Tax 2 Case Digests Part 1 Remedies Under the NIRC of Atty. Lock's Syllabus Complete

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

ASSESSMENT OF INTERNAL REVENUE TAXES A. DEFINITION/NATURE/EFFECT/BASIS Commissioner of Internal Revenue vs. Sony Philippines, Inc., 635 SCRA 234, G.R. No. 178697. November 17, 2010 Mendoza, J. Facts: On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue officers to examine Sony’s books of accounts and other accounting records regarding revenue taxes for “the period 1997 and unverified prior years.” After the examination of said books, the CIR found out, among others, that Sony Philippines is liable for deficiency taxes and penalties for value added tax amounting to P11,141,014.41. Sony Philippines contested such finding as it argued that the basis used by the CIR to assess said deficiency were the records covering the period of January 1998 through March 1998 which was a period not covered by the letter of authority so issued. The CIR countered that the LOA phrase “the period 1997 and unverified prior years” should be understood to mean the fiscal year ending on March 31, 1998. Eventually the case reached the Court of Tax Appeals and the CTA decided agreed with Sony Philippines on this one. So did the CTA en banc. Issue: Whether or not the deficiency assessments against Sony Philippines is valid? Held: No. The LOA issued is clear on which period is covered by the examination to be conducted. It’s only meant to cover the year “1997 and unverified prior years” not the year 1998. The revenue officers who examined the records covering the period of January to March 1998 had exceeded the jurisdiction granted to them by the LOA. Further, the LOA which covered “1997 and unverified prior years” is in violation of the principle that a Letter of Authority should cover a taxable period not exceeding one taxable year. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the LOA (as embodied in Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990). CASE SYLLABI: Taxation; Assessment; Letter of Authority (LOA); A Letter of Authority or (LOA) is the authority given to the appropriate revenue officer assigned to perform assessment functions.—Based on Section 13 of 1|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

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. The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine and assess a taxpayer. Same; Same; Same; In the absence of such an authority, the assessment or examination is a nullity.— 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. Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, 309 SCRA 402, G.R. No. 128315. June 29, 1999 Panganiban, J. Facts: Pascor Realty and Development Corporation (PRDC) was found out to be liable for a total of P10.5 million tax deficiency for the years 1986 and 1987. In March 1995, the Commissioner of Internal Revenue (CIR) filed a criminal complaint against PRDC with the Department of Justice. Attached to the criminal complaint was a joint affidavit executed by the tax examiners. PRDC then filed a protest with the Court of Tax Appeals (CTA). PRDC averred that the affidavit attached to the criminal complaint is tantamount to a formal assessment notice (FAN) hence can be subjected to protest; that there is a simultaneous assessment and filing of criminal case; that the same is contrary to due process because it is its theory that an assessment should come first before a criminal case of tax evasion should be filed. The CIR then filed a motion to dismiss (MTD) on the ground that the CTA has no jurisdiction over the case because the CIR has not yet issued a FAN against PRDC; that the affidavit attached to the complaint is not a FAN; that since there is no FAN, there cannot be a valid subject of a protest. The CTA however denied the MTD. It ruled that the joint affidavit attached to the complaint submitted to the DOJ constitutes an assessment; that an assessment is defined as simply the statement of the details and the amount of tax due from a taxpayer; that therefore, the joint affidavit which contains a computation of the tax liability of PRDC is in effect an assessment which can be the subject of a protest. This ruling was affirmed by the Court of Appeals. Issues: (1) Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. Held: No. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on 2|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the CTA. Further, such affidavit was not issued to the taxpayer, it was submitted as an attachment to the DOJ. It must also be noted that not every document coming from the Bureau of Internal Revenue which provides a computation of the tax liability of a taxpayer can be considered as an assessment. An assessment is deemed made only when the CIR releases, mails or sends such notice to the taxpayer. Anent the issue of the filing of the criminal complaint, Section 222 of the National Internal Revenue Code specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the NIRC clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. CASE SYLLABI: Courts; Taxation; National Internal Revenue Code; Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return.—The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. Same; Same; Same; Assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.—It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers’ Affidavit merely contained a computation of respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Same; Same; Same; Section 222 of the NIRC specifically states that in cases of failure to file a return, proceedings in court may be commenced without an assessment.—Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion

3|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Same; Same; Same; Section 222 states that an assessment is not necessary before a criminal charge can be filed.—Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. Same; Same; Same; A criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.—The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code. Sy Po vs. Court of Tax Appeals, 164 SCRA 524, No. L-81446. August 18, 1988 Sarmeinto, J. Facts: Po Bien Sing was the sole proprietor of Silver Cup Wine Factory engaged in the manufacture and sale of compounded liquors. On the basis of a denunciation against Silver Cup allegedly “for tax evasion amounting to millions of pesos,” an investigation was conducted by the BIR. A subpoena duces tecum was issued against Silver Cup requesting the production of accounting records and other related documents. Po Bien Sing did not produce the said documents so the BIR investigation team entered the factory and seized the different brands of alcohol products inside. On the basis of the investigation teams’ report, Silver Cup was assessed deficiency income tax of P5,596,003.68 which Po Bien Sing protested. However, since he still did not present the documents requested, the assessment remained. BIR then issued warrants of distraint and levy. In short, the protests were denied so Po Bien Sing (represented by his wife because he was already dead) brought the case to the Supreme Court. Issue: Whether or not the assessment is valid and has legal basis. Held: Yes. The Supreme Court ruled that the assessment was valid. One of the powers of the Commissioner of Internal Revenue under the NIRC is to make an assessment with the available information in case the taxpayer makes a fraudulent return or does not make a return at all. This basically speaks of the principle 4|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

of “best evidence obtainable.” In this case, the failure of Po Bien Sing to produce the required documents left the Commissioner with no choice but to exercise the said power. The assessment was not arbitrary as alleged by So Bien Sing because it was based on the number bottles of wines seized during the raid and sworn statements of the employees. Tax assessments by tax examiners are presumed correct and made in good faith. The burden to prove otherwise is on the taxpayer. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of the tax. Furthermore, the taxpayer should not only prove that the tax assessment is wrong. He must also prove what is the correct and just liability by a full and fair disclosure of all pertinent data in is possession. Otherwise, the tax court proceedings would settle nothing and the whole process may be repeated again if the taxpayer does not like the subsequent assessment. CASE SYLLABI: Same; Same; Rule on the “best evidence obtainable,” when applicable.—The law is specific and clear. The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent. Same; Same; The failure of the taxpayers to present their books of accounts for examination for taxable years compelled the Commissioner of Internal Revenue to resort to the power conferred on him under the Tax Code.—In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books of accounts for examination for the taxable years involved left the Commissioner of Internal Revenue no other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code. Same; Same; Tax assessments; Presumption in favor of the correctness of tax assessments.—Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. Same; Same; Same; Fraudulent acts attributed to the taxpayer had not been satisfactorily rebutted.—On the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily rebutted by the petitioner. There are indeed clear indications on the part of the taxpayer to deprive the Goverment of the taxes due. Fitness by Design, Inc. vs. Commissioner of Internal Revenue, 569 SCRA 788, G.R. No. 177982. October 17, 2008 Carpio-Morales, J. Facts: Commissioner on Internal Revenue (respondent) assessed Fitness by Design, Inc. (petitioner) for deficiency income taxes for the tax year 1995. Petitioner protested and filed a Petition for Review with 5|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Motion to Suspend Collection of Income Tax, before the Court of Tax Appeals and raised prescription as a defense. A preliminary hearing on the issue of prescription was conducted during which petitioner’s former bookkeeper attested that certified public accountant Leonardo Sablan – illegally took custody of petitioner’s accounting records, invoices, and official receipts and turned them over to the BIR. Petitioner requested for the issuance of subpoena ad testificandum to Sablan for the hearing and of subpoena duces tecum to the BIR for the production of the Affidavit of the Informer bearing on the assessment in question. In addition, petitioner submitted written interrogatories addressed to Sablan. The CTA denied petitioner’s motion for Issuance of Subpoenas and disallowed the submission by petitioner of written interrogatories to Sablan. The CTA found that to require Sablan to testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of informers of violations of internal revenue laws, except when the information is proven to be malicious or false. Petitioner filed a rule 65. Issue: Whether or not the of petitioner’s accounting records, invoices, and official receipts were obtained by the BIR illegally? Held: No. Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without its (petitioner’s) consent. Petitioner’s lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed.33 To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes. Petitioner’s invocation of the rights of an accused in a criminal prosecution to cross examine the witness against him and to have compulsory process issued to secure the attendance of witnesses and the production of other evidence in his behalf does not lie. CTA Case No. 7160 is not a criminal prosecution, and even granting that it is related to I.S. No. 2005-203, the respondents in the latter proceeding are the officers and accountant of petitioner-corporation, not petitioner. From the complaint and supporting affidavits in I.S. No. 2005-203, Sablan does not even appear to be a witness against the respondents therein. CASE SYLLABI: Taxation; In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized.—Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted them to the BIR without its (petitioner’s) consent. Petitioner’s lack of consent does not, however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of 6|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. Thus Section 5 of the Tax Code provides: In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized. Same; The law thus allows the Bureau of Internal Revenue (BIR) access to all relevant or material records and data in the person of the taxpayer, and the Bureau of Internal Revenue (BIR) can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed.—The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes. B. PERIOD TO ASSESS DEFICIENCY TAX Republic of the Phils. vs. Ablaza, 108 Phil. 1105, No. L-14519 July 26, 1960 Labrador, J.

Facts: The Collector of Internal Revenue assessed income taxes for the years 1945, 1946, 1947 and 1948 on the income tax returns of defendant-appellee to a total P5,254.70.Respondent requested a reinvestigation of tax liability which was granted by the Collector of Internal Revenue. Final assessment was fixed at P2,066.56. Respondent protested the assessment contending that the income taxes are no longer collectible for the reason that they have already prescribed. As the Collector did not agree to the alleged claim of prescription, action was instituted for the recovery of the amount assessed. The Court of First Instance upheld the contention of Ablaza that the action to collect the said income taxes had prescribed. Thus this appeal. Issue: Whether or not the letter in question (Exhibit L) is a letter asking for another investigation that would warrant the suspension of the prescriptive period. Held: Judgment of the lower court dismissing the action is affirmed. The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, lawabiding citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted liberally in a way conducive to bringing about the beneficial purpose of affording protection to the taxpayers 7|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

CASE SYLLABI: INCOME TAX, COLLECTION, LIMITATION OF ACTIONS, PURPOSE; BENEFICIAL BOTH TO GOVERNMENT AND CITIZENS.—The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens, to the government because tax officers would be obliged to act properly in the making' of assessments and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability but to take advantage of every opportunity to molest peaceful law abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. ID.; ID.; ID.; REMEDIAL MEASURE; INTERPRETATION.—The law of prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. Commissioner of Internal Revenue vs. Primetown Property Group, Inc., 531 SCRA 436, G.R. No. 162155. August 28, 2007 Corona, J. Facts: Gilbert Yap, Vice Chair of Primetown applied on March 11, 1999 for a refund or credit of income tax which Primetown paid in 1997. He claimed that they are entitled for a refund because they suffered losses that year due to the increase of cost of labor and materials, etc. However, despite the losses, they still paid their quarterly income tax and remitted creditable withholding tax from real estate sales to BIR. Hence, they were claiming for a refund. On May 13, 1999, revenue officer Elizabeth Santos required Primetown to submit additional documents to which Primetown complied with. However, its claim was not acted upon which prompted it to file a petition for review in CTA on April 14, 2000. CTA dismissed the petition as it was filed beyonf the 2-year prescriptive period for filing a judicial claim for tax refund according to Sec 229 of NIRC. According to CTA, the two-year period is equivalent to 730 days pursuant to Art 13 of NCC. Since Primetown filed its final adjustment return on April 14, 1998 and that year 2000 was a leap year, the petition was filed 731 days after Primetown filed its final adjusted return. Hence, beyond the reglementary period. Primetown appealed to CA. CA reversed the decision of CTA. Hence, this appeal. Issues: (1) How should the two-year prescriptive period be computed? (2) Whether or not the claim for tax refund was filed within the two-year period? Held: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter—the computation of legal periods. Under the Civil Code, a year is 8|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori. We therefore hold that respondent’s petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period. CASE SYLLABI: Taxation; Prescription; The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return; A year is equivalent to 365 days regardless of whether it is a regular year of a leap year.—The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. But how should the two-year prescriptive period be computed? As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson, 29 SCRA 70 (1969), we ruled that a year is equivalent to 365 days regardless of whether it is a regular year or a leap year. Same; Words and Phrases; Calendar Month; A calendar month is a month designated in the calendar without regard to the number of days it may contain.—A calendar month is “a month designated in the calendar without regard to the number of days it may contain.” It is the “period of time running from the beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next month, and if there is not a sufficient number of days in the next month, then up to and including the last day of that month.” To illustrate, one calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008. Statutory Construction; Statutes; Repeals; A repealing clause like Sec. 27, Book VII of the Administrative Code of 1987 is not an express repealing clause because it fails to identify or designate the laws to be abolished; An implied repeal must have been clearly and unmistakably intended by the legislature.—A repealing clause like Sec. 27, Book VII of the Administrative Code of 1987 is not an express repealing clause because it fails to identify or designate the laws to be abolished. Thus, the provision above only impliedly repealed all laws inconsistent with the Administrative Code of 1987. Implied repeals, however, are not favored. An implied repeal must have been clearly and unmistakably intended by the legislature. The test is whether the subsequent law encompasses entirely the subject matter of the former law and they cannot be logically or reasonably reconciled. Same; Same; Same; Court holds that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods.—Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter—the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it 9|Ms. Nolaida Aguirre

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Commissioner of Internal Revenue vs. Ayala Securities Corporation, 101 SCRA 231, No. L -29485. November 21, 1980 Teehankee, J. Facts: Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioner’s decision and held that the assessment made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala invokes the defense of prescription against the right of the Commissioner to assess the surtax. Issue: Whether or not the right to assess and collect the 25% surtax has prescribed after five years. Held: No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no express statutory provision limiting such right or providing for its pre scription. Hence, the collection of surtax is imprescriptible. The underlying purpose of the surtax is to avoid a situation where the corporation unduly retains its surplus earnings instead of declaring and paying dividends to its shareholders. SC reverses the ruling of the CTA. Notes: “Although petitioner filed an income tax return, no return was filed covering its surplus profits which were improperly accumulated. In fact, no return could have been filed, and the law could not possibily require, for obvious reasons, the filing of a return covering unreasonable accumulation of corporate surplus profits. A tax imposed upon unreasonable accumulation of surplus is in the nature of a penalty. (Helvering v. National Grocery Co., 304 U.S. 282). It would not be proper for the law to compel a corporation to report improper accumulation of surplus. Accordingly, Section 331 limiting the right to assess internal revenue taxes within five years from the date the return was filed or was due does not apply. “It will be noted that Section 332 has reference to national internal revenue taxes which require the filing of returns. This is implied from the provision that the ten-year period for assessment specified therein treats of the filing of a false or fraudulent return or of a failure to file a return. There can be no failure or omission to file a return where no return is required to be filed by law or by regulations. It is, therefore, our

10 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

opinion that the ten-year period for making an assessment under Section 332 does not apply to internal revenue taxes which do not require the filing of a return. “It is well settled limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary. The existence of a time limit beyond which the government may recover unpaid taxes is purely dependent upon some express statutory provision, (51 Am. Jur. 867; 10 Mertens Law on Federal Income Taxation, par. 57. 02.). It follows that in the absence of express statutory provision, the right of the government to assess unpaid taxes is imprescriptible. Since there is no express statutory provision limiting the right of the Commissioner of Internal Revenue to assess the tax on unreasonable accumulation of surplus provided in Section 25 of the Revenue Code, said tax may be assessed at any time.”

CASE SYLLABI: Taxation; Prescription; Collection of surtax on excess profits does not prescribe there being no law providing a prescriptive period therefor.—The Court is persuaded by the fundamental principle invoked by petitioner that limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible. Same; Same.—The Court, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and collect the assessment in question had prescribed after five years, and instead rules that there is no such time limit on the right of the Commissioner of Internal Revenue to assess the 25% tax on unreasonably accumulated surplus provided in section 25 of the Tax Code, since there is no express statutory provision limiting such right or providing for its prescription. The underlying purpose of the additional tax in question a corporation’s improperly accumulated profits or surplus is as set forth in the text of section 25 of the Tax Code itself to avoid the situation where a corporation unduly retains its surplus earnings instead of declaring and paying dividends to its shareholders or members who would then have to pay the income tax due on such dividends received by them. The record amply shows that respondent corporation is a mere holding company of its shareholders through its mother company, a registered copartnership then set up by the individual shareholders belonging to the same family and that the prima facie evidence and presumption set up by the Tax Code, therefore, applied without having been adequately rebutted by the respondent corporation. Butuan Sawmill, Inc. vs. Court of Tax Appeals, et al., 16 SCRA 277, No. L-20601. February 28, 1966. Reyes, J.B.L., J. Facts: During the period from January 31, 1951 to June 8, 1953, it sold logs to Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit, also in Agusan); that the FOB prices included costs of loading, wharfage stevedoring and other costs in the Philippines; that the quality, quantity 11 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

and measurement specifications of the logs were certified fry the Bureau of Forestry that the freight was paid by the Japanese buyers; and the payments of the logs were effected by means of irrevocable letters of credit in favor of petitioner and payable through the Philippine National Bank or any other bank named by it. Upon investigation by the Bureau of Internal Revenue, it was ascertained that no sales tax return was filed by the petitioner and neither did it pay the corresponding tax on the sales. . On the basis of agent Antonio Mole’s report dated September 17, 1957, respondent, on August 27, 1958, determined against petitioner the sum of P40,004.01 representing sales tax, surcharge and compromise penalty on its sales [tax, surcharge and compromise penalty on its sales] of logs from January 1951 to June 1953 pursuant to Sections 183, 186 and 209 of the National Internal Revenue Code . And in consequence of a reinvestigation, respondent, on November 6, 1958, amended the amount of the previous assessment to P38,917.74. Subsequent requests for reconsideration of the amended assessment having been denied, petitioner filed the instant petition for review on November 7, 1960. Issues: (1) Whether or not petitioner herein is liable to pay the 5% sales tax as then prescribed by Section 186 of the Tax Code on its sales of logs to the Japanese buyers; and (2) Whether or not the assessment thereof was made within the prescriptive period provided by law therefor. Held: (1) Upon the foregoing facts and authority of Bislig (Bay) Lumber Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-13186 (January 28, 1961), Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz. 517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales had been consummated in the Philippines and were, accordingly, subject to sales tax therein.” (Taligaman Lumber Co., Inc. vs. Collector of Internal Revenue, G.R. No. L-15716, March 31, 1962). With respect to petitioner’s contention that there are proofs to rebut the prima facie finding and circumstances that the disputed sales were consummated here in the Philippines, we find that the allegation is not borne out by the law or the evidence. (2) An income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within tho time stated in Section 332 (a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L-12100 & L-11812, May 29, 1959). The principle enunciated in this last cited case is applicable by analogy to the case at bar.

12 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

It being undisputed that petitioner failed to file a return for the disputed sales corresponding to the years 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332 (a) of the Tax Code assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, it is evident that the lower court correctly held that the assessment and collection of the sales tax in question has not yet prescribed. CASE SYLLABI: Taxation; Sales tax; Sale of logs “F.O.B., Agusan”.—Petitioner sold logs to Japanese firms at prices FOB Agusan. The FOB feature of the sales indicated that the parties intended the title to pass to the buyer upon delivery of the logs in Agusan on board the vessels that took the goods to Japan. The sales being domestic or local, they are subject to sales tax under Section 186 of the Tax Code, as amended. Same; Title to goods deliverable to order of seller or his agent may pass upon delivery to the carrier.— The specification in the bill of lading that the goods are deliverable to the order of the seller or his agent does not necessarily negative the passing of title to the goods upon delivery to the carrier. (Art. 1503, New Civil Code). Same; Prescription; Income tax return is not deemed a return for sales tax purposes.—For purposes of computing the period of prescription under Section 331 of the Tax Code, an income tax return cannot be considered as a return for compensating tax or sales tax purposes. The taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of the law. If he does not file such a return, an assessment may be made within ten (10) years from and after the discovery of the omission to file the return. (Section 332[a] of the Tax Code; Cf. Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue and Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc., G.R. Nos. L12100 & L-11812, May 29, 1959.) Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd., 14 SCRA 52, No. L -19727. May 20, 1965 Bengzon, J.P., J. Facts: Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great Britain, is licensed to do business in the Philippines with head office in London. Through its head office, it entered in London into worldwide reinsurance treaties with various foreign insurance companies. It agree to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the world, in consideration for assumption by the foreign insurance companies of an equivalent portion of the liability from such original insurances. On August 1, 1958 the Bureau of Internal Revenue deficiency assessment on income tax for the years 1952 and 1954 against Phoenix Assurance Co, Ltd. The assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross Philippine income as claimed in the returns. 13 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency income tax. However, the Commissioner of Internal Revenue denied such protest. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals. In a decision dated February 14, 1962, the Court of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd. from payment of the statutory penalties for non-filing of withholding tax return. Issues: (1) Whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines pursuant to reinsurance contracts executed abroad are subject to withholding tax; (2) Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1952 against Phoenix Assurance Co., Ltd. has prescribed; Held: The question of whether or not reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines pursuant to contracts executed abroad are income from sources within the Philippines subject to withholding tax under Sections 53 and 54 of the Tax Code has already been resolved in the affirmative in British Traders’ Insurance Co., Ltd. v. Commissioner of Internal Revenue, L-20501, April 30, 1965.1 Notes: The question is: Should the running of the prescriptive period commence from the filing of the original or amended return? ‘xxx the deficiency income tax in question could not possibly be determined, or assessed, on the basis of the original return filed on April 1, 1953, for considering that the declared loss amounted to P199,583.93, the mere disallowance of part of the head office expenses could not possibly result in said loss being completely wiped out and Phoenix being liable to deficiency tax. Not until the amended return was filed on August 30, 1955 could the Commissioner assess the deficiency income tax in question.” Accordingly, he would wish to press for the counting of the prescriptive period from the filing of the amended return. Considering that the deficiency assessment was based on the amended return which, as aforestated, is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. From August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed. CASE SYLLABI: Taxation; Income tax; Reinsurance premiums subject to withholding tax.—Reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines pursuant to reinsurance contracts executed 14 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

abroad are income from sources within the Philippines subject to withholding tax under Sections 53 and 54 of the Tax Code. Same; Same; Period of prescription to assess deficiency income tax commences from filing of amended return.—Where the deficiency assessment is based on the amended return, which is substantially different from the original return, the period of prescription of the right to issue the same should be counted from the filing of the amended, not the original income tax return. Same; Same; Taxpayer may claim lesser deduction than allowed by law.—For income tax purposes a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. Same; Same; Items of income not belonging to Philippines excluded in determining expenses allocable to Philippines.—Since the items of income not belonging to its Philippine business’ are not taxable to its Philippine branch, they should be excluded in determining the head expenses allocable to a Philpine branch of a foreign corporation. Same; Same; Interest on taxes unpaid due to Commissioner’s opinion imposed only from failure to comply with court’s final judgment.—Where the taxpayer’s failure to pay the withholding tax was due to the Commissioner’s opinion that no withholding tax was due, the taxpayer can be held liable for the payment; of statutory penalties only upon its failure to comply with the Court’s final judgment.

Commissioner of Internal Revenue vs. Gonzales, 18 SCRA 757, No. L-19495. November 24, 1966 Bengzon, J.P., J. Facts: In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result – there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and so the CIR’s right to make an assessment has already prescribed in 1958. Issue: Whether or not the state and inheritance tax return file by Jose Yusay was defective and hence the right of the CIR to make an assessment has not prescribe. Held: It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation on the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered that the taxpayer omitted to file a return. As such, the five year prescriptive period to make an assessment 15 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

(NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN, without prejudice to her right to ask reimbursement from Jose’s estate (Jose already died). CASE SYLLABI: Taxation; Evidence of fraud.—Fraud is a question of fact. The circumstances constituting it must be alleged and proved in the Court of Tax Appeals. And the finding of said court as to its existence or nonexistence is final unless clearly shown to be erroneous. (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713). As the court 'a quo found that no fraud was alleged and proven therein, the Commissioner's assertion that the return was fraudulent cannot be entertained. Same; When tax return is considered sufficient.—A return need not be complete in all particulars. It is sufficient if it complies substantially with the law. There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent; (2) when it covers the entire period involved; and (3) when it contains information as to the various items of income, deductions and credits with such definiteness as to permit the computation and assessment of the tax. (Mertens, Jr., 10 Law of Federal Income Taxation, 1958 ed., Sec. 57.13). Same; Sufficiency of estate and inheritance tax return.— An estate and inheritance tax return was substantially defective when it was incomplete; it declared only ninety-three parcels of land, representing about 400 hectares, and left out ninety-two parcels covering 503 hectares and said huge underdeclaration could not have been the result 01 an oversight or mistake. Moreover, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on the basis of the return, there would be no occasion for the imposition of estate and inheritance taxes. When there is no heir, the estate is escheated to the State. The State does not tax itself. Same; Sufficient tax return; Prescription.—Where the return was made on the wrong form, it was held that the filing thereof did not start the running of the period of limitations, and where the return was very deficient, there was no return at all as required in Section 93 of the Tax Code. If the taxpayer failed to observe the law, Section 332 of the Tax Code, which grants the Commissioner of Internal Revenue ten years period within which to bring an action "f or tax collection, applies. Section 94 of the Tax Code obligates him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations under Section 332(a) of the Tax Code should be reckoned "from the date the "fraud was discovered. Republic vs. Ret, 4 SCRA 783, No. L-13754. March 31, 1962 Paredes, J. Facts:

16 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

On February 23, 1949, Damian Ret filed with the Bureau of Internal Revenue his Income Tax Return for the year 1948, where he made it appear that his net income was only P2,252.53 with no income tax liability at all. The BIR found out later that the return was fraudulent since Ret's income, derived from his sales of office supplies to different provincial government offices, totaled P94,198.76. Defendant Ret failed to file his Income Tax return for 1949, notwithstanding the fact that he earned a net income of P150,447.32, also from sale of office supplies. The BIR assessed him P34,907.33 and P68,338.40 as deficiency income tax, inclusive of the 50% surcharge for rendering a false and/or fraudulent return for the 1948 and 1949 respectively. On January 13, 1951, the Collector of Internal Revenue demanded from Ret the payment of the above sums, but he failed and/or refused to pay said amounts. Upon recommendation of the Collector, Ret was prosecuted for a violation of Sections 45[a], 51 [d] and 72, of the N.I.R.C. penalized under Sec. 73, thereof After his conviction, on September 21, 1957, the Republic filed the present complaint for the recovery of Ret's deficiency taxes in the total sum of P103,245.73, plus 5% surcharge and 1% monthly interest. Instead of answering, he presented a Motion to Dismiss on February 8, 1958, claiming that the "cause of action had already prescribed". Issue: Whether or not appellant's right to collect the income taxes due from appellee through judicial action has already prescribed. Held: The answer is in the affirmative. After going over the law and jurisprudence pertinent to the issues raised, the Court have come to the conclusion that the cause of action has already prescribed. Section 332 of the Tax Code provides: "the running of the statutory limitation xxx shall be suspended for the period during which the Collector of Internal Revenue is prohibited from making the assessment, or beginning distraint or levy or a proceeding in court, and for sixty days thereafter". As heretofore stated, the plaintiff-appellant was not prohibited by any order of the court or by any law from commencing or filing a proceeding in court. In the instant case, there is no such written agreement, and there was nothing to agree about. The letter of demand by the Collector on January 13, 1951, was made prior to the issuance of the assessment notice to the defendant-appellee, made on January 20, 1951, from which date, the 5-year period was to be counted, The letter of demand could not suspend something that started to run only on January 20, 1951. CASE SYLLABI Taxation; Income taxes; Prescription of judicial action; Section 332 of Tax Code not applicable if collection of income taxes will be made by summary proceedings.—Section 332 of the Tax Code does not apply in the collection of income by summary proceedings. But when the collection of income taxes is to be effected by court action, said provision is controlling. Same; Same; Same; Alternatives of Collector under Section 332(a) of Tax Code; Effect of assessment against taxpayer.—Under Section 332 (a) of the Tax Code, the Collector is given two alternatives: (1) to assess the tax within 10 years from the discovery of the falsity, fraud or omission, or (2) to file an action in 17 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

court for the collection of such tax without assessment also within 10 years from the discovery of the falsity, fraud or omission. An assessment against the taxpayer takes the case out of the realms of the provisions of the said section and places it under the mandate of section 332(c). Same; Same; Same; Theory of prescriptibility supported by Sections 331, 332 and 393 of Tax Code.— Sections 331, 332, and 333 of the Tax Code support the theory of prescriptibility of a judicial action to collect income tax. To hold otherwise would render said provisions idle and useless. Same; Same; Section 1, Rule 107, Rules of Court not applicable if complaint is not for recovery of civil liability arising from criminal offense.—Where the complaint against the taxpayer is not for the recovery of civil liability arising from the offense of falsification, but for the collection of deficiency income tax, the provisions of Section 1, Rule 107, Rules of Court, that "after a criminal action has been commenced, no civil action arising from the same offense can be prosecuted" will not apply. Bank of the Philippine Islands vs. Commissioner of Internal Revenue, 473 SCRA 205, G.R. No. 139736. October 17, 2005 Chico-Nazario, J. Facts: Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989, the Bureau of Internal Revenue (BIR) issued assessment notice finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank. Petitioner BPI received the Assessment, together with the attached Assessment Notice, on 20 October 1989. Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy against BPI only on 23 October 1992 Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its “request for reconsideration,”. Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October 1997 Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest.

18 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

The CTA held that the statute of limitations for respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that— In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a “protest” is to be treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . . The CA affirmed the decision of the CTA. Hence, the instant case. Issues: 1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and 2. Whether or not a request for reconsideration tolls the prescriptive period of the CIR to collect on an assessment; Held: There is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI. Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor. Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of the statute of limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as amended. The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended “when the taxpayer requests for a reinvestigation which is granted by the Commissioner.” This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 19 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows— (a)Request for reconsideration.—refers to a plea for a reevaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b)Request for reinvestigation.—refers to a plea for reevaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. Add Notes as Emphasized by Atty. Lock: In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of this Court— “Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . . ... Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words “reinvestigation” and “reconsideration,” the same are to be treated as letters of reinvestigation and reconsideration…

20 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the re cords of Wyeth Suaco, in accordance with its request for rein vestigation, rendered a final assessment… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.” The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, “settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.” It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence. The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended. To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted. The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation. This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that, “[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division…” The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment. The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the taxpayer files a request for reinvestiga-tion, provided that, as clarified and qualified herein, such request is granted by the BIR Commissioner. Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein. 21 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted or acted upon by the BIR. CASE SYLLABI: Taxation; Distraint; Levy; The Bureau of Internal Revenue (BIR) has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment.—The BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or tenyear period, whichever is appropriate, then the BIR has another three years after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer. Same; Same; Same; Statute of Limitations; Statutes; Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax.—Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed. Same; Same; Same; Same; Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation.—Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the 22 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, identifies specifically in Sections 223 and 224 the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted.—In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 224 thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted. Same; Same; Same; Same; Same; Paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement.—According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit—SEC. 223. Exceptions as to period of limitation of assessment and collection of taxes.—x x x (b) If before the expiration of the time prescribed in the preceding section 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. . . . (d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally. Same; Same; Same; Same; Same; RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with.—A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with. 23 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Same; Same; Same; Same; The Supreme Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.—This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof. Same; Same; Same; Same; Statutes; The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver.— The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224 thereof, which reads—SEC. 224. Suspension of running of statute.—The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. Same; Same; Same; Same; Same; Under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration.—With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. Same; Same; Same; Same; That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence.—That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence. In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records 24 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

and documents were not at all examined. Considering the given facts, this Court pronounced that—. . . The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . . Same; Same; Same; Same; The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner.—The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation. Same; Same; Same; Same; The Supreme Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof.—As had been previously discussed herein, the statute of limitations on assessment and collection of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. x x x In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax. Same; Same; Same; Same; The repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax.—The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended. Continental Micronesia, Inc., vs. CIR, CTA Case No. 6191, March 22, 2006 Casanova, J. Facts: 25 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

The Petitioner is a non-resident foreign corporation. On December 12, 1996 petitioner received a Letter of Authority to examine the petitioner’s books of accounts and other accounting records for all internal revenue taxes. On March 17, 1998, an invitation for informal conference was sent to petitioner requesting it to submit whatever documentary evidence in its possession that may support any objection against the proposed assessment. On March 27, 1998, a conference with the representative of petitioner was held. Petitioner expressed its willingness to settle the deficiency gross Philippine billings and common carrier’s tax but would protest the remaining deficiency taxes upon receipt of the notice of assessment. On May 15, 1998, an assessment notice of deficiency withholding tax on compensation and deficiency expanded withholding tax was issues against the petitioner. Instead of attending another conference, the petitioner opted to file its objection on the assessment and thus, it resulted to the reinvestigation of the case. After the reinvestigation a PAN was issued, and on December 29, 1999 assessment notices and demand letters were sent to the petitioner. These letters were received on January 5, 2000. On February 4, 2000, petitioner filed its administrative protest seeking the cancellation and withdrawal thereof due to prescription and lack of legal bases. Issue: Whether or not the assessments are barred by prescription Held: The answer is in the negative. In as much as the assessment notices for both deficiency withholding tax on compensation and expanded withholding tax were isssues on December 29, 1999, it would appear that both subject deficiency assessments are time barred. However, since petitioner requested for reinvestigation on October 15, 1998, and which was granted by respondent in November 9, 1998, the running of the threeyear period to assess was suspended pursuant to Section 223 of the Tax Code. Settled is the rule that when a taxpayer requests for a reinvestigation of an assessment which was granted by respondent, the running of the period to assess under Section 203 and 222 is suspended.

Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214, G.R. No. 162852. December 16, 2004 Ynares-Santiago, J. Facts: In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return for the year 1994. In 1995, a tax audit was conducted by the Bureau of Internal Revenue (BIR) where it was found that PJI was liable for a tax deficiency. In September 1997, PJI asked that it be allowed to present its evidence to dispute the finding. In the same month, the Comptroller of PJI (Lorenza Tolentino) executed a waiver of the statute of limitations whereby PJI agreed waived the running of the prescriptive period of the government’s right to make an assessment. Said right was set to expire on 26 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

April 17, 1998 but due to the additional evidence that PJI sought to present, the government needed more time. And so a reinvestigation took place which yielded the same result – PJI is liable for tax deficiencies. In December 1998, a formal assessment notice (FAN) was sent via registered mail to PJI. Subsequently, a warrant for distraint/levy was issued against the assets of PJI. PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred that the waiver executed by Tolentino was incomplete; that no acceptance date was indicated to show that the waiver was accepted by BIR; that no copy was furnished PJI; that the waiver was an unlimited wai ver because it did not indicate as to how long the extension of the prescriptive period should last. As such, there was no valid waiver of the statute of limitations which in turn make the FAN issued in December 1998 void. The Commissioner of Internal Revenue (CIR) argued that the placing of the acceptance date is merely a formal requirement and not vital to the validity of the waiver; that there is no need to furnish PJI a copy of the waiver because in the first place, it was PJI, through its representati ve, who was making the waiver so it should know about it; and that there is no need to place a specific date as to how long the prescriptive period should be extended because PJI was waiving the prescriptive period and was not asking to extend it. The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of Appeals reversed the CTA as it ruled in favor of the CIR. Issues: 1. Whether or not that the assessment having been made beyond the 3-year prescriptive period is null and void; and 2. Whether or not the CTA gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations Held: The answers are in the Negative. The requirement to place the acceptance date is not merely formal. The waiver of the statute of limitations is not a unilateral act by the taxpayer. The BIR has to accept it hence the need for a BIR representative to affix his signature and the date of acceptance. There is also therefore a need to furnish a copy to the taxpayer for the latter to be apprised that his waiver has been accepted. It must be noted that the waiver is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain and not to waive the right to invoke the defense of prescription. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. 27 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

CASE SYLLABI: Same; Same; A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed; The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection.—A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. Commissioner of Internal Revenue vs. Kudos Metal Corporation , 620 SCRA 232, G.R. No. 178087. May 5, 2010 Del Castillo, J. Facts: On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998. Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR issued a Subpoena Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter dated October 20, 2000. On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver of the Defense of Prescription, which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar (Salazar). This was followed by a second Waiver of Defense of Prescription5 executed by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar. A Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assess-ment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its “Protest on Various Tax Assessments” on December 3, 2003 and its “Legal Arguments and Documents in Support of Protests against Various Assessments” on February 2, 2004. 28 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Believing that the government’s right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition for Review7 with the CTA. On October 4, 2005, the CTA Second Division issued a Resolution canceling the assessment notices issued against respondent for having been issued beyond the prescriptive period. CTA en banc affirmed the decision of the CTA Second Division. Hence, the present petition. Issue: Whether or not the government’s right to assess unpaid taxes of respondent has prescribed Held: The Government is barred by prescription. The waivers executed by respondent’s accountant did not extend the period within which the assessment can be made Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but claims that the period was extended by the two waivers executed by respondent’s accountant. Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void. In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments. The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 2090 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the threeyear period because with or without the required documents, the CIR has the power to make assessments based on the best evidence obtainable. CASE SYLLABUS Civil Law; Doctrine of Estoppel; The doctrine of estoppel is predicated on, and has its origin in equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.—The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of 29 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate. Simply put, the doctrine of estoppel must be sparingly applied.

Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 657 SCRA 70, G.R. No. 170257. September 7, 2011 Mendoza, J. Facts: On August 15, 1996, RCBC received Letter of Authority to examine the books of accounts and other accounting records for all internal revenue taxes from January 1, 1994 to December 31, 1995.4 On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code covering the internal revenue taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000. On January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment Notices from the BIR. Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000 and later submitted the relevant documentary evidence to support it. A reinvestigation followed based on the newly submitted documentary evidence. On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices dated October 20, 2000, following the reinvestigation it requested, which drastically reduced the original amount of deficiency taxes .On the same day, RCBC paid the following deficiency taxes as assessed by the BIR. RCBC, however, refused to pay the following assessments for deficiency onshore tax and documentary stamp tax RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997 were not valid because the same were not signed or conformed to by the respondent CIR as required under Section 222(b) of the Tax Code. The CTA en banc denied the petition for lack of merit ruling that RCBC was estopped from questioning the validity of the waivers. While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing the Court that this petition, relative to the DST deficiency assessment, had been rendered moot and academic by its payment of the tax deficiencies on Documentary Stamp Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR approved its applications for tax abatement. Issue: Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is rendered estopped from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax. 30 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Held: Petitioner is estopped from questioning the validity of the waivers. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood. Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment. RCBC’s subsequent action effectively belies its insistence that the waivers are invalid. The records show that on December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds dear. CASE SYLLABI: Estoppel; A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood.—Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood. Taxation; Withholding Tax System; The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government—the liability for the tax, however, remains with the taxpayer because the gain was realized and received by him; The taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise from the non-payment of the withholding tax due.—Based on the foregoing, the liability of the withholding agent is independent from that of the taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform his duty to withhold the tax and remit the same to the government. The liability for the tax, however, remains with the taxpayer because the gain was realized and received by him. While the payor-borrower can be held accountable for its negligence in performing its duty to withhold the amount of tax due on the transaction, RCBC, as the taxpayer and the one which earned income on the transaction, remains liable for the payment of tax as the taxpayer shares the responsibility of making certain that the tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise from the non-payment of the withholding tax due. RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower as the withholding agent.

31 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569. August 23, 1974 Esguerra, J. Facts: The late Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the cash and disbursement basis from1945 TO 1951. The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of one obviously wealthy, caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer's true income for said years by using the net worth and expenditures method of tax investigation. The assets and liabilities of the taxpayer during the above-mentioned years were ascertained and it was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very much more than the income reported during said years. Based on the above findings the BIR notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency. The taxpayer requested a reinvestigation which was granted for the purpose of verifying the merits of the various objections of the taxpayer to the deficiency income tax assessment of November 28, 1952. The notice of final and last assessment was receive by the petitioner on March 2, 1955. Petitioner contends that 8 years had elapsed and the five year period provided by law. Issue: Whether or not the right of the Commissioner of Internal Revenue to assess deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952. Held: The CIR is not barred. The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, the Court affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made. CASE SYLLABI: Taxation; Income Tax; Assessments; Prescription; Proceeding for collection of deficiency taxes based on false return, fraudulent return or failure to file a return prescribes in ten years.—In the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, 32 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission. Same; Same; Words and phrases; Distinction between false return and fraudulent return explained.— Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely—“falsity”, “fraud” and “omission”. That there is a difference between “false return” and “fraudulent return” cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due. Same; Same; Assessments; Prescription; Ten year period of prescription applies where the government is prevented from making proper assessments.—The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whether the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent returns intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. Republic vs. Ker & Company, Ltd., 18 SCRA 207, No. L-21609. September 29, 1966 Bengzon, J. Facts: Ker & Co., Ltd., a domestic corporation, filed its income tax returns for the years 1947, 1948, 1949 and 1950. In 1953 the Bureau of Internal Revenue examined and audited Ker & Co., Ltd.'s returns and books of accounts and subsequently issued notices of assessment. On March 15, 1962, the Bureau of Internal Revenue demanded payment of the aforesaid assessments together with a surcharge of 5% for late payment and interest at the rate of 1% monthly. Ker & Co., Ltd. refused to pay, instead in its letters dated March 28, 1962 and April 10, 1962 it set up the defense of prescription of the Commissioner's right to collect the tax. Subsequently, the Republic of the Philippines filed on March 27, 1962 a complaint with the Court of First Instance of Manila seeking collection of the aforesaid deficiency income tax for the years 1947, 1948, 1949 and 1950. The complaint did not allege fraud in the filing of any of the income tax returns for the years involved, nor did it pray for the payment of the corresponding 50% surcharge, but it prayed for the payment of 5% surcharge for late payment and interest of 1% per month without however specifying from what date interest started to accrue. On April 14, 1962 Ker & Co., Ltd. through its counsel, Leido, Andrada, Perez & Associates, moved for the dismissal of the complaint on the ground that the court did not acquire jurisdiction over the person of the defendant and that plaintiff's cause of action has prescribed. This motion was denied and defendant filed a motion for reconsideration. Resolution on said motion, however, was deferred until trial of the case on the merits. The CFI dismisses the claim for the collection of deficiency income taxes for 1947, but orders defendant taxpayer to pay the deficiency income taxes for 1948, 1949 and 1950. 33 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

On February 20, 1963 the Republic of the Philippines filed a motion for reconsideration contending that the right of the Commissioner of Internal Revenue to collect the deficiency assessment for 1947 has not prescribed by a lapse of merely five years and three months, because the taxpayer's income tax return was fraudulent in which case prescription sets in ten years from October 31, 1951, the date of discovery of the fraud, pursuant to Section 332 (a) of the Tax Codes and that the payment of delinquency interest of 1% per month should commence from the date it fell due as indicated in the assessment notices instead of on the date the complaint was filed. On March 6, 1963 Ker & Co., Ltd. also filed a motion for reconsideration reiterating its assertion that the Court of First Instance did not acquire jurisdiction over its person, and maintaining that since the complaint was filed nine years, one month and eleven days after the deficiency assessments for 1948, 1949 and 1950 were made and since the filing of its petition for review in the Court of Tax Appeals did not stop the running of the period of limitations, the right of the Commissioner of Internal Revenue to collect the tax in question has prescribed. Issue: 1. Whether or not right of the Commissioner of Internal Revenue to assess deficiency income tax for the year 1947 prescribe; and 2. Whether or not taxpayer's income tax return for 1947 was fraudulent. 3. Whether or not the filing of a petition for review by the taxpayer in the Court of Tax Appeals suspend the running of the statute of limitations to collect the deficiency income for the years 1948, 1949 and 1950 Held: On the first and second issues- the Court resolves the issues in the negative. The Court resolved the issue without touching upon fraudulence of the return. The reason is that the complaint alleged no fraud, nor did the plaintiff present evidence to prove fraud. This contention suffers from a flaw in that it fails to consider the well-settled principle that fraud is a question of fact6 which must be alleged and proved. Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof. Accordingly, fraud should have been alleged and proved in the lower court. On these premises the Supreme Court therefore sustain the ruling of the lower court upon the point of prescription. In this case however, Ker & Co., Ltd. raised the defense of prescription in the proceedings below and the Republic of the Philippines, instead of questioning the right of the defendant to raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the Republic of the Philippines should be considered to have waived its right to object to the setting up of such defense. On the third issue the pendency of the taxpayer’s appeal toll the running of the prescriptive period. The running of the prescriptive period to collect the tax shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for sixty days thereafter. 34 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

From March 1, 1956 when Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals contesting the legality of the assessments in question, until the termination of its appeal in the Supreme Court, the Commissioner of Internal Revenue was prevented. Besides, to do so would be to violate the judicial policy of avoiding multiplicity of suits and the rule on lis pendens. Thus, did the taxpayer produce the effect of temporarily staying the hands of the Commissioner of Internal Revenue simply through a choice of remedy. And, if the Court were to sustain the taxpayer's stand, We would be encouraging taxpayers to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the Commissioner of Internal Revenue was in effect prohibited from collecting the tax in question. This being so, the provisions of Section 333 of the Tax Code will apply. CASE SYLLABI: Taxation; Deficiency income tax; Prescription of actions; Degree of proof required to establish fraud.— Fraud is a question of fact (Gutierrez vs. Court of Tax Appeals, 101 Phil. 713) which must be alleged and proved (Section 12, Rule 15 [now Section 5, Rule 8], Rules of Court). It is a serious charge and, to be sustained, it must be supported by clear and convincing proof (Collector of Internal Revenue vs. Benipayo, L-13656, January 31, 1962). In the instant case the filing by the taxpayer of a false return was neither alleged in the complaint nor proved in court. Hence, the lower court correctly resolved the issue of prescription without touching upon fraudulence of the return. Same; Failure to object to the setting up of defense of prescription.—The assessment for deficiency income tax for 1947 has become final and executory, and, therefore, defendant may not anymore raise defenses which go into the merits of the assessment, i.e., prescription of the Commissioner's right to assess the tax. (Republic of the Philippines vs. Albert, L-12996, December 28, 1961; Republic of the Philippines vs. Lim Tian Teng Sons ,& Co., Inc., L-21731, March 31, 1966). However, defendant raised the defense of prescription in the proceedings below, and the Republic of the Philippines, instead of questioning the right of the defendant to raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the government should be considered to have waived its right to object to the setting up of such defense. Same; Suspension of prescriptive period; Effect of pendency of appeal.—Under Section 333 of the Tax Code the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the Commissioner of Internal Revenue is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for sixty days thereafter. In the case at bar, the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner. If the taxpayer's stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case is upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the running of the prescriptive period was suspended. Collector of Internal Revenue vs. Suyoc Consolidated Mining Company, et al., 104 Phil. 819, No. L-11527. November 25, 1958 Bautista Angelo, J.

35 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Facts: Due to the chaos caused by World War II, Congress extended the filing of income tax returns for the year 1941. The extension was up to December 31, 1945. However, Suyoc Consolidated Mining Company (SCMC) due to lost records requested the Commissioner of Internal Revenue (CIR) for further extension. The same was granted and SCMC was allowed to file its return until February 15, 1946. On February 12, 1946, SCMC filed a tentative income tax return. On November 28, 1946, SCMC filed a second final return. In February 1947, the CIR made an assessment notifying SCMC that is liable for P33k in taxes. The CIR gave SCMC 3 months to pay but the latter failed to make payment. What followed was a series of negotiations as SCMC repeatedly asked for reconsideration and reinvestigation. Due to SCMC’s requests, the CIR had to revise the assessment several times. Eventually in July 1955, the CIR made a final assessment notice (FAN) notifying SCMC that it is liable for P24k in taxes. This time, SCMC questioned the validity of the assessment as it now alleged that it was issued beyond the 5 year prescriptive period. The issue reached the Court of Tax Appeals (CTA) which ruled that the assessment issued is void because in the first place, when SCMC requested for a reinvestigation, there was no agreement as to the extension of the prescriptive period; that a mere request for reinvestigation does not automatically suspend the running of the prescriptive period. The CTA ruled that the FAN issued in 1955 was already way beyond the 5 year prescriptive period. Issue: Whether or not the right of the BIR has prescribed Held: This is one case where a taxpayer is barred from setting up the defense of prescription even though there was not a written agreement. It is true that when a request for reinvestigation is made by the taxpayer, the same does not toll the running of the prescriptive period unless there is a written agreement between the CIR and the taxpayer. However, in this case, due to the repeated requests of SCMC which were acted upon by the government for good reasons the government was persuaded to delay the final assessment. The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect “this is your own act, and therefore you are not damnified.” The tax could have been collected, but the government withheld action at the specific request of SCMC. SCMC is now estopped and should not be permitted to raise the defense of the Statute of Limitations. CASE SYLLABI: Income Tax; Collection; Period of Limitation; Reexamina-tion or Reinvestigation of Assessment does not Suspend Period of Limitation; Exceptions.—A mere request for re-examination or reinvestigation of assessment may not suspend the running of the period of limitation for in such a case there is need of a written agreement to extend the period between the Collector and the taxpayer. There are cases, however, where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, per-suaded to postpone collection to make himself feel that the demand was not 36 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

unreasonable or that no harassment or in-justice is meant by the Government. And when such situa-tion comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government. Id.; Id.; Id.; Government’s Action Withheld at Taxpayer’s Request; Estoppel.—He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned, for the law says to him in effect “this is your own act and therefore you are not damnified.” (R.H. Stearns Co. vs. U.S. 78 L Ed. 6647). Or, as was aptly said, “The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the statute of limitations.” (Newpoint Co. vs. U.S. (Dc-wis), 34 Off. Supp. 588.) Commissioner of Internal Revenue vs. Philippine Global Communication, Inc., 506 SCRA 427, G.R. No. 167146. October 31, 2006 Chico-Nazario, J. Facts: The Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondent’s 1990 income tax liability. On April 22 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount of P118,271,672.00 On May 6, 1994 and May 23, 1994 respondent, through its counsels filed two separate letters of protest. In both letters, respondent requested for the cancellation of the tax assessment, which they alleged was invalid for lack of factual and legal basis. On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8 October 2002 denying the respondent’s protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto The CTA ruled on the primary issue of prescription and found it unnecessary to decide the issues on the validity and propriety of the assessment. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax. Thereafter, the CIR filed a Petition for Review with the CTA en banc, questioning the aforesaid Decision and Resolution. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA Issue: Whether or not CIR’s right to collect respondent’s alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977 Held: 37 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.

The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. CASE SYLLABI:

Taxation; Prescription; The law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all.—The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. Same; Same; The law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings—the three year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR.—If the BIR issued this assessment within the threeyear period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. Same; Same; The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the recommendation of the tax commissioner of the Philippines.—The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the recommendation of the tax commissioner of the Philippines. The report submitted by the tax commission clearly states that these provisions on prescription should be enacted to benefit and protect taxpayers. Same; Statute of Limitations; The statute of limitations on the collection of taxes should benefit both the Government and the taxpayers.—In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers. In these cases, the Court further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, 104 Phil. 38 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

819 (1958), Justice Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if the assessment and collection of taxes are not promptly made. Same; Same; The statute of limitations of actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible harassment.—In Republic of the Philippines v. Ablaza, 108 Phil. 1105 (1960), this Court emphatically explained that the statute of limitations of actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible harassment. Same; Same; Though the statute of limitations for the collection of taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation.—In the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), this Court, in confirming these earlier rulings, pronounced that: Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. Same; Same; Prescription; The law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed.—In Commissioner of Internal Revenue v. B.F. Goodrich, 303 SCRA 546 (1999), this Court affirmed that the law on prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be strictly construed. Same; Same; Same; Section 271 of the 1997 Tax Code provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended even in the absence of waiver.—The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 271 thereof which reads: Section 224. Suspension of running of statute.—The running of the statute of limitation provided in Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a proceeding in court for collection in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected x x x. Same; Same; Same; Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, defines two types of protest, the request for reconsideration and the request for reinvestigation.—Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner: x x x Same; Same; Same; The main difference between the two types of protests lies in the records or evidence to be examined by internal revenue officers, whether there are existing records or newly discovered or 39 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

additional evidence; A request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax.—The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue, 473 SCRA 205 (2005), explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax. C. REQUISITES OF A VALID ASSESSMENT Collector of Internal Revenue vs. Benipayo, 4 SCRA 182, No. L-13656. January 31, 1962 Dizon, J. Facts: Respondent is the owner and operator of the Lucena Theater located in the municipality of Lucena, Quezon. On October 3, 1953 Internal Revenue Agent Romeo de Guia investigated respondent's amusement tax liability in connection with the operation of said theater during the period from August, 1952 to September, 1953. His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period in question. the proportion was reversed—three children to one adult. From this he concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the amusement tax prescribed in Section 260 of the National Internal Revenue Code. On July 14, 1954. petitioner issued a deficiency amusement tax assessment against respondent, demanding from the latter the payment of the total sum of P12,152.93 within thirty days from receipt thereof. On August 16, 1954, respondent filed the corresponding protest with the Conference Staff of the Bureau of Internal Revenue. Issue: Whether or not there is sufficient evidence in the record showing that respondent, during the period under review, sold and issued to his adult customers two tax-free 20-centavo children's tickets, instead of one 40centavo ticket for each adult customer; to cheat or defraud the Government. Held: The assessment has no factual bases. Assessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. Assuming arguendo that the average ratio of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the inference that the same conditions existed during the years in question (1952 and 1953). The fact that almost the same ratio existed during the month of July, 1955 does not provide a sufficient inference on the conditions in 1952 and 1953. x x x 40 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

"In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951 and July 1955. In the case under consideration there are no substantial facts to support the assessment in question. x x x." Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the present case, is 'lacking. CASE SYLLABUS: Taxation; Amusement taxes; Fraud should be supported by clear and convincing proof.—To sustain the defective assessment against respondent would amount to a finding that he had, for a considerable period of time, cheated and defrauded the government by selling to each adult patron two children's tax-free tickets instead of one ticket subject to the amusement tax provided for in Section 260 of the National Internal Revenue Code. Fraud is a serious charge and, to be sustained, must be supported by clear and convincing proof which, in this case, is lacking. Commissioner of Internal Revenue vs. Enron Subic Power Corporation, 576 SCRA 212, G.R. No. 166387. January 19, 2009 Corona, J. Facts: Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport enterprise, filed its annual income tax return for the year 1996 on April 12, 1997. On May 26, 1999, Enron received from the CIR a formal assessment notice6 requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment. Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended,8 and Section 3.1.4 of Revenue Regulations (RR) No. 12-999 by not providing the legal and factual bases of the assessment. Enron likewise questioned the substantive validity of the assessment. Issue: Whether or not the notice of assessment complied with the requirements of NIRC and RR No. 12-99 Held: The CIR did not complied with requirements laid down by NIRC and RR No. 12-99. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the 41 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was made. The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and “audit working papers” did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. “Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.” CASE SYLLABI: Taxation; A taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him.—It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. The use of the word “shall” in these legal provisions indicates the mandatory nature of the requirements laid down therein. We note the CTA’s findings: In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and facts on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at such an assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron. Same; The advice of tax deficiency, given by the Commissioner of Internal Revenue (CIR) to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment.—The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was made. Same; Tax Assessment; The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice.—The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and “audit working papers” 42 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. Same; Same; In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void.—We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. Such amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process. In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void. We reiterate our ruling in Reyes v. Almanzor, et al., 196 SCRA 322 (1991): Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself. Commissioner of Internal Revenue vs. Reyes, 480 SCRA 382, G.R. No. 159694. January 27, 2006 Panganiban, CJ. Facts: In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN) demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs, protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to work on another compromise but was eventually denied. The case reached the Court of Tax Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable judgment. Issue: Whether or not the formal assessment notice is valid. Held: No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228 of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely stated the amount of liability to be shouldered by the estate and the law upon which such liability is based. However, the estate was not informed in writing of the facts on which the assessment of estate taxes had been made. The estate was merely informed of the findings of the CIR. Section 228 of the NIRC being remedial in nature can be applied retroactively even though the tax investigation was conducted prior to the law’s passage. Consequently, the invalid FAN cannot be a basis of a compromise, any proceeding emanating from the invalid FAN is void including the issuance of the warrant of distraint and/or levy. CASE SYLLABI: 43 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Taxation; Assessment; Taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void.—The second paragraph of Section 228 of the Tax Code is clear and mandatory. It provides as follows: “Sec. 228. Protesting of Assessment.—x x x x x x x x x “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.” Same; Same; The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law but also of the facts on which an assessment would be made.—RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid. Same; Same; Statutes; Statutory Construction; Statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes; RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights.—The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes. Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights. Same; Same; Same; Same; A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code; The absence of the regulation does not automatically mean that the law itself would become inoperative.—The non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements the law. A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. While it is desirable for the government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does not automatically mean that the law itself would become inoperative. Same; Same; Same; Same; An administrative rule interpretive of a statute and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute.—An administrative rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute. RR 1299 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998—a date prior to the issuance of the preliminary assessment notice and demand letter. Same; Same; Same; Same; In case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails; Between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law.— Section 228 has replaced Section 229. The provision on protesting an assessment has been amended. 44 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails. Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form. Same; Same; To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence.—The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability. 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. The haphazard shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are expected to be known by the taxpayer, is utter chicanery. Same; Same; Although taxes are the lifeblood of the government, their assessment and collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.— Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for—not to mention the insufficiency of—the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection “should be made in accordance with law as any arbitrariness will negate the very reason for government itself.” Same; Same; 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.—Tax laws are civil in nature. Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law itself authorizes the validity of those acts. 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. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding. A Brown Co., Inc., vs Commissioner of Internal Revenue, CTA Case No. 6357, June 7, 2004 Acosta, J. Facts: In November 1998, the Bureau of Internal Revenue, through one of its Revenue District Office conducted a tax investigation on the books of accounts of A. Brown Co., Inc. (ABCI) for the period of 1997. The examiner found that ABCI is liable for a tax deficiency amounting to P4.5 million. On January 4, 2001, the Commissioner of Internal Revenue (CIR) issued a Preliminary Assessment Notice against ABCI advising the latter that it is liable to pay an amount more than P132 million for tax deficiencies. The said notice was however sent to ABCI’s former business address even though 45 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

the CIR has been informed of ABCI’s change of address. ABCI was only able to receive said letter on January 15, 2001. On January 19, 2001, the CIR issued another set of Assessments with Formal Demand against ABCI. Thereafter, ABCI filed a protest. Issue: Whether or not ABCI was deprived of procedural due process. Held: The CIR violated Section 228 of the National Internal Revenue Code as well as Revenue Regulations 12-85 and 12-99 and Revenue Memorandum Order 37-94. Among the violations committed by the CIR are: Demanding a tax deficiency not reflective of the tax investigation conducted. Here, the investigation found ABCI liable for P4.5 million yet the CIR is demanding P132 million plus. No valid service of the pre-assessment notice because the Pre-assessment notice were sent to the wrong address. The notice should have been delivered by registered mail or personally to ABCI, and ABCI or its representative should receive personally. Assuming arguendo that there was a valid service of the notice, ABCI was deprived its right to present its side of the case. ABCI finally received the notice on January 15, 2001. Thereafter, ABCI should have 15 days to file a reply yet on January 19, 2001, the CIR immediately made an Assessment with Formal Demand. These lapses rendered the subject assessments null and void. Taxation is indeed indispensable but nevertheless, the prescribed procedure pursuant thereto should be complied with. . If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. Commissioner of Internal Revenue vs. Menguito, 565 SCRA 461, G.R. No. 167560. September 17, 2008 Austria-Martinez, J. Facts: Dominador Menguito and his wife are the owners of Copper Kettle Catering Services, Inc. (CKCSI). They also operate several restaurant branches in the Philippines. One such branch was the Copper Kettle Cafeteria Specialist (CKCS) in Club John Hay, Baguio City. The branch was registered as a sole proprietorship. In September 1997, a formal assessment notice (FAN) was issued against the spouses and they were adjudged to pay P34 million in deficiency taxes for the years 1991 to 1993. The Bureau of Internal Revenue found that in order for CKCS to operate in Club John Hay, a contract was entered into by CKCSI and Club John Hay; hence, CKCS and CKCSI are one and the same. Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the assessment notice. She asked for more time to sort the issue. Later, when Menguito eventually filed a protest, he denied, through his witness 46 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

(Ma. Therese Nalda, CKCS employee), receiving the FAN; that the FAN was addressed to the wrong person because it was addressed to CKCSI not CKCS. He presented as evidence a photocopy of the articles of incorporation (AOI) of CKCSI. On the other hand, the Commissioner of Internal Revenue (CIR) presented proof of the due mailing of the FAN. It however was not able to prove that it issued a pre-assessment notice (PAN) or a post-assessment notice. Issue: Whether or not respondent was denied due process for failure of petitioner to validly serve respondent with the post-reporting and pre-assessment notices as required by law HELD: The assessment notices are valid. More importantly, Menguito and his wife are in estoppel because they already acknowledged the receipt of the FAN through the letter sent by Mrs. Menguito to the BIR. They cannot later on deny the receipt of the FAN. Worse, it should be Menguito who should be directly denying the receipt and not through an employee (Nalda) who was not even an employee of the spouses when the FAN was issued and received in 1997. It was only in 1998 that Nalda was employed by CKCS. Since Menguito did not legally deny the receipt of the FAN, the presumption that he actually received it still subsists. Further, based on the records, Menguito, in the stipulation of facts, acknowledged the receipt of the FAN. Anent the issue of the non-issuance of the PAN, the same is not vital to due process. The Supreme Court ruled that the strict requirement of proving that an assessment is sent and received by the taxpayer is only applicable to FANs and to PANs. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. A PAN or a post-assessment notice does not bear the gravity of a FAN. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. CASE SYLLABI: Same; Taxation; When the owner of one directs and controls the operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other, or when the properties or products of one are all sold to the other, which in turn immediately sells them to the public, as substantial evidence in support of the finding that the two are actually one juridical taxable personality.—The Court considers the presence of the following circumstances, to wit: when the owner of one directs and controls the operations of the other, and the payments effected or received by one are for the accounts due from or payable to the other; or when the properties or products of one are all sold to the other, which in turn immediately sells them to the public, as substantial evidence in support of the finding that the two are actually one juridical taxable personality.

47 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Taxation; Under Section 11 of Revenue Regulation No. 12-85, respondent’s failure to give written notice of change of address bound him to whatever communications were sent to the address appearing in the tax returns for the period involved in the investigation.—As to the address indicated on the assessment notices, respondent cannot question the same for it is the said address which appears in its percentage tax returns. While respondent claims that he had earlier notified petitioner of a change in his business address, no evidence of such written notice was presented. Under Section 11 of Revenue Regulation No. 12-85, respondent’s failure to give written notice of change of address bound him to whatever communications were sent to the address appearing in the tax returns for the period involved in the investigation. Same; It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices.—While the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually received by respondents in accordance with Section 228 of the National Internal Revenue Code which was in effect at the time of assessment. It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and received by the taxpayer. Same; Notices; A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice.—A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites the latter to an “informal” conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment notice was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA. Commissioner of Internal Revenue vs. Metro Star Superama Inc., 637 SCRA 633, G.R. No. 185371. December 8, 2010 Mendoza, J. Facts: In January 2001, a revenue officer was authorized to examine the books of accounts of Metro Star Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a formal assessment notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency taxes. Metro 48 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Star assailed the issuance of the formal assessment notice as it averred that due process was not observed when it was not issued a pre-assessment notice. Nevertheless, the Commissioner of Internal Revenue authorized the issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star. Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled in favor of Metro Star. Issue: Whether or not due process was observed in the issuance of the formal assessment notice against Metro Star. Held: No. It is true that there is a presumption that the tax assessment was duly issued. However, this presumption is disregarded if the taxpayer denies ever having received a tax assessment from the Bureau of Internal Revenue. In such cases, it is incumbent upon the BIR to prove by competent evidence that such notice was indeed received by the addressee-taxpayer. The onus probandi was shifted to the BIR to prove by contrary evidence that the Metro Star received the assessment in the due course of mail. In the case at bar, the CIR merely alleged that Metro Star received the pre-assessment notice in January 2002. The CIR could have simply presented the registry receipt or the certification from the postmaster that it mailed the pre-assessment notice, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the pre-assessment notice. The Supreme Court emphasized that the sending of a pre-assessment notice is 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. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. But even so, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. Add notes as empahasized by Atty. Lock: The case of CIR v. Menguito cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made. Otherwise, the assessment itself would be invalid. The regulation then, on the other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form. The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is wellsettled that a void assessment bears no fruit. CASE SYLLABI:

49 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Taxation; Court of Tax Appeals; Appeals; Court will not lightly set aside the conclusions reached by the Court of Tax Appeals (CTA) which by the very nature of its functions has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of authority.—The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions, has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of authority. In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, the Court wrote: Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such 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. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. Same; Assessment; If the taxpayer denies ever having received an assessment from the Bureau of Internal Revenue (BIR), it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee.—Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Same; Same; Section 228 of the Tax Code clearly requires that the taxpayer must be informed that he is liable for deficiency taxes through the sending of a Preliminary Assessment Notice (PAN).—Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations — that taxpayers should be able to present their case and adduce supporting evidence. Same; Same; The sending of a Preliminary Assessment Notice (PAN) to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which senders nugatory any assessment made by the tax authorities.—It is clear that the sending of a PAN to taxpayer to inform him of the assessment made 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. The use of the word “shall” in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both 50 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void. Same; Same; While taxes are the lifeblood of the government, the power to tax has its limits in spite of all its plenitude.—It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus, while “taxes are the lifeblood of the government,” the power to tax has its limits, in spite of all its plenitude. ADDITIONAL CASE UNDER DUE PROCESS: CIR vs. United Salvage and Towage (Phils.), Inc., G.R. No. 197515. July 5, 2014 Peralta, J. Facts: Respondent is engaged in the business of sub-contraction work for service contractors engaged in petroleum operations in the Philippines. In the course of respondent’s operations, petitions found respondent liable for deficiency income tax, withholding tax, and value-added tax (VAT) and documentary stamp tax (DST) for taxable years 1992, 1994, 1997, and 1998. Particularly, petitioner, through BIR officials, issued demand letters with attached assessment notices for withholding tax compensation (WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994, and 1998. On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and 1998 assessments, respectively. On February 21, 2003, USTP appeals by way of Petition for Review before the Court in action (which was thereafter raffled to the CTA-Special First Division) alleging, among others, that the Notices of Assessment are bereft of any facts, law, rules, and regulations or jurisprudence; thus, the assessment are void and the right of the government to assess and collect deficiency taxes from it has prescribed on account of the failure to issue a valid notice of assessment within the applicable period. As, regards the FANs for deficiency EWT for taxable years 1994 and 1998, the CTA-Special First Division held that the same do not show the law and the facts on which the assessments were based. Said assessments were, therefore, declared void for failure to comply with Section 228 of the NIRC. From the foregoing the only remaining valid assessment is for the taxable year 1992. Issue: Whether or not the EWT for the year 1994 issued by petitioner against respondent was without any factual and legal basis. Held: 51 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994 will show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was provided by petitioner. Only the resulting interest, surcharge, and penalty were anchored with legal basis. Petitioner should have at least attached a detailed notice of discrepancy or stated an explanation why the amount of P 48, 461.76 is collectible to respondent and how the same was arrived at. Any short-cuts to the prescribed content of the assessment or the process thereof should not be countenanced, in consonance with the ruling in CIR vs Enron Subic Power Corporation to wit: The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged “factual bases” in the advice, preliminary letter and “audit working papers” did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. It is clear that the assailed deficiency tax assessment for the EWT in 1994 disregarded the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of the RR 12-99 by not providing legal and factual bases of the assessment. Hence, the formal letter of demand and the notice of assessment issued relative thereto are void. Meralco Securities Corporation vs. Savellano, 117 SCRA 804, No. L-36181. 23, 1982 Teehankee, J. Facts: In 1967, Juan Maniago informed the Commissioner of Internal Revenue (CIR) that MERALCO Securities Corporation did not pay the proper taxes from 1962 to 1966. The CIR conducted an investigation and it found out that MERALCO did actually pay the proper amount of tax due within said period. The CIR then informed Maniago of its decision and also informed him that since no deficiency tax was collected, Maniago is not entitled to the informer’s reward then offered to individuals who report tax evaders. Maniago then filed a petition for mandamus against the CIR. After hearing, Judge Victorino Savellano granted Maniago’s petition and ordered the CIR to collect the deficiency taxes and further ordered the CIR to pay Maniago’s informer’s reward. Issue: Whether or not the CIR can be compelled by Mandamus to impose a deficiency tax assessment against MERALCO. Held: The power to assess or not to assess tax deficiency against a taxpayer is a discretionary function vested in the CIR. As such, the CIR may not be compelled by mandamus. Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the performance of a discretionary power. 52 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Especially so in this case where the CIR found that no tax deficiency is due. It should be noted further that regular courts have no jurisdiction over the subject matter of this case. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. CASE AYLLABI: Taxation; Jurisdiction; Matters involving failure or refusal of the Commissioner of Internal Revenue to make a tax assessment belongs to the jurisdiction of the Court of Tax Appeals, not the CFI.— Respondent judge has no jurisdiction to take cognizance of the case because the subject matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments previously cognizable by courts of first instance, and even those already pending in said courts. The question of whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other matters arising under the National Internal Revenue Code . . . ." Same; Same; Same.—Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or informers like the late Maniago, the most that he could have done was to appeal to the Court of Tax Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (30) days from receipt thereof pursuant to section 11 of Republic Act No. 1125. He failed to take such an appeal to the tax court. The ruling is clearly final and no longer subject to review by the courts. Same; Mandamus; Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not found by him to be proper.—Moreover, since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. As we held in the case of Commissioner of Immigration vs. Arca anent this principle, "the administration of immigration laws is the primary responsibility of the executive branch of the government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to extend the stay of an alien whose period to stay has expired. Same; Same; Administrative Law; Exercise of administrative discretion when not abused not subject to contrary judgment or control of the courts. "Discretion" of public officers defined.—Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go 53 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion' when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment." Maceda vs. Macaraig, Jr., 197 SCRA 771, G.R. No. 88291 , May 31, 1991 Gancayco, J. Facts: The National Power Corporation (NAPOCOR) was created by Commonwealth Act No. 120. In 1949, it was given tax exemption by Republic Act No. 358. In 1984, Presidential Decree No. 1931 was passed removing the tax exemption of NAPOCOR and other government owned and controlled corporations (GOCCs). There was a reservation, however, that the president or the Minister of Finance, upon recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify the exemption. In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of Executive Order 93 which again provided that upon FIRB recommendation it can again be restored. In the same year, FIRB resolved to restore the exemption. The same was approved by President Corazon Aquino through Executive Secretary Catalino Macaraig, Jr. acting as her alter ego. Ernesto Maceda assailed the FIRB resolution averring that the power granted to the FIRB is an undue delegation of legislative power. Maceda’s claim was strengthened by Opinion 77 issued by then DOJ Secretary Sedfrey Ordoñez. Macaraig however did not give credence to the opinion issued by the DOJ secretary. On March 30, 1989, acting on the request of respondent Finance Secretary for clearance to direct the Bureau of Internal Revenue and of Customs to proceed with the processing of claims for tax credits/refunds of the NPC, respondent Executive Secretary rendered his ruling ordering respondent Commissioner of Internal Revenue to deny as being null and void the pending claims for refund of respondent NPC with the Bureau of Internal Revenue covering the period from June 11, 1984 to June 17, 1987. Issue: Whether or not the CIR can be compelled to cancel the claims for credits/refunds of NPC Held: Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount to a usurpation of executive functions. Even in Meralco, the Court recognizes the situation when mandamus can control the discretion of the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with arbitrariness and grave abuse as to go beyond statutory authority. 54 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

CASE SYLLABI: Same; Same; Administrative Law; Exercise of administrative discretion when not abused not subject to contrary judgment or control of the courts. "Discretion" of public officers defined.—Such discretionary power vested in the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others. " 'Discretion' when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment." Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, No. L-19470. January 30, 1965 Reyes, J.B.L., J. Facts: That on May 15, 1951, Nava filed his income tax return for the year 1950, and, on the same date, he was assessed by respondent Commissioner (formerly Collector) of Internal Revenue in the sum of P4,952.00, based solely on said return. Nava paid one-half of the tax due, leaving a balance of P2,491.00. Subsequently, Nava offered his backpay certificate to pay said balance, but respondent refused the offer. On July 28, 1953, he requested the respondent to hold in abeyance the collection of said balance until the question of whether or not he was entitled to pay the same out of his backpay shall have been decided, but this was also rejected by the latter in a reply letter dated January 5, 1954. This rejection was followed by two more letters or notices demanding payment of the balance thereof, the last of which was dated February 22, 1955. On March 30, 1955, after investigation of petitioner’s 1950 income tax return, respondent Collector issued a deficiency income tax assessment notice (Exhibit “4”) requiring petitioner to pay not later than April 30, 1955 the sum of P9,124.50, that included the balance of P2,491.00, still unpaid under the original assessment, plus a 50% surcharge. Several notices of this revised assessment are alleged to have been issued to the taxpayer, but Nava claims to have learned of it for the first time on December 19, 1956, more than five years since the original tax return was filed, and testified to that effect in the court below, In a letter of January 10, 1957, Nava called attention to the fact that more than six years had elapsed, protested the assessment, and contended that it was a closed issue. Issue: Whether the enforcement of the tax assessment has prescribed Held: It has already prescribed. Since none of these requirements have been shown, there has been no valid and “effective issuance or release of said deficiency income tax assessment notice dated March 30, 1955 and of 55 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

the other demand letters or notices subsequent thereto, the latest of which was purportedly sent on August 25, 1956, and these dates cannot be reckoned with in computing the period of prescription within which a court action to collect the same may be brought. It being undisputed that an original assessment of Nava’s 1950 income tax return was made on May 15, 1951, and no valid and effective notice of the re-assessment having been made against the petitioner after that date (May 15, 1951), it is evident that the period under Section 331 of the Tax Code within which to make a re-assessment expired on May 15, 1956. Since the notice of said deficiency income tax was effectively made on December 19, 1956 at the earliest, the judicial action to collect any deficiency tax on Nava’s 1950 income tax return has already prescribed under Section 332 (c) of the Tax Code, it having been found by the Tax Appeals court that said return was not false or fraudulent. Notes: WHEN ASSESSMENT IS MADE An assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense. Having reached the conclusion that the action to collect said deficiency income tax has already prescribed, it is unnecessary to discuss the other issues raised by petitioner Nava in the instant appeal. CASE SYLLABUS: Same; Same; Same; Same; Mere notations on records of tax collector not sufficient proof of mailing.— Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment to a taxpayer, made without .the taxpayer’s intervention, notice, or control, and without adequate supporting evidence, cannot suffice to prove that such notice was sent and received; otherwise, the taxpayer would be at the mercy of the revenue officers, without adequate protection or defense. Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue, 498 SCRA 126, G.R. No. 157064. August 7, 2006 Chico-Nazario, J. Facts: On April 14, 1988, Barcelon, Roxas Securities, Inc. (BRSI, now called UBP Securities, Inc.) filed its annual income tax return. The last day for filing was April 15, 1988. BRSI was subjected to a tax audit and thereafter, the tax examiner determined that BRSI is liable for deficiency taxes amounting to P826k. On March 17, 1992, BRSI received a warrant of distraint and/or levy to satisfy said deficiency. BRSI then protested the said warrant as it averred that the same was issued without due process. BRSI contends that it never received a formal assessment notice (FAN) from the Commissioner of Internal Revenue (CIR); that since it never received a FAN, the government’s right to make an assessment has already prescribed at the time it received the warrant. 56 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

The CIR maintained that a FAN dated February 1, 1991 was mailed on February 6, 1991; that the assessment was made within the prescriptive period; that it was made within the prescriptive period because under the law, the CIR has three years from the last day of filing of returns to issue an assessment. To prove the alleged mailing of the FAN, the CIR produced BIR record books which contains a list of taxpayers, inclusive of the name of BRSI, their reference numbers, nature of tax, and the tax amount due. Issue: Whether or not respondent’s right to assess petitioner’s alleged deficiency income tax is barred by prescription Held: No assessment was made. It is true that there is a presumption that when an assessment was sent via registered mail, the same is received by the taxpayer in the regular course of mail. However, this presumption ceases when the taxpayer denies the receipt of an assessment. It now becomes incumbent upon the CIR to prove that the taxpayer actually receives the assessment by showing (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. These can be further proved by presenting the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer; if this cannot be done, at least the CIR should have submitted a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts. In the case at bar, the BIR record presented by the CIR is self-serving. It is not competent proof and does not meet the standard needed in proving the receipt of mail matters such as an assessment sent via registered mail. As a rule, an assessment is considered made when it is sent within the prescriptive period even if it is received by the taxpayer after the lapse of such period. This rule makes it the more imperative that the release, mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense. CASE SYLLABI: Taxation; Assessment Notices; An assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the Commissioner of Internal Revenue to the taxpayer within said period—receipt thereof by the taxpayer within the prescriptive period is not necessary but this rule does not dispense with the requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice.—Under Section 203 of the National Internal Revenue Code (NIRC), respondent had three (3) years from the last day for the filing of the return to send an assessment notice to petitioner. In the case of Collector of Internal Revenue v. Bautista, 105 Phil. 1326 (1959), this Court held that an assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the taxpayer within the prescriptive period is not necessary. At this point, it should be clarified that the rule does not dispense with the 57 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice which was timely released, mailed and sent. Same; Presumptions; While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee.—In Protector’s Services, Inc. v. Court of Appeals, 330 SCRA 404 (2000), this Court ruled that when a mail matter is sent by registered mail, there exists a presumption, set forth under Section 3(v), Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed with postage prepaid; and (b) that it was mailed. While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. Assessment Notices; While an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration, this rule makes it more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved—mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.— Independent evidence, such as the registry receipt of the assessment notice, or a certification from the Bureau of Posts, could have easily been obtained. Yet respondent failed to present such evidence. In the case of Nava v. Commissioner of Internal Revenue, 13 SCRA 104 (1965), this Court stressed on the importance of proving the release, mailing or sending of the notice. While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

58 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

PROTESTING AN ASSESSMENT/ REMEDY BEFORE PAYMENT A. HOW TO PROTESTS OR DISPUTE AN ASSESSMENT ADMINISTRATIVELY Marcos II vs. Court of Appeals, 273 SCRA 47, G.R. No. 120880. June 5, 1997 Torres, JR., J. Facts: Following the death of former President Marcos in 1989, a Special Tax Audit Team was created on June 27, 1990 to conduct investigations and examinations of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a written notice of death of the decedent estate tax return and income tax returns for the years 1982 to 1986, all in violation of the Tax Code. Criminal charges were field against Mrs. Marcos for violation of Secs. 82, 83 and 84, NIRC. The CIR thereby caused the preparation of the estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments and the corresponding deficiency income tax assessments. Copies of deficiency estate and income tax assessments were served personally and constructively on August 26, 1991 and September 12, 1991 upon Mrs. Marcos. Likewise, copies of the deficiency income tax assessments against petitioner Marcos were personally and constructively served. Formal assessment notices were served upon Mrs. Marcos on October 20, 1992. The deficiency tax assessments were not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by Marcoses. Notices of sale at public auction were duly posted at the Tacloban City Hall and the public auction for the sale of 11 parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government. Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul and set aside the notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA dismissed the petition ruling that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by summary remedy of levying upon the real property. Issue: Whether or not the failure to protest to the assessment within the time prescribe by law makes deficiency tax assessment final, executory, and thus, demandable Held:

59 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President Marcos. The Notice of Levy upon real property were issued within the prescriptive period and in accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy pursuant to Sec. 205 of the Tax Code. CASE SYLLABI: Same; Estates Taxes; The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal, as under Section 223 of the NIRC, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax.—The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner’s cause, as under the above-cited provision, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner’s default as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes. Same; Same; Ill-Gotten Wealth; The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.—Petitioner further argues that “the numerous pending court cases questioning the late president’s ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents’ assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive.” He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent’s estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. Same; Same; Actions; Certiorari; Objections to assessments should be raised by means of the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, and not via a Petition for Certiorari, under the pretext of grave abuse of discretion.— Moreover, these objections to the assessments should have been raised, considering the ample remedies 60 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society. The subject tax assessments having become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government. Due Process; Equity; Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of the government; He who comes to court must come with clean hands, otherwise he not only taints his name, but ridicules the very structure of established authority.— The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We cannot therefore, countenance petitioner’s insistence that he was denied due process. Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority. Prulife of UK Insurance Corporation vs Commissioner of Internal Revenue, CTA Case No. 6774, September 11, 2007 Castañeda, J. Facts: Herein petitioner is a successor-in-interest of Allstate Life Insurance Company of the PH Inc. (Allstate), a duly registered corporation. Respondent issued Assessment/Demand Notices addressed to Allstate finding to be liable of the amount P 5, 756,316.21 which serves as the premium and documentary stamp taxes and compromise penalties. On 21 February 2003, petitioner seasonably protested the Assessment/Demand Notices and attached documents in support of its protests. Petitioner wrote a letter to the BIR District officer relative to the re-investigation of the case. The re-investigation has not been terminated as of 19 September 2003. Issue: Whether or not the petitioner failed to submit relevant supporting documents relative to the premium tax within 60 days from the filing of the protest on 21 February 2003, and if som whether such failure is in violation of Section 228 of the 1997 Tax Code so as to render the Assessment Notices and demand letters all dated 24 January 2003, final, executor and demandable. Held: Upon reviewing the assessment notices for the deficiency premium tax and documentary stamp tax, the court finds the same to be factual and legally supported. The assessment/demand notices showed detailed 61 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

computations and applicable provisions of the NIRC arriving at the amount of the deficiency taxes. The figures used in the computation The same, however, cannot be said about the compromise penalties imposed by respondent. The Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter which is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. Absent any showing that petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the compromise penalty without the conformity of the taxpayer is illegal and unauthorized. Considering that respondent had not shown that petitioner conformed to the imposition of the compromise penalty, the compromise penalty is deleted. Notwithstanding petitioner's lack of relevant documents in support of its protest insofar as the premium tax assessment is concerned, that assessment did not attain finality as respondent argued. The only effect of petitioner's lack of supporting documents submitted is that it lost its chance of further contesting the premium tax assessment. "xxx [T]he finality of the assessment, as worded in the provision of law, simply means that where the taxpayer decides to forego with its opportunity to present the documents in support of its claim within sixty {60) days from the filing of its protest, it merely lost its chance to further contest the assessment. Effectively, its non-compliance with the submission of the necessary documents would either mean that the petitioner no longer wishes to further submit any document for the reason that its protest letter filed was more than enough to support its claim, or that the petitioner failed to comply thus it can no longer give justification with regard to its objections as to the correctness of the assessment notices. Nonetheless, the necessity of the submission of the supporting documents lies on the petitioner. It cannot be left to the discretion of the respondent for in doing so would leave the petitioner's case at the mercy of the whims of the respondent. In other words, it is for the petitioner to decide whether or not supporting documents are necessary to support its protest, for it is in the best position, being the affected party to the assessment, to determine which documents are necessary and essential to garner a favorable decision from the respondent." (Emphasis supplied) ABN-AMRO Savings Bank Corp. vs Commissioner of Internal Revenue, CTA Case Np. 7089, September 10, 2008 Acosta, P.J. Facts: Petitioner is a domestic corporation duly registered with SEC and duly authorized by the BSP to engage in commercial banking. On 30 December 2003, respondent sent to petitioner a FAN, assessing petitioner deficiency documentary stamp tax for the taxable year 1999 in the amount of P167, 886,906.79, inclusive of penalties. 62 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Respondent claims that petitioner failed to pay the DST due on reverse repurchase agreements with the BSP and that the said agreements are considered as “deposit substitutes” hence taxable pursuant to then Sec. 180 of 1997 Tax Code. On January 28, 2004, Petitioner filed its protest letter pursuant to Sec. 228 of the 1997 Tax Code. Due to the alleged failure of the respondent to act on the said protest, petitioner filed on 25 October 2004 a petition for review praying for the cancellation of the aforesaid deficiency documentary stamp tax assessment. Issue: Whether or not petitioner is liable to pay the deficiency documentary stamp tax assessment for taxable year 1999. Held: The CTA dismissed the case for lack of jurisdiction. The Court of Tax Appeals is a court of special jurisdiction and as such it can take cognizance only of such matters as are clearly within its jurisdiction. Its jurisdiction may only be invoked in the particular instances enumerated in Section 7 of Republic Act No. 1125 as amended by Section 7 of Republic Act No. 9282. The Court's exclusive appellate jurisdiction to review by appeal inaction by the Commissioner of Internal Revenue in cases involving disputed assessment is conferred under Section 7(a) (2) of Republic Act No. 9282. As an added requirement, Section 11 of the same law provides that "any party adversely affected by inaction of the Commissioner of Internal Revenue may appeal with the CTA within thirty (30) days after the expiration of the period fixed by law." The Supreme Court emphasized that the requirement to file a Petition for Review with the Court of Tax Appeals within 30 days is jurisdictional and failure to comply therewith would bar the appeal and deprive the said Court of its jurisdiction to entertain and determine the correctness of the assessment. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. The case at bar reveals that the petitioner filed its letter protest on January 28, 2004, therefore, it has sixty (60) days, until March 28, 2004, within which to submit the relevant supporting documents. Records of the case, however, is bereft of proof that petitioner had submitted the relevant documents on or before March 28, 2004, 
therefore, applying the pronouncement in the Oceanic case, the 180-day period shall be reckoned from the filing of the protest on January 28, 2004, which ends on July 26, 2004. In the RCBC case, the Supreme Court held that in case the Commissioner failed to act on the disputed assessment within the 180-day period, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other. Commission of Internal Revenue vs. First Express Pawnshop Company, Inc., 589 SCRA 253, G.R. Nos. 172045-46, June 16, 2009 Carpio, J. Facts: 63 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA.

Issue: Has Respondent’s right to dispute the assessment in the CTA prescribed? Held: NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date. CASE SYLLABI: Same; Same; Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the Court of Tax Appeals (CTA) within 30 days from the lapse of the 180-day period.—Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180day period. Respondent, having submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioner’s reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of the protest as the supporting documents were simultaneously filed, respondent filed a petition before the CTA. B. COMMISSIONER OF INTERNAL REVENUE RENDERS A DECISION ON THE DISPUTES ASSESSMENT Oceanic Wireless Network, Inc. vs. Commissioner of Internal Revenue, 477 SCRA 205, G.R. No. 148380. December 9, 2005. Azcuna, J. Facts: 64 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against disputed tax deficiency assessments. On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioner’s request for reinvestigation in a letter dated January 24, 1991, Said letter likewise requested petitioner to pay the total amount of P8,644,998.71 within ten (10) days from receipt thereof, otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office for the issuance of a warrant of distraint and levy without further notice. Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. These were served on petitioner on October 10, 1991 and October 17, 1991, respectively. On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668. The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner. Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself. With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of Appeals .The Court of Appeals denied the petition in a decision dated October 31, 2000. Issue: Whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and subject to an appeal to the Court of Tax Appeals. Held:

65 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioner’s request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the “issuance of a warrant of distraint and levy to enforce its collection without further notice.” In addition, the letter contained a notation indicating that petitioner’s request for reconsideration had been denied for lack of supporting documents. The demand letter indeed attained finality despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the BIR Commissioner. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. . . .” Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in this case. CASE SYLLABI: Taxation; A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.—A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. Same; The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment.—We laid down the rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment, thus: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. C. REMEDY OF THE TAXPAYER Lascona Land Co. Inc. vs. Commission of Internal Revenue, 667 SCRA 455, G.R. No. 171251. March 5, 2012 Peralta, J. Facts: On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 000004793-407against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of P753,266.56.

66 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City, in his Letter[ dated March 3, 1999. Said letter denied the protest for the reason that the case was not appealed to the CTA after the lapsed of 180 days from day of filing the said protests. On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory. The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC) resulted to the finality of the assessment. On January 4, 2000, the CTA, in its Decision, nullified the subject assessment. On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit. The CIR filed an appeal before the CA. The Court of Appeals granted the CIR's petition and set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final, executory and demandable. Issue: Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC. Held: The Court decided in favor of Lascona. In RCBC v. CIR, the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment. Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of

67 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

the Letter dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of the copy of the decision. Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the protested assessment. It is imperative that the taxpayers are informed of its action in order that the taxpayer should then at least be able to take recourse to the tax court at the opportune time. CASE SYLLABI: Taxation; Taxpayer’s Remedies; Remedies of a taxpayer in case the Commissioner of Internal Revenue fails to act on the disputed assessment within the 180-day period from date of submission of documents.—In RCBC v. CIR, 522 SCRA 144 (2007), the Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. Same; Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.—Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Thus, even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, 522 SCRA 144, G.R. No. 168498. April 24, 2007 Ynares-Santiago, J. Facts: For resolution is petitioner’s Motion for Reconsideration of on the Decision dated June 16, 2006 affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief from Judgment and Motion for Reconsideration, respectively. Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable. Petitioner maintains that its counsel’s neglect in not filing the petition for review within the reglementary period was excusable. It alleges that the counsel’s secretary misplaced the Resolution hence the counsel was not aware of its issuance and that it had become final and executory. 68 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Issue: Whether or not the inadvertence of the petitioner’s counsel is excusable and thus, the petition to cancel the assessment against the petitioner should be given due course. Held: Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby putting no end to litigation. If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence in handling the case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution. Petitioner’s counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been. Such kind of negligence cannot support petitioner’s claim for relief from judgment. In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory. Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner cannot successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction. CASE SYLLABI: Same; Same; Same; The jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue.—It is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and 69 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. Same; Same; Same; Tax Remedies; In case the Commissioner fails to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.—In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other. Same; Same; Same; Same; After availing the first option, i.e., filing a petition for review which was however filed out of time, a taxpayer cannot successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction.— Based on the foregoing, petitioner cannot now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner cannot successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction. Commissioner of Internal Revenue vs. Concepcion, 22 SCRA 1058, No. L-23912. March 15, 1968 Fernando, J. Facts: In CTA Case No. 669, respondent Jose Concepcion, as ancillary administrator of the estate of Mary H. MitchellRoberts, and respondent Jack F. Mitchell-Roberts, husband of the deceased, sought a refund of the sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses "as joint tenants with full rights of survivorship and not as tenants in common." The above assessment was made by petitioner Commissioner of Internal Revenue on the ground that there was a transmission to the husband of one-half share thereof upon the death of the wife, the above shares being conjugal property. Respondents maintained on the other hand that there was no transmission of property since under English law, ownership of all property acquired during the marriage vests in the husband. Moreover, the shares of stock were issued to the spouses "as joint tenants with full rights of survivorship and not as tenants in common." Not being agreeable to the theory entertained by petitioner Commissioner of Internal Revenue, respondents, in a previous case, CTA Case No. 168, appealed such a decision under Republic Act No. 1125. The Court of Tax Appeals, however, 70 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of 30 days. That decision rendered on April 29, 1957, became final. Issue: Whether a taxpayer who had lost his right to dispute the validity of an assessment, the period for appealing to the Court of Tax Appeals having expired, as found by such Court in a previous case in a decision now final, and who thereafter paid under protest could then, relying on Section 306 of the National Internal Revenue Code sue for recovery on the ground of its illegality? Held: No. In Republic v. Lim Tian Teng Sons & Co., Inc.,6 the above doctrine was reaffirmed categorically in this language: "Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable, And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on the merits. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense." Once the matter has reached the stage of finality in view of the failure to appeal, it logically follows, in the appropriate language of Justice Makalintal, in Morales v. Collector of Internal Revenue, that it "could no longer be reopened through the expedient of an appeal from the denial of petitioner's request for cancellation of the warrant of distraint and levy." In the same way then that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment, which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken. Clearly then, the liability of respondent Concepcion as an ancillary administrator of the estate of the deceased wife and of respondent Mitchell-Roberts as the husband for the amount of P1, 181.33 as estate tax and P2,616.10 as inheritance tax was beyond question. Having paid the same, respondents are clearly devoid of any legal right to sue for recovery. CASE SYLLABUS: Taxation; Recovery of tax illegally collected, denied where taxpayer had failed to appeal in due time.— Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the Court of Tax Appeals was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time. Philippine Journalists, Inc. vs. Commissioner of Internal Revenue, 447 SCRA 214, G.R. No. 162852. December 16, 2004 71 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

---------------SUPRA--------------Under the case of Phil. Journalist, Inc. vs. CIR, wherein the taxpayer failed to file protest and appeal to CTA on time, since the waiver is held to be invalid, therefore the assessment is invalid; hence, further the rule that the defenses are waived which include the validity of the assessment and prescription will not apply. Here, you can still raise the defense of prescription. Fishwealth Canning Corporation vs. Commissioner of Internal Revenue, 610 SCRA 524, G.R. No. 179343. January 21, 2010 Carpio- Morales, J. Facts: The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000, ordered the examination of the internal revenue taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The investigation disclosed that petitioner was liable in the amount of P2,395,826.88 representing income tax, value added tax (VAT), withholding tax deficiencies and other miscellaneous deficiencies. Petitioner eventually settled these obligations onAugust 30, 2000. On August 25, 2000, respondent reinvestigated petitioner’s books of accounts and other records of internal revenue taxes covering the same period for the purpose of which it issued a subpoena duces tecum requiring petitioner to submit its records and books of accounts. Petitioner requested the cancellation of the subpoena on the ground that the same set of documents had previously been examined. Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year 1999, which assessment petitioner contested by letter of September 23, 2003. Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner received on August 4, 2005, denying its letter of protest, and requesting the immediate payment thereof, “inclusive of penalties incident to delinquency.” Respondent added that if petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA) “within thirty (30) days from date of receipt hereof, otherwise our said deficiency income and value-added taxes assessments shall become final, executory, and demandable.” Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration dated August 31, 2005. Petitioner filed a Motion for Reconsideration which was denied. The Resolution denying its motion for reconsideration was received by petitioner on October 31, 2006. On November 21, 2006, petitioner filed a petition for review before the CTA En Banc which, by Decision of July 5, 2007, held that the petition before the First Division, as well as that before it, was filed out of time. Issue: Whether or not CTA En Banc erred in holding that the petition it filed before the CTA First Division as well as that filed before it (CTA En Banc) was filed out of time. 72 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Held: The Court dismissed the petition. In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to the CTA. Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. CASE SYLLABUS: Taxation; Administrative Protest; Motion for Reconsideration; A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the Court of Tax Appeals (CTA).—In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to the CTA. Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. Allied Banking Corporation vs. Commissioner of Internal Revenue, 611 SCRA 692, G.R. No. 175097. February 5, 2010 Del Castillo, J. The key to effective communication is clarity. The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate clearly and unequivocally to the taxpayer whether an action constitutes a final determination on a disputed assessment. Words must be carefully chosen in order to avoid any confusion that could adversely affect the rights and interest of the taxpayer. Facts: On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004. On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner. Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004. 73 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to its First Division and docketed as CTA Case No. 7062. On December 7, 2004, respondent CIR filed his Answer. On July 28, 2005, he filed a Motion to Dismiss on the ground that petitioner failed to file an administrative protest on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005. On October 12, 2005, the First Division of the CTA rendered a Resolution granting respondent’s Motion to Dismiss. On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. The case was docketed as CTA EB No. 167. Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition for Review ]as well as petitioner’s Motion for Reconsideration. The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in challenging the legality or validity of an assessment. Issue: Whether the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under RA 9282. Held: Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review by appeal decisions of the CIR in cases involving disputed assessments. The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction. The word “decisions” in the above quoted provision of RA 9282 has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments. Corollary thereto, Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for protesting an assessment. In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper. However, In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is 74 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. The Formal Letter of Demand with Assessment Notices which was not administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words used, specifically the words “final decision” and “appeal”, taken together led 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. CASE SYLLABI: Taxation; Assessment; Tax Protest; Pursuant to Section 228 of the National Internal Revenue Code (NIRC), the proper recourse of petitioners was to dispute the assessment by filing an administrative protest within 30 days from receipt thereof.—In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper. Same; Same; Same; Instant case is an exception to the rule on exhaustion of administrative remedies.— A careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned. Same; Same; Same; Court have time and again reminded the Commissioner of Internal Revenue (CIR) to indicate in a clear and unequivocal language whether his action on a disputed assessment constitute his final determination thereon in order for the taxpayer concerned to determined when his or her right to appeal to tax count accrues.—In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. Same; Same; Same; It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days and not the Preliminary Assessment Notice (PAN).—We are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99. It is the Formal Letter of Demand and Assessment Notice that must be administratively protested or disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese Girl’s School v. Collector of Internal Revenue, 104 Phil. 314 (1958) that the counting of the 30 days within which to institute an appeal in the CTA 75 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the date the assessment was issued. Republic vs. Lim Tian Teng Sons & Co., Inc., 16 SCRA 584, No. L-21731. March 31, 1966 Bengzon J.P., J. Facts: Lim Tian Teng Sons & Co., a domestic corporation with principal office in Cebu City, engaged in 1951 and 1952, among others, in the exportation of copra. The copra was weighted before shipment in the port of departure and upon arrival in the port of destination. The weight before shipment was called copra outturn. To allow for loss in weight due to shrinkage said exporter collected only 95% of the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final liquidation and adjustment. On March 30, 1953 Lim Tian Teng Sons & Co. filed its income tax return for 1952 based on accrued income and expenses. Its return showed a loss of P55, 109.98. It took up as part of the beginning inventory for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already partially collected, as part of its outstanding stock as of December 31, 1951. In the audit and examination of taxpayer’s 1952 income tax return, the CIR eliminated the P95,500.00 outturn from the beginning inventory for 1952 and considered it as accrued income for 1951. This increased taxpayer’s 1952 net taxable income. Accordingly, in a letter dated January 16, 1957 received by Lim Tian. On January 30, 1957, the CIR assessed a deficiency income tax of P10,074.00 and 50% surcharge them amounting to 5,037.00 and demanded payment thereof not later than February 15, 1954. On January 31, 1957 Lim Tian requested for reinvestigation of its 1952 income tax liability. The CIR did not reply; instead he referred the case to the solicitor general for collection by judicial action. On September 20, 1957 the solicitor general demanded from Lim Tian the payment of P15,111.50 within five days, stating that otherwise judicial action would be instituted without further notice. Thereupon, the Deputy Collector of Internal Revenue, by his letter dated October 15, 1957 informed the taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a waiver of the statute of limitations. As him Tian failed to file a waiver of the statute of limitations, the collector of I.R. instituted 8 months after, or on September 2, 1958 an action in the CFI for the collection of deficiency income tax. The CFI rendered decision ordering the defendant to pay the plaintiff as the assessment is valid. Both parties appealed, raising only question of law. Issue: Whether or not the Commissioner is required to rule first on the taxpayer’s request for reinvestigation before he can go to court for collecting the tax assessed. Held: Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, 76 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the government chiefly relies to obtain the means the carry on its operations, and it is of the utmost importance that the modes adopted to enforce collection of taxes levied should be summary and interfered with as little as possible. No government could exist if all litigants were permitted to delay the collection of its taxes. When the commissioner did not reply to the tax payer’s request for reinvestigation/reconsideration and instead referred the case to the solicitor general for judicial collection, this was indicative of his decision against reinvestigation. CASE SYLLABI: Same; Decision on request for reinvestigation is not a condition precedent to the filing of action for collection of tax already assessed.—Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer’s request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. Same; Remedy of taxpayer who desires to contest assessment before and after the creation of Tax Court.—Before the creation of the Court of Tax Appeals the remedy of a taxpayer who desired to contest an assessment issued by the Collector of Internal Revenue was to pay the tax and bring an action in the ordinary courts for its recovery pursuant to Section 306 of the Tax Code. (Sarasola vs. Trinidad, 40 Phil. 252; Alhambra Cigar & Cigarette Manufacturing Co. vs. Collector of Internal Revenue, L-12026, May 29, 1959). Collection or payment of the tax was not made to wait until after the Collector of Internal Revenue has resolved all issues raised by the taxpayer against an assessment. Republic Act 1125 creating the Court of Tax Appeals allows the taxpayer to dispute the correctness or legality of an assessment both in the purely administrative level and in said court, but it does not stop or prohibit the Collector of Internal Revenue from collecting the tax through any of the means provided for in Section 316 of the Tax Code, except when enjoined by said Court of Tax Appeals. Advertising Associates, Inc. vs. Court of Appeals, 133 SCRA 765, No. L-59758. December 26, 1984 Aquino, J. Facts: This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3% contractor's percentage tax on its rental income from the lease of neon signs and billboards imposed by section 191 of the Tax Code (as amended by Republic Acts Nos. 1612 and 6110) on business agents and independent contractors. Parenthetically, it may be noted that Presidential Decree No. 69, effective November 24, 1972, added paragraph 17 to section 191 by taxing lessors of personal property. 77 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its primary purpose is to engage in general advertising business. Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July 12 and September 16,1974. The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974 . Inexplicably, for about four years there was no movement in the case. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes. The warrants were served upon the taxpayer on April 18 and May 25, 1978. More than a year later, Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint. Such letter constitutes the decision on the matter. That if the taxpayer does not agree, he may appeal to the CTA within 30 days from the receipt of the letter. Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court. Issue: Whether or not the petition for review was filed on time. Held: The Court held that the petition for review was filed on time. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's Association and St. Stephen's Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. CASE SYLLABI: Taxation; Appeals; The reviewable decision of the B.I.R. Commissioner is that letter where he clearly directed the taxpayer to appeal to the Tax Court, and not the warrants of distraint and levy.—No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner’s final decision within the meaning of section 7 of Republic Act No. 1125. The 78 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen’s Association and St. Stephen’s Chinese Girl’s School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. Same; Same; Same.—The directive is in consonance with this Court’s dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action (Surigao Electric Co., Inc. vs. Court of Tax Appeals, L25289, June 28, 1974, 57 SCRA 523). Commissioner of lnternal Revenue vs. Algue, Inc., 158 SCRA 9, No. L-28896. February 17, 1988 Cruz, J. Facts: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. 5Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. Issue: Whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law. Held: The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after 79 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served. As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. CASE SYLLABI: Same; Appeal; Appeal from a decision of the Commissioner of Internal Revenue with the Court of Tax Appeals is 30 days from receipt thereof.—The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. Same; Warrant of distraint and levy; Rule that the warrant of distraint and levy is proof of the finality of the assessment; Exception is where there is a letter of protest after receipt of notice of assessment.—It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and "renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served. Same; Same; Same; Same; Protest filed, not pro forma, and was based on strong legal considerations; Case at bar.—As the Court of Tax Appeals correctly noted, the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. Yabes vs. Flojo, 115 SCRA 278, No. L-46954. July 20, 1982 Concepcion, JR., J. Facts:

80 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

In May 1962, Doroteo Yabes received an assessment notice from the Commissioner of Internal Revenue (CIR) demanding him to pay P15k in taxes. Doroteo filed a protest within the prescribed period. The protest was initially denied in September 1962 however, a few days after the denial, the CIR advised Doroteo to execute a waiver of the statute of limitations (SOL) and to allow the CIR to hold in abeyance the ruling of his case until a similar case (Cirilo Constantino Case) which involves exactly the same issue would be decided by the Court of Tax Appeals (CTA). Doroteo complied but while waiting for the CTA to decide that case, Doroteo died. The CTA finally decided the Constantino Case but the same was appealed to the Supreme Court (SC). And so the CIR asked the successors-in-interest of Doroteo, Elpidio and Severino Yabes, to execute another waiver while waiting for the SC decision. The waiver was duly executed and it extended the period of prescription within which the CIR may collect the assessed tax to December 31, 1970. The Constantino Case was decided by the SC in February 1970. On December 4, 1970, before the lapse of the extended period (12/31/70), the CIR filed a tax collection suit against the estate of Doroteo Yabes with the Court of First Instance (CFI) of Cagayan. Elpidio et al received the summons on January 20, 1971. Elpidio et al then filed an appeal with the CTA on February 12, 1971. At the same time, Elpidio et al filed a motion to dismiss (MTD) the collection suit with CFI Cagayan on the ground that the filing of the collection suit is a denial by the CIR of the protest; that such denial is appealable to the CTA; that CFI Cagayan therefore has no jurisdiction over the case. However, Judge Napoleon Flojo of CFI Cagayan denied the MTD. Issue: Whether or not respondent Court of First Instance can lawfully acquire jurisdiction over a contested assessment made by the Commissioner of Internal Revenue against the deceased taxpayer Doroteo Yabes, which has not yet become final, executory and incontestable, and which assessment is being contested by petitioners in the Court of Tax Appeals, Case No. 2216, and still pending consideration. Held: The jurisdiction of the CFI is wanting in this case. The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code. For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the complaint filed in Civil Case No. II-7. Absent jurisdiction over the case, it would be improper for the Court 81 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

of First Instance of Cagayan to take cognizance over the case and act upon interlocutory matters of the case, as well. The dismissal of the complaint, however, is not sufficient. The ends of justice would best be served by considering the complaint filed in Civil Case No. II-7 not only as a final notice of assessment but also as a counterclaim in CTA Case No. 2216, in order to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy between the parties. After all, the two cases involve the same parties, the same subject matter, and the same issue, which is the liability of the heirs of the deceased Doroteo Yabes for commercial broker's fixed and percentage taxes due from the said deceased. AQUINO, J., concurring: In 1970, the Government sued the heirs of Doroteo Yabes (he died in 1963), namely, his widow, Nicolasa, and his three children named, Elpidio, Severina and Julita, for the recovery of the sum of P15,976.82 as commercial broker's fixed and percentage taxes for the period from 1956 to 1960 (Civil Case No. II-7 of the CFI of Cagayan). The suit, which was brought to stop the running of the prescriptive period, was filed on the theory that the tax assessment was uncontested. If contested, it should have been filed in the Court of Tax Appeals. Ordinarily, such an action is not maintainable against the heirs because the remedy for asserting money claims against the deceased is to file a claim in the administration proceeding for the settlement of his estate, as indicated in Rule 86 of the Rules of Court. However, the estate of the deceased is not under administration and his heirs had settled it extrajudicially. Hence, Solicitor General Felix Q. Antonio and his assistants deemed it proper to sue directly the decedent's heirs. The taxes in question were assessed during the taxpayer's lifetime. The prescriptive period was extended and the enforcement of the taxes was held in abeyance by the Commissioner of Internal Revenue upon agreement with the Yabes heirs to await the outcome of a test case, the Constantino case, regarding the same kind of tax liability which was pending in this Court. After the Constantino case was decided in the Government's favor (Commissioner of Internal Revenue vs. Constantino, L-25926, February 27, 1970, 31 SCRA 779), the State filed the aforementioned collection case, Civil Case No. II-7. The Yabes heirs considered the filing of the collection suit as the Commissioner's decision which they could contest in the Tax Court (a view which was later sustained by the Tax Court). Hence, on February 12, 1971, the Yabes heirs filed a petition for review with the Tax Court. They contended that Doroteo Yabes was not a commercial broker. They asked for the cancellation of the tax assessment (CTA Case No. 2216). Respondent judge erred in setting Civil Case No. II-7 for trial. In my opinion, Civil Case No. II-7 should be transferred to the Tax Court. No rule allows the transfer to the Tax Court of a tax case pending in the Court of First Instance and vice-versa. But under the peculiar situation in this case, the pragmatic, expedient and sensible thing to do is to transfer Civil Case No. II-7 to the Tax Court and to consider it as a counterclaim to CTA Case No. 2216. The two cases involve the same parties, the same subject-matter and the same issue: the liability of the Yabes heirs for the commercial broker's fixed and percentage taxes allegedly due from Doroteo Yabes. 82 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

That may be a novel and unprecedented solution but we have to be practical and should avoid duplicity of suits. Since it now appears that the Government erroneously assumed in filing Civil Case No. II-7 in the Court of First Instance that the tax assessment is uncontested when actually it is contested, then that case should be consolidated with the case in the Tax Court which is the proper forum for deciding contested tax assessments. DE CASTRO, J., dissenting: I vote to dismiss the complaint filed in the CFI, as well or to set aside all the questioned orders of said Court.

CASE SYLLABI: Taxation; Action; The filing by the Bureau of Internal Revenue of an action for collection of deficiency taxes allegedly due from the taxpayer can be considered as the final decision or assessment of the Commissioner of Internal Revenue.—There is no reason for Us to disagree from or reverse the Court of Tax Appeals’ conclusion that under the circumstances of this case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the respondent Court of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals in CTA Case No. 2216 was filed on time. Same; Same; Jurisdiction; The Court of First Instance can acquire jurisdiction over a claim for collection of deficiency taxes only after the assessment made by the Commissioner of Internal Revenue has become final and unappealable; not where there is still and pending Court of Tax Appeals case.— The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals had exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code. Same; Jurisdiction; Where a court has no jurisdiction dismissal of action, not a mere suspension of proceedings, must be made.—The recommendation of the Solicitor General that the lower court hold in abeyance any action or proceeding in Civil Case No. II-7 until after the Court of Tax Appeals shall have finally decided CTA Case No. 2216, is untenable since the lower court has no jurisdiction over the case. Jurisdiction over an action includes jurisdiction over all interlocutory matters incidental to the case and deemed necessary to preserve the subject matter of the suit or protect interests of the parties. Absent jurisdiction over the case, it would be improper for the Court of First Instance of Cagayan to take cognizance over the case and act upon interlocutory matters of the case, as well. 83 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Commissioner of Internal Revenue vs. Union Shipping Corp., 185 SCRA 547(1990), G.R. No. 66160. May 21, 1990 Paras, J. Facts: The CIR assessed Yee Fong Hong, Ltd the total sum of P583, 155.22, as deficiency income taxes due for the years 1971 and 1972. Respondent Yee protested the assessment. November 25, 1976 – the CIR, without ruling on the protest by Yee, issued a Warrant of Distraint and Levy, which was served on private respondent's counsel. November 27, 1976 – Yee reiterated its request for the reinvestigation of the assessment. However the CIR, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before the CFI. January 10, 1976 – Respondent filed its Petition for Review of the petitioner's assessment of its deficiency income taxes in the Court of Tax Appeals. According to the petitioner, the Court of Tax Appeals has no jurisdiction over this case. It claims that the warrant of distraint and levy is proof of the finality of an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment. Among others, petitioner contends that the warrant was issued after the respondent filed a request for reconsideration of subject assessment, thus constituting petitioner's final decision in the disputed assessments. Therefore, the period to appeal to the CTA commenced from the receipt of the warrant on November 25, 1976 so that on January 10, 1976 when respondent corporation sought redress, it has long become final and executory. Issue: Whether or not the CTA has jurisdiction over the case Held. The CTA has jurisdiction over the case. There is no dispute that petitioner did not rule on private respondent's motion for reconsideration but left private respondent in the dark as to which action of the Commissioner is the decision appealable to the CTA. Had he categorically stated that he denies private respondent's motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Under the circumstances, the CIR, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. CASE SYLLABI: Taxation; Appeal; The Commissioner of Internal Revenue must state whether his action on questioned assessment is final. It cannot be implied from mere issuance of warrant of distraint and levy.—There appears to be no dispute that petitioner did not rule on private respondent’s motion for reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to which action of the 84 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies private respondent’s motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. Same; Same; Same.—Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. Same; Same; Filing of collection suit may be considered a final denial of request for reconsideration of tax assessment.—The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. Commissioner of Internal Revenue vs. Isabela Cultural Corporation, 361 SCRA 71, G.R. No. 135210. July 11, 2001 Panganiban, J. Facts: In an investigation conducted in the 1986 books of account of Isabela, it preliminarily incurred a tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by Isabela’s counsel, the said preliminary assessment was reduced to the amount of P325,869.44.

On February 23, 1990, Isabela received from CIR an assessment letter demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31, 1986. Isabela then filed a letter to CIR asking for reconsideration on the subject assessment. It even attached certain documents supporting its protest. On February 9, 1995, Isabela received from CIR a Final Notice Before Seizure. In said letter, CIR demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain CIR to collect the subject assessment through summary remedies. Isabela considered said final notice of seizure as [petitioner’s] final decision. Hence, the instant petition for review filed with this Court on March 9, 1995. The CTA having rendered judgment dismissing the petition, Isabela filed the instant petition anchored on the argument that CIR’s issuance of the Final Notice Before Seizure constitutes its decision on Isabela’s request for reinvestigation, which Isabela may appeal to the CTA. CA reversed CTA’s decision. CIR: Final Notice was a mere reiteration of the delinquent taxpayer’s obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested 85 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

assessment. Such decision, the commissioner contends, must unequivocably indicate that it is the resolution of the taxpayer’s request for reconsideration and must likewise state the reason therefor. Isabela: Final Notice Before Seizure should be considered as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioner’s last act, since failure to comply with it would lead to the distraint and levy of respondent’s properties, as indicated therein. Issue: Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to the CTA. Held: No. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefore, and submitting such proof as may be necessary. That letter is considered as the taxpayer’s request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review. Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner of internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional evidence. However, the CIR’s position regarding the disputed assessment must be indicated in the final decision. It is this decision that is properly appealable to the CTA for review. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner’s decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to distraint and levy. Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. 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. 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 become final. 86 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

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 (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.” In this case, the said period of 180 days had already lapsed when Isabela filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. In the instant case, the second notice received by Isabela verily indicated its nature – that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. CASE SYLLABI: Taxation; National Internal Revenue Code (NIRC); The Final Notice Before Seizure cannot but be considered as the commisioner’s decision disposing of the request for reconsideration.—In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioner’s decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to distraint and levy. Same; Same; A delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof.—Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof, x x x In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. Same; Same; A final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.—Jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. D. NON-RETROACTIVITY OF RULINGS (SEC.246, NIRC) Commissioner of Internal Revenue vs. Philippine Health Care Providers, Inc., 522 SCRA 131, G.R. No. 168129. April 24, 2007 Sandoval-Gutierrez, J. Facts: On July 25, 1987, President Corazon C. Aquino issued Executive Order (E.O.) No. 273, amending the National Internal Revenue Code of 1977 (Presidential Decree No. 1158) by imposing Value-Added Tax (VAT) on the sale of goods and services. This E.O. took effect on January 1, 1988.

87 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Before the effectivity of E.O. No. 273, or on December 10, 1987, respondent wrote the Commissioner of Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in its health care program are exempt from the payment of the VAT. On June 8, 1988, petitioner CIR, issued VAT Ruling No. 231-88 stating that respondent, as a provider of medical services, is exempt from the VAT coverage. This Ruling was subsequently confirmed by Regional Director Osmundo G. Umali of Revenue Region No. 8 in a letter dated April 22, 1994. On January 1, 1996, Republic Act (R.A.) No. 7716 (Expanded VAT or E-VAT Law) took effect, amending further the National Internal Revenue Code of 1977. Then on January 1, 1998, R.A. No. 8424 (National Internal Revenue Code of 1997) became effective. This new Tax Code substantially adopted and reproduced the provisions of E.O. No. 273 on VAT and R.A. No. 7716 on E-VAT. In the interim, on October 1, 1999, the BIR sent respondent a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997. On October 20, 1999, respondent filed a protest with the BIR. On January 27, 2000, petitioner CIR sent respondent a letter demanding payment of "deficiency VAT" in the amount of P100,505,030.26 and DST in the amount of P124,196,610.92, or a total of P224,702,641.18 for taxable years 1996 and 1997. Attached to the demand letter were four (4) assessment notices. On February 23, 2000, respondent filed another protest questioning the assessment notices. Petitioner CIR did not take any action on respondent's protests. Hence, on September 21, 2000, respondent filed with the Court of Tax Appeals (CTA) a petition for review, docketed as CTA Case No. 6166. Issue: Whether VAT Ruling No. 231-88 exempting respondent from payment of VAT has retroactive application Held: We agree with both the Tax Court and the Court of Appeals that respondent acted in good faith. In Civil Service Commission v. Maala, we described good faith as "that state of mind denoting honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious." According to the Court of Appeals, respondent's failure to describe itself as a "health maintenance organization," which is subject to VAT, is not tantamount to bad faith. We note that the term "health maintenance organization" was first recorded in the Philippine statute books only upon the passage of "The National Health Insurance Act of 1995" (Republic Act No. 7875). It is thus apparent that when VAT Ruling No. 231-88 was issued in respondent's favor, the term "health maintenance organization" was yet unknown or had no significance for taxation purposes. Respondent, therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of VAT Ruling No. 231-88.

88 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases ofCommissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp. Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case. CASE SYLLABI: Same; Same; Same; Administrative Law; Rulings, circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no retroactive application if to apply them would prejudice the taxpayer; Exceptions. —Relative to the second issue, Section 246 of the 1997 Tax Code, as amended, provides that rulings, circulars, rules and regulations promulgated by the Commissioner of Internal Revenue have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are: (1) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (2) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (3) where the taxpayer acted in bad faith. Same; Same; Same; Same; The Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer; The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer.—In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, 108 SCRA 142 (1981), this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair play. This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases of Commissioner of Internal Revenue v. Borroughs, Ltd., 142 SCRA 324 (1986), Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp., 166 SCRA 166 (1988), Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.), Inc., 249 SCRA 401 (1995), and Commissioner of Internal Revenue v. Court of Appeals, 267 SCRA 557 (1997). The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case. Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 512 SCRA 124, G.R. No. 153205. January 22, 2007 89 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Carpio, J. Facts: Respondent is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal address located at Daruma Building, Jose P. Laurel Avenue, Lanang, Davao City. It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of [NAPOCOR’s] two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. BWSC-Denmark established [respondent] which subcontracted the actual operation and maintenance of NAPOCOR’s two power barges as well as the performance of other duties and acts which necessarily have to be done in the Philippines. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly to the Consortium’s bank accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in the Philippines. On the other hand, the Consortium pays [respondent] in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain the tax implications of the above transactions, [respondent] sought a ruling from the BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995, declaring therein that if [respondent] chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate. [Respondent] chose to register as a VAT taxpayer. On May 26, 1995, the Certificate of Registration bearing RDO Control No. 95-113-007556 was issued in favor of [respondent] by the Revenue District Office No. 113 of Davao City. For the year 1996, [respondent] seasonably filed its quarterly Value-Added Tax Returns reflecting, among others, a total zero-rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14.

On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of the BIR. It allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to be applicable to its case. On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT Review Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%)." On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for the issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent] believed that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP) of the BIR.4 90 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the running of the two-year prescriptive period under the Tax Code. CTA RULING: In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of respondent. The CTA’s ruling stated: [Respondent’s] sale of services to the Consortium [was] paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of Bangko Sentral ng Pilipinas. These were established by various BPI Credit Memos showing remittances in Danish Kroner (DKK) and US dollars (US$) as payments for the specific invoices billed by [respondent] to the consortium. These remittances were further certified by the Branch Manager x x x of BPI-Davao Lanang Branch to represent payments for sub-contract fees that came from Den Danske Aktieselskab BankDenmark for the account of [respondent]. Clearly, [respondent’s] sale of services to the Consortium is subject to VAT at 0% pursuant to Section 108(B)(2) of the Tax Code. x x x Considering the principle of solutio indebiti which requires the return of what has been delivered by mistake, the [petitioner] is obligated to issue the tax credit certificate prayed for by [respondent]. x x x CA RULING: In affirming the CTA, the Court of Appeals rejected petitioner’s view that since respondent’s services are not destined for consumption abroad, they are not of the same nature as project studies, information services, engineering and architectural designs, and other similar services mentioned in Section 4.1022(b)(2) of Revenue Regulations No. 5-96 as subject to 0% VAT. Thus, according to petitioner, respondent’s services cannot legally qualify for 0% VAT but are subject to the regular 10% VAT. Issue: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year 1996. Held: The petition is denied. At the outset, the Court declares that the denial of the instant petition is not on the ground that respondent’s services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that respondent’s services are subject to 0% VAT and which respondent invoked in applying for refund of the output VAT. Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 00399, which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%).” Respondent’s reliance on these BIR rulings binds petitioner. Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondent’s 91 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

status will deprive respondent of a refund of a substantial amount representing excess output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such revocation. CASE SYLLABUS: Same; Same; A taxpayer’s reliance on Bureau of Internal Revenue (BIR) rulings binds the Commissioner of Internal Revenue; The BIR Commissioner’s filing of his Answer before the Court of Tax Appeals challenging a taxpayer’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95, but such revocation cannot be given retroactive effect since it will prejudice the taxpayer; Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer.—In seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-99, which reconfirmed BIR Ruling No. 023-95 “insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%).” Respondent’s reliance on these BIR rulings binds petitioner. Petitioner’s filing of his Answer before the CTA challenging respondent’s claim for refund effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given retroactive effect since it will prejudice respondent. Changing respondent’s status will deprive respondent of a refund of a substantial amount representing excess output tax. Section 246 of the Tax Code provides that any revocation of a ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such revocation. Philippine Bank of Communications vs. Commissioner of Internal Revenue, 302 SCRA 24, G.R. No. 112024. January 28, 1999 Quisumbing, J. Facts: Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.

92 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). Issue: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years? Held: The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14 From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters. Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.: Sec. 230. 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 excessive 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 proceedings shall begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon

93 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied) The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they seek to apply and implement. Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute. Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. CASE SYLLABUS: Same; Same; Same; Same; Same; Statutory Construction; A memorandum circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action, for there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same; The nonretroactivity of rulings by the Commissioner of Internal Revenue is not applicable where the nullity of a Revenue Memorandum Circular was declared by courts and not by the Commissioner of Internal Revenue.—Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal 94 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. Commissioner of lnternal Revenue vs. Court of Appeals, 267 SCRA 557, G.R. No. 117982. February 6, 1997 Bellosillo, J. Facts: Alhambra Industries, Inc, is a domestic corporation engaged in the manufacture and sale of cigar and cigarette products. On May 7, 1991, Private respondent received a letter (26 of April,1991) from the CIR assessing its deficiency Ad Valorem Tax (AVT) in the total amount of (P488,396.62), inclusive of increments, on the removals of cigarette products from place of production during (November 2, 1990 to January 22, 1991).Alhambra filed a protest but the same was denied. CIR requested payment of the revised amount of P520, 835.39. Without waiting for CIR’s reply to its reconsideration. Alhambra filed a petition for review with CTA. Meanwhile, CIR denied the request for reconsideration. Alhambra then paid the disputed AVT in the sum of P520,835.29 under protest. CTA, in its jurisdiction, ordered CIR to refund to Alhambra the amount erroneously paid, explaining that the subject deficiency excise tax assessment resulted from Alhambra’s use of the computation mandated by BIR Ruling 017-473-88 dated October 4, 1998 as basis for computing the 15% AVT. BIR Ruling 017-91 revoked BIR Ruling 473-88 for being violative of Sec. 142 of the Tax Code; it included back the VAT to the gross selling price in determining the tax base for computing the AVT on cigarettes. Issue: Whether or not private respondent’s reliance on a void BIR ruling conferred upon the latter a vested right to apply the same in the computation of its AVT and claim for tax refund? Held: The present dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated October 4, 1988 which EXCLUDED the VAT from the tax base in computing the 15% excise tax due; and (2) BIR Ruling 017-91 dated Feb 11, 1991 which INCLUDED back the Vat in computing the tax base for purposes of the 15% AVT. The question as to correct computation of the excise tax on cigarettes in the case at bar has been sufficiently addressed by BIR Ruling 017-91 which revoked BIR Ruling 473-88. It is to be noted that Section 127 (b) of the Tax Code as amended applies in general to domestic products and excludes the value added tax in the determination of the gross selling price, which is the tax base for purposes of the imposition of AVT. On the other hand, the last par., of Sec 142 of the same code which includes the VAT in the computation of the AVT refers specifically to cigar and cigarettes only. It does not include/apply to any other articles or goods subject to the AVT. Accordingly, Sec. 142 must perforce 95 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

prevail over SEC 127 (B) which is a general provision of law insofar as the imposition of AVT on cigar and cigarettes is concerned, Moreover, the phrase unless otherwise provided in Sec 127(b) purports of exceptions to the general rule contained therein, such as that of Sec 142, last paragraph therof which explicitly provides that in the case of cigarettes, the tax base for purposes of the AVT shall include, the VAT. Private respondent did not question the correctness of the above BIR ruling. In fact, upon knowledge of the effectivity of BIR Ruling No. 017-91, private respondent immediately implemented the method of computation mandated therein by restoring the VAT in computing the tax base for purposes of the 15 % AVT. However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. The applicable law is Sec. 246 of the Tax Code which provides Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or c) where the taxpayer acted in bad faith. Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it would be assessed deficiency excise tax. What is left to be resolved is petitioner’s claim that private respondent falls under the third exception in Sec. 246, i.e., that the taxpayer has acted in bad faith. Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will. We find no convincing evidence that private respondent’s implementation of the computation mandated by BIR Ruling 473-88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a sign of good faith, private respondent immediately reverted to the computation mandated by BIR Ruling 017-91 upon knowledge of its issuance on 11 February 1991. As regards petitioner's argument that private respondent should have made consultations with it before private respondent used the computation mandated by BIR Ruling 473-88, suffice it to state that the aforesaid BIR Ruling was clear and categorical thus leaving no room for interpretation. The failure of private respondent to consult petitioner does not imply bad faith on the part of the former.

96 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer. Concurring opinion of Justice Vitug: I concur in the ponencia written by my esteemed colleague, Mr. Justice Josue N. Bellosillo. I only would like to stress that the 1988 opinion of the Commissioner of Internal Revenue cannot be considered void, considering that it evinces what the former commissioner must have felt to be a real inconsistency between Section 127 and Section 142 of the Tax Code. The non-retroactivity proscription under Section 246 of the Tax Code can thus aptly apply. I reserve my vote, however, in a situation where, as the Solicitor General so points out, the revoked ruling is patently null and void in which case it could possibly be disregarded as being inexistent from the very beginning. CASE SYLLABI:

Taxation; Rulings and circulars, rules and regulations promulgated by the Commissioner of lnternal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers.—However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Same; Words and Phrases; Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong—it partakes of the nature of fraud, a breach of a known duty through some motive of interest or ill will.—Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. lt partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will. We find no convincing evidence that private respondent’s implementation of the computation mandated by BIR Ruling 473–88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a sign of good faith, private respondent immediately reverted to the computation mandated by BIR Ruling 017–91 upon knowledge of its issuance on 11 February 1991. Same; The failure of a taxpayer to consult the Bureau of Internal Revenue before using a computation mandated by a BIR Ruling which was clear and categorical, thus leaving no room for interpretation, does not imply bad faith on the part of the former.—As regards petitioner’s argument that private respondent should have made consultations with it before private respondent used the computation mandated by BIR Ruling 473–88, suffice it to state that the aforesaid BIR Ruling was clear and categorical thus leaving no room for interpretation. The failure of private respondent to consult petitioner does not imply bad faith on the part of the former. Same; Estoppel; While the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer.—Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer. 97 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Commissioner of Internal Revenue vs. Filinvest Development Corporation , 654 SCRA 56, G.R. No. 163653 & G.R. No. 167689, July 19, 2011 Perez, J. Facts: The owner of 80% of the outstanding shares of respondent Filinvest Alabang, Inc. (FAI), respondent Filinvest Development Corporation (FDC) is a holding company which also owned 67.42% of the outstanding shares of Filinvest Land, Inc. (FLI). FDC and FAI entered into a Deed of Exchange with FLI whereby the former both transferred in favor of the latter parcels of land appraised at P4,306,777,000.00. In exchange for said parcels which were intended to facilitate development of medium-rise residential and commercial buildings, 463,094,301 shares of stock of FLI were issued to FDC and FAI. Later, FLI requested a ruling from the BIR to the effect that no gain or loss should be recognized in the aforesaid transfer of real properties. Acting on the request, the BIR issued Ruling No. S-34-046-97 dated 3 February 1997, finding that the exchange is among those contemplated under Section 34 (c) (2) of the old NIRC (Now Section 40, NIRC) which provides that “(n)o gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for a stock in such corporation of which as a result of such exchange said person, alone or together with others, not exceeding four (4) persons, gains control of said corporation." With the BIR’s reiteration of the foregoing ruling upon the request for clarification filed by FLI, the latter, together with FDC and FAI, complied with all the requirements imposed in the ruling.

On various dates during the years 1996 and 1997, in the meantime, FDC also extended advances in favor of its affiliates, namely, FAI, FLI, Davao Sugar Central Corporation (DSCC) and Filinvest Capital, Inc. (FCI). Duly evidenced by instructional letters as well as cash and journal vouchers, said cash advances amounted to P2,557,213,942.60 in 1996 and P3,360,889,677.48 in 1997. FDC also entered into a Shareholders’ Agreement with Reco Herrera PTE Ltd. (RHPL) for the formation of a Singapore-based joint venture company called Filinvest Asia Corporation (FAC), tasked to develop and manage FDC’s 50% ownership of its PBCom Office Tower Project (the Project). With their equity participation in FAC respectively pegged at 60% and 40% in the Shareholders’ Agreement, FDC subscribed to P500.7 million worth of shares in said joint venture company to RHPL’s subscription worth P433.8 million. Having paid its subscription by executing a Deed of Assignment transferring to FAC a portion of its rights and interest in the Project worth P500.7 million, FDC eventually reported a net loss of P190,695,061.00 in its Annual Income Tax Return for the taxable year 1996. Then, FDC received from the BIR a Formal Notice of Demand to pay deficiency income and documentary stamp taxes, plus interests and compromise penalties, covered by the following Assessment Notices, viz.: (a) Assessment Notice for deficiency income taxes in the sum of P150,074,066.27 for 1996; (b) Assessment Notice for deficiency documentary stamp taxes in the sum of P10,425,487.06 for 1996; (c) Assessment Notice for deficiency income taxes in the sum of P5,716,927.03 for 1997; and (d) Assessment for deficiency documentary stamp taxes in the sum of P5,796,699.40 for 1997. The foregoing deficiency taxes were assessed on the taxable gain supposedly realized by FDC from the Deed of Exchange it 98 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

executed with FAI and FLI, on the dilution resulting from the Shareholders’ Agreement FDC executed with RHPL as well as the “arm’s-length” interest rate and documentary stamp taxes imposable on the advances FDC extended to its affiliates. FAI similarly received from the BIR a Formal Letter of Demand for deficiency income taxes in the sum of P1,477,494,638.23 for the year 1997. Covered by Assessment Notice, said deficiency tax was also assessed on the taxable gain purportedly realized by FAI from the Deed of Exchange it executed with FDC and FLI. Within the reglementary period of thirty (30) days from notice of the assessment, both FDC and FAI filed their respective requests for reconsideration/protest, on the ground that the deficiency income and documentary stamp taxes assessed by the BIR were bereft of factual and legal basis. Having submitted the relevant supporting documents pursuant to the 31 January 2000 directive from the BIR Appellate Division, FDC and FAI filed a letter requesting an early resolution of their request for reconsideration/protest on the ground that the 180 days prescribed for the resolution thereof under Section 228 of the NIRC was going to expire on 20 September 2000. In view of the failure of petitioner CIR to resolve their request for reconsideration/protest within the aforesaid period, FDC and FAI filed a petition for review with the CTA. The petition alleged, among other matters, that as previously opined in BIR Ruling No. S-34-046-97, no taxable gain should have been assessed from the subject Deed of Exchange since FDC and FAI collectively gained further control of FLI as a consequence of the exchange; that correlative to the CIR's lack of authority to impute theoretical interests on the cash advances FDC extended in favor of its affiliates, the rule is settled that interests cannot be demanded in the absence of a stipulation to the effect; that not being promissory notes or certificates of obligations, the instructional letters as well as the cash and journal vouchers evidencing said cash advances were not subject to documentary stamp taxes; and, that no income tax may be imposed on the prospective gain from the supposed appreciation of FDC's shareholdings in FAC. As a consequence, FDC and FAC both prayed that the subject assessments for deficiency income and documentary stamp taxes for the years 1996 and 1997 be cancelled and annulled. CTA decision - went on to render the decision dated 10 September 2002 which, with the exception of the deficiency income tax on the interest income FDC supposedly realized from the advances it extended in favor of its affiliates, cancelled the rest of deficiency income and documentary stamp taxes assessed against FDC and FAI for the years 1996 and 1997. However [FDC] is ordered to pay the amount of P5,691,972.03 as deficiency income tax for taxable year 1997. In addition, FDC is also ordered to pay 20% delinquency interest computed from February 16, 2000 until full payment thereof pursuant to Section 249 (c) (3) of the Tax Code. Dissatisfied with the foregoing decision, FDC filed petition for review -- Calling attention to the fact that the cash advances it extended to its affiliates were interest-free in the absence of the express stipulation on interest required under Article 1956 of the Civil Code, FDC questioned the imposition of an arm's-length interest rate thereon on the ground, among others, that the CIR's authority under Section 43 of the NIRC: (a) does not include the power to impute imaginary interest on said transactions; (b) is directed only against controlled taxpayers and not against mother or holding corporations; and, (c) can only be invoked in cases of understatement of taxable net income or evident tax evasion. 99 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

CA – upheld FDC’s position and reversed and set aside CTA deicision. Issue No. 1: Whether or not the advances extended by FDC to its affiliates are subject to income tax and also subject to interest. Held: Yes. Section 43 [now Section 50] of the 1993 National Internal Revenue Code (NIRC) provides that. “(i)n case of two or more organizations, trades or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the Commissioner of Internal Revenue [(CIR)] is authorized to distribute, apportion or allocate gross income or deductions between or among such organization, trade of business, if he determines that such distribution, apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business,” Section 179 of Revenue Regulations No. 2 provides in part that “(i)n determining the true net income of a controlled taxpayer, the [CIR] is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce of avoid tax by shifting or distorting income or deductions. The authority to determine true net income extends to any case in which either by inadvertence or design the taxable net income in whole or in part, of a controlled taxpayer, is other than it would have been had the taxpayer in the conduct of his affairs been an uncontrolled taxpayer dealing at arm’s length with another uncontrolled taxpayer.” Despite the broad parameters provided, however, the CIR’s power of distribution, apportionment or allocation of gross income and deductions under the NIRC and Revenue Regulations No. 2 do not include the power to impute “theoretical interests” to the taxpayer’s transactions. Pursuant to Section 28 [now Section 32] of the NIRC, the term “gross income” is understood to mean all income from whatever source derived, including, but not limited to certain items. While it has been held that the phrase “from whatever source derived” indicates a legislative policy to include all income not expressly exempted within the class of taxable income under Philippine laws, the term “income” has been variously interpreted to mean “cash received or its equivalent,” the amount of money coming to a person within a specific time” or something distinct from principal or capital.” Otherwise stated, there must be proof of the actual or, at the very least, probable receipt or realization by the controlled taxpayer of the item of gross income sought to be distributed, apportioned or allocated by the CIR. In this case, there is no evidence of actual or possible showing that the advances taxpayer extended to its affiliates had resulted to interests subsequently assessed by the CIR. Even if the Court were to accord credulity to the CIR’s assertion that taxpayer had deducted substantial interest expense from its gross income, there would still be no factual basis for the imputation of theoretical interests on the subject advances and assess deficiency income taxes thereon. Further, pursuant to Article 1959 of the Civil Code of the Philippines, no interest shall be due unless it has been expressly stipulated in writing. Issue No. 2: Whether or not FDC is subject to documentary stamp tax. Held:

100 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Yes. Loan agreements and promissory notes are taxed under Section 180 of the 1993 National Internal Revenue Code (NIRC) [they are now taxed under Section 179 as “evidence of indebtedness]. When read in conjunction with Section 173 of the NIRC, Section 180 concededly applies to “[a]ll loan agreements, whether made or signed in the Philippines, or abroad when the obligation or right arises from Philippine sources or the property or object of the contract is located or used in the Philippines.” Section 3 (b) of Revenue Regulations No. 9-94 provides in part that the term “loan agreement” shall include “credit facilities, which may be evidenced by credit memo, advice or drawings.” Section 6 of the same revenue regulations further provides that “[i]n cases where no formal agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities, which may be evidenced by credit/debit memo, advice or drawings by any form of check or withdrawal slip…” Applying the foregoing to the case, the instructional letters as well as the journal and cash vouchers evidencing the advances taxpayer extended to its affiliates in 1996 and 1997 qualified as loan agreements upon which documentary stamp taxes may be imposed. CASE SYLLABI: Same; Rulings, circulars, rules and regulations promulgated by the Bureau of Internal Revenue (BIR) have no retroactive application if to so apply them would be prejudicial to the taxpayers; Exceptions to the rule.—In its appeal before the CA, the CIR argued that the foregoing ruling was later modified in BIR Ruling No. 108-99 dated 15 July 1999, which opined that inter-office memos evidencing lendings or borrowings extended by a corporation to its affiliates are akin to promissory notes, hence, subject to documentary stamp taxes. In brushing aside the foregoing argument, however, the CA applied Section 246 of the 1993 NIRC from which proceeds the settled principle that rulings, circulars, rules and regulations promulgated by the BIR have no retroactive application if to so apply them would be prejudicial to the taxpayers. Admittedly, this rule does not apply: (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. Not being the taxpayer who, in the first instance, sought a ruling from the CIR, however, FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings. Commissioner of Internal Revenue vs. San Roque Power Corporation, 690 SCRA 336, G.R. No. 187485. February 12, 2013 Carpio, J. Consolidated Digest: The primary issue in the three (3) consolidated cases involving San Roque Power, Taganito Mining and Philex Mining decided last February 12, 2013 revolves around the proper period for filing the judicial claim for refund or credit of creditable input tax. Under Section 112(A) and 112(C) of the Tax Code, a taxpayer whose sales are zero-rated or effectively zero-rated can file his administrative claim for refund or credit at anytime within two (2) years after the taxable quarter when the sales were made and, after full or partial denial of the claim or failure of the Commissioner to act on his application within 120 days from 101 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

submission of the same, he may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, file his judicial claim with the CTA. These cases all involved the timely filing by the taxpayers of their administrative claims with the Commissioner of Internal Revenue. However, San Roque and Taganito both prematurely filed their judicial claims without waiting for the 120-day period (for the Commissioner to act on their administrative claims) to lapse, whereas Philex was a case of late filing since it did not file its judicial claim until after 426 days beyond the 120 + 30 day periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio, denied tax refund or credit to San Roque and Philex, but granted the same to Taganito. The majority denied refund to San Roque on the basis, among others, that the waiting period for filing a judicial claim is mandatory and jurisdictional and has been in the Tax Code for more than 15 years before San Roque filed its judicial claim in April 10, 2003 (barely 13 days after it filed its administrative claim). The majority, however, granted refund to Taganito who, although like San Roque filed its judicial claim without waiting for the 120-day period to lapse, was deemed to have filed its judicial claim on time since it was filed on February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 (which states that the taxpayer need not wait for the 120-day period to lapse before it could seek judicial relief with the CTA) but before the October 6, 2010 Supreme Court (SC) decision in Commissioner of Internal Revenue v. Aichi Forging Company of Asia (reinstating the 120+30 day periods as mandatory and jurisdictional). The majority held that since the Commissioner has exclusive and original jurisdiction to interpret tax laws under Section 4 of the Tax Code, a taxpayer should not be prejudiced by an erroneous interpretation by the Commissioner and, under Section 246, a reversal of a BIR ruling cannot adversely prejudice a taxpayer like Taganito who in good faith relied on it prior to its reversal. In denying Philex’s judicial claim for refund filed on October 17, 2007, the majority ruled that the inaction of the Commissioner during the 120-day period is a “deemed denial” and Philex’s failure to file an appeal within 30 days from the expiration of the 120-day period rendered the “deemed denial” decision of the Commissioner final and inappealable. In his dissenting opinion, J. Velasco, joined by J. Mendoza and J. Perlas-Bernabe, suggested that the doctrine applicable to a claim for refund depends on the operative case and the prevailing rulings and practices at the time of filing the claim. In San Roque, since both the administrative and judicial claims were filed during the effectivity of RR 7-95 (which still applied the 2-year prescriptive period to judicial claims), San Roque can claim good faith reliance on RR 7-95 and the then prevailing practices of the BIR and CTA to believe that the 120 + 30-day periods are dispensable so long as both administrative and judicial claims are filed within the 2-year period. In denying refund to Taganito, however, the dissenter pointed out that Taganito cannot claim reliance in good faith on RR 7-95 since it filed its judicial claim after November 1, 2005 when RR 16-2005 took effect and superseded RR 7-95 (including BIR Ruling No. DA-489-03 relied upon by the majority in granting refund to Taganito and which this dissenter believed was a mere application of RR 7-95), deleting the reference therein to the 2-year period for filing judicial claims. Philex, on the other hand, filed its claim belatedly under both the superseded RR 7-95 and the effective RR 16-2005. This dissenter thus voted to grant refund to San Roque, but to deny it to Taganito and Philex.

102 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

In his separate dissenting opinion, CJ Sereno, concurred with J. Velasco’s dissent in San Roque and Philex but disagreed with the latter’s stand in Taganito since, at the time Taganito filed its administrative and judicial claims for refund, the 2-year prescriptive period remained the unreversed interpretation of the court. Thus, Taganito cannot be faulted for relying on court interpretations even with the existence of RR 16-2005, and for preferring to abide by court interpretations over mere administrative issuances as the latter’s validity is still subject to judicial determination. This dissenter believed that the mandatory and jurisdictional nature of the 120+30 day periods was only definitely and categorically declared by the SC in Aichi on October 6, 2010 and should only be applied prospectively from that time, and that previous regard to the 120+30-day periods is an exceptional circumstance which warrants procedural liberality to taxpayers who relied on such interpretations. In his separate dissenting opinion, J. Leonen, joined by J. del Castillo, disagreed that SC interpretations of the law take effect only prospectively, since the SC’s duty is to construe and not to make law, and its interpretation became part of the law from the date it was originally passed. This dissenter further reminds us that an “erroneous application of the law by public officers does not preclude a subsequent correct application of the statute, and the Government is never estopped by mistake or error on the part of its agents.” Accordingly, while the Commissioner is given power and authority to interpret tax laws, it cannot legislate guidelines contrary to the law it is tasked to implement. Hence its interpretation is not conclusive and will be ignored if judicially found to be erroneous. And while concededly any reversal of any BIR ruling cannot adversely prejudice a taxpayer who in good faith relied on it prior to its reversal, if it is patently clear that the ruling is contrary to the text itself, there can be no reliance in good faith. Further, that it is the duty of the lawyers of private parties to best discern the acceptable interpretation of legal text and, in doing so, they take the risk that the SC will rule otherwise, especially if the text of the law – as in this case – is very clear. This dissenter thus voted to deny refund to all three taxpayers. (http://lexoterica.wordpress.com/2013/03/06/dissension-in-the-court-february-2013/)

CASE SYLLABI: Civil Law; Human Relations; It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act.―It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, “No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others.” For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition with the CTA is a mere scrap of paper. Same; A reversal of a Bureau of Internal Revenue (BIR) regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal.— Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the 103 | M s . N o l a i d a A g u i r r e

Taxation II Case Digests based on Atty. Bobby Lock’s Course Outline Part I: REMEDIES UNDER THE NIRC

Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Same; Statutory Construction; Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law.—Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. Same; Judgments; Court of Tax Appeals decisions do not constitute precedents, and do not bind the Supreme Court or the public.—There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine legal system. Sereno, C.J., Separate Dissenting Opinion: Same; View that it is violative of the right to procedural due process of taxpayers when the Court itself allowed the taxpayers to believe that they were observing the proper procedural periods and, in a sudden jurisprudential turn, deprived them of the relief provided for and earlier relied on by the taxpayers.—We find it violative of the right to procedural due process of taxpayers when the Court itself allowed the taxpayers to believe that they were observing the proper procedural periods and, in a sudden jurisprudential turn, deprived them of the relief provided for and earlier relied on by the taxpayers. It is with this reason and in the interest of substantial justice that the strict application of the 120+