DONOR’S TAX

G.R. No. L-19201 June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,
vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of TAX
APPEALS, respondents.
Hilado and Hilado for petitioner.
Office of the Solicitor General for respondents.

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash
to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and
predecessor of herein petitioner, for the construction of a new Catholic Church in the
locality. The total amount was actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under
date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an
assessment for donee's gift tax against the Catholic Parish of Victorias, Negros
Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including
surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the
compromise for the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof.
The protest and the motion for reconsideration presented to the Commissioner of
Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals on
November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed,
among others, that at the time of the donation, he was not the parish priest in Victorias;
that there is no legal entity or juridical person known as the "Catholic Parish Priest of
Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against the Roman Catholic Church,
would not be valid, for such would be a clear violation of the provisions of the
Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which are quoted
below:

... . Parish priests of the Roman Catholic Church under canon laws are similarly
situated as its Archbishops and Bishops with respect to the properties of the
church within their parish. They are the guardians, superintendents or
administrators of these properties, with the right of succession and may sue and
be sued.

xxx xxx xxx

1
The petitioner impugns the, fairness of the assessment with the argument that he
should not be held liable for gift taxes on donation which he did not receive
personally since he was not yet the parish priest of Victorias in the year 1957
when said donation was given. It is intimated that if someone has to pay at all, it
should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the
donation in behalf of the Catholic parish of Victorias or the Roman Catholic
Church. Following petitioner's line of thinking, we should be equally unfair to hold
that the assessment now in question should have been addressed to, and
collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his
present parish where ever it may be. It does not seem right to indirectly burden
the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to
which they were not benefited.

xxx xxx xxx

We saw no legal basis then as we see none now, to include within the
Constitutional exemption, taxes which partake of the nature of an excise upon
the use made of the properties or upon the exercise of the privilege of receiving
the properties. (Phipps vs. Commissioner of Internal Revenue, 91 F [2d] 627;
1938, 302 U.S. 742.)

It is a cardinal rule in taxation that exemptions from payment thereof are highly
disfavored by law, and the party claiming exemption must justify his claim by
a clear, positive, or express grant of such privilege by law. (Collector vs. Manila
Jockey Club, G.R. No. L-8755, March 23, 1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3), Article VI of the
Constitution of the Philippines, should not be interpreted to mean exemption from
all kinds of taxes. Statutes exempting charitable and religious property from
taxation should be construed fairly though strictly and in such manner as to give
effect to the main intent of the lawmakers. (Roman Catholic Church vs. Hastrings
5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision of the

respondent Commissioner of Internal Revenue appealed from, is hereby affirmed
except with regard to the imposition of the compromise penalty in the amount of
P20.00 (Collector of Internal Revenue v. U.S.T., G.R. No. L-11274, Nov. 28,
1958); ..., and the petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to
pay to the respondent the amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad valorem penalty under Section 119 (c)
of the Tax Code, and one per centum (1%) monthly interest from May 15, 1958
to the date of actual payment. The surcharge of 25% provided in Section 120 for
failure to file a return may not be imposed as the failure to file a return was not
due to willful neglect.( ... ) No costs.

2
The above judgment is now before us on appeal, petitioner assigning two (2) errors
allegedly committed by the Tax Court, all of which converge on the singular issue of
whether or not petitioner should be liable for the assessed donee's gift tax on the
P10,000.00 donated for the construction of the Victorias Parish Church.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation
cemeteries, churches and parsonages or convents, appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such properties enumerated,
as property taxes, as contra distinguished from excise taxes. In the present case, what
the Collector assessed was a donee's gift tax; the assessment was not on the
properties themselves. It did not rest upon general ownership; it was an excise upon the
use made of the properties, upon the exercise of the privilege of receiving the properties
(Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the
exempting provisions of the section just mentioned. A gift tax is not a property tax, but
an excise tax imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes, does not
constitute an impairment of the Constitution. As well observed by the learned
respondent Court, the phrase "exempt from taxation," as employed in the Constitution
(supra) should not be interpreted to mean exemption from all kinds of taxes. And there
being no clear, positive or express grant of such privilege by law, in favor of petitioner,
the exemption herein must be denied.

The next issue which readily presents itself, in view of petitioner's thesis, and Our
finding that a tax liability exists, is, who should be called upon to pay the gift tax?
Petitioner postulates that he should not be liable, because at the time of the donation he
was not the priest of Victorias. We note the merit of the above claim, and in order to put
things in their proper light, this Court, in its Resolution of March 15, 1965, ordered the
parties to show cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc it
appearing that the Head of such Diocese is the real party in interest. The Solicitor
General, in representation of the Commissioner of Internal Revenue, interposed no
objection to such a substitution. Counsel for the petitioner did not also offer objection
thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to present
whatever legal issues and/or defenses he might wish to raise, to which resolution
counsel for petitioner, who also appeared as counsel for the Head of the Diocese, the
Roman Catholic Bishop of Bacolod, manifested that it was submitting itself to the
jurisdiction and orders of this Court and that it was presenting, by reference, the brief of
petitioner Rev. Fr. Casimiro Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment at bar had
been properly made and the imposition of the tax is not a violation of the constitutional
provision exempting churches, parsonages or convents, etc. (Art VI, sec. 22 [3],

3
Constitution), the Head of the Diocese, to which the parish Victorias Pertains, is liable
for the payment thereof.

The decision appealed from should be, as it is hereby affirmed insofar as tax liability is
concerned; it is modified, in the sense that petitioner herein is not personally liable for
the said gift tax, and that the Head of the Diocese, herein substitute petitioner, should
pay, as he is presently ordered to pay, the said gift tax, without special, pronouncement
as to costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal,
Bengzon, J.P., and Zaldivar, JJ., concur.
Barrera, J., took no part.

4
[G.R. No. 120721. February 23, 2005] MANUEL G. ABELLO, JOSE C.
CONCEPCION, TEODORO D. REGALA, AVELINO V. CRUZ, petitioners, vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the decision of the Court of Appeals in CA G.R. SP No. 27134,
entitled Comissioner of Internal Revenue v. Manuel G. Abello, Jose C. Concepcion,
Teodoro D. Regala, Avelino V. Cruz and Court of Tax Appeals, which reversed and set
aside the decision of the Court of Tax Appeals (CTA), ordering the Commissioner of
Internal Revenue (Commissioner) to withdraw his letters dated April 21, 1988 and
August 4, 1988 assessing donors taxes and to desist from collecting donors taxes from
petitioners.
During the 1987 national elections, petitioners, who are partners in the Angara,
Abello, Concepcion, Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each
to the campaign funds of Senator Edgardo Angara, then running for the Senate. In
letters dated April 21, 1988, the Bureau of Internal Revenue (BIR) assessed each of the
petitioners P263,032.66 for their contributions. On August 2, 1988, petitioners
questioned the assessment through a letter to the BIR. They claimed that political or
electoral contributions are not considered gifts under the National Internal Revenue
Code (NIRC), and that, therefore, they are not liable for donors tax. The claim for
exemption was denied by the Commissioner.[1]
On September 12, 1988, petitioners filed a petition for review with the CTA, which
was decided on October 7, 1991 in favor of the petitioners. As aforestated, the CTA
ordered the Commissioner to desist from collecting donors taxes from the petitioners. [2]
On appeal, the Court of Appeals reversed and set aside the CTA decision on April
20, 1994.[3] The appellate Court ordered the petitioners to pay donors tax amounting
to P263,032.66 each, reasoning as follows:

The National Internal Revenue Code, as amended, provides:

Sec. 91. Imposition of Tax. (a) There shall be levied, assessed, collected, and paid
upon the transfer by any person, resident, or non-resident, of the property by gift, a tax,
computed as provided in Section 92. (b) The tax shall apply whether the transfer is in
trust or otherwise, whether the gift is direct or indirect, and whether the property is real
or personal, tangible or intangible.

Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether
the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible, is subject to donors or gift tax.

5
A gift is generally defined as a voluntary transfer of property by one to another without
any consideration or compensation therefor (28 C.J. 620; Santos vs. Robledo, 28 Phil.
250).

In the instant case, the contributions are voluntary transfers of property in the form of
money from private respondents to Sen. Angara, without considerations therefor.
Hence, they squarely fall under the definition of donation or gift.

As correctly pointed out by the Solicitor General:

The fact that the contributions were given to be used as campaign funds of Sen. Angara
does not affect the character of the fund transfers as donation or gift. There was thereby
no retention of control over the disposition of the contributions. There was simply an
indication of the purpose for which they were to be used. For as long as the
contributions were used for the purpose for which they were intended, Sen. Angara had
complete and absolute power to dispose of the contributions. He was fully entitled to the
economic benefits of the contributions.

Section 91 of the Tax Code is very clear. A donors or gift tax is imposed on the transfer
of property by gift.

The Bureau of Internal Revenue issued Ruling No. 344 on July 20, 1988, which reads:

Political Contributions. For internal revenue purposes, political contributions in the

Philippines are considered taxable gift rather than taxable income. This is so, because a
political contribution is indubitably not intended by the giver or contributor as a return of
value or made because of any intent to repay another what is his due, but bestowed
only because of motives of philanthropy or charity. His purpose is to give and to bolster
the morals, the winning chance of the candidate and/or his party, and not to employ or
buy. On the other hand, the recipient-donee does not regard himself as exchanging his
services or his product for the money contributed. But more importantly he receives
financial advantages gratuitously.

When the U.S. gift tax law was adopted in the Philippines (before May 7, 1974), the
taxability of political contributions was, admittedly, an unsettled issue; hence, it cannot
be presumed that the Philippine Congress then had intended to consider or treat
political contributions as non-taxable gifts when it adopted the said gift tax law.
Moreover, well-settled is the rule that the Philippines need not necessarily adopt the
present rule or construction in the United States on the matter. Generally, statutes of
different states relating to the same class of persons or things or having the same
purposes are not considered to be in pari materia because it cannot be justifiably
presumed that the legislature had them in mind when enacting the provision being
construed. (5206, Sutherland, Statutory Construction, p. 546.) Accordingly, in the
absence of an express exempting provision of law, political contributions in the
Philippines are subject to the donors gift tax. (cited in National Internal Revenue Code
Annotated by Hector S. de Leon, 1991 ed., p. 290).

6
In the light of the above BIR Ruling, it is clear that the political contributions of the
private respondents to Sen. Edgardo Angara are taxable gifts. The vagueness of the
law as to what comprise the gift subject to tax was made concrete by the above-quoted
BIR ruling. Hence, there is no doubt that political contributions are taxable gifts. [4]
Petitioners filed a motion for reconsideration, which the Court of Appeals denied in
its resolution of June 16, 1995.[5]
Petitioners thereupon filed the instant petition on July 26, 1995. Raised are the
following issues:
1. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER IN ITS DECISION THE PURPOSE BEHIND THE
ENACTMENT OF OUR GIFT TAX LAW?
2. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING
THE INTENTION OF THE GIVERS IN DETERMINING WHETHER OR
NOT THE PETITIONERS POLITICAL CONTRIBUTIONS WERE GIFTS
SUBJECT TO DONORS TAX?
3. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT FAILED TO
CONSIDER THE DEFINITION OF AN ELECTORAL CONTRIBUTION
UNDER THE OMNIBUS ELECTION CODE IN DETERMINING WHETHER
OR NOT POLITICAL CONTRIBUTIONS ARE TAXABLE?
4. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING
THE ADMINISTRATIVE PRACTICE OF CLOSE TO HALF A CENTURY
OF NOT SUBJECTING POLITICAL CONTRIBUTIONS TO DONORS TAX?
5. DID THE HONORABLE COURT OF APPEALS ERR IN NOT CONSIDERING
THE AMERICAN JURISPRUDENCE RELIED UPON BY THE COURT OF
TAX APPEALS AND BY THE PETITIONERS TO THE EFFECT THAT
POLITICAL CONTRIBUTIONS ARE NOT TAXABLE GIFTS?
6. DID THE HONORABLE COURT OF APPEALS ERR IN NOT APPLYING
AMERICAN JURISPRUDENCE ON THE GROUND THAT THIS WAS NOT
KNOWN AT THE TIME THE PHILIPPINES GIFT TAX LAW WAS
ADOPTED IN 1939?
7. DID THE HONORABLE COURT OF APPEALS ERR IN RESOLVING THE
CASE MAINLY ON THE BASIS OF A RULING ISSUED BY THE
RESPONDENT ONLY AFTER THE ASSESSMENTS HAD ALREADY
BEEN MADE?
8. DID THE HONORABLE COURT OF APPEALS ERR WHEN IT DID NOT
CONSTRUE THE GIFT TAX LAW LIBERALLY IN FAVOR OF THE
TAXPAYER AND STRICLTY AGAINST THE GOVERNMENT IN
ACCORDANCE WITH APPLICABLE PRINCIPLES OF STATUTORY
CONSTRUCTION?[6]

7
First, Fifth and Sixth Issues
Section 91 of the National Internal Revenue Code (NIRC) reads:

(A) There shall be levied, assessed, collected and paid upon the transfer by any
person, resident or nonresident, of the property by gift, a tax, computed as
provided in Section 92

(B) The tax shall apply whether the transfer is in trust or otherwise, whether the
gift is direct or indirect, and whether the property is real or personal,
tangible or intangible.
The NIRC does not define transfer of property by gift. However, Article 18 of the
Civil Code, states:

In matters which are governed by the Code of Commerce and special laws, their
deficiency shall be supplied by the provisions of this Code.
Thus, reference may be made to the definition of a donation in the Civil Code. Article
725 of said Code defines donation as:

. . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor

of another, who accepts it.
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b)
the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality
or animus donandi.[7]
The present case falls squarely within the definition of a donation. Petitioners, the
late Manuel G. Abello[8], Jose C. Concepcion, Teodoro D. Regala and Avelino V. Cruz,
each gave P882,661.31 to the campaign funds of Senator Edgardo Angara, without any
material consideration. All three elements of a donation are present. The patrimony of
the four petitioners were reduced by P882,661.31 each. Senator Edgardo Angaras
patrimony correspondingly increased by P3,530,645.24[9]. There was intent to do an act
of liberality or animus donandi was present since each of the petitioners gave their
contributions without any consideration.
Taken together with the Civil Code definition of donation, Section 91 of the NIRC is
clear and unambiguous, thereby leaving no room for construction. In Rizal Commercial
Banking Corporation v. Intermediate Appellate Court[10] the Court enunciated:

It bears stressing that the first and fundamental duty of the Court is to apply the law.
When the law is clear and free from any doubt or ambiguity, there is no room for
construction or interpretation. As has been our consistent ruling, where the law speaks
in clear and categorical language, there is no occasion for interpretation; there is only
room for application (Cebu Portland Cement Co. v. Municipality of Naga, 24 SCRA 708
[1968])

8
Where the law is clear and unambiguous, it must be taken to mean exactly what it says
and the court has no choice but to see to it that its mandate is obeyed (Chartered Bank
Employees Association v. Ople, 138 SCRA 273 [1985]; Luzon Surety Co., Inc. v. De
Garcia, 30 SCRA 111 [1969]; Quijano v. Development Bank of the Philippines, 35
SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret or
construe its true intent. Ambiguity is a condition of admitting two or more meanings, of
being understood in more than one way, or of referring to two or more things at the
same time. A statute is ambiguous if it is admissible of two or more possible meanings,
in which case, the Court is called upon to exercise one of its judicial functions, which is
to interpret the law according to its true intent.

Second Issue
Since animus donandi or the intention to do an act of liberality is an essential
element of a donation, petitioners argue that it is important to look into the intention of
the giver to determine if a political contribution is a gift. Petitioners argument is not
tenable. First of all, donative intent is a creature of the mind. It cannot be perceived
except by the material and tangible acts which manifest its presence. This being the
case, donative intent is presumed present when one gives a part of ones patrimony to
another without consideration. Second, donative intent is not negated when the person
donating has other intentions, motives or purposes which do not contradict donative
intent. This Court is not convinced that since the purpose of the contribution was to help
elect a candidate, there was no donative intent. Petitioners contribution of money
without any material consideration evinces animus donandi. The fact that their purpose
for donating was to aid in the election of the donee does not negate the presence of
donative intent.

Third Issue
Petitioners maintain that the definition of an electoral contribution under the
Omnibus Election Code is essential to appreciate how a political contribution differs
from a taxable gift.[11]Section 94(a) of the said Code defines electoral contribution as
follows:

The term "contribution" includes a gift, donation, subscription, loan, advance or deposit
of money or anything of value, or a contract, promise or agreement to contribute,
whether or not legally enforceable, made for the purpose of influencing the results of the
elections but shall not include services rendered without compensation by individuals
volunteering a portion or all of their time in behalf of a candidate or political party. It shall
also include the use of facilities voluntarily donated by other persons, the money value
of which can be assessed based on the rates prevailing in the area.
Since the purpose of an electoral contribution is to influence the results of the
election, petitioners again claim that donative intent is not present. Petitioners attempt to
place the barrier of mutual exclusivity between donative intent and the purpose of
political contributions. This Court reiterates that donative intent is not negated by the

9
presence of other intentions, motives or purposes which do not contradict donative
intent.
Petitioners would distinguish a gift from a political donation by saying that the
consideration for a gift is the liberality of the donor, while the consideration for a political
contribution is the desire of the giver to influence the result of an election by supporting
candidates who, in the perception of the giver, would influence the shaping of
government policies that would promote the general welfare and economic well-being of
the electorate, including the giver himself.
Petitioners attempt is strained. The fact that petitioners will somehow in the future
benefit from the election of the candidate to whom they contribute, in no way amounts to
a valuable material consideration so as to remove political contributions from the
purview of a donation. Senator Angara was under no obligation to benefit the
petitioners. The proper performance of his duties as a legislator is his obligation as an
elected public servant of the Filipino people and not a consideration for the political
contributions he received. In fact, as a public servant, he may even be called to enact
laws that are contrary to the interests of his benefactors, for the benefit of the greater
good.
In fine, the purpose for which the sums of money were given, which was to fund the
campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a
material consideration so as to negate a donation.

Fourth Issue
Petitioners raise the fact that since 1939 when the first Tax Code was enacted, up
to 1988 the BIR never attempted to subject political contributions to donors tax. They
argue that:

. . . It is a familiar principle of law that prolonged practice by the government agency

charged with the execution of a statute, acquiesced in and relied upon by all concerned
over an appreciable period of time, is an authoritative interpretation thereof, entitled to
great weight and the highest respect. . . .[12]
This Court holds that the BIR is not precluded from making a new interpretation of
the law, especially when the old interpretation was flawed. It is a well-entrenched rule
that

. . . erroneous application and enforcement of the law by public officers do not block
subsequent correct application of the statute (PLDT v. Collector of Internal Revenue, 90
Phil. 676), and that the Government is never estopped by mistake or error on the part of
its agents (Pineda v. Court of First Instance of Tayabas, 52 Phil. 803, 807; Benguet
Consolidated Mining Co. v. Pineda, 98 Phil. 711, 724).[13]

Seventh Issue

10
 Petitioners question the fact that the Court of Appeals decision is based on a BIR
ruling, namely BIR Ruling No. 88-344, which was issued after the petitioners were
assessed for donors tax. This Court does not need to delve into this issue. It is
immaterial whether or not the Court of Appeals based its decision on the BIR ruling
because it is not pivotal in deciding this case. As discussed above, Section 91 (now
Section 98) of the NIRC as supplemented by the definition of a donation found in Article
725 of the Civil Code, is clear and unambiguous, and needs no further elucidation.

Eighth Issue
Petitioners next contend that tax laws are construed liberally in favor of the taxpayer
and strictly against the government. This rule of construction, however, does not benefit
petitioners because, as stated, there is here no room for construction since the law is
clear and unambiguous.
Finally, this Court takes note of the fact that subsequent to the donations involved in
this case, Congress approved Republic Act No. 7166 on November 25, 1991, providing
in Section 13 thereof that political/electoral contributions, duly reported to the
Commission on Elections, are not subject to the payment of any gift tax. This all the
more shows that the political contributions herein made are subject to the payment of
gift taxes, since the same were made prior to the exempting legislation, and Republic
Act No. 7166 provides no retroactive effect on this point.
WHEREFORE, the petition is DENIED and the assailed Decision and Resolution of
the Court of Appeals are AFFIRMED.
No costs.
SO ORDERED.

11
 G.R. No. 210987 November 24, 2014
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE
COMPANY, Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

D E C I S I O N VELASCO, JR., J.:

Nature of the Case

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing and seeking the reversal of the Resolutions of the Court of Appeals (CA)
in CA-G.R. SP No. 127984, dated May 23, 20131 and January 21, 2014, which
dismissed outright the petitioner's appeal from the Secretary of Finance's review of BIR
Ruling No. 015-122 for lack of jurisdiction.

The Facts

Petitioner The Philippine American Life and General Insurance Company (Philamlife)
used to own 498,590 Class A shares in Philam Care Health Systems, Inc.
(PhilamCare), representing 49.89% of the latter's outstanding capital stock. In 2009,
petitioner, in a bid to divest itself of its interests in the health maintenance organization
industry, offered to sell its shareholdings in PhilamCare through competitive bidding.
Thus, on September 24, 2009, petitioner's Class A shares were sold for USD 2,190,000,
or PhP 104,259,330 based on the prevailing exchange rate at the time of the sale, to
STI Investments, Inc., who emerged as the highest bidder.3

After the sale was completed and the necessary documentary stamp and capital gains
taxes were paid, Philamlife filed an application for a certificate authorizing
registration/tax clearance with the Bureau of Internal Revenue (BIR) Large Taxpayers
Service Division to facilitate the transfer of the shares. Months later, petitioner was
informed that it needed to secure a BIR ruling in connection with its application due to
potential donor’s tax liability. In compliance, petitioner, on January 4, 2012, requested a
ruling4 to confirm that the sale was not subject to donor’s tax, pointing out, in its request,
the following: that the transaction cannot attract donor’s tax liability since there was no
donative intent and,ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09]
dated November 27, 2009;5 that the shares were sold at their actual fair market value
and at arm’s length; that as long as the transaction conducted is at arm’s length––such
that a bona fide business arrangement of the dealings is done inthe ordinary course of
business––a sale for less than an adequate consideration is not subject to donor’s tax;
and that donor’s tax does not apply to saleof shares sold in an open bidding process.

On January 4, 2012, however, respondent Commissioner on Internal Revenue

(Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As
determined by the Commissioner, the selling price of the shares thus sold was lower

12
than their book value based on the financial statements of PhilamCare as of the end of
2008.6 As such, the Commisioner held, donor’s tax became imposable on the price
difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:

SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property,
other than real property referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by which
the fair market value of the property exceeded the value of the consideration shall, for
the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included
in computing the amount of gifts made during the calendar year.

The afore-quoted provision, the Commissioner added, is implemented by Revenue

Regulation 6-2008 (RR 6-2008), which provides:

SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED

THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3),
25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —

xxxx

(c) Determination of Amount and Recognition of Gain or Loss –

(c.1) In the case of cash sale, the selling price shall be the consideration per deed of
sale.

xxxx

(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged
is greater than the amount of money and/or fair market value of the property received,
the excess of the fair market value of the shares of stock sold, bartered or exchanged
overthe amount of money and the fair market value of the property, if any, received as
consideration shall be deemed a gift subject to the donor’stax under Section 100 of the
Tax Code, as amended.

xxxx

(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this Section,
‘fair market value’ of the share of stock sold shall be:

xxxx

(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges,
the book value of the shares of stock as shown in the financial statements duly certified
by an independent certified public accountant nearest to the date of sale shall be the fair
market value.

13
In view of the foregoing, the Commissioner ruled that the difference between the book
value and the selling price in the sales transaction is taxable donation subject to a 30%
donor’s tax under Section 99(B) of the NIRC.7Respondent Commissioner likewise held
that BIR Ruling [DA-(DT-065) 715-09], on which petitioner anchored its claim, has
already been revoked by Revenue Memorandum Circular (RMC) No. 25-2011.8

Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review

BIR Ruling No. 015-12, but to no avail. For on November 26, 2012, respondent
Secretary affirmed the Commissioner’s assailed ruling in its entirety.9

Ruling of the Court of Appeals

Not contented with the adverse results, petitioner elevated the case to the CA via a
petition for review under Rule 43, assigning the following errors:10

A.

The Honorable Secretary of Finance gravely erred in not finding that the application of
Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC 25-11 is void insofar as it
altersthe meaning and scope of Section 100 of the Tax Code.

B.

The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax
Code is applicable tothe sale of the Sale of Shares.

1.

The Sale of Shares were sold at their fair market value and for fair and full
consideration in money or money’s worth.

2.

The sale of the Sale Shares is a bona fide business transaction without
any donative intent and is therefore beyond the ambit of Section 100 of
the Tax Code.

3.

It is superfluous for the BIR to require an express provision for the

exemption of the sale of the Sale Shares from donor’s tax since Section
100 of the Tax Code does not explicitly subject the transaction to donor’s
tax.

C.

14
The Honorable Secretary of Finance gravely erred in failing to find that in the absence
of any of the grounds mentioned in Section 246 of the Tax Code, rules and regulations,
rulings or circulars – such as RMC 25-11 – cannot be given retroactive application to
the prejudice of Philamlife.

On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition,
thusly:

WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of
jurisdiction.

SO ORDERED.

In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax
Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125),11 as
amended, which has jurisdiction over the issues raised. The outright dismissal, so the
CA held, is predicated on the postulate that BIR Ruling No. 015-12 was issued in the
exercise of the Commissioner’s power to interpret the NIRC and other tax laws.
Consequently, requesting for its review can be categorized as "other matters arising
under the NIRC or other laws administered by the BIR," which is under the jurisdiction of
the CTA, not the CA.

Philamlife eventually sought reconsideration but the CA, in its equally assailed January
21, 2014 Resolution, maintained its earlier position. Hence, the instant recourse.

Issues

Stripped to the essentials, the petition raises the following issues in both procedure and
substance:

1. Whether or not the CA erred in dismissing the CA Petition for lack of

jurisdiction; and

2. Whether or not the price difference in petitioner’s adverted sale of shares in

PhilamCare attracts donor’s tax.

Procedural Arguments

a. Petitioner’s contentions

Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that
respondent Commissioner issued BIR Ruling No. 015-12 in accordance with her
authority to interpret tax laws, argued nonetheless that such ruling is subject to review
by the Secretary of Finance under Sec. 4 of the NIRC, to wit:

15
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. – The power to interpret the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code orother laws or portions thereof administered by the Bureau of Internal Revenue
is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals. Petitioner postulates that there is a need to differentiate the
rulings promulgated by the respondent Commissioner relating to those rendered under
the first paragraph of Sec. 4 of the NIRC, which are appealable to the Secretary of
Finance, from those rendered under the second paragraph of Sec. 4 of the NIRC, which
are subject to review on appeal with the CTA.

This distinction, petitioner argues, is readily made apparent by Department Order No. 7-
02,12 as circularized by RMC No. 40-A-02.

Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application
in the case at bar since it only governs appeals from the Commissioner’s rulings under
the second paragraph and does not encompass rulings from the Secretary of Finance in
the exercise of his power of review under the first, as what was elevated to the CA. It
added that under RA 1125, as amended, the only decisions of the Secretary appealable
to the CTA are those rendered in customs cases elevated to him automatically under
Section 2315 of the Tariff and Customs Code.13

There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as
amended, failed to supply where the rulings of the Secretary in its exercise of its power
of review under Sec. 4 of the NIRC are appealable to. This gap, petitioner submits, was
remedied by British American Tobacco v. Camacho14 wherein the Court ruled that
where what is assailed is the validity or constitutionality of a law, or a rule or regulation
issued by the administrative agency, the regular courts have jurisdiction to pass upon
the same.

In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of
its power of review under Sec. 4 of the NIRC are not within the CTA’s limited special
jurisdiction and, according to petitioner, are appealable to the CA via a Rule 43 petition
for review.

b. Respondents’ contentions

Before the CA, respondents countered petitioner’s procedural arguments by claiming

that even assuming arguendo that the CTA does not have jurisdiction over the case,
Philamlife, nevertheless,committed a fatal error when it failed to appeal the Secretary of
Finance’s ruling to the Office of the President (OP). As made apparent by the rules, the
Department of Finance is not among the agencies and quasi-judicial bodies enumerated

16
under Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are appealable
through a petition for review.15 This is in stark contrast to the OP’s specific mention
under the same provision, so respondents pointed out.

To further reinforce their argument, respondents cite the President’s power of review
emanating from his power of control as enshrined under Sec. 17 of Article VII of the
Constitution, which reads:

Section 17.The President shall have control of all the executive departments, bureaus,
and offices. He shall ensure that the laws be faithfully executed.

The nature and extent of the President’s constitutionally granted power of control have
beendefined in a plethora of cases, most recently in Elma v. Jacobi, 16 wherein it was
held that:

x x x This power of control, which even Congress cannot limit, let alone withdraw,
means the power of the Chief Executive to review, alter, modify, nullify, or set aside
what a subordinate, e.g., members of the Cabinet and heads of line agencies, had done
in the performance of their duties and to substitute the judgment of the former for that of
the latter.

In their Comment on the instant petition, however, respondents asseverate that the CA
did not err in its holding respecting the CTA’s jurisdiction over the controversy.

The Court’s Ruling

The petition is unmeritorious.

Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to
the CTA

To recapitulate, three different, if not conflicting, positions as indicated below have been
advanced by the parties and by the CA as the proper remedy open for assailing
respondents’ rulings:

1. Petitioners: The ruling of the Commissioner is subject to review by the

Secretary under Sec. 4 of the NIRC, and that of the Secretary to the CA via Rule
43;

2. Respondents: The ruling of the Commissioner is subject to review by the

Secretary under Sec. 4 of the NIRC, and that of the Secretary to the Office of the
President before appealing to the CA via a Rule 43 petition; and

3. CA: The ruling of the Commissioner is subject to review by the CTA.

We now resolve.

17
Preliminarily, it bears stressing that there is no dispute that what is involved herein is the
respondent Commissioner’s exercise of power under the first paragraph of Sec. 4 of the
NIRC––the power to interpret tax laws. This, in fact, was recognized by the appellate
court itself, but erroneously held that her action in the exercise of such power is
appealable directly to the CTA. As correctly pointed out by petitioner, Sec. 4 of the
NIRC readily provides that the Commissioner’s power to interpret the provisions of this
Code and other tax laws is subject to review by the Secretary of Finance. The issue that
now arises is this––where does one seek immediate recourse from the adverse ruling of
the Secretary of Finance in its exercise of its power of review under Sec. 4?

Admittedly, there is no provision in law that expressly provides where exactly the ruling
of the Secretary of Finance under the adverted NIRC provision is appealable to.
However, We find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming
gap in the law asit vests the CTA, albeit impliedly, with jurisdiction over the CA petition
as "other matters" arising under the NIRC or other laws administered by the BIR. As
stated:

Sec. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue. (emphasis supplied)

Even though the provision suggests that it only covers rulings of the Commissioner, We
hold that it is, nonetheless, sufficient enough to include appeals from the Secretary’s
review under Sec. 4 of the NIRC.

It is axiomatic that laws should be given a reasonable interpretation which does not
defeat the very purpose for which they were passed.17 Courts should not follow the
letter of a statute when to do so would depart from the true intent of the legislature or
would otherwise yield conclusions inconsistent with the purpose of the act. 18 This Court
has, in many cases involving the construction of statutes, cautioned against narrowly
interpreting a statute as to defeat the purpose of the legislator, and rejected the literal
interpretation of statutes if todo so would lead to unjust or absurd results. 19

Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would
be an injustice to taxpayers prejudiced by his adverse rulings. To remedy this situation,
Weimply from the purpose of RA 1125 and its amendatory laws that the CTA is the
proper forum with which to institute the appeal. This is not, and should not, in any way,
be taken as a derogation of the power of the Office of President but merely as
recognition that matters calling for technical knowledge should be handled by the
agency or quasi-judicial body with specialization over the controversy. As the
specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment

18
cases, there can be no other court of appellate jurisdiction that can decide the issues
raised inthe CA petition, which involves the tax treatment of the shares of stocks sold.
Petitioner, though, nextinvites attention to the ruling in Ursal v. Court of Tax Appeals 20 to
argue against granting the CTA jurisdiction by implication, viz:

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket
authority to decide any and all tax disputes. Defining such special court’s jurisdiction,
the Act necessarily limited its authority to those matters enumerated therein. Inline with
this idea we recently approved said court’s order rejecting an appeal to it by Lopez &
Sons from the decision of the Collector ofCustoms, because in our opinion its
jurisdiction extended only to a review of the decisions of the Commissioner of Customs,
as provided bythe statute — and not to decisions of the Collector of Customs. (Lopez &
Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53 Off. Gaz., [10] 3065).

xxxx

x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the
matters which the Court of Tax Appeals may consider; such enumeration excludes all
others by implication. Expressio unius est exclusio alterius.

Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of context, but
worse as a precedent, it must be noted that the primary reason for the dismissal of the
said case was that the petitioner therein lacked the personality to file the suit with the
CTA because he was not adversely affected by a decision or ruling of the Collector of
Internal Revenue, as was required under Sec. 11 of RA 1125. 21 As held:

We share the view that the assessor had no personality to resort to the Court of Tax
Appeals. The rulings of the Board of Assessment Appeals did not "adversely affect"
him. At most it was the City of Cebu that had been adversely affected in the sense that
it could not thereafter collect higher realty taxes from the abovementioned property
owners. His opinion, it is true had been overruled; but the overruling inflicted no material
damage upon him or his office. And the Court of Tax Appeals was not created to decide
mere conflicts of opinion between administrative officers or agencies. Imagine an
income tax examiner resorting to the Court of Tax Appeals whenever the Collector of
Internal Revenue modifies, or lower his assessment on the return of a tax payer!22

The appellate power of the CTA includes certiorari

Petitioner is quick to point out, however, that the grounds raised in its CA petition
included the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to
divest the CTA jurisdiction over the controversy, petitioner then cites British American
Tobacco, wherein this Court has expounded on the limited jurisdiction of the CTA in the
following wise:

While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is

19
challenged. Where what is assailed is the validity or constitutionality of a law, or a rule
or regulation issued by the administrative agency in the performance of its quasi
legislative function, the regular courts have jurisdiction to pass upon the same. The
determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular
courts. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation inthe courts, including the regional trial courts. This
is within the scope of judicial power, which includes the authority of the courts to
determine inan appropriate action the validity of the acts of the political departments.
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine
whether or not there has been a grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of any branch or instrumentality of the Government. 23

Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting

ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:

Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The
National Internal Revenue Code, as amended) which states that "[d]ealers in securities
shall pay a tax equivalent to six (6%) per centum of their gross income. Lending
investors shall pay a tax equivalent to five (5%) per cent, of their gross income," the CIR
issued Revenue Memorandum Order (RMO) No. 15-91 imposing 5% lending investor’s
tax on pawnshops based on their gross income and requiring all investigating units of
the BIR to investigate and assess the lending investor’s tax due from them. The
issuance of RMO No. 15-91 was an offshoot of the CIR’s finding that the pawnshop
business is akin to that of "lending investors" as defined in Section 157(u) of the Tax
Code. Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to
documentary stamp tax. Respondent therein, Josefina Leal, owner and operator of
Josefina’s Pawnshop, asked for a reconsideration of both RMO No. 15-91 and RMC No.
43-91, but the same was denied by petitioner CIR. Leal then filed a petition for
prohibition with the RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR from
implementing the revenue orders. The CIR, through the OSG, filed a motion to dismiss
on the ground of lack of jurisdiction. The RTC denied the motion. Petitioner filed a
petition for certiorari and prohibition with the CA which dismissed the petition "for lack of
basis." In reversing the CA, dissolving the Writ of Preliminary Injunction issued by the
trial court and ordering the dismissal of the case before the trial court, the Supreme
Court held that "[t]he questioned RMO No. 15-91 and RMC No. 43-91 are actually
rulings or opinions of the Commissioner implementing the Tax Code on the taxability of
pawnshops." They were issued pursuant to the CIR’s power under Section 245 of the
Tax Code "to make rulings or opinions in connection with the implementation of the
provisions of internal revenue laws, including ruling on the classification of articles of
sales and similar purposes."The Court held that under R.A. No. 1125 (An Act Creating
the Court of Tax Appeals), as amended, such rulings of the CIR are appealable to the
CTA.

20
In the case at bar, the assailed revenue regulations and revenue memorandum circulars
are actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at
public auction within the SSEZ to implement Section 12 of R.A. No. 7227 which
provides that "exportation or removal of goods from the territory of the [SSEZ] to the
other parts of the Philippine territory shall be subject to customs duties and taxes under
the Customs and Tariff Codeand other relevant tax laws of the Philippines." They were
issued pursuant to the power of the CIR under Section 4 of the National Internal
Revenue Code x x x.24 (emphasis added)

The respective teachings in British American Tobacco and Asia International

Auctioneers, at first blush, appear to bear no conflict––that when the validity or
constitutionality of an administrative rule or regulation is assailed, the regular courts
have jurisdiction; and if what is assailed are rulings or opinions of the Commissioner on
tax treatments, jurisdiction over the controversy is lodged with the CTA. The problem
with the above postulates, however, is that they failed to take into consideration one
crucial point––a taxpayer can raise both issues simultaneously.

Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim
jurisdiction over tax cases: on the one hand, mere prayer for the declaration of a tax
measure’s unconstitutionality or invalidity before the CTA can result in a petition’s
outright dismissal, and on the other hand, the CA will likewise dismiss the same petition
should it find that the primary issue is not the tax measure’s validity but the assessment
or taxability of the transaction or subject involved. To illustrate this point, petitioner cites
the assailed Resolution, thusly: Admittedly, in British American Tobacco vs. Camacho,
the Supreme Court has ruled that the determination of whether a specific rule or set of
rules issued by an administrative agency contravenes the law or the constitution is
within the jurisdiction of the regular courts, not the CTA.

xxxx

Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a
taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec.
7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it was used by the CIR
as bases for its unfavourable opinion. Clearly, the Petition involves an issue on the
taxability of the transaction rather than a direct attack on the constitutionality of Sec.
100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition properly
pertains to the CTA under Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits that

taxpayers are now at a quandary on what mode of appeal should be taken, to which
court or agency it should be filed, and which case law should be followed.

Petitioner’s above submission is specious.

21
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that
the CTA now has the power of certiorari in cases within its appellate jurisdiction. To
elucidate:

The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the Constitution or
by law and cannot be implied from the mere existence of appellate jurisdiction. Thus, x x
x this Court has ruled against the jurisdiction of courts or tribunals over petitions for
certiorari on the ground that there is no law which expressly gives these tribunals such
power. Itmust be observed, however, that x x x these rulings pertain not to regular
courts but to tribunals exercising quasijudicial powers. With respect tothe
Sandiganbayan, Republic Act No. 8249 now provides that the special criminal court has
exclusive original jurisdiction over petitions for the issuance of the writs of mandamus,
prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and
processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to
the Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari,
prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas
Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its
original jurisdiction, the power to issue, among others, a writ of certiorari, whether or not
in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ
of certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of
BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with
respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such
lower courts as may be established by law and that judicial power includes the duty of
the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the
power of the CTA includes that of determining whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in
issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction
of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with
jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it
must have the authority to issue, among others, a writ of certiorari. In transferring
exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be
assumed that the law intended to transfer also such power as is deemed necessary, if

22
not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason
why the transfer should only be considered as partial, not total. (emphasis added)

Evidently, City of Manilacan be considered as a departure from Ursal in that in spite of

there being no express grant in law, the CTA is deemed granted with powers of
certiorari by implication. Moreover, City of Manila diametrically opposes British
American Tobacco to the effect that it is now within the power of the CTA, through its
power of certiorari, to rule on the validity of a particular administrative ruleor regulation
so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the
propriety of an assessment or tax treatment of a certain transaction, but also on the
validity of the revenue regulation or revenue memorandum circular on which the said
assessment is based.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the sales
transaction but likewise questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and RMC
25-11 does not divest the CTA of its jurisdiction over the controversy, contrary to
petitioner's arguments.

The price difference is subject to donor's tax

Petitioner's substantive arguments are unavailing. The absence of donative intent, if that
be the case, does not exempt the sales of stock transaction from donor's tax since Sec.
100 of the NIRC categorically states that the amount by which the fair market value of
the property exceeded the value of the consideration shall be deemed a
gift.1âwphi1 Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely
sets the parameters for determining the "fair market value" of a sale of stocks. Such
issuance was made pursuant to the Commissioner's power to interpret tax laws and to
promulgate rules and regulations for their implementation.

Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the
sale, was being applied retroactively in contravention to Sec. 246 of the
NIRC.26 Instead, it merely called for the strict application of Sec. 100, which was already
in force the moment the NIRC was enacted.

WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of

Appeals in CA-G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are
hereby AFFIRMED.

SO ORDERED.

23
[G.R. No. 104171. February 24, 1999]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F. GOODRICH PHILS.,
INC. (now SIME DARBY INTERNATIONAL TIRE CO., INC.) and THE COURT
OF APPEALS, respondents.

DECISION
PANGANIBAN, J.:
Notwithstanding the expiration of the five-year prescriptive period, may the Bureau
of Internal Revenue (BIR) still assess a taxpayer even after the latter has already paid
the tax due, on the ground that the previous assessment was insufficient or based on a
false return?
TheCase

This is the main question raised before us in this Petition for Review
on Certiorari assailing the Decision[1] dated February 14, 1992, promulgated by the
Court of Appeals[2] in CA-GR SP No. 25100.The assailed Decision reversed the Court of
Tax Appeals (CTA)[3] which upheld the BIR commissioners assessments made beyond
the five-year statute of limitations.
TheFacts

The facts are undisputed.[4] Private Respondent BF Goodrich Phils., Inc. (now Sime
Darby International Tire Co. Inc.), was an American-owned and controlled corporation
previous to July 3, 1974. As a condition for approving the manufacture by private
respondent of tires and other rubber products, the Central Bank of the Philippines
required that it should develop a rubber plantation. In compliance with this requirement,
private respondent purchased from the Philippine government in 1961, under the Public
Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of land
located in Tumajubong, Basilan, and there developed a rubber plantation.

More than a decade later, on August 2, 1973, the justice secretary rendered an
opinion stating that, upon the expiration of the Parity Amendment on July 3, 1974, the
ownership rights of Americans over public agricultural lands, including the right to
dispose or sell their real estate, would be lost. On the basis of this Opinion, private
respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its Basilan
landholding for P500,000 payable in installments. In accord with the terms of the sale,
Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent for
a period of 25 years, with an extension of another 25 years at the latters option.
Based on the BIRs Letter of Authority No. 10115 dated April 14, 1975, the books
and accounts of private respondent were examined for the purpose of determining its
tax liability for taxable year 1974.The examination resulted in the April 23, 1975
assessment of private respondent for deficiency income tax in the amount of P6,005.35,
which it duly paid.
Subsequently the BIR also issued Letters of Authority Nos. 074420 RR and 074421
RR and Memorandum Authority Reference No. 749157 for the purpose of examining
Siltowns business, income and tax liabilities. On the basis of this examination, the BIR

24
commissioner issued against private respondent on October 10, 1980, an assessment
for deficiency in donors tax in the amount of P1,020,850, in relation to the previously
mentioned sale of its Basilan landholdings to Siltown. Apparently, the BIR deemed the
consideration for the sale insufficient, and the difference between the fair market value
and the actual purchase price a taxable donation.
In a letter dated November 24, 1980, private respondent contested this
assessment. On April 9, 1981, it received another assessment dated March 16, 1981,
which increased to P1,092,949 the amount demanded for the alleged deficiency donors
tax, surcharge, interest and compromise penalty.
Private respondent appealed the correctness and the legality of these last two
assessments to the CTA. After trial in due course, the CTA rendered its Decision dated
March 29, 1991, the dispositive portion of which reads as follows:

WHEREFORE, the decision of the Commissioner of Internal Revenue assessing

petitioner deficiency gift tax is MODIFIED and petitioner is ordered to pay the amount
of P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981
until fully paid provided that the maximum amount that may be collected as interest on
delinquency shall in no case exceed an amount corresponding to a period of three
years pursuant to Section 130(b) (1) and (c) of the 1977 Tax Code, as amended by P.D.
No. 1705, which took effect on August 1, 1980.

SO ORDERED.[5]

Undaunted, private respondent elevated the matter to the Court of Appeals, which
reversed the CTA, as follows:

What is involved here is not a first assessment; nor is it one within the 5-year period
stated in Section 331 above. Since what is involved in this case is a multiple
assessment beyond the five-year period, the assessment must be based on the
grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section
337 utilizes the very specific terms fraud, irregularity, and mistake. Falsity does not
appear to be included in this enumeration. Falsity suffices for an assessment, which is
a first assessment made within the five-year period. When it is a subsequent
assessment made beyond the five-year period, then, it may be validly justified only by
fraud, irregularity and mistake on the part of the taxpayer.[6]

Hence, this Petition for Review under Rule 45 of the Rules of Court. [7]
TheIssues

Before us, petitioner raises the following issues:

I
Whether or not petitioners right to assess herein deficiency donors tax has indeed
prescribed as ruled by public respondent Court of Appeals

25
II
Whether or not the herein deficiency donors tax assessment for 1974 is valid and in
accordance with law

Prescription is the crucial issue in the resolution of this case.

The Courts Ruling

The petition has no merit.

Main Issue: Prescription

The petitioner contends that the Court of Appeals erred in reversing the CTA on the
issue of prescription, because its ruling was based on factual findings that should have
been left undisturbed on appeal, in the absence of any showing that it had been tainted
with gross error or grave abuse of discretion.[8] The Court is not persuaded.
True, the factual findings of the CTA are generally not disturbed on appeal when
supported by substantial evidence and in the absence of gross error or grave abuse of
discretion. However, the CTAs application of the law to the facts of this controversy is
an altogether different matter, for it involves a legal question. There is a question of law
when the issue is the application of the law to a given set of facts. On the other hand, a
question of fact involves the truth or falsehood of alleged facts. [9] In the present case,
the Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but
on the latters application of the law on prescription.
Section 331 of the National Internal Revenue Code provides:

SEC. 331. Period of limitation upon assessment and collection. Except as provided in
the succeeding section, internal-revenue taxes shall be assessed within five years after
the return was filed, and no proceeding in court without assessment for the collection of
such taxes shall be begun after expiration of such period. For the purposes of this
section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code.

Applying this provision of law to the facts at hand, it is clear that the October 16,
1980 and the March 1981 assessments were issued by the BIR beyond the five-year
statute of limitations. The Court has thoroughly studied the records of this case and
found no basis to disregard the five-year period of prescription. As succinctly
pronounced by the Court of Appeals:

The subsequent assessment made by the respondent Commissioner on October 10,

1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the
income of the petitioner for the year 1974, the returns for which were required to be filed
on or before April 15 of the succeeding year. The returns for the year 1974 were duly
filed by the petitioner, and assessment of taxes due for such year -- including that on
the transfer of properties on June 21, 1974 -- was made on April 13, 1975 and
acknowledged by Letter of Confirmation No. 101155 terminating the examination on this

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subject. The subsequent assessment of October 10, 1980 modified, by that of March
16, 1981, was made beyond the period expressly set in Section 331 of the National
Intenal Revenue Code xxx.[10]

Petitioner relies on the CTA ruling, the salient portion of which reads:

Falsity is what we have here, and for that matter, we hasten to add that the second
assessment (March 16, 1981) of the Commissioner was well-advised having been
made in contemplation of his power under Section 15 of the 1974 Code (now Section
16, of NIRC) to assess the proper tax on the best evidence obtainable when there is
reason to believe that a report of a taxpayer is false, incomplete or erroneous. More,
when there is falsity with intent to evade tax as in this case, the ordinary period of
limitation upon assessment and collection does not apply so that contrary to the
averment of petitioner, the right to assess respondent has not prescribed.

What is the considered falsity? The transfer through sales of the parcels of land in
Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of P500,000.00
only whereas said lands had been sworn to under Presidential Decree No. 76 (Dec. 6,
1972) as having a value of P2,683,467 (P2,475, 467 + P207,700) (see Declaration of
Real Property form, p. 28, and p. 15, no. 5, BIR Record).[11]

For the purpose of safeguarding taxpayers from any unreasonable examination,

investigation or assessment, our tax law provides a statute of limitations in the collection
of taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection.[12] As a corollary, the exceptions to the law
on prescription should perforce be strictly construed.
Section 15 of the NIRC, on the other hand, provides that [w]hen a report required by
law as a basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation, or when there is reason to believe
that any such report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable.Clearly, Section
15 does not provide an exception to the statute of limitations on the issuance of an
assessment, by allowing the initial assessment to be made on the basis of the best
evidence available. Having made its initial assessment in the manner prescribed, the
commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration before
us.
Nor is petitioners claim of falsity sufficient to take the questioned assessments out
of the ambit of the statute of limitations. The relevant part of then Section 332 of the
NIRC, which enumerates the exceptions to the period of prescription, provides:

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. --

(a) In the case of a false or fraudulent return with intent to evade a tax or of a failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of such

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tax may be begun without assessment, at any time within ten years after the discovery
of the falsity, fraud, or omission: xxx.

Petitioner insists that private respondent committed falsity when it sold the property
for a price lesser than its declared fair market value. This fact alone did not constitute a
false return which contains wrong information due to mistake, carelessness or
ignorance.[13] It is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose; in such event, the sale remains an arms
length transaction. In the present case, the private respondent was compelled to sell the
property even at a price less than its market value, because it would have lost all
ownership rights over it upon the expiration of the parity amendment. In other words,
private respondent was attempting to minimize its losses. At the same time, it was able
to lease the property for 25 years, renewable for another 25. This can be regarded as
another consideration on the price.
Furthermore, the fact that private respondent sold its real property for a price less
than its declared fair market value did not by itself justify a finding of false
return. Indeed, private respondent declared the sale in its 1974 return submitted to the
BIR.[14] Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said property was of
public record. This it did not do, however, during all those five years. Moreover, the BIR
failed to prove that respondent's 1974 return had been filed fraudulently. Equally.
significant was its failure to prove respondent's intent to evade the payment of the
correct amount of tax.
Ineludibly, the BIR failed to show that private respondent's 1974 return was filed
fraudulently with intent to evade the payment of the correct amount of tax. [15] Moreover,
even though a donor's tax, which is defined as "a tax on the privilege of transmitting
one's property or property rights to another or others without adequate and full valuable
consideration,"[16] is different from capital gains tax, a tax on the gain from the sale of
the taxpayer's property forming part of capital assets, [17] the tax return filed by private
respondent to report its income for the year 1974 was sufficient compliance with the
legal requirement to file a return. In other words, the fact that the sale transaction may
have partly resulted in a donation does not change the fact that private respondent
already reported its income for 1974 by filing an income tax return.
Since the BIR failed to demonstrate clearly that private respondent had filed a
fraudulent return with the intent to evade tax, or that it had failed to file a return at all,
the period for assessments has obviously prescribed. Such instances of negligence or
oversight on the part of the BIR cannot prejudice taxpayers, considering that the
prescriptive period was precisely intended to give them peace of mind.
Based on the foregoing, a discussion of the validity and legality of the assailed
assessments has become moot and unnecessary.
WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED. No costs.
SO ORDERED.

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