TAN vs.

Del Rosario

FACTS:

The consolidated cases questions the constitutionality of RA 7496 or the Simplified Net Income
Taxation Scheme. Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation. Petitioners  also assailed Section 6 of Revenue
Regulations No. 2-93: that public respondents have exceeded their rule-making authority in applying
SNIT to general professional partnerships.

The Solicitor General agrees with the public respondents.

ISSUE: Whether RA 7496 and RR Nos. 2-93 are unconstitutional.

RULING:

No. RA 7496 does not impose tax on single proprietorships and professionals differently from the
manner it imposes the tax on corporations and partnerships. Such system of income taxation has
long been the prevailing rule even prior to RA 7496. Uniformity of taxation merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities.

Also, the Court clarifies that a general professional partnership 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
as provided in Section 23 of the Tax Code.

There is no distinction in income tax liability between a person who practices his profession alone or
individually and one who does it through partnership with others in the exercise of a common
profession. 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.

The phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically
covers all persons who derive taxable income. Partnerships no matter how created or organized, are
subject to income tax which, for purposes of the above categorization, are by law assimilated to be
within the context of, and so legally contemplated as, corporations.

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.

Association of non-Profit Club vs. BIR

FACTS:
 August 3, 2012: Bureau of Internal Revenue (BIR) issued issued Revenue Memorandum
Circular (RMC) No. 35-2012 entitled “"Clarifying the Taxability of Clubs Organized and Operated
Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes” which was addressed to
all revenue officials, employees, and others concerned for their guidance regarding the income
tax and Valued Added Tax (VAT) liability of the said recreational clubs.
 RMC No. 35-2012 states that "clubs which are organized and operated exclusively for
pleasure, recreation, and other non-profit purposes are subject to income tax under the National
Internal Revenue Code of 1997, as amended (1997 NIRC)."  In justifying the interpration, the
BIR raised the doctrine of casus omissus pro omisso habendus est, a person, object, or thing
omitted from an enumeration must be held to have been omitted intentionally. The provision in
the 1977 Tax Code which granted income tax exemption to such recreational clubs was omitted
in the 1997 NIRC, as amended and  Section 105, Chapter I, Title IV of the 1997 NIRC, which
states that even a nonstock, nonprofit private organization or government entity is liable to pay
VAT on the sale of goods or services.
 October 25, 2012: During the meeting of ANPC and other club member representatives with
Atty. Elenita Quimosing (Atty. Quimosing), Chief of Staff and Operations Group of the BIR, Atty.
Quimosing suggested the attendees to submit a position paper to the BIR regarding their
concerts about the Circular.   
 September Since the BIR has not action upon NPC’s request on its position paper for the
non-application of RMC No. 35-2012, ANPC, filed before the RTC a petition for declaratory relief
to declare RMC no. 35-2012 invalid, unjust, oppressive, confiscatory, and in violation of the due
process clause of the Constitution for it is beyond the BIR’s rule-making authority.
 RTC: Denied the petition for declaratory relief and upheld RMC No. 35-2012
 ANPC filed a petition for review on certiorari raising pure questions of law
ISSUES:
1.    W/N the doctrine of hierarchy of courts should apply and the matter should be first elevated the
matter to the Secretary of Finance for review pursuant to Section 4, Title I of the 1997 NIRC.
2.    W/N RMC No. 35-2012 is constitutional.

HELD: Partly meritorious.

1.    NO.  The petition for review on certiorari, filed pursuant to Section 2 (c), Rule 41 in relation to
Rule 45 of the Rules of Court, is the sole remedy to appeal a decision of the RTC in cases involving
pure questions of law

 The doctrine of hierarchy of courts is violated only when relief may be had through multiple
fora having concurrent jurisdiction over the case, such as in petitions for certiorari, mandamus,
and prohibition which are concurrently cognizable either by the Regional Trial Courts, the Court
of Appeals, or the Supreme Court.
 Uy v. Contreras: This Court, the Court of Appeals, and the Regional Trial Courts have
concurrent original jurisdiction to issue writs of certiorari, prohibition, mandamus, quo
warranto, and habeas corpus, such concurrence does not accord litigants unrestrained freedom
of choice of the court to which application therefor may be directed. There is a hierarchy of
courts determinative of the venue of appeals which should also serve as a general determinant
of the proper forum for the application for the extraordinary writs.
 
2.    Yes.

 RMC No. 35-2012 erroneously foisted a sweeping interpretation that membership fees and
assessment dues are sources of income of recreational clubs from which income tax liability
may accrue.  As correctly argued by ANPC, membership fees, assessment dues, and other fees
of similar nature only constitute contributions to and/or replenishment of the funds for the
maintenance and operations of the facilities offered by recreational clubs to their exclusive
 members.  They represent funds "held in trust" by these clubs to defray their operating and
general costs and hence, only constitute infusion of capital.
 Well-enshrined principle in our jurisdiction that the State cannot impose a tax on capital as it
constitutes an unconstitutional confiscation of property.  An income tax is arbitrary and
confiscatory if it taxes capital because capital is not income.
 Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary
(G.R. No. 108524, November 10, 1994): Court held that "as a matter of power, a court, when
confronted with an interpretative rule, [such as RMC No. 35-2012] is free to (i) give the force of
law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some
intermediate degree of authoritative weight to the interpretative rule."  By sweepingly including in
RMC No. 35-2012 all membership fees and assessment dues in its classification of "income of
recreational clubs from whatever source'' that are "subject to income tax,"the BIR exceeded its
rule-making authority.
 In the same way, the Court declares as invalid the BIR's interpretation in RMC No. 35-2012
that membership fees, assessment dues, and the like are part of "the gross receipts of
recreational clubs" that are "subject to VAT.  Basic principle that before a transaction is imposed
VAT, a sale, barter or exchange of goods or properties, or sale of a service is required.  This is
true even if such sale is on a cost-reimbursement basis.

COMMISSIONER V TOURS SPECIALIST

29 JAN
183 SCRA 402 | March 21, 1990 | J. Gutierrez, Jr.

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 or receipts
within the meaning of gross receipts under the Tax Code
Facts:
The Commissioner of Internal Revenue filed a petition to review on certiorari to the CTA decision
which ruled that the money entrusted to private respondent Tours Specialist (TS), earmarked and
paid for hotel room charges of tourists, travellers and/or foreign travel agencies do not form part of
its gross receipt subject to 3% independent contractor’s tax.

Tours Specialist derived income from its activities and services as a travel agency, which included
booking tourists in local hotels. To supply such service, TS and its counterpart tourist agencies
abroad have agreed to offer a package fee for the tourists (payment of hotel room accommodations,
food and other personal expenses). By arrangement, the foreign tour agency entrusts to TS the fund
for hotel room accommodation, which in turn paid by the latter to the local hotel when billed.

Despite this arrangement, CIR assessed private respondent for deficiency 3% contractor’s tax as
independent contractor including the entrusted hotel room charges in its gross receipts from services
for years 1974-1976 plus compromise penalty.

During cross-examination, TS General Manager stated that the payment through them “is only an act
of accommodation on (its) part” and “the agent abroad instead of sending several telexes and saving
on bank charges they take the option to send the money to (TS) to be held in trust to be endorsed to
the hotel.”’

Nevertheless, CIR caused the issuance of a warrant of distraint and levy, and had TS’ bank deposits
garnished.

Issue:
W/N amounts received by a local tourist and travel agency included in a package fee from tourists or
foreign tour agencies, intended or earmarked for hotel accommodations form part of gross receipts
subject to 3% contractor’s tax

Held:
No. 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 or receipts within
the meaning of gross receipts under the Tax Code. Parenthetically, the room charges entrusted by
the foreign travel agencies to the private respondents do not form part of its gross receipts within the
definition of the Tax Code. The said receipts never belonged to the private respondent. The private
respondent never benefited from their payment to the local hotels. This arrangement was only to
accommodate the foreign travel agencies.

CIR v CTA
GR No 106611, July 21, 1994

FACTS:
Citytrust filed a petition with the Court of Tax Appeals claiming the refund of its income tax overpayments for the
years 1983, 1984 and 1985 in the total amount of P19,971,745. The CIR could not present any evidence due to the
repeated failure of the tax credit/refund division of the BIR to transmit the records of the case and the investigation
report to the Solicitor General. The case was decided in favor of City Trust. Upon motion of reconsideration,
petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund Division, dated August 8, 1991,
he came to know only that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes.

ISSUES:
1. Whether the BIR was denied its day in court
2. Whether the CTA erred in denying petitioner’s supplemental motion for reconsideration alleging bringing to said
court’s attention the existence of deficiency income and business taxes

RULING:
1. Yes, the BIR is denied its day in court. When it was petitioner’s turn to present evident evidence, several
postponements were sought by its counsel, the Solicitor General, due to the unavailability of the necessary records
which were not transmitted by the Refund Audit Division of the BIR to said counsel. It was under such predicament
and in deference to the tax court that the counsel was constrained to submit the case for decision without presenting
any evidence. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by
its agents.
2. Yes. The fact of such deficiency assessment is intimately related and inextricably intertwined with the right of the
bank. The private respondent cannot be entitled to refund and at the same time be liable for a deficiency tax
assessment for the same year. 

Tax Case Digest: CIR V. Isabela Cultural Corp.

(2007)
 THIRD DIVISION
G.R. No. 172231 February 12, 2007
YNARES-SANTIAGO, J.

Lessons Applicable: Accrual method, burden of proof in accrual method, deductibility of ordinary and
necessary trade, business, or professional expenses, all events test

Laws Applicable:

FACTS:

 BIR disallowed Isabela Cultural Corp. deductible expenses for services which were rendered
in 1984 and 1985 but only billed, paid and claimed as a deduction on 1986.  
 After CA sent its demand letters, Isabela protested.
 CTA found it proper to be claimed in 1986 and affirmed by CA
ISSUE: W/N Isabela who uses accrual method can claim on 1986 only

HELD: case is remanded to the BIR for the computation of Isabela Cultural Corporation’s liability
under Assessment Notice No. FAS-1-86-90-000680.

NO

 The requisites for the deductibility of ordinary and necessary trade, business, or professional
expenses, like expenses paid for legal and auditing services, are: 
 (a) the expense must be ordinary and necessary; 
 (b) it must have been paid or incurred during the taxable year; - qualified by Section
45 of the National Internal Revenue Code (NIRC) which states that: "[t]he deduction provided for
in this Title shall be taken for the taxable year in which ‘paid or accrued’ or ‘paid or incurred’,
dependent upon the method of accounting upon the basis of which the net income is computed
 (c) it must have been paid or incurred in carrying on the trade or business of the
taxpayer; and 
 (d) it must be supported by receipts, records or other pertinent papers.
 Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of
accounting, expenses not being claimed as deductions by a taxpayer in the current year when
they are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a
taxpayer who is authorized to deduct certain expenses and other allowable deductions for the
current year but failed to do so cannot deduct the same for the next year.
 The accrual method relies upon the taxpayer’s right to receive amounts or its obligation to
pay them, in opposition to actual receipt or payment, which characterizes the cash method of
accounting. Amounts of income accrue where the right to receive them become fixed, where
there is created an enforceable liability. Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to indeterminacy merely of time of payment.
 The accrual of income and expense is permitted when the all-events test has been
met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of
the reasonable accurate determination of such income or liability.
 The all-events test requires the right to income or liability be fixed, and the
amount of such income or liability be determined with reasonable accuracy. However, the test
does not demand that the amount of income or liability be known absolutely, only that a taxpayer
has at his disposal the information necessary to compute the amount with reasonable accuracy.
The all-events test is satisfied where computation remains uncertain, if its basis is
unchangeable; the test is satisfied where a computation may be unknown, but is not as much as
unknowable, within the taxable year. The amount of liability does not have to be determined
exactly; it must be determined with "reasonable accuracy." Accordingly, the term "reasonable
accuracy" implies something less than an exact or completely accurate amount.
 The propriety of an accrual must be judged by the facts that a taxpayer knew, or
could reasonably be expected to have known, at the closing of its books for the taxable year. 
 Accrual method of accounting presents largely a question of fact; such that the taxpayer
bears the burden of proof of establishing the accrual of an item of income or deduction.
 In the instant case, the expenses for professional fees consist of expenses for legal
and auditing services. The expenses for legal services pertain to the 1984 and 1985 legal and
retainer fees of the law firm Bengzon Zarraga Narciso Cudala Pecson Azcuna & Bengson, and
for reimbursement of the expenses of said firm in connection with ICC’s tax problems for the
year 1984. As testified by the Treasurer of ICC, the firm has been its counsel since the 1960’s. -
failed to prove the burden
Tax Case Digest: South African Airways V. CIR
(2010)
 South African Airways v. CIR
G.R. No. 180356 February 16, 2010 
VELASCO, JR., J.

Lessons Applicable: Taxes can be offset if intimately related, unless exempted assumed
within the purview of general rule, liabilities and tax credit must first be determined
before offset can take place

Laws Applicable:

Facts:

 South African Airways, a foreign corporation with no license to do business in the

Philippines, sells passage documents for off-line flights through Aerotel Limited, general
sales agent in the Philippines 
 Feb 5, 2003: Petitioner filed a claim for refund erroneously paid tax on Gross Philippine
Billing (GPB) for the year 2010.  
 CTA: denied - petitioner is a resident foreign corp. engaged in trade or business in the
Philippines and therefore is NOT liable to pay tax on GPB under the Sec. 28 (A) (3) (a) of
the 1997 NIRC but cannot be allowed refund because liable for the 32% income tax from its
sales of passage documents.  
 This is upheld by the CTA and CTA En Banc
Issue:
1. W/N  petitioner is engaged in trade or business in the Philippines is subject to 32%
income tax.
2. W/N petitioner is entitled to refund

HELD: CTA En Banc decision is set side 

1. Yes.  Since it does not maintain flights to or from the Philippines, it is not taxable
under Sec. 28(A)(3)(a) of the 1997 NIRC. This much was also found by the CTA. But
petitioner further posits the view that due to the non-applicability of Sec. 28(A)(3)(a) to it,
it is precluded from paying any other income tax for its sale of passage documents in
the Philippines.  But, Sec. 28 (A)(1) of the 1997 NIRC does not exempt all international
air carriers from the coverage of Sec. 28 (A) (1) of the 1997 NIRC being a general rule. 
Petitioner, being an international carrier with no flights originating from the Philippines,
does not fall under the exception. As such, petitioner must fall under the general rule.
This principle is embodied in the Latin maxim, exception firmat regulam in casibus non
exceptis, which means, a thing not being excepted must be regarded as coming within
the purview of the general rule.

2. Underterminable.  Although offsetting of tax refund with tax deficiency is unavailing

under Art. 1279 of the Civil Code, in CIR v. CTA it granted when deficiency assessment
is intimately related and inextricably intertwined with the right to claim for a tax refund.  
Sec. 72 Chapter XI of 1997 NIRC is not applicable where petitioner's tax refund claim
assumes that the tax return that it filed were correct because petitioner is liable under
Sec. 28 (A)(1), the correctness is now put in doubt and refund cannot be granted.  It
cannot be assumed that the liabilities for two different provisions would be the same. 
There is a necessity for the CTA to receive evidence and establish the correct amount
before a refund can be granted.

COMMISSIONER OF INTERNAL REVENUE V MANILA JOCKEY CLUB, INC.,
GR No. L8755; March 23, 1956 [99 Phil. 289]
BAUTISTA ANGELO, J.,
FACTS:

The Manila Jockey Club [MJC] is the owner of the San Lazaro Hippodrome [SLH], whic
h is used for holding horse races 
either by the club itself or by the Philippine Charity Sweepstakes Office [PCSO] or other 
charitable institutions authorized by law to 
hold horse races. 
During the fiscal years of 1951 and 1952, the PCSO held benefit races for charitable reli
ef and civic purposes in SLH and paid 
MJC the rent of Php 107,185.02 and P 122,855.47 respectively, which were included in 
its total income declared in its return for the 
said years. The CIR collected on the first rental the amount of P30, 011.80 which was p
aid in two installments and on the second the 
amount of P29, 681.17 which was also paid in two installments as income taxes, and up
on advice of its counsel, the Club filed a claim 
for refund of said amounts with the Collector claiming that they were illegally paid and, 
when the refund was denied, it filed an action 
in the Court of First Instance of Manila to recover the total sum of P59, 692.97 against t
he CIR alleging that the same has been 
wrongfully collected. The said complaint was transmitted to the Court of Tax Appeals pu
rsuant to section 22 of RA 1125.
The CTA held that the rentals received by the MJC from the PCSO for the use of its pre
mises was exempted from income tax 
under section 3 of RA 79 and ordered the CIR to refund the amount claimed by the MJC
. Hence the issue.
ISSUES:
Whether MJC is exempted from income tax under section 3 of RA 79.
HELD:
We refer to Republic Act No. 309, which regulates the horse racing in the Philippines an
d section 193 of the National Internal 
Revenue Code, as amended by Republic Act No.  588.  Thus, under section 26 of Repu
blic Act No. 309, any person, race track, racing
club, or other entities holding or conducting a horse race shall be required to pay a city 
or municipal license fee of P600 for each day 
of racing. And under section 193 of the National Internal Revenue Code, as amended, a
ny owner of racetracks is required to pay a 
fixed tax of P500 for each day on which races are run on said tracks.  It should be noted 
that said provisions require the payment of 
said taxes from the owner of any race track for each day of horse racing regardless of w
hether said horse racing is held by the owner 
himself or by any other person or entity.  It is therefore imperative that such exemption b
e expressly provided for in order to exempt 
the owner of the racetrack of such taxes if the same is to be used by a charitable institut
ion like the Philippine Charity Sweepstake 
Office. 
The foregoing leads us to the conclusion that the exemption clause provided for in secti
on 3 of Republic Act No.  79 merely 
intends to exempt the racing club in whose premises or tracks the races are held by the 
Philippine Charity Sweepstake Office from the 
payment of the taxes we have above adverted to because they are the only ones that h
ave any connection with the races held by said 
Office.  It cannot certainly refer to any income tax that may be imposed on the rentals th
at may be paid for the use of those tracks and 
other paraphernalia. That is an income that the racing club has to account for income ta
x purposes because it is an income that the club
earned because of the use of its tracks by the Philippine Charity Sweepstake Office.  It i
s an income that, strictly speaking, did not 
come from the horse races held by said club but it came to it as rentals paid for the use 
of its property.  And the tax paid for such 
income cannot therefore be considered as one connected with those races within the pu
rview of the exemption clause. 
Another factor that should be borne in mind in connection with the interpretation of the e
xemption clause under consideration 
is that by its very nature the law that exempts one from tax must be clearly expressed b
ecause the exemption cannot be created by 
implication. Thus, it was held that  “Exemption from taxation are highly disfavored in law
, and he who claims an exemption must be 
able to justify his claim by the clearest grant of organic or statute law.  An exemption fro
m the common burden cannot be permitted to
exist upon vague implication.” 
1
 In the present case, there is no clear showing that the exemption clause under consider
ation exempts 
the racing club from its duty to pay income tax.