CIR vs. De Prieto, G.R. No.

L-13912, 30 September 1960

FACTS :

            Respondent Vda. de Prieto conveyed by way of gifts a real property to her
children. The Commissioner of Internal Revenue appraised the property donated at
P1,231,268.00, and assessed the total sum of P117,706.50 as donor's gift tax, interest
and compromises due thereon. Of the total sum of P117,706.50 paid by respondent on
April 29, 1954, the sum of P55,978.65 represents the total interest on account of
deliquency. Said sum was claimed as deduction, among others, by respondent in her
1954 income tax return. Petitioner disallowed the claim and as a consequence of such
disallowance assessed respondent for 1954 deficiency income tax due on the aforesaid
P55,978.65, including interest 1957, surcharge and compromise for the late payment.

ISSUE:
Whether or not interest paid for the late payment of tax is deductible from gross
income.
HELD:
            YES. For interest to be deductible, it must be shown that: (1) there be an
indebtedness, (2) there should be interest upon it, and (3) what is claimed as an interest
deduction should have been paid or accrued within the year. In this case, the last two
requirements are undisputed. The only question is if interest on account of late
payments of taxes be considered as indebtedness.  Indebtedness has been defined as
an unconditional and legally enforceable obligation for the payment of money. Within
the meaning of that definition, it is apparent that a tax may be considered
indebtedness.  Although taxes already due have not, strictly speaking, the same
concept as debts, they are, however, obligations that may be considered as such.
Where statute imposes a personal liability for a tax, the tax becomes, at least in a board
sense, a debt. It follows that the interest paid by herein respondent for the late payment
of her donor's tax is deductible from her gross income.
In conclusion, interest payment for delinquent taxes is not deductible as tax but
the taxpayer is not precluded thereby from claiming said payment as deduction on
account of interest.
Coca-Cola Bottlers vs. CIR, G.R. No. 222428, 19 February 2018
Facts:

On April 24, 2008, petitioner Coca-Cola Bottlers Philippines, Inc., a Value Added
Tax (VAT)-registered, domestic corporation filed its Quarterly VAT Return for the period
of January 1, 2008 to March 31, 2008 and amended the same a few times thereafter.
On April 20, 2010, petitioner filed with the BIR's Large Taxpayers Service an
administrative claim for refund or tax credit of its alleged over/erroneous payment of
VAT for the quarter ended March 31, 2008 in the total amount of P123,459,647.70.
Three (3) days thereafter, or on April 23, 2010, petitioner filed with the CTA a judicial
claim for refund or issuance of tax credit certificate presenting petitioner's input and
output VAT through its computerized accounting system. The CTA En Banc further held
that for input taxes to be available as tax credits, they must be substantiated and
reported in the VAT Return of the taxpayer.

The CTA En Banc also cited jurisprudence which provide that Sections 204(C)
and 229 of the NIRC similarly apply only to instances of erroneous payment or illegal
collection of internal revenue taxes. In claims for refund or credit of excess input VAT
under Sections 110(B) and 112 (A), the input VAT is not "excessively" collected as
understood under Section 229. The term "excess" input VAT simply means that the
input VAT available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Section 229,
therefore, is inapplicable to the instant claim for refund or credit.

Issue :

Whether petitioner's claims for refund/tax credit falls within the purview of section 229.

Held:

No. From the plain text of Section 229, it is clear that what can be refunded or credited
is a tax that is 'erroneously, illegally, excessively or in any manner wrongfully collected.
In short there must be a wrongful payment because what is paid, or part of it, is not
legally due. As the Court held in Mirant, Section 229 should 'apply only to instances of
erroneous payment or illegal collection of internal revenue taxes. Erroneous or wrongful
payment includes excessive payment because they all refer to payment of taxes not
legally due. Under the VAT System, there is no claim or issue that the 'excess' input
VAT is excessively or in any manner wrongfully collected. In fact if the 'excess' input
VAT is an 'excessively' collected tax under Section 229, then the taxpayer claiming to
apply such excessively' collected input VAT to offset his output VAT may have no legal
basis to make such offsetting. The person legally liable to pay the input VAT can claim a
refund or credit for such 'excessively' collected tax, and thus there will no longer be any
excess input VAT. This will upend the present VAT System as we know it. Since
petitioner failed to substantiate its claim that its undeclared input VAT payments
resulted to overpayment of output VAT, the Court En Banc cannot grant petitioner's
claim.
NAPOCOR v. City of Cabanatuan, G.R. No. 149110, 9 April 2003

FACTS:

Petitioner is a government-owned and controlled corporation created under

Commonwealth Act No. 120, as amended.

For many years now, petitioner sells electric power to the residents of Cabanatuan City,
posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of
Ordinance No. 165-92,8 the respondent assessed the petitioner a franchise tax
amounting to P808,606.41, representing 75% of 1% of the latter’s gross receipts for the
preceding year.

Petitioner refused to pay the tax assessment arguing that the respondent has no
authority to impose tax on government entities. Petitioner also contended that as a non-
profit organization, it is exempted from the payment of all forms of taxes, charges,
duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended.

The respondent filed a collection suit in the RTC, demanding that petitioner pay the
assessed tax due, plus surcharge. Respondent alleged that petitioner’s exemption from
local taxes has been repealed by section 193 of the LGC, which reads as follows:

«Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this

Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, non-
stock and non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code.»

RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial court’s Order on
the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly
withdrew the exemptions granted to the petitioner.

ISSUE:

Whether or not the respondent city government has the authority to issue Ordinance
No. 165-92 and impose an annual tax on «businesses enjoying a franchise

HELD:

YES. Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from necessity;32 without
taxes, government cannot fulfill its mandate of promoting the general welfare and well-
being of the people.

Section 137 of the LGC clearly states that the LGUs can impose franchise tax
notwithstanding any exemption granted by any law or other special law . It is our view
that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO’s tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
‘notwithstanding any exemption granted by any law or other special law’ is all-
encompassing and clear. The franchise tax is imposable despite any exemption
enjoyed under special laws.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. As this Court observed in the Mactan
case, the original reasons for the withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises. With the added burden of devolution, it is
even more imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due from them.
Kilosbayan, Incorporated et al. vs. Teofisto Guingona, Jr. et al., G.R. No. 113375, 5
May 1994

FACTS:

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by
B.P. Blg. 42 which grants it the authority to hold and conduct "charity sweepstakes
races, lotteries and other similar activities," the PCSO decided to establish an on- line
lottery system for the purpose of increasing its revenue base and diversifying its
sources of funds. After learning that the PCSO was interested in operating an on-line
lottery system, the Berjaya Group Berhad, "a multinational company and one of the ten
largest public companies in Malaysia, and who has been long engaged in lottery
operations in Asia, became interested to offer its services and resources to PCSO. As
an initial step, Berjaya Group Berhad organized with some Filipino investors in March
1993 a Philippine corporation known as the Philippine Gaming Management
Corporation (PGMC), which was intended to be the medium through which the technical
and management services required for the project would be offered and delivered to
PCSO.  PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of
an on-line lottery system for the PCSO. The bids submitted by PGMC were evaluated
by the Special Pre-Qualification Bids and Awards Committee (SPBAC) for the on-line
lottery and its Bid Report was thereafter submitted to the Office of the President. On 21
October 1993, the Office of the President announced that respondent PGMC may finally
operate the country's on-line lottery system and that the corresponding implementing
contract would be submitted for final clearance and approval by the Chief Executive.

On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V.

Ramos strongly opposing the setting up to the on-line lottery system on the basis of
serious moral and ethical considerations. Petitioners also submit that the PCSO cannot
validly enter into the assailed Contract of Lease with the PGMC because it is an
arrangement wherein the PCSO would hold and conduct the on-line lottery system in
"collaboration" or "association" with the PGMC, in violation of Section 1(B) of R.A. No.
1169, as amended by B.P. Blg. 42, which prohibits the PCSO from holding and
conducting charity sweepstakes races, lotteries, and other similar activities "in
collaboration, association or joint venture with any person, association, company or
entity, foreign or domestic." Petitioner seeks to prohibit and restrain the implementation
of the "Contract of Lease" executed by the Philippine Charity Sweepstakes Office
(PCSO) and the Philippine Gaming Management Corporation (PGMC) in connection
with the on- line lottery system, also known as "lotto."

ISSUE:
Whether or not the oppositions made by the petitioner was valid.

HELD:

The Court agrees with the petitioners and the challenged Contract of Lease
executed by respondent PCSO and respondent PGMC is declared to be contrary to law
and invalid. The preliminary issue on the locus standi of the petitioners which was
raised by the respondents should be resolved in their favor. The Court finds this petition
to be of transcendental importance to the public. The issues it raised are of paramount
public interest and of a category even higher than those involved in many of the
forecited cases. The ramifications of such issues immeasurably affect the social,
economic, and moral well-being of the people even in the remotest barangays of the
country and the counter-productive and retrogressive effects of the envisioned on-line
lottery system are as staggering as the billions in pesos it is expected to raise. The legal
standing then of the petitioners deserves recognition and, in the exercise of its sound
discretion, this Court hereby brushes aside the procedural barrier which the
respondents tried to take advantage of.

On the substantive issue regarding the provision in Section 1 of R.A. No. 1169,
as amending by B.P. Blg. 42, is indisputably clear with respect to its franchise or
privilege "to hold and conduct charity sweepstakes races, lotteries and other similar
activities." Meaning, the PCSO cannot exercise it "in collaboration, association or joint
venture" with any other party. Thus, the challenged Contract of Lease violates the
exception provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P.
Blg. 42, and is, therefore, invalid for being contrary to law. 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law.
CIR vs. St. Luke’s Medical Center, G.R. No. 203514, 13 February 2017
FACTS:

The respondent St. Luke’s Medical Center, Inc. (SLMC) received a tax payment
assessment from the Large Taxpayers Service-Documents Processing and Quality
Assurance Division of the Bureau of Internal Revenue Audit Result/Assessment Notice
on December 14, 2007. Based on the assessment the respondent SLMC has a
deficiency income tax under Section 27 (B) of the 1997 National Internal Revenue Code
(NIRC), as amended for the taxable year 2005 in the amount of P78, 617,434.54 and for
taxable year 2006 in the amount of P57, 119,867.33.

In response to the received assessment from NIRC on January 14, 2008, SLMC
filed with the petitioner Commission on Internal Revenue (CIR) an administrative protest
assailing the assessments. The SLMC alleged that they are exempted from paying the
income tax since SLMC is a non-stock, non-profit, charitable and social welfare
organization under Section 30 (E) and (G) of the 1997 NIRC as amended.

However, on April 25, 2008, SLMC received the petitioner CIR’s Final Decision
on the Disputed Assessment dated April 9, 2008 increasing the deficiency income from
P78, 617, 434.54 to P82,419,522.21 for taxable year 2005 and from P57,119,867.33 to
P60, 259,885.94 for taxable year 2006.

The aggrieved SLMC elevated the matter to Court of Tax Appeal (CTA) finding
the decision that SLMC is not liable for the deficiency income tax under Section 27 (B)
of the 1997 NIRC, as amended and exempt from paying the income under Section 30
(E) and (G) of the same code.

Consequently, the CIR moved for reconsideration but the CTA Division denied
which the CIR prompted to file a petition for review before the CTA En Banc which
eventually denied and affirmed the first decision of the CTA Division.

Moreover, the CIR filed an instant petition contending that the CTA erred in
exempting SLMC from payment of income tax, where the CIR petition is partly granted.
SLMC ordered to pay the deficiency income tax in 1998 based on the 10% preferential
income tax. The CIR argues that under the doctrine of Stare Decisis SLMC is subject to
10% income tax under Section 27 (B) of the 1997 NIRC, and liable to pay the
compromise penalty. SLMC argues that the income derives from operating a hospital is
not income from activities conducted for profit. And the case should be dismissed since
payment to BIR for the basic taxes due for taxable years 1998, 2000-2002 and 2004-
2007 has been made.
ISSUES:

1. Whether or not SLMC is liable for income tax under Section 27 (B) of the 1997 NIRC.

2. Whether or not SLMC is not liable for compromise penalty.

3. Whether or not the petition is rendered moot by payment made by SLMC on April 30,
2013.

HELD:

1. Yes. Based on Section 27 (B) of the NIRC imposes 10% preferential tax rate
on the income of (1) proprietary non-profit educational institutions and (2) proprietary
non-profit hospitals. The only qualifications for hospitals are they must be proprietary
and non-profit. Proprietary means private, following the definition of a proprietary
educational institution, as any other private school maintained and administered by
private individuals or groups with government permit. While non-profit means no net
income or asset accrues to or benefits any member or specific person with all the net
income or asset devoted to the institution’s purposes and all its activities conducted not
for profit.

2. Yes. Under Sections 248 and 249 of the 1997 NIRC the imposition of
surcharges and interests were deleted on the basis of good faith and honest belief on
the part of SLMC that it is not subject to tax so therefore, SLMC is not liable to pay the
compromise penalty.

3. Yes. The payment of basic taxes made by the SLMC has become moot even
the court agrees with the CIR that the payment confirmation from the BIR is not
competent proof as presented by SLMC due to no specific taxable period for payments
that it covers. However, the court finds sufficient proof of payment based on the
Certification of Payment issued by the Large Taxpayers Service of the BIR since CIR
never question for its document’s authenticity. The court dismissed the petition and
lowered the basic taxes for taxable year 2005 and 2006, in the amounts of P49,
919,496.40 and P41, 525,608.40.
CIR vs. Yumex Philippines Corporation, G.R. No. 222476, 05 May 2021

Facts:

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.
Respondent is clearly not a holding or investment company; and nowhere in the PAN,
Details of Discrepancies, or the FLD/F AN did the BIR expressly describe any of the
prima facie instances of improperly accumulated earnings and profits.

For its part, respondent was able to prove that it had accumulated its earnings from
previous years for a reasonable business purpose. Respondent needed funds for a new
project, example the manufacture of Heat Run Oven Controlled Rack, which started
commercial operations in June 2007 and was also duly registered with the PEZA.
Respondent had to acquire new machinery and equipment as well as a separate
exclusive building space for the project. Petitioner did not cross-examine respondent’s
witness on this matter or present evidence to refute that respondent’s accumulated
income was actually for a reasonable need in its business operations.

ISSUE:

Is a company registered with the Philippine Economic Zone Authority (PEZA) exempt
from improperly accumulated earnings tax even if it is under income tax holiday and not
under the 5% special tax regime which is imposed in lieu of all other taxes?

HELD:

Yes.  Section 4(g) of Revenue Regulations No. 2-2001 provides that  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 (BCDA), 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” are exempt
from improperly accumulated earnings tax (IAET).  
Cagayan Power and Light Co. vs. CIR, GR No. 60126, September 25, 1985

FACTS:

Cagayan Electric is a holder of a legislative franchise under RA 3247 where

payment of 3% tax on gross earning is in lieu of all taxes and assessments upon
privileges. In 1968, RA 5431 amended the franchise by making all corporate taxpayers
liable for income tax. In 1969, through RA 6020, its franchise was extended to two other
towns and the tax exemption was reenacted. The commissioner required the company
to pay deficiency income taxes for the intervening period (1968-1969).

ISSUE:

Is CEPALCO liable for the tax?

HELD:

Yes. Congress could impair the company’s legislative franchise by making it

liable for income tax. The Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress
when the public interest so requires. However, it cannot be denied that the said 1969
assessment appears to be highly controversial. It had reason not to pay income tax
because of the tax exemption its franchise. For this reason, it should be liable only for
tax proper and should not be held liable for surcharge and interest. 
ABAKADA Guro Party List, et al., v. The Honorable Executive Secretary Eduardo
Ermita, et al., G.R. No. 168056, 1 September 2005

Facts:

Petitioners assail the provisions of RA 9337, questioning the constitutionality of

Sections 4, 5, and 6. Said provisions, which amended Sections 106, 107 and 108 of the
NIRC, contained a provision, the so-called “stand-by authority”, authorizing the
President, upon the recommendation of the Finance Secretary, to raise the rate of the
VAT from 10-12%, upon the fulfillment of its specified conditions:

(1) VAT collection as a percentage of Gross Domestic Product (GDP) of the

previous year (meaning 2005) exceeds two and four-fifth percent (2 4/5%); or

(2) National government deficit as a percentage of GDP of the previous year

(2005) exceeds one and one-half percent (1 ½ %).”

Petitioner further argued that said law is unconstitutional for (1) the law
constituted an abdication by Congress of its exclusive authority to fix the rate of taxes
under Section 28(2) of Article VI of the Constitution; (2) it amounts to an undue
delegation of legislative power; and (3) imposed an unfair and additional tax burden on
the people, in violation of the due
process clause and the “no-amendment” rule of the Constitution.

Issue:

Whether or not Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108, respectively, of the NIRC giving the President the stand-by authority to
raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue
delegation of the legislative power to tax.

Held:

No. The Court ruled that there was no undue delegation of legislative power, and that
the 12 percent increase in the VAT rate did not impose any unfair and unnecessary
additional tax burden.

In every case of permissible delegation, it said, “there must be a showing that the
delegation itself [was] valid”; that is, (a) the law was complete in itself — it spelled out
the policy to be executed, carried out, or implemented by the delegate; and (b) the law
fixed a standard to which the performance of a delegate’s functions must conform – a
standard whose limits were sufficiently determinate and determinable.

The common proviso in Sections 4, 5 and 6 of RA 9337 involved simply a delegation of

the ascertainment of facts upon which the operation of the 12 percent VAT rate effective
January 1, 2006, would be made contingent. There was no discretion to be exercised by
the President, as may be gleaned from the use of the word “shall.” The Court held that
in making recommendations to the President on the existence of either of the two
specified conditions, the finance secretary was not acting as the Chief Executive’s alter
ego or even subordinate. Rather, the finance chief was acting as the “agent of the
legislative department, to determine and declare the event upon which its expressed will
is to take effect.” This being so, the findings of the secretary could not be altered,
modified, nullified or set aside by the President; much less could the judgment of the
former be substituted for that of the latter.

The alleged ambiguity in the 12 percent increase was also brushed aside by the Court;
the provisions of the law were clear and did not provide for a return of the 10 percent
rate. Neither did they empower the President to revert to the old rate if either of the two
conditions precedent no longer existed.