You are on page 1of 34

G.R. No.

220835 On December 12, 2006, another waiver was executed extending the
period to assess and collect the assessed taxes to March 31, 2007.8 It
COMMISSIONER OF INTERNAL REVENUE, Petitioner was also signed by Sangalang and accepted by Cembrano and notarized
vs. on the same date.9 A third waiver was executed by the same signatories
SYSTEMS TECHNOLOGY INSTITUTE, INC., Respondent extending further the period to June 30, 2007.10

DECISION On June 28, 2007, STI received a Formal Assessment Notice from the
CIR, assessing STI for deficiency income tax, VAT and EWT for fiscal
CAGUIOA, J.: year 2003, in the aggregate amount of ₱161,835,737.98.11

Before the Court is a petition for review on certiorari1 under Rule 45 of the On July 25, 2007, STI filed a request for reconsideration/reinvestigation
Rules of Court filed by petitioner Commissioner of Internal Revenue dated July 23, 2007.12
(CIR), assailing the Decision2 dated March 24, 2015 and
Resolution3 dated September 2, 2015 of the Court of Tax Appeals On September 11, 2009, STI received from the CIR the Final Decision on
(CTA) En Banc in CTA EB No. 1050. The CTA En Banc affirmed the Disputed Assessment (FDDA) dated August 17, 2009 finding STI liable
Decision dated April 17, 2013 and the Resolution dated July 17, 2013 of for deficiency income tax, VAT and EWT in the lesser amount of
the CTA Second Division, which granted the petition for review filed by ₱124,257,764.20.13
respondent Systems Technology Institute, Inc. (STI) and cancelled the
assessments against STI for deficiency income tax, deficiency expanded On October 12, 2009, STI appealed the FDDA by filing a petition for
withholding tax (EWT), and deficiency value-added tax (VAT) for fiscal review with the CTA.14 The case was docketed as CTA Case No. 7984
year ending March 31, 2003.4 and was heard by the CTA Second Division.15

Facts On April 17, 2013, the CTA Second Division promulgated its Decision
denying the assessment on the ground of prescription, the dispositive
The facts of this case, as presented by the CTA En Banc, are as follows: portion of which reads as follows:

STI filed its Amended Annual Income Tax Return for fiscal year 2003 on WHEREFORE, premises considered, the instant Petition for Review is
August 15, 2003; its Quarterly VAT Returns on July 23, 2002, October hereby GRANTED. Accordingly, the assessments against petitioner for
25, 2002, January 24, 2003, and May 23, 2003; and its Bureau of Internal deficiency income tax, deficiency expanded withholding tax, and
Revenue (BIR) Form 1601E for EWT from May 10, 2002 to April 15, deficiency value-added tax for fiscal year ending March 31, 2003 are
2003.5 hereby CANCELLED and SET ASIDE on the ground of prescription.16

On May 30, 2006, STI's Amiel C. Sangalang signed a Waiver of the The CTA Division found the waivers executed by STI defective for failing
Defense of Prescription Under the Statute of Limitations of the National to strictly comply with the requirements provided by Revenue
Internal Revenue Code (NIRC), with the proviso that the assessment and Memorandum Order (RMO) No. 20-90 issued on April 4, 1990 and
collection of taxes of fiscal year 2003 shall come "no later than December Revenue Delegation Authority Order (RDAO) No. 05-01 issued on
31, 2006."6 On June 2, 2006, the waiver was accepted by Virgilio R. August 2, 2001. Consequently, the periods for the CIR to assess or
Cembrano, Large Taxpayers District Officer of Makati and was notarized collect internal revenue taxes were never extended; and the subject
on even date.7 assessment for deficiency income tax, VAT and EWT against STI, which
the CIR issued beyond the three-year prescriptive period provided by comply therewith results in the nullity of the waiver and consequently, the
law, was already barred by prescription.17 assessments.28 Tested against these requisites and settled jurisprudence,
the subject waivers are defective and invalid and, thus, did not extend the
On May 9, 2013, the CIR filed a motion for reconsideration, but this was period to assess.29
denied by the CTA Division in its Resolution dated July 17, 2013.18
STI further claims, that contrary to the CIR's insistence, it is not estopped
Undaunted, the CIR appealed to the CTA En Banc. 19 from invoking the defense of prescription because: (1) STI did not admit
the validity or correctness of the deficiency assessments; (2) it did not
In the assailed Decision, 20 the CTA En Banc denied the CIR's petition for receive or accept any benefit from the execution of the waivers since it
lack of merit. The CTA En Banc affirmed the Decision and Resolution of continued to dispute the assessment; and (3) STI did not, in any way,
the CTA Division, reiterating that the requirements for the execution of a lead the CIR to believe that the waivers were valid.30
waiver must be strictly complied with; otherwise, the waiver will be
rendered defective and the period to assess or collect taxes will not be Finally, STI avers that the doctrine in RCBC does not apply to this case
extended. It further held that the execution of a waiver did not bar STI because the estoppel upheld in said case arose from the act of payment,
from questioning the validity thereof or invoking the defense of which is not obtaining in the instant case.31
The Court's Ruling
On September 2, 2015, the CTA En Banc issued the assailed
Resolution22 denying the CIR's motion for reconsideration for lack of merit. The petition lacks merit.

Hence, the instant petition raising the following issue: The Waivers of Statute of
Limitations, being defective and
AND DEFICIENCY EXPANDED WITHHOLDING TAX.23 assessments. Thus, the right of the
government to assess or collect the
The CIR asserts that prescription had not set in on the subject alleged deficiency taxes is already
assessments because the waivers executed by the parties are valid.24 It barred by prescription.
also claims that STI' s active participation in the administrative
investigation by filing a request for reinvestigation, which resulted in a Section 203 of the NIRC of 1997, as amended, limits the CIR's period to
reduced assessment, amounts to estoppel that prescription can no longer assess and collect internal revenue taxes to three (3) years counted from
be invoked.25 To support its contention, the CIR cites the case of Rizal the last day prescribed by law for the filing of the return or from the day
Commercial Banking Corporation v. Commissioner of Internal the return was filed, whichever comes later.32 Thus, assessments issued
Revenue,26 where the Court considered the taxpayer's partial payment of after the expiration of such period are no longer valid and effective.33
the revised assessment as an implied admission of the validity of the
waivers.27 In SMI-Ed Philippines Technology, Inc. v. Commissioner of Internal
Revenue,34 the Court explained the primary reason behind the
For its part, STI contends that the requisites under RMO No. 20-90 are prescriptive period on the CIR's right to assess or collect internal revenue
mandatory and no less than this Court has affirmed that the failure to taxes: that is, to safeguard the interests of taxpayers from unreasonable
investigation.35 Accordingly, the government must assess internal revenue 1. The waiver must be in the proper form prescribed by RMO 20- 90. The
taxes on time so as not to extend indefinitely the period of assessment phrase "but not after __________ 19 _",which indicates the expiry date of
and deprive the taxpayer of the assurance that it will no longer be the period agreed upon to assess/collect the tax after the regular three-
subjected to further investigation for taxes after the expiration of a year period of prescription, should be filled up.
reasonable period of time.36
2. The waiver must be signed by the taxpayer himself or his duly
In this regard, the CTA Division found that the last day for the CIR to authorized representative. In the case of a corporation, the waiver must
issue an assessment on STI's income tax for fiscal year ending March be signed by any of its responsible officials. In case the authority is
31, 2003 was on August 15, 2006; while the latest date for the CIR to delegated by the taxpayer to a representative, such delegation should be
assess STI of EWT for the fiscal year ending March 31, 2003 was in writing and duly notarized.
on April 17, 2006; and the latest date for the CIR to assess STI of
deficiency VAT for the four quarters of the same fiscal year was on May 3. The waiver should be duly notarized.
25, 2006.37 Clearly, on the basis of these dates, the final assessment
notice dated June 16, 2007,38 assessing STI for deficiency income tax, 4. The CIR or the revenue official authorized by him must sign the waiver
VAT and EWT for fiscal year 2003, in the aggregate amount of indicating that the BIR has accepted and agreed to the waiver. The date
₱l61,835,737.98, which STI received on June 28, 2007,39 was issued
1âw phi 1

of such acceptance by the BIR should be indicated. However, before

beyond the three-year prescriptive period. signing the waiver, the CIR or the revenue official authorized by him must
make sure that the waiver is in the prescribed form, duly notarized, and
However, the CIR maintains that prescription had not set in because the executed by the taxpayer or his duly authorized representative.
parties validly executed a waiver of statute of limitations under Section
222(b) of the NIRC, as amended. Said provision reads: 5. Both the date of execution by the taxpayer and date of acceptance by
the Bureau should be before the expiration of the period of prescription or
SEC. 222. Exceptions as to Period of Limitation of Assessment and before the lapse of the period agreed upon in case a subsequent
Collection of Taxes. - agreement is executed.

xxxx 6. The waiver must be executed in three copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer and
(b) If before the expiration of the time prescribed in Section 203 for the the third copy for the Office accepting the waiver. The fact of receipt by
assessment of the tax, both the Commissioner and the taxpayer have the taxpayer of his/her file copy must be indicated in the original copy to
agreed in writing to its assessment after such time, the tax may be show that the taxpayer was notified of the acceptance of the BIR and the
assessed within the period agreed upon. The period so agreed upon may perfection of the agreement.40
be extended by subsequent written agreement made before the
expiration of the period previously agreed upon. These requirements are mandatory and must strictly be followed. To be
sure; in a number of cases, this Court did not hesitate to strike down
xxxx waivers which failed to strictly comply with the provisions of RMO 20-90
and RDAO 05-01.
To implement the foregoing provisions, the BIR issued RMO 20-90 and
RDAO 05-01, outlining the procedures for the proper execution of a valid In Philippine Journalists, Inc. v. Commissioner of Internal Revenue,41 the
waiver, viz.: Court declared the waiver invalid because: (1) it did not specify the date
within which the BIR may assess and collect revenue taxes, such that the Tested against the requirements of RMO 20-90 and relevant
waiver became unlimited in time; (2) it was signed only by a revenue jurisprudence, the Court cannot but agree with the CTA's finding that the
district officer, and not the CIR; (3) there was no date of acceptance; and waivers subject of this case suffer from the following defects:
(4) the taxpayer was not furnished a copy of the waiver.42
1. At the time when the first waiver took effect, on June 2, 2006, the
In Commissioner of Internal Revenue v. FMF Development period for the CIR to assess STI for deficiency EWT and deficiency VAT
Corporation,43 the waiver was found defective and thus did not validly for fiscal year ending March 31, 2003, had already prescribed. To recall,
extend the original three-year prescriptive period because: (1) it was not the CIR only had until April 17, 2006 (for EWT) and May 25, 2006 (for
proven that the taxpayer was furnished a copy of the waiver; (2) it was VAT), to issue the subject assessments.
signed only by a revenue district officer, and not the CIR as mandated by
law; and (3) it did not contain the date of acceptance by the CIR, which is 2. STI's signatory to the three waivers had no notarized written authority
necessary to determine whether the waiver was validly accepted before from the corporation's board of directors. It bears to emphasize that
the expiration of the original three-year period.44 RDAO No. 05-01 mandates the authorized revenue official to ensure that
the waiver is duly accomplished and signed by the taxpayer or his
In another case,45 the waivers executed by the taxpayer's accountant authorized representative before affixing his signature to signify
were found defective for the following reasons: (1) the waivers were acceptance of the same; and in case the authority is delegated by the
executed without the notarized written authority of the taxpayer's taxpayer to a representative, as in this case, the concerned revenue
representative to sign the waiver on its behalf; (2) the waivers failed to official shall see to it that such delegation is in writing and duly notarized.
indicate the date of acceptance; and (3) the fact of receipt by the The waiver should not be accepted by the concerned BIR office and
taxpayer of its file copy was not indicated in the original copies of the official unless notarized.51
3. Similar to Standard Chartered Bank, the waivers in this case did not
In Commissioner of Internal Revenue v. The Stanley Works Sales specify the kind of tax and the amount of tax due. It is established that a
(Phils.), Inc.,47 the Court nullified the waivers because the following waiver of the statute of limitations is a bilateral agreement between the
requisites were absent: (1) conformity of either the CIR or a duly taxpayer and the BIR to extend the period to assess or collect deficiency
authorized representative; (2) date of acceptance showing that both taxes on a certain date.52 Logically, there can be no agreement if the kind
parties had agreed on the waiver before the expiration of the prescriptive and amount of the taxes to be assessed or collected were not indicated.
period; and (3) proof that the taxpayer was furnished a copy of the Hence, specific information in the waiver is necessary for its validity.
Verily, considering the foregoing defects in the waivers executed by STI,
The Court also invalidated the waivers executed by the taxpayer in the the periods for the CIR to assess or collect the alleged deficiency income
case o.f Commissioner of Internal Revenue v. Standard Chartered tax, deficiency EWT and deficiency VAT were not extended. The
Bank,49 because: (1) they were signed by Assistant Commissioner-Large assessments subject of this case, which were issued by the BIR beyond
Taxpayers Service and not by the CIR; (2) the date of acceptance was the three-year prescriptive, are therefore considered void and of no legal
not shown; (3) they did not specify the kind and amount of the tax due; effect. Hence, the CT A committed no reversible error in cancelling and
and (4) the waivers speak of a request for extension of time within which setting aside the subject assessments on the ground of prescription.
to present additional documents and not for reinvestigation and/or
reconsideration of the pending internal revenue case as required under STI is not estopped from invoking
RMO No. 20-90.50 the defense of prescription.

As regards the CIR's reliance on the case of RCBC and its insistence that
STI's request for reinvestigation, which resulted in a reduced
assessment, bars STI from raising the defense of prescription, the Court
finds the same bereft of merit.

As correctly stated by the CTA, RCBC is not on all fours with the instant
case. The estoppel upheld in the said case arose from the taxpayer's act
of payment and not on the reduction in the amount of the assessed
taxes. The Court explained that RCBC's partial payment of the revised
assessments effectively belied its insistence that the waivers are invalid
and the assessments were issued beyond the prescriptive period. Here,
as no such payment was made by STI, mere reduction of the amount of
the assessment because of a request for reinvestigation should not bar it
from raising the defense of prescription.

At this juncture, the Court deems it important to reiterate its ruling

in Commissioner of Internal Revenue v. Kudos Metal Corporation,53 that
the doctrine of estoppel cannot be applied as an exception to the statute
of limitations on the assessment of taxes considering that there is a
detailed procedure for the proper execution of the waiver, which the BIR
must strictly follow. The BIR cannot hide behind the doctrine of estoppel
to cover its failure to comply with RMO 20-90 and RDAO 05-01, which
the BIR itself had issued. Having caused the defects in the waivers, the
BIR must bear the consequence. It cannot simply shift the blame to the

WHEREFORE, premises considered, the instant petition for review is

hereby DENIED. The Decision dated March 24, 2015 and the Resolution
dated September 2, 2015 of the Court of Tax Appeals En Banc in CTA
EB No. 1050 are hereby AFFIRMED.


G.R. No. 203514 For Taxable Year 2005:


DECISION Sales/Revenues/Receipts/Fees

DEL CASTILLO, J.: Less: Cost of Sales/Services

Gross Income From Operation

The doctrine of stare decisis dictates that "absent any powerful
countervailing considerations, like cases ought to be decided alike."1
Add: Non-Operating & Other Income

This Petition for Review on Certiorari2 under Rule 45 ofTotal

the Rules
assails the May 9, 2012 Decision3 and the September 17, 2012
Resolution4 of the Court of Tax Appeals (CTA) in CTA EB Less: Deductions
Case No. 716.

Factual Antecedents Net Income Subject to Tax

On December 14, 2007, respondent St. Luke’s Medical Center, Inc.
(SLMC) received from the Large Taxpayers Service-Documents
Tax Due
Processing and Quality Assurance Division of the Bureau of Internal
Revenue (BIR) Audit Results/Assessment Notice Nos. Less:
QA-07- Tax Credits
000096 and QA-07-000097, assessing respondent SLMC deficiency
5 6

income tax under Section 27(B)7 of the 1997 National Internal Income Tax
Code (NIRC), as amended, for taxable year 2005 in the amount of
₱78,617,434.54 and for taxable year 2006 in the amountAdd:
of Increments
₱57,119,867.33. 25% Surcharge

On January 14, 2008, SLMC filed with petitioner Commissioner of Per Annum (4115/06-4/15/08)
20% Interest
Internal Revenue (CIR) an administrative protest8 assailing the
assessments. SLMC claimed that as a non-stock, non-profit Penalty for Late Payment
and social welfare organization under Section 30(E) and (G)9 of the 1997
NIRC, as amended, it is exempt from paying income tax.Total increments

Total Amount Due

On April 25, 2008, SLMC received petitioner CIR's Final Decision on the
Disputed Assessment10 dated April 9, 2008 increasing the deficiency
income for the taxable year 2005 tax to ₱82,419,522.21 and for the For Taxable Year 2006:
taxable year 2006 to ₱60,259,885.94, computed as follows:
ASSESSMENT NO. QA-07-000097 On August 26, 2010, the CTA Division rendered a Decision13 finding
SLMC not liable for deficiency income tax under Section 27(B) of the
1997 NIRC, as amended, since it is exempt from paying income tax
under Section 30(E) and (G) of the same Code. Thus:
eceipts/Fees ?3,8 l 5,922,240.00
WHEREFORE, premises considered, the Petition for Review is hereby
s/Services GRANTED. Accordingly, Audit Results/Assessment Notice Nos. QA-07-
000096 and QA-07-000097, assessing petitioner for alleged deficiency
m Operation 1,055,403,803.00
income taxes for the taxable years 2005 and 2006, respectively, are
g & Other Income -


moved for reconsideration but the CTA Division denied the same in
its December 28, 2010 Resolution.15
ct to Tax 415,256,084.00
This prompted CIR to file a Petition for Review16 before the CTA En Banc.
Ruling of the Court of Tax Appeals En Banc

On May 9, 2012, the - CTA En Banc affirmed the cancellation and setting
aside of the Audit Results/Assessment Notices issued against SLMC. It
Tax 41,525,608.40
sustained the findings of the CTA Division that SLMC complies with all
the requisites under Section 30(E) and (G) of the 1997 NIRC and thus,
entitled to the tax exemption provided therein.17
On September 17, 2012, the CTA En Banc denied CIR's Motion for
Annum (4/15/07-4/15/08) Reconsideration.

lty for Late Payment Issue 25,000.00

Hence, CIR filed the instant Petition under Rule 45 of the Rules of Court
contending that the
?60,259,885.94 11 CTA erred in exempting SLMC from the payment of

income tax.

Aggrieved, SLMC elevated the matter to the CTA via a Petition for Meanwhile, on September 26, 2012, the Court rendered a Decision in
Review,12 docketed as CTA Case No. 7789. G.R. Nos. 195909 and 195960, entitled Commissioner of Internal
Revenue v. St. Luke's Medical Center, Inc.,18 finding SLMC not entitled to
Ruling of the Court of Tax Appeals Division the tax exemption under Section 30(E) and (G) of the NIRC of 1997 as it
does not operate exclusively for charitable or social welfare purposes likewise submitted a letter25 from the BIR dated November 26, 2013 with
insofar as its revenues from paying patients are concerned. Thus, the attached Certification of Payment26 and application for abatement,27 which
Court disposed of the case in this manner: it earlier submitted to the Court in a related case, G.R. No. 200688,
entitled Commissioner of Internal Revenue v. St. Luke's Medical Center,
WHEREFORE, the petition of the Commissioner of Internal Revenue in Inc.28
G.R. No. 195909is PARTLY GRANTED. The Decision of the Court of Tax
Appeals En Banc dated 19 November 2010 and its Resolution dated 1 Thereafter, the parties submitted their respective memorandum.
March 2011 in CTA Case No. 6746 are MODIFIED. St. Luke's Medical
Center, Inc. is ORDERED TO PAY the deficiency income tax in 1998 CIR 's Arguments
based on the 10% preferential income tax rate under Section 27(B) of the
National Internal Revenue Code. However, it is not liable for surcharges CIR argues that under the doctrine of stare decisis SLMC is subject to
and interest on such deficiency income tax under Sections 248 and 249 10% income tax under Section 27(B) of the 1997 NIRC.29 It likewise
of the National Internal Revenue Code. All other parts of the Decision asserts that SLMC is liable to pay compromise penalty pursuant to
and Resolution of the Court of Tax Appeals are AFFIRMED. Section 248(A)30 of the 1997 NIRC for failing to file its quarterly income
tax returns.31
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is
DENIED for violating Section I, Rule 45 of the Rules of Court. As to the alleged payment of the basic tax, CIR contends that this does
not render the instant case moot as the payment confirmation submitted
SO ORDERED.19 by SLMC is not a competent proof of payment of its tax liabilities.32

Considering the foregoing, SLMC then filed a Manifestation and SLMC's Arguments
Motion20 informing the Court that on April 30, 2013, it paid the BIR the
amount of basic taxes due for taxable years 1998, 2000-2002, and 2004- SLMC, on the other hand, begs the indulgence of the Court to revisit its
2007, as evidenced by the payment confirmation21 from the BIR, and that ruling in G.R. Nos. 195909 and 195960 (Commissioner of Internal
it did not pay any surcharge, interest, and compromise penalty in Revenue v. St. Luke's Medical Center, Inc.)33 positing that earning a profit
accordance with the above-mentioned Decision of the Court. In view of by a charitable, benevolent hospital or educational institution does not
the payment it made, SLMC moved for the dismissal of the instant case result in the withdrawal of its tax exempt privilege.34 SLMC further claims
on the ground of mootness. that the income it derives from operating a hospital is not income from
"activities conducted for profit."35 Also, it maintains that in accordance with
CIR opposed the motion claiming that the payment confirmation the ruling of the Court in G.R. Nos. 195909 and 195960 (Commissioner
submitted by SLMC is not a competent proof of payment as it is a mere of Internal Revenue v. St. Luke's Medical Center, Inc.),36 it is not liable for
photocopy and does not even indicate the quarter/sand/or year/s said compromise penalties.37
payment covers.22
In any case, SLMC insists that the instant case should be dismissed in
In reply,23 SLMC submitted a copy of the Certification24 issued by the view of its payment of the basic taxes due for taxable years 1998, 2000-
Large Taxpayers Service of the BIR dated May 27, 2013, certifying that, 2002, and 2004-2007 to the BIR on April 30, 2013.38
"[a]s far as the basic deficiency income tax for taxable years 2000, 2001,
2002, 2004, 2005, 2006, 2007 are concen1ed, this Office considers the Our Ruling
cases closed due to the payment made on April 30, 2013." SLMC
SLMC is liable for income tax under of its purpose and there was no evidence that it was engaged in a profit-
Section 27(B) of the 1997 NIRC insofar making enterprise.
as its revenues from paying patients are
concerned The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it
was not charitable. Tue Court defined 'charity' in Lung Center of the
The issue of whether SLMC is liable for income tax under Section 27(B) Philippines v. Quezon City as 'a gift, to be applied consistently with
of the 1997 NIRC insofar as its revenues from paying patients are existing laws, for the benefit of an indefinite number of persons, either by
concerned has been settled in G.R. Nos. 195909 and bringing their minds and hearts under the influence of education or
195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, religion, by assisting them to establish themselves in life or [by] otherwise
Inc.),39 where the Court ruled that: lessening the burden of government.' A nonprofit club for the benefit of its
members fails this test. An organization may be considered as non-profit
x x x We hold that Section 27(B) of the NIRC does not remove the if it does not distribute any part of its income to stockholders or members.
income tax exemption of proprietary non-profit hospitals under Section However, despite its being a tax exempt institution, any income such
30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on institution earns from activities conducted for profit is taxable, as
the other hand, can be construed together without the removal of such expressly provided in the last paragraph of Section 30.
tax exemption. The effect of the introduction of Section 27(B) is to subject
the taxable income of two specific institutions, namely, proprietary non- To be a charitable institution, however, an organization must meet the
profit educational institutions and proprietary non-profit hospitals, among substantive test of charity in Lung Center. The issue in Lung
the institutions covered by Section 30, to the 10% preferential rate under Center concerns exemption from real property tax and not income tax.
Section 27(B) instead of the ordinary 30% corporate rate under the last However, it provides for the test of charity in our jurisdiction. Charity is
paragraph of Section 30 in relation to Section 27(A)(l). essentially a gift to an indefinite number of persons which lessens the
burden of government. In other words, charitable institutions provide for
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the free goods and services to the public which would otherwise fall on the
income of (1) proprietary non-profit educational institutions and (2) shoulders of government. Thus, as a matter of efficiency, the government
proprietary non-profit hospitals. The only qualifications for hospitals are forgoes taxes which should have been spent to address public needs,
that they must be proprietary and non-profit. 'Proprietary' means private, because certain private entities already assume a part of the burden.
following the definition of a 'proprietary educational institution' as 'any This is the rationale for the tax exemption of charitable institutions. The
private school maintained and administered by private individuals or loss of taxes by the government is compensated by its relief from doing
groups' with a government permit. 'Non-profit' means no net income or public works which would have been funded by appropriations from the
asset accrues to or benefits any member or specific person, with all the Treasury.
net income or asset devoted to the institution's purposes and all its
activities conducted not for profit. Charitable institutions, however, are not ipso facto entitled to a tax
exemption. The requirements for a tax exemption are specified by the law
'Non-profit' does not necessarily mean 'charitable.' In Collector of Internal granting it. The power of Congress to tax implies the power to exempt
Revenue v. Club Filipino, Inc. de Cebu, this Court considered as non- from tax. Congress can create tax exemptions, subject to the
profit a sports club organized for recreation and entertainment of its constitutional provision that '[n]o law granting any tax exemption shall be
stockholders and members. The club was primarily funded by passed without the concurrence of a majority of all the Members of
membership fees and dues. If it had profits, they were used for overhead Congress.' The requirements for a tax exemption are strictly construed
expenses and improving its golf course. The club was non-profit because against the taxpayer because an exemption restricts the collection of
taxes necessary for the existence of the government.
The Court in Lung Center declared that the Lung Center of the Section 30(E) of the NIRC provides that a charitable institution must be:
Philippines is a charitable institution for the purpose of exemption from
real property taxes. This ruling uses the same premise as Hospital de (1) A non-stock corporation or association;
San Juan and Jesus Sacred Heart College which says that receiving
income from paying patients does not destroy the charitable nature of a (2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
As a general principle, a charitable institution does not lose its character
as such and its exemption from taxes simply because it derives income
(4) No part of its net income or asset shall belong to or inure to the
from paying patients, whether outpatient, or confined in the hospital, or
benefit of any member, organizer, officer or any specific person.
receives subsidies from the government, so long as the money received
is devoted or used altogether to the charitable object which it is intended
to achieve; and no money inures to the private benefit of the persons Thus, both the organization and operations of the charitable institution
managing or operating the institution. must be devoted 'exclusively' for charitable purposes. The organization of
the institution refers to its corporate form, as shown by its articles of
incorporation, by-laws and other constitutive documents. Section 30(E) of
For real property taxes, the incidental generation of income is permissible
the NIRC specifically requires that the corporation or association be non-
because the test of exemption is the use of the property. The Constitution
stock, which is defined by the Corporation Code as 'one where no part of
provides that '[c]haritable institutions, churches and personages or
its income is distributable as dividends to its members, trustees, or
convents appurtenant thereto, mosques, non-profit cemeteries, and all
officers' and that any profit 'obtain[ed] as an incident to its operations
lands, buildings, and improvements, actually, directly, and exclusively
shall, whenever necessary or proper, be used for the furtherance of the
used for religious, charitable, or educational purposes shall be exempt
purpose or purposes for which the corporation was organized.' However,
from taxation.' The test of exemption is not strictly a requirement on the
under Lung Center, any profit by a charitable institution must not only be
intrinsic nature or character of the institution. The test requires that the
plowed back 'whenever necessary or proper,' but must be 'devoted or
institution use property in a certain way, i.e., for a charitable purpose.
used altogether to the charitable object which it is intended to achieve.'
Thus, the Court held that the Lung Center of the Philippines did not lose
its charitable character when it used a portion of its lot for commercial
purposes. The effect of failing to meet the use requirement is simply to The operations of the charitable institution generally refer to its regular
remove from the tax exemption that portion of the property not devoted to activities. Section 30(E) of the NIRC requires that these operations be
charity. exclusive to charity. There is also a specific requirement that 'no part of
[the] net income or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person.' The use of lands,
The Constitution exempts charitable institutions only from real property
buildings and improvements of the institution is but a part of its
taxes. In the NIRC, Congress decided to extend the exemption to income
taxes. However, the way Congress crafted Section 30(E) of the NIRC is
materially different from Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is There is no dispute that St. Luke's is organized as a non-stock and non-
exempt from income tax. On the other hand, Section 28(3), Article VI of profit charitable institution. However, this does not automatically exempt
the Constitution does not define a charitable institution, but requires that St. Luke's from paying taxes. This only refers to the organization of St.
the institution 'actually, directly and exclusively' use the property for a Luke's. Even if St. Luke's meets the test of charity, a charitable institution
charitable purpose. is not ipso facto tax exempt. To be exempt from real property taxes,
Section 28(3), Article VI of the Constitution requires that a charitable
institution use the property 'actually, directly and exclusively' for 'operated exclusively' for charitable purposes. Clearly, revenues from
charitable purposes. To be exempt from income taxes, Section 30(E) of paying patients are income received from 'activities conducted for profit.'
the NIRC requires that a charitable institution must be 'organized and Indeed, St. Luke's admits that it derived profits from its paying patients.
operated exclusively' for charitable purposes. Likewise, to be exempt St. Luke's declared ₱l,730,367,965 as 'Revenues from Services to
from income taxes, Section 30(G) of the NIRC requires that the institution Patients' in contrast to its 'Free Services' expenditure of ₱218,187,498. In
be 'operated exclusively' for social welfare. its Comment in G.R. No. 195909, St. Luke's showed the following
'calculation' to support its claim that 65.20% of its 'income after expenses
However, the last paragraph of Section 30 of the NIRC qualifies the was allocated to free or charitable services' in 1998.
words 'organized and operated exclusively' by providing that:
x x xx
Notwithstanding the provisions in the preceding paragraphs, the income
of whatever kind and character of the foregoing organizations from any of In Lung Center, this Court declared:
their properties, real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income, shall be '[e]xclusive' is defined as possessed and enjoyed to the exclusion of
subject to tax imposed under this Code. others; debarred from participation or enjoyment; and 'exclusively' is
defined, 'in a manner to exclude; as enjoying a privilege exclusively.' . . .
In short, the last paragraph of Section 30 provides that if a tax exempt The words 'dominant use' or 'principal use' cannot be substituted for the
charitable institution conducts 'any' activity for profit, such activity is not words 'used exclusively' without doing violence to the Constitution and
tax exempt even as its not-for-profit activities remain tax exempt. This thelaw. Solely is synonymous with exclusively.
paragraph qualifies the requirements in Section 30(E) that the '[n]on-
stock corporation or association [must be] organized and operated The Court cannot expand the meaning of the words 'operated exclusively'
exclusively for . . . charitable . . . purposes . . . . ' It likewise qualifies the without violating the NIRC. Services to paying patients are activities
requirement in Section 30(G) that the civic organization must be conducted for profit. They cannot be considered any other way. There is
'operated exclusively' for the promotion of social welfare. a 'purpose to make profit over and above the cost' of services. The ₱l.73
billion total revenues from paying patients is not even incidental to St.
Thus, even if the charitable institution must be 'organized and operated Luke's charity expenditure of ₱2l8,187,498 for non-paying patients.
exclusively' for charitable purposes, it is nevertheless allowed to engage
in 'activities conducted for profit' without losing its tax exempt status for its St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20%
not-for-profit activities. The only consequence is that the 'income of of its operating income in 1998. However, if a part of the remaining
whatever kind and character' of a charitable institution 'from any of its 34.80% of the operating income is reinvested in property, equipment or
activities conducted for profit, regardless of the disposition made of such facilities used for services to paying and non-paying patients, then it
income, shall be subject to tax.' Prior to the introduction of Section 27(B), cannot be said that the income is 'devoted or used altogether to the
the tax rate on such income from for-profit activities was the ordinary charitable object which it is intended to achieve.' The income is plowed
corporate rate under Section 27(A). With the introduction of Section back to the corporation not entirely for charitable purposes, but for profit
27(B), the tax rate is now 10%. as well. In any case, the last paragraph of Section 30 of the NIRC
expressly qualifies that income from activities for profit is taxable
In 1998, St. Luke's had total revenues of ₱l,730,367,965 from services to 'regardless of the disposition made of such income.'
paying patients. It cannot be disputed that a hospital which receives
approximately ₱l.73 billion from paying patients is not an institution

Jesus Sacred Heart College declared that there is no official legislative revenues from paying patients are concerned. This ruling is based not
record explaining the phrase 'any activity conducted for profit.' However, only on a strict interpretation of a provision granting tax exemption, but
it quoted a deposition of Senator Mariano Jesus Cuenco, who was a also on the clear and plain text of Section 30(E) and (G). Section 30(E)
member of the Committee of Conference for the Senate, which and (G) of the NIRC requires that an institution be 'operated exclusively'
introduced the phrase 'or from any activity conducted for profit.' for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax
P. Cuando ha hablado de la Universidad de Santo Tomas que tiene un exemption if it earns income from its for-profit activities. Such income
hospital, no cree V d que es una actividad esencial dicho hospital para el from for-profit activities, under the last paragraph of Section 30, is merely
funcionamiento def colegio de medicina subject to income tax, previously at the ordinary corporate rate but now at
the preferential 10% rate pursuant to Section 27(B).
de dicha universidad?
A tax exemption is effectively a social subsidy granted by the State
x x x x x x xxx because an exempt institution is spared from sharing in the expenses of
government and yet benefits from them. Tax exemptions for charitable
institutions should therefore be lin1ited to institutions beneficial to the
R. Si el hospital se limita a recibir enformos pobres, mi contestacion seria
public and those which improve social welfare. A profit-making entity
afirmativa; pero considerando que el hospital tiene cuartos de pago, y a
should not be allowed to exploit this subsidy to the detriment of the
los mismos generalmente van enfermos de buena posicion social
government and other taxpayers.
economica, lo que se paga por estos enfermos debe estar sujeto a
'income tax', y es una de las razones que hemos tenido para insertar las
palabras o frase 'or from any activity conducted for profit.' St. Luke's fails to meet the requirements under Section 30(E) and (G) of
the NIRC to be completely tax exempt from all its income. However, it
remains a proprietary non-profit hospital under Section 27(B) of the NIRC
The question was whether having a hospital is essential to an
as long as it does not distribute any of its profits to its members and such
educational institution like the College of Medicine of the University of
profits are reinvested pursuant to its corporate purposes. St. Luke's, as a
Santo Tomas. Senator Cuenco answered that if the hospital has paid
proprietary non-profit hospital, is entitled to the preferential tax rate of
1aw p++i1

rooms generally occupied by people of good economic standing, then it

10% on its net income from its for-profit activities.
should be subject to income tax. He said that this was one of the reasons
Congress inserted the phrase 'or any activity conducted for profit.'
St. Luke's is therefore liable for deficiency income tax in 1998 under
Section 27(B) of the NIRC. However, St. Luke's has good reasons to rely
The question in Jesus Sacred Heart College involves an educational
on the letter dated 6 June 1990 by the BIR, which opined that St. Luke's
institution. However, it is applicable to charitable institutions because
is 'a corporation for purely charitable and social welfare purposes' and
Senator Cuenco's response shows an intent to focus on the activities of
thus exempt from income tax. In Michael J Lhuillier, Inc. v. Commissioner
charitable institutions. Activities for profit should not escape the reach of
of Internal Revenue, the Court said that 'good faith and honest belief that
taxation. Being a non-stock and non-profit corporation does not, by this
one is not subject to tax on the basis of previous interpretation of
reason alone, completely exempt an institution from tax. An institution
government agencies tasked to implement the tax law, are sufficient
cannot use its corporate form to prevent its profitable activities from being
justification to delete the imposition of surcharges and interest.'40
A careful review of the pleadings reveals that there is no countervailing
The Court finds that St. Luke's is a corporation that is not 'operated
consideration for the Court to revisit its aforequoted ruling in G.R. Nos.
exclusively' for charitable or social welfare purposes insofar as its
195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's of the BIR dated May 27, 2013, and the letter from the BIR dated
Medical Center, Inc.). Thus, under the doctrine of stare decisis, which November 26, 2013 with attached Certification of Payment and
states that "[o]nce a case has been decided in one way, any other case application for abatement are sufficient to prove payment especially since
involving exactly the same point at issue x x x should be decided in the CIR never questioned the authenticity of these documents. In fact, in a
same manner,"41 the Court finds that SLMC is subject to 10% income tax related case, G.R. No. 200688, entitled Commissioner of Internal
insofar as its revenues from paying patients are concerned. Revenue v. St. Luke's Medical Center, lnc.,45 the Court dismissed the
petition based on a letter issued by CIR confirming SLMC's payment of
To be clear, for an institution to be completely exempt from income tax, taxes, which is the same letter submitted by SLMC in the instant case.
Section 30(E) and (G) of the 1997 NIRC requires said institution to
operate exclusively for charitable or social welfare purpose. But in case In fine, the Court resolves to dismiss the instant Petition as the same has
an exempt institution under Section 30(E) or (G) of the said Code earns been rendered moot by the payment made by SLMC of the basic taxes
income from its for-profit activities, it will not lose its tax exemption. for the taxable years 2005 and 2006, in the amounts of ₱49,919,496.40
However, its income from for-profit activities will be subject to income tax and ₱4 l,525,608.40, respectively.46
at the preferential 10% rate pursuant to Section 27(B) thereof.
WHEREFORE, the Petition is hereby DISMISSED.
SLMC is not liable for Compromise
Penalty. SO ORDERED.

As to whether SLMC is liable for compromise penalty under Section

248(A) of the 1997 NIRC for its alleged failure to file its quarterly income
tax returns, this has also been resolved in G.R Nos. 195909 and
195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center,
Inc.),42 where the imposition of surcharges and interest under Sections
24843 and 24944 of the 1997 NIRC were deleted on the basis of good faith
and honest belief on the part of SLMC that it is not subject to tax. Thus,
following the ruling of the Court in the said case, SLMC is not liable to
pay compromise penalty under Section 248(A) of the 1997 NIRC.

The Petition is rendered moot by the

payment made by SLMC on April 30,

However, in view of the payment of the basic taxes made by SLMC on

April 30, 2013, the instant Petition has become moot. 1avv phi 1

While the Court agrees with the CIR that the payment confirmation from
the BIR presented by SLMC is not a competent proof of payment as it
does not indicate the specific taxable period the said payment covers, the
Court finds that the Certification issued by the Large Taxpayers Service
FIRST DIVISION same grounds in the Motion to Dismiss in her Special and Affirmative defenses.

G.R. No. 197980, December 01, 2016 After hearing and the filing of Comment/Opposition on the Motion to Dismiss,
the former Second Division of this Court resolved to grant said motion on
October 28, 2009. Petitioner filed a motion for reconsideration thereon on
However, in an Order dated January 11, 2010, the case was ordered to be
DECISION transferred to the Third Division of this Court pursuant to CTA Administrative
Circular No. 01-2010, "Implementing the Fully Expanded Membership in the
LEONARDO-DE CASTRO, J.: Court of Tax Appeals".

Notwithstanding, on February 8, 2010, the former Second Division of this Court

This is an appeal from the Decision1 dated July 22, 2011 of the Court of Tax promulgated a Resolution which denied petitioner's Motion for
Appeals (CTA) En Banc in CTA E.B. Case No. 596, entitled "Deutsche Reconsideration.2
Knowledge Services Pte Ltd. v. Commissioner of Internal Revenue." The chanrobles law

aforementioned judgment affirmed with modification the Resolution dated Petitioner then filed a petition for review with the CTA En Banc. However, the
October 28, 2009 as well as the Resolution dated February 8, 2010 of the CTA said tribunal merely affirmed with modification the assailed resolutions and
(Former Second Division) in CTA Case No. 7921. Both resolutions disposed of dismissed petitioner's suit for having been prematurely filed prior to the
the petition for review and the subsequent motion for reconsideration filed by expiration of the 120-day period granted to respondent to resolve the tax
petitioner Deutsche Knowledge Services Pte. Ltd. before the CTA's former claim. The dispositive portion of the assailed July 22, 2011 Decision of the
Second Division with regard to the alleged inaction of respondent CTA En Banc reads: chanRoblesvirt ual Lawlib rary

Commissioner of Internal Revenue on the former's application for tax WHEREFORE, premises considered, the Resolution of the former Second
credit/refund of alleged excess and unutilized input Value-Added Tax (VAT). Division of this Court in CTA Case No. 7921, dated October 28, 2009 and its
Resolution, dated February 8, 2010, are hereby AFFIRMED with
The factual and procedural antecedents of this case were narrated in the July MODIFICATION. Accordingly, CTA Case No. 7921 is hereby DISMISSED for
22, 2011 Decision of the CTA En Banc in this wise: chanRoblesvi rtua lLawl ibra ry
having been prematurely filed pursuant to the case of Commissioner of
Internal Revenue v. Aichi Forging Company of Asia, Inc. No pronouncement as
to costs.3
Petitioner avers that on March 31, 2009, it filed an application for Tax chanrobles law

Hence, petitioner resorted to the present appeal, by way of a petition for

Credit/Refund of its allegedly excess and unutilized input VAT for the
review under Rule 45, wherein it cited the following errors allegedly committed
1st quarter of the calendar year 2007 in the amount of P12,549,446.30 with
respondent Commissioner of Internal Revenue (empowered to act upon and by the CTA En Banc:
approve claims for refund or tax credit as provided by law) through its BIR ASSIGNMENT OF ERRORS
Revenue District No. 47.

Citing inaction on the part of respondent, petitioner on April 17, 2009 filed a THE CTA EN BANC DECISION IS NOT IN ACCORD WITH LAW AND WITH
Petition for Review or [s]eventeen (17) days after petitioner filed an application THE RELEVANT DECISIONS OF THE SUPREME COURT, AND CONSTITUTE
for tax credit/refund with respondent based on Section 112 and 229 of the A DEPARTURE FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
National Internal Revenue Code of 1997, as amended.

However, on June 8, 2009, instead of an Answer respondent filed a Motion to

Dismiss on ground of prescription. Citing the case of Commissioner of Internal A.
Revenue v. Mirant Pagbilao Corporation (Mirant Case), respondent alleged that THE CTA EN BANC COMMITTED REVERSIBLE ERROR IN AFFIRMING
the Petition for Review was filed out of time on the ground of having been filed THAT THE CTA'S FORMER SECOND DIVISION COULD STILL RESOLVE
beyond the two-year prescriptive period. PETITIONER'S MOTION FOR RECONSIDERATION AFTER IT HAD LOST
A day after or on June 9, 2009, respondent filed an Answer again citing the DIVISION. chanroblesvirtuallawlibrary

chanrobles law

MEMORANDUM ON POLICY GUIDELINES DATED MARCH 12, 2002 In deciding the substantive aspect of petitioner's suit before it, the CTA En
("IBP-COA MEMORANDUM"). Banc ratiocinated that:chanRoblesvirtual Lawlib ra ry

[T]he substance of petitioner's argument is the alleged applicability of the

B.3 RESPONDENT LOST HER RIGHT TO ASSAIL THE FORMER SECOND Decision of the Supreme Court in the case of Atlas Consolidated Mining and
DIVISION'S JURISDICTION WHEN SHE SOUGHT RELIEF FROM THE Development Corporation v. Commissioner of Internal Revenue (Atlas Case)
COURT BY FILING A MOTION FOR EXTENSION OF TIME TO FILE promulgated on June 8, 2007 and the non-applicability of the case
ANSWER. of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant
Case), promulgated on September 12, 2008.
RESPONDENT'S FILING OF THE ANSWER, AND THUS, PRE-TRIAL AND In applying the Mirant Case in relation to Section 112, the former Second
Division held that the administrative claim was filed on time while the Petition
C. for Review before this Court's Division was filed out of time or beyond the two-
year prescriptive period, the close of the taxable first quarter of the calendar
THE CTA EN BANC ERRED IN NOT FINDING THAT PETITIONER'S year 2007 or March 31, 2007 as the reckoning period, it appearing that the
JUDICIAL CLAIM FOR REFUND WAS TIMELY FILED IN ACCORDANCE application for tax credit/refund was filed with the respondent on March 31,
WITH SECTION 112(C), TAX CODE IN RELATION TO THE TWO-YEAR 2009 and the petition for review was filed on April 17, 2009.
THE LETTER AND THE INTENT [OF THE] LAW AS WELL AS EXISTING However, in the case of Commissioner of Internal Revenue v. Aichi Forging
JURISPRUDENCE ALL POINT TO THE PRIMORDIAL SIGNIFICANCE OF Company of Asia, Inc., reiterating the "Mirant Case", the Supreme Court
THE TWO-YEAR PRESCRIPTIVE PERIOD: cralawlawlibrary categorically ruled that unutilized input VAT must be claimed within two years
after the close of the taxable quarter when the sales were made and that the
C.1 THE TWO-YEAR PRESCRIPTIVE PERIOD FOR THE FILING OF 120-day period is crucial in filing an appeal with this Court. The pertinent
CLAIMS FOR REFUND SHOULD BE RECKONED FROM THE DATE OF portion of which reads as follows: chanRob lesvi rtua lLawl ibra ry

FILING OF THE QUARTERLY VAT RETURN AS SETTLED IN ATLAS. "The pivotal question of when to reckon the running of the two-year
prescriptive period, however, has already been resolved in Commissioner of
C.2 THE CTA EN BANC ERRED IN FINDING THAT AICHIPREVAILS OVER Internal Revenu v. Mirant Pagbilao Corporation, where we ruled that Section
AND/OR OVERTURNED THE DOCTRINE IN ATLAS, WHICH UPHELD THE 112(A) of the NIRC is the applicable provision in determining the start of the
PRIMACY OF THE TWO-YEAR PERIOD UNDER SECTION 229, 1997 TAX two-year period for claiming a refund/credit of unutilized input VAT, and
CODE. THE LAW AND JURISPRUDENCE HAVE LONG ESTABLISHED THE Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply
DOCTRINE THAT THE TAXPAYER IS DUTY-BOUND TO OBSERVE THE only to instances of erroneous payment or illegal collection of internal revenue
In view of the foregoing, we find that the CTA En Banc erroneously applied taxpayer has 30 days within which to file an appeal with the CTA. As we see it
Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive then, the 120-day period is crucial in filing an appeal with the CTA.
period for claiming refund/credit of unuti1ized input VAT. To be clear, Section
112 of the NIRC is the pertinent provision for the refund/credit of input VAT. With regard to Commissioner of Internal Revenue v. Victorias Milling, Co.,
Thus, the two-year period should be reckoned from the close of the taxable Inc. relied upon by respondent, we find the same inapplicable as the tax
quarter when the sales were made. provision involved in that case is Section 306, now Section 229 of the NIRC.
And as already discussed, Section 229 does not apply to refunds/credits of
xxxx input VAT, such as the instant case.

Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from In fine, the premature filing of respondent's claim for refund/credit of input
the date of the submission of the complete documents in support of the VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was
application [for tax refund/credit]," within which to grant or deny the claim. In acquired by the CTA."
chanrobles law

case of full or partial denial by the CIR, the taxpayer's recourse is to file an In the instant case, the administrative claim or application for tax credit/refund
appeal before the CTA within 30 days from receipt of the decision of the CIR. of its allegedly excess and unutilized input VAT for the first quarter of taxable
However, if after the 120-day period the CIR fails to act on the application for year 2007 was filed on March 31, 2009 or within the two-year prescriptive
tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the period. Respondent had 120 days or until July 29, 2009 to determine the
CIR to CTA within 30 days. validity of the claim. However, petitioner filed an appeal by way of a petition
for review on April 17, 2009 or 17 days after the filing of the administrative
In this case, the administrative and the judicial claims were simultaneously claim. Apparently, petitioner did not wait for the decision of the CIR or the
filed on September 30, 2004. Obviously, respondent did not wait for the lapse of the 120-day period and this is in clear contravention of Section 112(D)
decision of the CIR or the lapse of the 120-day period. For this reason, we find [now Section 112(C)] of the 1997 NIRC, as amended, and of the doctrine laid
the filing of the judicial claim with the CTA premature. down in the Aichi case.

Respondent's assertion that the non-observance of the 120-day period is not Accordingly, we find the filing of an appeal by way of a petition for review
fatal to the filing of a judicial claim as long as both the administrative and the before this Court's former Second Division is strikingly similar with that of the
judicial claims are filed within the two-year prescriptive period has no legal facts in the Aichi Case. In both cases, the taxpayer (petitioner in the instant
basis. case) did not wait for the decision of the CIR or the lapse of the 120-day period
before the filing of an appeal by way of a petition for review before this Court.
There is nothing in Section 112 of the NIRC to support respondent's view.
Subsection (A) of the said provision states that "any VAT-registered person, Pertinently, our disquisitions in the case of Marubeni Philippines Corporation v.
whose sales are zero-rated or effectively zero-rated may, within two Commissioner of Internal Revenue of the applicability of Section 112 of the
yearsafter the close of the taxable quarter when the sales were made, apply 1997 NIRC and Aichi Case in the instant case are hereby adopted, as
for the issuance of a tax credit certificate or refund of creditable input tax follows: cha nRoblesv irt ual Lawlib rary

due or paid attributable to such sales." The phrase "within two (2) years x x x "A careful analysis of the above-mentioned cases Atlas, Mirant and Aichi clearly
apply for the issuance of a tax credit certificate or refund" refers to applications shows that the Atlas Case was an interpretation by the Supreme Court of the
for refund/credit filed with the CIR and not to appeals made to the CT A. This is 1977 NIRC, prior to its amendment by R.A. 7716; while
apparent in the first paragraph of subsection (D) of the same provision, which the Mirant and Aichi cases was an interpretation of the 1997 NIRC or the
states that the CIR has "120 days from the submission of complete documents application and interpretation of the amendatory provisions of the Tax Reform
in support of the application filed in accordance with Subsections (A) and Act of 1997.
(B)" within which to decide on the claim.
Significantly, it is emphasized that the premise of the Supreme Court's ruling in
In fact, applying the two-year period to judicial claims would render nugatory the Atlas Case was anchored on the need to harmonize the provisions on
Section 112(D) of the NIRC, which already provides for a specific period within Refund or Tax Credits of Input Tax under Section 106 (now Section 112) with
which a taxpayer should appeal the decision or inaction of the CIR. The second the two-year prescriptive period for instituting a suit or proceeding for the
paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a Recovery of Tax Erroneously or Illegaly paid under Section 230 (now Section
decision is issued by the CIR before the lapse of the 120-day period; and (2) 229) of the Tax Code of 1977, as amended, citing the cases of ACCRA
when no decision is made after the 120-day period. In both instances, the Investments Corporation v. Court of Appeals and Commissioner of Internal
Revenue v. TMX Sales, Inc. x x x. (1) if the CIR, through a specific ruling, misleads a particular taxpayer to
prematurely file a judicial claim with the CTA - that specific ruling is applicable
It was the advent of R.A. No. 7716 and R.A. 8424 when the legislature only to such particular taxpayer; and (2) if the CIR, through a general
specifically provided for a judicial recourse with the Court of Tax Appeals in interpretative rule issued under Section 4 of the NIRC, misleads all taxpayers
claiming unutilized input VAT refund/credit under Section 106(D) of the NIRC into filing prematurely judicial claims with the CTA - in these cases, the CIR
of 1977 (now Section 112 of the NIRC of 1997) within which the period of cannot later on be allowed to question the CTA's assumption of jurisdiction
thirty (30) days reckoned from the receipt of the decision of the CIR denying over such claim since equitable estoppel has set in as expressly authorized
the claim or after the expiration of a given period (now 120 days). under Section 246 of the NIRC.9

Accordingly, petitioner cannot blindly invoke the doctrine enunciated Pursuant to the CIR's power to interpret tax laws under Section 410 of the
in Atlas case in the instant case. As discussed above, the need to harmonize NIRC, the CIR issued BIR Ruling No. DA-489-03 which we considered in San
the provisions of Section 106 and Section 230 of the Tax Code of 1977 is no Roque as a general interpretative rule that may be relied upon by taxpayers
longer necessary nor applicable due to the clear legislative intent embodied in from the time the rule was issued up to its reversal by the CIR or by this Court,
the provisions of R.A. No. 7716 and R.A. 8424, which delineated specific thus, providing a valid claim for equitable estoppel under Section 246 of the
amendatory provision for the prescriptive period in claiming [administrative] NIRC, to wit: chanRoblesvi rtua lLawl ibra ry

and judicial claims for unutilized input VAT refund/credit."

chanrobles law
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or
In fine, we find that the Aichi Case is the prevailing doctrine in so far as the reversal of any of the rules and regulations promulgated in accordance with the
mandatory observance of the 120-30 day period under Section 112 of the NIRC preceding Sections or any of the rulings or circulars promulgated by the
of 1997 before filing an appeal with the Court of Tax Appeals and that Commissioner shall not be given retroactive application if the
the Atlas Case and Section 229 of the 1997 NIRC are not applicable in the revocation, modification or reversal will be prejudicial to the
instant case.5
chanrobles law
taxpayers, except in the following cases: cra lawlawlib rary

From the foregoing, it is apparent that the assailed July 22, 2011 ruling of the
CTA En Banc, in dismissing petitioner's appeal before it, relied on Section (a) Where the taxpayer deliberately misstates or omits material facts from his
112(C)6 of the 1997 National Internal Revenue Code (NIRC) as well as the return or any document required of him by the Bureau of Internal Revenue; ChanRobles Vi rtua lawlib rary

doctrine laid down by the First Division of this Court in Commissioner of

Internal Revenue v. Aichi Forging Company of Asia, Inc.7 (Aichi case) which (b) Where the facts subsequently gathered by the Bureau of Internal Revenue
states that the 120-day period is crucial in filing an appeal with the CTA. The are materially different from the facts on which the ruling is based; or
CTA En Banc was correct in so ruling since, at the time the assailed July 22,
2011 ruling was promulgated, the Aichi case was still the controlling (c) Where the taxpayer acted in bad faith. (Emphases supplied.)
chanrobles law

jurisprudence on the matter. We likewise held that Section 246 of the NIRC is not limited to a reversal only
by the CIR because the same expressly states "[a]ny revocation, modification
However, subsequent to the Aichi ruling and during the pendency of the case or reversal" without specifying who made the revocation, modification or
at bar, the Supreme Court En Banc resolved the consolidated cases involved reversal; hence, a reversal by this Court is covered under the said tax
in Commissioner of Internal Revenue v. San Roque Power Corporation8 (San provision.11
Roque case) and stated that a judicial claim for refund of input VAT which was
filed with the CTA before the lapse of the 120-day period under Section 112 of Thus, we elaborated in San Roque that a reversal of a BIR regulation or ruling
the NIRC is considered to have been timely made, if such filing occurred after cannot adversely prejudice a taxpayer who in good faith relied on the BIR
the issuance of the Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 regulation or ruling prior to its reversal and that taxpayers should not be
dated December 10, 2003 but before the adoption of the Aichi doctrine which prejudiced by an erroneous interpretation by the CIR, particularly on a difficult
was promulgated on October 6, 2010. question of law. We quote the relevant portion of San Roque here: cha nRoblesvi rt ualLaw lib rary

Taxpayers should not be prejudiced by an erroneous interpretation by the

In San Roque, we recognized that prior to BIR Ruling No. DA-489- 03, which Commissioner, particularly on a difficult question of law. The abandonment of
expressly stated that the "taxpayer-claimant need not wait for the lapse of the the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
120-day period before it could seek judicial relief with the CTA by way of prescriptive periods for input VAT tax refund or credit is a difficult question of
Petition for Review," the Commissioner of Internal Revenue (CIR) was correct law. The abandonment of the Atlas doctrine did not result in Atlas, or other
in considering the 120-day period as mandatory and jurisdictional before a taxpayers similarly situated, being made to return the tax refund or credit they
judicial claim can be filed. Nevertheless, we cited two exceptions to this rule: received or could have received under Atlas prior to its abandonment. This
Court is applying Mirant and Atlas prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under
Section 246, should also apply prospectively. x x x.12
chanrobles law

In the present case, the records indicate that petitioner filed its administrative
claim for tax credit/refund of its allegedly excess and unutilized input VAT for
the 1st quarter of the calendar year 2007 in the amount of P12,549,446.30
with respondent on March 31, 2009. Subsequently, petitioner filed its judicial
claim on the same matter through a petition for review with the CTA on April
17, 2009. It is undisputed that the aforementioned date of filing falls within the
period following the issuance of BIR Ruling No. DA-489-03 on December 10,
2003 but before the promulgation of the Aichi case on October 6, 2010. In
accordance with the doctrine laid down in San Roque, we rule that petitioner's
judicial claim had been timely filed and should be given due course and
consideration by the CTA.

In light of the foregoing, we find it unnecessary to pass upon the other issues
raised in the petition.

WHEREFORE, the petition is GRANTED. The Decision dated July 22, 2011 of
the Court of Tax Appeals En Banc in CTA EB Case No. 596
is REVERSED and SET ASIDE. The Court of Tax Appeals is
hereby ORDERED to proceed with the hearing and resolution of CTA Case No.


the purpose of expanding its business operations as real estate broker.
G.R. No. 85749 May 15, 1989
The request for reinvestigation was granted on condition that a waiver of
the statute of limitations should be filed by the private respondent. The
COMMISSIONER OF INTERNAL REVENUE, petitioner, latter replied that there was no need of a waiver of the statute of
vs. limitaitons because the right of the Government to assess said tax does
APPEALS, respondents.
No investigation was conducted nor a decision rendered on Antonio
The Office of the Solicitor General for petitioner. Tuazon Inc.'s protest. meantime, the Revenue Commissioner issued
warrants of distraint and levy to enforce collection of the total amount
Mendoza & Papa and Roman M. Umali for private respondent. originally assessed including the amounts already paid.

The private respondent filed a petition for review in the Court of Tax
Appeals with a request that pending determination of the case on the
GRIÑO-AQUINO, J.: merits, an order be issued restraining the Commissioner and/or his
representatives from enforcing the warrants of distraint and levy. Since
Elevated to this Court for review is the decision dated October 14, 1988 the right asserted by the Commissioner to collect the taxes involved
of the Court of Tax Appeals in CTA Case No. 3865, entitled "Antonio herein by the summary methods of distraint and levy was not clear, and it
Tuason, Inc. vs. Commissioner of Internal Revenue," which set aside the was shown that portions of the tax liabilities involved in the assessment
petitioner Revenue Commissioner's assessment of P1,151,146.98 as the had already been paid, a writ of injunction was issued by the Tax Court
25% surtax on the private respondent's unreasonable accumulation of on November 26, 1984, ordering the Commissioner to refrain fron
surplus for the years 1975-1978. enforcing said warrants of distraint and levy. It did not require the
petitioner to file a bond (Annex A, pp. 28-30, Rollo).
Under date of February 27, 1981, the petitioner, Commissioner of Internal
Revenue, assessed Antonio Tuason, Inc. In view of the reversal of the Commissioner's decision by the Court of
Tax Appeals, the petitioner appealed to this Court, raising the following
a. Deficiency income tax for the years 1975,1976 and 1978 . issues:
. . . . . . ……………………..………… P37,491.83.
1. Whether or not private respondent Antonio Tuason,
(b) Deficiency corporate quarterly income tax for the first Inc. is a holding company and/or investment company;
quarter of 1975 . . . …. . . . . . . . . . . . . . . . . . 161.49.
2. Whether or not privaaate respondent Antonio Tuason,
(c) 25% surtax on unreasonable accumulation of surplus Inc. accumulated surplus for the years 1975 to 1978; and
for the years 1975-1978 . . . . . . . . . . . . 1,151,146.98.
3. Whether or not Antonio Tuason, Inc. is liable for the
The private respondent did not object to the first and second items and, 25% surtax on undue accumulation of surplus for the
therefore, paid the amounts demanded. However, it protested the years 1975 to 1978.
assessment on a 25% surtax on the third item on the ground that the
accumulation of surplus profits during the years in question was solely for
Section 25 of the Tax Code at the time the surtax was assessed, The Court of Tax Appeals conceded that the Revenue Commissioner's
provided: determination that Antonio Tuason, Inc. was a mere holding or
investment company, was "presumptively correct" (p. 7, Annex A), for the
Sec. 25. Additional tax on corporation improperly corporation did not involve itself in the development of subdivisions but
accumulating profits or surplus.— merely subdivided its own lots and sold them for bigger profits. It derived
its income mostly from interest, dividends and rental realized from the
(a) Imposition of tax. — If any corporation, except banks, sale of realty.
insurance companies, or personal holding companies,
whether domestic or foreign, is formed or availed of for Another circumstance supporting that presumption is that 99.99% in
the purpose of preventing the imposition of the tax upon value of the outstanding stock of Antonio Tuason, Inc., is owned by
its shareholders or members or the shareholders or Antonio Tuason himself. The Commissioner "conclusively presumed" that
members of another corporation, through the medium of when the corporation accumulated (instead of distributing to the
permitting its gains and profits to accumulate instead of shareholders) a surplus of over P3 million fron its earnings in 1975 up to
being divided or distributed, there is levied and assessed 1978, the purpose was to avoid the imposition of the progressive income
against such corporation, for each taxable year, a tax tax on its shareholders.
equal to twenty-five per centum of the undistributed
portion of its accumulated profits or surplus which shall be That Antonio Tuason, Inc. accumulated surplus profits amounting to
in addition to the tax imposed by section twenty-four, and P3,263,305.88 for 1975 up to 1978 is not disputed. However, the private
shall be computed, collected and paid in the same respondent vehemently denies that its purpose was to evade payment of
manner and subject to the same provisions of law, the progressive income tax on such dividends by its stockholders.
including penalties, as that tax. According to the private respondent, surplus profits were set aside by the
company to build up sufficient capital for its expansion program which
(b) Prima facie evidence. — The fact that any corporation included the construction in 1979-1981 of an apartment building, and the
is a mere holding company shall be prima facie evidence purchase in 1980 of a condominium unit which was intended for resale or
of a purpose to avoid the tax upon its shareholders or lease.
members. Similar presumption will lie in the case of an
investment company where at any time during the taxable However, while these investments were actually made, the
year more than fifty per centum in value of its outstanding Commissioner points out that the corporation did not use up its surplus
stock is owned, directly or indirectly, by one person. profits. It allegation that P1,525,672.74 was spent for the construction of
an apartment building in 1979 and P1,752,332.87 for the purchase of a
(c) Evidence determinative of purpose. — The fact that condominium unit in Urdaneta Village in 1980 was refuted by the
the earnings or profits of a corporation are permitted to Declaration of Real Property on the apartment building (Exh. C) which
accumulate beyond the reasonable needs of the business shows that its market value is only P429,890.00, and the Tax Declaration
shall be determinative of the purpose to avoid the tax on the condominium unit which reflects a market value of P293,830.00
upon its shareholders or members unless the corporation, only (Exh. D-1). The enormous discrepancy between the alleged
by clear preponderance of evidence, shall prove the investment cost and the declared market value of these pieces of real
contrary. estate was not denied nor explained by the private respondent.

The petition for review is meritorious.

Since the company as of the time of the assessment in 1981, had
invested in its business operations only P 773,720 out of its accumulated
surplus profits of P3,263,305.88 for 1975-1978, its remaining
accumulated surplus profits of P2,489,858.88 are subject to the 25%

All presumptions are in favor of the correctness of petitioner's

assessment against the private respondent. It is incumbent upon the
taxpayer to prove the contrary (Mindanao Bus Company vs.
Commissioner of Internal Revenue, 1 SCRA 538). Unfortunately, the
private respondent failed to overcome the presumption of correctness of
the Commissioner's assessment.

The touchstone of liability is the purpose behind the accumulation of the

income and not the consequences of the accumulation. Thus, if the
failure to pay dividends were for the purpose of using the undistributed
earnings and profits for the reasonable needs of the business, that
purpose would not fall within the interdiction of the statute" (Mertens Law
of Federal Income Taxation, Vol. 7, Chapter 39, p. 45 cited in Manila
Wine Merchants, Inc. vs. Commissioner of Internal Revenue, 127 SCRA
483, 493).

It is plain to see that the company's failure to distribute dividends to its

stockholders in 1975-1978 was for reasons other than the reasonable
needs of the business, thereby falling within the interdiction of Section 25
of the Tax Code of 1977.

WHEREFORE, the appealed decision of the Court of Tax Appeals is

hereby set aside. The petitioner's assessment of a 25% surtax against
the Antonio Tuason, Inc. is reinstated but only on the latter's unspent
accumulated surplus profits of P2,489,585.88. No costs.


effective March 10, 1987, subject to the following
G.R. No. 87479 June 4, 1990
conditions: 1
as well as the Memorandum of Executive Secretary Catalino Macaraig,
which also states thus:
NUÑEZ, respondents. Pursuant to Sections 1 (f) and 2 (e) of Executive Order
No. 93, series of 1986, FIRB Resolution No. 17-87, series
of 1987, restoring, subject to certain conditions prescribed
Romulo L. Ricafort and Jesus R. Cornago for respondents.
therein, the tax and duty exemption privileges of NPC as
provided under Commonwealth Act No. 120, as
amended, effective March 10, 1987, is hereby confirmed
and approved. 2
On March 10, 1989, the Court resolved to issue a temporary restraining
The National Power Corporation (NAPOCOR) questions the power of the provincial government of
Albay to collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, order directing the Albay provincial government "to CEASE AND DESIST
1984 up to March 10, 1987. from selling and disposing of the NAPOCOR properties subject matter of
this petition. 3 It appears, however, that "the temporary restraining order
It appears that on March 14 and 15, 1989, the respondents caused the failed to reach respondents before the scheduled bidding at 10:00 a.m.
publication of a notice of auction sale involving the properties of on March 30, 1989 ... [h]ence, the respondents proceeded with the
NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, bidding wherein the Province of Albay was the highest bidder. 4
machines, and similar improvements standing on their offices at Tiwi,
Albay. The amounts to be realized from this advertised auction sale are The Court gathers from the records that:
supposed to be applied to the tax delinquencies claimed, as and for, as
we said, real property taxes. The back taxes NAPOCOR has supposedly (1) Under Section 13, of Republic Act No. 6395, amending
accumulated were computed at P214,845,184.76. Commonwealth Act No. 120 (charter of NAPOCOR):

NAPOCOR opposed the sale, interposing in support of its non-liability Section 13. Non-profit Character of the Corporation;
Resolution No. 17-87, of the Fiscal Incentives Review Board (FIRB), Exemption from All Taxes, Duties, Fees, Imposts and
which provides as follows: Other Charges by the Government and Government
Instrumentalities. The Corporation shall be non-profit and
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That shall devote all its returns from its capital investment as
the tax and duty exemption privileges of the National well as excess revenues from its operation, for expansion,
Power Corporation, including those pertaining to its To enable the Corporation to pay its indebtedness and
domestic purchases of petroleum and petroleum obligations and in furtherance and effective
products, granted under the terms and conditions of implementation of the policy enunciated in Section One of
Commonwealth Act No. 120 (Creating the National Power this Act, the Corporation, including its subsidiaries, is
Corporation, defining its powers, objectives and functions, hereby declared exempt from the payment of all forms of
and for other purposes), as amended, are restored taxes, duties, fees, imposts as well as costs and service
fees including filing fees, appeal bonds, supersedeas controlled corporations including their subsidiaries are
bonds, in any court or administrative proceedings. 5 hereby withdrawn. 7

(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, (4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring"
creating the Fiscal Incentives Review Board (FIRB). Among other things, NAPOCOR's tax exemption effective June 11, 1984 to June 30, 1985;
the Board was tasked as follows:
(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax
Section 2. A Fiscal Incentives Review Board is hereby exemption privileges to NAPOCOR from July 1, 1985 and indefinitely
created for the purpose of determining what subsidies thereafter;
and tax exemptions should be modified, withdrawn,
revoked or suspended, which shall be composed of the (6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving
following officials: NAPOCOR tax exemption privileges effective until March 10, 1987; 8

Chairman - Secretary of Finance (7) On December 17, 1986, Executive Order No. 93 was promulgated by
Members - Secretary of Industry President Corazon Aquino, providing, among other things, as follows:
- Director General of the National Economic and
Development Authority SECTION 1. The provisions of any general or special law
- Commissioner of Internal Revenue to the contrary notwithstanding, all tax and duty incentives
- Commissioner of Customs granted to government and private entities are hereby
withdrawn, except. 9
The Board may recommend to the President of the
Philippines and for reasons of compatibility with the and
declared economic policy, the withdrawal, modification,
revocation or suspension of the enforceability of any of
SECTION 2. The Fiscal Incentives Review Board created
the abovestated statutory subsidies or tax exemption
under Presidential Decree No. 776, as amended, is
grants, except those granted by the Constitution. To attain
hereby authorized to:
its objectives, the Board may require the assistance of
any appropriate government agency or entity. The Board
shall meet once a month, or oftener at the call of the a) restore tax and/or duty exemptions withdrawn
Secretary of Finance. 6 hereunder in whole or in part;

(3) On June 11, 1984, Presidential Decree No. 1931 was b) revise the scope and coverage of tax and/or duty
promulgated, prescribing, among other things, that: exemption that may be restored;

Section 1. The provisions of special or general law to the c) impose conditions for the restoration of tax and/or duty
contrary notwithstanding, all exemptions from the exemption;
payment of duties, taxes, fees, impost and other charges
heretofore granted in favor of government-owned or d) prescribe the date or period of effectivity of the
restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a As we said, the FIRB, under its charter, Presidential Decree No. 776, had
complete system for the grant of subsidies to deserving been empowered merely to "recommend" tax exemptions. By itself, it
beneficiaries, in lieu of or in combination with the could not have validly prescribed exemptions or restore taxability. Hence,
restoration of tax and duty exemptions or preferential as of June 11, 1984 (promulgation of Presidential Decree No. 1931),
treatment in taxation, indicating the source of funding NAPOCOR had ceased to enjoy tax exemption privileges.
therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration The fact that under Executive Order No. 93, the FIRB has been given the
the international commitments of the Philippines and the prerogative to "restore tax and/or duty exemptions withdrawn hereunder
necessary precautions such that the grant of subsidies in whole or in part," 13 and "impose conditions for ... tax and/or duty
does not become the basis for countervailing action. 10 exemption" 14 is of no moment. These provisions are prospective in
character and can not affect the Board's past acts.
(8) On October 5, 1987, the Office of the President issued the
Memorandum, confirming NAPOCOR's tax exemption aforesaid. 11 The Court is aware that in its preamble, Executive Order No. 93 states:

The provincial government of Albay now defends the auction sale in WHEREAS, a number of affected entities, government and private were
question on the theory that the various FIRB issuances constitute an able to get back their tax and duty exemption privileges through the
undue delegation of the taxing Power and hence, null and void, under the review mechanism implemented by the Fiscal Incentives Review Board
Constitution. It is also contended that, insofar as Executive Order No. 93 (FIRB); 15but by no means can we say that it has "ratified" the acts of
authorizes the FIRB to grant tax exemptions, the same is of no force and FIRB. It is to misinterpret the scope of FIRB's powers under Presidential
effect under the constitutional provision allowing the legislature alone to Decree No. 776 to say that it has. Apart from that, Section 2 of the
accord tax exemption privileges. Executive Order was clearly intended to amend Presidential Decree No.
776, which means, mutatis mutandis, that FIRB did not have the right, in
It is to be pointed out that under Presidential Decree No. 776, the power the first place, to grant tax exemptions or withdraw existing ones.
of the FIRB was merely to "recommend to the President of the
Philippines and for reasons of compatibility with the declared economic Does Executive Order No. 93 constitute an unlawful delegation of
policy, the withdrawal, modification, revocation or suspension of the legislative power? It is to be stressed that the provincial government of
enforceability of any of the above-cited statutory subsidies or tax Albay admits that as of March 10, 1987 (the date Resolution No. 17-87
exemption grants, except those granted by the Constitution." It has no was affirmed by the Memorandum of the Office of the President, dated
authority to impose taxes or revoke existing ones, which, after all, under October 5, 1987), NAPOCOR's exemption had been validly restored.
the Constitution, only the legislature may accomplish. 12 The question What it questions is NAPOCOR's liability in the interregnum between
therefore is whether or not the various tax exemptions granted by virtue June 11, 1984, the date its tax privileges were withdrawn, and March 10,
of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and 1987, the date they were purportedly restored. To be sure, it objects to
constitutional. Executive Order No. 93 as alledgedly a delegation of legislative power,
but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987
We shall deal with FIRB No. 17-87 later, but with respect to FIRB tax accumulation is concerned. We therefore leave the issue of
Resolutions Nos. 10- 85 and 1-86, we sustain the provincial government "delegation" to the future and its constitutionality when the proper case
of Albay. arises. For the nonce, we leave Executive Order No. 93 alone, and so
also, its validity as far as it grants tax exemptions (through the FIRB)
beginning December 17, 1986, the date of its promulgation.

NAPOCOR must then be held liable for the intervening years aforesaid. (1) Five per cent of the real property tax collections of the
So it has been held: province and another five percent of the collections of the
municipality shall accrue to the barrio where the property
xxx xxx xxx subject to the tax is situated.

The last issue to be resolved is whether or not the private- (2) In the case of the city, ten per cent of the collections of
respondent is liable for the fixed and deficiency the tax shag likewise accrue to the barrio where the
percentage taxes in the amount of P3,025.96 (i.e. for the property is situated.
period from January 1, 1946 to February 29, 1948) before
the approval of its municipal franchises. As aforestated, Thirty per cent of the barrio shares herein referred to may be spent for
the franchises were approved by the President only on salaries or per diems of the barrio officials and other administrative
February 24,1948. Therefore, before the said date, the expenses, while the remaining seventy per cent shall be utilized for
private respondent was liable for the payment of development projects approved by the Secretary of Local Government
percentage and fixed taxes as seller of light, heat, and and Community Development or by such committee created, or
power which, as the petitioner claims, amounted to representatives designated, by him.
P3,025.96. The legislative franchise (R.A. No. 3843)
exempted the grantee from all kinds of taxes other than SEC. 87. Application of proceeds. — (a) The proceeds of
the 2% tax from the date the original franchise was the real property tax pertaining to the city and to the
granted. The exemption, therefore, did not cover the municipality shall accrue entirely to their respective
period before the franchise was granted, i.e. before general funds. In the case of the province, one-fourth
February 24, 1948. ... 16 thereof shall accrue to its road and bridge fund and the
remaining three-fourths, to its general fund.
Actually, the State has no reason to decry the taxation of NAPOCOR's
properties, as and by way of real property taxes. Real property taxes, (b) The entire proceeds of the additional one per cent real
after all, form part and parcel of the financing apparatus of the property tax levied for the Special Education Fund
Government in development and nation-building, particularly in the local created under R.A. No. 5447 collected in the province or
government level, Thus: city on real property situated in their respective territorial
jurisdictions shall be distributed as follows:
SEC. 86. Distribution of proceeds. — (a) The proceeds of
the real property tax, except as otherwise provided in this (1) Collections in the provinces: Fifty per cent shall accrue
Code, shall accrue to the province, city or municipality to the municipality where the property subject to the tax is
where the property subject to the tax is situated and shall situated; twenty per cent shall accrue to the province; and
be applied by the respective local government unit for its thirty per cent shall be remitted to the Treasurer of the
own use and benefit. Philippines to be expended exclusively for stabilizing the
Special Education Fund in municipalities, cities and
(b) Barrio shares in real property tax collections. — The provinces in accordance with the provisions of Section
annual shares of the barrios in real property tax seven of R.A. No. 5447.
collections shall be as follows:

(2) Collections in the cities: Sixty per cent shall be To all intents and purposes, real property taxes are funds taken by the
retained by the city; and forty per cent shall be remitted to State with one hand and given to the other. In no measure can the
the Treasurer of the Philippines to be expended Government be said to have lost anything.
exclusively for stabilizing the special education fund in
municipalities, cities and provinces as provided under As a rule finally, claims of tax exemption are construed strongly against
Section 7 of R.A. No. 5447. the claimant. 18 They must also be shown to exist clearly and
categorically, and supported by clear legal provisions. 19
However, any increase in the shares of
provinces, cities and municipalities from Taxes are the lifeblood of the nation. 20 Their primary purpose is to
said additional tax accruing to their generate funds for the State to finance the needs of the citizenry and to
respective local school boards advance the common weal.
commencing with fiscal year 1973-74 over
what has been actually realized during the WHEREFORE, the petition is DENIED. No costs. The auction sale of the
fiscal year 1971-72 which, for purposes of petitioner's properties to answer for real estate taxes accumulated
this Code, shall remain as the based year, between June 11, 1984 through March 10, 1987 is hereby declared
shall be divided equally between the valid.
general fund and the special education
fund of the local government units
concerned. The Secretary of Finance
may, however, at his discretion, increase
to not more than seventy-five per cent the
amount that shall accrue annually to the
local general fund.

(c) The proceeds of all delinquent taxes and penalties, as

well as the income realized from the use, lease or other
disposition of real property acquired by the province or
city at a public auction in accordance with the provisions
of this Code, and the proceeds of the sale of the
delinquent real property or, of the redemption thereof
shall accrue to the province, city or municipality in the
same manner and proportion as if the tax or taxes had
been paid in regular course.

(d) The proceeds of the additional real property tax on

Idle private lands shall accrue to the respective general
funds of the province, city and municipality where the land
subject to the tax is situated. 17

[G.R. No. 112675. January 25, 1999] CORPORATION; PERLACOMPANIA DE
CO., INC.all assessed as POOL OF
MACHINERY INSURERS, petitioners, vs.
INTERNAL REVENUE, respondents.
Pursuant to reinsurance treaties, a number of local insurance firms Breakdown, Boiler Explosion and Contractors All Risk insurance policies, the
formed themselves into a pool in order to facilitate the handling of petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft
business contracted with a nonresident foreign reinsurance (hereafter called Munich), a non-resident foreign insurance corporation. The
company. May the clearing house or insurance pool so formed be reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool
deemed a partnership or an association that is taxable as a corporation composed of the petitioners was formed on the same day.
under the National Internal Revenue Code (NIRC)? Should the pools
remittances to the member companies and to the said foreign firm be On April 14, 1976, the pool of machinery insurers submitted a financial statement
taxable as dividends? Under the facts of this case, has the governments and filed an Information Return of Organization Exempt from Income Tax for the
year ending in 1975, on the basis of which it was assessed by the Commissioner of
right to assess and collect said tax prescribed? Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and
withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid
to Munich and to the petitioners, respectively. These assessments were protested by
The Case the petitioners through its auditors Sycip, Gorres, Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and
These are the main questions raised in the Petition for Review ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiency
on Certiorari before us, assailing the October 11, 1993 Decision[1] of income tax, interest, and with[h]olding tax, itemized as follows:
the Court of Appeals[2]in CA-GR SP 29502, which dismissed
Net income per information
petitioners appeal of the October 19, 1992 Decision[3] of the Court of return P3,737,370.00
Tax Appeals[4] (CTA) which had previously sustained petitioners
liability for deficiency income tax, interest and withholding tax. The ===========
Court of Appeals ruled: Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
WHEREFORE, the petition is DISMISSED, with costs against petitioners. [5] to 4/15/79 545,193.60
TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE ===========
The petition also challenges the November 15, 1993 Court of
Appeals (CA) Resolution[6] denying reconsideration. Dividend paid to Munich
Reinsurance Company P3,728,412.00
The Facts
35% withholding tax at
source due thereon P1,304,944.20
The antecedent facts,[7] as found by the Court of Appeals, are as Add: 25% surcharge 326,236.05
follows: 14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penalty-
The petitioners are 41 non-life insurance corporations, organized and existing under
non-filing of return 300.00
the laws of the Philippines. Upon issuance by them of Erection, Machinery
late payment 300.00
TOTAL AMOUNT DUE & P1,768,799.39 3.Whether or not the respondent Commissioners right to assess the Clearing House
COLLECTIBLE =========== had already prescribed.[10]

Dividend paid to Pool Members P 655,636.00

=========== The Courts Ruling

10% withholding tax at

source due thereon P 65,563.60 The petition is devoid of merit. We sustain the ruling of the Court
Add: 25% surcharge 16,390.90
14% interest from
of Appeals that the pool is taxable as a corporation, and that the
1/25/76 to 1/25/79 6,884.18 governments right to assess and collect the taxes had not prescribed.
Compromise penalty-
non-filing of return 300.00
late payment 300.00 First Issue:
TOTAL AMOUNT DUE & P 89,438.68 Pool Taxable as a Corporation
COLLECTIBLE ===========[8]

The CA ruled in the main that the pool of machinery insurers was Petitioners contend that the Court of Appeals erred in finding that
a partnership taxable as a corporation, and that the latters collection of the pool or clearing house was an informal partnership, which was
premiums on behalf of its members, the ceding companies, was taxable as a corporation under the NIRC. They point out that the
taxable income. It added that prescription did not bar the Bureau of reinsurance policies were written by them individually and separately,
Internal Revenue (BIR) from collecting the taxes due, because the and that their liability was limited to the extent of their allocated share
taxpayer cannot be located at the address given in the information in the original risks thus reinsured.[11] Hence, the pool did not act or
return filed. Hence, this Petition for Review before us.[9] earn income as a reinsurer.[12] Its role was limited to its principal
function of allocating and distributing the risk(s) arising from the
original insurance among the signatories to the treaty or the members
The Issues of the pool based on their ability to absorb the risk(s) ceded[;] as well
as the performance of incidental functions, such as records,
maintenance, collection and custody of funds, etc.[13]
Before this Court, petitioners raise the following issues:
Petitioners belie the existence of a partnership in this case,
1.Whether or not the Clearing House, acting as a mere agent and performing strictly because (1) they, the reinsurers, did not share the same risk or solidary
administrative functions, and which did not insure or assume any risk in its own liability;[14] (2) there was no common fund;[15] (3) the executive board
name, was a partnership or association subject to tax as a corporation;
of the pool did not exercise control and management of its funds,
unlike the board of directors of a corporation;[16] and (4) the pool or
2.Whether or not the remittances to petitioners and MUNICHRE of their respective
shares of reinsurance premiums, pertaining to their individual and separate contracts clearing house was not and could not possibly have engaged in the
of reinsurance, were dividends subject to tax; and business of reinsurance from which it could have derived income for
The Court is not persuaded. The opinion or ruling of the SEC. 27. Rates of Income Tax on Domestic Corporations. --
Commission of Internal Revenue, the agency tasked with the
enforcement of tax laws, is accorded much weight and even finality, (A) In General. -- Except as otherwise provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed upon the taxable income derived during
when there is no showing that it is patently wrong,[18] particularly in each taxable year from all sources within and without the Philippines by every
this case where the findings and conclusions of the internal revenue corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as
commissioner were subsequently affirmed by the CTA, a specialized a corporation xxx.
body created for the exclusive purpose of reviewing tax cases, and the
Court of Appeals.[19] Indeed, SEC. 22. -- Definition. -- When used in this Title:

[I]t has been the long standing policy and practice of this Court to xxx xxx xxx
respect the conclusions of quasi-judicial agencies, such as the Court of (B) The term corporation shall include partnerships, no matter how
Tax Appeals which, by the nature of its functions, is dedicated created or organized, joint-stock companies, joint accounts (cuentas en
exclusively to the study and consideration of tax problems and has participacion), associations, or insurance companies, but does not include
necessarily developed an expertise on the subject, unless there has general professional partnerships [or] a joint venture or consortium
formed for the purpose of undertaking construction projects or engaging
been an abuse or improvident exercise of its authority.[20] in petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract without the
This Court rules that the Court of Appeals, in affirming the CTA Government. General professional partnerships are partnerships
which had previously sustained the internal revenue commissioner, formed by persons for the sole purpose of exercising their common
committed no reversible error.Section 24 of the NIRC, as worded in profession, no part of the income of which is derived from engaging in
any trade or business.
the year ending 1975, provides:
xxx xxx xxx."
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is
hereby imposed upon the taxable net income received during each taxable year from Thus, the Court in Evangelista v. Collector of Internal
all sources by every corporation organized in, or existing under the laws of the Revenue[22] held that Section 24 covered these unregistered
Philippines, no matter how created or partnerships and even associations or joint accounts, which had no
organized, but not including duly registered generalco-partnership (compaias
legal personalities apart from their individual members.[23] The Court
colectivas), general professional partnerships, private educational institutions, and
building and loan associations xxx. of Appeals astutely applied Evangelista:[24]

xxx Accordingly, a pool of individual real property owners dealing in real estate
Ineludibly, the Philippine legislature included in the concept of business was considered a corporation for purposes of the tax in sec. 24 of the Tax
corporations those entities that resembled them such as unregistered Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court
partnerships and associations.Parenthetically, the NLRCs inclusion of said:
such entities in the tax on corporations was made even clearer by the
Tax Reform Act of 1997,[21] which amended the Tax Code.Pertinent The term partnership includes a syndicate, group, pool, joint venture or other
provisions of the new law read as follows: unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on. * * * (8 Mertens Law of Federal
Income Taxation, p. 562 Note 63)
Article 1767 of the Civil Code recognizes the creation of a therefore, the primordial reason for the pools
contract of partnership when two or more persons bind themselves to formation. As aptly found by the CTA:
contribute money, property, or industry to a common fund, with the
xxx The fact that the pool does not retain any profit or
intention of dividing the profits among themselves.[25] Its requisites
income does not obliterate an antecedent fact, that of the pool
are: (1) mutual contribution to a common stock, and (2) a joint interest
being used in the transaction of business for profit. It is
in the profits.[26] In other words, a partnership is formed when persons
apparent, and petitioners admit, that their association or
contract to devote to a common purpose either money, property, or
coaction was indispensable [to] the transaction of the
labor with the intention of dividing the profits between
business. x x x If together they have conducted business,
themselves.[27] Meanwhile, an association implies associates who enter
profit must have been the object as, indeed, profit was
into a joint enterprise x x x for the transaction of business.[28]
earned. Though the profit was apportioned among the
In the case before us, the ceding companies entered into a Pool members, this is only a matter of consequence, as it implies
Agreement[29] or an association[30] that would handle all the insurance that profit actually resulted.[37]
businesses covered under their quota-share reinsurance treaty[31] and
The petitioners reliance on Pascual v. Commissioner[38] is
surplus reinsurance treaty[32]with Munich. The following unmistakably
misplaced, because the facts obtaining therein are not on all fours with
indicates a partnership or an association covered by Section 24 of the
the present case. In Pascual, there was no unregistered partnership, but
merely a co-ownership which took up only two isolated
(1) The pool has a common fund, consisting of money and transactions.[39] The Court of Appeals did not err in
other valuables that are deposited in the name and credit of applying Evangelista, which involved a partnership that engaged in a
the pool.[33] This common fund pays for the administration series of transactions spanning more than ten years, as in the case
and operation expenses of the pool.[34] before us.
(2) The pool functions through an executive board, which
resembles the board of directors of a corporation, Second Issue:
composed of one representative for each of the ceding Pools Remittances Are Taxable
(3) True, the pool itself is not a reinsurer and does not issue
any insurance policy; however, its work is indispensable, Petitioners further contend that the remittances of the pool to the
beneficial and economically useful to the business of the ceding companies and Munich are not dividends subject to tax. They
ceding companies and Munich, because without it they insist that taxing such remittances contravene Sections 24 (b) (I) and
would not have received their premiums. The ceding 263 of the 1977 NIRC and would be tantamount to an illegal double
companies share in the business ceded to the pool and in taxation, as it would result in taxing the same premium income twice
the expenses according to a Rules of Distribution annexed in the hands of the same taxpayer.[40] Moreover, petitioners argue that
to the Pool Agreement.[36] Profit motive or business is, since Munich was not a signatory to the Pool Agreement, the
remittances it received from the pool cannot be deemed

dividends.[41] They add that even if such remittances were treated as Tax Code, because the same subsection specifically
dividends, they would have been exempt under the previously taxes dividends, the type of remittances forwarded to it by the
mentioned sections of the 1977 NIRC,[42] as well as Article 7 of pool. Although not a signatory to the Pool Agreement, Munich is
paragraph 1[43] and Article 5 of paragraph 5[44] of the RP-West German patently an associate of the ceding companies in the entity formed,
Tax Treaty.[45] pursuant to their reinsurance treaties which required the creation of
said pool.
Petitioners are clutching at straws. Double taxation means taxing
the same property twice when it should be taxed only once. That is, Under its pool arrangement with the ceding companies, Munich
xxx taxing the same person twice by the same jurisdiction for the same shared in their income and loss. This is manifest from a reading of
thing.[46] In the instant case, the pool is a taxable entity distinct from Articles 3[49] and 10[50] of the Quota Share Reinsurance Treaty and
the individual corporate entities of the ceding companies. The tax on Articles 3[51] and 10[52] of the Surplus Reinsurance Treaty. The
its income is obviously different from the tax on the dividends received foregoing interpretation of Section 24 (b) (1) is in line with the
by the said companies. Clearly, there is no double taxation here. doctrine that a tax exemption must be construed strictissimi juris, and
the statutory exemption claimed must be expressed in a language too
The tax exemptions claimed by petitioners cannot be granted,
plain to be mistaken.[53]
since their entitlement thereto remains unproven and
unsubstantiated. It is axiomatic in the law of taxation that taxes are the Finally, the petitioners claim that Munich is tax-exempt based on
lifeblood of the nation. Hence, exemptions therefrom are highly the RP-West German Tax Treaty is likewise unpersuasive, because the
disfavored in law and he who claims tax exemption must be able to internal revenue commissioner assessed the pool for corporate taxes on
justify his claim or right.[47] Petitioners have failed to discharge this the basis of the information return it had submitted for the year ending
burden of proof. The sections of the 1977 NIRC which they cite are 1975, a taxable year when said treaty was not yet in effect.[54] Although
inapplicable, because these were not yet in effect when the income was petitioners omitted in their pleadings the date of effectivity of the
earned and when the subject information return for the year ending treaty, the Court takes judicial notice that it took effect only later, on
1975 was filed. December 14, 1984.[55]
Referring to the 1975 version of the counterpart sections of the
NIRC, the Court still cannot justify the exemptions claimed. Section Third Issue: Prescription
255 provides that no tax shall xxx be paid upon reinsurance by any
company that has already paid the tax xxx. This cannot be applied to
the present case because, as previously discussed, the pool is a taxable Petitioners also argue that the governments right to assess and
entity distinct from the ceding companies; therefore, the latter cannot collect the subject tax had prescribed. They claim that the subject
individually claim the income tax paid by the former as their own. information return was filed by the pool on April 14, 1976. On the
On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign basis of this return, the BIR telephoned petitioners on November 11,
corporations; hence, it cannot be claimed by the ceding companies 1981, to give them notice of its letter of assessment dated March 27,
which are domestic corporations.Nor can Munich, a foreign 1981. Thus, the petitioners contend that the five-year statute of
corporation, be granted exemption based solely on this provision of the limitations then provided in the NIRC had already lapsed, and that the

internal revenue commissioner was already barred by prescription
from making an assessment.[56]
We cannot sustain the petitioners. The CA and the CTA
categorically found that the prescriptive period was tolled under
then Section 333 of the NIRC,[57] because the taxpayer cannot be
located at the address given in the information return filed and for
which reason there was delay in sending the assessment.[58] Indeed,
whether the governments right to collect and assess the tax has
prescribed involves facts which have been ruled upon by the lower
courts. It is axiomatic that in the absence of a clear showing of
palpable error or grave abuse of discretion, as in this case, this Court
must not overturn the factual findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool changed its
address, for they stated that the pools information return filed in 1980
indicated therein its present address. The Court finds that this falls
short of the requirement of Section 333 of the NIRC for the suspension
of the prescriptive period. The law clearly states that the said period
will be suspended only if the taxpayer informs the Commissioner of
Internal Revenue of any change in the address.
WHEREFORE, the petition is DENIED. The Resolutions of the
Court of Appeals dated October 11, 1993 and November 15, 1993 are
hereby AFFIRMED. Costs against petitioners.