Taxation Cases, taxation philippines

GENERAL PRINCIPLES Purposes and objective of Taxation As Implement of Police Power

Walter Lutz v. Araneta 98 Phil 148 Lutz assailed the constitutionality of Sec. 2 and 3 which provided for an increase of the existing tax on the manufacture of sugar alleging such tax as unconstitutional and void for not being levied for public purpose but for the aid and support of the sugar industry exclusively. Is the tax levy a valid exercise of state power? Held: Yes. As the protection and promotion of the sugar industry is a matter of public concern, the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in Sec. 6 of CA 567 bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation maybe made the implement of the state‘s Police Power. Basis of Taxation

Taxation involves power to destroy Mc Cullough vs. Maryland 4L Ed 579 Maryland (P) enacted a statute imposing a tax on all banks operating in Maryland not chartered by the state. The statute provided that all such banks were prohibited from issuing bank notes except upon stamped paper issued by the state. The statute set forth the fees to be paid for the paper and established penalties for violations. The Second Bank of the United States was established pursuant to an 1816 act of Congress. McCulloch (D), the cashier of the Baltimore branch of the Bank of the United States, issued bank notes without complying with the Maryland law. Maryland sued McCulloch for failing to pay the taxes due under the Maryland statute and McCulloch contested the constitutionality of that act. The state court found for Maryland and McCulloch appealed. 1) Does Congress have the power under the Constitution to incorporate a bank, even though that power is not specifically enumerated within the Constitution? 2) Does the State of Maryland have the power to tax an institution created by Congress pursuant to its powers under the Constitution? Held 1) Yes. Congress has power under the Constitution to incorporate a bank pursuant to the Necessary and Proper clause (Article I, section 8). 2) No. The State of Maryland does not have the power to tax an institution created by Congress pursuant to its powers under the Constitution.

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The Government of the Union, though limited in its powers, is supreme within its sphere of action, and its laws, when made in pursuance of the Constitution, form the supreme law of the land. There is nothing in the Constitution of the United States which excludes incidental or implied powers. If the end be legitimate, and within the scope of the Constitution, all the means which are appropriate and plainly adapted to that end, and which are not prohibited, may constitutionally be employed to carry it into effect pursuant to the Necessary and Proper clause. The power of establishing a corporation is not a distinct sovereign power or end of Government, but only the means of carrying into effect other powers which are sovereign. It may be exercised whenever it becomes an appropriate means of exercising any of the powers granted to the federal government under the U.S. Constitution. If a certain means to carry into effect of any of the powers expressly given by the Constitution to the Government of the Union be an appropriate measure, not prohibited by the Constitution, the degree of its necessity is a question of legislative discretion, not of judicial cognizance. The Bank of the United States has a right to establish its branches within any state. The States have no power, by taxation or otherwise, to impede or in any manner control any of the constitutional means employed by the U.S. government to execute its powers under the Constitution. This principle does not extend to property taxes on the property of the Bank of the United States, nor to taxes on the proprietary interest which the citizens of that State may hold in this institution, in common with other property of the same description throughout the State.

It does not involve power to destroy as long as this Court sits

Panhandle Oil Co. v. Mississippi ex Rel. Knox, 277 U.S. 218 (1928) Based on a Mississippi statute Chapter 116 of the Laws of Mississippi of 1922 provided that "any person engaged in the business of distributor of gasoline or retail dealer in gasoline shall pay for the privilege of engaging in such business, an excise tax of 1¢ (one cent) per gallon upon the sale of gasoline, . . ." except that sold in interstate commerce or purchased outside the state and brought in by the consumer for his own use. Chapter 115, Laws of 1924, increased the tax to three cents, and c. 119, Laws of 1926, made it four cents per gallon. Since some time in 1925, petitioner has been engaged in that business. The state sued to recover taxes claimed on account of sales made by petitioner to the United States for the use of its Coast Guard fleet in service in the Gulf of Mexico and its Veterans' Hospital at Gulfport. Some of the sales were made while the Act of 1924 was in force, and some after the rate had been increased by the Act of 1926. Accordingly, the demand was for three cents a gallon on some and four cents on the rest. Petitioner defended on the ground that these statutes, if construed to impose taxes on such sales, are repugnant to the federal Constitution. The court of first instance sustained that contention, and the state appealed. The supreme court held the exaction a valid privilege tax measured by the number of gallons sold; that it was not a tax upon instrumentalities of the federal government, and that the United States was not entitled to buy such gasoline without payment of the taxes charged dealers. Is the United States Federal government Exempt from the tax being imposed by the state? Held: Yes. The United States is empowered by the Constitution to maintain and operate the fleet and hospital. Art. I, § 8. That authorization and laws enacted pursuant thereto are supreme (Art. VI), and, in case of conflict, they control state enactments. The states may not burden or interfere with the exertion of national power or make it a source of revenue or take the funds

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raised or tax the means used for the performance of federal functions. The strictness of that rule was emphasized in Gillespie v. Oklahoma, The right of the United States to make such purchases is derived from the Constitution. The petitioner's right to make sales to the United States was not given by the state, and does not depend on state laws; it results from the authority of the national government under the Constitution to choose its own means and sources of supply. While Mississippi may impose charges upon petitioner for the privilege of carrying on trade that is subject to the power of the state, it may not lay any tax upon transactions by which the United States secures the things desired for its governmental purposes. The exactions demanded from petitioner infringe its right to have the constitutional independence of the United States in respect of such purchases remain untrammeled. Petitioner is not liable for the taxes claimed.

In the dissenting opinion of Justice Holmes, he enunciated, thus, It seems to me that the state court was right. I should say plainly right but for the effect of certain dicta of Chief Justice Marshall which culminated in, or, rather, were founded upon, his often quoted proposition that the power to tax is the power to destroy. In those days, it was not recognized, as it is today, that most of the distinctions of the law are distinctions of degree. If the states had any power, it was assumed that they had all power, and that the necessary alternative was to deny it altogether. But this Court, which so often has defeated the attempt to tax in certain ways, can defeat an attempt to discriminate or otherwise go too far without wholly abolishing the power to tax. The power to tax is not the power to destroy while this Court sits. The power to fix rates is the power to destroy if unlimited, but this Court, while it endeavors to prevent confiscation, does not prevent the fixing of rates. A tax is not an unconstitutional regulation in every case where an absolute prohibition of sales would be one

Taxation vs Police Power and Eminent Domain

Domingo vs Garlitos 8 SCRA 443 The government has assessed inheritance tax on the Estate of the late Walter Scott Price, which also has a claim with the government for past services rendered. The court having jurisdiction of the estate had found that the claim of the estate against the government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (RA2700). Under the above circumstances, both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well fully liquidated. Are the obligations subject to compensation?

Held: Yes. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. However, Compensation, takes place by operation of law, in accordance with the provisions of Art. 1279 and 1290 of the Civil Code. And both debts are extinguished to the concurrent amount.

Cu Unjieng vs. Patstone 42 Phil 818 - 1922 G. A. Cu Unjieng applied for a building permit for the construction of a warehouse in Azcarraga street but was denied unless he shall have made provision for the construction of an arcade over the sidewalk in front of the building, and until he shall have further complied with Section 1 of Ordinance 301 of the City of Manila, which states that once the plan of work has been approved

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by the city engineer, pay ½ of the assessed value of the city land located within the arcades of the said building or construction, exacted as a license fee for the use occupation of the said land. Cu Unjieng assailed the action of the City Engineer claiming that the arcade is unnecessary and unsuitable for his warehouse and the Ordinance 301 is in excess of legislative powers of the Municipal Board, and therefore unconstitutional. May upon its charter the city of Manila, under the guise of a license fee and as a prerequisite for the issuance of a building permit, exact the payment of ½ of the assessed value of the portion of the sidewalk covered by the arcade. Held: The city of Manila has the power to require the construction of the arcades in certain circumstances but the license fee prescribed by the City Ordinance No. 301 is illegal. A license is issued under police power; but the exaction of license fee with view to revenue would be an exercise of the power of taxation; and the charter must plainly show an intent to confer that power, or the municipal corporation cannot assume it. The allowable amount of license fee or tax depends so much on the special circumstances of each particular case. Adjudications, however, appear to recognize 3 classes licenses (license for regulation of useful occupations or enterprises; licenses for the regulation of non-useful occupations or enterprises; and licenses for revenue only), which should be taken into consideration in determining the reasonableness of the license fee. Herein, in imposing a fee equal to 1/2 of the assessed value of the portion of the sidewalk covered by the arcade, the municipal board exceeded its powers. The construction of buildings is a useful enterprise and the amount of the license fee should therefore be limited to the cost of licensing, regulating, and surveillance. As it does not appear such cost would materially increase through the construction of the arcade, the excess fee is clearly imposed for the purpose of revenue. There is nothing in the charter of the City indicating legislative intent to confer tot the municipal board to impose a license tax for revenue on the construction of buildings. Although the city can require the construction of arcades in certain circumstances, the license fee prescribed by Ordinance 301 is illegal. The power conferred in relation to such construction is considered merely as police power from which, as we have seen, taxing power is not inferred. Under the circumstances, to hold the fee valid would amount to judicial legislation.

MAYOR ANTONIO VILLEGAS vs HIU CHIONG TSAI PAO 86 SCRA 270 Respondent Hui Chiong Tsai Pao Ho challenged the validity of Ordinance 6537 passed by the Municipal Board of Manila. The said ordinance prohibited aliens from being employed or to engage or participate in any position, occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the mayor of manila and paying the permit fee. Is the ordinance valid regulatory and revenue measure? Held: Ordinance 637 is partly regulatory in requiring employment permit for alien as it involves the exercise of discretion and judgment in the processing and approval and disapproval of application for employment permits. That which requires the payment of P50 as employee‘s fee is however not regulatory but a revenue measure. The ordinance‘s purpose is clearly to raise money under the guise of regulation by exacting P50 from aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rank-and-file or executive. It is thus invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due process and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers.

Apostolic Prefect vs City Treasurer of Baguio 71 Phil 547

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The Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws, and with residence in Baguio City. The City government imposed a special assessment against the properties within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Prefect contends that being a religious entity, its properties should be exempt from paying the special assessment. Is it exempt? Held: In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution exempt the Apostolic Prefect from payment of said special assessment. Furthermore, assuming that exemption may encompass such assessment, the Apostolic Prefect cannot claim exemption as it has not proven the property in question is used exclusively for religious purposes; but that it appears that the same is being used to other non-religious purposes. Thus, the Apostolic Prefect is required to pay the special assessment.

LIMITATIONS ON TAXING POWER OF THE STATE Inherent

Public Purpose Pascual vs. Secretary of Public Works 110 Phil 331 A law was enacted in 1953 containing a provision for the construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals within Antonio Subdivision owned by Senator Jose C. Zulueta. Zulueta ―donated‖ said parcels of land to the Government 5 months after the enactment of the law, on the condition that if the Government violates such condition the lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the donation and the Constitutionality of the particular provision, it being an appropriation not for a public purpose. Is the appropriation valid? Held: No. The appropriation of amount for the construction on a land owned by private individual is invalid imposition since it results in the promotion of private enterprise, it benefits the property of a particular individual. The provision that the land thereafter be donated to the government does not cure this defect. The rule is that if the public advantage or benefit is merely incidental in the promotion of a particular enterprise, such defect shall render the law invalid. On the other hand, if what is incidental is the promotion of a private enterprise, the tax law shall be deemed ―for public purpose‖. Government is Tax-exempt, However it can tax itself.

Situs or Territoriality Mobilia Sequntuur Personam rule is not applicable to Philippine Share of stocks Wells Fargo Bank vs Collector 70 Phil 325

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Birdie Lillian Eye died in Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet Consolidated Mining Co., an anonymous partnership (sociedad anonima), organized under the laws of the Philippines. She left a will duly admitted to probate in California where her estate was administered and settled. Wells Fargo bank and Union Trust Co. was duly appointed trustee of the trust by the said will. The Federal and California State‘s inheritance taxes due thereon have been duly paid. The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of stock to inheritance tax, to which Wells Fargo objected contending that the shares of stocks cannot be subjected to inheritance tax considering that the decedent was domiciled in California. Where is the situs of Tax? Held: The situs is in the Philippines. Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and such situs is in the domicile of the decedent at the time of his or her death. But the rule has been relaxed. The maxim ―mobila sequuntur personam,‖ upon which the rule rests, has been decried as a mere ―fiction of law having its origin in considerations of general convenience and public policy, and cannot be applied to limit or control the right of the State to tax property within its jurisdiction‖ and must ―yield to established fact of legal ownership, actual presence and control elsewhere; it cannot be applied if to do so would result in inescapable and patent injustice.‖ The relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of

the inherent power of each government to tax persons, properties, and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The certificates of stock remained in the Philippines up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the corporation, to whom they have been delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner thereof. The owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.

Situs for sales tax purposes Shell vs Municipality of Sipocot 105 Phil. 1263 The municipality of Sipocot, Camarines Norte, by an ordinance imposed additional sales tax on the sale of fuels and oils by Shell Co. effected through its delivery trucks outside the territorial limits of Sipocot. Shell protested contending that the sales should not be taxed as the transactions are consummated outside the territory of its location Sipocot . Where is the situs of the transaction? Held: The situs of the sale for tax purposes is not the place where the contract of sale is perfected but the place of its consummation. The additional sales tax on sales of petroleum products can not be applied to deliveries outside the municipality of Sipocot since the consummation of sale is determined by the delivery of the things which are the subject matter of the contract.

Commissioner vs. British Overseas Airways Corp. GR 6573-74-April 30-87

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British Overseas Airways Corp. (BOAC) is a 100% British Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association. It operates air transportation service and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did not carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the Philippines — Warner Barnes & Co. Ltd., and later, Qantas Airways — which was responsible for selling BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency income taxes against BOAC. BOAC protested contending that it can not be taxed for income derived from ticket sales in the Philippines because it can not be considered derived from sources ― within the Philippines ― where it had no landing rights and without certificate of convenience thus not allowed in carrying passengers nor cargoes to and from. Held: It is taxable. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that produced the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources. The 2 1/2 %tax on gross billings is an income tax. If it had been intended as an excise or percentage tax, it would have been placed under Title V of the Tax Code covering taxes on business.

Constitutional Limitations DUE PROCESS

Villegas vs Hsiu Chiong Tsai Pai 86 SCRA 270 (Supra) The imposition of license fee on all aliens desiring to seek employment in Manila, regardless of the nature of employment (whether causal, permanent or part-time or full time, lowly paid or highly paid executive) is unconstitutional. It is discriminatory because it fails to consider valid substantial differences in situation among aliens required to pay it. Classification should be based on real and substantial differences having reasonable relation to the subject of legislation.

Roman Catholic Bishop of Abra vs. Hernando 107 SCRA The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief. A summary judgment was made granting the exemption without hearing the side of the Province of Abra but relying merely on the declaration of the Roman Catholic Bishop of Bangued that they are using the properties actually, directly and exclusively for religious purposes. Was the state deprived of due process? Held: The petitioner‘s right to due process was violated absent the conduct of hearing. It is fully justified in invoking the protection of procedural due process. If there is any case where proof is necessary to demonstrate that there is compliance with the constitutional provision that allows an

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exemption, this is it. Instead, respondent Judge accepted at its face the allegation of private respondent. All that was alleged in the petition for declaratory relief filed by private respondents, after mentioning certain parcels of land owned by it, are that they are used "actually, directly and exclusively" as sources of support of the parish priest and his helpers and also of private respondent Bishop. 18 In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection was based primarily on the lack of jurisdiction, as the validity of a tax assessment may be questioned before the Local Board of Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper, as there had been breach or violation of the right of government to assess and collect taxes on such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner Province of Abra and deciding the case immediately in favor of private respondent, respondent Judge failed to abide by the constitutional command of procedural due process.

Commissioner vs Campos Rueda Co. GR 70648 Campos Rueda Corporation (Respondent Company, for short), imported several articles from United States and filed corresponding import entry. However the Bureau of Customs re-appraised them for higher rate based on alert notices sent by Finance Ataches abroad. Respondent then paid under protest for refund. Denied by BOC. On appeal CTA which found BOC violated the Tariff Code ordering refund of the overpaid amount. The issue posed is whether or not the reappraisal made by the Commissioner of Customs was in accordance with Section 201 of the Tariff and Customs Code of the Philippines (RA No. 1937), as amended by PD Nos. 34 and 1464. which required that the correct dutiable value of the article shall be ascertained from the reports of the Revenue Attache or Commercial Attache where there exists a reasonable doubt as to the value or price of the imported article declared in the entry. Was there violation of the due process? Held: In the Import Entries, Respondent quoted the prices of the imported merchandise as declared in the consular invoices and as required by Section 201. Reasonable doubt regarding the declarations was not shown to have existed such that recourse to reports from commercial attachés or other information became necessary. Neither was there compliance with the requirement in Section 201 regarding publication of the lists of dutiable values of imported articles from time to time. The re-appraisal made by the Bureau of Customs was based on "Alert Notices" received from Finance Attachés abroad, which, however, were not disclosed, neither to Respondent Company nor to respondent Court. The respondent's re-appraisal of the subject shipments or articles imported were based on the alleged "Alert Notice" which was not even presented by respondent to the Court. Assuming that there really is such a document and the same was received by the Commissioner of Customs, the fact is that the records do not show from what data the alleged alerted value was taken, and how the Commissioner of Customs ascertained and established the home consumption value of the imported articles and/or merchandise and when and where such alerted value was published as required by law. Under these circumstances, the re-appraisal made by respondent is clearly not in accordance with the provisions of Section 201 of the Tariff and Customs Code. While it is true that appraisers of the Bureau of Customs are given ample leeway in determining the correct customs duties under Section 1405 of the Tariff and Customs Code, 1 Section 201 of the same Code, which prescribes the criteria for the determination of the dutiable values of imported articles, has not been complied with. What is more, administrative proceedings are not exempt from the operation of due process requirements one of which is that a finding by an administrative tribunal should be supported by substantial evidence presented at the hearing or at least contained in the records or disclosed to the parties affected. 2 In this case the "Alert Notices" on which petitioner based its re-appraisal were not disclosed during the proceedings before the Bureau of Customs nor presented in evidence before respondent Court. The re-appraisal made by petitioner, therefore,

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can be faulted with arbitrariness in disregard of the standard of due process to which all governmental action should conform to impress upon it the stamp of validity.

EQUAL PROTECTION OF THE LAW

Juan Luna Subdivision vs. Sarmiento 91 PHIL 371 Juan Luna Subdivision, Inc. brought a suit against the City treasurer and the Philippines Trust Company as defendants in the alternative to determine which of the two defendants is liable for plaintiff‘s checks. Is appears that the plaintiff issued to the City treasurer of Manila a check to be applied to plaintiff‘s land tax for the second semester of 1941, the exact amount of which was yet undetermined . On Feb. 20, 1942, after the amount had been verified , which was P341.60, the balance of P1,868.92, covered by voucher no 1487 of the City Treasurer‘s Office , was noted in the ledger as a credit to Juan Luna Subdivision, Inc. Thereafter, the books of the Philippine Trust Company revealed that plaintiff‘s check was deposited by the City Treasurer with the Philippine National Bank, and the latter was paid the cash equivalent thereof by the Philippines Turst Company, which debited the amount against Juan Luna Subd.. However the City Treasurer refused after liberation to refund the plaintiff‘s deposit or apply it to such future taxes as maybe found due. The plaintiff claims the whole amount of the check contending that the taxes for the last semester of 1941 had been remitted by CA No. 703. Held: The law is clear that it applies to ―taxes and penalties due and payable,‖ i.e. taxes owed or owing. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. Herein, they are not. The taxpayers who paid their taxes before liberation and those who had not were not on the same footing on the need of material relief. Taxpayers who had been in arrears in their obligation should have to satisfy their liability with genuine currency, while the taxes paid during the occupation had been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with restored currency would be unduly enrich many of the payers at a greater expense to the people at large.

Pepsi-Cola Bottling Co. vs. City of Butuan 24 SCRA 789 The City of Butuan enacted Ordinance 110 imposing a tax of P0.10 per case of 24 bottles of soft drinks or carbonated drinks upon dealers engaged in selling soft drinks or carbonated drinks. Under the Ordinance tax was imposed upon an agent or consignee of any person, association, partnership, company or corporation engaged in selling soft drinks or carbonated drinks, with ―agent or consignee‖ being particularly defined on the inserted provision Section 3-A. In effect, local merchants engaged in the sale of soft drinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be one engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be null and void for being discriminatory. Is the ordinance violative of the equal protection clause of the constitution? Held:The ordinance is void for being discriminatory thus in violation of the equal protection clause of the constitution. There is discrimination because the tax was imposed on ―agents and consignees of outside dealer‖ in soft drinks without said tax being also levied on local dealers.

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The classification of such ―agents and consignees‖ who are taxable and ―local delaers‖ who are exempt is not based on substantial distinction.

Association of Custom Brokers vs. City of Manila 92 Phil 107 Plaintiff Association of Custom Brokers, Inc. challenge the validity of Ord. No 3379 which confers upon the municipal board the power to tax motor and other vehicles operating within the City of Manila on the ground that said ordinance offends against the rule of uniformity of taxation. Does the ordinance infringe on the rule on uniformity of taxes as ordained by the Constitution. Held: The ordinance infringes upon the rule of uniformity. It exacts the tax upon all motor vehicles operating within the City of Manila . It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. There is no pretense that the ordinance equally applies to motor vehicles which come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highways. As they are benefited by their use they should also be made to share the corresponding burden. This inequality renders the ordinance in question offensive to the constitution.

Shell Company of P.I, Ltd. Vs. Vano, etc. 94 Phil 387 The municipal council of Cordova, Cebu adopted several ordinances among which Ordinance 10 imposing an annual tax of P150 on occupation or the exercise of the privilege of installation manager. Shell Co., a foreign corporation, filed suit for the refund of the taxes paid by it on the ground that the ordinance imposing such tax is ultra vires for being discriminatory and hostile because there is no other person in the locality who exercise such designation or occupation. Held: : A tax on ―installation manager‖ is not discriminatory just because at the time said tax was imposed, there was no other person in the locality who exercised such occupation. The tax is and will be applicable to any person or firm who exercises such calling or occupation designated as ―installation manager‖.

FREEDOM FROM RELIGIOUS PROFESSION AND WORSHIP

American Bible Society vs. City of Manila 101 Phil 386 The City of Manila enacted an ordinance imposing a license fee on those engaged in the business of general merchandise. The American Bible Society is a non-stock, non-profit missionary organization engaged in sale of bibles and religious articles at little profit. The acting City Treasurer of Manila required the society to secure the corresponding Mayor‘s permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected on the ground that it violates the freedom of religious profession and worship.

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Held: The municipal tax is a curtailment of religious freedom and worship which is guaranteed by the constitution. A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society. NON-IMPAIRMENT OF CONTRACTS - Applies only to taxation but not in Police and Eminent Domain powers

Removal of tax exemption in a franchise is not a violation of the clause. Cagayan Electric Power & Light Co. vs. Commissioner GR. L-60126 Sept. 25-85 Cagayan Electric was granted an electric power franchise under is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other towns and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency income taxes for 1968 to 1971. Cagayan Electric protested invoking nonimpairment of contract. Held: The non-impairment clause does not apply to oublic utility franchises. Art. XII sec. 11 of the Constitution mandates that no public utility franchise or right shall be granted ―except under the condition that it shall be subject to amendment, alteration or repeal by the congress when the common good so requires. UNIFORMITY AND EQUITABILITY

Churchill vs. Concepcion (22 September 1916) Act 2339 was promulgated on 1914. Sec 100 thereof provided for imposition of an annual tax of P4 per square meter upon electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by buildings. The section was amended by Act 2432, reducing the tax to P2 per square meter. The taxes imposed by Act 2432 were ratified by the US Congress on 4 March 1915. Francis A. Churchill and Stewart Tait, copartners in Mercantile Advertising Agency, owned a billboard to which they were taxed at P104. The tax was paid under protest. Churchill and Tait instituted the action to recover the amount contending that the tax is void for lack of uniformity. Held: Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be taxed at different amounts provided the rate is uniform on the same class everywhere, with all people, at all times. Herein, the Act imposes a tax of P2 per

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square meter or a fraction thereof upon every electric sign, billboard, etc., wherever found in the Philippine Islands. The rule of taxation upon such signs is uniform throughout the islands. The rule does not require taxes to be graded according to the value of the subject(s) upon which they are imposed, especially those levied as privilege or occupation taxes. DOUBLE TAXATION “Obnoxious” or direct duplicate taxation vs Broad, permissive or indirect duplicate taxation

Procter and Gamble vs. Municipaliity of Jagna L-24265 Dec. 28, 1979 The municipality of Jagna enacted Ordinance No. 04 under the authority of CA472 ehich allows it to impose licenses for regulation as well as revenue. Through the said ordinance it imposed license tax or fee on persons, firms or corporation exercising the privilege of storing copra in a bodega within the municipality‘s jurisdiction. Procter and Gamble Philippines Manufacturing Corp. contended that the ordinance which imposed a storage fee of 0.10 for every 100 kilos of all exportable copra deposited in its ―bodega‖ at said municipality is inapplicable to it even if it is valid according to the laws in force because it is not engaged in the business or occupation of buying and selling copra but only in storing copra in connection with its business of manufacturing soap and other similar products which products are already being taxed. It paid under protest and filed a suit seeking that the ordinance be declared void for being a double taxation. Is there a double taxation? Held: The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon municipalities by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the privilege of storing copra within the municipality‘s territorial jurisdiction. Such fees imposed do not amount to double taxation. For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. A tax on the company‘s products is different from the tax on the privilege of storing copra in a bodega situated within the territorial boundary of the municipality.

TAX EXEMPTIONS Tax exemption- Strictly construed s. taxpayer

MERALCO vs VERA Meralco, holder of franchise to construct , maintain and operate an electric light heat and power system in the city of manila, imported copper wires, transformers and insulators for use in the operation of its business in 1962. In 1963, it again imported copper wires, transformers and insulators to be used therein, Both importations were subject to the compensating tax (now, VAT). After payment thereof, Meralco claimed for refund which was sequentially denied by BIR and CTA, on the ground that it is tax exempt under its franchise. Is the claim tenable? Held : No. One who claims exemption from payment of a particular tax must do so under clear and unmistakable terms found in the statute as it is strictly construed against the taxpayer

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Meralco‘s franchise exempts it from payment of property tax on its poles, wires, transformers and insulators, but not from payment of taxes of the ones in question which by mere necessity or consequence alone, fall upon property. The compensating tax being imposed is not a property but an excise tax imposed on the performance of an act, engaging in occupation or enjoyment of a privilege. Property tax is a direct tax whereas the compensating tax which is levied on the property because of its use s an excise tax.

Manila Jockey Club vs Collector 98 Phil 670 Philippine Charity sweepstakes (PCSO) is allowed by law to hold some specific day of race for charitable purposes in the racetrack of Manila Jockey Club (MJC). PCSO paid its rentals. From said rentals the BIR collected income tax. MJC later claimed for refund on the ground that it is exempted under the law authorizing said PCSO races, MJC is exempted from paying municipal and national taxes. Is the claim valid? Held: The exemption clause provided for in the said law merely intends to exempt racing club in whose premises PCSO holds it charitable races, from payment of municipal and national taxes that the law requires to be paid in connection with the said races. It cannot refer to income tax that may be imposed on the rentals that maybe paid for the use of said tracks and other paraphernalia. That is an income the the MJC has to account for income tax purposes because it is an income earned because of the use by PCSO of its tracks, and not arising from the horse race it held but from the rentals , thus can be considered not connected with the races within the purview of the exemption clause. Liberally construed –

SSS vs City of Bacolod L-35726 July 21, 1982. For SSS‘ failure to pay realty tax for three years for lands being used in pursuance of its operations, City of Bacolo levied upon said properties and thereafter declared them forfeited in its favor. SSS sought reconsideration on the ground that being a government owned and controlled corporation, it is exempt from payment of real estate taxes. When no action was taken thereon, SSS filed an action with the CFI fir the nullification of the forfeiture proceedings. After due hearing , the court rendered decision declaring the properties of SSS not exempt from the payment of realty taxes since SSS does not fall under the section 39 of the Charter of the city of Bacolod and there is no low exempting said entity from taxes. Is SSS exempt? Held: Under Sc. 29 of the said charter, lands and buildings owned by the Republic of the Philippines, regardless of whether such property is devoted to governmental or proprietary purpose is exempt from payment of real estate taxes and PD No. 24 which amended SSS Act of 1954,has removed all doubts as to the exemption of the SSS from taxation by explicitly providing for such exemption it is axiomatic that when public property is involved, exemption is the rule and taxation, the exception.

David Nifanan vs Commissioner L-78780 July 23, 1987 The BIR thru the Fiscal Management and Budget Office of the Court deducted withholding taxes from the salariesmof the judges and justices of the court. Certain RTc judges n Manila sought to prohibit and perpetually enjoin the said deductions on the ground that Sec. 10 art. VIII of the 1987 constitution mandates that ―during their continuance in office, their salary shall not be decreased‖ and thus constitutes diminution of their salary. Are they exempt from the said tax?\

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Held : No. The salaries of Court justices and judges are taxable. The clear intent of the Constitution was to delete the proposed express grant of exemption from payment of income tax to members of judiciary, so as to give substance to the equality among the three branches of the government. In the course of the deliberations in the constitutional Commission, it was expressly made clear that the salaries of members of the judiciary would be subject to the general income tax applied to all taxpayers. Settled is the fundamental principle that the intent of the framers of the organic law and of the people adopting it should be given effect.

Commissioner vs Gotamco L-31092-Feb 27, 1987 The World Health Organization has regional office in Manila. Under the host agreement between it and the Republic of the Philippines, it enjoys immunities and privileges specifically, inter alia, ―the Organization, its assets, income and other properties shall be exempt from all direct and indirect taxes. It is understood however, that the Organization will not claim exemption from taxes which are in fact, no more than charges for public utility services.‖ It then entered into another agreement with the RP when it decided to construct its headquarters building which provided that it may import into the country materials and fixtures required for the construction free from all duties and taxes and agrees not to utilize any portion of the international reserves of the government. Based on the opinion of BIR that WHO would be exempt from the contractor‘s tax being an indirect tax, WHO opened the bidding for the construction stating the exemption and subsequently awarded the same to Gotamco and Sons. Upon completion of the project BIR however demanded the 3% contractors tax from Gotamco. CTA reversed the BIR. Is the contractor‘s tax an indirect one wherein WHO is exempted? Held: Yes. Direct Taxes are those that are demanded from the very person who, it is intended or desired should pay them. While the indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. The contractor‘s tax is of course payable by the contractor , but n the last analysis, it is the owner of the building that shoulders the burden of tax because the same is shifted by the contractor to the owner as a matter of self-preservation, thus it is AN INDIRECT TAX. It is an indirect tax on WHO as the contractor can shift the burden to WHO and it cannot be said that this tax has no bearing with WHO. Being exempted from indirect tax, it is thus exempt from the contractor‘s tax.

Commissioner vs Frank Robertson, et al. (L-70116-19 Aug. 12 1986) The Commissioner assessed income taxes on several US NAVY employees stationed in the Philippines some of whom were bon in the Philippines repatriated in the US and returned for assignment in the Philippines. The assessment was cancelled by CTA on the ground that under the RP-Us Military Bases Agreement , No national of the US employed in the Philippines in connection with the Bases x x x residing in the Philippines only by reason of such employment, x x x shall be liable to pay income tax in respect to income derived from the Philippines or sources other than the US. BIR contends that the respondents do not reside on the Phils. Only by reason of the employment. Is BIR correct? Held: No. In order to avail oneself of the tax exemption under the RP-US Military bases agreement : he must be national of US, employed in connection with the construction, maintenance operation and defense of the Bases, residing in the Philippines by reason of such employment and the income derived is from the US. The agreement intention was to exempt all US citizens working in the Military bases fro the burden of paying Philippines Income tax without distinction as to whether born locally. The principle of international law requires the obligation to

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fulfil in good faith the treaty engagement, for the stipulations thereof to be observed in their spirit and according to their letter. NATURE And APPLICATION Of TAX LAWS. 1. Not penal nor political but Civil

Hidalgo vs. Collector (100 Phil 288) Hidalgo filed his tax return for 1951 but deducted from his gross the casualty loss incurred during the war, i.e loss from fire , storms, shipwreck etc. Including war losses on the contention that internal revenue laws were at the time unenforceable or in state of suspension. Is Hidalgo correct? Held: No. Although such loss was incurred during said war, it was not possible for him to make the deductions because the same was not allowed under the revenue laws which even under the Japanese occupation, continued to be in force. 2.BASIC PRINCIPLES Tax laws nor for avoidance but for collection

Commissioner vs. Phoenix Assurance L-19903, May 30, 1965. Phoenix, British insurance company licensed to do business in the Philippines, entered into reinsurance treaties with various foreign insurance companies agreeing to cede portion of its premiums originally underwritten by its entities in consideration of the assumption of equivalent portion of liability by the re-insurers. Later on Phoenix filed its return reporting losses in 1952. in 1955 it filed an amended return. After examination of the amended return, Commissioner in 1958 assessed deficiency income tax. CTA found the Commissioner barred by prescription having been exercised more than five years from the date original return was filed. Commissioner insists it is within the prescriptive period reckoned from the filing of amended return. From when should the reckoning commence? Held: From the time of filing of the emended return. Considering that the deficiency assessment was based on the amended return which is substantially dirrefent from the original return, the period of limitation of the right to issue the same should be counted from the filing of the emended income tax return. Thus the right of the Commissioner to issue the assessment has not lapsed. To hold otherwise would be paving the way for the taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same more than five years later when the commissioner has lost its authority to assess the property tax hereunder. The object of the TAX CODE is to impose taxes for the needs of the government, not to enhance TAX AVOIDANCE to its prejudice. Legislative intent – imposition of taxes- Good faith is presumed.

Commissioner vs Connel Brothers GR no. L-27752-53 Aug. 30, 1971 Connel Bros. filed its income tax return at the rate determined from its deduction for bad debts, depreciation and excess in valuation of leasehold improvements. The commissioner upon review

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disallowed said deductions and assesses deficiency taxes. After due trial, the CTA reduced the liability of Connel for the one taxable year but sustained the assessment for the other taxable year ordering its payment within 30 days ,otherwise shal be imposed a surcharge of 5% and interest of 1 % from the date of the finality of decision until paid, but not to exceed an amount corresponding to the interest for a period of 3 years. Upon motions for clarifications the CTA modified its decision applying the provision of the amending law (RA 2343). Commissioner maintained that the CTA should have observed the unamended provision which was enforcible when the assessments were made and not that as amended by RA 2343. CTA justified that though the deficiency taxes were due and assessed before the effectivity of the amending law, its decision modifying the commissioner assessment constituted new assessment during which the amending law was in force. What law shall be applied? Held . The imposition of surcharge and interest has been well settled upon failure of the taxpayer to to pay the tax on the date fixed by law. The rule has to be so because a deficiency indicates non-payment of the correct and collectible tax and such stte of deficiency exists not only from the very time the taxpayer failed to pay the correct amount due from him. Public policy demands that the date they are payable being fixed by law should not be moved or changed at the discretion of the commissioner and for that matter neither the accrual of interest be dependent on the final outcome of action contesting the correctness of the assessment of deficiency tax. The law creating Court of Tax appeals or Revenue Code do not vest the CTA with authority to supersede the period of payment of the tax or exercise primary duty of commissioner in assessing /collecting the tax. Since the taxpayer in these cases has failed to pay the correct amount of tax due collectible in 1955 and 1956, his liability therefore should be etermined pursuant to the law then in force when the tax originally fell due. In case of doubt as to taxability, resolved in favor of non-imposition.

Commissioner vs Fireman‘s Fund Insurance L-30644 Mar 9, 1987 As required y law, in its issuance of insurance policies, Fireman bought Documentary stamps (DST) but instead of being affixed on the policies issued affixed on the monthly statements of policies issued and to corresponding pages of policy register, without authority from the Commissioner. The Policy register lost The commissioner therefore assessed and demanded the payment of DST plus compromise penalties . CTA overruled the BIR holding that while respondent failed to follow the mode of affixing the DST, it is not tantamount to failure of paying the same, the fact remains that the same were purchased by Firemen and paid by it. Evidence exists that the said DST were paid by Fireman‘s such as the checks and vouchers. There thus created a doubt whether Fireman indeed on account of the lost register, paid the DST, and if not should they be asked to pay same tax for the same documents? Held: no. while it is true that the best evidence showing payment of the DST are the policies themselves, the said payment are sufficiently shown by the surrounding evidence which are uncontradicted and of considerable weight. It is a general rule n the interpretation of the statutes levying taxes or duties , that in case of doubt, such statutes are to be construed most strongly against the government and in favour of the subjects of citizens, because burdens are not to be imposed , nor presumed to be imposed beyond what statues expressly and clearly import. The purpose of imposing DST is to raise revenue and the corresponding amount has already been paid and actually become part of the revenue of the government revenue. Taxes as lifeblood of the government- prompt collection is in imperious need.

Cebu Portland Cement Co. vs CTA L-29059 Dec. 15, 1987

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By virtue of a decision by the Supreme Court modifying CTA decision, the Commissioner was ordered to Refund to Cebu Portland the amount representing overpayment of ad valorem taxes on cement produced and sold by the latter. The commissioner posited that the cement is a manufactured and not mineral product therefore not exempt from sales taxes. Motion for reconsideration of both parties denied , Cebu moved for Writ of Execution. Commissioner opposed the motion contending that Cebu still had outstanding sales tax liabilities for which the judgment was already credited and in fact a balance still remains. CTA granted the writ ruling that the alleged tax liability is still being questioned and therefore cold not be set off against the refund. Commissioner contends that the enforcement is was properly effected through his power of distraint of personal property pursuant to Tax code moreover the collection of tax may not be enjoined under Sec. 305 subject only to the exception prescribed in RA 1125. Does the pending contest of the assessment stall the enforcement of the tax deficiency? Held: No. the argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as the ―lifeblood of the government‖. If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. That is the reason why save for the exceptions, No court shall have the authority to grant an injunction when assessment is being questioned in court o justice more so if as in this case the assessment is being questioned still and only in administrative level- much more that even after crediting the refund against the deficiency a balance is still due to the respondent. To reuire the Commissioner to actually refund the amount of the judgment debt which he will have later the right to distraint for payment of its tax liability is only an IDLE ritual.

Republic vs Oasan Vda De Fernandez

“No expos facto law” rule not applicable to taxes. Olimpio Fernandez and his wife Angelina Oasan had a networth which grew with their acquisition of everall real properties during the Japanese occupation until his death. Pursuant to War profits tax law, the commissioner assessed war profits tax to his estate which the administratrix refused to pay. The latter questioned the constitutionality of the law for being retroactive. Held: Tax laws not being penal in character , the rule in constitution agsint passage of Ex ps Facto Law cannot be invoked . the unconstitutional prohibition against the passage of ex pos facto legislation, applies only to criminal or penal matters and not to laws which concern civil matters or proceedings generally ,or which effect or regulate civil or private rights.

Bagatsing vs Ramirez 74 SCRA 306

Publication of local tax ordinance; local tax code governs The Municipal board of Manila enacted ordinance (No.7522) regulating the operations of public markets and prescribing fees for the rentals of its stalls. It was approved by mayor Bagatsing without being published in two daily newspapers of general circulation in Manila before its

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enactment neither was it published after approval. RTC declared it null and void for not complying with the Revised City charter of Manila. Petitioner moved for reconsideration alleging that the local Tax Code requires only post-enactment publication. What law should apply? Held : The local Tax code applies. There is no question that the Charter of Manila is a Special law and the Local tax code a general one. The rule that the special law should remain as exception to the general one yields to a situation where the special statute (charter) refers to a subject in general, which the general statute (Local Tax code) treats in particular. The charter speaks of ordnance in general while the Tax code relates to ordinance levying or imposing taxes in particular. The charter is dominant therefore in ordinances in general but the dominant force loses its continuity when it approaches the realm of ordinance levying or imposing taxes in general. The general provision must give way to the particular provision especially so that the particular provision was enacted later than the general provision. Publication requirement

Tanada vs Tuvera GR 63915 April 4,1985 Invoking the peoples right to be informed on matters of public concern, a right recognized in sec. 6 Art. IV of the 1973 Constitution , as well as the principle that laws to be valid and enforceable must be published in the Official Gazette (OG) or otherwise effectively promulgated , petitioners sought a writ of mandamus to compel respondent public officials to public and or cause the publication in the Official Gazette of various presidential decrees, letters of instruction, general orders, proclamations, executive orders , letters of implementation ad administrative orders. The respondents contend that publication in the OG is not sine quanon requirement for the effectivity of laws where the laws themselves provide for their own effectivity dates as the presidential decrees questioned contain especial provision as to the dte of its effectivity, publication in OG is not indispensable for their effectivity. Such position is anchored in Art. 2 of New Civil Code which provides that Laws shall take effect after fifteen days following the completion of their publication in the OG unless it is otherwise provided… Is publication necessary? Held: the conclusion is reached that article 2 does not preclude the requirement of publication in the OG even if the law provides for the date of effectivity. Commonwealth Act 638 requires publication of statutes among others in the OG. The clear object of the provision is to ive the general public adequate notice of the various laws which are to regulate their actions and conduct as citizens. Without such notice and publication there wouolde be no basis for the application of the maxim ―Ignorantia Legis non excusat‖. It would e height of injustice to punish or otherwise burden a citizen for the transgression of a law which he had no notice. Exemptions to NON-Retroactivity of BIR Ruling

Commissioner vs Burroughs Ltd., et al GR 66653, June 19, 1986. BIR Ruling issued on January 21, 1980 wherein it was ruled that the 15% branch profit remittance tax under Sec. 25 (a)(5) of the Tax Code should be based on the amount of profit actually remitted by a Philippines Branch to its parent company abroad. However in 1982 under Revenue Memorandum Circular No8-82, the BIR reversed the prior ruling and held that the 15% branch profit remittance should be based not on the amont of profits actually remitted but on the amount applied for remittance thereby making the basis of the 15% tax larger than on which said tax was computed under the original 1980 ruling . the BIR in its subsequent ruling in 1982 reasoned that the amount applied for remittance should be the tax base, thus giving to a bigger

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amount of tax. Will the reversal ruling in 1982 retroact to the branch profit remittances made before that year or will apply to remittances made by it in 1979? Held: The payment of the branch profit remittance having made on March 1979, it follows that BIR Meorandum Circular No. 8-82 issued on March 17, 1982 can not be given retroactive effect in the light of Sec. 327 of Tax Code which provides that any revocation, modification or reversal of any rules and regulations promulgated in accordance with the preceding section or any of the ruling or circulars promulgated by the commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayer except in he following cases: Where taxpayer deliberately mistakes or omits material facts from his return or any document required by BIR; where the facts subsequently gathered by BIR were materially different from the facts on which the ruling is based or where the taxpayer acted in bad faith.

ASSESSMENT OF TAXES

Republic vs LIMACO & DE GUZMAN 5 SCRA 990 In 1946, Limaco & De Guzman Co. was engaged in the importation of cigarettes. To guarantee payment of revenue taxes, the company and the Visayan Surety and Insurance Corp.. as surety, executed 2 importer bonds. On 27 June 1946, the company filed with the Bureau of Customs entry papers covering shipment of 2 million ―Spud‖ cigarettes it had imported from New York. the specific tax due thereon amounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid the Bureau of Customs the tax with P1000 in cash and P5,000 in a PNB Check on 15 July 1946. The cigarettes were released to the company but the check bounced. On 17 June 1948, the Collector of Internal Revenue demanded the payment of the deficiency specific tax. The amount remained unpaid. On 15 April 1951, the company requested that action be deferred as it intends to settle the matter amicably with the BIR. The Republic filed a complaint for the forfeiture of the bonds, and the payment of the sum of P5,000 plus interest. The company invoked the defense of estoppel and prescription has the action prescribed on the ground that the assessment was made in beyond 5 years from July 15 1946. What is Assessment? and has the power of assessment prescribed? Held: To Assess means to impose a tax; to charge with a tax; to declare a tax to be payable; to apportion a tax to be paid or contributed; to fix a rate; to fix or settle a sum to be paid by way of tax; to set, or charge a certain sum to each taxpayer; to settle, determine or fix the amount of tax to be paid (84 C.J.S. pp. 749-750). The assessment in question has not yet prescribed. It was not issued on July 14, 1946, but on June 17, 1948. When the Collector of Internal Revenue received information from the Bureau of Customs that the said sum of P5,000.00 was not paid (for lack of funds), he immediately issued a letter dated June 17, 1948 addressed to the defendant assessing and demanding from the latter the payment of the said P5,000.00. It was then that the unpaid specific tax of P5,000.00 was deemed to have been assessed. When the tax was paid in cash and in check on July 15, 1946, the Collector had a right to rely, as it, in fact, relied that said payment fully settled the specific taxes due on the imported cigarettes. The cigarettes would not have been released, had Collector been aware that the payment did not fully settle the said specific taxes. It can not be said that July 15, 1946 (the date of payment) was the date of assessment from which the period of collection should start. July 15, 1946 was simply the date of tender of payment. The right to collect the amount of P5,000.00 began only after the P5,000.00 — rubber check was dishonored. The action to assess and collect the unpaid tax commenced anew on June 14, 1948, when a letter of demand for the amount of said rubbercheck had been sent to the defendant. This letter should be deemed to be an assessment

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because it declared and fixed a tax to be payable against the party liable thereto, and demanded the settlement thereof. Judicial action having been instituted on February 18, 1953, the five-year period for collection had not then elapsed. Even assuming that July 15, 1946 is the date of assessment, still the action to collect is not barred by the statute of limitations, because the statute was suspended when the rubber-check was dishonored and demand letters were sent by the commissioner. The defendant likewise wrote two letters to the Solicitor General on April 15, and 25, 1951, respectively, requesting for the deferment of the judicial action to be taken by the latter towards the collection of the obligation, so that the former could make representations with the Collector to settle the matter amicably. This being the case, the prescriptive period to effect the collection of the tax which allegedly commenced on July 15, 1946, was interrupted. "The prescription of actions is interrupted when they are filed before the court, when there is any written extrajudicial demand by the creditors and when there is any written acknowledgment of the debt by the debtor " (Art. 1155, New Civil Code). "Taxpayers seeking to recover overpayment in income could not claim that collection by Commissioner was barred by limitations where procedure carried out which result in postponement of collection was that requested by taxpayers". Having acknowledged the debt in writing in April 1951, and the complaint was filed in 1953, prescription had not set in. The full time for the prescription must be reckoned from the cessation of the interruption (Sagucio v. Bulos, G.R. Nos. L-17608-09, July 31, 1962, and cases cited therein). Had it not been for the filing of the complaint in 1953, the interruption would have ceased in April 1956.

BASIC RINCIPLES OF ASSESSMENT 1. Prima Facie presumed correct. Burden of proof to dispute correctness is on the taxpayer.

Interprovincial Autobus Inc. vs Collector of Internal Revenue GR L-6741 Jan 31, 1956 Autobus is a common carrier engaged in transporting passengers and freight. Provincial Revenue Agent examined the stubs of the freight receipts that had been issued by it. However most of the stubs were not preserved so he referred to the Conductor report but the same basis did not state the value of the goods transported therein so that pursuant to Revised Documentary Stamp Tax Regulations, he assumed that the value of each of the receipt amounted to more that P5 and so assessed a Documentary stamp tax on each of the issued receipts. The Documentary Stamp tax was collected, Autobus filed for Refund which was denied contending that the evidence it submitted proved that the freight receipts covered shipments of merchandise worth not more than P5. Who has the burden of proving that the assessment was illegal? Held: The taxpayer. The evidence submitted failed to prove that the receipts covered shipment of merchandise worth below P5, it merely tried to establish that the said receipts were issued to people carrying agricultural produce from one place to another. The conclusion is drawn however that the receipts were covered shipments above P5 and thus the assessment was valid, because it is a common knowledge that barrio people do not bother to secure receipts for small cargo for convenience and save them some centavos. On the other hand receipts are demanded for valuable cargoes to insure against their loss. The testimony notwithstanding , the fact that it was not contradicted fails to prove that the merchandise covered were worth P5 or less. Furthermore , the rule is that in actions for recovery of Taxes assessed and collected , the taxpayer has the burden of proving that the assessment was illegal. All presumptions are in favor of correctness of Tax assessments. The good faith of Tax assessors and the validity of their actions are presumed. They will be presumed to have taken into consideration all the facts to which their attention was called. No presumption can be indulged that all of the public officials of the state in various

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countries who have to do with the assessment of property for taxation will knowingly violate the duties imposed upon them by law.

Tan Guan vs CTA GR No. L-23676 April 27, 1967 Tan Guan and Sian Lin , both chinese nationals formed and registered a general partnersip. A general Partnership is exempt from income tax although it I required to file income tax return and profits whether or not distributed are considered income of the partners. Upon confidential report BIR investigator examined the books of the partnership and found fictitious expenses posted therein to avoid taxes, it then disallowed certain expenses and treated the same as individual income of Tan Guan. The latter was assessed by the commissioner for the deficiency tax which the CTA affirmed. To whom lies the burden of proof? Held: The taxpayer Tan Guan. The Commissioner, sustained by the Tax Court found for a fact that the expenses posted are fictitious. Tan Guan presented no evidence to disprove such findings, he only alleged that he could not present the receipts anymore considering that the assessment was made after the prescription period of Five years within which he is required to preserve the books. The same cannot be accepted as the investigation was conducted within five years. In appeals to the CTA, the determination of the Commissioner of Internal Revenue is presumed correct and it behoves the taxpayers to rebut such presumption. Tan Guan failed to overcome his burden. Being fictitious , the expenses cannot be deducted from the gross income. Assessments presumed correct, they must be based on facts, a presumption cannot be based on another presumption

Alberto Benipayo vs Collector GR. No. L-13656, Jan 31, 1962 Benipayo is the owner operator of Lucena theatre, He was investigated by BIR for amusement tax purposes. In 1949 to 1951, the BIR examiner found that the ratio of adults patronizing the taxpayers theatre was 3 adults to one child, However in 1952 to 1953, the ratio was in the reverse 3 children to 1 adult. Concluding that P0.40 tickets for adults was split into two P0.20 tax exempt tickets for children, the examiner assessed the corresponding tax. Will the assessment prosper? Held: No. the assessment is faulty since it merely assumes that the ratio of adult theatre goers in 1952 to 1953 is the same as that which obtained in 1949 to 1951. As soon as it is served an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded, Hence assessments should not be based on mere presumptions. The presumption of correctness of assessment can no be made to rest on another presumption that he circumstances in 1952 to 953 are presumed to be the same as those existing in 1949 to 1951, there are no substantial facts to support the assessment is question. Fraud is a serious charge and clear and convincing proof is lacking in this case to substantiate it. Commissioner cannot be compelled by Mandamus to assess taxes.

MERALCO SECURITIES CORP. vs SAVELLANO Juan Maniago, who after his death was substituted in the proceedings by his wife and children, submitted to the Commissioner confidential information against the Meralco Securities Corporation for Tax evasion for having paid income tax only on 25% of the dividends it received from Meralco for the years 1962-1966, thereby allegedly shortchanging the government of income tax due from 75% of said dividends. The Commissioner caused the investigation of the denunciation after which he found and held that no deficiency corporate income tax was due from the Meralco Securities Corporation on the dividends it received from MEralco. Consequently,

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the Commissioner denied claim for informer‘s reward. The action of the Commissioner was sustained by the Secretary of Finance. On mandamus, respondent judge, however, rendered judgment granting the writ prayed for and ordered the Commissioner to assess and collect from the Meralco Securities corp. the sum of deficiency corporate income tax for the period covered plus interest and surcharges due thereon and to pay 25% thereof to Maniago as informer‘s reward. Can te Commissioner be compelled by Mandamus? Held: No. Mandamus only lies to enforce the performance of a ministerial act and not to control the performance of a discretionary power. Purely administrative and discretionary functions can not be interfered with by the court. Since the office of the Commissioner is charged with the administration of 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 and proper for that would be tantamount to usurpation of executive function. The decision or ruling of the Commissioner of Internal Revenue that no tax is due and collectible is a valid exercise of discretion in the performance of official duty and cannot be controlled much less reversed by mandamus. Hence, no tax is due, nothing can be assessed and no reward is due to Savellano. Government is not estopped by the mistakes and errors of its agents

Commissioner vs Armando Abad (GR L-19627 June 27, 1968) Republic is doing business under name of Republic Alcohol distillery, manufacturer and seller of denatured alcohol. Domestic alcohol when denatured and used for industrial purposes are exempt from payment of specific tax. It applied for denaturation of certain gauge liters of rectified alcohol, BIR denaturing committee supervised the denaturing process and thereafter certified that the alcohol has been suitably denatured and therefore exempt from specific tax. On subsequent surprise inspection however, BIR found out that such alcohol were not completely denatured and some of them which can still be used to produce liquors were sold. BIR then assessed the respondent for the specific tax of the portion not denatures and sold.Respondent invokes the earlier certification by denaturing committee, is the position sustainable? Held: No. The said earlier findings and certification maybe disregarded by the subsequent inspection team. It is a settled rule that in the performance of its governmental functions, the state cannot be estopped by the neglect of its agents and officers. Nowhere is this more true than in the filed of taxation. Estoppel does not apply to preclude subsequent findings of taxability

Power to make final assessments can not be delegated

City Lumber vs Domingo 10 SCRA 39 Petitioner seeks a review of the decision of the CTA upholding the deficiency income tax of the BIR wherein the deductions claimed consisting of the value of the plywood and GI sheets allegedly lost in the fire were denied and the disallowance of the cash balance of P8,000 as a loan . Taxpayer also contends that by issuing the deficiency assessment , the Commissioner violated Memorandum Order No-V634 dated July 3, 1956 granting the authority to the Regional directors to close tax cases involving deficiency assessments not exceeding P10,000. Can the authority to make assessment be delegated?

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Held; No. The Commissioner cannot delegate the power to make a final assessment to his subordinate and consequently despite an order of said commissioner granting regional directors authority to close tax cases, said order is applicable to his subordinate officers only and could not bind the Commissioner himself, who has been entrusted by law to make final assessments. HOWEVER, Commissioner may delegate the actual task of assessment to his subordinate officers

Villamin vs Collector 109 Phil 896 Provincial revenue agent of Oriental Mindoro made an assessment to Villamin, who requested reconsideration. Commissioner thru the acting chief of the Assessment Department denied the request. Villmain then sought to settle the case amicably but then again denied. He sought another reconsideration but eventually denied. He then filed an appeal with the CTA. Can the commissioner validly delegate actual task of assessment to his acting commissioner? Held: Yes. Considering the memorandum order No V-603 of the BIR, which authorizes the said official to sign the letters of demand involving assessments in behalf of the collector. Moreover, the subsequent letters signed by the collector affirming and upholding the correctness of the assessment made by his assessment Department constitute evident proof that the official who signed the letter was duly authorized to do so. To be valid assessment , must be directed to the proper party

Republic vs heirs of de la Rama (18 SCRA 861) Commissioner assessed a deficiency income tax against the estate of de la Rama for dividends received and undeclared in the return made by its administrator Eliseo Hervas. The assessment of deficiency income tax with surcharge was sent to Lourdes de la Rama the latter‘s counsel advised that the same should be sent to the administratrix, Leonor as his client had no authority to represent the estate. Deputy Collector sent a letter of demand to Leonor as administratrix, not having paid sent another demand to Lourdes as heir, the latter‘s counsel reiterating its stand. Unpaid, the Republic filed with the DFI Manila complaint against the heirs to collect their proportionate share in the tax liability of the estate. Was there was there effective assessment? Held: No. An assessment is deemed made when the notice to that effect is released , mailed or sent to the taxpayer for the purpose of giving effect to the assessment . where an estate is under administration, the notice of assessment must be sent to the administrator. In this case, notices were sent to persons other than the administrator, hence they could not produce any legal effect. The administrator is the representative of the estate whose duty is to pay and discharge all debts and charges on the estate and to perform all orders of the court by him to be performed and to pay the taxes and assessments due to the government of any branch or subdivision thereof. PRESCRIPTION OF RIGHT TO ASSESS AND COLLECT TAXES 1 Prescription of right to assess. (a) in case of absence of fraud or absence of omission to file return. Effect of assessment notice mailed and release within prescriptive peiord but received afterwards.

Basilan estates vs Commissioner (21 SCRA 173)

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Basilan estate inc., a corporation engaged in coconut industry filed an income tax return and paid income tax on 1954 for period 1953. upon examination however the Commissioner assessed Basilan estates for deficiency estate tax and surcharge. On non-payment a warrant of distraint and levy was issued but not executed when the deputy commissioner ordered the District Director to hold execution and maintain construction embargo instead. Because of its refusal to execute waiver of prescription , Basilan‘s request for reinvestigation was not given due course. Notice was served that the warrant would be executed. Basilan filed petition for review with CTA alleging prescription of the period of assessment and collection considering that the assessment was made on February 26, 1959 but Basilan claims it never received the same or if it did it was received beyond the five-year period. To prove it the notice had an annotation stating ‗no accompanying letter 11/25/‖ indicative that the notice was after March 24, 1959, the last date of the five year period within which to assess deficiency tax, since the original returns were filed on March 24, 1954. Was the assessment made within the prescriptive period?\ Held: Yes. Under Sec. 331 of the Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed made when the notice to his effect is released, mailed or sent by the collector of internal revenueto the taxpayer and it is not required that the notice be received y the taxpayer within the aforementioned 5-year period.

Effect of omission of substantial portion of decedents taxable property

Commissioner v. Lilia Yusay Gonzales 18 SCRA 757 (As if no return is filed)

Matias Yusay died intestate leaving two heirs legitimate child Jose and acknowledged natural child Lilia. Jose filed with the BIR an estate and inheritance tax return declaring certain properties. Upon investigation the BIR found out several other properties and thereafter assessed estate and inheritance taxes which were increased subsequently. Jose requested extension of time within which to pay the tax but was denied by the commissioner who issued warrant of distraint and levy. Matias then died and substituted by his wife as administrator of the 2/3 of the estate and Lilia 1/3 thereof. Lilia assailed the assessment to on the ground of prescription since it was issued more than five years had elapsed since the filing of return. Was the power to issue the assessment prescribed already? Held: No. The return filed by Jose was not sufficient to commence the running of the prescriptive period. The tax code lists the requirements for the filing of returns among others the setting forth of the gross estate value. A return need not be complete in all particulars. It is sufficient if it complies with the law, there is substantial compliance when return is made in good faith; it covers the entire period involved and it contains information as to various items of income deduction and credit and with such definiteness as to permit the computation and assessment of the tax. The estate and inheritance tax return filed by Jose was substantially defective because it was incomplete such huge under-declaration could not be a result of oversight as he very well knew of the existence of the omitted properties. The return then is so deficient that it prevented the commissioner from computing the taxes due on the estate. IT was as though NO Return was made. The Commissioner had to determine and assess the taxes on the data obtained , not from the return but from the other sources. We therefore hold the view that the return in question was no return at all as required in Section 93 of tax code. Effect of filing wrong return- income instead of sales tax filed .

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Butuan sawmill, Inc. vs. CTA L-20601 The BIR assessed sales tax with surcharge and compromise penalty on Butuan Sawmill for it sale of logs ―FOB Agusan‖ to Japanese firms. Petitioner contends that the said assessment having made outside the five year period when it filed its income tax returns wherein the proceeds of the sale was declared, the assessment should not be given effect considering that the income tax return was a substantial compliance with the requirement of filing a sales tax return. If there should be return filed the fiv year prescriptive period should be applied. What is the effect of the filing of wrong return? Held: No prescription runs yet. The income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Se. 331 of 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 said of Sec. 331., otherwise , if he does not file a return, the assessment may be made within ten years from discovery of the omission to file the return. Prescriptive period-recovery of erroneously paid tax.

Guagua electric vs Collector 19 SCRA 790 Guagua electric Light Plant engaged in supplying electricity . It had paid pursuant to its franchise 1 percent of gross income for the first 20 years and subsequent 15 years two percent of gross income. Upon demand by Commissioner it paid 5% based on said misrepresentation by the Commissioner . More than two years thereafter, it filed for refund with the commissioner which denied. Petition for review with the CTA, the latter granted the Motion to dismiss of BIR. Petitioner contended that the motion to dismiss would have not been granted because it was the Commissioner who induced the petitioner to believe that he was to pay 5%. Was the action for refund brought seasonably? Held: No, Sec. 306 of the tax code, which provides that no suit or proceeding for refund or credit or any national internal revenue tax erroneously or illegally assesses or collected shall be begun after the expiration of two years from date of payment, is mandatory and is not subject to any qualification, and hence, applies regardless of the conditions under which the payment has been made. Prescriptive Period- Where the law does not require the filing of any return

Bisaya Land Transportatation Co.,Inc. vs Collector 105 Phil 1338 When there is no provision in the law requiring the filing of return but the tax is such that its amount cannot be ascertained without the date that is pertinent thereto, the Commissioner may, by appropriate regulations, require the filing of the necessary returns. In any event, with or without such regulations, it is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file return at all, then an assessment may be made at anytime within the ten-year prescriptive period. (b) In case of Fraud or omission to file return. Nature of Fraud: it is serious charge to be alleged and to be proved.

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Commissioner vs Ayala Securities L-29485 Respondent filed for its income tax return for fiscal year which ended Sept. 30, 1955, attaching therewith its audited financial statements showing surplus 2M. Tax due thereon was paid. Subsequently it was assessed be petitioner on its accumulate surplus. It protested and sought reconsideration claiming that the accumulation was for a bonafide business purpose and not to avoid the imposition of income tax on the individual stockholders and that the said assessment was issued beyond the five-year prescriptive period. It later received from the chief Manila Examiner –office of the commissioner a letter calling its attention on the outstanding and unpaid tax requesting it be paid in five days. Believing that said letter constituted a denial of its protest, respondent filed petition for review with CTA. CTA rendered decision cancelling and declaring of no force and effect the assessment of petitioner. Respondent claims that the assessment prescribed, petitioner opposed claiming that there was fraud and thus the 10 yer prescription period should apply (Sec 332) Did prescription set in? Held: Yes. The assessment is not binding as it was made beyond the prescriptive period of five years (Sec.331) Petitioner presupposes only the existence of fraud by claiming respondent as there is no iota of evidence presented that respondent intended to avoid payment of tax based on the return. Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in court below. The finding of trial court as to its existence and non-existence is final and cannot be reviewed unless clearly shown to be erroneous. Fraud is never to be lightly presumed as it is a serious charge.

FALSE BUT NOT FRAUDULENT RETURN- Effect on prescription

Aznar vs Commisioner 58 SCRA 519 The Commissioner thru the office of the City treasurer of Cebu demanded from Aznar payment of income tax deficiencies and place the properties of Azar under constructive distraint on the ground of false return . Communication ensued and the deficiency was reduced. Aznar was correspondingly informed of the correction. Aznar assailed the administrative method of distraint and levy of his property for the collection of his alleged tax deficiency as the same were issued beyond the three year prescriptive period. Whether the Collector could enforce collection of the alleged deficiency income taxes through the summary methods of distraint and levy? Held: No. The collection of income taxes , after the lapse of three years from the date of income tax return said to be false, fraudulent or erroneous had been filed, may no longer be effected by means of administrative methods but only through judicial proceedings . 2. Prescription of right to collect-period applies to both summary and judicial action to collect 3. Suspension of Prescriptive Period (Sec. 271)

Commisioner vs Wyeth Suaco. 202 SCRA 125

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Wyeth is domestic corporation engaged in manufacture and sale of assorted pharmaceutical and nutritional products. Investigation by BIR. Company Paying royalties to its foreign licensors. Paying remuneration to Technical services to Wyeth London. Paid cash dividends Oct. 31 1973. Unauthorized deductions/short payment of advance sales tax. But allegedly failed to remit withholding tax at source for 4th quarter of 1973 resulting in deficiency income tax.and compromise penalty. BIR assessed Wyeth in to notices Dec. 16 1974 and dc. 17 1974- both received by wyeth on Dec. 191974. Wyeth then sent letters of protest dated jan 17-75 and February 8-75 for lack of legal and factual basis, contending that the withholding taxes are due only upon their atual payment and remittance. Commissioner rendered decision reducing assessment of the withholding tax but deficiency sales tax remained the same. Wyeth filed petition for review with CTA on jaun 18, 1980 prying BIR enjoined from enforcing assessments by reason of prescription and assessment be declared null and void for lack of factual/legal basis. BIr issued warrant of distraint/levy of real properties served on mar 12-80 . Upon motion CTA enjoined the same. CTA decision enjoined BIR. While the assessments were made within 5 year peiod of limitation, the right of commissioner to collect the same has already prescribed- Sec. (319 © Tax Code 77)An assessment of any tax within the five year period of limitation maybe collected by distraint/levy of by proceeding in court- but only if begun within Five years after the assessment of the TAX. Commissioner – the five year period for distraint/levy not yet prescribed 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 in interrupted once a taxpayer requests for reinvestigation of reconsideration of assessment, and starts to run again when the request is denied. The court also stated that the statutory period of limitation for collection maybe interrupted if by the taxpayer‘s repeated requests of positive acts, the Government has been , for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the government. Did Wyeth sought reinvestigation or reconsideration of the efficiency tax assessment issued by BIR that could have suspended the prescriptive period? Held: Wyeth by admission sought reconsideration. Although the protest letters prepared by SGV in behalf of wyeth did not categorically state reinvestigation and reconsideration the same are to be treated as letters of reinvestigation and reconsideration. By said letters BIR ordered the review of the assessments made. Furthermore denial by wyeth that it did not seek reconsideration is belied by the correspondence. These letters interrupted the running of the fiveyear prescription. The BIR after reviewing the records in accordance with the request for reinvestigation rendered final assessment. When the original assessments were received by Wyeth it protested the assessment and sought reconsideration in two letters, the prescriptive period was interrupted. The period started to run again when BIR served the final assessment on jan. 2 1980. since the warrant of levy and distraint were served on Wyeth on Mar. 12 1980 only about four months was used.

BPI vs Commissioner 473 SCRA 205 Deficiency DST on cabled instructions to foreign correspondence.

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Commissioner issued PAN Nov. 26, 86. BPI sent letter dated Nov. 29-86 requested for details. April 7, 1989 assessment demand notices for DST withholding tx (Swap)/ DST. April 20-89 BPI filed protest on the demand /assessment notice. May 8, 1989-BPI filed a supplemental protest. March 12 1993 PI requested for opportunity to present /submit additional documentation June 17, 1994 for reinvestigation – attached swap contracts. BPI executed several waivers of the statutes of limitations the last /Dec. 31-94 . Aug. 9-2002 Commissioner decision cancelling ass. For withholding (SWAP) . But reitereated DST deficiency. BPI ordered to pay in 30 days. Jan 15-03 received decision Jan 24 -03 petition with CTA. CTA denied petition applying the Wyeth Suaco doctrine that letters should be considered request for reinvestigation which tolled the prescription . MR denied by.SC court en banc BPI contends that its request for reinvestigation was not replied. It was only 13 years when the decision ordering BPI to pay DST that Commissioner acted on the decision. Prescribed? Held: internal revenue shall be assessed within five years after filing of return and no proceeding in court shall be begun without assessment after the expiration of the five year period.(shortened for three years by BP 700). CIR has 3 years to assess and or commence court proceedings for collection thereof without assessment. When it validly issues assessment w/in the 3 year period it has another 3 years within w/c to collect by distraint/levy or court proceeding. Assessment deemed made and prescription begins to run on the date notice is released. In order to suspend the running of prescription for assessment and collection, request for reinvestigation must be granted by commissioner. If not granted prescription shall not toll. Burden of proof showing action thereto is on commissioner. In this case the letter of protest and submission of additional documents wich where never acted upon much less granted cannot be said to have persuaded commissioner to postpone the collection of DST. The inordinate delay of the CIR in axting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST had resulted in the prescription of the government.‘ Right to collect the deficiency.

CIR vs. Suyoc -104 Phil 819 Already estopped from raising defense of prescription in view of its repeated requests for reinvestigation which allegedly induced CIR to delay the collection of the assessed tax. Several requests for reinvestigation and reconsideration were filed by Suyoc mining Co. purporting to question the correctness of tax assessment against it . As a result the collector refrained from collecting the tax by distraint levy or court proceeding in order to give the company every opportunity to prove its claim. The collector also conducted several investigations which eventually led to reduced assessment. The company however filed a petition with the CTA claiming the right of government to collect the tax ha already prescribed. Prescribed? Held: No. The taxpayer after being assessed requested for extension of one year to pay its liability, after failing to pay requested it asked for reconsideration and reinvestigation of the assessment. This is aside from the negotiations at the BIR requested by the taxpayer and in the appellate division. These repeated requests or positive acts on the part of the taxpayer justify the suspension of the prescriptive period for collection. After inducing the Commissioner, as in fact in did, it is most unfair for the taxpayer to elude his tax liability to the prejudice of the Government by invoking the technical ground of prescription. Suyoc is prevented from setting up the defense of prescription even if it has not previously waived it in writing as when by his repeated or positive acts, the Government has been, for good reasons, persuaded to postpone collection to

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make him feel that the demand was not unreasonable or that the harassment of injustice meant by the government.

RCBC vs Commissioner OF Internal Revenue 522 SCRA 144 RCBC received a Formal Demand Letter dated May 25, 2001 from Commissioner of Internal Revenue on July 5, 2001 for its tax liabilities on Gross Onshore Tax and Documentary Stamp Tax for the Taxable year 1997. On July 20, 2001 RCBC filed a protest letter/Request for Reconsideration/Reinvestigation pursuant to 228 of Tax Code. Protest was not acted upon so petitioner filed on April 30, 2002 a petition with CTA for cancellation of the Assessments. Petition was dismissed on the ground that it was filed beyond the thirty (30) day period following the lapse of 180 days from petitioner‘s submission of documents pursuant to Sec. 228 of NIRC and RA 1125 (CTA Law). Prescribed? Held: Yes. From July 20 2001 filing of protest with BIR, RCBC had 60 days or until Sept. 18, 2001 to submit relevant documents, and Commissioner had 180 days to issue decision. If protest is denied or unacted , RCBC had 30 days from receipt of the decision or from lapse of 180 days inaction to elevate the case to CTA. From lapse of 180 days inaction, RCBC has until April 16. 2001 to file petition for review, however it filed only on April 30, 2009. Thus, Prescribed. While the right to appeal a decision of commissioner is merely statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as condition precedent that the action to enforce it must be commenced within the prescribed time, such requirement is jurisdictional and failure to comply therewith maybe raised in motion to dismiss.

Diluangco vs Commission 4 SCRA 263 Diluanco died and testate proceedings were filed with the CFI manila for her estate settlement and distribution. Upon discovering that the executor failed to file the return required by law. Commissioner of Internal Revenue required him to do so and on March 27, 1951 he filed the requested estate and inheritance tax return. The estate was tentatively assessed estate and inheritance taxes in the total sum of P9,705.61 including 25% surcharge for failure to file the return on time. The executor of the estate requested for Reconsideration of the imposition of 25% surcharge but was denied. Subsequently another request for reconsideration was made. The revenue examiner on Aug. 25, 1951 found the value of the estate higher so that she caused the assessment of higher tax due. The executor requested a reconsideration but the same was agin denied. March 5, 1952, Commissioner issued a warrant of distraint and levy for satisfaction of the deficiency estate/inheritance tax. Levy not served as Executor asked for Reinvestigation. Request was granted and the assessment was reduced considering the appraisal of an independent appraiser. A new warrant of distraint and levy was issued for the new amount. The executor refused to receive the warrant of distraint and instead requested for suspension on the ground of some discrepancies. Another warrant was issued but Executor requested that the heirs be informed of their respective tax dues and undertook that upon receipt of the information, the heirs wouyld immediately settle the tax deficiencies. The Commissioner obliged and sent a letter with the breakdoen of tax dues . Executor requested another reconsideration but the same weas denied. On Sept. 23, 1957, the heirs requested for another revaluation of the properties with assurance the if granted they are willing to file surety bond and waiver of limitations. However , before the Commissioner could act on the request , the heirs through their

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counsel executor raised the defense of prescription alleging that the right of the government to collect by summary method had already prescribed. Prescribed? Held: No. The deficiency taxes were finally assessed in 1952 and the warrant of distraint and levy was issued in 1955 within the Five year prescriptive period. The right of the government to collect the taxes in question has not yet prescribed because the warrant of distraint and levy for the collection was begun within the 5-year period prescribed by law from the assessment of said taxes. Where the assessment or any internal revenue has been made within the period of limitation prescribed by the tax code, such tax maybe collected by distraint or levy of by proceeding in court, but only of begun within FIVE YEARS after the assessment of tax. All that is required to stop the running of the period of limitation is to distraint or levy or institute a proceeding in court within FIVE years after the assessment of tax. A Judicial action for the collection is begun by the filing of a complaint with the proper court of first instance or where the assessment if appealed to the CTA, by filing an answer to the taxpayer‘s petition for review wherein payment of tax is preyed for. The summary remedy of distraint and levy on the other hand is begun by the issuance of a warrant of distraint and levy. The right of commissioner to collect by summary method has the effect of stopping the running of prescription once a warrant of distraint and levy is issued. The fact that the warrant was not executed is of no moment what commences the summary method is the mere issuance thereof, moreover the non-service of the warrant was not due to the voluntary act of the commissioner but by the request of the taxpayer, which thus resulted in the suspension of the running of the prescription period.

Republic vs Ker & Company, Ltd. L-21609, Sept. 27, 1966 Ker & Co. filed income tax returns for the year 1947, among others covered taxable periods, on April 12 1948 . Upon examination, BIR assessed it for deficiency income tax for said taxable period. BIR thus issued an Assessment on July 25, 1953. Upon request of Taxpayer the assessments were reduced for 1947 but with 50% fraud surcharge. Taxpayer filed petition for review with CTA but was dismissed having been filed beyond thirty days. Dismissal affirmed by Supreme Court, Hence on May 15, 1962 BIR demanded the payment of the assessments. Taxpayer refused to pay setting up defense of prescription. It contends that under Section 331 of Tax Code the right of the commissioner to assess against it a deficiency income tax for the year 1947 has prescribed because the assessment was issued on July 25, 1953 after lapse of over Five years from the date it filed its return (April 12, 1948). BIR filed a complaint with the Court of First Instance, however it did not alleged Fraud. However, BIR insists that the taxpayer‘s income tax return was fraudulent, therefore the commissioner may assess the tax within TEN years from discovery of the fraud or on Oct. 31, 1951. / On the other hand Kerk contends that the right to collect the other assessments in other taxable periods covered have prescribed considering that over nine years had already elapsed so that CTA did not acquire jurisdiction over it. Prescribed? Held: Yes. BIR waived its right to the setting up of the defense of prescription. Since the assessmet for the deficiency income tax for 1947 has become final and executory, KEr & Co. may not anymore raise defenses which go into the merits of the assessment, i.e, prescription of the commissioner‘s right to assess tax. In this case however, Ker a& Co.reasied the defense of prescription in the proceedings below and BIR, instead of questioning the right of the defendant

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to raise such defense, litigated on it and submitted the issue for resolution of the court. As regards the deficiencies in other taxable periods, the right of collection had not yet prescribed because it was interrupted by the filing of taxpayers petition for review in the CTA. If the taxpayer‘s stand that the pendency of the appeal did not stop the running of the period because the CTA 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 period was suspended.

Republic of the Philippines vs Luis Ablaza 108 Phil 1705 On October 3, 1951 Collector assessed Income Taxes on the returns of Ablaza. October 16, 1951, Ablaza‘s accountants requested for reinvestigation which was granted by letter dated October 17, 1951. October 30, 1951 said accountants against sent another letter to the Collector submitting copy of their own computation. October 23, 1952 Accountants submitted supplemental memorandum. March 10, 1954 again sent a letter stating that it be furnished with the detailed computation of the liabilities as soon as the reinvestigation is completed. On Feb. 11, 1957 Collector issued final assessment. Upon receipt by the accountants of ablaze sent a letter dated May 8, 1957 protesting the assessments on the ground that the assessed tax are no longer collectible for the reason that they already prescribed. Prescribed? Held : No. If the letter dated March 10, 1954 be interpreted as request for further investigation then the then the period continued to be suspended. But the letter did not ask for another investigation as that contained in the first letter but only asked that it be furnished a copy of the computation.. As the reinvestigation was allowed on October 1, 1951 and October 16, 1951, the taxpayer supposed or expected that at that time March 1954, the reinvestigation was about to be finished and he wanted a copy of the re-assessment in order to be prepared to contest it. Thus the said letter may not be interpreted to authorize or justify the continuance of suspension of the period of limitation. The right of the government to collect the tax does not prescribe. However, in fairness to the taxpayer, the Government should be estopped from collecting the tax were it failed to make necessary investigation and assessment within 5 years after the filing of return and where it failed to collect within 5 years from the date of assessment thereof

REMEDIES OF THE TAXPAYER 1. Remedies before payment of the tax (a) Administrative Protest Taxpayer has burden of proof in disputed assessments.

Delta Motors Co. vs Commisioner.

CTA Case 3782, May 21, 1986 : Taxpayer has burden of proof in disputed assessments. Assessment can not be disputed in the civil action for collection if the same has become final, executory and demandable.

Augusto Basa vs Republic -45277 August 5, 1955 Commisionse assessed Basa for deficiency income taxes covering 1957 to 1960 based on the latter‘s failure to report in full his capital gains on the sales of land. Basa did not contest the

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assessments in the CTA after the decision of the commissioner dated December 6, 1974. Commissioner sued civil case for collection in Manila Court of first instance for collection of the amount. Court upheld the commissioner. As no factual issued was involved he should have filed his appeal directed with the Supreme Court. However he opted for Court of appeals but he was not able to file it within the reglementary period for which the trial court dismissed his appeal.. he filed petition for review on certiorari. Is the instant appeal proper? Held: No. The petition is devoid of merit. He should have appealed to the Supreme Court. If he wanted to contest the assessments, he should have appealed to the tax court. Not having done so, he could not contest the same in the court of first instance. Prescription has also not yet in because the assessment were predicated on the fact that his returns , if not fraudulent , were false because he underdeclared his income. In such case deficiency assessments may be made within ten years after discovery of the falsity or omission. Court action whould be instituted in 5 uears after assessnebt but this period is suspended during the time that the commission is prohibited from instituting a court action. Basa‘s requests for reinvestigation tolled the prescriptive period of 5 years within which court action maybe brought. 2. Taxpayers defenses against the assessments. a) Defenses on Questions not raised in the Administrative protest cannot be raised for the first time on appeal in the CTA.

Aguinaldo Industries Co. vs. Commissioner L-29790, Feb. 25 1982 Petitioner is engaged in sales of fishing nets (Fishing Mets Devision). Upon examination by BIR of its income tax returns it was found out that it deducted amounts from the gross income as additional remuneration paid to its officers, and that such amount was taken from the net profit which petitioner derived from isolated transaction 1.e., sale of parcel of land? Which is not it trade or business. Examiner recommended disallowance of the deduction but petitioner insisted otherwise claiming that the payment of the allowance or bonus was pursuant to is by-laws. Resolving the issue , the Court of Tax Appeals held that petitioner liable for the deficiency income tax. Petitioner controverted that profit derived from the sa,es of its land is tax exempt income under RA 901. that bonus given to the officers or petitioner as share in the profit realized from the sale of the land is deductible expense for tax purposes; and that it is not liable for payment of surcharge and interest for late payment of deficiency tax. Is the defense tenable? Held: No. petitioner may not raise the question of tax exemption for the first time on review where such question was not raised at the administrative forum.; that payment of bonus to petitioner‘s officers out of the gain realized from the sale of its land maybe allowed as deduction for tax purposes only if payment was made for service actually rendered and it is reasonable and necessary. 3. Remedies after payment of tax a) Claim for Refund b) Requisite for Valid claim –claim for refund in the BIR is jurisdictional requirement before recovery of tax in CTA.

Santiago Bermejo vs Collector 87 Phil 96 Bermejo was assessed deficiency taxes for nipa shingles and charcoal. He objected to the assessment contending that the products subject of tax were mainly agricultural and as such free from taxation. After exchange correspondences he proposed to pay by instalment without

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prejudice to any action he may take on the matter. After paying first instalment, he sued for recovery. Collector moved for the dismissal of the complaint on the ground that that plaintiff had not complied with the provision of Sec. 306 of Tax Code which required, before suing, to file a claim with the collector first for the refund of the amount he had delivered. Is the direct action in the Court of Tax Appeals allowed? Held: No. Sec. 306 of the Internal Revenue Code clearly stipulates that after paying the tax, the citizen must submit a claim before resorting to the courts, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied here and in the United States c) TWO YEAR PERIOD, “ No supervening event rule” explained 1) Taxpayer must go to the CTA before the lapse of 2 year period despite BIR‘s inaction on the claim.

Allison J. Gibbs et al. vs Collector of Internal Revenue L-13453, Feb. 29, 1960 Collector in 1956 assessed Gibbs for deficiency income taxes which the latter protested on the ground that the same was based on a disallowance of bad debts and losses claimed in their income tax covering 1950. Collector rejected the protest and reiterated his demand. Gibbs sent check for payment of the principal assessment exclusive of the surcharge and interests and at the same time demanding immediate refund of the amount paid. Collector on Oct. 1956 denied the request for refund and required petitioner to pay the surcharge, interest and penalties. Sept. 1957 petitioner filed for petition for review and refund with the CTA with motion for suspension of collection. of penalties. CTA dismissed the case having been filed beyond 30 days. Petitioners contend that Sec. 306 of Revenue Code provides that judicial proceedings maybe instituted for recovery of an internal revenue tax within 2 years from the date of payment although their appeal was filed beyond 30 day period required by Sec. 11 of RA 1125. Which provision should apply? Held: Sec. 306 of Internal Revenue Code should be construed together with Sec. 11 of RA 1125. A Taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must comply with the requirements of both sections, that is he must file a claim for refund with the Collector within 2 years from the date of payment of the tax as required by Sec. 306 of the Internal revenue Code and appeal to the CTA within 30 days from receipt of the collectors decision or ruling denying his claim for refund, as required by said section 11 of RA 1125. If however the collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the CTA before the end of the 2 year period without awaiting the decision of the collector. This is so because the positive requirement of Sec. 306 and the doctrine that delay of the collector in rendering decision does not extend the peremptory period fixed by the statute. 2. Refund for Withholding tax- two years counted from end of taxable year.

Finley Gibbs and Dianne Gibbs vs CIR/CTA 15 SCRA 318 In 1956 Commissioner issued against the petitioners Deficiency Income Tax Assessment covering year 1950. Allison Gibbs as Attorney in fact of brother Finley acknowledged receipt of the assessment Finley then in America. By letter he informed his brother of the assessment and in the same letter questioned the disallowance of the items which gave rise to the deficiency assessment and requested for a correction of it. On August 28, 1956, Commissioner denied the

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request. Having deemed the above reply as final decision of commissioner she made a letter on Oct. 3, 1956 with turn over of check for payment of the assessment and at the same time made a demand for refund. Oct. 26 , 1956 Commissioner denied the demand for refund. Letter of Denial received by Allison on Nov. 14, 1956. On September 29, 1958, Allison signing as counsel for Finley wrote another letter reiterating the demand and opining that the letter of denial of the refund was not a ruling on Finley‘s demand. Commissioner never replied. Oct. 1, 1958 petitioner filed with the CTA Petition for Review and Refund with motion for suspension of collection of additional taxes. Commissioner filed answer contending that CTA had no jurisdiction on the ground that the petition for review was filed beyond 30 days from date of receipt of Commissioner‘s decision at the same time not entitled to the claimed credits because the petition was filed beyond 2 years from dates of payment of the amounts sought to be credited. Petitioners claim that income tax assessments against which claims for refund have been lodged and which are covered by taxes withheld at the source shall be considered paid NOT AT THE TIME such tax obligations fall due BUT only when the claims for refund against the assessments are finally resolved by the authorities; That the statute of limitation of 2 years prescribed in sec. 306 of the NIRC does not run until respondent Commissioner has acted on the claim for refund or credit by the non-resident taxpayer and so notified the taxpayer because until then the withholding tax cannot be treated as payment by alien-resident taxpayer; until then it is a mere deposit held by respondent commissioner for the account of the non-resident alien taxpayer. When should the prescriptive period be reckoned. Held: Payment is a mode of extinguishing obligations and it means not only the delivery of money but also the performance, in any other manner, of an obligation. A taxpayer, resident or non-resident, who contributes to the withholding tax system, does so not really to deposit an amount to the Commissioner of Internal Revenue , but in truth , to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two year prescriptive period under Sec. 306 starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld

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