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Tax 1 Case 1 PDF
Tax 1 Case 1 PDF
Eastern is a domestic corporation granted by Congress with a 8.[Eastern's] exempting clause under its
telecommunications franchise under Republic Act (RA) No. 7617 legislative franchise . . .
on June 25, 1992. Under its franchise, Eastern is allowed to should be understood or
install, operate, and maintain telecommunications system interpreted as written,
throughout the Philippines. meaning, the 3%
From July 1, 1995 to December 31, 1996, Eastern purchased franchise tax shall be
various imported equipment, machineries, and spare parts collected as substitute
necessary in carrying out its business activities. The importations for any internal revenue
were subjected to a 10% value-added tax (VAT) by the Bureau taxes . . . imposed on
of Customs, which was duly paid by Eastern. its franchise or gross
On September 19, 1997, Eastern filed with the CIR a written receipts/earnings
application for refund or credit of unapplied input taxes it paid on thereof . . . ;
the imported equipment during the taxable years 1995 and 1996
amounting to P22,013,134.00. In claiming for the tax refund,
Eastern principally relied on Sec. 10 of RA No. 7617, which
allows Eastern to pay 3% of its gross receipts in lieu of all taxes
on this franchise or earnings thereof. 5 In the alternative, 9.The [VAT] on importation under Section 101
Eastern cited Section 106 (B) of the National Internal Revenue of the [1977] Tax Code
Code of 1977 6 (Tax Code) which authorizes a VAT-registered is neither a tax on
taxpayer to claim for the issuance of a tax credit certificate or a franchise nor on gross
tax refund of input taxes paid on capital goods imported or receipts or earnings
purchased locally to the extent that such input taxes 7 have not thereof. It is a tax on
been applied against its output taxes. 8 ACIDSc the privilege of
To toll the running of the two-year prescriptive period under the importing goods
same provision, Eastern filed an appeal with the CTA on whether or not the
September 25, 1997 without waiting for the CIR's decision on its taxpayer is engaged in
business, and organic or statute law
regardless of whether and cannot be
the imported goods are permitted to exist upon
intended for sale, barter vague implication . . . ;
or exchange;
11.Tax refunds are in the nature of tax Ruling in favor of Eastern, the CTA found that Eastern has a valid
exemptions. As such, claim for the refund/credit of the unapplied input taxes, not on
they are regarded in the basis of the "in lieu of all taxes" provision of its legislative
derogation of sovereign franchise, 10 but rather, on Section 106 (B) of the Tax
authority and to be Code,which states:
construed in strictissimi SECTION 106.Refunds or tax credits of input tax. —
juris against the person xxx xxx xxx
or entity claiming the
exemption. The burden
is upon him who claims
the exemption in his
favour and he must be
able to justify his claim (b)Capital goods. — A VAT-registered person
by the clearest grant of may apply for the issuance of a
tax credit certificate or refund of
input taxes paid on capital goods The CIR filed, on August 3, 2000, a motion for reconsideration
imported or locally purchased, to 13 of the CTA's decision. About a month and a half later, it filed a
the extent that such input taxes supplemental motion for reconsideration dated September 15,
have not been applied against 2000. 14 The CTA denied the CIR's motion for reconsideration in
output taxes. The application may its resolution dated September 20, 2000. 15 The CIR then
be made only within two (2) years elevated the case to the CA through a petition for review under
after the close of the taxable Rule 43 of the Rules of Court. The CA affirmed the CTA ruling
quarter when the importation or through its decision dated October 1, 2003 16 and its resolution
purchase was made. 11 dated May 26, 2004, 17 denying the motion for reconsideration.
[Emphases supplied.] Hence, the present petition.
THE PETITIONER'S ARGUMENTS
| | | ( C o m m i s s i o n e r o f I n t e r n a l R e v e n u e v. E a s t e r n
Telecommunications Philippines, Inc., G.R. No. 163835, [July 7,
2010], 638 PHIL 334-352)
THE COMMISSIONER OF CUSTOMS and THE COLLECTOR OF Petition for review of a judgment of the
CUSTOMS, petitioners, vs. EASTERN SEA TRADING, respondent. Court of Tax Appeals reversing a decision of the
Solicitor General for petitioners. Commissioner of Customs.
Valentin C . Gutierrez for respondent.
SYLLABUS Respondent Eastern Sea Trading was the consignee of several
1. IMPORT AND EXPORT; CENTRAL BANK; AUTHORITY TO shipments of onion and garlic which arrived at the Port of Manila
REGULATE NO-DOLLAR IMPORTS. — The Central Bank has from August 25 to September 7, 1954. Some shipments came
authority to regulate no-dollar imports, because its broad powers from Japan and others from Hongkong. Inasmuch as none of the
under the charter, to maintain monetary stability and to preserve shipments had the certificate required by Central Bank Circulars
the international value of the currency, under section 2 of Nos. 44 and 45 for the release thereof, the goods thus imported
Republic Act No. 265, in relation to section 14 of said Act — were seized and subjected to forfeiture proceedings for alleged
authorizing the bank to issue such rules and regulations as it violations of section 1363 ( f ) of the Revised Administrative
may consider necessary for the effective discharge of the Code, in relation to the aforementioned circulars of the Central
responsibilities and the exercise of the power assigned to the Bank. In due course, the Collector of Customs of Manila
Monetary Board and to the Central Bank — connote the authority rendered a decision on September 4, 1956, declaring said goods
to regulate no-dollar imports, owing to the influence and effect forfeited to the Government and — the goods having been, in
that the same may and do have upon the stability of the peso the meantime, released to the consignees on surely bonds, filed
and its international value. by the same, as principal, and the Alto Surety & Insurance Co.,
2. ID.; ID.; ID.; ISSUANCE OF IMPORT LICENSES NOT VESTED Inc., as surety, in compliance with orders of the Court of First
EXCLUSIVELY UPON IMPORT CONTROL COMMISSION. — The Instance of Manila, in Civil Cases Nos. 23942 and 23852 thereof
authority to issue import licenses was not vested exclusively — directing that the amounts of said bonds be paid, by said
upon the Import Control Commission, because Executive Order principal and surety, jointly and severally, to the Bureau of
No. 328 provided for export or import licenses "from the Central Customs, within thirty (30) days from notice.
Bank of the Philippines or the Import Control Administration" or On appeal taken by the consignee, said decision was affirmed by
Commission. The latter was created only to perform the task of the Commissioner of Customs on December 27, 1956.
implementing certain objectives of the Monetary Board and the Subsequently, the consignee sought a review of the decision of
Central Bank, which otherwise had to be undertaken by these said two (2) officers by the Court of Tax Appeals, which reversed
(2) agencies. Upon the abolition of said Commission, the duty to the decision of the Commissioner of Customs and ordered that
provide means and ways for the accomplishment of said the aforementioned bonds be cancelled and withdrawn. Hence,
objectives had merely to be discharged directly by the Monetary the present petition of the Commissioner of Customs for review
Board and the Central Bank, even if the aforementioned of the decision of the Court of Tax Appeals.
Executive Order had been silent thereon. The latter is based upon the following premises, namely: that
3 . C O N S T I T U T I O N A L L AW; E X E C U T I V E A G R E E M E N TS ; the Central Bank has no authority to regulate transactions not
CONCURRENCE OF SENATE NOT REQUIRED. — While the involving foreign exchange; that the shipments in question are in
concurrence of the Senate is required by the Constitution in the the nature of "no-dollar" imports; that, as such, the
making of "treaties" (Constitution of the Philippines, Article VII, aforementioned shipments do not involve foreign exchange;
Section 10 [7], "executive agreements" may be validly entered that, insofar as a Central Bank license and a certificate
into without such concurrence. authorizing the importation or release of the goods under
DECISION consideration are required by Central Bank Circulars Nos. 44 and
CONCEPCION, J p: 45, the latter are null and void; and that the seizure and
forfeiture of the goods imported from Japan cannot be justified
under Executive Order No. 328, 1 not only because the same
seeks to implement an executive agreement 2 — extending the xxx xxx xxx
effectivity of our Trade 3 and Financial Agreements 4 with Japan
— which (executive agreement), it believed, is of dubious
validity, but, also because there is no governmental agency
authorized to issue the import license required by the
aforementioned executive order. ". . . the right of the Executive to enter into
The authority of the Central Bank to regulate no-dollar imports binding agreements without the
and the validity of the aforementioned Circulars Nos. 44 and 45 necessity of subsequent
have already been passed upon and repeatedly upheld by this Congressional approval has been
Court (Pascual vs. Commissioner of Customs, L-10979 [June 30, confirmed by long usage. From
1959]; Acting Commissioner of Customs vs. Leuterio, L-9142 the earliest days of our history we
[October 17, 1959]; Commissioner of Customs vs. Pascual, have entered into executive
L-9836 [November 18, 1959]; Commissioner of Customs vs. agreements covering such
Serree Investment Co., L-12007 [May 16, 1960]; Commissioner subjects as commercial and
of Customs vs. Serree Investment Co., L-14274 [November 29, consular relations, most-favored-
1960]), for the reason that the broad powers of the Central nation rights, patent rights,
Bank, under its charter, to maintain our monetary stability and trademark and copyright
to preserve the international value of our currency, under section protection, postal and navigation
2 of Republic Act No. 265, in relation to section 14 of said Act — arrangements and the settlement
authorizing the bank to issue such rules and regulations as it of claims. The validity of these has
may consider necessary for the effective discharge of the never been seriously questioned
responsibilities and the exercise of the powers assigned to the by our courts.
Monetary Board and to the Central Bank — connote the authority
to regulate no-dollar imports, owing to the influence and effect
that the same may and do have upon the stability of our peso
and its international value.
The Court of Tax Appeals entertained doubts on the legality of
the executive agreement sought to be implemented by Executive xxx xxx xxx
Order No. 328, owing to the fact that our Senate had not
concurred in the making of said executive agreement. The
concurrence of said House of Congress is required by our
fundamental law in the making of "treaties" (Constitution of the
Philippines, Article VII, Section 10[7]), which are, however, "Agreements with respect to the registration of
distinct and different from "executive agreements", which may trade-marks have been concluded
be validly entered into without such concurrence. by the Executive with various
"Treaties are formal documents which require countries under the Act of
ratification with the approval of Congress of March 3, 1881 (21
two-thirds of the Senate. Stat. 502). Postal conventions
Executive agreements become regulating the reciprocal
binding through executive action treatment of mail matters, money
without the need of a vote by the orders, parcel post, etc., have
Senate or by Congress. been concluded by the Post-
master General with various of a more or less temporary
countries under authorization by nature usually take the form of
Congress beginning with the Act executive agreements.
of February 20, 1792 (I Stat. 232,
239). Ten executive agreements
were concluded by the President
pursuant to the McKinley Tariff Act
of 1890 (26 Stat. 567, 612), and xxx xxx xxx
nine such agreements were
entered into under the Dingley
Tariff Act of 1897 (30 Stat. 151,
203, 214). A very much larger
number of agreements, along the
lines of the one with Rumania "Furthermore, the United States Supreme
previously referred to, providing Court has expressly recognized
for most-favored-nation treatment the validity and constitutionality of
in customs and related matters executive agreements entered
have been entered into since the into without Senate approval." (39
passage of the Tariff Act of 1922, Columbia Law Review, pp.
not by direction of the Act but in 753-754) (See, also, U.S. vs.
harmony with it. Curtis-Wright Export Corporation,
299 U.S. 304, 81 L. ed. 255; U.S.
vs. Belmont, 301 U.S. 324, 81 L.
ed. 1134; U.S. vs. Pink, 315 U.S.
203, 86 L. ed. 796; Ozanic vs.
U.S. 188 F. 2d. 288; Yale Law
xxx xxx xxx Journal, Vol. 15, pp. 1905-1906;
California Law Review, Vol. 25, pp.
670-675; Hyde on International
Law [Revised Edition], Vol. 2, pp.
1405, 1416-1418; Willoukhby on
"International agreements involving political the U.S. Constitutional Law, Vol. I
issues or changes of national [2d. ed.], pp. 537-540; Moore,
policy and those involving International Law Digest, Vol. V,
international arrangements of a pp. 210-218; Hackworth,
permanent character usually take International Law Digest, Vol. V,
the form of treaties. But pp. 390-407). (Emphasis
international agreements supplied.)
embodying adjustments of detail
carrying out well-established
national policies and traditions
and those involving arrangements
In this connection, Francis B. Sayre, former U. S. High approval of the Senate. They
Commissioner to the Philippines, said in his work on "The cover such subjects as the
Constitutionality of Trade Agreement Acts": inspection of vessels, navigation
"Agreements concluded by the President which dues, income tax on shipping
fall short of treaties are commonly profits, the admission of civil
referred to as executive aircraft, customs matters, and
agreements and are no less commercial relations generally,
common in our scheme of international claims, postal
government than are the more matters, the registration of trade-
formal instruments — treaties and marks and copyrights, etc. Some
conventions. They sometimes take of them were concluded not by
the form of exchanges of notes specific congressional
and at other times that of more authorization but in conformity
formal documents denominated with policies declared in acts of
'agreements' or 'protocols'. The Congress with respect to the
point where ordinary general subject matter, such as
correspondence between this and tariff acts; while still others,
other governments ends and particularly those with respect to
agreements — whether the settlement of claims against
denominated executive foreign governments, were
agreements or exchanges of notes concluded independently of any
or otherwise — begin, may legislation." (39 Columbia Law
sometimes be difficult of ready Review, pp. 651, 755.)
ascertainment. It would be
useless to undertake to discuss
here the large variety of executive
agreements as such, concluded
from time to time. Hundreds of
executive agreements, other than
those entered into under the
trade-agreements act, have been
negotiated with foreign
governments. . . . It would seem
to be sufficient, in order to show The validity of the executive agreement in question is thus
that the trade agreements under patent. In fact, the so-called Parity Rights provided for in the
the act of 1934 are not anomalous Ordinance Appended to our Constitution were, prior thereto, the
in character, that they are not subject of an executive agreement, made without the
treaties, and that they have concurrence of two-thirds (2/3) of the Senate of the United
abundant precedent in our history, States.
to refer to certain classes of Lastly, the lower court held that it would be unreasonable to
agreements heretofore entered require from respondent-appellee an import license when the
into by the Executive without the Import Control Commission was no longer in existence and,
hence, there was, said court believed, no agency authorized to
issue the aforementioned license. This conclusion is untenable,
for the authority to issue the aforementioned licenses was not
vested exclusively upon the Import Control Commission or
Administration. Executive Order No. 328 provided for export or
import licenses "from the Central Bank of the Philippines or the
Import Control Administration" or Commission. Indeed, the latter
was created only to perform the task of implementing certain
objectives of the Monetary Board and the Central Bank, which
otherwise had to be undertaken by these two (2) agencies. Upon
the abolition of said Commission, the duty to provide means and
ways for the accomplishment of said objectives had merely to be
discharged directly by the Monetary Board and the Central Bank,
even if the aforementioned Executive Order had been silent
thereon.
WHEREFORE, the decision appealed from is hereby reversed and
another one shall be entered affirming that of the Commissioner
of Customs, with costs against respondent-appellee, Eastern Sea
Trading. It is so ordered.
Bengzon, C . J ., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L.,
Paredes, Dizon and De Leon, JJ ., concur.
Barrera, J ., took no part.
||| (Commissioner of Customs v. Eastern Sea Trading, G.R. No.
L-14279, [October 31, 1961], 113 PHIL 333-340)
NATIONAL POWER CORPORATION, petitioner, vs. CITY OF interest and common good. The theory behind the exercise of
CABANATUAN, respondent. the power to tax emanates from necessity; without taxes,
The Solicitor General for petitioner. government cannot fulfill its mandate of promoting the general
Edgardo G. Villarin and Trese D. Wenceslao for respondent. welfare and well-being of the people.
SYNOPSIS 2. ID.; POWER TO TAX; LOCAL GOVERNMENT UNITS; ENJOY
Petitioner is a government owned and controlled corporation DIRECT AUTHORITY TO LEVY TAXES, FEES AND OTHER
created under Commonwealth Act No. 120, as amended. For CHARGES PURSUANT TO ARTICLE X, SECTION 5 OF THE
many years, petitioner sold electric power to the residents of CONSTITUTION; RATIONALE. — In recent years, the increasing
Cabanatuan City. Pursuant to a 1992 ordinance, the respondent social challenges of the times expanded the scope of state
assessed the petitioner a franchise tax. In refusing to pay the activity, and taxation has become a tool to realize social justice
tax assessment, petitioner argued that the respondent had no and the equitable distribution of wealth, economic progress and
authority to impose tax on government entities like itself and the protection of local industries as well as public welfare and
that it was a tax exempt entity by express provisions of law. similar objectives. Taxation assumes even greater significance
Hence, respondent filed a collection suit demanding payment of with the ratification of the 1987 Constitution. Thenceforth, the
the assessed tax due alleging that petitioner's exemption from power to tax is no longer vested exclusively on Congress; local
local taxes has been repealed. The trial court dismissed the case legislative bodies are now given direct authority to levy taxes,
and ruled that the tax exemption privileges granted to petitioner fees and other charges pursuant to Article X, Section 5 of the
still subsists. On appeal, the Court of Appeals reversed the trial 1987 Constitution, viz: "Section 5. — Each Local Government
court's order. Petitioner's motion for reconsideration was denied unit shall have the power to create its own sources of revenue,
by the appellate court. Hence, this petition for review filed before to levy taxes, fees and charges subject to such guidelines and
the Supreme Court. limitations as the Congress may provide, consistent with the
The Supreme Court denied this petition and affirmed the basic policy of local autonomy. Such taxes, fees and charges
decision of the Court of Appeals. According to the Court, one of shall accrue exclusively to the Local Governments." This
the most significant provisions of the Local Government Code paradigm shift results from the realization that genuine
(LGC)is the removal of the blanket exclusion of instrumentalities development can be achieved only by strengthening local
and agencies of the national government from the coverage of autonomy and promoting decentralization of governance. For a
local taxation. Although as a general rule, Local Government long time, the country's highly centralized government structure
Units (LGU) cannot impose taxes, fees or charges of any kind on has bred a culture of dependence among local government
the National Government, its agencies and instrumentalities, this leaders upon the national leadership. It has also "dampened the
rule now admits an exception, i.e., when specific provisions of spirit of initiative, innovation and imaginative resilience in
the LGC authorize the LGU to impose taxes, fees or charges on matters of local development on the part of local government
the aforementioned entities. In the case at bar, Section 151 in leaders." The only way to shatter this culture of dependence is to
relation to Section 137 of the LGC clearly authorized the give the LGUs a wider role in the delivery of basic services, and
respondent city government to impose on the petitioner the confer them sufficient powers to generate their own sources for
franchise tax in question. the purpose. To achieve this goal, Section 3 of Article X of the
SYLLABUS 1987 Constitution mandates Congress to enact a local
1. TAXATION; TAXES AS THE LIFEBLOOD OF THE GOVERNMENT; government code that will, consistent with the basic policy of
CONSTRUED. — Taxes are the lifeblood of the government, for local autonomy, set the guidelines and limitations to this grant of
without taxes, the government can neither exist nor endure. A taxing powers.
principal attribute of sovereignty, the exercise of taxing power 3. ID.; ID.; ID.; CANNOT IMPOSE TAXES, FEES OR CHARGES OF
derives its source from the very existence of the state whose ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND
social contract with its citizens obliges it to promote public INSTRUMENTALITIES AS A RULE; EXCEPTION. — Considered as
the most revolutionary piece of legislation on local autonomy, special or secondary franchises as are charged with a public use.
the LGC effectively deals with the fiscal constraints faced by ISDHcT
LGUs. It widens the tax base of LGUs to include taxes which 5. TAXATION; FRANCHISE TAX IMPOSED UNDER THE LOCAL
were prohibited by previous laws such as the imposition of taxes GOVERNMENT CODE; REQUISITES. — In Section 131 (m) of the
on forest products, forest concessionaires, mineral products, LGC,Congress unmistakably defined a franchise in the sense of a
mining operations, and the like. The LGC likewise provides secondary or special franchise. This is to avoid any confusion
enough flexibility to impose tax rates in accordance with their when the word franchise is used in the context of taxation. As
needs and capabilities. It does not prescribe graduated fixed commonly used, a franchise tax is "a tax on the privilege of
rates but merely specifies the minimum and maximum tax rates transacting business in the state and exercising corporate
and leaves the determination of the actual rates to the franchises granted by the state." It is not levied on the
respective sanggunian. One of the most significant provisions of corporation simply for existing as a corporation, upon its
the LGC is the removal of the blanket exclusion of property or its income, but on its exercise of the rights or
instrumentalities and agencies of the national government from privileges granted to it by the government. Hence, a corporation
the coverage of local taxation. Although as a general rule, LGUs need not pay franchise tax from the time it ceased to do
cannot impose taxes, fees or charges of any kind on the National business and exercise its franchise. It is within this context that
Government, its agencies and instrumentalities, this rule now the phrase "tax on businesses enjoying a franchise" in Section
admits an exception, i.e., when specific provisions of the LGC 137 of the LGC should be interpreted and understood. Verily, to
authorize the LGUs to impose taxes, fees or charges on the determine whether the petitioner is covered by the franchise tax
aforementioned entities, viz: "Section 133. Common Limitations in question, the following requisites should concur: (1) that
on the Taxing Powers of the Local Government Units — Unless petitioner has a "franchise" in the sense of a secondary or
otherwise provided herein, the exercise of the taxing powers of special franchise; and (2) that it is exercising its rights or
provinces, cities, municipalities, and barangays shall not extend privileges under this franchise within the territory of the
to the levy of the following: . . . (o) Taxes, fees, or charges of respondent city government. To stress, a franchise tax is
any kind on the National Government, its agencies and imposed based not on the ownership but on the exercise by the
instrumentalities, and local government units." corporation of a privilege to do business. The taxable entity is
4. MERCANTILE LAW; FRANCHISE; DEFINED AND CONSTRUED. the corporation which exercises the franchise, and not the
— In its general signification, a franchise is a privilege conferred individual stockholders.
by government authority, which does not belong to citizens of 6. ID.; TAX EXEMPTION; CONSTRUED STRONGLY AGAINST THE
the country generally as a matter of common right. In its specific CLAIMANT; APPLICATION IN CASE AT BAR. — As a rule, tax
sense, a franchise may refer to a general or primary franchise, exemptions are construed strongly against the claimant.
or to a special or secondary franchise. The former relates to the Exemptions must be shown to exist clearly and categorically, and
right to exist as a corporation, by virtue of duly approved articles supported by clear legal provisions. In the case at bar, the
of incorporation, or a charter pursuant to a special law creating petitioner's sole refuge is Section 13 of Rep. Act No. 6395
the corporation. The right under a primary or general franchise is exempting from, among others, "all income taxes, franchise
vested in the individuals who compose the corporation and not in taxes and realty taxes to be paid to the National Government, its
the corporation itself. On the other hand, the latter refers to the provinces, cities, municipalities and other government agencies
right or privileges conferred upon an existing corporation such as and instrumentalities." However, Section 193 of the LGC
the right to use the streets of a municipality to lay pipes of withdrew, subject to limited exceptions, the sweeping tax
tracks, erect poles or string wires. The rights under a secondary privileges previously enjoyed by private and public corporations.
or special franchise are vested in the corporation and may Contrary to the contention of petitioner, Section 193 of the LGC
ordinarily be conveyed or mortgaged under a general power is an express, albeit general, repeal of all statutes granting tax
granted to a corporation to dispose of its property, except such exemptions from local taxes. It reads: "Sec. 193. Withdrawal of
Tax Exemption Privileges. — Unless otherwise provided in this PUNO, J p:
Code, tax exemptions or incentives granted to, or presently This is a petition for review 1 of the Decision 2 and the
enjoyed by all persons, whether natural or juridical, including Resolution 3 of the Court of Appeals dated March 12, 2001 and
government-owned or controlled corporations, except local water July 10, 2001, respectively, finding petitioner National Power
districts, cooperatives duly registered under R.A. No. 6938, non- Corporation (NPC) liable to pay franchise tax to respondent City
stock and non-profit hospitals and educational institutions, are of Cabanatuan. CEDScA
hereby withdrawn upon the effectivity of this Code." It is a basic Petitioner is a government-owned and controlled corporation
precept of statutory construction that the express mention of created under Commonwealth Act No. 120, as amended. 4 It is
one person, thing, act, or consequence excludes all others as tasked to undertake the "development of hydroelectric
expressed in the familiar maxim expressio unius est exclusio generations of power and the production of electricity from
alterius. Not being a local water district, a cooperative registered nuclear, geothermal and other sources, as well as, the
under R.A. No. 6938, or a non-stock and non-profit hospital or transmission of electric power on a nationwide basis." 5
educational institution, petitioner clearly does not belong to the Concomitant to its mandated duty, petitioner has, among others,
exception. It is therefore incumbent upon the petitioner to point the power to construct, operate and maintain power plants,
to some provisions of the LGC that expressly grant it exemption auxiliary plants, power stations and substations for the purpose
from local taxes. of developing hydraulic power and supplying such power to the
inhabitants. 6
7. POLITICAL LAW; GOVERNMENT OWNED AND CONTROLLED For many years now, petitioner sells electric power to the
CORPORATION; CONSTRUED. — Section 2 of Pres. Decree No. residents of Cabanatuan City, posting a gross income of
2029 classifies government-owned or controlled corporations P107,814,187.96 in 1992. 7 Pursuant to Section 37 of Ordinance
(GOCCs) into those performing governmental functions and No. 165-92, 8 the respondent assessed the petitioner a franchise
those performing proprietary functions, viz: "A government- tax amounting to P808,606.41, representing 75% of 1% of the
owned or controlled corporation is a stock or a non-stock latter's gross receipts for the preceding year. 9
corporation, whether performing governmental or proprietary Petitioner, whose capital stock was subscribed and paid wholly by
functions, which is directly chartered by special law or if the Philippine Government, 10 refused to pay the tax
organized under the general corporation law is owned or assessment. It argued that the respondent has no authority to
controlled by the government directly, or indirectly through a impose tax on government entities. Petitioner also contended
parent corporation or subsidiary corporation, to the extent of at that as a non-profit organization, it is exempted from the
least a majority of its outstanding voting capital stock . . . ." payment of all forms of taxes, charges, duties or fees 11 in
G ove r n m e n t a l f u n c t i o n s a r e t h o s e p e r t a i n i n g t o t h e accordance with Sec. 13 of Rep. Act No. 6395, as amended, viz:
administration of government, and as such, are treated as Sec. 13. Non-profit Character of the
absolute obligation on the part of the state to perform while Corporation; Exemption from all
proprietary functions are those that are undertaken only by way Taxes, Duties, Fees, Imposts and
of advancing the general interest of society, and are merely Other Charges by Government
optional on the government. Included in the class of GOCCs and Governmental
performing proprietary functions are "business-like" entities such Instrumentalities. — The
as the National Steel Corporation (NSC), the National Corporation shall be non-profit
Development Corporation (NDC), the Social Security System and shall devote all its return from
(SSS), the Government Service Insurance System (GSIS), and its capital investment, as well as
the National Water Sewerage Authority (NAWASA), among excess revenues from its
others. operation, for expansion. To
DECISION enable the Corporation to pay its
indebtedness and obligations and (d) From all taxes, duties, fees, imposts, and
in furtherance and effective all other charges imposed by the
implementation of the policy Republic of the Philippines, its
enunciated in Section one of this provinces, cities, municipalities
Act, the Corporation is hereby and other government agencies
exempt: and instrumentalities, on all
petroleum products used by the
Corporation in the generation,
transmission, utilization, and sale
of electric power." 12
(a) From the payment of all taxes, duties, fees,
imposts, charges, costs and
service fees in any court or
administrative proceedings in
w h i c h i t m a y b e a p a r t y, The respondent filed a collection suit in the Regional Trial Court
restrictions and duties to the of Cabanatuan City, demanding that petitioner pay the assessed
Republic of the Philippines, its tax due, plus a surcharge equivalent to 25% of the amount of
provinces, cities, municipalities tax, and 2% monthly interest. 13 Respondent alleged that
and other government agencies petitioner's exemption from local taxes has been repealed by
and instrumentalities; Section 193 of Rep. Act No. 7160, 14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption
Privileges. — Unless otherwise
provided in this Code, tax
exemptions or incentives granted
(b) From all income taxes, franchise taxes and to, or presently enjoyed by all
realty taxes to be paid to the persons, whether natural or
National Government, its juridical, including government
provinces, cities, municipalities owned or controlled corporations,
and other government agencies except local water districts,
and instrumentalities; cooperatives duly registered under
R.A. No. 6938, non-stock and
non-profit hospitals and
educational institutions, are
h e r e b y w i t h d ra w n u p o n t h e
effectivity of this Code."
(c) From all import duties, compensating taxes
and advanced sales tax, and
wharfage fees on import of foreign
goods required for its operations
and projects; and
On January 25, 1996, the trial court issued an Order 15
dismissing the case. It ruled that the tax exemption privileges
granted to petitioner subsist despite the passage of Rep. Act No. to modify or repeal the earlier
7160 for the following reasons: (1) Rep. Act No. 6395 is a special law. Thus, despite the
particular law and it may not be repealed by Rep. Act No. 7160 passage of R.A. No. 7160 from
which is a general law; (2) Section 193 of Rep. Act No. 7160 is which the questioned Ordinance
in the nature of an implied repeal which is not favored; and (3) No. 165-92 was based, the tax
local governments have no power to tax instrumentalities of the exemption privileges of defendant
national government. Pertinent portion of the Order reads: NPC remain.
"The question of whether a particular law has
been repealed or not by a
subsequent law is a matter of
legislative intent. The lawmakers
may expressly repeal a law by Another point going against plaintiff in this
incorporating therein repealing case is the ruling of the Supreme
provisions which expressly and Court in the case of Basco vs.
specifically cite(s) the particular Philippine Amusement and
law or laws, and portions thereof, Gaming Corporation, 197 SCRA
that are intended to be repealed. 52, where it was held that:
A declaration in a statute, usually
in its repealing clause, that a
p a r t i c u l a r a n d s p e c i f i c l a w,
identified by its number or title is
repealed is an express repeal; all
others are implied repeal. Sec. 'Local governments have no power to tax
193 of R.A. No. 7160 is an implied instrumentalities of the
repealing clause because it fails to National Government.
identify the act or acts that are PAGCOR is a
intended to be repealed. It is a government owned or
well-settled rule of statutory controlled corporation
construction that repeals of with an original charter,
statutes by implication are not PD 1869. All of its
favored. The presumption is shares of stocks are
against inconsistency and owned by the National
repugnancy for the legislative is Government. . . . Being
presumed to know the existing an instrumentality of
laws on the subject and not to the government,
have enacted inconsistent or PAGCOR should be and
conflicting statutes. It is also a actually is exempt from
well-settled rule that, generally, local taxes. Otherwise,
general law does not repeal a its operation might be
special law unless it clearly burdened, impeded or
appears that the legislative has subjected to control by
intended by the latter general act mere local government.'
Like PAGCOR, NPC, being a government owned From the existing law and the rulings of the
and controlled corporation with an Supreme Court itself, it is very
original charter and its shares of clear that the plaintiff could not
stocks owned by the National impose the subject tax on the
Government, is beyond the taxing defendant." 16
power of the Local Government.
Corollary to this, it should be
noted here that in the NPC
Charter's declaration of Policy,
Congress declared that: '. . . (2) On appeal, the Court of Appeals reversed the trial court's Order
the total electrification of the 17 on the ground that Section 193, in relation to Sections 137
Philippines through the and 151 of the LGC,expressly withdrew the exemptions granted
development of power from all to the petitioner. 18 It ordered the petitioner to pay the
services to meet the needs of respondent city government the following: (a) the sum of
industrial development and P808,606.41 representing the franchise tax due based on gross
dispersal and needs of rural receipts for the year 1992, (b) the tax due every year thereafter
electrification are primary based in the gross receipts earned by NPC, (c) in all cases, to
objectives of the nations which pay a surcharge of 25% of the tax due and unpaid, and (d) the
shall be pursued coordinately and sum of P10,000.00 as litigation expense. 19
supported by all instrumentalities On April 4, 2001, the petitioner filed a Motion for
and agencies of the government, Reconsideration on the Court of Appeal's Decision. This was
including its financial denied by the appellate court, viz:
institutions.' (emphasis supplied).
To allow plaintiff to subject "The Court finds no merit in NPC's motion for
defendant to its tax-ordinance reconsideration. Its arguments
would be to impede the avowed reiterated therein that the taxing
goal of this government power of the province under Art.
instrumentality. 137 (sic) of the Local Government
Code refers merely to private
persons or corporations in which
category it (NPC) does not belong,
and that the LGC (RA 7160) which
Unlike the State, a city or municipality has no is a general law may not impliedly
inherent power of taxation. Its repeal the NPC Charter which is a
taxing power is limited to that special law — finds the answer in
which is provided for in its charter Section 193 of the LGC to the
or other statute. Any grant of effect that 'tax exemptions or
taxing power is to be construed incentives granted to, or presently
strictly, with doubts resolved enjoyed by all persons, whether
against its existence. natural or juridical, including
government-owned or controlled
corporations except local water
districts . . . are hereby EXEMPTION FROM ALL
withdrawn.' The repeal is direct FORMS OF TAXES HAS
and unequivocal, not implied. BEEN REPEALED BY THE
PROVISION OF THE
LOCAL GOVERNMENT
CODE AS THE
ENACTMENT OF A
I N V I E W W H E R E O F, t h e m o t i o n f o r LATER LEGISLATION,
reconsideration is hereby DENIED. WHICH IS A GENERAL
L A W, C A N N O T B E
CONSTRUED TO HAVE
REPEALED A SPECIAL
LAW.
SO ORDERED." 20
"Atty. Garces
"Judge Alvarez
"Q. And that the policy of Ayala Securities Respondent corporation was therefore fully shown to fall under
Corporation is Revenue Regulation No. 2 implementing the provisions of the
practically governed by income tax law which provides on holding and investment
the officers or partners companies that
of Ayala and Company? "SEC. 20. Holding and Investment Companies.
— A corporation having practically
n o a c t i v i t i e s e xc e p t h o l d i n g
property, and col l ecti ng the
income therefrom or investing
therein shall be considered a
"A. They have a strong influence over the h o l d i n g c o m p a ny w i t h i n t h e
policy of Ayala meaning of section 25."
Securities Corporation.
SO ORDERED. 16
Petitioners, likewise, pray the Court to direct
respondents to cease and desist
from implementing Section 21 of
the questioned Ordinance. That
The petitioners appealed to the CA. 17
Ruling of the CA "Sec. 2. Dismissal of improper appeal to the
On June 18, 2007, the CA denied the petitioners' appeal, ruling Court of Appeals. — An
as follows: IDSaEA appeal under Rule 41
The six (6) cases were consolidated on a taken from the Regional
common question of fact and law, Trial Court to the Court
that is, whether the act of the City of Appeals raising only
Treasurer of Manila of assessing questions of law shall be
and collecting business taxes dismissed, issues purely
under Section 21 of Ordinance of law not being
7807, on top of other business reviewable by said
taxes also assessed and collected c o u r t . S i m i l a r l y, a n
under the previous sections of the appeal by notice of
same ordinance is a violation of appeal instead of by
the provisions of Section 143 of petition for review from
the Local Government Code. the appellate judgment
of a Regional Trial Court
shall be dismissed.
B.
The main issues for resolution are, therefore, (1) whether or not
the CA properly denied due course to the appeal for raising pure
questions of law; and (2) whether or not the petitioners were
entitled to the tax credit or tax refund for the taxes paid under
Section 21, supra.
THE COURT OF APPEALS ERRED IN NOT
Ruling
REVERSING THE DECISION OF
The appeal is meritorious. DSATCI
BRANCH 19 OF THE REGIONAL
1.
TRIAL COURT OF MANILA DATED
The CA did not err in dismissing the appeal;
26 APRIL 2002 DENYING
but the rules should be liberally applied
P E T I T I O N E R S ' P R AY E R F O R
for the sake of justice and equity
REFUND OF THE AMOUNTS PAID
The Rules of Court provides three modes of appeal from the
BY THEM UNDER PROTEST AND
decisions and final orders of the RTC, namely: (1) ordinary
DISMISSING THE PETITION FOR
appeal or appeal by writ of error under Rule 41, where the
CERTIORARI FILED BY THE
decisions and final orders were rendered in civil or criminal
PETITIONERS.
actions by the RTC in the exercise of original jurisdiction; (2)
petition for review under Rule 42, where the decisions and final
orders were rendered by the RTC in the exercise of appellate from the appellant's brief submitted to the appellate court. 27 In
jurisdiction; and (3) petition for review on certiorari to the this case, the petitioners filed a notice of appeal in which they
Supreme Court under Rule 45. 21 The first mode of appeal is contended that the April 26, 2002 decision and the order of July
taken to the CA on questions of fact, or mixed questions of fact 17, 2002 issued by the RTC denying their consolidated motion
and law. The second mode of appeal is brought to the CA on for reconsideration were contrary to the facts and law obtaining
questions of fact, of law, or mixed questions of fact and law. 22 in the consolidated cases. 28 In their consolidated memorandum
The third mode of appeal is elevated to the Supreme Court only filed in the CA, they essentially assailed the RTC's ruling that the
on questions of law. 23 taxes imposed on and collected from the petitioners under
The distinction between a question of law and a question of fact Section 21 of the Revenue Code of Manila constituted double
is well established. On the one hand, a question of law arises taxation in the strict, narrow or obnoxious sense. Considered
when there is doubt as to what the law is on a certain state of together, therefore, the notice of appeal and consolidated
facts; on the other, there is a question of fact when the doubt memorandum evidently did not raise issues that required the re-
arises as to the truth or falsity of the alleged facts. 24 According evaluation of evidence or the relevance of surrounding
to Leoncio v. De Vera: 25 circumstances.
. . . For a question to be one of law, the same The CA rightly concluded that the petitioners thereby raised only
must not involve an examination a question of law. The dismissal of their appeal was proper,
of the probative value of the strictly speaking, because Section 2, Rule 50 of the Rules of
evidence presented by the Court provides that an appeal from the RTC to the CA raising
litigants or any of them. The only questions of law shall be dismissed; and that an appeal
resolution of the issue must rest erroneously taken to the CA shall be outrightly dismissed. 29
solely on what the law provides on 2.
the given set of circumstances. Collection of taxes pursuant to Section 21 of the
Once it is clear that the issue Revenue Code of Manila constituted double taxation
invites a review of the evidence
presented, the question posed is The foregoing notwithstanding, the Court, given the
one of fact. Thus, the test of circumstances obtaining herein and in light of jurisprudence
whether a question is one of law promulgated subsequent to the filing of the petition, deems it
or of fact is not the appellation fitting and proper to adopt a liberal approach in order to render a
given to such question by the just and speedy disposition of the substantive issue at hand.
party raising the same; rather, it Hence, we resolve, bearing in mind the following pronouncement
is whether the appellate court can in Go v. Chaves: 30 ESaITA
determine the issue raised without Our rules of procedure are designed to
r e v i e w i n g o r e va l u a t i n g t h e facilitate the orderly disposition of
evidence, in which case, it is a cases and permit the prompt
question of law; otherwise it is a disposition of unmeritorious cases
question of fact. 26 which clog the court dockets and
do little more than waste the
courts' time. These technical and
procedural rules, however, are
intended to ensure, rather than
The nature of the issues to be raised on appeal can be gleaned suppress, substantial justice. A
from the appellant's notice of appeal filed in the trial court, and deviation from their rigid
enforcement may thus be allowed, Government Code, 33 the law that vested in the municipal and
as petitioners should be given the city governments the power to impose business taxes.
fullest opportunity to establish the The respondents counter, however, that double taxation did not
merits of their case, rather than occur from the imposition and collection of the tax pursuant to
lose their property on mere Section 21 of the Revenue Code of Manila; 34 that the taxes
technicalities. We held in Ong Lim imposed pursuant to Section 21 were in the concept of indirect
Sing, Jr. v. FEB Leasing and taxes upon the consumers of the goods and services sold by a
Finance Corporation that: business establishment; 35 and that the petitioners did not
exhaust their administrative remedies by first appealing to the
Secretary of Justice to challenge the constitutionality or legality
of the tax ordinance. 36
In resolving the issue of double taxation involving Section 21 of
Courts have the prerogative to relax procedural the Revenue Code of Manila, the Court is mindful of the ruling in
rules of even the most City of Manila v. Coca-Cola Bottlers Philippines, Inc., 37 which
mandatory character, has been reiterated in Swedish Match Philippines, Inc. v. The
mindful of the duty to Treasurer of the City of Manila. 38 In the latter, the Court has
reconcile both the need held:
to speedily put an end . . . [T]he issue of double taxation is not novel,
to litigation and the as it has already been settled by
parties' right to due this Court in The City of Manila v.
process. In numerous Coca-Cola Bottlers Philippines,
cases, this Court has Inc., in this wise:
allowed liberal
construction of the rules
when to do so would
serve the demands of
substantial justice and Petitioners obstinately ignore the exempting
equity. proviso in Section 21 of
Ta x O r d i n a n c e N o .
7794, to their own
detriment. Said
exempting proviso was
The petitioners point out that although Section 21 of the precisely included in
Revenue Code of Manila was not itself unconstitutional or invalid, said section so as to
its enforcement against the petitioners constituted double avoid double taxation.
taxation because the local business taxes under Section 15 and
Section 17 of the Revenue Code of Manila were already being
paid by them. 31 They contend that the proviso in Section 21
exempted all registered businesses in the City of Manila from
paying the tax imposed under Section 21; 32 and that the Double taxation means taxing the same
exemption was more in accord with Section 143 of the Local property twice when it
should be taxed only city revenues; (3) by
once; that is, "taxing the same taxing
the same person twice authority — petitioner
by the same jurisdiction City of Manila; (4)
for the same thing." It within the same taxing
is obnoxious when the jurisdiction — within the
taxpayer is taxed twice, territorial jurisdiction of
when it should be but the City of Manila; (5)
once. Otherwise for the same taxing
described as "direct periods — per calendar
duplicate taxation," the year; and (6) of the
two taxes must be same kind or character
imposed on the same — a local business tax
subject matter, for the imposed on gross sales
same purpose, by the or receipts of the
same taxing authority, business.
within the same
jurisdiction, during the
same taxing period; and
the taxes must be of the
same kind or character. The distinction petitioners attempt to make
between the taxes
under Sections 14 and
21 of Tax Ordinance No.
7794 is specious. The
Using the aforementioned test, the Court finds Court revisits Section
that there is indeed 143 of the LGC,the very
double taxation if source of the power of
respondent is subjected municipalities and cities
to the taxes under both to impose a local
Sections 14 and 21 of business tax, and to
Ta x O r d i n a n c e N o . which any local business
7794, since these are tax imposed by
being imposed: (1) on petitioner City of Manila
the same subject matter must conform. It is
— the privilege of doing apparent from a perusal
business in the City of thereof that when a
Manila; (2) for the same municipality or city has
purpose — to make already imposed a
persons conducting business tax on
business within the City manufacturers, etc. of
of Manila contribute to liquors, distilled spirits,
wines, and any other considering that it had already
article of commerce, been paying local business tax
pursuant to Section under Section 14 of the same
143(a) of the LGC,said ordinance.
municipality or city may
no longer subject the
same manufacturers,
etc. to a business tax
under Section 143(h) of xxx xxx xxx
the same Code. Section
143(h) may be imposed
only on businesses that
are subject to excise
tax, VAT, or percentage
tax under the NIRC, and Accordingly, respondent's assessment under
that are "not otherwise both Sections 14 and 21 had no
specified in preceding basis. Petitioner is indeed liable to
p a ra g ra p h s . " I n t h e pay business taxes to the City of
same way, businesses Manila; nevertheless, considering
such as respondent's, that the former has already paid
already subject to a these taxes under Section 14 of
local business tax under the Manila Revenue Code, it is
S e c t i o n 1 4 o f Ta x exempt from the same payments
Ordinance No. 7794 under Section 21 of the same
[which is based on code. Hence, payments made
Section 143(a) of the under Section 21 must be
LGC], can no longer be refunded in favor of petitioner.
made liable for local
business tax under
Section 21 of the same
Tax Ordinance [which is
based on Section It is undisputed that petitioner paid business
143(h) of the LGC]. taxes based on Sections 14 and
21 for the fourth quarter of 2001
in the total amount of
P470,932.21. Therefore, it is
entitled to a refund of
Based on the foregoing reasons, petitioner P164,552.04 corresponding to the
should not have been subjected to payment under Section 21 of the
taxes under Section 21 of the Manila Revenue Code. ETHCDS
Manila Revenue Code for the
fourth quarter of 2001,
On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. No pronouncement on costs of suit.
and Swedish Match Philippines, Inc., the Court now holds that all SO ORDERED.
the elements of double taxation concurred upon the City of Sereno, C.J., Leonardo-de Castro, Villarama, Jr. and Reyes, JJ.,
Manila's assessment on and collection from the petitioners of concur.
taxes for the first quarter of 1999 pursuant to Section 21 of the ||| (Nursery Care Corp. v. Acevedo, G.R. No. 180651, [July 30,
Revenue Code of Manila. 2014])
Firstly, because Section 21 of the Revenue Code of Manila
imposed the tax on a person who sold goods and services in the
course of trade or business based on a certain percentage of his
gross sales or receipts in the preceding calendar year, while
Section 15 and Section 17 likewise imposed the tax on a person
who sold goods and services in the course of trade or business
but only identified such person with particularity, namely, the
wholesaler, distributor or dealer (Section 15), and the retailer
(Section 17), all the taxes — being imposed on the privilege of
doing business in the City of Manila in order to make the
taxpayers contribute to the city's revenues — were imposed on
the same subject matter and for the same purpose.
Secondly, the taxes were imposed by the same taxing authority
(the City of Manila) and within the same jurisdiction in the same
taxing period (i.e., per calendar year).
Thirdly, the taxes were all in the nature of local business taxes.
We note that although Coca-Cola Bottlers Philippines, Inc. and
Swedish Match Philippines, Inc. involved Section 21 vis-à-vis
Section 14 (Tax on Manufacturers, Assemblers and Other
Processors) 39 of the Revenue Code of Manila, the legal
principles enunciated therein should similarly apply because
Section 15 (Tax on Wholesalers, Distributors, or Dealers) and
Section 17 (Tax on Retailers) of the Revenue Code of Manila
imposed the same nature of tax as that imposed under Section
14, i.e., local business tax, albeit on a different subject matter or
group of taxpayers.
In fine, the imposition of the tax under Section 21 of the
Revenue Code of Manila constituted double taxation, and the
taxes collected pursuant thereto must be refunded.
WHEREFORE, the Court GRANTS the petition for review on
certiorari; REVERSES and SETS ASIDE the resolutions
promulgated on June 18, 2007 and November 14, 2007 in CA-
G.R. SP No. 72191; and DIRECTS the City of Manila to refund
the payments made by the petitioners of the taxes assessed and
collected for the first quarter of 1999 pursuant to Section 21 of
the Revenue Code of Manila.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. the 20% FWT is constructively received by the
SOLIDBANK CORPORATION, respondent. banks and forms part of their gross receipts or
Pablo M. Bastes, Jr. and Rhodora J. Corcuera-Menzon for earnings, it follows that it is subject to the 5% GRT.
petitioner. After all, the amount withheld is paid to the
Esquivas Cruz Conlu & Yabut for respondent. government on their behalf, in satisfaction of their
SYNOPSIS withholding taxes. That they do not actually receive
Pursuant to the decision of the Court of the amount does not alter the fact that it is remitted
Tax Appeals (CTA) in CTA Case No. 4720, entitled for their benefit in satisfaction of their tax
Asian Bank Corporation vs. Commissioner of obligations. Stated otherwise, the fact is that there
Internal Revenue, wherein it held that the 20% final were no withholding tax system in place in this
withholding tax (FWT) on bank's interest income country, this 20% portion of the "passive" income of
should not form part of its taxable gross receipts for banks would actually be paid to the banks and then
purposes of computing the gross receipts tax (GRT), remitted by them to the government in payment of
respondent Solidbank Corporation filed with the their income tax. The institution of the withholding
Bureau of Internal Revenue (BIR) a letter-request tax system does not alter the fact that the 20%
for refund or tax credit certificate and a petition for portion of their "passive" income constitutes part of
review with the Court of Appeals by alleging that for their actual earnings, except that it is paid directly
the calendar year 1995, it included in the to the government on their behalf in satisfaction of
computation of the total gross receipt the sum of the 20% final income tax due on their "passive"
P350,807, 875.15 representing gross receipt from incomes.
passive income which was already subjected to 20%
final withholding tax. After trial, the CTA rendered SYLLABUS
its decision in favor of respondent. On appeal, the 1. TAXATION; TAX CODE; TAX ON
Court of Appeals held that the 20% FWT on bank's INCOME; EARNINGS OF BANKS FROM "PASSIVE"
interest income did not form part of the taxable INCOME ARE SUBJECT TO 20% FINAL
gross receipts in computing the 5% GRT, because WITHHOLDING TAX. — Under the Tax Code, the
the FWT was not actually received by the bank but earnings of banks from "passive" income are subject
was directly remitted to the government. Hence, the to a twenty percent final withholding tax (20%
Commissioner of the Internal Revenue filed this FWT). This tax is withheld at source and is thus not
petition. actually and physically received by the banks,
because it is paid directly to the government by the
The petition was granted. Under the Tax entities from which the banks derived the income.
Code, the earnings of banks from "passive" income Apart from the 20% FWT, banks are also subject to
are subject to a twenty percent final withholding tax a five percent gross receipts tax (5% GRT) which is
(20% FWT). This tax is withheld at source and is imposed by the Tax Code on their gross receipts,
thus not actually and physically received by the including the "passive" income.
banks, because it is paid directly to the government
by the entities from which the banks derived the 2. ID.; ID.; OTHER. PERCENTAGE TAXES;
income. Apart from the 20% FWT, banks are also 20% FINAL WITHHOLDING TAX FORMS PART OF
subject to a five percent gross receipts tax (5% THEIR GROSS RECEIPTS, IT FOLLOWS THAT IT IS
GRT) which is imposed by the Tax Code on their SUBJECT TO THE 5% GROSS RECEIPTS TAX. —
gross receipts, including the "passive" income. Since Since the 20% FWT is constructively received by the
banks and forms part of their gross receipts or manner and subject to the same conditions as
earnings, it follows that it is subject to the 5% GRT. provided for in Section 51.
After all, the amount withheld is paid to the
government on their behalf, in satisfaction of their 5. ID.; ID.; PERCENTAGE TAX:, DEFINED.
withholding taxes. That they do not actually receive — A percentage tax is a national tax measured by a
the amount does not alter the fact that it is remitted certain percentage of the gross selling price or gross
for their benefit in satisfaction of their tax value in money of goods sold, bartered or imported;
obligations. Stated otherwise, the fact is that if or of the gross receipts or earnings derived by any
there were no withholding tax system in place in person engaged in the sale of services. It is not
this country, this 20 percent portion of the "passive" subject to withholding.
income of banks would actually be paid to the banks
and then remitted by them to the government in 6. ID.; ID.; INCOME TAX; DEFINED. — An
payment of their income tax. The institution of the income tax, on the other hand, is a national tax
withholding tax system does not alter the fact that imposed on the net or the gross income realized in
the 20 percent portion of their "passive" income a taxable year. It is subject to withholding.
constitutes part of their actual earnings, except that
is paid directly to the government on their behalf in 7. ID.; ID.; WITHHOLDING TAX SYSTEM;
satisfaction of the 20 percent final income tax due EXPLAINED. — In a withholding tax system, the
on their "passive" incomes. payee is the taxpayer, the person on whom the tax
is imposed; the payor, a separate entity, acts as no
3. ID.; ID.; ID.; BANK AND BANK more than an agent of the government for the
INTERMEDIARIES LIABLE FOR 5% GROSS RECEIPTS collection of the tax in order to ensure its payment.
TAX SHALL FILE QUARTERLY RETURNS ON THE Obviously, this amount that is used to settle the tax
AMOUNT OF GROSS RECEIPTS. — The 5% GRT is liability is deemed sourced from the proceeds
included under "Title V. Other Percentage Taxes" of constitutive of the tax base. These proceeds are
the Tax Code and is not subject to withholding. The either actual or constructive. Both parties herein
banks and non-bank financial intermediaries liable agree that there is no actual receipt by the bank of
therefor shall, under Section 125(a)(1), file the amount withheld. What needs to be determined
quarterly returns on the amount of gross receipts is if there is constructive receipt thereof. Since the
and pay the taxes due thereon within twenty (20) payee — not the payor — is the real taxpayer, the
days after the end of each taxable quarter. rule on constructive receipt can be easily
rationalized, if not made clearly manifest.
4 ID.; ID.; TAX ON INCOME; 20% FINAL
WITHHOLDING TAX IS A TAX ON PASSIVE INCOME 8 . I D. ; I D. ; I D. ; P O SS E SS I O N I S
DEDUCTED AND WITHHELD AT SOURCE BY THE ACQUIRED BY THE PAYOR AS THE WITHHOLDING
PAYO R C O R P O R AT I O N A N D / O R P E R S O N AS AGENT OF THE GOVERNMENT. — In our withholding
WITHHOLDING AGENT. — The 20% FWT, on the tax system, possession is acquired by the payor as
other hand, falls under Section 24(e)(1) of "Title II. the withholding agent of the government, because
Tax on Income." It is a tax on passive income, the taxpayer ratifies the very act of possession for
deducted and withheld at source by the payor- the government. There is thus constructive receipt.
corporation and/or person as withholding agent The processes of bookkeeping and accounting for
pursuant to Section 50, and paid in the same interest on deposits and. yield on deposit
substitutes that are subjected to FWT are indeed — oftentimes left to the administrative agency
for legal purposes — tantamount to delivery, receipt entrusted with their enforcement. In the present
or remittance. Besides, respondent itself admits case, it is the finance secretary who promulgates
that its income is subjected to a tax burden the revenue regulations, upon recommendation of
immediately upon "receipt," although it claims that the BIR commissioner. These regulations are the
it derives no pecuniary benefit or advantage consequences of a delegated power to issue legal
through the withholding process. There being provisions that have the effect of law.
constructive receipt of such income — part of which
is withheld — RR 17-84 applies, and that income is 11. TAXATION; REVENUE REGULATION IS
included as part of the tax base upon which the GRT BINDING ON THE COURTS AS LONG AS THE
is imposed. PROCEDURE FIXED FOR ITS PROMULGATION IS
FOLLOWED. — A revenue regulation is binding on
9. CIVIL LAW; POSSESSION; the courts as long as the procedure fixed for its
ACQUISITION OF THE RIGHT OF POSSESSION IS promulgation is followed. Even if the courts may not
THROUGH THE PROPER ACTS AND LEGAL be in agreement with its stated policy or innate
FORMALITIES ESTABLISHED THEREFORE — Article wisdom, it is nonetheless valid, provided that its
531 of the Civil Code clearly provides that the scope is within the statutory authority or standard
acquisition of the right of possession is through the granted by the legislature. Specifically, the
proper acts and legal formalities established regulation must (1) be germane to the object and
therefor. The withholding process is one such act. purpose of the law; (2) not contradict, but conform
There may not be actual receipt of the income to, the standards the law prescribes; and (3) be
withheld; however, as provided for in Article 532, issued for the sole purpose of carrying into effect
possession by any person without any power the general provisions of our tax laws.
whatsoever shall be considered as acquired when
ratified by the person in whose name the act of 12. STATUTORY CONSTRUCTION; REPEAL
possession is executed. MAY BE EXPRESS OR IMPLIED. — A repeal may be
express or implied. It is express when there is a
10. STATUTORY CONSTRUCTION; RULES declaration in a regulation — usually in its repealing
AND REGULATIONS ISSUED BY ADMINISTRATIVE clause — that another regulation, identified by its
OR EXECUTIVE OFFICERS PURSUANT TO THE number or title, is repealed. All others are implied
PROCEDURE OR AUTHORITY CONFERRED BY LAW repeals. An example of the latter is a general
UPON THE ADMINISTRATIVE AGENCY HAVE THE provision that predicates the intended repeal on a
FORCE AND EFFECT OF A STATUTE; APPLIED IN substantial conflict between the existing and the
CASE AT BAR — In general, rules and regulations prior regulations.
issued by administrative or executive officers
pursuant to the procedure or authority conferred by 1 3 . I D. ; E V E RY E F F O RT M U S T B E
law upon the administrative agency have the force EXERTED TO MAKE ALL REGULATIONS STAND AND
and effect, or partake of the nature, of a statute. A LATER RULE WILL NOT OPERATE AS A REPEAL OF
The reason is that statutes express the policies, AN EARLIER ONE, IF BY ANY REASONABLE
purposes, objectives, remedies and sanctions CONSTRUCTION, THE TWO CAN BE RECONCILED. —
intended by the legislature in general terms. The Repeals by implication are not favored and will not
details and manner of carrying them out are be indulged, unless it is manifest that the
administrative agency intended them. As a an accounting method that recognizes income as
regulation is presumed to have been made with earned although not received, and expenses as
deliberation and full knowledge of all existing rules incurred although not yet paid.
on the subject, it may reasonably be concluded that
its promulgation was not intended to interfere with 16. ID.; ID.; ID.; SHOULD NOT BE
or abrogate any earlier rule relating to the same CONFUSED WITH THE CONCEPT OF CONSTRUCTIVE
subject, unless it is either repugnant to or fully POSSESSION OR RECEIPT. — Accrual should not be
inclusive of the subject matter of an earlier one, or confused with the concept of constructive
unless the reason for the earlier one is "beyond possession or receipt as earlier discussed. Petitioner
peradventure removed." Every effort must be correctly points out that income that is merely
exerted to make all regulations stand — and a later accrued — earned, but not yet received — does not
rule will not operate as a repeal of an earlier one, if form part of the taxable gross receipts; income that
by any reasonable construction, the two can be has been received, albeit constructively, does.
reconciled.
17. ID.; ID.; ID:; STRESSES THE FACT
14. TAXATION; REVENUE REGULATION THAT SECTION 4(e) DOES NOT DISTINGUISH
NO. 12-80; PROVIDES THAT ALL INTERESTS BETWEEN ACTUAL AND CONSTRUCTIVE RECEIPT. —
EARNED SHALL BE INCLUDED IN THE TAX BASE The word "actually,." used confusingly in Section
FOR COMPUTING THE GROSS RECEIPT TAX. — 4(e), will be clearer if removed entirely. Besides, if
Section 4(e) of the earlier RR 1280 provides that actually is that important, accrual should have been
only items of income actually received shall be eliminated for being a mere surplusage. The
included in the tax base for computing the GRT, but inclusion of accrual stresses the fact that Section
Section 7(c) of the later RR 17-84 makes no such 4(e) does not distinguish between actual and
distinction and provides that all interests earned constructive receipt. It merely focuses on the
shall be included. The exception having been method of accounting known as the accrual system.
eliminated, the clear intent is that the later RR
17-84 includes the exception within the scope of the 18. ID.; ID.; RECONCILED WITH
general rule. x x x RR 1280 imposes the GRT only REVENUE REGULATION NO. 17-84. — In reconciling
on all items of income actually received, as opposed these two regulations, the earlier one includes in
to their mere accrual, while RR 17-84 includes all the tax base for GRT all income, whether actually or
interest income in computing the GRT. RR 12-80 is constructively received, while the later one includes
superseded by the later rule, because Section 4(e) specifically interest income. In computing the
thereof is not restated in RR 17-84. Clearly income tax liability, the only exception cited in the
therefore, as petitioner correctly states, this later regulations is the exclusion from gross income
particular provision was impliedly repealed when the of interest income, which is already subjected to
later regulations took effect. withholding. This exception, however, refers to a
different tax altogether. To extend mischievously
15. ID.; ID.; "ACCRUAL" REFERS TO AN such exception to the GRT will certainly lead to
ACCOUNTING METHOD. — The "accrual" referred to results not contemplated by the legislators and the
therein should not be equated with the administrative body promulgating the regulations.
determination of the amount to be used as tax base
in computing the GRT. Such accrual merely refers to
19. ID.; TAX CODE; GROSS RECEIPTS; withholding agent being merely a conduit in the
ELUCIDATED. — To begin, we have to nuance the collection process.
definition of gross receipts to determine what it is
exactly. In this regard, we note that US cases have 21. ID.; ID.; ID.; INTEREST INCOME
persuasive effect in our jurisdiction, because THAT HAD BEEN WITHHELD FOR THE GOVERNMENT
Philippine income tax law is patterned after its US BECAME PROPERTY OF THE FINANCIAL
counterpart. "'[G]ross receipts' with respect to any INSTITUTIONS UPON CONSTRUCTIVE POSSESSION
period means the sum of: (a) The total amount THEREOF. — The Manila Jockey Club had to deliver
received or accrued during such period from the to the Board on Races, horse owners and jockeys
sale, exchange, or other disposition of . . . other amounts that never became the property of the race
property of a kind which would properly be included track. Unlike these amounts, the interest income
in the inventory of the taxpayer if on hand at the that had been withheld for the government became
close of the taxable year, or property held by the property of the financial institutions upon
taxpayer primarily for sale to customers in the constructive possession thereof. Possession was
ordinary course of its trade or business, and (b) The indeed acquired, since it was ratified by the financial
gross income, attributable to a trade or business, institutions in whose name the act of possession
regularly carried on by the taxpayer, received or had been executed. The money indeed belonged to
accrued during such period . . . ." ". . . [B]y gross the taxpayers; merely holding it in trust was not
earnings from operations . . . was intended all enough.
operations .. . including incidental, subordinate, and
subsidiary operations, as well as principal 22. ID.; ID.; ID.; IT IS OWNERSHIP THAT
operations." "When we speak of the `gross DETERMINES WHETHER INTEREST INCOME FORMS
earnings' of a person or corporation, we mean the PART OF TAXABLE GROSS RECEIPTS. — The
entire earnings or receipts of such person or government subsequently becomes the owner of the
corporation from the business or operations to money when the financial institutions pay the FWT
which we refer. From these cases, "gross receipts" to extinguish their obligation to the government. As
refer to the total; as opposed to the net, income. this Court has held before, this is the consideration
These are therefore the total receipts before any for the transfer of ownership of the FWT from these
deduction for the expenses of management. institutions to the government. It is ownership that
Webster's New International Dictionary, in fact, determines whether interest income forms part of
defines gross as "whole or entire." taxable gross receipts. Being originally owned by
these financial institutions as part of their interest
20. ID.; ID.; ID.; EARMARKING IS NOT income, the FWT should form part of their taxable
THE SAME AS WITHHOLDING. — Earmarking is not gross receipts.
the same as withholding. Amounts earmarked do
not form part of gross receipts, because, although 23. ID.; ID.; FINAL WITHHOLDING TAX IS
delivered or received, these are by law or regulation A TAX ON PASSIVE INCOME WHILE THE GROSS
reserved for some person other than the taxpayer. RECEIPT TAX IS ON BUSINESS. — Looking again
On the contrary, amounts withheld form part of into Sections 24(e)(1) and 119 of the Tax Code, we
gross receipts, because these are in constructive find that the first imposes an income tax; the
possession and not subject to any reservation, the second, a percentage tax. The legislature clearly
intended two different taxes. The FWT is a tax on
passive income, while the GRT is on business. The 26. R E ME DIAL LAW; E VIDE NC E ;
withholding of one is not equivalent to the payment CREDIBILITY; FINDINGS OF FACT OF THE COURT
of the other. OF TAX APPEALS WILL ORDINARILY NOT BE
REVIEWED, ABSENT ANY SHOWING OF GROSS
24. ID.; STATUTORY CONSTRUCTION; ERROR OR ABUSE ON ITS PART. — Under our tax
TAXING ACT WILL BE CONSTRUED FROM ITS system, the CTA acts as a highly specialized body
LANGUAGE. — A taxing act will be construed, and specifically created for the purpose of reviewing tax
the intent and meaning of the legislature cases. Because of its recognized expertise, its
ascertained, from its language. Its clarity and findings of fact will ordinarily not be reviewed,
implied intent must exist to uphold the taxes as absent any showing of gross error or abuse on its
against a taxpayer in whose favor doubts will be part. Such findings are binding on the Court and,
resolved. No such doubts exist with respect to the absent strong reasons for us to delve into facts,
Tax Code, because the income and percentage taxes only questions of law are open for determination.
we have cited earlier have been imposed in clear
and express language for that purpose. This Court 27. TAXATION; TAX REFUNDS; IN THE
has steadfastly adhered to the doctrine that its first NATURE OF TAX EXEMPTIONS AND MUST BE
and fundamental duty is the application of the law STRICTLY CONSTRUED AGAINST TAXPAYER. — Tax
according to its express terms — construction and refunds are in the nature of tax exemptions. Such
interpretation being called for only when such literal exemptions are strictly construed against the
application is impossible or inadequate without taxpayer, being highly disfavored and almost said
them. In Quijano vs. Development Bank of the "to be odious to the law." Hence, those who claim to
Philippines, we stressed as follows: "No process of be exempt from the payment of a particular tax
interpretation or construction need be resorted to must do so under clear and unmistakable terms
where a provision of law peremptorily calls for found in the statute. They must be able to point to
application." some positive provision, not merely a vague
implication, of the law creating that right. The right
25. ID.; ID.; COURTS ARE NOT TO GIVE of taxation will not be surrendered, except in words
WORDS MEANINGS THAT WOULD LEAD TO ABSURD too plain to be mistaken. The reason is that the
OR UNREASONABLE CONSEQUENCES. — A literal State cannot strip itself of this highest attribute of
application of any part of a statute is to be rejected sovereignty — its most essential power of taxation
if it will operate unjustly, lead to absurd results, or — by vague or ambiguous language. Since tax
contradict the evident meaning of the statute taken refunds are in the nature of tax exemptions, these
as a whole. Unlike the CA, we find that the literal are deemed to be "in derogation of sovereign
application of the aforesaid sections of the Tax Code authority and to be construed strictissimi juris
and its implementing regulations does not operate against the person or entity claiming the
unjustly or contradict the evident meaning of the exemption."
statute taken as a whole. Neither does it lead to
absurd results. Indeed, our courts are not to give 28. ID.; TAX EXEMPTIONS; CANNOT BE
words meanings that would lead to absurd or G R ANTE D BY IMPLIC ATION OR ME R E
unreasonable consequences. ADMINISTRATIVE REGULATION; APPLIED IN CASE
AT BAR. — No less than our 1987 Constitution
provides for the mechanism for granting tax
exemptions. They certainly cannot be granted by Code — and operate within the same Philippine
implication or mere administrative regulation. Thus, jurisdiction for the same purpose of raising
when an exemption is claimed, it must indubitably revenues, the taxing periods they affect are
be shown to exist, for every presumption is against different. The FWT is deducted and withheld as soon
it, and a well-founded doubt is fatal to the claim. In as the income is earned, and is paid after every
the instant case, respondent has not been able to calendar quarter in which it is earned. On the other
satisfactorily show that its FWT on interest income hand, the GRT is neither deducted nor withheld, but
is exempt from the GRT. Like China Banking is paid only after every taxable quarter in which it is
Corporation, its argument creates a tax exemption earned. Third, these two taxes are of different kinds
where none exists, or characters. The FWT is an income tax subject to
withholding, while the GRT is a percentage tax not
29. ID.; ID.; NO EXEMPTIONS ARE subject to withholding.
NORMALLY ALLOWED WHEN A GROSS RECEIPT TAX
IS IMPOSED. — No exemptions are normally DECISION
allowed when a GRT is imposed. It is precisely PANGANIBAN, J p:
designed to maintain simplicity in the tax collection Under the Tax Code, the earnings of
effort of the government and to assure its steady banks from "passive" income are subject to a
source of revenue even during an economic slump. twenty percent final withholding tax (20% FWT).
This tax is withheld at source and is thus not
30. ID.; DOUBLE TAXATION; actually and physically received by the banks,
ELUCIDATED. — Double taxation means taxing the because it is paid directly to the government by the
same property twice when it should be taxed only entities from which the banks derived the income.
once; that is, ". . . . taxing the same person twice Apart from the 20% FWT, banks are also subject to
by the same jurisdiction for the same thing." It is a five percent gross receipts tax (5% GRT) which is
obnoxious when the taxpayer is taxed twice, when it imposed by the Tax Code on their gross receipts,
should be but once. Otherwise described as "direct including the "passive" income.
duplicate taxation," the two taxes must be imposed
on the same subject matter, for the same purpose, Since the 20% FWT is constructively
by the same taxing authority, within the same received by the banks and forms part of their gross
jurisdiction, during the same taxing period; and receipts or earnings, it follows that it is subject to
they must be of the same kind or character. the 5% GRT. After all, the amount withheld is paid
to the government on their behalf, in satisfaction of
31. ID.; ID.; NOT PRESENT IN CASE AT their withholding taxes. That they do not actually
BAR. — First, the taxes herein are imposed on two receive the amount does not alter the fact that it is
different subject matters. The subject matter of the remitted for their benefit in satisfaction of their tax
FWT is the passive income generated in the form of obligations.
interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT is Stated otherwise, the fact is that if there
the privilege of engaging in the business of banking. were no withholding tax system in place in this
. . . Second, although both taxes are national in country, this 20 percent portion of the "passive"
scope because they are imposed by the same taxing income of banks would actually be paid to the banks
authority — the national government under the Tax and then remitted by them to the government in
payment of their income tax. The institution of the receipts tax payments in the
withholding tax system does not alter the fact that sum of P73,734,584.60, broken
the 20 percent portion of their "passive" income down as follows:
constitutes part of their actual earnings, except that
it is paid directly to the government on their behalf
in satisfaction of the 20 percent final income tax
due on their "passive" incomes.
The Case
Before us is a Petition for Review 1 under Gros
Rule 45 of the Rules of Court, seeking to annul the Gros
July 18, 2000 Decision 2 and the May 8, 2001 Period s
Resolution 3 of the Court of Appeals 4 (CA) in CA- s
GR SP No. 54599. The decretal portion of the
Covere Rece
assailed Decision reads as follows:
Rece
d ipts
ipts
"WHEREFORE, we Tax
AFFIRM in toto the assailed
decision and resolution of the
Court of Tax Appeals." 5
January P P
to 188,4 9,420
March 06,06 ,303.
1994 1.95 10
T h e c h a l l e n g e d Re s o l u t i o n d e n i e d
petitioner's Motion for Reconsideration. April to
The Facts
June 370,913,832.70
18,545,691.63
Quoting petitioner, the CA 6 summarized 1994
the facts of this case as follows:
July to
" Fo r t h e c a l e n d a r
year 1995, [respondent] Septem
seasonably filed its Quarterly
481,501,838.98
24,075,091.95
P e r c e n t a g e Ta x R e t u r n s
ber
reflecting gross receipts 1994
(pertaining to 5% [Gross
Receipts Tax] rate) in the total
amount of P1,474,691,693.44
with corresponding gross
"On January 30,
October 1 9 9 6 , [ t h e C o u r t o f Ta x
to Appeals] rendered a decision in
CTA Case No. 4720 entitled
Decem 433,869,959.81
21,693,497.98 Asian Bank Corporation vs.
Commissioner of Internal
ber Revenue[,] wherein it was held
that the 20% final withholding
1994 tax on [a] bank's interest
------- ------- income should not form part of
its taxable gross receipts for
----- ---- purposes of computing the
gross receipts tax.
P
P
1,474
73,73
Total ,691,
4,584
693.4 "On June 19, 1997,
.60
4 on the strength of the
aforementioned decision,
==== [respondent] filed with the
==== Bureau of Internal Revenue
==== [BIR] a letter-request for the
==== refund or issuance of [a] tax
==== credit certificate in the
====
= aggregate amount of
P3,508,078.75, representing,
allegedly overpaid gross
receipts tax for the year 1995,
computed as follows:
"[Respondent] alleges
that the total gross receipts in
the amount of
P1,474,691,693.44 included the
sum of P350,807,875.15 Gross Receipts
representing gross receipts
from passive income which was Subjected to the
already subjected to 20% final
withholding tax. Final Tax
=====
Derived from P350, =====
Passive 807,87 ==
[Income] 5.15
Multiply by
Final Tax 20%
rate "Without waiting for
an action from the [petitioner],
--------- [respondent] on the same day
filed [a] petition for review
- [with the Court of Tax Appeals]
in order to toll the running of
P the two-year prescriptive period
20% Final
70,161 to judicially claim for the refund
Tax Withheld of [any] overpaid internal
,575.0 revenue tax[,] pursuant to
at Source Section 230 [now 229] of the
3 Ta x C o d e , [ a l s o ' N a t i o n a l
Internal Revenue Code'] . . ..
Multiply by
[Gross
5%
Receipts
Tax] rate
xxx xxx xxx
---------
-
Overpaid
P "After trial on the
[Gross m e r i t s , t h e [ C o u r t o f Ta x
3,508, Appeals], on August 6, 1999,
Receipts rendered its decision
078.75
Tax] ordering . . . petitioner to
refund in favor of . . .
respondent the reduced amount
of P1,555,749.65 as overpaid "Whether or not the
[gross receipts tax] for the year 20% final withholding tax on
1995. The legal issue . . . was [a] bank's interest income
resolved by the [Court of Tax forms part of the taxable gross
Appeals], with Hon. Amancio Q. receipts in computing the 5%
Saga dissenting, on the gross receipts tax." 10
strength of its earlier
pronouncement in . . . Asian
Bank Corporation vs.
Commissioner of Internal
Revenue . . ., wherein it was
held that the 20% [final
The Court's Ruling
withholding tax] on [a] bank's
The Petition is meritorious.
interest income should not form
part of its taxable gross
Sole Issue:
receipts for purposes of
Whether the 20% FWT Forms Part
computing the [gross receipts
of the Taxable Gross Receipts
tax]." 7
Petitioner claims that although the 20%
FWT on respondent's interest income was not
actually received by respondent because it was
remitted directly to the government, the fact that
the amount redounded to the bank's benefit makes
it part of the taxable gross receipts in computing
Ruling of the CA the 5% GRT. Respondent, on the other hand,
The CA held that the 20% FWT on a maintains that the CA correctly ruled otherwise.
bank's interest income did not form part of the
taxable gross receipts in computing the 5% GRT,
because the FWT was not actually received by the
bank but was directly remitted to the government. We agree with petitioner. In fact, the
The appellate court curtly said that while the Tax same issue has been raised recently in China
Code "does not specifically state any Banking Corporation v. CA, 11 where this Court held
exemption, . . . the statute must receive a sensible that the amount of interest income withheld in
construction such as will give effect to the payment of the 20% FWT forms part of gross
legislative intention, and so as to avoid an unjust or receipts in computing for the GRT on banks.
absurd conclusion." 8
The FWT and the GRT :
Hence, this appeal. 9 Two Different Taxes
The 5% GRT is imposed by Section 119
Issue 12 of the Tax Code, 13 which provides:
Petitioner raises this lone issue for our
consideration:
"SEC. 119. Tax on but not exceeding four (4) years
banks and non-bank financial 3%
intermediaries. — There shall Long-term maturity:
be collected a tax on gross
receipts derived from sources
within the Philippines by all
banks and non-bank financial
intermediaries in accordance
with the following schedule:
(i) Over four (4) years but not exceeding
seven (7)
years 1%
(ii) Over seven (7) years
0%
"(b) On
"(a) On interest, d i v i d e n d s
commissions and discounts
from lending activities as well 0%
as income from financial
leasing, on the basis of
remaining maturities of
instruments from which such
receipts are derived.
" ( c ) O n r oya l t i e s ,
rentals of property, real or
personal, profits from exchange
and all other items treated as
gross income under Section 28
Short-term maturity 14 of this Code 5%
not in excess of two (2)
years 5%
Thirty-five percent upon the amount by which Put differently, in cases of (1) fraudulent returns; (2) false
the taxable net income exceeds returns with intent to evade tax; and (3) failure to file a return,
one hundred thousand pesos. the period within which to assess tax is ten years from discovery
of the fraud, falsification or omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga,
through his counsel, asked the Opinion of the BIR on the tax
consequence of the two sale transactions. 36 Thus, the BIR was
amply informed of the transactions even prior to the execution of
CIC is therefore liable to pay a 35% corporate tax for the necessary documents to effect the transfer. Subsequently,
its taxable net income in 1989. The 5% individual the two sales were openly made with the execution of public
capital gains tax provided for in Section 34 (h) of documents and the declaration of taxes for 1989. However, these
the NIRC of 1986 35 (now 6% under Section 24 (D) circumstances do not negate the existence of fraud. As earlier
(1) of the Tax Reform Act of 1997) is inapplicable. discussed those two transactions were tainted with fraud. And
Hence, the assessment for the deficiency income even assuming arguendo that there was no fraud, we find that
tax issued by the BIR must be upheld. the income tax return filed by CIC for the year 1989 was false. It
did not reflect the true or actual amount gained from the sale of
Has the period of the Cibeles property. Obviously, such was done with intent to
assessment prescribed? evade or reduce tax liability. TSIDEa
No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax As stated above, the prescriptive period to assess the correct
Reform Act of 1997) read: taxes in case of false returns is ten years from the discovery of
Sec. 269. Exceptions as to period of limitation the falsity. The false return was filed on 15 April 1990, and the
of assessment and collection of falsity thereof was claimed to have been discovered only on 8
taxes. — (a) In the case of a false March 1991. 37 The assessment for the 1989 deficiency income
or fraudulent return with intent to tax of CIC was issued on 9 January 1995. Clearly, the issuance
of the correct assessment for deficiency income tax was well 3. He agrees to hold himself personally and
within the prescriptive period. solidarily liable with the
Is respondent Estate liable corporation; or
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
A corporation has a juridical personality distinct and separate 4. He is made, by specific provision of law, to
from the persons owning or composing it. Thus, the owners or personally answer for
stockholders of a corporation may not generally be made to his corporate action. 38
answer for the liabilities of a corporation and vice versa. There
are, however, certain instances in which personal liability may
arise. It has been held in a number of cases that personal
liability of a corporate director, trustee, or officer along, albeit
not necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act It is worth noting that when the late Toda sold his shares of
of the corporation, (b) stock to Le Hun T. Choa, he knowingly and voluntarily held
bad faith or gross himself personally liable for all the tax liabilities of CIC and the
negligence in directing buyer for the years 1987, 1988, and 1989. Paragraph g of the
its affairs, or (c) conflict Deed of Sale of Shares of Stocks specifically provides:
of interest, resulting in g. Except for transactions occurring in the
damages to the ordinary course of business,
corporation, its Cibeles has no liabilities or
stockholders, or other obligations, contingent or
persons; otherwise, for taxes, sums of
money or insurance claims other
than those reported in its audited
financial statement as of
December 31, 1989, attached
hereto as "Annex B" and made a
2. He consents to the issuance of watered part hereof. The business of
down stocks or, having Cibeles has at all times been
knowledge thereof, does conducted in full compliance with
not forthwith file with all applicable laws, rules and
the corporate secretary regulations. SELLER undertakes
his written objection and agrees to hold the BUYER and
thereto; Cibeles free from any and all
income tax liabilities of Cibeles for
the fiscal years 1987, 1988 and
1989. 39 [Emphasis Supplied].
When the late Toda undertook and agreed "to hold the BUYER
and Cibeles free from any all income tax liabilities of Cibeles for
the fiscal years 1987, 1988, and 1989," he thereby voluntarily
held himself personally liable therefor. Respondent estate
cannot, therefore, deny liability for CIC's deficiency income tax
for the year 1989 by invoking the separate corporate personality
of CIC, since its obligation arose from Toda's contractual
undertaking, as contained in the Deed of Sale of Shares of
Stock. ICESTA
WHEREFORE, in view of all the foregoing, the petition is hereby
GRANTED. The decision of the Court of Appeals of 31 January
2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and
another one is hereby rendered ordering respondent Estate of
Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency income
tax of Cibeles Insurance Corporation for the year 1989, plus
legal interest from 1 May 1994 until the amount is fully paid.
Costs against respondent.
SO ORDERED.
Quisumbing, Ynares-Santiago, Carpio and Azcuna, JJ ., concur.
"Considering our findings that [private While the following assessments are hereby
respondent] was not engaged in sustained:
the business of operating or
contracting [a] parking lot, we
find no legal basis also for the
imposition of [a] deficiency fixed
tax and [a] contractor's tax in the 1980 Deficiency
amount[s] of P353.15 and Expanded Withholding Tax —
P3,129.73, respectively. P1,798.93;
1980 Deficiency
Contractor's Tax P3,129.23, &
Dissatisfied with the CTA ruling, the CIR elevated the case to the
Court of Appeals (CA). In its Decision of February 16, 1994, the
CA 6 initially decided in favor of the CIR and disposed of the
appeal in the following manner: 1980 Deficiency Income
"Following the ruling in the aforecited cases of Tax P372,578.20,
Province of Abra vs. Hernando and
Abra Valley College Inc. vs.
Aquino, the ruling of the
respondent Court of Tax Appeals
that 'the leasing of petitioner's
(herein respondent's) facilities to but the same is AFFIRMED in all other respect."
small shop owners, to restaurant 7
and canteen operators and the
operation of the parking lot are
reasonably incidental to and
reasonably necessary for the
accomplishment of the objectives Aggrieved, the YMCA asked for reconsideration based on the
of the petitioners,' and the income following grounds: cdll
derived therefrom are tax exempt, I
must be reversed. cda
II
"The conclusions of law of [p]ublic for profit. Consequently, the little
[r]espondent exempting [p]rivate income from small shops and
[r]espondent from the income on parking fees help[s] to keep its
rentals of small shops and parking head above the water, so to
fees [are] in accord with the speak, and allow it to continue
applicable law and jurisprudence." with its laudable work.
8