Hilado vs.

Collector of Internal Revenue

GR L-9408, October 31,1956

Facts: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City, claiming a
deductible item of P12,837.65 from his gross income pursuant to General Circular V-123 issued by the
Collector of Internal Revenue. The Secretary of Finance, through the Collector, issued General Circular V-
139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property which
occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or destruction of said property. The deductions were
disallowed.

Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim
compensation for destruction of his property during the war.

Held: Philippines Internal Revenue Laws are not political in nature and as such were continued in force
during the period of enemy occupation and in effect were actually enforced by the occupation government.
Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the
end of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle
for the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948, the payment of claims
by the War Damage Commission depended upon its discretions non-payment of which does not give rise
to any enforceable right. Assuming that the loss (deductible item) represents a portion of the 75% of his
war damage claim, the amount would be at most a proper deduction of his 1950 gross income (not on his
1951 gross income) as the last installment and notice of discontinuation of payment by the War Damage

To begin with, assuming that said amount represents a portion of the 75% of his war damage claim
which was not paid, the same would not be deductible as a loss in 1951 because, according
to Petitioner, the last installment he received from the War Damage Commission, together with the
notice that no further payment would be made on his claim, was in 1950. In the circumstance, said
amount would at most be a proper deduction from his 1950 gross income. In the second place, said
amount cannot be considered as a “business asset” which can be deducted as a loss in contemplation
of law because its collection is not enforceable as a matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was
absolutely no law under which Petitioner could claim compensation for the destruction of his properties
during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of
1946, the payments of claims by the War Damage Commission merely depended upon its discretion to
be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any
enforceable right, for, under said Act, “All findings of the Commission concerning the amount of loss or
damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to
this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be
reviewable by any court”.

when it is considered that the Philippine Rehabilitation Act which authorized the payment by the
United States Government of war losses suffered by property owners in the Philippines was passed
only on August 30, 1946, long after the losses were sustained. It cannot be said therefore, that the
property owners had any conclusive assurance during the years said losses were sustained, that the
compensation was to be paid therefor. Whatever assurance they could have had, could have been
based only on some information less reliable and less conclusive than the passage of the Act itself.

SEP

12

COMMISSIONER OF INTERNAL REVENUE v. HON. COURT OF

APPEALS, HON. COURT OF TAX APPEALS and FORTUNE
TOBACCO CORPORATION. G.R. No. 119761. August 29, 1996]
FACTS:

Fortune Tobacco Corporation is engaged in the manufacture of different brands of cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of
trademark registration over "Champion," "Hope," and "More" cigarettes.

The CIR initially classified 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in
the World Tobacco Directory as belonging to foreign companies. However, Fortune changed the names
of 'Hope' to Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the
foreign brand category. Fortune also submitted proof the BIR that 'Champion' was an original register
and therefore a local brand. Ad Valorem taxes were imposed on these brands.

RA 7654 was passed in it was provided that 55% ad valorem tax will be imposed on local brands
carrying a foreign name. Two days before the effectivity of RA 7654, the BIR issued Revenue
Memorandum Circular No. 37-93, in which Fortune was to be imposed 55% ad valorem tax on the
three brands classifying them as local brands carrying a foreign name.

Fortune filed a petition with the CTA which was granted finding the RMC as defective. The CIR filed a
motion for reconsideration with the CTA which was denied, then to the CA, an appeal, which was also
denied.

ISSUE: Whether the RMC was valid.

RULING:

NO. The RMC was made to place the three brands as locally made cigarettes bearing foreign brands
and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory
provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the RMC, the brands were subjected to
45% ad valorem tax. In so doing, the BIR not simply interpreted the law but it legislated under its
quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of
publication should not have been then ignored.

The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective
administrative issuance.

CAGAYAN ELECTRIC POWER vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF

TAX APPEALS

Taxation; Statutes; Where income tax exemption of a franchiseholder was withdrawn by the legislature in
January, 1968 but was restored in August, 1969, the franchiseholder is liable for income tax from January, 1968
to August, 1969.—The Tax Court acted correctly in holding that the exemption was restored by the subsequent
enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax exemption. Hence, the
petitioner is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption
was modified by Republic Act No. 5431.

Same; Same; Where imposition of a tax statute was controversial, taxpayer may not be held liable to pay
surcharge and interest.—However, it cannot be denied that the said 1969 assessment appears to be highly
controversial. The Commissioner at the outset was not certain as to petitioner’s income tax liability. It had reason
not to pay income tax because of the tax exemption in its franchise. For this reason, it should be liable only for
tax proper and should not be held liable for the surcharge and interest.

FACTS:

This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for income tax amounting to
P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax.

On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax
all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax
Code notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise
companies were subjected to income tax in addition to franchise tax.

However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969,
by authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis
Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendment re-
enacted the tax exemption in its original charter or neutralized the modification made by Republic Act No. 5431
more than a year before.

By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue required the
petitioner to pay deficiency income taxes for 1968 to 1971. The Commissioner cancelled the assessments for
1970 and 1971 but insisted on those for 1968 and 1969.

Tax Court, held the petitioner liable only for the income tax for the period from January 1 to August 3, 1969 or
before the passage of Republic Act No. 6020 which reiterated its tax exemption.

ISSUE:
WON Cagayan franchise is a contract which can be impaired by an implied repeal
HELD: YES

We hold that Congress could impair petitioner's legislative franchise by making it liable for income tax from
which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise.

The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when
the public interest so requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution).

Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject to the provisions of the
Constitution and to the terms and conditions established in Act No. 3636 whose section 12 provides that the
franchise is subject to amendment, alteration or repeal by Congress.

Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate
taxpayers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's
exemption from income tax.

The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August
4, 1969 of Republic Act No. 6020 which re-enacted the said tax exemption. Hence, the petitioner is liable only
for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by
Republic Act No. 5431.

It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been
paying income tax in addition to the franchise tax.

However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The
Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to pay income
tax because of the tax exemption in its franchise.

For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest.

Commissioner of Internal Revenue v. Eastern Telecommunications Philippines

G.R. No. 163835 July 7, 2010

Brion, J.

Doctrine:

Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the adverse
party and especially when they are more consistent with upholding settled principles in taxation.

The burden of strict compliance with statutory and administrative requirements by the person claiming for a tax refund

cannot be offset by the non-observance of procedural technicalities by the government’s tax agents when the non-
observance of the remedial measure addressing it does not in any manner prejudice the taxpayer’s due process
rights.

Facts:

Eastern filed with the CIR a written application for refund or credit of unapplied input taxes it paid on the imported

equipment purchased during 1995 and 1996 amounting to P22,013,134.00. To toll the running of the two-year

prescriptive period under the same provision, Eastern filed an appeal with the CTA. The CTA found that Eastern has
a valid claim for the refund/credit of the unapplied input taxes, declaring it entitled to a tax refund of P16,229,100.00.

The CIR filed a motion for reconsideration of the CTA’s decision. Subsequently, it filed a supplemental motion for

reconsideration. The CTA denied the CIR’s motion for reconsideration. The CIR then elevated the case to the CA,

who affirmed the CTA ruling and likewise denied the subsequent motion for reconsideration. Hence, the present
petition.

The CIR posits that, applying Section 104(A) of the Tax Code on apportionment of tax credits, Eastern is entitled to a

tax refund of only a portion of the amount claimed. Since the VAT returns clearly reflected income from exempt sales,

the CIR asserts that this constitutes as an admission on Eastern’s part that it engaged in transactions not subject to

VAT. Hence, the proportionate allocation of the tax credit to VAT and non-VAT transactions provided in Section
104(A) of the Tax Code should apply.

Eastern objects to the arguments raised in the petition, alleging that these have not been raised in the Answer filed by

the CIR before the CTA and was only raised. In fact, the CIR only raised the applicability of Section 104(A) of the Tax

Code in his supplemental motion for reconsideration of the CTA’s ruling. Eastern claims that for the CIR to raise such

an issue now would constitute a violation of its right to due process; following settled rules of procedure and fair play,
the CIR should not be allowed at the appeal level to change his theory of the case.

Eastern further argues that there is no evidence on record that would evidently show that respondent is also engaged
in other transactions that are not subject to VAT.

Issue:

Whether or not the rule in Section 104(A) of the Tax Code on the apportionment of tax credits can be applied in

appreciating Eastern’s claim for tax refund, considering that the matter was raised by the CIR only when he sought
reconsideration of the CTA ruling

Held:

Yes. The question of the applicability of Section 104(A) of the Tax Code was already raised but the tax court did not

rule on it. This failure should not be taken against the CIR. The mere declaration of exempt sales in the VAT returns,
whether based on Section 103 of the Tax Code or some other special law, should have prompted for the application
of Section 104 (A) of the Tax Code to Eastern’s claim.

The general rule is that appeals can only raise questions of law or fact that (a) were raised in the court below, and (b)
are within the issues framed by the parties therein (People v. Echegaray, G.R. No. 117472). An issue which was

neither averred in the pleadings nor raised during trial in the court below cannot be raised for the first time on appeal.

The rule against raising new issues on appeal is not without exceptions; it is a procedural rule that the Court may

relax when compelling reasons so warrant or when justice requires it. What constitutes good and sufficient cause that
would merit suspension of the rules is discretionary upon the courts (CIR v. Mirant Pagbilao Corporation, G.R. No.
159593). Another exception is when the question involves matters of public importance.

“Taxes are the lifeblood of the government.” For this reason, the right of taxation cannot easily be surrendered;

statutes granting tax exemptions are considered as a derogation of the sovereign authority and are strictly construed

against the person or entity claiming the exemption. Claims for tax refunds, when based on statutes granting tax

exemption or tax refund, partake of the nature of an exemption; thus, the rule of strict interpretation against the
taxpayer-claimant similarly applies (CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75).

The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and

administrative requirements to be entitled to the tax refund. This burden cannot be offset by the non-observance of

procedural technicalities by the government’s tax agents when the non-observance of the remedial measure
addressing it does not in any manner prejudice the taxpayer’s due process rights.

Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the adverse
party and especially when they are more consistent with upholding settled principles in taxation.

JAIME N. SORIANO v. SECRETARY OF FINANCE, GR No. 184450, 2017-01-24

Facts:
On 19 May 2008, the Senate filed its Senate Committee Report No. 53 on Senate Bill No.
(S.B.) 2293. On 21 May 2008, former President Gloria M. Arroyo certified the passage of
the bill as urgent through a letter addressed to then Senate President Manuel Villar. On the
same day, the bill was passed on second reading IN the Senate and, on 27 May 2008, on
third reading. The following day, 28 May 2008, the Senate sent S.B. 2293 to the House of
Representatives for the latter's concurrence.
On 17 June 2008, R.A. 9504 entitled "An Act Amending Sections 22, 24, 34, 35, 51, and 79
of Republic Act No. 8424, as Amended, Otherwise Known as the National Internal Revenue
Code of 1997," was approved and signed into law by President Arroyo
The following are the salient features of the new law:It increased the basic personal
exemption from P20,000 for a single individual, P25,000 for the head of the family, and
P32,000 for a married individual to P50,000 for each individual.It increased the additional
exemption for each dependent not exceeding four from P8,000 to P25,000.It raised the
Optional Standard Deduction (OSD) for individual taxpayers from 10% of gross income to
40% of the gross receipts or gross sales.It introduced the OSD to corporate taxpayers at no
more than 40% of their gross income.It granted MWEs exemption from payment of income
tax on their minimum wage, holiday pay, overtime pay, night shift differential pay and
hazard pay.[1]
Accordingly, R.A. 9504 was published in the Manila Bulletin and Malaya on 21 June 2008.
On 6 July 2008, the end of the 15-day period, the law took effect.
Petitioners Jaime N. Soriano et al. primarily assail Section 3 of RR 10-2008 providing for the
prorated application of the personal and additional exemptions for taxable year 2008 to
begin only effective 6 July 2008 for being contrary to Section 4 of Republic Act No.
9504.[2]Petitioners argue that the prorated application of the personal and additional
exemptions under RR 10-2008 is not "the legislative intendment in this jurisdiction."[3] They
stress that Congress has always maintained a policy of "full taxable year treatment"[4] as
regards the application of tax exemption laws. They allege further that R.A. 9504 did not
provide for a prorated application of the new set of personal and additional exemptions.[5]
Then Senator Manuel Roxas, as principal author of R.A. 9504, also argues for a full taxable
year treatment of the income tax benefits of the new law. He relies on what he says is clear
legislative intent In his "Explanatory Note of Senate Bill No. 103," he stresses "the very spirit
of enacting the subject tax exemption law
Petitioner Trade Union Congress of the Philippine contends that the provisions of R.A. 9504
provide for the application of the tax exemption for the full calendar year 2008. It also
espouses the interpretation that R.A. 9504 provides for the unqualified tax exemption of the
income of MWEs regardless of the other benefits they receive.[14] In conclusion, it says that
RR 10-2008, which is only an implementing rule, amends the original intent of R.A. 9504,
which is the substantive law, and is thus null and void.
Petitioners Senator Francis Joseph Escudero, the Tax Management Association of the
Philippines, Inc., and Ernesto Ebro allege that R.A. 9504 unconditionally grants MWEs
exemption from income tax on their taxable income, as wel1 as increased personal and
additional exemptions for other individual taxpayers, for the whole year 2008. They note that
the assailed RR 10-2008 restricts the start of the exemptions to 6 July 2008 and provides
that those MWEs who received "other benefits" in excess of P30,000 are not exempt from
income taxation. Petitioners believe this RR is a "patent nullity"[15] and therefore voi
The Office of the Solicitor General (OSG) filed a Consolidated Comment[16] and took the
position that the application of R.A. 9504 was intended to be prospective, and not
retroactive. This was supposedly the general rule under the rules of statutory construction:
law will only be applied retroactively if it clearly provides for retroactivity, which is not
provided in this instance
The OSG further argues that the legislative intent of non-retroactivity was effectively
confirmed by the "Conforme" of Senator Escudero, Chairperson of the Senate Committee
on Ways and Means, on the draft revenue regulation that became RR 10-2008.
Issues:
First, whether the increased personal and additional exemptions provided by R.A. 9504
should be applied to the entire taxable year 2008 or prorated, considering that R.A. 9504
took effect only on 6 July 2008.Second, whether an MWE is exempt for the entire taxable
year 2008 or from 6 July 2008 only.Third, whether Sections 1 and 3 of RR 10-2008 are
consistent with the law in providing that an MWE who receives other benefits in excess of
the statutory limit of P30,000[19] is no longer entitled to the exemption provided by R.A.
9504.
Ruling:
the policy of full taxable year treatment is established, not by the amendments introduced
by R.A. 9504, but by the provisions of the 1997 Tax Code, which adopted the policy from as
early as 1969.
Principles:
This Court ruled in the affirmative, considering that the increased exemptions were already
available on or before 15 April 1992, the date for the filing of individual income tax returns.
Further, the law itself provided that the new set of personal and additional exemptions
would be immediately available upon its effectivity. While R.A. 7167 had not yet become
effective during calendar year 1991, the Court found that it was a piece of social legislation
that was in part intended to alleviate the economic plight of the lower-income taxpayers. For
that purpose, the new law provided for adjustments "to the poverty threshold level"
prevailing at the time of the enactment of the law
T]he Court is of the considered view that Rep. Act 7167 should cover or extend to
compensation income earned or received during calendar year 1991
In sum, R.A. 9504, like R.A. 7167 in Umali, was a piece of social legislation clearly intended
to afford immediate tax relief to individual taxpayers, particularly low-income compensation
earners. Indeed, if R.A. 9504 was to take effect beginning taxable year 2009 or half of the
year 2008 only, then the intent of Congress to address the increase in the cost of living in
2008 would have been negated.
The NIRC is clear on these matters. The taxable income of an individual taxpayer shall be
computed on the basis of the calendar year.[30] The taxpayer is required to fi1e an income
tax return on the 15th of April of each year covering income of the preceding taxable
year.[31] The tax due thereon shall be paid at the time the return is filed
In the present case, the increased exemptions were already available much earlier than the
required time of filing of the return on 15 April 2009. R.A. 9504 came into law on 6 July
2008, more than nine months before the deadline for the filing of the income tax return for
taxable year 2008. Hence, individual taxpayers were entitled to claim the increased
amounts for the entire year 2008. This was true despite the fact that incomes were already
earned or received prior to the law's effectivity on 6 July 2008.
We find the facts of this case to be substantially identical to those of Umali.First, both cases
involve an amendment to the prevailing tax code. The present petitions call for the
interpretation of the effective date of the increase in personal and additional exemptions.
Otherwise stated, the present case deals with an amendment (R.A. 9504) to the prevailing
tax code (R.A. 8424 or the 1997 Tax Code). Like the present case, Umali involved an
amendment to the then prevailing tax code - it interpreted the effective date of R.A. 7167,
an amendment to the 1977 NIRC, which also increased personal and additional
exemptions.Second, the amending law in both cases reflects an intent to make the new set
of personal and additional exemptions immediately available after the effectivity of the law.
As already pointed out, in Umali, R.A. 7167 involved social legislation intended to adjust
personal and additional exemptions. The adjustment was made in keeping with the poverty
threshold level prevailing at the time.Third, both cases involve social legislation intended to
cure a social evil - R.A. 7167 was meant to adjust personal and additional exemptions in
relation to the poverty threshold level, while R.A. 9504 was geared towards addressing the
impact of the global increase in the price of goods.Fourth, in both cases, it was clear that
the intent of the legislature was to hasten the enactment of the law to make its beneficial
relief immediately available.

Acosta
G.R. No. 154068 August 3, 2007
QUISUMBING, J.

Lessons Applicable: Refund in the nature of tax exemption, exhaustion of administrative remedy,
prospectivity of tax laws

Laws Applicable:

FACTS:

 Rosemary Acosta, an employee of Intel Manufacturing Phils. Inc. assigned in a foreign country
filed on March 21, 1977 for a period of January 1, 1996-December 31, 1996, a Joint Individual
Income Tax Return with her husband on October 8, 1997, she filed an amended return indicating
an overpayment of P 358,274 due to the income taxes withheld and paid by Intel.
 April 15, 1999: She filed a petition for review with the CTA who dismissed her petition for failing
to file a written claim for refund required under Sec. 230 of the old tax code. Also, the omission
of the date of filing the final adjustment return deprived the court of its jurisdiction over the
subject matter of the case.
 CA: reversed the CTA holding that the filing of an amended return indicating an overpayment
was sufficient compliance with the requirement of a written claim for refund.
 Applying sec. 204 (c) of the 1997 NIRC, the CIR sought reconsideration but was denied so it
elevated the matter with the SC
ISSUES:

1. W/N the amended return is sufficient compliance of written claim

2. W/N the 1997 tax reform can be applied retrospectively
HELD: Granted.

1. NO. The requirements under Section 230 for refund claims are as follows
  a. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner;
 b. The claim for refund must be a categorical demand for reimbursement;
 c. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be
commenced in court within 2 years from date of payment of the tax or penalty regardless of any
supervening cause
 It is intended to afford the CIR an opportunity to correct the action of its subordinate officers and
to be notified. Tax refunds are in the nature of tax exemptions which are construed strictissimi
juris against the taxpayer and liberally in favor of the government
 As tax refund involve a return of revenue from the government, the claimant must show the
specific provision of law as basis of her right
2. NO. Tax laws are prospective in operation, unless the language of the statute clearly
provides otherwise. Moreover, a party seeking an administrative remedy must not merely initiate
the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate
conclusion before seeking judicial intervention in order to give the administrative agency an
opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to
court action. Revenue statutes are substantive laws and in no sense must their application be
equated with that of remedial laws which must be faithfully and strictly implemented.

CASE DIGEST: DOUBLE TAXATION

NURSERY CARE CORPORATION, ET AL, vs. ACEVEDO, G.R. No. 180651, July 30, 2014

FACTS OF THE CASE:

 The CITY OF MANILA assessed and collected taxes from the individual petitioners pursuant to Section 15 (Tax on Wholesalers, Distributors, or Dealers)
and Section 17 (Tax on Retailers) of the Revenue Code of Manila. At the same time, the CITY OF MANILA imposed additional taxes upon the petitioners
pursuant to Section 21 of the Revenue Code of Manila, as amended, as a condition for the renewal of their respective business licenses for the year
1999. SECTION 21 OF THE REVENUE CODE OF MANILA stated: Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes
under the NIRC - On any of the following businesses and articles of commerce subject to the excise, VALUE-ADDED OR PERCENTAGE TAXES under the
National Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax of FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the
gross sales or receipts of the preceding calendar year is hereby imposed: A) On person who sells goods and services in the course of trade or businesses;
x x x PROVIDED, that all registered businesses in the City of Manila already paying the aforementioned tax shall be exempted from payment thereof.
 To comply with the City of Manila’s assessment of taxes under Section 21, the PETITIONERS paid under protest the following amounts corresponding
to the first quarter of 1999, to wit: (a) Nursery Care Corporation ₱595,190.25; (b) Shoemart Incorporated ₱3,283,520.14; (c) Star Appliance Center
₱236,084.03; (d) H & B, Inc. ₱1,271,118.74; (e) Supplies Station, Inc. ₱239,501.25; (f) Hardware Work Shop, Inc. ₱609,953.24. By letter dated March
1, 1999, the PETITIONERS formally requested the Office of the City Treasurer for the tax credit or refund of the local business taxes paid under protest.
However, then City Treasurer Anthony Acevedo (Acevedo) denied the request.
 On April 8, 1999, the PETITIONERS, sought the reconsideration of the denial of their request. Still, the CITY TREASURER did not reconsider. In the
meanwhile, Liberty Toledo succeeded Acevedo as the City Treasurer of Manila. PETITIONERS filed their respective petitions for certiorari in the
Regional Trial Court (RTC) in Manila.
 RTC held that it perceives NO INSTANCE OF THE CONSTITUTIONALLY PROSCRIBED DOUBLE TAXATION, in the strict, narrow or obnoxious sense, imposed
upon the petitioners under Section 15 and 17, on the one hand, and under Section 21, on the other, of the questioned Ordinance. The tax imposed
under Section 15 and 17, as against that imposed under Section 21, are levied against different tax objects or subject matter. The tax under Section
15 is imposed upon wholesalers, distributors or dealers, while that under Section 17 is imposed upon retailers. In short, taxes imposed under Section
15 and 17 is a tax on the business of wholesalers, distributors, dealers and retailers. On the other hand, the tax imposed upon herein petitioners under
Section 21 is not a tax against the business of the petitioners (as wholesalers, distributors, dealers or retailers) but is rather a tax against consumers or
end-users of the articles sold by petitioners. CA affirmed the decision of the RTC.
ISSUE: Whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as amended, constitutes double taxation. YES

RULING:

 There is DOUBLE TAXATION when the same taxpayer is taxed twice when he should be taxed only once for the same purpose by the same taxing
authority within the same jurisdiction during the same taxing period, and the taxes are of the same kind or character. DOUBLE TAXATION is obnoxious.
 DOUBLE TAXATION means taxing the same property twice when it should be taxed only once; that is, "taxing the same person twice by the same
jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "DIRECT
DUPLICATE TAXATION," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.
 Using the aforementioned test, the COURT finds that there is INDEED DOUBLE TAXATION IF RESPONDENT IS SUBJECTED TO THE TAXES UNDER BOTH
SECTIONS 14 AND 21 OF TAX ORDINANCE NO. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in
the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city revenues; (3) by the
same taxing authority – petitioner City of Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for
the same taxing periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the
business.
 Based on the foregoing reasons, PETITIONER should not have been subjected to taxes under Section 21 of the Manila Revenue Code for the fourth
quarter of 2001, considering that it had already been paying local business tax under Section 14 of the same ordinance.
 Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. PETITIONER is indeed liable to pay business taxes to the City of
Manila; nevertheless, considering that the FORMER has already paid these taxes under Section 14 of the Manila Revenue Code, it is exempt from the
same payments under Section 21 of the same code. Hence, payments made under Section 21 must be refunded in favor of petitioner. It is undisputed
that PETITIONER paid business taxes based on Sections 14 and 21 for the fourth quarter of 2001 in the total amount of ₱470,932.21. Therefore, it is
ENTITLED TO A REFUND OF ₱164,552.04 corresponding to the payment under Section 21 of the Manila Revenue Code.
 In fine, the IMPOSITION OF THE TAX UNDER SECTION 21 OF THE REVENUE CODE OF MANILA constituted double taxation, and the taxes collected
pursuant thereto must be refunded.

IMPORTANT PRINCIPLE: WHEN IS THERE DOUBLE TAXATION; REQUISITES OF DOUBLE TAXATION

WHEN IS THERE DOUBLE TAXATION?

 There is DOUBLE TAXATION when the same taxpayer is taxed twice when he should be taxed only once for the same purpose by the same taxing
authority within the same jurisdiction during the same taxing period, and the taxes are of the same kind or character. DOUBLE TAXATION is obnoxious.

 DOUBLE TAXATION means taxing the same property twice when it should be taxed only once; that is, "taxing the same person twice by the same
jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "DIRECT
DUPLICATE TAXATION," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

REQUISITES OF DOUBLE TAXATION:

Using the aforementioned test, the COURT finds that there is INDEED DOUBLE TAXATION IF RESPONDENT IS SUBJECTED TO THE TAXES UNDER BOTH
SECTIONS 14 AND 21 OF TAX ORDINANCE NO. 7794, since these are being imposed:

(1) On the same subject matter – the privilege of doing business in the City of Manila;

(2) For the same purpose – to make persons conducting business within the City of Manila contribute to city revenues;

(3) By the same taxing authority – petitioner City of Manila;

(4) Within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila;
(5) For the same taxing periods – per calendar year; and

(6) Of the same kind or character – a local business tax imposed on gross sales or receipts of the business.

Tridharma Marketing Corporation vs. CTA and CIR

GR # 215950 June 20, 2016

Facts:

Petitioner received a Preliminary Assessment Notice (PAN) from BIR assessing it

with various deficiency taxes on income tax (IT), VAT, withholding tax on compensation
(WTC), expanded withholding tax (EWT) and documentary stamp tax (DST) totaling to PHP
4, 942, 937, 053.82 inclusive of surcharge and interest. A substantial portion of the
deficiency of income tax and VAT arose from the complete disallowance by the BIR of the
petitioner’s purchases from Etheria Trading in 2010 amounting to PHP 4, 942, 937, 053. 82.

Petitioner also received from the BIR a Formal Letter of Demand assessing it with
deficiency taxes for the taxable year ending December 31, 2010 amounting to PHP 4, 697,
696, 275. 25 inclusive of surcharge and interest. With that, petitioner filed a protest
against the Formal Letter of Demand with the CIR. Respondent CIR then required the
petitioner to submit additional documents in support of its protest which the petitioner
complied – but the protest was denied.

Thus, petitioner filed with the CIR a protest through a Request for Reconsideration,
but the same was still denied.

Prior to the CIR’s decision, the petitioner paid the assessments corresponding to the
WTC, DST and EWT deficiency assessments inclusive of interest amounting to PHP 5, 836,
786. 10 – with an offer to compromise the alleged deficiency assessments on IT and VAT.

An appeal was then filed with the CTA with Motion to Suspend Collection of Tax. The
Motion was granted but with the condition that the petitioner deposits to the court an
acceptable surety bond equivalent to 150% of the assessment or in the amount PHP 6, 701,
087, 822.64 within 15 days from notice. Subsequently, the petitioner filed its Motion for
Partial Reconsideration praying for the reduction of the bond to an amount it could obtain.
The same was granted reducing the amount of bond to PHP 4, 467, 391, 881. 76.

Hence, the petitioner has commenced a special civil action for certiorari on the
ground that the amount of bond required by the CTA was excessive, legally impossible to
procure and could cause irreparable injury to the petitioner even before the case is heard.
 As action, the court issued a TRO on the resolutions issued by the CTA in Division
and the collection of the deficiency assessments.

Issue:

Whether or not the CTA in Division committed grave abuse of discretion in requiring
the petitioner to file a surety bond despite the supposedly patent illegality of the
assessment that was beyond petitioner’s net worth but equivalent to the deficiency
assessment for IT and VAT.

Ruling:

The court ruled that, the CTA in Division gravely abused its discretion under Sec. 11
of RA 1125 because it fixed the amount of bond at nearly five times the net worth of the
petitioner without conducting a preliminary hearing to ascertain whether there were ground
to suspend the collection of the deficiency assessment on the ground that such collection
would jeopardize the interest of the taxpayer. Although the amount of PHP 4, 467, 391,
881. 76 was itself the amount of the assessment, it behooved the CTA in Division to consider
other factors recognized by law itself towards suspending the collection of the assessment.

Simply prescribing such high amount of bond like the initial 150% of the deficiency
assessment or later on even reducing the amount of the bond to equal the deficiency
assessment would practically deny the petitioner the meaningful opportunity to contest the
validity of the assessments and would likely even impoverish it as to force it out of business.

At this juncture, it becomes imperative to reiterate the principle that the power to
tax is not the power to destroy.

Moreover, Sec. 11 of RA 1125, as amended indicates that the requirement of the bond
as a condition precedent to suspension of the collection applies only in cases where the
process by which the collection sought to be made by means thereof are carried out in
consonance with the law not when the processes are in plain violation of the law that they
have to be suspended for jeopardizing the interest of the taxpayer.

Estate of Benigno Toda Jr.

G.R. No. 147188. September 14, 2004
DAVIDE, JR., C.J.
Lessons Applicable: Tax evasion v. Tax avoidance

Laws Applicable:

FACTS:

 March 2, 1989: Cibeles Insurance Corp. (CIC) authorized Benigno P. Toda Jr., President and
Owner of 99.991% of outstanding capital stock, to sell the Cibeles Building and 2 parcels of land
which he sold to Rafael A. Altonaga on August 30, 1987 for P 100M who then sold it on the
same day to Royal Match Inc. for P 200M.
 CIC included gains from sale of real property of P 75,728.021 in its annual income tax return
while Altonaga paid a 5% capital gains tax of P 10M
 July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M evidenced by a deed of ale
of shares of stock which provides that the buyer is free from all income tax liabilities for 1987,
1988 and 1989.
 Toda Jr. died 3 years later.
 March 29, 1994: BIR sent an assessment notice and demand letter to CIC for deficiency of
income tax of P 79,099, 999.22
 January 27, 1995: BIR sent the same to the estate of Toda Jr.
 Estate filed a protest which was dismissed - fraudulent sale to evade the 35% corporate income
tax for the additional gain of P 100M and that there is in fact only 1 sale.
 Since it is falsity or fraud, the prescription period is 10 years from the discovery of the falsity or
fraud as prescribed under Sec. 223 (a) of the NIRC
 CTA: No proof of fraudulent transaction so the applicable period is 3 years after the last day
prescribed by law for filing the return
 CA: affirmed
 CIR appealed
ISSUE: W/N there is falsity or fraud resulting to tax evasion rather than tax avoidance so the period
for assessment has not prescribed.

HELD: YES. Estate shall be liable since NOT yet prescribed.

 Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. ax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities.
 Tax evasion connotes the integration of three factors:
 (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due
 (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and
 (3) a course of action or failure of action which is unlawful.
 All are present in this case. The trial balance showed that RMI debited P 40M as "other-inv.
Cibeles Building" that indicates RMI Paid CIC (NOT Altonaga)
 Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.
 Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to
be paid especially that the transfer from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income tax.
 Generally, a sale of or exchange of assets will have an income tax incidence only when it is
consummated but such tax incidence depends upon the substance of the transaction rather
them mere formalities.

NITAFAN v, CIR

The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of low
fixed by law. During their continuance in office, their salary shall not be decreased. (Sec. 10, Art. VIII, 1

Facts:

The Chief Justice directed the Fiscal Management and Budget Office of the Supreme Court
to discontinue the withholding of taxes from the salaries of the Justices of the Supreme Court as well
as from the salaries of all other members of the judiciary. This was affirmed by the Supreme Court en
banc.

Judges Nitafan, Polo and Savellano from RTC Manila filed a petition to prohibit and/or perpetually
enjoin the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, from
making any deduction of withholding taxes from their salaries. They submit that "any tax withheld from
their emoluments or compensation as judicial officers constitutes a decrease or diminution of their
salaries, contrary to the provision of Section 10, Article VIII of the 1987 Constitution mandating that
during their continuance in office, their salary shall not be decreased," even as it is anathema to the
Ideal of an independent judiciary envisioned in and by said Constitution."

Issue:

Are the members of the Judiciary exempt from income taxes?

Held:

No. The salaries of members of the Judiciary are subject to the general income tax applied to all
taxpayers. Although such intent was somehow and inadvertently not clearly set forth in the final text
of the 1987 Constitution, the deliberations of the 1986 Constitutional Commission regarding the
constitutional provision in question until it was finally approved by the Commission disclosed that the
true intent of the framers was to make the salaries of members of the Judiciary taxable. The
ascertainment of that intent is but in keeping with the fundamental principle of constitutional
construction that the intent of the framers of the organic law and of the people adopting it should be
given effect. The primary task in constitutional construction is to ascertain and thereafter assure the
realization of the purpose of the framers and of the people in the adoption of the Constitution. It may
also be safely assumed that the people in ratifying the Constitution were guided mainly by the
explanation offered by the framers.

Hence, the doctrine in Perfecto v. Meer and Endencia vs. David (declared the salaries of members of
the Judiciary exempt from payment of the income tax and considered such payment as a diminution
of their salaries during their continuance in office) do not apply anymore. The framers of the
fundamental law, as the alter ego of the people, have expressed in clear and unmistakable terms the
meaning and import of Section 10, Article VIII, of the 1987 Constitution that they have adopted.

Stated otherwise, we accord due respect to the intent of the people, through the discussions and
deliberations of their representatives, in the spirit that all citizens should bear their aliquot part of the
cost of maintaining the government and should share the burden of general income taxation
equitably. (Nitafan vs. Commissioner of Internal Revenue, G.R. No. 78780, July 23, 1987)

CASE DIGEST: MACTAN CEBU INTERNATIONAL AIRPORT

AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS, in his
capacity as the Presiding Judge of the Regional Trial Court, Branch
20, Cebu City, THE CITY OF CEBU, represented by its Mayor, HON.
TOMAS R. OSMEA, and EUSTAQUIO B. CESA, respondents. (G.R. No.
120082; September 11, 1996)

FACTS:
Under its charter, the MCIAA shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and
instrumentalities. In 1994, the Local Government Unit (LGU) of Cebu
City demanded payment for realty taxes on several parcels of land belonging to
MCIAA.

MCIAA objected to the same as baseless and unjustified, claiming its exemption
under its charter. Also, it cites the LGC stating that LGUs taxing power does not
extend to taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units.

Cebu City countered, however, citing Sections 193 and 234 of the LGC which
withdraw tax exemptions of GOCCs and realty tax exemptions previously granted
to ore presently enjoyed by all persons, whether natural or juridical, including
GOCCs.

MCIAA paid tax under protest. It insisted that the taxing powers of LGUs do not
extend to the levy of taxes or fees of any kind on an instrumentality of the
national government. It also insisted that while it is indeed a GOCC, it
nonetheless stands on the same footing as an agency or instrumentality of the
national government by the very nature of its powers and functions.
ISSUES:
[1] Is MCIAA a taxable person?
[2] Is MCIAA exempt from realty taxation?

HELD:
[1] Yes, although it previously enjoyed exemption from realty tax under its
charter (which has already been withdrawn by the LGC), this exemption extended
only to said tax, not to other taxes. Hence, MCIAA is still a taxable person.

[2] No, MCIAA is not exempt from realty tax by the City of Cebu. First, its tax
exemption under its charter has already been withdrawn. Second, while it is true
that LGUs cannot levy tax on property of the Republic of the Philippines or the
National Government (outside Metro Manila), the beneficial use of property
should not be given to a taxable person.

Here, MCIAA is already the owner of the parcels of land in question. Hence, even
the exemption under the LGC cannot apply.

Republic v Mambulao Lumber Company, et al GR No L-17725, February 28, 1962

FACTS:
Mambulao Lumber Company paid the Government a total of P 9,127.50 as reforestation charges for the
years 1947 to
1956. It is the company’s contention that said sum of 9,127.50, not having been used in the reforestation
of the area covered by its license, the same is refundable to it or may be applied in compensation of P
4,802.37 due from it as forest charges.
Court of First Instance of Manila ordered the company to pay the government the sum of P 4,802.37 with
6% interest thereon from date of the filing of the complaint until fully paid, plus costs. Thus, the present
appeal.

ISSUE: Whether the set-off or compensation is proper

RULING:
No. There is nothing in the law which requires that the amount collected as reforestation charges should
be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire,
and that if not so used, the same shall be refunded to him.
The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a
tax which forms part of the Forestation Fund, payable by him irrespective of whether the area covered by
his license is reforested or not.
Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for
thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing
reforestation or afforestation.
The weight of authority is to the effect that internal revenue taxes, such as the forest charges in question is
not subject to set-off or compensation. Taxes are not in the nature of contracts between the parties but
grow out of a duty to, and are positive acts of the government, to the making and enforcing of which, the
personal consent of the individual taxpayers is not required.
With respect to the forest charges which the company has paid to the government, they are in the coffers
of the government as tax collected, and the government does not owe anything. It is crystal clear that the
Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each
other, because compensation refers to mutual debts.

20. DOMINGO VS GARLITOS, G.R. NO. 18993 June 29, 1963

FACTS: This is a petition against Judge Garlitos, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.

In Domingo vs. Moscoso, the Supreme Court declared as final and executory the order of the lower court
for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by
the estate of the of the late Walter Price. The petition for execution filed by the fiscal was denied by the
lower court. The court held that the execution is unjustified as the Government is indebted to the estate
for Php262,200 and ordered the amount of inheritance taxes can be deducted from the Government’s
indebtedness to the estate.

ISSUE: Whether or not the petition to set aside the orders of the court below and for the execution of the
claims of the Government against the estate should be granted.

RULING: No.

The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person,
as an inheritance tax, is for the claimant to present a claim before the probate court so that said court
may order the administrator to pay the amount thereof.

The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court
and such jurisdiction continues until said properties have been distributed among the heirs entitled
thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper
procedure is not to allow the sheriff, in case of a court judgment, to seize the properties but to ask the
court for an order to require the administrator to pay the amount due from the estate and required to be
paid.
The Court also ruled that the tax and the debt are compensated. The court having jurisdiction of the estate
had found that the claim of the estate against the government has been recognized and an amount of
P262,200 has already been appropriated by a corresponding law (RA 2700). Under the circumstances,
both the claim of the Government for the inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated. If the obligation to
pay taxes and the taxpayer’s claim against the government are both overdue, demandable, as well as fully
liquidated, compensation takes place by operation of law and both obligations are extinguished to their
concurrent amounts.