2015 Bar Examination Questions, Second Sunday:

Taxation Law
Bar Examination Questions on Taxation Law

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November 15, 2015

I.

Explain the principles of a sound tax system. (3%)

There are three basic principles of a sound taxation. These are fiscal adequacy, equality
or theoretical justice and administrative feasibility.
I. Fiscal Adequacy
Fiscal Adequacy means that the sources of revenue should be sufficient to meet
the demands of public expenditure. Taxation as a part of the country’s source of
revenue, citizens of our country should be aware on the importance of it.

As the lifeblood of our nation, taxation is very significant in making the

government perform its function to serve its people. The budget of the country comes
from taxes paid by its citizens. So payment of tax is a necessity and the government,
thru Bureau of Internal Revenue and Bureau of Customs, shall do its part on the
collection of taxes. The question to our government is whether we are generating
enough revenue for the country and how do they manage the proper distribution of its
budget.

Considering the amount of debt we owe to the international banks, Philippines is

not generating enough income to pay for its expenses in running the country. The
revenue is not sufficient to pay for its debt and this is a bad sign that the fiscal budget is
not enough or should we say that the budget no longer goes to where it is appropriated.
This misappropriation includes corruption of public funds, over priced projects, under
the table deals and the likes that contribute to the country’s continuous poverty. And if
the government properly handle its funds and still lack the revenue to pay for its
project, I guess the government should find a way to raise its fiscal budget to adequately
meet the demands for public expenditure.

In the Philippines, we think that the percentage of tax passed on its citizen is
already a burden. The amount of deduction to the salaries of an employee is
considerable large amount of money. So increasing the percentage of tax burden on the
citizen is no longer an option in raising the revenue of the government. Also, there are
different kinds of tax to where the government can pull out funds for the
implementation of its projects. I recommend that the government increase its tax on
cigarettes and liquors, specifically those coming outside the country. Since these
commodities are not considered a necessity, people who tightens there belt in saving
money will no longer consider buying these unnecessary things. And this might as well
increase the income on tax of the government. The government can also raised its
revenue by increasing its tax on imported goods that are not considered a necessity for
its citizens. This will not only increase the government’s revenue but will also help the
local producers of such products.

II. Equality or theoretical justice

This means that it is only appropriate for the government to base the tax that is
being collected to the declared salary of the payer. With this principle tax payers will
have reasonable taxes and will give a fair share of what they have earned to the
government. This is the so-called “ability to pay principle.”

The Philippines being a third world country and has a minimum wage salary of
426.00 Php per day, according to the Department of Labor and Employment in the
National Capital Region, only shows that not everyone could pay their taxes. With the
ability to pay principle this people who earn minimum wages are given tax exemptions
to cope up with their daily living cost and those who are earning above this minimum
wage are obligatory to pay their monthly taxes. The monthly income is proportional to
the tax that is being paid. As the income increases tax also increases. For those whose
income after personal and additional exemptions is below 10,000 the tax rate would be
5%, for 10,000but not over 30,000 would be 500 + 10% of the excess over 10,000, for
30,000 but not over 70,000 would be 2,500 + 15% of the excess over 30,000, for 70,000
but not over 140,000 would be 8,500 + 20% of the excess over 70,000, for 140,000 but
not over 250,000 would be 22,500 + 25% of the excess over 140,000, for 250,000 but
not over 500,000 would be 50,000 + 30% of the excess over 250,000 and for 500,000
and above would be 125,000 + 32% of the excess over 500,000.

III. Administrative Feasibility

Administrative Feasibility means that tax laws should be capable of convenient,
just and effective administration. This principle is very important in the collection of
taxes and its implementation.

Tax imposition in the Philippines involves three stages, first is the levy. It is the
legislative act or the tax law that determines the amount of tax or certain percentage
shall be imposed on the person, property or acts subjected thereto. After the levy,
assessment follows; this action involves computation of the sum due, giving notice to
the taxpayer and making simultaneous demand upon the payer for the tax or its
deficiency. And lastly the collection; thru proper government agencies, taxes are
collected. This stage embraces the different remedies for enforcement of the payment
of taxes including prosecution on tax violators.

The government assigns two bureaus in the administration of tax collection;

these are Bureau of Internal Revenue and Bureau of Customs.

In enforcing the tax law, the administrative body of our government should be
very serious and sincere in their job. The revenue of the country lies in their hands.
Every cent that they collect should go and use only for public purposes and projects.
They should detach any personal interest on the money that they collected.
 As a recommendation, every officer in the bureau should undergo a thorough
process of lifestyle checking and before hiring any office it should be very clear that they
are hired as a public servant not as a master waiting to be served. We believed that the
root of all evil is selfishness, and everyone in the government should not contain this
undesirable character.

Another recommendation on the administration of taxation, officers of the

bureau should do a thorough lifestyle check on taxpayer with questionable payment of
tax despite his/her riches. And no tax evaders should be given with special treatment
and proper dues and fines should be enforced on the violators.

II.

Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional

boxing match held in 2013, he won the prize money in United States (US) dollars equivalent
to P300,000,000.00.

a) Is the prize money paid to and received by Mr. A in the U.S. taxable in the
Philippines? Why? (2%)

b) May Mr. A’s prize money qualify as an exclusion from his gross income? Why? (2%)

c) The US already imposed and withheld income taxes from Mr. A’s prize money. How
may Mr. A use or apply the income taxes he paid on his prize money to the US when
he computes his income tax liability in the Philippines for 2013?

A. Income Taxation Law provides that a citizen of the Philippines, such as in the
case of Mr. A, is taxable for his earnings within or without the Philippines. He is
also a subject to the 32% tax rate under the tax base provisions of the Tax Code.

B. He cannot claim exclusion because his earnings were based on the principle
of Active Income where he exerted efforts to earn it. Hence, he is still taxable
under the Income Taxation Law.

V.

BBB, Inc., a domestic corporation, enjoyed a particularly profitable year in 2014. In june
2015, its Board of Directors approved the distribution of cash dividends to its stockholders.
BBB, Inc. has individual and corporate stockholders. What is the tax treatment of the cash
dividends received from BBB, Inc. by the following stockholders.

a) A resident citizen (1%)

b) Non-resident alien engaged in trade and business (1%)

c) Non-resident alien not engaged in trade or business (1%)

d) Domestic corporation (1%)

e) Non-resident foreign corporation (1%)

 Sa res. Citizen subject to final income tax. Sa domestic corp. Exempted.
Sa non res. Foreign corp it depends from its income for the past three
years.

VI.

Differentiate between double taxation in the strict sense and in a broad sense and give an
example of each.

Strict sense double taxation is when a taxpayer is taxed atleast twice by the
same authority in the same jurisdiction for the same purpose on the same taxing
period. Such is prohibited in this jurisdiction for it violates constitutional provisions
of equal protection and that taxation must be equitable. 

Indirect or double taxation in its broad sense is the presence of two or more of
the above enumerated burdens of taxing a taxpayer twice and is not
unconstitutional but is a practice that is frowned upon.

Double taxation in the strict sense v. double taxation in the broad sense
 
                     In its strict sense, referred to as direct duplicate taxation, double taxation means:
 
1.       taxing twice;
 
2.       by the same taxing authority;
 
3.       within the same jurisdiction or taxing district;
 
4.       for the same purpose;
 
5.       in the same year or taxing period;
 
6.       some of the property in the territory.
 
                     In its broad sense, referred to as indirect double taxation, double taxation is taxation
other than direct duplicate taxation. It extends to all cases in which there is a burden of
two or more impositions.

VII.

On May 15, 2013, CCC, Inc. received the Final Decision on Disputed Assessment issued by
the Commission of Internal Revenue (CIR) dismissing the protest of CCC, Inc. and affirming
the assessment against said corporation. On June 10, 2013, CCC, Inx. Filed a Petition for
Review with the Court of Tax Appeals (CTA) in division. On July 31, 2015, CCC, Inc.
received a copy of the Decision dated July 22, 2015 of the CTA division dismissing its
petition. CCC, Inc. immediately filed a Petition for Review with the CTA en banc on August
6, 2015. Is the immediate appeal by the CCC, Inc. to the CTA en banc of the adverse
Decision of the CTA division the proper remedy? (3%)

Yes. The proper remedy on any adverse resolution of any division of the CTA is
an appeal by way of a petition for review with the CTA en banc; that it is provided
under Section 2 (a)(1) of Rule 4 of the Revised Rules of the Court of Tax
Appeals (RRCTA) that the Court en banc shall exercise exclusive appellate
jurisdiction to review by appeal the decision or resolutions on motions for
reconsideration or new trial of the Court in division in the exercise of its exclusive
appellate jurisdiction over cases arising from administrative agencies such as the
Bureau of Internal Revenue. (G.R. Nos. 203054-55, July 29,
2015, COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. COURT
OF TAX APPEALS AND CBK POWER COMPANY LIMITED)

The Decision

We first address the procedural issue raised by private respondent in its

Comment. Private respondent claims that petitioner chose an erroneous remedy
when it filed a petition for certiorari with us since the proper remedy on any
adverse resolution of any division of the CTA is an appeal by way of a petition for
review with the CTA en banc; that it is provided under Section 2 (a)(1) of Rule 4
of the Revised Rules of the Court of Tax Appeals (RRCTA) that the Court en
banc shall exercise exclusive appellate jurisdiction to review by appeal the
decision or resolutions on motions for reconsideration or new trial of the Court in
division in the exercise of its exclusive appellate jurisdiction over cases arising
from administrative agencies such as the Bureau of Internal Revenue.
We are not persuaded.
In Santos v. People, et al.1  where petitioner argues that a resolution of a CTA
Division denying a motion to quash, an interlocutory order, is a proper subject of
an appeal to the CTA en banc under Section 18 of Republic Act No. 1125, as
amended, we ruled in the negative and disposed the argument as follows:
Petitioner is invoking a very narrow and literal reading of Section 18 of Republic
Act No. 1125, as amended.
Indeed, the filing of a petition for review with the CTA en banc from a decision,
resolution, or order of a CTA Division is a remedy newly made available in
proceedings before the CTA, necessarily adopted to conform to and address the
changes in the CTA.
There was no need for such rule under Republic Act No. 1125, prior to its
amendment, since the CTA then was composed only of one Presiding Judge and
two Associate Judges. Any two Judges constituted a quorum and the
concurrence of two Judges was necessary to promulgate any decision thereof.
The amendments introduced by Republic Act No. 9282 to Republic Act No. 1125
elevated the rank of the CTA to a collegiate court, with the same rank as the
Court of Appeals, and increased the number of its members to one Presiding
Justice and five Associate Justices. The CTA is now allowed to sit en banc or in
two Divisions with each Division consisting of three Justices. Four Justices shall
constitute a quorum for sessions en banc, and the affirmative votes of four
members of the Court en banc are necessary for the rendition of a decision or
resolution; while two Justices shall constitute a quorum for sessions of a Division
and the affirmative votes of two members of the Division shall be necessary for
the rendition of a decision or resolution.
In A.M. No. 05-11-07-CTA, the Revised CTA Rules, this Court delineated the
jurisdiction of the CTA en banc and in Divisions. Section 2, Rule 4 of the Revised
CTA Rules recognizes the exclusive appellate jurisdiction of the CTA en banc to
review by appeal the following decisions, resolutions, or orders of the CTA
Division:
SEC. 2. Cases within the jurisdiction of the Court en banc.- The Court en
banc shall exercise exclusive appellate jurisdiction to review by appeal the
following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the
Court in Divisions in the exercise of its exclusive appellate jurisdiction over:
(1) Cases arising from administrative agencies – Bureau of Internal Revenue,
Bureau of Customs, Department of Finance, Department of Trade and Industry,
Department of Agriculture;
(2) Local tax cases decided by the Regional Trial Courts in the exercise of their
original jurisdiction; and
(3) Tax collection cases decided by the Regional Trial Courts in the exercise of
their original jurisdiction involving final and executory assessments for taxes,
fees, charges and penalties, where the principal amount of taxes and penalties
claimed is less than one million pesos;
xxxx
(f) Decisions, resolutions or orders on motions for reconsideration or new trial of
the Court in Division in the exercise of its exclusive original jurisdiction over
cases involving criminal offenses arising from violations of the National Internal
Revenue Code or the Tariff and Customs Code and other laws administered by
the Bureau of Internal Revenue or Bureau of Customs.
(g) Decisions, resolutions or order on motions for reconsideration or new trial of
the Court in Division in the exercise of its exclusive appellate jurisdiction over
criminal offenses mentioned in the preceding subparagraph; x x x.
Although the filing of a petition for review with the CTA en banc from a decision,
resolution, or order of the CTA Division, was newly made available to the CTA,
such mode of appeal has long been available in Philippine courts of general
jurisdiction. Hence, the Revised CTA Rules no longer elaborated on it but merely
referred to existing rules of procedure on petitions for review and appeals, to wit:
RULE 7
PROCEDURE IN THE COURT OF TAX APPEALS
SEC. 1. Applicability of the Rules of the Court of Appeals. – The procedure in the
Court en banc or in Divisions in original and in appealed cases shall be the same
as those in petitions for review and appeals before the Court of Appeals pursuant
to the applicable provisions of Rules 42, 43, 44 and 46 of the Rules of Court,
except as otherwise provided for in these Rules.
RULE 8
PROCEDURE IN CIVIL CASES
x x x      x x x      x x x
SEC. 4. Where to appeal; mode of appeal. –
x x x      x x x      x x x
(b) An appeal from a decision or resolution of the Court in Division on a motion
for reconsideration or new trial shall be taken to the Court by petition for review
as provided in Rule 43 of the Rules of Court. The Court en banc shall act on the
appeal.
x x x      x x x      x x x
RULE 9
PROCEDURE IN CRIMINAL CASES
SEC. 1. Review of cases in the Court. – The review of criminal cases in the
Court en banc or in Division shall be governed by the applicable provisions of
Rule 124 of the Rules of Court.
x x x      x x x      x x x
SEC. 9. Appeal; period to appeal. –
x x x      x x x      x x x
(b) An appeal to the Court en banc in criminal cases decided by the Court in
Division shall be taken by filing a petition for review as provided in Rule 43 of the
Rules of Court within fifteen days from receipt of a copy of the decision or
resolution appealed from. The Court may, for good cause, extend the time for
filing of the petition for review for an additional period not exceeding fifteen days.
Given the foregoing, the petition for review to be filed with the CTA en banc as
the mode for appealing a decision, resolution, or order of the CTA Division, under
Section 18 of Republic Act No. 1125, as amended, is not a totally new remedy,
unique to the CTA, with a special application or use therein. To the contrary, the
CTA merely adopts the procedure for petitions for review and appeals long
established and practiced in other Philippine courts. Accordingly, doctrines,
principles, rules, and precedents laid down in jurisprudence by this Court as
regards petitions for review and appeals in courts of general jurisdiction should
likewise bind the CTA, and it cannot depart therefrom.
xxxx
According to Section 1, Rule 41 of the Revised Rules of Court, governing
appeals from the Regional Trial Courts (RTCs) to the Court of Appeals, an
appeal may be taken only from a judgment or final order that completely
disposes of the case or of a matter therein when declared by the Rules to be
appealable. Said provision, thus, explicitly states that no appeal may be taken
from an interlocutory order.2 
It is, therefore, clear that the CTA en banc has jurisdiction over final order or
judgment but not over interlocutory orders issued by the CTA in division.
In Denso (Phils.), Inc. v. Intermediate Appellate Court,3 we expounded on the
differences between a “final judgment” and an “interlocutory order,” to wit:
x x x A “final” judgment or order is one that finally disposes of a case, leaving
nothing more to be done by the Court in respect thereto, e.g., an adjudication on
the merits which, on the basis of the evidence presented at the trial, declares
categorically what the rights and obligations of the parties are and which party is
in the right; or a judgment or order that dismisses an action on the ground, for
instance, of res judicata or prescription. Once rendered, the task of the Court is
ended, as far as deciding the controversy or determining the rights and liabilities
of the litigants is concerned. Nothing more remains to be done by the Court
except to await the parties’ next move x x x and ultimately, of course, to cause
the execution of the judgment once it becomes “final” or, to use the established
and more distinctive term, “final and executory.”
x x x      x x x      x x x
Conversely, an order that does not finally dispose of the case, and does not end
the Court’s task of adjudicating the parties’ contentions and determining their
rights and liabilities as regards each other, but obviously indicates that other
things remain to be done by the Court, is “interlocutory,” e.g., an order denying a
motion to dismiss under Rule 16 of the Rules x x x. Unlike a “final” judgment or
order, which is appealable, as above pointed out, an “interlocutory” order may not
be questioned on appeal except only as part of an appeal that may eventually be
taken from the final judgment rendered in the case.4 
Given the differences between a final judgment and an interlocutory order, there
is no doubt that the CTA Order dated December 23, 2011 granting private
respondent’s motion to declare petitioner as in default and allowing respondent to
present its evidence ex parte, is an interlocutory order as it did not finally dispose
of the case on the merits but will proceed for the reception of the former’s
evidence to determine its entitlement to its judicial claim for tax credit certificates.
Even the CTA’s subsequent orders denying petitioner’s motion to lift order of
default and denying reconsideration thereof are all interlocutory orders since they
pertain to the order of default.
Since the CTA Orders are merely interlocutory, no appeal can be taken
therefrom. Section 1, Rule 41 of the 1997 Rules of Civil Procedure, as amended,
which applies suppletorily to proceedings before the Court of Tax Appeals,
provides:
Section 1. Subject of appeal.- An appeal may be taken from a judgment or final
order that completely disposes of the case, or of a particular matter therein when
declared by these Rules to be appealable.
No appeal may be taken from:
xxxx
(c) An interlocutory order
In all the above instances where the judgment or final order is not appealable,
the aggrieved party may file an appropriate special civil action under Rule 65.
Hence, petitioner’s filing of the instant petition for certiorari assailing the
interlocutory orders issued by the CTA is in conformity with the above-quoted
provision.
As to the merit of the petition, petitioner argues that the order declaring it as in
default and allowing the ex-parte presentation of private respondent’s evidence
was excessive as it has no intention of defying the scheduled pre-trial
conferences.
In Calalang v. Court of Appeals,5  we held that unless a party’s conduct is so
negligent, irresponsible, contumacious, or dilatory as to provide substantial 
grounds for dismissal for non-appearance, the courts should consider lesser
sanctions which would still amount into achieving the desired end. We apply the
same criteria on a defendant who fails to appear at a pre-trial conference.
In this case, there is no showing that petitioner intentionally disregarded the
CTA’s authority. CTA Case Nos. 8246 and 8302 were filed on different dates and
were handled by different lawyers, i.e., Atty. Sandico and Atty. Mauricio,
respectively. The cases were later on consolidated per private respondent’s
motion and the pre-trial was set on November 3, 2011 but petitioner’s counsel,
Atty. Mauricio, was not able to attend for health reasons; and Atty. Sandico to
whom the consolidated cases were later on assigned was not able to attend the
pre-trial on time on December 1, 2011 as he was attending another case in
another division of the CTA. We find nothing to show that petitioner had acted
with the deliberate intention of delaying the proceedings as petitioner had timely
filed its pre-trial brief for the consolidated cases.
Also, after petitioner’s receipt of the default Order dated December 23, 2011,
petitioner, on January 6, 2012, immediately filed a Motion to lift the order of
default, i.e., 20 days before the scheduled ex-partepresentation of private
respondent’s evidence on January 26, 2012. The CTA should have been
persuaded to reconsider its earlier order of default as its lifting would not in any
way prejudice or deprive private respondent of any substantive right, especially
so considering that the latter did not file any opposition or comment to petitioner’s
motion to lift order of default or to the motion for reconsideration of the denial
thereof.
It is not to say, however, that adherence to the Rules could be dispensed with
lightly, but that, rather, exigencies and situations might occasionally demand
flexibility in their application. 6  It is within the CTA’s sound judicial discretion to
give party-litigants every opportunity to properly present their conflicting claims
on the merits of the controversy without resorting to technicalities. 7  It should
always be predicated on the consideration that more than the mere convenience
of the courts or of the parties of the case, the ends of justice and fairness would
be served thereby. Courts should be liberal in setting aside orders of default, for
default judgments are frowned upon, and unless it clearly appears that the
reopening of the case is intended for delay, it is best that trial courts give both
parties every chance to fight their case fairly and in the open, without resort to
technicality.8 
Moreover, Section 2, Rule 1 of the RRCTA expressly provides that:
SEC. 2. Liberal construction.- The Rules shall be liberally construed in order to
promote their objective of securing a just, speedy, and inexpensive determination
of every action and proceeding before the Court. (RCTA, Rule 1, sec. 2a)
It appears, however, that the CTA proceeded with the ex-parte reception of
private respondent’s evidence and had already rendered its decision on the
merits on June 10, 2014 ordering petitioner to issue a tax certificate in favor of
private respondent in the reduced amount of P22,126,419.93 representing
unutilized input VAT incurred in relation to its zero rated sales of electricity to the
NPC for the first and second quarters of 2009. Petitioner filed a motion for
reconsideration which the CTA had also denied. Petitioner then filed a petition for
review ad cautelam with the CTA En Banc which is now pending before it.
Considering our foregoing discussions, we find a need to give petitioner the
opportunity to properly present her claims on the merits of the case without
resorting to technicalities.
WHEREFORE, the petition for certiorari is GRANTED. The Resolutions dated
December 23, 2011, April 19, 2012 and June 13, 2012 issued by the Court of
Tax Appeals in CTA Case Nos. 8246 and 8302 are hereby SET ASIDE. The
consolidated cases are hereby REMANDED to the CTA Third Division to give
petitioner the chance to present evidence, rebuttal and sur rebuttal evidence, if
needed.

Note: Section 228 of the NIRC of 1997, as amended, provides for the procedure in
issuing tax assessments as well as in protesting the same, thus: XXX XXX XXX Relative to
the foregoing, Revenue Regulations (RR) No. 12-99, more particularly, Section 3.1.5
provides for the administrative remedies available to taxpayer in cases where protests
against assessments issued are filed before the Commissioner of Internal Revenue's duly
authorized representatives. Section 3.1.5 is quoted hereunder: XXX XXX XXX Based on
the foregoing, in case the CIR or his duly authorized representative fails to act on the
disputed assessment within 180 days from the submission of documents, a taxpayer can
either: (1) appeal to the Court of Tax Appeals within thirty (30) days after the expiration
of the 180-day period; or (2) wait the final decision of the CIR on the disputed
assessment and appeal such final! 13 /d., p. 269. DECISION CT A EB CASE NO. 986 (CT A
Case No. 7700) Page 13 of 20 decision to the Court of Tax Appeals within thirty days
after receipt of a copy of such decision. The failure of a taxpayer to appeal from an
assessment on time will render the assessment final, executory, and demandable.
Consequently, the taxpayer is precluded from disputing the correctness of the
assessment."14

VIII.

In June 2013, DDD Corp., a domestic Corporation engaged in the business of leasing real
properties in the Philippines, entered into a lease agreement of a residential house and lot
with EEE, Inc., a non-resident foreign corporation. The residential house and lot will be used
by officials of EEE, Inc. during their visit to the Philippines. The lease agreement was signed
by representatives from DDD Corp. and EEE, Inc. in Singapore. DDD Corp. did not subject
the said lease to VAT believing that it was not a domestic service contract. Was DDD Corp.
correct? Explain? (3%)
IX.

For calendar year 2011, FFF, Inc. a VAT registered corporation, reported unutilized excess
input VAT in the amount of P1,000,000.00 attributable to its zero-rated sales. Hoping to
impress his boss, Mr. G, the accountant of FFF, Inc. filed with the Bureau of Internal
Revenue (BIR) on January 31, 2013 a claim for tax refund/credit of the P1,000,000.00
unutilized excess input VAT of FFF, Inc. for 2011. Not having received any communication
from the BIR. Mr. G filed a Petition for Review with the CTA on March 15, 2013 praying for
the tax refund/credit of the P1,000,000.00 unutilized input VAT of FFF, Inc for 2011.

a) Did the CTA acquire jurisdiction over the Petition of FFF, inc.? (2%)
b) Discuss the proper procedure and applicable time periods for administrative and
judicial claims for refund/credit of unutilized excess input VAT. (4%)

 a) The CTA did not acquire jurisdiction over the petition of FFF, Inc.
Administrative remedies must first be exhausted before a Petition for Review with
the CTA may prosper. After filing a claim for unutilized input VAT, the taxpayer
may either wait for the BIR to act, or wait 120 days from date of filing and
subsequent inaction of the BIR before he can elevate his claim to the CIR. The
petition here having been filed less than 120 days from the BIR's inaction, the
CTA did not acquire jurisdiction over the claim for refund of FFF. (CIR vs. San
Roque)

b) The taxpayer has to wait 120 days from the date of his filing to the BIR, and if
the BIR doesn't act upon his administrative claim for refund, he may elevate the
same via a Petition for Review to the CTA division within 30 days from BIR's
inaction on his petition, i.e. 30 days from the date the 120 days expired..
(Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership,
G,R, No. 191498, January 15,2014)

Section 112(D) of the 1997 Tax Code states the time requirements for filing a
judicial claim for refund or tax credit of input VAT:

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents in support of the application filed
in accordance with Subsection (A) and (B) hereof. In case of full or partial denial
of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphases supplied)

THE COURT’S RULING

We deny Mindanao II’s claim for refund or credit of unutilized input VAT on the
ground that its judicial claims were filed out of time, even as we hold that its
application for refund was filed on time.

I.
MINDANAO II’S APPLICATION FOR
REFUND WAS FILED ON TIME

We find no error in the conclusion of the tax courts that the application for refund
or credit of unutilized input VAT was timely filed. The problem lies with their
bases for the conclusion as to: (1) what should be filed within the prescriptive
period; and (2) the date from which to reckon the prescriptive period.

We thus take a different route to reach the same conclusion, initially focusing our
discussion on what should be filed within the two-year prescriptive period.

A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period

Section 112(A) provides:

SEC. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-rated or Effectively Zero-rated Sales — Any VAT-registered person,

whose sales are zero-rated or effectively zero-rated may, within two (2) years
after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt
sale of goods or properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of
sales.

Both the CTA Second Division and CTA En Banc decisions held that the phrase
"apply for the issuance of a tax credit certificate or refund" in Section 112(A) is
construed to refer to both the administrative claim filed with the CIR and the
judicial claim filed with the CTA. This view, however, has no legal basis.

In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.

(Aichi), we dispelled the misconception that both the administrative and judicial
claims must be filed within the two-year prescriptive period:37

There is nothing in Section 112 of the NIRC to support respondent’s view.

Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years after
the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales." The phrase "within two (2) years x x x apply for the
issuance of a tax credit certificate or refund" refers to applications for
refund/credit filed with the CIR and not to appeals made to the CTA. This is
apparent in the first paragraph of subsection (D) of the same provision, which
states that the CIR has "120 days from the submission of complete documents in
support of the application filed in accordance with Subsections (A) and (B)" within
which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory
Section 112 (D) of the NIRC, which already provides for a specific period within
which a taxpayer should appeal the decision or inaction of the CIR. The second
paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a
decision is issued by the CIR before the lapse of the 120-day period; and (2)
when no decision is made after the 120-day period. In both instances, the
taxpayer has 30 days within which to file an appeal with the CTA. As we see it
then, the 120-day period is crucial in filing an appeal with the CTA. (Emphasis
supplied)

The message of Aichi is clear: it is only the administrative claim that must be filed
within the two-year prescriptive period; the judicial claim need not fall within the
two-year prescriptive period.

Having disposed of this question, we proceed to the date for reckoning the
prescriptive period under Section 112(A).

B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales
Were Made.

The other flaw in the reasoning of the tax courts is their reliance on the Atlas
ruling, which fixed the reckoning point to the date of filing the return and payment
of the tax.

The CIR’s Stand

The CIR’s stand is that Atlas is not applicable to the case at hand as it involves
Section 230 of the 1977 Tax Code, which contemplates recovery of tax payments
erroneously or illegally collected. On the other hand, this case deals with claims
for tax refund or credit of unutilized input VAT for the second, third, and fourth
quarters of 2004, which are covered by Section 112 of the 1977 Tax Code.38

The CIR further contends that Mindanao II cannot claim good faith reliance on
the Atlas doctrine since the case was decided only on 8 June 2007, two years
after Mindanao II filed its claim for refund or credit with the CIR and one year
after it filed a Petition for Review with the CTA on 21 July 2006.39

In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should
apply to this case despite the fact that the latter was promulgated on 12
September 2008, after Mindanao II had filed its administrative claim in 2005. 40 It
argues that Mirant can be applied retroactively to this case, since the decision
merely interprets Section 112, a provision that was already effective when
Mindanao II filed its claims for tax refund or credit.

The Taxpayer’s Defense

On the other hand, Mindanao II counters that Atlas, decided by the Third Division
of this Court, could not have been superseded by Mirant, a Second Division
Decision of this Court. A doctrine laid down by the Supreme Court in a Division
may be modified or reversed only through a decision of the Court sitting en
banc.41

Mindanao II further contends that when it filed its Petition for Review, the
prevailing rule in the CTA reckons the two-year prescriptive period from the date
of the filing of the VAT return.42 Finally, after building its case on Atlas, Mindanao
II assails the CIR’s reliance on the Mirant doctrine stating that it cannot be
applied retroactively to this case, lest it violate the rock-solid rule that a judicial
ruling cannot be given retroactive effect if it will impair vested rights.43

Section 112(A) is the Applicable Rule

The issue posed is not novel. In the recent case of Commissioner of Internal
Revenue v. San Roque Power Corporation44 (San Roque), this Court resolved
the threshold question of when to reckon the two-year prescriptive period for
filing an administrative claim for refund or credit of unutilized input VAT under the
1997 Tax Code in view of our pronouncements in Atlas and Mirant. In that case,
we delineated the scope and effectivity of the Atlas and Mirant doctrines as
follows:

The Atlas doctrine, which held that claims for refund or credit of input VAT must
comply with the two-year prescriptive period under Section 229, should be
effective only from its promulgation on 8 June 2007 until its abandonment on 12
September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the
two-year prescriptive period from the date of payment of the output VAT. Prior to
the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of
input VAT should be governed by Section 112(A) following the verba legis rule.
The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis
rule, thus applying Section 112(A) in computing the two-year prescriptive period
in claiming refund or credit of input VAT. (Emphases supplied)

Furthermore, San Roque distinguished between Section 112 and Section 229 of
the 1997 Tax Code:

The input VAT is not "excessively" collected as understood under Section 229
because at the time the input VAT is collected the amount paid is correct and
proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered
seller of goods, properties or services used as input by another VAT-registered
person in the sale of his own goods, properties, or services. This tax liability is
true even if the seller passes on the input VAT to the buyer as part of the
purchase price. The second VAT-registered person, who is not legally liable for
the input VAT, is the one who applies the input VAT as credit for his own output
VAT. If the input VAT is in fact "excessively" collected as understood under
Section 229, then it is the first VAT-registered person — the taxpayer who is
legally liable and who is deemed to have legally paid for the input VAT — who
can ask for a tax refund or credit under Section 229 as an ordinary refund or
credit outside of the VAT System. In such event, the second VAT-registered
taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and
Section 112(A), the input VAT is not "excessively" collected as understood under
Section 229. At the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is no claim or issue
that the input VAT is "excessively" collected, that is, that the input VAT paid is
more than what is legally due. The person legally liable for the input VAT cannot
claim that he overpaid the input VAT by the mere existence of an "excess" input
VAT. The term "excess" input VAT simply means that the input VAT available as
credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the taxpayer who legally paid
the input VAT cannot claim for refund or credit of the input VAT as "excessively"
collected under Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is
two years from the date of payment of the tax "erroneously, . . . illegally, . . .
excessively or in any manner wrongfully collected." The prescriptive period is
reckoned from the date the person liable for the tax pays the tax. Thus, if the
input VAT is in fact "excessively" collected, that is, the person liable for the tax
actually pays more than what is legally due, the taxpayer must file a judicial claim
for refund within two years from his date of payment. Only the person legally
liable to pay the tax can file the judicial claim for refund. The person to whom the
tax is passed on as part of the purchase price has no personality to file the
judicial claim under Section 229.

Under Section 110(B) and Section 112(A), the prescriptive period for filing a
judicial claim for "excess" input VAT is two years from the close of the taxable
quarter when the sale was made by the person legally liable to pay the output
VAT. This prescriptive period has no relation to the date of payment of the
"excess" input VAT. The "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT
under Section 112(A), which has a different reckoning period from Section 229.
Moreover, the person claiming the refund or credit of the input VAT is not the
person who legally paid the input VAT. Such person seeking the VAT refund or
credit does not claim that the input VAT was "excessively" collected from him, or
that he paid an input VAT that is more than what is legally due. He is not the
taxpayer who legally paid the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by
the taxpayer in the chain of transactions. For simplicity and efficiency in tax
collection, the VAT is imposed not just on the value added by the taxpayer, but
on the entire selling price of his goods, properties or services. However, the
taxpayer is allowed a refund or credit on the VAT previously paid by those who
sold him the inputs for his goods, properties, or services. The net effect is that
the taxpayer pays the VAT only on the value that he adds to the goods,
properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output
VAT. The only exception is when the taxpayer is expressly "zero-rated or
effectively zero-rated" under the law, like companies generating power through
renewable sources of energy. Thus, a non zero-rated VAT-registered taxpayer
who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has
sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or
credit of his "excess" input VAT under the VAT System. He can only carry-over
and apply his "excess" input VAT against his future output VAT. If such "excess"
input VAT is an "excessively" collected tax, the taxpayer should be able to seek a
refund or credit for such "excess" input VAT whether or not he has output VAT.
The VAT System does not allow such refund or credit. Such "excess" input VAT
is not an "excessively" collected tax under Section 229. The "excess" input VAT
is a correctly and properly collected tax. However, such "excess" input VAT can
be applied against the output VAT because the VAT is a tax imposed only on the
value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not
the person to whom the tax was passed on as part of the purchase price and
claiming credit for the input VAT under the VAT System, who can file the judicial
claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an
"excessively" collected tax under Section 229 may lead taxpayers to file a claim
for refund or credit for such "excess" input VAT under Section 229 as an ordinary
tax refund or credit outside of the VAT System. Under Section 229, mere
payment of a tax beyond what is legally due can be claimed as a refund or credit.
There is no requirement under Section 229 for an output VAT or subsequent sale
of goods, properties, or services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or
credited is a tax that is "erroneously . . . illegally, . . . excessively or in any
manner wrongfully collected." In short, there must be a wrongful payment
because what is paid, or part of it, is not legally due. As the Court held in Mirant,
Section 229 should "apply only to instances of erroneous payment or illegal
collection of internal revenue taxes." Erroneous or wrongful payment includes
excessive payment because they all refer to payment of taxes not legally due.
Under the VAT System, there is no claim or issue that the "excess" input VAT is
"excessively or in any manner wrongfully collected." In fact, if the "excess" input
VAT is an "excessively" collected tax under Section 229, then the taxpayer
claiming to apply such "excessively" collected input VAT to offset his output VAT
may have no legal basis to make such offsetting. The person legally liable to pay
the input VAT can claim a refund or credit for such "excessively" collected tax,
and thus there will no longer be any "excess" input VAT. This will upend the
present VAT System as we know it.45

Two things are clear from the above quoted San Roque disquisitions. First, when
it comes to recovery of unutilized input VAT, Section 112, and not Section 229 of
the 1997 Tax Code, is the governing law. Second, prior to 8 June 2007, the
applicable rule is neither Atlas nor Mirant, but Section 112(A).

We present the rules laid down by San Roque in determining the proper
reckoning date of the two-year prescriptive period through the following timeline:

Thus, the task at hand is to determine the applicable period for this case.

In this case, Mindanao II filed its administrative claims for refund or credit for the
second, third and fourth quarters of 2004 on 6 October 2005. The case thus falls
within the first period as indicated in the above timeline. In other words, it is
covered by the rule prior to the advent of either Atlas or Mirant.

Accordingly, the proper reckoning date in this case, as provided by Section

112(A) of the 1997 Tax Code, is the close of the taxable quarter when the
relevant sales were made.

C. The Administrative Claims Were Timely Filed

We sum up our conclusions so far: (1) it is only the administrative claim that must
be filed within the two-year prescriptive period; and (2) the two-year prescriptive
period begins to run from the close of the taxable quarter when the relevant sales
were made.

Bearing these in mind, we now proceed to determine whether Mindanao II's

administrative claims for the second, third, and fourth quarters of 2004 were
timely filed.

Second Quarter

Since the zero-rated sales were made in the second quarter of 2004, the date of
reckoning the two-year prescriptive period is the close of the second quarter,
which is on 30 June 2004. Applying Section 112(A), Mindanao II had two years
from 30 June 2004, or until 30 June 2006 to file an administrative claim with the
CIR. Mindanao II filed its administrative claim on 6 October 2005, which is within
the two-year prescriptive period. The administrative claim for the second quarter
of 2004 was thus timely filed. For clarity, we present the rules laid down by San
Roque in determining the proper reckoning date of the two-year prescriptive
period through the following timeline:

Third Quarter

As regards the claim for the third quarter of 2004, the two-year prescriptive
period started to run on 30 September 2004, the close of the taxable quarter. It
ended on 30 September 2006, pursuant to Section 112(A) of the 1997 Tax Code.
Mindanao II filed its administrative claim on 6 October 2005. Thus, since the
administrative claim was filed well within the two-year prescriptive period, the
administrative claim for the third quarter of 2004 was timely filed. (See timeline
below)
Fourth Quarter

Here, the two-year prescriptive period is counted starting from the close of the
fourth quarter which is on 31 December 2004. The last day of the prescriptive
period for filing an application for tax refund/credit with the CIR was on 31
December 2006. Mindanao II filed its administrative claim with the CIR on 6
October 2005. Hence, the claims were filed on time, pursuant to Section 112(A)
of the 1997 Tax Code. (See timeline below)

II.

MINDANAO II’S JUDICIAL CLAIMS WERE FILED OUT OF TIME

Notwithstanding the timely filing of the administrative claims, we find that the CTA
En Banc erred in holding that Mindanao II’s judicial claims were timely filed.

A. 30-Day Period Also Applies to Appeals from Inaction

Section 112(D) of the 1997 Tax Code states the time requirements for filing a
judicial claim for refund or tax credit of input VAT:

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents in support of the application filed
in accordance with Subsection (A) and (B) hereof. In case of full or partial denial
of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphases supplied)

Section 112(D) speaks of two periods: the period of 120 days, which serves as a
waiting period to give time for the CIR to act on the administrative claim for
refund or credit, and the period of 30 days, which refers to the period for
interposing an appeal with the CTA. It is with the 30-day period that there is an
issue in this case.
The CTA En Banc’s holding is that, since the word "or" – a disjunctive term that
signifies dissociation and independence of one thing from another – is used in
Section 112(D), the taxpayer is given two options: 1) file an appeal within 30
days from the CIR’s denial of the administrative claim; or 2) file an appeal with
the CTA after expiration of the 120-day period, in which case the 30-day appeal
period does not apply. The judicial claim is seasonably filed so long as it is filed
after the lapse of the 120-day waiting period but before the lapse of the two-year
prescriptive period under Section 112(A).46

We do not agree.

The 30-day period applies not only to instances of actual denial by the CIR of the
claim for refund or tax credit, but to cases of inaction by the CIR as well. This is
the correct interpretation of the law, as held in San Roque:47

Section 112(C)48 also expressly grants the taxpayer a 30-day period to appeal to

the CTA the decision or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.

This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30 days from receipt of the
Commissioner's decision, or if the Commissioner does not act on the taxpayer's
claim within the 120-day period, the taxpayer may appeal to the CTA within 30
days from the expiration of the 120-day period. (Emphasis supplied)

The San Roque pronouncement is clear. The taxpayer can file the appeal in one
of two ways: (1) file the judicial claim within thirty days after the Commissioner
denies the claim within the 120-day period, or (2) file the judicial claim within
thirty days from the expiration of the 120-day period if the Commissioner does
not act within the 120-day period.

B. The Judicial Claim Was Belatedly Filed

In this case, the facts are not up for debate. Mindanao II filed its administrative
claim for refund or credit for the second, third, and fourth quarters of 2004 on 6
October 2005. The CIR, therefore, had a period of 120 days, or until 3 February
2006, to act on the claim. The CIR, however, failed to do so. Mindanao II then
could treat the inaction as a denial and appeal it to the CTA within 30 days from 3
February 2006, or until 5 March 2006.

Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days
after the lapse of the 30-day period on 5 March 2006. The judicial claim was
therefore filed late. (See timeline below.)
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional

However, what is up for debate is the nature of the 30-day time requirement. The
CIR posits that it is mandatory. Mindanao II contends that the requirement of
judicial recourse within 30 days is only directory and permissive, as indicated by
the use of the word "may" in Section 112(D).49

The answer is found in San Roque. There, we declared that the 30-day period to
appeal is both mandatory and jurisdictional:

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to
the CTA the decision or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis
doctrine, this law should be applied exactly as worded since it is clear, plain, and
unequivocal. As this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30 days from receipt of the
Commissioner's decision, or if the Commissioner does not act on the taxpayer's
claim within the 120-day period, the taxpayer may appeal to the CTA within 30
days from the expiration of the 120-day period.

xxxx

Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or
credit at anytime within the two-year prescriptive period. If he files his claim on
the last day of the two-year prescriptive period, his claim is still filed on time. The
Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that
day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is
not only the plain meaning but also the only logical interpretation of Section
112(A) and (C).

xxxx

When Section 112(C) states that "the taxpayer affected may, within thirty (30)
days from receipt of the decision denying the claim or after the expiration of the
one hundred twenty-day period, appeal the decision or the unacted claim with the
Court of Tax Appeals," the law does not make the 120+30 day periods optional
just because the law uses the word " may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30
days from receipt of the decision, or within 30 days from the expiration of the
120-day period. x x x.50

D. Exception to the mandatory and jurisdictional nature of the 120+30 day period
not applicable

Nevertheless, San Roque provides an exception to the mandatory and

jurisdictional nature of the 120+30 day period ─ BIR Ruling No. DA-489-03 dated
10 December 2003. The BIR ruling declares that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of Petition for Review."

Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well
as necessary to dwell on this issue to determine whether this case falls under the
exception.

For this question, we come back to San Roque, which provides that BIR Ruling
No. DA-489-03 is a general interpretative rule; thus, taxpayers can rely on it from
the time of its issuance on 10 December 2003 until its reversal by this Court in
Aichi on 6 October 2010, when the 120+30 day periods were held to be
mandatory and jurisdictional. The Court reasoned as follows:

Taxpayers should not be prejudiced by an erroneous interpretation by the

Commissioner, particularly on a difficult question of law. The abandonment of the
Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers
similarly situated, being made to return the tax refund or credit they received or
could have received under Atlas prior to its abandonment. This Court is applying
Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the
reversal by this Court of a general interpretative rule issued by the
Commissioner, like the reversal of a specific BIR ruling under Section 246,
should also apply prospectively. x x x.

xxxx

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general
interpretative rule applicable to all taxpayers or a specific ruling applicable only to
a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a

response to a query made, not by a particular taxpayer, but by a government
agency tasked with processing tax refunds and credits, that is, the One Stop
Shop Inter-Agency Tax Credit and Drawback Center of the Department of
Finance . This government agency is also the addressee, or the entity responded
to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions
in its query to the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what to do in
cases like the tax claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on
10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are mandatory and
jurisdictional.51

Thus, in San Roque, the Court applied this exception to Taganito Mining
Corporation (Taganito), one of the taxpayers in San Roque. Taganito filed its
judicial claim on 14 February 2007, after the BIR ruling took effect on 10
December 2003 and before the promulgation of Mirant. The Court stated:

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after
the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly,
Taganito can claim that in filing its judicial claim prematurely without waiting for
the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus,
Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity.52

San Roque was also careful to point out that the BIR ruling does not retroactively
apply to premature judicial claims filed before the issuance of the BIR ruling:

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four
reasons: first, it is admittedly an erroneous interpretation of the law; second, prior
to its issuance, the BIR held that the 120-day period was mandatory and
jurisdictional, which is the correct interpretation of the law; third, prior to its
issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial
claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax
exemption, is strictly construed against the taxpayer.53

Thus, San Roque held that taxpayer San Roque Power Corporation, could not
seek refuge in the BIR ruling as it jumped the gun when it filed its judicial claim
on 10 April 2003, prior to the issuance of the BIR ruling on 10 December
2003.1âwphi1 The Court stated:

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it
filed its judicial claim prematurely on 10 April 2003, before the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot
claim that it was misled by the BIR into filing its judicial claim prematurely
because BIR Ruling No. DA-489-03 was issued only after San Roque filed its
judicial claim. At the time San Roque filed its judicial claim, the law as applied
and administered by the BIR was that the Commissioner had 120 days to act on
administrative claims. This was in fact the position of the BIR prior to the
issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the
benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the
CTA, or before the Commissioner.54

San Roque likewise ruled out the application of the BIR ruling to cases of late
filing. The Court held that the BIR ruling, as an exception to the mandatory and
jurisdictional nature of the 120+30 day periods, is limited to premature filing and
does not extend to late filing of a judicial claim. Thus, the Court found that since
Philex Mining Corporation, the other party in the consolidated case San Roque,
filed its claim 426 days after the lapse of the 30-day period, it could not avail itself
of the benefit of the BIR ruling:
Philex’s situation is not a case of premature filing of its judicial claim but of late
filing, indeed

Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial
claim, which means non-exhaustion of the 120-day period for the Commissioner
to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling
No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it
long after the lapse of the 30-day period following the expiration of the 120-day
period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day
period.55

We sum up the rules established by San Roque on the mandatory and

jurisdictional nature of the 30-day period to appeal through the following timeline:

Bearing in mind the foregoing rules for the timely filing of a judicial claim for
refund or credit of unutilized input VAT, we rule on the present case of Mindanao
II as follows:

We find that Mindanao II’s situation is similar to that of Philex in San Roque.

As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July
2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10 December
2003, but before its reversal on 5 October 2010. However, while the BIR ruling
was in effect when Mindanao II filed its judicial claim, the rule cannot be properly
invoked. The BIR ruling, as discussed earlier, contemplates premature filing. The
situation of Mindanao II is one of late filing. To repeat, its judicial claim was filed
on 21 July 2006 – long after 5 March 2006, the last day of the 30-day period for
appeal. In fact, it filed its judicial claim 138 days after the lapse of the 30-day
period. (See timeline below)

E. Undersigned dissented in San Roque to the retroactive application of the

mandatory and jurisdictional nature of the 120+30 day period.

It is worthy to note that in San Roque, this ponente registered her dissent to the
retroactive application of the mandatory and jurisdictional nature of the 120+30
day period provided under Section 112(D) of the Tax Code which, in her view, is
unfair to taxpayers. It has been the view of this ponente that the mandatory
nature of 120+30 day period must be completely applied prospectively or, at the
earliest, only upon the finality of Aichi in order to create stability and consistency
in our tax laws. Nevertheless, this ponente is mindful of the fact that judicial
precedents cannot be ignored. Hence, the majority view expressed in San Roque
must be applied.

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING

REFUND OR CREDIT OF INPUT VAT

The lessons of this case may be summed up as follows:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year
prescriptive period. (Aichi) 2. The proper reckoning date for the two-year
prescriptive period is the close of the taxable quarter when the relevant
sales were made. (San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June
2007 to 12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT
payments should be counted from the date of filing of the VAT return and
payment of the tax. (San Roque)

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial
claim within thirty days after the Commissioner denies the claim within the
120-day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within
the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction

on the part of the CIR.

3. As a general rule, the 3 0-day period to appeal is both mandatory and

jurisdictional. (Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if

filed between 10 December 2003 and 5 October 2010, when BIR Ruling
No. DA-489-03 was still in force. (San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque)

SUMMARY AND CONCLUSION

In sum, our finding is that the three administrative claims for the refund or credit
of unutilized input VAT were all timely filed, while the corresponding judicial
claims were belatedly filed.

The foregoing considered, the CT A lost jurisdiction over Mindanao Il’s claims for
refund or credit.1âwphi1 The CTA EB erred in granting these claims.
X.

Indicate whether each of the following individuals is required or not required to file an
income tax return

a) Filipino citizens residing outside the Philippines on his income from sources
outside the Philippines (1%)

b) Resident alien on income derived from sources within the Philippines (1%)

c) Resident citizen earning purely compensation income from two employers within
the Philippines whose income taxes have been correctly withheld. (1%)

d) Resident alien who fails under the classification of minimum wage earners (1%)

e) An individual whose sole income has been subjected to final withholding tax (1%)

II. RETURNS AND PAYMENT OF TAX

1. Individual Return (Sec. 51, Sec. 56)

a. Who are required to file

The following individuals are required to file an income tax return:

(a) Citizen residing in the Philippines
(b) Citizen residing outside the Philippines, on his income from sources within the
Philippines
(c) Resident alien, on income derived from sources within the Philippines
(d) Nonresident alien engaged in trade or business or in the exercise of
profession in the Philippines

b. Those not required to file

(a) Individual whose gross income does not exceed his total personal and
additional exemptions for dependents (but citizens and any alien individual
engaged in business or practice of profession within the Philippines shall file an
ITR regardless of the amount of gross income)
(b) Individual with respect to pure compensation income, from sources within the
Philippines, the income tax on which has been correctly withheld (but an
individual deriving compensation concurrently from two or more employers at any
time during the taxable year shall file an ITR. An individual whose pure
compensation income derived from sources within the Philippines exceeds P
60,000 shall also file an ITR)
(c) Individual whose sole income has been subjected to final withholding tax
(d) Individual exempt from income tax

Who Are Required To File Income Tax Returns

Individuals/Resident citizens receiving income from sources within or outside the
Philippines

employees deriving purely compensation income from 2 or more employers,

concurrently or successively at anytime during the taxable year

employees deriving purely compensation income regardless of the amount,

whether from a single or several employers during the calendar year, the income
tax of which has not been withheld correctly (i.e. tax due is not equal to the tax
withheld) resulting to collectible or refundable return

self-employed individuals receiving income from the conduct of trade or business

and/or practice of profession individuals deriving mixed income, i.e.,
compensation income and income from the conduct of trade or business
and/or practice of profession

individuals deriving other non-business, non-professional related income in

additionto compensation income not otherwise subject to a final tax
 
individuals receiving purely compensation income from a single employer,
although the income of which has been correctly withheld, but whose spouse is
not entitled to substituted filing marginal income earners Non-resident citizens
receiving income from sources within the Philippines Aliens, whether resident or
not, receiving income from sources within the Philippines Corporation shall
include partnerships, no matter how created or organized. Domestic corporations
receiving income from sources within and outside the Philippines Foreign
corporations receiving income from sources within the Philippines Estates and
trusts engaged in trade or business Annual Income Tax For Individuals Earning
Purely Compensation Income (Including Non-Business/Non-Profession Related
Income) and For Marginal Income Earners

XI.

What are de minimis benefits and how are these taxed? Give three (3) examples of de
minimis benefits. (4%)

Are benefits which are relatively small in value given to employees by employers
to uplift health, well-being or done for good-will and are generally exempt from
taxation as in withholding or fringe benefits tax. Ex. Vacation leave that has been
monetized not exceeding 10k php, monthly rice allowance amounting to 1.5k
php, clothing allowance not exceeding 5k per year.

XII.

Mr. H decided to sell the house and lot wherein he and his family have lived for the past 10
years, hoping to buy and move to a new house and lot closer to his children’s school.
Concerned about the capital gains tax that will be due on the sale of their house, Mr. H
approaches you as a friend for advice if it is possible for the sale of their house to be
exempted from capital gains tax and the conditions they must comply with to avail
themselves of said exemption. How will you respond? (4%)
In order that the sale of his residential house and lot may be exempted from the
capital gains tax, he should fulfill the following requisites:
1) Said house should be a residential house

2) He should utilized the proceeds from the sale of the house and lot within 18
months from such sale.

3) He should use ALL the proceeds from said sale in acquiring a new residential
house. Any amount not utilized shall be subject to a 6% Capital Gains Tax 

4) He should inform the BIR in writing of his intention to avail of the exemption
within 30 days from date of sale.

5) Said exemption can only be availed of once every 10 years.

What is Capital Gains Tax (CGT) on the sale of real estate?

Basically, the seller of a real property considered as a capital asset will be
subject to CGT. However, if the capital asset sold is the seller’s own principal
residence, the sale may be exempt from CGT. CGT is computed at 6% of the
highest among the BIR zonal value, tax declaration value, or selling price, so the
tax savings may be significant.

Just to give you an idea, for the sale of a P1 million property (assuming this is the
fair value), the CGT is P60,000. For a P10 million property, the CGT is P600,000.
I think the savings may really be significant so it pays to learn about this tax
saving opportunity.

What is a Principal Residence?

Section 2(2) of Revenue Regulations (RR) No. 13-99, as amended by RR No.
14-00, defines “principal residence” as:

“the dwelling house, including the land on which it is situated, where the husband
and wife or an unmarried individual, whether or not qualified as head of family,
and members of his family reside. Actual occupancy of such principal residence
shall not be considered interrupted or abandoned by reason of the individual’s
temporary absence therefrom due to travel or studies or work abroad or such
other similar circumstances. Such principal residence must be characterized by
permanency in that it must be the dwelling house in which, whenever absent, the
said individual intends to return.”

In other words, the principal residence is the seller’s family home. There may be
times when the owner wants to sell his old home and buy a new one in a new
place, or maybe a bigger one to accommodate a growing family. There may also
be times when owners of a big house experience an “empty nest” feeling as their
children have their own lives, so they want to live in a smaller house or maybe
even a condominium unit near a hospital or places of interest.
Please note that as per RR 14-00. the residential address shown in the latest
income tax return filed by the vendor/transferor immediately preceding the date
of sale of the said real property shall be treated as a conclusive presumption
about his true residential address.

Thus, if you plan to avail of the CGT exemption on the sale of real property,
make sure that your address in your latest tax return is the address of the
property to be sold.

Basic Requirements to Avail of CGT exemption

The following are the criteria as summarized by the BIR website (emphasis
mine):

 The proceeds of the sale of the principal residence have been fully utilized
in acquiring or constructing new principal residence within eighteen (18)
calendar months from the date of sale or disposition;
 The historical cost or adjusted basis of the real property sold or disposed
will be carried over to the new principal residence built or acquired;
 The Commissioner has been duly notified, through a prescribed
return, within thirty (30) days from the date of sale or disposition of the
person’s intention to avail of the tax exemption;
 Exemption was availed only once every ten (10) years;
 If there is no full utilization of the proceeds of sale or disposition, the
portion of the gain presumed to have been realized from the sale or
disposition will be subject to Capital Gains Tax.
 In case of sale/transfer of principal residence, the Buyer/Transferee shall
withhold from the seller and shall deduct from the agreed selling
price/consideration the 6% capital gains tax which shall be deposited in
cash or manager’s check in interest-bearing account with an Authorized
Agent Bank (AAB) under an Escrow Agreement between the concerned
Revenue District Officer, the Seller and the Transferee, and the AAB to the
effect that the amount so deposited, including its interest yield, shall only be
released to such Transferor upon certification by the said RDO that the
proceeds of the sale/disposition thereof has, in fact, been utilized in the
acquisition or construction of the Seller/Transferor’s new principal residence
within eighteen (18) calendar months from date of the said sale or
disposition. The date of sale or disposition of a property refers to the date of
notarization of the document evidencing the transfer of said property. In
general, the term “Escrow” means a scroll, writing or deed, delivered by the
grantor, promisor or obligor into the hands of a third person, to be held by the
latter until the happening of a contingency or performance of a condition, and
then by him delivered to the grantee, promise or obligee.
The requirements are quite straightforward except for that part about the 6%
CGT being set aside and put in “escrow” with an Authorized Agent Bank (AAB).
Escrow is not a very common scheme done in the Philippines but admittedly, it is
a good way to ensure that the tax exemption will only be availed by those who
complied with all conditions set.

Perhaps in the past, when escrow was not yet required, there may have been
some people who availed of the tax exemption but did not really fufill the
conditions set. It may have been hard for the BIR to run after the unpaid CGT
since no amount was set aside to answer for it.

With the current set-up, should the conditions not be met, it would be easy for the
BIR to assess the deficiency CGT and collect the original CGT due because they
need only to give instructions to the bank to forfeit the amount (or a portion of the
amount) in escrow.

Requirements to get a CAR for the sale of a Principal Residence

One of the major requirements before a person can transfer a title to a property
to his or her name is the Certificate Authorizing Registration (CAR) and Tax
Clearance from the BIR. Check out the documentary requirements below to see
if the sale of your principal residence qualifies for CGT exemption. (click to
enlarge)

Checklist of Documentary Requirements – Sale of Principal Residence

 Click here to download a PDF version of the checklist

Sample computations and other details

For sample computations, we shall refer to Sections 4 and 5 of RR 13-99, which I
have quoted below:
SECTION 4. Determination of Capital Gains Tax Due if the Proceeds of
Sale, Exchange or Disposition of his Principal Residence has not Been Fully
Utilized. — In a case where the entire proceeds of sale is not utilized for the
purchase or construction of a new principal residence, the capital gains tax shall
attach. In computing the capital gains tax due on the sale of the principal
residence, we follow the following steps:

(1) Determine the percentage (%) of non-utilization applying the formula:

Unutilized Portion of GSP

_______________________________
= Percentage (%) of Non-Utilization
_

GSP

(2) Multiply the % of non-utilization by the GSP or FMV, whichever is higher.

(3) Multiply the product in item (2) above by the rate of six percent (6%).

If the seller fails to utilize the proceeds of sale or disposition in full or in part
within the 18-month reglementary period, his right of exemption from the capital
gains tax did not arise to the extent of the unutilized amount, in which event, the
tax due thereon shall immediately become due and demandable on the 31st day
after the date of the sale, exchange or disposition of principal residence. As such,
he shall file his capital gains tax return covering the sale, exchange or disposition
of his principal residence and pay the deficiency capital gains tax inclusive of the
twenty five percent (25%) surcharge for late payment of the tax plus twenty
percent (20%) delinquency interest per annum incident to such late payment
computed on the basis of the basic tax assessed. The interest shall be imposed
from the thirty-first (31st) day after the date of the sale of principal residence until
the date of payment, provided, that the date of sale shall mean the date of
notarization of the document of sale, exchange, or disposition of principal
residence.

Illustrations:

(1) In case the proceeds from the sale, exchange or disposition of his principal
residence has been fully utilized to acquire his new principal residence.
— Assume that Mr. Arnold Buendia acquired his principal residence in 1986 at a
cost of P1,000,000.00. He sold the said property on January 1, 1998, with a fair
market value of P5,000,000.00, for a consideration of P4,000,000.00. Within the
18-month reglementary period, he purchased his new principal residence at a
cost of P7,000,000.00.

Computations:

Historical cost of old principal residence P1,000,000.00

Gross selling price (GSP) P4,000,000.00
Fair market value (FMV) of old principal residence at the time of sale P5,000,000.00
Cost to acquire new principal residence P7,000,000.00
~

(a) To compute for the capital gains tax due. — In this case, Mr. Buendia shall be
exempt from the capital gains tax otherwise due from him since the entire
proceeds of the sale has been fully utilized to acquire his new principal
residence.

(b) To compute for the basis of the new principal residence. — The historical cost or adjusted
cost basis of his old principal residence shall be carried over to the cost basis of his new principal
residence, computed as follows:

Historical cost of old principal residence P1,000,000.00

Add: Additional cost to acquire new principal

residence
Cost to acquire his new principal residence P7,000,000.00

Less: GSP of his old principal residence (P4,000,000.00) P3,000,000.00

Adjusted Cost Basis of New Principal Residence P4,000,000.00

(2) In case the fair market value of the old principal residence is equal to the cost
to acquire the new principal residence. — Using the above illustration, if for
example, instead of P7,000,000.00, Mr. Buendia was able to acquire his new
principal residence at a cost of P4,000,000.00, which is equal to the gross selling
price of his old principal residence.

(a) To compute for the capital gains tax due. — In this case, Mr. Buendia is still
exempt from the payment of the capital gains tax otherwise due from him
because there has been full utilization of the proceeds from the sale of his old
principal residence within the 18-month reglementary period.
(b) To compute for the basis of his new principal residence. — Since the fair market value of his
old principal residence is equal to the cost to acquire his new principal residence, the historical
cost of his old principal residence shall be the basis of his new principal residence, computed as
follows:

Historical cost of old principal residence P1,000,000.00

Add: Additional cost to acquire new principal

residence
Cost to acquire his new principal residence P4,000,000.00

Less: GSP of old principal residence (P4,000,000.00)  

Adjusted Cost Basis of New Principal Residence P1,000,000.00

(3) In case the proceeds from the sale of his old principal residence has not been
fully utilized to acquire his new principal residence. — If Mr. Buendia acquired his
new principal residence within the 18-month reglementary period but did not,
however, utilize the entire proceeds of the sale in acquiring his new principal
residence because he only used P3,000,000 thereof in acquiring his new
principal residence, that portion of the gross selling price not utilized in the
acquisition or construction of his new principal residence shall be subject to
capital gains tax.

Computations:

Historical cost of old principal residence P1,000,000.00

Gross selling price (GSP) P4,000,000.00
Fair market value (FMV) of old principal residence P5,000,000.00
Cost to acquire new principal residence P3,000,000.00
~

(a) To compute for the capital gains tax due. — To compute for the capital gains
tax due, the following formula shall be used in determining capital gains tax due
on the taxable portion pertaining to the unutilized amount of the proceeds of sale:

Unutilized Portion of x   x Capital gains tax rate

GSP of Old Principal
Residence GSP or FMV of Old
Principal Residence,
__________________ whichever is higher
 _

GSP of Old Principal

Residence

(P4,000,000 – P3,000,000)

________________________
=  x P5,000,000 x 6%
_

P4,000,000

= 25%  x P5,000,000  x  6%

= P75,000.00

The capital gains tax due from Mr. Buendia for the said unutilized portion shall be P75,000 out
of the total of P300,000 capital gains tax otherwise due from the sale of his old principal
residence (i.e., P5,000,000 x 6% = P300,000). However, he shall be exempt from capital gains
tax to the extent allocable to that portion which he actually utilized to acquire his new principal
residence (i.e., capital gains tax portion of P225,000), as shown below:

Fair market value of the principal residence sold P5,000,000.00

Capital gains tax otherwise due thereon (6%) P 300,000 P300,000.00

Capital gains tax allocable to the unutilized portion 75,000 P75,000.00

Amount of exempt capital gains tax allocable to the utilized portion of P225,000.00
proceeds from sale (P3,000,000/P4,000,000 = 75% times P300,000)
~

(b) To compute for the basis of the new principal residence. — In this case, since the entire
proceeds was not utilized to acquire the new principal residence, the cost basis to be carried over
to his new principal residence shall be equivalent to the proportion of the utilized amount over
the GSP applied on the historical cost, computed as follows:

Historical cost of old principal residence P1,000,000.00

Less: Portion of historical cost pertaining to the tax paid unutilized (250,000.00)
amount (25%)
Adjusted Cost Basis of New Principal Residence P750,000.00

~
or another way for computing the adjusted cost basis of the new principal
residence is by using this formula:

Utilized Amount of GSP

__________________  Amount to be Carried

Historical Cost of Old
_ x = Over to the Cost Basis of
Principal Residence
New Principal Residence
GSP of Old Principal
Residence

applied as follows:

(P4,000,000 –
P1,000,000)

________________  x P1,000,000 =  P750,000

_

P4,000,000

SECTION 5. Disposition of the Principal Residence in Exchange for Property

Other than Cash. — (1) If the individual taxpayer’s principal residence is
disposed in exchange for a condominium unit, the disposition of the taxpayer’s
principal residence shall not be subjected to the capital gains tax herein
prescribed, provided that the said condominium unit received in the exchange
shall be used by the taxpayer-transferor as his new principal residence. In this
particular case, the exempt provision of Sec. 24(D)(2) of the 1997 Tax Code shall
only apply to the transferor of the principal residence and not to the transferee
who shall be subject to the capital gains tax in case his/its condominium unit is
treated as capital asset or to the income tax which shall be withheld in
accordance with Sec. 2.57.2(J) of Revenue Regulations No. 2-98, as amended,
in case the condominium unit is treated as an ordinary asset. However, if the
condominium unit is similarly treated by an individual owner as his principal
residence, then the same shall also be covered by the exempt provision under
Sec. 24(D)(2) of the same Code.

Example: Mr. Buendia assigned and conveyed his principal residence to ABC
Realty Corporation in exchange for a condominium unit which Mr. Buendia will
use as his new principal residence. Thus, Mr. Buendia is exempt the from
imposition of capital gains tax on the exchange of his new principal residence
while ABC Realty Corporation, on the other hand, shall be subject to income tax,
on its exchange of the condominium unit.
(2) If the said taxpayer’s principal residence is disposed of in exchange for a
parcel of land and such land received in the exchange shall be used for the
construction of his new principal residence, no income tax or capital gains tax
shall be imposed upon the owner of the principal residence. However, the owner
of the land shall be subject to capital gains tax or to income tax, as the case may
be.

(3) If in the acquisition of his new principal residence, the taxpayer exchanged his
old principal residence plus cash or other property, the unutilized portion subject
to capital gains tax shall be determined by the difference between the total
consideration made on the conveyance of old principal residence transferred
(FMV of old principal residence + cash or FMV of other property) and the total
consideration received (FMV of new principal residence) for such exchange.

Example: Mr. Buendia assigned and conveyed his principal residence with fair
market value of P4,000,000 and in addition paid P2,000,000 to acquire as new
principal residence the principal residence of Mr. Yabut. Mr. Yabut, on the other
hand, conveyed his principal residence to Mr. Buendia with fair market value of
P5,000,000, with the intention of making the property received from Mr. Buendia
as his new principal residence. The historical cost of the old principal residence
of Mr. Buendia is P1,000,000 while the historical cost of the old principal
residence of Mr. Yabut is P500,000.

(a) Computation of capital gains tax due on the exchange of property by Mr.
Buendia — No capital gains tax is due from Mr. Buendia for the reason that there
has been full utilization of the value of his old principal residence exchanged
where in addition to fair market value of his old principal residence of
P4,000,000, he still paid cash of P2,000,000 to acquire as his new principal
residence the old principal residence of Mr. Yabut valued at P5,000,000.

(b) Computation of cost basis of the new principal residence of Mr. Buendia —

Historical cost of old principal residence P1,000,000.00

Add: Additional cost to acquire new principal

residence
Cost to acquire his new principal residence P6,000,000.00

Less: FMV of old principal residence at the time of (P4,000,000.00) 2,000,000.00

exchange
Adjusted Cost Basis of New Principal Residence P3,000,000.00
~

(c) Computation of capital gains tax due from Mr. Yabut — Mr. Yabut shall be
liable to capital gains tax to the extent of the unutilized portion of the total value
of consideration received in the exchange which is computed as follows:

(P6,000,000 – P5,000,000)

___________________________
 = x  P6,000,000  x  6%
_

P6,000,000

P1,000,000

___________________________
= x  P6,000,000 x  6%
_

P6,000,000

 = P60,000.00

(d) Computation of the adjusted cost basis of the new principal residence of Mr.
Yabut — In computing for the adjusted cost basis of the new principal residence
of Mr. Yabut, only that portion of historical cost corresponding to the unutilized
portion of the value received shall be considered. In this case, the adjusted cost
basis of the new principal residence is computed as follows:

P5,000,000

_______________________
 =  x  P500,000
_

P6,000,000

 = P416,667

In order to avail of the tax exemption from capital gains tax with respect to such
exchanges, the aforesaid taxpayer is nevertheless required to acquire his new
principal residence within the eighteen (18) month reglementary period,
otherwise, he shall be liable to pay the capital gains tax on the disposition of his
principal residence.
In all cases of exchange of principal residence for another real property, the
liability of documentary stamp tax provided under Sec. 196 of the 1997 Code
shall accrue to both parties involved in the exchange.

XV.

In 2012, Dr. K decided to return to his hometown to start his own practice. At the end of
2012, Dr. K found that he earned gross professional income in the amount of
P1,000,000.00; while he incurred expenses amounting to P560,000.00 constituting mostly
of his office space rent, utilities and miscellaneous expenses related to his medical practice.
However, to Dr. K’s dismay, only P320,000.00 of his expenses were duly covered by
receipts. What are the options available for Dr. K so he could maximize the deductions for
his gross income? (3%)

Use Optional Standard deduction which is 40% of his gross reciepts.

What are allowable deductions from gross income?

1. Optional Standard Deductions. Both individual taxpayers and corporations
have the option to claim optional standard deductions (OSD in lieu of itemized
deductions. The following are OSD for individuals and corporations:
a. OSD for individual
For individual taxpayers, a maximum of 40% of their gross sales or gross
receipts shall be allowed as deduction instead of the itemized deduction. This
type of deduction shall not be allowed for non-resident aliens engaged in trade or
business.
b. OSD for corporations
RA 9504, which was approved effective July 2008, gives corporate taxpayers an
option to claim optional standard deduction (OSD) instead of itemized
deductions. OSD is equivalent to 40% of gross income. Once the option to use
OSD is made, it shall be irrevocable for the taxable year for which the option was
made. A corporation who availed and claimed this deduction is still required to
submit its financial statements when it files its annual tax return and to keep such
records pertaining to its gross income.
2. Itemized deductions. These deductions from gross income include all
ordinary and necessary trade and business expenses paid or incurred during the
taxable year in carrying on or which are directly attributable to the development,
management, operation and/or conduct of the trade and business. Itemized
deductions include the following:
a)      Expenses
b)      Salaries
c)      Interest *
d)      Travel
e)      Rental expenses
f)       Entertainment expenses *
g)      Taxes *
h)      Losses
i)        Bad Debts *
j)        Depreciation
k)      Depletion of Oil and Gas Wells and Mines
l)        Charitable Contributions and Other Contributions *
m)    Research and Development
n)      Pension Trusts
o)      Premium payments on health/ or hospitalization insurance *
p)      and other expenses that may be allowed as itemized deductions by the
NIRC
Important Note: Certain expenses, such as interest, bad debts, taxes,
entertainment and other expenses have been set with limitations and exemptions
in claiming as deductions against the taxable income. To learn more on the
limitations, tax arbitrage and exemptions on those expenses, please read our
article “ allowable deductions in the Philippines”.Premium payment on health
and/or hospitalization insurance of an individual taxpayer, including his family, in
the amount of P= 2,400 per year, per family, may be deducted from his gross
income: Provided, that said taxpayer, including his family, has a yearly gross
income of not more than P= 250,000. In case of married taxpayers, only the
spouse claiming the additional exemption for dependents shall be entitled to this
deduction.
 
Personal and Additional Exemptions
As discussed earlier, individual taxpayers may claim personal and addition
exemptions as follows:
1. Personal exemption
For single individual or married individual judicially decreed as legally separated
with no qualified dependents………………………………………P 50,000.00
For head of family……………………………P 50,000.00
For each married individual *…………P 50,000.00
Note: In case of married individuals where only one of the spouses is deriving
gross income, only such spouse will be allowed to claim the personal exemption.
2. Additional exemption.
For each qualified dependent, a P25,000 additional exemption can be claimed
but only up to 4 qualified dependents. The additional exemption can be claimed
by the following:
 The husband who is deemed the head of the family unless he explicitly
waives his right in favor of his wife
 The spouse who has custody of the child or children in case of legally
separated spouses. Provided, that the total amount of additional exemptions
that may be claimed by both shall not exceed the maximum additional
exemptions allowed by the Tax Code.
 The individuals considered as Head of the Family supporting a qualified
dependent
Note: Dependent Child” means a legitimate, illegitimate or legally adopted child
chiefly dependent upon and living with the taxpayer if such dependent is not
more than twenty-one (21) years of age, unmarried and not gainfully employed or
if such dependent, regardless of age, is incapable of self-support because of
mental or physical defect.

XVIII.

Under the Tariff and Customs Code, as amended:

a) When does importation begin and when is it deemed terminated? (2%)

b) In what case/s is the decision of the Collector automatically reviewed by the

Commissioner of Customs? In what instance/s is the decision of the Commissioner
automatically appealed to the Secretary of Finance? (4%)
A. Importation begins when the carrying vessel or aircraft enters the jurisdiction
of the Philippines with intention to unlade therein. Importation is deemed
terminated upon payment of duties, taxes and other charges due upon the
articles, or sec be paid, at a port of entry and the legal permit for withdrawal shall
have been granted, or in case said are free of duties, taxes and other charges,
until they have legally left the jurisdiction of the customs.SEC 1202 TCCP

B) "Sec. 2313. Review by Commissioner. — The person aggrieved by

the decision or action of the Collector in any matter presented upon
protest or by his action in any case of seizure may, within fifteen
(15) days after notification in writing by the Collector of his action
or decision, file a written notice to the Collector with a copy
furnished to the Commissioner of his intention to appeal the action
or decision of the Collector to the Commissioner. Thereupon the
Collector shall forthwith transmit all the records of the proceedings
to the Commissioner, who shall approve, modify or reverse the
action or decision of the Collector and take such steps and make
such orders as may be necessary to give effect to his
decision:Provided, That when an appeal is filed beyond the period
herein prescribed, the same shall be deemed dismissed. 
"If in any seizure proceedings, the Collector renders a decision
adverse to the Government, such decision shall be automatically
reviewed by the Commissioner and the records of the case elevated
within five (5) days from the promulgation of the decision of the
Collector. The Commissioner shall render a decision of the
automatic appeal within thirty (30) days from receipt of the records
of the case. If the Collector's decision is reversed by the
Commissioner, the decision of the Commissioner shall be final and
executory. However, if the Collector's decision is affirmed, or if
within thirty (30) days from receipt of the records of the case by the
Commissioner no decision is rendered or the decision involves
imported articles whose published value is Five million pesos
(P5,000,000) or more, such decision shall be deemed automatically
appealed to the Secretary of Finance and the records of the
proceedings shall be elevated within five (5) days from the
promulgation of the decision of the Commissioner or of the
Collector under appeal, as the case may be: Provided, further, That
if the decision of the Commissioner or of the Collector under appeal,
as the case may be, is affirmed by the Secretary of Finance, or if
within thirty (30) days from receipt of the records of the
proceedings by the Secretary of Finance, no decision is rendered,
the decision of the Secretary of Finance, or of the Commissioner, or
of the Collector under appeal, as the case may be, shall become final
and executory.
"In any seizure proceeding, the release of imported articles shall not
be allowed unless and until a decision of the Collector has been
confirmed in writing by the Commissioner of Customs."

Forfeiture and Protest Cases included

Protest Procedure
1.) Pay the customs, duties, fees, etc. under protest
2.) File a written protest with the Collector of Customs during payment
or within 15 days from payment.
3.) When the collector receives the protest, he has 15 days to set a
hearing. After the hearing, he has 30 days to decide.
4.) If the collector gives and unfavorable decision, make an appeal to
the Commissioner of Customs within 15 days from receipt of the
decision. If he didn't act, make the appeal before the 30-day period
expires.
5.) If the commissioner's decision isn't favorable either, go on review
to the CTA in division within 30 days of receipt of the commissioner's
decision.
6.) If still unfavorable, file a Motion for Reconsideration or Motion for
New Trial within 15 days from receiving the CTA decision.
7.) If still unfavorable, go on review by the CTA en banc within 15
days from receiving the decision.
8.) If still unfavorable, file a motion for reconsideration or new trial
with the CTA en banc within 15 days from receipt of the decision.
9.) If still unfavorable (!) go to the Supreme Court for review
on certiorari within 15 days from receiving the CTA's decision.

Decisions of the Collector of Customs in favor of the importer/owner of

the goods are automatically reviewable by the Commissioner of
Customs. If still favorable to the owner/importer, they're automatically
reviewed by the Secretary of Finance. If neither the commissioner nor
the secretary makes a decision within 30 days from receipt of the case
records, the collector's decision becomes final and executory.

The ruling of the Collector of Customs becomes final and executory

(except in the fixing of fines in seizure cases) in any of the following
instances:

1.) No protest is filed at the time of payment or within 15 days after

payment
2.) The decision of the Collector of Customs wasn't appealed to the
Commissioner of Customs within 15 days after notification of the
decision
3.) If there was no appeal to the CTA within 30 days from receipt of
the commissioner's decision

Seizure and Forefeiture

1.) If after the hearing following the seizure of the articles in question
the collector of customs gives an unfavorable decision, appeal to the
commissioner of customs within 15 days from the receipt of the
decision.
2.) If the commissioner gives an unfavorable decision, you have 30
days from the date you received the decision to go on review with the
CTA in division.
3.) Everything follows steps 6 to 8 of the above steps.
If the collector of customs rules against the government, either of the
following will happen:

1.) If the amount in question is less than Php5,000,000.00 the case

goes on automatic review by the commissioner. If the commissioner
doesn't act or rules against the government, the case is automatically
reviewed by the Secretary of Finance.

2.) If the amount is more than Php5,000,000.00 the case is

automatically reviewed by the secretary. He has 30 days to decide. If
the secretary doesn't act, the decision becomes final. The same goes
for a favorable decision. If unfavorable, the importer must go to the
CTA. Follow the same steps as before, in this case.

Forfeiture proceedings are in rem and directed against the res. Lack of

knowledge by the owner doesn't necessarily make the vessel immune
from forfeiture; but forfeiture of a private carrier that is used to
smuggle articles requires knowledge of the owner/agent of the
unlawful act (so if the owner didn't know, his vessel can't be forfeited.)
There isprima facie presumption that a vessel or aircraft has been used
for smuggling in the following circumstances:

1.) The conveyance was used for smuggling at least twice before
2.) The owner isn't in the business for which the conveyance was used
3.) The owner isn't in a financial position to own the conveyance (CC
vs. CTA, 138 SCRA 581)

Redemption of seized articles aren't allowed in the following instances:

1.) When there is actual fraud (not merely constructive)

2.) The importation is absolutely prohibited
3.) The release is contrary to law (Transglobe vs CA, GR 126634)

Confiscated goods can be redeemed if the taxes, fees and charges are
paid; they're not prohibited and/or there is no bad faith.

Liquidation of import entries become final and conclusive within 1 year

from the final settlement of duties and delivery of the imported articles
if there is no fraud or protest. Tentative liquidations aren't covered by
this limitation.

XIX.

In 2014, M. City approved an ordinance levying customs duties and fees on goods coming
into the territorial jurisdiction of the city. Said city ordinance was duly published on February
15, 2014 with effectivity date on March 1, 2014.

a) Is there a ground for opposing said ordinance? (2%)

 b) What is the proper procedural remedy and applicable time periods for challenging
the ordinance? (4%)

 a) Limitation on taxing power of LGUs. They cannot charge fees for the entry,
exit or pass through of goods in their jurisdiction. b) A new tax ordinance's
legality/constitutionality can be questioned with a protest to the Secretary of
Justice within 30 days from effectivity of the ordinance.
Only the bureau of customs has the exclusive jurisdiction with regards to taxing
importation

See in Italics

EVELYN ONGSUCO and ANTONIA   G.R. No. 182065

SALAYA,  
Petitioners, Present:
   
  QUISUMBING,* J.,
- versus - CARPIO,
  Chairperson,
  CHICO-NAZARIO,
HON. MARIANO M. MALONES, PERALTA, and
both in his private and official ABAD,** JJ.
capacity as Mayor of the  
Municipality of Maasin, Iloilo, Promulgated:
Respondent.  
October 27, 2009

RULING

After a close scrutiny of the circumstances that gave rise to this case, the Court
determines that there is no need for petitioners to exhaust administrative remedies before
resorting to the courts.
 
The findings of both the RTC and the Court of Appeals that petitioners Petition for
Prohibition/Mandamus in Civil Case No. 25843 was premature is anchored on Section
187 of the Local Government Code, which reads:
 
Section 187. Procedure for Approval and Effectivity of Tax
Ordinances and Revenue Measures; Mandatory Public Hearings.The
procedure for approval of local tax ordinances and revenue measures shall
be in accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the
enactment thereof:Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may
be raised on appeal within thirty (30) days from the effectivity thereof
to the Secretary of Justice who shall render a decision within sixty (60)
days from the date of receipt of the appeal: Provided, however, That such
appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee, or charge levied
 therein: Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the Secretary of Justice
acting upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction. (Emphasis ours.)
 
 
It is true that the general rule is that before a party is allowed to seek the
intervention of the court, he or she should have availed himself or herself of all the means
of administrative processes afforded him or her. Hence, if resort to a remedy within the
administrative machinery can still be made by giving the administrative officer concerned
every opportunity to decide on a matter that comes within his or her jurisdiction, then
such remedy should be exhausted first before the courts judicial power can be
sought. The premature invocation of the intervention of the court is fatal to ones cause of
action. The doctrine of exhaustion of administrative remedies is based on practical and
legal reasons. The availment of administrative remedy entails lesser expenses and
provides for a speedier disposition of controversies. Furthermore, the courts of justice, for
reasons of comity and convenience, will shy away from a dispute until the system of
administrative redress has been completed and complied with, so as to give the
administrative agency concerned every opportunity to correct its error and dispose of the
case. However, there are several exceptions to this rule. [26]
 
The rule on the exhaustion of administrative remedies is intended to preclude a
court from arrogating unto itself the authority to resolve a controversy, the jurisdiction
over which is initially lodged with an administrative body of special competence. Thus, a
case where the issue raised is a purely legal question, well within the competence; and the
jurisdiction of the court and not the administrative agency, would clearly constitute an
exception.[27] Resolving questions of law, which involve the interpretation and application
of laws, constitutes essentially an exercise of judicial power that is exclusively allocated
to the Supreme Court and such lower courts the Legislature may establish.[28]
 
In this case, the parties are not disputing any factual matter on which they still
need to present evidence. The sole issue petitioners raised before the RTC in Civil Case
No. 25843 was whether Municipal Ordinance No. 98-01 was valid and enforceable
despite the absence, prior to its enactment, of a public hearing held in accordance with
Article 276 of the Implementing Rules and Regulations of the Local Government
Code. This is undoubtedly a pure question of law, within the competence and jurisdiction
of the RTC to resolve.
 
Paragraph 2(a) of Section 5, Article VIII of the Constitution, expressly establishes
the appellate jurisdiction of this Court, and impliedly recognizes the original jurisdiction
of lower courts over cases involving the constitutionality or validity of an ordinance:
 
Section 5. The Supreme Court shall have the following powers:
 
xxxx
  
(2) Review, revise, reverse, modify or affirm on appeal or certiorari,
as the law or the Rules of Court may provide, final judgments and orders
of lower courts in:
 
(a) All cases in which the constitutionality or validity of any treaty,
international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.
(Emphases ours.)
 
 
In J.M. Tuason and Co., Inc. v. Court of Appeals,[29] Ynot v. Intermediate Appellate
Court,[30] andCommissioner of Internal Revenue v. Santos,[31] the Court has affirmed the
jurisdiction of the RTC to resolve questions of constitutionality and validity of laws
(deemed to include local ordinances) in the first instance, without deciding questions
which pertain to legislative policy.
 
Although not raised in the Petition at bar, the Court is compelled to discuss another
procedural issue, specifically, the declaration by the RTC, and affirmed by the Court of
Appeals, that petitioners availed themselves of the wrong remedy in filing a Petition for
Prohibition/Mandamus before the RTC.
 
Sections 2 and 3, Rule 65 of the Rules of the Rules of Court lay down under what
circumstances petitions for prohibition and mandamus may be filed, to wit:
 
SEC. 2. Petition for prohibition. When the proceedings of any tribunal,
corporation, board, officer or person, whether exercising judicial, quasi-
judicial or ministerial functions, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess
of jurisdiction, and there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts
with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter
specified therein, or otherwise granting such incidental reliefs as law and
justice may require.
 
SEC. 3. Petition for mandamus. When any tribunal, corporation, board,
officer or person unlawfully neglects the performance of an act which the
law specifically enjoins as a duty resulting from an office, trust, or station,
orunlawfully excludes another from the use and enjoyment of a right or
office to which such other is entitled, and there is no other plain, speedy
and adequate remedy in the ordinary course of law, the person aggrieved
thereby may file a verified petition in the proper court, alleging the facts
with certainty and praying that judgment be rendered commanding the
respondent, immediately or at some other time to be specified by the court,
to do the act required to be done to protect the rights of the petitioner, and
to pay the damages sustained by the petitioner by reason of the wrongful
acts of the respondent. (Emphases ours.)
 
  
In a petition for prohibition against any tribunal, corporation, board, or person --
whether exercising judicial, quasi-judicial, or ministerial functions -- who has acted
without or in excess of jurisdiction or with grave abuse of discretion, the petitioner prays
that judgment be rendered, commanding the respondent to desist from further proceeding
in the action or matter specified in the petition.[32] On the other hand, the remedy of
mandamus lies to compel performance of a ministerial duty.[33] The petitioner for such a
writ should have a well-defined, clear and certain legal right to the performance of the
act, and it must be the clear and imperative duty of respondent to do the act required to be
done.[34]
 
In this case, petitioners primary intention is to prevent respondent from
implementing Municipal Ordinance No. 98-01, i.e., by collecting the goodwill fees from
petitioners and barring them from occupying the stalls at the municipal public
market. Obviously, the writ petitioners seek is more in the nature of prohibition
(commanding desistance), rather than mandamus (compelling performance).
 
For a writ of prohibition, the requisites are: (1) the impugned act must be that of a
tribunal, corporation, board, officer, or person, whether exercising judicial, quasi-judicial
or ministerial functions; and (2) there is no plain, speedy, and adequate remedy in the
ordinary course of law.[35]
 
The exercise of judicial function consists of the power to determine what the law
is and what the legal rights of the parties are, and then to adjudicate upon the rights of the
parties. The term quasi-judicial function applies to the action and discretion of public
administrative officers or bodies that are required to investigate facts or ascertain the
existence of facts, hold hearings, and draw conclusions from them as a basis for their
official action and to exercise discretion of a judicial nature. In implementing Municipal
Ordinance No. 98-01, respondent is not called upon to adjudicate the rights of contending
parties or to exercise, in any manner, discretion of a judicial nature.
 
A ministerial function is one that an officer or tribunal performs in the context of a
given set of facts, in a prescribed manner and without regard for the exercise of his or its
own judgment, upon the propriety or impropriety of the act done.[36]
 
The Court holds that respondent herein is performing a ministerial function.
 
It bears to emphasize that Municipal Ordinance No. 98-01 enjoys the presumption
of validity, unless declared otherwise. Respondent has the duty to carry out the provisions
of the ordinance under Section 444 of the Local Government Code:
 
 Section 444. The Chief Executive: Powers, Duties, Functions and
Compensation. (a) The Municipal mayor, as the chief executive of the
municipal government, shall exercise such powers and perform such duties
and functions as provided by this Code and other laws.
 
(b) For efficient, effective and economical governance the purpose
of which is the general welfare of the municipality and its inhabitants
pursuant to Section 16 of this Code, the Municipal mayor shall:
 
xxxx
 
(2) Enforce all laws and ordinances relative to the governance of
the municipality and the exercise of its corporate powers provided for under
Section 22 of this Code, implement all approved policies, programs,
projects, services and activities of the municipality x x x.
 
xxxx
 
(3) Initiate and maximize the generation of resources and revenues,
and apply the same to the implementation of development plans, program
objectives sand priorities as provided for under Section 18 of this Code,
particularly those resources and revenues programmed for agro-industrial
development and country-wide growth and progress, and relative thereto,
shall:
 
xxxx
 
(iii) Ensure that all taxes and other revenues of the municipality
are collected, and that municipal funds are applied in accordance with law
or ordinance to the payment of expenses and settlement of obligations of
the municipality; x x x. (Emphasis ours.)
 
 
Municipal Ordinance No. 98-01 imposes increased rentals and goodwill fees on
stall holders at the renovated municipal public market, leaving respondent, or the
municipal treasurer acting as his alter ego, no discretion on whether or not to collect the
said rentals and fees from the stall holders, or whether or to collect the same in the
amounts fixed by the ordinance.
 
The Court further notes that respondent already deemed petitioners stalls at the
municipal public market vacated. Without such stalls, petitioners would be unable to
conduct their businesses, thus, depriving them of their means of livelihood. It is
imperative on petitioners part to have the implementation of Municipal Ordinance No.
98-01 by respondent stopped the soonest. As this Court has established in its previous
discussion, there is no more need for petitioners to exhaust administrative remedies,
considering that the fundamental issue between them and respondent is one of law, over
which the courts have competence and jurisdiction. There is no other plain, speedy, and
adequate remedy for petitioners in the ordinary course of law, except to seek from the
courts the issuance of a writ of prohibition commanding respondent to desist from
continuing to implement what is allegedly an invalid ordinance.
 
This brings the Court to the substantive issue in this Petition on the validity of
Municipal Ordinance N. 98-01.
 
Respondent maintains that the imposition of goodwill fees upon stall holders at the
municipal public market is not a revenue measure that requires a prior public
hearing. Rentals and other consideration for occupancy of the stalls at the municipal
public market are not matters of taxation.
 
Respondents argument is specious.
 
Article 219 of the Local Government Code provides that a local government unit
exercising its power to impose taxes, fees and charges should comply with the
requirements set in Rule XXX, entitled Local Government Taxation:
 
Article 219. Power to Create Sources of Revenue.Consistent with the basic
policy of local autonomy, each LGU shall exercise its power to create its
own sources of revenue and to levy taxes, fees, or charges, subject to the
provisions of this Rule. Such taxes, fees, or charges shall accrue exclusively
to the LGU. (Emphasis ours.)
 
Article 221(g) of the Local Government Code of 1991 defines charges as:
 
Article 221. Definition of Terms.
 
xxxx
 
(g) Charges refer to pecuniary liability, as rents or fees against
persons or property. (Emphasis ours.)
 
 
Evidently, the revenues of a local government unit do not consist of taxes alone,
but also other fees and charges. And rentals and goodwill fees, imposed by Municipal
Ordinance No. 98-01 for the occupancy of the stalls at the municipal public market, fall
under the definition of charges.
 
For the valid enactment of ordinances imposing charges, certain legal requisites
must be met. Section 186 of the Local Government Code identifies such requisites as
follows:
 
Section 186. Power to Levy Other Taxes, Fees or Charges.Local
government units may exercise the power to levy taxes, fees or charges on
any base or subject not otherwise specifically enumerated herein or taxed
under the provisions of the National Internal Revenue Code, as amended, or
other applicable laws: Provided, That the taxes, fees or charges shall not be
 unjust, excessive, oppressive, confiscatory or contrary to declared national
policy: Provided, further, That the ordinance levying such taxes, fees or
charges shall not be enacted without any prior public hearing
conducted for the purpose. (Emphasis ours.)
 
 
Section 277 of the Implementing Rules and Regulations of the Local Government
Code establishes in detail the procedure for the enactment of such an ordinance, relevant
provisions of which are reproduced below:
 
Section 277. Publication of Tax Ordinance and Revenue Measures.x
x x.
 
xxxx
 
(b) The conduct of public hearings shall be governed by the
following procedure:
 
xxxx
 
(2) In addition to the requirement for publication or posting, the
sanggunian concerned shall cause the sending ofwritten notices of the
proposed ordinance, enclosing a copy thereof, to the interested or affected
parties operating or doing business within the territorial jurisdiction of the
LGU concerned.
 
(3) The notice or notices shall specify the date or dates and venue of
the public hearing or hearings. The initial public hearing shall be held not
earlier than ten (10) days from the sending out of the notice or notices, or
the last day of publication, or date of posting thereof, whichever is later;
 
xxxx
 
(c) No tax ordinance or revenue measure shall be enacted or
approved in the absence of a public hearing duly conducted in the
manner provided under this Article. (Emphases ours.)
 
 
It is categorical, therefore, that a public hearing be held prior to the enactment of
an ordinance levying taxes, fees, or charges; and that such public hearing be conducted
as provided under Section 277 of the Implementing Rules and Regulations of the Local
Government Code.
 
There is no dispute herein that the notices sent to petitioners and other stall
holders at the municipal public market were sent out on 6 August 1998, informing them
of the supposed public hearing to be held on 11 August 1998. Even assuming that
petitioners received their notice also on 6 August 1998, the public hearing was already
scheduled, and actually conducted, only five days later, on 11 August 1998. This
contravenes Article 277(b)(3) of the Implementing Rules and Regulations of the Local
Government Code which requires that the public hearing be held no less than ten
days from the time the notices were sent out, posted, or published.
 
When the Sangguniang Bayan of Maasin sought to correct this procedural defect
through Resolution No. 68, series of 1998, dated 18 September 1998, respondent vetoed
the said resolution. Although the Sangguniang Bayanmay have had the power to override
respondents veto,[37] it no longer did so.
 
The defect in the enactment of Municipal Ordinance No. 98 was not cured when
another public hearing was held on 22 January 1999, after the questioned ordinance was
passed by the Sangguniang Bayan and approved by respondent on 17 August
1998. Section 186 of the Local Government Code prescribes that the public hearing be
held prior to the enactment by a local government unit of an ordinance levying taxes,
fees, and charges.
 
Since no public hearing had been duly conducted prior to the enactment of
Municipal Ordinance No. 98-01, said ordinance is void and cannot be given any
effect. Consequently, a void and ineffective ordinance could not have conferred upon
respondent the jurisdiction to order petitioners stalls at the municipal public market
vacant.

XXII.

State the conditions for allowing the following as deductions from the gross
estate of a citizen or resident alien for the purpose of imposing estate tax:

a) Claims against the estate (2%)

b) Medical expenses (2%)

A. The liability must represent a personal obligation of the deceased at the time
of death; the obligation was contracted in good faith & for adequate and full
consideration; the claim must be a debt or claim which is valid in law and
enforceable in court; and the claim must not have been condoned by the creditor
during the lifetime of the decedent.

B. Medical expenses incurred by the decedent within one year prior to his death
which shall be duly substantiated with official receipts. Provided, that in no case
shall the deductible medical expenses exceed P500,000.