SUMMARY OF SIGNIFICANT CTA CASES
(August 2009)
By: Atty. Dianna Lynne Sin Baysac
1. COMMISSIONER OF INTERNAL REVENUE
vs. CHAILEASE FINANCE CORPORATION
(CTA EB No. 440 [CTA Case No. 7021], August 28,
2009)
In order for a waiver of the statute of limitations
under the NIRC to be valid and binding, it must
strictly conform with the provisions of Revenue
Memorandum Order No. 20-90.
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Chailease Finance Corporation (“Respondent”) is a
finance corporation duly organized and existing
under the laws of the Republic of the Philippines.
On September 12, 2003, the BIR issued Final
Assessment Notices (FANs) against Respondent for
Income Tax, Percentage Tax, Expanded Withholding
Tax and Documentary Stamp Tax Deficiencies in the
total amount of P37,066,259.62 for the taxable year
1999.
Respondent timely protested these Assessments on
the ground of Prescription.
The Court in Division found that, indeed, the
assessments are barred by prescription.
Moreover, it also found defective respondent’s copy
of the “Waiver of the Defense of Prescription under
the Statute of Limitations of the National Internal
Revenue Code” (Waiver).
Aggrieved, the CIR filed an MR arguing that the
Court in Division erred in using respondent’s copy
of the waiver instead of using its (petitioner CIR’s)
copy.
The Court in Division denied CIR’s motion and
ruled that it also cannot consider its copy of the
waiver as valid since it does not show that
respondent corporation received such copy of the
waiver after the CIR’s acceptance.
Hence, the CIR filed a Petition for Review with the
Court of Tax Appeals En Banc.
CTA EB denied the Petition for lack of Merit.
The Court iterated the ruling of the Division
regarding Prescription and the Waiver of Defense of
Prescription. Thus:
On the issue of Prescription
Under Section 230 of the 1997 NIRC as amended,
internal revenue taxes must be assessed within 3
years counted from the period fixed by law for the
filing of the tax return or the actual date of filing,
whichever is later. This rule governs the
government’s right to assess internal revenue taxes
mainly to protect the interests of the taxpayers from
unreasonable investigation. For that reason, the
government must assess internal revenue taxes on
time so as not to extend ad infinitum the period of
assessment and deny taxpayers the assurance that it
will no longer be subjected to further investigation
for taxes after the expiration of a reasonable period
of time.1
On the issue of the Waiver of the Defense of Prescription
To be valid, a waiver of the statute of limitations under
paragraphs (b) and (d) of Section 222 must be:
1) In writing;
2) Agreed by both the Commissioner and the taxpayer;
3) Before the expiration of the ordinary prescriptive periods
for assessment and collection; and
4) For a definite period beyond the ordinary prescriptive
periods for assessment and collection.
The period agreed upon can still be extended by
subsequent written agreement, provided that it is
1
CIR v. FMF Dev’t Corp. G.R. 167765, June 30, 2008.
1
 executed prior to the expiration of the first period agreed
upon.
Corollary thereto, the BIR issued RMO 20-90 on
April 04, 1990 to lay down an even more detailed
and mandatory procedure for the execution of such
waiver:
1. The waiver must be in the form identified hereof.
This form may be reproduced by the Office
concerned but there should be no deviation from
such form. The phrase "but not after ______ 19 ___"
should be filled up. This indicates the expiry date of
the period agreed upon to assess/collect the tax after
the regular three-year period of prescription. The
period agreed upon shall constitute the time within
which to effect the assessment/collection of the tax in
addition to the ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself
or his duly authorized representative. In the case of
a corporation, the waiver must be signed by any of
its responsible officials.
Soon after the waiver is signed by the taxpayer, the
Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided,
shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated. Both
the date of execution by the taxpayer and date of
acceptance by the Bureau should be before the
expiration of the period of prescription or before the
lapse of the period agreed upon in case a subsequent
agreement is executed.
3. The waiver must be signed by an authorized
revenue official.
4. The waiver must be executed in three (3) copies, the
original copy to be attached to the docket of the case,
the second copy for the taxpayer and the third copy
for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy shall be
indicated in the original copy.
5. The foregoing procedures shall be strictly followed.
Any revenue official found not to have complied
with this Order resulting in prescription of the right
to assess/collect shall be administratively dealt with.
The CTA EB, cited Philippine Journalists, Inc. v
CIR2, which emphasized the mandatory nature of
the provisions of RMO No. 20-90:
a. The waiver must set a definite date.
b. The waiver must be accepted by the CIR or his
representative.
c. The date of acceptance by the CIR or his
representative must be indicated.
d. The taxpayer must be furnished a copy of the
accepted waiver.
e. The waiver is not a unilateral act by either but a
bilateral agreement by both the BIR and the
taxpayer.
In this case, even if the Court used the copy of the
CIR, still it would not suffice because all 3 copies of
the waiver were found to be defective. The first was
not signed by a revenue officer. The second, did not
contain an expiration date, aside from it also not
being signed by a revenue officer. And the third, did
not show that respondent received a copy of the
waiver accepted by the BIR.
2. ST. LUKE’S MEDICAL CENTER, INC. V.
COMMISSIONER OF INTERNAL REVENUE
(CTA Case No. 7340, August 24, 2009)
Is a waiver of the statute of limitation executed after
the expiration of the ordinary prescriptive periods
for assessment and collection, and which does not
state a definite period of extension, valid?
On April 15, 1986 and April 15, 1987, St. Luke’s filed
its profit and loss statement and balance sheet for
the taxable year 1985 and 1986 respectively.
Pursuant to a Letter of Authority (LOA) dated
February 26, 1988, the BIR conducted an
investigation to ascertain the tax liabilities of
petitioner for said taxable years.
2
Id.
2

St. Luke’s executed a Waiver of the Defense of
Prescription for the taxable year 1985.
On April 11, 1990, St. Luke’s received final
assessment notices for 1985 and 1986 deficiency
income tax and deficiency expanded withholding
tax.
On May 25, 1990, St. Luke’s filed an administrative
protest. The BIR, then, cancelled the 1985 and 1986
income tax deficiency, but affirmed the 1985 and
1986 withholding tax deficiency.
Thus, St. Luke’s filed this present Petition for
Review.
Period to Assess
According to the then 268 and 269 of the Tax Code,
the BIR had a period of 3 years, or 10 years in case of
false or fraudulent return, after the last day
prescribed by law for the filing of return to assess
deficiency taxes from St. Luke’s.
As for the 10 year period of assessment to apply, the
filing of false returns must be with intent to evade
tax. As found by the Revenue Examiner, however,
there was no showing that St. Luke’s filed a false
Annual Returns for withholding taxes nor was there
intention to evade tax. Hence, the BIR had only until
April 15, 1989 and April 15, 1990, respectively, to
assess petitioner.
Since the assessments were received by St. Luke’s
beyond April 15, 1990, the BIR’s right to assess it has
already prescribed, regardless of the execution of a
Waiver of Defense of Prescription .
Requisites for a Valid Waiver of Statute of Limitations
A valid waiver of the statute of limitations under
paragraphs (b) and (d) of Section 223 of the Tax
Code of 1977, as amended, must be:
(1) in writing;
3
(2) agreed by both the Commissioner and the
taxpayer;
(3) before the expiration of the ordinary prescriptive
periods of assessment and collection; and
(4) for a definitive period beyond the ordinary
prescriptive periods for assessment and collection.
The period agreed upon can still be extended by
subsequent written agreement, provided that it is
executed prior to the expiration of the first period
agreed upon.
Here, the waiver shows that it was executed after
the expiration of the ordinary prescriptive periods
for assessment and collection; and did not state a
definite period beyond the ordinary prescriptive
periods for assessment and collection.
For the purpose of safeguarding taxpayers from any
unreasonable examination, our tax law provides a
statute of limitations in the collection of taxes. Thus, the
law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection. As
a corollary, the exceptions to the law on prescription
should perforce be strictly construed.3
Here, the respondent CIR did not strictly comply
with the requisites for a valid waiver, hence it is
declared invalid and without effect.
3. RAYTHEON-EBASCO OVERSEAS LTD. –
PHILIPPINE BRANCH V. COMMISSIONER OF
INTERNAL REVENUE (CTA Case No. 6458,
August 06, 2009)
In an option to carry-over the excess creditable
withholding tax, is the taxpayer entitled to
subsequently file a claim for refund?
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3
CIR v. B.F. Goodrich Phils, Inc. G.R. 104171, February 24,
1999.
Petitioner is a foreign corporation duly organized
under the laws of the United States of America and
is licensed to do business in the Philippines.
On April 17, 2000, petitioner filed with the BIR its
Annual Income Tax Return (ITR) for taxable year
1999, reflecting no income tax liability either at the
MCIT rate of 2% or at the regular rate of 33%.
Consequently, it was unable to utilize the reported
creditable taxes withheld for taxable year 1999 in the
amount of P29,489,926.00.
On the following April 18, 2001, petitioner filed is
ITR with an income tax due of P1,299,730.00 credited
against its unused creditable withholding tax.
Additionally, petitioner again incurred an excess
credit, leaving an income tax overpayment of
P81,252,940.00.
On April 16, 2002, petitioner filed a letter with the
CIR, and thereafter a petition with the CTA,
claiming refund in that amount representing its
excess/unutilized creditable withholding taxes.
The CIR moved to dismiss the petition on the
ground of lack of cause of action to claim refund
because petitioner opted to carry-over its excess
creditable withholding taxes for taxable years 1999
and 2000 to succeeding taxable years.
The CTA dismissed the claim due to lack of cause of
action.
Petitioner appealed with the Court of Appeals (CA)
and the CA granted its petition ordering the remand
of the case for further study and reception of
evidence. On the issue of irrevocability, the CA said
that the “irrevocability of option to carry-over” is
limited only for the year when such option was
exercised, so much so that the taxpayer can still
refund the unutilized excess credits carried over to
the succeeding year.
The resolution of the issue of petitioner’s entitlement
to the issuance of TCC for its unutilized excess tax
credits hinges on the proper interpretation of Section
4
76 of the 1997 NIRC, quoting a portion herein,
“(o)nce 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 cash refund or issuance of tax credit
certificate shall be allowed therefor.”
A corporation, thus, has 2 options: carry-over or
apply for a refund/TCC. If, however, the option to
carry-over is chosen in its Annual Corporate
Adjustment Return, the same shall be irrevocable for
that taxable period. The law is clear and
unequivocal.
In this case, although petitioner did not expressly
mark any option in its ITR for 1999, such intention is
evident in its claiming of such excess tax credits in
its ITR for 2000. In fact, petitioner likewise carried
the same in the year 2001.
Also, the Court cannot subscribe to the position
advocated by the Honorable CA that the
irrevocability applies only to the immediately
succeeding taxable year.
“Taxable period” refers to the taxable year when
petitioner derived excess income tax payment and
elected the option to carry-over. In the case of
petitioner, taxable year 1999. This excess will be
carried over to ‘succeeding taxable years’ until fully
utilized.
And, contrary to petitioner’s assertion, it would not
be unjust to bar the claim for refund since the excess
will not be forfeited in favour of the government but
will remain in the account of petitioner. Petitioner is
not left without any recourse since the excess
amount may be carried over to the succeeding
taxable years and credited against its future income
tax liabilities until the same is fully utilized.
Aptly, the use of the phrase ‘succeeding taxable
years’ (in Section 76 of the 1997 NIRC) implies that
once the option to carry-over is made, the law already
allows a perpetual carry-over since a change from carry-
over to refund is no longer permitted. The rationale
interpretation, therefore, is to apply the phrase ‘taxable
period’ to the year when the ‘option to carry over’ was
made.4
4. PHILIPPINE BANK OF COMMUNICATIONS
V. COMMISSIONER OF INTERNAL REVENUE
(CTA Case No. 7435, August 10, 2009);
(see also WALDEN AB AYALA MANAGEMENT
CO., INC. V. COMMISSIONER OF INTERNAL
REVENUE (CTA Case No. 7750, August 03, 2009)
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 cash refund or issuance of tax credit
certificate shall be allowed therefor, except if the
taxpayer’s business has already ceased in its existence
(Walden AB Ayala v. CIR).
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On April 7, 2006, PBCom filed an administrative
claim for refund or issuance of a tax credit certificate
with the CIR and later, due to respondent’s inaction,
the herein Petition for Review with the CTA.
The Court found PBCom’s claim unmeritorious
partly for the following reason:
The Court found that petitioner has opted to carry-
over its claimed excess withholding tax for the year
2003 amounting to 17,578,318.00 and automatically
applied the same amount against the estimated tax
liabilities for the succeeding taxable quarters of 2004.
Section 76 of the NIRC is clear that a corporation
entitled to a tax credit or refund of the excess
4
United Pictures AB v. CIR, CTA Case No. 6240.
5
quarterly income taxes paid/withheld has two
options of: 1 ) carry-over the excess credit to the next
quarters/years, or 2) apply for a refund in the form
of either a cash refund or a tax credit certificate.
However, once the option to carry-over has been
made, the same becomes irrevocable for that taxable
period.
(Walden case)
Taxpayer must not have opted to carry-over and credit
the excess income tax to the taxable quarters of the
succeeding taxable years.
In the event of cessation of business, however, petitioner
may now opt to claim for refund even if it previously
chose the irrevocable option to carry-over since there is
no more opportunity for it to utilize such excess credits.
Nonetheless, the provisions of Section 52(C) and 235 of
the 1997 NIRC must still be complied with. Thus, in the
event of cessation of business, petitioner must first
notify the respondent of its intention and settle all its
tax liabilities in order to secure a tax clearance. The
rationale behind these Sections is to ensure that no
corporation may escape payment of taxes and other
liabilities to the government simply by opting to dissolve
the corporation and retire from business or reorganize
its business.
5. CE LUZON GEOTHERMAL POWER
COMPANY, INC. V. COMMISSIONER OF
INTERNAL REVENUE (CTA Case No. 7393,
August 26, 2009)
What are the requisites to be complied with in order
to properly claim a refund, or an issuance of a tax
credit certificate (TCC) representing unutilized input
VAT?
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 CE Luzon is principally engaged in the business of
power generation and subsequent sale of generated
power to the Philippine National Oil Company
(PNOC), pursuant to a Power Purchase Agreement
(PPA).
It filed its Quarterly VAT Returns for the 4 quarters
of taxable year 2004 showing unutilized input VAT.
Thereafter, it filed administrative claims for refund
of the whole amount. With the CIR’s inaction,
however, and to toll the period of prescription, CE
Luzon filed a Petition for Review with the CTA
praying for the refund or issuance of TCC allegedly
representing unutilized input VAT from petitioner’s
domestic purchases, services rendered by non-
residents, and importation of goods.
The CIR puts in as defense various arguments such
as non-compliance with the requirements of
timeliness, registration, invoicing, and
documentation.
In sum, the issue boils down to whether CE Luzon is
entitled to a refund or issuance of a TCC
representing unutilized input VAT.
The court resolved the issue methodically:
The pertinent provisions to the foregoing are
Sections 110 (B) and 112 (A) of the NIRC of 1997.
From these provisions, before a claimant will be
entitled to a refund or tax credit of input tax due or
paid attributable to zero-rated or effectively zero-
rated sales, the following requisites must be
complied with:
a. That there must be zero-rated or effectively zero-
rated sales;
b. That input taxes were incurred or paid;
c. That such input taxes are attributable to zero-rated
or effectively zero-rated sales;
d. That the input taxes were not applied against any
output VAT liability; and
e. That the claim for refund was filed within the 2-year
prescriptive period counted from the close of the
taxable quarter when the sales were made.
6
There must be zero-rated or effectively zero-rated sales
CE Luzon bases its zero-rating from Electric Power
Industry Reform Act (EPIRA)5 and its Implementing
Rules and Regulations providing that ‘pursuant to
the objective of lowering electricity rates to end-
users, sales of generated power by generation
companies shall be value added tax zero-rated.’
In order to qualify, petitioner must prove that: (a) it
is a generation company and (b) it derived sales
from power generation.
Records prove that indeed CE Luzon owns and
operates a power plant facility located in Leyte
Province which has been accredited by the
Department of Energy (DOE) as a Block Power
Production Facility (BPPF) since January 15, 1994.
Input taxes were incurred or paid, and such input taxes
are attributable to zero-rated or effectively zero-rated
sales
As to the 2nd requisite, CE Luzon has produced
receipts from power generation services to PNOC in
the amount of P4,686,348,370.84.
With respect to its claim that they incurred the
amount of P22,764,594.40 in input VAT, it presented
various supplier’s invoices, official receipts, Bureau
of Customs (BOC) Import Entries and Internal
Revenue Declarations (IEIRDs), and bank official
receipt in support of its claim.
The Court-commissioned Independent CPA,
although disallowed the amount of P3,500,571.61 on
the grounds of: some purchases were supported
only by certified true copies of VAT Invoices/ VAT
OR, input tax on Overseas Communication Tax
(OCT) and on purchase of petroleum products, DST
and local taxes were included, Invoice not in the
name of Petitioner, Invoices with “VAT” stamp,
Invoices without date, Invoice/OR without BIR
authority to print, no supporting documents, no
5
Republic Act No. 9136 (R.A. 9136).
IEIRD machine validation, and other analogous
reasons, found that most part of the claim is in
order.
Hence, the Court allowed only the amount of
P19,264,022.79 as input tax attributable to zero-rated
sale from power generation.
The input taxes were not applied against any output
VAT liability
A perusal of petitioner’s Quarterly VAT Returns for
the four quarters of 2004 show that it has no output
tax liability against which the substantiated input
VAT may be applied or credited
The claim for refund was filed within the 2-year
prescriptive period counted from the close of the taxable
quarter when the sales were made
Lastly, the Court also found that the claim was filed
well within the prescriptive period. In the recent
case of CIR v. Mirant,6 the Supreme Court (SC) held
that the reckoning period of the two-year
prescriptive period for filing a claim of refund for
input VAT commences from the close of the taxable
quarter when the relevant sales were made
pertaining to the input VAT, regardless of whether
said tax was paid or not.
CE Luzon’s administrative claims for input VAT
refund for taxable year 2004 filed on April 12, 2005
and December 14, 2005, and the Petition for Review
filed on December 29, 2005, were all timely filed
before the expiration of the period on 2006.
6 COMMISSIONER OF INTERNAL REVENUE
V. TEAM ENERGY CORPORATION
(FORMERLY MIRANT PAGBILAO
CORPORATION) (CTA E.B No. 422 [CTA Case No.
6957], August 14, 2009);
6
G.R. 172129, September 12, 2008.
7
(see also PHILEX MINING CORPORATION V.
COMMISSIONER OF INTERNAL REVENUE
(CTA Case Nos. 7528 & 7564, August 10, 2009)
When is the reckoning of the two-year prescriptive
period for filing a claim of refund or issuance of a
Tax Credit Certificate (TCC) for input VAT?
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Team Energy (Respondent) is principally engaged in
the business of power generation and subsequent
sale thereof to the National Power Corporation
(NPC) under a Build-Operate-Transfer (BOT)
Scheme.
Respondent filed its VAT quarterly returns for
taxable year 2002.
On December 22, 2004, it filed an administrative
claim for refund of unutilized input VAT for taxable
year 2002 with Revenue District Office No. 60 in the
amount of P79,918,002.95. Due to petitioner’s
inaction and to toll the running of the prescriptive
period, respondent elevated its claim to the CTA via
Petition for Review.
In Answer, petitioner CIR alleged that the claim was
filed beyond the two-year prescriptive period.
To resolve the issues, the Court iterated the
requisites to be followed under Section 112 of the
1997 NIRC one of which requires that the claim for
refund was filed within the 2-year prescriptive
period counted from the close of the taxable quarter
when the sales were made.
The recent case of CIR v. Mirant7 settled the proper
interpretation of Section 112 (A) of the NIRC
providing for the prescriptive period within which
to claim a refund for input VAT. The Court said that
“the above proviso clearly provides in no uncertain
terms that unutilized input VAT payments xxx must
be claimed within two years reckoned from the close of
the taxable quarter when the relevant sales were made
7
565 SCRA 154.
pertaining to the input VAT regardless of whether said
tax was paid or not.
Thus, the period commences from the close of the
taxable quarter when the sales were made and not
from the time the input VAT was paid nor from the
time the official receipt was issued.
Record shows that respondent filed its
administrative claims for taxable year 2002 on
December 22, 2003, while the judicial claim on April
22, 2004. As to its claim for first quarter of 2002 filed
on March 31, 2002, therefore, the court declared that
it is already barred as the prescriptive period within
which to claim refund as regards that period has
expired on March 31, 2004.
The amount granted under the Division is, therefore,
reduced to P51,134,951.40.
Concurring and Dissenting Opinion of J. Ernesto
D. Acosta
Only the administrative claims must be filed within
the period set in Section 112 (A) of the NIRC, i.e. two
years reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to the
input VAT regardless of whether said tax was paid
or not.
With regard to the filing of judicial claim, however,
paragraph (D) of Section 112 should be applied, i.e.
30 days from receipt of the decision denying the
claim, or the expiration of 120 days, which uses the
word “appeal” while paragraph (A) of Section 112
uses “apply”.
7. SOUTHERN LUZON DRUG CORPORATION
V. COMMISSIONER OF INTERNAL REVENUE
(CTA Case No. 7608, August 11, 2009) and
8
NORTHERN LUZON DRUG CORPORATION V.
COMMISSIONER OF INTERNAL REVENUE
(CTA Case No. 7612, August 11, 2009)
Is the 20% discount granted by drugstores to senior
citizens in their purchase of medicine treated as a tax
credit or tax deduction?
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Petitioners are duly licensed by the BFAD, DTI and
BIR to operate drug stores.
On various dates during the period of January 1,
2004 to March 20, 2004, petitioner allegedly granted
20% sales discount in the amount of P3,175,980.00 to
qualified senior citizens on their purchases of
medicines, pursuant to R.A. 7432 or the “Senior
Citizens Act”.
In its 2004 Annual Income Tax Return filed on April
15, 2005, petitioner reported and treated said
discount as prepaid tax credit but declaring it as
creditable tax withheld.
On April 14, 2007, petitioner filed a Request for the
Issuance of a TCC for the same amount.
The sole question to be resolved in this case is
whether or not petitioner is entitled to a tax credit.
The Court answers in the affirmative.
Tax Credit or Tax Deduction
The pertinent law indicating the proper treatment of
the 20% sales discount to qualified senior citizens on
their purchase of medicine is Section 4(a) of R.A.
7432, which states that “the private establishment
may claim the cost as tax credit.” It is clear from the
said provision that private establishments, like
herein petitioner, may claim the cost of granting the
20% discount as tax credit.
The treatment of the 20% sales discount as a tax
credit and not as mere deductions from gross
income has been consistently upheld by the courts.8
The difference lies in the manner of treatment, thus,
a tax credit is used by private establishment only
after the tax has been computed while a tax
deduction, before the tax is computed. R.A. 7432
unconditionally grants a tax credit to all covered
entities. Thus, provisions of a revenue regulation
that withdraws or modifies such grant are void.9
If the claim, however, falls within the amendment of
R.A. 7632 by R.A. 9257,10 the discount shall now be
treated as a tax deduction and not the previously
allowed tax credit.
8. MANUEL MARAÑON, JR. V.
COMMISSIONER OF INTERNAL REVENUE
(CTA EB No. 399 [CTA Case No. 6711, August 10,
2009)
What is the tax implication of an Over The Counter
(OTC) sales transactions of shares of stock?
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Factual Issues
Mr. Marañon was assessed for deficiency Capital
Gains Tax of P17,086,689.25 and deficiency
Documentary Stamp Tax of P18,207.38, plus
surcharge and interest, for failure to pay the same
after the sale of its 1,300,000 Best World Resources ,
Incorporation shares to Mr. Ramon Mapa/ Wise
Securities Philippines, Inc. (WSPI) in the amount of
8
Baliuag Drug, Corp. v. CIR, CTA Case No. 6537,
November 25, 2004. Del Rosario Drug, Corp. v. CIR, CTA
Case No. 5357, April 6, 1998.
9
CIR v. Central Luzon Drug, Corp. G.R. No. 159647, April
15, 2005.
10
Approved February 24, 2004.
9
P6,175,000.00, which the latter subsequently sold for
P98,000,000.00.
At the outset of this case, Mr. Marañon has already
been questioning the legality of the alleged sale by
him of his BW 1,300,000 shares to Ramon
Mapa/WSPI.
The Court, accordingly, ruled on this matter first
before delving into the main issue of the case.
Mr. Marañon alleged that a certain Ramon Mapa
and/or WSPI fraudulently and illegally used his
name to effect the transaction on the subject BW
shares and that he did not receive any consideration
from such sale.
The court, however, found that the records,
particularly the Ledger of Statement of Account,
Security Movement Report of petitioner, Stock Debit
Memo of WSPI, and the form used by the broker to
debit shares of stock transferred and Stock In
Receipts of ICC Securities, Inc., show that the shares
transferred were received and credited to the
account of Ramon Mapa to the extent of 1,300,000
BW shares. Authenticated copies of said documents
were secured from the brokers and it was
ascertained that the transfer transactions had been
consummated.
Secondary Issues:
Due Process and Newly Discovered Evidence
Mr. Marañon allege that he did not receive any
notice or Letter of Authority from respondent with
respect to the examination of his books of accounts
or accounting records of 1999. Likewise, he alleged
that he did not receive notices prior to the Formal
Letter of Demand, hence, his right to due process
was violated.
Upon examination of the records, however, it was
found that the notices were actually served to the
residential house of petitioner on December 2, 2000;
February 27, 2001 and April 17, 2001, respectively.
The Assessment Notice with attached Formal Letter
of Demand was also served to the same residential
address indicated in the previous notices. Petitioner,
on the other hand, failed to present evidence
disputing his receipt of the notices. It was also found
by the Court in Division that there was no violation
of petitioner’s right to due process since several
opportunities were given to petitioner to appear at
the administrative level but petitioner ignored said
notices.
Assuming arguendo that petitioner only received the
Formal Letter of Demand and not the Preliminary
Assessment Notices, the same is sufficient
compliance with due process requirements.
On the issue of a newly discovered evidence, Mr.
Marañon sought to present a testimony of Mr. Mapa
in the form of a judicial affidavit, disclaiming that
Mr. Marañon had anything to do with the BW
shares and avowing that WSPI was merely using
Mr. Marañon’s account.
The Court, however, ruled that such cannot qualify
as a newly discovered evidence because Section 5
of Rule 15 of the Revised Rules of the CTA requires
that: a) the evidence was discovered after the trial; b)
such evidence could not have been discovered and
produced at the trial with reasonable diligence; c) it
is material, not merely cumulative, corroborative or
impeaching; and d) it is of such weight that, if
admitted, will probably change the judgment.
The question of whether evidence is newly
discovered has two aspects: a temporal one, i.e.,
when was the evidence discovered, and a predictive
one, i.e., when should or could it have been
discovered. It is to the latter that the requirement of
due diligence has relevance.
In this case, Mr. Mapa’s testimony already existed
long before the trial of this case. More importantly,
Mr. Mapa was subpoenaed as a hostile witness for
the petitioner but did not appear. Had petitioner
exercised reasonable diligence, he could have
produced Mr. Mapa during the trial.
Main issue: Propriety of the CGT and DST
After the sale of the said shares by Mr. Marañon to
Mr. Mapa/WSPI, the BIR assessed petitioner for
deficiency CGT and DST in connection with the sale/
transfer of the subject BW shares of stock through
OTC transactions.
Basic is the rule that tax assessments by tax examiners
are presumed correct and made in good faith.
Pursuant to the NIRC of 1997, as amended, ‘over the
counter’ transactions are subject to the following
taxes:
1. Capital Gains Tax;
Final capital gains tax of 5% for not over P100,000 ;
to 10% on any amount in excess of P100,000, shall be
assessed on the net capital gains realized on the sale/
transfer of shares of stock listed but not traded in the
stock exchange (Over-the-Counter Transactions),
prescribed under Section 24 (C) of the 1997 Tax
Code and Sections 6 (a) and (b) (2) of Revenue
Regulations (R.R) 2-82 dated March 29, 1982.
2. Documentary Stamp Tax; and
The amount of P1.50 on each Two Hundred pesos of
the par value of the shares or certificate of stock
shall be collected on the sale, transfer of shares or
certificates of stock as provided under Section 176 of
the NIRC of 1997, as amended.
3. Civil Penalties and Interests.
In case of wilful neglect to file CGT and DST returns
and pay the corresponding taxes thereon, a 50%
surcharge will be imposed in accordance with
Section 248 (B) of the NIRC. Plus a 20% interest per
annum pursuant to Section 249 (B).
With the transaction being proven to have taken
place, Mr. Marañon is hereby ordered to pay the
amounts due to the government.
DISSENTING OPINION BY J. CAESAR A.
CASANOVA
10
The requirements for newly discovered evidence are
on all fours in this case. The affidavit was already
existing but discovered only after trial, and it is
material evidence which would determine the
success and defeat of the case. The veracity of Mr.
Marañon’s allegation that he was unaware of the
alleged transaction can only be threshed out in a
hearing wherein he can present the affidavit and for
respondent to be given the opportunity to cross-
examine the said witness.
9. PHILIPPINE TOBACCO FLUE-CURING AND
REDRYING CORPORATION V.
COMMISSINER OF INTERNAL REVENUE (CTA
Case No. 7377, August 10, 2009)
Exemption from taxation is highly disfavoured in
law and he who claims an exemption from his share
of the common burden in taxation must be able to
justify his claim by showing that Congress intended
to exempt him by words too plain to be mistaken.
An exemption from tax liability cannot be permitted
to exist upon vague implications.
-------------------------------------------------------------
On July 16, 2004, petitioner received from Deputy
Commissioner of Large Taxpayers Service (LTS) a
Notice of Discrepancy which stated a deficiency
excise tax of P1,467,247.79, inclusive of penalties.
Petitioner replied claiming that there is no legal
basis for holding it liable for the deficiency.
Subsequently, it received a Preliminary Assessment
Notice (PAN), and later a Final Assessment Notice
(FAN), from respondent which it timely protested
and petitioned a review for with the CTA.
Respondent, insists that the assessment is valid and
based on Section 144 (b) of the NIRC of 1997, as
amended, which provide that a tax of P0.75 shall be
collected on each kilogram of tobacco prepared or
11
partially prepared with or without the use of any
machine or instruments or without being pressed or
sweetened, which, according to respondent,
Philippine Tobacco’s product is classified under
(“L-6”). In the case of a manufacturer (L-7),
however, they shall be exempted from the pre-
payment of this tax if the same are to be exported or
to be used by another manufacturer on which the
excise tax will eventually be paid under such
conditions as may be prescribed in the rules and
regulations prescribed by the Secretary of Finance.
Philippine Tobacco insists that it is not covered by
Section 144 but, instead, by Section 140 which
exempts the sale in bulk of stemmed leaf tobacco by
one manufacturer to another.
The Secretary of Finance, however, in exercise of his
authority under both Sections 140 and 144,
promulgated Revenue Regulations (RR) No. 17-67
defining “partially manufactured tobacco” to include
stemmed leaf.
The question in this case is whether petitioner is
liable for deficiency excise tax on stemmed leaf
tobacco based on Sec. 144 of the NIRC of 1997.
To answer this question, the Court clarified the rule
on who is qualified for exemption.
Petitioner is classified as an L-6 permittee, per its
declaration and in accordance with the definition in
the RR 17-67, i.e, those engaged in the hand
stripping or threshing whole leaf tobacco for
themselves or for other L-6 or L-7 permittees.
According to this RR, L-6 permittees are liable to
pay P0.75 excise tax on their stemmed leaf tobacco
based on Section 144 of the NIRC.
Said RR further provides an exemption from pre-
payment of the excise tax, but it explains that in
order to avail of the exemption under Section 144 of
the NIRC, the claimant must be a manufacturer,
classified as L-7 permittee. The rationale is explained
by the Court, thus, only an L-7 permittee is qualified to
avail of such exemption from pre-payment ‘because such
 stemmed leaf tobacco has been subjected to specific tax
when an L-7 manufacturer purchased the same from
wholesale leaf tobacco dealers’ designated as L-3, L-3F,
L-3R, L-4, or L-6, the latter being a stripper of leaf
tobacco.
Moreover, the conditions for the availment of such
exemption was already settled by the Supreme
Court in the case of CIR v. La Campana11 providing
the conditions under which stemmed leaf tobacco
may be transferred from one factory to another
without pre-payment of tax:
a) The transfer shall be under an official L-7 invoice on
which shall be entered the exact weight of the
tobacco at the time of its removal.
b) Entry shall be made in the L-7 register in the place
provided on the page removals.
c) Corresponding debit entry shall be made in the L-7
register book of the factory receiving the tobacco
under the heading ‘Refuse, etc., received from the
other factory,’ showing the date of receipt,
assessment and invoice numbers, name and address
of the consignor, from in which received, and the
weight of tobacco.
Clearly, the claimant for exemption must be an L-7
tobacco manufacturer because only an L-7 permittee
has an official L-7 invoice, L-7 register and L-7
register book.
Settled is the rule that a claim for refund or
exemption from tax payments must be clearly
shown and be based on language in law too plain to
be mistaken. Taxation is the rule, exemption is the
exception.
Therefore, petitioner, not being a manufacturer or
L-7 permittee, is liable in all its removals of partially
prepared tobacco/stemmed tobacco leaf prepared by
it.
11
G.R. No. 145275, November 15, 2001.
12
10. CITY TREASURER OF MANILA V. CHINA
BANKING CORPORATION and the Hon.
PRESIDING JUDGE, METROPOLITAN TRIAL
COURT, BRANCH 23, MANILA (CTA EB Case
No. 434 [RTC SCA No. 04-111014] [MTC Civil Case
Nos. 175169CV, 175172CV, 175177CV, 175178CV],
August 06, 2009)
What is the proper form of the letter of refund to be
filed with the City Treasurer under the Local
Government Code (LGC)?
-------------------------------------------------------------
China Bank Corp. (CBC) filed with the Metropolitan
Trial Court (MTC) a petition for refund of the taxes
that it paid under protest in January 2003 in the
amount of P122,770.55.
The City Treasurer of Manila (Petitioner) filed a
motion to dismiss said case on the ground of lack of
jurisdiction, which the MTC denied.
Petitioner then filed a Petition for Certiorari with the
Regional Trial Court (RTC), which affirmed the
MTC’s denial of its motion.
Hence, Petitioner filed this Petition for Review with
the CTA En Banc (EB).
This Court reversed both the MTC and the RTC, and
granted the motion to dismiss filed by petitioner on
the ground of lack of jurisdiction.
CBC maintains that the MTC properly acquired
jurisdiction because it followed the mandate of
Section 196 of the Local Government Code (LGC)
commanding that an administrative claim for refund
must first be filed with the City Treasurer before
resorting to judicial action.
The petitioner, on the other hand, argues that
although CBC wrote a letter to the Office of the City
Treasurer, such was only a letter of protest and not a
claim for refund as contemplated in the said Section
196. A portion of the letter is quoted hereunder:
“It is our position that we are not liable on the said
additional local tax. And assuming that we are xxx,
we vehemently disagree with the assessment on the
ground xxx (of) double taxation.
xxx
“In the meantime, to avoid penalties/surcharges and
any threat of closure, we are remitting the aforesaid
assessment UNDER PROTEST xxx.
“Please issue receipt for the corresponding amount.
xxx”
In the above letter, CBC merely alleged that it is not
liable on the assessed business tax, and assuming
that is it, the same constitutes double taxation. The
letter did not apprise petitioner of the former’s
intention to effect a refund. It is but a notice that it is
paying the amount under protest.
The LGC does not require a specific form of the letter of
refund. However, there must be a categorical written
statement on the part of the taxpayer whether he is
manifesting his intention to effect a claim for refund or
credit of alleged erroneous payment of local taxes, or
writing a letter of protest or both.12
Hence, MTC has no jurisdiction over the case for
failure of CBC to file a written claim for refund with
the City Treasurer.
11. HEWLETT-PACKARD PHILIPPINES,
CORPORATION V. COMMISSIONER OF
INTERNAL REVENUE (CTA Case No. 7756,
August 06, 2009)
Basic is the principle that when money is paid to another
under the influence if a mistake of fact, it may be
recovered. The Government is not exempt from the scope
of solutio indebiti principle.
12
China Banking Corporation v. City Treasurer of Manila,
CTA EB Case No. 146, August 2, 2006/ G.R. No. 174999,
March 5, 2007.
13
-------------------------------------------------------------
Petitioner (HP) seeks the refund or the issuance of a
tax credit certificate (TCC) in the amount of
P2,283,079.36 representing its erroneous double
payment of its Expanded Withholding Tax (EWT)
liability for March 2006.
HP is enrolled with the BIR’s Electronic Filing and
Payment System (EFPS). Under the EFPS, the
taxpayer pays the tax due on the return being filed
using electronic fund transfer. Tax payments
through electronic fund transfer are deemed paid
after a Confirmation Number is issued to the
taxpayer and to the BIR by the Authorized Agent
Bank. Under the electronic fund transfer mechanism
of the EFPS, funds are transferred from the
taxpayer’s bank account to a bank account
belonging to the BIR upon acknowledgement that
each filed return has a corresponding payment
transaction number. The EFPS indicates the date and
time when a specific return is filed and paid by the
taxpayer.
HP alleged that on April 12, 2006 at about 9:01 A.M.,
it processed for payment through EFPS its EWT.
While processing the return, however, it
encountered a system problem while attaching the
electronic copy of the Alpha List which is to be filed
together with the return. Notwithstanding the same,
petitioner completed the processing of the return
without having attached the electronic copy of the
Alpha List. The EFPS print-out bears Reference No.
020600001011134.
After processing that return, HP tried to file the
Alpha List through E-Submission using the BIR
website, but failed. Hence, on the same day, it filed
an Amended Return through the EFPS, attaching the
Alpha List. The print-out bears Reference No.
020600001011233.
Later, HP discovered that there was a double
payment since their account was debited twice.
HP, then, filed an Application for Refund.
Is HP entitled to a refund?
The Court answers in the affirmative.
The documents submitted reveals that both returns
were successfully processed and paid, evident from
the HP’s bank account’s being debited twice.
Moreover, the payment transaction numbers and
acknowledgement numbers for the two foregoing
payments correspond to the payment transaction
numbers and acknowledgement number in the
payment confirmation.
Payment of taxes under a mistake of fact is
recoverable under Articles 2142 and 2154 of the Civil
Code. A payment of tax under a mistake of fact has
been held not to be voluntary, and is therefore
recoverable (51 Am. Jur. 1023). On principle, a
recovery should be allowed where money is paid
under a mistake of fact although such mistake of fact
may be induced by a mistake of laws, or where there
is both a mistake of fact and a mistake of law. (40
Am. Jur. 846)
In the instant case, HP, believing that the original
return was not successfully processed and paid,
made a mistake of filing an amended return a few
minutes later, which was also successfully processed
and paid. Such payment is held to be not voluntary
and, therefore, can be recovered.
12. UNITED COCONUT PLANTERS BANK V.
COMMISSIONER OF INTERNAL REVENUE
(CTA Case No. 7259, August 06, 2009)
Is a Foreign Currency Deposit Unit (FCDU) of a
bank liable for Gross Receipts Tax (GRT)?
-------------------------------------------------------------
14
On June 9, 2004, UCPB received a Formal Letter of
Demand and Assessment Notice for deficiency
Gross Receipts Tax on all its FCDUs for taxable year
2000 in the amount of P112,280,954.88.
Petitioner argues that its FCDU transactions are
exempt from Gross Receipts Tax based on existing
law and jurisprudence.
The Court found petitioner’s argument to be
untenable.
The Court already declared that the phrase “exempt
from all taxes” previously exempting FCDU from all
taxes under Section 27 (D)(3) of the NIRC has been
deleted thereby now subjecting such FCDU to GRT.
Section 27(D)(3) amended the provision of Section
24 (e)(3) and deleted the ‘exempt from all taxes’
phrase. The implication therefore of the amendment is
that onshore income is now subject to 2 distinct forms of
taxes: one, on income derived therefrom which is subject
to a final tax of 10% under Section 27 (D) (3) and two,
on gross receipts on the privilege of banks to earn
income in all its other activities mentioned therein.13
Further, RR 10-98 implementing said section of the
1997 NIRC categorically states that income derived
by an FCDU is now subject to a final withholding
tax of 10% based on its gross income.
On the issue of prescription, UCPB is claiming that
respondent’s assessment dated June 2004 for its
taxable year 2000 tax liability has already prescribed
since Section 203 of the NIRC provides only for 3
years to assess taxpayers from the date of filing, or
the last day of filing, whichever is later.
Records show that petitioner paid on April 5, 2000;
July 25, 2000; October 25, 2000 and January 25, 2001.
Hence, 3 years from such payments have already
prescribed on June 9, 2004, the date of respondent’s
assessment.
13
Final decision dated March 2, 2004 of Commissioner on
disputed assessment if gross receipts tax in the matter of
protest of the Export and Industry Bank.

The court said that UCPB’s position would have
been correct had they filed the correct returns on
such dates. However, no return for the GRT was
filed at all, exactly on the belief that it is exempt
from it. Section 222 of the NIRC provides, as
exception to Sec. 203, a longer period of 10 years to
assess taxpayers who omit to file a return.
Moreover, even though UCPB declared in its filed
Return the tax payments for its income attributable
to its regular banking functions, it failed, much less
pay, its GRT liabilities. Such omission in the said
Return, is tantamount to non-filing. After all, FCDU
and the bank’s regular banking unit should be
treated separate and that the income of one is not
the income of the other.
The assessment of respondent, therefore, is not time
barred.
On the issue of penalty, the court found that the
imposition of 25% surcharge is proper as provided
by Section 248 (A) (1) of the NIRC for failure to file
any return on the date prescribed.
As to the imposition of the compromise penalty,
however, the court found it to be improper since
that is imposed only in criminal prosecutions for
violations committed by taxpayers the payment of
which is based on a compromise agreement validly
entered into between the taxpayer and the CIR.
Thus, absent any showing that petitioner consented,
its imposition cannot be allowed.
13. PHILIPPINE AIRLINES, INC. (PAL) V.
COMMISSIONER OF INTERNAL REVENUE.
(CTA Case No. 7840, August 27, 2009)
Did the incorporation of the 2% Minimum
Corporate Income Tax (MCIT) in the 1997 NIRC
amend PAL’s franchise which subjects them only to
15
the ‘basic corporate income tax based on annual net
taxable income or the 2% franchise tax based on
gross revenue, whichever is lower, in lieu of all
taxes’?
-------------------------------------------------------------
On July 15, 2005, PAL filed its ITR for fiscal year
ending March 15, 2005 showing a zero taxable
income with unused creditable withholding taxes.
The BIR, issued an LOA for examination of the
books of accounts of PAL and accounting records
for all internal revenue liabilities for the year ending
March 31, 2005. PAL complied and also submitted
photocopied documents in reply to a request by the
Chief of Large Taxpayers Service (LTS) Division.
Thereafter, PAL received a Preliminary Assessment
Notice (PAN) from LTS informing them that there is
MCIT due to them in the amount of P98,809,379.45.
PAL timely filed a written protest stating that under
their franchise P.D. 1590, it is liable only for the basic
corporate income tax based on annual net taxable
income, or the 2% franchise tax based on gross
revenue, whichever is lower, in lieu of all other
taxes, duties, royalties, registration, license, and
other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed,
or collected by any municipal, city, provincial, or
national authority or government agency, now or in
the future.
Subsequently, a Formal Assessment Notice (FAN)
was issued against PAL. PAL filed a formal protest
which was unacted, hence, it filed a Petition for
Review with the CTA.
The BIR, through its LTS Division, argued that
although PAL was previously not covered by the
normal income tax rate, the advent of the NIRC of
1997 changed this and subjected PAL to the normal
income tax rate for corporations, same with all
franchise grantees. The previous preferential tax
enjoyed by PAL must give way to the NIRC’s
provision on Section 27 (E), as implemented by
Revenue Regulation (RR) No. 9-9, which states that a
corporation, beginning on the 4th taxable year from
its operations , shall be imposed the 2% MCIT upon
its gross income whenever the MCIT is greater than
the normal income tax due, or whenever a
corporation has zero or negative taxable income.
The BIR interprets the phrase in PAL’s franchise of
“normal income tax or 2% franchise tax” to mean
that the normal income tax is either the 30% on its
net income or the MCIT of 2% on its gross income.
Hence, PAL should pay its taxes whichever is lower
from the normal rate of 30% or 2% franchise tax; OR
2% MCIT or 2% franchise tax.
PAL, on the other hand, clings to the “in lieu of
other taxes” provision in their charter. It alleged that
it has zero tax liability since its zero taxable income
means zero corporate income tax due, which is
definitely lower than 2% franchise tax.
The sole issue in this case is whether PAL is liable to
the MCIT.
The court answers in the negative.
Verba Legis
Under the verbal legis rule, if the statute is clear,
plain, and free form ambiguity, it must be given its
literal meaning and applied without interpretation.
This principle rests on the presumption that the
words used by the legislature in a statute correctly
express its intent and preclude the court from
construing it differently.14
P.D. 1590 is very clear. PAL is liable to pay either: a)
its basic corporate income tax, or b) franchise tax of
2%, whichever is lower. And this shall be ”in lieu of
all other taxes”. The language used in Section 13 of
such P.D granting tax exemption is clearly all-
inclusive.15
14
PAGCOR v. PEJI Zamboanga City SEZA. G.R. 1773333,
April 24, 2009.
15
CIR v. PAL. G.R. 180043, July 14 , 2009.
16
Basic Corporate Income tax does not refer to MCIT
The provision of Section 27 of the NIRC reads “basic
corporate income tax based on the grantee’s annual
net taxable income”. “Taxable income” does not
include passive income subjected to withholding
taxes. Clearly, the basic corporate income tax of
PAL’s franchise relates to the general rate of 35%.
Noteworthy also is the last paragraph of Section 13
of PAL’s franchise which allows carry over as a
deduction from taxable income any net loss incurred
in any year up to 5 years following the year of such
loss. Said provision presupposes the possibility of a
net loss which conversely, the MCIT wishes to
substitute. To make PAL liable for MCIT because of
its net loss negates the intention of the lawmakers to
grant petitioner the option to choose the kind of tax
that will make it liable for the least amount.
Special v. General
Furthermore, Section 27 (E) of the NIRC did not
repeal PAL’s franchise since the 1997 NIRC is a
general law whereas P.D. 1590 is a special law.
Legislative Intent
Notably, PAL was owned and operated by the
government at the time its franchise was last
amended. It can be reasonably contemplated that
P.D. 1590 sought to assist the finances of the
government corporation in the form of lower taxes.
In the event that PAL incurs a loss, it shall have zero
liability for basic corporate income tax, the lowest
possible tax liability. There being no qualification to
the exercise of its option under Section 13.
Determining whether this tax exemption is wise or
advantageous is outside the realm of judicial power.
This matter is addressed to the sound discretion of
the lawmaking department of the government.

14. COMMISSIONER OF INTERNAL REVENUE
V. CHUAYUCO STEEL MANUFACTURING
CORPORATION (CTA EB Case No. 458 [CTA Case
No. 6642], August 04, 2009)
Can an allegation of fraud by the CIR prosper when
it waived the right to present evidence?
-------------------------------------------------------------
Respondent corporation filed its Corporate Annual
Income Tax Returns for taxable years 1996 and 1997
on April 15, 1997 and April 15, 1998 respectively.
In 1998, a Revalidated Letter of Authority was
issued by the BIR, thus respondent’s records were
examined. For taxable year 1996, however, the BIR
Tax Fraud Unit conducted an investigation.
In 2000, respondent received a Preliminary
Assessment Notice (PAN), and a Final Assessment
Notice (FAN) on June 11, 2002, for deficiency
income, value-added, and withholding tax
assessments in the amount of P263,691,141.64.
Respondent timely protested the assessment and
filed a Petition for Review with the CTA premised
on the prescribed right of the CIR to assess him
The CIR’s answer to this is that their right has not
yet prescribed since the 3 year period provided in
Section 203 of the NIRC is inapplicable, instead,
what is pertinent is Section 222 which provides for
10 years to assess in case of fraud, falsity or
omission. The CIR insist that in this case, there was
fraud on the part of respondent since the
discrepancy of the amount is so huge.
On April 9, 2008, respondent corporation manifested
that it has availed of the tax amnesty under R.A.
9480, and moved for the partial withdrawal of the
Petition for Review.
17
With the amnesty, only the assessment for expanded
withholding tax (EWT) remain, considering that it is
not covered by R.A 9480, in the amount of
P357,468.71, inclusive of 50% surcharge and 20%
interest.
Petitioner CIR’s counsel waived his right to present
evidence.
The CTA in Division (CTA Div.) agreed with the
respondent and cancelled this remaining assessment
on the ground of prescription.
Petitioner CIR is thus appealing such ruling insisting
that the 10 year period should govern in this case
since there was fraud on the part of respondent.
The CTA En Banc denied petitioner’s petition and
hereby affirmed the Division’s cancellation of the
remaining assessment on the ground of prescription.
The court explained that the CTA Div. ruled out the
existence of fraud for failure of petitioner to prove
such allegation. It was found that there was no
failure to collect and remit withholding taxes as
respondent corporation has satisfactorily proven its
withholding and remittance of the correct
withholding taxes by presenting its Monthly
Remittance Return of Income Taxes Withheld and
Annual Information Return of Income Taxes
Withheld Compensation, Expanded and Final
Withholding Taxes.
Records also show that as a result of its
investigation, the Tax Fraud Division has
reconsidered some points in respondent’s protest
and one of these is the cancellation of the 1996
assessment for withholding tax deficiencies.
Furthermore, fraud was not proven by CIR. In fact,
he did not present evidence before the Court in
Division to prove his allegations, and consequently
waived his right to present his evidence. Well settled
is the rule that fraud cannot be presumed and it must be
established by clear and sufficient evidence.16

Consequently, only the 3 year period to assess based

on Section 203 of the NIRC is applicable in this case.
Applying thus, the CIR’s right to assess respondent
has therefore prescribed.

As to CIR’s reliance on Sections 251 and 281 of the

NIRC, Sec. 251 which provides for penalty for
withholding agents who fail to collect and remit tax
is applicable only after a finding of such failure and
conviction, which are both wanting in this case.
While Section, 281 which provides for a prescription
of 5 years for violation of any provision of the tax
code, refers to the prescription of crimes. It bears
stressing that CIR never filed a criminal case against
respondent. Hence, both provisions are not
applicable in the instant case.

16
Heng Tong Textile, Co. V. CIR. G.R. No. L-19737,
August 26, 1968.
18