the compromise


agreement is automatically nullified and the delinquent account reverted to the
original amount plus the statutory increments, which shall be collected thru the
summary and/or judicial processes provided by law.

E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax
liability by paying the compromise amount equivalent to 30% of the basic tax. It also
benefits the Government by making collection of delinquent accounts and disputed
assessments simpler, easier, and faster. Payment of the compromise amount must be
made immediately, in cash or in manager's check. Although deferred or staggered
payments may be allowed on a case-to-case basis, the mode of payment remains
unchanged, and must still be made either in cash or in manager's check.

PNOC's offer to set-off was obviously made to avoid actual cash-out by the company.
The offer defeated the purpose of E.O. No. 44 because it would not only delay
collection, but more importantly, it would not guarantee collection. First of all, BIR's
collection was contingent on whether the claim for tax refund/credit of NAPOCOR
would be subsequently granted. Second, collection could not be made immediately
and would have to wait until the resolution of the claim for tax refund/credit of
NAPOCOR. Third, there is no proof, other than the bare allegation of PNOC, that
NAPOCOR's claim for tax refund/credit is an account receivable of PNOC. A possible
dispute between NAPOCOR and PNOC as to the proceeds of the tax refund/credit
would only delay collection by the BIR even further.

It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise
its tax liability in accordance with the terms and circumstances prescribed by E.O. No.
44 and its implementing rules and regulations, by stating that:

Consequently, we reiterate our previous request for compromise under E.O. No.
44, and convey our preparedness to settle the subject tax assessment liability by
payment of the compromise amount ofP91,003,129.89, representing thirty
percent (30%) of the basic tax assessment of P303,343,766.29, in accordance
with E.O. No. 44 and its implementing BIR Revenue Memorandum Order No. 39-
86.80
PNOC claimed in the same letter that it had previously requested for a compromise
under the terms of E.O. No. 44, but this Court could not find evidence of such previous
request. There are stark and substantial differences in the terms of PNOC's offer to
compromise in its earlier letters, dated 25 September 1986 and 14 October 1986 (set-
off of the entire amount of its tax liability against the claim for tax refund/credit of
NAPOCOR), to those in its letter, dated 09 June 1987 (payment of the compromise
amount representing 30% of the basic tax assessed against it), making it difficult for
this Court to accept that the letter of 09 June 1987 merely reiterated PNOC's offer to
compromise in its earlier letters.

This Court likewise cannot give credence to PNOC's allegation that beginning 25
September 1986, the date of its first letter to the BIR, there were continuing
negotiations between PNOC and BIR that culminated in the compromise agreement on
22 June 1987. Aside from the exchange of letters recounted in the preceding
paragraphs, both PNOC and PNB failed to present any other proof of the supposed
negotiations.

After the BIR denied the second offer of PNOC to set-off its tax liability against the
claim for tax refund/credit of NAPOCOR in a letter, dated 11 November 1986, there is
no other evidence of subsequent communication between PNOC and the BIR. It was
only after almost seven months, or on 09 June 1987, that PNOC again wrote a letter to
the BIR, this time offering to pay the compromise amount of 30% of the basic tax
assessed against. This letter was already filed beyond 31 March 1987, after the lapse
of the effectivity of E.O. No. 44 and the deadline for filing applications for compromise
under the said statute.

Evidence of meetings between PNOC and the BIR, or any other form of
communication, wherein the parties presented their offer and counter-offer to the other,
would have been very valuable in explaining and supporting BIR Commissioner Tan's
decision to accept PNOC's third offer to compromise after denying the previous
two. The absence of such evidence herein negates PNOC's claim of actual
negotiations with the BIR.

Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as
delinquent accounts or disputed assessments as of 31 December 1985, the application
for compromise filed by PNOC on 09 June 1987, and accepted by then BIR
Commissioner Tan on 22 June 1987, was still filed way beyond 31 March 1987, the
expiration date of the effectivity of E.O. No. 44 and the deadline for filing of applications
for compromise under RMO No. 39-86.

D. The BIR Commissioner's discretionary authority to enter into a compromise


agreement is not absolute and the CTA may inquire into allegations of abuse
thereof.

The foregoing discussion supports the CTA's conclusion that the compromise
agreement between PNOC and the BIR was indeed without legal basis. Despite this
lack of legal support for the execution of the said compromise agreement, PNB argues
that the CTA still had no jurisdiction to review and set aside the compromise
agreement. It contends that the authority to compromise is purely discretionary on the
BIR Commissioner and the courts cannot interfere with his exercise thereof.

It is generally true that purely administrative and discretionary functions may not be
interfered with by the courts; but when the exercise of such functions by the
administrative officer is tainted by a failure to abide by the command of the law, then it
is incumbent on the courts to set matters right, with this Court having the last say on
the matter.81

The manner by which BIR Commissioner Tan exercised his discretionary power to
enter into a compromise was brought under the scrutiny of the CTA amidst allegations
of "grave abuse of discretion and/or whimsical exercise of jurisdiction."82 The
discretionary power of the BIR Commissioner to enter into compromises cannot be
superior over the power of judicial review by the courts.

The discretionary authority to compromise granted to the BIR Commissioner is never


meant to be absolute, uncontrolled and unrestrained. No such unlimited power may be
validly granted to any officer of the government, except perhaps in cases of national
emergency.83 In this case, the BIR Commissioner's authority to compromise, whether
under E.O. No. 44 or Section 246 of the NIRC of 1977, as amended, can only be
exercised under certain circumstances specifically identified in said statutes. The BIR
Commissioner would have to exercise his discretion within the parameters set by the
law, and in case he abuses his discretion, the CTA may correct such abuse if the
matter is appealed to them.84
Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely
exercised his authority to enter into a compromise specially granted by E.O. No.
44. Since this Court has already made a determination that the compromise
agreement did not qualify under E.O. No. 44, BIR Commissioner Tan's decision to
agree to the compromise should have been reviewed in the light of the general
authority granted to the BIR Commissioner to compromise taxes under Section 246 of
the NIRC of 1977, as amended. Then again, petitioners PNOC and PNB failed to
allege, much less present evidence, that BIR Commissioner Tan acted in accordance
with Section 246 of the NIRC of 1977, as amended, when he entered into the
compromise agreement with PNOC.

E. The CTA may set aside a compromise agreement that is contrary to law and
public policy.

PNB also asserts that the CTA had no jurisdiction to set aside a compromise
agreement entered into in good faith. It relies on the decision of this Court in Republic
v. Sandiganbayan85 that a compromise agreement cannot be set aside merely because
it is too one-sided. A compromise agreement should be respected by the courts as the
res judicata between the parties thereto.

This Court, though, finds that there are substantial differences in the factual
background of Republic v. Sandiganbayan and the present case.

The compromise agreement executed between the Presidential Commission on Good


Government (PCGG) and Roberto S. Benedicto in Republic v. Sandiganbayan was
judicially approved by the Sandiganbayan. The Sandiganbayan had ample opportunity
to examine the validity of the compromise agreement since two years elapsed from the
time the agreement was executed up to the time it was judicially approved. This Court
even stated in the said case that, "We are not dealing with the usual compromise
agreement perfunctorily submitted to a court and approved as a matter of course. The
PCGG-Benedicto agreement was thoroughly and, at times, disputatiously discussed
before the respondent court. There could be no deception or misrepresentation foisted
on either the PCGG or the Sandiganbayan."86

In addition, the new PCGG Chairman originally prayed for the re-negotiation of the
compromise agreement so that it could be more just, fair, and equitable, an action
considered by this Court as an implied admission that the agreement was not contrary
to law, public policy or morals nor was there any circumstance which had vitiated
consent.87

The above-mentioned circumstances strongly supported the validity of the compromise


agreement in Republic v. Sandiganbayan, which was why this Court refused to set it
aside. Unfortunately for the petitioners in the present case, the same cannot be said
herein.

The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the
compromise agreement, ruled that:

We are unable to accept petitioner's submissions. Its formulation of the issues


on CIR and CTA's lack of jurisdiction to disturb a compromise agreement
presupposes a compromise agreement validly entered into by the CIR and not,
when as in this case, it was indubitably shown that the supposed compromise
agreement is without legal support. In case of arbitrary or capricious exercise by
the Commissioner or if the proceedings were fatally defective, the compromise
can be attacked and reversed through the judicial process (Meralco Securities
Corporation v. Savellano, 117 SCRA 805, 812 [1982]; Sarah E. Ramsay, et. al. v.
U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp.
135 cited in page 18 of decision) .88

Although the general rule is that compromises are to be favored, and that
compromises entered into in good faith cannot be set aside,89 this rule is not without
qualification. A court may still reject a compromise or settlement when it is repugnant
to law, morals, good customs, public order, or public policy.90

The compromise agreement between the BIR and PNOC was contrary to law having
been entered into by BIR Commissioner Tan in excess or in abuse of the authority
granted to him by legislation. E.O. No. 44 and the NIRC of 1977, as amended, had
identified the situations wherein the BIR Commissioner may compromise tax liabilities,
and none of these situations existed in this case.

The compromise, moreover, was contrary to public policy. The primary duty of the BIR
is to collect taxes, since taxes are the lifeblood of the Government and their prompt
and certain availability are imperious needs.91 In the present case, however, BIR
Commissioner Tan, by entering into the compromise agreement that was bereft of any
legal basis, would have caused the Government to lose almost P300 million in tax
revenues and would have deprived the Government of much needed monetary
resources.

Allegations of good faith and previous execution of the terms of the compromise
agreement on the part of PNOC would not be enough for this Court to disregard the
demands of law and public policy. Compromise may be the favored method to settle
disputes, but when it involves taxes, it may be subject to closer scrutiny by the
courts. A compromise agreement involving taxes would affect not just the taxpayer
and the BIR, but also the whole nation, the ultimate beneficiary of the tax revenues
collected.

F. The Government cannot be estopped from collecting taxes by the mistake,


negligence, or omission of its agents.

The new BIR Commissioner, Commissioner Ong, had acted well within his powers
when he set aside the compromise agreement, dated 22 June 1987, after finding that
the said compromise agreement was without legal basis. When he took over from his
predecessor, there was still a pending motion for reconsideration of the said
compromise agreement, filed by private respondent Savellano on 24 March 1988. To
resolve the said motion, he reviewed the compromise agreement and, thereafter, came
upon the conclusion that it did not comply with E.O. No. 44 and its implementing rules
and regulations.

It had been declared by this Court in Hilado v. Collector of Internal Revenue, et


al.,92 that an administrative officer, such as the BIR Commissioner, may revoke, repeal
or abrogate the acts or previous rulings of his predecessor in office. The construction
of a statute by those administering it is not binding on their successors if, thereafter,
the latter becomes satisfied that a different construction should be given.

It is evident in this case that the new BIR Commissioner, Commissioner Ong,
construed E.O. No. 44 and its implementing rules and regulations differently from that
of his predecessor, former Commissioner Tan, which led to Commissioner Ong's
revocation of the BIR approval of the compromise agreement, dated 22 June
1987. Such a revocation was only proper considering that the former BIR
Commissioner's decision to approve the said compromise agreement was based on
the erroneous construction of the law (i.e., E.O. No. 44 and its implementing rules and
regulations) and should not give rise to any vested right on PNOC.93

Furthermore, approval of the compromise agreement and acceptance of the


compromise payment by his predecessor cannot estop BIR Commissioner Ong from
setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis;
and from demanding payment of the deficiency withholding tax from PNB. As a
general rule, the Government cannot be estopped from collecting taxes by the mistake,
negligence, or omission of its agents94 because:

. . . Upon taxation depends the Government ability to serve the people for whose
benefit taxes are collected. To safeguard such interest, neglect or omission of
government officials entrusted with the collection of taxes should not be allowed
to bring harm or detriment to the people, in the same manner as private persons
may be made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This should
not hold true to government officials with respect to matters not of their own
personal concern. This is the philosophy behind the government's exception, as
a general rule, from the operation of the principle of estoppel. (Republic vs.
Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks, Inc. vs. Court of Appeals, L-41001,
September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-
41480, April 30, 1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66
SCRA 553;Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long
Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA
620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA
77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969,
28 SCRA 119).95

III

Finality of the Tax Assessment

A. The issue on whether the BIR complied with the notice requirements under
RR No. 12-85 is raised for the first time on appeal and should not be given due
course.
PNB, in another effort to block the collection of the deficiency withholding tax, this time
raises doubts as to the validity of the deficiency withholding tax assessment issued
against it on 16 January 1991. It submits that the BIR failed to comply with the notice
requirements set forth in RR No. 12-85.96

Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a
new issue raised by PNB only before this Court. Such a question has not been
ventilated before the lower courts. For an appellate tribunal to consider a legal
question, it should have been raised in the court below.97 If raised earlier, the matter
would have been seriously delved into by the CTA and the Court of Appeals.98

B. The assessment against PNB had become final and unappealable, and
therefore, enforceable.

The CTA and the Court of Appeals declared as final and unappealable, and thus,
enforceable, the assessment against PNB, dated 16 January 1991, since PNB failed to
protest said assessment within the 30-day prescribed period. This Court, though, finds
that the significant BIR assessment, as far as this case is concerned, should be the
one issued by the BIR against PNB on 08 October 1986.

The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax
liability on the interest earnings and/or yields from PNOC's money placements with the
bank. It had 30 days from receipt to protest the BIR's assessment. 99 PNB, however,
did not take any action as to the said assessment so that upon the lapse of the period
to protest, the withholding tax assessment against it, dated 8 October 1986, became
final and unappealable, and could no longer be disputed.100 The courts may therefore
order the enforcement of this assessment.

It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that
is in issue in the instant case. If the compromise agreement is valid, it would
effectively bar the BIR from enforcing the assessment and collecting the assessed tax;
on the other hand, if the compromise agreement is void, then the courts can order the
BIR to enforce the assessment and collect the assessed tax.

As has been previously discussed by this Court, the BIR demand letter, dated 16
January 1991, is not a new assessment against PNB. It only demanded from PNB the
payment of the balance of the withholding tax assessed against it on 08 October
1986. The same demand letter also has no substantial effect or impact on the
resolution of the present case. It is already unnecessary and superfluous, having been
issued by the BIR when CTA Case No. 4249 was already pending before the CTA. At
best, the demand letter, dated 16 January 1991, constitute a useful reference for the
courts in computing the balance of PNB's tax liability, after applying as partial payment
thereon the amount previously received by the BIR from PNOC pursuant to the
compromise agreement.

IV

Prescription

A. The defense of prescription was never raised by petitioners PNOC and PNB,
and should be considered waived.

The dissenting opinion takes the position that the right of the BIR to assess and collect
income tax on the interest earnings and/or yields from PNOC's money placements with
PNB, particularly for taxable year 1985, had already prescribed, based on Section 268
of the NIRC of 1977, as amended.

Section 268 of the NIRC of 1977, as amended, provides a three-year period of


limitation for the assessment and collection of internal revenue taxes, which begins to
run after the last day prescribed for filing of the return.101

The dissenting opinion points out that more than four years have elapsed from 25
January 1986 (the last day prescribed by law for PNB to file its withholding tax return
for the fourth quarter of 1985) to 16 January 1991 (the date when the alleged final
assessment of PNB's tax liability was issued).

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.102 In Querol v. Collector of Internal Revenue,103 this Court pronounced that
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 the date when the period started running and when the same was fully
accomplished.

In making its conclusion that the assessment and collection in this case had
prescribed, the dissenting opinion took liberties to assume the following facts even in
the absence of allegations and evidences to the effect that: (1) PNB filed returns for its
withholding tax obligations for taxable year 1985; (2) PNB reported in the said returns
the interest earnings of PNOC's money placements with the bank; and (3) that the
returns were filed on or before the prescribed date, which was 25 January 1986.

It is not safe to adopt the first and second assumptions in this case considering that
Section 269 of the NIRC of 1977, as amended, provides for a different period of
limitation for assessment and collection of taxes in case of false or fraudulent return or
for failure to file a return. In such cases, the BIR is given 10 years after discovery of
the falsity, fraud, or omission within which to make an assessment.104

It is also not safe to accept the third assumption since there can be a possibility that
PNB filed the withholding tax return later than the prescribed date, in which case,
following the dictates of Section 268 of the NIRC of 1977, as amended, the three-year
prescriptive period shall be counted from the date the return was actually filed.105

PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would
have been the best evidence to prove actual filing, the date of filing and the contents
thereof. These facts are relevant in determining which prescriptive period should
apply, and when such prescriptive period should begin to run and when it had
lapsed. Yet, the pleadings did not refer to any return, and no return was made part of
the records of the present case.

This Court could not make a proper ruling on the matter of prescription on the mere
basis of assumptions; such an issue should have been properly raised, argued, and
supported by evidences submitted by the parties themselves before the BIR and the
courts below.

B. Granting that this Court can take cognizance of the defense of prescription,
this Court finds that the assessment of the withholding tax liability against PNOC
and collection of the tax assessed were done within the prescriptive period.

Assuming, for the sake of argument, that this Court can give due course to the defense
of prescription, it finds that the assessment against PNB for its withholding tax liability
for taxable year 1985 and the collection of the tax assessed therein were accomplished
within the prescribed periods for assessment and collection under the NIRC of 1977,
as amended.

If this Court adopts the assumption made by the dissenting opinion that PNB filed its
withholding tax return for the last quarter of 1985 on 25 January 1986, then the BIR
had until 24 January 1989 to assess PNB. The original assessment against PNB was
issued as early as 08 October 1986, well-within the three-year prescriptive period for
making the assessment as prescribed by the following provisions of the NIRC of 1977,
as amended:

SEC. 268. Period of limitation upon assessment and collection. Except as


provided in the succeeding section, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period
SEC. 269. Exceptions as to period of limitation of assessment and collection of
taxes.

(c) Any internal revenue tax which has been assessed within the period of
limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.

Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in
conjunction with one another. Section 268 requires that assessment be made within
three years from the last day prescribed by law for the filing of the return. Section
269(c), on the other hand, provides that when an assessment is issued within the
prescribed period provided in Section 268, the BIR has three years, counted from the
date of the assessment, to collect the tax assessed either by distraint, levy or court
action. Therefore, when an assessment is timely issued in accordance with Section
268, the BIR is given another three-year period, under Section 269(c), within which to
collect the tax assessed, reckoned from the date of the assessment.

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 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.106

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. The prayer in the Amended
Petition for Review of private respondent Savellano reads:
WHEREFORE, in view of the foregoing, petitioner respectfully prays that the
compromise agreement of June 22, 1987 be reviewed and declared null and
void, and that this Court directs:

a) respondent Commissioner to enforce and collect and respondents PNB


and/or PNOC to pay in a joint and several capacity, the total tax
liability of P387,987,785.73, plus interests from 31 October 1986; and

b) respondent Commissioner to pay unto petitioner, as informer's reward,


15% of the tax liability collected under clause (a) hereof.

Other equitable reliefs under the premises are likewise prayed


for.107 (Underscoring ours.)

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 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.108 Just as in the cases of Republic v. Ker & Co.,
Ltd.109 and Protector's Services, Inc. v. Court of Appeals,110 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.

Once again, 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 three-year 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.

Whether the filing of the Amended Petition for Review by private respondent Savellano
entirely stops or merely suspends the running of the prescriptive period for collection of
the tax, it had been premature for the BIR Commissioner to issue a writ of garnishment
against PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the
account of PNB on 02 September 1992 pursuant to the said writ, because the case
was by then, pending review by the Court of Appeals. However, since this Court
already finds that the compromise agreement is without force and effect and hereby
orders the enforcement of the assessment against PNB, then, any issue or controversy
arising from the premature garnishment of PNB's account and collection of the tax by
the BIR has become moot and academic at this point.

Additional Informer's Reward

Private respondent Savellano is entitled to additional informer's reward since the BIR
had already collected the full amount of the tax assessment against PNB.

PNOC insists that private respondent Savellano is not entitled to additional informer's
reward because there was no voluntary payment of the withholding tax liability. PNOC,
however, fails to state any legal basis for its argument.
Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer
equivalent to 15% of the revenues, surcharges, or fees recovered, plus, any fine or
penalty imposed and collected.111 The provision was clear and uncomplicated an
informer was entitled to a reward of 15% of the total amount actually recovered or
collected by the BIR based on his information. The provision did not make any
distinction as to the manner the tax liability was collected whether it was through
voluntary payment by the taxpayer or through garnishment of the taxpayer's
property. Applicable herein is another well-known maxim in statutory construction
Ubi lex non distinguit nec nos distinguere debemos when the law does not
distinguish, we should not distinguish.112

Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit
advice against the demand deposit account of PNB with the Central Bank for the
amount of P294,958,450.73, and credited the same amount to the demand deposit
account of the Treasurer of the Republic of the Philippines. The Treasurer of the
Republic, in turn, already issued a journal voucher transferring P294,958,450.73 to the
account of the BIR.

Since the BIR had already collected P294,958,450.73 from PNB through the execution
of the writ of garnishment over PNB's deposit with the Central Bank, then private
respondent Savellano should be awarded 15% thereof as reward since the said
collection could still be traced to the information he had given.

WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No.
109976 and G.R. No. 112800, respectively, are hereby DENIED. This Court AFFIRMS
the assailed Decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R.
SP No. 29526, which affirmed the decision of the CTA in CTA Case No. 4249, with
modifications, to wit:

(1) The compromise agreement between PNOC and the BIR, dated 22 June
1987, is declared void for being contrary to law and public policy, and is without
force and effect;

(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;

(3)The withholding tax assessment against PNB, dated 08 October 1986, had
become final and unappealable. The BIR Commissioner is ordered to enforce
the said assessment and collect the amount ofP294,958,450.73, the balance of
tax assessed after crediting the previous payment made by PNOC pursuant to
the compromise agreement, dated 22 June 1987; and

(4) Private respondent Savellano shall be paid the remainder of his informer's
reward, equivalent to 15% of the deficiency withholding tax ordered collected
herein, or P 44,243,767.61.

SO ORDERED.

People of the Philippines vs Sandiganbayan and Bienvenido Tan, Jr. 2005 august
16 Taxation Abatement Defined

In July 1987, Commissioner of Internal Revenue (CIR) Bienvenido Tan, Jr. issued an
assessment against San Miguel Corporation (SMC) demanding payment of P342
million in taxes. SMC filed a request for reinvestigation. Tan granted the request and
eventually he reduced the tax liability to P302 million. But in October 1987, without any
word from SMC, Tan referred the case to the Legal Service Division of the BIR.
Various BIR officials reviewed the case and they recommended that SMCs tax
liability be reduced to P22 million (a significant reduction from the original P342
million). The reduction was justified by the BIR officials on the ground that the tax
examiners had made some errors in computing SMCs tax liability.
So SMC was demanded to pay P22 million but then SMC asked for a compromise of
P10 million. Again, the matter was referred to various BIR officials who agreed and
recommended to Tan that he should accept the compromise offer. Tan accepted the
P10 million compromise offer. This resulted to a criminal case against Tan for violation
of the Anti-Graft and Corrupt Practices Act. Allegedly, his act of accepting the P10
million compromise offer caused undue injury to the government and it gave SMC
unwarranted benefits due to the significantly reduced tax liability. The Sandiganbayan
originally convicted Tan but it reversed its own decision upon motion of Tan.
ISSUE: Whether or not Tan should have been convicted of the crime charged.
HELD: No. It was found by the Sandiganbayan that there was an improper
computation in the tax liability of SMC. The error basically imposed tax on top of
another tax which if allowed would be unfair to the taxpayer. It was therefore proper to
have the tax be reduced from P302 million to P22 million.
But is it proper for Tan to accept the P10 million compromise by SMC?
Tan is well within his power to accept the P10 million compromise offer. This is
actually abatement (not compromise as termed by SMC). Tan is actually prudent to
accept the P10 million offer so as to avoid a protracted and
costly litigation. Abatement is the diminution or decrease in the amount of tax imposed.
It refers to the act of eliminating or nullifying; of lessening or moderating. To abate is
to nullify or reduce in value or amount. The CIR has the power to abate or cancel the
whole or any unpaid portion of a tax liability, inclusive of increments, if its assessment
is excessive or erroneous, or if the administration costs involved do not justify the
collection of the amount due. No mutual concessions need be made, because an
excessive or erroneous tax is not compromised; it is abated or canceled. Only correct
taxes should be paid. Further, Tan cannot be said to have acted in bad faith. He acted
upon concurrence and recommendation of the various BIR officials.

TOPIC - Assessment:

CIR VS. HON GONZALES- 13 10 2010

Assessment; validity of assessment notice; lack of control number. The formality of a


control number in the assessment notice is not a requirement for its validity; rather the
contents thereof should inform the taxpayer of the declaration of deficiency tax against
the taxpayer. Both the formal letter of demand and the notice of assessment shall be
void if the former failed to state the fact, the law, rules and regulations or jurisprudence
on which the assessment is based, which is a mandatory requirement under section
228 of the National Internal Revenue Code. Commissioner of Internal Revenue vs
Hon. Raul M. Gonzalez, Secretary of Justice, L.M. Camus Engineering Corporation
(represented by Luis M. Camus and Lino D. Mendoza), G.R. No. 177279, October 13,
2010.
COMMISSIONER OF INTERNAL REVENUE vs. ENRON SUBIC POWER
CORPORATION - Disputed Assessment

FACTS:
The BIR assessed Enron which countered by filing a Petition for Review with the CTA
stating that the assessment disregarded the provisions of the Tax Code and of RR No.
12-99, when the assessment failed to provide the legal and factual bases of the
assessment. The CTA and CA ruled that the assessment notice must not only refer to
the supporting revenue laws or regulations for the assessment but must also justify
their applicability to the factual milieu of the assessment.

ISSUE:
Is the disputed assessment valid?

HELD:
NO. The assessment is not valid. Although the revenue examiners discussed their
findings with Respondents representative during the pre-assessment stage, the same,
together with the Preliminary Five-Day Letter and Petitioners Annex G, were not
sufficient to comply with the procedural requirement of due process. The Tax Code
provides that a taxpayer shall be informed (and not merely notified as was the
requirement before) in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void. The use of the word shall indicates
the mandatory nature of the requirement.

CIR VS. PASCOR REALTYGR NO.178697, June 29,1999

FACTS:It appears that by virtue of Letter of Authority No. 001198, then BIR
Commissioner JoseU. Ong authorized Revenue Officers Thomas T. Que, Sonia T.
Estorco and EmmanuelM. Savellano to examine the books of accounts and other
accounting records of Pascor Realty and Development Corporation. (PRDC) for the
years ending 1986, 1987 and 1988.The said examination resulted in
a recommendation for the issuance of an assessment inthe amounts of P7,498,434.65
and P3,015,236.35 for the years 1986 and 1987,respectively.On March 1, 1995, the
Commissioner of Internal Revenue filed a criminal complaint before the Department of
Justice against the PRDC, its President Rogelio A. Dio, and itsTreasurer Virginia S.
Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private
respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability.

ISSUE:(1) Whether or not the criminal complaint for tax evasion can be construed
as an assessment.
(2) Whether or not an assessment is necessary before criminal charges for tax evasion
may be instituted.

HELD:1.No. Petitioner argues that the filing of the criminal complaint with the
Department of Justice cannot in any way be construed as a formal assessment of
private respondents tax liabilities. This position is based on Section 205 of the National
internal Revenue Code[10(NIRC), which provides that remedies for the collection of
deficient taxes may be by either civil or criminal action. Likewise, petitioner cites
Section 223(a) of the same Code, which states that in case of failure to file a return,
the tax may be assessed or a proceeding in court may be begun
without assessment
.2.No. 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. 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.

CIR vs Reyes and Reyes vs CIR GR Nos. 159694, 163581

Facts:
Decedent Tancinco left a 1,292 square-meter residential lot and an old house
thereon. The heirs of the decedent received a final estate tax assessment notice
and a demand letter, both dated April 22, 1998,
for t h e a m o u n t o f P 1 4 , 9 1 2 , 2 0 5 . 4 7 , i n c l u s i ve o f s u r c h a r g e a n d i n t e r e s t .
T h e CI R i s s u e d a p r e l i mi n a r yc o l l e c t i o n l e t t e r t o Re ye s , f o l l o we d b y a
F i n a l No t i c e B e f o r e S e i z u r e . S u b s e q u e n t l y, a W a r r a n t o f Distraint and/or
Levy was served upon the estate. Reyes initially protested the notice of levy but then
the heirs proposed a compromise settlement of P1,000,000.00. The CIR
rejected Reyess offer, pointing out that since the estate tax is a charge on the estate
and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross
value of the estate amounting to P32,420,360.00 is more than sufficient to settle the
tax liability. As the estate failed to pay its tax liability within the deadline, BIR
notified Reyes that the subject property would be sold at public auction on August 8,
2000. Reyes filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that the assessment, letter of demand, and the whole tax
proceedings against the estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct amount of tax without surcharge or
interest.
Issue:
WON the assessment in this case can be used as a basis for the perfection of
a tax compromise against the.
Ruling:
NO. The 2nd
paragraph of Sec. 228 of NIRC is clear and mandatory insofar as taxpayers shall be
informed in writing of the law and the facts on which the assessment is made,
otherwise the assessment shall be void. RA 8424 has already amended the provisions
of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely
notifying the taxpayer of the CIRs findings was changed in 1998 of informing the
taxpayer of not only the law, but also of the facts on which an assessment would be
made, otherwise, the assessment itself would be invalid. Being invalid, the assessment
cannot be in turn be used as a basis for the perfection of a tax compromise.
Hence, it is premature to declare the c o mp r o m i s e o n t h e
t a x l i a b i l i t y o f t h e e s t a t e p e r f e c t e d a n d consummated considering that the tax
assessment is void. While administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and equity to observe
substantive due process. The reason behind this requirement, said the CA, was to
ensure that taxpayers would be duly apprised of -- and could effectively protest -- the
basis of tax assessments against them.7Since the assessment and the demand
were void, the proceedings emanating from them were likewise void, and any
order emanating from them could never attain finality

Philippine Journalists Inc. v CIRG.R No. 162852December 15, 2004

Facts
:The Revenue District Office of the BIR issued a letter of
a u t h o r i t y f o r the examination of petitioner Philippine Journalists books of
accounts. From the examination, the petitioner was told that there were deficiency
taxes, inclusive of surcharges, interest and compromise penalty. Then,
petitioner, through
itsC o m p t r o l l e r , L o r e n z a To l e n t i n o , e xe c u t e d a wa i ve r o f s t a t u t e o f l i mi t
ationsp u r s u a n t t o S e c . 2 2 3 a n d S e c . 2 2 4 a n d c o n s e n t e d t o t h
e a s s e s s m e n t a n d collection of taxes which may be found due after the
examination at any time after the lapse of the period of limitations fixed by
said Sections 223 and
224a n d o t h e r r e l e v a n t p r o v i s i o n s o f t h e N I R C , u n t i l t h e c o m
p l e t i o n o f t h e investigation.Petitioner had a deficiency of P136,952,408.97.
On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment
Notices which informed petitioner of the results of the investigation. A Final Notice
Before Seizure
wass e n t t o t h e p e t i t i o n e r b u t t h e l a t t e r m e r e l y q u e s t i o n e d t h e a m
o u n t o f t h e deficiency and how the same was arrived .A Warrant of Distrait/Levy
was received by petitioner for the deficiency. P e t i t i o n e r f i l e d a P e t i t i o n f o r
R e vi e w wi t h t h e C T A , c o n t e n d i n g t h a t n o assessment was received by him;
that the warrant of distraint/levy was issued p r e ma t u r e l y ; a n d t h a t t h e
a s s e s s me n t wa s ma d e b e yo n d t h e 3 - ye a r p e r i o d . Regarding the
assessment, the CTA ruled that the assessment was sufficiently proven by the receipts
of the Post Master. As to the premature distrait/levy and the assessment made
beyond the 3-year period, the CTA ruled in favor of
thep e t i t i o n e r . Th e wa i ve r o f s t a t u t e o f l i m i t a t i o n s b y t h e p e t i t i o n e r wa s
i n va l i d which resulted in the lapse of the 3 year period for assessment.
Consequently, the petition was granted, declaring the order for payment of deficiency
tax null and void. Th e CI R
f i l e d a m o t i o n f o r r e c o n s i d e r a t i o n b u t t h e s a me wa s d e n i e d . Undaunted,
the CIR filed an appeal with the CA. The CA reversed the ruling of the CTA,
stating that the waiver of limitations was valid and that the assessment notices was
final and executor. Hence, this appeal.
Issue
: Whether or not the waiver of limitations was invalid, maki
n g t h e assessment beyond the 3 year period?

Held:
Yes, the court ruled that the waiver of limitation was invalid, making the assessment
beyond the allowable period of 3 years.

Th e wa i ve r of
thes t a t u t e o f l i m i t a t i o n s i s n o t a w a i v e r o f t h e r i g h t t o i n v o k e t h
e d e f e n s e o f 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 t a xe s . T h u s , t h e l a w o n p r e s c r i p t i o n , b e i n g a r e me d i a l m e a s u r e , s h o
uld bel i b e r a l l y c o n s t r u e d i n o r d e r t o a f f o r d s u c h p r o t e c t i o n . A s a
c o r o l l a r y , t h e exceptions to the law on prescription should perforce be strictly
construed.

COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION-


Waiver of the Statute of Limitations

FACTS:
CIR assessed Kudos Metal Corporation for taxable year 1998. A Waiver of the Statute
of Limitations was executed on December 2001. The CTA issued a Resolution
cancelling the assessment notices issued against Petitioner for having been issued
beyond the prescriptive period as the waiver purportedly failed to (a) have the valid
officer execute the same (i.e., only the Assistant Commissioner signed it and not the
CIR); (b) the date of acceptance was not indicated; (c) the fact of receipt by the
taxpayer was not indicated in the original copy.

ISSUE:
Has the CIRs right to assess prescribed?

HELD:
YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No.
5-01 are mandatory to give effect to Section 222 of the Tax Code. Specifically, the
flaws in the waiver executed by Kudos Metal were as follows: (a) there was no
notarized written authority in favor of the signatory for the company; (b) there is no
stated date of acceptance by the Commissioner or his representative; and (c) the fact
of the receipt of the copy was not indicated in the original waivers.

Neither can it be said that by merely executing the waiver the taxpayer is already
estopped from disputing an action by the CIR beyond the statutory 3-year period since
the exception under the Suyoc case (i.e., when the delays were due to taxpayers acts)
does not apply.

Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed by
authorized officer of taxpayer and BIR; (iv) notarized; (v) fact of receipt must be
indicated in the copies

G.R. No. 115712 February 25, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
COURT OF APPEALS, COURT OF TAX APPEALS and CARNATION PHILIPPINES,
INC. (now merged with Nestle Phils, Inc.), respondent.
PURISIMA, J.:

Before the Court is an appeal from the decision of the Court of Appeals 1 dated May 31,
1994, which affirmed in toto the decision of the Court of Tax Appeals 2 dated January
26, 1993, the dispositive portion of which reads:

WHEREFORE, the Court, finds the assessments for allegedly deficient


income and sales taxes for petitioner's fiscal year ending September 30,
1981 covered by Demand Letter NO. FAS-1B-81-87 and Assessment
Notices Nos. FAS-1-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-
87-005826 (all dated July 29, 1987) in the total amount of P19,535,183.44
to be NULL AND VOID for having been issued beyond the five-year
prescriptive period provided by law. 3

The undisputed facts of the case as recited in the Decision (Annex "A") of the Court of
Appeals, are: 4

On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation
Annual Income Tax Return for taxable year ending September 30, 1981;
and its Manufacturers/Producers Percentage Tax Return for the quarter
ending September 30, 1981. 5

On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation,
through its Senior Vice President Jaime O. Lardizabal, signed three
separate "waivers of the Statute of Limitations Under the National Internal
Revenue Code" wherein it:

. waives the running of the prescriptive period provided for in sections 318 and 319
and other related provisions of the National Internal Revenue Code and consents to
the assessment and collection of the taxes which may be found due after
reinvestigation and reconsideration at anytime before or after the lapse of the period of
limitations fixed by said sections 318 and 319 and other relevant provisions of the
National Internal Revenue Code, but not after (13 April 1987 for the earlier-executed
waiver, or June 14, 1987 for the later waiver, or July 30, 1987 for the subsequent
waiver, as the case may be). However, the taxpayer (petitioner herein) does not waive
any prescription already accrued in its favor.

The waivers were not signed by the BIR Commissioner or any of his agents.

On August 5, 1987, Carnation received BIR's letter of demand dated July 29, 1987
asking the said corporation to pay P1,442,586.56 as deficiency income tax,
P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax on
undeclared sales, all for the year 1981. This demand letter was accompanied by
assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-
87-005826.

In a basic protest dated August 17, 1987, Carnation disputed the assessments and
requested a reconsideration and reinvestigation thereof.

On September 30, 1987, Carnation filed a supplemental protest.

These protests were denied by the BIR Commissioner in a letter dated March 15,
1988.

Whereupon, Carnation appealed to the CTA.

On January 26, 1993, the CTA issued the questioned order, the dispositive portion of
which reads:

WHEREFORE, the Court finds the assessments for allegedly deficient income and
sales taxes for petitioner's fiscal year ending September 30, 1981 covered by Demand
Letter No. FAS-1B-81-87 and assessment Notices No. FAS-1-81-87-005824, FAS-4-
81-87-005825, and FAS-4-81-87-005826 (all dated July 29, 1987) in the total amount
of P19,535,183.44 to be NULL AND VOID for having been issued beyond the five-year
prescriptive period provided by law.

The pivot of inquiry here is whether or not the three (3) waivers signed by the private
respondent are valid and binding 6 as to toll the running of the prescriptive period for
assessment and not bar the Government from issuing subject deficiency tax
assessments.
Sec. 318 (now Section 203) of the National Internal Revenue Code, the law then
applicable reads:

Sec 318. Period of Limitations upon assessment and collection. Except


as provided in the succeeding section, internal revenue taxes shall be
assessed within five years after the return was filed, and no proceeding in
court without assessment for the collection of such taxes shall be begun
after the expiration of such period. For the purpose of this section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: Provided, That this limitation shall not
apply to cases already investigated prior to the approval of this
Code. 7 (emphasis ours)

The decision of the Court of Appeals affirming what the Court of Tax Appeals decided,
established that subject assessments of July 29, 1987 were issued outside the
statutory prescriptive period. Carnation filed its annual income tax and percentage tax
returns for the fiscal year ending September 30, 1981 on January 15, 1982 8 and
November 20, 1981, 9 respectively. In accordance with the above-quoted provision of
law, private respondent's 1981 income and sales taxes could have been validly
assessed only until January 14, 1987 and November 19, 1986,
respectively. 10 However, Carnation's income and sales taxes were assessed only on
July 29, 1987, beyond the five-year prescriptive period. 11

Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid
although not signed by the BIR Commissioner because (a) when the BIR
agents/examiners extended the period to audit and investigate Carnation's tax returns,
the BIR gave its implied consent to such waivers; (b) the signature of the
Commissioner is a mere formality and the lack of it does not vitiate binding effect of the
waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing ones
right to avail of the defense of prescription and remains binding in accordance with the
terms and conditions set forth in the waiver. 12

Petitioner's submission is inaccurate. The same tax code is clear on the matter, to wit:

Sec. 319. Exceptions as to period of limitation of assessment and collection


of taxes. (a) . . .
(b) Where before the expiration of the time prescribed in the preceding
section for the assessment of the tax, both the Commissioner of Internal
Revenue and the taxpayer have consented in writing to its assessment
after such time, the tax may be assessed at anytime prior to the expiration
of the period agreed upon. The period so agreed upon may be extended by
subsequent agreement in writing made before the expiration of the period
previously agreed upon.

The Court of Appeals itself also passed upon the validity of the waivers executed by
Carnation, observing thus:

We cannot go along with the petitioner's theory. Section 319 of the Tax
code earlier quoted is clear and explicit that the waiver of the five-year
prescriptive period must be in writing and signed by both the BIR
Commissioner and the taxpayer.

Here, the three waivers signed by Carnation do not bear the written
consent of the BIR Commissioner as required by law.

We agree with the CTA in holding "these "waivers" to be invalid and without
any binding effect on petitioner (Carnation) for the reason that there was no
consent by the respondent (Commissioner of Internal Revenue)."

The ruling of the Supreme Court in Collector of Internal Revenue vs.


Solano 13 is in point, thus:

The only agreement that could have suspended the running of the
prescriptive period the collection of the tax in question is, as correctly
pointed out by the Court of Tax Appeals, a written agreement between
Solano and the Collector, entered into before the expiration of the of the
five-year prescriptive period, extending the limitation prescribed by law.

For sure, no such written agreement concerning the said three waivers
exists between the petitioner and private respondent Carnation. 14

Verily, we discern no basis for overruling the aforesaid conclusions arrived at by the
Court of Appeals. In fact, there is every reason to leave undisturbed the said
conclusions, having in mind the precept that all doubts as to the correctness of such
conclusions will be resolved in favor of the Court of Appeals. 15 Besides being a
reiteration of the holding of the Court of Tax Appeals, such decision should be
accorded respect. Thus, the Court held in Philippine Refining Co. vs. Court of
Appeals, 16 that the Court of Tax Appeals is a highly specialized body specifically
created for the purpose of reviewing tax cases. As a matter of principle, this Court will
not set aside the conclusion reached by an agency such as the Court of Tax Appeals
which is, by the very nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority. 17 This
point becomes more evident in the case under consideration where the findings and
conclusions of bath the Court of Tax Appeals and the Court of Appeals appear
untainted by any abuse of authority, much less grave abuse of discretion. Indeed, we
find the decision of the latter affirming that of the former free from any palpable error. 18

What is more, the waivers in question reveal that they are in no wise unequivocal, and
therefore necessitates for its binding effect the concurrence of the Commissioner of
Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General,
representing the Commissioner of Internal Revenue, admitted that subject waivers
executed by Carnation were "for end in consideration of the approval by the
Commissioner of Internal Revenue of its request for reinvestigation and/or
reconsideration of its internal revenue case involving tax assessments for the fiscal
year ended September 30, 1981 which were all pending at the time". On this basis
neither implied consent can be presumed nor can it be contended that the waiver
required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said
that concurrence to such an agreements a mere formality because it is the very
signatures of both the Commissioner of Internal Revenue and the taxpayer which give
birth to such a valid agreement.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. No


pronouncement as to costs.
RIZAL COMMERCIAL BANKING CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE- Waiver of the Statute of Limitations

ISSUE:
Whether a taxpayer, by paying the other tax assessments covered by a Waiver of the
Statute of Limitations, is consider estopped from questioning the validity of the said
waiver (on the basis that the CIR did not sign it) with respect to the other covered but
unsettled assessments?

HELD:
YES. RCBC is considered estopped through its partial payment of the revised
assessments within the extended period provided in the said waivers. Thus, it had
impliedly admitted the validity of the said waivers. Had it believed that the waiver was
invalid and that the period to assess had effectively prescribed, RCBC could have
refused to make any payment based on any assessment against it.

Petitioner is estopped from


questioning the validity of the waivers

RCBC assails the validity of the waivers of the statute of limitations on the ground that
the said waivers were merely attested to by Sixto Esquivias, then Coordinator for the
CIR, and that he failed to indicate acceptance or agreement of the CIR, as required
under Section 223 (b) of the 1977 Tax Code.28 RCBC further argues that the principle
of estoppel cannot be applied against it because its payment of the other tax
assessments does not signify a clear intention on its part to give up its right to question
the validity of the waivers.29

The Court disagrees.

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.30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment
of the revised assessments issued within the extended period as provided for in the
questioned waivers, impliedly admitted the validity of those waivers. Had petitioner
truly believed that the waivers were invalid and that the assessments were issued
beyond the prescriptive period, then it should not have paid the reduced amount of
taxes in the revised assessment. RCBCs subsequent action effectively belies its
insistence that the waivers are invalid. The records show that on December 6, 2000,
upon receipt of the revised assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from questioning the validity of the
waivers. To hold otherwise and allow a party to gainsay its own act or deny rights
which it had previously recognized would run counter to the principle of equity which
this institution holds dear.31

BPI vs. CIR 2005 case 139736


Facts:
Petitioner BPI, sold $500,000 in 1985 to the Central Bank for the total amount of
$1,000,000.O n O c t o b e r 1 9 8 9 , t h e BIR assessed BPI for tax
d e f i c i e n c y o f d o c u me n t a r y t a x o n i t s aforementioned sales of foreign bills
of exchange. BPI filed and protested the assessment on1989 through its counsel.
BPI did not receive any immediate reply to its protest. On 1992BIR issued a
warrant of Distraint and/or Levy against the petitioner. The warrant was served on
1992 but never heard anything from the BIR until the 1997 when the reconsideration
was denied. BPI filed a petition for Review with the CTA and raised prescription as a
defense. It alleged that the right to collect must be done within 3 years only, but
the BIR waited more than 7years to deny the protest. BIR reiterated its
position and remained silent as regards the issue on prescription .CTA rendered
the decision in favor BIR stating that the action has not prescribed but the
sale of foreign currency is not subject to documentary stamp tax. Further the
assessment

was order for cancellation because the transaction between BPI and the Central Bank
was tax exempt. Th e C A s u s t a i n e d t h e f i n d i n g o f t h e CA T t h a t th e a c t i o n
h a s n o t ye t p r e s c r i b e d , b u t i t adopted the position of the BIR that the sale of
foreign currency was not tax exempt.
Issue :
Whether or not the right of the BIR to collect from BPI the
a l l e g e d d e f i c i e n c y o n documentary stamp tax had prescribed?
Held:
The Supreme Court ruled that the action for collection had already prescribed. The
period to collect the deficiency is limited to 3 years as provided by Section 203 of
the Tax Code. The statute of limitation on collection may be interrupted or
suspended by a valid waiver executed in accordance with paragraph (d) of
Sections 223 and 224 of the Tax Code as amended. The purpose of the limitation
is to protect the taxpayer form the prolonged and unreasonable assessment
and investigation by the BIR

BPI VS CIR 2008 CASE 174942

REQUEST FOR RE-INVESTIGATION NOTGRANTED DOES NOT TOLL


PRESCRIPTIVEPERIOD; INVALID AND LAPSED WAIVER OFPRESCRIPTION

Under Section 320 of the 1977 NIRC, the law then applicable, the period of
prescription for assessment and collection is 3 years. The CIR had 3years from the
time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within
which to collect the deficiency DST. However, it was only on 9 August 2002 that the
CIR ordered BPI to pay the deficiency. For BPIs protest letters dated 20 April and
8 May 1989 to toll the prescriptive period for collection, the request for reinvestigation
should have been granted. There is nothing to show that such request was granted.
Neither did the waiver of prescription effective until 31 December 1994suspend the
prescriptive period is invalid. The CIR himself contends that the waiver is void as it
shows no date of acceptance in violation of RMO 20-90.At any rates, more than 8
years elapsed since expiry of the waiver before the BIR attempted to collect.
Bank of the Philippine Islands (Formerly Far East Bank and Trust Company vs. CIR
, G.R. No. 174942, March 7, 2008. See also
BPI v. CIR
,CTA Case No. 7397, April 9, 2008
PROCESS OF ASSESSMENT:

PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER


OF INTERNAL REVENUE
GR. No. 155541. January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs
were managed by the Philippine Trust Company (PhilTrust). The decedent died on
April 3, 1979 but two days after her death, PhilTrust filed her income tax return for
1978 not indicating that the decedent had died. The BIR conducted an administrative
investigation of the decedents tax liability and found a deficiency income tax for the
year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by
registered mail a demand letter and assessment notice addressed to the decedent c/o
PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax
return. On June 18, 1984, respondent Commissioner of Internal Revenue issued
warrants of distraint and levy to enforce the collection of decedents deficiency income
tax liability and serve the same upon her heir, Francisco Gabriel. On November 22,
1984, Commissioner filed a motion to allow his claim with probate court for the
deficiency tax. The Court denied BIRs claim against the estate on the ground that no
proper notice of the tax assessment was made on the proper party. On appeal, the CA
held that BIRs service on PhilTrust of the notice of assessment was binding on the
estate as PhilTrust failed in its legal duty to inform the respondent of antecedents
death. Consequently, as the estate failed to question the assessment within the
statutory period of thirty days, the assessment became final, executory, and
incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax
assessment on Juliana through PhilTrust was a valid service as to bind the estate.
(2) Whether or not the CA erred in holding that the tax assessment had become final,
executory, and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically
severed the moment of the taxpayers death, none of the PhilTrusts acts or omissions
could bind the estate of the taxpayer. Although the administrator of the estate may
have been remiss in his legal obligation to inform respondent of the decedents death,
the consequence thereof merely refer to the imposition of certain penal sanction on the
administrator. These do not include the indefinite tolling of the prescriptive period for
making deficiency tax assessment or waiver of the notice requirement for such
assessment.
(2) The assessment was served not even on an heir or the estate but on a completely
disinterested party. This improper service was clearly not binding on the petitioner. The
most crucial point to be remembered is that PhilTust had absolutely no legal
relationship with the deceased or to her Estate. There was therefore no assessment
served on the estate as to the alleged underpayment of tax. Absent this assessment,
no proceeding could be initiated in court for collection of said tax; therefore, it could not
have become final, executory and incontestable. Respondents claim for collection filed
with the court only on November 22, 1984 was barred for having been made beyond
the five-year prescriptive period set by law.

Commissioner of Internal Revenue vs Azucena Reyes january 27 2006


Taxation Contents of a Formal Assessment Notice

In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997,
a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue
Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final
assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive
of surcharge and interest; the estates liability was based on Section 229 of the [old]
Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of
Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes
again protested the warrant but in March 1999, she offered a compromise and was
willing to pay P1 million in taxes. Her offer was denied. She continued to work on
another compromise but was eventually denied. The case reached the Court of Tax
Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a
favorable judgment.

ISSUE: Whether or not the formal assessment notice is valid.


HELD: No. The NIRC of 1997 was already in effect when the FAN was issued. Under
Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the
facts on which the assessment is made: otherwise, the assessment shall be void. In
the case at bar, the FAN merely stated the amount of liability to be shouldered by the
estate and the law upon which such liability is based. However, the estate was not
informed in writing of the facts on which the assessment of estate taxes had been
made. The estate was merely informed of the findings of the CIR. Section 228 of the
NIRC being remedial in nature can be applied retroactively even though the
tax investigation was conducted prior to the laws passage. Consequently, the invalid
FAN cannot be a basis of a compromise, any proceeding emanating from the invalid
FAN is void including the issuance of the warrant of distraint and/or levy.

COMMISSIONER OF INTERNAL REVENUE, vs. DOMINADOR MENGUITO. [G.R.


No. 167560. September17, 2008.]

Facts:
Through a letter dated July 28, 1997, Spouses Dominador Menguito and
Jeanne Menguito (Spouses Menguito) were informed by the Assessment Division
of the said office that they have under declared sales totaling P48,721,555.96. This
was followed by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing
Petitioner [herein respondent]that in the investigation of his 1991, 1992 and 1993
income, business and withholding tax case, it was found out that there is still due from
him the total sum of P34,193,041.55 as deficiency income and percentage tax. The
assessment of notices subject of the instant petition were issued. These were
protested by Ms. Jeanne Menguito, through a letter. BIR Baguio wrote a letter to
Spouses Menguito, informing the latter that a reinvestigation or reconsideration cannot
be given due course by the mere submission of an uncertified photocopy of the
Certificate of Incorporation. Thus, it avers that the amendment issued is still valid and
enforceable. Respondent filed the present case, praying for the cancellation
and withdrawal of the deficiency income tax and percentage tax assessments
on account of prescription, whimsical factual lfindings, violation of procedural due
process on the issuance of assessment notices, erroneous address of notices and
multiple credit/investigation by the petitioner of respondent's books of accounts and
other related records for the same tax year. Instead of filing an Answer, petitioner
moved to dismiss the instant petition on July 1, 1999, on the ground of lack of
jurisdiction. According to petitioner, the assessment had long become final and
executory when respondent failed to comply with the letter.
Issue/ Held:
W/N there was a valid formal assessment notice- NO
Ratio:
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

UNGAB vs. CUSI

97 SCRA 877
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal prosecution for
wilful attempt to defeat and evade the income tax."

FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings
producer, for allegedly evading payment of taxes and other violations of the NIRC.
Ungab, subsequently filed a motion to quash on the ground that (1) the information are
null and void for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2)that the trial court has no jurisdiction to take
cognizance of the case in view of his pending protest against the assessment made by
the BIR examiner. The trial court denied the motion prompting the petitioner to file a
petition for certiorari and prohibition with preliminary injunction and restraining order to
annul and set aside the information filed.

ISSUE: Is the contention that the criminal prosecution is premature since the CIR has
not yet resolved the protest against the tax assessment tenable?

HELD: No. The contention is without merit. 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 cognizance 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.
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.
TAX REMEDIES PROPER:

Commissioner of Internal Revenue vs Philippine Global Communication, Inc.


on December 29, 2012

Taxation Tax Collection Prescriptive Period Reconsideration vs Reinvestigation


In April 1991, Philippine Global Communication, Inc. (PGCI) filed its annual income tax
return (ITR) for the taxable year 1990. A tax audit was subsequently conducted by the
Bureau of Internal Revenue (BIR) and eventually a final assessment notice (FAN) was
timely issued in April 1994. The FAN demanded PGCI to pay P118 million
in deficiency taxes inclusive of surcharge and interest. PGCI was able to
file a protest within the reglementary period. PGCI however refused to produce
additional evidence. In October 2002, eight years after the FAN was issued,
the Commissioner of Internal Revenue (CIR) issued a final decision denying
theprotest filed by PGCI. PGCI then filed a petition for review with the Court of Tax
Appeals (CTA). The CIR filed its answer in January 2003. The CTA ruled that the CIR
can no longer collect because it is already barred by prescription. The CIR argued that
theprescriptive period has been extended because PGCI asked for a reinvestigation.

ISSUE: Whether or not the CIR is barred by prescription.

HELD: Yes. Under the law, the CIR has 3 years from the issuance of the FAN to make
its collection. The FAN was issued in April 1994 and so the CIR has until April 1997 to
make a collection. Within that period, the CIR never issued a warrant of distraint/levy.
Its earliest collection effort was only when it filed an answer to the appeal filed by
PGCI. CIRs answer was filed in January 2003 which was way beyond the three
year prescriptive period to collect the assessed taxes.
The CIR cannot invoke that the protest filed by PGCI is in effect a request for
reinvestigation. Under the law, a request for reinvestigation shall toll the running of
the prescriptive period to collect. However in the case at bar, the protest filed by PGCI
is not a request for reinvestigation but rather it was a request for reconsideration. And
in such case, it did not suspend the prescriptive period. The protest is a request for
reconsideration because PGCI did not adduce additional evidence or documents.
PGCI merely sought the CIR to review the existing records on file.
ALLIED BANKING CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE- Formal Letter of Demand on Tax Assessment

FACTS:
Allied Banking Corporation received a PAN from the BIR which it timely disputed. In
response, the BIR issued a Formal Letter of Demand with Assessment Notices.
Instead of protesting the FAN, the petitioner filed a Petition for Review with the CTA.
The CTA dismissed the Petition stating that it is neither the assessment nor the formal
demand letter itself that is appealable before it but instead it should be the decision of
the CIR on the disputed assessment

ISSUES:
Can the Formal Letter of Demand be construed as the final decision of the CIR
appealable to the CTA under Republic Act 9282?

HELD:
YES. This is considered an exception to the general rule on exhaustion of
administrative remedies since the CIR is considered estopped from claiming the same
principle applies in its case. The tenor of the demand letter is clear that the CIR had
already made a final decision and that the remedy of the Petitioner was to appeal the
same within 30 days of receipt. This can be gleaned from the use of the terms final
decision and appeal which were deemed unequivocal language pointing to the
finality of the decision. While the Court cited the rules relative to (a) protesting the FAN
and not the PAN and (b) counting the 30 day period to appeal to the CTA from receipt
of the decision of the CIR and not issuance of the assessment, this particular case was
deemed a clear exception in view of the CIRs own actions.
CIR V WYETH SUACO LABORATORIES, INC.202 SCRA 1
25(September 30, 1991)

Facts:
On December 19, 1974, Wyeth Suaco received notice of assessment from the BIR for its failure to
remit withholding tax at source for the 4th quarter of 1973 on accrued royalties, remuneration for
technical services paid abroad and cash dividends, including the deduction of non-
deductible raw materials from its reports. The company, thru its tax consultant, SVG & co., sent
BIR two letters dated January 17, 1975and February 8, 1975 protesting the assessment and
requesting their cancellation or withdrawal on the ground that said assessments lacked factual
or legal basis. Also, there were letters from the company to the BIR to such effect. On September
12, 1975
, the CIR offered to compromise butonly resulted to a slight reduction of the tax as per
the acting decision on December 10,1979. On January 18, 1980, Wyeth
Suaco filed petition for review with the CTA, praying that CIR been joined from enforcing the
assessments by reason of prescription and that assessments be declared null and void
for lack of legal and factual basis. The CTA decided against the CIR holding that while
the assessments for the deficiency taxes were made within the five-year period of limitation, the
right of CIRto collect the same has already prescribed, in accordance with Sec. 319(c) of the NIRC.

Held:
CTA is wrong. The letters of Wyeth Suaco interrupted the running of the five-year
perspective period to collect the deficiency taxes. Settled is the rule that the prescriptive period
provided by law to make a collection by distraint or levy or by a proceeding in court is
interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.
Wyeth Suaco admitted that it was seeking reconsideration of the tax assessments as shown
in a letter of its president and General Manager. Further, although the protest letters
prepared by SGV & Co. did not categorically state or use the and
the same are to be treated as letters of reinvestigation and reconsideration
.As to Wyeth argument that withholding tax at source should only be remitted
to the BIR once the incomes subject to withholding tax at source have actually been paid, the
SC cited the lifeblood doctrine, the express provision of the law which requires the filing of
monthly return and payment of taxes withheld at source within 10 days after the end of
each month. Further, the company uses accrual method of accounting and therefore the
effect of transactions and other events on assets and liabilities are recognized and reported in the
time periods to which they relate rather than only when cash is received or paid
.

Atlas Consolidated vs. CIR


ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR
524 SCRA 73, 103
GR Nos. 141104 & 148763, June 8, 2007

"The taxpayer must justify his claim for tax exemption or refund by the clearest
grant of organic or statute law and should not be permitted to stand on vague
implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax
purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining,


production, and sale of various mineral products, filed claims with the BIR for
refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales
in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the
matter prompting the petitioner to file a petition for review before the CTA. The latter
denied the claims on the grounds that for zero-rating to apply, 70% of the company's
sales must consists of exports, that the same were not filed within the 2-year
prescriptive period (the claim for 1992 quarterly returns were judicially filed only on
April 20, 1994), and that petitioner failed to submit substantial evidence to support its
claim for refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the following:
sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year
prescriptive period should be counted from the date of filing of the last adjustment
return which was April 15, 1993, and not on every end of the applicable quarters; and
that the certification of the independent CPA attesting to the correctness of the
contents of the summary of suppliers invoices or receipts examined, evaluated and
audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its
applications for refund/credit of input VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-year
prescriptive period for the filing of claims for refund/credit of input VAT must be
counted from the date of filing of the quarterly VAT return, and that sales to PASAR
and PHILPOS inside the EPZA are taxed as exports because these export processing
zones are to be managed as a separate customs territory from the rest of the
Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it
still denies the claims of petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated sales during the period claimed
for not being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of
the sovereign authority, and should be construed in strictissimi juris against the person
or entity claiming the exemption. The taxpayer who claims for exemption must justify
his claim by the clearest grant of organic or statute law and should not be permitted to
stand on vague implications.

RIZAL COMMERCIAL BANKING CORPORATION vs. COMMISSIONER OF


INTERNAL REVENUE- Protest Tax Assessments

FACTS:
RCBC received the final assessment notice on July 5, 2001. It filed a protest on July
20, 2001. As the protest was not acted upon, it filed a Petition for Review with the
Court of Tax Appeals (CTA) on April 30, 2002, or more than 30 days after the lapse of
the 180-day period reckoned from the submission of complete documents. The CTA
dismissed the Petition for lack of jurisdiction since the appeal was filed out of time.

ISSUE:
Has the action to protest the assessment judicially prescribed?

HELD:
YES. The assessment has become final. The jurisdiction of the CTA has been
expanded to include not only decision but also inactions and both are jurisdictional
such that failure to observe either is fatal.
However, if there has been inaction, the taxpayer can choose between (1) file a
Petition with the CTA within 30 days from the lapse of the 180-day period OR (2) await
the final decision of the CIR and appeal such decision to the CTA within 30 days after
receipt of the decision. These options are mutually exclusive and resort to one bars the
application of the other. Thus, if petitioner belatedly filed an action based on inaction, it
can not subsequently file another petition once the decision comes out.

COMMISSIONER OF INTERNAL REVENUE vs. UNION SHIPPING CORPORATION


and THE COURT OF TAX APPEALS G.R. No. L-66160 May 21, 1990

FACTS: In a letter dated December 27, 1974 petitioner assessed against Yee Fong
Hong, Ltd. and/or herein private respondent Union Shipping
Corporation for deficiency income taxes due for the years 1971 and 1972. Private
respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy. In a
letter, private respondent reiterated its request for reinvestigation. Petitioner, again,
without acting on the request for reinvestigation and reconsideration of the Warrant of
Distraint and Levy, filed a collection suit against private respondent.

In 1979, private respondent filed with respondent court a Petition for Review. The CTA
ruled in favor of private respondent. Hence, this is a petition for review on certiorari

ISSUE: Whether or not the issuance of a warrant of distraint and levy is proof of the
finality of an assessment and is tantamount to an outright denial of a motion for
reconsideration of an assessment.

HELD: The Supreme Court had already laid down the dictum that the Commissioner
should always indicate to the taxpayer in clear and unequivocal language what
constitutes his final determination of the disputed assessment.

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.
CIR v. Isabela Cultural Corporation

Facts:

In an investigation conducted in the 1986 books of account of Isabela, it preliminarily


incurred a tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by
Isabelas counsel, the said preliminary assessment was reduced to the amount of
P325,869.44.

On February 23, 1990, Isabela received from CIR an assessment letter demanding
payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and
expanded withholding tax inclusive of surcharge and interest, respectively, for the
taxable period from January 1, 1986 to December 31, 1986. Isabela then filed a letter
to CIR asking for reconsideration on the subject assessment. It even attached certain
documents supporting its protest.
On February 9, 1995, Isabela received from CIR a Final Notice Before Seizure. In said
letter, CIR demanded payment of the subject assessment within ten (10) days from
receipt thereof. Otherwise, failure on its part would constrain CIR to collect the subject
assessment through summary remedies.

Isabela considered said final notice of seizure as [petitioners] final decision. Hence,
the instant petition for review filed with this Court on March 9, 1995.

The CTA having rendered judgment dismissing the petition, Isabela filed the instant
petition anchored on the argument that CIRs issuance of the Final Notice Before
Seizure constitutes its decision on Isabelas request for reinvestigation, which Isabela
may appeal to the CTA. CA reversed CTAs decision.

CIR: Final Notice was a mere reiteration of the delinquent taxpayers obligation to pay
the taxes due. It was supposedly a mere demand that should not have been mistaken
for a decision on a protested assessment. Such decision, the commissioner contends,
must unequivocably indicate that it is the resolution of the taxpayers request for
reconsideration and must likewise state the reason therefor.

Isabela: Final Notice Before Seizure should be considered as a denial of its request
for reconsideration of the disputed assessment. The Notice should be deemed as
petitioners last act, since failure to comply with it would lead to the distraint and levy of
respondents properties, as indicated therein.

Issue:

Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by
Acting Chief Revenue Collection Officer Milagros Acevedo against ICC constitutes the
final decision of the CIR appealable to the CTA.

Held:

No. In the normal course, the revenue district officer sends the taxpayer a notice of
delinquent taxes, indicating the period covered, the amount due including interest, and
the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the
assessment, it sends a letter to the BIR indicating its protest, stating the reasons
therefore, and submitting such proof as may be necessary. That letter is considered as
the taxpayers request for reconsideration of the delinquent assessment. After the
request is filed and received by the BIR, the assessment becomes a disputed
assessment on which it must render a decision. That decision is appealable to the
Court of Tax Appeals for review.

Prior to the decision on a disputed assessment, there may still be exchanges between
the commissioner of internal revenue (CIR) and the taxpayer. The former may ask
clarificatory questions or require the latter to submit additional evidence. However, the
CIRs position regarding the disputed assessment must be indicated in the final
decision. It is this decision that is properly appealable to the CTA for review.

In the light of the above facts, the Final Notice Before Seizure cannot but be
considered as the commissioners 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 CIRs 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.

Furthermore, 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 un acted upon 180 days after submission thereof.

Within a period to be prescribed by implementing rules and regulations, the taxpayer


shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based
on his findings.

Such assessment may be protested administratively by filing a request for


reconsideration or reinvestigation within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax Appeals within (30) days from
receipt of the said decision, or from the lapse of the one hundred eighty (180)-day
period; otherwise the decision shall become final, executory and demandable.

In this case, the said period of 180 days had already lapsed when Isabela filed its
request for reconsideration on March 23, 1990, without any action on the part of the
CIR.

In the instant case, the second notice received by Isabela verily indicated its nature
that it was final. Unequivocably, therefore, it was tantamount to a rejection of the
request for reconsideration.

In the present case, CIR does not deny receipt of private respondents protest
letter. As a matter of fact, it categorically relates the following in its Statement of
Relevant Facts:

PROTECTORS SERVICES, INC., V CA ET. AL. G.R. No 118176, April 12, 2000

Facts: Petition Protectors Services, Inc., (PSI) is a contractor engaged in recruiting


security guards for clients. After an audit investigation, the BIR assessed
PSI deficiency percentage taxes including surcharges, penalties and interests of
P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively.
On December 7, 1987, respondent CIR sent demand letters for payment of said
assessments for 1983 and 1984 on December 10, 1987, but denied receiving the
notice of deficiency tax for 1985.

Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and
1984 assessments, claiming that gross receipts subject to percentage tax should
exclude salaries of the security guards, employers share of SSS, SIF and
Medicare contributions. Without formally acting thereon, the BIR sent a follow-up letter
dated July 12, 1988 for the settlement of the taxes based on its computation, plus
additional documentary stamp taxes of P2,025 on PSIs capitalization for 1983 and
1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total
unsettled tax to P2,851,805.16.

On July 12, 1988, petition paid the P2,025 documentary stamp tax and
P703.41 deficiency expanded withholding tax. The following day, PSI filed its second
protest for the 1983 and 1984 assessments and included for the first time its protest
against the 1985 assessment. On November 9, 1990, the BIR denied the protests
stating that salaries of security guards are part of taxable gross receipts for
determination of contractors tax.

PSI filed a petition for review on December 5, 1990 with the CTA averring that
assessments for documentary stamp and expanded withholding taxes and without
basis having been paid on July 22, 1988; the period for collection of the 1985
assessment letter therefore, the period to collect the percentage taxes for the first,
second and third quarter of 1984 has lapsed, the assessment letter therefore having
been sent on December 10, 1987, or beyond 3 years from filing of the quarterly
returns, and that the base amount was erroneous since salaries of security guards,
employers share of SSS, SIF and medicare contributions should not form part of
taxable gross receipts.

The CTA dismissed the petition stating that: (1) the assessments were made within the
3-year prescriptive period which should be reckoned from January 20, 1985, the date
of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all
assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the
protest letter having filed only on January 12, 1988, or 33 days from December 10,
1987, the request for reinvestigation was filed out of time. On review by the CA, the
CTAs decision was affirmed.

Issues:
Whether or not the CTA has jurisdiction to act on the petition for review filed before it.
Whether or not the assessments against PSI for deficiency percentage tax for 1983
and 1984 were made within the prescriptive period.
Whether or not the period for collection of taxes for taxable years 1983, 1984 and
1985 has already prescribed.
Whether or not the assessments are correct.
Held: An assessment maybe administratively protested within 30 days from receipt
thereof; otherwise, the assessment shall become final and unappealable. In this case,
PSI received the assessments on December 10, 1987 and protested the 1983 and
1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests
were filed out of time and PSI can no longer dispute the correctness of assessment.
The CTA correctly dismissed the appeal for lack of jurisdiction.

Petitioners contention that the Governments right to assess and collect the 1983,
1984 and 1985 assessments had already prescribed in view of BP700, which reduced
the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs,
lacks merit BP700 was approved on April 5, 1984. The 3-year prescriptive period for
assessment and collection of revenue taxes applied to taxes paid beginning 1984.
Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still
covered by the 5-year statutory prescriptive period.

The 3-year prescriptive period for assessment of contractors tax should be computed
at the time of filing of the final annual percentage tax return, when it can be finally
acclaimed if the taxpayer still has an unpaid tax, and not from the tentative quarterly
payments.

As to the contention that for failure of the BIR to commence collection of the 1983,
1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the
governments right to collect the tax has prescribed, the court ruled that the
suspension of the running of the statute of limitations for tax collection for the period
during which the commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and 60 days thereafter. In the instant case,
PSI filed a petition before the CTA to prevent the collection of the
assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the
case to the SC, hoping for a review in the favor. The actions taken by petitioner before
the CTA and the SC suspended the running of the statute of limitation.

As to the correctness of the assessment, it was held that contractors tax on gross
receipts imposed on business agents including private detective watchman agencies,
was a tax on the sale of services or labor, imposed on the exercise of a privilege. The
term gross receipts means all amounts received by the prime or principal contractor
as the total price, undiminished by the amount paid to the subcontractor under the
subcontract arrangement. Hence, gross receipts could not be diminished by
employers SSS, SIF and medicare contributions. Furthermore, it has been consistently
ruled by the BIR that the salaries paid to security guards should form part of the gross
receipts subject to tax.

CITIBANK, N.A. V CA October 10, 1997

Facts: Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing


business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the
Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant to Section
1(c) of the Expanded Withholding Tax Regulations.

On April 15, 1980, Citibank field its corporate income tax returns for the year and
ended December 31, 1979 showing a net loss of P74,854,916.00 and its tax
credits totaled P6,257,780.00, even without including the amounts withheld on rental
income under the Expanded Withholding Tax System, the same not having been
utilized or applied for the reason that the years operation resulted in a loss. The taxes
thus withheld by the tenants from rentals paid to Citibank in 1979 were not included
as tax credits although a rental income amounting to P7,796,811.00 was included in its
income declared for the year ended December 31, 1979.

For the year ended December 31, 1980, Citibanks corporate income tax returns, filed
on April 15, 1981, showed a net loss P77,071,790.00 for income tax purposes. Its
available tax credit at the end of 1980 amounting to P11,532,855.00 was not utilized or
applied. The said available tax credits did not include the amounts withheld by
Citibanks tenants from rental payment sin 1980 but the rental payments for that year
were declared as part of its gross income included in its annual income tax returns.

On October 31, 1981, Citibank submitted its claim for refund of the aforesaid amounts
of P270,160.56 and P298,829.29, respectively or a total of P568,989.85; and on
October 12, 1981 filed a petition for review with the Court of Tax Appeals concerning
subject claim for tax refund.

On August 30, 1981, the CTA adjudged Citibanks entitlement to thetax refund sought
for, representing the 5% tax withheld and paid on Citibanks rental income for 1979 and
1980. The Court of Tax Appeals, rejected Respondent CIRs argument that the claim
was not seasonably filed. Not satisfied the Commissioner appealed to the Court of
Appeals, CA ruled that Citibank N.A. Philippine branch, entitled to a tax refund/credit in
the amount of P569,989.85, representing the 5% withheld tax in Citibanks rental
income for the years 1979 and 1980 is REVERSED. Motion for Reconsideration of the
petitioner bank was denied. Hence, this petition.

Issue: Whether or not income taxes remitted partially on a periodic or quarterly basis
should be credited or refunded to the taxpayer on the basis of the taxpayers final
adjusted returns.

Held: In several cases, we have already ruled that income taxes remitted partially on a
periodic or quarterly basis should be credited or refunded to the taxpayer on the basis
of the taxpayers final adjusted returns, not on such periodic or quarterly basis. When
applied to taxpayers filing income tax returns on a quarterly basis, the date of payment
mentioned in Sec. 230 must be deemed to be qualified by Sec. 68 and 69 of the
present. Tax Code. It may be observed that although quarterly taxes due are required
to be paid within 60 days from the close of each quarter, the fact that the amount shall
be deducted from the tax due for the succeeding quarter shows that until a final
adjustment return shall have been filed, the taxes paid in the preceding quarters are
merely partial taxes due from a corporation. Neither amount can serve as the final
figure to quantify what is due the government nor what should be refunded to be
corporation. This interpretation may be gleaned from the last paragraph of Sec. 69 of
the Tax Code which provides that the refundable amount, in case a refund is due a
corporation, is that amount which is shown on its final adjustment return and not on its
quarterly returns.
FEBTC VS CIR 02 MAY 2006

SUBSTANTIATION REQUIREMENT

Refund claim must be substantiated by invoices/receipts. CPA report is not sufficient.


CIR vs. Manila Mining Corp., G.R. No. 153204, August 31, 2005, 3rd Div. Failure to
present VAT ORs evidencing zero-rated sales to AMEX-HK Branch resulted in claim
disallowance notwithstanding CPA report. American Express International, Inc.
Philippine Branch vs. CIR, CTA EB No. 103, March 3, 2006. See Rule 12, Section 5,
and Rule 13, Revised Rules of the Court of Tax Appeals.

Affirming the CTA decision denying the claim for refund by the trustee bank of the
withholding tax on money market placements, bank 15deposits, deposit substitutes
and government securities it made allegedly on behalf of various tax exempt employee
trusts, the Supreme Court held that mere testimony of witnesses is insufficient to
establish that tax exempt

employee trusts invested in such placements subjected to withholding tax.


Documentary proof of such transactions, such as confirmation receipts and purchase
orders, constitute the best evidence on the participation of the funds from these
employee trusts. Far East Bank and Trust Company vCIR & CA, G.R No. 138919, May
2, 2006, 3rd)

. CIRVS.ROSEMARIEACOSTA9. G.R. NO. 154068 AUGUST 3, 2007

FACTS: Acosta is an employee of Intel and was assigned in a foreign country. Duringth
at period Intel withheld the taxes due and remitted them to BIR. Respondent claimed overpayment
of taxes and filed petition for review with CTA. CTA dismissed the petition for failure to file a
written claim for refund with the CIR a condition precedent to the filing of a petition for
review with the CTA. CA reversed the decision reasoning that Acostasfiling of an
amended return indicating an overpayment was sufficient compliance with the requirement of a
written claim.

ISSUE: Whether or not CTA has jurisdiction to take cognizance of respondents petition
for review.
RULING: A party seeking an administrative remedy must not merely initiate the
prescribed administrative procedure to obtain relief but al so to pursue it to its appropriate
conclusion before seeking judicial intervention in order to give administrative agency an opportunity
to decide the matter itself correctly and prevent unnecessary and premature resort to court action.
At the time respondent filed her amended return, the 1997, NIRC was not yet in effect, hence
respondent had no reason to think that the filing of an amended return would constitute the written
claim required by law .CTA likewise stressed that even the date of filing of the Final Adjustment
return was omitted, inadvertently or otherwise, by respondent in her petition for review. This is fatal
to respondents claim, for it deprived the CTA of its jurisdiction over the subject
matter of the case. Finally, revenue statutes are substantive laws and in no sense must with that
of remedial laws. Revenue laws are not intended to be liberally constructed

ACCRA INVESTMENT Corp vs CA, December 20, 1991

Facts: ACCRA INVESTMENTS (ACCRAIN) is a domestic corporation engaged in the


business of real estate investment and management consultancy. ACCRAIN filed with
the Bureau of Internal Revenue its annual corporate income tax return for the calendar
year reporting a net loss of P2,957,142.00 on April 15, 1982. ACCRAIN declared as
creditable all taxes withheld at source by various withholding agents which withholding
agents afores tated paid and remitted the above amounts representing taxes on rental,
commission and consultancy income of the petitioner corporation to the Bureau of
Internal Revenue. ACCRAIN filed a claim for refund. Pending action of the respondent
Commissioner on its claim for refund, the petitioner corporation, on April 13, 1984, filed
a petition for review with the respondent Court of Tax Appeals. The CTA dismissed the
case for being filed out of time and the MR was likewise denied. A petition for review
was submitted to the SC and the SC referred the case to the CA. The CA affirmed
decision of the CTA.

Issue: Whether or not the claim for refund was filed on time
Held: YES. Crucial in the resolution of the instant case is the interpretation of the
phraseology "from the date of payment of the tax" in the context of Section 230 on
Recovery of tax erroneously or illegally collected.

A correct application of the Gibbs case according to the court is that a taxpayer whose
income is withheld at source will be deemed to have paid his tax liability at the end of
the tax year. It is from when the same falls due at the his latter date then, or when the
two-year prescriptive period under Section 306 of the Revenue Code starts to run with
respect to payments effected through the withholding tax system..

The aforequoted ruling presents two alternative reckoning dates, (1) the end of the tax
year; and (2) when the tax liability falls due. In the instant case, it is undisputed that the
petitioner corporation's withholding agents had paid the corresponding taxes withheld
at source to the Bureau of Internal Revenue from February to December 1981.
ACCRAIN is not claiming a refund of overpaid withholding taxes, per se. It is asking for
the recovery the refundable or creditable amount determined upon the petitioner
corporation's filing of the its final adjustment tax return on or before 15 April 1982 when
its tax liability for the year 1981 fell due. The petitioner corporation's taxable year is on
a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had
until 15 April 1982 within which to file its final adjustment return. The petitioner
corporation duly complied with this requirement

Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the
Bureau of Internal Revenue requires that:

Section 8. Claims for tax credit or refund Claims for tax credit or refund of income
tax deducted and withheld on income payments shall be given due course only when it
is shown on the return that the income payment received was declared as part of the
gross income and the fact of withholding is established by a copy of the statement,
duly issued by the payor to the payee (BIR Form No. 1743-A) showing the amount paid
and the amount of tax withheld therefrom.

The term "return" in the case of domestic corporations like ACCRAIN refers to the final
adjustment return. 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.

C OMMISSIONER OF I NTERNAl R
EVENUE V TMX SALES I NC (205 SCRA 184)
Topic: Prescriptive period to claim refund of erroneously paid taxes

Facts:
TMX Sales, Inc., a domestic corporation, filed on 15 May 1981 a quarterly income tax return for the
first quarter of 1981 and paid the corresponding income tax thereon.During the subsequent
quarters, it suffered losses so that when it filed its Annual Income Tax Return for the year that ended
on 31December 1981, it declared a net loss. It thereafter filed a claim for refund, which was no
acted upon by the Commissioner of Internal Revenue. On 14 March 1984, TMX Sales, Inc. filed a
petition for review with the Court of Tax Appeals to order the CIR to refund the amount overpaid as
income tax. The CIR raised the defense of prescription against TMX Sales, Inc., stating
that more than two years had already elapsed since TMX paid the contended income tax and
the filing of the claim in court.

Issue and Ruling:


1.
Does the two-year prescriptive period to claim a refund of erroneously collected tax provided for in
Section230 of the National Internal Revenue Code commence to run from the date the quarterly
income tax was paid, or from the date of filing of the Final Adjustment Return (final payment)?The
most reasonable and logical application of the law would be to compute the two-year prescriptive
period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it
can be finally ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a
refund of overpaid income tax.
Notes:
The filing of quarterly income tax returns required in Section 68 of the Tax Code and implemented
per BIR Form1702-Q and payment of quarterly income tax should only be considered mere
installments of the annual tax due. These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at a net taxable income,
should be treated as advances or portions of the annual income tax due, to be adjusted at the end
of the calendar year or fiscal year. This is reinforced by Section 69 which provides for the filing
of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive
provided in Section 230of the Tax Code should be computed from the time of the filing of the
Adjustment Return or Annual Income Tax Return and final payment of income tax.

COMMISSIONER OF INTERNAL REVENUE V PHILAMLIFE G.R. NO. 105208 MAY


29, 1995

FACTS: Respondent Philamlife herein sought refund of excess quarterly income tax
paid by it in the amount of P3,643,0125.00 representing excess corporate income
taxes for the first and second quarters of 1983. The CTA ruled in favor of Philamlife
when it filed its appeal seeking for refund, hence this instant review on certiorari filed
by the CIR.
The facts showed that on May 30, 1983, private respondent Philamlife paid to the
Bureau of Internal Revenue (BIR) its first quarterly corporate income tax for Calendar
Year (CY) 1983 amounting to P3,246,141.00, subsequently it again paid on August 29,
1983, it paid P396,874.00 for the Second Quarter of 1983 for the Third Quarter of
1983, private respondent declared a net taxable income of P2,515,671.00 and a tax
due of P708,464.00. After crediting the amount of P3,899,525.00 it declared a
refundable amount of P3,158,061.00. In 1984, private respondent again suffered a loss
and declared no income tax liability. However, it applied as tax credit for 1984, the
amount of P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and
the amount of P250,867.00 as withholding tax on rental income for 1984. On
December 10, 1985 the responder Philamlife filed with the CIR a claim for refund,
when it was denied it filed a petition for review with the CTA.
The contention of the CIR is that the claim for refund has prescribed.
ISSUE: Whether or not the claim for refund has prescribed?
Held: No, the claim for refund has not prescribed. The main questioned to be resolved
in this case in order to rule on the claim of prescription is the running of the prescriptive
period i.e. in the case of a corporate tax payer should the prescriptive period be
counted from the date of the actual payment or should the reckoning date be that
wherein the corporate final adjustment return was filed. Herein the Court ruled that the
counting of the period of prescription should commence at the filing of the final
adjustment return.
In order to come up with the above decision the SC harmonised the provisions of Sec
292 (now Section 230) with the provisions of Section 68 and 69 of the Tax Code to wit:
while section 292 stipulates that the two year prescriptive period for refunds should be
counted from date of payment of the tax sought to be refunded; when applied to tax
payers filing income tax returns on a quarterly basis, the date of payment mentioned in
Section 292 must be deemed to be qualified by Section 68 and 69 of the Tax Code
which provides, in the case of corporations, the necessity of filing a quarterly income
tax and a final adjustment return. Thus, the court said that it is only upon the filing of
the final adjustment return that the amount due to the government or what should be
refunded to the corporation may be ascertained.
Therefore, when private respondent paid P3,246,141.00 on May 30, 1983, it would not
have been able to ascertain on that date, that the said amount was refundable. The
same applies with cogency to the payment of P396,874.00 on August 29, 1983.
The prescriptive period of two years should commence to run only from the time that
the refund is ascertained, which can only be determined after a final adjustment return
is accomplished. In the present case, this date is April 16, 1984, and two years from
this date would be April 16, 1986. The record shows that the claim for refund was filed
on December 10, 1985 and the petition for review was brought before the CTA on
January 2, 1986. Both dates are within the two-year reglementary period. Private
respondent being a corporation, Section 292 (now Section 230) cannot serve as the
sole basis for determining the two-year prescriptive period for refunds.
G.R. No. 117254 January 21, 1999

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
COURT OF APPEALS, COURT OF TAX APPEALS and BANK OF THE PHILIPPINE
ISLANDS as LIQUIDATOR OF PARAMOUNT ACCEPTANCE
CORPORATION, respondent.

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 19, 1994, of
the Court of Appeals affirming the decision of the Court of Tax Appeals which ordered
petitioner to refund P65,259.00 as overpaid income tax.

The facts are stated in the following portion of the decision of the CTA which the Court
of Appeals quoted with approval:

Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust
corporation duly organized and existing under Philippine laws. It acts as the
liquidator of Paramount Acceptance Corporation after its dissolution on
March 31, 1986.

On April 2, 1986, Paramount Acceptance Corporation (Paramount for


brevity) filed its Corporate Annual Income Tax Return, for calendar year
ending December 31, 1985, declaring a Net Income of P3,324,802.00 (Exh.
A). The income tax due thereon is P1,153,681.00. However, Paramount
paid the BIR its quarterly income tax, to wit:

Qtr. CR/ROR Date Bank Amount Exh.


1st 6817293 5/30/85 DBP P308,779.00 C
2nd 5613316 8/29/85 DBP 626,000.00 C-1
3rd 7720471 11/29/85 DBP 284,161.00 C-2

TOTAL P1,218,940.00
==========

After deducting Paramount's total quarterly income tax payments of


P1,218,940.00 from its income tax of P1,153,681.00, the return showed a
refundable amount of P65,259.00. The appropriate box in the return was
marked with a cross (x) indicating "To be refunded" he amount of
P65,29,00.

n April 14, 1988, petitioner BPI, as liquidator of Paramount, through


counsel filed a letter dated April 12, 1988 reiterating its claim for refund of
P65,259.00 as overpaid income tax for the calendar year 1985. The
following day or on April 15, 1988. BPI filed the instant petition with this
Court in order to toll the running of the prescriptive period for filing a claim
for refund of overpaid income taxes.

The question is whether the two-year period of prescription for filing a claim for refund,
as provided in 230 of the National Internal Revenue Code, is to be counted from April
2, 1986 when the corporate income tax return was actually filed or from April l5, 1986
when, according to 70(b) of the NIRC, the final adjustment return could still be filed
without incurring any penalty. The aforesaid 230 of the NLRC 1 provides that such
period must be counted "from the date of payment of the tax." But, given the facts as
stated above, when was the corporate income tax paid in this case?

The Court of Tax Appeals rendered a decision decision the considering the two year
period of prescription to have commenced to run from April 15, 1986, the last day for
filing the corporate income tax return, and, since the claim for refund was filed on April
14, 1988 and the action was brought on April 15, 1988, it held that prescription had not
set in. Accordingly, the CTA ordered as follows:

WHEREFORE, the respondent [petitioner herein] is hereby ordered to


REFUND in favor of petitioner, the sum of P65,259.00, representing
overpaid income tax of Paramount Acceptance Corporation for the
calendar year 1985.

No pronouncement as to costs.

SO ORDERED. 2
On appeal, its decision was affirmed by the Court of Appeals. Said the appellate
court: 3

We agree with the respondent court's ruling that the date of payment of the
tax as prescribed under the Tax Code is the date when the corporate
income tax return is required to be filed. . . .

The Supreme Court has laid down the rule regarding the computation of
the prescriptive period that the two-year period should be computed from
the time of filing of the Adjustment Returns or Annual Income Tax Return
and final payment of income tax: it is only when the Adjustment Return
covering the whole year is filed that the taxpayer would know whether a tax
is still due or a refund can be claimed based on the adjusted and audited
figures (Commissioner of Internal Revenue vs. TMX Sales Inc., 205 SCRA
184). 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 (Commissioner of Internal Revenue vs. Asia Australia
Express Ltd., G.R. No. 85956). The "date of payment" from which to reckon
the two-year period, in the case of a corporation whose taxable year is on a
calendar basis, is the 15th day of the fourth month (April 15th) following the
close of the fiscal year, and the filing of the final adjustment return on April
15th, following the close of the preceding taxable year, is such "date of
payment" (ACCRA Investments Corp. vs. Court of Appeals, 204 SCRA
957).

In this case, BPI filed its final adjustment return on April 2, 1985. No taxes
were paid then because the returns showed that the quarterly taxes already
paid exceeded the income tax due by P65,259.00. As correctly put by BPI,
it is only on April 15 that the previous year's income tax becomes due and
payable and the taxpayer is still free to make amendments or adjustments
on its return, without penalty, until April 15, 1986 (See Section 80,
N.I.R.C.). Thus the final payment of income tax should be deemed to be on
April 15, 1986, when the previous year's income tax became due and
payable and when the quarterly corporate income taxes may be considered
paid. Accordingly the administrative claim and court proceeding for tax
refund were timely filed.
Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends
that the two-year prescriptive period should be computed from April 2, 1984, when the
final adjustment return was actually filed, because that is the time of payment of the
tax, within the meaning of 230 of the NIRC.

We agree.

The conclusions reached by the appellate court are contrary to the very rulings cited by
it. In Commissioner of Internal Revenue v. TMX Sales, Inc., 4 this Court, in rejecting the
contention that the period of prescription should be counted from the date of payment
of the quarterly tax, held:

. . . [T]he filing of a quarterly income tax return required in Section 85 [now


Section 68] and implemented per BIR Form 1702-Q and payment of
quarterly income tax should only be considered mere installments of the
annual tax due. These quarterly tax payment which are computed based on
the cumulative figures of gross receipts and deductions in order to arrive at
a net taxable income, should be treated as advances or portions of the
annual income tax due, to be adjusted at the end of the calendar or fiscal
year. This is reinforced by Section 87 [now Section 69] which provides for
the filing of adjustment returns and final payment of income
tax. Consequently, the two-year prescriptive period provided in Section 292
[now Section 230 of the Tax Code] should be computed from the time of
filing the Adjustment Return or Annual Income Tax Return and final
payment of income tax.

On the other hand, in ACCRA Invesments Corporation v. Court of Appeals, 5 where the
question was whether the two-year period of prescription should be reckoned from the
end of the taxable year (in that case December 31, 1981), we explained why the period
should be counted from the filing of the final adjustment return, thus: 6

Clearly, there is the need to file a return first before a claim for refund can
proper 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 petitioner corporation had until April 15, 1984 within which to file
its claim for refund.

xxx xxx xxx

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 is 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 payments", 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.

Finally, in Commissioner of Internal Revenue v. Philippine American Life Insurance


Co., 7 we held:

Clearly, the prescriptive period of two years should commence to run only
from the time that the refund is ascertained, which can only be determined
after a final adjustment return is accomplished. In the present case, this
date is April 16, 1984, and two years from this date would be April 16,
1986. The record shows that the claim for refund was filed on December
10, 1985 and the petition for review was brought before the CTA on
January 2, 1986. Both dates are within the two-year reglementary period.
Private respondent being a corporation, Section 292 [now Section 230]
cannot serve as the sole basis for determining the two-year prescriptive
period for refunds. As we have earlier stated in the TMX Sales case.
Sections 68, 69, and 70 on Quarterly Corporate Income Tax Payment and
Sectibn 321 should be construed in conjunction with it.

Sec. 49(a) of the NIRC provides that


9. Payment and assessment of income tax for individuals and
corporations.

(a) Payment of tax(1) In general. The total amount of tax imposed by


this Title shall be paid by the person subject thereto at the time the return is
filed. . . .

On the other hand, 70(b) of the same Code provides that

70 (b) Title of filing the income return The corporate quarterly


declaration shall be filed within sisty (60) days following the close of each of
the first three quarters of the taxable year. The final adjustment return shall
be filed on or before the 15th day of the 4th month following the close of the
fiscal year, as the case may be.

Thus, it can be deduced from the foregoing that, in the contest of 230, which provides
for a two-year period of prescription counted "from the date of payment of the tax" for
actions for refund of corporate income tax, the two-year period should be computed
from the time of actual filing of the Adjustment Return or Annual Income Tax Return.
This is so because at that point, it can already be determined whether there has been
an overpayment by the taxpayer. Moreover, under 49(a) of the NIRC, payment is
made at the time the return is filed.

In the case at bar, Paramount filed its corporate annual income tax return on April 2,
1986. However, private respondent BPI, as liquidator of Paramount, filed a written
claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988.
Both claim and action for refund were thus barred by prescription.

The foregoing conclusion makes it unnecessary for us to pass on the other issues
raised in this case by petitioner.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the petition for
refund filed by private respondent is DISMISSED on the ground that it is barred by
prescription.1wphi1.nt

SO ORDERED.

Bellosillo, Puno, Quisumbing and Buena, JJ., concur.


G.R. No. 161997 October 25, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
PHILIPPINE NATIONAL BANK, Respondent.

DECISION

GARCIA, J.:

Thru this appeal by way of a petition for review on certiorari under Rule 45 of the Rules
of Court, petitioner Commissioner of Internal Revenue seeks to set aside the Decision
dated October 14, 20031 of the Court of Appeals (CA) in CA-G.R. SP No. 76488 and its
Resolution dated January 26, 20042 denying petitioners motion for reconsideration.

The petition is cast against the following factual setting:

In early April 1991, respondent Philippine National Bank (PNB) issued to the Bureau of
Internal Revenue (BIR) PNB Cashiers Check No. 109435 for P180,000,000.00. The
check represented PNBs advance income tax payment for the banks 1991 operations
and was remitted in response to then President Corazon C. Aquinos call to generate
more revenues for national development. The BIR acknowledged receipt of the amount
by issuing Payment Order No. C-10151465 and BIR Confirmation Receipt No.
22063553, both dated April 15, 1991.3

Via separate letters dated April 19 and 29, 1991 and May 14, 19914 to then BIR
Commissioner Jose C. Ong, PNB requested the issuance of a tax credit certificate
(TCC) to be utilized against future tax obligations of the bank.

For the first and second quarters of 1991, PNB also paid additional taxes amounting to
P6,096,150.00 and P26,854,505.80, respectively, as shown in its corporate quarterly
income tax return filed on May 30, 1991.5Inclusive of the P180 Million aforementioned,
PNB paid and BIR received in 1991 the aggregate amount of P212, 950,656.79.6 This
final figure, if tacked to PNBs prior years excess tax credit (P1,385,198.30) and the
creditable tax withheld for 1991 (P3,216,267.29), adds up to P217,552,122.38.
By the end of CY 1991, PNBs annual income tax liability, per its 1992 annual income
tax return,7 amounted to P144,253,229.78, which, when compared to its claimed total
credits and tax payments of P217,552,122.38, resulted to a credit balance in its favor
in the amount of P73,298,892.60.8 This credit balance was carried-over to cover tax
liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to
the banks negative tax position for the said inclusive years, having incurred losses
during the 4-year period.

On July 28, 1997, PNB wrote then BIR Commissioner Liwayway Vinzons-Chato,
Attention: Appellate Division, to inform her about the above developments and to
reiterate its request for the issuance of a TCC, this time for the "unutilized balance of
its advance payment made in 1991 amounting to P73,298,892.60".9 This request was
forwarded for review and further processing to the Office of the Deputy Commissioner
for Legal and Inspection Group, Lilian B. Hefti, and then to the BIRs Large Taxpayers
Service.

In a letter dated July 26, 2000, PNB sought reconsideration of the decision of Deputy
Commissioner Hefti not to take cognizance of the banks claim for tax credit certificate
on the ground that the jurisdiction of the Appellate Division is limited to claims for tax
refund and credit "involving erroneous or illegal collection of taxes whenever there are
questions of law and/or facts and does not include claims for refund of advance
payment, pursuant to Revenue Administrative Order [RAO] No. 7-95 dated October 10,
1995."10 In her letter-reply dated August 8, 2008,11 Deputy Commissioner Hefti denied
PNBs request for reconsideration with the following explanations:

In reply, please be advised that upon review . . . of your case, this Office finds that the
same presents no legal question for resolution. Rather, what is involved is the
verification of factual matters, i.e., the existence of material facts to establish your
entitlement to refund. Such facts were initially verified through the proper audit of your
refund case by the investigating unit under the functional control and supervision of the
Deputy Commissioner, Operations Group of this Bureau. It is therefore right and proper
for the Operations Group to review, confirm and/or pass judgment upon the findings of
the unit under it.

At any rate, sound management practices demand that issues as crucial as refund
cases be subjected to complete staff work. There might be a little delay in the transition
of cases but expect the new procedures to be well-established in no time. Allow us,
however, to allay your concern about delayed processing of your claim. In fact, the
undersigned has made representations with the Operations Group about your case
and if you would check the status of your case again, you will find that the same has
been duly acted upon." (Emphasis supplied)

On August 14, 2001, PNB again wrote the BIR requesting that it be allowed to apply its
unutilized advance tax payment of P73,298,892.60 to the banks future gross receipts
tax liability.12

Replying, the BIR Commissioner denied PNBs claim for tax credit for the following
reasons stated in his letter of May 21, 2002, to wit:13

1. The amount subject of claim for [TCC] is being carried over from your 1991 to 1996
Annual Income Tax Returns. xxx. To grant your claim would result into granting it twice
first for tax carry over as shown in your 1991 amended Income Tax Return and
second for granting a tax credit.

2. When you requested for a refund on April 19, 1991, reiterated on April 29, 1991 and
again on May 14, 1991 on alleged excess income taxes, the same was considered
premature since the determination . . . of your income tax liability can only be
ascertained upon filing of your Final or Adjusted Income Tax Return for 1991 on or
before April 15, 1992.

3. When you carried over the excess tax payments from 1991 to 1996 Annual Income
Tax Return, you had already abandoned your original intention of claiming for a [TCC].
Furthermore, the 1991 amended Income Tax Return you filed on April 14, 1994 clearly
showed that the amount being claimed has already been applied as tax credit against
your 1992 income tax liability.

4. Although there was already a recommendation for the issuance of a [TCC] by the
Chief, Appellate Division and concurred in by the Assistant Commissioner, Legal
Service, the recommendation was for . . . year 1992 and not for the taxable year 1991,
which is the taxable year involved in this case.

5. Even if you reiterated your claim for tax credit certificate when you filed your claim
on July 28, 1997, the same has already prescribed on the ground that it was filed
beyond the two (2) year prescriptive period as provided for under Section 204 of NIRC.
[Words in bracket and emphasis added]

On June 20, 2002, PNB, via a petition for review, appealed the denial action of the BIR
Commissioner to the Court of Tax Appeals (CTA). There, its appellate recourse was
docketed as C.T.A. Case No. 6487.

The Revenue Commissioner filed a motion to dismiss PNBs aforementioned petition


on ground of prescription under the 1977 National Internal Revenue Code (NIRC)14. To
this motion, PNB interposed an opposition, citingCommissioner of Internal Revenue vs.
Philippine American Life Insurance Co.15

In its Resolution of October 10, 2002,16 the CTA granted the Commissioners motion to
dismiss and, accordingly, denied PNBs petition for review, pertinently stating as
follows:

To reiterate, both the claim for refund and the subsequent appeal to this court must be
filed within the same two (2)-year period [provided in Sec. 230 of the NIRC]. This is not
subject to qualification. The court is bereft of any jurisdiction or authority to hear the
instant Petition for Review, considering that the above stated action for refund was filed
beyond the two (2)-year prescriptive period as allowed under the Tax Code. (Words in
bracket added)

PNBs motion for reconsideration was denied by the tax court in its subsequent
Resolution of March 20, 2003.17

In time, PNB filed a petition for review with the Court of Appeals (CA), thereat docketed
as CA-G.R. SP No. 76488, arguing that the applicability of the two (2)-year prescriptive
period is not jurisdictional and that said rule admits of certain exceptions. 18 Following
the filing by the Commissioner Internal Revenue of his Comment to PNBs petition in
CA-G.R. in SP No. 76488, respondent PNB filed a Supplement to its Petition for
Review.19

In the herein assailed Decision dated October 14, 2003,20 the appellate court reversed
the ruling of the CTA, disposing as follows:
WHEREFORE, premises considered, the present petition is hereby GIVEN DUE
COURSE. Consequently, the assailed Resolutions dated October 10, 2002 and March
30, 2003 of the Court of Tax Appeals in C.T.A. Case No. 6487 are
hereby ANNULLED and SET ASIDE. The case is hereby REMANDED to the
respondent Commissioner for issuance with deliberate dispatch of the tax credit
certificate after completion of processing of petitioners claim/request by the concerned
BIR officer/s as to the correct amount of tax credit to which petitioner is entitled.

No pronouncements as to costs.

SO ORDERED.

In gist, the appellate court predicated its disposition on the following main premises:

1. Considering the "special circumstance" that the tax credit PNB has been seeking is
to be sourced not from any tax erroneously or illegally collected but from advance
income tax payment voluntarily made in response to then President Aquinos call to
generate more revenues for the government, in no way can the amount of P180 million
advanced by PNB in 1991 be considered as erroneously or illegally paid tax.21

2. The BIR is deemed to have waived the two (2)-year prescriptive period when its
officials led the PNB to believe that its request for tax credit had not yet prescribed
since the matter was not being treated as an ordinary claim for tax refund/credit or a
simple case of excess payment.

3. Commissioner of Internal Revenue vs. Philippine American Life Insurance


Co.22 instructs that even if the two (2)-year prescriptive period under the Tax Code had
already lapsed, the same is not jurisdictional, and may be suspended for reasons of
equity and other special circumstances. PNBs failure to apply the advance income tax
payment due to its negative tax liability in the succeeding taxable years i.e., 1992-
1996, should not be subject to the two (2)-year limitation as to bar its claim for tax
credit. The advance income tax payment, made as it were under special
circumstances, warrants a suspension of the two (2)-year limitation, underscoring the
fact that PNBs claim is not even a simple case of excess payment.

In time, the BIR Commissioner moved for a reconsideration, but its motion was denied
by the appellate court in its equally challenged Resolution of January 26, 2004.23
Hence, the Commissioners present recourse on the following substantive
submissions:

1. A prior tax assessment before respondent PNB can apply for tax credit is
unnecessary;

2. PNBs letter dated April 19, 29 and May 14, 1991 cannot be legally interpreted as
claims for refund or tax credit as required by the NIRC;

3. PNBs claim for tax credit is barred by prescription; and

4. The equitable principle of estoppel does bar the BIR petitioner from collecting taxes
due. 24

Petitioner first scores the CA for concluding that "the amount of advance income tax
payment voluntarily remitted to the BIR by the [respondent] was not a consequence of
a prior tax assessment or computation by the taxpayer based on business income"
and, therefore, it cannot "be treated as similar to those national revenue taxes
erroneously, illegally or wrongfully paid as to be automatically covered by the two (2)-
year limitation under Sec. 230 [of the NIRC] for the right to its recovery." Petitioner
invokes the all too-familiar principle that the collection of taxes, being the lifeblood of
the nation,25 should be summary and with the least interference from the courts.

Pressing its point, petitioner asserts that what transpired under the premises is a case
of excessive collection not arising from an erroneous, illegal of wrongful assessment
and collection. According to petitioner, respondent PNB, after making a prepayment of
taxes in 1991, had realized, upon filing, in 1992, of its 1991 final annual income tax
return, the excess payment by simple process of mathematical computation; hence, it
was unnecessary to make any assessment of overpaid taxes. Moreover, petitioner
points out that the tenor of PNBs letters of April 19, 29, and May 14, 199126 indicated a
mere request for an issuance of a TCC covering the advance payments of taxes, not a
claim for refund or tax credit of overpaid national internal revenue taxes.

Citing Revenue Regulation No. 10-77, petitioner likewise argues that any excess or
overpaid income tax for a given taxable year may be carried to the succeeding taxable
year only. It cannot, petitioner expounds, go beyond, as what respondent PNB
attempted to do in 1997, when, after realizing the inapplicability of the excess carry-
forward scheme for its 1992 income tax liabilities owing to its negative tax position for
the 1992 to 1996 tax period, it belatedly requested for a TCC issuance.

Lastly, petitioner urges the Court to make short shrift of the invocation of equity and
estoppel, on the postulate that the erroneous application and enforcement of tax laws
by public officers does not preclude the subsequent correct application of such laws. 27

In its Comment, respondent PNB contends that its claim for tax credit did not arise
from overpayment resulting from erroneous, illegal or wrongful collection of tax. And
obviously having in mind the holding of this Court in Juan Luna Subdivision Inc. vs.
Sarmiento,28 respondent stresses that its P180 Million advance income tax payment for
1991 partakes of the nature of a deposit made in anticipation of taxes not yet due or
levied. Accordingly, respondent adds, the P180 Million was strictly not a payment of a
valid and existing tax liability, let alone an erroneous payment, the refund of which is
governed by Section 230 of the NIRC.

Taking a different tack, respondent PNB would also argue that, even assuming, in
gratia argumenti that the two (2)-year limitation in Section 230 of the NIRC is of
governing application, still the prescriptive period set forth therein is not jurisdictional.
The suspension of the statutory limitation in this case, PNB adds, is justified under
exceptional circumstance.

We rule for respondent PNB.

As may be recalled, both the CTAs and the BIRs refusal to grant PNBs claim for
refund or credit was based on the proposition that such claim was time-barred. On the
other hand, the CA rejected both the CTAs and BIRs stance for reasons as shall be
explained shortly.

As we see it then, the core issue in this case pivots on the applicability hereto of the
two (2)-year prescriptive period under in Section 230 (now Sec. 229) of the NIRC,
reading:

"SEC. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding


shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected , . . , or of
any sum, alleged to have been excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two [(2)]
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax, where on the face of the
return upon which payment was made, such payment appears clearly to have been
erroneously paid. (Underscoring added.)

Here, respondent PNB requested the BIR to issue a TCC on the remaining balance of
the advance income tax payment it made in 1991. It should be noted that the request
was made considering that, while PNB carried over such credit balance to the
succeeding taxable years, i.e., 1992 to 1996, its negative tax position during said tax
period prevented it from actually applying the credit balance of P73, 298,892.60. It is
fairly correct to say then that the claim for tax credit was specifically pursued to enable
the respondent bank to utilize the same for future tax liabilities. However, petitioner
ruled that the claim in question is time-barred, the bank having filed such claim only in
1997, or more than two (2) years from 1992 when the overpayment of annual income
tax for 1991 was realized by the bank and the amount of excess payment ascertained
with the filing of its final 1991 income tax return.

In rejecting petitioners ruling, as seconded by the CTA, the CA stated that PNBs
request for issuance of a tax credit certificate on the balance of its advance income tax
payment cannot be treated as a simple case of excess payment as to be automatically
covered by the two (2)-year limitation in Section 230, supra of the NIRC.

We agree with the Court of Appeals.

Section 230 of the Tax Code, as couched, particularly its statute of limitations
component, is, in context, intended to apply to suits for the recovery of internal revenue
taxes or sums erroneously, excessively, illegally or wrongfully collected.

Black defines the term erroneous or illegal tax as one levied without statutory
authority.29 In the strict legal viewpoint, therefore, PNBs claim for tax credit did not
proceed from, or is a consequence of overpayment of tax erroneously or illegally
collected. It is beyond cavil that respondent PNB issued to the BIR the check for P180
Million in the concept of tax payment in advance, thus eschewing the notion that there
was error or illegality in the payment. What in effect transpired when PNB wrote its July
28, 1997 letter30 was that respondent sought the application of amounts advanced to
the BIR to future annual income tax liabilities, in view of its inability to carry-over the
remaining amount of such advance payment to the four (4) succeeding taxable years,
not having incurred income tax liability during that period.

The instant case ought to be distinguished from a situation where, owing to net losses
suffered during a taxable year, a corporation was also unable to apply to its income tax
liability taxes which the law requires to be withheld and remitted. In the latter instance,
such creditable withholding taxes, albeit also legally collected, are in the nature of
"erroneously collected taxes" which entitled the corporate taxpayer to a refund under
Section 230 of the Tax Code. So it is that in Citibank, N.A. vs. Court of Appeals31, we
held:

The taxes thus withheld and remitted are provisional in nature. We repeat: five percent
of the rental income withheld and remitted to the BIR pursuant to Rev. Reg. No. 13-78
is, unlike the withholding of final taxes on passive incomes, a creditable withholding
tax; that is, creditable against income tax liability if any, for that taxable year.

In Commissioner of Internal Revenue vs. TMX Sales, Inc., this Court ruled that the
payments of quarterly income taxes (per Section 68, NIRC) should be considered mere
installments on the annual tax due. These quarterly tax payments . . . should be
treated as advances or portions of the annual income tax due, to be adjusted at the
end of the calendar or fiscal year. The same holds true in the case of the withholding of
creditable tax at source. Withholding taxes are "deposits" which are subject to
adjustments at the proper time when the complete tax liability is determined.

In this case, the payments of the withholding taxes for 1979 and 1980 were creditable
to the income tax liability, if any, of petitioner-bank, determined after the filing of the
corporate income tax returns on April 15, 1980 and April 15, 1981. As petitioner posted
net losses in its 1979 and 1980 returns, it was not liable for any income taxes.
Consequently and clearly, the taxes withheld during the course of the taxable year,
while collected legally under the aforecited revenue regulation, became untenable and
took on the nature of erroneously collected taxes at the end of the taxable year.
(Underscoring added)

Analyzing the underlying reason behind the advance payment made by respondent
PNB in 1991, the CA held that it would be improper to treat the same as erroneous,
wrongful or illegal payment of tax within the meaning of Section 230 of the Tax Code.
So that even if the respondents inability to carry-over the remaining amount of its
advance payment to taxable years 1992 to 1996 resulted in excess credit, it would be
inequitable to impose the two (2)-year prescriptive period in Section 230 as to bar
PNBs claim for tax credit to utilize the same for future tax liabilities. We quote with
approval the CAs disquisition on this point:

Thus, in no sense can the subject amount of advance income tax voluntarily remitted
to the BIR by the [respondent], not as a consequence of prior tax assessment or
computation by the taxpayer based on business income, be treated as similar to those
national revenue taxes erroneously, illegally or wrongfully paid as to be automatically
covered by the two (2)-year limitation under Sec. 230 for the right to its recovery. When
the P180 million advance income tax payment was tendered by [respondent], no tax
had been assessed or due, or actually imposed and collected by the BIR. Neither can
such payment be considered as illegal having been made in response to a call of
patriotic duty to help the national government . We therefore hold that the tax credit
sought by [respondent] is not simply a case of excess payment, but rather for the
application of the balance of advance income tax payment for subsequent taxable
years after failure or impossibility to make such application or carry over the preceding
four (4)-year period when no tax liability was incurred by petitioner due to losses in its
operations. It is truly inequitable to strictly impose the two (2)-year prescriptive period
as to legally bar any request for such tax credit certificate considering the special
circumstances under which the advance income tax payment was made and the
unexpected event (four years of business losses) which prevented such application or
carry over. Ironically, both the [petitioner] and CTA would fault the [respondent] for
electing to credit or carry over the excess amount of tax payment advanced instead of
choosing to refund any such excess amount, holding that such decision on the part of
petitioner caused the two (2)-year period to lapse without the petitioner filing such a
request for the issuance of a tax credit certificate. They emphasized that the advance
tax payment was made with the understanding that any excess amount will be either
carried over to the next taxable year or refunded. It appears then that the request for
issuance of a tax credit certificate was arbitrarily interpreted by respondent as a simple
claim for refund instead of a request for application of the balance (excess amount) to
tax liability for the succeeding taxable years, as was the original intention of
[respondent] when it tendered the advance payment in 1991."32 (Emphasis in the
original; words in bracket added)

Petitioner insists that a prior tax assessment in this case was unnecessary, the excess
tax payment having already been ascertained by the end of 1992 upon the filing by
respondent of its adjusted final return. Thus, petitioner adds, the two (2)-year
prescriptive period to recover said excess credit balance had begun to run from the
accomplishment of the said final return and, ergo, PNBs claim for tax credit asserted in
1997 is definitely belated. Additionally, petitioner, citing Revenue Regulation No. 10-77,
contends that the carrying forward of any excess or overpaid income tax for a given
taxable year is limited to the succeeding taxable year only.

We do not agree.

Revenue Regulation No. 10-7733 governs the method of computing corporate quarterly
income tax on a cumulative basis. Section 7 thereof provides:

SEC. 7. Filing of final or adjustment return and final payment of income tax. -- A final or
an adjustment return . . . covering the total taxable income of the corporation for the
preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth
month following the close of the calendar or fiscal year. xxxx. The amount of income
tax to be paid shall be the balance of the total income tax shown on the final or
adjustment return after deducting therefrom the total quarterly income taxes paid
during the preceding first three quarters of the same calendar or fiscal year.

"Any excess of the total quarterly payments over the actual income tax
computed and shown in the adjustment or final corporate income tax return shall
either (a) be refunded to the corporation, or (b) may be credited against the
estimated quarterly income tax liabilities for the quarters of the succeeding
taxable year. The corporation must signify in its annual corporate adjustment return its
intention whether to request for the refund of the overpaid income or claim for
automatic tax credit to be applied against its income tax liabilities for the quarters of the
succeeding taxable year by filling the appropriate box on the corporate tax return.
(B.I.R. Form No. 1702) [Emphasis added]
As can be gleaned from the above, the mandate of Rev. Reg. No. 10-77 is hardly of
any application to PNBs advance payment which, needless to stress, are not
"quarterly payments" reflected in the adjusted final return, but a lump sum payment to
cover future tax obligations. Neither can such advance lump sum payment be
considered overpaid income tax for a given taxable year, so that the carrying forward
of any excess or overpaid income tax for a given taxable year is limited to the
succeeding taxable year only.34 Clearly, limiting the right to carry-over the balance of
respondents advance payment only to the immediately succeeding taxable year would
be unfair and improper considering that, at the time payment was made, BIR was put
on due notice of PNBs intention to apply the entire amount to its future tax obligations.

In Commissioner vs. Phi-am Life35, 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 jurisdictional36 and may be suspended for reasons of equity and other special
circumstances.37

While perhaps not in all fours because it involved the refund of overpayment due to
misinterpretation of the law on franchise, our ruling in Panay Electric Co. vs. Collector
of Internal Revenue38, is apropos. There, the Court stated:

"xxx(L)egally speaking, the decision of the Tax Court [on the two-year prescriptive
period for tax refund] is therefore correct, being in accordance with law. However,
ones conscience does not and cannot rest easy on this strict application of the
law, considering the special circumstances that surround this case. Because of his
erroneous interpretation of the law on franchise taxes, the Collector, from the year
1947 had illegally collected from petitioner the respectable sum of . . . . From a moral
standpoint, the Government would be enriching itself of this amount at the expense of
the taxpayer. (Words in bracket added and underscoring added.)

Like the CA, this Court perceives no compelling reason why the principle enunciated
in Panay Electric andCommissioner 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.

The rule of long standing is that the Court will not set aside lightly the conclusions
reached by the CTA which, by the very nature of its functions, is dedicated exclusively
to the resolution of tax problems and has, accordingly, developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority. 39 It is
likewise settled that to a claimant rests the onus to establish the factual basis of his or
her claim for tax credit or refund.40 In this case, however, petitioner does not dispute
that a portion of the P180 Million PNB remitted to the BIR in 1991 as advance payment
remains unutilized for the purpose for which it was intended in the first place. But
petitioner asserts that respondents right to recover the same is already time-barred.
The CTA upheld the position of petitioner. The CA ruled otherwise. We find the CAs
position more in accord with the facts on record and is consistent with applicable laws
and jurisprudence.

Verily, 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 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.

Lest it be overlooked, petitioner peremptorily denied the request for tax credit on the
ground of its having been filed beyond the two (2)-year prescriptive period. In the same
breath, however, petitioner appears to have glossed over an incident which amounts to
an earlier BIR ruling that "there is no legal question to be resolved but only a factual
investigation" in the processing of PNBs claim. Even as petitioner concluded such
administrative investigation, it did not deny the request for issuance of a tax credit
certificate on any factual finding, such as the veracity of alleged business losses in the
taxable years 1992 to 1996, during which the respondent bank alleged the credit
balance was not applied. Lastly, there is no indication that petitioner considered
respondents request as an ordinary claim for refund, the very reason why the same
was referred by the BIR for processing to the Operations Group of the Bureau.

Hence, no reversible error was committed by the CA in holding that, upon basic
considerations of equity and fairness, respondents request for issuance of a tax credit
certificate should not be subject to the two (2)-year limitation in Section 230 of the
NIRC.

With the foregoing disquisitions, the Court finds it unnecessary to delve on the question
of whether or not mistakes of tax officers constitute a bar to collection of taxes by the
BIR Commissioner.

The procedural issue presently raised by petitioner, i.e., respondent PNBs alleged
non-compliance with the forum shopping rule when its petition for review filed with the
CTA did not contain the requisite authority of PNB Vice President Ligaya R. Gagolinan
to sign the certification, need not detain us long.

Petitioner presently faults the CA for not having taken notice that PNBs initiatory
pleading before the CTA suffers from an infirmity that justifies the dismissal thereof.
But it is evident that the issue of forum shopping is being raised for the first time in this
appellate proceedings. Accordingly, the Court loathes to accommodate petitioners
urging for the dismissal of respondents basic claim on the forum-shopping angle. As
earlier ruled by this Court, a party ought to invoke the issue of forum shopping,
assuming its presence, at the first opportunity in his motion to dismiss or similar
pleading filed in the trial court. Else, he is barred from raising the ground of forum
shopping in the Court of Appeals and in this Court.41 So it must be here.

WHEREFORE, the petition is DENIED for lack of merit and the assailed decision and
resolution of the Court of Appeals in CA-G.R. SP No. 76488 AFFIRMED.

No pronouncement as to costs.

G.R. No. 144653 August 28, 2001

BANK OF THE PHILIPPINE ISLANDS, petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated April 14, 2000, of the
Court of Appeals,1 affirming the decision of the Court of Tax Appeals (which denied
petitioner Bank of the Philippine Islands' claim for tax refund for 1985), and the appeals
court's resolution, dated August 21, 2000, denying reconsideration.

The facts are as follows:

Prior to its merger with petitioner Bank of the Philippine Islands (BPI) on July 1985,
The Family Bank and Trust Co. (FBTC) earned income consisting of rentals from its
leased properties and interest from its treasury notes for the period January 1 to June
30, 1985. As required by the Expanded Withholding Tax Regulation, the lessees of
FBTC withheld 5 percent of the rental income, in the amount of P118,609.17, while the
Central Bank, from which the treasury notes were purchased by FBTC, withheld
P55,456.60 from the interest earned thereon. Creditable withholding taxes in the total
amount of P174,065.77 were remitted to respondent Commissioner of Internal
Revenue.

FBTC, however, suffered a new loss of about P64,000,000.00 during the period in
question. It also had an excess credit of P2,146,072.57 from the previous year. Thus,
upon its dissolution in 1985, FBTC had a refundable of P2,320,138.34, representing
that year's tax credit of P174,065.77 and the previous year's excess credit of
P2,146,072.57.

As FBTC's successor-in-interest, petitioner BPI claimed this amount as tax refund, but
respondent Commissioner of Internal Revenue refunded only the amount of
P2,146,072.57, leaving a balance of P174,065.77. Accordingly, petitioner filed a
petition for review in the Court of Tax Appeals on December 29, 1987, seeking the
refund of the aforesaid amount.2 However, in its decision rendered on July 19, 1994,
the Court of Tax Appeals dismissed petitioner's petition for review and denied its claim
for refund on the ground that the claim had already prescribed.3 In its resolution, dated
August 4, 1995, the Court of Tax Appeals denied petitioner's motion for
reconsideration.4

Petitioner appealed to the Court of Appeals, but, in its decision rendered on April 14,
2000, the appeals court affirmed the decision of the CTA.5 The appeals court
subsequently denied petitioner's motion for reconsideration.6 Hence this petition.

The sole issue in this case is whether petitioner's claim is barred by prescription. The
resolution of this question requires determination of when the two-year period of
prescription under 292 of the Tax Code started to run. This provision states:

Recovery of tax erroneously or illegally collected. No suit or proceedings shall


be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any
tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.

There is no dispute that FBTC ceased operations on June 30, 1985 upon its merger
with petitioner BPI. The merger was approved by the Securities and Exchange
Commission on July 1, 1985. Petitioner contends, however that its claim for refund has
yet prescribed because the two-year prescriptive period commenced to run only after it
had filed FBTC's Final Adjustment Return on April 15 1986, pursuant to 46(a) of the
National Internal Revenue Code of 1977 (the law applicable at the time of this
transaction) which provided that

Corporation returns. (a) Requirement. Every corporation, subject to the tax


herein imposed, except foreign corporations not engaged in trade or business in
the Philippines shall render, in duplicate, a true and accurate quarterly income
tax return and final or adjustment return in accordance with the provisions of
Chapter X of this Title. The return shall be filed by the president, vice-president,
or other principal officer, and shall be sworn to by such officer and by the
treasurer or assistant treasurer.

On the other hand, the Court of Tax Appeals ruled that the prescriptive period should
be counted from July 31, 1985, 30 days after the approval by the SEC of the plan of
dissolution in view of 78 of the Code which provided that

Every corporation shall, within thirty days after the adoption by the corporation of
a resolution or plan for the dissolution of the corporation or for the liquidation of
the whole or any part of its capital stock, including corporations which have been
notified of the possible involuntary dissolution by the Securities and Exchange
Commission, render a correct return to the Commission of Internal Revenue,
verified under oath, setting forth the terms of such resolution or plan and such
other information as the Minister of Finance shall, by regulations, prescribe. The
dissolving corporation prior to the issuance of the Certificate of Dissolution by the
Securities and Exchange Commission shall secure a certificate of tax clearance
from the Bureau of Internal Revenue which certificate shall be submitted to the
Securities and Exchange Commission.

Failure to render the return and secure the certificate of tax clearance as above-
mentioned shall subject the officer (s) of the corporation required by law to file
the return under Section 46(a) of this Code, to a fine of not less than Five
Thousand Pesos or imprisonment of not less than two years and shall make
them liable for all outstanding or unpaid tax liabilities of the dissolving
corporation.

Its ruling was sustained by the Court of Appeals.

After due consideration of the parties' arguments, we are of the opinion that, in case of
the dissolution of a corporation, the period of prescription should be reckoned from the
date of filing of the return required by 78 of the Tax Code. Accordingly, we hold that
petitioner's claim for refund is barred by prescription.

First. Generally speaking, it is the Final Adjustment Return, in which amounts of the
gross receipts and deductions have been audited and adjusted, which is reflective of
the results of the operations of a business enterprise. It is only when the return,
covering the whole year, is filed that the taxpayer will be able to ascertain whether a
tax is still due or a refund can be claimed based on the adjusted and audited
figures.7 Hence, this Court has ruled that at the earliest, the two-year prescriptive
period for claiming a refund commences to run on the date of filing of the adjusted final
tax return.8

In the case at bar, however, the Court of Tax Appeals, applying 78 of the Tax Code,
held:

Before this Court can be rule on the issue of prescription, it is noteworthy to point
out that based on the financial statements of FBTC and the independent auditor's
opinion (Exh. "A-7" to "A-17"), FBTC operates on a calendar year basis. Its
twelve (12) months accounting period was shortened at the time it was merged
with BPI. Thereby, losing its corporate existence on July 1, 1985 when the
Articles of Merger was approved by the Security and Exchange Commission.
Thus, respondent('s) stand that FBTC operates on a fiscal year basis, based on
its income tax return, holds no ground. Third Court believes that FBTC is
operating on a calendar year period based on the audited financial statements
and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left
corner of the income tax return can be concluded as an error on the part of
FBTC. It should have been for the six month period ending June 30, 1985. It
should also be emphasized that "where one corporation succeeds another both
are separate entities and the income earned by the predecessor corporation
before organization of its successor is not income to the successor" (Mertens,
Law of Federal Income Taxation, Vol. 7 S 38.36).

Ruling now on the issue of prescription, this Court finds that the petition for
review is filed out of time. FBTC, after the end of its corporate life on June 30,
1985, should have filed its income tax return within thirty days after the cessation
of its business or thirty days after the approval of the Articles of Merger. This is
bolstered by Sec. 78 of the tax Code and under Sec. 244 of Revenue Regulation
No. 29

As the FBTC did not file its quarterly income tax returns for the year 1985, there was
no need for it to file a Final adjustment Return because there was nothing for it to
adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was
shortened to six months, from January 1, 1985 to June 30, 1985 The situation of FBTC
is precisely what was contemplated under 78 of the Tax Code. It thus became
necessary for FBTC to file its income tax return within 30 days after approval by the
SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait
until the fifteenth day of April, or almost 10 months after it ceased its operations, before
filing its income tax return.

Thus, 46(a) of the Tax Code applies only to instances in which the corporation
remains subsisting and its business operations are continuing. In instances in which
the corporation is contemplating dissolution, 78 of the Tax Code applies. It is a rule of
statutory construction that "[w]here there is in the same statute a particular enactment
and also a general one which in its most comprehensive sense would include what is
embraced in the former, the particular enactment must be operative, and the general
enactment must be taken to affect only such cases within its general language as are
not within the provisions of the particular enactment.10
Petitioner argues that to hold, as the Court of Tax Appeals and the Court of Appeals
do, that 78 applies in case a corporation contemplates dissolution would lead to
absurd results. It contends that it is not feasible for the certified public accountants to
complete their report and audited financial statements, which are required to be
submitted together with the plan of dissolution to the SEC, within the period
contemplated by 78. It maintains that, in turn, the SEC would not have sufficient time
to process the papers considering that 78 also requires the submission of a tax
clearance certificate before the SEC can approve the plan of dissolution.

As the Court of Tax Appeals observed, however, petitioner could have asked for an
extension of time of file its income tax return under 47 of the NIRC which provides:

Extension of time to file returns. The Commissioner of Internal Revenue may,


in meritorious cases, grant a reasonable extension of time for filing returns of
income (or final and adjustment returns in the case of corporations), subject to
the provisions of section fifty-one of this Code.

Petitioner further argues that the filing of a Final Adjustment Return would fall due on
July 30, 1985, even before the due date for filing the quarterly return. This argument
begs the question. It assumes that a quarterly return was required when the fact is
that, because its taxable year was shortened, the FBTC did not have to file a quarterly
return. In fact, petitioner presented no evidence that the FBTC ever filed such quarterly
return in 1985.

Finally, petitioner cites a hypothetical situation wherein the directors of a corporation


would convene on June 30, 2000 to plan the dissolution of the corporation on
December 31, 2000, but would submit the plan for dissolution earlier with the SEC,
which, in turn, would approve the same on October 1, 2000. Following 78 of the Tax
Code, the corporation would be required to submit its complete return on October 31,
2000, although its actual dissolution would take place only on December 31, 2000.

Suffice it to say that such a situation may likewise be remedied by resort to 47 of the
Tax Code. The corporation can ask for an extension of time to file a complete income
tax return until December 31, 2000, when it would cease operations. This would
obviate any difficulty which may arise out of the discrepancies not covered by 78 of
the Tax Code.
In any case, as held in Commissioner of Internal Revenue v. Santos,11 "Debatable
questions are for the legislature to decide. The courts do not sit to resolve the merits of
conflicting issues."

Second. Petitioner contends that what 78 required was an information return, not an
income tax return. It cites Revenue Memorandum Circular No. 14-85, of then Acting
Commissioner of Internal Revenue Ruben B. Ancheta, referring to an "information
return" in interpreting Executive Order No. 1026, which amended 78.12

The contention has no merit. The circular in question must be considered merely as an
administrative interpretation of the law which in no case is binding on the courts. 13 The
opinion in question cannot be given any effect inasmuch as it is contrary to 244 of
Revenue Regulation No. 2, as amended, which was issued by the Minister of Finance
pursuant to the authority to him by 78 of the Tax Code. This provision states:

SEC. 244. Return of corporations contemplating dissolution or retiring from


business. All corporations, partnership joint accounts and associations,
contemplating dissolution or retiring from business without formal dissolution
shall, within 30 days after the approval of such resolution authorizing their
dissolution, and within the same period after their retirement from business, file
their income tax returns covering the profit earned or business done by them
from the beginning of the year up to the date of such dissolution or retirement
and pay the corresponding income tax due thereon upon demand by the
Commissioner of Internal Revenue

This regulation prevails over the memorandum circular of the Acting Commissioner of
Internal Revenue, which petitioner invokes.

Thus, 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.

Third. 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
petitioner's 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.

WHEREFORE, the petition is DENIED for lack of merit.1wphi1.nt

SO ORDERED.

SILKAIR (SINGAPORE) PTE, LTD


vs.
COMMISSIONER OF INTERNAL REVENUEG.R. No. 173594, February 6, 2008

Facts:
-Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation
organizedu n d e r th e l a ws o f S i n g a p o r e wh i c h h a s a P h i l i p p i n e r e p r e s e n t
a t i ve office, is an online international air carrier operating the Singapore-
Cebu-Davao-Singapore, Singapore-Davao-Cebu-
S i n g a p o r e , a n d Singapore-Cebu-Singapore routes.
-
On December 19, 2001, Silkair filed with the Bureau of Internal
Revenue (BIR) a written application for the refund of P4,567,450.79excise
taxes it claimed to have paid on its purchases of jet fuel from Petron
Corporation from January to June 2000.- C TA d e n i e d S i l k a i r s p e t i t i o n o n t h e
ground that as the e xc i s e tax
wa s i mp o s e d o n P e t r o n C o r p o r a t i o n a s t h e ma n u f a c t u r e r o f p e t r o l e u m pr
oducts, any claim for refund should be filed by the latter; and where the burden of tax is
shifted to the purchaser, the amount passed on
toi t i s n o l o n g e r a t a x b u t b e c o m e s a n a d d e d c o s t o f t h
e g o o d s purchased.
-
The liability for excise tax on petroleum products that are bein
g removed from its refinery is imposed on the manufacturer/producer
(Section 130 of the NIRC of 1997.
-
Th e r i g h t t o c l a i m f o r t h e r e f u n d o f e xc i s e t a xe s p a i d o n p e t r o l e u m
products lies with Petron Corporation who paid and remitted the excise tax to the
BIR. Respondent, on the other hand, may only claim from Petron Corporation
the reimbursement of the tax burden shifted to the former by the latter. The excise tax
partaking the nature of an indirect tax, is clearly the liability of the manufacturer
or seller who has the option whether or not to shift the burden of the tax to
the purchaser. Where the burden of the tax is shifted to the [purchaser], the
amount passed on to it is no longer a tax but becomes an added cost on the
goods purchased which constitutes a part of the purchase price.

Issue:
Whether or not the petitioner is the proper party to claim for refund or tax credit.

Ruling:
No, The proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another.

S e c t i o n 1 3 0 ( A ) ( 2 ) o f t h e N I R C p r o v i d e s t h a t " u n l e s s o t h e r wi s e s
p e c i f i c a l l y a l l o we d , t h e r e t u r n s h a l l b e f i l e d a n d t h e excise tax paid by
the manufacturer or producer before removal
of d o m e s t i c p r o d u c t s f r o m p l a c e o f p r o d u c t i o n . " T h u s ,
P e t r o n Corporation, not Silkair, is the statutory taxpayer which is entitled to claim
a refund based on Section 135 of the NIRC of 1997 and Article4(2) of the Air Transport
Agreement between RP and Singapore. Silkair bases its claim for refund or tax credit
on Section 135 (b) of the NIRC of 1997 which reads Sec. 135. Petroleum Products
sold to International Carriers and Exempt Entities of Agencies. Petroleum products
sold to the following are exempt from excise tax:(b) Exempt entities or agencies
covered by tax treaties, conventions, and other international agreements for their
use and consumption:
Provided, however,
That the country of said foreign international carrier or exempt entities or agencies
exempts from similar taxes petroleum products sold to Philippine carriers, entities or
agencies;a n d A r t i c l e 4 ( 2 ) o f t h e A i r T r a n s p o r t A g r e e m e n t b e t
w e e n t h e Government of the Republic of the Philippines and the
Government of the Republic of Singapore (Air Transport Agreement between
RP and Singapore) The exemption granted under Section 135 (b) of the NIRC
of 1997a n d A r t i c l e 4 ( 2 ) o f t h e A i r Transport Agreement
b e t we e n R P a n d Singapore cannot, without a clear showing of legislative
intent,
bec o n s t r u e d a s i n c l u d i n g i n d i r e c t t a x e s . S t a t u t e s g r a n t i n g t
a x e xe m p t i o n s m u s t b e c o n s t r u e d i n s t r i c t i s s i mi j u r i s
against the t a xp a ye r a n d l i b e r a l l y i n f a vo r o f t h e
t a xi n g a u t h o r i t y, a n d i f a n exemption is found to exist, it must not be enlarged by
construction.

COMMISSIONER OF INTERNAL REVENUE VS. SMART COMMUNICATION, INC.-


Tax Refund

FACTS:
Smart entered into an Agreement with Prism, a nonresident foreign corporation
domiciled in Malaysia, whereby Prism will provide programming and consultancy
services to Smart. Thinking that the payments to Prism were royalties, Smart withheld
25% under the RP-Malaysia Tax Treaty. Smart then filed a refund with the BIR alleging
that the payments were not subject to Philippine withholding taxes given that they
constituted business profits paid to an entity without a permanent establishment in the
Philippines.

ISSUE:
Does Smart have the right to file the claim for refund?

HELD:
YES. The Court reiterated the ruling in Procter & Gamble stating that a person liable
for tax has sufficient legal interest to bring a suit for refund of taxes he believes were
illegally collected from him. Since the withholding agent is an agent of the beneficial
owner of the payments (i.e., nonresident), the authority as agent is held to include the
filing of a claim for refund. The Silkair case was held inapplicable as it involved excise
taxes and not withholding taxes.

Smart was granted a refund given that only a portion of its payments represented
royalties since it is only that portion over which Prism maintained intellectual property
rights and the rest involved full transfer of proprietary rights to Smart and were thus
treated as business profits of Prism.

EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC. PHILIPPINE


BRANCH VS. COMMISSIONER OF INTERNAL REVENUE

FACTS:
Exxonmobil was a US corporation engaged in selling petroleum products to domestic
and international carriers. It purchased petroleum products from local suppliers (Caltex
and Petron), the excise taxes on which were remitted by the said suppliers but the
amount of which were, however, passed-on to Exxonmobil. It then filed a claim for
refund of excise taxes paid on its purchase of petroleum products from its suppliers.

ISSUE:
Is Exxonmobil entitled to file the claim for the refund of the excise taxes passed-on by
Caltex and Petron?

HELD:
NO. The proper party to seek a refund of an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the
burden to another. Although the burden of an indirect tax can be shifted to the
purchaser, the amount added or shifted becomes part of the price. Thus, the purchaser
does not really pay the tax per se but only the price of the commodity. Indirect taxes
were defined as those that are demanded, in the first instance, from, or are paid by,
one person to someone else. When the seller passes on the tax to the buyer he in
effect shifts only the tax burden and not the liability to pay for it.

Philex Mining vs. CIR


GR 125704, August 28, 1998

Facts:

Philex Mining Corporation assails the decision of the court of appeals which
affirmed the decision of the court of tax appeals ordering philex to pay its excise tax
liability philex refused to pay and contended it has pending claims for vat input credit or
refund against the government which should be made compensate or set-off its tax
liability.

Issue: can tax be subject for set-off?

Ruling:

No. tax cannot be the subject for compensation for simple reason that the
government and the tax payer are not mutual creditors and debtors of each other.
Debts are due in the government in its corporate capacity while taxes are due to the
government in its sovereign capacity. A tax payer cannot refuse to pay his taxes when
they fall due simply because he has a claim against the government that the collection
of the tax is contingent on the result of the law suit it filed against the government.
CALAMBA STEEL CENTER INC. V CIR GR 151857, APRIL 28, 2005

Facts: Petitioner is a domestic corporation engaged in the manufacture of steel blanks


for use by manufacturers of automotive, electrical, electronics in industrial and
household appliances.
In it's amended Corporate Annual Income Tax Return on June 4, 1996 it declared a net
taxable income of P9,461,597.00, tax credits of P6,471,246.00 and tax due in the
amount of P3,311,559.00. It also reported uarterly payments for the second and third
quarters of 1995 in the amounts of P2,328,747.26 and P1,082,108.00, respectively.
It is the contention of the petitioner in this case filed in 1997, that it is entitled to a
refund. The refund was purportedly due to income taxes witheld from it, and remitted in
its behalf, by the witholding agents. Such witheld tax, as per petitioners 1997 return,
were not utilised in 1996 since due to it's income/loss positions for the three quarters of
1996.
ISSUE: Whether or not a tax refund may be claimed even beyong the taxable year
following that in which the tax credit arises.
Held: Yes, however; it is still incumbent upon the claimant to prove that it is entitled to
such refund. Tax refunds being in the nature of tax exemptions such must be
construed strictissimi juris against the taypayer-claimant. Under the NIRC, the only
limitation as regards the claiming of tax refunds is that such must be made within two
years. The claim for refund made by Calamba steel was well within the 2 year period.
As regards the procedure taken by counsel of Calamba Steel in submitting the final
adjustment returns (1996) after trial has been conducted, the Court said that although
the ordinary rules of procedure from upon this jurisprudence mandates that the
proceedings before the tax court's shall not be governed by strictly technical rules of
evidence. Moreoover, as regards evidence, the court further said that Judicial notice
could have been taken by the cA and the CTA of the 1996 final adjustment return
made by petitioner in another case then pending with the CTA.

CIR v. BPI
G.R. No. 178490 July 7, 2009
Chico-Nazario, J.
Doctrine:
1. 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.

2. When circumstances show that a choice has been made by the taxpayer to carry
over the excess income tax as credit, it should be respected; but when indubitable
circumstances clearly show that another choice, a tax refund, is in order, it should be
granted. As to which option the taxpayer chose is generally a matter of evidence.

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.

Facts:
In filing its Corporate Income Tax Return for the Calendar Year 2000, BPI carried over
the excess tax credits from the previous years of 1997, 1998 and 1999. However, BPI
failed to indicate in its ITR its choice of whether to carry over its excess tax credits or to
claim the refund of or issuance of a tax credit certificate.

BPI filed with the Commissioner of Internal Revenue (CIR) an administrative claim for
refund. The CIR failed to act on the claim for tax refund of BPI. Hence, BPI filed a
Petition for Review before the CTA, whom denied the claim.

The CTA relied on the irrevocability rule laid down in Section 76 of the National Internal
Revenue Code (NIRC) of 1997, which states that once the taxpayer opts to carry over
and apply its excess income tax to succeeding taxable years, its option shall be
irrevocable for that taxable period and no application for tax refund or issuance of a tax
credit shall be allowed for the same.

The Court of Appeals reversed the CTA decision stating that there was no actual
carrying over of the excess tax credit, given that BPI suffered a net loss in 1999, and
was not liable for any income tax for said taxable period, against which the 1998
excess tax credit could have been applied.

The Court of Appeals further stated that even if Section 76 was to be construed strictly
and literally, the irrevocability rule would still not bar BPI from seeking a tax refund of
its 1998 excess tax credit despite previously opting to carry over the same. The phrase
for that taxable period qualified the irrevocability of the option of BIR to carry over its
1998 excess tax credit to only the 1999 taxable period; such that, when the 1999
taxable period expired, the irrevocability of the option of BPI to carry over its excess tax
credit from 1998 also expired.

Issue:
1. What is the period captured by the irrevocability rule?
2. Whether or not the taxpayers failure to mark the option chosen is fatal to whatever
claim

Held:
1. 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 income tax credit is irrevocable; it cannot later on opt to apply for a
refund of the very same 1998 excess income tax credit.

2. No. Failure to signify ones intention in the FAR does not mean outright barring of a
valid request for a refund, should one still choose this option later on. The reason for
requiring that a choice be made in the FAR upon its filing is to ease tax administration
(Philam Asset Management, Inc. v. CIR G.R. No. 156637 and No. 162004, 14
December 2005). When circumstances show that a choice has been made by the
taxpayer to carry over the excess income tax as credit, it should be respected; but
when indubitable circumstances clearly show that another choice a tax refund is in
order, it should be granted. Therefore, as to which option the taxpayer chose is
generally a matter of evidence.
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.

PHILAM ASSET MANAGEMENT v. CIR (2005)

- Philam has creditable withholding taxes from 1997. The following year, Philam
wanted to utilize the credit. It applied for a tax refund by filing a written claim before the
Commissioner. The Commissioner refused to grant a refund, holding that for a request
for either a refund or a credit of income tax paid, a corporation must signify its intention
by marking the corresponding option box on its annual corporate final adjustment
return (FAR). Parenthetically, Section 76of the NIRC offers 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 creditTax refund is easier as it only requires that a taxpayer properly apply for
the refund (through written claim before the Commissioner). The tax credit option
works by applying the refundable amount, as shown on the FAR of a given taxable
year, against the estimated quarterly income tax liabilities of the succeeding taxable
year.These two options are alternative in nature; the choice of one precludes the
other.Meanwhile, while a taxpayer is required to mark its choice in the form provided
by the BIR (the FAR), this requirement is only for the purpose of facilitating tax
collection.Failure to signify ones intention in theFAR does not mean outright
barring of a valid request for a refund, should one still choose this option later
on.
The taxpayers failure to indicate an option in its FAR does not automatically mean that
the taxpayer has opted to carry-over its income tax credit. The tax payers choice may
be ascertained using circumstantial evidence.
Nonetheless, when a choice to carry-over the tax credit in the succeeding year
has been made actually or constructively, this becomes irrevocable already.
Finally, the Commissioner erroneously ruled that the ITR or FAR of the succeeding
year be submitted as evidence to determine whether its claimed 1997 tax credit had
not been applied against its 1998 tax liabilities.
Requiring that the ITR or the FAR of the succeeding
year be presented to the BIR in requesting a tax refund
has no basis in law and jurisprudence Asiaworld Properties Philippines
Corporation v. Commissioner of Internal Revenue, G.R.
No. 171766, July 29, 2010

The exercise of the option to carry-over the excess income tax credit prohibits a
claim for
refund in the subsequent taxable years for the unused portion of the excess tax
creditscarried over.The clear intent in the amendment under Section 76 of the Tax
Code is to make the option, onceexercised, irrevocable for the succeeding taxable
years. Thus, once the taxpayer opts to carry-overthe excess income tax against the
taxes due for the succeeding taxable years, such option is
irrevocable for the whole amount of the excess income tax, thus, prohibiting the
taxpayer fromapplying for a refund for that same excess income tax in the next
succeeding taxable years. Theunutilized excess tax credits will remain in the
taxpayers account and will be carried over andapplied against the taxpayers income
tax liabilities in the succeeding taxable years until fully utilized.

COMMISSIONER OF INTERNAL
REVENUE V. THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE
COMPANY, G.R. NO. 175124,
September 29, 2010

The exercise of the option to carry-over excess tax credits precludes a claim for
a refund.
Under Section 76 of the Tax Code, once the taxpayer exercises the option to carry-
over and apply the excess creditable tax against the income tax due for the succeeding
taxable years, such option is irrevocable. It is undisputed that respondent Phil am
indicated in its 1997 Income Tax Return (ITR)
its option to carry-over as tax credit for the next year its tax overpayment. In its 1998
ITR, respondent again indicated its preference to carry-over the excess income tax
credit against the tax liabilities for the succeeding taxable years. Clearly, respondent
chose to carry-over and apply the overpaid tax against the income tax due in the
succeeding taxable years, hence it can no longer claim
a refund of its excess income tax credit in the taxable year 1997.

CIR v. MC.GEORGE FOOD INDUSTRIES, INC.


G.R. No. 174157 October 20, 2010
Carpio, J.

Doctrine:
Pursuant to the general rule on the prospective application of laws, the 1997
NIRC operates to govern the conduct of corporate taxpayers the moment it took
effect on 1 January 1998.

Facts:
On 15 April 1998, respondent filed with the BIR its final adjustment income tax return
for the calendar year ending 31 December 1997. The return indicated a net
overpayment of P4,736,188. Exercising its option to either seek a refund of this amount
or carry it over to the succeeding year as tax credit, respondent chose the latter,
indicating in its 1997 final return that it wished the amount "to be applied as credit to
next year."

On 15 April 1999, respondent filed its final adjustment return for the calendar year
ending 31 December 1998, indicating a tax liability of P5,799,056. Instead of applying
to this amount its unused tax credit carried over from 1997 (P4,736,188), respondent
merely deducted from its tax liability the taxes withheld at source for 1998 and paid the
balance of P5,581,877.

On 14 April 2000, respondent simultaneously filed with the BIR and the Court of Tax
Appeals (CTA) a claim for refund of its overpayment in 1997 of P4,736,188. The CTA
held that refund was proper because respondent complied with the requirements of
timely filing of the claim and its substantiation.

Petitioner sought reconsideration, contending that respondent is precluded from


seeking a refund for its overpayment in 1997 after respondent opted to carry-over and
apply it to its future tax liability, following Section 76 of the 1997 NIRC. Petitioner
claimed that Section 76 applies to respondent because by the time respondent filed its
final adjustment return for 1997 on 15 April 1998, the 1997 NIRC was already in force,
having taken effect on 1 January 1998.

The CTA denied reconsideration, holding that the 1997 NIRC only covers transactions
done after 1 January 1998.

The Court of Appeals affirmed the CTA, ruling that the right to claim for refund or tax
credit must be governed by the law in effect at the time the excess credits were
earned. Thus, the pertinent law applicable to the case at bar is Section 69 of the old
Tax Code.

Issue:
Whether or not the 1997 NIRC is the governing law

Held:
Yes. Section 76 of the 1997 NIRC controls.

Section 76 should be applied following the general rule on the prospective application
of laws such that they operate to govern the conduct of corporate taxpayers the
moment the 1997 NIRC took effect on 1 January 1998.
The lower courts grounded their contrary conclusion on the fact that respondents
overpayment in 1997 was based on transactions occurring before 1 January 1998.
This analysis suffers from the twin defects of missing the gist of the present
controversy and misconceiving the nature and purpose of Section 76. None of
respondents corporate transactions in 1997 is disputed here. Nor can it be argued that
Section 76 determines the taxability of corporate transactions. To sustain the rulings
below is to subscribe to the untenable proposition that, had Congress in the 1997
NIRC moved the deadline for the filing of final adjustment returns from 15 April to 15
March of each year, taxpayers filing returns after 15 March 1998 can excuse their
tardiness by invoking the 1977 NIRC because the transactions subject of the returns
took place before 1 January 1998. A keener appreciation of the nature and purpose of
the varied provisions of the 1997 NIRC cautions against sanctioning this reasoning.

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF
TAX APPEALS, respondents.

REGALADO, J.:

The judicial proceedings over the present controversy commenced with CTA Case No.
4099, wherein the Court of Tax Appeals ordered herein petitioner Commissioner of
Internal Revenue to grant a refund to herein private respondent Citytrust Banking
Corporation (Citytrust) in the amount of P13,314,506.14, representing its overpaid
income taxes for 1984 and 1985, but denied its claim for the alleged refundable
amount reflected in its 1983 income tax return on the ground of prescription. 1 That
judgment of the tax court was affirmed by respondent Court of Appeals in its judgment
in CA-G.R. SP
2
No. 26839. The case was then elevated to us in the present petition for review
on certiorari wherein the latter judgment is impugned and sought to be nullified and/or
set aside.
It appears that in a letter dated August 26, 1986, herein private respondent corporation
filed a claim for refund with the Bureau of Internal Revenue (BIR) in the amount of
P19,971,745.00 representing the alleged aggregate of the excess of its carried-over
total quarterly payments over the actual income tax due, plus carried-over withholding
tax payments on government securities and rental income, as computed in its final
income tax return for the calendar year ending December 31, 1985. 3

Two days later, or on August 28, 1986, in order to interrupt the running of the
prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, docketed
therein as CTA Case No. 4099, claiming the refund of its income tax overpayments for
the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4

In the answer filed by the Office of the Solicitor General, for and in behalf of therein
respondent commissioner, it was asserted that the mere averment that Citytrust
incurred a net loss in 1985 does not ipso facto merit a refund; that the amounts of
P6,611,223.00, P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income
tax overpayment, taxes withheld on proceeds of government securities investments, as
well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has
prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections
292 and 295 of the National Internal Revenue Code of 1977, as amended, since the
petition was filed only on August 28, 1986. 5

On February 20, 1991, the case was submitted for decision based solely on the
pleadings and evidence submitted by herein private respondent Citytrust. Herein
petitioner could not present any evidence by reason of the repeated failure of the Tax
Credit/Refund Division of the BIR to transmit the records of the case, as well as the
investigation report thereon, to the Solicitor General. 6

However, on June 24, 1991, herein petitioner filed with the tax court a manifestation
and motion praying for the suspension of the proceedings in the said case on the
ground that the claim of Citytrust for tax refund in the amount of P19,971,745.00 was
already being processed by the Tax Credit/Refund Division of the BIR, and that said
bureau was only awaiting the submission by Citytrust of the required confirmation
receipts which would show whether or not the aforestated amount was actually paid
and remitted to the BIR. 7

Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals
already acquired jurisdiction over the case, it could no longer be divested of the same;
and, further, that the proceedings therein could not be suspended by the mere fact that
the claim for refund was being administratively processed, especially where the case
had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y,
Y-1, Y-2 and Y-3 adduced in the case, which clearly showed that there was an
overpayment of income taxes and for which a tax credit or refund was due to Citytrust.
The Foregoing exhibits are allegedly conclusive proof of and an admission by herein
petitioner that there had been an overpayment of income taxes. 8

The tax court denied the motion to suspend proceedings on the ground that the case
had already been submitted for decision since February 20, 1991. 9

Thereafter, said court rendered its decision in the case, the decretal portion of which
declares:

WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but


only for the overpaid taxes incurred in 1984 and 1985. The refundable
amount as shown in its 1983 income tax return is hereby denied on the
ground of prescription. Respondent is hereby ordered to grant a refund to
petitioner Citytrust Banking Corp. in the amount of P13,314,506.14
representing the overpaid income taxes for 1984 and 1985, recomputed as
follows:

1984 Income tax due P 4,715,533.00


Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67

Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00

Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P 0


Less: W/T on rentals 36,716.47*

Tax Overpayment (36,716.47)*
Less: FCDU payable 18,874.00

Amount Refundable for 1985 P (17,842.47)

* Note:

These credits are smaller than the claimed amount because


only the above figures are well supported by the various
exhibits presented during the hearing.

No pronouncement as to costs.

SO ORDERED. 10

The order for refund was based on the following findings of the Court of Tax Appeals:
(1) the fact of withholding has been established by the statements and certificates of
withholding taxes accomplished by herein private respondent's withholding agents, the
authenticity of which were neither disputed nor controverted by herein petitioner; (2) no
evidence was presented which could effectively dispute the correctness of the income
tax return filed by herein respondent corporation and other material facts stated
therein; (3) no deficiency assessment was issued by herein petitioner; and (4) there
was an audit report submitted by the BIR Assessment Branch, recommending the
refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which enjoys the
presumption of regularity in the performance of official duty. 11

A motion for the reconsideration of said decision was initially filed by the Solicitor
General on the sole ground that the statements and certificates of taxes allegedly
withheld are not conclusive evidence of actual payment and remittance of the taxes
withheld to the BIR. 12 A supplemental motion for reconsideration was thereafter filed,
wherein it was contended for the first time that herein private respondent had
outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-
office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came
to know only lately that Citytrust had outstanding tax liabilities for 1984 in the amount of
P56,588,740.91 representing deficiency income and business taxes covered by
Demand/Assessment Notice No. FAS-1-84-003291-003296. 13

Oppositions to both the basic and supplemental motions for reconsideration were filed
by private respondent Citytrust. 14 Thereafter, the Court of Tax Appeals issued a
resolution denying both motions for the reason that Section 52 (b) of the Tax Code, as
implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income
received was declared as part of the gross income, and that the fact of withholding was
duly established. Moreover, with regard to the argument raised in the supplemental
motion for reconsideration anent the deficiency tax assessment against herein
petitioner, the tax court ruled that since that matter was not raised in the pleadings, the
same cannot be considered, invoking therefor the salutary purpose of the omnibus
motion rule which is to obviate multiplicity of motions and to discourage dilatory
pleadings. 15

As indicated at the outset, a petition for review was filed by herein petitioner with
respondent Court of Appeals which in due course promulgated its decision affirming
the judgment of the Court of Tax Appeals. Petitioner eventually elevated the case to
this Court, maintaining that said respondent court erred in affirming the grant of the
claim for refund of Citytrust, considering that, firstly, said private respondent failed to
prove and substantiate its claim for such refund; and, secondly, the bureau's findings of
deficiency income and business tax liabilities against private respondent for the year
1984 bars such payment. 16

After a careful review of the records, we find that under the peculiar circumstances of
this case, the ends of substantial justice and public interest would be better subserved
by the remand of this case to the Court of Tax Appeals for further proceedings.

It is the sense of this Court that the BIR, represented herein by petitioner
Commissioner of Internal Revenue, was denied its day in court by reason of the
mistakes and/or negligence of its officials and employees. It can readily be gleaned
from the records that when it was herein petitioner's turn to present evidence, several
postponements were sought by its counsel, the Solicitor General, due to the
unavailability of the necessary records which were not transmitted by the Refund Audit
Division of the BIR to said counsel, as well as the investigation report made by the
Banks/Financing and Insurance Division of the said bureau/ despite repeated
requests. 17 It was under such a predicament and in deference to the tax court that
ultimately, said records being still unavailable, herein petitioner's counsel was
constrained to submit the case for decision on February 20, 1991 without presenting
any evidence.

For that matter, the BIR officials and/or employees concerned also failed to heed the
order of the Court of Tax Appeals to remand the records to it pursuant to Section 2,
Rule 7 of the Rules of the Court of Tax Appeals which provides that the Commissioner
of Internal Revenue and the Commissioner of Customs shall certify and forward to the
Court of Tax Appeals, within ten days after filing his answer, all the records of the case
in his possession, with the pages duly numbered, and if the records are in separate
folders, then the folders shall also be numbered.

The aforestated impass came about due to the fact that, despite the filing of the
aforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals,
the Tax Refund Division of the BIR still continued to act administratively on the claim
for refund previously filed therein, instead of forwarding the records of the case to the
Court of Tax Appeals as ordered. 18

It is a long and firmly settled rule of law that the Government is not bound by the errors
committed by its agents. 19In the performance of its governmental functions, the State
cannot be estopped by the neglect of its agent and officers. Although the Government
may generally be estopped through the affirmative acts of public officers acting within
their authority, their neglect or omission of public duties as exemplified in this case will
not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic
that the Government cannot and must not be estopped particularly in matters involving
taxes. Taxes are the lifeblood of the nation through which the government agencies
continue to operate and with which the State effects its functions for the welfare of its
constituents. 21 The errors of certain administrative officers should never be allowed to
jeopardize the Government's financial position, 22 especially in the case at bar where
the amount involves millions of pesos the collection whereof, if justified, stands to be
prejudiced just because of bureaucratic lethargy.

Further, it is also worth nothing that the Court of Tax Appeals erred in denying
petitioner's supplemental motion for reconsideration alleging bringing to said court's
attention the existence of the deficiency income and business tax assessment against
Citytrust. The fact of such deficiency assessment is intimately related to and
inextricably intertwined with the right of respondent bank to claim for a tax refund for
the same year. To award such refund despite the existence of that deficiency
assessment is an absurdity and a polarity in conceptual effects. Herein private
respondent cannot be entitled to refund and at the same time be liable for a tax
deficiency assessment for the same year.

The 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.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the
applicable law when the claim of Citytrust was filed, provides that "(w)hen an
assessment is made in case of any list, statement, or return, which in the opinion of the
Commissioner of Internal Revenue was false or fraudulent or contained any
understatement or undervaluation, no tax collected under such assessment shall be
recovered by any suits unless it is proved that the said list, statement, or return was not
false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith
regarding annual depreciation of oil or gas wells and mines."

Moreover, to grant the refund without determination of the proper assessment and the
tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency
assessment should subsequently be upheld, the Government will be forced to institute
anew a proceeding for the recovery of erroneously refunded taxes which recourse
must be filed within the prescriptive period of ten years after discovery of the falsity,
fraud or omission in the false or fraudulent return involved. 23 This would necessarily
require and entail additional efforts and expenses on the part of the Government,
impose a burden on and a drain of government funds, and impede or delay the
collection of much-needed revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both


logically necessary and legally appropriate that the issue of the deficiency tax
assessment against Citytrust be resolved jointly with its claim for tax refund, to
determine once and for all in a single proceeding the true and correct amount of tax
due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only
just and fair that the taxpayer and the Government alike be given equal opportunities to
avail of remedies under the law to defeat each other's claim and to determine all
matters of dispute between them in one single case. It is important to note that in
determining whether or not petitioner is entitled to the refund of the amount paid, it
would necessary to determine how much the Government is entitled to collect as
taxes. This would necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute res judicata on
both parties as to all the matters subject thereof or necessarily involved therein.

The Court cannot end this adjudication without observing that what caused the
Government to lose its case in the tax court may hopefully be ascribed merely to the
ennui or ineptitude of officialdom, and not to syndicated intent or corruption. The
evidential cul-de-sac in which the Solicitor General found himself once again gives
substance to the public perception and suspicion that it is another proverbial tip in the
iceberg of venality in a government bureau which is pejoratively rated over the years.
What is so distressing, aside from the financial losses to the Government, is the
erosion of trust in a vital institution wherein the reputations of so many honest and
dedicated workers are besmirched by the acts or omissions of a few. Hence, the liberal
view we have here taken pro hac vice, which may give some degree of assurance that
this Court will unhesitatingly react to any bane in the government service, with a
replication of such response being likewise expected by the people from the executive
authorities.

WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No.


26839 is hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax
Appeals for further proceedings and appropriate action, more particularly, the reception
of evidence for petitioner and the corresponding disposition of CTA Case No. 4099 not
otherwise inconsistent with our adjudgment herein.

SO ORDERED.

R. FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his


capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

VITUG,, J.:

Before the Court is a petition for review seeking to set aside the decision of 24
February 1999 of the Court of Appeals, as well as its resolution of 27 Apri11999, in CA-
G.R. SP No. 34156, which has reversed that of the Court of Tax Appeals in CTA Case
No.4956, entitled "Jose V. Feria, in his capacity as Executor of the Estate of Jose San
Agustin versus Commissioner of Internal Revenue." The tax court's decision has
modified the deficiency assessment of the Commission of Internal Revenue for
surcharge, interests and other penalties imposed against the estate of the late Jose
San Agustin.

The facts of the case narrated by the appellate court would appear, by and large, to be
uncontroverted; thus viz:

"Atty. Jose San Agustin of 2904 Kakarong St., Olympia, Makati died on June 27,
1990 leaving his wife Dra. Felisa L. San Agustin as sole heir. He left a
holographic will executed on April 21, 1980 giving all his estate to his widow, and
naming retired Justice Jose Y. Feria as Executor thereof.

"Probate proceedings were instituted on August 22, 1990, in the Regional Trial
Court (RTC) of Makati, Branch 139, docketed as Sp. Proc. No. M-2554.
Pursuantly, notice of decedent's death was sent to the Commissioner of Internal
Revenue on August 30, 1990.1wphi1.nt

"On September 3, 1990, an estate tax return reporting an estate tax due of
P1,676,432.00 was filed on behalf of the estate, with a request for an extension
of two years for the payment of the tax, inasmuch as the decedent's widow ( did)
not personally have sufficient funds, and that the payment (would) have to come
from the estate.

"In his letter/answer, dated September 4, 1990, BIR Deputy Commissioner Victor
A. Deoferio, Jr., granted the heirs an extension of only six (6) months, subject to
the imposition of penalties and interests under Sections 248 and 249 of the
National Internal Revenue Code, as amended.

"In the probate proceedings, on October 11, 1990 the RTC allowed the will and
appointed Jose Feria as Executor of the estate. On December 5, 1990, the
executor submitted to the probate court an inventory of the estate with a motion
for authority to withdraw funds for the payment of the estate tax.

Such authority was granted by the probate court on March 5, 1991 .Thereafter,
on March 8, 1991 , the executor paid the estate tax in the amount of P1,676,432
as reported in the Tax Return filed with the BIR. This was well within the six (6)
months extension period granted by the BIR.

"On September 23, 1991, the widow of the deceased, Felisa L. San Agustin,
received a Pre-Assessment Notice from the BIR, dated August 29, 1991,
showing a deficiency estate tax of P538,509.50, which, including surcharge,
interest and penalties, amounted to P976,540.00.

"On October 1, 1991, within the ten-day period given in the pre-assessment
notice, the executor filed a letter with the petitioner Commissioner expressing
readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the
Regional Trial Court approves withdrawal thereof, but, requesting that the
surcharge, interest, and other penalties, amounting to P438,040.38 be waived,
considering that the assessed deficiency arose only on account of the difference
in zonal valuation used by the Estate and the BIR, and that the estate tax due per
return of P1,676,432.00 was already paid in due time within the extension period.
"On October 4, 1991, the Commissioner issued an Assessment Notice reiterating
the demand in the pre- assessment notice and requesting payment on or before
thirty (30) days upon receipt thereof.

"In a letter, dated October 31, 1991, the executor requested the Commissioner a
reconsideration of the assessment of P976,549.00 and waiver of the surcharge,
interest, etc.

"On December 18, 1991, the Commissioner accepted payment of the basic
deficiency tax in the amount of P538,509.50 through its Receivable Accounts
Billing Division.

"The request for reconsideration was not acted upon until January 21, 1993,
when the executor received a letter, dated September 21, 1992, signed by the
Commissioner, stating that there is no legal justification for the waiver of the
interests, surcharge and compromise penalty in this case, and requiring full
payment of P438,040.38 representing such charges within ten (10) days from
receipt thereof.

"In view thereof, the respondent estate paid the amount of P438,040.38 under
protest on January 25, 1993.

"On February 18, 1993, a Petition for Review was filed by the executor with the
CT A with the prayer that the Commissioner's letter/decision, dated September
21, 1992 be reversed and that a refund of the amount of P438,040.38 be
ordered .

"The Commissioner opposed the said petition, alleging that the CTA's jurisdiction
was not properly invoked inasmuch as no claim for a tax refund of the deficiency
tax collected was filed with the Bureau of Internal Revenue before the petition
was filed, in violation of Sections 204 and 230 of the National Internal Revenue
Code. Moreover, there is no statutory basis for the refund of the deficiency
surcharges, interests and penalties charged by the Commissioner upon the
estate of the decedent.

"Upholding its jurisdiction over the dispute, the CTA rendered its Decision, dated
April 21, 1994, modifying the CIR's assessment for surcharge, interests and other
penalties from P438,040.38 to P13,462.74, representing interest on the
deficiency estate tax, for which reason the CTA ordered the reimbursement to
the respondent estate the balance of P423,577.64, to wit:

"WHEREFORE, respondent's deficiency assessment for surcharge,


interests, and other penalties is hereby modified and since petitioner has
clearly paid the full amount of P438,040.38, respondent is hereby ordered
to refund to the Estate of Jose San Agustin the overpayment amounting to
P423,577.64."1

On 30 May 1994, the decision of the Court of Tax Appeals was appealed by the
Commissioner of Internal Revenue to the Court of Appeals. There, the petition for
review raised the following issues:

"1. Whether respondent Tax Court has jurisdiction to take cognizance of the case
considering the failure of private respondent to comply with the mandatory
requirements of Sections 204 and 230 of the National Internal Revenue Code.

"2. Whether or not respondent Tax Court was correct in ordering the refund to the
Estate of Jose San Agustin the reduced amount of P423,577.64 as alleged
overpaid surcharge, interests and compromise penalty imposed on the basic
deficiency estate tax of P538,509.50 due on the transmission of the said Estate
to the sole heir in 1990."2

In its decision of 24 February 1999, the Court of Appeals granted the petition of the
Commissioner of Internal Revenue and held that the Court of Tax Appeals did not
acquire jurisdiction over the subject matter and that, accordingly, its decision was null
and void.

Hence, the instant petition where petitioner submits that -

"1. The filing of a claim for refund [is] not essential before the filing of the petition
for review.

"2. The imposition by the respondent of surcharge, interest and penalties on the
deficiency estate tax is not in accord with the law and therefore illegal."3

The Court finds the petition partly meritorious.


The case has a striking resemblance to the controversy in Roman Catholic Archbishop
of Cebu vs. Collector of Internal Revenue.4

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 -

'(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 the law
administered by the Bureau of Internal Revenue -

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'; 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 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 cer1ainly 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."5

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.

On the second issue, the National Internal Revenue Code, relative to the imposition of
surcharges, interests, and penalties, provides thusly:

"Sec. 248. Civil Penalties. -

"(a) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalent to twenty-five percent (25% ) of the amount due, in the following
cases:

"(1) Failure to file any return and pay the tax due thereon as required under the
provisions of this Code or rules and regulations on the date prescribed; or

"(2) Unless otherwise authorized by the Commissioner, filing a return with an


internal revenue officer other than those with whom the return is required to be
filed; or

"(3) Failure to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment; or

"(4) Failure to pay the full or part of the amount of tax shown on any return
required to be filed under the provisions of this Code or rules and regulations, or
the full amount of tax due for which no return is required to be filed, on or before
the date prescribed for its payment."

"Sec.249. Interest. -

"(A) In General. -There shall be assessed and collected on any unpaid amount of
tax, interest at the rate of twenty percent (20%) per annum, or such higher rate
as may be prescribed by rules and regulations, from the date prescribed for
payment until the amount is fully paid.

"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in
this Code, shall be subject to the interest prescribed in Subsection (A) hereof,
which interest shall be assessed and collected from the date prescribed for its
payment until the full payment thereof.

"(C) Delinquency Interest. -In case of failure to pay:

"(1) The amount of the tax due on any return to be filed, or

"(2) The amount of the tax due for which no return is required, or

"(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate prescribed in
Subsection (A) hereof until the amount is fully paid, which interest shall form part
of the tax.

"(D) Interest on Extended Payment. -If any person required to pay the tax is
qualified and elects to pay the tax on installment under the provisions of this
Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where
the Commissioner has authorized an extension of time within which to pay a tax
or a deficiency tax or any part thereof, there shall be assessed and collected
interest at the rate hereinabove prescribed on the tax or deficiency tax or any
part thereof unpaid from the date of notice and demand until it is paid."

It would appear that, as early as 23 September 1991, the estate already received a
pre-assessment notice indicating a deficiency estate tax of P538,509.50. Within the
ten-day period given in the pre-assessment notice, respondent Commissioner received
a letter from petitioner expressing the latter's readiness to pay the basic deficiency
estate tax of P538,509.50 as soon as the trial court would have approved the
withdrawal of that sum from the estate but requesting that the surcharge, interests and
penalties be waived. On 04 October 1991, however, petitioner received from the
Commissioner notice insisting payment of the tax due on or before the lapse of thirty
(30) days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid
until 19 December 1991.6

The delay in the payment of the deficiency tax within the time prescribed for its
payment in the notice of assessment justifies the imposition of a 25% surcharge in
consonance with Section 248A(3) of the Tax Code. The basic deficiency tax in this
case being P538,509.50, the twenty-five percent thereof comes to P134,627.37.
Section 249 of the Tax Code states that any deficiency in the tax due would be subject
to interest at the rate of twenty percent (20%) per annum, which interest shall be
assessed and collected from the date prescribed for its payment until full payment is
made. The computation of interest by the Court of Tax Appeals -

"Deficiency x Interest x Terms


estate tax Rate 11/2 mo./12 mos
P538,509.50 20% per (11/04/91 to
annum 12/19/91)

= P13,462.74"7

conforms with the law, i.e., computed on the deficiency tax from the date prescribed for
its payment until it is paid.

The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00
could not be imposed on petitioner, a compromise being, by its nature, mutual in
essence. The payment made under protest by petitioner could only signify that there
was no agreement that had effectively been reached between the parties.

Regrettably for petitioner, the need for an authority from the probate court in the
payment of the deficiency estate tax, over which respondent Commissioner has hardly
any control, is not one that can negate the application of the Tax Code provisions
aforequoted. Taxes, the lifeblood of the government, are meant to be paid without
delay and often oblivious to contingencies or conditions.

In. sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest
of P13,462.74 or a total of P148,090.00.
WHEREFORE, the instant petition is partly GRANTED. The deficiency assessment for
surcharge, interest and penalties is modified and recomputed to be in the amount of
P148,090.00 surcharge of P134,627.37 and interest of P13,462.74. Petitioner estate
having since paid the sum of P438,040.38, respondent Commissioner is hereby
ordered to refund to the Estate of Jose San Agustin the overpaid amount of
P289,950.38. No costs.

COMMISSIONER OF INTERNAL REVENUE vs. HAMBRECHT & QUIST


PHILIPPINES, INC.- Tax Assessment and Protest

FACTS:
The assessment against Hambrecht & Quist had become final and unappelable since
there was a failure to protest the same within the 30-day period provided by law.
However, the CTA held that the BIR failed to collect within the prescribed time and thus
ordered the cancellation of the assessment notice. The CIR disputed the jurisdiction of
the CTA arguing that since the assessment had become final and unappealable, the
taxpayer can no longer dispute the correctness of the assessment even before the
CTA.

ISSUE:
Can the CTA still take cognizance of an assessment case which has become final and
unappealable for failure of the taxpayer to protest within the 30-day protest period?

HELD:
YES. 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 CTA law
clearly bestows jurisdiction to the CTA even on other matters arising under the
National Internal Revenue Code. Thus, the issue of whether the right of the CIR to
collect has prescribed, collection being one of the duties of the BIR, is considered
covered by the term other matters. The fact that assessment has become final for
failure to protest only means that the validity or correctness of the assessment may no
longer be questioned on appeal. However, this issue is entirely distinct from the issue
of whether the right to collect has in fact prescribed.
The Court ruled that the right to collect has indeed prescribed since there was no proof
that the request for reinvestigation was in fact granted/acted upon by the CIR. Thus,
the period to collect was never suspended.

COMMISSIONER OF INTERNAL REVENUE vs. LA SUERTE CIGAR AND


CIGARETTE FACTORY
GR. No. 144942, July 4, 2002

Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the
Petition for Review on Certiorari submitted by the Commissioner of Internal Revenue
for non-compliance with the procedural requirement of verification explicit in Sec. 4,
Rule 7 of the 1997 Rules of Civil Procedure and, furthermore, because the appeal was
not pursued by the Solicitor-General. When the motion for reconsideration filed by the
petitioner was likewise denied, petitioner filed the instant motion seeking an elucidation
on the supposed discrepancy between the pronouncement of this Court, on the one
hand that would require the participation of the Office of the Solicitor-General and
pertinent provisions of the Tax Code, on the other hand, that allow legal officers of the
Bureau of Internal Revenue (BIR) to institute and conduct judicial action in behalf of the
Government under Sec, 220 of the Tax Reform Act of 1997.

Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (as
distinguished from commencement of proceeding) without the participation of the
Solicitor-General?

Held: NO. The institution or commencement before a proper court of civil and criminal
actions and proceedings arising under the Tax Reform Act which shall be conducted y
legal officers of the Bureau of Internal Revenue is not in dispute. An appeal from such
court, however, is not a matter of right. Sec. 220 of the Tax Reform Act must not be
understood as overturning the long-established procedure before this Court in requiring
the Solicitor-General to represent the interest of the Republic. This court continues to
maintain that it is the Solicitor-General who has the primary responsibility to appear for
the government in appellate proceedings. This pronouncement finds justification in the
various laws defining the Office of the Solicitor-General, beginning with Act No. 135,
which took effect on 16 June 1901, up to the present Administrative Code of 1987.
Sec. 35, Chapter 12, Title III, Book IV of the said code outlines the powers and
functions of the Office of the Solicitor General which includes, but not limited to, its duty
to
1. Represent the Government in the Supreme Court and the Court of Appeals in all
criminal proceedings; represent the Government and its officers in the Supreme Court,
the Court of Appeals, and all other courts or tribunals in all civil actions and special
proceedings in which the Government or any officer thereof in his official capacity is a
party.
2. Appear in any court in any action involving the validity of any treaty, law, executive
order, or proclamation, rule or regulation when in his judgment his intervention is
necessary or when requested by the Court.

16: EMILIO S. LIM, SR. V. CA


October 18, 1990; C.J. Fernan; G.R. L-48134-37

DOCTRINE:
Prescriptive Period to File Criminal Case Under NIRC SECTION 281: 5 years
from failure to pay tax after notice and demand.

NATURE:
Petition for Review on Certiorari
FACTS:

Spouses Lim were engaged in the dealership of various household appliances.The NBI
conducted a raid on Oct. 5, 1959 on their:1 . ) B u s i n e s s A d d r e s s : N o . 3 3 6 N u e va
S t r e e t , Ma n i l a ; and2.)111 12thStreet, Quezon
City.S e i z e d f r o m t h e L i m c o u p l e w e r e b u s i n e s s a n d a c c o u n t i n
g r e c o r d s w h i c h s e r v e d a s b a s e s f o r a n investigation undertaken by the
BIR.On Sept. 30, 1964, Senior Revenue Examiner Raphael S. Daet submitted a
memorandum that the income tax r e t u r n s fi l e d b y t h e s p o u s e s L i m
f o r 1 9 5 8 a n d 1 9 5 9 were false or fraudulent
.Assessment should be: P835, 127.Acting Commissioner Benjamin M. Tabios informed
the couple that there deficiency income taxes
are P922,913.04.O n A p r i l 1 0 , 1 9 6 5 , s p o u s e s r e q u e s t e d a n r
e - investigation.BIR expressed willingness on the following conditions:1.)written
waiver of the defense of prescription under the statute of
limitations;2 . ) d e p o s i t i n g o f t h e a s s e s s m e n t a n d s e c u r i n g t h e other
with a surety bond. Spouses Lim refused to comply with the conditions and reiterated
his request. BIR rendered a final decision holding that there was no cause for
reversal of the assessment against the Lim couple. The final notice and
demand for payment was served through their daughter in law on July 3, 1968
for the amount of P1,237,190.55 including interest, surcharges and penalty for late
payment. BIR referred the matter to the Manilas Fiscals Office for investigation
and prosecution.4 criminal informations were filed against petitioners violation of NIRC
SECTION 45 violation of NIRC SECTION 51RTC Manila found petitioners guilty CA
affirmed RTC. 23 days later Antonio Lim, Sr. died.

ISSUE/S:
1.)WON the offenses prescribe after 5 years (Lim) or10 years (governments
position)?
2.)
W O N t h e p r e s c r i p t i ve p e r i o d c o m m e n c e d t o r u n from 1965 date of 1st
Assessment or discovery(accdg to Lim spouses) or from final notice on
1968(government)

WON the RTC had jurisdiction over the tax collection


case?4 . )

W O N t h e d e a t h o f E m i l i o S . L i m, S r . e xt i n g u i s h e d his civil liabilities?

HELD:

1 . ) 5 ye a r s b u t t h e g o ve r n m e n t i n s t i t u t e d t h e c a s e within the prescriptive


period.
NIRCSECTION 73. PENALTY FOR FAILURE TO FILERETURN OR TO PAY
TAX.
Anyone liable to pay the tax, to make a return or to supply information required
under this code, who refuses or neglects to pay such tax, to make such return or to
supply such information at the time or times herein specified in each year, shall be
punished by a fine of not more than P2,000 or by imprisonment for not more than6
months, or both .Any individual or any officer of any corporation, or general co-
partnership, required by law to make ,render, sign or verify any return or to
supply any i n f o r m a t i o n , wh o m a k e s a n y f a l s e o r f r a u d u l e n t
return or statement with intent to defeat or evade the assessment required by
this Code to be made, shall be punished by a fine not exceeding P4,000 or by
imprisonment for not exceeding 1 year, or both.

S E C T I O N 3 5 4 . P R E S C R I P T I O N F O R V I O L AT I O N
S O F AN Y P RO V I S I O N S O F T HI S CODE.

All violations of any provision of this Code shall prescribe after 5


years .P r e s c r i p t i o n s h a l l r u n f r o m t h e d a y o f t h e commission
of the violation of the law, and if the same not be known at the time, from the
discovery thereof AND the institution of judicial proceeding for its investigation and
punishment.T h e p r e s u m p t i o n s h a l l b e i n t e r r u p t e d w h e n p r o c e e d i
ngs are instituted against the guiltyp e r s o n s a n d s h a l l b e g i n
t o run again if t he proceedings are dismissed for reasons
n o t constituting jeopardy.

T h e t e r m o f p r e s c r i p t i o n s h a l l n o t r u n wh e n t h e offender is absent from the


Philippines.
2.)
Commenced from the date of the final notice .In criminal cases, statutes of limitations
are acts of grace, a surrendering by the sovereign of its right to
prosecute.Th e y r e c e i ve s t r i c t c o n s t r u c t i o n i n f a vo r o f t h e Government and
limitations in such cases will not be presumed in the absence of clear
legislation.3 . ) No , b e c a u s e t h e c r i m i n a l c a s e wa s i n s t i t u t e d o n June 23,
1970 and PD 69 which mandates RTC to order payment of the taxes took effect
only on Jan.1, 1973. It has no retroactive application. The law applicable was
SECTION 316 which does not sanction such
imposition.4 . ) R e g a r d i n g t h e l i a b i l i t y o f E m i l i o S . L i m , S r .
e x t i n g u i s h e d b y h i s d e a t h i n a c c o r d a n c e i t h SECTION 89 of the
RPC; but the fine imposed in the4 criminal cases is affirmed in the case of petitioner
Antonia Sun Lim in accordance with NIRC SECTION73.
JUDY ANNE L. SANTOS vs.
PEOPLE OF THE PHILIPPINES, ET AL.

(G.R. No. 173176, August 26, 2008)

Is the filing of a Petition for Review with the CTA En Banc the proper remedy for a
party aggrieved by an interlocutory order of a Division of the CTA? The case began
when then CIR Guillermo L. Parayno Jr. recommended the criminal prosecution of
Juday to Justice Secretary Raul M. Gonzales for substantial Under declaration of
income Juday allegedly declared in her Income Tax Return for 2002 an income of
P8,033,332.70solely derived from the talent fees paid to hereby the Kapamilya
Network. However, this was belied by documents given by Judays accountant and
other parties ,which establish that Juday actually had an income of at least
P14,796,234.70, coming not only from the Kapamilya Network, but from movies and
product endorsements as well. The non-declaration made by Juday
amounts to at least 84.18% of the income declared in her ITR, which constitutes prima
facie evidence of false or fraudulent return. Consequently, an Information charging
Juday for violation of Section 255 in relation to Sections 254 and 248 (B) of the Tax
Code was filed with the CTA .Juday then filed a Motion to Quash the Information which
the CTA denied. Similarly, Judays reconsideration was also denied by the CTAs First
Division. Juday then filed with the CTA en banc, a Motion for Extension of Time to File
Petition for Review to appeal the denial of the abovementioned Motion to Quash.
In the meantime, while Juday was able to file her Petition for Review with the CTA en
banc on June 16, 2006, the CTA en banc denied on June 19, 2006 the Motion for
Extension of time to file Petition for Review previously filed
by Juday.. Aggrieved, Juday sought redress from the Supreme Court asserting that the
resolutionof the CTA Division denying a motion to quash is appealable to the CTA en
banc pursuant to Section 18 of Republic Act No.1125, as amended. Juday alleged that
if that is not the case, a procedural void would be created, leaving the parties without
any remedy involving erroneous resolutions of the CTA Division. However, this failed to
persuade the SupremeCourt. The SC ruled that the petition for review to be filed with
the CTA en banc as the mode for
appealing a decision, resolution, or order of the CTA Division, under Section 18 of
Republic Act No. 1125, as amended, is not a totally new remedy, unique to the CTA,
with a special application or use therein. To the contrary, the CTA merely adopts the
procedure for petitions for review and appeals long established and practiced in other
Philippine courts. Accordingly, doctrines, principles, rules, and precedents laid down in
jurisprudence by this Court as regardspetitions for review and appeals in courts of
general jurisdiction should likewise bind the CTA, and it cannot depart therefrom.
Section 1, Rule 41 of the Revised Rules of Court, governing appeals from the Regional
Trial Courts (RTCs) to the Court of Appeals, provides that an appeal may be taken only
from a judgment or final order that completely disposes of the case or of a matter
therein when declared by the Rules to be appealable .Said provision, thus, explicitly
states that no appeal may be taken from an interlocutory order .It is well-settled that
after a final order or judgment has been issued, the court should have nothing more to
do in respect of the relative rights of the parties to the case. Conversely, "an
interlocutory order is one that does not finally dispose of the case and does not end the
Court's task of adjudicating the parties' contentions in determining their rights and
liabilities as regards each other, but obviously indicates that other things remain tobe
done by the Court."7Further, the SC stressed that one reason why he law does not
permit an appeal from an interlocutory order is to avoid the multiplicity of appeals in a
single action, which would result into the delay of the trial on the merits of the case in
the course of such appeal.7 BA Finance Corporation vs. Court of Appeals, G.R.
No.84294, October 16, 1989.Finally, the SC emphasized that there is no dispute that
a court order denying a motion to quash is interlocutory. The denial of the motion to
quash means that the criminal information remains pending with the court ,which must
proceed with the trial to determine whether the accused is guilty of the crime charged
therein. Equally settled is the rule that an order denying a motion to quash, being
interlocutory, is notimmediatelyappealable,8 nor can it be the subject of a petition for
certiorari. Such order may only be reviewed in the ordinary course of law by an appeal
from the judgment after trial.9Therefore, the Petition for Review filed by Juday is the
wrong remedy to assail an interlocutory order denying her Motion to Quash.
The SC declared that assuming Judays Petition for Review was treated by the CTA a
A special civil action for certiorari, the same would still be dismissed for lack of merit.
According to the Court, although the City Prosecutor has the power to investigate
crimes, misdemeanors, and violations of ordinances committed within the territorial
jurisdiction of the city, and which can be
prosecuted before the trial courts of the said city, however, said prosecutor had no
authority to appear before the CTA where the case was already pending. Besides,
there is nothing in the Revised Quezon City Charter which would suggest that the
power of the City Prosecutor to investigate and prosecute crimes ,misdemeanors, and
violations of ordinances committed within the territorial jurisdiction of the city is to the
exclusion of the State Prosecutors. Moreover, there could not have been aviolation of
Judays right to due process and equal protection of laws just because a similar8
Villasin vs. Seven-Up Bottling Co. of the Philippines, 107 Phil.801.9 Gamboa vs. Cruz,
G.R. No. L-56291, June 27, 1988.case filed against the Songbird were dismissed by
the DOJ. The SC emphasized that the more appropriate course of action that Juday
should have taken is to appeal the Resolution of the State Prosecutor to the DOJ
Secretary.
Juday was also not denied of due process since she was given the opportunity to file
her affidavits and other pleadings and submit evidence before the DOJ during the
preliminary investigation of her case and before the Information was filed against her
.Due process is merely an opportunity to be heard. In addition, preliminary
investigation conducted by the DOJ is merely inquisitorial. It is not a trial of the case on
the merits. Its sole purpose is to determine whether a crime has been committed and
whether the respondent therein is probably guilty of the crime. It is not the occasion for
the full and exhaustive display of the parties' evidence.
Hence, if the investigating prosecutor is already satisfied that he can reasonably
determine the existence of probable cause based on the parties' evidence thus
presented, he may terminate the proceedings and resolve the case.10
There was likewise no violation of Judays rights to equal protection of the law since
she was not able to establish that she and the Songbird were similarly situated, i.e.,
that they committed identical acts for which they were
charged with the violation of the same provisions of the NIRC; and that they
presented similar arguments and evidence in their defense yet, they were treated
differently. Much less, aside from her claim that a similar charge against the Songbird
was dismissed while that against her prospered, Juday has
failed to present evidence showing that the discrimination against her.
Claim of right doctrine or doctrine of ownership, command or control- In this
case, Javier is not liable for fraud penalty because the income he received is
not yet a taxable gain since it is still under litigation.

FACTS:

1977: Victoria Javier, wife of Javier-respondent, received $999k from Prudential Bank
remitted by her sister Dolores through Mellon Bank in US.
Around 3 weeks after, Mellon Bank filed a complaint with CFI Rizal against Javier
claiming that its remittance of $1M was a clerical error and should have been $1k only
and praying that the excess be returned on the ground that the Javiers are just trustees
of an implied trust for the benefit of Mellon Bank.
CFI charged Javier with estafa alleging that they misappropriated and converted it to
their own personal use.
A year after, Javier filed his Income Tax Return for 1977 and stating in the footnote
that the taxpayer was recipient of some money received abroad which he presumed to
be a gift but turned out to be an error and is now subject of litigation
The Commissioner of Internal Revenue wrote a letter to Javier demanding him to pay
taxes for the deficiency, due to the remittance.
Javier replied to the Commissioner and said that he will pay the deficiency but denied
that he had any undeclared income for 1977 and requested that the assessment of
1977 be made to await final court decision on the case filed against him for filing an
allegedly fraudulent return.
Commissioner replied that the amount of Mellon Banks erroneous remittance which
you were able to dispose is definitely taxable and the Commissioner imposed a 50%
fraud penalty on Javier.

ISSUE: Whether or not Javier is liable for the 50% penalty.

HELD: No.

The court held that there was no actual and intentional fraud through willful and
deliberate misleading of the BIR in the case. Javier even noted that the taxpayer was
recipient of some money received abroad which he presumed to be a gift but turned
out to be an error and is now subject of litigation
(the ff are not expressly written in the case, in fact the doctrine I just found it
elsewhere but this is relevant to the topic rather than the issue in the case)
o Claim of right doctrine- a taxable gain is conditioned upon the presence of a claim
of right to the alleged gain and the absence of a definite and unconditional obligation to
return or repay.
o In this case, the remittance was not a taxable gain, since it is still under litigation and
there is a chance that Javier might have the obligation to return it. It will only become
taxable once the case has been settled because by then whatever amount that will be
rewarded, Javier has a claim of right over it.