1.

CIR vs. Filinvest Dev’t Corp.

G.R. 163653 ; July 19, 2011

Facts

The case involves a tax dispute between the Commissioner of Internal Revenue (CIR) and
Filinvest Development Corporation (FDC).
FDC, a holding company, owned 80% of the outstanding shares of Filinvest Alabang, Inc. (FAI)
and 67.42% of the outstanding shares of Filinvest Land, Inc. (FLI).
FDC and FAI entered into a Deed of Exchange with FLI, where parcels of land were
transferred in exchange for shares of stock of FLI, resulting in a change in the ownership
structure of FLI.
FDC also extended cash advances to its affiliates, FAI, FLI, Davao Sugar Central Corporation
(DSCC), and Filinvest Capital, Inc. (FCI).
FDC entered into a Shareholders' Agreement with Reco Herrera PTE Ltd. (RHPL) for the
formation of a joint venture company called Filinvest Asia Corporation (FAC).
The CIR issued Assessment Notices to FDC and FAI for deficiency income and documentary
stamp taxes.
FDC and FAI filed a request for reconsideration/protest, but the CIR failed to resolve it within
the prescribed period.
FDC and FAI filed a petition for review with the Court of Tax Appeals (CTA).
The CTA partially granted the petition, canceling some of the deficiency taxes assessed
against FDC and FAI.
The CIR appealed to the Court of Appeals (CA), but the CA affirmed the CTA's decision.

Issue:
Whether the exchange of shares and cash advances qualified as tax-free transactions.
Whether documentary stamp taxes should be imposed on loan agreements and promissory
notes issued by FDC.

Ruling:

The exchange of shares and cash advances qualified as tax-free transactions under Section
34 (c) (2) of the Tax Code.
Documentary stamp taxes should not be imposed on loan agreements and promissory notes
issued by FDC.
Ratio:
The Court found that FDC and FAI gained control of FLI as a result of the exchange, meeting
the requirements for non-recognition of gain or loss under Section 34 (c) (2) of the Tax Code.
The Court interpreted Section 34 (c) (2) to include exchanges of property for shares of stock,
as long as control of the corporation is acquired.
The Court also found that the cash advances were not subject to documentary stamp taxes, as
they did not fall under the categories of taxable documents specified in the Tax Code.
However, the Court held that the CIR was justified in assessing undeclared interests on the
cash advances, as they constituted income subject to taxation.

2, North American Oil Consolidated v. Burnet, 286 US 417 (1932);

Facts

North American Oil Consolidated (NAOC) (plaintiff) operated a section of oil land
owned by the United States. The government sued to oust NAOC in 1916, and a
receiver was appointed to manage the property and retain the net profits until the
case was decided. In 1917, NAOC won the lawsuit, and the receiver paid the
company $171,979.22 in net profits from 1916. The government appealed to the
Court of Appeals for the Ninth Circuit, which affirmed. NAOC did not initially report the
1916 net profits as income on its tax return. However, in 1918, NAOC filed an
amended return and included the profits. Burnet (defendant), the Commissioner of
Internal Revenue, audited NAOC’s 1917 return and found a deficiency for unrelated
reasons. NAOC appealed the deficiency to the Board of Tax Appeals, but Burnet
sought to increase the deficiency to reflect the receiver’s 1917 payment to NAOC.
The Board held that the income was taxable to the receiver, not NAOC. Burnet
appealed to the Ninth Circuit, which held that the amount was taxable to NAOC in
1917, without regard to whether it used the cash-receipts-and-disbursements basis or
accrual basis. NAOC petitioned the Supreme Court for certiorari, which was granted.

3.
CIR vs. Court of Appeals and A. Soriano Corp., G.R. No. 108576, Jan. 20, 1999;

(G.R. No. 108576)

Facts:

A Soriano Corporation (ANSCOR) redeemed 28,000 common shares from the estate of Don
Andres Soriano, the founder of the corporation.
ANSCOR further increased its capital stock and redeemed an additional 80,000 common
shares from the estate.

The purpose of these redemptions was to partially retire the stocks as treasury shares and
reduce foreign exchange remittances in case cash dividends were declared.
The Bureau of Internal Revenue (BIR) assessed ANSCOR for deficiency withholding tax-at-
source based on these transactions.
ANSCOR argued that it had no duty to withhold tax from the redemptions because they were
done for legitimate business purposes.
ANSCOR also invoked the tax amnesty provisions of Presidential Decree No. 67.

Issue:
Whether ANSCOR's redemption of stocks and exchange of common with preferred shares can
be considered as essentially equivalent to the distribution of taxable dividends.

Ruling:

The redemption of stock dividends is subject to income tax.

The exchange of common with preferred shares is not taxable.
Ratio:
The Supreme Court ruled that the redemption of stock dividends is taxable under Section 83(b)
of the National Internal Revenue Code.
The court applied the "net effect test" and found that the redemption resulted in a flow of wealth
and realized income for the stockholder.
The court rejected ANSCOR's justifications for the redemptions, stating that they were not
supported by board resolutions and that no cash dividends were ever declared by ANSCOR
despite its enormous profits.

The court held that ANSCOR, as a withholding agent, is not protected by the tax amnesty
provisions of Presidential Decree No. 67.
Withholding tax provisions are mandatory and must be complied with.
Regarding the exchange of common with preferred shares, the court ruled that it is not taxable
because it produces no realized income to the subscriber.
The court found that there was no change in the proportional interest of the stockholders after
the exchange and that it was a mere modification of rights and privileges.
4,
Citibank, N.A. v. Court of Appeals, G.R. No. 107434;

Case Digest (G.R. No. 107434)

Facts:

The case of Citibank, N.A. v. Court of Appeals involved a dispute between Citibank and the
Commissioner of Internal Revenue regarding the refund of erroneously collected taxes
withheld by Citibank's tenants.
Nature of Withheld Amounts and their Intended Purpose
The withheld amounts were creditable withholding taxes, which were supposed to be credited
against Citibank's income tax liability for the relevant years.
Citibank, however, posted losses in its 1979 and 1980 tax returns, making it not liable for any
income taxes during those years.
Erroneously Collected Taxes and Refund
As a result of Citibank's losses, the taxes withheld by its tenants became erroneously collected
taxes.
The Supreme Court ruled that these erroneously collected taxes should be refunded to
Citibank.

Citibank, N.A. posted losses in its 1979 and 1980 income tax returns.
Citibank's tenants withheld creditable withholding taxes during those years.
The withheld amounts were supposed to be credited against Citibank's income tax liability.
However, since Citibank had no income tax liability due to its losses, the withheld amounts
became erroneously collected taxes.

The Court of Tax Appeals granted the refund to Citibank, but its decision was reversed by
the Court of Appeals.

The Supreme Court ruled in favor of Citibank, ordering the Commissioner of Internal Revenue
to refund the withheld taxes.

Issue:
Whether the lessor is entitled to a refund of the withheld amount after it is determined that the
lessor was not liable for any income tax due to net losses.

Ruling:
The withheld amounts should be refunded to the taxpayer on the basis of the taxpayer's final
adjusted returns, not on a periodic or quarterly basis.
The taxes withheld were considered installments on the annual tax which may be due at the
end of the taxable year.

Ratio:
The burden of proof to establish the factual basis of a claim for tax credit or refund lies with the
claimant.
The Commissioner of Internal Revenue has the authority to examine the books and records of
the taxpayer to confirm the validity of the claim.
In this case, the Commissioner did not question the accuracy of Citibank's income tax returns,
which showed no income tax liability for the years in question.
The principle of solutio indebiti applies, which means that the BIR received something when
there was no right to demand it, and therefore, the obligation to refund arises.
No one, not even the state, should enrich themselves at the expense of another, and simple
justice requires the speedy refund of wrongly held taxes.

Conclusion:
The Supreme Court ruled in favor of Citibank, ordering the Commissioner of Internal Revenue
to refund the erroneously collected taxes withheld by Citibank's tenants.
The withheld amounts were considered creditable withholding taxes and Citibank had no
income tax liability for those years.
5, Banas v. CA, G.R. No. 102967, Feb. 10, 2000

Case Digest (G.R. No. 102967)

Facts:
Bibiano V. Bañas Jr. sold a piece of land to Ayala Investment Corporation (AYALA) for a total
of P2,308,770.00.
The sale was made on an installment basis, with an initial payment of P461,754.00 and the
balance to be paid in four equal consecutive annual installments.
On the same day of the sale, Bañas discounted the promissory note with AYALA for its face
value of P1,847,016.00.
AYALA issued nine checks to Bañas, all dated February 20, 1976, with the uniform amount of
P205,224.00.
Bañas reported a uniform income of P230,877.00 as gain from the sale of the land in his tax
returns for the years 1976 to 1979.
The Bureau of Internal Revenue (BIR) conducted an audit and concluded that the sale was a
cash transaction and the entire profit should have been taxable in 1976.
The BIR filed a criminal complaint for tax evasion against Bañas, and news reports about his
false income tax return were published.
Bañas filed a lawsuit against BIR officials for extortion and malicious publication of the tax audit
report.
The trial court ruled in favor of the BIR officials and awarded damages to one of the officials,
Aquilino Larin.
The Court of Appeals affirmed the decision.

Issue:
1.Whether there was an extortion attempt by the BIR officials.
2.Whether the tax amnesty granted to Bañas shielded him from prosecution.
3.Whether Bañas' income from the sale of the land should be declared as a cash transaction in
his tax return for 1976.
4.Whether the damages awarded to Larin were justified.

Ruling:
The Supreme Court affirmed the decision of the Court of Appeals.

Ratio:
1.Bañas' claim of immunity from prosecution under the tax amnesty was untenable. The Court
held that the tax amnesty granted to Bañas did not shield him from prosecution for tax evasion.
The amnesty only covered the civil liability for the payment of taxes, penalties, and surcharges,
but it did not absolve him from criminal liability.

2.Bañas' income from the sale of the land should have been declared as a cash transaction in
his tax return for 1976. The Court considered the fact that Bañas discounted the promissory
note on the same day of the sale, which indicated that the transaction was a cash sale.
Therefore, Bañas should have declared the entire profit from the sale as taxable income in
1976.

3.Bañas' actions against Larin were unwarranted and baseless. The Court found that there was
no evidence to support Bañas' claim of extortion by the BIR officials. Bañas failed to prove that
Larin demanded money from him in exchange for favorable treatment in the tax audit.
Therefore, Bañas' lawsuit against the BIR officials was without merit.

4.The award of moral and exemplary damages to Larin was justified. The Court found that
Bañas' false accusations and malicious publication of the tax audit report caused damage to
Larin's reputation and emotional distress. The Court reduced the amount of moral damages
from P200,000.00 to P75,000.00 and the amount of exemplary damages from P200,000.00 to
P25,000.00. The Court also awarded attorney's fees in the amount of P50,000.00 to Larin.