FIRST DIVISION

[G.R. Nos. 172045-46. June 16, 2009.]

COMMISSIONER OF INTERNAL
REVENUE,  petitioner, vs. FIRST EXPRESS
PAWNSHOP COMPANY, INC.,  respondent.

DECISION

CARPIO, J  :p

The Case

The Commissioner of Internal Revenue (petitioner) filed

this Petition for Review 1 to reverse the Court of Tax Appeals'
Decision 2 dated 24 March 2006 in the consolidated cases of
C.T.A. EB Nos. 60 and 62. In the assailed decision, the Court of
Tax Appeals (CTA) En Banc partially reconsidered the CTA
First Division's Decision 3 dated 24 September 2004.

The Facts

On 28 December 2001, petitioner, through Acting

Regional Director Ruperto P. Somera of Revenue Region 6
Manila, issued the following assessment notices against First
Express Pawnshop Company, Inc. (respondent):

a. Assessment No. 31-1-98 4 for deficiency income tax of

P20,712.58 with compromise penalty of P3,000;

b. Assessment No. 31-14-000053-98 5 for deficiency

value-added tax (VAT) of P601,220.18 with
compromise penalty of P16,000;
 c. Assessment No. 31-14-000053-98 6 for deficiency
documentary stamp tax (DST) of P12,328.45 on
deposit on subscription with compromise penalty of
P2,000; and

d. Assessment No. 31-1-000053-98 7 for deficiency DST

of P62,128.87 on pawn tickets with compromise
penalty of P8,500.  ICHcTD

Respondent received the assessment notices on 3

January 2002. On 1 February 2002, respondent filed its written
protest on the above assessments. Since petitioner did not act
on the protest during the 180-day period, 8 respondent filed a
petition before the CTA on 28 August 2002. 9

Respondent contended that petitioner did not consider

the supporting documents on the interest expenses and
donations which resulted in the deficiency income
tax.10 Respondent maintained that pawnshops are not lending
investors whose services are subject to VAT, hence it was not
liable for deficiency VAT. 11 Respondent also alleged that no
deficiency DST was due because Section 180 12 of
the National Internal Revenue Code (Tax Code)does not cover
any document or transaction which relates to respondent.
Respondent also argued that the issuance of a pawn ticket did
not constitute a pledge under Section 195 13 of the Tax
Code.14

In its Answer filed before the CTA, petitioner alleged that

the assessment was valid and correct and the taxpayer had
the burden of proof to impugn its validity or correctness.
Petitioner maintained that respondent is subject to 10% VAT
based on its gross receipts pursuant to Republic Act No. 7716,
or the Expanded Value-Added Tax Law (EVAT). Petitioner also
cited BIR Ruling No. 221-91 which provides that pawnshop
tickets are subject to DST. 15

On 1 July 2003, respondent paid P27,744.88 as deficiency

income tax inclusive of interest. 16

After trial on the merits, the CTA First Division ruled,

thus:

IN VIEW OF ALL THE FOREGOING, the instant petition is

hereby PARTIALLY GRANTED. Assessment No. 31-1-
000053-98 for deficiency documentary stamp tax in the
amount of Sixty-Two Thousand One Hundred Twenty-Eight
Pesos and 87/100 (P62,128.87) and Assessment No. 31-14-
000053-98 for deficiency documentary stamp tax on
deposits on subscription in the amount of Twelve
Thousand Three Hundred Twenty-Eight Pesos and 45/100
(P12,328.45) are CANCELLED and SET ASIDE. However,
Assessment No. 31-14-000053-98 is
hereby AFFIRMED except the imposition of compromise
penalty in the absence of showing that petitioner
consented thereto (UST vs. Collector, 104 SCRA 1062;
Exquisite Pawnshop Jewelry, Inc. vs. Jaime B. Santiago,
et al., supra).

Accordingly petitioner is ORDERED to PAY the deficiency

value added tax in the amount of Six Hundred One
Thousand Two Hundred Twenty Pesos and 18/100
(P601,220.18) inclusive of deficiency interest for the year
1998. In addition, petitioner is ORDERED to PAY 25%
surcharge and 20% delinquency interest  per annum from
February 12, 2002 until fully paid pursuant to Sections 248
and 249 of the 1997 Tax Code.  TSIDaH

SO ORDERED. 17 (Boldfacing in the original)

 Both parties filed their Motions for Reconsideration which
were denied by the CTA First Division for lack of merit.
Thereafter, both parties filed their respective Petitions for
Review under Section 11 of Republic Act No. 9282 (RA 9282)
with the CTA En Banc. 18

On 24 March 2006, the CTA En Banc promulgated a

Decision affirming respondent's liability to pay the VAT and
ordering it to pay DST on its pawnshop tickets. However, the
CTA En Banc found that respondent's deposit on subscription
was not subject to DST. 19

Aggrieved by the CTA En Banc's Decision which ruled

that respondent's deposit on subscription was not subject to
DST, petitioner elevated the case before this Court.

The Ruling of the Court of Tax Appeals

On the taxability of deposit on subscription, the CTA,

citing First Southern Philippines Enterprises, Inc. v.
Commissioner of Internal Revenue, 20 pointed out that deposit
on subscription is not subject to DST in the absence of proof
that an equivalent amount of shares was subscribed or issued
in consideration for the deposit. Expressed otherwise, deposit
on stock subscription is not subject to DST if: (1) there is no
agreement to subscribe; (2) there are no shares issued or any
additional subscription in the restructuring plan; and (3) there
is no proof that the issued shares can be considered as issued
certificates of stock. 21

The CTA ruled that Section 175 22 of the Tax

Code contemplates a subscription agreement. The CTA
explained that there can be subscription only with reference to
shares of stock which have been unissued, in the following
cases: (a) the original issuance from authorized capital stock
at the time of incorporation; (b) the opening, during the life of
the corporation, of the portion of the original authorized
capital stock previously unissued; or (c) the increase of
authorized capital stock achieved through a formal
amendment of the articles of incorporation and registration of
the articles of incorporation with the Securities and Exchange
Commission. 23

The CTA held that in this case, there was no subscription

or any contract for the acquisition of unissued stock for
P800,000 in the taxable year assessed. The General
Information Sheet (GIS) of respondent showed only a capital
structure of P500,000 as Subscribed Capital Stock and
P250,000 as Paid-up Capital Stock and did not include the
assessed amount. Mere reliance on the presumption that the
assessment was correct and done in good faith was unavailing
vis-a-vis the evidence presented by respondent. Thus, the CTA
ruled that the assessment for deficiency DST on deposit on
subscription has not become final. 24

The Issue

Petitioner submits this sole issue for our consideration:

whether the CTA erred on a question of law in disregarding the
rule on finality of assessments prescribed under Section 228 of
the Tax Code.Corollarily, petitioner raises the issue on
whether respondent is liable to pay P12,328.45 as DST on
deposit on subscription of capital stock.  CASIEa

The Ruling of the Court

Petitioner contends that the CTA erred in disregarding

the rule on the finality of assessments prescribed under
Section 228 of the Tax Code.25 Petitioner asserts that even if
respondent filed a protest, it did not offer evidence to prove its
claim that the deposit on subscription was an "advance" made
by respondent's stockholders. 26Petitioner alleges that
respondent's failure to submit supporting documents within 60
days from the filing of its protest as required under Section
228 of the Tax Code caused the assessment of P12,328.45 for
deposit on subscription to become final and unassailable. 27

Petitioner alleges that revenue officers are afforded the

presumption of regularity in the performance of their official
functions, since they have the distinct opportunity, aside from
competence, to peruse records of the assessments. Petitioner
invokes the principle that by reason of the expertise of
administrative agencies over matters falling under their
jurisdiction, they are in a better position to pass judgment
thereon; thus, their findings of fact are generally accorded
great respect, if not finality, by the courts. Hence, without the
supporting documents to establish the non-inclusion from DST
of the deposit on subscription, petitioner's assessment
pursuant to Section 228 of the Tax Code had become final
and unassailable. 28

Respondent, citing Standard Chartered Bank-Philippine

Branches v. Commissioner of Internal Revenue , 29 asserts
that the submission of all the relevant supporting documents
within the 60-day period from filing of the protest is directory.

Respondent claims that petitioner requested for

additional documents in petitioner's letter dated 12 March
2002, to wit: (1) loan agreement from lender banks; (2) official
receipts of interest payments issued to respondent; (3)
documentary evidence to substantiate donations claimed; and
(4) proof of payment of DST on subscription. 30 It must be
noted that the only document requested in connection with
respondent's DST assessment on deposit on subscription is
proof of DST payment. However, respondent could not produce
any proof of DST payment because it was not required to pay
the same under the law considering that the deposit on
subscription was an advance made by its stockholders for
future subscription, and no stock certificates were
issued. 31 Respondent insists that petitioner could have
issued a subpoena requiring respondent to submit other
documents to determine if the latter is liable for DST on
deposit on subscription pursuant to Section 5 (c) of the Tax
Code.32

Respondent argues that deposit on future subscription is

not subject to DST under Section 175 of the Tax
Code.Respondent explains:

It must be noted that deposits on subscription represent

advances made by the stockholders and are in the nature
of liabilities for which stocks may be issued in the future.
Absent any express agreement between the stockholders
and petitioner to convert said advances/deposits to
capital stock, either through a subscription agreement or
any other document, these deposits remain as liabilities
owed by respondent to its stockholders. For these
deposits to be subject to DST, it is necessary that a
conversion/subscription agreement be made by First
Express and its stockholders. Absent such conversion, no
DST can be imposed on said deposits under Section 175 of
the Tax Code. 33 (Underscoring in the original)  cEITCA

Respondent contends that by presenting its GIS and

financial statements, it had already sufficiently proved that the
amount sought to be taxed is deposit on future subscription,
which is not subject to DST. 34 Respondent claims that it
cannot be required to submit proof of DST payment on
subscription because such payment is non-existent. Thus, the
burden of proving that there was an agreement to subscribe
and that certificates of stock were issued for the deposit on
subscription rests on petitioner and his examiners.
Respondent states that absent any proof, the deficiency
assessment has no basis and should be cancelled. 35

On the Taxability of Deposit on Stock Subscription

DST is a tax on documents, instruments, loan
agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property
incident thereto. DST is actually an excise tax because it is
imposed on the transaction rather than on the
document. 36 DST is also levied on the exercise by persons of
certain privileges conferred by law for the creation, revision,
or termination of specific legal relationships through the
execution of specific instruments. 37 The Tax
Code provisions on DST relating to shares or certificates of
stock state:

Section 175. Stamp Tax on Original Issue of Shares of

Stock. — On every original issue, whether on organization,
reorganization or for any lawful purpose, of shares of
stock by any association, company or corporation, there
shall be collected a documentary stamp tax of Two pesos
(P2.00) on each Two hundred pesos (P200), or fractional
part thereof, of the par value, of such shares of
stock: Provided, That in the case of the original issue of
shares of stock without par value the amount of the
documentary stamp tax herein prescribed shall be based
upon the actual consideration for the issuance of such
shares of stock: Provided, further, That in the case of
 stock dividends, on the actual value represented by each
share. 38

Section 176. Stamp Tax on Sales, Agreements to Sell,

Memoranda of Sales, Deliveries or Transfer of Due-bills,
Certificates of Obligation, or Shares or Certificates of
Stock. — On all sales, or agreements to sell, or
memoranda of sales, or deliveries, or transfer of due-bills,
certificates of obligation, or shares or certificates of stock
in any association, company or corporation, or transfer of
such securities by assignment in blank, or by delivery, or
by any paper or agreement, or memorandum or other
evidences of transfer or sale whether entitling the holder
in any manner to the benefit of such due-bills, certificates
of obligation or stock, or to secure the future payment of
money, or for the future transfer of any due-bill, certificate
of obligation or stock, there shall be collected a
documentary stamp tax of One peso and fifty centavos
(P1.50) on each Two hundred pesos (P200), or fractional
part thereof, of the par value of such due-bill, certificate of
obligation or stock: Provided, That only one tax shall be
collected on each sale or transfer of stock or securities
from one person to another, regardless of whether or not a
certificate of stock or obligation is issued, indorsed, or
delivered in pursuance of such sale or transfer:
And  provided, further, That in the case of stock without
par value the amount of the documentary stamp tax herein
prescribed shall be equivalent to twenty-five percent
(25%) of the documentary stamp tax paid upon the original
issue of said stock. 39

In Section 175 of the Tax Code,DST is imposed on the

original issue of shares of stock. The DST, as an excise tax, is
levied upon the privilege, the opportunity and the facility of
issuing shares of stock. In Commissioner of Internal Revenue
v. Construction Resources of Asia, Inc ., 40 this Court
explained that the DST attaches upon acceptance of the
stockholder's subscription in the corporation's capital stock
regardless of actual or constructive delivery of the certificates
of stock. Citing Philippine Consolidated Coconut Ind., Inc. v.
Collector of Internal Revenue, 41 the Court held:  aHTDAc

The documentary stamp tax under this provision of the

law may be levied only once, that is upon the original
issue of the certificate. The crucial point therefore, in the
case before Us is the proper interpretation of the word
'issue'. In other words, when is the certificate of stock
deemed 'issued' for the purpose of imposing the
documentary stamp tax? Is it at the time the certificates
of stock are printed, at the time they are filled up (in
whose name the stocks represented in the certificate
appear as certified by the proper officials of the
corporation), at the time they are released by the
corporation, or at the time they are in the possession
(actual or constructive) of the stockholders owning them?

xxx xxx xxx

Ordinarily, when a corporation issues a certificate of

stock (representing the ownership of stocks in the
corporation to fully paid subscription) the certificate of
stock can be utilized for the exercise of the attributes of
ownership over the stocks mentioned on its face. The
stocks can be alienated; the dividends or fruits derived
therefrom can be enjoyed, and they can be conveyed,
pledged or encumbered. The certificate as issued by the
corporation, irrespective of whether or not it is in the
 actual or constructive possession of the stockholder, is
considered issued because it is with value and hence the
documentary stamp tax must be paid as imposed by
Section 212 of the National Internal Revenue Code, as
amended.

In Section 176 of the Tax Code,DST is imposed on the

sales, agreements to sell, memoranda of sales, deliveries or
transfer of shares or certificates of stock in any association,
company, or corporation, or transfer of such securities by
assignment in blank, or by delivery, or by any paper or
agreement, or memorandum or other evidences of transfer or
sale whether entitling the holder in any manner to the benefit
of such certificates of stock, or to secure the future payment
of money, or for the future transfer of certificates of stock.
In Compagnie Financiere Sucres et Denrees v. Commissioner
of Internal Revenue, this Court held that under Section 176 of
the Tax Code,sales to secure the future transfer of due-bills,
certificates of obligation or certificates of stock are subject to
documentary stamp tax. 42

Revenue Memorandum Order No. 08-98 (RMO 08-98)

provides the guidelines on the corporate stock documentary
stamp tax program. RMO 08-98 states that:

1. All existing corporations shall file the Corporation

Stock DST Declaration, and the DST Return, if
applicable when DST is still due on the subscribed
share issued by the corporation, on or before the
tenth day of the month following publication of this
Order.  CSTDEH

xxx xxx xxx

 3. All existing corporations with authorization for
increased capital stock shall file their Corporate
Stock DST Declaration, together with the DST
Return, if applicable when DST is due on
subscriptions made after the authorization, on or
before the tenth day of the month following the date
of authorization. (Boldfacing supplied)

RMO 08-98, reiterating Revenue Memorandum Circular

No. 47-97 (RMC 47-97), also states that what is being taxed is
the privilege of issuing shares of stock, and, therefore, the
taxes accrue at the time the shares are issued. RMC 47-97
also defines issuance as the point in which the stockholder
acquires and may exercise attributes of ownership over the
stocks.

As pointed out by the CTA, Sections 175 and 176 of

the Tax Code contemplate a subscription agreement in order
for a taxpayer to be liable to pay the DST. A subscription
contract is defined as any contract for the acquisition of
unissued stocks in an existing corporation or a corporation
still to be formed. 43 A stock subscription is a contract by
which the subscriber agrees to take a certain number of
shares of the capital stock of a corporation, paying for the
same or expressly or impliedly promising to pay for the
same. 44

In this case, respondent's Stockholders' Equity section of

its Balance Sheet as of 31 December 1998 45 shows:

STOCKHOLDERS'
1998 1997
EQUITY
Authorized Capital
P2,000,000.00 P2,000,000.00
Stock
Paid-up Capital Stock 250,000.00 250,000.00
 Deposit on
800,000.00  
Subscription
Retained Earnings 62,820.34 209,607.20
Net Income (858,498.38) (146,786.86)
  –––––––––––– ––––––––––––
TOTAL P254,321.96 P312,820.34
  =========== ===========

The GIS submitted to the Securities and Exchange

Commission on 31 March 1999 shows the following Capital
Structure: 46

B. Financial Profile

1. Capital Structure:

AUTHORIZE P2,000,000.0
—
D 0
SUBSCRIBE
— 500,000.00
D
PAID-UP — 250,000.00

These entries were explained by Miguel Rosario, Jr.

(Rosario), respondent's external auditor, during the hearing
before the CTA on 11 June 2003. Rosario testified in this wise:

Atty. Napiza

Q. Mr. Rosario, I refer you to the balance sheet of First

Express for the year 1998 particularly the entry of
deposit on subscription in the amount of P800
thousand, will you please tell us what is (sic) this
entry represents?  IcTCHD

Mr. Rosario Jr.

A. This amount of P800 thousand represents the case

given by the stockholders to the company but does
 not necessarily made (sic) payment to subscribed
portion.

Atty. Napiza

Q. What is (sic) that payment stands for?

Mr. Rosario Jr.

A. This payment stands as (sic) for the deposit for future

subscription.

Atty. Napiza

Q. Would you know if First Express issued corresponding

shares pertinent to the amount being deposited?

Mr. Rosario Jr.

A. No.

Atty. Napiza

Q. What do you mean by no? Did they or they did not?

Mr. Rosario Jr.

A. They did not issue any shares because that is not the
payment of subscription. That is just a mere deposit.

Atty. Napiza

Q. Would you know, Mr. Rosario, how much is the

Subscribed Capital of First Express Pawnshop?

Mr. Rosario Jr.

A. The Subscribed Capital of First Express Pawnshop

Company, Inc. for the year 1998 is P500 thousand.

Atty. Napiza

Q. How about the Paid Up Capital?

 Mr. Rosario Jr.

A. The Paid Up Capital is P250 thousand.

Atty. Napiza

Q. Are (sic) all those figures appear in the balance

sheet?

Mr. Rosario Jr.

A. The Paid Up Capital appeared here but the Subscribed

Portion was not stated. (Boldfacing supplied)

Based on Rosario's testimony and respondent's financial

statements as of 1998, there was no agreement to subscribe
to the unissued shares. Here, the deposit on stock
subscription refers to an amount of money received by the
corporation as a deposit with the possibility of applying the
same as payment for the future issuance of capital
stock. 47 In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc., 48 we held:  CaTSEA

We are firmly convinced that the Government stands to

lose nothing in imposing the documentary stamp tax only
on those stock certificates duly issued, or wherein the
stockholders can freely exercise the attributes of
ownership and with value at the time they are originally
issued. As regards those certificates of stocks
temporarily subject to suspensive conditions they shall be
liable for said tax only when released from said
conditions, for then and only then shall they truly acquire
any practical value for their owners. (Boldfacing supplied)

Clearly, the deposit on stock subscription as reflected in

respondent's Balance Sheet as of 1998 is not a subscription
agreement subject to the payment of DST. There is no
P800,000 worth of subscribed capital stock that is reflected in
respondent's GIS. The deposit on stock subscription is merely
an amount of money received by a corporation with a view of
applying the same as payment for additional issuance of
shares in the future, an event which may or may not happen.
The person making a deposit on stock subscription does not
have the standing of a stockholder and he is not entitled to
dividends, voting rights or other prerogatives and attributes of
a stockholder. Hence, respondent is not liable for the payment
of DST on its deposit on subscription for the reason that there
is yet no subscription that creates rights and obligations
between the subscriber and the corporation.

On the Finality of Assessment as Prescribed

under Section 228 of the  Tax Code
Section 228 of the Tax Code provides:

SEC. 228. Protesting of Assessment. — When the

Commissioner or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the
following cases:

(a) When the finding for any deficiency tax is the result of

mathematical error in the computation of the tax as
appearing on the face of the return; or

(b) When a discrepancy has been determined between the

tax withheld and the amount actually remitted by the
withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax

credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or

(d) When the excise tax due on excisable articles has not

been paid; or

(e) When an article locally purchased or imported by an

exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.

The taxpayer shall be informed in writing of the law and

the facts on which the assessment is made; otherwise,
the assessment shall be void.  EAcTDH

Within a period to be prescribed by implementing rules

and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall
issue an assessment based on his findings.

Such assessment may be protested administratively by

filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in
such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the
assessment shall become final.

If the protest is denied in whole or in part, or is not acted

upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
 decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become
final, executory and demandable. (Boldfacing supplied)

Section 228 of the Tax Code 49 provides the remedy to

dispute a tax assessment within a certain period of time. It
states that an assessment may be protested by filing a request
for reconsideration or reinvestigation within 30 days from
receipt of the assessment by the taxpayer. Within 60 days
from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall
become final.

In this case, respondent received the tax assessment on

3 January 2002 and it had until 2 February 2002 to submit its
protest. On 1 February 2002, respondent submitted its protest
and attached the GIS and Balance Sheet as of 31 December
1998. Respondent explained that it received P800,000 as a
deposit with the possibility of applying the same as payment
for the future issuance of capital stock.

Within 60 days from the filing of protest or until 2 April

2002, respondent should submit relevant supporting
documents. Respondent, having submitted the supporting
documents together with its protest, did not present additional
documents anymore.

In a letter dated 12 March 2002, petitioner requested

respondent to present proof of payment of DST on
subscription. In a letter-reply, respondent stated that it could
not produce any proof of DST payment because it was not
required to pay DST under the law considering that the deposit
on subscription was an advance made by its stockholders for
future subscription, and no stock certificates were issued.
 Since respondent has not allegedly submitted any
relevant supporting documents, petitioner now claims that the
assessment has become final, executory and demandable,
hence, unappealable.

We reject petitioner's view that the assessment has

become final and unappealable. It cannot be said that
respondent failed to submit relevant supporting documents
that would render the assessment final because when
respondent submitted its protest, respondent attached the GIS
and Balance Sheet. Further, petitioner cannot insist on the
submission of proof of DST payment because such document
does not exist as respondent claims that it is not liable to pay,
and has not paid, the DST on the deposit on subscription.

The term "relevant supporting documents" should be

understood as those documents necessary to support the legal
basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand what type of
supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require
the production of documents that a taxpayer cannot submit.

After respondent submitted its letter-reply stating that it

could not comply with the presentation of the proof of DST
payment, no reply was received from petitioner.

Section 228 states that if the protest is not acted upon

within 180 days from submission of documents, the taxpayer
adversely affected by the inaction may appeal to the CTA
within 30 days from the lapse of the 180-day period.
Respondent, having submitted its supporting documents on
the same day the protest was filed, had until 31 July 2002 to
wait for petitioner's reply to its protest. On 28 August 2002 or
 within 30 days after the lapse of the 180-day period counted
from the filing of the protest as the supporting documents
were simultaneously filed, respondent filed a petition before
the CTA.

Respondent has complied with the requisites in disputing

an assessment pursuant to Section 228 of the Tax
Code.Hence, the tax assessment cannot be considered as
final, executory and demandable. Further, respondent's
deposit on subscription is not subject to the payment of DST.
Consequently, respondent is not liable to pay the deficiency
DST of P12,328.45.  cTECHI

WHEREFORE, we DENY the petition. We AFFIRM the

Court of Tax Appeals' Decision dated 24 March 2006 in the
consolidated cases of C.T.A. EB Nos. 60 and 62.

SO ORDERED.
 (Commissioner of Internal Revenue v. First Express Pawnshop
|||

Co., Inc., G.R. Nos. 172045-46, [June 16, 2009], 607 PHIL 227-
251)

EN BANC

[G.R. No. L-19495. November 24, 1966.]

COMMISSIONER OF INTERNAL
REVENUE,  petitioner, vs.  LILIA YUSAY GONZALES
and THE COURT OF TAX APPEALS, respondents.

Solicitor General  for the petitioner.

Ramon A. Gonzalez  for respondent Lilia Yusay Gonzales.

 SYLLABUS

1. TAXATION; DISPUTED ASSESSMENTS; APPEAL FROM A

DECISION THEREON TO BE BROUGHT TO THE COURT OF TAX
APPEALS. — An action involving a disputed assessment for
internal revenue taxes falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals (Sec. 7[1], Rep. Act
1125; Blaquera vs. Rodriguez, L-11295, March 29, 1958). It is in
that forum to the exclusion of the Court of First Instance where
the taxpayer can ventilate his or her defense against the
assessment.

2. ID.; ID.; ID.; 30-DAY PERIOD TO COMMENCE FROM DATE OF

RECEIPT OF COMMISSIONER OF INTERNAL REVENUE'S
DECISION. — On November 17, 1959 Lilia Yusay disputed the
legality of the assessment of February 13, 1958. On March 14,
1960, Lilia Yusay received the decision of the Commissioner of
Internal Revenue on a disputed assessment. On April 13, 1960
she filed her petition for review in the Court of Tax Appeals.
HELD: The appeal was seasonably interposed pursuant to
Section 11 of Republic Act 1125. We already ruled in St.
Stephen's Association vs. Collector of Internal Revenue (L-11238,
August 21, 1958), that the counting of the thirty days within
which to institute an appeal in the Court of Tax Appeals should
commence from the date of receipt of the decision of the
Commissioner on the disputed assessment, not from the date the
assessment was issued. Accordingly, the thirty-day period should
begin running from March 14, 1960, the date Lilia Yusay received
the appealable decision. From said date to April 13, 1960, when
she filed her appeal in the Court of Tax Appeals, is exactly thirty
days. Hence, the appeal was timely.
3. ID.; ID.; PROBATE COURT WITHOUT JURISDICTION TO
ADJUDICATE THE SAME. — The settlement court is of limited
jurisdiction. And under the Rules (Rules 74-92, now Rules 73-91,
Rules of Court), its authority relates only to matters of estates
and probate of wills of deceased persons. Said Court has no
jurisdiction to adjudicate on questions of disputed tax
assessments.

4. ID.; TAX RETURNS; FRAUD IN THE MAKING THEREOF MUST

BE PROVED. — Fraud is a question of fact. The circumstances
constituting it must be alleged and proved in the court below.
And the finding of said court as to its existence and non-
existence is final unless clearly shown to be erroneous. (Perez
vs. Court of Tax Appeals, L-9738, May 31, 1957). As the court a
quo found that no fraud was alleged and proved therein, we see
no reason to entertain the Commissioner's assertion that the
return was fraudulent.

5. ID.; ID.; REQUIREMENTS OF SUBSTANTIAL COMPLIANCE WITH

THE LAW. — A return need not be complete in all particulars. It is
sufficient if it complies substantially with the law. There is
substantial compliance (1) when the return is made in good faith
and is not false or fraudulent; (2) when it covers the entire period
involved; and (3) when it contains information as to the various
items of income, deduction and credit with such definiteness as
to permit the computation and assessment of the tax. (Jacob
Mertens, Jr., The Law of Federal Income Taxation, 1958 ed., Vol.
10, Section 57.13.)

6. ID.; ID.; ESTATE AND INHERITANCE TAX RETURN IN CASE AT

BAR INSUFFICIENT. — Tax return filed by Jose S. Yusay was
substantially defective. First, it was incomplete. It declared only
ninety-three parcels of land representing about 400 hectares and
left out ninety- two parcels covering 503 hectares. Said huge
under declaration could not have been the result of an oversight
or mistake. Second, the return mentioned no heir. Thus, no
inheritance tax could be assessed. As a matter of law, on the
basis of the return, there would be no occasion for the imposition
of estate and inheritance taxes.

7. ID.; ID.; RETURNS MADE ON THE WRONG FORM;

PRESCRIPTION DOES NOT RUN. — Where the return was made
on the wrong form, the Supreme Court of the United States held
that the filing thereof did not start the running of the period of
limitations. The return filed in this case was so deficient, that it
prevented the Commissioner from computing the taxes due on
the estate. It was as though no return was made. The
Commissioner had to determine and assess the taxes on data
obtained, not from the return, but from other sources. We
therefore hold the view that the return in question was no return
at all as required in Section 93 of the Tax Code. If the taxpayer
failed to observe the law, Section 332 of the National Internal
Revenue Code which grants the Commissioner 10 years period
within which to bring an action for tax collection applies. As
stated, the Commissioner came to know of the identity of the
heirs on September 24, 1953 and the huge under declaration in
the gross estate on July 12, 1957. From the latter date, Section
94 of the Tax Code obligated him to make a return or amend one
already filed based on his own knowledge and information
obtained through testimony or otherwise, and subsequently to
assess thereon the taxes due. The running of the period of
limitations under Section 332(a) of the Tax Code should therefore
be reckoned from said date. From July 12, 1957 to February 13,
1958, the date of the assessment now in dispute, less than ten
years have elapsed. Hence, prescription did not abate the
Commissioner's right to issue said assessment.
8. ID.; ID.; TAXPAYER'S WILLINGNESS TO PAY NO BAR TO RAISE
DEFENSES AGAINST THE TAX LEGALITY. — Commissioner
contends that Lilia Yusay is estopped from raising the defense of
prescription because she failed to raise the same in her answer
to the motion for allowance of claim and for the payment of taxes
filed in the settlement court. Held: The Court of First Instance
acting as a settlement court is not the proper tribunal to pass
upon such defense, therefore it would be futile to raise it therein.
Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306
thereof, he can pay the tax and claim a refund therefor. A fortiori
his willingness to pay the tax is no waiver to raise defenses
against the tax's legality.

DECISION

BENGZON, J.P., J  .:

Matias Yusay, a resident of Pototan, Iloilo, died intestate on May

13, 1948, leaving two heirs, namely, Jose S. Yusay, a legitimate
child, and Lilia Yusay Gonzales, an acknowledged natural child.
Intestate proceedings for the settlement of his estate were
instituted in the Court of First Instance of Iloilo (Special
Proceedings No. 459). Jose S. Yusay was therein appointed
administrator.

On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal
Revenue an estate and inheritance tax return declaring therein
the following properties:

Personal properties:

Palay P6,444.00
 Carabaos 1,000.00 P7,444.00

Real properties:

Capital, 74 )

parcels )

Conjugal 19 )

parcels )

assessed at P179,760.00

—————

Total gross estate P187,204.00

—————

The return mentioned no heir.

Upon investigation however the Bureau of Internal Revenue

found the following properties:

Personal properties:

Palay P6,444.00

Carabaos 1,500.00

Packard Automobile 2,000.00

2 Aparadors 500.00 P10,444.00

————

Real properties:

Capital, 25 parcels

assessed P 87,715.32

1/2 of Conjugal, 130

parcels assessed at P121,425.00 P209,140.32

————— —————
 Total P219,584.32

—————

The fair market value of the real properties was computed by

increasing the assessed value by forty percent.
Based on the above findings, the Bureau of Internal Revenue
assessed on October 29, 1953 estate and inheritance taxes in
the sums of P6,849.78 and P16,970.63, respectively.

On January 25, 1955 the Bureau of Internal Revenue increased

the assessment to P8,225.89 as estate tax and P22,117.10 as
inheritance tax plus delinquency interest and demanded payment
thereof on or before February 28, 1955. Meanwhile, on February
16, 1955, the Court of First Instance of Iloilo required Jose S.
Yusay to show proof of payment of said estate and inheritance
taxes.

On March 3, 1955 Jose S. Yusay requested an extension of time

within which to pay the tax. He posted a surety bond to
guarantee payment of the taxes in question within one year. The
Commissioner of Internal Revenue however denied the request.
Then he issued a warrant of distraint and levy which he
transmitted to the Municipal Treasurer of Pototan for execution.
This warrant was not enforced because all the personal
properties subject to distraint were located in Iloilo City.

On May 20, 1955 the Provincial Treasurer of Iloilo requested the

BIR Provincial Revenue Officer to furnish him copies of the
assessment notices to support a motion for payment of taxes
which the Provincial Fiscal would file in Special Proceedings No.
459 before the Court of First Instance of Iloilo. The papers
requested were sent by the Commissioner of Internal Revenue to
the Provincial Revenue Officer of Iloilo to be transmitted to the
Provincial Treasurer. The records do not however show whether
the Provincial Fiscal filed a claim with the Court of First Instance
for the taxes due.

On May 30, 1956 the commissioner appointed by the Court of

First Instance for the purpose, submitted a recommended project
of partition which listed the following properties:

Personal properties:

Buick Sedan P 8,100.00

Packard car 2,000.00

Aparadors 500.00

Cash in Bank (PNB) 8,858.46

Palay 6,444.00

Carabaos 1,500.00 P27,402.46

————

Real properties:

Land, 174 parcels

assessed at P324,797.21

Buildings 4,500.00 P329,297.21

———— ————

Total P356,699.67

More than a year later particularly on July 12, 1957, an agent of

the Bureau of Internal Revenue apprised the Commissioner of
Internal Revenue of the existence of said recommended project
of partition. Whereupon, the Internal Revenue Commissioner
caused the estate of Matias Yusay to be reinvestigated for estate
and inheritance tax liability. Accordingly, on February 13, 1958
he issued the following assessment:
 

Estate tax P16,246.04

5% surcharge 411.29

Delinquency interest 11,868.90

Compromise

No notice of death P15.00

Late payment 40.00 55.00

——— ————

Total P28,581.23

————

Inheritance Tax P38,178.12

5% surcharge 1,105.86

Delinquency interest 28,808.75

Compromise for late payment 50.00

————

Total P69,142.73

————

Total estate and inheritance taxes P97,723.96

————

Like in previous assessments, the fail market value of the real

properties was arrived at by adding 40% to the assessed
value.
In view of the demise of Jose S. Yusay, said assessment was
sent to his widow, Mrs. Florencia Piccio Vda. de Yusay, who
succeeded him in the administration of the estate of Matias
Yusay.

No payment having been made despite repeated demands, the

Commissioner of Internal Revenue filed a proof of claim for the
estate and inheritance taxes due and a motion for its allowance
with the settlement court invoking priority of lien pursuant to
Section 315 of the Tax Code.

On June 1, 1959, Lilia Yusay, through her counsel, Ramon

Gonzalez, filed an answer to the proof of claim alleging non-
receipt of the assessment of February 13, 1958, the existence of
two administrators, namely, Florencia Piccio Vda. de Yusay who
administered two-thirds of the estate, and Lilia Yusay, who
administered the remaining one-third, and her willingness to pay
the taxes corresponding to her share, and praying for deferment
of the resolution on the motion for the payment of taxes until
after a new assessment corresponding to her share was issued.

On November 17, 1959 Lilia Yusay disputed the legality of the

assessment dated February 13, 1958. She claimed that the right
to make the same had prescribed inasmuch as more than five
years had elapsed since the filing of the estate and inheritance
tax return on May 11, 1949. She therefore requested that the
assessment be declared invalid and without force and effect.
This request was rejected by the Commissioner in his letter
dated January 20, 1960, received by Lilia Yusay on March 14,
1960, for the reasons, namely, (1) that the right to assess the
taxes in question has not been lost by prescription since the
return which did not name the heirs cannot be considered a true
and complete return sufficient to start the running of the period
of limitations of five years under Section 331 of the Tax Code and
pursuant to Section 332 of the same Code he has ten years
within which to make the assessment counted from the
discovery on September 24, 1953 of the identity of the heirs; and
(2) that the estate's administrator waived the defense of
prescription when he filed a surety bond on March 3, 1955 to
guarantee payment of the taxes in question and when he
requested postponement of the payment of the taxes pending
determination of who the heirs are by the settlement court.

On April 13, 1960 Lilia Yusay filed a petition for review in the
Court of Tax Appeals assailing the legality of the assessment
dated February 13, 1958. After hearing the parties, said court
declared the right of the Commissioner of Internal Revenue to
assess the estate and inheritance taxes in question to have
prescribed and rendered the following judgment:

"WHEREFORE, the decision of respondent assessing

against the estate of the late Matias Yusay estate and
inheritance taxes is hereby reversed. No. costs."

The Commissioner of Internal Revenue appealed to this Court

and raises the following issues:

1. Was the petition for review filed in the Court of Tax Appeals
within the 30-day period provided for in Section 11 of Republic
Act 1125?

2. Could the Court of Tax Appeals take cognizance of Lilia

Yusay's appeal despite the pendency of the "Proof of Claim" and
"Motion for Allowance of Claim and for an Order of Payment of
Taxes" filed by the Commissioner of Internal Revenue in Special
Proceedings No. 459 before the Court of First Instance of Iloilo?

3. Has the right of the Commissioner of Internal Revenue to

assess the estate and inheritance taxes in question prescribed?

On November 17, 1959 Lilia Yusay disputed the legality of the

assessment of February 13, 1958. On March 14, 1960 she
received the decision of the Commissioner of Internal Revenue
on the disputed assessment. On April 13, 1960 she filed her
petition for review in the Court of Tax Appeals. Said Court
correctly held that the appeal was seasonably interposed
pursuant to Section 11 of Republic Act 1125. We already ruled in
St. Stephen's Association vs. Collector of Internal
Revenue, 1 that the counting of the thirty days within which to
institute an appeal in the Court of Tax Appeals should commence
from the date of receipt of the decision of the Commissioner on
the disputed assessment, not from the date the assessment was
issued.

Accordingly, the thirty-day period should begin running from

March 14, 1960, the date Lilia Yusay received the appealable
decision. From said date to April 13, 1960, when she filed her
appeal in the Court of Tax Appeals, is exactly thirty days. Hence,
the appeal was timely.

Next, the Commissioner attacks the jurisdiction of the Court of

Tax Appeals to take cognizance of Lilia Yusay's appeal on the
ground of lis pendens. He maintains that the pendency of his
motion for allowance of claim and for order of payment of taxes
in the Court of First Instance of Iloilo would preclude the Court of
Tax Appeals from acquiring jurisdiction over Lilia Yusay's Appeal.
This contention lacks merit.

Lilia Yusay's cause seeks to resist the legality of the assessment

in question. Should she maintain it in the settlement court or
should she elevate her cause to the Court of Tax Appeals ? We
say, she acted correctly by appealing to the latter court. An
action involving a disputed assessment for internal revenue
taxes falls within the exclusive appellate jurisdiction of the
Court of Tax Appeals. 2 It is in that forum, to the exclusion of
the Court of First Instance, 3 where she could ventilate her
defenses against the assessment.

Moreover, the settlement court, where the Commissioner would

wish Lilia Yusay to contest the assessment is of limited
jurisdiction. And under the Rules, 4 its authority relates only to
matters having to do with the settlement of estates and probate
of wills of deceased persons. 5 Said court has no jurisdiction to
adjudicate the contentions in question, which — assuming they
do not come exclusively under the Tax Court's cognizance —
must be submitted to the Court of First Instance in the exercise
of its general Jurisdiction. 6

We now come to the issue of prescription. Lilia Yusay claims that

since the latest assessment was issued only on February 13,
1958 or eight years, nine months and two days from the filing of
the estate and inheritance tax return, the Commissioner's right
to make it has expired. She would rest her stand on Section 331
of the Tax Code which limits the right of the Commissioner to
assess the tax within five years from the filing of the return.

The Commissioner claims that fraud attended the filing of the

return; that this being so, Section 332(a) of the Tax Code would
apply. 7 It may be well to note that the assessment letter itself
 

(Exhibit 22) did not impute fraud in the return with intent to
evade payment of the tax. Precisely, no surcharge for fraud was
imposed. In his answer to the petition for review filed by Lilia
Yusay in the Court of Tax Appeals, the Commissioner alleged no
fraud. Instead, he broached the insufficiency of the return as
barring the commencement of the running of the statute of
limitations. He raised the point of fraud for the first time in the
proceedings, only in his memorandum filed with the Tax Court
subsequent to resting his case. Said Court rejected the plea of
fraud for lack of allegation and proof, and ruled that the return,
although not accurate, was sufficient to start the period of
prescription.

Fraud is a question of fact. 8 The circumstances constituting it

must be alleged and proved in the court below. 9 And the finding
of said court as to its existence and nonexistence is final unless
clearly shown to be erroneous. 10 As the court a quo found that
no fraud was alleged and proved therein, we see no reason to
entertain the Commissioner's assertion that the return was
fraudulent.

The conclusion, however, that the return filed by Jose S. Yusay

was sufficient to commence the running of the prescriptive
period, under Section 331 of the Tax Code rests on no solid
ground.

Paragraph (a) of Section 93 of the Tax Code lists the

requirements of a valid return. It states:

"(a) Requirements. — In all cases of inheritance or

transfers subject to either the estate tax or the
inheritance tax, or both, or where, though exempt from
both taxes, the gross value of the estate exceeds three
thousand pesos, the executor, administrator, or anyone of
the heirs, as the case may be, shall file a return under
oath in duplicate, setting forth (1) the value of the gross
estate of the decedent at the time of his death, or, in case
of a nonresident not a citizen of the Philippines, or that
part of his gross estate situated in the Philippines; (2) the
deductions allowed from gross estate in determining net
estate as defined in section eighty-nine; (3) such part of
such information as may at the time be ascertainable and
such supplemental data as may be necessary to establish
the correct taxes."
A return need not be complete in all particulars. It is sufficient if
it complies substantially with the law. There is substantial
compliance (1) when the return is made in good faith and is not
false or fraudulent; (2) when it covers the entire period involved;
and (3) when it contains information as to the various items of
income, deduction and credit with such definiteness as to permit
the computation and assessment of the tax. 11

There is no question that the estate and inheritance tax return

filed by Jose S. Yusay was substantially defective.

First, it was incomplete. It declared only ninety-three parcels of

land representing about 400 hectares and left out ninety-two
parcels covering 503 hectares. Said huge under declaration could
not have been the result of an oversight or mistake. As found in
L-11378, supra note 7, Jose S. Yusay very well knew of the
existence of the omitted properties. Perhaps his motive in under
declaring the inventory of properties attached to the return was
to deprive Lilia Yusay from inheriting her legal share in the
hereditary estate, but certainly not because he honestly believed
that they did not form part of the gross estate.

Second, the return mentioned no heir. Thus, no inheritance tax

could be assessed. As a matter of law, on the basis of the return,
there would be no occasion for the imposition of estate and
inheritance taxes. When there is no heir — the return showed
none — the intestate estate is escheated to the State. 12 The
State taxes not itself.

In a case where the return was made on the wrong form, the
Supreme Court of the United States held that the filing thereof
did not start the running of the period of limitations. 13 The
reason is that the return submitted did not contain the necessary
information required in the correct form. In this jurisdiction,
however, the Supreme Court refrained from applying the said
ruling of the United States Supreme Court in Collector of Internal
Revenue vs. Central Azucarera de Tarlac, L-11760-61, July 31,
1958, on the ground that the return was complete in itself
although inaccurate. To our mind, it would not make much
difference where a return is made on the correct form prescribed
by the Bureau of Internal Revenue if the data therein required are
not supplied by the taxpayer. Just the same, the necessary
information for the assessment of the tax would be missing.

The return filed in this case was so deficient that it prevented

the Commissioner from computing the taxes due on the estate. It
was as though no return was made. The Commissioner had to
determine and assess the taxes on data obtained, not from the
return, but from other sources. We therefore hold the view that
the return in question was no return at all as required in Section
93 of the Tax Code.

The law imposes upon the taxpayer the burden of supplying by

the return the information upon which an assessment would be
based. 14 His duty complied with, the taxpayer is not bound to
do anything more than to wait for the Commissioner to assess
the tax. However, he is not required to wait forever. Section 331
of the Tax Code gives the Commissioner five years within which
to make his assessment. 15 Except, of course, if the taxpayer
failed to observe the law, in which case Section 332 of the same
Code grants the Commissioner a longer period. Non-observance
consists in filing a false or fraudulent return with intent to evade
the tax or in filing no return at all.

Accordingly, for purposes of determining whether or not the

Commissioner's assessment of February 13, 1958 is barred by
prescription, Section 332 (a) which is an exception to Section
331 of the Tax Code finds application. 16 We quote Section
332(a):

"SEC. 332. Exception as to period of limitations of

assessment and collection of taxes . — (a) In the case of a
false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years
after the discovery of the falsity, fraud or omission."

As stated, the Commissioner came to know of the identity of the

heirs on September 24, 1953 and the huge under declaration in
the gross estates on July 12, 1957. From the latter date, Section
94 of the Tax Code obligated him to make a return or amend one
already filed based on his own knowledge and information
obtained through testimony or otherwise, and subsequently to
assess thereon the taxes due. The running of the period of
limitations under Section 332(a) of the Tax Code should therefore
be reckoned from said date for, as aforesaid, it is from that time
that the Commissioner was expected by law to make his return
and assess the tax due thereon. From July 12, 1957 to February
13, 1958, the date of the assessment now in dispute, less than
ten years have elapsed. Hence, prescription did not abate the
Commissioner's right to issue said assessment.

Anent the Commissioner's contention that Lilia Yusay is

estopped from raising the defense of prescription because she
failed to raise the same in her answer to the motion for
allowance of claim and the payment of taxes filed in the
settlement court (Court of First Instance of Iloilo), suffice it to
state that it would be unjust to the taxpayer if We were to
sustain such a view. The Court of First Instance acting as a
settlement court is not the proper tribunal to pass upon such
defense, therefore it would be but futile to raise it therein.
Moreover, the Tax Code does not bar the right to contest the
legality of the tax after a taxpayer pays it. Under Section 306
thereof, he can pay the tax and claim a refund therefore.
A fortiori his willingness to pay the tax is no waiver to raise
defenses against the tax's legality.

WHEREFORE, the judgment appealed from is set aside and

another entered affirming the assessment of the Commissioner of
Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales,
as administratrix of the intestate estate of Matias Yusay, is
hereby ordered to pay the sums of P16,246.04 and P39,178.12 as
estate and inheritance taxes, respectively, plus interest and
surcharge for delinquency in accordance with Section 101 of the
National Internal Revenue Code, without prejudice to
reimbursement from her co-administratrix, Florencia Piccio Vda.
de Yusay for the latter's corresponding tax liability. No costs. So
ordered.

Concepcion, C. J., Reyes, J.B.L., Barrera, Dizon, Regala,

Makalintal, Sanchez and Castro, JJ., concur.

Zaldivar, J., took no part.

RESOLUTION
ON MOTION FOR RECONSIDERATION
April 24, 1967
BENGZON, J.P., J.:

Respondent Lilia Yusay Gonzales seeks reconsideration of our

decision holding her liable for the payment of P97,723.96 as
estate and inheritance taxes plus delinquency penalties as
administratrix of the intestate estate of Matias Yusay. The
grounds raised by her deserve this extended resolution.

Firstly, movant maintains that the issue of whether or not the

estate and inheritance tax return filed by Jose Yusay on May 13,
1949 was sufficient to start the running of the statute of
limitations on assessment, was neither raised in the Court of Tax
Appeals nor assigned as error before this Court. The records in
the Court of Tax Appeals however show the contrary. Paragraph
2 of the answer filed by the Commission of Internal Revenue
states:

"2. That he likewise admits, as alleged in paragraph 1

thereof having received the letter of the petitioner dated
November 27, 1959 (Annex "A" of the Petition for Review),
contesting the assessment of estate and inheritance
taxes levied against the Intestate Estate of the late
Matias Yusay, Special Proceedings No. 459, Court of First
Instance of Iloilo, on the ground that the said assessment
has already prescribed, but specifically denies the
allegations that the assessments have already prescribed,
the truth of the matter being that the returns filed on May
11, 1949 cannot be considered as a true, and complete
return sufficient to start the running of the period of five
(5) years prescribed in Sec. 331 of the Tax Code;"

This point was discussed in the memorandum of the

Commissioner of Internal Revenue, thus:

"In the estate and inheritance tax return filed by Jose S.

Yusay (Exhibits B & 1, pp. 14-20, B.I.R. records) the net
value of the estate of the deceased was claimed to be
P203,354.00 and no inheritance tax was shown as the
heirs were not indicated. In the final computation of the
 estate by an examiner of the respondent, the net estate
was found to be worth P410,518.38 (p. 105, B.I.R. records)
or about more than twice the original amount declared in
the return. In the subsequent investigation of this case, it
was also determined that the heirs of the deceased were
Jose S. Yusay, a legitimate son, and Lilia Yusay, an
acknowledged natural child, (petitioner herein).

"Under the circumstances, we believe the return filed on

May 11, 1949 was false or fraudulent in the sense that the
value of the properties were under declared and that the
said return was also incomplete as the heirs to the estate
were not specified. Inasmuch as the respondent was not
furnished adequate data upon which to base an
assessment, the said return cannot be considered a true
and complete return sufficient to start the running of the
period of limitations of five (5) years prescribed in Section
331 of the Tax Code."

In the lower court the defense of the Commissioner of Internal

Revenue against Lilia Yusay Gonzales' plea of prescription,
centered on the insufficiency and fraudulence or falsity of the
return filed by Jose Yusay. The Court of Tax Appeals overruled
the Commissioner of Internal Revenue. Said of Tax Code:

"The provision of Section 332 (a) of the Tax Code cannot

be invoked in this case as it was neither alleged in
respondent's answer, nor proved during the hearing that
the return was false or fraudulent with intent to evade the
payment of tax. Moreover, the failure of respondent to
charge fraud and impose the penalty thereof in the
assessments made in 1953, 1955 and 1956 is an eloquent
demonstration that the filing of petitioner's transfer tax
return was not attended by falsity or fraud with intent to
evade tax.

xxx xxx xxx

"But respondent urges upon us that the filing of the return

did not start the running of the five (5) year period for the
reason that the return did not disclose the heirs of the
deceased Matias, Yusay, and contained inadequate data
regarding the value of the estate. We believe that these
mere omissions do not require additional returns for the
same. Altho incomplete for being deficient on these
matters, the return cannot be regard as a case of failure
to file a return where want of good faith and intent to
evade the tax on the part of petitioner are not charged. It
served as a sufficient notice of the Commissioner of
Internal Revenue to make his assessment and start the
running of the period of limitation. In this connection, it
must be borne in mind that the Commissioner is not
confined to the taxpayer's return in making assessment of
the tax, and for his purpose he may secure additional
information from other sources. As was done in the case
at bar, he sends investigators to examine the taxpayer's
records and other pertinent data. His assessment is based
upon the facts uncovered by the investigation (Collector
vs. Central Azucarera de Tarlac, G.R. Nos. L-11760 and L-
11761, July 31, 1958).

"Furthermore, the failure to state the heirs in the return

can be attributed to the then unsettled conflict raging
before the probate court as to who are the heirs of the
estate. Such failure could not have been a deliberate
 attempt to mislead the government in the assessment of
the correct taxes."

In his appeal, the Commissioner of Internal Revenue assigned as

third error of the Court of Tax Appeals the finding that the
assessment in question was "made beyond the five-year
statutory period provided in Section 332(a) of the Tax Code," and
that the right of the Commissioner of Internal Revenue to assess
the estate and inheritance taxes has already prescribed. To
sustain his side, the Commissioner ventilated in his brief, fraud in
the filing of the return, absence of certain data from the return
which prevented him from assessing thereon the tax due and the
pendency in this Court of L-11374 entitled "Intestate Estate of
the late Yusay Gonzales" which allegedly had the effect of
suspending the running of the period of limitations on
assessment.

Clearly, therefore, it would be incorrect to say that the question

of whether or not the return filed by Jose Yusay was sufficient to
start the running of the statute of limitations to assess the
corresponding tax, was not raised by the Commissioner in the
Court of Tax Appeals and in this Court.

Second. Movant contends that contrary to Our ruling, the return

filed by Jose Yusay was sufficient to start the statute of
limitations on assessment. Inasmuch as this question was amply
discussed in Our decision sought to be reconsidered, and no new
argument was advanced, We deem it unnecessary to pass upon
the same. There is no reason for any change on Our stand on this
point.

Third. Movant insists that since she administers only one-third of

the estate of Matias Yusay, she should not be liable for the whole
tax. And she suggests that We hold the intestate estate of Matias
Yusay liable for said taxes, one-third to be paid by Lilia Yusay
Gonzales and two-thirds to be paid by Florencia P. Vda. de Yusay.

The foregoing suggestion to require payment of two-thirds of the

totals taxes by Florencia P. Vda. de Yusay is not acceptable, for
she (Florencia P. Vda. de Yusay) is not a party in this case.

It should be pointed out that Lilia Yusay Gonzales appealed the

whole assessment to the Court of Tax Appeals. Thereupon, the
Commissioner of Internal Revenue questioned her legal capacity
to institute the appeal on the ground that she administered only
one- third of the estate of Matias Yusay. In opposition, she
espoused the view, which was sustained by the Tax Court, that
in co-administration, the administratrices are regarded as one
person and the acts of one of them in relation to the regular
administration of the estate are deemed to be the acts of all;
hence, each administratrix can represent the whole estate. In
advancing such proposition, Lilia Yusay Gonzales represented
the whole estate and hoped to benefit from the favorable
outcome of the case. For the same reason that she represented
her co- administratrix and the whole estate of Matias Yusay, she
risked being ordered to pay the whole assessment, should the
assessment be sustained.

Her change of stand adopted in the motion for reconsideration to

the effect that she should be made liable for only one-third of the
total tax, would negate her aforesaid proposition before the
Court of Tax Appeals. She is now estopped from denying liability
for the whole tax.

At any rate, estate and inheritance taxes are satisfied from the

estate and are to be paid by the executor or
administrator. 1 Where there are two or more executors, all of
them are severally liable for the payment of the estate
tax. 2 The inheritance tax, although charged against the
account of each beneficiary, should be paid by the executor or
administrator. 3 Failure to pay the estate and inheritance taxes
before distribution of the estate would subject the executor or
administrator to criminal liability under Section 107(c) of the Tax
Code.

It is immaterial therefore that Lilia Yusay Gonzales administers

only one-third of the estate and will receive as her share only
said portion, for her right to the estate comes after taxes. 4 As
an administratrix, she is liable for the entire estate tax. As an
heir, she is liable for the entire inheritance tax although her
liability would not exceed the amount of her share in the
estate. 5 The entire inheritance tax which amounts to
P39,178.12 excluding penalties is obviously much less than her
distributive share.

Motion for reconsideration denied.

 (Commissioner of Internal Revenue v. Gonzales, G.R. No. L-
|||

19495, [November 24, 1966], 124 PHIL 1395-1410)

SECOND DIVISION

[G.R. No. 169234. October 2, 2013.]

CAMP JOHN HAY DEVELOPMENT

CORPORATION, petitioner, vs. CENTRAL BOARD OF
ASSESSMENT APPEALS, REPRESENTED BY ITS
CHAIRMAN HON. CESAR S. GUTIERREZ, ADELINA A.
TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE
BOARD OF TAX (ASSESSMENT) APPEALS OF BAGUIO
 CITY, AND HON. ESTRELLA B. TANO, IN HER
CAPACITY AS THE CITY ASSESSOR OF THE CITY OF
BAGUIO,  respondents.

DECISION

PEREZ, J  : p

A claim for tax exemption, whether full or partial, does not deal
with the authority of local assessor to assess real property tax.
Such claim questions the correctness of the assessment and
compliance with the applicable provisions of Republic Act (RA)
No. 7160 or the Local Government Code (LGC) of 1991,
particularly as to requirement of payment under protest, is
mandatory.

Before the Court is a Petition for Review on Certiorari  seeking

to reverse and set aside the 27 July 2005 Decision 1 of the Court
of Tax Appeals (CTA) En Banc  in C.T.A. E.B. No. 48 which
affirmed the Resolutions dated 23 May 2003 and 8 September
2004 issued by the Central Board of Assessment Appeals (CBAA)
in CBAA Case No. L-37 remanding the case to the Local Board of
Assessment Appeals (LBAA) of Baguio City for further
proceedings.

The Facts
The factual antecedents of the case as found by the CTA  En
Banc  are as follows:

In a letter dated 21 March 2002, respondent City Assessor of

Baguio City notified petitioner Camp John Hay Development
Corporation about the issuance against it of thirty-six (36)
Owner's Copy of Assessment of Real Property (ARP), with ARP
Nos. 01-07040-008887 to 01-07040-008922 covering various
buildings of petitioner and two (2) parcels of land owned by the
Bases Conversion Development Authority (BCDA) in the John Hay
Special Economic Zone (JHSEZ), Baguio City, which were leased
out to petitioner.  cSaADC

In response, petitioner questioned the assessments in a letter

dated 3 April 2002 for lack of legal basis due to the City
Assessor's failure to identify the specific properties and its
corresponding assessed values. The City Assessor replied in a
letter dated 11 April 2002 that the subject ARPs (with an
additional ARP on another building bringing the total number of
ARPs to thirty-seven [37]) against the buildings of petitioner
located within the JHSEZ were issued on the basis of the
approved building permits obtained from the City Engineer's
Office of Baguio City and pursuant to Sections 201 to 206 of RA
No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of

Tax Assessment Appeals (BTAA) of Baguio City an appeal under
Section 226 2 of the LGC of 1991 challenging the validity and
propriety of the issuances of the City Assessor. The appeal was
docketed as Tax Appeal Case No. 2002-003. Petitioner claimed
that there was no legal basis for the issuance of the
assessments because it was allegedly exempted from paying
taxes, national and local, including real property taxes, pursuant
to RA No. 7227, otherwise known as the Bases Conversion and
Development Act of 1992. 3

The Ruling of the BTAA

In a Resolution dated 12 July 2002, 4 the BTAA cited Section
7, 5 Rule V of the Rules of Procedure Before the LBAA, and
enjoined petitioner to first comply therewith, particularly as to
the payment under protest of the subject real property taxes
before the hearing of its appeal. Subsequently, the BTAA
dismissed petitioner's Motion for Reconsideration in the 20
September 2002 Resolution 6 for lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through

a Memorandum on Appeal docketed as CBAA Case No. L-37.  IDSEAH

The Ruling of the CBAA

The CBAA denied petitioner's appeal in a Resolution dated 23
May 2003, 7 set aside the BTAA's order of deferment of hearing,
and remanded the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of the realty
taxes on subject properties as assessed by the respondent City
Assessor of Baguio City, either in cash or in bond.

Citing various cases it previously decided, 8 the CBAA explained

that the deferment of hearings by the LBAA was merely in
compliance with the mandate of the law. The governing provision
in this case is Section 231, not Section 226, of RA No.
7160 which provides that "[a]ppeal on assessments of real
property made under the provisions of this Code shall, in no case,
suspend the collection of the corresponding realty taxes on the
property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the
final outcome of the appeal." In addition, as to the issue raised
pertaining to the propriety of the subject assessments issued
against petitioner, allegedly claimed to be a tax-exempt entity,
the CBAA expressed that it has yet to acquire jurisdiction over it
since the same has not been resolved by the LBAA.

On 8 September 2004, the CBAA denied petitioner's Motion for

Reconsideration for lack of merit. 9  TICaEc

Undaunted by the pronouncements in the abovementioned

Resolutions, petitioner appealed to the CTA En Banc  by filing a
Petition for Review under Section 11 of RA No. 1125, as
amended by Section 9 of RA No. 9282, on 24 November 2004,
docketed as C.T.A. EB No. 48, and raised the following issues for
its consideration: (1) whether or not respondent City Assessor of
the City of Baguio has legal basis to issue against petitioner the
subject assessments with serial nos. 01-07040-008887 to 01-
07040-008922 for real property taxation of the buildings of the
petitioner, a tax-exempt entity, or land owned by the BCDA under
lease to the petitioner; and (2) whether or not the CBAA, in its
Resolutions dated 23 May 2003 and 8 September 2004, has legal
basis to order the remand of the case to the LBAA of Baguio City
for further proceedings subject to a full and up-to-date payment,
in cash or bond, of the realty taxes on the subject properties as
assessed by the City Assessor of the City of Baguio. 10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005, 11 the CTA En
Banc  found that petitioner has indeed failed to comply with
Section 252 of RA No. 7160 or the LGC of 1991. Hence, it
dismissed the petition and affirmed the subject Resolutions of
the CBAA which remanded the case to the LBAA for further
proceedings subject to compliance with said Section, in relation
to Section 7, Rule V of the Rules of Procedure before the LBAA.

Moreover, adopting the CBAA's position, the court a quo ruled

that it could not resolve the issue on whether petitioner is liable
to pay real property tax or whether it is indeed a tax-exempt
entity considering that the LBAA has not decided the case on the
merits. To do otherwise would not only be procedurally wrong but
legally wrong. It therefore concluded that before a protest may
be entertained, the tax should have been paid first without
prejudice to subsequent adjustment depending upon the final
outcome of the appeal and that the tax or portion thereof paid
under protest, shall be held in trust by the treasurer
concerned.  LLjur

Consequently, this Petition for Review wherein petitioner on the

ground of lack of legal basis seeks to set aside the 27 July 2005
Decision, and to nullify the assessments of real property tax
issued against it by respondent City Assessor of Baguio City. 12

The Issue
The issue before the Court is whether or not respondent CTA  En
Banc  erred in dismissing for lack of merit the petition in C.T.A.
EB No. 48, and accordingly affirmed the order of the CBAA to
remand the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of realty
taxes, either in cash or in bond, on the subject properties
assessed by the City Assessor of Baguio City.

In support of the present petition, petitioner posits the following

grounds: (a) Section 225 (should be Section 252) of RA No.
7160 or the LGC of 1991 does not apply when the person
assessed is a tax-exempt entity; and (b) Under the doctrine of
operative fact, petitioner is not liable for the payment of the real
property taxes subject of this petition. 13

Our Ruling
The Court finds the petition unmeritorious and therefore rules
against petitioner.

Section 252 of RA No. 7160, also known as the LGC of

1991,14 categorically provides:  DIEAHc

SEC. 252. Payment under Protest. — (a) No protest shall

be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words
"paid under protest." The protest in writing must be filed
 within thirty (30) days from payment of the tax to the
provincial, city treasurer or municipal treasurer, in the
case of a municipality within Metropolitan Manila Area,
who shall decide the protest within sixty (60) days from
receipt.

(b) The tax or a portion thereof paid under protest, shall

be held in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor

of the taxpayer, the amount or portion of the tax protested
shall be refunded to the protestant, or applied as tax
credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the

lapse of the sixty-day period prescribed in subparagraph
(a), the taxpayer may avail of the remedies as provided
for in Chapter 3, Title Two, Book II of this Code. (Emphasis
and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title

Two, Book II of RA No. 7160 or the LGC of 1991 are those
provided for under Sections 226 to 231. Significant provisions
pertaining to the procedural and substantive aspects of appeal
before the LBAA and CBAA, including its effect on the payment of
real property taxes, follow:  IcHEaA

SEC. 226. Local Board of Assessment Appeals. — Any

owner or person having legal interest in the property who
is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the
written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a
petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such
affidavits or documents submitted in support of the
appeal.

SEC. 229. Action by the Local Board of Assessment

Appeals. — (a) The Board shall decide the appeal within
one hundred twenty (120) days from the date of receipt of
such appeal. The Board, after hearing, shall render its
decision based on substantial evidence or such relevant
evidence on record as a reasonable mind might accept as
adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board

shall have the powers to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and
issuesubpoena  and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the
purpose of ascertaining the facts without necessarily
adhering to technical rules applicable in judicial
proceedings.  ATHCac

(c) The secretary of the Board shall furnish the owner of

the property or the person having legal interest therein
and the provincial or city assessor with a copy of the
decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the
person having legal interest therein of such fact using the
form prescribed for the purpose. The owner of the
property or the person having legal interest therein or the
assessor who is not satisfied with the decision of the
Board may, within thirty (30) days after receipt of the
decision of said Board, appeal to the Central Board of
 Assessment Appeals, as herein provided. The decision of
the Central Board shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real

Property Tax. — Appeal on assessments of real property
made under the provisions of this Code shall, in no case,
suspend the collection of the corresponding realty taxes
on the property involved as assessed by the provincial or
city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the
appeal. (Emphasis supplied)

The above-quoted provisions of RA No. 7160 or the LGC of

1991, clearly sets forth the administrative remedies available to
a taxpayer or real property owner who does not agree with the
assessment of the real property tax sought to be collected.

The language of the law is clear. No interpretation is needed. The

elementary rule in statutory construction is that if a statute is
clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba
legis non est recedendum. From the words of a statute there
should be no departure. 15

To begin with, Section 252 emphatically directs that the

taxpayer/real property owner questioning the assessment should
first pay the tax due before his protest can be entertained. As a
matter of fact, the words "paid under protest" shall be annotated
on the tax receipts. Consequently, only after such payment has
been made by the taxpayer may he file a protest in writing
(within thirty [30] days from said payment of tax) to the
provincial, city, or municipal treasurer, who shall decide the
protest within sixty (60) days from its receipt. In no case is the
local treasurer obliged to entertain the protest unless the tax due
has been paid.  HEcSDa

Secondly, within the period prescribed by law, any owner or

person having legal interest in the property not satisfied with the
action of the provincial, city, or municipal assessor in the
assessment of his property may file an appeal with the LBAA of
the province or city concerned, as provided in Section 226
of R.A. No. 7160 or the LGC of 1991. Thereafter, within thirty
(30) days from receipt, he may elevate, by filing a notice of
appeal, the adverse decision of the LBAA with the CBAA, which
exercises exclusive jurisdiction to hear and decide all appeals
from the decisions, orders, and resolutions of the Local Boards
involving contested assessments of real properties, claims for
tax refund and/or tax credits, or overpayments of taxes. 16

Significantly, in Dr. Olivares v. Mayor Marquez, 17 this Court had

the occasion to extensively discuss the subject provisions of RA
No. 7160 or the LGC of 1991, in relation to the impropriety of the
direct recourse before the courts on issue of the correctness of
assessment of real estate taxes. The pertinent articulations
follow: HEITAD

. . . A perusal of the petition before the RTC plainly

shows that what is actually being assailed is the
correctness of the assessments made by the local
assessor of Parañaque on petitioners' properties. The
allegations in the said petition purportedly questioning
the assessor's authority to assess and collect the taxes
were obviously made in order to justify the filing of the
petition with the RTC. In fact, there is nothing in the
said petition that supports their claim regarding the
assessor's alleged lack of authority. What petitioners
raise are the following: (1) some of the taxes being
collected have already prescribed and may no longer be
collected as provided in Section 194 of the Local
Government Code of 1991; (2) some properties have been
doubly taxed/assessed; (3) some properties being taxed
are no longer existent; (4) some properties are exempt
from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in
the assessment and collection of taxes due on
petitioners' properties, and that respondents committed
grave abuse of discretion in making the "improper,
excessive and unlawful the collection of taxes against
the petitioner[s]." Moreover, these arguments
essentially involve questions of fact. Hence, the petition
should have been brought, at the very first instance, to
the LBAA.

Under the doctrine of primacy of administrative remedies,

an error in the assessment must be administratively
pursued to the exclusion of ordinary courts whose
decisions would be void for lack of jurisdiction. But an
appeal shall not suspend the collection of the tax
assessed without prejudice to a later adjustment pending
the outcome of the appeal.

Even assuming that the assessor's authority is indeed an

issue, it must be pointed out that in order for the court a
quo to resolve the petition, the issues of the correctness
of the tax assessment and collection must also
necessarily be dealt with.  HSaIDc

xxx xxx xxx

In the present case, the authority of the assessor is not

being questioned. Despite petitioners' protestations, the
 petition filed before the court a quo primarily involves the
correctness of the assessments, which are questions of
fact, that are not allowed in a petition for certiorari,
prohibition and mandamus. The court a quois therefore
precluded from entertaining the petition, and it
appropriately dismissed the petition. 18 (Emphasis and
underlining supplied)

By analogy, the rationale of the mandatory compliance with the

requirement of "payment under protest" similarly provided under
Section 64 of the Real Property Tax Code(RPTC) 19 was earlier
emphasized in Meralco v. Barlis, 20 wherein the Court held:

We find the petitioner's arguments to be without merit.

The trial court has no jurisdiction to entertain a Petition
for Prohibition absent petitioner's payment under protest,
of the tax assessed as required by Sec. 64 of the
RPTC. Payment of the tax assessed under protest, is a
condition sine qua non before the trial court could
assume jurisdiction over the petition and failure to do so,
the RTC has no jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax

assessment without a prior payment, under protest, of the
taxes assessed is consistent with the doctrine that taxes
are the lifeblood of the nation and as such their collection
cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government
unit, shall be crippled in dispensing the needed services to
the people, and its machinery gravely disabled.

xxx xxx xxx

There is no merit in petitioner's argument that the trial

court could take cognizance of the petition as it only
questions the validity of the issuance of the warrants of
garnishment on its bank deposits and not the tax
assessment. Petitioner MERALCO in filing the Petition for
Prohibition before the RTC was in truth assailing the
validity of the tax assessment and collection. To resolve
the petition, it would not only be the question of validity of
the warrants of garnishments that would have to be
tackled, but in addition the issues of tax assessment and
collection would necessarily have to be dealt with too. As
the warrants of garnishment were issued to collect back
taxes from petitioner, the petition for prohibition would be
for no other reason than to forestall the collection of back
taxes on the basis of tax assessment arguments. This,
petitioner cannot do without first resorting to the proper
administrative remedies, or as previously discussed, by
paving under protest the tax assessed, to allow the court
to assume jurisdiction over the petition.  aDTSHc

xxx xxx xxx

It cannot be gainsaid that petitioner should have

addressed its arguments to respondent at the first
opportunity — upon receipt of the 3 September 1986
notices of assessment signed by Municipal Treasurer
Norberto A. San Mateo. Thereafter, it should have availed
of the proper administrative remedies in protesting an
erroneous tax assessment, i.e., to question the
correctness of the assessments before the Local Board of
Assessment Appeals (LBAA), and later, invoke the
appellate jurisdiction of the Central Board of Assessment
Appeals (CBAA). Under the doctrine of primacy of
administrative remedies, an error in the assessment must
be administratively pursued to the exclusion of ordinary
 courts whose decisions would be void for lack of
jurisdiction. But an appeal shall not suspend the collection
of the tax assessed without prejudice to a later
adjustment pending the outcome of the appeal. The failure
to appeal within the statutory period shall render the
assessment final and unappealable. Petitioner having
failed to exhaust the administrative remedies available to
it, the assessment attained finality and collection would
be in order. (Emphasis and underscoring supplied)

From the foregoing jurisprudential pronouncements, it is clear

that the requirement of "payment under protest" is a
condition sine qua non before a protest or an appeal questioning
the correctness of an assessment of real property tax may be
entertained.

Moreover, a claim for exemption from payment of real property

taxes does not actually question the assessor's authority to
assess and collect such taxes, but pertains to the
reasonableness or correctness of the assessment by the local
assessor, a question of fact which should be resolved, at the very
first instance, by the LBAA. This may be inferred from Section
206 of RA No. 7160 or the LGC of 1991 which states that:

SEC. 206. Proof of Exemption of Real Property from

Taxation. — Every person by or for whom real property is
declared, who shall claim tax exemption for such
propertyunder this Title shall file with the provincial, city
or municipal assessor within thirty (30) days from the date
of the declaration of real property sufficient documentary
evidence in support of such claim including corporate
charters, title of ownership, articles of incorporation,
bylaws, contracts, affidavits, certifications and mortgage
deeds, and similar documents.  ECaAHS
 If the required evidence is not submitted within the period
herein prescribed, the property shall be listed as taxable
in the assessment roll. However, if the property shall be
proven to be tax exempt, the same shall be dropped from
the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and

proved as tax-exempt shall be included in the assessment roll,
the above-quoted provision implies that the local assessor has
the authority to assess the property for realty taxes, and any
subsequent claim for exemption shall be allowed only when
sufficient proof has been adduced supporting the claim. 21

Therefore, if the property being taxed has not been dropped from
the assessment roll, taxes must be paid under protest if the
exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner

received the letter dated 21 March 2002 issued by respondent
City Assessor, including copies of ARPs (with ARP Nos. 01-07040-
008887 to 01-07040-008922) attached thereto, it filed its protest
through a letter dated 3 April 2002 seeking clarification as to the
legal basis of said assessments, without payment of the
assessed real property taxes. Afterwards, respondent City
Assessor replied thereto in a letter dated 11 April 2002 which
explained the legal basis of the subject assessments and even
included an additional ARP against another real property of
petitioner. Subsequently, petitioner then filed before the BTAA its
appeal questioning the validity and propriety of the subject
ARPs.  ECISAD

Clearly from the foregoing factual backdrop, petitioner

considered the 11 April 2002 letter as the "action" referred to in
Section 226 which speaks of the local assessor's act of denying
the protest filed pursuant to Section 252. However, applying the
above-cited jurisprudence in the present case, it is evident that
petitioner's failure to comply with the mandatory requirement of
payment under protest in accordance with Section 252 of
the LGC of 1991 was fatal to its appeal. Notwithstanding such
failure to comply therewith, the BTAA elected not to immediately
dismiss the case but instead took cognizance of petitioner's
appeal subject to the condition that payment of the real property
tax should first be made before proceeding with the hearing of its
appeal, as provided for under Section 7, Rule V of the Rules of
Procedure Before the LBAA. Hence, the BTAA simply recognized
the importance of the requirement of "payment under protest"
before an appeal may be entertained, pursuant to Section 252,
and in relation with Section 231 of the same Code as to non-
suspension of collection of the realty tax pending appeal.

Notably, in its feeble attempt to justify non-compliance with the

provision of Section 252, petitioner contends that the
requirement of paying the tax under protest is not applicable
when the person being assessed is a tax-exempt entity, and thus
could not be deemed a "taxpayer" within the meaning of the law.
In support thereto, petitioner alleges that it is exempted from
paying taxes, including real property taxes, since it is entitled to
the tax incentives and exemptions under the provisions of RA
No. 7227 and Presidential Proclamation No. 420, Series of
1994, 22 as stated in and confirmed by the lease agreement it
entered into with the BCDA. 23

This Court is not persuaded.  EDSHcT

First, Section 206 of RA No. 7160 or the LGC of 1991, as

quoted earlier, categorically provides that every person by or for
whom real property is declared, who shall claim exemption from
payment of real property taxes imposed against said property,
shall file with the provincial, city or municipal assessor sufficient
documentary evidence in support of such claim. Clearly, the
burden of proving exemption from local taxation is upon whom
the subject real property is declared; thus, said person shall be
considered by law as the taxpayer thereof. Failure to do so, said
property shall be listed as taxable in the assessment roll.

In the present case, records show that respondent City Assessor

of Baguio City notified petitioner, in the letters dated 21 March
2002 24 and 11 April 2002, 25 about the subject ARPs covering
various buildings owned by petitioner and parcels of land (leased
out to petitioner) all located within the JHSEZ, Baguio City. The
subject letters expressed that the assessments were based on
the approved building permits obtained from the City Engineer's
Office of Baguio City and pursuant to Sections 201 to 206 of RA
No. 7160 or the LGC of 1991 which pertains to whom the
subject real properties were declared.

Noticeably, these factual allegations were neither contested nor

denied by petitioner. As a matter of fact, it expressly admitted
ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA
No. 7227. But petitioner did not present any documentary
evidence to establish that the subject properties being tax
exempt have already been dropped from the assessment roll, in
accordance with Section 206. Consequently, the City Assessor
acted in accordance with her mandate and in the regular
performance of her official function when the subject ARPs were
issued against petitioner herein, being the owner of the
buildings, and therefore considered as the person with the
obligation to shoulder tax liability thereof, if any, as
contemplated by law.  DIEAHc
It is an accepted principle in taxation that taxes are paid by the
person obliged to declare the same for taxation purposes. As
discussed above, the duty to declare the true value of real
property for taxation purposes is imposed upon the owner, or
administrator, or their duly authorized representatives. They are
thus considered the taxpayers. Hence, when these persons fail
or refuse to make a declaration of the true value of their real
property within the prescribed period, the provincial or city
assessor shall declare the property in the name of the defaulting
owner and assess the property for taxation. In this wise, the
taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative,
liable to pay back taxes. For that reason, since petitioner herein
is the declared owner of the subject buildings being assessed for
real property tax, it is therefore presumed to be the person with
the obligation to shoulder the burden of paying the subject tax in
the present case; and accordingly, in questioning the
reasonableness or correctness of the assessment of real
property tax, petitioner is mandated by law to comply with the
requirement of payment under protest of the tax assessed,
particularly Section 252 of RA No. 7160 or the LGC of 1991.

Time and again, the Supreme Court has stated that taxation is
the rule and exemption is the exception. The law does not look
with favor on tax exemptions and the entity that would seek to
be thus privileged must justify it by words too plain to be
mistaken and too categorical to be misinterpreted. 26 Thus
applying the rule of strict construction of laws granting tax
exemptions, and the rule that doubts should be resolved in favor
of provincial corporations, this Court holds that petitioner is
considered a taxable entity in this case.  TDAHCS
Second, considering that petitioner is deemed a taxpayer within
the meaning of law, the issue on whether or not it is entitled to
exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at
the very instance, before the LBAA, for the following grounds: (a)
petitioner's reliance on its entitlement for exemption under the
provisions of RA No. 7227 and Presidential Proclamation No.
420, was allegedly confirmed by Section 18, 27 Article XVI of the
Lease Agreement dated 19 October 1996 it entered with the
BCDA. However, it appears from the records that said Lease
Agreement has yet to be presented nor formally offered before
any administrative or judicial body for scrutiny; (b) the subject
provision of the Lease Agreement declared a condition that in
order to be allegedly exempted from the payment of taxes,
petitioner should have first paid and remitted 5% of the gross
income earned by it within ninety (90) days from the close of the
calendar year through the JPDC. Unfortunately, petitioner has
neither established nor presented any evidence to show that it
has indeed paid and remitted 5% of said gross income tax; (c) the
right to appeal is a privilege of statutory origin, meaning a right
granted only by the law, and not a constitutional right, natural or
inherent. Therefore, it follows that petitioner may avail of such
opportunity only upon strict compliance with the procedures and
rules prescribed by the law itself, i.e., RA No. 7160 or the LGC
of 1991; and (d) at any rate, petitioner's position of exemption is
weakened by its own admission and recognition of this Court's
previous ruling that the tax incentives granted in RA No.
7227 are exclusive only to the Subic Special Economic [and Free
Port] Zone; and thus, the extension of the same to the JHSEZ (as
provided in the second sentence of Section 3 of
Presidential Proclamation No. 420) 28finds no support therein
and therefore declared null and void and of no legal force and
effect. 29 Hence, petitioner needs more than mere arguments
and/or allegations contained in its pleadings to establish and
prove its exemption, making prior proceedings before the LBAA a
necessity.

With the above-enumerated reasons, it is obvious that in order for

a complete determination of petitioner's alleged exemption from
payment of real property tax under RA No. 7160 or the LGC of
1991, there are factual issues needed to be confirmed. Hence,
being a question of fact, petitioner cannot do without first
resorting to the proper administrative remedies, or as previously
discussed, by paying under protest the tax assessed in
compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc  correctly ruled that
real property taxes should first be paid before any protest
thereon may be considered. It is without a doubt that such
requirement of "payment under protest" is a condition sine qua
non before an appeal may be entertained. Thus, remanding the
case to the LBAA for further proceedings subject to a full and up-
to-date payment, either in cash or surety, of realty tax on the
subject properties was proper.  HAIaEc

To reiterate, the restriction upon the power of courts to impeach

tax assessment without a prior payment, under protest, of the
taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be
curtailed by injunction or any like action; otherwise, the state or,
in this case, the local government unit, shall be crippled in
dispensing the needed services to the people, and its machinery
gravely disabled. 30 The right of local government units to
collect taxes due must always be upheld to avoid severe erosion.
This consideration is consistent with the State policy to
guarantee the autonomy of local governments and the objective
of RA No. 7160 or theLGC of 1991 that they enjoy genuine and
meaningful local autonomy to empower them to achieve their
fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. 31

All told, We go back to what was at the outset stated, that is,
that a claim for tax exemption, whether full or partial, does not
question the authority of local assessor to assess real property
tax, but merely raises a question of the reasonableness or
correctness of such assessment, which requires compliance with
Section 252 of the LGC of 1991. Such argument which may
involve a question of fact should be resolved at the first instance
by the LBAA.

The CTA  En Banc  was correct in dismissing the petition in

C.T.A. EB No. 48, and affirming the CBAA's position that it cannot
delve on the issue of petitioner's alleged non-taxability on the
ground of exemption since the LBAA has not decided the case on
the merits. This is in compliance with the procedural steps
prescribed in the law. IDaCcS

WHEREFORE, the petition is DENIED for lack of merit. The

Decision of the Court of Tax Appeals  En Banc  in C.T.A. EB No.
48 is AFFIRMED. The case is remanded to the Local Board of
Assessment Appeals of Baguio City for further proceedings. No
costs.

SO ORDERED.
 (Camp John Hay Development Corp. v. Central Board of
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Assessment Appeals, G.R. No. 169234, [October 2, 2013], 718

PHIL 543-574)