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1. Municipality “X” enacted an ordinance which imposes an occupation tax upon

owners of fishponds. The validity of the ordinance is being challenged on the
ground that it constitutes double taxation because the fishpond is already subject to
land tax. Is the ordinance valid?

YES, the ordinance is valid. There is no direct duplicate taxation in the case at bar
because the purposes of the two (2) taxes are different. The objective of the land tax is to
impose a charge on the ownership of the property, while the occupation tax is intended to
impose a burden upon owners of fishponds for engaging in that line of business. (People
v. Mendares, 97 PHIL 158)

2. A “Deed of Sale of Real Property” was acknowledged before a Notary Public and
was presented to the Register of Deeds for registration. The said official required
the payment and affixture of two (2) documentary stamps, one for the deed of sale
and another for the acknowledgment. Is the said requirement against the principle
of double taxation? Why?

Considering that in the problem the Deed of Sale is a document separate and distinct
from the acknowledgment, there can be no double taxation as there are two objects of
taxation. Furthermore, even if the documents are considered as one, there will still be no
double taxation in the strict sense since the requirements do not fall under the concept of
double taxation. There will only be double taxation if the Registrar does not require the
same requirements from others who will register the same kind of documents.

3. Kim Tong, owner of the Freeman’s Seafood Wharf Restaurant, borrowed from his
friend Pit Jacson P 3,000,000. The said amount would finance his newly acquired
Volvo car which he would be using while going to work. Their verbal agreement
provided an annual interest of 24%.

a. Could the interest paid on such loan be deducted from Gross Income as an

NO. The amount of interest on indebtedness paid or incurred within a taxable year
must be incurred in connection with the taxpayer’s business to be allowed as a deduction
from Gross Income.

b. Granting that it was necessary in connection with the taxpayers business, could
the deduction be allowed?

It depends if the interest is legally due on the indebtedness. A payment of interest

verbally agreed upon by the taxpayer and the lender will not be deductible since an
agreement to pay interest must be in writing, otherwise it is void under Art. 1956 of the
Civil Code.

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4. Can interest paid on delinquent taxes be deductible?

YES. The interest on taxes can be considered as interest on indebtedness. Although

taxes already due are not the same as debts, they are however obligations that may be
considered as debts.

5. Mr. Valeriano, a car repair shop owner, borrowed P5 million from Allied Bank in 2000
with annual interest of 21% to finance equipment needed in his shop.

a. Can Mr. Valeriano yearly deduct the whole 21% interest as an expense?

YES, provided it will be reduced by 38% of his interest income subject to final tax.

b. In case he failed to deduct the 21% interest from his gross income in 2000, does
he still have any other recourse?

YES. The taxpayer has an option of either deducting the same as an interest expense
for the taxable year or capitalizing the interest payment to increase the value of the asset
in which depreciation expense can be allowed.

6. Mr. Lucky Tang, a stockholder of PNB, borrowed from the said bank P51,000,000
with an interest amounting to P1,000,000 to acquire a packaging equipment for his
tobacco business. PNB decided to deduct in advance the interest of P1,000,000.

a. Can Mr. Tang claim as a deduction the interest expense for that taxable year?

It depends on whether Mr. Tang has more than 50% interest at PNB. IF he does, the
interest cannot be claimed as a deduction from gross income, the transaction being
between related parties (Sec. 34 (B) (2)(b) in relation to Sec. 36 (B) of the NIRC).

Granting that Mr. Tang has a lesser equity interest at PNB, the interest cannot be
deducted all together. If he is reporting income on the cash basis, the interest shall be
allowed as a deduction in the year the indebtedness is paid. If the indebtedness is payable
in periodic amortizations, the amount of interest which corresponds to the amount of the
principal amortized or paid during the year shall be allowed as deduction in such taxable

b. Would your answer be the same if it was his uncle who lent the money to Mr.

NO. They are not related parties under Sec. 36B. The members of the family shall
include only the taxpayer’s brothers and sisters ( whether by the whole blood or half-
blood), spouse, ancestors, and lineal descendants.

7. Mystika bought 25,000 shares of Globe Telecom at P120 per share in 1993. Come
2001, the value of said shares increased to 220 per share. Can the P100 per share
increase in value be assessed for income tax purposes?

NO. As a general Rule, a mere increase in the value of property is not income for tax
purposes but merely an unrealized increase in capital. No income is derived by the owner
until after the actual sale or other disposition of the property in excess of its original cost.

There is however an exception which applies only to depreciable properties. Even if

there is no sale or disposition, if by reason of appraisal, the cost of depreciable property is
increased and the appraised value is used as the new tax base for purposes of computing

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the allowable depreciation, the difference between the original cost and the appraised
value is taxable under the economic-benefit theory.

8. Is an award for damages arising from breach of contract considered taxable


It is considered as taxable income to the extent that such damages constitute a loss of
anticipated profits and non-taxable income to the extent that the same represent a return of
capital or investment.

9. Karlo, a non-resident citizen, works as a cashier in ISETAN, Thailand. He receives a

monthly income of 4000 baht (4,800 pesos) from his employer for the services
a. Is the salary received by Karlo subject to withholding tax?
b. What are the requisites for withholding tax on wages?

a. NO. The withholding tax on wages does not apply to foreign sourced income of a
non-resident citizen. It applies only to wages or income derived from sources within the

b. The requisites are:

1) there must exist an employer-employee relationship;
2) there must be payment (actual or constructive) of wages for services rendered;
3) there must be a payroll period.

10. Due to economic reverses, XYZ Co. Phil. retrenched some of its employees
numbering 50 in all. One of the retrenched employees was A, a 45 year old
machinist who had been in the employ of the company for 5 years. He was given by
the company P50,000 as his separation pay. Would the amount received by A be
subject to withholding tax on compensation?

NO. Any amount received by an official or employee or by his heirs from the employer
due to death, sickness or other physical disability or for any cause beyond the control of
said official or employee such as retrenchment, redundancy, or cessation of business are
exempt from withholding tax on compensation. Amounts received by reason of involuntary
separation remain exempt from income tax even if the official or employee, at the time of
separation has rendered less than 10 years of service and/or is below 50 years of age.

11. Carrie, a Filipino composer has just received P20,000 as royalties for her
outstanding composition “Maalaala Mo Kaya, R&B version”. She then later invested
said amount to X Corp., a domestic corporation engaged in manufacturing by
buying 1000 shares thereof. Last January, the company sent a P 5,000 cheque to
Carrie as cash dividends.

a. What income in the above problem is/are subject to final withholding tax?
b. Give five income payments which are subject to final withholding tax.

a. The income payments of Carrie which are subject to final withholding tax are the
royalties on musical compositions and the cash dividends actually received from a
domestic corporation.

b. 1) Royalties on books, as well as other literary works and musical compositions;

2) Interest income received by a resident individual taxpayer from a depository
bank under the Foreign Currency Deposit System;
3) Interest income from long-term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form

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prescribed by the BSP which was pre-terminated by the holder before the 5 th
4) Cash and/or property dividends actually or constructively received from a
domestic corporation, joint stock company, insurance or mutual fund companies
or on the share of an individual partner in the distributable net income after tax
of a partnership except general professional partnership) or on the share of an
individual in the net income after tax of an association, a joint account or a joint
venture or consortium of which he is a member or a co-venturer.

12. Dante Rivero was rushed to Makati Medical Center last night because of difficulty in
breathing while doing a sexy scene with co-star de Rossi. Dr. XXX then gave Rivero
proper medication at once. Five minutes later, Rivero got up in bed and went back
immediately to the set of “Purple Book”. He tendered his payment directly with Dr.
XXX as he was very happy of his instant recovery.
a. Is the income received by Dr. XXX subject to creditable withholding tax?
b. Will the answer be the same if Dr. XXX waived his professional fees?
c. Give at least 3 income payments subject to creditable withholding tax.
d. Who are the persons required to deduct and withhold for purposes of the
creditable tax?

a. YES. Any amount collected for and paid to medical practitioners by hospitals and
clinics or paid directly to the medical practitioners by patients who were admitted and
confined to such Hospitals or Clinics are income payments subject to creditable
withholding tax.

b. NO. The withholding tax prescribed by the Code shall not apply when no
professional fee has been charged by the medical practitioner and paid by his patient.

c. 1) Professional fees, talent fees for services rendered by individuals;

Professional fees, talent fees for services of taxable juridical persons;
3) Rentals;
4) Cinematographic film rentals and other payments;
5) Income payments to certain contractors. etc.

d. 1) In general, any juridical person, whether or not engaged in trade or business;

2) An individual, with respect to payments made in connection with his trade or
business. However, insofar as taxable sale, exchange or transfer of real
property is concerned, individual buyers who are not engaged in trade or
business are also constituted as withholding agents;
3) All government offices including government-owned or controlled- corporations,
as well as provincial, city and municipal governments.

13. A, a professional Filipino dancer residing in Ermita, was employed by JLO as dancer
in her new MTV “Dance Mix 2001”. He receives his salary weekly from JZ, an
authorized representative of JLO in the Philippines.
a. Is the salary received by A subject to withholding tax?
b. What does compensation income constitute?

a. YES. Remuneration for services performed outside the Philippines by a resident

citizen for a domestic or a resident foreign corporation or partnership, or for a non-resident
foreign corporation or partnership, or for a non-resident individual not engaged in trade or
business in the Philippines shall be treated as compensation which is subject to tax.

b. The name by which the remuneration for services is designated is immaterial.

Thus, salaries, wages, emoluments and honoraria, allowances, commissions; fees
including director’s fees, if the director is, at the same time, an employee of the
employer/corporation; taxable bonuses and fringe benefits except those which are subject

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to the fringe benefits tax; taxable pensions and retirement pay; and other income of a
similar nature constitute compensation income.

14. a. Is the prize of 1 Million pesos awarded by the Readers Digest subject to final
b. Who is responsible for withholding the tax?

a. YES. Prizes are subject to final tax except those amounting to 10,000 pesos or
less (subject to normal rate) and from PCSO and Lotto winnings (tax exempt).

b. The responsibility of withholding the tax rests primarily on the payor as withholding
agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the
deficiency tax shall be collected from the payor/withholding agent. The payee is not
required to file an income tax return for this particular income.

15. A, a rank and file employee of PC Corp. Manila was sent by the latter to its newly
opened branch in Batangas. PC provided a free board and lodging at the second
floor of said establishment valued at P700.00 for him to serve as overseer of PC’s
property especially during nighttime. Free meal of P30.00 per day was likewise
given when the employer discovered that most of the workers were buying food
from nearby restaurants which have unsanitary facilities. Should the value of the
free lodging and meal be included as part of the employees gross income?

The value of the free lodging is not part of A’s compensation income because of the
application of the “convenience of the employer rule”. The following however must be
a. It must be furnished in the employer’s premises; and,
b. Employee is required to accept such lodging as a condition of his employment.

The value of the free meal forms part of the employees’ gross income. The free meal
is not furnished by the employer for its convenience (i.e. to make the employees available
for work during the meal period).

16. A, an employee of “BANK-KO” works continuously from 9:00 AM to 4:00PM daily.

His work demands that whenever necessary he must render service even during
lunch break from 12:00 nn to 1:00 pm. As such the company gives A meal coupons
worth 330 pesos and a sack of rice every month.
a. Do the meal coupons and the sack of rice form part of A’s compensation subject
to withholding tax?
b. What are de minimis benefits? Give examples thereof.

a. Meal coupons worth P330 a month given by a bank need not be included as
compensation subject to withholding tax since they are given for the convenience of the
employer. The same is true with the subsidized cost of one sack of rice a month. As
banking hours are continuous from 9:00AM to 4:00 PM, bank personnel are required to
render service as may be necessary even during lunch break.

b. De minimis benefits refer to facilities or privileges furnished or offered by an

employer to his employees which are of relatively small value and are intended promote
the health, goodwill, contentment, or efficiency of his employees. They are not subject to
fringe benefit tax.
The following are considered as de minimis benefits: monetized unused vacation leave
credits of employees not exceeding 10 days during the year; medical cash allowance to
dependents of employees not exceeding P750 per semester or P125 per month; rice
subsidy of P350 per month granted by an employer to his employees; uniforms given to
employees by the employer; medical benefits given to the employees; laundry allowance of
P150 per month etc.

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17. Capt. Sugod is a member of AFP. Aside from his salary, the government gives him
free meals and living quarters inside the camp. Are these benefits included as

NO. All these benefits are given for the convenience of the employer. Housing
privilege and meal allowance of military officials of the AFP consisting of officials of the
Philippine Army, Philippine Navy and Philippine Air Force shall not be treated as taxable
fringe benefits. This is in accordance with the policy that the State shall provide its soldiers
with necessary quarters which are within or accessible from the military camp so that they
can be readily on call to meet the exigencies of the military service.

18. ABC, a non-stock, non-profit organization operating exclusively to promote social

welfare, derives the following items of income during the taxable year:
a. Assessment due from the members;
b. Rentals from small stalls; and
c. Parking fees
Is ABC exempt from paying income taxes on the above items?

ABC is exempt from paying tax only on income received by it as a non-stock, non-profit
entity. Hence its exemption extends only to the assessment dues paid by its members.
With respect to the rentals and parking fees, it is liable to pay income taxes thereon
pursuant to the last paragraph of Sec. 30 of the Tax Code (CIR vs YMCA GR. No.
124043, Oct. 14, 1998).

19. When is there international double taxation? Enumerate the remedies which a
taxpayer may avail to lessen the impact of international double taxation.

International double taxation arises when there is a multiple tax situs making an income or
activity taxable by more than one taxing jurisdiction. The remedies against international
double taxation are:
a. Reciprocal exemption;
b. Allowance of tax reduction; and
c. Allowance of tax credit for foreign taxes.

20. Gabriel, a painter, was asked to paint a replica of the Mona Lisa. He was to be paid
P3,000.00. Thereafter Gabriel gratuitously assigned his rights under the contract to
his friend Karlo. Karlo later on collected the P3,000.00. Is the P3,000.00 taxable to

YES. The P3,000.00 is taxable to Gabriel as income derived by him from the practice
of his profession. When he donated the same to Karlo, who accepted the same by
collecting the amount, Gabriel likewise may be subject to donor’s tax if his net gifts for the
calendar year exceed P100,000.00 (Sec. 99(a), NIRC of 1997).

21. A, an architect owes, Z, a businessman, the sum of P10,000.00. Z engaged the

services of A to remodel his residence. The value of the services rendered by A is
P100,000.00. Accordingly, Z cancelled the debt of A after paying the latter
P100,000.00. Is the amount condoned considered income subject to tax?

YES. When Z pays A P100,000.00 then the same is considered income from the
exercise of A’s profession because of the physical receipt of money. The amount of
P10,000.00 condoned is considered as a gift because the cancellation was without
consideration.(Sec. 52 Rev. Regs.No. 2)

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22. Is there any specific constitutional provision violated if a tax law contravenes any of
the principles of sound tax system?

The principles of sound taxation are not intended to make tax laws valid but merely to
make them resonant to adequacy, justice and convenience. Generally, therefore, a
violation of those principles will not render a tax measure invalid, except perhaps when the
principle of theoretical justice is contravened to the extent that the particular tax law may
no longer be “equitable” as mandated under Sec. 28(1), Art. VI of the Philippines

23. a. May the national government impose a tax on local governments?

b. May the local government impose a tax on the national government?

a. There is no prohibition, constitutional or inherent in taxation, against the imposition

of taxes by the State on its political subdivisions. Accordingly, although it would be
unusual, the national government can validly impose taxes on local governments.

b. In McCulloch vs. Maryland, the doctrine that “the power to tax involves the power
to destroy” was, among other reasons, used to support the holding that states of the union
are prohibited from taxing the U.S. Federal Government. If, indeed, taxation involves the
power to destroy, then it cannot be exercised on the which the taxing authority has no
power to destroy. Despite then the absence of any explicit statutory or constitutional
prohibition, local governments may not impose any kind of tax on the national government.

24. In order to encourage investment, a law was passed exempting aliens who invest at
least fifty million pesos in the Philippines from all taxes, national or local, except
income tax. Ms. Chie makes such an investment and she desires to seek
employment in the Philippines, particularly in the City of Makati. Subsequently the
City of Makati made her pay a fee of five thousand pesos for the issuance of a
Mayor’s permit required for aliens seeking employment within the city. Should Ms.
Chie pay the said Mayor’s permit?

YES. The tax exemption of Ms. Chie relates only to his investment. Tax exemptions
are to be construed strictly against the grantee, and unless otherwise explicit in the law,
the exception must be deemed to relate only, in this instance, to the investment.

25. The Philippine Bible Society (PBS) contended that the Value Added Tax (VAT)
infringes on the freedom of religion clause as it imposes sales and use tax on the
sale of religious materials. Is the contention proper? Why?

NO. The Freedom of Religion clause does not prohibit imposing a generally applicable
sales and use tax on the sale of religious materials by a religious organization.

26. A taxpayer questioned the validity of a law imposing a P100.00 tax for the support of
the public educational system. He assailed that he does not send any of his children
to public schools. Is his contention proper?

NO. An individual need not derive direct benefits from the tax because the paramount
consideration is the welfare of the greater portion of the population. The legislature has the
right to select the subject of taxation because of the lifeblood doctrine, so long as there is
valid classification.

27. Pilipinas Company is a domestic corporation which is engaged in the business of

exporting Philippine handicrafts. In order to boost its business, it engaged an

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American corporation to look for customers in the United States and to sell its
products to those customers. Pilipinas Company will pay the American corporation
a commission on the volume of sales in the United States. Pilipinas Company also
entered into an agreement with the same American corporation whereby the latter
will render technical assistance to Pilipinas Company to enable it to meet
international export standards for which the corporation will receive a royalty fee.
State whether the royalties and the commission payable to the American
corporation are subject to Philippine tax. Explain.

The royalties are subject to Philippine income tax. They are considered as income from
sources within the Philippines, hence subject to income tax even if received by a non-
resident foreign corporation. On the other hand, the commissions being earned from
activities outside the Philippines are not subject to tax.

28. St. Peter’s Hospital is a charitable institution offering free hospital services. It also
admits pay-patients. The income derived from said pay-patients is devoted to the
improvement of the charity wards of the hospital. The BIR is now assessing said
hospital for payment of income tax from income received from admission of pay-
patients. Rule on the case.

The admission of pay-patients does not detract from the charitable character of a
hospital, if all of its funds are devoted “exclusively for the maintenance of the institution” as
a “public charity”. In other words, “where rendering charity as its primary object, and the
funds derived from the payments made by patients who are able to pay are devoted to the
benevolent purposes of the institution, the mere fact that a profit has been made will not
deprive the hospital of its benevolent character”.

29. Atty. Kitten suffered a heart attack rendering her unfit to discharge her duties as
legal counsel of Waters Corporation. She thereafter applied for terminal leave. Atty.
Kitten received an amount by way of commutation of her accumulated leave credits
as a result of her compulsory retirement or terminal leave pay. Is said amount
subject to tax?

NO. Terminal leave is applied for by an employee or officer who retires, resigns, or is
separated from the service through no fault of his own. Since terminal leave is applied for
by an officer or an employee who has already severed connection with his employer and is
no longer working, then it follows that the terminal leave pay, which is the cash value of his
accumulated leave credits, is no longer compensation for services rendered. It cannot be
viewed as a salary. Said amount falls within the enumerated exclusions from gross
income and is therefore not subject to tax.

30. What are the conditions necessary to exempt retirement benefits from income tax?

Under RA 4917, retirement benefits are exempt from income tax if the following
conditions are present:
a. The retiring official or employee has been in the service of the same employer for
the last ten years;
b. He is not less than fifty years old at the time of his retirement; and
c. The official or employee avails of the benefits only once; and
d. Under Revenue Regulation 2-98, the private benefit plan is approved by the BIR.

31. Are employees of private firms entitled to retirement benefits? Is it subject to

income tax?

RA 7641 grants retirement benefits to employees of private firms if the following

conditions concur:

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a. The firm has no private retirement trust plan; and

b. The retiring officer or employee is at least 60 yrs old.

The retirement benefits received under the foregoing conditions are exclusions, and
therefore exempt from income tax.

32. X Corp., a Canadian based foreign corporation, was hired by Pinoy Soap Inc. The
former being an environmentalist expert and a shareholder in the latter was hired to
conduct tests as to the effect of the latter’s product to the environment and to make
improvements thereon. As such, Pinoy soap agreed to pay X corp. a cash dividend
of P 5 Million for such services to be conducted for a period of 2 months.

a. Define and/or explain the nature of a disguised dividend under the income tax
b. Is there a disguised dividend in the present case?

a. There is a disguised dividend when a dividend (whether cash or stocks) is given to

a shareholder not as a return on investment but as payment for services rendered. It is
taxable as part of compensation income or income derived from self-employment or
exercise of a profession, but not as passive income. The income is given in the guise of a
dividend in order to avail of a lower tax rate.

b. YES. A disguised dividend includes the amount paid by a domestic corporation to

a nonresident foreign corporation for services rendered by the latter to the former, when
the amount paid exceeds the value of the services rendered.

33. Mr. Corpus borrowed P10,000.00 from his friend Mr. Lacson payable in one year
without interest. When the loan became due, Mr. Corpus told Mr. Lacson that he
was unable to pay because of business reverses. Mr. Lacson took pity on Mr.
Corpus and condoned the loan. Mr. Corpus was solvent at the time he borrowed the
P10,000.00 and at the time the loan was condoned.
Did Mr. Corpus derive any income from the cancellation or condonation of his
indebtedness? Explain.

NO. The cancellation or condonation of Mr. Corpus’ indebtedness was not in

exchange for services he rendered to Mr. Lacson. Since there was no consideration, the
cancellation may be considered as a gift which is an exclusion from gross income.

34. Due to business reverses, Kawawa Corp. offered a voluntary redundancy program
under which an employee who offered to resign would be given separation pay
equivalent to 3 months basic salary for every year of service. A accepted the offer
and received P300,000.00 as separation pay under the program. The firm adopted
another redundancy program where various unprofitable departments were closed.
As a result, B was separated from the service. He also received P300,000.00 as
separation pay.
Will the separation pay of A and B be subject to tax?

A’s separation pay will be subject to tax because of the voluntary action on his part.
He may, however, avail of the tax-free retirement provided that he is 50 years or over, that
he has rendered at least 10 years of service with Kawawa Corp., and that he has not
previously availed of the tax-free retirement.
B’s separation pay will not be subject to tax because he was separated for a reason
beyond his control.

35. Mr. Ador works for a construction firm in Saudi Arabia. He comes home for
vacation once every two years for a period of 2 months. He earns an annual salary

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of $25,000.00. He also derives an income of P12,000.00 annually from the rental of

his apartment in Manila.
a. To what classification of taxpayers does Mr. Ador belong?
b. What part of his earnings should be considered as gross income for income tax

a. Mr. Ador is a non-resident citizen, he being an overseas contract worker. He works

and derives income abroad and his employment requires him to be thereat most of the
time during the taxable year.

b. Only the income derived from the rentals of his apartment should form part of Mr.
Ador’s gross income. Under the NIRC, an individual citizen working and deriving income
abroad as an overseas contract worker is taxable only on income received within the

36. On April 25, 1995, Mr. Chua filed his income tax return for his 1994 income and paid
the tax due thereon. In 1996, Mr. Chua hired a CPA to prepare his income tax return.
He was informed by the latter that he made an overpayment in his income tax return
filed in 1995. Consequently, Mr. Chua filed a written claim for refund of tax
erroneously collected with the BIR Commissioner on December 15, 1996. On April
20, 1997, without any decision yet by the BIR Commissioner, Mr. Chua filed in the
Court of Tax Appeals a petition for review on his claim for refund of tax erroneously
collected. Did the Court of Tax Appeals acquire jurisdiction over the petition for
review of Mr. Chua?

YES. While the BIR Commissioner has not yet rendered a decision on said claim for
refund, the prescriptive period of two years within which a claim for refund of taxes
erroneously collected maybe filed is about to expire on April 25, 1997 and the failure of the
Commissioner to act on the claim for refund is tantamount to denial of taxpayer’s claim,
hence appealable to the Court of Tax Appeals. The reason is that the taxpayer is subject to
the same two-year period to appeal to the CTA, which is also reckoned from the date of
payment pursuant to RA 1125.

37. Basilio filed a suit for injunction before the RTC in order to enjoin the Government
from collecting taxes from his businesses. The Solicitor General argued that such
injunction cannot prosper because of the legal principle that no court can issue an
injunction against the collection of taxes. Is the Solicitor General’s contention
correct? Is there an instance when such injunction can prosper?

YES. This is the general rule, the basis of which is the Lifeblood Theory. Such
collection may only be suspended by means of an injunction issued by the Court of Tax
Appeals during the pendency of the appeal in aid of its appellate jurisdiction. The collection
of the tax and the corresponding prescriptive period thereon may be suspended only if
there is proof that the collection of the tax will jeopardize the interests of the Government
and/or the taxpayer, upon deposit of the amount of tax to be collected or upon filing of a
surety bond by the taxpayer which is not more than double the amount of tax sought to be
collected, and upon a showing that such appeal is not frivolous and dilatory.

38. Juan received an assessment of his income tax from the BIR on February 8, 1998.
Thereafter, Juan filed a petition for reconsideration with the BIR on February 18,
1998. Documents supporting the petition were filed with the BIR on February 28,
1998. The BIR denied the said petition, which decision was received by Juan on
March 11, 1998. Juan filed a second request for reconsideration. This time the BIR
revised the assessment. Juan received the revised assessment on April 2, 1998.
When is the last day for Juan to appeal to the Court of Tax Appeals?

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Juan has until May 2, 1998 to file an appeal to the Court of Tax Appeals. The
appealable decision is the revised assessment.

39. Marcelo was assessed for taxes by the BIR in 1998. Thereafter, he filed an
administrative protest with the BIR questioning the same. During the pendency of
the protest, the Government filed a criminal action against Marcelo for filing a
fraudulent return. Marcelo sought the dismissal of the criminal action on the ground
that the filing of the latter was premature in view of the pending administrative
protest. Is Marcelo’s contention tenable?

NO. The criminal action is legally proper. What is involved here in the criminal action is
not the collection of taxes where the assessment of the Commissioner of Internal Revenue
may be reviewed by the Court of Tax Appeals but a criminal prosecution for violations of
the National Internal Revenue Code which is within the cognizance of the Regional Trial
Court. While there can be no civil action to enforce collection before the assessment
procedures in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution. The
protest of the taxpayer against the assessment cannot stop his prosecution for violation of
the National Internal Revenue Code (Ungab vs. Hon. Cusi, May 30, 1980).

40. A law was enacted imposing a tax on manufacturers of coconut oil, the proceeds of
which were to be used exclusively for the protection and promotion of the coconut
industry, namely; to improve the working conditions in coconut mills and to conduct
research on the use of coconut oil for motor fuel. Some of the manufacturers of
coconut oil challenge the validity of the law, contending that the tax is to be used for
a private purpose and, therefore, the law violates the rule that public revenues shall
not be appropriated for anything but for a public purpose. Decide with reasons.

The law is valid under the stated circumstances. Taxation is for a public purpose when
the proceeds of the tax are used not only to support the existence of the State but likewise
for some recognized objects of government or directly to promote the welfare of the
community. An intendment of the law to protect and promote the coconut industry may be
considered as properly embraced within such organized objects of government along with
like objectives as promoting social justice, the equitable distribution of wealth, economic
progress, public welfare and similar goals or purposes.

41. A new law granted tax amnesty to those who had not paid income taxes for a certain
year. Those who had paid their income taxes for the said year assailed the decree
as violative of the constitutional guaranty on uniformity of taxation and for being
tantamount to class legislation, since the law did not provide for the refund of taxes
to those who had already paid them. Would you sustain the objection?

NO, I will not sustain the objection. “Uniformity” in taxation, requiring all subjects or
objects of taxation similarly situated to be treated alike, does not disallow a classification of
such objects or subjects as long as the standards used therefor are not arbitrary, and
germane to the intendment of the law, and are substantial (Pepsi-Cola Bottling Co. of
the Phil. vs. City of Butuan, 24 SCRA79). These tests obviously met in the situation
stated in the problem.

42. Mr. X inherited from his mother several tracts of land located in Sta.Ana, Manila.
When the mother was still alive, she had the parcels subdivided into 29 lots, 28 of
which were allocated to the occupants who had a lease contract with her, while the
29th lot was not leased to any person because of its very low elevation and
kangkong were planted therein. Upon gaining possession thereof, he sold the 28
lots. In 1998 and 1999, Mr. X reported his income from the sale of lots as capital
gains. Was Mr. correct? Decide with reasons.

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The sale of several lots which formed part of the rental business of Mr. X cannot be
characterized as sale of non-capital assets. When Mr. X inherited the parcels of land,
transferred to him was not merely the duty to respect the terms of any contract thereon, but
the correlative right to receive and enjoy the fruits of the business and property as well.
Under Sec. 39 Tax Code, the term “Capital Assets” means property held by the taxpayer
whether or not connected with his trade or business EXCEPT:
a. stock in trade or other property included in the taxpayer’s inventory
b. property primarily for sale to customers in the ordinary course of his trade or
c. property used in the trade and business of the taxpayer subject to depreciation
d. real property used in trade or business.

Hence, in the sale or exchange of the above-mentioned properties, a gain or loss

resulting therefrom is an ordinary gain or loss. The transaction is not subject to capital
gains tax.

43. The BIR’s assessment is usually embodied in a demand letter or in a BIR form
known as assessment notice. If the issue dates are anterior to the date of actual
release or mailing of the demand and/or notice, when does the prescriptive period

It is not the issue date of demand and/or notice that is the reckoning point in
prescription but rather it is the date when the demand letter is released, mailed or sent to
the taxpayer that constitutes an actual assessment. (Republic vs. De Guzman, 5 SCRA

44. Nin Uy and Mac Uy are partners. In the year 1999, they incurred a net loss of
P160,000. The allowable deductions included accounts written off amounting to
P20,000. In the year 2000, their business earned a net income of P300,000, including
a bad debt recovery of P6,000. Is the P6,000 taxable?

NO. According to the Equitable Doctrine of Tax Benefit, a recovery of bad debts
previously deducted from gross income constitutes taxable income only if in the year the
account was written off, the deduction resulted in a tax benefit. In the given problem, the
P6,000 did not result in any tax benefit in the year it was written off i.e. in 1999 since even
assuming that the P6,000 was not deducted, there would still be a net loss of P154,000.

45. On April 20, 1998, Mando Rogas filed his income tax return plus the
corresponding penalty. After a year, he discovered that the penalty he paid was
excessive. On February 9, 2000, he filed a claim for refund with the BIR. On May 2,
2000 the BIR denied his claim, but Mando was notified only on May 16, 2000. On
June 7, 2000, he appealed the case to the CTA. Can his appeal prosper?

NO. The law requires that the appeal to the CTA should be made within 30 days from
receipt of denial by the BIR AND within two years after the payment of the tax or penalty.
In the given problem, while the appeal to the CTA was made within 30 days from receipt of
the notice of denial by the BIR, it was filed beyond the two-year period from date of
payment. The law uses the conjunctive “and”, thus both requisites must concur. Mando
should not have waited for the decision of the BIR, and should have treated its inaction as
equivalent to denial of the claim. He could immediately file an appeal to the CTA even
without the denial so as not to defeat his claim by the lapse of the two-year prescriptive

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Executive Committee

RHODALYN MONTEMAYOR, Over-all Chairperson

MARICAR MARQUEZ, Over-all Vice Chair/VC-Academics
LORALAINE SINGSON, Vice Chair Secretariat
RAFAEL OCAMPO JR., Vice Chair Finance
MARIA FLORITA CRUZ, Asst. Vice Chair for EDP
DIANNE AQUINO, Asst. Vice Chair for Secretariat
JONATHAN ABAS, Asst. Vice Chair for Finance

Subject Chairpersons


ERIC RECALDE, Taxation Law
NICEFORO AVILA JR., Commercial Law
DERELA DEVERA, Legal Ethics and Forms


ERIC RECALDE, Chairperson



That in All Things God May Be Glorified!