You are on page 1of 7

Taxation Case Digest_June 15, 2016

1 CIR v. BPI, 521 SCRA 373

Two notices of assessment dated October 28, 1988, on the deficient percentage and documentary stamp taxes were given to
respondent. Both notices contain demand by petitioner for payment. However, the counsel for petitioner did not treat them as valid
assessments, replying thereto through a letter, contending that the taxpayer was not informed, even in the vaguest terms, why it is being
assessed a deficiency.
A letter dated May 8, 1991 was sent to respondent where petitioner obliged itself to explain the basis of the assessments. From which,
respondent requested a reconsideration of the assessments.

Is the assessment of petitioner in 1988, valid?

Yes. In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270 prior to its amendment by RA
8424 (also known as the Tax Reform Act of 1997). Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to notify or inform the taxpayer of his findings. Nothing in the old law required a written statement to the taxpayer of
the law and facts on which the assessments were based.
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. Petition is granted.

2 CIR v. Pineda, 21 SCRA 105

Respondent Manuel Pineda received his share in the estate proceedings of his father. Thereafter, the Bureau of Internal Revenue
investigated on the income tax liability of the estate from which found unfiled income tax returns for 1945 to 1948. Respondent contested the
assessment only up to that of his share as heir.
The Court of Tax Appeals (CTA) held respondent liable for the payment of 1945 and 1946 income tax due, 1947 having held to have
prescribed, corresponding only to his share as heir. However, petitioner proposed to held the latter liable to pay for all unpaid due income taxes.

Can petitioner compel respondent to pay for the entire amount of the income tax due?

Yes. The Government has a lien on the P2,500.00 received by respondent from the estate as his share in the inheritance, for unpaid
income taxes for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code. After payment, Pineda will have a
right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.
Also, the Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the
most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code mentioned, because taxes are the
lifeblood of government and their prompt and certain availability is an imperious need.

3 Vera v. Fernandez, 89 SCRA 199

Sometime in 1969, petitioners herein filed a motion for Allowance of Claim and for an Order of Payment of Taxes against the Estate of
the late Luis D. Tongoy, for deficiency income taxes for the years 1963 and 1964. The administrator of the estate opposed the motion on the
ground that the claim was barred under Section 5, Rule 86 of the Rules of Court. The public respondent granted the opposition.

Is the motion filed by petitioners already barred by Section 5, Rule 86 of the Rules of Court?

No. The aforementioned provisions makes no mention of claims for monetary obligation of the decedent created by law, such as taxes
which is entirely of different character from the claims expressly enumerated therein. The reason for the more liberal treatment of claims for
taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious need.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section 2, Rule 86 of the Rules of Court,
the claim in question may be filed even after the expiration of the time originally fixed therein, as may be gleaned from the italicized portion of
the Rule.

4 CIR v. CTA, 234 SCRA 348

Private respondent Citytrust Banking Corporation allegedly has a refund on its tax payments, and filed a petition to that effect with
public respondent. The case was submitted for decision based solely on the pleadings and evidence submitted by private respondent. Herein

Taxation Case Digest_June 15, 2016

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.
The claim for refund was affirmed by the respondent courts (CTA and CA). At the CTA level, the reconsideration of petitioner, included
for the first time the outstanding unpaid deficiency income taxes of private respondent, which was however, denied admission to avoid
multiplicity of motions.

Will the claim for refund of private respondent be granted?

The case is remanded to respondent court CTA for further proceedings and appropriate action, more particularly, the reception of
evidence for petitioner.
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
Further, 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.

5 CIR v. Algue, 158 SCRA 9

Petitioner disallowed the P75,000.00 deduction claimed by private respondent as legitimate business expenses in its income tax
returns. It contends that the disallowed deduction is proper because it was not an ordinary reasonable or necessary business expense. Said
deduction is “Promotional Expense” which was deducted from its gross income.

Is the deduction for “Promotional Expense” valid?

Yes. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by
the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new
business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities,
every person who is able to must contribute his share in the running of the government.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed procedure.

6 CIR v. YMCA, 298 SCRA 83

Private respondent Young Men’s Christian Association of the Philippines, Inc. (YMCA) is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and
charitable objectives. It earned, among others, an income from leasing out a portion of its premises to small shop owners, like restaurants and
canteen operators, and from parking fees collected from non-members.
Petitioner issued an assessment for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages, including surcharge and interest. For its protest, it contends that the income from leasing and parking fees
were reasonably incidental to and necessary for the accomplishment of its objectives.

Are the incomes from leasing and parking fees of YMCA exempt from tax?

No. The last paragraph then Section 27 of the NIRC mandates that the income of exempt organizations (such as the YMCA) from any
of their properties, real or personal, be subject to the tax imposed by the same Code. Said section unequivocally subjects to tax the rent income
of the YMCA from its real property.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax
exemptions. Further, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it
is based.

Taxation Case Digest_June 15, 2016

7 Davao Gulf Lumber Corp. v. CIR, 293 S 77

Petitioner filed before respondent court a claim for refund in the amount representing 25% of the specific taxes actually paid on the
fuels and oils that it used in its operations. Petitioner asserts that equity and justice demands that the refund should be based on the increased
rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent on the other hand, contends
that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435. Said act entitles miners and forest concessionaires to
the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user in the purchase price of the oil

Is petitioner entitled to a refund based on increased rates of taxes?

No. According to the eminent authority on taxation, “there is no tax exemption solely on the ground of equity.” Thus, the tax refund
should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated
in the language of the law; it cannot be merely implied therefrom.

8 Marcos II v. CA, 273 S 47

The Marcos family was assessed by the BIR. Notices were constructively served which were not protested administratively by Mrs.
Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed.
Herein petitioner contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and
settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated.

Is the contention of petitioner correct?

No. The deficiency income tax assessments and estate tax assessment are already final and unappealable. The subsequent levy of
real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the NIRC. This summary tax remedy is
distinct and separate from the other tax remedies, and is not affected or precluded by the pendency of any other tax remedies instituted by the
The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the
collection of estate taxes. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize
the executor or judicial administrator of the decedent’s estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner’s
contention that it is the probate court which approves the assessment and collection of the estate tax.

9 Reyes v. Almanzor, 196 SCRA 322

Petitioners leased out their land for a monthly rental not exceeding P300. In 1971, the Rental Freezing Law was passed prohibiting for
one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), thus,
the Reyeses were precluded from raising the rents. The subject properties were reclassified and reassessed based on the schedule of market
values which entailed an increase in the corresponding tax rates. This made petitioners filed a protest contending that the taxes imposed upon
them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which the City Assessor adapted.

Is the approach on tax assessment used by the City Assessor reasonable?

No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government’s
act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions
not being different both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Law (then RA 6359 and
PD 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their properties.

Taxation Case Digest_June 15, 2016

10 PB Com v. CIR, 302 SCRA 250

Petitioner filed its first and second quarter income tax returns and paid thereto income tax for P5.2M in 1985. At the end of the year it
suffered losses, thus, reported a net loss in its Annual Income Tax Returns for the year ended December 31, 1986 which declared no tax
payable. For filing beyond the prescriptive period a petition for tax credit and refund the same was denied by respondent CTA. Petitioner argued
that the Revenue Circular No. 7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by the two-year prescriptive
period mandated under the Tax Code.

Is the contention of petitioner correct?

No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that “taxes are the lifeblood of the nation.” The primary purpose is to generate funds for the State to finance the
needs of the citizenry and to advance the common weal.
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

11 Phil. Guaranty v. CIR, 13 SCRA 775

Petitioner, a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in
the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The
premiums paid by such companies were excluded by the petitioner from its gross income when it files its income tax returns and did not withhold
or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the
latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources
within the Philippines because the foreign reinsurers did not engage in business in the Philippines.

Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies?

No. the power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the
State’s sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State’s territory, and facilities
and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by
the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.
The petitioners defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may
free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would
not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its

12 Philex Mining Corp. v. CIR, 294 SCRA 687

Petitioner was ordered to pay the amount of P110.7M as excise tax liability for the period from the 2 nd quarter of 1991 to the 2nd quarter
of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. It protested the demand
for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in
the amount of P120M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities.

Can there be an off-setting between the tax liabilities and claims of tax refund?

No. Petitioner’s claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance. Evidently, to countenance petitioner’s whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.

Taxation Case Digest_June 15, 2016

13 North Camarines Lumber Co. v. CIR, 109 Phil. 511

Seller petitioner and buyer General Lumber Co., agreed that the latter would pay the sales taxes. The CIR, upon consultation officially
advised the parties that the bureau interposes no objection so long as the tax due shall be covered by a surety. General Lumber complied but
failed, with the surety, to pay tax liabilities. Thus, respondent collector require petitioner to pay thru a letter dated August 30, 1955. Twice did
petitioner file reconsideration thereto before finally it appeal with the CTA, but was denied for being filed out of time.
Petitioner argued that in computing the 30-day period in perfecting the appeal the letter of the respondent collector dated January 30,
1956, denying the second request for reconsideration, should be considered as the final decision contemplated in Section 7, and not the letter of
demand dated August 30, 1955.

Is the contention of petitioner tenable?

No. We cannot countenance that theory that would make the commencement of the statutory 30-day period solely dependent on the
will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an
absurd procedure would be detrimental to the interest of the Government, for “taxes are the lifeblood of the government, and their prompt and
certain availability is an imperious need.”

14 Lutz v. Araneta, 98 Phil. 148

Section 3 of the CA 567 or the Sugar Adjustment Act providing for an increase of the existing tax on the manufacture of sugar, was
assailed as unconstitutional for not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry.
Therewith, plaintiff Lutz, as administrator of the estate of Ledesma, sought to recover from the CIR the sum of P14,666.40 paid as taxes under
the above provision.

Is CA 567 unconstitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit
of the general public but for the rehabilitation only of the sugar industry?

Yes. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine
within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed to
fully play, subject only to the test of reasonableness; and it is not contended that the means provided in the law bear no relation to the objective
pursued or are oppressive in character. If objectives and methods are alike constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state’s police power.

15 Gomez v. Palomar, 25 SCRA 827

Petitioner mailed a letter at the post office of Pampanga not bearing the special anti-TB stamp required by the RA 1635, thus, was later
returned to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp
law is violative of the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the
rest of the population and that even among postal patrons the statute discriminately grants exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp.

Is the Anti-TB Stamp Law unconstitutional?

No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has
aptly been described as “of wide range and flexibility.” Indeed, it is said that in the field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification. The reason for this is that traditionally, classification has been a device for fitting tax programs
to local needs and usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax
exemptions have never been thought of as raising revenues under the equal protection clause.

16 Punsalan v. Mun. Board of the City of Manila, 95 Phil. 46

Petitioners, who are professionals, assail Ordinance No. 3398 together with the law authorizing it. The ordinance imposes a municipal
occupation tax on persons exercising various professions in the city and penalizes non-payment of the same. The law authorizing said
ordinance empowers the Municipal Board of the City to impose a municipal occupation tax on persons enagaged on various professions.
Taxation Case Digest_June 15, 2016

Petitioners, having already paid their occupation tax under section 201 of the NIRC, paid the tax under protest as imposed by Ordinance No.
3398. The lower court declared the ordinance invalid and affirmed the validity of the law authorizing it.

Are the ordinance and law authorizing it constitute class legislation and further authorize what amounts to double taxation?

The legislature may, in its discretion, select what occupations shall be taxed, and in its discretion may tax all, or select classes of
occupation for taxation, and leave others untaxed. It is not for the courts to judge which cities or municipalities should be empowered to impose
occupation taxes aside from that imposed by the National Government. That matter is within the domain of political departments. The argument
against double taxation may not be invoked if one tax is imposed by the state and the other is imposed by the city. It is widely recognized that
there is nothing inherently terrible in the requirement that taxes be exacted with respect to the same occupation by both the state and the
political subdivisions thereof. Judgment of the lower court is reversed with regards to the ordinance and affirmed as to the law authorizing it.

17 Francia v. IAC, 162 SCRA 753

A portion of registered house and lot owned by petitioner was expropriated by the Republic of the Philippines in 1977. It appeared that
petitioner did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in public auction by the City Treasurer.

May the expropriation payment compensate for the real estate taxes due?

There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot
await the results of a lawsuit against the government. Internal revenue taxes cannot be the subject of compensation. The Government and the
taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.

18 Domingo v. Garlitos, 8 SCRA 443

In another case, the Supreme Court held as final and executor the order of the lower court for the payment of estate and inheritance
taxes, charges and penalties against the estate of late Walter Scott Price. The petition for execution, however, was denied by the lower court
arguing that it is unjustified as the Government itself is indebted to the Estate; and ordered the amount of inheritance taxes be deducted from
the Government’s indebtedness to the Estate.

Can the debt of the government to the subject estate be set-off against the tax liability of that estate?

The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has been recognized and an
amount have already been appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount.

19 Philex Mining Corp. v. CIR, 294 SCRA 687

Petitioner Philex Mining Corp. assails the decision of the CA affirming the CTA decision ordering it to pay the amount of P110.7M as
excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid
pursuant to Sections 248 and 249 of the tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for years 1989 to 1991 in the amount of P120M plus interest. Therefore, these
claims for tax credit/refund should be applied against the tax liabilities.

Can Philex be allowed compensation between tax liabilities and tax refund?
Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of
each other. There is a material distinction between a tax and a debt. Debts are due to the government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity.

Taxation Case Digest_June 15, 2016