Re: Tax Exemption; National Government Exemption from Local Taxation
MIAA is a government instrumentality
Manila International Airport Authority v. CA, City of Parañaque (July 20, 2006)
Facts: On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency
from the City of Parañaque for the taxable years 1992 to 2001.  The City of Parañaque
issued notices of levy and warrants of levy on the Airport Lands and Buildings.  The
Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency.
The City of Parañaque invoke Section 193 of the Local Government Code, which
expressly withdrew the tax exemption privileges of “government-owned and-
controlled corporations.”
Issue: Are the airport lands and buildings of Manila International Airport Authority
(MIAA) exempt from real estate tax imposed by the City of Parañaque?
Ruling: MIAA’s Airport Lands and Buildings are exempt from real estate tax imposed
by local governments. First, MIAA is not a government-owned or controlled corporation
but an instrumentality of the National Government and thus exempt from local
taxation.  Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.  
MIAA is Not a Government-Owned or Controlled Corporation
 
There is no dispute that a government-owned or controlled corporation is not exempt
from real estate tax. However, MIAA is not a government-owned or controlled
corporation.  The Administrative Code provides that a government-owned or controlled
corporation must be “organized as a stock or non-stock corporation.”  Many government instrumentalities are vested with corporate powers but they do not
MIAA is not organized as a stock or non-stock corporation.  MIAA is not a stock
corporation because it has no capital stock divided into shares. Section 3 of the
Corporation Code defines a stock corporation as one whose “capital stock is divided
into shares and x x x authorized to distribute to the holders of such shares dividends
x x x.”  MIAA has capital but it is not divided into shares of stock.   stock corporations as required by the Administrative Code. These government
MIAA is also not a non-stock corporation because it has no members.   Section 87 of the
Corporation Code defines a non-stock corporation as “one where no part of its income is
distributable as dividends to its members, trustees or officers.”  A non-stock corporation
must have members.  Even if we assume that the Government is considered as the sole
member of MIAA, this will not make MIAA a non-stock corporation.  Non-stock
corporations cannot distribute any part of their income to their members.   The MIAA A government instrumentality like MIAA falls under Section 133(o) of the Local
Charter mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury.  This prevents MIAA from qualifying as a non-stock corporation.
Tax Case Digest BATAS TOMASINO
MIAA is a government instrumentality vested with corporate powers to perform
efficiently its governmental functions.  MIAA is like any other government
instrumentality, the only difference is that MIAA is vested with corporate powers.  The
Administrative Code defines a government “instrumentality” as follows:
 SEC. 2. General Terms Defined. ––  x x x x
 (10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x 
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation.   Unless the government instrumentality
is organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.   Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying of fees and
charges.  At the same time, MIAA exercises powers of a corporation under the
Corporation Law.
Likewise, when the law makes a government instrumentality operationally autonomous,
the instrumentality remains part of the National Government machinery although not
integrated with the department framework.   The MIAA Charter expressly states that
transforming MIAA into a “separate and autonomous body” will make its operation more
“financially viable.” 
 
become stock or non-stock corporations, which is a necessary condition before an agency
or instrumentality is deemed a government-owned or controlled corporation.   Examples
are the Mactan International Airport Authority, the Philippine Ports Authority, the
University of the Philippines and Bangko Sentral ng Pilipinas.   All these government
instrumentalities exercise corporate powers but they are not organized as stock or non-
instrumentalities are sometimes loosely called government corporate entities. 
However, they are not government-owned or controlled corporations in the strict sense as
understood under the Administrative Code.
Government instrumentalities are generally exempt from local taxes
Government Code, which states:
1
  SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. –   Unless otherwise provided herein, the exercise of The charging of fees to the public does not determine the character of the property
the taxing powers of provinces, cities, municipalities, and barangays whether it is of public dominion or not.   Article 420 of the Civil Code defines property
shall not extend to the levy of the following: of public dominion as one “intended for public use.”   The terminal fees MIAA charges
             x x x to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of
             (o) Taxes, fees or charges of any kind on the National     the income that maintains the operations of MIAA.  The collection of such fees does not
Government, its agencies and instrumentalities and local change the character of MIAA as an airport for public use.  Such fees are often termed
government units.  (Emphasis and underscoring  supplied) user’s tax.  This means taxing those among the public who actually use a public facility
  instead of taxing all the public including those who never use the particular public
Section 133 of the Local Government Code states that “unless otherwise provided” in facility.   A user’s tax is more equitable — a principle of taxation mandated in the 1987
the Code, local governments cannot tax national government instrumentalities.  Section Constitution.
133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax.  The City of Parañaque cannot auction the properties of MIAA
While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power “subject to such As properties of public dominion, the Airport Lands and Buildings are outside the
guidelines and limitations as the Congress may provide.”    commerce of man.  Property of public dominion, being outside the commerce of man,
  cannot be the subject of an auction sale. 
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments.  The rule is Properties of public dominion, being for public use, are not subject to levy, encumbrance
that a tax is never presumed and there must be clear language in the law imposing the or disposition through public or private sale.  Any encumbrance, levy on execution or
tax.   Any doubt whether a person, article or activity is taxable is resolved against auction sale of any property of public dominion is void for being contrary to public
taxation.  This rule applies with greater force when local governments seek to tax policy.   Essential public services will stop if properties of public dominion are subject to
national government instrumentalities.   encumbrances, foreclosures and auction sale.   This will happen if the City of Parañaque
  can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the non-payment of real estate tax.
exemption.    However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the
Real Property Owned by the Republic is Not Taxable
national government instrumentality.  The reason for the rule does not apply in the case                                     
of exemptions running to the benefit of the government itself or its agencies. In such case
Section 234(a) of the Local Government Code exempts from real estate tax any “[r]eal
the practical effect of an exemption is merely to reduce the amount of money that has toproperty owned by the Republic of the Philippines.”      Section 234(a)  provides:
be handled by government in the course of its operations.  
SEC. 234.   Exemptions from Real Property Tax. — The
Airport Lands and Buildings of MIAA are Owned by the Republic following are exempted from payment of the real property tax:
    (a) Real property owned by the Republic of the Philippines
The Airport Lands and Buildings of MIAA are property of public dominion or any of its political subdivisions except when the beneficial use
and therefore owned by the State or the Republic of the Philippines. thereof has been granted, for consideration or otherwise, to a
taxable person;
No one can dispute that properties of public dominion mentioned in Article 420 of the x x x. (Emphasis supplied)
Civil Code, like “roads, canals, rivers, torrents, ports and bridges constructed by the  
State,” are owned by the State.  The term “ports” includes seaports and airports.   This exemption should be read in relation with Section 133(o) of the same Code,
The MIAA Airport Lands and Buildings constitute a “port” constructed by the State.   which prohibits local governments from imposing “[t]axes, fees or charges of
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are any kind on the National Government, its agencies and instrumentalities x x
properties of public dominion and thus owned by the State or the Republic of the x.”   The real properties owned by the Republic are titled either in the name of
Philippines. the Republic itself or in the name of agencies or instrumentalities of the National
Tax Case Digest BATAS TOMASINO 2
Government. MIAA is merely holding title to the Airport Lands and Buildings
in trust for the Republic.  The Administrative Code allows instrumentalities
like MIAA to hold title to real properties owned by the Republic.
Properties leased to private entities are not exempt from real property tax
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax.  For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real
estate tax.  In such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such land area is
subject to real estate tax. 
Conclusion
Under the Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government machinery, MIAA is
a government instrumentality and not a government-owned or controlled corporation. 
Under Section 133(o) of the Local Government Code, MIAA as a government
instrumentality is not a taxable person because it is not subject to “[t]axes, fees or
charges of any kind” by local governments. The only exception is when MIAA leases its
real property to a “taxable person” as provided in Section 234(a) of the Local
Government Code, in which case the specific real property leased becomes subject to real
estate tax.  Thus, only portions of the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax by the City of Parañaque. 
 
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being
devoted to public use, are properties of public dominion and thus owned by the State or
the Republic of the Philippines.  Article 420 specifically mentions “ports x x x
constructed by the State,” which includes public airports and seaports, as properties of
public dominion and owned by the Republic.  As properties of public dominion owned by
the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local Government
Code.   This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.
Re: Tax Exemption; National Government Exemption from Local Taxation
(Nota Bene: The following case upheld and reiterated the doctrine laid down in the case
of MIAA v. City of Parañaque).
Philippine Fisheries Development Authority v. CA, Iloilo (July 31, 2007)
Tax Case Digest BATAS TOMASINO
Facts: The government built Iloilo Fishing Port Complex (IFPC) from land it reclaimed
from the sea. The port complex is owned by the Republic of the Philippines but operated
and governed by the Philippine Fisheries Development Authority. The Authority leased
portions of IFPC to private firms and individuals engaged in fishing related businesses.
Sometime in May 1988, the City of Iloilo assessed the entire IFPC for real property
taxes.  The assessment remained unpaid until the alleged total tax delinquency of the
Authority for the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of
penalties and interests.  To satisfy the tax delinquency, the City of Iloilo scheduled on
August 30, 1990, the sale at public auction of the IFPC.
Issue: Is the Philippine Fisheries Development Authority liable to pay real property tax
to the City of Iloilo? 
If the answer is in the affirmative, may the IFPC be sold at public auction to satisfy the
tax delinquency?
Ruling: The Philippine Fisheries Development Authority is not a GOCC but an
instrumentality of the national government which is generally exempt from payment
of real property tax.   However, said exemption does not apply to the portions of the IFPC
which the Authority leased to private entities.  With respect to these properties, the
Authority is liable to pay real property tax.   Nonetheless, the IFPC, being a property of
public dominion cannot be sold at public auction to satisfy the tax delinquency. 
An instrumentality of the national government is generally exempt from payment of real
property tax, except those portions which have been leased to private entities. 
For an entity to be considered as a GOCC, it must either be organized as a stock or non-
stock corporation.  Two requisites must concur before one may be classified as a stock
corporation, namely: (1) that it has capital stock divided into shares, and (2) that it is
authorized to distribute dividends and allotments of surplus and profits to its
stockholders.  If only one requisite is present, it cannot be properly classified as a stock
corporation.  As for non-stock corporations, they must have members and must not
distribute any part of their income to said members. 
The Authority is not a GOCC but an instrumentality of the government.  The Authority
has a capital stock but it is not divided into shares of stocks.  Also, it has no stockholders
or voting shares.  Hence, it is not a stock corporation.  Neither is it a non-stock
corporation because it has no members.   
 
Properties leased to taxable persons are subject to real property tax
3
Unlike GOCCs, instrumentalities of the national government are exempt from local taxes
pursuant to Section 133(o) of the Local Government Code.   This exemption, however,
admits of an exception with respect to real property taxes.  When an instrumentality of
the national government grants to a taxable person the beneficial use of a real
property owned by the Republic, said instrumentality becomes liable to pay real
property tax.  subject to execution or foreclosure sale. The NFPC cannot be sold at public auction in
The leased portions of the IFPC, being a property of public domain, cannot be sold
at public auction
The real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons.  In case the Authority fails to pay the
real property taxes due thereon, said portions cannot be sold at public auction to satisfy
the tax delinquency.
Reclaimed lands are lands of the public domain and cannot, without Congressional fiat,
be subject of a sale, public or private. In the same vein, the port built by the State in the
Iloilo fishing complex is a property of the public dominion and cannot therefore be sold
at public auction. This means that the City of Iloilo has to satisfy the tax delinquency
through means other than the sale at public auction of the IFPC.
Re: Tax Exemption; National Government Exemption from Local Taxation
(Nota Bene: The following case upheld and reiterated the doctrine laid down in the case
of MIAA v. City of Parañaque and Phil. Fisheries v. Iloilo).
Philippine Fisheries Development Authority v. CA, Navotas (Oct. 2, 2007)
Facts: The Municipality of Navotas assessed the real estate taxes allegedly due from
Philippine Fisheries Development Authority (PFDA) for the period 1981-1990 on
properties under its jurisdiction, management and operation located inside the Navotas
Fishing Port Complex (NFPC).
 
The assessed taxes had remained unpaid despite the demands made by the municipality
which prompted it to give notice to petitioner on October 29, 1990 that the NFPC will be
sold at public auction on November 30, 1990 in order that the municipality will be able to
collect on petitioner’s delinquent realty taxes which, as of June 30, 1990, amounted to
P23,128,304.51, inclusive of penalties.
Issue: Is Philippine Fisheries Development Authority liable to pay real property tax?
Tax Case Digest BATAS TOMASINO
Ruling: As a rule, PFDA, being an instrumentality of the national government, is exempt
from real property tax but the exemption does not extend to the portions of the NFPC that
were leased to taxable or private persons and entities for their beneficial use.
Being a property of public dominion, the Navotas Fishing Port Complex cannot be
satisfaction of the tax delinquency assessments made by the Municipality of Navotas on
the entire complex.
Additionally, the land on which the NFPC property sits is a reclaimed land, which
belongs to the State. Reclaimed lands are lands of the public domain and cannot, without
Congressional fiat, be subject of a sale, public or private.
Re: Tax Deduction; Senior Citizen’s Discount; Police Power
Carlos Superdrug v. DSWD (June 29, 2007)
Facts: On February 26, 2004, “Expanded Senior Citizens Act of 2003” (R.A. No. 9257),
amending R.A. No. 7432, was signed into law by President Gloria Macapagal-Arroyo
and it became effective on March 21, 2004. Section 4(a) of the Act states:
            SEC. 4. Privileges for the Senior Citizens. – The senior citizens
shall be entitled to the following:
(a)        the grant of twenty percent (20%) discount from all
establishments relative to the utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or
enjoyment of senior citizens, including funeral and burial services for
the death of senior citizens;
x x x 
The establishment may claim the discounts granted under (a), (f), (g)
and (h) as tax deduction based on the net cost of the goods sold or
services rendered: Provided, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that
the discount is granted. Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended.
The drugstores assailed the constitutionality of Section 4(a) of the Expanded Senior
Citizens Act based on the following grounds:
4
 1)    The law is confiscatory because it infringes Art. III, Sec. 9 of the word just is used to intensify the meaning of the word compensation, and to convey the
Constitution which provides that private property shall not be idea that the equivalent to be rendered for the property to be taken shall be real,
taken for public use without just compensation; substantial, full and ample. A tax deduction does not offer full reimbursement of the
  senior citizen discount. As such, it would not meet the definition of just
2)    It violates the equal protection clause (Art. III, Sec. 1) enshrined in compensation.
our Constitution which states that “no person shall be deprived of  
life, liberty or property without due process of law, nor shall any  Having said that, this raises the question of whether the State, in promoting the health
person be denied of the equal protection of the laws;” and and welfare of a special group of citizens, can impose upon private establishments the
  burden of partly subsidizing a government program. The Court believes so.
3) The 20% discount on medicines violates the constitutional guarantee in
Article XIII, Section 11 that makes “essential goods, health and other social The Senior Citizens Act is a legitimate exercise of police power
services available to all people at affordable cost.”
The Senior Citizens Act was enacted primarily to maximize the contribution of senior
Ruling: The State, in promoting the health and welfare of a special group of citizens, citizens to nation-building, and to grant benefits and privileges to them for their
can impose upon private establishments the burden of partly subsidizing a improvement and well-being as the State considers them an integral part of our society.
government program.
The law is a legitimate exercise of police power which, similar to the power of eminent
The drugstores assert that Section 4(a) of the law is unconstitutional because it constitutes domain, has general welfare for its object. For this reason, when the conditions so
deprivation of private property. Compelling drugstore owners and establishments to grant demand as determined by the legislature, property rights must bow to the primacy of
the discount will result in a loss of profit and capital because 1) drugstores impose a police power because property rights, though sheltered by due process, must yield to
mark-up of only 5% to 10% on branded medicines; and 2) the law failed to provide a general welfare.
scheme whereby drugstores will be justly compensated for the discount.  
  Police power as an attribute to promote the common good would be diluted considerably
Examining the drugstores’ arguments, it is apparent that what they are ultimately if on the mere plea of petitioners that they will suffer loss of earnings and capital, the
questioning is the validity of the tax deduction scheme as a reimbursement mechanism questioned provision is invalidated. Moreover, in the absence of evidence demonstrating
for the twenty percent (20%) discount that they extend to senior citizens. the alleged confiscatory effect of the provision in question, there is no basis for its
          nullification in view of the presumption of validity which every law has in its favor.
The tax deduction scheme does not fully reimburse petitioners for the discount  
privilege accorded to senior citizens. This is because the discount is treated as a Given these, it is incorrect for the drugstores to insist that the grant of the senior citizen
deduction, a tax-deductible expense that is subtracted from the gross income and results discount is unduly oppressive to their business, because they have not taken time to
in a lower taxable income. Stated otherwise, it is an amount that is allowed by law to calculate correctly and come up with a financial report, so that they have not been able to
reduce the income prior to the application of the tax rate to compute the amount of tax show properly whether or not the tax deduction scheme really works greatly to their
which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso disadvantage.
for peso basis but merely offers a fractional reduction in taxes owed.
  The Court is not oblivious of the retail side of the pharmaceutical industry and the
Theoretically, the treatment of the discount as a deduction reduces the net income of the competitive pricing component of the business. While the Constitution protects property
private establishments concerned. The discounts given would have entered the coffers rights, the drugstores must accept the realities of business and the State, in the exercise of
and formed part of the gross sales of the private establishments, were it not for R.A. No. police power, can intervene in the operations of a business which may result in an
9257. The permanent reduction in their total revenues is a forced subsidy corresponding impairment of property rights in the process.
to the taking of private property for public use or benefit. This constitutes compensable
taking for which petitioners would ordinarily become entitled to a just compensation.
  Re: Tax Credit; Senior Citizen’s Discount; Power of Eminent Domain
Just compensation is defined as the full and fair equivalent of the property taken from its
owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The
Tax Case Digest BATAS TOMASINO 5
(Nota Bene: The rule that the 20% discount extended to senior citizens may be claimed
as tax credit, under R.A. No. 7432, is no longer controlling. R.A. No. 9257 amended the
rule, providing that the 20% discount extended to senior citizens may be claimed as tax
deduction).
CIR v. Central Luzon Drug Corp. (July 21, 2006)
Facts: From January to December 1996, Central Luzon Drug granted twenty
(20%) percent sales discount to qualified senior citizens on their purchases of
medicines pursuant to R.A. No. 7432.  On April 15, 1997, respondent filed its
Annual Income Tax Return for taxable year 1996 declaring therein that it
incurred net losses from its operations.
 
On January 16, 1998, Central Luzon Drug filed with the Commissioner of
Internal Revenue a claim for tax refund/credit in the amount of P904,769.00
allegedly arising from the 20% sales discount granted by respondent to qualified
senior citizens.  The Commissioner of Internal Revenue asserts that the 20%
sales discount may not be claimed as a tax credit instead it must be claimed as a
deduction from gross income or gross sales.
Issue: May Central Luzon Drug, despite incurring a net loss, still claim the 20% sales
discount as a tax credit?
Ruling: Central Luzon Drug may claim the 20% sales discount as tax credit despite
net loss. Section 4a) of RA 7432 grants to senior citizens the privilege of obtaining a 20
percent discount on their purchase of medicine from any private establishment in the
country. The latter may then claim the cost of the discount as a tax credit. Such credit
can be claimed, even though an establishment operates at a loss.
Tax credit differs from a tax deduction
Although the term is not specifically defined in our Tax Code, tax credit generally refers
to an amount that is “subtracted directly from one’s total tax liability.”  It is an
“allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the
government.  Examples of tax credits are withheld taxes, payments of estimated tax, and
investment tax credits.
 
Tax credit should be understood in relation to other tax concepts.  One of these is tax
deduction -- defined as a subtraction “from income for tax purposes,” or an amount that
is “allowed by law to reduce income prior to the application of the tax rate to compute the
amount of tax which is due.” An example of a tax deduction is any of the allowable
deductions enumerated in Section 34 of the Tax Code.
  First, the definition given by the BIR is erroneous.  Sections 2.i and 4 of Revenue
Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible from
Tax Case Digest BATAS TOMASINO
A tax credit differs from a tax deduction.  On the one hand, a tax credit reduces the tax
due, including -- whenever applicable -- the income tax that is determined after applying
the corresponding tax rates to taxable income.  A tax deduction, on the other, reduces the
income that is subject to tax in order to arrive at taxable income.  To think of the former
as the latter is to avoid, if not entirely confuse, the issue.  A tax credit is used only after
the tax has been computed; a tax deduction, before.
Tax liability required for tax credit
 
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied.  Without that liability, any tax credit
application will be useless.  There will be no reason for deducting the latter when there is,
to begin with, no existing obligation to the government.  However, as will be presented
shortly, the existence of a tax credit or its grant by law is not the same as the
availment or use of such credit.  While the grant is mandatory, the availment or use is
not.
 
If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can be
applied.  For the establishment to choose the immediate availment of a tax credit will be
premature and impracticable.  Nevertheless, the irrefutable fact remains that, under RA
7432, Congress has granted without conditions a tax credit benefit to all covered
establishments.
 
Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application.  Neither can it be reduced to nil by
the quick yet callow stroke of an administrative pen, simply because no reduction of
taxes can instantly be effected.  By its nature, the tax credit may still be deducted from a
future, not a present, tax liability, without which it does not have any use.  In the
meantime, it need not move.  But it breathes.
Prior tax payments not required for tax credit
 
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not.  On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed.  The Tax Code is in fact replete
with provisions granting or allowing tax credits, even though no taxes have been
previously paid. There are also tax treaties and special laws that grant or allow tax
credits, even though no prior tax payments have been made.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 is erroneous
6
gross income for income tax purposes, or from gross sales for VAT or other percentage private establishments concerned, were it not for RA 7432.  The permanent reduction in
tax purposes.  In effect, the tax credit benefit under RA 7432 is related to a sales their total revenues is a forced subsidy corresponding to the taking of private property for
discount.  This contrived definition is improper, considering that the latter has to be public use or benefit.
deducted from gross sales in order to compute the gross income in the income statement  
and cannot be deducted again, even for purposes of computing the income tax. As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled
  to a just compensation.  This term refers not only to the issuance of a tax credit certificate
When the law says that the cost of the discount may be claimed as a tax credit, it means indicating the correct amount of the discounts given, but also to the promptness in its
that the amount -- when claimed -- shall be treated as a reduction from any tax liability, release.  Equivalent to the payment of property taken by the State, such issuance -- when
plain and simple.  The option to avail of the tax credit benefit depends upon the existence not done within a reasonable time from the grant of the discounts -- cannot be considered
of a tax liability, but to limit the benefit to a sales discount -- which is not even identical as just compensation.  In effect, respondent is made to suffer the consequences of being
to the discount privilege that is granted by law -- does not define it at all and serves no immediately deprived of its revenues while awaiting actual receipt, through the
useful purpose.  The definition must, therefore, be stricken down. certificate, of the equivalent amount it needs to cope with the reduction in its revenues.
   
Second, the law cannot be amended by a mere regulation.  In fact, a regulation that Besides, the taxation power can also be used as an implement for the exercise of the
“operates to create a rule out of harmony with the statute is a mere nullity”; it cannot power of eminent domain.  Tax measures are but “enforced contributions exacted on
prevail. pain of penal sanctions” and “clearly imposed for a public purpose.”  In recent years, the
power to tax has indeed become a most effective tool to realize social justice, public
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 welfare, and the equitable distribution of wealth.
of RR 2-94 a meaning utterly in contrast to what RA 7432 provides.  Their interpretation  
has muddled up the intent of Congress in granting a mere discount privilege, not a sales While it is a declared commitment under Section 1 of RA 7432, social justice “cannot be
discount.  The administrative agency issuing these regulations may not enlarge, alter or invoked to trample on the rights of property owners who under our Constitution and laws
restrict the provisions of the law it administers are also entitled to protection. The social justice consecrated in our Constitution is not
intended to take away rights from a person and give them to another who is not entitled
The 20 percent discount required by the law to be given to senior citizens is a tax credit, thereto.”  For this reason, a just compensation for income that is taken away from
not merely a tax deduction from the gross income or gross sale of the establishment respondent becomes necessary.  It is in the tax credit that our legislators find support to
concerned.  A tax credit is used by a private establishment only after the tax has been realize social justice, and no administrative body can alter that fact.
computed; a tax deduction, before the tax is computed.  RA 7432 unconditionally grants
a tax credit to all covered entities.  Thus, the provisions of the revenue regulation that
withdraw or modify such grant are void.  Basic is the rule that administrative regulations Re: Tax Credit; Senior Citizen’s Discount
cannot amend or revoke the law.
(Nota Bene: The rule that the 20% discount extended to senior citizens may be claimed
Tax credit benefit deemed just compensation as tax credit, under R.A. No. 7432, is no longer controlling. R.A. No. 9257 amended the
  rule, providing that the same may be claimed as tax deduction. The following case was
Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of eminent filed before the passage of R.A. No. 9257 but was decided after it was passed and already
domain.  Be it stressed that the privilege enjoyed by senior citizens does not come effective).
directly from the State, but rather from the private establishments concerned. 
Accordingly, the tax credit benefit granted to these establishments can be deemed as their CIR v. Bicolandia Drug Corp. (July 21, 2006)
just compensation for private property taken by the State for public use.
  Facts: In 1992, Republic Act No. 7432, otherwise known as “An Act to Maximize the
The concept of public use is no longer confined to the traditional notion of use by the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special Privileges
public, but held synonymous with public interest, public benefit, public welfare, and and For Other Purposes,” granted senior citizens several privileges, one of which was
public convenience.  The discount privilege to which our senior citizens are entitled is obtaining a 20 percent discount from all establishments relative to the use of
actually a benefit enjoyed by the general public to which these citizens belong.  The transportation services, hotels  and similar lodging establishments, restaurants and
discounts given would have entered the coffers and formed part of the gross sales of the
Tax Case Digest BATAS TOMASINO 7
recreation centers and purchase of medicines anywhere in the country.  The law also
provided that the private establishments giving the discount to senior citizens may claim
the cost as tax credit.  In compliance with the law, the Bureau of Internal Revenue issued
Revenue Regulations No. 2-94, which defined “tax credit” as follows:
 
Tax Credit – refers to the amount representing the 20%
discount granted to a qualified senior citizen by all
establishments relative to their utilization of transportation
services, hotels and similar lodging establishments, restaurants,
halls, circuses, carnivals and other similar places of culture,
leisure and amusement, which discount shall be deducted by the
said establishments from their gross income for income tax
purposes and from their gross sales for value-added tax or other
percentage tax purposes.
On December 27, 1996, Bicolandia Drug filed a claim for tax refund or credit with the
Bureau of Internal Revenue—because its net losses for the year 1995 prevented it from
benefiting from the treatment of sales discounts as a deduction from gross sales during
the said taxable year.  It alleged that the petitioner Commissioner of Internal Revenue
erred in treating the 20 percent sales discount given to senior citizens as a deduction from
its gross income for income tax purposes or other percentage tax purposes rather than as a
tax credit.
Issue: May Bicolandia Drug claim the 20 percent sales discount it granted to qualified
senior citizens pursuant to R.A. No. 7432 as a tax credit, instead of a deduction from
gross income or gross sales?
Ruling: In cases of conflict between the law and the rules and regulations
implementing the law, the law shall always prevail.  Should Revenue Regulations
deviate from the law they seek to implement, they will be struck down.
The problem stems from the issuance of Revenue Regulations No. 2-94, which was ABAKADA Guro v. Executive Secretary (Sept. 01, 2005)
supposed to implement R.A. No. 7432, and the radical departure it made when it defined
the “tax credit” that would be granted to establishments that give 20 percent discount to
senior citizens.  It equated “tax credit” with “tax deduction,” contrary to the definition in effectivity on July 01, 2005 several persons challenged the validity of the law before the
Black’s Law Dictionary, which defined tax credit as:
An amount subtracted from an individual’s or entity’s tax
liability to arrive at the total tax liability.  A tax credit reduces
the taxpayer’s liability x x x, compared to a deduction which
reduces taxable income upon which the tax liability is
calculated.  A credit differs from deduction to the extent that
the former is subtracted from the tax while the latter is
subtracted from income before the tax is computed.
Tax Case Digest BATAS TOMASINO
  
The interpretation of an administrative government agency, which is tasked to implement
the statute, is accorded great respect and ordinarily controls the construction of the
courts.  Be that as it may, the definition laid down in the questioned Revenue Regulations
can still be subjected to scrutiny.  Courts will not hesitate to set aside an executive
interpretation when it is clearly erroneous.  There is no need for interpretation when there
is no ambiguity in the rule, or when the language or words used are clear and plain or
readily understandable to an ordinary reader.  The definition of the term “tax credit” is
plain and clear, and the attempt of Revenue Regulations No. 2-94 to define it differently
is the root of the conflict.
Revenue Regulations No. 2-94 Null and Void
 
It must be concluded that Revenue Regulations No. 2-94 is null and void for failing to
conform to the law it sought to implement.  In case of discrepancy between the basic law
and a rule or regulation issued to implement said law, the basic law prevails because said
rule or regulation cannot go beyond the terms and provisions of the basic law. Revenue
Regulations No. 2-94 being null and void, it must be ruled then that under R.A. No. 7432,
which was effective at the time, Bicolandia Drug is entitled to its claim of a tax credit.
 
But even as this particular case is decided in this manner, it must be noted that the
concerns of the Commissioner regarding tax credits granted to private establishments
giving discounts to senior citizens have been addressed.  R.A. No. 7432 has been
amended by Republic Act No. 9257, the “Expanded Senior Citizens Act of 2003.”  In
this, the term “tax credit” is no longer used, it instead used the term “tax deduction.” 
Re: VAT; No-Amendment Rule; Exclusive Origination of Revenue Bills; Non-delegation
of Power of Taxation; Uniformity and Equitability of Taxation; Due Process;
Progressive Taxation
Facts: On May 24, 2005 the President signed R.A. No. 9337 into law.  Before its
Supreme Court.
Issue 1: Does R.A. No. 9337 violate Article VI, Section 26(2) of the Constitution on the
“no-amendment rule?”
Ruling 1: R.A. No. 9337 does not violate the “no-amendment rule.”
Article VI, Sec. 26 (2) of the Constitution, states: 
8
  
No bill passed by either House shall become a law unless it
has passed three readings on separate days, and printed copies thereof
in its final form have been distributed to its Members three days before
its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.
Petitioners’ argument that the practice where a bicameral conference committee is
allowed to add or delete provisions in the House bill and the Senate bill after these had
passed three readings is in effect a circumvention of the “no amendment rule”
The Court reiterates here that the “no-amendment rule” refers only to the procedure
to be followed by each house of Congress with regard to bills initiated in each of said
respective houses, before said bill is transmitted to the other house for its
concurrence or amendment.  Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead to absurdity as
this would mean that the other house of Congress would be deprived of its constitutional
power to amend or introduce changes to said bill.  Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference
Committee of amendments and modifications to disagreeing provisions in bills that have
been acted upon by both houses of Congress is prohibited.  among others. Thus, the Senate acted within its power to propose those amendments.
x -------------------------------------- x
Issue 2: Does R.A. No. 9337 violate Article VI, Section 24 of the Constitution on the
doctrine of exclusive origination of revenue bills?
Ruling 2: R.A. No. 9337 does not violate the doctrine of exclusive origination of
revenue bills.
Petitioners claim that the amendments made regarding the NIRC provisions on
corporate income taxes and percentage, excise taxes did not at all originate from
the House. They argue that since the proposed amendments did not originate
from the House, such amendments are a violation of Article VI, Section 24 of
the Constitution. 
. (i) Value-added tax collection as a percentage of Gross
Article VI, Section 24 of the Constitution reads:
 
Sec. 24.  All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and
Tax Case Digest BATAS TOMASINO
private bills shall originate exclusively in the House of Representatives
but the Senate may propose or concur with amendments.
Since there is no question that the revenue bill exclusively originated in   the   House  
of   Representatives, the    Senate   was   acting   within   its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, excise and franchise taxes.  Verily,
Article VI, Section 24 of the Constitution does not contain any prohibition or limitation
on the extent of the amendments that may be introduced by the Senate to the House
revenue bill.
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government to supplement
our country’s serious financial problems, and improve tax administration and
control of the leakages in revenues from income taxes and value-added taxes.  As these
house bills were transmitted to the Senate, the latter, approaching the measures from the
point of national perspective, can introduce amendments within the purposes of those
bills. It can provide for ways that would soften the impact of the VAT measure on the
consumer, i.e., by distributing the burden across all sectors instead of putting it entirely
on the shoulders of the consumers. 
The sections introduced by the Senate are germane to the subject matter and
purposes of the house bills, which is to supplement our country’s fiscal deficit,
x -------------------------------------- x
Issue 3: Does the stand-by authority given to the President to raise the VAT rate from
10% to 12% when a certain condition is met, constitutes undue delegation of the
legislative power to tax?
Ruling 3: There is no undue delegation of legislative power.
ABAKADA GURO Party List questioned the constitutionality of provisions of R.A. No.
9337 authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after any of the following
conditions have been satisfied, to wit:
 
Domestic Product (GDP) of the previous year exceeds two and four-
fifth percent (2 4/5%); or
 
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
9
    
ABAKADA GURO argues that the law is unconstitutional, as it constitutes abandonment In every case of permissible delegation, there must be a showing that the delegation itself
by Congress of its exclusive authority to fix the rate of taxes under Article VI, Section is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy
28(2) of the 1987 Philippine Constitution.  They allege that the grant of the stand-by to be executed, carried out, or implemented by the delegate; and (b) fixes a standard —
authority to the President to increase the VAT rate is a virtual abdication by Congress of the limits of which are sufficiently determinate and determinable — to which the delegate
its exclusive power to tax because such delegation is not within the purview of Section 28 must conform in the performance of his functions. A sufficient standard is one which
(2), Article VI of the Constitution, which provides: defines legislative policy, marks its limits, maps out its boundaries and specifies the
  public agency to apply it. It indicates the circumstances under which the legislative
The Congress may, by law, authorize the President to fix within command is to be effected. Both tests are intended to prevent a total transference of
specified limits, and may impose, tariff rates, import and export quotas, legislative authority to the delegate, who is not allowed to step into the shoes of the
tonnage and wharfage dues, and other duties or imposts within the legislature and exercise a power essentially legislative.
framework of the national development program of the government.
The legislature may delegate to executive officers or bodies the power to determine
The powers which Congress is prohibited from delegating are those which are certain facts or conditions, or the happening of contingencies, on which the operation of a
strictly legislative statute is, by its terms, made to depend, but the legislature must prescribe sufficient
standards, policies or limitations on their authority.  While the power to tax cannot be
The principle of separation of powers ordains that each of the three great branches of delegated to executive agencies, details as to the enforcement and administration of an
government has exclusive cognizance of and is supreme in matters  falling  within its  exercise of such power may be left to them, including the power to determine the
own constitutionally  allocated sphere. A logical corollary to the doctrine of separation existence of facts on which its operation depends. The rationale for this is that the
of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: preliminary ascertainment of facts as basis for the enactment of legislation is not of itself
potestas delegata non delegari potest which means “what has been delegated, cannot be a legislative function, but is simply ancillary to legislation. 
delegated.” This doctrine is based on the ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by the delegate through the The stand-by authority given to the President is not a delegation of legislative power
instrumentality of his own judgment and not through the intervening mind of another.
  The case before the Court is not a delegation of legislative power.  It is simply a
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that delegation of ascertainment of facts upon which enforcement and administration of the
“the Legislative power shall be vested in the Congress of the Philippines which shall increase rate under the law is contingent. The legislature has made the operation of the
consist of a Senate and a House of Representatives.”  The powers which Congress is 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It
prohibited from delegating are those which are strictly, or inherently and exclusively, leaves the entire operation or non-operation of the 12% rate upon factual matters outside
legislative.  Purely legislative power, which can never be delegated, has been described of the control of the executive.
as the authority to make a complete law – complete as to the time when it shall take  
effect and as to whom it shall be applicable – and to determine the expediency of its No discretion would be exercised by the President.  Highlighting the absence of
enactment.  discretion is the fact that the word shall is used in the common proviso. It is the
  ministerial duty of the President to immediately impose the 12% rate upon the existence
Nonetheless, the general rule barring delegation of legislative powers is subject to the of any of the conditions specified by Congress. This is a duty which cannot be evaded by
following recognized limitations or exceptions: the President.
 
(1) Delegation of tariff powers to the President under Section 28 (2) of Article There is no undue delegation of legislative power but only of the discretion as to the
VI of the Constitution; execution of a law.  This is constitutionally permissible.  Congress does not abdicate
(2) Delegation of emergency powers to the President under Section 23 (2) of its functions or unduly delegate power when it describes what job must be done, who
Article VI of the Constitution; must do it, and what is the scope of his authority; in our complex economy that is
(3) Delegation to the people at large; frequently the only way in which the legislative process can go forward.
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
Tax Case Digest BATAS TOMASINO 10
In making his recommendation to the President, the Secretary of Finance is not
acting as the alter ego of the President, rather he is acting as the agent of Congress
The Court finds no merit to the contention of ABAKADA GURO that the law effectively
nullified the President’s power of control over the Secretary of Finance by mandating the
fixing of the tax rate by the President upon the recommendation of the Secretary of
Finance.  When one speaks of the Secretary of Finance as the alter ego of the President, it
simply means that as head of the Department of Finance he is the assistant and agent of
the Chief Executive.
In the present case, in making his recommendation to the President on the existence of
either of the two conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate.  In such instance, he is not subject to the power of
control and direction of the President. He is acting as the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take
effect.  The Secretary of Finance becomes the means or tool by which legislative policy
is determined and implemented, considering that he possesses all the facilities to gather
data and information and has a much broader perspective to properly evaluate them.  His
function is to gather and collate statistical data and other pertinent information and verify
if any of the two conditions laid out by Congress is present.  His personality in such
instance is in reality but a projection of that of Congress. Thus, being the agent of
Congress and not of the President, the President cannot alter or modify or nullify, or set
aside the findings of the Secretary of Finance and to substitute the judgment of the former
for that of the latter.
The philosophy behind the two alternative conditions
 The input tax is the tax paid by a person, passed on to him by the seller, when he buys
The philosophy behind these alternative conditions, as explained by respondents: goods.  Output tax meanwhile is the tax due to the person when he sells goods.  In
  computing the VAT payable, three possible scenarios may arise:
1.      VAT/GDP Ratio > 2.8%
 
The condition set for increasing VAT rate to 12% have
economic or fiscal meaning.  If VAT/GDP is less than 2.8%, it means
that government has weak or no capability of implementing the VAT or
that VAT is not effective in the function of the tax collection.
Therefore, there is no value to increase it to 12% because such action
will also be ineffectual.
2.      Nat’l Gov’t Deficit/GDP >1.5%
 
The condition set for increasing VAT when deficit/GDP is
1.5% or less means the fiscal condition of government has reached a
relatively sound position or is towards the direction of a balanced
budget position.  Therefore, there is no need to increase the VAT rate
Tax Case Digest BATAS TOMASINO
since the fiscal house is in a relatively healthy position.  Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need to increase
the VAT rate.[62]
 
That the first condition amounts to an incentive to the President to increase the VAT
collection does not render it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to raise revenue.  In fact, fiscal
adequacy dictated the need for a raise in revenue. 
x -------------------------------------- x
Issue 4: Does R.A. No. 9337 violate the due process and equal protection clause?
Ruling 4: R.A. No. 9337 does not violate the due process and equal protection
clause.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Sections 8 and 12
of R.A. No. 9337 are arbitrary, oppressive, excessive and confiscatory.  Their argument is
premised on the constitutional right against deprivation of life, liberty of property without
due process of law, as embodied in Article III, Section 1 of the Constitution. Petitioners
also contend that these provisions violate the constitutional guarantee of equal protection
of the law.
Section 8 of R.A. No. 9337 imposes a limitation on the amount of input tax that may be
credited against the output tax. It limits the creditable input tax to 70%.
 
First, if at the end of a taxable quarter the output taxes charged by the seller are
equal to the input taxes that he paid and passed on by the suppliers, then no
payment is required; 
 
Second, when the output taxes exceed the input taxes, the person shall be liable
for the excess, which has to be paid to the Bureau of Internal Revenue (BIR);
and 
Third, if the input taxes exceed the output taxes, the excess shall be carried over
to the succeeding quarter or quarters.  Should the input taxes result from zero-
rated or effectively zero-rated transactions, any excess over the output taxes
shall instead be refunded to the taxpayer or credited against other internal
revenue taxes, at the taxpayer’s option.]
 
11
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.  Thus, a
person can credit his input tax only up to the extent of 70% of the output tax.   In
layman’s term, the value-added taxes that a person/taxpayer paid and passed on to him by
a seller can only be credited up to 70% of the value-added taxes that is due to him on a
taxable transaction.  There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will
subsequently remit such input tax to the BIR.  The party directly liable for the payment of
the tax is the seller.  What only needs to be done is for the person/taxpayer to apply or
credit these input taxes, as evidenced by receipts, against his output taxes.
 
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law.  making payment on account of each purchase of goods and services
 
The input tax is not a property or a property right within the constitutional purview
of the due process clause.  A VAT-registered person’s entitlement to the creditable input
tax is a mere statutory privilege. The distinction between statutory privileges and vested
rights must be borne in mind for persons have no vested rights in statutory privileges.
The state may change or take away rights, which were created by the law of the state,
although it may not take away property, which was vested by virtue of such rights.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of
R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:
 
SEC. 110.  Tax Credits. –
(A)  Creditable Input Tax. –  …
 
            Provided, That the input tax on goods purchased or imported in
a calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code, shall be spread evenly over the
month of acquisition and the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P1,000,000.00):  Issue 5: Does R.A. No. 9337 violate the uniformity and equitability of taxation clause?
Provided, however, That if the estimated useful life of the capital goods
is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally,
That in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or license upon
payment of the compensation, rental, royalty or fee.
 
The foregoing section imposes a 60-month period within which to amortize the creditable
input tax on purchase or importation of capital goods with acquisition cost of P1 Million
pesos, exclusive of the VAT component.  Such spread out only poses a delay in the
Tax Case Digest BATAS TOMASINO
crediting of the input tax.  Petitioners’ argument is without basis because the
taxpayer is not permanently deprived of his privilege to credit the input tax. 
With regard to the 5% creditable withholding tax imposed on payments made by
the government for taxable transactions, Section 12 of R.A. No. 9337, which amended
Section 114 of the NIRC, reads:
 
SEC. 114.  Return and Payment of Value-added Tax. –
 
(C)  Withholding of Value-added Tax. – The Government or
any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before
which are subject to the value-added tax imposed in Sections 106 and
108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof:  Provided, That
the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding
tax at the time of payment.  For purposes of this Section, the payor or
person in control of the payment shall be considered as the withholding
agent.
 
     The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the month the
withholding was made.
 
Section 114(C) merely provides a method of collection, or as stated by respondents, a
more simplified VAT withholding system.  The government in this case is constituted
as a withholding agent with respect to their payments for goods and services. 
x -------------------------------------- x
Ruling 5: R.A. No. 9337 does not violate the uniformity and equitability of taxation
clause.
Article VI, Section 28(1) of the Constitution reads:
 
The rule of taxation shall be uniform and equitable.  The
Congress shall evolve a progressive system of taxation.
 
 
12
Uniformity in taxation means that all taxable articles or kinds of property of the same x -------------------------------------- x
class shall be taxed at the same rate.  Different articles may be taxed at different amounts
provided that the rate is uniform on the same class everywhere with all people at all
times.
  Discussion of Justice Sandoval-Gutierrez on Exclusive Origination
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%)
on all goods and services.  Neither does the law make any distinction as to the type of (Nota Bene: Portions of her separate opinion which are inconsistent with the ponencia
industry or trade that will bear the 70% limitation on the creditable input tax, 5-year has been omitted).
amortization of input tax paid on purchase of capital goods or the 5% final withholding Section 24, Article VI of the Constitution provides:
tax by the government.  It must be stressed that the rule of uniform taxation does not
deprive Congress of the power to classify subjects of taxation, and only demands SEC. 24. All appropriations, revenue or tariff bills, bills authorizing increase of
uniformity within the particular class. the public debt, bills of local application, and private bills shall originate
  exclusively in the House of Representatives, but the Senate may propose or
R.A. No. 9337 is also equitable.  The law is equipped with a threshold margin.  The VAT concur with amendments.
rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross
annual sales or receipts not exceeding P1,500,000.00.   Also, basic marine and In Tolentino vs. Secretary of Finance, this Court expounded on the foregoing provision
agricultural food products in their original state are still not subject to the tax, thus by holding that: 
ensuring that prices at the grassroots level will remain accessible. 
“x x x To begin with, it is not the law – but the revenue bill – which is required
x -------------------------------------- x by the Constitution to ‘originate exclusively in the House of Representatives. It
is important to emphasize this, because a bill originating the in the House may
Issue 6: Does R.A. No. 9337 violate the progressivity of taxation clause? undergo such extensive changes in the Senate that the result may be a rewriting
of the whole x x x.  At this point, what is important to note is that, as a result of
Ruling 6: R.A. No. 9337 does not violate the progressivity of taxation clause. the Senate action, a distinct bill may be produced. To insist that a revenue
statute  -- and not only the bill which initiated the legislative process
Petitioners contend that the limitation on the creditable input tax is anything but culminating in the enactment of the law – must substantially be the same as the
regressive.   It is the smaller business with higher input tax-output tax ratio that will House Bill would be to deny the Senate’s power not only to ‘concur with
suffer the consequences. amendments: but also to ‘propose amendments.’ It would be to violate the co-
  equality of the legislative power of the two houses of Congress and in fact, make
Progressive taxation is built on the principle of the taxpayer’s ability to pay.  Taxation is the House superior to the Senate.” 
progressive when its rate goes up depending on the resources of the person affected. The
VAT is an antithesis of progressive taxation.  By its very nature, it is regressive.  The The case at bar gives us an opportunity to take a second hard look at the efficacy of the
principle of progressive taxation has no relation with the VAT system inasmuch as the foregoing jurisprudence. 
VAT paid by the consumer or business for every goods bought or services enjoyed is the  
same regardless of income.  Section 25, Article VI is a verbatim re-enactment of Section 18, Article VI of the 1935
Constitution.   The latter provision was modeled from Section 7 (1), Article I of the
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, United States Constitution, which states:
like the VAT.  What it simply provides is that Congress shall “evolve a progressive  
system of taxation.” Resort to indirect taxes should be minimized but not avoided “All bills for raising revenue shall originate in the House of Representatives,
entirely because it is difficult, if not impossible, to avoid them by imposing such taxes but the Senate may propose or concur with amendments, as on other bills.”
according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain transactions,The American people, in entrusting what James Madison termed “the power of the purse”
while granting exemptions to other transactions. to their elected representatives, drew inspiration from the British practice and experience
with the House of Commons.  As one commentator puts it:
Tax Case Digest BATAS TOMASINO 13
 
“They knew the inestimable value of the House of Commons, as a component
branch of the British parliament; and they believed that it had at all times
furnished the best security against the oppression of the crown and the
aristocracy. While the power of taxation, of revenue, and of supplies
remained in the hands of a popular branch, it was difficult for usurpation
to exist for any length of time without check, and prerogative must yield of
that necessity which controlled at once the sword and the purse.”
 
But while the fundamental principle underlying the vesting of the power to propose
revenue bills solely in the House of Representatives is present in both the Philippines and
US Constitutions, stress must be laid on the differences between the two quoted
provisions.    For one, the word “exclusively” appearing in Section 24, Article VI of our
Constitution is nowhere to be found in Section 7 (1), Article I of the US Constitution.    
For another, the phrase “as on other bills,” present in the same provision of the US
Constitution, is not written in our Constitution.
 
The adverb “exclusively” means “in an exclusive manner.”  The term “exclusive” is
defined as “excluding or having power to exclude; limiting to or limited to; single, sole,
undivided, whole.”   In one case, this Court define the term “exclusive”  as   “possessed
to the exclusion of others; appertaining to the subject alone, not including, admitting, or
pertaining to another or others.”
 
As for the term “originate,” its meaning are “to cause the beginning of; to give rise to;
to initiate; to start on a course or journey; to take or have origin; to be deprived;
arise; begin or start.”
With the foregoing definitions in mind, it can be reasonably concluded that when Section
24, Article VI provides that revenue bills shall originate exclusively from the House of
Representatives, what the Constitution mandates is that any revenue statute must begin
or start solely and only in the House.  Not the Senate.  Not both Chambers of Congress.  days thereafter, in accordance with Section 110(b) of the Tax Code.
But there is more to it than that.  It also means that “an act for taxation must pass the
House first.”  It is no consequence what amendments the Senate adds.
Re: Prescriptive Period for Claiming Input VAT Refund/Credit
Atlas Consolidated Mining v. CIR (June 08, 2007)
Facts: Atlas Consolidated Mining is engaged in the business of mining, production, and
sale of various mineral products.  It is a VAT-registered taxpayer. It filed with the BIR
application for the refund/credit of its input VAT on its purchases of capital goods and on unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT
Tax Case Digest BATAS TOMASINO
its zero-rated sales. The Commissioner of Internal Revenue asserts that the corporation is
not entitled to its claims.
Issue: (Main issue) Are the claims of Atlas Consolidated Mining for input VAT
refund/credit already prescribed?
(Other issues) Is Revenue Regulations No. 2-88 imposing upon a corporation, as a
requirement for the VAT zero-rating of its sales, the burden of proving that the buyer
companies were not just BOI-registered but also exporting 70% of their total annual
production applicable to Atlas Consolidated Mining?
Is the evidence presented by Atlas Consolidated Mining sufficient to establish that it is
indeed entitled to input VAT refund/credit?
Should the motion of Atlas Consolidated Mining for re-opening of its cases or holding of
new trial before the CTA so it could be given the opportunity to present the required
evidence be granted?
Ruling: The claims of Atlas Consolidated Mining for input VAT refund/credit have
not yet prescribed.
The prescriptive period for filing an application for tax refund/credit of input VAT on
zero-rated sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the
Tax Code of 1977, which provides that the two-year prescriptive period for filing the
application for refund/credit of input VAT on zero-rated sales shall be determined from
the close of the quarter when such sales were made. 
Atlas Consolidated Mining contends, however, that the said two-year prescriptive period
should be counted, not from the close of the quarter when the zero-rated sales were made,
but from the date of filing of the quarterly VAT return and payment of the tax due 20
It is already well-settled that the two-year prescriptive period for instituting a suit or
proceeding for recovery of corporate income tax erroneously or illegally paid under
Section 230 of the Tax Code of 1977, as amended, was to be counted from the filing of
the final adjustment return. 
It is true that unlike corporate income tax, which is reported and paid on installment
every quarter, but is eventually subjected to a final adjustment at the end of the taxable
year, VAT is computed and paid on a purely quarterly basis without need for a final
adjustment at the end of the taxable year.  However, it is also equally true that until and
return, there is no way of knowing with certainty just how much input VAT the taxpayer
may apply against its output VAT; how much output VAT it is due to pay for the quarter
14
or how much excess input VAT it may carry-over to the following quarter; or how much Facts: Rizal Banking Corporation was served a deficiency assessment for documentary
of its input VAT it may claim as refund/credit.  stamp tax. It disputed the assessment. The Commissioner failed to act on the disputed
assessment within 180 days from date of submission of documents.  RCBC opted to file a
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to petition for review before the Court of Tax Appeals.  Unfortunately, the petition for
establish that it does have refundable or creditable input VAT, and the same has not been review was filed out of time, i.e., it was filed more than 30 days after the lapse of the
applied against its output VAT liabilities – information which are supposed to be 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late
reflected in the taxpayer’s VAT returns. filing. Petitioner did not file a motion for reconsideration or make an appeal.

Lastly, although the taxpayer’s refundable or creditable input VAT may not be
considered as illegally or erroneously collected, its refund/credit is a privilege extended
to qualified and registered taxpayers by the very VAT system adopted by the
Legislature.  Such input VAT, the same as any illegally or erroneously collected national
internal revenue tax, consists of monetary amounts which are currently in the hands of
the government but must rightfully be returned to the taxpayer.  Therefore, whether
claiming refund/credit of illegally or erroneously collected national internal revenue tax,
or input VAT, the taxpayer must be given equal opportunity for filing and pursuing its
claim.
 
For the foregoing reasons, it is more practical and reasonable to count the two-year
prescriptive period for filing a claim for refund/credit of input VAT on zero-rated
sales from the date of filing of the return and payment of the tax due which,
according to the law then existing, should be made within 20 days from the end of
each quarter.
Although this Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the
date of filing of the quarterly VAT return, and that sales to EPZA-registered enterprises
operating within economic processing zones were effectively zero-rated and were not
covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases of capital goods and effectively
zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter
of 1992, for not being established and substantiated by appropriate and sufficient
evidence.  Petitioner corporation is also not entitled to the re-opening of its cases and/or
holding of new trial since the non-presentation of the required documentary evidence
before the BIR and the CTA by its counsel does not constitute excusable negligence or
mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.
RCBC claims that its former counsel’s failure to file petition for review with the Court of
Tax Appeals en banc within the reglementary period was excusable. It alleges that the
counsel’s secretary misplaced the Resolution hence the counsel was not aware of its
issuance and that it had become final and executory.
RCBC now claims that the disputed assessment is not yet final as it remained unacted
upon by the Commissioner; that it can still await the final decision of the Commissioner
and thereafter appeal the same to the Court of Tax Appeals.
Issue 1: Is the failure of RCBC’s counsel to file petition for review with the Court of Tax
Appeals within the reglementary period excusable?
Ruling 1: The failure of the counsel to file petition for review with the Court of Tax
Appeals within the reglementary period is not excusable.
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to
the neglect of petitioner’s counsel.  Otherwise, all that a losing party would do to
salvage his case would be to invoke neglect or mistake of his counsel as a ground for
reversing or setting aside the adverse judgment, thereby putting no end to litigation.
 
Negligence to be “excusable” must be one which ordinary diligence and prudence
could not have guarded against and by reason of which the rights of an aggrieved party
have probably been impaired.  Petitioner’s former counsel’s omission could hardly be
characterized as excusable, much less unavoidable. 
x -------------------------------------- x
Issue 2: Is the disputed assessment not yet final as it remained unacted upon by the
Commissioner?

Re: Remedies in Case of Inaction of the CIR Ruling 2: The disputed assessment is already final, demandable and executory.

Rizal Banking Corporation v. CIR (April 24, 2007) The jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal Revenue.   The
decisions, rulings or inaction of the Commissioner are necessary in order to vest the
Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within
Tax Case Digest BATAS TOMASINO 15
30 days after the receipt of such decision or ruling, or within 30 days after the expiration
of the 180-day period fixed by law for the Commissioner to act on the disputed
assessments.  This 30-day period within which to file an appeal is jurisdictional and
failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of
its jurisdiction to entertain and determine the correctness of the assessments. Such period
is not merely directory but mandatory and it is beyond the power of the courts to extend
the same.
The jurisdiction of the Court of Tax Appeals has been expanded to include not only
decisions or rulings but inaction as well of the Commissioner of Internal Revenue.  The
decisions, rulings or inaction of the Commissioner are necessary in order to vest the
Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within
30 days after the receipt of such decision or ruling, or within 30 days after the expiration
of the 180-day period fixed by law for the Commissioner to act on the disputed
assessments.  This 30-day period within which to file an appeal is jurisdictional and
failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of
its jurisdiction to entertain and determine the correctness of the assessments. Such period
is not merely directory but mandatory and it is beyond the power of the courts to extend
the same.
 
In case the Commissioner failed to act on the disputed assessment within the 180-
day period from date of submission of documents, a taxpayer can either: 1) file a
petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or 2) await the final decision of the Commissioner
on the disputed assessments and appeal such final decision to the Court of Tax
Appeals within 30 days after receipt of a copy of such decision.  However, these
options are mutually exclusive, and resort to one bars the application of the other.    protest on time.  It denied reconsideration in a resolution dated May 27, 1996.
In the instant case, the Commissioner failed to act on the disputed assessment within 180
days from date of submission of documents.  Thus, petitioner opted to file a petition for
review before the Court of Tax Appeals.  Unfortunately, the petition for review was filed
out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period.  bases therefor.  It declared that the proper assessments were those contained in the May
Consequently, it was dismissed by the Court of Tax Appeals for late filing.  Petitioner did
not file a motion for reconsideration or make an appeal; hence, the disputed assessment
became final, demandable and executory.
Based on the foregoing, RCBC can not now claim that the disputed assessment is not yet
final as it remained unacted upon by the Commissioner; that it can still await the final
decision of the Commissioner and thereafter appeal the same to the Court of Tax
Appeals.  This legal maneuver cannot be countenanced.   After availing the first option,
i.e., filing a petition for review which was however filed out of time, petitioner can
not successfully resort to the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax Appeals, on the pretext
Tax Case Digest BATAS TOMASINO
that there is yet no final decision on the disputed assessment because of the
Commissioner’s inaction.
Re: Assessment
CIR v. Bank of the Philippine Islands (April 17, 2007)
Facts: In two notices dated October 28, 1988, petitioner Commissioner of Internal
Revenue (CIR) assessed respondent Bank of the Philippine Islands’ (BPI’s) deficiency
percentage and documentary stamp taxes for the year 1986 in the total amount of
P129,488,656.63. In a letter dated December 10, 1988, BPI, through counsel, replied in
part that the “deficiency assessments are no assessments at all.”
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating the basis of
the assessment. On July 6, 1991, BPI requested a reconsideration of the assessments
stated in the CIR’s May 8, 1991 letter.  This was denied in a letter dated December 12,
1991, received by BPI on January 21, 1992.
 
On February 18, 1992, BPI filed a petition for review in the CTA.  In a decision dated
November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the subject
assessments had become final and unappealable.  The CTA ruled that BPI failed to
On appeal, the CA reversed the tax court’s decision and resolution and remanded the case
to the CTA for a decision on the merits.  It ruled that the October 28, 1988 notices were
not valid assessments because they did not inform the taxpayer of the legal and factual
8, 1991 letter which provided the reasons for the claimed deficiencies.  Thus, it held that
BPI filed the petition for review in the CTA on time.  The CIR elevated the case to the
Supreme Court.
Issue: Were the October 28, 1988 notices valid assessments?
Ruling: The October 28, 1988 notices sufficiently met the requirements of a valid
assessment under the old law and jurisprudence.
The CIR argues that the CA erred in holding that the October 28, 1988 notices were
invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in
16
November 1964) which was designed for the precise purpose of notifying taxpayers of
the assessed amounts due and demanding payment thereof. He contends that there was no Considering that the October 28, 1988 notices were valid assessments, BPI should
law or jurisprudence then that required notices to state the reasons for assessing have protested the same within 30 days from receipt thereof.  The December 10, 1988
deficiency tax liabilities.      reply it sent to the CIR did not qualify as a protest since the letter itself stated that “[a]s
  soon as this is explained and clarified in a proper letter of assessment, we shall inform
BPI counters that due process demanded that the facts, data and law upon which the you of the taxpayer’s decision on whether to pay or protest the assessment.” Hence, by its
assessments were based be provided to the taxpayer. It insists that the NIRC, as worded own declaration, BPI did not regard this letter as a protest against the assessments.  As a
now (referring to Section 228), specifically provides that: matter of fact, BPI never deemed this a protest since it did not even consider the October
  28, 1988 notices as valid or proper assessments.
“[t]he taxpayer shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless
void.”  be deemed to have failed to appeal the CIR’s final decision regarding the disputed
assessments within the 30-day period provided by law.  The CIR, in his May 8, 1991
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the response, stated that it was his “final decision … on the matter.”  BPI therefore had 30
assessments of the deficiency taxes were made. He merely notified BPI of his findings, days from the time it received the decision on June 27, 1991 to appeal but it did not.
consisting only of the computation of the tax liabilities and a demand for payment thereof Instead it filed a request for reconsideration and lodged its appeal in the CTA only on
within 30 days after receipt.            February 18, 1992, way beyond the reglementary period.  BPI must now suffer the
  repercussions of its omission. 
In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424. Accordingly, when the assessments
were made pursuant to the former Section 270, the only requirement was for the CIR to Re: Refund of Creditable Withholding Tax
“notify” or inform the taxpayer of his “findings.”  Nothing in the old law required a
written statement to the taxpayer of the law and facts on which the assessments were Banco Filipino v. CIR (March 27, 2007)
based. The Court cannot read into the law what obviously was not intended by Congress. 
That would be judicial legislation, nothing less.  Facts: In its BIR Form No. 1702 for fiscal year 1995, Banco Filipino declared a net
  operating loss of P211,476,241.00 and total tax credit of P13,103,918.00, representing
Jurisprudence, on the other hand, simply required that the assessments contain a the prior year’s excess tax credit of P11,481,342.00 and creditable withholding taxes of
computation of tax liabilities, the amount the taxpayer was to pay and a demand for P1,622,576.00.
payment within a prescribed period.  Everything considered, there was no doubt the  
October 28, 1988 notices sufficiently met the requirements of a valid assessment under On February 4, 1998, Banco Filipino filed with the Commissioner of Internal Revenue an
the old law and jurisprudence. administrative claim for refund of creditable taxes withheld for the year 1995 in the
  amount of P1,622,576.00. 
The sentence “[t]he taxpayers shall be informed in writing of the law and the facts on  
which the assessment is made; otherwise, the assessment shall be void” was not in the old As the CIR failed to act on its claim, petitioner filed a Petition for Review with the CTA
Section 270 but was only later on inserted in the renumbered Section 228 in 1997. on April 13, 1998.  It attached to its Petition several documents, including: 1) Certificate
Evidently, the legislature saw the need to modify the former Section 270 by inserting the of Income Tax Withheld on Compensation (BIR Form No. W-2) for the Year 1995
aforequoted sentence. The fact that the amendment was necessary showed that, prior to executed by Oscar Lozano covering P720.00 as tax withheld on rental income paid to
the introduction of the amendment, the statute had an entirely different meaning.  petitioner (Exhibit “II”); and 2) Monthly Remittance Return of Income Taxes Withheld
  under BIR Form No. 1743W issued by petitioner, indicating various amounts it withheld
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 and remitted to the BIR (Exhibits “C” through “Z”).
was not an affirmation of what the law required under the former Section 270.  The  
amendment introduced by RA 8424 was an innovation and could not be reasonably In his Answer, respondent CIR interposed special and afirmative defenses, specifically
inferred from the old law.  Clearly, the legislature intended to insert a new provision that petitioner’s claim is not properly documented.
regarding the form and substance of assessments issued by the CIR.    
Tax Case Digest BATAS TOMASINO 17
  
The CTA issued the October 5, 1999 Decision granting only a portion of petitioner’s
claim for refund. The CTA allowed the P18,884.40-portion of Banco Filipino’s claim for
refund as these are covered by Exhibits “AA” through “HH”, which are all in BIR Form
No. 1743-750 (Certificate of Creditable Tax Withheld at Source) issued by various
payors and reflecting taxes deducted and withheld on petitioner-payee’s income from the
rental of its real properties.  On the other hand, the CTA disallowed the P1,603,691.60-
portion of petitioner’s claim for tax refund on the ground that its Exhibit “II” and
Exhibits “C” through “Z” lack probative value as these are not in BIR Form No. 1743.1,
the form required under Revenue Regulations No. 6-85, to support a claim for refund.   In relation to withholding taxes from rental income, the requisite information can be
Issue: Is the disallowance of  P1,603,691.60 of Banco Filipino’s claim for tax refund on
the ground that the latter’s Exhibit “II” and Exhibits “C” through “Z” lack probative
value correct?
Ruling: The disallowance is correct.
There are three conditions for the grant of a claim for refund of creditable
withholding tax: 1) the claim is filed with the CIR within the two-year period from the
date of payment of the tax; 2) it is shown on the return of the recipient that the income
payment received was declared as part of the gross income; and, 3) the fact of
withholding is established by a copy of a statement duly issued by the payor to the payee
showing the amount paid and the amount of the tax withheld therefrom.  The third
condition is specifically imposed under Section 10 of Revenue Regulation No. 6-85 (as
amended).
There is no doubt that Banco Filipino complied with the first two requirements. The
question is whether it complied with the third condition by presenting merely a
Certificate of Income Tax Withheld on Compensation or BIR Form No. W-2 (Exhibit
“II”) and Monthly Remittance Return of Income Taxes Withheld under BIR Form No.
1743W (Exhibits “C” through “Z”).
Banco Filipino argues that its Exhibit “II” and Exhibits “C” through “Z” should be
accorded  the same probative value as a BIR Form No. 1743.1, for said documents are
also official BIR forms and they reflect the fact that taxes were actually withheld and
remitted.  It appeals for liberality considering that its annual return clearly shows that it is
entitled to creditable withholding tax.
The document which may be accepted as evidence of the third condition, that is, the fact
of withholding, must emanate from the payor itself, and not merely from the payee, and
must indicate the name of the payor, the income payment basis of the tax withheld, the
amount of the tax withheld and the nature of the tax paid.
Tax Case Digest BATAS TOMASINO
At the time material to this case, the requisite information regarding withholding taxes
from the sale of acquired assets can be found in BIR Form No. 1743.1.  As described in 
Section 6 of Revenue Regulations No. 6-85,  BIR Form No. 1743.1 is a written statement
issued by the payor as withholding agent showing the income or other payments made by
the said withholding agent during a quarter or year and the amount of the tax deducted
and withheld therefrom.  It readily identifies the payor, the income payment and the tax
withheld.  It is complete in the relevant details which would aid the courts in the
evaluation of any claim for refund of creditable withholding taxes. 
 
found in BIR Form No. 1743-750.  Petitioner is well aware of this for its own Exhibits
“AA” through “HH” are all in BIR Form No. 1743-750.  As earlier stated, the CTA
approved petitioner’s claim for refund to the extent of P18,884.40, which is the portion of
its claim supported by its Exhibits “AA” through “HH.”
In the present case, the disputed portions of Banco Filipino’s claim for refund is
supported merely by Exhibits “C” through “Z”  and Exhibit “II.”  Exhibits “C” through
“Z” were issued by petitioner as payee purportedly acting as withholding agent, and not
by the alleged payors in the transactions covered by the documents.  Moreover, the
documents do not identify the payors involved or the nature of their transaction.  They do
not indicate the amount and nature of the income payments upon which the tax was
computed or the nature of the transactions from which the income payments were
derived, specifically whether it resulted from the sale of Banco Filipino’s acquired
assets. 
For all its deficiencies, therefore, Banco Filipino’s Exhibits “C” through “Z” cannot take
the place of BIR Form No. 1743.1 and its Exhibit “II,” of BIR Form No. 1743-750.
Banco Filipino cannot fault the CA and CTA for finding said evidence insufficient to
support its claim for tax refund.  Such finding of both courts, obviously grounded on
evidence, will not be so lightly discarded by this Court, not even on a plea for liberality
of which Banco Filipino, by its own negligence, is undeserving. 
Re: Deduction; Accrual Method; Tax Exemptions
CIR v. Isabela Cultural Corporation (Feb. 12, 2007)
Facts: On February 23, 1990, Isabela Cultural Corporation, a domestic corporation,
received an Assessment Notice from the BIR for deficiency income tax in the amount of
P333,196.86, and another Assessment Notice for deficiency expanded withholding tax in
the amount of P4,897.79, inclusive of surcharges and interest, both for the taxable year
1986.
18
On March 23, 1990, ICC sought a reconsideration of the subject assessments.  On Accounting methods for tax purposes comprise a set of rules for determining when and
February 9, 1995, however, it received a final notice before seizure demanding payment how to report income and deductions.   In the instant case, the accounting method used
of the amounts stated in the said notices.  Hence, it brought the case to the CTA which by ICC is the accrual method.
held that the petition is premature because the final notice of assessment cannot be  
considered as a final decision appealable to the tax court.  This was reversed by the Court
Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method
of Appeals holding that a demand letter of the BIR reiterating the payment of deficiency of accounting, expenses not being claimed as deductions by a taxpayer in the current year
tax, amounts to a final decision on the protested assessment and may therefore be when they are incurred cannot be claimed as deduction from income for the succeeding
questioned before the CTA. year.  Thus, a taxpayer who is authorized to deduct certain expenses and other allowable
deductions for the current year but failed to do so cannot deduct the same for the next
On February 26, 2003, the CTA rendered a decision canceling and setting aside the year.
assessment notices issued against ICC.  It held that the claimed deductions for  
professional and security services were properly claimed by ICC in 1986 because it was The accrual method relies upon the taxpayer’s right to receive amounts or its obligation
only in the said year when the bills demanding payment were sent to ICC.  Hence, even if to pay them, in opposition to actual receipt or payment, which characterizes the cash
some of these professional services were rendered to ICC in 1984 or 1985, it could not method of accounting.  Amounts of income accrue where the right to receive them
declare the same as deduction for the said years as the amount thereof could not be become fixed, where there is created an enforceable liability.  Similarly, liabilities are
determined at that time. accrued when fixed and determinable in amount, without regard to indeterminacy merely
  of time of payment.
The Commissioner filed contends that since ICC is using the accrual method of  
accounting, the expenses for the professional services that accrued in 1984 and 1985, For a taxpayer using the accrual method, the determinative question is, when do the facts
should have been declared as deductions from income during the said years and the present themselves in such a manner that the taxpayer must recognize income or
failure of ICC to do so bars it from claiming said expenses as deduction for the taxable expense?  The accrual of income and expense is permitted when the all-events test has
year 1986.  been met.  This test requires: (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or liability.
Issue: Can Isabela Cultural Corporation, using the accrual method, declare as deductions  
for the taxable year 1986 expenses that accrued in 1984 and 1985? The all-events test requires the right to income or liability be fixed, and the amount of
such income or liability be determined with reasonable accuracy.  However, the test does
Ruling: Under the accrual method of accounting, expenses not being claimed as not demand that the amount of income or liability be known absolutely, only that a
deductions by a taxpayer in the current year when they are incurred cannot be taxpayer has at his disposal the information necessary to compute the amount with
claimed as deduction from income for the succeeding year. reasonable accuracy.  The all-events test is satisfied where computation remains
uncertain, if its basis is unchangeable; the test is satisfied where a computation may be
The requisites for the deductibility of ordinary and necessary trade, business, or unknown, but is not as much as unknowable, within the taxable year.  The amount of
professional expenses, like expenses paid for legal and auditing services, are: (a) the liability does not have to be determined exactly; it must be determined with
expense must be ordinary and necessary; (b) it must have been paid or incurred “reasonable accuracy.”  Accordingly, the term “reasonable accuracy” implies
during the taxable year; (c) it must have been paid or incurred in carrying on the trade something less than an exact or completely accurate amount.
or business of the taxpayer; and (d) it must be supported by receipts, records or other  
pertinent papers. The propriety of an accrual must be judged by the facts that a taxpayer knew, or
  could reasonably be expected to have known, at the closing of its books for the
The requisite that it must have been paid or incurred during the taxable year is further taxable year.  Accrual method of accounting presents largely a question of fact; such
qualified by Section 45 of the National Internal Revenue Code (NIRC) which states that: that the taxpayer bears the burden of proof of establishing the accrual of an item of
“[t]he deduction provided for in this Title shall be taken for the taxable year in which income or deduction. 
‘paid or accrued’ or ‘paid or incurred’, dependent upon the method of accounting upon  
the basis of which the net income is computed x x x”. Corollarily, it is a governing principle in taxation that tax exemptions must be construed
  in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and
one who claims an exemption must be able to justify the same by the clearest grant of
Tax Case Digest BATAS TOMASINO 19
organic or statute law. An exemption from the common burden cannot be permitted to
exist upon vague implications.  And since a deduction for income tax purposes
partakes of the nature of a tax exemption, then it must also be strictly construed.
 
In the instant case, the expenses for professional fees consist of expenses for legal and
auditing services.  The expenses for legal services pertain to the 1984 and 1985 legal and
retainer fees of a law firm. From the nature of the claimed deductions and the span of
time during which the firm was retained, ICC can be expected to have reasonably known
the retainer fees charged by the firm as well as the compensation for its legal services. 
The failure to determine the exact amount of the expense during the taxable year when
they could have been claimed as deductions cannot thus be attributed solely to the
delayed billing of these liabilities by the firm.  For one, ICC, in the exercise of due
diligence could have inquired into the amount of their obligation to the firm, especially so
that it is using the accrual method of accounting.  For another, it could have reasonably
determined the amount of legal and retainer fees owing to its familiarity with the rates
charged by their long time legal consultant. It simply relied on the defense of delayed
billing by the firm and the company, which under the circumstances, is not sufficient to
exempt it from being charged with knowledge of the reasonable amount of the expenses
for legal and auditing services.
 
ICC thus failed to discharge the burden of proving that the claimed expense deductions
for the professional services were allowable deductions for the taxable year 1986.  Hence,
per Revenue Audit Memorandum Order No. 1-2000, they cannot be validly deducted
from its gross income for the said year and were therefore properly disallowed by the
BIR.
 
As to the expenses for security services, the records show that these expenses were
incurred by ICC in 1986 and could therefore be properly claimed as deductions for the
said year.
Re: Prospectivity of Tax Laws; Personal and Additional Exemptions; Tax Exemptions
Pansacola v. CIR (Nov. 16, 2006)
Facts: Republic Act No. 8424, the National Internal Revenue Code of 1997 (NIRC),
which took effect on January 1, 1998 increased amounts of personal and additional
exemptions.
On April 13, 1998, petitioner Carmelino F. Pansacola filed his income tax return for the
taxable year 1997 that reflected an overpayment of P5,950.  In it he claimed the increased
amounts of personal and additional exemptions under Section 35 of the NIRC, although
his certificate of income tax withheld on compensation indicated the lesser allowed
Tax Case Digest BATAS TOMASINO
amounts on these exemptions.  He claimed a refund of P5,950 with the Bureau of Internal
Revenue, which was denied.  Later, the Court of Tax Appeals also denied his claim
because according to the tax court, “it would be absurd for the law to allow the deduction
from a taxpayer’s gross income earned on a certain year of exemptions availing on a
different taxable year…”
Issue: Could the exemptions under Section 35 of the NIRC, which took effect on
January 1, 1998, be availed of for the taxable year 1997?
Ruling: Since the NIRC took effect on January 1, 1998, the increased amounts of
personal and additional exemptions under Section 35, can only be allowed as deductions
from the individual taxpayer’s gross or net income, as the case maybe, for the taxable
year 1998 to be filed in 1999.  The NIRC made no reference that the personal and
additional exemptions shall apply on income earned before January 1, 1998.         
Pansacola argues that the personal and additional exemptions are of a fixed character
based on Section 35 (A) and (B) of the NIRC and as ruled by this Court in Umali, these
personal and additional exemptions are fixed amounts to which an individual taxpayer is
entitled. He contends that unlike other allowable deductions, the availability of these
exemptions does not depend on the taxpayer’s profession, trade or business for a
particular taxable period.  Relying again in Umali, Pansacola alleges that the Court of
Appeals erred in ruling that the increased exemptions were meant to be applied beginning
taxable year 1998 and were to be reflected in the taxpayers’ returns to be filed on or
before April 15, 1999.  He reasons that such ruling would postpone the availability of the
increased exemptions and literally defer the effectivity of the NIRC to January 1, 1999.
He insists that the increased exemptions were already available on April 15, 1998, the
deadline for filing income tax returns for taxable year 1997, because the NIRC was
already effective.
Personal and additional exemptions under Section 35 of the NIRC are fixed amounts to
which certain individual taxpayers (citizens, resident aliens) are entitled.  Personal
exemptions are the theoretical personal, living and family expenses of an individual
allowed to be deducted from the gross or net income of an individual taxpayer. 
These are arbitrary amounts which have been calculated by our lawmakers to be roughly
equivalent to the minimum of subsistence, taking into account the personal status and
additional qualified dependents of the taxpayer.  They are fixed amounts in the sense that
the amounts have been predetermined by our lawmakers as provided under Section 35
(A) and (B).  Unless and until our lawmakers make new adjustments on these personal
exemptions, the amounts allowed to be deducted by a taxpayer are fixed as
predetermined by Congress. 
The income subject to income tax is the taxpayer’s income as derived and computed 
during the calendar year, his taxable year.  What the law should consider for the purpose
of determining the tax due from an individual taxpayer is his status and qualified
20
dependents at the close of the taxable year and not at the time the return is filed and the
tax due thereon is paid. Now comes Section 35 (C) of the NIRC which provides,
Sec. 35.  Allowance of Personal Exemption for Individual Taxpayer. –
      x x x x
(C) Change of Status. – If the taxpayer marries or should have
additional dependent(s) as defined above during the taxable year,
the taxpayer may claim the corresponding additional exemption, as
the case may be, in full for such year.
      If the taxpayer dies during the taxable year, his estate may still
claim the personal and additional exemptions for himself and his
dependent(s) as if he died at the close of such year.
      If the spouse or any of the dependents dies or if any of such
dependents marries, becomes twenty-one (21) years old or
becomes gainfully employed during the taxable year, the taxpayer
may still claim the same exemptions as if the spouse or any of the
dependents died, or as if such dependents married, became twenty-
one (21) years old or became gainfully employed at the close of
such year.
Emphasis must be made that Section 35 (C) of the NIRC allows a taxpayer to still claim
the corresponding full amount of exemption for a taxable year, e.g. if he marries; have
additional dependents; he, his spouse, or any of his dependents die; and if any of his
dependents marry, turn 21 years old; or become gainfully employed.  It is as if the
changes in his or his dependents’ status took place at the close of the taxable year.  exemptions, hence strictly construed against the taxpayer and cannot be allowed
 
Consequently, his correct taxable income and his corresponding allowable deductions
e.g. personal and additional deductions, if any, had already been determined as of the end
of the calendar year.  Re: Prescription Period of Collection of Taxes; Request for Reinvestigation
In the case of Pansacola, the availability of the aforementioned deductions if he is thus
entitled, would be reflected on his tax return filed on or before the 15 th day of April 1999
as mandated by Section 51 (C) (1).  Since the NIRC took effect on January 1, 1998, the
increased amounts of personal and additional exemptions under Section 35, can only be
allowed as deductions from the individual taxpayer’s gross or net income, as the case
maybe, for the taxable year 1998 to be filed in 1999.  The NIRC made no reference that
the personal and additional exemptions shall apply on income earned before January 1,
1998.     the Assessment Notice.  Philippine Global Communication filed another protest letter on
Pansacola’s reliance in Umali is misplaced.  In Umali, we noted that despite being given
authority by Section 29 (1) (4) of the National Internal Revenue Code of 1977 to adjust
these exemptions, no adjustments were made to cover 1989.   Note that Rep. Act No.
7167 is entitled “An Act Adjusting the Basic Personal and Additional Exemptions
Allowable to Individuals for Income Tax Purposes to the Poverty Threshold Level,
Tax Case Digest BATAS TOMASINO
Amending for the Purpose Section 29, Paragraph (L), Items (1) and (2) (A), of the
National Internal Revenue Code, As Amended, and For Other Purposes.”  Thus, we said
in Umali, that the adjustment provided by Rep. Act No. 7167 effective 1992, should
consider the poverty threshold level in 1991, the time it was enacted.  And we observed
therein that since the exemptions would especially benefit lower and middle-income
taxpayers, the exemption should be made to cover the past year 1991.  To such an extent,
Rep. Act No. 7167 was a social legislation intended to remedy the non-adjustment in
1989. 
 
This is not so in the case at bar.  There is nothing in the NIRC that expresses any such
intent.  The policy declarations in its enactment do not indicate it was a social legislation
that adjusted personal and additional exemptions according to the poverty threshold level
nor is there any indication that its application should retroact.
At the time Pansacola filed his 1997 return and paid the tax due thereon in April
1998, the increased amounts of personal and additional exemptions in Section 35
were not yet available.  It has not yet accrued as of December 31, 1997, the last day of
his taxable year.  Petitioner’s taxable income covers his income for the calendar year
1997.  The law cannot be given retroactive effect.  It is established that tax laws are
prospective in application, unless it is expressly provided to apply retroactively.  In
the NIRC, we note, there is no specific mention that the increased amounts of personal
and additional exemptions under Section 35 shall be given retroactive effect. 
Conformably too, personal and additional exemptions are considered as deductions
from gross income. Deductions for income tax purposes partake of the nature of tax
unless granted in the most explicit and categorical language too plain to be mistaken. 
CIR v. Philippine Global Communications (Oct. 31, 2006)
Facts: Philippine Global Communication filed its Annual Income Tax Return for taxable
year 1990 on 15 April 1991.  On 22 April 1994, respondent received a Formal
Assessment Notice, dated 14 April 1994, for deficiency income tax for the year 1990.
On 6 May 1994, Philippine Global Communication filed a formal protest letter against
23 May 1994. On 16 October 2002, more than eight years after the assessment was
presumably issued, Philippine Global Communication received from the CIR a Final
Decision dated 8 October 2002 denying the respondent’s protest.
21
Issue: Is CIR’s right to collect Philippine Global Communication’s alleged deficiency
income tax barred by prescription?
Ruling: The right of the government to collect the alleged deficiency tax is barred by
prescription. The tax which is the subject of the Decision issued by the CIR on 8
October 2002 affirming the Formal Assessment issued on 14 April 1994 can no longer be
the subject of any proceeding for its collection.  every opportunity to molest, peaceful, law-abiding  citizens.  Without such legal defense
Section 269(c) of the Tax Code of 1977, which reads:
 
Section 269. Exceptions as to the period of limitation of
assessment and collection of taxes. – x x x
 
            c.         Any internal revenue tax which has
been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by
a proceeding in court within three years following the
assessment of the tax.
The law prescribed a period of three years from the date the return was actually filed or
from the last date prescribed by law for the filing of such return, whichever came later,
within which the BIR may assess a national internal revenue tax.  However, the law
increased the prescriptive period to assess or to begin a court proceeding for the
collection without an assessment to ten years when a false or fraudulent return was filed
with the intent of evading the tax or when no return was filed at all.  In such cases, the
ten-year period began to run only from the date of discovery by the BIR of the falsity,
fraud or omission.
 
If the BIR issued this assessment within the three-year period or the ten-year period,
whichever was applicable, the law provided another three years after the assessment for
the collection of the tax due thereon through the administrative process of distraint and/or
levy or through judicial proceedings.  The three-year period for collection of the assessed
tax began to run on the date the assessment notice had been released, mailed or sent by
the BIR.
 
The assessment, in this case, was presumably issued on 14 April 1994 since Philippine
Global Communication did not dispute the CIR’s claim.  Therefore, the BIR had until 13
April 1997.  However, as there was no Warrant of Distraint and/or Levy served on the
respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the
BIR to collect the tax due based on this assessment was when it filed its Answer in CTA
Case No.  6568 on 9 January 2003, which was several years beyond the three-year
prescriptive period.  Thus, the CIR is now prescribed from collecting the assessed tax.
Tax Case Digest BATAS TOMASINO
The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because tax
officers would be obliged to act promptly in the making of assessment, and to citizens
because after the lapse of the period of prescription citizens would have a feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latter’s real liability, but to take advantage of
taxpayers would furthermore be under obligation to always keep their books and keep
them open for inspection subject to harassment by unscrupulous tax agents. The law on
prescription should be liberally construed in order to protect taxpayers and that, as
a corollary, the exceptions to the law on prescription should be strictly construed.
Among the exceptions provided by the NIRC is the instance when the taxpayer requests
for a reinvestigation which is granted by the Commissioner.  However, this exception
does not apply to this case since the Philippine Global Communication never requested
for a reinvestigation.  More importantly, the CIR could not have conducted a
reinvestigation where, as admitted by the CIR in its Petition, Philippine Global
Communication refused to submit any new evidence.
A request for reinvestigation can suspend the running of the statute of limitations on
collection of the assessed tax, while a request for reconsideration cannot
The main difference between the two types of protests, i.e. request for reconsideration
and request for reinvestigation, lies in the records or evidence to be examined by
internal revenue officers, whether these are existing records or newly discovered or
additional evidence.  A re-evaluation of existing records which results from a request for
reconsideration does not toll the running of the prescription period for the collection of an
assessed tax.  Section 271 distinctly limits the suspension of the running of the statute of
limitations to instances when reinvestigation is requested by a taxpayer and is granted by
the CIR.
A reinvestigation, which entails the reception and evaluation of additional evidence, will
take more time than a reconsideration of a tax assessment, which will be limited to the
evidence already at hand; this justifies why the former can suspend the running of the
statute of limitations on collection of the assessed tax, while the latter cannot. Where a
taxpayer demands a reinvestigation, the time employed in reinvestigating should be
deducted from the total period of limitation.
In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are
requests for reconsideration.  The CIR’s allegation that there was a request for
reinvestigation is inconceivable since respondent consistently and categorically refused to
submit new evidence and cooperate in any reinvestigation proceedings.
22
Re: Retirement Benefits Issue: Are the retirement benefits of retirees part of their gross income?

International Broadcasting Corp. v. Amarilla (Oct. 27, 2006) Is IBC estopped from reneging on its agreement with the retirees to pay for the taxes on
said retirement benefits?
Facts: Quiñones, Lagahit, Otadoy, and Amarilla were employed by IBC at its Cebu
station. On March 1, 1986, the government sequestered the station, including its Ruling: We agree with IBC’s contention that, under the CBA, it is not obliged to pay for
properties, funds and other assets, and took over its management and operations from its the taxes on the respondents’ retirement benefits. We have carefully reviewed the CBA
owner, Roberto Benedicto. However, in December 1986, the government and Benedicto and find no provision where petitioner obliged itself to pay the taxes on the retirement
entered into a temporary agreement under which the latter would retain its management benefits of its employees.
and operation.  On November 3, 1990, the Presidential Commission on Good
Government (PCGG) and Benedicto executed a Compromise Agreement, where We also agree with IBC’s contention that, under the NIRC, the retirement benefits of
Benedicto transferred and assigned all his rights, shares and interests in petitioner station respondents are part of their gross income subject to taxes. Section 28 (b) (7) (A) of the
to the government. NIRC of 1986 provides:
 
In the meantime, the four (4) employees retired from the company and received, on Sec. 28.           Gross Income. –  
staggered basis, their retirement benefits under the 1993 Collective Bargaining x x x x 
Agreement (CBA) between petitioner and the bargaining unit of its employees.   (b)        Exclusions from gross income. - The following items
shall not be included in gross income and shall be exempt from taxation
In the meantime, a P1,500.00 salary increase was given to all employees of the company, under this Title: 
current and retired, effective July 1994.  However, when the four retirees demanded xxxx
theirs, IBC refused and instead informed them via a letter that their differentials would be (7)        Retirement benefits, pensions, gratuities, etc. - (A)
used to offset the tax due on their retirement benefits in accordance with the National Retirement benefits received by officials and employees of private
Internal Revenue Code (NIRC). firms whether individuals or corporate, in accordance with a reasonable
private benefit plan maintained by the employer: Provided, That the
The four (4) retirees filed separate complaints against IBC TV-13 Cebu and the Station retiring official or employee has been in the service of the same
Manager for unfair labor practice and non-payment of backwages before the NLRC. employer for at least ten (10) years and is not less than fifty years of
They averred that their retirement benefits are exempt from income tax under Article 32 age at the time of his retirement: Provided, further, That the benefits
of the NIRC.  granted under this subparagraph shall be availed of by an official or
employee only once. For purposes of this subsection, the term
For its part, IBC averred that under Section 21 of the NIRC,  the retirement benefits "reasonable private benefit plan" means a pension, gratuity, stock
received by employees from their employers constitute taxable income.  While retirement bonus or profit-sharing plan maintained by an employer for the benefit
benefits are exempt from taxes under Section 28(b) of said Code, the law requires that of some or all of his officials or employees, where contributions are
such benefits received should be in accord with a reasonable retirement plan duly made by such employer for officials or employees, or both, for the
registered with the Bureau of Internal Revenue (BIR) after compliance with the purpose of distributing to such officials and employees the earnings and
requirements therein enumerated.  Since its retirement plan in the 1993 CBA was not principal of the fund thus accumulated, and wherein it is provided in
approved by the BIR, complainants were liable for income tax on their retirement said plan that at no time shall any part of the corpus or income of the
benefits.  IBC claimed that it was mandated to withhold the income tax due from the fund be used for, or be diverted to, any purpose other than for the
retirement benefits of said complainants.  It was not estopped from correcting the exclusive benefit of the said official and employees.
mistakes of its former officers. Under the law, the retirees are obliged to return what had
been mistakenly delivered to them.  For the retirement benefits to be exempt from the withholding tax, the taxpayer is
burdened to prove the concurrence of the following elements: (1) a reasonable private
The retirees stated that they availed of the optional retirement because of IBC’s benefit plan is maintained by the employer; (2) the retiring official or employee has been
inducement that there would be no tax deductions. in the service of the same employer for at least 10 years; (3) the retiring official or
Tax Case Digest BATAS TOMASINO 23
employee is not less than 50 years of age at the time of his retirement; and (4) the benefit
had been availed of only once.
Respondents were qualified to retire optionally from their employment with petitioner.  seasonably filed its Quarterly VAT Returns reflecting an accumulated input taxes in the
However, there is no evidence on record that the 1993 CBA had been approved or was
ever presented to the BIR; hence, the retirement benefits of respondents are taxable.  suppliers of capital goods and services for the construction and development of the power
Under Section 80 of the NIRC, IBC, as employer, was obliged to withhold the taxes on
said benefits and remit the same to the BIR.
However, we agree with respondents’ contention that petitioner did not withhold the
taxes due on their retirement benefits because it had obliged itself to pay the taxes due
thereon.  This was done to induce respondents to agree to avail of the optional retirement
scheme.
Respondents received their retirement benefits from the petitioner in three staggered
installments without any tax deduction for the simple reason that petitioner had remitted
the same to the BIR with the use of its own funds conformably with its agreement with
the retirees. It was only when respondents demanded the payment of their salary
differentials that petitioner alleged, for the first time, that it had failed to present the 1993
CBA to the BIR for approval, rendering such retirement benefits not exempt from taxes;
consequently, they were obliged to refund to it the amounts it had remitted to the BIR in
payment of their taxes. IBC used this “failure” as an afterthought, as an excuse for its
refusal to remit to the respondents their salary differentials.  Patently, IBC is estopped
from doing so.  It cannot renege on its commitment to pay the taxes on respondents’
retirement benefits on the pretext that the “new management” had found the policy
disadvantageous.
An agreement to pay the taxes on the retirement benefits as an incentive to prospective
retirees and for them to avail of the optional retirement scheme is not contrary to law or
to public morals.  Petitioner had agreed to shoulder such taxes to entice them to
voluntarily retire early, on its belief that this would prove advantageous to it.  xxxx
Respondents agreed and relied on the commitment of petitioner. For petitioner to renege
on its contract with respondents simply because its new management had found the same
disadvantageous would amount to a breach of contract.
Estoppel may arise from a making of a promise if it was intended that the promise should
be relied upon and, in fact, was relied upon, and if a refusal to sanction the perpetration
of fraud would result to injustice. The mere omission by the promisor to do whatever he
promises to do is sufficient forbearance to give rise to a promissory estoppel.
Re: Input VAT on Capital Goods and Services
Tax Case Digest BATAS TOMASINO
CIR v. Mirant Pagbilao Corp. (Oct. 12, 2006)
Facts: For the period April 1, 1996 to December 31, 1996, Mirant Pagbilao Corp.
amount of P39,330,500.85.  These input taxes were allegedly paid by MPC to the
generating plant and other related facilities in Pagbilao, Quezon.
MPC filed on June 30, 1998 an application for tax credit or refund of the aforementioned
unutilized VAT paid on capital goods. Without waiting for an answer from the BIR
Commissioner, MPC filed a petition for review before the CTA on July 10, 1998, in
order to toll the running of the two-year prescriptive period for claiming a refund under
the law.
The CTA ruled in favor of MPC, and declared that MPC had overwhelmingly proved,
through the VAT invoices and official receipts it had presented, that its purchases of
goods and services were necessary in the construction of power plant facilities which it
used in its business of power generation and sale.  The tax court, however, reduced the
amount of refund to which MPC was entitled.
Issue: Is Mirant Pagbilao Corp. entitled for tax credit or refund for the unutilized VAT
paid on capital goods?
Ruling: Mirant Pagbilao Corp. is entitled for tax credit or refund. Input VAT on capital
goods and services may be the subject of a claim for refund.
The MPC bases its claim for refund of its input VAT on Section 106(b) of the Tax Code
of 1986, as amended by Republic Act No. 7716, which provides –
 
Sec. 106. Refunds or tax credits of creditable input tax. –  
(b) Capital goods. - A VAT-registered person may apply for
the issuance of a tax credit certificate or refund of input taxes paid on
capital goods imported or locally purchased, to the extent that such
input taxes have not been applied against output taxes. The application
may be made only within two (2) years, after the close of the taxable
quarter when the importation or purchase was made.
 
Capital goods or properties, as defined in Revenue Regulations No. 7-95, the
implementing rules on VAT, are “goods and properties with estimated useful life greater
than one year and which are treated as depreciable assets under Section 29(f), used
directly or indirectly in the production or sale of taxable goods or services.”
24
Contrary to the argument of the BIR Commissioner, input VAT on capital goods is
among those expressly recognized as creditable input tax by Section 104(a) of the Tax
Code of 1986, as amended by Rep. Act No. 7716, to wit –
 
Sec. 104. Tax Credits. - (a) Creditable input tax. - Any input
tax evidenced by a VAT invoice or official receipt issued in accordance
with Section 108 hereof on the following transactions shall be
creditable against the output tax:  including the 20 percent final withholding tax on bank deposits.
 (1)        Purchase or importation of goods:
 (A)       For sale; or
 (B)       For conversion into or intended to form part of a
finished product for sale including packing materials; or
 (C)       For use as supplies in the course of business; or
 (D)       For use as materials supplied in the sale of service; or
 (E)       For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code, except
automobiles, aircraft and yachts. [Emphasis supplied.]
 
Thus, goods and properties used by the taxpayer in its VAT-taxable business, subject to
depreciation or amortization in accordance with the Tax Code, are considered capital
goods.  Input VAT on the purchase of such capital goods is creditable against the
taxpayer’s output VAT.  The taxpayer is further given the option, under Section 106(b) of
the Tax Code of 1986, as amended by Republic Act No. 7716, to claim refund of the
input VAT on its capital goods, but only to the extent that the said input VAT has not
been applied to its output VAT.
     
This Court, likewise, will not give credence to the BIR Commissioner’s contention that
the claim for refund of input VAT on capital goods by the MPC should be denied for the
latter’s failure to comply with the requirements for the refund of input VAT credits on
zero-rated sales provided in Section 16 of Revenue Regulations No. 5-87, as amended by
Revenue Regulations No. 3-88.  The BIR Commissioner is apparently confused.  MPC is
claiming refund of the input VAT it has paid on the purchase of capital goods, it is not
claiming refund of its input VAT credits attributable to its zero-rated sales.  These are
two different input VAT credits, arising from distinct transactions, although both may be
the subject of claims for refund by the taxpayer.  Indeed, the very same regulation
invoked by the BIR Commissioner, Revenue Regulations No. 5-87, as amended,
distinguishes between these two refundable input VAT credits and discusses them in two
separate paragraphs: Section 16(a) on zero-rated sales of goods and services, and Section
16(b) on capital goods.  Ruling: The Court of Appeal ruling is correct.
Section 13 of PAL’s franchise, states in part:
Re: Tax Exemptions; Franchise  
Tax Case Digest BATAS TOMASINO
CIR v. Philippine Airlines (Oct. 9, 2006)
Facts: Presidential Decree 1590 granted Philippine Airlines an option to pay the lower of
two alternatives:  (a) “the basic corporate income tax based on PAL’s annual net taxable
income computed in accordance with the provisions of the National Internal Revenue
Code” or (b) “a franchise tax of two percent of gross revenues.”  Availment of either of
these two alternatives shall exempt the airline from the payment of “all other taxes,”
PAL filed with the Office of the Commissioner of Internal Revenue, a written
request for refund of the amount of P2,241,527.22 which represents the total
amount of 20% final withholding tax withheld from PAL by various
withholding agent banks.
The CIR failed to act on PAL’s request for refund; thus, a petition was filed before the
CTA on April 23, 1999. The CTA ruled that Respondent PAL was not entitled to the
refund.  Section 13 of Presidential Decree No. 1590, PAL’s franchise, allegedly gave
respondent the option to pay either its corporate income tax under the provisions of the
NIRC or a franchise tax of two percent of its gross revenues.  Payment of either tax
would be in lieu of all “other taxes.”  Had respondent paid the two percent franchise tax,
then the final withholding taxes would have been considered as “other taxes.”  Since it
chose to pay its corporate income tax, payment of the final withholding tax is deemed
part of this liability and therefore not refundable.
The Court of Appeals reversed the Decision of the CTA.  The CA held that PAL was
bound to pay only the corporate income tax or the franchise tax.  Section 13 of
Presidential Decree No. 1590 exempts respondent from paying all other taxes, duties,
royalties and other fees of any kind.  Respondent chose to pay its basic corporate income
tax, which, after considering the factors allowed by law, resulted in a zero tax liability. 
This zero tax liability should neither be taken against respondent nor deprive it of the
exemption granted by the law.  Having chosen to pay its corporate income tax liability,
respondent should now be exempt from paying all other taxes including the final
withholding tax.
Issue: Is the Court of Appeals correct in ruling that the ‘in lieu of all other taxes’
provision in Section 13 of PD No. 1590 applies even if there were in fact no taxes paid
under any of subsections (A) and (B) of the said decree?
“SEC. 13.    In consideration of the franchise and rights hereby granted,
the grantee shall pay to the Philippine Government during the life of
25
 this franchise whichever of subsections (a) and (b) hereunder will result
in a lower tax:
 
‘(a)      The basic corporate income tax
based on the grantee's annual net taxable
income computed in accordance with the
provisions of the National Internal Revenue
Code; or
 
‘(b)      A franchise tax of two percent (2%)
of the gross revenues derived by the grantee
from all sources, without distinction as to
transport or non-transport operations;
provided, that with respect to international
air-transport service, only the gross
passenger, mail, and freight revenues from
its outgoing flights shall be subject to this
tax.’
“The tax paid by the grantee under either of the above alternatives shall
be in lieu of all other taxes, duties, royalties, registration, license, and
other fees and charges of any kind, nature, or description, imposed,
levied, established, assessed, or collected by any municipal, city,
provincial, or national authority or government agency, now or in the
future, x  x  x.”
Two points are evident from this provision.  First, as consideration for the franchise, PAL
is liable to pay either a) its basic corporate income tax based on its net taxable income, as
computed under the National Internal Revenue Code; or b) a franchise tax of two percent
based on its gross revenues, whichever is lower.  Second, the tax paid is “in lieu of all
other taxes” imposed by all government entities in the country.  Facts: Juliane Baier-Nickel, a non-resident German citizen, is the President of
PAL availed itself of PD 1590, Section 13, Subsection (a), the crux of which hinged on
the terms “basic corporate income tax” and “annual net taxable income.”  A corporate
income tax liability has two components: the general rate of 35 percent; and the specific
final rates for certain passive incomes.  PAL’s request for a refund in the present case
pertains to the passive income on bank deposits, which is subject to the specific final tax
of 20 percent.
The CIR argues that the “in lieu of all other taxes” proviso is a mere incentive that
applies only when PAL actually pays something; that is, either the basic corporate
income tax or the franchise tax.  Because of the zero tax liability of respondent under the
basic corporate income tax system, it was not eligible for exemption from other taxes.
Tax Case Digest BATAS TOMASINO
A careful reading of Section 13 rebuts the argument of the CIR that the “in lieu of all
other taxes” proviso is a mere incentive that applies only when PAL actually pays
something.  It is clear that PD 1590 intended to give respondent the option to avail itself
of Subsection (a) or (b) as consideration for its franchise.  Either option excludes the
payment of other taxes and dues imposed or collected by the national or the local
government.  PAL has the option to choose the alternative that results in lower taxes.  It
is not the fact of tax payment that exempts it, but the exercise of its option.
The fallacy of the CIR’s argument is evident from the fact that the payment of a measly
sum of one peso would suffice to exempt PAL from other taxes, whereas a zero liability
arising from its losses would not.  There is no substantial distinction between a zero tax
and a one-peso tax liability.
While the Court recognizes the general rule that the grant of tax exemptions is strictly
construed against the taxpayer and in favor of the taxing power,  Section 13 of the
franchise of respondent leaves no room for interpretation.  Its franchise exempts it from
paying any tax other than the option it chooses: either the “basic corporate income tax” or
the two percent gross revenue tax.
Notably, PAL was owned and operated by the government at the time the franchise was
last amended.  It can reasonably be contemplated that PD 1590 sought to assist the
finances of the government corporation in the form of lower taxes.  When respondent
operates at a loss (as in the instant case), no taxes are due; in this instance, it has a lower
tax liability than that provided by Subsection (b). 
Re: Source of Income
CIR v. Baier-Nickel (Aug. 29, 2006)
JUBANITEX, Inc., a domestic corporation engaged in the trade of embroidered textile
products. Through JUBANITEX’s General Manager, Marina Q. Guzman, the
corporation appointed and engaged the services of Baier-Nickel as commission agent. 
In 1995, Baier-Nickel received the amount of P1,707,772.64, representing her sales
commission income from which JUBANITEX withheld the corresponding 10%
withholding tax amounting to P170,777.26, and remitted the same to the Bureau of
Internal Revenue.
On April 14, 1998, Baier-Nickel filed a claim to refund the amount of P170,777.26
alleged to have been mistakenly withheld and remitted by JUBANITEX to the BIR. 
Baier-Nickel contended that her sales commission income is not taxable in the
26
Philippines because the same was a compensation for her services rendered in Germany
and therefore considered as income from sources outside the Philippines.
Issue: Is Baier-Nickel’s sales commission income is taxable in the Philippines?
Ruling: For her failure to prove that her income was from sources outside the Philippines
and exempt from the application of our income tax law.   Hence, her sales commission
income is taxable in the Philippines.
Pertinent portion of the National Internal Revenue Code (NIRC), states:
 
SEC. 25. Tax on Nonresident Alien Individual. –
 
(A)       Nonresident Alien Engaged in Trade or Business
Within the Philippines. –
 
(1)        In General. – A nonresident alien individual engaged
in trade or business in the Philippines shall be subject to an income tax
in the same manner as an individual citizen and a resident alien
individual, on taxable income received from all sources within the
Philippines.  A nonresident alien individual who shall come to the
Philippines and stay therein for an aggregate period of more than one
hundred eighty (180) days during any calendar year shall be deemed a
‘nonresident alien doing business in the Philippines,’ Section 22(G) of
this Code notwithstanding.
 
xxxx
 
(B)       Nonresident Alien Individual Not Engaged in Trade or
Business Within the Philippines. – There shall be levied, collected and
paid for each taxable year upon the entire income received from all
sources within the Philippines by every nonresident alien individual not
engaged in trade or business within the Philippines x x x a tax equal to
twenty-five percent (25%) of such income. x x x
 
Pursuant to the foregoing provisions of the NIRC, non-resident aliens, whether or not
engaged in trade or business, are subject to Philippine income taxation on their income
received from all sources within the Philippines.  Thus, the keyword in determining the
taxability of non-resident aliens is the income’s “source.”   In construing the meaning of
“source” in Section 25 of the NIRC, resort must be had on the origin of the provision.  proving that her income was from sources outside the Philippines and exempt from
The important factor which determines the source of income of personal services is not
the residence of the payor, or the place where the contract for service is entered into, or
the place of payment, but the place where the services were actually rendered. 
Tax Case Digest BATAS TOMASINO
The Court reiterates the rule that “source of income” relates to the property, activity or
service that produced the income.  With respect to rendition of labor or personal service,
as in the instant case, it is the place where the labor or service was performed that
determines the source of the income.  There is therefore no merit in petitioner’s
interpretation which equates source of income in labor or personal service with the
residence of the payor or the place of payment of the income.
The decisive factual consideration here is not the capacity in which Baier-Nickel received
the income, but the sufficiency of evidence to prove that the services she rendered were
performed in Germany.  Though not raised as an issue, the Court is clothed with authority
to address the same because the resolution thereof will settle the vital question posed in
this controversy.
 
The settled rule is that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the taxpayer.  To those therefore, who claim a refund
rest the burden of proving that the transaction subjected to tax is actually exempt from
taxation.
 
In the instant case, the appointment letter of Baier-Nickel as agent of JUBANITEX
stipulated that the activity or the service which would entitle her to 10% commission
income, are “sales actually concluded and collected through [her] efforts.”  What she
presented as evidence to prove that she performed income producing activities abroad,
were copies of documents she allegedly faxed to JUBANITEX and bearing instructions
as to the sizes of, or designs and fabrics to be used in the finished products as well as
samples of sales orders purportedly relayed to her by clients.  However, these documents
do not show whether the instructions or orders faxed ripened into concluded or collected
sales in Germany.  At the very least, these pieces of evidence show that while respondent
was in Germany, she sent instructions/orders to JUBANITEX.  As to whether these
instructions/orders gave rise to consummated sales and whether these sales were truly
concluded in Germany, respondent presented no such evidence.  Neither did she establish
reasonable connection between the orders/instructions faxed and the reported monthly
sales purported to have transpired in Germany. 
In sum, we find that the faxed documents presented by Baier-Nickel did not constitute
substantial evidence, or that relevant evidence that a reasonable mind might accept as
adequate to support the conclusion that it was in Germany where she performed the
income producing service which gave rise to the reported monthly sales in the months of
March and May to September of 1995.  She thus failed to discharge the burden of
the application of our income tax law.   Hence, the claim for tax refund should be
denied.
27

Re: Refund
(Nota Bene: The following case is the continuation of the earlier case of the same title,
dated July 21, 1994, where the SC held that “the errors of certain administrative officers
should never be allowed to jeopardize the Government's financial position, especially in
the case at bar where the amount involves millions of pesos the collection whereof, if
justified, stands to be prejudiced just because of bureaucratic lethargy.” The case was
REMANDED to the Court of Tax Appeals for further proceedings and appropriate
action, more particularly, the reception of evidence for the Government).
CIR v. Citytrust Banking Corp. (Aug. 22, 2006)
Facts: The Commissioner of Internal Revenue assails the decision of the Court of
Appeals which ordered the refund of P13,314,506.14 to respondent Citytrust Banking
Corporation as its alleged overpaid income taxes for the years 1984 and 1985.
The CIR claims that Citytrust had outstanding deficiency income and business tax
liabilities of P4,509,293.71 for 1984, thus, the claim for refund was not in order. The tax
court denied both motions.
 
The Supreme Court Court, however, ruled that there was an apparent contradiction
between the claim for refund and the deficiency assessments against Citytrust, and that
the government could not be held in estoppel due to the negligence of its officials or
employees, specially in cases involving taxes.  For that reason, the case was remanded to
the CTA for further reception of evidence.
  
The tax court thereafter conducted the necessary proceedings.  From the exhibits
presented to it, the CTA determined that: (1) the deficiency and gross receipts taxes had
been fully paid and (2) the deficiency income tax was only partially settled.
 
Citytrust considered all its deficiency tax liabilities for 1984 fully settled, hence, it prayed
that it be granted a refund.  The CIR interposed his objection, however, alleging that
Citytrust still had unpaid deficiency income, business and withholding taxes for the year
1985. Due to these deficiency assessments, the CIR insisted that Citytrust was not
entitled to any tax refund.
 
The CTA set aside the CIR’s objections and granted the refund. The CA denied the
CIR’s petition for review for lack of merit and affirmed the CTA decision.
 
Tax Case Digest BATAS TOMASINO
Issue: Is Citytrust entitled to the refund of its alleged overpaid income taxes for 1984 and
1985?
Ruling: Citytrust is entitled to the refund.
The CIR contends that respondent is not entitled to the refund of P13,314,506.14 as
alleged overpaid income taxes for 1984 and 1985.  The CIR claims that the CA erred in
not holding that payment by Citytrust of its deficiency income tax was an admission of its
tax liability and, therefore, a bar to its entitlement to a refund of income tax for the same
taxable year.
In resolving this case, the CTA did not allow a set-off or legal compensation of the taxes
involved. The CTA reasoned:
Again, the BIR interposed objection to the grant of such refund. It
alleged that there are still deficiency income, business and
withholding taxes proposed against petitioner for 1985. These
assessments are contained in a Delinquency Verification Slip, dated
June 5, 1990, which was marked as Exh. “5” for respondent. Due to
these deficiency assessments, respondent insisted that petitioner is not
entitled to any tax refund.
 
[The CTA] sets aside respondent’s objection and grants to petitioner
the refund of the amount of P13,314,506.14 on several grounds.
 
First, [respondent’s position] violates the order of the Supreme Court in
directing [the CTA] to conduct further proceedings for the reception of
petitioner’s evidence, and the disposition of the present case. Although
the Supreme Court did not specifically mention what kind of
petitioner’s evidence should be entertained, [the CTA] is of the opinion
that the evidence should pertain only to the 1984 assessments which
were the only assessments raised as a defense on appeal to the
Court of Appeals and the Supreme Court. The assessments
embodied in Exhibit “5” of respondent were never raised on appeal to
the higher [c]ourts. Hence, evidence related to said assessments should
not be allowed as this will lead to endless litigation.
 
Second, [the CTA] has no jurisdiction to try an assessment case
which was never appealed to it. With due respect to the Supreme
Court’s decision, it is [the CTA’s] firm stand that in hearing a refund
case, the CTA cannot hear in the same case an assessment dispute even
if the parties involved are the same parties. xxx xxx  xxx. (Citations
omitted and emphasis supplied)
28
We uphold the findings and conclusion of the CTA and the CA.
 
Records show that this Court made no previous direct ruling on Citytrust’s alleged failure
to substantiate its claim for refund. Instead, the order of this Court addressed the apparent
failure of the Bureau of Internal Revenue, by reason of the mistake or negligence of its
officials and employees, to present the appropriate evidence to oppose respondent’s
claim.  In the earlier case, we directed the joint resolution of the issues of tax deficiency
assessment and refund due to its particular circumstances.  contest the issuance of the warrants to enforce the collection of the tax assessments.
The CTA complied with the Court’s order to conduct further proceedings for the
reception of the CIR’s evidence in CTA Case No. 4099. In the course thereof, Citytrust
paid the assessed deficiencies to remove all administrative impediments to its claim for
refund.  But the CIR considered this payment as an admission of a tax liability which was
inconsistent with Citytrust’s claim for refund.
 There is indeed a contradiction between a claim for refund and the assessment of
deficiency tax.  The CA pointed out that the case was remanded to the CTA for the
reception of additional evidence precisely to resolve the apparent contradiction.
Because of the CTA’s recognized expertise in taxation, its findings are not ordinarily
subject to review specially where there is no showing of grave error or abuse on its part.  Issue: Is a demand letter for tax deficiency assessments issued and signed by a
 
This Court will not set aside lightly the conclusion reached by the Court of Tax Appeals
which, by the very nature of its function, is dedicated exclusively to the consideration of
tax problems and has necessarily developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority.
Re: Assessment; Powers of the CIR; Delegation of Powers of the CIR to
Subordinate Officers
Oceanic Wireless Network v. CIR (Dec. 9, 2005)
Facts: On March 17, 1988, Oceanic Wireless Network received from the Bureau of
Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total
amount of P8,644,998.71
Petitioner filed its protest against the tax assessments and requested a reconsideration or
cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988.
 
Acting in behalf of the BIR Commissioner, the Chief of the BIR Accounts Receivable
and Billing Division, reiterated the tax assessments while denying petitioner’s request for
reinvestigation.
Tax Case Digest BATAS TOMASINO
Upon Oceanic Wireless Network’s failure to pay the subject tax assessments within the
prescribed period, the Assistant Commissioner for Collection, acting for the
Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or
levy and garnishment.
Oceanic Wireless Network filed a Petition for Review with the Court of Tax Appeals to
The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16,
1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned
from the time when the demand letter of January 24, 1991 by the Chief of the BIR
Accounts Receivable and Billing Division was presumably received by Oceanic Wireless
Network.
Oceanic Wireless Network challenges the authority of the Chief of the Accounts
Receivable and Billing Division of the BIR to decide and/or act with finality on behalf of
the Commissioner of Internal Revenue on protests against disputed tax deficiency
assessments.
subordinate officer who was acting in behalf of the Commissioner of Internal Revenue,
deemed final and executory and subject to an appeal to the Court of Tax Appeals?
Ruling: A demand letter for tax deficiency assessments issued and signed by a
subordinate officer who was acting in behalf of the Commissioner of Internal Revenue is
valid. The authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and effect as that issued by the
Commissioner himself, if not reviewed or revised by the latter such as in this case.
A demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment. The determination on whether or not a demand letter
is final is conditioned upon the language used or the tenor of the letter being sent to the
taxpayer.
In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the
final action taken by the Bureau of Internal Revenue on Oceanic Wireless Network’s
request for reconsideration when it reiterated the tax deficiency assessments due from
petitioner, and requested its payment.  Failure to do so would result in the “issuance of a
warrant of distraint and levy to enforce its collection without further notice.” In addition,
the letter contained a notation indicating that petitioner’s request for reconsideration had
been denied for lack of supporting documents.
29
The demand letter received by Oceanic Wireless Network verily signified a character of
finality. Therefore, it was tantamount to a rejection of the request for reconsideration. As
correctly held by the Court of Tax Appeals, “while the denial of the protest was in the
form of a demand letter, the notation in the said letter making reference to the protest
filed by petitioner clearly shows the intention of the respondent to make it as [his] final
decision.”
 
The demand letter issued and signed by a subordinate officer, acting in behalf of the
Commissioner of Internal Revenue, has the same force and effect as that issued by
the Commissioner himself, if not reviewed or revised by the latter
 
The general rule is that the Commissioner of Internal Revenue may delegate any power
vested upon him by law to Division Chiefs or to officials of higher rank. He cannot,
however, delegate the four powers granted to him under the NIRC enumerated in Section
7.
As amended by Republic Act No. 8424, Section 7 of the Code 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:
(a) The power to recommend the promulgation of rules and
regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke
or modify any existing ruling of the Bureau;
(c) The power to compromise or abate under Section 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) or
less, and minor criminal violations as may be determined by rules
and regulations to be 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
(d) The power to assign or reassign internal revenue officers to
establishments where articles subject to excise tax are produced or
kept.
Tax Case Digest BATAS TOMASINO
 
It is clear from the above provision that the act of issuance of the demand letter by the
Chief of the Accounts Receivable and Billing Division does not fall under any of the
exceptions that have been mentioned as non-delegable.
A request for reconsideration must be made within thirty (30) days from the taxpayer’s
receipt of the tax deficiency assessment, otherwise, the decision becomes final,
unappealable and therefore, demandable.
Oceanic Wireless Network failed to avail of its right to bring the matter before the Court
of Tax Appeals within the reglementary period upon the receipt of the demand letter
reiterating the assessed delinquent taxes and denying its request for reconsideration
which constituted the final determination by the Bureau of Internal Revenue on
petitioner’s protest. Being a final disposition by said agency, the same would have been a
proper subject for appeal to the Court of Tax Appeals.
Re: Tax Credit
CIR v. Philippine National Bank (Oct. 25, 2005)
Facts: Philippine National Bank (PNB) issued to the Bureau of Internal Revenue (BIR)
PNB Cashier’s Check No. 109435 for P180,000,000.00. The check represented PNB’s
advance income tax payment for the bank’s 1991 operations and was remitted in response
to then President Corazon C. Aquino’s call to generate more revenues for national
development. B requested the issuance of a tax credit certificate (TCC) to be utilized
against future tax obligations of the bank but the same was not acted upon.
For the first and second quarters of 1991, PNB also paid additional taxes amounting to
P6,096,150.00 and P26,854,505.80, respectively, as shown in its corporate quarterly
income tax return filed on May 30, 1991. Inclusive of the P180 Million aforementioned,
PNB paid and BIR received in 1991 the aggregate amount of P212, 950,656.79.  This
final figure, if tacked to PNB’s prior year’s excess tax credit (P1,385,198.30) and the
creditable tax withheld for 1991 (P3,216,267.29), adds up to P217,552,122.38.
 
By the end of 1991, PNB’s  annual income tax liability amounted to P144,253,229.78,
which, when compared to its claimed total credits and tax payments of P217,552,122.38,
resulted to a credit balance in its favor in the amount of  P73,298,892.60. This credit
balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB
alleged, was never applied owing to the bank’s negative tax position for the said inclusive
years, having incurred losses during the 4-year period.
 
30
On July 28, 1997, PNB wrote the BIR Commissioner to inform her about the above
developments and to reiterate its request for the issuance of a TCC, this time for the
“unutilized balance of its advance payment made in 1991 amounting to P73,298,892.60”.
The BIR decided not to take cognizance of the bank’s  claim for tax credit certificate. On
August 14, 2001, PNB again wrote the BIR requesting that it be allowed to apply its
unutilized advance tax payment of P73,298,892.60 to the bank’s future gross receipts tax
liability.  The BIR Commissioner denied PNB’s claim for tax credit holding that such
claim was time-barred.
Issue: Is PNB entitled to tax credit for the unutilized balance of its advance payment
made in 1991despite the lapse of more than two years?
Ruling: PNB is entitled to tax credit. The two (2)-year prescriptive period is not
applicable in this case. Recovery of advance payment is not similar to recovery of sums
erroneously, excessively, illegally or wrongfully collected.
The core issue in this case pivots on the applicability hereto of the two (2)-year
prescriptive period under in Section 230 (now Sec. 229) of the NIRC, reading:
 
            “SEC. 230.      Recovery of tax erroneously or illegally
collected. – No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected , . . , or of any
sum, alleged to have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether
or not such tax, penalty, or sum has been paid under protest or duress.
 In any case, no such suit or proceeding shall be begun after
the expiration of two [(2)] years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the
face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid. (Underscoring added.)
  
PNB’s request for issuance of a tax credit certificate on the balance of its advance income
tax payment cannot be treated as a simple case of excess payment as to be automatically
covered by the two (2)-year limitation in Section 230 of the NIRC.  An availment of a tax credit due for reasons other than the erroneous or wrongful
 
Section 230 of the Tax Code, as couched, particularly its statute of limitations
component, is, in context, intended to apply to suits for the recovery of internal revenue
taxes or sums erroneously, excessively, illegally or wrongfully collected.
Tax Case Digest BATAS TOMASINO
Recovery of advance payment is not similar to recovery of sums erroneously,
excessively, illegally or wrongfully collected
Black defines the term erroneous or illegal tax as one levied without statutory authority. 
In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from,
or is a consequence of overpayment of tax erroneously or illegally collected. It is beyond
cavil that respondent PNB issued to the BIR the check for P180 Million in the concept of
tax payment in advance. What in effect transpired when PNB wrote its July 28, 1997
letter was that respondent sought the application of amounts advanced to the BIR to
future annual income tax liabilities, in view of its inability to carry-over the remaining
amount of such advance payment to the four (4) succeeding taxable years, not having
incurred income tax liability during that period.
 
The instant case ought to be distinguished from a situation where, owing to net losses
suffered during a taxable year, a corporation was also unable to apply to its income tax
liability taxes which the law requires to be withheld and remitted.  In the latter instance,
such creditable withholding taxes, albeit also legally collected, are in the nature of
“erroneously collected taxes” which entitled the corporate taxpayer to a refund under
Section 230 of the Tax Code. 
Analyzing the underlying reason behind the advance payment made by respondent PNB
in 1991, the CA held that it would be improper to treat the same as erroneous, wrongful
or illegal payment of tax within the meaning of Section 230 of the Tax Code.  So that
even if the respondent’s inability to carry-over the remaining amount of its advance
payment to  taxable years 1992 to 1996 resulted in excess credit, it would be inequitable
to impose the two (2)-year prescriptive period in Section 230 as to bar PNB’s  claim for
tax credit to utilize the same for future tax liabilities.
PNB’s advance payment which are not “quarterly payments” reflected in the adjusted
final return, but a lump sum payment to cover future tax obligations.  Neither can such
advance lump sum payment be considered overpaid income tax for a given taxable year,
so that the carrying forward of any excess or overpaid income tax for a given taxable year
is limited to the succeeding taxable year only.  Clearly,  limiting  the right to carry-over
the balance of respondent’s advance payment only to the immediately succeeding taxable
year would be unfair and improper considering that, at the time  payment was made, BIR
was put on due notice of PNB’s intention to apply the entire amount to its future tax
obligations.
collection of taxes may have a different prescriptive period.  Absent any specific
provision in the Tax Code or special laws, that period would be ten (10) years under
Article 1144 of the Civil Code. 
31
Even if the two (2)-year prescriptive period, if applicable, had already lapsed, the addressing the points raised by petitioner BPI in its protest letter, dated 16 November
same is not jurisdictional and may be suspended for reasons of equity and other 1989. Upon receipt of the letter from BPI proceeded to file a Petition for Review with
special circumstances. the CTA on 10 October 1997.

BPI raised the defense of prescription of the right of respondent BIR Commissioner to
The suspension of the two (2)-year prescriptive period is warranted not solely by the enforce collection of the assessed amount.  It alleged that respondent BIR Commissioner
objective or purpose pursuant to which PNB made the advance income tax payment in only had three years to collect on the Assessment, but she waited for seven years and nine
1991.  Records show that petitioner’s very own conduct led the bank to believe all along months to deny the protest. 
that its original intention to apply the advance payment to its future income tax
obligations will be respected by the BIR.  Notwithstanding PNB’s failure to request for Issue: Has the right of respondent BIR Commissioner to collect from BPI the alleged
tax credit after incurring negative tax position in 1992, up to taxable year 1996, there deficiency DST for taxable year 1985 prescribed?
appears to be a valid reason to assume that the agreed carrying forward of the balance of
the advance payment extended to succeeding taxable years, and not only in 1992.  Thus, Ruling: The statute of limitations on collection of the deficiency DST has already
upon posting a net income in 1997 and regaining a profitable business operation, prescribed. The period for the BIR to assess and collect an internal revenue tax is
respondent bank promptly sought the issuance of a TCC for the reason that its credit limited to three years by Section 203 of the Tax Code of 1977.
balance of P73, 298,892.60 remained unutilized.
The BIR has three years, counted from the date of actual filing of the return or from the
It bears stressing that respondent PNB remitted the P180 Million in question as a measure last date prescribed by law for the filing of such return, whichever comes later, to assess a
of goodwill and patriotism, a gesture noblesse oblige, so to speak, to help the cash- national internal revenue tax or to begin a court proceeding for the collection thereof
strapped national government. It would be unfair to leave PNB to suffer losing millions without an assessment.  In case of a false or fraudulent return with intent to evade tax or
of pesos advanced by it for future tax liabilities. the failure to file any return at all, the prescriptive period for assessment of the tax due
shall be 10 years from discovery by the BIR of the falsity, fraud, or omission.  When the
BIR validly issues an assessment, within either the three-year or ten-year period,
Re: Assessment; Prescriptive Period of the Right to Collect Taxes; Documentary Stamp whichever is appropriate, then the BIR has another three years after the assessment
Tax within which to collect the national internal revenue tax due thereon by distraint, levy,
and/or court proceeding.  The assessment of the tax is deemed made and the three-year
Bank of the Philippine Islands v. CIR (Oct. 17, 2005) period for collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed or sent by the BIR to the taxpayer.
Facts: BPI on two separate occasions sold United States (US) $500,000.00 to the Central
Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. In the present Petition, there is no controversy on the timeliness of the issuance of the
  Assessment, only on the prescription of the period to collect the deficiency DST
On 10 October 1989, the Bureau of Internal Revenue issued an Assessment finding following its Assessment.  Counting the three-year prescriptive period, for a total of
petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of 1,095 days, from 20 October 1989, then the BIR only had until 19 October 1992 within
exchange to the Central Bank. which to collect the assessed deficiency DST. 
 
BPI protested the Assessment in a letter dated 16 November 1989. BPI did not receive The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was
any immediate reply to its protest letter.  However, on 15 October 1992, the BIR issued a its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI. 
Warrant of Distraint and/or Levy against petitioner BPI for the assessed deficiency DST Although the Warrant was issued on 15 October 1992, previous to the expiration of the
for taxable year 1985, in the amount of P27,720.00.  It served the Warrant on petitioner period for collection on 19 October 1992, the same was served on petitioner BPI only on
BPI only on 23 October 1992. 23 October 1992. 
 
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when it Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the
received a letter, dated 13 August 1997, denying its “request for reconsideration,” and Warrant of Distraint and/or Levy be fully executed so that it can suspend the
running of the statute of limitations on the collection of the tax.  It is enough that the
Tax Case Digest BATAS TOMASINO 32
proceedings have validly began or commenced and that their execution has not been
suspended by reason of the voluntary desistance of the respondent BIR
Commissioner.  Existing jurisprudence establishes that distraint and levy proceedings
are validly begun or commenced by the issuance of the Warrant and service thereof
on the taxpayer.  It is only logical to require that the Warrant of Distraint and/or Levy
be, at the very least, served upon the taxpayer in order to suspend the running of the
prescriptive period for collection of an assessed tax, because it may only be upon the
service of the Warrant that the taxpayer is informed of the denial by the BIR of any
pending protest of the said taxpayer, and the resolute intention of the BIR to collect the
tax assessed.
 
The service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October
1992 was already beyond the prescriptive period for collection of the deficiency DST,
which had expired on 19 October 1992, then the letter of respondent BIR Commissioner,
dated 13 August 1997 denying the protest of BPI and requesting payment of the
deficiency DST is useless.
 
(d) Any internal revenue tax which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove may be collected
by distraint or levy or by a proceeding in court within the period agreed
upon in writing before the expiration of the three-year period.  The
period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed
upon. 
 
The agreements so described in the afore-quoted provisions are often referred to as
waivers of the statute of limitations.  The waiver of the statute of limitations, whether on
assessment or collection, should not be construed as a waiver of the right to invoke the
defense of prescription but, rather, an agreement between the taxpayer and the BIR to
extend the period to a date certain, within which the latter could still assess or collect
taxes due.  The waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally.

The protest letter BPI did not suspend the running of the prescriptive period for A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of
collecting the assessed DST the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the
Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive
Though the statute of limitations on assessment and collection of national internal periods for assessment and collection; and (4) for a definite period beyond the ordinary
revenue taxes benefits both the Government and the taxpayer, it principally intends to prescriptive periods for assessment and collection.  The period agreed upon can still be
afford protection to the taxpayer against unreasonable investigation.  The indefinite extended by subsequent written agreement, provided that it is executed prior to the
extension of the period for assessment is unreasonable because it deprives the said expiration of the first period agreed upon. 
taxpayer of the assurance that he will no longer be subjected to further investigation for
taxes after the expiration of a reasonable period of time. These provisions on the statute A request for reconsideration or reinvestigation by the taxpayer, without a valid
of limitations on assessment and collection of taxes shall be construed and applied waiver of the prescriptive periods for the assessment and collection of tax, as
liberally in favor of the taxpayer and strictly against the Government. required by the Tax Code and implementing rules, will not suspend the running
thereof.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, the prescriptive periods for assessment and collection of national internal In the Petition at bar, BPI executed no such waiver of the statute of limitations on the
revenue taxes, respectively, could be waived by agreement, to wit – collection of the deficiency DST. Without a valid waiver, the statute of limitations on
  collection by the BIR of the deficiency DST could not have been suspended.
SEC. 223. – Exceptions as to period of limitation of assessment and
collection of taxes. – Of particular importance to the present case is one of the circumstances enumerated in
... Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of
  limitations on assessment and collection of taxes is considered suspended “when the
(b) If before the expiration of the time prescribed in the preceding taxpayer requests for a reinvestigation which is granted by the Commissioner.”
section for the assessment of the tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such time the tax There is a distinction between a request for reconsideration and a request for
may be assessed within the period agreed upon.  The period so agreed reinvestigation
upon may be extended by subsequent written agreement made before
the expiration of the period previously agreed upon. This Court gives credence to the argument of BPI that there is a distinction between a
... request for reconsideration and a request for reinvestigation.  Revenue Regulations (RR)
Tax Case Digest BATAS TOMASINO 33
No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the
recommendation of the BIR Commissioner, governs the procedure for protesting an Even if, for the sake of argument, this Court glosses over the distinction between a
assessment and distinguishes between the two types of protest, as follows – request for reconsideration and a request for reinvestigation, and considers the protest of
  petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended
PROTEST TO ASSESSMENT at once the running of the statute of limitations.  Article 224 of the Tax Code of 1977, as
  amended, very plainly requires that the request for reinvestigation had been granted by
SEC. 6.  Protest.  The taxpayer may protest administratively an the BIR Commissioner to suspend the running of the prescriptive periods for assessment
assessment by filing a written request for reconsideration or and collection. 
reinvestigation. . .
... The burden of proof that the taxpayer’s request for reinvestigation had been actually
For the purpose of the protest herein – granted shall be on respondent BIR Commissioner.  The grant may be expressed in
  communications with the taxpayer or implied from the actions of the respondent BIR
(a) Request for reconsideration. – refers to a plea for a re-evaluation of Commissioner or his authorized BIR representatives in response to the request for
an assessment on the basis of existing records without need of reinvestigation.
additional evidence.  It may involve both a question of fact or of law or
both. In the Suyoc case, this Court expressly conceded that a mere request for reconsideration
  or reinvestigation of an assessment may not suspend the running of the statute of
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an limitations.  It affirmed the need for a waiver of the prescriptive period in order to effect
assessment on the basis of newly-discovered or additional evidence suspension thereof.  However, even without such waiver, the taxpayer may be estopped
that a taxpayer intends to present in the reinvestigation.  It may also from raising the defense of prescription because by his repeated requests or positive acts,
involve a question of fact or law or both. he had induced Government authorities to delay collection of the assessed tax.
 
With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted Conclusion
distinctions between a request for reconsideration and a request for reinvestigation, the  
two types of protest can no longer be used interchangeably and their differences so To summarize all the foregoing discussion, this Court lays down the following rules on
lightly brushed aside.  It bears to emphasize that under Section 224 of the Tax Code of the exceptions to the statute of limitations on collection.
1977, as amended, the running of the prescriptive period for collection of taxes can only  
be suspended by a request for reinvestigation, not a request for reconsideration.  The statute of limitations on collection may only be interrupted or suspended by a valid
Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of
evidence, will take more time than a reconsideration of a tax assessment, which will be 1977, as amended, and the existence of the circumstances enumerated in Section 224 of
limited to the evidence already at hand; this justifies why the former can suspend the the same Code, which include a request for reinvestigation granted by the BIR
running of the statute of limitations on collection of the assessed tax, while the latter can Commissioner. 
not.  
  Even when the request for reconsideration or reinvestigation is not accompanied by a
The protest letter of BPI, dated 16 November 1989 not specifically request for either a valid waiver or there is no request for reinvestigation that had been granted by the BIR
reconsideration or reinvestigation.  A close review of the contents thereof would reveal Commissioner, the taxpayer may still be held in estoppel and be prevented from setting
that it protested the Assessment based on a question of law, in particular, whether or not up the defense of prescription of the statute of limitations on collection when, by his own
petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in repeated requests or positive acts, the Government had been, for good reasons, persuaded
taxable year 1985.  The same protest letter did not raise any question of fact; neither did to postpone collection to make the taxpayer feel that the demand is not unreasonable or
it offer to present any new evidence. These considerations would lead this Court to that no harassment or injustice is meant by the Government, as laid down by this Court in
deduce that the protest letter of BPI was in the nature of a request for the Suyoc case. 
reconsideration, rather than a request for reinvestigation and, consequently, Section 224
of the Tax Code of 1977, as amended, on the suspension of the running of the statute of
limitations should not apply. 
Tax Case Digest BATAS TOMASINO 34
Re: Real Property Tax; Local Taxation; Exemption; Franchise
Quezon City v. Bayan Telecommunications (March 6, 2006)
Facts: Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under
Republic Act No. 3259. Section 14 thereof reads:
SECTION 14.  (a)  The grantee shall be liable to pay the same
taxes on its real estate, buildings and personal property, exclusive of
the franchise, as other persons or corporations are now or hereafter
may be required by law to pay.  (b) The grantee shall further pay to the
Treasurer of the Philippines each year, within ten days after the audit
and approval of the accounts as prescribed in this Act, one and one-half
per centum of all gross receipts from the business transacted under this
franchise by the said grantee
On January 1, 1992, Rep. Act No. 7160, otherwise known as the “Local Government
Code of 1991” (LGC), took effect. Section 232 of the Code grants local government units
within the Metro Manila Area the power to levy tax on real properties. Complementing
the aforequoted provision is the second paragraph of Section 234 of the same Code which
withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons,
natural or juridical.
 
On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep.
Act No. 7633, amending Bayantel’s original franchise. Rep. Act No. 7633 contained the
following tax provision:
SEC. 11.  The grantee, its successors or assigns shall be liable
to pay the same taxes on their real estate, buildings and personal
property, exclusive of this franchise, as other persons or corporations
are now or hereafter may be required by law to pay.  In addition
thereto, the grantee, its successors or assigns shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the telephone or
other telecommunications businesses transacted under this franchise by
the grantee, its successors or assigns and the said percentage shall be in
lieu of all taxes on this franchise or earnings thereof.  Provided, That
the grantee, its successors or assigns shall continue to be liable for
income taxes payable under Title II of the National Internal Revenue
Code ….  xxx.
Bayantel owned several real properties within Quezon City.  In  1993,  the  government
of  Quezon  City enacted City Ordinance  No. SP-91, S-93, otherwise known as the
Quezon City Revenue Code (QCRC), imposing, under Section 5 thereof, a real property
Tax Case Digest BATAS TOMASINO
tax on all real properties in Quezon City, and, reiterating in its Section 6, the withdrawal
of exemption from real property tax under Section 234 of the LGC.
Meanwhile, on March 16, 1995, Rep. Act No. 7925, otherwise  known as the “Public
Telecommunications Policy Act of the Philippines,” envisaged to level the playing field
among telecommunications companies, took effect.  Section 23 of the Act provides:
SEC. 23.  Equality of Treatment in the Telecommunications
Industry. –  Any advantage, favor, privilege, exemption, or immunity
granted under existing franchises, or may hereafter be granted, shall
ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to
the grantees of such franchises: Provided, however, That the foregoing
shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span
of the franchise, or the type of service authorized by the franchise.
On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion
of its real properties in the city from the roll of taxable real properties.  On its firm belief
of its exempt status, Bayantel did not pay the real property taxes assessed against it by the
Quezon City government.  On account thereof, the Quezon City Treasurer sent out
notices of delinquency for the total amount of P43,878,208.18, followed by the issuance
of several warrants of levy against Bayantel’s properties preparatory to their sale  at a
public auction set on July 30, 2002.
Issue: Are Bayantel’s real properties in Quezon City, under its franchise, exempt from
real property tax?
Ruling: Bayantel is exempt form real property tax. The realty tax exemption enjoyed
by Bayantel under its original franchise, but subsequently withdrawn by force of
Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633.
Under Bayantel’s original franchise,the  legislative  intent  expressed  in  the  phrase
“exclusive of this franchise” is to distinguish between  two  (2)  sets of properties, be they
real or personal, owned  by  the  franchisee,  namely,  (a)  those  actually, directly and
exclusively used in its radio or telecommunications business, and  (b)  those  properties
which  are  not  so  used.   It  is worthy to  note  that  the  properties  subject  of  the
present controversy are  only  those  which  are admittedly falling under the first
category. To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works
to grant or delegate to local governments of Congress’ inherent power to tax the
franchisee’s properties belonging to the second group of properties indicated above, that
is, all properties which, “exclusive of this franchise,” are not actually and directly used in
the pursuit of its franchise. 
35
With the LGC’s taking effect on January 1, 1992, Bayantel’s “exemption” from real
estate taxes for properties of whatever kind located within the Metro Manila area was, by
force of Section 234 of the Code, expressly withdrawn. But, not long thereafter, however,
or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s original
franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment
of the tax provision, i.e., Section 14, supra, of Bayantel’s original franchise under Rep.
Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. 3259 which was deemed
impliedly repealed by Section 234 of the LGC was expressly revived under Section 14 of
Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by
Bayantel under its original franchise, but subsequently withdrawn by force of Section 234
of the LGC, has been restored by Section 14 of Rep. Act No. 7633.   statutory  provisions  on  municipal taxing powers, doubts must be resolved in favor of
Despite the Constitutional grant of power of taxation to local government units, the
power to tax is still primarily vested in the Congress. It does not change the
doctrine that municipal corporations do not possess inherent powers of taxation .  Bayantel’s properties from realty taxes by its enactment of Rep. Act No. 7633 which
While the system of local government taxation has changed with the onset of the 1987
Constitution, the power of local government units to tax is still limited. As we explained
in Mactan Cebu International Airport  Authority:
The power to tax is primarily vested in the Congress;
however, in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely be virtue of a valid delegation as before,
but pursuant to direct authority conferred by Section 5, Article X
of the Constitution.  Under the latter, the exercise of the power may be
subject to such guidelines and limitations as the Congress may provide
which, however, must be consistent with the basic policy of local
autonomy.
Clearly then, while a new slant on the subject of local taxation now prevails in the sense
that the former doctrine of local government units’ delegated power to tax had been
effectively modified with  Article X, Section 5 of the 1987 Constitution now in place, the
basic doctrine on local taxation remains essentially the same. For as the Court stressed in
Mactan, “the power to tax is [still] primarily vested in the Congress.”
provisions on municipal fiscal powers, doubts will be resolved in favor of municipal
corporations.  It is understood, however, that taxes imposed by local government must be
for a public purpose, uniform within a locality, must not be confiscatory, and must be
within the jurisdiction of the local unit to pass.
Congress has the power to grant exemptions over the power of local government units to
impose taxes. grant  of  taxing  powers  to  local government units   under   the
Constitution   and   the  LGC  does  not  affect the power  of  Congress  to  grant
exemptions to certain persons, pursuant to  a  declared  national policy.  The  legal  effect
of the constitutional grant  to  local  governments  simply  means  that  in  interpreting 
municipal corporations.
The issue in this case no longer dwells on whether Congress has the power to exempt
amended Bayantel’s original franchise. The more decisive question turns on whether
Congress actually did exempt Bayantel’s properties at all by virtue of Section 11 of
Rep. Act No. 7633.
Rep. Act No. 7633 was enacted subsequent to the LGC.  Perfectly aware that the LGC
has already withdrawn  Bayantel’s former exemption from realty taxes, Congress opted
to pass Rep. Act No. 7633 using, under Section 11 thereof, exactly the same defining
phrase “exclusive of this franchise”  which was the basis for Bayantel’s exemption from
realty taxes prior to the LGC.  In plain language, Section 11 of Rep. Act No. 7633 states
that “the grantee, its successors or assigns shall be liable to pay the same taxes on their
real estate, buildings and personal property, exclusive of this franchise, as other persons
or corporations are now or hereafter may be required by law to pay.”  The Court views
this subsequent piece of legislation as an express and real intention on the part of
Congress to once again remove from the LGC’s delegated taxing power, all of the
franchisee’s (Bayantel’s) properties that are actually, directly and exclusively used in the
pursuit of its franchise.
Re: Exemption to Retroactive Application of BIR Rulings; VAT

According to Fr. Joaquin G. Bernas, S.J., Section 5 does not change the doctrine that CIR v. Benguet Corporation (July 08, 2005)
municipal corporations do not possess inherent powers of taxation.  What it does is
to confer municipal corporations a general power to levy taxes and otherwise create Facts: Under Sec. 99 of the National Internal Revenue Code, then in effect, any person
sources of revenue.  They no longer have to wait for a statutory grant of these powers.  who, in the course of trade or business, sells, barters or exchanges goods, renders
The power of the legislative authority relative to the fiscal powers of local governments services, or engages in similar transactions and any person who imports goods is liable
has been reduced to the authority to impose limitations on municipal powers.  Moreover, for output VAT at rates of either 10% or 0% (“zero-rated”) depending on the
these limitations must be “consistent with the basic policy of local autonomy.”  The classification of the transaction under Sec. 100 of the NIRC.  Persons registered under the
important legal effect of Section 5 is thus to reverse the principle that doubts are VAT system are allowed to recognize input VAT, or the VAT due from or paid by it in
resolved against municipal corporations.  Henceforth, in interpreting statutory
Tax Case Digest BATAS TOMASINO 36
the course of its trade or business on importation of goods or local purchases of goods or
service, including lease or use of properties, from a VAT-registered person. This Court need not invalidate the BIR issuances, which have the force and effect of law,
  unless the issue of validity is so crucially at the heart of the controversy that the Court
In January of 1988, Benguet Corporation applied for and was granted by the BIR zero- cannot resolve the case without having to strike down the issuances.   Clearly, whether
rated status on its sale of gold to Central Bank. On 28 August 1988, VAT Ruling No. the subject VAT ruling may validly be given retrospective effect is the lis mota in the
3788-88, which declared that “[t]he sale of gold to Central Bank is considered as export case.  The sole issue to be addressed is whether Benguet Corporation’s sale of gold to the
sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by Central Bank during the period when such was classified by BIR issuances as zero-rated
Executive Order No. 273.”  could be taxed validly at a 10% rate after the consummation of the transactions involved. 
 
Relying on its zero-rated status and the above issuances, Benguet Corporation sold gold VAT is a percentage tax imposed at every stage of the distribution process on the sale,
to the Central Bank during the period of 1 August 1989 to 31 July 1991 and entered into barter, exchange or lease of goods or properties and rendition of services in the course of
transactions that resulted in input VAT incurred in relation to the subject sales of gold.  It
trade or business, or the importation of goods. It is an indirect tax, which may be shifted
then filed applications for tax refunds/credits corresponding to input VAT.  Benguet to the buyer, transferee, or lessee of the goods, properties, or services. However, the
Corporation’s applications were either unacted upon or expressly disallowed by party directly liable for the payment of the tax is the seller.
petitioner.  In addition, BIR issued a deficiency assessment against Benguet Corporation 
when, after applying Benguet Corporation’s creditable input VAT costs against the In transactions taxed at a 10% rate, when at the end of any given taxable quarter the
retroactive 10% VAT levy, there resulted a balance of excess output VAT. output VAT exceeds the input VAT, the excess shall be paid to the government; when the
input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities
The express disallowance of Benguet Corporation’s application for refunds/credits and for the succeeding quarter or quarters. On the other hand, transactions which are taxed at
the issuance of deficiency assessments against it were based on a BIR rulingBIR VAT zero-rate do not result in any output tax.  Input VAT attributable to zero-rated sales could
Ruling No. 008-92 dated 23 January 1992that was issued subsequent to the be refunded or credited against other internal revenue taxes at the option of the taxpayer.
consummation of the subject sales of gold to the Central Bank which provides that sales  
of gold to the Central Bank shall not be considered as export sales and thus, shall be To illustrate, in a zero-rated transaction, when a VAT-registered person (“taxpayer”)
subject to 10% VAT.  In addition, BIR VAT Ruling No. 008-92 withdrew, modified, and purchases materials from his supplier at P80.00, P7.30 of which was passed on to him by
superseded all inconsistent BIR issuances.  his supplier as the latter’s 10% output VAT, the taxpayer is allowed to recover P7.30
from the BIR, in addition to other input VAT he had incurred in relation to the zero-rated
The BIR also issued VAT Ruling No. 059-92 dated 28 April 1992 and Revenue transaction, through tax credits or refunds.  When the taxpayer sells his finished product
Memorandum Order No. 22-92 which decreed that the revocation of VAT Ruling No. in a zero-rated transaction, say, for P110.00, he is not required to pay any output VAT
3788-88 by VAT Ruling No. 008-92 would not unduly prejudice mining companies and, thereon.  In the case of a transaction subject to 10% VAT, the taxpayer is allowed to
thus, could be applied retroactively. recover both the input VAT of P7.30 which he paid to his supplier and his output VAT of
P2.70 (10% the P30.00 value he has added to the P80.00 material) by passing on both
Benguet Corporation argued that a retroactive application of BIR VAT Ruling No. 008- costs to the buyer.   Thus, the buyer pays the total 10% VAT cost, in this case P10.00 on
92 would violate Sec. 246 of the NIRC, which mandates the non-retroactivity of rulings the product. 
or circulars issued by the Commissioner of Internal Revenue that would operate to  
prejudice the taxpayer.  The CIR on the other hand, maintained that BIR VAT Ruling No. In both situations, the taxpayer has the option not to carry any VAT cost because in the
008-92 may validly be given retroactive effect since it was not prejudicial to Benguet zero-rated transaction, the taxpayer is allowed to recover input tax from the BIR without
Corporation.  need to pay output tax, while in 10% rated VAT, the taxpayer is allowed to pass on both
  input and output VAT to the buyer.  Thus, there is an elemental similarity between the
Issue: Is BIR VAT Ruling No. 008-92 not prejudicial Benguet Corporation, and two types of VAT ratings in that the taxpayer has the option not to take on any VAT
consequently may validly be given retroactive? payment for his transactions by simply exercising his right to pass on the VAT costs in
the manner discussed above. 
Ruling: BIR VAT Ruling No. 008-92 may not be validly given retrospective effect as  
against Benguet Corporation since it would suffer economic prejudice from such Proceeding from the foregoing, there appears to be no upfront economic difference in
retroactive application. changing the sale of gold to the Central Bank from a 0% to 10% VAT rate provided that
Tax Case Digest BATAS TOMASINO 37
Benguet Corporation would be allowed the choice to pass on its VAT costs to the Central cumbersome refund process is prejudice enough.  Moreover, there is in fact nothing left
Bank.   In the instant case, the retroactive application of VAT Ruling No. 008-92 to claim as a deduction from income taxes.  
unilaterally forfeited or withdrew this option of Benguet Corporation.  The adverse effect
is that Benguet Corporation became the unexpected and unwilling debtor to the BIR of At the time when the subject transactions were consummated, the prevailing BIR
the amount equivalent to the total VAT cost of its product, a liability it previously could regulations relied upon by Benguet Corporation ordained that gold sales to the Central
have recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank were zero-rated.  Benguet Corporation should not be faulted for relying on the
Bank had it known it would have been taxed at a 10% rate.   Thus, it is clear that BIR’s interpretation of the said laws and regulations.  While it is true that government
respondent suffered economic prejudice when its consummated sales of gold to the is not estopped from collecting taxes which remain unpaid on account of the errors
Central Bank were taken out of the zero-rated category. The change in the VAT rating of or mistakes of its agents and/or officials and there could be no vested right arising
Benguet Corporation’s transactions with the Central Bank resulted in the twin loss of its from an erroneous interpretation of law, these principles must give way to
exemption from payment of output VAT and its opportunity to recover input VAT, and at exceptions based on and in keeping with the interest of justice and fairplay, as has
the same time subjected it to the 10% VAT sans the option to pass on this cost to the been done in the instant matter.  For, it is primordial that every person must, in the
Central Bank, with the total prejudice in money terms being equivalent to the 10% VAT exercise of his rights and in the performance of his duties, act with justice, give everyone
levied on its sales of gold to the Central Bank.   his due, and observe honesty and good faith. Before Benguet Corporation was entitled to
tax refunds or credits based on BIR’s own issuances. Then suddenly, it found itself
The CIR posits that the retroactive application of BIR VAT Ruling No. 008-92 is stripped instead being made to pay deficiency taxes with BIR’s retroactive change in the VAT
of any prejudicial effect when viewed in relation to several available options to recoup categorization of respondent’s transactions with the Central Bank.  This is the sort of
whatever liabilities respondent may have incurred, i.e., respondent’s input VAT may still unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC abhors and forbids.
be used (1) to offset its output VAT on the sales of gold to the Central Bank or on its
output VAT on other sales subject to 10% VAT, and (2) as deductions on its income tax
under Sec. 29 of the Tax Code.
 
On petitioner’s first suggested recoupment modality, Benguet Corporation counters that
its other sales subject to 10% VAT are so minimal that this mode is of little value.  
Moreover, Benguet Corporation points out that after having been imposed with 10%
VAT sans the opportunity to pass on the same to the Central Bank, it was issued a
deficiency tax assessment because its input VAT tax credits were not enough to offset the
retroactive 10% output VAT. The prejudice then experienced by Benguet Corporation
lies in the fact that the tax refunds/credits that it expected to receive had effectively
disappeared by virtue of its newfound output VAT liability.
 
The second recourse that the CIR has suggested to offset any resulting prejudice to
Benguet Corporation as a consequence of giving retroactive effect to BIR VAT Ruling
No. 008-92 is to constituted Benguet Corporation as the final entity against which the
costs of the tax passes-on shall legally stop; hence, the input taxes may be converted as
costs available as deduction for income tax purposes.

Even assuming that the right to recover Benguet Corporation’s excess payment of income
tax has not yet prescribed, this relief would only address Benguet Corporation’s
overpayment of income tax but not the other burdens discussed above.  Verily, this
remedy is not a feasible option for Benguet Corporation because the very reason why it
was issued a deficiency tax assessment is that its input VAT was not enough to offset its
retroactive output VAT.  Indeed, the burden of having to go through an unnecessary and

Tax Case Digest BATAS TOMASINO 38