De La Salle University - Manila

Term 2, A.Y. 2023 - 2024

In partial fulfillment of
the course requirements
In CLWTAXN (V24)

Case Digests

Submitted to:
Atty Voltaire B. Salud, CPA, REB, REA
April 3, 2024
 Table of Contents
1. Renato V. Diaz and Aurora Ma. F. Timbol, Petitioners vs. Secretary of Finance and the
Commissioner of Internal Revenue, Respondents (G.R. No. 193007, July 19, 2011) Ponente,
Abad, J. 4
2. Commissioner of Internal Revenue, Petitioner vs. De La Salle University, Inc,
Respondent (G.R. No. 196596, November 9, 2016) Ponente, Brion, J. 5
3. The City of Manila, Liberty M. Toledo, in her capacity as The Treasurer of Manila, and
Joseph Santiago, in his capacity as the Chief of the License Division of City of Manila,
Petitioners vs. Coca Cola Bottlers Philippines, Respondent (G.R. No. 181845, August 4,
2009) Ponente, Chico-Nazario, J. 6
4. Commissioner of Internal Revenue, Petitioner vs. The Estate of Benigno P. Toda, Jr.,
Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista,
Respondents. (G.R. No. 147188, September 14, 2004) Ponente, Davide, Jr., C.J. 7
5. Rufino R. Tan, Petitioner vs. Ramon Del Rosario, Jr., as Secretary of Finance and Jose
U. Ong, as Commissioner of Internal Revenue, Respondents (G.R. No. 109289, October 3,
1994) Ponente, Vitug, J. 8
6. Commissioner of Internal Revenue, Petitioner vs. Isabela Cultural Corporation,
Respondent (G.R. No. 172231, February 12, 2007) Ponente, Ynares-Santiago, J. 9
7. Commissioner of Internal Revenue, Petitioner vs. General Foods (Phils.), Inc,
Respondent (G.R. No. 143672, April 24, 2003) Ponente, Corona, J. 11
8. Chamber of Real Estate and Builders' Associations Inc. Petitioner vs. The Hon.
Executive Secretary Alberto Romulo, The Hon. Acting Secretary of Finance Juanita D.
Amatong, and The Hon. Commissioner of Internal Revenue Guillermo Parayno, Jr.,
Respondents (G.R. No. 160756, March 9, 2010) Ponente, Corona, J. 12
9. Accenture, Inc., Petitioner vs. Commissioner of Internal Revenue, Respondent (G.R. No.
190102, July 11, 2012) Ponente, Sereno, J. 13
10. Commissioner of Internal Revenue, Petitioner vs. Solid Bank Corporation, Respondent
(G.R. No. 148191, November 25, 2003) Ponente, Panganiban, J. 14
11. Kepco Philippines Corporation, Petitioner vs. Commissioner of Internal Revenue,
Respondent (G.R. No. 225750-51, July 28, 2020) Ponente, Lopez, J. 14
12. Bureau of Internal Revenue, as represented by the Commissioner of Internal Revenue,
Petitioner vs. Court of Appeals, spouses Antonio Villan Manly and Ruby Ong Manly,
Respondents (G.R. No. 197590, November 24, 2014) Ponente, Del Castillo, J. 16
13. Commissioner of Internal Revenue, Petitioner vs. Metro Star Superama, Inc.,
Respondent (G.R. No. 185371, December 8, 2010) Ponente, Mendoza, J. 17
14. Commissioner of Internal Revenue, Petitioner vs. United Salvage and Towage (Phils.),
Inc., Respondent (G.R. No. 197515, July 02, 2014) Ponente, Peralta, J. 18
15. Commissioner of Internal Revenue, Petitioner vs. Liquigaz Philippines Corporation,
Respondent (G.R. No. 215534, April 18, 2016.) Ponente, Mendoza, J. 19
 1. Renato V. Diaz and Aurora Ma. F. Timbol, Petitioners vs. Secretary of Finance and
the Commissioner of Internal Revenue, Respondents (G.R. No. 193007, July 19, 2011)
Ponente, Abad, J.

Facts:
In this case, Renato Diaz and Aurora Timbol contested a new fee proposed by the tax
bureau (BIR) – a value-added levy (VAT) on toll collections across the Philippines. They argued
this would inevitably lead to higher toll charges, claiming tolls function like a "user fee" for a
public service and shouldn't be subject to VAT. The BIR, however, aimed to begin collecting this
VAT on tolls by mid-August 2010. To challenge this move, Diaz and Timbol sought a court
decision on the legality of the BIR's action. They argued that imposing VAT on tolls would burden
the public unfairly. On the contrary, the BIR aimed to implement this VAT on tolls starting mid-
August 2010, citing legal grounds for its imposition and the need for revenue generation to fund
public projects and services. The dispute thus brought to light the conflicting interests between the
tax collection authority and the public's financial burden.

Issue:
● Whether the Court may treat the petition for declaratory relief as one for prohibition.
● Whether petitioners Diaz and Timbol have legal standing to file the action.
● Whether the government unlawfully expanded VAT coverage by including tollway
operators and operations.
● Whether the imposition of VAT on tollway operators amounts to a tax on tax, impairs their
right to a reasonable return of investment, and is administratively unfeasible.

Held/Ruling:
The Supreme Court, in a unanimous verdict, sided with the BIR. The Court determined
that tollway operators fall under the category of "franchise holders" as defined by the tax code
(NIRC), making them subject to VAT. The Court further clarified that imposing VAT on toll fees
doesn't translate to a tax on individual tollway users. The legal responsibility for VAT falls on the
tollway operator itself. Additionally, the Court dismissed petitioner Aurora Timbol's argument
regarding a clause protecting existing contracts, as her interests weren't considered aligned with
those of private investors in the tollway projects. Concerns regarding the administrative challenges
of implementing VAT on tollway operations were also deemed outside the scope of the case. The
Court emphasized that any such issues should be addressed directly with the BIR. Consequently,
the Supreme Court denied the petitioners' request for reconsideration and dismissed the case
entirely, dissolving the temporary restraining order that had been previously issued.
 2. Commissioner of Internal Revenue, Petitioner vs. De La Salle University, Inc,
Respondent (G.R. No. 196596, November 9, 2016) Ponente, Brion, J.

Facts:
The dispute arose from income generated by the university through leasing out a portion
of their campus grounds. De La Salle University argued this income directly funded their
educational activities and shouldn't be taxed under existing rules. They claimed the income helped
them offer scholarships, upgrade facilities, and provide resources for faculty development – all
essential for their educational mission.

In addition to De La Salle University's argument regarding the use of income generated

from leasing campus grounds, the Commissioner of Internal Revenue contended that such income
should be subject to taxation, citing existing tax laws and regulations. The Commissioner argued
that while the university's educational mission was commendable, the income derived from leasing
out campus property constituted commercial activity and should thus be taxed accordingly. Central
to the conflict was the interpretation of pertinent tax statutes, particularly concerning the taxation
of ancillary revenue streams such as property leasing, vis-à-vis the tax-exempt status afforded to
educational institutions. As the litigation unfolded, it catalyzed a broader discourse surrounding
the application and elucidation of tax statutes within the educational sector, particularly in relation
to supplementary income-generating endeavors.

Issue:
The primary issue at hand was the legality and justification of the BIR's proposal to levy
VAT on toll collections across the Philippines, with specific consideration given to its impact on
toll charges and public welfare.

Held/Ruling:
The Supreme Court ultimately agreed with the lower court. The Court emphasized that
income-generating activities, like property rentals, could be exempt from taxes if considered
incidental to a university's primary educational purpose, as outlined in established regulations. In
simpler terms, the Court ruled that the university's rental income was exempt from taxation as it
directly supported their educational mission.
 3. The City of Manila, Liberty M. Toledo, in her capacity as The Treasurer of Manila,
and Joseph Santiago, in his capacity as the Chief of the License Division of City of
Manila, Petitioners vs. Coca Cola Bottlers Philippines, Respondent (G.R. No. 181845,
August 4, 2009) Ponente, Chico-Nazario, J.

Facts:
A tax dispute arose between Coca-Cola Bottlers Philippine and the City of Manila. Coca-
Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and
selling beverages and maintains a sales office in the City of Manila. Prior to February 25, 2000,
Coca-Cola had been paying the City of Manila local business tax only under Section 14 of the tax
ordinance, as it was exempted from the business tax under Section 21 of the same ordinance. The
City assessed Coca-Cola local business taxes under both Sections 14 and 21 of their Tax Ordinance
No. 7794. Coca-Cola contested the assessment on two grounds. (1) they argued that certain
amendments made to the ordinance were invalid. This implies the amendments have been beyond
the City's authority or not have followed proper procedures. (2) Coca-Cola pointed to an exemption
clause within the original, unamended Tax Ordinance. They believed this clause protected them
from being taxed under Section 21. The amendment was challenged and ultimately declared null
and void by a separate court ruling. The City of Manila petitioned for the review and reversal of a
decision dismissing their petition for review and affirming the dismissal of their petition. The City
of Manila then appealed to a higher court of the Cou of Tax Appeals, however, they missed the
deadline to file, resulting in dismissal of their appeal. The aforementioned dismissal rendered by
the Court of Tax Appeals was contested by the City of Manila before the esteemed Supreme Court.
It is evident from the aforementioned statement that the initial ordinance contained a provision that
would grant businesses an exemption from being subjected to double taxation, provided that they
were already fulfilling their tax obligations under a different section. These are the core facts that
have given rise to the legal dispute, with the primary emphasis on the validity of the amendments
to the ordinance and the question of whether the exemption clause provides protection to Coca-
Cola against being taxed twice.

Issue:
1. Whether or not the issue relates to the petitioners' compliance, or lack thereof, with the
reglementary period for timely appealing the case for review before the Court of Tax
Appeals (CTA) Division?
2. Whether or not the determination of the court's ruling in a prior case holds authoritative
and binding significance in the present case?
3. Can the City of Manila assess Coca-Cola to local business taxes under both Sections 14
and 21 of Tax Ordinance No. 7794?
4. Whether or not the enforcement of Section 21 of the tax ordinance would result in double
taxation?
Held/Ruling:
The petition of the City of Manila was denied by the Supreme Court. According to the
provisions set forth in Sections 14 and 21 of the city's tax ordinance, it is legally impermissible to
subject Coca-Cola to double taxation. The LGC prohibits double taxation, and the Court found
that Coca-Cola's business already falls under Section 14, rendering Section 21 inapplicable.rt

4. Commissioner of Internal Revenue, Petitioner vs. The Estate of Benigno P. Toda, Jr.,
Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista,
Respondents. (G.R. No. 147188, September 14, 2004) Ponente, Davide, Jr., C.J.

Facts:
The matter pertained to a transaction involving the sale of a property by Cibeles Insurance
Corporation (CIC) and the subsequent dispute arising from tax-related matters. It is hereby stated
that CIC, the seller, entered into a transaction whereby a property was sold to Rafael Altonaga, the
buyer, for the total amount of ₱100 million. Subsequently, the aforementioned Buyer, in a prompt
manner, proceeded to resell the property to Royal Match Inc. (RMI), the subsequent Buyer, for the
total amount of ₱200 million. Notwithstanding, it is to be noted that CIC solely disclosed the
preliminary ₱100 million profit on its tax declaration. The CIR harbored suspicions of a potential
tax evasion scheme and subsequently conducted an assessment of the taxpayer, CIC, for a
deficiency in income tax for the year 1989. The CIR contended that the aforementioned sale was
conducted with the intention of evading the imposition of elevated taxes. The Estate of Benigno
P. Toda, Jr., hereby asserts its representation of a new Cibeles Insurance Corporation (CIC) with
distinct owners, and hereby challenges the assessment. The contention put forth is that it ought to
be directed towards the initial Commander-in-Chief. Moreover, it is pertinent to note that the estate
of Toda has put forth a contention that there exists a valid agreement which stipulates that both
CIC and the buyer shall be absolved of any and all tax liabilities pertaining to the relevant period.

Issue:
1. Whether the scheme used by CIC to minimize its tax liability constitutes tax evasion or tax
avoidance?
2. Has the period for assessment of deficiency income tax for the year 1989 prescribed?
3. Can the respondent of the Estate be held liable for the deficiency income tax of CIC for the
year 1989?

Held/Ruling:
The Supreme court has determined that the plan devised by CIC to conceal income through
a fraudulent sale is deemed to be an act of unlawful tax evasion, rather than a legitimate form of
tax avoidance. The evidence presented clearly demonstrates a sale that was rigged and devoid of
any legitimate business purpose. Therefore, it is imperative to note that CIC is subject to the
complete payment of corporate income tax on the entirety of the sale proceeds. Furthermore, the
Estate of the former CIC owner, Benigno P. Toda, Jr., is liable due to a tax liability agreement,
and the court importantly confirmed the assessment period for this deficiency remained valid.

5. Rufino R. Tan, Petitioner vs. Ramon Del Rosario, Jr., as Secretary of Finance and
Jose U. Ong, as Commissioner of Internal Revenue, Respondents (G.R. No. 109289,
October 3, 1994) Ponente, Vitug, J.

Facts:

- The case questions the constitutionality of RA 7496 which shall also be known as the
Simplified Net Income Taxation Scheme (SNIT), and its applicability to general
professional partnerships.
- Parties argue that the law violates provisions of the Constitution and exceeds the rule-
making authority of the respondents.
- In G.R. No. 109289, petitioner Rufino R. Tan argues that the House Bill No. 34314 which
is the origin of RA 7496, violates Article VI, Section 26(1) of the Constitution, which
requires that every bill passed by Congress should embrace only one subject expressed in
its title.
- Petitioner also argues that the law violates Article VI, section 28(1) of the Constitution
which states that taxation should be uniform and equitable.
- Petitioner claims that the law violates Article III, Section 1 of the Constitution, which
protects against deprivation of property without due process of law and denial of equal
protection.
- In G.R. No. 109446, the petitioners, Carag, Caballes, Jamora and Somera Law Offices,
along with its partners, challenge Section 6 of Revenue Regulations No. 2-93, which
implements RA 7496. They argue that the regulation exceeds the authority of the
respondents in promulgating it.

Issue:
- The constitutionality of RA 7496 (SNIT) on its application to general professional
partnerships
- Whether or not Section 6 of Revenue Regulations No. 2-93, which implements RA 7496,
exceeds the authority of the respondents.
Held/Ruling:
- The court finds that RA 7496, has not adopted a gross income taxation scheme but has
retained the net income taxation scheme.
- The court finds that the law does not violate the provisions of the constitutions cited by the
petitioner.
 - The court rejects the petitioner’s argument on the uniformity of taxation because
classification is allowed as long as the standards used are substantial and not arbitrary.
- The court concludes that the allowance for deductible items may have been reduced
however it is not discordant with the net income tax concept.
- In G.R. No. 109446, the Court clarifies that general professional partnerships are not
subject to income tax and that there is no difference in taxation between individuals
engaged in business or practice of their profession and partners in general professional
partnerships.
- The court finds that there is no intention in the law to place professionals who practice
individually and those who practice through a general professional partnership in an
unequal footing.
- The court explains that a general professional partnership is not itself an income taxpayer,
but the partners are liable for income tax in their individual capacity based on their
distributive shares of partnership profits.
- The petition is dismissed by the Court.
- The Court finds that the law does not violate the constitution and that the respondents did
not exceed their authority in promulgating the implementing regulation.

6. Commissioner of Internal Revenue, Petitioner vs. Isabela Cultural Corporation,

Respondent (G.R. No. 172231, February 12, 2007) Ponente, Ynares-Santiago, J.

Facts:
The dispute has arisen as a result of tax assessments that were issued by the Commissioner
of Internal Revenue (CIR) against the Isabela Cultural Corporation (ICC) for the taxable year 1986.
The CIR asserts that the ICC is liable for additional income and withholding taxes as a result of
deductions for professional and security services rendered in the preceding year in 1985 being
disallowed. Furthermore, it is argued by the CIR that the ICC has allegedly engaged in the act of
underreporting interest income derived from promissory notes. ICC hereby contests these
assessments, asserting that the deductions in question were indeed legitimate business expenses
and that the interest income was accurately reported as required by law.

Pursuant to customary protocol, the ICC initially endeavored to seek a reevaluation of the
assessments by the CIR. However, this effort proved unsuccessful, and the CIR issued a definitive
request for remittance of funds, with the explicit warning that failure to comply may result in the
forcible appropriation of assets. With a persistent refusal to acquiesce to the altered tax obligation,
ICC proceeded to initiate legal proceedings by bringing forth the case before the Court of Tax
Appeals CTA. Upon initial review, the CTA determined that the challenge presented by the ICC
was premature. This decision was appealed to the Court of Appeals, which disagreed with the
CTA's assessment. The Court of Appeals ruled that a demand letter from the CIR constituted a
final decision on the contested assessments, effectively allowing ICC to proceed with its challenge.
The case was then remanded back to the CTA for further proceedings.

In CTA’s decision, the ICC emerged as the prevailing party. The court has rendered a
favorable ruling, determining that the deductions for professional and security services claimed in
the year 1986 were indeed valid. Furthermore, it has been determined by the CTA that ICC has
diligently and accurately reported its interest income and has lawfully fulfilled its obligations to
withhold and remit taxes on the payments made for security services. The CIR, in spite of the
presented arguments, maintained an unyielding stance and proceeded to initiate a formal petition
for review with the Court of Appeals. Upon careful review, it rendered a decision in favor of the
CTA, thereby affirming their previous ruling and effectively concluding the contentious tax
assessment dispute.

Issue:
1. Whether or not the ICC can deduct the professional fees for legal and auditing services
provided in the years 1984 and 1985, as well as the security services expense incurred in
the year 1986, from its taxable income for the year 1986?

Held/Ruling:

The Court has rendered a decision in which it deems the petition to be partially granted,
and further determines that the ICC is solely entitled to deduct the expenses related to security
services that were incurred specifically in the year 1986. Professional service fees, however, were
not deductible for the year 1986 due to the failure of ICC to establish that they were incapable of
being reasonably determined during the years in which they were actually provided. The Court, in
its ruling, has affirmed the lower court's determinations that ICC has indeed accurately reported
its interest income and has appropriately managed the withholding taxes pertaining to security
services.

7. Commissioner of Internal Revenue, Petitioner vs. General Foods (Phils.), Inc,

Respondent (G.R. No. 143672, April 24, 2003) Ponente, Corona, J.

Facts:

- The respondent, General Foods (Phils) is engaged in the manufacture of beverages, filed
its income tax return for the fiscal year ending february 28, 1985. The respondent
corporation claimed a deduction of P9,461,246 claimed as media advertising for Tang.
 - On May 31, 1988, the commissioner rejected 50% of the deduction or P4,730,623 claimed
by the respondent corporation. Consequently the respondent was assessed for deficiency
income taxes. The respondent filed a motion of reconsideration but the same was denied.
- On September 29, 1989, the respondent corporation appealed to the CTA but the appeal
was dismissed. The respondent corporation filed a petition for review at the CTA which
rendered a decision reversing and setting aside the decision of the CTA.

Issue:
- The question if the advertising expense for Tang incurred by the respondent corporation
was an ordinary expense and can be claimed fully deductible under the National Internal
Revenue Code.

Held/Ruling:
In order to claim deductions on gross income, the advertising expense must comply with
the following requisites: (a) the expense must be ordinary and necessary; (b) it must have been
paid or incurred during the taxable year; ( c) it must have been paid or incurred in carrying on the
trade or business of the taxpayer; and (d) it must be supported by receipts, records or other pertinent
papers.

The subject advertising expense was not ordinary on the ground that it failed these
conditions set by jurisprudence: first, reasonableness of the amount incurred and second the
amount incurred must not be a capital outlay to create “goodwill” for the product and/or private
respondent’s business. Otherwise, the expense must be considered a capital expenditure to be
spread out over a reasonable period of time.

The Court finds the P9,461,246 claimed as media advertising expense for Tang alone to be
inordinately large and hence, unreasonable. Furthermore, the protection of brand franchise is
analogous to the maintenance of goodwill or title to one’s property. Respondent corporation
incurred the subject advertising expense in order to protect its brand franchise and the Court
considers this as capital outlay.

The instant petition is granted and pursuant to Sections 248 and 249 of the Tax code,
respondent General Foods (Phils.), Inc. It is ordered to pay its deficiency income tax in the amount
of P2,635,141.42, plus 25% surcharge for late payment and 20% annual interest computed from
August 25, 1989, the date of the denial of its protest, until the same is fully paid.
 8. Chamber of Real Estate and Builders' Associations Inc. Petitioner vs. The Hon.
Executive Secretary Alberto Romulo, The Hon. Acting Secretary of Finance Juanita
D. Amatong, and The Hon. Commissioner of Internal Revenue Guillermo Parayno,
Jr., Respondents (G.R. No. 160756, March 9, 2010) Ponente, Corona, J.

Facts:

The Chamber of Real Estate and Builders' Association, Inc. (CREBA) filed a petition
against government officials, including the Executive Secretary, Secretary of Finance, and
Commissioner of Internal Revenue. The Chamber of Real Estate and Builders' Association, Inc.
(CREBA assails the validity of the imposition of minimum corporate income tax (MCIT) on
corporations and creditable withholding tax (CWT) on sales of real properties classified as
ordinary assets. They also assert that the enumerated provisions of the subject revenue regulations
violate the due process clause because, like the MCIT, the government collects income tax even
when the net income has not yet been determined. They contravene the equal protection clause as
well because the CWT is being levied upon real estate enterprises but not on other business
enterprises, more particularly those in the manufacturing sector.

Issue:

1. Whether or not this Court should take cognizance of the present case
2. Whether or not the imposition of the MCIT on domestic corporations is unconstitutional
3. Whether or not the imposition of CWT on income from sales of real properties, is
unconstitutional.

Held/Ruling:

The court explained that there was an actual case calling for the exercise of judicial review
because the provisions of the MCIT and CWT were already being implemented. The Imposition
of MCIT and CWT are constitutional. MCIT is used as a means to ensure that corporations will
make some minimum contribution to the support of the public sector. The CWT is used as a method
of collecting income tax and does not violate the equal protection clause. The fact that it was being
levied only on real estate enterprises and not on other business enterprises did not constitute a
violation of equal protection. The court stated that as long as there is a reasonable classification,
the equal protection clause is not violated. The real estate industry can be treated differently from
other business enterprises due to the nature of their transactions and the prices of their goods sold.

9. Accenture, Inc., Petitioner vs. Commissioner of Internal Revenue, Respondent (G.R.

No. 190102, July 11, 2012) Ponente, Sereno, J.

Facts:
 Accenture, Inc. (Accenture) is a corporation engaged in the business of providing
management consulting, business strategies development, and selling and/or licensing of software.
It is duly registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT)
taxpayer or enterprise in accordance of the Tax Code. They filed their Monthly VAT Return for
the period 1 July 2002 to 31 August 2002, as well as their Quarterly VAT Return for the fourth
quarter of 2002, which showed excess or unutilized input VAT credits. Accenture filed a claim for
refund with the Department of Finance, but it was not acted upon. They then filed a Petition for
Review with the Court of Tax Appeals (CTA), which was denied by the Division. The Division
ruled that Accenture failed to prove that their sale of services to alleged foreign clients qualified
for zero percent VAT. Accenture appealed the decision, arguing that the Division's reliance on a
previous case was misplaced. The CTA En Banc affirmed the Division's decision, stating that
Accenture failed to prove that their clients were foreign-based. Accenture filed a Petition for
Review with the CTA En Banc, which was denied. They then filed a Petition for Review with the
Supreme Court, which also denied their claim for a tax refund.

Issue:
1. Should the recipient of the services be “doing business outside the Philippines” for the
transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?
2. Has Accenture successfully proven that its clients are entities doing business outside
the Philippines?

Held/Ruling:

The court ruled that the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B) of the Tax Code. It
upholds the position of the CTA en banc that, because Section 108(B) of the 1997 Tax Code is a
verbatim copy of Section 102(b) of the 1977 Tax Code, any interpretation of the latter holds true
for the former. Accenture has failed to establish that the recipients of its services do business
outside the Philippines. The court ruled that the evidence presented by Accenture may have
established that its clients are foreign. This fact does not automatically mean, however, that these
clients were doing business outside the Philippines.

10. Commissioner of Internal Revenue, Petitioner vs. Solid Bank Corporation,

Respondent (G.R. No. 148191, November 25, 2003) Ponente, Panganiban, J.

Facts:
 Solid Bank Corporation filed its Quarterly Percentage Tax Returns reflecting gross receipts
in the total amount of P1,474,691,693.44. It alleges that the total gross receipts in the amount of
P1,474,691,693.44 included the sum of P350,807,875.15 representing gross receipts from passive
income which was already subjected to 20% final withholding tax.cIn Asian Bank Corp. v.
Commissioner, the Court of Tax Appeals (CTA) ruled that the 20% FWT should not be included
in the company's taxable gross receipts for purposes of computing tax. The respondent filed with
the Bureau of Internal Revenue (BIR) a letter-request for the refund or issuance of a tax credit
certificate. It also filed a petition to the Court of Tax Appeals (CTA) where it ordered the refund.
The CA held that the 20% FWT on a bank's interest income did not form part of the taxable gross
receipts in computing the 5% GRT, because the FWT was not actually received by the bank but
was directly remitted to the government. The Commissioner claims that although the FWT was
not actually received by Solidbank, the fact that the amount redounded to the bank’s benefit makes
it part of the taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the CA
ruling is correct.

Issue:

1. Whether or not the 20% final withholding tax on a bank's interest income forms part of the
taxable gross receipts in computing the 5% gross receipts tax.

Held/Ruling:

Yes. The amount redounded to the bank's benefit makes it part of the taxable gross receipts
in computing the 5% GRT. Respondent, on the other hand, maintains that the CA correctly ruled
otherwise.

11. Kepco Philippines Corporation, Petitioner vs. Commissioner of Internal Revenue,

Respondent (G.R. No. 225750-51, July 28, 2020) Ponente, Lopez, J.

Facts:

- On September 8, 2009, Kepco received a Preliminary Assessment Notice (PAN) for

alleged deficiency income tax, value-added tax (VAT), expanded withholding tax, and
final withholding tax for the Taxable year (TY) 2006. On October 30, 2009, Kepco
received a Final Letter of Demand (FLD) for deficiency VAT amounting to
P159,640,750.79 and for deficiency Final withholding tax amounting to P124,286,821.11
Kepco filed its protest to the FLD on November 26, 2009. On June 25, 2010, Kepco filed
its petition before the CTA Division.
- On December 6, 2013 the CTA Division partly granted Kepco’s petition and canceled the
Final Withholding Tax assessment and the compromise penalties. Kepco was ordered to
 pay the deficiency on VAT plus interest and surcharges. Kepco and the CIR filed motions
for reconsideration but were denied due to lack of merit.
- Kepco elevated the case to CTA En Banc; while the CIR filed his petition for review on
May 22, 2014. After consolidation and the filing by the parties of their comments and
memorandum, the CTA En Banc rendered its Decision on November 26,2015, dismissing
Kepco’s Petition in CTA Case No. 8112 for being filled out of time, and granting the CIR’s
petition.
- Kepco filed a petition for review that seeks to reverse the decision of the CTA En Banc
- On December 28, 2017, Kepco filed a Manifestation that it entered into a compromise
agreement with the CIR on tax assessments for the years 2006, 2007 and 2009. For TY
2006, which is the subject of the instant petition, Kepco paid a total of P134,193,534.12.
As proof, Kepco attached Certificate of Availment issued by the CIR on December 11,
2017 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 OSG commented on July 20,2018 that the compromise agreement is not valid because
it failed to allege and prove any of the grounds for a valid compromise under Section 3 of
Revenue Regulations No. 30-2002;. 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; Kepco did also not pay in full the
compromise amount upon filling of the application in violation to 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.
- Kepco Insists that there is doubtful validity on the assessment for the taxable year 2006
which prompted the CIR to consider and accept Kepco’s compromise offer. Kepco paid
40% of the basic tax assessed for TY 2006,2007, and 2009 in the amount of
P143,891,831.90 In compliance with the BIR to increase the compromise offer, Kepco paid
additional amounts and finalized the compromise offer to P260,848,425.80 This amount
was approved by the NEB on December 11, 2017.
- The CIR asserts that Kepco paid the entire 40% of the basic tax assessed for 2006,2007
and 2009 when it applied for compromise. The application was evaluated and processed,
the LT enforcement Collection Division recommended the Approval of Kepco’s
application and thereafter, forwarded the favorable recommendation to Large Taxpayers
Service (LTS) - Evaluation Board. After various proposals from the LTS-Evaluation Board
to increase the compromise amount and the immediate compliance of Kepco by paying the
proposed increase, the LTS-Evaluation Board recommended the approval of the
 application to the NEB based on doubtful validity. Eventually the NEB approved Kepco’s
application and the CIR issued Certificate of Availment in Favor.

Issue:
- The question of whether Kepco entered into a valid compromise agreement with the CIR
on its deficiency taxes.

Held/Ruling:
The power of the CIR to enter into compromise agreements for deficiency taxes is explicit
in Section 204(A) of the 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 tax. 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. Kepco’s Case falls under paragraph e of the said Revenue Regulation
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. Whether the CIR properly
accepted Kepco’s offer for a compromise because “the assessment is lacking in legal and/or factual
basis” the general rule is that the authority of the CIR to compromise is purely discretionary and
the courts cannot interfere with his exercise of discretionary functions, 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.

12. Bureau of Internal Revenue, as represented by the Commissioner of Internal

Revenue, Petitioner vs. Court of Appeals, spouses Antonio Villan Manly and Ruby
Ong Manly, Respondents (G.R. No. 197590, November 24, 2014) Ponente, Del
Castillo, J.

Facts:
The Bureau of Internal Revenue (BIR) has initiated legal proceedings by filing a petition
against the Court of Appeals and spouses Antonio and Ruby Manly, accusing them of engaging in
tax evasion. This action was taken subsequent to the issuance of a Letter of Authority by the BIR,
which granted them the power to investigate the tax liabilities of the spouses for the year 2003 and
preceding years. Notwithstanding the request made by the Bureau of Internal Revenue (BIR) for
the production of documentary evidence pertaining to the cash acquisition of a real estate asset,
the spouses have unfavorably failed to fulfill said request. Upon thorough examination, the
revenue officers have uncovered a substantial disparity between the officially reported income of
the spouses and the actual cash acquisitions made by them. As a result of this finding, it is hereby
recommended that criminal charges be pursued. Initially, a State Prosecutor supported this
recommendation; however, the Secretary of Justice subsequently reversed it, citing the failure of
the Bureau of Internal Revenue (BIR) to provide a precise determination of the tax liability,
substantiate a probable income source for the purchases, or issue a deficiency tax assessment prior
to the aforementioned reversal. The Court of Appeals affirmed the dismissal of charges, a decision
upheld by the Supreme Court, highlighting procedural deficiencies in the BIR's case.

Issue:
1. Whether or not there is probable cause to indict the Manlys for tax evasion?

Held/Ruling:
The Supreme Court reversed the Court of Appeals' decision, reinstating charges against the
Manlys. It ruled the unexplained expenditures pointed to unreported income, leading to a verdict
favoring the Bureau of Internal Revenue's case that there is probable cause to indict the spouses
for tax evasion.

13. Commissioner of Internal Revenue, Petitioner vs. Metro Star Superama, Inc.,
Respondent (G.R. No. 185371, December 8, 2010) Ponente, Mendoza, J.

Facts:
The case at hand revolves around a tax assessment disagreement between Metro Star
Superama, Inc. and the Commissioner of Internal Revenue (CIR). Initially, the CIR aimed to
overturn the decision of the Court of Tax Appeals En Banc, which upheld the ruling of its Second
Division favoring Metro Star. The crux of the CIR's argument lies in the contention that the
assessment it conducted was invalidated due to the failure to send a Preliminary Assessment Notice
(PAN) to Metro Star. This dispute traces back to January 26, 2001, when the Regional Director of
Revenue Region No. 10 issued a Letter of Authority for an examination of Metro Star's books for
the taxable year 1999. Subsequent to Metro Star's non-compliance with record requests, an
endorsement from the Office of the Commissioner of BIR Legal Division instructed the Revenue
District Officer to proceed with the investigation. On November 8, 2001, Metro Star received a
Preliminary 15-day Letter indicating deficiencies in value-added and withholding taxes. Later, on
April 11, 2002, a Formal Letter of Demand was sent assessing Metro Star for the mentioned tax
deficits. The disagreement intensified with Metro Star receiving a Final Notice of Seizure on May
15, 2003, followed by a Warrant of Distraint and/or Levy on February 6, 2004. Metro Star
responded by filing a petition for review with the Court of Tax Appeals (CTA), citing a lack of
receipt of the PAN and alleging a denial of due process. The CTA-Second Division sided with
Metro Star, deeming the assessment void due to the absence of the PAN and the denial of due
process. Despite the CIR's attempt to overturn this decision, both its motion for reconsideration
and subsequent petition to the CTA-En Banc were dismissed. Undeterred, the CIR escalated the
matter by appealing to the Supreme Court, arguing that Metro Star was not deprived of due process.
Issue:
1. Whether the CIR's failure to send a Preliminary Assessment Notice (PAN) to the taxpayer
renders the assessment void and violates the taxpayer's right to due process?

Held/Ruling:
The Supreme Court upheld the CTA's decision, favoring Metro Star Superama, Inc. The
Court ruled that the absence of a PAN and failure to comply with notice requirements violated
Metro Star's due process rights. Consequently, the assessment was deemed void, and the
government's ability to collect the taxes had expired.

14. Commissioner of Internal Revenue, Petitioner vs. United Salvage and Towage
(Phils.), Inc., Respondent (G.R. No. 197515, July 02, 2014) Ponente, Peralta, J.

Facts:
United Salvage and Towage (Phils.), Inc. (USTP) is a subcontractor for service contractors
involved in petroleum operations in the Philippines. The case is a dispute between the
Commissioner of Internal Revenue (CIR) seeking to overturn the Court of Tax Appeals En Banc
ruling, which canceled the deficiency tax assessments issued against USTP for taxable years 1992,
1994, and 1998. The CIR determined that the respondent was accountable for a deficiency income
tax, withholding tax, value-added tax (VAT), and documentary stamp tax (DST) for the specified
taxable years. USTP submitted administrative protests against the assessments made in 1994 and
1998 and thereafter appealed to the Court of Tax Appeals (CTA) through a Petition for Review.
The CTA-Special First Division approved the respondent's move to withdraw the petition,
concluding and terminating the matters related to income tax, VAT, and DST problems. The only
assessment that is still valid is to the taxable year 1992. The CTA-Special First Division
determined that the Preliminary Assessment Notices (PANs) for deficiency expanded withholding
tax (EWT) for taxable years 1994 and 1998 were not officially presented as evidence. The Final
Assessment Notices (FANs) for deficiency EWT for the same years were also nullified due to non-
compliance with the law and regulations. The CTA-Special First Division determined that the
petitioner's ability to collect the deficiency EWT and withholding tax on compensation (WTC) for
the taxable year 1992 had already expired due to prescription. The petitioner (CIR) submitted a
formal request for a review to the CTA En Banc. The CTA En Banc upheld the decision of the
CTA-Special First Division, with some changes to the 1998 EWT evaluation. Subsequently, the
petitioner submitted a petition for review on certiorari to the Supreme Court.

Issue:
1. Whether the Court of Tax Appeals (CTA) is bound by technical rules of evidence.
 2. Whether the enhanced withholding tax (EWT) assessment for 1994 is lawful and factual.
3. Whether the Commissioner of Internal Revenue's (CIR) authority to collect the EWT for
1992 has already been prescribed.

Held/Ruling:
In all matters presented, the Supreme Court affirmed the ruling of the CTA En Banc and
ruled in favor of United Salvage and Towage (Phils.), Inc. (USTP). The Court determined that
technical rules of evidence do not govern the CTA, that the EWT assessment for 1994 lacked of
legal and factual basis, and that the CIR's authority to collect the EWT for 1992 was no longer
valid.

15. Commissioner of Internal Revenue, Petitioner vs. Liquigaz Philippines Corporation,

Respondent (G.R. No. 215534, April 18, 2016.) Ponente, Mendoza, J.

Facts:
A Final Decision on Disputed Assessment (FDDA) was issued by the Commissioner of
Internal Revenue (CIR) against Liquigaz Philippines Corporation, identifying a number of tax
inadequacies. Liquigaz, however, disputed the FDDA's legality, claiming that it did not provide
enough notice of the assessment's factual and legal foundations. Liquigaz asserted that without
offering thorough justifications for the disparities, the FDDA had only provided a table of tax
liabilities. The CIR contended that the FDDA was legitimate due to the fact that it was supported
by attachments outlining the disparities in both the Final Letter of Demand/Final Assessment
Notice (FLD/FAN) and the Preliminary Assessment Notice (PAN).

Issue:
Whether the FDDA against Liquigaz that the CIR issued is legitimate in light of the need
to give the taxpayer written notice of the legal and factual foundations for the assessment.

Held/Ruling:
The Supreme Court ruled that the CIR's FDDA against Liquigaz was void because it did
not provide the taxpayer with sufficient information about the assessment's factual foundations.
Although the FDDA had a solid legal foundation, it was deficient in information on the particular
transactions that were said to have resulted in the tax issues. The Court stressed how crucial it is
to give taxpayers formal notice of the assessment's factual and legal foundations so they can make
an informed appeal. The Court further stated that the assessment is distinct from a ruling on the
contested assessment and that the assessment as a whole is not always rendered void by the
FDDA's invalidity. Nonetheless, the Court upheld the legality of the withholding tax assessment
on compensation (WTC) due to Liquigaz's adequate disclosure of its tax obligations in this respect.
The matter was remanded to the Court of Tax Appeals so that the Fringe Benefits Tax and
Expanded Withholding Tax deficiencies could be assessed.