CASE NO.
11
University Physician Services vs. CIR
GR. No. 20599, March 7, 2018
FACTS:
Taxpayer:
University Physicians Services, Inc. – Management, Inc. (UPSI-
MI) filed its Annual Income Tax Return (ITR) for the year ended
31 December 2006. UPSI-MI chose the option, and marked the
corresponding box, “To be issued a tax credit certificate” with
respect to the unutilized excess creditable taxes for the taxable
year ending 31 December 2006 amounting to ₱2,927,834.00..
In 2007, University Physicians Services, Inc. – Management,
Inc. (UPSI-MI) changed its taxable period from calendar year to
fiscal year ending on the last day of March. Thus, UPSI-MI filed
on 14 November 2007 an Annual Income Tax Return (ITR)
covering the short period from 01 January 2007 to 31 March
2007. The Annual ITR reflected an income tax overpayment of
₱5,159,341.00 as “Prior Year’s Excess Credit” consisting of the
following items:
Taxable Year 2005 – ₱2,231,507.00
Taxable Year 2006 – ₱2,927,834.00
On the same day, UPSI-MI amended the Annual ITR for the
short period by excluding the sum of ₱2,927,834.00 under the
line “Prior Year’s Excess Credits”.
On 10 October 2008, UPSI-MI filed with the office of the
Commissioner of Internal Revenue (CIR) a claim for refund
and/or issuance of a Tax Credit Certificate (TCC) in the amount
of ₱2,927,834.00, representing the alleged excess and
unutilized creditable withholding taxes for taxable year 2006.
Government:
The CIR failed to act on the claim for refund/tax credit
Thus, UPSI-MI filed a Petition for Review before the Court of
Tax Appeals on 14 April 2009.
ISSUE:
Whether UPSI-MI is entitled to the refund of its 2006 excess tax
credits, for which it originally chose the option of refund/tax
credit in its 2006 ITR, when it thereafter indicated the option of
carry-over in its ITR for the short period ending 31 March 2007
RULING:
NO!
In case the corporation is entitled to a tax credit or refund of the
excess estimated quarterly income taxes paid, the excess
amount shown on its final adjustment return may be carried
over and credited against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years has been made,
such option shall be considered irrevocable for that taxable
period and no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor.” (emphasis
supplied)
The irrevocability rule applies only to the option of carry over
and not to the option of cash refund/tax credit.
The law is very clear. The irrevocability rule is limited only to the
option of carry-over such that a taxpayer is still free to change
its choice after electing a refund of its excess tax credit. The law
does not prevent a taxpayer who originally opted for a refund or
tax credit certificate from shifting to the carry-over of the excess
creditable taxes to the taxable quarters of the succeeding
taxable years.
CASE NO.12
CIR vs.CTA and AYALA LAND, INC
G.R. No. 190680, September 13, 2012
FACTS:
Taxpayer:
In 2005, private respondent Ayala Land, Inc. (ALI) filed with the
CTA a petition for review to question the CIR’s assessment
against it for deficiency value-added tax (VAT) for the calendar
year 2003. Before the tax court, the CIR and ALI filed their Joint
Stipulation of Facts and Issues, which was cited in the present
petition to read in part:
ALI is primarily engaged in the sale and/or lease of real
properties and, among others, likewise owns and operates
theatres or cinemas.
ALI received CIR’S Final Assessment Notice (hereinafter
referred to as the 2003 FAN) dated 29 October 2004 whereby
CIR was assessing petitioner alleged deficiency 10% value
added tax (VAT) on its alleged income from cinema operations
for the taxable year 2003 in the aggregate amount (₱
103,346,691.40) inclusive of 20% interest.
On 10 December 2004, ALI filed its protest with the office of CIR
contesting the factual and legal bases of the VAT assessment.
On 28 April 2005, ALI received CIR’s 25 April 2005 Decision
denying ALI’s protest, with a notation that the same constitutes
respondent’s Final Decision on the matter.
Petitioner received on 23 November 2004, respondent’s 19
November 2004 Letter of Authority No. 0002949 for the
examination of ALL INTERNAL REVENUE TAXES of petitioner
from 1 January 2003 to 31 December 2003.
In order to protect its right, CIR filed the Petition for Review
pursuant to Section 228 of the Tax Code
Proceedings ensued. On April 11, 2008, the CTA Second
Division rendered its Decision granting ALI’s petition for review.
The assessment against ALI for deficiency VAT in the amount of
₱ 103,346,691.40 for the calendar year 2003 was ordered
cancelled and set aside. The CIR’s motion for reconsideration
was denied, prompting him to file an appeal to the CTA en
banc.On February 12, 2009, the CTA en banc rendered its
Decision affirming the decision of the CTA Second Division.
Government:
Feeling aggrieved, the CIR filed a motion for reconsideration,
but this was denied by the CTA en banc in its Resolution dated
March 25, 2009. The CIR then filed on July 2, 2009 a
Manifestation with the Motion to Reconsider Resolution
Ordering Entry of Judgment.
The CTA en banc dismissed the petition for relief for having
been filed out time.
Without filing a motion for reconsideration with the CTA en
banc, the CIR filed the present petition for certiorari.
Issue: Whether or not the CTA committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ruling
that the petition for relief of the CIR was filed beyond the 60-day
reglementary period under Rule 38.
Decision:
At the outset, this Court holds that a dismissal of the petition is
warranted in view of the petitioner’s failure to file before the CTA
en banc a motion for reconsideration of the assailed resolution.
The settled rule is that a motion for reconsideration is a
condition sine qua non for the filing of a petition for certiorari. Its
purpose is to grant an opportunity for the court to correct any
actual or perceived error attributed to it by the re-examination of
the legal and factual circumstances of the case. The rationale of
the rule rests upon the presumption that the court or
administrative body which issued the assailed order or
resolution may amend the same, if given the chance to correct
its mistake or error.
This Court finds no cogent reason to grant petitioner’s plea for
the issuance of a writ of certiorari. An act of a court or tribunal
may only be considered as committed in grave abuse of
discretion when the same is performed in a capricious or
whimsical exercise of judgment, which is equivalent to lack of
jurisdiction. The abuse of discretion must be so patent and
gross as to amount to an evasion of positive duty or to a virtual
refusal to perform a duty enjoined by law or to act at all in
contemplation of law, as where the power is exercised in an
arbitrary and despotic manner by reason of passion or personal
hostility. There was no such grave abuse of discretion in this
case because the CIR’s petition for relief was indeed filed out of
time.
CASE NO 13
CIR vs. BPI
G.R. No. 135446, September 23, 2003
FACTS:
Taxpayer:
BPI is the liquidator of Paramount Acceptance Corporation
(PAC), a financing corporation which was dissolved.
After the dissolution of the PAC, respondent BPI learned from
the newspapers that CIR filed certain criminal cases against
Horacio V. Poblador and Ramon A. Albert, former president and
treasurer of PAC, respectively, for willful failure to pay the
corporation’s final deficiency tax assessments for the years
1981 and 1982. According to the petitioner, PAC was liable for a
total amount of P411,382.11 in deficiency taxes.
Respondent wrote to the petitioner, claiming that it was not
aware of any assessment regarding any tax deficiency owed by
PAC, but that it was willing to compromise and pay the
deficiency tax. At the same time, respondent asked for the
withdrawal of the criminal cases against Poblador and Albert.
The parties agreed to settle for not less than 30% of the basic
income and documentary stamps taxes and 100% of the basic
expanded withholding tax due. Respondent paid to the
petitioner a total amount of P119,815.13.
However, in spite of the payment, petitioner continued to
prosecute the criminal cases against Poblador and Albert
involving the 1981 assessments, before the Regional Trial Court
of Makati, Branch 150; and involving the 1982 percentage tax
deficiency, pending in the Regional Trial Court of Makati,
Branch 143.

Respondent, in its August 18, 1992 letter to petitioner, pointed
out that the assessments were not sent to the proper address
and asked for the refund of the P119,815.13 it paid under the
compromise agreement since the criminal cases against
Poblador and Albert were not dropped as agreed upon.
Petitioner did not answer the letter and continued to prosecute
the said cases.
In an order dated June 22, 1993, the criminal cases were
dismissed by the trial court, on motion of the BIR Special
Prosecutor.
Government:
On November 15, 1993, petitioner finally replied to respondent’s
August 18, 1992 letter, refusing to grant a refund and denying
that a compromise settlement was reached by them. Petitioner
reasoned that it could not have entered into a compromise
agreement with respondent since the criminal cases had
already been filed in court, and to enter into a compromise after
the filing of the cases would have violated Section 204 of the
Tax Code. Thus, the payment of P119,815.13 could not have
been accepted by the CIR in the concept of a compromise
settlement.
On December 12, 1993, respondent filed a case with the Court
of Tax Appeals (CTA) for the refund of the money it paid
petitioner. The CTA, however, dismissed it on the ground of litis
pendencia. Respondent appealed to the Court of Appeals,
which ruled that litis pendencia was not present and ordered the
CTA to commence trial on the refund case. Thus, petitioner
elevated the case to this Court via a petition for review.
Issue:
Whether the period for filing a criminal case for tax liability
prescribes when there is a failure to effect a timely valid
assessment.
Held:The petition is denied for being moot.
On January 28, 2000, the Regional Trial Court of Makati City,
Branch 143, rendered a decision acquitting Poblador and Albert
of willful failure to pay the corporate percentage tax deficiency
for 1982. Furthermore, a copy of the said decision was served
on petitioner by registered mail, prior to the submission of its
memorandum in this case. Despite being furnished a copy of
the RTC decision, petitioner merely adopted its comment as its
memorandum and did not discuss the effect of Poblador and
Albert’s acquittal on the present petition. Petitioner even stated
that respondent BPI may recover the amount it paid once
Poblador and Albert were acquitted in the criminal case.
In its decision, the trial court ruled that the prosecution failed to
establish that PAC was in fact liable for deficiency taxes prior to
its liquidation. Assuming arguendo that there was a deficiency
tax for which PAC was liable, petitioners failed to make a valid
assessment on it since the notice of assessment was sent to the
PAC’s old (and therefore improper) office address. PAC already
indicated its new address in its 1986 tax return filed with the
BIR’s Makati office. This notwithstanding, petitioner CIR sent the
notice of assessment to PAC’s old business address instead of
its new address, which was also BPI’s (PAC’s liquidator) office
address.
Since there was a failure to effect a timely valid assessment, the
period for filing a criminal case for PAC’s tax liabilities had
prescribed by the time petitioner instituted the criminal cases
against its former officers. Thus, Poblador and Albert were
correctly acquitted by the trial court.
CASE NO 14
CIR vs. Metro Star Superama
G.R. No. 185371; December 8, 2010
FACTS:
Taxpayer:
Petitioner is a domestic corporation. On January 26,
2001, the Regional Director of Revenue in LegazpiCity, issued
Letter of Authority to examine petitioner’s books of accounts and
other accounting records for taxable year 1999.
Government:
For petitioner’s failure to comply with several requests to
present the records and Subpoena Duces Tecum, BIR Legal
Division issued an Indorsement to proceed with the investigation
based on the best evidence obtainable preparatory to the
issuance of assessment notice.
Then, RDO issued a Preliminary Assessment Notice
Letter stating a deficiency in VAT and withholding taxes in the
amount of P292, 874.16 for the year 1999. Thereafter, a formal
letter of demand was sent. The Final Notice of Seizure came
next, giving Metro Star Superama last opportunity to settle its
deficiency tax liabilities within ten (10) days from receipt thereof,
otherwise BIR shall be constrained to serve and execute the
Warrants of Distraint and/or Levy and Garnishment to enforce
collection.
Not able to comply, Metro Super Rama received a
Warrant of Distraint and/or Levy demanding payment of
deficiency value-added tax and withholding tax payment in the
amount of P292,874.16.
The Commissioner denied the Motion for Recosideration
filed by Metro Super Rama.
Denying that it received a Preliminary Assessment Notice
(PAN) and claiming that it was not accorded due process, Metro
Star filed a petition for review with the CTA.
The CTA-Second Division rendered a decision in favor of
the Metro Super Rama.
The CTA-Second Division opined that “while there is a
disputable presumption that a mailed letter is deemed received
by the addressee in the ordinary course of mail, a direct denial
of the receipt of mail shifts the burden upon the party favored by
the presumption to prove that the mailed letter was indeed
received by the addressee.”
It found that there was no clear showing that Metro Star
actually received the alleged PAN. It, accordingly, ruled that the
Formal Letter of Demand and the Warrant of Distraint and/or
Levy dated were void, as Metro Star was denied due process.
CTA En Banc affirmed in toto the CTA Second Division’s
decision. Hence, this petition.
ISSUE: Whether the failure to strictly comply with notice
requirements prescribed under Section 228 of the National
Internal Revenue Code of 1997 tantamount to a denial of due
process?
 HELD: YES, not complying strictly with the Preliminary
Assessment Notice or PAN is tantamount to a denial of due
process.
The Court agrees with the CTA that the CIR failed to discharge
its duty and present any evidence to show that Metro Star
indeed received the PAN dated January 16, 2002. It could have
simply presented the registry receipt or the certification from the
postmaster that it mailed the PAN, but failed. Neither did it offer
any explanation on why it failed to comply with the requirement
of service of the PAN. It merely accepted the letter of Metro
Star’s chairman dated April 29, 2002, that stated that he had
received the FAN dated April 3, 2002, but not the PAN.
it is clear that the sending of a PAN to taxpayer to inform him of
the assessment made is but part of the “due process
requirement in the issuance of a deficiency tax assessment,” the
absence of which renders nugatory any assessment made by
the tax authorities.
CASE NO.15
CIR vs Hambrecht and Quist Phil, Inc.
GR. No. 169225
Facts:
Taxpayer:
In a letter dated February 15, 1993, respondent informed the
Bureau of Internal Revenue (BIR), through its WestMakati
District Office of its change of business address. Said letter was
duly received by the BIRWest Makati on February 18, 1993.
On November 4, 1993, respondent received a tracer letter dated
October 11, 1993 issued by the Accounts Receivable/Billing
Division of the BIRs National Office, demanding for payment of
alleged deficiency income and expanded withholding taxes for
the taxable year 1989 amounting to P2,936,560.87. On
December 3, 1993, respondent, through its external auditors,
filed with the same Accounts Receivable/Billing Division of the
BIRs National Office, its protest letter against the alleged
deficiency tax assessments for 1989 as indicated in the said
tracer letter dated October 11, 1993.
Government:
On November 7, 2001, nearly eight (8) years later, CIR sent a
letter to the respondents dated October 27, 2001. The letter
advised the respondent that petitioner had rendered a final
decision denying its protest on the ground that the protest
against the disputed tax assessment was allegedly filed beyond
the 30 day reglementary period prescribed in then Section 229
of the National Internal Revenue Code.
Respondent filed petition for review before the Court of Tax
Appeals (CTA) to appeal the final decision of the Commissioner
of Internal Revenue denying its protest against the deficiency
income and withholding tax assessments issued for taxable
year 1989.
The CTA Original Division held that the subject assessment
notice sent by registered mail on January 8, 1993 to
respondents former place of business was valid and binding
since respondent only gave formal notice of its change of
address on February 18, 1993. Thus, the assessment had
become final and unappealable for failure of respondent to file a
protest within the 30day period provided by law. However, the
CTA held that the CIR failed to collect the assessed taxes within
the prescriptive period.
Issue:
Whether or not the failure to collect the assessment has
prescribed.
Ruling:
Yes. That is a subject matter falling under Section 223(c) of the
1986 NIRC, the law applicable at the time the disputed
assessment was made. To quote Section 223(c): Any internal
revenue tax which has been assessed within the period of
limitation above prescribed may be collected by distraint or
levy or by a proceeding in court within three years following
the assessment of the tax.
The pertinent provision of the 1986 NIRC is Section 224, to wit:
Section 224. Suspension of running of statute. The running of
the statute of limitations provided in Sections 203 and 223 on
the making of assessment and the beginning of distraint or levy
or a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a re-
investigation which is granted by the Commissioner; when
the taxpayer cannot be located in the address given by him in
the return filed upon which a tax is being assessed or collected:
Provided, That, if the taxpayer informs the Commissioner of any
change in address, the statute will not be suspended; when the
warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative, or a member of his household
with sufficient discretion, and no property could be located; and
when the taxpayer is out of the Philippines.
The plain and unambiguous wording of the said provision
dictates that two requisites must concur before the period to
enforce collection may be suspended: (a) that the taxpayer
requests for reinvestigation, and (b) that petitioner grants such
request.
Consequently, the mere filing of a protest letter which is not
granted does not operate to suspend the running of the period
to collect taxes. In the case at bar, the records show that
respondent filed a request for reinvestigation on December 3,
1993, however, there is no indication that petitioner acted upon
respondents protest. As the CTA Original Division in C.T.A.
Case No. 6362 succinctly pointed out in its Decision, to wit:
It is evident that the respondent did not conduct a
reinvestigation, the protest having been dismissed on the
ground that the assessment has become final and executory.
There is nothing in the record that would show what action was
taken in connection with the protest of the petitioner. In fact,
petitioner did not hear anything from the respondent nor
received any communication from the respondent relative to its
protest, not until eight years later when the final decision of the
Commissioner was issued (TSN, March 7, 2002, p. 24). In
other words, the request for reinvestigation was not
granted. xx x. Since the CIR failed to disprove the
aforementioned findings of fact of the CTA which are borne by
substantial evidence on record, the Court is constrained to
uphold them as binding and true.
Indeed, it is contradictory for the CIR to argue that respondents
December 3, 1993 protest which contained a request for
reinvestigation was filed beyond the reglementary period but still
claim that the same request for reinvestigation was implicitly
granted by virtue of its October 27, 2001 letter.
CASE NO. 16
Macario Lim Gaw vs. CIR
GR No. 197945
FACTS:
Taxpayer:
CIR issued Final Decision on Disputed Assessment (FDDA) for
deficiency income tax and VAT for 2007-2008 against Gaw.
Gaw filed 2 separate petitions for review for 2007 and 2008
before CTA 1st division.
Government:
While CTA is reviewing petitioner’s cases, the CIR auctioned
Gaw’s real properties.
Two subsequent resolutions were issued by the division denying
both petitioner’s motion to nullify the auction sale and MR.
Assailing these resolutions by the petitioner, he filed an instant
petition for review before the CTA En Banc under Rule 43 of
ROC in relation to Rule 8 Section 4(b) of RRCTA.
ISSUE: Can the petitioner appeal the resolutions issued by the
CTA 1st division to CTA En Banc?
DECISION: No. The CTA En Banc has no jurisdiction as the
resolutions are not final orders or judgments which dispose of
the case but merely interlocutory orders. The assailed
resolutions cannot be subject to an appeal before the CTA En
Banc except only as part of an ordinary appeal that may
eventually be taken by petitioner from the final judgment.
Section 4(b) Rule 8 of RRCTA provides that an appeal from a
decision or resolution of the Court in Division on a motion for
reconsideration or new trial shall be taken to the Court En Banc
by petition for review as provided in Rule 43 of ROC. Section 1
Rule 43 of ROC provides that the rule shall apply from
judgments or final orders of the CTA. Rule 41 Section 1(b)
provides that no appeal may be taken from an interlocutory
order. Thus, only final judgments or orders of the Court in
Division may be elevated on appeal to the Court En Banc by
way of a petition for review under Rule 43 of ROC.
CASE NO. 17
Philacor Credit Corp vs. CIR
G.R. No. 169899, February 06, 2013
Facts:
Taxpayer:
Philacor is a domestic corporation engaged in the business of
retail financing. A prospective buyer of a home appliance – with
neither cash nor any credit card – may purchase appliances on
installment basis from an appliance dealer. After Philacor
conducts a credit investigation and approves the buyer’s
application, the buyer executes a unilateral promissory note in
favor of the appliance dealer.
Government:
Pursuant to Letter of Authority No. 17107, Revenue Officer
Celestino Mejia examined Philacor’s books of accounts and
other accounting records for the fiscal year August 1, 1992 to
July 31, 1993. Philacor received tentative computations of
deficiency taxes for this year. Philacor’s Finance Manager,
contested the tentative computations of deficiency taxes
(totaling P20,037,013.83) through a letter dated April 17,
1995.Philacor protested the PANs, with a request for
reconsideration and reinvestigation. It alleged that the
assessed deficiency income tax was erroneously computed
when it failed to take into account the reversing entries of the
revenue accounts and income adjustments, such as
repossessions, write-offs and legal accounts.
Similarly, the Bureau of Internal Revenue (BIR) failed to take
into account the reversing entries of repossessions, legal
accounts, and write-offs when it computed the percentage tax;
thus, the total income reported that the BIR arrived at, was not
equal to the actual receipts of payment from the customers. As
for the deficiency DST, Philacor claims that the accredited
appliance dealers were required by law to affix the documentary
stamps on all promissory notes purchased until the enactment
of Republic Act No. 7660, otherwise known as An Act
Rationalizing Further the Structure and Administration of the
Documentary Stamp Tax, which took effect on January 15,
1994.
In addition, Philacor filed, on the following day, a supplemental
protest, arguing that the assessments were void for failure to
state the law and the facts on which they were based.CTA
Division rendered decision. It concluded that Philacor failed to
declare part of its income, making it liable for deficiency income
tax and percentage tax. However, it also found that the
Commissioner of Internal Revenue (CIR) erred in his analysis of
the entries in Philacor’s books thereby considerably reducing
Philacor’s liability to a deficiency income tax of P1,757,262.47
and a deficiency percentage tax of P613,987.86. The CTA also
ruled that Philacor is liable for the DST on the issuance of the
promissory notes and their subsequent transfer or assignment.
Noting that Philacor failed to prove that the DST on its
promissory notes had been paid for these two transactions, the
CTA held Philacor liable for deficiency DST of P673,633.88, 
Issue:
Whether Philacor is liable for the DST on the issuance of the
PN.
Ruling:
Under Section 173 of the National Internal Revenue Code, the
persons primarily liable for the payment of DST are the persons
(1) making; (2) signing; (3) issuing; (4) accepting; or (5)
transferring the taxable documents, instruments or papers.
Should these parties be exempted from paying tax, the other
party who is not exempt would then be liable. In this case,
petitioner Philacor is engaged in the business of retail financing.
Through retail financing, a prospective buyer of home appliance
may purchase an appliance on installment by executing a
unilateral promissory note in favor of the appliance dealer, and
the same promissory note is assigned by the appliance dealer
to Philacor. Thus, under this arrangement, Philacor did not
make, sign, issue, accept or transfer the promissory notes. It is
the buyer of the appliances who made, signed and issued the
documents subject to tax while it is the appliance dealer who
transferred these documents to Philacor which likewise
indisputably received or “accepted” them. Acceptance, however,
is an act that is not even applicable to promissory notes, but
only to bills of exchange. Under the Negotiable Instruments
Law, the act of acceptance refers solely to bills of exchange. In
a ruling adopted by the Bureau of Internal Revenue as early as
1995, “acceptance” has been defined as having reference to
incoming foreign bills of exchange which are accepted in the
Philippines by the drawees thereof, and not as referring to the
common usage of the word as in receiving. Thus, a party to a
taxable transaction who “accepts” any documents or
instruments in the plain and ordinary meaning does not become
primarily liable for the tax.
CASE NO. 18
CIR v. UC PLANTERS BANK
G.R. NO. 179063, October 23, 2009
FACTS:
Taxpayer:
Respondent United Coconut Planters Bank (UCPB) granted to
George C. Co, Go Tong Electrical Supply Co., Inc., and Tesco
Realty Co. that the borrowers caused to be secured by several
real estate mortgages. When the latter later failed to pay their
loans, UCPB filed a petition for extrajudicial foreclosure of the
mortgaged properties. Pursuant to that petition a notary public
for Manila held a public auction sale of the mortgaged
properties. UCPB made the highest winning bid for the whole
lot.
On January 4, 2002 the notary public submitted the Certificate
of Sale to the Executive Judge of Regional Trial Court (RTC) of
Manila for his approval. But, on February 18, 2002 the
executive judge returned it with instruction to the notary public to
explain an inconsistency in the tax declaration of one mortgaged
property. The executive judge further ordered the notary public
to show proof of payment of the Sheriff's percentage of the bid
price. The notary public complied. On March 1, 2002 the
executive judge finally signed the certificate of sale and
approved its issuance to UCPB as the highest bidder.
On June 18, 2002 UCPB presented the certificate of sale to the
Register of Deeds of Manila for annotation on the transfer
certificates of title of the foreclosed properties. On July 5, 2002
the bank paid creditable withholding taxes (CWT) and
documentary stamp taxes (DST) in relation to the extrajudicial
foreclosure sale. It then submitted an affidavit of consolidation of
ownership to the Bureau of Internal Revenue (BIR) with proof of
tax payments and other documents in support of the bank's
application for a tax clearance certificate and certificate
authorizing registration.
Government:
Petitioner Commissioner of Internal Revenue (CIR), however,
charged UCPB with late payment of the corresponding DST and
CWT, citing Section 2.58 of Revenue Regulation 2-98, which
stated that the CWT must be paid within 10 days after the end
of each month, and Section 5 of Revenue Regulation 06-01,
which required payment of DST within five days after the close
of the month when the taxable document was made, signed,
accepted or transferred. These taxes accrued upon the lapse of
the redemption period of the mortgaged properties. The CIR
pointed out that the mortgagor, a juridical person, had three
months after foreclosure within which to redeem the properties.
The CIR theorized that the three-month redemption period was
to be counted from the date of the foreclosure sale. Here, he
said, the redemption period lapsed three months from
December 31, 2001 or on March 31, 2002. Thus, UCPB was in
default for having paid the CWT and DST only on July 5, 2002.
For this reason the CIR issued a Pre-Assessment Notice 6 and,
subsequently, a Final Assessment Notice7 to UCPB for
deficiency CWT and deficiency DST.
UCPB protested the assessment. It claimed that the redemption
period lapsed on June 1, 2002 or three months after the
executive judge of Manila approved the issuance of the
certificate of sale. "Foreclosure" under Section 47 of the
General Banking Law, said UCPB, referred to the date of
approval by the executive judge, and not the date of the auction
sale. But the CIR denied UCPB's protest, prompting UCPB to
file a Petition for Review with the CTA in CTA Case 7164.
On July 26, 2006 the CTA Second Division set aside the
decision of the CIR and held that the redemption period lapsed
three months after the executive judge approved the certificate
of sale. It said that "foreclosure" under the law referred to the
whole process of foreclosure which included the approval and
issuance of the certificate of sale. There was no sale to speak of
which could be taxed prior to such approval and issuance. Since
the executive judge approved the issuance only on March 1,
2002, the redemption period expired on June 1, 2002. Hence,
UCPB's payments of CWT and DST in early July were well
within the prescribed period. On appeal to the CTA En Banc in
CTA EB 234, the latter affirmed the decision of the Second
Division on June 5, 2007. With the denial of its motion for
reconsideration, petitioner has taken recourse to this Court via a
Petition for Review on Certiorari .
ISSUE:
Whether the three-month redemption period for juridical persons
should be reckoned from the date of the auction sale.
RULING:
For purposes of reckoning the one-year redemption period in
the case of individual mortgagors, or the three-month
redemption period for juridical persons/mortgagors, the same
shall be reckoned from the date of the confirmation of the
auction sale which is the date when the certificate of sale is
issued.
The CIR must have in the meantime conceded the
unreasonableness of the previous position it had taken on this
matter.
CASE NO 19
Supreme Transliner, Inc. vs. BPI Family Savings Bank, Inc.
G.R. No. 165617, February 25, 2011
FACTS:
Taxpayer:
Supreme Transliner took out a loan from respondent and was
unable to pay. The respondent bank extrajudicially foreclosed
the collateral and, before the expiration of the one-year
redemption period, the mortgagors notified the bank of its
intention to redeem the property.
ISSUE:
Is the mortgagee-bank liable to pay the capital gains tax upon
the execution of the certificate of sale and before the expiry of
the redemption period?
HELD:
NO. It is clear that in foreclosure sale there is no actual transfer
of the mortgaged real property until after the expiration of the
one-year period and title is consolidated in the name of the
mortgagee in case of non-redemption. This is because before
the period expires there is yet no transfer of title and no profit or
gain is realized by the mortgagor.
Considering that the mortgagors exercised their right to of
redemption before the expiration of the statutory one-year
period, BPI is no liable to pay the capital gains tax due on the
extrajudicial foreclosure sale.
CASE NO. 20
China Banking Corp. vs. CA
GR No. 1215508, July 19, 2000
FACTS:
Taxpayer
China Banking Corporation made a 53% equity investment in
the First CBC Capital (Asia) Ltd., a Hongkong subsidiary
engaged in financing and investment with “deposit-taking”
function. The investment amounted to P16,227,851.80,
consisting of 106,000 shares with a par value of P100 per
share. In the course of the regular examination of the financial
books and investment portfolios of petitioner conducted by
Bangko Sentral in 1986, it was shown that First CBC Capital
(Asia), Ltd., has become insolvent. With the approval of Bangko
Sentral, petitioner wrote-off as being worthless its investment in
First CBC Capital (Asia), Ltd., in its 1987 Income Tax Return
and treated it as a bad debt or as an ordinary loss deductible
from its gross income.
Government
Respondent Commissioner of Internal Revenue disallowed the
deduction and assessed petitioner for income tax deficiency in
the amount of P8,533,328.04, inclusive of surcharge, interest
and compromise penalty. The disallowance of the deduction
was made on the ground that the investment should not be
classified as being “worthless” and that, although the Hongkong
Banking Commissioner had revoked the license of First CBC
Capital as a “deposit-taking” company, the latter could still
exercise, however, its financing and investment activities.
Assuming that the securities had indeed become worthless,
respondent Commissioner of Internal Revenue held the view
that they should then be classified as “capital loss,” and not as a
bad debt expense there being no indebtedness to speak of
between petitioner and its subsidiary.

ISSUE:
Whether the loss is deemed to be a loss from the sale or
exchange of capital assets when a share held by an investor
becomes worthless?

DECISION:

YES. When the shares held by such investor become worthless,

the loss is deemed to be a loss from the sale or exchange of
capital assets.—In the hands, however, of another who holds
the shares of stock by way of an investment, the shares to him
would be capital assets. When the shares held by such investor
become worthless, the loss is deemed to be a loss from the sale
or exchange of capital assets. When securities become
worthless, there is strictly no sale or exchange but the law
deems the loss anyway to be “a loss from the sale or exchange
of capital assets”