Case No.

49

G.R. No. L-13325             April 20, 1961

SANTIAGO GANCAYCO, petitioner, vs. THE COLLECTOR OF
INTERNAL REVENUE, respondent

1. There are two (2) civil remedies for the collection of internal revenue
taxes, namely: (a) by distraint of personal property and levy upon real
property; and (b) by "judicial action" (Commonwealth Act 456, section
316).
Either of these remedies or both simultaneously may be pursued
in the discretion of the authorities charged with the collection of such
taxes.
No exemption shall be allowed against the internal revenue
taxes in any case.

2. The first remedy may not be availed of except within three (3) years
after the "return is due or has been made ..." (Tax Code, section 51 [d]).
After the expiration of said Period, income taxes may not be legally and
validly collected by distraint and/or levy.

3. The "judicial action" mentioned in the Tax Code may be resorted to

within five (5) years from the date the return has been filed, if there has
been no assessment, or within five (5) years from the date of the
assessment made within the statutory period, or within the period
agreed upon, in writing, by the Collector of Internal Revenue and the
taxpayer. before the expiration of said five-year period, or within such
extension of said stipulated period as may have been agreed upon, in
writing, made before the expiration of the period previously situated,
except that in the case of a false or fraudulent return with intent to
evade tax or of a failure to file a return, the judicial action may be
begun at any time within ten (10) years after the discovery of the
falsity, fraud or omission (Sections 331 and 332 of the Tax Code).

4. Republic Act No. 1125 has vested the Court of Tax Appeals, not only
with exclusive appellate jurisdiction to review decisions of the
Collector (now Commissioner) of Internal Revenue in cases involving
disputed assessments, like the one at bar, but, also, with authority to
decide "all cases involving disputed assessments of Internal Revenue
taxes or customs duties pending determination before the court of first
instance" at the time of the approval of said Act, on June 16, 1954
(Section 22, Republic Act No. 1125). Moreover, this jurisdiction to
decide all cases involving disputed assessments of internal revenue
taxes and customs duties necessarily implies the power to authorize and
sanction the collection of the taxes and duties involved in such
assessments as may be upheld by the Court of Tax Appeals. At any
rate, the same now has the authority formerly vested in courts of first
instance to hear and decide cases involving disputed assessments of
 internal revenue taxes and customs duties. Inasmuch as those cases
filed with courts of first instance constituted judicial actions, such is,
likewise, the nature of the proceedings before the Court of Tax
Appeals, insofar as sections 316 and 332 of the Tax Code are
concerned.

Case No. 50

G.R. No. L-25299             July 29, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs. ITOGON-SUYOC MINES, INC., and THE COURT OF TAX
APPEALS, respondents.

1. The National Internal Revenue Code provides that interest upon the
amount determined as a deficiency shall be assessed and shall be paid
upon notice and demand from the Commissioner of Internal Revenue at
the specified. It is made clear, however, in an earlier provision found in
the same section that if in any preceding year, the taxpayer was entitled
to a refund of any amount due as tax, such amount, if not yet refunded,
may be deducted from the tax to be paid.

2. There is no question respondent was entitled to a refund. Instead of

waiting for the sum involved to be delivered to it, it deducted the said
amount from the tax that it had to pay. That it had a right to do
according to the law. It is true a doubt could have arisen due to the fact
that as of the time such a deduction was made, the Commissioner of
Internal Revenue had not as yet approved such a refund. It is an
admitted fact though that respondent was clearly entitled to it, and
petitioner did not allege otherwise. Nor could he do so. Under all the
circumstances disclosed therefore, the applicability of the legal
provision allowing such a deduction from the amount of the tax to be
paid cannot be disputed.

3. The imposition of the monthly interest was considered as not

constituting a penalty "but a just compensation to the state for the
delay in paying the tax, and for the concomitant use by the
taxpayer of funds that rightfully should be in the government's
hands ...." What is therefore sought to be avoided is for the
taxpayer to make use of funds that should have been paid to the
government.
Case No. 51

G.R. No. L-12401            October 31, 1960

MARCELO STEEL CORPORATION, petitioner, 
vs. COLLECTOR OF INTERNAL REVENUE, respondent.

1. The purpose or aim of Republic Act No. 35 is to encourage the

establishment or exploitation of new and necessary industries to
promote the economic growth of the country. It is a form of subsidy
granted by the Government to encourage staking their capital in an
unknown venture. An entrepreneur engaging in a new and necessary
industry faces uncertainly and assumes a risk bigger than one engaging
in a venture already known and developed. Like a settler in an
unexplored land who is just blazing a trial in a virgin forest, he needs
all the encouragement and assistance from the Government. He needs
capital to buy his implements, to pay his laborers and to sustain him
and his family. Comparable to the farmers who had just planted the
seeds of fruit bearing trees in his orchard, he does not except an
immediate return on his investment. Usually loss is incurred rather than
profit made. It is for these reasons that the law grants him tax
exemption—to lighten onerous financial burdens and reduce losses.
However these may be, Republic Act No. 35 has confined the
privilege of tax exemption only to new and necessary industries. It
did not intend to grant the tax exemption benefit to an
entrepreneur engaged at the same time in a taxable or non-
payment industry and a new and necessary industry, by allowing
him to deduct his gains or profits derived from the operation of the
first from the losses incurred in the operation of the second. Unlike
a new and necessary industry, a taxable or non-exempt industry is
already a going concern, deriving profits from its operation, and
deserving no subsidy from the Government. It is but fair that it be
required to give to the Government a share in its profits in the
form of taxes.
Case No. 52

G.R. Nos. 106949-50 December 1, 1995

PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES
(PICOP), petitioner, vs. COURT OF APPEALS, COMMISSIONER OF
INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

1. The 35% transaction tax is an income tax on interest earnings to

the lenders or placers. The latter are actually the taxpayers.
Therefore, the tax cannot be a tax imposed upon the petitioner. In other
words, the petitioner who borrowed funds from several financial
institutions by issuing commercial papers merely withheld the 35%
transaction tax before paying to the financial institutions the interests
earned by them and later remitted the same to the respondent
Commissioner of Internal Revenue. The tax could have been collected
by a different procedure but the statute chose this method. Whatever
collecting procedure is adopted does not change the nature of the
tax.
2. The general rule is that interest expenses are deductible against gross
income and this certainly includes interest paid under loans
incurred in connection with the carrying on of the business of the
taxpayer. 
3. The 1977 NIRC does not prohibit the deduction of interest on a loan
incurred for acquiring machinery and equipment. Neither does our 1977
NIRC compel the capitalization of interest payments on such a loan.
The 1977 Tax Code is simply silent on a taxpayer's right to elect one or
the other tax treatment of such interest payments. Accordingly, the
general rule that interest payments on a legally demandable loan are
deductible from gross income must be applied.
4. It is important to note at the outset that in our jurisdiction, the ordinary
rule — that is, the rule applicable in respect of
corporations not registered with the BOI as a preferred pioneer
enterprise — is that net operating losses cannot be carried over. Under
our Tax Code, both in 1977 and at present, losses may be deducted
from gross income only if such losses were actually sustained in the
same year that they are deducted or charged off.
5. It is thus clear that under our law, and outside the special realm of BOI-
registered enterprises, there is no such thing as a carry-over of net
operating loss. To the contrary, losses must be deducted against current
income in the taxable year when such losses were incurred. Moreover,
such losses may be charged off only against income earned in the same
taxable year when the losses were incurred.
6. Thus it is that R.A. No. 5186 introduced the carry-over of net operating
losses as a very special incentive to be granted only to registered
pioneer enterprises and only with respect to their registered operations.
The statutory purpose here may be seen to be the encouragement of the
 establishment and continued operation of pioneer industries by
allowing the registered enterprise to accumulate its operating losses
which may be expected during the early years of the enterprise and to
permit the enterprise to offset such losses against income earned by it in
later years after successful establishment and regular operations. To
promote its economic development goals, the Republic foregoes or
defers taxing the income of the pioneer enterprise until after that
enterprise has recovered or offset its earlier losses. We consider that the
statutory purpose can be served only if the accumulated operating
losses are carried over and charged off against income subsequently
earned and accumulated by the same enterprise engaged in the same
registered operations.
7. In our jurisdiction, save for Section 7 (c) of R.A. No. 5186, no
statute recognizes or permits loss carry-overs and loss carry-backs.
Indeed, as already noted, our tax law expressly rejects the very
notion of loss carry-overs and carry-backs.
8. A taxpayer has the burden of proving entitlement to a claimed
deduction.