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[CASE TITLE]
[GR NUMBER] | [DATE]

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

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LORENZO v. POSADAS
G.R. No. 43082 | June 18, 1937

DOCTRINE: The right of the state to an inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depreciation is immaterial.

FACTS: On May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will and
considerable amount of real and personal properties. On June 14, 1922, proceedings for the probate of
his will and the settlement and distribution of his estate were begun in the CFI of Zamboanga. The will
was admitted to probate. The properties under the will were to pass to Matthew Hanley after 10 years.
Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29,
1932, when he resigned and Lorenzo (plaintiff herein) was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue (CIR),
alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920
and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate, an
inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in
payment consisting of a 1% monthly interest from July 1, 1931 to the date of payment and a
surcharge of 25% on the tax, amounted to P2,052.74.

On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the CFI
of Zamboanga praying that Lorenzo be ordered to pay to the Government the said sum of P2,052.74. The
motion was granted.

On September 15, 1932, the plaintiff Lorenzo paid said amount under protest, notifying the defendant at
the same time that unless the amount was promptly refunded, suit would be brought for its recovery.

The defendant overruled the plaintiff's protest and refused to refund the said amount, plaintiff went to
court with the result herein above indicated.

ISSUES:

(a) When does the inheritance tax accrue and when must it be satisfied?

(b) W/N the inheritance tax is to be computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later?

(c) W/N it is proper to deduct the compensation due to trustees in determining the net value of the estate
subject to tax?

(d) W/N the provisions of Act No. 3606, favorable to the tax-payer, be given retroactive effect?

(e) W/N there been deliquency in the payment of the inheritance tax?

RULING:

2
The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances.

a) (Shortcut: Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date
but it must be paid before the delivery of the properties in question to Moore as trustee on March
10, 1924.)

The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by
his death. Article 657 of the Civil Code states: "the rights to the succession of a person are transmitted
from the moment of his death."

Whatever may be the time when actual transmission of the inheritance takes place, succession takes
place in any event at the moment of the decedent’s death. The time when the heirs legally succeed to the
inheritance may differ from the time when the heirs actually receive such inheritance. ” Thomas Hanley
having died on May 27, 1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation
to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section
1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the
same Code.The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance
with the desire of the predecessor. xxx

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the
property.

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment
shall be made by the executor or administrator before delivering to each beneficiary his share.

The instant case does[not] fall under subsection (a), but under subsection (b), of section 1544
above-quoted, as there are no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax
should have been paid before the delivery of the properties in question to Moore as trustee.

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b) IT IS TO BE COMPUTED AT THE TIME OF THE DECEDENT’S DEATH regardless of any
subsequent contingency value of any increase or decrease and notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.

c) NO. There is no statute in the Philippines which requires trustees' commissions to be deducted in
determining the net value of the estate subject to inheritance tax. Furthermore, though a testamentary
trust has been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated.

The compensation of a trustee not earned in the administration of the estate but in the management
thereof for the benefit of the legatees or devises, does not come properly within the class or reason for
exempting administration expenses.

d) NO, ACT 3031 applies. Even if ACT 3606 is more favorable to the taxpayer, revenue laws, generally,
which impose taxes collected by means ordinarily resorted to for the collection of taxes are not classes of
penal laws.

e) YES. That taxes must be collected promptly is a policy deeply entrenched in our tax system. Thus,
no court is allowed to grant an injunction to restrain the collection of any internal revenue tax. The mere
fact that the estate of the deceased was placed in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of inheritance tax

4
ELEGADO v. CTA
G.R. No. L-68385 | May 12, 1989

DOCTRINE: If indeed the Commissioner of Internal Revenue committed an error in the computation of
the estate tax, as the petitioner insists, that error can no longer be rectified because the original
assessment has long become final and executory. If that assessment was not challenged on time and in
accordance with the prescribed procedure, that error — for error it was — was committed not by the
respondents but by the decedent’s estate itself which the petitioner represents. So how can he now
complain?

FACTS: On March 14, 1976, Warren Taylor Graham, an American national, formerly resident of the
Philippines, died in Oregon, USA. As certain shares of stock are left in the Philippines, his son Ward
Graham filed an estate tax return.
On the basis of such return, the respondent Commission of Internal Revenue assessed the descendants
estate in the amount of P96,509.35. The assessment was protested by the law firm of Bump, Yang, and
Walker on behalf of the estates which was denied by the Commissioner. Meanwhile, on January 18,
1977, the decedent's will had been admitted to probate in the Circuit Court of Oregon, Ward Graham, the
designated executor, then appointed Ildefonso Elegado, the herein petitioner, as his attorney-in-fact for
the allowance of the will in the Philippines.
Elegado as an ancillary administrator filed a second estate tax return. The Commissioner imposed an
assessment on the estate in the amount of P72,948.87 based on the SEC return, which was protested by
the Agrava Law Office on behalf of the estate. While this protest was pending, the Commissioner filed in
the probate proceedings a motion for the allowance of the basic estate tax of P96,509.35 as assessed on
February 9, 1978. He said that this liability had not yet been paid although the assessment had long
become final and executory. Petitioner was denied contending that the first assessment is not binding on
him because it was based on a return filed for by lawyers.

ISSUE: W/N the first assessment is binding being filed for by lawyers.

RULING: Petition is Denied

The petitioner cannot be serious when he argues that the first assessment was invalid because the
foreign lawyers who filed the return on which it was based were not familiar with our tax laws and
procedure. Is the petitioner suggesting that they are excused from compliance therewith because of their
ignorance?

If our own lawyers and taxpayers cannot claim a similar preference because they are not allowed to claim
a like ignorance, it stands to reason that foreigners cannot be any less bound by our own laws in our own
country. A more obvious and shallow discrimination than that suggested by the petitioner is indeed difficult
to find.

If indeed the Commissioner of Internal Revenue committed an error in the computation of the estate tax,
as the petitioner insists, that error can no longer be rectified because the original assessment has long
become final and executory. If that assessment was not challenged on time and in accordance with the
prescribed procedure, that error — for error it was — was committed not by the respondents but by the
decedent’s estate itself which the petitioner represents. So how can he now complain?

5
DIZON v. CTA
G.R. No. 140944 | April 30, 2008

DOCTRINE: Date of Death Valuation Rule - The assessment is based on the value of the property at the
time of death. Every deduction is also based on what deduction is available at the time of death. Claims
against the estate such as debts of the decedent which are due and demandable at the time of death is
an allowable deduction even if such debt was condoned anytime after the death. What is important to
determine if it is an allowable deduction if such deduction is present at the time of death.

As held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable on the
date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not
preclude the estate from deducting the entire amount of the claim for estate tax purposes. These
pronouncements essentially confirm the general principle that post-death developments are not material
in determining the amount of the deduction.

FACTS: Justice Arcenio Dizon and petitioner Atty Rafael Dizon was appointed as the administrator of the
estate of one Jose P. Fernandez, In making the estate tax return it included 187 million pesos as the
allowable deduction on the estat which includes the claims against the estate by the debtor of the
decedent. Later on, around 31,000,000 pesos of the debts of Fernandez condoned their claim because
of a compromise entered into by Dizon and said creditors. It is also important to note that Manila Bank did
not raise their claim as creditor during the probate of Fernandez’ will. With that, the BIR Commissioner
issued an assessment notice for deficiency estate tax amounting to 66 million, which includes the 31
million debt which was condoned and interest and penalty totaling to 35 million. The main argument of the
private respondent BIR Commissioner was that since some of the debts of the decedent which were
added as a claim against the estate was condoned and some did not even raise their claim during
probate therefore they should not be considered as a deduction as a claim against the estate. An appeal
was filed in the CTA which affirmed the finding of the Commissioner and later on to the CA which also
affirmed the decision of the CTA.

ISSUE: Did the respondent CTA err in not allowing the deduction based on claims against the estate?

RULING: Yes, the debts of the decedent should be availed of as allowable deduction even if the same
was condoned after the debt of the decedent. The date of death valuation rule provides that the estate
should be assessed based on the value at the time of death and every deduction which is present at the
time of death can be availed of even if the same was later condoned or was not demanded.

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AZNAR v. CTA
G.R. No. L-20569 | August 23, 1974

DOCTRINE: The value of a house and lot given as a collateral to secure said loan should not be
considered as an asset of the petitioner because to do so would result in a glaring duplication of items.

FACTS: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and
nullification of the decision of the Court of Tax Appeals ordering the petitioner to pay the government the
sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951. An investigation by
the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer and it
was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net
worth was very much more than the income reported during said years. The findings clearly indicated that
the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid
years. Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes
of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment
was made on November 28, 1952; there being a five year limitation upon assessment and collection from
the filing of the returns. Meanwhile, respondents believe that the prescription period in the case at bar that
is applicable is under Sec. 332 of the NIRC which provides that: "(a) In the case of a false or fraudulent
return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without assessment, at any time within ten years after
the discovery of the falsity, fraud or omission". Petitioner argues said provision does not apply because
the taxpayer did not file false and fraudulent returns with intent to evade tax.

ISSUE: Whether or not the deceased Aznar filed false or fraudulent income tax returns and subsequently,
whether the action has not prescribed.

RULING: Yes, the deceased Aznar filed false or fraudulent income tax returns. The petition is without
merit. The respondent CTA concluded that the very "substantial under declarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an
intent to evade the payment of tax." The ordinary period of prescription of 5 years within which to assess
tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities due to false returns, fraudulent return intended to evade payment of tax, or failure to file returns,
the period of ten years from the time of the discovery of the falsity, fraud or omission even seems to be
inadequate. There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten
years within which to assess petitioner's tax liability had not expired at the time said assessment was
made.

7
Estate of SAN AGUSTIN v. CIR
G.R. No. 138485 | September 10, 2011
J. Vitug

DOCTRINE: (1) The taxpayer will not lose his right to appeal from the ruling on the disputed assessment
for not complying with the rule under section 306 of the Tax Code, which requires a taxpayer to file a
claim for refund of the taxes paid as a condition precedent to his right to appeal (2) The delay in the
payment of the deficiency tax within the time prescribed for its payment in the notice of assessment
justifies the imposition of a 25% surcharge in consonance with Section 248A(3) of the Tax Code (3)
Compromise penalty is mutual in nature

FACTS: Atty. Jose San Agustin died leaving his wife Dra. Felisa San Agustin as the sole heir and retired
Justice Jose Feria as the executor. An estate tax return reporting an estate tax of Php 1,676,432.00 was
filed on behalf of the estate with a request for an extension of 2 years for the payment of the estate tax.
On September 4, 1990, BIR granted a 6-month extension subject to imposition of penalties and interests.
Upon the allowance of San Agustin’s will with Jose Feria as the executor, the latter requested withdrawal
of funds from the estate for the payment of estate taxes which was granted. On March 8, 1991, the
executor paid the estate tax of Php 1,676,432.

On September 3, 1991, Dra. Felisa received an assessment notice dated August 29, 1991 for deficiency
of estate tax of Php 538,509.50 including surcharge, interest and compromise penalty, amounting to Php
976,540. On October 1, 1991, within the 10-day period in the PAN, executor Feria filed a letter of
readiness to pay the deficiency tax, with a request to waive the surcharge, interest and penalties (Php
438,040.38). Thereafter, CIR issued a PAN reiterating payment within 30 days upon receipt, to which
Feria requested reconsideration. On December 8, 1991, CIR received the full basic deficiency tax. On
January 25, 1993, the request for reconsideration was acted upon stating that there is no legal
justification for it. Php 438,040.38 was thus paid under protest. On February 18, 1990, Feria filed a
petition for review with the CTA and a refund for the Php 438,040.38 was granted. CIR opposed on the
ground that CTA has no jurisdiction. CTA decided upon the matter and ordered reimbursement of Php
423,577.64. CIR appealed CTA’s decision to the CA which declared CTA’s ruling as null and void.

ISSUES:
1. Whether or not the filing of a claim for refund is not essential before the filing of the petition for review
2. Whether or not the imposition by the respondent of surcharge, interest and penalties on the deficiency
estate tax is not in accord with the law and thus illegal

RULING:
1. YES. The case cited Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue wherein
the CTA dismissed the petition for lack of jurisdiction but the CA later reversed the ruling. The CA therein
ruled that under Section 7 of Republic Act No.1125, creating the Court of Tax Appeals, the CTA allows an
appeal from a decision of the Collector, “that the present action involves a disputed assessment”. The
case further held that to hold that the taxpayer has now lost the right to appeal from the ruling on, the
disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a
taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in
effect require of him to go through a useless and needless ceremony that would only delay the disposition
of the case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the
same way as he disallowed the protest against the assessment. The law should not be interpreted as to
result in absurdities.

8
This Court sees no cogent reason to abandon the above dictum and to require a useless formality that
can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking
cognizance of the taxpayer's appeal to it.

2. The court partly disagrees. The delay in the payment of the deficiency tax within the time prescribed
for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with
Section 248A(3) of the Tax Code. The basic deficiency tax in this case being P538,509.50, the 25%
comes to P134,627.37. Section 249 of the Tax Code states that any deficiency in the tax due would be
subject to interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and
collected from the date prescribed for its payment until full payment is made. The computation of interest
by the Court of Tax Appeals is as follows:

[Deficiency estate tax] x [interest rate] x [terms]

= Php 538,509.50 x 20% per annum x 11/2mo./12mos (11/04/91 to 12/19/91)
= Php 13,462.74

The Court of Tax Appeals correctly held that the compromise penalty of P20,000.00 could not be imposed
on the petitioner, a compromise being, by its nature, mutual in essence. The payment made under protest
by petitioner could only signify that there was no agreement that had effectively been reached between
the parties. Unfortunately, the need for authority for withdrawal of funds from the probate court for the
payment of the deficiency estate tax cannot negate the application of Tax code provisions.

In sum, the tax liability of the estate includes a surcharge of P134,627.37 and interest of P13,462.74 or a
total of P148,090.00. Petitioner estate having since paid the sum of P438,040.38, respondent
Commissioner is hereby ordered to refund to the Estate of Jose San Agustin the overpaid amount of
P289,950.38.

9
CIR v. REYES
G.R. No. 159694 | January 27, 2006

DOCTRINE: Section 228 of the Tax Code and RR were mandatory and unequivocal in their requirement.
The assessment notice and the demand letter should have stated the facts and the law on which they
were based; otherwise, they were deemed void. Since the assessment and the demand were void, the
proceedings emanating from them were likewise void, and any order emanating from them could never
attain finality.

FACTS: In 1997, The Regional District Office of South Makati issued a Return Verification Order on the
estate left by Maria C. Tancinco who died in 1993. In view of the old Tax Code, a Letter of Authority was
given to one of the heirs, Azucena T. Reyes, without the accommodation of preliminary discoveries. Then,
the BIR gave a Preliminary Assessment Notice adding up to 14.5M and accordingly a Final Assessment
Notice (FAN) and demand of the payment of 14.5M of taxes including surcharge and interest. On
January 1st of the same year, RA No. 8424 or the Tax Reform Act of 1997 took effect.

In 1999 and 2000, Reyes and the other heirs offered compromises. All the offers were rejected and the
estate failed to pay its tax liability. For that reason, the BIR notified Reyes that the subject property would
be sold at a public auction. Reyes filed a protest against sale, asserting that the whole tax proceedings
against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the
correct amount of tax without surcharge or interest. Without acting on the protest and offer, the CIR
instructed the Collection Enforcement Division to proceed with the auction sale. Consequently, Reyes
filed a Petition for Review with the CTA. The CIR filed a Motion to Dismiss the petition on the ground that
the CTA no longer has jurisdiction over the case because the assessment against the estate is already
final and executory and that the petition was filed out of time.

During the pendency of the petition, the BIR issued a Revenue Regulation and Revenue Memorandum
Order offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to
compromise their tax liability. Based on that, Reyes filed an application.

Reyes moved for the postponement of the hearings on the CTA for a number of times, all of which were
granted. The last postponement was based on the ground that she had already paid the compromise
amount but was still awaiting approval of the National Evaluation Board. Because the CIR had not yet
signed the compromise, Reyes filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. The CIR countered that the application for compromise with the
BIR cannot be considered a perfected or consummated compromise without the approval of the NEB.

Upon the denial of the motion, Reyes filed a Motion for Reconsideration Ad Cautelam which was also
denied. However, the court suggested that Reyes file a Supplemental Petition for Review. The said
petition set forth the new issue of whether there was already a perfected compromise and whether said
compromise requires approval by the NEB based on Section 204 of the Tax Code.

The CIR reiterated that under the RR and RMO , the compromise requires the evaluation and approval of
either the NEB or the Regional Evaluation Board as the case may be. Reyes filed a Motion for Judgment
on the Pleadings; the motion was granted.

The CTA rendered a Decision denying the petition. Aggrieved, Reyes brought a petition to the CA which
partly granted the petition. Hence, this Petition for Review.

10
ISSUE:
1. Whether petitioner’s assessment against the estate is valid? NO
2. Whether the compromise entered into is valid? NO

[YES/NO]

RULING: The Petition is unmeritorious.

1. The petitioner’s assessment against the estate is invalid. RA No. 8424 should have been applied
and not the old law. On the dates that the preliminary assessment notice and final estate tax
assessment notice were issued, RA No. 8424 was already in effect. The old requirement of
merely notifying the taxpayer of the CIR’s findings was changed to informing the taxpayer of not
only the law, but also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid. The second paragraph of Section 228 of the Tax Code is clear
and mandatory. It provides that taxpayers shall be informed in writing of the law and the facts on
which the assessment is made: otherwise, the assessment shall be void. The petitioner violated
the cardinal rule in administrative law that the taxpayer be accorded due process.

To be simply informed in writing of the investigation being conducted and of the recommendation
for the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax
function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already
knew the law and the facts on which the assessment was based. It does not at all conform to the
compulsory requirement under Section 228. Moreover, the Letter of Authority received by
respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the
requisite notice under the law.

2. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or
the settlement offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the National Evaluation Board composed of the petitioner and four
deputy commissioners. This provision applies to all compromises, whether government-initiated
or not.

However, in this case, the assessment and the demand were void, therefore, the proceedings
emanating from them were likewise void, and any order emanating from them could never attain
finality. It would be premature to declare that the compromise on the estate tax liability has been
perfected and consummated

11
MARCOS v. CA
G.R. No. 120880 | June 5, 1997

DOCTRINE:

- The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a
mandatory requirement in the collection of estate taxes.

FACTS:
- On 29 September 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA. On
27 June 1990, a Special Tax Audit Team was created to conduct investigations and examinations
of the tax liabilities and obligations of the late president, as well as that of his family, associates
and “cronies”. They concluded their investigation with a Memorandum dated 26 July 1991 which
disclosed the Marcoses failing to file a written notice of death of the decedent, an estate tax
return, as well as several income tax returns covering the years 1982-1986 which were all in
violation of the NIRC.
- On 26 July 1991, the BIR issued, among others, a deficiency estate tax assessment against the
estate of the late President Ferdinand Marcos in the amount of P23,293,607,638.00. The same
was personally and constructively served upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) and against petitioner Ferdinand “Bongbong” Marcos II. Said deficiency tax
assessments were not protested administratively, by Mrs Marcos and the other heirs of the late
president, within 30 days from service of said assessments. On 22 February 1993, the BIR
Commissioner issued twenty-two notices of levy on real property against certain parcels of land
owned by the Marcoses – to satisfy the alleged estate tax and deficiency income taxes of the
Spouses Marcos. Eight additional notices for levy on real property were later issued for the
purpose of satisfying the deficiency income taxes.
- Ferdinand Marcos II questions the actuation of respondent Commissioner of Internal Revenue
(CIR) in assessing, and collecting through the summary remedy of Levy on Real Properties,
estate and income tax delinquencies upon the estate and properties of his father, despite the
pendency of the proceedings on probate of the will of the late president.
- Petitioner filed with the Court of Appeals (CA) a Petition for Certiorari and Prohibition with an
application for writ of preliminary injunction and/or temporary restraining order. However, the CA
ruled that the deficiency assessments for estate and income tax made upon the petitioner and the
estate of the deceased President Marcos have already become final and cannot be appealed,
thus the enforcement by the summary remedy of levying upon the properties of the late President
was proper.
- Petitioner now brings this case before the Su preme Court (SC) assailing the validity of the
CA’s decision.
ISSUE:
- W/N the BIR has the authority to collect by the summary remedy of levying upon, and sale of real
properties of the decedent, estate tax deficiencies, without the cognition and authority of the court
sitting in probate over the supposed will of the deceased. [YES]
- W/N petitioner can still question the validity of the assessment against the estate of the deceased
[NO]

RULING: IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the
Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.

12
- YES. Citing the case of CIR v. Pineda, “the Government has two ways of collecting the taxes in
question. One, by going after all the heirs and collecting from each one of them the amount of the
tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by
Section 315 of the Tax Code upon all property and rights to property belong to the taxpayer for
unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due the estate. Hence, the approval of the court sitting in
probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the
collection of estate taxes. There is nothing in the Tax Code, and remedial laws that imply the
necessity of the probate or estate settlement court’s approval of the state’s claim for estate taxes,
before the same can be enforced and collected.
- NO. Apart from failing to file the required estate tax return within the time required for filing of the
same as provided under Sec. 229 of the NIRC, petitioner, and the other heirs, never questioned
the assessments served upon them, allowing the same to lapse into finality, and prompting the
BIR to collect the said taxes by levying upon the properties left by president Marcos.
- Petitioner submits, however, that "while the assessment of taxes may have been validly
undertaken by the Government, collection thereof may have been done in violation of the
law. Thus, the manner and method in which the latter is enforced may be questioned
separately, and irrespective of the finality of the former, because the Government does
not have the unbridled discretion to enforce collection without regard to the clear
provision of law." The SC held otherwise by ruling that the Notices of Levy upon real
property were issued within the prescriptive period and in accordance with the provisions
of the present Tax Code. The deficiency tax assessment, having already become final,
executory, and demandable, the same can now be collected through the summary
remedy of distraint or levy pursuant to Section 205 of the NIRC.

13
PNB v. SANTOS
G.R. No. 208293 | December 10, 2014

DOCTRINE: Before the deposit of a decedent is released, the Bank should require the presentation of the
BIR issued certification of payment of, or exemption from, Estate Tax. This is a legal requirement
enshrined in PD 1158, 98 of the Tax Code and reproduced in Section 97 of the NIRC.

FACTS:
Respondents are the heirs of Angel Santos. In May 1996, they found out that their father had a
premium deposit with PNB Sta. Elena Marikina Branch amounted to P1,759,082.63 and a Time Deposit
(TD) of P1M. The respondents went to the branch to withdraw the said deposits. The Branch Manager
(BM), Lina Aguilar required them to present the following requirements:

(1) original or certified true copy of the Death Certificate of Angel C. Santos;
(2) certificate of payment of, or exemption from, estate tax issued by the Bureau of Internal
Revenue (BIR);
(3) Deed of Extrajudicial Settlement;
(4) Publisher’s Affidavit of publication of the Deed of Extrajudicial Settlement; and
(5) Surety bond effective for two (2) years and in an amount equal to the balance of the deposit to
be withdrawn.

In April 1998, the respondents went back to the Branch with the required documents and tried to
withdraw the deposits of their father. However, the BM informed them that the deposits had been released
to a certain Bernardito Manimbo on April 1, 1997. An amount of P1,882,002.05 was released upon
presentation of the following documents:

(a) an affidavit of self-adjudication purportedly executed by one of the respondents, Reyme L.

Santos;
(b) a certificate of time deposit dated December 14, 1989 amounting to 1,000,000.00; and
(c) the death certificate of Angel C. Santos, among others.

A special power of attorney was purportedly executed by Reyme L. Santos in favor of Manimbo
and a certain Angel P. Santos for purposes of withdrawing and receiving the proceeds of the certificate of
time deposit.

The respondents filed a complaint for sum of money and damages at the Marikina RTC against
PNB and BM Aguilar. They questioned the release of such deposits to Manimbo without their authority
and even if Manimbo failed to present all the required documents for withdrawal.

PNB and Aguilar denied that Angel Santos has two separate accounts. They alleged that it was
originally a TD account but subsequently converted into a premium savings account. They also
contended that Aguilar did not know about Angel Santos’ death in 1991 because she only assumed office
in 1996. Since Manimbo was able to submit an affidavit of self-adjudication and the required surety bond,
as well as a certificate of payment of estate tax dated March 31, 1997, she released the deposit since all
of it appeared to be regular.

The trial court held that PNB and Aguilar were jointly and severally liable to pay respondents the
amount of 1,882,002.05 with an interest rate of 6% starting May 20, 1998. They were also declared jointly
and severally liable for moral and exemplary damages, attorney’s fees, and costs of suit. Manimbo, Angel

14
P. Santos, and Capital Insurance and Surety Co., Inc. were held jointly and severally liable to pay PNB
1,877,438.83 pursuant to the heir’s bond and 50,000.00 as attorney’s fees and the costs of suit.

The CA sustained the trial court’s finding that there was only one account. Angel C. Santos could
not have possibly opened the premium savings account in 1994 since he already died in 1991. The Court
of Appeals also held that PNB and Aguilar were negligent in handling the deposit. The deposit amount
was released to Manimbo who did not present all the requirements, particularly the Bureau of Internal
Revenue (BIR) certification that estate taxes had already been paid. They should also not have honored
the affidavit of self-adjudication.

ISSUE:
1. Whether or not Philippine National Bank was negligent in releasing the deposit to Bernardito
Manimbo especially without the required BIR certification for payment/exception from Estate Tax;
Yes.

2. Whether or not Lina B. Aguilar is jointly and severally liable with Philippine National Bank for
the release of the deposit to Bernardito Manimbo; Yes. and

3. Whether or not respondents were properly awarded damages. Yes

RULING:

1. Yes. The Supreme Court sustained that trial court and the CA correctly found that petitioners
PNB and Aguilar were negligent in handling the deposit of Angel C. Santos.

The contractual relationship between banks and their depositors is governed by the Civil Code
provisions on simple loan. Once a person makes a deposit of his or her money to the bank, he or
she is considered to have lent the bank that money. The bank becomes his or her debtor, and he
or she becomes the creditor of the bank, which is obligated to pay him or her on demand.

Banking is a business that is impressed with public interest. It affects economies and plays a
significant role in businesses and commerce. The public reposes its faith and confidence upon
banks, such that even the humble wage-earner has not hesitated to entrust his life’s savings to
the bank of his choice, knowing that they will be safe in its custody and will even earn some
interest for him. This is why the court has recognized the fiduciary nature of the banks’
functions and attached a special standard of diligence for the exercise of their functions.

In this case, the petitioners’ treatment of Angel Santos’ account is inconsistent with the high
standard of diligence required of Banks. Petitioners’ negligence is not based on their failure to
accept respondents’ documents as evidence of their right to claim Angel C. Santos’ deposit.
Rather, it is based on their failure to exercise the diligence required of banks when they accepted
the fraudulent representations of Manimbo. They accepted Manimbo’s representations despite
knowledge of the existence of circumstances that should have raised doubts on such
representations. Petitioners PNB and Aguilar disregarded their own requirements for the release
of the deposit to persons claiming to be heirs of a deceased depositor. They released Angel C.
Santos’ deposit to Manimbo without even requiring him to present the BIR-issued
certificate of payment of, or exemption from, estate tax. This is a legal requirement before
the deposit of a decedent is released. Presidential Decree No. 1158,98 the tax code
applicable when Angel C. Santos died in 1991, provides:

15
SEC. 118. Payment of tax antecedent to the transfer of shares, bonds, or rights. — There
shall not be transferred to any new owner in the books of any corporation, sociedad anonima,
partnership, business, or industry organized or established in the Philippines, any shares,
obligations, bonds or rights by way of gift inter vivos or mortis causa, legacy, or inheritance unless
a certification from the Commissioner that the taxes fixed in this Title and due thereon have been
paid is shown.

If a bank has knowledge of the death of a person who maintained a bank deposit account alone,
or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this Title have been paid;
Provided, however, That the administrator of the estate or any one of the heirs of the decedent
may upon authorization by the Commissioner of Internal Revenue, withdraw an amount not
exceeding 10,000 without the said certification. For this purpose, all withdrawal slips shall contain
a statement to the effect that all of the joint depositors are still living at the time of withdrawal by
any one of the joint depositors and such statement shall be under oath by the said depositors.

This provision was also reproduced in Section 97 of NIRC.

Petitioners PNB and Aguilar’s negligence is also clear when they accepted as bases for the
release of the deposit to Manimbo:

(a) a mere photocopy of Angel C. Santos’ death certificate; (b) the falsified affidavit of
self-adjudication and special power of attorney purportedly executed by Reyme L. Santos; and (c)
the certificate of time deposit.

2. Yes. Petitioners’ actions and inactions constitute gross negligence which the SC sustained
the CA’s ruling that petitioners PNB and Aguilar are solidarily liable with each other.

BM Aguilar was aware that there were other claimants to Angel C. Santos’ deposit. Respondents
had already communicated with petitioner Aguilar regarding Angel C. Santos’ account before
Manimbo appeared. Petitioner Aguilar even gave respondents the updated passbook of Angel C.
Santos’ account. Yet, petitioners PNB and Aguilar did not think twice before they released the
deposit to Manimbo. They did not doubt why no original death certificate could be submitted.
They did not doubt why Reyme L. Santos would execute an affidavit of self-adjudication when he,
together with others, had previously asked for the release of Angel C. Santos’ deposit. They also
relied on the certificate of time deposit and on Manimbo’s representation that the passbook was
lost when the passbook had just been previously presented to Aguilar for updating. Given the
circumstances, diligence of a good father of a family would have required petitioners PNB and
Aguilar to verify. Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the
standard of diligence of a good father of a family.

3. Yes. The gross negligence of the petitioners deprived Angel C. Santos’ heirs of what is due
for them, hence moral damages should be awarded. Exemplary damages should also be
awarded as the law allows this by way of example for the public good. The public relies on
the banks’ sworn profession of diligence and meticulousness in giving irreproachable service.
The level of meticulousness must be maintained at all times by the banking sector. The award
of Atty.’s fees is also proper since exemplary damages were awarded and the respondents
were compelled to litigate themselves.

16
17
LLADOC v. CIR
G.R. No. L-19201 | June 16, 1965

DOCTRINE: A donee’s gift tax is not a property tax per se but is considered an excise tax that is imposed
on the transfer of property by way of gift inter vivos. It does not rest upon general ownership, but an
excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties.

FACTS: M.B. Estate, Inc., of Bacolod City, donated cash to Rev. Fr. Crispin Ruiz, who was at that time,
parish priest of Victorias, Negros Occidental, for the construction of a new Catholic Church in the said
locality. Donor M.B. Estate, Inc., filed the donor’s gift tax return afterwards. When respondent
Commissioner of Internal Revenue issued an assessment for donee’s gift tax against the Catholic Parish
of Victorias, Negros Occidental, of which now petitioner was now the priest, the tax amounted to
P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the
compromise for the late filing of the return.

Petitioner lodged an assessment protest before the CIR but was denied.
In the petition for review before the CTA, petitioner claimed, among others, that at the time of the
donation, he was not the parish priest in Victorias, so therefore, he should not be liable for the donee’s gift
tax.

ISSUE: W/n petitioner should be liable for the assessed donee's gift tax on the P10,000.00 donated for
the construction of the Victorias Parish Church.

RULING: No.

What the Collector assessed was a donee’s gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties,
upon the exercise of the privilege of receiving the properties. A gift tax is not a property tax, but an excise
tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes. As well observed by the learned respondent Court, the phrase “exempt
from taxation,” as employed in the Constitution (supra) should not be interpreted to mean exemption from
all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of
petitioner, the exemption herein must be denied.

18
ABELLO, ET AL. v. CIR
G.R. No. 120721 | February 23, 2005

DOCTRINE: The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code,
states: “In matters which are governed by the Code of Commerce and special laws, their deficiency shall
be supplied by the provisions of this Code.” Thus, reference may be made to the definition of a donation
in the Civil Code. Article 725 of said Code defines donation as: “. . . an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of another, who accepts it.”

Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in
the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.

FACTS:
During the 1987 national elections, petitioners, who are partners in the Angara, Abello, Concepcion,
Regala and Cruz (ACCRA) law firm, contributed P882,661.31 each to the campaign funds of Senator
Edgardo Angara, then running for the Senate. BIR assessed each of the petitioners P263,032.66 for their
contributions. Petitioners questioned the assessment to the BIR, claiming that political or electoral
contributions are not considered gifts under the NIRC so they are not liable for donor’s tax. The claim for
exemption was denied by the Commissioner. The CTA ruled in favor of the petitioners, but such ruling
was overturned by the CA, thus this petition for review. The BIR denied their motion. They then filed a
petition with the CTA, which was granted. On appeal, the CA again held in favor of the BIR.

ISSUE: : Whether or not electoral contributions are subject to donor’s tax.

RULING: YES.

.The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code, states: “In
matters which are governed by the Code of Commerce and special laws, their deficiency shall be
supplied by the provisions of this Code.” Thus, reference may be made to the definition of a donation in
the Civil Code. Article 725 of said Code defines donation as: “. . . an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of another, who accepts it.”

Donation has the following elements:

(a) the reduction of the patrimony of the donor;
(b) the increase in the patrimony of the donee; and,
(c) the intent to do an act of liberality or animus donandi.

In the case at bar, each gave P882,661.31 to the campaign funds of Senator Edgardo Angara, without
any material consideration. All three elements of a donation are present. The patrimony of the four
petitioners were reduced by P882,661.31 each. Senator Angara’s patrimony correspondingly increased
by P3,530,645.24. There was intent to do an act of liberality or animus donandi was present since each of
the petitioners gave their contributions without any consideration. Taken together with the Civil Code
definition of donation, Section 91 of the NIRC is clear and unambiguous, thereby leaving no room for
construction.

Since animus donandi or the intention to do an act of liberality is an essential element of a donation,
petitioners argue that it is important to look into the intention of the giver to determine if a political
contribution is a gift. Petitioners’ argument is not tenable. First of all, donative intent is a creature of the
mind. It cannot be perceived except by the material and tangible acts which manifest its presence. This

19
being the case, donative intent is presumed present when one gives a part of ones patrimony to another
without consideration. Second, donative intent is not negated when the person donating has other
intentions, motives or purposes which do not contradict donative intent. This Court is not convinced that
since the purpose of the contribution was to help elect a candidate, there was no donative intent.
Petitioners’ contribution of money without any material consideration evinces animus donandi.
Petitioner’s claim that since the purpose of electoral contributions is to influence the results of the
elections, donative intent is not present. They claim that the purpose of electoral contributions is brought
on by the desire of the giver to influence the result of an election by supporting candidates who would
influence the shaping of government policies that would promote the general welfare and economic
well-being of the electorate, including the giver himself.

Petitioners attempt to place the barrier of mutual exclusivity between donative intent and the purpose of
political contributions. This Court reiterates that donative intent is not negated by the presence of other
intentions, motives or purposes which do not contradict donative intent. Petitioners’ attempt is strained.
The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they
contribute, in no way amounts to a valuable material consideration so as to remove political contributions
from the purview of a donation. Senator Angara was under no obligation to benefit the petitioners. The
proper performance of his duties as a legislator is his obligation as an elected public servant of the
Filipino people and not a consideration for the political contributions he received. In fact, as a public
servant, he may even be called to enact laws that are contrary to the interests of his benefactors, for the
benefit of the greater good.

20
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY v. THE SECRETARY OF
FINANCE AND THE COMMISSIONER OF INTERNAL REVENUE
G.R, No. 210987 | November 24, 2014

DOCTRINE: Sec. 100 of the NIRC categorically states that the amount by which the fair market value of
the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no
actual donation, the difference in price is considered a donation by fiction of law.

FACTS: Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to
own 498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of
the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the health
maintenance organization industry, offered to sell its shareholdings in PhilamCare through competitive
bidding. Thus, on September 24, 2009, petitioner's Class A shares were sold for USD 2,190,000, or PhP
104,259,330 based on the prevailing exchange rate at the time of the sale, to STI Investments, Inc., who
emerged as the highest bidder.3
After the sale was completed and the necessary documentary stamp and capital gains taxes were paid,
Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares. Months
later, petitioner was informed that it needed to secure a BIR ruling in connection with its application due to
potential donor’s tax liability. In compliance, petitioner, on January 4, 2012, requested a ruling4 to confirm
that the sale was not subject to donor’s tax, pointing out, in its request, the following: that the transaction
cannot attract donor’s tax liability since there was no donative intent and, ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that the shares were sold at their actual fair
market value and at arm’s length; that as long as the transaction conducted is at arm’s length––such that
a bona fide business arrangement of the dealings is done in the ordinary course of business––a sale for
less than an adequate consideration is not subject to donor’s tax; and that donor’s tax does not apply to
sale of shares sold in an open bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner) denied
Philamlife’s request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price
of the shares thus sold was lower than their book value based on the financial statements of PhilamCare
as of the end of 2008.6 As such, the Commisioner held, donor’s tax became imposable on the price
difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration in
money or money’s worth, then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation 6-2008
(RR 6-2008), which provides: SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT
TRADED THROUGH A LOCAL STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B),
27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —

21
 xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the
amount of money and/or fair market value of the property received, the excess of the fair market value of
the shares of stock sold, bartered or exchanged overthe amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to the donor’stax under Section
100 of the Tax Code, as amended.
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of
the shares of stock as shown in the financial statements duly certified by an independent certified public
accountant nearest to the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the book value and the
selling price in the sales transaction is taxable donation subject to a 30% donor’s tax under Section 99(B)
of the NIRC.7 Respondent Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09], on which
petitioner anchored its claim, has already been revoked by Revenue Memorandum Circular (RMC) No.
25-2011.8

Secretary of Finance (Secretary) affirmed the Commissioner’s assailed ruling in its entirety. Petitioner
elevated the case to the CA via a petition for review under Rule 43. CA DISMISSED for lack of In
disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals (CTA),
pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125),11 as amended, which has jurisdiction over
the issues raised. The outright dismissal, so the CA held, is predicated on the postulate that BIR Ruling
No. 015-12 was issued in the exercise of the Commissioner’s power to interpret the NIRC and other tax
laws. Consequently, requesting for its review can be categorized as "other matters arising under the NIRC
or other laws administered by the BIR," which is under the jurisdiction of the CTA, not the CA.
jurisdiction.

ISSUE: 1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction. (No)
2. Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare
attracts donor’s tax. (Yes)

RULING: Admittedly, there is no provision in law that expressly provides where exactly the ruling of the
Secretary of Finance under the adverted NIRC provision is appealable to. However, We find that Sec.
7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit
impliedly, with jurisdiction over the CA petition as "other matters" arising under the NIRC or other laws
administered by the BIR. As stated:
Sec. 7. Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising

22
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue.
(emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is,
nonetheless, sufficient enough to include appeals from the Secretary’s review under Sec. 4 of the NIRC.
This is not, and should not, in any way, be taken as a derogation of the power of the Office of President
but merely as recognition that matters calling for technical knowledge should be handled by the agency or
quasi-judicial body with specialization over the controversy.

Petitioner is quick to point out, however, that the grounds raised in its CA petition included the nullity of
Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to divest the CTA jurisdiction over the
controversy, petitioner then cites British American Tobacco, wherein this Court has expounded on the
limited jurisdiction of the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not
include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the
performance of its quasi legislative function, the regular courts have jurisdiction to pass upon the same.
Court en banc has ruled that the CTA now has the power of certiorari in cases within its appellate
jurisdiction.
Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be established by law and that judicial power
includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.
It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of
certiorari in these cases. Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only
contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the
validity of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioner's arguments.

The price difference is subject to donor's tax

Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value of the property exceeded the value of the

23
consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters
for determining the "fair market value" of a sale of stocks. Such issuance was made pursuant to the
Commissioner's power to interpret tax laws and to promulgate rules and regulations for their
implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being
applied retroactively in contravention to Sec. 246 of the NIRC.26 Instead, it merely called for the strict
application of Sec. 100, which was already in force the moment the NIRC was enacted.

WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in CA-G.R.
SP No. 127984 dated May 23, 2013 and January 21, 2014 are hereby AFFIRMED.
SO ORDERED.

24
CIR v. BF GOODRICH PHILIPPINES INC.
G.R. No. 104171 | February 24, 1999

DOCTRINE
Although a property was sold for less than an adequate consideration, still, it cannot be
considered as a falsity. Further, there can be no deficiency in the payment of Donor’s tax since
private respondent had already reported its income for 1974 based on the first assessment given,
which is already tantamount to compliance.

FACTS:
Upon the expiration of the Parity Amendment of ownership rights of Americans over public agricultural
lands, private respondent’s right would then be lost. To remedy this, it sold their land located in Basilan to
Siltown for 500,000. After which, Siltown leased the same to private respondent for 25 years with an
extension of another 25 years.
Subsequently, in 1975, the BIR sent their assessment on the income of the respondent for year 1974
which they duly paid. However, in 1980, they sent another assessment and alleged a deficiency in
donor’s tax in relation to the sale of its Basilan land to Silitown. In 1981, it received another assessment
increasing the said deficiency donor’s tax.

ISSUE:
Whether or not the petitioner’s right to assess the deficiency donor’s tax has prescribed
Whether or not the assessments made for the deficiency donor’s tax is valid

RULING:

YES. The right of the petitioner to issue the subsequent assessments has already prescribed.
Sec 331 of the NIRC (take note this case is in 1999 pa) provides that “internal revenue taxes shall be
assessed within five years after the return was filed..” In this case, when the BIR assessed the
respondent’s business in 1975 for their income for year 1974, they paid it immediately or on April 13,
1975. The BIR could have issued the proper assessment within five years considering that the fair market
value was of a public record but clearly they did not Instead, they issued it beyond the five year prohibition
therefore, invalid.

NO. The assessments made were not valid.

The petitioner alleged that there was falsity since the sale partakes the nature of a donation because the
land was sold for 500,000 when it really has a value of 2,683.467. However, the court explained that there
are instances that a property may be sold for less than the adequate consideration and still, be valid. In
this case, the respondent sold it for less just to save their ownership rights over the property upon
expiration of the Parity Amendment. Further, the tax return filed by respondent to report its income for
year 1974 is tantamount to compliance therefore, there could be no deficiency in the payment of donor’s
tax.

25
CIR v. PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION
G.R. NO. 66838 December 2, 1991

DOCTRINE:
Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to
non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF the
country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax
credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary
country by the foreign stockholder corporation.

FACTS:
Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder,
P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the
BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal
Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal
Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the
dividends remitted was only 15%.

ISSUE:
Whether or not P&G Philippines is entitled to the refund or tax credit.

RULING:
YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be
applied to dividend remittances to non-resident corporate stockholders of a Philippine corporation. This
rate goes down to 15% ONLY IF he country of domicile of the foreign stockholder corporation “shall allow”
such foreign corporation a tax credit for “taxes deemed paid in the Philippines,” applicable against the tax
payable to the domiciliary country by the foreign stockholder corporation. However, such tax credit for
“taxes deemed paid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20
percentage points which represents the difference between the regular 35% dividend tax rate and the
reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid
in the Philippines” applicable against the US taxes of P&G USA, and such tax credit must reach at least
20 percentage points. Requirements were met.

26
MADRIGAL v. RAFFERTY
G.R. NO. L-12287 August 7, 1918

FACTS:
Vicente Madrigal and Susana Paterno were legally. The marriage was contracted under the
provisions of law concerning conjugal partnerships (sociedad de gananciales.). On February 25,
1915, Vicente Madrigal filed sworn declaration with the Collector of Internal Revenue, showing,
as his total net income for the year 1914, the sum of P296,302.73.

Subsequently, Madrigal submitted the claim that the said P296,302.73 did not represent his
income for the year 1914, but was in fact the income of the conjugal partnership existing
between himself and his wife Susana Paterno, and that in computing and assessing the
additional income tax provided by the Act of Congress of October 3, 1913, the income declared
by Vicente Madrigal should be divided into two equal parts, one-half to be considered the
income of Vicente Madrigal and the other half of Susana Paterno.
The revenue officer was not satisfied with Madrigal’s explanation and ultimately, the United
States Commissioner of Internal Revenue decided against the claim of Madrigal. Madrigal paid
under protest, and the couple decided to recover the sum of P3,786.08 alleged to have been
wrongfully and illegally assessed and collected by the CIR.

ISSUE:
Whether or not the income reported by Madrigal on 1915 should be divided into 2 in computing
for the additional income tax because of the conjugal partnership
.
RULING:
The learned argument of counsel is mostly based upon the provisions of the Civil Code
establishing the sociedad de gananciales. The counter contentions of appellees are that the
taxes imposed by the Income Tax Law are as the name implies taxes upon income tax and not
upon capital and property; that the fact that Madrigal was a married man, and his marriage
contracted under the provisions governing the conjugal partnership, has no bearing on income
considered as income, and that the distinction must be drawn between the ordinary form of
commercial partnership and the conjugal partnership of spouses resulting from the relation of
marriage. The Supreme Court ruled against the Madrigals. To recapitulate, Madrigal wants to
divide into half his declared income in computing for his tax since he is arguing that he has a
conjugal partnership with his wife. However, the court ruled that the one that should be taxed
is the income which is the flow of the capital, thus it should not be divided into 2.

Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of her husband
Vicente Madrigal during the life of the conjugal partnership. She has an interest in the ultimate
property rights and in the ultimate ownership of property acquired as income after such income
has become capital. Susana Paterno has no absolute right to one-half the income of the
conjugal partnership. Not being seized of a separate estate, Susana Paterno cannot make a
separate return in order to receive the benefit of the exemption which would arise by reason of

27
the additional tax. As she has no estate and income, actually and legally vested in her and
entirely distinct from her husband's property, the income cannot properly be considered the
separate income of the wife for the purposes of the additional tax. Moreover, the Income Tax
Law does not look on the spouses as individual partners in an ordinary partnership. The
husband and wife are only entitled to the exemption of P8,000 specifically granted by the law.
The higher schedules of the additional tax directed at the incomes of the wealthy may not be
partially defeated by reliance on provisions in our Civil Code dealing with the conjugal
partnership and having no application to the Income Tax Law.

The aims and purposes of the Income Tax Law must be given effect. In connection with the
decision above quoted, it is well to recall a few basic ideas. The Income Tax Law was drafted by
the Congress of the United States and has been by the Congress extended to the Philippine
Islands. Being thus a law of American origin and being peculiarly intricate in its provisions, the
authoritative decision of the official who is charged with enforcing it has peculiar force for the
Philippines. It has come to be a well-settled rule that great weight should be given to the
construction placed upon a revenue law, whose meaning is doubtful, by the department charged
with its execution.

28
EISNER v. MACOMBER
252 US 89

DOCTRINE: Income means something derived from labor or capital. To be “derived” means something of
exchangeable value separated from the capital. Stock dividends are not income.

FACTS: Macomber was a shareholder of Standard Oil Company. At one time, the oil company declared
stock dividends which Macomber received along with additional shares representing the surplus earnings
of the company. The Internal Revenue Services (IRS) assessed Macomber for income tax for the
dividends classifying them as taxable INCOME under a Revenue Act which provided that a stock dividend
is considered income to the amount of its cash value. Macomber challenges the assessment on the
ground that stock dividends are not income and that the Revenue Act treating it as such is
unconstitutional.

ISSUE: Whether stock dividends are considered as income

RULING: NO. Stock dividends are not income; The Revenue Act classifying it as income is
UNCONSTITUTIONAL

A stock dividend reflects the corporation transferring an amount from "surplus" (retained earnings) to
"capital stock." Such a transaction is merely a bookkeeping entry and "affects only the form, not the
essence, of the "liability" acknowledged by the corporation to its own shareholders ... it does not alter the
preexisting proportionate interest of any stockholder or increase the intrinsic value of his holding or of the
aggregate holdings of the other stockholders as they stood before". An increase to the value of capital
investment is not income. Nothing of value has been taken from the corporation and given to the
shareholder as is the case with a cash dividend.
In addition, since the shareholder receives no cash, in order to pay any tax on a stock dividend, he might
have to convert the stock into cash - he has no wherewithal to pay from the nature of the transaction.
"Nothing could more clearly show that to tax a stock dividend is to tax a capital increase, and not income,
than this demonstration that in the nature of things it requires conversion of capital in order to pay the tax"

29
Commissioner v. Tours Specialist
183 SCRA 402

DOCTRINE: CLAIM OF RIGHT DOCTRINE

FACTS: Respondent, a travel agency servicing the needs of foreign tourists and travelers and Filipino
"Balikbayans"during their stay in this country. Some of the services extended consist of booking in local
hotels for lodging and board needs. In order to ably supply these services to the foreign tourists,
respondent and its correspondent counterpart tourist agencies abroad have agreed to offer a package fee
for the tourists. The foreign tour agency entrusts to the Tours Specialists, Inc., the fund for hotel room
accommodation, which in turn is paid by r tour agency to the local hotel when billed. The procedure
observed is that the billing hotel sends the bill to the respondent. Upon receipt of the bill, the respondent
then pays the local hotel with the funds entrusted to it by the foreign tour correspondent agency. Despite
this arrangement, Commissioner of Internal Revenue assessed respondent for deficiency 3% contractor's
tax as independent contractor by including the entrusted hotel room charges in its gross receipts from
services for the years 1974 to 1976. Consequently, Tour Specialists formally protested the assessment
made by petitioner on the ground that the money received and entrusted to it by the tourists, earmarked
to pay hotel room charges, were not considered and have never been considered by it as part of its
taxable gross receipts for purposes of computing and paying its constractor's tax. petitioner, without
deciding the respondent's written protest, caused the issuance of a warrant of distraint and levy. And later,
petitioner had respondents's bank deposit garnished.

ISSUE: Whether or not the hotel room charges held in trust for foreign tourists and travelers and/or
correspondent foreign travel agencies and paid to local host hotels form part of the taxable gross receipts
for purposes of the 3% contractor's tax.

RULING: No. The CIR's assertion that the hotel room charges entrusted to the respondent were part of
the package fee paid by foreign tourists is not correct.

The room charges entrusted by the foreign travel agencies to the petitioner do not form part of its gross
receipts within the definition of the Tax Code. The said receipts never belonged to Tour specialist. The
respondent never benefited from their payment to the local hotels. As stated earlier, this arrangement was
only to accommodate the foreign travel agencies.

Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the
taxpayer which do not belong to them and do not redound to the taxpayer's benefit; and it is not
necessary that there must be a law or regulation which would exempt such monies and receipts within the
meaning of gross receipts under the Tax Code.

30
Commissioner v. Javier
199 SCRA 824

DOCTRINE: CLAIM OF RIGHT DOCTRINE

FACTS: On 1977 Victoria Javier, wife of Javier-respondent, received $999k from Prudential Bank remitted
by her sister Dolores through Mellon Bank in US. Around 3 weeks after, Mellon Bank filed a complaint
with CFI Rizal against Javier claiming that its remittance of $1M was a clerical error and should have
been $1k only and praying that the excess be returned on the ground that the Javiers are just trustees of
an implied trust for the benefit of Mellon Bank. CFI charged Javier with estafa alleging that they
misappropriated and converted it to their own personal use.
On 1978 Javier filed his Income Tax Return for 1977 and stating in the footnote that “the taxpayer was
recipient of some money received abroad which he presumed to be a gift but turned out to be an error
and is now subject of litigation” . On 1980 The Commissioner of Internal Revenue wrote a letter to Javier
demanding him to pay taxes for the deficiency in his 1977 return, due to the remittance.

Javier replied to the Commissioner and denied that he had any undeclared income for 1977 and
requested that the assessment of 1977 be made to await final court decision on the case filed against him
for filing an allegedly fraudulent return.

Commissioner replied that “the amount of Mellon Bank’s erroneous remittance which you were able to
dispose is definitely taxable” and the Commissioner imposed a 50% fraud penalty on Javier.

The CTA orders the deletion of the 50% surcharge from Javier’s deficiency income tax assessment for
1977. Commissioner's Motion for Reconsideration and Motion for New Trial were denied. Hence, a
petition for review was elevated to the Supreme Court.

ISSUE: W/N a taxpayer who states in the footnote of his income tax return that a sum of money that he
erroneously received and did not declare the same as income is liable to pay the 50% penalty for filing a
fraudulent return?

RULING: NO. The court held that there was no actual and intentional fraud through willful and deliberate misleading
of the BIR in the case. Javier even noted that “the taxpayer was recipient of some money received abroad which he
presumed to be a gift but turned out to be an error and is now subject of litigation”

The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its
lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of
law is not fraud.

o Claim of right doctrine- a taxable gain is conditioned upon the presence of a claim of right to the alleged gain and
the absence of a definite and unconditional obligation to return or repay.
o In this case, the remittance was not a taxable gain, since it is still under litigation and there is a chance that Javier
might have the obligation to return it. It will only become taxable once the case has been settled because by then
whatever amount that will be rewarded, Javier has a claim of right over it. (Javier was made to pay the tax but not the
penalty)

31
WHEREFORE, the petition is DENIED and the decision appealed from the Court of Tax Appeals is AFFIRMED.

32
Gutierrez v. Collector
101 Phil. 713

DOCTRINE: Real property used in the trade or business of the taxpayer is ordinary asset, and not part of
the capital assets. The income derived from the sale or exchange thereof is therefore fully taxable as
ordinary income.

FACTS: Gutierrez is a realtor in the business of selling real property. In 1943, during the period of
Japanese occupation of the Philippines, Gutierrez bought two lots in Manila for P35,000 using Japanese
war notes. Ten (10) years later, or in 1953, he sold the lots for P30,400 and apparently incurred a deficit of
more or less P5,000. When he filed his tax return for the taxable years of 1951 to 1954, he was assessed
for deficiency taxes involving several articles he claimed were allowable deductions including the
apparent P5,000 deficit on the sale of the lots in 1953. The CIR, using the Ballantyne Scale of Values,
stated that when Gutierrez purchased the lots in 1943 at P35,000 using Japanese war notes, the value of
one (1) commonwealth peso during that time was equivalent to P1.30 peso in Japanese war notes;
hence, the P35,000 in Japanese war notes was actually only P26,923 in commonwealth peso and
Gutierrez, when he sold the property ten years later in 1953 for P30,400, actually profited more or less
P3,477.

Another cause for the deficiency assessment was Gutierrez’s inclusion of the profits he made in the sale
of real properties in the ordinary conduct of his business into his Capital Assets (taxable only at 50%)
instead of his Ordinary Assets (taxable at 100%). The CTA affirmed in toto the assessment of the CIR.

ISSUE: (1) whether the inclusion in the capital assets of the profits made in the sale of real properties in
the ordinary course of business is proper;

(2) whether the conversion of the value of the purchase price of the lots in 1943 to its present value in
1953 was properly done by the CIR and the use of the Ballantyne Scale of Values was the appropriate
recourse;

RULING:

(1) NO. Real property used in the trade or business of the taxpayer is ORDINARY ASSET. The gain or
loss from the sale or exchange thereof should be treated as ordinary income or loss. Accordingly, the real
estate sold by Gutierrez in the ordinary conduct of his business should be treated as ordinary assets and
the gain from the sale thereof, as ordinary gain, hence, fully taxable.

(2) YES. In determining the gain or loss from the sale of property the purchase price and the selling price
ought to be in the same currency. Since in this case the purchase price in 1943 was in Japanese military
notes and the selling price in 1953 was in the present legal tender of commonwealth peso, the Japanese
military notes should be converted to the commonwealth peso. Since the only standard scale recognized
by courts for this purpose is the Ballantyne Scale of Values, the Court found it compelling to use such a
table of values rather than adopt an arbitrary scale. The Ballantyne Scale of Values is not being used
herein as the authority to impose the tax, but only as a medium of computing the tax base upon which the
tax is to be imposed.

33
James v. US
366 US 213

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

34
Commissioner v. Glenshaw Glass
388 US 426

DOCTRINE: Money received as exemplary damages for fraud or as the punitive portion of treble
damages must be reported by a taxpayer as gross income. The mere fact that the payments were
extracted from the wrongdoers as punishment for unlawful conduct cannot detract from their character as
taxable income to the recipients.

FACTS:

This litigation involves two cases with independent factual backgrounds.

(First case)

The Glenshaw Glass Company, a Pennsylvania corporation, manufactures glass bottles and containers. It
had a dispute with Hartford-Empire Company, which manufactures Glenshaw's machinery. Among the
claims advanced by Glenshaw were demands for exemplary damages for fraud and treble damages for
injury to its business by reason of Hartford's violation of the federal antitrust laws.

The parties concluded a settlement of all pending litigation, by which Hartford paid Glenshaw
approximately $800,000. It was ultimately determined that, of the total settlement, $324,529.94
represented payment of punitive damages for fraud and antitrust violations. Glenshaw did not report this
portion of the settlement as income for the tax year involved.

The Commissioner determined a deficiency claiming as taxable the entire sum less only deductible legal
fees. The Tax Court and the CA ruled in favor of the taxpayer.

(Second case)

William Goldman Theatres, Inc., a Delaware corporation operating motion picture houses in
Pennsylvania, sued Loew's, Inc., for violation of the federal antitrust laws and sought treble damages.

It was found that Goldman had suffered a loss of profits equal to $125,000 and was entitled to treble
damages in the sum of $375,000.

Goldman reported only $125,000 of the recovery as gross income and claimed that the $250,000 balance
constituted punitive damages and as such was not taxable. The Tax Court agreed. CA affirmed along with
the Glenshaw case.

ISSUE: W/N money received as exemplary damages for fraud or as the punitive portion of treble
damages must be reported by a taxpayer as gross income

RULING: YES.

Here, we have instances of undeniable accessions to wealth, clearly realized, and over which the
taxpayers have complete dominion. The mere fact that the payments were extracted from the wrongdoers
as punishment for unlawful conduct cannot detract from their character as taxable income to the
recipients. Respondents concede, as they must, that the recoveries are taxable to the extent that they
compensate for damages actually incurred. It would be an anomaly that could not be justified in the
absence of clear congressional intent to say that a recovery for actual damages is taxable, but not the

35
additional amount extracted as punishment for the same conduct which caused the injury. And we find no
such evidence of intent to exempt these payments.

Certainly punitive damages cannot reasonably be classified as gifts, nor do they come under any other
exemption provision in the Code. We would do violence to the plain meaning of the statute and restrict a
clear legislative attempt to bring the taxing power to bear upon all receipts constitutionally taxable were
we to say that the payments in question here are not gross income.

36
Tan v. CIR
GR L-109289 | October 3, 1994

DOCTRINE: The general professional partnership is deemed to be no more than a mere mechanism
or a flow-through entity in the generation of income by, and the ultimate distribution of such
income to, respectively, each of the individual partners.

FACTS: These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289,
the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income
Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and,
in G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public
respondents pursuant to said law.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the

amendatory legislation.

In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates the following
provisions of the Constitution:

Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one
subject which shall be expressed in the title thereof.

Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation

Article III, Section 1 — No person shall be deprived of . . . property without due process
of law, nor shall any person be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that
public respondents have exceeded their rule-making authority in applying SNIT to general
professional partnerships.

The Solicitor General espouses the position taken by public respondents.

The Court has given due course to both petitions. The parties, in compliance with the Court's
directive, have filed their respective memoranda.

ISSUE: Whether public respondents have exceeded their authority in promulgating Section 6,
Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. (NO)

37
RULING: The petitions are dismissed.

The questioned regulation reads:

Sec. 6. General Professional Partnership — The general professional partnership (GPP) and the partners
comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership,
only the direct costs mentioned in said law are to be deducted from partnership income. Also, the
expenses paid or incurred by partners in their individual capacities in the practice of their profession which
are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible
from his gross income.

The Court, first of all, should like to correct the apparent misconception that general professional
partnerships are subject to the payment of income tax or that there is a difference in the tax treatment
between individuals engaged in business or in the practice of their respective professions and partners in
general professional partnerships.

The fact of the matter is that a general professional partnership, unlike an ordinary business partnership
(which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is
not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax
exempt, but on the partners themselves in their individual capacity computed on their distributive shares
of partnership profits.

Section 23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:

Sec. 23.Tax liability of members of general professional partnerships. — (a) Persons exercising a
common profession in general partnership shall be liable for income tax only in their individual capacity,
and the share in the net profits of the general professional partnership to which any taxable partner would
be entitled whether distributed or otherwise, shall be returned for taxation and the tax paid in accordance
with the provisions of this Title.

(b) In determining his distributive share in the net income of the partnership, each partner —
(1) Shall take into account separately his distributive share of the partnership's income, gain, loss,
deduction, or credit to the extent provided by the pertinent provisions of this Code, and
(2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive share of
the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his
profession alone or individually and one who does it through partnership (whether registered or not) with
others in the exercise of a common profession. Indeed, outside of the gross compensation income tax
and the final tax on passive investment income, under the present income tax system all individuals
deriving income from any source whatsoever are treated in almost invariably the same
manner and under a common set of rules.
We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No.
7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily
become myopic, however, when the law is understood, as it should be, as only forming part of, and
subject to, the whole income tax concept and precepts long obtaining under the National Internal

38
Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the
Tax Code, and it practically covers all persons who derive taxable
income.

The law, in levying the tax, adopts the most comprehensive tax situs of nationality and
residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to
income tax liability on their income from all sources) and of the generally accepted and internationally
recognized income taxable base (that can subject non-resident aliens and foreign corporations to income
tax on their income from Philippine sources).

In the process, the Code classifies taxpayers into four main groups, namely:(1) Individuals, (2)
Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to
corpus and as to income).

Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships."Ordinarily,
partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as
"taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be
within the context of, and so legally contemplated as, corporations. Except for few variances, such as in
the application of the "constructive receipt rule" in the derivation of income, the income tax approach is
alike to both juridical persons.

Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress
during its deliberations on Republic Act 7496, afore quoted, to cover corporations and partnerships which
are independently subject to the payment of income tax. "Exempt partnerships," upon the other hand, are
not similarly identified as corporations nor even considered as independent taxable entities for income tax
purposes.

A general professional partnership is such an example.4 Here, the partners themselves, not the
partnership (although it is still obligated to file an income tax return [mainly for administration and data]),
are liable for the payment of income tax in their individual capacity computed on their respective and
distributive shares of profits. In the determination of the tax liability, a partner does so as an individual,
and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general
professional partnership is deemed to be no more than a mere mechanism or a flow-through entity in the
generation of income by, and the ultimate distribution of such income to, respectively, each of the
individual partners.

Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as
now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all
individual income taxpayers on their non-compensation income.

There is no evident intention of the law, either before or after the amendatory legislation, to place in an
unequal footing or in significant variance the income tax treatment of professionals who practice their
respective professions individually and of those who do it through a general professional partnership.

39
CIR v. Visayas Electric
G.R. No. L - 22611
May 27, 1968
23 SCRA 715

DOCTRINE: The resolution of respondent company's board established a pension fund called the
"Employees' Reserve For Pensions" for the benefit of present and future employees in the event of
retirement, accident or disability. Such fund, set aside monthly, was taken from the gross operating
receipts of the company and later invested by the company in stocks of San Miguel Brewery for which
dividends were regularly declared. In respect to such fund, the Company acted merely as trustee for its
employees and a valid express trust has been created. For tax purposes, the employees' reserve fund is
a separate taxable entity and the dividends earned thereby are returns of the trust estate and not of the
grantor company.||

FACTS: FACTS:
Visayan Electric Co. (Visayan) holds a legislative franchise to operate and maintain an electric light, heat,
and power system in Cebu City, some municipalities in the Province of Cebu and other
surrounding places. It established a pension fund known as the Employees’ Reserve for Pensions for
the benefit of its present and future employees in the event of a retirement, accident, and disability.
An amount is set aside for this purpose every month and is taken from the gross operating receipts
of the company. This reserve fund was later invested by the company in stocks of San Miguel
Brewery, Inc. for which dividends have been regularly received but these dividends were not
declared for tax purposes. The Auditor General sent Visayan a letter in 1949, informing them that since
the company retained full control of the fund, the dividends are therefore not tax exempt but that such
dividends may be excluded from gross receipts for franchise tax purposes provided that they are
declared for income tax purposes. Because of this, the Provincial Auditor of Cebu allowed the company
the option to declare the dividends either as part of the company’s income for income tax purposes or as
part of its income for franchise tax purposes. The company chose the latter. The Revenue Examiner
of Cebu conducted a separate investigation for the BIR and also discovered that the company is the
custodian or has complete control of the fund but disagreed with the Provincial Auditor and instead
considered the dividends as subject to the corporate income tax under Sec. 24 of the NIRC. The
Examiner also concluded that Visayan violated Sec. 259 of the Tax Code which imposes a 25%
surcharge of the franchise taxes remain unpaid for fifteen days and Sec. 2 of Act 465 for not
paying additional residence tax. With the Examiner’s report as the basis, the Commissioner of Internal
Revenue assessed P2,443.30 as deficiency income tax for 1953 to 1958 plus interest and 50%
surcharge, P3,850 as additional residence tax from 1954 to 1959, and P35,419.05 as 25%
surcharge for late payment of franchise taxes for the years 1957,
1958, and 1959. Visayan appealed to the CA which sustained the additional residence tax but freed the
company from liability for deficiency income tax and the 25% surcharge for late payment of franchise
taxes and cited Sec. 8, Act 3499 as basis .

ISSUES: 1. Is Visayan Electric Company liable for deficiency income tax on dividends from the
stock investment of its employees' reserve fund for pensions?
2. Is it also liable for 25% surcharge on alleged late payment of franchise tax?

RULING:
1. No.

2. No

40
RATIO:
1. The disputed income are not receipts, revenues or profits of the company. They do not go to the
general fund of the company. They are dividends from the San Miguel Brewery, Inc. investment
which form part of and are added to the reserve pension fund which is solely for the benefit of the
employees to be distributed among them. Visayan is merely acting, with respect to the reserve
fund, as trustee for its employees when it sets aside monthly amounts from its gross operating
receipts for that fund. And for tax purposes, the employees’ reserve fund is a separate
taxable entity. Visayan then, while retaining legal title and custody over the property, holds
it in trust for the beneficiaries mentioned in the resolution creating the trust, in the absence of
any condition therein which would, in effect, destroy the intention to create a trust. And there is no
such condition because nothing in the company’s act suggests that it reserved the power to
revoke the fund or appropriate it for itself. The fund may not be diverted for any other purpose
and the trust created is irrevocable. Therefore, the CIR misconceived the import of the law when
he assessed such dividends as part of the income of the company. But the trust fund is still
subject to tax under individuals under Sec. 56 (a) of the Tax Code. But under Sec. 331 of the Tax
Code, internal revenue taxes should be assessed within 5 years after the return is filed and since
the Company was in good faith and the CIR made the honest mistake of assessing income tax
based on corporate tax and not on income tax, then Sec. 332 applies and thus, the tax on the
employees’ reserve fund as individual income tax may still be collected within 10 years. But the
50% surcharge cannot be imposed on Visayan because there was no willful or fraudulent
neglect to file a return.
2. Sec. 183 provides that taxes shall be paid within 20 days after the end of each month
while the franchise extended to Visayan states that the taxes are due and payable
quarterly. The due and payable quarterly in the franchise only indicates the frequency of
payment of the franchise tax, that is, every three months. It does not refer to the time limit
or the date on which the taxes must be paid. There is no conflict between Sec. 183 and the
franchise payment period given to Visayan in the franchise. If there is no period, then
Sec. 183 is controlling, which gives the taxed entity 15 days to pay the tax. But where there is a
period, then the period is controlling. In this case, Visayan’s franchise indicated that franchise tax
shall be due and payable quarterly or every 3 months. Since Sec. 183 grants 20 days after the
last day of each quarter and Sec. 259 grants another 15 days grace period after that, before
imposing the 25% surcharge, then the period for Visayan to pay the franchise tax is within 20
days after the end of each quarter and if such tax remains unpaid for 15 days after that 20 days,
then the 25% surcharge shall be imposed upon them. The tax cannot beimmediately
demandable at the end of each calendar quarter because the transactions on the last day of
the quarter must have to be included in the computation of the taxpayer’s return for each
particular quarter. It is well impossible for the taxpayer to add up his income, write down
the deductions, and compute the net amount taxable as of the last working hour of the
last day of the quarter, and at the same time go to the nearest revenue office, submit the
quarterly return and pay the tax.

41
CIR v. CA, CTA, GCL Retirement Plan
207 SCRA 487

DOCTRINE:

It appears that under Rep. Act No. 1983, which took effect on 22 June 1957,
amending Sec. 56(b) of the National Internal Revenue Code (Tax Code, for
brevity), employees' trusts were exempt from income tax. It is significant to note
that the GCL Plan was qualified as exempt from income tax by the Commissioner
of Internal Revenue in accordance with Rep. Act No. 4917 approved on 17 June
1967. In so far as employees' trusts are concerned, the foregoing provision
should be taken in relation to then Section 56(b) (now 53[b]) of the Tax Code, as
amended by Rep. Act No. 1983, supra, which took effect on 22 June 1957. This
provision specifically exempted employees' trust from income tax.

FACTS:

Respondent, GCL Retirement Plan (GCL) is an employees’ trust maintained by the

employer, GCL Inc., to provide retirement, pension, disability and death benefits to its
employees.

The Plan as submitted was approved and qualified as exempt from income tax by
Petitioner Commissioner of Internal Revenue in accordance with Rep. Act. 4917.

In 1984, Respondent GCL made investments and earned therefrom interest income
from which was withheld the fifteen per centum (15%) final withholding tax imposed by
Pres. Decree No. 1959.

On 15 January 1985, Respondent GCL filed with Petitioner a claim for refund in the
amounts of P1,312.66 withheld by Anscor Capital and Investment Corp., and P2,064.15
by Commercial Bank of Manila. On 12 February 1985, it filed a second claim for refund
of the amount of P7,925.00 withheld by Anscor, stating in both letters that it disagreed
with the collection of the 15% final withholding tax from the interest income as it is an
entity fully exempt from income tax as provided under Rep. Act No 4917 in relation to
Section 56 (b) 3 of the Tax Code.

The refund requested having been denied, Respondent GCL elevated the matter to
respondent Court of Tax Appeals (CTA). The latter ruled in favor of GCL, holding that
employees' trusts are exempt from the 15% final withholding tax on interest income and
ordering a refund of the tax withheld. Upon appeal, originally to this Court, but referred

42
to respondent Court of Appeals, the latter upheld the CTA Decision. Before us now,
Petitioner assails that disposition.

Petitioner thus submits that the deletion of the exempting and preferential tax treatment
provisions under the old law is a clear manifestation that the single 15% (now 20%) rate
is impossible on all interest incomes from deposits, deposit substitutes, trust funds and
similar arrangements, regardless of the tax status or character of the recipients thereof.
In short, petitioner's position is that from 15 October 1984 when Pres. Decree No. 1959
was promulgated, employees' trusts ceased to be exempt and thereafter became
subject to the final withholding tax.

Upon the other hand, GCL contends that the tax exempt status of employees' trusts
applies to all kinds of taxes, including the final withholding tax on interest income. That
exemption, according to GCL, is derived from Section 56(b) and not from Section 21(d)
or 24(cc) of the Tax Code, as argued by Petitioner.

ISSUE:

Whether or not the GCL Plan is exempt from the final withholding tax on interest income
from money placements and purchase of treasury bills required by Pres. Decree No.
1959.

RULING:

Yes. To begin with, it is significant to note that the GCL Plan was qualified as exempt
from income tax by the Commissioner of Internal Revenue in accordance with Rep. Act
No. 4917 approved on 17 June 1967. This law specifically provided:

In so far as employees' trusts are concerned, the foregoing provision should be taken in
relation to Section 56(b) (now 53[b]) of the Tax Code, as amended by Rep. Act No.
1983,supra, which took effect on 22 June 1957. This provision specifically exempted
employees' trusts from income tax and is repeated.

The tax-exemption privilege of employees' trusts, as distinguished from any other kind
of property held in trust, springs from the foregoing provision. It is unambiguous.
Manifest therefrom is that the tax law has singled out employees' trusts for tax
exemption.

And rightly so, by virtue of the raison d'etre behind the creation of employees' trusts.
Employees' trusts or benefit plans normally provide economic assistance to employees
upon the occurrence of certain contingencies, particularly, old age retirement, death,

43
sickness, or disability. It provides security against certain hazards to which members of
the Plan may be exposed. It is an independent and additional source of protection for
the working group. What is more, it is established for their exclusive benefit and for no
other purpose.

There can be no denying either that the final withholding tax is collected from income in
respect of which employees' trusts are declared exempt (Sec. 56[b], now 53[b], Tax
Code). The application of the withholdings system to interest on bank deposits or yield
from deposit substitute is essentially to maximize and expedite the collection of income
taxes by requiring its payment at the source. If an employees' trust like the GCL enjoys
a tax-exempt status from income, we see no logic in withholding a certain percentage of
that income which it is not supposed to pay in the first place.

44
Vda. De Esconde v. CA
G.R. no. 103635
February 1, 1996
253 SCRA 66

DOCTRINE: The rule that a trustee cannot acquire by prescription ownership over property
entrusted to him until and unless he repudiates the trust, applies to express trusts and resulting
implied trusts. However, in constructive implied trusts, prescription may supervene even if the
trustee does not repudiate the relationship. Necessarily, repudiation of the said trust is not a
condition precedent to the running of the prescriptive period.|

FACTS: Petitioner Canstancia, Benjamin, and Elenita, and the Private Respondent Pedro, are the
children of the late Eulogio Esconde and petitioner Catalina Buan,Eulogio Esconde was one of the
children and heirs of Andres Esconde. Andres is the brother of Estanislao Esconde, the original owner of
the disputed lot who died without issue in April 1942. Survived by his only brother, Andres, Estanislao left
an estate consisting of 4 parcels of land in Samal, Bataan. Eulogio died in April, 1994 survived by the
petitioners and Private respondent. At that time, Lazara and Ciriaca, Eulogio’s sisters, had already died
without having partitioned the estate of the late Estanislao Esconde. On December 5, 1946, the heirs of
Lazara, Ciriaca and Eulogio executed a deed of extrajudicial partition. Since the children of Eulogio, with
the exception of Constancia, were then all minors, they were represented by their mother and Judicial
Guardian, petitioner Catalina Buan vda. De Esconde who renounced and waived her usufructuary rights
over the parcels of land in favor of her children in the same deed.

Sometime in December 1982. Benjamin discovered that Lot No. 1700 was registered in the name of his
brother, private respondent. Believing that the lot was co-owned by all the children of Eulogio Esconde,
Benjamin demanded his share of the lot from private respondent. However, Private Respondent asserted
exclusive ownership thereof pursuant to the deed of extrajudicial partition. Hence, on June 29, 1987,
petitioners herein filed a complaint against the private respondent for the annulment of the said lot. The
lower court ruled that the action had been barred by both prescription and laches which is now contended
by the petitioners in here in petition to the supreme court

ISSUE: W/N the action is barred by prescription and laches [YES/NO]

RULING: YES

Petitioner Catalina Buan vda. de Esconde, as mother and legal guardian of her children, appears to have
favored her elder son, private respondent, in allowing that he be given Lot No. 1700 in its entirety in the
extrajudicial partition of the Esconde estate to the prejudice of her other children. Although it does not
appear on record whether Catalina intentionally granted private respondent that privileged bestowal, the
fact is that, said lot was registered in private respondent's name. After TCT No. 394 was handed to him
by his mother, private respondent exercised exclusive rights of ownership therein to the extent of even
mortgaging the lot when he needed money.|||

in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the
relationship. Necessarily, repudiation of the said trust is not a condition precedent to the running of the
prescriptive period (10 years; act 190 Section 40 of Chapter III).|||

45
Guy v. CA
GR No. 165849 | December 10, 2007

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

46
Miguel J. Ossorio Pension Foundation, Inc. v. CA and CIR
G.R. No. 162175 | June 28, 2010

Doctrine:

“If two or more persons agree to purchase a property and by common consent the legal title is taken in

the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in

proportion to the interest of each”.-Article 1452 of the Civil Code.

Facts:

The petitioner is a non-stock and non-profit corporation which was organized for the purpose of

holding title to and administering the employees’ trust or retirement funds established for the

benefit of the employees of Victorias Milling Company, Inc. (VMC). The petitioner, as trustee,

claims that the income earned by the Employees’ Trust Fund is tax exempt under Section 53(b)

of the National Internal Revenue Code (Tax Code), now Section 60 (b). On 25 March 1992, the petitioner

decided to invest part of the Employees’ Trust Fund to purchase a lot in the Madrigal Business Park

(MBP lot) in Alabang, Muntinlupa. The petitioner claims that since it needed funds to pay the

retirement and pension benefits of VMC employees and to reimburse advances made by VMC, the

petitioner’s Board of Trustees authorized the sale of its share in the MBP lot. However, on 26 March

1997, VMC negotiated the sale of the MBP lot with Metropolitan Bank and Trust Company, Inc.

(Metrobank). Metrobank, as a withholding agent, paid the Bureau of Internal Revenue (BIR)

P6,125,625 as withholding tax on the sale of real property. The petitioner claims that it is a co-owner

of the MBP lot as trustee of the Employees’ Trust Fund, which was based on the notarized Memorandum

of Agreement presented before the appellate courts.The petitioner further contends that there is no

dispute that the Employees’ Trust Fund is exempt from income tax. Since the petitioner, as trustee,

purchased 49.59% of the MBP lot using funds of the Employees’ Trust Fund, the petitioner asserts that

47
the Employees’ Trust Fund's 49.59% share in the income tax paid (or P3,037,697.40 rounded off to

P3,037,500) should be refunded. On 14 August 1997, the BIR, through its Revenue District Officer, wrote

a petitioner stating that under Section 26 of the Tax Code, the petitioner is not exempt from tax on its

income from the sale of real property. Since the BIR failed to act on petitioner’s claim for refund, the

petitioner elevated its claim to the Commissioner of Internal Revenue (CIR) on 26 October 1998. The CIR

did not act on the petitioner's claim for refund. Hence, the petitioner filed a petition for tax refund before

the CTA. On 24 October 2000, the CTA rendered a decision denying the petition. On 22 November 2000,

petitioner filed its Petition for Review before the Court of Appeals. On 20 May 2003, the CA rendered a

decision denying the appeal. The CA also denied petitioner’s Motion for Reconsideration. Hence this

appeal.

Issue:

Whether or not the petitioner or the Employees’ Trust Fund is exempt from tax and thus entitled to

refund.

Ruling:

Yes. The petitioner is a corporation that was formed to administer the Employees' Trust Fund.

The petitioner invested P5,504,748.25 of the funds of the Employees' Trust Fund to purchase the

MBP lot. When the MBP lot was sold, the gross income of the Employees’ Trust Fund from the

sale of the MBP lot was P40,500,000. The 7.5% withholding tax of P3,037,500 and the broker’s

commissions were deducted from the proceeds. It is evident that tax-exemption is likewise to be

enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a

diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of

the trust fund. This would run afoul of the very intention of the law. Indeed, the petitioner is correct in

its adherence to the clear ruling laid by the Supreme Court way back in 1992 in the case of

48
Commissioner of Internal Revenue vs. The Honorable Court of Appeals, The Court of Tax Appeals

and GCL Retirement Plan, wherein it held: There

can be no denying either that the final withholding tax is collected from income in

respect of which employees’ trusts are declared exempt (Sec. 56(b), now 53(b), Tax Code). The

application of the withholdings system to interest on bank deposits or yield from deposit

substitutes is essentially to maximize and expedite the collection of income taxes by requiring its

payment at the source. If an employees’ trust like the GCL enjoys a tax-exempt status from

income, we see no logic in withholding a certain percentage of that income which it is not

supposed to pay in the first place. Similarly, the income of the trust funds involved herein is exempt

from the payment of final withholding taxes.Since petitioner has proven that the income from the sale

of the MBP lot came from an investment by the Employees' Trust Fund, petitioner, as trustee of the

Employees’ Trust Fund, is entitled to claim the tax refund of P3,037,500 which was erroneously paid

in the sale of the MBP lot.

Lorenzo Ona v. CIR

45 SCRA 74

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

49
Evangelista v. Collector
102 Phil. 140

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

50
Pascual v. CIR
166 SCRA 560

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

51
Afisco Insurance Corp. v. CIR
GR No. 112675 | January 25, 1999

DOCTRINE: According to section 22 of the tax reform act: The term 'corporation' shall include
partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies.

FACTS: The petitioners are 41 non-life insurance corporations, organized and existing under the laws of
the Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and
Contractors' All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share
Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener
Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation.
The reinsurance treaties required petitioners to form a pool.Accordingly, a pool composed of the
petitioners was formed on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an
"Information Return of Organization Exempt from Income Tax" for the year ending in 1975, on the basis of
which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount
of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends
paid to Munich and to the petitioners, respectively.

ISSUE: Whether or not the Clearing House was a partnership or association subject to tax as a
corporation. [YES, it is a partnership subject to corporate tax]

RULING: Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers, did
not share the same risk or solidary liability; (2) there was no common fund; (3) the executive board of the
pool did not exercise control and management of its funds, unlike the board of directors of a corporation;
and (4) the pool or clearing house "was not and could not possibly have engaged in the business of
reinsurance from which it could have derived income for itself."

The court is not persuaded. The Philippine legislature included in the concept of corporations those
entities that resembled them such as unregistered partnerships and associations. Parenthetically, the
NLRC's inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act
of 1997. In the case before us, the ceding companies entered into a Pool Agreement or an association
that would handle all the insurance businesses covered under their quota share reinsurance treaty and
surplus reinsurance treaty with Munich. The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC: (1) The pool has a common fund, consisting of money
and other valuables that are deposited in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool. (2) The pool functions through an executive board,
which resembles the board of directors of a corporation, composed of one representative for each of the
ceding companies. (3) True, the pool itself is not a reinsurer and does not issue any insurance policy;
however, its work is indispensable, beneficial and economically useful to the business of the ceding
companies and Munich, because without it they would not have received their premiums. The ceding
companies share "in the business ceded to the pool" and in the "expenses" according to a "Rules of
Distribution" annexed to the Pool Agreement. Profit motive or business is, therefore, the primordial reason
for the pool's formation. WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals
dated October 11, 1993 and November 15, 1993 are hereby AFFIRMED. Costs against petitioners.

52
Collector v. Batangas Transportation Co.
G.R. No. L-9692 | January 6, 1958

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

53
Gatchalian v. Collector
67 Phil. 666

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

54
Reyes v. Commissioner
24 SCRA 198 | July 29, 1968

DOCTRINE: When our Internal Revenue Code includes 'partnerships' among the entities subject to the
tax on 'corporations', said Code must allude, therefore, to organizations which are not necessarily
'partnerships', in the technical sense of the term. Thus, for instance, section 24 of said Code exempts
from the aforementioned tax 'duly registered general partnerships', which constitute precisely one of the
most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code,
'the term corporation includes partnerships, no matter how created or organized.'

FACTS:

Petitioners Florencio and Angel Reyes, father and son petitioners were assessed by respondent
Commissioner of Internal Revenue the sum of P46, 647.00 as income tax, surcharge and compromise for
the years 1951 to 1954, an assessment subsequently reduced to P37, 528.00. This assessment sought to
be reconsidered unsuccessfully was the subject of an appeal to respondent Court of Tax Appeals.
Thereafter, another assessment was made against petitioners, this time for back income taxes plus
surcharge and compromise in the total sum of P25,973.75, covering the years 1955 and 1956. There
being a failure on their part to have such assessments reconsidered, the matter was likewise taken to the
respondent Court of Tax Appeals. The two cases involving as they did identical issues and ultimately
traceable to facts similar in character were heard jointly with only one decision being rendered. In that
joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to 1954 was reduced
to P37,128.00 and for the years 1955 and 1956, to P20,619.00 as income tax due "from the partnership
formed" by petitioners. The reduction was due to the elimination of surcharge, the failure to file the
income tax return being accepted as due to petitioners' honest belief that no such liability was incurred as
well as the compromise penalties for such failure to file. A reconsideration of the aforesaid decision was
sought and denied by respondent Court of Tax Appeals. Hence this petition for review.

On October 1950, petitioners, father and son, purchased a lot and building, known as the Gibbs
Building, for P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00,
representing the mortgage obligation of the vendors with the China Banking Corporation, which mortgage
obligations was assumed by the vendees. The initial payment of P375,000.00 was shared equally by
petitioners. At the time of the purchase, the building was leased to various tenants, whose rights under
the lease contracts with the original owners the purchasers, petitioners herein, agreed to respect. The
administration of the building was entrusted to an administrator who collected the rents; kept its books
and records and rendered statements of accounts to the owners; negotiated leases; made necessary
repairs and disbursed payments, whenever necessary, after approval by the owners; and performed such
other functions necessary for the conservation and preservation of the building. Petitioners divided
equally the income derived from the building after deducting the expenses of operation and maintenance.
The gross income from rentals of the building amounted to about P90,000.00 annually. Respondent Court
of Tax Appeals sustained the action of respondent Commissioner and applied the leading case of
Evangelista vs. Collector of Internal Revenue.

ISSUE: W/N the petitioners are subject to the tax on corporations. YES

RULING: YES. A perusal of the Evangelista decision is unavoidable. National Internal Revenue Code
explicitly provides that the term corporation "includes partnerships". In the case of Evangelista, reference
was made to the following circumstances, namely, the common fund being created purposely not

55
something already found in existence, the investment of the same not merely in one transaction but in a
series of transactions; the lots thus acquired not being devoted to residential purposes or to other
personal uses of petitioners in that case; such properties having been under the management of one
person with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and
contracts and to endorse notes and checks; the above conditions having existed for more than 10 years
since the acquisition of the above properties; and no testimony having been introduced as to the purpose
"in creating the set up already adverted to, or on the causes for its continued existence." The conclusion
that emerged had all the imprint of inevitability. Thus: "Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership, the collective effect of these circumstances is
such as to leave no room for doubt on the existence of said intent in petitioners herein." It may be said
that there could be a differentiation made between the circumstances above detailed and those existing in
the present case. It does not suffice though to preclude the applicability of the Evangelista decision.

When our Internal Revenue Code includes 'partnerships' among the entities subject to the tax on
'corporations', said Code must allude, therefore, to organizations which are not necessarily 'partnerships',
in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax 'duly registered general partnerships', which constitute precisely one of the most
typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, 'the
term corporation includes partnerships, no matter how created or organized.' This qualifying expression
clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity
with the usual requirements of the law on partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. Again, pursuant to said section 84(b), the term 'corporation' includes,
among other, 'joint accounts, (cuentas en participacion)' and 'associations', none of which has a legal
personality of its own, independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the partnerships therein referred to.
In fact, as above stated, 'duly registered general co-partnerships — which are possessed of the
aforementioned personality — have been expressly excluded by law (sections 24 and 84 [b]) from the
connotation of the term 'corporation'." For purposes of the tax on corporations, our National Internal
Revenue Code, include these partnerships — with the exception only of duly registered general
co-partnerships — within the purview of the term 'corporation'. It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned, and are subject to the
income tax for corporations.

56
Philex Mining Corp. v. Commissioner
GR No. 148187 | April 16, 2008

DOCTRINE: : "Receipt by a person of a share in the profits of a business is prima facie evidence that he
is a partner in the business."

Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed
against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.

The requisites of a bad debt deduction are the following:

(a) There was a valid and existing debt;

(b) The debt was ascertained to be worthless; and

(c) It was charged off within the taxable year when it was determined to be worthless.

Philex Mining Corp. could not claim the advances as a valid bad debt deduction. The agreement is more
consistent with a partnership than a creditor-debtor relationship. Since the advanced amount partook of
the nature of an investment, it could not be deducted as a bad debt from the petitioner's gross income.

FACTS: Philex Mining Corporation entered into an agreement with Baguio Gold Mining Company
whereby Philex Mining agreed to manage and operate Baguio Gold Company’s mining claim known as
the Sto. Nino mine. The parties’ agreement was named "Power of Attorney". Philex Mining Corporation
made advances of cash and property. However, the mine suffered continuing losses over the years which
resulted to Philex Mining Corp’s withdrawal as manager of the mine and in the eventual cessation of mine
operations. The parties executed a "Compromise with Dation in Payment'' wherein Baguio Gold Mining
Corporation admitted an indebtedness to Philex Mining Corp. and agreed to pay the same in three
segments by first assigning Baguio Gold’s tangible assets to Philex Mining, transferring to the latter
Baguio Gold’s equitable title in its Philodrill assets and finally settling the remaining liability through
properties that Baguio Gold may acquire in the future.

Philex Mining Corp. deducted from its gross income a certain amount as "loss on settlement of
receivables from Baguio Gold Mining Corporation against reserves and allowances." However, the BIR
disallowed the amount as deduction for bad debt and assessed Philex Mining Corp. a deficiency income
tax. Philex Mining Corporation protested before the BIR arguing that the deduction must be allowed since
all requisites for a bad debt deduction were satisfied

ISSUE: W/N Whether or not Philex Mining Corporation should pay the deficiency income tax [YES]
W/N there was a valid debt deduction [No]

RULING: Yes. Philex Mining Corporation should pay the deficiency income tax. The Court rejected
Philex Mining Corp.’s assertion that the advances it made for the Sto. Nino mine were in the nature of a
loan. It instead characterized the advances as Philex Mining’s investment in a partnership with Baguio
Gold for the development and exploitation of the Sto. Nino mine. The Court held that the "Power of
Attorney" executed by Philex Mining Corp. and Baguio Gold was actually a partnership agreement. Since

57
the advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from
the petitioner's gross income.

Under a contract of partnership, two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.

1. Baguio Gold Mining Corporation contributed P11M under its own account in addition to its actual
mining claim meanwhile Philex Mining Corporation’s contribution is its expertise in the
management and operation of mines and Philex Mining Corp. ’s "compensation" as manager
that cannot be paid in cash.

2. They also had a joint interest in the profits of the business as shown by a 50-50 sharing in the
income of the mine.

3. Under the "Power of Attorney", Philex Mining Corp. and Baguio Gold undertook to contribute
money, property and industry to the common fund known as the Sto. Niño mine.

No. Philex Mining Corp. could not claim the advances as a valid bad debt deduction. The
agreement is more consistent with a partnership than a creditor-debtor relationship. In a contract of loan,
a person who receives a loan or money or any fungible thing acquires ownership thereof and is bound to
pay the creditor an equal amount of the same kind and quality. In this case, however, there was no
stipulation for Baguio Gold to actually repay Philex the cash and property that it had advanced, but only
an entitlement to the proportionate return of the mine’s assets upon dissolution of the parties’ business
relations.There was nothing in the agreement that would require Baguio Gold to make payments of the
advances to Philex Mining Corporation as would be recognized as an item of obligation or "accounts
payable" for Baguio Gold.The parties also did not provide a specific maturity date for the advances to
become due and demandable, and the manner of payment was unclear. All these point to the inevitable
conclusion that the advances were not loans but capital contributions to a partnership.

The strongest indication that Philex Mining Corp. was a partner in the Sto Niño mine is the fact that it
would receive 50% of the net profits as "compensation" under the agreement. The entirety of the parties’
contractual stipulations simply leads to no other conclusion than that Philex Mining Corp. 's
"compensation" is actually its share in the income of the joint venture. Article 1769 (4) of the Civil Code
explicitly provides that the "receipt by a person of a share in the profits of a business is prima facie
evidence that he is a partner in the business."

Not an employee

The tax court correctly noted that Philex Mining Corp. was not an employee of Baguio Gold who will be
paid "wages" pursuant to an employer-employee relationship. To begin with, Philex Mining Corp. was the
manager of the project and had put substantial sums into the venture in order to ensure its viability and
profitability. By pegging its compensation to profits, Philex Mining Corp. also stood not to be remunerated
in case the mine had no income. It is hard to believe that Philex Mining Corp. would take the risk of not
being paid at all for its services, if it were truly just an ordinary employee.

Not an Agency coupled with interest

58
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal
due to an interest of a third party that depends upon it, or the mutual interest of both principal and agent.
In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made
by Philex Mining Corporation who is supposedly the agent and not the principal under the contract. Thus,
it cannot be inferred from the stipulation that the parties’ relation under the agreement is one of agency
coupled with an interest and not a partnership.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of
Philex Mining Corporation to contract with third persons on behalf of Baguio Gold but to create a business
relationship between Philex Mining Corporation and Baguio Gold. Where representation for and on
behalf of the principal is merely incidental or necessary for the proper discharge of one’s paramount
undertaking under a contract, the latter may not necessarily be a contract of agency, but some other
agreement depending on the ultimate undertaking of the parties.

In sum, Philex Mining Corp. cannot claim the advances as a bad debt deduction from its gross income.
Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed
against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.
In this case, Philex Mining Corp. failed to substantiate its assertion that the advances were subsisting
debts of Baguio Gold that could be deducted from its gross income. Consequently, it could not claim the
advances as a valid bad debt deduction.

59
Air Canada v. CIR
G.R. No. 169507 | January 11, 2016

DOCTRINE: An offline international air carrier selling passage tickets in the Philippines, through a general
sales agent, is a resident foreign corporation doing business in the Philippines. As such, it is taxable
under Section 28(A)(1), and not Section 28(A)(3) of the 1997 National Internal Revenue Code, subject to
any applicable tax treaty to which the Philippines is a signatory. Pursuant to Article 8 of the Republic of
the Philippines-Canada Tax Treaty, Air Canada may only be imposed a maximum tax of 1 1/2% of its
gross revenues earned from the sale of its tickets in the Philippines.

FACTS: Air Canada is an offline air carrier selling passage tickets in the country thorough a general sales
agent, Aerotel. As an offline air carrier it does not have any flights to and from the Ph, nor operate any
aircraft in the country. Air Canada filed a claim for refund for more than 5 million pesos as it claims that
there was an overpayment. It anchors its petition on the following: It avers that the applicable tax rate is
2.5% on it gross Ph billings and not the ordinary 30% corporate income tax rate. It also posits that under
the Ph Canada treaty, if it is to be taxed, the rate should be only 1.5%

ISSUE:
WON petitioner, as an offline air carrier, is a RFC? YES
WON subject 1 1/2% tax on Gross Ph Billings. If not, is it taxable at 32%? Not subject to Gross Ph
BIllings
WON the Ph Canada treaty is enforceable? YES

RULING:
Yes, petitioner is a resident foreign corporation. A resident foreign corporation is a corporation created
under the law of a foreign country, but is engaged in business or trade in the Ph. The Implementing Rules
and Regulations of Republic Act No. 7042 (Foreign Investments Act) clarifies that "doing business"
includes "appointing representatives or distributors, operating under full control of the foreign
corporation. Also, doing business in the Ph contemplates continuity of business dealings. Thus,
petitioner by appointing a general sales agent, Aerotel, is undoubtedly “doing business” or “engaged in
trade or business” in the country.

No, petitioner, as an offline international carrier is not liable on tax on Gross Ph Billings. As provided for
by the law, the tax attaches only when the carriage of persons, excess baggage, cargo, and mail
originated from the Ph in a continuous and uninterrupted flight. Hence, Air Canada having no flights to
and from the Ph, and maintaining no aircraft in the country is not liable to pay the 2.5% tax on Gross Ph
Billings.

The application of the regular 32% tax rate on corporations under the Tax Code must consider the
existence of an effective tax treaty between the Ph and the home country of the foreign air carrier. A tax
treaty is an agreement entered into between sovereign states for the purpose of eliminating double
taxation and to promote mutual trade and investment. It is anchored on the constitutional provision that
the Ph “adopts the generally accepted principles of international law as part of the law of the land”. Under
the Ph Canada treaty, the tax imposed should not exceed 1 1/2% of gross revenues derived from Ph
sources.

60
61
Collector v. Henderson
1 SCRA 649

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

62
CIR v. Efren P. Castaneda
G.R. No. 96016 | October 17, 1991

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

63
CIR v. CA, CTA & ANSCOR
GR No. 108576 | January 30, 1999

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

64
Eisner v. Macomber
252 US 89

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

65
CIR v. CA & Castaneda
GR No. 96016 | October 17, 1991

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

66
ESSO v. CIR
175 SCRA 149

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

67
Zamora v. Collector
8 SCRA 16

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

68
CM Hoskins & Co., Inc. v. Commissioner
30 SCRA 434

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

69
CIR v. CTA & Smith Kline & French Overseas Co (Phil Branch)
G.R. No. L-54108 | January 17, 1984

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

70
Gancayco v. The Collector
G.R. No. L-13325 | April 20, 1961

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

71
Palanca v. CIR
18 SCRA 496

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

72
Paper Industries Corp. v. CA, CIR & CTA
250 SCRA 434

DOCTRINE: Interest payments on loans incurred by a taxpayer are allowed by the NIRC as deductions
against the taxpayer's gross income.

FACTS:

The Paper Industries Corporation of the Philippines ("Picop") is a Philippine corporation registered as a
preferred pioneer enterprise with respect to its integrated pulp and paper mill, and as a preferred
non-pioneer enterprise with respect to its integrated plywood and veneer mills.

Picop received from the CIR 2 letters of assessment: (a) one for deficiency transaction tax and for
documentary and science stamp tax; and (b) the other for deficiency income tax for 1977, for an
aggregate amount of P88,763,255.00.

Despite protest of Picop, the CIR issued a warrant of distraint on personal property and a warrant of levy
on real property.

The CTA modified the decision, reducing Picop’s liabilities to P20M. The CA further reduced it to
P6,338,354.70.

Picop now maintains that it is not liable at all to pay any of the assessments or any part thereof. It assails
the propriety of the 35% deficiency transaction tax assessed against it.

The CIR, upon the other hand, asserts that Picop should not be allowed to claim as deductible expenses:
(a) the net operating losses of another corporation (i.e., Rustan Pulp and Paper Mills, Inc.); and (b)
interest payments on loans for the purchase of machinery and equipment.

ISSUE: W/N Picop can claim as deductions the interest payments on loans for the purchase of machinery
and equipment - YES

RULING:

Picop can claim as deductions the interest payments on loans for the purchase of machinery and
equipment.

Picop obtained loans from foreign creditors in order to finance the purchase of machinery and equipment
needed for its operations. In its 1977 Income Tax Return, Picop claimed interest payments made in 1977,
amounting to P42M as a deduction from its 1977 gross income.

The CIR disallowed this deduction upon the ground that, because the loans had been incurred for the
purchase of machinery and equipment, the interest payments on those loans should have been
capitalized instead and claimed as a depreciation deduction.

The Court held that interest payments on loans incurred by a taxpayer are allowed by the NIRC as
deductions against the taxpayer's gross income.

73
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.

74
Collector v. Prieto
109 Phil. 592

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

75
CIR v. Lednicky
GR No. L-18169 | July 31, 1964

DOCTRINE: An alien resident is not entitled to tax credit for foreign income taxes paid when his income is
derived wholly from sources within the Philippines|||

An alien resident's right to deduct from gross income the income taxes he paid to a foreign government is
given only as an alternative to his right to claim a tax credit for such foreign income taxes; so that unless
he has a right to claim such tax credit if he chooses, he is precluded from said deduction.|||

FACTS: Respondents, V. E. Lednicky and Maria Valero Lednicky, are husband and wife, , both American
citizens residing in the Philippines, and have derived all their income from Philippine sources . In
compliance with local law, respondents|| filed their income tax return for the taxable year 1955, 1956 and
1957. All the three income returns, respondent filed an amended return and claimed refund and/or
deductions representing taxes paid to the U.S. Government on income derived wholly from Philippine
sources. When the petitioner Commissioner of Internal Revenue failed to answer the claim for refund, the
respondents filed their petition with the tax court. The Tax Court decided for respondents.

ISSUE: Whether a citizen of the United States residing in the Philippines, who derives income wholly from
sources within the Republic of the Philippines, may deduct from his gross income the income taxes he
has paid to the United States government for the taxable year. NO

RULING: An alien resident is not entitled to tax credit for foreign income taxes paid when his income is
derived wholly from sources within the Philippines. To allow an alien resident to deduct from his gross
income whatever taxes he pays to his own government amounts to conferring on the latter power to
reduce the tax income of the Philippine government simply by increasing the tax rates on the alien
resident. Everytime the rate of taxation imposed upon an alien resident is increased by his own
government, his deduction from Philippine taxes would correspondingly increase, and the proceeds for
the Philippines diminished, thereby subordinating our own taxes to those levied by a foreign government.
Such a result is incompatible with the status of the Philippines as an independent and sovereign state.

Right to deduct income taxes paid to foreign government from the taxpayer's gross income is given only
as an alternative or substitute to his right to claim a tax credit for such foreign income taxes; so that
unless the alien resident has a right to claim such tax credit if he so chooses, he is precluded from
deducting the foreign income taxes from his gross income.

76
Gutierrez v. Collector
14 SCRA 33

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

77
CIR v. Lednicky
GR No. L-18169 | July 31, 1964

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

78
Gutierrez v. Collector
14 SCRA 33

DOCTRINE: While Section 30 allows taxes to be deducted from gross income, it does not
specifically allow fines and penalties to be so deducted. Deductions from gross income are
matters of legislative grace; what is not expressly granted by Congress is withheld. Moreover,
when acts are condemned, by law and their commission is made punishable by fines or
forfeitures, to allow them to be deducted from the wrongdoer's gross income, reduces, and so in
part defeats, the prescribed punishment.

FACTS: Lino Gutierrez was primarily engaged in the business of leasing real property for which
he paid estate broker's privilege tax. He filed his income tax returns for the years 1951, 1952,
1953 and 1954 and paid the corresponding tax declared therein. On July 10, 1956 the
Commissioner (formerly Collector) of Internal Revenue assessed against Gutierrez deficiency
income tax.

The deficiency tax came about by the disallowance of deductions from gross income
representing depreciation, expenses Gutierrez allegedly incurred in carrying on his business, and
the addition to gross income of receipts which he did not report in his income tax returns. The
disallowed business expenses which were considered by the Commissioner either as personal or
capital expenditures consisted of, among others, fines and penalties for late payment of taxes.

Having unsuccessfully questioned the legality and correctness of the aforesaid assessment,
Gutierrez instituted an appeal to the Court of Tax Appeals. Later, the Commissioner issued a
warrant of distraint and levy on one of Gutierrez' real properties but desisted from enforcing the
same when Gutierrez filed a bond to assure payment of his tax liability.

The Court of Tax Appeals upheld in toto the assessment of the Commissioner of Internal
Revenue. Hence, this appeal.

ISSUE: Whether or not the deductions for fines and penalties for late payment of taxes claimed
by Gutierrez are allowable. NO

RULING:

No. Section 30(a) of the Tax Code allows business expenses to be deducted from gross income.
We quote:

SEC. 30. Deductions from gross income. — In computing net income there shall be
allowed as deductions —
(a) Expenses:

79
 (1) In general. — All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; travelling
expenses while away from home in the pursuit of a trade or business; and rentals or
other payments required to be made as a condition to be continued use of possession,
for the purposes of the trade or business, or property to which the taxpayer has not
taken or is not taking title or in which he has no equity.

To be deductible, therefore, an expense must be (1) ordinary and necessary; (2) paid or
incurred within the taxable year; and, (3) paid or incurred in carrying on a trade or
business.

Gutierrez also claimed for deduction the fines and penalties which he paid for late payment of
taxes. While Section 30 allows taxes to be deducted from gross income, it does not specifically
allow fines and penalties to be so deducted. Deductions from gross income are matters of
legislative grace; what is not expressly granted by Congress is withheld. Moreover, when acts are
condemned, by law and their commission is made punishable by fines or forfeitures, to allow
them to be deducted from the wrongdoer's gross income, reduces, and so in part defeats, the
prescribed punishment.

80
China Bank Corp. v. CA, CIR, CTA
336 SCRA 178

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

81
Collector v. Goodrich International Rubber Co.
21 SCRA 1336

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

82
Fernandez Hermanos, Inc. v. CIR
29 SCRA 553

DOCTRINE: insert doctrine here

FACTS:

The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation organized for the purpose of
engaging in business as an "investment company. The CIR assessed against the taxpayer the sums of
P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as alleged deficiency income taxes for
the years 1950, 1951, 1952, 1953 and 1954, respectively. Said assessments were the result of alleged
discrepancies found upon the examination and verification of the taxpayer's income tax returns for the
said years.

The Tax Court sustained the Commissioner's disallowances of the following losses: losses in or bad debts
of Palawan Manganese Mines, Inc. in 1951, losses in Hacienda Samal in 1951 and 1952 and excessive
depreciation of houses. It however overruled the Commissioners disallowances of the other items. After
the modifications, it was found that the total deficiency income taxes due from the taxpayer for the years
under review to amount to P123,436.00 instead of P166,063.00 as originally assessed by the
Commissioner. Both parties appealed from the respective adverse rulings against them.

ISSUE:

Whether or not the Tax Court was correct in its ruling regarding the disputed items of disallowances (YES)

RULING:

The Tax Court's disallowance of the write-off was proper. The Solicitor General has rightly pointed out that
the taxpayer has taken an "ambiguous position " and "has not definitely taken a stand on whether the
amount involved is claimed as losses or as bad debts but insists that it is either a loss or a bad debt."

The Supreme Court sustains the government's position that the advances made by the taxpayer to its
100% subsidiary, Palawan Manganese Mines, Inc. amounting to P587,308,07 as of 1951 were
investments and not loans. The evidence on record shows that the board of directors of the two
companies since August, 1945, were identical and that the only capital of Palawan Manganese Mines,
Inc. is the amount of P100,000.00 entered in the taxpayer's balance sheet as its investment in its
subsidiary company. This fact explains the liberality with which the taxpayer made such large advances to
the subsidiary, despite the latter's admittedly poor financial condition.

The taxpayer's contention that its advances were loans to its subsidiary as against the Tax Court's finding
that under their memorandum agreement, the taxpayer did not expect to be repaid, since if the subsidiary
had no earnings, there was no obligation to repay those advances, becomes immaterial, in the light of our
resolution of the question. The Tax Court correctly held that the subsidiary company was still in operation
in 1951 and 1952 and the taxpayer continued to give it advances in those years, and, therefore, the
alleged debt or investment could not properly be considered worthless and deductible in 1951, as claimed
by the taxpayer. Furthermore, neither under Section 30 (d) (2) of our Tax Code providing for deduction by
corporations of losses actually sustained and charged off during the taxable year nor under Section 30 (e)
(1) thereof providing for deduction of bad debts actually ascertained to be worthless and charged off

83
within the taxable year, can there be a partial writing off of a loss or bad debt, as was sought to be done
here by the taxpayer. For such losses or bad debts must be ascertained to be so and written off during
the taxable year, are therefore deductible in full or not at all, in the absence of any express provision in
the Tax Code authorizing partial deductions.

84
Basilan Estate, Inc. v. Commissioner
21 SCRA 17

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

85
Zamora v. Collector
8 SCRA 163

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

86
Fernandez Hermanos Inc. v. CIR
29 SCRA 553

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

87
Roxas v. CTA
23 SCRA 276

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

88
Gancayco v. Collector
1 SCRA 980

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

89
Soriano, et al. v. Secretary of Finance, et al.
GR Nos. 184450, 184508, 184538, 185234 | January 24, 2017

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

90
N.V. Reederit Amsterdam v. Commissioner
GR No. 46029 | June 23, 1988

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

91
Marubeni Corp v. Commissioner
177 SCRA 500

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

92
Bank of America NT & SA v. CA & CIR
234 SCRA 302

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

93
Commissioner v. Procter & Gamble PMC
160 SCRA 560, 204 SCRA 377

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

94
Commissioner v. Wander Phils.
160 SCRA 573

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

95
Marubeni Corp v. Commissioner
177 SCRA 500

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

96
Manila Wine Merchants, Inc. v. CIR
127 SCRA 483

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

97
Commissioner of Internal Revenue v. Tuason, Jr.
173 SCRA 397

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

98
Cyanamid v. CA
322 SCRA 639

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

99
CIR v. St. Luke’s Medical Center, Inc.
GR No. 203514

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

100
Filipinas Synthetic Fiber Corp. v. CA
316 SCRA 480

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

101
LG Electronics v. CIR
GR No. 165451 | December 3, 2014 – Tax amnesty

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

102
CIR v. APO Cemet Corporation
GR No. 193381 | February 8, 2017

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

103
Atlas Consolidated v. CIR
GR No. 146221 | September 25, 2007

DOCTRINE: insert doctrine here

FACTS: insert facts here

ISSUE: W/N insert issue here. [YES/NO]

RULING: insert decision here

Insert ruling here.

104
a. CIR v. Court of Appeals, et al., G.R. No. 125355, March 30, 2000
10. American Express v. Commissioner, SC GR 152609, June 28, 2005
11. CIR v. Burmeister and Wain, GR No. 153205, January 22, 2007
12. CIR v. Magsaysay Lines, GR No. 146984, July 28, 2006
13. RA No. 9361, December 31, 2006, as implemented by RR No. 2-2007 (December 29, 2006)
14. CIR v. Seagate Technology Phils.. GR No. 153866, February 11, 2015
15. Medicard Philippines, Inc. v. CIR, GR No. 222743, April 5, 2017
16. Microsoft Philippines, Inc. v. CIR, GR No. 180173, April 6, 2011
17. CIR v. Sony Philippines, Inc., GR No. 178697, November 17, 2010
18. KEPCO Philippines Corporation v. CIR, GR No. 181858, November 24, 2010
19. AT&T Communications Services Philippines, Inc. v. CIR, GR No. 182364, August 3, 2010
20. Silicon Philippines, Inc. v. CIR, GR No. 172378, January 12, 2011
21. Renato v. Diaz and Aurora Timbol v. Secretary of Finance, GR No. 193007, July 19, 2011
22. PAGCOR v. BIR, GR No. 172087, March 15, 2011
23. Commissioner of Internal Revenue v. Aichi Forging Company of Asia, GR No. 184823, October
6, 2010
24. Fort Bonifacio Devt Corp. v. CIR, GR Nos. 158885 and 170680, April 2, 2009
25. Commissioner of Internal Revenue v. Benguet Corporation, GR Nos. 134587 and 134588, July
8, 2005
26. Commissioner of Internal Revenue v. SM Prime Holdings, Inc. et al, GR No. 183505, February
26, 2010
27. Commissioner of Internal Revenue v. The Philippine American Accident Insurance Company,
et al., GR No. 141658, March 18, 2005
31. Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue, G.R. No. 204745,
December 8, 2014
32. Taganito Mining Corporation v. Commissioner of Internal Revenue, G.R>. No. 201195 |
November 26, 2014
33. Fort Bonifacio Development Corporation v. CIR, et al., G.R. Nos. 175707, 180035, 181092,
November 19, 2014
34. AT&T Communications Services Phils., Inc. v. CIR, G.R. No. 185969, November 19, 2014
35. CIR v. Team Sual Corporation, G.R. No. 205055, July 18, 2014
36. San Roque Power Corp. v. CIR, G.R. No. 205543, June 30, 2014
37. Pilipinas Total Gas, Inc. v. CIR, G.R. No. 207112, December 8, 2015
38. Eastern Telecommunications Philippines, Inc. v. CIR, G.R. No. 183531, March 25, 2015
39. Takenaka Corporation – Philippine Branch v. CIR, G.R. No. 193321, October 19, 2016
40. Sitel Philippines Corpoation v. CIR, GR No. 201326, February 8, 2017
a. China Banking Corp v. CTA, GR No. 146749, June 10, 2003
13. Republic of the Philippines v. Sunlife Assurance Company of Canada, G.R. No. 158085,
October 14, 2005
14. CIR v. Lhuillier, GR No. 150947, July 15, 2003
15. First Planters Pawnshop, Inc. v. CIR, GR No. 174134, July 30, 2008
5. British American Tobacco v. Jose Camacho et al., GR No. 163583, August 20, 2008;
8. Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch v. CIR, GR No. 180909,
January 19, 2011
9. CIR v. Pilipinas Shell Petroleum Corporation, GR No. 188497, April 13, 2012
13. La Suerte Cigar & Cigarette Factor v. Court of Appeals, et al., G.R. No. 125346, November 11,
2014
14. CIR, et al. v. Philippine Airlines, Inc., G.R. Nos. 212536-37, August 27, 2014
15. Chevron Philippines, Inc. v. CIR, G.R. No. 210836, September 1, 2015

105
16. CIR v. Pilipinas Shell Corporation, G.R. No. 180402, February 10, 2016
17. Purisima, et al. v. Philippine Tobacco Institute, Inc., GR No. 210251, April 17, 2017
2. CIR v. Construction Resources of Asia, Inc., 145 SCRA 673
3. CIR v. First Express Pawnshop Company, Inc., GR Nos. 172045-46, June 16, 2009
4. CIR v. Filinvest Development Corporation, GR No. 163653, July 19, 2011
5. CIR v. Manila Bankers’ Life Insurance Corporation, GR No. 169103, March 16, 2011
6. Supreme Transliner, Inc., et al. v. BPI Family Savings Bank, GR No. 165617, February 25, 2011
7. CIR v. Pilipinas Shell Corporation, G.R. No. 192398, September 29, 2014
8. HSBC v. CIR, G.R. Nos. 166018 and 167728, June 4, 2014
9. CIR v. La Tondena Distellers, Inc. (now Ginebra San Miguel), G.R. No. 175188, July 15, 2015
10. Philippine Bank Communications v. CIR, G.R No. 194065, June 20, 2016
11. CIR v. PNB, G.R. No. 195147, June 11, 2016

106