CIR. v. Yumex

COMMISSIONER OF INTERNAL REVENUE v.
YUMEX PHILIPPINES CORPORATION

G.R. No. 222476, 05 May 2021, FIRST DIVISION, (Gesmundo, CJ.)
FACTS ACCORDING TO THE GOVERNMENT:

A Notice of Informal Conference was issued by the Revenue District Officer (RDO) to
respondent informing the latter that the investigation of its accounting records for the taxable
year 2007 resulted in a preliminary assessment of income tax, value-added tax, expanded
withholding tax, fringe benefits tax, improperly accumulated earnings tax (IAET), and
compromise penalty.
Yumex Philippines Corporation (Yumex) wrote the Commissioner of Internal Revenue

(CIR) regarding its status as a corporation registered under the Philippine Economic Zone
Authority (PEZA) which allows it to enjoy payment of a special rate on registered activities;
hence, it is not subject to IAET.
A Preliminary Assessment Notice (PAN) dated December 16, 2010, with attached
Details of Discrepancies, was issued finding Yumex liable to pay deficiency income tax, fringe
benefits tax, IAET, and compromise penalty. A Formal Letter of Demand (FLD) dated January
10, 2011, was likewise issued by the RD.
On January 20, 2011, Yuemx filed a protest on the FLD.
The CIR received a letter from Yumex, stating that the latter is paying the deficiency
taxes except the IAET. The RDO acknowledged the payment but reiterated its position and
stood by the assessment of the IAET.
Thus, Yumex considered such as the CIR’s Final Decision on Disputed Assessment,
and appealed the same by filing a Petition for Review before the Court of Tax Appeals (CTA)
Division.
The CTA Division ruled in favor of Yumex and held that the subject tax assessment is
invalid and illegal because the BIR issued the FLD and the Final Assessment Notice (FAN)
without giving Yumex an opportunity to answer the PAN, which is a violation of procedural due
process.
CIR’s motion for reconsideration was denied prompting it to file a petition for review
before the CTA En Banc. The CTA En Banc affirmed the CTA Division.
ARGUMENT OF THE GOVERNMENT:

The CIR contends that the CTA En Banc erred when it affirmed the CTA Division's ruling
that the issuance of the PAN and FLD/FAN by the BIR was in violation of Yumex's right to due
process, even when Yumex did not raise the same as an issue in its petition for review before
the CTA Division.
Even granting that the aforementioned issue had been timely raised, CIR submits that
the PAN and FLD/FAN were properly issued by the BIR in compliance with RR No. 12-99. Sec.
3.1.7 of said regulations allows constructive service of the PAN by providing that "x x x if the
notice to the taxpayer herein required is served by registered mail, and no response is received
from the taxpayer within the prescribed period from date of the posting thereof in the mail, the
same shall be considered actually or constructively received by the taxpayer." CIR asserts that,
in this case, the PAN was mailed on December 17, 2010, and fifteen (15) days therefrom, the
BIR still had not received any response from Yumex.
In the alternative, CIR argued that even assuming the BIR failed to observe the due
process requirements under RR No. 12-99, Yumex had been afforded the opportunity to protest
the assessment notices.
CIR invoked Sec. 29(C)(2) of the NIRC as the legal basis for the IAET assessment
against Yumex. According to the said provision, the mere fact that earnings or profits of a
corporation are permitted to accumulate beyond the reasonable needs of the business shall be
determinative of the purpose to avoid imposing the tax upon its shareholders or members,
unless the corporation, by the clear preponderance of evidence, shall prove the contrary.
The CIR clarified that Yumex had two types of registered activities: (1) those enjoying
ITH; and (2) those under the five percent (5%) special rate. The IAET was being imposed on the
income derived from Yumex's registered activity under the ITH.
ARGUMENT OF TAXPAYER:
Yumex contends that it was denied due process by the BIR when the latter issued the
FLD/FAN without giving respondent the opportunity to answer the PAN within the period
provided in RR No. 12-99
It also averred that it raised the invalidity of the issuance of the aforesaid assessment
notices in its petition for review before the CTA Division. It specifically alleged in paragraphs 9
and 10 thereof that "[W]ithout waiting for [respondent's] receipt of the PAN and the lapse of
[respondent's] time to respond to the PAN, Regional Director Galano issued a Formal Letter of
Demand dated January 10, 2011 with an attached Details of Discrepancy. "[O]n January 18,
2011, [respondent] received the PAN as well as the Fonnal Letter of Demand and Audit
Results/Assessment Notices issued by Regional Director Galano." During the trial, respondent's
witness, Ms. Leonora Perez-Sangalang, also testified through her judicial affidavit that
respondent received the PAN and FLD/FAN on the same day.
On the legal basis of the IAET assessment, Yumex reiterated the CTA's ruling that Sec.
4 of RR No. 2-2001 exempts from IAET, without any distinction or qualification, enterprises duly
registered with PEZA under Republic Act No. 7916, such as Yumex.
ISSUES:
(1) Can the CTA Division take cognizance of the issue of the invalidity of the assessment
against Yumex for allegedly having been issued in violation of respondent's due
process;
(2) Are the PAN and FLD/FAN invalid because they were issued by the BIR in violation of
Yumex's right to due process; and
(3) Can Yumex be assessed for deficiency IAET.
RULING:
(1) YES. As the CTA En Banc held, the CTA Division was justified in ruling on the issue
that Yumex was denied due process even though it was not expressly raised by the latter in its
petition for review. Sec. 1, Rule 14 of the RRCTA provides that "[i]n deciding the case, the Court
may not limit itself to the issues stipulated by the parties but may also rule upon related issues
necessary to achieve an orderly disposition of the case." There were sufficient allegations in
respondent's petition for review on the dates of issuance by the BIR and receipt by respondent
of the PAN and FLD/FAN, as well as documentary and testimonial evidence to establish the
essential facts for resolution of the issue which were presented during the trial without any
objection from petitioner.
(2) YES. Sec. 228 of the NIRC mandates petitioner to inform the taxpayer in writing of
the law and the facts on which the assessment is made; otherwise, the assessment is void. Said
provision reads:
SECTION 228. Protesting of Assessment. — When the Commissioner or his duly

authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings:
xxx
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the

taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
To implement the procedural and substantive rules on assessment of national internal

revenue taxes, the BIR issued RR No. 12-99, Sec. 3 of which provides:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax

Assessment. —
3.1.2 Preliminary Assessment Notice (PAN). - x x x. If the taxpayer fails to

respond within fifteen (15) days from date of receipt of the PAN, he shall be
considered in default, in which case, a formal letter of demand and assessment
notice shall be caused to be issued by the said Office, calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties.
Clearly from the aforequoted provisions, the taxpayer has fifteen (15) days from date of
receipt of the PAN to respond to the said notice. Only after receiving the taxpayer's response or
in case of the taxpayer's default can respondent issue the FLD/FAN.
Per the evidence on record, the BIR issued a PAN dated December 16, 2010, which it
posted by registered mail the next day, December 17, 2010. It then issued and mailed the
FLD/FAN on January 10, 2011. Although posted on different dates, the PAN and FLD/FAN were
both received by the Post Office of Dasmariñas, Cavite, on January 17, 2011, and served upon
and received by Yumex on January 18, 2011. Under the circumstances, Yumex was not given
any notice of the preliminary assessment at all and was deprived of the opportunity to respond
to the same before being given the final assessment.
That Yumex was able to file a protest to the FLD/FAN is of no moment. In Pilipinas Shell
Petroleum Corporation v. Commissioner of Internal Revenue, the BIR ignored RR No. 12-99
and did not issue to the taxpayer, Pilipinas Shell Petroleum Corporation (PSPC), a notice for
informal conference and a PAN as required; and as a result, deprived PSPC of due process in
contesting the formal assessment levied against it. The Court pronounced therein that: "[w]hile
PSPC indeed protested the formal assessment, such does not denigrate the fact that it was
deprived of statutory and procedural due process to contest the assessment before it was
issued."
Neither does the payment by Yumex of the other items in the FLD/FAN, particularly, the
basic deficiency income and fringe benefits taxes and compromise penalty, preclude it from
questioning the validity of the issuance of the assessment notices. The manner by which the
assessment is issued is a distinct matter in itself from the contents of the assessment.
Sec. 3.1.2 of RR No. 12-99 explicitly grants the taxpayer fifteen (15) days from receipt of
the PAN to file a response. If the taxpayer fails to do so within the prescribed period, it will be
considered in default and only then shall petitioner or his duly authorized representative issue to
the taxpayer an FLD/FAN demanding payment of the assessed deficiency tax, surcharges, and
penalties. In the instant case though, the BIR did not ascertain respondent's date of receipt of
the PAN before issuing the FLD/FAN, but merely invoked Sec. 3.1.7 of RR No. 12-99 on
constructive service.
However, considering that Sec. 3.1.2 of RR No. 12-99 specifically governs the PAN
while Sec. 3.1.7 of the same regulations pertains generally to the constructive service of
notices, the former takes precedence in application to the instant case in determining the period
allotted for the taxpayer to respond to a PAN. It is a rule of statutory construction that a special
and specific provision prevails over a general provision irrespective of their relative position in
the statute.
Moreover, the reliance by the CIR and the BIR on constructive service of notice is
unavailing and not justified by the circumstances. The PAN was posted through registered mail
so there are easily records available by which the BIR could have determined whether or not
respondent actually received the notice and the date of such receipt. The BIR did not offer any
explanation as to why it did not verify first these details with the post office, which would have
been the more prudent thing to do instead of immediately considering respondent to have
already constructively received the PAN for purposes of issuing the FLD/FAN. CIR's insistence
on constructive notice is unwarranted and arbitrary when there is uncontroverted evidence of
respondent's date of actual receipt of the PAN on January 18, 2011, simultaneously with the
FLD/FAN.
(3) NO. In any event, the IAET assessment against respondent also lacked legal and
factual bases as found by both the CTA Division and En Banc. The IAET is imposed under Sec.
29 of the NIRC, which reads:
SECTION 29. Imposition of Improperly Accumulated Earnings Tax. —

(A) In General. — In addition to other taxes imposed by this Title, there is
hereby imposed for each taxable year on the improperly accumulated taxable
income of each corporation described in Subsection B hereof, an improperly
accumulated earnings tax equal to ten percent (10%) of the improperly
accumulated taxable income.
xxx
(2) Exceptions. — The improperly accumulated earnings tax as provided for

under this Section shall not apply to:
(a) Publicly-held corporations;

(b) Banks and other [non-bank] financial intermediaries; and(c) Insurance
companies.
RR No. 2-2001 particularly identified additional corporations which are not

subject to IAET, to wit:
xxx
g) Enterprises duly registered with the Philippine Economic Zone Authority

(PEZA) under R.A. 7916, and enterprises registered pursuant to the Bases
Conversion and Development Act of 1992 under R.A. No. 7227, as well as other
enterprises duly registered under special economic zones declared by law which
enjoy payment of special tax rate on their registered operations or activities in
lieu of other taxes, national or local.
The BIR, in its questioned assessment, distinguished between Yumex's income from
certain registered activities which have been granted ITH extension and its income from the rest
of its registered activities which are subject to the preferential five percent (5%) tax rate. It
argues that only the latter is exempt from IAET as the registered enterprises exempt under Sec.
4(g) of RR No. 2-2001 should all be enjoying the special tax rate.
The Court was not persuaded and found the interpretation of the CTA En Banc to be in
accord with the rules on statutory construction:
As the Court En Banc sees it, the use of comma in Section 4(g) signifies independence of
one thing from the others included in the enumeration, such that, the particular portion
contemplates three different groups excluded from the coverage of the imposition of the
improperly accumulated tax, to wit: (1) enterprises duly registered with the Philippine
Economic Zone (PEZA) under RA No. 7916; (2) enterprises registered pursuant to the
Bases Conversion and Development Act of 1992 under RA No. 7227 (BCDA); and (3)
other enterprises duly registered under special economic zones declared by law.
Moreover, qualifying words restrict or modify only the words or phrases to which they are
immediately associated, and not those distantly or remotely located. Thus, the phrase "which
enjoy payment of special tax rate on their registered operations or activities in lieu of other
taxes, national or local" applies only to corporations belonging to the third group – other
enterprises duly registered under special economic zones declared by law.
On the other hand, PEZA-registered enterprises and those registered pursuant to the
BCDA, are exempted from the imposition of the improperly accumulated earnings tax, without
further qualification
The following are prima facie instances of accumulation of profits beyond the reasonable
needs of a business and indicative of purpose to avoid income tax upon shareholders:
a. Investment of substantial earnings and profits of the corporation in unrelated business or in

stock or securities of unrelated business;
b. Investment in bonds and other long-term securities;
c. Accumulation of earnings in excess of 100% of paid-up capital, not otherwise intended for the
reasonable needs of the business as defined in these Regulations.
In order to determine whether profits are accumulated for the reasonable needs of the
business as to avoid the imposition of the improperly accumulated earnings tax, the controlling
intention of the taxpayer is that which is manifested at the time of accumulation, not
subsequently declared intentions which are merely the product of afterthought. A speculative
and indefinite purpose will not suffice
The BIR simply assessed respondent for IAET by imposing the ten percent (10%) IAET
tax rate on all of the latter's income from registered activities enjoying ITH without first
establishing prima facie why it deemed such income as improperly accumulated. Yumex is
clearly not a holding or investment company; and nowhere in the PAN, Details of Discrepancies,
or the FLD/FAN did the BIR expressly describe any of the prima facie instances of improperly
accumulated earnings and profits.
For its part, Yumex was able to prove that it had accumulated its earnings from previous
years for a reasonable business purpose. Yumex needed funds for a new project, i.e., the
manufacture of Heat Run Oven-Controlled Rack, which started commercial operations in June
2007 and was also duly registered with the PEZA. Yumex had to acquire new machinery and
equipment as well as a separate exclusive building space for the project.
PEN:
In this case. Both the procedural and substantive due process was in the taxpayer’s
favor.
Procedural due process was not observed because the BIR considered the constructive
notice of PAN in issuing its FLD/FAN. REMEMBER, for purposes of determining when the
prescriptive period will start to run for a taxpayer to protest an assessment, the reckoning period
shall be the actual receipt of the taxpayer of the Assessment Notice.
Here, both the PAN and the FAN was actually received by the taxpayer in the same day.
Thus, it was deprived of procedural due process to protest the same.
Assuming, without admitting, that procedural due process was observed, still, the
assessment still lacks legal basis. PEZA registered companies are exempt from IAET
without distinction as provided for under the RRs.
2. COMMISSIONER OF INTERNAL REVENUE v. AVON PRODUCTS MANUFACTURING,
INC.,
G.R. Nos. 201398-99, 03 October, 2018, THIRD DIVISION, (Leonen, J.)

Avon Products Manufacturing Inc. (Avon) filed its Value Added Tax (VAT) Returns and
Monthly Remittance Returns of Income Tax Withheld for the taxable year 1999 on October 25,
1999 and January 25, 2000. It received a Preliminary Assessment notice on December 23,
2002.
Avon signed two (2) Waivers of the Defense of Prescription dated October 14, 2002 and
December 27, 2002, which expired on January 14, 2003 and April 14, 2003, respectively.
On February 14, 2003, Avon filed a letter dated February 13, 2003 protesting against the
Preliminary Assessment Notice.
Without ruling on Avon's protest, the Commissioner prepared the Formal Letter of
Demand and Final Assessment Notices, all dated February 28, 2003, received by Avon on April
11, 2003. Except for the amount of interest, the Final Assessment Notices were the same as the
Preliminary Assessment Notice.
Avon protested the Final Assessment Notices. Avon resubmitted its protest to the
Preliminary Assessment Notice and adopted the same as its protest to the Final Assessment
Notices.
On July 14, 2004, Avon was served a Collection Letter dated July 9, 2004 . Avon
requested the reconsideration and withdrawal of the Collection Letter. It argued that it was
devoid of legal and factual basis, and was premature as the Commissioner of Internal Revenue
had not yet acted on its protest against the Final Assessment Notices.
The Commissioner did not act on Avon's request for reconsideration. Thus, Avon was
constrained to treat the Collection Letter as denial of its protest. Thus, Avon filed a Petition for
Review before the Court of Tax Appeals.
The Court of Tax Appeals (CTA) Special First Division partially granted Avon's Petition
for Review insofar as it ordered the cancellation of the Final Demand and Final Assessment
Notices for deficiency excise tax, VAT, withholding tax on compensation, and expanded
withholding tax. However, it ordered Avon to pay deficiency income tax in the amount of
P357,345.88 including 20% deficiency interest on the total amount due pursuant to Section 249,
paragraphs (b) and (c)(3) of the Tax Code. From this, both parties filed their motion for
reconsideration where both were denied.
Both parties filed their respective Petitions for Review before the CTA En Banc. The
Court of Tax Appeals En Banc denied the respective Petitions of the Commissioner and Avon,
and affirmed the Court of Tax Appeals Special First Division
Hence, the present Petitions.
ARGUMENT OF GOVERNMENT:
The Commissioner asserts that Avon is estopped from assailing the validity of the
Waivers of the Defense of Prescription as it has paid the other assessments that these waivers
covered. It also avers that Avon's right to appeal its protest before the Court of Tax Appeals has
prescribed and that the assessments have attained finality. Finally, it states that Avon is liable
for the deficiency assessments.
The Commissioner of Internal Revenue in this case asserts that since Avon filed its
protest on May 9, 2003, it only had 30 days from November 5, 2003, i.e., the end of the 180
days, or until December 5, 2003 within which to appeal to the Court of Tax Appeals. As Avon
only filed its appeal on August 13, 2004, its right to appeal has prescribed
Avon, in its separate Petition, argues that the assessments are void ab initio due to the
failure of the Commissioner to observe due process. It maintains that from the start up to the
end of the administrative process, the Commissioner ignored all of its protests and submissions.
Avon contends that it acted in good faith and in accordance with Rule 4, Section 3 of the
Revised Rules of the Court of Tax Appeals and jurisprudence when it opted to wait for the
decision of the Commissioner and appeal it within the 30-day period. Since Avon received the
Collection Letter on July 14, 2004, its Petition for Review was timely filed on August 13, 2004.
ISSUES:
(1) Did the Commissioner of Internal Revenue fail to observe administrative due process,
and consequently, are the assessments void?
(2) Is Avon Products Manufacturing, Inc., by paying the other tax assessments covered by
the Waivers of the Defense of Prescription, estopped from assailing their validity?
(3) Did Avon Products Manufacturing, Inc.'s right to appeal its protest before the Court of
Tax Appeals prescribe?
RULING:
(1) YES. The Bureau of Internal Revenue is the primary agency tasked to assess and
collect proper taxes, and to administer and enforce the Tax Code. To perform its functions of tax
assessment and collection properly, it is given ample powers under the Tax Code, such as the
power to examine tax returns and books of accounts, to issue a subpoena, and to assess based
on best evidence obtainable, among others. However, these powers must "be exercised
reasonably and [under] the prescribed procedure." The Commissioner and revenue officers
must strictly comply with the requirements of the law, with the Bureau of Internal Revenue's own
rules, and with due regard to taxpayers' constitutional rights.
The Commissioner exercises administrative adjudicatory power or quasi-judicial function

in adjudicating the rights and liabilities of persons under the Tax Code. In carrying out these
quasi-judicial functions, the Commissioner is required to "investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for
their official action and exercise of discretion in a judicial nature".
The Ang Tibay safeguards were subsequently "simplified into four basic rights," as
follows: (a) The right to notice, be it actual or constructive, of the institution of the proceedings
that may affect a person's legal right; (b) reasonable opportunity to a ppear and defend his
rights and to introduce witnesses and relevant evidence in his favor; (c) a tribunal so constituted
as to give him reasonable assurance of honesty and impartiality, and one of competent
jurisdiction; and (d) a finding or decision by that tribunal supported by substantial evidence
presented at the hearing or at least ascertained in the records or disclosed to the parties.
Saunar v. Ermita expounded on Ang Tibay by emphasizing that while administrative
bodies enjoy a certain procedural leniency, they are nevertheless obligated to inform
themselves of all facts material and relevant to the case, and to render a decision based on an
accurate appreciation of facts.
Section 228 of the Tax Code, as implemented by Revenue Regulations No. 12-99,
provides certain procedures to ensure that the right of the taxpayer to procedural due process is
observed in tax assessments, thus: “Section 228. Protesting of Assessment. — When the
Commissioner or his duly authorized representative finds that proper taxes should be assessed,
he shall first notify the taxpayer of his findings: xxx The taxpayers shall be informed in writing of
the law and the facts on which the assessment is made; otherwise, the assessment shall be
void.”
Section 3 of Revenue Regulations No. 12-99 prescribes the due process requirement for
the four (4) stages of the assessment process:
Section 3. Due Process Requirement in the Issuance of a Deficiency Tax

Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment: 3.1.1

Notice for informal conference. — The Revenue Officer who audited the
taxpayer's records shall, among others, state in his report whether or not the
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or
taxes. If the taxpayer is not amenable, based on the said Officer's submitted
report of investigation, the taxpayer shall be informed, in writing, by the Revenue
District Office or by the Special Investigation Division, as the case may be (in the
case Revenue Regional Offices) or by the Chief of Division concerned (in the
case of the BIR National Office) of the discrepancy or discrepancies in the
taxpayer's payment of his internal revenue taxes, for the purpose of "Informal
Conference,” in order to afford the taxpayer with an opportunity to present his
side of the case. If the taxpayer fails to respond within fifteen (15) days from date
of receipt of the notice for informal conference, he shall be considered in default,
in which case, the Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional Office.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by

the Assessment Division or by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the facts and the
law, rules and regulations, or jurisprudence on which the proposed assessment
is based xxx If the taxpayer fails to respond within fifteen (15) days from date of
receipt of the PAN, he shall be considered in default, in which case, a formal
letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties.
3.1.4 Formal Letter of Demand and Assessment Notice. —The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the
taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void.
3.1.5 Disputed Assessment. — The taxpayer or his duly authorized

representative may protest administratively against the aforesaid formal letter of
demand and assessment notice within thirty (30) days from date of receipt
thereof.
3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the

Commissioner or his duly authorized representative shall (a) state the facts, the
applicable law, rules and regulations, or jurisprudence on which such decision is
based, otherwise, the decision shall be void, in which case, the same shall not be
considered a decision on a disputed assessment; and (b) that the same is his
final decision.
"The use of the word 'shall' in Section 228 of the [National Internal Revenue Code] and
in [Revenue Regulations] No. 12-99 indicates that the requirement of informing the taxpayer of
the legal and factual bases of the assessment and the decision made against him [or her] is
mandatory."
This is an essential requirement of due process and applies to the Preliminary

Assessment Notice, Final Letter of Demand with the Final Assessment Notices, and the Final
Decision on Disputed Assessment.
The facts demonstrate that Avon was deprived of due process. It was not fully apprised
of the legal and factual bases of the assessments issued against it. The Details of Discrepancy
attached to the Preliminary Assessment Notice, as well as the Formal Letter of Demand with the
Final Assessment Notices, did not even comment or address the defenses and documents
submitted by Avon. Thus, Avon was left unaware on how the Commissioner or her authorized
representatives appreciated the explanations or defenses raised in connection with the
assessments. There was clear inaction of the Commissioner at every stage of the proceedings.
First, despite Avon's submission of its Reply, together with supporting documents, to the
revenue examiners' initial audit findings, and its explanation during the informal conference, the
Preliminary Assessment Notice was issued. The Preliminary Assessment Notice reiterated the
same audit findings, without any discussion or explanation on the merits of Avon's explanations.
Upon receipt of the Preliminary Assessment Notice, Avon submitted its protest letter and
supporting documents, and even met with revenue examiners to explain. Nonetheless, the
Bureau of Internal Revenue issued the Final Letter of Demand and Final Assessment Notices,
merely reiterating the assessments in the Preliminary Assessment Notice. There was no
comment whatsoever on the matters raised by Avon, or discussion of the Bureau of Internal
Revenue's findings in a manner that Avon may know the various issues involved and the
reasons for the assessments.
The Notice of Informal Conference and the Preliminary Assessment Notice are a part of
due process. They give both the taxpayer and the Commissioner the opportunity to settle the
case at the earliest possible time without the need for the issuance of a Final Assessment
Notice. However, this purpose is not served in this case because of the Bureau of Internal
Revenue's inaction or failure to consider Avon's explanations.
Upon receipt of the Final Assessment Notices, Avon resubmitted its protest and
submitted additional documents required by the revenue examiners. Still, the Commissioner
merely issued a Collection Letter demanding from Avon the payment of the same deficiency tax
assessments with a warning that should it fail to do so within the required period, summary
administrative remedies would be instituted without further notice.
This inaction on the part of the Bureau of Internal Revenue and its agents could hardly
be considered substantial compliance of what is mandated by Section 228 of the Tax Code and
the Revenue Regulation No. 12-99.
It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as
explained by the Court of Tax Appeals. However, when he or she rejects these explanations, he
or she must give some reason for doing so. He or she must give the particular facts upon which
his or her conclusions are based, and those facts must appear in the record.
Indeed, the Commissioner's inaction and omission to give due consideration to the
arguments and evidence submitted before her by Avon are deplorable transgressions of Avon's
right to due process. The right to be heard, which includes the right to present evidence, is
meaningless if the Commissioner can simply ignore the evidence without reason.
Moreover, the Court of Tax Appeals erroneously applied the "presumption of regularity"
in sustaining the Commissioner's assessments. The presumption that official duty has been
regularly performed is a disputable presumption under Rule 131, Section 3(m) of the Rules of
Court. As a disputable presumption: [I]t may be accepted and acted on where there is no other
evidence to uphold the contention for which it stands, or one which may be overcome by other
evidence. The presumption of regularity of official acts may be rebutted by affirmative evidence
of irregularity or failure to perform a duty.”
In Sevilla v. Cardenas, the Court refused to apply the "presumption of regularity" when it
noted that there was documentary and testimonial evidence that the civil registrar did not exert
utmost efforts before certifying that no marriage license was issued in favor of one of the
parties.
Here, contrary to the ruling of the CTA, the presumption of regularity in the performance
of the Commissioner's official duties cannot stand in the face of positive evidence of irregularity
or failure to perform a duty. The Commissioner's total disregard of due process rendered the
identical Preliminary Assessment Notice, Final Assessment Notices, and Collection Letter null
and void, and of no force and effect.
In this case, Avon was able to amply demonstrate the Commissioner's disregard of the
due process standards raised in Ang Tibay and subsequent cases, and of the Commissioner's
own rules of procedure. Her disregard of the standards and rules renders the deficiency tax
assessments null and void.
(2) NO. As a general rule, petitioner has three (3) years from the filing of the return to
assess taxpayers. Section 203 of the Tax Code provides:
Section 203. Period of Limitation Upon Assessment and Collection. — Except as

provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
An exception to the rule of prescription is found m Section 222, paragraphs (b) and (d) of
the same Code, viz:
Section 222. Exceptions as to Period of Limitation of Assessment and Collection

of Taxes. — (b) If before the expiration of the time prescribed in Section 203 for
the assessment of the tax, both the Commissioner and the taxpayer have agreed
in writing to its assessment after such time, the tax may be assessed within the
period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed
upon.
Thus, the period to assess and collect taxes may be extended upon the Commissioner
and the taxpayer's written agreement, executed before the expiration of the three (3)-year
period. In this case, two (2) waivers were supposedly executed by the parties extending the
prescriptive periods for assessment of income tax, VAT, and expanded and final withholding
taxes to January 14, 2003, and then to April 14, 2003.
Indeed, a Waiver of the Defense of Prescription is a bilateral agreement between a

taxpayer and the Bureau of Internal Revenue to extend the period of assessment and collection
to a certain date. "The requirement to furnish the taxpayer with a copy of the waiver is not only
to give notice of the existence of the document but of the acceptance by the [Bureau of Internal
Revenue] and the perfection of the agreement."
Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue is not on

all fours with this case. The estoppel upheld in that case arose from the benefit obtained by the
taxpayer from its execution of the waiver, in the form of a drastic reduction of the deficiency
taxes, and the taxpayer's payment of a portion of the reduced tax assessment. In that case, the
Court explained that Rizal Commercial Banking Corporation's partial payment of the revised
assessments effectively belied its insistence that the waivers were invalid and the assessments
were issued beyond the prescriptive period.
Here, Avon claimed that it did not receive any benefit from the waivers. On the contrary,
there was even a drastic increase in the assessed deficiency taxes when the Commissioner
increased the alleged sales discrepancy from P15,700,000.00 in the preliminary findings to
P62,900,000.00 in the Preliminary Assessment Notice and Final Assessment Notices.
Furthermore, Avon was compelled to pay a portion of the deficiency assessments "in
compliance with the Revenue Officer's condition in the hope of cancelling the assessments on
the non-existent sales discrepancy."
Under these circumstances, Avon's payment of an insignificant portion of the

assessment cannot be deemed an admission or recognition of the validity of the waivers.
The Bureau of Internal Revenue could not hide behind the doctrine of estoppel to cover
its failure to comply with its own procedures. "[A] waiver of the statute of limitations [is] a
derogation of the taxpayer's right to security against prolonged and unscrupulous investigations
[and thus, it] must be carefully and strictly construed."
(3) NO. The issue on whether Avon's Petition for Review before the Court of Tax
Appeals was time-barred requires the interpretation and application of Section 228 of the Tax
Code, viz:
Section 228. Protesting of Assessment. —
xxx
Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment
shall become final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse
of the one hundred eighty (180)-day period; otherwise, the decision shall become
final, executory and demandable.
Republic Act No. 9282, or the new Court of Tax Appeals Law, which took effect on April
23, 2004, amended Republic Act No. 1125 and included a provision complementing Section 228
of the Tax Code, as follows:
Section 7. Jurisdiction. — The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
xxx
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial
Under Section 7(a)(2) above, it is expressly provided that the "inaction" of the
Commissioner on his or her failure to decide a disputed assessment within 180 days is "deemed
a denial" of the protest.
Rule 4, Section 3(a)(2) of the 2005 Court of Tax Appeals Rules clarifies Section 7(a)(2)
of Republic Act No. 9282 by stating that the "deemed a denial'' rule is only for the "purposes of
allowing the taxpayer to appeal" in case of inaction of the Commissioner and "does not
necessarily constitute a formal decision of the Commissioner." Furthermore, the same provision
clarifies that the taxpayer may choose to wait for the final decision of the Commissioner even
beyond the 180-day period, and appeal from it.
Section 228 of the Tax Code and Section 7 of Republic Act No. 9282 should be read in
conjunction with Rule 4, Section 3(a)(2) of the 2005 Court of Tax Appeals Rules. In other words,
the taxpayer has the option to either elevate the case to the Court of Tax Appeals if the
Commissioner does not act on his or her protest, or to wait for the Commissioner to decide on
his or her protest before he or she elevates the case to the Court of Tax Appeals. This
construction is reasonable considering that Section 228 states that the decision of the
Commissioner not appealed by the taxpayer becomes final, executory, and demandable.
In this case, Avon opted to wait for the final decision of the Commissioner on its protest
filed on May 9, 2003. The Collection Letter dated July 9, 2004 constitutes the final decision of
the Commissioner that is appealable to the Court of Tax Appeals. This Collection Letter
demonstrated a character of finality such that there can be no doubt that the Commissioner had
already made a conclusion to deny Avon's request and she had the clear resolve to collect the
subject taxes. Avon received the Collection Letter on July 14, 2004. Hence, Avon's appeal to
the Court of Tax Appeals filed on August 13, 2004 was not time-barred.
In any case, even if this Court were to disregard the Collection Letter as a final decision
of the Commissioner on Avon's protest, the Collection Letter constitutes an act of the
Commissioner on "other matters" arising under the National Internal Revenue Code, which,
pursuant to Philippine Journalists, Inc. v. CIR. may be the subject of an appropriate appeal
before the Court of Tax Appeals.
PEN:
Another case involving procedural due process. Here, the protests were not acted
upon by the CIR in accordance with the NIRC and is rules. Under the laws, rules and
jurisprudence, administrative agencies, such as the BIR, must afford respondents with
procedural due process which involves notice and the right to be heard. A hearing is not
necessarily needed, however, the administrative agency must consider the arguments
and evidence presented by the respondent in formulating its decision. However, such
was not done by the CIR in this case. It did not consider the evidence presented by Avon.
Moreover, with respect to waivers, such will be considered void the procedure for
it will not be followed. Here, the CIR failed to furnish Avon the copies of the waiver.
Tax assessments issued in violation of the due process rights of a taxpayer are null and
void. While the government has an interest in the swift collection of taxes, the Bureau of Internal
Revenue and its officers and agents cannot be overreaching in their efforts, but must perform
their duties in accordance with law, with their own rules of procedure, and always with regard to
the basic tenets of due process. The 1997 National Internal Revenue Code, also known as the
Tax Code, and revenue regulations allow a taxpayer to file a reply or otherwise to submit
comments or arguments with supporting documents at each stage in the assessment process.
Due process requires the Bureau of Internal Revenue to consider the defenses and evidence
submitted by the taxpayer and to render a decision based on these submissions. Failure to
adhere to these requirements constitutes a denial of due process and taints the administrative
proceedings with invalidity.
Under Section 7(a)(2) above, it is expressly provided that the "inaction" of the
Commissioner on his or her failure to decide a disputed assessment within 180 days is "deemed
a denial" of the protest.
It must be emphasized that the ruling here with respect to the taxpayer has the option to
either elevate the case to the Court of Tax Appeals if the Commissioner does not act on his or
her protest, or to wait for the Commissioner to decide on his or her protest before he or she
elevates the case to the Court of Tax Appeals has been overruled. The present doctrine is
that the taxpayer should file its appeal in the CTA within 30 days from the end of the 180
day period given to the CIR.
3. FEDERAL EXPRESS CORPORATION v. AIRFREIGHT 2100, INC. AND THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 225050, 14 September 2021, FIRST DVISION, (Gesmundo, CJ.)

FedEx is a foreign corporation licensed to do business in the Philippines, and primarily
engaged in international air carriage, logistics, and freight forwarding. AF2100 is a domestic
corporation which is also involved in the freight forwarding business. Because of several
disputes arising from the Global Service Program contracts between the two corporations,
FedEx initiated an international commercial arbitration case against AF2100.
Among the issues raised in the Arbitration Case was whether or not AF2100 is entitled to
withhold amounts due to FedEx on the ground that AF2100 paid Value Added Tax (VAT) to the
Bureau of Internal Revenue (BIR) on behalf of FedEx. In relation to this issue, FedEx filed a
pleading denominated as Request for Production of Documents, praying that an order be issued
by the Arbitral Tribunal directing AF2100 to produce the following documents: (1) the monthly
and quarterly VAT returns of AF2100; and (2) copies of receipts and other relevant documents
showing the creditable input VAT of AF2100 from its other operations which it supposedly used
to apply to its VAT liabilities.
The Arbitral Tribunal ordered AF2100 to produce the Requested Documents.
Eventually, the Arbitral Tribunal rendered a Final Award which was favorable to FedEx.
The Arbitral Tribunal did not give credence to the claim of AF2100 that it paid VAT to the BIR in
the total amount of P618,791,708.00 on FedEx's behalf, noting the failure of AF2100 to present
the VAT returns to prove such payment despite the explicit directives of the tribunal and the trial
court. It held that the "dogged refusal" of AF2100 to produce the VAT returns gave rise to the
inference that had they been so produced, they would have been adverse to AF2100.
AF2100 filed a Petition to Set Aside the Award (PSAA Case). However, before FedEx
received notice of AF2100's Petition in the PSAA Case, it had already filed a Petition for
Recognition and Enforcement of Final Arbitral Award (PREFAA Case) before the RTC.
FedEx filed a Petition for Interim Relief (PIR) before the RTC Pasig.
After being ordered once again to produce the required documents, AF2100 filed a
Motion for Issuance of Protective Order in the PIR Case before RTC Pasig pursuant to Section
10.1. of the Special ADR Rules, averring that the Requested Documents were confidential in
nature and that AF2100 would be materially prejudiced by the production and inspection of said
documents.
The RTC Pasig granted the Petition for Interim Relief of FedEx while denying the Motion
for Issuance of Protective Order of AF2100.
As it turned out, FedEx filed its petition in the PIR case as well as its Petition for
Assistance in Taking Evidence (PATE Case) under Rule 9 of the Special ADR Rules, in the
same day. In said Petition, FedEx sought the issuance of a subpoena against respondent
Commissioner of Internal Revenue (CIR) for the production of the copies of the Requested
Documents in the possession of the BIR.
The CIR opposed the Petition in the PATE Case by invoking Sec. 270 of the NIRC which
penalizes the unlawful divulgence of trade secrets with criminal prosecution.
The RTC QC granted the Petition of FedEx. The CIR filed a Notice of Appeal but it was
denied by the RTC QC ruling that "the order granting assistance in taking evidence shall be
immediately executory and not subject to consideration or appeal." The RTC QC then issued a
Writ of Execution
AF2100 filed a Motion for Intervention contending that: a) AF2100, an indispensable

party in the PATE Case, was neither impleaded nor informed of the same, thus, the Decision as
well as the entire proceedings of the case were rendered null and void for being in violation of
the constitutional right of AF2100 to due process; (b) the Petition of FedEx in the PATE Case
should be dismissed for blatant forum shopping because it prayed for reliefs identical to those in
FedEx's Request for the Production of Documents in the Arbitration Case before PDRCI and its
Petition in the PIR Case in the former case.
Apparently, the CIR no longer took any action in the PATE Case following the Order of
the RTC QC.
Subsequently, AF2100, filed a Manifestation and Motion in the PATE Case informing the
RTC QC that the Arbitral Tribunal had already issued a Final Award in the Arbitration Case. It
alleged that with the issuance of said Final Award, the presentation by FedEx and AF2100 of
their respective evidence, as well as the entirety of the arbitration proceedings, had already
concluded. Accordingly, the Petition in the PATE Case, requesting the production of evidence
for the Arbitration Case, was rendered moot and academic by said supervening events.
The RTC QC denied the two latest motions of AF2100. It declared that since AF2100
had been denied the right to intervene, it could not ask for any relief from the court. AF2100 not
being a party to the case had no standing to question the decision of the court, likewise the
execution thereof.
AF2100 filed a Petition for certiorari and prohibition with application for issuance of
injunctive writs before the Court of Appeals (CA), praying for judgment declaring the Decision of
the RTC QC, in the PATE Case null and void; and making the injunction permanent.
The CA found that AF2100 was an indispensable party who should have been
impleaded in the PATE Case; the Petition in the PATE Case before the RTC QC was rendered
moot and academic by the issuance of the Final Award by the Arbitral Tribunal FedEx was guilty
of forum shopping as the Arbitration Case before the Arbitral Tribunal, the PIR Case before RTC
Pasig and the PATE Case before the RTC QC all similarly involved the prayer of FedEx for the
production of the very same Requested Documents.
Soon after learning of the PATE Case before the RTC QC and filing its Motion for
Intervention therein, AF2100 filed on June 3, 2013 a Petition for Indirect Contempt (Indirect
Contempt Case) against FedEx and FedEx's counsel, Atty. Jay Patrick R. Santiago (Atty.
Santiago).
The CIR maintained therein that the VAT returns of AF2100 were confidential under Sec.
270 of the NIRC and, considering that this involved a civil case between two private entities, the
BIR could not allow the examination and reproduction of the VAT returns of AF2100 by FedEx
without the request and authorization of AF2100. The CIR further contended that she still had
the opportunity to file a petition for certiorari and that the imposition of the Writ of Execution
would make such remedy futile. Also, the CIR argued that the VAT returns of AF2100 contained
reports of sales and disbursements in totals only, without information on any specific client or
supplier and, consequently, FedEx would not be able to obtain any of its needed information
from the said returns. The CIR asserted that the request of FedEx for the said documents was a
mere fishing expedition. Hence, the CIR prayed that the Writ of Execution be recalled and
cancelled.
FedEx argued that AF2100 had no right to intervene in the PATE Case because: (a) the
respondent under Rule 9.5 of the Special ADR Rules is a person other than a party to the
arbitration proceedings or its officers; (b) the rule on compulsory joinder of indispensable parties
under Rule 3, Sec. 7 of the Rules of Court does not apply to arbitration proceedings; and (c) a
Motion for Intervention is not allowed under the Special ADR Rules.
ISSUES:
(1) Is AF2100 an indispensable party in the PATE case?
(2) Did the PATE case become moot and academic following the Finality of the Arbitral
Award?
(3) Did the CA err in ruling on the petition the violation of the rule on forum shopping in
relation to the indirect contempt case against FedEx and its counsel?
RULING:
(1) YES. While it is true that the relief under Rule 9.5 of the Special ADR Rules is
directed against a person not a party to the arbitration proceedings, it does not mean that the
actual parties to the arbitration proceedings are to be excluded from the Petition under said
Rule. It is worthy to stress that the PATE Case is merely ancillary to the main Arbitration Case in
which AF2100 was a party, together with FedEx, and whatever evidence FedEx might have
acquired in the former case could be used against and affect the rights and interests of AF2100
in the latter case.
Moreover, the Requested Documents being sought by FedEx from the BIR in the PATE
Case were filed with the BIR by AF2100 as a taxpayer. The information contained in the
Requested Documents pertained to AF2100 and its business. Without having to delve into the
merits of the BIR's defense of confidentiality, it is undeniable that AF2100 had legal interest in
the Requested Documents subject of the PATE Case even though they were in the physical
custody of the BIR.
An indispensable party has been defined as "one whose interest will be affected by the
court's action in the litigation, and without whom no final determination of the case can be had.
Based on this definition, AF2100 was properly considered as an indispensable party in the
PATE Case by the CA.
Since it was not originally impleaded in the PATE Case by FedEx, AF2100 aptly resorted
to the filing of a Motion for Intervention in order to protect its rights and interest in the said case.
Although intervention might not be an absolute right, the RTC QC should have granted the
Motion of AF2100 when the latter was able to comply with the requirements set by rules and
jurisprudence. AF2100 had established its legal interest in the PATE Case as the taxpayer who
submitted the Requested Documents to the BIR and as the party in the main Arbitration Case
where the evidence acquired would be ultimately used by FedEx.
Under ordinary circumstances, the rules require that the motion for intervention be filed before
rendition of judgment. Yet, because of the exceptional circumstances in this case, the Motion for
Intervention of AF2100 could still be granted by the RTC QC even though there was already a
final and executory judgment and a writ of execution in the PATE Case considering that
AF2100, an indispensable party in the case, was not informed and left unaware of all prior
proceedings therein.
The Court did sustain the contention of FedEx that the provisions of the Rules of Court
on compulsory joinder of parties and motion for intervention are not applicable in the instant
case because they were not incorporated or referred to in the Special ADR Rules.
The Special ADR Rules may not have explicitly incorporated or referred to the provisions
of Rule 3 of the Rules of Court on Parties to Civil Actions, but the provisions thereof are so
general that they may find application in civil actions and, as far as practicable, also in special
proceedings that are filed in courts. The requirement imposed by Rule 3, Sec. 7 on compulsory
joinder of indispensable parties goes beyond rules of procedure. It is a basic imposition
intended to protect a person's right not be deprived of property without due process of law,
guaranteed by no less than the Constitution. So even though the rules may be silent, the
constitutional guarantee to due process behooves the RTC QC to allow AF2100, an
indispensable party, to intervene in the PATE Case.
As for motions for intervention, it is not among the prohibited submissions explicitly
enumerated under Rule 1.6 of the Special ADR Rules.
(2) YES. In its Final Award, the Arbitral Tribunal disallowed the amounts withheld by
AF2100 from FedEx as purported payment for the latter's VAT liabilities. According to the
Arbitral Tribunal, it could be presumed from the obstinate refusal of AF2100 to present the
Requested Documents, that said documents would have been adverse to AF2100 if produced.
The Final Award is now the subject of the PSAA Case before RTC Pasig.
The rendition of the Final Award on February 3, 2014 by the Arbitral Tribunal marked the
termination of the Arbitration Case. There are no more arbitration proceedings in which FedEx
could present the Requested Documents. To still order, at this point, the examination and
reproduction of the Requested Documents in the possession of the BIR would no longer serve
any practical purpose.
(3) YES. The ruling of the CA that the PATE Case had become moot and academic
because of the Arbitral Tribunal's Final Award should be deemed to also encompass the issue
of FedEx's forum shopping. It should be noted that the appellate court made a finding of forum
shopping on the part of FedEx only to declare that for this reason, the RTC QC should have
dismissed the PATE Case from the very beginning. At this point, however, there is no more
PATE Case to dismiss. There already being a resolution of the principal issue of the PATE Case
being moot and academic, there was no more need for the appellate court to still delve into
other ancillary issues that would have no effect on the conclusion of the case. The CA should
have already refrained from still ruling on the issue of FedEx's forum shopping as the same
became merely academic, without any practical legal effect and incapable of enforcement.
Therefore, the pronouncements made by the appellate court on the issue of FedEx's forum
shopping in the assailed Decision should be set aside.
The Court clarified that its ruling in the immediately preceding paragraph is not a
declaration that FedEx did not commit forum shopping at all. It simply means that with the PATE
Case already moot and academic, then this is not the proper case to thoroughly resolve the
issue of FedEx's forum shopping. As manifested by both parties, there is an Indirect Contempt
Case still pending before RTC Pasig wherein FedEx's alleged forum shopping is the pivotal
issue.
PEN:
The issue of confidentiality of the VAT returns was invoked by the CIR in refusing to
submit the same in the Arbitrator. Sec. 270. provides:
Unlawful Divulgence of Information. — Except as provided in Sections 6(F) and

71 of this Code and Section 26 of Republic Act No. 6388, any officer or employee
of the Bureau of Internal Revenue who divulges to any person or makes known
in any other manner than may be provided by law information regarding the
business, income, or estate of any taxpayer, the secrets, operation, style or work,
or apparatus of any manufacturer or producer, or confidential information
regarding the business of any taxpayer, knowledge of which was acquired by him
in the discharge of his official duties, shall, upon conviction for each act or
omission, be punished by a fine of not less than Fifty thousand pesos (P50,000)
but not more than One hundred thousand pesos (P100,000), or suffer
imprisonment of not less than two (2) years but not more than five (5) years, or
both.
Any officer or employee of the Bureau of Internal Revenue who divulges or

makes known in any other manner to any person other than the requesting
foreign tax authority information obtained from banks and financial institutions
pursuant to Section 6(F), knowledge or information acquired by him in the
discharge of his official duties, shall, upon conviction, be punished by a fine of
not less than Fifty thousand pesos (P50,000) but not more than One hundred
thousand pesos (P100,000), or suffer imprisonment of not less than two (2) years
but not more than five (5) years, or both.
HOWEVER, it must be emphasized that no pronouncement was made by the Court

regarding the confidentiality of the documents requested by FedEx. In fact, the CIR no
longer participated in the proceedings.
4. COMMISSIONER OF INTERNAL REVENUE v. UNIOIL CORPORATION, RESPONDENT.
G.R. No. 204405, 04 August 2021, SECOND DIVISION (Hernando, J.)
FACTS:
On January 26, 2009, Unioil Corporation (Unioil) received a Formal Letter of Demand
and Final Assessment Notice (FAN) finding it liable for deficiency withholding tax on
compensation and deficiency expanded withholding tax for the year ending December 31, 2005.
Unioil filed its protest to the FAN on February 25, 2009 and submitted its supporting
documents on April 24, 2009.
Thereafter, Unioil filed the instant Petition for Review on November 20, 2009,
considering that the Commissioner of Internal Revenue (CIR) failed to act on its protest and the
one hundred eighty (180) day period had already expired.
The Court of Tax Appeals (CTA) Third Division ruled in Unioil’s favor and held that the
CIR did not issue a PAN which consequently avoided the assessment against Unioil for
deficiency withholding taxes in the total amount of P536,801.10. The CIR moved for partial
reconsideration which was however denied.
Thus, the CIR appealed to the CTA En Banc arguing for the validity of its assessment
against Unioil and the latter's liability for deficiency withholding taxes. However, the CTA En
Banc affirmed in toto the CTA Third Division decision. affirming in toto the CTA Third Division.
Hence, this petition. It must be noted that the CIR submitted for the first time proof of its
issuance of a PAN and Unioil's actual receipt thereof.
ARGUMENT OF GOVT:
The CIR insists that, contrary to the CTA's uniform rulings, it complied with the notice
requirements for assessment under Section 228 of the NIRC and RR No. 12-99; Unioil was not
denied its right to due process. The CIR is adamant that it did issue a PAN which had been duly
acknowledged and received by Unioil.
1. The issues raised by the CIR, specifically whether there was valid receipt by Unioil of
the PAN, is a question of fact not cognizable in a petition for review on certiorari which should
only contain questions of law.
2. There was no valid receipt of the PAN since the assessment itself is void for being
made beyond the three-year prescriptive period provided in Section 203 of the NIRC.
3. The PAN and FAN "are void xxx because xxx the facts, law, rules and regulations,
and jurisprudence upon which [these were based were] not stated;" and
4."Assuming arguendo that the assessments are valid, it [Unioil] is not liable to pay any
deficiency taxes because it has submitted all relevant documents to rebut the Assessment
Notice
According to Section 2.58[A][2], Revenue Regulations 2-98, xxxx the three (3) year period is to
be reckoned from the last day required by law for the filing of the monthly remittance return. The
last day is ten (10) days after the end of each calendar month (except December) and fifteen
(15) days after the end of December for taxes withheld from the last income payment for the
said month.
5. In this case, the withholding tax returns for November 2005 were filed on December
2005. Hence, the BIR had only until 9 December 2008 within which to assess the alleged
deficiency withholding taxes for compensation and expanded withholding for the months of July
to November 2005.
6. It is thus indubitably clear that when the PAN was received by [Unioil] on 15
December 2008, the three (3) year prescriptive period had already lapsed. Not to mention, the
FAN which was issued by the [CIR] on 26 January 2009, way beyond the three (3) year
prescriptive period.
ISSUES:
Is the assessment against Unioil void?
RULING:
YES. Obviously, the CIR's claimed reversible error of the CTA is not a question of law
but a question of fact resulting primarily from the CIR's procedural missteps. The Supreme
Court is not a trier of facts. The CTA was especially created by law for the purpose of reviewing
tax cases. The CTA undertakes trial on the issues brought before it and accordingly exercises
the power to receive evidence under Rule 12 of the Internal Rules of the Court of Tax Appeals
in relation to the procedure for authentication of documents under our Rules on Evidence. It is
not the Court's duty to look and sift through the evidence of the parties, much more in this case
since the PAN, in the herein petition, had not been proffered and submitted by either of the
parties before the CTA.
Since it was not offered as evidence, there is nothing for this Court to consider.
Otherwise stated, the CIR failed to establish the fact of issuance of the PAN to Unioil. The CIR's
failure to comply with the notice requirements under Section 228 of the 1997 NIRC effectively
denied Unioil of its right to due process. Consequently, the CIR's assessment was void.
Tax collection must be preceded by a valid assessment to allow the taxpayer to protest
the assessment, present their case and adduce supporting evidence. Without complying with
the unequivocal mandate of first informing the taxpayer of the government's claim, there can be
no deprivation of property, because no effective protest can be made.
Indeed, while the government cannot be estopped by the negligence or omission of its
agents, the mandatory provisions on Sections 203 and 228 of the NIRC cannot be rendered
nugatory by the mere act of the CIR.
Section 203 of the NIRC mandates the government to assess internal revenue taxes
within three years from the last day prescribed by law for the filing of the tax return or the actual
date of filing of such return, whichever comes later. Hence, an assessment notice issued after
the three-year prescriptive period is no longer valid and effective. Exceptions to the period of
limitation of assessment, however, are provided under Section 222 of the same code, as in
cases of (i) filing of a false or fraudulent return with intent to evade tax or (ii) failure to file a
return or (iii) a written agreement to waive and extend the period within which to assess the
taxpayer's liability.
Section 203 of the NIRC provides:

Section 203. Period of Limitation Upon Assessment and Collection. — Except as
provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
Unioil never waived its arguments on (a) prescription of the tax assessments and (b) the
invalidity thereof for failure to state the facts and the law on which these were based.
In Commissioner of Internal Revenue v. La Flor Dela Isabela, Inc. (La Flor), it was
declared that withholding taxes are internal revenue taxes covered by Section 203.
In determining whether the return filed is false or fraudulent, jurisprudence has

consistently held that fraud is never imputed. The mere understatement of a tax is not itself
proof of fraud for the purpose of tax evasion.
Here, apart from the CIR's bare allegation of falsity or fraudulency in Unioil's filed
returns, the CIR neither states nor points to any other detail establishing actual fraud committed
by Unioil. The CIR does not substantiate its allegation of fraud and appears to make the
argument only to evade the three-year prescriptive period to assess the tax.
On the whole, there is no prima facie evidence, much less any sort of evidence, that
Unioil filed false and fraudulent returns on the ground of substantial under declaration of income
in Unioil's Annual Income Tax Return.
Another thing which militates against the CIR's claim that the three-year prescriptive
period does not apply is the fact that the Final Letter of Demand and FAN were issued only on
January 14, 2009, in less than a month from Unioil's filing of its Protest to the PAN on
December 22, 2008. Note that after January 15, 2009 the return filed by Unioil for December
2005 has already prescribed.
It bears repeating that Section 203 of the NIRC is the mandatory period of limitation for
the government to assess taxes, subject only to the prefaced exception explicitly provided
thereunder: "[e]xcept as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the return xxx."
If the CIR indeed substantiated their vaguely drawn imputation that Unioil had filed a
fraudulent return, there was no reason for the speed with which they issued the Formal Letter of
Demand. Plainly, the Formal Letter of Demand was hastily issued and did not take into
consideration the arguments of Unioil in its Protest to the PAN.
The PAN and the FAN pertain to different aspects of the CIR's power to assess taxes. In
Commissioner of Internal Revenue v. Transitions Optical Philippines, Inc., we clarified that the
assessment contemplated in Sections 203 and 222 of the NIRC refers to the service of the FAN
upon the taxpayer:
Finally, petitioner's contention that the assessment required to be issued within the three
(3)-year or extended period provided in Sections 203 and 222 of the National Internal
Revenue Code refers to the PAN is untenable.
Considering the functions and effects of a PAN vis à vis a FAN, it is clear that the
assessment contemplated in Sections 203 and 222 of the National Internal Revenue
Code refers to the service of the FAN upon the taxpayer.
A PAN merely informs the taxpayer of the initial findings of the Bureau of Internal
Revenue. It contains the proposed assessment, and the facts, law, rules, and regulations
or jurisprudence on which the proposed assessment is based. It does not contain a
demand for payment but usually requires the taxpayer to reply within 15 days from
receipt. Otherwise, the Commissioner of Internal Revenue will finalize an assessment and
issue a FAN.
The PAN is a part of due process. It gives both the taxpayer and the Commissioner of
Internal Revenue the opportunity to settle the case at the earliest possible time without
the need for the issuance of a FAN.
On the other hand, a FAN contains not only a computation of tax liabilities but also a
demand for payment within a prescribed period. As soon as it is served, an obligation arises on
the part of the taxpayer concerned to pay the amount assessed and demanded. It also signals
the time when penalties and interests begin to accrue against the taxpayer.
What we can refract from our ruling in Avon Products is that the CIR, in exercising its
power to assess and collect taxes if these are owed, ought to give due consideration to the
arguments and evidence submitted by the affected party.
In the case before us, the CIR only perfunctorily assessed Unioil for deficiency
withholding tax on compensation and expanded withholding tax and went through just the
motions without due consideration. This is apparent from the haste in which the Formal Letter of
Demand and the FAN were issued on January 14, 2009 in order to ostensibly beat the three-
year prescriptive period which set after January 15, 2009.
Moreover, Section 228 of the NIRC and its implementing rule and regulation, Section 3
of RR No. 12-99, mandate the contents for an assessment: "[t]he taxpayer shall be informed in
writing of the law and the facts on which the assessment is made; otherwise, the assessment
shall be void."
The requirement set by law to state in writing the factual and legal bases for the
assessment is not a hollow exhortation. The law imposes a substantive, not merely a formal,
requirement. Commissioner of Internal Revenue v. Reyes (Reyes) is instructive. In Reyes, the
Court emphasized that "failure to comply with Section 228 does not only render the assessment
void, but also finds no validation in any provision in the Tax Code
All told, the BIR's right to assess and collect taxes must conform to the requirements for
assessment and collection set forth in the law. There can be no equivocation from this right and
duty nexus.
PEN:
Same as Avon case. The CIR did not state the facts, law and jurisprudence to which its
ruling based upon. Moreover, the CIR must consider the evidence presented by the respondent
taxpayer. Thus, administrative due process must always be observed.
It bears repeating that Section 203 of the NIRC is the mandatory period of limitation for
the government to assess taxes, subject only to the prefaced exception explicitly provided
thereunder: "[e]xcept as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the return xxx."
Prescriptive period is interrupted from date of issuance of FAN, not of PAN. This is so
because the former not only serves as the notice but also the demand for payment.
5. COMMISSIONER OF INTERNAL REVENUE v. SHINKO ELECTRIC INDUSTRIES CO.,
LTD.,
G.R. No. 226287, 06 July 2021, FIRST DIVISION, (Caguioa, J.)

Respondent Shinko is a Philippine-registered representative office of the foreign
corporation Shinko Electric Industries Co., Ltd.. On April 12, 2010, Shinko received a
Preliminary Assessment Notice (PAN) together with the Details of Discrepancies from the CIR
for alleged deficiency income tax and value-added tax (VAT) covering the fiscal year ending
March 31, 2007.
Shinko filed its reply to the PAN. On May 14, 2010, Shinko received from the CIR a
Formal Assessment Notice (FAN). Shinko duly protested the FAN and the Assessment Notices.
Due to the CIR's inaction on the protest, Shinko filed a Petition for Review with the CTA
Division.
The CTA Division granted Shinko's Petition for Review. Accordingly, the FAN and
Assessment Notices issued against Shinko were cancelled and withdrawn for lack of factual
and legal basis. The CIR moved for reconsideration but the CTA Division denied the same. The
CTA En Banc also affirmed the CTA Division.
Hence, the instant Petition.
The CIR maintains that Shinko should be treated as a taxable ROHQ because it renders
"qualifying services" as enumerated in Section 22(EE) of the NIRC, as amended. To support its
argument, the CIR relies on Shinko's SEC Registration, which states that it performs "promotion
x x x [and] quality control [of the parent company's products],” thereby rendering it involved in
an ROHQ's qualifying services.
Moreover, the CIR submits that once a foreign business entity performs qualifying
services in the Philippine jurisdiction, the CIR has to treat the entity as an ROHQ for taxation
purposes. It also adds that Shinko derived income from Philippine sources in its capacity as an
ROHQ.
Shinko argued that it is a representative office of a foreign corporation, and, as such, it
does not derive income from sources within the Philippines. Hence, it is not liable for deficiency
income tax and VAT, as well as the compromise penalty.
On the other hand, the CIR claimed that since Shinko is engaged in the "promotion of
the parent company's product" as stated in its SEC Registration, it should be taxed as a
Regional Operating Headquarter (ROHQ) which derives income from the Philippines.
ISSUES:
(1) Is Shinko a representative office?

(2) Is Shinko subject to income tax and VAT?
RULING:
(1) YES. The term "representative office" is not explicitly defined under the NIRC, as
amended. However, a definition thereof can be found in Section 1(c), Rule I of the IRR of RA
No. 7042, as amended, which states: “x x x Representative or liaison office deals directly with
the clients of the parent company but does not derive income from the host country and is fully
subsidized by its head office. It undertakes activities such as but not limited to information
dissemination and promotion of the company's products as well as quality control of products.”
Relative thereto, an RHQ is defined under Section 22(DD) of the NIRC, as amended,
and Section 2(2) of Executive Order No. 226, as amended by RA No. 8756, as follows:
Sec. 22. Definitions. — When used in this Title:
xxxx
(DD) The term 'regional or area headquarters' shall mean a branch established in the
Philippines by multinational companies and which headquarters do not earn or derive
income from the Philippines and which act as supervisory, communications and
coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific
Region and other foreign markets.
xxxx
Sec. 2. Definition of Terms. — For purposes of this Act, the term:
(2) Regional or Area Headquarters (RHQ) shall mean an office whose purpose is to act
as an administrative branch of a multinational company engaged in international trade
which principally serves as a supervision, communications and coordination
center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other
foreign markets and which does not earn or derive income in the Philippines[.]
An RHQ is an office principally intended to render administrative services. It is not

allowed under the law to participate in any manner in the management of any subsidiary or
branch office it might have in the Philippines or to solicit or market goods and services whether
on behalf of its mother company or its branches, affiliates, subsidiaries or any other company.
RHQ's activities are limited to acting as supervisory, communications and coordinating center
for its affiliates, subsidiaries or branch offices in the region. In performing such activities, an
RHQ does not earn or derive income in the Philippines. Consequently, the NIRC exempts
RHQs from income tax and VAT.
On the other hand, Section 22(EE) of the NIRC, as amended, and Section 2(3) of RA
No. 8756 define an ROHQ in this wise:
Sec. 22. Definitions. — When used in this Title:
xxxx
(EE) The term 'regional operating headquarters' shall mean a branch established in
the Philippines by multinational companies which are engaged in any of the following
services: general administration and planning; business planning and coordination;
sourcing and procurement of raw materials and components; corporate finance advisory
services; marketing control and sales promotion; training and personnel management;
logistic services; research and development services and product development;
technical support and maintenance; data processing and communication; and business
development.
xxxx
Sec. 2. Definition of Terms. — For purposes of this Act, the term:
(3) Regional Operating Headquarters (ROHQ) shall mean a foreign business entity which
is allowed to derive income in the Philippines by performing qualifying services to
its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region
and in other foreign markets.
In stark contrast to an RHQ, an ROHQ is allowed by law to perform activities that

generate income in the Philippines. These activities, termed as "qualifying services", include the
following: (1) general administration and planning; (2) business planning and coordination; (3)
sourcing/procurement of raw materials and components; (4) corporate finance advisory
services; (5) marketing control and sales promotion; (6) training and personnel management;
(7) logistics services; (8) research and development services, and product development; (9)
technical support and maintenance; (10) data processing and communication; and (11)
business development.
However, similar to an RHQ, an ROHQ performs services only with the head office's
affiliates, branches or subsidiaries. ROHQs are also prohibited by law to directly or indirectly
market the goods and services of their mother company and its affiliates.
As regards taxes, inasmuch as an ROHQ is primarily engaged in activities that generate

income in the Philippines, it is considered a taxable entity under the NIRC, as amended, and is
subject to ten percent (10%) corporate income tax and twelve percent (12%) VAT.
The Court found that Shinko is a representative office and not an ROHQ. First, Shinko is
fully subsidized by its head office in Japan. To be sure, certified remittances of the minimum
paid-up capital from the foreign parent company is one of the requirements to set up a
representative office in the Philippines. All costs associated with establishing and maintaining a
representative office are covered by remittances from the parent company.
Second, Shinko deals directly with the clients of its head office as it undertakes activities
limited to information dissemination, promotion of the parent company's products, including the
conduct of quality control. Records show that all inquiries from Philippine clients are routed to its
Japan head office, which, in turn, makes the final decisions. As a representative office, Shinko
promotes and provides information about the products offered by its Japan head office, but it
does not enter into contracts on its own
Unlike an ROHQ, Shinko, as a representative office, deals directly with the parent
company's clients and not with the affiliates, branches or subsidiaries of the Japan parent
company. As earlier discussed, an ROHQ performs taxable qualifying services only with the
head office's affiliates, branches or subsidiaries. ROHQs are in fact prohibited by law to directly
or indirectly market the goods and services of their mother company and its affiliates.
That Shinko earned income in the form of interest and dividends does not automatically
render it as an ROHQ liable to pay income tax and VAT. To be sure, the enumeration of
qualifying services, which allows an ROHQ to generate or derive income, is specifically defined
under Section 22(EE) of the NIRC, as amended, and Section 4 of RA No. 8756. There is
nothing in both provisions which states that earning interest or dividend income is one of the
qualifying services an ROHQ may provide.
(2) NO. Section 23(F) of the NIRC, as amended, states that "[a] foreign corporation,
whether engaged or not in trade or business in the Philippines, is taxable only on income
derived from sources within the Philippines." As discussed, a representative office, such as
Shinko, does not engage in income-generating activities in the Philippines. Thus, akin to an
RHQ, a representative office is considered exempt from income tax and VAT.
In the subject assessments, however, the OR claims that Shinko has unsupported
expenses, over claimed representation and entertainment, among other things.
However, as aptly found by the CTA, these amounts subject of the assessment are not
considered income and thus, cannot be subject to income tax and VAT.
Income is "defined as an amount of money coming to a person or corporation within a

specified time, whether as payment for services, interest or profit from investment.
The Court in case of Madrigal and Paterno v. Rafferty and Concepcion differentiated it
from capital and said that "[t]he essential difference between capital and income is that capital is
a fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow
of services rendered by that capital by the payment of money from it or any other benefit
rendered by a fund of capital in relation to such fund through a period of time is called income.
Capital is wealth, while income is the service of wealth."
In the case of Shinko, the amounts considered by the CIR as Shinko's income actually
came from the subsidies remitted by its head office abroad, for Shinko's operations in the
Philippines. Certainly, these remittances cannot be considered as income because they are not
payment for the services rendered by Shinko.
In the same way, Shinko is not liable for VAT. It is a basic principle in taxation that
before a transaction is imposed VAT, a sale, barter or exchange of goods or properties, or sale
of a service in the course of trade or business is required.
Here, the subsidy given to Shinko was not derived in relation to any sale, barter or
exchange of goods or services in the course of trade or business. The subsidy was not in
payment for goods or properties sold, bartered or exchanged by Shinko. As such, the subsidy
Shinko received from its parent company cannot be subject to VAT.
PEN:
Remember, a RHQ is not subject to income tax while ROHQ may be subject to such.
Why? Because RHQ’s do not perform any income generating activity. ROHQ’s on the other
hand perform qualifying services in which income is generated.
An RHQ is an office principally intended to render administrative services. RHQ's

activities are limited to acting as supervisory, communications and coordinating center for its
affiliates, subsidiaries or branch offices in the region. In performing such activities, an RHQ
does not earn or derive income in the Philippines. Consequently, the NIRC exempts RHQs from
income tax and VAT.
In stark contrast to an RHQ, an ROHQ is allowed by law to perform activities that
generate income in the Philippines. These activities, termed as "qualifying services", include the
following:
(1) general administration and planning;

(2) business planning and coordination;
(3) sourcing/procurement of raw materials and components;
(4) corporate finance advisory services;
(5) marketing control and sales promotion;
(6) training and personnel management;
(7) logistics services;
(8) research and development services, and product development;
(9) technical support and maintenance;
(10) data processing and communication; and
(11) business development.
6. COMMISSIONER OF INTERNAL REVENUE v. APO CEMENT CORPORATION
G.R. No. 193381, 08 February 2017, SECOND DIVISION, (Leonen, J.)

On September 1, 2003, the Bureau of Internal Revenue (BIR) sent Apo Cement
Corporation (Apo Cement) a Final Assessment Notice (FAN) for deficiency taxes for the taxable
year 1999. Apo Cement protested the FAN to which the BIR denied.
This prompted Ap Cement to file a Petition for Review with the Court of Tax Appeals
(CTA). The Commissioner of Internal Revenue (CIR) admitted that Apo Cement had already
paid the deficiency assessments except for the documentary stamp taxes. The deficiency
documentary stamp taxes were allegedly based on several real property transactions of the
corporation. According to the Commissioner, Apo Cement should have paid documentary stamp
taxes based on the zonal value of property with mineral/quarry content, not on the zonal value
of regular residential property.
On January 25, 2008, Apo Cement availed of the tax amnesty under Republic Act No.
9480, particularly affecting the 1999 deficiency documentary stamp taxes. Thus, Apo Cement
filed on April 17, 2009 a Motion to Cancel Tax Assessment (with Motion to Admit Attached
Formal Offer of Evidence) which the CTA Second Division granted. This was further affirmed by
the CTA En Banc.
Hence, this petition.
ARGUMENT OF THE GOVERNMENT:

The Commissioner disputes, the correctness of respondent's 2005 SALN because
respondent allegedly did not include the 57,500,000 shares of stocks it acquired in 1999 from its
subsidiary - Apo Land and Quarry Corporation in exchange for several parcels of land.
Consequently, respondent underpaid its amnesty tax by P89,858,951.05, corresponding to the
value of the shares of stocks, which respondent allegedly did not include in its declaration of
assets in the SALN.
The one-year contestability period under Section 4 has not yet lapsed - as it had not yet
even commenced due to respondent's failure to file a complete SALN and to pay the correct
amnesty tax.
It is the proper party to question the completeness of the applicant's SALN. The State is
not bound by the acts of the Bureau's officials, who examined respondent's SALN and accepted
the wrong amnesty tax payment.
Petitioner is not the proper party to question the correctness of its SALN. Under Section
4 of Republic Act No. 9480, there is a presumption of correctness of the SALN and only parties
other than the Bureau of Internal Revenue or its agents may dispute the correctness of the
SALN.
Even assuming that petitioner has the standing to question the SALN, Republic Act No.
9480 provides that the proceeding to challenge the SALN must be initiated within one year
following the date of filing of the Tax Amnesty documents. Respondent asserts that it availed of
the tax amnesty program on January 25, 2008. Hence, petitioner's challenge, made only in
April2009, was already time-barred.
ISSUES
Did Apo Cement fully comply with all the requirements to avail of the tax amnesty
granted under Republic Act No.9480?
RULING:
YES. The pertinent provisions on the grant and availment of tax amnesty under Republic
Act No. 9480 state:
SEC. 2. Availment of the Amnesty. Any person, natural or juridical, who wishes to
avail himself of the tax amnesty authorized and granted under this Act shall file
with the Bureau of Internal Revenue (BIR) a notice and Tax Amnesty Return
accompanied by a Statement of Assets, Liabilities and Net worth (SALN) as of
December 31, 2005, in such form as may be prescribed in the implementing rules
and regulations (JRR) of this Act, and pay the applicable amnesty tax within six
months from the effectivity of the IRR.
SEC. 5. Grant of Tax Amnesty. Except for the persons or cases covered in
Section 8 hereof, any person, whether natural or juridical, may avail himself of the
benefits of tax amnesty under this Act, and pay the amnesty tax due thereon,
based on his net worth as of December 31, 2005 as declared in the SALN as of
said period
SECTION 6. Method of Availment of Tax Amnesty.-
1. Forms/Documents to be filed. - To avail of the general tax amnesty, concerned

taxpayers shall file the following documents/requirements:
a) Notice of Availment in such form as may be prescribed by the BIR.

b) Statements of Assets, Liabilities and Net worth (SALN) as of December 31,
2005 insuch form, as may be prescribed by the BIR.
c) Tax Amnesty Return in such form as may be prescribed by the BIR.
Well settled is that submission of the documentary requirements and payment of the
amnesty tax is considered full compliance with Republic Act No. 9480 and the taxpayer can
immediately enjoy the immunities and privileges enumerated in Section 6 of the law.
Here, it is undisputed that respondent had submitted all the documentary requirements.
The Court of Tax Appeals En Banc found that respondent had submitted the following:
a) Letter to the Commissioner of Internal Revenue;
b) Notice of Availment of the Tax Amnesty;
c) Tax Amnesty Payment Form/Acceptance of Payment Form (BIR Form No. 0617);
d) Tax Amnesty Return (BIR Form No. 2116);
e) Statement of Assets, Liabilities and Net worth;
f) Annual Income Tax Return for the taxable year 2005 with Audited Financial
Statements for the year 2005; and
g) Development Bank of the Philippines BIR Tax Payment Deposit Slip in the amount of
P3,668,951.06.
The CTA further found that there was nothing in the records, which would show that
proceedings to question the correctness of the Statement of Assets, Liabilities, and Net Worth
(SALN) have been filed within the one-year period stated in Section 4 of the law. Hence, it
concluded that respondent had duly complied with the requisites enumerated under Republic
Act No. 9480 and is therefore entitled to the benefits under Section 6.
Section 4 of Republic Act No. 9480 provides:
SEC. 4. Presumption of Correctness of the SALN. -The SALN as of December 31, 2005
shall be considered as true and correct except where the amount of declared net worth
is understated to the extent of thirty percent (30%) or more as may be established in
proceedings initiated by, or at the instance of, parties other than the BIR or its agents:
Provided, That such proceedings must be initiated within one year following the date of
the filing of the tax amnesty return and the SALN. Findings of or admission in
congressional hearings, other administrative agencies of government, and/or courts shall
be admissible to prove a thirty percent (30%) under-declaration.
Under the above-stated provision, the SALN is presumed correct unless there is a
concurrence of the following:
a) There is under-declaration of net worth by 30%;
b) The under-declaration is established in proceedings initiated by parties other than the
BIR; and
c) The proceedings were initiated within one (1) year from the filing of the tax amnesty.
The Court agreed with the CTA that petitioner is not the proper party to question the
veracity of respondent's SALN. Therefore, "the presumption of correctness of the SALN applies
even against the Commissioner. Thus, the thirty percent (30%) threshold can be established in
proceedings initiated by, or at the instance of, parties other than the BIR or its agents.
The documentary requirements and payment of the amnesty tax operate as a

suspensive condition, such that completion of these requirements entitles the taxpayer-
applicant to immediately enjoy the immunities and privileges under Republic Act No. 9480.
However, Section 6 of the law contains a resolutory condition. Immunities and privileges
will cease to apply to taxpayers who, in their SALN, were proven to have understated their net
worth by 30% or more.
Pursuant to Section 4 of the law, third parties may initiate proceedings contesting the
declared amount of net worth of the amnesty taxpayer within one year following the date of the
filing of the tax amnesty return and the SALN. Accordingly, Section 10 provides that amnesty
taxpayers who willfully understate their net worth shall be (a) liable for perjury under the Revised
Penal Code; and (b) subject to immediate tax fraud investigation in order to collect all taxes due
and to criminally prosecute those found to have willfully evaded lawful taxes due.
Here, the requisites to overturn the presumption of correctness of respondent's 2005
SALN were not met.
Respondent filed its Tax Amnesty documents on January 25, 2008. Since then, and up
to the time of the filing of respondent's Motion to Cancel Tax Assessment on April 17, 2009,
there had been no proceeding initiated to question its declared amount of net worth. Petitioner
never alleged, before the Court of Tax Appeals and this Court, the existence of any such
proceeding to challenge respondent's 2005 SALN during this period. Indeed, petitioner first
raised the possibility of under-declaration of assets only in her Opposition to respondent's
Motion to Cancel Tax Assessment. Thus, the lapse of the one-year period effectively closed the
window to question respondent's 2005 SALN.
Significantly, as explained by respondent, there was no understatement in its 2005

SALN because the shares of stocks, which the BIR repeatedly referred to, were sold in 2002 or
more than three (3) years prior to the tax amnesty availment. This was already discussed and
detailed before the Court of Tax Appeals together with proofs of the transfer of ownership.
PEN:
Well settled is that submission of the documentary requirements and payment of the
amnesty tax is considered full compliance with Republic Act No. 9480 and the taxpayer can
immediately enjoy the immunities and privileges enumerated in Section 6 of the law.
So mere compliance will entitle the taxpayer to all the benefits of a tax amnesty.
HOWEVER, as stated, the benefits enjoyed are subject to a resolutory condition, that is,
Immunities and privileges will cease to apply to taxpayers who, in their SALN, were proven to
have understated their net worth by 30% or more.
Furthermore, under that tax amnesty law, it is not the BIR nor its agents who are the
proper party to question the SALN.
But this begs the question who else would question the SALN? What benefit could other
people gain to question the SALN of other taxpayers? Is it not the BIR who is the most
interested party to question the validity of a SALN pursuant to its mandate to collect the proper
tax?
7. CS GARMENT, INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 182399, 12 March 2014, FIRST DIVISION, (Sereno, C.J)

Petitioner CS Garment is a domestic corporation, On the other hand, respondent is the
duly appointed Commissioner of Internal Revenue of the Philippines. Petitioner received five (5)
formal demand letters with accompanying Assessment Notices from respondent, requiring it to
pay the alleged deficiency VAT, Income, DST and withholding tax assessments for taxable year
1998
Within the 30-day period prescribed under Section 228 of the Tax Code, as amended,
petitioner filed a formal written protest with the respondent assailing the above assessments.
Respondent failed to act with finality on the protest within the period of one hundred
eighty (180) day. Hence, petitioner appealed before the Court of Tax Appeals (CTA) within the
thirty (30) days from the last day of the aforesaid 180-day period. The Second Division thereof
cancelled respondent's assessment for deficiency expanded withholding taxes and partially
cancelled the deficiency DST assessment. However, it upheld the validity of the deficiency
income tax assessments by subjecting the disallowed expenses and a portion of the undeclared
local sale to income tax at the special rate of 5%. The remainder of undeclared local sales was
subjected to income tax at the rate of 34%.
Petitioner appealed the case to the CTA en banc, however, the CTA En Banc affirmed
the CTA Division.
Hence, this petition. However, on 26 September 2008, while the instant case was
pending before the Supreme Court, petitioner filed a Manifestation and Motion stating that it had
availed itself of the government's tax amnesty program under the 2007 Tax Amnesty Law. It
thus prays that the Court take note of its availment of the tax amnesty and confirm that it is
entitled to all the immunities and privileges under the law. It has submitted to this Court the
following documents: a) Notice of Availment of Tax Amnesty under R.A. 9480; b) Statement of
Assets, Liabilities, and Net worth (SALN); c) Tax Amnesty Return (BIR Form No. 2116); d) Tax
Amnesty Payment Form (Acceptance of Payment Form or BIR Form No. 0617).
According to the OSG, CS Garment had already complied with all documentary
requirements of the 2007 Tax Amnesty Law. It also stated that the BIR Litigation Division had
not initiated any case against petitioner relative to the latter's tax amnesty application. However,
the OSG reiterated that the CIR was still interested in pursuing the case.
The OSG asserts that the filing of an application for tax amnesty does not by itself entitle
petitioner to the benefits of the law, as the BIR must still assess whether petitioner was eligible
for these benefits and whether all the conditions for the availment of tax amnesty had been
satisfied.
Furthermore, the BIR is given a one-year period to contest the correctness of the SALN
filed by CS Garment, thus making petitioner's motion premature.
Finally, the OSG contends that pursuant to BIR Revenue Memorandum Circular No.
(RMC) 19-2008, petitioner is disqualified from enjoying the benefits of the Tax Amnesty Law,
since a judgment was already rendered in favor of the BIR prior to the tax amnesty availment.
The OSG points out that CS Garment submitted its application for tax amnesty only on 6 March
2008, which was almost two months after the CTA en banc issued its 14 January 2008 Decision
and more than one year after... the CTA Second Division issued its 4 January 2007 Decision.
It should be entitled to the benefits under the tax amnesty law because it had already
complied with all the requirements stated therein.
ISSUE:
Is CS Garment already immune from paying the deficiency taxes stated in the 1998 tax
assessments of the CIR?
RULING:
YES. Tax amnesty refers to the articulation of the absolute waiver by a sovereign of its
right to collect taxes and power to impose penalties on persons or entities guilty of violating a
tax law.
Pursuant to Section 6 of the 2007 Tax Amnesty Law, those who availed themselves of
the benefits of the law became "immune from the payment of taxes, as well as additions thereto,
and the appurtenant civil, criminal or administrative penalties under the National Internal
Revenue Code of 1997, as amended, arising from the failure to pay any and all internal revenue
taxes for taxable year 2005 and prior years."
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two
types of conditions one suspensive, the other resolutory.
The imposition of a suspensive condition under the 2007 Tax Amnesty Law is evident
from the following provisions of the law:
SECTION 2. Availment of the Amnesty. Any person, natural or juridical, who

wishes to avail himself of the tax amnesty authorized and granted under this Act
shall file with the Bureau of Internal Revenue (BIR) a notice and Tax Amnesty
Return accompanied by a Statement of Assets, Liabilities and Networth (SALN)
as of December 31, 2005, in such form as may be prescribed in the implementing
rules and regulations (IRR) of this Act, and pay the applicable amnesty tax within
six months from the effectivity of the IRR.
SECTION 4. Presumption of Correctness of the SALN. The SALN as of

December 31, 2005 shall be considered as true and correct except where the
amount of declared networth is understated to the extent of thirty percent (30%)
or more as may be established in... proceedings initiated by, or at the instance of,
parties other than the BIR or its agents: Provided, That such proceedings must be
initiated within one year following the date of the filing of the tax amnesty return
and the SALN. Findings of or admission in congressional hearings, other
administrative agencies of government, and/or courts shall be admissible to prove
a thirty percent (30%) under-declaration.
In availing themselves of the benefits of the tax amnesty program, taxpayers must first
accomplish the following forms and prepare them for submission: (1) Notice of Availment of Tax
Amnesty Form; (2) Tax Amnesty Return Form (BIR Form No. 2116); (3) Statement of Assets,...
Liabilities and Net worth (SALN) as of December 31, 2005; and (4) Tax Amnesty Payment Form
(Acceptance of Payment Form or BIR Form No. 0617)
The taxpayers must then compute the amnesty tax due in accordance with the rates
provided in Section 5 of the law, using as tax base their net worth as of 31 December 2005 as
declared in their SALNs. At their option, the revenue district office (RDO) of the BIR may assist
them in accomplishing the forms and computing the taxable base and the amnesty tax due. The
RDO, however, is disallowed from looking into, questioning or examining the veracity of the
entries contained in the Tax Amnesty Return, SALN, and other documents they have submitted.
Using the Tax Amnesty Payment Form, the taxpayers must make a complete payment of the
computed amount to an authorized agent bank, a collection agent, or a duly authorized
treasurer of the city or municipality.
Thereafter, the taxpayers must file with the RDO or an authorized agent bank the (1)
Notice of Availment of Tax Amnesty Form; (2) Tax Amnesty Return Form (BIR Form No. 2116);
(3) SALN; and (4) Tax Amnesty Payment Form. The RDO shall only receive these documents
after complete payment is made, as shown in the Tax Amnesty Payment Form. It must be noted
that the completion of these requirements "shall be deemed full compliance with the provisions
of R.A. 9480.". In our considered view, this rule means that amnesty taxpayers may immediately
enjoy the privileges and immunities under the 2007 Tax Amnesty Law as soon as the
aforementioned documents are duly received.
The OSG has already confirmed to this Court that CS Garment has complied with all of
the documentary requirements of the law. Consequently, and contrary to the assertion of the
OSG, no further assessment by the BIR is necessary. CS Garment is now entitled to invoke the
immunities and privileges under Section 6 of the law.
The Court also rejected the contention of OSG that the BIR was given a one-year period
to contest the correctness of the SALN filed by CS Garment, thus making petitioner's motion
premature. Neither the 2007 Tax Amnesty Law nor Department of Finance (DOF) Order No. 29-
07 (Tax Amnesty Law IRR) imposed a waiting period of one year before the applicant can enjoy
the benefits of the Tax Amnesty Law. It can be surmised from the cited provisions that the law
intended the immediate enjoyment of the immunities and privileges of tax amnesty upon
fulfilment of the requirements.
Further, a reading of Sections 4 and 6 of the 2007 Tax Amnesty Law shows that
Congress has adopted a "no questions asked" policy, so long as all the requirements of the law
and the rules are satisfied. The one-year period referred to in the law should thus be considered
only as a prescriptive period within which third parties, meaning "parties other than the BIR or its
agents," can question the SALN not as a waiting period during which the BIR may contest the
SALN and the taxpayer prevented from enjoying the immunities and... privileges under the law.
This clarification, however, does not mean that the amnesty taxpayers would go scot-
free in case they substantially understate the amounts of their net worth in their SALN. The
2007 Tax Amnesty Law imposes a resolutory condition insofar as the enjoyment of immunities
and privileges under the law is concerned. Pursuant to Section 4 of the law, third parties may
initiate proceedings contesting the declared amount of net worth of the amnesty taxpayer within
one year following the date of the filing of the tax amnesty return and the SALN. Section 6...
then states that "All these immunities and privileges shall not apply x x x where the amount of
networth as of December 31, 2005 is proven to be understated to the extent of thirty percent
(30%) or more, in accordance with the provisions of Section 3 hereof." Accordingly, Section 10
provides that amnesty taxpayers who willfully understate their net worth shall be (a) liable for
perjury under the Revised Penal Code; and (b) subject to immediate tax fraud investigation in
order to collect all taxes due and to criminally prosecute those found to have willfully evaded
lawful taxes due.
The OSG argued that CS Garments are not entitled to the benefits of the law because
there was already a decision against it. However, the court ruled that taxpayers with pending tax
cases are still qualified to avail themselves of the tax amnesty program.
To resolve the matter, we refer to the basic text of the Tax Amnesty Law and its
implementing rules and regulations, viz:
Republic Act No. 9480
SECTION 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not
extend to the following persons or cases existing as of the effectivity of this Act:...
xxxx
(f) Tax cases subject of final and executory judgment by the courts.
DOF Order No. 29-07: Rules and Regulations to Implement R.A. 9480
SECTION 5. Exceptions. The tax amnesty shall not extend to the following
persons or cases existing as of the effectivity of R.A. 9480: x x x x
7. Tax cases subject of final and executory judgment by the courts.
Neither the law nor the implementing rules state that a court ruling that has not attained
finality would preclude the availment of the benefits of the Tax Amnesty Law. Both R.A. 9480
and DOF Order No. 29-07 are quite precise in declaring that "[t]ax cases subject of final and
executory judgment by the courts" are the ones excepted from the benefits of the law.
While tax amnesty, similar to a tax exemption, must be construed strictly against the
taxpayer and liberally in favor of the taxing authority, it is also a well-settled doctrine that the
rule-making power of administrative agencies cannot be extended to amend or expand statutory
requirements or to embrace matters not originally encompassed by the law. Administrative
regulations should always be in accord with the provisions of the statute they seek to carry into
effect, and any resulting inconsistency shall be resolved in favor of the basic law. We thus
definitively declare that the exception "[i]ssues and cases which were ruled by any court (even
without finality) in favor of the BIR prior to amnesty availment of the taxpayer" under BIR RMC
19-2008 is invalid.
PEN:
Similar doctrine in CIR v. Apo Cement case. Once the taxpayer complies with all the
requirements stated in the tax amnesty law, it is already entitled to all the benefits therein. It
need not wait a pronouncement from the BIR on whether the requirements have been complied
with.
Again, there is a presumption of validity of the SALN submitted by the taxpayer.

Furthermore, THIS IS IMPORTANT, taxpayers with pending cases are still qualified to
receive the benefits granted by the law. HOWEVER, if a decision against a taxpayer has
become FINAL AND EXECUTORY, the taxpayer will not longer be entitled to the tax amnesty.
THEREFORE, it may be wise for me, if ever I handle a tax case like this, to encourage
the taxpayer to appeal the assessment, especially if there is merit, because there might come a
time where the Congress would enact a tax amnesty law.
8. THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY v. THE
SECRETARY OF FINANCE AND THE COMMISSIONER OF INTERNAL REVENUE
G.R. No. 210987, 24 November 2014, THIRD DIVISION, (Velasco, Jr. J.)

Petitioner The Philippine American Life and General Insurance Company (Philamlife)
used to own Class A shares in Philam Care Health Systems, Inc. (PhilamCare). It offered to sell
such through competitive bidding wherein it was eventually sold to STI Investments, Inc., who
emerged as the highest bidder.
To facilitate the transfer of shares, Philamlife filed an application for a certificate

authorizing registration/tax clearance with the Bureau of Internal Revenue. However, it was
informed that it needed to secure a BIR ruling in connection with its application due to potential
donor's tax liability. In compliance, petitioner requested a ruling that the sale was not subject to
donor's tax. However, respondent Commissioner on Internal Revenue (Commissioner) denied
Philamlife's request
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review

the BIR Ruling, however, the Secretary affirmed the ruling in its entirety.
This prompted petitioner to elevated the case to the Court of Appeals (CA). However,
the CA denied it outright ruling that the BIR ruling was issued in the exercise of the
Commissioner's power to interpret the NIRC and other tax laws. Consequently, requesting for its
review can be categorized as "other matters arising under the NIRC or other laws administered
by the BIR,"which is under the jurisdiction of the Court of Tax Appeals (CTA), not the CA.
As determined by the Commissioner, the selling price of the shares thus sold was lower
than their book value based on the financial statements of Philam Care as of the end of 2008.
As such,the Commisioner held, donor's tax became imposable on the price difference pursuant
to Sec. 100 of the National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where
property, other than real property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or money's worth, then the
amount by which the... fair market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this Chapter, be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue

Regulation 6-2008 (RR 6-2008).
Even assuming arguendo that the CTA does not have jurisdiction over the case,
Philamlife, nevertheless, committed a fatal error when it failed to appeal the Secretary of
Finance's ruling to the Office of the President (OP). As made apparent by the rules, the
Department of Finance is not among the agencies and quasi-judicial bodies enumerated under
Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are appealable through a
petition for review. This is in stark contrast to the OP's specific mention under the same
provision.
It was not liable to donor’s tax because: a) that the transaction cannot attract donor's tax
liability since there was no donative intent and, ergo, no taxable donation; b) that the shares
were sold at their actual fair market value and at arm's length; c) that as long as the transaction
conducted is at arm's length such that a bonafide business arrangement of the dealings is done
in the ordinary course of business a sale for less than an adequate consideration is not subject
to donor's tax; d) and that donor's tax does not apply to sale of shares sold in an open bidding
process.
The Revenue Regulation issued by the BIR is void as it altered the meaning and scope
of Section 100 of the Tax Code. Furthermore, the Memorandum Circular cannot be given
retroactive application as it will prejudice it.
There is a need to differentiate the rulings promulgated by the respondent Commissioner

relating to those rendered under the first paragraph of Sec. 4 of the NIRC, which are appealable
to the Secretary of Finance, from those rendered under the second paragraph of Sec. 4 of the
NIRC, which are subject to review on appeal with the CTA.
Philamlife further averred that Sec. 7 of RA 1125, as amended, does not find application
in the case at bar since it only governs appeals from the Commissioner's rulings under the
second paragraph and does not encompass rulings from the Secretary of Finance in the
exercise of his power of review under the first, as what was elevated to the CA. Under RA 1125,
as amended, the only decisions of the Secretary appealable to the CTA are those rendered in
customs cases.
According to British American Tabacco v. Camacho, where what is assailed is the

validity or constitutionality of a law, or a rule or regulation issued by the administrative agency,
the regular courts have jurisdiction to pass upon the same.
ISSUES:
(1) Did the CA err in dismissing the case it being that the CTA has the proper
jurisdiction?
(2) Is petitioner subject to Donor’s tax?
RULING
(1) NO. There is no dispute that what is involved herein is the respondent
Commissioner's exercise of power under the first paragraph of Sec. 4 of the NIRC the power to
interpret tax laws.
Sec. 4 states:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide

Tax Cases. The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner, subject
to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code or other laws or portions thereof administered by
the Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.
As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides that the
Commissioner's power to interpret the provisions of this Code and other tax laws is subject to
review by the Secretary of Finance.
Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests
the CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under
the NIRC or other laws administered by the BIR. As stated:
Sec. 7. Jurisdiction. - The CTA shall exercise:
Exclusive appellate jurisdiction to review by appeal, as herein provided:
Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue.
Even though the provision suggests that it only covers rulings of the Commissioner, We
hold that it is, nonetheless, sufficient enough to include appeals from the Secretary's review
under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not
defeat the very purpose for which they were passed. Courts should not follow the letter of a
statute when to do so would depart from the true intent of the legislature or would otherwise
yield conclusions inconsistent with the purpose of the act.
Lest the ruling in Ursal be taken out of context, but worse as a precedent, it must be
noted that the primary reason for the dismissal of the said case was that the petitioner therein
lacked the personality to file the suit with the CTA because he was not adversely affected by a
decision or ruling of the Collector of Internal Revenue, as was required under Sec. 11 of RA
1125.
In an attempt to divest the CTA jurisdiction over the controversy, petitioner then cites
British American Tobacco, wherein this Court has expounded on the limited jurisdiction of the
CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or
regulation issued by the administrative agency in the performance of its quasi-legislative
function, the regular courts have jurisdiction to pass upon the same.
Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting

ruling in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:
[t]he questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of
the Commissioner implementing the Tax Code on the taxability of pawnshops." They
were issued pursuant to the CIR's power under Section 245 of the Tax Code "to make
rulings or opinions in connection with the implementation of the provisions of internal
revenue laws, including ruling on the classification of articles of sales and similar
purposes." The Court held that under R.A. No. 1125 (An Act Creating the Court of Tax
Appeals), as amended, such rulings of the CIR are appealable to the CTA.
The respective teachings in British American Tobacco and Asia International

Auctioneers, at first blush, appear to bear no conflict that when the validity or constitutionality of
an administrative rule or regulation is assailed, the regular courts have jurisdiction; and if what is
assailed are rulings or opinions of the Commissioner on tax treatments, jurisdiction over the
controversy is lodged with the CTA. The problem with the above postulates, however, is that
they failed to take into consideration one crucial point, that is, a taxpayer can raise both issues
simultaneously.
Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim
jurisdiction over tax cases: on the one hand, mere prayer for the declaration of a tax measure's
unconstitutionality or invalidity before the CTA can result in a petition's outright dismissal, and
on the other hand, the CA will likewise dismiss the same petition should it find that the primary
issue is not the tax measure's validity but the assessment or taxability of the transaction or
subject involved. As a result of the seemingly conflicting pronouncements, petitioner submits
that taxpayers are now at a quandary on what mode of appeal should be taken, to which court
or agency it should be filed, and which case law should be followed.
Petitioner's above submission is specious. In the recent case of City of Manila v. Grecia-
Cuerdo, the Court en banc has ruled that the CTA now has the power of certiorari in cases
within its appellate jurisdiction. To elucidate:
Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme
Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and
mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg.
129 (BP 129) gives the appellate court, also in the exercise of its original jurisdiction, the
power to issue, among others, a writ of certiorari, whether or not in aid of its appellate
jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the
exercise of their original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power,

with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law xxx.
On the strength of the above constitutional provisions, it can be fairly interpreted

that the power of the CTA includes that of determining whether or not there has been
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the
RTC in issuing an interlocutory order in cases falling within the exclusive appellate
jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari. In
transferring exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably
be assumed that the law intended to transfer also such power as is deemed necessary,
if not indispensable, in aid of such appellate jurisdiction.
Hence, it can now rule not only on the propriety of an assessment or tax treatment of a
certain transaction, but also on the validity of the revenue regulation or revenue memorandum
circular on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition
not only contested the applicability of Sec. 100 of the NIRC over the sales transaction but
likewise questioned the validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the
CTA of its jurisdiction over the controversy, contrary to petitioner's arguments.
(2) YES. The absence of donative intent, if that be the case, does not exempt the sales
of stock transaction from donor's tax since Sec. 100 of the NIRC categorically states that the
amount by which the fair market value of the property exceeded the value of the consideration
shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets
the parameters for determining the "fair market value" of a sale of stocks. Such issuance was
made pursuant to the Commissioner's power to interpret tax laws and to promulgate rules and
regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the
sale, was being applied retroactively in contravention to Sec. 246 of the NIRC. Instead, it merely
called for the strict application of Sec. 100, which was already in force the moment the NIRC
was enacted.
PEN:
THIS IS A LANDMARK CASE. In this case, the Supreme Court reiterated the ruling in
City of Manila v. Grecia-Cuerdo. Thus, it is now well settled that the CTA has jurisdiction over
appeals from the Secretary’s power of review. This was finally settled because under Sec. 4 of
the NIRC, as amended, the express mention of the appellate jurisdiction of the CTA was only
found in the 2nd paragraph thereof, that is, those involving disputes in assessments and others.
However, the 1st paragraph thereof is now also within the jurisdiction of the CTA for it involves
“other matters” as stated in RA 1125.
Thus: “Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.”
Donative intent is NOT an element of Sec. 100. Even if there is no actual donation, the
difference in price is considered a donation by fiction of law.
9. SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J. PACQUIAO v. THE COURT OF
TAX APPEALS - FIRST DIVISION AND THE COMMISSION OF INTERNAL REVENUE
G.R. No. 213394, 06 April 2016, SECOND DIVISION, (Mendoza, J.)

Pacquiao filed his 2008 income tax return on April 15, 2009. The controversy began
when Pacquiao received a Letter of Authority (March LA) from the Regional District Office
(RDO) of the Bureau of Internal Revenue (BIR) for the examination of his books of accounts and
other accounting records for the period covering January 1, 2008 to December 31, 2008.
Another LA was issued to examine the books of accounts and other accounting records of both
Pacquiao and Jinkee for the last 15 years, from 1995 to 2009.
Due to these developments, the petitioners questioned the propriety of the CIR
investigation. According to the petitioners, they were already subjected to an earlier
investigation by the BIR for the years prior to 2007, and no fraud was ever found to have been
committed.
The CIR informed the petitioners that its reinvestigation of years prior to 2007 was
justified because the assessment thereof was pursuant to a "fraud investigation" against the
petitioners under the "Run After Tax Evaders" (RATE) program of the BIR.
The CIR made its initial assessment finding that the petitioners were unable to fully settle
their tax liabilities. Thus, the CIR issued its Notice of Initial Assessment-Informal Conference
(NIC), directly addressed to the petitioners, informing them that based on the best evidence
obtainable, they were liable for deficiency income taxes.
Subsequently, the CIR issued the Preliminary Assessment Notice (PAN), informing the
petitioners that based on third-party information allowed under Section 5(B) and 6 of the
National Internal Revenue Code (NIRC), they found the petitioners liable not only for deficiency
income taxes in the amount of P714,061,116.30 for 2008 and P1,446;245,864.33 for 2009, but
aiso for their non-payment of their VAT liabilities in the amount P4,104,360.01 for 2008 and P
24,901,276.77 for 2009.
The petitioners filed their protest which was however denied by the BIR. Afterwards, the
BIR issued its Formal Letter Demand (FLD). Again, the petitioners questioned the findings of the
CIR. The BIR issued its Final Decision on Disputed Assessment (FDDA), addressed to
Pacquiao only.
Seeking to collect the total outstanding tax liabilities of the petitioners, the BIR issued the
Preliminary Collection Letter (PCL). Then, the BIR-ARMD sent Pacquiao and Jinkee the Final
Notice Before Seizure (FNBS), informing the petitioners of their last opportunity to make the
necessary settlement of deficiency income and VAT liabilities before the bureau would proceed
against their property.
Aggrieved that they were being made liable for deficiency income taxes for the years
2008 and 2009, the petitioners sought redress and filed a petition for review with the CTA.
Pending the resolution by the CTA of their appeal, the petitioners sought the suspension
of the issuance of warrants of distraint and/or levy and warrants of garnishment. Subsequently,
the BIR issued a warrant of distraint and/or levy against Pacquiao and Jinkee.
Aggrieved, the petitioners filed the subject Urgent Motion for the CTA to lift the warrants
of distraint, levy and garnishments issued by the CIR against their assets and to enjoin the CIR
from collecting the assessed deficiency taxes pending the resolution of their appeal. Petitioners
also questioned the necessity for the cash deposit and bond requirement under Section 11 of
Republic Act (R.A.) No. 1125 arguing that the CIR's assessment of their tax liabilities was highly
questionable.
The CTA ordered the CIR to desist from collecting on the deficiency tax assessments
against the petitioners. However, it also required petitioner to deposit the amount of
P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53.
Hence, this petition
FACTS ACCORDING TO TAXPAYER:

They were not served with warrants of garnishment and that the warrants of garnishment
served on their banks of account were made even before they received the FDDA and PCL.
The BIR only served the FDDA to Pacquiao. There was no similar notice to Jinkee. Considering
such failure, the CIR effectively did not find Jinkee liable for deficiency taxes.
The amount assessed by the BIR as deficiency taxes included the deficiency VAT for the
years 2008 and 2009 which they had already paid, albeit in installments.
CTA was correct in insisting that the petitioners post the required cash deposit or bond
as a condition to suspend the collection of deficiency taxes.
Section 11 of R.A. No. 1125, as amended, is without exception when it states that
notwithstanding an appeal to the CTA, a taxpayer, in order to suspend the payment of his tax
liabilities, is required to deposit the amount claimed by the CIR or to file a surety bond for not
more than double the amount due
As for the Court's rulings in Avelino and Zulueta invoked by the petitioners, the CIR
argues that they are inapplicable considering that in the said cases, it was ruled that the
requirement of posting a bond to suspend the collection of taxes could be dispensed with only if
the methods employed by the CIR in the tax collection were clearly null and void and prejudicial
to the taxpayer. The CIR points out that, in this case, the CTA itself made, no finding that its
collection by summary methods was void
The CIR even suggests that the Court revisit its ruling in Avelino and Zulueta as Section
11 of R.A. No. 1125, as amended, gives the CTA no discretion to allow the dispensation of the
required bond as a condition to suspend the collection of taxes.
Whether the assessment and collection of the petitioners' tax liabilities were proper as to
justify the application of Avelino and Zulueta is a question of fact which is not proper in a petition
for certiorari under Rule 65, considering that the rule is only confined to issues of jurisdiction.
They should not be required to make a cash deposit or post a bond to stay the collection
of the questioned deficiency taxes considering that the assessment and collection efforts of the
BIR was marred by both procedural and substantive errors.
The CTA erred when it required them to make a cash deposit or post a bond on the
basis of the fraud assessment by the CIR. The fraud assessment by the CIR could not serve as
basis for security because the amount assessed by the CIR was made without evidentiary
basis, but just grounded on the "best possible sources," without any detail.
The BIR failed to accord them procedural due process when it initiated summary
collection remedies even before the expiration of the period allowed for them to pay the
assessed deficiency taxes.
The BIR only served the FDDA to Pacquiao. There was no similar notice to Jinkee.
Considering such failure, the CIR effectively did not find Jinkee liable for deficiency taxes. The
collection of deficiency taxes against Jinkee was improper as it violated her right to due process
of law.
The posting of the required security is effectively an impossible condition given that their
undisputed net worth is only P1,185,984,697.00
ISSUE:
Does the CTA have the power to suspend the requirement of depositing an amount or
filing a bond while an appeal is pending before it?
RULING:
YES. The application of the exception to the rule is the crux of the subject controversy.
Specifically, Section 11 provides:
No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial,
city or municipal treasurer or the Secretary of Finance, the Secretary of Trade
and Industry and Secretary of Agriculture, as the case may be shall suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law: Provided, however,
That when in the opinion of the Court the collection by the aforementioned
government agencies may jeopardize the interest of the Government and/or the
taxpayer, the Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file
a surety bond for not more than double the amount with the Court.
To recall, the Court in Avelino found that the demand of the then CIR was made without
authority of law because it was made five (5) years and thirty-five (35) days after the last two
returns of Jose Avelino were filed - clearly beyond the three (3)-year prescriptive period
provided under what was then Section 51(d) of the National Internal Revenue Code. Dismissing
the contention of the CIR that the deposit of the amount claimed or the filing of a bond as
required by law was a requisite before relief was granted, the Court therein concurred with the
opinion of the CTA that the courts were clothed with authority to dispense with the requirement
"if the method employed by the Collector of Internal Revenue in the collection of tax is not
sanctioned by law."
In Zulueta, the Court likewise dismissed the argument that the CTA erred in issuing the
injunction without requiring the taxpayer either to deposit the amount claimed or to file a surety
bond for an amount not more than double the tax sought to be collected. The Court cited
Collector of Internal Revenue v. Aurelio P. Reyes and the Court of Tax Appeals where it was
written:
Xxx. At first blush it might be as contended by the Solicitor General, but a careful
analysis of the second paragraph of said Section 11 will lead Us to the conclusion that
the requirement of the bond as a condition precedent to the issuance of a writ of
injunction applies only in cases where the processes by which the collection sought to be
made by means thereof are carried out in consonance with law for such cases provided
and not when said processes are obviously in violation of the law to the extreme that
they have to be SUSPENDED for jeopardizing the interests of the taxpayer.
Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the
collection by summary proceedings is by itself in accordance with existing laws; and then what
is suspended is the act of collecting. It would certainly be an absurdity on the part of the Court of
Tax Appeals to declare that the collection by the summary methods of distraint and levy was
violative of the law, and then, on the same breath require the petitioner to deposit or file a bond
as a prerequisite of the issuance of a writ of injunction.
Thus, the Court still holds that the CTA has ample authority to issue injunctive writs to
restrain the collection of tax and to even dispense with the deposit of the amount claimed or the
filing of the required bond, whenever the method employed by the CIR in the collection of. tax
jeopardizes the interests of a taxpayer for being patently in violation of the law.
The determination of whether the petitioners' case falls within the exception provided
under Section 11, R.A No. 1125 cannot be determined at this point. Though it may be true that it
would have been premature for the CTA to immediately determine whether the assessment
made against the petitioners was valid or whether the warrants were properly issued and
served, still, it behooved upon the CTA to properly determine, at least preliminarily, whether the
CIR, in its assessment of the tax liability of the petitioners, and its effort of collecting the same,
complied with the law and the pertinent issuances of the BIR itself. The CTA should have
conducted a preliminary hearing and received evidence so it could have properly determined
whether the requirement of providing the required security under Section 11, R.A. No. 1125
could be reduced or dispensed with pendente lite.
Absent any evidence and preliminary determination by the CTA, the Court cannot make
any factual finding and settle the issue of whether the petitioners should comply with the
security requirement under Section 11, R.A. No. 1125. The determination of whether the
methods, employed by the CIR in its assessment, jeopardized the interests of a taxpayer for
being patently in violation of the law is a question of fact that calls for the reception of evidence
which would serve as basis. The remand of the case to the CTA on this question is, therefore,
more sensible and proper.
To resolve the issue of whether the petitioners should be required to post the security
bond under Section 11 of R.A. No. 1125, and, if so, in what, amount, the CTA must take into
account, among others, the following:
First. Whether the requirement of a Notice of Informal Conference was complied with;
Second. Whether the 15-year period subject of the CIR's investigation is arbitrary and
excessive. - Section 203 of the Tax Code provides a 3-year limit for the assessment. of internal
revenue taxes. While the prescriptive period to assess deficiency taxes may be extended to 10
years in cases where there is false, fraudulent, or non-filing of a tax return - the fraud
contemplated by law must be actual;
Third. Whether fraud was duly established;
Fourth. Whether the FLD issued against the petitioners was irregular. - The FLD issued
against the petitioners allegedly stated that the amounts therein were "estimates based on best
possible sources." To stress, the petitioners had asserted that the assessment of the CIR was
not based on actual transactions but on "estimates based on best possible sources." This
assertion has not been satisfactorily addressed by the CIR in detail. Thus, there is a need for
the CTA to conduct a preliminary hearing.
Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint and/or Levy
were validly issued.
If there would be a need for a bond or to reduce the same, the CTA should take note
that the Court, in A.M. No. 15-92-01-CTA, resolved to approve the CTA En Banc Resolution No.
02-2015, where the phrase "amount claimed" stated in Section 11 of R.A. No. 1125 was
construed to refer to the principal amount of the deficiency taxes, excluding penalties, interests
and surcharges. Moreover, the CTA should.also consider the claim of the petitioners that they
already paid a total of P32,196,534.40 deficiency VAT assessed against' them
In the conduct of its preliminary hearing, the CTA must balance the scale between the
inherent power of the State to tax and its right to prosecute perceived transgressors of the law,
on one side; and the constitutional rights of petitioners to due process of law and the equal
protection of the laws, on the other. In case of doubt, the tax court must remember that as in all
tax cases, such scale should favor the taxpayer, for a citizen's right to due process and equal
protection of the law is amply protected by the Bill of Rights under the Constitution.
PEN:
Section 11 of Republic Act No. 1125 is premised on the assumption that the collection
by summary proceedings is by itself in accordance with existing laws; and then what is
suspended is the act of collecting. It would certainly be an absurdity on the part of the Court of
Tax Appeals to declare that the collection by the summary methods of distraint and levy was
violative of the law, and then, on the same breath require the petitioner to deposit or file a bond
as a prerequisite of the issuance of a writ of injunction.
THEREFORE, the requirement of a bond under Sec. 11 when a case is pending appeal
is applicable ONLY if the methods employed by the BIR are legal. If there was a violation of the
law, the CTA has the power to suspend the requirement of filing a bond. In other words,
whenever the method employed by the CIR in the collection of. tax jeopardizes the interests of a
taxpayer for being patently in violation of the law.
It must be emphasized that the Supreme Court did not make a ruling if indeed, the filing
of a bond by Pacquiao should be suspended. It instead ordered the CTA to conduct a
preliminary hearing to determine if the methods employed by the CIR was patently in violation of
the law.
Impliedly, it may be said that the CTA, when a case is pending before it, is empowered
to not yet immediately require the posting of a bond. It should first conduct a preliminary hearing
and if during such it finds that the methods used by the CIR was in accordance with the law,
only then can it require the bond.
REMEMBER THIS, a PAN is void if no NIC is sent to a taxpayer. This is one of the first
requirements of Section 3 of Revenue Regulation (R.R.) No. 12-99, is that a NIC be first
accorded to the taxpayer. The purpose of sending a NIC is but part of the "due process
requirement in the issuance of a deficiency tax assessment," the absence of which renders
nugatory any assessment made by the tax authorities.
Due process requirements in tax assessments have been repeatedly emphasized in the
first few cases to digest.
GR: the CIR only has 3 years within which to conduct its assessment to determine
deficiencies.
XPN: prescriptive period to assess deficiency taxes may be extended to 10 years in

cases where there is false, fraudulent, or non-filing of a tax return. HOWEVER, it must be
emphasized that the fraud contemplated by law must be actual.
The CTA must balance the scale between the inherent power of the State to tax and its
right to prosecute perceived transgressors of the law, on one side; and the constitutional rights
of petitioners to due process of law and the equal protection of the laws, on the other. In case of
doubt, the tax court must remember that as in all tax cases, such scale should favor the
taxpayer, for a citizen's right to due process and equal protection of the law is amply protected
by the Bill of Rights under the Constitution.
10. KEPCO PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. Nos. 225750-51, 28 July 2020, FIRST DIVISION, (Peralta, C.J.)
FACTS ACCORDING TO GOVERNMENT:

Kepco received Preliminary Assessment Notice for alleged deficiency income tax, value-
added tax (VAT), expanded withholding tax, and final withholding tax (FWT) for taxable year
(TY) 2006. It also received a Final Letter of Demand (FLD) therefor.
On November 26, 2009, Kepco filed its protest to the FLD. Subsequently, on June 25,
2010, Kepco filed its petition before the CTA Division to which the latter cancelled the deficiency
FWT assessment and the compromise penalties but ordered the former to to pay deficiency
VAT plus interest and surcharges. This prompted Kepco to elevate the case on CTA En Banc to
which the latter dismissed for being filed out of time.
The OSG opposed Kepco’s subsequent manifestation and motion.

Kepco filed a Manifestation that it entered into a compromise agreement with the CIR on
its tax assessments for the years 2006, 2007 and 2009. As proof, Kepco attached the Certificate
of Availment issued by the CIR certifying that the National Evaluation Board (NEB) approved
Kepco's application for compromise settlement for deficiency taxes for TYs 2006, 2007 and
2009. Thus, Kepco moved that the case be declared closed and terminated.
The compromise agreement is not valid because:
First, it failed to allege and prove any of the grounds for a valid compromise under
Section 3 of Revenue Regulations (RR) No. 30-2002;
Second, the CTA did not yet issue any adverse Decision against Kepco, hence, there is
no "doubtful validity" to speak of as a ground for a valid compromise pursuant to Section 2 of
RR No. 8-2004;
and third, Kepco did not pay in full the compromise amount upon filing of the application
in violation of Section 2 of RR No. 9-2013.
The CIR improperly arrogated unto himself the power of the NEB to decide on the offer
of compromise when the CIR accepted Kepco's additional payment of P16,661,759.20 before
the NEB could approve or reject Kepco's original application.
Tt is entitled to collect 5% success fee in case of government approved compromise

agreements, pursuant to Section 11(i) of Republic Act (RA) No. 9417
Accordingly, the OSG prays that Kepco be ordered to pay the balance of
P343,248,516.65 plus additional interest, fees, or surcharges as a consequence of its void tax
compromise settlement with the CIR, and that the OSG be awarded the sum of P17,162,425.83
There exists doubtful validity on the assessment for TY 2006 which prompted the CIR to
consider and accept Kepco's compromise offer. Contrary to the OSG's claim, Kepco paid 40%
of the basic tax assessed for TYs 2006, 2007 and 2009 in the amount of P143,891,831.90.
ISSUE:
Should the compromise be approved and upheld?
RULING:
YES. There is no dispute that Kepco entered into a compromise agreement with the CIR
on its deficiency taxes for TY 2006, and the CIR issued Certificate of Availment. Thus, the
deficiency tax assessment subject of the Petition can now be considered closed and terminated.
The power of the CIR to enter into compromise agreements for deficiency taxes is
explicit in Section 204(A) of the 1997 National Internal Revenue Code, as amended (1997
NIRC). The CIR may compromise an assessment when a reasonable doubt as to the validity of
the claim against the taxpayer exists, or the financial position of the taxpayer demonstrates a
clear inability to pay the tax.
In this regard, the BIR issued RR No. 30-2002, as amended by RR No. 08-2004, which
enumerates the bases for acceptance of the compromise settlement on the ground of doubtful
validity, viz.:
SEC. 3. Basis For Acceptance of Compromise Settlement. – x x x
1. Doubtful validity of the assessment. — The offer to compromise a delinquent

account or disputed assessment under these Regulations on the ground of
reasonable doubt as to the validity of the assessment may be accepted when it is
shown that:
(a) The delinquent account or disputed assessment is one resulting from a

jeopardy assessment x x x; or
(b) The assessment seems to be arbitrary in nature, appearing to be

based on presumptions and there is reason to believe that it is looking in
legal and/or factual basis; or
(c) The taxpayer failed to file an administrative protest on account of the

alleged failure to receive notice of assessment and there is reason to
believe that the assessment is lacking in legal and/or factual basis; or
(d) The taxpayer failed to file a request for reinvestigation/ reconsideration

within 30 days from receipt of final assessment notice and there is reason
to believe that the assessment is lacking in legal and/or factual basis; or
(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an
adverse decision of the Commissioner, or his authorized representative, in
some cases, within 30 days from receipt thereof and there is reason to
believe that the assessment is lacking in legal and/or factual basis; or
(f) The assessments were issued on or after January 1, 1998, where the
demand notice allegedly failed to comply with the formalities prescribed
under Sec. 228 of the National Internal Revenue Code of 1997; or
(g) Assessments made based on the "Best Evidence Obtainable Rule"

and there is reason to believe that the same can be disputed by sufficient
and competent evidence; or
(h) The assessment was issued within the prescriptive period for
assessment as extended by the taxpayer's execution of Waiver of the
Statute of Limitations the validity or authenticity of which is being
questioned or at issue and there is strong reason to believe and evidence
to prove that it is not authentic; or
(i) The assessment is based on an issue where a court of competent

jurisdiction made an adverse decision against the Bureau, but for which
the Supreme Court has not decided upon with finality.
Kepco's case falls under paragraph e – the assessment became final because Kepco
failed to appeal the inaction or "deemed denial" of the CIR to the CTA within 30 days after the
expiration of the 180-day period and there is reason to believe that the assessment is lacking in
legal and/or factual basis.
The inaction of the CIR to Kepco’s protest is deemed an adverse decision of the CIR on
the administrative protest. Thus, for purposes of determining whether taxpayers may already
appeal to the CTA, the inaction of the CIR within 180 days shall be deemed denial or an
adverse decision of the CIR. Since Kepco failed to appeal the inaction or deemed denial or
adverse decision of the CIR on June 24, 2010, the assessment for deficiency VAT and FWT for
TY 2006 became final, executory and demandable.
The authority of the CIR to compromise is purely discretionary and the courts cannot
interfere with his exercise of discretionary functions, absent grave abuse of discretion. Here, no
grave abuse of discretion exists. Kepco complied with the procedures prescribed under the BIR
rules on the application and approval of compromise settlement on the ground of doubtful
validity.
Contrary to the OSG's claim that Kepco did not pay the full amount offered for
compromise upon filing of its application, records show that Kepco paid P143,891,831.90
representing 40% of the basic tax assessed for TYs 2006, 2007 and 2009. Notably, the
minimum compromise amount under Section 204(A)[50] of the 1997 NIRC and Section 4 of RR
No. 30-2002 is 40% of the basic tax assessed.
Thus, Kepco complied with the requirement of payment of the compromise offer as a
pre-condition for the processing of the application.
Further, the TWG evaluated Kepco's application and recommended to the NEB its
approval on the basis of doubtful validity. The application was approved by a majority of all the
members of the NEB in compliance with Section 2 of RR No. 9-2013. Thereafter, the CIR issued
Certificate of Availment in favor of Kepco.
A compromise agreement has the effect of res judicata on the parties. To allow the OSG
to question the validity of the compromise settlement alleging anomalies in its approval is not
only unfair to Kepco and taxpayers alike that entered into compromise agreements in good faith
but there will also be no final and definitive settlement of tax compromises.
The dissenting opinion of Justice Carpio in PNOC v. Court of Appeals is enlightening:
xxx
The parties to the compromise agreement have voluntarily settled the tax liability arising
from PNB's failure to withhold the final tax on PNOC's interest income. The parties have
fully implemented in good faith the compromise agreement. The new BIR Commissioner
cannot just annul the legitimate compromise agreements made by his predecessors in
the performance of their regular duties where the parties entered into the compromise
agreements in good faith and had already fully implemented the compromise
agreements. To rule otherwise would subject the validity and finality of a tax compromise
agreement to depend on the different interpretations of succeeding BIR Commissioners.
Such lack of finality of tax compromises would discourage taxpayers from entering into
tax compromises with the BIR, considering that compromises entail admissions by
taxpayers of violations of tax laws.
Indeed, while taxes are the lifeblood of the government, the power of taxation should be
exercised with caution to minimize the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."
The OSG acted as counsel for the BIR in the case proceedings before the CTA Division
Consistent with R.A. No. 9417, the OSG is entitled to 5% of the total deficiency tax liabilities of
Kepco but only for TY 2006.
PEN:
According to the NIRC, there are 2 grounds where the CIR may compromise an
assessment:
a) When a reasonable doubt as to the validity of the claim against the taxpayer exists, or
b) the financial position of the taxpayer demonstrates a clear inability to pay the tax.
EQUALLY IMPORTANT is that when the CIR accepts and executes the compromise, it
must respect it and it will not be allowed to annul it. To rule otherwise would subject the validity
and finality of a tax compromise agreement to depend on the different interpretations of
succeeding BIR Commissioners. Such lack of finality of tax compromises would discourage
taxpayers from entering into tax compromises with the BIR, considering that compromises entail
admissions by taxpayers of violations of tax laws.
A compromise agreement has the effect of res judicata on the parties.

11. STEEL CORPORATION OF THE PHILIPPINES v. BUREAU OF CUSTOMS (BOC),
BUREAU OF INTERNAL REVENUE (BIR), DEPARTMENT OF FINANCE (DOF), OFFICE OF
THE PRESIDENT (OP), AND MUNICIPALITY OF BALAYAN, BATANGAS
G.R. No. 220502, 12 February 2018, SECOND DIVISION, (Peralta, J.)

Equitable PCI Bank, Inc. initiated a petition for rehabilitation of Steel Corporation of the
Philippines (STEELCORP) before the RTC. The latter directed, among others, the "stay of all
claims against STEELCORP, by all other corporations, persons or entities insofar as they may
be affected by the present proceedings, until further notice from this Court, pursuant to Sec. 6,
of Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation."
While the rehabilitation proceedings were pending, Republic Act (R.A.) No. 10142, or the
Financial Rehabilitation and Insolvency Act (FRIA) of 2010 was enacted. Section 19 of which
mandates: “Upon issuance of the Commencement Order by the court, and until the approval of
the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all
taxes and fees, including penalties, interests and charges thereof, due to the national
government or to LGUs shall be considered waived, in furtherance of the objectives of
rehabilitation.”
STEELCORP manifested to the Bureau of Customs (BOC) Commissioner Angelito A.

Alvarez (Alvarez) its intent to avail of the privileges granted by Section 19 of R. A. No. 10142.
Commissioner Alvarez, in a Memorandum, approved the waiver of all taxes and fees which are
due to STEELCORP. However, Department of Finance (DOF) Undersecretary Carlo A. Carag
(Carag) disapproved the recommendation of Commissioner Alvarez.
Furthermore, Undersecretary Carag moved to dismiss the appeal of STEELCORP to the

Office of the President for lack of jurisdiction.
On January 12, 2012, the RTC ordered the Manila International Container Port (MICP)
District Collector of Customs to immediately comply with the Status Quo Order by refraining the
imposition of customs duties and taxes on the importation of raw materials of STEELCORP. The
Office of the Solicitor General (OSG) filed a Motion to Dismiss (MTD) which was however
denied/
However, upon motion by the OSG, the RTC reversed its ruling and ruled that the issue
of whether STEELCORP may avail of the benefits of R.A. No. 10142 should have been raised
before the Court of Tax Appeals (CTA) after the BOC denied the claim. The Court of Appeals
denied STEELCORP’s appeal.
The Stay Order relied upon by STEELCORP is not the same as the Commencement
Order required by law to consider the taxes and customs duties waived; and assuming that the
Stay Order is the same as the Commencement Order, the waiver contemplated under Section
19 does not include taxes and customs duties due on importations or shipments that were made
by STEELCORP after the issuance of the Commencement Order.
The decision of the DOF involves customs matters for automatic review from the
decision of the Commissioner of Customs. Verily, it is the Court of Tax Appeals (CTA) which
has the exclusive appellate jurisdiction to review the decision of the Secretary of Finance
pursuant to Section 7, Republic Act No. 1125, as amended.
The RTC has no jurisdiction to hear and determine the complaint because, under
Section 602 (g) of Presidential Decree (P.D.) No. 1464 or the TCCP, the BOC acquires
exclusive jurisdiction over imported goods for purposes of enforcement of the customs laws
from the moment the goods are actually in its possession or control; thus, the Status Quo Order
is null and void.
CA erred when it sustained the trial court's act of giving due course to the OSG and the
BIR motions that were set for hearing on days that were declared as national holiday and/or
beyond the period prescribed by the Rules.
The present controversy does not assail its liability to pay customs duties, taxes or other
charges on its importation of raw materials. Rather, the issue is whether a corporation placed
under corporate rehabilitation can avail the benefits of Section 19 of R.A. No. 10142, which
issue is cognizable by the RTC and whose decision may be appealed to the CA or the Supreme
Court and not to any other court like the CTA.
It is not raising any issue as to the amount and collectibility of the taxes and duties on its
importation but is only seeking compliance by the respondents of their obligations under Section
19.
ISSUES:
(1) Was STEELCORP accorded procedural due process?
(2) Does the CTA have exclusive jurisdiction over the present case?
RULING:
(1) YES. Section 6, Rule 1 of the Rules provides that the rules should be liberally
construed in order to promote their objective of securing a just, speedy and inexpensive
disposition of every action and proceeding. A liberal construction is proper where the lapse in
the literal observance of a procedural rule has not prejudiced the adverse party and has not
deprived the court of its authority.
With regard the rules on notice of hearing on a motion, the CA correctly held that the test
is the presence of the opportunity to be heard, as well as to have time to study the motion and
meaningfully oppose or controvert the grounds upon which it is based. Considering that
STEELCORP was afforded the opportunity to be heard through the pleadings filed in opposition
to the motions of the OSG and the BIR, the requirements of procedural due process were
substantially complied with and that the compliance justified a departure from a literal
application of the rules.
(2) YES. In reverting to the earlier rulings that upheld the exclusive jurisdiction of the
CTA to determine the constitutionality or validity of tax laws, rules and regulations, and other
administrative issuances, this Court recently elucidated in Banco De Oro v. Republic of the
Philippines the subject matter jurisdiction of the CTA:
Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over all
matters involving assessments that were previously cognizable by the Regional Trial
Courts (then courts of first instance).
In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of
Tax Appeals and elevated its rank to the level of a collegiate court with special
jurisdiction. Section 1 specifically provides that the Court of Tax Appeals is of the same
level as the Court of Appeals and possesses "all the inherent powers of a Court of
Justice."
Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to
resolve all tax-related issues:
Section 7. Jurisdiction. - The CTA shall exercise:
1) Decisions of the Commissioner of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other
laws administered by the Bureau of Internal Revenue;
2) Inaction by the Commissioner of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other
laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of
action, in which case the inaction shall be deemed a denial;
3) Decisions, orders or resolutions of the Regional Trial Courts in

local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction;
4) Decisions of the Commissioner of Customs in cases involving

liability for customs duties, fees or other money charges, seizure,
detention or release of property affected, fines, forfeitures or other
penalties in relation thereto, or other matters arising under the
Customs Law or other laws administered by the Bureau of
Customs;
5) Decisions of the Central Board of Assessment Appeals in the

exercise of its appellate jurisdiction over cases involving the
assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
6) Decisions of the Secretary of Finance on customs cases

elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the Government
under Section 2315 of the Tariff and Customs Code;
7) Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or
article, involving dumping and countervailing duties under Section
301 and 302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said
duties.
The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in disputing
or contesting an assessment or claiming a refund.
Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes,
appeals from the decisions of quasi-judicial agencies (Commissioner of Internal
Revenue, Commissioner of Customs, Secretary of Finance, Central Board of
Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be
brought exclusively to the Court of Tax Appeals. In other words, within the judicial
system, the law intends the Court of Tax Appeals to have exclusive jurisdiction to
resolve all tax problems.
With the enactment of R.A. No. 1125, the CTA was granted the exclusive appellate
jurisdiction to review by appeal all cases involving disputed assessments of internal revenue
taxes, customs duties, and real property taxes. In general, it has jurisdiction over cases
involving liability for payment of money to the Government or the administration of the
laws on national internal revenue, customs, and real property. (Emphasis supplied)
From the clear purpose of R.A. No. 1125 and its amendatory laws, the CTA, therefore, is
the proper forum to file the appeal. Matters calling for technical knowledge should be handled by
such court as it has the specialty to adjudicate tax, customs, and assessment cases.
Section 11, Paragraph 4 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the
rule that an appeal to the CTA will not suspend the payment, levy, distraint, and/or sale of any
property of the taxpayer for the satisfaction of his tax liability as provided by existing law.
Nonetheless, when, in the opinion of the CTA, the collection may jeopardize the interest of the
Government and/or the taxpayer, it may suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a surety bond for not more than double the
amount.
It is clear that the authority of the courts to issue injunctive writs to restrain the collection
of tax and to dispense with the deposit of the amount claimed or the filing of the required bond is
not simply confined to cases where prescription has set in. As explained by the Court in those
cases, whenever it is determined by the courts that the method employed by the Collector of
Internal Revenue in the collection of tax is not sanctioned by law, the bond requirement under
Section 11 of R.A. No. 1125 should be dispensed with.
PEN:
The CTA has exclusive jurisdiction over cases involving liability for payment of
money to the Government or the administration of the laws on national internal revenue,
customs, and real property.
Therefore, even if there is no assessment yet, or even if a law is not specifically about a
tax measure, the CTA still has exclusive appellate jurisdiction over such cases where it falls
within those mentioned in Sec. 7 of R.A. 9282. Here, what is STEELCORP is essentially
contesting is a decision of the Commissioner of Customs, as reviewed by the DOF. According to
this case, it is now settled that such is a subject matter in which the CTA has jurisdiction.
12. SMI-ED PHILIPPINES TECHNOLOGY, INC. v. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 175410, 12 November 2014, SECOND DIVISION, (Leonen, J.)

SMI-Ed Philippines (SMI) is a PEZA-registered corporation but it failed to commence
operations. Subsequently, it sold its buildings and some of its installed machineries and
equipment for P893,550,000.00. In its quarterly income tax return for year 2000, SMI subjected
the entire gross sales of its properties to 5% final tax on PEZA-registered corporations. SMI
paid taxes amounting to P44,677,500.00. It also alleged that it incurred a net loss of
P2,233,464,538.00.
However, on February 2, 2001, it filed an administrative claim for the refund of

P44,677,500.00 with the Bureau of Internal Revenue (BIR). The BIR did not act on SMI’s claim,
which prompted the latter to file a petition before the Court of Tax Appeals (CTA).
The CTA Second Division denied SMI’s claim for refund. After finding that SMI sold
properties that were capital assets under Section 39(A)(1) of the National Internal Revenue
Code of 1997, the Court of Tax Appeals Second Division subjected the sale of SMI’s assets to
6% capital gains tax under Section 27(D)(5) of the same Code and Section 2 of Revenue
Regulations No. 8-98. Thus, it found SMI liable for capital gains tax amounting to
P53,613,000.00. Therefore, SMI must still pay the balance of P8,935,500.00 as deficiency tax,
"which respondent should perhaps look into."
The CTA En Banc affirmed the CTA Second Division.
The CTA’s determination of petitioner's liability for capital gains tax was not an
assessment. Such determination was necessary to settle the question regarding the tax
consequence of the sale of the properties. This is clearly within the Court of Tax Appeals'
jurisdiction under Section 7 of Republic Act No. 9282.
Since petitioner's machineries and equipment are classified as capital assets, their sales
should be subject to capital gains tax. Respondent is mistaken.
Moreover, petitioner failed to justify its claim for refund.
It erroneously paid the tax, therefore, it is entitled to a refund.
The CTA Second Division erroneously assessed the 6% capital gains tax on the sale of
SMI’s equipment, machineries, and buildings.
The CTA Second Division cannot make an assessment at the first instance. It has no
jurisdiction to make an assessment since its jurisdiction, with respect to the decisions of
respondent, is merely appellate.
Even if the Court of Tax Appeals Second Division has such power, the period to make
an assessment had already prescribed.
CTA En Banc erroneously subjected petitioner's machineries to 6% capital gains tax.

Section 27(D)(5) of the National Internal Revenue Code of 1997 is clear that the 6% capital
gains tax on domestic corporations applies only on the sale of lands and buildings and not to
machineries and equipment. Since ¥1,700,000,000.00 of the ¥2,100,000,000.00 constituted the
consideration for the sale of petitioner's machineries, only ¥400,000,000.00 or P170,200,000.00
should be subjected to the 6% capital gains tax. Petitioner should be liable only for
P10,212,000.00. It should be entitled to a refund of P34,464,500.00 after deducting
P10,212,000.00 from the erroneously paid final tax of P44,677,500.00.
ISSUES:
(1) Did the CTA make an assessment in making its pronouncements?
(2) Does the CTA have jurisdiction, in a case for refund, to subject the taxpayer to other
categories of tax liabilities?
(3) Is SMI entitled to the benefits granted to PEZA Corporations?
(4) Are all of the properties sold by SMI subject to capital gains tax?
(5) Did prescription set in barring the BIR in claiming any deficiencies in the Capital Gains
tax, if any?
RULING:
(1) NO. The term "assessment" refers to the determination of amounts due from a
person obligated to make payments. In the context of national internal revenue collection, it
refers the determination of the taxes due from a taxpayer under the National Internal Revenue
Code. The power and duty to assess national internal revenue taxes are lodged with the BIR
The BIR is not mandated to make an assessment relative to every return filed with it.
Tax returns filed with the BIR enjoy the presumption that these are in accordance with the law.
Tax returns are also presumed correct since these are filed under... the penalty of perjury.
Generally, however, the BIR assesses taxes when it appears, after a return had been filed, that
the taxes paid were incorrect, false, or fraudulent. The BIR also assesses taxes when taxes are
due but no return is filed.
The Court of Tax Appeals has no power to make an assessment at the first instance.
On matters such as tax collection, tax refund, and others related to the national internal revenue
taxes, the Court of Tax Appeals' jurisdiction is appellate in nature.
Section 7(a)(1) and Section 7(a)(2) of Republic Act No. 1125, as amended by Republic Act No.
9282, provide that the Court of Tax Appeals reviews decisions and inactions of the
Commissioner of Internal Revenue in disputed assessments and claims for tax refunds.
The following must be present for the Court of Tax Appeals to have jurisdiction over a
case involving the BIR's decisions or inactions:
a) A case involving any of the following: Disputed assessments; Refunds of internal

revenue taxes, fees, or other charges, penalties in relation thereto; and Other matters
arising under the National Internal Revenue Code of 1997.
b) Commissioner of Internal Revenue's decision or inaction in a case submitted to him or
her.
When the BIR's unfavorable decision is brought on appeal to the Court of Tax Appeals,
the Court of Tax Appeals reviews the correctness of the BIR's assessment and decision. In
reviewing the BIR's assessment and decision, the Court of Tax Appeals had to make its own
determination of the taxpayer's tax liabilities. The Court of Tax Appeals may not make such
determination before the BIR makes its assessment and before a dispute involving such
assessment is brought to the Court of Tax Appeals on appeal.
However, the Court of Tax Appeals' jurisdiction is not limited to cases when the BIR
makes an assessment or a decision unfavorable to the taxpayer. Because Republic Act No.
1125 also vests the Court of Tax Appeals with jurisdiction over the BIR's inaction on a
taxpayer's refund claim, there may be instances when the Court of Tax Appeals has to take
cognizance of cases that have nothing to do with the BIR's assessments or decisions. When
the BIR fails to act on a claim for refund of voluntarily but mistakenly paid taxes, for example,
there is no decision or assessment involved.
A taxpayer may find that he or she has paid more than the amount that should have
been paid under the law. Erroneously paid taxes may also come in the form of tax payments for
the wrong category of tax. Thus, a taxpayer may find that he or she has paid a certain kind of
tax that he or she is not subject to. In these instances, the taxpayer may ask for a refund. If the
BIR fails to act on the request for refund, the taxpayer may bring the matter to the Court of Tax
Appeals.
From the taxpayer's self-assessment and tax payment up to his or her request for refund
and the BIR's inaction, the BIR's participation is limited to the receipt of the taxpayer's payment.
The BIR does not make an assessment; the BIR issues no decision; and there is no dispute yet
involved. Since there is no BIR assessment yet, the Court of Tax Appeals may not determine
the amount of taxes due from the taxpayer. There is also no decision yet to review. However,
there was inaction on the part of the BIR. That inaction is within the Court of Tax Appeals'
jurisdiction.
Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject it to 6%
capital gains tax or other taxes at the first instance. As earlier established, the Court of Tax
Appeals has no assessment powers. In stating that petitioner's transactions are subject to
capital gains tax, however, the Court of Tax Appeals was not making an assessment. It was
merely determining the proper category of tax that petitioner should have paid, in view of its
claim that it erroneously imposed upon itself and paid the 5% final tax imposed upon PEZA-
registered enterprises.
(2) YES. The determination of the proper category of tax that petitioner should have paid
is an incidental matter necessary for the resolution of the principal issue, which is whether
petitioner was entitled to a refund. The issue of petitioner's claim for tax refund is intertwined
with the issue of the proper taxes that are due from petitioner.
To determine if petitioner was entitled to the refund being claimed, the Court of Tax
Appeals has the duty to determine if petitioner was indeed not liable for the 5% final tax and,
instead, liable for taxes other than the 5% final tax. As in South African Airways, petitioner's
request for refund can neither be granted nor denied outright without such determination.
If the taxpayer is found liable for taxes other than the erroneously paid 5% final tax, the
amount of the taxpayer's liability should be computed and deducted from the refundable
amount.
Any liability in excess of the refundable amount, however, may not be collected in a case
involving solely the issue of the taxpayer's entitlement to refund. The question of tax deficiency
is distinct and unrelated to the question of petitioner's entitlement to refund. Tax deficiencies
should be subject to assessment procedures and the rules of prescription.
(3) NO. Petitioner is not entitled to benefits given to PEZA-registered enterprises,

including the 5% preferential tax rate under Republic Act No. 7916 or the Special Economic
Zone Act of 1995. To avail the fiscal incentives under Republic Act No. 7916, the law did not
say that mere PEZA registration is sufficient. The fiscal incentives and the 5% preferential tax
rate are available only to businesses operating within the Ecozone. A business is considered in
operation when it starts entering into commercial transactions that are not merely incidental to
but are related to the purposes of the business.
Petitioner never started its operations since its registration. Therefore, it cannot avail the
incentives provided under Republic Act No. 7916. It is not entitled to the preferential tax rate of
5% on gross income in lieu of all taxes. Because petitioner is not entitled to a preferential rate,
it is subject to ordinary tax rates under the National Internal Revenue Code of 1997.
(4) NO. For petitioner's properties to be subjected to capital gains tax, the properties
must form part of petitioner's capital assets.
Section 39(A)(1) of the National Internal Revenue Code of 1997 defines "capital assets":
(1) Capital Assets. - the term 'capital assets' means property held by the taxpayer
(whether or not connected with his trade or business), but does not include stock
in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of... the taxpayer if on hand at the close of the taxable
year, or property held by the taxpayer primarily for sale to customers in the
ordinary course of his trade or business, or property used in the trade or
business, of a character which is subject to the allowance for depreciation
provided in Subsection (F) of Section 34; or real property used in trade or
business of the taxpayer.
The properties involved in this case include petitioner's buildings, equipment, and
machineries. They are not among the exclusions enumerated in Section 39(A)(1) of the
National Internal Revenue Code of 1997. None of the properties were used in petitioner's trade
or ordinary course of business because petitioner never commenced operations. They were not
part of the inventory. None of them were stocks in trade.
Petitioner’s machineries and equipments are not subject to capital gains tax. For
corporations, the National Internal Revenue Code of 1997 treats the sale of land and buildings,
and the sale of machineries and equipment, differently. Domestic corporations are imposed a
6% capital gains tax only on the presumed gain realized from the sale of lands and/or buildings.
The National Internal Revenue Code of 1997 does not impose the 6% capital gains tax on the
gains realized from the sale of machineries and equipment. Therefore, only the presumed gain
from the sale of petitioner's land and/or building may be subjected to the 6% capital gains tax.
The income from the sale of petitioner's machineries and equipment is subject to the provisions
on normal corporate income tax.
(5) YES. Section 203 of the National Internal Revenue Code of 1997 provides that as a
general rule, the BIR has three (3) years from the last day prescribed by law for the filing of a
return to make an assessment. If the return is filed beyond the last day prescribed by law for
filing, the three-year period shall run from the actual date of filing. Thus:
This court said that the prescriptive period to make an assessment of internal revenue
taxes is provided "primarily to safeguard the interests of taxpayers from unreasonable
investigation." The reason behind the provisions on prescriptive periods for tax assessments is
enunciated in Commissioner of Internal Revenue v. FMF Development Corporation:
Accordingly, the government must assess internal revenue taxes on time so as not to
extend indefinitely the period of assessment and deprive the taxpayer of the assurance
that it will no longer be subjected to further investigation for taxes after the expiration of...
reasonable period of time.
The BIR had three years from the filing of petitioner's final tax return in 2000 to assess
petitioner's taxes. Nothing stopped the BIR from making the correct assessment. The elevation
of the refund claim with the Court of Tax Appeals was not a bar against the BIR's exercise of its
assessment powers. The BIR, however, did not initiate any assessment for deficiency capital
gains tax.
Since more than a decade have lapsed from the filing of petitioner's return, the BIR can
no longer assess petitioner for deficiency capital gains taxes, if petitioner is later found to have
capital gains tax liabilities in excess of the amount claimed for refund.
PEN:
In an action for the refund of taxes allegedly erroneously paid, the Court of Tax Appeals
may determine whether there are taxes that should have been paid in lieu of the taxes paid.
Determining the proper category of tax that should have been paid is not an assessment. It is
incidental to determining whether there should be a refund.
A Philippine Economic Zone Authority (PEZA)-registered corporation that has never

commenced operations may not avail the tax incentives and preferential rates given to PEZA-
registered enterprises. Such corporation is subject to ordinary tax rates under the National
Here, whatever payment that a taxpayer may have paid for a specific category of tax
liability in which he is not actually liable may be applied to a tax liability category in which he is
properly liable but in which he had not made the corresponding payment therefor. The CTA has
the authority to do such in an action commenced by a taxpayer for refund because such
determination by the CTA is a mere incident of determining the propriety of a refund.
In such cases, where the taxpayer appealed before the CTA because of the inaction of
the BIR, the CTA is not making an assessment. An assessment can only be made by the BIR,
such cannot be done by the CTA.
IMPORTANT: Any liability in excess of the refundable amount, however, may not be
collected in a case involving solely the issue of the taxpayer's entitlement to refund. The
question of tax deficiency is distinct and unrelated to the question of petitioner's
entitlement to refund. Tax deficiencies should be subject to assessment procedures and the
rules of prescription.
NOTE: In corporations, lands/buildings, classified as capital assets, and

machineries/equipments are tax differently. The former is subject to capital gains tax while the
latter is subject only to normal corporate income tax.
However, there is no distinction if the taxpayer is an individual.Therefore, only the

presumed gain from the sale of petitioner's land and/or building may be subjected to the 6%
capital gains tax. The income from the sale of petitioner's machineries and equipment is subject
to the provisions on normal corporate income tax.
13. RHOMBUS ENERGY, INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 206362, 01 August 2018, THIRD DIVISION, (Bersamin, J.)

Rhombus Energy, Inc. (Rhombus), filed its Annual Income Tax Return ("ITR") for
taxable year 2005. In said Annual ITR for taxable year 2005, Rhombus indicated that its excess
creditable withholding tax ("CWT") for the year 2005 was "To be refunded".
Rhombus, in its Quarterly Income Tax Return for the taxable year 2006 for the first,
second, and third quarters, showed that it had P1,500,653.000 prior year’s excess credits.
However, Rhombus’ Annual Income Tax Return for taxable year 2006 showed that its
prior year's excess credits of P0.00. Subsequently, on 29 December 2006, Rhombus filed an
administrative claim for refund of its alleged excess/unutilized CWT for the year 2005 in the
amount of P1,500,653.00.
Pending the Commissioner of Internal Revenue’s (CIR) action on Rhombus’ claim for
refund or issuance of a tax credit certificate of its excess/unutilized CWT for the year 2005 and
before the lapse of the period for filing an appeal, Rhombus filed a petition for review before the
Court of Tax Appeals (CTA) Division. The CTA division granted the refund.
However, the CTA En Banc reversed and set aside the CTA Division. It held that since
Rhombus’ option to carry over had become irrevocable considering that it opted and it actually
did carry-over its unutilized creditable withholding tax of P1,500,653.00 for taxable year 2005 to
the first, second and third quarters of taxable year 2006.
A) Assuming without admitting that Rhombus filed a claim for refund, the same is subject to
investigation by the BIR
B) Rhombus failed to demonstrate that the tax was erroneously or illegally collected
C) taxes paid and collected are presumed to have been made in accordance with laws and
regulations, hence, not refundable
D) it is incumbent upon respondent to show that it has complied with the provisions of Section
204(C), in relation to Section 229 of the Tax Code, as amended, upon which its claim for refund
was premised.
E) in an action for tax refund the burden is upon the taxpayer to prove that he is entitled thereto,
and failure to discharge said burden is fatal to the claim
F) claims for refund are construed strictly against the claimant, as the same partake of the
nature of exemption from taxation.
It is entitled to a tax refund as it was its original intention as it indicated that its excess
creditable withholding tax ("CWT") for the year 2005 was "To be refunded".
ISSUE:
Is Rhombus entitled to a refund?
RULING:
YES. The irrevocability rule is enunciated m Section 76 of the National Internal Revenue
Code (NIRC), viz.:
Section 76. Final Adjusted Return. - Every corporation liable to tax under Section
27 shall file a final adjustment return covering the total taxable income for the
preceding calendar of fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire taxable
income of that year, the corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess

estimated quarterly income taxes paid, the excess amount shown on its final
adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry over and apply the excess quarterly income tax
against income tax due for the taxable years of the succeeding taxable years has
been made, such option shall be considered irrevocable for that taxable period
and no application for cash refund or issuance of a tax credit certificate shall be
allowed therefor.
The application of the irrevocability rule is explained in Republic v. Team (Phils.) Energy
Corporation where the Court stated:
In Commissioner of Internal Revenue v. Bank of the Philippine Isands, the Court, citing
the pronouncement in Philam Asset Management, Inc., points out that Section 76 of the
NIRC of 1997 is clear and unequivocal in providing that the carry-over option, once
actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The
Court explains:
Hence, the controlling factor for the operation of the irrevocability rule is that the
taxpayer chose an option; and once it had already done so, it could no longer make
another one. Consequently, after the taxpayer opts to carry-over its excess tax credit
to the following taxable period, the question of whether or not it actually gets to apply
said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that
once the option to carry over has been made, "no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor."
The CTA First Division duly noted the exercise of the option by Rhombus in the following
manner: “The evidence on record shows that petitioner clearly signified its intention to be
refunded of its excess creditable tax withheld for calendar year 2005 in its Annual ITR for the
said year. Petitioner under Line 31 of the said ITR marked "x" on the box "To be refunded".”
Although the CTA En Banc recognized that Rhombus had actually exercised the option
to be refunded, it nonetheless maintained that Rhombus was not entitled to the refund for
having reported the prior year's excess credits in its quarterly ITRs for the year 2006
The CTA En Banc thereby misappreciated the fact that Rhombus had already exercised
the option for its unutilized creditable withholding tax for the year 2005 to be refunded when it
filed its annual ITR for the taxable year ending December 31, 2005. Based on the disquisition in
Republic v. Team (Phils.) Energy Corporation, supra, the irrevocability rule took effect when the
option was exercised.
In the case of Rhombus, therefore, its marking of the box "To be refunded" in its 2005
annual ITR constituted its exercise of the option, and from then onwards Rhombus became
precluded from carrying-over the excess creditable withholding tax. The fact that the prior year's
excess credits were reported in its 2006 quarterly ITRs did not reverse the option to be refunded
exercised in its 2005 annual ITR. As such, the CTA En Banc erred in applying the irrevocability
rule against Rhombus.
It is relevant to mention the requisites for entitlement to the refund as listed in Republic
v. Team (Phils.) Energy Corporation, to wit:
A) That the claim for refund was filed within the two-year reglementary period
pursuant to Section 229 of the NIRC;
B) When it is shown on the ITR that the income payment received is being
declared part of the taxpayer's gross income; and
C) When the fact of withholding is established by a copy of the withholding tax

statement, duly issued by the payor to the payee, showing the amount paid and
income tax withheld from that amount.
The members of the CTA First Division were in the best position as trial judges to
examine the documents submitted in relation to the tax refund and to make the proper findings
thereon. Given their expertise on the matter, we accord weight and respect to their finding that
Rhombus had satisfied the requirements for its claim for refund of its excess creditable
withholding taxes for the year 2005.
PEN:
It is settled in this case that once an option has been chosen by a taxpayer with respect
to remedies in overpayment of taxes, such option becomes irrevocable.
The irrevocability rule applies to both the carry over and refund option such that if either
one is chosen, the taxpayer is barred from choosing the other.
“The question of whether or not it actually gets to apply said tax credit is IRRELEVANT.”
HOWEVER, take note of this case: Management, Inc. (UPSI-MI) vs. Commissioner of
Internal Revenue (CIR), G.R. No. 205955, March 27, 2018. Such case is in conflict with the
present case. That case essentially held that the irrevocability rule applies only when the
taxpayer chose the carry over option. Such that if the taxpayer chose the refund, he can still opt
to choose the carry over option. However, once the latter option is chosen, such will be
irrevocable.
This is troublesome because under the Constitution, the doctrine promulgated by a
Division cannot be reversed by another division, it being the Supreme Court En banc which can
reverse such. The cited case is promulgated by a division of the Supreme Court.
However, it would be safe to assume that the present case is controlling because it is
the more recent case.
14. BELLE CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 181298, 10 January 2011, FIRST DIVISION, (Del Castillo, J.)

Petitioner filed with the Bureau of Internal Revenue (BIR) its Income Tax Return (ITR) for
the first quarter of 1997. Petitioner filed with the BIR its second quarter ITR, declaring an
overpayment of income taxes in the amount of P66,634,290.00. In view of the overpayment, no
taxes were paid for the second and third quarters of 1997. Petitioner's ITR for the taxable year
ending December 31, 1997 thereby reflected an overpayment of income taxes in the amount of
P132,043,528.00, Instead of claiming the amount as a tax refund, petitioner decided to apply it
as a tax credit to the succeeding taxable year by marking the tax credit option box in its 1997
ITR.
For the taxable year 1998, petitioner's amended ITR showed an overpayment of
P106,447,318.00
On April 12, 2000, petitioner filed with the BIR an administrative claim for refund of its
unutilized excess income tax payments for the taxable year 1997 in the amount of
P106,447,318.00.
However, notwithstanding the filing of the administrative claim for refund, petitioner
carried over the amount of P106,447,318.00 to the taxable year 1999 and applied a portion
thereof to its 1999 Minimum Corporate Income Tax (MCIT) liability.
On April 14, 2000, due to the inaction of the respondent Commissioner of Internal
Revenue (CIR) and in order to toll the running of the two-year prescriptive period, petitioner
appealed its claim for refund of unutilized excess income tax payments for the taxable year
1997 in the amount of P106,447,318.00 with the Court of Tax Appeals (CTA). However, the
CTA dismissed the petition ruling that Sec. 69 of the Old Tax Code applies. Under such, the
carrying forward of any excess/overpaid income tax for a given taxable year is limited only up to
the succeeding taxable year. Furthermore, once the carry over option has been exercised, a
taxpayer is no longer allowed to file for a tax refund.
This prompted petitioner to appeal before the Court of Appeals (CA). However, the latter
affirmed the CTA.
Petitioner's alleged claim for refund/tax credit is subject to administrative routinary
investigation/examination by respondent's Bureau;
Petitioner failed miserably to show that the total amount of P106,447,318.00 claimed as
overpaid or excess income tax is refundable;
Taxes paid and collected are presumed to have been paid in accordance with law;
hence, not refundable;
In an action for tax refund, the burden is on the taxpayer to establish its right to refund,
and failure to sustain the burden is fatal to the claim for refund;
It is incumbent upon petitioner to show that it has complied with the provisions of Section
204 (c) in relation to Section 229 of the tax Code;
Well-established is the rule that refunds/tax credits are construed strictly against the
taxpayer as they partake the nature of tax exemptions.
The cases of BPI-Family Savings Bank and AB Leasing are inapplicable as the facts
obtaining therein are different from those of the present case. What is controlling, therefore, is
the ruling in Philippine Bank of Communications, that tax refund and tax credit are alternative
remedies; thus, "the choice of one precludes the other."
It is entitled to a refund as the ruling in Philippine Bank of Communications v.
Commissioner of Internal Revenue relied upon by the CA in denying its claim has been
overturned by BPI-Family Savings Bank, Inc. v. Court of Appeals, AB Leasing and Finance
Corporation v. Commissioner of Internal Revenue, Calamba Steel Center, Inc. v. Commissioner
of Internal Revenue, and State Land Investment Corporation v. Commissioner of Internal
Revenue. In these cases, the taxpayers were allowed to claim refund of unutilized tax credits.
Similarly, in this case, petitioner asserts that it may still recover unutilized tax credits via a claim
for refund.
Admitting that it has committed a "blatant transgression" of the "succeeding taxable year
limit" when it carried over its 1997 excess income tax payments beyond the taxable year 1998,
petitioner believes that this should not result in the denial of its claim for refund but should only
invalidate the application of its 1997 unutilized excess income tax payments to its 1999 income
tax liabilities. Hence, petitioner postulates that a claim for refund of its unutilized tax credits for
the taxable year 1997 may still be made because the carry-over thereof to the taxable year
1999 produced no legal effect, and is, therefore, immaterial to the resolution of its claim for
refund.
ISSUE:
Is petitioner entitled to a refund?
RULING:
NO. Both the CTA and the CA erred in applying Section 69 of the old NIRC. The law
applicable is Section 76 of the NIRC. Under Section 69 of the old NIRC, in case of overpayment
of income taxes, a corporation may either file a claim for refund or carry-over the excess
payments to the succeeding taxable year. Availment of one remedy, however, precludes the
other.
Although these remedies are mutually exclusive, we have in several cases allowed
corporations, which have previously availed of the tax credit option, to file a claim for refund of
their unutilized excess income tax payments. Under Section 69 of the old NIRC, unutilized tax
credits may be refunded as long as the claim is filed within the two-year prescriptive period.
This rule, however, no longer applies as Section 76 of the 1997 NIRC now reads:
Section 76. Final Adjustment Return. - Every corporation liable to tax under
Section 24 shall file a final adjustment return covering the total net income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire taxable
net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly

income taxes paid, the refundable amount shown on its final adjustment return
may be credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option to carry over
and apply the excess quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor.
Under the new law, in case of overpayment of income taxes, the remedies are still the
same; and the availment of one remedy still precludes the other. But unlike Section 69 of the
old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding
taxable year. Unutilized excess income tax payments may now be carried over to the
succeeding taxable years until fully utilized. In addition, the option to carry-over excess income
tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer
be refunded.
The applicable provision should be Section 76 of the 1997 NIRC because at the time
petitioner filed its 1997 final ITR, the old NIRC was no longer in force.
Accordingly, since petitioner already carried over its 1997 excess income tax payments
to the succeeding taxable year 1998, it may no longer file a claim for refund of unutilized tax
credits for taxable year 1997.
To repeat, under the new law, once the option to carry-over excess income tax
payments to the succeeding years has been made, it becomes irrevocable. Thus, applications
for refund of the unutilized excess income tax payments may no longer be allowed.
PEN:
Section 69 of the old National Internal Revenue Code (NIRC) allows unutilized tax
credits to be refunded as long as the claim is filed within the prescriptive period. This, however,
no longer holds true under Section 76 of the 1997 NIRC as the option to carry-over excess
income tax payments to the succeeding taxable year is now irrevocable.
In this case, the Court did not grant the petition of Belle Corporation for a tax refund.
However, even if Belle Corporation is not entitled thereto, it can still carry over its excess tax
payments to the succeeding taxable years until such overpayment will be completely applied to
subsequent tax liabilities.
To be sure, if the ruling of the CA and CTA will be upheld, such will result to an unjust
situation wherein Belle Corporation will be deprived of its money for its erroneous payment and
will be left without recourse in accordance with the law. To prohibit it from claiming a refund of
the remaining excess payment when the latter can no longer be applied to the succeeding
taxable years constitutes unjust enrichment because the Government would be allowed to retain
such amount even if it is not entitled thereto.
15. COMMISSIONER OF INTERNAL REVENUE v. PL MANAGEMENT INTERNATIONAL
PHILIPPINES, INC.
G.R. No. 160949, 04 April 2011, THIRD DIVISION, (Bersamin, J.)

In its 1997 income tax return (ITR) filed on April 13, 1998, the respondent reported a net
loss of P983,037.00, but expressly signified that it had a creditable withholding tax of
P1,200,000.00 for taxable year 1997 to be claimed as tax credit in taxable year 1998.
Subsequently, the respondent submitted its ITR for taxable year 1998, in which it declared a net
loss of P2,772,043.00. Due to its net-loss position, the respondent was unable to claim the
P1,200,000.00 as tax credit.
On April 12, 2000, the respondent filed with the petitioner a written claim for the refund of
the P1,200,000.00 unutilized creditable withholding tax for taxable year 1997. However, the
petitioner did not act on the claim.
Due to the petitioner's inaction, the respondent filed a petition for review in the Court of
Tax Appeals (CTA). However, the CTA denied respondent’s claim ruling that the claim of
respondent has prescribed because the latter filed its Annual ITRY for the taxable year 1997 on
April 13, 1998 and filed the appeal on April 14, 2000. Thus, the appeal was filed beyond the 2
year prescriptive period as the respondent should have filed it on or before April 12, 2000.
The Court of Appeals however granted the petition of respondent. It held that the two-
year prescriptive period, which was not jurisdictional might be suspended for reasons of equity.
The decision of the CA suspending the running of the two-year period set by Section 229
of the National Internal Revenue Code of 1997 (NIRC of 1997) on ground of equity was
erroneous and had no legal basis. Equity could not supplant or replace a clear mandate of a law
that was still in force and effect.
A claim for a tax refund or tax credit, being in the nature of a tax exemption to be treated
as in derogation of sovereign authority, must be construed in strictissimi juris against the
taxpayer.
Respondent's two-year prescriptive period under Section 229 of the NIRC of 1997
commenced to run on April 13, 1998, the date it filed its ITR for taxable year 1997; that by
reckoning the period from April 13, 1998, the respondent had only until April 12, 2000 within
which to commence its judicial action for refund with the CTA, the year 2000 being a leap year;
that its filing of the judicial action on April 14, 2000 was already tardy.
The factual findings of the CTA, being supported by substantial evidence, should be
accorded the highest respect.
Its judicial action for refund was within the statutory two-year period because the correct
reckoning started from April 15, 1998, the last day for the filing of the ITR for taxable year 1997.
The two-year prescriptive period was also not jurisdictional and might be relaxed on
equitable reasons; and that a disallowance of its claim for refund would result in the unjust
enrichment of the Government at its expense.
ISSUE:
Is respondent entitled to a tax refund?
RULING:
NO. Section 76 of the NIRC of 1997 provides:
Section 76. Final Adjustment Return. - Every corporation liable to tax under
Section 27 shall file a final adjustment return covering the total taxable income for
the preceding calendar or fiscal year. If the sum of the quarterly tax payments
made during the said taxable year is not equal to the total tax due on the entire
taxable income of that year the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry over the excess credit; or
In case the corporation is entitled to a refund of the excess estimated quarterly

income taxes paid, the refundable amount shown on its final adjustment return
may be credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option to carry-over
and apply the excess quarterly income tax against income tax due for the taxable
Once the option to carry-over and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for tax refund or
In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Court

expounded on the two alternative options of a corporate taxpayer whose total quarterly income
tax payments exceed its tax liability, and on how the choice of one option precludes the other.
One cannot get a tax refund and a tax credit at the same time for the same excess
income taxes paid.
In Commissioner of Internal Revenue v. Bank of the Philippine Islands, the Court, citing
the aforequoted pronouncement in Philam Asset Management, Inc., points out that Section 76
of the NIRC of 1997 is clear and unequivocal in providing that the carry-over option, once
actually or constructively chosen by a corporate taxpayer, becomes irrevocable:
The last sentence of Section 76 of the NIRC of 1997 reads: "Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the taxable
issuance of a tax credit certificate shall be allowed therefor." The phrase "for that taxable
period" merely identifies the excess income tax, subject of the option, by referring to the
taxable period when it was acquired by the taxpayer. In the present case, the excess
income tax credit, which BPI opted to carry over, was acquired by the said bank during
the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit
is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess
income tax credit.
The Court similarly disagrees in the declaration of the Court of Appeals that to deny the
claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust
enrichment on the part of the government. The Court addressed the very same
argument in Philam, where it elucidated that there would be no unjust enrichment in the
event of denial of the claim for refund under such circumstances, because there would
be no forfeiture of any amount in favor of the government. The amount being claimed as
a refund would remain in the account of the taxpayer until utilized in succeeding taxable
years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the
option for refund of excess income tax, which prescribes after two years from the filing of
the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the
excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may
be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so
on and so forth, until actually applied or credited to a tax liability of BPI.
Inasmuch as the respondent already opted to carry over its unutilized creditable
withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be
converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of
the NIRC of 1997. Thereby, the respondent became barred from claiming the refund.
However, in view of its irrevocable choice, the respondent remained entitled to utilize
that amount of P1,200,000.00 as tax credit in succeeding taxable years until fully exhausted. In
this regard, prescription did not bar it from applying the amount as tax credit considering that
there was no prescriptive period for the carrying over of the amount as tax credit in subsequent
taxable years.
PEN:
Similar to Belle Corporation vs. CIR. Furthermore, both cases involved taxpayers who
were unable to utilize their excess payments because they suffered losses.
REMEMBER: Once the taxpayer chooses an option, it is already irrevocable, regardless

if the excess payments have been applied to succeeding tax liabilities or not. Same is true with
a tax refund, regardless if the taxpayer has not yet received the tax refund.
Thus, we can learn from these that while the taxpayer is not entirely deprived of the
amount of the excess payments, the irrevocability of the carry over option would still be
troublesome if the taxpayer incurs losses. Because in effect, if the taxpayer incurs losses for the
succeeding years, it will not be able to utilize the excess payments. Worse, it may never be able
to utilize it if it gets bankrupt. Usually, those businesses experiencing losses would like to have
the excess payments be refunded so that it would have cash to pay its debts or utilize it to save
the business.
16. COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. V.Y. DOMINGO
JEWELLERS, INC.
G.R. No. 221780, 25 March 2019, THIRD DIVISION, (Peralta, J.)

On September 9, 2009, the Bureau of Internal Revenue (BIR) issued a Preliminary
Assessment Notice (PAN) against V.Y. Domingo assessing the latter deficiency income tax and
value-added tax, inclusive of interest, for the taxable year 2006. V.Y. Domingo filed a Request
for Re-evaluation/Re-investigation and Reconsideration. V.Y. Domingo then received a
Preliminary Collection Letter
Subsequently, the BIR sent 2 Assessment Notices for collection of its tax liabilities in the
amounts of P1,798,889.80 and P1,365,727.63. This prompted V.Y. Domingo to file a petition for
Review with the Court of Tax Appeals (CTA) in Division.
The Commissioner of Internal Revenue’s (CIR) motion to dismiss was granted by the
CTA. The latter held that it was without jurisdiction to entertain the petition, as the rule is that for
the CTA to acquire jurisdiction, as assessment must first be disputed by the taxpayer and either
ruled upon by the CIR to warrant a decision, or denied by the CIR through inaction.
Aggrieved, V.Y Domingo's filed a petition for review before the CTA En Banc where the
latter reversed and set aside the ruling of the CTA Division. It remanded the case to the CTA
First Division for further proceedings to afford the CIR full opportunity to present her evidence.
According to the Government, V.Y Domingo received the former’s assessment notices.

V.Y Domingo alleges that it never received the Assessment Notices.
Assessment notices are not appealable to the CTA as the power to decide disputed
assessments is vested in the CIR, subject only to the exclusive appellate jurisdiction of the CTA.
V.Y. Domingo's petition for review before the CTA First Division would readily show that
it was an original protest on the assessment made by the petitioner, a matter that, under R.A.
No. 1125, is not within the jurisdiction of the CTA.
The CIR laments that V.Y. Domingo opted to immediately institute a petition for review
on the basis of the PCL. This, argues the CIR, is in clear violation of the doctrine of exhaustion
of administrative remedies.
Under Republic Act (R.A.) No. 1125 ("An Act Creating the Court of Tax Appeals"), as
amended, and the RRCTA, it is neither the assessment nor the formal letter of demand that is
appealable to the CTA but the decision of the CIR on a disputed assessment.
That there was no disputed assessment to speak of, and that the CTA had no
jurisdiction to entertain the said Petition for Review.
The Assessments must be declared void for having been issued beyond the prescriptive
period for assessment and collection of internal revenue taxes.
The CTA has jurisdiction to take cognizance of its Petition for Review. The CIR may
have disregarded the fact that the jurisdiction of the CTA is not limited to review of decisions of
the CIR but also includes "other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue."
Its case does not involve an appeal from a decision of the CIR on a disputed
assessment since in the first place, there is no "disputed" assessment to speak of.
The tenor of the PCL forecloses any opportunity for it to file its administrative protest as
a reading of the same will show that the CIR had already decided to deny any protest as
regards the assessment made against the respondent taxpayer.
Its case is an exception to the rule on exhaustion of administrative remedies and the rule
on primary jurisdiction as it cannot be expected to be able to file an administrative protest to the
Assessment Notices which it never received.
ISSUE:
Did the CTA had jurisdiction to entertain V.Y. Domingo’s petition for review?
RULING:
NO. It bears emphasis that the CTA, being a court of special jurisdiction, can take
cognizance only of matters that are clearly within its jurisdiction
Section 7 of R.A. No. 1125, as amended by R.A. No. 9282, specifically provides:
SEC. 7. Jurisdiction. — The CTA shall exercise:
(1) Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws, administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal. Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code provides a specific period of action, in
which case the inaction shall be deemed a denial;
xxx
In relation thereto, Section 228 of R.A. No. 8424 or The Tax Reform Act of 1997, as
amended, implemented by Revenue Regulations No. 12-99, provides for the procedure to be
followed in issuing tax assessments and in protesting the same. Thus:
Section 228. Protesting of Assessment. — When the Commissioner or his duly

first notify the taxpayer of his findings: Provided, however, That a pre-
assessment notice shall not be required in the following cases:
xxx

assessment in such form and manner as may be prescribed by
implementing rules and regulations. (Emphasis supplied)
Within sixty (60) days from filing of the protest, all relevant, supporting
documents shall have been submitted; otherwise, the assessment shall become
final. If the protest is denied in whole or in part, or is not acted upon within one
of one hundred eighty (180)-day period; otherwise, the decision shall become
On the other hand, Section 3.1.5 of Revenue Regulations No. 12-99, implementing
Section 228 above, provides:
3.1.5. Disputed Assessment. — The taxpayer or his duly authorized

representative may protest administratively against the aforesaid formal letter of
demand and assessment notice within thirty (30) days from date of receipt
thereof xxx
xxx
If the taxpayer fails to file a valid protest against the formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof, the
assessment shall become final, executory and demandable.
xxx
It is clear from the said provisions of the law that a protesting taxpayer like V.Y. Domingo
has only three options to dispute an assessment: a) If the protest is wholly or partially denied by
the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30
days from receipt of the whole or partial denial of the protest; b) If the protest is wholly or
partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR
within 30 days from receipt of the whole or partial denial of the protest; c) If the CIR or his
authorized representative failed to act upon the protest within 180 days from submission of the
required supporting documents, then the taxpayer may appeal to the CTA within 30 days from
the lapse of the 180-day period.
In this case, instead of filing an administrative protest against the assessment notice
within thirty (30) days from its receipt of the requested copies of the Assessment Notices, V.Y.
Domingo elected to file its petition for review before the CTA First Division ratiocinating that the
issuance of the PCL and the alleged finality of the terms used for demanding payment therein
proved that its Request for Re-evaluation/Re-investigation and Reconsideration had been
denied by the CIR.
That V.Y. Domingo believed that the PCL "undeniably shows" the intention of the CIR to
make it as its final "decision" did not give it cause of action to disregard the procedure set forth
by the law in protesting tax assessments and act prematurely by filing a petition for review
before the courts. The word "decisions" in the aforementioned provision of R.A. No. 9282 has
been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the
assessments. Definitely, said word does not signify the assessment itself.
Evidently, V.Y. Domingo's immediate recourse to the CTA First Division was in violation
of the doctrine of exhaustion of administrative remedies.
Section 228 of the Tax Code requires taxpayers to exhaust administrative remedies by
filing a request for reconsideration or reinvestigation within 30 days from receipt of the
assessment.
The records of the case show that V.Y. Domingo did receive the certified true copies of
the Assessment Notices it requested the day before it filed its petition for review before the CTA
First Division. V.Y. Domingo cannot now assert that its recourse to the court was based on its
non-receipt of the Assessment Notices that it requested.
Likewise, this Court cannot apply the ruling in Allied Banking Corporation v. CIR. The
ruling of this Court in the said case was grounded on the language used and the tenor of the
demand letter, which indicate that it was the final decision of the CIR on the matter. The words
used, specifically the words "final decision" and "appeal," taken together led therein petitioner to
believe that the Formal Letter of Demand with Assessment Notices was, in fact, the final
decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the
same to the CTA
Comparing the wording of the above-quoted demand letter with that sent by the CIR to
V.Y. Domingo in the instant case, it becomes apparent that the latter's invocation of the ruling in
the Allied Banking Corporation case in misguided as the foregoing statements and terms are not
present in the subject PCL.
To reiterate, what is appealable to the CTA are decisions of the CIR on the protest of the
taxpayer against the assessments. There being no protest ruling by the CIR when V.Y.
Domingo's petition for review was filed, the dismissal of the same by the CTA First Division was
proper.
PEN:
REMEMBER THIS. What is appealable to the CTA are decisions of the CIR on the
protest of the taxpayer against the assessments. There being no protest ruling by the CIR
when V.Y. Domingo's petition for review was filed, the dismissal of the same by the CTA First
Division was proper.
In this case, yes, there was a request for reinvestigation by V.Y. Domingo. However,
what it should have done was to wait for the resolution thereof by the CIR. Without such
resolution, it cannot file the appeal before the CTA as the latter does not yet have jurisdiction.
The word "decisions" in R.A. No. 9282 has been interpreted to mean the decisions of the
CIR on the protest of the taxpayer against the assessments. That is what the taxpayer may
appeal to the CTA. Such word DOES NOT contemplate the assessment itself. It is the decision
itself of the CIR in denying the protest which is appealable before the CTA.
17. NIKKEN PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE
CTA EB No. 1569, 07 June 2018, EN BANC, (Bautista, J.)

Petitioner Nikken Philippines, Inc. is a domestic corporation. Respondent is the duly
appointed Commissioner of the Bureau of Internal Revenue (BIR), Petitioner filed its Annual
Income Tax Return (ITR) for taxable year 2006 on March 27, 2007. Subsequently, petitioner
received a Notice of Informal Conference on June 10, 2009, informing petitioner that an
investigation of its internal revenue tax liabilities for taxable year 2006 was submitted for
consideration.
Respondent issued the Preliminary Assessment Notice (PAN). Consequently, petitioner

filed its position paper in response to the PAN. Thereafter, respondent issued the Formal Letter
of Demand (FLD) with the Final Assessment Notice (FAN). Petitioner was assessed for alleged
deficiency income tax, value-added tax (VAT), and Expanded Withholding Tax (EWT). Petitioner
protested the FLD. However, the respondent still found petitioner liable for deficiency income tax
and EWT in its Final Decision on Disputed Assessment (FDDA).
As a result, petitioner filed the present Petition for Review before the CTA Division,
however, the same was denied.

According to petitioner, it executed a waiver of the statute of limitations on June 16,
2009, which was accepted by the CIR only on July 29, 2009, thus, the waiver only became
effective as of such date and cannot be made to apply for the months of January to May 2006.
Petitioner points out that none of respondent's wimesses has been able to give any testimony or
evidence that repudiates its claim of prescription.
Nikken Phils., Inc. is liable for deficiency income tax, value-added tax (VAT), and EWT
The constitutional principle of due process guarantees that no person shall be deprived
of his/her/ its property without being given the opportunity to be notified and heard. Section 3.1.9
of Revenue Regulation ("RR") No. 12-99 states that the letter of demand calling for payment of
the taxpayer's deficiency tax or taxes shall state the facts, law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of demand and
assessment notice are void.
The FDDA issued by respondent failed to adhere to the clear mandate of the law for it
merely provided a breakdown of the computation for the alleged tax deficiencies without
indicating the facts and the law it relied upon for the determination of petitioner's supposed
deficiencies. By failing to specify the source and legally justify the figures relied upon in the
determination of petitioner's tax deficiencies, respondent has unjustly prevented petitioner from
being fully apprised of the bases for its tax liabilities.
Respondent has three (3) years from the last day prescribed by law for the filing of the
return or three (3) years from its actual filing, where it was filed beyond the period prescribed, to
assess deficiency taxes; and that it is the date of filing of the appropriate return which
determines when the period of limitation on assessment and collection should commence.
Each monthly return is considered as a complete return by itself, it becomes quite

evident that the three (3)-year prescriptive period for deficiency EWT commenced to run on a
monthly basis; and that the benefit of the period of limitations on assessment and collection of
taxes may be waived pursuant to Section 222(b) of the 1997 National Internal Revenue Code,
as amended ("1997 NIRC"). According to petitioner, it executed a waiver of the statute of
limitations on June 16, 2009, which was accepted by the CIR only on July 29, 2009, thus, the
waiver only became effective as of such date and cannot be made to apply for the months of
January to May 2006. Petitioner points out that none of respondent's witnesses has been able
to give any testimony or
evidence that repudiates its claim of prescription.
ISSUE:
Is Nikken Phils. liable for the assessment?
RULING:
NO. There is one thing that stands out upon a perusal of the pieces of evidence on
record, and that is the absence of a Letter of Authority that was offered into evidence. It must be
emphasized that while the issue on want of authority of the revenue officers to conduct the audit
investigation was never raised at any stage of the proceedings before the Court in Division, nor
in the present petition, the Court En Banc is not precluded of its jurisdiction to rule on the same.
In the case, Commissioner of Internal Revenue vs. Lancaster Philippines, Inc., the Supreme
Court held in this wise:
From the foregoing, it is clear that the issue on whether the revenue officers who had
conducted the examination on Lancaster exceeded their authority pursuant to LOA No.
00012289 may be considered as covered by the terms "other matters" under Section 7
of R.A. No. 1125 or its amendment, R. A. No. 9282.
On whether the CTA can resolve an issue which was not raised by the parties, we rule in
the affirmative.
Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules of the Court
of Tax Appeals, the CTA is not bound by the issues specifically raised by the parties but
may also rule upon related issues necessary to achieve an orderly disposition of the
case.
Applying the foregoing in the case at bar, respondent offered Memorandum addressed
to Revenue Officer Bryan Francis Lim ("RO Lim") and Group Supervisor Nicasio Lumagui, Jr.,
"for re-assignment and continuance of audit. Respondent's witness, RO Lim testified via Judicial
Affidavit that he was authorized to examine petitioner's books of accounts and other accounting
records for taxable year 2006 pursuant to a Memorandum.
Section 13 of the 1997 NIRC provides the authority of a Revenue Officer ("RO"), to wit:
Section 13. Authority of a Revenue Officer. — Subject to the rules and

regulations to be prescribed by the Secretary of Finance, upon recommendation
of the Commissioner, a Revenue Officer assigned to perform assessment
functions in any district may, pursuant to a Letter of Authority issued by the
Revenue Regional Director, examine taxpayers within the jurisdiction of the
district in order to collect the correct amount of tax, or to recommend the
assessment of any deficiency tax due in the same manner that the said acts
could have been performed by the Revenue Regional Director himself.
Revenue Memorandum Order ("RMO") No. 43-90 provides as follows: “Any

reassignment/ transfer of cases to another RO(s), and revalidation of L/ As which have already
expired, shall require the issuance of a new L/A, xxx.”
Hence, the use of the word "shall" in RMO No. 43-90 can only mean that the issuance of
a new LOA is mandatory in cases of reassignment.
Clearly, before an assessment can be conducted, the RO conducting the same must first
be authorized to do so, pursuant to an LOA issue by the Revenue Regional Director. In case of
re-assignment or transfer of cases to another RO, a new LOA with a corresponding notation
thereto must be issued.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given
to the appropriate revenue officer assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax.
Clearly, there must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized must not
go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.
In Medicard Philippines, Inc. v. Commissioner of Internal Revenue, the Supreme Court

emphasized that the absence of an LOA violated a taxpayer l s right to due process;
accordingly, the assessment thereon was declared void.
To reiterate, the LOA is the proof that the person/s named therein is/are authorized to
conduct the necessary investigation/ audit, it is an express grant of authority. Thus, absent the
necessary issuance of a new LOA specifically naming the person to whom the case will be
reassigned with the corresponding annotation, there is no authority to conduct the investigation/
audit. Moreover, even if the Memorandum of Referral will be taken into consideration, it will still
not be valid since it was signed not by the Revenue Regional Director but by the Revenue
District Officer, in contravention of the provisions of the law. Thus, RO Lim acted without
authority when he conducted the audit of petitioner, hence, the assessment is null and void.
Accordingly, a void assessment bears no valid fruit.
PEN:
Remember, the power of assessment MAY BE DELEGATED to a revenue officer.
However, it must be emphasized that before such can be validly delegated, there must first be a
LETTER OF AUTHORITY. The absence of which will make an assessment by a revenue officer
void,
Equally important is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or examination is a nullity.
Moreover, the CTA can resolve any matter even if it is not raised by the parties.
18. COMMISSIONER OF INTERNAL REVENUE v. GOODYEAR PHILIPPINES, INC.
G.R. No. 216130, 03 August 2016, FIRST DIVISION, (Perlas-Bernabe, J.)

Respondent is a domestic corporation. The authorized capital stock of respondent was
increased from P400,000,000.00 divided into 4,000,000 shares with a par value of P100.00
each, to P1,731,863,000.00 divided into 4,000,000 common shares and 13,318,630 preferred
shares with a par value of P100.00 each. Consequently, all the preferred shares were solely
and exclusively subscribed by Goodyear Tire and Rubber Company (GTRC), which was a
foreign company organized and existing under the laws of the State of Ohio, United States of
America (US) and is unregistered in the Philippines.
The Board of Directors of respondent authorized the redemption of GTRC's 3,729,216

preferred shares on October 15, 2008 at the redemption price of P470,653,914.00, broken down
as follows: P372,921,600.00 representing the aggregate par value and P97,732,314.00,
representing accrued and unpaid dividends.
Respondent filed an application for relief from double taxation to confirm that the
redemption was not subject to Philippine income tax, pursuant to the Republic of the Philippines
(RP) - US Tax Treaty. This notwithstanding, respondent still took the conservative approach,
and thus, withheld and remitted the sum of P14,659,847.10 to the BIR on November 3, 2008,
representing fifteen percent (15%) FWT, computed based on the difference of the redemption
price and aggregate par value of the shares.
On October 21, 2010, respondent filed an administrative claim for refund or issuance of
TCC, representing 15% FWT in the sum of P14,659,847.10 before the BIR. Thereafter, or on
November 3, 2010, it filed a judicial claim, by way of petition for review, before the Court of Tax
Appeals (CTA). The CTA ruled in favor of respondent.
Respondent's claim must be denied, considering that: (a) it failed to exhaust
administrative remedies by prematurely filing its petition before the CTA; and (b) it failed to
submit complete supporting documents before the BIR
Byfiling the administrative and judicial claims only 13 days apart, respondent, in effect,
pursued an empty remedy before the BIR, and thereby deprived the latter of the opportunity to
ascertain the validity of the claim.
Mere filing of the administrative claim before the BIR did not outrightly satisfy the
requirement of exhaustion of administrative remedy
The net capital gain derived by GTRC from the redemption of its 3,729,216 preferred
shares should be subject to 15% FWT on dividends.
While the payment of the original subscription price could not be taxed as it represented
a return of capital, the additional amount, however, or the component of the redemption price
representing the amount of P97,732,314.00 should not be treated as a mere premium and part
of the subscription price, but as accumulated dividend in arrears, and, hence, subject to 15%
FWT
It is not liable for 15% FWT on the accrued and unpaid dividends due to the existence of
RP-US Tax Treaty.
ISSUES:
(1) Should respondent’s judicial claim be dismissed for non-exhaustion of administrative
remedies?
(2) Is respondent liable for 15% FWT?
RULING:
(1) NO. Section 229 of the Tax Code states that judicial claims for refund must be filed
within two (2) years from the date of payment of the tax or penalty, providing further that the
same may not be maintained until a claim for refund or credit has been duly filed with the
Commissioner of Internal Revenue (CIR), viz.:
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or

proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not
such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment
The primary purpose of filing an administrative claim was to serve as a notice of warning
to the CIR that court action would follow unless the tax or penalty alleged to have been collected
erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code – [then Section 306
of the old Tax Code] – however does not mean that the taxpayer must await the final resolution
of its administrative claim for refund, since doing so would be tantamount to the taxpayer's
forfeiture of its right to seek judicial recourse should the two (2)-year prescriptive period expire
without the appropriate judicial claim being filed.
In the case at bar, records show that both the administrative and judicial claims for
refund of respondent for its erroneous withholding and remittance of FWT were indubitably filed
within the two-year prescriptive period. It bears stressing that respondent could not be faulted
for resorting to court action, considering that the prescriptive period stated therein was about to
expire. Had respondent awaited the action of petitioner knowing fully well that the prescriptive
period was about to lapse, it would have resultantly forfeited its right to seek a judicial review of
its claim, thereby suffering irreparable damage. Thus, in view of the aforesaid circumstances,
respondent correctly and timely sought judicial redress, notwithstanding that its administrative
and judicial claims were filed only 13 days apart.
(2) NO. The imposition of 15% FWT on intercorporate dividends received by a non-
resident foreign corporation is found in Section 28 (B) (5) (b) of the Tax Code which reads:
SEC. 28. Rates of Income Tax on Foreign Corporations. –xxxx(B) Tax on
Nonresident Foreign Corporation. –
xxx
(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. –

(b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent
(15%) is hereby imposed on the amount of cash and/or property dividends
received from a domestic corporation, which shall be collected and paid as
provided in Section 57 (A) of this Code xxx
It must be noted, however, that GTRC is a non-resident foreign corporation, specifically

a resident of the US. Thus, pursuant to the cardinal principle that treaties have the force and
effect of law in this jurisdiction, the RP-US Tax Treaty complementarily governs the tax
implications of respondent's transactions with GTRC.
Under Article 11 (5) of the RP-US Tax Treaty, the term "dividends" should be understood
according to the taxation law of the State in which the corporation making the distribution is a
resident, which, in this case, pertains to respondent, a resident of the Philippines. Accordingly,
attention should be drawn to the statutory definition of what constitutes "dividends," pursuant to
Section 73 (A) of the Tax Code which provides that "[t]he term 'dividends' x x x means any
distribution made by a corporation to its shareholders out of its earnings or profits and payable
to its shareholders, whether in money or in other property."
The redemption price representing the amount of P97,732,314.00 received by GTRC

could not be treated as accumulated dividends in arrears that could be subjected to 15% FWT.
Verily, respondent's AFS covering the years 2003 to 2009 show that it did not have unrestricted
retained earnings, and in fact, operated from a position of deficit. Thus, absent the availability of
unrestricted retained earnings, the board of directors of respondent had no power to issue
dividends. Consistent with Section 73 (A) of the Tax Code, this rule on dividend declaration –
i.e., that it is dependent upon the availability of unrestricted retained earnings – was further
edified in Section 43 of The Corporation Code of the Philippines which reads:
Section 43. Power to Declare Dividends. – The board of directors of a stock

corporation may declare dividends out of the unrestricted retained earnings
which shall be payable in cash, in property, or in stock to all stockholders on the
basis of outstanding stock held by them: xxx
It is also worth mentioning that one of the primary features of an ordinary dividend is that
the distribution should be in the nature of a recurring return on stock which, however, does not
obtain in this case. As aptly pointed out by the CTA En Banc, the amount of P97,732,314.00
received by GTRC did not represent a periodic distribution of dividend, but rather a payment by
respondent for the redemption of GTRC's 3,729,216 preferred shares
In Wise & Co., Inc. v. Meer:
The amounts thus distributed among the plaintiffs were not in the nature of a recurring
return on stock — in fact, they surrendered and relinquished their stock in return for said
distributions, thus ceasing to be stockholders of the Hongkong Company, which in turn
ceased to exist in its own right as a going concern during its more or less brief
administration of the business as trustee for the Manila Company, and finally
disappeared even as such trustee.
xxx If the distribution is in the nature of a recurring return on stock it is an ordinary

dividend. However, if the corporation is really winding up its business or recapitalizing
and narrowing its activities, the distribution may properly be treated as in complete or
partial liquidation and as payment by the corporation to the stockholder for his stock.
All told, the amount of P97,732,314.00 received by GTRC from respondent for the
redemption of its 3,729,216 preferred shares were not accumulated dividends in arrears.
Contrary to petitioner's claims, it is therefore not subject to 15% FWT on dividends in
accordance with Section 28 (B) (5) (b) of the Tax Code.
PEN:
Here are the rules for recovery of an erroneous payment.
a. an administrative claim before the CIR must first be filed before the taxpayer can file a
petition before the CTA.
b. the administrative claim must be within 2 years from the date of payment.
c. furthermore, the judicial claim MUST ALSO be within the 2 years.
Correlate it with the rule on appeals from a protest before the CIR. A taxpayer has 30 days from
denial of the CIR of the protest to file an appeal before the CTA. If there is no decision from CIR
within 180 days, such inaction will be deemed as a denial. From there, the taxpayer has 30 days
to file the appeal.
Failure to appeal within 30 days will make the decision of the CIR final and executory.
Also, the filing of the appeal must be within 2 years.
THEREFORE, pursuant to this case, even if the 180 days has not yet lapsed, the taxpayer may
file a petition before the CTA if waiting for the 180 days will result to the expiration of the 2 year
period. BUT REMEMBER THAT THERE MUST FIRST BE AN ADMINISTRATIVE CLAIM.
The primary purpose of filing an administrative claim was to serve as a notice of

warning to the CIR that court action would follow unless the tax or penalty alleged to
have been collected erroneously or illegally is refunded.
19. COMMISSIONER OF INTERNAL REVENUE v. TMX SALES, INC, AND THE COURT OF
APPEALS
G.R. No. 83736, 15 January 1992, EN BANC, (Guiterrez, Jr., J.)

Respondent TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return
for the first quarter of 1981, declaring an income of P571,174.31, and consequently paying an
income tax thereon of P247,010.00 on May 15, 1981. During the subsequent quarters, however,
TMX Sales, Inc. suffered losses so that when it filed on April 15, 1982 its Annual Income Tax
Return for the year ended December 31, 1981, it declared a gross income of P904,122.00 and
total deductions of P7,060,647.00, or a net loss of P6,156,525.00
Thereafter, on July 9, 1982, TMX Sales, Inc. thru its external auditor, SGV & Co. filed
with the Appellate Division of the Bureau of Internal Revenue a claim for refund in the amount of
P247,010.00 representing overpaid income tax. This claim was not acted upon by the
Commissioner of Internal Revenue.
On March 14, 1984, TMX Sales, Inc. filed a petition for review before the Court of Tax
Appeals (CTA) to which the latter ruled in favor of the former. In granting the petition, the CTA
viewed the quarterly income tax paid as a portion or installment of the total annual income tax
due.
Ggranting without admitting, the amount in question is refundable, the petitioner (TMX
Sales, Inc.) is already barred from claiming the same considering that more than two (2) years
had already elapsed between the payment (May 15, 1981) and the filing of the claim in Court.
The basis in computing the two-year period of prescription provided for in Section 292
(now Section 230) of the Tax Code, should be May 15, 1981, the date when the quarterly
income tax was paid and not April 15, 1982, when the Final Adjustment Return for the year
ended December 31, 1981 was filed.
He cites the case of Pacific Procon Limited v. Commissioner of Internal Revenue

involving a similar set of facts, wherein the Supreme Court in a minute resolution affirmed the
Court of Appeals' decision denying the claim for refund of the petitioner therein for being barred
by prescription.
The prescriptive period should commence from the date of the filing of the Final
Adjustment Return. Does, it is not yet barred from filing a petition for refund.
ISSUE:
Does the two-year prescriptive period to claim a refund of erroneously collected tax
commence to run from the date the quarterly income tax was paid?
RULING:
NO. Section 292 (now Section 230) of the National Internal Revenue Code should be
interpreted in relation to the other provisions of the Tax Code in order to give effect to legislative
intent and to avoid an application of the law which may lead to inconvenience and absurdity.
Statutes should receive a sensible construction, such as will give effect to the legislative
intention and so as to avoid an unjust or an absurd conclusion. Where there is ambiguity, such
interpretation as will avoid inconvenience and absurdity is to be adopted.
Thus, in resolving the instant case, it is necessary that we consider not only Section 292
(now Section 230) of the National Internal Revenue Code but also the other provisions of the
Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now
Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and
Section 321 (now Section 232) on keeping of books of accounts. All these provisions of the Tax
Code should be harmonized with each other.
Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a
refund of a tax erroneously or illegally paid, counted from the time the tax was paid. But a literal
application of this provision in the case at bar which involves quarterly income tax payments
may lead to absurdity and inconvenience.
While Section 87 (now Section 69) requires the filing of an adjustment returns and final
payment of income tax, thus:
"Sec. 87. Filing of adjustment returns and final payment of income tax. - On or
before the fifteenth day of April or on or before the fifteenth day of the fourth
month following the close of the fiscal year, every taxpayer covered by this
Chapter shall file an Adjustment
Return covering the total net taxable income of the preceding calendar or fiscal
year and if the sum of the quarterly tax payments made during that year is not
equal to the total tax due on the entire net taxable income of that year, the
corporation shall either (a) pay the excess tax still due or (b) be refunded the
excess amount paid as the case may be. x x x"
Obviously, the most reasonable and logical application of the law would be to compute
the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual
Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay additional
income tax or if he is entitled to a refund of overpaid income tax.
Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code
requires that the books of accounts of companies or persons with gross quarterly sales or
earnings exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and examined
yearly by an independent Certified Public Accountant and their income tax returns be
accompanied by certified balance sheets, profit and loss statements, schedules listing income
producing properties and the corresponding incomes therefrom and other related statements.
Since the audit, as required by Section 321 (now Section 232) of the Tax Code is to be
conducted yearly, then it is the Final Adjustment Return, where the figures of the gross receipts
and deductions have been audited and adjusted, that is truly reflective of the results of the
operations of a business enterprise. Thus, it is only when the Adjustment Return covering the
whole year is filed that the taxpayer would know whether a tax is still due or a refund can be
claimed based on the adjusted and audited figures.
Therefore, the filing of quarterly income tax returns required in Section 85 (now Section
68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive at
a net taxable income, should be treated as advances or portions of the annual income tax due,
to be adjusted at the end of the calendar or fiscal year.
In the case of Collector of Internal Revenue v. Antonio Prieto, this Court held that when
a tax is paid in installments, the prescriptive period of two years provided in Section 306
(Section 292) of the National Internal Revenue Code should be counted from the date of the
final payment. This ruling is reiterated in Commissioner of Internal Revenue v. Carlos Palanca,
wherein this Court stated that where the tax account was paid on installment, the computation of
the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be
from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return on April
15, 1982, TMX Sales, Inc. is not yet barred by prescription.
PEN:
REMEMBER that quarterly income tax payments are merely considered a installments.
In contemplation of tax laws, there is no payment until the whole or entire tax
liability is completely paid. Thus, a payment of a part or portion thereof, cannot operate to
start the commencement of the statute of limitations. In this regard the word 'tax' or words 'the
tax' in statutory provisions comparable to section 306 of our Revenue Code have been
uniformly held to refer to the entire tax and not a portion thereof.
Therefore, installments are NOT considered as payments that would trigger the
commencement of the prescriptive period.
It is the date of the filing of the FAR which commences the running of the 2 year
prescriptive period.
WHY? Because it is only when the FAR is filed that it can be finally ascertained if the
taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income
tax. This is so because while a taxpayer may have a tax due on a quarter of the taxable year
since it had profits, it may be that in would sustain losses in other quarters.
20. DIAGEO PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 183553, 12 November 2012, SECOND DIVISION, (Perlas-Bernabe, J.)

Petitioner Diageo Philippines, Inc. (Diageo) purchased raw alcohol from its supplier for
use in the manufacture of its beverage and liquor products. The supplier imported the raw
alcohol and paid the related excise taxes thereon before the same were sold to the petitioner.
The purchase price for the raw alcohol included, among others, the excise taxes paid by the
supplier in the total amount of P12,007,528.83.
Within two (2) years from the time the supplier paid the subject excise taxes, Diageo
filed with the BIR applications for tax refund/issuance of tax credit certificates corresponding to
the excise taxes which its supplier paid but passed on to it as part of the purchase price of the
subject raw alcohol invoking Section 130(D) of the Tax Code.
CIR did not act upon Diageo’s claims, thus, the latter filed a petition for review before the
Court of Tax Appeals (CTA). However, the latter denied the former’s claims. This was affirmed
by the CTA En Banc.
Hence, this petition
Diageo lacks legal personality to institute the claim for refund because it was not the one
that paid the alleged excise taxes but its supplier.
It is the real party in interest entitled to recover the subject refund or tax credit because it
stands to be benefited or injured by the judgment in this suit.
The tax privilege under Section 130(D) applies to every exporter provided the conditions
therein set forth are complied with, namely, (1) the goods are exported either in their original
state or as ingredients or part of any manufactured goods or products; (2) the exporter submits
proof of exportation; and (3) the exporter likewise submits proof of receipt of the corresponding
foreign exchange payment.
Section 130(D) does not limit the grant of the tax privilege to manufacturers/producers-
exporters only but to every exporter of locally manufactured/produced goods subject only to the
conditions aforementioned
ISSUE:
Does Diageo have the legal personality to file a claim for refund or tax credit for the
excise taxes paid by its supplier on the raw alcohol it purchased and used in the manufacture of
its exported goods.
RULING:
NO. Diageo bases its claim for refund on Section 130 of the Tax Code which reads:
Section 130. Filing of Return and Payment of Excise Tax on Domestic Products.
xxx
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of
Tax. -
(1.) Persons Liable to File a Return. Every person liable to pay excise tax
imposed under this Title shall file a separate return for each place of production
setting forth, among others, the description and quantity or volume of products to
be removed, the applicable tax base and the amount of tax due thereon;
Provided however, That in the case of indigenous petroleum, natural gas or
liquefied natural gas, the excise tax shall be paid by the first buyer, purchaser or
transferee for local sale, barter or transfer, while the excise tax on exported
products shall be paid by the owner, lessee, concessionaire or operator of the
mining claim.
Should domestic products be removed from the place of production without the
payment of the tax, the owner or person having possession thereof shall be liable
for the tax due thereon.
D) Credit for Excise tax on Goods Actually Exported. - When goods locally
produced or manufactured are removed and actually exported without returning
to the Philippines, whether so exported in their original state or as ingredients or
parts of any manufactured goods or products, any excise tax paid thereon shall
be credited or refunded upon submission of the proof of actual exportation and
upon receipt of the corresponding foreign exchange payment: xxx
A reading of the foregoing provision, however, reveals that contrary to the position of
Diageo, the right to claim a refund or be credited with the excise taxes belongs to its supplier.
The phrase "any excise tax paid thereon shall be credited or refunded" requires that the
claimant be the same person who paid the excise tax. The proper party to question, or seek a
refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by
law and who paid the same even if he shifts the burden thereof to another."
Indirect taxes are defined as those wherein the liability for the payment of the tax falls on
one person but the burden thereof can be shifted to another person. When the seller passes on
the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser
as part of the price of goods sold or services rendered.
Accordingly, when the excise taxes paid by the supplier were passed on to Diageo, what
was shifted is not the tax per se but an additional cost of the goods sold. Thus, the supplier
remains the statutory taxpayer even if Diageo, the purchaser, actually shoulders the burden of
tax.
As defined in Section 22(N) of the Tax Code, a taxpayer means any person subject to
tax. He is, therefore, the person legally liable to file a return and pay the tax as provided for in
Section 130(A). As such, he is the person entitled to claim a refund. The person entitled to claim
a tax refund is the statutory taxpayer or the person liable for or subject to tax.
In the present case, it is not disputed that the supplier of Diageo imported the subject
raw alcohol, hence, it was the one directly liable and obligated to file a return and pay the excise
taxes under the Tax Code before the goods or products are removed from the customs house. It
is, therefore, the statutory taxpayer as contemplated by law and remains to be so, even if it
shifts the burden of tax to Diageo. Consequently, the right to claim a refund, if legally allowed,
belongs to it and cannot be transferred to another, in this case Diageo, without any clear
provision of law allowing the same.
Unlike the law on Value Added Tax which allows the subsequent purchaser under the
tax credit method to refund or credit input taxes passed on to it by a supplier, no provision for
excise taxes exists granting non-statutory taxpayer like Diageo to claim a refund or credit. It
should also be stressed that when the excise taxes were included in the purchase price of the
goods sold to Diageo, the same was no longer in the nature of a tax but already formed part of
the cost of the goods.
PEN:
REMEMBER, it is person who performed the act of paying the tax to the BIR who is
considered as the taxpayer. He is the statutory taxpayer who is entitled to a refund, regardless if
the tax is actually paid by another.
IMPORTANT: It should also be stressed that when the excise taxes were included in the
purchase price of the goods sold to Diageo, the same was no longer in the nature of a tax
but already formed part of the cost of the goods. So the amount equivalent to the excise tax
which Diageo paid can no longer be considered as an “excise tax”, rather, it is considered as
part of the cost of the goods sold. Therefore, he cannot ask for its refund, instead, it can use it
as deductions in its Income Tax Return.
Indirect taxes are defined as those wherein the liability for the payment of the tax falls on
one person but the burden thereof can be shifted to another person. When the seller
passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the
purchaser as part of the price of goods sold or services rendered.
NOTE: Burden and liability are different from each other. Liability pertains to the person
who should perform the act of paying to the BIR. Burden pertains to the person who is
shouldering or the one who pays the amount of tax.
21. MANNASOFT TECHNOLOGY CORPORATION v. COMMISSIONER OF INTERNAL
REVENUE
CTA CASE NO. 8745, 13 January 2017, THIRD DIVISION, (Bautista, J.)
FACTS ACCORDING TO GOVERNMENT

Pursuant to Letter of Authority ("LOA"), respondent conducted a tax investigation on
petitioner for CY 2008.
On November 22, 2011, petitioner was issued Formal Assessment Notice ("FAN") dated
November 16, 2011, assessing petitioner for deficiency income tax VAT of and Expanded
Withholding Tax (EWT). The FAN was received by a certain Angelo Pineda, as handwritten
thereon.
Petitioner filed a protest to the FAN. Consequently, on February 20, 2012, petitioner
submitted supporting documents. Nonetheless, on March 16, 2012, respondent issued a letter to
petitioner alleging that petitioner has not yet submitted its records.
On October 23, 2012, respondent issued a Warrant of Distraint and/or Levy ("WDL"),
which petitioner protested petitioner once again appealed for the reinvestigation of the CY 2008
case. On November 25, 2013, petitioner received respondent's letter denying petitioner's
request for reinvestigation, with a statement that the same constitutes respondent's final
decision on the matter.
Petitioner filed its appeal to the Court of Tax Appeals ("CTA") on December 10, 2013.

Petitioner denies having received both the NIC and the PAN, as shown in the judicial
affidavit of petitioner's witness, Ms. Fernandez. Furthermore Ms. Gladys Badocdoc and Angelo
Pineda does not have authority to receive the NIC and the PAN
Respondent avers that the FDDA should be the decision appealable to the Court, thus,
the Court has no jurisdiction to take cognizance of the case since the Petition for Review was
filed out of time.
Petitioner argues that respondent violated its right to due process when it did not receive
the NIC, the PAN, and the FAN; that the FAN and the WDL were not received by petitioner’s
duly authorized officer; and that the FAN failed to state the facts and law on which the
assessment was made. Petitioner also argues that respondent failed to consider the documents
it submitted in support of its protest.
The assessments for deficiency VAT and EWT have already prescribed pursuant to
Section 203 of the 1997 NIRC; and that the assessments have no legal and factual basis.
The assessments were made and issued in accordance with the law, rules and
regulations; and, that the assessments were issued within the prescriptive period allowed by
law.
ISSUES:
(1) Does the CTA have jurisdiction to rule on the petition?
(2) Are the assessments valid?
RULING:
(1) YES. Section of RA No. 1125 as amended by No. 9282, provides that the Court has
exclusive appellate jurisdiction to review, by way of appeal, decisions of the CIR involving
disputed assessments or other matters arising under the 1997 NIRC.
The term "disputed assessment" covers assessments wherein the taxpayer is

accorded the opportunity to challenge the same, which presupposes that a valid assessment
was issued by respondent. Under RR No. 12-99, a taxpayer whose protest is denied in whole
or in part by the CIR may appeal such denial to the CTA within thirty (30) days from receipt of
such denial. Compliance with the procedure outlined in RR No. 12-99 is necessary for the
CTA to acquire jurisdiction over the assessment. Thus, in Oceanic Wireless Network, Inc. v.
CIR, the Supreme Court held:
The rule is that for the Court of Tax Appeals to acquire jurisdiction, an
assessment must first be disputed by the taxpayer and ruled upon by the
Commissioner of Internal Revenue to warrant a decision from which a petition for
review may be taken to the Court of Tax Appeals. xxx
On the other hand, the term "other matters" may include the following: prescription of
the CIR's right to collect taxes; determination of the validity of a warrant of distraint and levy
issued by the CIR; and validity of a waiver of the statute of limitations.
Similarly, Phinma Property Holdings Corporation v. CTA elaborated on the term "other
matters" in this wise:
In line with the principle of "ejusdem generis" the term "other matters" in regard
to the respondent court's jurisdiction could be those cases which do not necessarily
involve disputed assessments or refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto or those related to customs protest or forfeiture
cases but controversies which are still within the scope of the functions of the BIR and
Customs.
It can be gathered from the foregoing that since no assessment was validly issued by
respondent (as will be discussed subsequently), the present case cannot be deemed a
disputed assessment, which would require a protest before the same may be brought before
the Court. Instead, the primordial issue in this case is the validity of the issuance of the
assessment, and whether the same may be collected on. These are matters provided for in
Sections 207(A), 208, and 228 of the 1997 NIRC
In Philippine Journalists, Inc. v. CIR (" Philippine Journalists"), the taxpayer therein
denied receiving the assessment and filed a Petition for Review with the CTA after receipt of the
WDL. The Supreme Court ruled that the CTA has jurisdiction to determine the validity of the
WDL.
Similar to the taxpayer in the Philippine Journalists case, petitioner herein did not receive
the assessment, as contemplated by the due process requirement, resulting to a void
assessment. However, unlike the Philippine Journalists case, petitioner failed to file its appeal to
the CTA upon knowledge of the WDL. Instead, petitioner filed its Petition for Review within thirty
(30) days from receipt of the BIR letter dated November 14, 2013, informing them that the
taxpayer's request for reinvestigation is denied, and that the same constitutes the BIR's final
decision on the matter. Nonetheless, the Court will consider the Petition for Review as timely
filed since a void assessment does not attain finality.
(2) NO. Section 3 of RR No. 12-99 provides the due process requirements in the
issuance of a deficiency tax assessment. Under such, it is required that respondent issue the
NIC, the PAN, and the FAN in writing to the taxpayer and that the same be received by the
latter. It is elementary that a taxpayer must actually receive any assessment issued by
respondent in order for the same to be valid.
In the present case, the NIC was served through personal delivery, as testified by RO
Lubo-Marco. RO Lubo-Marco further testified that based on their copy of the NIC, the same was
received by a certain "Ms. Gladys Badocdoc," whose indicated position was "Client Service
Assistant.”
On the other hand, petitioner denies having received both the NIC and the PAN, as
shown in the judicial affidavit of petitioner's witness, Ms. Fernandez.
Ms. Fernandez further testified that Ms. Gladys Badocdoc has no authority to receive the
NIC and the PAN. The FAN was likewise delivered by personal service and, as stipulated by the
parties, was received by a certain "Mr. Angelo Pineda. " However, petitioner's witness, Ms.
Fernandez, also testified that Mr. Pineda has no authority to receive the FAN since the latter is a
reliever security guard assigned by the security agency.
Thus, the requirement that the notices be served to the taxpayer, or an authorized
representative of the taxpayer, was not followed in the service of the NIC, the PAN, and the
FAN to petitioner. The notices were received by either a receptionist or a security guard. These
individuals were not authorized to receive the stated notices from the BIR, as testified to by
petitioner's witness.
In the instant case, petitioner denied receipt of the NIC, the PAN, and the FAN. These
BIR notices were received by an individual other than its authorized representative, and the
FAN was in fact received by a security guard who is not even an employee of petitioner.
Respondent also failed to present any evidence to show that they served said notices to
petitioner's authorized representative. Thus, the Court finds that the NIC, the PAN, and the FAN
were received by persons who are unauthorized to do so, thus, their receipt of these notices
cannot be deemed as receipt by petitioner.
Non-receipt of the NIC and the PAN results to the invalidity of the FAN issued thereafter,
for being violative of petitioner's right to due process. Further, since the FAN itself was also not
actually received by petitioner or its authorized representative, the same cannot be considered
as having been validly issued and therefore, is considered void and cannot become final,
executory and demandable.
The fact that petitioner was able to protest the FAN, albeit belatedly, does not cure
respondent's violation of petitioner's right to due process. Thus, petitioner's filing of a protest to
the FAN "does not denigrate the fact that it was deprived of statutory and procedural due
process to contest the assessment before it was issued."
The conclusion can be made that no valid assessment was issued by respondent as
petitioner did not receive the same. Thus, the assessments against petitioner for CY 2008 are
clearly void for being violative of petitioner's right to due process. Since the assessment against
petitioner is void, the WDL subsequently issued by respondent to enforce collection of the said
assessment, is likewise void. " An invalid assessment bears no valid fruit.
PEN:
Remember, receipt of the PAN, FAN or other notices of the BIR by a person not
authorized shall not bind the taxpayer who is subjected to the notice. Therefore, any
assessment against such taxpayer is void.
This may be correlated with Civil Procedure doctrines wherein a court will not acquire
jurisdiction over the person of a defendant if the latter does not validly receive summons.
Receipt by people, though related to a defendant, but not authorized by the latter nor the Rules
will not constitute as a valid service to the defendant and will not bind the defendant.
Same is true with the PAN and FAN. Further, since the FAN itself was also not actually
received by petitioner or its authorized representative, the same cannot be considered as
having been validly issued and therefore, is considered void and cannot become final, executory
and demandable. This is in accordance with the due process requirements as provided in the
NIRC and Revenue Regulations issued by the CIR itself.
22. LORENZO SHIPPING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
CTA CASE No. 8694, 28 June 2018, THIRD DIVISION, (Ringpis-Liban, J.)

A Letter of Authority for the examination of its books of accounts and other accounting
records for all internal revenue taxes covering the period of January 1, 2008 to December 31,
2008.
Petitioner received a Notice of Informal Conference dated June 17, 2010. On March 06,
2013, Petitioner received from Respondent an undated Preliminary Assessment Notice ("PAN"),
assessing Petitioner for deflciency income tax, value-added tax ("VAT"), withholding tax on
compensation ("WTC"), expanded withholding tax ("EWT"), fringe benefits tax ("FBT"), and
documentary stamp tax ("DST").
Subsequently, Petitioner and Respondent allegedly executed Waivers of Statute of

Limitations on March 31, 2011, on October 08, 2011 and on June 29, 2012
On April 18, 2013, Petitioner received from Respondent an undated FAN and undated
Audit Result/ Assessment Notices assessing Petitioner for alleged deficiency income tax, VAT,
WTH, EWT, FBT, and DST, inclusive of surcharges, interest and compromise penalty. As a
result, Petitioner filed a protest to the FAN which was received by the respondent on July 4,
2013.
Thereafter, on June 26, 2013, Petitioner received from Respondent a Preliminary

Collection Letter. Petitioner filed a protest thereto in which the respondent denied on July 12,
2013. Consequently, Petitioner filed the instant Petition for Review on August 13, 2013.
FACTS ACCORDING TO THE TAXPAYER:

Petitioner filed a protest to the FAN on May 17, 2013 and had it mailed on the same day.
Thus, it filed the protest within the prescribed period. Consequently, the assessment of
respondent had not yet attained finality.
A. Court has no jurisdiction to take cognizance of the present petition considering that
the assessment had become final, executory, and demandable due to petitioner's failure to
interpose a valid and timely protest.
B. Petitioner received the Formal Assessment Notice (hereinafter, 'FAN') on 18 April

2013. Therefore, it had thirty (30) days from 18 April 2013, or until 18 May 2013, within which to
file its administrative protest. Petitioner allegedly filed a letter of protest through registered mail
on 17 May 2013. However, respondent received said letter only on 4 July 2013. Given that
petitioner belatedly protested the assessment, it failed to comply with the statutory mandate in
section 228 of the NIRC, and effectively prevented the Court from assuming jurisdiction over
this petition.
C. Requirement to exhaust administrative remedies is not satisfied with the mere filing of
an administrative protest. Rather, an administrative remedy shall only be deemed to have been
exhausted if the same had been thoroughly applied. Which was not happened in this case. In
this case, petitioner filed its protest beyond the thirty (30) — day period within which to do so,
and did not submit all documents which may be relevant or important in substantiating its
protest.
D. The right of respondent to assess petitioner for deficiency taxes has not prescribed.
Contrary to petitioner's claim, the right of respondent to assess petitioner's deficiency VAT
liabilides for calendar year 2006 did not prescribe in view of petitioner's execution of three (3)
Waiver of the Statute of Limitadons under the NIRC of 1997.
A. It is not liable to pay the deficiency taxes.
B. The right of respondent to assess has prescribed.
C. The FAN issued by respondent is null and void for failure to state a specific date
within which to pay the deficiencies.
ISSUES
(1) Did petitioner timely file its protest? Consequently, did petitioner timely file its appeal before
the CTA? 2. Whether or not Petitioner is liable for the amount of Php2,008,472,584.91
representing deficiency taxes for TY 2008 comprising of income tax, VAT, wrc, Ewr, FBT, DST,
surcharges, interest and compromise penalty;
3. Whether or not Respondent's right to assess Pedtioner for the alleged deficiency taxes
for 2008 in the amount of Php2,008,472,584.90 has already prescribed;
4. Whether or not the FAN issued by Respondent is null and void for its failure to state a
clear and unequivocal demand for payment of the computed tax liabilities within a prescribed
period;
5. Whether or not the Honorable Court has jurisdiction over the case; and
RULING:
(1) YES. Section 228 of the National Internal Revenue Code ("NIRC") of 1997, as
amended, provides:
SEC. 228. Protesting of Assessment. When the Commissioner or his duly

first notify the taxpayer of his findings: Provided, however, That a preassessment
notice shall not be required in the following cases:
xxx xxx xxx

assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant
documents shall have been submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not acted upon within one
of the one hundred eighty (180)-day period; otherwise, the decision shall become
It is undisputed that Petitioner received the FAN on April 18, 2013. Petitioner had until
May 20, 2013 which is the next working day after May 18, 2013, within which to file its
administrative protest.
Petitioner indeed filed its administrative protest by registered mail on May 17, 2013, well
within the 30-day period provided by law to flle the same.
Section 3, Rule 13 of the Revised Rules of Court ("Revised ROC") provides the manner
of filing pleadings and other documents, as follows:
SEC. 3. Manner of filing. The filing of pleadings, appearances, motions, notices,

orders, judgements, and all other papers shall be made by the original copies
thereof, plainly indicated as such, personally to the clerk of court or by sending
them by registered mail. In the first case, the clerk of court shall endorse on the
pleading the date and hour of filing. In the second case, the date of the mailing of
motions, pleadings, or any other papers or payments or deposits, as shown by
the post office stamp on the envelope or the registry receipt, shall be considered
as the date of their filing, payment, or deposit in court.
Based on the foregoing provision, if pleadings or other documents are filed via registered
mail, then the date of mailing shall be considered as the date of filing. It does not matter when
the court actually receives the mailed pleading." Thus, in this case, as the administrative protest
was filed by registered mail on May 17, 2013, well within the reglementary period provided by
law, it is inconsequential that the same was actually received by Respondent on July 4, 2013.
Petitioner received on July 15, 2013 a Letter from Respondent dated July 12, 2013
denying its administrative protest. Hence, Petitioner had thirty (30) days or until August 14, 2013
within which to file an appeal before this Court. The receipt of the denial of the administrative
protest prompted Petitioner to file the instant Petition for Review on August 13, 2013 which is
well within the period prescribed by law to file the same.
(2) YES. For lack of a definite and unequivocal demand for payment of a certain date,
the assessment is perforce void.
In Commissioner of Internal Revenue v. Pascor Realty and Development Corporation,

the Supreme Court categorically pronounced that an assessment contains not only a
computation of tax liabilities, but also a demand for payment within a prescribed period. In other
words, an assessment is a notice to the effect that the amount therein stated is due as a tax and
a demand for the payment thereof. It fixes and determines the tax liability of a taxpayer.
However, a careful scrutiny of the records shows that for each of the enclosed Audit
Result/ Assessment Notices referred to in the FAN, there is no indicia of any definite period or a
date certain within which Petitioner must pay the alleged deficiency assessment. On the
contrary, the due dates on the enclosed Audit Result/ Assessment Notices for all the
assessment items were left blank or unaccomplished
In Commissioner of Intemal Revenue v. Fitness By Design, Inc., the Supreme Court

cancelled the Final Assessment Notice as well as the Audit Result/Assessment Notice for failure
to contain a definite period for payment of the tax assessed. According to the Supreme Court,
the lack thereof negates BIR's demand for payment.
Following the doctrine laid above, Respondent's assessment in this case similarly cannot
withstand the test of validity. The subject FAN cannot be deemed a valid formal assessment
notice absent a specific date or period within which the alleged tax liabilities must be settled or
paid by Petitioner.
It must be emphasized that the date certain for the payment of tax liabilities is
indispensable in an assessment as it dictates the time when the penalties, surcharges and
interest begin to accrue against. The uncertainty in the date of payment is a far cry from the
basic requirement, viz., a definite demand to immediately pay the assessed tax liabilities within
a time certain.
PEN:
IMPORTANT: The date within which to pay the amounts stated in the FAN should
ALWAYS BE PROVIDED. Failure to do so will render the FAN void, thus, the taxpayer will not
be liable.
What is the reason? Because the date of payment dictates the time when the penalties,
surcharges and interest begin to accrue against.
Civil Procedure related principle: When pleadings, appearances, motions, notices,

orders, judgements, and all other papers are filed via registered mail, the date of the filing shall
be the date of mailing the same. Therefore, such date shall be the reckoning period in
determining if the same was timely filed, not the date of receipt.
23. COMMISSIONER OF INTERNAL REVENUE v. T SHUTTLE SERVICES, INC.
G.R. No. 240729, 24 August 2020, SECOND DIVISION, (Inting, J.)

The CIR issued to respondent a Letter of Notice informing the respondent of the latter’s
discrepancy in its tax returns for Calendar Year (CY) 2007. Subsequently, the CIR issued a
Letter of Notice (LN) which was received and signed by a certain Malou Bohol. Subsequently a
follow-up letter was issued which was received and signed by a certain Amado Ramos.
Due to the inaction of respondent, the CIR issued to it, the following: (1) Letter of
Authority for the examination of its book of accounts; and other accounting records and (2) a
Notice of Informal Conference (NIC).
Subsequently, the CIR issued a Preliminary Assessment Notice (PAN) with attached
Details of Discrepancies that found respondent liable for deficiency income tax (IT) and value-
added tax (VAT). Then, the CIR issued a Final Assessment Notice (FAN), assessing
respondent with deficiency VAT and deficiency IT. It then issued a Preliminary Collection Letter
requesting respondent to pay the assessed tax liability within 10 days from notice. A Final
Notice Before Seizure (FNBS) was also issued giving respondent the last opportunity to settle
its tax liability within 10 days from notice.
However, respondent sent a letter to the RDO and the collection officers stating that: (1)
it is not aware of any pending liability for CY 2007; (2) that Mr. B. Benitez, who signed and
received the preliminary notices, was a disgruntled rank-and-file employee not authorized to
receive the notices; and (3) Mr. B. Benitez did not forward the notices to it. Respondent also
requested a grace period of one month to review its documents which was however denied.
Subsequently, respondent was constructively served with a Warrant of Distraint and/or

Levy (WDL). Aggrieved, on May 2, 2013, respondent filed a Petition for Review with the CTA in
Division which the latter granted. This was affirmed by the CTA En Banc.
No error or illegality can be ascribed to his assessment for deficiency tax liability as due
process was observed.
Respondent failed to interpose a timely protest against the FAN and to submit within the
prescribed period of 60 days supporting documents to refute the findings of the revenue
examiners.
Respondent is liable for deficiency IT and deficiency VAT.
The presumption of the propriety and exactness of tax assessments is in his favor.
It is not liable for any deficiency IT for CY 2007; that being a common carrier, it is
exempt from the payment of VAT; that the service of the NIC was invalid; and that it did not
receive the PAN and FAN prior to the issuance of the FNBS.
ISSUES:
(1) Was the FAN validly served?
(2) Is respondent liable?
RULING:
(1) NO. Factual questions are not the proper subject of an appeal by certiorari. It is not
for the Court to once again analyze or weigh evidence that has already been considered in the
lower courts. The question of whether the CIR was able to sufficiently prove that the PAN and
the FAN were properly and duly served upon and received by respondent is, undeniably, a
question of fact. In the case, the CTA En Banc ruled in the negative; hence, it sustained the
CTA Division's finding that respondent was not accorded due process and declared void the
assessments made against respondent for deficiency IT and VAT.
The Court recognizes that the CTA's findings can only be disturbed on appeal if they are
not supported by substantial evidence, or there is a showing of gross error or abuse on the part
of the tax court. There is no such gross error or abuse in this case. Section 228 of the National
Internal Revenue Code (NIRC) of 1997, as amended, requires the assessment to inform the
taxpayer in writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void. Section 228 pertinently provides:
SEC. 228. Protesting of Assessment. – When the Commissioner or his duly

first notify the taxpayer of his findings: Provided, however, That a pre-
assessment notice shall not be required in the following cases:
xxxx
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
To highlight the due process requirement in Section 228 of the NIRC, Section 3 of
Revenue Regulations (RR) 12-99 provides:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax

Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
xxx
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by

the Assessment Division or by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the facts and the
law, rules and regulations, or jurisprudence on which the proposed assessment
is based x x x. If the taxpayer fails to respond within fifteen (15) days from date of
receipt of the PAN, he shall be considered in default, in which case, a formal
letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties.
xxx
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the
taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void x x x. The same
shall be sent to the taxpayer only by registered mail or by personal delivery. If
sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand,
showing the following: (a) His name; (b) signature; (c) designation and authority
to act for and in behalf of the taxpayer, if acknowledged received by a person
other than the taxpayer himself; and (d) date of receipt thereof.
xxx
As can be gleaned from the above provisions, service of the PAN or the FAN to the
taxpayer may be made by registered mail. Under Section 3(v), Rule 131 of the Rules of Court,
there is a disputable presumption that "a letter duly directed and mailed was received in the
regular course of the mail." However, the presumption is subject to controversion and direct
denial, in which case the burden is shifted to the party favored by the presumption to establish
that the subject mailed letter was actually received by the addressee.
In view of respondent's categorical denial of due receipt of the PAN and the FAN, the
burden was shifted to the CIR to prove that the mailed assessment notices were indeed
received by respondent or by its authorized representative.
The CIR's mere presentation of Registry Receipt was insufficient to prove respondent's
receipt of the PAN and the FAN. The witnesses for the CIR failed to identify and authenticate
the signatures appearing on the registry receipts; thus, it cannot be ascertained whether the
signatures appearing in the documents were those of respondent's authorized representatives.
In any event, the Court finds significant the fairly recent issuance by no less than the CIR
himself of Revenue Memorandum Order No. (RMO) 40-2019 which prescribes the procedures
for the proper service of assessment notices in accordance with the provisions of Section 3.1.6
of RR 18-2013. RMO 40-2019 pertinently provides:
12. The Chief of the Assessment Division or the Head of the Reviewing Office
shall maintain a record of all assessment notices that were issued with the
following details:
12.1 Type of Assessment Notice (PAN/FLD/FAN/FDDA);
12.2 Assessment Notice Number, if applicable;
12.3 Date of Assessment Notice;
12.4 Name of Taxpayer;

12.5 Registered Address;
12.6 Mode of Service;
12.7 Date of Service;
12.8 Name of Taxpayer/Person who received the assessment notice;
12.9 Position/designation/relationship to the taxpayer, if not personally served to

the taxpayer named in the assessment notice;
12.10 Address/place where the assessment notice was served/delivered in case

the assessment notice was served in a place other than his registered address;
and
12.11 Status – Indicate whether the deficiency tax assessment isa. Paid;b.
Unprotested; orc. Disputed.
As can be gleaned above, a detailed record of all assessment notices issued by the CIR
is required. Notably, among the details to be recorded by the Chief of the Assessment Division
or the Head of the Reviewing Office are the "[n]ame of [t]axpayer/[p]erson who received the
assessment notice" and, more importantly, the "[p]osition/designation/relationship to the
taxpayer, if not served to the taxpayer named in the assessment notice."
While RMO 40-2019 was not yet in force at the time the questioned PAN and FAN in the
case were issued, the fact of such subsequent issuance of RMO 40-2019 by the CIR gives the
Court all the more reason to affirm, if only for consistency and uniformity, the CTA En Banc's
finding that the CIR failed to prove that the PAN and the FAN were properly and duly served
upon and received by respondent. Here, the CIR failed to identify and authenticate the
signatures appearing on Registry Receipt or the purpose of ascertaining whether such
signatures were those of respondent's authorized representative/s. Hence, it is readily apparent
that the CIR could not have complied with the requirement of noting the
position/designation/relationship of Mr. B. Benitez, the recipient, to respondent, the taxpayer.
(2) NO. Even granting that the PAN and the FAN were properly and duly served upon
and received by respondent the Court affirms the CTA En Banc's ruling that the FAN and the
assessment notices attached to it are still void for failure to demand payment of the taxes due
within a specific period. As held in Commissioner of Internal Revenue v. Fitness by Design, Inc.:
A final assessment is a notice "to the effect that the amount therein stated is due as tax
and a demand for payment thereof." This demand for payment signals the time "when
penalties and interests begin to accrue against the taxpayer and enabling the latter to
determine his remedies[.]" Thus, it must be "sent to and received by the taxpayer, and
must demand payment of the taxes described therein within a specific period."
The CTA En Banc observed that the assessment notices attached to the FAN also did
not prescribe a definite period for respondent to pay the alleged deficiency taxes. There being
no showing of gross error or abuse on the part of the CTA En Banc in its findings of fact, the
Court accords respect to the latter's finding that the FAN dated July 20, 2010 and the
assessment notices attached to it did not contain a definite period within which to pay the
assessed taxes. As such, even assuming that the assessments were duly served on and
received by respondent, they are still void and without any legal consequence.
PEN:
Essentially, this enunciates the same doctrine in Lorenzo Shipping Corp., v. CIR.
However, since the present case is the case promulgated by the Supreme Court, this is the one
that can be used as precedent.
Moreover, another Civil Procedure related principle was applied herein. For summons to
a defendant to be valid, the same should be served to the respondent himself or to his duly
authorized representative as provided in the Rules of Procedure. The same is true in FAN and
PAN. In this case, the person who received the PAN and FAN was not duly authorized by
respondent to receive the same. Therefore, the PAN and FAN is void.
Furthermore, as the Court stated, assuming without admitting that such were validly
served, the FAN did not contain a definite date within which the respondent should pay the
amounts stated therein. Therefore, it may be said that failure to indicate such is fatal to the right
of BIR to collect the deficiencies.
Again, the reason for the requirement of a definite date is that it is the reckoning point of
the computation of interests, surcharges, and penalties.
24. ANGELES CITY v. ANGELES CITY ELECTRIC CORPORATION and REGIONAL TRIAL
COURT BRANCH 57, ANGELES CITY
G.R. No. 166134, 29 June 2010, FIRST DIVISION, (Del Castillo, J.)
FACTS ACCORDING TO GOVERNMENT:

AEC was granted a legislative franchise under Republic Act No. (RA) 4079 system for
generating and distributing electric light, heat and power for sale in Angeles City, Pampanga.
Pursuant such, AEC's payment of franchise tax for gross earnings from electric current sold was
in lieu of all taxes, fees and assessments.
On January 1, 1992, RA 7160 or the Local Government Code (LGC) of 1991 was
passed into law, conferring upon provinces and cities the power, among others, to impose tax
on businesses enjoying franchise. In accordance with the LGC, the Sangguniang Panlungsod of
Angeles City enacted on December 23, 1993 the Revised Revenue Code of Angeles City
(RRCAC).
On February 7, 1994, a petition seeking the reduction of the tax rates and a review of the
provisions of the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles
Chamber of Commerce and Industry Inc. (MACCI) of which AEC is a member.
Thereafter, AEC has been paying the local franchise tax to the Office of the City
Treasurer on a quarterly basis, in addition to the national franchise tax it pays every quarter to
the Bureau of Internal Revenue (BIR).
On January 22, 2004, the City Treasurer issued a Notice of Assessment to AEC for
payment of business tax, license fee and other charges for the period 1993 to 2004. Within the
period prescribed by law, AEC protested the assessment which was denied.
Thus, AEC appealed to the RTC via a Petition for Declaratory Relief. On April 5, 2004,
the City Treasurer levied on the real properties of AEC. This prompted AEC to file with the RTC,
where the petition for declaratory relief was pending, an Urgent Motion for Issuance of
Temporary Restraining Order and/or Writ of Preliminary Injunction.
The RTC issued a Writ of Preliminary Injunction.
Hence, this petition seeking to annul the Writ of Preliminary Injunction.
Collection of taxes cannot be enjoined by the RTC, citing Valley Trading Co., Inc. v.
Court of First Instance of Isabela, Branch II, wherein the lower court's denial of a motion for the
issuance of a writ of preliminary injunction to enjoin the collection of a local tax was upheld.
Since the levy and auction of the properties of a delinquent taxpayer are proper and
lawful acts specifically allowed by the LGC, these cannot be the subject of an injunctive writ.
AEC must first pay the tax before it can protest the assessment.
Finally, the tax exemption claimed by AEC has no legal basis because RA 4079 has
been expressly repealed by the LGC.
RRCAC is oppressive, excessive, unjust and confiscatory; that it was published only
once, simultaneously on January 22, 1994; and that no public hearings were conducted prior to
its enactment.
Pursuant to RA 4079, it is exempt from paying local business tax; since it is already
paying franchise tax on business, the payment of business tax would result in double taxation;
the period to assess had prescribed because under the LGC, taxes and fees can only be
assessed and collected within five (5) years from the date they become due; and the
assessment and collection of taxes under the RRCAC cannot be made retroactive to 1993 or
prior to its effectivity.
No grave abuse of discretion on the part of the RTC in issuing the writ of preliminary
injunction because it was issued after due notice and hearing, and was necessary to prevent the
petition from becoming moot.
Writ of injunction was proper since the tax assessment issued by the City Treasurer is
not yet final, having been seasonably appealed pursuant to Section 195 of the LGC.
Following the case of Pantoja v. David, proceedings to invalidate a warrant of distraint

and levy to restrain the collection of taxes do not violate the prohibition against injunction to
restrain the collection of taxes because the proceedings are directed at the right of the City
Treasurer to collect the tax by distraint or levy.
ISSUE:
Can the RTC issue the writ of preliminary injunction against the City Treasurer?
RULING:
YES. The LGC does not specifically prohibit an injunction enjoining the collection of
taxes. A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the
government should be collected promptly, without unnecessary hindrance or delay. In line with
this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no
court shall have the authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the code. An exception to this rule obtains only
when in the opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the
interest of the government and/or the taxpayer.
The situation, however, is different in the case of the collection of local taxes as there is
no express provision in the LGC prohibiting courts from issuing an injunction to restrain local
governments from collecting taxes.
Thus, in the case of Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch
II, cited by the petitioner, we ruled that:
Unlike the National Internal Revenue Code, the Local Tax Code 31 does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes. Such
statutory lapse or intent, however it may be viewed, may have allowed preliminary
injunction where local taxes are involved but cannot negate the procedural rules and
requirements under Rule 58.
In light of the foregoing, petitioner's reliance on the above-cited case to support its view
that the collection of taxes cannot be enjoined is misplaced. The lower court's denial of the
motion for the issuance of a writ of preliminary injunction to enjoin the collection of the local tax
was upheld in that case, not because courts are prohibited from granting such injunction, but
because the circumstances required for the issuance of writ of injunction were not present.
Two requisites must exist to warrant the issuance of a writ of preliminary injunction,
namely: (1) the existence of a clear and unmistakable right that must be protected; and (2) an
urgent and paramount necessity for the writ to prevent serious damage. For grave abuse of
discretion to prosper as a ground for certiorari, it must be demonstrated that the lower court or
tribunal has exercised its power in an arbitrary and despotic manner, by reason of passion or
personal hostility, and it must be patent and gross as would amount to an evasion or to a
unilateral refusal to perform the duty enjoined or to act in contemplation of law. In other words,
mere abuse of discretion is not enough.
No grave abuse of discretion on the part of the RTC in issuing the writ of injunction was
found. Petitioner, who has the burden to prove grave abuse of discretion, failed to show that the
RTC acted arbitrarily and capriciously in granting the injunction. Neither was petitioner able to
prove that the injunction was issued without any factual or legal justification. Records also show
that before issuing the injunction, the RTC conducted a hearing where both parties were given
the opportunity to present their arguments. During the hearing, AEC was able to show that it
had a clear and unmistakable legal right over the properties to be levied and that it would
sustain serious damage if these properties, which are vital to its operations, would be sold at
public auction. As we see it then, the writ of injunction was properly issued.
PEN:
REMEMBER: The Court can issue a writ of preliminary injunction AGAINST THE CITY
TREASURER because such is not prohibited by the Local Government Code.
The rule is not the same with respect to national taxes because the NIRC specifically
prohibits such. The exception to this rule obtains only when in the opinion of the Court of Tax
Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the
taxpayer.
Another exception is when the assessments are void because it was made through
methods that are not in accordance with the law.
The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes
applies only to national internal revenue taxes, and not to local taxes.
25. COMMISSIONER OF INTERNAL REVENUE v. McGEORGE FOOD INDUSTRIES, INC.
G.R. No. 174157, 20 October 2010, SECOND DIVISION, (Carpio, J.)

On 15 April 1998, more than three months after Republic Act No. 8424 or the Tax
Reform Act of 1997 (1997 NIRC) took effect, respondent McGeorge Food Industries, Inc.
(respondent) filed with the Bureau of Internal Revenue (BIR) its final adjustment income tax
return for the calendar year ending 31 December 1997. There was a net overpayment of
P4,736,188. Respondent opted to have that amount to be applied as credit to next year.
Subsequently, respondent filed its final adjustment return for the calendar year ending
31 December 1998, indicating a tax liability of P5,799,056. Instead of applying to this amount its
unused tax credit carried over from 1997, as it was supposed to do, respondent merely
deducted from its tax liability the taxes withheld at source for 1998 (P217,179) and paid the
balance of P5,581,877.
Then, respondent simultaneously filed with the BIR and the Court of Tax Appeals (CTA)
a claim for refund of its overpayment in 1997.
The CTA ruled for respondent and ordered petitioner to refund the reduced amount. It
ruled that the 1997 NIRC only covers transactions done after 1 January 1998. As the
transactions subject of respondent's claim for refund took place before this cut-off date,
respondent is covered by Section 69 of the former tax code, Presidential Decree No. 1158
(National Internal Revenue Code of 1977 [1977 NIRC]) which, unlike Section 76 of the 1997
NIRC, does not carry an "irrevocability of option" clause. The Court of Appeals affirmed the CTA
Petitioner Commissioner of Internal Revenue (petitioner) opposed the suit at the CTA, alleging
that the action preempted his own resolution of respondent's parallel claim for refund, and, at
any rate, respondent has to prove its entitlement to refund.
Respondent is precluded from seeking a refund for its overpayment in 1997 after
respondent opted to carry-over and apply it to its future tax liability, following Section 76 of the
1997 NIRC. Section 76 applies to respondent because by the time respondent filed its final
adjustment return for 1997 on 15 April 1998, the 1997 NIRC was already in force, having taken
effect on 1 January 1998.
It is the 1977 NIRC that applies to it because the transactions subject of the FAR
occurred during the applicability of such law and not during the effectivity of the 1997 NIRC.
ISSUE:
Is respondent entitled to a tax refund for overpayment in 1997 after it opted, but failed, to
credit such to its tax liability in 1998?
RULING:
NO. Section 76 of the 1997 NIRC which provides:
Final Adjustment Return. — Every corporation liable to tax under Section 27 shall
file a final adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the
said taxable year is not equal to the total tax due on the entire taxable income of
that year, the corporation shall either:
(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or
In case the corporation is entitled to a tax credit or refund of the excess

estimated quarterly income taxes paid, the excess amount shown on its final
adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable for that taxable
period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.
is, like its predecessor Section 69 of the 1977 NIRC, a tax administration measure
crafted to ease tax collection.
Administratively speaking, Section 76 serves the same purpose as its companion

provisions in Title II, Chapter XII of the 1997 NIRC, namely, Section 74 on the declaration of
income tax by individuals, Section 75 on the declaration of quarterly corporate income tax, and
Section 77 on the place and time of filing and payment of quarterly corporate income tax — they
are all tools designed to promote rational and efficient functioning of the tax system.
These provisions should be distinguished from the provisions in Title II, Chapter IV (Tax
on Corporations) and Chapter VII (Allowable Deductions), among others, relating to the
question on the intrinsic taxability of corporate transactions.
Thus treated, Section 76 and its companion provisions in Title II, Chapter XII should be
applied following the general rule on the prospective application of laws such that they operate
to govern the conduct of corporate taxpayers the moment the 1997 NIRC took effect on 1
January 1998.
There is no quarrel that at the time respondent filed its final adjustment return for 1997
on 15 April 1998, the deadline under Section 77 (B) of the 1997 NIRC (formerly Section 70 (b)
of the 1977 NIRC), the 1997 NIRC was already in force, having gone into effect a few months
earlier on 1 January 1998. Accordingly, Section 76 is controlling.
As respondent opted to carry-over and credit its overpayment in 1997 to its tax liability in
1998, Section 76 makes respondent's exercise of such option irrevocable, barring it from later
switching options to "[apply] for cash refund." Instead, respondent's overpayment in 1997 will be
carried over to the succeeding taxable years until it has been fully applied to respondent's tax
liabilities.
We are not unaware of our ruling in another case allowing refund for excess tax payment
in 1997 despite the taxpayer's selection of the carry over and credit option, following Section 69
of the 1977 NIRC. However, the issue of the applicability of the 1997 NIRC was never raised in
that case. In the present case, the applicability of Section 76 of the 1997 NIRC over Section 69
of the 1977 NIRC was squarely raised as the core issue.
We held in the leading case of Philam Asset Management, Inc. v. Commissioner of

Internal Revenue:
[S]ection 76 remains clear and unequivocal. Once the carry-over option is taken, actually
or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998
creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07,
which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be
forfeited in the government's favor, because it may be claimed by petitioner as tax
credits in the succeeding taxable years.
PEN:
Prospective application of laws. Section 76 is a MEASURE FOR TAX COLLECTION. It
is not concerned in the intrinsic taxability of corporations.
Reckoning point is NOT the date of transaction but the date of the filing of the FAR.
Once again, under the irrevocability rule, once one option has been chosen by the
taxpayer, it is deemed irrevocable.

CIR. v. Yumex

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CIR. v. Yumex

Uploaded by

Copyright:

Available Formats

COMMISSIONER OF INTERNAL REVENUE v.

YUMEX PHILIPPINES CORPORATION

FACTS ACCORDING TO THE GOVERNMENT:

Yumex Philippines Corporation (Yumex) wrote the Commissioner of Internal Revenue

On January 20, 2011, Yuemx filed a protest on the FLD.

ARGUMENT OF THE GOVERNMENT:

SECTION 228. Protesting of Assessment. — When the Commissioner or his duly

Within a period to be prescribed by implementing rules and regulations, the

To implement the procedural and substantive rules on assessment of national internal

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax

3.1.2 Preliminary Assessment Notice (PAN). - x x x. If the taxpayer fails to

SECTION 29. Imposition of Improperly Accumulated Earnings Tax. —

(2) Exceptions. — The improperly accumulated earnings tax as provided for

(a) Publicly-held corporations;

RR No. 2-2001 particularly identified additional corporations which are not

g) Enterprises duly registered with the Philippine Economic Zone Authority

a. Investment of substantial earnings and profits of the corporation in unrelated business or in

FACTS ACCORDING TO THE GOVERNMENT:

Hence, the present Petitions.

The Commissioner exercises administrative adjudicatory power or quasi-judicial function

Section 3. Due Process Requirement in the Issuance of a Deficiency Tax

3.1 Mode of procedures in the issuance of a deficiency tax assessment: 3.1.1

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by

3.1.5 Disputed Assessment. — The taxpayer or his duly authorized

3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the

This is an essential requirement of due process and applies to the Preliminary

Section 203. Period of Limitation Upon Assessment and Collection. — Except as

Section 222. Exceptions as to Period of Limitation of Assessment and Collection

Indeed, a Waiver of the Defense of Prescription is a bilateral agreement between a

Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue is not on

Under these circumstances, Avon's payment of an insignificant portion of the

Section 228. Protesting of Assessment. —

Such assessment may be protested administratively by filing a request for

Section 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

FACTS ACCORDING TO THE GOVERNMENT:

The Arbitral Tribunal ordered AF2100 to produce the Requested Documents.

AF2100 filed a Motion for Intervention contending that: a) AF2100, an indispensable

Unlawful Divulgence of Information. — Except as provided in Sections 6(F) and

Any officer or employee of the Bureau of Internal Revenue who divulges or

HOWEVER, it must be emphasized that no pronouncement was made by the Court

Section 203 of the NIRC provides:

In determining whether the return filed is false or fraudulent, jurisprudence has

FACTS ACCORDING TO THE GOVERNMENT:

Hence, the instant Petition.

(1) Is Shinko a representative office?

Sec. 22. Definitions. — When used in this Title:

Sec. 2. Definition of Terms. — For purposes of this Act, the term:

An RHQ is an office principally intended to render administrative services. It is not

Sec. 22. Definitions. — When used in this Title:

Sec. 2. Definition of Terms. — For purposes of this Act, the term:

In stark contrast to an RHQ, an ROHQ is allowed by law to perform activities that

As regards taxes, inasmuch as an ROHQ is primarily engaged in activities that generate

Income is "defined as an amount of money coming to a person or corporation within a

An RHQ is an office principally intended to render administrative services. RHQ's

(1) general administration and planning;

FACTS ACCORDING TO THE GOVERNMENT:

Hence, this petition.

ARGUMENT OF THE GOVERNMENT:

SECTION 6. Method of Availment of Tax Amnesty.-

1. Forms/Documents to be filed. - To avail of the general tax amnesty, concerned

a) Notice of Availment in such form as may be prescribed by the BIR.