COMMISSIONER OF INTERNAL REVENUE VS. SONY PHILIPPINES, INC.
COMMISSIONER ON INTERNAL
G.R. No. 178697 November 17, 2010
Mendoza, J.
(SALVADOR)
Facts: On November 24, 1998, the CIR issued Letter of Authority authorizing
certain revenue officers to examine Sony's books of accounts and other
accounting records regarding revenue taxes for "the period 1997 and
unverified prior years." A preliminary assessment for 1997 deficiency taxes
and penalties was issued by the CIR which Sony protested. The latter sought
for re-evaluation of the aforesaid assessment, but it was not acted to within
the prescribed period. Hence, prompting Sony to file a petition for review
before the CTA. The petition for review was partially granted and CIR was
ordered to cancel and withdraw the deficiency assessment for value-added
tax for 1997 for lack of merit.
Issue: Whether or not the Letter or Authority issued by CIR is valid.
Ruling: No. The letter of Authority is not valid.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is
the authority given to the appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said revenue officer to
examine the books of account and other accounting records of a taxpayer for
the purpose of collecting the correct amount of tax. The very provision of
the Tax Code that the CIR relies on is unequivocal with regard to its power
to grant authority to examine and assess a taxpayer. There must be a grant
of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must
not go beyond the authority given. In the absence of such an authority, the
assessment or examination is a nullity.
The LOA that CIR issued covered "the period 1997 and unverified
prior years." For said reason, the CIR acting through its revenue officers went
beyond the scope of their authority because the deficiency VAT assessment
they arrived at was based on records from January to March 1998 or using
the fiscal year which ended in March 31, 1998. The CIR knew which period
should be covered by the investigation. Thus, if CIR wanted or intended the
investigation to include the year 1998, it should have done so by including it
in the LOA or issuing another LOA.
The phrase "and unverified prior years," violated Section C of
Revenue Memorandum Order No. 43-90 dated September 20, 1990, which
stated that a Letter of Authority should cover a taxable period not exceeding
one taxable year. The practice of issuing L/As covering audit of "unverified
prior years is hereby prohibited. If the audit of a taxpayer shall include more
than one taxable period, the other periods or years shall be specifically
indicated in the L/A.
FITNESS BY DESIGN, INC., petitioner, vs.
REVENUE, respondent
G.R. No. 177982 October 17, 2008
(SAMPANA)
FACTS: On March 17, 2004, the Commissioner on Internal Revenue
(respondent) assessed Fitness by Design, Inc. (petitioner) for deficiency
income taxes for the tax year 1995 in the total amount of ₱10,647,529.69.
Petitioner protested the assessment on the ground that it was issued beyond
the three-year prescriptive period under Section 203 of the Tax Code.
Additionally, petitioner claimed that since it was incorporated only on May
30, 1995, there was no basis to assume that it had already earned income
for the tax year 1995.
On February 1, 2005, respondent issued a warrant of distraint and/or levy
against petitioner, drawing petitioner to file on March 1, 2005 a Petition for
Review (with Motion to Suspend Collection of Income Tax, Value Added Tax,
Documentary Stamp Tax and Surcharges and Interests subject of this
Petition) before the Court of Tax Appeals (CTA) before which it reiterated
its defense of prescription. The petition was docketed as CTA Case No. 7160.
The right of the respondent to assess petitioner for deficiency income tax,
VAT and Documentary Stamp Tax for the year 1995 has not prescribed
pursuant to Section 222(a) of the 1997 Tax Code. Petitioner’s 1995 Income
Tax Return (ITR) filed on April 11, 1996 was false and fraudulent for its
deliberate failure to declare its true sales. Petitioner declared in its 1995
Income Tax Return that it was on its pre-operation stage and has not
declared its income. Investigation by the revenue officers of the respondent,
however, disclosed that it has been operating/doing business and had sales
operations for the year 1995 in the total amount of ₱7,156,336.08 which it
failed to report in its 1995 ITR. Thus, for the year 1995, petitioner filed a
fraudulent annual income return with intent to evade tax. Likewise,
petitioner failed to file Value-Added Tax (VAT) Return and reported the
amount of P7,156,336.08 as its gross sales for the year 1995. Hence, for
failure to file a VAT return and for filing a fraudulent income tax return for
the year 1995, the corresponding taxes may be assessed at any time within
ten (10) years after the discovery of such omission or fraud pursuant to
Section 222(a) of the 1997 Tax Code.
ISSUE: WON the BIR access to all relevant or material records and data in
the person of the taxpayer and the BIR can accept documents and to require
the consent of the taxpayer.
HELD; Petitioner impugns the manner in which the documents in question
reached the BIR, Sablan having allegedly submitted them to the BIR without
its (petitioner’s) consent. Petitioner’s lack of consent does not, however,
imply that the BIR obtained them illegally or that the information received
is false or malicious. Nor does the lack of consent preclude the BIR from
assessing deficiency taxes on petitioner based on the documents. Thus petitioner-corporation, not petitioner. From the complaint and supporting
Section 5 of the Tax Code provides: affidavits in I.S. No. 2005-203, Sablan does not even appear to be a witness
In ascertaining the correctness of any return, or in making a return when against the respondents therein.
none has been made, or in determining the liability of any person for any
internal revenue tax, or in collecting any such liability, or in evaluating tax AT ALL EVENTS, issuance of subpoena duces tecum for the production of the
compliance, the Commissioner is authorized: documents requested by the petitioner – which documents petitioner claims
(A) To examine any book, paper, record or other data which may be relevant to be crucial to its defense – is unnecessary in view of the CTA order for
or material to such query; respondent to certify and forward to it all the records of the case. If the
(B) To obtain on a regular basis from any person other than the person whose order has not been complied with, the CTA can enforce it by citing
internal revenue tax liability is subject to audit or investigation, or from any respondent for indirect contempt.
office or officer of the national and local governments, government agencies WHEREFORE, in light of the foregoing disquisition, the petition is DISMISSED.
and instrumentalities, including the Bangko Sentral ng Pilipinas and Costs against petitioner.
government-owned and –controlled corporations, any information such as,
but not limited to, costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies, insurance companies,
regional operating headquarters of multinational companies, joint accounts,
associations, joint ventures or consortia and registered partnerships and
their members;
(C) To summon the person liable for tax or required to file a return, or any
officer or employee of such person, or any person having possession, custody,
or care of the books of accounts and other accounting records containing
entries relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly authorized
representatives at a time and place specified in the summons and to produce
such books, papers, records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry; and
(E) To cause revenue officers and employees to make a canvass from time to
time of any revenue district or region and inquire after and concerning all
persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object
with respect to which a tax is imposed.
x x x x (Emphasis and underscoring supplied)
The law thus allows the BIR access to all relevant or material records and
data in the person of the taxpayer, and the BIR can accept documents which
cannot be admitted in a judicial proceeding where the Rules of Court are
strictly observed. To require the consent of the taxpayer would defeat the
intent of the law to help the BIR assess and collect the correct amount of
taxes.
Petitioner’s invocation of the rights of an accused in a criminal prosecution
to cross examine the witness against him and to have compulsory process
issued to secure the attendance of witnesses and the production of other
evidence in his behalf does not lie. CTA Case No. 7160 is not a criminal
prosecution, and even granting that it is related to I.S. No. 2005-203, the
respondents in the latter proceeding are the officers and accountant of
Sy Po v. CTA CIR v. Hantex Trading
(TORRES) (TUMALAD)
 CIR vs. EMBROIDERY AND GARMENTS INDUSTRIES, INC.
GR NO. 96262, March 22, 1999
(YACOB)
FACTS: On September 21, 1964, on the basis of a sworn report of an
informer, the Courts of First Instance of Manila and Bulacan issued search
warrants for the seizure of certain documents from the offices of respondent
Embroidery and Garments Industries (Phil.), Inc. in Manila and Valenzuela,
Bulacan. Armed with the warrants, agents of the Anti-Technical Smuggling
Unit, Bureau of Internal Revenue, seized various business records and
documents from respondent's offices.
On January 4, 1966, petitioner assessed respondent the sum of P436,846.44,
inclusive of 75% surcharge and penalty as advance sales tax for the years
1959 to 1961 and, on March 23, 1966, assessed deficiency income tax in the
sum of P4,799,641.95, inclusive of 50% surcharge and 1/2% monthly interest
for the years 1960 and 1961.
Respondent protested the assessments, and on December 9,1970, petitioner
issued to respondent a revised assessment requiring the latter to pay the
amount of P2,756,241.68, inclusive of 50% surcharge and 1/2% monthly
interest as deficiency income tax for the years 1959 to 1961. On December
22, 1970, petitioner required respondent to pay P3,500,798.47, as advance
sales tax and 75% surcharge corresponding to the same years.
On January 7, 1971, respondent filed with the Bureau of Internal Revenue a
protest disputing the revised assessments and requesting further
investigation. On the same date, petitioner denied the protest.
On October 14, 1971 , respondent filed with the Court of Tax Appeals a
petition for review of the disputed tax assessments.
On March 29, 1972, respondent filed its answer to the petition praying for its
dismissal.
On January 15, 1990, the Court of Tax Appeals rendered decision finding
respondent not liable for deficiency income tax and advance sales tax
assessed against it, and accordingly, reversed the BIR decision. In its
decision, the Court of Tax Appeals held that the assessments were doubtful
validity as they were based on the incompetent evidence consisting of an
informant's report and the sworn statement of the disgruntled former
general manager of respondent that in the years in question respondent sold
all its dollar quotas to local Chinese textile traders at an overprice or
premium on the dollar value of textile importation of 80% for suiting
materials and 70.% for women's clothing materials and faked its invoices to
reduce its costs of importation. On the other hand, respondent adduced
evidence consisting of official records of the Bureau of Customs that its tax-
free importation's had been re-exported to their suppliers in accordance with
the Embroidery Law and cleared by the Bureau of Customs. The tax court
ruled that the assessments must be based on actual facts and proved by
competent evidence, not imposed based on unverified information supplied
by an informant, or disputed presumptions.
Commissioner of Internal Revenue submits that the Court of Appeals erred:
(1) in not holding that respondent is liable for deficiency income tax and
advance sales tax in view of its failure to declare its income realized for the
years 1959 to 1961 from the sales of its dollar quota to local Chinese textile
dealers at a premium of 70% to 80% of the dollar value, which dollar quota
rights were allocated by the Central Bank of the Philippines to enable
respondent to import tax-free textile raw materials to be manufactured into
finished products for re-export pursuant to the provisions of the Embroidery
Law (R. A. No. 3137), and
(2) in not holding that the imposition of 50% surcharge for fraud was legal
and justified.
ISSUE: Whether or not the findings of fact of the CA, even the CTA, are final,
binding or conclusive upon the parties.
HELD: YES What is more, it is a, fundamental rule that on
appeal via certiorari from a decision of the Court of Appeals to the Supreme
Court may raise only questions of law, which must be distinctly set
forth. 8 Findings of fact of the Court of Appeals and even of the tax court are
final, binding or conclusive on the parties 9 and upon this Court, 10 which will
not be reviewed 11 or disturbed on appeal unless these findings are not
supported by evidence, 12 with certain well recognized exceptions, such as
(1) when the conclusion is grounded entirely on speculations 13, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions
of both appellant and appellee; (7) when the findings of the Court of Appeals
are contrary to those of the trial courts; 14 (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based;
(9) when the Court of Appeals overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence
on record. 15 This case does not come within any of the exceptions.
 CIR vs Pascor the payment thereof. The fact that the complaint was sent to the DOJ, and
G.R. No. 128315 June 29, 1999 not to private respondent, shows that commissioner intended to file a
(CARAO//MANCO) criminal complaint for tax evasion, not to issue an assessment.

Facts: The CIR authorized certain BIR officers to examine the books of 2. No. An assessment is not necessary before criminal charges can be filed.
accounts and other accounting records of Pascor Realty and Development A criminal charge need not only be supported by a prima facie showing of
Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in failure to file a required return. The CIR had, in such tax evasion cases,
recommendation for the issuance of an assessment of P7,498,434.65 and discretion on whether to issue an assessment, or to file a criminal case
P3,015,236.35 for 1986 and 1987, respectively. On March 1, 1995, against the taxpayer, or to do both.
Commissioner filed a criminal complaint for tax evasion against PRDC, its
president and treasurer before the DOJ. Private respondents filed
immediately an urgent request for reconsideration on reinvestigation
disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ
in connection with the criminal complaint. In a letter dated, May 17, 1995,
the Commissioner denied private respondent’s request for reconsideration
(reinvestigation on the ground that no formal assessment has been issued
which the latter elevated to the CTA on a petition for review. The
Commissioner’s motion to dismiss on the ground of the CTA’s lack of
jurisdiction inasmuch as no formal assessment was issued against private
respondent was denied by CTA and ordered the Commissioner to file an
answer but did not instead filed a petition with the CA alleging grave abuse
of discretion and lack of jurisdiction on the part of CTA for considering the
affidavit/report of the revenue officers and the endorsement of said report
as assessment which may be appealed to he CTA. The CA sustained the CTA
decision and dismissed the petition.

Issue:
1. Whether or not the criminal complaint for tax evasion can be construed
as an assessment
2. Whether or not an assessment is necessary before criminal charges for tax
evasion may be instituted

Ruling:
1. No. The filing of the criminal complaint with the DOJ cannot be construed
as a formal assessment. Neither the Tax Code nor the revenue regulations
governing the protest assessments provide a specific definition or form of an
assessment.
An assessment must be sent to and received by the taxpayer, and must
demand payment of the taxes described therein within a specific period. The
revenue officer’s affidavit merely contained a computation of respondent’s
tax liability. It did not state a demand or period for payment. It was
addressed to the Secretary of Justice not to the taxpayer. They joint
affidavit was meant to support the criminal complaint for tax evasion; it was
not meant to be a notice of tax due and a demand to private respondents for
 G.R. No. 185371 December 8, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. METRO STAR
SUPERAMA, INC., Respondent.
(CASTILLO)
FACTS: On January 26, 2001, the Regional Director of Revenue Region,
Legazpi City, issued Letter of Authority to examine petitioner’s books of
accounts and other accounting records for income tax and other internal
revenue taxes for the taxable year 1999. Said Letter of Authority was
revalidated on August 10, 2001 by Regional Director.
For petitioner’s failure to comply with several requests for the presentation
of records and Subpoena Duces Tecum, The BIR Legal Division issued an
Indorsement dated September 26, 2001 informing Revenue District Officer
of, Legazpi City to proceed with the investigation based on the best evidence
obtainable preparatory to the issuance of assessment notice.
On November 8, 2001, Revenue District Officer issued a Preliminary 15-day
Letter, which petitioner received on November 9, 2001. The said letter
stated that a post audit review was held and it was ascertained that there
was deficiency value-added and withholding taxes due from petitioner in the
amount of P 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April
3, 2002 from Revenue District Legazpi City, assessing petitioner the amount
of P292,874.16 for deficiency value-added and withholding taxes for the
taxable year 1999. Subsequently, R.D. sent a copy of the Final Notice of
Seizure dated May 12, 2003, which petitioner received on May 15, 2003,
giving the latter last opportunity to settle its deficiency tax liabilities within
10 days from receipt, otherwise respondent BIR shall be constrained to serve
and execute the Warrants of Distraint and/or Levy and Garnishment to
enforce collection.
On February 6, 2004, petitioner received from Revenue District Office a
Warrant of Distraint and/or Levy dated May 12, 2003 demanding payment of
deficiency value-added tax and withholding tax payment in the amount
of P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its authorized
representative, Revenue Regional Director of Revenue Region 10, Legaspi
City, issued a Decision denying petitioner’s Motion for Reconsideration.
Petitioner, through counsel received said Decision on February 18, 2005.
Denying that it received a Preliminary Assessment Notice and claiming that
it was not accorded due process, Metro Star filed a petition for review with
the CTA.
The CTA-Second Division found merit in the petition of Metro Star and, on
March 21, 2007, rendered a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby
GRANTED. Accordingly, the assailed Decision dated February 8, 2005 is
hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from
collecting the subject taxes against petitioner.
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 also found that there was
no clear showing that Metro Star actually received the alleged PAN, dated
January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand
dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated
May 12, 2003 were void, as Metro Star was denied due process.
The CIR sought reconsideration of the decision of the CTA-Second Division,
but the motion was denied in the latter’s July 24, 2007 Resolution.
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the
petition was dismissed after a determination that no new matters were
raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE
and DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision
and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169
entitled, "Metro Star Superama, Inc., petitioner vs. Commissioner of Internal
Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration filed by the CIR was likewise denied by the
CTA-En Banc in its November 18, 2008 Resolution.
Issue: W.O.N. Metro Star was denied due process.
HELD:
The general rule the Court will not lightly set aside the conclusions reached
by the CTA which, by the very nature of its functions, has accordingly
developed an exclusive expertise on the resolution unless there has been an
abuse or improvident exercise of authority.
On the matter of service of a tax assessment, jurisprudence is replete with
cases holding that if the taxpayer denies ever having received an assessment
from the BIR, it is incumbent upon it to prove by competent evidence that
such notice was indeed received by the addressee. The onus probandi was
shifted to respondent to prove by contrary evidence that the Petitioner
received the assessment in the due course of mail. The Supreme Court has
consistently held that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption
subject to controversion and a direct denial thereof shifts the burden to the
party favored by the presumption to prove that the mailed letter was indeed
received by the addressee. The facts to be proved to raise this presumption
are (a) that the letter was properly addressed with postage prepaid, and (b)
that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mail. But if one of the said The same shall be sent to the taxpayer only by registered mail or by personal
facts fails to appear, the presumption does not lie. The essential facts to delivery. The persuasiveness of the right to due process reaches both
prove of mailing is the registry receipt issued by the Bureau of Posts or the substantial and procedural rights and the failure of the CIR to strictly comply
Registry return card which would have been signed by the Petitioner or its with the requirements laid down by law and its own rules is a denial of Metro
authorized representative. And if said documents cannot be located, Star’s right to due process. Thus, for its failure to send the PAN stating the
Respondent at the very least, should have submitted to the Court a facts and the law on which the assessment was made as required by Section
certification issued by the Bureau of Posts and any other pertinent document 228 of R.A. No. 8424, the assessment made by the CIR is void.
which is executed with the intervention of the Bureau of Posts. This Court
does not put much credence to the self-serving documentations made by the
BIR personnel especially if they are unsupported by substantial evidence
establishing the fact of mailing.
The failure of the respondent to prove receipt of the assessment by the
Petitioner leads to the conclusion that no assessment was issued.
Consequently, the government’s right to issue an assessment for the said
period has already prescribed. 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.
This now leads to the question: Is the failure to strictly comply with notice
requirements prescribed under Section 228 of the National Internal Revenue
Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a
denial of due process? Specifically, are the requirements of due process
satisfied if only the FAN stating the computation of tax liabilities and a
demand to pay within the prescribed period was sent to the taxpayer?
This require a close examination of section 228 of the NIRC.
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:
xxxxx xxxxx xxxxx
The taxpayers shall be informed in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall be void.
Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN.
He must be informed of the facts and the law upon which the assessment is
made. The law imposes a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present their case and
adduce supporting evidence.
This is confirmed under the provisions R.R. No. 12-99 of the BIR which
pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax
Assessment.
 CIR vs. CA, Atlas Consolidated
GR No. 104151 March 10, 1995
(ESTRADA)
FACTS: The CIR served two notices and demand for payment of the
respective deficiency ad valorem and buiness taxes for taxable years 1975
and 1976 against the respondent Atlas Consolidated Mining and Development
Corporation (ACMDC). The latter protested both assessments but the same
were denied, hence it filed two separate petitions for review in the Court of
Tax Appeals. The CTA rendered a consolidated decision holding, inter alia,
that ACMDC was not liable for deficiency ad valorem taxes on copper and
silver for 1975 and 1976 thereby effectively sustaining the theory of ACMDC
that in computing the ad valorem tax on copper mineral, the refining and
smelting charges should be deducted, in addition to freight and insurance
charges.
However, the tax court held ACMDC liable for the amount consisting of
25% surcharge for late payment of the ad valorem tax and late filing of notice
of removal of silver, gold and pyrite extracted during certain periods, and
for alleged deficiency manufacturer's sales tax and such contractor's tax for
leasing out of its personal properties. ACDMC elevated the matter to the
Supreme Court claiming that the leasing out was a mere isolated transaction,
hence should not be subjected to contractor's tax.
ISSUE: Is the claim of the private respondent, with respect to the contractor's
tax, impressed with merit?
HELD: No. It is being held that ACMDC was not a manufacturer subject to the
percentage tax imposed by Section 186 of the tax code. However such
conclusion cannot be made with respect to the contractor's tax being
imposed on ACMDC. It cannot validly claim that the leasing out of its personal
properties was merely an isolated transaction. Its book of accounts shows
that several distinct payments were made for the use of its personal
properties such as its plane, motor boat and dump truck. The series of
transactions engaged in by ACMDC for the lease of its aforesaid properties
could also be deduced from the fact that during the period there were profits
earned and reported therefor. The allegation of ACMDC that it did not realize
any profit from the leasing out of its said personal properties, since its
income therefrom covered only the costs of operation such as salaries and
fuel, is not supported by any documentary or substantial evidence.
Assessments are prima facie presumed correct and made in good faith.
Contrary to the theory of ACMDC, it is the taxpayer and not the BIR who has
the duty of proving otherwise. It is an elementary rule that in the absence
of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. All presumptions are in favor of tax
assessments. Verily, failure to present proof of error in assessments will
justify judicial affirmance of said assessment
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v. CA,
CIR and CTA; GR No 105563 *(Presumption of regularity of assessments)
(FLORES)
FACTS: The CIR, acting on the basis of the report of the examiners of the
BIR, caused the service of an assessment notice and demand for payment of
the amount of P12,391,070.51 representing deficiency ad valorem
percentage and fixed taxes, including increments, for the taxable year 1975
against ACMDC. Likewise, on the basis of the BIR examiner’s report in another
investigation separately conducted, the Commissioner had another
assessment notice, with a demand for payment of the amount of
P13,531,466.80 representing the 1976 deficiency ad valorem and business
taxes with P5,000.00 compromise penalty, served on ACMDC on September
23, 1980. ACMDC protested both assessments but the same were denied,
hence it filed petitions for review in the CTA.
The CTA ruled that ACMDC was not liable for deficiency ad valorem taxes on
copper and silver for 1975 and 1976. However, the tax court held ACMDC
liable for the amount of P1,572,637.48, exclusive of interest, consisting of
25% surcharge for late payment of the ad valorem tax and late filing of notice
of removal of silver, gold and pyrite extracted during certain periods, and
for alleged deficiency manufacturer’s sales tax and contractor’s tax.
ACMDC elevated the case to the CA, it assailed that part of the decision
ordering it to pay P1,572,637.48 representing alleged deficiency assessment.
The CA further reduced the tax liability of ACMDC. Still not satisfied with the
said judgment which had reduced its tax liability as a final recourse ACMDC
came to this Court on a petition for review on certiorari.
ISSUE: Whether or not petitioner is liable for payment of the contractor’s tax
and surcharge on the alleged lease of personal property during the taxable
years 1975 and 1976 plus interest."
RULING: No. It cannot validly claim that the leasing out of its personal
properties was merely an isolated transaction. Its book of accounts shows
that several distinct payments were made for the use of its personal
properties such as its plane, motor boat and dump truck. The series of
transactions engaged in by ACMDC for the lease of its aforesaid properties
could also be deduced from the fact that for the tax years 1975 and 1976
there were profits earned and reported therefor. It received a rental income
of P630,171.56 for tax year 1975 39 and P2,450,218.62 for tax year 1976.
Considering that there was a series of transactions involved, plus the fact
that there was an apparent and protracted intention to profit from such
activities, it can be safely concluded that ACMDC was habitually engaged in
the leasing out of its plane, motor boat and dump truck, and is perforce
subject to the contractor’s tax
The allegation of ACMDC that it did not realize any profit from the leasing
out of its said personal properties, since its income therefrom covered only
the costs of operation such as salaries and fuel, is not supported by any
documentary or substantial evidence. We are not, therefore, convinced by
such disavowal.
Assessments are prima facie presumed correct and made in good faith.
Contrary to the theory of ACMDC, it is the taxpayer and not the Bureau of
Internal Revenue who has the duty of proving otherwise. It is an elementary
rule that in the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. All presumptions are in
favor of tax assessments. 41 Verily, failure to present proof of error in the
assessment will justify judicial affirmance of said assessment.
Finally, we deem it opportune to emphasize the oft-repeated rule that tax
statutes are to receive a reasonable construction with a view to carrying out
their purposes and intent. 43 They should not be construed as to permit the
taxpayer to easily evade the payment of the tax. 44 On this note, and under
the confluence of the weighty considerations and authorities earlier
discussed, the challenged assessment against ACMDC for contractor’s tax
must be upheld.
No. L-22492. September 5, 1967.
BASILAN ESTATES,INC., petitioner, vs. THE COMMISSIONER OF INTERNAL
REVENUE and THE COURT OFTAX APPEALS, respondents.
(GIMENA)
Income tax; Notice of assessment, when deemed made.—Under Section 331
of the Tax Code requiring 5 years within which to assess deficiency taxes,
the assessment is deemed made when notice to this effect is released,
mailed or sent by the Collector of Internal Revenue to the taxpayer, and it
is not required that the notice be received by the taxpayer within the
aforementioned 5-year period.
FACTS: Basilan Estates, Inc.,a Philippine corporation engaged in the coconut
industry,with principal offices in Basilan City, filed on March 24, 1954 its
income tax returns for 1953 and paid an income tax of P8,028. On February
26, 1959, the Commissioner of Internal Revenue, per examiners’ report of
February 19, 1959, assessed Basilan Estates, Inc., a deficiency income tax of
P3,912 for 1953 and P86,876.85 as 25% surtax on unreasonably accumulated
profits as of 1953 pursuant to Section 25 of the Tax Code.
On non-payment of the assessed amount, a warrant of distraint and levy was
issued but the same was not executed because Basilan Estates, Inc.
succeeded in getting the Deputy Commissioner of Internal Revenue to order
the Director of the district in Zamboanga City to hold execution and maintain
constructive embargo instead. Because of its refusal to waive the period of
prescription, the corporation’s request for reinvestigation was not given due
course, and on December 2, 1960, notice was served the corporation that
the warrant of distraint and levy would be executed.
On December 20, 1960, Basilan Estates, Inc. filed before the Court of Tax
Appeals a petition for review of the Commissioner’s assessment,
alleging prescription of the period for assessment and collection; error in
disallowing claimed depreciations, travelling and miscellaneous expenses;
and error in finding the existence of unreasonably accumulated profits and
the imposition of 25% surtax thereon. On October 31, 1963, the Court of Tax
Appeals found that there was no prescription and affirmed the deficiency
assessment in toto.
Hence this petition.
ISSUES;
1. WON the Commissioner’s right to collect deficiency income tax
prescribed?
2. WON there was the disallowance of items claimed as deductible
proper?
3. WON there.have been unreasonably accumulated profits? If so,
should the 25% surtax be imposed on the balance of the entire
surplus from 1947-1953, or only for 1953?
 4. WON the petitioner exempt from the penalty tax under Republic avail of the exempting proviso in Sec. 25 of the Internal Revenue Code as
Act 1823 amending Section 25 of the Tax Code? amended by R.A. 1823, approved June 22, 1957, whereby accumulated
RULING; profits or surplus if invested in any dollar-producing or dollar-earning
1. NO.There is no dispute that the assessment of the deficiency tax was made industry or in the purchase of bonds issued by the Central Bank, may not be
on February 26, 1959; but the petitioner claims that it never received notice subject to the 25% surtax. Sc have but to point out that the unreasonable
of such assessment or if it did, it received the notice beyond the five-year accumulation was in 1953.
prescriptive period. To show prescription, the annotation on the notice JUDGMENT MODIFIED.
(Exhibit 10, No. 52, ACR, p. 54-A of the BIR records) “No accompanying letter
11/25/” is advanced as indicative of the fact that receipt of the notice was
after March 24, 1959, the last date of the five-year period within which to
assess deficiency tax, since the original returns were filed on March 24, 1954.
2. Depreciation commences with the acquisition of the property and its
owner is not bound to see his property gradually waste, without making
provision out of earnings for its replacement. It is entitled to see that from
earnings the value of the property invested is kept -unimpaired, so that at
the end of any given term of years, the original investment remains as it was
in the beginning. It is not only the right of a company to make such a
provision, but it is its duty to its bond and stockholders, and, in the case of
a public service corporation, at least, its plain duty to the public.
Accordingly, the law permits the taxpayer to recover gradually his capital
investment in wasting assets free from tax. Precisely, Section 30(f) (1) of the
Tax Code allows a deduction from gross income for depreciation but limits
the recovery to the capital invested in the asset being depreciated.
3. . As correctly held by the Court of Tax Appeals, while certain expenses of
the corporation were credited against these amounts, the unspent balance
was retained by the stockholders without refunding them to petitioner at the
end of each year. These advances were in fact indirect loans to the
stockholders indicating the unreasonable accumulation of surplus beyond the
needs of the business. Persuasive jurisprudence on the matter, such as those
in the United States from where our tax law is derived, has it that: “In order
to determine whether profits were accumulated for the reasonable needs of
the business or to avoid the surtax upon shareholders, the controlling
intention of the taxpayer is that which manifested at the time of the
accumulation, not subsequently declared intentions which are merely the
products of afterthought. In determining whether accumulations of earnings
or profits in a particular year are within the reasonable needs of a
corporation, it is necessary to take into account prior accumulations, since
accumulations prior to the year involved may have been sufficient to cover
the business needs and additional accumulations during the year involved
would not reasonably be necessary.”
4.Petitioner wishes to avail of the exempting proviso in Sec. 25 of the
Internal Revenue Code as amended by R.A. 1823, approved June 22, 1957,
whereby accumulated profits or surplus if invested in any dollar-producing
or dollar-earning industry or in the purchase of bonds issued by the Central
Bank, may not be subject to the 25% surtax. The SC have but to point out
that the unreasonable accumulation was in 1953. The Petitioner wishes to
 Republic v. CA & Nielson
G.R. No. L-38540 April 30, 1987
J. Padilla
(MANCO)
Facts: In a demand letter, dated 16 July 1955, the Commissioner of Internal
Revenue assessed private respondent deficiency taxes for the years 1949 to
1952, totalling P14,449.00. Petitioner reiterated its demand upon private
respondent for payment of said amount, per letters dated 24 April 1956, 19
September 1956 and 9 February 1960. Private respondent did not contest the
assessment in the Court of Tax Appeals. On the theory that the assessment
had become final and executory, petitioner filed a complaint for collection
of the said amount against private respondent with the Court of First
Instance of Manila. However, for failure to serve summons upon private
respondent, the complaint was dismissed, without prejudice, in the Court's
order dated 4 October 1962. On 15 November 1962, the complaint against
private respondent for collection of the same tax was refiled, but the same
was erroneously docketed as Civil Case No. 42911, the same case previously
dismissed without prejudice. Without correcting this error, another
complaint was filed on 26 November 1963, docketed as Civil Case No. 55817,
the subject matter of the present appeal. The Court a quo rendered a
decision against the private respondent. The CA reversed the decision of the
lower court.
which was duly received by private respondent in accordance with its
own admission.
Under Section 7 of Republic Act No. 1125, the assessment is appealable to
the Court of Tax Appeals within thirty (30) days from receipt of the letter.
The taxpayer's failure to appeal in due time, as in the case at bar, makes the
assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment
or from invoking any defense that would reopen the question of its liability
on the merits. In a suit for collection of internal revenue taxes, as in this
case, where the assessment has already become final and executory, the
action to collect is akin to an action to enforce a judgment. No inquiry can
be made therein as to the merits of the original case or the justness of the
judgment relied upon.
Decision appealed from reversed.

Issues:
a. Was the notice of assessment or demand properly served to the
respondent?
b. Should the receipt by the respondent of the succeeding follow-up demand
notices be construed as receipt of the original demand?

Ruling:
a. No. We do not agree with petitioner's above contentions. As correctly
observed by the respondent court in its appealed decision, while the
contention of petitioner is correct that a mailed letter is deemed received
by the addressee in the ordinary course of mail, stilt this is merely a
disputable presumption, subject to controversion, and a direct denial of the
receipt thereof shifts the burden upon the party favored by the presumption
to prove that the mailed letter was indeed received by the addressee. Since
petitioner has not adduced proof that private respondent had in fact
received the demand letter of 16 July 1955, it can not be assumed that
private respondent received said letter.

b. Yes. Records, however, show that petitioner wrote private respondent a

follow-up letter dated 19 September 1956, reiterating its demand for the
payment of taxes as originally demanded in petitioner's letter dated 16 July
1955. This follow-up letter is considered a notice of assessment in itself
Nava v. CIR G.R. No. L-46893 November 12, 1985
(PRODON) REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. FRANCISCO
RICARTE, defendant-appellee.
(RAMOS)
FACTS: On March 2, 1959, defendant-appellee Francisco Ricarte filed his
income tax return for the year 1958. On April 6, 1959, the Office of the
Collector of Internal Revenue made the corresponding assessment and fixed
at P222.00 the defendant's income tax liability pursuant to the express
provision of Section 51(a) of the NIRC (Commonwealth Act No. 466), then in
effect. Defendant paid his income tax in two equal installments of P 111.00
each.

On June 20, 1959, RA 2343 took effect amending Commonwealth Act No. 466
including Section 51(a). Under the amendatory act, the taxpayer assesses
himself, files his return and pays the tax as shown in his return upon filing
thereof.

In the year 1961, the Bureau of Internal Revenue, after investigation, found
that the defendant had a deficiency of P 1,136.87 in his income tax for 1958.
On January 19, 1961, assessment notice No. 17-A-708424-58 for the amount
aforestated was issued and, together with the corresponding audit sheet and
letter of demand, was mailed to the defendant on January 25, 1961. For
failure of defendant to pay his deficiency income tax liability, plaintiff, on
January 14, 1966, filed a complaint for collection of unpaid taxes before the
City Court of Cebu.

The court rendered a decision dismissing the case on the ground of

prescription of action. The trial court reasoned out that the assessment was
made by the BIR on April 6, 1959, but the present case was filed only on
January 14, 1966 or more than the prescriptive period of five years as
provided for in Section 332(c) of the NIRC.

On September 29, 1968, the former CFI, on the basis of the stipulation of
facts, rendered its decision dismissing herein appellant's complaint. The said
court stated that what the BIR sought to collect from the appellee was based
on an assessment which the Bureau made under the provisions of a new law,
R.A. No. 2343, which was not yet in effect at the time of the filing of
appellee's income tax return for 1958; and that the action against the
appellee had already prescribed.

On October 16, 1968, appellant sought reconsideration of the lower court's

decision. The motion was denied on December 14, 1968, hence this appeal.

ISSUE: Whether or not the subsequent assessment was made based on the
amendatory act.
HELD: No. It may be pointed out that before the amendment of the tax code,
Section 51(a) relating to payment and assessment of income tax, prescribed:
Sec. 51. Assessment and payment of income tax.-(a) An assessment shall be
made by the Collector of Internal Revenue and all persons and corporations
subject to tax shall be notified of the amount for which they are respectively
liable on or before the first day of May of each successive year.
but as amended by R.A. No. 2343, effective on June 20, 1959, it now reads:
Sec. 51. Payment and assessment of income tax.—(a) Payment of tax.— (1)
In general.-The total amount of tax imposed by this Title shall be paid at the
time the return is filed but not later than the fifteenth day of April following
the close of the calendar year,
xxx xxx xxx
(b) Assessment and payment of deficiency tax.—After the return is filed the
Commissioner of Internal Revenue shall examine it and assess the correct
amount of the tax. The tax or deficiency in tax so discovered shall be paid
upon notice and demand from the Commissioner of Internal Revenue.
Clearly, before the amendment, the taxpayer files his income tax return and
the Collector (now Commissioner) of Internal Revenue assesses the tax due
and notifies the taxpayer thereof. On the other hand, under the amendatory
act, the taxpayer assesses himself, files his return and is required to pay the
tax as shown in his return upon filing thereof. This procedure is commonly
known as the "pay-as-you-file" system. In other words, under the old law, the
Collector of Internal Revenue was required to assess the tax due, while under
R.A. No. 2343 the taxpayer himself computes the tax on the basis of the
figures appearing in his income tax return.
The Court did not agree with the former CFI of Cebu that the subsequent
assessment made on January 19, 1961 was based on the amendatory act.
Appellee filed his income tax return for the year 1958 on March 2, 1959 and
the same was assessed by the Bureau of Internal Revenue on April 6, 1959.
The tax was paid in two installments. The Bureau of Internal Revenue
reviewed the said return and found out a deficiency in the assessment it
previously made and the income tax paid by the appellee. A notice of
assessment was sent to the appellee on January 19, 1961. Such subsequent
assessment undertaken by the Bureau of Internal Revenue was based merely
on the income tax return filed by the appellee where no assessment has been
made by him. As has been said, the amount of tax due was previously
computed by the Bureau of Internal Revenue. Finding that it made an error,
the Bureau reassessed the income tax return of the appellee; but such
reassessment was made pursuant to the old law and not under the
amendatory act.
Tambunting Pawnshop, Inc. vs. CIR
G.R. No. 179085. January 21, 2010
J. Carpio-Morales
(RESURRECCION)
Facts: The CIR sent the petitioner an assessment notice for deficiency VAT,
documentary stamp tax on pawn tickets, withholding tax on compensation,
expanded withholding tax, all inclusive of interests and surcharges for the
taxable year 1999. Petitioner protested the assessment. As the protest
merited no response, it filed a Petition for Review with the Court of Tax
Appeals (CTA) pursuant to Section 228 of the National Internal Revenue
Code.
The First Division of the CTA ruled that petitioner is liable for VAT
and documentary stamp tax but not for withholding tax on compensation and
expanded withholding tax. MR was filed but it was denied. Consequently, a
petition for review was filed, but the CTA En Banc dismissed the same.
Hence, the Petition for Review on Certiorari.
Issues:
1. Whether or not the petitioner is liable for VAT;
2. Whether or not petitioner is liable for surcharges and interest.
Ruling:
1. Since petitioner is a non-bank financial intermediary, it is subject to
10% VAT for the tax years 1996 to 2002; however, with the levy,
assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner is
not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, petitioner is liable for 10%
VAT for said tax year. And beginning 2004 up to the present, by
virtue of R.A. No. 9238, petitioner is no longer liable for VAT but
it is subject to percentage tax on gross receipts from 0% to 5%, as
the case may be. (emphasis and underscoring supplied)
In light of the foregoing ruling, since the imposition of VAT on
pawnshops, which are non-bank financial intermediaries, was deferred for
the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year
1999.
2. The Court finds the argument meritorious.
In not paying documentary stamp taxes, the petitioner relied on
the rulings of respondent CIR and the CTA that pawn tickets are not subject
to documentary stamp taxes. It is settled that good faith and honest belief
that one is not subject to tax on the basis of previous interpretations of
government agencies tasked to implement the tax law are sufficient
justification to delete the imposition of surcharges and interest.
The petition is in part granted.
 CITY OF ILOILO VS. SMART COMMUNICATIONS, INC.
G.R. No. 167260 February 27, 2009
(SALVADOR)
Facts:
SMART received a letter of assessment from petitioner requiring it
to pay deficiency local franchise and business taxes (in the amount of
P764,545.29, plus interests and surcharges) which it incurred for the years
1997 to 2001. SMART protested the assessment by sending a letter to the
City Treasurer. It claimed exemption from payment of local franchise and
business taxes based on Section 9 of its legislative franchise under Republic
Act (R.A.) No. 7294 (SMART's franchise). Under SMART's franchise, it was
required to pay a franchise tax equivalent to 3% of all gross receipts, which
amount shall be in lieu of all taxes. SMART contends that the "in lieu of all
taxes" clause covers local franchise and business taxes.
SMART similarly invoked R.A. No. 7925 or the Public
Telecommunications Policy Act (Public Telecoms Act) whose Section 23
declares that any existing privilege, incentive, advantage, or exemption
granted under existing franchises shall ipso facto become part of previously
granted-telecommunications franchise. SMART contends that by virtue of
Section 23, tax exemptions granted by the legislature to other holders of
telecommunications franchise may be extended to and availed of by
SMART.
Petitioner denied SMART's protest, citing the failure of SMART to
comply with Section 252 of R.A. No. 7160 or the Local Government Code
(LGC) before filing the protest against the assessment. Section 252 of the
LGC requires payment of the tax before any protest against the tax
assessment can be made.
SMART objected to the petitioner's denial of its protest by
instituting a case against petitioner before the RTC of Iloilo City. The trial
court ruled in favour of SMART and declared the telecommunications firm
exempt from the payment of local franchise and business taxes
The settled rule is that good faith and honest belief that one is not
subject to tax on the basis of previous interpretation of government
agencies tasked to implement the tax laws are sufficient justification to
delete the imposition of surcharges and interest. In refuting liability for the
local franchise and business taxes, it could not be believed that SMART
relied in good faith in the findings and conclusion of the Bureau of Local
Government and Finance (BLGF).
The BLGF opined that SMART should be considered exempt from
the franchise tax that the local government may impose under Section 137
of the LGC. SMART, relying on the letter-opinion of the BLGF, invoked the
same in the administrative protest it filed against petitioner. However, in
the 2001 case of PLDT v. City of Davao, it was declared that BLGF's
function is merely to provide consultative services and technical assistance
to the local governments and the general public on local taxation, real
property assessment, and other related matters. Unlike the Commissioner
of Internal Revenue who has been given the express power to interpret the
Tax Code and other national tax laws, no such power is given to the BLGF.
SMART's dependence on BLGF's interpretation was thus misplaced and could
not be a basis for good faith and honest belief, earning it exemption from
surcharges and interest.

Issue:
Whether or not SMART Communications’ defense of good faith and honest
belief that it is not subject to tax is a sufficient justification to delete the
imposition of surcharges and interest.

Ruling:
No.
Since SMART cannot validly claim any tax exemption based either
on Section 9 of its franchise or Section 23 of the Public Telecoms Act, it
follows that petitioner can impose and collect the local franchise and
business taxes amounting to P764,545.29 it assessed against SMART. Aside
from these, SMART should also be made to pay surcharge and interests on
the taxes due.
 G.R. No. L-14595 October 11, 1919
GREGORIO SARASOLA, plaintiff-appellant, vs. WENCESLAO TRINIDAD,
Collector of Internal Revenue of the Philippine Islands, defendant-appellee.
(SAMPANA)
FACTS: The complaint in this case was filed in the Court of First Instance of
Manila for the purpose of having an injunction issue to restrain the
defendant, the Collector of Internal Revenue, from the alleged illegal
collection of taxes in the amount of P11,739.29. The defendant interposed
a demurrer to the complaint, based on two grounds, namely: (1) that the
court had no jurisdiction of the subject-matter of the action because of the
provisions of section 1578 of the Administrative Code of 1917; and (2) that
the facts stated in the complaint did not entitle the plaintiff to the relief
demanded. The Honorable James A. Ostrand, Judge of First Instance,
sustained the demurrer, holding that "In the opinion of the court, the case is
still controlled by the decision of the Supreme Court in the case of Churchill
and Tait vs. Rafferty (32 Phil., 580). The fact that section 1579 of the
Administrative Code of 1917 disallows interest on the internal revenue taxes
recovered back is hardly sufficient to vary the rule." It is from the final order
dismissing the complaint, without special finding as to costs, that the
plaintiff to this court.
ISSUE: WON the Court of First Instance of Manila may issue injunction to
restrain the defendant, the Collector of Internal Revenue, from the alleged
illegal collection of taxes in the amount of P11,739.29.
RULING: Administrative Code of 1917, or whether we consider the more
subtle argument of the learned counsel for appellant which seems merely
to squint at this question, it is necessary to have before us the pertinent
provisions of Philippine law.
Sections 1578 and 1579 of the Administrative Code of 1917 read as follows:
SEC. 1578. Injunction not available to restrain collection of tax. — No court
shall have authority to grant an injunction to restrain the collection of any
internal-revenue tax.
SEC. 1579. Recovery of tax paid under protest. — When the validity of any
tax is questioned, or its amount disputed, or other question raised as to
liability therefor, the person against whom or against whose property the
same is sought to be enforced shall pay the tax under instant protest, or
upon protest within ten days, and shall thereupon request the decision of
the Collector of Internal Revenue. If the decision of the Collector of
Internal Revenue is adverse, or if no decision is made by him within six
months from the date when his decision was requested, the taxpayer may
proceed, at any time within two years after the payment of the tax, to
bring an action against the Collector of Internal Revenue for the recovery
without interest of the sum alleged to have been illegally collected, the
process to be served upon him, upon the provincial treasurer, or upon the
officer collecting the tax.
As this is the main rule, the converse proposition must be equally
true, that taxes only draw interest as do sums of money when expressly
authorized. A corollary to the principle is also self-evident, that interest
cannot be recovered on an abatement unless the statute provides for it. (1
Cooley on Taxation, 3d Ed., p. 20; 2 Cooley on Taxation, 3d Ed., p. 1392;
City of Lowell vs. County Commissioners of Middlesex [1862], 3 Allen [Mass.],
550.) The only contrary dictum is to the effect that where an illegal tax has
been collected, the citizen who has paid and is obliged to bring suit against
the collector is entitled to interest from the time of the illegal exaction.
The reason for what superficially seems to be a harsh ruling goes
back to the fundamental conception of the nature of taxation. It is but a
truism to restate that taxation is an attribute of sovereignty. It is the
strongest of all the powers of government. It involves, as Chief Justice
Marshall in his historical statement said, the power to destroy. (McCulloch
vs. Maryland [1819], 4 Wheat., 316; Loan Association vs. Topeka [1875], 20
Wall., 655.) "The right of taxation where it exists," the court said in Austin
vs. Aldermen ([1868], 7 Wall., 694), "is necessarily unlimited in its nature. It
carriers with it inherently the power to embarrass and destroy."
The last remaining point touches upon the possibility that section
1579 of the Administrative Code, in conjunction with the following section,
has served to diminish the jurisdiction of the courts and, in pursuance of
well-known principles, is thus invalid. Section 9 of the Philippine Bill and
section 26 of the Jones Law, the first the Act of Congress of July 1, 1902,
and the second the Act of Congress of August 29, 1916, have provided "That
the Supreme Court and the Courts of First Instance of the Philippine Islands
shall possess and exercise jurisdiction as heretofore provided and such
additional jurisdiction as shall hereafter be prescribed by law. . . ." But any
argument predicated upon such a proposition must necessarily assume that
the Philippine courts have had the power to restrain by injunction the
collection of taxes. And since, with or without a law, the Philippine courts
would not have presumed to issue an injunction to restrain the collection of
a tax, the prohibition expressed in the law has had no other effect than to
confirm a universal principle.
To conclude — in answer to the argument made by appellant, we can
say that sections 1578 and 1579 of the Administrative Code establish an
adequate remedy at law and that we are not convinced that the enforcement
of the tax will produce irreparable injury, and, in answer to the argument of
appellee, that sections 1578 and 1579 of the Administrative Code of 1917 are
valid. The result is, thus, to affirm the final order appealed from. Costs shall
be taxed against the appellant.
David v. Ramos and Castro Collector v. Reyes and CTA
(TORRES) (TUMALAD)
 G.R. No. L-8840 February 8, 1957 However, he failed to present duplicate copies of his income tax returns for
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. JOSE C. the years 1945, 1946, 1947, 1948 and 1950 although they claimed that they
ZULUETA and THE COURT OF TAX APPEALS, respondents. had been already settled.
(YACOB) ISSUE:
FACTS: Whether or not the collection of deficiency taxes by summary administrative
On February 10, 1954, respondent Jose C. Zulueta (who had not filed his proceeding prescribed.
income tax returns for the years 1945 to 1948 and 1950 — Annex N), received HELD: YES
a letter from the Collector of Internal Revenue informing him that his income As construed by this Tribunal in several decisions, the three-year prescriptive
tax deficiency for the years 1945 to 1951, inclusive amounted to P550,527.50 period provided for in the aforequoted section is meant to serve as a
(Annex A). Respondent Zulueta immediately sent a query as to how this limitation on the right of the Government to collect income taxes by the
amount was arrived at, asking for a particularized statement thereof and at summary methods of distraint and levy, although it could proceed to recover
the same time protesting against said assessment on the ground that he had the taxes due by the institution of the corresponding civil action (Collector
religiously paid his annual income tax liabilities (Annex C). This of Internal Revenue vs. Villegas, 56 Phil. 554; Collector of Internal
communication was answered by the Acting Collector of Internal Revenue Revenue vs. Haygood, 65 Phil. 520; Juan de la Viña vs. El Gobierno de las
informing him that the bases of the assessment were embodied in working Filipinas, G.R. No. 42669, January 29, 1938; Collector of Internal
sheets in his Office which were made available to respondent Zulueta or his Revenue vs. Jose Avelino et al., supra, p. 327 and Collector of Internal
duly authorized representative and gave the latter 30 days from receipt of Revenue vs. Aurelio P. Reyes et al., supra, p. 822).
that letter for the purpose of verifying said assessment (Annex D). The Collector of Internal Revenue in the instant case issued the warrant of
On November 10, 1954, the Collector of Internal Revenue sent to the City distraint and levy against certain real properties of the respondent Jose C.
Fiscal of Manila papers pertinent to the possible prosecution of Jose C. Zulueta for the collection of deficiency income taxes for the years 1945,
Zulueta on account of the latter's failure to file his income tax returns in 1946, 1947, 1948 and 1950 only on December 29, 1954, or 3 years, 9 months
violation of section 45 of the National Internal Revenue Code, if such action and 28 days from March 1, 1951, when the return for the tax year 1950 should
was warranted by the circumstances of the case (Annex N). And on December have been due. It is very patent therefore that the order of the Collector of
29, 1954, the City Treasurer of Manila placed under distraint and levy certain Internal Revenue to effect collection of the alleged deficiency income taxes
real properties of the respondent taxpayer described in the warrant (Annex through summary administrative proceedings, having been issued well
O) to be sold at public auction on February 21, 1954 (this must be a clerical beyond the three-year period of limitation, was null and void.
error as to the year, which should be in 1955 instead of 1954), to meet the
amount of P550,326.50 representing deficiency income taxes for 1945 to
1951, plus the corresponding deficiency penalties, which sale was published
in the January 24, 1955 issue of the Manila Times.
Thereafter, respondent Jose C. Zulueta filed with the Court of Tax Appeals
on January 17, 1955, a petition to review the deficiency income tax
assessment made by the Collector of Internal Revenue and on January 26,
1955, filed an urgent petition to enjoin the Collector of Internal Revenue and
the City Treasurer of Manila from proceeding with the contemplated sale of
his properties, on the ground that the right to collect by summary
proceedings his alleged income tax deficiency for 1945 to 1950 had already
prescribed.
After the bond in said amount was posted, the Court of Tax Appeals issued
its order of February 18, 1955, enjoining the Collector of Internal Revenue
and the City Treasurer of Manila from selling any real or personal property
of Jose C. Zulueta at public auction pending the outcome of the appeal
(Annex E).
The records show that respondent Jose C. Zulueta was able to present
evidence to prove that he had filed his income tax returns for the years 1949
and 1951 which he did on May 11, 1950, and may 15, 1952, respectively.
 G.R. No. 166134 June 29, 2010 On January 22, 2004, the City Treasurer issued a Notice of Assessment7 to AEC for
ANGELES CITY, Petitioner, vs. ANGELES CITY ELECTRIC CORPORATION payment of business tax, license fee and other charges for the period 1993 to 2004
and REGIONAL TRIAL COURT BRANCH 57, ANGELES CITY, Respondents. in the total amount of ₱94,861,194.10. Within the period prescribed by law, AEC
(CARAO) protested the assessment claiming that:
(a) pursuant to RA 4079, it is exempt from paying local business tax;
(b) since it is already paying franchise tax on business, the payment of business tax
The prohibition on the issuance of a writ of injunction to enjoin the collection of
would result in double taxation;
taxes applies only to national internal revenue taxes, and not to local taxes.
(c) the period to assess had prescribed because under the LGC, taxes and fees can
only be assessed and collected within five (5) years from the date they become due;
Facts:
and
On June 18, 1964, AEC was granted a legislative franchise under Republic Act No.
(d) the assessment and collection of taxes under the RRCAC cannot be made
(RA) 40792 to construct, maintain and operate an electric light, heat, and power
retroactive to 1993 or prior to its effectivity.8
system for the purpose of generating and distributing electric light, heat and power
On February 17, 2004, the City Treasurer denied the protest for lack of merit and
for sale in Angeles City, Pampanga. Pursuant to Section 3-A thereof,3 AEC’s payment
requested AEC to settle its tax liabilities.9
of franchise tax for gross earnings from electric current sold was in lieu of all taxes,
Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a
fees and assessments.
Petition for Declaratory Relief,10 docketed as Civil Case No. 11401.
On September 11, 1974, Presidential Decree No. (PD) 551 reduced the franchise tax
On April 5, 2004, the City Treasurer levied on the real properties of AEC.11 A Notice
of electric franchise holders. Section 1 of PD 551 provided that:
of Auction Sale12 was published and posted announcing that a public auction of the
SECTION 1. Any provision of law or local ordinance to the contrary notwithstanding,
levied properties of AEC would be held on May 7, 2004.
the franchise tax payable by all grantees of franchises to generate, distribute and
This prompted AEC to file with the RTC, where the petition for declaratory relief was
sell electric current for light, heat and power shall be two percent (2%) of their gross
pending, an Urgent Motion for Issuance of Temporary Restraining Order and/or Writ
receipts received from the sale of electric current and from transactions incident to
of Preliminary Injunction13 to enjoin Angeles City and its City Treasurer from levying,
the generation, distribution and sale of electric current.
annotating the levy, seizing, confiscating, garnishing, selling and disposing at public
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his
auction the properties of AEC.
duly authorized representative on or before the twentieth day of the month following
Meanwhile, in response to the petition for declaratory relief filed by AEC, Angeles
the end of each calendar quarter or month as may be provided in the respective
City and its City Treasurer filed an Answer with Counterclaim14 to which AEC filed a
franchise or pertinent municipal regulation and shall, any provision of the Local Tax
Reply.15
Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
After due notice and hearing, the RTC issued a Temporary Restraining Order (TRO)16
assessments of whatever nature imposed by any national or local authority on
on May 4, 2004, followed by an Order17 dated May 24, 2004 granting the issuance of
earnings, receipts, income and privilege of generation, distribution and sale of
a Writ of Preliminary Injunction, conditioned upon the filing of a bond in the amount
electric current.
of ₱10,000,000.00. Upon AEC’s posting of the required bond, the RTC issued a Writ
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was passed
of Preliminary Injunction on May 28, 2004,18 which was amended on May 31, 2004 due
into law, conferring upon provinces and cities the power, among others, to impose
to some clerical errors.19
tax on businesses enjoying franchise.4 In accordance with the LGC, the Sangguniang
On August 5, 2004, Angeles City and its City Treasurer filed a "Motion for Dissolution
Panlungsod of Angeles City enacted on December 23, 1993 Tax Ordinance No. 33, S-
of Preliminary Injunction and Motion for Reconsideration of the Order dated May 24,
93, otherwise known as the Revised Revenue Code of Angeles City (RRCAC).
2004,"20 which was opposed by AEC.21
On February 7, 1994, a petition seeking the reduction of the tax rates and a review
Finding no compelling reason to disturb and reconsider its previous findings, the RTC
of the provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro
denied the joint motion on October 14, 2004.22
Angeles Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a member.
Issue:
There being no action taken by the Sangguniang Panlungsod on the matter, MACCI
Whether or not the RTC gravely abused its discretion in issuing the writ of preliminary
elevated the petition5 to the Department of Finance, which referred the same to the
injunction enjoining Angeles City and its City Treasurer from levying, selling, and
Bureau of Local Government Finance (BLGF). In the petition, MACCI alleged that the
disposing the properties of AEC.
RRCAC is oppressive, excessive, unjust and confiscatory; that it was published only
Ruling:
once, simultaneously on January 22, 1994; and that no public hearings were
We find the petition bereft of merit.
conducted prior to its enactment. Acting on the petition, the BLGF issued a First
The LGC does not specifically prohibit an injunction enjoining the collection of taxes
Indorsement6 to the City Treasurer of Angeles City, instructing the latter to make
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of
representations with the Sangguniang Panlungsod for the appropriate amendment of
the government should be collected promptly,26 without unnecessary hindrance27 or
the RRCAC in order to ensure compliance with the provisions of the LGC, and to make
delay.28 In line with this principle, the National Internal Revenue Code of 1997 (NIRC)
a report on the action taken within five days.
expressly provides that no court shall have the authority to grant an injunction to
Thereafter, starting July 1995, AEC has been paying the local franchise tax to the
restrain the collection of any national internal revenue tax, fee or charge imposed
Office of the City Treasurer on a quarterly basis, in addition to the national franchise
by the code.29 An exception to this rule obtains only when in the opinion of the Court
tax it pays every quarter to the Bureau of Internal Revenue (BIR).
of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the in contemplation of law.37 In other words, mere abuse of discretion is not
government and/or the taxpayer.30 enough.381avvph!1
The situation, however, is different in the case of the collection of local taxes as Guided by the foregoing, we find no grave abuse of discretion on the part of the RTC
there is no express provision in the LGC prohibiting courts from issuing an injunction in issuing the writ of injunction. Petitioner, who has the burden to prove grave abuse
to restrain local governments from collecting taxes. Thus, in the case of Valley of discretion,39 failed to show that the RTC acted arbitrarily and capriciously in
Trading Co., Inc. v. Court of First Instance of Isabela, Branch II, cited by the granting the injunction. Neither was petitioner able to prove that the injunction was
petitioner, we ruled that: issued without any factual or legal justification. In assailing the injunction, petitioner
Unlike the National Internal Revenue Code, the Local Tax Code31 does not contain primarily relied on the prohibition on the issuance of a writ of injunction to restrain
any specific provision prohibiting courts from enjoining the collection of local taxes. the collection of taxes. But as we have already said, there is no such prohibition in
Such statutory lapse or intent, however it may be viewed, may have allowed the case of local taxes. Records also show that before issuing the injunction, the RTC
preliminary injunction where local taxes are involved but cannot negate the conducted a hearing where both parties were given the opportunity to present their
procedural rules and requirements under Rule 58.32 arguments. During the hearing, AEC was able to show that it had a clear and
In light of the foregoing, petitioner’s reliance on the above-cited case to support its unmistakable legal right over the properties to be levied and that it would sustain
view that the collection of taxes cannot be enjoined is misplaced. The lower court’s serious damage if these properties, which are vital to its operations, would be sold
denial of the motion for the issuance of a writ of preliminary injunction to enjoin the at public auction. As we see it then, the writ of injunction was properly issued.
collection of the local tax was upheld in that case, not because courts are prohibited A final note. While we are mindful that the damage to a taxpayer’s property rights
from granting such injunction, but because the circumstances required for the generally takes a back seat to the paramount need of the State for funds to sustain
issuance of writ of injunction were not present. governmental functions,40 this rule finds no application in the instant case where the
Nevertheless, it must be emphasized that although there is no express prohibition in disputed tax assessment is not yet due and demandable. Considering that AEC was
the LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts able to appeal the denial of its protest within the period prescribed under Section
therefore should exercise extreme caution in issuing such injunctions. 195 of the LGC, the collection of business taxes41 through levy at this time is, to our
No grave abuse of discretion was committed by the RTC.It is very evident on record mind, hasty, if not premature.42 The issues of tax exemption, double taxation,
that petitioner34 resorted and filed an urgent motion for issuance of a temporary prescription and the alleged retroactive application of the RRCAC, raised in the
restraining order and preliminary injunction to stop the scheduled auction sale only protest of AEC now pending with the RTC, must first be resolved before the properties
when a warrant of levy was issued and published in the newspaper setting the auction of AEC can be levied. In the meantime, AEC’s rights of ownership and possession must
sale of petitioner’s property by the City Treasurer, merely few weeks after the be respected.
petition for declaratory relief has been filed, because if the respondent will not be WHEREFORE, the petition is hereby DISMISSED.
restrained, it will render this petition moot and academic. To the mind of the Court,
since there is no other plain, speedy and adequate remedy available to the petitioner
in the ordinary course of law except this application for a temporary restraining order
and/or writ of preliminary injunction to stop the auction sale and/or to enjoin and/or
restrain respondents from levying, annotating the levy, seizing, confiscating,
garnishing, selling and disposing at public auction the properties of petitioner, or
otherwise exercising other administrative remedies against the petitioner and its
properties, this alone justifies the move of the petitioner in seeking the injunctive
reliefs sought for.
The Court is fully aware of the Supreme Court pronouncement that injunction is not
proper to restrain the collection of taxes. The issue here as of the moment is the
restraining of the respondent from pursuing its auction sale of the petitioner’s
properties. The right of ownership and possession of the petitioner over the
properties subject of the auction sale is at stake.
The purpose of injunction is to prevent injury and damage from being incurred,
otherwise, it will render any judgment in this case ineffectual.
As a rule, the issuance of a preliminary injunction rests entirely within the discretion
of the court taking cognizance of the case and will not be interfered with, except
where there is grave abuse of discretion committed by the court.36 For grave abuse
of discretion to prosper as a ground for certiorari, it must be demonstrated that the
lower court or tribunal has exercised its power in an arbitrary and despotic manner,
by reason of passion or personal hostility, and it must be patent and gross as would
amount to an evasion or to a unilateral refusal to perform the duty enjoined or to act
 G.R. No. L-23534 May 16, 1967
JOSE A. ARCHES, petitioner-appellant, vs.
ANACLETO I. BELLOSILLO and JAIMEARANETA, respondents-appellees.
(CASTILLO)
FACTS:
Petitioner-appellant Jose Arches filed on February 27, 1954 his income tax
return for 1953. Within five years thereafter, or on February 26, 1959,
deficiency income tax and residence tax assessments were issued against
him.
The assessments not having been disputed, the Republic represented by the
Bureau of Internal Revenue Regional, Director, filed suit on December 29,
1960, before the municipal court of Roxas City, to recover from petitioner-
appellant the sum of P4,441.25 as deficiency income tax and additional
residence tax for 1953.
Arches then moved to dismiss the complaint on the ground that it did not
expressly show the approval of the Revenue Commissioner, as required by
Section 308 of the Tax Code, and on the further ground of prescription of
the action.
The municipal court denied the motion. Petitioner-appellant, motion to
reconsider was also denied, he then resorted to the Court of First Instance
of Capiz on a petition for certiorari and prohibition assailing the order
denying his motion to dismiss. The trial court dismissed the petition. Hence,
this appeal.
1, 1956, wherein the former's functions regarding the administration and
enforcement of revenue laws and regulations — powers broad enough to
cover the approval of court actions as required in Section 308 of the Tax
Code — were expressly delegated to the Regional Directors.
The verification by the Regional Director of the complaint constitutes
sufficient approval. It states, inter alia, that said Director has caused the
preparation of the complaint and that he has read the allegations thereof
and they are true and correct to the best of his knowledge and belief.
Pleadings are to be liberally construed.
Petitioner-appellant would also raise the question of prescription. Again, this
is not jurisdictional. And, the Court have already ruled that the proper
prescriptive period for bringing civil actions is five years from the date of
the assessment, under Section 332 of the Tax Code. The three-year period
urged by petitioner-appellant under Section 51 (d) refers only to the
summary remedies of distraint and levy. Here, the action was commenced
one year, ten months and three days after the assessments were made;
hence, well within the period.

ISSUE:
W.O.N. the CFI correctly dismissed the petition for certiorari and prohibition
from the municipal court.

HELD:
The order was predicated upon the impropriety of the writ. The court find
no error committed by the CFI.
The municipal court had jurisdiction over the parties and over the subject
matter, the amount demanded being less than P5,000.00. The suit below
instituted by the Republic, based on an uncontested assessment, was one
merely for the recovery of a sum of money where the amount demanded
constitutes the jurisdictional test.
Petitioner-appellant would make much of the lack of approval of the
Revenue Commissioner. First of all, in this case, such requisite is not
jurisdictional, but one relating to capacity to sue or affecting the cause of
action only. So, in ruling on said question, whatever error — if any — the
municipal court committed, was merely an error of judgment, not
correctible by certiorari.
Neither was there grave abuse of the discretion on the part of the municipal
court in ruling that the express approval of the Revenue Commissioner
himself was not necessary. The court relied upon Memorandum Order No. V-
634 of the Revenue Commissioner, approved by the Finance Secretary of July
 G.R. No. 130430 December 13, 1999
Republic vs. SALUD V. HIZON
(ESTRADA)
Facts:
On 1986, the BIR issued to respondent Salud V. Hizon a deficiency income
tax assessment of P1,113,359.68 for the fiscal year 1981-1982. Respondent
not having contested the assessment, petitioner, on 1989, served warrants
of distraint and levy to collect the tax deficiency. However, for reasons not
known, it did not proceed to dispose of the attached properties.
More than three years later, or on 1992, respondent wrote the BIR requesting
a reconsideration of her tax deficiency assessment but was denied. On 1997,
it filed a case with RTC to collect the tax deficiency. The complaint was
signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and
verified by Amancio Saga, the Bureau's Regional Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint
was not filed upon authority of the BIR Commissioner as required by §221 2
of the NIRC, and (2) that the action had already prescribed. The trial court,
on August 28, 1997, granted the motion. Hence, this petition.
Issue:
1. Whether or not the assessment was filed upon the authority of the
Commissioner?
2. Whether or not the action for collection was barred by prescription?
promulgated by the Secretary of Finance, upon the recommendation
of the Commissioner, discovered by regional and district officials,
may be compromised by a regional evaluation board which shall be
composed of the Regional Director as Chairman, the Assistant
Regional Director,
heads of the Legal, Assessment and Collection Divisions and the
Revenue District Officer
having jurisdiction over the taxpayer, as members; and
 The power to assign or reassign internal revenue officers to
establishments where articles
subject to excise tax are produced or kept.
Hence, the Court held that the assessment was filed with the proper
authority from the Commissioner.
2. Yes. The assessment, although filed with the authority of the
Commissioner, was barred by prescription.
Petitioner argued that respondent’s request for reinvestigation of her tax
deficiency assessment on November 3, 1992 effectively suspended the
running of the period of prescription such that the government could still file
a case for tax collection. The court does not agree with the petitioner. The
request for reconsideration was not filed within the 30 day period hence no
request for reconsideration was actually made. So, the period for
prescription was not suspended. Consequently, the action is barred by the 3
year prescription period.

Held:
1. the Court ruled that the assessment was in fact filed with the authority
of the Commissioner. Revenue Administrative Order No. 10-95 specifically
authorizes the Litigation and Prosecution Section of the Legal Division of
regional district offices to institute the necessary civil and criminal actions
for tax collection. As the complaint filed in this case was signed by the BIR’s
Chief of Legal Division for Region 4 and verified by the Regional Director,
there was, therefore, compliance with the law. Furthermore, Sec 7 of R.A
8424 of the NIRC authorizes the BIR Commissioner to delegate the powers
vested in him under the pertinent provisions of the Code to any subordinate
official with the rank equivalent to a division chief or higher, except the
following:
 The power to recommend the promulgation of rules and regulations
by the Secretary of Finance;
 The power to issue rulings of first impression or to reverse, revoke
or modify any existing
ruling of the Bureau;
 The power to compromise or abate under §204(A) and (B) of this
Code, any tax deficiency: Provided, however, that assessments
issued by the Regional Offices involving basic deficiency taxes of five
hundred thousand pesos (P500,000.00) or less, and minor criminal
violations as may be determined by rules and regulations to be
 [G.R. No. L-39910. September 26, 1988.] *Civil Action
CECILIA TEODORO DAYRIT v. THE HONORABLE FERNANDO A CRUZ,
(FLORES)
Facts: Petitioners are the legitimate children and heirs of the deceased spouses
Marta J. Teodoro who died intestate on July 1, 1965 and Don Toribio Teodoro
who died testate on August 30, 1965. Thereafter, the heirs of the deceased filed
separate estate and inheritance tax returns for the estates of the late spouses
with the BIR.
On August 9, 1972, the respondent CIR issued deficiency estate and inheritance
tax assessments. The notice of deficiency assessments was received by petitioner
Dayrit on August 14, 1972. Petitioners asked for a reconsideration of the said
assessments alleging that the same are contrary to law and not supported by
sufficient evidence. In the same letter, petitioners requested a period of thirty
(30) days within which to submit their position paper in support of their claim.
Meanwhile, on October 16, 1972, PD No. 23, entitled "Proclaiming Tax Amnesty
Subject to Certain Conditions," was issued by then President Ferdinand E.
Marcos. In a tax return dated March 31, 1973, petitioner Cecilia Teodoro-Dayrit
declared an additional amount of P3,655,595.78 as part of the estates of the
Teodoro spouses, for additional valuation over and above the amount declared
in the previous return for estates and inheritance taxes of the said late spouses.
The BIR issued tax payment acceptance order Nos. 1127185-86 and 1533011.
Pursuant to the aforesaid tax acceptance orders, the estates and heirs of the
deceased spouses Teodoro paid the amounts of P5,000.00, P30,046.68 and
P250,000. Respondent CIR filed a motion for Allowance of Claim against the
estates of spouses Teodoro and for an order of payment of taxes in S.P. with the
then CFI of Rizal, praying that petitioner Dayrit be ordered to pay the BIR the
sum of P6,470,396.81 plus surcharges and interest. Petitioners filed two (2)
separate oppositions alleging that the estate and inheritance taxes sought to be
collected have already been settled in accordance with the provisions of P.D.
No. 23, as amended by P.D. No. 67 and that at any rate, the assessments have
not become final and executory. In reply thereto, respondent Commissioner
alleged that petitioners could not avail of the tax amnesty in view of the
existence of a prior assessment. On July 10, 1974, respondent Judge issued an
order approving the claim of respondent Commissioner and directing the
payment of the estate and inheritance taxes. Dissatisfied with the decision,
petitioners filed a motion for reconsideration 13 but it was denied.
ISSUE: Whether or not certiorari is not a proper remedy.
RULING: Yes. Considering that the court a quo properly acquired jurisdiction over
the subject matter of the case, petitioners should have appealed the case. The
order of the court a quo dated September 30, 1974, was received by the
petitioners on October 16, 1974. Petitioners should have appealed within a
period of fifteen (15) days from receipt thereof but they failed to do so. As
petitioners failed to file a timely appeal from the order of the trial court, they
can no longer avail of the remedy of a special civil action for certiorari in lieu of
appeal. There is no error of jurisdiction committed by the trial court.
No. L-22356. July 21, 1967.
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. PEDRO B. PATANAO,
defendant-appellee.
(GIMENA)
Taxation; Income tax; Civil liability under Penal Code and Income Tax Law
distinguished.—Under the Penal Code the civil liability is incurred by reason
of the offender's criminal act. The criminal liability gives birth to the civil
obligation such that, generally, if one is not criminally liable under the Penal
Code, he cannot become civilly liable thereunder, The situation under the
income tax law is the exact opposite. Civil liability to pay taxes arises from
fact, for instance, that one has engaged himself in business, and not because
of any criminal act committed by him. The criminal liability arises upon
failure of the debtor to satisfy his civil obligation. The incongruity of the
factual premises and foundation principles of the two cases is one of the
reasons for not imposing civil indemnity on the criminal infractor of the
income tax law. Another reason of course, is found in the fact that, while
Section 73 of the National Internal Revenue Code has provided for the
imposition of the penalty of imprisonment or fine, or both, for refusal or
neglect to pay income tax or to make a return thereof, it does not provide
the collection of said tax in criminal proceedings.
FACTS:
The defendant was the holder of an ordinary timber license with concession
at Esperanza, Agusan, and as such was engaged in the business of producing
logs and lumber for sale during the years 1951-1955; that defendant failed
to file income tax returns for 1953 and 1954, and although he filed income
tax returns for 1951, 1952 'and 1955, the same were false and fraudulent
because he did not report substantial income earned by him from his
business; that in an examination conducted by the Bureau of" Internal
Revenue on defendant's income and expenses for 1951-1955, it was
ascertained that the sum of P79,892.75, representing deficiency income
taxes and additional residence taxes for the aforesaid years, is due from
defendant; that on February 14, 1958, plaintiff, through the Deputy
Commissioner of Internal Revenue, sent a letter of demand with enclosed
income tax assessment to the defendant requiring him to pay the said
amount; that notwithstanding repeated demands the defendant refused,
failed and neglected to pay said taxes; and that the assessment f or the
payment of the taxes in question has become final, executory and
demandable, because it was not contested before the Court of Tax Appeals
in accordance with the provisions of section 11 of Republic Act No. 1125.
ISSUE;
WON the action is barred by prior judgement after having been acquitted in
criminal case.
WON the action has prescribed.
RULING:
The rule in this jurisdiction is that the accused once acquitted is exempt CIR v. PASCOR
from both criminal and civil responsibility because when a criminal action is (MERGED WITH CARAO’s DIGEST)
instituted, civil action arising from the same offense is impliedly instituted
unless the offended party expressly waives the civil action or reserves the UNGAB v. CUSI
right to file it separately. In the criminal cases abovementioned wherein the (PRODON)
defendant was completely exonerated, there was no waiver or reservation
to file a separate civil case so that the failure to obtain conviction on a
charge of non-payment of income taxes is fatal to any civil action to collect
the payment of said taxes.

The acquittal in the said criminal cases cannot operate to discharge

defendant appellee from the duty of paying the taxes which the law requires
to be paid, since that duty is imposed by statute prior to and independently
of any attempts by the taxpayer to evade payment. Said obligation is not a
consequence of the felonious acts charged in the criminal proceeding, nor is
it a mere civil liability arising from crime that could be wiped out by the
judicial declaration of non-existence of the criminal acts charged. (Castro
vs. The Collector of Internal Revenue, G.R. No. L-12174, April 20, 1962).

Regarding prescription of action, the lower court held that the cause of
action on the deficiency income tax and residence tax for 1951 is barred
because appellee's income tax return for 1951 was assessed by the Bureau of
Internal Revenue only on February 14, 1958, or beyond the five year period
of limitation f or assessment as provided in section 331 of the National
Internal Revenue Code. Appellant contends that the applicable law is section
332 (a) of the same Code under which a proceeding in court for the collection
of the tax may be commenced without assessment at any time within 10
years from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the
appellee's income tax return for 1951, was discovered on February 14, 1958.
By filing a motion to dismiss, appellee hypothetically admitted this allegation
as all the other averments in the complaint were so admitted. Hence, section
332(a) and not section 331 of the National Internal Revenue Code should
determine whether or not the cause of action of deficiency income tax and
residence tax for 1951 has prescribed. Applying the provision of section 332
(a), the appellant's action instituted in court on December 7, 1962 has not
prescribed.
Wherefore, the order appealed from is hereby set aside. Let the records of
this case be remanded to the court of origin for further proceedings. No
pronouncement as to costs.
 CIR vs CA
GR No. 119322; June 4, 1996
(RAMOS) Held: Yes. Fraud cannot be presumed. If there was fraud on willful attempt
to evade payment of ad valorem taxes by private respondent through the
Facts: A task force was created on June 1, 1993 to investigate tax liabilities manipulation of the registered wholesale price of thecigarettes, it must have
of manufacturers engaged in tax evasion schemes. On July 1, 1993, the CIR been with the connivance of cooperation of certain BIR officials and
issued Rev. Memo Circ. No. 37-93 which reclassified certain cigarette brands employees who supervised and monitored Fortune’s production activities to
manufactured by private respondent Fortune Tobacco Corp. (Fortune) as see to it that the correct taxes were paid. But there is no allegation, much
foreign brands subject to a higher tax rate. On August 3, 1993, Fortune less evidence, of BIR personnel’s malfeasance at the very least, there is the
questioned the validity of said reclassification as being violative of the right presumption that BIR personnel performed their duties in the regular course
to due process and equal protection of laws. The CTA, on September 8, 1993 in ensuring that the correct taxes were paid by Fortune.
resolved that said reclassification was of doubtful legality and enjoined its
enforcement. Before the tax liabilities of Fortune are finally determined, it cannot be
correctly asserted that private respondents have willfully attempted to
In the meantime, on August 3, 1993, Fortune was assessed deficiency evade or defeat any tax under Secs. 254 and 256, 1997 NIRC, the fact that a
income, ad valorem and VAT for 1992 with payment due within 30 days from tax is due must first be proved.
receipt. On September 12, 1993, private respondent moved for
reconsideration of said assessment. Meanwhile on September 7, 1993, the
Commissioner filed a complaint with the DOJ against private respondent
Fortune, its corporate officers and 9 other corporations and their respective
corporate officers for alleged fraudulent tax evasion for non-payment of the
correct income, ad valorem and VAT for 1992. Thecomplaint was referred to
the DOJ Task Force on revenue cases which found sufficient basis to further
investigate the charges against Fortune.

A subpoena was issued on September 8, 1993 directing private respondent to

submit their counter-affidavits. But it filed a verified motion to dismiss
or alternatively, a motion to suspend but was denied and thus treated as
their counter-affidavit. All motions filed thereafter were denied.

January 4, 1994, private respondents filed a petition for certiorari and

prohibition with prayer for preliminary injunction praying the
CIR’scomplaint and prosecutor’s orders be dismissed/set aside
or alternatively, that the preliminary investigation be suspended
pending determination by CIR of Fortune’s motion for
reconsideration/reinvestigation of the August 13, 1993 assessment of taxes
due.

The trial court granted the petition for a writ of preliminary injunction to
enjoin the preliminary investigation on the complaint for tax evasion pending
before the DOJ, ruling that the tax liability of private respondents first be
settled before any complaint for fraudulent tax evasion can be initiated.

Issue: Whether or not the basis of private respondent’s tax liability first be
settled before any complaint for fraudulent tax evasion can be initiated.
 Commissioner of Internal Revenue vs. National Labor Relations
Commission
G.R. No. 74965 November 9, 1994
J. Mendoza
(RESURRECCION)
Facts:
On January 12, 1984, the CIR demanded payment from private
respondent Maritime Company of the Philippines of deficiency common
carrier’s tax, fixed tax, 6% commercial broker’s tax, documentary stamp tax,
income tax and withholding tax totaling P17,284,882.45. The assessment
became final and executory, and with private respondent’s failure to pay the
tax liabilities, the CIR issued warrants of distraint of personal property and
levy of real property which were duly served. On April 16, 1985, a “receipt
of goods, articles and things” was executed covering, among others,
6 barges as proof of constructive distraint of property but the same was not
signed by any representative of private respondent because of the refusal of
the persons actually in possession of the barges.
It appeared that 4 of the barges constructively distrained were also
levied upon by a deputy sheriff of Manila on July 20, 1985 and sold at public
auction to satisfy a judgment for unpaid wages and other benefits of
employees of private respondent. On September 4, 1985, petitioner asked
the LA to annul the sale and to enjoin the sheriff from disposing of the
proceeds of the sale or, in the alternative, to remit them to the Bureau of
Internal Revenue so that the amount could be applied to the payment of
private respondent Maritime Company’s tax liabilities. The LA denied the
motion The Labor Arbiter likewise rejected petitioner’s contention that the
government’s claim for taxes was preferred under Art. 2247, in relation to
Art. 2241(1) of the Civil Code, on the ground that under these provisions only
taxes and fees which are due on specific movables enjoy preference,
whereas the taxes claimed by petitioner were not due on the four barges in
question.
The order was appealed to the NLRC which affirmed the denial of
the motion.
Hence, this petition for certiorari.
Issue: Whether or not the government has a preferential lien over the
barges.
Ruling:
Yes. The court held that the government has preferential lien over
the barges under Articles 2241 and 2247 of the Civil Code. Accordingly, the
preferential lien of employees for unpaid wages under Article 110 of the
Labor Code applies only to bankruptcy cases where the employer is under
liquidation due to bankruptcy.
The NIRC provides for the collection of delinquent taxes by any of
the following remedies:
a) distraint of personal property or levy of real property of the delinquent
taxpayer;
b) civil or criminal action.
The court upheld the validity of distraint of the barges against the
levy on execution. It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a private litigant
predicated on a judgment. The tax lien attaches not only from the service
of the warrant of distraint of personal property but from the time the tax
became due and payable.
Besides, the distraint on the subject properties of Maritime Company
of the Philippines as well as the notice of their seizure were made by
petitioner, through the CIR, a long before the writ of execution was issued
by the RTC. There is no question then that at the time the writ of execution
was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties
of the Maritime Company of the Philippines. The power of the court in
execution of judgment extends only to properties unquestionably belonging
to the judgment debtor. Execution sales affect the rights of the
judgment debtor only, and the purchaser in auction sale requires only such
rights as the judgment debtor had tat the time of the sale. It is also well
settled that the sheriff is not authorized to attach or levy on property not
belonging to the judgment debtor.
The petition for certiorari is granted.
 G.R. No. 80593 December 18, 1989 who can afford and survive the hardships of life better than their
PHILIPPINE NATIONAL BANK VS.TERESITA CRUZ, et.al workers. Universal sense of human justice, not to speak of our specific social
Gancayco, J.; justice and protection to labor constitutional injunctions dictate the
(SALVADOR) preferential lien that the above provision accord to labor In line with this
policy, measures must be undertaken to ensure that such constitutional
Facts: The focus of the instant petition for certiorari is the application of mandate on protection to labor is not rendered meaningless by an erroneous
Article 110 of the Labor Code. The said article provides that workers shall interpretation of the applicable laws.
enjoy first preference with regard to wages due them in cases of bankruptcy
or liquidation of an employer's business.
Aggregate Mining Exponents (AMEX) laid-off about seventy percent
(70%) of its employees because it was experiencing business reverses. The
retained employees constituting thirty percent (30%) of the work force
however, were not paid their wages. This non-payment of salaries went on
until July 1982 when AMEX completely ceased operations and instead
entered into an operating agreement with T.M. San Andres Development
Corporation whereby the latter would be leasing the equipment and
machineries of AMEX.
The unpaid employees sought redress from the Labor Arbiter who
rendered a decision finding their claim valid and meritorious. AMEX and
its President, Tirso Revilla did not appeal from this decision. But PNB, in its
capacity as mortgagee-creditor of AMEX interposed an appeal with the
respondent Commission, not being satisfied with the outcome of the
case. The appeal was primarily based on the allegation that the workers'
lien covers unpaid wages only and not the termination or severance pay
which the workers likewise claimed they were entitled to. The National
Labor Relations Commission affirmed the decision appealed from.

Issue: Whether or not Article 110 of the labor code purport to create a lien
in favor of workers or employees for unpaid wages either upon all of the
properties or upon any particular property owned by their employer.

Ruling: Yes. Article 110 of the Labor Code, as amended, provides that the
workers' preference covers not only unpaid wages but also all other monetary
claims.
The respondent Commission was, therefore, not in error when it
awarded the termination pay claimed by the private respondents. As far as
the latter are concerned, the termination pay which they so rightfully claim
is an additional remuneration for having rendered services to their employer
for a certain period of time.
The amount claimed by petitioner PNB for the satisfaction of the
obligations of AMEX is relatively insubstantial and is not significant enough
as to drain its coffers. By contrast, that same amount could mean
subsistence or starvation for the workingman. The Court supports the
equitable principle that "it is but humane and partakes of the divine that
labor, as human beings, must be treated over and above chattels,
machineries and other kinds of properties and the interests of the employer
BPI v. Trinidad US v. Suria
(SAMPANA) (TORRES)
Garcia v. Collector
(TUMALAD)